Final PFM RAP November 2009Ang

8/4/2019 Final PFM RAP November 2009Ang

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Republic of Kosovo

Public Financial Management Reform Action Plan (PFM

RAP)


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TableofContents

1 INTRODUCTION ............................................ .............................................. ........................... 5

2. REFORM THEMES .................................. ........................................... ..................................... 6

2.1 CREDIBLE POLICY BASED BUDGET.............................................................................6

2.2 TAX ADMINISTRATION ........................................ ........................................... ................ 9

2.3 DECENTRALISATION ........................................ ........................................... .................. 12

2.4 FISCAL RISK ...................................... ........................................... .................................... 14

2.5 BUDGET EXECUTION, ACCOUNTING AND RECORD-KEEPING AND PUBLIC

INTERNAL FINANCIAL CONTROL .......................................... ........................................... ...16

2.6 PUBLIC SECTOR PERSONNEL AND PAYROLL.......................... ................................ 19

2.7 INTERNAL AUDIT.... ............................................... ........................................... .............. 20

2.8 PROCUREMENT ........................................ ........................................... ............................ 22

2.9 EXTERNAL AUDIT..................... ........................................... ........................................... 24

2.10 LEGISLATIVE SCRUTINY ....................................... ......................................... .......... 27

2.11 DONOR COORDINATION ...................................... .............................................. ....... 29

3. RESPONSIBLE IMPLEMENTING AGENTS AND REPORTING ...................................... 30

Annex 1 PFM ACTION PLAN Platforms and Matrix ...................................... ............................ 32


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AcronymsAC Audit Committees

ACDEI Agency for Coordination of Development and European Integration

AGA Autonomous Government Agencies

AMP Aid Management Program

ANP International Airport of Prishtina

BO Budget Organizations

BDMS Budget Development Management System

CEP Central Public Enterprises

CFA Central Fiscal Authority

CHU Central Harmonization Unit

CHU/FMC Central Harmonization Unit for Financial Management Control

CIAHU Central Internal Audit Harmonization Unit

COFOG Classification of the Functions of Government

DB Database

DCFDM Division of Cash Flow and Debt ManagementDIA Department of Internal Audit

DMU Debt Management Unit

EC European Commission

ECLO European Commission Liaison Office

EPAP European Partnership Action Plan

GDP Gross Domestic Product

GFS Government Finance Statistics

HQ HeadquartersIA Internal Audit

IAU Internal Audit Unit

IACHU Internal Audit Central Harmonization Unit

ICT Information Computerized Technology

IFAU Internal Financial Audit Unit

IMF International Monetary Fund

IPA Instrument of Pre-Accession

IPSAS International Public Sector Accounting Standards

IRB Independent Review Board

ISPPIA

International Standards for the Professional Practice of Internal

Auditing

KCB Kosovo Consolidated Budget

KDSP Kosovo Development Strategy and Plan


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MDA Ministries, Departments and Agencies

MEF Ministry of Economy and Finance (synonymous with MFE)

MFE Ministry of Finance and Economy (synonymous with MEF)MIT Ministry of Industry and Trade

MPS Ministry of Public Services

MTEF Medium Term Expenditure Framework

MTC Ministry of Transport and Telecommunication

MYR Mid-Year Review

MESP Ministry of Environment and Spatial Planning

OAG Office of the Auditor General

OPM Office of the Prime Minister

PE Public Enterprises

PER Public Expenditure Review

PEFA Public Expenditure and Financial Accountability

PEMTAG Public Expenditure Management Technical Assistance Grant

PM Prime Minister

PIFC Public Internal Financial Control

PFMA Public Financial Management and Accountability

PIP Public Investment Program

PISG Provisional Institutions of Self-Government

POE Publicly Owned Enterprise

POEMU Publicly Owned Enterprise Management Unit

PPA Public Procurement Agency

PPL Public Procurement Law

PPRC Public Procurement Regulatory Commission

PRB Procurement Review BodyPTK Post and Telecom of Kosovo

RTK Radio and Television of Kosovo

SN Sub National

SOE Socially Owned Enterprise

SRSG Special Representative of the Secretary-General

STA Single Treasury Account

SIGTAS Standard Integrated Government Tax Administration System

TAK Tax Administration of Kosovo

ULT Unit for Large Taxpayers

UNIREF Unified Reference Payment Code

UNMIK United Nations Interim Mission in Kosovo

VAT Value Added Tax

GFS Government Financial Standards


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1 INTRODUCTIONThe Government of Kosovo has embarked on a wide review of Public Financial Management. In the

first quarter of 2009, a Public Expenditure Financial Accountability (PEFA) assessment was carried

out and this updated and extended a similar analysis in 2007. As well, under a World Bank supported

project Public Expenditure Management Technical Assistance Grant (PEMTAG), work was carried

out to identify the direction of PFM reforms.

The PEFA concluded that the strength of the existing PFM system is centred on the successful

introduction and implementation of the Financial Management Information System. This has ensured

that commitment control is applied in budget execution and that reporting on budget execution istimely and meets the need of management for effective decision-making. Other strengths are found in

the areas of internal audit and control and external audit where the process is in place and capacity is

being built up for effective implementation.

Nevertheless both diagnostic exercises have identified significant and continued weaknesses across

the range of the PFM cycle which requires action. The purpose of this paper is to present a reform

programme tied into addressing theses weakness and also ensuring that the strengths are maintained

and built upon.

This paper marries the two approaches used to determine the PFM action plan. Under the PEFA

methodology, PFM is analysed using 28 high level indicators (further subdivided into 69 dimensions)

analysing Government PFM processes and 3 indicators (with 5 dimensions) focusing on donor

government interaction.1 The PEMTAG work developed the Platform Approach which aims to

implement a package of measures or activities designed to achieve increasing levels (platforms) of

PFMA competence over a manageable timeframe. Each platform establishes a clear basis for

launching to the next, based on the premise that a certain level of PFMA competence is required to

enable further progress to take place.2

Following the PEFA, a questionnaire was sent to each of the PFM implementers to collect

information needed for the Action Plan that was not generated during the PEFA. This exercise was

also used to disseminate the draft PEFA and get feedback.

This paper is organised as follows. The next section presents in summary form the strengths and

weaknesses of PFM in Kosovo using the broad themes of the PEFA approach. In each of the themes,

the reform goals and reform actions to be undertaken are then outlined and linked to the platforms

which show their sequencing. Existing technical assistance support under each of these themes isfinally presented. Section 3 outlines the agencies responsible for implementation and reporting

arrangement.

There is an annex which summarises the Platform Approach and provides a PFM Action Plan matrix

which details the relationship between the PEFA analysis of the PFM strengths and weaknesses and

the planned action for each of the 31 indicators and the 74 dimensions indicating under which


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2. REFORMTHEMES2.1

CREDIBLE

POLICY

BASED

BUDGET

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to Budgeting in

Kosovo, including:

Legislation in place that is well understood and generally implemented, including the Law onPublic Financial Management and Accountability.

Annual budget legislation which provides each years appropriations and policy guidelines.

Annual budget process established which includes all the necessary ingredients Budget calendar is well-articulated and works on a familiar schedule. Revenue forecasts which are generally conservative. MTEF process in place.However, the PEFA also identified opportunities for improvement in the following areas:

Planning and budget formulation including Budget Organisations capacity to develop strategiesand integrate the planning of the investment cycle into these strategies.

Budget calendar where slippages in recent years have impacted on the effectiveness of budgetpreparation.

Cabinet engagement in the strategic elements of the budget process. MTEF and the annual budget, where links are not as well defined as they should be. The

annual budget and the first year of the MTEF are not the same.

Lack of uniformity in quality and clarity in the mission statements, description of the existingsituation, and goals for sectors in the MTEF document.

Relationship between the expenditure outturn and budget. Aggregate outturn expenditurewas much lower than budgeted in the period from 2006 to 2008.

Under-spending on the capital account which has resulted from over budgeting and inadequateplanning.

Stock of arrears recording and monitoring, particularly within the year requires better recordinginvoices in KFMIS.

