February 5, 2008

Document of the World Bank

Report N

o. 46848-IN

India The R

ole of the Integrated Financial Adviser in the G

overnment of India

Report No. 46848-IN

IndiaThe Role of the Integrated FinancialAdviser in the Government of India

Financial Management UnitSouth Asia Region

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CONTENTS ................................................................................................................................................................................................................................................................_� EXECUTIVE SUMMARY ................................................................................................................................ 5 1 . BACKGROUND FOR RESEARCH PAPER ................................................................................................... 9

A . Scope of Research Paper .................................. , . , .. , .... , . , , .. , ................................................ 9

11 . HISTORICAL PERSPECTIVE ON THE ROLE OF FINANCIAL ADVISER IN INDIA ................................. 12 B . Methodology ................................................................................................................. 10

A . Development o f Public Financial Management in India ...................................................... 12 B . Origin and Evolution of the Financial Adviser ..... , . , , .... , .... , ., ............... , .... , , , , , ..................... 15

A . The Role and Functions o f the Financial Adviser ... , , ... , , ...... , ............... , ...... , . , ..................... 19 B . Accountability o f the Financial Adviser .......... , ..... , , .... , ............................. , . , ..................... 27 C . Selection, Appointment and Career Development o f the Financial Adviser ........................... 27 D . Organisation, Selection, and Training o f FA Staf f ....... , ......,............ .................................. 28

. ROLE OF INTEGRATED FINANCIAL ADVISERS: INTERNATIONAL COMPARISON ............................ 29 A . Cross-country Comparison o f FA Role in India and Other Countries .................................. 29 B . Key Features o f Chief Executive Officer in Selected Countries ........................................... 52

v . INTERNATIONAL BEST PRACTICES AND LESSONS FOR INDIA ........................................................... 71 A . Drivers o f Change in Public Sector ................................................................................... 71 B . Framework o f Financial Management in Public Sector - Legislation and Guidelines .............. 71 C . Mandate o f the Financial Adviser ................................ , ........................ , .......................... 72 D . Governance Systems ....................................................................................................... 72 E . Review o f Financial Management ...................................... , .............................................. 72 F . Measurement o f Performance ........................................................................................... 72 G . Reporting ...................................................................................................................... 72 H . Responsibility o f Financial Adviser ............................ , ......,........ ............. , ........................ 72 I . Role o f Financial Adviser ........................................... .......,........ ...................................... 73 J . Selection Process o f Financial Advisers . , , . , ....... , , ... , , .. , ...... , , , ............... , ..... , . , . , .................... 73 K . Training ......... , . , ...................................................... ....,.. , .............................................. 73 L . Performance Evaluation o f Financial Advisers .................................................................. - 7 4

111 . CURRENT ROLE OF FINANCIAL ADVISERS IN INDIA ....................................................................... 17

M . Support to Financial Advisers ......................................................................................... 74 V I . OPTIONS FOR THE WAY FORWARD .................................................................................................. 75

A . Main Observations and Options ....................................................................................... 75 B . Conclusion .................................................................................................................... 77

ANNEXA . OFFICE MEMORANDUM OF 1975 ............................................................................................. 78 ANNEX B . CONCEPT NOTE: ROLE OF THE INTEGRATED FINANCIAL ADVISER .................................... 78 ANNEX c . REDEFINED CHARTER FOR FINANCIAL ADVISERS IN INDIA, 2006 ........................................ 84

ANNEX E . SELECTED WEBSITES ............................................................................................................. 102 ANNEX F . GENERIC MODEL FOR CHIEF FINANCIAL OFFICER DUTIES AND RESPONSIBILITES ......... 110

ANNEXD . LIST OF PEOPLE MET ............................................................................................................ 100

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AFTFM C&AG C A CCA CEO CFO CFOA CG CGA DFPR DGPP DOE EFC EU FA FD FMAA FMO FRBMA FY GAO GFR Go1 GPRA I C A A IFA IFAC IFD IPFA IT MoF MTBF NGO NIFM OCG O M B PFM PFMA PIB UK us

Abbreviations and Acronyms Africa Regions Financial Management Comptroller & Auditor General Controller o f Accounts Chief Controller o f Accounts Chief Executive Officer Chief Financial Officer Chief Financial Officers Act Comptroller General Controller General o f Accounts Delegation o f Financial Powers Rules General Director o f Program & Budgeting (Mexico) Department o f Expenditure Expenditure Finance Committee (India) European Union Financial Advisor Finance Director (United Kingdom) Financial Management and Accountability Act (Australia) Finance Minister’s Orders (Australia) Fiscal Responsibility and Budget Management Act (India) Financial Year Government Accountability Office General Financial Rules (India) Government o f India Government Performance and Results Act (United States) Institute o f Chartered Accountants in Australia Integrated Financial Advisor International Federation o f Accountants Integrated Finance Division Institute o f Public Finance and Auditing (South Africa) Information Technology Ministry o f Finance Medium Term Budgetary Framework (Pakistan) Nongovernmental Organization National Institute o f Financial Management (India) Office o f Controller General Office o f Management and Budget (United States) Public Financial Management Public Finance Management Act (South Africa) Public Investment Board (India) United Kingdom United States (of America)

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ACJCNO WLEDGEMENTS

This research paper was conducted during February to July 2007. The World Bank team was task led by Ms. Priya Goel' under the overall guidance o f Mr. Robert J. Saum and Mr. P. K. Subramanian (SARFM) with consulting support from Mr. Anthony Bennett and Ms. Asha Bhagat. Invaluable contributions from Dr. Sanjiv Misra (Secretary Expenditure); Mrs. Meena Agarwal (Joint Secretary Personnel, Department o f Expenditure); Mr. Atanu Chakraborty (Secretary Tourism, Government o f Gujarat); Mr. Manish Kumar (Deputy Secretary, Department o f Expenditure) and Mr. Manoj Sahay (Deputy Secretary, Department o f Expenditure) guided the team at various stages in providing information, analyzing it, and giving the product i t s final shape and form.

In addition, an international team-of World Bank staff, Mr. Atul Deshpande, Mr. Furquan Ahmed Salim (SARFM), Mr. Gert Van Der Lind (AFTFM) and Mr. Marius Koen (OPCFM); and consultants Mr. Vinod Sahgal (Canada), Mr. Antonio Huerta (Brazil and Mexico), Ms. Edward Hays (Australia); Ms. Nalini Aiyer (USA) and Mr. Richard Evans (Indonesia) - worked to contribute to the factual information to this report.

We would l ike to register a vote o f thanks to the following: Dr. Sanjiv Misra (Secretary, Department o f Expenditure); Mrs. Asha Swaroop (Secretary, Department o f Information and Broadcasting); Mr. M. S. Srinivasan (Secretary, Ministry of Petroleum and Natural Gas); and Mr. Ani1 Razdan (Secretary, Ministry o f Power); Ms. Manju Madhavan (Member Finance, Department o f Telecommunications and Department o f Telecom Services); Mr. Raghubir Singh (Additional Secretary & Financial Adviser, Ministry o f Health & Family Welfare); Mr. Vivek Mehrotra (Additional Secretary & Financial Adviser , Ministry o f Food, Consumer Affairs and Public Distribution); Mr. M. Deena Dayalan (Joint Secretary & Financial Adviser, Ministry o f Finance); Mr. Rajesh Sharma (Joint Secretary & Financial Adviser, Ministry o f Power); Mr. M. Sahoo (Joint Secretary & Financial Adviser, Ministry o f Power); Mr. S. K. Ray (Joint Secretary & Financial Adviser, Ministry o f Human Resource Development); and Mrs. Sushma Nath (Member Secretary, Sixth Central Pay Commission), Mr. Manoj Joshi (Advisor, Sixth Central Pay Commission) and Mr. M. Nagaraju (Director, Department o f Economic Affairs, Ministry o f Finance), who contributed to this product.

Thanks are also due to Mr. Mohan Nagarajan (PREM), Mr. Rajeev Swami (Latin American and Caribbean Office o f Financial Management), Mr. Michael John Jacobs (World Bank Consultant) and Mr. Vishwanath Alok (Indian Institute o f Public Administration) for the peer review o f the report and ensuring that all the research and analytical underpinnings were well thought out and presented.

This report has been discussed with the Government of India; clearance has been obtained for publication, but does not necessarily bear their approval for the entire content including opinions, conclusion and policy recommendations.

' For further information on the research paper contact Priya Goel at pgoel@worldbank.org

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EXECUTIVE SUMMARY

1. Today’s public sector organizations are expected to have the strategic capability to make policy choices and allocate resources according to public priorities, to ensure value for money in the delivery o f services, to live within agreed fiscal ceilings, and to do so openly and transparently. India i s no exception. Four drivers are creating complexity and the need for greater capability from the finance function: expanding.

Background for Research Paper

2. In India, financial management practices are under continuous scrutiny by the Ministry o f Finance (MoF), which has overall executive responsibility for financial management, and by the media, think-tanks and (currently) by the Second Administrative Reforms Commission. At the center o f th is debate, the Financial Adviser (or Integrated Financial Adviser) i s the key figure, as the senior finance officer in each administrative ministry, the Financial Advisers feel that expectations from them are expanding, but that their capacity and influence within their ministries/departments have remained unchanged. There i s an awareness that, in some countries, the role o f the Financial Adviser has expanded. In some countries, the Financial Adviser i s more often called Chief Financial OfJicer (CFO).

3. The role o f the Chief Financial Officer (Financial Adviser) i s commonly seen as having three parts:

0 Strategist and leader to the agency chief executive officer and programme managers, providing objective advice having no vested interests in competing programmes or operations; and a key player at the executive table as the department’s financial planner, partner, and integrator. Steward with responsibility for the risk and financial control framework; and the scorekeeper, providing performance and financial accounting and reporting that integrates financial and non-financial information. Treasurer with responsibility for mobilising funds and meeting all payment obligations as they arise, maintaining liquidity o f the agency at minimum cost.

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4. In 2006, the Ministry o f Finance requested the World Bank to produce a research paper as input to the internal debate on the role o f Financial Advisers. The Ministry wanted a more in- depth look at the role o f the Financial Adviser, i t s responsibilities and accountability structure in the context o f the growing maturity o f the Indian economy, the demand for government performance and results, the greater emphasis on governance and transparency in India as highlighted by the Right to Information legislation and the Fiscal Responsibility and Budget Management Act, and the growth o f e-governance. This report i s submitted as an input to the debate.

Scope and Methodology of Research

5. The research takes a closer look at the development o f the Financial Adviser and i ts counterparts in the Ministries o f Finance o f other countries, how the position i s structured and how i t functions in more industrialized countries and in developing countries, what are appropriate training and certification programmes for Financial Advisers and their key support staff, what are commensurate career development opportunities so that the position becomes more attractive for Government officers and talented applicants. The paper i s limited to the Central Government o f the countries visited for the research. (Annex D l ists the individuals and institutions met during the preparation o f this paper).

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6. The methodology was developed in consultation with the Department o f Expenditure (DOE) within the Ministry o f Finance. The DOE officials were kept informed on progress and consulted on several issues as they arose. In the f i rst phase, interviews were held with a sample o f Financial Advisers in the Government o f India following a structured questionnaire. Discussions were held also with senior MoF officers and with the Sixth Central Pay Commission. A desk review o f documents and websites was undertaken. Websites associated with the topic are listed in Annex E.

7. In the second phase, consultants were contracted to research the FA role with interviews and document reviews in Australia, Canada, Indonesia, United Kingdom and the United States. A standard structured questionnaire was developed to guide interviews, Document reviews were also conducted in Brazil, Mexico, Pakistan and South Africa as part o f the comparison exercise. From this combined international experience, comparisons were made with Indian practice on the main issues, and options and recommendations were developed.

8. The draft report and key recommendations have been discussed with the Department o f Expenditure and their preliminary comments have been taken into account.

Key Observations and Recommendations

9. Following are the main observations and recommendations summarized from the research:

Legislation on financial management. The mandate o f the Financial Adviser i s by executive direction. A statutory mandate would enhance the status o f Financial Advisers and strengthen their role. As India has no central organic budget law, the FA mandate could be included in a comprehensive budget law, including role o f the Chief Accounting Authority and Financial Adviser. A possible model i s South Africa. Annex F shows a generic model o f CFO responsibilities

Governance system. The United Kingdom, as do other countries, have management boards for decision making in departments. The secretary i s chairperson o f the board and i s accountable for i ts decisions, which are considered to be o f a joint nature with other members o f the board. The finance director (in the UK context) takes collegiate responsibility as a member o f the board though the accounting officer (i.e., secretary) remains ultimately accountable for all decisions. Therefore, mandate o f both the secretary as accounting officer, and that of the finance director as someone supporting himher are quite clear.

Responsibility of Financial Advisers. The current structure o f the FA role wherein they are mandated with supporting the secretary and at the same time being the ‘eyes and ears’ o f the Ministry o f Finance tends to lend itself to potential conflict. I t i s therefore important to ensure that there i s a supportive, rather than adversarial, relationship between the Financial Adviser and the respective secretary. There i s a need to define the FA responsibilities more clearly, particularly as a senior member o f the management team o f the administrative ministry, and one who supports the secretary in discharging responsibilities as the accounting officer. All information and reporting requirements o f the Ministry o f Finance should be addressed to secretaries, not to Financial Advisers. The secretaries should be held responsible for meeting all laws, rules, and budgets in terms o f General Financial Rule 64.

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0 Institutionalized system for capacity building based on training needs assessment. Training needs to be provided by a professional training institute whether a government or nongovernmental agency. Distance learning may also be considered. Training needs assessment (as in South Africa) and implementation o f training should be institutionalized as an ongoing and regular system. I t should also have a built-in system o f review o f the curriculum and methods o f training, so that training can be modified to cater to evolving needs o f finance staff in response to future developments in public financial management in India.

Assessment of F A performance. Specific criteria and benchmarks need to be developed for assessment o f performance o f Financial Advisers. These criteria should be linked to responsibilities o f the Financial Advisers as per the 2006 Charter.

Allocation of work to Financial Advisers. I t i s important to assess the work profile o f different ministries so that ministries where there i s a larger workload could have dedicated (full-time) Financial Advisers. Ideally, larger ministries could have dedicated Financial Advisers. The research on other countries shows that there are dedicated Financial Advisers in ministries/department.

Responsibilities of Financial Advisers. Planning and formulation of schemes/projects. Written comments by Financial Adviser should be part o f submission for Expenditure Finance Committee and Public Investment Board, etc.

Budgeting:

- Financial Adviser should be responsible for plan budget as well as non-plan budget, even if i t s preparation i s located outside the Integrated Finance Division. The Charter should clarify specific responsibility o f Financial Adviser for plan budget, non-plan budget, performance and outcome budget.

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Budget execution. Financial Advisers should prepare monthly cash flow forecasts based on approved estimates and releases to be based on pre-agreed cash flow patterns, rather than across the board percentages.

Internal control: In consultation with management team, Financial Adviser should prepare annual report on r isks facing the achievement o f departmental goals and measures to mitigate risks.

Reporting to Ministry of Finance: Annual Finance Report and Annual Outcomes and Systems Report mentioned in the Charter should be institutionalized.

Support for the Financial Adviser.

Chief controller of accountdcontroller of accounts: Role o f chief controller o f accounts/controller o f accounts (CCNCA) should have the same organizational scope as that o f the Financial Adviser (i-e., each Financial Adviser to have one chief controller o f accounts/controller o f accounts reporting to them) and FA and C C N C A responsibilities should be co-terminous (Le., if some Financial Advisers continue to have charge o f more than one ministry/department, the controller o f accounts reporting to the Financial Adviser should also hold the charge o f the same ministries/departments). Such an arrangement might lead to better planning and coordination o f work o f various ministries/departments.

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Strengthening Integrated Finance Division:

- A separate finance cadre from which staf f for IFD can be drawn would be a significant step in long-term strengthening o f finance function and might also contribute to making the finance function more attractive to Government staff and new recruits. This wi l l also facilitate more effective institutionalization o f a system o f training and retention o f trained staff within the finance function.

- Work study to assess number o f staff and sk i l ls required in each IFD could be used as a tool to define both generic ski l ls required for public sector financial management, as well as specific ski l ls that are necessary for the work o f IFD staff in certain ministries, for instance in project appraisal.

- The 2006 Charter mentions that an IFD manual w i l l be developed. Apart from being a tool for training and orientation o f new staff, such a manual can be u s e h l in operationalizing the tasks to be performed by the Financial Adviser as per the Charter and as per General Financial Rules and Delegation o f Financial Power Rules.

- Financial management s k i l l s o f IFD staff should be enhanced as per recommendations above.

- Finance staff should be professionally skilled and qualified in the field o f accounts1 finance.

- All departmentdministries should be encouraged to adopt Standard Organizational Chart and Job Descriptions.

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I. BACKGROUND FOR RESEARCH PAPER

1. In every ministry o f the Government o f India (GoI) a Financial Adviser (FA) has a leading role in the ministry's finance function. The Financial Adviser i s responsible to both the Ministry o f Finance (MoF) and relevant administrative ministry as designated under the Delegation o f Financial Powers Rules, 1978.' The FA role was defined in 1975 in a MoF- issued Office Memorandum (reproduced in Annex A).2 Outside the delegated powers, the Financial Adviser i s responsible solely to the Ministry o f Finance and operates in accordance with i t s guidelines.

2. In recent years, there has been growing dissatisfaction with the dual FA responsibilities and the difficulties o f maintaining a balance between obligations to Administrative Secretaries in assisting to achieve developmental objectives and obligations to the Ministry o f Finance to achieve fiscal and fiduciary objectives. Under the General Financial Rules (GFR) o f 2005, the Administrative Secretary, as Chief Accounting Authority, i s made fully responsible and accountable for financial management o f h i s or her ministry or de~artment.~ As the post implies, the Financial Adviser i s strictly an adviser to the Secretary, frequently lacking power, and tending to be a figurehead who i s often left out o f the decision making loop. Yet, the Financial Adviser i s required also to represent and report directly to the Ministry o f Finance, particularly on financial matters outside the delegated powers.

3. Approaching the World Bank in 2006, the Ministry o f Finance wanted input to the internal debate on the role o f Financial Advisers in the Government o f India. The Ministry requested input that would examine the FA role, responsibilities, and accountability in the context o f the growing maturity o f the Indian economy, the demand for government performance and results, the greater emphasis on governance and transparency in India as highlighted by the Right to Information legislation and the Fiscal Responsibility and Budget Management Act, and the growth o f e-governance. The Second Administrative Reforms Commission i s currently debating how financial management should be strengthened. The Ministry o f Finance also wanted a comparison o f the FA role in India to that o f other countries, particularly industrialized countries (Australia, the United Kingdom, and the United States among them) which have similar FA positions but often called Chief Financial OfJicer (CFO). In the United States the 2003 Sarbanes-Oxley Act put additional responsibilities for internal control onto private sector Chief Financial Officers. Central budget agencies in the United States and other industrialized countries have added equivalent responsibilities to the public sector Chief Financial Officers. The Concept Note and Terms o f Reference for the research paper are reproduced in Annex B.

A. Scope o f Research Paper

4. The research paper compares the various thoughts and models o f the finance function in the Indian Central Government with those that exist worldwide, presents the analytical underpinnings o f why some aspects o f a particular model may be suitable to the Indian position, and provides the Government o f India with options and courses o f action.

' Muthuswamy and Brinda, Delegation o f Financial Powers Rules, 231d edition; Chennai: Swamy Publishers. 2007. This edition incorporates amendments to the original 1978 rules up to September 2006.

instructions. Office Memorandum No. 10 (29) - E. Coord73 (Ministry o f Finance, October 6, 1975) and subsequent

General Financial Rule 64 (Ministry of Finance, Department of Expenditure, Report of the Task Force, 2005).

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5.

6.

7.

B.

8.

9.

10.

The paper offers historical and current perspective (Chapters I1 and 111) on the development o f the role o f Financial Adviser, comparative lessons from other countries on how they have structured this position (Chapter IV), suggestions on appropriate training and certification programmes for Financial Advisers and their key support staff and opportunities for commensurate career development that makes the FA position more attractive for Go1 officers and talented applicants (Chapers V and VI).

This research paper i s not intended to be prescriptive but i s limited in scope to presenting alternatives with their advantages and disadvantages. The paper was not required to address any o f the many technical issues arising in the present state o f financial management or the civil service in the Central Government. These are outside the scope o f this assignment.

The draft report and key recommendations have been discussed with DOE officials and any MoF comments have been taken note of.

Methodology

The methodology was developed in consultation with the Department o f Expenditure (DOE), within the Ministry o f Finance. DOE officials were kept informed on progress and were consulted on several issues as they arose. In the initial phase o f the research, the Ministry o f Finance introduced in June 2006 a Redefined Charter for Financial Advisers (reproduced in Annex C). This Charter defines the following:

1. Role o f Financial Advisers 2. Involvement in key processes o f the ministry 3. Reporting system 4. Roles and responsibilities o f Chief Controllers o f Accounts 5. Interaction between Ministry o f Finance and Financial Advisers 6. Capacity building

In the f irst phase, interviews were held with a MoF-selected sample o f administrative secretaries and six Financial Advisers within the Government o f India following a structured questionnaire. The sample include ministries from the social and infrastructure sectors, and the Ministry o f Communication and Information Technology, which has staff from the accounts cadre and where ministry programmes are more commercially oriented. Discussions were held also with senior MoF officers and with the Sixth Central Pay Commission. The principal people met in conjunction with the research are listed in Annex D.

Additionally, a desk review o f Indian documents and websites was undertaken. The research for th is paper was enhanced by the outcome o f workshops on the Role, Authority and Accountability o f Financial Advisers held by the National Institute o f Financial Management in September 1997 and May 2005. In addition to the workshop notes, background papers provided a wealth o f information and opinions which this paper was able to draw from.

Office Memorandum, Scheme o f ‘Integrated Financial Adviser’, Ref: F.No. 5(6)/L&C/2006 (Ministry of Finance, Department of Expenditure New Delhi, June 1,2006.

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1 1. In the second phase, consultants were contracted to research the FA role in Australia, Canada, Indonesia, United Kingdom, and the United States. Using a standard structured questionnaire developed for this assignment, the consultants were able to conduct interviews with standard guidelines. The consultants also studied key documents and websites, interviewed a sample o f counterparts to Indian Financial Advisers in the respective countries, and drafted case studies. In Brazil, Mexico, Pakistan, and South Africa, desk research and selected interviews were undertaken. From all this international experience, comparisons were made with Indian practice on the main issues, and options and recommendations were developed. These comparisons are compiled in Chapter IV.

12. All interviews were held on a confidential basis in which officers were encouraged to speak freely and so, no views are ascribed to individuals. The authors take responsibility for all the views and opinions expressed in this paper.

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11. HISTORICAL PERSPECTIVE ON THE ROLE OF FINANCIAL ADVISER IN INDIA I

13. The role o f Financial Advisers should be analyzed in the context o f the financial systems within which they work. The development o f public financial management (PFM) systems provides the context in which the position o f Financial Adviser originated and developed.

A. Development of Public Financial Management in India

14. At India’s Independence the system o f public financial management was based on the highly centralised pattern o f Treasury control in England before World War I. The new Constitution laid down an elaborate procedure for Parliamentary control o f public finance.

15. With the enormous expansion in the role o f the State after Independence, decentralisation was progressively introduced through a written delegation o f central powers5. The Comptroller and Auditor General6 (C&AG) in 1954, was o f the view that devolution o f authority to the administrative ministries should be matched by devolution o f responsibility for accounting and control o f expenditure. He coined the term ”departmentalisation of accounts” for the new ~ y s t e m . ~ However, there was considerable resistance to the separation o f accounts and audit staff in the C&AG cadre and the devolution o f accounts staff to the ministries. The First Administrative Reform Commission (1966) reinforced objections by saying that “there i s no inherent conflict or disadvantage in the combination o f the function o f compilation o f accounts with that o f audit”--a rather startling conclusion in light o f modem ideas about independence o f the audit fimction.

16. In accordance with the Government o f India (Allocation o f Business) Rules, 1961, financial powers o f the Government are vested in the departments o f the Ministry o f Finance (MoF). The Department o f Expenditure (DOE) in the Ministry o f Finance has the authority to delegate financial powers to various subordinate authorities o f the Government o f India (GoI). Financial powers o f the Government, which are not delegated to any subordinate authority, remain with the Ministry o f Finance. The Department o f Expenditure has the authority to prescribe financial rules and regulations necessary to run the affairs o f the Government.

17. In India, as in most countries around the world, it i s understood that accountability for expenditure i s only one side o f the coin. There has also been a growing demand for accountability for results. As far back as 1954, the Lok Sabha recommended performance budgeting in order to relate expenditure to real outputs and outcomes. In 1969, the Government o f India adopted the detailed recommendations o f the First Administrative Reforms Commission and issued Guidelines to all l ine ministries. The Ministry o f Finance structured the performance budget by function, programme, and activity. However, i t was introduced as a separate document from the traditional input budget (the demand for grants), and budget scrutiny continued to be input-based.

On the basis o f reports by Ayyanger (1949), Gonvala (1951), Appleby (1953), Desmukh (1954), and the Estimates

Shri A.K. Chanda R. Ramanathan, Government Accounting: Principles and Practices, second edition, 2005, p. 14. This section

Committee ( 1954)

draws heavily on this document and on NIFM (2005) Evolution o f the Role of Financial Advisers in the Government of India.

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18. In 1973, the Yardi Committee report recommended that responsibility for internal financial management and operational performance should be entirely that o f the administrative ministries. It reiterated the need for performance budgeting and management accounting, and for new cadres for finance, accounts, and internal audit appointed by the Union Public Service Commission. The report was approved and two ordinances were promulgated, one on Transfer o f Personnel and one on the Separation o f Accounts from Audit. With effect from the accounts for fiscal year 1978; the Comptroller and Auditor General (C&AG) was relieved o f the responsibility o f preparing the Go1 finance accounts. Accounting responsibilities were transferred to the ministries and the Controller General o f Accounts (CGA).

19. As a check on the accounting and financial control responsibilities, the Ministry o f Finance established the post o f integratedfinancial adviser (FA) in 1975 and issued the Delegation o f Financial Powers Rules (DFPR) in 1978, specifying in great detail what ministries were allowed to do, what they were allowed to do only with the concurrence o f the Financial Adviser, and what they could do only with approval from the Ministry o f Finan~e.~ The DFPR are based on General Financial Rule (GFR) 48 and the MoF authority under the Rules o f Business. The DFPR made Financial Advisers representatives o f the Ministry o f Finance. Consequently, as decision makers on behalf o f the Ministry, this role cut across the FA role as adviser to the respective administrative secretary. Amendments and Go1 decisions were added over the years to the DPFR-the edition updated to September 2006 contains 43 amendments, the last being a major extension o f delegated authority in 2003.

20. The GFR and DFPR are concerned almost wholly with traditional budget preparation and execution procedures. Performance budgeting and monitoring are not brought into the central body o f rules." I t i s scarcely surprising that performance budgeting faded away, and its benefits were not realised, nor were the benefits o f greater decentralisation by means o f performance-based accountability. Little progress was made in the 1980s and 1990s despite larger changes in the management o f the economy:

Major initiatives taken in 1991 towarh deregulation, and liberalisation of the economy were not matched by corresponding reforms in the field of decentralisation of the administrative andfinancial system."

21. A Working Group o f Financial Advisers reported in 2005:

Despite three decades of perjiormance budgeting in India, the envisaged integration of perjiormance budget with the normal budget, ie., demand for grants, has not come about ... Perjiormance budgeting has receded into the background as a perjiunctoly formality,..it is a forgotten document.12

Fiscal year 1978 covered April 1, 1977 to March 31, 1978. Muthuswamy and Brinda, Delegation o f Financial Powers Rules, 231d edition; Chennai: Swamy Publishers.

2007. This edition incorporates amendments to the original 1978 rules up to September 2006. lo GFR have a reference to performance budgets in Appendix 4 on the compilation o f detailed demands for grants. Notes on Important Projects and Schemes are to be included where the ministry/department does not bring out a performance budget. Also GFR 64 on the responsibilities o f the Chief Accounting Authority includes the regular monitoring o f the performance o f programmes and projects. I ' N I F M (2005) Evolution o f the Role of Financial Advisers in the Government o f India, Paper prepared for the Workshop o f May 2005, para. 5.2. l2 N I F M (2005) Performance Budget: A Discussion Paper, paras. 10-1 1. All developing countries have faced, and are s t i l l facing, difficulties in moving from an incremental input budget process to a programme and performance-based budget. The Working Group made some excellent recommendations to pursue this 'unfinished agenda'.

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22. During the National Institute o f Financial Management (NIFM) workshop in 2005 on integrated Financial Advisers, it was found that budget proposals continued to be unrealistic, that zero-based budgeting was not taken seriously and had become a routine and ineffective exercise, and that performance budgets were stand-alone documents that did not affect the allocation o f funds.'3

23. According to the Fiscal Policy Strategy Statement for FY08, the performance budget and the outcome budget, hitherto presented to Parliament separately by ministries/departments, are now merged and presented in a single document. Actual physical performance in the preceding FY06, performance in the first nine months (up to December) o f FY07 and the targeted performance during FY08 are included in the document. Guidelines have been issued detailing the manner in which the outcome budget has'to be prepared. By way o f comparison, Box 2.1 describes the Government Performance and Results Act in the United States.

Box 2.1. Government Performance and Results Act (United States), 1993

The Government Performance and Results Act (GPRA) represents an effort to move away from the traditional, financially driven budget process and shift to a performance-oriented management approach to help federal agencies focus on results, service quality, and public satisfaction. The GPRA provided for the establishment o f strategic planning and performance measurement in federal agencies, and directed the Office o f Management and Budget (OMB) to create pilot projects. Agencies set strategic goals, measure their performance, and report to the President and Congress on the degree to which goals are met. 'Outcomes' are results expressed in terms o f the real difference federal programmes make in people's lives, such as the increase in real wages earned by graduates o f an unemployment training program or a reduction in the fatality and injury rates in workplaces or on highways.

Taking several years to implement, this has required major changes in the way the US Government does business. The f i rs t trial performance reports were issued in 2000. In 2007, for the first time, all agencies government wide are required to report annually on their results in achieving their goals. The GPRA highlighted the rigidities in the US civi l service system. The need to define necessary resources, to have the flexibility to direct them to strategic priorities, to measure progress towards objectives, and to link rewards to specified performance measures require a system capacity and personnel flexibility that the current civi l service system does not support.

There i s difficulty in measuring the performance o f a federal agency since its performance depends also on the actions o f other agencies and the legislature. Despite good intentions, Congress can sometimes mandate goals but then not provide adequate funding levels in order to achieve them. Funding levels may be sacrificed for political expediency, and an agency cannot be held accountable for meeting statutorily imposed goals if it i s not provided the resources to achieve them. Moreover, legislative mandates may be unclear and Congress, the Executive Branch, and other stakeholders may not agree on the goals an agency and its programs should be trying to achieve, the strategies for achieving those goals, and the ways to measure their success. Nevertheless, research shows that the GPRA has had a positive impact on the service quality o f each federal agency.

24. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 and Rules, 2004 are intended to ensure intergenerational equity and long-term macroeconomic stability. They require the Minister o f Finance, among others, to submit various annual statements to Parliament and quarterly statements o f receipts and payments against budget.

l3 NIFM (2005) Evolution o f the Role o f Financial Advisers in the Government o f India, Paper prepared for the Workshop o f May 2005, Financial Adviser para.5.3. I t may be noted that zero-based budgeting was tried for a time in the United States but was replaced by more practical systems.

14

25.

B.

26.

27.

28,

29.

30.

In 2005, the Second Administrative Reforms Commission was established. I t s agenda included 13 subjects, one o f which, strengthening o f financial management systems, has not yet been reported on by the Commission. Also in 2005, the General Financial Rules were updated, replacing the 1963 General Financial Rules. Rules were introduced for alternative service delivery systems, developments in information technology, externally aided projects, government guarantees, engagement o f consultants, outsourcing o f services, and others. Obsolete and redundant rules were removed. All these PFM developments coincided with the MoF deliberations on re-examining the FA role.

Origin and Evolution o f the Financial Adviser

Historically, the FA position i s the outcome o f a long and uneven process o f decentralisation o f financial powers within the Government o f India. In 1955, Internal Financial Advisers were appointed in selected administrative ministries to represent the Ministry o f Finance and exercise the MoF-delegated powers. Each ministry had an Internal Financial Adviser and an associated Financial Adviser based in the MoF Department o f Expenditure.

The 1974, the First Administrative Reforms Commission report introduced the concept o f Integrated Financial Adviser, which was implemented by the Office Memorandum o f 1975. Legally, the Office Memorandum was an executive instruction from the Ministry o f Finance,14 which has a mandate for financial control defined by the Government o f India (Allocation o f Business) Rules, 196 1, as amended.

The Office Memorandum merged the posts o f Internal Financial Adviser in the separate administrative ministries and DOE associated Financial Adviser. The new post was seen as part o f each administrative ministry but also accountable for certain functions to the Ministry o f Finance. I t was expected that traditional accountability through the conventional (input) budget would be supplemented by accountability for performance outputs.

I t has been felt that the [Financial Adviser] should be associated with the Administrative Ministry in a larger measure than at present to enable him to play a more effective and constructive role in its developmental activities and should bring his financial expertise to bear in assisting the Secretary of the Administrative Ministry and other senior officers in the planning, programming, budget monitoring and evaluation functions of the Ministry (Ministry of Finance communication, October 6, 1975).

After 1976, Central Government accounts were departmentalised. The secretary o f each administrative ministry was designated chief accounting authority with the authority to discharge all finance and accounting functions through and with the assistance o f the integrated financial adviser, who functioned for and on behalf o f the chief accounting authority.

The Eshwaran Committee proposed in 1996 that the integrated Financial Advisers be placed in full charge o f financial management in their administrative ministries under the leadership o f the respective secretaries, and that Financial Advisers delegate their financial powers within the respective ministries. The Ministry o f Finance was advised to shift from micro-level management, considering individual cases, to macro-level management. The FA responsibilities were redefined extensively, particularly in project management, and three-year zero-based budgets were to be institutionalised. However, the recommendations were not accepted. And although not implemented as a whole, some recommended changes were added piecemeal, particularly in the extension o f delegated powers in 2003.

Memorandum can be found in Annex A. 14

15

31. The FA responsibilities were indirectly increased by the passage o f the FRBM Act, 2003 and FRBM Rules, 2004, which caused fiscal targets to be set for each ministry. Though the FRBM Act did not refer to Financial Advisers, by putting additional frnancial obligations on the Ministry o f Finance and instituting quarterly and annual reporting o f receipts and payments f iom departments to the Ministry o f Finance and f iom the Ministry to Parliament, it reinforced the perception o f Financial Advisers as not only the eyes and ears o f the Ministry o f Finance, but in some cases its executive agents The Fiscal Policy and Strategy Statement for 2007108, for instance, required the Financial Advisers to take measures to avoid large unspent budget provisions. The Minister o f Finance has said that Financial Advisers are responsible for monitoring quarterly fiscal targets.

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111. CURRENT ROLE OF FINANCIAL ADVISERS IN INDIA

32.

33.

The current official definition o f the role o f integrated Financial Adviser (FA) comes from the 2006 Charter. Financial Advisers have two sets o f responsibilities:

0 Actions taken under powers delegated to administrative ministries by the Ministry o f Finance under GFR 23 and the Delegation o f Financial Powers that must be taken only after consultation with the fiscal adviser, and

Matters outside the delegated powers, which can be decided by the Financial Adviser subject to supervision by the Department o f Expenditure [GFR 3 (1) (e)].

