Presentation by Amal Lahrlid at the 7th annual meeting of the MENA Senior Budget Officials held on 10-11 December 2014. Find more information at http://www.oecd.org/gov/budgeting

1. The Organisation of Public Financial Management Architecture
MENA-SBO
Amal Larhlid
Director in Policy and Governance

2. Agenda
•The Role of the Ministry of Finance within Government
•The Organisational Structure of the Ministry of Finance
•Governance of State-Owned Enterprises: a case study from Tunisia
•Conclusions

3. Organisational architecture
The Role of the Ministry of Finance within Government

4. Position of MoF within governmental institutions
Institution
Relationship to MoF
Head of Executive
Provides overall strategic direction for government, setting objectives and priorities. These inform the allocation of resources by the MOF during the budget process.
Other line ministries
Liaise with MoF in budget-setting process. May provide more granular detail on requirements of particular projects or objectives, negotiate (either directly with MoF, or via Cabinet/Secretariat) for greater resource allocations. Responsible for budget execution, internal monitoring of expenditure and performance, and (under true-PBB) reallocation of resources within spending envelope to maximum effect.
SOEs
May be net subsidised by MOF, or net revenue generators. In either case, financial position and forecasts will be incorporated into MOF’s multi-year budgeting. As with line ministries, SOEs will provide MOF with information regarding investment opportunities, funding needs, and performance.
Parliament
Parliament scrutinises the budget and the government accounts (potentially by means of committees). A vote may be required to approve both the budget and the accounts.
Public Accounts Committee (PAC)
Select committee focused on scrutiny of budget execution (including value-for-money criteria). In Westminster model, tends to be chaired by senior Opposition MP, and examines both public accounts and ad hoc value-for-money reports produced by the SAI. In practice, this can mean a wide remit, ranging from tax avoidance to transportation infrastructure projects. The PAC can call on external experts to support its work, and request that ministers and civil servants appear before it to provide an account of spending and outcomes.
SAI
Responsible for audit of government accounts created by individual line ministries, and by MOF for government as a whole. May also audit performance information, and investigate questions of value-for-money (either at own discretion, or in accordance with direction from executive or Parliament).
MOF
Other
Ministries
Line
Head of Executive
Parliament
PAC
SAI
SOEs

5. MOF/secretariat coordination and assignment of responsibilities
Strategic planning should be fully integrated with the budget, with the MTEF representing a combined medium-term government-wide strategic plan and budget.
In this context, the organizational integration of strategic planning and budgeting becomes very important.
There are basically two models for achieving this:
•MOF assumes responsibility for strategic planning
•Strategic planning remains the responsibility of the Secretariat, but MOF and Secretariat cooperate closely to prevent fragmentation.
It is important to avoid a situation in which major capital projects are handled exclusively by the Secretariat, with MOF playing no role in analysing them and advising on their affordability.
A number of MENA countries have government Secretariat-type organizations, which support the Cabinet and executive leadership.
If planning is the role of the Secretariat, and budgeting the role of MOF, this can institutionalize the lack of integration of budgeting and strategic planning.
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The lack of coordination between secretariat and MOF is a challenge for the integration between strategic planning and budgeting
The organisational integration and assignment of responsibilities model are critical
MOF should take central role in handling major capital projects proposals

6. Organisational architecture
The Organisational Structure of the Ministry of Finance

7. Organisational structure and key MOF functions (1 of 2) It is essential to ensure that the MOF organizational structure incorporates all of the key functions associated with the budget and financial management cycle. Below is an indicative structure incorporating these key functions within six divisions:
MOF
Macro-Fiscal Unit
Budget Preparation
Budget Execution
Treasury
Accounting & Reporting
Tax Policy
SOE Unit
Divisions
Functions of the division
Macro-fiscal unit
Policy on debt, the deficit and level of savings from resource revenues; estimation of aggregate expenditure ceiling; macroeconomic and fiscal projections.
Budget preparation
Determination of budget allocations to each ministry; preparation of detailed budget for submission to political leadership, including all budget documents. In countries which have developed spending review systems, the Budget Preparation division will typically incorporate a Spending Review Unit.
Budget execution
Release of budget funds to spending ministries; ensure that spending ministries implement the budget as planned; ensure compliance with financial management regulations; handle budget transfer (virement) requests.
Treasury
Cash planning and management; management of government banking (e.g. Treasury Single Account); short-term borrowings and funds investment (if necessary) for liquidity purposes (i.e. to manage within-year mismatch of revenue and expenditure flows).
Accounting and reporting
Recording of government revenues, expenditures, liabilities and assets; provision to Budget Execution division of within-year reports on budget expenditures and revenues; preparation of financial reports. Accounting policy (see next page for further discussion on this).
Tax Policy
Recommending tax policy and legislation to government. No responsibility for the assessment and collection of taxes (“tax administration”), which would be the responsibility of a separate Tax Authority .
State owned enterprise unit
Policy on, and analysis of, all state owned enterprise requests for budget funding; monitoring of financial position (including liabilities) of state owned enterprises and associated potential financial risk to government; general policy on state owned enterprises.

