Financial Management for Good Governance From Deficit to Surplus by Kashif Abbas

3 Financial Management for Good Governance From Deficit to Surplus S.M. Khatib Alam Imran Yousafzai

March 2008

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FY 2004-05

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FY 2007-08 Projected

FY 2008-09 Projected

FY 2009-10 Projected

City District Government Faisalabad, Pakistan

This document is produced as part of the Strengthening Decentralised Local Government in Faisalabad (SDLGF) Project for the purpose of disseminating lessons learnt from the project. The views are not necessarily those of DFID or the City District Government Faisalabad (c) SDLGF March 2008 Parts of this case study may be reproduced for educational use, provided that such material is not printed and sold. The authors expect that, any material which is used will be acknowledged accordingly. Layout & Designed at: FaizBakht Printers, The Mall, Jhang (Punjab) Pakistan.

VISION “Pre-empting Poverty, Promoting Prosperity”

MISSION STATEMENT “We will provide high quality services which compare with the best in the country. We will work with everyone who wants a better future for our District. We will establish an efficient, effective and accountable District Local Government, which is committed to respecting and upholding women, men and children’s basic human rights, responsive towards people’s needs, committed to poverty reduction and capable of meeting the challenges of the 21st Century. Our actions will be driven by the concerns of local people”

ACKNOWLEDGMENTS This case study is the culmination of efforts by a number of individuals from government and the technical assistance team. Firstly it is important to thank all those who have cooperated with the team preparing this case study not only in the last few weeks but over the course of the last four years. They have been critical to the work and demonstrated what is possible to achieve in government when the right set of conditions prevail. We would also like to thank the communities and elected representatives of the district that assisted the SPU team in implementing this project and its various components. The authors wish to thank Rana Zahid Tauseef, City District Nazim; Maj (Retd.) Azam Suleman Khan, District Coordination Officer; and Dr. Tariq Sardar, EDO Finance & Planning for their valuable contribution in making this project a huge success. We are also thankful to: Mr. Ch. Zahid Nazir, ex-District Nazim Faisalabad; Mr. Tahir Hussain, ex-DCO Faisalabad and Mr. Athar Hussain Khan Sial, ex-DCO Faisalabad for their valuable contribution to the success of this project. We are also thankful to: Mr. Asad Islam Mahani, exEDO Finance & Planning Faisalabad and Mr. Waseem Ajmal Chaudhry, ex-EDO Finance & Planning, Faisalabad for their valuable contribution to the success of this project. We are further thankful to all CDGF employees (past and present) and CDGF partner departments but we would like to specifically mention by name the following: Mr. Muhammad Akhtar, District Accounts Officer; Mrs. Saima Raza, District Officer (DO) Finance and Budget; Mr. Muhammad Ramzan, DO Planning; Mr. Dilmir Khan, DO Accounts; Mr. Amir Tareen, DO Revenue; Mr. Mehmood Wazir, DDO Revenue; Mrs. Talat Qamar DDO Accounts; Mr. Ghulam Rasool Bhawana DDO Planning and Mr. Rana Saif, Assistant Finance & Budget for their efforts in successfully implementing reforms in their departments. We are thankful to all DFID Project Advisers and Management that have assisted in this project since its start and we would like to specifically thank Mr. Mosharraf Zaidi, Governance Advisor, DFID Pakistan; Mr. Wajahat Anwar, Deputy Programme Manager, Accountability and Empowerment team, DFID Pakistan; Ms. Jackie Charlton, DFID; Mr. Alistar Moir, DFID Pakistan and Ms. Nighat-un-Nisa, DFID Pakistan for their continuous support and professional technical guidance since their involvement in 2004. Our thanks are also to Dr. James Arthur, Dr. Richard Slater and Ms. Janet Gardener for their valuable inputs throughout the project. We would also like to thank Mr. David Gray, Governance Advisor DFID; Mr Roy Brockman; Ms. Joji Reyes and Ms. EJ Nacpil for their valuable contribution in completing the case study. We are thankful to Mehreen Hosain for proof reading the document and all the SPU team members for their dedication, hard work and the many late hours spent designing, implementing and documenting the work of this project. These include: Nadir Ehsan, Mahmood Akhtar, Muhammad Shahid Alvi, Muhammad Tariq, Kashif Abbas, Ajaz Durrani, Farhan Yousaf, Muntazir Mehdi, Gul Hafeez Khokhar, Mirza Muhammad Ramzan, Muhammad Sharif,Humaira Khan, Sumara Khan, Saima Sharif, Mubarak Ali, Adnan Akram, Sohail Anjum, Saleem Shehzad, SamiUllah, Arooj Sultana , Mamoona Mustafa and all long and short-term international and national consultants.

FOREWORD The City District Government Faisalabad (CDGF) is changing. After a period of introspective assessment we believe that we are now moving towards becoming a more responsive, effective and efficient Local Government through reforms that we initiated in May 2004. It is with great pleasure that I say we have now additional resources which three years ago seemed difficult. Our budget for the forthcoming year will have money that we plan to allocate based on those whose needs are greatest in Faisalabad. We are currently in a very good state of affairs at all levels. Our finances are considerably better then 3 years ago, and with a surplus budget. We now have fiscal space to allocate resources in those sectors that we deem critical to fighting poverty in Faisalabad especially in Education, Health and Community Development sectors.Our budgeting process in this quarter has been the most participatory ever, and we believe we are a leading district in undertaking widespread consultations which have fed into the budget. We will be further broadening the participation process. The availability of credible and timely information is now helping the Finance & Planning department to correctly inform Local Government so that discussion can be made in a rational manner. Our information systems allow us to present accurate information to senior management during our monthly meetings. This information enables top management to prioritise its needs and identify areas that need targeted investment. The challenge ahead is clear, how to translate this progress into good financial management? While the CDGF continue to rely upon provincial support, there is much that can be done at home to offset fiscal instability. I would like to take the opportunity to thank our City District Nazim for his valuable support to the reforms in our district. I would also like to congratulate my City District team members especially all the EDOs for working to achieve the objectives in their departmental reforms programme. Finally, I would like to thank our major partners in development, the Department for International Development (DFID) UK and their management consultants GHK International Ltd., for assisting Faisalabad City District through the project â&#x20AC;&#x153;Strengthening Decentralized Local Government in Faisalabadâ&#x20AC;?. Maj. (Rtd.) Azam Suleman Khan District Co-ordination Officer City District Government Faisalabad March 2008 The Clock Tower, symbol of Faisalabad

PREFACE Starting from a base where there was very limited strategic human resource management, little or no validated data for making informed decisions, poor levels of fiscal management, limited technical capacity within our team and an almost non-existent policy for both gender and communication, we have made, in this very short period of time, good steady progress. These strategic aims form the basis of improving how we govern ourselves but also supporting a paradigm shift that leads us to becoming a more citizen friendly District Government. The F&P department has been hard at work in improving systems, processes and procedures that will aid to improve services in the social sectors, such as education, health and community development. We continue to focus on fiscal transparency and therefore, we have been liaising with as many stakeholders as possible, about the way we allocate and spend money. We have been involving our politicians to make financial decisions. Hence our efforts to educate and train our politicians in core areas such as gender, finance, governance and expenditure management are leading to more accurate budgeting and planning. Cash flow has improved because of the strong financial management in CDGF. The District prepared a realistic budget in 2007-2008 and based on our cash flow position the Finance department is confident that in the next financial year providing there are no adverse provincial decisions taken, the CDGF is likely to have more fiscal space for development projects. Planning remains at the heart of good financial management. We have therefore continued to focus on building multi-year planning capacity within the Department. Cost benefit analysis of Financial Management Information System reveals that it has brought savings of more than Rs.10 Million per annum. The City District administration feels it more appropriate to focus on maximizing existing revenue sources rather than trying to identify new revenue sources. Revenues from advertisement and commercialization remain potentially the most attractive. They constitute 68 percent of total district receipts and the department plans to improve revenue collection from these sources. The road ahead will present many challenges, not least convincing sceptics that these reforms are not only important but a necessity. Other districts in Punjab and the country will be looking to Faisalabad to see how we develop and whether Local Governments can indeed deliver a level of service that people deserve. The onus is on all of us to work together for a brighter future - we owe it to all the citizens of Faisalabad. Dr. Tariq Sardar Additional Project Director Strengthening Decentralised Local Government in Faisalabad March 2008

Office of the District Co-ordination Officer, Faisalabad

Table of Contents

TABLE OF CONTENTS ACKNOWLEDGMENTS FOREWORD PREFACE ACRONYMS EXECUTIVE SUMMARY

BACKGROUND

OVERVIEW

THE CASE

IMPLEMENTATION AND IMPACTS

Design Continuing to Build Local Capacity Improvement in Financial Management Making the Budgeting Process Work Improvement in the Release of Grants Expenditure Tracking System Facilitating the Reconciliation of Financial Accounts Facilitating the Pensioners in CDGF Asset Management Information Systems Increase in Revenue Mobilisations & Fiscal Efforts Influence on Corporate Policy towards Reduction of Poverty Strengthening the Internal Accountability Mechanisms DRIVERS OF CHANGE Provincial Government and Legal Protection Leadership Location, Administrative Setup and Ownership Link with Non-devolved Departments and Other Donors Timely Technical and Financial Support Innovative System and Processes LESSONS & REFLECTIONS Policy Change Awareness Replication The Role of Survey Consultation with Elected Representative Availability of Technical Team Financial Incentives Understanding of Government Culture and Related Legislation

8 8 9 12 19 20 21 22 23 23 25 29 31 33 33 33 33 34 34 34 35 35 35 35 36 36 36 36 37

Table of Contents Decentralisation of Revenue Lack of Funds in not the Real Issue in the District WAY FORWARD Spatial Planning Farmework E-Procurement PIFRA Access Receipt Facilitation Centers Sustainability

37 37 38 38 38 38 39 39

CONCLUSIONS

BIBLIOGRAPHY

FIGURES Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7:

Improved Financial Management 10 Online Budgeting Process 16 Simplified Reconciliation system of CDGF 21 Financial Management Information System 24 Flow of Funds in the CDGF Account IV 26 Trends of Local Receipt from FY 2002-03 to FY 2007-08 28 Education Department’s Development Expenditure trend from FY 2002-03 to FY 2007-08 (upto November 2007) 31

ANNEX Annex 1: Annex 2: Annex 3:

A Case Study on Situation Analysis of CDGF’s Budget 2004-05 Comparison of PESRP Funding from 2004 to 2008 Receipt Facilitation Model

42 43 45

Acronyms

ACRONYMS AA ADP AMC BCL BM BSF CCBs CDGF COs DAO DCC DCO DDC DDOs DFI DFID DMS DO F&B DOA DOP DOs EDO EMIS F&P FMIS FY GIS HRMIS M&R MDG MTBF NAM NBP NFC PC1 PCF PESRP PFC PIFRA PLGO PMIU PPRSP RFC RMIS SDP TMA UCs ZAC

Administrative Approval Annual Development Programme Asset Management Cell Budget Call Letter Budget Management Budget Salient Features Citizen Community Boards City District Government Faisalabad Collecting Officers District Account Office District Coordination Council District Coordination Officer District Development Committee Deputy District Officers / Drawing and Disbursing Officers District Financial Information Department for International Development Document Management System District Officer Finance and Budget District Officer Accounts District Officer Planning District Officers Executive District Officer Education Management Information System Finance and Planning Financial Management Information System Fiscal Year Geographical Information System Human Resource Management Information System Maintenance and Repair Millennium Development Goal Mid-Term Budgetary Framework New Accounting Model National Bank of Pakistan National Finance Commission Planning Commission Performa 1 Provincial Consolidated Fund Punjab Education Sector Reforms Programme Provincial Finance Commission Project to Improve Financial Reporting and Auditing Punjab Local Government Ordinance Project Management Implementation Unit Punjab Poverty Reduction Strategy Paper Receipt Facilitation Centre Revenue Management Information System Strategic Development Plan Town Municipal Administration Union Councils Zila Account Committee

Executive Summary

EXECUTIVE SUMMARY The experience of the Strategic Policy Unit (SPU) of the City District Government Faisalabad (CDGF) demonstrates how changes in financial management practices have fuelled the District's transformation from being a Local Government in constant fiscal crisis to being a Local Government that can take pride in its fiscal surplus. This situation has allowed the District Government to provide more efficient service delivery and enabled it to take vital steps toward targeting poverty. The last three years of the reforms programme have been a watershed for Local Government in Faisalabad. There has been a tremendous change in the District. Who could have envisaged three years ago that the District Government would be wholly committed to ridding the District of deprivation and replacing earlier ad hoc and reactive policies with a firm and sustained commitment to development and modernization? The CDGF is now saving more time, money, and human resources, with the benefits of efficiencies being transferred to its citizens. On the whole the financial management reforms component has been well accepted both by the CDGF and Provincial Government, especially, since service delivery to client departments has improved considerably as a result of the change issues identified and then implemented by CDGF. The following are a brief summary of the initiatives implemented:

The District’s first major intervention to reform the financial management process, was to conduct a capacity development programme for financial officers, Drawing and Disbursement Officers (DDOs), clerks and accountants to prepare the budget in accordance with the new rules and regulations; Analysis of the cash flow has helped to present a macro level picture of Local Government finances enabling management to rectify micro level issues. The Finance and Planning Department (F&P) has been able to inform politicians of the need to exercise fiscal discipline and to avoid new development investment as a prelude to zero based budgeting; Analysis of the budget preparation process in 2005 exposed the District's ability to manage its financial resources in a responsible manner. Close scrutiny of the process and the way the budget had been implemented since 2003 shed light on the extent of the financial problems facing the administration. This analysis was necessary to inform financial managers and top administration about the current financial status of the District and how best to use the resources available; The budgeting process of Faisalabad used to be cumbersome and labour-intensive. In the last three years, the departments took huge strides in improving the traditional budgeting process. Much of this is due to better coordination, better training provided to the officers involved in the process and ongoing technical support from the CDGF reform initiatives; Prior to the reforms process, the required data for targeting the poor was not available. The identification of development schemes was undertaken on a highly politicised basis with little regard for prioritising a pro-poor agenda. Elected representatives were not conscious of poverty targeting while the majority of the Executive District

“Devolution is not apposed because of capacity constraints, shortage of technical manpower, the quality of awareness of local elected leaders or any such thing. It is apposed simply because it created such a huge disruption in the political economy of corruption.” Long Serving DMG Officer

Executive Summary

Officers (EDOs) were not fully aware of the concept of poverty reduction. A key aspect of the financial reforms process was to achieve more efficiency gains in resource allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP); The procurement process of CDGF was often constrained by the outdated Delegation of Financial Power Rules, which were issued by the Provincial Government in 1990 to delegate and authorize approvals at various levels for the purchase of differing goods and services from suppliers and contractors. The CDGF raised its concerns to the Provincial Government by suggesting the changes in the rules to make the procurement more effective. The Provincial Finance Department in year 2006 revised the Delegation of Financial Powers Rules which helped in the improvement of procurement of goods and services in the District; It has been difficult for departments to track monthly development and nondevelopment expenditure. The main reason has been the systems in place in the departments were aligned to the District Accounts Office (DAO). The departments were only preparing budgets at the departmental level while incurred expenditure was recorded at DAO. The F&P department was thus unable to monitor expenditure against the budget. The F&P department is now able to develop reports giving individual line item expenditures and other components such as the Punjab Education Sector Reform Programme (PESRP), National Programme for the Improvement of Watercourses (NPIW), Chief Minister's Accelerated Programme, and significantly CCB projects are now also classified; Reconciliation of accounts in an accurate and timely manner is critical to fiscal discipline. Rule 67 (3) of the Budget rules 2003 clearly states that it is the joint responsibility of all key officers to submit accurately reconciled accounts to the District Government. The appropriation of annual account is prepared by the DAO and that did not give the true picture of expenditure detailed object wise but only informed about the grant wise expenditure in the District. Therefore, the CDGF for the first time made an attempt to reconcile the June 2007 annual accounts DDO wise, grant wise and detailed object wise with the District Account Office; Good strategic management relies on an organization's ability to manage its information properly. It is only now, that the District has started to understand the implications of having reliable information as the basis for its business decisions. For a district as large as Faisalabad, having the right information at the right time will allow managers to redefine Local Government services and allocate resources accordingly; Revenue generation in local receipts has been constantly improving since 2002-03. In 2007-08 the District has made considerable progress in revenue collection. Up to November 2007, the District has collected 92 percent more revenue than the previous financial year. This upward trend in CDGF's local receipts, combined with more successful efforts to increase the District Government's PFC award, strongly bolsters Faisalabad's fiscal position for the future. Faisalabad's financial reforms process has undoubtedly brought tangible fiscal rewards to the District Government. The financial plans and reports are being prepared on time and with fewer errors; Financial accounts are being reconciled allowing local policymakers to make informed judgements and policies. Facilities for an on-line budgeting system are in place. Financial planning and equitable resource allocation have been linked. Commercial properties have been identified and properly valued enabling the District Government to generate increased local revenues. The procurement process is

Executive Summary being streamlined. Workshops and trainings are ongoing to continue to build a skilled, knowledgeable, and well-motivated local work force. The Financial Management Information System (FMIS) is at the core of the fiscal transformation. The Finance & Planning department of CDGF through the technical assistance provided by the reforms programme brought significant changes in the financial management practices of the District. The Department analysed the reasons for fiscal deficit and undertook major steps to bring improvement and efficiencies in the departmental business processes like budgeting, expenditure tracking and release of funds etc. These efficiencies together with both the Provincial directives and local policy changes have contributed towards the District moving from a deficit situation to a surplus. Keeping in view this upturn, CDGF remains optimistic that continuing with the financial management disciplines will allow the District in the future to remain in surplus. The fiscal space allowed the City District Government to target poverty, using evidence based planning which built on data and information being generated at all levels. An example of this is the District Citizen Perception Survey, which influenced the allocations in the education and health sectors. This wide acceptance of reforms in Faisalabad is intriguing. After all, similar or less intense attempts to reforms in Pakistan particularly in the Punjab have been slow in producing results. How is it then possible that reforms in Faisalabad could proceed, and were widely accepted since 2004? Had the CDGF identified the major gaps regarding the employeesâ&#x20AC;&#x2122; existing capacity and made them effective to plan an implement the proposed changes in Faisalabadâ&#x20AC;&#x2122; financial management practices? Was the online budgeting systems instrumental in making the CDGF budgeting process more efficient? How did the CDGF manage to monitor and track the expenditure against the approved allocation and established strict financial discipline in the district? Had the reform initiatives helped the CDGF in identifying the true potential of local revenue? Had the CDGF improved the planning systems by developing tools to influence the corporate policy towards targeting poverty? Had the reform initiatives changed the working culture of the CDGF employees regarding knowledge sharing, team working, transparency and mutual understanding? These are just some of the issues addressed in the case study.

Background

BACKGROUND The Strategic Policy Unit (SPU) was set up by the Faisalabad District Government in 2002, as a policy think-tank. Its key aim was to act as a conduit in the district from which all reforms programmes could be initiated. In 2004, the United Kingdom's Department for International Development (DFID) agreed to provide technical assistance to the district through the “Strengthening Decentralized Local Government in Faisalabad” and using the SPU as the platform from which change would be driven. The SPU over a four year period has acted as a key resource fostering social capital within the City District Government and often being the focal point for local and international technical assistance and programme development. With a cohort of key technical resources and change management agenda it plays a key role in facilitating public sector reforms. It has been instrumental in assisting Faisalabad to become a modern administration. Pakistan's devolution in 2001 ushered a series of bold structural changes which created a new tier of Local Governments comprising District Government, Town Municipal Administration (TMA), and Union Administration. The objectives of the devolution, easily discernible from various Government publications and ordinances, include improving the Districts' financial management practices. Underpinning these objectives is the promise to improve service delivery, particularly social services, and ultimately, the potential to reduce poverty in the country. The Government of Pakistan through devolution introduced a new system of Local Government. But Local Governments are not a constitutional tier of Government, and are established and assigned functional responsibilities through provincial legislatures, primarily under the Punjab Local Government Ordinance (PLGO). District Governments have the responsibility for delivering social and economic services, including elementary and secondary education, primary and secondary health, agriculture and municipal services. To make devolution function effective, the management of district and other local authorities needed to be strengthened. Pakistan had only limited experience of Local Government and did not have the systems, trained staff or the means of improving governance. The process of devolution was undertaken quickly and many new initiatives were built into the legislature, some powers of the Provincial Governments were decentralized to the District level, but supporting processes and rules were not thought through sufficiently. For example, there was a lack of in-house treasury arrangements at the District level, where a District Accounts Officer (DAO) controls the accounting function making the Finance & Planning (F&P) department dependent on it. Box 1: Financial Management Functions in the City District Governments In the City Districts the Key Financial Management functions are undertaken by four departments: Finance and Planning department is responsible for budgeting, expenditure management, cash management, reconciliation, pension, audit, development planning, enterprise and investment promotion; The Revenue department assesses and collects local receipts, for example, building rent, license fee, local rates; The Municipal Services department assesses and collects the revenue from advertisement, commercialization and bus stations; The District Accounts Office which is a non-devolved department performs the functions of treasury in the District.

Overview

OVERVIEW To meet the challenges of devolution in 2001, the City District Government Faisalabad established a Strategic Policy Unit (SPU), to drive the process of reforms. The District Government Faisalabad obtained the assistance of the Department for International Development (DFID) in providing technical assistance to develop and improve systems and processes. As a first step, the City District Government Faisalabad prepared five year evidence based Departmental Strategic Operational Plans (SOPs) in 2004 in line with the District Government's Corporate Governance Plan (2004-2009). The Finance & Planning (F&P) and Revenue departments had undertaken a very detailed situation analysis of the departmental activities. The situation analysis critically highlighted the management, organizational, financial and capacity constraints of the departments. The key strategic issues that needed to be addressed were identified: 혺

혺

Financial management systems did not allow the F&P department to analyse the District cash flow, issue an effective Budget Call Letter (BCL), track and monitor expenditures & receipts or provide timely release of grants to the departments; Users were not able to have access to financial information nor did financial reporting mechanisms exist to assist in decision making. A key issue was the need to establish an effective Financial Management Information System (FMIS); Bottom-up-planning was non-existent, and most development funds were used by councillors for local and ad hoc schemes and not for strategic district level improvements. The City District Government was unable to plan for its capital investment, a need essential to balance budgets and allowing the proper allocation of money toward district functions was identified; Since 2001 up-to 2004, the Provincial Finance Commission (PFC) development award was static and the increased amount from the National Finance Commission

Retained Account The money in the Retained account is retained by the Provincial Government and is not distributed to the districts as part of the PFC award. This is mainly used for the Provincial Governments functions and the Provincial Government may provide funds to the districts for various projects in the form of conditional grants.

Manual budgeting system in 2004

Overview

(NFC) went into the retained account only. Local receipts were low until 2006 when the District Government was upgraded into a City District Government where additional revenue sources such as advertisement, commercialization and General Bus Stands fee came under the CDGF control. But there was no fare-based record of revenue sources available. So yearly targets set by the departments for the local revenue sources were unrealistic; The Revenue department is the primary custodian of District Government assets. But the department did not have any record of properties for which the department could be held accountable for managing and maintaining the CDGF assets. Besides there was no culture of asset management in the District; The capacity and resources of the F&P department were not adequate or fit for purpose for the delivery of quality public services; The process of reconciliation of accounts needed improvement to enable expenditure and receipts realized in line departments to be reconciled with the District Accounts Office (DAO) and to publish financial reports of the District Officer Accounts (DOA) on a monthly basis to be submitted to the Council for approval; The utilisation of development funds was less than 70 percent, which can be traced to the ineffective and inefficient budgeting process; System deficiencies and lack of availability of financial data prevented top management in determining investment priorities, leading to poor investments, which were not effective in reducing poverty. Political will and ownership by the District administration were needed in evaluating plans to ensure that health and education programmes were allocated to the areas of greatest need; Procurement of goods and services was inefficient in the District. Outdated rules, lack of trust of suppliers, poor Government procedures and instructions, late fund releases and the lack of effective financial control systems were the key problems.

Weekly brainstorming session of F&P department to identify key issues

The Case

THE CASE This case study describes how the District undertook the financial reforms which are essential to improve service delivery in critical sectors i.e. education, health, agriculture and municipal services generally. It addresses a number of questions including the following: What were the factors that allowed the District to become more fiscally responsible? How was fiscal space created in becoming more transparent, accountable and efficient? How did the FMIS help the City District Government Faisalabad in decision making? Why was it important to improve the budgeting, reconciliation, releases and expenditure tracking systems in the City District Government Faisalabad? Were the Provincial Government, local administration and politicians supportive of the reforms process? How committed has the CDGF been in their goals of investing and getting value for money on the education and health sectors? Specifically, this case study focuses on the following areas: a) b) c) d) e)

Can one achieve efficiency by strengthening the capacity within the District Government for effective planning and budgeting process? How can improvements in the Financial Management systems help in bringing more transparency and accountability? How does the increase in revenue mobilization and fiscal efforts create more fiscal space? Did the City District Government influence the corporate policy towards reduction of poverty? Can one change departmental culture and behaviours by strengthening internal accountability mechanisms to ensure professional integrity and financial propriety?

DO finance & budget Mrs. Saima Raza introducing FMIS to finance & planning department

Implementation and Impacts

As part of the CDGFâ&#x20AC;&#x2122;s internal monitoring process to determine how the District is performing with respect to what is mentioned in the corporate and departmental operational plans? Faisalabad under the reforms initiatives developed the bi-annual performance reports, which presented detailed assessments for consideration by the district assembly and other stakeholders. This has allowed the CDGF to be held accountable and transparent, as well as informed all the relevant stakeholders of the issues that Faisalabad faced during the last 3 years of implementation.

IMPLEMENTATION AND IMPACTS Design Faisalabad was committed to reforms and change and had set itself a series of challenges that if met would result in marked improvements in local governance and public services. The first major step was to establish a good governance framework, which underpinned the reforms process and injected life into public services. During the inception phase of the reforms initiatives (from May-November-04) the district corporate plan was prepared. The Faisalabad's 'Corporate Plan' provided the overarching policy framework for service planning and delivery. The corporate plan laid out the Mission statement, and core values of the District. The District Corporate Plan provided a clear indication of where Faisalabad as a District Government wants to be and the principles by which the District want to get there. To achieve the corporate objectives, Departmental Strategic Operational Plans (SPOs) were prepared. The Corporate Plan and all the Departmental SOPs have not been prepared in isolation, but have been informed in a number of ways including: seeking views from a number of key stakeholders which included the Government, elected members, civil society groups and monitoring committees. The detailed situation analysis was conducted of the Finance & Planning and Revenue departments. During the situation analysis, key change issues were identified and to address those issues five years implementation plans were prepared highlighting the strategy, objectives, activities, performance indicators, means of verification, time span and where applicable, costs. These were discussed in the Zila council (district assembly) and approved in December 2004.