The GFR and DFPR mention financial advisers through the respective legislation, as shown in Box 3.1 :

Box 3.1. Mention of Financial Advisers in the General Financial Rules (GFR) and the Delegation of Financial Powers Rules (DFPR)

GFR 3 (1) (e): Powers of the FA on matters outside the delegated powers GFR 24: Draft memoranda for EFCPIB and CCENCabinet GFR 33 (2): Losses GFR 46 (5): Scrutiny of non-plan budget estimates, and revised estimates of plan and non-plan expenditure GFR 49: MoF Budget Division meetings GFR 159 (1): Advance payments to suppliers GFR 184: Contracting without competitive bidding GFR 207: Requests for grants-in-aid to autonomous organisations GFR 209: Conditions on grants-in-aid GFR 246: Proposals for Go1 guarantee GFR 249: Review of guarantees Appendix 3 (2) and (13): Detailed non-plan expenditure estimates and plan expenditure estimates

DFPR 10: Reappropriation of funds DFPR 11: Proposed staff expansion - need for study by Staff Inspection Unit DFPR 18: Expenditure on schemes and projects DFPR 24: Sale or dismantling of public buildings DFPR 25: Communication of sanctions to Audit Schedule V: Hire of taxis for international conferences, and payment of rewards, fees and bonuses Schedule VI: Delegation of power to heads of departments Schedule VII: Quarterly statements of loss write-offs Appendix 2: Items of work for FA (16 items are reproduced in the 2006 Charter) Appendix 3: Economy in Administration and Non-Plan Expenditure (a series of Office Memoranda dating back to 1979 that mention FA with regard to:

Monitoring project progress

Monitoring implementation of recommendations by Public Accounts Committee Enhancement of powers to departments Action if FA advice i s overruled Release of funds to autonomous bodies

Monitoring implementation of 5 percent cut in non-plan expenditure in FY2007

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34. Under the DFPR, ministries are expected to follow the advice o f the Financial Advisers.

The overarching concept is that [Financial Advisers] are meant to assist in the achievement of objectives and goals of their ministries. Assisting administrative ministries in ensuring value for money would be a key objective for financial advisers (2006 Charter, para. 4). The 2006 Charter (para. 4) goes on to say that the Financial Advisers “represent the Ministly of Finance in regard to all financial matters.” The Charter (para. 12) also allows that “ in rare instances” administrative secretaries may overrule F A advice by an order in writing.

35. The Financial Adviser i s assigned particular responsibilities under the 2006 Charter. These roles and functions listed below are discussed in the following section:

Budget formulation, including the Annual Financial Statement (Demand for Grants) and Outcome Budget for the coming year, and the Performance Budget for the current year at least up to December;”

Preparation o f disclosure statements and other material for MoF quarterly reviews to Parliament;

Expenditure and cash management, with support o f Chief Controllers o f Accounts and Controllers o f Accounts (CCNCA), including liaison with autonomous organisations receiving budgetary support;

Projectlprogramme formulation, appraisal, monitoring and evaluation (Administrative joint secretaries take the lead in formulation, while Financial Advisers ensure quality appraisal and evaluation);

Screening o f all proposals that need to be referred to Ministry o f Finance;

Mobilising extra-budgetary resources (private sector investment, public/private partnerships, user charges and other non-tax receipts, etc);

Monitoring tax exemptions, concessions and other tax expenditures;

Monitoring asset and liability management, including guarantees;

Monitoring the state o f departmental accounts and audit;

Establishing systems for procurement and contract management, and project financial management;

Preparation o f an Annual Financial Report on the financial operations o f the ministry, with recommendations, and an Annual Outcomes and Systems Report, both to Dep-ent o f Expenditure;

As executive head o f the Integrated Finance Division, the Financial Adviser has management responsibilities for leadership, supervision, and development o f hidher staff.

Is Though this i s called Performance ‘Budget’, the Charter makes it clear that this i s an ex post statement o f performance actually achieved in the current year to date (Le. in the financial year before the budget year).

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36.

37.

38.

A.

39.

40.

The above l is t includes most o f the activities under the finance function o f an administrative ministry, except for treasury/paymaster activity (handling o f receipts and payments), bookkeeping, financial reporting to Controller General o f Accounts and internal audit. The treasury and bookkeepingheporting activities are CCNCC responsibility. The Charter (para. 8) states that the Financial Adviser would ”in no case be assigned any routine administrative functions o f the ministry.” This appears to relate only to the accounts and other records systems and to basic transaction processing and administration, such as relating to salaries. Over time, Financial Advisers are expected to delegate “purely routine financial activities” to the administrative divisions o f their ministries and take on a more active macro-management role (2006 Charter, para. 27).

In order to discharge the role and functions (listed above), the Financial Adviser has support staff and right o f access to all records that are available to the respective ministry (2006 Charter, para. 1 1). Administrative ministries shall “invariably involve” the Financial Advisers in all the above-listed roles and functions (para.lO), and the Ministry o f Finance w i l l not entertain proposals having financial implications (and few proposals do not have financial implications) except through the FA channel and with hisher approval.

There are a few departmental variations to the FA scheme. Some ministries have their own professional cadre o f financial staff: Ministry o f Railways (Indian Railway Accounts Service), Ministry o f Defence (Indian Defence Accounts Service), and Ministry o f Communication and Information Technology (Indian Post & Telecommunication Accounts & Finance Service). The Ministry o f Information Technology (Dept. o f Telecommunications) has a member finance who i s o f the level o f secretary, while Railways has a financial commissioner. Their functions are similar to those in other ministries. This paper does not cover each o f these variations in detail.

The Role and Functions o f the Financial Adviser

General Role

At present in 49 ministries in the Government o f India, there are 29 Financial Advisers, many o f whom have additional charge o f more than one ministry/department. The NIFM Workshop, 2005, overwhelmingly agreed that there should be no multiple charges and every department should have its own full-time Financial Adviser, even if some departments are smaller and their Financial Adviser would not justify the same ranking as larger departments. Each Financial Adviser or deputy Financial Adviser should have one Chief Controller o f Accounts and their responsibilities should be coterminous. l6

The overarching concept in the MoF redefinition o f the FA role i s that Financial Advisers assist in the achievement o f the approved goals o f their respective ministries and also act as representatives o f the Ministry o f Finance. In this, they are expected to ensure value for money (i.e., achievement o f the goals at minimum cost). I t i s clear from the DFPR and GFR that it i s the administrative secretaries as Chief Accounting Authorities who have the delegated powers and the responsibility for results, not the Financial Advisers. The FA role i s to advise the Secretary on matters within hisher functional role. I t appears that the advice i s usually taken. While the Secretary can reject advice o f any member o f hisher team when he/she considers i t necessary, within each functional area considerable authority i s delegated to the functional specialists. Within the finance area, Financial Advisers are de facto decision takers. They can approve proposals, or they can require fixther information or analysis o f options, or they can exercise an effective veto, subject only to rare overrule by the Secretary.

l6 NIFM Workshop 2005, Concept Paper, p.4

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41.

42.

In the other FA role, they represent the Ministry o f Finance in regard to all financial matters (2006 Charter, para. 4). Representation i s l imited i t does not extend to making decisions which bind the Ministry o f Finance. Financial Advisers are expected to use their powers under the GFR and DFPR and their professional authority to ensure that all financial rules are complied with, and that MoF approval i s secured on all matters outside the delegated power^.'^ In effect, Financial Advisers are outposted MoF officers, often acting as internal auditors.

The dual FA role i s difficult, being accountable to two ministry heads (both executive and political):

At any given time and in any given situation the role of a Financial Adviser may not be a pleasant one, unless the recipient of the advice is extremely enlightened. I n the face of this duality, the role becomes all the more delicate. 18

One argument for dual reporting i s that they should emphasize their MoF backing and retain their independence o f the Administrative Secretary. The opposite argument i s that they should regard themselves as members o f the apex management team, and should change their attitude from that o f controllers and regulators to that o f development financiers and managers.’’ As the senior finance officer in each administrative ministry, many Financial Advisers feel that expectations are expanding, but that their capacity and influence within their ministries/departments have remained unchanged. In some countries, the role o f the Financial Adviser has expanded. The position of Financial Adviser in the Australia, the United States, South Africa i s called Chief Financial OfJicer (CFO); in others (like the United Kingdom) i t i s called Finance Director. The entities to which Chief Financial Officers/Financial Adviserdfinance directors are responsible in different countries summarized in Box 3.2.

Box 3.2. To whom i s the Financial Adviser (Chief Finance Officer, Finance Director) Responsible?

Australia: Chief Financial Officer i s responsible to the head o f department and has no accountability to Finance.

Canada: the Senior Finance OfficerKFO is responsible to the Deputy Head (the chief executive officer o f the department) and operates according to policies and standards laid down by the Comptroller General (officer o f the Treasury Board Secretariat).

India: uniquely, the Financial Adviser is responsible to both the Secretaryhead o f department and to the Ministry o f Finance.

Pakistan: by contrast, the Financial Adviser is appointed by the Ministry o f Finance and reports only to the Ministry.

South Africa: Chief Financial Officer i s directly accountable to the head o f department, and follows best practice guidelines from the National Treasury.

United Kingdom: the Finance Director i s responsible to the head o f department as accounting officer and gets technical support from the Treasury.

United States: the Chief Financial Officer is responsible only to the departmental secretary, with a functional relationship with the Office o f Management and Budget.

i s

” At a meeting with Financial Advisers in October 2004, the Minister o f Finance emphasised that “FAs are a

’’ A. Prasad, N I F M Workshop (2005) paper on role o f financial adviser, p g 54.

Workshop in September 1997, p. xvii.

art o f the MoF.” (NIFM Workshop 2005, p. 82).

B.P. Mathur (1999) Budgetary Reforms and Expenditure Management in Government, based on an NIFM

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43. Serving as a member o f the top management team, the dual role complicates and hampers the FA position. A quotation from the International Federation o f Accountants adds relevance to this issue: “The CEO and CFO should work as a team, but demands o f regulators (who look to the CFO) w i l l make this difficult”.*’ This i s related to the perception o f FAs as bureaucratic blocks on development processes.21 Where Financial Advisers are consulted and are fully involved, they may be seen as holding up the business o f the department. A typical criticism follows:

A specific item for enquiry for [Second Administrative Accounts Commission] could be the overarching role of the Finance Ministry in the governance of the country. Whether it is a speed-breaker or an enabler has much to do with the efficiency of the overall system. The scrutiny of minutiae by financial ministry advisers functioning in diyerent ministries has been alleged to be the cause of delay in government. The time has come to carry forward the ongoing reform under which each ministry is empowered to set up its own budget and implement it, subject only to the overall clearance by the Cabinet. Second-guessing by the Financial Advisers, given their loyalty to another ministry - who are not answerable for results - is counterproductive. The best practices of management in private and public sectors do not encourage such external mentoring in an executive organisation”. 22

44. A pertinent question i s how should F inancia l Advisers be report ing to the Min is t ry of F inance speci jka l ly on whether h i she r recommendations a re followed? DFPR states that “Ln the event o f being overruled, the FA would have the discretion to bring the matter to the notice o f state- owned enterprise^."^^ The administrative secretary i s the chief accounting authority and i s answerable directly to Parliament for the performance of hisher ministry, both physical and financial. The Secretary, as Chief Executive Officer, has to take into account all aspects o f a decision-financial, developmental, personnel, environmental, political. The Financial Adviser has a narrower perspective, and advises only on financial aspects. At present, some Financial Advisers report to the Ministry o f Finance that their recommendations are not followed, while others are wary o f doing so for fear o f getting adverse comments from the Secretary o f the Administrative Department. I t i s not difficult to imagine the reaction o f a Secretary who feels that hisher final decisions are not being supported by hisher own officers and that complaints are being made to outside authorities. The remedy proposed at the NIFM workshop was to make reporting compulsory. This would certainly reinforce MoF control, however i t would not promote team building and corporate responsibility in the ministry. I f the direction o f change i s towards greater assumption o f responsibility in the line ministries, external reporting o f differences o f opinion needs to be very carefully treated.

45. The relationship between Chief Financial Officers and the Comptroller General has been questioned by deputy heads [Chief Executives o f line ministries], who feel that the Chief Financial Officer needs to be a trusted member o f the executive team, not an “outsider” poised to discuss internal issues with the Center. The CFO effectiveness clearly depends on them having a relationship o f trust with senior executives, and th is relationship w i l l need to be continuously reinforced. Yet, as finance professionals with fiduciary duties beyond the organization, on rare occasions they may need to consult externally. Wise Chief Financial Officers w i l l use careful judgment to balance both sides o f the equation.24

2o The Role o f the CFO in 2010, (International Federation o f Accountants, 2002). p.37 2’ See, for instance, Bhaskar Ghouse,The Bucks Stop Here’@ Hindu-onnet, July 14,2006). This former secretary believes that some Financial Advisers have become brakes on development, and that the term ‘adviser’ i s a misnomer as they are in fact ‘controllers’. 22 S. Venkitaramanan, The Second Administrative Reforms Commission: Another Chance for Change (in The Hindu Business Line, April 18,2005). 23 Delegation o f Financial Rules, p. 140. 24 Strategy, Accountability and the New.Role o f the CFO: Modernizing Financial Management in Government (Conference Board o f Canada, October 2006), p. 10

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46.

47.

48.

49 *

A final issue emerges from the rapid expansion o f FA responsibilities. “A majority o f the FAs feel that the expectations f rom them, which had increased tremendously in the wake o f liberalization and globalization o f the Indian economy in the early 90s, have multiplied at an exponential rate in the wake o f the recent fiscal reforms l ike passage o f the FRBMAct. They feel that neither their powers nor their sup ort systems have been proportionately revamped to help them meet the growing challenges.” ’ There is a great desire for clarity. Their role needs to be rationalised and clarified, and support systems and capacity need to be developed based on that role.

Policy formulation Role

Financial Advisers are supposed to support their secretaries in pol icy formulation by determining the financial implications o f alternative policies and making recommendations in accordance with departmental goals and objectives. For instance, draft memoranda for the Expenditure Finance Committee (EFC) and Public Investment Board (PIB) and Cabinet Committee on Economic Affairs should be discussed with Financial Advisers before they are finalised and issued (GFR 24). In fact, there i s considerable variation in practice f rom one department to another. I t has been suggested that a b r ie f should be prepared by the Financial Adviser and attached to each submission through the finance secretary. The mechanics o f ensuring FA inputs should always involve the written FA comments, as rules that the Financial Adviser should ‘discuss’ or ‘be consulted on’ or ‘associated with’ proposals are too vague to be enforced. I t i s to be noted that the GFR 24 says that “a confirmation to this effect shall be included in the draft memorandum at the circulation stage.” However, data gathered in this research indicates that there are instances when the Financial Advisers are either not consulted or left out o f the decision loop in the early stages o f decision-making and are involved only when the substantive parts o f the decision have already been taken.

Project formulation Role

Financial Advisers are supposed to provide quality assurance in project/programme formulation by independently reviewing and appraising proposals and advising their secretaries [GFR 46(5)]. Since the 2003 extension o f delegated powers, schemes and projects can be sanctioned by the Department Standing Finance Committee up to a ceiling o f Rs. 15 crores. The Financial Adviser i s a member o f the Department Standing Finance Committee. Non-plan projects over Rs15 crores go to the Committee on Non-Plan Expenditure, o f which the Integrated Finance Division o f the concerned department i s the secretariat. Any substantial alteration in the scope o f a scheme, as decided by the Secretary in consultation with the Financial Adviser, i s subject to approval by the Committee on Non-Plan Expenditure (DFPR 18).

Ideally, Financial Advisers should be involved in formulation o f projects and schemes from concept stage so that their expertise can be brought to bear before the project gathers too much momentum (or personal ego investment by administrators or politicians) to make it resistant to change. For instance, government agencies often prefer to manage projects themselves without considering the options o f contracting out, public/private partnership, etc. The exclusion o f the Financial Adviser i s an issue that could be resolved by requiring that no project or scheme can be granted approval in principle without written FA comments, as recommended for policy submissions above. The Financial Adviser can then ensure that all options are on the agenda and are fully evaluated. The NIFM concept paper provided to the May 2005 workshop suggested that FA consultation should be mandatory on specified subjects-the annual and five-year plans and their mid-term reviews, in-principle approval o f schemes, policy formulation, and e-governance. I t was further suggested that Planning Commission and Department o f External Affairs should not accept proposals without FA endorsement.26

25 NIFM (2005) Workshop, Evolution o f the Role o f Financial Adviser, para. 9.1. 26 Concept Paper on Redefining the Duties, Responsibilities and Powers o f Financial Advisers. (Department of Expenditure, Ministry o f Finance, paper presented at Workshop, May 2005) para.3.

22

50.

51.

52.

53.

54.

55.

56.

FAs should associate themselves with the evaluation o f schemes and projects and see that the evaluation findings are fed back into the planning cycle (Charter Annex 11, para. xii).

Budget formulation Role

The June 2006 Charter says that Financial Advisers “continue to be responsible for budget formulation.” The Government has a system each year for plan budgets and non-plan budgets, outcome budgets, and performance budgets:’ and supplementary budgets. Appendix 3 o f the GFR makes the Financial Adviser clearly responsible for the preparation o f both the non-plan and plan budgets.28 However, research for this paper indicated that practices in this regard differed between ministries. According to a FA group in 2005, “the FA has not really grown beyond a limited expenditure adviser and as an optional interlocutor wi th MoF, Planning Commission and Department o f Personnel and Training. The Ministries have assigned plan budgeting not to the FA but to another bureau head dealing with plan coordination. Even the decisions on plan budget allocations have gravitated to the Planning C o m m i s ~ i o n ” . ~ ~

The Financial Adviser i s also required by the Charter (Annex 11) to screen proposals for supplementary demands for grants. The same issues arise as previously discussed.

Budget execution Role

Financial Advisers assist their ministries in setting up monitoring systems, and in monitoring implementation o f all budgets, both within their ministries and in public service undertakings and autonomous institutions in receipt o f transfers from the ministry. Financial Advisers are associated with quarterly progress reviews that have to be reported to the Ministry o f Finance. Financial Advisers also monitor timely receipt o f utilisation certificates and control the release o f funds to projects and schemes.

In FY2007, non-plan expenditure had to be cut by 5 percent. Financial Advisers were required to report to the secretary, administrative minister, and Department o f Expenditure on the implementation o f the cut (DFPR Appendix 3). In order to avoid large unspent provisions in Demands for Grants and accelerated spending in the last few months, FAs have been requested to study such cases and take appropriate measures. FAs also ensure proper maintenance o f registers o f liabilities and commitments.

Financial Advisers have responsibilities under the DFPR with regard to re-appropriation o f funds. DFPR 10 says that Financial Advisers should obtain approval o f the state-owned enterprise for any re-appropriation more than 25 percent o f the budget or Rs5 crores, whichever i s more. To prevent unnecessary travel, they are not to allow any re-appropriation to augment the provision for travel except with DOE approval. Financial Advisers are requested by DFPR 10 (6) 4 to ensure that all requests for re-appropriations are completed by March 1 o f each year.

With regards to procurement and contracts, the 2006 Charter says that “FAs would be required to set up strong internal systems to ensure due diligence and strict observance o f MoF guidelines in this regard.”

27 Output and Performance Budgets are merged with effect from the 2007/08 budget, and called ‘Output Budget’, but this i s s t i l l separate from the Plan Budget and Non-Plan Budget. 28Also, GFR 49 refers to FA participation in budget negotiation meetings with Ministry of Finance, and DFPR 11 (1 1) refers to FA involvement in decisions on studies needed to justify staff expansion. 29 Extract from Working Group of Financial Advisers (2005) Performance Budget: A Discussion Paper, NIFM, July (draft), paras. 11-12.

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Resource Mobilization Responsibility

57. Financial Advisers assist their ministries in mobilizing private investment (e.g., through public-private partnerships) and formulating projects for external funding.

58. According to the 2006 Charter, Financial Advisers should also review the sources o f non-tax revenue and prepare the annual budget for non-tax revenues and other receipts (GFR Appendix 2), which has grown in importance since the passing o f the FRBM Act. Financial Advisers should ensure that user charges reflect government policy, such as full cost recovery, and that they are duly collected. Dividends from public service undertakings are an important revenue item, and Financial Advisers are expected to monitor finances from public service undertakings and ensure that adequate dividends, including interim dividends, are paid to the Government. A minimum return o f 20 percent on equity i s expected (DFPR Appendix 3). Financial Advisers also monitor tax expenditures (i.e., revenue foregone because o f exemptions and concessions). I t i s unclear how far Financial Advisers are able to fulfill their mandate on the revenue side since expenditure gets far more attention.

Internal Control and Risk Management

59. Financial Advisers are responsible for ensuring that General Financial Rules are followed, and that the ministry does not exceed i ts delegated financial powers. Files for all matters which have any financial implications are sent to the Financial Adviser for hisher concurrence.

60. The Charter requires the Financial Adviser to scrutinize proposals for re-delegation o f powers to subordinate authorities. This i s consonant with the greater focus on macro-level management at the FA level. DFPR Schedule V I requires delegation o f power to heads o f departments to incur miscellaneous expenditure to be made in consultation with the Financial Adviser.

61. The DFPR include detailed rules on incurring particular items o f expenditure. Some o f these such as rewards, fees and bonuses, and transport hire explicitly require FA consultation, (DFPR Schedule V).

62. Ministr ies and departments in India are not required to undertake regular reviews o f risk to organizational goals. Risk management as a discipline i s underdeveloped. In the United States and the United Kingdom, especially in the wake o f corporate governance reforms and the Sarbanes-Oxley Act (in the US), there i s an increasing emphasis on risk management. I t i s understood that the Administrative Reforms Commission i s going to develop Risk Management Guidelines for Departments. This review would substantially impact how Financial Advisers discharge their duties with regard to r i s k y operations.

Accounting and Financial Reporting Responsibility

63. While chief controller o f accounts/controller o f accounts (CCNCA) maintain the financial accounts and submit monthly reports to the Controller General o f Accounts (CGA), the Financial Advisers have supervisory powers to ensure that the quality and timeliness o f accounts i s maintained and improved.

24

64.

65.

66.

67.

Stated in DFPR Appendix 3 i s that Financial Advisers should monitor progress on all projects and report to their secretaries monthly, and include this in their monthly reports to the Department o f Expenditure. At present, Financial Advisers are reporting to the Department with a quarterly report. The system o f annual reporting (Annual Finance Report, Annual Outcomes and Systems Report, Disclosure Statements) i s yet to start.

There may also be verbal reporting by means o f meetings between Financial Advisers and state-owned enterprises. This depends on the state-owned enterprise. The general preference i s for less formal Written reporting to the Ministry o f Finance, and more informal meetings and retreats by which the Ministry can keep appraised o f financial developments, and advise Financial Advisers on improvement o f financial systems and standards. Box 3.3 discusses the role o f the chief financial officer in relation with the U S Governments Office o f Management and Budget.

Similarly, the Finance Minister may call meetings o f Financial Advisers. These also have a role to play to improve understanding at different levels.

Box 3.3. Relationship between Chief Financial Officers and Office of Management and Budget (OMB) in the United States

The Chief Financial Officer reports to the Secretary o f the agency to which he is appointed and is also in constant communication with the OMB. The Office o f Federal Financial Management (OFFM) within the O M B establishes government-wide policies, monitors the establishment and operation o f financial management systems and the execution o f the budget, and ensures that government has a highly qualified cadre o f F M professionals.

The Chief Financial Officer prepares and transmits an annual report to the agency head, copying OMB, on the status o f fmancial management o f the agency, including the annual fmancial statements, the audit report, a summary o f the reports on internal accounting and administrative control systems submitted to the President and the Congress under the Federal Managers’ Financial Integrity Act o f 1982, and other information the head o f the agency considers appropriate to fully inform the President and the Congress about the financial management o f the agency.

The main CFO-OMB interaction is through the CFO Council set up by the CFO Act, 1990. The Council was established as a mechanism for advising and coordinating the activities o f its member agencies on matters such as improved quality o f fmancial information, financial data and information standards, consolidation and modernization o f fmancial systems, internal controls, legislation affecting financial operations and organisations, and other financial management efforts. The Council is led by the Controller (head o f the OFFM), and all chief fmancial officer and Deputy chief fmancial officer are members. I t is a community with a common professional interest, not (since 1993) an instrument for O M B to give instructions to chief financial officers. The Council meets quarterly but most o f the work is done through six subcommittees. Council members set the meeting agenda, rather than O M B alone.

Under the Right to Information Act, data about staff has to be displayed on each ministry website. The Financial Adviser has been made responsible for ensuring that this i s done. In the absence o f a Chief Information Officer, the Financial Adviser takes on th is additional role though, in fact, this i s not part o f the financial function and should be met by the appropriate fbnctional head.

25

Audit

68. Chief Controllers o f Accounts have primary responsibility for internal audit, but Financial Advisers have a supervisory responsibility for reviewing internal audit programmes, reports, and action taken on the reports. Internal audit needs to be strengthened in Central Government ministries. I t i s relevant to note that while international standards require independence o f internal auditors from the finance and accounting functions, in India the Internal Audit Unit i s s t i l l part o f the CCA responsibility and hence under the Financial Adviser.

69. Financial Advisers are expected to coordinate and monitor the settlement o f external audit objections, inspection reports, draft audit paragraphs, and implementation o f recommendations from reports o f Parliamentary Committees (Charter Annex 11, paras. x i i i and xiv, and DFPR Appendix 3).

Representation o f the Department

70. Financial Advisers are often nominated by the Government as directors o f public sector undertakings. This practice i s recommended since it gives Financial Advisers a channel o f information to be more effective when it comes to public service undertakings.

71. Financial Advisers assist their secretaries at hearings by the Public Accounts Committee, but are not themselves answerable to the Committee. This i s appropriate and consonant with GFR 64.

Powers of the Financial Adviser

72. It i s universally recognized that the Financial Adviser should have free access to all books and records available to the agency in which he or she works, and be adequately equipped with legal powers, job description, staff, and ski l ls to cany out hisher functions. Opinion differs on the extent o f those functions and whether the Financial Adviser already has adequate powers. In the Ministry o f Finance, it i s generally thought that the Financial Adviser i s insufficiently brought into the decisionmaking process; in fact the Financial Adviser i s often sidelined, or brought into the decisionmaking process too late, (e.g., after schemes have already been approved in principle). 30

73. Conversely, in the administrative ministries, it i s often said that the Financial Adviser has too much power or exercises it excessively and that this causes undue delays in getting schemes approved, etc31 This reflects a lack o f acceptance o f the constructive role that Financial Advisers should play in the decisionmaking processes and, possibly, lack o f appropriate sk i l l s by the Financial Advisers and their staffs. This latter point i s addressed in Section C.

74. While the 2006 Charter sets out the FA responsibilities comprehensively, these are not necessarily reflected to the same detail in the GFR or DPFR, where references to F A responsibilities are limited to particular items. A single document detailing the roles and responsibilities o f all key finance personnel-Finance Minister, Comptroller and Auditor General, Controller General o f Accounts, DOE Secretary, Financial Adviser, Chief Controller o f Accounts, etc.-and consolidating all financial rules would be easier to understand and apply consistently.

30 Minutes of the Meeting o f the Finance Minister with Financial Advisers on January 11,2005. These Minutes were included in the NIFM papers. 3 1 See, for instance, Evolution o f Role of Financial Advisers in Government of India, paper by NIFM presented at the May 2005 Workshop, para. 6.3.

26

B.

75.

76.

C.

77.

78.

79 *

80.

81.

Accountability of the Financial Adviser

The main instrument o f accountability i s the Annual Confidential Report. The FA’s Annual Confidential Report i s prepared by the administrative secretary, who i s in charge o f practically 90 percent o f the FA’s work. I t i s counter-signed by the DOE Secretary who may or may not add any comments, and is finally approved at a higher level, but the initial assessment o f performance i s colored by the Financial Adviser’s own administrative secretary.

A t the NIFM workshop in M a y 2005, it was thought that Annual Confidential Reports should continue to be jo int ly written. If duality o f accountability were discontinued, the Annual Confidential Report would become a purely internal document.

Selection, Appointment and Career Development o f the Financial Adviser

All FA appointments are made by the Cabinet on the recommendation o f the Department o f Personnel & Training. I t should be noted that while qualifications and background are considered in the FA appointment, these alone may not be necessary conditions preceding FA appointments.

The FA tenure i s usually up to five years in a particular department. Any extension o f the term beyond five years i s decided by the Cabinet secretary.

Since there i s no separate cadre for Financial Advisers, there is no institutional arrangement for FA capacity building. Some courses are conducted at the National Institute o f Financial Management. The lack o f attention to the technical and professional FA capacity compares unfavourably with the heavy-often technical in nature-responsibilities required o f them. A ‘background in finance’ i s sometimes cited as a useh l additional s k i l l in FA selection, but even without that background, Financial Advisers are not provided with any special training for their particular responsibilities. One reason for th is i s that Financial Advisers are likely to be transferred into nonfinancial posts where such training would be wasted.

This generalist approach to the finance function contrasts with the situation in the other countries, particularly those that have adopted accrual accounting, which are rapidly professionalizing their finance staff. Membership o f a professional institute o f accountants provides a guarantee, not only o f the specialized sk i l l s and knowledge required, but also adherence to ethlcal codes and schemes o f continuing professional development that keep the member abreast o f developments over the years. In Australia, the Chief Financial Officer should be professionally qualified and a full member o f a relevant professional body, such as the Institute o f Chartered Accountants in Australia or CPA Australia, or their international equivalents, or have significantly demonstrated expertise in financial management. In the United Kingdom, the policy i s for departments to recruit professionally qualified accountants with senior-level experience as Finance Directors. By December 2006,9 1 percent o f al l UK public expenditure was managed by a qualified accountant, and this proportion i s s t i l l rising.32 In the United States, the Chief Financial Officer i s modeled on the private sector Chief Financial Officer. Though federal Chief Financial Officers are political appointees for which there i s no formal requirement for professional qualification, recent developments in governance and in accounting and reporting standards have made it increasingly likely that qualified accountants fill both CFO and deputy CFO posts.

Many developing countries suffer from public pay scales that do not attract qualified accountants who tend to go to the private sector. In this situation, finance cadres have been created and special public sector training programmes have been developed to provide training and accreditation at technician and professional levels. Schemes o f service are amended to require the professional diploma or equivalent as prerequisites to promotion to the top posts.

32 Mary Keegan, The Modernisers (in Accountancy Magazine, UK, June 2007).

27

82. It must be mentioned that had there been a separate FA cadre, a system o f incentives that linked s k i l l development with career advancement would in any case have been operative.

D. Organisation, Selection, and Training of FA Staff

83. A burning issue i s the lack o f sufficient specialists in the Integrated Finance Division (IFD) o f each ministry. Financial Advisers appear to have no role in the selection, nor their transfer out, o f appropriate officers to undertake highly specialised tasks for which the Financial Advisers are hnctionally responsible. In 1990 the La1 Committee on Departmentalisation o f Accounts said that financial administration could no longer be treated as a generalist hnction, but inappropriate persons are s t i l l being posted into Integrated Finance Divisions and trained officers are s t i l l liable to be transferred “It would be usehl for IFD staff to have a background in commerce and be able to understand financial statements,” said a Financial Adviser. I t would be useful to have a work study to check the number o f staff and sk i l l s required.34 This might vary from one department to another, but an established programme, including induction training, should meet all IFD training requirements.

A separate finance cadre would give a sense o f identity to finance and accounts staff and set them upon a career path. Railways and Defence sectors are said to have immensely benefited from having their own finance and accounts cadres.35

84.

85. As the IFD head, the Financial Adviser has the usual line management responsibilities, including human resource development o f hisher staff. The 2006 Charter lays particular emphasis on this role. It identified the need for IFD and FA capacity building and put the onus on the Financial Adviser to review the Integrated Finance Division at the start o f each year and prepare training and capacity-building needs analysis and action plans. Consultants may be hired if necessary with DOE approval. The Department o f Expenditure undertook to organise suitable workshops and seminars on chosen topics (2006 Charter, para. 25). Ideally, IFD staff should not be posted in or out o f an Integrated Finance Division except with F A concurrence, otherwise it becomes impossible to manage the division. An IFD Manual i s to be prepared, presumably after the FA Charter i s finally defined. This may be the basis for preparing training materials in a series o f courses at different levels, which may be contracted out to a professional training institution. Distance learning may also be considered, so that working officers can fit their training onto their work schedule and progress at their own pace.

86. The Financial Adviser may have two or four Directors o f Finance reporting to h idhe r . They also do not necessarily have experience and qualifications in finance. The next level o f staff includes Assistant Directors who are at the level o f under Secretary.

87. The Chief Controller o f Accounts has three main functions-accounts, payments, and internal audit-and i s selected from the cadre o f Indian Civi l Accounts Service and reports to the Financial Adviser but at times may be o f the same rank. The Chief Controller o f Accounts may report to two or three Financial Advisers in different departments. The Financial Adviser i s responsible also for supervision o f the accounts and internal audit functions and writes the Annual Confidential Report o f the chief Controller o f Accounts.36 Therefore the Financial Adviser needs to be concerned with C C N C A selection and training as well as for their staff.

33 A. Prasad, Role o f Financial Adviser. (Paper prepared for the N I F M Workshop, May 2005). 34 DOE Staff Inspection Unit has only 20 officers for the whole o f the Central Government. There i s also a severe fiscal constraint on the creation o f more posts. 35 N I F M Workshop, 2005, p.109. 36 Internatjonal standards require that internal audit be independent o f both accounting and finance, as its role i s to provide an independent check on them, as a service to the administrative secretary. However, internal audit i s relatively undeveloped in India, and at present i s a unit reporting to the chief controller o f accounts.

28

Iv. ROLE OF INTEGRATED FINANCIAL ADVISERS: INTERNATIONAL COMPARISON

88.

A.

89.

90.

1.

This chapter provides a cross-country comparison o f structure, mandates, roles, and responsibilities o f the role o f integrated Financial Adviser (FA) and i t s counterparts (Chief Financial Officer or Finance Director) in other countries. Summaries o f interviews and reviews o f key documents that cover these roles in Australia, Canada, Indonesia, United Kingdom, and the United States are in the following tables; as well as summaries o f desk reviews in Brazil, Mexico, Pakistan, and South Africa.

Cross-Country Comparison of FA Role in India and Other Countries

The criteria for selection o f countries included (a) a sample o f industrialized countries which have made significant improvements in public financial management (PFM); (b) countries having some degree o f similarity to a system o f governance in India; (c) developing countries which are growing economies like India; and (d) countries from a range o f geographical areas: Africa, Australia, Europe, Latin America; North America, South and East Asia.

The tables compare the following aspects o f the FA roles and the respective finance divisions in each country, then gives some best practices from each country that might benefit India:

1. 2. 3. 4.

5. 6. 7.

Financial Adviser: Rules, laws, reforms, and authority Financial Adviser: Mandate, guidelines, powers and role Financial Adviser: Reporting, accountability, and assessment framework Financial Adviser: Selection, eligibility criteria, incentive structure, tenure, and career development. Financial Adviser: Capacity building and ongoing professional development Finance division: Structure, staffing, capacity building, manuals/guidelines and reports Best practices in other countries.

Financial Adviser: Rules, laws, reforms and authority

What rules and laws exist for public financial management? Delegation of Financial Rules, 2006. General Financial Rules, 2005. Fiscal ResDonsibility India

United States

United Kingdom

Canada Australia

South Africa

Brazil

Mexico

and Budget Management Act,' 2003. Guidelines on Expenditure Management, Deparmkt of Expenditure, September 2004. Chief Financial Officer Act, 1990. Government Performance Results Act, 1993. Government Management Reform Act, 1994. Federal Financial Management Improvement Act, 1996. Information Technology Management Reform Act. Office of Management and Budget circulars. Treasury directives, such as the Government Accounting Manual. Government Financial Reporting Manual. Government Resources and Accounts Act, 2000, which introduced accrual accounting. Financial Administration Act, 1996. Federal Accountability Act, 2006. Financial Management and Accountability Act, 1997. Commonwealth Authorities and Companies Act, 1997. Charter of Budget Honesty Act, 1998. Finance Minister's Orders, 2006. Role of the CFOs- Guidance for Commonwealth Agencies, April 2003. Outputs and Outcomes Framework Guidance Document, November 2000. Public Financial Management Act, 1999 & subordinate Treasury Regulations Guide for Accounting Officers, PFMA Act, October 2000. Inter-governmental Fiscal Relations Act. Budget Guideline Law, 2006. Budget Law, 2006. Public Service Law. Fiscal Responsibility Law. National Constitution. National Development Plan 2006-20 12 (Presidential Office). Budget & Fiscal Responsibility Federal Law. Organic Law of Public Administration. Public Service Income Manual. Guideline o f Public Administration for Austerity & Discipline o f Public Expenditure. Annual Expenditure Budget. Annual Income Law. Norms and Guidelines for Designing, Following up & Modifications o f Budget Targets Calendar. Fiscal Sharing

Commonwealth Authorities and Companies Orders, 2005.

