Pifra Business Finance Project

Table of contents:

Chap 1 : Introduction 1.1) Introduction to pifra 1.2) Components of pifra 1.3) Software used 1.4) Scope&institunal relations

Introduction The Govt. of Pakistan took an initiative to address the shortcomings of the financial reporting system and to ensure good governance. The IMF carried out a survey in Government Accounting in early 1990s, followed by a diagnostic study sponsored by the World Bank. As a result, the Project to Improve Financial Reporting and Auditing (PIFRA) was introduced by the Auditor General of Pakistan in 1994. The main objective of this project is to computerize the whole accounting and auditing system of the country. The idea behind computerizing the whole system is to generate timely, accurate and reliable financial statements; to monitor fiscal deficit; to forecast flow of cash; to manage public debt and to achieve effective financial controls. The accounting system of Pakistan was inherited from the century old accounting system of the Indian govt. The old accounting system lacks timeliness, accuracy and most importantly transparency. Accounts of any organization, large or small, are the most important tool for curbing the corruption by keeping an eye on ins and outs of the money and more importantly they give the overall inner picture of the organization to the stakeholders which helps them take better financial decisions. While talking about the country as an organization the importance of the accounts becomes much more vital. The stakeholders are everyone, be that any foreign aid entity, any govt. department, govt. employees, provincial or district govt., any bank, any foreign govt. etc. You name it and they are there. So the importance of these accounts increases manifolds. Furthermore, the old manual system was like a haunting monster also for a common government employee. There are three main things which a common govt. employee comes to an accounts office for, viz. salary, general provident fund and pension. Our experience shows that in the old system a common man had a series of unlimited problems and hurdles to face in order to get his financial claims. His fever started a week before he had to visit the accounts office for any of the financial claims. But, unfortunately, till the recent past our governments did not pay proper attention to overcome these problems. Due to which the exact and clear picture of the economy of the country is still not visible to virtually anybody and on the other hand common man face enormous difficulties in receiving his financial claims. After the introduction of PIFRA this ultimate goal would be achieved soon. That is why this project was introduced. The main objectives are to achieve timely, accurate and complete accounts with transparency and most importantly to facilitate the common govt. employee regarding their financial claims. But, there is a lot more to be done to achieve this goal.

1.3 software: (SAP ERP) in order to keep the uniformity a common automation solution has been chosen for the whole country under this project. The world-renowned state-of-the-art integrated software SAP is the Enterprise Resource Planning (ERP) which is being implemented at all the accounting entities overall the country. There are number of functionalities available in this ERP, which are highly flexible in nature and can be modified according to the requirements of the particular organization. Keeping in view the requirements at the country level, the Govt. of Pakistan has purchased three most essential modules of SAP. They are:

Different modules of pifra In order to keep the uniformity a common automation solution has been chosen for the whole country under this project. The world-renowned state-of-the-art integrated software SAP is the Enterprise Resource Planning (ERP) which is being implemented at all the accounting entities overall the country. There are number of functionalities available in this ERP, which are highly flexible in nature and can be modified according to the requirements of the particular organization. Keeping in view the requirements at the country level, the Govt. of Pakistan has purchased three most essential modules of SAP. They are:

Basis (System Administration) Module This module covers the overall system administration. The user authorization, the working of the main servers, the roles of particular users, the connectivity between all the sites in the country and various server-related issues are covered in this module.

Financial Module This module covers the financial side of the system. The generation of various financial reports, like monthly, quarterly and annual accounts, etc.; the budget preparation and maintenance and expenditure booking into the system, project & commitment accounting are some of the tasks which are performed using this module.

Human Resource (HR) Module In HR module, the update record of the employee, the updated GP Fund account, its calculation and payment; the pension/commutation calculation and payment; and salaries of the govt. employees are operated through the system.

Pension and GP Fund Functionalities (HR Module) HR Module covers Salary, Pension and GP Fund Functionalities or govt. employees. It has been mentioned above that when the site (District Accounts Office) is made productive/online the salary of the employees of that district is paid through the system. As for the Pension and GP Fund Modules, they are being currently in the implementation phase. These functionalities are started after a reasonable time is elapsed after the productivity of district, so that the users become more acclimatize with the system. The pension and GPF Functionalities have been successfully started at AG Sindh and District Accounts Office Hyderabad, so far. Currently these functionalities are being extended in DAOs Sukkur, Nawabshah and Larkana. As soon as they are successfully implemented in these sites, the rest of the sites will also be brought on the same system.

