47940 RESTRUCTURING OF THE NIGERIA ECONOMIC REFORM& GOVERNANCE PROJECT Project Paper I. IntroductoryStatement 1. This Project Paper seeks the approval o f the Executive Directors to introduce the following changes to the Nigeria Economic Reform & Governance Project ("Credit No. 4011 UNI") ("the Project" or "ERGP"): (i)modification of the current Project Development Objectives ("PDOs"); (ii)admission o f the two new pilot agencies in the Project; (iii) reallocation o f Credit proceeds among selected disbursement categories; (iv) extension o f Closing Date from February 28, 2011 to February 28, 2013; and (v) as part o f the Project Appraisal Document, revisions to the Monitoring and Evaluation ("M&E") Framework. The proposed changes are neededto align the Project's results framework with its scope and focus, as well as allow better performing and faster-disbursing agencies to continue and deepen their reforms. 2. Nigeria's record o f policy implementation has considerably strengthened in recent years as reflected in an improvement o f Nigeria's CPIA rating from 2.8 in 2005 to 3.4 in 2007. This substantial improvement reflected primarily strengthened macroeconomic policies, better debt management and the impact o f the reforms in the banking sector on financial sector stability. In reaction to these positive developments the World Bank and other donors have continuously expanded their support for Nigeria. 3. The new government that came to power following the elections in 2007 reiterated its commitment to reforms and embarked on an extensive process for the development o f reform strategies and sectoral action plans. 11. Backgroundand Reasonsfor Restructuring 4. The World Bank Board o f Executive Directors approved the Project on December 14, 2004 for an amount o f SDR 93,400,000 ("US$140 million") ("the Credit"). The Federal Republic o f Nigeria ("the Borrower") and the International Development Association ("IDA") signed the Development Credit Agreement ("DCA") on January 24, 2005, and the Project became effective on April 25, 2005. In addition, the Project received an original amount o f Pound Sterling 14,300,000 from Department for International Development ("DFID") as a Co- financing for the Project activities. The objectives o f the Project are to: (i) to improve the federal government's economic and financial management systems and processes; and (ii) to firmly establish a reform process o f the federal civil service to improve professionalism and the government's ability to deliver services. 5. The Project includes the following components: (i) Resource Management and Public Anti-Corruption; (ii) Civil Service Reforms (including Airport Safety Reforms and Investments which replaced the Pensions Reform component in 2006); (iii) Strengthening o f Statistics and Statistical Capacity; and (iv) Project Management. While improved public resource management 1 and targeted anti-corruption initiatives as well as the statistics component aimed at achieving the first Project development objective, the civil service and pension management components served to accomplish`the second PDO. 6. Support under the Project centers on government agencies that are critical to improving the functioning o f the government in the area o f economic policy making and governance, including the Office o f the Accountant General and o f the Auditor General, the Federal Inland Revenue Service, the Bureau o f Public Service Reform and the Bureau o f Public Procurement. In addition, the Project supports reforms ina number o f pilot ministries and agencies. 7. Project implementation was initially slow, but by 2007, the implementation o f several Project components had picked up speed and began making steady progress. Nevertheless, there remains considerable disparity in the pace o f implementation among the components. Agencies such as the National Bureau o f Statistics, the Nigeria Accounting Standards Board ("NASB") and the Economic and Financial Crimes Commission ("EFCC") made significant progress towards their reform objectives, while other agencies (e.g. Bureau o f Public Service Reform ("BPSR') and the Office o f the Auditor General) implemented reforms more slowly. 8. The mid-term review o f the ERGP which was conducted in June/July 2008 concluded that Project implementation had continued to accelerate and that disbursement had improved to over 30 percent. The current disbursement rate for the IDA component is about 35 percent while that for the DFID Co-financing grant component i s about 76 percent. Recent ISRs have rated the Project as moderately satisfactory, as there is general, but uneven, progress in the implementation o f reforms across agencies. The DFID grant which supports the National Bureau o f Statistics, the Budget Office o f the Federation, and the Bureau o f Public Service Reform was highly effective in supporting reform o f the statistical system, developing Medium-Term Sector Strategies and facilitating severance. 9. Most agencies noted that support under ERGP had been instrumental in strengthening their performance and providing impetusto reforms more generally. K e y accomplishments under the ERGPinclude the following: 0 Institutional and enforcement capacity o f the EFCC has been significantly strengthened contributing to the recovery o f substantial amounts o f stolen assets. 0 The preparation o f new Medium-Term Sector Strategies ("MTSS") for the period 2009- 11was launched with the attendance o f eight cabinet ministers. The launch o f the MTSS marks an important commitment to improved budget management and continued reform o f the public financial management system. 