## howtonote1903

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---

### Overview and definition
- FMISs are defined as “a set of automated solutions that enable governments to plan, execute and monitor the budget, by assisting in the prioritization, execution and reporting of expenditures, as well as the custodianship and reporting of revenues” (Dener, Watkins, and Dorotinsky 2011).
- Core purpose: provide a complete record of a government’s financial events and transactions and generate timely, relevant, and reliable financial data and reports to support financial decision making, fiscal discipline, expenditure control, and fiscal transparency.
- Modern FMISs support macroeconomic and fiscal goals and reduce governance vulnerabilities, while incorporating digitalization, data management, and cybersecurity advances.

### Historical investment and outcomes
- Many advanced economies, developing countries, emerging markets, and fragile states have invested substantially in FMIS infrastructure and software since the late 1980s.
- World Bank lending:
  - loans disbursed to finance FMIS projects amounted to some US$2.2 billion during the 25-year period to 2011, and the amount has subsequently increased to more than US$4.9 billion (C. Dener, World Bank’s FMIS web page, July 2018).
- Private-sector project performance benchmark:
  - McKinsey (2012) found that 45 percent of large IT projects—defined as projects with a budget of at least US$15 million—run over budget, and 17 percent of these projects fail to such an extent that they impede the key activities of the company.

### Common problems and drivers of underperformance
- Typical absence effects:
  - each line ministry or agency uses its own information system, resulting in loss of control and coordination by the ministry of finance and unreliable financial reports.
- Underestimated institutional challenges:
  - misalignment of incentives, delays, underbudgeting, and low levels of efficiency and effectiveness (Fritz, Verhoeven, and Avenia 2017).
- Vendor-driven issues:
  - vendors promote comprehensive solutions with expensive long-term maintenance contracts not always tailored to beneficiary-country needs.
- Other causes:
  - absence of well-prepared conceptual design, lack of ownership, weak project management, inadequate leveraging of new functionalities and technology.

### Current focus: modernization and integration
- Most developing countries and emerging markets already have some form of FMIS operating at varying levels of efficiency, effectiveness, and institutional coverage.
- Current priorities:
  - improve and modernize existing FMISs and link them with subnational FMIS platforms and related PFM systems (planning, public procurement, debt management).
  - For COTS solutions, improved parameterization of existing FMIS modules can often achieve better and more efficient functionalities without full replacement.

### Digitalization, data, and future directions
- Digitalization roles:
  - reduce costs, enhance business processes, automate controls, reduce workload, and increase transparency.
- Technological innovations:
  - enable collection, organization, sharing, and interpretation of data at much greater scale, often providing real-time availability and access to “big data” from multiple internal and external sources, including social media (Chenok and others 2017).
- Future evolution:
  - FMISs likely to evolve into virtual systems where a central agency collects financial data from diverse sources and transforms information into required formats and reports (Mitsch and others 2017).
- Challenges:
  - synchronizing and normalizing data from multiple sources to produce consistent financial reports across government levels; cloud-based solutions can be considered.

### Purpose and scope of the note
- The note aims to:
  - review recent trends in FMIS design across emerging markets and developing countries;
  - summarize main characteristics of various FMIS design approaches;
  - highlight key FMIS challenges faced by implementing countries;
  - consider how to address these challenges and improve FMIS performance;
  - discuss how and under what conditions increased flexibility can be built into FMIS design through a modular approach;
  - provide a roadmap of key steps and decision points in modernizing an FMIS.
- A glossary of key technical terms and concepts is provided (Box 1), including definitions for API, Conceptual design (CD), COTS, Data warehouse, ERP, ESB, ETL, Functionalities, Interoperability, LDSW, Middleware, Parameterization, XML, FMIS, Core FMIS, IFMIS.

### Core FMIS characteristics and distinctions
- Core FMIS supports budget execution, accounting, treasury and cash management, and generates timely financial reports; budget formulation is typically a self-contained module and not part of the core.
- Core FMIS should:
  - cover all entities that constitute the budgetary central government;
  - include management of the government’s own resources and externally funded programs and projects;
  - be based on a sound IT platform.
- FMIS coverage often extends to auxiliary PFM functions (debt management, payroll, procurement).
- Distinction: IFMIS components share the same database and IT platform (Dener and Min 2013).

### FMIS evolution in coverage and design approaches
- Early (1980s): in-house systems developed by ministries of finance or treasuries, often as separate systems with limited interfaces.
- Over time: interfaces were developed for better data exchange and two main cross-government data management approaches emerged.

---

### Box 2 — Types of Financial Management Information Systems (summary)

- Enterprise Resource Planning–Based Comprehensive Approach
  - Monolithic IT system (IFMIS) using same technological platform supporting core PFM processes and other finance functions.
  - Required strong technical capacity, complex change management, lengthy implementation periods; experienced varying levels of success (Fritz, Verhoeven, and Avenia 2017).
  - Example: French CHORUS model in French-speaking sub-Saharan Africa.

- Core FMIS plus Auxiliary Functions Approach
  - Refocus on core PFM processes using a single IT platform; other PFM processes supported by separate IT systems sometimes exchanging information with FMIS.
  - World Bank ICRs up to 2011 (55 completed FMIS projects) reported: 67 percent on outcomes, 87 percent on sustainability, 56 percent on development impact, 61 percent on performance from the Bank’s perspective, and 59 percent on performance from the borrower’s perspective.
  - When reviewed by the Bank’s Independent Evaluation Group, nearly two-thirds of these projects were downgraded from “satisfactory” to “moderately satisfactory” (Dener, Watkins, and Dorotinsky 2011).