Continuing to Build Local Capacity Issue The lack of service planning in the City District Government was a major cause for concern. Poor departmental performance can often be attributed to a number of factors i.e. interdepartmental relationships, weak reporting & management structures and a lack of resources. However one of the most important areas is the lack of knowledge and skills possessed by personnel on multi-year service planning and development, leaving departments unable to plan and deliver professional services. Despite these skill gaps, the District was still expected to deliver quality services. Process Realising this major gap, the F&P department organised training workshops for senior officers, Drawing and Disbursing Officers (DDOs), Accountants / bill clerks of the City District Government and other implementing and executing agencies.

DDOs training on budget & planning

Implementation and Impacts Local capacity was weak, and needed to be boosted to effectively plan and implement all the proposed changes in Faisalabad's financial management practices. Much of the success of the reforms process was hinged on the ability of concerned staff to use the FMIS. Resource Centres, established in the departments have provided on-line budgeting, reconciliation, and expenditure tracking facilities for all DDOs. Training sessions were planned to cover various modules of the FMIS. Box 2: Identification and Training of the Master Trainers To train over 900 government officials was a major undertaking and given the limited resources available, it was important to decide on a delivery model that would achieve the desired outcome within a suitable time frame. The approach that was finally adopted included the use of master trainers from various departments as key resource persons to deliver training to the DDOs in Towns. Consultations were held with departments as part of the process to identify master trainers and 32 master trainers were identified with the support of the other departments especially the Education department.

Encouraging broad-based citizen support of the City District Government's plans and programmes entails more participation. A trilingual approach such as English, Urdu, and Punjabi has been used to train stakeholder groups to facilitate understanding of the basic concepts of translating plans into financial budgets. Different workshops have been conducted involving District Council Members to discuss the benefits of locally-evolved planning and to help them to understand their roles in the preparation, approval and implementation of the budget. Impacts A series of training workshops for the top, senior and middle management contributed to district’s success by helping the CDGF to develop its human resources to meet its present and future needs. It has also improved the employees' performance, provided them professional development opportunities and became more efficient and effective in managing the finances of the CDGF. Following are the benefits achieved through the reforms process: l

Fiscal Space “Fiscal space can be defined as room in a government´s budget that allows it to provide resources for a desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy.”

960 DDOs and their account clerks trained on budget and planning; The error rate in budget preparation from more than 33 percent to less than 3 percent as a result of this training; Capacity building of all EDOs and other operational officers on Mid-term Budgetary Frame work (MTBF) enhanced the understanding of District & Tehsil Officers on MTBF, service planning & project planning; Technical training on FMIS imparted to the F&P department gave opportunity to the F&P staff to use and modify the systems without reverting to consultants and experts; Training of 413 members of the District Council on Gender Responsive Budgeting and budget & planning has been carried out which helped to increase their understanding level on budget & planning.

Improvement in Financial Management The experience of the CDGF demonstrates how politically and technically supported changes in financial management practices can fuel a transformation from being a Local Government in constant fiscal crisis to being a Local Government that can take pride in its fiscal surpluses. This situation has allowed the District Government to provide more efficient service delivery and enabled it to take the vital steps toward reducing poverty.

Implementation and Impacts Following is a description of the activities and initiatives of reforms undertaken in the F&P department of CDGF and Figure 1 describes this process. Strengthening Fiscal Planning Issue A fiscal assessment showed that the City District Government's weak fiscal performance can be traced in part to the poor linkage between policy making, planning, and budgeting. A lack of interest or may be the poor appreciation of the relevant accounting procedures and policies seemed to be among the underlying reasons for Faisalabad's fiscal deficit in 2004. Receipts for development and non-development expenditures were inflated and inconsistent with local receipts. There was a gap between the City District Government's recorded bank balance and the actual available balance.

Section 112 (4) (a) PLGO 2001 A budget shall not be approved if the sums required to meet estimated expenditures exceed the estimated receipts.

In January 2005, close scrutiny of the CDGF's process and the way the budget had been implemented since 2003 shed light on the extent of the financial problems facing the administration. To this point, the City District Government had been working on the assumption that there was more money available to the administration than actual releases. As a result of the 2004-2005 budget analysis, the team identified that there were errors in the budget which subsequently resulted into the deficit budget in Faisalabad. Process Generally, there tends to be a practice in the City District Governments that if the estimated expenditure exceeds the estimated receipts, then for the sake of balancing the budget and under the assumption that Provincial Government will make the loss good, an entry of grant in aid from the Provincial Government is made on the â&#x20AC;&#x153;budget at glance sheetâ&#x20AC;? of the budget book. The evidence suggests that due to the lack of capacity, enough care was probably not taken and errors were made in the preparation of this important document. As an example the situation is explained in Annex 1 where it is discussed as a short case study to learn from. The financial situation was very tight for the CDGF and at that time of crisis, major steps were Figure 1:

Improved Financial Management

ISSUES

REFORMS PROCESS

P AD

CDGF

P AD

Implementation and Impacts taken by the administration to ensure that greater fiscal responsibility was achieved. Box 3: Steps Taken by the CDGF to Improve Fiscal Position There was no new project executed by the F&P department. District administration took very difficult decisions on seeing the tight financial position of the District, in order to pay outstanding liabilities before taking on new ones; The F&P department submitted a request to the Provincial Government that the current PFC share is not enough to meet the development and non-development needs of the District and PFC share of the District should be according to population and area of the District; A further request was made to the provincial Finance department to help City District Faisalabad by providing funds to cover the deficit of CDGF over the coming years.

The City District Government's fiscal position, however, began to look up in financial year 2006-07. The following factors contributed to this upturn in fiscal fortune: l l l l

Improved budgeting systems of the CDGF; Effective expenditure tracking systems; Timely releases of funds to the departments and executing agencies in the CDGF; The District started receiving more resources when in October 2005, Faisalabad was afforded the status of City District Government which brought with it enhanced jurisdictions and resources; Octroi grant of Rs. 655 million from the Provincial Government was provided to CDGF; The Municipal Service department became responsible for managing resources from advertisement, commercialization and General Bus Stands, which had a positive impact on the fiscal surpluses of the District; CDGF received an increased PFC award from the Provincial Government on the request of the City District Nazim and District Coordination Officer (DCO).

Section 111 (5) PLGO 2001 “Conditional grants from the provincial retained amount shall be shown separately in the budget and shall be governed by conditions agreed therein”.

District Cash Flow analysis is a tool which helps to present a macro level picture of the Local Government finances enabling management to rectify micro level issues. Armed with the cash flow information, the Finance & Planning department is able to present a stronger case on the basis of evidence, to senior and top management on the District's financial status. Identifying and setting priorities becomes easier now in the light of information never previously available. Cash Flow analysis is a useful tool since it allows managers to develop numerous scenarios based on short and long-term forecasts.

Sustainability

WAY FORWARD

Receipts Facilitation Centres Replication Spatial Planning Framework

Pre-empting Poverty, Promoting Prosperity

E-Procurement

ed Improv

Servic

e Deliv

ery

Implementation and Impacts In addition, the Finance and Planning department developed the FMIS which was compatible with the national Project to Improve Financial Reporting and Auditing (PIFRA) and other management information systems already in place, allowing more accurate and timely analysis and planning. Due to the recent changes in the political and administrative set-up at the Provincial Government level, the finance department has changed the policy of fiscal transfers for the District Governments. Under the current scenario, due to decrease in the PFC award, the City District Government expects 8% decrease in the fiscal transfers from the Provincial Government up-to June 2008. The City District Government Faisalabad by following the Provincial Government guidelines has changed the fiscal strategy by reducing the nondevelopment non-salary expenditure by 13 percent and development expenditure by 10 percent Therefore, this strategy will no doubt affect the development and the service delivery in the District but will also save Faisalabad from deficit in the coming years. Impacts The financial reforms process undertaken by Faisalabad has not been easy. But, it has transformed the City District Government into one of the most progressive Local Governments in the country. Due to the reforms implemented, Faisalabad has turned its finances around and succeeded in generating a fiscal surplus for the first time in three years. The prospects are strong for more funds in the coming years. The extra fiscal flexibility that comes with the surplus funds affords the City District Government the chance to finally increase public expenditure on sectors previously neglected.

Making the Budgeting Process Work Issue The Local Government Ordinance encourages a participatory budgeting process and consulting stakeholders' is the first step in the budget cycle. Due to certain political and administrative reasons, the City District Government Faisalabad did not follow the Budget Rules 2003, and were issuing the Budget Call Letters (BCLs) without consulting stakeholders (Citizens, elected members, CCBs, and NGOs). Box 4: Budget Call Letter (Budget rule 11) The Budget Call Letter shall be finalized after consultation with the relevant stakeholders. The "stakeholders" include Councils, elected representatives, general public, women's organization, private sector, Citizen Community Boards, Non-Governmental Organizations, Community Based Organizations, and other organizations.

City District Government estimates its local receipts based on historical data. In 2004-2005 the District Government Faisalabad did not have authenticated data and information to base on and to assess the true potential of revenue. Therefore the targets set for revenue were not realistic. Previously receipts were estimated on the forms prescribed by the Provincial Government in the Budget Rules 2003. The District Officer Accounts was unable to track the actual receipts against the departmental targets. Budget cell of the Finance & Planning department

In 2004, the project identified the following major issues in the non-development budget: Â&#x;

Most of the District Council members (including chairpersons monitoring committees) did not examine the departments' non-development budget during the budget session

Implementation and Impacts

or prior to the budget session and yet they approved the budget; There was no proper training for DDOs on budget preparation under the new rules; In the majority of cases, budget forms were prepared by DDOs' clerks but these forms were not checked by the DDOs themselves and yet signed by them. The possible reason for that has been lack of capacity and interest; Completed forms returned by DDOs to District Officer (DO) Finance & Budget (F&B) often contained errors and these forms were then returned to the concerned DDO for rectification. The forms were then corrected by the DDO clerks and once again passed to the DO F&B. If there were still errors, this process was repeated; Various forms often contained exactly the same information but when they were individually completed, the information was found not to match.

Rule 57 (2) Budget Rules 2003 “The Budget based on the preliminary estimates as approved by the Nazim shall be presented to the Council for discussion as a draft budget”.

Box 5: Errors in the Completion of Budget Forms The first test to look into the DDOs' budget was to see that the total figures of the Budget Detail Others (BDO 3) is balanced with the establishment charges of the Budget Detail Current (BDC 3) and then total of BDO 4 is balanced with allowances of BDC 3. The second test was to verify the establishment charges and all regular allowances with BDC 6. But in most of the cases the figures were not balanced. The assistant who made those budgets did not know the effect of one form on the other.

Similarly on the development side during the situational analysis, the F&P department identified the following key issues in the development budget preparation process:

Lack of evidence based planning with most projects being identified by the local politicians on the basis of political priorities. Often these politically motivated projects tend not to be pro-poor or as such no conscious effort was made to identify the most vulnerable and their needs; The major portion of the District Government's funds were distributed throughout the 289 Union Councils equally and the remaining funds were not distributed on the basis of the greatest need. The Local Government Ordinance envisaged a process where projects would be prepared with complete community participation of all 21 members of the Union Council and general public were to be consulted in identifying local projects. However, frequently the UC Nazims have a very strong input and influence on project selection, thus resulting in local development schemes without honest community participation, as was envisaged in the Ordinance; Budget preparation for any coming financial year should take six months to complete from January-June in the preceding year, but in reality tends to be compressed in the last two months. Projects tend to be identified continuously throughout January - June without one single submission deadline. This not only increases the workload of the F&P department but also impacts on the planning process. Projects are also identified, at the last minute, during the budget preparation process in June, and are then included in the budget document as “unapproved schemes”. At the end of June, the ADP is submitted to the District Assembly and House for approval. These projects therefore bypass the process of discussion or approval in the District Development Committee (DDC); Block allocations for development projects in the ADP, with no regard for targeting deprivation and economic opportunity; The volume of carried forward schemes was quite substantial and was affecting the development programme for the next year; No gender responsive projects in the ADP.

Rule 40 (1) Budget Rules 2003 “The Annual Development Programme shall classify projects by sector, function and geographic location”.

Implementation and Impacts

Rule 11 (6) Budget Rules 2003 “Each Head of Offices shall prepare its budget in accordance with the Budget Call Letter approved by the Nazim”.

In Faisalabad, the previous accounting system up to March 2005, only recorded cash payments and receipts on a daily basis. The problem with this system was that the recorded inflows and outflows had no direct relationship with the actual financial performance. The obligations to make future payments could not be properly identified. It is a mandatory provision that the New Accounting Model (NAM) will be followed by all tiers of government in their financial operations. The Project to Improve Financial Reporting and Auditing (PIFRA) based on NAM started its operations in District Faisalabad on 1st April 2005. Process To address the above mentioned issues, the process followed is given here: Budget Call Letter

Rule 8 (2) Budget Rules 2003 “The Nazim shall ensure that the needs of the disadvantaged groups are reflected in the priorities and gender issues are adequately addressed”.