0 Nine additional accounting standards have been adopted and disseminated by NASB, narrowing the gap between international accounting standards and Nigerianpractice. 0 The adoption o f the new payroll management system ("IPPIS"), led by BPSR, has contributed to the elimination o f ghost workers and to savings estimated to about N500 millionper month. 2 0 Levels o f computerization and computer literacy have improved across a wide range of agencies, including the Investment and Securities Tribunal ("IST"), NASB, and the Office o f the Auditor General o f the Federation ("OAuGF"), accelerating the speed and reliability o f work processes. 0 Institutional and capacity building for the National Bureau o f Statistics has improved quality and timeliness o f statistical products, allowing Nigeria to improve from the 3gthto lgthrank insub-Saharan Africa inthe area o f statistics.' Successful adoption o f the Accounting Transactions Recording and Reporting System (ATRRS) has been an important preparatory step for the Government Integrated Financial Management and Information System ("GIFMIS") and has helped the electronic recording o f transactions. The GIFMIS steering committee and its core teams have been effective in bringing together key stakeholders and laying the ground for implementation o f this fundamental reform o f Nigeria's public financial management system. 0 Public Procurement Policies and practices have improved and become more transparent resulting in substantial savings. The procurement regulatory body - Bureau o f Public Procurement - has been set up and i s functional: it has produced a wide range o f procurement tools, such as implementing regulations for the procurement act and standard bidding documents, and has built procurement capacity inMDAs. Adoption o f the Public Procurement Law and wide dissemination has resulted in an increased demand for accountability by the public. Public Service capacity to manage effectively and efficiently public expenditure has been strengthened with the creation o f Procurement Professional Cadre inthe public service. 10. The MTR also confirmed that the implementation modalities o f the Project have changed. Originally, the political oversight o f Project implementation was to be carried out by the technical arm o f the federal government's Steering Committee on Reforms ("SCR'). However, this Committee has not beenfunctional, and oversight o f Project implementation is being carried out only by the Federal Ministry o f Finance; through the Project Coordinating Unit ("PCU") headed by a National Project Coordinator. The National Project Coordinator reports directly to the Permanent Secretary o f the Federal Ministry o f Finance who engages Heads o f Project agencies on issues o f Project implementation. 11. Following the Effectiveness o f the Project, the government decided to fully fund its pension reform initiatives; hence this component was removed from the Project. Also, in early 2006, following numerous domestic air crashes, the government requested for urgent Bank support in the area o f aviation reform. Thus, an aviation safety & reform component was added to the project in April 2006. In 2007, the government requested for the elimination o f the counterpart funding requirement, in line with the country financing parameters, following some 'Rating by STATNET, the ACBF Technical Advisory Panel and Network on National Statistics and Statistical System on statistical practice, data collection, and indicator availability (rating i s done on behalfof the World Bank). 3 difficulties inpromptly providing these counterpart funds. This request was granted inJuly 2007, retroactive to January 1, 2007. Also, several Project executing teams were added, such as the Investment and Securities tribunal in December 2005, the National Copyright Commission and the National Assembly inFebruary 2008 to support capacity-building. 12. Four main reasons motivate the restructuring: (a) The mid-term review concluded that the M&E Framework required revisions, as: (i) secondPDOwasdefinedtoobroadly;(ii)fewoutcomeindicatorswerenotadequate2; the a (iii)severalagenciessupportedbytheProjecthadnooutcomeindicators(seesub-paragraph(e) (i));(iv)therehasbeenachangeincomponentsasaresultofpreviousamendmentstothe and legal agreements. (b) The mid-term review agreed that funds from slower-disbursing agencies should be re-allocated to faster-disbursing agencies that had nearly exhausted their allocations and had made good progress towards their reform objectives. (See sub-paragraph (e) (iii)). (c) In addition, the restructuring foresees: (a) the admission o f two new pilot agencies, National Insurance Commission and the Personnel Audit and Monitoring Department (established within Nigeria's Office o f the Head o f Civil Service as Project Executing Teams ("PETS") under the Project; and (b) reallocations within categories for the Federal Inland Revenue Service and the Nigeria Accounting Standards Board. The main objective o f the restructuring will be to allow for a more appropriate monitoring o f the Project's results and for faster disbursement. (d) Disbursement rate i s much slower than expected. This is explained partly by the fact that many agencies got to a late start in beginning project implementation. Against this background and the review o f key components during the mid-term review, especially for the Accountant General, the Budget office o f the Federation and the tax administration, the government i s requesting an extension by two years for the Project's closing date to February 28, 2013 . The extension will allow completion of the GIFMIS roll-out and implementation o f the corporate modernization plan inthe tax administration. 