- Geographic and scale considerations
  - Both approaches generally operate at central government level; increasing inclusion of regional, municipal, or local governments.
  - FMISs used to support broader PFM reform initiatives and to package substantial funding (many millions of US dollars).
  - Recent trends: systems focusing on a few core PFM modules, sequenced implementation, and agile/iterative software solutions often more efficient than large IFMIS applications; comprehensive applications continue to be promoted in some countries (Hashim and Piatti-Fünfkirchen 2018).
  - Examples of broadly successful FMIS implementations: Brazil, Chile, India, and Turkey.

- IT architecture patterns by region and definitions for in-house, LDSW, and COTS solutions included.

- Preconditions and timeframes:
  - Preconditions: sustained leadership by national government (finance ministry), internal technical capacities, sound conceptual design, good project management, sufficient human and financial resources, change management strategy, stakeholder coordination.
  - Typical project duration: All phases of planning, designing, procuring, and executing a typical FMIS project take on average 6–7 years to complete (Dener, Watkins, and Dorotinsky 2011), with longer periods in some countries.

- Common causes of underperformance:
  - underlying PFM weaknesses (for example, extensive extrabudgetary activity or off-budget accounts — Liberia example: donor financing accounts for 80 percent of capital spending and is executed off-budget, without being captured in the FMIS (IMF 2016)),
  - lack of internal controls, inefficient cash management, absence of TSA,
  - poor connectivity, hardware obsolescence, lack of vendor support after license expiry,
  - inappropriate web-based choices where internet is poor,
  - project managers not fully using configuration or failing to redesign business processes,
  - budgetary constraints limiting COTS licenses and undermining data integrity and control.
- Misplaced attribution: FMISs are sometimes blamed for reporting and timeliness deficiencies when root causes lie in PFM weaknesses or project choices (examples: Papua New Guinea, Malawi, Zambia, Cambodia).

---

### 2. Institutional Coverage

### Incomplete coverage of central government entities
- Finding:
  - Many FMISs do not cover all budgetary central government entities due to technical, operational, or implementation delays.
- Recommendation:
  - Ensure FMIS covers the budgetary central government, extrabudgetary entities and accounts, and social security funds.
- Country examples:
  - Cambodia, Guinea-Bissau, Jamaica, Philippines, and São Tomé and Príncipe.

### Connectivity and IT platforms — software, hardware, and connectivity problems
- Findings:
  - Internet or networking problems may preclude FMIS use outside main cities.
  - FMIS software licenses may have expired, leaving governments without vendor support and with outdated hardware.
  - Performance problems can stem from software design weaknesses, limited hardware capacity, and inadequate database maintenance.
  - Not all countries ensure adequate financial and personnel support for routine FMIS maintenance.
  - Many countries lack suitable recovery and business continuity plans.
- Recommendations:
  - Ensure software licenses are valid to retain vendor support.
  - Establish good connectivity for regional and remote FMIS users.
  - Minimize performance problems via improved software design, hardware capacity, and timely database maintenance.
  - Prepare and maintain a recovery and business continuity plan.
- Country examples:
  - Antigua and Barbuda, Bahamas, Republic of Congo, Dominican Republic, Guinea-Bissau, Honduras, Malawi, Nigeria, Philippines, São Tomé and Príncipe, and Solomon Islands.

### Information and data sharing capabilities (interoperability)
- Finding:
  - Many FMISs lack facilities for sharing and exchanging data with other PFM systems (debt management, revenue collection, public procurement, payroll, public investment management) under separate agencies and IT platforms.
- Recommendation:
  - Ensure shared information with other PFM systems, including debt management, revenue collection, public procurement, payroll management, and public investment management.
- Country examples:
  - Cabo Verde, Mali, and Peru.

### IT and digitalization issues (emerging challenges and opportunities)
- Key areas summarized:
  - Artificial intelligence and machine learning:
    - FMISs generate large quantities of financial data; some treasuries pilot machine learning and blockchain (Brazilian Treasury piloting blockchain for issuing Treasury bills).
    - Blockchain used to create secure digital records for monitoring construction and financing of infrastructure projects.
  - Cybersecurity:
    - Digital systems vulnerable to cyberattacks; availability, integrity, and confidentiality of data are key.
    - National authorities should proactively prepare for and prevent cyberattacks; ISO/IEC 27001:2013 noted as private-sector guideline.
    - Cybersecurity often treated as an afterthought in FMIS implementations; issues more relevant for cloud-based FMIS solutions.
  - Privacy concerns:
    - Real-time digital records raise personal information management and use issues.
    - Single-platform approaches and centralized cloud storage (examples: Estonia and India) increase exposure to hacking, leaks, and ransom attacks.
    - Some FMIS reports (vendors’ bank accounts, tax registers) may raise privacy concerns.
  - Digital inclusion and open data:
    - Governments should ensure public access to relevant FMIS information using digital technology.
    - Budget transparency portals reduce time and cost of providing wider access.
  - e-Government initiatives:
    - Digitalization of non-core FMIS processes (payroll, procurement, e-invoicing, e-collection of revenue) streamlines operations and increases demand for information exchange and big data tools.

