Hashemite Kingdom of Jordan - World Bank...Hashemite Kingdom of Jordan Institutional Financial...

Hashemite Kingdom of Jordan

Institutional Financial Management Capacity Assessment (IFMCA):

Education and Social Development Sectors

June 28, 2006

Document of the World Bank

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ii

CURRENCY

Currency Unit = Jordanian Dinar (JD)

US$ 1 = JD 0.7089 (as of June 2006)

ACRONYMS AND SPECIAL TERMS

ATM Automated Teller Machine

CFAA Country Financial Accountability

Assessment

CPAR Country Procurement Assessment

Report

Diwan Headquarters

EDDS Education management software

Eduwave Education management Software

EFT Electronic Funds Transfer

EGRP Enterprise Government

Resource Planning

ERfKE Education Reform for Knowledge

Economy

FMIS Financial Management

Information System

FMS Financial Management System

GBD General Budget Directorate

GFMIS Government Financial

Management Information System

GFS-2001 Government Financial Statistics,

version 2001

GL General Ledger

HR Human Resources

IFMCA Institutional Financial Capacity

Assessment

IIA Institute of Internal Auditors

IMF International Monetary Fund

INTOSAI International Organization of

Supreme Audit Organizations

IT Information Technology

JD Jordanian Dinar

LAN Local Area Network

MAD Ministry of Administrative

Development Madressa School

MOE Ministry of Education

MOF Ministry of Finance

MOHE Ministry of Higher Education

MOPIC Ministry of Planning (and

International Cooperation)

MOSD Ministry of Social Development

MTEF Medium Term Expenditure

Framework

MTTF Medium term Fiscal

Framework

Muderiyya Province

NAF National Aid Fund PER Public Expenditure Review

PFM Public Financial Management

PSRP Public Sector Reform Program

RFP Request for Proposal

SAI Supreme Audit Institution

TSA Treasury Single Account

VFM Value for Money

WAN Wide Area Network

WB World Bank

Regional Vice-President:

Country Director

Director:

Manager, Financial Management:

Task Mission Leader

Christiaan Poortman

Joseph Saba

Hasan Tuluy

Samia Msadek

Pierre Messali

iii

Table of Contents

Table of Contents ......................................................................................................................... iii

List of Tables and Figures................................................................................................................v

Executive Summary ....................................................................................................................... vi

I Government - Wide Factors ..........................................................................................................1

1. Background .............................................................................................................................1

The National Agenda .............................................................................................................. 1

The Public Sector Reform Program ........................................................................................ 2

2. Institutional Structures ............................................................................................................2

Ministry of Finance ................................................................................................................. 2

Ministry of Planning and International Cooperation ............................................................. 4

Ministry of Administrative Development ................................................................................ 4

Civil Service Bureau ............................................................................................................... 4

Human Resources Policy Environment .................................................................................. 5

3. Financial Management ............................................................................................................5

Budget Planning...................................................................................................................... 5

Budget Execution .................................................................................................................... 6

Accounting & Reporting ......................................................................................................... 7

GFMIS..................................................................................................................................... 7

Internal Controls ..................................................................................................................... 8

Electronic Transactions ........................................................................................................ 10

Internal Audit ........................................................................................................................ 10

External Auditing .................................................................................................................. 12

4. Capacity Building ..................................................................................................................13

5. Recommendations for Government – Wide factors..............................................................15

II The Education Sector Capacity Assessment ..............................................................................17

1. Background ...........................................................................................................................17

MOE’s Ten year Strategy for Education .............................................................................. 18

National Agenda ................................................................................................................... 18

2. Institutional Structures ..........................................................................................................19

Ministry of Education ........................................................................................................... 19

3. Financial Management ..........................................................................................................21

MOE Financial Organization ............................................................................................... 21

Budget Formulation .............................................................................................................. 23

Budget Execution .................................................................................................................. 27

Accounting & Reporting .......................................................................................................27

Reporting............................................................................................................................... 29

Internal Controls ................................................................................................................... 29

Internal Audit ........................................................................................................................30


5. Performance Indicators ..........................................................................................................34

6. Recommendations for the Ministry of Education ..................................................................35

iv

III. A The Social Development Sector Capacity Assessment .....................................................36

1. Background ...........................................................................................................................36

The Multi-Year Strategy ........................................................................................................ 36

2. Institutional Structures ...........................................................................................................37

Ministry of Social Development ............................................................................................ 37


Budget Formulation and Execution ...................................................................................... 40

Accounting & Reporting ....................................................................................................... 43


Internal and External Audit .................................................................................................. 45

4. Performance Indicators ..........................................................................................................46


6. Recommendations for the Ministry of Social development .................................................47

III. B National Aid Fund.............................................................................................................49

1. Background ...........................................................................................................................49

2. Institutional Structure............................................................................................................49


NAF Program........................................................................................................................ 51

Budget Formulation and Execution ...................................................................................... 51

Accounting & Reporting ....................................................................................................... 53


Internal and External Audit .................................................................................................. 56

4. Capacity Building .................................................................................................................56

5. Recommendations for the National Aid Fund ......................................................................57

v

List of Tables and Figures Table 1. Selected Fiscal Parameters 2003-2010 (million JD) Table 2 Status of IMF/WB Reform Recommendations Affecting IFMCA Analysis Table 3 The Expenditure Control Process Table 4 Summary of MOF Financial Training Activities in 2005 Table 5 Key Data on Public Education in 2003/2004 Academic Year Table 6 Potential Sample Performance Measures and Indicators Table 7 Education Budget Performance 2003-2005 (JD Million) Table 8 Proposed New Program Structure Table 9 Ministry of Education: PEFA Performance Indicators Table 10 Social Development Budget Performance (JD Million) Table 11 Ministry of Social development: PEFA Performance Indicators Table 12 NAF 2006 Budget Request vs. Approved Figure 1 Ministry of Education Organization Figure 2 MOE Directorate of Financial Affairs Figure 3 MOE Audit, Inspection and Quality Assurance Figure 4 Organization of the Ministry for Social Development Figure 5 MOSD Financial Directorate Organization Figure 6. NAF Organization Structure

Box A Procurement control procedures Box B Steps to Implement Modern Internal Audit Box C Education Highlights Box D MOE Objectives to Support its Ten-Year Strategy Box E Social Security Fund Box F Housing Fund Box G Potential Financial Courses

Jordan IFMCA Executive Summary

vi

Executive Summary

The Government of Jordan has been actively engaged in improving its fiscal and public financial

management framework for over a decade. It has been assisted in this work by both the World

Bank and the IMF. The 1999 Public Sector Reform initiative had four components, two of which

directly affected financial management.1 The financial management reforms were aimed at, inter

alia, moving to a medium term expenditure framework, adopting a GFS-2001-compliant chart of

accounts for budgeting, accounting and reporting, adopting a Treasury Single Account,

eliminating the external auditor from the ex ante control process and implementing a

Government Financial Management Information System (GFMIS). Implementation remains a

challenge and the 2004 action plan issued by a joint WB-IMF team2 did not move as planned as

the readiness of the line ministries to move with the modernization reforms as well as their

capacity to introduce and manage the change are different.

The current Institutional Financial Management Capacity Assessment (IFMCA) selected two

sectors the Education and Social Development3 which are of importance to the Government of

Jordan. Both sectors feature prominently in the government’s recent National Agenda and the

Country Assistance Strategy (CAS). Both are being supported through a number of World Bank-

supported projects and Economic Sector Works (ESWs).

The IFMCA examined the ability of the MOE and MOSD4 to implement maintain and operate an

effective financial management system. The review gave special attention to the sector’s

financial staff, its processes of financial control and its supporting information as well as the

sector’s ability to successfully deliver its strategy and annual work programs. The review

identified gaps in the financial management system at the central and sector levels and assessed

the associated risks on the use of public funds and planned modernization reforms.

At the central level the report explains in Chapter I that, while the planned changes are laudable,

the government needs to put greater emphasis on their implementation. The Ministry of Finance

needs to be more proactive in its dealings with the ministries with respect to accelerating and

coordinating the implementation of such initiatives as: the new chart of accounts; the

introduction of performance budgeting; and the government-wide GFMIS. For these initiatives,

there are no identifiable, senior MOF managers who are driving the implementation process to

completion. Financial management capacity is low for financial officers and the budget

managers. This is even more important as the financial management reforms are progressively

implemented. Finally, there is a need for a modern internal audit function across the government.

The Ministry of Education is a leader in financial management reforms at the line ministry level.

It is pursuing automation of the education information and performance measurement systems at

the district and school level, assisted by donors. As well, it is a pilot ministry for the

government’s performance budgeting reform initiative. The ministry is well ahead of the

1 These were The Financial Management reform and the e-Government initiatives.

2 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004

3 The mission did not analyze those NGOs operating in the Social sectors, and focused only on their financial

relations with the Ministry of Social Development or the National Aid Fund. 4 The IFMCA team examined the degree of coordination within the ministries and between the ministries and the

Ministries of Finance and Planning in their financial management processes, as well as their effectiveness

Jordan IFMCA Executive Summary

vii

complementary reforms that must take place within the General Budget Directorate for the

effective implementation of performance budgeting to begin. There are serious problems in

coordination of the design and the implementation of the ministry’s FMIS. There is no ministry

owner for the FMIS project, and the acquisition process does not appear to be following the

government’s own procurement rules.

A number of significant problems in financial management systems of the Ministry of Social

Development and the National Aid Fund5 were found which eroded accountability for

performance and sound internal control. The MOSD and NAF share regional offices, with some

ministry staff working full time on NAF administration. All regional directors are ministry staff,

whose costs are not apportioned to the NAF budget. This understates NAF field operating costs.

Regional management do not receive an approved budget, and must submit all requests for

commitment or payment directly to their respective headquarters financial units. This removes

any sense of their personal accountability for effective budget management. Financial processes

are weak; there are no initiatives to implement the GFS-2001-compliant charts of account; no

work is being done on preparing for a new FMIS; performance budgeting is non-existent; a

modern internal audit function is not in place and, as a result, major weaknesses in the

distribution of the NAF cash payments to eligible recipients have been undetected. The NAF

operations should be made more transparent to Parliament and the public by the publication of its

approved budget and its final budget report at year-end.

Recognizing the challenges that the different institutions are facing to move with the

implementation of the planned modernization reforms, the recommendations proposed in the

report, took into account the Government overall priorities and distinguished the reforms that can

be implemented in the short team and those that will take more time. The team however would

like to stress the importance of the following two recommendations:

1. The top three Government PFM reforms: (i) the budget management (results-oriented budget,

MTEF), (ii) the accounting-reporting system (new chart of accounts, reporting of commitments),

and (iii) the Government integrated financial management system (GFMIS); need a stronger

leadership of the Ministry of Finance and a greater collaboration with the MOPIC and the line-

ministries. It also requires a strategic approach to capacity strengthening of the financial staff in

the line-ministries or audit bodies with special attention to middle management team.

2. The government should approve a program of implementation of modern internal audit across

the government. The program would follow a multistage process. The Government should assign

formal responsibility to MOF for the functional direction, including professional training, of all

financial staff in government entities.

To respond to the skills upgrade needs the MOF’s should increase significantly its training

capacity, either in-house or through contracting out a portion of the program.

5 The operations of the Pension Fund were out of scope

Jordan IFMCA Government-Wide Factors

1

I Government - Wide Factors

1. Background

During the past decade, the Government of Jordan implemented a full-fledged adjustment

program with continuous support from the IMF and the World Bank. Economic growth during

the last few years of the 1990s was over 4 percent, despite adverse external political factors.

GDP growth reached almost 5 percent in 2002, and was around 7 percent in 2004. Jordan

graduated from the IMF program of support in July 2004. A World Bank report6 described

Jordan as a star performer among emerging countries in terms of its structural reform

achievements.

The National Agenda

In 2005, the Government issued a ten-year strategic plan, the National Agenda, which aimed to

“... improve the quality of life of Jordanians through the creation of income-generating

opportunities, the improvement of standards of living, and the guarantee of social welfare.” The

plan set ambitious macroeconomic performance targets, to be achieved during the coming

decade and clearly articulated performance measures to be used to monitor progress towards

their achievement. Table 1 displays the targets in the context of the country’s recent economic

performance.7

Table1. Selected Fiscal Parameters 2003-2010 (million JD)

Actual Est. Target

2003 2004 2005 2010

GDP 7,204 8,164 9,118 14,498

Total Revenue and Grants 2,613 2,959 3,062 3,929

Current Revenue 1,632 2,088 2,522 3,793

Tax Revenue 1,083 1,429 1,766 2,590

Non-tax revenue 548 659 756 1,203

Capital Revenue 44 60 40 0

Total Expenditure and Net Lending 2,710 3,113 3,479 4,235

Total Expenditure 2,710 3,113 3,479 4,235

Current Expenditure 2,064 2,310 2,848 3,065

Capital Expenditure 646 803 631 1,170

Lending minus Repayments 0 0 0 0

Primary surplus 73 7 -210 -82

Deficit / Surplus (excluding Grants) -1,035 -965 -917 -442

Debt 6,891 7,193 7,136 8,371

National Savings Rate (percent) 32% 24% 6% 19%

Unemployment Rate (percent) 14.5% 12.6% 14.7% n.a

Source: National Agenda,

6 World Bank, PAD for a Public Sector Reform Building Project, February 24,2005, page 1 7 Government of Jordan, National Agenda 2006-2015, p7.


2

The first and third dimensions of the National Agenda are of greatest relevance to the Education

and Social Development Sectors. Specific measures directly supporting the two sectors identified

in these dimensions include8: increased and higher quality vocational training; employment

support; significant improvement in the quality of the education provided by the sector; higher

student participation rates; the establishment of a steady and predictable source of financing;

rationalization and simplification in administrative development; improvement in the

accountability of government; and increased transparency in government operations.9

The Public Sector Reform Program

Jordan launched a Public Sector Reform Initiative in 1999, with support from the World Bank

and bilateral donors. Phases I and II of the program had four tracks: public sector administrative

reform; an e-government initiative; judicial reform; and financial management reform. The

financial management and budget reforms involve restructuring the expenditure budget, moving

to a medium-term budgetary framework and modernizing financial management. The Bank-

financed Public Sector Reform Capacity Building Project continued prior donor support for the

reform by ensuring strategic staffing within administrative agencies and by providing them with

training and other capacity building support to implement the reform process. The project also

financed goods, equipment and technical assistance for central government agencies executing

the program

2. Institutional Structures

The IFMCA focuses on the ministries of Finance, Planning & International Cooperation, and

Administrative Development as well as the Civil Service Bureau.

