## _cr0464 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_cr0464 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0464.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0464.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0464.pdf.json) --- ### Overview - Assessment of fiscal transparency practices in Fiji against the IMF Code of Good Practices on Fiscal Transparency based on discussions with authorities, the authorities’ response to the IMF fiscal transparency questionnaire, and other sources. - The assessment comprises: (i) description of practice prepared by IMF staff; and (ii) IMF staff commentary on fiscal transparency in Fiji. - The IMF Manual on Fiscal Transparency should be consulted for further explanation of terms and concepts. ### Areas of compliance and strengths - Parliament must authorize all taxation and spending. - The Reserve Bank of Fiji (RBF) enjoys effective independence in practice. - The independence of the Auditor General is provided for in the Constitution. - Since the mid-1990s, information on government guarantees, aid-in-kind and arrears of revenue has been presented in the annual budget. - A number of CSOs are explicitly funded from the budget. - The RBF is the government's fiscal agent for domestic borrowings and publishes monthly, quarterly and annual reports. - Government shareholdings (e.g., in Fiji Sugar Corporation, Fiji Pine, and Air Pacific) are disclosed in budget documents. ### Major implementation weaknesses and concerns - Longer-standing and serious weaknesses in implementation of the legal framework need urgent attention. - The Auditor General has documented breaches of laws and regulations, and qualified the 2001 Final Government Accounts. - Widespread tolerance of non-compliance with the rule of law appears to have developed at all levels of the system. - The PFMA 1999 was suspended, leaving gaps in the legal framework and a tension between financial accountability of chief executives and output-based performance contracting. - The only legally mandated fiscal reporting is an annual report on the Consolidated Fund and its component accounts; there is: - no requirement for within-year fiscal reporting; - no requirement for reporting to Parliament on the uses of contingency funds during the year. - Reporting on general government follows the 1986 GFS Manual but is very out of date: the latest data published being for 1997. - In practice fiscal policy focuses on the central government budget sector which excludes central government units with individual budgets and sub-national government. - Some significant community service obligations (CSOs) undertaken by non-financial public enterprises are not reported or funded from the budget; the mission was not able to quantify the extent of such CSOs. - The Fiji National Provident Fund (FNPF): - has multiple and sometimes conflicting roles (pensions, financial stability, nation building, social policy), - currently holds about three quarters of the government domestic debt on issue, - in recent years has been fully financing the deficit due to restrictions on its ability to invest overseas. - The FNPF is chaired by the Chief Executive Officer, Finance and National Planning. - The RBF Act 1983 restricts the Bank to providing short term cash flow financing only to the government and does not provide for full legislative independence, though the RBF enjoys effective autonomy in practice. - Regulation of the non-bank private sector is extensive; about one third of the goods and services in the CPI basket by expenditure weight are subject to price control. - The foreign investment approvals process contains unnecessary discretion and unclear criteria. - There is no clear strategy or policy statement on the government's policy and objectives with respect to its holdings of majority and minority shareholdings, nor on whether the Fiji Development Bank (FDB) should be authorized to expand into general banking activities. - Sub-national government is small: in 1997, sub-national government spending accounted for less than 5 percent of general government spending; only around 10 percent of sub-national government spending is financed from central government transfers. - No formal extra-budgetary central government funds (social security or other), but a substantial number of Trust Accounts with serious management problems and limited reporting. ### Key institutional and legal observations - Revenue raising by taxation or otherwise must be authorized by an Act of Parliament. - All revenues must be paid into the Consolidated Fund and can only be withdrawn under an appropriation. - The 1997 Constitution sets out fiscal management roles of the legislative and executive branches and provides for judicial independence. - The Public Finance Management Act (PFMA) 1999 would have modernized fiscal transparency and accountability but was suspended after passage in 1999. - The legal framework focuses on compliance rather than performance. - The Minister of Finance can exert effective control over public finances, but reporting and monitoring of budget execution is inadequate. ### Measures announced or underway - Government announced intention to restore financial management accountability and adherence to laws and regulations. - Performance contracting for all ministry CEOs was introduced from January 1, 2004. - Authorities indicated intention to reduce and modernize regulation including price controls, regulation of monopolies, labor market regulation, the investment approvals process, and the superannuation industry. - The 2003 budget announced an extension of RBF supervisory responsibilities to the FNPF and the superannuation industry as a whole. - The 2004 Budget included steps to reduce the number of trust accounts; a number of balances are to be transferred to the Consolidated Fund and procedures for use of these accounts will be tightened. - A project to establish conformity with the 2001 Government Finance Statistics Manual was to commence in early 2004; a GFS mission is collaborating with PFTAC. ### Priority actions recommended (focus on restoring financial accountability) - Establish sound internal controls within ministries, departments and FIRCA. - Progressively expand the quality and scope of information in the annual budget. - Start quarterly reporting of the fiscal outcome, and present a mid-year fiscal report to Parliament. - Simplify the Income Tax Act, minimize the use of administrative discretion, and strengthen tax administration. - Establish effective legislative scrutiny, and ensure follow up to the findings of the Auditor General. - Strengthen the policy framework for, and monitoring of, publicly controlled financial institutions. *Source: _cr0464 - EXECUTIVE SUMMARY* --- ### Auditor General and Trust Accounts (Box 1) ### Auditor General findings on Trust Accounts and financial controls - Auditor General documented serious problems in the operation of Trust Accounts, including departments exceeding spending limits, and some accounts being overdrawn in breach of regulations. - In his report on the 2001 accounts the Auditor General qualified the final accounts as "the aggregate of the trust fund balances held by the Government to meet future expenditures exceeded the aggregate cash balances of the Government held at that time in the banking system." - Reported weaknesses included: - exceeding appropriation limits in the administration of the Revolving Fund Account; - outstanding trust account reconciliations; - failure to submit annual reports; - poor recovery of accountable advances; - continued ignoring of procedures covering the purchase of goods and services; - laxness in the recovery of debts; - failure to reconcile trust accounts; and - a need to update/replace the general ledger to ensure it can produce reliable and credible information. ### Integration of capital and recurrent spending - No separate development budget; the three year rolling Public Sector Investment Program (PSIP) produced by the National Planning Office is not currently well integrated into the budget process or budget documents. - Amalgamation in April 2002 of the National Planning Office within the Ministry of Finance and National Planning (MoF) is expected to facilitate more integrated analysis of, and budgeting for, capital and recurrent spending. ### Tax legislation, concessions, and administration - Legislative basis for taxation is clear for some taxes, but widespread discretionary concessions, and some key statutes are ambiguous and outdated. - Government acknowledged in the 2003 Budget Address that the provisions of the 1974 Income Tax Act are complex, outdated and ambiguous, and indicated it was committed to reviewing the entire legislation in 2003 to consolidate and simplify the Act in consultation with the private sector. - The Income Tax Act and the Customs Act provide discretionary powers for the Minister of Finance and National Planning to waive taxes and duties; tax officials also have delegated discretion (for example to waive late payment penalties). The criteria for the exercise of discretion are not always clear. - Ministerial discretion to waive the payment of non-resident withholding tax was removed in the 2002 budget. ### Institutional strengthening of tax administration (FIRCA) - FIRCA was created in 1999 under a separate Board of Directors to strengthen tax administration. - Administrative issues noted: - significant concerns about the level of internal control despite Codes of Conduct; - a new accounting system introduced but not yet delivering full functionality; - FIRCA established a new internal audit unit in 2001; - a new set of Regulations for Conduct and Discipline introduced to improve disciplinary capability; - the level of revenue arrears is a significant problem; the government announced in the 2003 budget that FIRCA would be given additional powers to collect from delinquent taxpayers; - a common