GOVERNANCE
E Q U I TA B L E G R O W T H , F I N A N C E & I N S T I T U T I O N S N OT E S
Ensuring Better Public
Financial Management
Outcomes with FMIS
Investments
Summary Note
Supported by the GovTech Global Partnership - www.worldbank.org/govtech
Republic of Korea
What Is the Rationale?
A Financial Management Information System (FMIS) plays a central role as
the budget management tool of the government, and hence it is key to sound The Case for Improved
public financial management (PFM). It strengthens budget compliance and PFM Outcomes
fiscal discipline which are necessary for macroeconomic sustainability. The
FMIS can also enhance transparency which, in turn, improves accountability. It
• Allows citizens to hold government
also contributes towards efficiency in public service delivery. Fiscal discipline,
accountable
accountability, and efficiency are three fundamental objectives of PFM.
• Contributes to fiscal discipline;
ensures budgetary and commitment
At its core, the FMIS enforces the use of a set of financial controls embedded
control.
in the system to ensure that government spending complies with the allocated
• Improves transparency and service
budget. By restricting spending and commitments to budgetary and allocation
delivery
ceilings, the FMIS helps the government to stay on track with the fiscal deficit
targets necessary for macroeconomic stability. By processing government
payments, the FMIS enables the classification, recording, and accounting
of financial transactions, which provide the basis for producing in-year budget performance reports and annual consolidated
financial statements. If governments have adopted the International Public Sector Accounting Standards – at least the cash
reporting standard – and FMIS is used as a basis for producing these statements, the FMIS promotes transparency and financial
accountability. Better fiscal controls, adherence to fiscal deficit targets, and improved transparency lay the foundations for
enhancing the efficiency and effectiveness of service delivery. Therefore, a well-functioning FMIS is a fundamental benchmark
for achieving core PFM outcomes.
However, an FMIS alone is not sufficient. Policy, capacity, and change management are the critical analog complements required
for success in optimizing PFM outcomes. There are important lessons in each of these dimensions which, if applied appropriately,
could enhance better PFM outcomes in FMIS implementation projects. The Ensuring Better Public Financial Management
Outcomes with FMIS Investments report synthesizes these lessons from the existing body of diagnostic and analytical work and
provides practical and operational guidance for the design, implementation, and operationalization of an FMIS to achieve improved
PFM results.
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What Major Challenges Exist?
Recognizing these benefits, the World Bank and many donors have already
invested significant resources into the procurement and implementation of Common Challenges
FMIS. However, implementation of FMIS systems has been operationally
challenging—prone to cost and time overruns, and subject to significant political • Lack of a proper diagnostic to
economy issues. identify deficiencies in FMIS design
and implementation to target
The World Bank has estimated that FMIS projects are completed within seven reforms
to fourteen years.1 The financial costs associated with FMIS projects are • Inadequate government
significant and typically range from US$5 million for small countries to US$100 commitment to successfully
million or more for mid- to larger-sized countries. address political economy issues
• Inappropriate system specifications
Challenges manifest at every stage of an FMIS project. Implementation is often leading to procurement delays and
hampered by a lack of a proper diagnostic before embarking on FMIS reform. higher costs
The diagnostic is used to assess the PFM performance issues which the FMIS • Insufficient budgetary and technical
is expected to address. Additional challenges include insufficient consultation support for implementation and
across the whole of government, inadequate attention to the business process rollout
re-engineering, and the cultural changes that would need to be introduced, • Weak provision for ongoing
among others. maintenance and reform
• FMIS projects can be costly,
One critical challenge for FMIS projects is the need for sustained government ranging from $5 million for small
commitment over multiple political cycles. This commitment is necessary to countries to $100 million for
address political economy issues that manifest in many forms. Agency officials medium and large countries.
and users typically resist system-enabled controls that limit their discretion.
