HashemiteKingdom of Jordan
Institutional Financial Management Capacity Assessment (IFMCA):
Education and Social Development Sectors
June 28, 2006
Document of the World Bank
CURRENCY
Currency Unit = Jordanian Dinar (JD)
US$ 1 = JD 0.7089 (as of June 2006)
ACRONYMS AND SPECIAL TERMS
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ATMAutomated Teller Machine
CFAACountry Financial Accountability Assessment
CPARCountry Procurement Assessment Report
DiwanHeadquarters
EDDSEducation management software
EduwaveEducation management Software
EFTElectronic Funds Transfer
EGRP Enterprise Government Resource Planning
ERfKEEducation Reform for Knowledge Economy
FMISFinancial Management Information System
FMSFinancial Management System
GBD General Budget Directorate
GFMISGovernment Financial Management Information System
GFS-2001Government Financial Statistics, version 2001
GLGeneral Ledger
HRHuman Resources
IFMCAInstitutional Financial Capacity Assessment
IIAInstitute of Internal Auditors
IMFInternational Monetary Fund
INTOSAIInternational Organization of Supreme Audit Organizations
ITInformation Technology
JD Jordanian Dinar
LANLocal Area Network
MADMinistry of Administrative Development
MadressaSchool
MOEMinistry of Education
MOFMinistry of Finance
MOHEMinistry of Higher Education
MOPICMinistry of Planning (and International Cooperation)
MOSDMinistry of Social Development
MTEFMedium Term Expenditure Framework
MTTFMedium term Fiscal Framework
Muderiyya Province
NAF National Aid Fund
PERPublic Expenditure Review
PFMPublic Financial Management
PSRPPublic Sector Reform Program
RFPRequest for Proposal
SAISupreme Audit Institution
TSATreasury Single Account
VFMValue for Money
WANWide Area Network
WBWorld Bank
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Regional Vice-President:Country Director
Director:
Manager, Financial Management:
Task Mission Leader / ChristiaanPoortman
JosephSaba
HasanTuluy
SamiaMsadek
PierreMessali
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Table of Contents
Table of Contents
List of Tables and Figures
Executive Summary
I Government - Wide Factors
1.Background
The National Agenda
The Public Sector Reform Program
2.Institutional Structures
Ministry of Finance
Ministry of Planning and International Cooperation
Ministry of Administrative Development
Civil Service Bureau
Human Resources Policy Environment
3.Financial Management
Budget Planning
Budget Execution
Accounting & Reporting
GFMIS
Internal Controls
Electronic Transactions
Internal Audit
External Auditing
4. Capacity Building
5. Recommendations for Government – Wide factors
II The Education Sector Capacity Assessment
1.Background
MOE’s Ten year Strategy for Education
National Agenda
2.Institutional Structures
Ministry of Education
3.Financial Management
MOE Financial Organization
Budget Formulation
Budget Execution
Accounting & Reporting
Reporting
Internal Controls
Internal Audit
4. Capacity Building
5. Performance Indicators
6. Recommendations for the Ministry of Education
III. AThe Social Development Sector Capacity Assessment
1.Background
The Multi-Year Strategy
2. Institutional Structures
Ministry of Social Development
3.Financial Management
Budget Formulation and Execution
Accounting & Reporting
Internal Controls
Internal and External Audit
4. Performance Indicators
5. Capacity Building
6. Recommendations for the Ministry of Social development
III. B National Aid Fund
1.Background
2.Institutional Structure
3. Financial Management
NAF Program
Budget Formulation and Execution
Accounting & Reporting
Internal Controls
Internal and External Audit
4.Capacity Building
5. Recommendations for the National Aid Fund
List of Tables and Figures
Table 1.Selected Fiscal Parameters 2003-2010 (million JD)
Table 2Status of IMF/WB Reform Recommendations Affecting IFMCA Analysis
Table 3The Expenditure Control Process
Table 4Summary of MOF Financial Training Activities in 2005
Table 5 Key Data on Public Education in 2003/2004 Academic Year
Table 6Potential Sample Performance Measures and Indicators
Table 7Education Budget Performance 2003-2005 (JD Million)
Table 8Proposed New Program Structure
Table 9Ministry of Education: PEFA Performance Indicators
Table 10 Social Development Budget Performance (JD Million)
Table 11Ministry of Social development: PEFA Performance Indicators
Table 12NAF 2006 Budget Request vs. Approved
Figure 1Ministry of Education Organization
Figure 2MOE Directorate of Financial Affairs
Figure 3MOE Audit, Inspection and Quality Assurance
Figure 4Organization of the Ministry for Social Development
Figure 5MOSD Financial Directorate Organization
Figure 6.NAF Organization Structure
Box A Procurement control procedures
Box B Steps to Implement Modern Internal Audit
Box CEducation Highlights
BoxDMOE Objectives to Support its Ten-Year Strategy
Box ESocial Security Fund
Box FHousing Fund
Box GPotential Financial Courses
