## Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007 ## Source details **Canonical URL:** [Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12273.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12273.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12273.pdf.json) --- ### Assessment context and team - Snapshot date: April 23, 2012. - Assessment led by IMF Fiscal Affairs Department (FAD) using the PEFA methodology (revised January 2011). - Mission visits: April 10-23, 2012; June 11-15, 2012. - Team: Duncan Last (FAD, head), Andrew Lawson (FAD, technical lead), Camille Karamaga (FAD), Jonathan Nyamukapa (African Development Bank), Maxwell Dapaah (World Bank), Winter Chinamale (World Bank), Cyprian Kamaray (FAD expert). - Undertaken in collaboration with: MoF PFM Reform Coordination Unit (RCU), African Development Bank, World Bank; funding from European Union and Sida. - Draft produced April 2012; GoL clearance: August 10, 2012; submitted to IMF Board for publication: September 5, 2012; final version issued July 2012 after quality assurance. ### High-level findings and comparative change since PEFA 2007 - Overall progress: - Of 30 assessed indicators: 26 reported ratings higher or equal to those obtained in 2007; 12 indicators showed improvements. - Distribution of 2012 ratings (preserved as in source): - 6 rated “B” - 3 rated “C+” - 5 rated “C” - 16 rated either “D+” or “D” - Key areas of recorded improvement: - Revenue administration, arrears, debt management, procurement, accounts reconciliation. - Persistent deficiencies: - Significant number of indicators remain in D+/D range; main weaknesses in payroll control, cash planning, timely consolidated reporting, oversight of SOEs/AGAs, and donor practices. ### IFMIS, Internal Audit Secretariat (IAS), and payroll controls — operational milestones and risks - IFMIS: - Went live within the MoF in July 2011. - Rollout to ministries and agencies (M&As) scheduled to begin in July 2012. - Expected benefits: streamlining control processes, speeding budget execution, improved bank reconciliations, improved accounting and reporting, opportunity to establish a treasury single account. - Internal Audit Secretariat (IAS): - IAS age at assessment: less than six months. - Pilot expansion plan: fifteen (15) pilot ministries by July 1, 2012; full coverage across the rest of government by 2015. - Payroll control: - HRM module launch targeted within the first six months of the fiscal year to impact payroll controls; HRM module implementation target moved to go live in July 2012. - Payroll identified as the most significant area of weakness; ongoing biometric exercise and payroll “clean up” through audits. - Ghost worker removal: some 11,000 ghost workers removed. - Direct deposit coverage: around 70 percent of employees; expansion to first three counties from June 2012. - Risk: USD687,286 (≈10 percent of regular civil service payroll and allowances in March 2012) processed outside GAPS, creating shadow payroll risks. ### Performance against PEFA broad areas — selected findings by area - Budget credibility (PI–1 to PI–4): - PI–1 Aggregate expenditure outturn: 2007 score B → 2012 score D. - Table figures (Primary Expenditure, USD millions): 2008/09 Budget (Original) 293.0; 2008/09 Actual Expenditure 237.3; 2009/10 Budget (Original) 329.0; 2009/10 Actual Expenditure 264.0; 2010/11 Budget (Original) 343.3; 2010/11 Actual Expenditure 372.1. - Percentage differences: 2008/09: -19.0 %; 2009/10: -19.8 %; 2010/11: +8.4 %. - Findings: shortfalls in 2008/09 and 2009/10 driven by non-tax revenue shortfalls; strict cash-based balanced budget rule applied since 2006. - PI–3 Aggregate revenue outturn: 2007 score A → 2012 score D. - Domestic revenue as percent of original projections: 2008/09 76.1%; 2009/10 79.1%; 2010/11 100.3%. - Table (Projected vs Actual, USD millions) highlights large non-tax revenue shortfalls: 2008/09 projected non-tax 106.0 / actual 21.6 (percentage difference: -79.6); 2009/10 projected non-tax 101.0 / actual 50.3 (-50.2); 2010/11 projected non-tax 106.1 / actual 71.2 (-32.9). - PI–4 Stock of arrears: problem largely resolved; 2012 scores indicate substantial reduction. - Stock of arrears at end 2011: USD49.4 million; equivalent to 9.6 percent of the 2011/12 budget (of USD516.4 million). - Salary arrears at end 2006: USD33.53 million (pre-NTGL) and USD3.8 million (NTGL 2003–06); stock at end 2011: USD5 million. - Audited supplier arrears: end 2006 USD50.2 million; 2008 USD11.2 million; December 2011 USD1.9 million. - Comprehensiveness and transparency (PI–5 to PI–10): - PI–5 Classification: 2007 C → 2012 C. New GFSM 2001-based CoA (39 digit) introduced in 2011; functional reporting not yet available. - PI–6 Budget documentation: 2007 C → 2012 B. FY2011/12 documentation meets six of nine benchmarks but does not present fiscal deficit and its financing clearly. - PI–7 Extent of unreported operations: Dimension (i) 2007 B → 2012 D+; Dimension (ii) 2007 D → 2012 D. Donor-funded projects reporting incomplete; consular fees in FY2010/11 ≈ USD1.65 million (~0.4 percent of revenue). - PI–9 Oversight of fiscal risk from AGAs/SOEs: 2007 D → 2012 D. Fifteen entities submitted some SOE data in FY2010/11 annex; 50 percent provided incomplete financial data. - PI–10 Public access to key fiscal information: 2007 C → 2012 C. Timely publication limited (two of six benchmarks met); consolidated financial statements not produced; in-year reports delayed. - Policy-based budgeting (PI–11 and PI–12): - PI–11 Orderliness and participation: overall score maintained at B; legislature failed to approve budget before start of fiscal year in two of the three years (dimension (iii) 2012: D). - PI–12 Multi-year perspective: mixed scores; DSA undertaken annually (2012: A); sector strategies not costed (2012: C); link between capital and recurrent budgeting remains weak (2012: D). - Predictability and control in budget execution (PI–13 to PI–21): - Revenue administration improvements: transparency of taxpayer obligations, registration, assessment, and collection effectiveness improved (PI–13 to PI–15 show progress but issues remain). - Cash planning and predictability (PI–16): Score 2007 C+ → 2012 C; cash flow forecast prepared late and not systematically updated; monthly allotments undermine predictability. - Debt and guarantees (PI–17): recording improved (2012: C+); consolidated cash position lacking due to M&A accounts; Debt Management Committee and DMU active. - Payroll controls (PI–18): mixed performance; significant integrity issues due to lack of direct link between personnel records and payroll; dimension scores include D+ and C entries. - Procurement (PI–19): legal framework improved (PPC Act amended 2010) but implementation capacity limited; PI–19 dimensions include D+, B, C, B. - Internal controls and transactions processing (PI–20): commitment controls largely effective but internal controls cumbersome; voucher processing rejection statistics (FY2011/12 Q1): Total vouchers processed 1,874; Amount (USD) 66,386,526.31; Rejection Number 557; Rejection Amount (USD) 22,809,416.21. - Internal audit (PI–21): IAS recently operational; pilot coverage planned to expand; 2012 overall PI–21 score D+ with planned improvement targets. - Accounting, recording, and reporting (PI–22 to PI–25): - IPSAS cash basis adopted; first financial statements for FY2009/10 produced but late for audit; FY2010/11 financial statements not yet submitted for audit at assessment time. - Bank reconciliations for treasury-managed accounts up-to-date; migration to IFMIS pending. - PI–22 bank reconciliation improvement noted; monthly cash advances to M&As remain expensed on issuance and unreconciled (advances ≈ 15 percent of national budget). - PI–24 In-year reporting: timeliness deteriorated; examples of delays include FY2010/11 annual fiscal outturn posted January 30, 2012 (30 weeks delay). - PI–25 Annual financial statements: timeliness and coverage weak; FY2009/10 statements submitted 17 months after year end. - External scrutiny and audit (PI–26 to PI–28): - GAC audit coverage increased (72 audit reports produced to date) but legislature’s PAACs have not reviewed any of these reports. - None of the 72 audit reports produced to date have been considered by the legislature’s PAACs. - PI–26 score improved in scope (coverage) but follow-up and timeliness remain challenges. - PI–28 Legislative scrutiny of external audit reports: 2012 score D; PAAC met only twice and has not reviewed audit reports. ### Donor practices (D–1 to D–3) - D–1 Predictability of direct budget support: - In two of the last three fiscal years budget support disbursements fell short of forecast by more than 15 percent — dimension (i) SCORE D. - FY2009/10 actual budget support came in at +15% above estimate; FY2010/11 actual came -33% below estimate; FY2011/12 actual came -36% below estimate. - Quarterly disbursement schedules for budget support not agreed; no coordinated management arrangements with donors in place. - D–2 Financial information for project/program aid: - Donor project estimates included in budget annex (projected disbursements USD464,168,717 for FY2010/11) but quarterly reporting by donors is limited; final 2012 assessment dimension scores reflect limited timely reporting. - D–3 Proportion of aid managed by national procedures: - Less than 50 percent of aid funds to central government are managed through national procedures — SCORE D. - Approximate estimate highlights large externally-executed project flows; estimated GoL-executed aid flows remain under 50 percent of total aid. ### Consequences for PFM objectives and operational efficiency - PFM system robust enough to ensure fiscal discipline and allocation to strategic priorities; new payment arrears avoided and old arrears progressively cleared. - Operational efficiency limited by reliance on “cash rationing” (allotments limited to available cash rather than approved appropriations), leading to unpredictability and low execution of government-funded investment projects. - Current control and data capture quality considered adequate to permit a shift from cash rationing to cash planning provided reforms (IFMIS, cash management) are implemented. ### Indicative priorities, reforms, and policy recommendations (2012 and beyond) - Consolidate achieved improvements; continue implementation of PFM legal framework and oversight of SOEs with capacity building and sensitization. - Ensure successful IFMIS rollout and maximize functionalities to: - accelerate budget execution; - improve bank reconciliation; - enable a treasury single account; - enhance accounting and reporting. - Prioritize payroll control: - Swift introduction of HRM module within IFMIS (targeted go-live: July 2012). - Continue payroll “clean up” through audits and completion of biometric registration. - Shift from cash rationing to cash planning: - Consolidate all government cash balances held at the Central Bank of Liberia (CBL). - Develop an agreed disbursement schedule for budget support. - Introduce provisions for issuance of Treasury bills and re-establish short-term domestic debt instruments in 2012. - Enforce procurement and cash-flow forecasting rules as prescribed in the PFM Act and financial regulations. - Strengthen executive-legislature dialogue: - Timely receipt of complete budget documentation; - Timely adoption of the annual budget; - Scrutiny and follow up of audit report findings; - Provide ongoing support to legislature and committees from GAC and the Legislative Budget Office (LBO). - Bring externally-funded projects within the budget and annual fiscal reports; improve collection and reporting of execution data by AMU and implementing units. - Conduct a light review of the current PFM Reform Strategy and Action Plan to refine priorities, sequencing, and absorptive capacity. ### Selected numeric and timeline facts (preserved exactly) - Snapshot date: April 23, 2012. - Team visits: April 10-23, 2012; June 11-15, 2012. - Of 30 assessed indicators: 6 rated “B”, 3 rated “C+”, 5 rated “C”, 16 rated “D+” or “D”. - 26 out of the 30 indicators reported ratings higher or equal to those obtained in 2007; 12 indicators showed improvements. - Budget growth: over 470 percent (from USD81 million to USD385 million) between FY2005/06 and FY2010/11. - IFMIS went live within MoF in July 2011; rollout to M&As to begin in July 2012. - IAS pilot expansion: fifteen (15) pilot ministries by July 1, 2012; full coverage by 2015. - IAS age at assessment: less than six months. - Number of audit reports produced to date by GAC: 72. - Stock of arrears at end 2011: USD49.4 million (9.6 percent of the 2011/12 budget of USD516.4 million). - Payroll USD processed outside GAPS in March 2012: USD687,286 (approximately 10 percent of the regular civil service payroll and allowances). - FY2010/11 donor-funded projects projected disbursements included in budget annex: USD464,168,717. - Fiscal outturn reporting delays examples: FY2010/11 annual fiscal outturn posted January 30, 2012 — 30 weeks delay. *Source: PEFA-based assessment led by IMF Fiscal Affairs Department; snapshot date April 23, 2012 (content unit: _cr12273).* ### 1. Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007 .....................13 ### 1. Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007 .....................13 ### Document identification - Title exactly: "Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007" - Page reference: 13 - Source PDF filename: "_cr12273 - 1. Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007 .....................13" - Canonical source URL: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12273.pdf ### Structural context within the PDF - This item is listed as entry 1 in the PDF table of contents. - It precedes items including "Summary Economic Data for Liberia, 2009–12" (entry 2) and follows no earlier entries in the provided list. ### Intended focus (as indicated by the title) - Comparative summary of PEFA 2012 assessment findings relative to PEFA 2007. *Source: _cr12273 - 1. Summary of the PEFA 2012 Assessment in Comparison with PEFA 2007, page 13* ### 16. Approximate Estimate of GoL-Executed Aid Flows (USD millions) ...............................79 ### 16. Approximate Estimate of GoL-Executed Aid Flows (USD millions) ### Summary assessment and mission context - Assessment led by IMF Fiscal Affairs Department (FAD) using the PEFA methodology; snapshot date: April 23, 2012. - Assessment mission visited Monrovia during April 10-23, 2012; Duncan Last and Andrew Lawson made a second visit during June 11-15, 2012. - Assessment undertaken in collaboration with MoF PFM Reform Coordination Unit (RCU), African Development Bank, World Bank; financial support from European Union and Sida. - Team membership included Duncan Last (FAD, head), Andrew Lawson (FAD, technical lead), Camille Karamaga (FAD), Jonathan Nyamukapa (African Development Bank), Maxwell Dapaah (World Bank), Winter Chinamale (World Bank), and Cyprian Kamaray (FAD expert). ### Main findings (high level) - Progress since PEFA 2007: 26 out of the 30 assessed indicators reported ratings higher or equal to those obtained in 2007; 12 indicators showed improvements. - Key areas of recorded improvement: revenue administration, arrears, debt management, procurement, and accounts reconciliation. - Ongoing reforms likely to yield further improvements: internal audit, budget classifications and chart of accounts, and implementation of IFMIS. - Persistent deficiencies: Of 30 assessed indicators, 6 were rated “B”, 3 as “C+”, 5 as “C”, and 16 as either “D+” or “D”. - Budget expansion context: From FY2005/06 to FY2010/11 the GoL budget grew by over 470 percent (from USD81 million to USD385 million). ### IFMIS, internal audit, and payroll controls (operational milestones) - IFMIS: - Went live within the MoF in July 2011. - Rollout to ministries and agencies (M&As) scheduled to begin in July 2012. - Expected benefits: streamlining of control processes, speeding up budget execution, improved bank reconciliations, improved accounting and reporting, opportunity to establish a treasury single account. - Internal Audit Secretariat (IAS): - Newly established IAS was less than six months old at assessment snapshot. - Plan to increase pilot ministries serviced by the IAS to fifteen (15) by July 1, 2012, with full coverage across the rest of government by 2015. - Payroll control: - HRM module launch targeted within the first six months of the fiscal year to impact payroll controls. - Payroll control identified as the most significant area of weakness; continued payroll “clean up” through audits emphasized. ### Performance against PEFA broad areas (key points) - Budget credibility (PI–1 to PI–4): - Significant deviations between revenue collections and forecasts in fiscal years covered (2008/09–2010/11), notably for non-tax revenues. - Despite deviations, payment arrears are under control and fiscal stability preserved. - Recommendation: strengthen revenue and expenditure forecasting capacities; consider arrangements to smooth revenue flows from natural resource concessions. - Comprehensiveness and transparency (PI–5 to PI–10): - Improvements modest since 2007; budget documentation meets six out of nine required benchmarks. - Shortcomings: budget documentation still does not present the fiscal deficit and its financing; in-year budget execution reports and end-year financial statements not issued and posted timely. - SOE/AGA reporting remains incomplete; consolidated annual report on SOE/AGA performance and fiscal risks not yet introduced. - Reporting on externally financed development projects remains a major shortcoming. - Policy-based budgeting (PI–11 and PI–12): - Improvements: MTEF aspects to be included in FY2012/13 budget; debt sustainability analysis became an annual feature. - Constraint: legislature failed to approve the budget before start of fiscal year for two of three fiscal years under consideration, undermining predictability. - Need: greater integration of externally financed projects within the government’s budgetary process. - Predictability and control in budget execution (PI–13 to PI–21): - Of nine indicators in this area: four improved, four unchanged, one slightly deteriorated. - Revenue administration improvements: transparency of taxpayer obligations and liabilities; effectiveness of registration and tax assessment; effectiveness of tax collection. - Debt management: new debt management strategy approved; active Debt Management Unit (DMU) managing debt payments using CS-DRMS. - Public Procurement and Concessions Act updated and approved in September 2010; implementation progressing but capacity buildup in M&As remains necessary. - Remaining weaknesses: cash planning and payroll controls require priority attention. - Accounting and financial reporting (PI–22 to PI–25): - GoL adopted IPSAS cash basis of accounting. - MoF produced first financial statements (for FY2009/10) in line with IPSAS but too late for audit; FY2010/11 in-year and fiscal outturn reports published with substantial delays; FY2010/11 financial statements not yet submitted for audit. - Bank reconciliations of treasury-managed accounts are up-to-date; reconciliation process has yet to migrate to IFMIS. - Information on resources available to service delivery units not systematically tracked. - External scrutiny and audit (PI–26 to PI–28): - Strengthening of General Auditing Commission (GAC) beginning to yield more audit reports and wider audit coverage including some SOEs and county development funds. - Quality and timeliness of auditable documents produced by MoF have impeded satisfactory external audit of annual financial statements. - None of the 72 audit reports produced to date have been considered by the legislature’s Public Accounts and Audit Committees (PAAC); unclear whether audit work has led to remedial actions. - Donor practices (D–1 to D–3): - Little improvement since 2007. - Budget support disbursements remain unpredictable, reducing value of budget support. - Efforts made to present information on externally-funded projects in budget documentation; status and in-year reporting on actual spending by externally funded projects remain elusive. ### Consequences for PFM objectives and operational efficiency - PFM system has been robust enough to ensure fiscal discipline and allocation to strategic priorities; new payment arrears avoided and old arrears progressively cleared. - Operational efficiency remains limited due to reliance on “cash rationing” (allotments limited to available cash rather than approved appropriations), causing unpredictability in expenditures and low budget execution of government-funded investment projects. - Current control and data capture quality is adequate to permit a shift from cash rationing to cash planning. ### Indicative priorities for 2012 and beyond (policy recommendations) - Consolidate improvements already achieved; continue implementation of PFM legal framework and oversight of SOEs with capacity building and sensitization. - Ensure successful rollout and maximization of IFMIS functionalities to accelerate budget execution, improve bank reconciliation, enable treasury single account, and enhance accounting and reporting. - Prioritize improving payroll control: - Swift introduction of HRM module within IFMIS. - Continue payroll “clean up” through audits. - Shift strategically to cash planning: - Consolidate all government cash balances held at the Central Bank of Liberia (CBL). - Develop an agreed disbursement schedule for budget support. - Introduce provisions for issuance of Treasury bills. - Enforce procurement and cash-flow forecasting rules as prescribed in the PFM Act and financial regulations. - Strengthen executive-legislature dialogue on timely receipt of complete budget documentation, timely adoption of the annual budget, and scrutiny and follow up of audit report findings; provide ongoing support to legislature and committees from GAC and the Legislative Budget Office (LBO). - Bring externally-funded projects within the budget and within annual fiscal reports; improve collection and reporting of execution data by AMU and implementing units. - Conduct a light review of the current PFM Reform Strategy and Action Plan to refine priorities, sequencing, and absorptive capacity where needed. ### Selected numeric and timeline facts (preserved as in source) - Snapshot date: April 23, 2012. - Team visits: April 10-23, 2012; June 11-15, 2012. - Of 30 assessed indicators: 6 rated “B”, 3 rated “C+”, 5 rated “C”, 16 rated “D+” or “D”. - 26 out of the 30 indicators reported ratings higher or equal to those obtained in 2007; 12 indicators showed improvements. - Budget growth: over 470 percent (from USD81 million to USD385 million) between FY2005/06 and FY2010/11. - IFMIS went live within MoF in July 2011; rollout to M&As to begin in July 2012. - IAS pilot expansion: fifteen (15) pilot ministries by July 1, 2012; full coverage by 2015. - IAS age at assessment: less than six months. - Number of audit reports produced to date by GAC: 72. *Source: PEFA-based assessment led by IMF Fiscal Affairs Department; snapshot date April 23, 2012.