111. ProposedProjectChanges 13. The proposed changes will affect the: (i)PDOs; (ii)institutional arrangements; (iii) reallocation o f Credit proceeds; (iv) extension o f Closing Date from February 28, 2011 to February 28, 2013; and (v) key performance indicators as a result o f modification and expansion o f the M&E Framework. 14. Given that the P C U will manage the funds for the two new agencies (National Insurance Commission and Personnel Audit and Monitoring inthe office o f the Head o f Civil Service), the corresponding financial management arrangements under the ERGP will not be affected by their admission. For example, one outcome indicator measured the delay for the preparation o f consolidated audited annual financial statements which reflects both the performance of the Accountant General and the Auditor General. 4 15. The FM risk rating for the PCU at the last ERGP FM supervision mission was satisfactory. The P C U could therefore handle the envisioned additional FMresponsibility within the present FM arrangement at the PCU. However, as work load increases additional staff may be engaged byPCU. (a) Changein ProjectDevelopmentObjectives 16. The mid-term review concluded that the Monitoring and Evaluation Framework required revisions, as: (i)the second PDO was defined too broadly; (ii)few outcome indicators were not a adequate; (iii)several agencies supported by the Project had no outcome indicators; and (iv) there i s a change incomponents. The current PDOs will be revised as follows: 17. Improvement o f the federal government's administrative, financial, human resource and statistical systems. (b) ImplementationArrangements Changes(Admission of new agencies) (i) Ina letter o f May 20, 2008, the Honorable Minister of State for Finance requested the admission o f the National Insurance Commission as a pilot agency under the ERGP. Noting that as part o f the current government's reform o f the nation's financial sector the insurance sector i s undergoing a reform program, the Minister points to the role o f the National Insurance Commission which regulates the insurance business in the country and has already carried out some reform and restructuring in the sector, like recapitalization o f insurance companies. The Minister indicates that to fully sustain the reform inthe insurance sector, N A I C O M needs to enhance its capacity and operational systems and that funding under ERGP would be critical to this objective. The specific activities to be funded by ERGP in N A I C O M include, inter alia, engagement o f consultants to expedite ongoing reforms in the sub-sector; training o f core staff involved in the implementation o f the reforms; and sensitization o f stakeholders. The ERGP team has reviewed the Minister's request and supports it. (ii)Personnel Ina letter of October 24, 2008, the Government also requests the admission of the Audit and Monitoring department inthe Office o f the Head o f the Civil Service as another pilot agency under the ERGP. This department complements the efforts o f the Bureau o f Public Service Reform ("BPSR') in identifying ghost workers and establishing adequate safeguards for the payroll system. The activities include - training o f staff in the use o f personnel audit software, engagement o f consultants to integrate more Ministries, Departments and Agencies (MDAs) and workshops to sensitize stakeholders. The ERGP team has reviewed the request and supports it, as support to this agency would contribute to the aspect o f the PDO that seeks to improve the humanresources system o f the federal government. 5 18. As a result o f the above mentioned change, there will be two new Project Executing Teams ("PET") added to the existing teams which constitutes a slight change in the Project institutional arrangements. However, this change will not have a major affect on the existing implementation arrangements o f the Project. Also, the D C A will not require any changes in the implementation schedule. (c) Reallocation of Credit Proceeds (i) Reallocation o f Credit proceeds from slow- to fast-disbursing agencies 19. As noted in the mid-term review, performance under the ERGP has been rather uneven across agencies. While some agencies have nearly exhausted their allocation under the Project, the disbursement o f others has been low. Against this background and the assessment o f work programs for each agency during the mid-term review, the borrower requested in a letter o f October 24, 2008, a number o f reallocations from the Bureau o f Public Service Reform and the severance category to faster-disbursing agencies. 20. Decisions to reallocate to agencies have been made in view o f the track record o f the agency in implementing reforms under the Project. In light o f this, the ERGP team and the Federal Ministry o f Finance agreed to reallocate funds to the following agencies: (i) Nigerian Accounting Standards Board (NASB); (ii) National Bureau o f Statistics; (iii) and (iv) the EFCC; Project Executing Teams (PET'S). 21. Reallocations from BPSR are motivated by the fact that several components o f the initially envisaged civil service reform agenda (to the tune o f $4.7 million (or about 30 percent)) will be financed through the government's funds4. 