Reform Program

Kosovo seeks to attain best practice in Budget preparation, as characterised by the following:

A credible budget that is feasible to be fully executed with proper program and projectmanagement.

A capital program that maximises the net economic and social benefit for citizens based ongovernment priorities.

Allocation of funding based on Government policy rather than simply historical funding patterns. A multi-year approach to budgeting based on the MTEF and rolling forward estimates approach. Budget presentation that seeks to link funding for inputs to identifiable and potentially measurable

program outputs.

Access to performance information, including results of monitoring and evaluation, to assistb d t d i i ki t ll l l


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2. Improve capital planning based on enhanced project planning, execution and monitoring.3. Implement a system or rolling forward estimates using appropriate information systems.4. Increase the capacity of all Budget Organisations to undertake analytical work required for

existing and proposed planning and budget functions.5. Introduce some elements of performance management to assist public sector management,

including a budget that links inputs to specific program outputs.

Reform Actions

We will take the following actions to achieve these reform goals. These are specified under the

platform approach, recognising the linkages and sequencing of the actions and reforms.

Platform 1:

1. Capacity Building for line ministries in capital project planning based on PIP.2. Requirement of enhanced analysis, incorporation and presentation of the recurrent costsof capital projects in the budget.3. Capacity building program for line ministries in capital project execution.4. Design and implement a monitoring program for capital budget execution, including

regular monitoring meetings and reports.

5. Activate the Fiscal and Budget Committee of the Government according to previousGovernment decision to track MTEF and Budget development and advise government on

strategic resource allocation.

6. Re-structure the Budget Department in accordance with the LPFMA and MFE plan andformalise executive appointments.

Platform 2:

7. Draft and implement a Budget Circular for the preparation of the MTEF. Link thepreparation of the government-wide strategic planning process (led by OPM) with the

MTEF process (led by MFE).

8. Develop and commence implementation of a mechanism for linking strategic planningactivities in line ministries to the MTEF with aim of having properly costed and

realistic sector strategies that reflect considered policy choices.

9. Commence implementation of a system of rolling forward estimates, e.g. where the multi-year estimates of the 2010 budget form the starting point for the 2011 budget.

10.Re-design the fiscal rule in consultation with the IMF to act as a benchmark inestablishing a credible budget.

11.Undertake measures to enforce legal and procedural requirements for the costing of draftlaws and new policy prior to consideration by Government.

12.Finalise design requirements for Budget Development Management System that improvesthis tool for managing aggregate fiscal discipline including multi-year estimates and

features for enforcing multi-year ceilings.

Platform 3

13. In the context of the Budget, identify several programs for pilot implementation of amonitoring and evaluation framework. Identify output based performance targets forthese programs.

14.Laws on Civil Service and civil service pay are passed and appropriate subordinatelegislation developed having regard to fiscal impact.

15.Revise the current set of Government priorities prior to the MTEF to facilitateallocation of scarce additional resources.


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Platform 4

20.Conduct comprehensive Public Expenditure Review (PER), being a one-off zero-basedassessment of public expenditure allocation.

21.Continue the PER process in annual ministerial reviews as part of the MTEF and budgetprocess.

Technical Assistance

We are currently assisted in this field by the following technical assistance:

The EC project:Improving the quality of public investments in Kosovo and preparing the grounds for

EU funds supports the PFM reform programme from July 2009 to July 2012. The ToRs specify that

the assistance will be split into eight activities (components):

Component 1 - Review and documentation of the strengths and weaknesses of the Kosovo planningand budgeting system;

Component 2 - Further integrate the planning and budgeting systems using, recommending mandatory

use of, among other tools, the BDMS and the PIP systems;

Component 3 - Review of existing strategic documents in the MTC and MESP and make

recommendations that will allow them to drive budgeting in those ministries;

Component 4 - Introduce modern costing techniques in the core line ministries and municipalities;

Component 5 - Introduce modern project planning and management techniques in the core ministries

and municipalities;

Component 6 - Provide IT support to the BDMS and PIP systems to ensure ownership and sustaintheir use in the budget process;

Component 7 - Provide onthejob and classroom training on the various components; and

Component 8 - Provide workshops and study tours so that participants can gain experience and

knowledge from EU and accession countries in policy prioritization, planning, budgeting, and

managing EU funds.

UK DFID Functional Review and Institutional Design of Ministries (FRIDOM) project which is

assessing, inter alia, the structure and roles and responsibilities of budget organizations across the

Government.

UK DFID project support for developing strategic planning (through Office of the Prime Minister)

UK DFID Support to the PEFA Secretariat assisting in the Action Plan

World Bank Public Sector Modernisation Project Component 1 includes: Improving public financial

management performance in selected budget organizations and includes Capacity building for PFM.

This activity will focus on building skills and capacity in line budget organizations by addressing

weaknesses in budget planning, preparation, execution, budget management, and review. The

activities will be concentrated in the Budget and Finance Departments of five major budget

organizations: Ministries of Education, Health, Agriculture, Justice, and the Judicial Council.

USAID project Economic Management for Stability and Growth provides technical assistance in

this field.


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2.2 ADMINISTRATIONofTAXES

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to tax

administration as applied by Customs Kosovo and Tax Administration Agency in Kosovo, including:

Published tax laws, which can be downloaded from the Government website. Taxpayer education documentation exists in various forms written, electronic and face-to

face including workshops and seminars.

No discretionary exemptions Appeals process in place

Transfers from the tax authorities to the treasury account are timely Reconciliation of accounts and payments is timely.

However the PEFA assessment also found several weaknesses at the time of the assessment which we

were addressing at the time of the assessment and are now in place, including

Registration of tax payers was conducted by the Agency for Business Registration (Ministryof Trade and Industry) which did not allow the Tax authorities to maintain a master file of tax

payers under their control. The Tax Authorities are now implementing their own system.

Nevertheless there are opportunities for improvement that we are now addressing that will requiretime to be realised, including3.

Interpretation of the tax laws is inconsistent and low quality and reduces taxpayerconfidence.

Cumbersome appeals process provides for delays Ineffective procedures for collecting penalties for non compliance. Audit function is not managed effectively Recorded arrears are high.

Reform Goals

The objective of our reform program is to create a modern tax administration to meet our revenue

collection goals by adopting modern, efficient, and transparent processes and systems, lowering cost

of compliance for tax payers and achieving a high level of voluntary compliance. This purpose is to

be achieved by a combination of inputs to support

Improved management structures and staff capability; Computerisation; and Self-assessment.

These inputs are structured in a way that contact between taxpayer and the tax authorities are

minimised, which also can influence the minimisation of corrupt practises. These features are also

enhanced by

A focus on tax payer services and taxpayer education; and


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Payment of assessed tax is though the banking system, which also removes face-to face contact

between the Kosovo tax authorities and taxpayer.

Reform actions

Platforms 1 and 2

All reform actions are articulated in the overall strategic plans of TAK, including to.

1. Ensure that all tax laws are further supplemented by sub-legal acts which provide clearexplanations of the way in which TAK will implement specific provisions.

2. Require that all written advisory opinions on matters of interpretation of law or technicalissues be approved by Managers and distributed to field components only by managerial staff,

to ensure that laws are applied uniformly in all regions and with respect to all taxpayers.

3. Provide Team Leader of Rulings function training in all aspects of all tax laws, establishspecific expectations for learning and development.

4. Provide refresher training in tax laws to all taxpayer education personnel and train them inapplication of new laws as they are published

5. Revise and update Handbook on Taxes in Kosovo to reflect new laws, sub-legal acts,rulings, and procedures by 30 June 2010.

6. Modify the organizational structure of headquarters to introduce an interpretation division7. Provide refresher training in tax laws to Appeals officials and train them in application of new

laws as they are published.

8. Conduct a writing workshop for Appeals officials so that their Appeals decisions are in astandard format and provide clear explanations of the appeals decisions and the basis for

those decisions.