Millennium Development Goals By 2015 all United Nations member states, including the Government of Pakistan, have pledged to meet the following goals to: Eradicate extreme poverty and hunger Achieve universal primary education Promote Gender Equality and empower women Reduce Child Mortality Improve Maternal Health Combat HIV/AIDS, malaria and other diseases Ensure environmental sustainability Develop a global partnership for development

Budget Call Letter (BCL) is the instrument in which the Local Governments communicate the vision/ policies/ priorities and targets fixed under various sectors/ programmes and investments etc. Issuing the budget call letter is a legal requirement for the District Government - it provides direction and a macro-level perspective on financial policy. This is an outline plan of who will take responsibility for preparing the final budget. It clarifies the steps needed to successfully complete the budget. BCL essentially sets out the timing of events in the planning and budgeting process, the input required from other stakeholders by the budget desk to enable the desk to compile the Local Government budget framework and the information required by the stakeholders to enable them prepare their input. In 2007-2008 budget cycle, the CDGF managed to organize extensive workshops with the departments and other stakeholders. The feedback was incorporated into the budget preparation process and the findings shared with the District's political leadership. The stakeholders' consultations revealed that social sector investments remain a priority for the people of Faisalabad, with spending on education and health a primary concern. The fiscal surplus resulting from improved processes and prudent financial management allowed the City District Government to target poverty, using evidence based planning which built on the data and information being generated at all levels. An example of this is the District’s Citizen Perception Survey, which influenced the allocations in the education and health sectors. Hence the budget 2007-2008 was more participatory and for the first time spending limits were set for various sectors, departments were advised to follow the PPRSP indicators and the Millennium Development Goals (MDGs) in planning their resources for various sectors. Gender Responsive Budgeting was also introduced in the BCL as of 2006-07 and departments and politicians were advised to submit budgets that are more gender responsive. This is expected to help the District administration in setting a budget which is more citizens focused and gender responsive. The consultations also included an element of training, to ensure that stakeholders understood the budgeting process clearly. Similarly, departments and other stakeholders such as NGOs and elected representatives have been trained on participatory and gender responsive approaches. All this bolsters their capacity to respond to community needs and ensures targeted approaches to address poverty and marginalization.

Implementation and Impacts Estimation of Receipts The District Government bases its budget on the following types of receipts;

PFC award from the Provincial Government Octroi Grant from the Provincial Government Local receipts Donors' money

Physical surveys were conducted to assess the true potential of the local sources of revenue and computerized Budget Detailed Receipts (BDR) forms were generated and the departments were advised to fill in the electronic forms by using the Collecting Officer (CO) codes and new Chart of Accounts (CoA). This has helped the F&P department in setting realistic targets and tracking the departments' receipts against their targets on a monthly basis. Non-Development Budget

Chart of Accounts The Chart of Accounts is an essential component of the accounting framework. It provides the structure by which accounting transactions are coded, and thus used in financial reporting.

The Finance & Budget officer is responsible for preparing the non-development budget according to the new Budget Rules. The non-development budget is more than 85 percent of the total budget in City District Faisalabad, and includes the following:

Establishment charges Purchase of durable goods Repair & Maintenance of durable goods Commodities and services Transfer payments Miscellaneous items

The budgeting process of Faisalabad used to be excessively cumbersome and labour intensive. In the past, it used to take at least 9,000 man-days from the numerous service officers involved to prepare and finalise the budget. The error rate was more than 30 percent. In reality, the process was typically compressed during the last two months of the financial year, resulting not only in the workload of the F&P department surging during this period but also in substantive delays in project implementation. In the last three years, the departments took huge strides in improving the traditional budgeting process. Much of this is due to better coordination, training provided to the officers involved in the process and on-going technical support from the SPU team. The F&P department has established a fully equipped Budget Cell in the DCO complex and 40 Resource Centres throughout the District. These Resource Centres are providing support to the DDOs at their door step and they now do not need to visit the F&P Department for the submission of budgets (Figure 2).

Gender Responsive Budgeting training for district council members

CDGF now has an on-line budgeting system which has translated into fiscal planning and operational efficiencies for the City District Government. Embedded as a distinct module in the FMIS, Faisalabad's on-line budgeting system allows for highly effective budgeting and timely approval of the budget by the City District Council.

Implementation and Impacts Figure 2 :

BSF & BM8-9 Forms BSF forms mean Budget Salient Features forms and these forms are used for setting the annual targets for the sector/ departments. BM8-9 forms mean the Budget Management forms and are used for monitoring the progress against the targets given in the BSF forms.

Online Budgeting Process

Council

Resource Centres (RCs) 40 RCs helping 600 DDOs DDO wise budget data entered & stored Submitted to the Main server in web based FMIS

Approval of final budget

F&P Department Retrieval of verified data Consolidation of budget data Finalization of Draft Budget

Head of Offices Departments' own data entered & stored Scrutiny and verification of RCs data Verified data submitted to the main server in web based FMIS

Performance Based Budgeting Prior to FY 2007-2008, the CDGF could not measure the performance of departments against the annual targets. To make the departments more accountable and improve service delivery in the District, the CDGF in 2007-2008 introduced the concept of performance based budgeting. All the departments were requested to submit annual targets against the requested budget lines on Budget Salient Features (BSF) forms. This is now approved from the District Council and is an integral part of the budget document. The EDOs of all departments report the monthly progress against the BSF targets on the Budget Management (BM) forms that bring more transparency and accountability in financial management operations. As an example, to improve the performance of the Education Department, especially the elementary section of the Education Department and quality of primary education in the District, the CDGF introduced the concept of school based budgeting. The concept of school based budgeting is very new in Pakistan. Under the current set-up, on the elementary side of the Education department, the Deputy District Officer (DDO) Education is responsible for more than 300 schools. He or she also exercises financial powers for those schools. Previously block allocations were made for these schools, and therefore there was no criterion for the distribution of budgets to the individual schools. To address this issue the F&P department introduced school based budgeting in Jaranwala town as a pilot. Jaranwala town comprises 736 primary schools. All the schools were given separate budget lines for few items. This is expected to provide an opportunity for more local control and greater fiscal independence for primary schools, with resulting improvements in the quality of education in the District. This will also help the Finance department of the CDGF to work out the cost per child in the primary education system. The purpose is not to reduce the cost at the expense of quality education but to improve the quality of primary education by effective resource planning and strengthen the accountability mechanisms in the education department.

Implementation and Impacts However, the Education department is still facing problems in the disbursement of money. According to the DDOs, handbook in which all the categories of the employees are mentioned who could exercise the powers of the Drawing and Disbursing Officers, the majorities of primary school head-teachers do not belong to these categories and are therefore unable to utilise the budget. As a result, the office of the DO assumes the power to process the bills for those schools. According to the treasury and audit rules, if one person exercises the power for the procurement of many cost centres, they have to undertake bulk purchases to achieve economy. At the same time in accordance with rules, from the DAO, for every item in the cost centre, separate bills per item per cost centre have to be produced. These inconsistent rules are one of many challenges currently faced by the Education and F&P departments.

PC 1 “PC1 stands for the Planning Commission 1. That is the form which is used for the submission of development projects”.

Development Budget In the Annual Development Programme (ADP) process, the identification of development projects is very important and initiated at the Union Council (UC) level by UC Nazims, the District Nazim and EDOs. The elected member of the District Council (Zila council) submit his project proposal to the District Nazim or to any other of the senior administration officers. The proposal is then forwarded to the appropriate EDO i.e. education or Works and Services etc. The department then begins the process of preparing cost estimates for the projects, which culminates in a BDD-4 form (PC-1). All projects that contain a building, roads or other infrastructure component involve the EDO Works & Services. Once estimates are prepared, the proposal is then routed to the EDO F&P's team, where a working paper for the proposals is prepared for submission to the District Development Committee (DDC). Proposals successful at this stage are then “approved schemes” and included in the budget for the following financial year. Box 6: Steps Taken by the Planning Wing of the F&P Department Organized comprehensive training programme for elected representatives on budget and planning and gender responsive budgeting. Identification of schemes through the elected members in February with the Department attempting to submit the draft budget in April 2008. Development of the Planning module of the FMIS, which will reduce the times for budget processing, preparing the working paper for the DDC and also for issuing the minutes of the DDC meeting.

In the past, block allocations were made as a result of which many sectors remained neglected. Therefore, the CDGF in the Budget for 2007-08 made adjustments and in the development allocation, the F&P department by following the Punjab Poverty Reduction Strategy Paper (PPRSP) indicators has allocated a 5 percent increase over the previous year's allocation for agriculture, 8 percent increase in community development, 11 percent increase in education and 7 percent increase in the primary and secondary health care sector. There has been a visible move towards ensuring that allocations and expenditures are propoor, and reflect the District's commitments to achieving the Millennium Development Goals. Box 7: Budget Rules and Block Allocation According to Budget Rules 2003 Section 58(3), No lump sum provisions shall be made in the budget the details of which cannot be explained.

The CDGF's improved fiscal position and the timely release of development funds has resulted in the timely execution of development projects. Further, it has reduced the number of throw forward schemes from more than 3,000 in FY 2004-2005 to 1,468 in FY 2007-2008. In the Finance & Planning department there was a need to have consistency in the

Rule 64 (1)(IV) Budget Rules 2003 “Each Local Government shall efficiently and effectively manage the resources made available to the Local Government”.

Implementation and Impacts development project numbers. This issue was addressed by the planning wing of the F&P department and allocated project numbers which were unique and consistent with the project numbers used in PIFRA by the District Accounts office. Therefore, the Planning wing not only allocated unique project numbers but also started tagging the individual development schemes with the Geographical Information System (GIS). This will allow the F&P department to assess the individual schemes according to the Provincial Government Planning and Development (P&D) department’s prescribed planning and engineering criteria .

Training on New Accounting Model

However, there is a need to develop synergy with planning at the UC and District levels. Once this is achieved then it will be easier for the F&P department to understand local needs and development priorities before approving projects at the DDC stage. If Town level and UC level information was available, then the allocation of resources could be made on a priority basis. At the moment, projects at the UC level are approved arbitrarily and not using official planning guidelines. New Accounting Model

New Accounting Model The New Accounting Model (NAM) has been adopted as the New Accounting Model for Pakistan that not only allows modified cash based accounting but also allows the commitments against budget and allowing statements of receipts and payments, asset and liabilities and cash flow statement.

In NAM, the concept of Modified Cash-Based Accounting was introduced. Transactions regarding future commitment can now be recorded through NAM. By keeping a record of future commitments that have been entered into, the budget position can be effectively monitored and expenditures that may arise as a result of possible overspending in the budget can be readily identified. Impacts Improved Financial Management has brought greater efficiency in the CDGF budgeting process. It allowed the departments to evaluate the progress and asses where resources are needed to be aligned in order to complete district's commitments. The CDGF is now in a better position to identify the priority projects by sector and location by introducing the propoor budgeting in the District. Following are the impacts of improved budgeting process in the City District Government Faisalabad:

Consultation workshops were organised with departments, NGOs, CCBs, and elected representatives for the budget 2007-2008 and 2008-2009; An effective BCL was issued. In BCL 2007-2008 PPRSP indicators were strictly followed. The concept of Gender Responsive Budgeting was introduced; Greater fiscal space was achieved (for the first time the City District Faisalabad produced a surplus budget); A significant reduction in the budgeting process from inputs of 9000 man days to 3000 man days and a time-line of 45 to 9 days has resulted in savings of Rs.10 million; School based budgeting was introduced in Jaranwala Town as a pilot; The concept of performance based budgeting has been embedded into CDGF, and EDOs have to report to the DCO on a quarterly basis; The Planning module of the FMIS is helping the planning wing of the F&P department in preparing the working paper to be submitted in the District Development Committee, and has reduced the time needed for this process from two weeks to one day.

Implementation and Impacts

Improvement in the Release of Grants Issue In the past, releases for non-development expenditure were given to departments through the respective EDO before being received by a DDO. Access to funds would often depend on the nature of the relationship between a particular DDO and EDO, if strained then delays often occurred. On the development side there was a practice to release 30 percent of funds against the approved allocation of individual projects. The large proportion of the majority of the individual projects were less than Rs 50,000 and the contractors were not willing to work on the 30 percent releases against those projects. This has resulted in delays in starting development projects and also affected utilisation. Most projects would not be completed and would spill over to the next year's budget (ADP).

Rule 64 (3) Budget Rules 2003 “Delay in payment of money due from a Local Government shall be avoided”.

Process A very large proportion of receipts emanate from the Provincial Government’s PFC award. This award is received in 12 monthly equal installments; the problem with this arrangement is that enough money is not available for releasing to DDOs in order to cater their spending requirements. There was no criterion for the release of funds. This has led to the development of a criterion for releasing funds which makes money available directly to the DDO, so that they can use the funds immediately. The process bypasses EDOs, though they are kept informed of the releases, gives enough flexibility to managers in spending money and cuts additional bureaucracy. Executing agencies tend to complain that the finance and planning department does not release funds and therefore they are unable to complete their work within time and budget. However, the evidence does not support this claim; executing agencies do tend to be provided with funds. On the development side, the process of releases has now been streamlined; 100 percent funds are released and Administrative Approval (AA) issued for those projects which are approved in the DDC. The timely release of funds has not only restored the confidence of contractors in the market but also improved the utilisation rate. Impacts The mechanism for releasing funds to departments lacked clarity in the past. This has led to the development of criterion for releasing funds which ensures the availability of money to the managers, so that they can use the funds immediately. The improved release process saves time and consumes less human resources. The CDGF improved release policy has the following benefits:

The timely release of funds has improved service delivery in the departments and will help the executing agencies in completing projects on time; Online direct releases to the DDOs, has also improved service delivery and the utilisation rates especially in the education department.

