Report No. 34913-BO Bolivia Country Financial Accountability Assessment January 10, 2006 Document of the World Bank, Inter-American Development Bank, Kreditanstalf fur Wiederaufbau, German Technical Cooperation, UK Department for International Development, Embasy of the Netherlands, and European Commission BOLIVIA COUNTRY FINANCIAL ACCOUNTABILITY ASSESSMENT Table of Contents Preface ............................................................................................................................................ iv Executive Summary ....................................................................................................................... v IBackgroundandContext . ........................................................................................................... 1 The ParticipatingBanks' Country Assistance Strategy................................................................ Country Background..................................................................................................................... 1 2 Relationship with Other Sector Work........................................................................................... 3 Objectives ..................................................................................................................................... 3 Scope and Coverage ..................................................................................................................... 4 Methodology................................................................................................................................. 6 Follow-up and Dissemination....................................................................................................... 7 I1 CFAA Analysis: Central Government . .................................................................................... 8 Legal Framework.......................................................................................................................... 8 Integrated Financial Information System: SIGMA....................................................................... 8 BudgetPreparation. Execution. andReporting .......................................................................... 11 Internal Controls......................................................................................................................... 16 Internal Audit.............................................................................................................................. 18 Treasury ...................................................................................................................................... 19 Revenues..................................................................................................................................... Single Treasury Account ............................................................................................................ 20 21 Accounting ....................................................................... i.......................................................... 23 FinancialReporting.................................................................................................................... 24 Debt Management....................................................................................................................... 26 External Audit............................................................................................................................. 30 Transparency and Oversight....................................................................................................... 34 I11 CFAA Analysis: Sub-nationalGovernment . ........................................................................ 39 Municipalities ............................................................................................................................. 39 Prefectures .................................................................................................................................. 46 I V Bolivia's PFMPerformance Measurement Framework 51 V Conclusionsand Policy Recommendations .. .................................................... ........................................................................... 57 Constraints to Proposed PFMImprovements ............................................................................. 59 Programs for Improved Financial Management ......................................................................... 59 Government's Action Plan ......................................................................................................... 62 Annex 1:References ..................................................................................................................... 64 Annex 2: Listof PersonsInterviewed ......................................................................................... 68 Annex 3: Government of Bolivia Action Plan ........................................................................... 71 Annex 4: Transparency Projects ................................................................................................ 85 Bolivia CFAA ... 111 Annex 5: Decentralized Financial Operations ........................................................................... 88 Annex 6: MunicipalBudget Realism .......................................................................................... 92 Annex 7: Prefecture Finances ..................................................................................................... 94 Listof Tables Table 1.1:Key macroeconomic indicators baseline......................................................................... 2 Table 2.1: 2003 SIGMA coverage................................................................................................... 9 Table 2.2: Deviations between planned and executed expenditures, 1997-200 1.......................... 12 Table 2.3: Increases inthe budgetby Congress............................................................................. 12 Table 2.4: Central government budget realismratios .................................................................... 15 Table 2.5: Budget arrears by line ministries and local governments, 2001-03.............................. 20 Table 2.6: CGR 2003 reports ......................................................................................................... 33 Table 2.7: Timingof receipt of 2002 financial statements for municipalities and universities.....34 Table 2.8: Civil society role in monitoring expenditures and outcomes........................................ 38 Table 3.1: Investment by central and sub-national governments ................................................... 40 Table 3.2: Share of co-participationinmunicipal revenue, 2000 .................................................. 41 Table 3.3: Municipalrevenue sources, 2002.................................................................................. 41 Table 3.4: Municipalouttum reporting, 1997-2001....................................................................... 43 Table 3.5: Average budget data by prefecture ............................................................................... 48 Table 3.6: Summary of prefecture audit findings, 2002 ................................................................ 49 Table 3.7: Follow-up reviews conducted inprefectures, 2003 ...................................................... 50 Table 4.1: Budget appropriations and execution by line ministries, 2001-03................................ 52 Table 4.2 Economic growth rates, deficits and efficiency gains, 1999-2003................................. 53 Annex Tables Table A5.1: Share of combined public sector expenditures. 2001-2002 ............................................. 89 Table A5.2: Share of combined public sector investments. 2001-2002............................................... 89 Table A5.3: Transfers from central government to municipalities ...................................................... 90 Table A5.4: Disbursement and execution of HIPC I1funds in 2002 ................................................... 90 Table A5.5: Tributary co-participation................................................................................................ 90 Table A5.6: HIPC I1- solidarity fund, deductions, and balance.......................................................... 91 Table A6.1: Aggregate revenue collection (municipalities) ................................................................ 92 Table A6.2: Aggregate expenditures and budget execution (municipalities) ...................................... 93 Table A7.1: Prefecture structure of budget allocations by source ....................................................... 94 Table A7.2: Aggregate revenue collection (prefectures) ..................................................................... 96 Table A7.3: Aggregate expenditures and budget execution (prefectures) ........................................... 97 Bolivia CFAA iv Preface This Country Financial Accountability Assessment (CFAA) was prepared jointly by the World Bank (WB) and the Inter-American Development Bank (IDB) on the basis of findings from missions that visited Bolivia in September 2003 and FebruarylMarch 2004. The CFAA Team was led by Rajeev Swami (WB) and Lynnette Asselin (IDB). Core team members were: Lourdes Linares (WB), Hernan Pfluecker (WB Consultant), Enrique Cosio-Pascal (WB Consultant), Maximiliano Marques (IDB Consultant), Vagn Mikkelsen o f the European Commission (EU),Alfonso Garcia Salaues o f the Embassy of the Netherlands, Koosje de V i e s of the Embassy of the Netherlands, Gregers Juel Jensen of the Embassy of Denmark, and Carmen Palladino, (WB Consultant). Also contributing to the report were Patricia Alvarez, Ruth Llanos, Jose Roberto Lopez- Calix, and David Tuchschneider (WB), Oscar Antezana of the UK Department of International Development (DFID), Markus Steinich of the German Technical Cooperation (GTZ), Stefan Zeeb of the German Development Agency (KfW), Simon Cueva o f the International Monetary Fund(IMF), and Marta Villarta of the United States Agency for International Development (USAID)/Partners of the Americas. Quality assurance was provided through internal meetings of the two Banks and by the peer reviewers: Sara Calvo and Carlos Mollinedo, WB and IDB Management Review Committee. The preparation of the CFAA also benefited from the support of WB Bolivia Country Manager John Newman, Lead Economist/Sector Leader Vicente Fretes Cibils, Senior Country Officer for Bolivia Marianela Zeballos, and Advisor to the WB's LCR Financial Management Unit, Jamil Sopher. Suzanne Snell edited the report, and Gilma Unda and Marianella Rivadeneira provided production support. Acknowledgements The authorities of the Government of Bolivia have provided their views and comments to this document through sessions held in La Paz in July and November 2004 and in February and March 2005. InApril 2005, the Government presented to the international community, its medium-term strategic framework to improve the quality of public financial management. The Government of Bolivia sent its written contribution and letter to authorize publication of this report to the two participating Banks inDecember 2005. Bolivia CFAA Executive Summary v EXECUTIVE SUMMARY 1. The 1999 Bolivia CFAA concluded that while a sound legal framework had been established, the Government's systems did not provide sufficiently reliable information to permit an evaluation of Government performance and that the Supreme Audit Institution (CGR) did not audit the Government's annual financial statements. Further, the report concluded that six elements (reliable reporting of budget execution; comprehensive and timely reporting of budget expenditure; quarterly presentation of aggregate public sector expenditure; annual audit reports on central government; government-wide control of fixed assets; and pursuit of recovery of damages from malfeasance alleged by CGR) were essential to the development and strengthening of Bolivia's Public Financial Management (PFM) System. Over the past five years, the Government has made progress advancing the PFM reform agenda. 2. The implementation of the Integrated Financial Management System, SIGMA, has aimed to advance the Government's efforts to improve budget and financial reporting, implement a system of internal controls, and improve overall public expenditure management. The implementation of the Single Treasury Account (Cuenta Unica) has improved public cash management and provides the Government with real-time fiscal account information. 3. Since 1999, the CGR has been working on improving the quality of its work by undergoing an institutional assessment to ensure that it has an appropriate quality management system for its products and services. The CGR i s fulfilling its role as the independent supreme audit institution and has recently adopted an ambitious plan to improve follow-up of its audit recommendations with audited public sector entities in order to improve the financial management in those institutions. 4. Significant challenges, however, still remain. The principal findings of the 2004 CFAA are as follows: SIGMA has been implemented in all but one central government agency, and i s also in use at decentralized government institutions such as the UnitedDirectorate Fund, Customs, National Road Service, and state universities. At the sub-national level (municipalities), only L a Paz and Cochabamba have implemented SIGMA. Although provisions have been made for technical support to address this issue, work has not begun to customize the system to meet the needs of such agencies. Registration o f budget expenditures i s problematic at the point of data entry, due to high staff turnover and unfamiliarity with the system. From a PFM perspective, there are four critical limitations in the area of budget: (i)the budget as voted is unrealistic, based on systematic and persistent overestimates o f revenue; (ii)the budget process has several weaknesses and the Bolivia CFAA Executive Summary vi formulation of annual operation plans i s more procedural than strategic, thereby weakening the usefulness of the budget as a tool; (iii)since SIGMA does not currently include prefectures or municipalities, a significant portion of the budget i s not monitored or controlled via SIGMA; and (iv) the use of Highly Indebted Poor Countries resources i s not monitored in a timely fashion. The analysis of internal controls by the CGR indicates that only about 25 percent of the recommendations of the different types of audits were implementedin2001 and 2002. These results demonstrate that it i s necessary to focus not only on the implementation of these regulations and enforcement of the use of SIGMA, but also to take into account that there i s a considerable level of resistance to changing the internal control environment as well as a lack of capacity andor understanding to implement the changes. According to periodic supervision and assessment of internal audit units and internal audit reports by the CGR, internal audit i s weak. Factors that contribute to the ineffectiveness of internal audit are lack of managerial support, high levels of turnover and staff instability, low wages, and lack of technical competence. While the CGR has taken a more proactive role recently by providing training to internal audit staff (through CGR's training center, CENCAP), these efforts have not had the expected impact of sustainable improvement of the control environment. The underlying problem i s that implementation of internal audit recommendations i s dependent on the agency executive because there i s no incentive to improve internal controls or more generally, governance. The national Chart of Accounts was developed primarily for central government. However, advances in implementing decentralization have made it necessary to revise the Chart of Accounts. Annual published financial reports contain only statistical information. Consolidated annual financial statements for the public sector are not produced, in part due to the lack of financial reports from prefectures, municipalities, and the decentralized sector. Congress does not have the technical capacity to manage budget monitoring and evaluation activities. There i s a clear need to establish an effective and competent oversight body, whether through a congressional budget office or separate institution. The financial management framework for municipalities i s generally sound. However, there are basic weaknesses in its application, particularly in relation to internal controls and internal audit. The main shortcomings in accounting and financial reporting relate to a lack of capacity to generate financial information and the lack of knowledge o f statutory requirements. Although the Administrative Decentralization Law provided the prefectures with an enhanced role in both regional development and service delivery, the Bolivia CFAA Executive Summary vii prefectures have not been able to perform as intended. There are substantial shortcomings in the application of internal control functions, while both internal and external auditing functions are generally undertaken in a satisfactory manner. Follow-up on audit recommendations remains a problem. While the departmental administrations eventually comply with the basic reporting requirements established by the Ministry of Finance, there are often significant delays in the submission of financial statements, which are due not later than March 31 of the subsequent budget year. The annual financial statements of all prefectures are subject to a financial audit by the CGR. The 2002 audit results indicate a poor level of accounting, and the general unreliability of financial information. Bolivia'sPFMPerformanceMeasurementIndicators 5. While Bolivia's PFM indicators seem to be balanced (the average of the sub-ratings would indicate a moderate to substantial rating), the overall risk rating i s still considered to be substantial. The overarching and deeply rooted weaknesses in the internal control framework (including poor budget execution controls), weak internal audit, and an absence of an effective oversight mechanism outweigh the progress that has been made with regard to PFM systems design. The recommendations set forth in Chapter 5 (see section on Programs for Improved Financial Management) are built upon the 18-month timeframe leading up to the Constitutional Assembly, and address areas directly within the control of the Government. 6. The nature of these recommendations does not address compliance with controls or the internal control environment. The recommendations do not go far enough to reduce the risk from substantial to moderate. In order to do this, there would need to be an effort between the Government and the donors to address the issue of culture change to improve the rate of compliance with rules and regulations. Constraintsto ProposedPFMImprovements 7. The Constitutional Assembly i s scheduled to convene in approximately 18 months, where the political future of Bolivia, including broader legal, institutional and governance issues will be decided upon. As such, the CFAA recommendations have been framed within this 18-month timeframe given the political uncertainty beyond the completion of the Constitutional Assembly. The CFAA recommendations attempt to help the Government to complete the design and application of systems and processes. Upon conclusion of the Constitutional Assembly, it i s recommended that the donor community reengage the Government in order to design a second phase to this series of recommendations. The second phase of reforms should address deeper issues of governance, PFM accountability arrangements, and other policy-related issues. Programsfor ImprovedFinancialManagement 8. The framework of policies and Government decisions being sought in connection Bolivia CFAA Executive Summary ... Vlll with Multi-Donor Budget Support Program will form the foundation for the successful implementation of a series of programs to continue to upgrade Bolivia's public financial management systems, practices and accountability arrangements. 9. The policy decisions to implement these principles are those that would establish broader transparency and comprehensiveness inthe budget, more timely, frequent and comprehensive budget and financial reporting, broad access to information, transparency and oversight of public financial management, and improved internal controls for public financial management. In addition to the systems improvements supported by the MDBS, these programs are designed to: Broaden the reach of the integrated financial management system (SIGMA) to include decentralized entities, all prefectures and the 10 largest municipalities. Improve financial reporting for all centralized and decentralized government entities, as well as for all prefectures and the 10 largest municipalities. Improve the implementation of internal control findings at the sector, prefecture and municipal levels. Bolivia CFAA Backnround and Context 1 I.BACKGROUNDANDCONTEXT 1.1The joint World Bank (WB)/Inter-American Development Bank (IDB) team who prepared this 2004 CFAA began with an overview of PFM in Bolivia, based both on the findings of the initial CFAA for Bolivia, prepared in 1999, and also on knowledge gained through initiatives in institutional development and public sector modernization over the past several years. The two Participating Banks will use the 2004 CFAA findings to design programs geared towards improving the country's fiscal management, and to coordinate more effectively with other development partners in the identification and prioritization of activities inpublic sector reform. CountryBackground 1.2 Bolivia i s currently experiencing a period of tremendous social and political unrest, with serious conflicts in April 2000, September 2000, January 2002, and February 2003. These conflicts have resulted in the forced resignation of then President Gonzalo Sanchez de Lozada in October 2003 and his succession by then Vice President Carlos Mesa, in accordance with the Bolivian Constitutional process. 1.3 The country remains one of the poorest in the Latin America and Caribbean Region with a GNP per capita of US$950 and a highincidence of extreme poverty inrural areas.' Lack o f progress in poverty reduction and high income inequality, vulnerability to external shocks, and a precarious fiscal situation are the three prominent features of the Bolivian economy. The boom years of the early 1990s were followed by negative economic shocks in the late 1990s, a result of the international capital markets crisis. These shocks, combined with slower growth, slowing demand for Bolivian goods (particularly from Argentina and Brazil), a reduction in remittances, and a reduction in income as a result of coca eradication, have intensified the decline in the Bolivian economy. The lower external demand for Bolivian goods has led to a significant strain on the financial system, which despite recent improvements, continues to be plagued with a highrate of non-performing loans (20 percent and growing). The country's private sector i s very weak, and private domestic investment represented less than 1 percent o f GDP in 2002. 1.4The current government has formulated a two-phase plan to stabilize the country. The first phase would extend through the conclusion of the Constitutional Assembly (projected to convene in 14 to 18 months time), and the second phase would extend from the conclusion of the Constitutional Assembly to the end of the constitutional term o f the President (August 2007). The Mesa administration has declared three immediate political objectives: revising the hydrocarbons law; submittingthe decision to export natural gas to a public referendum; and calling for a Constitutional Assembly to modify the existing Constitution. Given the clear limitation of the Government's ability to address broad- based PFM reforms, the CFAA recommendations are framed in line with the timing of WB Country Assistance Strategy, January 2004, page 63. Bolivia CFAA BackPround and Context 2 the first phase of the President's political agenda. 1.5 The administration has also proposed three economic objectives for the first phase: restoring macroeconomic stability; reorienting public expenditure towards high-visibility programs that directly respond to factors underlying recent social conflict; and re- launching the institutional reform program and anti-corruption efforts2 Recovery of the economy now depends on increased gas and oil sales to boost tax revenues, and on increased trade earnings through the country's entry into international markets. 1.6 President Mesa, in his economic address to the nation on February 1, 2004, in addition to reiterating fiscal austerity measures and the importance of stimulating growth, announced a plan to increase transparency through greater publication and dissemination of budget reports and by allowing the Contraloria de la Republica (CGR, Supreme Audit Institution) to oversee the use of previously restricted expenditure reserves. Additionally, the President announced the creation of two new funds targeting poverty reduction expenditures that allocate resources to high impact projects in poor and sensitive areas and provide social safety nets. There still remains a risk that that opposition groups will not grant sufficient time to the Mesa administration to implement and complete priority reforms essential to stabilize the country. It remains to be seen whether the Mesa administration will be able to deliver sufficient results quickly enough to maintain social peace. Table 1.1:Key macroeconomic indicators baseline - Actual Projections Av. 2010- Indicator 2002 2003 2004 2005 2006 2007 2008 2009 2015 (Annualpercentage changh RealGDP at market prices 2.8 2.6 3.2 3.6 3.6 3.6 3.6 3.1 4.4 CPIinflation (e.0.p) 2.4 3.0 3.3 3.5 3.5 3.5 3.5 3.5 3.5 Nominaldevaluation(e.0.p.) 9.5 4.8 4.1 2.8 1.8 1.8 1.8 1.8 1.8 Exportsvolume 9.1 12.5 3.9 4.1 4.2 4.4 4.2 4.5 6.1 Importsvolume 9.1 -6.5 7.1 2.4 3.2 3.0 5.4 1.8 4.3 (In percent of GDP) Overallpublic balance -8.9 -8.0 -6.6 -4.5 -3.4 -2.9 -2.5 -2.9 -2.1 Exportsof goods and services 19.1 22.9 23.8 24.5 24.9 25.3 25.7 26.2 29.2 Importsof goods and services 26.3 25.6 21.1 28.2 28.4 28.6 29.5 31.0 33.1 Current account -4.6 -0.7 -0.6 -1.2 -1.6 -1.6 -2.4 -3.6 -4.6 ForeignDirect Investment 8.6 2.1 2.9 3.0 2.1 2.6 2.5 3.9 4.5 Source: 2004 PER The ParticipatingBanks' CountryAssistance Strategy 1.7 The WB's 2004-2007 Country Assistance Strategy focuses on supporting the government in maximizing efforts to achieve sustainable economic and social Ibid., paras. 42 and46. Bolivia CFAA Background and Context 3 development. It involves the following interrelated lines of action: reactivation of economic growth and competitiveness, poverty reduction and strengthening of human capital, and modernization of the State and governance. 1.8 Prior to the deterioration of the macroeconomic environment, the WB had scheduled Bolivia's graduation from IDA. The country will now remain a blend country (a mix of IBRDand IDA funds) through the endof the IDA 14cycle. 1.9 The IDB Bolivian Country Strategy for 2004-2007 i s conceived as a process in which short-term interventions, in cooperation with other donors, reduce the risks of greater economic and social instability and avoid slippage in the social achievements made in the last decade. The strategy focuses on three areas: improved government management and transparency, increased competitiveness and fairness in the private sector, and improved efficiency and equality in the provision of social services. 1.10 The CFAA is suitably intertwined with these strategies. First, the state of PFMin the country i s a significant factor contributing to the successful modernization of the public sector and improved governance arrangements. Second, the performance of PFM systems of sub-national governments i s key to supporting efforts to improve voice, accountability and inclusion as drivers for poverty reduction and pro-poor growth. Relationship with Other Sector Work 1.11 The WB Public Expenditure Review (PER) evaluates the country's fiscal position, its expenditure policies and public expenditure management systems, with a deeper focus on "upstream" issues of budget construction and Government spending priorities, while the CFAA looks at "downstream" issues of budget execution, and reviews the PFMsystems, practices and accountability arrangements in place that permit the Government to achieve its priorities. The Country Procurement Assessment Review (CPAR) examines public procurement institutions and practices. These three products provide a robust picture of overall governance and accountability in the public sector. A PER for Bolivia was carried out in2004 and this 2004 CFAA is designed to complement the PER analysis in the area of budget. The CPAR for Bolivia was completed in 2000. Objectives 1.12 The overall development objective of the CFAA i s to provide relevant information to the Government and the Participating Banks and donors on PFM systems, practices and accountability arrangements in Bolivia, particularly where those inhibit government efficiency and economic growth. To this end, the CFAA includes a PFM Measurement Framework, and supports a Government action plan for addressing significant issues identified, incorporating appropriate capacity-building programs and mitigation measures. 1.13 The European Commission (EC) i s also preparing to carry out its Compliance Test, which will use statistical sampling to test the efficiency and transparency of public expenditure and internal controls in various sectors. It was agreed during the initial CFAA planning mission of September 2003 that the budgeting and execution of Bolivia CFAA Background and Context 4 investments would be the main focus of that Test, with special emphasis on the social sectors and Social Investment Funds, as the EC has a long tradition of financing social sector investment and i s currently reorienting its aid towards budget support. The E C Compliance Test aims to complement the CFAA in areas of budget execution and internal controls, with a clear focus on improving the investment budgeting cycle. 1.14 Having supported the application of the Comprehensive Development Framework (CDF) for Bolivia, donors have had exposure to PFM-related risk in activating budget support and technical assistance programs, and have gained an appreciation for the opportunity available to improve economic development through enhanced PFM. This CFAA i s a product of extensive donor integration and collaboration. Scope and Coverage 1.15 As Bolivia is a Highly IndebtedPoor Country (HIPC), the CFAA has built on the HIPC Tracking Action Plan and analytical work that has been carried out over the past few years.3 The CFAA has been based on inputs from selected central normative entities and sub-national institutions. Other stakeholders consulted include the donor community and leaders from professional associations, private sector and civil society, in order to validate the findings of the CFAA team. 1.16 Central normative entities, selected on the basis of the major roles they play inthe sectors supported by the Participating Banks' country strategies, include the Ministry of Finance, particularly its Budget, Accounting, Treasury, integrated financial management information system (SIGMA) and Economic/Fiscal Affairs Departments; Fiscal Programming and Development FundUnits (HIPC and fiscal transfers to municipalities); the Ministries of Health and Education; General Directorate of Revenues; Directorate for Fiscal Decentralization; the CGR (External Audit) and the Legislative Assembly. 1.17 The CFAA team also visited a sample of municipalities and prefectures in order to assess the effectiveness, efficiency and transparency of PFM at the sub-national level with regards to national laws and regulations. The role of municipal government financial operations i s significant. Municipalities are responsible for about 18 percent of public sector expenditures (including both recurrent and capital expenditures), while prefectures manage another 8 percent. Twenty percent of national tax collections i s distributed to municipalities, and 25 percent o f the Special Tax on Hydrocarbon Products tax i s distributed to prefectures. Locally elected officials are empowered to define local governments' development and spending programs. However, limited information i s available on municipal budget execution and borrowing/debt. 1.18 Budget execution and monitoring. The CFAA has reviewed the appropriateness of The Managementof HIPCFunds inRecipientCountries (EuropeanCommission);Trackingof Poverty- ReducingPublic Spending inHIPCs (March 2001), Actions to StrengthenTracking of Poverty-Reducing Public Spending inHIPCs (March2002), Updateon Implementationof Action Plansto Strengthen Capacityof HIPCs to Track Poverty-ReducingPublic Spending (March2003), and Status Reportof Actions to Strengthenthe Trackingof Poverty-RelatedPublic SpendinginBolivia (March 2003)by IDA and IMF. Bolivia CFAA Background and Context 5 the internal control framework, the extent to which the internal control and accountability systems in place at the spending entities adequately support data and transactions entered inthe information system, the arrangements for overseeing execution of budget transfers (e.g., to sub-national governments), the effectiveness of the Single Treasury Account for all government finances and overall cash management, managerial use of financial information, records management, and the capacity and effectiveness of internal audit (including a review of staffing and coverage of public institutions). 