Public Financial Management Reform Programme (PFMRP) Joint Supervision Mission AIDE MEMOIRE (REPORT) FINAL. 16 Sept 1 Oct 2013

Transcription

1 Public Financial Management Reform Programme (PFMRP) Joint Supervision Mission AIDE MEMOIRE (REPORT) FINAL 16 Sept 1 Oct Dec 2013

2 List of Acronyms (Not exhaustive) AccGen AFROSAI-E BoT CAG CPAD CSOs DAHRM DASIP DCF DEV DFIMS DGAM DPs EFT GBS GCU GDP GoT HCMIS IAS ICT IFMS IMF IPSAS ISSAI JAST KPA KRA LGA M&E MDAs MoF MoHSW MNRT MTEF MTSPBM NAO OC OI PAC Accountant General African Organisation of Supreme Audit Institutions English speaking Africa Bank of Tanzania Controller and Auditor General Commissioner for Policy Analysis Division Civil Society Organisations Division for Administration and Human Resource Management District Agricultural Sector Investment Programme Development Cooperation Framework Development Director of Financial Information Management Systems Director of Government Asset Management Development Partners Electronic Fund Transfer General Budget Support Government Communication Unit (MoF) Gross Domestic Product Government of Tanzania Human Capital Management Information System International Accounting Standards Information Communication & Technology Integrated Financial Management System International Monetary Fund International Public Sector Accounting Standards International Standards of Supreme Audit Institutions Joint Assistant Strategic Framework Key Policy Action Key Result Area Local Government Authority Monitoring and Evaluation Ministries, Departments and Agencies Ministry of Finance Ministry of Health and Social Welfare Ministry of Natural Resources and Tourism Medium Term Expenditure Framework Medium Term Strategic Planning and Budgeting Manual National Audit Office Other Charges Outcome Indicator Public Accounts Committee 2

3 PAF PBB PEFA PE PFA PFM PMIS PFMRP PMO- RALG PO-PC PO-PSM PPA PPRA RAs SP TISS TR TRA TWG VFM WB Performance Assessment Framework - General Budget Support Program Based Budgeting Public Expenditure and Financial Accountability Procuring Entities Public Finance Act Public Financial Management Procurement Management Information System Public Financial Management Reform Programme Prime Minister s Office - Regional Authorities and Local Government President s Office Planning Commission President's Office - Public Service Management Public Procurement Act Public Procurement Regulatory Authority Regional Administrative Secretariat Strategic Plan Tanzania Interbank Settlement System Treasury Registrar Tanzania Revenue Authority Technical Working Groups Value for Money World Bank 3

4 Table of Contents Table of Contents EXECUTIVE SUMMARY METHODOLOGY OVERVIEW OF PFM TRENDS IN MAINLAND TANZANIA KEY RESULTS AREAS STATUS REPORT KRA 1 - Revenue Management KRA 2 - Budgeting and planning KRA 3 - Budget Execution, Transparency and Accountability KRA 4 - Budget Control and Oversight KRA 5 - Change Management, Program Management and Communication PFM IN THE CONTEXT OF GBS CONCLUSION ANNEX A: PFMRP IV M&E FRAMEWORK SEPT 2013 UPDATE ANNEX B: CHANGES TO PFMRPIV MILESTONE MATRIX BASED ON PEFA 2013 FINDINGS ANNEX C: CHANGES TO PFMRPIV MILESTONE MATRIX FOLLOWING JOINT SUPERVISION MISSION ANNEX D: PENDING PRINCIPAL PFM LEGISLATIONS ANNEX E: TORS OF THE PFMRP JOINT SUPERVISION MISSION ANNEX F: MISSION PARTICIPATION FROM GOT (NOT EXHAUSTIVE) ANNEX G: Mission Participants From Development Partners ANNEX H: Final meeting schedule for 2013 Joint Supervision Mission ANNEX I: LGA EPICOR IMPLEMENTATION: ACHIEVEMENTS & CHALLENGES Snapshot Report

5 1. EXECUTIVE SUMMARY The 2 nd Joint Supervision Mission of Phase IV of the PFMRP was conducted from 16 Sept to 1 Oct 2013 and the Mission Team consisted of Government of Tanzania officials, members of the Development Partners PFM Group, and the PFM GoT and DPG Secretariats. PFMRP IV is the fourth phase of the Government of Tanzania`s PFM reform agenda and runs from July 2012 to June This report provides a comprehensive assessment of programme progress of the 12 months of implementation of PFMRPIV as well as identifies key priorities for the following years. The report feeds also into the annual GBS review via assessment of the PAF. Brief Update on PFM Trends in Tanzania Before outlining the progress on programme activities, a brief update on PFM trends in Tanzania is provided. This is based on the findings of the PEFA 2013 and various other official documents. The key highlights on PFM trends are provided below: Overall, there has been significant improvement in PFM systems in Tanzania over the last 4-5 years. Credibility of the budget, however, remains weak. While aggregate revenue out-turn performance of GoT shows an improving trend, aggregate expenditure out-turn has tended to fluctuate. The composition of expenditure out-turn presents a significant PFM weakness. On planning and budgeting, Tanzania performs at an above average level. While significant improvement has been made on orderliness and participation in the annual budget process including a new budget cycle from , there remain many areas of further improvement. Tanzania has made significant progress on revenue management recording significant increase in revenue mobilisation year after year, along with widening of the tax base. However, tax exemptions have continued to increase significantly. Several weaknesses persist in budget execution. High level of reallocations and lack of predictability in fund flow distort the execution of the budget. Accumulation of expenditure arrears in a cash constrained environment has also weakened internal controls. However, there has been significant improvement on payroll control and quality of debt management. Tanzania continues to show improvement in the functioning of its oversight institutions. The PEFA notes significant improvement in effectiveness of internal audit. Oversight over parastatals has improved in recent years and most PA&OBs report quarterly and annually to Treasury Registrar. The NAO has continued to professionalise and improve its functioning. Quality of procurement has also seen significant improvement with active oversight by PPRA. 5