taxpayer identification number is being introduced across the income tax and VAT systems, but not the customs system. - FIRCA is audited by the Auditor General; however, as a statutory authority, there is less transparency over the Auditor General’s noted shortcomings than if it were still a government department. ### Taxpayer services, appeals, and tribunals - FIRCA is expanding information and support to taxpayers; a system of binding tax rulings was introduced in 2002. - FIRCA announced intentions to introduce a tax agent lodgment program and a Customer Services Centre in 2003. - Current appeal process: - taxpayers can appeal a tax assessment to the Commissioner of Inland Revenue, and from there to the Courts; - no avenue for appealing the Commissioner's ruling to an independent administrative tribunal; - tribunals for VAT and income tax exist but no members have been appointed to them in recent years; - the Minister for Finance announced post-budget an intention to make appointments to the tribunals, but there is at present no provision in the budget for the operating costs of the tribunals. - There is no statement of tax-payers’ rights. ### Public service conduct and oversight - The Public Service Act establishes a Code of Conduct for public servants, but adherence is weak, knowledge of the Code is low, and disciplinary procedures are slow. - The Public Service Commission aims to raise the visibility of the Code through staff training. - The Constitution establishes general principles of conduct and requires Parliament to implement and monitor these rules; this has yet to occur. - Government announced its intention to introduce a Leaders’ Code of Conduct in 2003. ### Public availability of fiscal information and budget coverage - Budget documents cover most central government fiscal activities. There are no extra-budgetary funds in Fiji. - Information presented: - projected aid-in-kind receipts are shown within each Head and at activity level; - spending financed from revenues earned by ministries and departments (user charges and fees) is not included in appropriations and such revenues are paid into the Consolidated Fund as required by law; in some cases these user charges are then made available to agencies for spending without appropriation – in breach of section 177 of the Constitution; - spending from Trust Accounts does not require separate annual appropriation and this expenditure is not reported in the budget documents. - The Auditor General has reported being denied access to some Trust Accounts maintained by the Fiji Military Forces despite a court ruling authorizing audit of those Accounts. ### Presentation, forecasts, and fiscal reporting practices - Budget documents disclose main fiscal aggregates for two years prior to the budget year and two years beyond the budget year. - The Economic and Fiscal Update presented with the 2003 budget contains information on actual spending for 2001, and the revised expected outturn for 2002, but does not show the original budget estimate for 2002. - Budget discloses estimates for the budget year plus the two following years and shows these estimates broken down by agency, programme, activity and by Standard Expenditure Group (SEG). - Expenditures presented by four functions, which does not conform to the UN Classification of the Functions of Government (COFOG). The SEG classification mixes expenditures of different economic types and does not conform to the GFS economic classification. - Main fiscal indicators used include: - gross deficit (cashflow position including debt principal repayments); - net deficit (gross deficit less principal repayments); - underlying deficit (net deficit adjusted for certain one-off transactions, specifically asset sales and National Bank of Fiji refinancing), net cashflows associated with operating activities; and cashflows associated with investing activities. - Presentation of the deficit: - mixes transactions in financial and nonfinancial assets and does not separate financing transactions from investing transactions; - has no clear distinction between revenues earned and grants received; - does not clearly distinguish between capital and current grants and revenues; - incorrectly categorises some transactions (e.g., grants used by the beneficiary for capital acquisitions treated as investing transactions of the government; proceeds of asset sales treated as revenues rather than financing transactions). ### Medium-term fiscal policy and targets - Medium term fiscal forecasts and major economic assumptions are disclosed; official macroeconomic forecasts are produced in advance by an interdepartmental Macroeconomic Technical Committee. - The 2003 budget contained medium term targets: - government deficit (less than 3 percent of GDP by 2005), - government debt (less than 40 percent of GDP by 2005), - investment (25 percent of GDP). - Some medium term targets were announced for economic growth, poverty reduction, inflation and foreign exchange reserves; it is not made clear that these targets are mutually consistent. - Government legislated cuts to income tax rates in 2001 to be implemented in successive budgets; the final stage of these cuts was suspended in the 2003 budget. ### Fiscal impact of new initiatives and fiscal risk disclosure - Fiscal impact of new initiatives is not clearly distinguished from the ongoing costs of government policies in the budget documents. - The 2003 Budget Address provides summary announcements of new revenue and spending policies; on the revenue side no information on estimated fiscal impact is provided. On the expenditure side, fiscal costs for specific initiatives are presented but it is not clear whether amounts represent incremental costs or total costs including baseline. - There is no comprehensive schedule of the new revenue and expenditure measures and their fiscal impact. - No analysis of sensitivity of the budget estimates to changes in economic variables is presented, although government guarantees are disclosed. - Head 50 has a specific appropriation of $F 18 million for salary increases and $F 7 million for merit payments. - Some information on fiscal risks is disclosed (for example, government guarantees and some contingent liabilities) but there is no discussion of risks to the medium term fiscal position or assessment of their impact. ### Public debt, assets, and contingent liabilities reporting - Budget Address discloses projections of the debt stock to GDP ratio for the budget year plus the two following years. - The Estimates contain a breakdown of debt servicing costs by each individual loan for the next three years, but no information on the structure of outstanding stock of debt. - The Reserve Bank's Quarterly Review contains aggregate information on domestic public debt by holder and the level of external debt; no information is published on the maturity profile of public debt or longer-term projections of debt servicing. - The Economic and Fiscal Update contains information on government guarantees, including a list of main individual guarantees showing their face value for the three years prior to the budget year, the total outstanding value of the stock of government guarantees, and the change in stock from the previous year. - No information is provided on outstanding legal claims against the government. The Auditor General has reported that some government guarantees have not been reported. - Some financial assets information is reported, including the value of cash assets, balances in various sub-accounts within the Consolidated Fund, investments in public enterprises and other equity holdings, and arrears of government revenues. ### Legal framework and statistical transparency - The 1981 Finance Act requires the government to transmit the annual statements of receipts and expenditures, and financial assets and liabilities, to the Auditor General within six months after the end of the financial year; the Auditor General is required to submit the audited accounts to Parliament within nine months of the end of the year. - With suspension of the PFMA 1999 there is no legislative requirement for reporting on the fiscal position prior to the end of the fiscal year; in practice the only such reporting currently is the inclusion of two tables in the RBF Quarterly reviews. - Fiji has recently adopted the IMF’s General Data Dissemination System (GDDS) as an operational framework for the development of official statistics. - The 1997 Constitution provides for legislation to give the public the right of access to official documents; the Government announced its intention to introduce a Freedom of Information Bill in 2003. *Source: _cr0464 - Box 1. Auditor General and Trust Accounts (PDF).