1.19 The CFAA proposes actions to ensure that flows of all government funds are recorded in a systematic and timely manner, thereby helping to consolidate the Government's initiative of the Single Treasury Account. Through this approach, the CFAA has attempted to examine expenditures targeted to poverty-reducing programs and to link these expenditures to the Government's strategic priorities. The CFAA also reviewed the overall control framework for the execution of resources, along with Government systems and practices for monitoring and analysis of the effectiveness of the execution of public resources targeted for poverty reduction. 1.20 Revenue and cash management. The CFAA has reviewed the adequacy of revenue estimation procedures, comprehensiveness of the revenue estimates, effectiveness of collection practices, and the arrangements for monitoring revenue administration, as part of overall budget monitoring and cash management. This assessment did not cover issues of tax policy, as the upcoming Development Policy Review will address that issue in greater depth.4 Through this approach, the CFAA has supported the Government's stated priority to enhance and sustain measures that promote economic growth. 1.21 Accounting and financial reporting. The CFAA reviewed the relative strengths and weaknesses of the procedures and institutional arrangements for financial reporting, comprehensiveness and quality of available financial information, controls on commitments (particularly in capital spending), existence of accounting reconciliation and subsidiary records, and the effectiveness of the framework and systems for access by the public and media to information on management of public funds. In that context, the CFAA reviewed and evaluated the appropriateness of adopted accounting standards and their compatibility and/or degree of convergence with the International Public Sector Accounting Standards (IPSAS), published by the Public Sector Committee of the International Federation of Accountants (IFAC), and the alignment of the national Chart of Accounts with internationally recognized classification systems (Government Finance Statistics, GFS). Work in this area was centered on the Office o f the Accountant General, SIGMA, and Budget. This CFAA's recommendations aim to strengthen overall accountability of public financial management by recommending the timely and accurate generation of reports on budget execution and o f financial statements, to be disclosed and presented to a broader audience, including civil society and the international community. 1.22 Debt management. The CFAA evaluated the adequacy of institutional arrangements for debt management, the use of information systems for recording public Bolivia Public Expenditure Review Update ConceptPaper, March 2003. Bolivia CFAA Backgroundand Context 6 debt, and incorporation of debt servicing into the budget. It also covered the extent to which contingent liabilities are monitored, evaluated and considered for budget strategies, and possible reporting procedures. This analysis supports the Government's priority to modernize key public institutions through reforms in order to make debt and cash management more efficient and effective. The CFAA centered its work in this area around the Office o f Public Credit, the Central Bank, and the Treasury. 1.23 External audit. The CFAA has updated the main findings of the institutional assessment of the CGR reflected in 1999 CFAA. This 2004 CFAA focuses on the adequacy o f the institutional arrangements for independent external audit, the institutional arrangements for follow-up and enforcement of compliance of external audit findings, and the clarity of roles and responsibilities of the internal and external audit function. The CFAA has identified additional actions for strengthening the performance of the public control system and its capacity for retention and upgrading of human resources, its effective coordination with internal audits, and the modernization of the quality o f audit methodology and reporting, in line with international standards (INTOSAI). Through its recommendations to strengthen the development of the CGR, this CFAA supports the objectives of institutional development and enhancement of the governance and accountability framework of public sector management. 1.24 Institutional and legal framework. The laws and regulations governing public expenditure in Bolivia are generally sound. Given that the institutional and legal framework i s well documented, the CFAA worked directly with representatives of the Ministry of Finance and the CGR and met with the congressional Comisicin de Finanzas mainly to identify major gaps with respect to actual practice, assess the levels of discretion, and evaluate mechanisms for enforcement and incentives for compliance. Where laws or regulations are lacking, obsolete or unenforced, this CFAA proposes solutions to strengthen the PFM legal framework. 1.25 Human resourcesfor public financial management. Highly qualified individuals can be found at certain managerial levels in the Bolivian public administration. The ability to attract and retain technically trained and qualified financial management personnel i s central to the sustainability of any reform of public financial institutions. The CFAA reviewed professional public financial management staffing levels in both central and decentralized governments, the existence of constraints to meeting staffing needs, the requirements for designation of accounting professionals, and the capacity to design and implement PFMand institutional reforms. 1.26 Areas not covered. The CFAA did not cover the operations of autonomous entities such as public universities and parastatals, which depend on earmarked allocations from the national budget. Nor did the CFAA review economic regulations or legislation for the promotion of private sector growth, such as the function of the Tax Service and Customs, or tax policy. Methodology 1.27 The CFAA team's main sources of information included existing documentation, Bolivia CFAA Background and Context 7 questionnaires, and interviews with key staff. Documentation reviewed included (i) laws, regulations, manuals and reports provided by the Government and the Ministry of Finance, CGR, and the Office of the Accountant General; (ii)internal and project documents of the WB and IDB, particularly the Country Assistance Strategies; and (iv) other donor program and analytical reports. A full list of background and resource documents may be found in Annex 1. Preparatory questionnaires were distributed to the relevant central and spending entities, soliciting their views of the current financial management and their own practices. Additional questionnaires were submitted to prefectures and municipalities. During the main field mission in February/March 2004, further interviews were conducted and additional data collected in order to address the issues mentioned inthe scope section of this chapter. A list of interviewed representatives duringthe preparation andmain field mission is providedin Annex 2. 1.28 The information gathered during the preparation and main field mission was analyzed so as to answer the issues spelled out in the scope section above; this analysis i s presented in Chapters 2 and 3 of this report. The PFM Performance Measurement Framework i s presented in Chapter 4. The summarizedfindings of the analysis and policy recommendations are presented in Chapter 5, along with a summary o f Government's prioritized action plan. The plan may include endorsement of interventions already underway, as well as supplementary actions, and i s consistent with other WB/IDB and donor activity currently in progress in Bolivia. The executive summary of the Government of Bolivia's PFM action plan and its response to the findings of this CFAA are presented in Spanish in Annex 3. Follow-up and Dissemination 1.29 The Government will be encouraged to form an inter-institutional steering committee to follow up on implementation of the CFAA action plan. The monitoring and evaluation strategy will be in line with that of budget support and Sector Wide Approach (SWAp) programs. The donor community has established a Multi-Donor Budgetary Support Program (MDBS) to assist the Government in implementing a strategic framework for poverty red~ction.~The MDBS has included the CFAA policy recommendations as an integral part of the program, and will serve as a basis for donors to monitor implementation of the Government's reform program and to progressively measure progress. Additionally, the Government has organized five Government-donor working groups: PRSP and National Dialogue; Constitutional Assembly; Productivity and Competitiveness; Fiscal Deficit; and Harmonization6 The Harmonization working group will be involved in the preparation of SWAps and will also serve as an important forum for supporting sector-level reform. Draft Memorandum of Understanding, Multi-Donor Budgetary Support Programme inSupport of the Implementation of the Bolivian Poverty Reduction Strategy, April 30, 2004. Reuni6n de Coordinacih Gobierno-Cooperacih Internacional, March 26, 2004. Bolivia CFAA Analysis: Central Government 8 11. CFAA ANALYSIS: CENTRAL GOVERNMENT LegalFramework 2.1 The legal framework governing Bolivia's PFM i s satisfactory. There are three laws that clearly document the fiscal functions of the Ministry o f Finance, executing entities, the Legislative Assembly, and the CGR: the 1990 law for financial administration, SAFC0;7 the Law o f Popular Participation (1994); and the Law of Decentralization (1995). These laws are all recent, and they provide a solid foundation for PFM based on the current context. The challenge at this point i s to ensure compliance with the letter and spirit of these laws, in an environment where institutional capacity is limited. Integrated Financial Information System: SIGMA 2.2 The vision to implement SIGMA was to create a single integrated system designed to administer, manage and report on public sector expenditure. The system implementation also sought to standardize and simplify public financial administrative procedures through improving the budget cycle, eliminating the application of subjective prioritization over payments, and promoting a results-oriented public administration. Clearly the implementation of SIGMA has produced significant improvements and benefits in public financial management at the central government level. SIGMA has established a method o f real-time transaction and expenditure registration, produced a standardized presentation of central government financial information, and has also introduced tools for planning, programming and monitoring of public expenditure. Procurement and contracting transactions are managed by a well-functioning module within SIGMA that manages transactions processed by government entities with SIGMA coverage.8 However, the implementation of SIGMA alone has not been able to completely reduce the non-observance of binding rules and regulations in expenditure management (see para. 2.4). 2.3 Coverage. The system has been implemented in all but one central government agency (see Table 2.l), and also includes decentralized government institutions such as the Unified Directorate Fund (DUF), Customs, National Road Service (SNC) and state universities. At the sub-national level (municipalities), only L a Paz and Cochabamba have implemented SIGMA. Implementation delays have been common due to lack of available counterpart financing and budget, insufficient capacity to manage the implementation, and concerns regarding the sustainability of the system in the small and medium-sized municipalities. In 1995, the Ministry of Popular Participation developed a system (Sistema Integrado de Contabilidad Municipal, or SINCOM) that currently operates in 240 small and medium-sized municipalities (see section on municipalities for Law No. 1178 (SAFCO), Article lcalls for the implementation of subsystems for budget programming and organization; budget execution; personnel management; procurement management; treasury and public *credit;SIGMA procurement accounting; external auditing and internal controls. The module contains a registry o f more than 10,000 vendors and i s updated annually with the Plan Annual de Contrataciones. The database is integrated with vendor pricing and reduces the opportunity for secretive biddingkontractingprocedures. Bolivia CFAA Analysis: Central Government 9 analysis o f the SINCOM system). Sources: Budget: Vicemnisterio de Presupuesto y Contaduria; No. of entities: Programade Modemizaci6nde la Admnistracih FinancieraPdblica. (a) The Judicial Branchhas notimplementedSIGMA (b) The CentralBankdoes not use SIGMA for Public InvestmentlCreditoperations 2.4 Due to the inherent weakness inbudget planning, there still are a great number of off- budget transactions that are executed outside of the system. This results in an overspending of certain budget and treasury accounts, a practice that i s in contradiction with the Budget Law, which prohibits this manner of public expenditure management. While SIGMA does not permit off-budget transactions, b y subverting the system through manually recording accounting transactions, institutions are then able to justify the expenditures later through the issuance of an executive d e ~ r e e . ~ 2.5 System weaknesses. SIGMA i s a critical tool to enhance the transparency and improve the effectiveness of public sector financial management. However, besides coverage issues, weaknesses still remain. 0 The system was designed to operate as a management implementation tool, but practice reveals that the SIGMA i s used primarily as a payment system. 0 SIGMA i s a system that was designed for central government agencies, and the Decreto Supremo 26866 (September 2002) established the practice o f budget modifications via MinisterialResolutions, which effectively allows transactions to be recorded inthe accounting module but without recording the transaction in the corresponding budget line. In2003, transactions worth approximately Bs400 million were executed and recorded in this manner. Bolivia CFAA Analysis: Central Government 10 analysis shows that the information needs of decentralized agencies, such as the Superintendency of Banks and Financial Entities (SBEF) and National Regional Development Fund (FNDR), were not incorporated into the original design. Although provisions have been made for technical support to address this issue, work has not begun to customize the system to meet the needs of such agencies. 0 Registration of budget expenditures i s problematic at the point of data entry due to high staff turnover and unfamiliarity with the system. 0 Also, perceivedlack of clarity relating to administrative requirements to enter and manage budget data contributes to the weakening of the effectiveness of the system. 0 Reforms to the budget classification and structure have not been implemented." There are also certain risks that have been identified, which if unresolved, may hamper the effectiveness and sustainability of the system. These risks stem from both weak political support and weak financial and technical support for the management unit maintaining SIGMA. 2.6 Recommendations. Decentralized agencies. While the implementation of SIGMA and the single treasury account (Cuenta Unica de Tesoro or CUT) has helped to improve expenditure management for centralized entities, the needs and budget autonomy of decentralized agencies within these systems need to be addressed. In order to satisfy the concerns of the decentralized agencies, the Government should initiate a broad-based assessment to identify how these systems can be adapted in order to ensure that the decentralized agencies can fulfill their respective mandates, while ensuring that institutional independence, transparency and accountability for expenditure management are not compromised. 2.7 StafStraining. While planned transfer of the technical unit maintaining SIGMA to the Accountant General's Office within the Government i s seen as a positive step to ensure the sustainability of system maintenance, there has been a relatively high turnover of technical staff due to recent administrative and budget reductions. The extensive system training that was provided in the administrative units prior to incorporation has been lost and this now jeopardizes the long-term sustainability of the unit, and of the system. 2.8 Technical improvements. The system can also be improved through simple yet important technical upgrades that should reduce the operating costs and improve its long- term viability. The system's operating platform should be upgraded and improved, which would allow for better configuration of the system to meet the changing business needs and also for greater efficiency. Modules that could be developedincorporated include: annual work plan (POA), CUT in dollars; financial statements/accounting reports for central government; and external financing. loWorld Bank, Institutional and Governance Review (Report No. 20115-BO). Bolivia CFAA Analysis: Central Government 11 2.9Migration of the system platform to an Internet-based network would not only improve connectivity but also reduce the network costs (currently, L a Paz-based agencies are connected along a hard-wired network). The increase in the number of users has placed heavy demand on the servers that process government financial information. Furthermore, the contracts for server maintenance have expired and there i s a pressing need to renew them in order to ensure continued system operations. Also, the system should have adequate backup storage for government financial information in the event of natural disasters or catastrophes. Currently there are plans to create a backup storage facility, although these plans should carefully consider the geographical location of the new facility to ensure that the Government can continue to operate in the event of a calamity. If these technical problems are left unaddressed, there i s a serious risk of system collapse. 2.10 Funding. There i s a considerable amount of funding available, through donor- financed projects that are supporting the continued system implementation. The Government should re-evaluate the objectives and activities of these projects in order to prioritize the improvement of the basic system infrastructure and the complete implementation and improvements for centralized and decentralized agencies, the nine prefectures; and the 10largest municipalities. Budget Preparation, Execution, and Reporting 2.11 The focus o f the WB 2004 PER coverage of Bolivia's budget process i s on its impact on Bolivia's fiscal situation and on the challenge of moving towards a sustainable fiscal path and improving service delivery. Understanding Bolivia's budget process and the incentives of the multiple agents that participate in this process i s a key ingredient for fiscal reform seeking long-lasting results in terms of improvements in fiscal discipline and efficiency in the use of public resources. The PER review of the budget process was therefore detailed and thorough. The scope of this CFAA was designed to complement that of the PER in the area of budget by focusing on specific areas relevant to PFM: revenue estimation procedures, cash management, internal control and internal audit, the use of SIGMA and the single treasury account, and financial reporting. Therefore the more general description and analysis of the budget process in this CFAA leans heavily on PER coverage in this area. 2.12 From a PFMperspective, there are four main issues in the area o f budget: (i) budgetasvotedisunrealistic, basedonsystematicandpersistentoverestimatesof The revenue (see Table 2.2 below). (ii) budgetprocess is flawedandthe formulation of annual work plans(POA)is The more procedural than strategic, thereby weakening the usefulness o f the budget as a tool. (iii) SIGMAdoesnotcurrentlyincludeprefecturesormunicipalities,asignificant Since portion of the budget is not monitored or controlled via SIGMA (see Table 2.1). (iv) The use of HIPC resources i s not monitored in a timely fashion. Bolivia CFAA Analysis: Central Government 12 Table 2.2: Deviations betweenplannedand executed expenditures, 1997-2001 Source: Ministry of Finance, 2003 2.13 Overview of budget process. Bolivia's budget process i s weak. Improvements since the introduction of the Bolivia's Poverty Reduction Strategy have been modest, contrary to expectations. The budget process lacks any careful analysis of costs and benefits, takes place in a weak institutional environment, and i s strongly influenced by lobbying pressures. Flaws in the budget process begin with routine overestimations by the Government of economic growth, fiscal revenues, and thus the overall size of the budget. During the approval process, Congress invariably increases expenditures further by simply raising the amount of debt needed to fund the budget. 2.14 After the budget i s approved, spending i s frequently increased during the year, with the changes approved ex post by Congress at the end of the year. Throughout the year, the Government engages in a complex process of cash management by disbursing budget allocations in a piecemeal fashion, not reflecting sound economic policy but rather shorter-term objectives (such as maintaining political upp port).'^ The budget process i s further negatively affected b y the fact that Congress has neither the expertise nor the technical resources to adequately assess the budget, nor i s it given sufficient time to properly debate and modify the proposed budget. Table 2.3: Increasesinthe budget by Congress (Bolivianos, Bs) 1999 24,105,293,864 154,674,969 0.6 2000 24,065,280,595 43,864,559 0.2 2001 27,485,332,372 112,698,367 0.4 2002 29,069,134,273 313,441,940 1.1 2.15 Planning and investment programming framework. The Ministry of Economic Development i s responsible for capital spending and the Ministry of Finance for the current budget. The lack of coordination between the two weakens the budget framework. As a result, there i s often a failure to include forward estimates of current spending implied by investments, which leads to underspending on maintenance and inefficiencies in provision. Government has indicatedits intention to move to a multi-annual budget by "DetailsonstagesofthebudgetprocessareprovidedinAnnex 2.1ofthePER. Bolivia CFAA Analysis: Central Government 13 the next fiscal year as a way to address its public expenditure problems and in particular the open-ended budget negotiation process. However, experience elsewhere has shown that the usefulness of the multi-annual approach i s seriously compromised when initial conditions such as effective program budgets and predictable execution are not in place. Seeking to improve budget formulation through a multi-annual budget i s not a panacea and can pull attention away from the need to improve the basics.12 2.16 Budget preparation. The fiscal year coincides with the calendar year. The budget process starts in July/August when the Ministry of Finance produces the macroeconomic forecasts, including the forecast of revenues for the upcoming year, based on estimated performance of the economy (growth) and the expected efficiency gains of the fiscal agencies (aduanas and impuestos internos). According to government officials interviewed for this study, revenues are usually overestimated, creating a disconnect between budget predictions and actual collectiondrevenue mobilization. Around September, the Ministry of Finance submits to the government agencies the ceilings for the upcoming year, usually established according to the previous year's budget, and the mandates defining expenditure items and categories, along with instructions on how these expenditures should bejustified. 2.17 In September/October, the agencies submit their budgets and annual work plans (POA). When agencies submit an "ideal POA" and a grossly overestimated budget that reflects this ideal, the Budget Director allows them 48 hours to comply with the ceilings, or else the Budget Director's office cuts the expenditures as it sees fit. During October and November, the Government also negotiates expenditures with the decentralized agencies; in 2003, the Government held two rounds of negotiations with the agencies. After the standard first round of negotiations, the Government had to revise downwards the revenue forecast, as a result o f the failure to pass the fiscal reform package. 2.18 Once the budget has been agreed upon at the executive level, it i s submitted to Congress for their consideration, usually in November. The legislature then has 60 days to consider the budget; otherwise the proposal submitted by the executive becomes law. Bolivia has a bicameral Congress where both chambers enjoy similar status in budget matters. Budget approval takes place first in the Chamber of Deputies and then in the Senate. As in other legislative issues in Bolivia, the budget discussions take place mostly within legislative committees, whose membership depends primarily on political power and alliances. In addition, the high turnover in legislators (80 percent of deputies in the current legislature are serving their first term) means that there i s little accumulation of experience. Committee members have very little technical support, and hired technical advisors are often political supporters lacking technical expertise. After the committees approve the budget, the assembly may introduce some (usually minor) further modifications, in response to last-minute demands by certain groups, and then approves the budget. The representatives usually discuss only those programs and projects that directly affect their constituencies. They rarely discuss the macroeconomic projections or the source and sustainability of revenues. Since 1990, Congress has failed to approve the budget only once, in 1997, but late approval has been the norm, and typically only 35 l2 PER, Annex 2.2 Bolivia CFAA Analysis: Central Government 14 percent o f the budget i s executed during the first semester. 2.19 Budget execution. In Bolivia, the line that delimits the approval and the execution stage i s not a well-defined one. Because the budget suffers continuous modifications during the year, there is in a way a de facto year-long approval process. Because revenue projections are usually overestimated, the government has to do cash-based management to avoid large deficits. This cash-based management relies on spending quotas based on "real revenue" projections; if revenues are expected to be around 90 percent of budget projections, expenditures have to be reduced to match. The average percentage of the central government budget executed between 1990 and 2002 was 98 percent of the approved budget but was decreasing over the period (92 percent between 1998 and 2002). The Government provides trimester spending authorizations to each agency with quotas for each month, with fixed monthly quotas for wages and salaries and discretionary cuts for other types of expenditure. 2.20 SIGMA allows transactions to be entered only as long as the available credit is greater than the authorized quota and the amount executed i s no more than the quota. Residuals, the difference between the executed budget in the trimester and the quota, cannot be transferred from one trimester to the next or carried over from one year to the next, even in the case of investments. Credits, however, are modified during the year, increasing uncertainty about the actual available funds. 2.21 Budget execution i s not only affected by cash-based management. It i s also complicated by constant changes to the approved budgets. Changes to the budget are subject to different approval rules, with some requiring the approval of the Ministry of Finance and others that of Congress. Congress must be informed of often substantial increases in the budget that are financed from donations or international cooperation, but need not approve them. In practice, however, the Government makes the changes, and Congress rubber-stamps everything toward the end of the fiscal year. Compared to the increases in the size of the budget during the formal approval process, these adjustments are much larger and generate more serious efficiency concerns. On average, for the period 1990-2002, the modified budget has been 6 percent larger than the one originally approved and the tendency to expand the size of the budget during the year has increased over time, particularly during election years (see Table 2.4). Bolivia CFAA Analvsis: Central Government 15 Years Average 1990-97 105 100 95 95 verage 1998-2002 I 109 92 I 85 1 97 2.22 Not all changes in the budget are similar in nature. Some are simply within- agency transfers that have little impact on the overall budget. Other more substantial changes occur when the government establishes a new set of priorities or a new government structure, as has frequently happened: since 1990 every president has altered the government structure at least once during his mandate, and every new president has changed the structure substantially. Since 1990, the number of ministries has fluctuated between 11 and 19. Finally, other changes occur in response to pressures by the most vocal special interest groups, or as a result of political pressures on the president, for example, increases in the amount spent on salaries for the health and education sectors. While some of these gains are later reversed through cash-based management during budget execution, the continuous discretion of the Government to extend additional resources (or take them away through cash management) generates incentives for those responsible for government programs to spend less time worrying about how to improve the efficiency o f the services they provide, and more time lobbying the Government for additional resources. The process tends to favor those with more lobbying capacity, rather than the programs that are characterized by the highest rates of return. 2.23 Cash management control during budget execution. For the period 1998-2002, cuts with respect to the modified budget averaged more than 15 percent. In fact, as a result o f these cuts, in recent years the executed budget has been significantly lower than the originally approved one. However, while these expenditure cuts reduce potential deficits and debt, they do not seem to be enough to compensate for the lack of constraints Bolivia CFAA Analysis: Central Government 16 inthe other stages of the budgetary process. The size of the budget has grown at a rate of nearly 12 percent per year inreal terms during the period 1990-2002, and at nearly twice that rate in election years (Table 2.4). Actual deficits have consistently exceeded budget projections, and as a result debt continues to increase, raising concerns about fiscal sustainability. 2.24 Moreover, these cuts in expenditures are highly discretionary, so not only the amounts but the allocation of the executed budget are quite different from what the legislature originally approved. The bargaining process i s a year-long affair, with the different agencies lobbying the government for additional resources or less severe cuts, and the different interest groups exerting pressure as best they can in order to satisfy their demands. This process i s not only highly inefficient but results in a high degree of uncertainty for those agents that are responsible for managing Government spending programs. For example, the Ministry of Foreign Trade and Investment received 5 percent more than originally committed in 1998 but 20 percent less in 1999. Such a degree of unpredictability makes it impossible for public programs to function efficiently. 2.25 Program evaluation. There i s no evaluation of government programs and no information regarding their effectiveness. Spending ceilings are not linked to any evaluation of the success of the programs in previous years but instead are established according to the previous year's budget, and cuts during the year tend to fall on those agencies and items that have less capacity to defend their share. Although Government has a medium-term fiscal framework that establishes ceilings on expenditure and deficits, this framework plays no role duringbudget preparation. 