6 Findings from the Joint Supervision Mission The joint assessment concluded that PFM reforms under PFMRPIV are making good progress. Some of the milestones have already been achieved; a majority are on track, while a few of them have been delayed. Performance across different KRAs varies. Activities related to Planning & Budgeting (KRA 2), Budget Execution (KRA 3) & Budget Control and Oversight (KRA 4) show good progress, while those on Revenue Management (KRA 1) and Change Management (KRA 5) show mixed progress. Revenue Management (KRA 1) The Tax Administration Act, which intends to establish a common tax collection procedure by TRA, is being revised and will be resubmitted to Cabinet committee before seeking Parliament approval. The Draft VAT Bill is being revised with support from IMF and after due process, the Bill would be sent to Cabinet, AG and then submitted to Parliament. The Policy Analysis Division is undertaking a study on non-tax revenue with the objective of integrating and harmonising non-tax revenue collection systems and an action plan to follow-up on recommendations is expected to be in place by June For improving revenue forecasting, better coordination between PAD and TRA is essential for agreeing a common approach. On local government revenue, a study on revenue potential assessment for LGAs has been completed by PMO-RALG. Terms of reference for training a cadre of trainers from RS and LGAs on revenue management are being finalised. However, there is need to agree on the intermediate steps to be taken for establishment of a revenue database for LGAs. Planning & Budgeting (KRA 2) A positive achievement in this area has been the successful transition to the new budget cycle (starting FY2013/14). This is likely have a positive impact on timeliness and completeness of fund flows to service delivery units at the local level. The Budget Division continues to make good progress towards the introduction of Program Based Budgeting (PBB) with an action plan in place. Currently, PBB tools are being used to capture information and working sessions with 8 pilot Ministries. The PBB will be gradually rolled out to MDAs, regions and LGAs and this is expected to be completed by September With regard to the effective utilisation of planning and budgeting tools, there is a delay in reviewing the MTSPBM. However, progress is underway with respect to preparation of annexes to budget book Vol. II concerning Executive Agencies and publication is expected for part of the Public Entities by June There is good progress on LGAs own source budget information. This was reflected substantially in the National Budget Guidelines. However, there is significant delay in the review of the LGAs budget allocation formulas and the whole sequence of milestones linked to this activity is at risk. 6

7 Increased budget transparency is a key process action in PAF 13. The target is likely to be met as three budget books out of four (with the exception of Volume I) have been published on MoF website. For the first time, end-of-year execution report is planned to be ready and published by Mid-November. Further, the citizen s budget report is under preparation. A fundamental issue highlighted by the PEFA is the lack of budget credibility. In addition the PEFA also notes the need to improve the quality and comprehensiveness of the budget documentation as well as public access to key fiscal information. Currently the PFMRPIV only partially addresses these issues. Accordingly, it was agreed during the supervision mission for two new milestones on budget credibility and a new output focussing on quality and comprehensiveness of budget documentation and public access to key fiscal information. At the same time, it must be mentioned that there are several non-technical factors that impact on budget credibility and which are beyond the control of the MoF. Budget Execution (KRA 3) Almost half (286) of the targeted 600 central government staff have been trained on cash management. However, the PEFA 2013 findings show that PFRMRP IV does not sufficiently address cash management issues, and the related issues of commitments entered outside of the financial management system, frequent reallocations between MDAs and the consequent build-up of arrears having to be paid at the expense of planned service delivery. In this regard, a new milestone proposed is that ACGEN presents a monthly report on payment arrears to the cash ceiling committee starting December 2013 with the intention of minimising arrears. The mission also suggests that a more robust and regular cash flow forecast analysis by the cash management unit, informing the cash ceiling committee remains necessary. Although GoT has also enabled the closure of significant number of dormant bank accounts, demands from certain development partners supporting projects (water - AfDB and DASIP AfDB/WB), each LGA is now required to open 2 more accounts in addition to the existing 6 bank accounts. Good progress has been made on debt management. The President s office has agreed to establish a centralized Debt Management Office (DMO) within MoF. With a technical support from the World Bank and the East African MEFMI, MOF has conducted a debt sustainability analysis (DSA), which covers both domestic and external debt. The external debt databases have been consolidated into a single debt database currently maintained in AccGEN office. MoF has also been working on the revision of the current Loans Act to incorporate provisions that will insure a greater control of public indebtedness growth, and limit fiscal risks stemming from contingent liabilities. Further, there is progress in the development of a debt management strategy draft which will inform the Public Debt Management policy. The Five Year Road Map on the migration to International Public Sector Accounting Standards (IPSAS) accrual is in place and is being upgraded to be fully compliant with changing IPSAS guidelines. A key step for successful migration is the preparation of the fixed asset register on which Government Assets Management is making progress. 7

