Report No: AUS4291 . Democratic Republic of Timor-Leste Health Resource Tracking Study . 1 September 2014 . GHNDR EAST ASIA AND PACIFIC . Document of the World Bank . Standard Disclaimer: . This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. . Copyright Statement: . The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Timor- Leste Health Resource Tracking Study Timor-Leste Health Resource Tracking Study Authors: Hamish Nixon Caryn Bredenkamp September 2014 Contents Acknowledgments..................................................................................... vii List of Acronyms........................................................................................ ix Executive Summary – English........................................................................ xi Executive Summary – Tetum.........................................................................xv Study Rationale and Approach..................................................................... xix Chapter 1: District and Operating Cash............................................................ 1 Planning and Budgeting........................................................................................................2 Planning is Weakly Connected to Budget............................................................................. 2 Budget is Weakly Connected to Actual Operating Cash Allowances......................................... 4 Budget Execution Process....................................................................................................5 Late Payments at the Start of the Year................................................................................. 7 Irregular Amounts and Timing Throughout the Year............................................................... 8 Shortages at the End of the Year........................................................................................10 Recommendations..............................................................................................................12 Linking Planning and Budgeting........................................................................................12 Speeding and Controlling Budget Execution.........................................................................14 Endnotes...........................................................................................................................18 Chapter 2: Fuel for Vehicles and Generators...................................................... 19 Planning and Budgeting.......................................................................................................19 Budget Execution.............................................................................................................. 22 Procurement................................................................................................................. 23 Requisitioning, Delivery and Payment............................................................................... 24 Coping Mechanisms of Districts and Community Health Centers........................................... 26 Fuel Vouchers............................................................................................................... 27 CHC-Level Challenges................................................................................................... 28 Petrol for Motorcycles..................................................................................................... 28 iii iv Recommendations............................................................................................................. 28 Linking, Planning and Budgeting...................................................................................... 29 Speeding Budget Execution.............................................................................................. 30 Increasing Flexibility in the Delivery of Fuel.........................................................................31 Endnotes.......................................................................................................................... 32 Annex 2A: Vehicle and Generator Fuel Budget and Execution Rates in USD, 2013.................... 33 Chapter 3: Vehicle Maintenance and Repair..................................................... 35 Planning and Budgeting for Vehicle Maintenance................................................................... 35 Planning: Vehicle Inventory............................................................................................. 35 Budgeting..................................................................................................................... 37 Budget Execution.............................................................................................................. 38 Procurement and Contracting.......................................................................................... 38 Lack of Routine Maintenance.......................................................................................... 39 Slow Requisition, Servicing and Payment for Repairs........................................................... 40 Debt............................................................................................................................ 44 Motorcycle-Specific Issues............................................................................................... 44 Recommendations............................................................................................................. 45 Planning and Budgeting.................................................................................................. 45 Budget Execution........................................................................................................... 46 Endnotes.......................................................................................................................... 50 Annex 3A: Status of Vehicles and Motorcycles as per MoH Vehicle Inventory, by District, 2013...51 Chapter 4: Cross-Cutting Issues and Recommendations...................................... 53 Cross-Cutting Issue 1: A Disconnect Between Planning, Budgeting and Reporting..................... 53 Recommended Measures to Improve Planning, Budgeting and Reporting.................................. 56 Cross-Cutting Issue 2: Late and Slow Release of Funds.......................................................... 57 Recommended Measures to Improve Payment Release.......................................................... 57 Cross-Cutting Issue 3: Weak Contract Management............................................................. 58 Recommended Measures to Improve Goods and Services Contract Performance........................ 59 Conclusions and Next Steps............................................................................................... 60 Endnotes.......................................................................................................................... 63 List of Figures Figure 1.1 Goods and Services Budget Per Capita by District, 2013................................................. 3 Figure 1.2 Travel Allowance Budget Execution (percentage), 2013................................................. 4 Figure 1.3 The Operating Cash Execution Cycle.......................................................................... 7 Figure 1.4 Average Number of Days to Execute Advance Payments by Step..................................10 Figure 2.1 Vehicle, Generator and Overall Fuel Budget by District, 2013........................................ 20 Figure 2.2 Vehicle, Generator and Overall Fuel Budget Execution by District, 2013.........................21 Figure 2.3 Fuel Execution and Delivery Procedures, 2012 and 2013............................................... 24 Figure 3.1 Operational Vehicles Reported at the Time of Survey in Five Districts............................ 36 Figure 3.2 Vehicle Maintenance Budget Execution by District, 2013.............................................. 38 Figure 3.3 Requisition, Verification and Payment Process for Repairs, 2013..................................... 40 Figure 3.4 Average Days for Requisition, Invoicing and Verification of Repairs, 201222.................... 43 TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY v Figure 4.1 Variation in Budget Execution Rates of Districts’ Goods and Services Budgets, by Line Item, 2013................................................................................................... 54 Figure 4.2 Budget Execution of Goods and Services Budget Compared to Imprest Fund Line Items, 2013.................................................................................. 55 Figure 4.3 Poor Planning, Budgeting and Execution Reinforce Each Other..................................... 60 List of Tables Table 1.1 District Budget Execution Rate by Line Item, 2013........................................................ 5 Table 1.2 First Operating Cash Payments by District, 2013........................................................... 8 Table 1.3 Number, Date and Size of Payments to Five Study Districts, 2013................................... 9 Table 1.4 Data on Operating Cash Payment Steps....................................................................... 9 Table 1.5 Last Payment of the Year: Date, Amount and Proposed Amount, 2013............................ 11 Table 2.1 Fuel Shortages and Their Consequences, 2013............................................................ 20 Table 2.2 Processing Days for 16 Fuel Transactions Under Standard Procedures, 2013.................... 25 Table 3.1 Comparison of MoH Central Vehicle Inventory With Survey Results............................. 36 Table 3.2 Number of Days for Maintenance and Repair Processing Steps..................................... 43 Table 3.3 Share of 2012 (or earlier) Vehicle Repair Debt in the First Payment of 2013..................... 44 Table 4.1 Summary of Recommendations..................................................................................61 Annex 2A Vehicle and Generator Fuel Budget and Execution Rates in USD, 2013........................... 33 Annex 3A Status of Vehicles and Motorcycles as per MoH Vehicle Inventory, by District, 2013.........51 List of Boxes Box 1.1 Imprest Accounts...................................................................................................... 6 Box 3.1 Oecusse’s Unique Challenges.....................................................................................41 Box 3.2 The Two and a Half Year Multifunction Vehicle Repair................................................. 42 Box 3.3 Privatization of Fleet Management, Repair and Maintenance: An Alternative?................ 47  Acknowledgments The Health Resource Tracking Study is part of Consultant) and Cornelio De Carvalho (Team a larger program of analytical and advisory work Assistant). From conceptualization through fi- (AAA) by the World Bank on the Timor-Leste nal review, a number of World Bank Group staff Health Sector, carried out with the support of provided helpful comments and advice, includ- the Australian Department of Foreign Affairs ing: Hans Beck, Ismaila Ceesay, Luis Constan- and Trade and the European Commission. tino, Tony Higgins, Susan Ivatts, Xiaohui Hou, The study was prepared under the overall Yi-Kyoung Lee, Gayle Martin, Yasuhiko Mat- guidance of Toomas Palu (Global Practice Man- suda, Dinesh Nair, Truman Packard, Eileen Sul- ager, Health Nutrition and Population) and Franz livan and Joel Turkewitz. Editing and graphic Dreez-Gross (Country Director for Timor-Leste, design services were provided by Melody Mo- Papua New Guinea and the Pacific Islands) by a linoff and Devon Rohr, respectively. team consisting of Caryn Bredenkamp (Task Recommended citation: Nixon, H. and C. Team Leader, Senior Economist), Hamish Nixon Bredenkamp. 2014. Timor-Leste Health Re- (Consultant), Lena Lepuschuetz (Junior Profes- source Tracking Study. Washington, D.C.: sional Associate), Sara Pereira (Extended Term World Bank. vii List of Acronyms CHC Community Health Centers MoF Ministry of Finance CPV commitment payment voucher MoH Ministry of Health DFAT Department of Foreign Affairs and NGO non-governmental organization Trade NHSSP National Health Sector Strategic DHS District Health Services Plan DIP Detailed Implementation Plans PETS Public Expenditure Tracking FMIS Financial Management Information PFM public financial management System PO purchase order IFC International Finance Corporation SISCa Integrated Community Health MFV multi-function vehicle Services ix Executive Summary – English The Timor-Leste Health Resource Tracking Cross-Cutting Findings Study was undertaken in order to improve the flow of critical cash and in-kind resources to The study findings are presented in detail, to- districts and health centers by identifying, and gether with the supporting evidence and key proposing how to relieve, the most critical im- related recommendations, in Chapter 1 (operat- pediments in the public financial management ing cash), Chapter 2 (fuel budget), and Chap- (PFM) cycle. ter 3 (vehicle repairs and maintenance). From By agreement with the Ministry of Health, the input-specific analyses contained in those the study focuses on the following elements of the chapters emerge a set of cross-cutting findings non-salary recurrent budget (the so-called “goods (Chapter 4) that affect all areas of the goods and and services budget”) for primary health care: service budget. These are:  operating cash for District Health Services Disconnect Between Planning, and Community Health Centers, some- Budgeting and Reporting times referred to as pasta mutin or imprest While the National Health Sector Strategic advance; Plan (NHSSP) provides a sound policy frame-  fuel for vehicles and generators; and work for sectoral goals, and district-level activity  vehicle repairs and maintenance. planning is improving, these goals and activities are not yet effectively reflected in the compo- Starting at the point of service delivery (dis- sition of the goods and services budget of the trict), the study follows these three inputs back- District Health Services (DHS). The discon- wards through every stage of the PFM cycle in nect between activities/need, on the one hand, order to unearth the pertinent issues that im- and budget allocation, on the other, is evidenced pede the timely and sufficient delivery of inputs by the fact that line items are often dramati- to frontline providers. It required the collection cally over- or under-spent. There is also very of data from a wide variety of sources and the poor control over expenditure levels; spending use of diverse methodological approaches, in- requests are checked against fund availability in cluding semi-structured district- and facility- the overall goods and services budget, but not level surveys, one-to-one interviews, transac- at the individual line item level. Also, the fact tion analysis, document review, and analysis of that MoH has to initiate spending on centrally the government’s financial management infor- procured items (such as fuel and vehicle main- mation system (FMIS) (see Study Rationale and tenance/repairs), while the DHSs spend their Approach). operating cash, means that there are effectively xi xii two budget holders: if either overspends, it re- contracts define maintenance services, but do not duces the overall goods and services budget include terms and performance criteria for trans- available for the other. port of vehicles to and from Dili or for, alternatively, district-level provision of routine maintenance. Late and Slow Release of Funds Together, these cross-cutting issues create a The late release of the first payment and slow self-perpetuating—and vicious—cycle. The dis- processing of subsequent payments across all trict goods and services budgets are not aligned three of these inputs impedes service delivery. to national policy or district-level plans, making District operating cash (Chapter 1) is supposed the budget a poor expression of primary health- to arrive as an “advance”, but the first install- care goals and needs. A lack of internal controls ment is typically received several months into in execution of these budgets means that the dis- the year. Similar problems affect the requisition, trict health services are not constrained to oper- delivery and payment of fuel (Chapter 2). In ate within their budgets, obligating large amounts 2013, the first fuel deliveries arrived in April, and to suppliers and creditors that then become debt. the fuel company waited an average of 62 days This is compounded by long delays in the initial, for payment. For vehicle maintenance (Chap- and subsequent, release of funds for all three in- ter 3), it takes the supplier at least two months puts—operating cash, fuel and repairs. In the to be paid. In 2013, no payments were received short-term, going into debt enables facilities to before May (almost halfway through the year), continue to deliver at least a minimum of services and most payments were debt payments for (rather than reducing services, which was an al- work carried out in previous years. ternative coping strategy observed in the study), but it also means that when funds are released Weak Contract Management they are already obligated to debt repayment, Issues with contract management include the causing budget shortfalls later in the year. late signing of contracts and failure to communi- cate (and initiate) renewal leading to uncertainty among suppliers. Contracts are typically extended Recommendations through amendments that are approved after the lapse of the initial agreements. For vehicle main- The main recommendations of the study, de- tenance and repair (Chapter 3), for example, scribed in detail in Chapter 4, are as follows: Budget Preparation Late release of budget Budget Execution DIP not matched to budget Late funds Incur Debts Pay Debts Emergency Requests Insufficient Funds TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY xiii Cross-Cutting Recommendations  Address delays in the f low of funds be-  Carry out an audit of all debt at district-lev- tween district- and community-level by el, including that which is off-the-books having clear guidelines for CHC-level im-  Use national program goals and targets to prests and push the funds based on these guide district allocations and provide time- ly district budget envelopes Recommendations for Fuel  Provide some flexible operating cash to the  Plan for the fuel budget allocation based districts and CHCs, using a budget norm on district needs including vehicles, travel or formula, to address short-term needs and distance requirements across all budget lines  Improve budget reporting on fuel expendi-  Utilize program/activity based budgeting tures and use codes in the chart of accounts, in addition  Clarify specifically how motorcycle fuel to line item codes should be planned for, where it is budget-  Simplify the steps to release district oper- ed, and at what levels it can be procured ating cash  Consider a complementary period for fuel  Implement the duodecimo provision in or- payment requests in order to reassure pro- der to ensure fund availability even when viders that they will be paid to minimize national budget is slow to pass interruptions in service towards year end  Submit the CPV for the operating bud-  Permit local procurement of fuel in addi- get at the start of year, and “push” first tion to or in place of in-kind delivery payment based on approved expenditure  Modify the voucher system to include dis- plans, rather than waiting for proposals be- trict-specific or reserve vouchers fore processing the CPV  Produce guidelines and provide required  Improve the speed of processing requisi- equipment to ensure adequate CHC-level tioning and payment documents fuel supplies and reserves  Ensure that contract procurement starts early to avoid delays Recommendations for Vehicle Repair  Include performance criteria in the con- and Maintenance tracts of suppliers and set performance  Establish an easily and regularly updateable standards for MoH Logistics and Finance asset register for vehicles and motorcycles departments  Perform vehicle economic evaluation and  Consider decentralizing vehicle mainte- establish guidelines for replacement and nance and/or simple repair services and disposal of defunct vehicles fuel provision to the districts, within a  Rationalize the distribution of existing vehi- framework to ensure technical capacity cles according to terrain and need and quality  Establish a planning and budgeting process for district-level maintenance and repair re- Recommendations for Operational quirements Cash  Distinguish budgeting, requisition and pay-  Clarify and standardize guidelines on ex- ment processes for maintenance from that penses allowable in the imprest account of repairs  Simplify the steps to release district oper-  Build performance incentives into the con- ating cash tracts of national suppliers of repair services  Provide training to the districts on finance  Consider decentralizing simpler mainte- and reporting nance and/or repair to the districts Executive Summary – English xiv  Staff districts (or groups of districts) with health care services in the districts. Without a dedicated transport managers, or expand well-functioning public financial management the training of drivers to include routine system, critical health inputs such as fuel, vehi- maintenance cles and operating cash will fail to reach front-  Provide back-up vehicles for use when ve- line service providers in a timely and sufficient hicles are being repaired manner. In Timor-Leste, improvement of the  Consider outsourcing a more comprehen- PFM system is already on-going and a way for- sive package of fleet provision and man- ward has been charted in a PFM Roadmap. The agement services to the private sector Timor-Leste Health Resource Tracking Study  Develop a consolidated transportation pol- takes this roadmap as the starting point for its icy and manual, and disseminate it widely recommendations, which range from “quick wins” to more systemic reforms. Moving for- ward, the emphasis should be on immediate im- Moving Forward plementation of the easy, incremental reforms, while simultaneously assessing the likely impact The health of the population of Timor-Leste and feasibility of implementing more ambitious depends on the provision of quality primary initiatives. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY Executive Summary – Tetum Nota Enkontru: Estudu ba Lala’ok Saúde Distrital. Diskonekta entre atividades/ Rekursu Saúde iha Timor-Leste nesesidade no alokasaun orsamentu hatudu faktus katak item balun dala barak gasta liu ou la Estudu ba Lala’ok Rekursu Saúde Timor-Leste gasta hotu. Nomos la dun iha kontrolu ba gas- nian ho objetivu atu hadia suli/distribuisaun tus; pedidu gastu hetan duni verifikasaun ba or- osan no rekursu ba distritu no sentru saúde samentu Jerál sasan no atendementu, maibe la sira liuhusi identifika, propoin oinsá hamenus verifika item individual nian. Ministériu Saúde impedementus kritiku iha siklu manajementu bele inisia gastus kona ba item sira nebe bele finanseiru publiku. Estudu ne’e foka ba elemen- sosa rasik, iha sorin seluk DHS sira gasta sira nia tus diferente husi orsamentu sasan no atende- imprest, kria ema rua nain ba orsamentu: karik mentu nian ba saúde: ida mak gasta liu, entaun ida ne’e hamenus or- samentu Jerál sasan no atendementu nebe dis-  Osan operasaun ba Servisu Saúde Distrital ponivel ba ida seluk. no Sentru Saúde Komunitariu, dalaruma ref- ere ba nudar Pasta Mutinor ou imprest ad- Fó sai fundus tarde no neneik vance; Fó sai fundus tarde ba pagamentu dahuluk no  Konfustivel ba vihekulu veíkulu /kareta no prosesu pagamentu tuir mai nebe la’o neneik jerador sira; ba input tolu hirak ne’e impede servisu aten-  Reparasaun no manutensaun veíkulu/kar- dementu. Orsamentu ba operasaun iha distritu reta. lolos ne’e to’o antes nudar “advance”, maibe pagamentu dahuluk babain simu iha fulan klaran tinan ida nian. Problema hanesan afeita rekiza- Rezultadus Jerál saun, distribuisaun no pagamentu ba konfusti- bel/mina. Iha tinan 2013, distribuisaun dahuluk Diskonekta entre planu, orsamentu no ba konfustibel/mina akontese iha fulan Abril, no relatoriu kompania mina nian hein kuaze loron 26 ba pag- Planu Estratéjiku Nasional Setór Saúde amentu. Kona ba manutensaun kareta, iha tinan (PENSS) nebe fornese plataforma politika ida 2013 fornesedor nunka hetan selu iha menus diak ba metas sektoral no planu atividade iha husi fulan rua, no la halo pagamentu antis fu- nivel distritu diak ona. Maibe, metas no ativi- lan Maio—no maioria husi hirak ne’e mak paga- dades hirak ne’e sidauk refleta ho efektivu iha mentu ba tusan/debe ba servisu nebe hala’o ona orsamentu ba sasan no atendementu iha Servisu iha tinan hirak liu ba. xv xvi Manajementu kontratu nebe fraku sustentavel. Iha atrazus naruk iha inisiu, no Asuntus ho manajementu kontratu inklui tempu tuir mai, halo pagamentus ba parte tolu asina kontratu tarde no failansu atu komu- hirak ne’e—osan ba operasaun, konfustivel no nika (no inisia) ba hafoun kontratu hamosu reparasaun. Distritu sira hamenus servisu ka duvidas entre fornesedor sira. Kontratu hirak akumula nafatin debe barak liu tan, nebe kauza ne’e hanaruk/hafoun liuhusi amandamentu orsamentu hotu iha tempu badak iha tinan nia nebe aprova depois mosu failansu iha akordu rohan. inisiu nian. Kona ba manutensaun no repara- saun ba karreta, kontratus hirak ne’e defini servisu manutensaun, maibe la inklui kriteria Rekomendasoens Jeral termus no perfomansia ba transporte veíkulus ba no husi Dili ka ba objektivu saida, alternati-  Hala’o audit ida ba debe/tusan hotu iha vamente, manutensaun rutina husi provizaun nivel distrital, inklui hirak nebe mak la nivel distrital. priense iha reseitas/off-the-books  Uza objektivus no tarjetus nasional atu Siklu Violentu Ida hatudu dalan ba alokasaun distritu sira Hamutuk, asuntus hirak ne kria siklu per- no fornese envelope orsamentu tuir tem- petua ketak ida. Orsamentus sasan no ser- pu nebe los visu la aliña/han malu ho politika nasional ka  Fornese fundus operasaun nebe fleksibel planu nivel distritu sira, nebe kria espresaun fr- ba distritu no CHCs sira, uza norma ka aku ezekusaun orsamentu ba objektivus no ne- formula orsamentu ida sesidades kuidadu saúde primaria nian. Menus  Utiliza programa /aktividade bazeia ba kontrolu internú ba iha ezekusaun orsamentu kodigu orsamentu iha diagrama konta hirak ne signifika katak servisu saúde distrital bankaria nian, no mos ba liña kodigu sa- la iha limitasaun hodi halo operasaun ba sira san sira nia orsamentus, nune’e obriga atu fó osan ho  Simplifika etapas atu hasai fundus opera- montante bot ba fornesedor no kreditor sira saun distrital nebe ikus mai hamosu debe/tusan. Debe ne’e  Implementa provizaun duodecimo atu fasilita atendementu balun, maibe kria no ha- asegura disponibilidade fundus maske or- boot problemas at liu tan tinan ba tinan no la samentu nasional neneik atu pasa Preparasaun Orsamento Fó sai fundus tarde Ezekusaun Orsamento Planu detaila implementasaun Fundus mai tarde la aliña/han malu ho orsamento Hamosu debe/tusan Selu debe/tusan Rekizasaun Emergensia Fundus la sufisiente TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY xvii  Hatama CPV ba fundus operasaun iha ini- hetan pagamentu, nune’e labele iha im- siu tinan ida nian, no “dudu” pagamen- pedementu to’o tinan nia rohan. tu primeira bazeia ba planu gastus nebe  Permite aprovizionamentu lokal ba konfus- aprova ona, duké hein proposta sira molok tibel atu komplementa ou substitui distribu- prosesa CPV isaun hanesan.  