Ministry of Finance

The Ministry of Finance is the main player in the budget reform process. A 2004 joint

IMF/World Bank report noted that the MOF faced institutional fragmentation and capacity

limitations in the budget management process.10

The MOF shares responsibility for the budget

process with a semi-autonomous General Budget Directorate (GBD) that is outside the MOF

organization but that reports directly to the Minister of Finance. In addition, the Ministry of

Planning and International Cooperation manages the donor-financed investment budgets in a

parallel process. The IMF/WB report made a number of recommendations that affect the

IFMCA; this report is the main assessment of the Jordan Public Financial management and the

IFMCA builds on its conclusions. Its recommendations are presented in Table 2.

8 Government of Jordan, op cit, p 4.

9 Ibid.

10 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 10-21.


3

Table 2: Status of IMF/WB Reform Recommendations Affecting IFMCA Analysis Recommendation Implementation

Timeframe Status as of Q1/2006

Establish 3-year, rolling MTTF and MTEF

2005

There are six task forces working on the completion planned for the 2007 budget. Risk of delay

MOF/ General Budget Directorate to adopt a Performance Framework for budget management monitoring

Q3/2005

No progress; no plans in General Budget Directorate to implement

Pilots to establish performance information expanded by GBD to new sectors

2005

Ministry of Education selected as a pilot is now developing a framework

General Budget Directorate to streamline and redefine budget programs to ensure clear and measurable links between program inputs, activities, outputs and outcomes

Continuous

No obvious progress

2005 Budget based on an updated functional and economic classification consistent with international practice

Q3/2004

GFS2001-compliant chart of accounts to be completed by June 2006 for implementation in the 2007 budget. Includes functional and geographic coding

Implement a Treasury Single Account

2005

The reform is almost completed. Most of Ministries accounts are in the TSA. At present, the treasury is centralized within a system of zero-balance accounts. The final stage will be the extension of the method to all other public entities holding public funds.

Explore feasibility - simplified General Ledger

Q3/2004

There is no treasury system to capture transactions for GL. It can only be compiled manually from monthly ministry reports; awaiting the GFMIS for the system

Introduce Simplified Commitment Controls

2005

A manual commitment report is prepared monthly by all budget entities and sent to MOF, which compiles a monthly report manually. Its reliability is uncertain.

Complete GFMIS conceptual design and functional specifications

2006

Consultants’ RFP for GFMIS completed in August 2005. Project stalled over short list of consultants; agreement recently reached and Cabinet RFP decision imminent. Target date will slip by 1-2 years

Phase out Audit Bureau’s ex ante control role

2005

Audit Bureau agrees with recommendation. Implementation to be phased in as internal audit capacity is established in MOF

Establish new regulations for Internal Audit

2006

Cabinet has approved the creation of a centralized internal audit group in MOF; necessary regulations in preparation.

Source: MOF Interviews

Accountability for the implementation of this package of reforms is diffuse and unclear. There

are multiple areas of responsibility, with no overall direction from the most senior levels of the

ministry.

MOF has a major role in the implementation of these financial reforms. Changes required

include the use of functional and program classifications that permit the linking of costs (inputs)


4

with program outputs (performance information) and ultimately, measures of outcomes (the

achievement of the program objectives). This will require revisions to the expenditure

classification system and, over time, a move towards accrual accounting. It will also require the

implementation of a fully functioning GFMIS within MOF and ultimately in all ministries.

Finally, it will require major changes in the resource allocation processes to utilize program-

specific performance information as the basis for decision-making.

Ministry of Planning and International Cooperation

The government of Jordan has a unified budget insofar as the budget funding of current and

capital budgets is concerned. Both budgets are managed by the MOF. However, the Ministry of

Planning and International Cooperation manages a separate foreign-financed investment budget

and the government’s matching contributions to each project in accordance with the respective

project agreements.

The Bank-financed Education Reform for Knowledge Economy (ERfKE) project is a key project

of relevance to this analysis that is not managed by the MOPIC but has been delegated to the

Ministry of Education (MOE)11

.

Ministry of Administrative Development

The Ministry of Administrative Development administers the Cabinet-approved public sector

reform policy. This includes civil service reforms and financial reforms, among others. The

IFMCA mission was advised that the bulk of the reforms relating to financial administration

were the responsibility of MOF. Of particular importance are the steps necessary to implement a

results-based system of budgeting, with agreed indicators for specified outputs and outcomes.

The ministry has been allocated funds to start establishing reform units to support the public

sector reform agenda and act as agents of change in the larger ministries.12

Civil Service Bureau

The Civil Service Bureau is responsible for monitoring the implementation of the Civil Service

law and related regulations in government entities; establishing competitions for job vacancies in

close cooperation with entities requiring staff; managing the pool of surplus staff and making

recommendations to the Public Service Development Committee on transfers. It does not play a

role in the development of capacity of existing civil servants, although new requirements may be

reflected in job profiles for recruitment.

11

The MOPIC has delegated his signing authority to the MOE for the payment of the government’s matching

contributions from the MOP’s budget account for that purpose. This simplifies the previous process, in which the

payment and supporting documents were processed by MOE and then sent to the MOP, where they were again

submitted to the same review and approval process as MOE’s. A check then was issued payable to the Minister of

Education for an amount equal to the matching contribution, which was deposited with the central bank in the

appropriate account for the project. 12

Smaller ministries would follow; the team was also advised that there are no plans at present, for such reform

units in Governorates.


5

Human Resources Policy Environment

The strategic Human Resources policy function does not have a single locus within the

government of Jordan. New policies can be proposed from a variety of sources for review and

approval by the newly created Public Service Development Committee, chaired by the deputy

Prime Minster. The mission was advised that, to date, no changes have been proposed for the

committee’s consideration. The mission considers that a single, accountable policy centre should

be established to provide a focal point for the considerable work necessary in developing future

HR policies and related processes and procedures.

The present HR policy environment makes it difficult to discharge employees for poor

performance. Additionally, there appear to be no formal policies or provisions for workforce

adjustments that could facilitate the reorganization of administrative entities. The mission

encountered regular comments by senior management about their inability to control levels of

employment and the resulting salary costs as part of the overall cost of the policies implemented.

This adversely affects the effectiveness of financial management of the current operating

budgets. However, of equal importance is the future impact of this policy on the implementation

of government-wide and ministry financial management information systems and the resulting

simplification of the associated work processes.

The mission believes that the government should consider establishing a policy group to develop

new policies for the government workforce of the future as described in its National Agenda.

Specifically, and within the terms of the mission’s mandate, the mission believes that the impact

of technology has the potential to significantly affect the existing processes for financial

management, including budgeting, accounting, asset management, auditing and reporting as well

as human resource and payroll management. As the government moves to implement its GFMIS,

major efficiency gains will become possible through the redesign of the financial and other

processes to take advantage of the more efficient GFMIS processes. Major training will be

necessary to ensure that staff can perform well in their new duties. As well, the training plan

should be complemented by a fair and transparent workforce adjustment policy for those unable

to retrain or whose positions are no longer required in the revised work processes.

3. Financial Management

Budget Planning

The National Agenda is taking advantage of the budget reforms already underway within MOF.

Amendments to the Financial management law have been recently adopted (2005). There is a

newly installed macro-fiscal unit within MOF that is entitled to produce its first multi-year fiscal

framework for the 2007-2009 budget periods, in time for the 2007 budget cycle. This will also

include a multi-year expenditure framework (for investment budgets only) for the same period.

The IMF/World Bank had recommended that the budget cycle be advanced by two months to

permit more time for budget preparation13

. This was not implemented in 2005, due to political

changes. If it were to be done for the 2007 budget, it would assist ministries to reflect their new

National Agenda-related initiatives in their 2007 budget submission. To support the National

13

IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, p36


6

Agenda, all proposed new initiatives are being required to be fully costed over a three-year

period and to be part of the Budget submission from each ministry. The General Budget Director

stated that his directorate will be examining the 2007 budget submissions to ensure that they

respond to the priorities established for their sector by the government’s National Agenda.

Results-oriented budgeting is a future objective of the government14

. The incorporation of

output-oriented budget planning would increase resource allocation efficiency and improve

targeting of budget resources. The Ministry of Education is a pilot ministry that is initiating

results-oriented (performance) budgeting in its 2007 submission (details are presented in Chapter

II). While this is a major undertaking within the ministry, the mission saw little evidence that the

General Budget Directorate was prepared to handle a pilot budget submission prepared on a

performance-based approach. Nor was there evidence of sustained communication between the

two budgeting organizations that one would expect during the early stages of pilot

implementation. It did not appear to the mission that the General Budget Division Director

considered himself to be the owner of this important budget reform.

In the first year of piloting of performance budgeting, the MOE’s plan is to use performance

information to prepare the budget, but to submit its budget to the General Budget Directorate in

the standard format. This will represent good progress in the pilot ministries. But if the General

Budget Directorate is not trained or prepared to assess the pilot budget performance

justifications, they will not be acquiring the knowledge to operate in a performance-based

budgeting environment when the pilot phase is over. The government cannot expect results when

a performance-based budgeting system is developed in the ministries and not in the General

Budget Directorate.

Budget Execution

Budget execution in the government reflects the weak macroeconomic framework15

and the

resulting uncertain budget ceiling for expenditures.

Discussions with line ministries confirmed the weak budgeting situation. Ministries noted that

MOF practices cash rationing16

, generally beginning in late November and continuing until the

new budget has been approved in late February or early March. For the current budgets, only the

non-salary component is frozen, a minor percentage of the total. However for the investment

budgets, a three-month suspension in project spending represents a major loss in efficiency in the

management of the project. Consistent cash rationing is symptomatic of poor fiscal forecasting of

revenues and expenditures. If the government wishes to improve resource allocation efficiency

and effectiveness, cash rationing should be discontinued as far as possible. This can be achieved

by improved accuracy in the fiscal framework, with better forecasts of next year revenues and

the budget expenditure ceilings. This should contribute to the elimination of cash rationing as a

result of unexpected fiscal “surprises” near year end.

14

IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 34-35, parag.C 15

IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 21-26 16

IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 44-45


7

Central controls exist at a highly disaggregated level. Ministry programs are appropriated in

three main groups of line items – salaries (16 line items), operating and maintenance (14 line

items), and transfers (8 items). There is also a special category, Social and Economic

Transformation for financing specific government priorities. Transfers between salaries and

other groups are only permissible by Parliamentary approval. Transfers between line items

within a category are allowed, subject to the approval of the General Budget Directorate. There

is little flexibility afforded to line management to adjust their budgets to respond to changes in

budget execution circumstances.

Accounting & Reporting

Accounting

The government practices cash-based accounting and reporting for its budget operations. With

the implementation of a new chart of accounts, the capacity to progressively migrate towards

accrual accounting will be possible. The mission was informed that the GFMIS will be

completed in 2006, with full implementation across government to follow in time for the 2007

budget. The mission is of the view that this deadline cannot be met, and that a more realistic

target date for completion of implementation in the MOF would be in 2007, in time for the 2008

budget17

. The mission was advised that the MOF and MOE have met to agree the necessary

functional codes for education in the MOF chart of accounts; these serve as the basis for the

MOE’s development of the more detailed functional levels for use within the ministry.

GFMIS

The IMF-WB report has thoroughly analyzed the project of GFMIS in 2004 and assessed its high

related risk18

.

The MOF has recently established its requirements for a full-function Government Financial

Management Information System and is awaiting Cabinet approval before proceeding. The

intention is for this system, once installed in MOF, to be replicated in all 24 ministries and 60 –

70 major other entities. The mission was advised that, three years ago, the Minister of Finance

sent a letter to all ministries advising them that they must seek approval from the MOF before

initiating any work on an FMIS for their ministry.19

This was reinforced by a subsequent MOF

letter to all their Financial Controllers advising them not to approve any commitments for new

FMIS systems in their entities.

Despite this, the MOE and other ministries are in various stages of implementation of their own

FMIS. The mission was advised that one firm, ITG20

, has already installed its own Enterprise

Government Resource Planning (EGRP) system in at least two entities (Ministry of Tourism,

Ministry of Communications and Information Technology) and is currently working in the

17



This instruction was issued pursuant to Articles 46 and 48 of the Financial By-Law No 3,1994, as

amended 1995 and 2005. 20

Information Technology Group (Jordanian IT firm)


8

Ministry of Education21

. The MOF staff is aware of this work, and is participating in assessments

of the Ministry of Tourism’s system. Discussions with one of these entities that have already

implemented the system indicated that serious shortcomings exist and are, to date, unresolved.

The mission is concerned about the lack of close and ongoing coordination on this important part

of the reform agenda22

. There has been a serious lack of communication among MOF, the

ministries that have already installed the ITG system, the MOE and other potential ministries

considering “going it alone” with their own financial management information systems. The lack

of knowledge on the part of MOF on the status of the EGRP system that is in place and being

marketed as meeting MOF requirements is not consistent with their role related to common

FMIS standards across the government. The mission did not assess how compatible these

different systems were but only noticed that no initiative to ensure such a crucial compliance was

ever taken. The present situation should be addressed rapidly.

Internal Controls

Budget execution controls are exercised by 74 MOF controllers present in all budget entities.

They follow a conventional pattern of rigid, centralized controls, with overlapping

responsibilities23

discharged by multiple agencies (Table 3 refers). Automation of the

expenditure control process is an excellent opportunity to change the budget control system.

Internal and external audit units should be phased out of this control process and assigned to

more sophisticated tasks of audit, each of them focused on the real objective of its type of

audit24

.

21

ITG has promised to install the network for free. 22

The cost of an IFMIS system is generally high and could reach several million of dollars depending on the

system’s architecture. 23


IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 57-61


9

Table 3 The Expenditure Control Process

No. Control Description Form used Performed By

Comment

1

The Finance manager forwards the directorate’s request to spend on a certain item to the disbursement controller who checks that sufficient budget is available and commits the amount.

Commitment sheet (from MOF)

Disbursement controller

Relevant

2

Once the item/service is received/delivered, the Supplies directorate checks the item/service against the offer and prepares delivery forms.

Delivery Forms

Supplies Directorate

Relevant

3

The invoice and all supporting documents are forwarded to the Finance directorate which checks the commitment against the expenditure, ensures the adequacy and completeness of the delivery forms, prepares and signs the payment voucher (signature according to defined authority limits)

Payment voucher

Finance Directorate (payment section)

Relevant

4

The payment voucher is forwarded to the Disbursement controller who checks it against the commitment made and signs the voucher.

Signed payment voucher

Disbursement Controller

Same that step 3

5

The internal auditor in the Finance Directorate performs an ex-ante compliance check regarding the availability of budget and the compliance with the financial by laws and the budget law. Then the auditor gives the voucher a number, posts it in the system, signs it and forwards it to the Internal Audit Unit.


Internal auditor in Finance Directorate

Should be performed by the MOF controller (step 7).

6

The Internal Audit Unit performs an ex-ante compliance check regarding the availability of budget and the compliance with the financial by laws and the budget law. The Internal Audit unit stamps and signs the payment voucher and forwards it to the MOF controller.