* --- ### Performance management, controls, and public sector governance (31) ### Performance management and non‑financial objectives - Budget documents contain broad statements on objectives and activities but do not contain information on outputs to be delivered or measurable indications of outcome objectives. - The 1999 Public Service Act requires CEOs to provide central agencies with corporate plans specifying key results areas. - CEOs are being asked to provide information on outputs; some disclosure of key performance indicators in the PSIP. - Strategic Development Plan (2002) contains objectives and measurable targets consistent with the Millenium Development Goals. - Authorities indicate annual corporate planning instrument introduced in 2004 will aim to specify deliverables and costs for each ministry. - Tension exists between the performance management framework and the Appropriation Bill's financial framework. ### Internal control environment and accounting system - Internal control procedures are not effective. - Accounting system coverage is reasonably comprehensive for payments but recording is neither timely nor accurate. - Records of commitments are maintained manually outside the General Ledger and are incomplete. - Serious control problems over Local Purchase Orders (LPOs): not recorded in centralised accounting system. - Inadequate records of revenue arrears; departmental reconciliation with MoF General Ledger uneven. - Financial Management and Audit Unit in MoF inspects compliance but there is no internal audit function within ministries. - Proposed new financial management system with ADB assistance expected to strengthen controls and reporting. ### Accounting system capability and arrears reporting - Accounting system is almost twenty years old and under serious strain. - Automated General Ledger maintained by MoF; manual ledgers in ministries. - Auditor General (2001) stated "urgent need for the MoF to change its General Ledger System as early as 2003..." - System cannot generate reports on arrears; no centralised records on commitments or outstanding accounts due for payment. - Expenditure arrears noted as not being, in practice, a problem in Fiji, but serious control problems exist over LPOs. ### Contracting, procurement and purchasing controls - Government purchasing covered by Finance (Supplies and Services) (General) Regulations 1982 and Finance (Public Works) Regulations 1982. - Regulations establish: - a Major Tenders Board (for contracts over $30,000), - a Minor Tenders Board (for contracts less than $30,000 but more than some minimum set out in regulations), - a Public Works Tenders Board (for all public works purchases). - Regulations require invitations for tender to be published at least twice in a newspaper; successful tenders may be announced but not required to be. - Auditor General has pointed to serious problems: delegated purchasing authorities are exceeded, approvals by Tenders Boards are ignored, competitive quotations are not obtained, and unauthorised purchases are being made. ### Employment, pay, and disciplinary arrangements - Pay rates and position classifications tightly controlled by the Public Service Commission under the Constitution. - Staffing evaluations and promotion/appointment decisions (except some specialists) taken by the Public Service Commission. - Dismissal and disciplinary action within the public service is not effective; penalties for incompetence and malfeasance are rarely applied uniformly. - Auditor General noted widespread failures to impose or follow through on disciplinary action. ### Fiscal reporting, reconciliations and budget execution - Legislature does not undertake a mid‑year review; public fiscal reporting on outturns by the budget sector against the budget occurs only annually. - RBF Quarterly Review contains aggregate information on spending by SEG and revenues by type but no comparison with the budget. - Official accounting basis is cash, supplemented by reporting of non‑cash elements; appropriations lapse at year end. - Non‑cash elements disclosed as required by the Finance Act 1981 include reporting on financial assets. - Suspended PFMA 1999 would have introduced full accrual accounting. - Processes of accounts reconciliation are ineffective; Auditor General findings show irregularities and lack of reconciliations. - Factors contributing to variances between budgeted and actual outturns include conservative revenue estimates, use of virements, large Head 50 (almost 8 percent of total appropriations), and a large number of staff vacancies. - Despite unreliability of estimates, only moderate use of supplementary budgets in recent years. ### External audit, the legislature, and assurances of integrity - Audited final accounts must be presented to the Speaker within nine months of the fiscal year end; audited final accounts available within twelve months. - Adherence to time frames resulted in 2001 audit report being tabled with significant unresolved issues following the coup in May 2000. - Auditor General is independent (1997 Constitution): appointed for five years by the Constitutional Offices Commission, remuneration cannot be reduced during term, removable only for inability or proven misbehaviour, not subject to direction or control. - Office of the Auditor‑General treated as if a government department on budget and staffing; Public Service Commission must seek Auditor‑General's agreement over appointments to vacancies. - Auditor General mandated to inspect accounts of all accounting officers and must report at least once a year to Parliament; Audit Act 1969 empowers reporting at any time. - Strengthening audit capacity required: audits focus on financial compliance; more focus needed on internal control environments and performance audits. - Auditor General does not have a website. - Legislature does not follow up on external audit reports effectively: Public Accounts Committee (PAC) conventionally considers Auditor‑General reports, but PAC has not met to consider Auditor General’s findings since the political events of 2000. ### Macroeconomic forecasting, statistics and institutional arrangements - Official macroeconomic forecasts produced by an interdepartmental Macroeconomic Technical Committee (MoF, RBF, Bureau of Statistics, Prime Minister's Office, Ministry of Foreign Affairs). - Consensus forecasts arrive via discussion by the Macroeconomic Policy Committee chaired by the Governor of the RBF. - Disclosure: process disclosed briefly in RBF Annual Report; RBF Quarterly Review and Economic and Fiscal Update report on economic assumptions. - Lack of consistency exists between macroeconomic and fiscal forecasts, and delays have occurred in updating revenue outturn data; FIRCA not represented on the officials committee. - Government has not published an ex post review of the accuracy of macroeconomic forecasts in recent years. - Statistics Act 1971 gives Government Statistician considerable independence; in practice timeliness of statistical data needs to be addressed—latest available data at the time of the ROSC for much economic and financial statistics was for 1998. - Fiji is the only Pacific Island Country to have formally adopted the IMF’s GDDS. ### IMF staff commentary — overall assessment - Fiji meets the requirements of the fiscal transparency code in a number of respects and has expanded budget information in recent years. - Despite suspension of the PFMA 1999, Fiji has a reasonably sound legal framework for fiscal management. - RBF enjoys effective independence in monetary policy. - Public enterprises are legally required to operate commercially and be funded from the budget for any CSOs they undertake. - Auditor General is independent and reports directly to Parliament. - Recent improvements in budget information presented to the legislature include information on government guarantees, aid in kind, revenue arrears, and funding of a number of CSOs from the budget. *Source: _cr0464 - 31. There are no measurable non-financial objectives for major programs in the (IMF staff report).* --- ### Status of reforms and priorities for reform (49) ### Background: legal reforms and inconsistencies - PFMA introduced and passed in 1999 but suspended by a new government; "its precise legal status now seems unclear and should be clarified." - Companion Public Service Act 1999 retained, creating potential inconsistency with financial management framework. - Chief executives are accountable from 1 January 2004 for delivery of outputs under individual performance contracts, yet remain accountable for programmes and activities as specified in the budget. - Staff view: "some of the provisions in the PFMA were overly ambitious, given the current status of financial management in Fiji, in particular the provisions introducing full accrual budgeting and reporting." ### Weaknesses in implementation of existing legal framework - Auditor General reports document extensive irregularities and breaches including: - entering into commitments or expenditure in breach of appropriations; - fraud; - failure to account correctly for commitments and expenditure; - failure to recover advances to staff, or to impose disciplinary action when indicated; - inadequate reconciliation practices; - abuse of trust accounts; - ex post regularization of illegal expenditures; - abuse of office in government procurement; - continual ignoring of regulations. - Auditor General "qualified the 2001 Accounts and Finances of Government to the effect that he could not verify that they had been fully kept in accordance with section 167 of the Constitution." - Central agencies fail to comply with their own Instructions, and there has been no discussion in the legislature of the last three annual reports of the Auditor General. - Government’s Strategic Development Plan (SDP) states intention to emphasise accountability for management and use of public funds, compliance with laws and regulations, and strengthen Parliament's capability to exercise oversight. ### Priority approach: focus on basic financial management systems - Reasserting financial accountability requires strong action across multiple, inter-related areas; ad hoc or isolated initiatives will not suffice. - Until basic steps are taken, attempts to introduce more advanced budgeting techniques are likely to reduce rather than increase accountability. ### Immediate actions: establish sound internal controls (four main elements and additional measures) - Upgrade capability of current accounting system to produce accurate and timely reports on spending, and to record commitments and the issue of LPOs. - Clarify who is accountable for financial management in government departments (the MoF, or the CEO of each department). This requires resolving: - the line of accountability of accounting officers in departments; - the role of the Chief Accountant in MoF; - the role of MoF's internal audit unit; - what chief executives are accountable for in their performance contracts from 1 January 2004. - Conduct basic reconciliation processes to ensure accuracy of accounting and banking records, and consistency between