### How to improve FMIS performance
- Phased and layered approach:
  - Core functions (accounting, budget execution) form the basic layer; other layers (for example, budget preparation) are built on top.
  - Example applications: Mongolia, Timor-Leste, and Vietnam (Joshi and van Nguyen 2016).
- Structure and interoperability:
  - Modern FMIS should integrate core functions and channel outputs through a data warehouse.
  - Use APIs and interoperability layers to automate data exchanges among core FMIS and auxiliary systems (planning, procurement, payroll, tax, customs, central bank/TSA).
- Observed practice and project statistics:
  - World Bank database (1991–2011): total 102 projects; 92 projects implemented some type of FMIS solution.
    - Out of these 92 projects, 57 percent represented completely new FMIS systems; the remainder represented an extension of existing systems.
  - For 28 projects approved after 2011 that are still under execution, 75 percent represented new systems.
- Diagnostic assessment recommendation:
  - Carry out an in-depth diagnostic assessment of functional and technological challenges before modernizing the FMIS.
  - Assessment scope: review business rules and definitions, update conceptual design, evaluate capability to produce timely and reliable annual financial statements and monthly or quarterly budget execution reports, assess tracking of payments against commitments and budget appropriations, assess reconciliation of accounting data with government bank account movements, evaluate institutional coverage, identify hardware, software, connectivity, fragmentation, and interoperability issues.
  - Institutional note: Typically Treasury Directorate or Budget Directorate oversees FMIS; some countries have an Information Technology Directorate within the finance ministry (examples: Cambodia and Chile).
- Modular approach decision rule:
  - If FMIS presents severe weaknesses or failures covering more than 75 percent of its core functionalities and main technological dimensions, consider replacement of the core FMIS by a COTS, LDSW, or in-house development solution.
  - If relatively few functional and technological challenges exist (green-zone scenarios), adopt a modular approach—upgrade, reengineer, or replace one core module at a time.
  - Use APIs and interoperability layers and agile software development to integrate replaced modules with existing FMIS; include a data warehouse.
  - Software-engineering context: references the 80/20 rule / Pareto principle—on average FMIS core functionalities represent about 20 percent of all functionalities of the system; assess severity relative to 80 percent and 20 percent thresholds.
  - Consider costs and benefits and assess system coupling and cohesion—low coupling and high cohesion favor modular replacement.

---

### Box 4 — Modular approach: enablers, country examples, benefits, risks, and roadmap

- Web-based, service-oriented design (since ~2005) increases interoperability and ease of upgrading or maintenance:
  - central server hosts software; clients connect via web-browser over WAN or VPN; updates to central servers provide instant access to clients.
- Enabling software solutions:
  - API web services (API), middleware layers, extract-transform-load (ETL) tools, flexible data warehouse solutions.
- Textual numeric artifacts present in the source:
  - "25% 50% 100% 75% 0%25%50%75%100%"

- Country examples of modular implementations:
  - Advanced economies:
    - United States: decentralized budget execution and payment processes; common standards validated by business rules engines at US Treasury and OMB; data exchanged via APIs or batch XML.
    - United Kingdom and the Netherlands: simple aggregate spending control systems; data entered at fixed points by spending agencies; detailed day-to-day management delegated to spending ministries and agencies; common standards for information fields.
  - Emerging markets and subnational examples:
    - São Paulo state (Brazil): web-based FMIS (SIAFEM.net) with middleware connecting web-based applications to procurement and cost systems.
    - Mali: upgraded fragmented FMIS to conform with harmonized PFM framework; increased interoperability using ETL tool.
    - Cabo Verde, Guyana, and Mali: implemented business intelligence tools on top of existing FMIS to improve reporting.

- Potential benefits of modular approach:
  - Prioritize accounting, budget, treasury, and reporting functions to support fiscal objectives and rules.
  - Facilitate exchange of information between core and noncore modules and between systems operated by ministries and agencies.
  - Make best use of existing systems and investments in IT and human resources; avoid full replacement.
  - Increase flexibility to incorporate advanced technologies and provide agile solutions in evolving environments.
  - Permit different IT solutions from several vendors; better manage poor connectivity (some modules may operate while others are offline).

- Potential disadvantages, complexities, and risks:
  - Need to establish common standards for information fields across modules.
  - Necessity to validate that each module produces and manages information according to standards—recommend establishment of a central business rules engine, preferably in the general ledger.
  - Technological complexities and maintenance costs may increase once operational.
  - ERP-based or COTS solutions can be less flexible than in-house or LDSW solutions, though ERP solutions increasingly incorporate APIs.
  - Exchanging information across modules may increase security vulnerabilities; governments must strengthen cybersecurity policies.

- Roadmap options and modernization strategies when applying a modular approach:
  - Reengineer a specific core FMIS module:
    - resolve functional weaknesses and deliver improved performance and interoperability; may include database modifications or middleware development; or replace a specific core module.
    - Appropriate when FMIS has low coupling; low or medium functional problems; no severe technological problems.
  - Develop a data sharing layer on top of existing core FMIS modules:
    - produce a simpler transaction processing function while maintaining existing applications and API interfaces, using ESBs.
    - Appropriate when FMIS developed in-house with medium coupling; low or medium core functional problems; no severe technological problems.
  - Replatform or migrate core FMIS to the cloud:
    - move from high-cost hardware or outdated platforms to cloud-ready platforms.
    - Benefits: simplify IT environment, divest organizations of much operational responsibility, increase flexibility and reliability.
    - Assess development level of cloud computing providers in each country to guarantee security and business continuity of the FMIS.
    - Preferred when FMIS presents relatively minor functional problems; medium or high technological challenges related to software licenses, database problems, or hardware and connectivity weaknesses.
  - Decision point on sequencing:
    - whether to implement agreed changes all at once or in stages.

- Implementation governance, project management, and key steps:
  - Define strategy and action plan with appropriate targets and milestones, taking account of the budget cycle.
  - Secure necessary human and financial resources (domestic or external).
  - Establish a project implementation unit and a steering committee chaired by a senior government official or minister.
  - Develop change management, communication, and capacity building strategy; obtain regular feedback from end users.
  - Undertake targeted business process reengineering where needed; under modular approach, focus BPR narrowly on core characteristics requiring modification.
  - Figure 6 (schematic decision flow) summarizes main steps and decision points in modernizing an FMIS.

