Investing in financial management information systems for better public financial management outcomes

Governments around the world are facing increasing constraints on their resources, but they must provide better public services. At the same time, there are increasing concerns about mismanagement of funds, lack of transparency, and prevalence of corruption. As part of the efforts to tackle these challenges, the World Bank is supporting countries in modernizing their public financial management (PFM) and implementing financial management information systems (FMIS). 

A recently released World Bank Operational Guidance Note provides policymakers with operational guidance on how to ensure that FMIS projects better achieve the desired improvements in PFM outcomes while contributing to good governance. It draws on an extensive body of diagnostic and analytical work and more importantly, the lessons learned from FMIS implementation in more than 80 countries over the last 30 years.

Given its extensive coverage of the three phases of FMIS projects, i.e. the diagnostic, systems development life cycle, and coverage and utilization phases, the Note can be used by policymakers and practitioners to develop their strategies for any stage of FMIS implementation. It includes detailed guidance on how to avoid mistakes in procurement and contract management. It also discusses the potential use of disruptive technologies to maximize returns on existing investments. 

Here are some key messages:

An adequate diagnosis of all aspects of budget management – not just accounting and reporting – is fundamental. This review should be undertaken to identify the needs that the system is intended to address before procuring and implementing a new FMIS. 

The policy and institutional framework under which FMIS will operate is very important. The effectiveness of an FMIS as a budget management tool depends on its technical robustness as well as the policy and institutional environment, including a comprehensive single treasury account and the accompanying banking arrangements for government funds. It also depends on an appropriate budget classification structure and financial regulations that ensure budgetary compliance. According to the 2016 World Development Report on Digital Dividends, FMIS also needs analog complements to make them effective and protect against downside risks. 

Strong government commitment must be sustained throughout the process. This can be fostered through well-designed project management structures, complemented with adequate considerations for training and change management. 

System design should be cognizant of larger budget management issues and follow functional and business process requirements of government. System designs that follow predominantly technical considerations will be less effective in solving budget management problems. System implementation strategies should strategically take a phased approach rather than simultaneously implementing a wide set of functionalities that may overstretch client capacity. A modular approach can be more cost-effective, and could prioritize budget execution and reporting to achieve significant progress on budgetary control and cash management. 

Transaction processing through FMIS needs to be comprehensive to ensure credible and complete information for financial operations and management reporting. The benefits from an FMIS pertain only to transactions processed through it. 

It is important to understand the transaction ecosystem. While ultimately all transactions should be processed through FMIS, first targeting high-value transactions in system deployment will strengthen fiscal discipline. The following principles could help achieve ample coverage (and expenditure control):

• All transactions generated at the central Ministry of Finance such as fiscal transfers, subsidies, and debt service payments, should be processed through FMIS; 
• All payroll and civil service pension payments calculated by a central system should be processed through FMIS (these would likely constitute some 30-40% of the total budget); 
• All payments from line ministries or spending units above the transaction threshold should be processed through FMIS

While low-value payments should also be processed through FMIS, they can be disbursed through innovative FinTech products such as mobile money or smart cards. 

Accountability and budget compliance are necessary for FMIS to be effective in managing public expenditures. This requires significant political commitment to overcome resistance from vested interests.  

Governments can take advantage of disruptive technologies and FMIS innovations.  There are tremendous opportunities to deploy technologies such as cloud computing, big data, and machine learning, and robotic process automation to improve budget management. When adopting disruptive technologies, it is important to follow good GovTech principles, such as: a citizen-centric approach, and whole-of-government approach rather than ministry-specific solutions.