2.26 Recommendations.The PER proposes a number of specific recommendations in order to enhance fiscal discipline, involving changes in the budget procedures, the introduction of legal budget constraints, increased technical competence in the Congress, and the use of program evaluation and multi-year budgeting. The CFAA supports the PER'Srecommendation to address the lack of technical competence in the Congress by creating a Congressional Budget Office (CBO). It i s important, however, that in the absence of a CBO, an effective and independent oversight mechanism be established (see para. 2.100 ff, Transparency and Oversight). InternalControls 2.27 An appropriate system of budget monitoring and control requires two elements: a budget that reflects that actions planned b y Government and that sets appropriate objectives, activities, goals and indicators; and information systems that report the Government's financial position in a timely manner. Internal control, in accordance with the SAFCO Law, i s governed by the Bolivian Regulations for Internal Control, promulgated by the CGR.13 In 2001, the CGR updated these regulations with the incorporation of the principles set forth in the guidelines of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which provides a uniform framework for internal controls. l3The NorrnasBasicasde Control Interno were issuedin 1992and updatedin 1996. Bolivia CFAA Analvsis: Central Government 17 2.28 The existing Bolivian Government budget and systems do not meet these requirements. The weaknesses observed in both the drafting of the budget and in the management of public expenditure limit the usefulness of the information derived from budget control and monitoring. It i s not possible to assess, due to the high degree of budget variation and due to inconsistent practices in expenditure management, whether resources are being used for the intended ends, nor whether the resources are being used effe~tive1y.l~ 2.29 SIGMA has been one of the primary tools used by the government to establish a system of internal controls, along with the implementation o f the single treasury account (CUT) and the standardization of the Chart of Accounts for central government entities. SIGMA and the CUT have inherent functions that serve as mechanisms for internal control by prohibiting commitments for which no (or insufficient) budget allocations have been made; automatically calculating current budget allocations taking into account budget modifications; maintaining information security o f SIGMA beneficiaries; and providing a system audit trail. However, the internal controls of SIGMA are frequently subverted duringbudget execution (see para. 2.4) 2.30 An analysis of internal controls by the CGR indicates that only about 25 percent of the recommendations of the different types of audits (administrative and control system or SAYCO, financial, special purpose and operational audits) were implemented in 2001 and 2002. These results demonstrate that it is necessary to focus not only on the implementation of these regulations and enforcement of the use of SIGMA, but to also take into account that there exists both a strong level of resistance to creating a more rigorous internal control environment and a lack of capacity for doing so. In the public sector in Bolivia, the internal control environment i s highly dependent on public sector agency executives' understanding and appreciation that the regulations are meant to improve transparency and governance regarding expenditure management. 2.31 In response to and in recognition of the weak control environment over the management and use o f public resources, there are two important recent initiatives that focus directly on improving internal controls: The CGR (through its Internal Control Management Unit) has designed new courses and training materials for the first three COS0 components (control environment, risk assessment and control activities,) which are now available to all public officials through CGR's training center, CENCAP. The President o f Bolivia has initiated a program whereby all executives and high- ranking officials must attend a training course to familiarize themselves with the details of the SAFCO Law, and with the Government's policies and procedures regarding ethics, internal controls, and the responsibilities of being a public official. 14PER, page 64. Bolivia CFAA Analysis: Central Government 18 These initiatives are included in the Transparency Program prepared b y the Presidential Commission on Anticorruption and the CGR; they need to be ~trengthened.'~ 2.32 Recommendations.Annually, each Minister and Prefect0 (Prefect or Governor) should submit to the Delegaci6n Anticonupci6n a copy of their internal control plan and certify that the internal controls are adequate to provide assurance that an effective internal control framework i s in place. Additionally, each Minister and Prefect must attend annual training in internal control, and certification of this will be provided to the Delegaci6n Anticorrupci6n by the CGR. The Delegaci6n Anticorrupci6n will publishthe list annually in the media and the Congress. InternalAudit 2.33 According to the SAFCO Law, the role of internal audit i s designed as an ex-post evaluation o f public sector expenditure. There are approximately 207 internal audit units (IAUs) with more than 700 auditors executing between 2,500 and 3,000 internal audits each year. The internal audit units report directly to the head of each agency, not to the Ministry o f Finance, CGR or any other body.16 2.34 The internal audit reports are nearly identical in scope and nature with the external audit reports of the CGR, with the exception that the external audit opinion (opinion on reasonableness of the financial statements) i s replaced with an opinion on the reliability (Informe de Confiabilidad) of the entity's financial statements.l7 The Bolivian Regulations for Internal Control state that these reports should not be limited to evaluating the internal control process, but should also identify areas for improving internal control, including the efficiency of operations and the quality of products and services rendered, that would enhance confidence in the entity's financial statements. 2.35 According to periodic supervision and assessment of internal audit units and internal audit reports b y the CGR, internal audit i s weak. Factors that contribute to the ineffectiveness of internal audit are high levels of turnover and staff instability, low wages, and lack of technical competency. While the CGR has taken a more proactive role recently in training internal audit staff (through the CENCAP), these efforts have not had the expected impact. The underlying problem i s that implementation of internal audit recommendations i s dependent on the agency executive - yet there i s no incentive to improve internal controls or more generally, governance. The lack of incentives and lack of applicable measures or sanctions explains the relative indifference of entities to the findings and recommendations of internal audit reports, of which only about a quarter are implemented. 2.36 The IAUs of both ministries assessedby the CFAA team (Ministries of Education and Health) expose the same undervaluation of the importance or relevance of internal audit and the same marginalization of the function, role and value of internal audit. In l5Delegada Presidencial Anticorrupcih - CGR: Elaboraci6n Perfil I1Programa de Transparencia, Informe 11:Plande Accidn, Preliminar Draft. l6SAFCO, Article 16 (however, copies of internal audit reports are sent to the CGR). Government Audit Standards, Section 301.03. Bolivia CFAA Analysis: Central Government 19 each ministry, there are no more than four internal auditors. The quality of the IAUs i s less than desirable, due to the factors discussed above. In contrast, when the CFAA team visited the IAU of the municipality of L a Paz, it found that the municipality has taken a serious approach to improving its governance structure and internal controls. The municipal IAU i s staffed with 26 trained professionals, who have a collective tenure of over 100 years of service working in the municipal administration. 2.37 Monitoring and control of poverty reduction expenditures. The monitoring of HlPC funds by Vigilance Committees is not efficient. Their role i s limited in part due to the lack of resources to finance their activities. Transfers of HIPC funds to municipalities are executed as regulated by the law. However, financial reporting shows that approximately 50 percent of the HlPC funds have not been .used and remain idle (although the funds earn interest in the accounts)." No analysis i s carried out to determine whether these funds have been used for poverty reduction programs. 2.38 Recommendations. Each Minister and Prefect should establish an Audit Committee according to the Institute of Internal Auditors (IIA) International Standards for the Professional Practice for Internal Auditing. Also, each Minister and Prefect should continue to provide the CGR with the Annual Internal Audit Work Plans and the results of those plans. Lastly, the CGR should provide the President and the Congress with semi- annual, easily understandable reports on the outstanding internal control recommendations, their impact on the efficiency and effectiveness of Government, their timeliness or delinquency, and current status. Treasury 2.39 The Treasury ensures that all transactions are securely processed (electronically) through Central Bank and Government financial system. Both SIGMA and the CUT manage transactions and resources in national currency. Line ministries are responsible for accurately recording foreign currency transactions at the time of payment execution, even though the transaction i s registered as a local currency payment in SIGMA. The Treasury i s responsible for executing foreign currency transfers to ministries and institutions (these transfers are recorded in SIGMA in local currency). The Treasury i s also ultimately responsible for ensuring that transactions are accurately recorded, including any gains/losses due to exchange rate differences. However in practice, it i s unable to ensure such accuracy. 2.40 The Treasury i s responsible for verifying the availability of funds to meet current liabilities. The Directorate of Budget meanwhile, i s responsible for programming and updating the cash flow. Apart from the initial budget execution estimates, monthly expenditure updates are produced, based on available resources. The Treasury updates the (revenue) account balances on a weekly, and sometime daily, basis and also prioritizes transfers (e.g., plannedtransfers to prefectures and municipalities, which under the Law of Popular Participation are automatic) based on available funds. Given the l8Between August 2001 and June 2003, municipalities received about US$137.4 million inHIPC I1funds. Execution of these funds stood at only 26 percent in 2001, but has increased in2002 and 2003. Bolivia CFAA Analysis: Central Government 20 scarcity of resources, it i s still necessary to prioritize transaction and payments executed by the Treasury (especially salaries, debt, and pension payments). In these cases, the requesting agency, not the Treasury, will decide which transactions will be executed or deferred. Consequently, a common impression of the private sector i s that the Government does not (or cannot) meet its obligations. Thus, the prices of goods or services supplied to Government are often inflated to account for these delays in payment. 2.41 Additionally, over the last three years, central government and prefecture arrears represented less than 5 percent of paid expenditures. However in deconcentrated agencies and municipalities, the level of arrears i s much more significant, with values surpassing 20 percent o f paid expenditures (see Table 2.5). Table 2.5: Budget arrears by line ministries and localgovernments, 2001-03. (thousands of' Bs) 2001 2002 2003 Paid Arrears % Paid Arrears % Paid Arrears % TotalI1 33,984 2,950 8.7 34,937 3,407 9.8 31,636 2,282 7.2 CentralAdministration 18,792 456 2.4 22,085 661 3.0 24,286 798 3.2 Treasury 14,475 269 1.9 17,559 443 2.5 19,861 554 2.8 Ministry of Government 755 44 5.8 782 42 5.4 824 44 5.3 Ministry of Education 291 39 13.1 282 15 5.4 221 7 3.4 Ministry of Defense 1,066 0 0 976 69 7.0 1,111 66 6.0 Ministry of Finance 283 16 5.1 183 10 5.6 181 12 6.6 Ministry of Health 213 8 4.0 236 5 2.0 262 17 6.6 Ministry of Agriculture 254 2 0.9 339 5 1.4 378 I 1.I Legislative Branch 193 14 1.3 205 17 8.2 201 14 6.7 Judicial Branch 290 26 9.1 318 15 4.6 344 13 3.9 Other 961 31 3.8 1,205 41 3.4 905 55 6.1 Deconcentratedagencies /1 2,950 766 26.0 3,018 1,098 36.4 2,661 376 14.1 Public finance sector 11 904 56 6.2 861 41 4.8 554 43 7.8 Social security agencies /1 915 204 20.9 1,066 354 33.2 146 116 19.5 Public enterprises/1 2,684 91 3.4 1,154 109 9.4 902 45 5.0 Prefectures/1 4,458 67 1.5 3,922 128 3.3 1,634 44 2.7 MunicipalitiesI1 3,221 1,310 40.7 2,825 1,016 36.0 1,447 869 60.1 1/ Note: takes into account only data reported to the CGE (Accountant General). A significant number of decentralized institutions, prefectures and municipalities did not report their financial statements to the CGE, thus their information i s not available. Source: Ministry of Finance (Treasury) Single Treasury Account 2.42 The Government has implemented a system of single treasury account (Cuenta Unica de Tesoro or CUT) to strengthen cash controls and budget management, which has Bolivia CFAA Analysis: Central Government 21 helped to introduce a sense of fiscal discipline. The implementation of SIGMA and CUT has significantly improved public resource management through the timely registration, monitoring and control of transactions and expenditures. The CUT has allowed the centralization of 318 public sector accounts (almost all of them belonging to the central government, some to the decentralized sector). However, due in large part to overestimation of revenue, available cash flow i s limited, and considerable discretion i s exercised in relation to spending decisions. Importantly, in spite of a strong legal framework and reasonable systems to control cash, it i s difficult to determine which recurrent expenditures target poverty reduction programs; moreover, it i s also difficult to certify that public funds are channeled to support particular programs to the extent intended. 2.43 Despite the achievements of the CUT, which has significantly reduced the level of idle resources in Central Government, many accounts still fall outside of its coverage- some 5,000 accounts from the decentralized sector have not been included within the CUT scheme. Funds transferred to or managed by prefectures, municipalities and universities are not included in the CUT,19 nor do the Ministry of Defense and the Police participate in the CUT. Every six months the Accountant General's Office (CGE) reconciles of the accounts that fall outside of the CUT. Poor budget execution practices severely hamper the National Treasury (TGN)'s ability to implement proper cash management procedures over the use of public resources (see paras. 2.4, 2.23 and the section on accounting). As a result, the TGN i s unable to reconcile the CUT'S budget sub-accounts. 2.44 Decentralized entities, such as the Superintendency of Banks and Financial Entities (SBEF), are subject to the rules and regulations of the CUT. However, the ability of these institutions to fulfill their mandates is hindered and limited due to the restrictions placed on cash controls. While it i s important that decentralized entities remain accountable to central government, it i s also necessary to acknowledge that the responsibilities and functions of such institutions depend on reliable and predictable revenue flows. In the case of the SBEF, its role i s an integral one to assessing, supervising and monitoring the health of Bolivia's banlung and financial sector. 2.45 Recommendations.The Treasury should develop a plan to implement a foreign currency module in SIGMA (at the minimum, SIGMA should be adapted to permit processing of foreign currency transactions). The Government should re-evaluate the application of the CUT regulations governing administration of public funds b y decentralized entities. Possible solutions could include allowing for greater autonomy over resources, while enforcing in-year budget reporting. Revenues 2.46 The main shortcoming in the functioning of the revenue system i s that revenue collections continue to be overestimated. The result of this i s an increase in unpaid l9Law of Popular Participation (revenue transfers) and the Administrative Decentralization Law (HIPC I1 Funds). Bolivia CFAA Analysis: Central Government 22 obligations. If these obligations remain at the end of the year, they are recorded as current Treasury debt (current liabilities), leading to a widening of the fiscal deficit. The problem i s magnified when financial reportshtatements from prefectures and municipalities, which are usually received late, report large quantities of unpaid obligations. Therefore, unfortunately while the practice i s not very efficient, it i s essential to maintain the weekly (revenue) and monthly (expenditure) updating of government cash flow. 2.47 Customs. Starting in 1992, the Customs Administration undertook a series of significant reforms, which have improved the efficiency and effectiveness of the agency.20 Collections are registered in the national customs system (SIDUNEA), on a real-time transaction basis, more than 90 percent of the time. The remaining customs duties that are not captured are usually found in small municipalities that lack the infrastructure to support a computer-based information system. One weakness i s that collection information must be manually transferred to SIGMA, since no direct interface exists between SIDUNEA and SIGMA. 2.48 Additionally, it i s difficult to predict when collection revenue will be transferred to the national Treasury accounts, since the method of payment i s not recorded in the system. Payments of customs duties, which can be either cash or check, are not consistently timely.21 Additionally, customs account reconciliations are excessively delayed and slow. As of March 2004, the Customs Service had only finished the reconciliation for 1998. 2.49 Customs cases are adjudicated based on international customs regulations and are subject to appeal in the judiciary branch. The Bolivian courts lack specializedjudges in customs matters, are slow to rule, and they sometimes modify, overturn or declare null previous holdings issued by the administrative Customs Tribunal. Therefore, many decisions that were initially in favor of the State are later overturned or the amounts to be collected are reduced. 2.50 Tax service. The National Tax Service (SIN, formerly the National Service of Internal Taxes) was re-created in late 2000 and the tax code was updated less than two years later.22During its first three years of operations, S I N improved tax administration (systems and processes) and built a foundation of institutional management and capacity for tax administration. SIN'S organizational structure has improved, and the agency i s now staffed with technically qualified and trained personnel. However, funding for trained personnel will expire once the projects supporting the tax administration reform program close. Currently, 27 percent of staff salaries are financed through donor-funded projects. 'O 1992 modernizationprogram financed by the IDB and UNDP; 1997 Institutional Reform Program financed by the WB; and 1999 Customs Management and Modernization Program financed by the W B and IMF. Insome cases, the actual customs duty is higher than what hadbeen estimated. This usually results in delaying the transaction, as the freighter is forced to make alternative arrangements for full payment. 22 National Tax Service Law (No. 2166), December 22,2000.; tax code updated inLaw No. 2472, August 2002. Bolivia CFAA Analysis: Central Government 23 2.51 While the general legal framework i s sound, there are no specialized tax courts and trials are adjudicated in the regular justice system. There are currently 2,000 tax claims (valued at Bs400 million) pending adjudication in the common courts. 2.52 The SIN law, Title 111-Public Functions, provides a basis to combat corruption in the S I N by clearly defining the responsibilities and limitations of tax administration officials. However, there i s no effective mechanism to enforce compliance with the law: a review of the S I N organizational chart did not find an operative unit for oversight or ethics. 2.53 Recommendations.Linking SIDUNEA and SIGMA would greatly improve the flow of government financial (revenue) information. New tax audit techniques to detect tax evasion (defined as both non-payment and late payment of tax liabilities) are being introduced. In order for these techniques to become fully effective, support should be provided to establish an accurate baseline tax recordhistory and to ensure that there i s continuous monitoring of compliance over the growing tax base. This may be particularly challenging in more rural areas of the country, where systems and databases are not supported. There i s a need for the Government to establish a strategic and sustainable approach to assume tax administration personnel within the civil service. The National Tax Service should consider establishing an office of oversight and ethics to ensure full application of, compliance with, and enforcement of laws, rules and sanctions. The Government should also study alternatives for improving the efficiency of the adjudication process to resolve tax disputes. Accounting 2.54 The Accountant General (CGE) is, as provided by the SAFCO Law, the normative and administrative central unit in charge of the government accounting system. The CGE i s responsible for promulgating accounting standards, approving accounting systems and procedures, recording government operations, presenting monthly financial reports and annual government financial statements, and registering and overseeing government assets. 2.55 The CGE oversees government accounting in central and decentralized agencies, as well as public enterprises, municipalities and the financial sector. Approximately 90 percent of the central administration's transactions are recorded in SIGMA. Furthermore, the CGE is required to execute numerous accounting adjustments upon receipt of an executive decree legalizing budget modifications (see para. 2.4). Additionally, only about 20 percent of the transactions of decentralized entities are captured within the system. Only two of the 314 municipalities are able to process its transactions via SIGMA, causing significant delays in the remittance of accounting and financial reports. 2.56 While public enterprises submit financial statements to the CGE at the end of the fiscal year, the majority of these statements are not audited, and in some cases, the statements represent resubmissions from prior years. 2.57 Standards. The CGE coordinates the operation and application of accounting and Bolivia CFAA Analysis: Central Government 24 reporting with the institutions responsible for planning of pubic resources, revenue collection, public credit, treasury, internal control and external audit. The institutions include central administration, prefectures, municipalities, non-financial public sector and financial sector institutions and Social Security Institutions. The SAFCO Law has established an advisory Consultative Committee to assist the CGE in the creation and application of standards and noms and to formulate proposals for any substantive changes to the government accounting framework.23This committee, however, has been inactive. 2.58 In Bolivia, government accounting standards include technical principles, organizations, norms and procedures used to compile, evaluate, process and report on the economic and financial activities of the Government. Bolivian accounting standards are applied within the guidelines of the professional accounting framework. The national accounting standards and classifications are based on the principles of integrity and uniformity, balanced budget, and accrual-based accounting. However, Bolivian accounting standards and principles do not yet comply with the IPSAS as promulgatedby the Public Sector Committee of IFAC. 2.59 The national Chart of Accounts was developed primarily for central government. However, advances in implementing decentralization have made it necessary to revise the Chart of Accounts, as its inflexibility represents one of the primary obstacles to meeting the information needs of decentralized institutions and governments, prefectures and municipalities. 2.60 SIGMA. The accounting module within SIGMA is operational. The accounting process operates in parallel with the opening of the annual budget accounts upon passage of the annual budget, and continues throughout the budget execution cycle. The accounting module, through a conversion matrix that records both budget and accounting transactions, facilitates tfie production of concurrent budget and financial reports at both the aggregate and detailed levels. External foreign loanskredits are included in the budget and as such, can be recorded through the accounting module, as long as transactions are registeredin local currency in SIGMA. However, some accounting issues remain unmanaged through SIGMA, including rotating funds, fixed assets, and foreign exchange transactions. The CGE does not have comprehensive information of all donations and i s also dependent on the line ministries for annually reporting the execution of sector investments that rely on foreign loans and credits. Additionally, the accounting module does not manage public debt transactions (domestic or foreign). FinancialReporting 2.61 The Ministry of Finance prepares monthly, quarterly and annual financial ~ 23Members of the Consultative Committee include the Accountant General, Chief of Unit and two Directors of the Accounting Standards and Norms Unit (GAO), two representatives of the National Technical Advisory Board of Auditing and Accounting and the School of Auditing, two representatives of the Bolivian Accounting School, one representative o f the Budget Technical Unit, one representative o f the Treasury, one representative of Vice ministryfor Public Credit and External Financing, and one representative of the CGR. Bolivia CFAA Analysis: Central Government 25 statements in a timely fashion. However, monthly reports are incomplete and are not published by the CGE, since these reports present information only for central government and other institutions that manage their budget and accounting via SIGMA. Under the national accounting framework, obligatory accounting financial reports include: balance sheet. income statement, statement of cash flow, statement of changes in equity, budget reports on execution of revenues and expenditures, and the report on account savings for public investment financing. However, these financial statements cover only a small percentage of the sub-national administration in 2002: only 17 percent of the sub-national government units were in compliance with reporting requirements. The fact that government accounts remain unconsolidated weakens the ability of the Government to use financial statements to inform public policy decisions. 2.62 Annual published financial reports contain only statistical information. The reports are not produced in accordance with recognized accounting standards, nor are prior year results presented, which precludes both comparability of government financial activity and external audit of government financial statements. In practice, the CGE usually produces (but does not publish) financial statements for central government with considerable delay-after June 30. Consolidated annual financial statements for the public sector are not produced, in part due to the lack of financial reports from prefectures, municipalities and the decentralized sector. Thus there are considerable gaps in the annual government financial statements, which if unresolved, will prevent the publication of meaningful government financial information, or the ability to render a full account of government operations and financial position. 2.63 The CGE has undertaken efforts to design transaction and data entry forms along the lines of the GFS framework, and to compile financial data from executing entities in order to prepare an annual consolidated statement of government operations. There are no assurances, however, of its completeness, reliability, or consistency, since entities outside SIGMA'S scope follow their own internal accounting procedures, which may not necessarily be compatible with SIGMA methodologies. 2.64 Recommendations. It is essential to reduce and ultimately eliminate the excessive number of extra-budgetary transactions and adjustments which are formalized through executive decree at year's end. Efforts in the short term should be directed towards the production and publication of accurate data under a plan to produce the annual budget execution report, complemented by a cash flow statement that i s properly reconciled. Production o f this key information would help detect leakages or off-budget execution as well as provide historical revenue and expenditure information to evaluate trends. The in-year and annual financial statements should support the Poverty Reduction Tracking Systems and National Investment Systems by specifically disclosing financial data on poverty-reducing expenditures, including the part financed b y HIPC 11-related funds. There i s also a need to update the registers of assets and reconcile them against accounting balances. This effort should cover both central and decentralized entities. In order to improve the quality of financial information, the Government should also adopt a plan to gradually implement IPSAS in government accounting for central government, prefectures and large municipalities, and align its accounting standards with international practice. In parallel, the CGE should utilize its Consultative Committee to develop a plan Bolivia CFAA Analysis: Central Government 26 to revise the national Chart of Accounts and to implement it at the sub-national level. DebtManagement 2.65 The external outstanding debt of Bolivia at December 31, 2000 was US$4.44 billion, of which US$1.35 billion were due to the Paris Club creditor countries as of July 1, 2001. The amount treated by the Paris Club was US$685 million, which was fully cancelled.24 The current risk of increased public debt comes from prefectures and municipalities, which are the two levels of government that have the ability to raise debt without having the necessary effective monitoring andcontrol frameworks inplace. 2.66 Znstitutional roles. A number of government bodies are involved in the management of public debt, with the Central Bank of Bolivia (BCB) in the lead role for external debt because of the technical and analytical expertise of its staff.25The external debt database i s registered and maintained at the BCB in the debt management system, DMFAS/SIGADE. The BCB i s the government's financial agent and executes the external debt service payments.26Within the Ministry of Finance, the General Directorate of Public Credit (DGCP) i s in charge of maintaining the domestic debt database, also within DMFASBIGADE, and provides input to budgetplanning and execution regarding all public debt, domestic and external. The Government has established and maintained a strong team of professionals within both DGCP and BCB. A large part of the success of these units i s due to the fact that they have not suffered from a high turnover of staff, unlike other public sector entities inBolivia. Institutional memory and a high standard of practice have been maintained and the good results should not come as a surprise, as these are two key elements ensuring the quality of the database for Bolivia's external debt andTreasury securities. 2.67 Debt information management, The main shortcoming in managing debt information i s the lack of interface between the debt management system (DMFASBIGADE) and SIGMA. Although creating such an interface had been contemplated during the implementation of SIGMA,27 the work was never completed. The WB funded an initiative to finalize this interface with a completion deadline of June 30, 2004, yet as of May 2004, no work had been initiated. Given the present constraints affecting the current implementation of SIGMA and the system's long-term sustainability, it i s difficult to predict whether this link will become operational. As a result of the lack of an interface to connect the debt management system to SIGMA, the DGCP must extract data from the debt management system in order to manually enter and register debt servicing transactions into SIGMA for execution and payment. 24The cutoff date being December 31, 1985.Bolivia obtainedCologne Terms, with a reduction of stock as of July 1, 2001. See the Paris Club website: http://www.clubdeparis.orden/. Law 1670(Ley del Banco Central de Bolivia, Ley 1670, of October 31, 1995) gives the core responsibility of external debt managementto the BCB, becauseof its technical comparative advantage acquiredover the years by. The responsibility lies with the Gerencia de OperacionesInternacionalesof the BCB. 26This responsibility is also given to the BCB inLaw 1670. 27Ministerio de Hacienda, Viceministerio de Presupuesto y Contaduria,ProgramaMAFP,(2004), Ayuda Mem6ria: Convenio BOWOTOAK No119/2000- UNCTAD. Bolivia CFAA Analysis: Central Government 27 2.68 Bolivia has utilized three different mechanisms for debt relief: stock reduction, flow reduction, and rescheduling of payments. The stock reduction i s easily managed. The flows reduction and the rescheduling options are less transparent. Stock i s not subtracted from the total stock of external debt, and the portion of total payments that represents debt relief i s unpredictable. The creditor would tell BCB the portion that has to be devoted to the HIPC I1Initiative for each individual payment when it falls due. Thus, under these two options, BCB will not be able to verify the amount of debt relief obtained before the loans are fully repaid. 