*Source: IMF Fiscal Affairs Department, How to Design a Financial Management Information System: May 2019.*

### Introduction

### howtonote1903 - Introduction

### Overview and definition
- Financial management information systems (FMISs) are defined as “a set of automated solutions that enable governments to plan, execute and monitor the budget, by assisting in the prioritization, execution and reporting of expenditures, as well as the custodianship and reporting of revenues” (Dener, Watkins, and Dorotinsky 2011).
- At their core, FMISs provide a complete record of a government’s financial events and transactions and aim to generate timely, relevant, and reliable financial data and reports to support financial decision making, fiscal discipline, expenditure control, and fiscal transparency.
- Modern FMISs support countries in meeting macroeconomic and fiscal goals and in reducing governance vulnerabilities, including corruption (IMF 2018c), while incorporating advances in digitalization, data management, and cybersecurity.

### Historical investment and outcomes
- Many advanced economies, developing countries, emerging markets, and fragile states have invested substantially in FMIS infrastructure and software since the late 1980s.
- World Bank lending: loans disbursed to finance FMIS projects amounted to some US$2.2 billion during the 25-year period to 2011, and the amount has subsequently increased to more than US$4.9 billion (C. Dener, World Bank’s FMIS web page, July 2018).
- Private-sector project performance benchmark: McKinsey (2012) found that 45 percent of large IT projects—defined as projects with a budget of at least US$15 million—run over budget, and 17 percent of these projects fail to such an extent that they impede the key activities of the company.

### Common problems and underperformance drivers
- Typical problems when FMIS is absent: each line ministry or agency uses its own information system, resulting in loss of control and coordination by the ministry of finance and unreliable financial reports.
- Governments and donors have frequently underestimated institutional challenges, leading to misalignment of incentives, delays, underbudgeting, and low levels of efficiency and effectiveness (Fritz, Verhoeven, and Avenia 2017).
- Vendor-driven issues: vendors tend to promote comprehensive solutions with expensive long-term maintenance contracts that are not always tailored to beneficiary-country needs.
- Other causes of FMIS underperformance include absence of a well-prepared conceptual design, lack of ownership, weak project management, and inadequate leveraging of available new functionalities and technology.

### Current focus: modernization and integration rather than first-time automation
- Most developing countries and emerging markets already have some form of FMIS in place that operates at varying levels of efficiency, effectiveness, and institutional coverage.
- Current priorities for these countries include improving and modernizing existing FMISs and linking them with subnational FMIS platforms and related public financial management (PFM) systems such as planning, public procurement, and debt management.
- For commercial-off-the-shelf (COTS) software solutions, improved parameterization of existing FMIS modules can often achieve better and more efficient functionalities without full replacement.

### Digitalization, data, and future directions
- Digitalization is now used not only to reduce costs and enhance business processes, but also to automate controls, reduce workload, and achieve more transparency in the public sector.
- Technological innovations enable collection, organization, sharing, and interpretation of data at much greater scale, often providing real-time availability of information and access to “big data” from multiple internal and external sources, including social media (Chenok and others 2017).
- Looking ahead 10 or 20 years, FMISs are likely to evolve from fully integrated sets of functions into virtual systems in which a central agency collects financial data from a wide variety of sources and transforms this information into required formats and reports (Mitsch and others 2017).
- Challenges for virtual systems include synchronizing and normalizing data from multiple sources to produce consistent and harmonized financial reports, and exchanging financial information across government levels (central, local, and municipal), where cloud-based solutions can be considered.

### Purpose and scope of the note
- The note aims to:
  - review recent trends in FMIS design across a range of emerging markets and developing countries;
  - summarize the main characteristics of the various approaches to FMIS design adopted in recent years;
  - highlight the key FMIS challenges faced by countries that have implemented an FMIS;
  - consider how to address these challenges and improve the performance of FMISs;
  - discuss how and under what conditions increased flexibility can be built into the design of FMIS solutions through a modular approach; and
  - provide a roadmap of key steps and decision points in the process of modernizing an FMIS.
- Box 1 provides a glossary of key technical terms and concepts used in the note.

### Main characteristics of FMISs and distinctions
- A core FMIS (as defined in this note) supports budget execution, accounting, and treasury and cash management functions, and generates timely financial reports; budget formulation is typically a self-contained module and not part of the core.
- The core FMIS should:
  - cover all entities that constitute the budgetary central government (i.e., entities and units for which funds are appropriated through the national budget);
  - include management of the government’s own resources and externally funded programs and projects;
  - be based on a sound IT platform.
- FMIS coverage often extends beyond the core to auxiliary PFM functions such as debt management, public service payroll and human resource management, and public procurement systems.
- Distinction: FMIS versus integrated financial management information system (IFMIS) — an IFMIS pursues the same broad objectives as an FMIS but its components share the same database and IT platform (Dener and Min 2013).

### Evolution in coverage and design approaches
- Early development (1980s): in-house systems developed by ministries of finance or treasury departments, often as separate systems for accounting, budget execution, financial reporting, or cash management with limited interfaces.
- Over time: interfaces were developed to allow better data exchange and two main approaches emerged for systematic cross-government data management.

