The Role of Accountants and Auditors in Public Financial Management through PEFA Lens
Accountants and auditors play a crucial role in public financial management, especially in the face of global challenges like COVID, climate change, and conflict. The PEFA framework provides a comprehensive analysis of Public Financial Management (PFM) performance, assessing its impact on key budget outcomes. With 733 PEFA assessments in 155 countries, the focus is on improving PFM processes to ensure fiscal discipline, efficient resource allocation, and service delivery. The PFM system is compared to a car engine, necessary for the smooth functioning of a country's finances and service delivery to citizens.
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ROLE OF ACCOUNTANTS AND AUDITORS IN PUBLIC FINANCIAL MANAGEMENT PEFA LENS Adenike (Nike) Oyeyiola, World Bank June 2023
2 The world is facing multiple compounding challenges .. 3 Cs (COVID, CLIMATE, CONFLICT) Narrow fiscal space Limited-service delivery Increased debt
The PEFA Framework EVIDENCE Provides a thorough, consistent and evidence-based analysis of PFM performance at a specific point in time IMPACT Assesses how PFM impacts on key budget outcomes: fiscal discipline, efficient resource allocation, efficient service delivery PFM REFORM Establishes the foundation for analyzing and improving PFM PEFA does not assess government policies. 3
733 PEFA assessments in 155 countries May 2023 411 PEFA at a national level 322 PEFA at a local level 4
PFM: ENTIRELY ACCOUNTANTS & AUDITORS PERSPECTIVES PEFA JUNE 2023 STEERING COMMITTEE MEETING IN BERN, SWITZERLAND Public Finance Management (PFM) is like a car engine for a country public finance. It powers and controls the management of money, ensuring smooth functioning. It allocates resources, creates budgets, tracks spendings and maintains financial stability. Without proper PFM a country struggles to deliver services to citizens, just as a car is unable to drive without a working engine . Public Finance Management is like a chocolate factory. To get the right silk soft texture of chocolates, one needs to get all ingredients and processes right. To have PFM systems that deliver for citizens, we PFM professionals need to get it right on each of the PFM processes to be fit for purpose . 5
PEFA performance indicators 7 Pillars; 31 Performance Indicators; 94 Dimensions BUDGET RELIABILITY PI-1. Aggregate expenditure outturn PI-2. Expenditure composition outturn PI-3. Revenue outturn PREDICTABILITY AND CONTROL IN BUDGET EXECUTION PI-19. Revenue administration PI-20. Accounting for revenue PI-21. Predictability of in-year resource allocation PI-22. Expenditure arrears PI-23. Payroll controls PI-24. Procurement PI-25. Internal controls on nonsalary expenditure PI-26. Internal audit TRANSPARENCY OF PUBLIC FINANCES PI-4. Budget classification PI-5. Budget documentation PI-6. Central government operations outside financial reports PI-7. Transfers to subnational governments PI-8. Performance information for service delivery PI-9. Public access to fiscal information ACCOUNTING AND REPORTING PI-27. Financial data integrity PI-28. In-year budget reports PI-29. Annual financial reports MANAGEMENT OF ASSETS AND LIABILITIES PI-10. Fiscal risk reporting PI-11. Public investment management PI-12. Public asset management PI-13. Debt management EXTERNAL SCRUTINY AND AUDIT PI-30. External audit PI-31. Legislative scrutiny of audit reports POLICY-BASED FISCAL STRATEGY AND BUDGETING PI-14. Macroeconomic and fiscal forecasting PI-15. Fiscal strategy PI-16. Medium-term perspective in expenditure budgeting PI-17. Budget preparation process PI-18. Legislative scrutiny of budgets 6
BUDGET CREDIBILITY CREDIBILITY Two-third of countries struggle in maintaining planned composition
FISCAL TRANSPARENCY TRANSPARENCY More than half of the countries incurred significant expenditure outside government financial statements
ASSETS & LIABILITIES LIABILITIES 80% of the countries do not include estimates of the total life-cycle cost of major investments in their budget documents
BUDGET PLANNING PLANNING One of best-performing indicators BUT, Only one in 10 countries are able to adequately explain changes in expenditure estimates in medium term budgets
BUDGET EXECUTION EXECUTION Very few countries keep the stock of revenue arrears below 10% of the total revenue collection & expenditure arrears below 2% of total expenditure Public Procurement a major challenge; non- competitive methods
EXTERNAL AUDIT & SCRUTINY SCRUTINY More than 80% of the countries demonstrated only a basic level of performance in external audit. The legislature in nearly 9 out of 10 countries struggled to systematically follow up on recommendations
3 Important Areas of Focus for Accountants & Auditors 3 Important Areas of Focus for Accountants & Auditors Revenue administration Green PFM GOVTECH 13
1. Domestic Revenue Mobilization 1. Domestic Revenue Mobilization The Role Of The Accountancy Profession Tax administration assessments Research and policy advice to Government Technical assistance for tax administration reforms 14
How can the accountancy profession support implementation How can the accountancy profession support implementation of green PFM? of green PFM? Thought leadership: support to Government Develop skills and knowledge on green PFM Global public good Design and implement tools and guidelines Integrate green PFM in accountancy profession qualifications Influence and partner with global institutions to develop global standards Source climate finance Capacity building Conduct research 15
Role of Accountancy profession in accelerating GovTech whole of government approach public sector modernization simple, efficient and transparent government with the citizen at the center of reforms Silo digital systems Contribute to developing and implementing the whole of government Digital strategies Limited digital citizen engagement Contribute to designing and operationalize citizen participation platforms. Empower citizens, media and CSOs (boot camps) Limited digital skills Conduct digital skills assessments Sustainable & scalable capacity building programs World Bank GovTech website: https://www.worldbank.org/en/programs/govtech