Agreement Law.

29

What rules and laws exist fo r public financial management? Pakistan General Financial Rules. Fundamental Rules. Supplementary Rules. Federal Treasury

Rules. Fiscal Responsibility and Debt Limitation Act, 2005. Finance Division Office Memorandum No. F .3( 2)Exp. III/2006.

Indonesia State Finances (Law 17/2003). State Treasury (Law l/January 2004). Audit for State Finances (Law 1512004). Government Regulation (PP21/2004) Annual Work Plan Government Regulation (Financial reporting and performance of government agencies). Regional Governance Law (Law 32/2004).

What are the notable reforms in public financial management? India Eshwaran Committee, 1996. Integrated Financial Adviser Scheme, 1975. Performance

United States

United Kingdom

Canada

Australia

South Africa

Brazil

Mexico

Pakistan

Indonesia

Budgeting. Revision of Delegation-of Financial Powers in 2003. Fiscal Responsibility and Budget Management Act. Revision of General ,Financial Rules in 2005. Chief Financial Officer Act, 1990. Government Performance Results Act, 1993. Government Management Reform Act, 1994. Federal Financial Management Improvement Act, 1996. Information Technology Management Reform Act. Office of Management and Budget circulars. Public Spending Framework Government Resource Accounts Act, 2000. Whole of Government Accounts. Appointment of Comptroller General in 2004, changes in role and qualifications of Chief Financial Oficers and in internal auditing processes in 2005, new funds allocated for financial training of all financial managers, etc.. Revised Executive Policy for Financial Management, forthcoming 2008. National Audit Commission, 1996: adoption of accrual principle for budgeting, resource management and financial reporting. Financial Management and Accountability Act, 1997, devolvement o f substantial authority and power to Chief Executive officer. Budget Estimates and Framework Review in 2002. Introduction o f 3-year budgeting in 1998 and Budget Decentralization. Public Financial Management Act. Municipal Finance Management Act. Debt Management Reform. Fiscal Responsibility Law (Lei de Responsabilidade Fiscal, LRF) was implemented in May 2000 to establish a responsible framework of federal government public finance. Disclosure & Transparency Law. Integral Process of Planning & Budget. Budget Programmatic Structure by Program. Budget Performance Evaluation. Integrated Management System (SIAFF). Performance Indicators for Procurement Public Expenditures & Financial Management. Disclosure & Transparency Law. Civil Service Program. Project for Improvement of Financial Reporting and Auditing introduced integrated financial management system in federal government. Medium Term Budgetary Framework (MTBF) i s underway and a complete switch over i s expected by fiscal year 2008-09. Financial management application, as part of MTBF, to assist budget preparation and automation o f financial management functions. Financial Management: Laws 17/2003 and 1/2004. External Audit Law, 15/2004, greatly strengthened both the independence and role of the external auditor, BPK. Another law i s in process to cover the management structure and accountability of the agency. Decentralization (1999, revised 2004), transfer o f power and financial resources to some 470 regions which were controlled by central gove&ment.

Who i s the accounting authority o f departments? India United States

Secretary of Ministry, as per General Financial Rule 64. Controller in the Office o f Federal Financial Management i s the accounting authority for federal government. Secretary i s accounting authority for agency. Secretary o f the Department i s the head of departmenuagency and responsible for conduct o f business of the Department as a whole. Head of Department i s Accounting Officer. Deputy Head, as per Federal Accountability Act. Head of the Department i s Chief Accounting Authority i s head o f the department, per Section 44(1) o f the Financial Management and Accounting Act: “A Chief Executive must manage the affairs of the Agency in a way that promotes proper use of the Commonwealth resources for which the Chief Executive i s responsible.”

Accounting authority o f each ministry i s granted to the Under-secretary of Planning, Budget & Management (Subsecretaria de Planejamento, Orcamento, administraca‘o), who

United Kingdom Canada Australia

South Africa Head o f Department. Brazil

30

W h o i s the accounting authority of departments?

Mexico has the role o f Financial Adviser at the federal government level. The accounting authority o f each ministry i s granted to the Financial Adviser office. The General Director o f Program & Budgeting (DGPP) i s responsible for the accounting process in the F A structure. Secretary o f Ministry/Division i s Principal Accounting Officer, who is assisted by Chief Finance & Accounts Officer and Financial Adviser. Secretary i s personally accountable to Public Accounts Committee. The Minister i s formally classified as the Budget User and has responsibility for both applying for and spending budgets with official title Kuasa Pengguna Anggaran

Pakistan

Indonesia

H o w are financial powers delegated to a ministry? B y Ministry o f Finance to ministries. Beyond delegated powers, issues are referred to India

United States United Kingdom

Canada Australia

South Africa Brazil

Mexico

Pakistan

Indonesia

Ministry of Finance through Financial Adviser. As per section 902 o f Chief Financial Officer Act. N o commitment of resources can be made without Treasury approval. In practice, the Treasury delegates to departmental authority to commit and spend within the ambit o f the appropriation and within defined financial limits for each transaction (GA 2.4.3) as part of i t s Medium-term Framework Document. N o change in system of delegation in recent years. B y Treasury Board Secretariat to departments as per Financial Administration Act. The Financial Management and Accountability Act, 1997, enables the Minister for Finance to delegate power to an agency Chief Executive and for an agency Chief Executive to delegate powers to members o f staff o f the agency. Level o f delegation i s considered sufficient. Each agency develops i ts own financial delegations to suit i t s operational needs. Delegation o f powers to Accounting Officer as per PFMA Act Financial power has been decentralized to ministries by an annual budget law, which i s approved by the National Congress. The Budget Law defines budget ceilings for each ministry annually. Financial power i s delegated from the Ministry o f Finance to each Ministry. The financial power has been decentralized to the ministries by an annual Budget Law, which i s approved by the National Congress. The Budget Law defines the budget ceilings for each ministry annually. Powers are delegated to the principal accounting officer who may exercise powers without consulting the Financial Adviser. CFAO may be consulted but his advice can be overruled by principal accounting office who may record reasons for the same. Financial powers delegated to ministrieddepartments may be further delegated by the administrative secretaries to offices subordinate to them without consulting the Financial Adviser. State Finances Law (17/2003) defines authority to exercise national fiscal management which shall be vested with the President. This authority to be delegated to Minister o f Finance, state ministers, heads o f institutions, governors, rural district Chief Executives, mayors.

2. Financial Adviser: Mandate, guidelines, powers, and role

How are Financial Advisers designated? What is the level of the FA post? India Financial Advisor and Additional Secretary or Financial Advisor and Joint Secretary.

Member Finance in Department of Telecommunications and Department o f Telecom Services; Financial Commissioner in Ministry o f Railways; and Financial Adviser (Defence Secretary). All these posts are o f the level o f secretary. Chief financial officer. Cabinet-level position. Finance Director (formerly Principal Finance Officer). Most are at Managing Director level (member o f the Board), but Finance Directors o f smaller agencies may be at Director level (but s t i l l attend Board meetings).

Canada Chief financial officer. Some are called Senior Financial Officers. Large departments: mostly at the level o f Additional Deputy Head. Medium-sized departments: at level of Director General. Small departments: at the level o f Director. Functional head o f the “controllership” function o f the federal government i s the

United States United Kingdom

31

How are Financial Advisers designated? What i s the level of the FA post?

Australia Chief financial officer. Controller General.

South Af r i ca Chief financial officer as head o f Finance Division. Level o f seniority o f chief financial officer i s determined by Accounting Officer. Chief financial officers are appointed at senior management levels o f Director, Chief director or deputy director general. Level o f seniority depends on size o f department. The Undersecretary o f Planning, Budget, & Management i s appointed by the Ministry as a part o f the Presidential Cabinet. This i s a political position, correlated to federal government political cycles. The Financial Adviser (Official Mayor) position was officially established after the Mexican Revolution in 19 17. Financial Advisor. Also post o f Deputy Financial Advisors. Every civ i l servant has an echelon (eselon) and a grade (golongan). The position o f Head o f Finance Bureau would have a rank similar to heads o f other

Brazi l

Mex ico

Pakistan Indonesia

I s there a dedicated financial minister for each ministry? India Some Financial Advisers have charge o f more than one departmenuministry. Uni ted States Uni ted K ingdom Canada Australia

South Afr ica Brazi l

Mex ico

Pakistan

Indonesia

Yes. Yes. Yes. Most Agencies have a Chief Financial Officer. In small agencies the role o f Chief Financial Officer i s often combined with the head o f corporate. Dedicated Financial Adviser for each department. The Brazilian Federal Government i s composed o f 23 ministries and each one has i t own Financial Adviser. Every Ministry has i t own Financial Adviser (Official Mayor). The federal governmental decentralized entities (such as oil, power state-owned companies) also have a CFO figure. Financial Advisers and deputy Financial Advisers have more than one ministry/division under them. Financial Advisers are based in the respective ministries. In cases with responsibility lies with more than one ministry, the Financial Adviser sits on one o f the ministries and delegates his deputy to each other ministry. Each line ministrv has i t s own Finance Bureau.

What i s the mandate of the Financial Adviser? India Executive mandate. Uni ted States Legislative mandate. Uni ted K ingdom Executive mandate. Canada Australia South Afr ica

Executive. N o specific legislation for Financial Advisers. Not derived directly from Constitution or statutes o f the country. Chief Financial Officers derive mandate from Treasury legislations which require them to assist accounting officer in discharging his or her financial management responsibility under PFMA Act. Mandate is derived from a Constitution law, the Organic Law o f Public Administration. Each ministry has its own internal guidelines that define responsibilities o f all senior positions, including the Financial Adviser. Fiscal Responsibility Law, including the operating manuals. Organic Law o f Public Administration. Financial Advisers are members o f the President’s cabinet.

Brazi l

Mex ico

Pakistan Executive mandate. Indonesia Executive mandate.

What are the guidelines or charter for Financial Adviser? India Redefined Charter June 2006. United States Un i tedKingdom

Guidelines issued by Off ice o f Management and Budge. The functions o f the financial director are set out in the Government Accounting Manual, 2000, Annex 4.2.

32

Mexico

Pakistan

What are the guidelines or charter for Financial Adviser? Canada Policy on “controllership” issued by the Treasury Board Secretariat, Canada dated

February 22, 1996. Major overhaul taking place and a new policy statement i s expected in FY2008. The move i s clearly toward the private sector CFO model. Not established by charter or act. Guidelines, developed by Finance: The role of the CFO - Guidance for Commonwealth Agencies, April 2003. National Treasury Guide on CFO roles and responsibilities. No Charter. Instruction Manual of Budgeting Execution and Fiscal Targets. Instruction Manual of Fiscal Risk & Fiscal Policy. Fiscal Responsibility Law, including operating manuals. Summary of accomplished fiscal targets. Public Service Law, which emphasizes public policy concepts such as planning, coordination, decentralization, delegation & control. Each ministry has i ts own internal guidelines that define responsibilities of all senior positions, including the Financial Adviser. Improvement Management Program. Manual of Administrative Process. General Model of Financial Advisors Structure Office Memorandum No. F.3 (2) Exp.IW2006 of September 2006. This i s only a modification of the arrangements originally designed in 1962 and the post of Section Officer (Finance & Accounts) / Finance & Accounts Officer then provided for in the ministries and has been upgraded with more elaborate functions. There i s no Charter. Ministries may issue their own regulations for structure of Finance Bureau and for job descriptions for i ts head and his immediate subordinates.

Australia

South Africa Brazil

Indonesia

Australia

Brazil

Mexico

What financial powers are delegated to Financial Advisers? India Financial powers are delegated by Ministry of Finance to administrative ministries.

Financial Adviser advises the administrative ministries to exercise delegated powers within General Financial Rules. Proposals beyond delegated powers are sent to Ministry of Finance for approval after obtaining FA concurrence. As per section 902 of Chief Financial Officer Act. Financial powers are delegated by Treasury to departments and financial director exercises this delegated authority only through the head of the department. Internal delegation by deputy head, not as per law. Delegation can vary between departments and agencies depending on size, complexity, degree of autonomy etc. Generally delegation for: Commitment Authority, Certification of receipts of goods and services, and Payment Authority. Most likely to be delegated exclusively to Chief Financial Officers (other finance officers)

i s Payment Authority. Financial delegations to the Chief Financial Officer generally cover: agency financial reporting and management aspects; collection, custody of public moneys; accounting, appropriations and payments, particularly approval of future spending proposals, entering into contracts etc.; borrowing and investment; control and management of public property; reporting and audit. PFM Act also makes provision for the accounting officer (head of department) to delegate (in writing) to the Chief Financial Officer any of the powers entrusted or delegated to the accounting officer in terms of the PFM Act or instruct Chief Financial Officer to perform any duties assigned by the accounting officer. Accounting officer normally delegates all his or her federal financial management responsibilities to Chief Financial Officer. Financial Adviser i s the Financial and Accounting Authority at the ministry. Activities include execute accounting process and develop financial statements; execute budget transfers under certain amount and within the same budget chapter; design the ministry’s annual budget; etc. Financial Adviser has full power to approve and exercise the ministry’s expenditure budget and provide periodic information to Ministry of Finance. Financial Advisers have the right to veto any of the Ministry’s management/financial initiatives that are against the policy framework or surpass the Ministry’s budget ceiling. Full power to approve and exercise the Ministry’s expenditure budget.

United States United Kingdom

Canada

South Africa

33

What financial powers are delegated to Financial Advisers? Power to negotiate next year’s budget with Ministry o f Finance. Power to execute budget transfers, only under certain amount and also within the same budget chapter.

Pakistan

Indonesia

Accounting process. Right to veto managemendfinancial initiatives which are against policy framework or above the budget ceiling. Financial Adviser has full powers to approve expenditure proposals and to accept budget provisions, except cases o f important issues o f policy to be submitted to Additional Secretary (Expenditure). Each line minister i s wholly responsible for the finances o f their respective ministry. In practice the minister delegates this to head o f Finance Bureau (KepaZa Biro Keuangan) but the extent o f such delegation i s solely at minister’s discretion. All l ine ministers appoint several specialist advisors (AhZi Menten’). They are not part o f the official organization and have no l ine management authority. Their authority and role are entirely at the discretion o f the minister. In some case they may be given a role (usually short term) which would otherwise have been given to the head o f Finance.

What are key roles of the Financial Advisers? India Budget preparation and execution.

Uni ted States

Uni ted K ingdom

Canada

Australia

South Af r i ca

Expenditure monitoring. FRBM-related tasks. Expenditure and cash management. Projecdprogramme formulation, appraisal, monitoring and evaluation. Leveraging o f non-budgetary resources for sectoral development. Oversight o f quality o f accounts and internal audit etc. Review o f financial management o f programmes/projects. Director on Board o f Public Sector Undertakings Responsible for financial management activities and processes including preparation o f annual financial statements, which are finally signed off by the Secretary. Active engagement with Office o f Management and Budget during budget process.

Monitoring and execution o f budget. Preparation o f resource accounts. Internal controls & risk management. Cash management and asset management. External audit (statutory): coordinating replies to National Audit Office. Resource generation strategies. Technological support for financial management systems. Financial director in charge o f procurement. Financial director supports the Accounting Officer, who is solely accountable to the Public Accounts Committee. Operational and financial planning and budgeting framework. Budget monitoring and execution. Maintenance o f accounts. Coordination role for cash management and asset management. Annual financial reports. Strategies for resource generation; ensuring technological support for financial management systems. Advice and challenge function for procurement. Chief Financial Officer supports head o f department to answer Public Accounts Committee. Budget development. Monitoring financial management indicators. Accounting, cash management, liaison and link between internal and external audit, etc. Planning and budgeting. Revenue and expenditure management. Asset and liability management. Accounting and reporting. Inputs for audit queries. Resource generation. Preparation o f strategic plan for the department. Risk assessments and implementation o f system o f risk management.

34

What are key roles of the Financial Advisers? SuDuorts head of deoartment in Public Accounts Committee hearings.

Mexico

*. - Brazil Planning, budgeting, accounting, financial management, controlling budget execution,

human resources functions, information technology, general services, etc. Financial Adviser i s responsible to accomplish the link between the budget process and expenditure execution with the national plans. Financial Adviser has a consultative role only in financial & administrative issues. Financial Advisers are not directly involved in the core or operating issues of each ministry. Planning, programming and budgeting. Executing expenditure and expenditure control. Financial reporting. Measuring performance of plandprograms. Treasury management. Internal Audits. Procurement process, evaluating expenditure process. Designing and implementing operating manuals.

Pakistan

Indonesia

Human resource responsibilities, IT improvements, managing public works. Supports operations of ministries & provide advice to the principal accounting officer. Current expenditure: Approval of expenditure and budget provision, scrutinize proposals for supplementary grant, re-appropriation of funds, submit proposals for creation of posts and Contingent Paid Staff to Additional Finance Secretary-Expenditure, write off of losses, representing Finance Division on committees, etc. Treasury, including drafting guidelines for financial administration, monitoring and evaluation of adherence to policies and regulations and administering appointment of financial staff in satkers. Budgets and maximization of non-tax revenues, including facilitating approval of annual budget (DIPA). Note; Bureau of Finance i s not responsible for annual planning and budgeting, which i s the responsibility of another Bureau, Planning and Foreign Aid Cooperation (Perencanaan/KLN)). Verification and accounting, and preparation of budget realization reports, balance sheets. Supervision and technical development of state-owned enterprises.

What i s the major review of F A role in recent years? India Eshwaran Committee Report on Role of Financial Advisors, 1996.

NIFM Workshop in June 2005 on Role of Financial Advisors. Redefined Charter issued in June 2006. AGA conducts annual survey. 2006 survey: too much emphasis and resources spent on annual financial statements and their audit, and need to focus more on analysis and other value added work. 2005 survey: focused on internal controls.

Role under major review and new policy i s expected in 2008. The Comptroller General conducts ongoing reviews of the function as an integral part of hisher role in the policy making process. The Federal Accountability Act has enhanced the responsibilities of the deputy head for financial management. The deputy head being the accounting officer of the department, the CFO policy i s evolving in line with this new requirement under Financial Accountability Act. Study on Modernizing Financial Management in Government conducted by an NGO. A benchmarking study, Beyond Bean Counting: Effective Financial Management in the Australia Public Service-1998 & Beyond, examines adoption of accrual accounting throughout the Australian Public Service was undertaken in 1997. Follow on study on benchmarking in 1999. Auditor-General reported results of a study on analysis of the chief financial officer function in Commonwealth organisations - benchmarking study. No review after June 2000 when CFO position was established.

Budgetary Goals Follow-up Program (Feb 2007). Management Improvement Program. Manual of Administrative Processes. General Model of Financial Advisors Structure.

United States

United Kingdom No. Canada

South Africa Brazil Not applicable. Mexico

Australia

35

What i s the major review of FA role in recent years? Pakistan There have been periodic revisions since 1962 in order to strengthen the financial control

and budgeting setup o f the administrative ministries, and also there have been revisions o f delegated powers to the ministries. Except for foreign exchange budgeting and service regulations, Financial Adviser performs al l other functions o f the Ministry o f Finance in relation to the assigned administrative ministry. Major changes have taken place from 2004 to 2006, which have affected the role o f head o f Finance Bureau. While structural position o f this post within the l ine ministry has not been much affected, the structures and responsibilities o f the various sections he/she manages have been adjusted significantly wi th both consolidation and separation o f roles. Most significant are the new financial systems and procedures which head o f Finance must ensure that they are followed by all financial staff in the Ministry.

Indonesia

Were there changes in the key roles of Financial Adviser in recent years? India Redefined Charter issued in June 2006.

Uni ted K ingdom No. Canada

United States -do-

Trend in public sector to change the role in line with the role in private sector. And for Chief Financial Officers to provide long-term advice and contribute to business decisions. Greater emphasis on financial management skills. Chief Financial Officers taking a more dominant role in and accountability for financial results. Chief Financial Officers are far more integrated into broader activities o f the agency now than when the role was f irst established.

Since August 2005, the Financial Adviser i s obliged to have an internal affair department in hisher management structure. Use o f S I A F I budget and spending exercise control. In 2000 the Federal Administration emphasized FA involvement in improving management quality and administrative processes. In 2007 (New Presidential administration): link between expenditure process and social impacts, budgetary goals and expenditure efficiency.

Australia

South Afr ica No. Brazi l

Mex ico

Pakistan Not material changes.

3. Financial Adviser: Reporting, accountability, and assessment framework

I s there any conflict in reporting by Financial Advisers? Dual reporting to administrative ministry where Financial Adviser is posted and to Ministry India

Uni ted States

Uni ted K ingdom

Canada

o f Finance. Chief Financial Officer reports to the Secretary o f the agency and i s also in constant communication with O M B (while not “reporting” to them). As both the agency Secretary and Chief Financial Officer receive overall strategic directives and management guidelines from OMB, i t i s expected that there will be minimum divergence o f views in preparing budgets and once appropriations are passed, both functionaries work within the parameters o f O M B guidelines. Apart from reporting to head o f department‘ministry, financial director reports to the Management Board o f hisher department, and subcommittees o f the Board (such as for audit, finance and risk). Head o f department as Accounting Officer takes responsibility for a l l outcomes o f Board decisions, so there can be no ‘conflict’ wi th financial director. On spending decisions, the financial director takes a critical ‘challenging’ role and argues the case against spending. I f accounting officer and financial director differ on questions o f judgment, the financial director defers to the accounting officer. If accounting officer and financial director differ on questions o f financial propriety or accounting policy, financial director can ask the Chairman o f the Agency’s Audit and Risk Committee or the Treasury to intercede. Head o f Department i s the only reporting officer for Chief Financial Officer. Chief Financial Officer has a responsibility to respond to the Departmental Audit Committee.

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I s there any conflict in reporting by Financial Advisers? Chief Financial Officer i s indirectly accountable to Treasury Board Secretariat and

Australia

comptroller general in discharging their mandates with respect to professionalism in financial management. In case o f CFO advice not being accepted by the deputy head, Chief Financial Officer must seek the opinion and advice o f deputy comptroller general, failing which the Chief Financial Officer requests deputy head to seek the advice o f comptroller general. Each deputy head defines reporting requirements for hisher department and i t varies depending on size o f complexity o f the department. The job description o f the Chief Financial Officer provides this information. Job Descriptions are not always public documents. Chief Financial Officer i s accountable to the agency Chief Executive. Chief Financial Officer i s not placed in the agency by Finance. Chief Financial Officer has a direct and accountable reporting line to the Chief Executive, however, administratively the Chief Financial Officer may be a direct report to another position in the agency. Chief Financial Officer provides financial reports to many officials o f an agency, however, the role reports to the Chief Executive or an agency program manager. In agencies, the role also reports to the senior executive management group that, while not a ‘board,’ advises the Chief Executive on organizational matters. For statutory bodies the Chief Financial Officer provides reports to the board o f directors.

Brazil

Under the F M A Act, finance orders and various guidelines, information, and reports are provided to Finance by the Chief Financial Officer. However, this information i s provided on behalf of the Chief Executive o f the agency and not independently o f the Chief Executive. Therefore conflicts, if they arise, are resolved within the agency before any reports are provided to Finance. Chief Financial Officer i s directly accountable to accounting officer while hehhe may report administratively to another incumbent. Chief Financial Officers do not report to another parent departments other than their own, but submit financial reports and other returns to the relevant treasury, as required in terms o f legislation. Financial Advisers only reports to their own ministry and has a strong relationship with the ministry since appointed by the ministry. Financial Advisers are not employees o f Ministry o f Finance, but have a major role o f coordinating with the Ministry for annual budget proposal, execution o f budget through SIAFI, etc. Dual reporting to own ministry and also to the Ministry o f Finance. In recent years Financial Adviser i s also required to report on performance against goals and objectives to the Presidential Office. Financial Advisers directly report to the additional finance secretary (Expenditure), Ministry o f Finance and also participate in meetings called by the Finance Secretary and the Finance Minister occasionally. Reporting by Head o f Bureau i s direct through Secretary General to the Minister. Hehhe has no direct or functional responsibility to any agency outside the line ministry - such as Finance - other than to comply with the financial reporting systems which have been formally laid down.

South Africa

Mexico

Pakistan

Indonesia

How are Financial Advisers made accountable? India Quarterly reports to and periodic interactions with Ministry o f Finance.

Preparation o f regular reports on the financial performance o f the administrative ministry. United States Performance o f both the departmental secretary and the Chief Financial Officer i s

indirectly evaluated by OMB through ‘balanced scorecard’ method that uses financial indicators. The Secretary does not write the CFO performance appraisal separately.

UnitedKingdom By Annual Performance Review. This may include various agreed indicators o f

Canada

Australia

- performance, such as financial break even (where this i s part o f the agency’s obligation), submission o f audited accounts to Parliament before it goes into summer recess, clean audit reports, etc. Formally: annual performance appraisal by the deputy head. Ongoing accountability: audited financial statements, periodic reports prepared for central agencies, and performance/compliance audits conducted by the Auditor General, the Internal Auditors, etc. Chief financial officers in agencies are on Australian Workplace Agreements which detail

37

How are Financial Advisers made accountable? their duties, responsibilities and accountabilities, and include performance assessments on a six-month basis. Poor performance can result in sanctions being applied.

South Af r i ca Through deliverables, as captured in the department’s strategic plans, performance agreements, delegations o f authority and audit outcomes.

Brazi l Financial Advisers are required to submit a daily, monthly, quarterly, semester, & annual financial report to Ministry o f Finance. Financial Adviser submits a performance report to ministry showing correlation between budget and execution. Disclosure & Transparency Law oblige the Financial Advisers to provide any information related with their duty. Ethics Policy Law. Internal affair area has the authority to impose disciplinary measures on the Financial Adviser. Financial report to administrative ministry every 15 days. Financial reporting to Ministry o f Finance for each month, quarter, semester and year.

Mex ico

Pakistan

Indonesia

Annual report to National Comptroller Bureau on performance against strategic goals. Report to Presidential Office for each quarter and year. Provision o f information under the Law o f Transparency and Disclosure o f Public Information. Financial Advisers are required to work according to their delegated powers and consult additional finance secretary (Expenditure) for cases beyond their own powers The Head o f the Finance Bureau (Kepuh Biro Keuungun) i s accountable only to his Secretary Generalhlinister. There i s no system for accountability by, or assessment o f performance of, the Bureau, involving outside agencies such as Ministry o f Finance, other than the requirement to comply with all standard systems and procedures.

What i s the system for review of F A work? Redefined Charter mentions Annual Reports as wel l as Quarterly Reports. India

Uni ted States

Uni ted K ingdom

Canada

Australia

South Africa

Brazil

Mexico

Pakistan

Performance o f both the departmental secretary and the Chief Financial Officer i s indirectly evaluated by O M B through ‘balanced scorecard’ method that uses financial indicators. The Secretary does not write the CFO performance appraisal separately. Depends on the head o f department. Normally includes monthly out-turn reports and management accounting papers. Financial director reports to Management. Board o f Department and subcommittees o f the Board (audit, finance and risk).

Deputy head does the annual performance review o f chief financial officer. Ongoing oversight o f the Controller General. All information and reports o f an agency to Finance are subject to internal quality assurance processes o f the agency. External reports prepared by finance group are subject to quality assurance by the head o f Corporate or a deputy Chief Executive. Through quarterly reports to accounting officer on progress achieved against strategic plans and reasons for deviations. Budget execution according to the ministry’s annual budget, avoiding budget deficit or under execution o f the budget. Accurate and updated use o f the Integrated Accounting Systems (SIAFI). Budget execution link with national programs & policies. Transparency & disclosure practices. Ongoing management activities, avoiding failures in procurement process, I T systems, union problems, etc. N o systematic review o f FA performance. In practice, F A work i s measured by proper execution o f budget, avoiding management and operational failure, avoiding corruption action reports from the National Comptroller Bureau directly to the Financial Adviser or their staff. Submission o f files/proposals by the Financial Adviser to Additional Finance Secretary (Expenditure), FA participation in the meetings, and feedback from the respective ministries form the basis for review o f F A work.

Indonesia There is no formal review system, only normal day-to-day supervision.

38

What i s the assessment framework? India Assessed as per framework applicable to government staff.

Annual Confidential Report i s written by secretary o f administrative ministry, countersigned by DOE (MoF) secretary, reviewed by Minister o f Finance, and accepted by minister o f the concerned ministry. Performance o f both the departmental secretary and the Chief Financial Officer i s indirectly evaluated by OMB through ‘balanced scorecard’ method that uses financial indicators. The Secretary does not write the CFO performance appraisal separately. N o assessment framework, only Annual Performance Report. The FD Annual Performance Report i s prepared by the head o f department or, sometimes by the financial director and reviewed by head o f department. The financial director can ask for ‘stakeholder reports’, Le., testimonials from other officers, including Treasury officers, with whom hehhe has worked during the year. The Treasury has no formal input, and the Annual Performance Report does not go outside

United States

United Kingdom

Canada Australia

Brazil

the agency. Normally all financial directors have job descriptions. Accountability profile agreed between the deputy head and the Chief Financial Officer. Each Chief Financial Officer works under an Australian Workplace Agreement, which details the assessment framework. This framework includes both performance bonuses, salary at risk, and sanctions for poor performance. A six-month performance assessment i s undertaken by the CFO direct report. In some cases, depending on the size o f the agency, this assessment i s undertaken by the Chief Executive o f the agency. Assessment framework includes annual conclusion o f performance agreements, mid-year performance reviews and eventually performance assessments. Annual performance agreements are contained in the performance agreement that the Chief Financial Officer enters into with the accounting officer. Performance review i s written by the accounting officer. Financial Advisers do not have a performance review or competency assessments. Performance i s measured by: Accurate functioning o f the Integrated Accounting Systems (SIAFI). Achievement o f national, sectoral, & regional plans and target. Timely consolidation o f financial balance of the ministry. Federal system does not provide an assessment framework. Ministry o f Finance can evaluate FA work according to quality and timing of financial reports. The Ministry evaluates the FA work according to h isher capacity to solve operational and financial problems, and also whether Financial Adviser strictly follows the legal framework. Based on FA performance in day-to-day work, h isher Annual Confidential Report i s written by Additional Finance Secretary (Environment) and countersigned by Finance Secretaryminance Minister.

South Africa

Mexico

Pakistan

Indonesia None.

4. Financial Adviser: Selection, eligibility criteria, incentive structure, tenure, and career development

What i s the FA selection process? India List o f empanelled officers for the post o f joint secretary i s reviewed by Minister o f Finance

and sent to respective departmental minister. After approval by the minister, the l is t i s sent to Cabinet Committee for Appointments. Cabinet-level position i s appointed by President on advice and consent o f Senate, with respect to agencies described under CFO Act, subsection (b) (1). Chief Financial Officers in agencies as defined in CFO Act, sub-section (b) (2) are career appointees from the competitive service or the senior executive service, and are appointed by the head o f the agency concerned. The US Chief Financial Officer i s therefore a key political appointment with a strong legislative basis. The deputy Chief Financial Officer i s normally from a career civil service and i s not a presidential appointee. Each agency (ministry, department, autonomous bodies) advertises and recruits as per central guidelines. The Treasury (Chief, Government Finance Profession) usually comments on the candidates

United States

United Kingdom

39

What i s the FA selection process?

Canada and may be invited to si t on interview panel if the agency needs further technical inputs. Deputy head can appoint the Chief Financial Officer in consultation with the Comptroller General. Government o f Canada rules regarding fairness associated with hiring decisions are applicable. Candidates are subject to competition and can come from the private sector or

Brazi l

Mex ico

Pakistan

Indonesia

elsewhere. All positions are advertised (at least internally in the agency) and, on occasion, externally and are subject to centrally established merit process. Position i s advertised in the media and a shortlist i s compiled based on j ob requirement. Selection committee interviews and competency tests may be conducted. Reference checks, credit and criminal record, qualifications and security clearance may also form part o f selection process. Selection committee makes recommendations to accounting officer/minister or delegated official for approval. Financial Adviser is appointed by the Ministry and is part o f the Presidential Cabinet. Ministry o f Finance does not interfere in the process. FA selection i s not advertised and is not based on interview process, competency exam, etc. Appointed by the Ministry o f Finance, and it i s a political position. N o explicit or public selection mechanism. Candidate i s proposed by each ministry and final authorization i s given by the Presidential Office. The Ministry o f Finance has a veto over the FA candidates, more as a common practice, not supported by law. Financial Adviser i s a Joint Secretary o f Ministry o f Finance or o f other ministries or an officer o f equivalent rank belonging to the Audit and Accounts Services who can be posted as an Financial Adviser. However, their academic background and relevant experience i s

Australia

South Af r i ca

considered before posting as Financial Adviser. Standard c iv i l service selection procedures apply. The Bureau o f Personnel (Biro Kepegawaian) in each line ministry maintains records for all staff. This allows i t to monitor their career progression and also enables i t to assist in identifying suitable persons when vacancies arise. In this context. there is no difference between the treatment o f finance sDecialists and other

Are Financial Advisers part of the accountslfinance cadre of government? India Some Financial Advisers are selected from accounts cadre. Uni ted States Uni ted K ingdom

Some Chief Financial Officers are selected from public sector. N o separate accounts/finance cadre. All financial directors are part o f the c iv i l service structure. The Government Finance Profession i s a professional association, not a cadre. In the past, they could come from the administrative cadres but increasingly the financial management stream i s becoming the dominant source. N o cadre per se, and most financial officers belong to a professional association o f government financial managers. The Chief Financial Officer should be professionally qualified via a full membership o f a relevant recognized professional body, such as the Institute o f Chartered Accountants in Australia (ICAA) or CPA Australia, or their international equivalents, or have significant , demonstrated expertise in financial management, whether through formal qualifications or

Canada

Australia

South Af r i ca

Brazi l

practical experience. Chief Financial Officers are appointed head o f Finance Department and therefore form part o f accounts/finance cadre in government. Financial Advisers are part o f Finance Division o f each ministry, and therefore most o f the Financial Advisers are part o f accounts & finance cadre. F A responsibilities also include other issues, such as human resources, IT, etc., so some Financial Advisers can also belong to other cadres, such as administrative or public policy. Most Financial Advisers belong to accounts/finance cadre. Some Financial Advisers belong to other cadres, such as engineering, public administration, etc. Financial Advisers in Navy & Army Ministries mostly belong to military cadre.

No. Such ‘cadres’ apply to all c iv i l servants and will be grouped according to the l ine ministry/institution to which they are attached.

Mex ico

Pakistan Not exclusively. Indonesia

40

I s there a un i fo rm system of Financial Advisers in all ministries/departments (eligibility criteria,

Canada

Australia

designation, etc.)? India

United States

United Kingdom

Financial Advisers in some ministries (e,g., Member Finance in Telecom) are from accountshinance cadre. As per Section 901 of CFO Act the recruitment system seems to be uniform with regard to eligibility, criteria etc. Each ministry follows i ts own procedure. Central guidance prescribes general principles o f competition and fairness in recruitment, not necessarily detailed rules. Civil Service Commission sets guidelines for the designation, selection process, etc. for the post o f financial director. Generally uniform principles apply. The agencies o f the Government that are separate operating agencies have greater flexibility in terms o f offering higher pay compared to core line departments. Agency heads have rights, duties, and powers o f an employer and each agency has developed processes that best meet its requirements. Overall processes must comply with a variety o f legislative requirements, including the Public Service Act 1999. Unified system o f recruitment o f Chief Financial Officers in all public sector departments. Eligibility criteria for Financial Advisers are consistent and uniform across the ministries. No uniform criteria but some uniformity in profile. Selection depends on sound technical background, a proven reputation, and belonging to the Ministry’s political group. In terms o f functions, yes. Even in Ministry o f Defense, the system of Financial Adviser i s similar to the non-Defense side. No. Each ministry makes i ts own appointments applying i ts own criteria.