9. Finalize and implement taxpayer registration procedures and sub-legal act.10.Establish a taxpayer registration function at TAK which would: a) receive registration

applications b) conduct validation and risk assessments c) issue taxpayer identification

numbers and registration certificates and d) maintain a proper up-to-date taxpayer register.11.Finalize Penalty Handbook and sub-legal act (one document).12.Train enforced collection officers and taxpayer education inspectors in new penalty regime.13.Train tax inspectors in application of penalties during audit so that penalties are imposed, as

appropriate, at the time of audit.

14.Finalize rollout of audit tool and training staff in its use15.Activate the SIGTAS audit module so that management control over audit cases is improved.16.Update audit risk system (audit tool) to include individuals and partnerships.17.Update audit tool for use in reviewing VAT refund cases18.Utilize audit tool for centralized case selection for 50% of all cases to be audited in the first

half of 2010 and 100% of all cases to be audited by the end of 2010.

19.Modify the organizational structure of headquarters to introduce an audit quality reviewfunction and audit risk and analysis unit.

20.Finalize and implement enforced collection sub-legal act.


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Technical Assistance Support

USAID has an assistance program in place in TAK, which includes two tax administration experts

and one IT expert. The two tax administration experts are expected to remain until the end of thecurrent USAID contract (30 June 2010) and the IT expert is expected to remain until 31 December

2009.

Description and Timetable:

The current USAID project began on 1 July 2007 and is a three-year commitment, scheduled to end

30 June 2010. The primary goal of the project is to assist the tax administration achieve its strategic

plan goals, with specific expectations of finalizing and implementing an audit risk selection system

and increasing the effectiveness of the tax administration.For Customs EC TA to

1. Establish the legal framework for the implementation of simplified procedure andcustoms warehouse procedures.

2. Define specific additional Customs Laboratory equipmentDraft manuals and guidelines on safety for customs laboratory

Train Customs Laboratory Chemist on use of customs laboratory equipment

3. Improve quality of intelligence produced by the SectorEstablish and develop sustainable cooperation with other law enforcement agencies

Produce guidelines for Intelligence Sector

IMF Fiscal Affairs Department will field a technical assistance mission to review progress in

implementation of our Strategic Reform Plan and to outline for us an IT reform strategy


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2.3 DECENTRALISATION

Current Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to decentralisation

in Kosovo, including:

Transparent rules for transfers determination and allocation ensured in the legislation andgenerally applied during budget process.

Secured funding for the delivery of minimum standard services by local governments in theeducation and health sectors.

Timely reporting of municipal fiscal information consolidated into quarterly budgetexecution reports and annual financial statements.

Nevertheless, certain opportunities for improvement were also noted, including:

Timeliness of the information on the allocation of final grants; e.g., delays in thedetermination of final grants disrupted the 2009 Municipal Budget.

Clarification, determination, and application of standards in the education and healthsectors, including linkage with respective sector strategies.

Reliability and availability of necessary statistical information underpinningdetermination of grants.

Reform Goals

We are now seeking to speed up and strengthen the Municipal budget formulation process by

introducing greater capacity building and process. Decisions on government transfers, ceilings and

other MTEF related issues to be made and disseminated more promptly in accordance with timeliness

foreseen in the LPFMA so that follow-on actions and decisions can be made with sufficient time for

implementation.

Reform Actions

In seeking to attain these reform goals we plan to take the following actions:

Platforms 1 and 2 ongoing:

1. Grants Commission Secretariat to assume its role in technical and analytical support to theGrants Commission, including provision to the Grants Commission the assessment of

compliance with rules based system established in the LLGF before municipal budget

development cycle is finalized

2. Grants Commission Secretariat to be staffed with competent and capable professionals3.

Grants Commission to ensure that the LLGF rules are applied transparently and in theirentirety

4. Grants Commission Secretariat to maintain regular publication of decisions made by theGrants Commission

5. Strengthen the role, capacity, and accountability of the Grants Commission Secretariat; e.g.,introduce mandatory quarterly reporting of the Secretariat to the Minister and Grants

Commission.


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9. Introduce in the applicable legislation, such as LPFMA, provisions specifying timetable fordissemination of reliable and binding information on allocation of intergovernmental transfers

to the units of local government

10.MFE, in its internal activities and processes, to adhere to and respect all aspects of themunicipal budget calendar to ensure that municipal officials are able to start the budgetprocess in time and will have sufficient time and information to perform all necessary internal

procedures throughout budget development process. It is also essential for Municipal

Assemblies to be able to review and approve the proposed municipal budgets within the

timeframe defined by law (including citizen participation)

11.Maintain application of rules and procedures governing Kosovo Financial InformationManagement System to municipalities

12.Ensure that periodical financial and budget reports issued by the Treasury Departmentaccount for consolidated municipal fiscal data.


USAID Economic Management for Stability and Growth: advisors provide technical assistance to

Municipal Budget Department/MFE in municipal budget process and policies. They also provide

support and capacity building to the Grants Commission Secretariat in the implementation of

intergovernmental transfers system established in the LLGF.

World Bank: advisor who provides his support in preparing documents all the while the government

grants are appropriated and Grants Commission performance.

IMF Fiscal Affairs Department mission to review LLGF and implementation of existing provisions


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2.4 FISCALRISK

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to fiscal risk in

Kosovo, including:

Auditing of SOEs under direct KPA administration Quarterly reporting of SOEs to the KPA

Nevertheless, certain opportunities for future enhancement of fiscal risk management were also noted.

No consolidated report on POE finances is produced No report on overall fiscal risk of POEs

is prepared or published. POEs are not reporting routinely to the MFE.

Moreover a potential emerging fiscal risk has been identified with respect to municipalities. The

current legal framework prohibits local governments to enter into any borrowing arrangement, thus

creating fiscal obligations for the central government. While the (draft) Debt Law will regulate

responsibilities, criteria, and limits for municipal debt, it is foreseen that municipal debt shall be

subject to a prior written approval of the MFE, while such approval shall not constitute a guarantee, or

in any way establish any liability of the Government for the payment of the debt. Municipal debt will

not represent a direct or indirect obligation of the Government unless the MFE Minister issued a

written guarantee. The new Debt law makes it difficult for the MFE to say no if underlying rules aremet even for Municipalities with extremely low FM capacity.

We have commenced capacity building in this field, including upcoming intensive training by US

Treasury experts on debt and risk management, including contingent liabilities. All incoming board

members for POEs have received basic training on corporate governance. In addition, A USAID

funded adviser has commenced in the POE Policy and Monitoring Unit to assist us in this field.

Reform Goals

Our goal is to minimise fiscal risk by timely reporting and monitoring of financial commitments ofPOEs, SoEs and Municipalities.

Reform Actions

SOEs and POEs

The POE Monitoring Unit is only newly established and we are in the process of implementing new

corporate governance arrangements for POEs. We will start with training as well as issuing sub-legal

acts, developing co-operation with all POEs and ensuring all POE Boards are functioning.

Platform 1:

Collect, collate and publish information regarding the financial position of the POE sector. Identify risks associated with POEs in the next MTEF. Finalize implementation of model by-laws for POEs.Platform2:

I l d POE fi i l t i KCB fi i l t t t t


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Discuss and clarify that a pre-condition to allowing municipalities to borrow is the issuance of

unqualified financial audits by the Auditor General for three consecutive years. (May require a

change in draft law on debt)


We are assisted in this field with technical assistance provided by the EU TAIEX program, USAID,

and training and consultation for POEMU.


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2.5 BUDGET EXECUTION,ACCOUNTINGAND RECORDKEEPING

ANDPUBLICINTERNALFINANCIALCONTROL

Existing Situation

The recent 2009 PEFA -assessment found certain strengths in Budget Execution, Accounting and

Record-keeping and public internal financial control. These strengths include:

Appropriations approval by the Parliament is provided to budget organizations withoutdelay at the start of each quarter, annually. This function is managed by forecasting the cash

flow by the Treasury and BOs, through monitoring revenues and expenditures.

Efficient financial planning. Projections of revenues and expenditures are generated at thebeginning of the fiscal year. Monthly updates are undertaken by analyzing deviationsbetween actual and forecasts.