22. In addition, funds will be reallocated from the severance category, given that the government agreed to fund the severance package for staff that will be retrenched during the remaining life o f the project from its own resources. The amount released for reallocation from the severance category is $5.7 million, about 37 percent o f the originally scheduled amount. Inaddition, in September 2008, the DFIDtrust fund allocatedfunds inthe amount of GBP 2.654 million from severanceto the National Bureauo f Statistics. The following activities under the civil service component o f the project have been dropped from the project, as they will be funded from the government's own sources or other donor funds or the government decided against the activity: (i) Study on the reform o f parastatals now being handled by a team inthe Office o f the Secretary General - o f the Federation; (ii)Study on the process for formulation, decision-making, and monitoring o f policy - overlapping with DFID support under the Public Service Reform Program; (iii) on the feasibility o f a Senior Study Executive Service - BPSR noted that other countries' experience suggests that such services are not very effective; (iv) the assessment o f the capacity of current training institutions to provide the needed training has already been carried out by the National Planning Commission; (v) the roll-out o f IPPIS to the rest o f the civil service will be fundedby the government's funds. 6 23. The Federal Ministry o f Finance noted with concern the relatively slow disbursement o f funds by FIRS, OAGF and OAuGF, and indicated that consideration had been given to reducing their allocation in favor o f other agencies. However, in view o f the agreement on a range o f action points reached during the mid-term review, the FMF informed the team that they would delay a decision on a further reallocation o f funds from these agencies until performance could be assessed against these benchmarks. For example, it was agreed that all laws affecting public financial management be reviewed to assess possible inconsistencies; also the Chart o f Accounts will be revampedto ensure compliance with IMF GFS 2001 manual codes. (ii) Reallocationo f Credit proceeds within Federal InlandRevenue Service (FIRS) 24. Furthermore, FIRS has requested that the sum o f US$634,632.60 which had earlier been allocated for its civil works component (the conversion o f the Durumi Estate to a training & recreation facility) be reallocated to the consultancy component as it cannot immediately proceed with the civil works because o f a pending court case involvingthe contractors on-site. FIRS will fund the project from its own resources once the contractors' litigation has been resolved. The purpose o f the consultancy is: (i)to develop and implement comprehensive strategies and procedures for effective information and communications systems delivery and management across the Service, (ii) to build internal capacity within the Information and Communications Department to carrying on with work after the contract period, and (iii) to assist to develop a change management and training plan for the I C T staff. 25. The total commitments and disbursement to each Project component i s provided in Annex 1 to this Project. The table below shows the original and proposed allocation to each disbursement category in SDRs: 7 Category Original Allocation Revised Allocation Disb. % 1. Goods 29,848,400 29,763,000 19.8 2. Works 4,760,000 4,334,000 0.0 3. Consultant Services 22,73 1,400 23,958,000 27.8 4. Training and Workshops 23,237,400 25,490,000 42.7 5. Severance Payments 10,000,000 6,183,000 53.0 6. Operating Costs 2,560,800 3,410,000 61.5 7. Refunding of PPF 490 490 100.0 8. Unallocated 261,510 261,510 0.0 Total 93,400,000 93,400,000 35.37 (iii) Reallocation o f Credit Proceeds within Nigeria Accounting Standards Board JNASB) 26. The N A S B has requested that US$274,518.20 be reallocated from consultancy to training (US$164,710.92) and to goods (US$109,807.28). This reflects the changed priorities o f the agency. (d) Extensionof ClosingDate Although disbursement has considerably picked up over the past 18 months, the current disbursement rate o f about 35 percent i s considerably below the original projections. The slower- than-expected disbursement mainly reflects the fact that many agencies got to a late start in beginning project implementation. Against this background and the review o f key components during the mid-term review, especially for the Accountant General, the Budget office o f the Federation and the tax administration, the government is requesting an extension by two years for the Project's closing date. The extension will allow completion o f the GIFMIS roll-out and implementation o f the corporate modernization plan in the tax administration. The implementation o f GIFMIS i s a complex project aimed at comprehensively reforming the public financial management system whose success depends to a significant extent on collaboration with other agencies, such as the budget office. A realistic assessment o f the time required for the roll-out indicates that stages 4-6 o f the Project Appraisal Document will likely take place between 2011 and 2013, as the Project i s about 2 years behind schedule (A detailed action plan i s inAnnex 2). (e) Changesto the Monitoringand EvaluationFrameworkand Key Performance Indicators 28. Annex 3 to this Project Paper has the full details o f the proposed changes to the M&E framework. As part o f the Project Appraisal Document, the main changes in the M&E Framework are summarized below. (i) The first Project development objective on the "Improvement o f the federal government's economic and financial management systems" has been redefined to "Improvement o f the federal government's administrative, financial, human resource and 8 statistical systems", as not all o f the activities under the project can be grouped under "economic and financial management systems". (ii) The second Project development objective aiming at the "establishment o f a reform process o f the federal civil service that will improve its