* ### 1. The purpose of this PEFA assessment is to review the performance of Liberia’s ### The purpose of this PEFA assessment is to review the performance of Liberia’s PFM framework for central government ### Assessment purpose, methodology, team, and quality assurance - Purpose: - Review performance of Liberia’s PFM framework for central government. - Examine progress since the PEFA assessment of 2007. - Provide a renewed baseline for monitoring progress in different areas of PFM reform. - Support efforts to refine, as needed, the current PFM reform strategy. - Snapshot date for the assessment was April, 2012. - Methodology: - Undertaken following the PEFA Performance Measurement Framework methodology as revised in January 2011. - Full set of methodological guidance provided by the PEFA Secretariat was utilized, including guidelines and clarifications issued since 2005. - Team, funding, and review process: - Undertaken at the request of the GoL, under the leadership of the IMF Fiscal Affairs Department (FAD). - Staff from the African Development Bank and the World Bank participated as members of the assessment team. - Funding provided by Sida and by the European Union. - A draft assessment report produced in April 2012 and reviewed by the GoL, the PEFA Secretariat, FAD and four donors—the African Development Bank, the World Bank, the European Union, and USAID. - Comments were incorporated as corrections or amendments in a revised version discussed during a follow up visit to Liberia in June 2012 and submitted for final review. - Follow up comments were received from the PEFA Secretariat and FAD and reflected in the final version issued in July 2012, completing the quality assurance process. - Government coordination and data sources: - Government inputs were coordinated by the RCU, which provided background data and documentation and arranged meetings and workshops. - Assessment based on publicly available documents or supplementary information provided by the GoL and other stakeholders, including annual budget documents, in-year financial reports, annual fiscal year outturns, and reports of the GAC. - Information gathered was cross-checked against different sources where possible. - Consultations: - Wide range of interviews including civil society, private sector, executive, legislature, GAC, departments of the MoF, Civil Service Agency, and the Ministries of Education, Health and Social Welfare, and Public Works. - Publication approvals: - Minister of Finance provided GoL clearance to publish on August 10, 2012. - Assessment submitted to the IMF Board for publication on September 5, 2012. ### Country background — economic situation and development strategy - Country snapshot: - Republic of Liberia in West Africa, bordered by Sierra Leone, Guinea, and Côte d'Ivoire, with a population of approximately 4 million people. - Civil war from 1989 to 2003; peace re-established in 2003. Democratic elections in 2006 elected Ellen Johnson Sirleaf as President. - PRS and "Lift Liberia" (2008–2011): - First PRS structured around three development objectives: - (i) to rebuild roads and other critical infrastructures; - (ii) to revive traditional engines of growth in mining, minerals, forestry and agriculture; - (iii) to establish a competitive environment to help diversify the economy over the medium term. - Actions organized in four pillars—peace and security; economic revitalization; infrastructures and basic services; and governance and the rule of law. - Independent assessment (February 2012) concluded: - “About two-thirds of what was planned was done. Much of what was needed and was done were preparatory measures—developing detailed plans, building capacity, passing laws, rebuilding institutional and physical systems, and rehabilitating or repairing infrastructure.” - “Although these outputs have not achieved all the desired outcomes, there have been undeniable positive developments: peace was sustained, economic growth continued–especially in urban areas, poverty declined, some physical infrastructure improved, coverage of health and education expanded by most measures, and some aspects of governance improved.” - “Some fully satisfactory outcomes include macroeconomic stability with low inflation, essentially balanced budgets, and major reduction of external debt.” - “In a few areas, outcomes were unsatisfactory, indicating the need for more attention and perhaps a revised strategy: electric power, prompt delivery of justice, and decentralization.” - Macroeconomic developments and structural challenges: - Economy growth since 2003; consumer price inflation stabilized at 7–8 percent per annum. - Foreign direct investment recovered from virtually zero in 2006 to USD 400 million in 2010. - 15 out of 17 “institutional deliverables” within macroeconomic stability and financial management area were deemed achieved; these included: - Revision of the Revenue Code and the Investment Code; - Overhaul of the Bureau of Customs and Excise; - Introduction of an automated Customs system; - Revision of policies and procedures for mineral and forestry taxation; - Passing of a new and comprehensive PFM Law; - Establishment of sound banking arrangements for the GoL; - Introduction of rules and procedures for management of debt and loan guarantees; - Introduction of a medium-term macro-fiscal framework; - Design, development and piloting of the IFMIS. - Growth trajectory and currency: - Real GDP growth: peak 9.4 percent in 2007; declined to 4.6 percent in 2009 due to international financial market conditions. - Return to faster growth projected in 2011 and 2012, largely driven by investments in the mining sector. - Growth in real non-mining GDP projected at only 3.1 percent in 2012, equating to per capita growth in real non-mining GDP of 1 percent or less. - Dual currency environment: USD accounting for two third of currency notes in circulation by value. - Exchange rate: currently 75 LRD = 1 USD. - Key structural impediments constraining broader growth and employment: - Deficiencies in infrastructure; - Lack of security in land tenure; - Unfavorable population demographics; - Capacity gaps; - Undeveloped financial sector. - Infrastructure financing estimate: - Africa Infrastructure Country Diagnostic (2010) estimated meeting Liberia’s infrastructure needs would require at least USD3.7 billion over ten years (382 percent of 2010 GDP), to cover roads, power, ports, water and sanitation, and telecommunications (excluding ports for which private financing likely available). - Table 2 — Summary Economic Data for Liberia, 2009–12 (Annual Percentage Change unless stated) - GDP at constant prices: 2009 = 4.6; 2010 = 5.0; 2011 (Preliminary) = 6.4; 2012 (Projected) = 8.8 - Agriculture and Fisheries: 2009 = 6.4; 2010 = 2.7; 2011 = 3.9; 2012 = 1.8 - Forestry: 2009 = 1.4; 2010 = 6.7; 2011 = 5.6; 2012 = 1.9 - Mining and panning: 2009 = 6.8; 2010 = 46.4; 2011 = 93.1; 2012 = 153.9 - Manufacturing: 2009 = -3.8; 2010 = 3.1; 2011 = 3.1; 2012 = 3.1 - Services: 2009 = 6.9; 2010 = 5.7; 2011 = 5.3; 2012 = 5.2 - Consumer Prices (annual average): 2009 = 7.4; 2010 = 7.3; 2011 = 8.5; 2012 = 2.9 - Real GDP excluding mining: 2009 = 4.6; 2010 = 4.6; 2011 = 4.7; 2012 = 3.1 - Nominal non-mining per capita GDP (USD): 2010 = 248.4; 2011 = 278.4; 2012 = 282.7 - Population (millions): 2009 = 3.7; 2010 = 3.8; 2011 = 3.9; 2012 = 4.0 - Source noted as IMF, Liberia 8th Review under Extended Credit Facility Arrangement, May 2012 (based on GoL data and IMF staff estimates and projections). - Strategic opportunity: - Launch of national consultations for “Liberia Rising 2030” to target achieving middle income status by 2030; national consultation process launched to assist formulation of second PRS covering 2012–17. ### Budgetary outcomes and fiscal management - Fiscal policy approach: - Maintenance of balanced budgets a key principle under current administration. - From FY2008/09 onwards, GoL adopted policy of dividing budget into a “core” component for essential operational expenditures and a “contingent” budget comprising investment projects to be initiated only after confirmation of revenues. - This approach led to a budget surplus in FY2009/10 and modest deficits in other years. - Table 3 — Fiscal Operations of the Central Government, FY2008/09–FY2011/12 (Percentage of GDP) - Total revenue and grants: FY2008/09 (Actual) = 28.0; FY2009/10 (Actual) = 32.3; FY2010/11 (Actual) = 36.6; FY2011/12 (Proj.) = 40.2 - Revenue: FY2008/09 = 25.2; FY2009/10 = 30.8; FY2010/11 = 32.7; FY2011/12 = 37.3 - Tax Revenue: FY2008/09 = 22.7; FY2009/10 = 23.3; FY2010/11 = 26.3; FY2011/12 = 28.9 - Non-tax Revenue: FY2008/09 = 2.5; FY2009/10 = 7.5; FY2010/11 = 6.4; FY2011/12 = 8.4 - Grants: FY2008/09 = 2.8; FY2009/10 = 1.5; FY2010/11 = 3.9; FY2011/12 = 2.9 - Expenditures and Net Lending: FY2008/09 = 29.7; FY2009/10 = 31.6; FY2010/11 = 37.4; FY2011/12 = 40.3 - Current expenditures: FY2008/09 = 25.7; FY2009/10 = 28.0; FY2010/11 = 30.2; FY2011/12 = 35.7 - Wages and salaries: FY2008/09 = 10.9; FY2009/10 = 12.8; FY2010/11 = 13.5; FY2011/12 = 15.9 - Goods and services: FY2008/09 = 9.0; FY2009/10 = 8.6; FY2010/11 = 8.4; FY2011/12 = 9.9 - Subsidies and transfers: FY2008/09 = 4.9; FY2009/10 = 6.2; FY2010/11 = 7.9; FY2011/12 = 9.6 - Interest: FY2008/09 = 0.9; FY2009/10 = 0.5; FY2010/11 = 0.4; FY2011/12 = 0.4 - Capital Expenditure: FY2008/09 = 4.0; FY2009/10 = 3.5; FY2010/11 = 7.2; FY2011/12 = 4.6 - Of which: Foreign loan financed: FY2008/09 = 0.0; FY2009/10 = 0.0; FY2010/11 = 0.9; FY2011/12 = 1.5 - Domestic and grant financed: FY2008/09 = 4.0; FY2009/10 = 3.5; FY2010/11 = 6.2; FY2011/12 = 3.1 - Overall Balance including Grants: FY2008/09 = -1.7; FY2009/10 = 0.7; FY2010/11 = -0.8; FY2011/12 = -0.2 - Overall Balance excluding Grants: FY2008/09 = -4.5; FY2009/10 = -0.8; FY2010/11 = -4.7; FY2011/12 = -3.0 - Financing overall: FY2008/09 = 1.7; FY2009/10 = -0.7; FY2010/11 = 0.8; FY2011/12 = 0.2 - Net external financing: FY2008/09 = -0.4; FY2009/10 = -0.4; FY2010/11 = 0.4; FY2011/12 = 1.1 - Net internal financing: FY2008/09 = 2.1; FY2009/10 = -0.3; FY2010/11 = 0.4; FY2011/12 = -0.9 - Memorandum items: - Iron ore-related revenues: FY2008/09 = 0.0; FY2009/10 = 3.3; FY2010/11 = 3.1; FY2011/12 = 3.8 - Total public external debt stock: FY2008/09 = 382.2; FY2009/10 = 188.1; FY2010/11 = 11.2; FY2011/12 = 12.0 - Central Govt. domestic debt stock: FY2008/09 = 35.4; FY2009/10 = 32.9; FY2010/11 = 28.5; FY2011/12 = 24.8 - Source noted as IMF, Liberia 8th Review under Extended Credit Facility Arrangement, May 2012. - Revenue performance and composition: - Fast growth in domestic revenue as a proportion of GDP in post-civil war period. - Domestic revenue collections estimated at 14.8 percent of GDP in 2005/06 and 21.9 percent in 2006/07. - Tax collection buoyant and complemented by non-tax revenues from natural resource concessions. - Capital spending issues: - Difficulty raising capital spending above 15 percent of total expenditure. - Significant rise in capital spending in FY2011: 7.2 percent of GDP (19.3 percent of total spending); projected to fall in FY2012 to 4.6 percent of GDP (11.4 percent of total spending). - Under-estimation of capital spending due to exclusion of aid-financed investment projects managed outside of the budget. - Constraints on capital spending: - Pressures to meet ongoing debt obligations and an expanding wage bill (increasing numbers of teachers, health workers, police and security personnel and pressures for salary increases) making it difficult to include high capital spending within the “core budget”; capital spending contingent on unpredictable non-tax revenues. - Inefficiencies in procurement management, due partly to regular delays in enactment of the budget by the legislature delaying approval of annual procurement plans, and partly due to weak procurement capacity in M&A. - Fiscal year: - Liberian Government’s fiscal year runs from July 1 to June 30. ### Legal and institutional framework for PFM - Political and administrative structure: - Multi-party legislative system modeled on US constitutional provisions. - Legislature is bicameral: Senate and House of Representatives. - Judicial system headed by a supreme court with subordinate courts established by the legislature. - Executive power vested in an elected President, Head of State and Government, holding office for a term of six years (maximum of two terms per person). - Liberia is a unitary state by law with no sub-national governments; 15 counties form a deconcentrated part of central government with county superintendents appointed by the President. - Counties involved in minimal financial management (conveyance of Social Development Funds and County Development Funds to beneficiary projects). - Key PFM legal and regulatory instruments: - PFM Act 2009 and enabling PFM regulations of 2010 - Public Procurement and Concessions (PPC) Act 2005 (amended 2010), and PPC Regulations of December 2009 - Revenue Code of Liberia Act of 2000 (as amended 2011) - General Auditing Commission established under the Constitution; autonomous status and reporting to the legislature clarified in 2005 - Financial Rules 2007; Domestic and Foreign Travel Ordinances 2007 - Cash-Basis International Public Sector Accounting Standard 2010 - Classification and Chart of Accounts 2011 - PFM Guidelines for State-Owned Enterprises (SOEs) 2011 - Guidelines for Issuing Government Guarantees for SOEs 2011 - Liberia Poverty Reduction Strategy (PRS) 2008–2011 (new PRS about to be issued) - PFM Reform Strategy, 2011–2014 and supporting Operations Manual, Capacity Building Framework, and Monitoring Framework - Internal Audit Strategy 2010 - Debt Management Strategy 2009 - Roles and responsibilities: - Minister of Finance responsible under the PFM Act for overall management of budget execution; ministers of spending ministries and heads of budgetary institutions responsible for execution of their budgets in accordance with the PFM Act. - Minister of Finance has authority to manage the Consolidated Fund, allowing for effective and efficient cash management. - President has overall responsibility for policy matters related to the national budget and PFM system, explicitly delegated to the Minister of Finance. - Budget reviewed by a joint Ways and Means Committee comprising members from both chambers of the legislature before being voted in plenary session. *Source: PEFA assessment report (snapshot April, 2012), submitted for final review and issued July 2012.* ### 22. PFM operations for all M&As are centralized in the MoF and coordinated by three ### 22. PFM operations for all M&As are centralized in the MoF and coordinated by three ### Organization of PFM operations - PFM operations for all M&As are centralized in the MoF and coordinated by three deputy ministers. - Budgeting: - Previously undertaken by the Bureau of Budget in the President’s Office, now domiciled in the MoF under a Deputy Minister Budget. - MoF Department of Budget (DoB) is responsible for budget formulation and for issuing budget allotments (releases) to M&As. - Revenue collection: - Managed by the Department of Revenue (DoR), reporting to the Deputy Minister Revenue. - The GoL has opted for an autonomous Liberia Revenue Authority, currently in the process of being established. - Treasury management and payments: - Comptroller and Accountant General’s Department (CAG) supervised by the Deputy Minister Expenditure and Debt Management handles treasury management, processing of payments for M&As, and accounting and reporting of financial transactions. - Note: There is also a fourth Deputy Minister Administration, who looks after organizational and operational needs of the MoF and coordinates support for reform efforts. The GoL is in early stages of merging the Ministry of Planning and Economic Affairs with the MoF, which may change deputy minister responsibilities. ### Units reporting directly to the Minister and coordination committees - Units reporting directly to the Minister: Macro-Fiscal Analysis Unit (MFAU), the AMU, and the RCU. - High-level policy coordination: National Budget Committee. - Technical coordination: - Debt Management Committee (debt management). - Cash Management Committee (cash management). ### Internal audit and procurement structures - Internal audit: - Internal audit function established in some public entities. - Internal Audit Governance Board (IAGB) and a Secretariat recently created to coordinate internal audit across government. - IAGB has only been functional since February 2012 and remains at an early stage of institutionalization. - Procurement: - Public procurement function strengthened by PPC Act, 2005 and creation of the Public Procurement and Concessions Commission (PPCC). - Dedicated procurement units established in most M&As, but capacity development remains ongoing. ### External audit - The Auditor General is responsible for the annual audit of central government accounts, including all ministries, agencies, other public institutions, and SOEs. - The Auditor General heads the GAC, an autonomous agency reporting directly to the legislature. - Under the standing orders of the House of Representatives, a PAAC is constituted at the beginning of each session to examine audited accounts and reports submitted by the Auditor General; a similar committee is established by the Senate. ### PEFA methodology and core dimensions (Liberia 2012 PFM assessment) - Methodology available at www.pefa.org (methodology description and guidance). - PEFA identifies 6 core dimensions plus a donor practices dimension: - Credibility of the budget—the budget is realistic and is implemented as intended; - Comprehensiveness and transparency—the budget and the fiscal risk oversight are comprehensive, and fiscal and budget information is accessible to the public; - Policy-based budgeting—the budget is