Internal Audit Unit at the ministry

Should be performed by the MOF controller (step 7). The internal auditor should be assigned to real tasks of internal audit.

7

The MOF controller

25 checks the accuracy of the payment

voucher against the Financial By laws, signs and stamps the payment voucher.


MOF controller

Relevant

8

If necessary, the Audit Bureau also performs an ex-ante compliance check and stamps the payment voucher.


Audit Bureau

Not necessary. Already done at step 7 by the MOF controller. The AB should be phased out of these tasks.

9

The signed and stamped payment voucher is sent to the Disbursement section in the Financial Directorate which prepares a check, records its number on the payment voucher and posts the checks in the system.


Disbursement Section

Relevant

10

Another employee in the disbursement section reviews the daily print out of all the posted checks

Daily print out of checks

Disbursement Section

Could be merged with step 9

Source: Ministry of Education

As one component of the implementation of the new GFMIS, the existing financial control

system should be simplified on a high priority basis by the Ministry of Finance. Several

redundancies can be identified, at least five in the above table 3. The new processes should be

25

The MOF controller is currently a MOF’s agent. In the long run, he could become a Ministry’s agent and entitled

to play a more important internal control role.


10

designed in cooperation with pilot and other ministries and the Audit Bureau26

. Because this

simplification may require changes to laws, regulations, practices and procedures, it should be

initiated at an early stage of the GFMIS process, before implementation begins in pilot

ministries. The changes should cover a full spending cycle including procurement controls.

Failure to do so could result in legal impediments to changes and a loss of the resulting

significant efficiencies that normally accompany the implementation of a fully computerized

financial management information system.

Box A Procurement control procedures

Much of ministries procurement is conducted on their behalf by centralized procurement authorities. For general

supplies valued at less than 20,000 JD, the General Department of Supply in MOF acquires the necessary supplies

from its inventory of supplies or through external procurement. For goods in excess of 20,000 JD, the MOF uses a

special procurement committee to oversee a tender on behalf of the government. Order fulfillment is well-structured.

Large quantities are sent directly from the supplier to ministry directorates according to a distribution list provided

by the ministry. A committee in each directorate examines the received goods and certifies the quantity and quality

of the order. After the individual entities have received the orders that were distributed from the directorate

facilities, then the ministry financial directorate makes the appropriate payment.

Procurement of equipment and works is also done by tender, again centralized by the Ministry of Public Works on

behalf of the ministry. Public tenders for purchase more than 20,000 JD are managed by this ministry. For

procurements below the threshold, the process is managed by the individual ministry concerned. Regular audits are

conducted by the ministry, by the MOF and the auditors of the Audit Bureau.

Electronic Transactions

The government currently permits the use of electronic funds transfer (EFT) and credit card

payments. However, these procedures are not integrated into the overall revenue collection

process. For example, the EFT procedures require the accountant to prepare a transaction receipt

for each electronic deposit advice form.27

The e-Government initiative is the responsibility of a

unit in the Ministry of Administrative reform. However, work is at the initial study and legal

drafting stages and little direct output is expected over the next two years. The Public Sector

Reform Administration unit responsible for e-government should nevertheless consult with MOF

as they develop their legal framework to ensure that MOF can assess its impact on simplification

of its internal control systems.

Internal Audit

Internal inspection units exist in all government entities. Generally, they exercise the ex ante

controls over the expenditure process with a lot of redundancies with the MOF controllers. In

limited instances, they have begun to extend their recommendations to cover the performance of

internal controls, a function performed by internal auditors.

26

The Audit bureau is in the process of phasing out these tasks related to internal audit (see below) 27

MOF, Application Instructions for Financial Affairs for Collection of Revenues by Means of Electronic Funds

Transfer No. 10 for the Year 2003, as Amended, article 5.


11

There are no modern internal audit functions in the government of Jordan28

. As part of the

process of establishing the reallocation of audit functions between the Audit Bureau and the

government, the MOF should consider establishing a more formal internal audit process that

complies fully with international standards. The Institute of Internal Auditors, an independent

international organization, provides a full range of audit standards and processes.

Previous studies29

have identified an overlap in the functions performed by the external auditor

(Audit Bureau) and those of the government. In particular, the Audit Bureau has been sitting on

procurement committees for purchases of supplies, public works and engineering services.

Performing executive tasks is an inappropriate role for an external auditor as it violates the

principle of independence of any Supreme Audit institution. The government has agreed to

remedy the situation by implementing a new segregation of duties for the Audit Bureau. The

Bureau’s current internal audit function and the auditors will be gradually shifted to the MOF

and the remaining auditors will discharge external audit functions. Implementation will take

place over a number of years. When completed, the Audit Bureau will meet the INTOSAI

requirements relating to not performing functions belonging to the government30

.

A modern and effective internal audit function is a prerequisite for an effective functioning of a

public financial management system. It requires an underlying legislative base; clear

responsibilities vested in the Minister of Finance for the establishment of the policies, guidelines,

regulations and procedures governing internal audit; the use of international audit standards; and

the establishment of an internal audit function in all major budget entities. The need for such a

function will become urgent as the government implements its computerized budgeting and

financial control systems, as line budget managers will have to be advised of their compliance

with significantly revised financial processes that accompany the new financial system.

Introducing the function is a lengthy process, requiring technical assistance from experienced

internal auditing consultants to train auditors, to advise senior management on issues relating to

internal audit, and to assist in internal audit implementation in MOF and across all ministries.

The redeployment of Audit Bureau staff will be an opportunity to create a modern internal audit

function, first in MOF and ultimately in all budget entities. The Institute of Internal Auditors has

established internal audit standards for aspects such as planning audit assignments, audit

techniques, audit reporting, qualifications of internal auditors, and code of conduct for internal

auditors, etc. Their standards should be endorsed by the government and used in the

implementation of modern internal audit function across the government.

A suggested plan of implementation of internal audit is presented in Box B below. It is a multi-

year, progressive implementation plan for internal audit across all significant government

entities.

28

IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 56-57. 29

Ibid. , pp 57-59. 30

See INTOSAI standards. Convention of Lima. www.intosai.org

http://www.intosai.org/


12

Box B Steps to Implement Modern Internal Audit

Amend financial law to assign responsibility for internal audit to the Minister of Finance and that

requires internal audit units to be established in all first line budget entities as specified by MOF in a phased implementation process.

The law would also empower the Minister of Finance to issue internal audit standards, guidelines, and manuals that conform to international standards for auditing to govern the planning, conduct, training, and reporting of all Government internal auditors and their professional development.

MOF would be given responsibility for developing auditor qualification and certification standards for providing training to international standards to be made available to all new and existing staff.

MOF would establish an internal audit quality assurance process and report to Cabinet annually on the implementation progress of internal audit and on overall conclusions of internal audits conducted across the system.

Engage a technical assistance mission for a period of at least 18 months to assist the MOF in the drafting of the legislative amendments to the financial law and to assist in the setting up and training of an internal audit unit within MOF with an audit operations and an audit policy mandate.

Use the TA to help in the preparation of internal audit courses and train the new MOF internal audit staff on internal audit standards, practices and procedures.

Progressively develop and issue internal audit guidelines, standards and auditing manuals for use by internal auditors from international standards and best practices

Undertake internal audits within the MOF to gain experience in internal auditing work. This activity should be overseen by an experienced internal auditor consultant who could provide on-the-job advice and assistance to the new auditors.

Develop a multi-year plan to implement internal audit units in all major budget entities, according to an implementation plan that considers the financial risk in each ministry, the degree of maturity of its existing inspector unit and the degree of management support for modern internal audit.

External Auditing

The Audit Bureau is the external auditor for all government entities. It is a mature Supreme

Audit Institution (SAI), established in 1928 and operating under the Law on Accounts Auditing

(1931) as amended in 1952. Its audit universe includes all budget entities, municipalities and

public enterprises. The Audit Bureau has audit offices in all ministries and major entities to

conduct ongoing audits of their operations. The audits conducted are compliance audits for the

financial regulations and attestation audits on the financial reports of the respective entities.

While there are some elements of performance auditing in these audits, performance audits are

not yet part of the mainstream activities of the Bureau31

.

The near term priorities of the Audit Bureau include: aligning the audit processes to support the

expression of a formal audit opinion on the government’s financial statements; enhanced training

and exposure to best practices through twinning arrangements with the UK National Audit

Organization and the German Court of Accounts32

; and auditing of the government’s

implementation of the National Agenda and the Public Sector Reform Program (PSRP). There

31


The program of twinning has been implemented in 2006, financed by the EU.


13

are also previously identified issues of independence (involvement in the internal processes of

government) which are being resolved.

The Audit Bureau identified a number of recurring problems in financial management

encountered during their audits of government entities. They include the following:

Budget development and execution: there is a lack of priorities in budget development,

the general budget is incomplete, the budget is unrelated to results, and contain no

detailed information on capital budgets;

Human Resource management: there is a shortage of qualified personnel due to

difficulties in attracting highly qualified staff and a lack of sound training of existing

staff; the human resource management framework is rigid;

Information technology: there is limited exchange of information across vertical,

stovepipe systems, and a lack of integrated financial management information systems;

and

Transparency: published government data is not in compliance with international

standards (such as the IMF Special Data Dissemination Standards).

4. Capacity Building

The government does not have a formal training program designed to establish and maintain the

professional competence of its existing employees. This was identified by the Audit Bureau as

well as the Civil Service Bureau. There are notable exceptions; MOE provided external training

for 852 of its teachers in 2004, 87 percent of the total external training provided across

government.33

But the situation as regard to financial staffs of the technical ministries is different. Financial

training is very limited. The MOF advised the mission that they have training capacity available

to train ministry financial staff in specialized financial management subjects. They regularly run

training courses for their staff and for a limited number of ministry financial staff, at no cost to

the ministries. They are outfitting part of a building for use as a financial training facility, with

French government assistance. Table 4 provides details of recent training activities by MOF;

note the limited participation of the two sector ministries under study by the IFMCA team. In

2005, the training was mainly (93 percent) used by MOF staff.

33

Civil Service Bureau, 2004 Annual Report, P 55.


14

Table 4 Summary of MOF Financial Training Activities in 2005

Source: MOF

There is an urgent need for a major training initiative for the financial officers in ministries and

agencies. With the number of significant changes currently being implemented (Chart of

Accounts, TSA, MTEF, GFMIS, performance budgeting), all aspects of the work of the financial

officers across government will be significantly changed in the long run. Notably:

budget preparation will be affected by the new budget preparation module in the FMIS,

as well as the use of performance information in cost justification for new budget

initiatives;

budget execution processes will be radically simplified, eliminating the multiple,

duplicative ex ante approval processes, eliminating the flow of documentation and

permitting electronic authorizations.

the closing of the final accounts will be automated and management reports will be

available at any time in any desired format.

internal auditors will require significant training in order to adopt the modern,

international auditing standards of internal audit in their audit activities.

management will have to accept responsibility for their organization’s financial and

program performance and learn to manage in a results-based environment of increased

transparency and accountability.

The Ministry of Finance is normally entitled to establish and administer a formal training

program for all financial officers in government. It should include: the inventorying of the

existing qualifications of all financial officers in government; the establishment of the future

requirements of each financial job in the light of current and planned reforms; the identification

of the courses required to provide the necessary expertise to meet the requirements of the new

financial jobs; the scheduling of training courses; and the ongoing administration and the

delivery of the training. The Ministry of planning should also consider facilitating the process in

improving the coordination between the MOF and the line-ministries, in particular the ministries,

pilots of the reforms in the area of capital expenditures.

34

NAF staffs are trained through other training institutions than MOF (see chapter 3).

Number of Training Classes

Number of Students Sessions

MOF staff training Sessions

MOE staff Training Sessions

MOSD & NAF Staff Training Sessions

Other Training Sessions

87

1121

1040

0

034

81


15

5. Recommendations for Government – Wide factors

Short-term

1. The MOF should designate a senior executive within the ministry with responsibility for ensuring the

implementation of the agreed IMF/WB reforms, and grant this person the necessary authority to

discharge his responsibilities

2. The Minister of Finance should revise the budget process to start two months earlier.

3. MOF should designate a senior executive within the Ministry with responsibility and accountability

for resolving the current situation regarding FMIS and for ensuring a common set of standards to

govern the implementation of these key components of the financial management system.

4. The MOF should decide whether or not it wishes to enforce its previous ban on all ministry-level

FMIS development.

If so, it should re-issue the Minister’s previous prohibition on all new FMIS development and

closely monitor to ensure compliance.

If it decides not to enforce its earlier position, then it should actively engage other ministries that

are proceeding with their own FMIS development to ensure that these systems meet MOF

architectural and functional requirements. In particular, it should closely examine the ITG system

already in place in two ministries and ensure that it meets the MOF functional requirements.

If these architectural and functional requirements have not been prepared, the MOF should compile

them and issue them on a high priority basis.

5. The MOF should ensure that meetings are held with all ministries that are implementing changes to

the charts of account to ensure their compatibility with the central chart of accounts as they develop

detailed functional sub categories.

Medium term 6. A single, accountable policy centre should be established to provide a focal point for the considerable

work necessary in developing the government’s human resource policies, processes and procedures

and in ensuring with their implementation across the government.

7. The government should establish now a general policy on workforce adjustment that would enable

realization of the future benefits of automation while protecting the interests of its workforce.

8. The General Budget Director should be clearly designated by the Minister of Finance as the “owner”

of the performance-based budgeting reform initiative and should be held accountable for its

successful piloting and subsequent implementation across all budget entities.

9. The General Budget Directorate should make greater efforts to prepare itself for receiving and

analyzing the pilot performance-based budgets by ensuring that its relevant staff are trained in the

principles of performance budgets and by initiating and maintaining a continuous dialogue with the

pilot ministries on their progress. The creation of a sectoral team of experts at the GBD, in order to

improve the pilot-performance based budget should be established to complement the work underway

in MOE.


16

10. The MOF should eliminate as far as possible the practice of year end cash rationing through

improvements to the revenue and expenditure forecasting in its 2007 – 2009 fiscal and expenditure

frameworks.

11. The Ministry of Finance should begin to simplifying the budget control processes by identifying

and changing the legal basis for these controls to take advantage of the efficiency gains possible from

implementation of the GFMIS government-wide.

12. The Government should prepare and implement a plan to create modern internal audit units, based

on international standards, across all ministries and other major entities in the government.

13. The Ministry of Finance should finance, establish and administer a formal, comprehensive training

program for all financial officers in government as computerization of financial management

processes continues. The Ministry of Planning should support the MOF in training relating to the

preparation and the management of the capital budget.

Long-term

14. The Ministry of Administrative Development should consult quarterly with MOF as it develops its e-

government legal framework, in order that MOF may anticipate future simplification of its control

processes for greater control efficiency.