South Africa Brazil Mexico

Pakistan

Indonesia

What is the qualification and experience required for the FA post? Whi le urevious exDerience in finance i s considered, candidates are selected form both finance India

United States

United Kingdom

Canada

Australia

South Africa

Brazil

Mexico

and adhnistrative’backgrounds. CFO Act does not specify the exact qualifications required for the position. It states that the individual must have “extensive practical experience in financial management practices in large governmental or business entities.” Since 2003, it has been the norm for a financial director to be a qualified accountant, as well as be a university graduate. At December 2006, 91% o f government expenditure fe l l within the purview o f qualified accountants, and i t i s expected that this wil l soon rise to nearly 100%. FA candidate should have a university degree and a professional qualification. Experience in financial management o f comparablesized organizations. An accounting/finance qualification i s increasingly an eligibility criteria. Chief Financial Officer must sign off the financial statements and increasingly provide assurance on the internal control arrangements o f the entity. Chief Financial Officer should be professionally qualified via a full membership of a relevant recognized professional body, such as the Institute of Chartered Accountants in Australia (ICAA) or CPA Australia, or their international equivalents, or have significant demonstrated expertise in financial management, whether through formal qualifications or practical experience.

Recommended that Chief Financial Officers have qualifications o f Bachelors in Commerce, Master o f Business Administration, Chartered Accountant or Certified Management Accountant as the minimum professional qualifications. Appropriate experience also necessary. Not mentioned in law or manuals. Although not stated explicitly in law, the position requires a degree or a Master’s degree in accounts, public finance or finance, or business administration; or a similar degree. No regulatory framework to define qualification or experience. Candidates do not have to appear for exams. Most Financial Advisers have a high-level education, such as an under degree or degree. In most cases Financial Advisers are rotated from one ministry to another.

41

What i s the qualification and experience required for the FA post? Pakistan Financial Adviser i s a Joint Secretary o f Ministry o f Finance or o f other ministries or an

officer o f equivalent rank belonging to the Audit and Accounts Services who can be posted as an Financial Adviser. However, their academic background and relevant experience is considered before posting as Financial Adviser. There are no guidelines or standard criteria on this subject. For example, the Ministry o f Public Works has appointed an engineer as Head o f the Finance Bureau.

Indonesia

Are Financial Advisers selected from the private or public sector? India Public sector. Uni ted States

Uni ted Kingdom

Canada

Australia South Af r i ca Brazi l

Mex ico

Pakistan

Indonesia

Both the public and private sectors, with a slight bias towards private sector; and there i s a fair amount o f two-way mobility. Almost all federal Chief Financial Officers have experience o f public sector and private sector. Most financial directors are recruited from the private sector. Public sector experience is “useful but not essential.” Very few financial directors have been promoted from Civ i l Service. Open to people with requisite qualifications regardless o f sector. While there i s no finance cadre per se increasingly Chief Financial Officers are from financial management stream. Open to applicants o f both private sector and public sector. Open to both public sector and private sector. Financial Advisers are mostly from public sector but recently there are more cases o f Financial Advisers from private sector. Mainly from public sector but in recent years cases o f Financial Advisers joining from private sector are more often being observed. Generally public sector background. Experience o f private sector can only be incidental. All staff appointed to Finance Bureau positions, including Head o f the Bureau, would be from public sector, i.e., promoted from another c iv i l service position.

What s k i l l set i s required for the FA job? India Experience in finance may be considered. United States Management accounting, budget formulation, performance auditing, and implementation o f

internal controls etc. United K ingdom Financial management experience at a senior-level and ability to manage a team. Canada Financial management, accounting, auditing, and internal control, as these relate to

comparable large organizations along with skills o f managing people. Australia Technical competence & comprehensive understanding o f governing legislative framework.

Capacity to interpret, analyze, and present financial performance. South Afr ica Should be technically trained.

Skills in financial accounting, management accounting, internal control; internal and external audit, information systems, economy, etc.

Brazi l Negotiations skill, management skills, communications ski l ls , planning and budgeting, analytical skills, knowledge o f information technology, and management.

Mexico Skills o f negotiation, management, communication, planning, budgeting, analysis, accounting, finance, management o f human resources and information technology.

Pakistan Expected background in financial management. Indonesia There are no guidelines or standard criteria on this subject. For example, the Ministry o f

Public Works has appointed an engineer as Head o f the Finance Bureau.

What incentive structure exists for the FA post? India As per grade for the post (joint secretary, assistant secretary or secretary). United States As per government rules. United K ingdom Determined by negotiation with the selected candidate. Canada Recognition for good performance is a value across Government and good performance i s

rewarded in more than monetary term. Australia Performance Linked Remuneration.

While each individual’s performance plan i s unique, the reward system is standard across the public sector. As per standardized incentive structure for senior management in government, including granting o f annual increases and awarding o f performance bonuses. As per standardized incentive structure.

South Afr ica

Brazi l

42

What incentive structure exists for the FA post? Mexico Financial Advisers have a fairly good income, fourth level o f income after the Nation’s

President. Pakistan As per the post ofjoint secretary in the government. Indonesia The head o f Finance Bureau holds a position which i s ranked as “Eselon 11” and enjoys the

same statusbenefits as the holders of similar level positions outside finance.

What i s the stability of tenure in the FA post? India United States

Maximum o f five years in one departmendministry. At the pleasure o f the President. In practice the average tenure o f the Chief Financial Officer in a federal departmendagency i s about 18-24 months. Tenure depends on the contract. N o system o f compulsory transfer after a fixed period but financial directors can apply for transfer. Stable tenure but getting shorter due to pressure to replace unqualified Chief Financial Officers with qualified ones post Sarbanes-Oxley Act. Auditor General’s 2001 benchmark study reported average years o f service o f Chief Financial Officer as one-and-three-quarter years. N o compulsory transfer. In most cases, employed on permanent basis. In some instances Chief Financial Officers appointed on contractual basis for a fixed period. The Financial Adviser i s part o f the Presidential Cabinet and i s likely to be removed after the Presidential t m i s over. The position does not have a stable tenure. Financial Adviser not p’art of the Civil Service Program Political position and hence, very fragile, as when the Minister i s removed or a new political party comes into power most Financial Advisers are removed. In the best scenario, Financial Adviser can last for a six-year period, which i s the Federal Government period.

Pakistan There i s no fixed term, but generally the posting in one ministry may last 2 to 4 years. Indonesia All civil servants at any given grade enjoy the same degree o f stability.

Most civil servants spend their entire working lives in one ministry or institution. I t i s most unusual to move from one ministry to another, except for appointments at a very senior level.

United Kingdom

Canada

Australia

South Africa

Brazil

Mexico

India What i s the career development for the FA job?

Financial Advisers may be promoted to the next level (e.g., from joint secretary to assistant secretary) or may move to a larger department as Financial Adviser or another non-finance

United States

United Kingdom

Canada Australia

South Afr-ica

Brazil

Mexico

Pakistan Indonesia

position. N o assured career progression. Promotions and appointments to higher positions are through open competition. A financial director at director level can be promoted to managing director and can become permanent secretary in open competition, or financial director in a larger agency. Promotions could be lateral or horizontal. Movement by Chief Financial Officers can be both lateral and vertical. The decision rests with the way in which a Chief Financial Officer wishes to manage hisher career. Opportunities exist to move as Chief Financial Officer to a larger department or a higher level o f seniority. Chief Financial Officers wishing to move out of finance cadre may opt for higher positions out of finance stream. Financial Adviser can be appointed in some other position at the same ministry, same position at a different ministry or can be moved to Ministry of Finance. Most Financial Advisers remain in public sector. Some former Financial Advisers work in private sector, such as banks, consulting or accounting f i rms, or in academic sector such as research organizations or universities. Career development o f Financial Adviser i s affected by political cycles. Financial Adviser may move to same post in another ministry, continue a political career as a federal or state congressman, become a staff member o f a ministry or work in public service at federal or state level. Same as any other joint secretary. Career development for all civil servants i s almost always within the same ministry. They expect io move from one grade (golongan) to the next as their career develops. Promotion to the next Eselon however i s a major step achieved by only a few. (Eselon I i s

43

What i s the career development for the F A job? director general, Eselon ZZ i s director or head o f a bureau). N o special arrangements or conditions for those in finance.

How i s the F A career stream managed in the Civil Service? India Uni ted States Uni ted K ingdom

Canada

Australia

South Af r i ca

Brazi l Mex ico Pakistan Indonesia

As per rules o f government service. No system o f automatic promotion in civ i l service (federal) jobs. Civ i l Service Commission sets guidelines for designation, selection process etc. for the post o f financial director. Career stream governed by Public Service Commission monitors compliance with public service norms /regulations. Career planning i s primarily an individual responsibility, but each organization, as part o f the performance plan discussions, would work through career options wi th all agency staff. This i s not limited to Chief Financial Officers. Depending on the current level o f Chief Financial Officers, the progression could be from director, chief director, deputy director general and director general. Financial Advisers do not belong to Civ i l Service. Financial Advisers are not subject to C iv i l Service Program since this is a political position. Managed within the Ministry o f Finance. Career development for all c iv i l servants is almost always within the same ministry. They expect to move from one grade (golongan) to the next as their career develops. Promotion to the next Eselon however i s a major step achieved by only a few. (Eselon Z i s director general, Eselon ZZ i s director or head o f a bureau). N o special arrangements or conditions for those in finance.

5. Financial Adviser: Capacity building and ongoing professional development

How are the F A training needs assessed? India Uni ted States

Assessed by Ministry o f Finance. As per Section 302 o f CFO Act, Chief Financial Officers Council meets periodically. Sub-committees o f the CFO Council may discuss training and capacity development needs o f Chief Financial Officers. Financial directors are qualified professionals, normally subject to schemes of continued professional development. Their sk i l l s are assessed in the recruitment process. Chief Financial Of fcer i s responsible for determining hisher own needs. Professional development i s driven by the requirements o f their profession (chartered

United K ingdom

Canada

Australia

South Af r i ca

Brazi l

Mex ico

accountant, certified management accountant, certified general accountant, etc.) along with Government o f Canada requirements for senior executives. On the job training via regular exchange o f information (Comptroller General providing the leadership) i s also seen as vital for career development. As part o f the discussion to establish an annual performance plan for the Chief Financial Officer and finance group staff, development and training needs are discussed. The agreed training needs then form part o f the performance plan, and progress against the agreed plan i s discussed on a six-month basis. Normally highly qualified and experienced finance practitioners. Training needs identified during competency assessments and performance review appraisal process and development plans are developed, which form part o f their performance agreements and training interventions are identified. South African Management Development Institute i s charged with public sector training. Financial Advisers have high level o f financial management s k i l l s and therefore their training needs are quite low. The National Public Administration School is responsible for designing training programs for Financial Advisers. Training internship in SIAFI program. Update internship program o f budget transfers. Training course in management, budget, finance & procurement at federal level. No formal training program for Financial Advisers. Only formal training programs are given by the Ministry o f Finance for financial reporting and also by the Presidential Office, mainly for strategic planning. Financial Advisers are a very uni f ied group. The group has frequent informal meetings

44

How are the FA training needs assessed? for exchange o f experiences and good practices, which helps in standardization o f practices. There is an obligatory training in the Administrative Staff College for all joint secretaries. Financial Advisers are also sent for training courses abroad by Ministry o f Finance on a case-to-case basis. Assessment throughout civi l service is sole responsibility o f each line manager. Training courses covering general management and administration provided b y a center incorporated in each line ministry.

Pakistan

Indonesia

Specific technical training for key financial staff in line ministries was provided by Ministry o f Finance when new financial systems were introduced (2005/2006).

What new areas have been identified in recent years for FA s k i l l development? As per documents o f NIFM workshop in 2005, government accounting, commercial India

United States

United Kingdom

Canada Australia

South Africa

Brazil

Mexico

Pakistan Indonesia

- - accounting, project appraisal, financial analysis, corporate governance, etc. Linking performance to accountability. Improved internal controls o f Sarbanes-Oxley legislation. Cost accounting. Performance auditing. Specialty accounting (for asset management, debt management, etc.). Accelerated reporting. N o new areas since introduction o f Private Finance Initiative in 1992. developments in technology require constant updating o f ski l ls. Enterprise risk management and internal control certification. The emerging training issue i s the need to develop the ‘soft ski l ls ’ necessary for an effective manager and leader o f people. The Australian Public Service Commission has developed an expansive program covering the core criteria of effective leadership, and these drive the training in this area. In 2003 National Treasury identified areas for skil l development for senior civil servants, including Chief Financial Officers: strategic planning and budgeting, In-year management monitoring and reporting, Internal control and risk assessment, internal audit and audit committees. This led to rol l out o f 8 courses for 243 financial officers by training providers engaged by National Treasury. Information technology, program budgeting process, strategic planning, internal controls, budget target accomplishment systems. FA position i s very conservative and activities have not changed for many years. In recent years trends in public policies have moved towards developing new ski l ls information technology, expenditure efficiency, strategic planning, transparency, and disclosure. Training in financial management i s being emphasized more and more. Implementation of new financial systems has demanded upgrading of sk i l l s for affected finance s t a f f at all levels o f line ministries. Preparation o f each ministry’s reports - Budget realization, Balance sheet and cash flow as per standard formats, changes in payment procedures, and reconciliation of records of Ministry of

But continuous

. . Finance and line min is t ies.

I s there a system for ongoing FA professional development? India United States Self directed. United Kingdom

Financial Advisers attend one-off courses and workshops, e.g., NIFM-conducted courses.

Within the Professional Ski l ls for Government initiative, financial directors are required to follow structured continuing professional development throughout their careers. Most professional bodies organize continuing professional development for their members. Several training institutions, including the National School for Government.

Ofice of Controller General i s the leader. No dedicated agency. Forum for exchange of information by Financial Advisers i s meetings and conferences organized by the Comptroller General. Each agency i s responsible for professional development of their own staff, although Finance does take a ‘whole o f government’ approach and provides opportunities for training on specific subjects, such as new initiatives.

Canada Mainly self development.

Australia

45

I s there a system for ongoing FA professional development? South Africa Responsibility o f accounting authority.

Professional bodies such as Institute o f Public Finance and Auditing (IPFA), South Afiican Institute of Chartered Accountants (SAICA), and Charted ’ Institute o f Management Accountants arrange seminars and workshops for members. Every ministrqi i s responsible for design and implementation o f an annual training program for senior staff, including the Financial Advisers. Ongoing professional system includes an evaluation mechanism of F A performance. The F A group has a non-official, self-training program in which they hire prestigious academic institutions to deliver training in fields such as finance, management, human resources, IT, regulatory framework, etc. These programs are not compulsory. There are occasional training workshops both at home and abroad. There are no nationally prescribed systems for development o f sk i l ls of financial staff.

Brazil

Mexico

Pakistan Indonesia

6. Finance Division: Structure, staffing capacity building, anuals/guidelines and reports

Who are key employees of Finance Department reporting to the Financial Adviser? What i s the structure of the Finance Division? India Chief Controller o f Capital Accounts or Controller o f Accounts who may report to more than

United States

United Kingdom

Canada

Australia

South Africa

Brazil

Mexico

Pakistan

Indonesia

one Financial Adviser. Integrated Finance Division o f ministry/department usually has a director and assistant directors. There i s a system of desk officers in Integrated Finance Division. Generally headed by Chief Financial Officer, with a deputy Chief Financial Officer and several career finance staff. Structure o f Finance Division varies in departments. Head o f group accounts or chief accountant reports to financial director and may act in the absence o f financial director. No standard structure and structure varies a lot in departments. Each department organizes its own Finance Directorate. Large departments include a deputy Chief Financial Officer and director generals o f each of various directorates within the CFO branch. Activities o f most finance groups are similar, but they are structured differently in terms of number and titles of staff. Recommended structure for Finance Division includes 3 officials reporting to finance adviser: financial accounting; management accounting; and supply chain practitioners. Smaller departments have combined the positions o f financial accountant and management accountant. No deputy Chief Financial Officer in finance department. General Coordinator o f Budget & Finance. General Coordinator o f Human Resources. General Coordinator for Management & Innovation. General Coordinator o f Information Technology. General Coordinator o f Logistics & Infrastructure. The Manger o f Budget Execution reports to the General Coordinator of Budget & Finance. General Director o f Programming & Budget (DGPP) responsible for all finance, budget, and accounting issues at the F A office. DGPP structure includes directors for programming & budget; expenditure control; payroll and pensions; accounting; financial analysis & public account; planning & institutional development; institutional process & modernization; and information technology. Chief finance and accounts officer (CFAO) - rank o f joint secretary or depufy secretary accountable to and reports to principal accounting officer. CFAO coordinates with the Financial Adviser’s organization. CFAO to have ‘such supporting officers and staff as necessary.’ CFAO to tender advice to the principal accounting officer in the delegated field. A typical ministry may have section heads for treasury, budgetshevenue maximization, verification and accounting and supervision o f state-owned enterprises. At the next level down (e.g., director general) there i s a Finance Section.

What i s the professional backgroundqualifications of key staff of the Finance Division? India CCNCA i s from Indian Civil Accounts Service but other staff o f Integrated Finance Division

46

What i s the professional backgroundqualifications of key staff of the Finance Division? may or may not have professional qualifications and background in accounts/ Finance. Since they are required to be recruited through accounting / finance stream, they are expected to build on their basic qualifications by acquiring further professional certification. No general policy, but qualified accountants are expected at two levels below financial director. Training depends on post. Finance staff are trained in finance, procurement staff are trained in procurement, etc.

Determined at the time o f staffing action and influenced by the priorities o f the day. A professional qualification i s increasingly required. No required professional qualifications for support staff. However, accounting qualifications are highly desirable. Staff required to be trained in finance. It i s recommended that finance staff have formal post matric (grade 12) qualifications in finance, such as National Diplomas or Bachelor’s degree. Professional background in economics, accounting and public administration. Key F A staff have a under degree or degree. Staff positions are subject to selection criteria for civil service. Al l F A staff, including the General Director of Programming & Budget, are part o f Civil Service Program and selected competitively. Selection depends on proven experience and academic grades in areas such as public administration, finance, accounting, or information technology. CFAO i s a ‘well trained and experienced’ officer. No national, standard criteria are laid down. Each ministry decides relevant background. Most common qualification i s a general bachelor degree and a few only have a bachelor degree in finance.

United States

United Kingdom

Canada Not fixed.

Australia

South Africa

Brazil

Mexico

Pakistan Indonesia

What are FA line management responsibilities? Financial Adviser carries out l ine management responsibilities for officers reporting directly India

United States

United Kingdom

Canada Australia

South Africa

Brazil

Mexico

Pakistan

to himiher (e.g., Director o f Integrated Financial Division). With respect to Financial Management Group, responsible for organization o f work and annual appraisals. Financial director i s a line manager, responsible for leadership and management o f the Finance Directorate. Varies in departments. Chief Financial Officers are responsible for managing their staff, including recruitment, professional development and performance management. Chief Financial Officer i s actively involved in recruitment o f finance staff by screening applications and being on the interview panels. F A responsibilities for human resources include payroll, employee’s career, union issues, civil service program, human resources management, pensions & training. Financial Adviser i s responsible for hiring and firing employees, implementing and follow up o f Civil Service Program, capacity-building programs, and providing appropriate working environment for employees. Dealing with day-teday issues o f F A staff and deputy Financial Advisers. These include issues like granting leave and writing the Annual Confidential Reports o f the subordinate staff.

Indonesia

What i s the mechanism for capacity building of Finance staff? In what key areas i s training provided? India One off training courses/workshops. United States As per section 503 o f CFO Act, OMB deputy director i s responsible for maintaining

qualification standards for CFOs and Deputy CFOs; providing advice to agencies regarding qualifications, recruitment, performance and retention o f other financial management personnel; assessing adequacy o f professional qualifications and capabilities of financial management in government; and make suggestions for improvements. Key Areas Performance measurement, balanced score card measurement internal controls, cost

47

What i s the mechanism for capacity building of Finance staff? In what key areas i s training provided?

United Kingdom accounting, budget planning and execution and I T capital investments. Management responsibility includes appraisal of immediate subordinates’ performance and advice on training needs and opportunities. Key Areas Training organized for whole range o f Finance Directorate functions. Professional accounting institutes and other private enterprise offer a broad spectrum o f training opportunities. Canada School o f Public Service and Canada Revenue Agency’s Training and Learning Directorate within the human resources branch o f a department offer other opportunities. Ongoing professional development requirements may emanate from respective professional institutes o f Chief Financial Officers. In addition, officers’ direct

Canada

Australia

South Africa

Brazil Mexico

Pakistan Indonesia

supervisors may identify particular training needs. The performance management system i s mandated by the Australian Public Service Commission and i s the mechanism for managing and monitoring capacity building within an agency and the finance area. In 2005, Finance entered into arrangements with several external service providers to deliver training to agency staff on the following modules: Introducing the Financial Framework and the Budget; External reporting frameworks and the budget balances; Cost recovery-Australian Government Charging Policy; and a closer look at appropriations. Human resource division prepares annual plans for Finance Division to which Chief Financial Officer contributes in respect o f inputs for hisher staff. Key Areas Government accounting; bank reconciliation; supply chain management; business writing skills; preparation o f financial statements; revenue management; expenditure management; asset management; and internal controls and risk assessments. Soft s k i l l courses include managing diversity, customer care, team leadership, communication, and conflict management. Every ministry i s responsible for designing an annual training program. Finance staff need to go through a certification process periodically by appearing for exams in areas such as finance, accounting, public administration, leadership, working in teams, computing systems, etc. As per norms o f civi l service. N o formal mechanism for finance staff. Throughout Central Government, training needs o f individuals are identified by l i ne manager, assisted by records kept by Bureau o f Personnel (Biro Kepeguwaian). To meet identified training needs, standard training courses are offered by the training center under each line minister (Pusdiklat). Many such courses concentrate on administration and bureaucracy, e.g., Adum - Administrasi umum or management (general).

What i s FA role in preparing training plan for finance department? The 2006 Charter sDecifies that in future Financial Advisers wil l uraare annual ulan for India

United States

United Kingdom

Canada Australia

South Africa

Brazil

Mexico

I .

strengthening o f Integrated Financial Division, which should be formulated by June 30 of each year. Chief Human Capital Officer oversees training programs with inputs from Chief Financial Officer. For Finance Directorate, human resource management unit may have a departmental budget for training but finance director usually has a training budget for Finance Directorate. Responsibility i s delegated to directors general and the management team reporting to them. Chief Financial Officers are responsible for developing the training plans for their staff and have a budget for this purpose. All departments have to prepare training and development plans for all staff. Plans are prepared by human resource department in consultation with head o f departments. Not directly involved. Training o f Finance Department i s delegated to the general coordinator o f human resources and general coordinator of management innovation and both entities report directly to the Financial Adviser. Financial Adviser i s responsible for designing Annual Training Plan and send quarterly report

48

What i s FA role in preparing training plan for finance department?

Pakistan None. Indonesia

on the training plan to National Comptroller Bureau.

Head of Finance Bureau, like any other line manager. would monitor the training needs of his staff (four sections heads) and prepare training plans to meet them.

- What manuals or guidelines exist for FA Role? India United States

United Kingdom

Canada

Australia

South Africa

Brazil

Mexico

Pakistan

Indonesia

No separate manual. CFO Act, as well as acts mentioned under section 2(b) along with OMB circulars, the Federal Accounting Standard Board and CFO Council are bodies which issue guidelines. Chief Financial Officer also has discretionary power in setting guidelines in hisher domain. Government Accounting Manual (issued 2000, latest amendment 4/05).

Exist for all key roles and responsibilities. Guide on Financial Administration i s being substantially revised in line with the new more strategic CFO concept. Financial Adviser i s responsible for providing the training program for the employee’s certification of civil service program, which includes some areas such as management, leadership, team working and financial/accounting technical knowledge. Not specifically for Chief Financial Officers, but National Treasury has issued best practice guidelines and frameworks on various issues related to financial management. Mandate i s derived from a Constitution law, the Organic Law of Public Administration. Each ministry has its own internal guidelines that define responsibilities of all senior positions, including the Financial Adviser. Fiscal Responsibility Law, including the operating manuals. Role i s not explicitly defined in a single document. I t must to be inferred from applicable laws and manuals (e.g., documents referred to section on PFM rules and laws. Series of office memoranda issued since 1962 and other financial rules and regulations referred to in these documents. The latest i s office memorandum of September 2006, OM No. 3 (2) Exp. III/2006, Government of Pakistan. No national guidelines for the FA role (i.e., no job description) produced by Ministry of Finance. Each line ministry prepares i t s own. Guidelines for accounting and reporting systems (as opposed to those which define FA duties and those of subordinates) are always spelled out by Ministry of Finance though legislation and manuals and are mandatory for all agencies.

What manuals and guidelines exist for the Finance Division? India United States United Kingdom Canada

Australia South Africa Brazil

Mexico

Pakistan

Indonesia

No separate manual.

Government Accounting Manual. The Chief Financial Officer i s expected to develop and maintain these documents and in most departments are being revamped in line with the more modern CFO role. Policies, guidelines and procedures promulgated periodically by the Treasury Board, Comptroller General, and the Receiver General. -Do- -Do- Fiscal Responsibility Law. Civil Service Program. Ministry’s Policy Manual. Internal Guideline. Organic Law of Public Administration. Guideline of Public Administration for Austerity & Discipline of Public Expenditure. Civil Service Program. General Financial Rules, Fundamental Rules, Supplementary Rules, and Federal Treasury Rules. Fiscal Responsibility and Debt Limitation Act, 2005. Office Memorandum of September 2006. Ministry of Finance issues guidelines and manuals for the various mandatory accounting systems. Some line ministries and director generals (notably public works) regularly supplement the

-DO-

_ _ - - _ _ MoF material by issuing their ow- guidelines.

49

Australia

South Afr-ica Brazi l

Are there regular reports by the Financial Adviser on the Finance Division? What are the annual targets of work of Finance Division? India Quarterly Reports to Ministry o f Finance.

Annual Finance Report and Annual Outcomes and Systems Report (as per 2006 Charter). Uni ted States Section 306 o f GMR Act requires a government corporation to submit Annual Management

Report to the Congress no later than 180 days after the end o f financial year. Uni ted K ingdom No, unless required by their department heads.

In 2006, the Treasury reviewed the effectiveness o f FM systems in 45 departments, and is following up through financial directors on action plans for improvement.

(a) Financial and related reports and disclosures o f the department, including departmental financial statements which include Statement o f Management Responsibility and Financial Statements Discussion and Analyses; and (b) annual CFO statement on internal control. Department must conduct reviews o f financial management accountability on a regular basis. Each agency has monitoring mechanisms for finance group, including monthly meetings with the head o f the corporate group, reports to the senior executive management against operational, business or corporate plans o f the agency and regular meetings. Finance has established targets for the preparation and completion o f the financial statements, to enable i t to undertake its responsibilities to report at a ‘whole o f government’ level. Quarterly reports against deliverables as contained in department’s strategic plans. Annual Budget Fiscal Targets. SZAFMonthly Report,: the Finance Division i s obliged to provide a monthly report o f the Ministry’s financial performance to Ministry o f Finance.

Canada Yes. CFOs sign off:

Mex ico Moreover, budget execution i s updated on a daily basis. Annual Operating Program. Ministry’s Budget Draft. Ministry’s Annual Public Account. Mid Year Financial Performance Report. Ministry’s Financial Report. SIAF Monthly Report. Monthly report on expenditure for ministry/department. N o formal reports on performance o f Finance Bureau. Financial reports on ministry’s activities, budget utilization, cash f low and balance sheet are prepared monthly, quarterly, and annually.

Pakistan Indonesia

7. Best practices in other countries

Give examples o f best practice. United States CFO Act and other legislations.

O M B and its functions. Professionalization o f post. System o f score cards for measuring performance o f agencies. CFO Council. Regular reviews o f PMF arrangements. Professionalization o f financial director post. Government accounting manual defines role o f Financial Adviser and accounting officer.

Uni ted K ingdom

Canada

Job description includes performance indicators. Within the Professional Skills for Government initiative, financial directors are required to follow structured continuing professional development throughout their careers. Guidelines issued by Treasury on training. System o f Management Board and subcommittees on risk, internal audit, etc., and Report on Systems o f Internal Controls signed by accounting officer. Organic Legislation for financial management and to establish appropriate role o f Chief Financial Officer. Standard setter for financial management l ike the Comptroller General in Canada, possibly by broadening the role o f Controller General o f Accounts (CGA). Simplification o f rules and more emphasis on standards and indicators. Strengthening and Controller General o f Accounts (CGA) in India CFO role similar to private sector with functional relationship with C G as necessary in the context o f government and obtaining support o f senior Indian Administrative Service officers. Increasing professionalism in the rank o f finance officers in India.

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Give examples of best practice. Assessing capacity gap in finance officers, Chief Financial Officer signs o f f financial reports and annual CFO statement on internal controls. More interplay wi th private/external sector (e.g., institutes o f management, institutes o f chartered accountants, etc.) Professionalization o f post o f financial director. Legislation for financial management. Benchmarking studies and regular review o f role o f Chief Financial Officers.

Australia

Brazi l

Mex ico

Performance management system mandated by the Australian Public Service Commission for capacity building. From 2006-07, Chief Executives are required to s ign an Annual Certificate o f Compliance. Chief Executives wi l l be required to certify compliance with all financial legislation, regulations, and official guidance issued by Finance. Each agency i s required to establish an Audit Committee consisting o f representatives o f the agency and independent members (section 46 o f the FMA Act). The Charter o f Budget Honesty Act 1998, section 18(1) requires the Treasurer to publicly release and table a final budget outcome report for each financial year. Benchmarks have been established to monitor the performance o f many functions within the finance group. Chief Executive signs Annual Certificate o f Compliance. Requirement o f quality assurance o f all reports leaving the agency, including financial reports. Annual conclusion o f performance agreements, mid-year performance reviews, and eventually performance assessments. After implementation o f PFMA in 2003, National Treasury commissioned the Institute o f Public Finance and Auditing (IPFA) to conduct a training needs analysis. This culminated in a Framework for Future Training in Governmental Financial Management and development o f training materials and courses. Best practice guidelines. Regular CFO Forum hosted by National Treasury for Chief Financial Officers in national and provincial spheres o f government. Recommended structure for Finance unit in departments and finance staff required to be trained in finance. Legislation for financial management. Audit Committee in departments. Written performance agreement between the executive authority and accounting officer. Every ministry i s responsible for designing and implementing an annual training program, including for the Financial Adviser. The National Public Administration School (Escola Nacional de AdmisnitraqGo Poblica ENAP) is responsible for designing F A training programs. Financial Adviser has full power to approve and exercise the ministry’s expenditure budget, which i s defined by National Congress. Group o f Financial Advisers for exchange o f information and best practices. Training initiatives organized by the group for Financial Advisers. In recent years, Financial Advisers from private sector are also joining this post. Finance Department o f each ministry has directors for key areas (Le., i s wel l staffed).Certification program for finance staff. Financial Adviser has to report on the performance o f training program for respective ministry to National Comptroller Bureau on a quarterly basis. Detailed description o f responsib es o f Financial Adviser, CFAO and accounting officer and o f delegation o f FA powers. System o f having deputy Financial Advisers. Training in financial management i s being emphasized more and more for Financial Advisers. Legislations on various aspects o f public financial management. Detailed guidelines for finance staff.

South Af r i ca

Pakistan

Indonesia

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Key Features of Chief Executive Officer in Selected Countries B.

91.

1.

92.

93 *

94.

95.

96.

97.

This section takes a closer look at key features o f the CFO position in Australia, Canada, South Afiica, United Kingdom, and United States, including:

0 Mandate 0 Governance and responsibility 0 Appointment and career development 0 Functions 0 Performance evaluation and accountability

support

Australia

Mandate of Chief Financial Officer. Most Federal Commonwealth agencies have a Chief Financial Officer (CFO). In small agencies, the role o f CFO i s often combined with the head o f Corporate Services. The CFO role and responsibilities are not established by charter or act. The Department o f Finance and Administration (Finance) issued the publication, The Role of the CFO - Guidance for Commonwealth Agencies in April 2003, to promote greater consistency in the CFO role and strengthen CFO capacity to discharge their duties.

Their authority i s derived from delegations issued mainly under the Financial Management and Accountability Act (FMAA), 1997, and Regulations 1997. Therefore, to the extent that the Minister for Finance has delegated powers to the chief executive who in turn has delegated those powers under the FMAA to the Chief Financial Officer, the CFO mandate has legislative authority. In addition, Chief Executive Instructions, which establish the internal control framework o f an agency are issued pursuant to legislation and therefore have the force o f law. The CFO role may vary according to how the Chief Executive chooses to determine the CFO responsibilities.

The main purpose o f the FMAA was to provide a framework for the proper management o f public money and public property and was founded on the recognition and acceptance o f the need to improve the professionalism o f the public sector. As a result, the philosophy o f ‘letting the managers manage’ was introduced. Through the FMAA, substantial authority and power was devolved to Chief Executives who were then able to delegate their authority to other officers o f the agency.

Other financial management laws include Commonwealth Authorities and Companies Act, 1997, and Regulations, 1997; Finance Minister’s Orders, 2006 (FMO); and Commonwealth Authorities and Companies (Report of Operations) Orders, 2005; Schedule 1 to the Orders (FMO 2006) - Financial reporting requirements; Policy to the Financial Minister’s Orders, including PRIMA; finance circulars; Guidance to the Financial Minister’s Orders, including finance briefs, estimates memoranda, and financial management guidance; and PRIMA Illustrative financial statements.

Governance and responsibility. The FMAA vests financial management and accountability with the Minister for Finance and enables the Minister for Finance to delegate power to an agency Chief Executive who in turn can delegate powers to the Chief Financial Officer and other agency staff.

Each agency develops i t s own financial delegations to suit i t s operational needs, including financial delegations to program managers. Financial delegations to the Chief Financial Officer generally cover the following financial reporting and management aspects:

52

0

Collection, custody o f public moneys; Accounting, appropriations and payments, particularly approval o f future spending proposals, approval o f spending proposals - officials, approval to be recorded, and entering into contracts, etc.;

0 Borrowing and investment; 0 Control and management o f public property; and

Reporting and audit.

98. Each CFO position has a job description detailing roles, responsibilities, duties, and selection criteria and i s an employee o f the agency, not Finance. These job descriptions vary between agencies but generally cover the same roles, responsibilities, and duties. The Chief Financial Officer has a direct and accountable reporting line to the Chief Executive; however, administratively the Chief Financial Officer may report through another position in the agency.

99. The Chief Financial Officer provides financial reports to many officials o f an agency; however, the post itself reports to the Chief Executive or the deputy Chief Executive or head o f Corporate Services. The Chief Financial Officer i s generally a member (or at the very least a regular invited attendee) o f the agency’s management committee or board (the senior executive management group) and reports to it. For statutory bodies, the Chief Financial Officer provides reports to the board o f directors.

100. Under the FMAA, Finance Orders and various guidelines, information, and reports are provided to Finance by the agency. This information i s provided on behalf o f the Chief Executive o f the agency and not independently by the Chief Financial Officer. Therefore conflicts, if they arise, are resolved within the agency before any reports are issued. Although delegation o f authority comes from the Chief Executive to the Chief Financial Officer, the Chief Executive remains accountable for the activities o f the agency.

101. All information and reports o f an agency to Finance are subject to the normal internal quality assurance processes. Generally, external reports prepared by the finance group are subject to quality assurance by the head o f Corporate Services or a Deputy Chief Executive.

102. Each agency i s required to establish an audit committee consisting o f representatives o f the agency and independent members (FMAA, section 46). The responsibilities are to approve internal annual and strategic audit plans o f the agency; review all audit reports involving matters o f concern to senior management o f the agency, including the identification and dissemination o f good practices; provide advice to the Chief Executive on action to be taken on matters raised in a report o f the internal auditors or the auditor general concerning the agency; as far as practicable, coordinate audit programmes conducted by internal auditors and by the Auditor-General; and provide advice to the Chief Executive on the preparation and review o f financial statements o f the agency (Finance Minister’s Order 2.1.2).