prepared with due regard to government policy and its implications over a medium-term perspective; - Predictability and control in budget execution—the budget is implemented in an orderly and predictable manner and there are arrangements for the exercise of control and stewardship in the use of public funds; - Accounting, recording and financial reporting—adequate records and information are produced, maintained and disseminated to meet decision-making, control, management and reporting purposes; - External scrutiny and audit—legal and institutional arrangements for external scrutiny of public finances and follow up by the Executive are operating effectively. - Donor practices—donor grants and external loans are budgeted and disbursed considering predictability, allocation and effective use, and promotion of national systems and procedures. - One indicator—PI–8 on transparency of inter-governmental fiscal transfers—cannot be scored because Liberia is a unitary state with no sub-national levels of government. ### Assessment: Budget Credibility — PI–1 Aggregate expenditure outturn compared to original approved budget - Indicator measures difference between actual primary expenditure and originally budgeted primary expenditure. - PI–1: 2012 Assessment (scoring method M1) - Score 2007: B - Score 2012: D - Narrative: In two of the last three completed fiscal years, the actual central government expenditure fell short of budgeted primary expenditure by an amount in excess of 15 % of the originally budgeted primary expenditure. - Table 4. Central Government Budget vs. Actual Expenditure FY2008/09–FY2010/11 (USD millions) - Primary Expenditure - 2008/09 Budget (Original): 293.0 - 2008/09 Actual Expenditure: 237.3 - 2009/10 Budget (Original): 329.0 - 2009/10 Actual Expenditure: 264.0 - 2010/11 Budget (Original): 343.3 - 2010/11 Actual Expenditure: 372.1 - Difference - 2008/09: -55.7 - 2009/10: -65.0 - 2010/11: +28.8 - Percentage difference - 2008/09: -19.0 % - 2009/10: -19.8 % - 2010/11: +8.4 % - Source: MoF, budget books and fiscal year outturns, USD millions. - Findings: - Actual primary expenditure deviated by more than 15 percent in 2008/09 and 2009/10, mainly due to shortfalls in non-tax revenues. - Expenditure shortfalls in those years were 16.1 percent and 19.8 percent (text notes these specific shortfalls). - In 2010/11, expenditure exceeded budget by 8.4 percent due to revenues above target and higher than expected disbursements of budget support. - The GoL used a pre-identified “contingent budget” mechanism (e.g., USD27 million in 2008/09) to enable predictable cuts when revenues fell short. - Government applies a strict cash-based balanced budget rule since 2006: cash expenditures, including repayments of debt and arrears, do not exceed total revenues each year; payments are made only when revenues are received. - The government had no access to domestic or external borrowing during the assessment period; treasury bills not re-established. - Improved forecasting suggested by reduced variance in FY2010/11; GoL retained “core budget” and “contingent budget” distinction for FY2010/11, FY2011/12 and FY2012/13. ### Assessment: PI–2 Composition of expenditure outturn compared to original approved budget - Indicator measures whether variance in expenditure composition exceeded overall deviation and considers contingencies. - PI–2: 2012 Assessment (Scoring method M1) - Dimension (i): the variance in expenditure composition has exceeded 15 percent in each of the last three years - Score 2007: D - Score 2012: D+ - Dimension (ii): the average level of expenditures charged directly to the Contingency Reserved Fund vote, has been substantially less than 3 percent - Score 2007: D - Score 2012: A - Table 5. Composition Variance and Contingency Budget for PI–2 - Year — composition variance — contingency share - 2008/09 — 22.6% — 0.1% - 2009/10 — 19.2% — (contingency share not repeated in table snippet) - 2010/11 — 16.3% — (contingency share not repeated in table snippet) - Source: based on data provided by MoF—see Annex III. - Findings: - Composition variance exceeded 15 percent in all three years. - In 2009/10, Ministry of Public Works budget cut from USD39.9 million to USD20.1 million (close to 50%). - Some M&As’ budgets were protected due to statutory requirements or deliberate policy decisions. - 2010/11 composition variance remained above 15 percent despite revenue targets being met, due to errors in budget calculations later corrected by virements or supplementary budgets. - Two supplementary budgets in 2010/11: USD15 million (deferred Chevron revenue) and USD24 million. - Supplementary budgets in 2010/11 amounted to slightly more than 10 percent of original appropriations. - Contingency reserves: - 2008/09 approved contingency reserve: USD1.76 million (0.4 percent of the budget). - 2009/10 approved contingency reserve: USD2 million (0.1 percent of the budget). - Over the three years average contingency fund slightly more than 0.1 percent of the budget. - 2008/09: USD1 million of contingency reserve fund spent and recorded directly against contingency item. - 2009/10: spending from contingency reserve fund negligible (USD0.05 million) and recorded against contingency item. - Assessment: situation essentially unchanged from 2007; further progress needed to reduce supplementary budgets and high levels of virements. ### Assessment: PI–3 Aggregate revenue outturn compared to original approved budget - Indicator measures actual domestic revenue collection versus domestic revenue estimates in the original approved budget; excludes budget support grants; includes all tax and non-tax components. - PI–3: 2012 Assessment (scoring method M1) - Score 2007: A - Score 2012: D - Text: Domestic revenue projections have been below 92 percent of projections in two of the last three years. - Domestic revenue collections as a percentage of original projections in approved budget: - 2008/09: 76.1% - 2009/10: 79.1% - 2010/11: 100.3% - Table 6. Liberia Actual Domestic Revenue Compared to Original Budget Estimates (USD millions) - Projected Tax Revenue - 2008/09 Projected: 171.7 - 2008/09 Actual: 189.7 - 2009/10 Projected: 246.6 - 2009/10 Actual: 224.7 - 2010/11 Projected: 231.1 - 2010/11 Actual: 267.3 - Percentage difference: 10.5, -8.9, 15.6 - Projected Non-Tax Revenue - 2008/09 Projected: 106.0 - 2008/09 Actual: 21.6 - 2009/10 Projected: 101.0 - 2009/10 Actual: 50.3 - 2010/11 Projected: 106.1 - 2010/11 Actual: 71.2 - Percentage difference: -79.6, -50.2, -32.9 - Aggregate Projected Revenue - 2008/09 Projected: 277.7 - 2008/09 Actual: 211.3 - 2009/10 Projected: 347.7 - 2009/10 Actual: 275.0 - 2010/11 Projected: 337.4 - 2010/11 Actual: 338.5 - Percentage difference: -23.9, -20.9, 0.3 - Source: MoF: Approved budgets and fiscal year outturns, USD millions. - Findings: - Large shortfalls in 2008/09 and 2009/10 driven primarily by non-tax revenue shortfalls, including complications in bidding and contract ratification for concession agreements (Western Cluster re-tendered in 2008/09; Bong Mines/China Union concession delivered only half of the budgeted USD43 million signature bonus in 2009/10). - Global financial crisis effects contributed to contraction in commodity prices and business confidence, affecting concessions. - Tax collection performance varied: substantially exceeded forecasts in 2008/09 and 2010/11, substantially below in 2009/10. - Using PEFA criteria, tax revenue alone would have scored a “C”, with actual revenue between 92 percent and 116 percent of budgeted revenues in two years and below 92 percent in the third year. - Conclusion: reliability of both tax and non-tax projections has deficiencies; need for strengthened revenue forecasting and budget formulation capacities. *Source: IMF staff report text in content unit _cr12273 - 22. PFM operations for all M&As are centralized in the MoF and coordinated by three* ### 44. Current institutional arrangements for preparing revenue forecasts are ### _cr12273 - 44. Current institutional arrangements for preparing revenue forecasts are ### Revenue forecasting institutional arrangements - Current practice: - The MFAU generates aggregate revenue forecasts based on the macro-economic framework (mainly using IMF estimates). - The DoR develops a separate revenue projection based on planned revenue administration efforts. - The two forecasts are compared before arriving at a final forecast for approval by the Minister of Finance. - Capacity and reform considerations: - The MFAU’s unit for tax policy and revenue forecasting is relatively new and has limited capacity. - With re-housing of revenue collection and administration functions in a semi-autonomous Liberia Revenue Agency (LRA) during 2012/13, it will be especially important to: - develop stronger capacity for independent revenue forecasting and analysis of tax policy within the MFAU; and - formalize the process by which final forecasts are agreed for inclusion in the executive’s budget proposal. ### Mineral resource revenue treatment and smoothing - Current status: - There are no mineral resource revenue smoothing mechanisms in place despite growing importance of mining and concession revenues. - Utilization of such funds is decided through the budgetary process, as at present. - Policy dilemma and practice: - GoL has recently opted for immediate inclusion of natural resource receipts based on anticipated dates of finalization of negotiations and transfer of payments. - This approach creates uncertainty in available budgetary resources and can lead to deferral of investment projects. - Alternative noted: - Many countries have opted for a “Natural Resources Stabilization Fund” to smooth flows of receipts into the budget. - Such funds should be fully reflected in budget operations. ### Forecasting accuracy and PI–3 (2007 vs 2012) - Under the new methodology, the 2007 assessment for PI–3 would have been a “B”; the 2012 score reflects a deterioration in forecasting accuracy. - Implication: - Increasing complexity and scale of revenue collection and administration underline need for greater attention to revenue forecasting capacities and related organizational and institutional arrangements. ### PI–4: Stock and monitoring of expenditure payment arrears — scope and measurement - Indicator dimensions: - (i) level of arrears; - (ii) availability of data for monitoring the stock of arrears. - Concern: - Measures the stock of arrears and extent to which systemic problems generating arrears have been brought under control. ### PI–4: 2012 assessment (Scoring method M1) — scores - Dimension (i): Score 2007 = D; Score 2012 = D+ - “The stock of arrears stood at 9.6 percent of budgeted expenditure as of December 2011, with reduction by more than 80 percent in the last two years.” — Score 2007: D; Score 2012: B (table shows progression) - Dimension (ii): Score 2007 = C; Score 2012 = B - “Data on the stock of arrears is generated annually, but may not be complete because it is likely that there remain a small number of pre-2006 claims, which have not yet been presented.” ### Sources and history of arrears - Three potential sources reviewed: - a) payment claims arising from the period prior to 2006, notably for salaries and rents; - b) new claims arising from payments for goods and services remaining outstanding; - c) unpaid interest on domestic or external debt. - Pre-2006 context: - Nearly twenty years up to 2006 external and domestic debt was not serviced; many central government salary and rental commitments remained unpaid. - Major debt reconciliation process in 2006–2007 identified, renegotiated and either forgiven or reconstituted the vast majority of outstanding arrears. ### Public debt reduction and outstanding creditor issues - Public and publicly guaranteed debt: - Decreased from USD5.2 billion at the end of June 2007 to USD565 million at the end of September 2010. - External multilateral and Paris Club bilateral debt cleared through the HIPC process. - Two creditors with unresolved debt as of December 2011: - Saudi Arabia — USD27.2 million principal and USD1.3 million of unpaid interest — negotiations expected to be completed in June 2012. - Taiwan — USD44 million principal and USD39.2 million accrued and unpaid interest — Liberia has had no relations since 2003. - Domestic debt composition: - 87 percent consolidated in one loan from the CBL; remainder mainly domestic salary and vendor arrears. ### Salary and supplier arrears evolution - Salary arrears: - End of 2006: USD33.53 million (pre-NTGL) and USD3.8 million (NTGL period 2003–06). - Nearly two-thirds cleared by end of 2008. - Remainder cleared at USD1–2 million per year. - Stock at end 2011: USD5 million. - Audited supplier arrears: - End of 2006: USD50.2 million. - Stock USD11.2 million in 2008, declining to USD1.9 million by December 2011. - Budget allocations made each year to settle these arrears per agreed clearance schedules. ### New claims and litigation - New pre-2006 claims mainly arise through court judgments; value has remained relatively small. - Reasons: - Some suppliers refused discounted settlements; judiciary system becoming fully functional. - Outstanding court judgments at end 2011: just under USD2 million, with a further USD5 million still in litigation. ### Aggregate arrears and budget ratio - Stock of arrears at end 2011: - USD49.4 million, including interest owed on the Saudi Arabian and Taiwanese loans. - Equivalent to 9.6 percent of the 2011/12 budget (of USD516.4 million). ### Data quality and reconciliation issues - Analysis based on regularly published DMU reports, considered reasonably accurate. - Concern: - Lack of consistency in nomenclature and amounts between DMU publications and annual budget allocations intended for arrears clearance, making full reconciliation difficult. ### Controls, commitments and outstanding commitments trend - Commitment control and cash budgeting have effectively limited accumulation of new arrears recently. - Accounting system: - Systematically generates data on outstanding commitments presented in the final year fiscal outturn report. - 90-day “grace period” for clearance of outstanding commitments after year-end is generally sufficient. - Reported outstanding commitments: - Fell from USD19.5 million in 2008/09 to USD4.4 million in 2010/11. ### PI–4 overall judgment - Problem of arrears identified in 2007 PEFA largely resolved. - Post-HIPC: GoL significantly reduced debt stock and is current with the vast majority of domestic and external obligations. - In-year budgetary controls effective at preventing new arrears. - Achieves a “B” score because: - (i) arrears are within 2–10 percent of budget and significant arrears clearance has taken place; and - (ii) debt management reports provide regular and generally reliable data on arrears, albeit difficult to reconcile with budget allocations for arrears clearance. ### PI–5. Classification of the budget — summary and score - Purpose: assesses quality of classification system used for formulating, executing and reporting the central government budget. - PI–5 : 2012 Assessment (scoring method M1) - Score 2007 = C; Score 2012 = C - “New GFSM 2001-based classifications and associated chart of accounts introduced in 2011 include administrative, economic and functional classifications. However, while transactions are routinely coded with functional codes, reports by functional classification are not yet available.” - Chart of Accounts (CoA) and IFMIS: - New 39 digit CoA introduced for FY2010/11, expanding from 14 digit version introduced in 2007. - CoA includes administrative, fund, projects, program, functional, location, economic, sector, and policy area codes. - Program classification is not effective; location classification not used systematically. - Codes for functions/sub-functions are mandatory in IFMIS but reporting by functions/sub-functions not yet included in standard published documents (FY2010/11 budget and outturn report, FY2011/12 budget). - Economic classification: - Follows GFSM 2001; includes codes for accrual though accounting remains on cash basis. - Program element: - Included in CoA but unpopulated and unused. - PRS sectoral classification: - New PRS-based sector classification groups M&As into 11 sectors (proxy for COFOG 10 high-level functions). - Will facilitate sectoral reporting once a full budget cycle is completed; current score remains “C” based on 2010/11 evidence. ### PI–6. Comprehensiveness of information included in budget documentation — summary and score - Purpose: assesses extent to which budget documentation information is made available for legislative scrutiny and approval. - PI–6: 2012 Assessment (Scoring method M1) - Score 2007 = C; Score 2012 = B - “Recent budget documentation fulfills six of the nine required information benchmarks.” - Strengths of FY2011/12 documentation: - Allows a complete picture of central government revenue forecasts, budget proposals and outturns of previous years. - Budget Framework Paper (BFP) outlines government priorities and contains macroeconomic and fiscal framework information. - Shortcomings: - Budget document does not provide a clear definition of fiscal deficit or how it will be financed. - Section 5 of FY2011/12 BFP: “annual borrowing is limited to 3 percent of the previous fiscal year’s GDP, with a maximum of 1 percent of GDP raised through domestic borrowing.” No further information on actual deficit amount and financing composition. - Projected aid inflows, besides budget support, are not included in the report on central government fiscal operations (Table 1) to show projected deficit financing. - Brief statement on financial assets in Section IV of FY2011/12 budget but no breakdown of composition or estimated values. - Table 7: Comprehensiveness benchmarks (inclusion status from MoF) 1. Macroeconomic assumptions — Yes (Budget Framework Paper) 2. Fiscal deficit defined according to GFSM — No (Fiscal deficit is not defined in budget document) 3. Deficit financing composition — No (Composition of deficit financing not provided) 4. Debt stock details at start of current year — Yes (Annex 3 of budget document) 5. Financial assets breakdown — No (Financial assets not detailed in budget documents) 6. Prior year’s budget outturn in same format — Yes (In main budget document) 7. Current year’s budget (revised/estimated outturn) in same format — Yes (In main budget document) 8. Summarized budget data by main classifications for current and previous years — Yes (In main budget document) 9. Explanation of budget implications of new policy initiatives with impact estimates — Yes (Policy Changes Section of the President’s message to the legislature) - Outlook: - Adoption of a medium-term expenditure framework (MTEF) starting FY2012/13 is likely to further enhance comprehensiveness and clarity, including GFSM-compliant presentation of the fiscal deficit and summary information on externally financed public investments. ### PI–7. Extent of unreported government operations — summary and score - Indicator dimensions: - (i) level of unreported extra-budgetary expenditure (excluding donor funded projects); - (ii) information on donor-funded projects included in fiscal reports. - PI–7 : 2012 Assessment (Scoring method M1) - Dimension (i): Score 2007 = B; Score 2012 = D+ - “The level of unreported extra-budgetary expenditure (other than donor funded projects) constitutes 1–5 percent of total expenditure.” — Scores vary across assessments. - Dimension (ii): Score 2007 = D; Score 2012 = D - “Information on donor funded projects is included as an annex to the budget but is not complete, and corresponding information on actual expenditures is not presented in the annual outturn reports.” - Controls and improvements: - Use of own revenues and fees and charges as sources of unreported operations has been largely controlled. - Legal requirement (PFM Regulations B.6 and B.7, 2009) for M&As to pay tax and non-tax revenues into the Consolidated Fund at the CBL; improved payment of consular fees collected by overseas missions into appropriate CBL account. - DoR division established in October 2009 ensures overseas missions open separate bank accounts for consular fees and transfer monthly to the CBL. - Consular fees collected in FY2010/11 amounted to about USD1.65 million (around 0.4 percent of revenue collected). - Remaining shortcomings (modest fiscal significance): - i. Vendor fees for private service providers and commercial bank charges are debited to transitory bank