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JordanIFMCA Executive Summary
Executive Summary
The Government of Jordan has been actively engaged in improving its fiscal and public financial management framework for over a decade. It has been assisted in this work by both the World Bank and the IMF. The 1999 Public Sector Reform initiative had four components, two of which directly affected financial management.[1] The financial management reforms were aimed at, inter alia, moving to a medium term expenditure framework, adopting a GFS-2001-compliant chart of accounts for budgeting, accounting and reporting, adopting a Treasury Single Account, eliminating the external auditor from the ex ante control process and implementing a Government Financial Management Information System (GFMIS). Implementation remains a challenge and the 2004 action plan issued by a joint WB-IMF team[2] did not move as planned as the readiness of the line ministries to move with the modernization reforms as well as their capacity to introduce and manage the change are different.
The current Institutional Financial Management Capacity Assessment (IFMCA) selected two sectors the Education and Social Development[3] which are of importance to the Government of Jordan. Both sectors feature prominently in the government’s recent National Agenda and the Country Assistance Strategy (CAS). Both are being supported through a number of World Bank-supported projects and Economic Sector Works (ESWs).
The IFMCA examined the ability of the MOE and MOSD[4] to implement maintain and operate an effective financial management system. The review gave special attention to the sector’s financial staff, its processes of financial control and its supporting information as well as the sector’s ability to successfully deliver its strategy and annual work programs. The review identified gaps in the financial management system at the central and sector levels and assessed the associated risks on the use of public funds and planned modernization reforms.
At the central level the report explains in Chapter I that, while the planned changes are laudable, the government needs to put greater emphasis on their implementation. The Ministry of Finance needs to be more proactive in its dealings with the ministries with respect to accelerating and coordinating the implementation of such initiatives as: the new chart of accounts; the introduction of performance budgeting; and the government-wide GFMIS. For these initiatives, there are no identifiable, senior MOF managers who are driving the implementation process to completion. Financial management capacity is low for financial officers and the budget managers. This is even more important as the financial management reforms are progressively implemented. Finally, there is a need for a modern internal audit function across the government.
The Ministry of Education isa leader in financial management reforms at the line ministry level. It is pursuing automation of the education information and performance measurement systems at the district and school level, assisted by donors. As well, it is a pilot ministry for the government’s performance budgeting reform initiative. The ministry is well ahead of the complementary reforms that must take place within the General Budget Directorate for the effective implementation of performance budgeting to begin. There are serious problems in coordination of the design and the implementation of the ministry’s FMIS. There is no ministry owner for the FMIS project, and the acquisition process does not appear to be following the government’s own procurementrules.
A number of significant problems in financial management systems of the Ministry of Social Development and the National Aid Fund[5] were found which eroded accountability for performance and sound internal control. The MOSD and NAF share regional offices, with some ministry staff working full time on NAF administration. All regional directors are ministry staff, whose costs are not apportioned to the NAF budget. This understates NAF field operating costs. Regional management do not receive an approved budget, and must submit all requests for commitment or payment directly to their respective headquarters financial units. This removes any sense of their personal accountability for effective budget management. Financial processes are weak; there are no initiatives to implement the GFS-2001-compliant charts of account; no work is being done on preparing for a new FMIS; performance budgeting is non-existent; a modern internal audit function is not in place and, as a result, major weaknesses in the distribution of the NAF cash payments to eligible recipients have been undetected. The NAF operations should be made more transparent to Parliament and the public by the publication of its approved budgetand its final budget report at year-end.
