REPUBLIC OF THE GAMBIA
2009 COUNTRY FINANCIAL ACCOUNTABILITY ASSESSMENT
The World Bank
Africa Region
AFTFM
2009
ABREVIATIONS AND ACRONYMS
AfDB / African Development BankGBMAA / Government Budget Management and Accountability (Act)
CFAA / Country Financial Accountability Assessment
COSO / Committee of Sponsoring Organizations
DfID / Department for International Development
DNT / Directorate of the National Treasury
DOSFEA / Department of State for Finance and Economic Affairs
FPAC / Finance and Public Accounts Committee
GDP / Gross domestic product
GFS / Government Finance Statistics
GMD / Gambian Dalasi (local currency)
GRA / Gambia Revenue Authority
HIPC / Highly Indebted Poor Countries
IDA / International Development Association
IFAC / International Federation of Accountants
IFMIS / Integrated Financial Management Information System
IMF / International Monetary Fund
INTOSAI / International Organization of Supreme Audit Institutions
IPSAS / International Public Sector Accounting Standards
IT / Information Technology
LGA / Local Government Act
LGFA / Local Government (Financial and Audit) Act
MTEF / Medium-term expenditure framework
PEFA / Public Expenditure and Financial Accountability
PFM / Public financial management
PI / Performance indicator
PRSP / Poverty Reduction Strategy Paper
ROSC / Report on Observance of Standards and Codes
SWAp / Sectorwide approach
TIN / Taxpayer Identification Number
Republic of The Gambia
2009 Country Financial Accountability Assessment
Contents
EXECUTIVE SUMMARY......
INTRODUCTION......
SECTION 1.FINANCIAL PLANNING AND BUDGET PREPARATION......
1.1.The legislative framework......
1.2.Budget preparation......
1.3.Multi-year and strategic budget perspective......
1.4.Budget comprehensiveness and transparency......
1.5.Assessment and Recommendations......
SECTION 2.ACCOUNTING, FINANCIAL REPORTING, INTERNAL CONTROL, AND INTERNAL AUDIT
2.1.Accounting system and IFMIS......
2.2.Financial reporting......
2.3.Internal controls and effectiveness of internal audit......
2.4.Challenges and recommendations......
SECTION 3.EXTERNAL AUDIT......
3.1.National Audit Office: Constitutional and legal mandates......
3.2.Resources and financial autonomy......
3.3.Audit reports......
3.4.Assessment and recommendations......
SECTION 4.LOCAL GOVERNMENT......
4.1.Legislation and regulation......
4.2.Budget planning and preparation......
4.3.Accounting, reporting, and internal control......
4.4.Executive oversight......
4.5.Assessment and recommendations......
SECTION 5.STATE-OWNED (PUBLIC) ENTERPRISES......
5.1.Legislative and institutional framework and corporate governance......
5.2.Corporate governance......
5.3.Budget preparation......
5.4.Accounting, internal control, reporting, and internal audit......
5.5.External audit and legislative oversight......
5.6.Assessment and recommendations......
SECTION 6.LEGISLATIVE SCRUTINY, PUBLIC ACCESS TO INFORMATION, ETHICS AND INTEGRITY
6.1.Legislature and its institutions......
6.2.Legislative scrutiny of the annual budget law......
6.3.Legislative scrutiny of external audit reports......
6.4.Capacity issues......
6.5.Assessment and recommendations......
SECTION 7.PROPOSED REFORM ACTION PLAN......
ANNEX A. PEFA PFM Performance Measurement Framework......
ANNEX B. Fiduciary Risk Analysis......
ANNEX C. Calculation of Deviations by Budget Heads 2005-2007......
ANNEX D. Terms of Reference for PFM Reform Oversight Steering Committee and Sub-Committee
ANNEX E. The Gambia Government’s Self Assessed Progress on PFM Reforms......
PREFACE
The Country Financial Management Accountability Assessment (CFAA) for the Gambia was conducted between March and June 2008, culminating in the in-country mission over two weeks in March 2008 by a joint team of the Government officials, African Development Bank and World Bank staff. The exercise covered six modules set out in the initiating memorandum prepared and distributed in February 2008 to lay out the ground work and scope of this exercise. Areas covered are in the public sector at both national and local government level only.
