Team Finance of Vulupindi House at Waigani have achieved an unprecedented financial reporting milestone.
Team Finance, led by the Minister for Finance, James Marape, and includes Secretary for Finance Dr Ken Ngangan, were a happy lot last Tuesday when Public Accounts, for a record five years, were tabled and approved by the National Parliament. Public Accounts are detailed records of receipts, expenditures and debts of public bodies, statutory authorities, state agencies as well as provincial and local level governments. It will now, for the first time since Independence 40 years ago, fully bring up to date and up to speed the timely and accurate reporting and accountability aspects of government finances.
The Tuesday event in Parliament saw the tabling and endorsement of the 2010 to 2014 Public Accounts, while those for 2015 and 2016 have been completed and now with the Auditor General for audit and expressed audit opinion. They are expected to be tabled in the first session of Parliament in 2018. In so doing, Team Finance have fulfilled a major Constitutional obligation on their part, to report on and account for the public expenditure they also manage and oversee year after year. It will set the stage for a timely reporting system, this time for every succeeding budget year, a task that has not been successfully achieved for many years due to multiple impeding factors.
Success on the back of Finance Management Reforms.
This success story now comes on the back of effective reforms that are being undertaken at Finance. The Public Financial Management reforms that have been introduced over the past three years have very significant to strengthening efficiency, transparency and accountability in public sector accounting and budgeting. As with the updating of the Public Accounts, the reforms culminated in the amendment of the Public Finances (Management) Act with the new PFMA being presented and passed by Parliament in August 2016.
In respect to Public Accounts, successive National Governments have continuously been concerned about the significant delays in the preparation and presentation of annual Public Accounts. Major progress has now been made in addressing this concern, thus the result on Tuesday. The department has completed enhancement to the new accounting system, the Integrated Financial Management System (IFMS), that has resulted in significant improvement in the time it takes to complete the Public Accounts. This, along with a concerted refocusing of resources and priorities, has seen the major turn-around. “I am proud to be part of a government that can point to this major record of achievement in terms of PFM reform, leaving a lasting legacy of greatly enhanced capacity to deliver in full on the government’s development objectives for our people,” Marape said when presenting a statement to Parliament in September regarding the reforms. He said the five years of Public Accounts Financial Reports reflected the tremendous amount of work being done by the government, through the Department of Finance, to bring the Public Accounts up to date. There has been tremendous amount of progress with the implementation and continued roll-out of the IFMS, which has now been completed for 40 government agencies and 4 statutory bodies. This has brought about an enormous improvement in the time taken to prepare the Public Accounts Constitutional Requirement and Process.
The Ministry and Department Finance are mandated to table the Public Accounts reports to Parliament annually under the Public Finance (Management) Act. Compilation of public accounts report is a constitutional requirement under Section 211 of the Constitution. Section 3 of the PFMA gives certain powers to the Department and Ministry of Finance, which includes:
– The fiscal implementation of the National Budget, including budget controls as may be authorised from time to time;
– Overseeing the finances of the state so as to ensure that a full accounting is made to Parliament of all transactions involving public and statutory bodies or public money and property;
– Providing directions and guidelines regarding the financial management of public money and property by public and statutory bodies;
– Reporting on the Public Accounts of PNG;
– Accounting to Parliament for the financial performance and management of public and statutory bodies;
– Establishing controls and rules related to State procurement;
– Declaring the timing of the start and end of the fiscal (financial) year; and
– Administering the PFMA unless otherwise specifically provided.
Every November of each fiscal year, Parliament approves and passes the National Budget through an introduction of an Appropriation Bill. The Public Finances (Management) Act supervises the accountability and the drawdown of these expenditure of public funds. These expenditures are subject to Parliament scrutiny and is therefore fully accounted and reported to Parliament by the Department and the Ministry of Finance as the responsible agency.
Each year, the Department of Finance, under law, prepares the annual Public Accounts of the National Government. This is a mammoth task for the Department as every transaction of receipts, expenditures and debts must be properly and fully taken into account and recorded accurately. In accordance with the requirements of the Constitution, the 2010 to 2014 Public Accounts have been audited by the Auditor General with expressed audit opinion with the same process to be completed for the 2015 and 2016 Public Accounts Financial Reports.
Causes of delays
While an annual Public Account is required to be tabled in the preceding fiscal year in Parliament, the Public Accounts in the last five to six-year period have been delayed due to the following reasons;
– Delays in submitting financial records (detailed statements of receipts and expenditure) by national departments and provincial governments to the Department of Finance on a timely basis;
– Quality of reports not satisfactory, prompting correction of errors by the Department of Finance, which delayed the timing of the preparedness of Public Accounts;
– Capacity constraints at agency level (sub-national and national departments) preventing the quality and timeliness of those reports to the Department of Finance; and
– Delays in the release of audit reports of Public Accounts by the Auditor General, causing delay in submitting of reports to Parliament.
At present there are three main financial and accounting systems being used by public bodies (national government departments and provincial and district).
i) PGAS (PNG Government Accounting System)
This is a cash-base accounting system used by state agencies, including national departments, provincial and local level governments that served that country well since 1988. PGAS is gradually being replaced by IFMS. Unlike IFMS, PGAS sites are a stand-alone system where accounting records and data are uploaded and exported onto CDs and flash drives and sent to the Department of Finance for reviews and examinations. It takes time for provinces to send in their data for uploading onto IFMS – some provinces do not send their data until well into December when all the expenditure is uploaded. This ultimately affects the timeliness of reports and the preparedness of the annual Public Account.
This new financial system has been introduced and is being used by up to 95 per cent of national government departments. It integrates both the budgeting and accounting modules in one system. It is an online system that has all agencies linked to headquarters. All warrants released, commitments made and payments done are all on real time. No more hassles of trying to get agencies to submit data via CDs and flash drives or even email. At present it has also been rolled out to Central and East New Britain provinces with plans to roll out to every province by 2018.
iii) Alesco System
This is a system in which all government personnel emoluments, salaries and wages are disbursed from. Currently, there are seven different pay groups, PNGpay, Educationpay, Customs, IRC, ABG and Village Courts being paid out of Alesco. These personnel emoluments expenditure are then imported into the main general ledgers in the IFMS. To date, this is the only system in which all personnel emoluments should be paid out of for all public servants. Alesco has also been implemented in all agencies, and recently to the provincial hospital authorities, so all inputs are done out there and only the final processing or pay run is done at headquarters.
Legalities of Reporting Entities
There is legal distinction between national government departments and provinces with respect to reporting on financial aspects of their operations. Provinces are described as reporting entities and have legal status under the Organic Law, while government departments, individually, do not have legal status and are not reporting entities and cannot prepare financial reports and statements under their own name. National departments are organs/instrumentalities of the central (State) system.
National departments must now become reporting entities and be prepared to provide detailed statements or receipts and expenditure, annual financial statements and other financial reports required under the PFMA. Legislative and administrative reforms can be introduced to recognise national government departments as reporting entities like provinces and statutory bodies.
Change proposed for Government’s Accounting and Financial Year Calendar
The current fiscal year for the National Government begins on January 1 and ends on December 31. While this accounting period has been fixed in law (Fiscal Act 1977) and has been a practice for the government accounting cycle, the government has foregone opportunities in terms of revenue collections into the Consolidated Revenue Fund to timely fund the Budget. Revenue collections through the first and last quarters of the fiscal year have not been effective due to government and private sector closing business for the end of year period. A separate policy submission and legislative reform for government’s fiscal/financial year calendar is imminent and that all key central agencies to come up with a workable financial year that will draw an effective timeline to effectively and timely execute the budget.