In these functionalities one of the most important tasks is to update the past information regarding their Provident Fund deduction of the employees who are in the service well before the system was introduced. This updating will ultimately facilitate the employee at the time of their retirement.

Budget Availability Check (FI Module) There are numerous functionalities in FI Module. So far, several functionalities have been implemented in AG Sindh and its DAOs, e.g. Civil Accounts, Workflow, etc. But there are still some which are in the implementation phase. One of the most important functionalities is Budget Availability Check. In fact, this functionality shows the beauty of the system. The idea is that no financial claim is entertained through the system if the budget in the relevant head of account is not available. This prevents any wrong payment, intentionally or unintentionally. Moreover, it also keeps the accounts updated and error-free.This system has been successfully implemented in the AG Sindh office, being the pilot site. The next target is to implement this functionality at all the productive sites.

1.4 ) Scope and institutional relationships:

1.2) Components Of Pifra: Component I: Government Accounting and Financial Reporting: 

Development of accounting standards, reporting systems and financial procedures conforming to international accepted principles and computer based financial system based on complacent to internationally recognized standards.

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System would enable the uniform application of prescribed controls for these transactions and support information retrieval needs for government finance managers at the centre and in the provinces. a. Core Accounting and Reporting System:

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To provide integrated government-wide accounting, encompassing the functional requirements for budget preparation and budget execution, covering appropriation, commitment, funds allocation and payment processes. System would be comprehensive in terms of coverage and would provide acredible source of reliable and timely data. Core Accounting System would be fully automated, interfacing with external data sources, i.e. SBP/NBP on periodic basis. Would enable expenditures and revenues to be recorded at a detailed level and to relate these to specific programs and projects.

System Usage by: 

CGA (including its AG and DAOs) to perform the basic accounting functions.

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The Federal Ministry of Finance and Provincial Finance Departments to perform the process associated with budget compilation, monitoring and control and implement cash limits as may be required. The Federal Planning Division and Provincial Planning Departments to obtain the status of actual expenditures on ongoing programs and projects.

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b. Payroll and Pension System  

Need for an automated payroll and pension system was evident in view of the increasing volume of transactions. System to perform the full range of the payroll functions and the expenditures processed would automatically update the core accounting and reporting system.

GP Fund:Automated GP fund ledgers, balance sheets, interest calculations, adjustments of loans and advances etc… Cash Flow Forecasting and Financial Analysis System: 

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To establish a system for forecasting likely flows of payments and receipts, and the consequent impact on cash balances and issue of debt instruments with the help of cash flow and financial analysis system. This would provide a powerful facility for retrieving current and historical data from the accounting system…allowing end-users to manipulate the data for forecasting and analysis purposes.

Component II Government Auditing: 

Focus on audit systems improvement and systems development including

1. Audit Standards and Techniques : Consultant services to      

Prepare guidelines for the introduction of international auditing standards. Introduce modern auditing techniques and concepts. Review PAD’s audit policies, processes and procedures, output, workload, efficiency and quality assurance for the audit functions. Advise on methodology to enhance PAD’s communication with stakeholders, for internal audit of PAD’s systems under development. To assist in the use of automated audit tools and standard audit programs wherever appropriate.Improve communication of audit results and to develop quality assurance programs.

2. Administrative tool: Provision of hardware and audit software for audit planning, sampling and documentation as well as for audit of automated accounting systems. 3. Capicity Development : consultancy to support revised human resource management procedures through international training in a modern financial system environment and through arranging attachments with other Supreme Audit Institutions. 4. Use of Private Sector Firms: Assistance with developing modality for utilizing private sector firms and finance for private audit firm’s fees. Component III: Human Resource Management  

Involves organization and systems development. To reflects needs for increased professionalism and specialization.

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PAD would implement revised HRM policies relating to the career paths of accountants and auditors, defining standard job descriptions, enhancing the effectiveness of training developing a transparent and quantifiable system of evaluation and manpower planning. Consultant Assistance. Managing the process for change.. Preparation of job descriptions and performance standards. Installing an MIS system for HRM planning and monitoring.

Component IV: Training:      

Moving towards professional-level training. Providing retraining associated with the change introduced by the project.

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Strengthening the quality of training and training facilities. Expanding the circle of beneficiaries.

Component V: Administration 1. MIS Wing: to provide;    

Software development centre. Selected posts to be staffed by contract professional. Local training for PAD staff in systems development. Recurrent cost for system maintenance.

Project management: strengthening the Project Directorate through;     

Provision of staff. Facilities. Hardware and software. Trainers. Consultants.