8 Budget Control and Oversight (KRA 4) The mission found that the performance of oversight agencies (IAGD, NAO, Parliamentary Committees, TR, PPRA and PPA) is generally improving. Steps to improve capacity are progressing through a combination of training, codification of new procedures and awareness rising, though in some cases have been delayed by factors beyond the control of individual agencies. Obstacles relate to the pace at which new legislation and regulations are being approved, and severe staffing constraints in some cases. Lack of effective follow up to audit findings remains an important area of underperformance. Steps were agreed during the mission to strengthen measures to ensure follow up by MDAs and LGAs. Further, the NAO is working on a monitoring mechanism as well as establishing a database as regards outstanding audit matters. Change Management (KRA 5) KRA 5 includes a diverse group of outputs related to the management of change within PFMRP IV, the coordination and management of the programme, ICT integration, communication, LGA fund flow architecture and other matters that have cross cutting implications. The study on intergovernmental fund transfers progress has been completed and submitted to Government; however there is significant delay in the ICT mapping study. On other fronts, initial steps have been taken by PMO-RALG for IT connectivity with procurement of IT infrastructure for the central server in Dodoma to accommodate the 35 new LGAs. However, there was no fund available for the local area network, connectivity, hardware equipment. Substantial achievements have been made through the upgrading of EPICOR software, with 6 modules out of 10 in operation. Its extension to all LGAs is likely to have a positive impact on financial planning and reporting, as monitored centrally by PMO RALG. PFM in the Context of GBS With regard to the GBS PAF 2013, two of the KPAs (on budget transparency and intergovernmental fund transfer action plan) are likely to be achieved; 1 KPA (ICT integration action plan) will most likely not be achieved and 1 KPA (legislation towards enhanced tax revenue mobilization) will not be rated. Out of the 4 Outcome Indicators, only 1 (outstanding audit matters) will not be rated. However, efforts are being made to make progress towards these key elements. It is important to highlight that some of the temporal blockages in the PFM process are linked to pending legislative procedures. With the parliament due to discuss the draft Constitutional Review in October/November, various legislative pieces/ bills (TR Act, VAT Act, Loans & Guarantees, Tax Administration, Public Finance Act, Local Government Finance Act) are unlikely to be tabled until February 2014 at the earliest. In conclusion, the joint assessment concluded that PFM reforms under PFMRPIV are making good progress. Some of the milestones have already been achieved; a majority are on track, while a few of them have been delayed. Performance across different KRAs varies. Activities related to Planning & Budgeting (KRA 2), Budget Execution (KRA 3) & Budget Control and Oversight (KRA 4) show good progress, while those on Revenue Management (KRA 1) and Change Management (KRA 5) show mixed progress. 8

9 2. METHODOLOGY The Supervision Mission Team consisted of Government of Tanzania officials, members of the Development Partners PFM Group, and the PFM GoT and DPG Secretariats. It was agreed that this Supervision Mission should not take the form of a performance audit but rather it should be used as an opportunity to share knowledge, jointly assess progress, identify challenges at an early stage, discuss and chart the way forward. Objectives of the Supervision Mission The 2 nd Joint Supervision Mission of Phase IV of the PFMRP was successfully conducted from 16 Sept to 1 Oct The objectives of the mission were to: 1) To assess and agree on the overall progress and results from the implementation of the action plans of PFMRP IV FY 2012/13. This will include a particular focus on progress since the last Supervision Mission in September ) To assess and agree on progress in the implementation of PFMRP IV so far against its agreed milestone in M & E framework. This will be in view of the draft annual report FY 2012/13 ending June ) To propose possible adjustments to the M&E framework and the Operations Manual in order to keep these documents current and relevant. This will specifically address any adjustments in relation to the PEFA recommendation action plan. Further, as discussed at the JSC held on 9 th July, 2013 a list of milestones to be reviewed will be discussed and finalised in the TWGs in this period. 4) To assess and jointly agree progress against the General Budget Support Performance Assessment Framework (GBS PAF) for underlying principles (UP), Key Policy Actions (KPAs) and outcome indicators(oi) that are PFM related (see PAF 2013 at Annex A). 5) To identify issues, challenges and opportunities that needs to be considered or addressed in the future in order to enhance and improve the PFM outcomes under each KRA. The documents used as guidance for the mission were the PFMRP IV Strategy, its Monitoring and Evaluation Framework and the Operations Manual, as well the Annual progress report and PAF The mission took the opportunity of the recently completed PEFA 2013 exercise on central government and the Bagamoyo PEFA follow-up retreat outcomes to improve the PFMRP M&E framework. Other documents such as the Division action plans, recent CAG reports, GBS evaluation report and PAF progress reports were also used to inform discussions during the mission. The mission activities were structured around the 5 Key Result Areas (KRAs) that are articulated in the Phase IV Strategy and the Monitoring and Evaluation Framework. 9