2.69 The BCB has a team that i s trained to perform debt sustainability analysis, and has been supporting the development of further capacity for debt analysis and its linkage to macroeconomic issues. In particular, the BCB has had the leadership for quantitative analyses relating to the HIPC process and negotiations. Bolivia has had a strong track record managing the HIPC process (HIPC Iand II), with the BCB andDGCP playing key roles.28 The DGCP has access to real-time information for debt servicing and management. This i s due to the system links between the domestic debt database (managed b y the DGCP) and the external debt database managed by the BCB.29 2.70 It is very clear to the BCB that as private sector external loans continue to grow and other capital inflows become available, the aggregated analysis of the country's external situation will be crucial for an efficient debt management strategy. To this end, the BCB began collecting information on private sector debt, on a loan-by-loan basis, some years ago. The medium- and long-term private debt data are loaded in DMFAS at the BCB. 2.71 Debt sewice relief Boliviareached the HIPC I1completion point on June 9, 2001. Debt service relief under the enhanced HIPC Initiative from all Bolivia's creditors will amount to US$1.2 billion (US$8S4 million in present value terms). Including assistance provided under the original Initiative, total debt service relief under the HIPC Initiative will amount to about US$2 billion.30The WB i s providing relief of US$140 million in present value terms, between July 1, 2001, and September 30, 2014, by covering 50 percent annually of the debt service falling due to IDA on the debt disbursed and outstanding as of end-2000, after full delivery of original HIPC a~sistance.~~Together with the assistance under the original framework, the WB will deliver debt service relief to Bolivia amounting to about US$290 million. Under the enhanced HIPC Initiative, the IMF is providing US$SS.3 million in present value terms, which is expected to yield additional debt service relief of US$63 million between mid-2001 and early 2007. Total debt service relief to Bolivia under the HIPC Initiative by the IMF,includingrelief under 28 At the time of the CFAA mission, one of the BCB staff members was on leave providing technical *'assistanceondatabases debt management to the Central Bank of Angola, on an assignment financed by the IMF. The two are managed in the DMFASBIGADE software, which permits global aggregation of figures for central government debt. 30 Estimations by the BCB, as of December 31,2003, show a total external debt relief inpresent value terms o f US$2.3 billion, the Paris Club contributing with US$738 million, HIPC Iwith US$743 million, and HIPC I1with US$853 million. 31 WB-IMF, (2001a), Guidelines for Public Debt Management. Washington DC. WB, (2001b), News ReleaseNo:2001/369/S, "Bolivia's HIPC Initiative CompletionPoint." Washington DC. Bolivia CFAA Analysis: Central Government 28 the original framework, i s expected to amount to US$91 million. 2.72 Use of HZPC funds. Presently, the resources from HIPC 11, which are linked to poverty reduction, are channeled b y the BCB, after an annual authorization from Treasury, to the municipalities. When the payments of the loans that were eligible for the HIPC Initiative fall due, the BCB deposits the portion designated for poverty eradication in two accounts: the Municipal Solidarity Fund and the Special Account DiBlogo 2000, from which BCB distributes the resources to the m~nicipalities.~~ 2.73 The national consensus on the allocation of these resources was obtained through the National Dialogue Law (July 31, 2001) that establishes the distribution of the enhanced HIPC Initiative resources through the creation of two funds: the Municipal Solidarity Fund (Fondo Solidario Municipal para la Educacidn Escolar y la Salud Pdblica) and the Special Account DiBlogo 2002. US$27 million i s to accrue on an annual basis to the Municipal Solidarity Fund for public health and primary and secondary education, 70 percent to the Ministry of Education and 30 percent to the Ministry of Health. Once the Solidarity Fund resources are deposited, the rest accrues to the Special Account Diilogo 2002, of which 10 percent i s designated to improve health services, 20 percent for schools maintenance and equipment, and 70 percent for social and productive infrastructure. In principle, the poorest municipalities will receive a larger portion of these resources. Special DiBlogo 2000 funds are transferred to the municipalities through the banlung sector by being de osited into the bank accounts of each municipality with one of the three national banks. R 2.74 Guaranteed debt and contingent liabilities (central government). There i s no explicit guarantees scheme in Bolivia. Instead of guaranteeing loans, the central government practices on-lending, so that the Government i s the direct borrower vis-&vis the foreigner creditor, and the Government, by on-lending the resources, becomes a creditor (Treasury) at the national level. However, some guaranteed loans have emerged in the process of privatization, for which the former public sector debts became private with governmental guarantee. All of these loans are in the DMFASBIGADE database managed b y the BCB. BCB not only monitors the on-lent loans, but also manages debt servicing requirements by informing the national debtor to remit payments to the Treasury. 2.75 At the central level of Government, poor and inefficient budget management has forced contingent liabilities to be converted into public (domestic) debt.34Although this has been customary practice in the past, government authorities believe that this particular manner of increasing public indebtedness has been slowly diminishing. While there i s currently little data available to confirm this view, the Government does believe that it has reduced the rate of indebtedness through the use of floating debt. Entities are now forced to pay their last fiscal year's floating debt with allocated resources from the 32IMFandThe World Bank, (2001), Bolivia: Tracking Poverty RelatedSpending inHIPCs. 33Banco Unibn, Banco Nacional, Banco de CrCdito. 34This source of contingent debt is the non-payment of the floating debt carried over from one fiscal year to the next. Bolivia CFAA Analysis: Central Government 29 current period, which has succeeded in discouraging this practice. The Government also points to the reducednumber of creditors pressuring the Treasury for payment of arrears. 2.76 Municipal debt management. Municipalities have access to external capital (loans). DGCP i s responsible for the management of domestic debt, which includes local government debt.35 This i s a challenge for DGCP, since the information for the prefectures and municipalities i s not complete, nor i s the information remitted in a timely manner. In addition to the lack of information on local government indebtedness, it appears that there i s a lack of understanding within municipal administrations as to what may constitute local debt.36 Some of the municipalities have already encountered difficulties in repayments, which triggered the need to internally reschedule their loans through a mechanism called Plan de Readecuacih Financiera (PRF).37 The implementation of the PRF has permitted DGCP to have more information on participating m~nicipalities.~~ 2.77 However, there are many municipalities that have not jointed PRF and for which financial information i s incomplete or unavailable. Central Government runs a serious risk of an increasing fiscal deficit if it cannot obtain timely financial information in this regard. The lack of financial information contributes to a growing level of contingent liabilities (arrears in payments) and the inability to execute proper cash flow management. In order to cope with this problem, the DGCP has launched a project to create an information center on the financial situation of the municipalities. The objective of this project i s to provide information to the market so that potential lenders' knowledge of the municipalities' financial situation would regulate the level of lending.39 Further, the DGCP has to approve any future loan that a municipality would like to place inthe program. 2.78 The municipal finance information center i s currently planning a new and simplified debt registration system for municipalities. The risk i s that this new system may be incompatible with the current debt management system (DMFASEIGADE) that DGCP and BCB use for public debt. Should the two systems be incompatible, aggregate debt information would need to be manually processed through a series of spreadsheets, thereby placing at risk the security of public debt information. It would be important to verify that the debt module for the municipalities i s compatible with DMFAYSIGADE. This may be of particular interest for other clients (countrieshers) of DMFAWSIGADE for whom local government indebtedness i s a significant issue. 2.79 Recommendations. Legal and regulatory framework. It is important to update 35Presidencia de la Repdblica, (1997), Decreto Supremo 218041. DGCP i s responsible for all public debt management, while the BCB oversees the maintenance of the external debt database. 36Some municipalities do not report loanskredits for public works or commercial purchases (e.g., vehicles). 37Presidencia de laRepfiblica, (2000a), Decreto Supremo No25737, and Garcia Salaues, Alfonso, (2004), PI.%-10. Only 11municipalities havejoined PRF (La Paz, Cochabamba, Cotoca, Guayaramerin, Portachuelo, Quillacollo, Rurrenabaque, Santa Cruz, Tarija, Trinidad and Villazbn). 39This project is financed through an IDB loan, 1075/SF-BO. Bolivia CFAA Analvsis: Central Government 30 the legal framework, specifically its corresponding regulations, in order to make it more accurate and applicable to the daily practice of debt management inBolivia. Updating the present laws and regulations will allow the country to operate under a more current and transparent framework governing debt management. Additionally, the interface between SIGMA and DMFASjSIGADE should be completed to facilitate the flow of government financial information. 2.80 It is essential that a comprehensive educational program be launched, in addition to an exhaustive inventory of current outstanding municipal loans. 40 External Audit 2.81 The Contraloria General de la RepGblica (CGR) i s Bolivia's Supreme Audit Institution (SAI) and exercises its role under a comprehensive legal framework, in accordance with International Auditing Standards promulgated by the International Organization of Supreme Audit Institutions, INTOSAI. 2.82 The CGR i s fulfilling its role as the external independent body that i s responsible for reporting on the financial administration of the Government. It has recently adopted an ambitious plan to improve follow-up of its audit recommendations with audited public sector entities. However, the entities' tardiness in submitting financial statements, the high number of CGR recommendations, and the lack of follow-up by the media and Congress imply that either there i s a lack o f understanding of the importance of control in the public sector or there i s no strong demand for this information within Government or by civil society. 2.83 Since the 1999 CFAA, the CGR has instituted changes to improve the quality and effectiveness of its work. Still, CGR's effectiveness remains questionable because the information i s not widely used. Also, Congressional requests for special audits represented approximately 33 percent of the CGR's workload in 2001, 2002 and 2003, reducing its ability to fulfill its regular annual work plan, which i s based on risk analysis. 2.84 Autonomy and independence. The CGR i s not under the direct control of the ruling administration and carries out its role with operational, technical and administrative autonomy. In order to ensure its financial independence and impartiality, the CGR budget i s prepared by the institution and incorporated without modification by the Ministry of Finance into the budget bill for consideration b y the legi~lature.~' However, the appointment of the Controller General for a ten-year term does rely upon the legislature to provide a shortlist and on the executive to make the appointment, which can introduce political considerations. There has been an interim Controller General since January 2003, and this has weakened the CGR even as it has moved forward to implement a number of important policy improvements. 40Local government debt was estimated,at end 2002, as US$319 million. See Garcia Salaues, Alfonso, (2004), p. 22. 41Articles 154and 155 of the Constitution, articles 13,23 and 46 of Law 1178, and Articles 1, 60, 61,62, 63,64,66,67,68 and 70 of Supreme Decree23215. Bolivia CFAA Analvsis: Central Government 31 2.85 CGR responsibilities. The CGR carries out audits that cover the attestation of financial accountability of individual agencies. CGR reviews all internal audits by the 207 internal audit units in the Government, as well as external audits of public sector entities by private firms. It provides timely reports for the legislature and the public on the financial integrity of government accounts: all reports are provided to the legislature and a summary of every report produced i s available on the CGR website (www.cgr.gov.bo). I t i s also responsible for regulating the system of government control, for recording and following up all government contracts, and for initiating all legal and administrative actions against public servants for misuse of funds or abuse of authority. It provides training for all government officials on the content of the SAFCO Law. However, it does not express an opinion on the consolidated financial statements of the Government as a whole, since these statements are not prepared. 2.86 StafSing. The CGR has a staff of 506 employees, including six deputy controllers and the necessary core of professionally trained staff. Staff i s required to complete 40 hours of training annually, and all CGR staff must provide an annual Declaration of Independence and Income. Through a partnership with PriceWaterhouseCoopers, a core group of CGR auditors have been trained in forensic auditing, which has also strengthened CGR's capacity for investigation of fraud and corruption. 2.87 1999 CFAA.The 1999 CFAA concluded that the CGR was well developed, even though it did not render an opinion on the financial statements of the central admini~tration,~~which represents a significant portion of public sector expenditure^.^^ The 1999 CFAA also found that the time and resources dedicated to the investigation of abuse by public servants had failed to produce convictions or recover damages. 2.88 Progress since 1999. Since 1999, the CGR has been working on improving the quality of its work. In June 2002, it underwent an institutional assessment b y the International Standards Organization (ISO) to ensure that it has an appropriate quality management system for its products and services. As a result of this assessment, the CGR was the first public entity in Bolivia and the only SA1 in Latin America to receive certification from the I S 0 in the area of quality management (9002/94 ~ertification).~~ 2.89 Also since 1999, mechanisms have been established to help public sector institutions implement audit recommendations. The CGR issues an enormous quantity of recommendations, of which only 20-25 percent were adequately addressed and put into practice prior to 2002. Under the new Recommendation Follow-up Program, improved 42Bolivia: Country Financial Accountability Assessment, World Bank, June 1999. 43 In2003,29 percent of the budget went for wages & salaries, 23.3 percent for capital expenditures, 15.4 percent for pensions, 9 percent for debt service, and 23 percent for other expenditures, including goods and services as well as transfers to other sectors. 44I S 0 is a network o f national standards institutes from 148 countries working inpartnership with international organizations, governments, industry, business and consumer representatives. The I S 0 9000 family is primarily concerned with "quality management," that is, what the organization does to fulfill: i) the customer's quality requirements; ii)applicable regulatory requirements, while aiming to enhance customer satisfaction; and iii)achieve continual improvement of its performance inpursuit of these objectives. Bolivia CFAA Analysis: Central Government 32 operational processes and procedures and increased transparency are integrated into the entity's way of doing business. This program involves an ambitious plan for CGR to work with the audited public sector entities in the period between the issuance of the audit report and recommendations, and the return follow-up visit one year later. The vision i s that by assisting the entities in implementing the recommendations, the CGR will be helping the Government to improve the efficiency and efficacy of its management processes. 2.90 The introduction of the follow-up program has resulted in an increase from 20 to 60 percent of recommendations implemented over the last two years. One example of the impact of this approach i s the case of the municipality of L a Paz. Working with an Audit Development Unit, the municipal administration was able to upgrade processes and procedures, reduce its stock of audidmanagement recommendations and, for the first time, receive an opinion on the 2002 Financial Statements. 2.91 On the legal framework side, several laws and decrees were issued in 2001 that further defined the work of the CGR, covering basic norms for personal administration, follow-up and evaluation of the public performance management system, the declaration of income and assets, government contracting information system, and the extension of the mandatory use of SIGMA.45 There are three additional bills currently pending covering contracting of government works, goods and services; a transparency law; and access to public information, which will require some additional level of supervision by the CGR. 2.92 20042013 Strategic Plan. In January 2004, the CGR presented a new Strategic Plan for the period 2004 - 2013.46Although the medium-term objectives o f this new plan are still being developed, the CGR's mission i s defined as "strengthening government control in order to ensure the implementation of government policies, the achievement of the Government's objectives, and credibility and transparency in the use of public resources." The vision statement notes that the CGR "will be an effective institution and vanguard in the consolidation process of responsible, honest, productive public management geared to the service of the national interest." 2.93 The broader strategic objectives of the new plan purport to allow the CGR to alter its current practices and operations to permit it to move toward a more performance/ results-based focus on: (i)implementation of management policies, methodologies, projects, and controls that support the efficient and effective achievement of national objectives; (ii) development o f public servants' capacities within the framework of the SAFCO Law; and (iii) evaluation and examination of the application, information and results of public policies for achieving national objectives. 2.94 Standards and norms. The Bolivian Government Audit Standards are consistent 45D.S.26115,BasicNorms for PersonalAdministration(March2001); D.S. 26255, Follow-up and Evaluationof the PublicPerformanceManagementSystem(July 2001); D.S. 26257, on the Declarationof Incomeand Assets System(July 2001); D.S. 26449, GovernmentContractingInformationSystem (December 2001); D.C. 26455, on the extensionof the mandatory use of SIGMA (December 2001). 46ContraloriaGeneral de laRepdblicade Bolivia. PlanEstratCgico2004-2013. January 2004. Bolivia CFAA Analysis: Central Government 33 with the pronouncements of the National Audit and Accounting Technical Counsel of the Bolivian Professional Accounting and Auditing Association, and harmonized with internationally recognized audit standards such as those of WAC, INTOSAI, the IIA, and the U.S. General Accounting Office. The CGR has also issued guidelines for the control and issuance of reports of the internal audit units and guidelines for the preparation o f the annual work program of internal audit units. 2.95 CGR workprogram and coverage.The CGR'has carried out between 760 and 830 examinations and audits per year over the past three years. Table 2.6 presents the institutional coverage and type of audit for 2003. EvaL Eval. Recomm Fin. Oper. Special of of Follow- Audit Audit Audit Units(a) Reports(b) up Total entral Government & Source: CGR website: www.cgr.gov.br/informes. Notes: (a) Includes evaluation of InternalAudit Units (37) andLegal Units (33). (b) Includesevaluation of InternalAudit Reports with findings (192) andPrivate Audit FirmReports(13). (c) Table totals includeone environmental audit and one public investmentaudit but do not includetwo audits of OLACEFS and four diagnostic studies. 2.96 The coverage appears to be adequate across the levels of government. There i s a strong focus on both the prefectures and municipalities, which i s appropriate in view of the weaknesses found in these institutions. The emphasis on follow-up of recommendations from previous audits and evaluations demonstrates the CGR's commitment to helping institutions improve their financial management. 2.97 Equally important i s the reception by the CGR of the financial statements from the universities and the municipalities, which highlights one of the more serious findings of this assessment: the inability of the autonomous entities to provide the required financial information to the CGR for its review in a timely and reliable manner (see Table 2.7). Bolivia CFAA Analysis: Central Government 34 Table 2.7: Timing of receipt of 2002 financial statements for municipalities and universities. Receiptof FinancialStatementsdue March31,2003 Source: CGR 2.98 Training. The CGR Training Center (CENCAP) has developed 70 guidebooks (carpetas) in areas of government administration and control. Carpetas are the equivalent of a textbook, case studies, and training techniques that are presented in one notebook. This enables trainers all over the country to use the same information for courses. In 2002, 638 training events were held for 16,414 participants country-wide. CENCAP carried out an assessment of training needs for employees in central government agencies in 2000, and for municipal-level employees in 2002. All central government auditors must complete 40 hours of training per year and supervisors must complete 60 hours; these requirements do not apply to the municipal audit staff. 2.99 Approximately three-quarters (110 of 143) CENCAP's instructors were CGR officials. This assignment puts a high premium on the time and resource allocation of CGR staff. Transparencyand Oversight 2.100 Bolivia has made considerable progress in modernizing and refocusing the role of the public sector. The challenge that the Government now needs to face i s the design of reforms aiming to increase public sector efficiency and improve governance. Since transparent and accountable public financial management i s a critical element of good governance and efficient use o f public funds and i s a driver for poverty reduction, the CFAA has focused on providing inputs to the Government in these areas. 2.101 Current initiatives in the area of public accountability arise from concerns about corruption and mechanisms to combat corruption in public affairs. These initiatives are focused on trying to change the existing culture of political inaction and establish rules andregulations to improve access to government financial information. Even after greater public debate and support from foundations and donor agencies to help prepare an Access to Public Information Law, deep-rooted political and structural impediments continue to hinder this initiative. An adequate legal framework exists, the problem i s that some Bolivia CFAA Analysis: Central Government 35 provisions have not been carried out or applied. For example, while the 2000 WB Institutional and Governance Review recommended that any institutional modernization program must include the creation of an independent institution for budget oversight and public financial management reform, there still i s no institution that oversees compliance. While the Ministry of Finance and CGR have clear responsibilities for regulating government financial management, their impact i s limited because of broader inherent weaknesses in the budget management system. 2.102 Legal framework. While the SAFCO Law and the Law of Popular Participation are key instruments for promoting transparency of government programs and actions, Congress has been reviewing the proposed Law of Transparency and the Law of Access to Public Information in September 2003. These laws establish the mechanisms by which citizens can access government financial information. However, the new laws have not been implemented because they were not supported by the Executive Branch (former administration of President Sanchez de Lozada). 2.103 The Executive Branch issued an executive order (D.S. 27329) in February 2004, establishing mechanisms for accessing public information. The Executive has also signaled that the Law of Transparency and the Law of Access to Public Information, after consultation with civil society, would be resubmitted to Congress for amendment in July 2004. These laws, if enacted and implemented, would further strengthen the legal framework. The challenge would still remain of how to apply this framework in practice and ensure compliance. 2.104 Oversight. Under the SAFCO law, government fiscal controls are carried out ex- post, under the joint responsibility of Congress and the CGR, with active parallel efforts provided b y Vigilance Committees and the Social Control Mechanism (community and civil society groups). The lack of a technically competent Congressional oversight body prevents the Government from performing effectively its part o f the oversight function. Congress has legal mechanisms that allow for access to information, such as making a formal request of information to the Executive Branch. Nevertheless, Congress does not have the technical capacity to manage budget monitoring and evaluation activities. 2.105 Accountability is a critical element of effective pubic financial management, and a well-functioning oversight mechanism i s an essential ingredient of accountability. Without credible oversight, government decision-makers and resource staff have limited incentive to refrain from abusing public trust. 2.106 As elected representatives of the people, legislatures are well placed to exercise the oversight function. However, the Bolivian Congress does not perform this oversight function. The legislators have demonstrated neither the capacity nor the interest to get into the technicalities of budget bills or audited accounts. In that sense, the Bolivian Congress i s in a similar position to legislatures in other Latin American countries, where legislators lack the technical support and interest to deal effectively with budget and accounting issues, and public debate on these matters i s perfunctory and largely political. 2.107 In principle, it would be good to upgrade the capacity o f the Congress to enable it Bolivia CFAA Analysis: Central Government 36 to conduct its oversight function. However, if the Congress does not wish to assume this role, the Government needs to buildup the capacity of some other public agency or non- governmental organization (NGO) interested in functioning as the overseer, and endorse its performance of this role. 2.108 One important objective of the upcoming National Dialogue should be to resolve the oversight function by identifying who will perform this function and empowering that institution to conduct it effectively. For this objective to be met, government decision- makers would need to increase their appreciation of the benefits of enhanced accountability, and commit to the culture change needed to enable effective oversight. 2.109 Transparency of government financial information. The presentation of the information on the Internet has only limited value, since less than 10 percent of the population has access to it. It i s recommended that the Government look for other media channels to disseminate public financial information in a manner that facilitates and encourages accountability, and empowers broad-based scrutiny. 2.110 According to the CGE, there are at least three areas of weakness that impact the transparency of financial information: (i) Extra budgetary expenditures: At the end of each fiscal year, the CGE prepares a draft Executive Order for the signature of the President, reconciling the non-registered expenses with the surpluses of various central administration entities. (ii) Overdrawn budgets: At least 10 percent of the decentralized entities overspend their budgets, however only budgeted transactions are registered. (iii) Municipal non-compliance: Many municipalities do not have audited financial statements (in spite of their legal obligation) and/or do not submit budget execution/financial reports. 2.111 Although the CGE has a webpage (http://www.hacienda.gov.bo) that contains the approved budget, it does not publish or post revenue transfers to the municipalities, operational manuals, models and statistical series, government financial statements, or current budget execution reports. Budgetary execution information i s dated (publicly available information i s at least three years old), and only aggregated transfers are reported. 2.112 Additional issues that impede greater government transparency are: 0 Lack of policy for formal access to information. The mechanisms for requesting information are non-existent or unknown. 0 Organizational weakness between the legislative and executive powers. Access to information i s made through informal and political means, since formal channels do not exist (see para. 2.13 ff, Overview of budget process). 0 The information needs of the indigenous populations are not defined nor i s information made available to them in a simple, suitable and comprehensible Bolivia CFAA Analysis: Central Government 37 manner. 0 Flawed budget process. Budgets are formulated based on incrementalism, and do not consider future plans or programs (see para. 2.19, Budgetpreparation). 0 Highly aggregated public data. Financial information and expenditure data are hard for civil society organizations to decipher. 0 Lack of comparable financial information. There are no budget reports comparing the approved budgets against execution of programs (see para. 2.59). 0 Delays of at least 8 months in the presentation of financial information (see para. 2.59). 2.113 Transparency index. Transparency International publishes its Corruption Perception Index based on perceptions of the degree of corruption as seen by business people, academics and risk analysts.47The 2003 index ranked Bolivia at 106 among 133 countries, with a score of 2.3 points on a scale from 1to 10, with 10 signifying the least corruption.48 2.114 Municipalities. The municipalities are autonomous and have the authority to assign their resources (own resources, central government transfers, and HIPC I1funds) in accordance with their development plans. The problem that arises is that, in view of the inadequate and untimely financial reporting by municipal governments, civil society blames the national government for the lack for disclosure. The Social Control Mechanisms (MNCS) have had some impact to improve public access to information regarding the distribution and use of HIPC I1 funds. However, the MNCS have not fulfilled their broader role of monitoring and evaluating the implementation of the poverty reduction programs. 2.115 Current initiatives to improve oversight and transparency. A number of projects are currently underway to improve transparency and corruption, among which are those of the President's Anticorruption Commission and a number of NGOs (see Table 2.8 and Annex 4). 47Transparency International, 2003 CorruptionPerceptions Index, explanatory notes. 48Other countries ranked at 106with Bolivia are: Honduras, Macedonia, Serbia & Montenegro, Sudan, Ukraine and Zimbabwe. Bolivia i s fourth lowest ranked country inthe Latin America and Caribbean region. Bolivia CFAA Analysis: Central Government 38 Mecanismo de Control Social Non- Support the implementation of the EBRPthrough taking an governmental active role in supervision and evaluation o f poverty related expenditures. Consejos de Desarrollo Non- Recently established to support the Comites de Vigilancia. Productivo, Econdmico y Social governmental (COPEDES) DUF Governmental Coordinates FPS and FNDR; civil society representatives sit on the Board and can therefore influence and scrutinize allocation decisions. National Statistics Office (INE) Governmental Civil society representatives sit on the Board and provide additional data to complement government work. Inter-Institutional Committee for Governmental Evaluates the implementation of the EBRP; civil society Monitoring and Evaluations representatives on the Committee. (CISE) Bolivia CFAA Analysis: Sub-National Government 39 111.CFAA ANALYSIS: SUB-NATIONAL GOVERNMENT Municipalities 3.1 The financial management framework for municipalities i s generally sound. However, there are basic weaknesses in its application, particularly in relation to internal controls and internal audit.49 The main shortcomings in accounting and financial reporting relate to a lack of capacity to generate financial information and the lack o f knowledge o f statutory requirements. 