It is against this backdrop that exercise was designed with a view to assess the reforms and progress made on the implementation of the 2003 CFAA recommendations, especially on key PFM reforms such as IFMIS. The assessment was also intended to identify areas of continued weaknesses that would require further effort and focused attention.The findings were of the CFAA were communicated in forma of draft CFAA report in June 2009 and subsequently validated at a workshop with key stakeholder facilitated by DOSFEA (now named as Ministry of Finance and Economic Affairs). Comments from the Government of The Gambia arising from the workshop and the draft CFAA have been incorporated in the final report.
The CFAA core team comprised of John Nyaga (Team Leader, AFTFM, HQ), Winston Cole (AFTFM, Nigeria),and Loxly M Epie (AfDB),with the assistance of consultants Ulrich Johnson (Local Government financial management) and Prof. James Ato Ghartey (Public Audit and Parliamentary Oversight). The team also benefited from regular consultations with Hoon Soh, Country Economist (AFTP4). The team also wishes to acknowledge the support provided by Oumou G. Hainikoye (Program Assistant, AFTFM) for which the team is very grateful.
Mr. McDonald Benjamin (Country Program Coordinator) and Edward Olowo-Okere (Regional Manager for Financial Management, AFTFM) ensured that appropriate quality assurance arrangements were in place. The peer reviewers were Fily Sissoko (Senior Financial Management Specialist, LCSFM), Joseph Kizito (Senior Financial Management Specialist, LCSFM), Gert Van der Linde, (LeadFinancial Management Specialist, AFTFM), and Ivor Beazly (Sr. Financial Management Specialist, OPCFM). Valuable comments were also received from Parminder Brarr (Lead Financial Management Specialist, AFTFM).
ACKNOWLEDGMENTS
The assessment team is grateful for the commitment demonstrated by the former Secretary of State DOSFEA, Honorable Moussa Bala Gaye during the exercise. The team also appreciates the contributions made by Mr. Mod Secka. Permanent Secretary, DOSFEA; Mr. Abdoulie Jallow, Director of Budgets;Mr. Gabriel Mendy, Director of National Treasury;Mr. Baboucarr Sankareh, Auditor General;Honorable Fatoumatta J. Ceesay, The Speaker, National Assembly and members of the Finance and Public Accounts Committee, as well as the Quality Assurance Manager; IFMIS Project Manager (Capacity Building and Economic Management Project); and others. Mr. Badara Joof, Officer-in-Charge, World Bank Liaison Office, provided the team with useful guidance in conducting the assessment. Also, the administrative support by Ms. Yassin Saine Njie (Program Assistant, Banjul Liaison Office) was highly appreciated.
Republic of The Gambia
2009 Country Financial Accountability Assessment
EXECUTIVE SUMMARY
The Country Financial Accountability Assessment (CFAA) is a diagnostic tool used to describea country’s public financial management (PFM) and accountability arrangements. The main objectives of a CFAA are to identify systemic weaknesses in the use of public funds and suggest ways of mitigating risks to the achievement of the country’s development objectives.Financial accountability is critical because it is a reflection of the responsibility for the financial decisions taken, their implications and results measured against agreed outcomes and expectation. Generally, the fundamental fiduciary expectation is that public funds are used effectively, economically, and efficiently for the purposes intended.
A CFAA considers the strengths of the financial accountability processes in both the entire public sector. It is an assessment and not an audit; its findings cannot therefore provide complete assurance on the status of financial accountability processes, procedures or systems. This reportfocuses specifically on institutional arrangements and structural strengths and weaknesses in processes, procedures, and systems in the public sector in The Gambia.
A CFAA isa "snapshot" at a particular point in time. This report acknowledges that inThe Gambia, there areongoing PFM reforms which are at different stages of implementation. The CFAA is not intended to supersede any of these reforms, but rather to highlight those issues that are more directly associated with fiduciary risk.
A CFAA would therefore provide evidence-based assessment of issues, their diagnosis, and suggested advice on their likely resolution and level of their fiduciary risk. Conducting a CFAA or its equivalent is generally a necessary prerequisite for preparing the World Bank Country Assistance Strategy. Many bilateral and multilateral development partners use these tools as a basis for their programs, particularly in areas related to public financial management.