accounts with net amounts transferred to revenue bank account at the CBL; no consolidated record of deductions. Amounts involved said to be less than 0.5 percent of total domestic revenue. - ii. Cash advances made to M&As into departmental bank accounts are expensed in Treasury books with no adjustments for movements in those bank account balances. No system for tracking transactions in departmental bank accounts, especially those in commercial banks. These funds are managed as transfers rather than advances, creating a possibility that unused balances carried over at fiscal year close create off-budget spending in the subsequent year; values carried over would certainly be modest. *Source: IMF staff report excerpts* ### 71. Information on donor-funded projects with projected disbursements of ### _cr12273 - 71. Information on donor-funded projects with projected disbursements of ### Donor-funded projects and budget reporting - Donor-funded projects with projected disbursements of USD464,168,717 are included in the budget documents for FY2010/11 as an annex. - Fiscal outturn reports present only treasury-managed expenditures and in-year quarterly fiscal outturn reports for FY2010/11 excluded the majority of externally funded projects. - Section 9 of the PFM Act of 2009 requires the budget to “include all donor financing provided directly to the budget in support of the central government, including general budget support, basket funding of sectors, and funding of government projects”. - Separate aid management reports consolidating actual disbursement information from donors are produced quarterly and made available on the MoF website, but: - They are not comprehensive. - They present expenditure information using donors’ classification systems rather than those of the GoL. ### PI–8: Transparency of intergovernmental fiscal relations - This indicator has three dimensions: (i) transparency and objectivity in horizontal allocation between subnational governments; (ii) timeliness of reliable information to subnational governments; (iii) extent of consolidation of fiscal data for general government according to sectoral categories. - Liberia does not have sub-national governments; the indicator is not applicable and cannot be scored. - Context and related facts: - Liberia has 15 counties that are deconcentrated parts of central government; county superintendents are appointed by the President. - County authorities do not have independent revenue collection rights and have limited discretionary autonomy over allocations. - Some local autonomy exists through: - The County Development Fund (established 2006/07) and - Special social and economic development grants in mineral and other concession agreements. - In the FY2010/11 budget, total allocations to such funds and grants amounted to just under USD17 million, or 4.9 percent of total budgetary spending. - Institutional arrangements: - A county financial management unit has been established by the CAG to coordinate and monitor disbursements of the County Development Fund and other funds allocated to counties. - Allocations to the County Development Fund are made through the budget and executed as grants or transfers to the counties by county superintendents under the Ministry of Internal Affairs. - County development committees prepare and submit projects to county superintendents for County Development Fund financing. - Reform outlook: - Short-term: county treasuries are envisaged to deconcentrate PFM to the county level and build capacity. - Medium-term: implementation of decentralization policy will require development of new institutional arrangements to manage inter-governmental relations. - Score status: - No change in government structure since the 2007 assessment; the no score remains valid. ### PI–9: Oversight of aggregate fiscal risk from other public sector entities - Indicator dimensions: (i) central government monitoring of AGAs and SOEs; (ii) central government monitoring of sub-national governments’ fiscal position. Only (i) is covered because there are no sub-national governments. - Scoring table excerpt: - (i) The majority of AGAs and SOEs do not submit annual financial reports to central government. The budget document includes a consolidated overview, but its coverage is incomplete — Score 2007: D; Score 2012: D. - (ii) There are no sub-national governments — NO SCORE. - Legal/reporting framework: - Sections 41 and 45 of the PFM Act require AGAs and SOEs to submit quarterly financial reports and annual accounts to the Finance Minister; deadlines: within 30 days for quarterly reports, within 2 months for annual accounts. - Reporting lines specified: AGAs to the President, the Finance Minister and the parent sector minister; SOEs to the Finance Minister, the parent sector minister, and the Bureau of State Enterprises; annual accounts to the Auditor General. - Although most SOE accounts are audited by external auditors, they are not systematically submitted to the MoF and other stakeholders as required by law. GAC audits AGAs but submissions to MoF and others are similarly inconsistent. - FY2010/11 budget annex: - A summary annex showing financial operations of each SOE was submitted as an annex to the FY2010/11 budget as required by the PFM Act 2009; it did not reappear in the FY2011/12 budget documentation. - The FY2010/11 appendix provided information on SOE financial performance for FYs 2008/09, 2009/10, and projected revenue and expenditure for FY2010/11 with resulting surplus/deficit. - Fifteen entities submitted some financial information; 50 percent provided incomplete financial data either on revenues or expenditures. - Fiscal risk monitoring: - Monitoring of fiscal risks associated with AGAs and SOEs is limited primarily to monitoring of guarantees. - The BFP considers some fiscal risk aspects during budget formulation; the MFAU monitors some risks during budget execution. - Fiscal risk analysis covers: revenue (including donor grants), expenditures of central government, public debt and government guarantees. - Apart from guarantees, the fiscal risk statement in the BFP does not include assessment of financial operations of AGAs and SOEs. - Assessment and reforms: - Some improvement in reporting of subsidies to public corporations, but overall reporting from SOEs and AGAs has not changed significantly since 2007. - Reporting non-compliance under the PFM Act is being addressed: a new SOE monitoring unit is being set up within the MoF and detailed reporting formats for SOEs are envisaged for implementation in 2012. ### PI–10: Public access to key fiscal information - Scoring summary: - The government made available within the stipulated time only two of the six listed information benchmarks — Score 2007: C; Score 2012: C. - Availability of documents: - Annual budget documentation (including the President’s budget message and the BFP) are posted on the MoF website around the time submitted to the legislature. - Printed budget documentation is in limited supply and not readily available to the public because the government printer remains closed. - Public access table (timely availability / source): 1. Annual budget documentation when submitted to the legislature — Yes — MoF website 2. In-year execution reports within one month of end of period — No — MoF website 3. Year-end financial statements within 6 months after completed audit — No — MoF website 4. External audit reports within 6 months of completed audit — Yes — GAC website 5. Contract awards above USD100,000 posted quarterly — No — PPCC website 6. Resources available to primary service units — No - In-year reporting: - In-year budget execution reports are not routinely made available timely. Mid-year and quarter three fiscal outturn reports for 2010/11 were published almost three months after the end of the quarter reported on; the first quarter report was not made available. - Fiscal outturn reports are generally aggregated and do not provide comparative information against the original budget. - Year-end financial statements and audits: - Year-end financial statements for the last completed financial year were not made available within six months of completed audit. - Consolidated financial statements for the year ended June 30, 2011 had not been produced or published. - An IPSAS cash based set of financial statements for the central government budget was first produced for the year ended June 30, 2010, but was produced late (November 2011) and had not yet been audited at the time of review; it was an ‘ad hoc’ exercise supported by an external consultant and sustainability of internal capacity/procedures is not established. - GAC audit reports on consolidated central government operations have not been produced to date because MoF has not prepared consolidated accounts. Other GAC audit reports have generally been posted to the GAC website within two months of completion. - Contract awards and primary service unit resources: - Contract awards exceeding USD100,000 are not published quarterly through appropriate means. PPCC efforts to publish all contract awards were not routine for 2010/2011. - Information on resources delivered to primary service units (individual schools or primary health clinics) is not generally available and not reflected in the annual budget documents; the accounting system does not capture detailed information for primary service units. - Assessment and reforms: - The 2007 assessment remains unchanged in 2012 due to limited progress on consolidated annual accounts and consistent timely in-year reporting, though the range of information in budget documentation and in-year reports has improved. - The PFM reform strategy highlights improving quality and availability of reliable fiscal information; the IFMIS is expected in the short-term to significantly improve accounting and reporting and enable publication of detailed budget execution information. ### PI–11: Orderliness and participation in the annual budget process - Indicator dimensions: (i) existence and adherence to a fixed budget calendar; (ii) existence and quality of guidance on preparation of budget submissions; (iii) timely budget approval by the legislature. - Scoring table excerpt: - (i) An annual budget calendar exists but some delays are experienced in its implementation. The calendar allows M&As 6 weeks to complete their budget estimates — Score 2007: B; Score 2012: B. - (ii) A comprehensive and clear budget circular is issued to M&As which reflects approved cabinet ceilings prior to distribution to M&As — Score 2007: A; Score 2012: A. - (iii) The legislature has failed to approve the budget before the start of the fiscal year in two of the last three fiscal years — Score 2007: C; Score 2012: D. - Process and timelines: - A clear annual budget calendar exists and is largely respected. For the 2011/12 budget, M&As have more than six weeks between receipt of the budget call circular in February and completion of detailed budget estimates in early April. - The budget circular provides clear guidance, including ceilings for recurrent and development expenditures for budget year plus two outer years; ceilings are discussed by the National Budget Committee and approved by Cabinet before issuance. - Sector policy notes inform ceiling-setting; some M&As still exceeded ceilings despite participation in ceiling-setting Cabinet meetings. - Budget phases: - Budget preparation has moved to two phases: - Strategic phase culminating in the BFP setting policy priorities and proposed ceilings for Cabinet approval. - Detailed preparation phase guided by the call circular with specific instructions on formats, classifications, inclusion of all revenue and grants, wage bill and capital spending. - Legislative timing: - For two of the three fiscal years under consideration, the budget was not approved before the start of the fiscal year. For the last two years, the legislature adopted the budget three months after the start of the fiscal year. - Delays were partly due to incomplete information supplied by the Executive; e.g., the 2011/12 budget documents submitted on April 30, 2011 were withdrawn for one week because of data reconciliation issues. - The time period generally allowed for legislative scrutiny has been two months. ### PI–12: Multi-year perspective in fiscal planning, expenditure policy, and budgeting - Indicator dimensions: (i) preparation of multi-year fiscal forecasts; (ii) scope and frequency of debt sustainability analysis (DSA); (iii) existence of sector strategies; (iv) linkages between capital and recurrent estimates. - Scoring table excerpt (2007 vs 2012): - (i) Forecasts of fiscal aggregates are prepared for at least two years on a rolling basis — Score 2007: D; Score 2012: D+ / C (table shows both D+ and C entries under 2012; original source lists D+ and C across lines). - (ii) A DSA for external and domestic debt has been undertaken annually in the last three years — Score 2007: C; Score 2012: A. - (iii) Although the number of sector strategies has increased recently, these strategies are not costed in a substantive way, with future year aggregates consistent with the overall fiscal framework — Score 2007: C; Score 2012: C. - (iv) Budgeting for investment and recurrent expenditure are separate processes with no sharing of recurrent costs of capital — Score 2007: D; Score 2012: D. * _cr12273 - 71. Information on donor-funded projects with projected disbursements of_* ### 99. The fiscal framework includes forecasts of the main fiscal aggregates over three ### _cr12273 - 99. The fiscal framework includes forecasts of the main fiscal aggregates over three ### Fiscal framework and medium-term fiscal projections - The fiscal framework includes forecasts of the main fiscal aggregates over three years on a rolling basis. - There is no clear link between the outer years and subsequent budget estimates, reducing the importance of the outer-year estimates to the budget process. - The fiscal deficit and its financing (notably, from budget support loans) are not clearly presented in the fiscal framework (see paragraph 63). - The MTEF is being phased in with the 2012/13 budget and is expected to: - provide an improved framework for coordination of recurrent and capital spending; - provide a more consistent basis for medium-term fiscal projections. - The MTEF initiative is still at a relatively early stage. ### Debt sustainability analyses (DSAs) - DSAs have been undertaken in FY2010 and FY2011 in collaboration with IMF and World Bank staff. - DSAs covered both domestic and external debt and were based on macro-fiscal data, including projected assumptions for future budget support and project related borrowing. ### Sector policy notes, costing, and medium-term sectoral planning - Sector policy notes are now prepared for all sectors but are not substantively costed in a manner consistent with the aggregate fiscal framework. - Medium-term sectoral planning and budgeting is nascent, introduced as part of the MTEF process in FY2012. - Four sectors completed sector policy notes for the FY2011/12 cycle. - All 11 newly created PRS-related “sectors”, covering the whole budget, completed sector policy notes for the FY2013 cycle. - Budget estimates were partially underpinned by forward estimates from these sector policy notes. - The costing process was not comprehensive and aggregate spending estimates from sector policy notes were not consistent with the aggregate fiscal framework. ### Budgeting for investment and recurrent costs - Budgeting for investment and recurrent costs were done as separate processes with no sharing of information on current and future recurrent costs of investment decisions. - Under the Public Sector Investment Program guidelines: - preparation and selection of projects for the annual budget is under the Ministry of Planning and Economic Affairs (MoPEA); - approved project proposals are submitted to the MoF for funding. - The recurrent budget preparation is overseen by the MoF, without taking into account current and future recurrent cost implications of project proposals. ### Predictability and Control in Budget Execution — Overview of PI–13 through PI–15 - PI–13, PI–14, and PI–15 indicators assess aspects of tax law transparency, taxpayer registration and assessment, and effectiveness in collection of tax payments respectively. - Assessments cover current performance (PI–13 and PI–14) or the last 2 completed FYs (PI–15), using scoring methods M2 (PI–13, PI–14) and M1 (PI–15). ### PI–13: Transparency of taxpayer obligations and liabilities — key findings and scores - Indicator dimensions assess: (i) clarity and comprehensiveness of legislation and regulations on tax liabilities; (ii) taxpayer access to information on tax liabilities and administrative procedures; (iii) existence and functioning of a tax appeals mechanism. - PI–13 : 2012 Assessment (scoring method M2) — Dimensions and scores: - (i). The tax and customs laws, available on the MoF website, provide a clear, comprehensive, and transparent framework for assessing tax liabilities. Implementation, however, is affected by general capacity weaknesses - Score 2007: C - Score 2012: C - Additional entries in table: B B - (ii) Taxpayers have access to information on tax liabilities and administrative procedures - Score 2007: C - Score 2012: C - (iii) A tax appeals mechanism exists, but is in its infancy - Score 2007: C - Score 2012: B - Liberia’s Revenue Code (2000) integrates Personal and Business Income Tax, Goods and Services Tax (GST), Excise Taxes, Customs Duties, and Real Property Tax; existing tax incentives have recently been removed or formally included in the Revenue Code. - Revenue Code is accessible on the MoF website; taxpayer education services include bi-weekly radio broadcasts, billboards, print media, targeted outreach programs, tax clinics, and GST awareness brochures. - Remaining issues: - Confusion among taxpayers about obligations due to capacity weaknesses in accounting standards and capacities in public and private sectors. - Appeals: Tax Appeals Board recently set up; appeals procedures drafted and submitted to management. A taxpayer may challenge a DoR determination within 30 days of receipt. To appeal to the Tax Court taxpayer must pay 60 percent of the determination. - Appeals mechanism in Customs and Excise (BCE) appears more structured and robust than in the Bureau of Internal Revenue (BIR). - PFM reform strategy calls for establishment of a semi-autonomous Liberia Revenue Authority; draft bill is with the legislature. Preparations include: (i) a code of conduct, (ii) a human resource manual, (iii) a communication strategy, and (iv) information technology requirements. ### PI–14: Effectiveness of measures for taxpayer registration and assessment — key findings and scores - Indicator dimensions assess: (i) controls in the taxpayer registration system; (ii) effectiveness of penalties for non-compliance with registration and declaration obligations; (iii) planning and monitoring of tax audit and fraud investigation programs. - PI–14 : 2012 Assessment (scoring method M2) — Dimensions and scores: - (i) Taxpayers are registered in a central tax administration system (TAS), directly linked to the ASYCUDA customs system, and part of a one-stop-shop arrangement for registering domestic and foreign-owned businesses, supplemented by occasional surveys of potential taxpayers and financial sector regulators. Property taxes and vehicle licenses, as well as individual professional service providers are currently excluded from TAS - Score 2007: C - Score 2012: C - Additional entries in table: B B - (ii) Penalties for non-compliance generally exist, but substantial changes to their structure, levels or administration are needed if they are to have a significant impact on collections - Score 2007: C - Score 2012: C - (iii) Tax audits and fraud investigations are managed and reported on according to a documented audit plan, with clear risk assessment criteria for all major taxes that apply self-assessment - Score 2007: C - Score 2012: B - The Liberian Business Registry provides a one-stop-shop for most business and taxpayer registration; registration uses a unique taxpayer identification number (TIN) recorded in the current Tax Administration System (TAS). - TINs are generally required for all taxpayers with exceptions: - Property tax and vehicle licenses are excluded from TAS. - TAS does not yet reach areas outside Monrovia; decentralization started with satellite centers