Resistance could also be due to legitimate capacity constraints. Vested
interests is another challenge. In cases of fraud, FMIS limits the ability to
hide the footprints of the perpetrators. Major frauds have been detected and investigated using the information provided by the
FMIS, even when the manual paper trails were destroyed or tampered with. In some settings, opportunistic behavior for collusion
and corruption with suppliers of hardware and software could manifest as unnecessary increases in scope, addition of new
procurements, and delays in contract implementation results, which could intended outcomes.
FMIS specifications is another key area needing attention. When FMIS specifications are not based on a thorough review and
agreed business processes, this can create problems in the procurement process and result in delays and higher costs in
acquiring and implementing systems. Additionally, systems phasing, sequencing, and deployment are critical elements that shape
the implementation strategy. Decision-makers also need to pay sufficient attention to the technical support requirements such as
skilled information technology (IT) staff and adequate budget for maintenance and support.
1. Financial Management Information Systems: 25 Years of World Bank Experience on What Works and What Doesn’t: https://openknowledge.worldbank.org/han-
dle/10986/2297.
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Which Approaches to Solutions Have Proved
Successful?
In 2018, the World Bank’s Independent Evaluation Group (IEG) developed
a Conceptual Framework for FMIS implementation that illustrates how a The Conceptual Framework
systematic approach could lead to improved PFM outcomes. In addition, IEG for FMIS
has also developed a diagnostic framework to assess the effectiveness of a
country’s FMIS as a budget management tool. This checklist can be useful in
• The Diagnostic Phase
identifying deficiencies in FMIS design and implementation. It can also be used
• The System Development Life Cycle
to prioritize and sequence reforms to ensure that the introduction of the FMIS
• Ongoing Systems Operations and
contributes to the broader PFM objectives.
Maintenance
• Coverage and Utilization
THE CONCEPTUAL FRAMEWORK • Link with Overall Budget
The IEG framework identifies three major dimensions: (i) the diagnostic phase; Management Practices
(ii) the systems development lifecycle; and (iii) coverage and utilization. The • Requires high-level government
framework lists the activities and tasks involved in each stage in a results commitment through design and
chain as shown in Figure 1. The effectiveness of the FMIS to improve PFM implementation
outcomes depends not only on its technical robustness, but also on the policy
and institutional environment. FMIS investments are found to yield the highest
returns when the institutional groundwork has been done and the appropriate
policies are in place.
> > >
F I G U R E 1 - A Conceptual Framework: From FMIS Diagnostic to PFM Outcomes
SYSTEM COVERAGE AND PFM
DIAGNOSTIC
LIFE CYCLE UTILIZATION OUTCOMES
Diagnosis of PFM Process Scope of the system Fiscal Prudence
defiencies that may Design (geographical and Allocative
benefit from FMIS functional coverage) efficiency
System
system investments Share of budget Operational
Ongoing Design
Review of the legal coverage efficiency
Maintenance
and institutional Application of
framework under System control protocols
which the system Procurement
operates System
Implementation
Review of control
protocols
Assessment of
business processes
Source: Hashim and Piatti-Fünfkirchen (2018).
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Before initiating FMIS procurements, the first step is to determine the rationale for implementing an FMIS and identify the problems
that the system is intended to solve – the diagnostic phase. This phase can include an assessment of the legal, policy and
institutional environment, and any problems that might hinder the effective implementation of the FMIS solution. Policy issues
on the adequacy of the chart of accounts and the existence of a treasury single account (TSA) should be considered prior to
introducing or upgrading the FMIS. Also, it is vital that FMIS reform is linked to budget management practices. The analysis
shows that the effectiveness of a system can be undermined if budget coverage is not comprehensive or if budgetary releases
are delayed. Investing in newer technologies or advanced budgeting methodologies, such as program or performance budgeting
without improving budget comprehensiveness, credibility, and predictability of budget releases is likely to be only of limited benefit.
