Report No. 36384-GH Ghana 2006 External Review of Public Financial Management (In Two Volumes) Volume II: Public Finance Management Performance Report and Performance Indicators June 2006 PREM 4 Africa Region Document of the World Bank CURRENCYEQUIVALENTS CurrencyUnit= Cedis Cedis - - US$O.OOO107 US$l - 6 9,073 FISCAL YEAR January 1-December 31 ACRONYMS AND ABBREVIATIONS AFD Agence Franqaise de DCveloppement A-G Auditor-General AGA Autonomous Government Agencies APRM Africa Peer ReviewMechanism BOG Bank of Ghana BPEMS Budget and Public ExpenditureManagement System CAGD Controllerand Accountant General's Department CAS CountryAssistance Strategy CCO Commitment Control Officer CCS Commitment Control System CEPS Customs, Excise and Preventive Service CF ConsolidatedFund CFAA CountryFinancial AccountabilityAssessment CHRAJ Commission on Human Rights and AdministrativeJustice CIDA Canadian InternationalDevelopmentAgency CMIC Cash Management ImplementationCommittee COFOG Classificationof the Functions of Government, GFS Manual CPAR CountryProcurement~ssessmentReport DACF District Assemblies Common Fund DANIDA DanishInternationalDevelopmentAgency DFID UK Department for InternationalDevelopment DSA Debt SustainabilityAnalysis ERPFM ExternalReview of Public Financial Management FAA Financial Administration Act (2003) FAR Financial Administration Regulations GAS Ghana Audit Service GDP GrossDomestic Product GES Ghana Education Service GETF Ghana Education Trust Fund GFS Government Finance Statistics GHA Ghana HighwaysAuthority GoG Government of Ghana GPRS Ghana Poverty Reduction Strategy HIPC Heavily Indebted Poor Countries (debt relief) IAA Internal Audit Agency MU Internal Audit Unit IDA InternationalDevelopment Association IGF Internally-GeneratedFunds IMF InternationalMonetary Fund INTOSA1 International Organisationof Supreme Audit Institutions IPPD Integrated Personnel and Payroll Database IPSAS International Public Sector Accounting Standards IRS Internal Revenue Service KfW German Kreditanstalt f&Wiederaufbau (KFW) MDAs Ministries, Departments, and Agencies of Central Government MDBS Multi-Donor Budget Support MDRI Multilateral Debt Relief Initiative MoLGRD Ministry of Local Government and Rural Development MMDA Metropolitan, Municipal, and District Assemblies MoFEP Ministry of Finance and Economic Planning MoH Ministry of Health MTEF Medium Term ExpenditureFramework NDPC National DevelopmentPlanning Commission NEPAD New Partnership for Africa's Development NETS National ExpenditureTracking System NTR Non-Tax Revenues NTRU Non Tax Revenue Unit OAG Office of the Auditor-General OECD Organization for Economic Co-operation and Development OHCS Office of the Head of the Civil Service PAC Public Accounts Committee PE Personal emoluments PEFA Public Expenditure and Financial Accountability PEM Public ExpenditureManagement PEMU Public ExpenditureManagement Unit, MoFEP PETS Public ExpenditureTracking Survey PI Performance Indicator PFM Public Financial Management PPB Public Procurement Board PRGF Poverty Reduction and Growth Facility PSC Public Service Commission PUFMARP Public Financial Management Reform Programme RAGB Revenue Agencies Governing Board RF Road Fund RSDP Road Sector DevelopmentProgramme USAID United StatesAgency for International Development SEC State Enterprises Commission SF StatutoryFunds SN Sub-National (level of Government) SOE State-OwnedEnterprises VAT Value Added Tax VATS Value Added Tax Service Country Director: Mats Karlsson Sector Director: Sudhir Shetty Sector Manager: Robert R. Blake TABLE OF CONTENTS SUMMARY ASSESSMENT ...................................................................................................................... v ACKNOWLEDGEMENTS x 1 INTRODUCTION 1 2 .. ........................................................................................................................ ................................................................................................................................... ................................................................................................................................ A. ECONOMICSITUATIONAND GENERALBACKGROUND BACKGROUND ..................................................................... 2 B. BUDGETARY .................................................................................................................. 2 C. LEGAL INSTITUTIONAL OUTCOMES 4 AND FRAMEWORK PFM....................................................................... FOR 6 3 ASSESSMENT OF PFMSYSTEMS.PROCESSES AND INSTITUTIONS . ................................. A. BUDGET CREDIBILITY ...................................................................................................................... 9 9 B COMPREHENSIVENESSAND TRANSPARENCY . ................................................................................. 12 c. POLICY-BASED BUDGETING ........................................................................................................... 18 D PREDICTABILITY AND CONTROLINBUDGET . EXECUTION ............................................................. 20 E F 31 G... EXTERNALSCRUTINYAND AUDIT ................................................................................................. ACCOUNTING. REPORTING.AND RECORDING ................................................................................ 29 DONOR PRACTICES......................................................................................................................... 35 4. ........................................................................................... A. DESCRIPTION RECENTANDON-GOINGREFORMS..................................................................... GOVERNMENTREFORMPROCESS 36 OF B INSTITUTIONAL FACTORS . SUPPORTINGREFORMPLANNINGAND IMPLEMENTATION...................36 38 ListofAnnexes Annex A: Performance Indicators Summary .............................................................................................. 40 Annex B: Sources o f Information by Indicator ........................................................................................... 42 Annex C: Main References ......................................................................................................................... 44 Annex D:Calculation o f Deviations by Budget Head, 2003-2005 ............................................................. Annex E: Ghana: PEFA Assessment Meetings -List o f Participants ........................................................ 46 48 Annex F: PEFA Scoring Calibration for Individual Indicators ................................................................... 52 ListofTables Table 2.1: Macroeconomic Trends. 2000-2005 ............................................................................................ 2 Table 2.2: Overall Budgetary Trends, 2003-2005 ......................................................................................... 5 Table 2.3: Actual Budgetary Allocations by Broad Sector ........................................................................... 5 Table 2.4: Actual Budgetary Allocations by Economic Classification Table 2.5: Structure o f Public Sector Institutions ......................................................................................... ......................................................... 6 8 Table 3.1: Comparison o f Original Budgetedand Actual Expenditures, 2003-2005 .................................... 9 Table 3.2: Expenditure Deviations between Original Budgetedand Actual Outturns Table 3.3: Comparison o f Original Budgetedand Actual Domestic Revenue Receipts, 2003-2005 ..........10 for 20 Largest Budget Heads, 2003-2005 ................................................................................... 11 SUMMARY ASSESSMENT 1. The Public Expenditure and Financial Accountability (PEFA) assessment has been undertaken as ajoint exercise together with the Government o f Ghana (GoG). It was carried out in the context of the 2006 External Review of Public Financial Management (ERPFM), conducted annually with other donors involved in the Ghana Multi-Donor Budget Support framework. The assessment was prepared on the basis of: (i) guidance on the Public Financial Management (PFM) Performance Measurement Framework issued by the PEFA multi-donor programme inJune 2005; and (ii) the demonstrated and observable PFMpractices at the time o f the assessment. Extensivediscussions were held with stakeholders to determine the appropriate scoring for each indicator. A large amount o f documentary evidence was provided by the Government to support the scores. Where possible, corroborating evidence was sought from a variety o f sources. Whilst the overwhelming majority o f scores were agreed by the joint team, there were a few dimensions where agreement was not reached. These have been noted in the text o f the PFMPerformance Report (PFMPR) below. 2. The purpose o f the PFM PR is to assess the status o f Ghana's current PFM system in order to determine a baseline for the continued use o f the 31 high-level indicators in the PEFA performance measurement framework. This assessment is particularly timely as the Government has recently adopted its Short and Medium-Term Action Plan (S&MT AP), and the PEFA framework could be used potentially to refine the action plan and to track progress in its implementation. It i s important to underline that the objective o f the assessment has not beento evaluate and score the performance o f different institutions or individuals but rather to assess the PFMsystems themselves against international bestpractice. (i) Integrated assessment of PFMperformance 3. Ghana's Public Financial Management (PFM) system i s based on a solid legal and regulatory framework which sets out appropriate budget and accountability structures. These include: (i) responsibility and accountability for public finds delegated to individuals through the system; (ii) appropriate oversight by the legislature; (iii) statement o f the powers and duties clear for the Ministry o f Finance and Economic Planning (MoFEP), the Controller and Accountant General's Department (CAGD), and the Auditor-General; and (iv) clear and well-documented roles and responsibilities for all stakeholders. The legal framework for PFM is underpinned by an established set o f expenditure control procedures covering the wagebill, non-salary items, and procurement. Clear rules andprocedures are inplace, andthese tend to be followed. 4. Overall, the P F M system i s performing at an average standard, and in some areas at an above average level.' Table A below summarises the overall assessment against the PEFA Performance Indicators benchmarks. Whilst predictability o f overall revenues and expenditures has been maintained in aggregate over the last three years, credibility o f the budget i s undermined by significant in-year variations across budget heads. There is an increased emphasis on budget transparency and comprehensiveness, particularly in the Budget Statement, 'Taking a C as the average level, nearly halfof the indicators are above this level (Le. C+ or above). V and external scrutiny has been strengthened through more timely completion o f the Auditor- General's reports. 5. Measured against the six core PFMobjectives examined by the assessment, it is clear that the system works reasonably well. There have been significant improvements in recent years, which have served to reinforce transparency and comprehensiveness o f fiscal management. Furtherimprovements will beneededto achieve better budgetoutcomes as follows: Credibility of the budget. In aggregate, expenditure and revenue outturns have broadly matched budget plans over the past three years. However, the credibility o f the budget i s adversely affected by significant variances in the use o f resources across budget heads (both economic and administrative). These variances reflect weaknesses in budget formulation as well as insufficiently disaggregated reporting o f contingency amounts; Comprehensiveness and transparency of the budget. The transparency o f the budget documentation has improved considerably over the last two years, especially by incorporation in the Budget Statement for 2005 and 2006 o f information for Ministries, Departments and Agencies (MDAs) on internally generated finds (IGFs), donor disbursements, and HPC finds, as well as information on incomes and expenditures for the Statutory Funds. Whilst comprehensive information i s available on the intendeduse o f public resources, in-year reporting on the utilisation o f those resources is less comprehensive, hampering the monitoring o f budget performance and reducing the efficient management o f overall budget operations; Policy-based budget. Whilst the budget i s centred on the Medium Term Expenditure Framework (MTEF), particularly in terms o f the macro/fiscal framework, weaknesses in budget planning exist due to limited analytical capacities to cost strategies and the lack o f comprehensive information on budget parameters, namely, the lack o f effective wagebill planning, during budget formulation. At the same time, the MTEF is difficult to implement as planned,with no clear mechanism to follow the link from detailed activities to actual budget execution. Improvements inthe use o f forward estimates and the linking o f the bottom-up planning and budgeting processes with the top down resource framework will be required in order to make the budget a more effective tool for government policy; Predictability and control in budget execution. Strengthened commitment controls during the past two years have improved aggregate budget discipline. Whilst a reasonably comprehensive set o f internal controls are in place and tend to be respected, the Government has recognised weaknesses in management and oversight o f control systems, and consequently improvements are under way in internal audit. In particular, capacity constraints can lead to potential compliance issues with internal control rules. At the same time, effective expenditure controls are potentially undermined by data inaccuracies and non-timely information (e.g. with the processing o f personnel records, particularly new recruitments, leading to delays in integrating them onto the payroll); Accounting, recording and reporting. The paper-based nature o f many o f the financial management systems leads to delays in the processing o f financial information and can affect data accuracy, while analytical capacity constraints undermine the ability o f both vi MoFEP and MDAs to monitor budget performance. In terms of monitoring flows throughthe system, there is limited information on the extent o f resources reaching front- line services inhealth and education; and External scrutiny and audit. External oversight has improved through the more timely preparation and submission o f Auditor-General reports to Parliament andthe clearance o f the backlog o f outstanding reports. Reported progress has been facilitated by the timely submission o f the Report and Financial Statements o f the Consolidated Fundby CAGD. Parliament has taken a more active role in scrutinising the budget, although it i s not clear how effectively the Executive takes remedial action. (ii) Assessment of the impact of PFM strengths and weaknesses 6. Public financial management concerns the efficiency and effectiveness o f the use o f public resources. The interdependence o f the components o f the budget cycle mean that weaknesses in one part can adversely affect other parts and can constrain the achievement o f better budgetary outcomes. At the same time, improvements inone area which are not matched bycorresponding changes inother areas canundermine the initial reforms. 7. The Government's focus on controlling overall expenditure levels, through improved commitment controls, has helped to maintain aggregate fiscal discipline. At the same time, the Government's success in gaining Parliamentary approval for the 2006 Budget before the beginningo f the fiscal year has contributedto increased certainty around public expenditure and i s reportedly having a positive impact on inflationary expectations. Finally, clearing the backlog o f external audits has enabled the Public Accounts Committee (PAC) to have a more active role andthereby has contributed to improved external scrutiny. 8. Whilst significant progress has been made, the assessment indicates areas which require continued attention. First, weaknesses in budget planning prevent resources from being effectively utilised to meet Government policy priorities. Incomplete costing o f sector strategies makes it difficult to allocate resources across andwithin sectors appropriately. At the same time, significant contingency amounts are included during the budget formulation stage, some o f which are subsequently allocated to meet mostly higher salary awards agreed after the completion o f the budget; this might require the reallocation o f planned resources within MDAs and undermines the ex ante budget plans. The resulting large expenditure deviations across budgetheads reduce budget credibility andpotentiallyunderminethe legitimacy o f these original budgetplans. 9. Second, the use o f fragmented data sources to report on the use o f resources hampers MoFEP and MDAs inmonitoring the achievement o f budgetpolicy objectives since it i s difficult to have a clear view o f comprehensive spending in a given sector. Third, weaknesses in the collection o f tax arrears prevent these resources from being available for priority public services. Finally, the current format for presentation o f budget information, interms o f excessive detail o f the activity-level information and the absence o f a clear trend from actual outturns through the current year's revised estimates to the budget proposals, potentially weakens the external oversight role byboth Parliament and civil society. vii (iii) Prospectsfor reform planning and implementation 10. The Government has shown commitment to reform by undertaking a number o f measures inrecent years whichhave strengthened the PFMsystem considerably. These include: e a stronger legislativehegulatory framework, including the adoption o f new laws on overall financial management, internal audit, andprocurement; e more comprehensive information in the Budget Statement on the detailed use o f resources, including those not passingthrough the Consolidated Fund, such as externally- financed project expenditures andretainedIGFs; e improved timing o f the approval o f the Budgetby Parliament; e increased availability o f information on budget implementation to the public, with more timely gazetting o fmonthly budget execution reports; e stronger commitment controls inline with the availability o f cash resources; e clearing o f the backlog o f external audit reports and hence a more active role for the PAC; and e more transparent procurement procedures. 11. Building on these measures, the Government is currently working to strengthen the timeliness and accuracy o f information and resource flows through implementing an improved integrated computerized payroll and personnel management system, introducing an integrated computerizedbudget planning and implementation system, and decentralising treasury offices o f CAGD to MDA level. It also intends to build on initial steps already under way to improve internal audit andprocurement management. 12. Institutionally, the reforms are directed and owned by senior managementwithin MoFEP, a strategy which has proved effective, as evidenced by the success o f a number o f reform measures. As the reforms continue, it will be important for GoG to ensure that sufficient analytical capacities exist to lead andmanage the reform process. viii Table A: Summaryof PEFA PFMPerformanceScores l D l C l B l A l Note: The scores range from A (highest) to D (lowest). Shaded patterns indicate a "+" score (e.g. PI-4 is a B+). PI-19 i s not scored. This Table i s based on PFM Performance Indicator Table inAnnex A. ix ACKNOWLEDGEMENTS The active participation o f all Ghanaian stakeholders in the discussions surrounding the assessment o f the PEFA indicators inthis report i s gratefully acknowledged. Special thanks go to the Minister o f Finance and Economic Planning and his senior management team for providing strong leadership during the assessment, for allocating significant staff time to the exercise, and for hosting the meetings inAccra from February 20 to March 8,2006. The assessment greatly benefited from support by the Government team led by Honorable Dr. Akoto Osei (Deputy Minister, Ministry o f Finance and Economic Planning - MoFEP), Honorable Agyeman Manu (Deputy Minister, MoFEP), Mr. Francis Akwetey (Assistant Auditor General), Mr. Nana J.B. Siriboe (Chief Director, MoFEP), Mr. Christian Sottie (Controller and Accountant General), Mr.Kwabena Adjei-Mensah (Deputy Controller and Accountant General), Mrs. Grace Adzroe (Deputy Controller and Accountant General), Mr. Harry Owusu (Executive Secretary, Revenue Agencies Governing Board), Mr.A.B. Adjei (Chief Executive, Public Procurement Board), Mr. Patrick Nom0 (Director General, Internal Audit Agency), Dr. Regina Adutwum (Director General, National Development Planning Commission), Dr. M. Bawumia (Special Assistant to Governor, Bank o f Ghana - BOG),Mr. S. B. Nyantekyi (Director o f Budget, MoFEP), Dr. Ernest Addison (Head, Research Department, BOG),Mr. Kwabena Oku-Afari (Head, Policy Analysis Divison, MoFEP) and Mrs. Yvonne Quansah (Head, Aid/Debt Management Unit, MoFEP), Mr. Enoch Cobbinah (Head, Non Tax Revenue Unit, MoFEP) and Mr. David Quist (Ag. Head, World Bank Desk, MoFEP). Key support was also received from senior officials o f the State Enterprises Commission and o f several line ministries, departments and agencies (MDAs) covering education, health, roads and transport, local government andrural development, and public sector reform areas. The assessment involved very informative meetings with members o f the Parliamentary Finance and Public Accounts Committees, and their Clerks. It also builds on invaluable information coming from discussions with non-governmental organisations (Ghana Anti- Corruption Coalition, Association o f Ghana Industries, ISODEC and SEND Foundation). The Public Financial Management Performance Report (PFM PR) for Ghana was prepared inthe context o f the 2006 External Review o f Public Financial Management (ERPFM) by a team led by Marcel0 Andrade, and involving Carlos Cavalcanti (Co-Chair MDBS, World Bank), Daniel Boakye and Simplice Zouhon-Bi (AFTP4), Edward Olowo-Okere and Fred Yankey (AFTFM), Smile Kwawukume (AFTPR), Tsri Apronti and Anthony Mensa-Bonsu (AFTPC), Ruby Bentsi (DFID), Kofi Tsikata (AFREX), K o f i Marrah (WBIRC), Michael Stevens (Consultant), Mary Betley (Consultant, Mokoro - main contributor to the PFM PR report), and Peter Fairman (Consultant, Oxford Policy Management). Administrative and secretarial support to the team was provided by Emmabel Hammond (AFC10) and Marta Berhane and Pierre Lenaud (AFTP4). DFID and DANIDA financing for consultants' support to the preparationo fthe 2006 ERPFMi s gratefully acknowledged. The assessment of the PEFA indicatorsbenefited from the involvement o f DavidKuijper (Co-Chair - MDBS, the Netherlands), Jean Franqois Arnal and Bernard Poudevigne (AFD), X Archie Book (CIDA), Peter Larsen (DANIDA), Guy Samzun (European Commission), Daniel Arghiros (Governance Advisor, DFID), Christian Rogg (PFM Sector Lead - MDBS, DFID), Shinichi Tamamitsu and Takafbmi Nakase (Japan), Wolfgang Weth and Hoppe Felicitas (KfW), Phillipe Sas (Switzerland), and Jerry Manarolla and Ted Lawrence (USAID). The Resident Representative of the International Monetary Fund in Ghana, Alphecca Muttardy, also contributed to the assessment of the PEFA indicators. The comments provided by the peer reviewers, Bill Dorotinsky (PREM Public Sector), Gert Van Der Linde (AFTFM), and Guy Samzun (European Commission, Delegation in Ghana), and by Frans Ronsholt (Public Expenditure and Financial Accountability Secretariat), Elena Loukoianova (IMF) and Suhas Joshi (IMF FAD Technical Adviser) are gratefully acknowledged. Nicola Smithers (AFTPR, previously with PEFA Secretariat) provided key support throughout the exercise. The work was carried out under the guidance and supervision o f Robert Blake, Sector Manager o f AFTP4, and Mats Karlsson, Country Director for Ghana, Liberia, Sierra Leone, Burkina Faso and Guinea. xi 1. INTRODUCTION 1.1 The Government o f Ghana (GoG) has made significant progress in strengthening fiscal discipline and improving the efficiency o f its public financial management (PFM) system in recent years. Along with achieving macroeconomic stabilisation, the Government has strengthened the legislative base, increased the transparency o f budget information, improved control over expenditures, and strengthened budget oversight. 