departmental accounts and the MoF General Ledger. - Revitalize the legal framework by re-issuing the Finance Instructions, and training accounting officers across government as well as MoF staff. - Take effective and timely disciplinary action for contravention of financial management laws and regulations; resolve tensions between MoF's oversight role and the Public Service Commission's role in human resource management, including disciplinary action. - In the medium term establish an effective internal audit function within government ministries and departments. ### Budget transparency and reporting enhancements - Budget documents should progressively improve quality and scope, including: - overall budget balance recast in accordance with international standards, such as the GFS, with a table reconciling pure cash flow estimates used for appropriations to the new analytical presentation; - presentation of a budget balance net of foreign assistance; - tables showing government spending on a functional and economic basis according to internationally recognized standards; - all spending of revenues from user-charges appropriated and trust account transactions reported in the budget documents; - an expanded commentary on macroeconomic and fiscal forecasts, explaining consistency between the government’s announced medium term fiscal targets and its medium term macroeconomic objectives; - a summary statement showing all new revenue and expenditure measures introduced in the budget, together with their estimated fiscal effects; - reallocation of much of the spending currently included in Head 50 of the Estimates to the appropriate department or ministry; - a more comprehensive statement of fiscal risks, with information on sensitivity of fiscal aggregates to changes in macroeconomic assumptions; - a statement of tax expenditures listing all tax expenditures and existing estimates of their fiscal impact, progressively expanded to include public policy purpose, duration, intended beneficiaries, and fiscal impact; - all remaining unbudgeted CSOs of public enterprises disclosed individually in a list, or preferably fully financed from the government budget; - progressive incorporation of non-financial information and targets from the SDP and PSIP into the Estimates. - Quarterly reporting by MoF on the fiscal outturn, together with a commentary, should be introduced and a mid-year fiscal report should be presented to Parliament. - Quarterly reports on the fiscal outturn during the year, and a mid-year report on budget implementation presented to the legislature, are described as a basic requirement of fiscal transparency. - Reports should analyze spending against budget appropriations (by Head and activity), present revenue and spending in terms of a GFS–consistent economic classification with comparison to budget, and include commentary on significant variances. - Over time within-year reporting should be augmented by presenting spending in terms of COFOG functional categories. - Mid-year report should contain a comprehensive analysis of implementation against budget and a revised forecast of spending and revenue for the full year, and should be presented within three months of mid-year. - Actual disbursement of the unallocated spending in Head 50 should be reported to Parliament in the mid-year report and at the end of the year. - Authorities recently indicated that reports for the first two quarters of 2003 were circulated and that the report for the December quarter is under preparation. ### Tax administration and statutory reforms - Key measures recommended: - Reactivate the independent tribunals established to consider tax-payer appeals as soon as possible. - Attach high priority to completing during 2003 the modernization and codification of income tax statutes in consultation with private sector experts. - In 2003 review, and ideally eliminate, the level of Ministerial discretion over individual tax liabilities so that there is an explicit legal basis for all taxes; minimize administrative discretion and put in place robust procedural safeguards. - Strengthen internal control within FIRCA via fuller exploitation of the new accounting system, setting up an internal audit unit, and strengthening oversight role of the Internal Audit Committee of FIRCA's Board. - Introduce a Statement of Tax Payers’ Rights. - Have the Auditor General include in his report on the 2002 Accounts and Finances of Government an assessment of the revenue and expenditure details of FIRCA. - Introduce a single tax-payer identification number across all tax types in the medium term. ### Legislative scrutiny, Auditor General follow-up, and parliamentary oversight - Restore Parliament's role in holding the executive to account for irregularities exposed by the Auditor General: - Re-convene the PAC as soon as possible to discuss the 2001 Audited Final Accounts. (Alternatively, Parliamentary Sector Committees could play an important role until the obstacles to reconvening the PAC are resolved.) - Require regular (for example quarterly) reporting from the government on the implementation status of remedial actions until all shortcomings have been resolved. - Include with the 2002 Accounts and Finances of Government a plain language explanation of the Fund accounting system used in the Consolidated Fund, together with reconciliations between fund balances and bank account balances and the overall budget balance. - Auditor General's report should highlight major weaknesses more clearly and explicitly discuss and assess the soundness of the internal control environment in ministries and departments; issuing a press release at presentation of the annual audit report was suggested. ### Fiscal risks from public financial institutions and required clarifications - Policy frameworks for the FNPF, FDB and HA need clarification and improved monitoring: - Lack of clarity in multiple roles carried out by the FNPF. - Unresolved issues around the mandate and scope of roles played by the FDB and the HA, and concerns about the soundness of their financial position. - Managing fiscal risk over the medium term requires attention to policy and regulatory environment, authorized business activities, and on-going monitoring of performance. - A more arms length relationship between the FNPF and government would assist accountability, for instance by ensuring that Board members do not hold positions in government that relate closely to the functions of the FNPF. *Source: _cr0464 - 49. The status of reforms to fiscal transparency and accountability in Fiji has been* ### EXECUTIVE SUMMARY ### _cr0464 - EXECUTIVE SUMMARY ### Overview - This report assesses fiscal transparency practices in Fiji against the requirements of the IMF Code of Good Practices on Fiscal Transparency, based on discussions with the authorities, the authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. - The IMF Manual on Fiscal Transparency should be consulted for further explanation of terms and concepts discussed. - The assessment comprises: (i) description of practice prepared by IMF staff; and (ii) IMF staff commentary on fiscal transparency in Fiji. ### Areas of Compliance and Strengths - Fiji meets the requirements of the fiscal transparency code in a number of respects and has recently expanded the range of information presented with the budget. - Parliament must authorize all taxation and spending. - The Reserve Bank of Fiji (RBF) enjoys effective independence in practice. - The independence of the Auditor General is provided for in the Constitution. - Since the mid-1990s, information on government guarantees, aid-in-kind and arrears of revenue has been presented in the annual budget. - A number of CSOs are explicitly funded from the budget. - The RBF is the government's fiscal agent for domestic borrowings and publishes monthly, quarterly and annual reports. - Government shareholdings (e.g., in Fiji Sugar Corporation, Fiji Pine, and Air Pacific) are disclosed in budget documents. ### Major Implementation Weaknesses and Concerns - Longer-standing and serious weaknesses in implementation of the legal framework need urgent attention. - The Auditor General has documented breaches of laws and regulations, and qualified the 2001 Final Government Accounts. - A widespread tolerance of non-compliance with the rule of law appears to have developed at all levels of the system. - The PFMA 1999 was suspended, leaving gaps in the legal framework and a tension between financial accountability of chief executives and output-based performance contracting. - The only legally mandated fiscal reporting is an annual report on the Consolidated Fund and its component accounts; there is: - no requirement for within-year fiscal reporting; - no requirement for reporting to Parliament on the uses of contingency funds during the year. - Reporting on general government follows the 1986 GFS Manual but is very out of date: the latest data published being for 1997. - In practice fiscal policy focuses on the central government budget sector which excludes central government units with individual budgets and sub-national government. - Some significant community service obligations (CSOs) undertaken by non-financial public enterprises are not reported or funded from the budget; the mission was not able to quantify the extent of such CSOs. - The Fiji National Provident Fund (FNPF) has multiple and sometimes conflicting roles (pensions, financial stability, nation building, social policy), currently holds about three quarters of the government domestic debt on issue, and in recent years has been fully financing the deficit due to restrictions on its ability to invest overseas. - The FNPF is chaired by the Chief Executive Officer, Finance and National Planning. - The RBF Act 1983 restricts the Bank to providing short term cash flow financing only to the government and does not provide for full legislative independence, though