A diagnostic can also facilitate stakeholder engagements, generate consensus on the problems the FMIS is trying to address,
and build ownership over the reform to be introduced. Institutional mandates for ensuring that a centralized, standardized FMIS
is procured, implemented, and used across the government are also important. Human resource policies, for example, may limit
the ability of the government for attracting and retaining IT professionals due to lower pay in the public sector. This may lead to a
reliance on contractors and short term experts to fill key capacities.
In settings where an FMIS is already operational but producing sub-optimal PFM outcomes, a diagnostic could focus on determining
coverage and utilization questions for upgrading and enhancing FMIS. The coverage and utilization questions may reveal a
range of gaps. Agencies implementing capital projects and managing extra-budgetary and trust funds could be using standalone
financial management systems and not sharing data with the FMIS for financial reporting. Spending units and controllers could
be overriding or bypassing commitment controls. Departments within the ministry of finance could be processing fiscal transfers
or debt payments without routing them through the FMIS. The agency responsible for payroll processing could be sending payroll
information into the FMIS manually, with potential for abuse during the manual intervention. Decentralized agencies of the central
government in the regions and districts could be processing payments outside the system due to non-availability of FMIS, lack
of electricity, or no internet in offices. Accountant generals or controllers could be reluctant to publish financial statements due to
issues with the true and fair presentation.
Leadership and government commitment are critical in addressing these issues. An FMIS project may span a decade and multiple
political cycles. Therefore, consistent attention of various cycles of senior management is imperative to increase the likelihood
of success. It is important that senior management involvement is formalized in project management structures such as having
a minister or permanent secretary actively involved in the governance structure. A steering committee should be established
that includes representatives of all major stakeholders. The steering committee can facilitate consensus building, provide policy
guidance, and steer strategic direction of the implementation.
A P P L I C AT I O N S O F T WA R E S T R AT E GY A N D O P E N S O U R C E
Choosing an appropriate application software strategy for the FMIS is crucial when configuring the technology platform. Options
include using custom-developed application software, Commercial Off-the-Shelf (COTS) software packages, or Open Source
Software (OSS). Each option has its pros and cons. The applicability of these pros and cons varies with the context, which should
be the eventual determining factor for the choice of technology software. Open source software options are now maturing and have
expanded the range of options for FMIS implementation. However, open-source does not necessarily mean “free.” While a license
fee is not charged for open source, and the license fee for the commercial version of the OSS could be relatively inexpensive,
the implementation, configuration, customizations, integration, security, and training-related costs must be considered. Also, the
liability for maintaining the software during its operations for issues like security or bugs should not be underestimated and must
be considered as part of the risk mitigation strategy. The total cost of ownership for the open-source solution should be compared
with proprietary software and COTS solutions during the competitive procurement process. OSS vendors must compete with other
package software to ensure value for money.
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GovTech, Use of Disruptive Technologies,
and FMIS
Disruptive technologies are creating opportunities and challenges for
governments around the world. Innovations in the GovTech space, including Disruptive Technologies
cloud computing, big data, Artificial Intelligence (AI)/Machine Learning (ML),
robotic process automation, and distributed ledger technology, hold tremendous • Have potential to accelerate
opportunity in transforming government expenditure management. Some development outcomes in different
examples on the use of disruptive technologies are summarized below: areas of government activity
• Can leverage the banking network
BIG DATA AND DATA ANALYTICS: These tools could process and the use of digital payments
large amounts of data from multiple sources, including FMIS and • GovTech’s whole-of-government
display pre-determined patterns to inform policies. These include approach maximizes opportunity
geographical distribution of budget execution to identify regional and reduces risks
disparities, cost per kilometer of road construction, or cost per child
for vaccination – for comparisons across districts, controlling officers,
debt accumulation, and capital spending to demonstrate relationship
patterns across government tenures and time dimensions.