in 2 counties: Nimba and Grand Bassa. - Individual professional service providers and the informal sector are currently excluded from registration; TINs are not required to open a bank account. - TAS imports information from multiple sources for cross-referencing including motor vehicle license payments, MoF Expenditure Department withholding tax data, and private company withholding tax deductions; occasional BIR surveys expand the tax base. - BIR’s ability to regularly reconcile and cross-reference taxpayer data is limited due to capacity constraints. - TAS upgrade to SIGTAS is due to go online from September 2012. - Penalties: - Law prescribes penalties for late filing, failure to file, late tax payment, and failure to pay taxes on due date. - Penalties are set sufficiently high and monthly compounded rates are applicable up to a limit of 50 percent of the self-assessed tax. - Collection enforcement improvements underway: enforcement sections in BIR and BCE, harmonized enforcement manual, capacity building, remedies proposed by BIR (improving collection procedures, consistent application of penalties, improved staff training). - Short-run incentives noted: - Amnesty on penalties and interest introduced in the 2010/11 fiscal year budget speech (April 2010). - 2011/12 due date for return filing extended from March 31, 2012 to April 30, 2012. - Less than 30 percent of the taxpayers in the Large Taxpayers Department filed their returns as of the due date on March 31, 2012. - Audit improvements: - Regular taxpayer risk profiling based on checklist of criteria. - Transparent audit processes instituted based on established audit guidelines. - Risk-profiling has raised the score on audit planning; robustness of risk-profiling needs to be proven and maintained. ### PI–15: Effectiveness in collection of tax payments — key findings, scores, and statistics - Indicator dimensions assess: (i) collection ratio for gross tax arrears (percentage of tax arrears at the beginning of the fiscal year collected during that fiscal year, average of 2009/10 and 2010/11); (ii) effectiveness of transfer of tax collections to the treasury by the revenue administration; (iii) frequency of complete accounts reconciliation between tax determinations, collections, arrears records, and treasury receipts. Assessment covers last 2 completed FYs. - PI–15 : 2012 Assessment (scoring method M1) — Dimensions and scores: - (i) Tax arrears significantly exceeded 2 percent of tax collections in the last two years, during which the average arrears debt collection ratio was well below 60 percent - Score 2007: D - Score 2012: D+ - (ii) All tax revenue is paid directly into accounts controlled by the treasury - Score 2007: A - Score 2012: A - (iii) While complete reconciliation between collections and transfers to treasury are done daily, reconciliation between collections and tax assessments (tax ledgers) is less frequent and rigorous. Regular monitoring of delinquent taxpayers is however undertaken - Score 2007: D - Score 2012: B - Arrears registration exists in both BCE and BIR; BIR registers arrears by taxpayer segmentation (large, medium, small) and records arrears on an ageing basis; monthly arrears reports available on demand. - Table 10: Debt Collection Ratio for Tax Arrears 2009/10 and 2010/11 (USD millions) — Large Taxpayer Department End-Dec 2010 / End-Dec 2011 - a. Opening balance of arrears: 1.46 / 18.82 - + New arrears during the year: 19.54 / 18.77 - - Arrears collected during the year: (2.18) / (21.66) - b. Closing balance: 18.82 / 15.94 - b.1 Of which outstanding for more than 12 months: 1.03 / 9.82 - c. Total tax revenues (FY basis): 224.7 / 267.3 - d. Arrears debt collection ratio ((a–b.1)/a): 29.45% / 47.82% - Average arrears debt collection ratio: 38.64 percent - e. Arrears as a ratio of total tax revenue (b/c): 8.38% / 5.96% - Average arrears to total tax collection ratio: 7.17 percent - Source: MoF/DoR. - The high level of arrears at the beginning of 2011 (USD18.82 million) were in three revenue categories: surface rental fees (USD4.8 million), concession payments due (USD8.1 million) and land rental fees (USD4.3M); some arrears were cleared by end-2011. - Analysis: - Arrears clearance was more effective in 2011 compared to 2010; overall level of arrears declined. - Progress attributed to improved taxpayer education and outreach, better access to information, and new arbitration mechanisms to resolve tax disputes. - Payments and reconciliation: - Tax payments are paid directly into the main treasury account at the CBL for all taxes collected in Monrovia, which accounts for 85 percent of all tax payments. - BCE and BIR have 17 and 24 designated collection centers respectively across the country. - Collection centers remit collections daily to county-based commercial bank transitory accounts controlled by the CAG, which are cleared at least every fortnight into the main treasury account. - BIR has direct access to the CBL payment system enabling daily reconciliation of taxpayer payments with TAS and creation of single ledgers (compliance checklists). - Maintenance of taxpayer accounts in TAS has not always been timely, leading to late production of delinquent payer lists. - Routine reconciliation between taxpayer accounts and the payments system is not in place; taxpayer ledgers are maintained in Excel spreadsheets and cannot be easily consolidated. - DoR has no means of routinely confirming that all payments received have been posted to taxpayer ledgers, although regular checks on individual taxpayer ledgers are undertaken by the BIR. - The new SIGTAS is expected to provide improved reconciliation facilities once all DoR operations are transferred to it. *Source: _cr12273 - 99. The fiscal framework includes forecasts of the main fiscal aggregates over three* ### 128. Tax receipts are reported daily to the treasury. The CBL payments system allows ### _cr12273 - 128. Tax receipts are reported daily to the treasury. The CBL payments system allows ### PI–16: Predictability in the availability of funds for commitment of expenditure - Indicator dimensions assess: (i) extent to which cash flows are forecast and monitored; (ii) reliability and horizon of periodic in-year information on ceilings for expenditure commitment; (iii) frequency and transparency of adjustments to budget allocations made above the level of management of M&As. - PI–16 2012 Assessment (Scoring method M1) — Dimensions and scores: - (i) "A cash flow forecast is prepared for the fiscal year but it is prepared late within the year (often not until the 2nd quarter) and is not systematically updated monthly" — Score 2007: C; Score 2012: C+ - (ii) "Budget allotments for M&As, which constitute commitment ceilings, are made for a monthly period only" — Score 2007: C; Score 2012: C - (iii) "Significant in-year adjustments are made either through budget transfer authorities (virements) or supplementary budgets. These are fully transparent but relatively frequent" — Score 2007: B; Score 2012: C - Key findings: - Cash inflows and outflows are monitored on a daily basis, but a fully functional annual cash-flow planning and management process has yet to be established. - Government has controlled expenditure commitments and payments to prevent unplanned fiscal deficits and accumulation of arrears through: - daily monitoring of cash balances; - careful control of budgetary allotments by the DoB; - centralized monitoring of commitments via Local Purchase Orders (LPOs) issued by M&As. - The prevailing approach constitutes cash rationing and falls short of annual cash-flow planning and management required by section 34 of the PFM Law. - A consolidated annual cash-flow plan is prepared but generally finalized after the start of the fiscal year and is not systematically updated during the year. - Article H of the Financial Regulations requires the Cash Management Unit of the CAG to prepare a consolidated annual cash-flow plan based on the approved annual budget and individual ministerial cash plans; this should include contingency measures and be complemented by a rolling quarterly cash-flow forecast prepared each month. - Identified challenges to effective cash management: - The legislature has been late in adopting the annual budget in the last two years, delaying ministerial procurement and cash-flow plans required by the PFM Act and financial regulations (Part D). - Not all agencies comply with the legal requirement to produce procurement and cash-flow plans despite pressure from the PPCC and circulars from the DoB. - The GoL has not agreed procedures with donors providing budget support that would lead to a schedule of projected quarterly disbursements; budget support estimates are omitted from the consolidated annual cash plan. - To date the GoL has not had recourse to Treasury Bills to smooth short-term liquidity shortfalls. - Consequences and current practices: - Monthly availability of cash is the primary criterion for deciding budgetary allotments; updating of the consolidated annual cash plan has limited consequence and is not practiced systematically. - M&As are issued monthly budget allotments (rather than quarterly or six-monthly), undermining predictability of expenditure commitments and efficiency of budget execution. - Announced reforms and expectations: - The MoF announced intention to: - move to quarterly allotments from July 1, 2012 — for the five largest spending ministries; - begin issuing treasury bills in 2012; - move ahead with cash management reforms. - In-year budget adjustments occur through reallocations and supplementary budgets; these are fully transparent and conform to legal and financial requirements. M&As cannot undertake budgetary reallocations without MoF authorization; MoF cannot increase an M&A’s total budget appropriation nor reallocate resources between M&As without legislative approval. - Comparative assessment: - Performance recorded by this indicator deteriorated slightly from C+ in 2007 to C in 2012, mainly because in-year budget adjustments became more frequent in recent years. - Context: budget increased almost five-fold from USD81 million in 2005/06 to USD385 million in 2010/11, accompanied by growth in scope to include capital expenditure and increasing reliance on inherently unpredictable non-tax revenues. - Reform strategy implications: - The PFM reform strategy and action plan intend to move from cash rationing to a system based on cash flow planning. - Effective cash flow planning should adapt short-term cash balances to budget execution needs, minimize idle cash balances, and make full use of treasury management instruments such as Treasury Bills (shortly to be reintroduced in Liberia). ### PI–17: Recording and management of cash balances, debt, and guarantees - Indicator dimensions assess: (i) quality of recording and reporting of debt data; (ii) extent of consolidation of the government’s cash balances; (iii) systems for contracting loans and issuance of guarantees. - PI–17 2012 Assessment (scoring method M2) — Dimensions and scores: - (i) "Domestic and foreign debt are effectively recorded and reported by the DMU in the MoF quarterly fiscal reports" — Score 2007: C; Score 2012: C+ - (ii) "Central budgetary government cash holdings are monitored daily and reconciled monthly, but a comprehensive and consolidated cash position involving all government accounts is not prepared due to lack of information on the many M&A-operated bank accounts at the CBL and commercial banks" — Score 2007: C; Score 2012: C - (iii) "Central government’s contracting of loans, and issuance of guarantees are made against transparent criteria and fiscal targets, and always approved by a single responsible government entity" — Score 2007: B; Score 2012: A - Key findings on debt recording: - Domestic and foreign debt records are complete and regularly updated by the DMU in the MoF. - A comprehensive debt stock and domestic debt verification exercise was undertaken in 2006–7 as part of HIPC, including a domestic debt resolution strategy implemented with KPMG assistance; commercial debt has been fully surveyed and much cleared. - Liberia reached HIPC Decision Point in March 2008 and achieved HIPC Completion in 2010. External borrowing has resumed in the form of concessional budget support credits from multi-lateral sources. Domestic borrowing is set to resume in 2012 following agreement between the CBL and the MoF to resume issuance of treasury bills. - The DMU updates records quarterly via a complete reconciliation process and prepares a quarterly debt management report made publicly available on the MoF website; an annual report is sent to the Minister of Finance for inclusion in the report to Cabinet. A consistent monthly reconciliation is needed to ensure timely resolution of discrepancies. - Key findings on cash consolidation: - Central government cash holdings are monitored daily and reconciled monthly, but a consolidated cash position of all government accounts is not prepared. - The MoF maintains five active accounts controlled by the CAG at the CBL: two operating accounts (USD and LRD), two revenue accounts (USD and LRD) and one payroll account in LRD. Balances of these accounts are sent daily to the MoF and consolidated for issuing budget allotments. - M&As operate at least 210 bank accounts at the CBL (many dormant), as well as an unknown number of accounts in commercial banks (mainly for externally-funded projects). Balances on these accounts are not known to the CAG and are never consolidated with main treasury balances to derive an overall government cash position. - GoL’s banking arrangements conflict with Section 34 of the PFM Act requiring, to the extent possible, a treasury single account approach. M&A-operated accounts at the CBL and commercial banks are neither linked to the main treasury account nor consolidated. - A recent decision requiring the CAG to be a signatory to all government accounts is a step toward implementing financial regulations R.3.2 and may help prevent proliferation of new accounts in commercial banks; further effort is required to improve surveillance of existing commercial bank accounts. - Key findings on loans and guarantees: - Article 34 (iii) of the constitution and Sections 28 and 29 of the 2009 PFM Law provide clear and transparent processes for contracting loans and guarantees. The Minister of Finance is solely responsible for overseeing government borrowing per PFM regulations. - Up to HIPC completion point in 2010, Liberia operated a balanced budget with no borrowing. The 2011/12 BFP set the annual borrowing limit to 3 percent of the previous fiscal year’s GDP, with up to 1 percent of GDP raised through domestic borrowing; the 2011/12 budget remained well within these limits. - The 2012/13 medium-term BFP modifies the approach: capping total debt stock at 60 percent of GDP while allowing between 3 and 10 percent of GDP of new borrowing per year on a net present value basis. - The 2009 debt management strategy (adopted by Cabinet in 2010) established the Debt Management Committee (chaired by the Minister of Finance; includes Governor of the CBL, Minister of Justice, Minister of Planning and Economics Affairs, and Minister of State for Presidential Affairs) which approves the three-year government debt management strategy, all loan agreements and guarantees on behalf of central government, and annual government borrowing limits reflected in the BFP. All loans approved by the committee must be ratified by the legislature before becoming effective. - A new guideline on issuance of guarantees was approved by Cabinet in 2012; no guarantees have yet been issued under this guideline. - Comparative assessment and reform priorities: - Performance improved from 2007 to 2012 due to improved recording and reporting of debt information and adoption/implementation of a defined strategy and clear framework for borrowing limits, contracting loans, and issuing guarantees. - Further improvement depends on tighter control of government cash balances, implementation of a treasury single account model (starting by closing dormant accounts and transferring balances to the main treasury account), and improved treasury control over GoL cash resources — measures envisaged under the current PFM reform strategy. ### PI–18: Effectiveness of payroll controls - Indicator dimensions assess: (i) integration and reconciliation between personnel records and payroll data; (ii) timeliness of changes to personnel records and the payroll; (iii) internal controls of changes to personnel records and the payroll; (iv) existence of payroll audits to identify control weaknesses and/or ghost workers. - PI–18 2012 Assessment (scoring method M1) — Dimensions and scores: - (i) "Personnel and payroll data are not directly linked. The integrity of the payroll is significantly undermined by lack of periodic reconciliation between GAPS and the CSA database" — Score 2007: C; Score 2012: D+ - (ii) "Required changes to the personnel records and payroll takes more than 3 months for a minority of employees" — Score 2007: D; Score 2012: C - (iii) "Controls of changes to data on GAPS are clear, but integrity of the payroll data is not fully secured" — Score 2007: C; Score 2012: C - (iv) "There is an ongoing comprehensive biometric data capture and clean up exercise of the civil service personnel database. GAC and CSA have undertaken partial payroll and pension audits the within the last three years" — Score 2007: D; Score 2012: C - Key findings: - Integrity of the payroll is significantly undermined by significant differences between personnel records on the payroll and those kept by CSA. - The civil service payroll (denominated in Liberian Dollars, LRD) is processed on GAPS (Government Accounting Payroll System) operated by the CAG Payroll Division. - Three categories of payroll processed on GAPS: - (i) regular payroll (over 50,000 employees) for personnel validated by the CSA; - (ii) supplementary payroll (around 9,000 employees as of March 2012) for personnel working but not yet validated by the CSA; - (iii) retroactive payroll (about 80 employees, number fluctuates month to month) for personnel validated by the CSA but not paid due to delays updating their records in GAPS. - GAPS and the CSA personnel database are not linked; the CSA database is not reconciled with GAPS even periodically, creating significant risk to payroll integrity that has surfaced periodically. - There is general lack of adequate internal controls around payroll processing, fragmentation of payroll processing, and lack of regular reconciliation between CSA personnel and GAPS payroll data. - Significant top-up allowances and salaries of certain government agencies (paid in USD) are processed outside GAPS, creating a shadow payroll: - Allowances decided by each sector ministry (significantly higher than regular pay) are paid in USD through the Accounting Services Unit (ASU). - Security sector agencies (Armed Forces of Liberia, Liberia National Police, Special Security Service, National Security Agency) process payroll through the ASU outside of GAPS. - In March 2012, a total of USD687,286, representing approximately 10 percent of the regular civil service payroll and allowances, was processed outside GAPS. - Recent improvements include introduction of direct deposit to employee bank accounts: - Bulk checks and payroll lists are generated from GAPS; payroll list must be uploaded into Excel before transmission to commercial banks. - Assistant Minister Expenditure password protects each file before sending; lists are also sent to M&As for checking and employee follow up. - Printing of pay slips has been discontinued; employees must check bank balances and follow up with M&A personnel offices on discrepancies. - The discontinuation of pay slips exposes the direct deposit scheme to risk of interference between GAPS-generated lists and bank postings if employees do not regularly check accounts. *Source: IMF staff report text provided in the content unit.