Financial Management Reform in Guatemala

María Antonieta del Cid de BonillaMinister of Public Finance

May, 2006

Contents

• Origin of the Reform• Implementation of the Reform• Components of the Reform• Reform Areas• The reform of the municipal

financial administration• Covering of the System• Assessment of the Financial Management in

Guatemala (CFAA-CPAR / WB-IADB)• Reform Challenges

Origin of the Reform

• The financial management reform in

Guatemala began at the middle of the 90s,

with two essential objectives:

– Enhance the efficiency and transparency of the

financial administration of the public sector; and

– Improve the delivery of public services, through

dis-concentration of the management of financial

resources to the public entities.

Origin of the Reform

• Since the beginning, the process has counted with the

World Bank´s assistance, and it started with an

integral diagnosis and a conceptual design of the

financial management system, worked out by

international experts in budget, accounting, treasury,

public credit, auditing and procurement fields. – Guatemala: Conceptual Design and Plan for the

Development of a Governmental Financial Administration and

Control System. E. Perez, E. Estrella, C. Fernandez, R.

Jimenez, C. Lara, M. Pastor, D. Turman, J. Villalobos, 1994.

Origin of the Reform

• The main weaknesses were:– The governmental authorities didn´t have

accurate, timely and relevant financial information available to support them in the decision making process;

– The Ministries in line lacked control and responsiblities on their financial operations;

– Administrative defficiencies concerning the formulation and execution of the budget generated high costs in efficiency and accountability or transparency terms.

Implementation of the Reform

• The design and implementation of the reform

han been supported by international experts in

the different areas of financial management.

• But the implementation has mainly been in

charge of national officials in the different

public entities, fact that has generated

conditions for its sustainability.

Components of the Reform

• Legal reform

• Function reorganization

• Procedure reform

• Information system

• Training

Legal Reform

• The financial management reform is based on

a legal framework in agreement with its

objectives.

• In 1997, a new Organic Law of the Budget

was approved, which regulates the budget,

governmental integrated accounting, treasury

and public credit systems.

Legal Reform: budgetary system

• The budgetary system is the group of principles, agencies, norms and procedures that govern the budgetary process of the public entities. The Ministry of Public Finance is the principal of the process and its main functions are:

• To dictate the norms for the formulation, programming of the execution, modifications and evaluation of the budgets of the public entities.

• To develop the management control tools of the results linked to the fulfillment of the objectives and goals of the public sector.

Legal Reform: accounting system

• The governmental system of accounting is the group

of principles, agencies, norms and procedures that

permit the registration of the facts that have effects

on the budget and on the patrimony, and the flows of

public funds.

• The Ministry of Public Finance is the principal of the

system, and it is responsible for prescribing, to put

and to maintain in operation the system in the whole

non financial public sector.

Legal Reform: treasury system

• The system of treasury is the group of principles, agencies, norms and procedures for the administration of the public resources and its use for the payment of the government obligations. The main attributions of the Ministry of Public Finances are:

• To administrate the Common Fund. • To formulate, execute, control and check the cash

budget of the Central Government.• To control and to guide the efficient use of availabe

balance of cash of the checking acount of public entities, not incorporated to the common fund.

Legal Reform: public credit system

• The system of public credit is the group of principles, agencies, rules and procedures with regard to celebration, execution and manage of debt business that the State do, with the object to obtain financial forms.

• The Ministry of Public Finance is the agency in charge of the public credit, with the function to guarantee the efficient programming, use and control of the financial forms that may be obtain by public credit operations.

Function Reorganization

• Under the principle of normative centralization and

operative dis-concentration, the direct responsibility

for the administration of the financial resources was

transfered to the Ministries in line, which assumed

more control over their budget.

• In each public entity, was created a Financial

Administration Unity, with the purpose of carrying out

the functions of budget, accounting and treasury that

were concentrated in the Ministry of Public Finance.

Procedure Reform

• Procedure manuals and working standards were

defined according to the best international practices to

process, register and report the financial information

of the public sector.

• In this way the procedures were simplified and

bottlenecks were removed, which propitiated

inefficiencies and lack of transparency in the

execution of public resources.

Information System

• A modern integrated system of financial information is

available, which operates through Internet and allows

a more efficient execution and monitoring of the

financial operations of the government, as it relies on

a single database at the central level, which is

capable to transmit automatically the data between

the subsystems of the budget, accounting, treasury

and public credit.

Training

• Capacity building is a core component of the reform.

Continuously, staff of the public entities is trained in

areas of the budget, accounting, treasury and public

credit.

• The international experts, who have supported the

reform, have been the main responsibles for the

training, and at the present, also national experts that

have been formed during the process, as well as

international institutions in the areas to be innovated.