ARTIFICIAL INTELLIGENCE: AI tools can perform a range of activities, the most notable of which is fraud and
corruption. AI tools can create alerts and notify the comptroller/accountant general, and internal audit upon detection
of spurious activities: sudden spike in payment activities for a dormant vendor, change in bank account or creation of
a new bank account and vendor through exceptionally expedited processes, direct payments on certain goods and
services normally not justified for direct payments methods, duplicate invoices with the same vendor or tax identification
numbers, or payment of sequential invoices in rapid succession.
ROBOTIC PROCESS AUTOMATION (RPA): These robotic software tools can perform activities like human do. They
could log into systems, read data and documents, post transactions, and reconcile information from multiple sources,
among others. These steps can configured in these tools in a pre-determined sequence and performed at pre-determined
intervals. Governments in USA and UK have established centers of excellence on RPA to harness immense opportunities
for creating efficiencies. For example, RPA could be used to enhance governance of state-owned enterprises (SOE).
RPA can extract or pull information from multiple data sources like SOE’s financial systems and FMIS to post it on the
government website in a user-friendly format to promote transparency and citizen engagement. RPA could also be used
to improve efficiency of bank reconciliation, which can deepen customer confidence.
CLOUD COMPUTING: This offers immense opportunities to save costs, strengthen cybersecurity, and promote
innovation. A large number of emerging and innovative technology solutions are available in cloud for quick adoption.
FMIS projects could explore opportunities for migrating FMIS to cloud environment. This could be done as part of the
broader cloud policy of the government.
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The World Bank’s Role in FMIS Reform
Since 1985, the World Bank has committed over US$1.2 billion to FMIS
implementation through 148 operations across 81 countries. Due to the complex Role of World Bank in
procurement, implementation, and rollout procedures World Bank projects FMIS Projects
have to be realistic during appraisal and choose adequate lending instruments.
• Technical assistance and capacity
Investment lending supplemented with technical assistance has been the
building
main lending instrument type for supporting FMIS and TSA infrastructure.
• Advisory services on policy and
Development policy financing, though underused, can provide critical leverage
institutional issues
to address policy reforms and obtain political buy-in. It is important to incentivize
• Convening for sequenced and well-
countries to adopt measures that would make the FMIS infrastructure investment
aligned reforms supported by other
more effective for budget management through policy actions.
donors
• Experience in project design and
A multiphase approach, or an adjustable program loan might be an attractive
implementation
option to cater for the medium term. An appropriately phased project could
• $1.2 billion already provided in
deliver a usable part of the system at the end of each phase, which is necessary
financing
to maintain the project’s credibility during the long development period.
• Procurement advice
Adequate costing is important, and FMIS implementation costs vary with the
implementation’s scope and scale. However, it is possible to estimate FMIS
implementation costs with a given scope by using existing data on completed Bank projects. The estimated costs for the World
Bank-financed FMIS projects involving implementation of a COTS software is approximately US$15,000 per user.2
The World Bank has experienced specialists available to advise on important technical issues during the design and implementation
phases. The specialists are also familiar with best practices for information technology procurements and the World Bank rules
under which they will need to be applied. Continuity of World Bank staff from project design throughout implementation is a crucial
success factor.
Ensuring Better Public Financial Management Outcomes with FMIS Investments aims to incorporate new thinking in how Bank
teams approach FMIS implementation. The post-COVID-19 world likely would be characterized by greater pressures on budget.
According to the 2020 Global Report on Public Financial Management (PFM), countries do better in preparing their budgets than
implementing them. Therefore, going forward, it is more important than ever to use new thinking for improved PFM objectives in
FMIS implementations. This will help countries achieve greater fiscal discipline, effective tracking of budgetary allocations, and
enhanced efficiency in public service delivery. These improved PFM outcomes are fundamental for strengthening the governance
of public resources necessary for poverty alleviation and economic growth.
2. A Handbook on Financial Management Information Systems for Government: A Practitioners Guide for Setting Reform Priorities, Systems Design, and Implementation:
https://openknowledge.worldbank.org/handle/10986/23025.
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Supported by the GovTech Global Partnership - www.worldbank.org/govtech
Republic of Korea