103. Appointment and career development of the Chief Financial Officer. The Role of the CFO - Guidance for Commonwealth Agencies indicates that the Chief Financial Officer should desirably be professionally qualified, a member o f a professional body, or have significant demonstrated expertise in financial management, whether through formal qualifications or practical experience. The Chief Financial Officer should be technically competent and have a comprehensive understanding o f the governing legislative framework. The Chief Financial Officer should also have the capacity to operate effectively at the senior management level and the capacity to interpret, analyse, and present financial and related information for use in solving complex problems or analysing complex options.

104. The Chief Financial Officers are selected on merit by the agency, in accordance with recruitment policies established centrally under the Public Service Act, 1999, after the positions are advertised, both internally and externally.

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105.

106.

107.

108.

109.

Career planning i s primarily an individual responsibility. Each agency, as part o f the performance plan discussions, works through career options with all staff. Movement by Chief Financial Officers can be both lateral and vertical. The decision rests with the way in which Chief Financial Officers wish to manage their careers. A study o f Chief Financial Officers (Australian Auditor-General, 200 1, benchmark study) reported that the average period o f service o f Chief Financial Officers with their current employer was one-and-three-quarter years, with an average o f six years as Chief Financial Officer or equivalent with a previous employer. Previous experience o f Chief Financial Officers included an accounting or finance role in the public sector (67 percent o f cases), an accounting or finance role in the private sector (60 percent); and/or another role in the public sector (53 percent).

A formal CFO networking group operates, sponsored by Finance. It meets monthly with a formal agenda covering areas such as financial statement preparation timetable adjustments, audit, legal, and staff issues. However, the more effective mechanism i s the informal network established

Functions of the Chief Financial Officer. established by the Chief Executive, the Chief Financial Officer i s responsible for:

Consistent with the strategic framework

Assisting in the development o f future strategic directions o f the agency;

Strategic and operational aspects o f financial planning, management, record-keeping and financial reporting to enhance the consistency, accuracy, and reliability o f information;

Implementation o f an appropriate financial management framework within the agency, including risk management, to minimize both the r isk o f errors in estimates and actual data, and fraud;

Meeting the needs o f ministers, agency executives, staff and suppliers on financial management issues;

Monitoring and advising on the financial health o f the agency;

Managing financial and budget processes within the agency, and related reporting requirements;

Monitoring the financial position o f small agencies within the portfolio as appropriate, consistent with the recommendations o f the Budget Estimates and Framework Review; and

Control o f the integration o f budgeting and accounting information to ensure consistency o f approach across the agency and portfolio.

The budget cycle consists o f the preparation o f budgets for the current year plus four out- years. The current budget plus one year forward are public documents. Agency budgets are reviewed every six months and the information i s included in a centralised budget system managed by Finance. Changes and variations to out-year budgets require justification and submission to Cabinet for endorsement where new policy proposals are proposed. The Chief Financial Officer i s responsible for the co-ordination o f the development o f the agency’s budget. Development o f the budget for each operational area rests with the operational area.

The Chief Financial Officer i s also responsible for reporting performance against budget for the agency to the senior executive management group and to individual programme managers. Execution o f the budget i s the responsibility o f programme managers. The Chief Executive protocols seek to ensure that the Chief Financial Officer i s consulted by programme management on all significant financial and budgeting issues, particularly new budget initiatives.

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110.

111.

112.

113.

114.

115.

116.

Over recent years, agency governance has been strengthened, including establishing responsibilities for reporting against performance indicators. While the information may be provided by the Chief Financial Officer and operational groups, the governance group i s responsible for reporting the results. As part o f the senior executive management group, the Chief Financial Officer advises on appropriate performance indicators for individual programmes. However, i t i s the individual programme managers that are responsible for the development o f their performance indicators. In small agencies, the Chief Financial Officer may undertake th is collection and reporting role.

Specifically, in respect to the accounting function, the Chief Financial Officer i s generally responsible for:

Providing monthly financial reports to the senior executive management group o f the agency and to individual programme managers (the timing o f this varies between agencies);

Providing financial information to Finance on a monthly basis so that ‘whole o f government’ financial reports can be prepared;

Managing and monitoring financial performance indicators, including budget variations, for the agency; and

Preparing the annual financial statements.

Managing risk i s implicit under both section 44 o f the FMAA and FMA Regulation 9. Over the last decade, government initiatives, legislation, and guidance indicate that there i s an expectation that agencies have applied appropriate frameworks to manage risks. Prior to these initiatives, risk management was a feature o f project management and was also raised as part o f the significant management reform programme that commenced in the early 1980s. In particular, this programme focused on improving management systems by applying a risk management strategy and achieving value for money. From 2006-07 Chief Executives are required to sign an annual Certificate o f Compliance with all financial legislation, regulations, and official guidance issued by Finance.

Responsibility for risk management sits with all programme managers, but the coordination o f risk management across an agency has no one solution. It i s generally not the Chief Financial Officer, but rather the governance group’s responsibility. In small agencies, it i s likely to be the Chief Financial Officer. Chief Financial Officers are generally responsible with the head o f Corporate Services for the preparation o f the Chief Executive Instructions that detail the internal control framework for the agency.

The Chief Financial Officer i s the liaison between internal and external audit on financial and internal control matters. The Chief Financial Officer i s not responsible for internal audit.

Procurement requirements are established by Finance, not individual agencies. Agencies operate within an environment o f legislation and relevant policy. The legislation places responsibility with the Chief Executive for effective procurement actions. Authority i s delegated to other officials o f the agency through Chief Executive delegations, and procedures are established through the Chief Executive Instructions.

The Chief Financial Officer maintains the records associated with all accounting transactions, including public-private partnerships and contingent liabilities. As part o f their growing strategic role, the Chief Financial Officers provide advice to programme managers on all new policy proposals and financial transactions. For example, Chief Financial Officers would provide advice concerning leasebuy options, public-private partnerships, revenue-generating options, and financial assessments as part o f tender evaluations.

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117. Performance evaluation and accountabili& Each agency i s expected to have a fair and open performance management system that covers all employees, guides salary movement and bonuses, i s linked to organisational and business goals and the maintenance o f values within the Australia Public Service, and provides each employee with a clear statement o f performance expectations and an opportunity to comment on those expectations. This i s achieved through individual performance management plans.

11 8. Support to the Chief Financial Officer. The number o f support staff and their titles vary significantly depending on the size and complexity o f the agency’s activities. There are no legislative requirements for professional qualifications for support staff; however, accounting qualifications are highly desirable and in most cases the second in charge i s a qualified accountant.

1 19. Chief Financial Officers are responsible for managing their staff, including recruitment, professional development and performance management. All support staff negotiate performance agreements that incorporate professional development activities including training, and progress i s monitored every six months. Chief Financial Officers develop training plans for their staff and have a budget for this purpose. Chief Financial Officers do not manage the training budget for the whole agency; each programme manager manages i t s own training budget. In most agencies a central training group manages corporate training on a cost recovery basis.

120. In 2005, Finance entered into arrangements with several external service providers to deliver training to agency s ta f f on the Australian Government’s budget processes and financial framework. The aim o f the programme i s to help raise understanding o f the budget processes and financial framework among all finance employees because future Chief Financial Officers were most likely to come from this group. A number o f agencies conducted ski l ls assessments o f their finance staff and developed courses to address the identified s k i l l s gaps. The Institute o f Technology Australia has also established a diploma in Government Financial Management.

2. Canada

121.

122.

Mandate of Chief Financial Officer. The chief financial officer i s designated head o f finance function in most government departments in Canada. Some Chief Financial Officers are s t i l l called “senior financial officers.” The financial function i s popularly called “controller~hip.~’ The functional head o f the “controllership” function o f the federal government i s the Comptroller General o f Canada (CG). The Comptroller General has the responsibility for developing and enunciating government policy for financial management on behalf o f the Treasury Board Secretariat o f Government o f Canada. Setting an environment for good financial management in departments, the Comptroller General sets internal control standards and conducts ongoing reviews o f the function as part o f policymaking process.

The CFO role and responsibilities are established in an Executive Policy on “controllership” issued by the Treasury Board o f Canada. The last policy document was dated February 22, 1996, but a major overhaul in the policy i s expected in financial year 2008. The move i s clearly towards the private sector CFO model. In Canada there i s no legislation defining the role o f the CFO and controllership i s the responsibility o f the deputy head. The Federal Accountability (FA) Act specifies that the deputy head i s the “accounting officer.” The Financial Adviser Act has enhanced the responsibilities o f the deputy head for financial management, accounting, reporting, and control. As the deputy head i s by law the “accounting officer” o f the department, the CFO policy i s evolving in line with th is new requirement to hold the deputy head accountable; the Chief Financial Officer would be expected to support the deputy head discharge his or her responsibilities under the Financial Adviser Act. The

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123.

deputy head i s free to organize the controllership function as deemed fit for the organization, but normally consults with the Comptroller General on high-level organizational issues. The CFO mandate depends on the deputy head’s requirements as specified within the overall policy framework set by the Treasury Board Secretariat. The accountability profile o f the Chief Financial Officer can vary between departments. Generally it covers all important aspects o f financial management, control, and reporting, including advice on the financial implications o f program and policy decisions being advanced by the department. He or she interfaces with the Treasury Board Secretariat on all resource matters and acts as a chief negotiator with the Treasury Board Secretariat and Department o f Finance for resource requirements o f departmentlagency.

The internal delegation by the deputy head forms the basis for setting the CFO responsibilities. This can vary between departments and agencies depending on size, complexity, degree o f autonomy, etc. Guidelines exist for all key CFO roles and responsibilities. These are being fbrther developed. The Guide on Financial Administration i s being substantially revised in line wi th the new more strategic CFO concept. There are pertinent policies, guidelines, and procedures promulgated periodically by the Treasury Board (for resource allocation), the Comptroller General (accounting policies and controls), and the Receiver General (accounting and reporting procedures).

124. Governance and responsibiZiz’y. Within each department, a Departmental Audit Committee deals with issues such as internal audit, external audit, any problems detected in financial management, etc. The Committee has external representation (e.g., from private sector) and without it the Committee i s considered deficient. The Comptroller General plays a support role for the Departmental Audit Committee.

125. The head o f Department i s the only reporting officer for this CFO post. Chief Financial Officers do not report to a board, but they have a responsibility to respond to the Departmental Audit Committee. Chief Financial Officers are indirectly responsible for corporate accountability to support the Treasury Board and the Comptroller General in discharging their mandates with respect to the professionalism o f public sector financial management. In this regard, they have a responsibility for ensuring the integrity o f all financial information provided by the department to central agencies and other external stakeholders.

126. With regards to any possible conflict between the Chief Financial Officer (or senior financial officer) and deputy head there i s provision in the policy for involving the Comptroller General. In the event that a chief financial officer i s convinced that h i s or her deputy head i s proposing an action that will create significant financial r isk or w i l l violate either the spirit or form o f the financial requirements o f any legislation, regulation or government policy, the Chief Financial Officer must make every effort to persuade the deputy head to follow a different course and must seek the opinion and advice o f the Deputy Comptroller General. If the deputy head does not accept the advice offered by the chief financial officer, then the chief financial officer must request that the deputy head seek the advice o f the Comptroller General before taking a final decision. The deputy head must then discuss the matter with the Comptroller General.

127. The CFO role i s mainly advisory with regards to program management, along with decisionmaking for day-to-day management o f in-house financial function. Chief Financial Officers are expected to be involved in the decision loop, for only then can they provide advice to the deputy head on the financial and reporting implications o f significant departmental decisions. The Chief Financial Officer i s expected to be independent o f program management with main responsibility for providing strategic advice to the deputy head on issues with financial implications and issues o f day to day financial management o f the department.

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128. Appointment and career development of the Chief Financial Officer. Generally there i s a dedicated Chief Financial Officer or equivalent in each department. In large departments the CFO position i s mostly at the level o f additional deputy, in medium-sized departments at the level o f director general, and in smaller departments at the level o f director.

129. Minimum professional qualifications required for the CFO post include a university degree and a professional qualification. Experience in financial management o f comparable-sized organizations i s generally required. An accounting/finance qualification i s increasingly an eligibility criteria given the growing emphasis on the preparation o f audited financial statements by each department. The Chief Financial Officer must s ign o f f on financial statements and increasingly provide assurance on the internal control arrangements o f the entity. The sk i l l set generally required for th is post includes financial management, accounting, auditing, and internal control as they relate to comparable large organizations, along with peoples sk i l l s necessary for managing people.

130. The position i s open to a person with requisite qualifications, regardless o f sector (private or public). In case o f public sector entrants, the last post i s one grade lower (e.g., director general level for large departments). In the past Chief Financial Officers could be from the administrative cadres o f the government, but increasingly the financial management stream i s becoming the dominant source.

131. All departments usually follow a uniform system for recruitment for the CFO post, and generally the same principles apply. The Comptroller General i s normally consulted by the deputy head for CFO appointment (by convention, rather than by law). The government agencies that are separate operating agencies, such as Revenue Canada and the Canadian Food Agency, have greater flexibility in the application o f the principles and practices expected from core line departments, such as Health and Defence. For example, the pay scale for the post may be more attractive in separate operating agencies.

132. The stability o f CFO tenure i s fairly good. However, tenure i s getting shorter because o f increasing demand for qualified financial officers; since implementation o f the Sarbanes- Oxley Act there i s a shortage o f qualified Chief Financial Officers in Canada. There i s no system o f compulsory transfers o f Chief Financial Officers after a fixed period.

133. When promoted, Chief Financial Officers move to a higher administrative position (as opposed to finance position) or move to a CFO role in a larger department. All vacancies are filled based on merit and demand. Present demand for qualified professionals i s very high, and supply i s not keeping up. There i s no bar against a CFO promotion to deputy head. Each individual has to compete with others based on job performance, and rules o f fairness apply. The Public Service Commission monitors the departments for compliance with public service normshegulations.

134. Functions of the Chief Financial Oflcer. The Chief Financial Officer i s often the primary official responsible for developing and implementing the corporate departmental operational and financial planning and budgeting framework, performance reporting models, policies, procedures, and guidelines and supporting instruments. The Chief Financial Officer provides financial services with respect to the development and submission o f the main estimates, report on plans and priorities, the departmental performance report, and supplementary estimates. The Chief Financial Officer i s the key official responsible for monitoring the execution o f the budget and reporting thereon to the deputy head.

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135. The Chief Financial Officer provides the advice and challenge functions with respect to the financial implication o f new projects and i s involved in the formulation, appraisal and evaluation o f schemes. The Chief Financial Officer maintains the “general ledgers” and signs o f f on the annual financial statements and related reports in relation to internal control and any other management assertions provided to external auditors. The Chief Financial Officer has a coordination role for risk management and internal controls.

136. The Chief Financial Officer i s not responsible for internal audit, as it i s a separate function under the purview o f the head o f Internal Audit, The head o f Internal Audit reports directly to the deputy head. I f there i s no internal audit (which i s very rare) then the Chief Financial Officer takes responsibility for coordination o f replies to external auditors, which would normally be the responsibility o f head o f Internal Audit. The Chief Financial Officer plays a proactive role in developing strategies for generating resources (e.g. under public-private partnerships). The Chief Financial Officer i s h l ly responsible for all aspects o f financial systems under his or her direct purview. The monitoring o f the procurement function i s not usually the responsibility o f the Chief Financial Officer but there can be exceptions based on departmental requirements, and some Chief Financial Officers are fully responsible for this function. The deputy head i s the representing accounting officer at the Public Accounts Committee, and i s accompanied by the Chief Financial Officer.

137. Performance evaluation and accountabili@. The deputy head conducts the annual CFO performance review. In addition, most deputy heads informally consult with the Comptroller General before the annual performance review i s concluded. The assessment fiamework i s the accountability profile agreed between the deputy head and the Chief Financial Officer. The job description, in some form or the other exists in all departments (e.g., i t could be called an “accountability profile” or position description or an equivalent term). The reporting obligations o f the Chief Financial Officer to the department in which they are placed vary depending on the size and complexity o f the department. These need to be defined respectively by each deputy head. The CFO job description provides this information. These job descriptions are not always public documents.

138. During the year, oversight o f CFO performance i s ongoing given the direct reporting relationship o f the Chief Financial Officer with the deputy head. The added dimension i s the scrutiny o f the Departmental Audit Committee. Apart from annual performance appraisal there i s ongoing accountability o f the Chief Financial Officer by way o f audited financial statements, periodic reports prepared for central agencies, and performance/compliance audits conducted by the Auditor General, the Internal Auditors, etc. The Chief Financial Officers also have to prepare regular reports on the performance o f Finance Division, new initiatives taken to strengthen financial management systems, etc.

139. Support to Chief Financial Officer. The structure o f the Integrated Finance Division o f a department i s approved by the deputy head. Officials o f Finance Division reporting directly to Chief Financial Officer may include a deputy Chief Financial Officer and director generals for each o f the various directorates within the CFO’s branch. In one o f the 8 largest departments the Chief Financial Officer i s one o f 18 positions reporting to the deputy head. The specific functions o f the positions reporting to the Chief Financial Officer are Director General Financial Operations, Director Resourcing Strategies, Director Financial Planning and Reporting, Director Transformation Financial Strategies, Deputy Chief Financial Officer, and Project Executive Financial System Transformation.

140. The required professional qualifications o f staff in Finance Division are not fixed. These are determined at the time o f staffing action and influenced by the priorities o f the day. A professional qualification i s increasingly necessary for staff in Finance Division.

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141. In terms o f assessment o f CFO training needs, there cannot be a single institutional mechanism since Chief Financial Officers come from a strong professional background and their professional development i s driven by the requirements o f their profession (chartered accountant, certified management accountant, certified general accountant, etc), along with requirements o f Government o f Canada for senior executives to participate in training programs for executive development. On-the-job training via regular exchange o f information (with Comptroller General providing the leadership) i s also seen as vital for career development. Each Chief Financial Officer i s responsible for determining his or her own needs and ongoing professional development. In recent years, new areas identified for CFO s k i l l development include enterprise risk management and internal control certification. While no dedicated agency i s responsible for ensuring ongoing professional CFO development, the Office o f Controller General (OCG) i s the leader. The OCG-organized meetings and conferences serve as a forum for regular exchange o f information among the Chief Financial Officers.

142. The ongoing professional development requirements for other finance staff in departments may emanate from their respective professional institutes. Officers’ direct supervisors may identify particular training needs. In Canada, professional accounting institutes and other private enterprises offer a broad spectrum o f training opportunities. In addition, institutes such as the Canada School o f Public Service offer training opportunities.

3. South Africa

143. Mandate of Chief Financial Officer. The position o f Chief Financial Officer was formally established in June 2000. In South Africa public sector finances are regulated by the Public Finance Management Act (PFMA), 1999, and i t s subordinate Treasury Regulations (subordinate legislation). Chief financial officers o f government departments are required to assist in discharging the accounting officers’ financial management responsibilities as contained in the PFMA, 1999, and i t s subordinate Treasury Regulations. The accounting officer, as the head o f department, can delegate to the Chief Financial Officer in writing any o f the powers entrusted or delegated to the accounting officer in terms o f the PFMA Act or instruct him or her to perform any o f the duties assigned to the accounting officer.

144. The accounting officer normally delegates all general financial management responsibilities to the Chief Financial Officer which include the responsibility to implement effective, efficient and transparent systems o f financial and risk management and internal control; implement a system o f internal audit under the control and direction o f an audit committee; and implement and maintain appropriate procurement and provisioning systems, which are fair, equitable, transparent and cost effective. The accounting officer also delegates to the Chief Financial Officer budgetary responsibilities, including ensuring effective and appropriate steps are taken to prevent overspending o f the department’s resources, and reporting responsibilities, including monthly and annual financial reporting.

145. The National Treasury has issued several best practice guidelines and frameworks on various issues related to financial management, none o f which were compiled specifically for Chief Financial Officers. These guidelines are, however, intended to provide guidance to accounting officers, Chief Financial Officers, and other finance and non-finance practitioners on matters related to financial management. These guidelines include an Accounting Officers Guide to the PFMA; Treasury Guidelines for the Preparation o f Budget Submissions, Internal Audit Framework, Risk Management Framework; and Guide for the Compilation o f Annual Reports and Financial Statements.

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146. Governance and responsibilizy. PFMA Act (para. 77) mentions that departments should establish an Audit Committee that must consist o f at least three people, one o f which should be from outside the public service. The Committee must meet at least twice a year. Guide for Accounting Officers, issued by National Treasury in October 2000, mentions the role o f Audit Committee as assisting management in discharging i t s accountability responsibilities to safeguard assets, operate adequate systems and controls, and prepare annual statements. The Guidelines mention that the Audit Committee should be advisory, not executive. Key duties o f the Audit Committee include reviewing the scope o f audit and audit plan, reviewing effectiveness o f the organization’s internal systems, monitoring management’s responses to reported weaknesses and controls, and considering the quality o f financial information.

147. The head o f department (accounting officer) i s ultimately accountable to the legislature for the finances o f his or her department. While the Chief Financial Officer as head o f finance i s directly accountable to the accounting officer, the Chief Financial Officer may report administratively to another incumbent. South African government departments do not have boards. Chief Financial Officers o f South African departments do not report to other parent departments other than their own. Chief Financial Officers are, however, required to submit financial reports and returns to the relevant treasury, as required in terms o f legislation. Chief Financial Officers are held accountable through their deliverables as captured in the department’s strategic plans, performance agreements, delegations o f authority, and the audit outcomes.

148. As head o f Finance Division, the Chief Financial Officer has veto power as well as the duty to advise line managers on matters related to financial management. Veto power i s particularly exercised to ensure compliance with internal departmental policies and legal prescripts regulating financial management. The CFO role i s consultative and involves decisionmaking. The Chief Financial Officer i s also involved in the decision loop o f the department, especially during the process o f strategic planning and budgeting.

149. Appointment and career development of the Chief Financial Officer. In al l South African government departments a chief financial officer i s appointed as the head o f the Finance Division. Each department i s required to appoint a dedicated Chief Financial Officer. The level o f seniority o f the Chief Financial Officer differs from department to department and i s determined by the accounting officer (head o f department). The determination o f a CFO level o f seniority i s usually linked to the size o f the department’s budget. In essence, Chief Financial Officers are appointed at senior management levels o f director, chief director or deputy director-general.

150. I t i s recommended that Chief Financial Officers have a Bachelor’s degree in commerce or Masters in business administration, or qualify as a chartered accountant or certified management accountant, as the minimum professional qualification for appointment. I t is, however, necessary that Chief Financial Officers also have appropriate experience in order to be considered for appointment. The position i s open to appropriately qualified and experienced people from both the public and private sectors. The last public sector posts held by Chief Financial Officers li-om within government before joining their current positions vary from finance-related positions at the level o f deputy director, director, and chief director.

15 1. The selection process followed for the appointment o f Chief Financial Officers i s similar to other posts in the departments. The CFO position i s advertised in the media, a selection committee i s convened and interviews and competency tests are done. Reference checks, credit and criminal records, qualifications and security clearance may also form part o f the selection process. The selection committee makes recommendations to the accounting officer, Minister, or delegated official for approval o f the selected candidate. All public sector departments follow a uniform system o f recruitment o f Chief Financial Officers.

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152. Against the background o f responsibilities, it i s recommended that Chief Financial Officers be technically trained and proficient in such areas as strategic planning, business planning and design, performance measurement, financial accounting, management accounting, internal control, internal and external audit, information systems; economy, negotiation ski l ls , communication skills, and analytical ski l ls .

153. In most instances, Chief Financial Officers are employed on a permanent basis and enter into annual performance agreements with their accounting officers. There have, however, been instances where Chief Financial Officers were appointed on a contractual basis for a fixed period.

154. Career development and promotional opportunities are available within their departments and in other departments depending on the level o f seniority. Chief Financial Officers wishing to move out o f the finance cadre may be tempted to apply for higher positions out o f the finance stream. Chief Financial Officers wishing to remain within the finance cadre may be promoted to another position as Chief Financial Officer thought at a higher level in a larger department.

155. Functions of the Chief Financial Officer. Chief Financial Officers ensure sound financial management in the department and manage the financiallprocurement function. The CFO functions under management arrangements include acting as a business partner who i s actively involved in strategic issues facing the department; compilation o f delegations o f authority for approval by the accounting officer; preparation o f strategic plan for the Finance Division; compilation o f development plans for all finance posts; documentation o f all finance policies and procedures; conducting regular risk assessments to identify emerging risks; and implementation o f effective and efficient system o f risk management and internal controls.

156. The CFO functions under planning and budgeting include contributing towards financial aspect o f the strategic planning process by considering financial impact o f the department’s outputs; assisting with formulation o f medium-term objectives, policies, and strategies in support o f the strategic and operational plans o f the department; ensuring that measurable outputs are specified as per programme in the departmental budget; measuring programme performance; and establishing procedures to facilitate effective performance monitoring, evaluation, and corrective action. The Chief Financial Officer renders advice and support to divisional heads in preparation o f budget, i s responsible for consolidation o f budget, and ensures that the budget i s consistent with the departmental strategic plan. The Chief Financial Officer also prepares adjustment budget. The Chief Financial Officers monitor expenditure against the budget and implementation o f processes to track expenditure and commitments against the budget.

157. The Chief Financial Officer conducts regular examinations o f operations o f the department to identify new sources or potential sources o f revenue and regular reviews o f existing fees, tariffs relating to revenue accruing to the relevant revenue fund, as well as monitoring revenue collection on a regular basis. The Chief Financial Officer develops processes and procedures for effective and efficient management o f the department’s assets and i s responsible for implementation o f system for evaluation o f all major capital projects.

158. The Chief Financial Officer i s responsible for ensuring regular accounting in the department. The Chief Financial Officer has to ensure preparation and submission o f financial reports for the department, such as monthly finance report; annual financial statements that are compiled in accordance with PFMA requirements, the Treasury Regulations, and the relevant guideline documents; and the department’s annual financial statements to the relevant treasury and the Auditor-General before the May 3 1 yearly deadline. The Chief Financial Officer has to ensure submission o f the department’s annual report, financial statements, and audit report on those statements to the executive authority and the relevant treasury before the August 31 yearly deadline.

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159. The Chief Financial Officer coordinates replies to external auditors. With respect to procurement, the Chief Financial Officer i s overall in charge o f supply chain management and ensuring adherence to procurement procedures. The Chief Financial Officer establishes systems, procedures, processes, and training programmes related to cash management. The accounting officer, as head o f the department, represents the department at the Public Accounts Committee. Chief Financial Officers, however, normally accompany their accounting officers to these hearings in order to render their support on matters o f a technical nature that may arise.

160. In addition to their finance-related duties, Chief Financial Oficers are also involved in administrative functions that include matters related to staffing, performance management, leave administration, and training and development.

16 1. Performance evaluation and accountabili$ The CFO roles, responsibilities, and duties are captured in the job profile o f the position, the contents o f which also form part o f the CFO performance agreement. The Chief Financial Officers are assessed in the same manner as other l ine managers, in accordance with a Performance Management System. This assessment framework includes annual conclusion o f performance agreements, mid-year performance reviews, and eventually performance assessments. Job descriptions are required to be drawn up for all occupational classes (including the Chief Financial Officer) and annual performance indicators are contained in the performance agreement that the Chief Financial Officer enters into with the accounting officer. In matters o f the Chief Financial Officer, the accounting officer writes his or her review since the Chief Financial Officer i s directly accountable to the accounting officer. The performance assessment i s agreed upon between the accounting officer and the Chief Financial Officer who are both signatories to the assessment.

162. Chief Financial Officers are held accountable through their deliverables as captured in the department’s strategic plans, performance agreements, delegations o f authority and the audit outcomes.

163. Support to the Chief Financial Officer. With the exception o f requiring that the Chief Financial Officer reports directly to the accounting officer, no other prescription exists as to what a finance structure should look l ike in a department. Based on best practices, the National Treasury has, however, recommended that Chief Financial Officers be supported by financial accountants, management accountants, and supply chain management practitioners, all o f whom report directly to the Chief Financial Officer, Most departments have implemented this structure with smaller departments combining the financial accountant and management accountant positions. These support managers also have subordinates reporting to them. The total number o f personnel serving under the Chief Financial Officer will vary depending on the size o f the department. South African departments do not have deputy Chief Financial Officers.

164. Support staff are also required to be trained in finance. In this regard it i s recommended that support staff have formal post matric (Grade 12) qualifications in the finance field, such as a National Diploma or Bachelor’s Degree.

165. Soon after the PFMA was implemented in South Africa during 2000, the National Treasury commissioned the Institute o f Public Finance and Auditing (IPFA) to conduct a sk i l ls analysis o f public sector finance practitioners, including Chief Financial Officers. The survey focused on personnel serving in the senior, middle and lower levels o f management. This sk i l ls analysis culminated in the development o f a Framework for Future Training in Governmental Financial Management, which provided critical information as to the areas in which public sector finance practitioners needed training. Topics for which training was needed included strategic planning, budgeting and related matters, revenue and expenditure management, assets

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and liability management, banking and cash management, accounting and reporting requirements, and internal control and auditing. This led to the National Treasury engaging with training service providers to develop training material to rol l out courses that were intended to address the noted capacity gaps. The National Treasury reviewed the contents o f all courses to exercise qualitative control so as to ensure that trainees received value for money when attending courses presented by these training providers.

166. Chief Financial Officers are normally highly qualified and experienced finance practitioners. Their training needs are, however, identified during competency assessments and during the performance review appraisal processes. Development plans are then developed, which form part o f their performance agreements. Training interventions are identified to build personal capacity and effectiveness. During 2003, the National Treasury identified that Chief Financial Officers and other senior public servants required their ski l ls to be developed in areas related to strategic planning and budgeting, in-year management, monitoring and reporting, internal control and risk assessment, and internal audit and audit committees. This led to National Treasury engaging training providers to rol l out high-quality, short courses on the identified areas. Over 240 Chief Financial Officers and other senior public servants benefited from the rol l out o f 8 new short courses.

167. The South African Management Development Institute, a national government department charged with public sector training, i s also involved in a partnership with the University o f Pretoria for the ro l l out o f management programmes aimed at senior public servants, including Chief Financial Officers. The training and development o f public servants i s the responsibility o f the respective accounting officers in whose departments these public servants and Chief Financial Officers serve. In South Africa, there are, however, professional bodies that cater to the needs o f public sector finance practitioners; these include the Inst i tute o f Public Finance and Auditing (IPFA), the South African Institute o f Government Auditors (SAIGA), the South Afr-ican Institute o f Chartered Accountants (SAICA), and the Chartered Insti tute o f Management Accountants. Chief Financial Officers usually attend seminars and workshops arranged by these institutions to stay abreast on professional matters.

168. The National Treasury regularly hosts CFO forums for Chief Financial Officers serving in the national and provincial spheres o f government. These forums are used to disseminate information to Chief Financial Officers and to discuss issues o f common interest which invariably assists with peer learning.

169. The Chief Financial Officers are responsible for ensuring that they have adequately trained staff serving. In this regard, Chief Financial Officers should regularly assess the training requirements o f their personnel to be able to determine capacity-building initiatives and to ensure that these personnel attend these training initiatives. Training i s organized for support staff in such areas as introduction to government accounting, bank reconciliation, supply chain management, business writing skil ls, preparation o f financial statements, revenue management, expenditure management, asset management, and internal controls and risk assessments. Other soft ski l ls courses are also arranged which include managing diversity, customer care, team leadership, communication, and conflict management.

4. United Kingdom

170. Mandate of financial director. All agencies have a designated finance director (FD). The finance director has no legislative mandate: legislation refers only to the accounting officer. The mandate o f the fmance director i s by executive instruction. Treasury administrative instruction, Government Accounting 2000, para. 4.3.4, states that the accounting officer (permanent secretary o f a department) w i l l invariably need a senior finance manager- normally a finance director-and sets out the specific responsibilities o f the finance director in Government Accounting Annex 4.2.

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171. No commitment o f resources can be made without Treasury approval. In practice, the Treasury delegates to a department the authority to commit and spend within defined limits (Government Accounting 2.4.3). The financial director exercises th is delegated authority through the head o f department. Indirectly, posts are controlled through the part o f the departmental estimate to be spent on administration: this i s considered in the annual spending review. The control i s on total administration cost rather than on posts.

172. Governance and responsibiliQ:. Each department has a management board for setting out long-term strategies, approving key investment decisions, and ensuring that the department’s business planning and r isk management i s robust and sound. Most finance directors are at managing director level, which makes them members o f their management boards. Finance directors o f smaller agencies may be at director level, but s t i l l attend board meetings. The board i s chaired by the head o f department and consists o f four directors and three non- executive directors. The non-executive directors are experienced directors appointed from both government and the private sector. The management board meets monthly and has two reporting subcommittees, audit and remuneration.

173. As a member o f the management board, the finance director takes collegiate responsibility for all decisions o f the board, though the accounting officer remains ultimately accountable for all decisions. Although having responsibilities, the finance director i s subject to hisher line superior (departmental head), but within that framework has sufficient independence to carry out all responsibilities.

174. Appointment and career development offnance director: Agency heads have all the rights, duties, and powers o f an employer, so each agency has developed processes that best meet i ts requirements. These processes and the resultant recruitment decisions must, however, comply with central guidelines (Recruitment Code) issued by the Civi l Service Commission. The Civi l Service Commission formally approves all appointments through external recruitment, and undertakes an audit o f agency recruitment policies and practices. The guidelines include fakness and equal opportunity (e.g., with regard to age, disability, race and sex). Some departments use headhunter agencies. The Treasury i s informed o f applicants and may make comments or may sit on the agency’s interview panel to provide technical inputs. The finance director should be technically competent and have a comprehensive understanding o f the governing legislative framework. The finance director should also be able to manage a team at the senior management level and have the capacity to interpret, analyse, and present financial and related information for use in solving complex problems or analysing complex options. Since 2003, it has been the norm for a finance director to be a professionally qualified accountant with senior-level finance experience, as well as a graduate degree. By December 2006, 91 percent o f all government expenditure was managed by qualified accountants. As the position i s subject to merit selection, i t i s open to both private and public sector applicants. Most finance directors are now recruited from the private sector. Public sector experience i s ‘’useful but not essential.” Very few finance directors have been promoted from the civ i l service, though one has come from a local authority.

175. There i s no separate accounts/finance cadre. The Government Finance Profession (formerly called Government Accounting Service) i s a professional association, not a cadre. All are part o f the civil service structure. Remuneration package i s determined by negotiation with the selected candidate. Typical salary i s f.120-150,000 per year. Tenure depends on the contract: most finance directors are on permanent tenure but can apply for transfer. A finance director at director level can be promoted to managing director and can become permanent secretary in open competition, or a finance director in a larger department or ministry.

176. Finance directors are qualified professionals, subject to schemes o f continued professional development managed by their professional institutes. Their ski l ls are assessed in the recruitment process. Under the Professional Skills in Government Initiative, core F M

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competencies have been agreed by the Civ i l Service Management Board for all senior c iv i l servants. New entrants to the c i v i l service receive induction training at the National School for Government (the former Civ i l Service College). New finance directors receive initial mentoring by another finance director ,in the same ministry. The Government Finance Profession (a unit in the Treasury) runs quarterly meetings for finance directors; all 40 finance directors usually attend. There are several training institutions offering relevant courses, including the National School for Government.

177. Functions of the finance director. The finance director supports the accounting officer in developing the department’s aims and objectives; establishing the planning mechanisms; determining the allocation o f resources; assessing competing priorities; monitoring the outturn o f performance and resource consumption; achieving maximum value from the paybill; and ensuring that the department’s staff take account o f accepted standards o f regularity and propriety and the need to secure value for money (Government Accounting 4.3.4). Finance directors are at the apex o f the finance function o f each department and are involved in all decisions that have financial implications.