Adequate legal framework and system for debt management. The Debt Law has beenfinalized and approved by the government and sent to the Assembly. The law will regulate

the authority and procedures for borrowing, debt management, and guarantees for central and

local governments.

Financial management information system (KFMIS) which allows electronic links to becreated between BOs and Treasury, and between Treasury and Central Banks. KFMIS keeps

track of commitment for planning and control purposes, and effectively contributes toimplementing internal financial control by limiting commitments to actual cash availability

and approved budget allocations.

Payments system is currently centralized and majority of payments are made on time.Arrears are insignificant as a proportion of total expenditure.

Chart of Accounts is comprehensive and integrates accounts containing assets, liabilities,government equity, revenues and expenditures to facilitate the preparation of financial

statements.

Accurate and timely revenue identification through implementing Unified ReferencePayment Code (UNIREF)

Treasury Single Account (TSA) that centralizes cash balances efficiently. The TSA consistsof several sub-accounts (for revenue collection, expenditures and trusted money). TSA is

reconciled on the daily basis while sub accounts are reconciled at least monthly.

Reconciliation reports are generated on a weekly, monthly and quarterly basis from KFMIS.

The PEFA assessment also identified opportunities for improving budget execution and accounting,

including: Stock of arrears data are generated annually and show that in percentage terms they are very

low. However, analyzed in the timeframe base - there is a higher percentage of late payments

(greater than 30 days) within a fiscal year.

Functional classification for budgetformulation can only be produced manually as thecoding for administration within a ministry is the same as if administration were a function


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Lack of managerial reports for higher management which contain budget comparisonanalysis with previous years and between different categories.

Ideal Situation

The ideal situation at the end of the reform program would be the achievement of:

Public Internal Financial Control (PIFC) policy and practice in accordance with Europeanstandards, including a fully functioning Central Harmonisation Unit for Financial

Management Control (CHU/FMC).

Fully functioning debt and cash management function, supported by modern debtmanagement computer software and cash forecasting tools.

Comprehensive financial reporting system and procedures to support transparency andaccountability in budget execution.

Complete implementation of modules for Kosovo Financial Management InformationSystem, including comprehensive information on arrears.

Gradual extension of accrual information in fiscal reports. Fully-integrated electronic revenue and expenditures systems which supports electronic

reconciliation.

Reform Goals

Our efforts in reform of budget execution and accounted are directed at achieving the following goals:

Improve the compliance by BOs with financial rule number two for spending public money.(All claims that are received by the Budget Organization should be paid within the period of

time as specified in the contract which is no later than 30 days after being received.)

Strengthen the framework for recording transactions, and accounting events, including some"accrual" information (such as obligations, change in assets and liabilities etc)to enhance the

cash based accounts. This strengthening will improve the linkages between the cash-flow

statement and balance sheet as envisaged under GFS 2001. Strengthen financial planning to include daily cash flow forecasts (which are consolidated

into weekly forecasts).

Develop transparent and predictable system and processes for the management of governmentdebt.

Introduce daily reconciliation of bank accounts which allows the generation of dailymanagerial reports.

Strengthen the efficiency of public finance internal control system by making it more relevant(in terms of controls required for risk management), meaningful to the finance officers, andcomprehensive in the public finance internal control area.

Reform Actions

In seeking to attain these reform goals we will undertake the following actions, set out by platform:

Platform 1


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6. As part of the delegation of expenditures, a team will work with budget organizations toprovide assistance to improve a range of criteria relating to financial management, including

asset management.

7. Increase the frequency of cash flow forecasts on daily and weekly basis as well as thecoordination and exchange of reports with the BOs for revenues and expenditures. Implement

the software for debt management and staff training.

8. Implement automatic accounts reconciliation.9. Standardise terminology used in reports.10.Ensure that budget organisations submit their financial statements within the deadlines.11.Upgrade financial reporting, in order to generate specific reports based on requests from

specific users.

12.Training of financial officers in Budget Organisations on public sector accounting, reportingand internal control.

Platform 2 (continuation of Platform 1 no 4)

1. Increase the frequency of cash flow forecasts on daily and weekly basis as well as thecoordination and exchange of reports with the BOs for revenues and expenditures. Implement

the software for debt management and staff training.


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2.6 PUBLICSECTORPERSONNELANDPAYROLL

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to Public Sector

Personnel and Payroll , including:

Timely updating of the payroll monthly, prior to the execution of the payroll, Rarely made retroactive adjustments to the payroll.

Nevertheless, certain opportunities for us to improve the management of personnel and the payroll,

including

Improved expenditure control, recognising that payments regularly held back by Treasurydue to overspending related to the lack of consideration of appropriations and allocations.

Improving Internal Controls, which do existfor changes to the payroll but which often failto ensure that budget allocations or staff limits are not exceeded

Developing a linkage between personnel data base and payroll which can form the basisfor audit.

Reform Goals

Our intention is to implement a personnel and payroll system linked together and maintained centrally

with software that is manageable and effective.

Reform Actions

Platform 1

1. Payroll administration and laying the foundations for a professional civil service(a) Human resource management in the civil service, including pay and grading reform; and(b) Upgrading of ICT systems for human resource management (HRMIS and payroll).

2. Improving human resource management in the core civil service3. Upgrading human resources management information systems.

(a) Development of a strategic plan for human resource information management and re-organization of HR-related management processes.

(b) Modifying the current information systems and implementing the upgraded systems.(c) Linkage of the HR and payroll systems with the Treasury system (Free Balance).


Technical assistance is to be provided through specific components in the World Bank supported

Public Sector Modernisation Project which includes: Technical assistance and training for the implementation of the pay and grading reform in the

core civil service.

Technical assistance to build capacity for the implementation of key human resourcemanagement functions (staff planning, recruitment, promotions, and performance appraisal).

This activity is to include development of secondary legislation (e g on performance


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2.7 INTERNALAUDIT

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to Internal Audit

in Kosovo, including:

1. Internal Audit decentralized - 50 BO have established Internal Audit Units (IAU) staffed by84 Internal Auditors.

2. Internal Audit Manual ensuring harmonization with International Standards andProfessional Practices of Internal Audit

3. Audit Committees in 24 BOs to ensure the independence and protection of IAU auditors andpromote the implementation of recommendations to senior management.

4. International standards and professional practices underpin internal audits and followISPPIA standards and the Code of Ethics of Institute of Internal Auditors.5. System auditsperformed are comprehensive based on compliance, performance and finance6. System audits linked to the Internal Control assessment process to be evaluated if these are

functioning effectively.

7. Financial audits include examination and reporting on financial statements.8. Audit Plans implemented to include continuing professional education of internal audit staff9. Regular submission of Internal Audit reports to senior management in line with the Law10.Quarterly and Annual reports on BOs` internal audit activities are received by the Central

Harmonization Unit11.Implementation of recommendations undertaken by the Chief Administrative Officer of a

BO.

Nevertheless, certain weaknesses were also noted in our existing approach, including.

No Internal Audit in 10 BO Only one auditor in 33 BOs insufficient for efficient functioning of internal audit in terms of

capability and capacity for planning and managing of effective Internal Audit.

Lack of certification training - training courses on internal audit provided by internationalcompanies did not provide the certification required by the Internal Audit Law

Lack of comprehensive effective implementation Internal Audit Law and Internal Auditmanual

Low quality of implementation of recommendations issued by internal auditors. Ineffective operating of IAU in some public entities No continuous professional development to increase the knowledge and skills of internal

auditors.

Lack of understanding by senior management of the importance of the role of PublicInternal Financial Control and Internal Audit.

Reform Goal

Our overall goal is to ensure that internal audit is implemented effectively in line with the Internal

Audit Law in accordance with internationally accepted standards.

Reform Actions


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Platform 1

1. Increase number and quality of actions undertaken by BO Senior Management onimplementation of Internal Audit recommendations

2. Continuous contact and cooperation with sector management and other relevant parties inorder to further operationalize IAUs.3. Certification of IA from an internationally licensed organisation (within two years)4. Capacity building, recruitment of more than 60 IAs (within two years)5. Training for senior management to increase their awareness on the importance of Public

Finance Management and Internal Control, including IAs role.