professionalism and its ability to deliver services" will be dropped, as key objectives of the reform o f the civil service are already covered under the first PDOS5Reform processes in all agencies are under way in most government agencies and will likely improve the ability to better deliver service flows from the improved systems, including inagencies that are supported by the project. (iii) The outcome indicators for the PDO have been replaced by measurable key performance indicators for the improvement inthe administrative, financial and human resource management and statistical systems. Key performance indicators are: (i) Budget and financial indicators prepared from GIFMIS within seven days o f month's end; (ii) Adoption o f PPIs in pilot ministries leads to reduction in the discrepancy between the nominal roll and the payroll in pilot M D A s to less than 5%; (iii) percentage o f statistical outputs released within the time limits and frequency of GDDS requirements increases substantially from 10%as o f 2005 to 50% by the end o f the project; (iv) Increased number o f economic & financial crime prosecutions / convictions and asset recovery from less than 20 and less than US$1billion, respectively at the inception o f the project in 2005; and (v) 50% o f staff and ministry service users satisfied with services o f restructuredministries (as measured by user and staff surveys). outcome(iv)indicator) has been replaced by "improved functioning o f restructured ministries" In addition, the implementation o f restructuring plans for MDAs (an original which will have different measurement indicators for the respective ministries and agencies and will also include user and staff surveys. revised(v)improve their measurability. Notably, the indicator "staffing levels have been adjusted The results indicators for the administrative reform o f the civil service have been to inaccordance with restructuring planof pilots" has been replacedby an increase inthe share of professional staff, Le. staff above grade 7. Also, an additional results indicator has been established measuring the link between the payroll database and the personnel database, a key outcome o f the effective use o f the IPPIS system. (vi) Component three o f the original M&E framework which foresees an improvement in the accountability o f the pension system has been replaced by the aviation sector and appropriate results indicators have been developed. (vii) Results indicators for the Federal Inland Revenue Service and the EFCC have been designed. (viii) Results indicators for the Office o f the Accountant General and the Office o f the Auditor General have been separated. Key achievements o f the government's civil service reform include: (i)the retrenchment o f a significant number o f staff; (ii) the implementation of modem IT-based personnel and payroll control systems; and the development o f service-wide data standards. 9 IV. Analysis 29. None o f the proposed changes has a major effect on the original economic, financial, technical, or social aspects o f the Project. The project's procurement performance has been satisfactory. The project's financial management rating is moderately unsatisfactory; however remedial measures recommended by the Bank have been implemented by all agencies, and the rating i s expected to be upgraded to moderately satisfactory, ifthe upcoming review mission will find that the recommended improvements in the institutional setting for financial management have been implemented. The safeguards classification o f the project remains unchanged, as no safeguard policies are being triggered by the project. N o exception to Bank policies are sought under this restructuring. 0 The reallocation o f funds primarily reflects the decision o f the government to finance from its own resources certain components that had initially been programmed as components under ERGP. However, the activities will still be implemented. The improvement o f the Monitoring and Evaluation does not affect the Project, but improves its measurability and provides additional incentives for the agencies to perform. V. Expectedoutcomes 30. While the restructuring will not result insignificant changes, it will lead to more adequate monitoring, including for agencies that previously had no indicators. Also, the proposed reallocation o f Credit proceeds will allow the implementation o f reforms in faster-disbursing agencies to accelerate and deepen. VI. Benefitsand Risks 31. The enhanced monitoring and evaluation framework will provide a more objective framework for monitoring the results o f reforms in the agencies supported by the Project and give incentives for accelerated reform implementation. As a result, ministries and agencies are likely to function better, including as a result o f higher professional standards across agencies. Also, the reallocation o f resources to faster-disbursing agencies i s likely to improve financial flows under the Project. The extension o f the Closing Date by two years will enable the client to effectively implement the GIFMIS program which i s a highly complex reform undertaking, involving a range o f government agencies. In addition, FIRS would be able to complete the Business Process Re-engineering (BPR) and begin implementation. 