1.2 The Public Financial Management Performance Report (PFM-PR) is aimed at providing a value-neutral baseline assessment o f Ghana's PFM system in order to measure future progress in reforming its budget preparation, execution and oversight systems. The Government i s committed to improving its fiscal management in order to achieve its national goal o f becoming a middle-income country over the medium term. As such, the Government wants public resources to be usedas efficiently and effectively as possible inorder to enable more resources to be directedtowards boosting Ghana's growthpotential. 1.3 The PFM-PR assessment was undertaken as a joint exercise together with Government officials as part o f the 2006 External Review of Public Financial Management (ERPFM). The ERPFMis a World-Bank led exercise carried out annually with several donors involved inthe Multi-Donor Budget Support (MDBS) framework. Prior to field work launched in February 2006, consultations took place with the Government to clarify the objectives o f PEFA's Strengthened Approach to PFM and its linkages to the P F M Performance Measurement Framework and the 2005 OECDDAC Paris Declaration on Aid Effectiveness. Inaddition, the Governmentwas provided guidance on evidence requiredto support the assessment o f the PEFA set o f high-level performance indicators. To prepare the assessment, extensive and open consultations were held with relevant MoFEP and line ministry staff, as well as the Auditor- General's office, officials from the three Revenue Agencies, the Public Procurement Board (PPB), the Internal Audit Agency (IAA), the Controller and Accountant General's Department (CAGD), the Bank o f Ghana, the National Development Planning Commission (NDPC), the State Enterprises Commission, the District Assemblies Common Fund (DACF), the Ghana Education Trust Fund (GETF) and the Road Fund (RF). The assessment greatly benefited from meeting with members o f the Parliamentary Finance Committee and the Public Accounts Committee. Roundtable meetings were also held with civil society organisations. MDBS development partners were actively involved in the meetings. In particular, the Resident Representative o f the InternationalMonetary FundinAccra participated inmost o fthe meetings. 1.4 The PFM-PR assessment was made on the basis o f available evidence and corroborating information was sought from a variety o f sources. For each indicator, the Government made its own assessment and indicated its basis for scoring. These issues were discussed, together with the relevant evidence, before an initial conclusion was reached. A first draft o f the report inthe form o f the Summary Assessment, the indicator scores and the accompanying context was circulated and discussed with the group. This version o f the PFM-PR report has taken into account the comments which were received. 1.5 Consistent with the PEFA Guidelines, the PFM-PR assessment concentrates on the operations o f central government institutions, which represent the overwhelming majority o f 1 public expenditures. Information on operations at sub-national government level i s also included inthe report. 1.6 The rest o f the assessment contains background information on Ghana (Chapter 2), an explanation o f the scores for each performance indicator (Chapter 3), and a summary description o f the government's reform programme (Chapter 4). A series o f Annexes include: a summary o f the performance indicator scores (Annex A), specific information sources behind each indicator (Annex B), a document reference list (Annex C), calculation o f deviations by budget head for the period 2003-2005 (Annex D), the list o f participants in PEFA assessment meetings (Annex E) and a description o f the PEFA scoring calibration for each indicator (Annex F). 2. BACKGROUND A. ECONOMICSITUATIONAND GENERAL BACKGROUND Country Context 2.1 Formed from the merger o f the British colony o f the Gold Coast and the Togoland trust territory, Ghana gained independence in 1957. Following a period o f political instability, the current Constitution was approved in 1992. Well endowed with natural resources, Ghana's per capita output i s higher than average for HIPC countries. 2.2 Ghana's economy has traditionally been centred on primary production and exports, particularly o f gold, cocoa and timber. Together, exports o f these commodities account for the bulk o f total merchandise exports. Agriculture is the dominant sector, accounting for around two-thirds o f employment and around 40 percent o f total GDP. Agricultural production is predominantly small-scale and i s concentrated on cocoa and staple food crops. Services comprise the second largest sector in the economy, accounting for an increasing share o f GDP. There is a small industrial sector. Recent trends inmacroeconomic indicators are summarised in Table 2.1. ExchangeRate Cedi/US$ 6,889 7,255 7,933 8,677 9,005 9,073 2 2.3 Classified currently as a lower-income country, Ghana's per-capita income stood at US$3802 in 2004 with a population o f around 21 million. About a third o f the population is estimated to live below the poverty line. In 2005, robust receipts from the gold sector helped sustain GDP growth along with favourable prices for Ghana's robust cocoa crop. Government's progress in restoring aggregate fiscal discipline and implementing economic reforms facilitated the earning o f substantial HIPC debt relief in 2004 and qualification for debt relief under the Multilateral Debt Relief Initiative (MDRI) in2005. Improved control over monetary aggregates has led to a halving inthe rate of inflation since 2001, to about 15 percent by 2005. The stronger economy has also encouraged greater levels o f remittances from expatriate Ghanaians, to the point that these are rivallingcommodity exports as a source o f foreign exchange earnings. 2.4 GoG receives substantial financial and technical assistance from the international community, including significant amounts (US$282 million, or around 11 percent o f total budgeted expenditure in 2005) o f Multi-Donor Budget Support (MDBS). Ghana's success in attracting budget support has paid dividends in the form o f greater predictability o f external funds and lower transaction costs. OverallGovernmentReformProgramme 2.5 Ghana's Poverty Reduction Strategy (GPRS), which represents the Government's medium-term development strategy, provides the framework for the government's overall reform programme. The first GPRS covered the years 2003-2005 and concentrated on macroeconomic stabilisation, improving key poverty indicators, especially in health and education and in the most deprived areas, utilising public sector resources more efficiently, and strengthening economic governance. 2.6 Under GPRS I(2003-05), accelerated economic growth coincided with macroeconomic stabilisation and progress in expanding access to education and health services. Indicators o f a stronger economy include: growth averaged 5.6 percent, rising from 4 percent a year during 2000-02; inflation at the end o f the 2005 had nearly halved to 14.3 percent from an average o f 24.3 percent during 2000-02; the goal o f halving the end 2002 stock o f government domestic debt relative to GDP a key anchor in the fiscal programme aimed at "crowding in" private - sector access to financial resources - was achieved. Moreover, gross primary enrolment rates are rising at the national level, reaching 87 percent by mid-2005 from 81 percent two years earlier; and supervised maternal deliveries are slowly improving, by almost 2 percentage points to about 54percent from 2002 to 2005. Although other key health indicators have shown little improvement; the HIV/AIDS prevalence rate among pregnant women fell slightly from 3.6 percent in2003 to 3.1 percent in2005. Inboth gross primary enrolment and supervisedmaternal deliveries, marked improvements occurred in the three relatively deprived regions (Northern, Upper East and Upper West). These outcomes have been influenced by the strengthening o f PFM in recent years. Specifically, the reforms have resulted in: greater confidence in the economy and in overall budget discipline; achievement o f the HIPC completion point and eligibility to debt relief under the MDRI; reduction inthe stock o f debt and hence debt servicing costs; and greater resources provided to improving front-line priority services. Inthis regard, GrossNational Incomeon a PurchasingPowerParity basis. Source:World DevelopmentIndicators, World Bank. 3 domestically-financed public spending on pro-poor basic services increased from 4.8 percent o f GDP in2002 to 8.5 percent in2005. 2.7 Having stabilised the economy, the Government i s focusing its efforts inthe Growth and Poverty Reduction Strategy (GPRS II), covering the years 2006-2009, on wealth creation and enhancing growth inthe population's disposable income. The Government's explicit objective i s to double the size o f the economy andto raise Ghana's per capita income to middle income level by 2015. It aims to achieve these objectives by focusing on strengthening private sector competitiveness, supporting human resource development, and promoting good governance and civic responsibility. The Government's continuing PFM reform programme is a key component o f GPRS I1and i s discussed inmore detail inChapter 4 below. Rationale for PFMReforms 2.8 At the beginningo f the decade, following an economic crisis in 1999, the economy was in a difficult state. The cedi had lost around half o f its value against the US dollar. External reserves were very low, and external payment arrears were being built up. Headline inflation was more thandouble current levels, and the fiscal deficit was around 9 percent o f GDP. 2.9 The new Government which came into power in 2001 committed itself to fiscal stability and the goal o f becoming a middle-income country by 2015. In the context o f GPRS I,the Government renewed its focus on a programme o f economic stabilisation and o f the restoration of fiscal discipline. As indicated above, this has had a positive impact on the economy, resulting in lower inflation, a stable exchange rate, increased private sector participation, notable reductions inthe fiscal deficit, and an improvement inthe country's sovereign credit risk rating. B. BUDGETARYOUTCOMES Fiscal Performance 2.10 Fiscal performance has improved over the last three years (Table 2.2). Inparticular, revenue generation has been stronger, assisted in part by improved tax administration, greater collection o f internally generated funds (IGFs), and higher levels o f remitted profits, and expenditures have been contained, partly through reductions in debt servicing requirements. Domestic revenues increased to nearly 24 percent o f GDP by 2005. This revenue mobilisation effort, supported by HIPC debt relief, allowed Government both to reduce its reliance on domestic financing o f the deficit and to increase domestically financed primary expenditure to just under 30 percent o f GDP in2005, up from 23 percent in2002. Fiscalperformance has also benefited from lower domestic interest rates. In recent years these have been falling as Government's borrowing requirement lessened and its prudent fiscal stance eased inflationary expectations. 4 2003 2004 2005 Actual Actual Prelim. Total Revenues and Grants 25.5 30.2 20.3 Own revenue 20.8 23.8 23.0 Grants 4.7 6.4 5.3 Total Expenditures 29.0 33.3 30.7 Non-interestexpenditure 22.6 29.0 27.2 Interestexpenditure 6.2 4.4 3.6 Aggregate Deflclt' 3.6 3.1 2.5 Primarybalance' 2.9 I.2 1.I Net Financing 4.6 3.7 2.3 of which : Net DomesticBorrowing 0.6 0.1 -1.7 Allocation of Resources 2.11 Reflecting the Government's priority on basic services, spending on social services represents the largest share (more than 50 percent) o f domestic discretionary budgetary expenditures (Table 2.3).3 Consistent with the Government's development priorities, relative spendingon infrastructure has beenincreasinginrecent years. Table 2.3: Actual BudgetaryAllocations by Broad Sector (in%ofGoGDiscretionaryExpenditures)' 2003 2004 2005 General public administration(incl. revenue agencies) 16.8 20.4 18.9 Economic sectors 4.6 5.1 4.8 Infrastructuresectors 3.4 4.0 4.3 Social sectors 54.1 50.7 54.6 IPublicsafety I 14.6 13.1 12.6 I Other (incl. utilitiesand contingency) 6.5 6.8 4.8 Total 100.0 100.1 100.0 2.12 Expenditures by economic item are dominated by personal emoluments, which account for around 28 percent of total expenditures and almost three quarters o f domestic discretionary expenditures (Table 2.4). The downward trend ininterest payments as the result o f reaching the HIPC completion point in 2005 and reducing the debt stock i s evident during the period 2003- 2005. Discretionary expenditures exclude interest payments, transfers to householdsand transfers to Statutory Funds. 5 Table 2.4: ActualBudgetaryAllocationsby Economic Classification (in % of Total Expenditures)' 1/ CentralGovernment 2/ Items2 and 3 of GoG's economic classification 31 Transfers to households 4/ Primarily, subsidiesto TemaOil Refinery,which arebeingphasedout. 5/ Primarily, transfers to Statutory Funds Source: 2003 and2004Audited AnnualFinancialStatementsofConsolidatedFund;2005 Unaudited CAGD ReportandFinancialStatements. c. LEGAL INSTITUTIONALFRAMEWORKPFM AND FOR The LegalFramework for PFM 2.13 Ghana has a strong legislative framework for public financial management, following the promulgation o f updated PFM laws and regulations in recent years. The Constitution sets out clearly the fiscal roles o f the executive, legislative andjudicial branches and provides the basis for the raising o f resources and their expenditure. Within the framework o f the Constitution, the laws governing the management o f public funds include the Financial Administration Act of 2003 (FAA) and the Auditor-General Act o f 2000. These are supplemented by the Financial Administration Regulation (FAR). The legislative and regulatory framework sets out the basic budget and accountability structures, including: (i) requirement that all revenues, loans and the grants be paid into the ConsolidatedFund (CF), out o f which only legally approved expenditures can be made; (ii) appropriate oversight by Parliament; (iii) statement o f the powers and clear duties for the key players, including MoFEP, the Controller and Accountant-General's Department (CAGD), Chief Directors o f MDAs, and the Auditor-General (AG); (iv) the delegation o f responsibility and accountability for public resources to individuals through the system; and (v) clear and well-documented roles and responsibilities for all stakeholders. The CAGD i s the Chief Accounting Officer o f the Government and i s responsible for keeping the public accounts. 2.14 The Constitution creates the Office o f the Auditor General and requires it to audit and report on the public accounts o f the state and all public offices. The Audit Service Act (2000) specifies the responsibilities o f the Auditor General and the scope and time frame o fthe audits. 6 2.15 Parliament also recently approved the Public Procurement Act (2003). The Act establishes a Public Procurement Board to make administrative and institutional arrangements for public procurement in a fair, transparent and non-discriminate manner. The new board was inaugurated in August 2004. Also promulgated recently was the Internal Audit Agency Act (2003), which established the Internal Audit Agency to co-ordinate, facilitate and provide quality assurance for internal audit units being established inthe MDAs and MMDAs. The IAA Board was inaugurated inAugust 2004. The InstitutionalFrameworkfor PFM 2.16 Ghana i s a Constitutional democracy, centred on the 1992 Constitution. A system o f checks and balances provides for power sharingbetween a President, a unicameral Parliament, a Council o f State, and an independent judiciary. Legislature 2.17 The legislative branch consists o f a unicameral Parliament o f 230 seats. Members are elected by direct, popular vote to serve four-year terms. Executive 2.18 The President i s Head o f State and Head of Government. The President i s elected by popular vote for a maximum o f two four-year terms. The President nominates a Council o f Ministers, including the Minister o f Finance and Economic Planning, subject to approval by Parliament. According to the 1992 Constitution, more than halfo f the Ministers o f State chosen by the President must be Members o f Parliament. The Constitution also provides for two Presidential advisory bodies: (i)a Council o f State, comprising Presidential nominees and regional representatives, which provide an advisory and consultative role to the President, especially consideration o f bills publishedinthe Gazette or passed by Parliament and in the area o fpublic appointments; and (ii) a National Security Council, chairedby the Vice President. 2.19 The Ghanaian public sector comprises 39 ministries and departments, around 135 subvented agencies, 5 Statutory Funds4, 34 State-Owned Enterprises and 138 MMDAs. The main central agencies are the Ministry o f Finance and Economic Planning (MoFEP), the Public Service Commission (PSC), the Office o f the Head o f Civil Service (OHCS), the State Enterprises Commission (SEC), and the National Development Planning Commission (NDPC). The Bank o f Ghana is the Government's banker; GoG also operates accounts at commercial banks. Also part o f the central management framework, and critical for PFM are the PPB and the IAA, which have separate legal personality, and a statutory mandate. Table 2.5 shows the breakdown o f the public sector by type o f institution. IncludingDistrict Assemblies Common Fund, Roads Fund, Ghana EducationTrust Fund, Petroleum-RelatedFund, and the National HealthFund. 7 ICentralGovernment' I 174 I IIWholly StatutoryFunds2 5 state-ownedpublic enterprises II 34 II 2.20 Ministries have sector-wide responsibilities for policy, co-ordination and management. Departments and subvented agencies are responsible for execution o f ministries' policy decisions. Ministries, departments and agencies are collectively referredto as MDAs. Judiciary 2.21 There i s a constitutionally independent judiciary, whose members have tenure. The Supreme Court has broad powers o f judicial review. It is authorised to rule on the constitutionality o f legislation or executive action. Audit Service 2.22 The Auditor General (AG) manages the Audit Service. This i s a constitutional body accountable to Parliament and whose function i s to inspect, audit and report on the public accounts and on the control of, and transactions with, public resources Parliamentary Committees-Public Accounts Committee and Finance Committee 2.23 The Public Accounts Committee (PAC) is a Standing Committee o f Parliament. Comprising 25 MPs, and chaired by a member o f the opposition, it is responsible for reviewing the Auditor-General's reports, including the Financial Statements, andmakingrecommendations to Parliament. Whilst its sessions are private, PAC's reports to the Speaker are a matter o fpublic record. The Finance Committee also has 25 members and is responsible for: (i) examining all bills with financial and tax implications; (ii) examining all loan agreements; (iii) discussing and approving budget estimates for all MDAs; and (iv) monitoring foreign exchange and receipts/transfers through the Bank o f Ghana. Local Government 2.24 Administratively, Ghana operates as a unitary state with one level o f sub-national government, comprising 5 metropolitan assemblies, 8 municipal assemblies, and 125 district assemblies, and referred to collectively as MMDAs. Two-thirds o f MMDA representatives are directly elected and one-third are appointed by the president. The MMDAs are headed by District Chief Executives who are appointed by the President and whose appointments are 8 ratified by at least two-thirds o f the members o f the respective district assembly. The Ministry o f Local Government andRural Development (MoLGRD) i s responsible for the MMDAs. Other 2.25 The State Enterprises Commission (SEC) is responsible for overseeing public enterprises. The Constitution establishes a number o f other oversight institutions, including the Judicial Commission, and the Commission on HumanRights and Administrative Justice (CHRAJ), and grants them constitutional independence. These bodies are charged with ensuring appropriate governance o fpublic institutions. The Key Featuresof the PFM System 2.26 Ghana's PFM system i s highly centralised, with a relatively limited local government sector. The Ministryo f Finance and Economic Planning is the central agency responsible for PFM, with CAGD in charge o f the centralised payment system. The fiscal year runs from January 1 to December 31. Chapter 3 below provides details for each element o f the PFM system. 3. ASSESSMENT OF PFMSYSTEMS, PROCESSESAND INSTITUTIONS A. BUDGETCREDIBILITY 3.1 Good practice in public financial management emphasises the importance o f the budget being credible so that plannedGovernment policies can be achieved. Budget credibility requires actual budgetary releases to be similar to voted budgets and requires appropriate fiscal discipline to be in place. In aggregate, actual primary expenditures have differed by less than 10 percent from the overall planned levels in two out o f the last three years (Table 3.1). This reflects the Government's efforts to control overall expenditures and has contributed to maintaining fiscal discipline and to improving macroeconomic stability. Table3.1:Comparison of OriginalBudgetedand ActualExpenditures,2003-2005 2003 2004 2005' Budgetedprimary expenditure'(bncedis) 12,169.2 16,245.5 22,608.3 Actualprimaryexpenditure (bncedis) 12,447.7 18,265.9 20,809.3 Differencebtwnactual &budgeted primary expenditure (bn cedis) 278.5 2,020.4 1,799.0 Difference as YOof budgetedprimary expenditure (%) 2.3 12.4 8.0 3.2 However, a more detailed analysis of expenditure outturns against planned budgets for individualMDAs indicates that budget credibility within the overall amount was underminedby 9 significant differences between what was intended during budget formulation and what MDAs actually spent, with total variance inMDA expenditure reaching an estimated 33 percent in2005 (Table 3.2 and Annex D). Bothpriority and non-priority spending agencies were affected by the differences. Further analyses' indicate that during 2003-2005, across spending items, average variances were largest for items 2 and 4 (administration and investment) and smallest for personal emoluments (item 1). 3.3 These variances largely reflect weaknesses in the budget process, particularly on the planningside. Inparticular, there appears to be a disconnect between the plans contained inthe Medium Term Expenditure Framework and the implementation o f the budget (see discussion in PI-12 below). At the same time, relatively large contingency amounts' are allocated during the year, primarily to cover anticipated and unanticipated increases in both salary levels (through wage bargaining agreements after the budget was planned) as well as anticipated increases in staffing levels which are not explicitly included inthe original budget figures (e.g. the net intake o f new teachers at the beginning o f the academic year). With the emphasis on ensuring that overall expenditures are kept within planned limits, net increases in salary items must be matched either by the use o f the contingency andor by net decreases inthe other items ifoverall revenues fall short. In particular, non-development investment (a sub-component o f item 4) tends to be used as the adjusting item. Whilst this strategy is in line with Government policy both to meet payroll obligations and to fund development expenditures, particularly in the priority poverty-reduction sectors, nonetheless, it makes it difficult for MDAs to plan their expenditure programmes appropriately and in a timely fashion, particularly in terms o f ensuring maintenance o f investment expenditures and adequate materials and supplies. 