0% found this document useful (0 votes)
12 views

Lesson 6 - Pefa Framework

Uploaded by

8vvghk5y9k
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
12 views

Lesson 6 - Pefa Framework

Uploaded by

8vvghk5y9k
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 11

3/1/2023

LESSON 4
PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY

Redeemer Krah, PhD, FCA


Desmond Aboagye, MPhil, CA
Prince Yeboah Boateng, MPhil, CA
Salomey Osei Addo, MPhil, CA

Lesson Outline
• In this lesson we will:
– Elements of PFM system
– Purpose of PEFA
– PFM outcomes
– Pillars of PFM
– PEFA methodology

Redeemer Krah - UPSA Faculty of


2
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 1


3/1/2023

Concept of PFM
• Public financial management system is a system
through which government achieves economical,
efficient and effective use of public resources in a
sustainable manner.
• PFM involves five stages
–Fiscal planning and budgeting
–Budget approval
–Budget execution
–Accounting and reporting
– External scrutiny and Audit

Redeemer Krah - UPSA Faculty of


3
Accounting and Finance@2023

Concept of PFM
• Public financial management system comprise
several sub-systems that function in an integrated
manner.
– Legal systems
– Budgeting systems
– Revenue system
– Expenditure management system
– Procurement systems
– Payment systems
– Payroll systems
– Accounting and reporting system
– Auditing systems

Redeemer Krah - UPSA Faculty of


4
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 2


3/1/2023

What is PEFA?
• Public Expenditure and Financial Accountability
(PEFA) is a framework developed for assessing
the status of public financial management at
central and local government levels of
government.
• A PEFA’s assessment provides a thorough,
consistent and evidence-based analysis of
PFM performance at a specific point in time.

Redeemer Krah - UPSA Faculty of


5
Accounting and Finance@2023

Development of PEFA
• The development of PEFA is predicated on the
international recognition of the critical role of PFM
in public service delivery.
• PEFA program was initiated in 2001 by seven
international development partners:
– The European Commission,
– International Monetary Fund,
– World Bank, and
– France,
– Norway,
– Switzerland, and
– United Kingdom

Redeemer Krah - UPSA Faculty of


6
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 3


3/1/2023

Benefits/uses of PEFA Reports


• Governments use PEFA to obtain a snapshot of their own PFM
performance.
• PEFA offers a common basis for examining PFM performance
across national and subnational governments.
• PEFA scores and reports allow both governments and others
users of the information to gain a quick overview of the
strengths and weaknesses of a country’s PFM system.
• PEFA assist users to appreciate the implications of the overall
performance results for the key goals of fiscal discipline,
strategic resource allocation, and efficient service delivery.
• The PEFA analysis contributes to dialogue on the need and
priorities for PFM reform.
• PEFA program provides support, monitoring, and analysis of
PEFA assessments

Redeemer Krah - UPSA Faculty of


7
Accounting and Finance@2023

PEFA Framework

Redeemer Krah - UPSA Faculty of


8
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 4


3/1/2023

Scope and focus of PEFA


• PEFA’s scope is aligned to three outcomes of an open
and orderly PFM system:
– Aggregate fiscal discipline. The objective of public financial
management is to ensure effective control of the total
budget and management of fiscal risks. The outcome is
that government must be fiscally discipline
– Strategic allocation of resources. The objective of a public
financial management system is to ensure resources are
strategically allocated to priority areas of government
policy and plans. This involves planning and executing the
budget in line with government priorities aimed at
achieving policy objectives.
– Efficient service delivery.The objective of public financial
management it to collect revenues and direct these
revenues to the provision of public services in an efficient
and effective manner.

Redeemer Krah - UPSA Faculty of


9
Accounting and Finance@2023

Pillars of PFM
• PEFA is built on Seven Pillars
– Budget reliability.
– Transparency of public finances.
– Management of assets and liabilities.
– Policy-based fiscal strategy and budgeting.
– Predictability and control in budget execution.
– Accounting and reporting.
– External scrutiny and audit.

Redeemer Krah - UPSA Faculty of


10
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 5


3/1/2023

Pillars of PFM (cont)


• Budget reliability. The government budget is
realistic and is implemented as intended. This is
measured by comparing actual revenues and
expenditures (the immediate results of the PFM
system) with the original approved budget.
• Transparency of public finances. Information on
PFM is comprehensive, consistent, and accessible
to users. This is achieved through comprehensive
budget classification, transparency of all
government revenue and expenditure including
intergovernmental transfers, published information
on service delivery performance and ready access
to fiscal and budget documentation.