* ### 154. The direct deposit scheme currently covers most employees based in Monrovia ### _cr12273 - 154. The direct deposit scheme currently covers most employees based in Monrovia ### Payroll coverage and direct deposit - The direct deposit scheme currently covers most employees based in Monrovia and a significant number of employees based in the counties, in total around 70 percent of employees. - Expansion plans: - Plans to expand the scheme to all employees are underway, with the first three counties being tackled from June 2012. - Expansion outside Monrovia is linked to the availability of commercial banking services within the counties, which has been improving. - Benefits noted: - Reduces the risk of fraudulent or duplicate payments. - Reduces the problem of the significant check float on the government’s payroll bank account. ### Payroll change processing and Personnel Action Notices (PANs) - Processing timelines and delays: - Delays in processing changes to payroll can occasionally take longer than three months, requiring retroactive adjustments for a minority of employees. - Although majority of PANs are generally processed within three months, discussions with two ministries reveal delays sometimes beyond three months for a minority of employees resulting in occasional retroactive adjustments. - PAN workflow: - All requests for additions, deletions, transfers and other modifications are initiated by M&As and submitted to the CSA for vetting and approval. - The approved PAN is submitted to the Deputy Minister Expenditure and Debt Management for approval and to the DoB to check for funds availability in the case of additions to the payroll. - After approval by both departments, the PAN is sent back to the CSA, onwards submission to the Payroll Office of the CAG for input into GAPS. - Causes of delay: - Manual approval process. - Errors on PANs submitted by M&As, which are sent back for corrections. - Late submission of PANs by M&As after employees are hired. ### Ghost workers, audits, and biometric registration - Ghost worker removal: - Efforts led to the removal of some 11,000 ghost workers from the GoL payroll. - Audit findings: - The GAC conducted a payroll audit on unclaimed checks in 2011 that cited major internal control weaknesses in the handling of unclaimed checks that resulted in fraudulent encashment of checks for the period reviewed. - Biometric registration and verification: - Government-wide biometric exercise initiated in 2010 to clean up the civil service database and populate the IFMIS HRM module with clean records. - Verification completed for employees of the smaller M&As, but incomplete for the 5 more complex and significantly larger M&As—Education, Internal Affairs, Health, National Security Agency, and Justice—together representing 85 percent of the workforce. - The biometric registration exercise is ongoing and is unlikely to be completed before the implementation date now set for the HRM module, now set to go live in July 2012. ### HRM module implementation and fiduciary risk - Delays and impacts: - The HRM module implementation, originally planned for July 2009, has been delayed; this has impacted initiatives relying on replacing GAPS, including routine reconciliation of payroll and CSA records and enhanced payroll controls. - The program of payroll audits intended to clean up the payroll prior to transfer to IFMIS has not kept pace with its original schedule. - Risk assessment: - Given the risks involved and its size, the payroll remains at the very top of the list of fiduciary challenges faced by the GoL. - Recommendation: - Keeping HRM module implementation on-track should be a top priority for the coming months; once operational, payroll and personnel management issues can begin to be more effectively addressed. ### Procurement: legal framework and practice (PI–19) - Indicator dimensions: - The indicator assesses: (i) transparency, comprehensiveness and competition in the legal and regulatory framework; (ii) use of competitive procurement methods; (iii) public access to procurement information; (iv) existence and operation of an independent procurement complaints mechanism. - 2012 assessment summary (scoring method M2) — dimension outcomes: - (i) The PPC Act meets five of the six elements of the transparency, comprehensiveness and competition in the legal and regulatory framework dimension — Score 2012: D+ - (ii) Most M&As lack good procurement planning and end up using shopping or single sourcing due to time constraints — Score 2012: B - (iii) Procurement information on contract awards and data on procurement complaints are not systematically made available to the public — Score 2012: C - (iv) An independent administrative procurement complaints system exists but its membership needs to be reconstituted to comply with the revised PPC Act — Score 2012: B - PPC Act key elements: - Advertised open competitive bidding is the default method; deviations must be justified (Section 46). - Publication of bidding opportunities required (Sections 49(3)(a) and 57(1)); publication of intention to award and contract awards required (Sections 31(1) and 37); no provision requiring PPCC to publish approved procurement plans. - Complaints, Appeals and Review Panel (CARP) to be established (Section 10); no contract to be signed for 14 days following publication of notice of intent of award (Section 31). - Practice and challenges: - Most M&As lack good procurement planning, resulting in shopping or single sourcing due to time constraints. - PPCC must provide No Objection for non-open competition methods; poor planning may increase No Objections. - Publication of procurement information is not always systematic; PPCC has started to publish procurement plans of the five largest spending ministries but not systematically. - Contract awards are rarely advertised by M&As, though PPCC publishes summary lists of prior-reviewed contracts. - PPC Act does not require publication of complaints; PPCC does publish data on resolved complaints via its website and ad hoc reports. - CARP functionality and compliance: - An adequate independent administrative procurement complaints process exists, but CARP membership needs reconstitution to satisfy revised PPC Act of 2010 (should have been reconstituted within 75 days of effective date). - CARP must: - Make a clear break with past practices of direct involvement in procurement activities. - Respect the deadline of 80 days to resolve complaints as prescribed in the Act (insufficient complaints handled so far to judge compliance). - Procuring entities must operationalize the provision requiring them to respond to complaints through procedures/regulations. - PEFA and implementation outlook: - 2012 PEFA assessment shows significant improvements over 2007 due to improved legal framework and operationalization of CARP. - Further work on regulations and subsidiary instruments required for full implementation. - PFM reform strategy identifies capacity building as the main challenge; focus on strengthening PPCC oversight and procurement capacity within M&As. ### Internal controls for non-salary expenditure (PI–20) - Indicator dimensions and 2012 assessment (scoring method M1): - (i) Effectiveness of expenditure commitment controls — Score 2012: C+ - (ii) Comprehensiveness, relevance, and understanding of internal control rules — Score 2012: C - (iii) Degree of compliance with rules for processing and recording transactions — Score 2012: C - Commitment controls and procedures: - Section 25(2) of the PFM Act: “all commitment approvals shall be subject to availability of adequate balance of uncommitted allotments on the budget line(s) against which the commitment are being made.” - Part P4 (2) of the Financial Regulations: expenditure commitments controlled against spending and procurement plans approved by the Minister; heads of agencies must make commitments only against approved procurement plans in accordance with the Public Procurement and Concessions Act (2005). - Budget allotments for non-wage spending are established by the DoB once the budget is adopted by the legislature. - Each ministry/agency submits a monthly cash plan used for monthly cash allotments issued by the DoB. - Execution process is highly centralized: MoF approval required at both commitment and payment voucher stages. - From July 2012, these processes will be recorded and approved on IFMIS. - Exceptions and practical shortcomings: - Monthly advances to M&As for expenditures generally settled by cash are an important exception; these are expensed at the time the advance is made against available budget lines. - PFM regulations require M&As to submit reconciliations before the next month’s advance, but in practice this does not happen systematically due to weak M&A controls and lack of enforcement by MoF. - Autonomous agencies and special funds generally do not follow GoL commitment control procedures despite Section 39 of the PFM Act requiring them to do so. - Internal control process characteristics: - Internal controls consist of clear rules but are cumbersome and slow. - A review of vouchers at the ASU revealed more than 17 steps from initiation of an LPO to payment, with some duplications (e.g., payment vouchers reviewed by ASU then pre-audited by a GAC auditor in MoF and a staff of the Physical Audit Unit in the CAG). - While M&As complain about MoF processing delays, controls regularly identify non-compliant LPOs and payment vouchers leading to rejections by ASU. - Rejection statistics (FY2011/12 first quarter vouchers): - July: Total vouchers processed 423; Amount (USD) 8,680,032.81; Rejection Number 68; Rejection Amount (USD) 1,930,133.10 - August: Total vouchers processed 769; Amount (USD) 16,022,848.94; Rejection Number 231; Rejection Amount (USD) 7,229,909.64 - September: Total vouchers processed 682; Amount (USD) 41,683,644.56; Rejection Number 258; Rejection Amount (USD) 13,649,373.47 - Total: Total vouchers processed 1,874; Amount (USD) 66,386,526.31; Rejection Number 557; Rejection Amount (USD) 22,809,416.21 - Percent rejected—numbers and USD value: 30 34 - Source of data: MoF/CAG/Accounting Services Unit. - Internal control weaknesses: - GAC audits over the past three years highlight significant internal control weaknesses in M&As leading to irregularities: wrongful payment, misappropriation of funds, unaccounted for payments, improper authorization of payment vouchers. - In 2010, GAC prepared a special report identifying 76 common internal control weaknesses requiring particular attention. - Conclusions: - Expenditure commitment controls are largely effective in limiting commitments to approved budgets and actual cash availability for most expenditures, with notable exceptions. - Internal controls are comprehensive but cumbersome and prone to delays. - A significant share of transactions are non-compliant and are identified and rejected by central controls, demonstrating both weak compliance at M&A level and effective centralized control mechanisms. *Source: _cr12273 - 154. The direct deposit scheme currently covers most employees based in Monrovia* ### 177. In summary, while commitment controls have been effective under the cash ### _cr12273 - 177. In summary, while commitment controls have been effective under the cash ### Summary of commitment and central controls - Commitment controls have been effective under the cash budgeting approach. - Weaknesses in other internal controls at the level of M&As lead to significant rejection rates when transactions are sent to MoF for processing. - The MoF’s own procedures to validate transactions, while considered burdensome by many M&As, appears to be effective, based on the rejection rates. - High rejection rates are symptomatic of a lack of widespread understanding or respect—at the line ministry level—of the PFM Act, the PPC Act, and associated regulations. ### PFM reform strategy responses - Actions envisaged to address internal control weaknesses: - (a) emphasis on further awareness building and training on the PFM legal framework; - (b) establishment of the internal audit function (see indicator PI–21); - (c) rollout of the IFMIS to M&As expected to help strengthen their budget execution management and transaction processing; - (d) strengthening of oversight functions, including closer scrutiny of audit reports by the legislature and follow up of audit recommendations. ### PI–21. Effectiveness of internal audit — assessment and dimensions - Indicator dimensions: (i) coverage and quality of internal audit; (ii) frequency and distribution of reports; (iii) extent of management response to internal audit findings. - PI–21 : 2012 Assessment (scoring methodology M1) — Dimension Ratings - Score 2007 / Score 2012: - (i) Internal audit is recently operational for at least the most important central government entities and has initiated some systems review (at least 20 percent of staff time), but may not yet meet recognized professional standards - D / D+ / C / D+ - (ii) Reports are either non-existent or very irregular - D / D - (iii) A fair degree of action taken by many managers on major issues but often with delay - C / C ### Internal Audit Secretariat (IAS) status and plans - The IAS is less than six months old; the Internal Audit Oversight Board not yet fully constituted in line with the Internal Audit Strategy adopted in 2010. - IAS staffing and deployment: - Headed by an executive director assisted by a deputy and a small core staff. - Professional staff currently consists of director and deputy director of internal audit placed in each of eight (8) critical pilot ministries: Finance; Health; Education; Public Works; Lands, Mines and Energy; Agriculture; Internal Affairs; and Foreign Affairs. - The eight director/deputy director teams are being assigned qualifying staff from existing ministry internal audit units. - Directors/deputy directors remain part of the IAS and will be rotated across the ministries every six months. - Methodology and output: - IAS intends to apply internal audit methodology in line with International Internal Audit Standards and the Institute of Internal Auditors guidelines. - Elements of risk-based planning and execution are present in IAS documents. - Newly established IAS internal audit units have yet to produce substantive reports; available reports are limited to pre-IAS investigative/transaction-based work. - New IAS units required to produce regular (quarterly) reports to be shared with key stakeholders including the MoF and the GAC. - IAS is producing annual audit plans and tailored audit programs; follow-up includes seventy six (76) internal control issues identified by the GAC in 2010. - Ministry-specific Audit Committees are being established to monitor management implementation of audit recommendations. - Progress assessment: - Poor performance recorded in 2007 has so far improved only marginally in the 2012 assessment, attributed to slow implementation of the 2009 PFM Law and Regulations and the Internal Audit Strategy, particularly appropriate staffing. - Plans: increase pilot ministries serviced by the IAS to 15 by July 1, 2012, with full coverage across the rest of government by 2015. - Important to assimilate staff from existing internal audit and related units into the IAS to avoid duplication with the MoF’s Physical Audit Unit and GAC continuous audit initiative in the MoF. ### E. Accounting, Recording, and Reporting — PI–22 Timeliness and regularity of accounts reconciliation - PI–22 assesses two dimensions: (i) bank reconciliations; (ii) reconciliation and clearance of suspense accounts and advances. - PI–22 : 2012 Assessment (scoring method M2) — Dimension ratings: - Score 2007 / Score 2012: - (i) Bank reconciliation for all centrally managed bank accounts now take place at least monthly at aggregate and detailed levels, usually within four weeks of the end of the period - D / D / B / C - (ii) Suspense accounts are not common and no staff advances were given. However, monthly cash advances are made to M&As and immediately expensed in the books of the Treasury with no subsequent reconciliations or adjustments - D / D ### Bank reconciliation practices and issues - Revenue bank accounts are reconciled on a daily basis; reconciliations performed by the Data Capture and Reconciliation Unit (DCRU) in the Revenue Department between TAS and bank statements. - DCRU reconciliations are not approved by a senior official supervising that Unit, yet reconciled TAS revenue figures are being used for reporting. - The GoL’s two main expenditure bank accounts and LRD payroll bank account are reconciled monthly and signed off by the CAG; these three accounts are held at the CBL. - Payroll reconciliation process: - Requires uploading payroll records into Excel from GAPS and reconciling Excel against bank statement entries. - Complicated by large number of unpresented checks each month, including stale checks requiring reversals. - Progress toward direct payments to employee bank accounts has simplified payroll reconciliation and significantly improved timeliness of LRD account bank reconciliation. - IFMIS integration and limitations: - Bank reconciliations not yet fully operational on IFMIS. - Revenue information not directly uploaded into IFMIS due to coding differences affecting particularly non-tax revenues (currently being addressed). - On expenditure side, operations accounts reconciled using IFMIS bank reconciliation facility but experience teething problems (e.g., occasional difficulties in uploading bank statements). - Long delays in posting bank charges and commissions into IFMIS mean reconciled information in IFMIS is not always up to date. - Payroll is not yet operational on IFMIS; its bank reconciliation facility cannot yet handle the payroll account. - Departmental and project accounts: - M&As operate some 210 departmental bank accounts at the CBL, and an unknown number in commercial banks (some in USD, others in LRD). - Departmental bank accounts for M&As are not under CAG control nor are flows captured in central government financial records. CAG has access on demand to balances in departmental bank accounts held at the CBL. - Number and balances of departmental accounts in commercial banks are not known to the CAG. - Many are externally-funded project accounts outside the budget, treasury’s cash control, and government accounting and reporting processes; reconciliation generally done by project implementation units or the Project Financial Management Unit of the MoF. - Suspense accounts and staff advances: - There are no suspense accounts maintained in the general ledger for central government, and there is no system of staff advances. ### Monthly cash transfers to M&As (treated as advances) - Regular monthly transfers to M&As for operational purposes should be treated as accountable “advances” instead of being expensed as final payments by the treasury. - These treasury “advances” account for approximately 15 percent of the national budget. - MoF requires justification and submission of acquittal supporting documents for previous advances before processing subsequent advances, but justifications are not used for accounting purposes—used only to review use of funds against purposes of advances. - No proper accounting and reconciliation of advances given to M&As in the accounting system; balances in departmental bank accounts are neither captured nor reconciled in the books of the Treasury. ### PI–22 progress and reform implications - Improvements since 2007 largely due to more effective bank reconciliation operations in the CAG and the DoR. - Situation regarding accounting the monthly cash advances to M&As remains unchanged. - PFM reform strategy/action plan could address: - Extension of bank account reconciliation to all government bank accounts. - Accounting for monthly cash transfers to M&As. - Roll out of IFMIS to M&As to facilitate bank reconciliation of accounts managed by them and eliminate need for monthly cash advances. - Introduction of the treasury single account approach to progressively strengthen the CAG’s oversight of all government bank accounts. ### PI–23. Availability of information on resources received by service delivery units - Indicator focus: extent to which information is collected/processed that demonstrates resources (cash and kind) actually received by front line service delivery units (primary schools and primary health clinics). - PI.23: 2012 Assessment (scoring method M1) - 2007 Score / 2012 Score: - No comprehensive data collection on resources to service delivery units in any major sector has been collected and processed within the last 3 years - D / D - Current situation: - Information on resources available to service delivery units not systematically tracked anywhere in the GoL. - There are just under 2,300 primary schools and over 450 health facilities in Liberia. - MoF and relevant ministries do not systematically track spending at individual service delivery units, nor undertake