3.4 At the same time, the lack of breakdown in reporting the use o f the contingency means that these variances are overstated since the allocation o f resources from contingency are not shown separately inthe CAGD reports by MDA. Budget Year Total expenditure deviation Total expenditure variance3 Variance in excess of total deviation (PI.l)f (PI-2)4 2003 2.3% 15.8% 13.6% 2004 12.4% 25.9% 13.4% 20055 8.0% 33.3% 25.3% See 2006 ERPFMreport,Volume I, A, Table 1, World Bank, June 2006. Annex 10 in improving tax administration, including the introduction of the Ghana Community Network (GCNet) Services IT system (2002), the establishment o f a Large Taxpayers Unit (2004), and in collecting and recording IGFs (Non-Tax Revenue Unit set up in2002). Table3.3: Comparisonof OriginalBudgetedandActualDomestic RevenueReceipts,2003-20051 ~~ Budgetedreceipts (bn cedis) 13,aaa ia,ia7 23,739 Actual receipts (bn cedis) 13,582 18,994 22,316 Differencebetween actual and budgeted receipts (bn cedis) -305 1,100 -1423 Differenceas O hof budgetedreceipts (O/O) -2.2 6.0 -6.0 I/Datarefertototaldomesticreceipts(taxrevenue+non-taxrevenue,excludingexternalgrantsandHlPCreceipts)ofthe Central Government budget. 2!2005 UnauditedCAGD Report. 3.6 The level of arrears (legally defined as payments more than 90 days overdue) is relatively low andhas been falling inrecent years. Dataon outstandingpayments is generated annually by MoFEP and included in the Budget Statement. The estimate o f these outstanding payments, i s separated into roads and non-roads obligations. Whilst non-roads payments tend to be cleared within 90 days, a small number o f payments in the roads sector can take more than 90 days to clear, particularly for obligations inremote areas. However, outstanding payments, at about 0.6 percent of total domestic primary expenditures, are a small proportion o f overall expenditures andarrears wouldbe even smaller. 3.7 Specifically, total arrears at the end o f 2005 were 131 billion cedis, representing approximately 1 percent o f total GoG discretionary expenditures. Between 2004 and 2005, total arrears more than halved. In2004 and 2005, non-road arrears comprise delayed transfers to the DACF and GETF funds, legal obligations for which Government i s implementing a five-year repayment plan. The small amount of roads arrears have built up due to the length o f time it takes to process bills from remote districts. 11 Indicator I Score I Brief Explanation A. Credibilityof the Budget PI-1.Aggregate expenditureout- Based on domestically-financed primary expenditure, deviations between turn comparedto original original budget and outturns were (according to the administrative approvedbudget classification): 2003 -2. 3% 2004- 12.4% 2005 - 8.0% Datasources: A-G reportfor 2003 and2004; CAGD reportto A-G for 2005 PI-2.Compositionof expenditure Deviations between original budget and outturns were (according t x out-turncompared to original administrative classification): approvedbudget 2003 - 13.6% 2004- 13.4% 2005 -25.3% Datasources: A-G reportfor 2003 and2004; CAGD reportto A-G for 2005 PI-3.Aggregate revenueout-turn L4 Actual revenue collectionsas a % ofbudgeteddomestic revenuewere: compared to originalapproved budget 2003 - 97.8% 2004- 106.3% 2005 - 94.0% Datasources: A-G reportfor 2003 and2004; CAGD reportto A-G for 2005 PI-4. Stock and monitoringof expenditurepayment arrears r (i)Stockofexpenditurepayment A In2005, total arrears (roads plusnon-roads) were 131bn cedis, representing arrears (as apercentage i f actual 1.1% of total GoG discretionary expenditure. This is a decrease from 2004, total expenditure for the when total arrears (roads plus non-roads) were 280 bn cedis, representing corresponding fiscal year) and a 2.9% of total GoG discretionary expenditure. recent change inthe stock (ii)Availability of data for MoFEP prepares an annual report on outstanding payments and includes in monitoring the stock of expenditure the Budget Statement the estimate of settlement of these outstanding payment arrears payments, which are separatedinto roads and non-roads obligations. Whilst non-roads payments tend to be cleared within 90 days, a small number of paymentsinthe roads sector cantake more than 90 days to clear, particularly for obligations inremote areas. However, outstandingpayments, at less than 1%oftotal a ents, are a small ro ortionof overall ex enditures. B. COMPREHENSIVENESS AND TRANSPARENCY Classification of the Budget 3.8 GoG's annual budgetdocumentation comprises: (i) Appropriation Act; (ii) Budget the the Statement (containing the Minister's Budget Speech); and (iii) separate volumes containing the annual estimates for each MDA. The budget documents and in-year and end-year fiscal reports are presented annually on the basis o f the administrative classification and by aggregated economic item (personal emoluments, non-salary administration, services, and investment). In addition, since the current Chart o f Accounts i s not fully consistent with the GFS, a bridge table, converting the budget by MDA to the 10main COFOG functions, has been prepared for each o f the last three budgets. This functional table is included in the individual volumes for MDA Estimates but i s not shown in the Budget Statement. Domestic discretionary expenditures for 2005, financed by the Consolidated Fund, are also reported on a functional basis (posted on MoFEP's website). Followingthe main assessment exercise, during the subsequent review process andinconsultation with other reviewers, a re-appraisal of the original scoringwas madeto ensure closer linkagewith the PEFA Guidelines. 12 Indicator Score Brief Explanation B. Comprehensivenessand Transparency PI-5. Classificationof the budget The budget documents, including in-year and end-year fiscal reports, are prepared consistently on the basis of aggregated economic, administrative and GFS-standard functional classification (the latter with the use of the bridge table). Comprehensiveness of the Budget 3.9 The Government has increased significantly the amount o f relevant information included with the budgetdocumentation duringthe last two years, and, inline with the parameters defined by the Assessment Guidelines, the information submitted to Parliament with the 2006 Budget was reasonably comprehensive. The budget documents in Ghana are presented inthe form o f a medium-term expenditure framework since it provides information on budget estimates for the coming three years, although, as is usual, Parliament appropriates only for one year at a time. 3.10 The Budget Statement includes a discussion o f the medium-term fiscal and economic outlook and provides details o f the macroeconomic assumptions behind the budget estimates. The main budget aggregates include the outturns for the previous year, the revised estimates for the current year, planned amounts for the coming budget year, and indicative amounts for the following two forward years. The medium-term budget summary tables give appropriate information on the fiscal deficit and the composition of its financing. Details o f domestic and external debt stock are provided. 3.11 Discretionary expenditures are shown inthe budget statement by MDA and by source o f funds (e.g. GoG, external financing, etc.) for the coming budget year and indicative ceilings are provided for the two forward years. Inthe volumes containing detailed estimates by MDA, only the proposed budget amounts are shown. Nonetheless, the details of the previous year's actual outturns by MDA and the expected amounts for the current year are not shown together with the amounts for the coming budget, which hampers overall budget scrutiny. 3.12 In addition, further analyses are provided of the formula for allocating HPC funds, details o f the collection o f non-tax revenues (internally-generated funds) by MDA for the previous year (both lodged and retained), as well as projections for the coming budget year, plannedpoverty-related expenditures for the coming budget year, details o f the previous year's disbursement o f externally-financed programme aid and project grants and loans by creditor and MDA. 3.13 Interms of new expenditure policy initiatives, only limited analyses of the budgetary implications o f new expenditure policy initiatives are shown in the budget documents. Whilst the Budget Statement lists the expenditure allocations made for each initiative, the detailed analyses leading to these allocations are not included (e.g. in a separate Fiscal Policy Report). The revenue policy measures are listed in detail in a separate section in the Budget Statement, but detailed analyses o f the likely resulting revenues do not accompany the description o f the measures. Finally, the budget documents do not include the government's financial asset position, including details at least for the beginning o f the current year. 13 Indicator Score Brief Explanation PI-6. Comprehensiveness of The budget documents include: (i) main macro-economic assumptions the informationincludedin budget behind the budget estimates; (ii) an analysis of the fiscal deficit; (iii) the composition of deficit financing; and (iv) and detailed analyses of the documentation domestic andexternaldebt stock. The budget documents do not yet currently include: (v) a full statement of Government's financial assets, including receivables; (vi) information on the previous year's budget outturns with the individualMDAs' Estimates (the previous year's outturns are includedonly for the budget aggregates); (vii) the current year's revised estimates with the individual MDAs' Estimates (as with the previous year's outturns, the current year's revised estimates are included only for the budget aggregates); (viii) summarised previous year's outturns and revised current year's budget estimates by MDA; and (ix) detailed analyses of the expenditure and revenue implications of new policy proposals. For (ix), the Budget Statement lists the expenditure allocations made for each initiative, but the detailed analyses leading to these allocations are not included (e.g. in a separate FiscalPolicyReport).The revenuepolicy measuresare listedindetail ina separate section in the Budget Statement, but detailed analyses of likely resultingrevenuesdo not accompanythe descriptionof themeasures. Extent of UnreportedGovernmentOperations 3.14 As indicated above, significant progress has been made during the last year in the comprehensiveness o f reporting on domestic fiscal operations. Inparticular, the capture o f non- tax revenues has improved substantially with the reporting o f the collection and use o f all internally-generated funds (IGFs) (both lodged and for the first time also the retained part) by MDA inthe 2005 and 2006 Budget Statements,''' The lodged portion o f IGFs is paid into the Consolidated Fund (CF) as required by the FAA, and the use of these resources i s reported in monthly CAGD reports as with ordinary budgetaryresources. 3.15 The use ofretained IGFsbyMDAs and disbursements o f grants byindividual donor were also included inthe 2005 CAGD annual report and financial statements for the first time. These are encouraging developments that should be consolidated. Since donor funds are only partially reported (grants included in the CAGD report represent about half o f the amount estimated by ADMU) together with CF funds, retained IGF resources, and HPC resources, there is not a single source for reporting on total Government fiscal operations. This hampers effective oversight o f the use o fpublic resources. 3.16 Reporting on the Statutory Funds i s regulated by separate legislation, and their annual financial statements are sent directly to the Auditor-General, who then presents them to Parliament. Annexes in the 2005 and 2006 Budget Statements contained the income and expenditure statements for the last completed financial year (for 2004 in the case of the 2006 Budget) for the four Statutory Funds operating at that time." 'The ERPFMteam and MoFEP did not reachagreement on this score - the differencerelatedto whether or not the Budget Statement includedappropriatelydetailedanalyses ofthe likely costs ofnew policymeasures,whichthe assessmentteam felt was less detailedthan required. * Appendix 10 and 9 of the 2005 and 2006 Budget Statements contain details by MDA of both lodged and retained IGFs for actual (2004)andplanned(2005),as well as actual (2005)andplanned(2006)collections, respectively. As is the case inother countries, the Government allows MDAs to retain a proportion of its collectionsof fees-for-service payments leviedto providea limitedsourceof additional, more flexibleresources. GoodPFMprinciples suggest that these should nonethelessbe reported. 10The NationalHealthInsuranceFund(NHIF) was establishedduring2004. 14 3.17 Whilst the fiscal reports do not include information on Government guarantees, these are relatively limited (representing around 3 percent o f expenditures), and information on them i s available from MoFEP. 3.18 Considerable progress has been made in recent years in capturing more information on donor resources in fiscal reports. On the basis o f available data and estimates o f unreported donor flows, ADMU indicates that currently around 94 percent o f income and expenditure on donor-funded projects are captured in fiscal reports. A comparison o f the Budget Statements for 2004, 2005 and 2006 indicates significantly greater coverage o f donor flows in recent years, particularly grants. Nonetheless, there i s still work to do, particularly on reconciling donor flows captured byMDAswith that provided by ADMU. Indicator Score 1 Brief Explanation PI-7. Extent of unreported government operations (i) ofunreportedextra- Level A Whilst domestic fiscal data are not necessarilycapturedall inone place (Le. budgetary expenditure through the Consolidated Fund), the data are reported in some form in fiscal reports. CAGD fiscal reports include information on the ConsolidatedFund of MDAs, which includes the lodgedpart of IGFs. The 2005 and 2006 Budget Statements report the retained portion of IGF outturns in 2004 and 2005, respectively. Outturns on Statutory Funds are reported separately, with the reports going directly to Parliament. In addition, the 2005 and2006 Budget Statementsincludedthe 2003 and2004 income and expenditure statements, respectively, for the StatutoryFunds. The fiscal reports do not include information on Government guarantees, although this information is available from MoFEP and is the amount is relatively limited (representingaround 3 percent of expenditures). (ii)Income/expenditureinformation A Available data from ADMU indicatethat around 94 percent of income and on donor-funded projects expenditure on donor-funded projects are captured in fiscal reports. Captureof donor flows infiscal reportshas increasedinrecentyears. Inter-Governmental Fiscal Relations 3.19 Ghana i s a unitary state with 138 sub-national governments, comprising 5 metropolitan assemblies, 8 municipal assemblies and 125 district assemblies, referred to collectively as the MMDAs. The legislative framework for inter-governmental fiscal relations is contained inthe Local Government Act, which sets out the revenue and expenditure assignments for the sub- national governments, and the DACF Act (2003), which establishes the DACF, responsible for providing grants from central government to M M D A s for development expenditure. 3.20 Central government transfers to MMDAs comprise the District Assembly Common Fund (DACF) and HIPC funds directed to MMDAs through the MoLGRD (representing around 10 percent o f total HIPC funds). In2005, DACF and HIPC h d s directed to MMDAs are estimated to have represented slightly more than 4 percent o f total domestic primary expenditures. The DACF allocations to individual MMDAs are made on the basis o f transparent and published criteria, endorsed by Parliament. The overall size o f the transfer pool i s determined as a share o f planned tax revenues. Transfers to individual MMDAs from this pool are made on the basis o f a formula which covers factors such as equality, needs (e.g. basic education facilities, trained teachedpupil ratio), improvements inrevenue collections, and population density. Each year, the 15 DACF proposes the specific formula around these criteria to Parliament for approval. Once it i s presented to Parliament, the formula i s gazetted and published. In 2006, the formula and horizontal allocations were approved by Parliament in late February 2006, after the start o f the fiscal year. Moreover, consolidation of fiscal data for general government i s not possible because the central and sub-national authorities use different classification systems. 3.21 Fundsthrough HIPC disbursed to MMDAsrepresent around 20 percent o fMMDAs' total transfers from central government. The allocation o f these amounts is made to individual M M D A s based on investment applications made by MMDAs through MoLGRD and in accordance with published criteria for the use o f these resources (as is the case for HIPC allocations through other MDAs); for the 2006 budget, these criteria were published inAppendix 8 of the Budget Statement. Indicator Score BriefExplanation PI-8. Transparency of Inter- GovernmentalFiscalRelations a (i)Transparency and objectivity in A the horizontal allocation amongst sub-national governments through other MDAs). (ii)Timelinessandreliable D For the 2006 Budget, the formula and the corresponding horizontal informationto SNgovernments on allocations were approved by Parliament in late February, after the start of their allocations11 MMDAs' fiscal year. (iii)Extentofconsolidationof D There is no consolidation of central and sub-national fiscal data for the fiscal data for general government general government sector, as the two levels use different classification Oversight of Aggregate Fiscal Risk 3.22 There i s some oversight o f aggregate fiscal risk. The State Enterprises Commission (SEC) receives reports from most SOEs at least on an annual basis, as well as quarterly reports from around 60 percent of them, but does not produce a consolidated overview, based on fiscal risk criteria, inorder to facilitate a general financial oversight o f these enterprises. The audited income and expenditure statements o f the Statutory Funds are sent directly to Parliament via the Auditor-General, and subsequently are available to MoFEP to be included in the Budget Statement (e.g. the 2006 Budget Statement contains the 2004 annual statements for the Statutory Funds). Whilst information is collected on government guarantees and some other contingent liabilities, no assessment o f the likely fiscal impact is presented inthe documentationprovided to Parliament. 3.23 Responsibility for oversight o f MMDAs' fiscal position rests with the MoLGRD. MMDAs' budgets and outturns are provided to MoLGRD, but no consolidated report is "The ERPFMteamandMoFEPdidnotreachagreementonthis score -thedifference relatedtothetimelinessofreliableinformation available to SN Governments, with the team's assessment that MMDAs did not rely on information prior to the approval of the final transfer amounts by Parliament. 16 Indicator Score BriefExplanation PI-9. Oversightof aggregatefiscal riskfrom other publicsector El entities. (i) ofcentralgovernment Extent C The State EnterprisesCommissionreceives reports from the majority of monitoring of AGAsREs SOEs, at least annually, but does not preparea consolidatedreport. (ii) ofcentralgovernment Extent C MMDAs' budgets andouttumsare providedto MoLGRDandsubsequently monitoring of SNgovernments' to MoFEP, but no consolidatedreport is prepared. PublicAccess to FiscalInformation 3.24 GoG has improved the public accessibility o f fiscal information through the dissemination o f its reports. Key fiscal information, including the FAA, the FAR, the annual Appropriations Act, the Budget Statement, the detailed MDA estimates, and the year-end financial statements are readily available to the public through the print media to buy (publishing houses) and/or the government website. CAGD's monthly budget execution reports are also publicly available to purchase through publishing houses, and data on expenditures funded bythe CF are available on MoFEP's website. Nonetheless, as many o f the publishing houses are in Accra, the availability o f fiscal reports in outer regions is likely to be lower. Whilst reports o f the Auditor General are not currently published, they are available through the Office o f the Auditor-General's Public Relations Office and are provided to public libraries. 3.25 Civil society organisations have indicated that on request resources available to primary service units can be obtained. They have indicated that the understandability o f the key budget messages could be improved. For example, no Citizen's Guide to the budget is published, and there is limited externalbudget analysis undertaken. Indicator Score BriefExplanation PI-10. Public Access to key fiscal Fiscal information availableto the public in a timely fashion, through information the print mediafor purchaseandor the Government's website, include: (i)thecompletesetofbudgetdocuments,includingtheAppropriationsAct, the BudgetStatement,andthe detailedMDA Estimates; (iii) year-endfinancial statements; (iv) the reportsof the Auditor-General (vi) on request, resources available to primary service units, such as schools.12 The following are either not available or do not meet the appropriate timing: (ii) monthly CAGD reports are available to the public (Ghana Gazette or posted on MoFEP's website) after one month of their completion, and(v) a comprehensivelist ofprocurement contract awards is notpublished. 12Indicator PI-23 refers to the extent to whichthis informationis regularlyprovided. 17 C. POLICY-BASEDBUDGETING OrderlinessandParticipation 3.26 The procedures and responsibilities for preparation o f the budget are regulated by the FAA andFAR. Untilrecently, including the 2005 Budget, the budgetwas approved annually in March o f the budget year,13 and expenditure was authorised under a Provisional Warrant. In 2005, this pattern changed with the 2006 Budget, and, for the first time, the budgetwas approved before the beginningo f the fiscal year. The score focuses on the experience over the last three years (during two out o f three years the budget was approved more than two months after the beginning o f the fiscal year). An upward arrow has been recorded on this measure since the Government has launched the preparation o f the 2007 Budget and decided to submit it to Parliament so that it can be enacted before the end o f 2006. 3.27 A clear budget calendar is disseminated each year as part o fthe Budget Circular. For the 2006 Budget, the timetable gave M D A s up to 4 months to prepare their Estimates. This represents a significant improvement over the budgets for 2004 and 2005, when MDAs were given around three weeks to prepare their Estimates. For the 2007 Budget, the call circular issued on May 19,2006 gives MDAs up to 10weeks to prepare their Estimates. 