Had’ia prosesamentu rekizitus no doku-  Modifika sistema kupon atu inklui kupon mentus pagamentu nebe lalais rezerva ou espesifiku distriu nian  Garantia katak kontratu aprovizionamentu  Produz mata-dalan no fornese ekipamen- hahú sedu atu evita tarde tu nebe presiza atu asegura fornesementu  Inklui kriteria perfomansia iha kontra- no rezerva konfustibel adekuadu iha niv- tus fornesedor no determina padraun el CHC dezenpeñu ba departamentus Lojistiku no Finansia Ministériu Saúde nian Rekomendasoesn ba Manutensaun no  Konsidera desentralizasaun manutensaun Reparasaun Veíkulu/karreta veíkulu no/ka servisu reparasaun simplis no  Estabelese rejistu asset veíkulu/karreta no provizaun konfustibel ba distritu sira, ba- motorizadas nebe atualizadu ho fasil no zeia ba plataforma ida atu asegura kapasi- regular dade tékniku no kualidade  Hala’o avaliasaun ekonomia ba veíkulu/kar- reta no estabelese mata-dalan ba substitu- Rekomendasoens Fundus Operasional isaun no soe tiha kareta sira nebe aat ou  Klarifika no estandardiza gias ba gastus nebe labele uza ona. bele permiti iha konta bankaria imprest  Rasionaliza distribuisaun ba veíkulu/karre-  Simplifika etapas hodi hasai fundus opera- ta sira nebe eziste bazeia ba natureza rai saun distrital no nesesidade  Fornese treinamentu ba distritu sira kona  Estabelese prosesu planeamentu no orsa- ba finanseiru no relatoriu mentu ida ba manutensaun iha nivel distri-  Rezolve atrazus husi suli/distribuisaun fun- tu no rekezitus reparasaun nian dus entre nivel distritu no komunidade li-  Distinge prosesu orsamentu, rekezisaun uhusi estebelese mata-dalan ida nebe klaru no pagamentu entre halo manutensaun no ba nivel CHC imprests sira no dudu fun- reparasaun dus bazeia ba gia hirak ne’e  Harii insentivus dezenpeñu iha kontratus ho fornesedor nasional sira ba servisu rep- Rekomendasoens ba Konfustivel arasaun  Planu ba alokasaun orsamentu konfustivel  Konsidera desentraliza manutensaun sim- bazeia ba nesesidades distrital inklui veíku- ples liu ou reparasaun ba distritu sira lus, viazen, no rekerementus distansia  Staf iha distritus (ou grupu distritus) ho  Hadia relatoriu fundus ba gastus no uzu manajer transporte dedikadu, ou haluan konfustivel treinamentu ba xofer sira atu inklui ma-  Klarifika espesifikamente oinsá halo pla- nutensaun rutina. nu ba konfustivel motorizadas nian, fun-  Fornese veíkulu/karreta rezerva wainhira dus hetan husi nebe, no atu sosa ho nivel halo reparasaun ba kareta sira seluk sáida  Konsidera halo sub-kontratu ida nebe kom-  Konsidera periodu komplimentariu ida ba prehensivu liu ba pakote provizaun karre- pedidu pagamentu konfustibel atu asegu- ta-lubun no servisu manajementu ba setór ra fila fali ba fornesedor sira katak sira sei privadu Executive Summary – Tetum xviii  Dezenvolve politika no mata-dalan trans- husi kada reforma nebe atu hala’o. Planu asaun portasaun ida nebe kombinadu, no desimi- ne’e tenki sai nudar pontu hahu husi mapa ma- na ba publiku tomak. ta-dalan PFM saúde nian nebe dezenvolve ona. Presiza emfazia ba implementasaun imidi- eta husi reformas adisíonal, iha tempu hanesan Etapas tuir mai avalia impaktu no visibilidade nebe mosu wain- hira implementa inisiativus ambisiozu hanesan Analiza no rekomendasoes husi notas politika plataforma kontratu ho setór privadu ba mana- haat ne’e presiza tau iha planu asaun ida mai jementu kareta-lubun, ou introdusaun prosesu husi involvimentu liña ministerial no subnasi- finanseiru desentralizadu ba operasaun saúde onal nebe identifika ho klaru responsabilidade iha nivel distritu nian. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY Study Rationale and Approach The Timor-Leste Health Resource Tracking and because their availability has a direct impact Study was undertaken in order to improve the on the ability to deliver services. flow of critical cash and in-kind resources to In order to produce recommendations that districts and health centers by identifying, and are discrete, concrete, closely linked to service proposing how to relieve, the most critical im- delivery and highly actionable, the approach of pediments in the public financial management this study departs from that of the more “tra- (PFM) cycle. ditional” (typical) public expenditure analyses, By agreement with the Ministry of Health, such as public financial management analyses, the study focuses on the following elements of public expenditure reviews and public expendi- the goods and services budget (i.e. non-salary ture tracking (PETS) exercises. Rather, it starts recurrent budget) for primary health care: at the point of service delivery (district), and fol- lows three key health sector inputs backwards  operating cash for District Health Services through the PFM cycle, identifying the relevant and Community Health Centers, some- issues at every step in the cycle of planning, times referred to as pasta mutin or imprest budget allocation, expenditure, delivery, and re- advance; porting/accounting. The analysis is broad in the  fuel for vehicles and generators; and sense that it follows the entire cycle, but narrow  vehicle repairs and maintenance. in that it focuses only on a few well-defined cat- egories of inputs. These inputs were selected because they The study draws on the following multiple constitute the largest share of the total goods data sources and types of analyses: and services budget intended for use at the dis- trict level; because they are planned, budgeted, i. analysis of internal circulars and guidelines, executed and delivered in several distinct and di- in order to map the public expenditure verse ways (in-cash, in-kind locally, and in-kind management, procurement and delivery centrally) which allows examination of a wide processes for delivering these inputs to range of payment, procurement, and delivery frontline service providers; systems; because these are economic catego- ii. review of actual transactions to assess the ries of expenditure that have been squeezed in time required for each step in the process relative terms in recent years (compared to, for and to identify issues hindering smooth example, the appropriations for salaries and cap- and timely budgeting, execution or fund ital, both of which have increased substantially); release; xix xx Map of Timor-Leste Source: República Democráta de Timor-Leste, 2013 Orçamento Geral do Estado, Livro 4B (2013); Population and Housing Census of Timor-Leste, Volume 2 (2011). iii. examination of financial reporting on the to obtain feedback on preliminary find- use of funds at the line item level to ana- ings; and, lyze budget execution and the accuracy of vii. a f inal workshop, with off icials from posting to the government’s financial man- Ministry of Health, Ministry of Finance, agement information system (FMIS); Ministry of Education, as well as develop- iv. a semi-structured district- and facility-level ment partners, in Dili in July 2014 to con- survey, implemented in five District Health firm the appropriateness of the conclusions Services, covering two Community Health and recommendations of the final report. Centers (CHCs) each1; v. interviews with officials of the Ministry of The study covered the following districts (CHCs): 1  Health and Ministry of Finance at the cen- Covalima (Fohorem and Zumalai), Dili (Comoro tral level (Dili); and Metinaro), Manatuto (La Leia and Natorbora), vi. a consultative workshop, with central and Oecusse (Baqui and Passabe) and Viqueque (La Cluta district officials, in Dili in December 2013 and Ossu). TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY CHAPTER District and Operating Cash 1 Recurrent expenditures for supplies and the op- services budget, according to expenditure eration and maintenance of health facilities and guidelines set by the MoH. vehicles are an important part of providing qual- Once the funds are liquidated and the ity health services. District Health Services spending unit submits its reports, the actual ex- (DHS) and Community Health Centers (CHC) penditures made are reassigned to their respec- need discretionary operating cash to carry out tive line items within the goods and services routine activities and deal with problems as they budget category. In theory, the available oper- arise. This chapter analyzes the system of pro- ating cash should be replenished periodically so viding this operating cash, sometimes known as that the facility always has cash on hand to carry pasta mutin, “Advance Funds” or Fundo de Ma- out routine activities. In practice, the system neio.1 The term pasta mutin refers to a “white has become complicated by conflicting policies bag” in which health workers might carry cash and is not operating as smoothly as it should. for incidental expenses. Timor Leste’s districts The key problems are: are remote, there are not yet local offices of the Ministry of Finance to manage payments, and  Amounts budgeted are not related to the District and Local Health Facilities have his- planned activities, or rational budget allo- torically lacked bank accounts. As the scope cation criteria, meaning that the available of local health services in Timor-Leste has ex- funding may be inadequate to meet, or panded, the needs of the pasta mutin system poorly aligned with, MoH objectives. have grown larger and more complex.  The operating cash for DHS is received According to Ministry of Health (MoH) late, infrequently and irregularly, and in documentation, the system is “designed to al- some cases is fully spent before the end low the quick and easy purchasing of items re- of the year, resulting in an under-provi- quired for District Health Services to function.”2 sion of services, inactivity, or accumula- The system was set up as an imprest account, tion of debt. meaning that each facility should be given a sum of cash in advance (a “float”) to be used for a The bottlenecks in the smooth flow of limited range of goods and services. Once cash adequate operating cash have serious con- is received by the DHS, it is then further dis- sequences for the delivery of health services, tributed to programs and CHCs. This payment even though district and local health facili- is temporarily accounted for as an advance pay- ties go to considerable lengths to adapt to ment on balance sheets. The cash can be used these limitations. Every DHS surveyed cited for a range of items included in the goods and the delay and/or insufficiency of funds as the 1 2 number one problem they faced regarding op- then these goals have little chance of being real- erating cash. Secondary issues mentioned in- ized. This problem is both common and serious: clude lack of transparency on what funds are “[f]ailure to link policy, planning and budgeting available, limited discretion over spending, and may be the single most important factor con- low thresholds for spending. tributing to poor budgeting outcomes at the Four out of the five districts surveyed re- macro, strategic and operational levels in devel- ported needing to reduce their activities due to oping countries.”3 late and insufficient operating cash. The same In the National Health Sector Strategic Plan four districts reported having to use credit from (NHSSP), the MoH has a sufficiently detailed suppliers and also that staff frequently had to policy framework to develop overall goals and pay out of pocket for health facility expenses. targets. Improving the planning of district ac- Three out of five districts relied on NGOs in tivities to accomplish these goals has been a fo- the area to assist them in delivering services. cus of attention, and the MoH Department of At the CHC level, half of the ten CHCs vis- Planning, Monitoring and Evaluation has devel- ited reported reducing some activities—includ- oped planning templates and guidelines for dis- ing monitoring and supervision, mobile clinics, tricts. These templates and related planning home visits, and follow-up on tuberculosis and workshops aim to facilitate activity-based cost- leprosy programs. In half the CHCs, staff re- ing and the attribution of routine activities (such ported having to pay out of pocket for some ser- as travel) to corresponding programs and line vice delivery inputs, and six out of ten CHCs items.4 As a result, districts now develop De- admitted relying on credit from suppliers. tailed Implementation Plans (DIPs) for most of their activities. However, as of 2013 these activity plans Planning and Budgeting are not effectively reflected in the goods and services budget for the District Health Services The first part of the public expenditure manage- and their subsidiary facilities. This budget is still ment cycle for any public service involves set- prepared and examined during the national bud- ting strategic goals, planning activities to meet get process on a line item basis, rather than by those goals, and connecting those plans with the program or activity. As is typical with budgets available budgets. There are problems both in formulated in this way, the line item budgets connecting planned activities needed to achieve are mostly set incrementally (i.e. based on the the MoH’s strategic goals with the budgeted previous year’s budget), or in an arbitrary and funds, and with ensuring the actual expendi- ad hoc way that reflects an overall budget ceil- tures are guided by the budgeted funds through ing but does not take into account the specific budget control. In both cases, the role of the activities or needs of the district.5 An expendi- budget as a lynchpin of health strategy and pol- ture plan reflecting both activities in the district icy is undermined. plan and the available budget is not used, con- tributing to budget shortfalls or timing prob- Planning is Weakly Connected to lems. In addition, a range of goods and services Budget are centrally procured, such as fuel and vehi- The connection between planning for dis- cle maintenance, and currently not budgeted trict-level activities and the goods and services based on district-level planning input. These budget is weak. A budget is an important ex- items therefore have a different budget holder pression of any organization’s goals, but if bud- (the MoH) from the operating cash, which is geting is poorly connected to policy and plans held by the DHS. Consequently, districts have TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 3 one idea of what they are supposed to be do- systematic measure of need. In short, the goods ing—according to their DIP—while the budget and services budget is distributed very unevenly reflects a different prioritization and distribu- across districts, and there is likely room for tion of resources, leading to frustration. In the improvement. words of district staff: To make the point more precisely, one can take the examples of the travel and rental line We request the budget depending on our items within the goods and services budget. program based on the eighteen Key Per- Travel allowances are budgeted at a flat rate of formance Indicators identified by the US$7,000 per district; that is, each district re- Ministry. We have a clear and collec- ceives the same amount in their budget, regard- tive plan from health post up to DHS but less of population, land area, population density what we get is not what we requested. or similar measures of expected activity level. It So we would like the national level to at is unlikely that the need for travel allowance is least respect our effort.6 the same in all districts regardless of these pa- rameters. Rental of property is another line A simple comparison of the per capita district item that is budgeted at a flat rate of US$2,000 budget, used as a proxy for district need, sug- per district, regardless of the number of facili- gests the extent of potential distortions in re- ties and buildings. Since the number of CHCs source allocation across districts (see Figure 1.1). per district in Timor-Leste varies from three The per capita goods and services budgets can to seven, rental costs for staff accommodation be about five times higher in some districts than (the main use of rental funds) should be varied in others. While there is certainly a need for rather than flat. some differentiation of the per capita budget The mismatch between the budget and the (because of differences in age profile, disease district requirements is starkly shown by the differ- burden, population density, geographic size, and ences in the share of these funds that are actually remoteness, for example), it is unlikely that vari- used. As Figure 1.2 shows, in 2013 some districts ations of this magnitude are consistent with a used up four times their allotted US$7,000 on FIGURE 1.1  Goods and Services Budget Per Capita by District, 2013 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque Total Source: República Democráta de Timor-Leste, 2013 Orçamento Geral do Estado, Livro 4B (2013); Population and Housing Census of Timor-Leste, Volume 2 (2011). District and Operating Cash 4 FIGURE 1.2 Travel Allowance Budget Execution (percentage), 2013 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque Source: MoF FMIS Data 2013. travel allowances, while a few just about made However, the parts of the budget that dis- do with that amount. While the higher amounts tricts pay with operating cash depend on MoH across all districts may reflect some overspend- guidelines for DHS and CHC spending that are ing, it is safe to conclude that the flat rate budget changed frequently, are sometimes contradic- for travel allowances is also not well connected to tory, and are not consistently implemented lo- the needs of individual districts, because the ex- cally. For example, districts reported to the cess spending is so different in different districts. study team that stationary, fuel and minor build- Expenditure plans and activity reporting linked to ing repairs and equipment are not allowed to be expenditure reporting could help, as travel allow- purchased with the imprest allowance and must ances in other countries tend to be vulnerable to be requested for procurement by the central cash retention or diversion. MoH, but FY 2006–7 guidelines on petty cash spending limits and procedures state that these Budget is Weakly Connected to Actual expenditures are permitted.8 More recently, Operating Cash Allowances 2011 budget execution guidelines allow expendi- Why does the system allow such large differ- ture on “stationary, small repairs of building, ve- ences between the budget and actual spending hicles or other equipment, cleaning equipment, to persist without corrections? One problem is cabinets, beds, mattresses and bed sheets for that the operating cash for use by districts and health facilities”, but not on fuel.9 communities is meant to cover some, but not In practice, the execution rates can also all the line items included in the goods and ser- vary because of the way budget control is done. vices economic budget category.7 Other items When spending requests come to the MoH, are procured centrally and distributed in kind, they are checked against the overall goods and such as fuel and vehicle repairs (see Chap- services budget for the district, not the individ- ters 2 and 3). In theory, the available amount ual line item. As long as there is a remaining bal- of operating cash for the districts should equal ance under goods and services for that district, the total of the line items that districts must the expenditure may be approved by the MoH pay for themselves according to these MoH Finance Department and operating cash can be guidelines. issued through the imprest. This practice allows TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 5 TABLE 1.1  District Budget Execution Rate by Line Item, 2013 Goods and Services Lowest Highest Average (Mean) Local travel 98.9% 395.9% 181.5% Training and workshops 4.7% 438.8% 95.4% Utilities 14.4% 178.5% 66.5% Rental of property 0% 210.0% 29.8% Vehicle operation fuel 100.0% 153.0% 122.7% Vehicle maintenance 37.1% 198.9% 90.2% Office stationary and supplies 93.0% 177.5% 109.4% Operational material and supplies 0% 0% 0% Fuel for generators 25.0% 225.4% 114.3% Maintenance of equipment and buildings 3.6% 230.4% 82.5% Operational expenses 2.4% 321.7% 101.2% Professional services 0% 389.4% 90.0% Other miscellaneous services 16.9% 128.0% 82.4% Source: MoF Budget Data, 2013. the executed (or spent) budget for specific items the budget to reflect the prioritized activities to vary a lot from the original appropriation by and needs of the districts even though these ac- using funds budgeted for other items. Over- tivities are being planned. It also does not con- spending on centrally procured items that is be- trol expenditures against the budgeted amount. yond the control of the district may also reduce While the current system does allow some use- the subsequent availability of funds for disburse- ful flexibility, the overall conclusion is that there ment as operating cash. is little public financial management benefit be- Analysis of the individual goods and ser- cause the current system does not support plan- vices line item budget execution rates by district ning or control of operating cash for district and reveals huge variations across districts between community facilities. the minimum and maximum levels of spending. Table 1.1 shows that lowest, highest, and av- erage execution rates found across all districts Budget Execution Process for each goods and services line item. For some items, such as “Other miscellaneous services” Once the budget is appropriated (i.e. approved and “Professional services”, some districts re- by Parliament) the process of spending (known cord no spending in one or the other of these as budget execution) begins. Beyond the lack of lines while others do. Travel allowances, per- clarity over the approved amounts compared haps in part due to the difficulties in controlling to the implementation plans described above, them, and vehicle fuel, are overspent across all there are three major and interconnected prob- districts (an issue which is further discussed in lems with the flow of operating cash to DHSs Chapter 2). The range of spending on items like and on to CHCs: “Training” (from 4.7 per cent to over 438.8 per cent) and “Maintenance” (from 3.6 per cent to  the late arrival of the first installment of 321.7 per cent) is enormous. cash; In summary, the current line item budget-  the irregularity of amounts and timing of ing system for goods and services does not allow payments throughout the year; and District and Operating Cash 6 Box 1.1: Imprest Accounts “The principle of an imprest account is that the unspent balances, either cash on hand or in the bank, plus the value of money paid out, must always equal the value of the imprest. An initial imprest advance is pro- vided by the treasury department. Thereafter, the expenditures made from the imprest account are reim- bursed by the treasury department on receipt of an account verifying the use of the previous advance…This reimbursement process allocates expenditures against the budget. In countries with underdeveloped infrastructure…imprest accounts can be considered for remote agencies. Also, in some developing countries, they can be considered for petty expenditure transactions ”10 that facilitate routine management.  in some cases, shortages at the end of the The imprest as currently utilized is more year. suited to enabling occasional unplanned expen- The procedures for DHS and CHCs to re- ditures than providing for a regular flow of op- ceive their operating cash have changed signifi- erating budget. The system differs from some cantly in recent years, leading to ambiguity and traditional imprest systems in several important uncertainty over the exact system in use. As ways: noted in the introduction, the system was orig- inally set up as an imprest account to provide  Payments are not provided in advance, but funds in advance to DHSs and CHCs. In the- rather are used to meet obligations already ory, once these funds are nearly used up, the of- undertaken. fice requests replenishment of the float payment  The account is not used on a replenish- (See Box 1.1). ment basis; only after the entire previous In FY 2011, guidelines from the MoH for balance is liquidated can the process of ini- the initial float specified US$15,000 per district, tiating the next payment begin, meaning and up to US$1,500 per CHC. Replenishment there is an inevitable gap between acquit- was supposed to occur when the balance de- tance and the release of the next pay- clined to US$2,000. The district requests re- ment. plenishment with a summary form, the pasta  Payments are based on proposals from the mutin register, supporting vouchers and pasta districts rather than being triggered by a mutin cash count.11 declining balance and on-time reporting. However, also in 2011, a separate MoH di- rective outlining a different system for exe- This system is intended to provide a quar- cuting this budget was issued. The allowances terly payment, but it does not meet the second were revised to a maximum monthly amount of set of guidelines either: it does not operate quar- US$20,000 per month for each DHS, and be- terly in reality, some of the payments exceed tween US$1,000 and US$1,500 per CHC per the stated maximums, and the payments do not month, with disbursement to be carried out correspond to the amounts in the activity plan. “once every three months”. Rather than re- Figure 1.3 illustrates the steps currently in- questing replenishment, the services were to volved in securing an imprest payment. The make requests quarterly via a proposal or “pro- subsequent sections illustrate the outcomes of pusta”, annexing their activity plan, while mak- the current arrangements in terms of the tim- ing monthly reports of expenditure.12 ing and distribution of operating cash payments TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 7 FIGURE 1.3 The Operating Cash Execution Cycle Propusta sent by DHS Liquidation Reviewed at Report MoH Finance Funds Used/ MoH Finance Distributed Raises CPV CPV to Officer returns Payments at to District MoF Check Cashed Payments by DHS Reviews & Issues Officer Check Source: Authors. based on a review of the documentary record this study, shows that no cash was available to of all payments to the five study districts of Co- any districts until the very end of April, and in valima, Dili, Manatuto, Oecusse and Viqueque. three cases, well into May. The data additionally shows that the amount of the first installment Late Payments at the Start of the Year is not proportional to the theoretically eligible Despite the intention to serve as an “advance” sum of line items in the district goods and ser- payment, the first installment of operating cash vices budget. Under a hypothetically even ex- is typically received several months into the penditure plan, one would expect the operating year. Fixing this problem should be the highest advance to equal 25 per cent of the total avail- priority, according to DHS staff. As was noted able budget per quarter, but in reality these pay- in the consultation workshop: ments range from 11 percent to 28 per cent. This delay is often blamed on the late ap- The key issue here is the delay of releas- proval by Parliament of the national budget for ing Operating Budget in Q1. Where can 2013, with both central and district staff not- we get the money to cover Q1 so that the ing that the initial payments are not processed shortage of cash can be avoided and en- or disbursed until after the budget passes. This sure that Q1 money arrives on time? If so, situation is consistent with the finding that dis- there will be no delay in providing health tricts making earlier proposals (e.g. Viqueque) services and at the same time avoiding still received their installment around the same new debt.13 time as the other, later districts. There are legal provisions that are intended Table 1.2, which outlines the record for to prevent this kind of delay, but they appear 2013 and 2012 in the five districts surveyed for not to be employed effectively. Consistent with District and Operating Cash 8 TABLE 1.2  First Operating Cash Payments by District, 2013 As Percentage of Amount of First Eligible Goods “Advance” in and Service Date of First Date of First Date of First District USD 2013 Budget*** Proposal 2013 Payment 2013 Payment 2012 Covalima $15,398.00 11 % N/A* 9 May 5 March Dili $76,246.10 38 % 6 May 31 May 7 March Manatuto $19,930.00 12 % 8 April** 8 May 2 March Oecusse $21,010.00 21 % 13 March 29 April 22 March Viqueque $41,795.00 35 % 1 February 29 April 14 March Source: Documents held at MoH Department of Finance/MoF Freebalance entries. * Documents not located; **Invoice date indicated on cheque; ***Percentage of sum of line items theoretically allowable for expenditure under the pasta mutin system. many budget systems worldwide, Timor-Leste  The law requires the MoF to issue an ex- has a law allowing a supplementary budget pe- pense authorization, which may have been riod in cases where budget approval is delayed. delayed or not forthcoming.15 This provision, known as the “1/12 regime”, or Duodecimo provision, dictates that “should the It is very important that provisions of the Budget not enter into force at the beginning public financial management framework de- of the financial year, the Government may re- signed to ensure timely budget execution sort to temporary budget appropriations…pro- work as needed when passage of the budget is vided” they “cover an expense for a period not delayed. longer than one month” and do not “exceed While no doubt a key factor, this reason one twelfth (1/12) of the budget appropriation also does not fully explain the delays to oper- for the same purpose provided for…in the pre- ating cash expenditures. As the table shows, in vious year.”14 2012 the first payments were not distributed un- It is not completely clear why this provision til March, still a full quarter into the fiscal year. is not applied to speed the execution of the first Furthermore, as seen in the next section, there payment. However, a close reading of the legis- are considerable delays associated with several lation suggests some possibilities: steps of the budget execution process outlined above.  