Implementation and Impacts

Expenditure Tracking System Issue Previously it has been difficult for departments to track monthly development and non development expenditure. The main reason has been that the systems in placed in the departments were not aligned to the DAO. The departments were only preparing budgets at the departmental level while incurred expenditure was recorded at DAO. The F&P department was unable to monitor expenditure against the approved budget. Process In the expenditure tracking system which was previously followed, the DAO was sending expenditure details to the office of the EDO F&P and the expenditure statements were not disseminated further to the relevant DDOs and the concerned executing agencies. The DDOs and bill clerks were compelled to visit the DAO office on average two to three times every month to reconcile their accounts. This was a major cause of inefficiency within the departments. Rule 65 (2) Budget Rules 2003 “Each Drawing and Disbursing Officer (DDO) shad be responsible for the expenditure actually incurred against the funds allotted to him. The expenditure shall be sanctioned in accordance with the delegation of Financial Power Rules”.

The F&P department eliminated this by linking stakeholders with a centralised database that allows access to expenditure information against budget lines with the minimum of effort and fuss. The CDGF through the FMIS has introduced a more effective and simpler expenditure tracking system. Consequently, the Local Government's top and senior management are now able to monitor expenditures against approved allocations and utilisation against releases at the respective cost centres. The FMIS through the resource centres enables the DDOs and the executing agencies to track and monitor expenditure at the DDO level. It also produces reports function wise, detailed object wise, programme wise, grant wise and project wise against the approved budget allocations, thus allowing departments to implement Budget Rule 65 (4) (ii) & (iii). Box 8: Budget Rule 65 (4) (ii) & (iii) “In order to keep the total expenditure within the grant, every Head of Offices shall be informed monthly by each Drawing and Disbursing Officer of the extent of commitments that have been made but not paid for against such Grant or Grants and the extent of expenditure that is likely to be incurred during the remaining period of the financial year”.

Impacts Effective expenditure control is crucial for maintaining the financial discipline in the District. The CDGF can now track and monitor the expenditure at the DDO, project and detail object wise level. The following indicators explain the benefits of expenditure tracking system in achieving the efficiency in the CDGF;

The Department is effectively monitoring expenditure against approved allocations on a monthly basis, using the Expenditure module of FMIS; There has been an annual increase of 131 percent in the utilisation of the development budget as compared to the previous year (2005-2006); There has been an annual increase of 12.50 percent in non-development (nonsalary) utilisation against the District Budgets.

Implementation and Impacts

Facilitating the Reconciliation of Financial Accounts Issue The previous process of reconciling Faisalabad's financial accounts was lengthy and did not correct discrepancies on time. This old system of accounts reconciliation did not work because too often the EDOs did not communicate the corrections made by the DDOs to the District Officer Accounts. Hence, information available at the District Officer (DO) Accounts level was not too reliable. Process Reconciliation of accounts in an accurate and timely manner is critical to fiscal discipline. Rule 67 (3) of the Budget Rules 2003 clearly states that it is the joint responsibility of all key officers in submitting accurately reconciled accounts to the District Government. The rules also state categorically, that bills will not be passed to defaulting DDOs. Currently, Resource Centres accessible to EDOs, DDOs and DO Accounts are helping the department in timely reconciliation of expenditure and receipts data with the District Account Office(DAO).The DAO data is transferred to FMIS by the F&P department on a monthly basis. The Resource Centres' teams are also trained on transferring data from the DAO to the FMIS. The DDOs have to only match the figures with the DAO figures through an online reconciliation module which allows them to modify data if they find any mismatch between their own Expenditure records and the DAO data (Figure 3). Figure 3:

Simplified Reconciliation system of CDGF

DAO

es ffic

2 Online BM1 Form

If not correct visit DAO to rectify the records

nt atio m i t In

DO oE

O of ad e sH

Ensure Reconciliation

Receipts & Expenditure Data

DDOs

Authenticated Expenditure 5 Prepare Reconciliation Report

If any changes are required inform DAO

EDOs

DOA

8 If any changes are required inform DDOs

Implementation and Impacts At the month end the DO Accounts (F&P department) reconciles the modified data with the DAO. This has brought about efficiency and effectiveness in a sense that the monthly verified accounts are available on a monthly basis with the effort of one hour of officer's time and with fewer error rates. The FMIS serves as the clearing house for the statements from the EDOs and the DAO. It reconciles the statements and notifies all concerned officers including the DO Accounts regarding all the changes required in a timely manner. On the development side, the Planning module of the FMIS is helping the Department in the reconciliation of development expenditure with the DAO. The physical progress from the executing agencies is being updated in the Planning module by the DO Planning (DOP) on a monthly basis to track the real progress of development schemes. It is further linked with the Reconciliation module of the FMIS to reconcile the expenditure figures of executing agencies with the DAO figures. Although the reconciliation processes has improved and systems established in the CDGF, but there is a need to improve and build the capacity of the lower and middle management on the online module of the FMIS in the resource centres. Impacts Reconciliation has always been a problem in the districtâ&#x20AC;&#x2122;s accounts. The accounts were generally not reconciled until the end of the financial year. The information was not intimated to District Officer Accounts of the F&P department after the rectification from EDOs. Therefore, the District Officer Accounts records, did not match with the District Accounts Office. The information available at the District Officer Accounts was not reliable. Under the reform initiatives the reconciliation processes and monthly reconciliation of accounts have now been simplified. The PIFRA information is now recorded on BM1 & BM2 forms by the FMIS, online access of the reconciliation module is given to the Drawing and Disbursing officers who can see and amend the record from their computers in their offices/ resource centres and submit the same information online to F&P department. This not only facilitated the DDOs by not visiting the District Accounts Office unnecessarily but also brought efficiency in saving the human and financial resources of the district.

Facilitating the Pensioners in the CDGF Issue The cases of retired employees are processed after retirement and can normally take 6 to 12 months before approval. This delay causes economic hardship on the families of retiring employees. The office of the DO Accounts in the finance and planning department processes the pension cases manually i.e. calculation of gratuity, pension etc., due to which more human resources are consumed which has financial implications on the district and the chances of errors are comparatively higher. Process The existing process was studied in detail and it identified major gaps in the processing of pension cases in the District. All the relevant stakeholders were consulted for identifing the key gaps in the system. The pension module of the FMIS was designed, developed and was linked to the Human Resource Management Information System. All the relevant and

Implementation and Impacts prescribed forms were designed and various formulas for the calculation of CDGF employees pension were inserted. Impacts The CDGF is now capable of generating the reports of the employees who are retiring in coming six months so that their cases can be processed and by the time they retire their cases are ready for disbursement. The Finance & Planning department has simplified the pension process and has reduced the pension calculation time from two days to one hour for the CDGF employees. Previously the process would take from four to six months and was very much dependent on the availability of one or two key employees of the F & P department.

Asset Management Issue In the CDGF there was no culture of asset recording and management. Most of the assets have no value and there was no proper procedure to record the assets. The inventory records were manually prepared which could easily get outdated, if there were continuing absences by staff. Under the New Accounting Model (NAM), every district needs to maintain and record its own assets. Process The CDGF in order to capture the picture of its assets conducted physical surveys. The Revenue and Municipal Services departments coordinated their efforts and captured the detailed picture of those assets which are owned, managed and controlled by the City District Government Faisalabad. The information was taken on the scaled maps along with their GPS information. Impacts

Rule 3 Property Rules 2003 â&#x20AC;&#x153;The Local Government concerned, with approval of its Council, shall take such steps as may be necessary to ensure that the property vested in the District Government, Tehsil/Town and Union Administration respectively is managed and maintained in the best interest of the public for the purpose of the Ordinanceâ&#x20AC;?.

The CDGF has now established a comprehensive data base of all the immovable (commercial and non-commercial properties), movable assets and the inventory records with appropriate valuations in the District. This has not only brought transparency but also introduced the concepts of accountability in asset recording and management

Information Systems Issue The CDGF while conducting an internal review and assessment of its management systems and processes identified a number of areas that needed to be addressed urgently where information and communication technologies could be used to bring about significant improvements in the way the CDGF did business. The information was lacking, and if available, it was scattered and was not regularly updated. Critical decisions were thus being made on the basis of little or inaccurate information. Even when data was digitised, it remained in disparate formats lacking a consolidated view to plan and analyse the resource utilisation of the CDGF. It was noticed that the officers were greatly

Implementation and Impacts dependent on the subordinate staff in searching for files and policy letters. The other critical issue in the Department was that the Head of the Offices could not track the progress of the files sent to the F&P department. Process Good strategic management relies on an organisation's ability to manage its information properly. Only now is the District starting to understand the implications of having reliable information as the basis for business decisions. For a district as large as Faisalabad, having the right information at the right time will allow managers to redefine Local Government services and allocate resources accordingly. Such efforts are helping to avoid duplication that in the past characterised services such as the construction of roads and buildings. The CDGF with the help of the reforms programme redesigned their financial information needs and products so that greater fiscal responsibility could be achieved. To address the information needs in the Financial Management sector, the team helped the District in developing the information systems (Figure 4) Financial Management Information System

NAZIM DCO

EDOs

Executing Agencies

Web based Financial Reports through EDO IT

COCode Detail Object F&P Department

RMIS

FMIS

PMIU

EM IS

DAO

DDOs

Information From Departments

C IS EM

Online System

Data from PESRP Lahore

ZAC

Figure 4:

DDO & um be r o rs P e n al N

HRMIS

Revenue & Municipal Services Department

Various modules of FMIS were developed to help the City District Government in estimation of receipts, budget preparation, expenditure tracking, managing treasury, development planning, asset management, release of funds, processing of pension cases and reconciliation of accounts. The bookkeeping module has not been developed so far. The department is aware of the fact that this module is important and through this the DDOs will not only save time but will also discourage rent seeking behaviours while processing the bills. It will also reduce the dependency of the CDGF on DAO regarding expenditure data, and the reconciliation of accounts will become much easier promoting greater efficiency.

Implementation and Impacts Box 9: Functions of Financial Management Information System Faisalabad's FMIS is a modular management information system designed primarily to: Improve the accuracy, comprehensiveness, reliability, and timeliness of financial reports in the District; Enhance public financial management accountability and transparency; Build the capacity of public sector managers to use credible financial information for better and informed decision-making; Understanding of public financial management as a basic responsibility of all public officials at all levels; provide a reliable basis for discussion of common public financial management problems; and facilitate the development of uniform financial reporting formats to ensure greater transparency, permit comparability, and increase the utilisation of sound financial management information.

One of the key issues identified in the situational analysis was related to the revenue mobilization and fiscal effort. A Revenue Management Information System (RMIS) was developed under the CDGF's reforms programme. The system helps the Revenue and Municipal Services Department in assessing and collecting local revenue. Further it was noticed that the officers were greatly dependent on the subordinate staff in searching for files and policy letters. The other critical issue in the Department was that the Head of the Offices could not track the progress of the files sent to the F&P department. Therefore, the team after detailed discussions with the Department designed the Document Management System. The system helps the Department in searching for important files, policy letters and other related legislature to advise corporate management in a timely manner. A more open and transparent culture exists in the Department, and the staff of the F&P department can share and use information more effectively.

Revenue Management Information System (RMIS)

Impacts After the development and implementation of FMIS, the CDGF can support many of the key functions that the F&P department performs. It allows the District Government to regularly analyse the financial position of the District which is critical to its aim of improving fiscal responsibility. The FMIS is helping the CDGF in online budgeting, effective expenditure tracking, streamlining the release of grants, ensuring timely reconciliation of accounts, managing treasury functions and performing planning functions more efficiently. Due to the RMIS, the CDGF has a very solid base to assess the revenue potential of the advertisement boards. This is evidenced by the virtual doubling of revenues, to 71 Million rupees, through outsourcing which was based on real knowledge of the situation through data collection and assimilation. The DMS is encouraging more open and transparent culture in the Department, and the staff of the F&P department can share and use information more effectively.

Section 111 (2) PLGO 2001 “To enable the budget preparation by Local Governments the Government shall, sufficiently before the beginning of each financial year, notify the Provincial shares which may be credited to the fund of Local Government from the Provincial Allocable Amount”.

Increases in Revenue Mobilisation & Fiscal Efforts Issue According to the budget cycle, the draft budget has to be presented in the first week of April and before presenting the draft budget the District Governments need to have a fairly good idea about the cash inflow to the budget. The Provincial Government, however, usually does not communicate the receipt figures to the District Government until the end of June and that makes it difficult for the District Governments to follow the annual budget cycle.

Implementation and Impacts The other issue with the PFC award is that the district receives this award in twelve equal installments and for Faisalabad that created problems. The utilisation rate slowed down because of insufficient funds in the District Account IV. There were no proper systems in place to track receipts against targets. There were issues in the tax assessment process and the actual potential of revenue was unknown. This resulted in setting unrealistic budget targets. There was more room for corruption and service delivery was badly affected. Types of Accounts There are 4 types of accounts in the Provincial consolidated fund, Account I (Non Food Account), Account II (Food Account), Account III (Zakat Account) and Account IV (District government Account) in the treasury system.