3.28 For the 2006 Budget, Cabinet approved the budget ceilings at its retreat inAkosombo in July 2005, following the circulation o f the budget circular inApril but prior to the submission o f detailed estimates by MDAs. Nonetheless, best PFM practice would suggest that the budget ceilings should be approvedby Cabinet prior to the circulation o f the Budget Circular so that the Circular contains the approved ceilings. These budget ceilings are largely enforced, with detailed MDA submissions close to their ceiling amount. Indicator Score Brief Explanation PI-11.Orderliness and participation in the annual 8 budget process (i)Existenceof,andadherenceto,a A A clear budget calendar is disseminated each year as part of the Budget fixed budget calendar Circular. For the 2006Budget, the timetablegave MDAsup to 4 months to preparetheir Estimates. This representsa significant improvementover the budgets for 2004 and 2005, when MDAs were given around 3 weeks to preparetheir Estimates. (ii) Guidanceon the preparationof B For the 2006 Budget, Cabinet approved the budget ceilings at the budget submissions Akosombo retreat in July 2005, following the circulation of the budget circular inApril butpriorto the submissionof detailedestimatesbyMDAs. (iii) budgetapprovalbythe timely DA For the first time, the 2006 budget was approved before the beginning of legislature the fiscal year. An upwardarrow has beenrecordedon this measure since the Government has been bringing forward the date of approval of the budgetover the pastthree years. l3For a fiscal year beginninginJanuary 1, 18 Multi-Year Perspective 3.29 A medium-term expenditure framework (MTEF) has been in place since the PFM reforms that were launched inthe mid-1990s. Currently, the budget i s set within the context o f the MTEF, which provides the aggregate fiscal framework on a rolling three-year basis, and determines the overall resource envelope for the medium term, as well as the indicative discretionary resource allocations amongst MDAs. l4 Each year, each MDA receives ceilings for each o f the four items for CF resources and for externally-financed resources. In the Budget Statement, forward estimates are provided for aggregate expenditures, including for economic items, and the indicative totals for individual MDAs by source o f funding. The detailed MDA Estimates (contained inseparate volumes) include information only on the upcomingbudget year and do not provide detail on indicative forward expenditures by activity. 3.30 There have been improvements in the process o f MDAs' review o f their sector policies, but analytical capacity constraints mean that many medium-term sector strategies are not fully costed and realistically incorporated into the forward budget estimates, particularly with multi- year investment expenditures. At the same time, in-year reductions in allocations in one year have an impact on the reliability o f the estimates for forward years. 3.31 Nonetheless, there i s concern about the operationality o f the MTEF, with an apparent disconnect between the MTEF and budget implementation, as evidenced by the significant variances between budget plans and outturns discussed above. This reflects in part the large number o f activities, making it difficult for Parliament and others to see how resources are allocated to meeting specific government policies. Until recently, the MTEF contained more than 17,000 activities. The number of activities has been reduced to 45 standard activities in preparation for the 2007 budget (and2007-09 MTEF). 3.32 The disconnect also reflects the current lack o f a mechanism to link activities to resources during budget implementation. The current classification system used by CAGD does not include the activity codes, so reporting on expenditures may not be done on the basis o f planned activities. The individual MDA MTEF estimates are not comprehensive, since items 1 and 2, being less discretionary inpractice, are not prioritised inline with items 3 and 4. 3.33 One Debt Sustainability Analysis (DSA) has been carried out in the last three years, focusing on external debt. l4The MTEF consists primarily o f the 3-year aggregate fiscal framework, containing 3-year discretionary expenditure ceilings by MDA. There is not, as insome countries, a separate Budget Framework Paper prepared, which sets the wider strategic context for the ceilings. 19 Indicator Score IBrief Explanation PI- 12. Multi-year perspective in fiscal planning, expenditure policy and budgeting R (i)multi-year fiscal forecasts and C The budget is prepared within a 3-year framework. Appendix 5A of the functional allocations 2006 Budget Statement gives a breakdown by economic item, and Appendix 7 gives indicativeforward estimates for MDAs. As MDAs do not have complete informationon which to base their forward estimates, there are weaknesses in the links between the indicative ceilings and subsequent annualbudgetceilings. (ii)scope and frequency of debt C There has been only one DSA completed during the last three years (in sustainabilityanalysis 2004), butit coveredonly externaldebt. (iii)existence of costed sector C Whilst the majority of sectors have prepared sectoralstrategies, they have strategies notbeenfully costed. (iv) linkages between investment C There are weaknesses in the planningof investmentexpenditures, with in- budgets and forward expenditure year reductionsin allocations inone year having a knock-on effect on the estimates realismof the estimatesfor forwardyears. D. PREDICTABILITY AND CONTROL INBUDGET EXECUTION 3.34 Tax administration i s centred on three revenue agencies (Internal Revenue Service IRS, - Customs, Excise and Preventive Service - CEPS, and Value Added Tax Service - VATS). Oversight and co-ordination o f these three agencies i s the responsibility o f the Revenue Agencies Governing Board (RAGB). CEPS i s the largest agency interms o f collections, followed by IRS and VATS, respectively. IRS i s mainly responsible for collecting direct taxes. CEPS i s mostly accountable for collecting taxes levied on international trade, and VATS collects the domestic value-added tax and excise duties. In2002, the Ghana Community Network Services (GCNet) IT system was introduced into CEPS. InApril 2004, the Large Taxpayers Unit was formed to provide approximately 360 large taxpayers with "one stop shop" services. As for non-tax revenue, progress in improving administration o f these resources has been made following the setting up o f the Non-Tax Revenue Unit (NTRU) in MoFEP in 2002. NTRU's mandate is: to facilitate the collection, accounting and timely reporting o f non-tax revenues; work with all agencies to increase their revenue generation potential; ensure compliance with the policy on State Assets Management; and ensure that those institutions capable o f generating sufficient IGFsfor their operations aremoved from subvention status. Taxpayer ObligationsLiabilities 3.35 Muchprogress has been made inrecent years inclarifying the legislative base. There i s a clear legislative framework for the majority o f key taxes, including Customs and Excise, VAT and income tax. Efforts are being made to regularise the legal basis o f non-tax revenueshnternally-generated funds through clarifying the regulatory framework for these funds. However, some discretionary powers remain for some taxes, and are used inpractice. 20 3.36 The three revenue agencies have undertaken significant initiatives to inform the public about their tax liabilities and the procedures required to meet them, including the establishment o f websites (for customs and excise and VAT), the publication o f brochures, and the conducting o fpublic awareness campaigns. However, inpractice, there i s anecdotal evidence to suggest that some procedures may not be sufficiently clear or completely understood to the public, nor is it always obvious where to get relevant information. 3.37 The system for tax appeals has been strengthened recently. From 2004, individuals wishing to appeal the assessments have recourse to the commercial courts. However, the new procedures have not been inplace long enough to judge their effectiveness. Indicator Score Brief Explanation PI-13. Transparencyof taxpayer obligations and liabilities (i)Clarityandcomprehensiveness B Much progress has been made in recent years in clarifymg the legislative o f tax liabilities base; there is a clear legislative framework for the majority o f key taxes, including Customs and Excise, VAT and income tax. (ii)Taxpayeraccesstoinformation c on tax liabilities and administrative initiatives to inform the public about their tax liabilities and the procedures procedures required to meet them, including the establishment o fwebsites (for customs and excise and VAT), the publication o f brochures, and the conducting o f public awareness campaigns. However, in practice, anecdotal evidence suggests that there remain procedures which are not completely transparent to the public, and it is not always clear where to get relevant information. (iii)Existenceandfunctioningofa B The system for tax appeals has been strengthened recently. From 2004, tax appeals mechanism individuals wishing to appeal the assessments have recourse to the commercial courts. However, the new procedures have not been in place long enough tojudge their effectiveness. TaxpayerRegistration/Assessment 3.38 The revenue agencies have been working to improve their revenue collections, and, as an incentive, they are currently entitled to retain 3 percent o f their collected revenues to fund their costs. The establishment o f the Revenue Agencies Governing Board has helped to co-ordinate activities across the three agencies. Inparticular, a uniquetaxpayer identification number for all business taxpayers operates across all o f the agencies. 3.39 Nonetheless, efficiency o f tax collection operations i s hampered by manual processes. For IRS, for example, it i s difficult to link taxpayers to the sources o f their income. Taxpayer information i s registeredin separate systems for income tax, VAT, and customs and excise. The RAGBis inthe process o flinkingthe three systems, but the links are not yet operational. 3.40 Non-compliance i s also an issue for the three agencies. For VAT, this involves under- registration, under-declaration o f turnover and tax, and inflated claims for VAT refunds. Whilst penalties for infractions exist, enforcement appears to be patchy, and there continue to be 21 breaches o f taxpayer requirements for registration and declarations across the revenue sources. Penalties are reportedly set at high levels leading to problems with evasion. The authorities recognise that changes are requiredto makethem work more effectively. 3.41 The revenue agencies have annual programmes on tax audit but they are carrying out less thanone-quarter ofthis on an annual basis. The agencies have recently engagedprivate auditors to undertake referrals. However, there are no clear risk assessment criteria inplace, and audits and fraud programmes are not chosen on the basis o f these. Indicator Score Brief Explanation PI-14. Effectivenessof measures for taxpayer registrationand tax El assessment (i)Controlsintaxpayerregistration A unique Taxpayer Identification Number (TIN) exists. Taxpayer system C information is registered in separate systems for income tax, VAT, and customs and excise. The RAGB is in the process o f linking the three systems, but the links are not yet operational. (ii)Effectiveness ofpenaltiesfor There continue to be breaches o f taxpayer requirements for registration and non-compliance with registration C declarations across the revenue sources. Penalties exist, but their high and declaration obligations levels, coupled with weak enforcement, lead to problems with evasion. (iii) Planning and monitoring o f tax C The revenue agencies have annual programmes on tax audit. They are audit and fraud investigation carrying out less than one-quarter o f the programme on an annual basis. programmes The agencies have recently engaged private auditors to undertake referrals. There are no clear risk assessment criteria in place, and audits and fraud programmes are not chosen on the basis o f these. Effectiveness in Collection of Tax Payments 3.42 Outstanding tax arrears are significant across the three revenue agencies: CEPS, VATS and IRS. For CEPS and VATS, arrears in 2005 amounted to 400 billion cedis (around 2.2 percent o f 2005 total tax revenues). However, recovery o f these amounts i s relatively small. 3.43 Revenues are paid to commercial banks which transfer them to government bank accounts at the Bank o f Ghana. Revenue amounts are reconciled with the commercial banks and Bank of Ghana to ensure that funds are being transferred. These transfers to the Government account at the Bank o f Ghana take place either daily or up to every 3 days. Revenue agencies undertake reconciliations monthly on the basis o f claims versus amounts lodged, whilst MoFEP reconciles these data with the amounts deposited in the Bank o f Ghana accounts. However, complete reconciliation i s limitedby delays inthe reconciliation o f tax arrears. 22 I Indicator 1 Score I BriefExplanation PI-15.Effectivenessin collection of tax payments El (i)Collection ratio for gross tax Outstanding tax arrears are significant across the three revenue agencies: arrears, being percentage o f tax CEPS, VATS and IRS. For CEPS and VATS, arrears in2005 amountedto arrears at the beginning of a fiscal 400 billion cedis (about 2.2 % of 2005 total tax revenues). Recovery of year, which was collected during these amounts is relatively small. that fiscal year ii)Effectivenessof transferoftax Transfers to the Government account at the Bank of Ghana take place collections to the Treasury by the either daily or up to every 3 days. revenue administration (iii) Frequency of complete Revenue agencies undertake reconciliations monthly on the basis of claims accounts reconciliation between tax versus amounts lodged, whilst MoFEP reconciles these data with the assessments, collections, arrears amounts deposited inthe Bank of Ghana accounts. records and receipts by the Treasury However, complete reconciliation is limited by delays inthe reconciliation o f tax arrears. Predictabilityin the Availabilityof Fundsfor Commitment 3.44 The Government has improved information on expenditure approvals provided to MDAs over the past three years. Most recently, this has entailed building a closer link between available cash resources and cash releases on the one hand, and improvements to the timing o f cash releases in line with MDAs' expenditure needs on the other. The two processes, one for communicating MDAs' expenditure needs to MoFEP and the other for releasing expenditure authorisation and cash to MDAs, are overseen by two MoFEP committees. The Cash Management Implementation Committee (CMIC) in MoFEP examines the amount o f cash available in the Bank of Ghana and provides monthly allocations to MDAs; the recently- established Expenditure Management Committee (EMC) examines the expenditure requirements of MDAs and the available cash in order to match more closely MDAs' expenditure needs and the cash releases. EMC bases its analysis of MDA expenditure needs on the annual cash expenditure plans, in line with approved allocations, provided by M D A s to MoFEP. MoFEP in turn does not receive evidence that these cashplans are subsequently updatedby MDAsthrough the year, based on actual cash released. Nonetheless, both the monthly releases and the EMC processes are intheir early days of operation, having beguninJanuary 2006. 3.45 A network o f decentralised Treasuries is being established to try to improve the speed of moving fbnds through the system. These are currently being trialed on a pilot basis in some MDAs, e.g. the Ministry of Education, who have reported that the new system has reduced the time taken to gain access to improvedresources. Nevertheless, it will beimportant to ensure that the new structure does not weaken existing controls, which rely on multiple levels of verification. RecordingandManagingof Cash balances,Debt,Guarantees 3.46 Only the Minister o f Finance and Economic Planningis authorised to make decisions on government borrowing and is the authority empowered to issue loan guarantees on behalf o f government. The procedure for incurring debt requires the approval o f Cabinet and the 23 Parliamentary Finance Committee o f a loan (or credit) authorisation bill on the basis o f which Parliament approves new external borrowing. These rules are respected inpractice. 3.47 No formal limits have been set for the total level o f debt to be incurred or o f the level o f guarantees to be issued. However, the Bank o f Ghana sets a limit on the level o f domestic borrowing. Government's current policies, in line with agreements with the IFIs, are designed to limit borrowing andto limit the financial demands o f other sectors (e.g. SOEs andthe MMDAs) which might leadto increases inits own borrowing. 3.48 Both domestic and external databases are comprehensive and are updated regularly. Data reconciliation i s undertaken monthly (for domestic debt), quarterly (for external debt), and annually. Indicator Score Brief Explanation PI-16. Predictabilityin the availability of funds for El commitmdntof expenditures (i) Extentto which cash flows are . . MDAs produce annual cash expenditure plans in line with approved forecast andmonitored c allocations, which are communicated to MoFEP but MoFEP does not receive evidence that these are subsequently updated through the year, basedonactual cashreleases. (ii) Reliability andhorizonof MoFEP provides MDAs with cash ceilings (whichestablish an upper limit periodic in-yearinformation to c for expenditure commitment by MDAs) in line with cash releases on a spending agencies on ceilings for month-by-monthbasis. expenditure (iii)Frequencyandtransparencyof Virement requests are made to the MoFEP regularly and on an as-needed adjustmentsto budget allocations c basis (Le. not once or twice per year). Nonetheless,there is anaudittrail of which are decided above the level the requests andapprovals. of management of spending agencies PI-17 Recording and managementof cash balances, debt and guarantees (i)Qualityofdebtdatarecording B Both domestic and external databases are comprehensiveand are updated andreporting regularly. Data reconciliationis undertaken monthly (for domestic debt), quarterly (for externaldebt), and annually. The score reflects the average of these. (ii) Extentof consolidationo fthe B Cashbalancesare consolidatedweekly. Someresourceskept outsideof the government's cashbalances Bankof Ghana, e.g. retainedIGFs,are not consolidated. (iii) Systemsfor contractingloans Limits for guarantees exist but are not fixed (they are set in line with and issuanceofguarantees B agreementswith IFIS). No guarantees may be givenwithout the agreement I of the Minister of Finance and Economic Planning. All loans must be approvedby ParliamentthroughMoFEP. Effectiveness of Payroll Controls 3.49 In the mid-1990sYan Integrated Payroll and Personnel Database system (IPPD1) was installed. It provides for the centralised processing o f both payroll and personnel changes on a central IPPD server at CAGD. Those individual M D A s which use the system15 input certain changes themselves, such as promotions, new appointments, and deductions on the central file; "These include: CAGD, Audit Service, Head of Civil Service, Ministry of Local Government and Rural Development, Ministry of Health,Ministryof FoodandAgriculture, Ministryof Lands andForestry, andGhanaEducationService. 24 CAGD provides a report showing the changes, which the M D A s validate. However, since not all o f the MDAs are part o f the IPPD system, separate personnel and payroll databases continue to be maintained. Reconciliation o f the information in the two databases is undertaken at least every six months. 3.50 One historical weakness concerning data on personnel was the lack o f coverage o f subvented agencies (SAs) inthe database, which led to weaknesses incontrol o fpayroll for these agencies. To tackle this issue, during 2005, a fill census o f the number o f personnel working in SAs was completed. 3.51 The majority o f changes to personnel records take up to three months to complete. Some changes, particularly the inputting o f new teacher recruits at the beginning o f the school year (representing around 3% o f total public employees), can take longer (up to five months for the teachers recruited during2005/2006). This can lead to retroactive changes beingrequired. 3.52 The integrity o f the payroll and personnel database systems is underpinnedby data input controls such as the use o f a uniqueemployee reference number. However, the system continues to rely on extensive manual controls and oversight by MDAs and the CAGD to ensure the integrity o f the payroll data. At the same time, the humanresource management module is not beingused; hence, only a subset o fpersonnel information is included inthe system. 3.53 Full effectiveness o f the payroll and personnel system has been hampered due to technical problems, capacity constraints in managing the system, and weaknesses in security controls. Also, delays inthe timely integration o f new recruits onto the payroll continue to pose challenges. In terms o f accuracy o f the information in the database, the analysis o f migrating data from the current system to the new system (see below) indicates an error rate on payroll o f around 7 percent (over the last 3 months).16 There are also limited instances o f the use o f resources intended for personal emoluments used for other purposes, as evidenced by the Auditor-General reports. 3.54 The Government commissioned a payroll audit, which was completed in September 2003. It covered staff in all central government entities (MDAs, including subvented agencies). It excluded the military, state-owned enterprises and casual labour. The results showed only limitedinstances o f ghost workers. 3.55 In order to resolve these issues, the Government is currently testing a new integrated payroll andpersonnel computerized system, which it expects to be filly operational by the end o f 2006. 16Many o f these errors are explained by incomplete records. This highlights concerns about data accuracy o f information inthe current system. 25 Indicator Score 1 Brief Explanation PI-18. Effectivenessof payroll controls (i)Degree of integration and C An integrated payroll and personnel database system is used for some reconciliation between personnel MDAs. However, since not all of the MDAs are part of this system, records andpayroll data. separate personnel and payroll databases continue to be maintained. Reconciliationof the information inthe two databasesis undertakenat least everv six months. (ii)Timeliness of changes to C The majority of changes to personnel records take up to three months to personnelrecords andthe payroll complete. Some changes, particularly the inputting of new teacher recruits at the beginningof the school year (representingaround 3% of total public employees), can take longer (up to five months for the teachers recruited during2005/2006l This can leadto retroactive changes beingreauired. (iii)Internalcontrolsofchangesto Internal controls exist, but there are limited instances of the use of personnelrecords and the payroll. resources intended for personal emoluments used for other purposes, as evidencedby the A-G reports. Accuracy of data in the system is also an issue. The analysis of migrating data from the current system to the new 1 systemindicates an error rate onpayrollof around 7 percent (over the last3 _ _ months); manyof these errors are due to incomplete iecords.' (iv) Existence of payroll audits to B" identify control weaknesses and/or A payroll audit was last completedin 2003. It showedlimited instances of ghost workers. ghost workers. Procurement 3.56 The Government has moved to strengthen procurement practices over the past two years. In 2004, a new Procurement Law came into force, which established the Public Procurement Board (PPB), designated procurement to be on the basis of transparent and fair competition, required clear and comprehensive procurement procedures and regulations to be set out, including criteria for the use o f restricted competition, and established a procurement complaints mechanism. 3.57 The PPB i s currently operational (since October 2005), governed by a Boardo f Directors. Its focus i s on enforcing the use o f open competition above the minimumthreshold.18 However, according to PPB's estimates, less than 50 percent of the contracts above the threshold are currently awarded on the basis o f competitive tender. 3.58 Entities who wish to use less competitive procurement methods must request prior authorization from PPB, and there is evidence that they are doing so, with PPB receiving an average o f 10-15 requests per month. According to PPB's analyses, around 40 percent o f the requests are granted on the basis o f the criteria set out in the Procurement Law. However, at present, the A-G does not report on what proportion o f total tenders use less competitive procurement methods. Underplans announced by the A-G earlier this year, a procurement audit unit to look specifically at public service procurement to ensure effectiveness and transparency inservice delivery is to beestablished. 