Jordan IFMCA Education Sector

17

II. The Education Sector Capacity Assessment

1. Background

The responsibilities of the Minister of Education and Higher education and Scientific research

include public education, universities and scientific research and development, but these two

latter sectors are actually under the responsibility of a dedicated Ministry35

. All play important

roles in supporting the government’s objective of transforming Jordan into a knowledge-based

economy. This report is about the Ministry of Education and refers exclusively to the primary

and secondary public education system; it excludes universities, given the specificities of this

sector36

, and private and donor funded primary and secondary educational facilities, that follow a

different financial management system.

The education system in Jordan is a

major component of government

activity. Table 5 provides a summary

of the students and schools in the

Jordanian education system. The

MOE and the Government realized

that a longer term strategy would be

necessary to ensure that the system

was as efficient and effective as

possible. This resulted in the ten-

year strategy for education.

Source: MOE

Table 5 Key Data on Public Education in 2004/2005 Academic Year

Level Students

Teachers Full time

Schools

Pre-school (based on 2004/2005 data)

1,347,919 62,711 4,119

Secondary (all, grades 10-11-12) (based on 2004/2005 data)

183,412 15,587 1,229

Source: MOF Budget Law; and other data from MOE

35

Ministry of Higher education and Scientific research. 36

The drafting of a Bank’s report on this sector is on-going in 2006.

Box C Education Highlights

by 2012, the school-age population will increase from

1.5 million to nearly 2.0 million;

approximately 91 percent of the population over age 15

is able to read and write;

12 years of basic and high school education are free; the

10-year basic cycle is mandatory;

MOE basic cycle schools serve 74 percent of students;

private sector covers 15 percent and the balance is

managed by UNRWA or others;

85 percent of secondary schools are MOE provided;

MOE’s budget accounted for 13.5 percent of total

government expenditures in 2003.


18

MOE’s Ten year Strategy for Education

The MOE has developed a 10-year strategy for education.37

It recognizes that improvement in

the quality of education must be financially sustainable. New investments are also required in

schools, classrooms and equipment. This will require improved efficiency in resource allocations

and greater effectiveness of these expenditures. This means, inter alia, the minimization of

administrative overhead to ensure maximum funds for classroom instruction. Reforms will occur

through internal improvements and potential partnerships with NGOs, communities and the

private sector and school restructuring. Box C illustrates how the MOE will achieve these

objectives.

Source: MOE

For the purposes of the IFMCA, the objectives for the reduction of current expenditures,

increasing the efficiency of spending and the use of performance information to improve

effectiveness are the most relevant areas.

National Agenda

These activities link well with the education components of the National Agenda. It recognized

that decentralization of administration and curriculum reforms were important to the system.

Increased enrollment in selected areas, improvements in teaching quality and more attention to

vocational education are also addressed. For the purposes of the IFMCA, the relevant

components are the decentralization of decision-making authority, improved sector monitoring

and evaluation and enhancing expenditure efficiency. Taken together, the strategic plan and the

National agenda set the road ahead for MOE and its reform plans.

37

PriceWaterhouseCoopers, Strategic Outcomes and Impact , Final Draft Report, March 2005

Box D MOE Objectives to Support its Ten-Year Strategy

Focus on reducing current expenditures.

Set priorities for expenditures that contribute most to achieving the reform goals and objectives.

Compute total costs of operation* of all existing and proposed reforms and apply them to

decisions on selection of projects.

Use agreed performance indicators to formally track and review project progress and use in future

resource allocation decisions.

Focus on educational delivery, support, and management systems that are high quality, cost

efficient, sustainable, and effective, using technology where it provides these gains

Explore sharing educational system costs with other beneficiaries.

_____________________________________________________ * Total Cost of Operations includes purchase, maintenance, depreciation, operating and support costs


19


Ministry of Education

The MOE organization chart is shown in Figure 1. The operational directorates reporting to the

Secretary General for Educational and Technical Affairs represent all of the headquarters policy

and procedural functions associated in particular with the development of the education

curriculum, teacher certification, research and development, examinations, education and student

affairs, and IT. The administrative and financial directorates reporting to the Secretary General

of Administrative & Finance Affairs represent all of the support functions for the ministry. The

36 district directorates and their schools deliver education services to the students.

For financial management aspects, the directorates of greatest interest include: Planning,

Finance affairs, Information technology, Buildings & international projects, and Audit,

inspection & quality assurance.

The Directorate of education planning is responsible for the process of preparation of the annual

budget of the MOE and the preparation of the current and the budget-financed components of the

investment budget. It is also responsible for the major budget reforms in the area of performance

measurement and performance-based budgeting that are being implemented by the ministry in its

role as a pilot ministry for these reforms.

The Directorate of financial affairs is composed of three units. The accounts department is

responsible for all payments made by the ministry and manages the ministry’s budget execution

through a manual control process. The Housing Fund department manages an optional fund for

housing assistance to teachers after retirement; and the Social Security Fund department

administers a mandatory contributory pension fund for all teaching staff.

The Directorate of information technology is responsible for the rapid computerization of the

schools and the curriculum through a dedicated software named Eduwave, the provision of

timely and accurate education management information through the Education Management

Information System (now Education Decision Support System, EDDS) and the automation of the

financial, human and other resources through an integrated resource management system.

The Directorate of building and international projects is responsible for the management and

administration of all donor-financed ERfKE project in the educational sector. It is a ring-fenced

operation, which extends to the independent processing and approval of all invoices related to

these projects.

The Directorate of Audit, Inspection and Quality Assurance performs two major functions –

internal audit and quality assurance. Audits of financial transactions, supplies, administrative

compliance, engineering works and audit of complaints are part of the audit responsibilities. The

quality assurance activities look at the quality of items procured or constructed for compliance

with the original suppliers’ specifications in headquarters and the districts and formulates

remedial action plans where deficiencies are detected.


20

Figure 1 Ministry of Education Organization

Minister

Planning

Committee

Education

Council

Office of the

Minister

National Education Science & Culture

Secretariat

Audit, Inspection And Quality

Assurance

SG Education & Technical Affairs SG Administration & Finance

Directorate of education

activities

Directorate of general

education & student affairs

Directorate of Vocational

Education & Production

Directorate of research and

development

Directorate of curriculum

Directorate of information

technology

Directorate of training and

education supervision

Examinations directorate

Secretary General

Office

Directorate of employee affairs

Directorate of supplies

Directorate of education planning

Directorate of financial affairs

Directorate of legal affairs

Directorate of building and

international projects

Directorate of education

and international relations

Head of general

division

Secretary General Office

Head of media and

public relations

36 District

Directorates


21


Jordan faces several financial-related challenges in improving the learning environment: the

scarcity of available sites and high cost of land in urban areas; the large budget cuts over the past

several years in civil works for general education; the need to use a greater share of the capital

budget for equipment; past decisions regarding school construction that have resulted in close to

70 percent of MOE small schools enrolling only 400 students (or less); and an ad hoc and under-

funded school maintenance program. Financial planning for the future facilities will also have to

take into account the natural population growth, which will cause an increase of approximately

30 percent in the number of students by 2012. 38

MOE Financial Organization

MOE’s financial responsibilities are shared by a number of directorates, mainly three of them.

The Directorate of education planning is responsible for the budget preparation function, as well

as the reforms currently underway to pilot a performance-based budgeting process. The

Directorate of building and International Projects includes financial affairs unit that performs the

accounting and payment authorization functions for the ERfKE project. Finally, the Directorate

of financial affairs, which includes 44 persons, performs all budget accounting functions,

including payment authorization within the Accounts department. This Directorate also has two

other departments responsible for the Housing Fund and the Social Security Fund for teachers.

Figure 2 refers.

Figure 2 MOE Directorate of Financial Affairs

38

Source: National Education Strategy, op cit, p. 11.


22

There are two teacher funds that are administered separately from ministry operations. These

include the Teachers’ Social Security Fund and the Teachers’ Housing fund. Both administer

contributions from teachers and keep the contribution in commercial bank accounts, outside of

the TSA. The Social Security Fund also administers MOE contributions. Boxes D and E describe

the principal characteristics of each of these funds.

Accounts

department

Housing fund

department

Social security fund

department

Disbursements division

Internal audit Division

Vouchers & fund division

Prepayment & deposits division

Loans & subscriptions

sivision

Engineering Division

Compensation & subscriptions

division

Investment division

Disbursement control division

Directorate of

Financial affairs


23

Source: MOE Source: MOE

In the 36 districts a 5-6 person financial unit in the education muderiyya provides a range of

financial services to the schools and the district. There is approximately 200 staff in all these

financial units in the 36 districts. The district receives a financial advance that is drawn down for

small expenditures. An accountant prepares all documents and comes to MOE headquarters to a

designated authorizing officer where all transactions are entered into the system and payment

vouchers are signed.

Budget Formulation

Traditional Budget Process

The budget preparation cycle as promulgated by the MOF has not changed. MOF continues to

send out the budget circular in late June, without priorities. It sets annual global ceilings for the

ministry’s current and investment budgets. The Directorate of education planning at the MOE

forwards the budget circular to all directorates and the 36 districts, without target ceilings or

ministry priorities. Salaries, wages and benefits account for the vast majority (90 percent) of the

current budget total and are managed centrally by the HR department. Individual directorates

and districts prepare their (primarily investment) budget proposals, which are then referred to the

appropriate technical directorate for review and challenge. The resulting budgets are

Box E

Social Security Fund Contributions: Mandatory

51/2 % from all staff;

11 % from MOE budget

Eligibility

Staff working before 1995 covered by MOF budgetary payment;

Since 1995, all staff covered by Social Security

Payment

lump sum, tax free

1 month of salary for 1-15 years +150 JD / additional year

Governance

Board of Directors 7 members – no independent board members

External audited financial statements Sent to Director General and Minister

Statements not sent to members

Box F

Housing Fund

Contributions: Voluntary

18% participation rate

5% monthly contribution

Eligibility

Contributors wait about 25 years to get housing loan, based on:

- # years of contribution (60%) - # years in MOE (40%) Payment

Loans up to 20K JD, 18 years interest free

Contributions + interest returned; teachers can borrow the difference between the 20,000 JD and contributions

Governance

Board of Directors 7 members – no independent board members; Board approves each payment

External audited financial statements Sent to Director General and Minister

Statements not sent to members


24

consolidated and reviewed by a high-level budget committee consisting of the Secretaries-

General and the Minister before the budgets are sent to MOF. Both budgets are negotiated with

MOF and MOE staff to obtain an agreed final budget proposal. There is little discretion at the

district of Governorate level for the current budgets.

The Performance-based Budget Pilot

The MOE is a pilot ministry for the implementation of results-based budgeting. Good progress is

being made in the design of this process and in implementation. The Directorate of education

planning, assisted by consultants, has:

revised the ministry program structure to focus on the outputs of the budget.

displayed both governorates and districts in the program activity structure. This supports

decentralization when the government decides to proceed with the education sector.

revised its chart of accounts to include the functional and geographic classifications for the

operations of the ministry and its districts and schools.39

MOE has confirmed with MOF the

level of functional classification for education that will be in the revised GFS 2001-compliant

chart of accounts.

The ministry is in the process of developing a set of strategic program objectives and specific

objectives, coupled with quantified performance indicators for all directorates. The intention is to

use the information internally to analyze next year’s budget requirements and prepare the budget

within the ministry on this program results basis. Table 6 refers. The intent is to track these key

performance indicators and set annual or multi-year targets for each (e.g. reduce repetition rates

from X% to Y% in 2007)

39

The consultants, Pricewaterhousecoopers, noted that there was a reasonable alignment between the programs and

the functions, although the programs did not always have budget responsibility for all spending in the function.

Proper alignment is required.


25

Table 6 Potential Sample Performance Measures and Indicators Measure Description of Key Performance Indicator Education Effectiveness

Measurable increases in learning outcomes for students Reductions in repetition rates Higher proportion of students going on to higher education Reduced adult illiteracy

Equity in Education

Limited variations in achievement between genders, ethnic, social groups and districts

Program Efficiency

Outcomes achieved and increased efficiency in sustainable future operations

Management Efficiency

MOE to keep educations share of public spending at just under 14 %. Increasing the proportion of education funds being spent on direct education School management decisions are to be delegated to the lowest possible level, including hiring of staff and reallocations of budgetary funds

Source: MOE

To accompany this results-based budget structure, an enhanced process has been

recommended.40

The recommendation consists of a multi-year budget planning process,

beginning with an examination of the existing strategic priorities and the preparation of a

strategic outlook paper. The paper would contain the proposed budget priorities, levels of

expenditures and relevant targets for all programs for the upcoming budget year (FY07) and the

two out-years. The MOE would finalize the priorities when the MOF annual budget circular has

been received with the budget targets. MOE would then send their budget circular that would

contain details of expenditure ceilings and performance indicator targets for the upcoming

budget year to all budget entities. This recommendation is being reviewed by senior

management. This program is supported by the Bank since 2005 as part of the PER follow-up.

This represents a major cultural change for all MOE staff. It will require a significant amount of

training in all aspects of the new budget process and its performance-based foundations. The

transition will take several years to be completed, initially in MOE and subsequently in MOF,

although this is the opposite of what one would expect from a central agency that is supporting

budgetary reform. Ironically, unless the present level of commitment by the GBD to support

results-based budgeting is significantly increased, the MOE will have no one with whom to

negotiate its new performance-based budgets and the entire initiative may not be sustainable in

the future unless the GBD gets more involved in this new procedure. In such a case, the ministry

40

Pricewaterhousecoopers, Budget and Planning Systems, July 2004


26

of Planning may consider playing a more active role in facilitating the dialogue between the

GBD and the MOE.

Budget Preparation Performance

One measure of budget preparation system effectiveness is the ability of ministries to obtain the

funds requested for their current and investment budgets. Because MOP separately manages the

donor-financed component of the investment budget, this measure is less comprehensive.

However, it still is indicative of how well the process functions. Table 7 refers.

Table 7 Education Budget Performance 2003-2005 (JD Million)

Source: Ministry of Education

*Social and Economic Transformation Project

The ministry has a good track record in preparation of budgets that are acceptable by the General

Budget Directorate. Current budget variance has been less than 5 percent in the period 2003-

2005. However, this high rate of approval of the current budget also reflects the invariance of the

salaries and benefits component, which accounts for approximately 90 percent of the current

total. The capital budget success rate was less important and highly variable, ranging from 55 to

29 percent variance. These capital expenditures are the budget-financed component; the ERfKE

donor program provides substantial financing in addition to this budget allocation. The capital

amounts provided by MOF are consistent with other capital approvals and do not appear to be

unreasonable. The temporary budgets relate to financing under the Social and Economic

Transformation Project, whose variance was the widest ranging of all categories. The mission

concluded that the SETP budget decision-making was made centrally, with little influence from

the executing ministry.