### Glossary of key terms and concepts (Box 1)
- Applications programming interface (API): A programming interface enabling one system to be plugged into another system to send and request information.
- Conceptual design (CD): Specification of the objectives, scope, and coverage of an FMIS, along with an overview of the user requirements and key business processes that the system is required to support.
- Commercial-off-the-shelf (COTS): An IT product or package that is designed to meet generic market needs rather than the needs of a country’s FMIS.
- Data warehouse: A database designed to collect, integrate, and store information from several sources for the use of various clients in analytical work and decision making.
- Enterprise resource planning (ERP): A type of business management software—typically a suite of integrated applications—that an organization can use to collect, store, and manage data from various sources and business activities.
- Enterprise service bus (ESB): A software tool that enables several IT applications to communicate and exchange information with each other.
- Extract, transform, load (ETL): A data integration tool that enables data from one system to be used by another system’s data warehouse or database.
- Functionalities: The software routines that are designed to deliver the required functions of an FMIS, such as accounting, reporting, budget execution, and treasury management.
- Interoperability: The ability of one information system to exchange information with other systems without any restrictions.
- Locally developed software (LDSW): A customized information system developed by local or regional software providers who generally supply services for the government to maintain the system.
- Middleware: A computer software that connects various components or applications; it is used most often to support complex, distributed applications that make up a complete information system.
- Parameterization: In an information system, the process of introducing specific data and parameters (for example, the chart of accounts, the number and denomination of ministries and agencies) to satisfy the system’s business and operational needs.
- eXtensible markup language (XML): Software language used to exchange and manage data, especially useful for web-based systems.
- Financial management information system (FMIS): An information system that includes components supporting several PFM functions (for example, accounting, budget preparation and execution, treasury operations, debt management, payroll, procurement, public investment) and generates reports through web-based IT solutions.
- Core financial management information system: An information system with a narrower coverage, focused on supporting budget execution, accounting, and treasury and cash management functions, and that generates timely reports.
- Integrated financial management information system (IFMIS): An information system that pursues the same broad objectives as an FMIS but whose components share the same database and IT platform.

*International Monetary Fund | May 2019*

### Box 2. Different Types of Financial Management Information Systems

### Box 2. Different Types of Financial Management Information Systems

### Enterprise Resource Planning–Based Comprehensive Approach
- Description:
  - Monolithic IT system using the same technological platform (integrated FMIS or IFMIS) supporting core PFM business processes—budget execution (budgeting module), accounting (general ledger), and treasury and cash management (treasury module)—and other finance functions such as development planning, budget formulation, debt management, procurement, payroll, and asset management.
  - Broadly replicated the vision of enterprise resource planning (ERP) systems used in the private sector.
  - Example: French CHORUS model deployed in French-speaking sub-Saharan Africa.
- Characteristics and challenges:
  - Required strong technical capacity in government, complex change management, and lengthy implementation periods.
  - Experienced varying levels of success (Fritz, Verhoeven, and Avenia 2017).
  - Contributed to a major design shift in the late 1990s and early 2000s.

### Core FMIS plus Auxiliary Functions Approach
- Description:
  - Refocused FMIS design on core PFM processes (budget execution, treasury and cash management, accounting) using a single IT platform.
  - Other PFM processes (debt management, national development planning, public investment management, public service payroll, asset management, procurement) supported by separate IT systems, sometimes exchanging information with the FMIS.
- Performance evidence:
  - In initiatives supported by the World Bank, such projects generally achieved a “satisfactory” or “moderately satisfactory” performance.
  - World Bank ICRs for the period up to 2011 (55 completed FMIS projects) reported: 67 percent on outcomes, 87 percent on sustainability, 56 percent on development impact, 61 percent on performance from the Bank’s perspective, and 59 percent on performance from the borrower’s perspective.
  - When reviewed by the Bank’s Independent Evaluation Group, nearly two-thirds of these projects were downgraded from “satisfactory” to “moderately satisfactory” (Dener, Watkins, and Dorotinsky 2011).

### Geographic and scale considerations
- Implementation level:
  - Both approaches generally operate at the central government level; an increasing number of countries include regional, municipal, or local governments within FMIS coverage.
- Modernization and funding:
  - FMISs have been used to support broader PFM reform initiatives and to package substantial funding into loan or grant agreements (many millions of US dollars).
- Recent trends:
  - Large FMIS and IFMIS applications have been shown to be less efficient in many environments than systems focusing on a few core PFM modules, sequenced implementation, and agile/iterative software solutions.
  - Nevertheless, comprehensive applications continue to be promoted in countries such as Cambodia, Ukraine, and Zambia (Hashim and Piatti-Fünfkirchen 2018).
- Examples of broadly successful FMIS implementations:
  - Brazil, Chile, India, and Turkey.

### IT Architecture for an FMIS
- Evolution:
  - From client-server, mainframe, monolithic systems of the 1980s–1990s to multilayered web-based systems of the 2000s–2010s.
- Regional patterns:
  - Latin America: typically a single central database centrally administered by the finance ministry, decentralized operations in line ministries and spending entities; FMISs typically developed in-house.
  - Sub-Saharan Africa: architectures vary—separate databases for each entity or a single central database; substantial use of commercial-off-the-shelf (COTS) software.
  - Caribbean, central and south Asia, Pacific Islands, southeast Europe: mixtures of COTS and locally developed software (LDSW).
- Definitions:
  - In-house IT solutions: development responsibility of government; government retains source code; often requires new staff and large ICT units.
  - LDSW: developed by local providers; government retains source code; risks and costs shared; tends to create vendor dependency.
  - COTS: designed for generic market needs; government does not own source code; facilitates implementation of good practice processes; costs for licenses, support, and maintenance fall on government.