6. To full meet ISPPIA standards7. Implementation of annual plan based on IA strategic plan8. Comprehensive establishment of IA Committees - increasing auditors independence and

measures for implementation of audit recommendations from management9. Drafting Administrative Instructions for implementation of IA Law, by CHU.10. Increase further the rate implementation of recommendations (above 55%)

Platform 2

Establishment of IAUs in BOs where they are not present Continuous training for IA to increase their knowledge, skills and competencies (continuous

professional development Post-certification/-licensing )

Coverage of more than 80% BOs with regards to IA system issuesTechnical Assistance Support

Our current endeavours to improve internal audit are assisted by support from donors, including:

Support for further improvement of IA and Public Governance project supported by European

Commission ECLO June 2009 to June 2011. Main components for IA are:

Support to IACHU on performing the responsibilities set out in Law on Internal Audit. Design and introduction of training program for internal audit that leads to certification. Design and implementation of first cycle of an Introduction to Financial Administration

program to politicians and senior civil servants.


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2.8 PROCUREMENT

Current Situation

The 2009 PEFA report indicates that our public procurement institutional and legal framework has

been strengthened in recent years, but there are still improvements to be made. The public

procurement legislation has improved our position with respect to approximation with EU public

procurement directives.

This current legislation vests procurement powers to all contracting authorities, but such powers are

initially vested in three central public procurement bodies: (1) Public Procurement Regulatory

Committee, (2) Public Procurement Agency, and (3) Public Procurement Review Body. As well, the

Kosovo Institute for Public Administration is responsible for the training and certification ofprocurement officers, and the Office of Auditor General has the responsibility for external audit of all

procurement undertaken by Budget Organisations in Kosovo.

The PEFA report also shows that more than 80% of contracts have been awarded by using open

competition procedures, based on the data provided. Nevertheless, this outwardly impressive figure

has to be judged and understood in the overall procurement environment in Kosovo. Studies and

reports on procurement indicate the following:

Market not reached by public tendering significantly Complex and too ambitious tender dossiers and qualification requirements regarding the

obligatory requirements for participation in the tender procedure.

Limited monitoring performed by the PPRC Monitoring and Oversight Department -limited only to the ad hoc checking of contract documentation of completed procurement.

This has been considered as a significant weakness of current legislation. The Office of the

General Auditor monitors the same set of procurement but also monitors the contract

implementation phase.

Weak communication and cooperation between any central procurement institution and/oreconomic operators organisations

Uncoordinated monitoring and implementation of Law on Public Procurement - appearsuncoordinated as the roles of central institutions do not seem to be clearly defined.

Hard to comprehend structure of procurement packages and time consuming to process, andunnecessarily confusing for both the contracting authorities and potential bidders.

No routine modalities and procedures to update existing procurement law in place. Level of training does not meet Kosovos needs. Existing standards, even when achieved, do

not provide adequate skills to Procurement Officer for effective and efficient performance.

Existing certification system is comprised of only one 10-day training course which has notchanged with developments in procurement. Top up refresher courses are merely repetitionof the basic training.

Overall Goal of the Reform

We have a public procurement improvement initiative in place that is supported by technical

assistance provided by the European Union. The objective of the reform programme is to ensure the

proper administration of public money transparency and effectiveness of public expenditures by


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secondary legislation forms and templates are often cumbersome and clumsy. Their construct will be

reviewed and simplified.

In addition to these initial actions, we intend to undertake the following activities in support of this

programme:

1. Monitoring the implementation of Law on Public Procurement and providing for its update toreflect emerging developments.

2. Review of secondary legislation associated with procurement.3. Managerial and organisational review of PPRC and PRB.4. Review of IT capacities in PPRC and PRB, recommendations for improvement and assessing

the feasibility for introduction of e-procurement.

5. On-the-job training and coaching for all involved in the procurement process.6. Increasing the awareness for public procurement reforms in government, business and civil

society

7. Comprehensive development of the public procurement training program8. Development of certification system for public procurement officers.

The activities are foreseen to be undertaken during 2009 and 2010. A detailed plan of action with

expected results has been developed by PPRC, PPA, PPR, European Commission Liaison Office to

Kosovo and Kosovo Institute for Public Administration. See the Inception Report Support to Public

Procurement Reform Service Contract No 2008/169-890 Project period: January 19, 2009 January

18, 2011 fora comprehensive presentation of the actions to be undertaken.


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2.9 EXTERNALAUDIT

Existing Situation

The recent 2009 PEFA assessment found certain strengths in our existing approach to external audit in

Kosovo, including:

Increasing coverage of organizations audited Internet dissemination of audit reports Detailed recommendations included in the reports Responses to audit included in Office of the Auditor General report.

Nevertheless, we can enhance external audit by addressing the following issues that were also

identified in the report:

Delays in publishing the audit reports Limited response to recommendations in terms of timely implementation

Reform Goals

The Office of the Auditor General has developed a Corporate Development Strategy guiding the

development of the external audit function in an accountability context. In the short term, the goals

have been to ensure that reports are

produced in time to fit into the budget cycle and the accountability cycle; reports are of sufficient quality and presented in a more reader friendly way; and have greater relevance for decision makers.

A new audit process is currently being introduced to include interim audits. This approach is being

developed through dialogue between the auditors and the audited bodies and is introducing a

preventive concept to pave the way for a more direct impact. This will improve coverage based on a

more risk oriented approach based on the total KCB budget and other parts of the OAG scope. The

OAG has been re-organised to reflect this new focus linked to specific Financial Management andControl and related policy areas.

Other audit objectives are to clarify and ensure the understanding of the role of a Supreme Audit

Institution in a democratic society; to strengthening good governance and accountability through good

cooperation with the Assembly Committee for oversight of the public finances under its purview and

to develop working relation between the OAG and its main stakeholders.

An important prerequisite to accomplish these objectives is to ensure financial independence and

sufficient funding in accordance with the OAG legal framework and with the agreement betweenKosovo and EU allowing the OAG to deliver in accordance with expectations of the national and

international community.

In the longer term the goals are

to ensure sustainable national ownership of internationally recognized auditing standards and


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to secure adequate resources over time to ensure the OAG can carry out its mandateeffectively and efficiently.

Reform Actions

Platform 1 (audit season 2009/10)

1. Corporate Development Strategy and fundamental standards are adopted, owned andimplemented by staff

2. Ensure timeliness of reports in the context of a revised audit cycle starting with interim auditsduring the budget year making follow up of earlier recommendations and examination of

financial management and internal control systems before the Annual Financial statements are

finalized.

3.

Ensure that the Twinning arrangement started in September 2009a. builds on experiences gained so far and the approaches developed and outlined in the

Corporate Development Strategy and the fundamental standards.

b. focuses on sustainable interventions in form of coaching and mentoring to facilitateownership of the overall strategies and standards;

c. will be flexible and linked to operational needs and eventual changes in these needsPlatform 2 (audit season 2010/11)

1. Introduce amendments to the Law on the OAG to guarantee the financial independence of theOAG as well as ensuring consistency in relation to other laws within the PFM field.

2. On-going strengthening of coverage, quality and relevance (more focus on performanceindicators and performance audit)


External audit has benefitted from the EC funded Technical Assistance project Further Support to the

OAG (06/KOSO1/06/05001), covering the period October 2007 July 2009. This project has in its

final stage been focused towards assisting in building an external audit platform covering the

following:Operations:

1. An Annual Performance Report produced in time and with sufficient quality aimed atstrengthening the accountability process between the Assembly and the Auditor General and

pave the way for a better budget dialogue (submitted in April 2009);

2. Annual Reports and opinions on budget spenders, quality monitored, clearer and more readerfriendly (June-July 2009); with the first two Performance Audit Reports in June 2009.

3. An Annual Audit Report on the KCB Financial Statement in time (synchronized with theoverall budget process and the accountability process for the first time) and with sufficientquality and another focus than earlier (late August 2009).