8. Organisational structure and key MOF functions (2 of 2)
Divisions
Functions of the division
Accounting policy division
In addition to the Accounting and Reporting division – in which case the latter would restrict itself to accounting operations.
Intergovernmental financial relations
In federal systems, the national MOF would typically also have a division covering Intergovernmental Financial Relations, the prime responsibility of which would be the management of financial transfers from the national to sub-national governments.
Market regulation
While in many countries regulators sit outside MoF, market regulation (in particular, regulation of the finance sector) is highly relevant to macroeconomic stability and is commonly overseen by personnel within MoF,
International financial liaison
Responsible for ongoing financial relationships/ negotiations with other countries, and with supranational bodies such as IMF, World Bank, and the EU.
(Other) additional divisions
In addition to the above principle divisions of the MOF, it may sometimes be appropriate to create small additional units such as a Procurement Unit, which would set procurement policies and monitor the procurement practices of spending ministries.
Associated organisations
Functions of the associated organisations
Debt management agency
This agency would be responsible for issuing long-term government debt (defined as debt of more than one year maturity, and excluding short-term debt issued for liquidity management purposes, which is the responsibility of the MOF Treasury). It would also actively manage the debt portfolio. In many countries, the Debt Management Agency would also undertake any state owned enterprise borrowings on their behalf.
Sovereign wealth fund
The organization which manages the financial assets of countries with large investable resources, as is commonly the case in GCC countries.
Civil service pension authority
This agency managers the civil service pension system.
The Tax Authority
The primary responsibility of the Tax Authority is to administer the major taxes levied by the government (e.g. personal income taxes; corporate taxes and sales taxes). The Tax Authority would not have responsibility for tax policy, which is part of the MOF .
The indicative organizational structure may legitimately be varied in certain respects, depending upon national circumstances. For example:
In addition to the core MOF functions which should be reflected in the divisions of the MOF itself, there are a number of associated functions which are typically associated with, but not part of, MOF. Typically, the organizations which manage these functions report to the Minister of Finance or equivalent leader, even though they are not part of MOF. The above listed are the most important such organizations.
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9. Real-world examples of MoF structure
US Treasury Department
The Office of Management and Budget (part of the Executive Office) plays a key role in budget preparation/execution.
Budget Preparation
Budget Execution
Treasury
Accounting & Reporting
Tax Policy
Macro-Fiscal Unit
Bureau of the Fiscal Service
Unlike most other countries, the US legislature has considerable influence over the budgeting process.

10. Real-world examples of MoF structure
Swedish Ministry of Finance
Budget Preparation
Budget Execution
Treasury
Accounting & Reporting
Tax Policy
SOE Unit
Macro-Fiscal Unit
MOF
Economic Affairs
Budget
Tax and Customs
Financial Markets
International
Municipalities and State Ownership
Municipalities
SOE governance
SOE management
National Debt Office
National Financial Management Authority

11. Budget Preparation
Budget Execution
Real-world examples of MoF structure
UK Treasury
HM Treasury
Corporate Centre
Strategy, Planning & Budget
Ministerial & Communications
Treasury Legal Advisors
International/ EU
Economics
Fiscal
Public Spending
Public Services
Financial Stability
Financial Services
Financial Regulations & Market Services
Business & International Tax
Personal Tax, Welfare & Pensions
Enterprise & Growth
Tax Policy
Macro- Fiscal Unit
Accounting & Reporting
Treasury

12. Organisational architecture
Governance of State-Owned Enterprises and Public Bodies

13. Governance of State-Owned Enterprises and Public Bodies in Tunisia Background and Context
•50% increase in government expenditures between 2010 and 2013
•In the context of subsequent spending restraint, there has been renewed focus on management of public finances, budgetary transparency, and performance budgeting
•IMF Technical Assistance was requested to evaluate the progress of these PFM reforms, identify deficiencies, and make recommendations
•The mission focused on:
•Budget framework and preparation
•Closure of accounts and financial reporting
•Oversight of state-owned enterprises and organisations, which constitute an increasing burden on state finances

14. Governance of State-Owned Enterprises and Public Bodies in Tunisia Types of State-Owned Enterprise and Public Bodies
State-Owned Enterprises
Public Bodies
Administrative Public Bodies
Public Health Bodies
Non- Administrative Public Bodies
Non- Administrative Public Bodies
Wholly State- Owned Companies
Banks and insurance companies (directly and indirectly capitalised by the State)
Companies majority- owned by the State, local government, and/ or other public bodies

15. Governance of State-Owned Enterprises and Public Bodies in Tunisia Structure of Governance
Ministry of Economy and Finance
President’s Office
Line Ministers
Technical Committee on Privatisation
Court of Auditors
Commission for the Restructuring of Publicly-Supported Enterprises (CAREPP)
DG of Public Bodies
General Committee of Budget Administration
DG of SOE Restructuring
SOE Productivity Monitoring Unit
SOE Organisational Unit
DG of Privatisation
DG of Public – Private Partnerships
State-Owned Enterprises
& Public Bodies