178. The specific responsibilities o f the finance director vary according to the department, and department-specific elements have to be set out in writing. The general elements o f the job description include coordination and quality control o f departmental expenditure proposals; coordination o f planning; preparation o f estimates; control and monitoring o f delegated authorities; advice to accounting officer on the regularity and propriety o f expenditure; preparation o f resource accounts; maintenance o f costing systems; ensuring compliance with the Government Accounting Manual; keeping spending within plans and the estimates; reporting outturns promptly and accurately within the department and to the Treasury; ensuring that banking arrangements are secure and offer value for money; making payments and collecting receipts; ensuring that fees and charges are set and recovered in accordance with Treasury guidelines; ensuring that departmental managers obtain value for money; setting appropriate indicators and targets for financial performance; ensuring that procurement procedures are clearly understood and in compliance with EU directives and Treasury guidance; liaising with the external auditors (National Audit Office) and ensuring that the C&AG reports correctly reflect the department’s position before the accounting officer agrees to publication; and ensuring that the department has systems for monitoring executive agencies, non-departmental public bodies, and public corporations sponsored by the department (Government Accounting Annex 4.2).

179. The financial director’s reporting depends on the head o f department, but normally includes monthly outturn reports and management accounting reports. These are submitted to the management board, and copied to the Treasury. The Treasury i s encouraging finance directors to copy them on other reports, including management reports that they submit to their boards. Generally, external reports prepared by the Finance Directorate are subject to quality assurance by the head o f Corporate Services or a deputy head o f department.

180. Usually in charge o f procurement, the finance director should ensure that procurement strategies, procedures and responsibilities are clearly set out and understood by all staff, and ensure compliance with EU directives and guidance from the Treasury and the Office o f Government Commerce. The finance director i s responsible for setting up systems to monitor adherence to procurement procedures.

18 1. In developing strategies for generating resources through public-private partnership, finance directors take a lead role, though major proposals under the Private Finance Initiative commonly use outside advisers.

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182. The accounting officer i s responsible for maintaining a sound system o f internal control (with assistance from the finance director) and managing risk. The accounting officer i s required to make an annual Statement on Internal Control, which accompanies the accounts. The Statement on Internal Control i s developed by the head o f Internal Audit and reviewed by the audit committee (and risk committee if there i s one) as a service to the accounting officer. The finance director i s responsible for the control system, while Internal Audit i s responsible for independent review and reporting on it. The finance director i s involved with Internal Audit only in connection with hisher responsibility for the budget: the finance director has to ensure sufficient resources are allocated to Internal Audit. Internal Audit queries are directed to the responsible officers within the department. Finance directors are also responsible for ensuring appropriate technological support for financial management information system in the department

183. The finance director i s responsible for the department’s relations wi th the National Audit Office that conducts external audits. The finance director receives management letters from the National Audit Office and coordinates the replies.

184. Performance evaluation and accountability. All civil servants are subject to n Annual Performance Report. The Annual Performance Report for financial directors i s prepared by the head o f department. The Treasury has no input. Finance directors can ask for feedback from the head o f department.

185. Support to thefinance director. The finance director heads a Finance Directorate. This has no standard structure: each department organizes i ts own Finance Directorate. The number o f support staff and their titles vary significantly depending on the size and complexity o f the agency. Below the finance director there i s a head o f group accounts or chief accountant (there i s no deputy finance director). The chief accountant may act in absence o f finance director. Qualified accountants are expected to fill posts at the two levels below finance director. Finance staff are trained in finance, procurement staff trained in procurement, etc. Finance directors are responsible for managing their staff, including recruitment, professional development, and performance management. They develop staff training plans and have a budget for this purpose. The finance director does not manage the training budget for the whole agency. The human resource management unit may have a departmental budget for training, but the finance director has a dedicated budget.

5. United States

186. Mandate of the Chief Financial Officer. In U S Federal Government agencies, the Chief Financial Officer Act 1990 provides a legislative basis for the mandate o f Chief Financial Officers and defines their authority and functions. The Office o f Management and Budget (OMB), which comes under the President, provides the operational guidelines under which a Chief Financial Officer i s expected to carry out their b c t i o n s . The Controller in the Office o f Federal Financial Management (part o f the OMB) i s the accounting authority for the Federal Government as a whole.

187. Other PFM legislation includes the Government Performance and Results Act, 1993; the Government Management Reform Act 1994; the Federal Financial Management Improvement Act, 1996; the Information Technology Management Reform (Clinger-Cohen) Act, 1996; and the Government Paperwork Elimination Act, 1998. The Government Performance and Results Act makes Federal agencies accountable for achieving programme results through the provision o f objective information on achieving statutory objectives and on the relative effectiveness and efficiency o f Federal programmes, as an aid to Congressional decisionmaking and improving the overall performance o f government. The Government Management Reform Act expanded the CFO Act by requiring an audit o f agency financial statements and preparation o f government-wide financial statements. The Federal Financial

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Management Improvement Act requires agencies to provide uniform, reliable, and more useful financial information. The Information Technology Management Reform Act focuses on improving the acquisition, use and disposal o f IT resources. The Government Paperwork Elimination Act moves more citizen and business transactions to the web (e-government).

188. Governance and responsibility. The secretary i s the head o f the department/agency and i s responsible for the conduct o f business o f the department as a whole. The Chief Financial Officer reports to the secretary o f the departmendagency to which he i s appointed and i s also in constant communication with the O M B (while not having any line responsibility to them). The role o f the Chief Financial Officer i s advisory and supportive in nature. The departmental secretary makes the final decisions with regard to the work o f the department. The Chief Financial Officer nevertheless provides extensive input into all financial decisionmaking, especially that related to the budget process. Once the budget appropriations are passed, both the secretary and the Chief Financial Officer work within the parameters o f the O M B guidelines.

189. The agency Chief Financial Officer has colleagues with overlapping roles such as the inspector general, the chief information officer, and the chief human capital officer, each with a legislative mandate. The inspector general i s appointed by the President and i s confirmed by the Senate and reports to the secretary o f the department and also reports every six months to the Congress. The inspector general i s responsible for independent oversight o f the agency’s functions. While the inspector general i s responsible for the financial audit and certification o f financial statements, the work i s often outsourced to external audit f m s . The inspector general also investigates any issues raised by the Government Accountability Office (GAO). The GAO i s an arm o f the Congress and conducts external audits and evaluations o f departmental policies, programmes, and internal operations. I t also conducts compliance assessments and fraud investigations, where necessary. The various Congressional committees review the reports o f both the GAO and the inspector general, and while the secretary testifies on policy and budget issues, the Chief Financial Officer certifies financial- related matters. Federal agencies have adopted the requirements on internal controls for private companies under the Sarbanes-Oxley Act through issue o f O M B circular A-123, and th is i s expected to be an area o f interest for the inspector general. As o f now, the Secretary o f the Department has to sign o f f on the agency financial statements as well as an internal controls document.

190. A Congressional Subcommittee on Government Efficiency and Financial Management, September 2004, found there was a need to reintegrate the CFO function with those o f the chief information officer, and chief human capital officer. The inspector general and Chief Financial Officer are completely independent o f each other.

19 1. Appointment and career development of the Chief Financial OfBcer: The Chief Financial Officer i s a cabinet-level position and, l ike the Secretary, i s appointed by the President with the advice and consent o f the Senate (in respect o f those agencies described under subsection (b) (1) o f the CFO Act). Chief Financial Officers in agencies defined in sub-section (b) (2) o f the CFO Act are career appointees from the competitive service or the senior executive service, and are appointed by the head o f the agency concerned. While the CFO Act does not specify the exact qualifications required for the position, i t states that the individual must have “extensive practical experience in financial management practices in large governmental or business entities.” Some o f the job s k i l l s prescribed for federal financial managers relate to management accounting, budget formulation, performance auditing, and implementation o f internal controls. Federal Chief Financial Officers come from both the public and private sectors and there i s a fair amount o f two-way mobility. Often, Chief Financial Officers have relevant sectoral experience in the private sector before joining a particular department o f the Federal Government. The possibility o f a generalist administrator becoming Chief Financial Officer i s therefore slim. The CFO positions are not openly advertised, as they are political

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appointments: instead they are known and circulated by word o f mouth. The department Chief Financial Officer i s therefore a key political appointment with a strong legislative basis.

192. The tenure o f the Chief Financial Officer i s at the pleasure o f the President, and the department Chief Financial Officers generally change with the change o f President. I t i s understood that in practice the average tenure o f a Chief Financial Officer in a federal departmentlagency i s about 18-24 months. Since the Chief Financial Officer heads the finance function in an agency, fiuther career advancement within the agency i s unlikely, unless the incumbent i s appointed secretary. In general, there i s no defined system o f assured career progression and promotions in the federal departments, and appointment to every higher position i s through open competition. All federal civil service positions are advertised and selections made depending on the job description requirements and the availability o f the required sk i l l set. The deputy Chief Financial Officer in an agency i s normally from the career civil service and i s not a presidential appointee.

193. The Chief Financial Officer i s primarily responsible for identifying hisher own training needs. Mostly professional accountants, Chief Financial Officers are required by their professional bodies to continue professional development. There are several agencies that provide training. In addition, the CFO Council has six committees, including the Best Practices Committee and Financial Management and Policies Committee that help Chief Financial Officers assess as well as satisfy their needs for training and capacity development. Some o f the new areas in which the Chief Financial Officer i s required be knowledgeable are linking performance to accountability; improved internal controls in the wake o f Sarbanes- Oxley legislation; cost accounting and management to increase efficiency o f programmes; performance auditing; specialty accounting (for asset management, debt management, etc.); and accelerated reporting (since Chief Financial Officers are required to provide timely financial reports and to close their books within 45 days o f the fiscal year-end).

194. Functions of the Chief Financial Officer. The Chief Financial Officer i s responsible for all financial management activities and processes including preparation o f annual financial statements, which are finally signed o f f by the secretary. The Chief Financial Officer oversees all financial management activities relating to the programmes and operations o f the agency; develops and maintains an integrated agency accounting and financial management system, including financial reporting and internal controls, which comply with applicable accounting principles, standards and requirements, and internal control standards.

195. Broadly speaking, the CFO functions are uniformly structured across all federal agencies. However the CFO Act i s implemented with a slight difference across federal departments. There are Chief Financial Officers who are identified as having a “full service CFO role” and those that are not “full service.’’ The former exercise all agency financial functions, including budget responsibilities, while the latter do not have any budget responsibilities. O f the 24 major federal deparhnentdagencies, 22 have “full service” Chief Financial Officers.

196. The US federal budget proposals are prepared by O M B and appropriations are passed by the Congress, following which O M B authorizes release o f funds to the department. During this entire process, the Chief Financial Officer actively engages with the budget side o f OMB, through projecting agency requirements to them as also coordinating with O M B once the appropriations have been passed. The Chief Financial Officer also liaises both wi th the Government Accountability Office and the agency inspector general on audit and accountability matters.

197. Budgetary allocations in the U S federal system are based on agency programmes and not on budget line items. I t i s the individual programme managers, and not the agency Chief Financial Officer, who are responsible for executing programme budgets once appropriations are approved. The programme managers also account for and report on the usage o f funds.

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Any changes/reallocations to the appropriations or proposals for transfer o f fbds from one programme to another within the agency require the prior approval o f the Senate Appropriations Committee. The Chief Financial Officer has a limited power o f moving fbds between individual items under the category o f “discretionary spending,’’ but neither the Chief Financial Officer nor the secretary can alter the “mandatory spending” without approval o f the Appropriations Committee. Once the appropriations have been passed, the management side o f O M B monitors the departmendagency spending as well as programme execution, and provides appropriate strategic advice and guidance. Additionally, a regulatory group within O M B monitors departmental adherence to regulations and guidelines and programme performance.

198. Performance evaluation and accountability. There i s no individual performance appraisal o f the Chief Financial Officer. Their performance i s interpreted through the agency’s financial performance as a whole.

199. The OMB evaluates the total agency performance based on a balanced scorecard method that uses financial indicators, such as submission o f financial reports on time, no improper payments, compliance with various acts and obtaining clean audit reports (see Federal Financial Management Reports at www.whitehouse.gov/omb/financial). This continuous and transparent evaluation o f the agency’s performance i s a key factor in ensuring good governance and financial management. The performance o f both the departmental secretary and the Chief Financial Officer i s therefore indirectly evaluated through this process.

200. Any difference o f opinion between the departmental secretary and the Chief Financial Officer over financial matters i s expected to be addressed while the budget requirements are being discussed within the agency. Further on, discussions with O M B provide an opportunity to the agency to lay out i t s work plan and provide justifications to OMB on budget requirements. The finalized appropriations are expected to provide full clarity on the programme allocations, and on mandatory and discretionary spending.

20 11. Support to the Chief Financial Officer. The Chief Financial Officer i s supported by a deputy Chief Financial Officer and several career finance staff managing distinct activities, such as cash management and asset management. For example, the US Department o f Labor has a Presidential-appointed Chief Financial Officer, and a deputy Chief Financial Officer and two associate deputy Chief Financial Officers who are career senior executives o f the United States Civil Service. The number o f staff varies according to the size and activities o f the agency.

202. The support staff should be trained in finance and are expected to have basic accounting and finance qualifications. Since they are recruited through the accounting/finance career stream, they are expected to build on their basic qualifications by acquiring firther professional certification. The federal finance staff are expected to have basic degrees in accounting and finance, with advanced professional certification. Additionally, they are expected to acquire core competencies in financial and performance reporting in such areas as performance measurement, balanced scorecard measurement, internal controls, cost accounting, budget planning and execution, and IT capital investments. Training i s provided by the individual agencies, by NGOs such as the Performance Institute, as well as through the various certification programmes offered by the American Institute o f Certified Public Accountants and the Institute o f Certified Management Accountants. The Chief Human Capital Officer oversees the training programmes with CFO inputs. One o f the institutional mechanisms for ongoing capacity building i s elaborated in Sec. 503 o f the CFO Act which defines the functions o f deputy director for management (OMB). This includes developing and maintaining qualification standards for agency Chief Financial Officers and deputy Chief Financial Officers, and providing advice to agencies regarding the qualifications, recruitment, performance, and retention o f other financial management personnel.

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v. INTERNATIONAL BEST PRACTICES AND LESSONS FOR INDIA

203.

A.

204.

205.

B.

206.

207.

208.

“One weakness in our governance i s the incapacity to institutionalize the best practices from our own country and elsewhere. A conscious effort not only to identify and document best practices but also build policy and create new structures and institutions to allow mass replication needs to be made” (Second Administrative Reforms Commission - Approach Paper, 2005).

Drivers of Change in Public Sector

In recent year the role o f Financial Adviser has been significantly influenced due by changes in external environment o f public sector and corresponding response o f public sector to these changes. Today’s public sector organizations are expected to have the strategic capability to make policy choices and allocate resources according to public priorities, to ensure value for money in the delivery o f services, to live within agreed fiscal ceilings, and to do so openly and transparently. Four drivers are creating complexity and the need for greater capability from the finance function: expanding responsibilities and policy challenges; more demanding regulatory and accountability requirements; changing technology; and evolving funding sources and strategies. Greater delegation o f powers to departments has been accompanied by greater accountability. Pressure on resources has focused more attention o f public sector mangers, including Financial Advisers, on resource mobilization and tighter fiscal management. The necessity o f increasing capacity to measure performance o f public departments has resulted in development o f management systems focusing on performance-based budgeting. The change to accrual accounting system in some countries i s a result o f the expectation from the public sector to measure i t s performance more accurately. The transition to accrual accounting was a major challenge for the government in such countries as Canada and the United Kingdom, a change that significantly affected staffing requirements in Finance Divisions in terms hiring and training skilled staff.

Framework o f Financial Management in Public Sector - Legislation and Guidelines

The most significant outcome o f the need to strengthen financial management as a result o f challenges facing the public sector i s that most industrialised countries and such countries as South Africa have established financial management legislation. The legislative mandate has greatly enhanced the role o f financial management in public sector and shaped development o f public finance management systems in these countries after passage o f the legislation. At the same time, this has increased the pressure o f accountability on accounting officers and key officials supporting them, such as the Financial Advisers.

In the United States, the role o f Chief Financial Officer was established under the CFO Act, 1990. I t was followed by other pieces o f legislation that have had an impact on financial management in the US Government departments. The Government Performance and Results Act of 1993 requires federal agencies to implement results-oriented management reforms, strategic planning, program goals, and transparent reporting. In South Afirica, PFMA Act and Treasury Regulations, which were issued after the PFMA Act, define the mandate for financial management.

In many countries the role o f the FA and function o f Finance Divisions are well supported by detailed guidelines covering key areas o f work, including emerging areas. The UK Good Practice Guidelines have been issued for management o f risk and as a handbook for the Audit Committee.

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Mandate o f the Financial Adviser C.

209. Ir

D.

210.

211.

E.

212.

F.

213.

G.

214.

H.

215.

Except in the United States and South Affrica the mandate o f the role o f Financial Adviser i s derived from executive instruction.

Governance Systems

Governments in many countries have responded to changes in the external environment by strengthening governance and accountability system, both within the departments and outside them. This includes Internal Systems o f Governance in each department (e.g., a Management Board in the United Kingdom; an Audit Committee in South Africa and Canada; and the inspector general in the United States.

Canada, like other countries, has established institutions such as the Comptroller General that reports to the Treasury Board Secretariat and has the responsibility to strengthen financial management across government departments in Canada and i s the standardsetter for the same. The Comptroller General has oversight o f “controllership” function in the government and i s normally consulted by the head o f the department while recruiting Financial Advisers and evaluating their performance.

Review of Financial Management

Some industrialised countries have adopted the system o f periodic review o f financial management o f departments resulting in action plans for improvement (as in the United Kingdom). Results o f such reviews have also been fed into development o f whole o f government initiatives to develop core financial management competencies. Such a system significantly increases FA responsibility to assist the head o f the department to adhere to such action plans for improvement.

Measurement o f Performance

Most countries are trying to improve systems o f measuring effectiveness o f government departments. The emphasis i s on moving away from control o f transactions to achievement o f objectives o f programs. The United States has a Balanced Scorecard System. All such evaluation systems directly influence the Financial Adviser in its role as the chief officer supporting the head o f the department in meeting i t s targets o f good financial management.

G. Reporting

The requirements o f reporting by Finance Division in many sample countries has increased and Finance Divisions have to submit additional reports apart from regular expenditure monitoring reports (e.g., Annual Statement o f Internal Control, Report on Financial Management Arrangements in departments). Also, Financial Advisers are increasingly required to fulfill reporting requirements in much shorter time than in the past (e.g., finalization o f annual accounts within three months o f financial year-end).

Responsibility of Financial Adviser

In the sample countries, all except India have a system o f unitary responsibility by Financial Adviser to the head o f the department. In Pakistan, the Financial Adviser i s responsible to Ministry o f Finance. The system o f dual responsibility o f Financial Adviser to administrative ministry and to Ministry o f Finance i s unique to India.

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I. Role of Financial Adviser

216. The role o f head o f finance o f a government department i s key to strong financial management in public sector. In some countries, the FA role, more often called chief financial officer, has expanded, both as a custodian o f public resources and as a senior player at the management table, making significant inputs to strategic decisions. The FA role i s evolving to become more strategic with lesser focus on transaction processing.

21 7. The Financial Adviser i s required to be a good leader and manager with a good understanding o f policy and programs o f the department. The key FA role i s supporting the head o f department in discharging financial management responsibilities. In Canada, as in other industrialised countries, the role o f chief financial officer i s evolving along the same lines as the counter-position in private sector.

218. In all countries there i s a dedicated post o f head o f finance, with some countries having position o f deputy Financial Advisers, as in Pakistan.

J. Selection Process of Financial Advisers

219. There i s a move towards greater professionalization o f the FA post and to attract candidates from both within and outside the public sector. In the United Kingdom, by December 2006, 91 percent o f government spending was managed by qualified finance directors, most o f whom had been recruited from the private sector. In countries covered in this research, Financial Advisers are increasingly required to be qualified finance professionals and have experience o f financial management.

220. There i s an increasing trend in some countries to cast a wider net for attracting candidates to apply for the FA job. Method o f recruitment varies from internal advertising to external advertising (e.g., as in South Africa) to word o f mouth. This latter method may work best in the United States where Chief Financial Officer i s a political appointment. In most countries studied, candidates are selected from both public sector and private sector, with a sl ight bias towards private sector (as in the United States). The tenure o f the Financial Adviser i s fairly stable in most countries, ranging from 2 to 5 years (2 to 4 years in Pakistan). In Canada, as in other countries, the tenure i s getting shorter due to increasing demand for qualified Chief Financial Officers particularly after the passage o f the Sarbanes-Oxley Act.

K. Training

221. The need to build strong financial management sk i l ls in public sector has led to governments according high priority to building institutional systems for training needs assessment, in- service training, and continuing professional development o f finance staff, including Financial Advisers.

222. In other countries, apart from training initiatives o f government, ongoing professional development o f Chief Financial Officers i s driven by the requirements o f their professional associations. New areas identified for training include enterprise risk management, internal control, r isk assessment, project appraisal, financial analysis, and corporate governance. Even in some developing countries, training in financial management for Financial Advisers i s now considered quite important, as in Pakistan.

223. In the United States, the CFO Council meets periodically. The Council subcommittees discuss training needs o f Chief Financial Officers. In Canada, the Officer o f Comptroller General i s the leader in overseeing development o f financial management ski l ls in departments.

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224. In the United Kingdom under the Professional Sk i l ls o f Government Initiative, core financial management competencies have been agreed by the Civi l Service Management Board for all civil servants in senior service and at grade-7 level. This involves embedding financial management ski l ls at all levels o f public sector alongside enhanced governance risk and reporting frameworks in order to improve decision making and delivery o f planned outcomes. The UK government also established gateway standards and professional expertise for finance professionals in the departments. The website o f Government Accountancy Service shares financial information and knowledge among finance staff (http://thegfp.treasury.gov.uk/). The National School o f Government in the United Kingdom has designed courses for Finance Professionals.

225. In South Afr-ica in 2003 the National Treasury identified areas for s k i l l development for senior civil servants, including Chief Financial Officers, which led to roll-out o f 8 courses. Both in Australia and South Africa an agreed training plan i s part o f performance plan at the time o f annual appraisal o f finance staff. In Australia a ‘whole o f government’ view i s adopted in providing training opportunities to Chief Financial Officers, such as for new initiatives o f the government.

L. Performance Evaluation of Financial Advisers

226. Performance evaluation o f Financial Advisers in most industrialised countries and in South Africa, i s based on annual conclusion o f performance agreements. In the United States, the Chief Financial Officer i s evaluated indirectly through the system o f ‘balanced scorecard.’

M. Support to Financial Advisers

227. Adequately staffed Finance Divisions with staff trained in financial management i s essential for effective discharge o f the FA role. Financial Advisers in most countries are involved in managing staff, including recruitment, management, and professional development o f staff.

228. The structure o f finance department varies and i s largely determined by i t s size and i t s functions. In most countries, the head o f department can organize the structure as per the requirements o f the department. In South Africa, there i s a recommended structure o f a Finance Division, which includes financial accounting, management accounting, and supply chain practitioners.

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VI. OPTIONS FOR THE WAY FORWARD

229.

A.

230.

231.

232.

233.

234.

In presenting options for strengthening the FA role, i t i s necessary to examine issues that arise out o f the application o f this role to achieving overall sound financial management. The FA role, responsibility, and accountability should lend itself to good financial management practices and management principles so that budgetary objectives are achieved. Therefore, most options below follow from the examination o f aspects o f the FA role in countries that lend themselves to the overall achievement o f sound public financial management. I t i s also necessary to take note o f the fact that the FA role in India i s uniquely structured and does not necessarily follow from function or expectations o f the function.

Main Observations and Options

Legislation on financial management. The mandate o f the Financial Adviser i s by executive direction. A statutory mandate would enhance the status o f Financial Advisers and strengthen their role. As India has no central organic budget law, the FA mandate could be included in a comprehensive budget law, including role o f chief accounting authority and Financial Adviser. A possible model i s South Africa. Annex F shows a generic model o f CFO responsibilities.

Governance system. The United Kingdom, as do other countries, have management boards for decision-making in departments. The secretary i s chairperson o f the board and i s accountable for i ts decisions, which are considered to be o f a joint nature with other members o f the board. The finance director (in the UK context) takes collegiate responsibility as a member o f the board though the accounting officer (i.e., secretary) remains ultimately accountable for all decisions. Therefore, mandate o f both the secretary as accounting officer, and that o f the finance director as someone supporting himher are quite clear.

Responsibility of Financial Advisers. The current structure o f the FA role wherein they are mandated with supporting the secretary and at the same time being the ‘eyes and ears’ o f the Ministry o f Finance tends to lend itself to potential conflict. I t i s therefore important to ensure that there i s a supportive, rather than adversarial, relationship between the Financial Adviser and the respective secretary. There i s a need to define the FA responsibilities more clearly, particularly as a senior member o f the management team o f the administrative ministry, and one who supports the secretary in discharging responsibilities as the accounting officer. All information and reporting requirements o f the Ministry o f Finance should be addressed to Secretaries, not to Financial Advisers. The secretaries should be held responsible for meeting all laws, rules, and budgets in terms o f General Financial Rule 64.

Institutionalized system for capacity building based on training needs assessment. Training needs to be provided by a professional training institute whether a government or nongovernmental agency. Distance learning may also be considered. Training needs assessment (as in South Afr-ica) and implementation o f training should be institutionalized as an ongoing and regular system. I t should also have a built-in system o f review o f the curriculum and methods o f training, so that training can be modified to cater to evolving needs o f finance staff in response to future developments in public financial management in India.

Assessment of F A performance. Specific criteria and benchmarks need to be developed for assessment o f performance o f Financial Advisers. These criteria should be linked to responsibilities o f the Financial Advisers as per the 2006 Charter.

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235. Allocation of work to Financial Advisers. I t i s important to assess the work profile o f different ministries so that ministries where there i s a larger workload could have dedicated (full-time) Financial Advisers. Ideally, larger ministries could have dedicated Financial Advisers. The research on other countries shows that there are dedicated Financial Advisers in ministries/department.

236. Responsibilities of Financial Advisers.

Planning and formulation of schemes/projects: Written comments by Financial Adviser should be part o f submission for Expenditure Finance Committee and Public Investment Board, etc.

Budgeting:

0 Financial Adviser should be responsible for plan budget as well as non-plan budget, even if i t s preparation i s located outside the Integrated Finance Division.

The Charter should clarify specific responsibility o f Financial Adviser for plan budget, non-plan budget, performance and outcome budget.

0

Budget execution: Financial Advisers should prepare monthly cash flow forecasts based on approved estimates and releases to be based on pre-agreed cash flow patterns, rather than across the board percentages.

Internal controls: In consultation with management team, Financial Adviser should prepare annual report on r isks facing the achievement o f departmental goals and measures to mitigate risks.

Reporting to Ministry of Finance: Annual Finance Report and Annual Outcomes and Systems Report mentioned in the Charter should be institutionalized.

237. Support for the Financial Adviser:

Chief Controller of Accounts/Controller of Accounts. Role o f chief controller o f accounts/controller o f accounts should have the same organizational scope as that o f the Financial Adviser (i.e., each Financial Adviser to have one chief controller o f accounts/controller o f accounts reporting to them) and FA and C C N C A responsibilities should be co-terminous (i-e., if some Financial Advisers continue to have charge o f more than one ministqddepartment, the controller o f accounts reporting to the Financial Adviser should also hold the charge o f the same ministries/departments). Such an arrangement might lead to better planning and coordination o f work o f various ministries/departments.

Strengthening Integrated Finance Division:

0 Separatefinance cadre: A separate finance cadre from which staff for IFD can be drawn w i l l be a significant step in long-term strengthening o f finance function and might also contribute to making the finance function more attractive to Government staff and new recruits. Th is w i l l also facilitate more effective institutionalization o f a system o f training and retention o f trained staff within the finance function.

Work study to assess number of staffand skills required in each IFD: The work study can be used as a tool to define both generic sk i l l s required for public sector financial management, as well as specific sk i l l s that are necessary for the work o f IFD staff in certain ministries, for instance in project appraisal.

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IFD Manual: The Charter mentions that an IFD manual w i l l be developed. Apart from being a tool for training and orientation o f new staff, such a manual can be useful in operationalizing the tasks to be performed by the Financial Adviser as per the Charter and as per General Financial Rules and Delegation o f Financial Power Rules.

Enhance financial management s k i l l s o f IFD staff as per recommendations above.

0 Finance staff should be professionally skilled and qualified in the field o f accountslfinance.

All departmentslministries should be encouraged to adopt Standard Organizational Chart and Job Descriptions.

B. Conclusion

238. Lessons learned from country studies clearly demonstrate that other countries studied have taken major steps in recent years to increase effectiveness o f public sector in terms o f greater accountability and transparency; more emphasis on achieving value for money and generating resources; improving efficiency, management practices and internal controls; and at times greater commercial orientation in certain sectors. Strengthening financial management i s at the core o f these changes and therefore relevant to public sector in India.

239. Options for strengthening the role o f Financial Adviser in India could have various evolutionary paths. However, once the set o f options has been selected, the method and timetable o f implementation need to be carefully assessed. This implementation path wi l l depend on the course and contours o f change that various stakeholders may choose, including legislative changes that might require organic financial management laws, akin to similar laws in other countries.

240. The options listed in this section comprise changes that are essential to make the finance function more robust and with clearer responsibility and accountability. The ultimate challenge i s to have in force a plan that i s more effective and accountable to the changes in public financial management taking place in India today.

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ANNEX A. OFFICE MEMORANDUM OF 1975

F.No. 10(29)-E.Coord/73 Government of India Ministry of Finance

Department of Expenditure **

N e w Delhi, the 6th October, 1975

Office Memorandum

Subject: Scheme of ‘Integrated’ Financial Adviser

Under the existing scheme o f budgetary and financial control and delegation o f powers, to Ministr ies as introduced vide thls Ministryk O M No.10(3)-E.Coord/67 dated 28th October, 1968, the Ministries have an Internal Financial Adviser, who i s in charge o f their Budged and Accounts Section and i s required to be consulted in all cases o f exercise o f delegated financial powers and an “associate” Financial Adviser based in the Department o f Expenditure, who i s required to be consulted in matters falling outside the delegated field. The ‘associate‘ Financial Adviser i s attached to a group o f Ministries. In pursuance o f the policy o f to delegate enhanced financial power the administrative Ministries to match their responsibilities and to improve their competence in the field o f financial management by developing appropriate internal attitudes and skills, this question whether the functions o f the ‘associate’ Financial Adviser and the Internal Financial Adviser could, with advantage be integrated in a single official, forming part o f the administrative Ministry, has been under consideration. I t has been fel t that Ministry in a larger measure than at present to enable him to play a more effective and constructive role in i ts developmental activities and should bring h i s financial expertise to bear in assisting the Secretary o f the administrative Ministry and other senior officers in the planning programming, budgeting, monitoring and. evaluation, finctions o f the Ministry. A scheme o f ‘Integrated’ Financial Adviser has accordingly been drawn up in consultation with Department o f Personnel & Administrative Reforms, the salient features o f which are outlined in the Annexure.

2. In the new scheme, the Financial Adviser will be responsible both to the administrative Ministry and to the Ministry o f Finance. With the assistance, the administrative Ministry wi l l be able to freely exercise the enhanced powers delegated under the Department o f Expenditure O M No.F.lO(13)- E.Coord75 dated 10th April, 1975 and outside the scope o f the delegations, he wi l l function under the general guidance o f the Finance Ministry. H e will assist in budget formulation, scrutiny o f projects and programmes for approval by the Ministry o f Finance and post-budget vigilance to ensure that there art neither considerable shortfalls in expenditure nor unforeseen excesses for which provision has not been made either in the original budget or in the revised estimates. The close association o f Integrated Financial Adviser and h i s staf f with the formulation and implementation o f al l proposals involving expenditure should facilitate the more effective discharge o f he Financial Adviser’s responsibility. I t i s cardinal to the working o f the new scheme that the Financial Adviser should be associated with the formulation o f schemes f iom the initial stages. The Financial Adviser will also be responsible for preparation o f the Ministry’s performance budget and monitoring o f progress o f schemes against the budget. The maintenance o f an efficient accounting system i s necessary for th ls purpose.

3. In matters involving any deviations from the budgeting and accounting procedures, consultations with the Budget Division o f the Department o f Economic Affairs, will continue to be obligatory. Similarly, in respect o f the formulation o f the Ministry’s development plans, Plan Finance Division in the Department o f Expenditure would have to be consulted. The Public Investment Board (PIB) and Expenditure Finance Committee (EFC) procedure would also continue to be applicable, the Integrated Financial Adviser taking on the role at present discharge by the Establishment Division and the Staff Inspection Unit o f the Department o f Expenditure would also not be affected by the proposed changes.

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4. In the first instance, the scheme w i l l be introduced in the following Ministries / Departments:

i. Health & Family Planning; ii. Works and Housing; iii. External Affairs iv. Education and Social Welfare v. Information and Broadcasting vi. Science & Technology; and vii. Shipping & Transport (where the scheme has already, been introduced as an experimental

measure).

5. I t i s proposed to extend the scheme to other MinistriesDepartments soon thereafter.

6. Pending further consideration o f the need for formation o f centralized or decentralized, single or multiple level cadre o f finance and accounts and scheme for absorption o f the present associate finance staff in such cadres, in the initial stage, the Financial Adviser, the officers and sta f f working in the associate Finance Divisions in the Department o f Expenditure will be transferred to the administrative Ministries as follows according to requirements

- Officers o f services other than the Central Secretariat Service w i l l be treated as on deputation to the administrative Ministry instead o f to the Finance Ministry

- Officers o f the Central Secretariat Service including Grade I and selection grade will be treated as transferred to the administrative Ministry

- Members o f the decentralized cadres o f various grades o f CSS will be transferred on loan basis from their present cadre to the cadre o f the administrative Ministry o n a purely temporary basis.

7. When the scheme i s introduced, certain changes will be necessary in the organization structure in the administrative Ministry and in the Department o f Expenditure. Creatiodabolition o f some posts will be involved. The details o f the revised organizational structure in the administrative Ministry out o f the posts and personnel to be transferred from the Department o f Expenditure to the administrative Ministry along with the work will be communicated to the respective Ministries separately.

8. suitable officers to man the posts o f Integrated Financial Adviser become available. communication will be sent to them in this respect.

The new scheme wi l l be introduced in the MinistriesDepartments mentioned in para 4 as soon as A separate

9. The a h s t r a t i v e MinistriesDepartments are also requested to make necessary arrangements for housing the additional staf f to be transferred from the associate Finance Divisions in the same building, as such arrangements are essential for the proper functioning o f the Scheme.

Sdl- (NNK Nair)

Joint Secretary to the Govt. o f India

To,

All MinistriesDepartments o f the Govt. o f India.

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ANNEX B. CONCEPT NOTE: ROLE OF THE INTEGRATED FINANCIAL ADVISER

Background

The Government o f India (GoI) has requested the Bank to provide a Research Paper on the position o f Integrated Financial Adviser (IFA) as it exists in other countries. I t i s important to mention that the F A position exists in India and al l ministries have a Financial Adviser who i s responsible to both the Finance Ministry and to the relevant administrative ministry under the existing scheme o f Budgeting and Financial Control and Delegation o f Powers (outlined by Ministry o f Finance in Office Memorandum No 10 (29) - E. Coord73 dated 6” Oct. 1975 and consequent instructions like the Redefined Charter for IFAs which was brought out in June 2006).. The IFAs exercise the powers delegated to them. Outside the scope o f delegated powers, the IFAs function under the guidelines o f Ministry o f Finance (MoF). However, in recent years, with the growth and maturity o f the Indian economy there i s a need to re-examine the role and associated responsibilities o f the IFA position. In doing so, there would be value addition in drawing from the experiences o f other countries l i ke USA, Australia and the UK etc. where the position o f IFA i s considerably evolved.