The CFAA in the Gambia
This draft CFAA for The Gambia updates the 2003 CFAA and is intended to inform the proposed jointly funded development policy operation of the critical fiduciary risks that need to be addressed.[1] This development policy operation is intended to provide support to the government in implementing the second Poverty Reduction Strategy Paper (PRSP) 2007-2011. The World Bank Board of Directors discussed and approved the PRSP IIalong with the Joint Staff Advisory Note in July 2007. Subsequently, the second Joint Assistance Strategy that was prepared together with AfDB in support of the PRSP II was presented to the World Bank’s Board of Executive Directors and endorsed in February 2008. The Joint Assistance Strategy II has taken into account the various PFM reform actions implemented following the 2003 CFAA recommendations. Continuing development partner support is envisaged. Future plans include an IDA disbursement of a single-tranche US$7 million operation in FY09, in which disbursementsfrom AfDB and the European Commission are expected to follow within the subsequent 6 and 12 months, respectively.
Since the 2003 CFAA, the World Bank, in partnership with multilateral and bilateral development partners has established a Public Expenditure and Financial Accountability (PEFA) framework. The PEFA approach uses a set of 28 high-level indicators of country PFM performance structured into 3 broad categories (plus 3 indicators of development partner practices) and a standard PFM performance report based on the indicator analysis to provide an assessment of PFM performance. This report, however, is structured as a CFAA not a PEFA report; it follows a similar format to the 2003 CFAA. The PEFA indicators, as applied in Annex ‘A’, support the CFAA fiduciary risk-oriented assessment, consolidate the factual database, and allow transition to the PEFA framework in the future if desired. The analyses are based on budget and financial statements for 2005-2007[2] reviewed by the assessment team, which conducted the fieldwork in Banjul in March 2008.
These complementary analytical perspectives are summarized in the annexes. In particular, Annex A provides a summary of the current status of the PFM system against PEFA indicators and Annex B summarizes progress achieved to date in relation to the fiduciary risk benchmarks identified in the 2003 CFAA.
Progress since the 2003 CFAA and Key PFM Risks that Remain
The authorities have implemented many of the recommendations made in the 2003 CFAA and subsequent supporting studies. Though much remains to be done, elements of the PFM framework have been significantly improved and fiduciary risk lessened in important respects. In particular, the legal and regulatory framework has been strengthened by the enactment of the Government Budget Management and Accountability Act(GBMAA)and issuance of revised Financial Instructions (for the Implementation of the Budget Management and Accountability Act) in 2004. Timeliness of financial reporting has also been improved significantly; the introduction of an Integrated Financial Management Information System (IFMIS) has helped achieve more timely and comprehensive within-year reports and facilitated preparation of the annual financial statements.
Together, these changes have given more scope for an orderly, policy-oriented central government budget process and help set a solid basis for further improvement. There are however many remaining weaknesses, and progress in many important PFM areas has been less rapid than advocated in the 2003 CFAA. The internal control system remains inadequate, lacking capacity and systems to follow-up on known weaknesses in reconciliation and clearing of suspense balances and other internal control flaws identified by audit. The internal audit function remains relatively weak, unsupported, and ineffective. While efforts have been made to clear the backlog of audit reports to be considered by the Finance and Public Accounts Committee (FPAC) of the National Assembly (accounts covering the period 1992-1999 have now been reviewed by FPAC), remedial action on these reports is neither timely nor effective; executive response to these issues has been largely absent.
In order to realize the benefit of the positive changes that have occurred and to reduce overall fiduciary risk, the Gambian authorities, together with development partners, will need to intensify and sustain efforts in strategic areas of PFM reform. Current gains must be consolidated and the remaining gaps in PFM accountability addressed. Overall systemic fiduciary risks will remain high unless these issues are tackled in a sustained manner. Key points from the individual PFM sections of the CFAA analysis are summarized below.