Redeemer Krah - UPSA Faculty of


11
Accounting and Finance@2023

Pillars PFM
• Management of assets and liabilities.
Effective management of assets and liabilities ensures
that public investments provide value for money, assets
are recorded and managed, fiscal risks are identified, and
debts and guarantees are prudently planned, approved,
and monitored.
• Policy-based fiscal strategy and budgeting.
The fiscal strategy and the budget are prepared with due
regard to government fiscal policies, strategic plans, and
adequate macroeconomic and fiscal projections.
• Predictability and control in budget execution.
The budget is implemented within a system of effective
standards, processes, and internal controls, ensuring that
resources are obtained and used as intended

Redeemer Krah - UPSA Faculty of


12
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 6


3/1/2023

Pillars of PFM
• Accounting and reporting. Accurate and
reliable records are maintained, and
information is produced and disseminated at
appropriate times to meet decision-making,
management, and reporting needs.
• External scrutiny and audit. Public finances
are independently reviewed and there is
external follow-up on the implementation of
recommendations for improvement by the
executive.

Redeemer Krah - UPSA Faculty of


13
Accounting and Finance@2023

Indicators of PFM
• PEFA measures the pillars by 31 indicators
which are scored based on certain dimension.
• The indicators are measured by:
– one dimension,
– two dimensions,
– three dimensions or
– four dimension.

Redeemer Krah - UPSA Faculty of


14
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 7


3/1/2023

Pprocedure of measuring indicator


• The Pillars of the PFM is reflective of some
indicators or elements of PFM. Thus, the Pillars
are measured based on the indicators of each of
the Pillars.
• The Indicators of each Pillar are scored based on
certain dimensions.
• The dimensions of each indicator are assessed
based on a scoring criterion ranking from A to D
• The score for an indicator is determined using
either Weakest Link Method or Average Method.

Redeemer Krah - UPSA Faculty of


15
Accounting and Finance@2023

Methodology
• Weakest Link Method ( Method 1)
– This method is used for multidimensional indicators
where poor performance in one dimension is likely
to undermine the impact of good performance on
other dimensions of the same indicator. In other
words, this method is applied where there is a
“weakest link” in the connected dimensions of the
indicator

Redeemer Krah - UPSA Faculty of


16
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 8


3/1/2023

Methodology
• Average Method (Method 2)
– The aggregate indicator score awarded using this
method is based on an approximate average of the
scores for the individual dimensions of an
indicator.
– This method is prescribed for selected
multidimensional indicators where a low score on
one dimension of the indicator does not
necessarily undermine the impact of a high score
on another dimension of the same indicator.

Redeemer Krah - UPSA Faculty of


17
Accounting and Finance@2023

Example of Scoring
Table 3: Scoring of Dimension of an Indicator
P1-1: Aggregate expenditure outturn
Score Minimum requirements for scores
Aggregate expenditure outturn was between 95% and 105% of the
A approved aggregate budgeted expenditure in at least two of the last three
years.
B Aggregate expenditure outturn was between 90% and 110% of the
approved aggregate budgeted expenditure in at least two of the last three
years.
C Aggregate expenditure outturn was between 85% and 115% of the
approved aggregate budgeted expenditure in at least two of the last three
years
D Performance is less than required for a C score.

Redeemer Krah - UPSA Faculty of


18
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 9


3/1/2023

Limitations of PEFA Reports


• PEFA focus on the operational performance of key
elements of the PFM system rather than on all the
various inputs and capabilities that may enable the
PFM system to reach a certain level of performance
• PEFA also does not involve fiscal or expenditure policy
analysis that would determine whether fiscal policy is
sustainable
• PEFA does not provide recommendations for reforms or
make assumptions about the potential impact of
ongoing reforms on PFM performance
• PEFA assessment elements of the defense, public order
and safety function may not be included if information is
not available

Redeemer Krah - UPSA Faculty of


19
Accounting and Finance@2023

Assignment on PEFA
• Obtain the PEFA 2018 Report and compare the
PFM performance of Ghana with any country
of your choice (Justify your choice) on each of
the 31 indicators.
• Write your report on your appraisal.
• Submission deadline: 29th March, 2023.

Redeemer Krah - UPSA Faculty of


20
Accounting and Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 10


3/1/2023

Trial Questions
• Explain the purpose of PEFA framework.
• Explain the three outcomes of an orderly and
open public financial management system.
• Explain the seven pillars of PEFA.
• Explain the two scoring methodology of PEFA,
• A country scored A, C, C on three dimensions of
an indicator. Compute the score of the indicator
using both Method 1 and Method 2.

Redeemer Krah - UPSA Faculty of


21
Accounting and Finance@2023

Redeemer Krah - UPSA Faculty of Accounting and


22
Finance@2023

Redeemer Krah, PhD,FCA @ UPSA 2023 11

You might also like