32. There is some reputational risk inconnection with the implementation o f components that were originally part o f the Project, as such decisions could be perceived as motivated by a desire to avoid the transparency and accountability o f the World Bank procedures. However, the improved capacity o f agencies, such as the Office o f the Auditor General, the Bureau o f Public Procurement and o f agencies fighting corruption that benefit from support under the Project i s likely to mitigate such concerns. The World Bank will support these efforts through continuous policy dialogue. There are some risks in extending the Closing Date, one o f which is that the 10 slow-disbursing agencies may further decelerate Project implementation on the assumption that more time is available to meet their objectives. However, the Ministry o f Finance has underscored its awareness o f these risks and stressed its commitment to reallocate funds fiom slow-performing agencies to faster-disbursing agencies. 11 Annex 1: Status of Project Commitmentand Disbursements Table 1: FederalGovernmentEconomic ReformSupport Project Components Component Public Resource 1 Management and Anti- Corruption Initiatives 73.30 70.89 62.90 44.93 64.95 46.39 2 Civil Service Admin Reforms 66.86 65.84 63.75 45.54 59.27 42.34 3 Strengthening Pension Management and Accountability 6.69 0.00 0.00 0.00 0.00 0.00 4 Strengthening o f Statistics and Statistical Capacity 20.00 22.94 9.12 6.51 10.37 7.41 5 Project Coordination 3.31 3.84 3.84 2.74 5.02 3.59 6 ContingencyAJnallocated 8.56 0.39 0.39 0.28 0.39 0.28 7 RepayPPF 0.50 0.00 0.00 0.00 0.00 0.00 Total 179.22 163.90 140.00 100.0 140.00 100.00 Table 2: Actual Disbursementto date (IDA Only) ponent ' Public Resource Management and Anti-Corruption Initiatives 62.90 14.29 22.72 2 +CivilService AdminReforms Project Coordination 67.59 25.16 37.22 Strengthening Pension Management and Accountability 0.00 0.00 0.00 Strengthening of Statistics and Statistical Capacity 9.12 10.47 114.80 ContingencyAJnallocated 0.39 0.00 0.00 6 PPF 0.00 0.00 0.00 Total 140.00 49.92 35.66 The small discrepancybetweenthis disbursement ratio and that in the table on page 11which quotes figures in SDR reflects exchange rate fluctuations. 12 Table 3: Project Data Sheet 2 Consultants' Services & Audits 42.43 52.05 34.07 24.34 3 TrainingiWorkshopsISeminars 48.23 34.83 34.84 24.88 4 Severance Pay 30.00 16.60 14.99 10.71 5 Works 0.00 7.13 7.13 5.09 6 Project Coordination I Operating costs 1.75 3.84 3.84 2.74 7 UnallocatedContingencies 4.35 0.39 0.39 0.27 8 PPF 0.50 0.00 0.00 0.00 Total Project Cost 179.22 163.90 163.90 100.0 FinancingRequired (IDA) 140.00 140.00 140.00 85.42 Financing by DFID 22.53 23.90 23.90 14.58 Counterpart Funding 16.69 0.00 0.00 0.00 13 Annex 2: The RevisedAction plan for the Reformof the PublicFinancialManagement System 0 GIFMIS phasedimplementationapproach GIFMIS implementation only started receiving high-level attention after the inauguration of the GIFMIS steering committee in August 2007 (two yeqrs after the launch of ERGP). Moreover, concerns still remain about the limited results o f the preceding IFEMIS project due to lack o f strong incentives for change and the current limited capacity and the level o f exposure and experience o f MDAs to large scale I C T based system implementation. Major conceptual issues such as Chart of Accounts (CoA), banking arrangements, Medium- Term Expenditure Framework (MTEF) are yet to be fully addressed. The responsibility for interconnecting the Treasury, Central Bank, Federal Ministry o f Finance and MDAs/FPOs i s still under discussion. Efforts are being made to leverage on existing IFEMIS and PPIs connectivity infrastructure by confirming the adequacy o f security and bandwidth to ensure that the services are robust and scalable. An incremental three-phased implementation strategy has been adopted with plansfor phase I to start with the core central foundation7 modules that are expected to `go-live' in 2010 at the Budget Office and Office of the Accountant General. Phase I1(i.e. 2011) will involve the roll out o f the core modules to key selected MDAs and FPOs with day-to-day processes decentralized. Phase I1will also involve the gradual introduction o f Requisition, Procurement & Order Management, Asset Management and secure interfaces to third party systems for Debt, Payroll & Tax. Phase I11(starting 2012) will complete the implementation by rolling out the full suite o f GIFMIS modules to all MDAdFPOs. At least an additional twoyears is needed to implement the six stages that were envisaged in the PAD, including to effectively coordinate with the Budget Office of the Federation (BOF). 0 ModernizationofInternalAudit Adoption of the required internal audit standards, restructuring, training and actual improvement of internal audit practices can only be achieved within a 3-4 years timescale. Compliance with the International Standards for the Professional Practice o f Internal Auditing (Standards) is essential if the responsibilities o f internal auditors are to be met. Consultancy to review current internal audit arrangements to be followed by restructuring o f internal audit in line with the outcome o f the review is expected to start soon. The consultants will prepare a modernization strategy and action plan for OAGF to.adopt new internal audit procedures and manuals by 2013. FederalTreasury Academy 7 The core central foundation modules phase Iare Budget Preparation and Appropriation Management including Warrandcash Release, Commitment, Cash Management, General Ledger including bank reconciliation and reporting. Duringphase IMDAs will prepare and authorize payment vouchers for central processing and paying by the Treasury. 