When the District Government Faisalabad was upgraded to a City District Government and given municipal services functions in October 2005, the local receipts from outdoor advertisement, commercialization and general bus stand became part of CDGF revenues. There was a lack of capacity to manage the new department and its revenue sources. Process Flow of Funds from Federal and Provincial Government The main sources of City District Government's revenue came in the form of transfers from the Provincial Government (the Provincial Finance Commission or PFC award) and local receipts. Funds coming from the National Finance Commission (NFC) are directly transferred to the Provincial Consolidated Fund (PCF) in twelve equal installments which is divided into four accounts, Non-Food account, Food account, Zakat account and District Government account. Deducting the interest payments and other Provincial Government liabilities, the remaining balance is divided into Provincial retained amount and the allocable amount. The retained amount is a portion of proceeds that is retained by the Provincial Government for meeting its expenditures and making grants of money to District Governments. The allocable amount is the Provincial transfer to the Local Government under the PFC award (Figure 5). Figure 5:

Flow of funds in the CDGF account IV Federal Consolidate Fund

Provincial Receipts

Provincial Consolidated Fund

Non-Food Account (Acc.1)

District Govt Account (Acc.4) Donor Money

Non-Food Account (Acc.3)

Allocable (41.90%)

Conditional Grant

Donors Receipt

Non-Food Account (Acc.2)

Retained (58.1%)

Conditional Grant

Receipts from Districts

Own Source Revenue

PFC Award â&#x20AC;&#x153;12 Equal Installmentsâ&#x20AC;? Development and Non-development

Implementation and Impacts As explained above the main sources of CDGFâ&#x20AC;&#x2122;s revenue came in the form of transfers from the Provincial Government (PFC award) and according to rule 90 of the budget rules 2003 â&#x20AC;&#x153;the Finance Department, Government of the Punjab shall communicate the preliminary estimates of the respective Local Government share by the first week of March each yearâ&#x20AC;?. The CDGF on numerous occasions requested the Finance Department of Punjab to intimate the Provincial Government grants in March and release the awards on a quarterly basis. However, the District despite having these constraints managed to release 100 percent funds for the completion of development schemes. This not only improved the utilisation of funds but also reduced the carried forward schemes in the ADP. Local Receipts The main contribution in the District's own source revenue (OSR) is from the Municipal Services and Revenue departments, sharing a total of 81 percent of the total district own receipts. In the Municipal Services department, the share of advertisement is 24 percent, commercialization is 20.45 percent, and General Bus Stands is 23 percent, while in the Revenue department, the share of building rent is 9 percent and licence fee is 4 percent respectively. In order to identify the true revenue base of these major local receipts, the Municipal Services department conducted a detailed survey of all outdoor advertisements, commercialization activities, general bus stations and District Government assets. Based on the survey results, it was possible to identify the financial leakages and areas of improvements. For example, after conducting a survey on signboards it was identified that there were many unauthorized hoarding boards installed in District Faisalabad. This resulted in huge financial loss to the CDGF. In the shop signs survey, the survey team identified a large number of businesses slipping through the tax net. After conducting a detailed situation analysis and proper tax assessment, it was proposed that the department should be able to improve its revenue base by outsourcing the advertisement component. In 2007 the advertisement was outsourced for 65 percent more revenue than the previous financial year.

Monthly meeting of the revenue optimization committee

Commercial properties of CDGF

Implementation and Impacts The revenue from commercialization has also improved and an analysis of records from the survey revealed that out of 1,555 commercial properties, only 140 applications for commercialization have been submitted to the District Government from October 2005 to November 2007. Most of these applications have been tended for setting up CNG & petrol stations or small shops.

Rule 4 Property Rules 2003 â&#x20AC;&#x153;District Government shall appoint a manager responsible for the administration, control, management and maintenance of the propertiesâ&#x20AC;?.

The applications for larger commercial shopping malls and markets have not been received despite their construction throughout the District. Analysis based on a revenue assessment shows that the potential of revenue enhancement from this activity is 600 percent more than the existing target. The District administration has been informed about the outcome and they have been sending legal notices to the owners to abide by the laws and pay their taxes. The District administration has established an Asset Management Cell (AMC) in the Revenue department to look into timely collection of revenue, auctioning procedures, repair and maintenance and encroachment issues. It will overall streamline the collection of revenues and proper record maintenance which was not followed previously. Revenue generation in local receipts has been constantly improving since 2002-03. In 2007-08 the District has made considerable progress in revenue collection. Upto November 2007, the District had collected 92 percent more revenue than the previous financial year. This upward trend in CDGF's local receipts, combined with more successful efforts to increase the District Government's PFC award, strongly bolsters Faisalabad's fiscal position for the future (Figure 6). Figure 6:

Trends of Local Receipt from FY 2002-03 to FY 2007-08

350.00

310.00

Amount in Million (Rs.)

300.00

245.25

250.00

200.00

132.67

150.00

100.00

50.00

48.84

48.22

43.00

51.65 98.94

32.91 20.09

0.00

2002-03

17.91

20.35 2003-04

2004-05

Collection from July - November

2005-06

2006-07

Collection for whole Financial Year

2007-08

Implementation and Impacts Impacts The revenue generation strategy of the CDGF has two objectives. Firstly to get maximum from the existing sources by improving assessment and collection systems and secondly, try to explore new avenues of revenue generation. The CDGF has done the cost benefit analysis of different activities, the resources deployed and the stakeholders that benefited from reforms initiatives. The following impacts reveal that CDGF has brought great efficiency and the revenue mobilization and fiscal effort created fiscal surpluses: l

The Municipal Services with the Department has conducted and completed the survey of all the commercial properties and advertisement boards, and a data-base has been developed for the commercial buildings and advertisement boards. The overall revenue of the Revenue and Municipal Services department has increased by 119 percent in 2006-2007; A Revenue Management Information System (RMIS) has been established, which is helping the department in collection of receipts. It has reduced the time from 15 days to 1 day. The system is saving more than Rs. 1 Million per annum by using fewer human resources.

Influence on Corporate Policy towards Reduction of Poverty Issue A key aspect of the financial reforms process was to achieve more efficiency gains in resource allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP). Prior to the reforms process, the required data for targeting the poor was not specifically available and the identification of development schemes was made on political bases. Poverty was not generally considered by most of the elected representatives as a matter of priority because of their strong political motives and lack of awareness about poverty targeting. Similarly, the majority of the EDOs did not understand the concept of poverty.

A focus group discussion for Citizensâ&#x20AC;&#x2122; Perception Survey

Implementation and Impacts Process CDGF has a clearly articulated vision for Faisalabad, 'Pre-empting Poverty, Promoting Prosperity', and is taking many steps towards poverty reduction. A focus on pro-poor approaches is integral to all departmental strategies with respect to both investments and service delivery. After three years of the reforms programme, the District is now better informed about where poverty persists and where investments are required. Through the FMIS, spatial maps are available which depict the clear patterns where the major chunk of investment has gone during the past few years. The district-wide Citizen Perception Survey that was conducted in all 289 Union Councils is another tool available with CDGF. Spatial maps which show the investments made when combined with the perception of the people within those Union Councils provide an opportunity to the District to analyse the root causes of poverty, and provide evidence to target local development needs. One of the advantages of spatial representation of investments was that the top management (City District Nazim and DCO) and the politicians could not ignore the fact that the neglected or underdeveloped areas needed investment and it was imperative for them to address this issue. The other advantage was that the Provincial Government started investing in these areas which had been side-lined in the past and investments were made in the neglected areas (Annex 2). Impacts CDGF can now track the investments Union Council wise and sector wise i.e. which Union Councils have received the funds for schools, health facilities and for water & sanitation services, enabling the District Government to identify the grey areas where no or little investments have gone in the past. The CDGF is now targeting poor areas, kachi abadis, slums and the most deprived areas. The CDGF has increased its non-development budget (repair & maintenance component) many-folds to maintain poor and essential infrastructure. Undoubtedly, these steps of targeted investments for the poor, contribute to form the foundation of a district which is specifically focusing on a pro-poor agenda. For a key service such as education, development expenditure during 2007-2008 up to march 2008 was 20 percent of the total development expenditure. This includes monies from vertical programmes, ADP, PESRP and the District's own coffers (Figure 7). One reason for the dip in the development expenditure of the District ADP in the education sector was the delay in getting the budget for the FY 2005-2006 approved in April 2006. It was therefore, difficult to incur expenditure on new projects when the budget was not approved. Hence a number of these new projects were carried forward. Similarly for the health department, the total development expenditure during financial year 2007-08 up to January 2008 was 21 percent of the total district development budget .

Implementation and Impacts Figure 7:

Education Department’s Development Expenditure trend from FY 2002-03 to FY 2007-08 (upto November 2007)

500.00 158.21 450.00 400.00

Amount in Millions

350.00 142.95

300.00

63.54

51.75 250.00 200.00 150.00 100.00

275.00 73.99

3.83 172.49

129.58

177.26

2.44

50.00 0.00 2002-2003

2003-2004

2004-2005

Education Expenditure from Vertical programmes

2005-2006

2006-2007

2007-2008 Budgeted

Education Expenditure without vertical programmes in ADP

Strengthening Internal and External Accountability Mechanisms Issue In Faisalabad, there used to be a strong culture of tardiness and weak planning among the public employees. There was also no concept of team work which translated into inefficiencies. Time management was a vague notion to many, adversely affecting the ability of the District Government to deliver on-time, quality services. Knowledge sharing was an alien concept, with most information treated as confidential. Process The District Government realised that changing the culture of its employees was of paramount importance for improved financial management. Computerised time keeping systems were put in place and more recently, a Document Management System was installed. Staff were required to attend short courses on team work, time management, and leadership. Section 114(5) of the PLGO states that a statement of monthly and annual accounts and such other necessary statements shall be placed at a conspicuous place by the Local Government concerned for public inspection. A series of brainstorming sessions and discussion have been held on how to best meet the need for making financial information available to the public. The outcome of these consultations has led to the idea of a summary leaflet that informs the public of the City District's annual budget and monthly expenditure in simple layperson's language. The leaflet was produced in English and Urdu and was the first of its kind.

Rule 69 (1) Budget Rules 2003 “Each Local Government shall submit a monthly report to the respective Council relating to the expenditure incurred during the month by the Local Government”.

This is a key communication aim and part of the process of improving public accountability and developing client interest in Local Government affairs as part of the broader strategic aim

Implementation and Impacts of bringing City District Government and citizens closer. The District Financial Information along with the leaflet is published and distributed for public dissemination. Impacts CDGF efforts remain to build the departments' ability to implement successful and durable systemic change that results in a more civilised culture. Streamlined systems and procedures, result in more efficiency and effectiveness within the departments in performing its daily operations by reducing the human and time resources. The CDGF through the reforms initiatives has changed the culture of keeping the public information confidential. The followings activities establish the fact that CDGF is now more open, transparent and accountable than before: Â&#x; Â&#x; Â&#x;

Access is available to the web-based FMIS for all relevant stakeholders such as DCO, Nazim, 11 EDOs and 40 Resource Centres; Sharing of all financial information through the CDGF website is now a standard procedure; The Document Management System is helping the Department in searching for policy letters and tracking files, receipt and dispatch register for tracking the status of files from various sections and file storage for the storage of files in the system without being dependent on the subordinate staff. The time for document search and retrieval has been reduced from a couple of hours to two minutes and the human resource requirement reduced from two to one person.

Reports being scanned into the Document Management System

Drivers of Change

DRIVERS OF CHANGE Faisalabad's financial reforms process has produced notable accomplishments leading others to suggest its replication in the other Punjab districts. The important factors that led to the successful implementation of the reforms process are outlined below.

Provincial Government and Legal Protection The Punjab Local Government Ordinance 2001 is legally supported until August 2009 by the Provincial Government. The fact that these reforms, unlike prior reforms in Pakistan, were legally embedded has had a huge impact on the reforms process. Everything the CDGF has been doing was covered under the PLGO 2001 and other related legislatures such as budget rules 2003, advertisement bye laws, commercialization rules 2003, and auction and collection rights rules. The other contributing factor in the reforms process was the Provincial Government's support. In the current Local Government set-up at the District level, the Departments are not only reporting to the DCO in the District but they are also accountable to the Provincial Government working under the departmental secretaries. All District Government policies have to be consistent with the Provincial Government policy framework. The Provincial Government, at various levels, fully supported and appreciated the CDGF reforms initiatives and show-cased Faisalabad as a role model for other districts in its various policy decisions.

Leadership Faisalabad has been lucky to have dynamic local political leadership. The Zila Nazim is the head of the District under the Local Government Ordinance and without the strong support of the City District Nazim, it would have been difficult to drive the changes under the reforms process especially in the finance sector. The Nazims of Faisalabad acknowledged the fact that the District is on the right track and were patient until the actual fiscal space to execute developmental works in CDGF, was available. Similarly on the administrative side, all the DCOs over the past four years have been very supportive of the change management issues in Faisalabad. They have also been the Exofficio project director for the SDLGF Project and played a key role in driving the reforms. The present DCO was not only supportive but was instrumental in convincing the Provincial bureaucracy (the Chief Secretary, Chairman P&D and other administrative secretaries of various departments) about the benefits of reforms. The DCO on various occasions provided good strategic direction to the SPU team in resolving the District's financial position.