17Followingthe mainassessment exercise, during the subsequent review process andinconsultation with other reviewers, are-appraisal of the original scoringwas made to ensure closer linkagewith the PEFA Guidelines. 18For internationalcompetitive bidding, the thresholds are: above 15 bnCedis (goods), above 20 bn Cedis (works) and above 2 bn Cedis (technical services). 26 3.59 Information on tenders and contract awards is publicized through the media but not yet in a systematic way. The PPB is currently working on a template for a monthly procurement bulletinwhich will include detailed information on upcoming tenders, contract awards, and the resolution of complaints. 3.60 The procurement complaints mechanism has only recently been established and involves directing complaints initially to the relevant entity in the first step, with details o f the complaint copied to the PPB. Ifthe complaint is not satisfactorily resolved within 21 days the complaint i s referred to the PPB, together with the relevant documentation. Thereafter, the complainant has recourse to arbitration. 3.61 Inorder to improve the performance of public procurement, the PPB has developed and i s testing a monitoring tool with 61 indicators covering the legal and regulatory framework, the institutional framework and capacity, procurement operations, and the integrity and transparency o f the public procurement system. The set o f indicators was developed in a manner to ensure consistency with the OECD-DAC baseline indicator set for procurement. One hundred entities were assessed during the testing phase (which has been completed), and these will be re-run, together with an additional 100 entities during2006, usingthe finalised monitoring tool. 3.62 Overall, the impact o f the new Law has been positive. External organisations have indicated a noticeable increase inthe transparency o fprocurement operations. I Indicator I Score I Brief Explanation PI-19. Competition, value for money and controlsin procurement (i) ofopencompetitionfor Use C According to PPB's estimates, less than 50 percent of the contracts above award of contractsthat exceed the the thresholdare currentlyawardedonthe basisofcompetitive tender. nationally established monetary threshold for small purchases (ii)Justificationforuseofless Nof Entities who wish to use less competitive procurement methods must competitiveprocurement methods scored19,20 request prior authorisation from PPB. The PPB's decision is made on the basis of criteria which are set out inthe new ProcurementLaw. According to PPB's analyses, around 40 percent of the requests are granted on the basis of the criteria. However, as it was not possible to determine what proportionof tenders not sent to PPB for authorisationwere awarded on the basis of less competitive methods, there was insufficient information to assess this dimension. (iii)Existenceandoperationofa Not scored This dimension was not scored, as the procurementcomplaints mechanism procurement complaints mechanism has recently been established, and it is too early to assess its effectiveness. Internal Controls 3.63 The GoG has improved its control o f commitments with the introduction o f a new expenditure commitment control system (CCS) in September 2003. From the start o f 2006, monthly commitment ceilings consistent with the cash releases are issued to ministries and l 9Followingthe mainassessment exercise, during the subsequentreview process and inconsultation with other reviewers, are-appraisal of the original scoringwas made to ensure closer linkagewith the PEFA Guidelines. This indicatorwas originally scored duringthe original review 27 departments, who are responsible for issuing ceilings to their subvented agencies; prior to 2006, quarterly cash ceilings were provided. The ceilings and cash releases are provided separately for items 1, 2, 3 and 4, although the wagebill i s processed automatically by CAGD, and those elements o f item 2 that are linked to item 1 are also executed automatically. M D A s may not commit more than the amount o f cash available, as indicated by the monthly cash ceiling. Each ministrymust submit monthly CCS reports to MoFEP (indicating commitments entered into and cash spent against commitments) in order to obtain the next monthly cash release. M D A s with unused approved amounts are allowed to carry these over to the next month. At the MDA level, Commitment Control Officers maintain a Vote Book, which forms the basis o f commitment control by each MDA for all items o f expenditure. Further control over commitments i s provided by the requirement to receive Commencement Certificates from MoFEP before entering into contracts for expenditure on items 3 and 4. 3.64 Whilst the new commitment control system has improved expenditure control for the majority o f expenditures, a limited amount o f expenditures remain outside o f the CCS. According to data on the Ghana Highways Authority (GHA), more than 15 percent o f domestically-financed investment expenditures are not routinely captured by the commitment register. 3.65 In general, internal rules and procedures appear to be understood by those directly and routinely involved but clear understanding o f all o f the rules is not necessarily widespread (e.g. amongst all o fthose with signatory responsibility). Indicator Score I Brief Explanation PI-20. Effectivenessof internal controlsfor non-salary expenditure (i)Effectivenessofexpenditure C Commitmentcontrols are inplace andare effectivefor manytypes of commitmentcontrols. expenditures. However,accordingto data onthe GHA, morethan 15 percent of domestically-financedinvestment expendituresare not routinely capturedby the commitmentregister. (ii) Comprehensiveness,relevance c Internal rules andproceduresappear to beunderstoodby those directly and andunderstandingof other internal routinelyinvolvedbut clear understandingof all of the rules is not control rules/procedures. necessarily widespread(e.g.amongst all of thosewith signatory resDonsibility). (iii) Degree of compliance with C MoFEPhas some concerns with the applicationofrules andprocedures, rules for processingandrecording includingthe useof Item1 for other purposes. Problemswith the transactions. applicationof rules areindicatedinA-G's reports. Internal Audit 3.66 As with procurement, the Government has strengthened the legal framework for internal audit within the last three years, with the passage of the Internal Audit Act 2003. This Act establishes the Internal Audit Agency (IAA), supported by the creation o f Internal Audit Unitsin the MDAs, staffed by personnel employed by the MDA. Previously, internal auditors were CAGD employees. To date, the Government has established Internal Audit Units (IAUs) in 23 28 out o f the 27 MDAsY2' well as in 6 out o f 138 MMDAs. The Board o f the IAA has been as established, and the Agency's Director was appointed inOctober 2005. The Agency undertook a review o f internal audit operations and i s currently working on procedures and standards to modernise internal audit, including by focusing on highrisk areas. 3.67 When fully operational, internal audit operations should consist o f four main types o f audit: (i) pre-examination o f payment orders; (ii) physical verification o f goods received (equipment and stock); (iii) reviews o f control systems; and (iv) ad hoc investigations. Insufficient understanding o f the role o f internal audit in ensuring appropriate control in an environment where the Accounting Officer is formally held accountable for hisher expenditure, combined with weak capacities amongst IAUstaff in the MDAs, undermine the effectiveness o f the internal audit function in carrying out these roles. Whilst the internal audit function is being established in Ghana, the majority o f audit work at present i s focused on pre-audit and financial compliance. The reporting system i s currently being established. Some IAUs have prepared reports and sent them to IAA, but these have not been circulated to MoFEP. Indicator Score I Brief Explanation PI-21. Effectivenessof internal audit (i)Coverageandqualityofthe In conjunction with the implementation of the new IA Law the internalaudit function Government has established Internal Audit Units (IAUs) to date in 23 out of the 27 MDAs, as well as in 6 out of 138 MMDAs. Internal audit operations shouldconsist offour maintypes of audit: (i) pre-examinationof paymentorders;,(ii) physicalverificationof goods received(equipment and stock); (iii) reviews of control systems; and (iv) ad hoc investigations. At present, whilst the new system is being established, the overwhelming focus is on the first two of these, with only limited time (estimatedat less than20%on average) spent onsystemicissues (ii)Frequencyanddistributionof C A new reporting system is being put in place under the directionof the reports. IAA. At present, reports are being issuedby a number of IA Units, and, whilst they are beingsent to MA, they are not beingcopiedto the MoFEP or to OAG. (iii)Extentofmanagement DZ3 At present, limitedactionon the findings of internalaudit is takenby some response to internalaudit findings. managers, but it is not necessarily comprehensive or timely. New IAU recommendationson follow-up actions are currentlyintheprocessofbeing established E. ACCOUNTING,REPORTING,AND RECORDING Accounts Reconciliation 3.68 GoG's accounts are prepared on a modified-cash basis, with the majority o f transactions recordedwhen funds are received or paid. The government's main accounting system consists o f an automated General Ledger maintainedby CAGD, andmanual ledgersmaintainedby MDAs. "The four MDAsthat havenotyet establishedIAUsare theMinistriesofForestry,WomenandChildren's Affairs, Parliamentary Affairs, and GovernmentMachinery, which are recently established MDAs. Inthe meantime, these MDAs are relying on the support from IAUsinmoreestablishedMDAs. 22Followingthe mainassessment exercise, duringthe subsequent review processandinconsultationwith other reviewers,a re-appraisal of the original scoringwas madeto ensure closer linkagewith the PEFA Guidelines. "bid. 29 3.69 The Government has reduced the number o f its bank accounts in recent years, closing redundant or unauthorized accounts; currently, each o f the 38 ministries and departments holds one sub-account: Bank reconciliation takes place for all MDAs receiving funds through the Consolidated Fundon a monthly basis and is completed within 8 weeks o f the end o f the month. These reconciliation statements contain details o f cash book and bank account balances, clearly identifythe itemsnot yet cleared and show that the majority o f items are cleared within this time period. 3.70 Clearance o f suspense accounts and travel advances can take more time. Information from CAGDNoFEP indicates that most accounts are cleared within two months, but some accounts can take up to 3 months, which is the statutory time limit for completing accounts and finalising the annual financial statement. InformationRequiredby ServiceDeliveryUnits 3.71 CAGD collects data on flows to cost centres, e.g. districts, but not down to the level o f a school or health centre. No public expenditure tracking surveys (PETS) have been carried out within the last three years, although the Government is preparing plans to undertake one inthe education sector. The last PETS was undertaken in2000. I Indicator I Score I Brief Explanation I PI-22. Timelinessand regularity of accountsreconciliation B (i)Regularityofbank C Bank reconciliation takes place for all MDAs on a monthly basis and i s reconciliations completed within 8 weeks of the end of the month. (ii)Regularityofreconciliationand C Clearance of suspense accounts and travel imprests can take time. clearance o f suspense accounts and Information from CAGDMoFEP indicates that most accounts are cleared advances within two months, but some accounts can take up to 3 months, which is the statutory time limit for completing accounts and finalising the annual financial statement. PI-23. Availabilityof information No comprehensive surveys of resources (cash and in-kind) going down to on resourcesreceivedby service the level o f schools andor health centres have been conducted during the delivery units last three years, although plans are currently being developed to undertake one inthe educationsector. Quality and Timelinessof in-Year BudgetReports 3.72 GoG has made significant efforts recently to improve its in-year reporting. CAGD prepares monthly reports on the implementation o f the budget by M D A s and by economic item against the planned amounts. The timeliness o f the provision o f information has improved, and, since August 2005, monthly budget execution reports from CAGD have generally been completedwithin 6 weeks o f the end o fthe month. 3.73 However, the information i s not comprehensive since it includes incomplete data on externally-financed project expenditures. Until the 2005 CAGD annual report, completed in March 2006, it also didnot include data on retained IGFs, but this issue has now been addressed, thereby increasingthe degree o f comprehensiveness o f in-year reporting by CAGD. 30 Indicator Score Brief Explanation PI-24. Quality and timelinessof in-yearbudgetreports El (i)Scope of reports in terms of C The in-year budget reports summariseinformation on MDAs. They cover coverage and compatibility with expendituresat the paymentstagebut not commitmentsat present. budget estimates (ii)Timeliness of the issue of In-year budget reports are prepared monthly, and they are issuedwithin 6 reports weeks of the end of the month. (iii)Qualityofinformation C As most of the work is done manually, there are some issues with data accuracy, particularly given the fact that externally-financed project are not included. Quality andTimelinessof AnnualFinancialStatements 3.74 The FAA requires CAGD to submit its Annual Financial Statements for audit within three months o f the end o f the year. During the last three years, the CAGD reports have been submitted to the Auditor General by the end o f March o f the following year. However, as discussed above, the information prepared by CAGD, based on the Consolidated Fund, does not include some revenue and expenditure information, such as externally-financed project resources. Until the recently submitted 2005 CAGD annual report and financial statements, retained IGFs were also not reported. There i s some disclosure o f standards in the Annual Financial Statements, on the basis o f Ghana National Accounting Standards, although these are not equivalent to IPSAS. I Indicator I Score I I I Brief Explanation PI-25. Quality andtimeliness of annualfinancialstatements Ic+l (i)Completeness of the financial C A consolidated Annual Financial Statement is prepared for central statements government, covering MDAs. However, the information is prepared by CAGD, based on the Consolidated Fund, and does not include some revenue and expenditure information, such as external project resources and. until2005. retainedIGFs. (ii)Timelinessofsubmissionofthe The Financial Administration Act stipulates that Annual Financial financial statements Statements must be submitted to the Auditor-General within three months. on the basis of Ghana National Accounting Standards, although these are not equivalent to IPSAS. F. EXTERNAL SCRUTINYAND AUDIT Scope andFollow-upof ExternalAudit 3.75 The Office o f the Auditor-General (OAG) was established under the Constitution and its responsibilities, powers and timeframe for discharging its duties are set out in the Audit Service Act (2000). The Auditor General (AG) i s appointed by the President in conjunction with advice from the Council o f State. OAG i s responsible for auditing the annual accounts o f (i) central 31 government through the Consolidated Fund; (ii) MDAs; (iii) MMDAs; (iv) the Statutory the the Funds; and (v) SOEs. Audits are required be completed within six months o f the end o f the financial year, and submitted to Parliament. The focus is on transactional audits, Le. whether accounts have been properly kept, rules and procedures followed, resources expended for the purposes appropriated, and records maintained, but some performance audits are also undertaken. The Auditor General i s required to certify whether the annual accounts present financial information in accordance with government accounting policies and standards. The Auditor General's report is made available to the public through its Public Relations Office and public libraries when it i s presented to the Speaker and laid before Parliament. 3.76 The audits broadly adhere to appropriate auditing standards (INTOSAI), including the independence o f the A-G. The A-G's reports cover the fillrange o f financial audit and focus on significant and systemic issues, as well as irregular transactions. Inthe audit o f the CF financial statements, the Auditor-General does not cover retained IGFs, which represent around 5 percent o f total revenue, and externally-financed project expenditures. 3.77 Whilst the quality o f the audited statements submitted to Parliament is considered to be reasonable, the timeliness o f producing these audited Government accounts in recent years has been less so. The annual financial statements o f CF and the public accounts for the MDAs are required to be audited within 6 months o f the year-end, but this is not taking place in practice. The OAG has made progress in eliminating the backlog o f audits, which was cleared in 2005 with the help o fprivate auditors. It is currently working on the 2005 reports, with the 2003 and 2004 accounts submitted to Parliament in 2005 (May and December, respectively, for the Consolidated Fund). These delays have largely been the result o f staff capacity constraints and past delays insubmittingthe annual public accounts. Indicator Score Brief Explanation PI-26 Scope, natureand follow- El up of externalaudit (i)Scopehatureofauditperformed B The Audit Service Act (2000) indicates that the Auditor-General is mandated to audit all public bodies, including MDA, Statutory Funds, SOEs and local government. OAG estimates indicate that the number of entities audited annually represents at least 75 percent of total central government expenditures. Transactional audits represent the majority of audits which the A-G carries out. In addition, the A-G has carried out a numberofperformanceaudits. (ii)Timeliness of submission of C A There was a backlog of submissions of audit reports to Parliament, audit reports to legislature primarily of SOEs and SFs, which was largely cleared in 2005 with the help of contracted private auditors. The 2004 Auditor-General's reports were submitted to Parliament in October (for MDAs) and December (for CF) 2005, which was withinthe 12-monthrange for a C score. (iii) Evidence of follow-up on audit c ? ~ There is evidence of formal follow-up by audited entities to the Auditor- recommendations General's reports, although the A-G does not report on the follow-up to these responses, in terms of verifying actions undertaken, in its subsequent reports. It has indicatedits plansto do so infuture. 24Followingthe main assessment exercise, during the subsequentreviewprocess andin consultationwith other reviewers, are-appraisal of the original scoringwas madeto ensure closer linkagewith the PEFA Guidelines. 32 3.78 As required, audited entities provide a formal response to A-G on its findings inthe audit reports, although the responses vary in terms o f extensiveness and their timeliness. The A-G keeps a record o f its recommendations on audit reports, the response by the entity, and the actions undertaken by the entity against each recommendation. However, the A-G does not report on the follow-up to these responses, in terms o f verifying actions undertaken, in its subsequent reports, althoughit has indicatedits plans to do so infuture, at the request o fPAC. LegislativeScrutinyof the AnnualBudgetLaw 3.79 The powers o f Parliament to approve the budget are contained in the Constitution, and the procedures are set out in detail in the Parliament's Standing Orders and are respected. The Budget, inthe form ofthe detailed Estimates, is presented to the full Housebeforebeingreferred to the Parliamentary Finance Committee. Individual parts o f the budget are considered by members o f Select Committees covering specific sectors, and the head o f each MDA is called to defend hisher allocation. The Parliamentary Finance Committee takes an active role in scrutinising the budget proposals; however, their work is hampered by (i) excessive detail in budget information for individual MDAs;~'and (ii)the lack o f recent trends (previous year's actual, current year's estimates and next year's budget plans) shown side-by-side for MDA expenditures. 3.80 Permission for the Executive to disburse i s made only after the full House has voted on the detailed Budget Estimates andthe Budget becomes an Act o fParliament through the passage o f the Appropriations Bill, to which the Estimates are attached as a schedule. Following approval o f the Budget, the Appropriation Bill i s submitted to the President for signature before it is published in the Government Gazette and becomes the Appropriation Act. This process tends to take just over one month, and for the 2006 Budget took five weeks.26 3.81 The rules for in-year amendments to the budget are set out in the FAA. They give MoFEP and MDAs latitude to make extensive administrative reallocations (e.g. M D A s may make changes within economic items with the exception o f Item 1, and across items by permission o f MoFEP within the overall MDA total) without recourse to Parliament. If the aggregate expenditure ceiling i s likely to be breached, the Law requires that a Supplementary Budget must be approved. Inthe last three years, one supplementary budget was issued, in2003. *'Thebudget documents for each h4DA can runto several volumes. There is limitedstrategic policy context includedwith the budget estimates;the volumes consistprimarilyof largequantitiesofnumbers against, untilrecently,a very largenumberof activities. 26The 2006 AppropriationBill was sent to Parliament on 7 November 2005 andwas passedon 14* December. The 2006 Appropriation Act was publishedon29 December. 33 Indicator Score I Brief Explanation PI-27 Legislativescrutiny of the annual budget law Ic+l (i) Scope of the legislature's C Parliament reviews the budget proposals only when it has reached the scrutiny. detailedEstimates stage. (ii) Extentto which the legislature's A Procedures are well-establishedand are generally followed. The rules are procedures are well-establishedand publishedina book containingParliament'sStandingOrders. respected. (iii)Adequacy oftime for the B In November and December 2005, Parliament spent five weeks actively legislatureto providearesponse to reviewingthe 2006Budget. budgetproposalsboththe detailed estimatesand, where applicable, for proposalson macro-fiscal aggregates earlierinthe budget preparationcycle (time allowedin practice for all stages combined). (iv) Rules for in-yearamendments Bl' The rules for in-year amendments are clear and allow for extensive to the budgetwithout ex-ante administrative reallocations in conjunction with MoFEP approval approvalby the legislature. (specifically, MDAs may make changes within economic items with the exceptionof Item 1, and across items by permissionof MoFEP within the overall MDA total). Expansionof the overall levelof expenditure requires approvalby Parliamentinthe form of a SupplementaryBudget. Legislative Scrutiny of ExternalAudit Reports 3.82 The Auditor General's reports, including performance audits, are submitted to Parliament, where they are reviewed by the Public Accounts Committee (PAC). The PAC examines the audited accounts and the associated report, takes evidence from relevant officers and, on the basis o f the examination, makes recommendations to the full House. 3.83 Inrecent years, PAC has completed its review of audit reports and submits its report to the House within 12 months o f submission o f the reports by the A-G. The PAC i s currently considering the 2004 central government accounts, which were submitted inDecember 2005. 3.84 The PAC i s active inits reviews o f the Auditor-General's reports. It holds hearings when required and, although it may not call everyone to appear, i s reasonably assiduous in calling relevant officials (i.e. those with adverse opinions) to appear before it. However, a lack o f resources (including sufficient office accommodation) prevents it from being more comprehensive or from holding its sessions more regularly. 