10 The KRAs are as follows: KRA 1: Revenue Management KRA 2: Budget and Planning KRA 3: Budget execution, Transparency and Accountability KRA 4: Budget control and Oversight KRA 5: Change management, Program Monitoring and Communication The primary methodology used during the mission was the Technical Working Groups (TWG) consisting of the key PFMRP Component Managers and DP representatives where extensive discussions were undertaken and initial feedback from these meetings has been very positive. In most cases, the discussions provided valuable opportunities for learning and information sharing that was specifically directed at improving the shared understanding on the status of key PFM reform activities together with any challenges and constraints that are impacting performance. Apart from the direct participating departments and agencies, the mission also held discussions with other key stakeholders such as BoT, TRA, 3 ministries (MoHSW, MoE and MEM), who are not direct beneficiaries of the programme but are key implementers in the reform process. These meetings provided the opportunity for discussions that focused on the impact of reforms, status of reform implementation and challenges that spending and income generating entities face given the reform environment. Given the limited time, it was not possible to visit the RAS and/or LGAs and it was decided that a dedicated and extensive visit to selected RAS and LGAs will be undertaken before end A feature that draw extensive attention from PFM practitioners and PFM reform supporters was a presentation by the Accountant General s Division on the GoT s migration roadmap to IPSAS accrual which was attended by various DPs, MoF divisions and other agencies. The presentation provided an opportunity for stakeholders to gain some useful insights into the GoT s plans towards a consolidated accrual statement. Some of the key milestones in this roadmap form an important cornerstone in the PFMRP M&E framework. 10

11 3. OVERVIEW OF PFM TRENDS IN MAINLAND TANZANIA Drawing on the findings from the PEFA 2013 report and other official documents, this section provides a brief overview of the trends in PFM reform in Tanzania. An attempt has also been made to provide an understanding of how PFMRPIV links across different PFM reform areas. For ease of understanding, this section has been segregated into the following five critical PFM dimensions, under which a brief update of reform highlighted by critical PFM indicators has been provided along with a short summary of PFMRPIV activities. 1. Overall Assessment of PFM Reform 2. Budget Credibility 3. Planning & Budgeting 4. Revenue Management 5. Budget Execution 6. External Scrutiny and Oversight 3.1. Overall Assessment of PFM Reform The PEFA Report 2013 indicates significant improvement in PFM systems since Out of 31 PIs, 12 ratings improved, 5 are in process of improving, 9 PIs have not changed and 2 have fallen. PFM aspects that have improved include effectiveness of internal audit, annual budget process and legislative scrutiny, effectiveness of payroll controls, procurement oversight and external audit. On the other hand, there remain significant PFM weaknesses in cash flow management and payment arrears, internal controls, fiscal risk posed by PA&OBs, budget documentation and compliance with audit recommendations Overall Budget Credibility A key PFM outcome relates to overall budget credibility, which not only reflects the quality of planning and budgeting but also quality of budget execution. It requires actual budgetary releases to be similar to voted budgets and requires appropriate fiscal discipline to be in place. The table below examines three key indicators on budget credibility. Sl. No Performance Indicator Aggregate expenditure out-turn compared to original approved budget Composition of expenditure out-turn compared to original approved budget Aggregate revenue out-turn compared to original approved budget 98% 91.2% 94.1% 16% 8% 18.8% 89% 93% 103% 11

12 Overall, the budget credibility is weak. While aggregate revenue out-turn performance of GoT shows an improving trend, aggregate expenditure out-turn has tended to fluctuate. The composition of expenditure out-turn presents a significant PFM weakness, which GoT has failed to address. As noted by the PEFA report, there are multiple PFM weaknesses which contribute towards the lack of budget credibility. These include weaknesses budget preparation system (over-budgeting in the development budget, under-budgeting in some areas of recurrent expenditure) and the budget execution system (cash rationing due to resource uncertainty, lack of commitment controls). As a result expenditure arrears have been accumulating, which are paid out of budgets in following years at the expense of planned service delivery. PFMRPIV, therefore, deems it appropriate to engage in multiple areas in order to enhance the credibility of the budget. Although the programme did address many of the areas identified in the PEFA report 2013, the joint supervision mission has also identified new/revised milestones to address existing gaps in programme delivery. At the same time, it must be mentioned that there are several non-technical factors that impinge on budget credibility, and which are beyond the control of the Ministry of Finance Planning & Budgeting Planning and budgeting is a critical aspect of the budget cycle. A streamlined process can enable rational and realistic budgeting with a medium term horizon. It is equally important for the budget documentation to be comprehensive and to be available in the public domain. Sl. No. Performance Indicator PEFA Rating 1. Orderliness and participation in the annual budget process B+ 2. Medium term perspective in budgeting C 3. Quality & comprehensiveness of budget information B 4. Public access to key fiscal information B On planning and budgeting, Tanzania performs at an above average level. Although there has been significant improvement, as highlighted in the PEFA, particularly on orderliness and participation in the annual budget process resulting in a new budget cycle from , there remain many areas of further improvement. With the current system of cash rationing, multi-year budget forecasts remain a challenge even though the process is duly followed by MDAs and LGAs. There is significant scope for improvement in budget documentation currently 5 out of 9 PEFA requirements are met. In addition, public access to key fiscal information, Tanzania scored 47 out of 100 on the open budget index in 2012, up from 35 in PFMRPIV supports a wide range of activities related to planning and budgeting including support for programme based budgeting, effective utilisation of planning and budgeting tools, MTEF preparation by MDAs and LGAs and budget transparency. In addition, several new milestones have been agreed upon to improve planning and budgeting, particularly aimed at improved budget documentation and budget transparency. 12