### Issues Reducing the Effectiveness of FMISs
- Preconditions for success:
  - Sustained commitment and leadership by the national government (especially the finance ministry), strong internal technical capacities, sound conceptual design, good project management capabilities, sufficient human and financial resources, effective change management strategy, and institutional arrangements to coordinate stakeholders.
  - A conceptual design is defined as “a specification of the objectives, scope, and coverage of an FMIS along with an overview of the PFM framework, user requirements, and key business processes that the system is required to support.” (See Kahn and Pessoa 2010.)
- Timeframes:
  - All phases of planning, designing, procuring, and executing a typical FMIS project take on average 6–7 years to complete (Dener, Watkins, and Dorotinsky 2011), with longer periods in some countries.
- Common causes of underperformance:
  - Underlying PFM weaknesses left unaddressed (for example, extensive extrabudgetary activity or off-budget accounts).
    - Example: Liberia — donor financing accounts for 80 percent of capital spending and is executed off-budget, without being captured in the FMIS (IMF 2016).
  - Lack of well-designed and enforced internal control mechanisms, inefficient cash management procedures, absence of a treasury single account.
  - Poor connectivity infrastructure, hardware obsolescence, lack of vendor support and maintenance after software licenses expire.
  - Inappropriate choice of web-based solutions where internet connectivity is poor.
  - Project managers not fully using existing configuration, failing to amend parameters (chart of accounts, user roles), or automating manual business processes without redesigning them according to good international practices.
  - Budgetary constraints leading to subscribing to fewer than required COTS final user licenses, undermining data integrity and control.
- Misplaced attribution:
  - FMISs are sometimes blamed for deficiencies in reporting and timeliness when root causes lie in PFM weaknesses or project implementation choices (examples cited: Papua New Guinea, Malawi, Zambia, Cambodia).

### Cross-Country Survey of FMIS Challenges
- Sample and sources:
  - Table 2 summarizes challenges faced by a sample of 46 developing countries and emerging markets across Africa, central and south Asia, Latin America and the Caribbean, the Pacific Islands, and southeast Europe.
  - These data derive from FMIS assessments included in Fiscal Affairs Department technical assistance reports (mainly 2015–18) and other reports and sources.
  - The 46 countries included in the sample are: Albania, Antigua and Barbuda, Azerbaijan, Bahamas, Bosnia and Herzegovina, British Virgin Islands, Burkina-Faso, Cambodia, Cabo Verde, Colombia, Republic of Congo, Dominican Republic, Equatorial Guinea, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Honduras, Jamaica, Kosovo, Lesotho, Liberia, FYR Macedonia, Malawi, Malaysia, Maldives, Mali, Moldova, Mongolia, Montenegro, Mozambique, Niger, Nigeria, Panama, Papua New Guinea, Philippines, Peru, São Tomé and Príncipe, Senegal, Solomon Islands, Tanzania, Timor-Leste, Togo, Uruguay, and Zambia.
- Four broad categories of challenges:
  1. Issues related to FMIS functionalities.
  2. Institutional coverage of the system.
  3. Technological issues—hardware, software, connectivity.
  4. Interoperability issues—capacity for sharing data between the FMIS and other information systems.

#### Functionality-related Challenges (summary)
- Accounting and fiscal reporting:
  - Problems generating reliable and timely cash basis financial statements (statement of cash receipt and payments, accounting policies and explanatory notes, comparison of original and actual budgets) and, where applicable, accrual basis statements.
  - Failures to integrate chart of accounts and budget classification aligned with international standards.
  - Absence of a data warehouse or drill-down capacity to produce tailored reports.
  - Country examples: Bahamas, Cambodia, Colombia, Dominican Republic, Ghana, Honduras, Jamaica, Malaysia, Mali, Moldova, Panama, Peru, Senegal, Solomon Islands, Togo, Zambia; British Virgin Islands, Burkina-Faso, Grenada, Kosovo; Maldives, Nigeria, Uruguay.
- Tracking of cash flows and bank reconciliation:
  - Deficiencies ensuring consistency between FMIS accounting registers and government bank accounts; manual reconciliation required in some cases.
  - Country examples: Azerbaijan, Bahamas, Equatorial Guinea, FYR Macedonia, Malawi, Moldova, Mozambique, Panama, Papua New Guinea, Timor-Leste.
- Budget execution and internal control:
  - Insufficient support for managing and controlling budget: managing all expenditures, borrowing, debt, loans, grants through FMIS; tracking payments against commitments, budget appropriations, and budget releases; tracking multiannual public investment project spending.
  - Country examples: Antigua and Barbuda, Cambodia, Republic of Congo, Equatorial Guinea, Guatemala, Liberia, Maldives, Mali, Mongolia, Solomon Islands, Tanzania.
- Treasury and cash management:
  - Insufficient support for government banking functions: supporting the efficient functioning of the TSA under a single bank account or unified structure; providing electronic payment mechanisms to avoid manual payments for central government, extrabudgetary entities, and social security funds.
  - Country examples: Albania, Azerbaijan, Guatemala, Lesotho, FYR Macedonia, Montenegro, Mozambique, Niger, Philippines.
  - Unreliable and untimely information for cash management: recording cash flow on payment/receipt dates, accurate recognition dates for accounts payable, monitoring payments by due date, providing timely information on stock and creation of arrears.
  - Country examples: Antigua and Barbuda, Bosnia and Herzegovina, Cambodia, Dominican Republic, Jamaica, Mongolia, São Tomé and Príncipe.

*Source: IMF Fiscal Affairs Department, How to Design a Financial Management Information System: May 2019.*

### 2.  Institutional Coverage

### 2.  Institutional Coverage

### Incomplete coverage of central government entities
- Finding: Many FMISs do not cover all budgetary central government entities. Constraints on rolling out the system across the government may be technical, operational, or reflect delays in the implementation of the FMIS.
- Recommendation: Ensure that the FMIS covers the budgetary central government, extrabudgetary entities and accounts, and social security funds.
- Country examples: Cambodia, Guinea-Bissau, Jamaica, Philippines, and São Tomé and Príncipe