periodic surveys to determine whether allocated resources reach intended frontline units. - Service delivery units do not generally report their spending; where they do it is generally not consolidated. - Accounting system is not equipped to provide such information. - “Monitoring and Evaluation” teams follow up on performance of agreed activities, but no evidence that beneficiary units keep track of what they receive or that such information is compiled centrally. - Schools and health centers receive significant funds from donor-funded NGOs and charitable organizations; such information is neither tracked nor systematically recorded. - Where operating costs are funded through the budget, purchases are usually made centrally and distributed in kind to units; small funds for operations and maintenance are also transferred to certain schools and clinics. - No independent tracking exercises in past three years; no PETS currently in budget though preliminary discussions with ODI/BSI to initiate a PETS in the coming year. - No change in this indicator since 2007; current PFM priorities unlikely to significantly impact performance against this indicator. IFMIS not currently designed to capture detailed performance by service delivery units. ### PI–24. Quality and timeliness of in-year budget reports - Indicator dimensions: (i) scope of reports (coverage and compatibility with budget estimates); (ii) timeliness of issue of reports; (iii) quality of information included in reports. - PI–24 : 2012 Assessment (scoring method M1) — Dimension ratings: - 2007 Score / 2012 Score: - (i) In-year budget execution reports are generally produced at aggregate level both by administrative and economic classifications, covering both commitments and cash expenditure compared to the original as well as adjusted annual budgets - C / C / B / D+ - (ii) Reports are required by law to be prepared quarterly, but they are not always issued and rarely published within 8 weeks of end of quarter - C / D - (iii) Concerns about data accuracy arising from unreconciled monthly advances to M&As and exclusion of the bulk of externally-funded expenditures. The reports are nevertheless considered to be useful - C / C ### In-year and end-year reporting practice and timeliness - In-year and end-year fiscal outturn reports at relatively aggregated level showing both commitment and payment data are posted on the MoF’s website; reports provide comparison between budget and actual spending at aggregate level only, summarized separately by M&A and by economic classifications. - Reports show original budget, adjusted budget, allotments, commitments, and actual spending, with graphical and narrative material. - Section 36 (4) of the PFM Act of 2009 requires the Minister of Finance to produce a consolidated quarterly report within 45 days of the end of each quarter, comparing budget execution to the annual budget estimates. - Publication of in-year and end-year reports is sporadic and untimely. Timeliness table (selected entries) — Fiscal outturn reports / PFM Act due date* / Date posted on MoF website / Actual delay after quarter end: - FY2008/09 — Mid-year review / February 2, 2009 / 5 weeks - FY2008/09 — Annual fiscal outturn / November 5, 2009 / 17 weeks - FY2009/10 — First quarter / November 15, 2009 / November 13, 2009 / 6 weeks - FY2009/10 — Annual fiscal outturn / November 1, 2010 / December 19, 2010 / 24 weeks - FY2010/11 — Mid-year review / February 14, 2011 / March 23, 2011 / 12 weeks - FY2010/11 — Third quarter fiscal outturn / May 15, 2011 / June 23, 2011 / 12 weeks - FY2010/11 — Annual fiscal outturn / November 14, 2011 / January 30, 2012 / 30 weeks - *The PFM Act 2009 provides up to 45 days for consolidated reports after end of quarter, sets mid-February as the deadline to submit the mid-year review to the legislature, and provides 4 months for the MoF to submit a final account to the Auditor General. - Coverage limitations: - Fiscal outturn reports are limited to transactions processed centrally by the MoF through the main treasury accounts. - Reports include monthly cash transfers (‘advances’) made to M&As (generally expensed at time advances are issued) but do not include actual spending by M&As against those advances. - Advances are generally neither properly reconciled nor captured in the accounts before new advances are issued. - Reports fail to reflect the consolidated cash position of government, covering only transactions processed through the main treasury bank accounts held at the CBL and transitory bank accounts in commercial banks for revenue collection. *Italic line: Source: _cr12273 - 177. In summary, while commitment controls have been effective under the cash* ### 205. Project-related externally-funded expenditures are also mostly excluded from ### _cr12273 - 205. Project-related externally-funded expenditures are also mostly excluded from ### Project-related externally-funded expenditures and budget coverage - Project-related externally-funded expenditures are mostly excluded from the fiscal outturn reports. - Externally-funded project expenditures therefore remain excluded from the budgetary process, despite significant portions being executed using bank accounts under the control of M&As and through PIUs located at their level. ### IFMIS, quarterly fiscal reporting, and bank reconciliation - Quarterly fiscal reports were not being generated from the IFMIS system at the time of the assessment; they were compiled from statements received from different departments. - Statements of revenue, expenditure and budget allocations received respectively from the Departments of Revenue, Expenditure, and Budget of the MoF are consolidated into quarterly fiscal reports by MFAU and published on the MoF website. - Reliability issues: - For the period FY2008/09 to FY2010/11 reconciliation problems undermined the reliability of fiscal reports. - Revenue data for FY2010/11 are considered reliable because reconciliation of the revenue bank accounts was being effectively carried out by the DCRU of the DoR. - Expenditure data for the same period could not be viewed with the same confidence due to significant delays in carrying out bank reconciliations (this has considerably improved since then—see PI–22). - For FY2008/09 and FY2009/10 the GAC reports significant data accuracy concerns over the financial records of these two years. - Assessment finding: performance recorded in 2007 deteriorated in 2012 mainly because of timeliness issues—substantial delays in publication of fiscal outturn reports where published; concerns over coverage, level of detail and quality of data continue. - Reform expectation: improved quality and coverage of in-year budget information will depend on effective use of IFMIS for financial recording and reporting, and effective bank reconciliation under IFMIS. ### PI–25: Quality and timeliness of annual financial statements — indicator dimensions and assessment - Indicator dimensions: (i) completeness of financial statements; (ii) timeliness of submission; (iii) accounting standards used. - PI–25 : 2012 Assessment (Scoring method M1) — Dimension ratings (as presented) - 2007 Score 2012 Score - (i) A set of financial statements was prepared for FY2009/10 with information on revenue, expenditure and bank balances, but excluding extra-budgetary and most donor information - D D C D+ - (ii) The financial statements were submitted for external audit 17 months after the end of the FY2009/10, and the statements for FY2010/11 have not yet been submitted - NS D - (iii) IPSAS Cash Basis and national PFM requirements were not fully complied with - NS D - Key facts and chronology: - The GoL adopted a cash basis IPSAS standard in 2009 for annual financial statements, but this has not yet been fully complied with. - Cash basis IPSAS prescribes presentation of general purpose financial statements containing a statement of cash receipts and payments which (i) recognizes all cash receipts, cash payments and cash balances controlled by government and (ii) separately identifies payments made by third parties on behalf of government; it also promotes comparison of budget and actual amounts. - The CAG prepared a set of central government consolidated financial statements for FY2009/10 as required under the PFM Act and the adopted cash basis IPSAS standard; however these were submitted 17 months after the end of the fiscal year (well outside the 4 months required in the Act). - Annual financial statements for FY2010/11 had still not been submitted to the Auditor General at the time of the assessment, i.e., 10 months after year-end. - Coverage and compliance shortcomings of FY2009/10 financial statements: - Included correctly: (i) a cash flow statement analyzed by economic classification; (ii) notes on accounting policies; and (iii) comparison with the approved budget. - Excluded: financial information on externally-funded projects (cash basis IPSAS specifically requires information on externally-funded project expenditures and corresponding grant and/or loan receipts). - Captured only transactions of the five main treasury bank accounts held at the CBL, excluding numerous departmental bank accounts held by M&As. - Failed to fully comply with the PFM Act and regulations: (a) information on public debt provided only in aggregate form; (b) no information on equity investments, securities, advances, public loans, and similar holdings of government. - Reform expectations: - Introduction and roll out of IFMIS and effective use of its bank reconciliation facility should improve timeliness, comprehensiveness, and reliability of financial statements. - Need for regular, sustained, and timely preparation of financial statements. - Further efforts required on coverage issues, particularly donor-funded project-related expenditure, to fully comply with the adopted cash basis IPSAS standard. ### PI–26: Scope, nature, and follow-up of external audit — indicator dimensions and assessment - Indicator dimensions: (i) scope and nature of the audit performed annually (including adherence to auditing standards); (ii) timeliness of annual submission of audit reports to the legislature; (iii) evidence of follow-up on audit recommendations. - PI–26 : 2012 Assessment (scoring method M1) — Dimension ratings (as presented) - 2007 Score 2012 Score - (i) Central government entities representing over 75% of total expenditures are audited annually. Audits predominantly comprise transaction level testing, but reports also identify significant issues - D D C D+ - (ii) The GAC’s Consolidated Fund reports are submitted to the legislature within twelve months from its receipt of the consolidated financial statements - D C - (iii) There is little evidence of response or follow up to audit recommendations - D D - Key findings and facts: - Since 2005 the GAC operates as an independent body reporting to the legislature; amendments in 2005 changed tenure and financing arrangements (tenure reduced to 4 years). - Financial statements for the year ended June 30, 2011 had not been submitted to the Auditor General at the time of the assessment. - For FY2009/10 the CAG initially did not submit consolidated financial statements as required but compiled and submitted the fiscal outturn report for FY2009/10 on February 28, 2011 (8 months after fiscal year end); IPSAS cash-based financial statements were presented to the Auditor General in November 2011 after audit fieldwork had been completed. - The GAC undertook transactional audits of all central government M&As for FY2009/10; the fiscal outturn report was deficient in information on assets, liabilities and fund balances, so audit was limited to verifying revenues and expenditures. - Audit findings: - Seven M&As were unable to provide confirmation statements. - Where M&As provided statements, significant and unexplained deviations from the CAG’s report were noted. - The CAG reported unsupported expenditure in excess of USD10,105,000 for FY2010. - Audit coverage of central government entities amounted to more than 75 percent of total expenditures in FY2011. - The GAC adopted auditing standards consistent with International Organization for Supreme Audit Institutions directives; audit approach is risk-based and includes review of systems and management controls as deemed necessary. - The Auditor General submitted his report to the President and the legislature on February 13, 2012 (just under 12 months after presentation of the fiscal outturn report to the GAC). - The GAC audit report includes Auditor General recommendations and occasionally a response by the MoF; there are no agreed follow-up actions listed for each recommendation. - Follow-up of audit recommendations is now one of the responsibilities assigned to the new IAS internal auditors in the MoF and other pilot M&As. - Assessment conclusion: - Audit coverage has significantly improved since 2007 but timeliness of the annual audit and follow-up of audit recommendations remain significant challenges. - Causes of delay: time taken for CAG to finalize and submit annual fiscal outturn reports and consolidated accounts; audited entities’ management failing to provide requested information timely. - Reform impact: IFMIS implementation should produce more reliable financial statements for FY2012/13; GAC capacity improvements and fully operational IAS are expected to improve audit quality, coverage, and follow-up. ### PI–27: Legislative scrutiny of the annual budget law - Indicator dimensions: (i) scope of legislature’s scrutiny; (ii) procedures well-established and respected; (iii) adequacy of time allowed for review; (iv) rules for in-year amendments. - PI–27 : 2011 Assessment (scoring method M1) — Dimension scores (as presented) - Score 2007 Score 2012 - (i) The legislature’s review covers fiscal policies and aggregates for the coming year as well as detailed estimates but does not include a review of medium-term policies and the medium-term fiscal framework - C C+ B C+ - (ii) Procedures for the legislature’s budget review are comprehensive and well-established but only partially respected - C C - (iii) The legislature has at least two working months to review the budget proposals - B A - (iv) Clear rules exist for in-year budget amendments by the Executive and are usually respected, but they allow extensive administrative reallocations - B B - Key facts: - Legislative review focuses on detailed annual proposals and fiscal aggregates but does not evidence detailed discussion of medium-term forecasts or medium-term policy priorities. - LBO established in late 2010 provided support to scrutiny of the 2011/12 budget proposals (Director and three technical experts covering macroeconomic, expenditure and revenue issues). - Legislative review process: initial review by joint Ways and Means Committee, then joint plenary session of House and Senate; procedures are well-established but not always respected—budget adoption has been delayed well beyond the start of the fiscal year (July 1) for three successive years. - The legislature is provided two months to review the budget proposals as per PFM Act 2009; budget estimates for the last two completed fiscal years were submitted by April 30 as required, though delays occurred for 2012/13 related to change of administration. - In-year amendment rules (PFM legislation and Financial Management Regulations 2009:Part E, Section E8): - Supplementary appropriation required for any expenditure not previously appropriated. - Powers to approve reallocations vested in the office of the Deputy Minister Budget. - Restrictions: virements to/from personnel emoluments subject to approval by the CSA; no reallocation may increase amounts for foreign travel or purchase of vehicles; no reallocation may increase agency budget except donor-funded expenditure where increases up to 20 percent are permitted (beyond which MoF and donor approvals required). - Reallocations between programs within the same agency may not exceed 10 percent. - Virements within an agency program’s goods and services or capital expenditures may be made without limitation. - Inter-agency reallocations are not permitted. - Practice: virement rules usually respected but recent years saw extensive administrative re-allocations through in-year reallocations; evidence from PI–2 shows budgetary reallocations contributed to variance in expenditure composition of more than 15 percent in each of the past 3 fiscal years. ### PI–28: Legislative scrutiny of External Audit reports - Indicator dimensions: (i) timeliness of examination of external audit reports by the legislature; (ii) extent of hearings on key findings; (iii) extent of issuance of recommended actions by the legislature and implementation by the executive. - PI–28 : 2012 Assessment (scoring method M1) — Dimension scores (as presented) - 2007 Score 2012 Score - (i) Examination of audit reports by the legislature does not take place - NO SCORE D D - (ii) No in-depth hearings are conducted by the legislature - D - (iii) No recommendations have been issued by the legislature - D *Source: _cr12273 - 205. Project-related externally-funded expenditures are also mostly excluded from* ### 234. The Public Accounts and Audit Committee (PAAC) of the legislature has met ### _cr12273 - 234. The Public Accounts and Audit Committee (PAAC) of the legislature has met ### Legislative scrutiny and external audit (PAAC / GAC) - Findings: - The Public Accounts and Audit Committee (PAAC) of the legislature has met only twice and has not yet reviewed any of the audit reports issued by the GAC over the past three years. - The GAC has issued 72 audit reports since its inception, and none of them have been formally reviewed by the PAACs. - Reasons provided for the lack of reviews include: - the absence of a ‘secretariat’ for the relevant committee in the legislature; - limited capacity and time as regards the specific committee members; - the length and complexity of the audit reports presented by the GAC. - Good practice and consequences: - Good practice requires that the legislature reviews Auditor General reports, hold hearings with responsible officers, agree actionable recommendations, and require follow up on implementation. - Although legislative scrutiny of external audit reports was technically re-established since 2007, in practice PAACs have not met to discuss the audit reports. - The lack of action discourages auditors, who remain powerless to enforce recommendations or impose penalties on non-implementers. - Reform actions and recommendations: - Fulfillment of existing statutory roles should significantly improve government performance against this indicator in the short and medium term. - The PFM reform strategy recognizes the importance of external oversight and provides for support to the legislature to strengthen scrutiny of the budget and review of audit reports. - Possible measures to improve effectiveness: - Merge the two PAACs into a single joint committee (as with the Ways and Means Committee) to make better use of limited capacities and legislative time. - The GAC could simplify its reports and recommendations and assist the PAACs, following practices that work satisfactorily in neighboring countries. *Italic: Source: _cr12273 - 234.