Cambodia: Strengthening Public Financial Management Program, Subprogram 1

Public sector management / Public expenditure and fiscal management

Policy and regulatory framework for expenditure and revenue management strengthened.

Capacity of selected line ministries to implement budgeting and expenditure management reforms improved.

Capacity of the external audit function improved.

Output 1:

- An amendment to Law on State Budget System (2008) to institutionalize PFM reforms including a provision for the National Assembly to pass the annual budget in a program budgeting format (2018). According to the new budget reform system strategy 2018-2025, the proposed amendment is scheduled for consideration by the National Assembly by 2020. Work on the proposed amendment has started in the General Department of Budget (MEF) by reviewing reform options, including drafting of provisions on performance budgeting. The amendment is expected to address the respective roles of financial controllers, the General Department of National Treasury as public sector accountant, and procurement arrangements. Working groups, led by the Secretary General of the General Secretariat of PFM Reform Steering Committee, have been established to work on the proposed amendment.

- Adoption of a government-wide medium-term expenditure framework (MTEF) (2017). The budget reform system strategy and discussions with MEF indicate that a medium-term fiscal framework (MTFF) and medium-term budget framework (MTBF) will be prepared instead of MTEF and that the combination of MTFF and MTBF is considered to be equivalent to MTEF. The MTFF aims to improve the quality and reliability of macro-economic forecasting to improve multi-year projections of revenues and expenditures; maintain aggregate fiscal discipline; and efficient use of resources by creating more stable and predictable budget allocations. It will also provide the basis for preparation of a MTBF for budget allocations with firm budget ceilings prepared by sector/line ministry level as indicated in the annual budget circular. A concept note of MTFF 2019-2021 has been finalized by the General Department of Policy (MEF). The General Department of Budget (MEF) has prepared a draft MTBF, including an integrated medium-term framework for capital and maintenance expenditure framework. It is anticipated that MTFF and MTBF will be prepared in early 2019 and operational for the 2020-2022 budgets.

- Adoption of a comprehensive financial management manual for government budgeting, and used for budget preparation, execution, and financial and performance reporting (2019). The mission notes that preparation of a comprehensive financial management manual for budget management has commenced under the leadership of the General Secretariat of the PFM Reform Steering Committee. The mission was informed that a local consulting firm would be engaged, using government resources, to carry out gap analysis and to then draft the financial management manual in Khmer. The manual would provide the basis for line ministries to prepare customized financial manuals for use by each ministry.

- It is requited that FMIS implementation be fully operationalized in MEF and 25 provincial treasuries (stage 1), including with International Public Sector Accounting Standards (IPSAS)-cash based financial statements; and that implementation be started for expanding system functionality and coverage to line ministries (stage 2). Phase 1 of FMIS implementation is essentially completed with the General Department of National Treasury having fully implemented FMIS which is capable of producing IPSAS standard cash reports at central ministry level. Stage 2 of FMIS implementation with additional functionality started in 2017 in the first batch of 10 ministries. The mission noted that three of the initial batch target ministries (Ministry of Agriculture, Forestry and Fisheries; Ministry of Education, Youth and Sport; and the Ministry of Labour and Vocational Training) have implemented FMIS. Three other ministries: the Ministry of Rural Development; Ministry of Public Works and Transport and Ministry of Water Resources and Meteorology have been included in the second batch of target ministries that have started implementing FMIS in 2018 with support of the MEF IT Department .

- Adoption of a government-wide internal audit manual based on international standards, including policy on principles for internal control of information and communication technology (ICT). An internal audit manual was approved in December 2016. Guidelines, including policy on principles for ICT internal controls with focus on FMIS are available in a draft version.

Output 2:

- Budget strategic plans (BSPs) are annually updated, and poverty and gender issues included by at least the six line ministries. The BSPs provide three-year estimates that are annually updated and prepared by all government line ministries to include all sources of revenue and all planned expenditures. The BSPs are the main tool by which government can link budget to sector/ministry policy objectives that are consistent with the overall poverty reduction objectives, including consideration of gender equity measures, of the five-year National Strategic Development Plan 2014-2018. All six ministries are producing BSPs that include some coverage of poverty reduction objectives in their policy frameworks and inclusion of some funded activities on gender and poverty reduction. The terms of reference of the international public sector planning and budget specialist includes a comprehensive review of BSP formats and procedures for the six ministries in addition to further strengthening and comprehensive coverage of poverty and gender matters. The BSPs for 2019-2021 will be further reviewed in early 2019.

- Program budgeting with integrated capital and recurrent budgets fully implemented and gender and poverty issues included by at least six line ministries. All six ministries are already producing program budgets (which are based on the BSPs) with some coverage of poverty in policy frameworks and objectives and, in most cases, some activities for poverty and gender specifically funded. There has been some integration of capital and recurrent budgets (mainly for the government funded budget only) in all six ministries, however further integration based on more detailed guidelines developed by MEF is required.

- Customized financial management manuals for budget preparation, execution, and financial and performance reporting prepared in at least six line ministries. There are currently basic manuals in place based on consolidation of past MEF guidelines and instructions for the six ministries. These are not currently comprehensive in nature and in user friendly formats. The General Department of Budget (MEF) will lead the preparation of the customized financial management manuals in close coordination with the General Secretariat of PFM Reform Steering Committee working alongside with the PFM working groups in the six line ministries.

- Annual financial and performance reports prepared and published by at least the six line ministries. All six ministries currently produce monthly, quarterly and annual financial reports and six-monthly and annual performance reports for MEF, based on program budget structures. Further work is needed to improve reporting formats and quality of reporting and publish the reports on websites of the ministries.

- Performance audits and audits of the ICT environment included in internal audit plans and implemented in at least the six line ministries. Performance audit is important to improve performance accountability. However, that most internal audit departments have not undertaken major performance-based audits although three have undertaken preliminary ones. Audits of the ICT environment is also important as FMIS is being implemented across all government ministries. None of the six ministries, however, have yet undertaken any substantial work on ICT audits.

Output 3:

- Tangible results have included application of 2015 regulation to guide implementation of the audit law; and timeliness in the completion of annual audits. The guidelines on financial, compliance, and performance audits are being updated; and work on preparation of the audit manual for sub-national administrations is in progress. In addition, the NAA is conducting audit of 6 districts for 2018. The NAA would seek higher management consideration to post the NAA's strategic development plan 2017-2021; and the 2018 annual progress report and subsequent annual progress reports on the NAA's website. NAA has prepared the 2016 annual audit report on public financial management which includes the budget settlement report which is now published on the NAA's website in February 2018.