Government financial planning and budgeting. The main areas of concern in this component of the PFM system are (a) to establish an orderly and policy-oriented budget process, and (b) to ensure that budget execution is effectively monitored and remains in line with the fiscal policies in the original budget. These conditions should apply both to management of domestic and external resources. Good progress has been made, particularly in establishing a more orderly budget process, as advocated in the 2003 CFAA. The enactment of the GBMAA Act has strengthened the institutional and legislative framework. Significant improvements have also been made to the budget classification/chart of accounts that now bring the classification broadly into line with IMF-formulated standards of Government Finance Statistics(GFS), as well as allowing activities to be linked to objectives and outputs. This latter feature of the classification has provided a basis for implementation of a medium-term expenditure framework (MTEF) now being put in place, consistent with the requirements of the GBMAA Act. Considerably more work is required to develop a comprehensive MTEF, to align expenditure programs with PRSP priorities and to improve review and adjustment of the budget during implementation. Many of the tools to do soare now in place.
Accounting, internal controland financial reporting.The 2003 CFAA recorded unsatisfactory performance on most aspects of the accounting, reporting, and control system, although it noted that work was underway to strengthen the legislation and introduce an IFMIS. Significant progress is now being made to remedy many of the weaknesses noted in the 2003 CFAA, including improvement in bank reconciliation and timeliness of financial reports. Internal controls however remain weak; and capacity for internal audit is still almost non-existent. It is suggested that the authorities should maintain vigilance in the reconciliation of bank accounts to ensure the credibility of financial reports. Challenges with respect to internal audits were noted in the 2003 CFAA, but little appears to have been done to address them. Many of the potential benefits now being put in place through the IFMIS and other control system improvements will be lost unless timely action is taken in this area. A major and sustained effort to establish internal audit processes that meet international standards is strongly emphasized in echoing the 2003 CFAA recommendation.
Local government. Local government administration and the decentralization process face a multitude of challenges. Councils are unable to acquire the material resources required for service delivery (e.g., waste disposalmanagement) in view of their low revenue base. Local government salarystructure is in accordance with the Central Government’s integrated pay scalestructure, which is relatively uncompetitive when compared to the compensation framework available in the private sector, not-for-profit organizations,as well as in some of the state-owned (public) enterprises and donor agencies. While significant steps have been taken to improve the legislative framework for a more decentralized system of government, the overall environment for financial accountability of local councils has changed little since the 2003 CFAA. Many steps are underway, but a sustained and long-term effort will be needed to establish a satisfactory level of performance and reduce fiduciary risks in this area. This current CFAA recommends a long-term program to address these issues, focusing first on establishing the local government commission to provide an institutional basis for local councils to meet their mandate under the Local Government Act, (LGA), 2002. However, in view of the weak capacity in the Local Government across the board, it is appreciated that the recommendations may have to take a much longer time to implement unless Technical Assistance is provided.
State-owned (public) enterprises.Little has changed in the overall environment of state-owned enterprise (referred to as public enterprises in The Gambia) reporting and governance arrangements since the 2003 CFAA. The risks of quasi-fiscal indebtedness remain high—and this may possibly have increased in the current global financial environment. The framework for financial accountability of public enterprises will need to be radically transformed to reduce fiduciary risk from this perspective. The legislative framework under which public enterprises are operating needs to be updated to take account of the changes and realities of present-day challenges. The current legislation (the Public Enterprise Act and the Companies Act) need to be updated and made mutually consistent with regard to the treatment of public enterprises. An overarching public enterprise governance framework would be a desirable tool for the government to consider. All of these reforms will in reality take considerable time to be fully realized owing to the prevailing weak capacity to undertake the reform agenda in the sector. Consequently, this CFAA recommends that a high-level council guide the long-term program with technical assistance support from development partners.
External audit.Notable progress has been made in addressing the backlog of audit reports that needed to be submitted to the FPAC of the National Assembly. This is an important step, but few other substantive issues regarding quality of audit reports and responsiveness of the Executive branch to audit recommendations of the 2003 CFAA have not been fully and adequately addressed. Fundamental underlying weaknesses remain: on one hand, there is a lack of sufficient capacity in the Auditor General’s Office to produce high-quality reports on time while, on the other, accountability and compliance of the Executive agencies of government to implement audit recommendations are quite weak and ineffective. One of the central recommendations of this CFAA is that a high-priority program be initiated at the earliest time possible to establish a stronger legislative framework for the Auditor General and provide resources and training to ensure the National Audit Office has adequate capacity. Such an initiative would be a keystone of future PFM reform—and would be closely linked to programs to build up the capacity of the National Assembly and its FPAC to help ensure prompt and effective follow-up of the Auditor General’s observations, which brings us to the following point.