3.85 The PAC makes recommendations inits reports to Parliament; these are discussed inthe House o f Parliament when the report i s presented. If accepted, the PAC recommendations are forwarded to the Executive to be implemented. It keeps a record o f the actions undertaken by the entity against each recommendation, and these show that the audited entities are taking some action on PAC reports. PAC has recently asked the Auditor General to indicate in audit reports actions taken byM D A s to resolve issues raised inearlier PAC reports. 21Followingthe mainassessmentexercise, duringthe subsequentreviewprocessandinconsultationwith other reviewers,a re-appraisal of the original scoringwas madeto ensure closer linkagewith the PEFA Guidelines. 34 Indicator Score Brief Explanation PI-28 Legislativescrutiny of external audit reports (i) .. Timeliness of examination of C PAC completes its review of audit reports and submits its report to the audit reportsby the legislature (for Housewithin 12monthsof submissionof the reportsby the A-G. reports received within the last three years). (ii) ofhearingsonkey Extent B PAC holds hearings on key findings of the Auditor-General's reports and findings undertakenby the calls those officials with adverse opinions to appear before it. However, a legislature. lack of resources prevents it from being more comprehensive or from holding its sessionsmoreregularly. (iii)Issuanceofrecommended B The PAC makes recommendations in its reports to Parliament; these are actions by the legislature and discussed by MPs when the report is presented to the full House. If implementation by the executive. accepted, the PAC recommendations are forwarded to the Executive to be implemented. The PAC keeps a record of its recommendations, and the actions undertakenby the entity against each recommendation; these show that audited entities are taking some action on PAC reports. PAC has recently askedthe Auditor Generalto indicateinaudit reports actionstaken by MDAs to resolveissuesraisedinearlier reports. G. DONOR PRACTICES 3.86 Duringthe last three years, the Government has made substantial progress inmobilizing external financial assistance on concessional terms (in either grants or soft loans) to implement its poverty reduction agenda. ADMU estimates indicate that around US$873 million (15 percent o f total budgetedexpenditure during this period) was contracted inbudget support alone during the period 2003-2005. 3.87 Analyses o f the provision o f budget support against planned outputs over the past three years indicate that ADMU have reasonably good information in aggregate on the likely amount o f budget support for the coming year. Donors provide projections o f direct budget support, including any performance tranches, at least six weeks before the budget i s finalised and presented to Parliament. As the data show, in aggregate, the actual provision o f direct budget support has tendedto be close to donor expectations, differingby no more than 3 percent o f total budget support during the last three years. Within year, however, the flows are somewhat less predictable and delays o f 1-2 quarters are not unusual, partly due to delays in meeting performance tranche targets and sometimes due to delays by donors resulting from their disbursement procedures. Nonetheless, this does not appear to affect the overall level o f predictability o f these flows for the budget. 3.88 The availability o f information does not appear to be an issue for project assistance. Amongst the five largest donors (World Bank, EU, AfDB, Canada and Denmark), ADMU receives comprehensive and accurate quarterly information on disbursements o f project flows for the coming year. These tend to beprovided at least one quarter before the beginningo fthe fiscal year and are provided on the basis o f donors' classification, rather than that used by the Government. The information i s generally available withintwo months o f the end o fthe quarter, particularly on grants. 3.89 ADMU data indicate that less than 50 percent o f external finance, largely project aid, goes through national procedures. Inparticular, the largest donors use their own procedures. 35 Indicator I Score I Brief Explanation D. Donor Practices D-1 Predictability of Direct Ic+i Budget Support (i) Annual deviation of actual Donorprojectionsofbudget support were close to actualoutturns for the budget support from the forecast A last three years, as indicatedinthe tablebelow. provided by the donor agencies at 2003 2004 2005 least six weeks prior to the Projections $281m $302m $285m governmentsubmitting its budget Outturns %282m $309m $282m proposals to the legislature. %Diff 0.1% 2.3% -1.2% Source: ADMU/MoFEP (ii)In-yeartimelinessofdonor The comparisonof actual donor disbursementsofbudget supportwas disbursements. C analysed againstthe expectedquarter of arrival of each disbursement. The cumulative amounts delayedas a share of the total were: 2003 -45.5% 2004 -22.3% 2005 -60.8% Source: ADMUMoFEP D-2 Financial information providedby donorsfor budgeting EJ and reporting (i)Completeness and timeliness of Amongst the five largestdonors (World Bank, EU, AfDB, Canadaand budget estimates by donors for C Denmark), ADMU receivescomprehensiveandaccurateinformationon project support disbursements ofproject flows for the coming year. These tend to be providedat least one quarter beforethe beginningof the fiscal year andare providedon the basis of donors' classification, which i s different to that usedby the Government. (ii)Frequencyandcoverageof Informationis providedquarterlyfor most donors, andit is provided reportingby donors on actual donor C generallywithin two monthsof the endof the quarter, particularly on flows for project support grants. The classificationusedby donors for aid flows is different from the Government's classification. D-3 Proportion of aid that is ADMU data indicatethat less than 50 percentof external finance, largely managedby use of national project aid, goes through nationalprocedures. Inparticular,the largest procedures donors use their ownprocedures. 4. GOVERNMENTREFORM PROCESS A. DESCRIPTION RECENTAND ON-GOINGREFORMS OF 4.1 The Government has demonstrated its commitment to improving its public financial management system in recent years through a series o f measures aimed at improving the efficiency o f resource use. The most recent reforms have built on those achieved as part o f the measures introduced under the Public Financial Management Reform Programme (PUFMARP) initiated in the mid-1990s. Under PUFMARP, the Government introduced a medium term expenditure framework (MTEF) intended to improve the links between policy-making, and planning andbudgetingsystems. 36 4.2 Over the last few years, the Government has accelerated its implementation o f PFM reforms through a number o f measures intended to strengthen the legislative framework and improve oversight o f the use o f public sector resources. In particular, Government has promulgated a new FAA, an updated FAR, the Internal Audit Agency Act, and the Public Procurement Act. Improved oversight has been accomplished through ensuring a more timely budget approval (prior to the beginningo f the fiscal year), clearing the backlog o f audit reports, thereby strengthening the role o f the PAC, and ensuring that the budget presentation i s clearer and more comprehensive. At the same time, MoFEP has been strengthening its commitment controls to improve the overall monitoring o f expenditures. 4.3 At the beginning o f2006, MoFEP publishedits three-year strategic planandits short and medium-term Action Plan, covering the period 2006-2009. The short-term Action Plan sets out reforms being introduced in 2006, which focus on improving the efficiency o f resource and information flows through the system. The specific measures currently under way include the on-going building of an improved computerized Integrated Personnel and Payroll Database system (IPPD), as well as the Government's integrated computerized financial management system, known as the Budget and Public Expenditure Management System (BPEMS). These improvements are intended to boost the accuracy and timeliness o f expenditure information from budget plans through the expenditure commitment stage to making and recording payments. 4.4 Inaddition, a decentralised payment system is beingintroduced ina few pilot ministries, including the Ministry o f Education. The new system i s intended to improve the efficiency of the payment system through opening MDA-specific treasuries (and eventually regional and district treasuries under the control o f the relevant regionaVdistrict financial officer). Funds are being released to these treasuries and on to the cost centres without recourse back to MoFEP. This has had the initial effect o f speeding up the transfer o f funds and reducing the amount o f documentation required. Nevertheless, it is not clear what effect the new system will have on overall expenditure control. 4.5 Finally, internal audit and procurement processes are being strengthened through improved governance in terms o f the operation of the Internal Audit Agency and the Public Procurement Board, as well as setting out rules-based operationalprocedures. 4.6 In addition to these short-term measures, the Government's medium-term action plan consists o f a matrix o f reforms centred on 9 focal areas.28 Within each focal area, output targets are given, the main agency responsible as well as other agencies involved are named, activities to be undertaken are detailed, and the risks are identified. The reforms are comprehensive and cover most areas o f the PEFA framework. However, the medium-term measures are not prioritised or sequenced nor has the action planbeen costed. 28 These include: fiscal management/macro stability, strengthening budget formulatiodpreparation, budget implementation, financial regulatory and management framework, integrated payroll and personnel system, aid and debt management, revenue management, financial sector programme and capacity building. 37 B. INSTITUTIONAL FACTORS SUPPORTINGREFORM PLANNINGAND IMPLEMENTATION 4.7 The Government has an ambitious agenda to reform its public sector and encourage private sector growth to reach middle-income status by 2015. It has recognised that this target will require overcoming potentially significant institutional challenges. In his 2006 Budget Statement, the Minister o f Finance and Economic Planning addressed a number o f these challenges directly, including the need for leadership and accountability, overcoming low implementation capacity, and co-ordinating the reforms. Leadership and Accountability 4.8 The achievement o f recent improvements in the PFM system provides evidence o f government commitment to the reforms. Suggesting that this commitment needs to be backed up by sufficient leadership capacities to carry through the reform measures, the 2006 Budget Statement indicates the need to strengthen such capacities and build adequate technical competences, particularly in districts. At present, leadership for the PFM reforms appears strongest in the MoFEP. The Government i s developing plans to introduce and monitor results- based agreements between the Head o f the Civil Service and ChiefDirectors o f MDAs. 4.9 More accountable institutions improve the incentives for good leadership, and the Government has recognised that this implies changes in work ethics, attitudes and b e h a v i ~ u r . ~ ~ In this wa welcomed. yd the increased emphasis on participation by the public in the budget is to be Overcoming Low Implementation Capacity 4.10 The pace o f reform is potentially hampered by constraints in implementation capacity, leading to delays in the execution o f projects and programmes. MoFEP reports that the achievements o f reform programmes are sometimes undermined by weaknesses in the efficient use of resources, with substantial balances often remaining un-utilised, and in some cases are cancelled at the close o f programmes and projects. This issue is exacerbated by weaknesses in technical capacities, particularly in terms o f financial management, as higher salaries in the private sector attract accounting and other professionals with marketable financial skills. The recruitment and retention o f qualified accountants will be particularly important to sustain the Treasury decentralisation programme under way. Inresponse, the Government has developed a capacity planas part o f the Public Sector Reform Programmeto address these skill shortages. Co-ordination of Reforms 4.1 1 The Ministry o f Finance and Economic Planning, the National Development Planning Commission (NDPC) and the Ministry o f Public Sector Reforms are at the heart o f the public sector reform programme. Whilst the Government's medium-term plans for PFMreforms are set out inthe MoFEP's Short andMedium-Term Action Plan, this does not appear to be sufficient to 29See 2006 Budget Statement. 30For the first time withthe 2006 Budget, the MoFEPthroughthe nationalmediarequestedcomments from the publicto the budget. 38 act as a road map for reforms since the plans do not contain a sequenced and costed work programme with realistic timelines. The implementation o f such a comprehensive programme without appropriate sequencing may distract attention from focusing efforts on reaching priority objectives. There i s a need for MoFEP to set priorities and expected results, identify timelines for the medium-term, monitor implementation, and ensure good communication and co- ordination between central and line agencies and sub-national administrations. 39 Annex B: Sources of Informationby Indicator Indicator Specific InformationSources Used 1.Aggregate expenditureout-turncomparedto original 2003 Audited Annual Public FinancialStatements approvedbudget 2004 Audited Annual Public FinancialStatements 2005 UnauditedAnnual PublicFinancial Statements 2003 Appropriation Act 2004 Appropriation Act 2005 Appropriation Act 2. Compositionof expenditure out-turncomparedto 2003 Audited Annual PublicFinancialStatements original approvedbudget 2004 Audited Annual PublicFinancialStatements 2005 UnauditedAnnualPublic FinancialStatements 2003 Appropriation Act 2004 Appropriation Act 2005 Appropriation Act 3. Aggregate revenueout-turncomparedto original 2003 Audited Annual PublicFinancialStatement approvedbudget 2004 Audited Annual PublicFinancialStatement 2005 UnauditedPublic FinancialStatement 4. Stock andmonitoring of expenditure paymentarrears Breakdownof roads andnon-roadarrears, preparedby MoFEP B. Comprehensiveness and Transparency 5. Classificationof the budget 2006 AppropriationAct 6. Comprehensivenessof information includedinbudget 2006 AppropriationAct documentation 2006 BudgetStatement DetailedMDA MTEFs-for the Ministriesof Health, Education,RoadsandTransport, andLocal Government 7. Extent of unreportedgovernmentoperations 2006 AppropriationAct 2006 BudgetStatement 2005 UnauditedAnnualPublicFinancialStatement 8. Transparency of Inter-GovernmentalFiscal Relations DACF Act 2006 DACF submissionto Parliamenton proposedtransfer formula Reportondistribution ofHIPC funds 9. Oversightof aggregate fiscal risk from other public Annualreportsfrom SOEs from SEC ~~ sector entities. 10.Public access to key fiscal information Govemmentpublishinghouse, GovernmentandMoFEP websites. Auditor General's PublicRelationsOffice C(i) Policy-Based Budgeting 11. Orderliness andparticipationin the annualbudget Budget circulars: Guidelinesfor the Preparationof the 2003, process 2004,2005 and 2006 Budgets 2003,2004,2005 and 2006 AppropriationsAct 2003,2004,2005, and2006 BudgetStatements 12.Multi-year perspective infiscal planning,expenditure 2006-2008MTEF volumes (MDAs for health, education, policy andbudgeting roadsandtransport, andlocal government) C (ii) Predictability and Control in Budget Execution 13. Transparency of taxpayer obligations andliabilities Legislationcoveringthe mainrevenue sources Verbal evidence from businessassociations 42 I Indicator I Specific Information SourcesUsed I 14. Effectiveness o f measures for taxpayer registration Evidence from RAGB and tax assessment 15. Effectiveness incollection o f tax payments Statements on tax arrears from the three revenue agencies 16. Predictability in the availability o f hnds for Commitment Control System manual commitment o f expenditures Annual cash ~ l a n from selection o f MDAs s 17. Recording and management o f cash balances, debt Debt Sustainability Analysis and guarantees ADMUreports List o f Government euarantees 18. Effectiveness o fpayroll controls Evidence from payroll audit 19. Competition, value for money and controls in Public Procurement Law procurement Public Procurement Board Strategy - as set out inFebruary 2006 presentation inManila 20. Effectiveness o f internal controls for non-salary Auditor-General's reports on the 2004 Public Accounts exoenditure (MDAs) 2 1. Effectiveness o f internal audit Internal Audit Act Internal Audit Agencv Strategic Plan C (iii) Accounting, Recording and Reporting 22. Timeliness and regularity o f accounts reconciliation I Examples o f bank reconciliation statements I 23. Availability o f information on resources received by I No such surveys have been carried out recently I service delivery units 24. Oualitv and timeliness o f in-vear budget reDorts I CAGD reDorts for 2005 - latest was November 2005 25. Quality and timeliness o f annual financial statements I Annual Financial Statement (CF) for 2004 I C(iv) External Scrutiny andAudit 26. Scope, nature and follow-up of external audit Auditor-General's report on 2003 Consolidated Fund Statement and 2003 ReDort on Public Funds(MDAs) 27. Legislative scrutiny o f the annual budget law Parliamentary Standing Orders 28. Legislative scrutiny o f external audit reports II PAC reports to Parliament on Auditor-General's reports D.DonorPractices D-1Predictability ofDirect Budget Support Data from ADMU I D-2Financial information provided by donors for 1IDatafromADMU I budgeting and reporting o nproject and programme aid D-3 Proportion of aid that ismanagedbyuse ofnational Data from ADMU I orocedures III I 43 Annex C:MainReferences Author I Name IDate AppointedAuditors I Cover Report onthe SpecialAudit of SelectedFlows inthe Governmentof IAugust2005 General's Office Fund),2002 Republic of Ghana, Auditor- I1Report of the Auditor-General on the Public Accounts of Ghana (MDAs), 2002 I 44 ounts Committee ExpenditureManagement World Bank II .. - Ghana: Public ExpenditureManagementCountryAssessment andAction Plan - IMay 2004 (AAP) World Bank, IDA IIProgrammeDocument for Proposed Third Poverty Reduction Support Credit I July 2005 45 Annex D:Calculationof Deviationsby BudgetHead, 2003-2005 ~~ ~~~~ ~~~~~~~~~~ ~ viations for 2003 (bn cedis) Budget Actual Difference Absolute Percent n.of Education (exc1.G.E.T.F.) 2,637.3 3,080.9 443.6 443.6 16.8% f Health(excl. N.H.I.F.) 893.4 957.2 63.8 63.8 7.1% 853.0 722.3 -130.7 130.7 15.3% 592.1 548.3 -43.8 43.8 7.4% 577.4 635.5 58.1 58.1 10.1% ana Education Trust Fund 489.7 750.9 261.2 261.2 53.3% 459.9 556.0 96.1 96.1 20.9% 439.2 461.5 22.3 22.3 5.1% 410.0 288.2 -121.8 121.8 29.7% 341.2 411.1 69.9 69.9 20.5% 331.7 310.5 -21.2 21.2 6.4% . o f Foreign Affairs 322.0 320.5 -1.5 1.5 0.5% ce o f Government Machinery 321.5 219.2 -102.3 102.3 31.8% 290.0 212.2 -71.8 77.8 26.8% tlement o f roads arrears 219.8 239.9 20.1 20.1 9.2?4, Health Ins. Fund 210.0 0.0 -210.0 210.0 100.0% o f Roads and Transport (excl. R.F.) 200.5 183.5 -17.0 17.0 8.5% ement o f non-roads arrears 197.0 261.9 64.9 64.9 32.9% o f Finance and Economic Planning 143.2 75.6 -67.6 67.6 47.2% o f Food and Agriculture 136.7 105.7 -31.0 31.0 22.7% (=sum of remaining budgetheads) 2,103.7 2,106.9 3.2 3.2 0.2% viations for 2004 (bn cedis) Budget Actual Difference Absolute Percent 1,206.4 1,787.1 580.7 580.7 48.1% 1,027.5 1,020.7 -6.8 6.8 0.7% 870.8 611.2 -259.6 259.6 29.8% 810.5 871.4 60.9 60.9 7.5% 787.2 803.3 16.1 16.1 2.0% 674.5 677.2 2.7 2.7 0.4% 636.1 506.9 -129.2 129.2 20.3% 607.7 639.5 31.8 31.8 5.2% ovemment Machinery 526.7 452.3 -74.4 74.4 14.1% 484.5 495.1 10.6 10.6 2.2% 474.2 521.2 47.0 47.0 9.9% 420.4 0.0 -420.4 420.4 100.0% 392.0 1,819.2 1,427.2 1,427.2 364.1% 387.6 347.0 -40.7 40.7 10.5% 374.2 518.2 144.0 144.0 38.5% -129.0 129.0 62.4% 46 ations for 2005 (bn cedis) Budget Preliminary Difference Absolute Percent of Education, Youth and 3,920.1 5,115.3 1,195 1,195 30.5% 1,988.6 598.9 -1,390 1,390 69.9% 1,594.4 1,943.7 349 349 21.9% 1,552.0 1,546.4 -6 6 0.4% tional HealthInsuranceFund 1,339.2 0.0 -1,339 1,339 100.0% ationTrust Fund 1,124.2 691.4 -433 433 38.5% 1,048.4 701.9 -347 347 33.1% 1,016.7 200.7 -816 816 80.3% 883.3 926.9 44 44 4.9% 624.4 788.9 165 165 26.3% 618.8 628.1 9 9 1.5% 613.8 769.5 156 156 25.4% of GovernmentMachinery 527.6 489.7 -38 38 7.2% nistry of ForeignAffairs 511.7 592.9 81 81 15.9% 497.9 412.5 -85 85 17.2% nistry of RoadTransport 429.1 364.8 -64 64 15.0% 408.2 581.8 174 174 42.5% 355.9 327.5 -28 28 8.0% 350.0 234.7 -115 115 32.9% 349.5 781.2 432 432 123.5% 2,854.6 3,112.6 258 258 9.0% tal ExpenditureDeviation 22,608.3 20,809.3 -1,799 1,799 8.0% lcompositionVariance 22,608.3 20,809.3 7,523 33.3% Annex D Source of Data: Budget from AppropriationsActs for 2003,2004 and 2005; 2003 and 2004 Actual Audited Annual Financial - Statementsof ConsolidatedFund; 2005 Preliminary from UnauditedCAGD Report andFinancial Statements. - - 47 Annex E:PEFAAssessment Meetings-Listof Participants NAME INSTITUTION DESIGNATION Hon.P.C. Ofori ParliamentFinanceCommittee Memberof Finance Committee Hon.SamQuam ParliamentFinanceCommittee Member of Finance Committee Mr.RolandNeumann MOFEP CIDA Advisor to Ghana Mr.MarkStarr MOFEP USTreasury, Advisor, Govern.Debt Issuance & Management Ms.EvaMends MOFEP Coordinator, MDBS Secretariat Mr.DavidQuist MOFEP Ag, Head, World Bank Desk Mr.Alex Tetteh MOFEP Mr.Yaw Asamoah-Aning MOFEP Mr.Samuel Arkhust MOFEP Mr.T. Adams-Eshun MOFEP 48 NAME INSTITUTION DESIGNATION Ms.Nelly Apo MOFEP Mr.C. Kyei-Baffour Antwi MOFEP Ms.SheilaNaah MOFEP Mr.AloysiusAdjetey MOFEP Mr.SampsonKodua MOFEP NanaMensahOtoo MOFEP Ms.EdnaBaffour-Awuah MOFEP I Mr.KwakyeKwabenaGyan I MOFEP I Mr.HuduSiita I MOFEP Mr.J.O.Afrani Ministryof EducationandSports(MOES) Director, PBME Mr.KwameAgyapong MOES Mr.Felix Asiamah MOES Ms.RowenaDwyer MOES Mr.Adim Odoom MOES Mr.C.M.Martey MOES Mr.S.M.K.Agyakwa MOES Dr.S. Adomako Mensah MOES Mr.T. Ashun MOES ~ Mr.AnthonyArthur MOES FinancialAccountant Mr.F.Gidiglo MOES 49 Mr.KenBensti-Enchill VATS Mr.BenjaminEgbem VATS Mr.MosesAmihere VATS Mr.D.K.Doe VATS Mr.PaulNkansah CEPS 50 INAME IINSTITUTION 1 Mrs.LeonoraKyeremateng GACC Coordinator, National Governance Program 51 Annex F: PEFA ScoringCalibrationfor IndividualIndicators35 PEFA SCORE EXPLANATIONOF CALIBRATION (i)nomorethanoneoutofthelastthreeyearshastheactualexpendituredeviated In PI-1Aggregate from budgeted expenditure by an amount equivalent to more than 5percent o fbudgeted expenditureout- expenditure. turn compared to (i)nomorethanoneoutofthelastthreeyearshastheactualexpendituredeviated In original approved from budgeted expenditure by an amount equivalent to more than 10percent o fbudgeted budget expenditure. (i) nomorethanoneofthelastthreeyearshastheactualexpendituredeviatedfrom In budgeted expenditure by more than an amount equivalent to 15percent o fbudgeted expenditure. (i) twoorallofthelastthreeyearsdidtheactualexpendituredeviatefrom In budgeted expenditure by an amount equivalent to more than 15percent o fbudgeted exnenditure. PI-2. Compositionof (i)Variance inexpenditure composition exceeded overall deviation inprimary expenditureout- expenditure by no more than 5 percentage points inany o f the last three years. turn comparedto (i)Variance inexpenditure composition exceeded overall deviation inprimary original approved expenditure by 5 percentage points inno more than one o f the last three years. budget (i)Variance inexpenditure composition exceeded overall deviation inprimary expenditure by 10 percentage points inno more than one o f the last three years. (i)Varianceinexpenditurecompositionexceededoveralldeviationinprimary expenditure by 10percentage points inat least