Recognizing the challenges that the different institutions are facing to move with the implementation of the planned modernization reforms, the recommendations proposed in the report, took into account the Government overall priorities and distinguished the reforms that can be implemented in the short team and those that will take more time.The team however would like to stress the importance of the following two recommendations:
1. The top three Government PFM reforms: (i) the budget management (results-oriented budget, MTEF), (ii) the accounting-reporting system (new chart of accounts, reporting of commitments), and (iii) the Government integrated financial management system (GFMIS); need a stronger leadership of the Ministry of Finance and a greater collaboration with the MOPIC and the line-ministries. It also requires a strategic approach to capacity strengthening of the financial staff in the line-ministries or audit bodies with special attention to middle management team.
2. The government should approve a program of implementation of modern internal audit across the government. The program would follow a multistage process. The Government should assign formal responsibility to MOF for the functional direction, including professional training, of all financial staff in government entities.
To respond to the skills upgrade needs the MOF’s should increase significantly its training capacity, either in-house or through contracting out a portion of the program.
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Jordan IFMCAGovernment-Wide Factors
I Government - Wide Factors
1.Background
During the past decade, the Government of Jordan implemented a full-fledged adjustment program with continuous support from the IMF and the World Bank. Economic growth during the last few years of the 1990s was over 4 percent, despite adverse external political factors. GDP growth reached almost 5 percent in 2002, and was around 7 percent in 2004. Jordan graduated from the IMFprogram of support in July 2004. A World Bank report[6]described Jordanas a star performer among emerging countries in terms of its structural reform achievements.
The National Agenda
In 2005, the Government issued a ten-year strategic plan, the National Agenda, which aimed to “...improve the quality of life of Jordanians through the creation of income-generating opportunities, the improvement of standards of living, and the guarantee of social welfare.” The plan set ambitious macroeconomic performancetargets, to be achieved during the coming decade and clearly articulated performance measures to be used to monitor progress towards their achievement. Table 1 displays the targets in the context of the country’s recent economic performance.[7]
Table1.Selected Fiscal Parameters 2003-2010 (million JD)
Actual / Est. / Target2003 / 2004 / 2005 / 2010
GDP / 7,204 / 8,164 / 9,118 / 14,498
Total Revenue and Grants / 2,613 / 2,959 / 3,062 / 3,929
Current Revenue / 1,632 / 2,088 / 2,522 / 3,793
Tax Revenue / 1,083 / 1,429 / 1,766 / 2,590
Non-tax revenue / 548 / 659 / 756 / 1,203
Capital Revenue / 44 / 60 / 40 / 0
Total Expenditure and Net Lending / 2,710 / 3,113 / 3,479 / 4,235
Total Expenditure / 2,710 / 3,113 / 3,479 / 4,235
Current Expenditure / 2,064 / 2,310 / 2,848 / 3,065
Capital Expenditure / 646 / 803 / 631 / 1,170
Lending minus Repayments / 0 / 0 / 0 / 0
Primary surplus / 73 / 7 / -210 / -82
Deficit / Surplus (excluding Grants) / -1,035 / -965 / -917 / -442
Debt / 6,891 / 7,193 / 7,136 / 8,371
National Savings Rate (percent) / 32% / 24% / 6% / 19%
Unemployment Rate (percent) / 14.5% / 12.6% / 14.7% / n.a
Source: National Agenda,
The first and third dimensions of the National Agenda are of greatest relevance to the Education and Social Development Sectors. Specific measures directly supporting the two sectors identified in these dimensions include[8]: increased and higher quality vocational training; employmentsupport;significant improvement in the quality of the education provided by the sector; higher student participation rates; the establishment of a steady and predictable source of financing; rationalization and simplification in administrative development; improvement in the accountability of government; and increased transparency in governmentoperations.[9]
The Public Sector Reform Program
Jordanlaunched a Public Sector Reform Initiative in 1999, with support from the World Bank and bilateral donors. Phases I and II of the program had four tracks: public sector administrative reform; an e-government initiative; judicial reform; and financial management reform. The financial management and budget reforms involve restructuring the expenditure budget, moving to a medium-term budgetary framework and modernizing financial management. The Bank-financedPublicSectorReformCapacityBuilding Project continued prior donor support for the reform by ensuring strategic staffing within administrative agencies and by providing them with training and other capacity building support to implement the reform process. The project also financed goods, equipment and technical assistance for central government agencies executing the program
2.Institutional Structures
The IFMCA focuses on the ministries of Finance, Planning & International Cooperation, and Administrative Development as well as the Civil Service Bureau.