14 Development of a curriculum for financial management for relevant staff and twinning arrangement with another Treasury Training School is being pursued as part of a regional Public Financial Management Staff Capacity Initiative (PFM-SCDI). The PFM-SCDI will be implemented through a Memorandum o f Understanding (MoU) with the English speaking group o f the African Organization o f Supreme Audit Institutions (AFROSAI-E), the East and Southern Association o f Accountants and Auditor Generals (ESAAG), and the Forum o f Accountant and Auditor Generals inWest Africa (FAAGWA). The development o f the scheme has started with a pilot phase in Tanzania with the services o f The Chartered Institute o f Public Finance and Accountancy inthe UK (CPFA8) and its sister organization The Institute o f Public Finance and Auditors inSouth Africa - http://www.ipfa.co.za/. Roll-out to Nigeria is scheduled for 2010 by which time it is expected that the Federal Treasury Academy in Orozo would be refurbished and suitably staffed to start administration of the PFM scheme so that the scheme will be fully implemented between 2010 and 2013. There i s an existing relationship between PFA and the University o f South Africa which offers well tested distance learning and assessment facilities that are already well established in the region. Therefore, the Treasury Academy will pursue twinning arrangements with IPFA and also consider other suitable institutions inNigeria. Strengtheningthe Office of the Auditor General TheAudit Bill has again been tabled in the National Assembly. The main provisions to protect the independence o f the Office o f the Auditor General are the requirement for the expenses o f the Office to be a first line charge to the Consolidated Fund and establishment o f an Audit Commission that will be responsible for amongst other functions all matters o f recruitment, promotion and discipline o f members o f staff o f the Auditor-General's office. I n anticipation of the new audit law, consultants have been requested to develop an action plan to restructure and modernize work methodsfor the office. This will involve conducting a skills gap analysis, computerization o f some audit processes and hands-on training. However the headquarter is still in a rented premise but the Government has made provision for the office to move to a new government-owned building. Full computerizing o f operations at headquarters and the zonal offices rely on how soon the new building promised will be made available and furnished. Online linkage with the zonal offices will also be sequenced with the GIFMIS roll-out so that a common connectivity backbone can be shared with the necessary security controls. AuFG is seeking twinning arrangement with other Supreme Audit Institutions. Capacity building for staff o f the OAuGF to carry out its mandate in accordance with internationally recognized standards and modern audit practices will not be completed by 2011. CIPFA is a founding member o f the IFAC and the only member specializing in the Public Sector. CIPFA offers a full professional qualification-the CharteredPublic FinanceAccountant 15 Annex 3: Revised Results Framework Original PDO Revised PDO Improvement o f the federal government's economic and financia Improvement o f the federal government's administrative management systems financial, human resource and statistical systems Establishment o f a reform process o f the federal civil service tha will improve its professionalism and its ability to deliver services Original outcome indicators Revised outcome indicators (KPls) Basic financial, procurement and human resources managemen Budget and financial indicators prepared from GIFMIS systems o f government are modernized within seven days of month's end. Pilot MDA restructuring plans have been implemented, othe Adoption o f IPPIS in pilot ministries leads to reduction in M D A s have joined reform process, and a strategy for reform o the discrepancy between the nominal roll and the payroll in central management agencies and for mainstreaming reforms ti pilot M D A s to less than 5%. the rest o f the service has been approved by government. Percentage o f statistical outputs released within the time limits and frequency o f GDDS requirements increases substantially from 10%as o f 2005 to 50% by the end of the project. Increased number o f economic & financial crime prosecutions / convictions and asset recovery from less than 20 and less than US$l billion, respectively at the inception o f the project in 2005. 9 50% o f staff and ministry service users satisfied wit1 services o f restructured ministries (as measured by user an( staff surveys) Component 1 (original) Component 1 (revised) A public financial management system has been implemented t' (a) FinancialManagement andAccountability Reforms facilitate budget preparation and execution and will provid A public financial management systemhas been timely and accurate information for parliament and citizens ts implemented to facilitate budget preparation and executioi hold government accountable. and will provide timely and accurate information fo parliament and citizens to hold government accountable. (b) Procurement reforms The Federal Government's procurement system has been brought in line with international standards. (c) TaxAdministration Reforms New procedures have been developedto improve transparency and effectiveness intax administration. (d) Support to Anti-Corruption Agency The Financial Intelligence Unit o f the EFCC has taken of and staff capacity has been strengthened in the use o f ke: IT applications for financial intelligence gathering and ii investigative techniques. Result Indicators 1. Budget and financial reports prepared from GIFMIS Result Indicators (a) FinancialManagement andAccountability Reforms Specific targets on asset recovery are not suitable given the nature o f the underlyingjudicial processes. 16 Iwithin seven days of month'send . Budgetandfinancial reportspreparedfromGIFMIS I 2. Consolidated auditedannualaccountsand financial vithin seven days ofmonth'send statementsproducedwithin statutory periodas providedinthe !. 