two out o f the last three years. PI-3. Aggregate (i) domesticrevenuecollectionwasbelow97percentofbudgeteddomesticrevenue Actual revenue out-turn estimates inno more than one o f the last three years. compared to (i) domesticrevenuecollectionwasbelow94percentofbudgeteddomesticrevenue Actual original approved estimates inno more than one o f the last three years. budget (i)Actualdomesticrevenuecollectionwasbelow92percentofbudgeteddomesticrevenue estimates inno more than one o f the last three years. (i) domesticrevenuecollectionwasbelow92percentofbudgeteddomesticrevenue Actual estimates intwo or all o f the last three years. PI-4. Stock and (i) stockofarrearsislow(Le.isbelow2percentoftotalexpenditure) The monitoringof (ii) andcompletedataonthestockofarrearsisgeneratedthroughroutine Reliable expenditure procedures at least at the end o f each fiscal year (and includes an age profile). paymentarrears (i) stockofarrearsconstitutes2-lopercentoftotalexpenditure; andthereisevidence The that i t has been reduced significantly (Le. more than 25percent) inthe last two years. (ii) onthestockofarrearsisgeneratedannually,butmaynotbecompletefora Data few identified expenditure categories or specified budget institutions. (i) stockofarrearsconstitutes2-lopercentoftotalexpenditure;andthereisno The evidence that it has been reduced significantly inthe last two years. (ii) onthestockofarrearshasbeengeneratedbyatleastonecomprehensivead Data hoc exercise within the last two years. (i)Thestockofarrearsexceedslopercentoftotalexpenditure. (ii) isnoreliabledataonthestockofarrearsfromthelasttwoyears. There PI-5. Classification (i) budgetformulationandexecutionisbasedonadministrative,economicand The of the budget sub-functional classification, using GFSKOFOG standards or a standard that can produce consistent documentation according to those standards. (Program classification may substitute for sub-functional classification, ifit is applied with a level o f detail at least corresponding to sub-functional.) (i) budgetformulationandexecutionisbasedonadministrative,economicand The functional classification (using at least the 10main COFOG functions), using GFSICOFOG standards or a standard that can produce consistent documentation according to those standards. (i) budgetformulationandexecutionisbasedonadministrativeandeconomic The classification using GFS standards or a standard that can produce consistent documentation according to those standards. (i) budgetformulationandexecutionisbasedonadifferentclassification(e.g. not The GFS compatible or with administrative break-down only). PI-6. (i) budgetdocumentationfulfils7-9ofthe9informationbenchmarks recent Comprehensiveness (i) budgetdocumentationfulfils5-6ofthe9informationbenchmarks recent of information (i) budgetdocumentationfulfils3-4ofthe9informationbenchmarks recent 35Annex 1, PEFA PFM Performance Management Framework Guidelines, June 2005. PEFA Secretariat. www.pefa.org 52 PEFA SCORE EXPLANATION OF CALIBRATION includedinbudget (i) recentbudget documentation fulfils 2 or less o f the 9 information benchmarks documentation PI-7. Extent of (i) levelofunreportedextra-budgetaryexpenditure(otherthandonorfunded The unreported projects) is insignificant (below lpercent o f total expenditure). government (ii) operations Complete income/expenditure information for 90percent (value) of donor-funded projects is included infiscal reports, except inputs provided in-kindOR donor funded project expenditureis insignificant (below lpercent o f total expenditure). (i) levelofunreportedextra-budgetaryexpenditure(otherthandonorfunded The projects) constitutes 1-5percent o f total expenditure. (ii) Complete income/expenditure information is included in fiscal reports for all loan financed projects and at least 50percent (by value) o f grant financed projects. (i) levelofunreportedextra-budgetaryexpenditure(otherthandonorfunded The projects) constitutes 5-lopercent o f total expenditure. (ii) Complete income/expenditure information for all loan financed projects is included infiscal reports. (i)Thelevelofunreportedextra-budgetaryexpenditure(otherthandonorfunded projects) constitutes more than 10percent o f total expenditure. (ii) Information on donor financed projects included in fiscal reports is seriously deficient and does not even cover all loan financed operations. PI-8. Transparency (i) Transparency and objectivity inthe horizontal allocation among SN governments of Inter- The horizontal allocation of almost all transfers (at least 90percent by GovernmentalFiscal value) from central government is determined by transparent and rules based Relations systems (ii) Timeliness o f reliable information to SN governments on their allocations SNgovernmentsareprovided reliable information onthe allocations to be transferred to them before the start o f their detailed budgeting processes. (iii) ofconsolidationoffiscaldataforgeneralgovernmentaccordingtosectoralcategories Extent Fiscal information (ex-ante and ex-post) that is consistent with central government fiscal reporting is collected for 90percent (by value) of SN government expenditure and consolidated into annual reports within 10 months o f the end o f the fiscal year. (i) Transparency and objectivity inthe horizontal allocation among SN governments The horizontal allocation o f most transfers from central government (at least 50percent o f transfers) is determinedby transparent and rules based systems. (ii) Timeliness o f reliable information to SN governments on their allocations SNgovernments areprovided reliable informationonthe allocations to be transferred to them ahead o f completing their budget proposals, so that significant changes to the proposals are still possible. (iii) ofconsolidationoffiscaldataforgeneralgovernmentaccordingtosectoralcategories Extent Fiscal information (ex-ante and ex-post) that is consistent with central government fiscal reporting is collected for at least 75percent (by value) o f SN government expenditure and consolidated into annual reports within 18 months o f the end o f the fiscal year. (i) Transparency and objectivity inthe horizontal allocation among SNgovernments The horizontal allocation o f only a small part o f transfers from central government (10-50percent) is determined by transparent and rules based systems. (ii) Timeliness of reliable information to SNgovernments on their allocations Reliable information to SN governments is issuedbefore the start o f the SN fiscal year, but too late for significant budget changes to be made. (iii) ofconsolidationoffiscaldataforgeneralgovernmentaccordingtosectoralcategories. Extent Fiscal information (at least ex-post) that is consistentwith central government fiscal reporting is collected for at least 60percent (by value) o f SN government expenditure and consolidated into annual reports within 24 months o f the end o f the fiscal year. 53 PEFA SCORE EXPLANATIONOF CALIBRATION (i)Transparency and objectivity inthe horizontal allocation among S N governments No or hardly any part o fthe horizontal allocation o f transfers from central government is determined by transparent and rules based systems. (ii)Timeliness o f reliable information to SN governments on their allocations Reliable estimates on transfers are issued after SN government budgets have been finalized, or earlier issuedestimates are not reliable. (iii) ofconsolidationoffiscaldataforgeneralgovernmentaccordingtosectoralcategories Extent Fiscal information that is consistentwith central government fiscal reporting is collected and consolidated for less than 60percent (by value) o f SN government expenditure OR if a higher proportion is covered, consolidation into annual reportstakes place with more than 24 months delay, if at all. PI-9. Oversight of (i) majorAGAsPEssubmitfiscalreportstocentralgovernmentsatleastsix-monthly, All aggregate fiscal risk as well as annual audited accounts, and central government consolidates fiscal from other public risk issues into a report at least annually. sector entities (ii) governmentcannotgeneratefiscalliabilitiesforcentralgovernmentORthenet SN fiscal position is monitored at least annually for all levels o f SN government and central government consolidates overall fiscal risk into annual (or more frequent) reports. (i) majorAGAsPEssubmitfiscalreportsincludingauditedaccountstocentral All governments at least annually, and central government consolidates overall fiscal risk issues into a report. (ii) netfiscalpositionismonitoredatleastannuallyforthemostimportantlevelof The SNgovernment, and central government consolidates overall fiscal riskinto areport. (i) majorAGAsPEssubmitfiscalreportstocentralgovernmentsatleastannually, Most buta consolidatedoverview is missing or significantly incomplete. (ii) netfiscalpositionismonitoredatleastannuallyforthemostimportantlevelof The SNgovernment, buta consolidatedoverview is missing or significantly incomplete. (i) annualmonitoringofAGAsandPEStakesplace,oritissignificantlyincomplete. No (ii) annualmonitoringofSNgovernments'fiscalpositiontakesplaceoritis No significantly incomplete. PI-10. Public access (i) governmentmakesavailabletothepublic5-6ofthe6listedtypesof the to key fiscal Information information (i) governmentmakesavailabletothepublic3-4ofthe6listedtypesof the Information (i) governmentmakesavailabletothepublic 1-2ofthe6listedtypesof the Information (i) governmentmakesavailabletothepublicnoneofthe6listedtypesof the Information PI-11. Orderliness (i)Existenceofandadherencetoafixedbudgetcalendar and participationin A clear annualbudget calendar exists, is generally adhered to and the annual budget allows M D A s enough time (and at least six weeks from receipt o f the budget process circular) to meaningfully complete their detailed estimates on time. (ii)Guidance on the preparation o fbudget submissions A comprehensive and clear budget circular is issued to MDAs, which reflects ceilings approved by Cabinet (or equivalent) prior to the circular's distribution to MDAs. (iii) budgetapprovalbythelegislature Timely The legislature has, during the last three years, approved the budget before the start o f the fiscal year. 54 PEFA SCORE EXPLANATION OF CALIBRATION :i) Existence o f and adherence to a fixed budget calendar 4 clear annualbudget calendar exists, but some delays are often :xperienced inits implementation. The calendar allows MDAs reasonable time (at least four weeks from receipt o f the budget circular) so that most o f them are able ;omeaningfully complete their detailed estimates on time, :ii)Guidance on the preparationo f budget submissions 4 comprehensive and clear budget circular is issuedto MDAs, which reflect ceilings approvedby Cabinet (or equivalent). This approval takes place sfter the circular distribution to MDAs, butbefore MDAs have completed their submission. (iii) Timely budget approval by the legislature The legislature approves the budget before the start o f the fiscal year, but a delay o f up to two months has happened inone o f the last three years (i) Existence o f and adherence to a fixed budget calendar An annual budget calendar exists, but is rudimentary and substantial delays may oftenbe experienced inits implementation, and allows MDAs so little time to complete detailed estimates, that many fail to complete them timely. (ii) Guidance on the preparation o f budget submissions A budget circular is issuedto MDAs, including ceilings for individual administrative units or functional areas. The budget estimates are reviewed and approved by Cabinet only after they have been completed inall details by MDAs, thus seriously constraining Cabinet's ability to make adjustments. (iii) budgetapprovalbythelegislature Timely The legislature has, intwo o f the last three years, approved the budget within two months o f the start o fthe fiscal year. (i) Existence o f and adherence to a fixed budget calendar A budget calendar i s not prepared OR it is generally not adhered to OR the time allowed for MDAs' budget preparation is clearly insufficient to make meaningful submissions. (ii) Guidance on the preparation o fbudget submissions A budget circular is not issued to MDAs OR the quality o f the circular is very poor OR Cabinet is involved in approving the allocations only immediately before submission o f detailed estimates to the legislature, thus having no opportunities for adjustment. (iii) budgetapprovalbythelegislature Timely The budget has been approved with more than two months delay in two o f the last three years. PI-12.Multi-year (i) Multi-year fiscal forecasts and functional allocations perspective in fiscal Forecasts o f fiscal aggregates (on the basis o f main categories planning, o f economic and functionalhector classification) are prepared for at least expenditure policy three years on a rolling annual basis. Links between multi-year estimates and budgeting and subsequent setting o f annual budget ceilings are clear and differences explained (ii) andfrequencyofdebtsustainabilityanalysis Scope DSA for external and domestic debt is undertakenannually. (iii) Existence o f costed sector strategies Strategies for sectors representing at least 75percent o fprimary expenditure exist with full costing o f recurrent and investment expenditure, broadly consistent with fiscal forecasts. (iv) Linkages betweeninvestment budgets and forward expenditure estimates Investments are consistently selected on the basis o frelevant sector strategies and recurrent cost implications inaccordance with sector allocations and included in forward budget estimates for the sector. 55 PEFA SCORE - EXPLANATIONOF CALIBRATION B (i) Multi-year fiscal forecasts and functional allocations Forecasts o f fiscal aggregates (on the basis o fmain categories o f economic and functionalhector classification) are prepared for at least two yeats on a rolling annual basis. Linksbetween multi-year estimates and subsequent setting o f annual budget ceilings are clear and differences are explained. (ii) andfrequencyofdebtsustainabilityanalysis Scope DSA for external and domestic debt is undertaken at least once during the last three years. (iii)Existence o f costed sector strategies Statements o f sector strategies exist and are fully costed, broadly consistent with fiscal forecasts, for sectors representing25-75percent o f primary expenditure. (iv) Linkages betweeninvestment budgets and forward expenditure estimates The majority o f important investments are made o n the basis o f relevant sector strategies and recurrent cost implications inaccordance with sector allocations and included in forward budget estimates for the sector. C (i) Multi-year fiscal forecasts and functional allocations Forecasts o f fiscal aggregates (on the basis o f the main categories o f economic classification) are prepared for at least two years on a rolling annual basis. (ii) andfrequencyofdebtsustainabilityanalysis Scope A DSA for at least for external debt undertakenonce during last three years. (iii)Existence o f costed sector strategies Statements o f sector strategies exist for several major sectors but are only substantially costed for sectors representing up to 25percent o f primary expenditure OR costed strategies cover more sectors but are inconsistent with aggregate fiscal forecasts. (iv) Linkages betweeninvestment budgets and forward expenditure estimates Many investment decisions have weak links to sector strategies and their recurrent cost implications are included inforward budget - estimates only ina few (but major) cases. D (i) Multi-year fiscal forecasts and functional allocations No forward estimates o f fiscal aggregates are undertaken (ii) andfrequencyofdebtsustainabilityanalysis Scope NoDSA has beenundertakeninthe last three years (iii)Existence o f costed sector strategies Sector strategies may have beenprepared for some sectors, but none o f them have substantially complete costing o f investments and recurrent expenditure. (iv) Linkages betweeninvestment budgets and forward expenditure estimates Budgeting for investment and recurrent expenditure are separate processes with no recurrent cost estimates being shared. PI-13 Transparency A (i) andcomprehensivenessoftaxliabilities Clarity of taxpayer Legislation and procedures for all major taxes are obligationsand comprehensive and clear, with strictly limited discretionary powers o f the liabilities government entities involved. (ii) Taxpayers' access to information on tax liabilities and administrative procedures Taxpayers have easy access to comprehensive, user friendly and up-to-date informationtax liabilities and administrative procedures for all major taxes, and the RA supplements this with active taxpayer education campaigns. (iii)Existence and functioning o f a tax appeals mechanism. A tax appeals systemo f transparent administrative procedures with appropriate checks and balances, and implemented through independent institutional structures, is completely set up and effectively operating with satisfactory access and fairness, and its decisions are promptly acted upon. 56 PEFA SCORE - EXPLANATION OF CALIBRATION B [i) Clarity and comprehensiveness o f tax liabilities Legislation and procedures for most, but not necessarily all, major taxes are comprehensive and clear, with fairly limiteddiscretionary powers o f the government entities involved. (ii) Taxpayers' access to information on tax liabilities and administrative procedures Taxpayers have easy access to comprehensive, user friendly and up-to-date information tax liab es and administrative procedures for some of the major taxes, while for other taxes the information is limited. (iii)Existence and functioning o f a tax appeals mechanism. A tax appeals system o f transparent administrative procedures is completely set up and functional, butit is either too early to assess its effectiveness or some issues relating to access, efficiency, fairness or - effective follow up on its decisions need to be addressed.. C (i) andcomprehensivenessoftaxliabilities Clarity Legislation and procedures for some major taxes are comprehensiveand clear, but the fairness o f the system is questioned due to substantial discretionary powers o f the government entities involved. (ii) Taxpayers' access to information on tax liab Taxpayers have access to some information on t administrative procedures, but the usefulness o f due coverage o f selected taxes only, lack o f comprehensiveness and/or not being up-to-date. (iii)Existence and functioning o f a tax appeals mechanism. A tax appeals system o f administrative procedures has been established, butneeds substantial redesignto be fair, transparent and - effective. D (i) andcomprehensivenessoftaxliabilities Clarity Legislation and procedures are not comprehensive and clear for large areas o f taxation and/or i important elements o f administrative discretion inassessing tax liab (ii) Taxpayers' access to information on tax liab es and administrative procedures Taxpayer access to up-to-date legislation and procedural guidelines is seriously deficient. (iii)Existence and functioning o f a tax appeals mechanism. No functioning tax appeals system has beenestablished PI-14 Effectiveness A (i) Controls inthe taxpayer registration system. of measures for Taxpayers are registeredina complete database system with taxpayer comprehensive direct linkages to other relevant government registration systems registration and tax and financial sector regulations. assessment (ii) Effectiveness o f penalties for non-compliance withregistration and tax declaration Penalties for all areas o f non-compliance are set sufficiently highto act as deterrence and are consistently administered. (iii)Planning and monitoring o f tax audit programs. Tax audits and fraud investigations are managed and reportedon according to a comprehensive and documented audit plan, with clear risk - assessment criteria for all major taxes that apply self-assessment. B (i) inthetaxpayerregistrationsystem. Controls Taxpayers are registeredin a complete database system with some linkages to other relevant government registration systems and financial sector regulations. (ii) Effectiveness o fpenalties for non-compliance with registration and tax declaration Penalties for non-compliance exist for most relevant areas, but are not always effective due to sufficiently scale and/or inconsistentadministration. (iii)Planning and monitoring o f tax audit programs. Tax audits and fraud investigations are managed and reported on according to a documented audit plan, with clear risk assessment criteria for - audits inat least one major tax area that applies self-assessment. 57 PEFA SCORE EXPLANATION OF CALIBRATION (i) inthetaxpayerregistrationsystem. Controls Taxpayers are registeredindatabase systems for individual taxes, which may not be fully and consistently linked. Linkages to other registratiodlicensing functions may be weak but are then supplementedby occasional surveys o f potential taxpayers. (ii) Effectiveness o fpenalties for non-compliance with registration and tax declaration Penalties for non-compliance generally exist, but substantial changes to their structure, levels or administration are needed to give them a real impact on compliance. (iii)Planning and monitoring o f tax audit programs. There is a continuous program o f tax audits and fraud investigations, butaudit programs are notbasedonclear risk assessment criteria. (i) inthetaxpayerregistrationsystem. Controls Taxpayer registration is not subject to any effective controls or enforcement systems (ii) Effectiveness o f penalties for non-compliance with registration and tax declaration Penalties for non-compliance are generally non-existent or ineffective (i.e. set far too low to have an impact or rarely imposed). (iii)Planning and monitoring o f tax audit programs. Tax audits and fraud investigations are undertaken on an ad hoc basis ifat all. PI-15 Effectiveness (i) averagedebtcollectionratiointhetwomostrecentfiscalyearswas90percentor The in collectionof tax above OR the total amount o f tax arrears is insignificant (i.e. less than 2percent o f total annual payments collections). (ii) taxrevenueispaiddirectlyintoaccountscontrolledbytheTreasuryortransfers All to the Treasury are made daily. (iii)Complete reconciliation o f tax assessments, collections, arrears and transfers to Treasury takes place at least monthly within one month o f end o f month. (i) averagedebtcollectionratiointhetwomostrecentfiscalyearswas75-90percentand The the total amount o f tax arrears is significant. (ii) Revenuecollections are transferred to the Treasury at least weekly. (iii)Complete reconciliation o f tax assessments, collections, arrears and transfers to Treasury takes place at least quarterly within six weeks o f end o f quarter. (i) averagedebtcollectionratiointhetwomostrecentfiscalyearswas60-75percentand The the total amount of tax arrears is significant (ii) Revenuecollections are transferred to the Treasury at least monthly. (iii)Complete reconciliation o f tax assessments, collections, arrears and transfers to Treasury takes place at least annually within 3 months o f end o f the year. (i) debtcollectionratiointhemostrecentyearwasbelow60percentandthetotalamount The o f tax arrears is significant (Le. more than 2percent o f total annual collections). (ii) Revenue collections are transferred to the Treasury less regularly than monthly (iii)Complete reconciliation o f tax assessments, collections, arrears and transfers to Treasury does not take place annually or is done with more than 3 months' delay. PI-16Predictability (i)cashflowforecastispreparedforthefiscalyear,andareupdatedmonthlyonthe A in the availabilityof basis o f actual cash inflows and outflows. funds for (ii) MDAs' are able to plan and commit expenditure for at least six monthin advance in commitmentof accordance with the budgeted appropriations. expenditures (iii)Significant in-year adjustments to budget allocations take place only once or twice in a year and are done ina transparent and predictable way. (i)cashflowforecastispreparedforthefiscalyearandupdatedatleastquarterly, on A the basis o f actual cash inflows and outflows. (ii) areprovidedreliableinformationoncommitmentceilingsatleastquarterlyin MDAs advance. (iii)Significant in-year adjustments to budget allocations take place only once or twice in a year and are done in a fairly transparent way. (i)cashflowforecastispreparedforthefiscalyear,butisnot(oronlypartiallyand A infrequently) updated. (ii) areprovidedreliableinformationforoneortwomonthsinadvance. MDAs (iii)Significant in-year budget adjustments are frequent, but undertakenwith some 58 PEFA SCORE EXPLANATION OF CALIBRATION D (i) flowplanningandmonitoringarenotundertakenorofverypoorquality. Cash (ii)DAsareprovidedcommitmentceilingsforlessthanamonthORnoreliable M indication at all o f actual resource availability for commitment. (iii) Significant in-year budget adjustments are frequent and not done ina transparent manner. PI-17.Recording A (i)Quality o f debt data recording and reporting and management of Domestic and foreign debt records are complete, updated and cashbalances, debt reconciled on a monthly basis with data consideredo f highintegrity. and guarantees Comprehensivemanagement and statistical reports (cover debt service, stock and operations) are produced at least quarterly (ii) ofconsolidationofthegovernment'scashbalances Extent All cashbalances are calculated daily and consolidated. (iii) Systems for contracting loans and issuance o f guarantees. . Central government's contracting o f loans and issuance o f guarantees are made against transparent criteria and fiscal targets, and always approvedby a - single responsible government entity. B (i)Qualityofdebtdatarecordingandreporting Domestic and foreign debt records are complete, updated and reconciled quarterly. Data considered o f fairly highstandard, but minor reconciliation problems occur. Comprehensive management and statistical reports (cover debt service, stock and operations) are produced at least annually. (ii) ofconsolidationofthegovernment'scashbalances Extent Most cashbalances calculated and consolidated at least weekly, but some extra-budgetary funds remain outside the arrangement. (iii) Systems for contracting loans and issuance o f guarantees. Central government's contracting o f loans and issuance o f guarantees are made within limits for total debt and total guarantees, and always approvedby - a single responsiblegovernment entity. C (i)Quality o f debt data recording and reporting Domestic and foreign debt records are complete, updated and reconciled on at least annually. Data quality considered o f fair, but some gaps and reconciliation problems are recognized. Reports on debt stocks and service are produced only occasionally or with limited content. (ii) ofconsolidationofthegovernment'scashbalances Extent Calculation and consolidation o f most government cashbalances take place at least monthly, but the system used does not allow consolidation o f bank balances (iii) Systems for contracting loans and issuance o f guarantees. Central government's contracting o f loans and issuance of guarantees are always approved by a single responsible government entity, but are not - decided on the basis o fclear guidelines, criteria or overall ceilings. D (i) ofdebtdatarecordingandreporting Quality Debt data records are incomplete and inaccurate to a significant degree. (ii) ofconsolidationofthegovernment'scashbalances Extent Calculation o fbalances takes place irregularly, ifat all, and the system used does not allow consolidation o f bank balances. (iii) Systems for contracting loans and issuance o f guarantees. Central government's contracting of loans and issuance o f guarantees are approvedby different government entities, without a unified.overview - mechanism. 