3.2The willingness of local authorities to root out corruption and to increase transparency in the use of public funds i s ~ariable.~'Special audits carried out by the CGR from 1994-2001 found that Vigilance Committees fulfilled their roles approximately 50 percent of the time.51 Administrative shortcomings and corrupt practices may occur in both small and large municipalities, and in general the Vigilance Committees have yet to overcome systemic barriers and constraints at the local level. However, where the Vigilance Committees function in accordance with the Law of Popular Participation, the risk of fraud and malfeasance i s reduced. 3.3 Legal framework: expansion of responsibilities and increase in fiscal transfers. The promulgation of the Popular Participation Law (No. 1551) in April 1994 brought about a significant degree of decentralization in Bolivia b y increasing the municipalities' share of national revenue to 20 percent (through revenue sharing or tributary co-participation), extending local government to all areas of Bolivia, devolving specific responsibilities to municipal governments, and creating new mechanisms to ensure accountability to local residents (Vigilance Committees) and responsiveness to basic needs (participatory planning). The number of municipalities increased from 122 to 311, primarily through the creation of rural municipalities. There are currently 314 municipalities and their number increased to 327 after the 2004 municipal elections due to division of some municipalities. 3.4The Municipalities Law (No. 2028) approved in October 1999 further defined the responsibilities of municipal governments, and introduced adjustments concerning the role o f municipal councils, the organization of municipal administrations, and the election of mayors. Municipal responsibilities were divided into five categories: sustainable human development, infrastructure, administrative and financial matters, consumer protection, and basic services. Of these, the emphasis in terms of budget allocation i s on human development andinfrastructure. 49Within the limited scope of this CFAA, a small number of municipalities were visited, including Chulumani, Cochabamba, ElPuente, La Paz, Montero, Padcaya, Pucarani, San Julian, Santa Cruz and Tarija. 50Ralil M.Maydana (2004), ElComitC de Vigilancia y la participaci6n y control social en el modelo municipalista de descentralizacih del Estado Boliviano. 51Vigilance Committees are required to review budget and financial reports (Law of Popular Participation). From 1994-2001, the CGR completed special audits of 229 municipalities and found that only in 124 cases did the Vigilance Committees performtheir role. Bolivia CFAA Analysis: Sub-National Government 40 3.5 With the promulgation of Law of the National Dialogue 2000 (No. 2235) in July 2001, fiscal transfers to municipal governments were further increased. The law established mechanisms for converting debt payments under H P C I1into a transfer of resources to the Municipal Solidarity Fund for Education and Health and to the National Dialogue 2000 Special Account (NDSA). The Municipal Solidarity Fund i s centrally managed by the Ministries of Education and Health, while funds in the Special Account are transferred to municipal governments, restricting their use to investments in infrastructure (70 percent), education services (20 percent) and health services (10 percent).52 While tributary co-participation i s based on a principle of per capita distribution, NDSA resources are allocated in accordance with a combined population/poverty formula. Table 3.1: Investment by central and sub-national governments Ministries 24.5 28.3 37.3 43.6 38.6 40.4 Of which: SNC 12.7 15.1 18.5 21.1 16.9 19.6 Public Enterprises 6.2 1.1 0.8 0.1 0.1 0.4 Of which: YPFB 4.9 0.5 0.5 0.0 0.0 0.0 ENDE 1.1 0.4 0.0 0.0 0.0 0.0 Regional Co-financing 19.2 18.2 18.1 13.4 14.7 17.5 Of which: FPS 8.5 6.4 5.7 4.5 6.6 9.4 FDC 1.7 2.3 3.6 2.9 0.7 0.1 FNDR 8.4 8.8 7.5 4.5 6.0 6.0 DepartmentalAdministration 25.3 27.0 22.5 24.6 29.0 20.8 Prefectures 22.7 24.9 19.8 22.1 25.7 19.8 Other Reg. Entities 2.6 2.1 2.7 2.4 3.3 0.9 LocalAdministration 24.7 25.5 21.3 18.2 17.6 21.0 Municipal Governments 23.2 25.0 19.8 16.7 16.6 19.6 Local Enterprises 1.5 0.5 1.5 1.5 1.o 1.3 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Source: Ministry of Finance and CFAA calculations. 3.6 Budget preparation. Municipalities prepare single-year budgets each year, which are accompanied by an annual work plan (Plan Operativo Annual, POA), in accordance with the requirements and formats established by the Ministry of Finance. The budget and POA are to be presented to the Municipal Council by November 15'h (Municipalities Law, Art. 44 (10)). The annual budget must include the estimated fiscal transfers (tributary co-participation and HIPC 11) as well as all public investments projects for which the municipality will receive financial support through a central government co- financing entity such as the National Fund for Regional Development (FNDR) and the _ _ _ ~ Since 2001 fiscal transfers to municipalities have become increasing complex as a result of various deductions established through national policy decisions (see Annex 4) Bolivia CFAA Analysis: Sub-National Government 41 Social and Public Investment Fund (FPS).53Budgets may be modified during the year in accordance with basic principles established by the Ministry of Finance and are subject to approval by the city or municipal council (Municipalities Law, Art. 109).Budgets may be modified twice, but in many cases, these modifications are minor in nature. Municipal budgets are not included in the national budget, except that the consolidated government public investment program i s somewhat disaggregated and reports projects executed by the municipalities. More than 100 8 48 Between 20 and 100 42 70 Between 10 and 20 89 87 Between 2 and 10 133 94 Less than 2 42 99 Source: FNDR 3.7 Revenue management. Most municipal governments have a limited revenue base. The most important local taxes are the urban real estate tax, the motor vehicle property tax, and the tax on transfers of real estate and motor vehicles. Other sources of revenue include municipal licenses, health service fees, and water charges (where there i s no water supply company or cooperative). The transfer of HIPC I1resources, incombination with a limited revenue base in many municipalities, results in a continuously high fiscal dependency rates for most municipalities. The situation in urban municipalities, where the revenue base i s potentially much larger, i s variable and largely determined by the ability to raise revenue. In 2002, L a Paz City showed a fiscal dependency rate of 0.47, while that of Santa Cruz was 1.08. Cochabamba City had a fiscal dependency rate of 0.71, while El Alto reached 2.33.54 Capital 10 75.9 15.0 9.1 100 Large(>50,000) 10 56.6 23.1 20.2 100 Medium (50,000- 137 47.2 27.3 25.4 100 10,000) Small (e 10,000) 157 40.8 29.3 29.5 100 As percent of total - 57.4 22.8 19.7 100 funding Source: World Bank. 2002 3.8 Budget Execution. There is little information or analysis available on municipal budget realism in Bolivia. The limited analysis carried out by the CFAA team shows that 53Funds transferred under the tributary co-participation and HIPC I1program are determinedby the Ministry of Finance. 54Bazin, Jose Luis (2004), Elaboracih y analisis estadistico de base de datos fiscal financier0 de Gobiernos Municipales con mis de 70,000 habitantes. Bolivia CFAA Analysis: Sub-National Government 42 within the one municipality examined there i s considerable variation from one year to another. Overall budget realism for both revenue collection and expenditure execution was found generally not to be above 90 percent.55 3.9 The credibility of municipal budgets largely depends on revenue projections, the quality o f which i s highly variable. Allocations of funds for investment projects i s somewhat less variable because financing i s based on transfers from co-financing institutions such as FPS and FNDR as well as sources of external funding. Although there are incomplete fiscal transfers under revenue-sharing and HIPC I1arrangements, these are less variable than local revenue estimations/collections.56 3.10 The 2001 Municipal Expenditures Law (Article 3) establishes a ceiling of 25 percent on municipalities' spending on salaries, personnel services and materials. The percentage i s applied to all municipalities and i s calculated on the basis of own revenue, tributary co-participation and H P C II.57 Aggregate expenditure returns for the years 2000, 2001 and 2002 for the 30 largest municipalities show that the rule i s not complied with; in 2000 current expenditure reached 50 percent, while in 2002 the percentage had dropped to 40 percent.58 3.11 Accounting. While there are several examples of functioning accounting systems used by municipalities, there i s no single uniform accounting or information system that can satisfy the needs and requirements of all municipalities in Bolivia. Determining factors driving the appropriateness of implementation include cost (of implementation and maintenance), capacity, geographyh-emoteness, and communicationskonnectivity. The largest municipalities (Santa Cruz, L a Paz, Cochabamba and El Alto) would benefit from the implementation of a more sophisticated, integrated system such as SIGMA, which could be appropriately customized to meet the needs of large urban municipalities (specific needs include taxhevenue and debt modules). 3.12 The municipal version of SIGMA was introduced in the city of L a Paz in 2003, but is not yet fully operational. Santa Cruz uses a basic bud et management and accounting system developed by Coopers & Lybrand during 1993.5$ The system i s not an integrated information tool and does not satisfy the current needs of the municipality. A few large municipalities apply the decentralized version of SIIF (Sistema Integrado de Informaci6n Financiera), the accounting system used b y central government prior to SIGMA implementation. 3.13 Since 1995, about 240 municipalities have been using the SINCOM accounting system (Sistema Integrado de Contabilidad Municipal), which integrates budget, treasury and accounting functions in accordance with the requirements of the SAFCO Law. The 55See Annex 6. See Annex 5. 57 A proposal to modify this rule, establishing a differentiated scale from 15 percent for the largest municipalities to 35 percent for the smallest, is awaiting legislative approval inCongress. Calculated on the basis o f financial statements submitted to the Ministry of Finance. 59In 1998, the firm merged with Pricewaterhouse and formed the international consulting firm, PricewaterhouseCoopers. Bolivia CFAA Analysis: Sub-National Government 43 system appears to be appropriately customized to meet the needs of small and medium- sized municipalities. Some of the smallest municipalities have only a manual accounting system or operate a spreadsheet system inExcel. 3.14 While the Ministry of Popular Participation i s expected to regularly update SINCOM, this maintenance i s not always carried out in a timely manner, due to lack of funding and highstaff turnover. As a result, many municipalities revert to managing their fiscal accounts and records using a parallel system in Excel, or they record accounting information at a later date than that of the actual transaction. This raises concerns over the reliability and security of fiscal information for reporting purposes, financial audits, and public disclosure. 3.15 Financial reporting and external auditing. While municipalities do eventually present financial statements, a lar e number are presented with substantial shortcomings in terms of basic requirements.6fThe weaknesses in the preparation and the lack of reliability of financial statements are found even in the largest municipalities, which arguably have better capacity than small and medium-sized municipalities. Some municipalities do not comply with the established deadline to submit their annual budget and POA by March 3lStof the budget year. Many do not present reports on budget execution (Budget Administration Law, Art. 3 and 11) and fail to prepare financial statements (SAFCO Law, Art. 27 (e)) within three months o f the close of the fiscal period. reporting Percent of municipalities 93 89 87 81 58 reporting 3.16 The primary causes for non-compliance with the March deadline are related to a combination of factors, including a lack of capacity to generate financial information and lack of knowledge of statutory requirements. However, according to interviews with municipal staff, political conflicts are also a large factor innon-compliance.61 3.17 Although the Ministry of Finance does maintain a record o f municipal compliance with these basic statutory requirements, it has no authority to sanction non-compliance. Furthermore, the only sanction possible (suspension of transfer o f tributary co- participation resources) rests with the Senate (the process i s initiated with a complaint by the Vigilance Committee to the Ministry of Finance under Popular Participation Law, Art. 11).Even though the Ministry is responsible for the evaluation of such complaints, it 6o305 POAs and budgets were submitted by March 31,2004. Of this total, 20 hadnot been approvedby the municipal council; 56 did not carry a favorable opinion by the Vigilance Committee. As of March 31, 2004, only 15 municipalities had submitted financial statements for 2003. 6'Prior to submitting the budget and POA to the Ministry of Finance, municipalities are required by law to obtain approvalby the Vigilance Committee and by the municipal council. Bolivia CFAA Analysis: Sub-National Government 44 may not express an opinion about the validity or reasonableness of the explanations presented by the Municipal Administration in response to the issued complaint (Budget Administration Law, Art. 23). 3.18 Znternal control. As i s also the case in many central government institutions, the absence of internal control procedures in municipal administrations constitutes one of the 3 main weaknesses of local public financial management. An important element of internal control i s the function of the Vigilance Committees.62 However, due in part to political interference and weak capacity, there i s a great deal of variation of the effectiveness o f these committees in fulfilling their role. 3.19 Although specific regulations may have been prepared, these are often not made operational in the form of manuals andor operative systems and procedures/processes. Payments procedures are often informal and do not ensure adequate internal control of financial transactions (e.g., through segregation of duties). Such practices are pervasive in some large urban municipalities as well as in most small, medium-sized, and rural municipalities. 3.20 From 1997-2002, the CGR had undertaken an evaluation of the Administrative and Control Systems (SAYCO) in about 90 percent of all municipalities. Despite the fact that these reviews are generating some initial results in terms of preparation andor updating of both manuals as well as of specific regulations, an analysis of follow-up reviews of the SAYCO audit does show that implementation of recommendations and reforms has been This is due in part to the fact that there was little effort, until recently, to assist local governments to fully implement reforms. 3.21 Internal and external auditing. While all large and a few medium-sized municipalities have established internal audit units, internal audit capacity i s generally lacking in small municipalities. The 2002 CGR report stated that only 38 of 314 municipalities had an internal audit unit. Art. 171 of the Municipalities Law of 1999 introduced the possibility of establishing Joint Internal Audit Units (under the concept of mancomunidad) for municipalities with populations of less than 50,000, but this had not been widely embraced. 3.22 Internal audit at the municipal level i s subject to the same regulations as at the central government The same structural weakness found in central government i s also prevalent at the municipal level, that is, implementation of internal audit recommendations i s solely dependent on the executive (in this case, the mayor). Internal audit units should, in addition to reporting directly to the mayor, also report to the municipal council. While this may not improve the quality of internal audit reports, it would provide an additional level of review and action with regard to findings and recommendations. ~~~~ ~ 62 Law No. 1551, Popular Participation. 63 CGR 1998Report. 64 Section 300 of the Government Audit Standards. Bolivia CFAA Analysis: Sub-National Government 45 3.23 The CGR i s responsible for the external audit of all municipalities. Private firms may be contracted to carry out the external audit in only a few specific cases. The CGR does audit the 10 largest municipalities (based on population) and employs a policy to perform at least one audit or follow-up review per year. In small and medium-sized municipalities, the CGR chooses among special, financial, SAYCO audits, or follow-up reviews, thereby ensuring that each municipality will be visited at least once a year. 3.24 Public oversight in the municipalities. Despite being legally obligated to report outturns, as Table 3.4 shows, municipalities report little. The number of municipalities reporting in the period 1997-2001 declined from 93 percent to 58 percent. In part this may be attributed to the increase in their power over resource allocation subsequent to the Bolivian Strategy for Poverty Reduction (EBRP): it i s arguable that the enhancement of municipality authority has had the unintended impact of malung them feel less accountable to central government, as accountability to their local population has increased. Innovative mechanisms for social control that were introduced under the Popular Participation Law are not functioning as intended, partly because of the distorted incentives and accountability relations across the three levels of g ~ v e r n m e n t . ~ ~ 3.25 Human resources. Apart from the city of L a Paz, which introduced an administrative career structure in February 2004, no city or municipal administration has embarked on a staff institutionalization process.66 Instability/staff turnover and lack of qualified staff are common features, although mainly linked to the change of mayor after municipal elections or during term of office. 3.26 Since 1994, the CGR's National Training Center (CENCAP) has operated a training program for administrative, finance and technical staff that i s designed for large urban municipalities. The training program i s focused on the application of public administration legislation, including the SAFCO Law, in local government. The CGR conducted a diagnostic o f training needs in 2002, resulting in a redesigned program that focused on responding to the differing needs of a range of municipalities. The training program now offers a more customized menu of courses with application of the eight sub-systems of the SAFCO Law for large, medium and small/rural m~nicipalities.~~ 3.27 Until now, Vigilance Committees and local politicians were not permitted to attend training courses at the CENCAP, since they did not have the status of public employees. However, in recognition o f the vital role these committees can play, and to provide the proper orientation to local political candidates, the CGR i s currently preparing legislation, in coordination with Ministry of Poplar Participation, that will permit the members of the committees and political candidates to receive the appropriate training. 3.28 Recommendations.Each of the 10 largest municipalities carries out a complete 65Institutional and Governance Review, page 98. 66As indicatedby its low fiscal dependency rate, L aPaz City has become a model of municipal `'administrationinof Bolivia, with continuous improvements infinancial management since 2000. The Ministry Popular Participation also provides technical assistance and training in the areas of preparation of POAs, budgets and financial statements. Bolivia CFAA Analysis: Sub-National Government 46 fiscal analysis, including reconciliations completed, opening balances ascertained, and the financial accounts of the municipality put in order, to apply the SIGMA-Municipal system. Each municipality should be able to produce basic financial reports including budget execution, cash flow statements, and bank reconciliation for 2003/2004. Additionally, the requirements for financial reporting should be rationalized so that small and medium-sized municipalities are required to submit simpler budget outturn and cash flow reports, rather than more complex financial statements. Prefectures 3.29 Legal framework: deconcentration of responsibilities and administrative transfers. With the promulgation of the Administrative Decentralization Law (No. 1654) in July 1995, which dissolved the Regional Development Corporations, specific responsibilities were deconcentrated to the prefectures or departmental administrations.68 New responsibilities for the prefectures included the execution of public investments in the areas of roads, rural electrification, irrigation, support to agricultural production, environmental conservation, and promotion of tourism. The prefectures were also given the responsibility for supporting the development of local government (Popular Participation). Finally, an important expansion of responsibilities concerned the management of budget and human resources in the education, health and social assistance sectors.69 3.30 The Administrative Decentralization Law modified the existing structure for revenue sharing by allocating 25 percent of the revenue from the Special Tax on Hydrocarbon Products (IEHD) to departmental administrations. The law also confirmed the concept of departmental royalties for hydrocarbon production and mining, and maintained the Departmental Compensation Fund.70 To support the delegated responsibility of managing the budget for personnel expenditures in the social sectors, the law introduced the concept of administrative transfers of Treasury resources. Finally, regional administrations were allowed their own source of income through the sale of services (certificates, licenses) to the public. 3.31 Although the Administrative Decentralization Law provided the prefectures with an enhanced role in both regional development and service delivery, the prefectures have not been able to perform as intended. This inability has much to do with their role as the political arm of national government and its supporting coalition. Furthermore, the prefectures have not been able to support the development of local government, not only due to conflicting roles in certain areas but also due to a reluctance of assisting municipal governments ruled by political parties in opposition to the national government. The current Government i s considering a change in the organizational structure of prefectures Itshould beemphasized that the process of administrative decentralizationdidnot involve the establishment of regional governments. Thus, the Prefects remain representatives of the President and central government. 69Contrary to all other responsibilities established under the Administrative DecentralizationLaw, this articular area is considered to be delegated by central government, rather than transferred outright. Originally established under the Popular Participation Law to benefit the Regional Development Corporations indepartments with a below-average collection of royalties. Bolivia CFAA Analysis: Sub-National Government 47 by incorporating the service units into administrative directorates, and allowing the prefectures greater responsibility and autonomy in public administration and management. 3.32 While both internal and external auditing functions are generally undertaken in a satisfactory manner, there are substantial shortcomings in the application of internal control functions. Inadequate follow-up on audit recommendations remains a problem. Considering the overall weakness in preventing the unauthorized use o f funds, the control risk must be consideredas substantial. 3.33 The attitude o f prefects and senior staff of the departmental administrations towards rooting out corruption has generally been slack OR indifferent OR uneven OR relaxed. Until recently, the appointment of prefects was based on criteria of political preference and at times has also reflected regional political pressures. Prefects have in turn responded to the same preferences and pressures by appointing staff without always often consideringbasic qualifications required for performing public functions. 3.34 Budget preparation. Investment budgets are prepared on an annual basis with an annual work plan (Plan Operativo Annual) in accordance with the requirements and formats issued by the Ministry o f Finance. Budget formulation i s regulated by law,71 and establishes a ceiling o f 15 percent for administrative costs (salaries and personnel services); 85 percent of the budget i s programmed for investment programs. Investments are primarily allocated to infrastructure projects (roads, rural electrification, and irrigation). However, these allocations do not appear to be made in accordance with regional development plans, but rather on the basis of political or external influence. 3.35 Social sector expenditures include both capital and recurrent costs. The social sector budgets are based on separate transfers from central government, and are prepared by the sector ministries. These sector programs are subsequently incorporated into prefecture budgets and account for more than 50 percent o f the overall prefectural budget. 3.36 Revenue management. Under the effort to decentralize public administration, the revenue structure o f prefectures has changed considerably, with administrative transfers constituting the main revenue source. Included in revenue estimations are departmental royalties earned from the hydrocarbon and mining sectors.72 Transfers from the Departmental Compensation Fundare used to offset low royalties, for example in L a Paz and Potosi. 3.37 Budget execution. Within the scope of the CFAA, fieldwork, data collection and interviews were undertaken in the prefectures o f Cochabamba, Oruro and Santa Cruz. Estimates for the prefecture of Cochabamba show an execution rate of 95-100 percent for administrative transfers,73 while for other revenue the rate was in the range of 64-71 71 Article22, Administrative Decentralization Law. This ratio i s calculated on the basis of revenue available from royalties, the Departmental Compensation Fundand IEHD. 72Royalties account for approximately 11percent of revenue inprefectures. 73 Administrative transfers referred to are those covering personnel expenditures inthe social sectors. In practice these transfers do not take place and salary payments are centrally managed by the Ministry of Bolivia CFAA Analysis: Sub-National Government 48 percent. Current expenditure execution was in the range of 87-92 percent, while that of investments was 73-75 percent. For Oruro, the execution rates were 85-87 percent for administrative transfers and 50-64 percent for other revenue. Current expenditure rate was in the range of 74-88 percent, while that of investments was 53-83 percent.74 3.38 Budget realism in prefectures i s uneven. For social sector expenditures, execution i s generally between 95-100 percent, due to greater predictability in revenue transfer from central government. However, budget execution for investment programs ranges from 55-90 percent (see Table 3.5 and Annex 7). ITotal 1109 189 182 193 Source: Ministry of Finance, FPS 3.39 Accounting. Prefectures are an administrative extension of central government, and as such, are also subject to the provisions of the SAFCO Law. All prefectures use the decentralized version of the Sistema Integrado de Informacih Financiera (SIF), which was specifically developed to suit the needs of decentralized government institutions. Due to the planned implementation of SIGMA in 2001, the full development of SIIF was not completed and the modules for treasury functions and bank reconciliations were never introduced. To date, the only prefecture where SIGMA operates i s L a Paz, on a pilot basis. 3.40 FinanciaE reporting. Generally, the departmental administrations comply with the basic reporting requirements established b y the Ministry of Finance. However, there are often delays in the submission of financial statements, which are due not later than March 31St of the subsequent budget year. Reports on both budget execution and financial statements include revenue and expenditures relating to personnel in the social sectors. The quality of data in balance sheets in financial statements i s poor, particularly in relation to the valuation of assets (property, vehicles, machinery and inventory). 3.41 Internal control. Most prefectures have made progress in approving the specific regulations required under the SAFCO Law. However, in most cases the operational Finance and sector ministries. l4 See Annex 7. Bolivia CFAA Analysis: Sub-National Government 49 manuals are not updated and a considerable degree of informality rules over financial management, particularly with regard to payments. All prefectures have been subject to the evaluation of their Administrative and Control Systems (SAYCO) by the CGR. The first SAYCO audit was completed in 1998, after the passage of the SAFCO Law, and evaluation/follow-up work was carried out in 2002. The results indicate that the primary weakness was the lack of complete and accurate application of rules and regulations. 3.42 Znternal auditing. All prefectures have internal audit units (IAU), which are required to issue an opinion on the reliability of the annual financial statements that report directly to the Prefect0 (Prefect or Governor).75While the units generally comply with this task, delays are not uncommon. Internal audit reports are also submitted to the CGR for further review and approval, and are published on the CGR's website. Although the IAUs also monitor the implementation o f recommendations, the level of compliance to implement the necessary changes is highly dependent on the attitude of the Prefect. 3.43 External auditing. The annual financial statements of all prefectures are subject to a financial audit by the CGR.76 These audit reports are normally accompanied by recommendations on the accounting and internal control systems. Results of the 2002 audit of prefectures covering the 2001 financial statements are shown inTable 3.6. Prefecture Audit # of limitations in # of Dateof report Opinion scopdqualifications recommendations Source: CGR 3.44 The audit results, including the nature of scope limitation and qualification, indicate a poor level of accounting, and the general unreliability of financial information. The weaknesses are not due solely to the lack of an integrated accounting system, but also point to weak capacity to prepare financial statements and reports.77 As a result of the 2001 audit, the CGR decided not to carry out financial audits for prefectures' 2002 75 The majority of work undertaken by the internal audit units is related to special audits, concerning legal compliance, contractual obligations and determination of indication of responsibility under SAFCO Law. 76This is incontrast with the situation for the central government in general. 77These include: balance sheet, statement of income and expenditures, statement o f cash flows, statement of changes in equity, statement o f budgetary execution, and the statement of account savings, investment and financing. Bolivia CFAA Analvsis: Sub-National Government 50 financial statements, and instead focused on reviewing the implementation of recommendations. The results of this follow-up work are summarized inTable 3.7. Source:CGR *Review also included2002 auditrecommendations 3.45 Human resources. A partial administrative career structure exists in some prefectures while others appoint staff "by i n ~ i t a t i o n "Staff continuity i s determined not . ~ ~ only b y the procedures for selection and appointment, but also at times by the need to maintain qualified staff in key functions, e.g., budgeting, treasury and audit. Staff turnover i s therefore a result o f a combination of factors, and i s not completely determined by political preference. 3.46 Staff may participate in the training program offered by CGR's national training center, CENCAP. Often, however, staff with the greatest need for training do not receive appropriate training due to lack of knowledge that specific training is offered or, more often, lack of interest. 