Support documents:

4. Basic Standards (all introduced in July 2009):5. An amended Regularity Audit Manual6 A Performance Audit Guideline


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financing an Advisory Board (national and international) for the Auditor General. Other more specific

interventions will be designed as needs arises. It is still too early to speculate in the forms this might

take.


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2.10 LEGISLATIVESCRUTINY

Existing Situation

Legislative scrutiny focuses on two areas: the annual budget law and the external audit reports. The

2009 PEFA assessments found both strengths and weaknesses in the way the Assembly organises

itself to carry out these functions.

Well-established procedures for the deliberations on the budget by the Budget and FinanceCommittee.

Clear rules exist for in-year budget amendments. Timely review of the OAGs reports by the Assembly and the Budget and Finance

Committee within 2 months of receiving them,

Nevertheless, there are weaknesses in the implementation of the scrutiny function in part due to a lack

of technical capacity and these weaknesses include:

Focus limited to revenue and expenditure information in the Annual Budget Law Extensive reallocations occurred outside of the planned reallocations as provided for by the

Mid-Year Review process

Limited and not close scrutiny of OAGs reports Occasional in-depth hearings on key findings which cover only a few audited entities. Limited recommended actions from reports regarding critical issues to areas of the most

interest to the Committee,

Rare actions on recommendations by the BO Follow-uplimited or nonexistent

Reform Goals.

Our goal is to improve the analytical capacity of the Budget and Finance Committee of the Assembly,

to ensure adequate consideration of the fiscal impact of new laws and to enhance accountability inpublic financial management. The overall strategy for the Assembly and an Action Plan are outlined

in the Strategic Action Plan of the Assembly of the Republic of Kosovo, November 2008.

Reform Actions

The Parliamentary Committee for Oversight of Public Finance has been established as a new

committee which will have the mandate for the oversight of expenditure of public money by all public

institutions which are financed from the Kosovo budget. This Committee is in the process of being

made functional . This Committee will deal with the report on the budget execution from theGovernment such as KCB, CHU/FMC, the Annual Procurement report etc) and the Annual Audit

Report from the AG. It will also handle budget and accountability issues (appointing auditors and

take standpoints on the budget) related to the AG and the OAG.



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to upgrade capacities of the Parliamentary Committee for Oversight of Public Finances . KIPRED will

provide technical assistance in building the capacities of the Committee.


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2.11 DONORCOORDINATION

Existing Situation

The recent 2009 PEFA assessment found certain weaknesses in the existing approach to donor

coordination in Kosovo, including:

Insufficient information on donor aid. Budget estimates for disbursing project aid is not allprovided by major donors provide at lead for the governments coming FY and at least 3

months prior to the years start.

Out of date reports on actual expenditures by donors in RIMS database.Since he PEFA was produced the Agency for Coordination of Development and European Integration

(ACDEI) has been established and it has started to coordinate with donors on a sectoral basis, withhealth, education, water, decentralization and public administration reform as the initial sectors. As

well, work on a donor data base platform has started.

Reform Goals

Develop the ACDEI into a donor coordination unit that

facilitates donors to identify sectoral priorities and financing maintains a data base that facilitates the management and the reporting of foreign assistance

by Government. increase donor confidence in government systems, and to support the donor coordination by Government by increasing transparency

Reform Actions

Platform 1

- Experts forn Development Gateway Foundation during September have finished the assesment ofneeds that this data base platform should address for an efficient coordination.

- During October implementation of this system will commence, after hosting the system will betested to be started afterwards with trainings fot its use and administration.

- Once the implementation starts, an agreement will be signed relating to reports and their timing..- In the first year, the report will be more general, giving sufficient details over activites of donors,

the link between the foreign assistence with MTEF and EPAP, which will also enable planning

for years to come.

Platform 2

- After the first year, the system will be adjusted to meet requirements of the Government to offerinformation that will be needed for planning and adjustment in linewith the developement

priorities.

Platform 3- Incorporate estimates of all direct and indirect donor supported programs and projects in Budget

documentation.


The Aid Management Program (AMP) for the Agency for Coordination of Development and


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3. RESPONSIBLEIMPLEMENTINGAGENTSANDREPORTINGThis PFM Action Plan has been put together from discussions with and information from all relevant

stakeholders. The Action Plan is their, the stakeholders, activities relevant to their respective themes.

Each theme is under the responsibility of a specific Department/Agency or Division within the

Government and the Heads of these Departments are responsible for implementation and reporting of

reform progress.

The table below sets out the agencies that are tasked with implementing the PFM Action Plan. It is

divided into primary and secondary responsibility. The primary responsible agents are the drivers of

and managers of change within a thematic area (MFE Budget Department in Credible Policy Based

Budget) while the secondary responsible agents are facilitating the changes either by implementing

(e.g. Line Ministries) or facilitating (e.g. PM Cabinet, MFE legal changes, promoting changes from

the centre

A report on progress against actions would be submitted to the Deputy Minister of Finance, the

overall coordinator of the PFM Action Plan) by each of the primary implementing agents on a six

monthly basis, save for the OAG and Assembly. The role of the Deputy Minister is a

coordinating/supervisory one rather than an implementing role.

However, we envisage the management and implementation of the Action Plan to be organic in the

sense that it will be a living document that will change over time as implementation takes place and

responsibilities evolve.

Reform Themes Primary responsibility Secondary responsibility

CREDIBLE POLICY BASED

BUDGET

Budget Departments MFE , PM Cabinet ,Line Ministries

TAX ADMINISTRATION Tax Administration of Kosovo

and Customs,

MFE, PM Cabinet

DECENTRALISATION Department of Policy and

Municipality Budgets ( DPMB )

MFE, MLGA, PM Cabinet.

Grants Commission

FISCAL RISK POE Policy and Monitoring

Unit, DPMB ,Kosovo

Privatization Unit

MFE

BUDGET EXECUTION,

ACCOUNTING AND

RECORD-KEEPING AND

PUBLIC INTERNAL

FINANCIAL CONTROL

Treasury Department, Central

Unit for Internal Financial

Control

Line Ministries


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EXTERNAL AUDIT Office of Auditor General Assembly of Kosovo

LEGISLATIVE SCRUTINY Assembly of Kosovo PM Cabinet

DONOR COORDINATION Agency for Coordination for

Development and European

Integration

MFE, PM Cabinet


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Annex1PFMACTIONPLANPlatformsandMatrixSUMMARY OF THE PLATFORM APPROACH

Introduction

This Public Financial Management Reform Action Plan (PFMRAP) addresses the current issues of

Public Financial Management reform in Kosovo, and it provides information regarding the purposes,

indicative Government-wide, ministry-specific, and municipality activities of the potential next

phases of reform (or Platforms). This Plan has been developed by and for the Government and is

to be implemented through Government functions and donor-provided technical assistance, which

will ensure integration and reduce overlapping activities within technical assistance. The forthcoming

World Bank supported Public Sector Modernization Plan is a clear example of support consistent withthe Action Plan covering various related activities.4

Through the Action Plan, Kosovo is about to engage in a series of reforms and new initiatives which

are intended to lead to strengthened financial and program management practices and activities. This

document describes a process for planning and implementing those reforms and new initiatives.

The Plan has been developed in the basis of these main sources of input:

Cumulative and ongoing discussions within the MFE, the Government, and ministries andmunicipalities, and with donors, which have identified the policy- and technical-level PFM issues

which must be addressed.

The results of 2007 and 2009 Public Expenditure and Financial Accountability (PEFA)assessments. The 2009 PEFA process resulted in a report which contained specific

recommendations, and they are found throughout this PFMRAP document.

The results of focused discussions with ministries concerning their own perspectives of PFM,especially regarding the ways in which Kosovos PFM processes impact on their activities.

Especially important to the development of this PFMRAP was each ministrys identification of,

and commitment to addressing, combined PFM issues.

The Action Plan has been constructed in 2 dimensions: the Horizontal government-wide dimensionwhich is based on implementing PEFA recommendations which cut across all of Kosovos Budget

Organizations, and the Vertical dimension which is based on priority ministry-specific actions.