Current Capital SETP* Total

2003

Budget requested (R) 287.7 26.8 24.5 339.0

Budget Approved (A) 273.4 12.2 20.2 305.8

Budget Utilized (U) 270.4 8.9 18.3 297.6

Variance (R-A)/ R 4.9 % 54.4 % 17.5 % 9.7 %

Variance (A-U)/ A 1.0 % 27.0 % 9.4 % 2.6 %

2004




Variance (R-A)/ R 3.3 % 34.8 % -114.2% 0.7 %

Variance (A-U)/ A 2.1 % 8.5 % 39.2 % 5.5 %

2005




Variance (R-A)/ R 1.6 % 28.8 % -180.0 % - 1.2 %

Variance (A-U)/ A - 3.4 % 5.4 % 23.6 % - 1.3 %


27

As regard to the budget utilized variance, the track record also is acceptable, in particular for the

capital expenditures which ranges from 5 to 27 percent variance.

Budget Execution

The budget execution process follows the same process as described in the government-wide

factors chapter (Table 3). The mission noted the duplicative nature of the process, with at least

five overlaps between sequential steps in the process. Two comments can be made: the presence

of multiple, repetitive steps tends to relieve each individual of his responsibility and

accountability for successfully discharging his task; the large number of steps generates delays in

the payment processing process, which could affect the suppliers prices for provision of goods

and services to the government41


Accounting

All accounts are now in the TSA except the Social Pension Fund and the Teachers Housing

Fund. The ministry is undertaking major changes to its program structures and its chart of

accounts. Table 8 provides the details of the proposed program structure currently under

development within the ministry. It is a pure, output-based structure that replaces a previous

output and input program configuration. This will be reflected in the accounting system when

full implementation is approved. Until that time, the Directorate of education planning will

prepare the 2006 budget internally on this revised structure and cross-walk the final budget

proposal to the old structure for submission to MOF.

Table 8 Proposed New Program Structure

New structure Existing Structure Administration and Supportive Services Administration Kindergarten Education General Education Basic Education Vocational Secondary Education Adult Literacy Vocational Education Sports Activities Special Education Rehabilitation/training Adult Education and Removal of Illiteracy Examinations Educational Activities organized by MOE Media and Textbooks Special Education

Source: MOE and Pricewaterhousecoopers, Project A Report, page 2.

The MOE advised the IFMCA mission that their revisions to its chart of accounts to include the

functional and geographical classifications will be compatible with the MOF changes to its chart

to bring it into conformance with the GFS 2001 requirements. MOF confirmed this to be the

case.

The existing cash-based accounting policy will remain in effect. The mission observed that, as

the use of performance information is further developed to include financial costing and the

related performance financial ratios, the ministry should plan for a future, multi-year phased

41

That should be confirmed on a sampling analysis.


28

migration to accrual-based accounting. This would ensure that the costs used would reflect the

full costs, including the costs of physical assets. It is a long-term reform.

Financial Management Information Systems

The MOE’s information technology is a confusion of 32 multiple, ageing legacy stovepipe

systems, combined with manual reporting processes. The financial and resource management

systems are partially automated (budget preparation, payroll) and manual (budget execution

controls, audit). The ministry is proactively moving to automate all of its core functions,

including education planning, delivery and management processes, and to implement a

complementary initiative for an integrated resource management system. This latter system was

the principal focus of the mission.

There is considerable confusion surrounding the IFMIS. The process appears to be out of

sequence. Deadlines are being discussed, in the absence of an implementation plan or an

approved supplier. The ministry has not prepared its statement of requirements for such a system,

and there does not appear to be a senior management “owner” of the reform. Staff within the

ministry considers the IT directorate as the owner of this and other automated systems. The

IFMCA team is concerned, as the success of any large computer-based project such as a financial

management information system is heavily dependent on user ownership of the project and its

implementation.

Additionally, there has been little consultation between the ministry and the MOF on the

development of its FMIS. In fact, the Minister of Finance had written two years ago to all of his

cabinet colleagues prohibiting the development of any ministry FMIS without his approval;

MOF advised the mission that MOE did not seek the Minister of Finance’s approval and no such

approval was given. The mission believes that the MOE should resolve this situation before

proceeding further with its FMIS project.

If approval to proceed is obtained, the MOE project manager should closely engage the MOF

personnel at two levels - managerial and technical. The managerial consultation is necessary to

ensure that the functionality of the MOE system is compatible with the one of the MOF system.

Technically, the MOE and MOF should ensure that the maximum commonality between the

architectures, data designs and hardware/software is achieved to minimize the capital and

operating costs of implementing FMIS in all major government entities. This consultation should

be formal and regular, with decisions taken communicated to all parties in both ministries.

The IFMCA mission also noted that a supplier was interviewing various ministry directorates in

order to acquire their user needs and to develop a statement of requirements.42

This supplier is

ITG, the same company that is responsible for the design and implementation of the ministry’s

Eduwave and EDDS43

softwares. Given that the supplier could be considered to be a future

42

The team was advised that ITG has promised to install their GRDS system for “free”. The Ministry has paid US$

million 2,3 for EDDS. Quite apart from the procurement concerns, the MOE should negotiate with any systems

supplier for the future costs of ongoing maintenance and technical support, upgrades etc and ensure that they are

expressed in a legal contract. 43

Education decision support system.


29

bidder for the provision of an FMIS for MOE, that will be linked to the system of the MOE, this

activity may represent a case of conflict of interest.

Once the situation has been normalized, the MOE should follow the well-established process for

preparation of a competitive tender for any system and implement it in a transparent manner

according to international procurement standards. Once a successful bidder has been selected, the

ministry should formally contract with the supplier for the implementation of the system, based

on a well-developed and fully costed work plan. The responsible project manager should monitor

and manage the implementation to ensure that the project is implemented on time and within

budget. The contract should also make explicit the services and costs that would be provided by

the supplier for ongoing maintenance of the system, as well as the basis for making upgrades and

other client-requested improvements.

Reporting

The overall reporting of the MOE follows the procedure described in chapter one (Government –

Wide factors). Thus, the MOE produces monthly reports of the commitments and the payments.

The reporting is semi-automated44

. Given the means used for this process, the team assesses this

reporting as acceptable even though the reliability of the commitments reports is still

questionable and the timeliness of the monthly reports could be improved. To this regard, the

GFMIS will make possible the full accounting and reporting of the commitments. Nevertheless,

the reporting of the MOE is largely above the average of other ministries, in particular for the

accuracy of the reporting of the payments.

The mission has concerns about the transparency of the two extra-budgetary teachers’ funds. It

was advised that the MOE understates the administration costs of the Social Security or the

Pension funds as it does not charge the funds for the operating costs of the two directorates that

administer them. As well, the funds do not operate transparently, as the annual financial

statements of the funds are not provided to all contributors. The study did not consider the

appropriateness of such funds, assuming that their existing legal framework accurately reflects

the government’s policy for additional compensation for its teaching staff. However, in terms of

governance of the fund, a more complete and accurate disclosure is necessary to meet minimum

standards. Also, the financial statements should be distributed regularly to all fund participants to

promote greater accountability for and transparency of their performance.

Internal Controls

Budget Controls

Regular budget controls are carried out in the ministry according to the government-wide

processes. As in all other ministries, the budget execution system has overlapping and

duplicative controls exercised by the Audit Bureau, MOE staff and MOF Controllers. The

observations made in the government-wide chapter are equally applicable for the Ministry of

Education.

44

In most ministries, the reporting is manual.


30

Payroll Controls

The controls over payroll are in principle sound and complete. The tools utilized should allow a

secure set of controls as follows:

Payroll is centralized at MOE headquarters, administered by the payroll department at the

Directorate of employees affairs - HR (see chart - figure 1).

All increases in staff levels proposed in the annual budget process are closely reviewed

by the technical directorates for validity and by the HR directorate for staffing.

The resulting increases in staff, if approved in the budget process, are used to update the

ministry’s manning table.

There are standard salaries for each level of civil servant, set by MOF and augmented by

additional allowances for teachers with additional qualifications.

All payroll records are kept in a secure, centralized computerized payroll data base that is

updated daily from paper-based reports from the various directorates.

The data base is audited by an internal audit mission within the Directorate of employee

affairs to ensure that all changes are supported by appropriate documentation.

Additionally, there is a regular validation of the number of staff under the responsibility

of each directorate and district by site visits by MOE internal audit unit that also checks

the data quality.

The MOF and the Audit Bureau auditors also audit the data.

The mission believes these tools are sufficient to ensure secure controls but has not performed a

sampling exercise to verify this point, in particular the resulting modifications in the situation of

the agents in due time (retirement, secondment, …). However, the audit reports recently issued

have not reported problems.

Procurement Controls

MOE follows the procurement rules described in the government-wide chapter (Box A). The one

difference is the procurement procedures applied by the ERfKE project which follows the World

Bank’s procurement guidelines45

.

Fee Revenue Controls

There are no issues with locally-generated revenues. Fee revenues in the education system

represent a very small component of total expenditure in the ministry. Individual schools retain

local revenues, but spending from these revenues is controlled by MOF in the same fashion as

any other expenditure.

Internal Audit

The directorate in headquarters in charge of internal audit and quality assurance is composed of

two departments (internal audit and quality) and eight divisions. Figure 3 refers.

45

Tenders are sent by the unit to all embassies and advertised in the media; bids evaluated by a committee are sent

to MOF for no objection; and, the results of the tender are publicized. A modern, electronic notice board in the

procurement authority provides all suppliers and the interested public with the results of current bids and the

accumulated procurement to date. The process is designed to ensure transparency and fairness to all parties.


31

Figure 3 - MOE Audit, Inspection and Quality Assurance

The directorate in charge of internal audit is large and well-developed. A staff of 22 auditors

performs five functions within the unit:

-five financial auditors audit all transactions; for transactions greater than 5,000 JD, the

Audit Bureau also performs an ex ante audit46

after approval by the directorate of financial

affairs and before the MOF Financial Controller. The financial auditors also perform ex post

transaction audits on a sample basis, review monthly financial statements from the directorates

and coordinate with their district auditor counterparts on the results of their work:

-the supply auditors audit all supplies – furniture and fixtures, computers, vehicles,

international project procurement, asset management and quality of goods- and check their

compliance with the purchase orders and other characteristics such as schools norms.

-the administrative auditors audit all administrative decisions, such as transfers of

teachers. They oversee the execution of the district audit plans and issue corrective action

notices. They do not perform payroll or HR audits.

-the engineers auditors conduct their audits through field visits to projects under

construction to assess the percentage of completion. They also exercise quality assurance

46

This task is being gradually phased out (see Chapter 1)

Internal Audit

Department

Quality

Department

Financial Audit

Supplies Audit

Administrative Audit

Engineering Audit

Complaints

Quality Assurance

Specifications

Performance & Follow up

36 Districts have an internal audit unit of up to 5 auditors for audit and quality work

Audit, Inspection and Quality

Assurance


32

on the physical aspects of the project. The work is primarily related to international

projects.

-the complaints auditors receive and investigates complaints from all parties, either

directly or through an innovative web site.

The auditors do not use international standards in the planning, executing or reporting of their

audits; and international standards are not utilized as the basis for their training courses. As a

result, while the audit group is active, the ministry is not receiving the full benefits from their

activities that would be expected from modern internal audit processes and procedures.

Audit reports are discussed with the auditees and submitted to the Secretary General of education

and technical affairs. An annual audit report is prepared and sent to the Audit Steering

Committee, chaired by the Secretary General. ISO-certified auditors each received two days of

formal training for certification; there is no additional training provided on a regular basis. The

audit function in Ministry of Education has a number of the attributes of modern internal audit. It

would be a good candidate for a pilot on establishing an internal audit function when the

government decides to implement internal audit that follows international audit norms across all

ministries.

The Quality Department has three divisions and 70 staff at headquarters, all internationally

certified under ISO 2000. District audit staffs also perform the quality functions in their

respective districts. The Quality division ensures that staff follow the specified procedures set out

in procedural manuals, monitors the implementation of work and its efficiency and makes

appropriate recommendations for process improvements. The specification division audits the

technical specifications for projects to ensure compliance with MOE standards and for quality.

The performance division audits the implementation of all approved action plans for new

projects.


MOE financial officers do not receive any sustained, planned and regular training to enable them

to maintain their skill levels or acquire additional skills. The general feeling was that the

financial officers possessed professional training of a university degree or an accounting

designation, and with on-the-job training, they were quite capable of maintaining their skill

levels. Given the National Agenda’s emphasis on development of modern skills and continuous

learning, the current approach warrants re-examination.

This approach is understandable in a stable financial management environment. But in a period

of significant change such as the government is now in the process of implementing, a more

proactive approach is required. The mission learned that MOE has not sent any agent to

participate in the training sessions offered by MOF47

(see chapter 1).

47

The MOF indicated to the mission that it has both the capacity and the capability to provide financial training

courses for other ministries at no cost other than travel and lodging where required. They are also establishing a

formal training centre that will provide a permanent training facility for future training of financial officers.


33

The MOE should consult with the MOF and develop a formal training program for their financial

officers. Training should be designed to refresh current knowledge of budgeting control,

accounting, reporting and auditing and to impart

new skills required to accommodate the planned

changes to financial management processes. A

sample of the type of training that could be

offered is provided in Box G. The selection of

appropriate courses for the MOE financial

officers would be the responsibility of the

ministry’s financial affairs and Human Resources

directorates. A multi-year training plan should be

created, with training coordinated with the

expected implementation dates of projects to

improve the financial management functions. The

plan should then be discussed with the MOF so that the appropriate courses could be developed

and scheduled for future delivery. Here again, the MOPIC should consider playing a role in

facilitating the dialogue between both ministries.

Box G Potential Financial Courses

The FMIS and its processes

Principles of Accrual Accounting

Activity-based costing

Performance measurement in government

Performance information in budgeting

Program based budgeting

Results-based budgeting

Financial analysis and forecasting


34

5. Performance Indicators

The Public Expenditure & Financial Accountability program (PEFA)48

, adjusted for sector

application, has been prepared for the Ministry of Education. The PEFA set contains 28

performance indicators for use in assessing a national government’s performance. Table 9

provides the data for the Ministry of Education which cover a set of 6 indicators as an illustrative

set of the overall performance of the system. A more comprehensive analysis is needed for full

use of the framework.

Table 9 Ministry of Education: PEFA Performance Indicators

48

PEFA is a recent donor’s agreed tool that regroups a set of indicators about the level of performance of a Public

Financial management system. Each indicator is rated from A (highest level) to D (lowest).