3.47 Recommendations.Each prefecture should carry out a complete fiscal analysis, including reconciliations completed, opening balances ascertained, and the financial accounts of the prefecture put in order, to apply the SIGMA system. Each prefecture should be able to produce basic financial reports including budget execution, cash flow statements, and bank reconciliation for 2003/2004. 78 About20 percent of staff inCochabamba are appointed as part of an administrative career structure, while inOruro, none are. Bolivia CFAA PFM Perfortnance Measiirenient Fratne\t-ork 51 IV. BOLIVIA'S PFMPERFORMANCEMEASUREMENT FRAMEWORK 4.1 A good PFM system i s an important tool for Government to implement economic policies and achieve its development objectives. Specifically, the goal of a PFMsystem i s to support aggregate fiscal discipline, strategic allocation of funds, value for money, and probity in the use of public funds. The primary purpose of the PFM Performance Measurement Framework i s to provide a standard set of high-level indicators that will enable regular monitoring of the performance of Bolivia's PFM systems.79 This framework is also used to measure the fiduciary risk in Bolivia, which i s defined as the extent to which the country's PFM systems, practices and accountability arrangements support the Government's efforts to implement poverty reduction and pro-poor growth programs. '4.2Bolivia's country PFM risk rating i s substantial. The Government of Bolivia has shown progress in improving its PFM. However, the weaknesses found in the uneven application of the legal framework, particularly with regard to financial reporting and the internal control environment, offset these advances. From the donor perspective, the country risk rating i s relevant, given the current initiative to activate budget support programs. 4.3 The indicators used in this CFAA focus on the operational performance of PFM systems, processes and institutions and seek to assess them against a set of six critical objectives: budget realism; comprehensive, policy-based budget; fiscal management; information; control; and accountability and transparency. 4.4 Bolivia's institutions (central government) responsible for PFM, in particular the Ministry of Finance and the CGR, have made substantial progress in improving PFM systems and processes since the 1999 CFAA. In particular, Bolivia has achieved strong performance ratings (A or B) in 6 out of 17 areas rated: budget coverage and external audit (both A's), budget classification, cash flow management, debt management, data reconciliation (all B's). This has resulted in reducing the country risk rating from high to substantiala 4.5 Areas where weaknesses remain (rating of C) are composition of expenditures vs. budget, revenue estimates, expenditure arrears, treatment of poverty-related expenditure, public access to information, effectiveness of internal controls, effectiveness of internal audit, and in-year budget reports. The areas of lowest performance (rating of D) are multi-year perspective, legislative scrutiny, and audit presentation to Congress. Compositionof ExpenditureOutturnComparedto OriginalBudget 4.6 General assessment: (C) - There i s a systematic over-budgeting of recurrent and 79The application of this framework applies primarily to Central Government operations. See Annex 5 of The PFMPerformance Measurement Framework, Revised Consultative Draft, February 5, 2004, for a complete list of the high-level PFMperformance indicators. Bolivia CFAA PFM PerjGormanceMeasurement Framework 52 capital expenditures, both at central and local levels. Duringthe budget preparation stage, the Government tries to avoid large deficits b y establishing spending ceilings. These ceilings, however, are not linked to an evaluation of the success of programs in prior years, and do not reflect Government strategic planning. Actual deficits have consistently exceeded budget projections, and as a result, debt continues to increase, raising concerns about fiscal sustainability.80 Budget reallocations are significant, particularly at the institutional level. Operations related to projects financed by external loans or grants are often introduced duringexecution, and are reflectedinthe budget execution statements. Table 4.1: Budget appropriations and execution by line ministries, 2001-03. (thousands of Bs) 2001 2002 2003 Approved Executed '70 Approved Executed % Approved Executed % Central Administration 21,146 19,249 91.0 23,880 22,746 95.3 25,418 25,075 98.7 Treasury 16,693 14,744 88.3 19,012 18,002 94.7 20,258 20,415 100.8 Ministry of Government 735 799 108.7 845 824 97.5 921 867 94.2 Ministry of Education 270 336 124.2 313 297 95.1 332 229 68.9 Ministry of Defense 918 1,066 116.1 976 1,045 107.0 1,018 1,178 115.7 Ministry of Finance 309 300 97.0 249 193 77.6 239 193 80.7 Ministry of Health 256 221 86.6 266 241 90.6 361 279 77.2 Ministry of Agriculture 366 256 70.0 430 344 80.0 544 384 70.6 LegislativeBranch 200 207 103.5 212 222 104.9 203 214 105.3 Judicial Branch 409 316 77.5 435 333 76.5 402 357 88.7 Other 992 1,004 101.2 1,143 1,246 109.0 1,140 960 84.2 Deconcentratedagencies/1 2,531 3,716 146.8 3,313 4,115 124.2 3,191 ,3043 95.4 Publicfinance sector /1 1,338 960 71.8 1,693 908 53.7 995 598 60.0 Socialsecurity agencies/1 1,169 1,180 100.9 1,334 1,420 106.5 239 261 109.3 Public enterprises/1 2,893 2,776 96.0 1,360 1,263 92.8 786 947 120.5 PrefecturesI1 4,375 4,525 103.4 4,576 4,050 88.5 3,052 1678 55.0 Municipalities/1 1,481 4,531 305.9 1,638 3,841 234.6 747 2316 309.9 1/ Note: The table takes into account only data reported to the CGE. A significant number of decentralizedinstitutions, prefectures and municipalities (8*) did not report their financial statements to the CGE, thus their information i s not available. Aggregate Domestic Revenue Compared to Original Budget 4.7 General assessment: (C) - Economic growth rates have been overestimated, on average, by more than 2 percent each year since 1999. However, most of the revenue overestimation has resulted from unrealistic predictions o f efficiency gains in revenue collection. Although predicted gains for the customs agency (SNA) and the revenue collection agency (SNII) have been lower in the last two years, they are still high (see table 4.2). 2004 PER, page 63. Bolivia CFAA PFM Performance Measurement Framework 53 Table 4.2 Economic growth rates, deficits and efficiency gains, 1999-2003. Growth Deficit Predicted Efficiency Gains Year Predicted Actual Predicted Actual S N I I SNA 1999 5.2 0.6 3.6 3.7 9.0 17.0 2000 4.0 2.3 3.7 4.2 9.9 21.8 2001 4.5 1.5 3.7 7.0 10.0 10.0 2002 3.0 2.7 5.7 8.6 3.0 3.0 2003 2.9 2.4 6.5 7.9 5.0 5.0 Source: 2004 PER ExpenditureArrears 4.8 General assessment: (C)- Incentral government, arrears are small and vary within a range of US$ (+/-) 10 million. In 2000, floating debt represented approximately 1percent of GDP (about US$lOO million), and was projected to reach 2.5 percent in 2002. At the sub-national level, arrears are much more significant (see Table 2.5). This i s due in part to limitations on data collection and data availability, and results in an increase in the stock of arrears once municipalities submit annual reports (March 31). Budget Expenditure Report Coverage 4.9 General assessment: (A) - While extra-budgetary operations exist, they are not significant. In 2003, off-budget transactions represented about 1.2 percent of GDP. Although SIGMA does not permit off-budget transactions, institutions are able to subvert the system by manually recording expenditures, transferring between positive and negative budget categories (to avoid overdrafts), andjustifying these changes through the issuance of an executive decree. In general, all donor grants and donations are included in budget reports. Budget Classification 4.10 General assessment: (B) - Budget operations are classifiedinconformity with international standards. The budget does not use functional classifications to relate the use of funds to public sector programs, although the Accountant General (CGE) uses a functional classification to produce budget execution reports.*l This functional classification does not represent the coding of individual transactions, but i s rather an amalgamation of institutional classifications. Budget Treatment of Poverty-Related Expenditure 4.11 General assessment: (C) - The CGE provides information on the central government's recurrent poverty-reducing expenditures during budget execution. The 81The functional classification i s a tool o f the CGE, but is not used for broader budget preparation or execution. Bolivia CFAA PFM Performance Measurement Framework 54 usage of HIPC I1resources i s moderately documented at both central and local levels, and is monitored on a quarterly basis. Overall consolidation of municipal poverty- reducing expenditures (including sources other than HIPC I1funds) i s the responsibility of the Fiscal Programming Unit (UPF), which does not carry out this work in a timely manner but rather with a time lag of up to six months. InformationPublication and Accessibility 4.12 General assessment: (C) The annual approved budget for central government i s - published along with all audit reports of the CGR. However, the published budget i s not presented in a clear, readable format, and there are no in-year budget reports available to the public. Municipalities generally do not publish financial information. Government financial statements are not consolidated. Multi-Year Perspective 4.13 General assessment: (0)-There is no medium-term expenditure framework in Bolivia. While the 2004-2008 Bolivian Strategy for Poverty Reduction (EBRP) will include budget projections,s2 currently there are no tools to integrate these projections into the preparation of the budget, to assess the long-term costs o f current policies, or to forecast poverty-reducing spending. Legislative Scrutiny 4.14 General assessment: (0) In Bolivia, the Congress does not have sufficient time - to analyze the budget, make informed decisions, and efficiently allocate resources. On average, during the period 1990-2003, budgets have been approved with a 60-day delay (except for the period 1999-2001). Furthermore, the Congress lacks the technical budget expertise to evaluate the tradeoffs regarding the effectiveness of different government programs, nor is information provided regarding the efficiency of these programs. Consequently, decisions regarding reallocation and increases in expenditures are not based on efficiency considerations, but rather respond to political incentives or to the pressures of special interest groups.83 Cash Flow Planning, Managementand Monitoring 4.15 General assessment: (B) - The Treasury is responsible for verifying the availability of funds to meet current expenditures. Apart from the initial budgetexecution estimates, monthly expenditure estimates are produced, based on available resources. The Treasury updates revenue account balances on a weekly (sometimes daily) basis and also prioritizes transfers (e.g., planned transfers to prefectures and municipalities) based on the availability of funds. 82 The EBRP is expectedto be drafted uponcompletion of the fourth stage of the upcoming National Dialogue, World Bank Country Assistance Strategy, page 13. 83 See2004 PER,Chapter 2: Budget Process. Bolivia CFAA PFM Performance Measurement Framework 55 Debt Management Procedures 4.16 General assessment: (B) - Debt management in Bolivia i s strong. The BCB manages Government debt information on a single computerized debt management system and produces regular analyses of debt sustainability and regular reports. Local government debt (implicit debt) i s neither well known nor registered by the central government. Although the issuance of government guarantees (including on-lending) i s made on transparent basis, there are no provisions made for them in the budget. Effectivenessof Internal Controls 4.17 General assessment: (C) - Internal control i s only partially effective. Although there i s a sound normative framework for internal controls which i s supported by adequate systems and processes, in general, the degree of compliance with rules and regulations i s low, especially within governmental institutions where there i s low executive commitment, high personnel turnover and instability, as well as a high degree of political intervention. Effectivenessof Internal Audit 4.18 General assessment: (C) The implementation of internal audit recommendations - i s dependent on the head of each agency; there i s no incentive to implement recommendations or improve controls. According to periodic supervision and assessment of internal audit units and reports by the CGR, the quality and effectiveness of internal audit i s poor. Factors that contribute to the ineffectiveness of internal audit are lack of managerial support, high levels of turnover and staff instability, low wages, and lack of technical competency. Timeliness and Regularity of Data Reconciliation 4.19 General assessment: (B) All government bank accounts are reconciled regularly - and in a timely manner with government accounting records. For all government bank accounts held at the Central Bank, a daily reconciliation i s performed. Executive reconciliation reports are available on a daily basis; complete reconciliation reports are available monthly. 4.20 At the municipal level, reconciliation of bank accounts, including own revenue accounts, i s carried out only in a small number of municipalities. Large municipalities usually carry out monthly reconciliations, while smaller municipalities do not carry out these reconciliations ina timely or satisfactory manner. Timeliness, Quality and Dissemination of In-Year Budget Reports 4.21 General assessment: (C) - Monthly information i s available only for central government and institutions that manage their budget and accounting via SIGMA. Prefectures and municipalities do not present in-year budget execution reports. The UPF Bolivia CFAA PFM Performance Measurement Framework 56 collects information from 111 of 314 municipalities (these 111 municipalities represent 84 percent o f the population and 75 percent of HIPC I1funds). However, the information i s collected manually, with considerable delay, and does not facilitate timely budget monitoring (see Table 2.7). Timeliness of Presentationof AuditedFinancialStatements to the Legislature 4.22 General assessment: (0) Congress receives budget execution reports more than - six months after the end of the fiscal year. There are no audited financial statements for central government spending. The CGR concluded that the financial statements were not produced in accordance with recognized accounting standards, and therefore was unable to express an audit opinion. Central Government financial statements are compliant with cash-basis Government Finance Statistics (GFS), but are not compliant with International Public Sector Accounting Standards (IPSAs). The Scope and Natureof ExternalAudit 4.23 General assessment: (A) -The CGR has audited financial statements for central government in 2001 and 2002 and for all prefectures and large municipalities in 2001. The CGR has not been able to express an opinion however, and as a result, has initiated a program to assist governments to improve their financial statements. 4.24 In small and medium-sized municipalities, the CGR chooses among special, financial or SAYCO audits, thereby ensuring that each municipality will be visited a least once per year. Risk-mitigatingMeasures 4.25 While Bolivia's PFM indicators seem to be balanced (the average of the sub- ratings would indicate a moderate to substantial rating), the overall risk rating i s still considered to be substantial. The overarching and deeply rooted weaknesses in the internal control framework (including poor budget execution controls), weak internal audit, and an absence of an effective oversight mechanism outweigh the progress that has been made with regard to PFM systems design. The recommendations set forth in Chapter 5 (see section on Programs for Improved Financial Management) are built upon the 18-month time-frame leading up to the Constitutional Assembly, and address areas directly within the control of the Government. 4.26 The nature of these recommendations does not address compliance with controls or the internal control environment. The recommendations do not go far enough to reduce the risk from substantial to moderate. In order to do this, there would need to be an effort between the Government and the donors to address the issue of culture change to improve the rate of compliance with laws, rules, and regulations. Bolivia CFAA Conclusionsand Policy Recommendations 57 V. CONCLUSIONSAND POLICY RECOMMENDATIONS 5.1 The principle findings of the CFAA are: SIGMA has been implemented in all but one central government agency, and i s also in use at decentralized government institutions such as the DUF, Customs, SNC and state universities. At the sub-national level (municipalities), only L a Paz and Cochabamba have implemented SIGMA. The system was designed to operate as a management tool, but practice reveals that the SIGMA i s used primarily as a payment system. SIGMA i s a system that was designed for central government agencies, and the analysis shows that the information needs of all decentralized agencies were not incorporatedinto the original design. Although provisions have been made for technical support to address this issue, work has not begun to customize the system to meet the needs of such agencies. Registration of budget expenditures i s problematic at the point of data entry, due to high staff turnover and unfamiliarity with the system. From a PFM perspective, there are four main issues in the area of budget: (i) the budget as voted i s unrealistic, based on systematic and persistent overestimates of revenue; (ii) the budget process has several weaknesses and the formulation of annual work plans i s more procedural than strategic, thereby weakening the usefulness o f the budget as a tool; (iii) since SIGMA does not currently include prefectures or municipalities, a significant portion of the budget i s not monitored or controlled via SIGMA; and (iv) the use of HIPC resources i s not monitored ina timely fashion. The analysis of internal controls by the CGR indicates that only about 25 percent of the recommendations of the different types of audits (SAYCO, financial, special purpose and operational audits) were implemented in 2001 and 2002. These results demonstrate that it i s necessary to focus not only on the implementation of these regulations and enforcement of the use of SIGMA, but also to take into account that i s a considerable level of resistance to changing the internal control environment as well as a lack of capacity and/or understanding to implement the changes. According to periodic supervision and assessment of internal audit units and internal audit reports by the CGR, internal audit i s weak. Factors that contribute to the ineffectiveness of internal audit are lack of managerial support, high levels of turnover and staff instability, low wages, and lack of technical competence. While the CGR has taken a more proactive role recently by providing training to internal audit staff (through the CENCAP), these efforts have not had the expected impact of sustainable improvement of the control environment. The underlying problem i s that implementation of internal audit recommendations i s dependent on the agency executive because there i s no incentive to improve internal controls or more generally, governance. Bolivia CFAA Conclusions and Policy Recommendations 58 0 The national Chart of Accounts was developed primarily for central government. However, advances in implementing decentralization have made it necessary to revise the Chart of Accounts. The inflexibility of a single Chart of Accounts represents one of the primary obstacles to meeting the information needs for decentralized institutions and governments, including municipalities. Annual published financial reports contain only statistical information. Consolidated annual financial statements for the public sector are not produced, in part due to the lack of financial reports from prefectures, municipalities and the decentralized sector. As such, there are considerable gaps in the annual government financial statements, which unless resolved, cannot lead to the publication of meaningful government financial information. Since 1999, the CGR has been working on improving the quality o f its work by undergoing an institutional assessment to ensure that it has an appropriate quality management system for its products and services. The CGR i s fulfilling its role as the independent supreme audit institution and has recently adopted an ambitious plan to improve follow-up of its audit recommendations with audited public sector entities in order to improve the financial management in those institutions. However, the entities' tardiness in submitting financial statements, the high number of CGR recommendations, and the lack of media and congressional follow-up imply that there i s either a lack of understanding of the importance of control in the public sector or there i s no strong demand for this information within Government or by civil society, even though the information i s publicly available. Congress does not have the technical capacity to manage budget monitoring and evaluation activities. There i s a clear need to establish an effective and competent oversight body, whether it i s through a congressional budget office or separate institution. The financial management framework for municipalities i s generally sound. However, there are basic weaknesses in its application, particularly in relation to internal controls and internal audit. The main shortcomings in accounting and financial reporting relate to a lack of capacity to generate financial information and the lack of knowledge of statutory requirements. Although the Administrative Decentralization Law provided the prefectures with an enhanced role in both regional development and service delivery, the prefectures have not been able to perform as intended. There are substantial shortcomings in the application of internal control functions, while both internal and external auditing functions are generally undertaken in a satisfactory manner. Follow-up on audit recommendations remains a problem. While the departmental administrations eventually comply with the basic reporting requirements established b y the Ministry of Finance, there are often significant delays in the submission of financial statements, which are due not later than March 31 of the Bolivia CFAA Conclusions and Policy Recommendations 59 subsequent budget year. The annual financial statements of all prefectures are subject to a financial audit by the CGR. The 2002 audit results indicate a poor level of accounting, andthe general unreliability of financial information. Constraintsto ProposedPFMImprovements 5.2 The Constitutional Assembly, scheduled to convene in approximately 18 months, will decide the political future of Bolivia, including broader legal, institutional and governance issues. The CFAA team has recognized this limitation with regard to proposing a comprehensive package of policy and systems-related recommendations. As such, the CFAA recommendations have been framed within this 18-month timeframe, given the political uncertainty beyond the completion of the Constitutional Assembly. The CFAA recommendations attempt to help the Government to complete the design and application of systems and process. Upon conclusion of the Constitutional Assembly, it i s recommended that the donor community reengage the Government in order to design a second phase to this series of recommendations. The second phase of reforms should address deeper issues of governance, PFMaccountability arrangements, and other policy- related issues. Programsfor ImprovedFinancialManagement 5.3 The donor community has been supporting improvements in public sector financial management since at least 1997. The donor community has indicated its willingness to continue supporting such initiatives, which i s a key aspect to yield positive improvements and results of a primarily systemic nature, and to lend support to strengthen the incentives for improved governance. 5.4 The framework of policies and Government decisions being sought in connection with Multi-Donor Budget Support Program (MDBS) will form the foundation for the successful implementation of a series of programs to continue to upgrade Bolivia's public financial management systems, practices, and accountability arrangements. 5.5 Consequently, the CFAA's policy recommendations are derived from a set of principles for governance. The policy decisions to implement these principles are those that would establish broader transparency and comprehensiveness in the budget, more timely, frequent and comprehensive budget and financial reporting, broad access to information, transparency and oversight of public financial management, and improved internal controls for public financial management. In addition to the systems improvements supported by the MDBS, these programs are designed to: Broaden the reach o f the integratedfinancial management system (SIGMA) to include decentralized entities, all prefectures, and the 10 largest municipalities. Improve financial reporting for all centralized and decentralized government entities, as well as for all prefectures and the 10largest municipalities. Improve the implementation of internal control findings at the sector, Bolivia CFAA Conclusions and Policy Recommendations 60 prefecture and municipal levels. 5.6 SIGMA. The Government's Integrated Financial Management System (SIGMA) i s adequate to provide timely and reliable financial information for the central government; however in the short term, it needs to be expanded to include the decentralized entities, the prefectures and the 10 largest m~nicipalities.~~The result of such an adaptation would increase budget coverage and improve the flow of government financial information. 5.7 Additionally, a comprehensive securityback-up plan for the SIGMA system urgently needs to be developed, funded and implemented. This plan should address the overall sustainability and security of the primary source of government financial information. 5.8 In the medium term, the Government should evaluate the cost-effectiveness of implementing SIGMA-Municipal or an upgraded version o f SINCOM, before expanding coverage to include the medium-sized and small municipalities. This task i s of particular importance as these municipalities receive both direct transfers and HIPC funds from central government. 5.9 InternalControl and InternalAudit. Responsibility for providing an adequate and effective internal control structure rests with an organization's management. The head of each governmental organization must ensure that a proper internal control structure i s instituted, reviewed and updated to keep it effective. Management establishes an independent audit function as a key part of the internal control structure, establishes objectives for the audit function, and ensures that there are no restrictions on auditors in meeting these objectives. 5.10 The difference between internal control and internal audit has not been fully institutionalizedby the executive branch ministers and prefects (governors). Although all ministries and prefectures maintain internal audit units, it i s recommended that two steps be taken to internalize the role of internal control and internal audit: Each minister and prefect should submit to the Delegacidn Anticorrupcih a copy of the entity's internal control plan. 0 Each minister and prefect should establish an audit committee according to the IIA International Standards for the Professional Practice for Internal Auditing. 5.11 Furthermore, the CGR should be responsible for: 0 Providing annual training to government executives (ministers, vice-ministers, directors, prefects and mayors) in internal control, and certification of participation in the Delegacidn Anticorrupcidn. 0 Continuing to receive the annual internal audit work plans from all central government entities, decentralized entities, prefectures and municipalities. 84The IDB financed project has funding to support implementation in the 10largest municipalities (Cochabamba, El Alto, L a Paz, Oruru, Potosi, Quillaollo, Sacaba, Santa Cruz, Sucre and Tarija). Bolivia CFAA Conclusions and Policy Recommendations 61 0 Providing semi-annual reports on outstanding internal control recommendations to Congress in order to enforce entity compliance with the recommendations. 5.12 Transparency and Oversight. The Government i s making every effort to provide more complete financial information via the Internet and other media, in order to promote greater transparency over the use of public resources. Information should not only be accessible but understandable by the public at large. The results of Congressional deliberations on all areas of public financial management should be disseminated. 5.13 To this end, the Government has already initiated measures to improve transparency and governance, which include executive decrees to (i)enforce annual financial reporting and (ii)improve transparency and public access to government financial information. The CFAA strongly supports these initiatives and would like to see them concluded successfully. 5.14 Currently however, the public does not have access to information in a useful format and the Congress does not fulfill its oversight role. Therefore it i s recommended that: Through the Dialog0 Nacional, the Government develop a mechanism to ensure that public financial management information i s made available in a timely and consistent manner to users in a format appropriate to their needs. A non-partisan budget oversight committee be established in the legislature that will be responsible for publicly reporting on budget preparation and formulation, allocations, and monitoring, including social and poverty reduction spending. 5.15 Accounting and Financial Reporting. In order to provide more complete information for management decision-making and control, within-year financial reporting should be expanded to include financial statements with appropriate form, content and disclosures (e.g., financial assets, direct and contingent liabilities). 5.16 In parallel with the planned expansion of SIGMA, the central government accounting function should gradually move from recording transactions to including analytical activity aimed at producing meaningful government financial statements consistent with international practice. This transformation will require reconciliation of budget execution and cash flow statements and identification of inconsistencies and leakages. Furthermore, the financial statements should be complemented with historical information to evaluate trends, and should include notes to enable interpretation and analysis. 5.17 Financial reporting can be greatly advanced with the implementation of SIGMA and SIGMA-Municipal to all prefectures and the 10 largest municipalities. In parallel to system implementation, it i s necessary also to establish reliable financial records and fiscal baselines to facilitate accurate, meaningful and timely financial reporting. In order to do this, it i s recommendedthat, with the support of technical assistance: 0 Each prefecture carry out a complete fiscal analysis, including reconciliations Bolivia CFAA Conclusions and Policy Recommendations 62 completed, opening balances ascertained, and the financial accounts of the prefecture put in order, to apply the SIGMA system. Each prefecture should be able to produce basic financial reports including budget execution, cash flow statements, and bank reconciliation for 2003/2004. 0 Each o f the 10 largest municipalities carry out a complete fiscal analysis, including reconciliations completed, opening balances ascertained, and the financial accounts of the municipality put in order, to apply the SIGMA- Municipal system. Each municipality should be able to produce basic financial reports including budget execution, cash flow statements, and bank reconciliation for 2003/2004. 5.18 External Audit. Any institution will suffer if there i s no permanent head named to lead it. It has been 16 months since the last Controller General (CG) finished his term. The Acting CG has issued a new Strategic Plan, instituted a program to assist government entities in implementing administrative and control recommendations, and has provided training to all public sector employees. However, in order for the CGR to broaden its impact as the primary body to oversee the country's PFM systems, practices and accountability arrangements, it i s highly recommended that a permanent CG be named immediately. Government's Action Plan 5.19 The draft CFAA, completed in June 2004, was one of three major analytical works relating to public financial management in Bolivia prepared in 2004. The others were the Public Expenditure Review and the IMF-WB HIF'C Assessment and Action Plan. In response to these analytical reports, the Government convened a series of inter- ministerial meetings to prepare a comprehensive PFM reform paper that articulated the government's strategic vision for 2005-07. The executive summary of the strategic framework for public financial management,85 reproduced as Annex 3 of this document, relates specifically to the recommendations of the CFAA. 5.20 The action plan summarizes the main conclusions of the CFAA, sets out eight objectives for the period, and outlines a work plan and timetable for their achievement. The eight objectives are: i.Reducepublic debt andimprovepublic sectorrevenueperformanceinorderto reduce dependency on external financing. .. 