the RBF enjoys effective autonomy in practice. - Regulation of the non-bank private sector is extensive; about one third of the goods and services in the CPI basket by expenditure weight are subject to price control. - The foreign investment approvals process contains unnecessary discretion and unclear criteria. - There is no clear strategy or policy statement on the government's policy and objectives with respect to its holdings of majority and minority shareholdings, nor on whether the Fiji Development Bank (FDB) should be authorized to expand into general banking activities. - Sub-national government is small: in 1997, sub-national government spending accounted for less than 5 percent of general government spending; only around 10 percent of sub-national government spending is financed from central government transfers. - There are no formal extra-budgetary central government funds (social security or other), but there is a substantial number of Trust Accounts with serious management problems and limited reporting. ### Key Institutional and Legal Observations - The legal framework requires that revenue raising by taxation or otherwise must be authorized by an Act of Parliament. - All revenues must be paid into the Consolidated Fund and can only be withdrawn under an appropriation. - The 1997 Constitution sets out fiscal management roles of the legislative and executive branches, including House of Representatives and Senate roles in money Bills, and provides for judicial independence. - The Public Finance Management Act (PFMA) 1999 would have modernized fiscal transparency and accountability (including accrual and output budgeting and management) but was suspended after passage in 1999. - The legal framework focuses on compliance rather than performance. - The Minister of Finance can exert effective control over public finances, but reporting and monitoring of budget execution is inadequate. ### Measures Announced or Underway - The current government announced its intention to restore financial management accountability and adherence to laws and regulations. - Performance contracting for all ministry CEOs was introduced from January 1, 2004. - The authorities indicated the intention to reduce and modernize regulation in areas including price controls, regulation of monopolies, labor market regulation, the investment approvals process, and the superannuation industry. - The 2003 budget announced an extension of RBF supervisory responsibilities to the FNPF and the superannuation industry as a whole. - The 2004 Budget included steps to reduce the number of trust accounts; a number of balances are to be transferred to the Consolidated Fund and procedures for use of these accounts will be tightened. - A project to establish conformity with the 2001 Government Finance Statistics Manual was to commence in early 2004; a GFS mission is collaborating with PFTAC. ### Priority Actions Recommended (focus on restoring financial accountability) - Establish sound internal controls within ministries, departments and FIRCA. - Progressively expand the quality and scope of information in the annual budget. - Start quarterly reporting of the fiscal outcome, and present a mid-year fiscal report to Parliament. - Simplify the Income Tax Act, minimize the use of administrative discretion, and strengthen tax administration. - Establish effective legislative scrutiny, and ensure follow up to the findings of the Auditor General. - Strengthen the policy framework for, and monitoring of, publicly controlled financial institutions. *Source: _cr0464 - EXECUTIVE SUMMARY* ### Box 1. Auditor General and Trust Accounts ### Box 1. Auditor General and Trust Accounts ### Auditor General findings on Trust Accounts and financial controls - The Auditor General documented serious problems in the operation of Trust Accounts, including departments exceeding spending limits, and some accounts being overdrawn in breach of regulations. - In his report on the 2001 accounts the Auditor General, inter alia, qualified the final accounts as "the aggregate of the trust fund balances held by the Government to meet future expenditures exceeded the aggregate cash balances of the Government held at that time in the banking system." - Reported weaknesses included: - exceeding appropriation limits in the administration of the Revolving Fund Account; - outstanding trust account reconciliations; - failure to submit annual reports; - poor recovery of accountable advances; - continued ignoring of procedures covering the purchase of goods and services; - laxness in the recovery of debts; - failure to reconcile trust accounts; and - a need to update/replace the general ledger to ensure it can produce reliable and credible information. ### Integration of capital and recurrent spending - There is no separate development budget; the three year rolling Public Sector Investment Program (PSIP) produced by the National Planning Office is not currently well integrated into the budget process or budget documents. - The amalgamation in April 2002 of the National Planning Office within the Ministry of Finance and National Planning (MoF) is expected to facilitate more integrated analysis of, and budgeting for, capital and recurrent spending. ### Tax legislation, concessions, and administration - The legislative basis for taxation is clear for some taxes, but there are widespread discretionary concessions, and some key statutes are ambiguous and outdated. - The government acknowledged in the 2003 Budget Address that the provisions of the 1974 Income Tax Act are complex, outdated and ambiguous, and indicated it was committed to reviewing the entire legislation in 2003 to consolidate and simplify the Act in consultation with the private sector. - The Income Tax Act and the Customs Act provide discretionary powers for the Minister of Finance and National Planning to waive taxes and duties; tax officials also have delegated discretion (for example to waive late payment penalties). The criteria for the exercise of discretion are not always clear. - Ministerial discretion to waive the payment of non-resident withholding tax was removed in the 2002 budget. ### Institutional strengthening of tax administration (FIRCA) - The Fiji Islands Revenue and Customs Authority (FIRCA) was created in 1999 under a separate Board of Directors to strengthen tax administration. - Noted administrative issues: - significant concerns about the level of internal control despite Codes of Conduct; - a new accounting system introduced but not yet delivering full functionality; - FIRCA established a new internal audit unit in 2001; - a new set of Regulations for Conduct and Discipline introduced to improve disciplinary capability; - the level of revenue arrears is a significant problem; the government announced in the 2003 budget that FIRCA would be given additional powers to collect from delinquent taxpayers; - a common taxpayer identification number is being introduced across the income tax and VAT systems, but not the customs system. - FIRCA is audited by the Auditor General; however, as a statutory authority, there is less transparency over the Auditor General’s noted shortcomings than if it were still a government department. ### Taxpayer services, appeals, and tribunals - FIRCA is expanding information and support to taxpayers; a system of binding tax rulings was introduced in 2002. - FIRCA announced intentions to introduce a tax agent lodgment program and a Customer Services Centre in 2003. - Current appeal process: - taxpayers can appeal a tax assessment to the Commissioner of Inland Revenue, and from there to the Courts; - there is no avenue for appealing the Commissioner's ruling to an independent administrative tribunal; - tribunals for VAT and income tax exist but no members have been appointed to them in recent years; - the Minister for Finance announced post-budget an intention to make appointments to the tribunals, but there is at present no provision in the budget for the operating costs of the tribunals. - There is no statement of tax-payers’ rights. ### Public service conduct and oversight - The Public Service Act establishes a Code of Conduct for public servants, but adherence is weak, knowledge of the Code is low, and disciplinary procedures are slow. - The Public Service Commission aims to raise the visibility of the Code through staff training. - The Constitution establishes general principles of conduct (such as avoidance of conflicts of interest) for the President, Vice President, Ministers, MPs, permanent secretaries, and other public office holders, and requires Parliament to implement and monitor these rules; this has yet to occur. - The government announced its intention to introduce a Leaders’ Code of Conduct in 2003. ### Public availability of fiscal information and budget coverage - The budget documents cover most central government fiscal activities. There are no extra-budgetary funds in Fiji. - Information presented: - projected aid-in-kind receipts are shown within each Head and at activity level; - spending financed from revenues earned by ministries and departments (user charges and fees) is not included in appropriations and such revenues are paid into the Consolidated Fund as required by law; in some cases these user charges are then made available to agencies for spending without appropriation – in breach of section 177 of the Constitution; - spending from Trust Accounts does not require separate annual appropriation and this expenditure is not reported in the budget documents. - The Auditor General has reported being denied access to some Trust Accounts maintained by the Fiji Military Forces despite a court ruling authorizing audit of those Accounts. ### Presentation, forecasts, and fiscal reporting practices - The budget documents disclose main fiscal aggregates for two years prior to the budget year and two years beyond the budget year. - The Economic and Fiscal Update