Since the imprest advance is not appropri- ated or attributed as a line item in the na- Irregular Amounts and Timing tional budget (instead it is a balance sheet Throughout the Year mechanism for distributing certain line Despite the guidelines for quarterly payments, items), it may be considered impossible to operating cash is received (by districts) in vary- determine the “budget appropriation for ing frequencies and sizes (see Table 1.3). In 2013, the same purpose” in the previous year. three of the five study districts received three  As the guidelines in current use dictate the payments for operating cash, and two of them payment of operating cash allowances on a only received money twice. Individual payments quarterly basis, it might be interpreted that varied from US$8,500 to over US$88,000. the regime does not apply as it is intend- These payments also amounted to quite differ- ed only “for a period not longer than one ent proportions of the total theoretically eligi- month” at each time. ble budget lines, ranging from 33 per cent to 90 TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 9 TABLE 1.3  Number, Date and Size of Payments to Five Study Districts, 2013 % of Eligible Payment CPV Created Check Date Amount USD Budget Viqueque 1 27/03/2013 24/04/2013 $41,795.00 90% 2 05/09/2013 17/09/2013 $65,145.00 Oecusse 1 16/04/2013 24/04/2013 $21,010.00 66% 2 15/07/2013 05/09/2013 $36,695.00 3 11/11/2013 20/11/2013 $8,500.00 Dili 1 22/05/2013 31/05/2013 $76,246.10 83% 2 05/09/2013 26/09/2013 $88,856.00 Covalima 1 03/05/2013 09/05/2013 $15,398.00 46% 2 14/06/2013 19/07/2013 $31,980.00 3 12/11/2013 03/12/2013 $16,800.00 Manatuto 1 29/04/2013 07/05/2013 $19,930.00 33% 2 11/06/2013 07/08/2013 $19,930.00 3 15/10/2013 22/10/2013 $17,756.00 Source: MoH Finance Department documentation per cent of the allocated amounts. However, it some additional travel time involved in return- should be noted that these figures do not include ing the money to the DHS and distributing it to all money that was disbursed to all districts, as CHCs. This timeframe is quite variable—it can additional payments were requested outside the be shorter by half, or as long as three months. advance system by some districts, but not by While the delay for the first payment is the others (as will be further discussed later). longest, there are also big delays at other times The study also analyzed the time it takes to of the year, indicating that the bottlenecks in process operating cash payments using available processing are not only due to the delayed pas- documents on payments to the five study dis- sage of the national budget. The two most time tricts. The data in Table 1.4 show that it takes consuming parts of the process are related to an average of 45 days to process an advance the processing of propustas (proposals) used to payment from the date of the propusta to cash- request the amount of payment, and the use of ing the check and having the money available. a separate CPV for each payment. Both of these As checks are currently issued in Dili, there is actions are under the control of MoH and thus TABLE 1.4  Data on Operating Cash Payment Steps Minimum No. Maximum No. Average No. of Standard Step of Days of Days Days Deviation No. of Cases* Propusta to CPV 10 54 18 13 9 CPV to Check 6 57 20 17 12 Check Printed to Cash 0 12 5 3 11 Total: Proposal to 20 91 45 25 8 Check Cashed Source: Documents held at MoH Department of Finance/MoF Freebalance entries. * Number of payments for which the complete documentation could be located. District and Operating Cash 10 FIGURE 1.4  Average Number of Days to Execute Advance Payments by Step Average No. of Days 0 10 20 30 40 50 Proposal to CPV Raised CPV Raised to Check Printed Check Printed to Check Cashed Source: MoF FMIS Data 2013. may be modified without changes to MoF rules. Shortages at the End of the Year Figure 1.4 breaks down the average processing A final problem with the execution of the oper- time by step, showing that it takes a long time ating cash payments is that there are frequently (42 per cent of the total time) to process the reductions in the amount made available—or propusta and raise a CPV, and another lengthy even a complete cessation of payments—to dis- period (47 per cent of the total) for MoF Pay- tricts as the end of the year approaches. Ta- ments to issue a check after receiving the CPV . ble 1.5 presents data on the dates and amounts As will be discussed in the conclusion, there of the last payment of the year for each of the are options for improving the system that could study districts, and compares this to the amount eliminate or reduce the need for both of these requested in the proposal. The amounts re- steps. The right reform could potentially reduce ceived are often considerably less than pro- processing times dramatically. posed. In Covalima’s case, the amount was as Of course, there is also a second layer of little as 29 per cent of the requested amount. delays in pushing the operating cash from DHS This is in contrast to payments received to- to CHC. Currently, the CHC has to send its wards the beginning of the year when payments own propusta to the DHS for its share. As the received typically match the proposed amounts. payments are so late, these proposals are usu- Also, there is much variation across districts in ally based on already completed activities. The the date of the last payments received—any DHSs and CHCs report several different ways time between September and December. of dividing the money, and some CHCs simply An important cause of this problem is the receive nothing at all. The five DHS’s surveyed weakness in existing public financial manage- reported that between 25 per cent and 75 per ment control and commitment systems. A con- cent of their operating cash was distributed to trol system aims to ensure actual spending is CHCs, demonstrating the widely varying ap- in line with budgeted amounts. For example, proaches being used. If the guidelines for a fixed line item control entails checking expenditures float of up to US$1,500, or clear distribution cri- against the budgeted amount for that line item. teria were in use, there should be no need for an By contrast, a program-based budget may have additional set of proposals for the narrow set of looser control, just ensuring that overall spend- expenses undertaken by CHCs.16 ing on a given activity does not exceed the TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 11 TABLE 1.5  Last Payment of the Year: Date, Amount and Proposed Amount, 2013 Date of Check Amount Proposed Amount As Percentage of District Last Payment USD USD Proposed Amount Covalima 3 December $16,800.00 $58,118.00 29% Dili 8 October $88,856.00 $138,821.80 64% Manatuto 29 October $17,756.00 $29,620.00 60% Oecusse 26 November $8,500.00 N/A* N/A* Viqueque 23 September $65,145.00 $80,750.00 81% Source: MoH Department of Finance Documentation/MoF Freebalance entries. * Documents not located. budgeted amount. Imprest accounts generally This transfer can be done within the district and have weaker control than line item budgeting budget category (goods and services) easily, or because the expenditure is not verified by line through virement from other districts, divisions item before it takes place. or central ministry appropriations.18 In the case of district operating cash, allow- To make matters more complicated, in able expenditures are spread across several line some cases additional payments to districts are items in the goods and services budget. When authorized from the goods and services bud- the districts send in their propustas, these are get that are not classed as imprest advances, checked against the aggregate goods and ser- but these still reduce the total available budget. vices budget and not a quarterly spending plan, These payments are typically to settle debts or other planning information. As the goods and that have been incurred in previous years, either services budget also includes significant items due to inadequate budgets or poor budget exe- that are not executed by districts—such as fuel, cution. This practice varies from district to dis- vehicle repair, utilities, and (as of 2014) profes- trict. For example, in 2012, DHS in Viqueque sional services—it is possible for either the dis- received only two small payments for operat- trict or central spending to considerably exceed ing cash of US$8,000, in Q1 and Q2. But in the the individual line budgets without triggering same period, the district made over US$84,000 controls. In short, if the proposal is within the worth of additional proposals for which checks remaining goods and services budget for the dis- were cut and cashed.19 The bulk of this was for trict, it may be approved even if it will result in debt related to activities in past years, including shortfalls later in the year.17 Another way to ex- catering. In another case in 2012, the goods and press this is that the goods and services budget, services budget for Manatuto was charged for which is the level of control being used, has two payments of vehicle repair debts dating back as different budget holders (the Ministry’s cen- far as 2009 and amounting to tens of thousands tral agencies, and the DHS in question), both of of dollars. In other districts studied, the normal which can incur obligations to the detriment of operating cash advance is used to meet these the overall budget. obligations. The result of these shortfalls is that districts Since these debts are not included in the rel- may receive larger installments in the first part evant budget line items in the current year, and of the year, and then none at the end of the year often exceed them, other needs must go unmet as the total district goods and services appropri- later in the year. This reinforces a cycle of debt. ation is used up. In other cases, the expenditure In practice, by the time the late first payment ar- must be met through frequent and substantial rives, the entire allotment is used up almost im- transfers of resources from other line items. mediately to reimburse staff expenditures (e.g. District and Operating Cash 12 on motorcycle repairs and other facility needs) to modify the system to ensure money is set and repay debts to local service providers. Four aside in the budget for the whole period and re- out of the five DHSs surveyed confirmed that duce the need for time-consuming processing they use credit as the main means of coping with of CPVs for each request. When district level late or insufficient imprest payments, while the treasury offices are established, it will be easier fifth (Dili) drew upon resources available from for a greater number of purchases by DHSs to “partners or NGOs”. be processed via CPVs, which would aid com- In addition to the loose control over expen- mitment control provided the CPVs precede the ditures at liquidation, CPVs are not playing their obligation of funds. intended role as a commitment control system earlier in the process. Commitment controls are supposed to serve to relate future expendi- Recommendations tures with the budget so that both appropriated amounts and cash availability can be ensured as The problems associated with planning, bud- early as possible: “commitment in the budget- geting and executing the operating budget, de- ary sense should correspond to the earliest stage livered via the imprest account to DHSs and within the expenditure cycle at which a claim CHCs, are interconnected and result in a vi- against the appropriation can be recognized”.20 cious circle. Since the budget is not prepared by In the case of an imprest, this recognition could matching bottom-up planning of activities with correspond to agreed quarterly spending plans; the available resources, it does not match the for other goods and services it would typically amounts needed to meet the strategic goals set be the award of a contract. by the MoH. Since it is not based on planning In the case of the operating cash, commit- activities, it cannot act as a useful control on ments are only requested (through the rais- spending either and, instead, large amounts are ing of a CPV) after acceptance of proposals diverted between line items and even between from the districts. They are in almost all cases districts or units. The late release of the bud- being submitted at the same time as the pay- get compounds an already severe debt (usually ment orders to produce the check. Since most unrecorded centrally) problem at local level, as of the proposals relate to activities already com- funds are quickly used up to repay debt. In turn, pleted because of the late payments and debt new debt must be accumulated, further under- cycle described above, there is no functioning mining the credibility of the budget during the system of “commitment” or “authorization to next cycle. spend” in the budget execution process. These Improving this system requires addressing obligations, or even liabilities, already exist. In the individual weaknesses of each phase, as well this sense, the government is “on the hook” for as ensuring that the system as a whole functions money it has not yet even committed. In the effectively, enabling district and community best case scenario, the districts are acting on health services to respond to local needs in time. the implementation plan developed via the plan- ning directorate to carry out programs for which Linking Planning and Budgeting there is insufficient funding; in the worst case A basic challenge for any budget system is to scenario, they are unrestrained agents able to make sure organizational goals and plans are re- incur liabilities that the central government is flected in the budget. While there is a strategic later forced to meet. framework in the National Health Sector Stra- If there were regular spending plans for tegic Plan (NHSSP), and increasingly detailed district operating cash, it should be quite easy activity or implementation plans at the district TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 13 level, neither of these is being properly reflected density), number and type of existing fa- in the final budget. Actual spending is wildly in- cilities, and additional requirements needed consistent with the budget, and it is hard to dis- to meet service standards. The planning tinguish poor budgeting from misspending as templates for districts that are already in control systems are loose and poorly applied. use, and are being improved, together with The challenge, faced by many countries, is to in- timely planning workshops would help to stitutionalize a process for aligning available re- clarify these needs. The key innovation sources with the top-down strategic goals of the here is to integrate the bottom-up planning MoH and the bottom-up planning that reflects exercises with the overall budget envelope. conditions and priorities in the districts. Only This integration can be achieved either by then can the budget be an effective guide to providing a preliminary budget estimate to where money should be spent, and a useful con- the districts during the planning phase, or trol to monitor it and prevent it from being di- by prioritizing activities in the templates verted. Such a system requires government to: so that the activities can be aligned with the ceiling when received by the MoH  Observe national program targets to according to district priorities. Final allo- guide district-level planning and pri- cations should be clearly communicated oritization. The NHSSP provides guid- to local levels, and reflected in quarterly ance on the overall national allocation of spending plans that can be used as a ba- resources between health care expendi- sis for control of budget execution. These ture types and level, such as primary, sec- district level budget allocation systems and ondary and tertiary care. Yet, in 2010 local planning capacities would be essen- recurrent expenditure for primary health tial building blocks for a potential future care in districts was below the NHSSP decentralization of operating expenditure goal of 60 per cent of the recurrent bud- with greater autonomy at the district level. get for primary care.21 This process helps  Use program/activity based budgeting determine the total pool of resources that in the chart of accounts. The districts should be available for primary health care and the MoH increasingly use a program- activities in districts and below. The ability and activity-based costing and budgeting to predict program and hence district lev- framework. However, the national budget el ceilings will be enhanced if the Ministry is still organized around a line item struc- and the government as a whole is able to ture, and it is negotiated with the MoF move towards a more multi-year budget- and Parliament in that way. It may be ad- ing framework. If the NHSSP targets are visable to include with the budget sub- to be met, the overall allocation for district mission a separate descriptive section that primary care should increase. clearly spells out both program and line  Provide timely district budget enve- item breakdowns. This would be especially lopes that reflect allocation criteria. useful for proposals for “additional spend- Once the overall level of resources for ing” above the budget ceiling by allowing health, and for district level primary care, the MoF and the technical budget com- has been determined, these resources need mission to understand both the program- to be allocated across districts. This allo- matic justification for such requests and cation should be based on relevant crite- their line item implications. The nation- ria including population to be served, cost al chart of accounts supports such an ap- differences (for example due to population proach in theory (through Smartstream), District and Operating Cash 14 but the capacity to budget activities in of control currently found in the system. The this way is not being utilized at either the main challenges that need to be addressed are line ministry or MoF. The Public Financial as follows: Management Roadmap target to establish an MoH budget review committee during  late first payment; 2012–15 to review all division proposals  time required to process new payments could support this shift. The PFM road- and distribute them to CHCs; map includes the introduction of templates  lack of flexibility and discretion for district for activity-based costing (2012) and pro- and community health staff; and gram-based budgets (2013) for both district  lack of budgetary control, resulting in di- and central levels. versions from other line items, virement, or  Clarify and standardize guidelines on shortage of funds altogether. expenses that are district responsi- bilities, whether under an imprest or Tackling these challenges requires clarity on alternative execution system. The pol- the budget execution system for operating cash icy framework does not currently identify in DHSs and CHCs. Right now the system is clearly enough how much and which parts an ineffective hybrid of an imprest system and of the goods and services budget are in- quarterly allotments based on district proposals. tended to be distributed to districts as op- However it is run, the execution system needs erating cash. Cash planning needs to be to provide speed and flexibility, while building on based on analysis of only those line items improved planning and budgeting by controlling that are to be procured or expended local- expenditures more effectively.22 ly, and control should be exercised against this amount, not the overall goods and Clarify the execution system. The current services category. In short, control should imprest arrangements are simply not well-suited be exercised separately for the imprest to the purpose of providing a regular recurrent based on the aggregate of only the allow- operating budget. The choices are to implement able line items, and requests should be as- an imprest system properly, to move to a quar- sessed against that amount, if not assigned terly operating budget, or to adopt a combina- in advance to individual line items based tion. The theoretical advantages of an imprest on spending plans. Similarly, central MoH are that it ensures funds are available where spending should not be able to exceed they are needed in advance (which is especially budgeted amounts for centrally-procured useful if stations are remote), allows local staff items without adequate control over trans- flexibility in allocating expenditures, and gener- fers out of the imprest items. Any trans- ates a full accounting of expenditures because fer between the two groups should involve only those funds that are spent and documented the approval of the budget holder for the are replenished. The disadvantage is that plan- group—the DHS in the case of operating ning and control over specific line items is usu- expenditures, and the Ministry in the case ally weak because expenditures are assigned to of centrally-procured items. them only after the expenditure has been obli- gated (though in some systems the expenditures Speeding and Controlling Budget are nominally assigned to planned line items in Execution advance). Even the best-planned budget will be of lit- In Timor-Leste, however, the late release of tle use if it is executed with the delays and lack the first payment, the requirement to submit a TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 15 propusta, the lack of budget control and accu- are somewhat fixed, predictable, and recurrent, mulation of debts mean that these advantages and continuing with a properly implemented im- are not realized—the money is not available in prest account for a smaller amount of unpredict- advance, there is limited flexibility in its use, and able and flexible expenditures, as well as for the accounting is not used to control the expendi- day-to-day operation of CHCs. The key steps in ture. The proper implementation of an imprest implementing such a system are outlined below. system would require:  Districts prepare annual spending plans,  automatic release of the first advance pay- based on the approved budgets, for locally ment at the beginning of the year based procurable items at district level. on presentation of the activity-based bud-  These items could be processed directly at get template, with a yearly or quarterly the district level as soon as district trea- spending plan adjusted for the final bud- sury offices and DHS bank accounts are get allocation; available; until then they can be included  replenishment before the funds are ex- in imprest advances with encumbrances hausted, for example through allowing pay- temporarily against the relevant line item. ment requests after a percentage of the The degree of discretion over these pay- funds are expended; ments held by district staff or MoH fi-  clarification of acceptable use of funds; nance staff would have to be determined  budget control at the level of only those by the MoH, but the principle should be line items that are allowable expenditures; that there is a single budget holder (either and central or district) for each item of expen-  avoiding using the imprest to cover excep- diture, to prevent overspending.23 tional payments such as accumulated debt  Develop a budget norm or formula for al- (see “carry out an audit of all debts” be- locating a smaller amount of flexible oper- low). ating cash for districts and CHCs based on activity level, population served, geogra- The second option is to move to an oper- phy and other factors, to be implemented ating budget system, supported by local trea- as an imprest advance for unexpected re- sury branches and bank accounts. Payments for pairs and shortages with only minimal re- specific goods and services would be requested quirements to trigger replenishment. against the budgeted line item totals, and ide-  DHSs would run subsidiary imprests (pet- ally paid into a DHS bank account through bank ty cash) for CHCs as they do now, but transfer after locally raising CPVs and purchase based on a clearly budgeted amount. requests. The advantages of such a system are that it offers tight linkage to plans and controls This option would help to reduce the amount expenditure by line item to avoid overspend- of expenditures handled on a cash basis, thereby ing; however, it also reduces operational flexi- reducing vulnerabilities to misuse of funds. At bility, particularly if the virement regime is not the same time, the retention and clarification of a carefully designed to suit the circumstances. It is smaller but more flexible fund could support the likely that this alternative would be unduly rigid, capacity of the districts to plan for more decen- particularly with regard to CHCs. tralization and autonomy in the provision of op- The third option involves a combination of erating budgets in the future. In fact, the MoH the two systems: implementing an operating is already moving in this direction by recently re- budget for districts for those expenditures that moving contracting for “Professional services” District and Operating Cash 16 (e.g. cleaning and catering) from the pasta mutin assigned, then the quarterly expenditure payments and using direct contracting for these plan will indicate the required expenditure. services.24 This will also lay the groundwork for  Submit the CPV for the operating further deconcentration of procurement to the budget at the start of