Ministry of Finance
The Ministry of Finance is the main player in the budget reform process. A 2004 joint IMF/World Bank report noted that the MOF faced institutional fragmentation and capacity limitations in the budget management process.[10] The MOF shares responsibility for the budget process with a semi-autonomous General Budget Directorate (GBD) that is outside the MOF organization but that reports directly to the Minister of Finance. In addition, the Ministry of Planning and International Cooperation manages the donor-financed investment budgets in a parallel process. The IMF/WB report made a number of recommendations that affect the IFMCA; this report is the main assessment of the Jordan Public Financial management and the IFMCA builds on its conclusions. Its recommendations are presented in Table 2.
Table 2:Status of IMF/WB Reform Recommendations Affecting IFMCA Analysis
Recommendation / ImplementationTimeframe / Status as of Q1/2006
Establish 3-year, rolling MTTF and MTEF / 2005 / There are six task forces working on the completion planned for the 2007 budget. Risk of delay
MOF/ General Budget Directorate to adopt a Performance Framework for budget management monitoring / Q3/2005 / No progress; no plans in General Budget Directorate to implement
Pilots to establish performance information expanded by GBD to new sectors / 2005 / Ministry of Education selected as a pilot is now developing a framework
General Budget Directorate to streamline and redefine budget programs to ensure clear and measurable links between program inputs, activities, outputs and outcomes / Continuous / No obvious progress
2005 Budget based on an updated functional and economic classification consistent with international practice / Q3/2004 / GFS2001-compliant chart of accounts to be completed by June 2006 for implementation in the 2007 budget. Includes functional and geographic coding
Implement a Treasury Single Account / 2005 / The reform is almost completed. Most of Ministries accounts are in the TSA. At present, the treasury is centralized within a system of zero-balance accounts. The final stage will be the extension of the method to all other public entities holding public funds.
Explore feasibility - simplified General Ledger / Q3/2004 / There is no treasury system to capture transactions for GL. It can only be compiled manually from monthly ministry reports; awaiting the GFMIS for the system
Introduce Simplified Commitment Controls / 2005 / A manual commitment report is prepared monthly by all budget entities and sent to MOF, which compiles a monthly report manually. Its reliability is uncertain.
Complete GFMIS conceptual design and functional specifications / 2006 / Consultants’ RFP for GFMIS completed in August 2005. Project stalled over short list of consultants; agreement recently reached and Cabinet RFP decision imminent. Target date will slip by 1-2 years
Phase out Audit Bureau’s ex ante control role / 2005 / Audit Bureau agrees with recommendation. Implementation to be phased in as internal audit capacity is established in MOF
Establish new regulations for Internal Audit / 2006 / Cabinet has approved the creation of a centralized internal audit group in MOF; necessary regulations in preparation.
Source: MOF Interviews
Accountability for the implementation of this package of reforms is diffuse and unclear. There are multiple areas of responsibility, with no overall direction from the most senior levels of the ministry.
MOF has a major role in the implementation of these financial reforms. Changes required include the use of functional and program classifications that permit the linking of costs (inputs) with program outputs (performance information) and ultimately, measures of outcomes (the achievement of the program objectives). This will require revisions to the expenditure classification system and, over time, a move towards accrual accounting. It will also require the implementation of a fully functioning GFMIS within MOF and ultimately in all ministries. Finally, it will require major changes in the resource allocation processes to utilize program-specific performance information as the basis for decision-making.
Ministry of Planning and International Cooperation
The government of Jordan has a unified budget insofar as the budget funding of current and capital budgets is concerned. Both budgets are managed by the MOF. However, the Ministry of Planning and International Cooperation manages a separate foreign-financed investment budget and the government’s matching contributions to each project in accordance with the respective project agreements.
The Bank-financed Education Reform for Knowledge Economy (ERfKE) project is a key project of relevance to this analysis that is not managed by the MOPIC but has been delegated to the Ministry of Education (MOE)[11].
Ministry of Administrative Development
The Ministry of Administrative Development administers the Cabinet-approved public sector reform policy. This includes civil service reforms and financial reforms, among others. The IFMCA mission was advised that the bulk of the reforms relating to financial administration were the responsibility of MOF. Of particular importance are the steps necessary to implement a results-based system of budgeting, with agreedindicators for specified outputs and outcomes. The ministry has been allocated funds to start establishing reform units to support the public sector reform agenda and act as agents of change in the larger ministries.[12]