13 3.4. Revenue Management Revenue Management in Tanzania assumes critical importance given that it is still highly dependent on foreign aid for development spending. Better revenue realisation can go a long way in making Tanzania less aid dependent as well as make available more funds for development expenditure. Sl. No. Performance Indicator Revenue as a proportion of GDP 14.6% 15.2% 15.7% 16% No. of Registered Taxpayers - TIN registered - VAT registered Tax exemptions as a proportion of total revenue collection 617,877 13, ,737 16,848 1,035,281 17,860 1,611,520 21,362 15% 19% 27% - On this account, Tanzania has made significant progress in recent years. Between 2001 and 2011/12, revenue receipts grew eight times at a compound average growth rate of 21%; as a result the revenue yield in stood at 16% compared to 14.6% in At the same time the cost of revenue collection has declined from 3.8% in to 2.1% in The tax base has also increased by more than 150% for TIN-registered tax payers and 60% for VAT-registered tax payers between and However, tax exemptions have continued to increase significantly. From 15% of total revenue collection in , it increased to 27% in PFMRPIV supports GoT, particularly Policy Division and PMO-RALG, in improving revenue forecasting and in revenue mobilisation particularly non-tax revenue and local revenue. Given that a separate DP basket fund provides support to TRA on a wide range of revenue management reforms, the scope of work under PFMRPIV has been kept limited in order to avoid duplication. It is important to highlight that revenue management is essential for longer term sustainability of the country s financial situation and ensuring adequate fiscal space for financing development activities in the future Budget Execution & Control Budget execution has generally been a weak area in the PFM system in Tanzania. Given the cashconstrained environment, predictability of fund flows has been weak and this has a cascading effect on the entire expenditure cycle. Sl. No. 1. Performance Indicator Reallocation warrants as a proportion of total government budget 2. Stock of expenditure arrears as proportion of expenditure - 5.6% 3.7% 8.5%* Predictability in the availability of funds for commitment of expenditures Internal Controls - Payroll - Expenditure C B D+ 13

14 5. Compliance with Procurement Controls (Avg) - MDAs - LGAs 6. Debt to GDP ratio 35% 37% 40% 44% % 50% 7. Quality of Debt Recording and Management B 65% 56% 77% 67% 8. Quality and timeliness of budget execution reports - In year reporting - Annual financial statements *at end of March 2013 C+ B + From the table above, it is evident that while GoT has made good progress in some areas, significant weaknesses remain. High level of reallocations and lack of predictability in fund flow tends to distort the execution of the budget. With the accumulation of expenditure arrears and application of cash ceilings, some spending units often resort to commitments outside IFMIS, thereby weakening internal controls. The report of the CAG for 2011/12 confirms that corrective measures in response to audit findings are not adequately taken to circumscribe non-compliance. At the same time, it is also evident that GoT has made good progress on payroll control. Since November 2011, GoT has enabled complete integration and reconciliation between personnel records and payroll through the HCMIS and Payroll cleansing has led to a large decrease in the number of ghosts. Quality of procurement has also seen significant improvement with active oversight by PPRA with improved compliance by MDAs and LGAs, although there remain key issues related to contract management and transparency. The quality of debt management has also improved. Based on the updated DSA, Tanzania s debt indicators are expected to remain below indicative, country-specific thresholds. Debt recording and monitoring has improved with the consolidation of the external debt data base maintained by Bank of Tanzania (BoT) through CS-DRMS into the external debt data base maintained in ACGEN. Monthly and quarterly debt reports are prepared for management purposes. A comprehensive Annual Public Debt Bulletin and a Quarterly Public Debt Newsletter are also published. However, a key area of concern relates to the fiscal risk of PA&OBs over which the government has limited oversight and control. Quality and timeliness of budget execution reports (quarterly and annual) have improved, particularly with the advent of IFMIS, although the data quality in quarterly budget execution reports can be improved further. Budget execution is a key area of intervention under PFMRPIV. The programme supports improvement in public procurement, cash management, debt management and financial reporting External Scrutiny and Oversight Tanzania has established and continues to strengthen several independent oversight institutions for strengthening external scrutiny and oversight (such as NAO and PPRA). 14