### Connectivity and IT platforms — software, hardware, and connectivity problems
- Findings:
  - Problems with internet connections or networking infrastructure may preclude FMIS use by users outside main cities or centers of government.
  - FMIS software licenses may have expired, leaving the government without vendor support and with outdated hardware.
  - Performance problems can stem from software design weaknesses, limited hardware capacity, and inadequate database maintenance (especially during high-load periods).
  - Not all countries ensure adequate financial and personnel support for routine FMIS maintenance.
  - Many countries lack a suitable recovery and business continuity plan.
- Recommendations:
  - Ensure software licenses are valid to retain vendor support.
  - Establish good connectivity for FMIS users in regional or remote locations.
  - Minimize performance problems through improved software design, adequate hardware capacity, and timely database maintenance.
  - Prepare and maintain a recovery and business continuity plan.
- Country examples: Antigua and Barbuda, Bahamas, Republic of Congo, Dominican Republic, Guinea-Bissau, Honduras, Malawi, Nigeria, Philippines, São Tomé and Príncipe, and Solomon Islands

### Information and data sharing capabilities (interoperability)
- Finding: Many FMISs lack facilities for sharing and exchanging data with other PFM systems—such as debt management, revenue collection, public procurement, payroll management, or public investment management—which may be under separate agencies and different IT platforms.
- Recommendation: Ensure shared information with other PFM systems, including debt management, revenue collection, public procurement, payroll management, and public investment management.
- Country examples: Cabo Verde, Mali, and Peru

### IT and digitalization issues (emerging challenges and opportunities)
- Key areas summarized (Box 3):
  - Artificial intelligence and machine learning:
    - FMISs generate enormous quantities of financial data; some treasuries are piloting machine learning and blockchain (example: Brazilian Treasury piloting blockchain for issuing Treasury bills).
    - Blockchain initiatives are being used to create secure digital records for monitoring construction and financing of infrastructure projects.
  - Cybersecurity:
    - Digital systems are vulnerable to cyberattacks; availability, integrity, and confidentiality of data are key.
    - National authorities should be proactive in preparing for and preventing cyberattacks; ISO/IEC 27001:2013 is noted as a private-sector guideline.
    - Cybersecurity is sometimes treated as an afterthought in FMIS implementations; issues are more relevant for cloud-based FMIS solutions.
  - Privacy concerns:
    - Real-time digital records on citizens raise management and use issues for personal information.
    - Single-platform approaches and centralized cloud storage (examples: Estonia and India) increase exposure to hacking, leaks, and ransom attacks.
    - Some FMIS reports (e.g., vendors’ bank accounts, tax registers) may raise privacy concerns.
  - Digital inclusion and open data:
    - Governments should ensure public access to relevant FMIS information using digital technology.
    - Budget transparency portals can reduce time and cost of providing wider access.
  - e-Government initiatives:
    - Digitalization of non-core FMIS processes (payroll, procurement, e-invoicing, e-collection of revenue) streamlines operations and increases demand for information exchange and big data tools.

### How to improve the performance of an FMIS
- Phased and layered approach:
  - Core functions (accounting, budget execution) form the basic layer; other layers (for example, budget preparation) are built on top.
  - Example applications of this approach: Mongolia, Timor-Leste, and Vietnam (Joshi and van Nguyen 2016).
- Structure and interoperability:
  - Modern FMIS structure should integrate core functions (budget execution, accounting, reporting, treasury) and channel outputs through a data warehouse.
  - Use of APIs and interoperability layers recommended to automate data exchanges among core FMIS and auxiliary systems (planning, procurement, payroll, tax, customs, central bank/TSA).
- Observed practice and project statistics:
  - World Bank database (projects approved and executed between 1991 and 2011): total 102 projects; 92 projects implemented some type of FMIS solution.
    - Out of these 92 projects, 57 percent represented completely new FMIS systems; the remainder represented an extension of existing systems.
  - For 28 projects approved after 2011 that are still under execution, 75 percent represented new systems.
  - Note: In cases of severe structural or maintenance problems, replacement of an entire system might be justified; in other cases, more efficient and cost-effective solutions make better use of existing IT infrastructure and human capacities.
- Undertaking a diagnostic assessment:
  - Recommendation: Carry out an in-depth diagnostic assessment of functional and technological challenges before modernizing the FMIS.
  - Assessment scope: review business rules and definitions, update conceptual design as required, evaluate capability to produce timely and reliable annual financial statements and monthly or quarterly budget execution reports, assess tracking of payments against commitments and budget appropriations, assess reconciliation of accounting data with government bank account movements, evaluate institutional coverage (budgetary central government entities, extrabudgetary entities, social security funds), and identify hardware, software, connectivity, fragmentation, and interoperability issues.
  - Institutional note: Often the Treasury Directorate or Budget Directorate oversees FMIS operation; some countries have an Information Technology Directorate within the finance ministry (examples: Cambodia and Chile).
- When to adopt a modular approach:
  - Decision rule: Categorize FMIS challenges according to performance against functional and technological requirements.
  - Replacement trigger: If FMIS presents severe weaknesses or failures covering more than 75 percent of its core functionalities and main technological dimensions, initiating replacement of the core FMIS by a COTS, LDSW, or in-house development solution could be optimal.
  - Modular alternative: If relatively few functional and technological challenges exist (green-zone scenarios), adopt a modular approach—upgrade, reengineer, or replace one core module at a time (for example, upgrade accounting module while retaining budget execution, treasury, and cash management modules).
  - Technical guidance: Use APIs and interoperability layers and agile software development to integrate replaced modules with existing FMIS; include a data warehouse to collect, integrate, and store information from various sources.
  - Software-engineering context: The 80/20 rule / Pareto principle is referenced; on average FMIS core functionalities represent about 20 percent of all functionalities of the system, and severity of issues can be assessed relative to 80 percent and 20 percent thresholds.
  - Considerations for modular approach: analyze costs and benefits, and assess system coupling and cohesion—low coupling and high cohesion favor modular replacement.