11. Integrate development and poverty-reduction spending into the national budget through creation of inter-ministerial working groups and preparation by the Ministry of Finance o f medium- and long-term fiscal planning scenarios addressing availability of funds for development and poverty-reduction initiatives. 85Marco EstratCgico 2005-2007 Para el Fortalecimiento de la Finanzas Pfiblicas, Ministerio de Hacienda, 5 de abril de 2005. Bolivia CFAA Conclusions and Policy Recommendations 63 iii.Consolidateexistingfinancialinformationsystems(SIGMA,SINCOM,UDAPE). iv. Increase the impact of public expenditure on economic development and poverty reduction through a greater budget focus on sector strategies, introduction of results-oriented budgeting, and development o f methodologies for measuring expenditure results on a program basis and for introducing a multi-year economic andfiscal framework. v. Create a working group within the Constitutional Assembly, with the full participation of the Ministry of Finance and the Ministry of Popular Participation, to examine the fiscal impacts of alternate scenarios for greater deconcentration of fiscal authority to the sub-national levels of government, including budgeting procedures, public sector staffing, norms of fiscal performance, and regional inequalities. vi. Increase active participation of the legislature in the budget process through the creation of a congressional budget office. vii. Review and revise PFM systems and legal provisions to bring them in line with international standards including the SAFCO Law. viii. Continue the modernization and capacity building programs of the Ministry of Finance and its various offices. 5.21 Despite the political and social turmoil that had embroiled the country recently, the Government nevertheless developed this framework in recognition of its desire to enhance the quality and effectiveness of the country public financial management system in order to deliver improved poverty reduction programs. The implementation of this framework should gamer increased financial and technical support from the international community, working inpartnershipwith the Government of Bolivia. Bolivia CFAA Annex I: References 64 Annex 1:References Antelo Callisperis, Eduardo y Moncada Quintanilla, Carlos. Elaboracidn Perfil I1 Programa de Transparencia. Informe 11: Plan de Accidn. (Borrador Preliminar) Delegada Presidencial Anticorrupcibn. L a Paz. 2003. Ayo, Diego, MuniciDalismo Participacidn Popular. Bolivia: Muela del Diablo Editores, 2003. Congreso Nacional, (1990), Ley NoI178,Administracidn y Control Gubernamentales, L aPaz. Congreso Nacional, (1999), Ley No2042, Administracidn Presupuestaria, L aPaz. Congreso Nacional, (2002), Ley No2434, Alicutoas, valores, montos, patentes, tasas y contribuciones que se actualizarbn respecto a la variacidn de la Unidad de Foment0 de Vivienda (UFV) ,L a Paz. Contraloria General de la Republica de Bolivia. Plan Estrattgico 2004-2013. Enero 2004. Contraloria General de la Republica de Bolivia. Guia Para El Control y Elaboracidn de Informes de Actividades de las UAI. CU09 Version 1Agosto 2001. Contraloria General de la Republica de Bolivia. Guia Para la Elaboracidn del Programa Operativo Anual de las Unidades de Auditoria Interna CU04. Versidn 2 Septiembre 2000. Contraloria General de la Republica de Bolivia. Principios, Normas Generales y Basicas de Control lnterno Gubernamental CU08 Enero 2001. Contraloria General de la Republica de Bolivia Normas de Auditoria Gubernamental CE/lO Versibn 3 Agosto 2002. Contraloria General de la Republica de Bolivia. Ley No. 1178. Decreto Supremo No23215, Decreto Supremo No23318-A. Junio de 2002. Contraloria General de la Republica de Bolivia. Guia para la Aplicacidn de 10s Principios, Normas Generales y Basicas de Control lnterno Gubernamental CUlO Versibn 1Diciembre 2002. Contraloria General de la Republica de Bolivia. Informe del Setior Contralor General de la Republica de la Gestidn 2002. L a Paz. 2003. Contraloria General de la Republica de Bolivia. Recepcidn de Estados Financieros de Entidades PLiblica de Acuerdo a1 Clasifcador Institucidn. Gestidn Fiscal 2002. A1 17 de septiembre de 2003. Contraloria General de la Republica de Bolivia. Informes Emitidos y en Aclaracidn. A1 mes de diciembre de 2003. CONAUD. Garcia Salaues, Alfonso, (2004), Deuda Municipal, L aPaz. Cristbbal Urioste, Juan, Constitucibn Politica del Estado, Historia v Reformas (serie: Instituciones de la democracia). Bolivia: Fundacidn Milenio, 2003. Economist Intelligence Unit (2003), Country Report Bolivia. Fundacibn Milenio, (2003), Informe de Milenio Sobre el Acontecer Politico en Bolivia, No5. Fundacibn Milenio, (2003), Informe de Milenio Sobre el Acontecer Politico en Bolivia, No6. Bolivia CFAA Annex 1: References 65 FundacidnMilenio (2002), Informe de Milenio Sobre la Economia, No13. IMF,Code of GoodPractices in Fiscal Transparency (revised),2001. IMFandTheWorld Bank, (2001),Bolivia: Tracking Poverty Related Spending in HlPCs, Washington. IMFandThe World Bank, (2003), Public Expenditure Management: Country Assessment and Action Plan for HIPCs, Washington. LizirragaZamora, Kathlen, Economiav UniversidadPublica.Bolivia: Konrad, Adenauer, Stiftung, 2002. LozaTelleria, Gabriel, Bolivia v el ALCA: Ouortunidades,riesgosv ouciones. Bolivia: Konrad, Adenauer, Stiftung, 2003. Ministerio de Hacienda, (2000) Sistema Integrado de Gestidn y Modernizacidn Administrativa (SIGMA), Modelo Conceptual.ProyectoILACO. Ministerio de Hacienda, Viceministerio de Presupuesto y Contaduria, Programa MAFP, (2004), Ayuda Memoria: Convenio BOUOTOAK No119/2000. Sistema de Gestidn y Andisis de Deuda-SIGADE, L aPaz. Ministerio de Hacienda, Viceministerio de Tesoro y Crtdito Pdblico, Unidad de Programacidn Fiscal, (2003), Boletin Informativo No3, Comportamiento de 10s Recursos HIPC II;julio 2003, L a Paz. Ministerio de Hacienda, Viceministerio de Tesoro y Crtdito Pdblico, Unidad de Programacidn Fiscal, (2004), Prospecto del Sistema de Gestidn de Deuda (SIDE) del Plan de Readecuacidn Financiera de las Municipalidades, L aPaz. Napole6nPachecoTorrico, Mario,EnDefensade la Racionalidad.Bolivia FundacidnMilenio, 2004. OCED-WorldBank, Bolivia: Results of the Survey of Budget Practices and Procedures. 2003 OverseasDevelopmentInstitute, Results-Based Public Management in Bolivia, 2003. Presidencia de la Repfiblica, (1999), Resolucidn Suprema N" 218041: Normas Basicas del Sistema de Crkdito Pliblico, L a Paz, Presidencia de la Repdblica, (2000a), Decreto Supremo N" 25737: Plan de Readecuacidn Financiera, L a Paz. Presidencia de la Repdblica, (2OOOb), Decreto Supremo N" 25875: Aprobacidn del Sistema Integrado de Gestidn y Modernizacidn Administrativa SIGMA, La Paz. Presidencia de la Repdblica, (2001), Decreto Supremo N" 26390: Creacidn de la Unidad de Fomento de Vivienda,L aPaz. Presidenciade la Repdblica,(2002a), Decreto Supremo N" 26816: Cuenta thica del Tesoro,LaPaz. Presidenciade laRepdblica, (2002b),Decreto Supremo N" 26868: Califcacidn de Riesgo de 10s Gobiernos Municipales, L a Paz. Presidencia de la Repdblica, (2003a), Decreto Supremo N" 27028: b s Fondos Asignados por las Obligaciones Incluidas en el Programa de Alivio de la Deuda HIPC II Seran actualizados respecto a la Unidad de Fonzentode Vivienda (UFV), L a Paz. Presidenciade la Repdblica, (2003b), Decreto Supremo N" 27125: Aprobacidn de 10s ajustes y traspasos Bolivia CFAA Annex 1: References 66 interinstitucionales e intrainstitucinales efectuados dentro del Presupuesto General de la Nacidn para la Administracidn Central,LaPaz. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperaci6n TCcnica Alemin - GTZ), Analisis y descripcidn del marco legal y procedimientos fiscales en Gobiernos municipales. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperacidn TCcnica Alemin - GTZ), compilacidn de Conceptos y Normas Legales que Apoyan la elaboracidn de Presupuestos Municipales, 2004. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperaci6nTtcnica Alemin - GTZ), Diagnostico de la Gestidn Institucional y gestidn fiscal Financiera de la Prefectura Chuquisaca, 1996-2002. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperaci6n TCcnica Alemin - GTZ), Diagnostico de la Gestidn Institucional y gestidn fiscal Financiera de la Prefectura Oruro, 1996-2002. Programa de Apoyo a la Gesti6n Ptlblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperaci6nTCcnica Alemin - GTZ), Estudio para conocer la percepcidn de la poblacidn sobre pago de tributos municipales e imagen institucional, 2004. Programa de Apoyo a la Gesti6n Ptlblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperaci6nTCcnica Alemin - GTZ), Metodologfas e Indicares del DesempeAo Financier0 Municipal en Bolivia: Dos Estudios de Caso. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperacih TCcnica Alemin - GTZ), Normas legales que regulan la implementacidn del DUF, FPS, FNDR, y las Politicas Nacionales de compensacidn y endeudamiento subnacional. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - CooperacidnTCcnica Alemin - GTZ), Relaciones Fiscales Intergubernamentales, "Lecciones Aprendidas A la Luz de la Evidencia, 2003. Programa de Apoyo a la Gesti6n Pdblica Descentralizada y Lucha Contra la Pobreza (PRADEP - Cooperacih TCcnica Alemin - GTZ), Situacidn Fiscal Financiera de 10s Municipios en Bolivia - Red de analisisfiscal del Ministerio de Hacienda, 2003. Presidenciade la Reptlblica ,RevisedBolivianPovertyReductionStrategy 2004-2007. UNCTAD/GID/DMS/lS, Effective Debt Management, Geneva and New York. Universidadde Chile, Facultadde Ciencia Fisicas Y Matemiticas, Departamento de Ingenieria Industrial, "Viabilidad del SistemaIntegradode Administraci6nFinancieraPublicaen Bolivia." 2002. World Bank, Bolivia Country Assistance Strategy Progress Report (ReportNo. 22162-B0), 2001. World Bank, Bolivia Country Assistance Strategy (Report No. 26838-BO)2004 World Bank, Bolivia Country Procurement AssessmentReport 2000. World Bank, Bolivia Enhanced HIPC Debt Initiative (Report No. P70.53-BO)2000. World Bank, Bolivia Financial Decentralization and Accountability Project (Report No. 16854-BO), 1997. Bolivia CFAA Annex 1:References 67 World Bank, Bolivia, Implementing the Comprehensive Development Framework (Report 19326-B0), 1999. World Bank, Bolivia Institutional and Governance Review, volumes I and I1(ReportNo. 20115-BO),2000. World Bank, Bolivia Poverty Diagnostic 2000 (Report20530-BO), 2000. World Bank, Bolivia Programmatic Structural Adjustment Creditfor Decentralization (Report No. P7439- BO) 2001. World Bank, Bolivia Public Expenditure Review (ReportNo. 19232-B0),1999. World Bank, Bolivia Public Expenditure Review (draft),2004. World Bank, Bolivia Public Sector Modernization Program (ReportNo. 19325-BO), 1999. World Bank, Bolivia Second Programmatic Structural Adjustment Creditfor Decentralization (Report No, 25089-BO),2003. World Bank, Bolivia SecondPublic Financial Management Operation (ReportNo. 9558-BO), 1991. World Bank, (2001b), News Release No:2001/369/S. Bolivia's HIPC Initiative Completion Point, Washington. World Bank, Operations Evaluation Department, Bolivia Country Assistance Evaluation (Report No. 21412), 2000. World Bank-IMF,(200la), Guidelinesfor Public Debt Management. Washington. World Bank-IMF,Joint IDMIMF Staff Assessment: Bolivia Poverty Reduction Strategy Paper (Report No. 22211), 2001. Bolivia CFAA Annex 2 List of Persons Interviewed 68 Annex 2: Listof Persons Interviewed NAME POSITION ENTITY Alandia, Doris IDirector ]Popular Participation Alborta, Patricia IVice Minister, Treasury and PubliclHacienda Bolivia CFAA Annex 2 List of Persons Interviewed 69 Heredia, Franz Director MAFP-SIGMA Hernani, Marco Antonio Council President Chulumani (Municipio) Holters, Guillermo Director, Administration and Finance Cochabamba (Prefecture) Ichaso, Gabriea Vice Minister Popular Participation Kafka, JosC Luis Centro de Estudios de la Realidad de Bolivia (CERBOL) Lage, Walter Prefect Oruro (Prefecture) Leigue, RubinDorado Santa Cruz Institute ' o f Auditors Leigue, Eduardo Chief Administrative Officer Montero (Municipio) Limpias, Edgar Orlando Mayor Montero (Municipio) Machicao, Ximena Centro de Informacion y Desarrollo de la Mujer (CIDEM) Martinez. JosC Abel ChiefFinancial Officer L a Paz (MuniciDio) Montalvo, Marcel0 Director UPF Montes, Oscar Mayor Tarija (Municipio) Montesino. Ricardo Leeal Advisor FAM Moreno, Eloy Mayor Padcaya (Municipio) Munt, Guillermo Pou Fundacidn Etica Y Democracia 'Velasco, Dionesio Council Coordinator, Finance Dept. L a Paz (Municipio) Vidal, Juan Carlos Economist Santa Cruz (Municipio) Villada, Martha Cecilia Compaiieros de la AmCricas Villca, German Mayor San Julian (Municipio) Bolivia CFAA Annex 2 List of Persons Interviewed 70 Villegas, Rodolfo Deputy Manager Public Sector Central Bank Vino, Orlando Manager, Accounting F'PS Zambrana, Jaime Fiscal Decentralization Unit Zamora, JosC Antonio Manager, Financial Management F'PS Zeballos, Pedro Chief Financial Officer ElPuente (Municipio) Bolivia CFAA Annex 3:Government of Bolivia Action Plan 71 Annex 3: Government of Bolivia Action Plan Plan de A c c i h de Mediano Plazo del Gobierno Boliviano Resumen Ejecutivo, Evaluacih de Administracih Financiera en el Sector Pliblico Country Financial Accountability Assessment (CFAA) 5 de abril de 2005 Product0 de las crisis econ6mica y las fuertes presiones sociales sobre el gasto pdblico, las finanzas del sector pdblico estin pasando por unos de sus momentos mhs dificiles de 10s 6ltimos 20 aiios. ElDeficit del Sector Pdblico no Financier0 (DSPNF) alcanz6 el aAo 2002 a 9% del PIB y a mhs del 11% del PIB antes de donaciones. Sin embargo entre 2004 y 2002, y como resultado de una serie de medidas de cariicter fiscal, el DSPNF registra una disminuci6n de 3.3 puntos porcentuales del PIB. Para asegurar la sostenibilidad de las Finanzas Pdblicas y mejorar la calidad del gasto pdblico, el Gobierno de Bolivia (GdB) mediante el Ministerio de Hacienda, elabor6 un Marco EstratCgico para el Fortalecimiento de las Finanzas Pdblicas para el pen'odo 2005- 2007. Este Marco EstratCgico es product0 de una serie de reuniones que se llevaron a cab0 en 10s dltimos dos meses a1 interior del Ministerio de Hacienda en el cual participaron el Ministro de Hacienda, Viceministros, Directores Generales y profesionales de la institucibn. En el proceso de preparaci6n del Marco Estrattgico se llevaron a cab0 ademhs consultas con otras instituciones del Sector Pdblico y con el Poder Legislativo. El Marco Estrattgico tuvo como insumos importantes 10s diversos estudios sobre la situaci6n fiscal y de administracidn de las Finanzas P6blicas que realizaron instituciones como el FMI,Banco Mundial y BID y el documento elaborado por la Comisidn del Gasto Pdblico llevado a cab0 el aiio 2004, asi como el Plan de Acci6n del Gobierno de Bolivia presentado en octubre de 2004 en el context0 del Programa Multidonante de Apoyo Presupuestario (PMAP). Resultado de las discusiones y reflexiones realizadas y considerando las recomendaciones de 10s documentos y estudios referidos, el Ministerio de Hacienda defini6 ocho Objetivos Estratkgicos que guiarhn con prioridad sus acciones durante el period0 2005-2007. Estos Objetivos Estratkgicos estin relacionados con temas relativos a1 logro de la sostenibilidad fiscal, mejorar la calidad del gasto pdblico y optimizar 10s recursos de la cooperaci6n internacional, mejorar 10s sistemas de infonnaci6n, prever 10s posibles Bolivia CFAA Annex 3:Government of Bolivia Action Plan 72 impactos en la estructura fiscal que pudieran darse como resultado de 10s procesos de autonomias y de la Asamblea Constituyente y evaluar y -cuando asi sea necesario- proponer cambios en las normas actuales que rigen a1 sector pliblico. Las acciones definidas para el logro de estos objetivos estratigicos serhn llevadas a cab0 en el marco del proceso de institucionalizaci6n no s610 en el Ministerio de Hacienda sino tambiin en organismos estatales bajo su tuici6n como ser el SENAPE, SENASIR, SIN y la Aduana Nacional. Asimismo, el Gobierno de Bolivia firmarh un nuevo acuerdo con el FMI en el cual se comprometerh a continuar aplicando medidas fiscales que aseguren la sosteniblidad de las finanzas pliblicas. EstadoActual de la Administracih de lasFinanzasPtiblicas Hay varios factores comunes que han sido sefialados por diversos estudios y por el propio gobierno como elementos que afectan un mejor manejo y control de las finanzas plib1icasg6,entre 10s cuales resaltan 10s siguientes: > El PGN no se constituye en un real instrumento de planificacih de las Finanzas Publicas y de 10s Planes de Desarrollo o de Lucha contra la Pobreza. El mitodo presupuestario utilizado y las presiones que ejercen grupos especificos y regiones incrementan el gasto y tienden a sobreestimar 10s ingresos con la finalidad de validar 10s gastos. ElProceso de elaboraci6n del PGNda m6s importancia a1procedimiento y a1 gasto inercial, que a las estrategias de desarrollo del GdB. El Congreso no tiene la capacidad tkcnica suficiente para realizar el monitoreo y las actividades de evaluaci6n del PGN. ElPGNcarece de unSistema de Gesti6ny Presupuesto por Resultados. ElPGNse constituye en undocumento dificil de entender e interpretar por personas no especializadas. > No obstante 10s importantes avances logrados con el Sistema Integrado de Gesti6n y Modernizacih Administrativa (SIGMA) y el Sistema Integrado de Contabilidad Municipal (SICOM) aun no se cuenta con sistemas de informacidnintegradospara hacer seguimientoy evaluacih de lacalidaddel gasto publico. 86Estos elementos cornunes fueron sintetizados de 10s estudios citados en la bibliografia y de las discusiones con el Ministro, Viceministros y Directores que trabajaron en la elaboraci6n del presente Marco EstratCgico. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 73 9 Adn no se cuenta con una clasificacibn funcional del presupuesto, lo que impide hacer una evaluacih de impact0 y seguimiento de politicas publicas, particularmente en lo que se refiere a1gasto p r o - p ~ b r e . ~ ~ 9 No se cuenta con informacih apropiada para realizar mediciones de costos de 10s programas de gasto pdblico, lo cual impide realizar evaluaciones del gasto pdblico por resultados. 9 Los informes financieros anuales publicados contienen informacih estadistica per0 no de anilisis y no cubren la totalidad del sector pdblico. 9 Los gobiernos locales (municipios) 10s cuales, resultado del proceso de descentralizacih, son responsables de cerca del 50% del total de gasto relacionado con la lucha contra la pobreza, tienen un dCbil sistema de informacihpara fines de seguimiento y evaluacih. . 9 Bolivia cumple con s610 6 de 10s 16 indicadores que miden el grado de calidad de la informaci6n pdblica para 10s paises HIPCg8. Persiste un retraso en el envio de informaci6n por parte de las entidades pdblicas (fundamentalmente municipios). > Dificultadespara Aplicar la Ley SAFCO . El sector pdblico boliviano cuenta desde el aiio 1990 con la Ley del Sistema de Administracih, Fiscalizaci6n y Control Gubernamental (Ley SAFCO) la cual permiti6 a1 pais disponer de una legislaci6n muy completa, comprensiva y a avanzada para regir la administracih y recursos pdblicos. Sin embargo, su aplicaci6n ha tomado tiempo, tanto por las complejidades insertas en ella (no siempre adecuadas y aplicables para todas las instituciones pdblicas centralizadas, descentralizadas y aut6nomas) como por la falta de continuidad administrativa y de continua capacitacidn profesional que exige su aplicacih. Las dificultades de la aplicacih de la Ley SAFCO tambiCn estin explicadas por la cr6nica escasez de recursos del Estado para mantener personal calificado en la Administracih Pdblica y la alta ingerencia politica - que se registr6 en el period0 inmediato - en el nombramiento de cargos pdblicos. No obstante el tiempo transcurrido, no se cuenta con una estrategia institucional para acompaiiar el proceso de implementacih de la Ley SAFCO. 87Sin embargo a la fecha del presente documento hay importantes avances que se esthn realizando para obtener el gasto funcional. El Programade Modernizacidn Administrativa Financiera Piiblica esti realizando pruebas piloto en el PGNde 2005 para la aplicacidn funcional del gasto (ver Matriz de Acciones de Objetivos EstratCgicos) Ver la valoracih realizada en el Documento "Heavily IndebtedPoor Countries Initiative Assessment" sobre estos 16 indicadores. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 74 Las disposiciones legales que rigen la administracidn de las finanzas pdblicas estan dispersas. s Los Sistemas de Control Interno son todavia insuficientes, segdn informacidn de la Contraloria General de la Repdblica (CGR) la informacidn de varias instituciones pdblicas no estan l o suficientemente elaboradas para dar una opinidn sobre sus estados financierossg. Existen falencias en la informacidn contable y financiera por falta de capacidad de las instituciones pdblicas para generar informacidn y falta de conocimiento de las mismas sobre 10s requerimientos establecidos por Ley. P No se cuenta con metodologias e indicadores para evaluar la calidad del Gasto PGblico (corriente y de capital) y 10s recursos de la cooperacih externa no son optimizados. No se cuenta con una metodologia estructurada para medir 10s impactos sociales y econdmicos de la asignacidn de recursos pdblicos. No se cuenta con parametros para asignar recursos (por ejemplo para el sector de educacidn y salud). No se cuenta con parametros para aplicar una politica salarial para el sector pdblico. L a asignacih de recursos pdblicos no obedece s610 a criterios tbcnicos, tiene tambiCn componentes politicos y de presiones sectoriales, institucionales y regionales que exceden la capacidad de financiamiento. Por lo anterior, existe una alta variabilidad en la programacidn y ejecucidn de la inversidn pdblica. Adn cuando el MH mediante el Viceministerio de Inversidn Pdblica y Financiamiento Extemo (VIPFE) elabora y difunde un informe agregado de la ejecucidn anual del presupuesto de inversidn pdblica ante las instancias correspondientes, no existe una retroalimentacidn de 10s resultados de la evaluacidn a las entidades responsables de la ejecucidn de la inversidn. Engeneral, se ha establecido que mas del 90% de 10s convenios suscritos con las agencias de Cooperacidn Intemacional se enmarcaron dentro de las directrices del GdB, entre la que se puede mencionar a la Estrategia Boliviana de Reduccidn de la Pobreza. Sin embargo, como estas directrices son generales, no se puede establecer si las asignaciones se realizan de manera eficiente ya que 10s resultados no reflejan Enla actualidad existen varias leyes -no siempre compatibilizadas-que rigen la administracibn y gesti6n de las finanzas piiblicas: Ley 2042 de Administracih Presupuestaria de 21 de diciembre de 1999; Ley 1551 de ParticipacibnPopular de 20 de abril de 1994; Ley 1178 (SAFCO) de 17 dejulio de 1990; Ley 2028 de Municipalidades de 28 de octubre de 1999; Ley 1654 de Descentralizacih Administrativa de 28 dejulio de 1995. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 75 necesariamente impactos importantes en el pais. Por este motivo, es . necesario que 10s sectores formulen politicas, objetivos y metas miis claras y concretas. Los programas o proyectos financiados por la cooperacidn vas acompaiiados de condicionales y procedimientos de desembolsos que aumentan 10s costos de transaccih y que en muchos casos al no poderse cumplir con estas condicionalidades y procedimientos 10s recursos son desembolsados con retraso y fuera de 10s cronogramas previstos, afectando negativamente en el cumplimiento de las metas propuestas por estos programas o proyectos. Aunque en Bolivia han mejorado 10s mecanismos de coordinacidn entre el GdB y las Agencias de cooperacidn, en algunos casos 10s ejes temhticos . contindan siendo fijados desde la visi6n de 10s paises donantes y no por la agenda planteada por el pais. L a cooperacidn externa actual se encuentra financiando una multiplicidad de proyectos, lo cual ocasiona una dispersidn de recursos, minimizando impactos. Adn no se ha alcanzado una ejecucidn plena a travCs de enfoques programaticos y sectoriales. Marco EstratCgicopara el Fortalecimientode las FinanzasPublicas Tomando en cuenta las recomendaciones de la Cooperacidn Internacional (CI)90, las recomendaciones de 10s documentos; PER, FCAA, Heavily Indebted Poor Countries Initiative Assessment y de la Comisidn de Revisidn del Gasto Pdblico (CRGP) y sus propias reflexiones el GdB mediante el MH se fijd 8 objetivos estrategicos que guiarhn con prioridad las acciones del gobierno en el tema de fortalecimiento de las Finanzas Pdblicas.91 Desde la perspectiva del GdB el fortalecirniento de las finanzas pdblicas debe considerar tanto acciones para la sostenibilidad fiscal como aquellas que contribuyan a desarrollar instrumentos para mejorar la calidad y transparencia del gasto pdblico. Asimismo el MH en el marco de sus atribuciones, promoverh la estabilidad del sistema financier0 formulando, proponiendo y evaluando - en coordinacidn con las instituciones que integran el Sistema de Regulacidn Financiera (SIREFI) - politicas y normas de interrnediacih financiera. 90 Enel marco del ProgramaMultidonante de Apoyo Presupuestario PMAP,la Cooperacidn Internacional (CI) envid sus comentarios a1GdB sobre el Plan de Accidn de Mediano Plazo presentado en octubre de 2004. Entre Cstos, se recomendaba que el GdB se concentre en temas relacionados con la mejora de la gestidn financiera pdblica en el marco del PMAP y no trate de hacer una reforma del sector pfiblico a partir de la utilizaci6n de este instrumento. Sugeria ademis que el GdB complemente el Plande Accidn resentado con una visidn estratkgica para 10s prdximos tres aiios 'I Durante 10s meses de febrero y marzo, se llevaron a cab0 una serie de reuniones - talleres en 10s cuales participaron el Ministro de Hacienda, 10s Viceministros y Directores Generales y profesionales de cada Viceministerio Bolivia CFAA Annex 3:Governrnent of Bolivia Action Plan 76 Objetivo 1: Lograr la Sostenibilidad de las Finanzas Publicas mediante metas de dCficit predecibles y acordes con las posibilidades de financiamiento interno y extern0 que no afecten 10s equilibrios macroecon6micos. Elgobierno continuarh tomando medidas para lograr reducir aiin mhs el dCficit fiscal y la dependencia de la asistencia externa, asicomo para disminuir la deuda interna. Por el lado de 10s ingresos, el incremento en el precio de 10s hidrocarburos (enero de 2005), la aplicacidn de medidas tendientes a reajustar el funcionamiento de 10s diferentes tributos que forman parte de la estructura en un marco de mayor equidad y generalidad, la consolidacidn de la vigencia del nuevo Cddigo Tributario y el aumento de la eficiencia administrativa de las entidades recaudadoras a travks de un riguroso seguimiento a 10s convenios interinstitucionales entre el Ministerio de Hacienda y estas entidades, se traducirhn en el incremento sostenido de la captacidn de ingresos por parte del sector pbblico. Se estima ademhs que con la aprobacidn de la nueva ley de hidrocarburos, el gobierno nacional y 10s gobiernos subnacionales lograrhn un importante aumento de 10s ingresos provenientes de este sector Por otra parte el GdB continuarh aplicando medidas para controlar 10s gastos y aumentar las recaudaciones impositivas. Entre las actividades previstas para el logro de este . objetivo e ~ t h n ~ ~ : Para fortalecer 10s ingresos el GdB analizarh y evaluarh el marco tributario actual buscando mecanismos para optimizar el funcionamiento del sistema tributario dothndolo de mayor equidad y generalidad que asegure la sostenibilidade incremento de 10s ingresos tributario~~~. B Asimismo el GdB perfeccionarh la tuicidn sobre las entidades bajo el hmbito del MH y continuarh apoyando el fortalecimiento institucional . integral del S I N y de la Aduana a traves de acuerdos de gestidn por resultados. El MH elaborarh y propondrh una metodologia para la asignacidn de recursos fiscales, considerando como sector piloto las universidades. Los indicadores con 10s cuales se medirhn 10s resultados serhn consensuados con representantes del Ministerio de Educacidn, CEUB y del sistema universitario Para controlar 10s gastos el gobierno continuarii con las politicas de ajuste del gasto preservando el gasto social pro-pobre. ElGdB aplicarh las recomendaciones del CTMpara controlar y reducir el costo de la Reforma de Pensiones mediante la implementacidn de medidas 92La Matriz de Politicas de Objetivo Estrattgico No1serin dadas a conocer una vez suscrito el acuerdo con el FMI. 93Compromiso asumido en el marco del Programa PMAF'. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 77 dictada en el D.S. 27991 de enero de 2005 (incluyendo el anilisis de . alternativas de fuentes de recursos para el financiamiento de dicha R e f ~ r m a ) ~ ~ . El GdB elaborari una estrategia de endeudamiento del TGN y para las entidades subnacionales (alcaldias) estableciendo ademis mecanismos de . apoyo a las entidades subnacionales en la administracidn y gesti6n de deuda. El GdB propondri y cuantificarh posibles escenarios fiscales de procesos autondmicos. Objetivo 2: Integracidn del Presupuesto con Programas y Politicas y Estrategias de Desarrollo y de Estrategias de Lucha Contra la Pobreza. Elgobierno formari una comisi6n compuesta por 10s Viceministerios de VMPC, VIPFE, VTCP y el Banco Central, la cual en una primera fase se dedicarh a compatibilizar el PGNcon el Programafinanciero acordado con el FMI. Esta misma Comisi6n sera ampliada y se integrarin UDAPE representantes del MDE y del M D S para proponer metodologias que permitan plasmar 10s planes de desarrollo y de lucha contra la pobreza en el PGN. Asimismo el MHparticipari activamente y en coordinacih con las instituciones a cargo de su elaboracibn, en 10s planes de desarrollo en general y de lucha contra la pobreza en particular con el objetivo de compatabilizar las acciones y requerimientos de recursos con la disponibilidad de 10s mismos para el logro de metas y objetivos alli contemplados y plasmar las acciones en 10s programas y proyectos del PGN y de esta forma evitar la sistemhtica tendencia a sobreestimar 10s gastos e ingresos del sector pfiblico. Entre las .. acciones previstas se destacan: Crear mediante Resolucih Ministerial la Comisi6n de Compatibilizacion entre el PGN y el Programa financiero acordado con el FMI. Crear mediante Resoluci6n Interministerial la C o m i s i h Ampliada de . Compatibilizacidn de las Estrategias de Desarrollo y de Lucha contra la Pobreza con el PGN. El MH tendri una participacibn activa en las estrategias de desarrollo, estrategias de lucha contra la pobreza y estrategias sectoriales proveyendo escenarios fiscales de mediano y largo plazo y de la disponibilidad de recursos internos y externos para financiar dichas estrategias. 94Compromiso asumido en el marcodel ProgramaPMAP. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 78 Objetivo 3: Consolidacih de 10s Sistemas de Informacih sobre el us0 de 10s Recursos del Sector Pliblico. El GdB integrari -donde sea posible hacerlog5-10s sistemas de informacidn existentes, hari las modificaciones que Sean necesarias para mejorar la calidad de 10s mismos, aumentari la cobertura de la informacidn y promoveri la divulgacidn de Csta sobre el us0 de recursos pdblicos en todos lo niveles, Administracidn Central, Descentralizada y Local, concordante con el Plan EstratCgico del MFAP y de la Direccidn General de Contaduria. Entre las acciones principales previstas en este campo estin: Evaluacidn del SIGMA mediante una auditoria del Sistema, la cual estarii a cargo de expertos del BID, BMy el FMI. Donde se vea por conveniente hacerlo, el SIGMA seri expandido a niveles subnacionales y se asesorarii a 10s municipios pequefios en la utilizacidn del SINCOM incorporando mejorar a1 sistema y adecuiindolos paulatinamente a1SIGMA. ElMHconcluiri la sistematizacidn de la clasificacih del Gasto Funcional en el PGN. En conjunto con la Unidad de Programacidn Fiscal y UDAPE, se determinariin indicadores de gasto pro-pobre para evaluar impactos del gasto social. Se aplicari la normativa legal vigente para contar oportunamente con 10s estados financieros de todo el sector pdblico. Se divulgari informacidn sobre el estado de cuentas del sector pdblico, incluyendo municipios, creando metodologias comprensibles para explicar las mismas. Objetivo 4: Mejorar la Calidad del Gasto Pliblico (corriente y de capital) y Optimizar el us0 de 10s Recursos de Asistencia Externa En lo que se refiere a1 mejoramiento de la calidad del gasto pbblico, el Ministerio de Hacienda Desarrollari un conjunto de metodologias, normas tCcnicas y procedimientos para evaluar el gasto pdblico y de esta forma mejorar la calidad de impact0 del mismo en el desarrollo de la actividad productiva y disminucidn de la p ~ b r e z a ~ ~ . Para optimizar 10s recursos de la cooperacidn internacional se dari mayor Cnfasis a1 enfoque sectorial de tal forma de que 10s recursos de la cooperacidn est& alineados con 95 Cada Sistema tiene objetivosy funciones diferentes, por tanto algunos casos no pueden integrarse. Sin embargo a la fecha existen mecanismos de enlace entre 10s sistemas m8s importantes SISIN-SIGMA, SISIN-SISFIN, etc., que permite compartir y migrar informacidn entre uno y otro 96 Aunque el Viceministerio de Inversi6n Pdblica y Financiamiento Externo, cuenta con procedimientos de evaluacidn del gasto en inversidn pdblica, no se han desarrollados metodologias que permitan evaluar la calidad del gasto pdblico como un todo. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 79 las estrategias sectoriales, las cuales a su vez responden a estrategias de desarrollo y de lucha contra l a pobreza nacional. Entre las actividades previstas en este campo estin: Proponer e implementar metodologias para evaluar el impact0 del gasto p6blico en la reducci6n de la pobreza y en la actividad productiva del pais. Proponer e implementar metodologias para asignar 10s recursos piiblicos, aplicando para ello experiencias piloto en sectores tales como educaci6n ,salud y universidades Diseiiar una politica salarial para el Sector Pdblico dando especial tnfasis a la Administracibn Central. Implementar convenios de gesti6n por resultados en instituciones bajo tuici6n del MH(SENASIR, Aduana, SIN) y con instituciones que manejan programas de gobierno (PLANE- PROPAIS). Desarrollar metodologias para evaluar impactos de resultados de programas y proyectos de inversi6n piiblica. Implementar en coordinaci6n con la CI el Plan Nacional de Armonizaci6n y Alineamiento (PNAA). Elaborar mecanismos de alineamiento de 10s recursos de la CI con estrategias nacionales y sectoriales. Iniciar el desarrollo de metodologias para la formulaci6n de un marco macro econ6mico - fiscal multianual, que permita diseiiar y proponer metodologias para la implementaci6n del presupuesto plurianual.. Desarrollar metodologias para realizar unProgramade Inversidn Piiblica Plurianual que permita mejorar la programaci6n y ejecuci6n de la inversidn p6blica y de 10s recursos de la CI. Establecer criterios y mecanismos para la reprogramacibn y reasignaci6n de recursos de la C I a acciones priorizadas en 10s planes del GdB. Objetivo 5.- Participacih Activa del Ministerio de Hacienda en las discusiones que se llevaran a cabo en el marco de la Asamblea Constituyente y Autonomias, en lo que se refiere a la nueva estructura fiscal y de competencias que se derivara de ambos procesos. N o obstante las Leyes de Participaci6n Popular, de Descentralizacibn, de Municipios y del Diilogo Nacional, el Estado Boliviano es percibido todavia como centralizado y concentrador de 10s recursos econ6micos y en las decisiones para el us0 de 10s recursos. Las regiones en Bolivia muestran fuertes desequilibrios en sus niveles de desarrollo, caracterizado por una fuerte concentracibn en la captaci6n de ingresos y us0 de 10s recursos (inversiones, servicios y actividad productiva) en el eje central (La Paz, Santa Cruz y Cochabamba). Las implicancias fiscales que pueden derivarse de las decisiones que se tomen en la Bolivia CFAA Annex 3:Government of BoliviaAction Plan 80 Asamblea Constituyente y del proceso de Autonomias requieren que el Ministerio de Hacienda en coordinaci6n con el Ministerio de Participacidn Popular y la Unidad de Coordinaci6n de para la Asamblea Constituyente (UCAC) preparen escenarios posibles que puedan darse en un proceso autondmico y de mayor descentralizacibn de 10s recursos .. en aspectos que tengan que ver con: Procesos Presupuestarios a nivel central y local (reparto de funciones presupuestarias). . Competencias sobre prestaci6n de servicios pdblicos especificos entre 10s diferentes niveles territoriales del gobierno. .. Estructuras del financiaci6n del gasto pdblico nacional, departamental y local y captaci6n de ingresos en 10s tres niveles de gobierno. Construcci6n de indicadores sobre la posici6n fiscal de las regiones (capacidad de captar recursos, capacidad de endeudamiento, etc). Analisis de 10s recursos financieros por regiones a fin de evaluar posibles desequilibrios que puedan presentarse entre regiones sin0 se considera el principio de solidaridad. . Entre las principales acciones previstas en este campo est5n: ElMHen coordinaci6n con el MPP y la UCAC conformar6 una Comisidn Especial para el Estudio de 10s Impactos Fiscales de 10s Procesos Auton6micos. L a tarea de esta Comisi6n sera la de elaborar y difundir .. estudios de impactos sobre la estructura fiscal de las regiones sobre distintos escenarios de procesos auton6micos. El MH elaborarii proyectos de normas de responsabilidad fiscal a nivel nacional y departamental en el marc0 de las autonomias. . El MHelaborarii recomendaciones para anticipar cambios en la situaci6n del TGNresultado de 10s distintos escenarios de autonomias. ElMHdifundiriiinformacidn sobre actual situaci6n fiscal de las regiones. Objetivo 6: Participacih Activa del Poder Legislativo en Temas Presupuestarios El GdB promover5 una mayor participaci6n del Poder Legislativo tanto en el diseiio como en la formulaci6n y posterior evaluaci6n del Presupuesto del Sector Pdblico, apoyando la creaci6n de la Oficina Ttcnica Econdmica y de Presupuesto (OTEP). Las . acciones previstas en este campo son: El MHpromover5 la firma de un convenio con la Comisi6n de Hacienda del Honorable Congreso Nacional para el apoyo en la organizaci6n de la . OTEP con la finalidad de otorgar capacitacidn ttcnica en temas presupuestarios. ElMHorganizarii talleres paraexplicar a parlamentarios aspectos relativos a a1diseiio y formulaci6n del PGN. Bolivia CFAA Annex 3:Government of Bolivia Action Plan 81 Objetivo 7: Marco Normativo Adecuado a la Realidad de las Finanzas Publicas y EstructuraInstitucional del Sector Publico. El GdB mediante el Ministerio de Hacienda y la Contraloria General de la Repdblica (CGR) revisarh 10s sistemas y procesos relacionados con la gesti6n financiera pdblica a fin de adecuar l a normativa a un sector pdblico mhs descentralizado. Entre las acciones . previstas en este campo est6n: ElMinisterio de Hacienda revisar6 las actuales disposiciones legales que norman las actividades del sector pdblico y harh propuestas de compatibilizacidn de las mismas. a ElMHjunto a laCGR llevarhacab0 unarevisi6n integral de laLey SAFCO. Objetivo 8: Institucionalizar el Ministerio de Hacienda y de instituciones sobre 10s cuales ejerce tuicibn. Para cumplir con 10s objetivos presentados en el Marco Estratigico para el Fortalecimiento de las Finanzas Pfiblicas el Ministerio de Hacienda promover6 la institucionalizaci6n de este ministerio y de las instituciones sobre las que ejerce tuici6n. Las acciones previstas en ... este campo son: Continuar con el proceso de institucionalizacidn del MH Institucionalizaci6ndel SENASIR Institucionalizaci6ndel SENAPE . Continuar con el proceso de institucionalizaci6n del INE Continuar con el proceso de institucionalizaci6n de la Aduana Nacional Plan Operativo y Cronograma de Acciones del Marco Estrat6gico de las Finanzas Piiblicas y Actividades a destacar en el Plan Operativo y Cronograma de Actividades del Marco Estratbgico para el Fortalecimiento de las Finanzas Publicas Objetivo 1: Lograr la Sostenibilidad de las Finanzas Publicas mediante metas de d6ficit predecibles y acordes con las posibilidades de financiamiento interno y extern0 que no afecten 10s equilibrios macroeconbmicos. En relaci6n a este objetivo el GdB firmar6 un nuevo cuerdo en con el FMIen el mes de abril de 2005 en el cual se detallar6n una serie de acciones que ejecutarh con el fin de lograr el mismo. Asimismo seguirh aplicando las politicas recomendadas por la Comisi6n Ttcnica Multidisciplinaria para analizar la situaci6n actual del costo de la Reforma de Pensiones y definidas en el D.S 27991 de reciente aprobaci6n (enero de 2005). Bolivia CFAA Annex 3:Government of Bolivia Action Plan 82 Por otra parte en el transcurso de la presente gestidn (2005) elaborari una estrategia de Politica Tributaria para desarrollar y aplicar un sistema tributario con equidad Objetivo 2: Integracidn del Presupuesto con Programas y Politicas y Estrategias de Desarrollo y de Estrategias de Lucha Contra la Pobreza. En cuanto a1 Objetivo de Integrar el PGN son 10s Programas con el FMIy Estrategias de Desarrollo, se llevarh a cab0 una serie de acciones que permitiri la Ministerio de Hacienda elaborar metodologias para una mayor compatibilizacidn entre el Presupuesto y 10s programa con el FMIasi como las estrategias de desarrollo nacional y sectoriales. Para ello se dari Cnfasis a una mayor participacidn del MHen el proceso de preparacidn y formulacidn de estrategias (Ver cronograma de acciones de Objetivo EstratCgico No2). Objetivo 3: Consolidacidn de 10s Sistemas de Informacidn sobre el us0 de 10s Recursos del Sector Piiblico. Las acciones prioritarias del aiio 2005 para el logro de este objetivo estarin enfocadas a obtener una clasificacih funcional del gasto pdblico y en el desarrollo y ampliacidn en la cobertura del SIGMA, dependiendo esto dltimo sin embargo de la evaluacidn que llevarin de una forma conjunta expertos del FMI-Banco Mundial y BID sobre este sistema. Por otra parte y con la finalidad de divulgar la informacidn sobre el estado de las finanzas pdblicas, durante el segundo semestre se publicarin informes y se harin presentaciones explicativas sobre el PGN de 2006 a diferentes entidades y sectores sociales (ver Cronograma de Acciones de Objetivo Estrattgico No3). Objetivo 4: Mejorar la Calidad del Gasto Piiblico (corriente y de capital) y Optimizar el us0de 10s Recursos de Asistencia Externa. Como se observd en la Matriz de Acciones de este Objetivo EstratCgico, el GdB dari un fuerte Cnfasis el aAo 2005 y 10s siguientes aiios a la acciones relativas a mejorar la calidad del gasto pdblico. El aiio 2005 no s610 se desarrollarin metodologias para evaluar el impacto del gasto pdblico, sino ademis se llevarin a cab0 acciones que permitirin definir politicas mis especificas respecto a rubros como el gasto en salarios y en la asignacidn de recursos a las universidades. Se aplicarB la Gestidn por, Resultados en instituciones que tienen un fuerte impacto en el gasto como son el SENASIR y 10s programas PRO-PAIS y PLANE. Enesta gestidn se desarrollari ademis una normativa de Adquisiciones a fin de avanzar en el proceso de compatibilizacidn con las pricticas internacionales. Por otra parte, durante el tercer trimestre de 2005 el MH elaborari mecanismos de Bolivia CFAA Annex 3:Government ofBolivia Action Plan 83 alineamiento de 10s recursos de la cooperacidn internacional con estrategias nacionales y sectoriales, mecanismos que empezarin a aplicarse en el cuarto trimestre de este aiio (ver Cronograma de Acciones del Objetivo EstratCgico No4). Objetivo 5.- Participacidn Activa del Ministerio de Hacienda en las discusiones que se llevarhn a cab0 en el marc0 de la Asamblea Constituyente y Autonomias, en lo que se refiere a la nueva estructura fiscal y de competencias que se derivarh de ambos procesos. Debido a que el proceso de autonomias y el de la Asamblea Constituyente, ademis de implicaciones de caricter institucional, tendris tambiCn impactos en las Finanzas Pdblicas, el GdB llevarii a cab0 durante la presente gestidn estudios y anilisis sobre el posible efecto fiscales de estos procesos. Para ello en 10s prdximos meses elaborarii una serie de estudios sobre el efecto fiscal que podn'an derivarse resultado de las nuevas obligaciones y derechos que adquirin'an las regiones o gobiernos subnacionales Asimismo el MHen coordinacih con otras instituciones ptiblicas como el MPP, el MDE, el M D S y la UCAC, tendri una activa participacidn en las discusiones sobre autonomias, proveyendo informacidn y sugiriendo alternativas fiscales (ver Cronograma de Acciones del Objetivo No5). Objetivo 6: Participacidn Activa del Poder Legislativo en Temas Presupuestarios. Mediante la firma de un convenio especifico para este fin el MH apoyari a1 Poder Legislativo en la creacidn de una Oficina TCcnica Econdmica para el anilisis del Presupuesto y organizari talleres dirigidos a parlamentarios para la explicacih sobre el diseiio y formulacidn del PGN. L o anterior permitiri a1 Honorable Congreso Nacional contar con mayores elementos de juicio para la aprobacidn del PGN, aspect0 que contribuirii a una mejor, mis equitativa y eficiente distribucih de 10s recursos pdblicos (ver Cronograma de Objetivo EstratCgico No 6)* Objetivo 7: Marco NormativoAdecuado a la Realidad de lasFinanzas Piiblicas y Estructura Institucional del Sector Pliblico. El Cnfasis de las acciones para el logro de este objetivo estari en la revisidn de a Ley SAFCO, actividad que se desarrollari durante el primer semestre de este aiio. Asimismo en este afio se revisarin y analizariin las disposiciones legales que rigen el sector pdblico boliviano, anticipando ademiis nuevos escenarios institucionales resultado de 10s procesos autondmicos (ver Cronograma de Acciones de Objetivo EstratCgico No7). Bolivia CFAA Annex 3:Governmentof Bolivia Action Plan 84 Objetivo 8: Institucionalizar el Ministerio de Hacienda y de instituciones sobre 10s cuales ejerce tuicibn. Durante el aiio 2005 el MHcontinuar6 llevando adelante el proceso de institucionalizacidn de este ministerio y simult6neamente promover6 la institucionalizaci6n de entidades estatales que est6n bajo su tuici6n (ver Cronograma de Acciones del Objetivo Estrattgico No8). BIBLIOGRAF~A Banco Mundial- BID.- Public Expenditure Review (PER),junio de 2004. Banco Mundial- FM1.- Country Financial Accountability Assessment, 2004. Comisi6n de Revisi6n del Gasto Pbb1ico.- Informe de la Comisidn de Revisi6n del Gasto Pbblico, Ministerio de Hacienda, septiembre de 2004. FM1.-Heavily IndebtedPoor Countries Initiative Assessment, agosto de 2004. Gobierno de Bolivia, Ministerio de Hacienda..- Plan de Acci6n del Gobierno de Bolivia. octubre de 2004. Viceministerio de Inversi6nPdblica y Financiamiento Extern0 VIPFE.- Visi6n EstratCgica del VIPFE Ministerio de Hacienda, marzo 2005. Viceministerio de Pensiones y Servicios Financieros VMPSF.- Visi6n EstratCgica del VMPSF, Ministerio de Hacienda, marzo 2005. Viceministerio de Politica Tributaria VMPT.- Visi6n Estratigica del VMPT, Ministerio de Hacienda, marzo 2005. Viceministerio de Presupuesto y Contaduria VMPC- Visi6n EstratCgica del VMPC, Ministerio de Hacienda, marzo 2005. Viceministerio de Tesoro y Crbdito Pbblico VMTCP.- Visi6n EstratCgica del VMTCP, Ministerio de Hacienda, marzo 2005. Bolivia CFAA Annex4: Transparency Projects 85 Annex 4: Transparency Projects 1. Project Name: Investigation and diffusion of the Problem of corruption Organization: Centro de Documentacih e Informacih Bolivia (CEDIB) This project is a continuation of a similar project that CEDIB carried out in 2000, which was also sponsored by the Dutch Embassy in L a Paz. CEDIB collects, evaluates and systematizes information on the mechanisms through which corruption in Bolivia operates. Above all it concentrates its work on Government's policy and subsequent issues, like popular participation, educational reform, rural development, health and development funds. Furthermore, it distributes the gathered information among civil society organizations and the general public, in order to increase knowledge among citizens about transparency and anti-corruption, Its goals are to better inform civil society about the way corruption works and to increase the role civil society plays in controlling the mechanisms through which corruption operates. For this purpose, CEDIB does intensive research on corruption cases in Bolivia and the anti-corruption plans of the Government. It conducts interviews with key persons and holds inquiries among the general public. It has developed a databank on corruption and its mechanisms, and has published bi-annual reports. Furthermore CEDIB has created its own webpage and i s currently working on the development of a monthly bulletin. By doing all this, CEDIB intends to enlarge within civil society and among the organizations that represent it, knowledge about anti-corruption and to strengthen their demand on the Government for greater transparency and accountability. 2. Project Name: Strengthening the participation of citizens in ethical and democratic themes Organization: Fundacidn Etica y Democracia The Ethical and Democratic Foundation i s an organization that has only recently been formed. Therefore, it i s still developing its operational structure and institutional strategies. Its main goals are to increase public participation in the Bolivian democracy and to increase knowledge among citizens about the development of Bolivia's democracy. For this reason they especially want to target their activities on the strengthening of ethics in both public and private life, as a mechanism to combat corruption. To be able to do this, first of all, the organization has to develop a strategic plan and position itself strongly within civil society. For this reason, the organization has been working on the development of short- and long-term plans, and created a Steering Committee to set a course for the organization. Furthermore it cooperates with the Centre for Documentation and Information Bolivia (CEDIB) to exchange information on anti-corruption methods. Through the expansion of public knowledge on ethical and democratic values, especially aimed at anti-corruption, the Foundation will strengthen the public participation of civil society needed for the further development of the Bolivian democracy. For this reason, it has created an Award for Anti-corruption Journalism, and i s currently working on an Ethical Code of Conduct for the private sector, with the participation of businessmen. Bolivia CFAA Annex4: Transparency Projects 86 Furthermore, it i s developing ethical courses for the curriculums of primary, secondary and higher education. The Ethical and Democratic Foundation i s on its way to becoming a fully self-sustainable organization with a strong position in civil society and has so far lived up to its expectations. 3. Project Name: WBI Anti-Corruption Program Organization: World Bank Institute In conjunction with partners, WBI offers a strategic anti-corruption learning program including diagnostic and analytical work under six main types of activity: a core course on controlling corruption; making corruption surveys; raising public awareness and building coalitions; promoting freedom of the press and investigative journalism; strengthening parliamentary oversight; legal andjudicial reform; and effective use o f public resources. 4. Project Name: Decentralization of Public Management aiming at Poverty Reduction Orpanization: GTZ The aim of the program i s to direct the modernization o f the state, including the decentralization of state activities and the strengthening of public administration, towards poverty reduction and thereby foster the realization of the Bolivian poverty reduction strategy (EBRP). The EBRP, with its concept of countrywide sub-national funding, transfers responsibilities and tasks of the battle against poverty to the communities and prefectures. The proximity to the target group facilitates the participation of the population inthe process of designing the policy and orientation of the state activities to the needs and problems of the poor. That i s why the activities of the program concentrate on the communal level. The national and departmental institutions as well play an important role in the process of realization of the reforms supported by the program and they will be closely included in the actions in order to focus their planning, administration and coordination activities efficiently on the EBRP. The main focus of the program i s the institutional strengthening o f the partner organizations in service orientation, administrative efficiency, and transparency in order to foster the battle against corruption. Main activity areas are: advisory services in the design of policies in the fields o f macroeconomic policy, financial management and participatory planning; improvement o f the efficiency of administration through institutional and personnel development; capacity building for the supervisory authority responsible for government employes; improvement of instruments for the control of administrative procedures in cooperation with internal control authorities; support for civil society oversight of the administration (particularly regarding the transparency of financial management); accelerated parliamentary oversight; support in coordination, dialogue and comprehension processes. Main means: technical assistance, staff. 5. Project Name: BuildingA Model for Transparency Organization: Carter Center The Carter Center and its Council o f Presidents and Prime Ministers of the Americas have initiated a multi-year project to work with governments and civil societies in the Americas Bolivia CFAA Annex4: Transparency Projects 87 to develop monitoring mechanisms to help ensure transparency in government transactions and serve as a model for the rest of the world. Transparency will improve investor confidence, spur economic growth, provide better public services to the population, and increase public confidence in democratic institutions. At a high-level conference held May 4-5, 1999, leaders from across the hemisphere, including former Bolivia President Gonzalo Sinchez de Lozada, a member of the Council, went to The Carter Center to evaluate specific anti-corruption efforts and seek commitments from other governments to implement similar strategies intheir own countries. 6. Name of the Project: Transparency Program Organization: IADB The objective of this operation i s to increase institutional efficiency b y increasing transparency. Specifically the operation will support the Vice-presidency and the Comptroller's office. Bolivia CFAA Annex 5:Decentralized Financial Operations 88 Annex 5: Decentralized Financial Operations The process of decentralization in Bolivia has been extensively studied from the point of view of devolution and deconcentration of responsibilities, roles of central and local government, and fiscal and technical capacities. With regard to public sector expenditures the attention has focused on the share of investments executed by Central Administration, Departmental Administrations and Municipalities. As the budgets of the Municipalities are not included in the National Budget, with the exception of a part of the municipal investment budgets, estimates of the share o f the decentralized levels o f government in the overall expenditures of the public sector are necessarily to be based on expenditure returns for the combined public sector. There are serious flaws in the municipal budget process: there i s an overestimation of own revenue and a lack of capacity to estimate discretionary transfers from national co- financing institutions (the latter much depends on the efficiency or lack of thereof of these institutions); weaknesses in expenditure management relate to poor execution of the investment program, which depends on the capacity of municipal administrations to execute projects as well as, in the case of small municipalities, the capacity of collaborating institutions (independently managed donor projects and NGOs) to execute annual municipal budgeted programs. 2001: 301 municipalities reported both their annual budgets and execution. Total expenditure estimates amount to Bs. 4,953,052,856 and total expenditures come to Bs.3,515,224,816. Budget realismi s estimated at 0.71. 2002: 296 municipalities reported both annual budgets and execution. Total expenditures estimates amount to Bs. 5,668,613,747 and total expenditures come to Bs.3,493,591,657. Budgetrealism is estimated at 0.62. On the basis of the cash flow estimates prepared by the Unidad de Programacih Fiscal (UPF) of the Ministry of Finance and an estimate of total municipal expenditures, it was possible to calculate the share of public expenditure executed by the three levels of government administration: Bolivia CFAA Annex 5:Decentralized Financial Operations 89 Note: The table above was prepared on the basis of UPF cash flow estimates. Expenditures are consolidated and not aggregate, excluding inter- and intra-governmental transfers. Municipal expenditures have been adjusted to include total expenditures, based on the assumption that UPFcash flow data for 111municipalities represent 85 percent of total municipal expenditures. Expenditures for departmental administrations do not include salary costs for the social sectors, which are included inPrefecture budgets but managed centrally. Expenditure for departmental administrations in2001has been adjusted to exclude an accounting operation for the Department of Tarija of approx. Bs. 500 million. Both departmental administrations and municipalities play an important role in the execution of the public investment program. This role substantially increased with the introduction of popular participation and administrative decentralization. Currently, the municipalities execute about 35 percent of public investments and the departmental administrations another 20 percent: 2001 2002 Bs. Millions Percentage Bs. Millions Percentage Central Government, Public Enterprises and 1,715.3 40.8 1,740.7 42.3 Social Security Departmental 1,301.8 I 30.9 I 920.1 I 22.4 Administrations Municipalities 1,192.7 28.3 1,449.9 35.3 Total 4,209.8 100.0 4,110.7 100.0 Note: Between 15 percent of departmental and municipal public investments are funded by co-financing institutions (eg FF'S and FNDR), which to some extent have retained management control over execution. Bolivia CFAA Annex 5:Decentralized Financial Operations 90 FISCAL TRANSFERS TO MUNICIPALITIES AND USE OF HIPC I1FUNDS 1995 664.6 1996 824.0 1997 946.7 1998 1,125.7 1999 1,014.0 2000 1.156.4 2001 1,096.8 219.1 2002 1,184.1 581.6 Sector Disbursement Amount Available Expenditures Balance Infrastructure 408.3 518.2 290.5 222.0 Education 115.5 149.2 76.1 63.8 Health 57.8 75.6 23.8 41.8 Total 581.6 743.0 390.4 327.6 Table A5.5: Tributary coparticipation balance availableto municipal governmentsand allocationof funds IResourcesassigned - troughtributary coparticipationto municipalities I 100percent calculated on the basis of 85 percent of Tributary Coparticipation). 10.0percent for 2005 Social Control Fundto finance the development and functions o f the Vigilance Between 0.25 percent to Committees (DS 26130). 1.O percent, depending on population Old Age Insurance (Law no. 1886), 40 percent of US$ 56 for each person o f Average projected at between 0.7 more than 65 years of age. Not all are registered, which results in variations percent (rural) and 1.4 percent between census data and the corresponding deductions. (urban) Balance Available for Investments Between88.9 percent and ~____ 90.45 percent Bolivia CFAA Annex 5:Decentralized Financial Operations 91 Table A5.6: HIPC I1 Solidarity fund, deductions and balance (available from the National Dialogue - Less: Resources managed by the Ministries o f Education and Health Average 2002 -2003: 32.3 percent National Solidarity Fundfor Education 22.1percent National Solidarity Fond for Health 10.2percent Nominal balance on the National Dialogue 2000 Special Account (NDSA) 67.7 percent Less: Bank charges and deductions established by national policy Between 10.9 percent and decisions 11.5 percent Bank charges (commissions, cost of checkbooks, etc.). In 2004 these are 0.9 percent to 1.5 percent between 0.9 percent and 1.5 percent National Solidarity Fund for SUM1 benefits (managed by the Ministry of Max. 10.0percent of the National Health) Dialogue 2000 Special Account Balancetraosferred to municipalities . + . ' Betweena 56.2 percent anda ~ 8 56.8 percent of annualHIPC I f allocation ~~ ~ Resources for productive infrastructure Average 39.6 percentofthe ~ NDSA (70 percent of the actual balance) Resources for education services Average 11.3 percent of the NDSA (20 percent of the actual balance) Resources for public health services Average 5.7 percent of the NDSA (10percent of the actual balance) ite: Preparedon the basis of current legislation.Funds are transferred to three accounts for each municipality: infrastructure, education and health. The three solidarity funds are centrally managed and the corresponding expenditures appear under Ministry of EducationandMinistry of Healthbudgets, respectively. Bolivia CFAA Annex 6: Municipal Budget Realism 92 Annex 6: MunicipalBudgetRealism 2001 2002 Revenue Collectionas Percentageof Budget Original Modified Original Modified Chulumani Tax and Other Revenue n.d. n.d. 80 79 Tributary Coparticipation n.d. n.d. 97 97 HIPC I1 n.d. n.d. 100 100 Bolivia CFAA Annex 6: Municipal Budget Realism 93 2001 2002 Execution asPercentageof Budget Original Modified Original Modified Chulumani Current n.d. n.d. 100 110 Debt Servicing n.d. n.d. 1 100 Investment n.d. n.d. 82 73 Total Total I'I 79 II69 II65 II74 Debt Servicing n.a. n.a. n.a. n.a. Investment n.d. 92 n.d. 62 Total n.d. 92 n.d. 64 Note: Preparedon the basisof municipalbudget executionreports Bolivia CFAA Annex 7: Prefecture Finances and Budget Realism 94 Annex 7: Prefecture Finances ITotal 100 100 100 L . : t I I I Bolivia CFAA Annex 7: Prefecture Finances and Budpet Realism 95 Santa Cruz Adm. Transfers 53 56 54 Royalties 19 21 18 IEHD+FCOMP 7 7 6 Donations and Credits 9 7 15 Sale of services, licenses, etc. 2 2 1 Other 9 h h Sotes: Prepared on the basis on the basis of approved budget estimates. Administrative transfers are funds to cover current expenditures, mainly salaries, of the social sectors, which are included in the budget estimates of the prefectures but managed by Central Government. Royalties are basically from the hydrocarbon and mining sectors. IEHD represents 25% of national collection of the special tax, while FCOMP is the Departmental Compensation Funds established to provide budget compensation to departments with a per-capita income from royalties that is below the national average; both IEHD and FCOMP constitute revenue sharing. Donations and credits are basically extemal funding for investment projects. Sale of services, licenses, etc. includes income from the "Ventanilla Unica" and from properties. Other mainly includes additional budget allocations by the Treasury and transfers from decentralized institutions. Bolivia CFAA Annex 7: Prefecture Finances and Budget Realism 96 PREFECTURES BUDGETREALISM - Total 92 82 88 84 Note: Prepared on the basis of prefectural budget execution reports. Administrative transfers are funds to cover current expenditures, mainly salaries, of the social sectors, which are included inthe budget estimates of the prefectures but managed by Central Government. Royalties are basically from the hydrocarbon and mining sectors. IEHD represents 25% of national collection o f the special tax, while FCOMP is the Departmental Compensation Funds established to provide budget compensation to departments with a per-capita income from royalties that i s below the national average; both IEHD and FCOMP constitute revenue sharing. Donations and credits are basically external funding for investment projects. Sale of services, licenses, etc. includes income from the "Ventanilla Unica" and from properties. Other mainly includes additional budget allocations by the Treasury and transfers from decentralized institutions. Bolivia CFAA Annex 7: Prefecture Finances and Budget Realism 97 Cochabamba Current, Social Sectors 95 92 104 100 Current, Prefecture 84 15 60 65 Investment 96 15 83 1 3 Note Prepared on the basis of prefectural budget execution reports. Current expenditures of the social sectors are managed by Central Government. Current expendituresof the Prefecture include salaries and other current costs of the main organization and some services. IBRD 33374 70°W 65°W BOLIVIA SELECTED CITIES AND TOWNS B R A Z I L DEPARTMENT CAPITALS NATIONAL CAPITAL To RIVERS Porto Velho 10°S Abunã MAIN ROADS RAILROADS Miles PA N D O DEPARTMENT BOUNDARIES Riberalta Cobija Madre de Dios INTERNATIONAL BOUNDARIES Asunción Asunción 60°W This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Puerto Heath Yata Guaporé Group, any judgment on the legal status of any territory, or any Lago Lago endorsement or acceptance of such boundaries. Madidi Huaitunas Rogaguado P E R U Beni Magdalena Lago B E N I Rogagua Santa Ana Lago de Yacuma San Luis Reyes Apere amoré San Apolo M Trinidad Paraguá San Borja S an 15°S L A PA Z Puerto Miguel Blanco Martín 15°S Acosta Lago Nevada Caranavi Ascención Ascención Titicaca Ichoa To Illampu Puno (6,362 m) Guaqui Quiquibey Concepción Concepción LA PAZ AZ Nevada Las Petas Viacha Illimani pay) (6,462 m) Chapare Gran d e San Ignacio C O C H A B A M B A Ichilo Yapacaani (Gu Cochabamba Montero S A N TA C R U Z Desaguadero San José de Chiquitos José Oruro Santa Cruz To Nevada Sajama Arica (6,542 m) Cordiller O R U R O Banados del Lago C o rdiller Aiquile Roboré Roboré Izozog Puerto Poopo Sucre Santa Suárez Suárez Salar de o Ana Coipasa Potosí Potosí To 20°S Iquique O Central Tarabuco C h a c Salar de C Pilcomayo G r a n To Campo Grande Carniri 20°S na Uyuni H Uyuni U Q U I S PA R A G U AY ce Pila y a A C A P O T O S Í To O C H I L E ccidental Villa Montes Mariscal Estigarribia Pacific To Calama G ra n d eeLd Yucuiba Tarija ípez TA R I J A Viljazón iljazón To Tartagal To BOLIVIA Abra Pampa 0 50 100 150 Kilometers To San Ramón de la Neueva Orán 0 50 100 Miles A R G E N T I N A 70°W 65°W 60°W SEPTEMBER 2004