16. Governance of State-Owned Enterprises and Public Bodies in Tunisia State-Owned Enterprises: Trends in Salaries, Subsidies and Investment
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7000
Salaires
Subventions de l'Etat
Aides pour l'investissement
2010
2011
2012
Source: MEF, Rapport sur la position financière de 28 entreprises publiques 2010-2012

17. Governance of State-Owned Enterprises and Public Bodies in Tunisia Problems and Recommendations
Lack of clear criteria for differentiating public enterprises from other administrative/ non- administrative agencies
Legal Framework and Categories of
State-Owned Enterprises and Public Bodies
Diverse categories and legal frameworks for SOEs and
Public Bodies
Consolidation and simplification of legal framework
Simplify and standardise personnel grades/salaries
Regroup into two categories: administrative bodies and commercial/industrial companies

18. Governance of State-Owned Enterprises and Public Bodies in Tunisia Problems and Recommendations
Multiple state bodies tasked with oversight of SOEs and public bodies
State-Owned Enterprises and Public Bodies:
Institutional Landscape
Equip the DG of Public Bodies (MoF) with power to monitor entire sector, and responsibility for annual financial analysis
Introduce requirement for information on SOEs and other public bodies in MoF memos to rest of government
Improve coordination between existing actors involved in governance
Lack of coordination
Overlapping duties and increased costs
Prescriptive governance framework limits operational independence of SOEs
Contractual formalisation of relationships between State and public bodies (particularly state- supported banks)
Create a single entity responsible for oversight of public bodies within MoF

19. Governance of State-Owned Enterprises and Public Bodies in Tunisia Problems and Recommendations
Financial Performance
and Risk Management
Improved monitoring of SOEs’ financial performance (particularly signs of financial distress)
Introduce macroeconomic and budgetary risk analysis into public bodies’ annual reporting
Clarify spending and delivery responsibilities between State and public bodies at a project-by-project level
Absence of reliable management information
Lack of visibility of overall level of government subsidy (including implicit guarantees)
Failure to incorporate public bodies into budget forecasts
Develop multi-year strategy and budget for public bodies, which can be integrated into medium-term expense planning at the State level
Produce report aggregating all forms of subsidy to public bodies
Failure to assess impact of macroeconomic factors on financial position of public bodies

20. Governance of State-Owned Enterprises and Public Bodies: Lessons from around the world Challenges…
Scale and diversity of SOE sector
Conflicting imperatives: generate cash or deliver social programs?
Overall level of government subsidy (transfers, guarantees, equity) often unclear
Cash-generating parts of business/sector may mask true scale of transfers
Inadequate appreciation of risk exposure by SOEs and/or by MoF
Low visibility of contingent liabilities

21. Governance of State-Owned Enterprises and Public Bodies: Lessons from around the world Challenges… and solutions
Scale and diversity of SOE sector
Conflicting imperatives: generate cash or deliver social programs?
Simplification of SOE legislation/ reduction in range of legal forms
Shared services for SOE sector to improve quality of information available to MoF
Dedicated SOE Unit within MoF
Overall level of government subsidy (transfers, guarantees, equity) often unclear
Cash-generating parts of business/sector may mask true scale of transfers
Inadequate appreciation of risk exposure by SOEs and/or by MoF
Privatisation
Low visibility of contingent liabilities
Align SOE planning, budgeting and reporting calendar with MoF
Contractual basis for MoF subsidies/ guarantees – defining SOE obligations
Consolidation of SOEs/integration into departments

22. Governance of State-Owned Enterprises and Public Bodies: Lessons from around the world The Role of the SOE Unit
Dedicated SOE Unit within MoF
SOEs
•Monitor financial performance, budgets, business plans, sectoral trends
•Advise on investment, diversification, restructuring, divestment
•Provide information on level of subsidy, dividends payable, fiscal risks
•Identify and screen potential directors
•Promote best practice corporate governance
Monitoring and analysis, not control
MoF
•Financial performance: liquidity, profitability, leverage, market value, solvency
•Debt structure (including timing of payments) and contingent liabilities
•Delivery of social programs (social performance)
Reporting: for individual SOEs and sector as a whole

23. Organisational architecture
Conclusions

24. Critical Success Factors for Ministry of Finance reform
Section 2 – Executive Summary
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Set a clear and well articulated vision
Vision
Commitment
Stakeholders and Capacity
Timeline (Realistic)
Technology is an Enabler
Flexibility and Adaptability
Absolute political commitment with stick and carrot
Take all stakeholders with you and be absolutely sure they have the capacity to deliver
Be completely realistic in scope and timelines this is a journey without an end with continuous improvement
Technology is fundamental but alone will fail
Learn and adapt – be ready to change your plans to meet new challenges and incorporate new ideas

25. Thank you
Amal Larhlid
Director Policy and Governance
PwC London
amal.larhlid@uk.pwc.com
Office: +442078040339 |
Mobile: +447725632499