50% of audit queries respondedto. Constitution. 3. Reductioninnumber of unansweredaudit queries (3) Procurement reforms 4. Effectiveprocurementregulatorybody established 1.Effectiveprocurementregulatorybodyestablished 5. Procurement data bank establishedandpublic informatioi (definedas effectivelyenforcingthe procurementbill and on processofaward of large governmentcontractsincreased. implementingregulationsandprovidingguidancefor procurementcapacity inthe MDA's) 6. NationalStandardBiddingDocumentpreparedandinuseby 2. Procurementdatabank establishedandinformationon all Ministriesand agencies. processofawardof large government contractspublished 3. Nationalstandardbiddingdocument preparedandinus by all ministriesand agencies (c) TaxAdministrationReforms 1. 90% of FIRS staff havethe skills to useICTtools in th execution of coretechnicaland support functionsacross tl Service 2. Standardmanualsfor tax assessment and tax audit for each categoryoftax preparedand inuse 3. StandardTemplatesfor tax collection andreportingfoi each category oftax preparedandinuse Component 2 (original) Component 2 (revised) Restructuring process piloted in four MDAs has bee Restructuringprocesspilotedin four MDAs has resulted implemented resulting in greater efficiency in delivering publi improvedfunctioning ofthe restructuredministries. policyand services Result Indicators Result Indicators 1. Staffing levelshavebeenadjustedinaway that 1. Staffinglevelsand skills havebeen adjustedin increasesthe share ofprofessionalstaff. accordancewith restructuringplans inpilots 2. Separatedstaff inpilotministrieshavebeen 2. Separatedstaff inpilotministrieshave beenprovided providedadequate counseling, training to enable them adequate counseling, trainingto enable themtransitionto other transitionto other activities activities 3. Staffinpilotministrieshaverequisiteprofession 3. Staff inpilotministrieshaverequisiteprofessional background andhavereceived training intheir areas of backgroundandhavereceivedtrainingintheir areas of responsibility responsibility 4. Businessprocesseshavebeen streamlinedinpilo 4. Businessprocesses havebeen streamlined inpilotMDAs MDAsusingenhanced IT andHRperformance usingPIFand enhanced IT managementhasbeen strengthenedthrough PIF 5. An integratedpersonnelandpayroll systemhasbeen pilotedandrolledout Component 3 (original) Component 3 (revised) Improvementsinthe accountabilityofthe pensionsystem. Improvedsecurityand safety at the two international airports ofAbuja& Port-Harcourt;and improved regulationofthe civil aviationindustry Result Indicators Result Indicators 1. Establishment of initial structure, rulesandregulations, 1.Regulatoryand oversight capacity o f the NCAA for the pension systemby Zndyear ofthe project. enhanced,measuredinterms of its abilityto implement 2. Audit andreconciliationresults inthe provisionof aviationindustryre-certification. benefits to thosegenuinelyentitled, accordingto soundly 2.Perimeter fences androadsconstructedinAbuja and Pc reconstructedemploymentrecords. Harcourt internationalairports 3.Improved safety & security record in the sectc 3. A reliable and efficiently functioning institutional measured in terms o f compliance with I C A O safety structure for the holding and investment o f pension assets as well security standards. as sufficient oversight i s created 4. Supervisory skills o f the staff o f the Commission enhanced through adequate Training Component 4 (original) Component 4 (revised) Improvement inthe availability, quality, and timeliness o f Improvement in the availability, quality, and timeliness economic, and social data economic and social data. ResuIt Indicators Result Indicators 1. Institutional and Regulatory framework i s inpla 1 Institutional and Regulatory framework i s in place to support to support development o f a modern statistical system development o f a modern statistical system 2. Percentage o f staff in statistical agency with 2. Percentage o f staff in statistical agency with requisite requisite professional background increases from 25% in professional background doubles by end o f project 2005 to 80% by end o f project 3. Percentage o f data sources, processing methods 3. Percentage o f data sources and statistical products and statistical products validated increases from 40% in validated increases. 2005 to 90% by the end o f the project. 4. Percentage o f Statistical outputs released within the time limitsandwith frequency meeting GDDS requirements increases 18 Annex 4: PreviousAmendments to the DevelopmentCredit Agreement 1. March/April2006: The D C A was amended to eliminate the Pension Reform component and admit the Aviation component. Also, the Procurement Methods were amended: limited international bidding was added as a procurement method (see D C A amendment letter dated March 30,2006 and signed by the Minister o f Finance on April 4,2006). 2. July 2006: The D C A was amended to review the procurement prior review threshold for goods and services (including consultant services). 3. July 2007: The D C A was amended to eliminate government counterpart financing requirement and increase the disbursement percentage o f eligible categories retroactive to January 1, 2007; reallocate proceeds among categories within some agencies; add a new activity category (Works) for the FIRS; change one o f the activities under the Aviation component and add a new activity for NBS (censuses & surveys). 4. February 2008: The D C A was amended to retroactively admit the Nigerian Copyrights Commission and to admit the National Assembly as Project Executing Agencies under the project. 19