DCO, Faisalabad - a key driver of change

Location, Administrative Set-up and Ownership The Location of the SPU in the DCO office played a vital role in driving the reforms process. All wings, except Enterprise & Investment Promotion, of the F&P department are located in the DCO office. This provided an opportunity to the project team to work very closely with the Department on daily basis. All strategies were consulted with the Department at various levels and after their agreement were implemented by them. This sense of ownership would be difficult to achieve had the team been located elsewhere. Consultation with other departments also contributed to bringing the reforms process to the departmental level, and consequently they were very receptive towards change.

Drivers of Change

Links with the Non-devolved Departments and other Donors From the start, the Project adopted the strategy of not duplicating efforts and worked closely with Provincial Government departments and other donor funded projects. Departments such as the District Accounts and Regional Director Audit offices are non-devolved. By recognising that solid relationships with them would be a catalyst for the reforms process, the District Government was facilitated through the reforms programme in building good relationships with these non-devolved departments. The role of the DAO, which is a non-devolved department, is very important because all expenditure is incurred at the DAO. Without the help of the DAO, it would have been very difficult for the F&P department to build the link between the Federal Government's PIFRA and the FMIS. This facilitated the District Government and the F&P department in cash forecasting, expenditure management and reconciliation of accounts. The SPU team also helped the Finance department in coordinating with other donor funded programmes and projects such as Decentralisation Support Programme (DSP), National Commission for Human Development (NCHD), Devolution Trust for Community Empowerment (DTCE), National Reconstruction Bureau (NRB) and others. Various training programmes related to the NAM and Planning & Budgeting were conducted in partnership and hence the District avoided the duplication of efforts in building the capacity of officers and other staff members of various departments.

Timely Technical and Financial Support The newly devolved structures and rules were unfamiliar and due to the lack of explanation, many things were unclear at the start of the reforms process. The local capacity and understanding of the officers and sub-ordinates about the new system was limited. The City District Government Faisalabad realized the need for technical support in 2002 and established a unit in the Faisalabad District in 2002. The main purpose behind the SPU initiative was to build a unit strengthened by providing technical support so it could later act as a think tank for the District Faisalabad. City District Government Faisalabad had limited resources and could not afford to hire the services of experts to support the implementation of the reforms process. The Department for International Development (DFID) provided this support to Faisalabad. DFID approved a project Strengthening Decentralized Local Government in Faisalabad (SDLGF) and provided technical and financial support in driving the reforms process in District. The consultants, placed within the SPU, acted as credible facilitators of change.

Innovative Systems and Processes It is true that bringing about change takes time and changing mindsets is a very difficult task in the reforms process. The SPU operated on the premise that once systems and processes are set-up with consultation, they play a major role in changing the mind set of people. For example, the employees of the F&P department were not initially supportive of the implementation of the FMIS because they saw it as a threat to their jobs. With time, as they experienced real benefits from the streamlining introduced by the system, they realized that these systems are there to help them. Thereafter they played a key role in strengthening and developing the new systems in the Department.

Lessons & Reflections

LESSONS & REFLECTIONS Policy Change During the reforms process it was learnt that there are many changes which are only possible if policy is changed at the Provincial government level. For example, in the improvement of procurement processes it is important to follow the delegation of financial power rules and the purchase manual. The policy regarding the delegation of financial power rules did not change until 2007, which resulted in financial losses to the City District Government and this affected service delivery in the District. Similarly the role of the Zila Accounts Committee is to recommend policy change in the Punjab Local Government Ordinance 2001, like the Public Accounts Committee in the Punjab Government. But, the City District Government is unable to make any changes in the legislation without the Provincial Government. Similarly, at the policy level due to the Provincial Government control mechanism regarding the revenue collection and maximization, the District's local revenue is also affected. For example, proposal for the new advertisement and fees for licensing and permits were submitted in July 2006. But the process of getting the new rates approved by the Provincial Government took eight months to issue final gazette notification, given the CDGF only four months to collect the revenue for the whole financial year. There is similar case with the Spatial Planning department where it is under staffed since the establishment of CDGF. Due to the lack of technical staff the Department is unable to track and monitor the progress of unauthorised commercialization activities and installation of illegal sign boards in Faisalabad. It is reported that the lack of “on-time” sanctioning of new staff members and policies at the Provincial Government level that are not conducive to change at the District level are causing considerable loss of revenue to the CDGF.

Awareness To change the mind-set of the people is very difficult. In order to achieve this, it is important that the staff of the departments is made cognisant of existing issues and the way forward. Unless the people are fully aware, the chances of success are very low. In the absence of consulting the relevant stakeholders, the Departments do not take ownership, which is very important in business processes re-engineering under the reforms initiatives.

“Pakistan's long term prospects will depend upon the interplay of evolution in political and social developments, economic policies to be pursued, the quality of governance and institutions, and most important investment in the human capital. It has become quite obvious from both Pakistan's own history and the experience of the developing countries that sustained economic growth and poverty reduction cannot take place merely on the strength of economic policies. Political stability, social cohesion, supporting institutions, and good governance are equally important ingredients coupled with both internal and external environments for achieving economic success”. Dr Ishrat Hussain

Replication

Former Governor State Bank of Pakistan

The CDGF has developed systems and processes during the reforms process. These systems are not only developed but also implemented and used by the departments. One key lesson learnt by the CDGF is that to make the reforms process successful, behavioural change of the employees towards reforms is very important. This took CDGF three years to change the existing mindset of the employees towards the improvements in the financial management systems and processes. The District Governments especially the City District Governments of Punjab now have an opportunity to replicate those systems & processes in the financial management sector which were carried out under the reforms processes in Faisalabad. However, keeping in view the existing mind set of the employees and the technical capacity of the Finance & Planning,

Lessons & Reflections Municipal Services and the Revenue departments, changing the behaviours of the District employees towards reforms and technical expertise would be needed to replicate the systems at a lower cost model in the other districts.

The Role of Surveys Another lesson for the CDGF was that the District must have evidence based information regarding their potential revenue sources. Conducting of surveys and their results have provided a solid baseline of the local revenues available to the CDGF.

Consultation with Elected Representatives Usually the district administrations do not share information and consult with the elected representatives on the District's plans. The Districtâ&#x20AC;&#x2122;s administration apprehend that the elected representatives at the local level are unable to understand the financial transactions and the budgeting process and sharing information may create problems for the establishment. The experience in Faisalabad demonstrated that after involving the councillors/ elected representatives in the consultation process and building their capacity on the budget & planning, there have been positive impacts. They are more aware of the District Finances; they know the District's financial constraints and have realized that they need to address gender issues in their future plans.

Availability of a Technical Team Generally, in a project framework, consultants provide short term inputs and give strategic direction to the Government. The Faisalabad experience indicates that it is important to break the ice first, establish relationships and then implement the strategies which are important for the reforms process. The availability of the Project Team on a full time basis, within the DCO office, had a positive impact on the reforms process and the departments (Finance & Planning, Municipal Services and the Revenue Department) were far more confident in implementing the strategies prepared with the consultants. A unique model was adopted by CDGF under the reforms initiatives. A combination of International and local consultants were used by the project. This has helped the District in many ways. Firstly, reduced the overall cost of the project by using more local consultants and less international consultants input, secondly, the availability of local consultants on fulltime basis rather than providing limited input within the specific timeframe and lastly the capacity of local consultants have been strengthened by interacting with international consultants in specialising the skills which are rare in Pakistan.

Performance Based Incentives Performance based incentives helped the project to influence the willingness of employees to exert and maintain their efforts towards attaining project goals. There is need to bring about reforms throughout Pakistan's largely underpaid civil service. Salaries are often not enough to meet basic needs and the pay of Government employees has failed to match increases in inflation. The service structure, pay scale, minimum entry requirements, etc., of the Local Government employees are seriously inadequate to cater to the demands of efficient management and delivery of civic services. However, it is important that if the salary structure

Lessons & Reflections as a whole is changed that attracts the right people to do the right job then it will consequently improve the municipal finances & overall service delivery in the districts.

Understanding of Government Culture and Related Legislation It is typical that District Governments strictly follow the legislature and notifications issued by the Provincial Government. This rigidity made it difficult for the consultant team to work with the District Government in the beginning. However, once an understanding of the culture and constraints District Governments operated in was established, and relationships built, the task became much easier. However when changes were introduced; supported by the Local Government Ordinance, Budget Rules and the finance department notifications, these were accepted and implemented by the various departments of the CDGF.

Decentralisation of Revenue The Government has devolved various departments and functions to the District level but did not devolve the revenue sources completely. The District Governments are still dependent on cash injections from the Provincial Government in the form of the PFC award and other conditional grants. This is again an issue which is related to the Provincial Government. The District Government can not function efficiently unless revenue is decentralised completely. For example, the urban immovable property tax is collected by the excise wing of the revenue department and the District Governments do not receive any financial benefit, although the District Government pays the salaries of the excise wing which is a semi devolved department. However, the District Government dependency on Provincial Government can be reduced if all the revenue sources are fully devolved.

Lack of Funds is not the Real Issue in the Districts Our Faisalabad experience tells us that money has not been the real problem in the District. The real issue was the management of human and financial resources in an effective manner. Under the reforms programme, the CDGF improved the existing financial management systems and processes which helped the District in establishing the financial discipline by effective expenditure management and resource allocation to the social development sectors. This helped the Districtâ&#x20AC;&#x2122;s administration in targeting the poverty by diverting the flow of development funds to the neglected areas and increased allocation in the non-salary component of the non development expenditure. The proper management of human and financial resources not only increased the efficiency but also improved the service delivery in the District.

Land Revenue can be one of the taxes that can be devolved to District Government for better collection and creating a stake of the District Government in its collection. Even if Provincial Governments reduce the Provincial Allocable Amount equal to the amount of taxes devolved, it shall greatly suit District Governments if land revenue is devolved, which shall be a tax of great potential for District Governments. DSP Policy Paper Local Revenue Generation and Tax Assignment

Way Forward

WAY FORWARD Spatial Planning Framework

Internal auditing Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization a accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. The Internal Audit plays an important role as framed by the Local Government Ordinance in evaluating fiscal governance processes (PLGO section 115A). In Faisalabad the absence of an institution to undertake this process had exacerbated the Government's financial problems until 2004. The Provincial Government had set out a criterion for an Internal Auditor, which was formally notified in 2004. However the institution to undertake this task remains to be formed. If the institution had existed it would have provided guidance on sound financial management. It is essential that an institution is activated soonest so that it can provide the checks and balances necessary for sound financial management.

Devolution Plan represents a big move towards the decentralisation of the provision of basic services. However, the system of Local Governments continues to face coordination problems due to lack of clarity of functions and authority in running the affairs of the Governments at district level. The project focus was remained to improve the service delivery in the Districtâ&#x20AC;&#x2122;s functions. Although most of the project activities have an indirect impact on the union councils and towns but directly the project activities were limited to the City District Government's mandate. During the last four years, the CDGF realised that to effectively embed the change or reforms in the Local Government there must be a strong link in all tiers of Local Government like City District Government, TMAs & UCs, to have generally positive impact and to ensure participation of people in decision-making and local governance. Integrated planning and effective resource allocation are very important for district development. The Local Government Ordinance supports integrated planning concepts in various sections, but the issue is that the Districts lack a spatial planning framework at the District level. In the absence of such a framework, the various executing agencies are implementing development projects but the impact is not optimal. The City District Government should focus on preparing a spatial planning framework that will support the District Strategic Development Plan. This will likely target investments and result in more noticeable impacts on the reduction of poverty.

E- Procurement The F&P department could not initiate an E-Procurement process in the District. However, to remove the inefficiencies in procurement due to complex procedures and possible rent seeking behaviour of staff, it would be prudent to start E-Procurement in the District. The District should have no problems in electronic transactions, first because electronic transactions are supported in the electronic ordinance and secondly systems and processes are already established and Faisalabad is in a very good position to materialize this idea in the near future. This will not only restore the confidence of the suppliers but also save millions of rupees.

PIFRA Access Currently the F&P department is greatly dependent on the District Accounts Office for the PIFRA generated reports. The FMIS is updated monthly, based on the month end reports from PIFRA. To make the CDGF more independent and sustainable, it is important that the EDO F&P has access to PIFRA information, as the CDGF is a major stakeholder in this regard. This will also help the City District Government to generate reports on a real time basis and the top management will be in a better position to make key strategic decisions.

Receipt Facilitation Centres The Finance & Planning department developed a proposed model for the collection of receipts to improve service delivery and to ensure transparency, accountability and efficiency

Way Forward (Annex 3). Currently, the issue relates to the fact that clients from different towns must visit a number of different departments to deposit the receipts. Rule 76 Budget Rules 2003 If the concerned inspector or Collecting Officer (CO) is not available, the clients/citizens have to revisit the department at a later point. Further, inspectors/COs usually hold on to the receipts for more than one day, which is contrary to the rules. There is also a reconciliation issue between the departments and the DAO, due to the large number of receipts deposited against each head, which need to be further reconciled by each individual CO against their allocated head.

The primary obligation of the Collecting Officers shall be to ensure that all the revenue due is claimed, realised and credited immediately into the Local Government fund under the proper receipt headâ&#x20AC;?.