Reform Areas

• The financial administration areas that have been

reformed are the following:

– Budget

– Accounting

– Treasury

– Public Credit

– Governmental Control

– Procurement

Budget Reforms

• The public budgetary process has been reformed to

incorporate the multi-annual expenditure programming

and the assessment of the execution´s results. In

2005, a proccess to define performance indicators of

public entities was started.

• Thus, the budget could be an accountability and social

auditing instrument, of both, the financial aspects as

well as the results of the public management.

Accounting Reforms• The accounting records are performed automatically

with the record of the budgetary execution, through

one single bill. The basis of accounting records is the

accrual system (goods and services already received

and pending of payment).

• The programming of the budgetary execution is

carried out annually, the commitment quotas are

quarterly approved; and accrual and payment quotas

are monthly approved.

Treasury Reforms

• There is one single account of the Treasury, which

applies for all entities of the Central Administration

and for all financing sources, with the objective to

avoid inefficiencies in the use of resources.

• The National Treasury performs the payments of the

accrued expenses charging the common fund it

maintains with the Central Bank, through electronic

deposits to the bank accounts of the suppliers.

Public Credit Reforms

• A registration system for public credit operations is

available, based on the system of financial analysis

and debt administration (SIGADE) of the United

Nations Conference on Trade and Development

(UNCTAD) and with an automatic communication link

for the updating of the budgetary execution and the

accounting records.

Reforms in the governmental control

• In 2002, a new Organic Law of the Nation´s

Comptrollership was approved, with the objective to

modernize and strengthen the instruments and

procedures of the governmental control.

• An Informatic System of Governmental Auditing is

available, which interacts with the Information System

of the Financial Administration, thus optimizing the

auditing function.

Procurement Reforms

• There is an information system of public procurement,

GUATECOMPRAS, the use of which is compulsory in

all entities of the non financial public sector and the

Municipalities.

• In the norms of budgetary execution of the year 2006

was established that international or not governmental

agencies that administer public funds, should publish

their acquisitions with these funds in

GUATECOMPRAS.

Procurement Reforms

• A draft bill on procurement han been elaborated which

seeks to make the public administration more efficient

and transparent, and which will be submitted to the

Congress for approval.

• In the initiative of law it is proposed to establish in a

permanent way the obligatory use of

GUATECOMPRAS, for all public or private entities

that administer public funds.

The reform of the municipal financial administration

• In 2002 a new Municipal Code was approved, which

defines the organization and functioning of the

municipal governments and includes the integrated

municipal financial administration, according to the

guidelines established by the Ministry of Public

Finance.

• At the present, the implementation of the Integrated

System of Financial Administration is being executed

in 33% of the municipal governments.

• In 2006, the General Comptrollership of the Nation

approved the rules of technical character for

accountability of the Municipalities of the Republic.

• These rules establish that: “the accounting information

shall be generated by the SICOINWEB, SIAF-MUNI

and/or SIAFITO-MUNI systems, which are the only

ones recognized by the General Comptrollership of

the Nation as official registration and control systems

for the municipalities and their utilities”.

The reform of the municipal financial administration

Covering of the System

• The system covers at the present 100% of the

agencies of the Central Administration, 77% of the

decentralized and autonomous entities, and 33% of

the municipalities.

• For 2007, the target is to cover 100% of the

decentralized and autonomous entities and 66% of

the municipalities. This will allow the consolidation of

fiscal accounts of the non financial public sector in an

automatic manner, through the system.

Assessment of the Financial Administration in Guatemala

• “The implementation of the integrated financial

management system (SIAF), built upon a good

normative framework and facilitated by a modern

technological platform, has contributed to efficiency in

executing financial transactions and to the production

of opportune information on most government

finances .”– Guatemala: Country Financial Accountability and

Procurement Assessment Report . World Bank and Interamerican Development Bank, 2005.

Assessment of the Financial Administration in Guatemala

• “Effective controls of government’s cash position,

including an efficient common fund system and rather

complete central government debt records, are in

place. Both the annual budgets and financial reports

provide considerable government financial data that is

publicly available .”– Guatemala: Country Financial Accountability and

Procurement Assessment Report. World Bank and

Interamerican Development Bank, 2005.

Reform Challenges

• To consolidate the integration between the planning,

budget and procurement systems, in order that the

budgetary programming fully responds to the

governmental policies and the working plans of the

entities.

• To consolidate the reform of the municipal financial

administration, through the production of conditions

that have allowed the system´s sustainability at the

Central Government.

Reform Challenges

• To support the strengthening of the capacities of the

Nation´s Comptrollership, in order that it can control in

an efficient way the public expenditure and to evaluate

its quality, according to its constitutional law.

• To achieve that the decentralized and autonomous

entities make public their financial information and

their results of management through the financial

management system, in order to facilitate the social

auditing.

Financial Management Reform in Guatemala

www.minfin.gob.gt

www.guatecompras.gt

Thanks for your attention