* ### Donor practices — Predictability of direct budget support (D–1) - Indicator dimensions assessed: - (i) Deviation of annual budget support disbursements from donor forecasts provided at least six weeks prior to submission of the government’s budget proposal. - (ii) In-year timeliness of donor disbursements by quarter. - Historical context: - The indicator was not assessed in 2007 because the GoL was not then receiving regular budget support. - 2012 assessment (scoring method M1) — dimension outcomes: - (i) In two of the last three fiscal years budget support disbursements fell short of the forecast by more than 15 percent — SCORE D - (ii) There are significant delays in in-year timeliness of donor disbursements — SCORE D - Donor involvement and share: - General budget support provided from FY2009/10 onwards by the World Bank, the African Development Bank, and the European Union. - Estimates included as Annex 1 of the FY2010/11 budget suggest budget support amounted to approximately 14 percent of official development assistance, while program and project aid represented approximately 86 percent. - Annual deviations (Table 15 summary — Estimated versus Actual, in USD): - FY2009/10 - Budgeted: 10,980,65658,500,00041,630,000 - Actual: 12,590,39438,980,20026,725,358 - Difference: 1,609,738(19,519,800)(14,902,642) - Percent change: +15-33-36 - Narrative clarification: - In FY2009/10 actual budget support came in at 15 percent above the estimated amount. - In FY2010/11 actual came 33 percent below estimate. - In FY2011/12 actual came 36 percent below estimate. - As budget support fell short by more than 15 percent in two out of three fiscal years, dimension (i) scores D. - Poor predictability of budget support inflows has significantly impacted GoL fiscal operations. - Quarterly timeliness and coordination: - Quarterly disbursement schedules for budget support have yet to be agreed with donors. - Aid inflows have generally lagged scheduled disbursements due to delays meeting agreed conditionalities and late submission of disbursement requests by GoL. - No arrangements currently in place for coordinating the management of budget support; with only three providers, establishing such arrangements should be feasible. - GoL lacks an explicit strategy on budget support; creation of a strategy and coordination framework is recommended, based on coordinated work between the AMU and the MFAU. - Footnotes and methodological notes: - The IMF’s three-year Extended Credit Facility for Liberia was for balance of payments purposes and is not considered budget support. - Data on FY2011/12 included though assessment period had not concluded because AMU and donors confirmed no further budget support disbursements would occur within FY2011/12. *Italic: Source: _cr12273 - 234.* ### Donor practices — Financial information for budgeting and reporting on project and program aid (D–2) - Indicator dimensions: - (i) Completeness and timeliness of budget estimates by donors for project support. - (ii) Frequency and coverage of donor reporting to MoF on actual flows for project support. - 2012 assessment (scoring method M1) — dimension outcomes: - (i) Most donors provide budget estimates of anticipated disbursements of project aid at least 3 months in advance — SCORE D (2007) → SCORE C (dimension unspecified) → SCORE D+ (2012) — (table shows mixed presentation; final 2012 dimension score listed as D+ in summary table) - (ii) Few donors provide regular reports to MoF on actual disbursements — SCORE D (both 2007 and 2012) - Findings: - Larger donors discuss and disclose commitments and projected annual disbursements within financing agreements and respond to AMU solicitations. Larger donors include World Bank, United Nations, United States, African Development Bank and European Union. - Since 2009, AMU requests and obtains inputs on projected annual disbursements by project from most donors; estimates are generally timely and included as an annex to the annual budget. - Donors do not break down estimates in a manner consistent with the government’s budget classification, partly due to lack of clear requirements and guidelines. - Most donors do not provide quarterly project expenditure reports to the government regularly. - Project Financing Agreements generally do not require quarterly reports to the GoL. - Agreed financial reporting formats cater to donor needs and are often inconsistent with GoL’s chart of accounts and quarterly in-year fiscal outturn reporting. - With the exception of the MoF’s Project Financial Management Unit (which generates periodic financial reports for World Bank, African Development Bank, and European Union financed projects under its purview), donors do not submit quarterly financial reports to the government. - Quarterly fiscal outturn reports largely exclude donor-financed projects; given the size of donor-financed project portfolio, excluding these outturns means a significant portion of fiscal operations goes unreported. - Assessment and recommendations: - Financial information provided by donors for budgeting and reporting has not improved significantly since 2007. - Weak donor management within the GoL and unsatisfactory donor cooperation in providing essential data are primary causes. - Poor donor reporting quality poses a major challenge to sectoral planning and the macro-fiscal framework. - GoL needs to provide clearer requirements and guidelines so donors submit project budget estimates following the GoL chart of accounts and on the government budget preparation calendar. - PFM reform strategy actions: - MTEF introduction to include donor-funded spending and provide a common framework for coordination of aid information. - Strengthening the AMU and its role in the budget process is envisaged. *Italic: Source: _cr12273 - 234.* ### Donor practices — Proportion of aid managed by national procedures (D–3) - Indicator focus: - Measures proportion of aid managed by national procedures across modalities: budget support, program aid, sector-wide approaches, and project support; assesses use of national procedures for banking and disbursement, accounting and reporting, procurement and external audit. - 2012 assessment (scoring method M1): - Less than 50 percent of aid funds to central government are managed through national procedures — SCORE D (2007 and 2012) - Findings: - Bulk of donor-funded expenditures are managed outside GoL budgetary processes. - Most donors implement projects through PIUs embedded in M&As or use MoF’s Project Financial Management Unit for disbursement and reporting; treasury, financial reporting, auditing and procurement arrangements for donor projects are often parallel to country systems. - Combining budget support with an estimate of GoL-executed projects, estimated proportion of aid flows utilizing national procedures remains below 50 percent. - Approximate estimates (Table 16 — Approximate Estimate of GoL-Executed Aid Flows, USD millions): - FY2009/10 - a. GoL executed projects (budget): 69.316.4 23.77.1 90.9 35.9 - b. Non-GoL executed projects (budget): 340.383.1268.780.9 135.8 53.6 - c. Budget support (actual: 100% GoL executed): 12.63.0 39.011.7 26.7 10.5 - Estimated GoL executed aid flows (a + c): 81.919.4 62.718.8 117.6 46.4 - Estimated total aid flows (a+b+c): 422.2332.3 253.4 - Notes: - The basis for categorizing certain projects as “GoL-executed” is not clear, as the same budget documents indicate these projects are not subject to appropriation in the enacted budget and are not executed through the Consolidated Fund. - Even using this categorization, less than 50 percent of projects or programs financed by donors use government systems. *Italic: Source: _cr12273 - 234.* ### Implications of the PEFA assessment for PFM reforms — current arrangements and strategy - PFM reform strategy and financing: - In 2011, GoL adopted a four-year PFM reform strategy and action plan covering 2011 to 2014 with six themes and objectives: - Improving budget credibility - Expanding budget coverage and strengthening budget execution - Strengthening revenue administration - Enhancing transparency and accountability in PFM - Enhancing controls and respect of the PFM legal framework - Strengthening treasury management - Action plans identify specific activities, responsible departments/units, and cross-cutting activities (PFM capacity building, IFMIS, effective oversight). - The PFM reform strategy has been endorsed by donors; additional financing package amounting to USD28.55 million provided by Sida, World Bank, African Development Bank, and USAID. - Footnote: The World Bank contribution is a credit of USD5 million. - Other financing for PFM reform activities under individual ongoing projects: World Bank EGIRP and (with Sida) IFMIS; USAID governance and economic management; African Development Bank MoF capacity building; FAD (Sida/European Union, Japan, and others funds) PFM reforms, MTEF, and revenue administration; and ODI/BSI MTEF and budget preparation. - Monitoring and management: - A monitoring and evaluation framework using PEFA indicators has been adopted; periodic reports and a mid-term external evaluation are envisaged. - PFM reforms operational manual defines roles: - Executive oversight: PFM Steering Committee, chaired by Minister of Finance, meets four times a year; attendees include several ministers, heads of CSA and PPCC, Auditor General, with two sessions also attended by donors. - Technical oversight: PFM Technical Committee, chaired by a Deputy Minister, meets monthly and includes theme/component managers. - Coordination: Reform Coordination Unit to oversee coordination, consolidate work plans and budgets, liaise with donors, and provide administrative support. - Operational: Theme leads and component managers (generally department heads) accountable for operational oversight and results. *Italic: Source: _cr12273 - 234.* ### Implications for specific PFM reform themes (selected highlights) - Theme 1 — Credible budget: - PEFA indicators (PI–1 to PI–3 scores D, D+, and D) justify activities to improve M&A budget costing, provide greater policy guidance to M&As, enhance revenue forecasting and policy analysis capacity, and transition to an MTEF. - Indicator PI–11 scored overall B but dimension (iii) scored D for timely budget adoption; recommendations include earlier submission of BFP and timely submission of documentation by government. - Indicator PI–12 assessed C+ for multi-year perspective; ongoing MTEF introduction and development of sector strategies and public investment planning and appraisal are targeted. - Theme 2 — Budget coverage and execution: - Indicator PI–7 dimension (ii) score of D reconfirms most donor-funded projects remain outside government planning and budgeting and justifies priority actions to bring such spending into government processes (a medium-term task). - Indicator PI–3 confirms weak results in collection of non-tax revenues; recommended starting with a survey of non-tax revenues and potential, with attention to possible decentralization implications. - Indicator PI–9 highlights fiscal risks from lack of reporting by autonomous agencies and funds. - Theme 3 — Revenue mobilization: - Objective: improve efficiency and integrity of revenue administration and increase revenue resources (further detail in subsequent sections of the source document). *Italic: Source: _cr12273 - 234.* ### 257. Indicators PI–13 to PI–15 confirm the good progress already made in the area of ### _cr12273 - 257. Indicators PI–13 to PI–15 confirm the good progress already made in the area of ### Revenue administration: progress and planned actions - Indicators PI–13 to PI–15 confirm good progress in revenue administration evidenced by strong tax revenue performance over the last few years and rapid expansion of resources for critical spending programs. - PFM reform strategy objectives: - further strengthen revenue administration; - enhance integrity of revenue functions; - establish an autonomous revenue agency. - Tax policy direction: - guided by the regional ECOWAS initiative to introduce VAT, replacing the current GST. - Expected impact: - VAT and other reforms “will contribute only marginal improvements in the PEFA scores under indicators PI–13 to PI–15,” but “their contribution to budgetary resources should continue to be significant in the coming years.” ### Theme 4 — Enhanced transparency and accountability in PFM - Goal: “to improve transparency and accountability in PFM by increasing the government’s ability to report and account for the revenues it collects and for public expenditures, and to strengthen the GAC and the legislature, enabling them to better execute their oversight role as assigned under the Liberian Constitution and the PFM Act.” - Findings from PEFA indicators: - weak results indicate further reform needed in reporting, monitoring, and oversight. - PI–27 (legislative scrutiny of the annual budget law) scored C+. - PI–28 (legislative scrutiny of external audit reports) scored D. - PI–24 (in-year reporting) scored D+. - PI–25 (annual reporting) scored D. - PI–26 (timely external audits) scored C (limited coverage and follow up). - PI–9 (oversight of SOEs) scored D. - Planned reforms and priorities: - Strengthening legislative oversight: - develop an effective Legislative Budget Office (LBO) to provide technical support to members of the legislature; - ensure timely legislative scrutiny and adoption of the budget; - ensure government’s audited accounts are properly scrutinized with time-bound follow-up actions. - Timely and comprehensive reporting: implement reforms to address PI–24 and PI–25 weaknesses. - Timely external audits: focus on coverage and follow up consistent with PI–26 score C. - Oversight of SOEs: establish a Ministry of Finance (MoF) unit to gather and consolidate in-year and annual financial reports from SOEs, as required under the PFM Act. ### Theme 5 — Enhanced controls and respect of the PFM legal framework - Objective: “to strengthen the implementation of the regulatory framework and to implement sanctions for non-compliance.” - Context and findings: - No new arrears accumulation (see PI–4), but several PEFA indicators show need for further action. - Indicator scores noted: - PI–16 (predictability of funds) score C. - PI–18 (payroll controls) score C. - PI–20 (controls for non-salary expenditure) score C+. - PI–21 (internal audit) score D+. - PI–19 (procurement) score C, reflecting legislative improvement but capacity constraints. - Planned reforms and priorities: - Expenditure controls and internal audit: - enhance controls in ministries and agencies (M&As); - provide supporting manuals; - implement the internal audit strategy. - Procurement: develop capacity required to implement recent legislative improvements. - Establish an effective sanctions regime to address non-compliance with legal framework provisions. - Continue capacity building and sensitization on roles, responsibilities, and legal provisions. ### Theme 6 — Treasury management - Objective: “to continue efforts to strengthen the treasury management function at MoF and in all ministries, agencies, and counties in order to increase efficiency in its services, enhance the value of its financial resources, limit idle cash, and minimize financial waste and losses.” - Findings: - MoF’s cash management track record has served government well, but recent slippages include expansion of bank accounts and cash balances outside treasury control (see PI–17). - Need to shift from current cash budgeting to an enhanced cash management framework as borrowing restarts and treasury bills market is re-established. - Related indicator scores: - PI–16 score C (predictability in availability of funds — justifies better cash flow planning). - PI–17 (idle balances outside treasury control) flagged as a problem. - PI–22 (accounts reconciliation difficulties) noted. - Planned reforms and priorities: - Strengthening cash flow planning: introduce a more effective cash flow planning system to deliver resources when required. - Enhanced control over banking arrangements: re-establish treasury control over bank accounts, including establishment of a treasury single account approach as required under the PFM Act. - Strengthened debt and liquidity management: prepare the Debt Management Unit (DMU) to handle treasury bills market debt management and a growing number of new longer term loans and guarantees. - Establishing county treasuries: anticipate decentralization needs and growing county transactions by establishing county treasuries under MoF supervision. ### Cross-cutting activities - Two cross-cutting activities that serve multiple themes: - Development and rollout of the IFMIS. - Implementation of systematic capacity building programs in planning, budgeting, procurement, accounting, and audit. ### Summary and next steps - The PFM reform strategy generally addresses the shortcomings identified in the PEFA assessment. - Expected adjustments: refinements, prioritization, absorptive capacity considerations, and sequencing. - Suggested short-term action: MoF could envisage a light review of the current strategy and action plan in the coming months as part of absorption and ownership of the PEFA assessment. *Source: Excerpt from the PFM reform strategy and PEFA assessment (text provided).* ### 12. Ministry of Health ### 12. Ministry of Health ### Key staffing/contact - Toagoe T. Karzon — Financial Comptroller ### Ministry of Health & Welfare: budget and outturn (fiscal years shown in table) - Fiscal Year 2008/09: - Original budget: 15,128.9 - Actual Spending: 13,049.0 - Adjusted budget: 12,712.6 - Deviation: 336.4 - Absolute deviation: 336.4 - Deviation %: 2.2% - Fiscal Year 2009/10: - Original budget: 18,791.4 - Actual Spending: 14,020.3 - Adjusted budget: 15,160.3 - Deviation: -1,140.0 - Absolute deviation: 1,140.0 - Deviation %: 6.1% - Fiscal Year 2010/11: - Original budget: 24,855.4 - Actual Spending: 25,500.0 - Adjusted budget: 26,938.4 - Deviation: -1,438.4 - Absolute deviation: 1,438.4 - Deviation %: 5.8% ### Related health-sector entries shown in the same tables - JFK Medical Centre: - FY2008/09: Original budget 5,521.7; Actual Spending 5,150.5; Adjusted budget 4,639.8; Deviation 510.7; Absolute deviation 510.7; Deviation % 9.2% - FY2009/10: Original budget 6,000.0; Actual Spending 4,394.9; Adjusted budget 4,840.6; Deviation -445.7; Absolute deviation 445.7; Deviation % 7.4% - FY2010/11: Original budget 6,074.5; Actual Spending 6,600.0; Adjusted budget 6,583.6; Deviation 16.4; Absolute deviation 16.4; Deviation % 0.3% - PI–2 (i) and PI–2 (ii) and PI–1 results matrix shows composition and contingency variances relevant to sector allocations (see PI summary below). ### Aggregate budget execution and contingency (selected figures from tables) - Allocated expenditure (excl. debt), FY2008/09: - Original Appropriation: 281,225.8 - Actual Spending/Out-turn: 236,309.9 - Adjusted budget: 236,309.9 - Contingency share or other noted: 0.0 - Absolute deviation shown: 53,435.4 - Total Expenditure (excl. debt), FY2008/09: - Original Appropriation: 282,987.8 - Actual Spending/Out-turn: 237,321.6 - Adjusted budget: 329,047.1 - Contingency Reserve Fund (table): - FY2008/09: 1,762.0 (Original Appropriation); Actual Spending 1,011.7; Adjusted budget 2,000.0 - FY2009/10: Contingency Reserve Fund listed as 50.0 (in debt/calculation table) - Debt (US $ millions), selected: - FY2008/09: - External Debt (Original Appropriation): 2,200.0; Expenditure Out-turn: 812.4 - Domestic Debt: 12,900.0; Expenditure Out-turn: 10,616.4 - Total Debt (Interest & Principal): 15,100.0; Expenditure Out-turn: 11,428.8 - Total Expenditure (Core & Contingent): 298,087.8; Expenditure Out-turn: 246,852.5 - Total Expenditure less Debt: 282,987.8; Expenditure Out-turn: 235,423.7 - FY2009/10: - External Debt: 5,000.0; Expenditure Out-turn: 4,999.9 - Domestic Debt: 12,988.6; Expenditure Out-turn: 8,595.3 - Total Debt (Interest & Principal): 17,988.6; Expenditure Out-turn: 13,595.2 - Total Expenditure (Core & Contingent): 347,035.7; Expenditure Out-turn: 277,616.6 - Total Expenditure less Debt: 329,047.1; Expenditure Out-turn: 264,021.4 - FY2010/11: - External Debt: 7,972.0; Expenditure Out-turn: 6,200.0 - Domestic Debt: 18,080.0; Expenditure Out-turn: 6,400.0 - Total Debt (Interest & Principal): 26,052.0; Expenditure Out-turn: 12,600.0 - Total Expenditure (Core & Contingent): 369,379.0; Expenditure Out-turn: 384,700.0 - Total Expenditure less Debt: 343,327.0; Expenditure Out-turn: 372,100.0 ### PEFA indicator results (selection relevant to budget execution and contingency) - Overall (PI-1) variance (three-year figures shown): - 16.1% - 19.8% - 8.4% - Composition (PI-2) variance (three-year figures shown): - 22.6% - 19.2% - 16.3% - Contingency share of budget (three-year figures shown): - 0.4% - 0.1% - 0.0% - Results Matrix highlights (selected): - Total expenditure deviation: 8.4% - Composition variance: 23.7% (for PI-2 (i)) - Contingency share: 0.1% (for PI-2 (ii)) - Score for indicator PI-1: 16.8% (labelled in matrix) - PEFA summary comparisons (2007 vs 2012) include indicator assessments; examples: - PI–1: Aggregate expenditure outturn compared to original approved budget — 2007: B; 2012: D - PI–2 (i): Extent of variance in expenditure composition — 2007: D; 2012: D+ - PI–2 (ii): Average amount charged to contingency vote — 2007: A; 2012: A - PI–4 (i): Stock of expenditure payment arrears — 2007: D; 2012: B - PI–15 (i): Collection ratio for gross tax arrears — 2007: D; 2012: D+ - PI–17 (iii): Systems for contracting loans and issuance of guarantees — 2007: B; 2012: A *Source: _cr12273 - 12. Ministry of Health (excerpted tables and PEFA assessments from the provided PDF content)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12273.pdf_