presented with the 2003 budget contains information on actual spending for 2001, and the revised expected outturn for 2002, but does not show the original budget estimate for 2002. - The budget discloses estimates for the budget year plus the two following years and shows these estimates broken down by agency, programme, activity and by Standard Expenditure Group (SEG). - The budget presents expenditures by four functions, which does not conform to the UN Classification of the Functions of Government (COFOG). The SEG classification mixes expenditures of different economic types and does not conform to the GFS economic classification. - The main fiscal indicators used include: - gross deficit (cashflow position including debt principal repayments); - net deficit (gross deficit less principal repayments); - underlying deficit (net deficit adjusted for certain one-off transactions, specifically asset sales and National Bank of Fiji refinancing), net cashflows associated with operating activities; and cashflows associated with investing activities. - The presentation of the deficit: - mixes transactions in financial and nonfinancial assets and does not separate financing transactions from investing transactions; - has no clear distinction between revenues earned and grants received; - does not clearly distinguish between capital and current grants and revenues; - incorrectly categorises some transactions (for example, grants used by the beneficiary for capital acquisitions treated as investing transactions of the government; proceeds of asset sales treated as revenues rather than financing transactions). ### Medium-term fiscal policy and targets - Medium term fiscal forecasts and major economic assumptions are disclosed; official macroeconomic forecasts are produced in advance by an interdepartmental Macroeconomic Technical Committee. - The 2003 budget contained medium term targets: - government deficit (less than 3 percent of GDP by 2005), - government debt (less than 40 percent of GDP by 2005), - investment (25 percent of GDP). - Some medium term targets were announced for economic growth, poverty reduction, inflation and foreign exchange reserves; it is not made clear that these targets are mutually consistent. - The government legislated cuts to income tax rates in 2001 to be implemented in successive budgets; the final stage of these cuts was suspended in the 2003 budget. ### Fiscal impact of new initiatives and fiscal risk disclosure - The fiscal impact of new initiatives is not clearly distinguished from the ongoing costs of government policies in the budget documents. - The 2003 Budget Address provides summary announcements of new revenue and spending policies; on the revenue side no information on estimated fiscal impact is provided. On the expenditure side, fiscal costs for specific initiatives are presented but it is not clear whether amounts represent incremental costs or total costs including baseline. - There is no comprehensive schedule of the new revenue and expenditure measures and their fiscal impact. - No analysis of sensitivity of the budget estimates to changes in economic variables is presented, although government guarantees are disclosed. - Head 50 has a specific appropriation of $F 18 million for salary increases and $F 7 million for merit payments. - Some information on fiscal risks is disclosed (for example, government guarantees and some contingent liabilities) but there is no discussion of risks to the medium term fiscal position or assessment of their impact. ### Public debt, assets, and contingent liabilities reporting - The Budget Address discloses projections of the debt stock to GDP ratio for the budget year plus the two following years. - The Estimates contain a breakdown of debt servicing costs by each individual loan for the next three years, but no information on the structure of outstanding stock of debt. - The Reserve Bank's Quarterly Review contains aggregate information on domestic public debt by holder and the level of external debt; no information is published on the maturity profile of public debt or longer-term projections of debt servicing. - The Economic and Fiscal Update contains information on government guarantees, including a list of main individual guarantees showing their face value for the three years prior to the budget year, the total outstanding value of the stock of government guarantees, and the change in stock from the previous year. - No information is provided on outstanding legal claims against the government. The Auditor General has reported that some government guarantees have not been reported. - Some financial assets information is reported, including the value of cash assets, balances in various sub-accounts within the Consolidated Fund, investments in public enterprises and other equity holdings, and arrears of government revenues. ### Legal framework and statistical transparency - The 1981 Finance Act requires the government to transmit the annual statements of receipts and expenditures, and financial assets and liabilities, to the Auditor General within six months after the end of the financial year; the Auditor General is required to submit the audited accounts to Parliament within nine months of the end of the year. - With the suspension of the PFMA 1999 there is no legislative requirement for reporting on the fiscal position prior to the end of the fiscal year; in practice the only such reporting currently is the inclusion of two tables in the RBF Quarterly reviews. - Fiji has recently adopted the IMF’s General Data Dissemination System (GDDS) as an operational framework for the development of official statistics. - The 1997 Constitution provides for legislation to give the public the right of access to official documents of the government and its agencies; the Government announced its intention to introduce a Freedom of Information Bill in 2003. *Source: _cr0464 - Box 1. Auditor General and Trust Accounts (PDF).* ### 31. There are no measurable non-financial objectives for major programs in the ### _cr0464 - 31. There are no measurable non-financial objectives for major programs in the ### Performance management and non‑financial objectives - Budget documents contain broad statements on objectives and activities of ministries and departments but do not contain information on outputs to be delivered or measurable indications of outcome objectives of government programmes. - The 1999 Public Service Act requires CEOs to provide central agencies with corporate plans specifying key results areas for which they are accountable. - CEOs are being asked to provide information on outputs; there is some disclosure of key performance indicators in the PSIP. - The Strategic Development Plan developed in 2002 contains objectives and measurable targets for different sectors intended to be consistent with the Millenium Development Goals. - The authorities indicate that the annual corporate planning instrument introduced in 2004 will aim to specify in broad terms the deliverables for each ministry as well as the costs of each deliverable. - Tension exists between the performance management framework and the financial framework in the Appropriation Bill, which is premised on programmes, activities and inputs. ### Internal control environment and accounting system - Internal control procedures are not effective. - Coverage of the accounting system is reasonably comprehensive for payments for both domestic and donor financed transactions, but actual recording of transactions is neither timely nor accurate. - Records of commitments are maintained manually outside the General Ledger and are incomplete. - Serious control problems over the use of Local Purchase Orders (LPOs): current accounting system does not record LPO issues—they are undertaken manually and outside the centralised accounting system. - Inadequate records of revenue arrears have accumulated to significant levels. - Departmental reconciliation with the MoF General Ledger is uneven in practice. - The accounting system records cash grants from external donors (most pass through the Consolidated Fund; some donors require Trust Accounts) and records are kept of aid‑in‑kind; the 2003 budget documents provided total aid‑in‑kind by donor, and by Head and activity. - Weak reconciliation procedures are significant impediments to producing timely and accurate within‑year fiscal reports. - The Financial Management and Audit Unit in the MoF conducts external inspection of each ministry's activities focusing on legal compliance of transactions, not internal audit. - There is no internal audit function within ministries and departments; the Financial Management and Audit Unit does not provide system/procedural checks expected from an internal audit function. - The authorities indicated that the proposed new financial management system to be implemented with the help of the ADB will help strengthen internal control and improve financial reporting. ### Accounting system capability and arrears reporting - The accounting system is almost twenty years old and under serious strain. - An automated General Ledger is maintained by the MoF; manual ledgers are maintained by individual ministries and departments. - Department accounting systems are very weak: records incomplete, inaccurate, not reconciled with banks and manual ministry records; reports are not available on a timely basis. - The Auditor General in his report for 2001 stated an “urgent need for the MoF to change its General Ledger System as early as 2003 to ensure that reliable and credible accounting information is produced.” - The accounting system cannot generate reports on arrears; no centralised records are kept on commitments or outstanding accounts due for payment. - Expenditure arrears are noted as not being, in practice, a problem in Fiji, but serious control problems exist over LPOs. ### Contracting, procurement and purchasing controls - Government