*Source: Authors.*

### Box 4 provides some examples of countries that have

### howtonote1903 - Box 4 provides some examples of countries that have

### Modular approach: overview and technological enablers
- Since around the year 2005, information systems have been increasingly developed on web-based platforms under a service-oriented design, which increased a system’s capacity for interoperability and the ease of upgrading or maintenance.
- In a web-based platform:
  - all the software is located at the central server, and the clients connect to the FMIS over a wide area network or a virtual private network using internet (web-browser) technology.
  - when the central servers are updated, all clients are provided with instant access to the updated system.
- Service-oriented design increases the system’s capacity to exchange and share information.
- Additional software solutions that facilitate timely exchange of data among different information systems include:
  - API web services (API)
  - middleware layers that enhance capacity to manage data from several sources
  - extract-transform-load tools
  - flexible data warehouse solutions
- Textual numeric artifacts present in the source: "25% 50% 100% 75% 0%25%50%75%100%"

### Country examples of modular implementations
- Advanced economies:
  - United States:
    - budget execution and payment processes are decentralized to government agencies responsible for setting up their own financial management systems subject to a common set of standards and requirements.
    - these requirements are validated by business rules engines at the US Treasury Department and the Office of Management and Budget (OMB) which exercise central oversight.
    - data are exchanged through direct input into the APIs or through batch exchanges using an XML format.
  - United Kingdom and the Netherlands:
    - information systems for aggregate spending control are relatively simple.
    - United Kingdom: under the budget monitoring system used by the finance ministry, data are only entered at fixed points of the year by the spending agencies.
    - Netherlands: operates a similar approach with its IBOS system.
    - detailed day-to-day financial management delegated to spending ministries and agencies.
    - all three countries have established a common set of standards for the various information fields—a key feature of the modular approach.
- Emerging markets and subnational examples:
  - São Paulo state (Brazil):
    - developed a web-based FMIS (SIAFEM.net) together with a middleware layer connecting a series of web-based applications to enhance interoperability and interfaces with public procurement and the public sector cost system.
  - Mali:
    - upgraded a previously fragmented FMIS to conform with the harmonized framework of PFM required by the region’s economic and monetary union.
    - increased interoperability by utilizing an extract-transform-load tool.
  - Cabo Verde, Guyana, and Mali:
    - implemented business intelligence tools on top of an existing FMIS solution to improve reporting capabilities.

### Potential benefits of a modular approach
- Support the implementation and monitoring of core fiscal objectives, fiscal rules, and financial regulations by prioritizing accounting, budget, treasury, and reporting functions.
- Facilitate exchange of information between core and noncore modules and between systems operated by individual ministries and agencies.
- Allow countries to make the best use of existing systems, utilizing investments in IT and human resource capabilities already available, and avoiding need to replace all or most of existing FMIS.
- Increase flexibility to incorporate advanced technologies within the FMIS, including web-based or multilayered systems.
- Provide more agile solutions in rapidly evolving environments (for example, where several PFM reforms are taking place simultaneously).
- Permit implementation of different IT solutions from several vendors instead of being tied to a single vendor.
- Better manage issues of poor connectivity (for example, some modules may continue to operate while others are out of operation).

### Potential disadvantages, complexities, and risks
- Requirement to establish a common set of standards for information fields (organizational structure of government, budget classification and chart of accounts, regions and local government units) since each module could function under a different technological platform.
- Necessity to validate that each module produces and manages information according to standards—recommendation to establish a central business rules engine, preferably in the general ledger.
- Technological complexities and maintenance costs may increase once operational.
- ERP-based or COTS solutions can be less flexible than in-house or LDSW solutions, though ERP solutions are increasingly incorporating greater flexibility (for example, via APIs).
- Exchanging information across modules may increase vulnerability to security risks; governments will need to strengthen cybersecurity policies.

### Roadmap options and modernization strategies when applying a modular approach
- Reengineering a specific core FMIS module:
  - resolve functional weaknesses and deliver improved performance and interoperability.
  - may include modifications to database structure and/or developing a middleware layer.
  - or replace a specific core module with alternative software from same or different vendor or develop a tailored FMIS module.
  - more appropriate when FMIS has low level of coupling; low or medium functional problems in core areas; and no severe technological problems.
- Developing a data sharing layer on top of existing core FMIS modules:
  - produce a simpler transaction processing function while maintaining existing applications and applied API interfaces, using software systems called ESBs.
  - more appropriate when FMIS developed in-house with medium level of coupling; low or medium core functional problems; and no severe technological problems.
- Replatforming or migrating the core FMIS systems to the cloud:
  - move from high-cost hardware or outdated platforms to cloud-ready platforms using specifically designed technology.15
  - benefits: simplify IT environment, divest organizations of much responsibility for managing applications, increase flexibility and reliability of hardware and software platform.
  - assess level of development of cloud computing providers in each country to guarantee security and business continuity of the FMIS.16
  - preferred when FMIS presents relatively minor functional problems; medium or high technological challenges related to software licenses, database problems, or hardware and connectivity weaknesses.
- Decision point on implementation sequencing:
  - whether to implement agreed changes all at once or in stages.

### Implementation governance, project management, and key steps
- Required steps include:
  - defining a strategy and action plan, with appropriate targets and milestones, taking account of the budget cycle.17
  - securing necessary human and financial resources, through domestic or external resources, to undertake the project.
  - establishing a project implementation unit and a steering committee chaired by a senior government official or minister.
  - developing a change management, communication and capacity building strategy, and a mechanism to obtain regular feedback from end users of financial information.
- Business process reengineering may be required (commitment authorizations, virement procedures, payment process, accounting). Under a modular approach, focus the business process review narrowly on a few core characteristics requiring modification.
- Figure 6 (schematic decision flow) summarizes main steps and decision points in modernizing an FMIS.

*Source: Authors.*

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_Source: https://www.imf.org/-/media/files/publications/howtonotes/howtonote1903.pdf_