Finally, for the same reason, the F&P department is unable to track and monitor receipts against the targets set for each CO. By introducing the Receipts Facilitation Model, the clients will only have to visit one Receipts Facilitation Centre (RFC) to deposit any of the receipts, and would not have to visit each individual department to deposit funds. The proposed system will greatly benefit the clients by providing them with a one window operation. Fewer human resources will be required, as the RFC will require only one person to operate the system. Furthermore, greater efficiencies will also be ensured by more timely reconciliation of receipts by the departments with the DAO.

Sustainability The amount of work carried out during the reforms process is commendable. However, sustainability of the various reforms processes in the Financial Management sector is a key challenge for the CDGF. The life of the DFID Project which has supported the development of these new systems was four years and the implementation time was only three years, due to an initial planning and diagnostic period. In this limited time, it was difficult for the Project to fully ensure the sustainability of these newly developed systems. However, keeping in view the City District Government's commitment to ensuring that the key reforms initiatives are truly embedded and sustainable, even without the technical support, a sustainability strategy was developed. The CDGF is of course with the targets given in the sustainability strategy. In accordance with the sustainability strategy the SPU has provided a check list to the Department, where they can monitor their activities on a daily, weekly, monthly, quarterly and annual basis. The SPU, with Project support, also facilitated the F&P department and the teams of the resource centres by providing technical and operational training on the FMIS, also provided wireless telephone sets to those resource centres where an internet connection was not available and helped the F&P department in proper roll out of the systems to other departments. The project also facilitated a consultation process with key stakeholders for FY 2008-2009 in the months of August and September 2007. The submission of BM 8 forms against the BSF forms of respective departments, reconciliation of accounts and the progress against outstanding audit paras' are now regular features of the EDO conference, which is the platform where all EDOs report the progress of their departments to the DCO on a fortnightly basis.

Conclusion

CONCLUSION The CDGF identified the major gap that the local capacity of the staff, officers and elected representatives was weak, and needed to be boosted to effectively plan and implement all the proposed changes in Faisalabad's financial management practices. The Finance & Planning department built the capacity of public sector managers and sub-ordinate staff to use credible financial information for more informed decision-making, and promoting an understanding of public financial management as a basic responsibility of all public officials at all levels. Workshops involving District Council members were conducted to discuss the benefits of locally-evolved planning which helped them to understand their roles in the preparation, approval and implementation of the budget. However, there is a need that the process of Continuous Professional Development (CPD) continues in strengthening and improving the existing Financial Management systems in the District.

â&#x20AC;&#x153;I believe if districts get their financial system right, there is no way that there is not going to be the right outcomes. Once they start using money better, their investments will start mattering more and once their investments start mattering more then the impacts will be much more visible.â&#x20AC;? Suleman Ghani Chairman Planning & Development Board Government of Punjab, Pakistan

Faisalabad through reforms process, provided opportunities to the administration for an online budgeting system which helped the finance & planning department to make the budgeting process highly effective and efficient. The budgets are now prepared based on the participation of stakeholders and performance measures have been instituted to ensure transparency and accountability. Fund releases have been streamlined by setting criteria for releases. The administration is now able to monitor expenditures against approved allocations and utilisation against releases at cost centres. More timely budget approvals and releases in CDGF have also reduced the waiting time of suppliers and contractors for their payments. Financial accounts are being reconciled in a timely manner with a reduced error rate allowing local policy makers to make informed judgements and policies. All the major local receipts have been analysed and proper tax assessments have been carried out to identify the true potential of local revenue. This has resulted in setting realistic budget targets and improved revenue collection. All District Government assets have been identified and properly valued, making the assessment of fee much easier. The upward trend in the District's local receipts, combined with more successful fiscal efforts to increase the District Government's PFC award and effective expenditure management helped Faisalabad in creating more fiscal space. The decentralisation of revenue sources to the CDGF would have positive impacts and the district would have more money available for the improvement of service delivery and development projects to address poverty issues. CDGF realised the need that the evidence based planning is extremely important to influence the corporate policy towards reduction of poverty. Most of the projects identified and executed prior to 2007-2008 by the local politicians were on the basis of political priorities. The departments have now spatial maps available which depict clear patterns where the major chunk of investment has gone during the past few years. The fiscal space resulting from improved processes and prudent financial management allowed the City District Government to target poverty, using evidence based planning which

Conclusion built on the data and information being generated at all levels. An example of this is the District Citizen Perception Survey, which influenced the allocations in the education and health sectors. The financial management reform initiatives have gradually changed the working culture of the F&P department to some extent. This process required capacity development, knowledge sharing and multiple consultation sessions to develop mutual understanding. Experience suggests that developing a good relationship with the political regime and establishment, has been key to driving the process of financial reforms.

Group photo of the master trainers for Planning & Budgeting training with the DCO Faisalabad (2005)

BL A N

Annex 1

A Case Study on Situation Analysis of CDGFâ&#x20AC;&#x2122;s Budget 2004-05

Box case study In January 2005, the Finance & Planning department conducted an analysis of its Budget 2004-2005. The evidence proved that mistakes were made in preparing and finalizing the budget 2004-2005. The budget was then finalized on the assumption Rs. 868 Million as opening balance in the District Account IV, but the actual opening balance was Rs.653 Million. Receipts (Provincial and local) were inflated, such as grant in aid (unconditional grants from provincial retained amount and non-development grants) were shown as receipts but there was no confirmation / commitment from the Provincial Government in this regard. Secondly, the conditional grants of Rs.257 Million were shown on the receipts side but were not mentioned on the expenditure side. Similarly, Rs.273 Million rupees was shown as the target for the local receipts, but the maximum/ realistic potential was Rs.43 Million. Table A 1-1 gives a picture that due to the above errors the district unknowingly approved a deficit budget of Rs. 820 Million. The above analysis shows that great care needs to be taken while preparing the budget. It is an important financial instrument and mistakes need to be avoided at all costs. This was a learning experience for the CDGF and to avoid repetition of this scenario the CDGF planned to base its financial management practices in the future on more sound facts and figures. The CDGF realised that it should not rely on the receipts which are not confirmed from the Provincial Government and the targets for the collection of local receipts should be realistic.

Table A 1-1:

Budget estimates 2004-2005 at a glance Amount in Rupees

Receipts

Situation Reflected in budget 2004-2005 A

Opening Balance on 01-07

653,000,000

a) Development

590,000,000

b) Non-Development

278,000,000 Total (A)

Situation should have been reflected in budget 2004-2005

Share out of Provincial Allocable Amount under P.F.C Award Expected Conditional Grants from Provincial Retained Amount (20042005) Unconditional Grants from Provincial Retained Amount Foreign-Aided Project Grant (S.P.U) Fedral Development Grants

868,000,000

653,000,000

3,588,612,000

257,166,000

10,000,000

7,008,065

28,414,000

Non-Development Grants

381,177,000

Own Receipts

273,139,000

43,000,000

Total (B)

4,545,516,065

3,924,200,065

Grant Total (A+B)

5,413,516,065

4,577,200,065

3,440,055,673

CURRENT EPENDITURE A

a) Current Expenditure b) S.NE.2004-2005

28,853,217

3,468,908,890

Annual Development Programme (New)

949,200,000

Annual Development Programme (Ongoing)

302,532,000

257,166,000

Total (A) B

Schemes against Conditional Grants from Provincial Retained Amount(2004-2005) C.C.B

419,167,000

Total (B)

1,670,899,000

Grant Total (A+B)

5,139,807,890

5,396,973,890

273,708,175

-819,773,825

Closing Balance on 30-06-2005

1,928,065,000.00

Annex 2

Comparison of PESRP Funding from 2004 to 2008

Figure A2-1:

Expenditure trends from FY 2004 to FY 2006

Annex 2

Figure A2-2:

Pro-poor resource allocation in FY 2007-08 (As of March 2008)

Annex 3

Receipt Facilitation Model

Figure A3-1:

Proposed Model for the Collection of CDGF Local Receipts

FMIS

A lin e

I nfo

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rm a

Ba s eb

t ion

Sh a

r in g

Print Invoice & Receipt (Challan Form 32-A)

On l

RMIS

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A cc

e ss

Deposit

T) (I

al (I

an T)

Deposit

Bank Statement

Jhumra Town (RFC)

Bank Statement

NBP

Jaranwala Town (RFC)

Central Collection Account

Deposit

Deposit Bank Statement Bank Statement NBP

NBP

Deposit

Bank Statement

Bank Statement NBP

Madina Town (RFC)

NBP

Send Information

DAO

Summandari Town (RFC)

Iqbal Town (RFC)

R e m i t t a n ce s

Information Sharing

Bank Statement NBP

NBP

Deposit

Bank Statement

Jinnah Town (RFC)

Ba s

Collection Account

Lyallpur Town (RFC)

to W eb

State Bank of Pakistan

Tandlianwala Town (RFC)

Bibliography

BIBLIOGRAPHY Asian Development Bank, Department for International Development, and World Bank. “Devolution in Pakistan-An Assessment and Recommendations for Action.” DFID, United Kingdom. Asian Development Bank, Department for International Development, and World Bank. “Devolution in Pakistan, Annex 1-Recent History.” DFID, United Kingdom. City District Government Faisalabad, “Selected Services in Faisalabad Perceptions and Realities, A Citizen Focus Initiative”, June 2007. Faisalabad, Pakistan. City District Government Faisalabad, 2007. Performance Report, 1st June 2007 to 30th November 2007. Faisalabad, Pakistan. City District Government Faisalabad, “Estimation of Receipts and Current Expenditure, 2007-2008.” Faisalabad, Pakistan. City District Government Faisalabad, “Annual Development Programme, 2007-2008.” Faisalabad, Pakistan. City District Government Faisalabad, “Estimation of Receipts and Current Expenditure, 2007-2008.” Faisalabad, Pakistan. City District Government Faisalabad, “Finance and Planning Department, Strategic Operational Plan, 2004-2009.” Faisalabad, Pakistan. City District Government Faisalabad, “Corporate Plan, 2004-2009.” Faisalabad, Pakistan. Department for International Development “Development Magazine, Issue 34, 2006” DFID, United Kingdom. Government of Punjab, Planning and Development Department, “Local Government Planning Manual, Volume 1 & 2. Punjab, Pakistan. Punjab Local Government Ordinance, 2001 Punjab Local Government Budget Rules, 2003 Punjab Local Government Tax and Immovable Property Rules, 2001 Punjab Local Rate (Assessment and Collection) Rules, 2001 Punjab Local Government Taxation Rules, 2001 Punjab Local Government Accounts Rules, 2001 Punjab Local Government Property Rules, 2003 Punjab Local Government Commercialization Rules, 2004 Punjab Local Government Fiscal Transfer Rules, 2004 Punjab Local Government Internal Audit Rules, 2004 DSP Policy Paper Local Revenue Generation and Tax Assignment

OUR OTHER PUBLICATIONS 2

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for Improving Service Delivery

for Good Governance

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S.M. Khatib Alam Karin Tang Mahmood Akhtar

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S. M. Khatib Alam David Alan Watson Muhammad Shahid Alvi

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FY 2004-05

FY 2005-06

FY 2006-07

FY 2007-08 Projected

FY 2008-09 Projected

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Citizen Voice in Local Governance

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Promising Change

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Six Case Studies on Whole School Development

the education research component

S.M. Khatib Alam Sumara Khan Mehreen Hosain

S.M. Khatib Alam Muhammad Tariq Mehreen Hosain

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TS ES ER INT ER ITY ETH UN OG MM ING T R E O T TH GC AC OGE TIN GT OR IDIN PP ION DEC SU LTAT U S CON

M INFOR

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City District Government Faisalabad, Pakistan

Teacher Training

Public Private Partnership

Management Information Systems

Enabling Joined-Up Government

in Whole School Development

in Education: from Policy to Implementation

in Local Government

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Value Addition and Best Practices

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City District Government Faisalabad, Pakistan

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Beala Jamil

City District Government Faisalabad, Pakistan

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S.M. Khatib Alam Nadir Ehsan Kashif Abbas

City District Government Faisalabad, Pakistan

March 2008

Dr. Umar Saif Muntazir Mehdi Gul Hafeez Khokhar

City District Government Faisalabad, Pakistan

All case studies including other reports can be downloaded from the web site: http://www.faisalabad.gov.pk

ABOUT THE AUTHORS S.M. Khatib Alam - Project Manager and Overall Team Leader Khatib Alam is an international management consultant with considerable experience of leading large and diverse teams on multi-disciplinary, complex and challenging projects around the world. He has a particular expertise in strategic management, organisational change management, institutional strengthening, urban development and corporate social investment. Since 2004, he has been the Overall International Team Leader on the innovative DFID funded SDLGF project.

Imran Yousafzai - Development Consultant Imran Yousafzai is Public Financial Management Specialist. He has the experience in the multidisciplinary areas of Financial Management, such as public sector financial management, governance, management accounting, procurement, internal auditing, risk management and supply chain management. He has been working on the DFID funded project SDLGF since May-2004.

DISTRICT FINANCIAL INFORMATION

City District Government Faisalabad DCO Office, Near Iqbal Stadium Faisalabad, Pakistan

DISTRICT ACCOUNTS OFFICE

Tel: +92 (0) 41 9200205 Fax: +92 (0) 41 9200206 E-mail: email@faisalabad.gov.pk Internet: http://www.faisalabad.gov.pk

(March 2008)

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