15 Sl. No. Performance Indicator Effectiveness of Internal Audit B 2. Legal & Regulatory Framework for Public Procurement B 3. Oversight over Parastatals C 4. Scope and Quality of External Audit B 5. Follow-up on External Audit C 6. Legislative scrutiny of external audit reports D+ The PEFA notes significant improvement in effectiveness of internal audit. Reports prepared by IAUs are issued quarterly for all entities and distributed to the Audit Committees, MDA management, the Permanent Secretary of MoF and to the CAG. Management response has improved considerably and corrective measures are increasingly being taken. The current legal and regulatory framework for public procurement in Tanzania meets four of the six PEFA benchmarks. However, once the regulations under the 2011 PPA have been gazetted, it is likely to meet all requirements. Oversight over parastatals has improved in recent years and most PA&OBs report quarterly and annually to Treasury Registrar and the CAG audits them. The TR prepares annual reports on the financial situation of PA&OBs although the non-submission of reports by 30% of PA&OBs reduces the scope of its reports. The legal framework was revised in 2010 to reinforce the powers of TR but it does not require TR to prepare a consolidated budget and annual financial statements for all PA&OBs, to report on performance and to prepare an annual consolidated statement of fiscal risks. The proposed new TR Act is expected to further enhance the powers of the TR and streamline governance requirements of PA&OBs. The NAO has continued to professionalise and improve its functioning. It achieved AFROSAI level 3 in the second supreme audit institution to do so in Africa. Audit coverage of expenditures of all government MDAs, public entities and corporations with majority government interest increased to 100% in 2011/12 from 88% in 2008/09. Annual audit reports of CAG are submitted to the National Assembly 9 months after the end of the financial year in accordance with the Public Finance Act The follow-up on audit recommendations, however, need to be strengthened to ensure effective audit compliance. Legislative scrutiny of the audit reports is rated low primarily becasue it takes more than 12 months for PAC to review CAG audit reports and issue its report (recommendations) to the National Assembly for consideration and adoption. With the amendment to the Public Audit Act, this is likely to cause further delay, although the Parliamentary Oversight Committees can examine the CAG report and the management response from PMG at the same time. PFMRPIV is strongly engaged across all the above mentioned areas and provides dedicated support to these oversight institutions. 15

16 4. KEY RESULTS AREAS STATUS REPORT The following section provides an overview of the results of the Technical Working Group discussions within each KRA. As highlighted in the methodology, the M&E framework was the guiding document with the discussions on the milestones and outputs focussed on progress of implementation as at September For relevant TWGs, progress on meeting targets around the PFM related PAF 2013 indicators was discussed (see section 5). The TWG also outlined the challenges and opportunities for further reform or redirection in reform. The figure below attempts to give an overview status of implementation of milestones across the KRAs covering varied outputs. The mission has noted a number of revisions to current milestones, deletion of redundant/unclear milestones and addition of milestones given the need to accommodate a number of PEFA underlying recommendations. As such, the year by year comparison of overview status of the M&E is not practical for noting progress. Summary of status of milestones as at Sept 2013 At risk 2% Delayed 12% New 10% Achieved 17% Pending 6% On track 53% The detailed findings have been captured in the M&E framework which is attached as Annex A. 16

17 4.1. KRA 1 - Revenue Management Strengthened systems, processes and procedures for improving the operational capability of the revenue collection by June 2017 Output 1.1 Improved quality of forecasting of fiscal aggregates for three years on a rolling basis Output 1.2 The Government improves efficiency in domestic revenue mobilization both at the policy and the administration levels by updating legal instruments towards international best practices Output 1.3 Strengthened capacity of local government authorities to collect revenue by 2015 Output 1.4 Increase of donor funding that flows through the exchequer system by 2016 Revenue forecasting is vested with Policy Analysis Division and TRA. The PEFA reaffirms the need to improve revenue forecasts at disaggregated levels. However, there are different views on where the problems lie with regard to revenue forecasting. PAD pointed out the need to examine model per se and address their capacity constraints while TRA emphasised on the need for better disaggregated data. Better coordination between PAD and TRA is essential for agreeing a common approach to improve revenue forecasts. The Tax Administration Act, which intends to establish a common tax collection procedure by TRA, was submitted to the Cabinet and Attorney General for verification in June The Attorney General requested that the Legal department in MoF review certain provisions. The revised draft will be resubmitted to Cabinet committee before proceeding to parliament. With the parliamentary due to discuss the draft Constitutional Review in October/November, the bill is unlikely to be tabled until February 2014 at the earliest. The Draft VAT Bill is being revised with support from IMF. It is expected that, after due process, the Bill would be sent to Cabinet, AG and then submitted to Parliament. The Mission identified a need for greater clarity of implications of the PER tax exemptions study for the new VAT Act under revision. As such, the mission strongly encourages this so that the new VAT Act reflects the changes suggested by the tax exemptions report which are supported by GoT. The Policy Analysis Division is undertaking a study on non-tax revenue with the objective of integrating and harmonising non-tax revenue collection systems. This is expected to be finalised by November 2013 and an action plan to follow-up on recommendations is expected to be in place by June The PEFA suggests that use of country PFM systems by donors has improved. However, there is scope for further improvement. Towards this end, the new national Development Cooperation Framework (DCF) (formerly JAST) is in the final stages of development with subsequent national consultations to follow; a final Cabinet endorsed DCF is expected to be put into operation in March New guidelines for the Aid Management Platform (AMP) are under development. The upgraded version of AMP is expected to significantly improve aid data quality and thereby planning and budgeting processes facilitated by MoF and MDAs. 17