Actions on these dimensions will occur in parallel with each other and in phased-in platforms, in

order to have the maximum positive effect.

The Government passed in 2008 two Government Resolutions which:

endorse the concept of PFM reform require the Governments budget organizations (including ministries and municipalities) to

participate actively in the process of public financial management reform, and

give specific direction to the MFE regarding the development and implementation of a PFMreform action planning process.

In 2009 these Government Resolutions were advanced by the endorsement of the PEFA process and

of the Plan developed by the MFE. In addition, international financial institutions and bilateral donors


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Following an approach Platform Approach - that has been developed and used to focus and

implement necessary and phased-in PFM and public administration reforms and new initiatives in

other transitioning countries, this same concept has been used in Kosovo, as a framework for

identifying, assembling and coordinating, and then monitoring the phasing-in and progress of suchreforms and new initiatives. The Platforms serve as both a collection of inter-related activities and

when significant recognized progress has been made as levels of achievement for Kosovo to attain

along its path toward reaching national goals (such as European integration and other key

accomplishments). Although the full accomplishment of each Platform is not necessary in order for

the next one to begin the Platforms are inter-related it is clear that the increasing capacity which is

attained through successful performance of each Platform will strengthen the Kosovos ability to take

on the next Platforms set of challenges.

Collectively, the Platforms seek to provide for:

A credible budget delivering reliable and predictable levels of resources Improved linkages between policies, program planning/implementation/results, and budgets Improved controls and accountability Integration of accountability and financial/performance informationFurther, the PFM activities which are conducted within the Platforms should focus on areas which:

Are focused on programs and functions which are priority to the Government, ministry, andmunicipality

Are conducted on a Vertical basis (within specific ministries and municipalities) or on aHorizontal basis (Government-wide)

Are attainable in view of resource constraints Are appropriate to Kosovos needs Are sustainable in the future Support Kosovos moves toward European integration Support the concepts of Budget Support Are linked to agreed-upon and recognized tools (PEFA, Statement of Government Priorities,

MTEF, etc)

Plan Components and Strategies

Basis of the PFM Environment in Kosovo

The PFM environment within which the Plan is being designed and implemented is based in Kosovo

law as well as on several years of PFM activities within the MFE, line ministries, and municipalities.

This environment consists of:

The Law on Public Financial Management and Accountability (LPFMA) The Annual Budget Laws and the Annual Budget publication provide for the years

appropriations and operational framework for the budget.

The Medium Term Expenditure Framework (MTEF), which is intended to provide for a rolling 3-year budget planning process.

The 2007 and the new 2009 PEFA process and report (and recommendations) provide for acomprehensive and objective assessment of the PFM strengths and weaknesses


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Audit policies and procedures (both internal and external) and their results are key parts of PFMand are a day-to-day management responsibility, which are shared by the Executive and

Legislative branches of government.

Indicative Platforms for Action Plan Implementation

PLATFORM 1: A CREDIBLE AND SUSTAINABLE PFM POLICY-SETTING PROCESS

Proposed Purposes and Objectives of this Platform

To produce an agreed-upon and consensus conceptual framework and then the functionalframework for the overall PFMRAP initiative

To re-affirm the Governments focus/determination of what it sees for itself and for the future ofKosovo, regarding PFM and program management, and the linkage between PFM and the pursuit

of national/ministry/municipality goals To begin the implementation of PFM and program management activitiesStrategies

Establish and reinforce, throughout the PFMRAP initiative, the concepts that PFM and theattainment of national, ministry, and municipal goals are mutually dependent

Actively engage the Cabinet in the work of this Platform and subsequent Platforms, and retain aconsistent focus on Government priorities, and on feasibility and sustainability

Actively keep donors aware of PFMRAP activities and to use this awareness to facilitate donorcoordination

Plan and begin implementation of Vertical activities (i.e., within specific ministries andmunicipalities) and Horizontal activities (i.e., Government-wide)

PLATFORM 2: A CREDIBLE BUDGET DEVELOPMENT PROCESS WHICH DELIVERS

RELIABLE AND PREDICTABLE RESOURCES


To solidify and extend the improvements made to date, in formulating Kosovos annual andoperating budgets

To focus specifically on the results of budget diagnostic assessments and to both address theshortcomings and ensure continued effectiveness of successful activities To ensure that the budget process is used effectively and with discipline in supporting Kosovos

policy and priority setting processes and for the attainment of goals

Strategies

Developing clear and valid expectations of the planning and budget process among executives,managers, and staff

Conduct a realistic assessment of the shortcomings of the policy-setting and budget processesregarding the goal of delivering reliable and predictable resources

Establish a balance between expectations and the systems capacities (following a series offeasible enhancements)

PLATFORM 3: IMPROVED BUDGET EXECUTION AND CONTROLS, INCLUDING

INTERNAL CONTROLS AND ACCOUNTABILITY


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Reinforce budget management, and internal control and accountability concepts as routine aspectsof the ministry, program, and municipality management process

Clarify the linkages between one years program monitoring and evaluation, budget control, andthe next years processes of program planning and development

Build the capacities of KIPA and related organizations to support the concepts and integration ofinternal controls and accountability

PLATFORM 4: IMPROVED LINKAGES BETWEEN POLICY AND PRIORITY SETTING,

MANAGING FOR PROGRAM RESULTS, AND BUDGET PLANNING AND

IMPLEMENTATION


To focus Government-level and government-wide executive attention and support Government-led actions on the critical linkages between: establishing policy and priority-setting processes;measuring, monitoring, and evaluating program results, and using them in program planning

processes; and determining and allocating resources in rational and transparent ways, for attaining

those results

To provide an opportunity for the technical re-design of the fundamental policy/ financialmanagement functions necessary for any modern government

Strategies

Ensure integration with related Public Administration reforms (especially related to organizationalreform, pay systems, etc)

Ensure that reforms and the capacities to implement them are developed consistently Ensure support for development/utilization of program-related information systems Focusing on current processes for conducting and linking policy-setting, priority-setting, and

program management, and identify areas of strength as well as areas to be reformed through

PFMRAP

PLATFORM 5: INTEGRATION OF ACCOUNTABILITY, REVIEW, AND POLICY-

SETTING PROCESSES, REGARDING BOTH FINANCIAL AND PROGRAM

PERFORMANCE MANAGEMENT


To provide for a coalescing of the work and results of the previous Platforms, other publicadministration reform initiatives, and relevant Technical Assistance projects

To provide for the feasible and sustainable integration of separate elements of government-widecapacity-building

To construct a consensus view for Government and donor aspirations regarding Kosovosgovernment-wide functioning in the PFMRAP areas

Strategies

Engage the Government (including ministries and municipalities), outside organizations, anddonors in realistic appraisal of progress to date

Emphasize the usefulness of interim/periodic adjustments of overall expectations of the PFMRAPinitiative over time

Strongly emphasize realistic expectations and measurements of progress at the Government


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36

2009

Score

& Link

to otherPIs

SCORE

REASON

CAUSE OF WEAKNESS REALISTIC LEVEL ACTIONS

& RESPONSIBILITIES

PRIORITY

SECTION A: CREDIBILITY OF THE BUDGET

PI-1

C

PI-11-

12

PI-16

PI-19

Deviation of

actual over

budget

ranged from

-10.2% to

17.2%

Over budgeting

Lack of multi-year

approach to planning

Poor procurement (capital)

Budgets that reflect capability and capacity to

be implemented linked to achievable service

delivery.

Two part approach: develop closer link

between budget and planning, and

strengthen the capacity for project planning

and management.

During last quarter of 2009 agreement onactions to be implemented in 2010 and

onwards. Such actions to be considered to

include, inter alia:

The MYBR should have no impact on the

overall balance, except under well-specified

exceptional circumstances, such as

earthquakes and financial crisis.

Further limitations could be put on cash

advances for capital projects, with Ministry

of Finances authorization.

Strengthen and make effective the

monitoring mechanism in the capital

spending program and lower capital

expenditure allocations in case of significant

under execution.