purchasing is covered by the Finance (Supplies and Services) (General) Regulations 1982 and the Finance (Public Works) Regulations 1982. - Regulations establish: - a Major Tenders Board (for contracts over $30,000), - a Minor Tenders Board (for contracts less than $30,000 but more than some minimum set out in regulations), - a Public Works Tenders Board (for all public works purchases). - Regulations require invitations for tender to be published at least twice in a newspaper, set requirements for opening tenders, and permit tenderers to be present when their tender is opened. - Successful tenders may be announced in a newspaper, but are not required to be. - For public works tenders the Board may issue selective invitations to tender and there are no restrictions on use of this provision. - The Auditor General has pointed to serious problems: delegated purchasing authorities are exceeded, approvals by Tenders Boards are ignored, competitive quotations are not obtained, and unauthorised purchases are being made. ### Employment, pay, and disciplinary arrangements - Pay rates and position classifications are tightly controlled by the Public Service Commission, which has independent powers under the Constitution. - Staffing evaluations and promotion/appointment decisions (except some specialist positions) are taken by the Public Service Commission. - Dismissal and disciplinary action within the public service is not effective because the process is cumbersome and time consuming. - Penalties for incompetence and malfeasance are rarely consistent with misuse of assets or government losses, or applied uniformly. - The Auditor General has noted widespread failures to impose or follow through on disciplinary action. ### Fiscal reporting, reconciliations and budget execution - The legislature does not undertake a mid‑year review of the budget; public fiscal reporting on outturns by the budget sector against the budget occurs only on an annual basis. - The Reserve Bank Quarterly Review contains aggregate information on spending by SEG (separately showing debt service charges) and revenues by type but no comparison with the budget. - The official accounting basis is cash, supplemented by reporting of non‑cash elements; appropriations lapse at year end and the legal framework explicitly provides that no unspent monies may be carried forward or transferred into Trust Accounts (not always observed in practice). - The non‑cash elements disclosed as required by the Finance Act 1981 include reporting on financial assets. - Departments are required to maintain records of outstanding commitments; in practice this is not observed in a number of departments. - The suspended PFMA 1999 would have introduced full accrual accounting. - Processes of accounts reconciliation are ineffective: Auditor General findings show irregularities and lack of reconciliations between departments' accounts and MoF central records and between MoF records and bank balances. - Departments generally have only manual accounting records and limited flexibility of the general ledger system, hindering timely reconciliation. - In recent years there have been no regular reconciliations of monetary and fiscal data. - Factors contributing to significant variances between budgeted and actual outturns: - Revenue estimates tend to be conservative (budget estimate consistently less than actual outturn, aside from volatility following May 2000). - Appropriations sometimes set at levels known to be less than required, with expenditures validated from ex post virements. - Large number of staff vacancies carried forward year to year, leading to consistent over‑estimation of spending on staff salaries (the authorities indicate steps have been taken over the past three years to reduce the budget for staff vacancies to a minimum level). - Widespread use of virements leading to large differences between allocation at programme/activity levels and final outturn. - A large number of items included in Head 50 that should appear in relevant ministry appropriations; Head 50 comprises almost 8 percent of total appropriations. - Increasing use of appropriations subject to requisition control by the MoF means significant budgeted expenditure does not get implemented. - Despite unreliability of estimates, there has been only moderate use of supplementary budgets in recent years. ### External audit, the legislature, and assurances of integrity - The audited final accounts must be presented to the Speaker of the Parliament within nine months of the end of the fiscal year; audited final accounts are available within twelve months of the fiscal year end. - Adherence to the time frame resulted in the 2001 audit report being tabled with significant unresolved issues (trust fund balances reportedly less than aggregate cash balances; borrowings appearing twice the magnitude of the cash balance shortfall). Following the coup in May 2000, there were some difficulties in reporting. - External audit is largely independent: the independence of the Auditor General is established in the 1997 Constitution. - The Auditor General: - is appointed by the Constitutional Offices Commission for a period of five years with provision for reappointment, - cannot have remuneration reduced during term, - can be removed only for inability to perform functions or proven misbehaviour, - is not subject to direction or control in performance of duties. - The Office of the Auditor‑General is treated as if it were a government department on budget, staffing and salary scales, although the Public Service Commission must seek the Auditor‑General's agreement over appointments to vacancies. - The Auditor General is mandated to inspect accounts of all accounting officers (central government units, provincial councils, and some statutory authorities) and must report at least once a year to Parliament; the Audit Act 1969 empowers reporting at any time. - Strengthening of audit capacity is required: audits focus on financial compliance; institutional strengthening projects funded by AusAID and the ADB have helped, but more focus is needed on assessing internal control environments and preparing for performance audits. - The Auditor General does not have a website. - The legislature does not follow up on external audit reports effectively: the Public Accounts Committee (PAC) conventionally considers Auditor‑General reports, calls officials, reports to the House and the Government responds, but this accountability loop has broken down over the last decade and PAC has not met to consider Auditor General’s findings since the political events of 2000. ### Macroeconomic forecasting, statistics and institutional arrangements - Official macroeconomic forecasts are produced by an interdepartmental Macroeconomic Technical Committee comprising representatives from the MoF, RBF, Bureau of Statistics, the Prime Minister's Office and the Ministry of Foreign Affairs. - Individual agency forecasts are discussed by the Committee and subsequently by the Macroeconomic Policy Committee chaired by the Governor of the RBF to arrive at consensus official forecasts underpinning the budget. - Disclosure: the process is disclosed briefly in the Reserve Bank's Annual Report; the Reserve Bank's Quarterly Review provides extensive reporting on the economic outlook; the Economic and Fiscal Update reports on economic assumptions underpinning budget forecasts. - Lack of consistency exists between macroeconomic and fiscal forecasts, and delays have occurred in updating revenue outturn data; FIRCA (responsible for that data) are not represented on the officials committee. - The government has not published, in recent years at least, an ex post review of the accuracy of macroeconomic forecasts. - The Statistics Act 1971 gives the Government Statistician considerable independence in production and dissemination of official statistics (Section 6: determine method of compilation, tabulation and analysis, and whether statistics are published; Section 5: Minister for Finance may direct what statistics are to be produced but this has never occurred). - The government statistician has powers to obtain administrative information and to coordinate statistical activity across government. - In practice, timeliness of statistical data needs to be addressed; for much economic and financial statistics the latest data available at the time of the ROSC was for 1998. - Fiji is the only Pacific Island Country to have formally adopted the IMF’s GDDS. ### IMF staff commentary — overall assessment - Fiji meets the requirements of the fiscal transparency code in a number of respects and has expanded the range of information presented with the annual budget in recent years. - Despite suspension of the PFMA 1999, Fiji has a reasonably sound legal framework for fiscal management: Parliament authorizes taxation and spending; controls exist on guarantees. - The Reserve Bank of Fiji (RBF) enjoys effective independence in monetary policy. - Public enterprises are legally required to operate commercially and be funded from the budget for any CSOs they undertake. - The Auditor General is independent and reports directly to Parliament. - Recent improvements in budget information presented to the legislature include information on government guarantees, aid in kind, revenue arrears, and funding of a number of CSOs from the budget. *Source: _cr0464 - 31. There are no measurable non-financial objectives for major programs in the (IMF staff report).