Indicator Description

Measure

Rating

Comments

Variance: Budget expenditures vs. actual expenditures over 3 years

Variance from Budget (%)

A - B

Three years of data

Effectiveness of payroll controls

integration or payroll & personnel records

timeliness of updating

internal controls on changes to records

regular payroll audits

A - B

HR is entitled to administer all payroll processes and payments

Effectiveness of internal controls for non-salary expenditure

Effectiveness, comprehensiveness of controls with high compliance rates

B - C

Overlapping functions in ex ante control purposes

Effectiveness of internal audit

Coverage, quality and management response to internal audits; frequency & distribution of audit reports

C

Modern internal audit not present but some aspects are positive

Availability of information on resources received by service delivery units

Information on resources actually received by service delivery units

A

Financial data routinely available; performance data now being developed and supporting systems under construction

Quality and timeliness of in-year budget reports for sector

Scope and coverage of reports; timeliness of reports and quality of data

C

Teachers Housing and Pension Fund reports not transparent


35

6. Recommendations for the Ministry of Education

Short-term

1. The MOE should designate a senior ministry executive as the owner of the ministry’s new financial

management information system project, with full responsibility for the successful implementation of

the project. This person generally is not the IT Director. The MOE should also appoint a full-time,

qualified project manager to oversee project implementation.

2. The MOE should consult with the MOF to get his approval for the development of the MOE- FMIS

before proceeding further with any competitive arrangements for its provision.

3. The MOE should initiate formal and regular meeting with key MOF staff to coordinate on the

management and technical issues arising from the MOE- FMIS project implementation.

4. The MOE should seek explicit guidance from MOF and, if necessary, Cabinet before proceeding

further in his ministry’s dealings with ITG on an FMIS. Until direction is provided consistent with its

present relationship with ITG, it should suspend all of ITG’s activities relating to the FMIS.

5. The successful FMIS supplier should be selected using the Procurement Authority’s competitive

tender process.

6. The MOE should develop and implement now a long term training program for its financial staff in

close coordination with the MOF and its Training Institute. This should be implemented on a priority

basis to support the effective implementation of MOE’s significant budget reforms. The MOPIC

should also facilitate the dialogue between the MOF and the MOE.

Medium-term

7. The implementation of the FMIS should be covered by a contract between MOE and the supplier.

The contract should be for a fixed term and should specify the implementation milestones and costs as

well as the future costs of provision of system maintenance and support, and the basis for determining

the cost of client-requested changes and upgrades.

8. The MOE should be an early pilot for a modern internal audit function when the government decides

to implement an international standards-based audit function.

9. The MOE should disclose its direct costs for supporting the teachers’ Social Security Fund and the

Housing Fund in their annual financial statements. These statements should be accompanied by the

auditor’s opinion on the fairness of the financial statement presentation, in accordance with

international auditing standards. The MOE should distribute annually the audited financial reports of

the two funds to all participating staff, on a timely basis after Board approval.

Jordan IFMCA Social Development Sector

36

III. A The Social Development Sector Capacity Assessment

1. Background

Jordan has always placed the provision of social services and the alleviation of poverty at the top

of its priority list. The government has recognized the right of all citizens of access to health

services and is committed to fighting poverty. As such, in 2004, Jordan’s social services

spending amounted to 17 percent of GDP, a percentage that is among the highest in developing

countries. This anti-poverty theme directly supports the National Agenda goals relating to public

assistance and the well being of Jordanians. A National Agenda Committee on Social Welfare

has been created with a mandate to address issues relating to poverty, social security and

healthcare.

The Social Development sector consumes around 17 percent of total expenditures in 2003 and

8.2% of GDP. Pensions account for 6.7 percent of GDP; the balance of 1.5% is accounted for by

the government’s the anti-poverty programs and social safety nets. At present there are around

1000 local voluntary organizations and 41 foreign NGOs registered with the Ministry of Social

Development.

The Multi-Year Strategy

The MOSD prepared a three year strategy covering the years 2004 to 2006. This strategy was

developed to support the vision of HRH the King and the government of Jordan to achieve

overall sustainable development for all members of society. The main objectives of the strategy

are to: reinforce the national Jordanian identity; protect the family; build and develop individuals

to achieve social coherence; achieve fairness and social security for all members of society

across all geographic locations (with particular emphasis given to the most vulnerable members -

orphans, women, elderly, citizens with special needs and juveniles); face social challenges such

as poverty and unemployment by involving NGOs in developing local communities and in

providing training, rehabilitation and the needed support; invest in human capacities; enhance the

capacities available in society; enhance the concept of work and productivity; support individual

self-reliance and contribute to the overall development process; deepen society’s understanding

of development efforts to help individuals and groups in addressing their needs; reinforce

cooperation and coordinating between the public sector, private sectors and NGOs to invest in

national efforts to promote sustainable development; and to encourage individuals and local

NGOs to reinforce social productivity.

The strategy also identified policies on women’s role and importance in society, the priority of

children in development programs, protecting the family, scientific research as a basis for

planning and building programs, and continuous training to increase capacity and qualifications

of employees. It also proposed specific programs for the three year period by objective, target

and supporting groups and specified performance indicators.

Although substantial improvements have been achieved since 1997, poverty in the Kingdom

remains pervasive with 14.2 percent of the population living below the poverty line, mainly in

rural areas. In order to reduce poverty, the plan identified nine specific initiatives. Of relevance


37

to the IFMCA is the initiative to restructure the National Aid Fund to permit it to deliver a

broader range of social and financial support to affected citizens.


Ministry of Social Development

Jordan’s social development ministry’s aims are to contribute to organizing citizens’ efforts,

educating them about investing in their personal capacity, improving their life status, providing

them with social services, safeguarding and solving society’s social problems and coordinating

with parties working in the social field.

MOSD has four technical directorates with responsibility for Projects, Special Needs,

Family/Women/Children and Social development49

. These are supported by directorates for

International Cooperation, Building and Services, Financial Resources, Communication and

public awareness, Studies & Planning, Human Resources Development. Figure 4 shows the

complete organization structure of the ministry. MOSD operates 30 field directorates, 22

supplementary offices and 47 centers across the Kingdom. The staff complement of the Ministry

is approximately 1,800 employees50

.

A number of other ministries and agencies support MOSD’s functions: the Ministry of Planning

and International Cooperation coordinates donor-related activities and budgets for JD 2 million

for housing grants that are administered by MOSD; the Ministry of Public Works and Housing

manages all construction bids above JD 20,000 on behalf of MOSD and other ministries; the

General Budget Directorate and the Ministry of Finance provide initial budget levels and

monthly expenditure reports respectively; NAF provides social subsidies to all citizens in

financial need (see section IIIB for a complete analysis of NAF’s operations). MOSD and NAF

cooperate in common field directorates; local and foreign NGOs that are registered with MOSD

receive support in cash or in kind from the ministry.

Field Directorates

The field directorates and offices carry out the work of the MOSD and NAF in their district.

Almost half of the ministry’s field employees work on NAF business, even though their salary is

covered in the ministry’s budget. All budget, expenditure and payment cycles for all the field

directorates, offices and centers are centralized in the MOSD.

Non-Government Organizations

At present there are 1,000 local voluntary organizations and 41 foreign NGOs registered with

MOSD. Its Directorate for Social Development contracts with NGOs to provide services to

geographic areas that MOSD cannot reach or to provide highly demanded services that exceed

the ministry’s capacity to deliver. The agreements between the NGOs and the ministry specify

the services required and the financial contribution of the ministry as well as other articles

relating to aspects of the NGO’s services. The NGOs are required by law to submit annual

49

Also called in this report Directorate for people with special needs. 50

22 percent have completed their mandatory education and 5 percent have a higher degree.


38

audited financial statements to the Minister of Social Development. Contracts concluded

between the NGOs and international donors are effected through the MOSD or MOPIC.

The mission was advised that the MOSD currently has agreements with only 16 out of 41

registered NGOs. The ministry advised that it is facing difficulties in financing them as specified

in the agreements due to limited budget resources.51

The Director of Social Development

estimated that an additional JD 0.5 million would be required to fulfill the ministry’s obligations

under its contracts with the NGOs.

51

Of the JD 1 million requested in the 2006 budget, only JD 370,000 was allocated


39

Figure 4 Organization of the Ministry for Social Development

Minister

NAF

Office of the minister

Internal Audit Unit

National Council

for Special needs

SG

Assistant SG

Diwan

SG Office

Legal unit

International

Cooperation

directorate

Media

division

Int’l &

foreign

NGO

division

Buildings &

Services

directorate

Bldg &

maintain.

division

Financial

resources

directorate

Accounting

division

Commun.&

public awareness

directorate

Commun. &

PR division

Studies &

planning

directorate

HR

development

directorate

Special needs

directorate

Family, women &

Children

directorate

People with

special needs

directorate

(Movt)

division

Payroll

division

Internal

audit

division

Budget

division

Supplies

division

Public

awareness

division

Public

service

division

Elec

document

& archive

Studies

division

Planning &

follow up

division

IT division

Library

division

Employees

affairs

division

Training

division

Promotion

division

Design &

fundraising

Implementa-

tion

Follow up

on pov

strategy

Hearing &

seeing

division

Physical

division

Mental

division

Diagnosis

division

Training

& VTE

division

Children

division

Youth

division

Women

division

Family

protection

division

Elderly

division

National

NGO

division

Enh. Pro.

& elimin.

Poverty

division

Projects

directorate

Housing

division


40


One reason that financial management skills are weak in the ministry is due to the high degree of

centralization of the financial function. All major decisions, approvals and check payments are

performed in Amman. Although each field directorate has a finance officer, his main role is to

act as an intermediary between the Financial affairs Directorate at the field level and the

Ministry’s Financial Resources Directorate. This lack of experience on the part of field staff will

make it difficult for the ministry to implement a FMIS that enables to adjust the level of

decentralization of the financial management function (closer to the point of service delivery)

and to develop and implement performance budgeting to support increased managerial

accountability and responsibility.

The Financial Resources Directorate at the MOSD has 23 employees in 5 divisions as shown in

Figure 5.

Figure 5 MOSD Financial Directorate Organization

* Currently the division does not exist but the 6 employees are performing the work and reporting to the finance

director.

Budget Formulation and Execution

Budget Formulation

The Ministry budgeting process is quite weak, with low staff capacities to support planned

budgeting improvements. Projects such as performance budgeting or the implementation of a

modern FMIS will require considerable professional development and training for both financial

staff and managers who are responsible for budget planning and execution. At present,

fragmented and often manual systems are employed, with all decisions centralized in Amman.

The budget formulation process at MOSD is a bottom up data collection process that transmits

MOSD needs, but not in a medium or long term perspective. The budget preparation is not

guided by ceilings or priorities set at the Minister’s level or the Technical Directorates; instead it

is a fragmented approach where the plans are cut down at every level of review. The absence of

ceilings or priorities reduces the ministry Budget Office’s role to an aggregator of all

Financial Resources

Directorate

Budget

division

(1)

Supplies

division

(6)

Accounting

division

(4)

Payroll

division

(4)

Internal Audit

division

(2)

Deposits *

(6)


41

submissions into one Budget plan52

. As a result, the annual budget is unconstrained in its

preparation and does not ensure a continuation of ministry programs or provide a basis to move

forward in the ministry’s strategy and vision. Given that the MOF is implementing a MTEF for

the 2007 budget cycle, the timing is excellent for the ministry to match its strategic planning

process with a complementary three-year expenditure plan. The Bank supports this program

since 2005 as part of the follow-up of the PER process.

The Ministry should develop and implement a three-year expenditure framework that will allow

it to plan and prepare its budget based on defined priorities. The absence of expenditure ceilings

for the ministry and its directorates results in a budget without adequate justification for its

contents. This disempowers the ministry, as it permits the General Budget Directorate to make

arbitrary budget decisions on its content53

.

An effective internal “budget challenge” process within the MOSD would significantly improve

the effectiveness of the budgeting process and enhance the transparency of the district capital

budgets. This would require financial training for the budget staff on modern budgeting

techniques, the ministry’s major programs and its budget priorities.

The field directorates’ role in the budget formulation process would also be enhanced if their

yearly budgets were based on agreed priorities and fixed budget ceilings. They should also be

responsible for preparing their current budget in two parts for MOSD and NAF operations, with

MOSD costs incurred for NAF operations charged to the NAF budget. This will increase the

transparency of NAF’s actual costs and permit a more accurate picture of the total costs of

MOSD and of NAF.

In fact, the field Directorates prepare a yearly plan of all proposed investment projects, based on

their local needs. Once these plans have been sent to the ministry headquarters, the field

directors’ involvement in the budget process finishes as the MOSD does not communicate the

approved budget to the field directorates or send them a monthly budget report.54

Once the Field

Directorates’ plans are received, the heads of the technical Directorates select the most

appropriate projects, based on ministry needs and ministerial priorities. These projects are costed

and converted into a capital budget proposal. As a result, there can be no financial accountability

of the field directors for the effective management of their financial resources.

The current budget is prepared using historic data, adjusted for changes in the number of staff,

operating expenses and other related expenses. Even though the field Directors work for both

MOSD and NAF, and at least one half of the ministry’s staff are essentially 100% working on

NAF business, the MOSD budget includes all field staff salaries and operating expenses. Each

NGO submits to the MOSD its proposed budget containing an unconstrained “wish list” of all

requests. The Social Development Directorate reviews these proposals, giving priority to the 16

NGOs with whom they currently have formal contracts. The Directorate also estimates resources

52

The budget process is bottom up driven. Based on a MOF’s circular, the MOSD requests its various technical and

field directorates to prepare a yearly plan of all proposed projects to be included in the capital budget. The current

budget is prepared by the budget division using historic data. 53

This year, the MOSD’s budget included an amount allocated to the National agenda which was prepared by the

Prime Minister’s Office and submitted to GBD for approval with no involvement from the ministry. 54

This is done to maintain the maximum budget flexibility for global operations.


42

required for multi-purpose NGOs that are used to respond to an urgent demand for a particular

service on a non-contractual basis.

The current and capital budget plan is presented to the Secretary-General and the Minister for

their feedback. The Minister and/or Secretary General may at this point add or delete projects

before submitting the plan to the General Budget Directorate. The Minister, Secretary General,

Technical Directors, Financial Director and Budget Officer meet with the Director of the General

Budget Directorate to negotiate the final budget levels.

Budget Execution

The mission assessed the budget performance of the social development sector, using the

percentage of the budget requested to the budget actually approved by Parliament as a measure

of budget formulation efficiency. This approval ratio measures the ability of the sector to

formulate a realistic and feasible budget. Details are provided in Table 10. The two main lessons

learned form this table are the absence of availability of the data related to the budget requested,

which indicates the low ownership by the Financial resources directorate of the budget

procedure, and the erratic and poor performance of the budget execution vs budget approved,

that also confirms the low ownership of the budget process by the Ministry, in particular at the

field office level (see below).

Table 10: Social Development Budget Performance (JD Million)

2003 2004 2006 (*)

Program Current Capital Grants Current Capital Grants Current Capital

Administrative &supporting services

Budget requested (R) n.a. n.a. n.a. n.a. 1.84 1.81

Budget Approved (A) 1.66 1.27 1.67 0.72 1.70 0.29

Budget Utilized (U) 1.41 1.18 1.53 0.58 - -

Variance (R-A)/ R n.a. n.a. n.a.

n.a. n.a. n.a.