59 PEFA SCORE - EXPLANATIONOF CALIBRATION PI-18 Effectiveness A (i) Personnel database and payroll are directly linked to ensure data consistency and of payroll controls monthly reconciliation. (ii)Required changes to the personnelrecords and payroll are updated monthly, generally intime for the following month's payments. Retroactive adjustments are rare (ifreliable data exists, it shows corrections inmax. 3percent ofsalarypayments). (iii)Authority to change records and payroll is restricted and results inan audit trail. (iv) A strong system o f annualpayroll audits exists to identify control weaknesses andor ghost workers. - B (i) Personnel data and payroll data are not directly linked but the payroll is supportedby full documentation for all changes made to personnelrecordseachmonthand checked against the previous month's payroll data. (ii) tothreemonths'delayoccursinupdatingofchangestothepersonnelrecordsand Up payroll, but affects only a minority o f changes. Retroactive adjustments are made occasionally. (iii)Authority and basis for changes to personnelrecords and the payroll are clear. (iv) A payroll audit covering all central government entities has been conducted at least - once inthe last three years (whether instages or as one single exercise). C (i)personneldatabasemaynotbefullymaintainedbutreconciliationofthepayroll A with personnel records takes place at least every six months. (ii) tothreemonthsdelayoccursinprocessingchangestopersonnelrecordsand Up payroll for a large part of changes, which leads to frequent retroactive adjustments. (iii)Controls exist, but are not adequate to ensure full integrity o f data. - (iv) Partial payroll audits or staffsurveys have beenundertakenwithin the last 3 years. D (i) ofthepayrollissignificantlyunderminedbylackofcompletepersonnel Integrity records and personnel database, or by lacking reconciliation between the three lists. (ii) inprocessingchangestopayrollandnominalrollareoftensignificantly Delays longer than three months and require widespread retroactive adjustments. (iii)Controls o f changes to records are deficient and facilitate payment errors. (iv) No payroll audits havebeen undertakenwithin the last three years. PI-19 Competition, A (i) ofopencompetitionforawardofcontractsthatexceedthenationallyestablishedmonetary Use value for money and threshold for small purchases controls in Accurate data on the method used to award public contracts exists procurement and shows that more than 75percent o f contracts above the threshold are awarded on the basis o f open competition. (ii) Justification for use of less competitive procurement methods Other less competitive methods when used arejustified in accordance with clear regulatory requirements. (iii)Existence and operation o f a procurement complaints mechanism A process (defined by legislation) for submission and timely resolution o f procurement process complaints is operative and subject to oversight of an external body with data on resolution o f complaints accessible - B (i) ofopencompetitionforawardofcontractsthatexceedthenationallyestablishedmonetary Use threshold for small purchases Available data on public contract awards shows that more than 50percent butless than 75percent of contracts above the threshold are awarded onbasis o f open competition, but the data may not be accurate. (ii) Justification for use o f less competitive procurement methods Other less competitive methods when used arejustified in accordance with regulatory requirements. (iii)Existence and operation of a procurement complaints mechanism A process (defined by legislation) for submitting and addressing procurement process complaints is operative, butlacks ability to refer resolution of the complaint to an external higher authority. 60 PEFA SCORE EXPLANATION OF CALIBRATION (i) ofopencompetitionforawardofcontractsthatexceedthenationallyestablishedmonetary Use threshold for small purchases Available data shows that less than 50percent o fcontracts above the threshold are awarded on an open competitive basis, but the data may not be accurate. (ii)Justification for use o f less competitive procurement methods Justification for use o f less competitive methods is weak or missing. (iii) Existence and operation o f a procurement complaints mechanism A process exists for submitting and addressing procurement complaints, but i t is designed poorly and does not operate ina manner that provides for timely resolution o f complaints. (i) ofopencompetitionforawardofcontractsthatexceedthenationallyestablishedmonetary Use threshold for small purchases Insufficient data exists to assess the method used to awardpublic contracts OR the available data indicates that use o f open competition is limited. (ii) Justification for use o f less competitive procurement methods Regulatory requirements do not clearly establish open competition as the preferred method o fprocurement. (iii) Existence and operation o f a procurement complaints mechanism No process is defined to enable submitting and addressing complaints regarding the implementation o f the procurement process. PI-20Effectiveness (i) Comprehensive expenditure commitment controls are inplace and effectively limit ofinternalcontrols commitments to actual cash availability and approvedbudget allocations (as revised). for non-salary (ii) internalcontrolrulesandproceduresarerelevant,incorporatesa Other expenditure comprehensive and generally cost effective set o f controls, which are widely understood. (ii) Compliance with rules is very highand any misuse o f simplified and emergency procedures is insignificant. (i) Expenditure commitment controls are inplace and effectively limit commitments to actual cash availability and approvedbudget allocations for most types o f expenditure, with minor areas o f exception. (ii) internalcontrolrulesandproceduresincorporatesacomprehensivesetof Other controls, which are widely understood, but may insome areas be excessive (e.g. through duplication inapprovals) and lead to inefficiency instaff use and unnecessary delays. (iii) Compliance with rules is fairly high, but simplifiedemergency procedures are used occasionally without adequatejustification. (i) Expenditure commitment control procedures exist and are partially effective, but they may not comprehensively cover all expenditures or they may occasionally be violated. (ii) internalcontrolrulesandproceduresconsistofabasicsetofrulesfor Other processing and recording transactions, which are understoodby those directly involved intheir application. Some rules andprocedures maybe excessive, while controls maybe deficient inareas o fminor importance. (iii) arecompliedwithinasignificantmajorityoftransactions,butuseof Rules simplifiedemergency procedures inunjustified situations is an important concern. (i)CommitmentcontrolsystemsaregenerallylackingORtheyareroutinelyviolated. (ii) comprehensivecontrolrules/proceduresarelackinginotherimportantareas. Clear, (iii) coresetofrulesarenotcompliedwithonaroutineandwidespreadbasisdueto The direct breach o f rules or unjustified routine use o f simplifiedemergency procedures. PI-21.Effectiveness (i) Internal audit is operational for all central government entities, and generally meet of internalaudit professional standards, It is focused on systemic issues (at least 50percent o f staff time).. (ii) Reports adhere to a fixed schedule and are distributed to the audited entity, ministry o f finance and the SAI. (iii) bymanagementoninternalauditfindingsispromptandcomprehensive Action across central government entities. 61 PEFA SCORE EXPLANATIONOF CALIBRATION B (i) auditisoperationalforthemajorityofcentralgovernmententities(measured Internal , by value o f revenue/expenditure), andsubstantially meetprofessionalstandards. It is focused on systemic issues (at least 50percent o f staff time). (ii) areissuedregularlyformostauditedentitiesaredistributedtotheaudited Reports entity, the ministry o f finance and the SAI. (iii) andcomprehensiveactionistakenbymany(butnotall)managers. Prompt n b (i) functionisoperationalforatleastthemostimportantcentralgovernmententities The and undertakes some systems review (at least 20percent o f staff time), but may not meet recognizedprofessional standards. (ii) areissuedregularlyformostgovernmententities,butmaynotbesubmitted Reports - to the ministry of finance and the SAI. (iii)fairdegreeofactiontakenbymanymanagersonmajorissuesbutoftenwithdelay A D (i) islittleornointernalauditfocusedonsystemsmonitoring. There (ii) areeithernon-existentorveryirregular. Reports liii)Internalauditrecommendationsareusuallyignored(withfewexceptions). PI-22.Timeliness A (i)Regularity o fbank reconciliations and regularity of Bank reconciliation for all central government bank accounts take accounts place at least monthly at aggregate and detailed levels, usually within4 weeks of reconciliation end o f period. (ii)Regularity o f reconciliation and clearance o f suspense accounts and advances Reconciliation and clearance o f suspense accounts and advances take - place at least quarterly, within a month from end o fperiod and with few balances brought forward. B (i) Regularity o f bank reconciliations Bank reconciliation for all Treasury managedbank accounts take place at least monthly, usually within 4 weeks from end o f month. (ii)Regularity o freconciliation and clearance o f suspense accounts and advances Reconciliation and clearance o f suspense accounts and advances take place at least annually within two months o f end o fperiod. Some accounts have - unclearedbalances brought forward. C (i) Regularity o fbank reconciliations Bank reconciliation for all Treasury managedbank accounts take place quarterly, usually within 8 weeks o f end o f quarter. (ii)Regularity o freconciliation and clearance o f suspense accounts and advances Reconciliation and clearance o f suspense accounts and advances take - place annually ingeneral, within two months o f end o f year, buta significant number o f accounts have unclearedbalances brought forward. D (i) Regularity o f bank reconciliations Bank reconciliation for all Treasury managedbank accounts take place less frequently than quarterly OR with backlogs o f several months. (ii)Regularity o freconciliation and clearance o f suspense accounts and advances Reconciliation and clearance o f suspense accounts and advances take place either annually with more than two months' delay, OR less frequently. PI-23Availability of A (i) datacollectionoraccountingsystemsprovidereliableinformationonall Routine informationon types o f resources received incash and inkindby both primary schools and primary resources received health clinics across the country. The information is compiled into reports at least by service delivery - annually. units B (i) Routine data collection or accounting systems provide reliable information on all types o f resources received incash and inkindby either primary schools or primary health clinics across most o f the country with information compiled into reports at least annually; OR special surveys undertaken within the last 3 years have demonstrated the - level o f resources received incash and inkindby bothprimary schools andprimary health clinics across most o f the country (including by representative sampling). C (i) surveysundertakenwithinthelast3yearshavedemonstratedthelevelof Special resources received incash and inkindby either primary schools or primary health clinics covering a significant part o f the country OR byprimary service delivery units at local - community level inseveral other sectors. D (i) comprehensivedatacollectiononresourcestoservicedeliveryunitsinanymajor No - sector has been collected and processed within the last 3 years. 62 PEFA SCORE - EXPLANATION OF CALIBRATION PI-24. Quality and A (i) Classification o f data allows direct comparison to the original budget. Information timeliness of in-year includes all items o fbudget estimates. Expenditure is covered at both commitment and budget reports payment stages. (ii) arepreparedquarterlyormorefrequently,andissuedwithin4weeksofend Reports o f period. - (iii) arenomaterialconcernsregardingdataaccuracy. There B (i)Classificationallowscomparisontobudgetbutonlywithsomeaggregation. Expenditure is covered at both commitment and payment stages. (ii)Reports are prepared quarterly, and issuedwithin 6 weeks o f end o f quarter. (iii) aresomeconcernsaboutaccuracy,butdataissuesaregenerallyhighlightedin There the reports and do not compromise overall consistency/ usefulness. ~C (i) Comparison to budget is possible only for main administrative headings. Expenditure is captured either at commitment or at payment stage (not both). (ii) arepreparedquarterly(possiblyexcludingfirstquarter), andissuedwithin8 Reports weeks o f end o f quarter. (iii) aresomeconcernsabouttheaccuracyofinformation,whichmaynotalways There be highlighted inthe reports, but this does not fundamentally undermine their basic - usefulness. D (i) Comparison to the budget may not be possible across all main administrative headings. (ii) Quarterly reports are either not prepared or often issuedwith more than 8 weeks delay. liii)Dataistooinaccuratetobeofanyrealuse. PI-25. Quality and (i)consolidatedgovernmentstatementispreparedannuallyandincludesfull A timeliness of annual information on revenue, expenditure and financial assetsAiab financial statements (ii) statementissubmittedforexternalauditwithin6monthsoftheendofthefiscal The year. liii)IPSASorcorrespondingnationalstandardsareappliedforallstatements. (i)consolidatedgovernmentstatementispreparedannually.Theyinclude, A exceptions, full information on revenue, expenditure and financial assetsAiab (ii) consolidatedgovernmentstatementissubmittedforexternalauditwithin10 The months o f the end o f the fiscal year. (iii) orcorrespondingnationalstandardsareapplied. IPSAS (i)consolidatedgovernmentstatementispreparedannually.Informationonrevenue, A expenditure and bank account balances may not always be complete, butthe omissions are not significant. (ii) statementsaresubmittedforexternalauditwithin15monthsoftheendofthe The fiscal year. (iii)Statements are presented inconsistent format over time with some disclosure o f accounting standards. (i)consolidatedgovernmentstatementisnotpreparedannually, ORessential A information is missing from the financial statements OR the financial records are too poor to enable audit. (ii)annualstatementsareprepared, theyaregenerallynotsubmittedforexternalaudit If within 15 months o f the end o f the fiscal year (iii)Statements are not presented ina consistent format over time or accounting standards are not disclosed. PI-26.Scope, nature (i)Allentitiesofcentralgovernmentareauditedannuallycoveringrevenue,expenditure and follow-up of and assetdliabilities. A full range o f financial audits and some aspects o f performance external audit audit are performed and generally adhere to auditing standards, focusing on significant and systemic issues. (ii) reportsaresubmittedtothelegislaturewithin4monthsoftheendoftheperiod Audit covered and inthe case o f financial statements from their receipt by the audit office. (iii) isclearevidenceofeffectiveandtimelyfollowup. There (i)Centralgovernmententitiesrepresentingatleast75percentoftotalexpenditures 12are audited annually, at least covering revenue and expenditure. A wide range o f financial audits are performed and generally adheres to auditing standards, focusing on significant and systemic issues. (ii) reportsaresubmittedtothelegislaturewithin8monthsoftheendoftheperiod Audit covered and inthe case o f financial statements from their receipt by the audit office. (iii)formalresponseismadeinatimelymanner,butthereislittleevidenceof A systematic follow up. 63 PEFA SCORE EXPLANATION OF CALIBRATION (i) Centralgovernmententities representingat least 50percentof total expendituresare audited annually. Audits predominantly comprisetransactionleveltesting, but reports identify significantissues. Audit standardsmaybedisclosedto alimited extent only. (ii) reportsaresubmittedtothelegislaturewithin12monthsoftheendofthe Audit periodcovered(for audit of financialstatements from their receiptby the auditors). (iii)formalresponseismade,thoughdelayedornotverythorough.butthereislittle A evidenceof any follow up. (i) covercentralgovernmententitiesrepresentinglessthan50percentoftotal Audits expendituresor audits have higher coverage but do not highlight the significant issues. (ii) reportsaresubmittedtothelegislaturemorethan12monthsfromtheendof Audit the periodcovered(for audit of financial statements from their receiptby the auditors). (iii) islittleevidenceofresponseorfollowup. There PI-27Legislative (i) legislature'sreviewcoversfiscalpolicies,mediumtermfiscalframeworkand The scrutiny of the medium term priorities as well as detailsof expenditureandrevenue. annual budgetlaw (ii) legislature'sproceduresforbudgetreviewarefirmlyestablishedand The respected. They includeinternalorganizational arrangements, suchas specialized review committees, andnegotiationprocedures. (iii) legislaturehasatleasttwomonthstoreviewthebudgetproposals. The (iv) Clear rules exist for in-year budget amendments by the executive, set strict limits on extent andnatureof amendments and are consistently respected. (i) legislature'sreviewcoversfiscalpoliciesandaggregatesforthecomingyear The as well as detailedestimates of expenditure andrevenue. (ii)Simpleproceduresexist for the legislature's budget review and are respected. (iii) legislaturehasatleastonemonthtoreviewthebudgetproposals. The (iv) Clear rules exist for in-year budget amendmentsby the executive, and are usuallyrespected, but they allow extensive administrativereallocations. (i) legislature'sreviewcoversdetailsofexpenditureandrevenue,butonlyata The stagewhere detailedproposalshavebeen finalized. (ii)Someproceduresexist for the legislature's budget review,but they are not comprehensiveandonly partially respected. (iii) legislaturehasatleastonemonthtoreviewthebudgetproposals. The (iv) Clear rules exist, but they maynot always be respectedOR they may allow extensiveadministrative reallocationas well as expansionof total expenditure. (i)Thelegislature'sreviewisnon-existentorextremelylimited,ORthereisno functioninglegislature. (ii)Procedures for the legislature's review are non-existent or notrespected. (iii) timeallowedforthelegislature'sreviewisclearlyinsufficientfora The meaningfuldebate (significantly less than one month). (iv) Rulesregardingin-year budget amendments may exist but are either very rudimentary and unclear OR they are usuallynot respected. PI-28Legislative (i) Scrutiny of audit reports is usuallycompletedby the legislaturewithin 3 monthsfrom scrutiny of external receipt of the reports. audit reports (ii)In-depthhearingsonkey findings take placeconsistently with responsibleofficers from all or most auditedentities, which receive a qualified or adverse audit opinion. (iii) legislatureusuallyissuesrecommendationsonactiontobeimplementedbythe The executive, and evidence exists that they are generally implemented. (i) Scrutiny of audit reportsis usually completedby the legislature within 6 months from receipt of the reports. (ii)In-depthhearingson key findings take placewith responsibleofficers from the audited entities as aroutine,but may cover only some of the entities, which receiveda qualified or adverse audit opinion. (iii)Actions are recommendedto the executive, some ofwhich are implemented, accordingto existingevidence. (i)Scrutinyofauditreportsisusuallycompletedbythelegislaturewithin12months from receipt of the reports. (ii)In-depthhearingsonkey findings takeplaceoccasionally, cover only a few audited entities or may include with ministry of finance officials only. (iii)Actions are recommended,but are rarelyacteduponby the executive. (i)Examinationof audit reportsby the legislature does not take place or usuallytakes more than 12monthsto complete. (ii) in-depthhearingsareconductedbythelegislature. No (iii) recommendationsarebeingissuedbythelegislature. No 64 PEFA SCORE D-1Predictabilityof DirectBudget Support D-2 Financial information providedby donors for budgetingand reportingon projectand programaid government budget classification. D (i) allmajordonorsprovidebudgetestimatesfordisbursementofprojectaidatleast Not for the government's coming fiscal year and at least three months prior its start. (ii) donotprovidequarterlyreportswithintwomonthofend-of-quarter onthe Donors disbursements made for at least 50percent o f the externally financed project estimates inthe budget. D-3 Proportionof A (i)90percent or more o f aid funds to central government are managed through national aidthat is managed procedures. by use of national B (i)75percent or more o f aid funds to central government are managed through national procedures procedures. C (i)50percent or more o f aid funds to central government are managedthrough national procedures. D (i) than50percentofaidfundstocentralgovernmentaremanagedthroughnational Less procedures. 65