In India, the Ministry o f Finance would l i ke to examine the IFA role, responsibilities and accountability structure in the context o f the development o f the growing maturity o f the Indian economy, the great emphasis on governance and disclosure in India as highlighted by the Right to Information Legislation and in the light o f international developments where the position o f IFA i s well developed in many countries l i ke the US where a similar position o f CFO exists. To initiate this review, the M o F has, (in June 2006) brought out a “Redefined Charter for Financial Advisers”. This document defines the following:

1. Role o f Financial Advisers 2. 3. Reporting System 4. 5. 6. Capacity Building

Involvement in Key processes o f the Ministry

Roles and Responsibilities o f Chief Controllers o f Accounts Interaction between MoF and FAs

However, the Ministry i s planning to expand and revise the Charter o f June 2006 to reflect good practices and policy regarding the role o f IFA as it exists in other countries. This requirement i s comes from certain dichotomies in the roles and responsibilities o f IFAs in the present scenario. IFAs work under great pressure as they are required to report to the Secretaries o f the functional Ministries that they are placed in, but, in addition to that, they have a dotted line o f reporting to the Ministry o f Finance (MoF). In practice, IFAs are required to ensure the effectiveness and efficiency o f expenditure in the functional departments on behalf o f MoF; but, at the same time; they also have to ensure that the overall development outcomes o f their h c t i o n a l department are achieved. This effectively places them in a situation where they are required to ‘tow the line’ and any advise or opinion which may be contrary to the thinking o f the Departmental Secretary can only find its legitimate place if it i s escalated to the level o f a conflict through the MoF. This situation i s exacerbated by the somewhat nebulous description o f the IFAs duties, responsibilities and accountability.

Therefore, MoF would now like to develop a clear Charter which w i l l provide IFAs with the required authority to take decisions and will structure their function much like that o f a “chief financial officer (CFO)” akin to the CFO roles that exist in some other countries ( l ike the US). M o F would also l i ke to elevate the status o f IFAs in the Departments and Ministries in which they are posted so that they are no longer figure heads and have no conflicts in reporting arrangements which undermine their powers. MoF envisages the working o f the Indian government’s Departments and Ministr ies the lines o f ‘strategic business units’ which are functionally efficient and financially prudent. In this regard, the MoF sees a crucial role for IFAs, and hence would l ike to strengthen their position, clarify their duties, responsibilities and accountability.

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Hence, thls research paper i s sought to develop the role o f IFAs, learn fkom more advanced countries in how they have structured this position, introduce appropriate training and certification programs for IFAs and for their key support staff and provide commensurate career development opportunities so that the IFA position becomes an attractive one for officers o f Go1 and i s able to attract good talent. In order to help the Ministry revise and expand the Charter, the Bank has been requested to produce a Research Paper which w i l l record the organizational set up, roles and responsibilities o f the IFA or simi lar position in other countries.

Purpose / Objective

The purpose o f the Bank’s Concept Note would be to feed into the revision o f the Ministry o f Finance’s Charter for Integrated Financial Advisers (IFAs) based o n the experiences in countries where the role o f IFA i s well developed. The Paper would be able to provide information on the principles, policies and practices and identify good practices prevalent in other countries that the Government o f India could consider for incorporation into the Charter in the Indian context.

Scope of Work

The Bank will conduct research and assimilate experiences from other countries to set out how the position o f FA i s structured and staffed. The proposed structure o f the paper will be as follows:

1. An Issues Section where broadly the mandate and role o f IFAs (in India) as it stands will be set out. This will provide a descriptive background to the rest o f the paper and its relevance to the Indian context.

2. A cross country comparison o f different facets o f the IFA role across a sample o f 8 to 10 countries.

3. A drill down into a selected sample o f 2 to 3 countries w i l l be done. These would be countries which have set up (federal-state) similar to India.

The countries wilI be selected consultatively with MoF and other relevant stakeholders.

Methodology and Output:

The study will be conducted collaboratively with the Department o f Expenditure (DOE) o f the MOF. DOE will nominate a primary contact person for the Bank team to interact with. The team will draw up an initial short l i s t o f countries which could form a part o f the sample. This shortlist will be shared with MoF and the final sample w i l l be decided jointly by the Bank and MoF. After the sample i s selected, the team will prepare a l i s t o f questions that the paper should specifically seek to answer. Included in the questions would be specific questionnaires which will be administered to incumbent IFAs in India and in the sample o f countries that the paper seeks to learn fiom. All questionnaires and key question lists will be shared with M o F and based on the final l i s t o f questions the team will undertake research to provide answers. The indicative questions will be as follows:

1. Delegation o f financial powers, roles, responsibilities, duties, and accountability. 2. D o IFAs (or other persons occupying similar positions to IFAs) derive their mandate from the

Constitution or other statues o f the relevant countries that they are in? Specifically, whether their mandate i s executive or legislative, and which affords them greater autonomy and independen~e?~’

3. H o w independent i s the position o f the IFA? Who do they report to? Are there any conflicts in their reporting relationships? D o they have Veto Power or simply an Advisory Role? H o w are they made accountable?

37 Delegated legislation IFA has wider power than executive mandate.

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4.

5.

6.

7. 8.

9.

10

11

Structure o f IFA within the Departments. What are their reporting obligations to the Departments that they are placed in and also to their parent departments? In federal structures o f government, do IFAs at the federal and State belong to the same cadre? (e.g. in India, centre does have IFA, states do not have IFA). H o w does work flow happen in other countries? What i s the domain o f the IFAs? Are they involved in decision loop, if so, what i s the nature o f their engagement? What i s the involvement o f IFA in the budgetary process? Are they at al l concerned with the preparation o f the budget or are they simply concerned with budget execution? What sort o f control do they have over the whole money envelope for the department? What i s the stability o f their tenure? What i s the incentive structure, assessment framework, professional requirements o f the cadre, career development opportunities etc.? What sort o f support s t a f f do IFAs in India have? Are the support staff professionally qualified, are they trained in finance? What are their reporting lines, are there any conflicts there? I s there a need for sk i l l development o f the IFAs’ support staff! Does Go1 have any initiatives which are doing this already? If so, how far have those initiatives been developed and what are the findings from those? What are the lessons from other countries? H o w do other countries structure the support for their CFO type positions? What i s responsibility o f the IF0 with regard to the Right to Information (RTI) legislation that has recently been enacted in India for on demand information and proactive (suo moto) disclosure? What i s the mandate o f IFAs on the overall public financial accountability mandate o f the concerned department? Are they responsible for audit, or answering audit queries? D o they represent the Department in the Public Accounts Committee?

12. What i s the role o f the IFA in the context o f Departmental procurement?

The output will be a research report describing the set up o f IFAs in selected countries highlighting the issues and options applicable to the Indian context. The contents and format o f the report w i l l be discussed and decided jointly with DOE. The draft report will also be discussed with relevant stakeholders in a workshop to be organized by the MoF.

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Timeline

Activity Completed by:

Team Composition

Manager: Lead Specialist:

Robert J. Saum P. K. Subramanian

Task Leader: Priya Goel

Key Contact Person in DOE: Mr. Atanu Chakraborty (Joint Secretary - Personnel) Mr Manish Kumar (Deputy Secretary)

Task Team:

Peer Reviewers:

Internal

External

Quality Assurance

Atul B. Deshpande Mohan Gopalakrishnan International Consultant (Anthony Bennett) Local Consultant (Asha Bhagat)

Mohan Nagarajan (PREM) Rajeev Kumar Swami (Latin American and Caribbean Office o f Financial Management)

Michael Jacobs (World Bank Consultant) Prof. Vishwanath Alok (Indian Institute o f Public Administration)

Apart from review by the internal and external Peer Reviewers, the study w i l l follow the S A R and India C M U guidelines for quality assurance o f sector work.

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Annex C. Redefined Charter for Financial Advisers in India, 2006

F.No. 5(6)/L&C/2006 Government of India Ministry of Finance

Department of Expenditure **

New Delhi, dated the June 1,2006

OFFICE MEMORANDUM

Subject: Scheme of 'Integrated Financial Adviser'

Under the existing scheme o f Budgetary and Financial Control and Delegation o f Powers outlined by this Ministry vide O M No.l0(29)-E.Coord/73 dated 6th October, 1975 and subsequent instructions in this regard, the Ministries have a Financial Adviser who i s responsible both to the administrative Ministry and the Ministry o f Finance. With his assistance, administrative Ministries freely exercise 'the enhanced powers delegated to them and, outside the scope o f the delegations, he h c t i o n s under the guidelines o f the Finance Ministry.

2. After the introduction o f the scheme, the Indian economy has matured and we are attempting to keep pace with the fast growing economies o f the world. Therefore, i t i s imperative that our systems match the needs o f a fast growing economy. The role o f Financial Adviser assumes great importance in such a scenario and the scheme has been redefined in th is context. The redefined Charter for Financial Adviser annexed to this memorandum outlines the features o f the Revised Scheme o f Integrated Financial Adviser.

3. This comes into force with immediate effect.

Sd- (Adarsh ashore)

Finance Secretary and Secretary (Expenditure)

To, I. Cabinet Secretary 2. Principal Secretary to the Prime Minister o f India 3. All Secretaries to the Government o f India (By name) 4. All FAs (By name) 5. All Heads o f Public Sector Enterprises

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ANNEX

S. No.

I

11.

REDEFIXED CHARTER FOR FIKAYCIAL ADVISERS

Contents Page Nos.

Introduction 2-3

Role o f Financial Advisers 4-10

111.

IV.

Involvement in Key Process o f Ministries 11-12

Reporting System 13

V.

VI.

VII.

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Reporting System 14-15

Interaction between MoF and FAs 16

Capacity Building 17-18

ANNEX-I: Copy O M No. 10(29)-E-Coord/73 dated 6.10.1975 indicating the functions o f Integrated Adviser along with the modalities for functioning.

ANNEX-11: Provisions under DFPR indicating duties and responsibilities o f the Financial Adviser.

Introduction

The Scheme o f Integrated Financial Adviser currently operates in accordance with Office Memorandum No. 10(29)-E-Coord/73 dated 6.10.1975 issued by the Department o f Expenditure, Ministry o f Finance. The scheme provides that the Financial Adviser would be responsible both to the Administrative Ministry and to the Ministry o f Finance. The scheme also briefly indicates the functions o f the Integrated Financial Adviser along with the modalities for functioning. A copy of.the GM i s appended (ANNEX-I).

2. The last thirty years since introduction o f this scheme have seen the Indian economy grow from a less developed stage to one o f the fastest growing economies o f the world. This growth has been the result o f well structured economic reforms and conscious policy decisions. The last two decades have witnessed a plethora o f reforms in monetary and fiscal management o f the country. We have now reached a stage from where further progress requires a renewed effort. The second- generation reforms are throwing up complex challenges which, inter alia, call for a re-look at some o f the institutionalized financial management systems.

3. The institution o f Financial Adviser (FA) occupies a unique position in the functioning o f Government o f India. Having served well till now, time has come for it to be brought in sync with the fast changing socio-economic scenario and attendant attitudes, processes and systems in the Governmental functioning. I t i s necessary that the role, authority as well as accountability o f the Financial Advisers be redefined and codified in unambiguous terms, and their capacity enhanced to meet the emerging challenges. Ministry o f Finance has internally reviewed the scheme in this context, and the concept o f redefined the charter for the Financial Advisers, as outlined in the ensuing paragraphs.

4. The overarching concept In redefining the charter for Financial Advisers i s that Financial Advisers are meant to assist in the achievement o f objectives/goals o f their respective Administrative Ministries, as approved by the competent authority; and that they must commit themselves to facilitate Implementation o f the approved programmes, with due financial prudence, to ensure that monies allocated are spent on time, in the prescribed manner, to achieve the intended outcomes defined in measurable and monitorable terms. Assisting Administrative Ministries in ensuring ‘value for money’ would be a key objective for Financial Advisers, with emphasis on improving the quality o f expenditure and requisite systemic improvements / capacity building for this purpose. I t may also be reiterated that FAs represent the Ministry o f Finance in regard to al l financial matters.

5. The more complex responsibilities envisaged for FAs must be accompanied by corresponding authority and capacity. I t would, therefore, be necessary to ensure that FAs are suitably empowered, and appropriate measures are taken for capacity building both institutionally and individually. The organizational resources, structure and processes themselves may need to be augmented / modified, and I.T. enabled systems, latest financial management practices, knowledge management structures etc. put in place.

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Role of Financial Advisers

6. The role o f Financial Adviser i s now conceived to be akin to the role o f the Chief Financial Officer in a corporate structure, with specific responsibilities for ensuring fiscal prudence and sound financial management. They would bring requisite financial expertise, and overall perspective o f financial management o f the Government, as enunciated by the Ministry o f Finance, in rendering professional advice to the Secretaries o f the Administrative Ministries on all matters which have financial implications.

7. The role o f Financial Adviser wi l l be crucial for successful planning and implementation o f various schemes and projects. Value for money w i l l be the most important parameter in evaluating such schemes and projects. Therefore, it i s imperative that outlay for a scheme i s intrinsically linked with the Outcome Budget and Performance Budget.

8. In rendering their advice, the Financial Advisers would be expected to accord priority to macro management with a view to help in achieving the outcomes set by the Ministries as goals for themselves. These macro issues could include schematic appraisal and concept functions, revenue management, subsidy management, fiscal resource transfer issues, defining and evaluating outcomes besides maintaining and safeguarding the budgetary integrity, etc. FAs would also be expected to look at the total picture o f resources for the sectors in which they are functioning, and assist the Secretaries o f the Administrative Ministries in moving towards greater resource mobilization, including in terms o f enabling policy and regulatory framework to attract private sector funds. FAs would in no case be assigned any routine administrative functions o f the Ministry.

9. Appendix 2 o f DFPR i s an indicator o f overall expanse o f duties and responsibilities o f the Financial Adviser (ANNEX-11). However, following are some o f the specific tasks which the FAs would be responsible for:

i. Budget formulation: FAs would continue to be responsible for budget formulation. They would bring in more analytical inputs into the budget formulation process, for improved budgeting and facilitating moving from ‘itemized’ to ‘budgetary’ control o f expenditure. The present system relies largely on previous year’s programme allocations and continuing commitments, without any real evaluation and expenditure analysis. FAs would now increasingly be required to assist the Administrative Ministries I Departments in moving towards zero based budgeting, and assist in better inter se programme prioritization I allocation within the indicated budgetary ceilings, based on analysis o f expenditure profiles o f each programme I sub-programme and information on cost centres I drivers; assessment o f output, outcome and performance; and status o f the projects / programmes (e.g. priority to last mile projects). Chief Controllers o f Accounts / Controllers o f Accounts (CCAs I CM) w i l l support them in this function. Such an analysis at the time o f initial budget formulation should, over a period o f time, help in enforcing hard budget constraints and reducing reliance on supplementaries. As the FAs‘ internal budgetary exercise becomes more rigorous, their involvement in MOWS budgetary processes w i l l increase.

ii. Outcome Budget: Administrative Ministr ies w i l l now be required to prepare their respective ‘outcome budgets’ by late March each year, on the basis o f the ‘Annual Financial Statement’ presented in the Parliament in February. The ‘outcome budget’ would reflect the outlays in terms o f outcomes, defined in measurable and monitorable terms. Reasonability o f budget estimates, vis-a-vis the intended outcomes, wi l l be ensured through specific appreciation o f the unit costs o f outcomes/delivery. Major schemes should have built-in provision for their evaluation by independent agencies, which may be appointed by the Administrative Ministr ies and I or Planning

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Commission I MoF. FAs would be actively involved in the preparation o f outcome budgets. They would also assist the Administrative Ministr ies in clear definition o f measurable and monitorable outcomes with specified deliverables; setting up appropriate appraisal, implementation I delivery, monitoring and evaluation systems; and ensuring actual achievement o f the intended outcomes.

11 .i. Performance Budget: Administrative Ministries w i l l also be required to prepare their respective ‘performance budgets’ by late March each year, indicating the ‘outcome’ o f the ‘Outcome Budget’ o f the previous fiscal year at least upto December end. Thus, while Annual Financial Statement and Outcome Budget would be for the ensuing financial year, the Performance Budget would present the picture o f actual achievements I performance for the financial year gone by. FAs would be actively involved in, and coordinate under the overall direction o f the Secretaries concerned, the preparation o f performance budgets for their respective Administrative Ministries. In essence, Budget Formulation, Outcome Budget and Performance Budget must link present, future and past in an integrated manner.

iv. FRBM related tasks: The Fiscal Responsibility and Budget Management Act requires the Government to place disclosure - statements before Parliament along with the Annual Financial Statement and the Demands for Grants. CCAs I CAS as heads o f the Accounts wing shall render their professional expertise in the functioning o f financial management system. FAs would be responsible for preparation o f these statements in respect o f their Ministry I Department for incorporation in the consolidated statements compiled by the Ministry o f Finance for the Government as a whole. FAs would also provide requisite information and material as input for FM’S quarterly review o f fiscal situation to be presented to the Parliament.

v. Expenditure and cash management: FAs would continue to be responsible for expenditure management and cash management. MoF’s initiatives for better expenditure management through sophisticated exchequer control mechanisms would also be supported by FAs with improved cash management, through monitoring o f monthly cash flows effectively in the context o f cash expenditure I commitments to be agreed to mutually between the MoF and the Ministries / PSUs I Autonomous institutions. This would help tighten the system o f receipts and payments monitoring, and secure greater convergence o f revenue inflow and expenditure outflows, so that borrowing and thus debt charges can be minimized. FAs would also ensure that release o f funds to State Governments I other agencies i s linked to the scheme-wise I project-wise utilization certificate and audited expenditure o f previous years. Utilization certificates should reflect outcomes, or at least the physical outputs. FAs w i l l also ensure that unspent balances with the State Governments and other agencies are not transferred to Public Accounts; and in case such transfer i s permitted, these should be duly audited. The expenditure management function would also be closely linked to the ‘outcome budget’. CCAs / CAS w i l l support FAs in the discharge o f these responsibilities.

vi. Project / programme formulation, appraisal, monitoring and evaluation: Rigorous I effective project I programme formulation, appraisal, monitoring and evaluation are vital for high quality investment decisions and successful I timely delivery o f intended outcomes. The Administrative Joint Secretaries have to take the lead role in project I programme formulation, implementation and monitoring. FAs should take the lead in ensuring high quality appraisal and evaluation with requisite rigour. MoF have issued clear guidelines in this regard, which need to be adhered to scrupulously.

vii. Screening o f proposals: FAs would be responsible for examining and forwarding all proposals, which need to be referred to any Department in the Ministry o f Finance.

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viii. Leveraging of non-budgetary resources for sectoral development: FAs would assist the Administrative Ministries in evolving strategies for optimizing private sector investment and Public-Private Partnership in the sector, through enabling policies/schemes and appropriate regulatory framework, formulating projects for external funding, and taking innovative measures for leveraging o f non-budgetary resources for sectoral development. In addition, the present role o f FAs in assessment and leveraging o f IEBR for investment programmes o f the Public Sector Undertakings w i l l continue.

ix. Non-tax receipts: Non-tax receipts have assumed greater significance in the context o f the need to limit fiscal and revenue deficits, as mandated by the Fiscal Responsibility and Budget Management (FRBM) Act. An optimum non-tax receipt budget would, therefore, be prepared by FAs, in consultation with the Administrative Divisions. FAs would, thereafter, periodically review the various non-tax revenue receipts under control o f the Ministry / Department to which they are assigned, in the context o f market trends and other sectoral developments. FAs would need to act as a catalyst in moving towards a regime in which the user charges recover the cost o f service fully or substantially, as per the Government policy in this regard, and in case o f only partial recovery to ensure that the subsidy element i s clearly quantified. In the case o f rent, licence fees, royalties, profit share and dividends, the duties o f FAs would include conducting periodical reviews, and giving their considered comments and recommendations regarding the reasonableness o f return to the Government on the deployed public resources. COAs / GAS shall assist FAs in relation to estimation and flow o f non-tax revenue receipts.

x. Tax Expenditure: FAs would also monitor tax expenditures, i.e., the revenue foregone by Government on account o f various exemptions and concessions. This i s important since tax expenditure constitute a significant part o f overall Government spending. Within the administrative Ministry, such proposals should be routed through the Financial Advisers before finalization.

xi. Monitoring of assets and liabilities: Each Ministry must have a comprehensive record o f i t s assets and liabilities. FAs would cause appropriate action for initial building up o f such records and their on-going updation, as also for the maintenance and optimum utilization o f the assets. Government guarantees should also be monitored. FAs in Ministries with significant real estate assets/property (land, buildings etc.) w i l l cause a critical analysis o f th'eir utilization, including review o f property encroached upon, property involved in disputes / court cases etc., and also be the catalyst to ensure necessary action for their availability and fullest utilization. The progress would be regularly reviewed, and corrective action taken on an on-going basis.

xii. Accounts and Audit: FAs would be kept informed about the overall quality o f maintenance o f departmental accounts by their respective CCAs / CAS. FAs would also regularly review the progress o f internal audit and action taken thereon, so as to make i t an important tool for financial management. Action taken on audit paras may also be monitored on a regular basis.

xiii. Procurement and contracts: Significant amount o f monies are spent by Government on procurements and contracts. FAs would be required to set up strong internal systems to ensure due diligence and strict observance o f MoF's guidelines in this regard. (The guidelines are being revised, and new guidelines are expected to be issued shortly).

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xiv. Financial Management Systems: FAs would periodically review the financial management o f the various programmes / projects o f the Ministry from the systems point o f view, and take appropriate action for making the financial management systems more effective.

xv. Nominee Director on Boards of Public Sector Undertaking: Financial Advisers are often Government's nominee Directors on Boards o f Public Sector Undertakings (PSUs). This role assumes increasingly more important dimensions with the greater autonomy being granted to PSUs. FAs would need to bring strong requisite expertise to bear on all major issues considered by the Boards. Separate guidelines w i l l be issued regarding the nomination and functioning o f FAs as Directors o f Boards o f PSUs, in consultation with the Department o f Public Enterprises.

xvi. Use of technology: Increased use o f technology as an advanced tool, especially communications and information technology, should be encouraged not only in his division but also in the domain o f Ministries / Departments with the view to ensure better utilization o f resources available with the Government and improve delivery o f public services to achieve the intended results. Economy, efficiency and effectiveness would be the guiding principles.

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Involvement in Kev Processes of Ministries

10. I t i s important that FAs are h l l y involved in the key processes / activities o f Administrative Ministr ies which have clear economic and financial dimensions. Administrative Ministries shall, therefore, invariably involve FAs in all such activities and decision making processes which would, inter alia, include the following but may not be limited to:

0 Formulation o f annuaV5-year plans, and other important consultations with Planning Commission like mid-term appraisal.

0 Preparation o f ‘outcome budget’, ‘performance budget’ and evaluation o f actual outcomes.

0 All proposals for consideration o f CNE / SEC / EFC / PIB / Cabinet / Cabinet Sub- Committees, or otherwise referred to the Ministry o f Finance.

0 Externally aided projects, and other strategies to encourage larger resource mobilization for the sector, including through Public Private Partnership (PPP), appropriate regulatory structures etc.

0 Policy / programme formulation and other major decisions, to facilitate proper appreciation o f the consequential financial implications.

1 1. Ministry o f Finance has been increasingly moving towards macro management o f issues, and delegating more powers to the Administrative Ministries. This delegation i s reviewed periodically and i s suitably enhanced as and when required. As such, the Financial Advisers have adequate financial powers. Exercise o f these powers, and necessary financial analysis, may require the FAs to call for relevant records / reports / fi les relating to various decisions, contracts etc. FAs’ involvement would, therefore, specifically include the right o f access to all records, reports, audits, reviews, documents, papers, recommendations or other material which are the property o f the Ministry/Department, or which are available to the Ministry/Department, and which relate to programmes and operations with respect to which that MinistryAIepartment calls for accounts, data and reports.

12. FAs would be consulted in all cases relating to the exercise o f the delegated financial powers. Whi le normally FAs‘ advice would be expected to be adhered to, there could be instances / cases in which the Administrative Ministries feel that there are valid reasons for some modification / deviation. In such rare instances, Secretaries o f Administrative Ministries can exercise their power to overrule FAs‘ advice by an order in writing.

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Reportinp Svstems

13. FAs w i l l be required to prepare an ‘Annual Finance Report’, which would be a factual report Indicating the operational aspects o f financial management o f the Department / Ministry, including information on the resource requirement, pattern o f expenditure with reference to outlay / budget, opening and closing unspent balances, opening and closing position o f utilization certificates, position o f non-tax revenue (user charges, dividends etc.) wi th reference to previous year, FRBM related activities etc, and suggestions for improvement.

14. FAs would also be required to f i n i s h an ‘Annual Outcomes and Systems Report’, which would give factual information regarding the outcomes achieved vis-a-vis intended (as per Outcome Budget), policy and systems changes / improvements and action-taken I results-achieved in regard to those aspects o f FA’S role which are not included in the Annual Financial Report.

15. ‘Annual Financial Report’ and ‘Annual Outcomes and Systems Report’ would be factual reports to be submitted to Secretary (Expenditure), through the Secretary o f the Administrative Ministry, by June 30 o f the next financial year. The ‘Annual Financial Report’ would be prepared on the basis o f the information contained in the provisional accounts released by the Controller General o f Accounts in the month o f May. The structure o f the reports w i l l be intimated separately.

16. In addition to the above, FAs would be mandatorily required to send disclosure statements concurrently to the Secretary o f the Administrative Ministry and Secretary (Expenditure) whenever there are deviations from, or violation of, the provisions in paras 13-15 above. They may also be required to send any other information / report periodically, or as sought from time to time.

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Roles and resDonsibilities of CCAsICA

17. As the overarching concept now adopted is that the Financial Advisers are meant to assist in the achievement o f objectives I goals o f their resl3ectiVe administrative ministr ies it follows that the role o f Chief Controller o f Accounts (CCAS) I Controller o f Accounts (CAS) should undergo a parallel change as the basic accounting and financial inputs for the Financial Advisers come f iom the CCAs / CAS. In the last three decades the role o f CCAs / CAs has undergone subtle, unrecorded changes that need to be formally spelt out and institutionalized in precise and unambiguous terms. No t only do the accounts wings operating under CCAs I CAS need to catalyze changes in existing system protocols in order to synergise and integrate al l interrelated aspects with the changing paradigm o f financial management they in turn need to be strengthened and empowered to effectively cope with the changed demands made on them.

18. While the CCAs I CAS as head o f the accounts wing, under overall superintendence and control o f Financial Advisers, discharge their duties and responsibilities within the ambit o f their respective administrative ministries lending their professional expertise to provide Accounting and Accountability support.

19. financial and accounting regime, are enumerated below:

The spectrum o f work for which CCAs I CAs will be responsible, in the revised outcome driven

(i) Receipts. Pavments and Accounts:

0

Timely realization o f receipts.

0

Accurate and timely payments in conformity with prescribed rules and regulations.

Timely and accurate compilation and consolidation o f monthly and annual accounts. Efficient service delivery to the Ministry I Department by the banking system. Adherence to prescribed accounting standards, rules and principles. Timely, accurate, comprehensive, relevant and useful Financial Reporting.

(ii) Internal Audit I Performance Audit

The Internal Audit Wings working under the control and supervision o f the CCAs I CAS shall assist the Financial Advisers in the appraisal, monitoring and evaluation o f individual schemes. Moving beyond the narrow myopic confines o f compliance I regulatory audit Internal Audit would focus on:

0 Assessment o f adequacy and effectiveness o f Internal controls in general , and soundness o f financial systems and reliability o f financial and accounting reports in particular; Identification and monitoring o f risk factors (including those contained in the Outcome Budget); Critical assessment o f economy, efficiency, and effectiveness o f service delivery mechanism to ensure value for money; and Providing an effective monitoring system to facilitate and course corrections. 0

(iii) Other financial management activities

Budget formulation including the ‘Outcome’ and ‘Performance Budget’. 0 Expenditure and Cash Management.

Estimation and flow o f non-tax revenue receipts. 0 Monitoring o f Assets and Liabilities. 0 Disclosure and reporting requirements under FRBM Act.

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Interaction between MoF and FAs

20. The system o f interaction between the MoF and FAs would be institutionalized to facilitate better two way communication and development o f shared perspectives on financial issues. The Administrative Ministries would be clustered in three groups for this purpose, viz, economic / infrastructure sector, social sector and other Ministries. Secretary (Expenditure) would be meeting the FAs o f each o f these groups once in a quarter. These interactions will provide a forum to share the vision, priorities and concerns with the FAs who, in turn, would get an opportunity to apprise MoF about their activities, important developments and problems.

21. cover the following areas:-

The quarterly interactions between the FAs and Secretary (Expenditure) would inter alia,

* Implementation / compliance o f decisions taken in FM's quarterly meetings. Discharge o f responsibilities detailed in this charter, specifically the functions defined in para 8 above. Initiatives taken as a catalyst for policy formulatiodreview and, systems' improvements in the concerned Ministries. Identification o f points for action on emerging sectoral issues, including potential opportunities within the sector/Ministry. Major proposals / projects currently in different stages o f preparation / approval by the Administrative Ministries, for the consideration o f CNE / EFC / PIB / Cabinet / Cabinet Sub- committees.

22. The interactions could also be used for reviewing progress on MoF's specific priorities, as also those outlined in the Budget. Specific agenda i tems may also be developed for FM's quarterly meetings with FAs, on the basis o f these monthly interactions.

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Capacitv Building

23. The Integrated Finance Division may require strengthening in some Ministries for assisting the Financial Adviser in his redefined role. Such strengthening may include need for using information technology, setting up knowledge management structures, building requisite data bases, networking with relevant institutions / expert bodies etc. I t may also require changes in the various decision making processes, conflict resolution, problem solving, programme/project formulation / appraisal, monitoring, evaluation etc., and delegation by FAs within their own divisions. The staff / officers would also require specialized training for rendering better professional advice. In addition, consultants may be required for specific tasks from time to time.

24. At the beginning o f each Financial Year, the Financial Advisers should review the existing expertise, structure and processes o f the Integrated Finance Division (1FD) under their respective charges, to assess / evaluate its strengths, weaknesses and potential for development. In doing so, the expertise available in the set-up o f CCAs / P&AOs would need to be fully taken into account. FAs would also need to clearly assess the expertise, knowledge, sk i l ls and equipment (computers / internet etc.) required for effective functioning o f the IFD. On the basis o f th is analysis, FAs would formulate by June 30, each year, specific time bound Action Plans for such organizational strengthening and changes as may be required. They would also need to put in place a strategy for further development o f requisite ski l ls etc., through training o f existing staff and their replacement by suitably qualified personnel, wherever necessary. Creation o f posts may be avoided while strengthening / restructuring the 1FDs. Instead, proposals for engaging consultants for a limited time, under GFR 2005, may be sent for approval o f Secretary (Expenditure), through the Secretary o f the Administrative Ministry, if considered absolutely essential. An ‘1FD Manual’ would be prepared in due course, to facilitate more effective functioning o f the Integrated Finance Divisions.

25. An institutionalized system would be set up by the Department o f Expenditure for organizing periodical workshops, seminars and training for Financial Advisers and their officers, and for helping FAs in preparation o f induction material for different level o f functionaries working under them. At the beginning o f each Financial Year, not later than June 30, the Financial Advisers should indicate to the Department o f Expenditure, the training needs o f their respective IFDs, areas where they want opportunities for their own capacity development, and assistance required to facilitate meeting o f these needs. Basic s k i l l upgradation areas could include Government accounting, commercial accounting, project appraisal, financial analysis, corporate governance etc. Policy related and sector- specific training could include public private partnership, contract management, negotiation, r isk management, mergers and acquisitions etc.

26. FAs would be the nodal points within their respective Ministries for all activities relating to Plan, Budget and Programme / Project evaluations. As such, any units in the Ministry currently looking after the functions o f undertaking evaluations, preparing Annual / Five Year Plans etc. should fimction under the overall supervision and control o f the Financial Adviser.

27. increased delegation o f purely routine financial activities to the Administrative Divisions o f the Ministries, would enable FAs to take on a more active macro-management role. This will also significantly enhance FAs’ role in, and value-addition to, the budgetary management and project / programme appraisal processes. FAs would also be expected to build-up an appropriate system o f networking with Financial Advisers o f autonomous organizations and institutions within their respective sectors, which are receiving budgetary support, to ensure optimum utilization o f their resources.

Over a period o f time, the enhanced capacity and expertise o f IFDs, coupled with

95

ANNEX-I

F.No. 10(29)-E.Coord/73 Government of India Ministry of Finance

Department of Expenditure **

N e w Delhi, the 6th October, 1975

Office Memorandum

Subject: Scheme of ‘Integrated’ Financial Adviser

Under the existing scheme o f budgetary and financial control and delegation o f powers , to Ministries as introduced vide this Ministry’s OM No.10(3)-E.Coord/67 dated 28th October, 1968, the Ministries have an Internal Financial Adviser, who i s in charge o f their Budged and Accounts Section and i s required to be consulted in all cases o f exercise o f delegated financial powers and an “associate“ Financial Adviser based in the Department o f Expenditure, who i s required to be consulted in matters falling outside the delegated field. The ’associate’ Financial Adviser i s attached to a group o f Ministries. In pursuance o f the policy o f to delegate enhanced financial power the administrative Ministries to match their responsibilities and to improve their competence in the field o f financial management by developing appropriate internal attitudes and skills, this question whether the functions o f the ‘associate’ Financial Adviser and the Internal Financial Adviser could, with advantage be integrated in a single official, forming part o f the administrative Ministry, has been under consideration. I t has been felt that Ministry in a larger measure than at present to enable him to play a more effective and constructive role in i ts developmental activities and should bring h i s financial expertise to bear in assisting the Secretary o f the administrative Ministry and other senior officers in the planning programming, budgeting, monitoring and evaluation, functions o f the Ministry. A scheme o f ‘Integrated’ Financial Adviser has accordingly been drawn up in consultation with Department o f Personnel & Administrative Reforms, the salient features o f which are outlined in the Annexure.

2. In the new scheme, the Financial Adviser will be responsible both to the admhstrative Ministry and to the Ministry o f Finance. With the assistance, the a h s t r a t i v e Ministry will be able to fieely exercise the enhanced powers delegated under the Department o f Expenditure OM No.F.lO(13)- E.Coord75 dated 10th April, 1975 and outside the scope o f the delegations, he w i l l function under the general guidance o f the Finance Ministry. H e will assist in budget formulation, scrutiny o f projects and programmes for approval by the Ministry o f Finance and post-budget vigilance to ensure that there art neither considerable shortfalls in expenditure nor unforeseen excesses for which provision has not been made either in the original budget or in the revised estimates. The close association o f Integrated Financial Adviser and h i s staff with the formulation and implementation o f all proposals involving expenditure should facilitate the more effective discharge o f he Financial Adviser’s responsibility. I t i s cardinal to the working o f the new scheme that the Financial Adviser should be associated with the formulation o f schemes f iom the initial stages. The Financial Adviser will also be responsible for preparation o f the Ministry’s performance budget and monitoring o f progress o f schemes against the budget. The maintenance o f an efficient accounting system i s necessary for th is purpose.

3. In matters involving any deviations ftom the budgeting and accounting procedures, consultations with the Budget Division o f the Department o f Economic Affairs, will continue to be obligatory. Similarly, in respect o f the formulation o f the Ministry’s development plans, Plan Finance Division in the Department o f Expenditure would have to be consulted. The Public Investment Board (PIB) and Expenditure Finance Committee (EFC) procedure would also continue to be applicable, the Integrated Financial Adviser taking on the role at present discharge by the Establishment Division and the Staff Inspection Unit o f the Department o f Expenditure would also not be affected by the proposed changes.

96

4. In the f i rs t instance, the scheme will be introduced in the following Ministries I Departments:

i. Health & Family Planning; ii. Works and Housing; iii. External Affairs iv. Education and Social Welfare v. Information and Broadcasting vi. Science & Technology; and vii. Shipping & Transport (where the scheme has already, been introduced as an

experimental measure).