7.6% 83.9%

Variance (A-U)/ A 15.06% 7.08% 8.3% 19.4% - -

Children & family program

Budget requested (R) n.a. n.a n.a n.a 0.81 0.67




n.a. n.a. n.a.

13.5% 28.3%

Variance (A-U)/ A 10.2% 7.1% 6.5% 32.5% - -

Social protection program

Budget requested (R) n.a. n.a n.a n.a 0.65 1.13




n.a n.a. n.a.

7.6% 25.6%

Variance (A-U)/ A 8.3% 13.9% 33.3% 19.2% - -


43

2003 2004 2006 (*)

Program Current Capital Grants Current Capital Grants Current Capital

Special needs program





n.a. n.a. n.a.

16.1% -2.1%

Variance (A-U)/ A 21.4% 0.0% 12.0% -1.2% - -

Local Community Development program





n.a.

16.6% 54.8%

Variance (A-U)/ A 11.4% 10.1% 5.1% 2.9% - -

Total


Budget Approved (A) 4.86 4.69 9.55 4.64 5.15 9.79 4.4 4.7

Budget Utilized (U) 4.15 4.41 8.55 4.09 4.72 8.81 - -

Variance (R-A)/ R n.a. n.a. n.a. n.a. 13.3% 37.3%

Variance (A-U)/ A 14.6% 5.9% 10.4% 11.8% 8.3% 10.0% - -

* 2005 data not available Source: Jordan, Budget Law for the Fiscal Year 2004.;

As described in the government wide chapter of this report, the budget execution process is

centralized in the ministries and is monitored by their financial directorates and MOF on a

monthly basis. The budget allocations are strictly controlled, and any variances at the economic

or organizational classifications down to the sub-item level are controlled by the General Budget

Directorate. Depending on the nature of the transfer, it can be only approved by the General

Budget Directorate, Cabinet or Parliament. The Ministry cannot restore to the approved budget

any project which was removed by the GBD. The Field Directorates play no role in the

management of the execution of the budget. This is due to the fact that the budget is not broken

down by field directorate, but is managed centrally. All spending approvals are made in

headquarters, far from the point of service delivery.

The expenditure cycle is a lengthy one with various ex-ante and ex-post controls. The budget

officer, the disbursement controller, the MOF controller, the internal auditor at the Financial

resources directorate, the internal audit unit at the Ministry level, the Audit bureau in some cases

review individual transactions to ensure funds availability and proper recording in the budget.

This situation was already addressed in the government-wide chapter of this report.


The accounting division at the Financial resources Directorate follows the cash basis of

accounting for recording expenditures. Each expenditure starts with a committed amount (pre

approved to ensure availability of funds) and goes through detailed inspection on an ex-ante


44

basis before being approved and recorded. The MOSD manually records commitments but does

not prepare any report that will allow it to follow up on these commitments or to quantify their

amount. In other words, the notion of commitment seems to be used as a way to allow the

expenditure to be initiated and not as a tool to monitor the spending.

Field expenditures are centrally approved, recorded and maintained with their supporting

documents. Even though the field director is required to approve the expenditure requests before

sending it to MOSD, the field directorate finance officer is not responsible for recording these

expenditures or following up on them.

The ministry’s Financial Directorate prepares monthly financial reports for budget monitoring

purposes. They show the amounts allocated, committed, spent and remaining for every line item.

These reports are prepared manually and sent to MOF. The accuracy is uncertain. The same

format is used to report its final accounts; there is no public dissemination of these accounts. The

MOSD should also include in its external reporting of its final accounts, measures of its

performance relating to progress in attaining its objectives as included in its strategy and posted

on the web. Such moves towards transparency would contribute to increased public discussion

and greater understanding of the challenges facing the sector.

Currently the MOSD does not have a FMIS, and relies on the ex-ante control over transactions to

ensure accuracy and on its manual registers to ensure completeness. The mission believes that

the adoption of a computerized financial management information system is a critical component

of financial management reform that warrants strong interest and support form senior ministry

management. Because NAF is in an identical situation with respect to its FMIS, the two groups

should work cooperatively to develop a single FMIS to serve the work of both entities

Internal Controls

NGO Contracting

At present, the ministry has contracts with 16 NGOs for the delivery of a variety of social

welfare services. The mission was advised that they had difficulty in meeting their contractual

obligations for the services provided under these contracts. The Audit Bureau advised that the

NGOs, unions and other not-for-profit entities are all involved in service delivery on behalf of

the Ministry of Social Development. They noted that these entities had weak internal controls,

complicated by weak accounting systems and poorly trained staff. The Audit Bureau advised the

mission that in 2005, they audited the financial performance of the largest NGOs and detected

significant levels of fraud (JD 245,000, see below). These are clearly areas of risk for the

ministry.

The ministry also advised that they had informal agreements with a number of other NGOs that

were generally unfunded. These constitute unfunded liabilities that do not appear under the

existing cash-based accounting system, but which constitute liabilities of the ministry.

Payroll Controls

MOSD’s payroll functions and controls are centralized in the Human Resources Development

Directorate with the support of the payroll division in the Financial Resources Directorate. The


45

HR Directorate has an Employees Affairs division that maintains the currency of the manning

table, the benefits, social security, promotions and retirement benefits for all employees using a

computer-based HR system. The payroll division is made up of 4 employees mainly responsible

for posting salaries, related allowances and benefits, calculating taxes and posting this

information in a payroll system. Despite the fact that both divisions communicate on a daily

basis, their systems are not linked. This requires regular reconciliations between the two systems.

Subject to the effectiveness of these reconciliations that the mission could not assess on a

sampling basis, payroll controls are complete.

Internal and External Audit

Internal Audit

The MOSD has three levels of internal audit implemented by the: (i) internal auditor in the

ministry’s Financial Resources Directorate (ii) the ministry independent internal audit unit that

reports directly to the minister and (iii) the MOF controller located in the ministry and reporting

to MOF. Because all expenditures are centralized in the MOSD, there is no internal audit

function in any of the field directorates. All audits focus on ex-ante compliance checks at the

individual transaction level. Comments and recommendations resulting from the internal audit

are documented on the payment voucher and are dealt with on the spot by the Financial

Resources Directorate.

The mission noted that none of the ministry auditors reviewed or evaluated the policies,

procedures and operations in place at the MOSD in terms of: support to ministry objectives;

identifying, assessing and managing risks to achieving these objectives; and ensuring the

reliability of information, accounts and data. This lack of investigation of the internal controls

procedures indicates that the Ministry is far from the main modern audit function requirements.

In addition, it was observed that the three levels of audit are overlapping and duplicative. The

government-wide factors chapter has made recommendations regarding potential changes to

internal audit function across government that remain available for the Ministry.

External Audit

The Audit Bureau is responsible for the external auditing of the ministry, using a dedicated audit

mission. According to the Audit Bureau, their external audit covers all the ministry activities,

including their specific programs, international projects and grants. It also evaluates the

ministry’s internal control processes and its financial controls over registered NGOs. The Audit

Bureau reported in a recent audit report covering a sample of the 10 main NGOs, an amount of

JD 245,00055

missed and that the MOSD does not exercise sufficient financial control over the

NGOs. Such a situation facilitates all types of fraud or abuses.

NGOs are required to have their accounts audited by private external auditors and to submit a

copy of their yearly audited report and financial statements to the ministry. The Field

Directorates’ technical staff is responsible for following up on audit observations of the private

sector auditors and those of the Audit Bureau. The Social Development Directorate is entitled to

55

It relates to amounts embezzled through cheques in one of the NGOs. The audit bureau together with an

anticorruption committee handled this case and almost 80% of this amount has been restored. The MOSD was not

involved, and a special committee follows up on corruption.


46

review these reports in terms of the NGOs’ objectives and the amounts spent during the year. In

the absence of a genuine internal audit function within the Ministry, it is difficult to assess

whether this review is done, so that the mission is not able to evaluate the follow-up of the Audit

Bureau recommendations.

4. Performance Indicators

The Social Development sector subset of PEFA performance indicators56

presented in Table 11

provides the data for the MOSD57

.

Table 11 Ministry of Social development: PEFA Performance Indicators Indicator Description

Measure

Rating

Comments

Variance: Budget expenditures vs. actual expenditures over 3 years

Variance from Budget (%)

C

Variances are high and erratic

Effectiveness of payroll controls

integration of payroll & personnel records timeliness of updating internal controls on changes to records regular payroll audits

A - B

Centralized payroll management

Effectiveness of internal controls for non-salary expenditure

Effectiveness, comprehensiveness of controls with high compliance rates

B - C

duplications reduce the efficiency of controls

Effectiveness of internal audit

Coverage, quality and management response to internal audits; frequency & distribution of audit reports

D

Modern internal audit not present

Availability of information on resources received by service delivery units

Information on resources actually received by service delivery units

B-C

Some budget information is missing

Quality and timeliness of in-year budget reports for sector

Scope and coverage of reports; timeliness of reports and quality of data

B

Budget system produces monthly manual reports

Quality and timeliness of annual financial statements for the sector

Completeness and timeliness of annual reports; accounting standard used to prepare statements

D

Comprehensive social sector report not prepared


The ministry financial staff performances are not assessed annually to determine their training

requirement, nor is there an annual training program. The Directorate of financial resources

advised that it was committed to providing each Diwan financial employee with a minimum of

one course per year; however this training does not cover the Finance Officers in the Field

Directorates. The courses are usually conducted by MOF and the National Training Center.

56

On PEFA indicators see chapter 2 57 Because these performance indicators were retrofitted to the study after completion of the field work, the data

might be incomplete.


47

The MOSD Human Resources Directorate Strategy for 2004 – 2006 envisaged that a total of JD

140,000 would be required for the ministry’s technical and financial training needs for the three

years. The proposal of the Human Resources Directorate was to: develop a database with all the

names, qualifications, posts and responsibilities of the MOSD staff; divide the staff into three

groups according to their academic qualifications; determine the needs of each group; and

conduct, with the help of the National training Center and universities, the training required. The

budget estimate was designed to provide annual training for all employees with university

qualifications and 40 percent of the remainder. However, the training resources have not been

made available.

The Ministry of Finance advised the mission that their financial courses are available to all

financial officers across the government at no charge to the employee.

6. Recommendations for the Ministry of Social development

Short-term 1. The ministry should use budget ceilings for its directorates in order to submit an overall budget that

reflects the ministry priorities and that contains costed items.

2. The Ministry of Social Development should establish an internal budget challenge process to review

its budget proposals to ensure that they are consistent with the ministry’s strategic priorities and its

budget ceilings set by the General Budget Directorate

3. The Field Directorates should prepare their budgets for the NAF and MOSD components, with the

costs incurred by the ministry on behalf of NAF allocated directly to the NAF budget.

4. MOSD should provide the field directors with a timely, accurate and complete monthly financial

statement showing budget utilization against the planned amount

5. MOSD should prepare a manual monthly commitment report for senior management and MOF and

assist the ministry in managing its cash requirements and in monitoring its utilization against the

approved budget ceilings.

6. The Ministry of Social Development should initiate early consultation with MOF in order to obtain

training for its financial staff in the headquarters and the districts in skills needed for the forthcoming

changes to the government’s financial systems (GFS 2001 chart of accounts, performance budgeting,

and GFMIS).

Medium-term

7. In order to enhance the accountability of the field directors, the MOSD should require every district

finance officer to record all field directorate expenditure, maintain an expenditure register and

provide quarterly expenditure reports to the MOSD Financial Resources Directorate.

8. The Ministry should revise the format of its final accounts to provide a comprehensive view of all

ministry activities, including its commitments and grants. These final accounts should be made public

in a timely manner and posted on the ministry’s web site.


48

9. The Ministry of Social Development should explore, in cooperation with NAF, the priority of the

acquisition of MOF’s computerized FMIS once approved by MOF for use in ministries.

10. The Ministry of Social development should strengthen its financial controls governing the ministry’s

contractual relations with its NGOs; the audited annual financial statements of the NGOs should be

made public and posted on MOSD’s website.

11. The Ministry should consult with the NAF to see if they can work cooperatively on training of their

financial inspectors in modern internal audit standards.

Long-term

12. The Ministry of Social Development should ensure that its payroll and HR systems are linked to

decrease the frequency of errors and increase the efficiency of the payroll administration process.

13. The Ministry should seek to implement modern internal audit when the government agrees to

government-wide implementation

14. The Ministry should review its practice of incurring unfunded liabilities for NGO services provided

without formal contracts, and disclose fully these liabilities as a note in its annual final budget report.

Jordan IFMCA National Aid Fund

49

III. B National Aid Fund

1. Background

The National Aid Fund (NAF) was established in 1986 to provide support to Jordanians in need.

It is independent of the Ministry of Social Development, reporting to a Board of Directors, and

chaired by the Minister of Social Development. The Board reviews all aspects of NAF

operations and is composed of nine government officials and four private sector representatives.

The 80,000 recipients of aid are poor people whose income and ability to work are such that they

cannot be employed in their region. Individual assessments of their condition are conducted by

social workers located in the field offices. The majority of the cases are also from disadvantaged

groups, such as handicapped, divorced women and orphans. Approximately 8 percent of the

target families have incomes above the poverty line, but have more than two disabled family

members. They continue to receive the family allowance as it is less expensive than lodging the

disabled in special facilities.

2. Institutional Structure

The NAF consists of 36 field offices, where needs are assessed and services delivered. In

addition, it has a central Aid and Eligibility Directorate that establishes policies governing

NAF’s operations. Other headquarters directorates include Finance, Internal Audit, HR, Quality

and IT. Figure 6 provides more detail on NAF’s constituent components. The organization has a

total of 352 staff, 270 of whom are employed in the field.

The 36 field offices in the directorates are joint offices with the Ministry of Social Development.

The Head of each district office is a MOSD employee, supervising both MOED and NAF staff

and their functions. The mission was advised that up to 50 percent of the field staff is from

MOSD, of whom only 70 were officially seconded from MOSD to NAF.

National Aid Fund (NAF) was established in 1986 to provide Target


50

Figure 6. NAF Organization Structure

Chair of the Board:

Minister of Social

Development

NAF General Manager

Internal Audit

Directorate

Quality

Directorate

Aid & Eligibility

Directorate

Financial

Directorate

IT

Directorate

HR

Directorate

Administrative

Audit

Financial

Audit

Social

Audit

Control and Follow

Up

Quality Assurance

Programming &

Analysis Dept.

36 Field Offices

Accounting

Department

Payroll

Department

Receivable &

Payable Dept.

Supplies

Department

Operations &

Maintenance

Dept.

Reports

Department

Planning &

Verification Dept.

Information and

Studies Dept.