year. Regardless district level as time, regulations, and capacity al- of the system, it is implicit that there is a lows. The development of a finance manual cov- commitment for DHSs and CHCs to have ering internal controls is underway. an operating budget equal to either the In addition to clarifying the execution ar- imprest float or, alternatively, the budget- rangements, there are other steps that can be ed amount. The CPV should therefore be taken to improve budget execution, regardless raised for the quarter as soon as the bud- of which execution system is chosen: get is available, clearing the way for more rapid payments. It would be worth con-  Resolve the use of the duodecimo pro- sidering authorizing CPVs for half or even vision. The duodecimo provision, to pro- the entire year at the beginning of the vide a standing allocation of 1/12 of the year. This commitment should aim to sup- previous year’s appropriation when the na- port the distinction between those parts tional budget is not passed, is designed ex- of the budget where the district should be actly for the kind of delays that districts the budget holder. Simply committing the currently suffer. Such provisions are found, funds will not endanger them: in an im- and used, worldwide. Whatever the ob- prest new payments cannot be made un- stacle to its implementation—whether it til previous ones are accounted, and with a is the quarterly (as opposed to monthly) quarterly budget payment requests still re- period of the current operating cash allot- quire documentation. ments, the lack of a specific budgeted line  Provide training to the districts on item for imprest, or some other adminis- f inance and reporting. The survey trative or legal impediment—it should be a showed that lack of training was a com- concern at the highest level of government mon complaint among staff working in the to ensure the implementation of this provi- districts, and also that in some areas fi- sion as soon as possible. nance staff were frequently absent. Proper  “Push” the first payment of the year training on reporting would help speed the based on approved expenditure plans. existing imprest system (for example by Even when the budget is passed, there is facilitating replenishment prior to the ex- a considerable delay in processing checks— haustion of funds), allow the proper admin- an average of 18 (but up to 54) days for istration of subsidiary imprests intended for the propusta to be advanced to a CPV, the community level, and enable a quar- and an additional 20 days on average to terly operating budget to be implement- a check. The key here is that regardless ed upon the establishment of district bank of whether an imprest account or a quarter- accounts and/or local treasury branch- ly operating budget is used, the amount of es. Activity-based district plans should be the first payment can be known without a matched by reporting on activities complet- proposal. For the imprest, it should simply ed that is connected to financial reporting be the assigned float balance based on the on operating cash expenditure. adjusted annual budget, which might be a  Address delays in flow of funds be- flat rate or adjusted for bigger and small- tween district and community-level. er districts. If there is an operating budget Just as the first payment to districts does TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 17 not need to wait for a new proposal re- The existing PFM Roadmap contains sev- gardless of the system used, the CHCs eral of the key steps required to improve bud- should also receive their f irst payment geting and execution of district and community on a “push” basis as described above, operational funds. However, the PFM roadmap and replenishment should be simplified. as currently configured is wide-ranging and am- Developing guidelines for deciding on the bitious with multiple sets of objectives and ac- share of pasta mutin to be allocated to tivities. The recommendations outlined in this CHCs would also be useful. chapter should be used to contribute to a prior-  Carry out an audit of all debt at dis- itized implementation plan for the Roadmap fo- trict-level. National assessments of the cusing on areas of key concern and maximum public expenditure management system in potential for the MoH. These include informing Timor-Leste make almost no mention of district level financial management capacity and arrears, yet the evidence of this study is systems building activities, and supporting the that there are large undeclared debts accu- alignment of the FMIS reporting systems under mulated through taking of credit from staff Freebalance/Smartstream with the use of the and suppliers to supplement shortfalls in the activity-based planning and costing templates operating budget (imprest), but also in the under development for the District Health Ser- other two operating expenditure items in- vices by improving the quantity and timeliness cluded in this study, namely fuel and vehicle of operating cash availability in the districts. Im- maintenance and repair.25 Without quanti- provements in these areas might also be con- fying this issue properly, budget mismatches sidered as intermediate steps towards a more will continue, and will compound the prob- ambitious set of reforms involving more decen- lems described above. Given the level of tralized operating budgets for districts with local debts, the MoF might consider a “comple- discretion, once relevant capacity and district mentary period” after the end of the year, level fiscal institutions (such as bank accounts when pending payment orders can still be and treasury offices) are established and run- paid from the previous year’s budget.26 ning effectively. District and Operating Cash 18 Endnotes 14 Budget and Financial Management Law of Timor-Leste, 2009, Art. 31.1. 1 Ministry of Health, “Utilization of the 2011 15 Ibid., Art. 39. Government General Budget at the Ministry 16 “Pasta Mutin Manual” (Ministerio da Saude, of Health”, Directive/No1/2011/IVGC/MS. May 2011), 8. 2 “Pasta Mutin Manual” (Ministerio da Saude, 17 Interview, Ministry of Health Finance De- May 2011), 3. partment (24 September, 2013). 3 World Bank, Public Expenditure Manage- 18 In budget control systems, virement is the pro- ment Handbook (Washington: International cess and rules for transferring amounts from one Bank for Reconstruction and Development, item to another when expenditures are signifi- 1998), 31. cantly above or below the budgeted amount. 4 Interview, Ministry of Health, Planning, 19 Amounts are based on review of avail- Monitoring and Evaluation Department (22 able documents at DHS level and may be May 2013). incomplete. 5 Interview, Ministry of Finance Budget Direc- 20 Daniel Tommasi, “Budget Execution,” in torate (7 May 2013). Budgeting and Budgetary Institutions, ed. 6 Participant, Health Resource Tracking Study Anwar Shah, Public Sector Governance and Consultation Workshop, World Bank Office, Accountability (World Bank, 2007), 281–2. Dili (5 December 2013). 21 Expenditure Review Unit, “Expenditure Re- 7 In Timor-Leste the budget is divided into view: Health Sector Timor-Leste” (Ministry five economic categories: wages; goods and of Finance, January 2010), 17–8. services; minor capital; major capital; and 22 In 2011 the World Bank recommended “a transfers. joint activity with district health teams on 8 Domingos Gomes da Cruz, “Ministry of appropriate payment mechanisms that give Health Memo to All Program Managers, more autonomy to districts within an en- Re: Petty Cash Guidelines for FY 2006–7” hanced accountability framework”: World (31 July 2006). Bank, Timor Leste Health Financing Note 9 Ministry of Health, “Utilization of the 2011 (World Bank, September 2011), 32. Government General Budget at the Ministry 23 Ministry of Health, “National Health Sector of Health”, Art. 3.4.2. Strategic Plan, 2011–30,” 2011, 140. 10 Daniel Tommasi, “Budget Execution,” in 24 Interview, Ministry of Health Finance Budgeting and Budgetary Institutions, ed. Department Anwar Shah, Public Sector Governance and 25 International Monetary Fund, “Democratic Accountability (World Bank, 2007), 312–3. Republic of Timor-Leste: Public Financial 11 “Pasta Mutin Manual” (Ministerio da Saude, Management Performance Report” (IMF , May 2011), 3. June 2010), 21–2. 12 Ministry of Health, “Utilization of the 2011 26 Complementary periods have advantages Government General Budget at the Ministry and disadvantages, see Daniel Tommasi, of Health”, Art. 3.2.2, 3.3, 4.2. “Budget Execution,” in Budgeting and Bud- 13 Participant, Health Resource Tracking Study getary Institutions, ed. Anwar Shah, Pub- Consultation Workshop, World Bank Office, lic Sector Governance and Accountability Dili (5 December 2013). (World Bank, 2007), 296. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY CHAPTER Fuel for Vehicles and Generators 2 Fuel, in the form of diesel for vehicles and gener- take some form of credit for fuel from local sup- ators and petrol for motorcycles, is an essential pliers, borrow vehicles from local partners and input in the delivery of health services. It pow- NGOs, divert operating cash to the purchase of ers the vehicles and motorcycles that are used fuel locally, purchase fuel out of pocket, and/or to transport patients; carry health workers to reduce activities such as supervision visits (see communities to provide immunization, deliv- Table 2.1). eries and curative care; allow district heads to Drawing on data on fuel-related transac- undertake supervision visits to facilities; and to tions, survey responses at the district and CHC transport various supplies. Diesel is also used level, and interviews with central divisions of to run the generators that provide electricity to the MoH and fuel suppliers, the following sec- community health centers (CHCs). In Timor- tions discuss some of the likely reasons for the Leste, where populations are remote, and elec- fuel shortages at the local level, including issues tricity provision limited, ensuring a reliable related to the process of planning and budgets, supply of fuel is essential. as well as the process of budget execution. Fuel is budgeted by district, but is procured under centrally managed contracts with one or more fuel companies: in 2013 this supplier was Planning and Budgeting Aitula Fuels. According to policy, fuel should be delivered in kind by the fuel provider to the Dis- One important reason for the fuel shortages is trict Health Service (DHS) offices at the start the weak link between planned activities and of the year, and then replenished upon request budget allocations. Vehicle fuel is budgeted from the districts. In Dili, instead of direct deliv- at several fixed amounts from US$21,000 and ery of fuel, fuel vouchers are issued to the DHS. US$36,000 per district (Figure 2.1). Manage- In practice, fuel shortages—including com- ment and staff agree that this allocation is not plete stock-outs and rationing—are common, based on district implementation plans (DIPs) or and a particular problem at the beginning and on district realities, such as the distance to be end of the year.1 Four of the five districts sur- covered by vehicles. veyed for this study reported shortages of fuel in When pressed to explain this mismatch, 2013. These shortages ranged from four weeks some staff suggested that the allowance may to 16 weeks (four months) in duration. Also, all be based on the number of vehicles. How- but one of the ten CHCs surveyed reported ever, a simple analysis of district budgets shows fuel shortages, at least for motorcycles. Conse- widely varying fuel allowances per vehicle quently, most (if not all) facilities are forced to (ranging from US$1,750 to US$4,500 per car) 19 20 TABLE 2.1  Fuel Shortages and Their Consequences, 2013 Share of Facilities with Fuel Average Weeks Stock-outs without Fuel Reported Consequences for (2013) (2013)a Reported Coping Methods Service Delivery DHS 4/5 9 weeks Reduce activities (2/5) Supervision visits reduced (80%) Take credit (2/5) Use motorcycle in place of car Use pasta mutin (1/5) CHC 7/10 (70%) 8 weeks Reduce activities (6/10) House 1 out of 10 Take credit (3/10) calls reduced petrol only Staff buy fuel (2/10) Mobile Clinic/SISCa reduced 1 No response Borrow fuel (2/10) Health Promotion reduced up to Use pasta mutin (1/10) 50% Use NGO transport (1/10) Supervision reduced up to 50% Source: Survey responses. a Average weeks is the mean of number of weeks with shortages among the by DHSs (3 out of 4) and CHCs (3 out of 7) experiencing fuel shortages in 2013. or per vehicle/square kilometer (ranging from At the same time, fuel allowances for US$0.97 to US$4.99 per car per sq. km).2 Also, generators also do not seem to relate to the there is no additional fuel allocation made for number of facilities across the country. Fuel al- new vehicles as they are distributed to districts.3 lowances for generators ranged from US$6,000 It seems clear the fuel is not budgeted based on to US$9,000 per district in 2013. If divided by vehicle numbers. A further issue is that the poor the number of facilities per district (both CHCs performance of the vehicle maintenance system and the DHS office) to approximate the num- implies fuel alone is not sufficient for effective ber of generators under DHS responsibility, health transportation services (see Chapter 3). the budget per facility ranges from US$1,000 FIGURE 2.1 Vehicle, Generator and Overall Fuel Budget by District, 2013 $50,000.00 $45,000.00 $40,000.00 $35,000.00 $30,000.00 $25,000.00 $20,000.00 $15,000.00 $10,000.00 $5,000.00 $0.00 Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque 2013 Vehicle Fuel Budget 2013 Generator Fuel Budget 2013 Total Fuel Budget Source: MoF FMIS Data, 2013. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 21 FIGURE 2.2 Vehicle, Generator and Overall Fuel Budget Execution by District, 2013 $50,000.00 $45,000.00 $40,000.00 $35,000.00 $30,000.00 $25,000.00 $20,000.00 $15,000.00 $10,000.00 $5,000.00 $0.00 Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque Average 2013 Execution Rate of Vehicle Fuel 2013 Execution Rate of Generator Fuel 2013 Total Fuel Execution Source: MoF FMIS Data, 2013. to US$1,750, which is a considerable variation. the budget execution evidence presented be- Also, in areas such as Dili where power from low suggests there may be diversion of the fuel the electricity grid is more consistently avail- budget. able, and therefore substitutes for generators, Execution rates of the fuel budget by dis- costs should be lower than average, yet this trict show a serious disconnect between plan- is not reflected in the budget. Factors such as ning, budgeting and actual use. These data are other sources of power or facility size naturally summarized in Figure 2.2 and Annex II. Vehi- may impact fuel consumption. cle fuel is substantially overspent in all but one While there is variation in appropriations district. Spending on fuel reported by District across districts, the MoH’s Health Planning Health Services averages 123 per cent of the and Finance Directorate claims that the overall budgeted amount, but can reach up to one and MoH budget for vehicle fuel (US$1.651 million a half times the budgeted amount (e.g. Aileu in 2013) is sufficient for needs. In 2013, budget and Viqueque district). Districts are not aware execution for vehicle fuel across the MoH as a of their total fuel allocation, and control is not whole was at 95 per cent. However, this fig- exercised at the line item level to prevent over- ure masks underspending in central units, over- spending. As with travel allowances, it is dif- spending on generator fuel, and overspending by ficult on the basis of this study to know how districts. For example, the central Human Re- much fuel over-spending may be related to sources Department thought that their 2013 al- needs and how much may be associated with location of 29,000 liters for three vehicles was possible diversion. well in excess of their needs.4 In addition, the Generator fuel is also typically overspent, budget for generator fuel was overspent by 49 but the pattern of reporting is different. With per cent, meaning that the MoH’s overall ex- two exceptions, generator fuel is consistently penditure on fuel in 2013 exceeded the bud- reported at either 100 per cent (i.e. spending ex- get by US$24,607. This is significant as at the actly matches the budget) or 115 per cent. This district level there is no way to reliably distin- regularity suggests that expenditures are arti- guish fuel use for vehicles from generators, and ficially reassigned across line items in order to Fuel for Vehicles and Generators 22 bring expenditure figures in line with what was Taken together, the comparison of the bud- budgeted. The fact that, in practice, vehicle fuel geted amounts and their execution suggests and generator fuel are delivered simultaneously three main findings: and comingled in holding tanks means that it is relatively easy for vehicle fuel allocations to be  The budget for fuel in districts is not ef- used for generators and vice versa. It also means fectively linked to a calculation of need (for that fuel expenditures may be easily assigned example based on vehicle or facility num- to either line item, resulting in a divergence be- bers or district activity planning), with con- tween reported and actual spending on these sequences for efficiency and transparency. two budgets. The fact that the fuel budget is consistent- For example, in the one exceptional case ly overspent by so much suggests, further, where vehicle fuel execution was equal to the that the allocations may be low across dis- budget, namely Oecusse, generator spending tricts when compared to needs, while cen- was very high; in fact, more than double the tral allocations may be high. budget at 225 per cent. This could be explained  The overspending of fuel means that a sig- by the unique situation of Oecusse whose health nificant share of the budget allocated to centers typically have no local access to electric- other line items is in effect being reallocat- ity—and would mean that the budget is far re- ed to district fuel. Such reassignment of moved from the needs of the district.5 However, expenditures and virements6 have the ef- it may also be explained by use of fuel under one fect of reducing the availability of overall budget line item (i.e. generators) for another funds in the goods and services budget, (i.e. vehicles). Examining the data across ve- with knock-on effects on other expen- hicle, generator, and overall fuel budgets sug- diture items, as described in Chapter 1. gests that reassignment of expenditures across These sorts of reassignments undermine line items and divisions is being used to maintain the credibility of the budget and erode its an outwardly “consistent” budget execution usefulness as a planning tool. rate—in other words, to spread out over-spend-  Reporting on fuel use (i.e. number of mis- ing more evenly across districts and divisions of sions undertaken) appears to be only the MoH. weakly linked to the actual use of the fuel; This practice undermines the reliability of expenditures are reassigned between vehi- the budget or execution rates as a guide to cur- cles and generators after the fact to pro- rent and future needs, and in this sense, the ag- duce a “reasonable” budget distribution. gregate fuel budget may be a better measure of This makes planning and budgeting for fu- the match between budget and use. The aggre- ture use difficult. gate fuel budget per district, combining vehi- cle and generator fuel, ranges from US$29,000 to US$46,000, and can be seen in Figure 2.1 in Budget Execution green. Actual fuel expenditures exceed the bud- get in all but one district (Figure 2.2). Alongside Fuel is procured through centrally managed con- travel allowances fuel is the most consistently tracts with suppliers and delivered in-kind to the overspent item in the goods and services bud- districts. According to the MoH, this central- get, and this suggests that a combination of un- ized system was adopted in order to try to avoid der-planning for travel and possible diversion budget overruns and fuel shortages associated (both these items are easily diverted) of re- with price differences across the districts, as sources may be responsible. well as concerns about diversion of resources.7 TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 23 This arrangement was consistent with the rec- Procurement ommendations of a 2012 MoH procurement re- There are at least three issues with procure- view which found that “items bought in volume ment and contract management that contrib- … such as vehicle, fuel and travel should be pro- ute to the problem of fuel availability. First is the cured centrally to exploit the advantages of vol- late completion of the contract(s) with fuel sup- ume discounts available.”8 plier(s). Second, and not unrelated, is uncer- In practice, this system does not control tainty on the part of suppliers as to the renewal budget overspending at the district level, as of contracts. Finally, the contract itself does not demonstrated by the data on budget execution seem to act as a control on overspending, as it presented in the previous section. Importantly, does not limit district level fuel deliveries to the it also does not appear to yield the expected budgeted amount. However, until there are im- bulk discounts. Prices provided by Aitula Fuels provements in the currently loose link between show that the price of centrally-procured fuel planning and budgets, overly rigid ceilings may is equivalent to the prevailing price in the dis- harm delivery further. trict plus a delivery and dispensing charge of The contracting process for 2012 and 2013 between US$0.05 and US$0.20 per liter. Fi- is revealing. In 2012, responsibility for fuel de- nal delivery prices per liter for diesel (at 31 May livery to the districts was shared between two 2013) ranged from US$1.22 in Dili to US$1.35 firms, Aitula Fuels and EdGas. During the year, in at least four outlying districts, compared to EdGas’s contract was terminated, reportedly a maximum price at the district stations run by for non-performance, and after a short spell the same company of US$1.28.9 This clearly during which a third company covered those shows that it would be cheaper to purchase districts formerly served by EdGas, Aitula’s fuel in the districts at prevailing prices, assum- contract was amended to cover all districts and ing that it is available. extended until 31 May 2013. Aitula’s original With commercial Aitula fuel stations pres- contract for 2012 was only signed in May 2012, ent in all districts, local procurement appears to suggesting that deliveries started late that year, be an option, even with the risk that commercial and the amendment to extend Aitula’s contract stations may run out of fuel. One reason for the was only signed on 11 April 2013.12 This means MoH’s preference for in-kind delivery is to en- that there was a delay of five months at the start sure that fuel is available even when district sta- of 2012 and another four months at the start of tions experience stock-outs.10 Indeed, the field 2013 where the supplier was not formally under survey found that in one district (Viqueque), the contract. After that, the extension was legally local fuel station does run out of fuel at times, valid for only seven weeks before the contract so there is a basis for this concern. However, in would have to be renewed. Clearly, the “lack of general, the current system of centralized pro- capacity and capability” in MoH contract man- curement and in-kind distribution performs so agement flagged in a 2012 procurement review poorly that four of the five districts studied re- persists.13 ported that they run out of fuel and not the fuel The late signing of contracts has an obvious stations. They solve their shortages by purchas- impact on the next steps in the budget execu- ing fuel on credit or with vouchers from the dis- tion process, namely the requisitioning and de- trict fuel stations. In addition, the fact that the livery of fuel, introducing significant delays. The central MoH departments rely on fuel vouch- uncertainty over contract extension and re- ers for field visits indicates some confidence that newal causes additional problems with delivery, there is a supply of fuel available commercially in especially when combined with the weaknesses district centers.11 in the requisitioning process described below. Fuel for Vehicles and Generators 24 Requisitioning, Delivery and Payment Purchase Requisition for each district for the Once a contract is in place, the formal process entire quarter in advance. This system is much for initiating a fuel order, taking delivery, and more consistent with the commitment system clearing payment follows the order outlined in used by MoF and should speed individual deliv- Figure 2.3. As with the operating cash for dis- eries because funds are already counted as com- tricts (see Chapter 1), the initiation of fuel pur- mitted by the Treasury before payment requests chasing and delivery begins with a proposal are received.16 In theory, the district CPV is fol- (propusta). In 2012, this originated in the dis- lowed by a purchase order for the delivery which trict and since each propusta required a new is sent to the supplier, who then delivers the fuel purchase requisition and commitment payment and submits an invoice to the MoH along with voucher14 (CPV) to be raised for each fuel deliv- a proof of delivery docket. The payment is then ery, there were significant delays.15 As with the cleared by the MoH Logistics Department and operating cash (discussed in Chapter 1), control sent to the MoH Finance Department, which is not exercised over the CPV at line item level, should request payment from the Treasury Pay- thereby allowing fuel requests to exceed bud- ments Unit. geted amounts. In practice, there are significant problems The process changed in 2013. While the with this process. Using the combined records DHS would still need to request the delivery of the MoH Logistics Department, the MoH of fuel via a propusta, it became the task of the Finance Department, and DHS-level fuel re- Logistics Department to request the MoH’s Fi- cords (collected as part of the district survey), it nance Department to raise a single CPV and is possible to track the requisition, delivery and FIGURE 2.3  Fuel Execution and Delivery Procedures, 2012 and 2013 • Initiates CPV (2012) • Proposal/Propusta DHS • MOH Finance prepares CPV by District and Quarter (2013) • CPV received by MOH Finance Department (2012) • MOH Finance prepares PO and sends to MOH Logistics Departmet Central MoH • PO sent to Fuel Supplier • PO received by Fuel Supplier • Fuel Supplier delivers fuel to DHS Fuel Supplier • Fuel received at DHS – signs Fuel Delivery Docket • Supplier submits invoice to MoH Logistics Department • MoH Logistics Department approves and MoH Finance Department requests payment from DHS Treasury Payments Unit • Entries for fuel delivered to CHC • Reported use of fuel CHC • Reported shorfalls • DHS sends proposal for replenishment • Depending on remaining PO, replenishment immediate Replenishment Source: Authors. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 25 payment of all the initial fuel deliveries of 2013 acted on all purchase orders within two days of to the surveyed districts, as well as several sub- receipt.17 An alternative measure of supplier re- sequent deliveries. In this way, near-complete sponse time, and one for which more data points records of sixteen fuel deliveries for both gen- are available, is the time from purchase order to erators and vehicles across the five sample dis- invoice; this averages 17 days. While this can- tricts can be reconstructed and used to show not be considered a fast response, it is markedly which parts of this process contribute most to shorter than the processing time for other steps the delays. in the process. Table 2.2 describes the available data for Invoices spend an average of three weeks each transaction and the time taken for each at the MoH Logistics Department before be- step, for those orders which followed the stan- ing forwarded to MoH Finance Department, al- dard procedures. Unfortunately, not all deliv- though processing time varies quite substantially eries could be completely documented due, in (as measured by the standard deviation) and part, to the use of emergency procedures and in some cases were handled as quickly as two credit from local stations and, in part, to incom- days. Invoices are also not always processed in plete records. Indeed, poor record-keeping and the order that they are received. An additional documentation is one of the most important un- two weeks typically passes before the MoH Fi- derlying issues contributing to poor fuel budget nance Department forwards the invoice with management. a payment request to the Treasury’s Payments What the table indicates is that there were Unit. Then, an additional three weeks passes long processing delays at all parts of the fuel (on average) before the Payments Unit is able requisition process in 2013, but also that there to process the payment. Taken together, the was substantial variation in the length of the de- fuel company waits an average of two months lays. After creation of a purchase order, deliv- (62 days), but sometimes up to 77 days, for pay- ery could take anything from 12 to 38 days. It ment after submitting an invoice. cannot be ascertained whether this is due pri- Given that the standard processing time for marily to delays in conveying the order to the a payment at Treasury is five days, and there are supplier or delays in acting upon it by Aitula due cases where payments are processed as quickly to limited availability of delivery documentation as the same day, it seems likely that one source provided by MoH. The company claims to have of delay is that payment requests are submitted TABLE 2.2  Processing Days for 16 Fuel Transactions Under Standard Procedures, 2013 Invoice to Logistics Logistics Request MoH Finance Proposal to PO to Payment to Finance Request to Total Invoice CPV Invoice Request Request Payment to Payment Average 76 17 21 13 22 62 Minimum 27 7 2 8 0 59 Maximum 85 40 32 22 34 77 Standard 19 7 12 5 13 7 Deviation Number of 14 14 13 14 9 11 Deliveries with Data Source: MoH Finance documents; MoH Logistics documents; survey responses. Fuel for Vehicles and Generators 26 to MoF without complete documentation, re- delays in the processing of payments needs at- quiring resubmission. The lack of an approved tention, as well as the significant overspending CPV (indicating that the MoH has committed of the budget. the funds before raising a purchase order) ap- pears to be a particular issue in the documenta- Coping Mechanisms of Districts and tion of payment requests. In six of the fourteen Community Health Centers cases for which data were available for analysis, Districts and CHCs deal with the problems sur- the Payment Request to the Treasury was dated rounding fuel delivery in different ways. The before the CPV had been authorized, effectively most common coping mechanisms are to take invalidating the Payment Request until a cleared fuel on credit from the local commercial fuel sta- CPV is available. tion, purchase fuel from local stations using the In fact, the biggest problem in 2013 ap- operating cash, borrow fuel or transport ser- peared to be the timely issuance of a CPV . As vices from other organizations, or reduce ser- noted above, the intended policy was to pre-au- vice delivery. thorize a full quarter’s fuel purchase for each Where fuel is obtained on credit, districts district with a single CPV and purchase order. pay for the fuel obtained in different ways. Accordingly, the MoH Logistics Department Sometimes the approach taken depends on the did in fact submit a propusta to the MoH Finance provider of the fuel. Credit from service stations Department to raise a CPV for both generators is sometimes repaid using operating cash, which and vehicles for the entire quarter for each dis- also arrives very late (see Chapter 1). Viqueque trict. However, it did so only on 21 March 2013. district, for example, used US$2,596.95 of its This means that the start of the process already first quarter 2013 operating cash installment fell at the end of the quarter for which it was for vehicle fuel and an additional US$492.70 intended. for generators. This amounted to well over one Moreover, it seems that the CPVs on re- quarter of the total first quarter operating cash, cord were only finally authorized between 31 reducing the cash available for other purposes. May and 14 June, despite being initiated by the It is important to recall that the operating cash MoH Directorate of Finance and Planning at allotment does not include budget for fuel, so various times starting at the end of April. The this diversion has a large impact. The practice length of time required may have been exacer- continued in the second quarter with an addi- bated by the high level of official approval re- tional US$1,150.90 of the operating cash liqui- quired, with the Vice Minister of Health acting dation going to fuel purchases. In other districts, as approving officer. These long delays in au- fuel debt is paid via special requests or propustas, thorizing CPVs contributed substantially to the sent to the MoH. resulting delays in payment when transactions In both cases, the overall available goods were initiated without accompanying approved and services budget for the district is reduced, CPVs. resulting in non-receipt of subsequent alloca- In summary, the supplier (Aitula Fuels) was tions of operating cash, or in virement of funds only paid in mid-July for fuel deliveries made be- from other districts, divisions or line items. Re- fore the end of April and for which an invoice lying on credit from commercial stations is also was submitted in March. By that time, over risky because the line of credit may be stopped US$225,000 was owed, which would under- at any time because the station cannot be as- standably make the supplier hesitant to commit sured of payment.19 to further deliveries unless payment was forth- Instead of obtaining credit from gas sta- coming.18 Clearly, the multiple, compounding tions, some districts borrow fuel from other TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 27 offices as noted in Table 2.1, such as the elec- company, may not provide fuel on credit for the tricity company, police, or NGOs operating in same reason. the area. In these cases, fuel is returned in-kind The use of emergency justification letters from stocks received from the contracted fuel also creates obligations that must be met later, supplier, thereby exacerbating shortages in sub- further undermining the use of CPVs as a form sequent periods. As there is a fixed storage ca- of budgetary control, and contributing to the pacity, it is not possible to ship additional fuel large budget overruns and reporting inaccura- retrospectively. cies across the available budget. While these Replenishment, once the flow of fuel has improvisations appear to speed replenishment begun for the year, appears to be less of a prob- of fuel stocks and, thus, allow continued health lem than delays or non-delivery at the start or service delivery, they undermine the basic pub- end of the year. In theory, the district can re- lic financial management system and potentially quest replenishment from the MoH Logistics reduce the supply of operating cash by creating Department whenever the tank is low. Since unapproved obligations on the overall goods and there should be a valid CPV and purchase or- services budget.23 der in place for the quarter, the delivery and subsequent payment should be able to be Fuel Vouchers done quickly. This is bolstered by the introduc- Fuel vouchers, which allow for the purchase of tion, in 2013, of weekly reporting on remaining a fixed dollar amount of fuel at any fuel station fuel stocks to the MoH Logistics Department. belonging to the contracted company, are an al- However, this information is not yet being used ternative means used to distribute fuel to MoH to trigger replenishment; a specific propusta still vehicles and offices. Central MoH departments needs to be submitted.20 use vouchers rather than in-kind delivery of fuel. The long delays in initial delivery and the At the district-level, only Dili reported using subsequent clearance of debts mean that re- vouchers regularly. plenishment is sometimes being requested in the Vouchers appear to help deal with some of form of urgent or emergency proposals from dis- the challenges in the fuel supply. Fuel vouch- tricts. In 2013, at least two such requests were ers are valid across calendar years, and so by re- made by letter in absence of a CPV, for amounts serving some of the 2012 vouchers for 2013, the up to US$18,000. In these cases, an emergency DHS in Dili did not suffer the same beginning- justification letter is sent from the Logistics of-the-year fuel shortages that other districts Department to the supplier.21 Since this letter did.24 Vouchers are also used as an emergency comes in advance of the supplier receiving a means of dealing with shortages through redis- cleared purchase order, it is effectively a further tribution from one department or division of the form of credit. However, the delays in signing MoH to districts experiencing shortages. If a contracts and the uncertainty over the renewal DHS runs short of fuel, the MoH Logistics De- or award of the fuel contract (described earlier partment may, after verifying the logbooks of in the section on procurement) have a dampen- the DHS, send vouchers already budgeted for ing effect on the ability of districts to use “emer- a central division to the supplier in order to re- gency measures” for fuel replenishment. At the plenish the tank of the DHS in question.25 In end of the year when a contract is about to end, this way, vouchers appear to offer a degree of and before a new contract has been signed, fuel needed flexibility and if used alongside in-kind deliveries are generally not made since there is provision—and properly accounted—they could no assurance that the company will be paid.22 (continue to) play an important role in dealing The district station, operated by the same with shortages. Fuel for Vehicles and Generators 28 However, while solving a short-term prob- Petrol for Motorcycles lem, the reallocation of vouchers contributes to Fuel for motorcycles, which run on unleaded misreporting of expenditures; vouchers are re- petrol, presents a set of specific issues beyond ported as expenditure in the originating divi- those associated with the diesel supply. There sion’s budget and in the year of purchase, but are many motorcycles in use, particularly at used for DHS activities that may even come CHCs, and these are essential for outreach and a later year. This also prevents better needs- community-based programs. The five surveyed based budgeting from occurring in subsequent districts reported having a total of 211 motorcy- planning periods. From a public financial man- cles (of which 30 are out-of-service). The three agement perspective, the use of vouchers also most common uses for motorcycles are house raises the risk of misappropriation because there calls, SISCa missions and mobile clinics—which are no real controls on where, when and how indicates the central role that motorcycles play they are used after being issued.26 Due to the in primary health service delivery. Some motor- risks presented by the transferability of vouch- cycles are provided from particular programs or ers, such a combined system should probably be donated by NGOs, and so those activities—for piloted first. example, malaria outreach or leprosy—are pri- oritized when using those vehicles.28 CHC-Level Challenges The basis for the allocation of the budget for The DHS-level fuel supply problems described motorbike fuel to each district is not clear. Some above have a direct impact on health service de- districts receive petrol out of the fuel budget for livery at the CHC level. Many CHCs have lit- motorcycles, and indeed fuel company records tle or no on-site storage capacity for fuel and, show deliveries of petrol. Some CHCs report therefore, rely directly on availability at DHS that they do not receive any petrol in-kind, but level to meet requests. The uncertainty regard- purchase fuel for motorcycles using their oper- ing the fuel supply at the CHC level is immense ating cash allowance. In other cases, staff claim because there are no consistently applied crite- that they pay for the fuel themselves in which ria for fuel allocation from DHS to CHC level— case reimbursement practices also vary. One something which is further aggravated by the CHC reported that, where possible, it uses the delays and uncertainty about fuel delivery to the imprest advance to reimburse staff for motor- DHS. What is certain is that the fuel supply to cycle fuel, whereas another CHC reported that CHCs is not based on a predetermined sched- this was not permissible.29 In yet another CHC, ule of planned activities. staff reported that purchases of motorcycle fuel In addition, the process of fuel delivery were the largest expense that they had to pay from DHS to CHC varies. In Dili, CHCs report out of pocket without reimbursement. In one that vouchers are used, but, in general, vehicles district, the DHS solved petrol shortages by must be brought to the DHS for refilling and trading diesel for stocks of petrol.30 also to pick up the fuel for generators. Without sufficient onsite storage capability, many CHCs report significant costs in both time and fuel us- Recommendations age simply for the process of refilling and collect- ing generator fuel from the DHS. Current processes and practices do not effec- tively link policy, planning and budgeting for If we have 30 litres left in the car, have to fuel so as to ensure a sufficient and appropri- go to DHS to refill—but it takes 20 litres ately distributed fuel supply at the district level. to get here.27 It is vitally important that steps are taken to TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 29 generate fuel budgets that are more grounded processes to include an effective mechanism in the needs of the district and that the report- that will allow districts to adjust activity plans ing and accounting for fuel purchases is accu- in accordance with available budgets during the rately attributed to their real use. Also, there budget preparation process. These adjustments, are tremendous inefficiencies in the procure- as suggested in Chapter 1, may consist either of ment, requisitioning, and delivery of fuel. These effective prioritization of plans in advance, or inefficiencies introduce significant delays in the sufficient time for a round of adjustments to be fuel supply system and contribute to uncer- built into the planning cycle. In either case, com- tainty about fuel provision at central- and dis- munication of revised estimates to districts and trict-level, and also among suppliers. their involvement in planning throughout the The following actions could be considered cycle is required. to help improve the current situation: Improve budget reporting on fuel expen- Linking, Planning and Budgeting ditures and use. It appears that reporting of There is currently a vicious circle at play where fuel deliveries and expenditures in the Financial inaccurate budgeting and consistent overspend- Management Information Systems is somewhat ing contributes to budget shortages, which arbitrary, and that there are large uncounted are then covered by transfers from other parts transfers through vouchers and in-kind credit. of the budget and reallocated across fuel line Without accurate reporting and account- items. The result is that reporting on fuel spend- ing for fuel use, it will be impossible to adjust ing does not reflect the true levels of fuel expen- budgets to match actual fuel needs. An audit diture (and need) in each district. This problem of FMIS entries for fuel deliveries to see that needs to be tackled from both the budgeting and they are matched with the appropriate district reporting sides. codes would be useful; it would reveal where, and how much, fuel is actually being used. The Strengthen planning for the fuel budget al- MoH Logistics department may also consider location. Planning for fuel use needs to be in- collecting and analyzing data on the mileage of corporated into the District Implementation vehicles by district to serve as an indicator of the Plans (DIPs) for vehicle use or mileage. If DIPs accuracy of fuel budget reporting, which would are not (yet) advanced enough to provide this require increased attention to the careful use of estimate, then an alternative (interim) planning logbooks. The transition to district level FMIS model based on number of vehicles, facilities data entry that is called for in the MoH’s PFM and visits should be used. One possibility is to Roadmap could help to improve the accuracy of build on the planning norms for fuel consump- budget accounting for fuel at the point of use, tion that have recently been developed for the but this reform will require considerable com- SISCa program (the MoH’s Integrated Com- mitment and capacity development at the dis- munity Health system which relies heavily on trict level. mobile clinics and outreach), using them as the foundation of a district-wide system. Another Clarify specifically how motorcycle fuel model is the activity-based costing pilots being should be planned for and procured. There implemented in Ermera district. The planning is a clear need for a policy on the planning, bud- templates under development and envisaged in geting, and provision of petrol for motorcycles, the MoH’s Public Financial Management (PFM) and for these guidelines to be understood across Roadmap should serve this purpose. However, the country. An inventory of motorcycles and it is crucial for these activity-based planning a set of planning guidelines for motorcycle Fuel for Vehicles and Generators 30 fuel use should be developed, as a part of the management under framework contracting in broader vehicle inventory (discussed in Chapter which case the responsibility for fuel provision 3). Consideration also needs to be given to how would also be shifted to the contractor. This the fuel budget for motorcycles should be pro- possibility is discussed further in the recommen- vided. It may not be optimal to provide motor- dations of Chapter 3 on vehicle maintenance cycle fuel in the same way as the larger budget and repair. for diesel because quantity requirements, stor- age capacities, and local availability may be dif- Improve the performance of the requisi- ferent. The budget for motorcycle fuel might be tioning and payment system. Late initiation best provided as part of operating cash in order of propustas, CPVs and POs delay the deliv- to allow DHSs and CHCs the flexibility to pur- ery of fuel. Permitting the automatic trigger- chase it directly (including in the district), or by ing of propustas when fuel stocks are low and using a separate voucher system. A possible first streamlining the authorization of CPVs for rou- step in this regard would be a pilot or feasibility tine expenditures (such as fuel) would help to study for including petrol in local purchases. alleviate this problem. The CPVs should also cover a quarter of a year at minimum, but prob- Speeding Budget Execution ably longer; a practical suggestion would be to Ensure that the fuel procurement cycle have a CPV cover the entire year, with POs be- starts promptly. Management of fuel con- ing issued quarterly or semi-annually for all the tracts needs to be strengthened, both in terms deliveries in the period. The finance and pro- of the time taken to initiate the contracts, and curement manuals that are planned for as part the time taken to extend or modify existing con- of the MoH’s PFM Roadmap should include tracts. Moving toward a mixed system of fuel checklists, standard procedures and perfor- procurement where central provision is com- mance targets for processing CPVs, POs and bined with some flexible budget for local pur- payments for fuel purchases. Also, since the chases of fuel (discussed below) might ease the Treasury Payments Unit maintains records of problems caused by delays in completing con- payment requests that have been returned for tracting at the start of the year. Another mea- lack of required documentation, one could con- sure could be to include contract provisions that sider using these data to improve processes and allow for the extension of the previous year’s monitor performance either through periodic contract on a month-by-month basis if there are publication of statistics across government min- delays in the passage of the national budget, as istries or some other form of benchmarking.32 In well as implementation of the 1/12 regime to al- addition, one could revisit which level of minis- low payments in line with the previous year’s terial authority would be appropriate to approve appropriations.31 the commitment of funds for routine expendi- tures; delegation to lower levels could help to al- Consider including performance criteria in leviate bottlenecks and prevent delays. contract terms for supplier and MoH. For example, fuel suppliers’ contracts could stipulate Consider a complementary period for fuel maximum response times and penalties for fail- payment requests. The current strict MoF re- ure to comply. In addition, MoH could set per- quirements to close the year’s payment requests formance standards for itself, especially with in November may prevent some late-year ship- respect to timely payment after fuel has been ments of fuel. To remedy this, one might con- delivered and invoiced. There may also be scope sider a complementary period for payment for more ambitious privatization of vehicle fleet requests to be accepted into January, providing TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 31 suppliers more confidence that payment re- time. Yet, these same qualities undermine the quests for late-year deliveries will be accepted. credibility of the fuel budget. Vouchers could However, this recommendation would require play an important role in enabling flexibility in agreement across government departments. districts at times of shortage, and bridging gaps in deliveries by enabling local purchasing. A Increasing Flexibility in the Delivery of modified voucher system could allow a portion Fuel of districts’ fuel budget to be provided as district Permit local procurement of fuel in addi- or service-specific vouchers, preventing transfer tion to or in place of in-kind delivery. It is of vouchers without due recording in records. apparent from the survey that fuel—both die- Alternatively, a pool of reserve vouchers could sel and petrol—is already being bought and/or be introduced with its own account code, to borrowed locally in many districts. There is lit- be acquitted against the actual district in which tle evidence that the current practice of cen- they are used, similar to the way that the im- tralizing purchases results in substantial cost prest advance cash is acquitted. savings or efficiencies. While it may not be ap- propriate to eliminate all central procurement of Systematize CHC-level fuel supplies and fuel (as some districts may still benefit from reg- reserves. The PFM Roadmap already calls for ular in-kind delivery), a system to complement a system of sub-district management of fuel. the fuel deliveries with either budget or vouch- Consideration should also be given to the instal- ers for local purchases would dramatically in- lation of a fuel reserve at the CHC level. De- crease the ability of DHSs and CHCs to cope pending on the availability of fuel locally, these with shortages, and bridge the uncertain periods reserves could consist of physical fuel reserves, at the end and beginning of the fiscal year. The or vouchers for fuel purchase. Naturally, this fact that the SISCa program has been providing would need to be accompanied by an improved a fuel budget directly to the district since Au- reporting system for fuel usage. gust 2013 suggests that this kind of purchasing The recommendations of this chapter are is feasible. At the very least, a cash or vouch- in alignment with the MoH’s Public Financial er-based system for locally procuring motorcy- Management Roadmap, and provide concrete cle petrol should be workable. measures to its broader goals of improved re- source allocation and utilization. In combina- Modify voucher system to include dis- tion with the steps outlined in Chapter 3 they trict-specific or reserve vouchers. Fuel can contribute to more effective and mo- vouchers provide some flexibility in purchasing bile health service delivery at the district- and by being transferable across divisions and over community-level. Fuel for Vehicles and Generators 32 Endnotes 13 Review of Procurement Systems: Ministry of Health, 11. 1 Participant, Health Resource Tracking Study 14 A commitment payment voucher (CPV) sig- Consultation Workshop, World Bank Office, nals a commitment to spend by an autho- Dili (5 December 2013). rized spending unit, and triggers controls to 2 Car numbers used are those provided in the assure funds are available. Logistics Department’s consolidated trans- 15 Interview, Ministry of Health Logistics De- port list, which in some cases differs from partment (22 May 2013). the number of vehicles observed during field 16 Interview, Ministry of Finance Payments survey sites, and also includes inoperable Unit (10 May 2013). vehicles. 17 Interview, Aitula Fuels (16 May 2013). 3 Participant, Health Resource Tracking Study 18 Aitula Fuels invoices. Consultation Workshop, World Bank Office, 19 Interview, SISCa Program Manager (25 Sep- Dili (5 December 2013). tember 2013). 4 Interviews, Ministry of Health Department 20 Interview, Ministry of Health Logistics De- of Human Resources (7 May 2013) and Di- partment (22 May 2013). rectorate of Planning and Finance (7 May 21 Interview, Aitula Fuels (16 May 2013). 2013). 22 Interview, Aitula Fuels (16 May 2013). 5 Observations, Field Survey Team Oecusse 23 Participants, Health Resource Tracking (19 July 2013). Study Consultation Workshop, World Bank 6 The term “virement” refers to the transfer of Office, Dili (5 December 2013). approved budget from one accounting cate- 24 Interview, Dili DHS (10 May 2013). gory or line to another, as well as the proce- 25 Interview, Ministry of Health Logistics De- dures for such transfers. partment (22 May 2013). 7 Interview, Ministry of Health Logistics De- 26 Review of Procurement Systems: Ministry partment (22 May 2013). of Health, 4, 12. 8 Democratic Republic of Timor-Leste: Re- 27 Interview, CHC director. view of Procurement Systems: MoH of 28 Interview, CHC director. Health (Dili: Deloitte, July 2012), 6. 29 Interviews, CHC staff. 9 Document provided by Aitula Fuels Lda. 30 Interview, SISCa Program (25 September 10 Interview, Aitula Fuels (16 May 2013). 2013). 11 Interview, Aitula Fuels (16 May 2013). 