5. I t i s proposed to extend the scheme to other MinistriesDepartments soon thereafter.

6. Pending further consideration o f the need for formation o f centralized or decentralized, single or multiple level cadre o f finance and accounts and scheme for absorption o f the present associate finance staf f in such cadres, in the initial stage, the Financial Adviser, the officers and staff working in the associate Finance Divisions in the Department o f Expenditure will be transferred to the administrative Ministries as follows according to requirements

- Officers o f services other than the Central Secretariat Service will be treated as on deputation to the administrative Ministry instead o f to the Finance Ministry Officers o f the Central Secretariat Service including Grade I and selection grade will be treated as transferred to the administrative Ministry Members o f the decentralized cadres o f various grades o f CSS wi l l be transferred on loan basis f tom their present cadre to the cadre o f the administrative Ministry on a purely temporary basis.

- -

7. When the scheme i s introduced, certain changes will be necessary in the organization structure ih the administrative Ministry and in the Department o f Expenditure. Creatiodabolition o f some posts will be involved. The details o f the revised organizational structure in the admmstrative Ministry out o f the posts and personnel to be transferred from the Department o f Expenditure to the administrative Ministry along with the work will be communicated to the respective Ministries separately.

8. suitable officers to man the posts o f Integrated Financial Adviser become available. communication will be sent to them in this respect.

The new scheme wi l l be introduced in the MinistriesDepartments mentioned in para 4 as soon as A separate

9. The admmstrative MinistriesDepartments are also requested to make necessary arrangements for housing the additional s t a f f to be transferred from the associate Finance Divisions in the same building, as such arrangements are essential for the proper functioning o f the Scheme.

Sdl- (NNK Nair)

Joint Secretary to the Govt. o f India

All MinistriesDepartments o f the Govt. o f India

97

ANNEX-I1

APPENDIX 2

ITEMS OF WORK TO BE HANDLED BY INTERNAL FINANCIAL ADVISERS

The Internal Financial w i l l be in overall charge o f Budget and Accounts in addition to the Internal Finance Section. I t w i l l be his duty -

(i) To ensure that that the schedule for preparation o f budget i s adhered to by the Ministry and the Budget i s drawn up according to the instructions issued by Finance Ministry from time to time;

(ii) To scrutinize budget proposals thoroughly before sending them to Ministry o f Finance;

(iii) To see that complete departmental accounts are maintained in accordance with the requirements under the General Financial Rules. I t should, in particular, be ensured that the Ministry not only maintains account o f expenditure against the Grants or Appropriations ‘directly controlled by it but also obtains figures o f the expenditure incurred by the subordinate offices so that the Ministry has a complete month to month picture o f the entire expenditure falling within i t s jurisdiction;

(iv) To watch and review the progress o f expenditure against sanctioned grants through maintenance o f necessary Control Registers and to issue timely warnings to Controlling Authorities where the progress o f expenditure i s not even;

(v) To ensure the proper maintenance o f the Register o f Liabilities and commitments as required under the GFRs to facilitate realistic preparation o f budget estimates, watching o f book debits and timely surrender o f anticipated savings;

(vi) The screen the proposals for supplementary demands for grants;

(vii) To formulate-the foreign exchange budget for the Ministry and to process individual cases for release o f foreign exchange in accordance with the instructions issued by Department o f Economic Affairs from time to time;

(viii) To advise the Administrative Ministry on all matters falling within the field o f delegated powers. This includes all powers other than those devolving on a Ministry in i t s capacity as Head o f Office. I t has to be ensured by I.F.A. that the sanction issued by Administrative Ministry in exercise o f delegated powers clearly indicates that they issue after consultation with 1.F.A;

To identify, in particular, specific savings in cases o f creation o f posts and to maintain a Register for this purpose;

To scrutinize proposals for re-delegation o f powers to subordinate authorities;

To keep himself closely associated with the formulation o f schemes and important expenditure proposals from their initial stages;

To associate himself with the evaluation o f progresdperformance in the case o f projects and other continuing schemes and to see that the results o f such evaluation studies are taken into account in the budget formulation;

98

(xiii) To watch the settlement o f audit objections, Inspection Reports, draft audit paras, etc;

(xiv) To ensure prompt action on Audit Reports and Appropriation Accounts, Reports o f Public Accounts Committee, Estimates Committee and Committee on Public Undertakings;

(xv) To screen all expenditure proposals requiring to be referred to Finance Ministry for concurrence or comments;

(xvi) To emure regular and timely submission to Finance Ministry o f quarterly staff statements and other reports and returns required by Finance.

99

ANNEX D. LIST OF PEOPLE MET

9. 10. 11.

India

Mr. Ani1 Razdan Secretary Mr. Rajesh Sharma Mr.M.Sahoo

Joint Secretary & Financial Advisor Joint Secretary & Financial Advisor

Ministry of Petroleum and Natural Gas 8. I Mr. M.S. Srinivasan I Secretary

20.

21.

22.

23.

Mr. Brett Kaufinann

Mr. Lewis Hawke

Ms. Anne Hazel1

Division Manager, Financial Reporting and Cash Management Division, Department of Finance and Administration Special Advisor, Financial Framework Division, Department of Finance and Administration First Assistant Secretary, People, Resources and Communications Division, Department of Prime Minister and Cabinet (previously Chief Financial Officer of a number of agencies) Executive Director, Chief Financial Officer, Australian National Audit Office

Mr. John Hawley

I Department o f Telecommunications and Department of Telecom Services, Ministry o f I Communications and Information Technology 12. I Ms. Manju Madhavan I Member Finance

Ministry o f Health & Family Welfare 13. I Mr. Raghubir Singh 1 Additional Secretary &Financial Advisor 14. I M r s . Aastha S. Khatwani I Director (Finance)

Ministry o f Food, Consumer Affairs and Public Distribution 15. I Mr. Vivek Mehrotra I Additional Secretary &Financial Advisor

Ministry o f Human Resource DeveloDment 16. I Mr.S.K.Ray I Joint Secretary & Financial Advisor 17. I Mrs.Burman I Chief Control o f Accounts

Sixth Central Pay Commission 18. I M r s . SushmaNath I Member Secretary 19. I Mr. Manoj Joshi I Advisor

Australia

100

Canada

24. 25. 26. 27. 28.

Mr. Michael Hawkes Mr. Kevin Lindsay Mr. Jim Ralston Ms. Anne -Marie Robinson Ms. Stacy Van Humbeck

Chief Financial Officer, Public Works and Government Services Chief Financial Officer, Industry Canada Chief Financial Officer, Canada Revenue Agency Chief Financial Officer, Public Service Commission Treasury Board o f Canada Secretariat, Office o f the Comptroller

29. 30. 3 1. 32. 33. 34.

General Treasury Board Secretariat CGA - Office o f the Auditor General o f Canada CGA - Office o f the Auditor General of Canada Office o f the Auditor General o f Canada Conference Board o f Canada Conference Board o f Canada

Mr. Alan Winberg Mr. Andrew Lennox Mr. Jean-Pierre Plouffe Mr. Clyde Maclellan Ms. Janet Milne Ms. Jennifer M Fultz

35.

36.

37.

I Director o f a FA) (Secretaria de l a Funci6n Phblica) I Former General Director o f Program & Budget o f Presidential Office 40. I Carlos Garza Ibarra,

Ir. Iwan Eddy Putranto

Puja Samedhi

Eli Tamba SE.Ak., MM

Head o f Bureau o f Finance (Kepala Biro Keuangan), Ministry o f Public Works Secretariat - Head o f Finance Section (Kepala Bagian Keuangan), DG Highways (DJ Bina Marga), Ministry o f Public Works Head o f Section - Accounting and Cash, DG Treasury, Directorate Accounting and Financial Reporting, Ministry o f Finance

38.

39.

United Kingdom

Mr. Jose Levy Financial Advisor (Official Mayor) at the Ministry o f Agriculture o f the Mexican Government (Secretaria de Agricultura, Ganderia, Desarollo Rural, Pesca) General Director Federal Government Comptroller. (Former Manager Adrian Franco

42. I h4r. David Watkins 43. I Mr. Mike Timmis

I Head, Financial Reporting Policy, UK Treasury I Head o f Finance, National School of Government

41.

United States of America

and former staff o f Undersecretary o f Expenditure at Ministry of Finance Human Resources & Training, Ministry o f Agriculture (Secretaria de Amicultura. Ganderia. Desarollo Rural. Pesca)

Luis Jaime Avila.

44. I Mr. Christophersen 45. I Mr. John W. Cox

I Chief Financial Officer, Department o f Agriculture I Chief Financial Officer, Department o f Housing and Urban

I / I DeveloDment I

101

ANNEX E. SELECTED WEBSITES

INDIA Ministry of Finance http:/lfinmin.nic.in/ National Institute of Financial Management http://www.nifm.ac.in‘ Second Administrative Reforms Commission, India http:llwww.arc.Pov.in/tor.htm Fiscal Responsibility and Budget Management Act, 2003 httu:l/finmin.nic.in/law/f?bmAct2OO3.vdf Report of the Task force on Implementation on FRBM Act, 2003 htta:l/finmin.nic.in/downloadslreuo~s/f?bmlsta~.htm Right to Information Act, 2005 htta://persmin.nic.in/RTIlWelcomeRTI.htm Guidelines on expenditure management, fiscal prudence and austerity http://finmin.nic.in/the ministryldept expenditure/ecoord/austerity.pdf Staff Inspection Unit httu:l/finmin.nic.in/the ministryldeut exuenditurelstaff insuection unit/index.html Controller General of Accounts http://finmh.nic.idthe ministryldeat expenditurelcontroller general accounts Formulation, Appraisal and Approval of Plan Scheme Projects, Compendium of Important Circulars, Plan Finance I1 Division, N, Ministry of Finance, September 2004 (to note FA’S role) httv:llfinmin.nic.in/the ministryldeat exvenditure/notofication/Faavsrcomr,.vdf Rationalization of Functions, Activities and Structure of Department o f Expenditure http:llexpenditurereforms.nic.in/de 1 O.pdf Financial Management Group http:llmohfw.nic.in/finman~oup.htm

UNITED STATES CFO Act, 1990 http:llgovinfo.library,unt.eduinprllibrarylmisclcfo.html Government Accountability Office, USA http://www.gao.govl Office of CFO, Department o f Labour, U S Government http:llwww.dol.govlocfolresources.html The Government Finance Officers Association (US) http://www.gfoa.ord CFO Act and Federal Financial Management: End of the Beginning: Report of ZBM Business Consulting Divtsion (May 2005) (on Lessons Learnt) http://www-935 .ibm.comlservicesluslimclpdflwv-cfo-act .pdf The Evolving Role of Federal CFOs: Hearing Before the Sub-committee on Government Efficiency and Financial Management, September 2004 http:/If?webgate.access. rno.gov/ The Performance Institute http:llwww.performanceweb. orglCENTERS/FMlInnovatel FM Courses/Skills htta:/lwww.verformanceweb.ordCENTERSIFMIFM Center FM Catalog.udf Office of Management and Budget, US Government http:/lwww.whitehouse.~ovlomblfinanciallindex.html Chief Financial Officers Council, US Government http:/lwww.c foc.gov/ Financial Systems Integration Office, U S Government http://www.fsio.gov/fsio/fsiodatdfsio aboutshtml Advanced Government Accountability http:/lwww.agacgfm.ordaboutl Questionnaire for Association of Government Accountants 2006 httu:llwww.agacgfm.ordresearchldownloadsl2OO6auestionnaireCFOs.pdf

102

2006 Federal CFO Survey: Advancing Federal Financial Management: Measures, Systems and Shared Service Centers http://www.agacgfm.ore/researchidownloads/CFOSurve~06.pdf 2005 CFO Survey: Integrating Internal Control with Performance Management htt~://www.a~ac~fm.ore/researchidownloads/CFOAGASurve~2OO5 .pdf Government Financial Management Resources http://www.agacgfm.ore/tomorrow/resources.htm AGA Links http://www.a&!ac&!fm.ore/hks.aspx Federal Accounting Standards Board http:/Iwww. fasab.gov/ Circular No. A 127: Financial Management Systems http:l/www. whitehouse.aovlomblcirculars/a 127/a 127.html Circular A-123: Management's Responsibility for Internal Control http://www. whitehouse.gov/omblcirculars/a 123/a 123 rev.pdf Federal Government: Legislation http://www.hvDerion.com/solutionsIfederal division/leaislation.cfm

CANADA The Conference Board of Canada: Strategy, Accountability and New Role of CFOs http://www.conferenceboard.ca/documents.asD?mext= 179 1 Treasury Board of Canada Secretariat: Report of the Independent Review Panel on Modernization of Comptrollership in the Government of Canada

Government of Canada http://www.canada.gc.ca/main e.html Government of Canada - websites of department and agencies http://www.canada.gc.ca/depts/maior/deDind e.html Report of the Auditor General of Canada: Managing Government - Financial Information, 2006 http://www.oag Report of the Auditor General of Canada: Managing Government - Financial Information, 2005

httD://w.tbs-scf.ac.ca/cmo mfclresources2/review Danel/rirDOl e.asD

http://www.oag Report of the Auditor General of Canada: Managing Government - Financial Information, March 2004 httD://www.oaa-bvg.gc.ca/domino/re~orts.nsf~tm1/20040306ce. html Report of the Auditor General of Canada: Financial Management and Control in Government of Canada, December 2002 http://www.oag-bv&!.&!c.ca/dom~no/re~orts.nsf/htm~~~~~ 1205ce.html Report of the Auditor General of Canada: Assessment o f Financial Management Capabilities in Departments, October 2000 http://www.oag-bvg.gc.ca/domino/reaorts.nsf/html/oo 13ce.html Financial Management Capability Model htt~://www.oa~-bv~.gc.ca/domino/other.nsf/html/99cm 1 e.html#0.2.2Z 14 1 Z1. WKP23M.RXB89F.4 Financial Administration Act, Canada http://laws.iustice.ec.ca/en/F- 1 l/index.html Federal Accountability Act 2006, Canada http://www.faa-1fi.gc.cdindex e.asD Federal Accountability Act 2006, Canada: Commitments and Proposed Action http://wwW.faa-lfi.gC.Ca/dOCS/CDa-emD/CDa-emDe.aSD Department of Finance, Government of Canada http://www.fin.ec.ca/fin-en&!. html DPR 2005-06 Treasury Board of Canada Secretariat http://www.tbs-sct.gc.ca/d~r-~/0506/TBS-SCT/tbs-sct02 e.asp The Conference Board o f Canada: Strategy, Accountability and New Role of CFOs, October 2006 http://sso.conferenceboard.ca/ Public Sector Financial leadership: Reinventing the Finance Function http://www.conferenceboard.ca/documents.asD The Conference Board o f Canada: Strategy, Accountability and New Role of CFOs http://www.conferenceboard.ca/documents.asp?mext= 179 1

103

BRAZIL Government of Brazil http://www.brasil.gov.br/ingles/ Programmes and Projects http://www.brasil.gov. bdingleslprogramsl Brazil Government http://www.brazil .org.uk/government/index.html Brazil Government http://www.brazilink,orgigovernment,asp The Keele to South Americans Governments http://www. keele.ac.uk/depts/por/labase.htm#br Politics of Brazil http:l/en.wikipedia.org/wiki/Politics_of-Brazil#External-links Brazil Government: Executive Branch http://www.v-brazil.com/government/executive-branch/ Brazil Government sites (in Spanish) htto://www.~o~itica~resources.net/brazi~3 .htm Ministry of Finance (in Spanish) http:l/www. fazenda. gov.br/ National Treasury http://www.stn.fazenda.gov.br/english/national_treasury/index.asp SIAFI - Financial Administration System http://www.stn.fazenda.gov.br/endish/siafdindex.asp The Brazilian Fiscal Responsibility Law, May 2000 http://www 1 .worldbank.orgipublicsector/pe/BudgetLaws/BRLRFEnglish.pdf Brazil: Country Financial Accountability Assessment, 2002 http://www.countryanalyticwork.net/CAW/Cawdoclib,nsf The World Bank, Brazil: Fiscal and Financial Management Technical Assistance Loan http://web.worldbank.org/external/projects/ Brazil: Presentation on Implementation of Fiscal Responsibility Law, December 2001 http://www.oecd.orgidataoecdl36/28/1825037.pdf Fiscal Responsibility Regime, presentation March 2002 http://www.unpan.org/projectslbrazil/docsluk3Irf.ppt#592,l ,Slide 1 E-governance: presentation March 2002 http://www.un~an.or~vroiectslbrazil/docs/uk4egov.upt#372.1 Slide 1 Fiscal Federalism: Reflections, presentation, March 2002 httu:l/www.unuan.org/proiects/brazil/docsllse uk.aot#793,l.Slide 1 Brazil: General Structure of Public Administration htttxliunpan 1 .un. org/intrado~I~roups/public/documentsNN/UNPANOOO242.~df

AUSTRALIA http:Nwww. finance.gov.aul Australian Government: Dept. Of Finance and Administration FMA Legislation http://www.finance.gov.au/FinFrameworWfma_legislation.html Financial Framework Division http://www, finance,gov,au/ fin framework/ Australian National Audit Office http://www.anao.gov.au/ Australian Public Service Commission http:l/www.apsc.gov.au/publications/index.html Chief Financial Officer: Roles and Responsibilities: Good Practice Guide 2004, Audit General Victoria http://www.audit.vic.gov.au/reports_betterqractice/cfo_gpg0 1 .pdf Reducing Red Tape: Dispelling Some Myths in Australian Government Administration, Department of Finance and Administration, Govt. of Australia, 2007 http:llwww.apsc.gov.au/finance/myths.pdf An Analysis of Chief Financial Officer Function in Commonwealth Organizations - Benchmarking Study, Australian National Audit Office, Audit Report No. 28,2001 http://www.anao.gov,au/uploads/documents/200 1 -02-Audit-Report28.pdf

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Connecting Government: Whole of Government Responses to Australia Priority Challenges http://www.apsc,gov,au/mac/connectinggovemment.htm The New CFO of the Future: Finance Functions in the Twenty First Century, KPMG Consulting Ltd., The Institute of Chartered Accountants of Australia http://www.lmnconsulting.com,au/NewCFOofthefuture.pdf CFO 2010: Establishing New Frontiers for the CFO, IBM Business Consulting Services, 2005 http://www-03 .ibm.com/services/calenibcs/cfo~20 10 .pdf CPA Australia: CFO News http://www.cpaaustralia.com.au/newsletters/CF0/20092006.htm The CFO Chameleon http://www.charteredaccountants.com.au/charter/charter archive/2004/november 2004 Financial Management and Accountability Act, 1997

http://www.comlaw.gov.au/ComLaw/Legislation/Act Financial Management and Accountability Regulations, 1997 http://www.comlaw.gov.au/ComLaw/Legislation/ Financial Management and Accountability Orders 2005 http://www.comlaw.gov.au/ComLaw/Legislation/ Accounting Policy: Introduction http://www. finance.gov.au/ace/ Foundations of Government in Australian Public Service, 2005 http://www.apsc.gov.au/foundations/foundations.pdf

SOUTH AFRICA National Treasury http://www.treasury.gov.za/ Public Financial Management Act, 1999 http://www.treasury.gov.za/showpfma. htm Public Financial Management Act, 1999 http://www.treasury.gov.za/legislation/acts/pfmdact .pdf South Africa: Financial and Fiscal Commission

South Africa: National Treasury http ://www.finance.gov.za/ Public Financial Management Act (1999): (Chapter 4 Accounting Officers) http://www.treasury.gov.za/showpfma. htm Public Financial Management Act, 1999 (Amendments to Treasury Management in Terms of Section 76, 15 March 2005) (pages 7, 79,82 mention role o f CFO) http://www.info.gov.za/gazette/regulatiord2005/273 88.pdf Financial Management of Parliament Bill 2005 http://www.info.gov.za/gazettelbills/2005/28 166.pdf Guideline for Legislative Oversight through Annual Reports http://www.treasurv.gov.zd National Government Departments http://www.info.gov.zdlinks/govt-dept .htm Details of CFOs at National Departments http://www.treasury.gov.za/ South African Qualifications Authority: PFMA http://www.info.gov.za/gazette/notices/2OO5/273 86e.pdf Fiscal Responsibility in South Africa, http://siteresources.worldbank.org/INTINDIA/Resources/Ismailmomoniat.pdf

UNITED KINGDOM Government Accounting 2000 (see chapters 1-6 and 8, Chapter 4 for Role of Accounting Officer (4.1) and Finance Director (4.2) http://www.govemment-accounting.gov.ukicames. htm Accounting Officers and the Treasury’s Role (Introduction) http://www.hm- treasury.gov,uk/documents/financial_management/govemance~govemmen~a~~acco~tin~ole~index.cfm Accounting Officer: Model Resource Accounting Officer Appointment Letter http://www.hm-treasury.gov.uk/media/8FC/BA/resourceaccountappt~template03O 106.pdf

htt p://www. ffc.co.za/

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Finance Directors for Government Departments, December 2003 http://www.hm-treasury.gov.uk./newsroom~and~speeches/press/2003/press~124~03.cfm National School of Government, UK http://www.nationalschool.gov.uWnews_eventslstories/newgovemementdepartment.asp Open and tailored programs for finance and non-professionals 2006-2007, National School of Government http://www.nationalschool.gov.uWdownloads/financial_management .pdf Managing Resources: Strategic Approach to Finance Training http://www.hm- treasury.gov.uWmedial45D 1 5/Strategic_approach_to_financialpaining-Pink-guide(302Kb).pdf HM Treasury: Financial Management http:llwww. hm-treasury.gov.uWdocuments/financial~management/financial~management~index.cfm Financial Management & Professionalism http://www.hm- treasury.gov.uWdocumentslfinancial~management/~nancial~management~rofessionalism/fmp~index.cfm Implementing Resource Based Management http://www.hm- treasury.gov.uWdocuments/financial~management/financial~management~rofessionalismipss~aud~rabmrfull.c fm Managing Resources: Implementing Resource Based Financial Management, HM Treasury, September 2002 http://www.hm-treasury.gov.uWmedialCF2/2CIBlue%20second%20edition.pdf Better Decision Making in Departments http:/lwww.hm-treasury.gov.u~m~dia/BBE~4F/man~resources~better~deci~3rd.pdf Managing Resources: Reporting to the Board http://www.hm-treasury.gov.ukimedia/5D3DE/Reporting~to~the~Board_Burgundy~Guide( 145.9Kb).pdf Managing Resources: Accountability http:/lwww.hm-treasury.gov.u~medial94836/Copy~of~%2OAccountability~Ch~olate.pdf Managing Resources: Faster Closing http://www.hm-treasury.gov.uWmedia/2048D/Faster~Closing~Mauve( 1 15,7Kb).pdf Managing Resources: Maximising the Benefits for Departments, June 2001 http://www.hm-treasury.gov.uWmedia/5 1097/Maximising-the-benefits-for-departrnents( 82Kb).pdf Managing resources to deliver better public services: Treasury minute on the Twenty Fifth Report f rom the Committee of Public Accounts 2003-04, July 2005 httu:/lwww.official-documents.gov.u~documen~cm65/6578~6578.vdf Financial Reporting Advisory Board http://www.hm-treasurv.gov.uk/documents/financial management4inreo adboardvss aud rabindexxfm Financial Reporting Advisory Board: Report for Apr i l 2005- March 2006 htt~:/lwww.hm-treasurv.~ov.uWmedialAA0/92lfrab 9th report ami1 2005 to march 2006.pdf The Government Financial Reporting Manual 2006-2007, National Audit Office, November 2006 httr,://www.nao.org.uk/guidance/FAU nov 2006,~df Governance in Government http://www.hm-treasurv.gov.uWdocumentslfinancia1 managementlgovernance governmentlgg indexxfm Good Practice: Financial Audit and Corporate Governance Guidance http:llwww.nao.org.uWguidance/wgalwga-index.htm Internal Audit: Quality Assessment Framework http:llwww.hm-treasury.gov.uWmedial3 1311 7liaqaf.pdf Regularity, Propriety and Value for Money, Treasury officer of accounts, November 2004 (Report) http://www.hm-treasury. gov.uWmedia/28A/48/Reg~Prop~and~VfM-NovemberO4 .pdf Guide to Scrutiny of Public Expenditure: Introduction http://www.hm- treasury.gov.uWdocument s/financial-management/govemance_govemmen~scrutiny-of~ublic-expenditure.cfm National Audit Office http:/lwww.nao.org.uW National Audit Office Sitemap http:l/www.nao.org.ukisitemap.htm WGA Resources http:llwww.wga.gov.uWpages/resources.html Government Financial Reporting Manual http:l/www.financial-reporting.gov.uW

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Government Financial Reporting Manual (FReM) 2006-07 http:llwww.financial-reporting,gov.uW2006-07%2OFReM.pdf National Audit Office, Audit Committee, Self-Assessment Checklist http://www.nao.org.u~guidance/checklists/AuditCommittee~Checklist~May2OO6.doc Introduction to Whole of Government Accounts http:/lwww,wga.gov.uWpages/introduction.html Delivering the benefits of accrual accounting to the whole of government sector http://www.hm-treasury.gov.uk./pre~budget~report/prebudqbr05/other~docslprebudqbrO5~odaccounting.cfm Delivering the benefits of accrual accounting to the whole of government sector, Report December 2005, HM Treasury http://www.hm-treasury.gov.uk./media/F59/87/pbr05~accounting~28 1 .pdf Civil Service http://www.direct .gov.ukledGtg11/GuideToGovemment/Centra1GovernmentAndTheCivi1Service/DG~4003080 Directory: Services in Northern Ireland http://www,direct.gov.uWenIDl l/Directories/DevolvedAdministrations/DG~4007268 Northern Ireland: Department of Finance & Personnel (Northern Ireland) http://www.dfpni.gov.uW Civil Service: Skills http://www,civilservice.eov,uWskills National School (Information on Training Courses 2006-07) http:/lwww.nationalschool. fzov.uk/ HM Treasury http:l/www.hm-treasurv.eov.uk/ Office of Government Commerce (procurement guidelines) http://www.oec. eov.uW www.publicfinance.co.uk htta:l/www.intute.ac.uWsocialsciences/cei- Role and Involvement o f Finance (Scotland) httD://www.scotland.gov.uWTopicslGovemment/Finance/safm/financeroles Scottish Public Finance Manual http:/Iwww.scotland. crov.uWTopicslGovemment/Finance/spfm/Intro

PAKISTAN About government http://www.pakistan. eov.pW Ministries and Divisions http://www.pakistan. eov.vW Fiscal Responsibility and Debt Limitation Act, June 2005 http://www.finance.gov.pWfrdio.pdf System of Financial Control and Budgeting, September 2006 httv://www.finance,eov.~k/bud~etin~2006.~df Finance Division Yearbook 2005 (see page 1,4-5 (FD), 3 1-32 (Public Sector CB Project, 33-34 (Civil Service Reform), 34 (PIFRA), 63-64 (FD Military), 65-69 (AG), 70-72 (CGA) http://www.finance,eov.pk/YearB0ok2005 06.adf Fiscal Policy Statement 2006-07 (see 1-2, 6-1 1, 22-26) httv://www.finance.gov.pkifiscalPolicy.pdf Ministry of Finance

Medium Term Budgetary Framework http://www.mtbfaakistan.gov.pkl Financial Management Application http:l/www,mtbfpakistan.eov.pWfma. htm Roadmap of Medium Term Budgetary Framework (presentation), April 2005 http://www.mtbfpakistan.gov.pWdownloads/Roadmap.Dpt About MTBF http://www.mtbfpakistan.gov.pWabout mtbf.htm DFID, Status Report of MTBF in Pakistan (2003-06), July 2006 http://www.mtbfpakistan.gov.pWpdfslStatus Report PwC MTBF 4 Julv06.pdf MTBF Guidelines 2007-08 http://www.mtbfpakistan.gov.pWdownloadslDOCS 2006 09lBCClGUIDELINES 2007 08.adf

http://www.eakistan.eOv.pW

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Capacity Building in Public Financial management, World Bank presentation, M a y 2005 httu://info.worldbank.org/etools/bsuan/PresentationView.aso?PID= 152 1 &EID=740 Second Improvement to Financial Reporting and Auditing Project, PAD, August 2005

wds.worldbank.org/external/defaultDSContentServer/WDSPIIBI2005108/19/000090341 200508191021051R enderedPDFl33 1210PAK.udf Pakistan Public Sector Capacity Building Project, PAD, April 2004

wds.worldbank.org/external/defaultWDSContentServer/WDSP/IB/2004/04/30/0000 12009 20040430 1 12206/R enderedlPDFl2839 1 .udf Public Financial Accountability in Pakistan: Impact of PIFRA, Capacity Enhancements Brief, The World Bank, April 2004 htta://info.worldbank.oreietoolsldocsllibrarv/82353/CEbrief-06 Aur04%20- %20Public%20Financia1%2OAccountability.~df

INDONESIA Indonesia: Introduction on Budgeting and Accounting, Chapter 5 http://www.asosai.org/R~P~financial~accountability/chapter~5~indonesia.htm Chapter 6: Public Sector Enterprises in Indonesia http://www.asosai .org/R~P~accountability~control/chapter_6indonesia.htm Indonesia: Capacity Building for Financial Governance: Completion Report, ADB, December 2006 http://www.asiandevbank.org/Documents/PCRslIN0I3 1660-INO-PCR.pdf Public Financial Management Reform: Examples from Indonesia and China, presentation, The World Bank, Bert Hofman, March 2006 http:llwww.mof.go.jp/j ouhodkokkidtyousd 1 803pfm- 1 O.pdf Government Financial Management and Revenue Administration Project, The World Bank, PAD, November 2004

wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/ 12/09/0000 12009-2004 1209 1 10238lR enderedlPDFl299 1 O.pdf Decentralizing Indonesia: World Bank Regional Public Expenditure Review Report http:l/siteresources.worldbank.org/INTINDONESIA/Resources/Publication/03-Publication/RPR-DecInd- June03 .pdf Reform of Public Financial Management System in Indonesia, November 2001 http:l/www.gtzsfdm.or.idldocuments/library/on~indiRefo~~PublicFinancialManagement~2OO 1 .pdf Indonesia Decentralization: Managing the Risk http://www.internationalmonetaryfund.com/external/pubs/fseminar/2OOO/idn/expass.pdf

MEXICO Mexico (see Government & Politics, Administrative Divisions) http://en.wikipedia.org/wiki/Mexico Ministry of Finance http://www,shcp.gob.mx/portada-english/ingles/zyx.html Public Credit Office http://www.apartados.hacienda.gob.mx/ucp/ingles/index-deuda.html Ministry of Finance and Public Office http://www.apartados.hacienda.gob.mxiucp/in~es/index-deuda. html Mexico: Office of Auditor General http://findarticles.com/p/~icles/mi~qa3662/is~200004/ai~n8882825 Mandates of Supreme Audit Institutions http://www.nao. org.uMintosai/edp/mandates/mandateslMandatesl Mexico: Public Expenditure Review, The World Bank, August 2004: Volume 1: Core Report, August 2004 (see pages I-15,39-42)

wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/ 101 191000 1 12742-2004 10 19 16524 1/R enderediPDFlMXOPEROCore0Report.pdf Mexico: Public Expenditure Review, The World Bank, August 2004 http://www-wds. worldbank. orglexternall

htts:/lwww-

httP://www-

http://www-

http://www-

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Mexico: Improving fiscal transparency and administrative performance at the state level, The World Bank, September 2006 (not a federal level project, but some references to federal systems) http:/lwww-wds.worldbank.orglexterna1 Mexico: Country Financial Accountability Assessment, The World Bank, September 2003 Mexico: State Level TA to establish performance indicators for procurement, public expenditure and financial management, The World Bank, June 2006 http://web.worldbank.org

GENERAL I B M Global CFO Study http:l/www-93 1 .ibm.codbin/cp/driver.cgi http : //www . t bs- sct . gc . cdmedi dcgs-dcpi05 1 020-e .asp Legislature and Budget Process: An International Survey, National Democratic Institute for International Affairs, 2003 http://www.accessdemocracy,orgllibrary/l65 1-gov-budget-093 103.pdf Managing for Development Results: Second International Roundtable, Marrakesh, February 2004 http://www.mfdr.orglSeminarAgenda2.htm Country Budget Laws: World Bank site http:l/wwwl .worldbank.org/publicsector/pe/countrybudgetlaws.cfm International Consortium on Government Financial Management http://www.icgfm.orgmissprogram.htm

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ANNEX F. GENERIC MODEL FOR CHIEF FINANCIAL OFFICER DUTIES AND RESPONSIBILITIES

1. Unless directed otherwise by the [Department o f Expenditure], each [MinistryDepartment] shall have a finance officer (hereafter called the Chief Financial Officer) serving on the senior management team.

2. The [Department o f Expenditure] i s responsible for determining the level o f qualification, ski l ls , knowledge, and experience required by a Chief Financial Officer in a [Ministry/Department] .

3. The Chief Financial Officer i s directly accountable to the [Chief Accounting Authority].

4. Without limiting the right o f the [Chief Accounting Authority] to assign specific responsibilities, the general responsibility o f the Chief Financial Officer i s to assist the [Chief Accounting Authority] in discharging the duties prescribed in [General Financial Rule 641 which relate to the effective financial management o f the MinistryDepartment including the exercise o f sound budgeting and budgetary control practices, the operation o f internal controls and the timely production o f financial reports and include:

supervising and coordinating the preparation o f draft annual estimates and submitting them to the [Chief Accounting Authority] at the required dates; ensuring that the authorised estimates o f expenditure o f the [Ministry/Department] are not exceeded; keeping watch on the expenditure o f votes controlled by other officers and warn them if there i s a danger o f those votes being exceeded; informing the [Chief Accounting Authority] regularly o f the expenditure incurred or likely to be incurred under each vote; preparing supplementary estimates for submission to the [Chief Accounting Authority] where necessary; ensuring that no expenditure i s incurred before i t has been authorised; establishing a proper system o f accounting in accordance with these Regulations; supervising the prompt collection o f all revenue due to the [Ministry/Department] and bringing promptly to account, under the proper [heads, sub-heads and object heads], all revenue or other receipts paid into the [MinistryDepartmentI’s bank account or accounted for to him; supervising all officers entrusted with the receipt and expenditure o f the [Ministry/Department] ’s funds and taking precautions, by the maintenance o f frequent checks, including surprise audits, against the occurrence o f fraud, embezzlement or carelessness; supervising the expenditure and other disbursements o f the [Ministry/Department] and ensuring that no payment i s made without proper authority; and in case o f any apparent extravagance calling this to the attention o f the officer concerned and h i s superiors; charging under the proper heads, sub-heads and object heads all disbursements o f the [ MinistryDepartment] ; supervising the preparation o f the annual accounts o f the [MinistryDepartment] for audit and preparing financial statements and returns as required by [the General Financial Rules and applicable laws]; making provision for the secure custody o f all receipt books, tickets, licences and other accountable documents in the manner provided for in these Regulations; after consultation with the [Chief Accounting Authority], monitoring the [Ministry/Department] ’s procedures for the procurement o f goods, services and works in accordance with the [General Financial Rules].

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(0) ensuring that proper provision i s made for the safe-keeping o f the [MinistryDepartment] 's moneys, securities, valuable documents and account books in accordance with these Regulations; supervising the operation, maintenance and protection o f the [MinistryDepartment] 's accounting and data processing equipment including the provision o f dust and damp- flee accommodation and standby facilities in the event o f breakdown or power failure;

(q) responsibility for the proper organisation o f h i s office, for a fair allocation o f duties among his staff and for their training;

(r) ensuring that all officers with duties o f a financial nature are conversant with and comply with these Regulations and any other financial directives;

(s) instituting disciplinary or other action as he thinks necessary against officers contravening these Regulations and any other financial directives;

(t) where necessary, taking action to secure the recovery o f losses, or their write-off in accordance with the [General Financial Rules] and these Regulations; and

(u) implementing the policies and directives o f the [MinistryDepartment] as communicated to him by the [Chief Accounting Authority]; but that if he considers that any directive i s not in accordance with the law and regulations governing financial matters, he shall prepare a written statement o f objection to the [Auditor-General] and copy i t to the [Chief Accounting Authority] and the Minister o f the [Ministry/Department] .

(p)

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