18 On local government revenue, a study on revenue potential assessment for LGAs has been completed by PMO-RALG and the draft report will be shared with stakeholders in Mid-October. Terms of reference for training of RS and LGA staff on revenue management is being finalised. This will be done in ToT mode and also help develop training modules. This is now envisaged to be completed by June 2014, after which training of LGA staff will be undertaken by trained trainers. There is need to agree on the intermediate steps to be taken for establishment of a revenue database KRA 2 - Budgeting and planning Strengthened capacity of planning and budget management, including results and program based budgeting, within MOF, MDAs and LGAs by June Output 2.1 Strengthened capacity of MDAs, RSs and LGAs in implementing program based budgeting by June Output 2.2 Increased effective utilization of Planning and budgeting tools by 2016 Output 2.3 Strengthened capacity of LGAs for MTEF preparation by 2015 A positive achievement in this area has been the successful transition to the new budget cycle (starting FY2013/14) with the Parliament passing the Finance and Appropriation Acts in time allowing for the implementation of the Budget FY2013/14 to start on 1 July 2013, much earlier than in previous years. The Budget Division in MoF continues to make good progress towards the introduction of Program Based Budgeting (PBB) with an action plan in place that will include a Policy Paper in order for the Cabinet to formally authorise the use of PBB. In the meantime, the PBB tools (template, indicators, etc) are being used to capture information and working sessions with 8 pilot Ministries (Ministries of Finance, Water, Works, Transports, Education, Health, Community Development and Agriculture) are in progress. Following the pilot phase, the PBB will be gradually rolled out to MDAs, regions and LGAs and this is expected to be completed by September Concerning LGAs, the compatibility of PBB with allocations based on formulae needs to be looked into. With regard to the effective utilisation of planning and budgeting tools, there is a delay in reviewing the MTSPBM. The review, which implies collaboration between PO-PC and Budget Division, is expected this financial year. Also, progress is underway with respect to preparation of annexes to budget book Vol. II concerning Executive Agencies. Publication is foreseen for some of the Public Entities by June A fundamental issue highlighted by the PEFA is the lack of budget credibility. In addition, the PEFA also notes the need to improve the quality and comprehensiveness of the budget documentation as well as public access to key fiscal information. Currently the PFMRPIV only partially addresses these issues. 18

19 However, the existing weaknesses have been discussed with the Budget Commissioner and two new milestones have been agreed on budget credibility under Output 2.2 as below: 1. Budget reallocation warrants published by September every year. 2. Government approves actions for improving budget credibility based on a review of reallocation warrants in the past four years - by June 2014 Although these will contribute to improving budget credibility, there are many other contributory factors beyond the control of the Ministry of Finance. A new output has also been agreed focussing on quality and comprehensiveness of budget documentation as well as public access to key fiscal information (shifted from KRA 5.4). Three new additional milestones have been agreed as listed below: 1. Public Access to key fiscal information: Timely publication of key fiscal information as listed below: a. Budget guidelines published by December every year b. Executive budget proposal (Vol. I to IV) as submitted to Parliament published by June every year c. Approved budget (all volumes) published by September every year d. Quarterly budget execution report published within a month after end of quarter. e. Year end budget execution report published by October every year f. Citizen s budget published by November every year 2. Action plan for improving quality and comprehensiveness of budget documentation based on PEFA assessment developed by December Changes in quality and comprehensiveness of budget documentation reflected in budget documentation The review of the Public Finance Act is on-going but this is likely to be delayed in the context of the ongoing Constitutional Review. There is good progress on LGAs own source budget information and this was reflected substantially in the National Budget Guidelines. There is significant delay in the review of the LGAs budget allocation formulas and the whole sequence of milestones linked to this activity is at risk. It was agreed that implementation steps should be fast-tracked and the review completed by Jan 2014 to ensure that revised allocation formulae are applied in budget preparation during for the FY budget. It was further agreed that the analytical review should include proposals for monitoring deviations from formula based allocations and look into the impact of the transition to PBB on the allocation of LGAs resources. 19

20 4.3. KRA 3 - Budget Execution, Transparency and Accountability Improved utilization of public resources in a more effective, efficient and transparent manner by June 2017 Output 3.1 Strengthened public sector procurement by June 2015 Output 3.2 Strengthened capacity of MDAs, RSs and LGAs in Cash management by 2015 Output 3.3 Strengthened public debt management capacity by 2015 Output 3.4 Improved integrity and content of government financial statements and the migration from IPSAS cash to IPSAS accrual accounting for all government accounts is progressing in accordance with plans. Output 3.5 Improved accountability in management of Government Assets for supporting migration to IPSAS Accrual On public sector procurement, the gazetting of the PPA 2011 has been delayed due to the finalisation of the new Procurement regulations which are currently waiting endorsement by AG and subsequent approval by Minister of Finance. In parallel, the action plan of implementation of the Public Procurement Act will be jointly prepared PPD and PPRA. This is need for an MOU which clearly lays out on the division of labour. PPD is also working on a national procurement policy, a draft of which has been developed. The national procurement policy will explain the PPA and covers central and local government. There is progress made on human resources management with HR database of more than a 1000 procurement staff recorded and the consultancy for the TNA is still under way for MDA and LGAs. This database is currently been verified and updated. The proposed PMU structure for the public sector has been developed and discussed with head of procurement units after which it will be forwarded to the Ministry and POPSM for approval. Turning to cash management, almost half (286) of the targeted 600 central government staff have been trained on cash management using standardised materials by the end of last financial year. The training is now carried out in-house, based on East-AfriTAC methodology. There has been a step backwards with regards to the rationalisation of bank accounts at LGA level with each LGA is now required to open 2 more accounts s (water - AfDB and DASIP AfDB/WB) in addition to the existing 6 bank accounts following requests from development partners. The PEFA 2013 findings show that PFRMRP IV does not sufficiently address cash management issues. MDAs tend to accumulate arrears because of insufficient budget allocation and cash rationing that drive them to make commitments outside EPICOR. The PEFA also highlights the need for stronger monitoring of arrears. In this regard, a new milestone proposed is that ACGEN presents a monthly report on payment arrears to the cash ceiling committee starting December 2013 with the intention of minimising arrears. 20