31 The duodecimo or 1/12 regime is a legal pro- 12 “Contract Agreement for Supply of Fuel (Die- vision that 1/12 of the previous year’s budget sel & Unleaded Petrol) for Vehicles and Power for a given purpose may be allocated each Plants of Health Offices and Health Facili- month if the annual budget is not enacted by ties Countrywide” under Ministry of Health, the start of the fiscal year. Contract No: RDTL-MS-DNALA-12–325- 32 Interview, Ministry of Finance Payments B-ICB-0020(a), (May 2012); and Amendment Unit (10 May 2013). #02 of Contract No: RDTL-MS-DNALA-12– 325-B-ICB-0020(a), (Signed 11 April 2013). TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY ANNEX 2A Vehicle and Generator Fuel Budget and Execution Rates in USD, 2013 2013 2013 2013 2013 2013 Vehicle Execution 2013 Generator Execution Rate 2013 2013 T 2013 Vehicle Fuel Fuel Actual Rate of Generator Fuel Fuel Actual of Generator Total Fuel otal Fuel Total Fuel Budget Expenditures Vehicle Fuel Budget Expenditures Fuel Budget Actual Execution Aileu $34,000.00 $52,013.80 153% $6,000.00 $6,000.00 100% $40,000.00 $58,013.80 145% Ainaro $36,000.00 $43,067.25 120% $6,000.00 $6,900.00 115% $42,000.00 $49,967.25 119% Baucau $36,000.00 $47,247.00 131% $9,000.00 $10,350.00 115% $45,000.00 $57,597.00 128% Bobonaro $36,000.00 $41,300.00 115% $7,000.00 $8,050.00 115% $43,000.00 $49,350.00 115% Covalima $36,000.00 $43,400.00 121% $10,000.00 $11,500.00 115% $46,000.00 $54,900.00 119% Dili $36,000.00 $41,400.00 115% $8,000.00 $7,999.76 100% $44,000.00 $49,399.76 112% Ermera $25,000.00 $27,450.00 110% $8,000.00 $9,200.00 115% $33,000.00 $36,650.00 111% Lautem $21,000.00 $24,150.00 115% $9,000.00 $10,350.00 115% $30,000.00 $34,500.00 115% Liquica $22,000.00 $25,200.96 115% $7,000.00 $8,050.00 115% $29,000.00 $33,250.96 115% Manufahi $30,000.00 $36,135.06 121% $8,000.00 $9,264.00 116% $38,000.00 $45,399.06 119% Manatuto $21,000.00 $27,928.00 133% $9,000.00 $10,349.75 115% $30,000.00 $38,277.75 128% Oecusse $25,000.00 $25,000.00 100% $7,000.00 $15,780.00 225% $32,000.00 $40,780.00 127% Viqueque $30,000.00 $28,313.05 94% $8,000.00 $2,000.00 25% $38,000.00 $30,313.05 80% Average $388,000.00 $462,605.12 123% $102,000.00 $115,793.51 114% $490,000.00 $578,398.63 118% Source: MoF FMIS data, 2013. Fuel for Vehicles and Generators 33 CHAPTER Vehicle Maintenance and Repair 3 Vehicle maintenance and repair is a persistent This chapter focuses on financial and ex- problem for the Ministry of Health (MoH). It penditure management issues that contribute plagues all vehicle types—cars, motorcycles and to these problems with vehicle maintenance. ambulances/multi-function vehicles (MFVs)— Clearly, there are also technical and engineering and is a regular source of complaint among aspects that are important, too, but these are health workers. A District Health Services beyond the scope of the analysis. (DHS) staff member sums it up: “Vehicle condition, not fuel, is our pri- Planning and Budgeting for Vehicle mary constraint.”1 Maintenance At the time of the study, four of the five dis- The key to any planning process for repair, main- tricts surveyed report that at least a few of their tenance and eventual replacement of vehicles is vehicles were out of service. In total, about 45 the maintenance of an accurate and up-to-date per cent of the cars, 17 per cent of the ambu- inventory of vehicles. The existing system has lances/multi-function vehicles (MFVs) and 14 weaknesses: the inventory of vehicles does not per cent of the motorcycles were not operational match with the reported number of vehicles in (Figure 3.1). This means that as many as a third the districts, the age of vehicles and their mile- (32 per cent) of all four-wheeled vehicles may be age is not easily available, and the number of out of service at any given time. It is not surpris- working vehicles differs depending on the data ing, then, that district staff complain of long de- source used. lays in the repair of vehicles and large numbers of old or difficult to maintain vehicles in the fleet. Planning: Vehicle inventory Shockingly, the average time that these ve- A database of vehicles provided by the MoH for hicles have been out of service is over two years. May 2013 classified 82 per cent of cars and am- They lie idle, either due to inability to repair bulances (112 out of 137), and 72 per cent of mo- them, or the slow completion of repairs. The torcycles (349 out of 483) as being in working current situation appears to be no better than in order. For the five districts that were studied, the 2009, when an analysis of the MoH’s transpor- central inventory described 68 per cent of cars tation management estimated that 34 per cent and ambulances (36 out of 53) and 86 per cent of of four-wheeled vehicles in seven sampled dis- motorcycles (181 out of 211 s) as being in work- tricts were in poor or bad condition, or beyond ing order. A review of the central inventory com- economic repair.2 pared with records obtained by the study team 35 36 FIGURE 3.1  Operational Vehicles Reported at the Time of Survey in Five Districts Cars and Trucks Ambulance and Multi-function Vehicles Not operating, 4 Not operating, 13 Operating, 16 Operating, 20 Motorcycles Not operating, 30 Operating, 181 Source: DHS survey, 2013. at each district (see Table 3.1), revealed that across the five surveyed districts).3 There were while the total number of cars reported matched also differences in the number of vehicles re- central records, there were differences in their ported as being in working order; importantly, distribution among districts. For motorcycles, districts reported ten fewer four-wheeled vehi- on the other hand, there were significant num- cles in working order than the central inventory. bers of motorcycles at the district level that were District health staff participating in a con- not recorded in the central inventory (at least 27 sultation workshop, conducted as part of the TABLE 3.1  Comparison of MoH Central Vehicle Inventory With Survey Results Cars and ambulances Motorcycles Central Inventory Field Survey Central Inventory Field Survey Total Working Total Working Total Working Total Working Covalima 11 9 14 8 48 39 56 44 Dili 9 7 12 7 28 20 58 50 Manatuto 12 12 10 6 36 33 15 9 Oecusse 10 9 9 7 32 30 12 8 Viqueque 11 9 8 8 40 27 70 70 Total 53 46 53 36 184 149 211 181 Source: MoH Logistics Department Transport Database, May 2013. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 37 study, confirmed the mismatches between re- beyond repair, but as many as 16 per cent (75 cords in the central inventory and the availabil- out of 483) of motorcycles are. This is a large ity of vehicles at the district level, noting that number, and an immediate priority should be not only does this include differences in the to make a complete inventory of these vehicles number of vehicles, but also sometimes the and to develop an asset disposal plan. makes of vehicles and their maintenance re- More important than dealing with defunct cords.4 Whether the district-level estimates are vehicles, though, is the almost complete lack of more accurate than the central inventory is not regular (preventative) maintenance for vehicles certain, but the large discrepancies, and impli- that—at first glance—should be within their ex- cations for management of the vehicle fleet, pected lifespan. In this regard, it is important to are cause for concern. Because the central in- distinguish between maintenance (routine pre- ventory of the MoH consists of a static excel ventative activity to preserve and lengthen a ve- spreadsheet which can only be updated man- hicle’s lifespan) and repairs (fixing problems with ually,5 it may be that differences arise (at least vehicles as they arise). Maintenance should be in part) due to the inability of both district and a predictable expenditure based on the number central logistics to dynamically report and up- of vehicles and the mileage they need to cover, date the inventory database. while repairs are by nature less predictable. The The age of the fleet is a common com- current fleet inventory does not appear to allow plaint; with both district and central staff sug- for accurate planning of routine maintenance, gesting that vehicle age renders much of the nor for repairs when they arise. In turn, this im- fleet impossible or uneconomical to repair. One pedes the ability to budget accurately. MoH manager estimated that 70 per cent of the fleet is older than 10 years.6 In contrast, some Budgeting district staff observed that “most of the cars are The district level vehicle maintenance budget in a condition that can be fixed”, but are not be- is a clear case of arbitrary or ad hoc budgeting. ing repaired due to over-centralization of the re- For 2013, it was budgeted at a flat rate of ex- pair arrangements.7 actly US$29,000 per district—regardless of the Unfortunately, the vehicle inventory pro- size of the district, the number of vehicles in vided does not include vehicle age or mileage. use, their mileage or their condition. Using the In the district survey, information about vehi- MoH Logistics Department’s vehicle numbers cle age could be collected for 72 per cent (38 (i.e. the central database), this amounts to be- out of the 53) of the four-wheeled vehicles in tween a minimum of US$2,416.67 to a maxi- the five districts. For the rest, the respondents mum of US$3,625.00 per vehicle, depending on did not know. The reported age of these vehi- the district: the districts with the fewest vehi- cles ranged from 13 years old (i.e. a 2000 model) cles have 1.5 times as much budget for the re- to brand-new. The median model year reported pairs and maintenance of each car or ambulance was 2009, meaning that half of the vehicles are than those districts with the most vehicles. four years old or less. It, thus, seems very un- A vehicle maintenance budget that is likely that the median age of the fleet as a whole clearly unlinked with actual needs results, un- is as old as 10 years. surprisingly, in widely varying execution or The central inventory describes the gen- spending rates (see Figure 3.2 below). While eral condition of vehicles only by using the term the average 2013 execution of district vehicle “labele hadia” for those vehicles that are consid- repair budgets was about 90 per cent, this con- ered beyond repair. Only two four-wheeled ve- ceals variation ranging from only 41 per cent of hicles out of a total of 137 are described as being the budget (in Ainaro) to virtually 200 per cent, Vehicle Maintenance and Repair 38 FIGURE 3.2 Vehicle Maintenance Budget Execution by District, 2013 250% 200% 150% 100% 50% 0% Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque Average Source: MoF FMIS data, 2013. or double, the budgeted amount (in Manatuto). rather than the line item, activities unrelated to Where execution rates are low, this is not nec- vehicles, such as debt payments or providing dis- essarily due to lack of need, however, but could tricts with operating cash through the imprest rather be attributed to bottlenecks in the pro- account (see Chapter 1), could jeopardize the vision of maintenance services. As one director maintenance budget. of a district with a low execution rate observed, “sometimes there is unused money the Ministry of Health needs to return to the Ministry of Fi- Budget Execution nance at the end of the fiscal year, while we are struggling in the district.”8 In this sense, there is The process of spending the vehicle mainte- no link at all between the requirements for ve- nance and repair budget is beset with challenges. hicle maintenance and repair on the one hand, One prominent issue is poor procurement and and budgeted amounts on the other. contract management. A second issue is the Budgeting difficulties are compounded by minimal expenditure on routine maintenance. the fact that the budget for vehicle maintenance The third issue is the slow requisition, com- and repair is a single line item in the goods and pletion and payment of repairs. Lack of main- services category, meaning that both activities tenance results in excessive and unpredictable are budgeted, funded and accounted for to- repair costs as vehicles break down sooner than gether. This means that even if budget control they might otherwise; the slow procurement, was exercised at the line item level (which it is requisition, completion and payment of repairs not9), there would not be an easy way to iso- results in unsustainable debt being carried over late expenditure on repairs from the budget for year after year, posing a fourth challenge. In ad- routine maintenance. The result is that if there dition, there are a number of challenges specific is over-spending on vehicle repairs or large debt to motorcycles. payments for repairs previously invoiced, there may not be budget available for routine mainte- Procurement and Contracting nance. In fact, given that budget control is ex- In recent years, vehicle maintenance and repair ercised at the level of the economic category has been procured via bulk contracts with one TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 39 or two providers who carry out the work at fa- guidelines at the district level means that there is cilities in Dili. In 2012, two suppliers were under little structure in place to ensure routine mainte- contract: Eravizul Services and Sousa Motor nance takes place, and a lack of clarity over who Repair. Both suppliers had contracts in effect bears responsibility for ensuring that it does. during the study period. Eravizul’s contract was Out of the five DHSs surveyed, four claimed effective on 22 June 2012, and valid until 22 June that some routine maintenance is carried out, 2013.10 Sousa’s contract was valid from 1 Janu- while one said no routine maintenance takes ary until 31 December 2012 (i.e. the 2012 fiscal place. Of the two districts surveyed that are far- year), but was subsequently extended through thest from Dili—Oecusse and Viqueque—one amendments to 31 May 2013.11 The MoH signed was carrying out some maintenance, and the this extension only on 11 April 2013, meaning other was not. However, interviews with district that the amendment was in force for less than staff and an examination of invoices suggest that two months. if it is taking place, maintenance is extremely lim- Examination of Eravizul’s contract shows ited, is primarily carried out only when another that the terms of reference define the parts and problem with the vehicle arises, and is not based labor costs of a range of specific repairs, includ- on a regular schedule. It can therefore hardly be ing a set of four routine maintenance packages, described as “routine” maintenance. labeled A, B, C, D, reflecting the mileage inter- Between January and June 2013, invoices vals at which they should take place.12 How- from the two maintenance suppliers show ever, the contract neither includes terms for that two of five surveyed districts had no rou- the transport of vehicles to and from Dili should tine maintenance services at all. The other three they be immobile nor does it provide any spe- districts had a total of eight cases of mainte- cific terms for district-level provision of main- nance package C, one of maintenance package tenance or repair services by the supplier.13 The D, and one of maintenance package A. In four lack of clarity in the payment provisions and lack of the eight examples of maintenance package of performance criteria further contribute to C, the same vehicle also had other major repairs delays in the delivery of repairs, as described be- or parts replaced at the same time, suggesting low. In addition, some district directors reported that maintenance was done only at the time of that the uncertainty regarding the continuation a breakdown. A district director confirmed this or signing of new contracts for maintenance re- approach in an interview: sults in reluctance to send vehicles to Dili, espe- cially toward the end of the fiscal year; there is We do not make a distinction between a concern that should the supplier’s contract not maintenance and repair. If something be renewed, the repairs will not be carried out. small is broken we call it “maintenance A/B”. If something bigger is broken we Lack of Routine Maintenance call it “maintenance C/D”.15 There is a package of four routine maintenance activities defined by contract (as described In summary, at the very most ten out of above) and there are MoH guidelines for these 36 working, or 53 total, four-wheeled vehicles service packages. However, district staff are not in the surveyed districts received any form of very aware of the content of these guidelines, centrally-procured maintenance during the first and reported that training had not been given.14 half of 2013. However, when vehicles that re- Taken together, the lack of contractual pro- ceived maintenance because they were also in visions for regular maintenance checks coupled need of repairs are excluded from this tally, the with the lack of dissemination of maintenance number of vehicles receiving maintenance falls Vehicle Maintenance and Repair 40 to four. While some very basic maintenance the districts, there is some technical capacity at is conducted at the district-level (for example, the district level that could be built upon. All five changing tires or oil), there is clearly inadequate district directors surveyed reported having pri- attention to routine maintenance. vate sector mechanics capable of carrying out This situation is not surprising given the “minor” repairs in their districts, and two of the system for managing routine maintenance. The five reported that these mechanics could also central suppliers are not required, or incentiv- conduct more significant repairs. With the ap- ized, as part of their contracts to monitor the propriate quality control and spare parts, local mileage of vehicles, nor to send staff from Dili procurement of maintenance and possibly repair to perform simpler maintenance activities in the is an option that could be explored. district. Districts themselves face long delays in This should be complemented by increased the return of vehicles, significant fuel costs, and driver training and awareness on routine main- loss of staff time when vehicles are sent to Dili. tenance needs. The 2009 review of transport It is therefore understandable that the districts management noted that vehicles were not pro- often continue operating vehicles that are long vided with repair kits, there was no program overdue for maintenance. of planned preventative maintenance, and lit- An alternative could be to use local me- tle training or orientation of drivers.16 It seems chanics for routine maintenance. While there that this situation has not changed, as one dis- is not as much local mechanical capacity as one trict staff participant in the consultative work- might wish, as well as a lack of spare parts in shop noted: FIGURE 3.3  Requisition, Verification and Payment Process for Repairs, 2013 • Pedido reparasaun DHS • Ordem de Serviço MOH Logistics • Vehicle transported to Dili MOH/Supplier • Work completed • Invoice (may consolidate group of repairs) Supplier • Verification (Logistics) MoH • Verification (Procurement) Procurement • CPV (Note commitment comes after completion of work, not before) MoH • Purchase Order/Payment Request to Treasury Department Finance • Check MoH Payments Source: Authors. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 41 It will be more efficient to provide short The MoH has two mechanics who are as- training or introduction on the usage of signed to travel to assess repairs to determine if the new vehicles, so that small mistakes vehicles should be transferred, or if parts should in causing minor problems to the car can be brought to the districts. It is unclear from be avoided. For example, one new car the data gathered how frequent or how timely has just been provided by the NHSSP-SP this service is, or how this relates to the me- project to [our] district and due to lack of chanics’ other duties. Once the vehicle is trans- understanding on how to operate the car, ported to Dili, work is completed and invoiced. the driver broke the lid of the petrol tank.17 Typically several invoices are grouped together by the supplier, and the supplier submits a re- Slow Requisition, Servicing and quest for payment summarizing all the invoices Payment for Repairs for a given period, usually covering several di- When vehicles do break down, there are prob- visions across the MoH. The MoH Logistics lems transporting them to Dili, as well as repair- Department and the National Director of Pro- ing and returning them to the districts in a timely curement verify the work and authorize pay- manner. The process for requisitioning, billing, ment. The MoH Finance Department raises a and paying for maintenance and repairs broadly CPV, issues a purchase order, and a payment re- follows Figure 3.3. It is important to note that quest for the Ministry of Finance Payments Di- the process is the same both for routine mainte- vision, which will then issue a check. It is vital nance (if and when that ever occurs) and for re- to note that the normal control systems of the pairs after a vehicle is damaged. CPV and purchase order do not apply here since The district or MoH Logistics Department the CPV and subsequent PO are only issued af- begins the process with a request specifying the ter the consolidated invoices for work already vehicle and the job to be carried out. This re- completed have been submitted with a payment quest takes the form of a Pedido (request) from request by the supplier. This means that repairs the district, or an Ordem de Serviço (service or- are conducted before their cost is compared der) from the MoH Logistics Department. The to budgeted amounts and available remaining documentation for all 2013 transactions exam- spending, creating obligations for the govern- ined for this study showed that either a Pedido ment without regular public finance control. or an Ordem is normally used, not both. How- There are often delays in transporting ve- ever, in earlier years sometimes both types of re- hicles to Dili for repair or maintenance work. It quests were used. is unclear from the contract with suppliers who Box 3.1: Oecusse’s Unique Challenges Oecusse’s enclave geography, surrounded by Indonesian West Timor, presents special challenges for a cen- trally procured and delivered maintenance and repair system. Interviews in Oecusse at both district- and community-level confirmed that all maintenance and repairs, except tire repairs, were being carried out in Dili. Transporting vehicles by ferry involves US$300 in transport costs and a minimum three-day delay as ferries travel only twice a week. Land crossing requires a visa of US$90 per person each way and involves delays at the border with Indonesia.19 Without doubt, decentralization of some routine maintenance and minor repair functions would be beneficial. One possibility, suggested by health staff, would be to use Indonesian mechanics in West Timor, where there is believed to be sufficient mechanical capacity and good road conditions. Vehicle Maintenance and Repair 42 has the responsibility for transporting vehicles if suppliers, which in turn caused delays in them they are immobilized. As mentioned earlier, it starting new work. An analysis of the finance does not appear in the suppliers’ terms of refer- documents for all repair and maintenance trans- ence. Consequently, neither the supplier nor the actions for the five survey districts and two DHS have funds budgeted for towing or other maintenance suppliers between January and transport. Several districts explained that they September 2013 shows that the average time to have to request the central Ministry of Health send an invoice for work done was nine days, al- to transport vehicles, but also expressed frus- though this period varied quite widely from zero tration that this process could take considerable up to 42 days (see Table 3.2). In some cases, it time. These delays are the worst in more re- appears the request (i.e. pedido or ordem) was mote districts. Oecusse, in particular, faces spe- prepared at the same time that the work was cial challenges (see Box 3.1). done, suggesting that repairs may be initiated The availability of spare parts is another informally. Also, the suppliers appear to group reason for slow repair times. One district di- invoices from a series of repairs across various rector pointed out that his DHS vehicles come districts, which may introduce some delay be- from several different countries which means fore they request payment. that they require different spare parts that are It typically took 30 days for the payment re- not easily available.18 A story that was told to quest to be approved by the Procurement De- the survey team, and described in Box 3.2, il- partment of the MoH, although this period lustrates clearly the consequences of delays could last up to two months. The average period in vehicle recovery and poor management of between the approval and the issuance of a CPV spare parts. by the MoH Finance Department was even lon- The impact of these delays on the provi- ger, at 43 days, and could be up to 71 days. Once sion of health services could be reduced or even a CPV was raised, the creation of a purchase or- prevented through the use of back-up vehicles der and payment request to the MoF Payments during maintenance or repairs. However, there division took less time—about two weeks al- is no systematic provision of back-up vehicles. together. A few purchase orders were con- This, in turn, may be (at least partly) related to siderably delayed—48 days in one case. Taken the absence of a predictably-scheduled mainte- together, the length of time from the supplier’s nance plan. payment request for work completed to the Several districts suggested that slow repair MoH requesting payment from MoF was never work was also due to delays in payment to the under two months, and could be well over four Box 3.2: The Two and a Half Year Multifunction Vehicle Repair A multifunction vehicle broke in July 2011 in a community.20 The DHS waited for the MoH to bring it to Dili until September 2012 (14 months). When there was still no action, they transported it to the DHS using the imprest/operating funds. In August 2013, they again used operating cash to hire a tow truck to send the ve- hicle to Dili. Only after the vehicle arrived in Dili was the part needed ordered from abroad, introducing a further delay. Eventually, in December 2013, about two and a half years after the breakdown, the vehicle was re- turned. In the opinion of the district staff, the actual repair could have easily been done in the district if the parts had been available from Dili and the MoH could have organized to have the parts sent to the district.21 TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 43 TABLE 3.2  Number of Days for Maintenance and Repair Processing Steps Standard Average Minimum Maximum Deviation Pedido or Ordem to Invoice 9 0 42 15 Supplier Payment Request to Approval 30 12 61 18 Approval to CPV 43 24 71 19 CPV to Purchase Order 12 2 48 13 Purchase Order to MoH Payment Request 2 0 7 2 Supplier Payment Request to MoH Payment 87 64 132 22 Request (Total to Payment) Source: Documents for all January-September 2013 transactions for the five study districts. months. In 2013, no payments were made at all to improve this performance would have a big before May, and as will be shown below, most impact on the speed of payment, and poten- of these first payments were debt payments for tially the ability of the suppliers to continue work already carried out in the previous year (or their work. even earlier). The MoH Logistics department also pro- This pattern demonstrates that the pro- vided documentation for transactions in each cessing of approvals by Logistics and Procure- of the five survey districts for the previous year, ment and the subsequent raising of the CPV 2012. While these were incomplete, analysis of for payment are the key bottlenecks in the the five complete transactions (one per district) requisition, completion/supply and payment showed a similar pattern of long delays between chain. It is notable that for almost all transac- supplier invoice and verification of the repairs, tions two payment requests to Treasury, about contributing to long delays in payment (see Fig- two weeks apart, were filled out for each ure 3.4). Of the 78 days that it takes, on average, transaction, suggesting that incomplete docu- from the request for repairs to their verification, mentation may have slowed processing. Steps 50 days were taken to verify completed work, FIGURE 3.4  Average Days for Requisition, Invoicing and Verification of Repairs, 201222 Average No. of Days 0 10 20 30 40 50 Pedido to Ordem Ordem to Invoice Invoice to Verification Source: MoF Logistics documentation. Vehicle Maintenance and Repair 44 delaying payment to suppliers by almost two that have not been entered into the Freebalance months. accounts payable system. As observed in the chapter on Operating Cash, IMF assessments Debt of Timor-Leste’s public financial management Poor budgeting and slow payment have com- have praised it for the lack of substantial arrears, bined to create an ongoing pattern of large ve- when in fact these budget lines have very large hicle repair debts being carried over from one amounts of debt being passed from one year to fiscal year to the next. In some cases, these the next without being planned or accounted debts were considerably larger than even the for in the budget process.24 There is a persistent cost of current repairs. An analysis of each of problem across budget lines of accumulated the five sample districts’ payments for vehicle off the books debt, indicating generalized un- repairs demonstrates the scale of the problem der-budgeting or overspending for districts that (see Table 3.3). requires a systemic response. Almost all of the first set of payments for these five districts in 2013 was in fact used to Motorcycle-Specific Issues pay off repair debts carried over from 2012 or There are some particular issues that affect the even earlier, and it was July or August before maintenance and repair of motorcycles, which any new payments were made. These debts are crucial to several key health services includ- contribute substantially to the erratic budget ex- ing mobile health services via SISCa, emergency ecution rates presented earlier. For example, the response, outreach, and monitoring and evalua- US$13,394.50 paid against debts by Manatuto, tion.25 In 2009, a survey of seven districts found considered against a budget of US$29,000, was that 38 per cent of motorcycles were in poor, a major contributor to the district’s high execu- bad or beyond repair condition.26 Our survey of tion rate of 198 per cent. Examination of 2012 five districts found 15 per cent of the motorcy- documentation shows that large debts were cles functioning, while the inventory provided owed to the previous supplier—A1 Services— by the Ministry suggests 28 per cent of a smaller from 2011, and were subsequently paid from the total number of bikes in the same districts are 2012 budget. For example, in 2012 Oecusse paid operable. It is clear that an up-to-date inventory US$17,873.00 to A1 Services for debt on 2011 of (operable) motorcycles is not in place. vehicle maintenance.23 There appear to be no official guidelines or It is important to emphasize that these debts shared understanding across districts about who are effectively “off the books” from the point of is responsible for motorcycle repair and mainte- view of the Ministry of Finance as they are in- nance. The survey data from the ten CHCs vis- formal arrangements or outstanding invoices ited demonstrates this variation. Across these TABLE 3.3  Share of 2012 (or earlier) Vehicle Repair Debt in the First Payment of 2013 Month of 1st Payment for District Payment Total Payment USD Debt in USD Debt as % of Total Covalima June $3,917.50 $3,917.50 100% Dili May $5,862.50 $5,862.50 100% Manatuto May $14,287.00 $13,394.50 94% Oecusse May $10,862.50 $9,595.50 88% Viqueque May $3,609.00 $3,609.00 100% Source: MoF data; MoH Finance documents. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 45 ten CHCs, 68 out of 76 motorcycles pres- motorcycles. The maintenance of an accurate ent were reported as functional (almost 90 per and up-to-date vehicle registry is key to fleet cent). In eight out of ten CHCs, motorcycles management. There is still room for significant were repaired locally or at the district center, improvement in reporting guidelines and sys- and in five of those eight communities the staff tems for accounting for the variety of vehicles using the motorcycle had to pay all costs—with- held by the MoH. This should include relevant out reimbursement. In one case some larger re- characteristics, such as mileage, age, mainte- pairs were reimbursed, and in another case staff nance schedule, and general condition. Mo- were reimbursed from pasta mutin, having re- torcycles seem to be particularly inaccurately quested DHS permission before paying for re- accounted for, probably as there are a number pairs. One CHC staff member claimed that of sources for new motorcycles, including do- staff sometimes pay out over US$100 per year nations from NGOs. A dynamic database that in repair costs. can be updated through regular DHS reporting In one remote community, CHC respon- processes would be superior to a static inven- dents insisted that motorcycle repair was a cen- tory that is centrally updated. In the absence tral function and that they must send any broken of a new database, the static register could be motorcycles to Dili. As a consequence, only two periodically published through internal systems out of five motorcycles were operational. Over- to allow DHS Directors to compare entries di- all, these data indicate a large degree of improvi- rectly and make or request corrections. sation and sacrifice by district staff in the face of unclear guidelines and inadequate provision for Perform a vehicle economic evaluation and maintenance of a key service delivery input. establish guidelines for periodic replace- ment and disposal of defunct vehicles. Along with the establishment of an accurate in- Recommendations ventory, a once-off evaluation of the cost of re- pair or replacement for the vehicle stock should The current situation seems slightly improved be carried out, and guidelines for future periodic since 2009 when a review described the MoH assessment created. as having “no effective transport management system”.27 There is now a basic central inven- Rationalize the distribution of existing ve- tory of vehicles and their condition, and the hicles. Given that there are a range of vehicle data suggest a slightly higher proportion of ve- types in the fleet currently, there could be some hicles are in working condition. However, there redistribution of vehicles among districts to en- are still severe weaknesses in the planning tools sure that vehicles are deployed in a way most available, budget allocations, and management effective for facilitating repair and procurement of spending for routine maintenance and re- of spare parts. For example, the more easily re- pairs. To strengthen the vehicle maintenance paired or more rugged vehicles could be allo- and repair system the MoH could consider the cated to the more remote locations. following changes to its public financial man- agement arrangements for vehicle maintenance Establish a planning and budgeting pro- and repair: cess for district-level maintenance and repair requirements. The planning and mon- Planning and Budgeting itoring and evaluation unit of the MoH is intro- Establish an easily and regularly up- ducing district-level planning templates to cost dateable asset register for vehicles and activities during the MoH’s budget preparation Vehicle Maintenance and Repair 46 process. It should also include—based on an ac- and result in shortfalls either in the repair and curate inventory (which includes vehicle type, maintenance budget, or in other elements of age and mileage)—a maintenance plan and bud- the goods and services budget. Requirements get for all vehicles. If mileage is difficult to esti- for suppliers to present all invoices prior to the mate accurately, maintenance scheduling should year’s end need enforcement. In order to pre- be done on a time basis to ensure district bud- vent the future accumulation of debt, the MoF gets are allocated based on needs, not an arbi- might also consider a “complementary period” trary flat rate. In addition, a simple repair budget after the end of the year, when pending pay- should be calculated separately from the main- ment orders can still be paid from the previous tenance budget on a per vehicle basis. Even if year’s budget.28,29 the national chart of accounts continues to keep repair and maintenance together in the same Distinguish requisition and payment pro- budget line, MoH-level expenditure planning cesses for maintenance from that to be should clearly distinguish budgets and cash flow followed for repairs. Expenditure on main- plans for each. tenance needs can be predicted and, if planned on a time basis as suggested above, can be pro- Consider outsourcing some of the fleet grammed in advance. Issuing a pre-cleared CPV management functions to the private sec- for all planned routine maintenance for each tor. While the focus of this chapter is on under- quarter or even longer should reduce payment standing and making recommendations on how times for those activities by 1–2 months, easing to improve the existing public financial arrange- the accumulation of debt and helping prevent ments, it is also important to consider whether delays in starting (unplanned) repair work. alternative approaches to fleet management, including contracting out to the private sector, Incentivize national suppliers to improve may allow for better planning and budgeting, performance. The contract for supply of main- and eventually more efficient repair and main- tenance and repair services at the national level tenance services. This is discussed further in the needs to be prepared in the previous year. It following section and in Box 3.3. could incorporate service standards and targets for the following: Budget Execution Document all arrears/debt and budget for  vehicle recovery time; repayments. National assessments of the pub-  spare parts in stock; and lic expenditure management system in Timor-  mobile mechanical support for routine Leste make almost no mention of arrears, yet maintenance in the districts. this study shows that there are large undeclared debts in the form of debts to suppliers. These Contracts need to clearly specify who is debts are held off the books with suppliers of all responsible for the recovery of immobile vehi- kinds through informal arrangements; outstand- cles and for ensuring that routine maintenance ing invoices are not entered into Financial Man- schedules are maintained, and might also in- agement Information Systems. Consequently, clude incentive payments for good performance, documenting all arrears/debt may require mak- or minimum standards for contract renewal. ing inquiries with all suppliers. Without docu- menting the scale of this problem and making Consider private sector contracting for provision for the settlement of debts by the end a more comprehensive package of fleet of the year, budget mismatches will continue, management services. An alternative, TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 47 Box 3.3: Privatization of Fleet Management, Repair and Maintenance: An Alternative? Given the many challenges and delays in requisitioning, obtaining, and paying for repair and maintenance services, a question that arises is whether improving the existing public system of vehicle provision, main- tenance and repair is the best approach, or whether consideration should also be given to a more ambitious approach of contracting out not only the repair and maintenance services, but also the entire provision of the vehicle fleet to the private sector. This approach is already being piloted for the ambulance fleet. In addition, the International Finance Corporation (IFC) is exploring the feasibility of the privatization of select health inputs with the Ministry of Health, including vehicles.30 While this chapter did not investigate the feasibility of a more extensive privatization option, its find- ings on the experience with the contracting out of repair services and maintenance services—as well as purchasing fuel (see Chapter 2)—raised some important issues. • In Timor-Leste, there may be some limitations to the normal cost advantages that can be achieved via the competitive bidding process. An assessment of private sector capacity—and interest—would be essential. • Ministry of Health capacity to manage straightforward goods and services contracts is currently ex- tremely lacking, and any effort to introduce a system of framework contracting for fleet management would require a major effort to upgrade contract management capacity, as well as to improve national regulatory capacity. • This upgrading would either require support to existing MoH structures to improve their performance, for example through introducing performance criteria as outlined above, or through the wholesale cre- ation of a new MoH contract management unit and national regulatory institutions. • The latter approach would entail a large international development assistance effort and considerable expense, and therefore should be carefully assessed to ensure (a) a reasonable prospect of success and (b) significant impact to justify the investment. Taking all these factors into consideration, it seems prudent to go down two paths in parallel: first, continue to work on improving the contracting arrangements for currently privatized functions and gradu- ally build capacity, while secondly, and simultaneously, exploring the more ambitious possibility of moving towards further privatization over the medium-term. The latter would likely require buy-in from across the government and a large investment in management capacity that is possibly best undertaken as part of a broader inter-ministerial capacity-building in contract management. more ambitious approach, would involve the staff seem to think that decentralizing some outsourcing to the private sector of a much maintenance and/or repair tasks to the local pri- more comprehensive package of fleet provi- vate sector could improve efficiency and per- sion and management services than is cur- formance. The fact that local staff / DHS pay rently provided by the national suppliers (see out of pocket for motorcycle repairs, while a fi- Box 3.3). nancial burden that health staff should not be expected to bear, demonstrates that some ca- Decentralize some of the simpler mainte- pacity to carry out repairs exists at district level. nance and/or repair services. Many health Formally decentralizing maintenance and repair Vehicle Maintenance and Repair 48 would require (i) ensuring that technical capac- Consider staffing the districts (or groups ity exists, and (ii) adjusting the financial and ad- of districts) with dedicated transport ministrative systems to allow for purchasing it at managers, or expand the training and re- the district/local level. sponsibilities of drivers to include routine maintenance activities. In 2009, driver train- i. Technical: A simple system of certification ing was virtually non-existent, and there is still of local mechanics could be introduced a need for increased attention to driver skills, to establish what level of routine mainte- including routine maintenance.31 Clear district nance or repair can be carried out locally, level responsibility and accountability for ensur- perhaps in collaboration with other minis- ing that maintenance schedules are observed is tries maintaining vehicle fleets in districts. also needed. A less ambitious alternative may Different district-level mechanics could re- be to establish a regular maintenance round of ceive different levels of certification, de- the districts to be carried out by the central- pending on their competencies. One could ly-based mechanics; currently this occurs on an also consider adjusting the contractual ar- ad hoc basis. rangements with the central supplier to in- clude services such as ensuring spare parts Provide back-up vehicles. A list of back-up are stocked for delivery to district certified vehicle requirements for the districts is needed, mechanics, and even the training of dis- along with a deployment plan. It may be possi- trict/local mechanics. ble to align this with the existing technical sup- ii. Financial/administrative: MoH procedures port that the Australia Department of Foreign would need to be adjusted to allow for Affairs and Trade (DFAT) and Charles Kendall local maintenance or repairs to be paid. Consulting are currently providing. This could occur in one of two ways. They could be paid for out of the imprest. Develop a consolidated transportation pol- Current MoF and MoH guidelines do not icy and manual. Changes to the operating and permit this. Funds would need to be re- financial procedures should be consolidated into plenished based on the acquittal of vehicle a transportation manual to avoid continued am- maintenance and repair spending within biguity over issues such as motorcycle mainte- pre-approved limits. An alternative, partic- nance, reimbursement, and responsibility for ularly if more significant maintenance and vehicle recovery. Transportation policy should repair services were to be decentralized, cover asset registration and management, in- would be to introduce contracts for lo- cluding clear triggers for registering new assets cal providers managed by the central level from various sources. The policy and manual and paid for via CPVs and purchase or- would need to be widely disseminated. ders through the district sub-Treasury of- In conclusion, the recommendations of this fices (when they are established). Moving chapter are aligned with the existing PFM Road- to framework contracts, which use a sin- map of the MoH. This means that an overall gle payment (or a very small number of policy framework for the implementation of the payments) that covers the routine main- recommendations is in place. First, the Road- tenance of the entire district fleet, rather map calls for an asset management system to be than requiring repeated payments for ev- introduced in 2014, including district data entry ery maintenance service, as is practiced capabilities and linkage to the Freebalance sys- currently, would be a tremendous im- tem’s asset management module. Second, the provement. Roadmap envisages the development of budget TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 49 templates for linking annual plans to budgets various ministries and, in particular, the Ministry (2012–2015), which should include planning of Health. Ideally this would be in the context norms for routine vehicle maintenance and esti- of the development of an action plan, likely fo- mates for repairs. As with the recommendations cusing initially on ensuring these planning tem- of the other chapters, these recommendations plates come to reflect both district needs and need to be discussed, and planned for, with the final budget allocations. Vehicle Maintenance and Repair 50 Endnotes 13 Contract No. RDTL-MS-DNSHE-09-C- 0001, Annexes I-III. 1 Interview, Dili DHS (10 May 2013). 14 Participants, Health Resource Tracking 2 Mark Nicholson, Transport Management Study Consultation Workshop, World Bank System Situation Analysis (World Bank, De- Office, Dili (5 December 2013). cember 2009), 5. 15 Interview, District DHS staff. 3 This may be explained by donated motor- 16 Nicholson, Transport Management System cycles whose information may not be prop- Situation Analysis, 6. erly recorded, and possible inconsistencies in 17 DHS Director, Health Resource Tracking how motorcycles were reported to the sur- Study Consultation Workshop, World Bank vey team across different districts. Office, Dili (5 December 2013). 4 District Staff Participant, Health Resource 18 DHS Director, Health Resource Tracking Tracking Study Consultation Workshop, Study Consultation Workshop, World Bank World Bank Office, Dili (5 December 2013). Office, Dili (5 December 2013). 5 The central inventory provided to the study 19 Interviews, Oecusse (19–23 July 2013). team consists of an excel spreadsheet detail- 20 The community is not identified in order to ing vehicle assignments, types, serial num- protect survey respondents. bers, source, conditions, users. Vehicle year 21 Interview, District Health Director. is not recorded. The spreadsheet is not ver- 22 The Logistics department only provided sion controlled and, so, it is unclear when last complete documentation for five transac- it was updated. tions across the sample districts for 2012. 6 Interview, Ministry of Health Staff (8 May 23 CPV 25/7/2012, PO 31/08/2012, PR 2013). 6/9/2012. 7 District Staff Participant, Health Resource 24 International Monetary Fund, “Democratic Tracking Study Consultation Workshop, Republic of Timor-Leste: Public Financial World Bank Office, Dili (5 December 2013). Management Performance Report” (IMF , 8 District Staff Participant, Health Resource June 2010), 21–2. Tracking Study Consultation Workshop, 25 Interviews, CHC staff (various dates). World Bank Office, Dili (5 December 2013). 26 Mark Nicholson, Transport Management 9 As described in the chapter on Operating System Situation Analysis (World Bank, De- Cash, budgetary control over goods and ser- cember 2009), 5. vices expenditure in the Ministry of Health is 27 Ibid., 7. generally exercised at the economic category 28 The use of complementary periods, for level, meaning that expenditures are checked which there are ample precedents, have ad- against the remaining goods and service bud- vantages, but also disadvantages. See Tom- get for that district as a whole before being masi (2007) for a discussion (endnote xxiii). approved, not against the individual line item. 29 Daniel Tommasi, “Budget Execution,” in 10 Contract No. RDTL-MS-DNSHE-09- Budgeting and Budgetary Institutions, ed. C-0001. Anwar Shah, Public Sector Governance and 11 Contract No. RDTL-MS-CAMS- 11–325-B- Accountability (World Bank, 2007), 296. 0004A and Amendment No. 2 of same 30 Discussion with International Finance contract. Corporation 12 Package A is for 5,000 km, package B is for 31 Mark Nicholson, Transport Management 10,000 km, package C is for 20,000 km and System Situation Analysis (World Bank, De- package D is for 200,000 km. cember 2009). TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY ANNEX 3A  Status of Vehicles and Motorcycles as per MoH Vehicle Inventory, by District, 2013 Cars and ambulances Motorcycles Can be Beyond Percentage Status Can be Beyond Percentage repaired Repair Working Total Working Unknown repaired Repair Working Total Working Aileu 4 7 11 64% 8 10 14 32 44% Ainaro 2 9 11 82% 3 3 25 31 81% Baucau 2 8 10 80% 10 36 46 78% Bobonaro 3 5 8 63% 2 20 15 37 41% Covalima 2 9 11 82% 1 8 39 48 81% Dili 2 7 9 78% 5 3 20 28 71% Ermera 1 11 12 92% 5 6 26 37 70% Lautem 3 9 12 75% 1 4 6 38 49 78% Liquisa 1 1 6 8 75% 10 1 17 28 61% Manatuto 12 12 100% 3 33 36 92% Manufahi 1 11 12 92% 1 5 4 29 39 74% Oecusse 1 9 10 90% 2 30 32 94% Viqueque 2 9 11 82% 11 2 27 40 68% Total 23 2 112 137 82% 2 57 75 349 483 72% Source: MoH Logistics Department, May 2013. Vehicle Maintenance and Repair 51 CHAPTER Cross-Cutting Issues and Recommendations 4 Improving the planning, budgeting and execu- workshops intended to facilitate activity-based tion of funds for operating cash, fuel, and vehicle costing and the correct assignment of routine repair and maintenance is expected to improve activities (such as travel) to the corresponding the delivery of primary health care services in programs and line items. As a result, districts the districts. Chapters 1 through 3 analyze each now produced detailed implementation plans of these three types of resource flows in-depth (DIPs) for most of their activities. and make recommendations specific to each. However, these activity plans are not yet In addition to the issues and challenges that are effectively reflected in the goods and services specific to each of those flows, there are a num- budget of the District Health Services (DHS) ber of problems in each phase of the public ex- and their subsidiary facilities. The goods and penditure management cycle that affect all three service budget is still prepared on a line item ba- of these parts of the goods and services budget. sis, rather than by program or activity, and ex- This overview presents these cross-cutting is- amined that way during the national budget sues. It also provides a set of recommendations process. As is typical with budgets formulated to address them and summarizes the main rec- in this way, the line item budgets are mostly set ommendations for each of the resource flows incrementally (i.e. based on the previous year’s provided in the previous chapters. budget), or in an arbitrary way that reflects an overall budget ceiling but does not take into ac- count the specific activities or needs of the dis- Cross-Cutting Issue 1: trict (Chapter 1). Consequently, the district A Disconnect Between Planning, level goods and services budgets are not par- Budgeting and Reporting ticularly closely related to the activity plans of the districts, their needs or their cost structure. The National Health Sector Strategic Plan One indication is how widely the district goods (NHSSP) provides a sufficiently detailed pol- and services budgets vary when calculated on a icy framework that articulates overall sectoral per capita basis, from about US$1.25 to almost goals and targets. With a view to attaining these US$6.00 per person (Chapter 1). While needs goals, the MoH has also focused on improving and costs no doubt vary among districts, this is the planning of district-level activities. For ex- too wide a range to reflect actual differences in ample, the MoH Department of Planning, Mon- the cost of providing needed services. itoring and Evaluation has developed guidelines, The disconnect between activities/need as well as a set of planning templates, to support and budget allocation is also found in the bud- district-level planning, and organizes planning get allocations for specific line items. Vehicle 53 54 fuel is budgeted at one of several fixed levels  There is a tremendous difference between and does not appear to be based on district the lowest and highest budget execution implementation plans (DIPs) or on district re- rates of all line items, meaning that the alities, such as the number of vehicles or geo- budget for each item is typically not cred- graphic area to be covered; there is similarly no ible or related to actual needs and uses; correspondence between the districts’ fuel al-  Local travel and fuel (both for vehicles and lowances for generators and the number of fa- for generators) are, on average, the most cilities (Chapter 2). The district level vehicle heavily overspent items, suggesting particu- maintenance and repair budget is perhaps the larly poor planning and budgeting for these clearest case of arbitrary budgeting: in 2013 it items, or alternatively that these are areas was a flat rate of exactly US$29,000 per dis- where funds and resources are being mis- trict—regardless of the size of the district, the used or diverted. number of vehicles in use, their mileage or their condition (Chapter 3). Overspending on the fuel budget reduces Overspending and variability in budget ex- the availability of funds in the goods and ser- ecution rates across line items and across dis- vices budget for other items that are presum- tricts provides strong evidence of the mismatch ably also important for service delivery. This between activities/needs, on the one hand, and undermines the credibility of the budget as well budget allocation, on the other hand. This can as erodes its usefulness as a planning and con- be clearly seen in Figure 4.1 where, for each line trol tool (Chapter 2). A similar approach is likely in the goods and services budget, the blue in- adopted for the vehicle repair and maintenance dicates the district with the lowest execution line item where, while the average 2013 execu- rate, while the red indicates the highest, and the tion of district vehicle repair budgets was about green is the average. Two conclusions stand out: 90 per cent, execution rates ranged from only Variation in Budget Execution Rates of Districts’ Goods and Services FIGURE 4.1  Budgets, by Line Item, 2013 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% Local Travel Training & Workshop Utilities Rental of Property Vehicle Operation Fuel Vehicle Maintenance Office Stationary Operational Material Fuel for generators Maintenance Operational Expenses Professional Services Other miscellaneous Min Max Mean Source: MoF FMIS data, 2013. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 55 41 per cent of the budget (in Ainaro) to virtually different parts of the goods and services budget 200 per cent (in Manatuto) (Chapter 3). are “held” at different levels of the health sys- Despite the variation at the line item level, tem. The MoH can initiate spending on cen- budget execution of the goods and services bud- trally procured items (such as fuel and vehicle get as a whole is more consistent; each district maintenance/repairs), while the DHSs spend remains within its overall budget allocation, their imprests: if either level overspends it will and spends over 90 per cent of its allocation. not be prevented from doing so by the Finance There is more variation across districts if only Department until the overall goods and services imprest line items are considered (Figure 4.2).1 budget is used up (Chapter 1). Five of the thirteen districts overspend, while It is important to emphasize that the con- two manage to execute only slightly more than sistent execution of the overall goods and ser- 80 per cent of the budget. This co-existence of vices budget by districts does not mean that wildly inaccurate budgeting of individual line these budgets are well planned; rather it shows items combined with almost perfect execution that the districts use what is available but these rates at the category level shows that expendi- amounts are not linked to planning or needs tures are not being controlled at the line item across districts. This difference is illustrated, level. Instead, it is the overall goods and services among other ways, by the accumulation of dra- budget for a district that guides expenditure. matic debts at the district level to suppliers and When spending requests come to the MoH, also to health staff who sometimes pay out of they are checked against the overall goods and pocket when facility funds are not available. services budget for the district, not the individ- Accumulated debt is not formally recorded in ual line item and, as long as there is a remain- the books; it obligates the districts to a set of ing balance under the goods and services budget payments in advance of any control being exer- for that district, the expenditure is approved by cised on the basis of plans or budgets. It arises the MoH Finance Department. This lack of line both because of debts incurred in previous item control is particularly problematic because years that could not be paid with the available Budget Execution of Goods and Services Budget Compared to Imprest FIGURE 4.2   Fund Line Items, 2013 120% 110% 100% 80% 60% 40% 20% 10% 0% Aileu Ainaro Baucau Bobonaro Covalima Dili Ermera Lautem Liquica Manufahi Manatuto Oecusse Viqueque 2013 Execueon Rate of Goods & Services 2013 Execueon Rate of Imprest Items Source: MoF FMIS data, 2013.. Cross-Cutting Issues and Recommendations 56 budget or processed in time, thus reflecting the among districts should move from the current generalized under-budgeting and overspend- practice of arbitrary or incremental increases ing at the district level, and also because of the over the previous year’s line item allocations lateness of the first annual payment to the dis- to a rationalized allocation that reflects abso- tricts. It also occurs across line items, indicating lute need, and variation in need across districts. that a systematic response is needed. The ac- One way to rationalize resource allocation could cumulation of debt means that, once received, be to move towards a formula-based allocation the first transfers of operating cash, fuel and with elements of capitation financing of districts vehicle maintenance of every year are often and facilities, possibly adjusted for relevant dis- used to pay debts for activities already under- trict characteristics such as remoteness or pop- taken, contributing to erratic budget execu- ulation density, over the medium-term. These tion, undermining credibility of the budget, and efforts would be aided by a medium-term or compromising service delivery in subsequent multi-year budget framework for the ministry periods (Chapter 2). as a whole. Recommended Measures to Improve Strengthen planning and budgeting for dis- Planning, Budgeting and Reporting trict level cash, fuel and maintenance and Carry out an audit of all debt at dis- repair requirements. The district-level plan- trict-level. As discussed above, there are large ning templates introduced by the MoH Plan- undeclared debts owed to suppliers. Debt is ning, Monitoring and Evaluation department used to cover shortfalls in the operating budget are useful tools for costing activities at the dis- (imprest), and also in the other two expenditure trict level during the MoH’s budget preparation items included in this study, namely fuel and process. It is recommended that they also in- vehicle maintenance/repair. Without properly clude a maintenance plan for all vehicles, with quantifying the scale and nature of debt, budget an associated budget, based on an accurate ve- mismatch (between allocation and need, and hicle inventory (which includes vehicle type, age between allocation and expenditure) will con- and mileage) (Chapter 3). District Implementa- tinue. Given the extent of accumulated debt, tion Plans (DIPs) should also include planning for the MoF might consider a “complementary pe- fuel use, based on the number of vehicles and riod” after the end of the year (as is sometimes expected travel (Chapter 2). allowed in other countries), when pending pay- ment orders can still be paid from the previous Use program/activity based budgeting in year’s budget. This would not resolve the debt the chart of accounts. The districts and the problem, but could potentially ease some issues MoH are increasingly using a program- and ac- of carry over (Chapter 1). tivity-based costing and budgeting framework, while the national budget is still organized (and Use national program targets to guide dis- approved) around a line item structure. Conse- trict plans and budget allocations, and quently, it may be advisable to include both pro- provide timely indicative budget enve- gram and line item breakdowns in the budget lopes to the districts that reflect these al- submission. The national chart of accounts sup- location criteria and district needs. Budget ports such an approach. The MoH budget re- planning in the MoH should reflect the goals and view committee that, according to the Public targets of the sector’s strategic plan, such as for Financial Management Roadmap, will be estab- the share of resources allocated to primary care lished to review all division proposals could sup- (Chapter 1). The distribution of these resources port this shift (Chapter 1). TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 57 Cross-Cutting Issue 2: Late and MoH Logistics Department and MoH Finance Slow Release of Funds Department, including the approval of the CPV . Fuel suppliers expressed reluctance to fill re- The late release of the first payment of the year quests when there are large outstanding debts. and slow processing of subsequent payments, For vehicle maintenance, the length of time across all three budget areas examined in this from when the supplier requested payment for study, impedes service provision in the districts. work completed to when the MoH requested District operating cash is supposed to ar- payment from the MoF was never less than two rive as an “advance” payment, but the first in- months, and sometimes well over four months. stallment is typically received several months In 2013, no payments were made before May, into the year; late-April was the earliest in 2013 and most of these were debt payments for work (Chapter 1). This delay is often blamed on the carried out in the previous year (or even ear- late approval of the national budget by Par- lier). Steps to improve document processing liament (which was passed in March in 2013), would improve the speed of payment, and po- but public financial management laws intended tentially the ability of the suppliers to continue to prevent delays in budget execution in the their work (Chapter 3). case of the national budget being held up are not being used effectively (Chapter 1). It also Recommended Measures to Improve takes an average of 45 days to process an ad- Payment Release vance payment. This timeframe is quite vari- Simplify the steps to release district oper- able, though—it can be half this length of time ating cash, submit the CPV for the operat- or as long as three months. A final problem with ing budget at the start of year, and “push” the execution of operating cash payments, dis- the first payment of the year based on ap- cussed in Chapter 1, is that there are frequently proved expenditure plans. Districts should reductions in the amount of, or even a complete prepare annual and quarterly expenditure plans cessation of, payments to districts as the end of for expenditures in their activity plan and within the year approaches. the approved budget. Expenditures on these Fundamentally, the imprest system as op- items could be paid directly at district level as erated in Timor-Leste is unsuited to the purpose soon as district treasury offices and DHS bank of providing a regular recurrent budget to local accounts are available; until then they can be units. The imprest requires an activity proposal included in advance payments, possibly with to approve payments, and these payments must estimates posted in advance against the corre- be fully expended before a new imprest can be sponding line items. The MoH Finance depart- released. This system causes a gap at the begin- ment should control against line items, and there ning of the process, and again at the end while should be a single primary budget holder (either acquittances are processed. Regardless of the central or district) for each item of expenditure, speed of processing, the system will cause a de- to prevent overspending (Chapter 1). Central lay in payments and should be re-examined. MoH needs to exercise control only over that Similar problems affect the requisition, de- part of the budget that covers centrally procured livery and payment of fuel. In 2013, initial fuel de- goods/services. The Ministry should require liveries were only in April, and the fuel company DHS-approved virements from DHS controlled waited an average of 62 days, but sometimes budget lines to cover any overspending. up to 77 days, for payment after submitting an invoice (Chapter 2). There are significant de- Modify the current imprest system, or re- lays at every point in the processing chain in the place it with a quarterly allotment, for the Cross-Cutting Issues and Recommendations 58 majority of operating expenses at district expenditures would help to alleviate this problem level. The current imprest system, by requiring (Chapter 2). One might also consider creating a a proposal in advance of payments, and full ac- complementary period for payment requests into quittance before replenishment, creates delays January, providing confidence to suppliers that at the front end and the back end of each install- payment requests for late-year deliveries will be ment. This delay cannot be removed only through honored. The MoH Logistics and Finance de- speeding processing times. There is a need to partments should implement time-bound perfor- both use expenditure plans in place of proposals mance guidelines for processing steps. and allow request for replenishment before the end of the quarter. The Ministry of Health and Provide training to the districts on finance the Ministry of Finance should explore modifica- and reporting. Proper training on finance and tion of the imprest, or preferably the use of a reg- reporting would help speed the existing imprest ular quarterly allotment and direct payment for system, allow the proper administration of subsid- the majority of district recurrent expenditure. iary imprests intended for the community level, and enable the district level operating budget to Develop a budget norm or formula for allo- be executed locally rather than through cash “ad- cating a small amount of flexible operating vances” after the establishment of district bank cash for districts and CHCs based on activ- accounts and/or local treasury branches. ity level, population served, geography and other factors, which could be implemented as an imprest for unexpected repairs and shortages Cross-Cutting Issue 3: Weak with only minimal requirements to trigger re- Contract Management plenishment. DHSs would run subsidiary flexi- ble imprests (petty cash) for CHCs as they do Fuel and vehicle repair/maintenance services now, but based on a clearly budgeted amount. are procured through centrally managed con- CHCs should also receive their first payment on tracts with suppliers. a “push” basis, and replenishment should require The centralized system for fuel procure- simplified documentation when balances fall be- ment was adopted to avoid budget overruns and low a certain threshold. Such a grant could shortages as well as concerns about diversion serve as a pilot activity for a larger, more decen- of resources. In practice, though, this system tralized operating grant system in the future. does not control overspending of the budget, and does not yield the expected bulk discounts Ensure the duodecimo provision is used as (Chapter 2). Beyond the slow processing of pay- intended to allow the execution of funds ments, other problems include the late signing of before the budget is passed. The late passage the contract(s) with fuel supplier(s) and failure of the national budget should not be an imped- to communicate (and initiate) timeous renewal iment to processing of the first quarterly pay- of contracts leading to uncertainty among sup- ments for operating cash or contracted services. pliers and a reluctance to deliver fuel at the end of the year (Chapter 2). Improve the speed of processing requisition- Management of contracts for vehicle re- ing and payment documents. The slow pro- pair and maintenance services has also been cessing of propustas, commitment and payment weak. Contracts are extended through amend- vouchers (CPVs) and purchase orders (POs) de- ments that are approved well after the lapse of lays payments to DHSs and suppliers. Stream- the initial agreements (Chapter 3). Contract lining the authorization of CPVs for routine terms define a range of repairs and maintenance TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 59 services, but do not include terms for the trans- is combined with some flexible budgeting for lo- port of vehicles to and from Dili should they be cal purchases of fuel or repairs might ease the immobilized. There are also no specific terms problems caused by delays in completing con- that allow for the option of district-level provi- tracting at the start of the year. sion of routine maintenance. Consider a more ambitious solution of Recommended Measures to Improve outsourcing to the private sector a com- Goods and Services Contract prehensive package of fleet provision and Performance management services, including the provi- Ensure that the annual procurement cycle sion of fuel. Similar services are currently being starts promptly. Management of contracts piloted for the ambulance fleet, while the Inter- needs to be strengthened, both in terms of the national Finance Corporation (IFC) is also explor- time taken to initiate the contracts, and the time ing options for the privatization of some health taken to extend or modify existing contracts. inputs with the MoH, including outsourcing ve- Another recommended measure is the develop- hicle management. Currently, the many chal- ment of provisions that allow for the extension lenges and PFM issues associated with providing of the previous year’s contract on a month-by- these services directly may mean that outsourc- month basis, as well as implementation of the ing these services is a more efficient, and effec- 1/12 regime (duodecimo) to allow payments to tive, alternative. However, this approach would be made even if there are delays in the passage not be without its challenges. The MoH’s capac- of the national budget. ity to manage straightforward goods and services contracts is currently extremely lacking and there Set performance criteria for the supplier may also be limitations to the extent to which the and for MoH. Supplier contracts for fuel and MoH can realize the normal cost advantages of vehicle maintenance and repair should include privatization via the competitive bidding process. maximum response times, ensuring sufficient Any effort to introduce a system of framework stocks of spare parts, and routine maintenance contracting would require a major effort to up- timetables with related penalties. The MoH grade contract management capacity, as well as could also set performance standards for it- improvements to national regulatory capacity. self to improve internal payment performance Such upgrading would either require support to (Chapter 2). Contracts also need to clearly existing structures to improve their performance, specify who is responsible for the recovery of for example through introducing performance cri- immobilized vehicles and might also include in- teria as outlined above, or the wholesale creation centive payments for good performance, or of a new MoH contract management unit and minimum standards to be met for contract re- national regulatory institutions. In light of this, it newal (Chapter 3). may be most prudent to proceed simultaneously on two tracks: immediately implement the incre- Decentralize some simpler maintenance mental reforms described above within the ex- and/or repair, and fuel provision. Decen- isting system of vehicle maintenance/repair and tralization requires (i) ensuring that technical fuel provision, while exploring the feasibility of a capacity for these services exists at the local more ambitious outsourcing that would require level, and (ii) adjusting the financial and admin- cross-government buy in and a large investment istrative systems to allow for local contracting in management capacity (likely supported by de- and payment if available (Chapter 3). Moving velopment partners), and possibly best under- toward a mixed system where central provision taken as part of an inter-ministerial effort. Cross-Cutting Issues and Recommendations 60 Conclusions and Next Steps meet service requirements. Since, especially at the beginning of the year, these debts are cre- Together, these cross-cutting issues con- ated before any commitment is authorized, this tribute to a self-perpetuating cycle. The dis- creates liabilities for the government and con- trict goods and services budgets are not well tributes to shortfalls in the available budget later linked to national policy or district-level plans in the year. Both debt and the lack of budgeted or needs, making the budget a poor expres- imprest funds result in some districts requesting sion of primary healthcare goals and needs emergency funds. The existence of two differ- and increasing the likelihood that the budget ent spending agencies for the same budget—the would be over- or under-run. Also, a lack of in- central level and the DHSs—further contrib- ternal controls in the execution of these bud- utes to the tendency to overspend. Report- gets means that the district health services are ing on spending is then effectively redistributed not effectively constrained to operate within among line items to match the budget ex-post, their budgets, instead obligating large amounts without controlling or reflecting the actual use to suppliers and creditors that then becomes of funds. debt. This may in fact be a blessing, to the The biggest question raised by this study is degree that these budgets do not match the what the MoH as an organization should do to needs, but the accumulation of debt and the deal with what is clearly an unsustainable situa- poor budgeting exacerbate problems year af- tion. The basic challenges facing the Ministry of ter year and are unsustainable. Health, and also a number of the other line min- The late passage of the national budget, istries, are as follows: cumbersome processes, long payment process- ing times, and poor contract management result 1. How to make sure that the approved bud- in delays in the initial, and subsequent, payment get for each district meets the needs of the for all three inputs—operating cash, fuel and re- population expressed through sound activi- pairs. Districts cope with this by reducing ser- ty plans, within the constraints of available vices and or accumulating unauthorized debt to resources? FIGURE 4.3  Poor Planning, Budgeting and Execution Reinforce Each Other Budget Preparation Late release of budget Budget Execution DIP not matched to budget Late funds Incur Debts Pay Debts Emergency Requests Insufficient Funds Source: Authors. TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 61 2. How to ensure an adequate, timely, and un- The analysis and recommendations in interrupted fund flow for operating expendi- this study (summarized in Table 4.1) should be tures to districts? translated into an action plan drawn up with inter-ministerial and subnational involvement The answer lies in a combination of (i) a that clearly identifies responsibility for each re- more rational, and larger, allocation of health form undertaken. This action plan should take resources for district level primary services as its starting point the PFM roadmap for health matched to expenditure plans that are aligned that has already been developed. The emphasis with needs; (ii) modifications to the system should be on immediate implementation of the for providing operating expenditure through incremental reforms that are described in Table changes to the imprest payment cycle or a quar- 4.1, while simultaneously assessing the likely im- terly allotment; (iii) improving the efficiency of pact and feasibility of more ambitious initiatives, document processing in the requisitions and pay- such as framework contracting with the private ments system; and (iv) preventing overspending sector for fleet management (see Chapter 3). by different budget holders through more effec- This discussion, led by the MoH, should include tive internal controls that authorize spending be- stakeholders in the Budget and Treasury depart- fore it takes place. Any reform initiatives should ments of the Ministry of Finance, as well as dis- be considered against these broad requirements. trict health staff. TABLE 4.1  Summary of Recommendations Recommendation Cross-cutting Carry out an audit of all debt at district-level, including that which is off-the-books Recommendations Use national program goals and targets to guide district allocations and provide timely district budget envelopes Utilize program/activity based budgeting codes in the chart of accounts, in addition to line item codes Implement the duodecimo provision in order to ensure fund availability even when national budget is slow to pass Submit the CPV for the operating budget at the start of year, and “push” first payment based on approved expenditure plans Improve the speed of processing requisitioning and payment documents Consider providing some flexible operating cash to the districts and CHCs, using a budget norm or formula Ensure that contract procurement starts early to avoid delays Include performance criteria in supplier contracts and set performance standards for MoH Logistics and Finance departments Consider decentralizing vehicle maintenance and/or simple repair services and fuel provision to the districts, within a framework to ensure technical capacity and quality Consider outsourcing fleet provision and management to the private sector Operating Cash Clarify and standardize guidelines on expenses included in district level operating cash expenditures Modify or replace the imprest with quarterly allotments for the majority of operating expenditures in order to allow uninterrupted release of district operating cash Provide training to the districts on finance and reporting Address delays in the flow of funds between district- and community-level by having clear guidelines for CHC-level imprests and “push” the funds based on these (continued on next page) Cross-Cutting Issues and Recommendations 62 TABLE 4.1  Summary of Recommendations (continued) Recommendation Fuel Plan for the fuel budget allocation based on district needs, including vehicles, travel and distance requirements Clarify specifically how motorcycle fuel should be planned for, where it is budgeted, and at what levels it can be procured since this is not well understood by facility staff Consider a complementary period for fuel payment requests in order to reassure providers that they will be paid to minimize interruptions in service toward the end of the year Improve budget reporting on fuel expenditures and use Permit local procurement of fuel in addition to or in place of in-kind delivery Modify the voucher system to include district-specific or reserve vouchers Produce guidelines for, and provide required, equipment to ensure adequate CHC-level fuel supplies and reserves Vehicle Establish an easily and regularly updateable asset register for vehicles and motorcycles Maintenance and Perform vehicle economic evaluation and establish guidelines for replacement and disposal of Repair defunct vehicles Rationalize the distribution of existing vehicles according to terrain and need Establish a planning and budgeting process for district-level maintenance and repair requirements Distinguish budgeting, requisition and payment processes for maintenance from that of repairs Build performance incentives into the contracts of national suppliers of repair services Consider decentralizing maintenance and/or repair to the districts under framework contracts for the whole district fleet Staff districts with dedicated transport managers, or expand the training of drivers to include routine maintenance Provide back-up vehicles for use when vehicles are being repaired Consider outsourcing fleet provision and management services to the private sector Develop a consolidated transportation policy and manual, and disseminate it widely TIMOR-LESTE HEALTH RESOURCE TRACKING STUDY 63 Endnotes overview, however, these are considered to include all line items except fuel for vehicles, 1 As described in Chapter 1, there are incon- fuel for generators, utilities, rental of prop- sistencies in the existing guidelines on eligi- erty, and vehicle maintenance. ble imprest items. For the purposes of this Cross-Cutting Issues and Recommendations