* ### 49. The status of reforms to fiscal transparency and accountability in Fiji has been ### _cr0464 - 49. The status of reforms to fiscal transparency and accountability in Fiji has been ### Background: legal reforms and inconsistencies - The Public Finance Management Act (PFMA) was introduced and passed in 1999 but was then suspended by a new government; "its precise legal status now seems unclear and should be clarified." - The companion Public Service Act 1999 has been retained, creating a potential inconsistency with the financial management framework. - Chief executives are accountable from 1 January 2004 for the delivery of outputs under individual performance contracts, yet remain accountable for delivery of programmes and activities as specified in the budget. - The staff view noted that "some of the provisions in the PFMA were overly ambitious, given the current status of financial management in Fiji, in particular the provisions introducing full accrual budgeting and reporting." ### Weaknesses in implementation of existing legal framework - Auditor General reports document extensive irregularities and breaches of laws and regulations, including: - entering into commitments or expenditure in breach of appropriations; - fraud; - failure to account correctly for commitments and expenditure; - failure to recover advances to staff, or to impose disciplinary action when indicated; - inadequate reconciliation practices; - abuse of trust accounts; - ex post regularization of illegal expenditures; - abuse of office in government procurement; - continual ignoring of regulations. - The Auditor General "qualified the 2001 Accounts and Finances of Government to the effect that he could not verify that they had been fully kept in accordance with section 167 of the Constitution." - Central agencies fail to comply with their own Instructions, and there has been no discussion in the legislature of the last three annual reports of the Auditor General. - The government’s Strategic Development Plan (SDP) states an intention to emphasise accountability for the management and use of public funds, compliance with laws and regulations, and a need to strengthen the capability of Parliament to exercise its oversight role. ### Priority approach: focus on basic financial management systems - Reasserting financial accountability requires strong action across multiple, inter-related areas; ad hoc or isolated initiatives will not suffice. - Until basic steps are taken, attempts to introduce more advanced budgeting techniques are likely to reduce rather than increase accountability. ### Immediate actions: establish sound internal controls (four main elements and additional measures) - Upgrade the capability of the current accounting system to produce accurate and timely reports on spending, and to record commitments and the issue of LPOs. - Clarify who is accountable for financial management in government departments (the MoF, or the CEO of each department). This requires resolving: - the line of accountability of accounting officers in departments; - the role of the Chief Accountant in MoF; - the role of MoF's internal audit unit; - what chief executives are accountable for in their performance contracts from 1 January 2004. - Conduct basic reconciliation processes to ensure accuracy of accounting and banking records, and consistency between departmental accounts and the MoF General Ledger. - Revitalize the legal framework by re-issuing the Finance Instructions, and training accounting officers across government as well as MOF staff. - Take effective and timely disciplinary action for contravention of financial management laws and regulations; resolve tensions between the MoF's oversight role and the Public Service Commission's role in human resource management, including disciplinary action. - In the medium term establish an effective internal audit function within government ministries and departments. ### Budget transparency and reporting enhancements - Budget documents should progressively improve quality and scope, including: - The overall budget balance recast in accordance with international standards, such as the GFS, with a table reconciling pure cash flow estimates used for appropriations to the new analytical presentation; any other measures of the budget balance used should be similarly reconciled. - Presentation of a budget balance net of foreign assistance. - Tables showing government spending on a functional and economic basis according to internationally recognized standards. - All spending of revenues from user-charges appropriated and trust account transactions reported in the budget documents. - An expanded commentary on macroeconomic and fiscal forecasts, explaining consistency between the government’s announced medium term fiscal targets and its medium term macroeconomic objectives. - A summary statement showing all new revenue and expenditure measures introduced in the budget, together with their estimated fiscal effects. - Reallocation of much of the spending currently included in Head 50 of the Estimates to the appropriate department or ministry. - A more comprehensive statement of fiscal risks, with information on sensitivity of fiscal aggregates to changes in macroeconomic assumptions. - A statement of tax expenditures listing all tax expenditures and existing estimates of their fiscal impact, progressively expanded to include public policy purpose, duration, intended beneficiaries, and fiscal impact. - All remaining unbudgeted CSOs of public enterprises disclosed individually in a list, or preferably fully financed from the government budget. - Progressive incorporation of non-financial information and targets from the SDP and PSIP into the Estimates. - Quarterly reporting by MoF on the fiscal outturn, together with a commentary, should be introduced and a mid-year fiscal report should be presented to Parliament. - Quarterly reports on the fiscal outturn during the year, and a mid-year report on budget implementation presented to the legislature, are described as a basic requirement of fiscal transparency. - Reports should analyze spending against budget appropriations (by Head and activity), present revenue and spending in terms of a GFS–consistent economic classification with comparison to budget, and include commentary on significant variances. - Over time within-year reporting should be augmented by presenting spending in terms of COFOG functional categories. - The mid-year report should contain a comprehensive analysis of implementation against budget and a revised forecast of spending and revenue for the full year, and should be presented within three months of mid-year. - The actual disbursement of the unallocated spending in Head 50 should be reported to Parliament in the mid-year report and at the end of the year. - The authorities recently indicated that reports for the first two quarters of 2003 were circulated and that the report for the December quarter is under preparation. ### Tax administration and statutory reforms - Key measures recommended for tax statutes and administration: - Reactivate the independent tribunals established to consider tax-payer appeals as soon as possible. - Attach high priority to completing during 2003 the modernization and codification of the various statutes that impose income tax, in consultation with private sector experts. - In 2003 review, and ideally eliminate, the level of Ministerial discretion over individual tax liabilities so that there is an explicit legal basis for all taxes; minimize administrative discretion to that necessary for efficient functioning and put in place robust procedural safeguards for remaining discretionary provisions. - Strengthen the internal control environment within FIRCA via fuller exploitation of the new accounting system to produce management reports, setting up an internal audit unit, and strengthening the oversight role of the Internal Audit Committee of FIRCA's Board of Directors. - Introduce a Statement of Tax Payers’ Rights. - Have the Auditor General include in his report on the 2002 Accounts and Finances of Government an assessment of the revenue and expenditure details of FIRCA. - Introduce a single tax-payer identification number across all tax types in the medium term. ### Legislative scrutiny, Auditor General follow-up, and parliamentary oversight - Restore Parliament's role in holding the executive to account for irregularities exposed by the Auditor General: - Re-convene the PAC as soon as possible to discuss the 2001 Audited Final Accounts. (Alternatively, Parliamentary Sector Committees could play an important role until the obstacles to reconvening the PAC are resolved.) - Require regular (for example quarterly) reporting from the government on the implementation status of remedial actions until all shortcomings have been resolved. - Include with the 2002 Accounts and Finances of Government a plain language explanation of the Fund accounting system used in the Consolidated Fund, together with reconciliations between fund balances and bank account balances and the overall budget balance. - The Auditor General's report should highlight major weaknesses more clearly and explicitly discuss and assess the soundness of the internal control environment in ministries and departments; issuing a press release at presentation of the annual audit report was suggested to put main findings into everyday language. ### Fiscal risks from public financial institutions and required clarifications - Policy frameworks for the FNPF, FDB and HA need clarification and improved monitoring: - There is a lack of clarity in the multiple roles carried out by the FNPF. - Unresolved issues exist around the mandate and scope of roles played by the FDB and the HA, and there are concerns about the soundness of their financial position. - Managing fiscal risk over the medium term requires attention to policy and regulatory environment, authorized business activities, and on-going monitoring of performance. - A more arms length relationship between the FNPF and government would assist accountability, for instance by ensuring that Board members do not hold positions in government that relate closely to the functions of the FNPF. *Source: _cr0464 - 49. The status of reforms to fiscal transparency and accountability in Fiji has been* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr0464.pdf_