21 With regard to public debt management, the President s office has agreed to establish a centralized Debt Management Office (DMO) within MoF. Before the DMO can be operational, a formal approval is awaited which will spell out a detailed staffing plan. With a technical support from the World Bank and the East African MEFMI, MOF has conducted a debt sustainability analysis (DSA), which covers both domestic and external debt. The DSA output is expected to serve as key inputs for the country s new Public Debt Management (PDM) Strategy that will guide the government borrowing policy going forward. It is expected to be finalized by the end of October On public debt legislation, the MoF has been working on the revision of the current Loans Act to incorporate provisions that will insure a greater control of public indebtedness growth, and limit fiscal risks stemming from contingent liabilities. The new Loan and Guaranteed Act, whose draft the MOF expects to finalize and submit to Cabinet by June 2014, will include provisions for a yearly ceiling on the amount of direct public borrowing and a limit on the amount of loan guarantees GOT can grant to other public entities such as Public authorities and other bodies (PA&OBs). It will also contain provisions for a greater control by MOF of those projects financed under the Public Private Partnership framework that may have fiscal implications for the GOT. In light of 2013 PEFA assessment report, one milestone will be revised to capture the need to monitor contingent liabilities and account for the risk stemming from guarantees granted by GOT to PA&OBs and from PPP financed projects. An additional milestone is proposed to ensure quarterly reporting and publication of public debt. The Five year road map on the migration from IPSAS Cash to IPSAS accrual is in place and is being upgraded to be fully compliant with changing IPSAS guidelines. A key step for successful migration is the preparation of the fixed asset register on which Government Assets Management is making progress. Currently, valuation work has been partially been completed for 34 MDAs. Awareness and capacity building on IPSAS accrual is continues with 320 staff (MDAs, Public Accounts Committee (PAC) members and Tanzanian embassies) have been trained. Further, an asset management policy is being developed to support drawing of laws, regulations and directives pertaining to management of public assets. It will covers all asset categories (31 classes) according to IPSAS and IFRS and the final draft is expected in Feb

22 4.4. KRA 4 - Budget Control and Oversight Improved adherence and enforcing of MDAs and LGAs to financial internal controls, rules, laws, regulations and audit recommendations by June 2017 Output 4.1 Increased coverage and quality of the internal audit functions Output 4.2 Strengthened External audit functions Output 4.3 Improved transparency on audit reports (central, local and Parastatal levels) to strengthen scrutiny and accountability. Output 4.4 Improved oversight of Parastatals performance Output 4.5 Strengthened capacity of oversight functions of Parliamentary Accounts Committee in Tanzania Mainland OUTPUT 4.6 Improved oversight of public sector procurement The Internal Auditor General`s operational plan ( ) was approved in March 2013 and is being implemented satisfactorily. Preparation of necessary manuals and guidelines is on track. Stakeholder comments have been incorporated into the internal audit manual will be finalised in October, the quality assurance and improvement manual has been completed and disseminated to all internal audit units and preparation of Audit Committee guidelines is on-going. Steps to establish effective internal audit units and committees are progressing. Awareness workshop to 340 internal audit stakeholders (mayors, council chairpersons, audit committee chairpersons, heads of internal audit units) has been conducted. However training for 550 internal auditors on risk based audit and training on technical audits has been deferred. Key data on Audit Committees has been collected, ready for incorporation into a database to provide a baseline for monitoring progress. The PEFA report has reaffirmed difficulties with follow-up to audit findings by MDAs and LGAs. The review mission agreed new milestones to enable IAGD to monitor and follow-up on CAG recommendations, including quarterly reporting by MDAs and LGAs on the status of corrective measures and annual review of compliance. With regard to External Audit, significant progress has been achieved. A highlight has been NAO`s achievement of AFROSAI level 3 (late 2012), the second supreme audit institution to do so in Africa. NAO was also conferred best audit award in East Africa region. Alignment of audit methodology with ISSAIs guidelines through adoption of the regulatory audit manual (RAM) is now complete. With support from PFMRP NAO has carried out extensive staff training in areas such as risk based auditing and IT audit. Twelve NAO offices are now connected with WAN fibre optics. By the end of this financial year it is expected that four additional offices will be connected to WAN and most NAO staff will have moved from the auditee premises (GoT offices) to NAO premises. Progress on the establishment of a database on audit recommendations has been slow, although manual consolidation of 22