Output by Components:

Component II: Government Auditing Subcomponents: i) Completion of the Financial Audit Manual, Supervision Instruments, Working Paper Kits and Specific Guidelines   

First development of general financial audit manual……later supervision instruments and working paper kits with audit guidelines for 16 were finalised. These instruments give tailored audit guidelines for specific audit areas on how to use the Supervision Instrument and Working Paper in their scenario. Guidelines used for the audit of: 1. Federal Government 2. Provincial Governments 3. District Governments 4. Procurement 5. Foreign-aided projects 6. Customs and Sales Tax 7. Income Tax 8. Civil Works 9. Railways 10. Water and Power Development Authority (WAPDA) 11. Commercial Enterprises 12. Defense Services 13. Zakat Collection 14. Privatization 15. Environment 16. Foreign Mission

ii) Procurement of Hardware and Software: used for the test implementation field audit were  

ADM Plus for Audit Management purpose. ACL for CAATs.

iii) Test Implementation of the Audit Manual: DAGP identified seven audit teams and assigned audit objectives….   

Deral Audit Team – audit a portion of Repayment of Domestic Debt (a significant component of the federal appropriation account). Provincial Audit Team – audit a portion of Interdepartmental and Judicial Deposits ( a significant portion of the Financial Statement of Public Accounts). District Audit – audit a portion of payroll data from the SAP/R3 accounting system pertaining to the District of Abbottabad (to enable use of CAATs software tool against payroll which is a significant component of District expenditures).

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Railways Audit Team – audit consumption of fuel (a significant element of Railways expense). WAPDA Audit Team – audit of Civil works (a major activity of WAPDA). Work Audit – audit of Pak PWD (a major activity). Revenue Audit – audit of customs receipts pertaining to Vehicle Imports (an important Revenue activity).

iv) Training of Core Group of Auditors:   

Completion of audit training material using new audit manual. On-job-training provided through pilot testing activity. Strong source of expertise via DAGP master trainer counterparts and local consultants.

Internal Audit deliverables include:   

Internal audit plan. Internal audit manual. Draft internal audit legislation.

CHAPTER 3: Sumarizing 3.1) Achievements i) Integration of Budget & Expenditure information flow ii) Accuracy and timeliness in Reporting

iii) Cash Forecasting iv) International credibility vi) Transparency in Accounting system Vii) Good governance Viii) Elimination of fraudulent activities ix) Integration of Salary Network x ) Pension / Commutation Calculation through system xi) Consolidated Personal Information xii) Updated GP Fund Accounts Xiii) GP Fund calculation through the system

3.2 problems faced: Difficult to resolve: –

Policy Change: accountabilities, public disclosure, devolution mandated by 2006 •

Legal framework slow to embrace change

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Organization Change: roles and responsibilities, shifts in charter, new functions •

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Can control your resources, not those of others

HR Change: civil service rules, groupings, certifications, incentives, staff reductions •

Civil service reforms are measured in years

Progress depends upon level of commitment and individual champions –

Turnover causes major rework, delays

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Missions fail if reviews are not timely

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Security situation adds another layer

Factor in starting point tailored to client –

Timelines are local - use realism in government’s implementation capability

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Small steps are necessary

Recommendations: Need much more attention to: –

Change management: everyone is affected by new processes, procedures, or linkages (ERP) •

Automating existing processes yields few benefits

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Cross-cutting reforms help motivate, mandate

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Communication: resistance can build quickly if all stakeholders don’t know proposed benefits

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Training: building skills for thousands is complex

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Documentation: critical, overlooked, delayed

PROFILE:

All financial activities starting with planning, preparation and execution of budget, accounting of all resultant transactions, evaluation and audit of accounts and ultimately financial reporting to serve as the basis for future planning and budgeting. The financial management system is embodiment of macro economic management which effects all internal and external stakeholders. In turn the macro economic indicators such as rate of inflation, changes in current and capital account, rate of growth, GNP etc. are all based on this financial management system.

Authorities Responsible: Sponsoring Agency: Implementing Agency: Credit:

World Bank, Government of Pakistan. Pakistan Audit Department (Comprising AGP & CGA), Planning Division, Ministry of Finance.

2921-PAK

Improved audinting and accounting skills Over 80 Master Trainers Training on New Chart, NAM Over 29,000 DDOs Trained Training labs at provincial HQ for system training Training NAM/SAP for Sites-2000 SAP Users Roll Out Training continuing through master trainers