MFE., PM, Cabinet

High. Effective use of KCB

funds is essential to economic

development and greater

credibility by donors and

investors.

PI-2 Compositio

n of

Score maybe result of

good luck rather than

Within 1 to 2 years and at the same time the

expenditure deviation variances to not exceed

2 part approach: develop closer link between

budget and planning, and strengthen the

High. Effective use of KCB

funds is essential to economic


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37

A

PI-1 and

associate

d links

expenditures

deviation

less than 5%

judgement (see PI-1) the overall primary expenditure deviation

(defined in PI-2), by more than 3%.

capacity for project planning and

management.

MFE , PM, Cabinet,.

development and greater

credibility by donors and

investors.

PI-3

A

PI-1 and

associate

d links

Aggregate

revenue

outturn

greater than

budget

between 5

and 33%

The challenge will be to

better forecast revenue

while still maintaining the

more cautious stance

which is necessary given

the nature of revenue

sources. This will allow a

better allocation of

resources at the planning

stage rather than

increasing allocations

during the budget

execution stage.Reflecting better revenue

forecasts at the budget

planning stage will allow

better planning of inputs

needed to achieve better

and more efficient service

delivery.

The target should be to forecast revenue as

accurately as possible while erring slightly on

the downside so as dampen expenditure

expectations. However, it will not be easy to

achieve such forecast level taking into account

different macroeconomic factors in Kosovo that

affect these issues and the current volatile

economic environment.

Maintain or increase surveillance of world

and Kosovos economy, in order to prepare

for/minimize impacts on Kosovos resources

and thus its capacity to provide public

programs.

MFE

Medium. Impact of the weak

world economy upon Kosovo

over the next 1-5 years can be

severe, if not prepared for.

PI-4(i)

A

Stock ofarrears low

Treasury objective is to establish control pointsin BOs for more effective and efficient

execution of KCB. The desired level of

performance is that all BOs to pay their

obligations according to the contract terms.

This will increase the financial discipline and

the internal control efficiency in BOs.

.


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40

25

PI-23

categories,

administrati

ve, and

function

(10) andsub-

functions.

accounts in KFMIS were

made in 2008 to facilitate

budget planning at primary

service units, but are as yet

to be used.

ACTION by the end of 4th quarter of 2009

Measures should be undertaken to improve the coding quality of functional and economic codes to fully comply with COFOG and GFS. The Working Group to review the Chart of Accounts structure, and in particular the structure of economic codes, and to present the schedule of chart of accounts review by 30

November 2009.

PI-6

B

PI-12-13

PI-22-24

6 of the 9

benchmark

documentati

on is

provided

Missing documents

particularly related to prior

years outturns and

financial assets

Some of the elements of PI-6 may be improved

within 1 to 3 years in order to upgrade this

indicator to a higher quality level of

presentation of budget documentation.

However, the actual budget may be presented in

a same format as with the proposed budget,

whereas the Statement of Financial Assets could

be extracted from the Annual Financial

Statement and attached to MTEF and Budget

Documents. Explanation of new initiatives orprograms may be enriched with throughout

analysis of the budget implications.

The budget document should have a summary

table outlining expenditures comparing the

approved budget, mid-year budget and the

outcome for the past year. For next years

budget, it should distinguish between budget

projections based on i) keeping the existingpolicies ii) adopting new policies, and iii)

showing consolidated projections.

Develop

additional

capacity to

generate/gather

and provide basic

macroeconomic

and budget data.

Meeting this

dimension is one

of organising datathat exists in the

required format.

Budget tables

should reflect

greater

transparency

MFE and BOs

Medium. Addressing the problem now will simplify and

facilitate later technical reforms

Platform 1:

Prepare and publish a full set of budget documents for the 2011-13 budget in accordance with the LPFMA. This should be presented to the Government and Assembly andpublished as soon as possible afterwards.

Bring all central level own-source revenues into the budget planning process and tables.


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Include COFOG classification in budget documents and KFMIS. Include estimates of POE financial outcomes as an information item in Treasury financial statements. Ensure all Treasury reports, including monthly reports and capital expenditure reports are published. Review the list of information provided in the LPFMA for the budget book to take account of the inclusion of the MTEF in the budget planning process and implement accordingly.

Platform 2:

Include estimates of donor funding in budget documentation. Include POE financial outcomes in KCB financial statements as a note.

Platform 3:

Prepare comprehensive budget documentation and financial statements that include the full POE and donor sector data in addition to the General Government sector. Provide to Government and Assembly the results of pilot monitoring and evaluation reports.

Platform 4

Publish an annual performance document outlining the performance of government programs on an output/outcomes basis.PI-7(i)

A

PI-17

There are no

extra budgetary

funds

No extra budgetary funds Avoiding the use of extra-budgetary

funds will prevent this from becoming a

problem.

MFE and BOs

Low. Problem is not present, so

just maintain current policy.

PI-7(ii)

A

PI-17

D1

All donor funds

channelledthrough

Government are

recorded in

fiscal reports

Continue the successful implementation of

Treasury Single Account in collection andspending of public money. In this regard, any

new legislation should be reviewed carefully to

ensure compliance.

MFE and BOs

Low. Problem is not present, so

just maintain current policy.

PI-8(i)

A

The LLGF

introduced

transparent

rules andsecured funding

for the delivery

of minimum

standard

services by

local

governments

and have been

PI8 (i) and (iii): Current level of performance

continues. Both dimensions relate to the

legislative framework governing municipal

finances. MFE should aim at ensuring fullimplementation of legal provisions throughout

the budget process starting from the allocation

of intergovernmental grants to reporting on

local government fiscal position.

The Grants Commission to assume

responsibility for ensuring objective and

transparent application of the LLGF

principles.

The Grants Commission Secretariat to be

hold accountable for professional,

technical, and analytical support in the

implementation of grants system.

Government to ensure availability and

Medium. Problem remains

persistent.


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applied in the

2009 Municipal

Budget.

reliability of necessary Information

Management Systems, which underpin or

secure input for the determination of

grants.

A certification process of municipalities

financial management capacity needs to

be introduced before the devolution of

some additional responsibilities.

MFE, MLGA, and municipalities

PI-8(ii)

D

The 2009Municipal

Budget process

demonstrated

weakness in the

central budget

authorities

dissemination

of reliable and

timelyinformation on

municipal

financing which

impacted on the

municipal

budget process.

Determination of finaltransfers was affected

by ad hoc last minute

policy decisions.

PI-8(ii): As a minimum, desirable level ofperformance should ensure that municipalities

are provided with reliable information on the

allocation from government transfers before the

start of their detailed budgeting process. Such

practice would ensure compliance with the

score B requirements. Long term achievement

of score A is advisable and feasible.

High level of MFE performance in the

management of municipal finances, including

grants system and municipal budget processes,

is deemed feasible.

Government must make decisionsregarding ceilings and other MTEF

issues more promptly, so that follow-on

actions and decisions by municipal

authorities can be made with sufficient

time for implementation.

MFE, Cabinet, MLGA, and

municipalities

High. Municipalities capacitiescannot grow without supportive

decisions of this type.

PI-8(iii)

A

Municipal fiscal

information isconsolidated

into quarterly

budget

execution

reports and

annual financial

Maintain current policies and procedures.

MFE, MLGA, and municipalities

Low. Problem is under control,

through the use of current policiesand procedures.


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Some elements improved within 1 year such as: preparation and presentation of annual budget documentation within the deadlines certain budget categories to contain more detailed


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Some elements improved within 1 year, such as: preparation and presentation of annual budget documentation within the deadlines certain budget categories to contain more detailed

information whereas bulletins containing such information to be produced to inform relevant stakeholders. Long term capacity building efforts are needed to create special purpose

complex information and dedicated to different research groups.

Platform 1:

Publish for following during the course of 2009-2010:- annual budget documentation (2010 Budget),- in-year budget execution reports.- Year-end statements,- External Audit reports, and- Contract awards.

Platform 2:

Make available information of funding provided to primary service unit.SECTION C. B

Final PFM RAP November 2009Ang

Documents

Transcript of Final PFM RAP November 2009Ang