Human Resources

Dept.

Human

Development &

Training Dept.

Administrative &

Support Dept.

Archive Dept.

Aid Department

Loans & Eligibility

Dept.

Training Dept.


51


NAF Program

Eligibility

Individuals in need, apply to NAF social workers in the district offices. They are required to fill

out a questionnaire, provide documentary evidence and are interviewed. The approval decision is

made in the field office. Eligible beneficiaries must meet one or more of the eligibility criteria

established in law. Eligible recipients receive a green card that authorizes them to receive cash

benefits for six months. Fully employed persons are not eligible for NAF assistance. However

the director general of NAF has the flexibility to reduce the amounts paid if a beneficiary is able

to find a part time job. This is designed to encourage the beneficiaries to be more transparent

about their incomes and to motivate them to search for work.

Validation Process

The lists of new beneficiaries are verified at NAF headquarters in Amman. Validation consists of

social security registration, client files on the NAF system, civil service employment records, etc.

Social workers in the field offices review the case files every six months, conducting home visits

where they feel it is warranted. The lists of eligible beneficiaries are revised every six months by

NAF field staff. Each beneficiary is interviewed prior to renewing his NAF card. This card must

be presented by the recipients in order to receive his cash allocation.

The effectiveness of the control of the green card’s beneficiaries is assessed below (see Internal

and external audit)

Payment process

The NAF has outsourced its payment process to Jordan Post. Monthly lists of beneficiaries are

issued by NAF headquarters to the various post offices across the country, according to the

beneficiary addresses. The post offices cash the NAF checks at their local commercial banks and

pay all beneficiaries in cash, after presentation of their green card and a second ID. The recipient

signs the receipt ledger, as does the disbursement officer.

Budget Formulation and Execution

Budget Formulation

The budget formulation begins with a call letter from NAF to all directorates and districts for

their current and investment requests for the next budget year. The call letter has no ceilings and

no priorities. The directorates and districts prepare their requests and submit them to NAF

headquarters. 58

The current budget may vary due to the district’s estimated changes in mix of

the case load. The budget requests are reviewed by the headquarters financial staff and then

negotiated between NAF financial staff and the MOF-GBD.

58

These directors are often the same directors who prepare the MOSD budgets as well.


52

The macro-economic forecast from which the estimate of the number of poor families requiring

assistance can be derived is provided by the MOSD which itself builds on the annual households

survey issued by the National Department of statistics, a neutral government agency. The

capacity of the MOSD to build on the households survey the statistics on poverty is too weak to

ensure the credibility of these data.

As a result, during the annual negotiation of its budget with the General Budget Directorate, the

NAF has limited bargaining power to justify increases. The mission was advised that NAF

usually gets an increase of approximately 4 million JD, but this amount is insufficient to

significantly increase from the current 42 %, the percentage of families in need served. In the

absence of valid and reliable third party forecasts of need, it is easy for the General Budget

Directorate to arbitrarily set the budget amount with no knowledge of the impact this will have

on the percentage of poor actually reached by the NAF subsidies. The lack of justification shields

it from the consequences of its funding decision. The mission was advised that there was a

waiting list of approximately 10,000 families in need who cannot be accommodated within

NAF’s approved budget levels

Given the government’s statements that it intends to use NAF subsidies to protect the poorest

citizens from the adverse impacts of eliminating essential commodity subsidies, the need for

such a forecasting tool is critical and technical assistance for capacity building at the MOSD is

crucial.

Table 12 provides a comparison of the original 2006 budget request vs. the approved 2006

budget.

Table 12: NAF 2006 Budget Request vs. Approved Budget (JD Million)

Program

Budget

requested

Budget

approved

Variance (requested-

approved/requested)

Recurrent aid 57.00 45.13 21%

Special needs aid 4.00 2.45 39%

Emergency aid 1.00 0,50 50%

Physical rehabilitation aid 0.18 0.18 0%

Vocational training for

beneficiaries' children

0.05 0.02 70%

Supporting the poor 0.45 0.35 22%

Administrative expenses 1.77 0.13 93%

Capital expenses 0.56 0.37 34%

Total 65.01 48.63 25%

As indicated, there are substantial shortfalls in amounts approved when compared to those

requested. In particular, the key aid programs of recurrent aid and special needs aid display large

shortfalls. The proposed revisions to the NAF programs would result in better justification of

budgetary requirements, based on agreed economic and social data on which the budget

discussion could occur. In time, this could result in a reduction in the resulting variances.


53

Budget Execution

Budget execution is totally centralized. Individual budget officers in the districts are not even

informed as to what budget levels they have been given. All requests for commitments or

payments or expenditure are sent to the NAF headquarters where they are subject to the standard

control processes for any expenditure commitment or payment request from a Directorate. The

Financial Directorate manages the budget according to the balances in the NAF accounts,

practicing cash management by withholding payment of certain requests if funds are already

fully committed.

The fact that district managers are MOSD staff, responsible for both MOSD and NAF activities

within their districts, explains partially the lack of autonomy of the NAF field offices. This

centralized practice may also be required by the necessity for the MOSD to ensure the global

view of the poverty and a certain coherence and equity between the different regions in targeting

the poor population.

Nevertheless, the analysis led at the broader level of the poverty policy should take into

consideration the fact that this practice, that reduces the district manager opportunity to manage

its own budget and be accountable for the results achieved, is not the best incitement to

modernize the financial management system, in particular the reporting and accounting function

that are the basic components of any financial accountability. A reconciliation between these two

objectives is desirable.

A fact of relevance, NAF financial staff were unable to provide the mission with the budget vs.

actual expenditures for the three most recently completed fiscal years. This fact illustrates the

requirement for an improved budget management and reporting system for use in the NAF (see

below).


Accounting

The NAF was established originally to be outside of the government budget entity. This was

done to preserve its independence and to give it a higher profile among the citizens in need.

Subsequent reforms saw its accounts consolidated in the Treasury Single Account in the National

Bank. In addition, NAF is subjected to the same accounting, budgeting, financial and HR

controls as a budget entity. When this is considered with the commingling of MOSD and NAF

staff in all of the 36 districts, it appears that, in substance, the NAF is a budget entity. The

government should resolve this confusion regarding the NAF status as part of its planned

restructuring of the Fund and its responsibilities.

The accounting systems in NAF are manual. Updates are processed at headquarters after the

funds have been expanded. Although the NAF has WAN59

connectivity and email with all

59

Wide Area network


54

district offices, there is no automation of the financial processes beyond monthly budget reports

generated by MOF. NAF advised that, in future, they planned to solicit donations from private

sector. However, the mission noted that there were no developed accounting and related budget

procedures within NAF to manage donor funds or future contributions from the private sector.60

Should the government decide, in its current review of delivery of services to citizens in need, to

include solicitation from non-governmental sources, then the appropriate accounting controls

would have to be developed. Current accounting would not establish sufficient transparency for

external donor funds.

The mission was advised that in cases where NAF benefits are not collected, these undisbursed

amounts are reported to NAF headquarters and deposited at month end in a NAF commercial

bank account. This has the potential to provide the Director with an off-budget source of funds

for ongoing operations. NAF and MOF should undertake to convert these district bank accounts

to zero balance accounts and to have the funds swept daily by the Central Bank for cash

management purposes.

The mission was advised that no action had yet been taken to implement the new GFS 2001-

compatible chart of accounts. Given that the new system will be implemented this year for use in

the preparation of the 2007 budget, NAF should initiate work now on their new chart of accounts

with functional classifications determined in consultation with MOSD.

Financial Management Information Systems

Manual financial systems operate throughout the NAF. It indicated that it is awaiting MOF’s

implementation of its GFMIS, after which it will follow MOF’s directions to implement a

compatible version of the same system. While this is a sensible approach, NAF should take steps

to ensure that it is scheduled for early implementation of the ministry-level FMIS as soon as

MOF certifies their system for ministry implementation. This would avoid delays in

implementation of any government commodity subsidy changes that might expand the base of

the poor requiring assistance, or require that NAF implement a new subsidy targeted at a larger

group of recipients. In addition, it should ensure that the new system has the capability to

accommodate future subsidy schemes and new beneficiary groups.

Reporting

NAF generates financial reports for its management and the Board of Directors. These include:

monthly reports showing total number of beneficiaries, amounts due and amounts paid; a

monthly budget report for internal management use; and an unaudited annual financial report

that is presented to the Board and to MOF. These reports are not made public. The Audit Bureau

audits the financial reports after the fact, but only for compliance purposes. The manual system

is unable to respond to ad hoc requests for prior years financial data, and hence management

analysis of financial performance is severely limited.

60

To date, there have been no contributions from the private sector.


55

Internal Controls

The mission noted serious problems with the financial controls present in the NAF’s cash

distribution process (around JD 5 million are monthly distributed) currently provided under

contract by the Jordan Post network (350 offices):

1. The local post offices do not have the capacity or the physical layout to handle a monthly

distribution of cash payments to a large number of recipients (80,000) that can effectively

consume up to 10 working days per month of its operations.

2. Large amounts of cash (exceeding JD 100,000) are kept on hand in the larger local post

offices61

, stored in old, inadequate security safes, sometimes in plain public view beside an

external window in an office adjacent to the public areas. In smaller offices, the amount of

cash is less important, but the problem is also serious.

3. Postal staff is not provided with appropriate security when performing check cashing duties

for the NAF payments.

4. The amounts cashed are so large that the bank has insufficient small bills on hand to meet the

needs of the post office. In some cases, payment is largely made in large denomination bills,

requiring the postal staff to make creative arrangements with recipients because of their

inability to pay the exact amount due.

5. The post office staff is not insured against loss by theft or fraud.

6. The post office staff does perform appropriate separation of functions in the management and

administration of the cash to be disbursed.

The situation now is serious and demands immediate attention. However, what is even more

serious is the fact that the existing post office distribution system is stretched beyond limit at

present, and it would not likely be capable of handling any additional workloads without

additional investment in physical facilities, new equipment and improved internal controls.

The mission was advised that the Jordan Post contract is expiring in the immediate future. While

it may be too early for major changes to this contract, the government may wish to consider

whether the private sector banks would not be more suitable (but perhaps reluctant) partners for

future outsourcing contracts. 62

This could permit the issuing of an electronic funds transfer of

the monthly payment into individual, mandatory commercial bank accounts provided free to all

NAF recipients in urban areas. The recipients could then be issued with a commercial bank card,

and these banks would be encouraged to provide automated teller machine facilities at

convenient public locations nearby in urban areas. Remote areas, notably in rural, could

continue to be served by Jordan Post, albeit in vastly reduced numbers.

61

20 % of the offices are in Amman and suburbs. 62

This resistance is not unique to Jordan. The government could require the commercial banks to provide this

service, according to a negotiated fee-for-transaction basis that would cover the bank’s costs and return a small

profit.


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Internal and External Audit

The internal audit Directorate performs ex ante and ex post audits of the directorates and all

district operations through field visits. Four employees audit the Aid and eligibility directorate

and six perform the field audits. The mission was advised by the Audit Bureau’s NAF auditors

that the NAF internal auditors have been well trained by a local audit firm. Their ex ante audits

focus on compliance issues for new beneficiaries, changes in existing beneficiaries and a random

sample of beneficiaries. Entities are selected randomly from a grid of the country for special

audits by internal audit, the central follow up directorate and the district social workers.

In a recent study of recipients approximately 10 percent were found to be ineligible. Of this 2

percent was due to staff error and 8 percent to unrecorded changes in recipient status. A recent

Bank study concluded that poor design of the subsidy program could result in poor targeting of

up to 66 percent of beneficiaries. This has been an oft-quoted statistic used to justify a closer

look at NAF operations and underlying principles. Although the audits targeting effectiveness are likely to be beyond the scope of the current

internal auditors, it is exactly the kind of audits that would be carried out by a modern internal

audit group examining the NAF’s internal spending control systems. Modern internal audit has

the prospect of increasing the effectiveness of the targeting of NAF subsidies and making the

subsidy delivery processes more efficient.

The Audit Bureau advised the mission that their audits of NAF have resulted in a number of

recommendations to management. These included: reviewing the basis of the subsidies against

the eligibility of the target groups and reporting to the Minister all incidences of non-compliance;

and considering combining all entities administering subsidies to citizens into a single entity to

improve efficiency and effectiveness.


NAF is a model when it comes to staff development. It has been continuously involved in the

regular training of all staff, using an annual budget of approximately JD 200,000 for its training

activities. Of this amount, approximately 10 percent is used for financial officer training in

accounting, budgeting and auditing. In 2005, NAF offered 8 training sessions for its internal

auditors and 3 sessions for its financial specialists. Every financial officer in the districts has

participated in at least one training course. NAF management stated that financial officer training

was essential to enable them to keep abreast of the changes in financial management that were

just beginning, and would continue at an accelerating rate in the future. Thus it provided course

training, seminars and specialist training where required. Their current priority is the training of

their Quality personnel. The NAF should review its current program in the light of the MOF

statement that their financial courses are available to all financial officers across the government

at no charge to the employee.


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5. Recommendations for the National Aid Fund

Short-term

1. NAF should insist on an immediate strengthening of the internal control system in the post offices for

dealing with cash management and cash distribution of NAF benefits.

2. NAF and the government should begin to consider further studies for other alternatives for cash

distribution to NAF beneficiaries that would provide a more secure, scalable and efficient distribution

process that meets internal control standards.

Medium -term

3. The government should build capacity at the MOSD to provide timely and relevant statistics to

support MOSD’s forecasts of families requiring assistance from the NAF. This forecast should be

prepared in time for use in the NAF budget submission for the forthcoming year.

4. NAF and MOSD should agree to seek for more accountability of the NAF field‘s budget officers while

the budget management must remain centralized at MOSD.

5. NAF and MOF should agree to convert the NAF district bank accounts to zero balance accounts that

would be swept daily by the Central Bank for cash management purposes.

6. NAF should initiate work on its new chart of accounts with functional classifications determined in

consultation with MOSD

7. NAF should take steps to ensure that it is scheduled for early implementation of the ministry-level

FMIS as soon as MOF certifies that their system is suitable for ministry implementation. It should also

ensure that any new FMIS has the capability to accommodate additional future subsidy schemes and new

beneficiary groups.

8. For greater transparency, the NAF audited annual report should be made public and posted on a

government web site on a permanent basis.

9. NAF should consult with MOF in order to determine the extent to which they could cost-effectively

provide financial training for its financial staff in the headquarters and the districts.

10. NAF should consult closely with MOSD for cooperative training for the ministry’s internal inspection

function’s use of international standards for internal audit.

Long-term

11. NAF should establish appropriate accounting and reporting procedures to manage external

contributions or investment financing with appropriate transparency..

12. When the government agrees to implement modern internal audit across all budget entities, NAF

should be an early implementer of the initiative.

Youth division Diagnosis division Housing division Projects

directorate

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