Getting started on the PBB reform agenda in Indonesia – a practical outline of the steps to be taken in setting up a framework

Presented by Pat McMahon

Budget Advisor,

Australian Department of Finance and Deregulation

Aims of this session:

• Examine some practical examples of how PBB could be applied here at the implementation stage. This is only the setting up stage.

• This afternoon, after we have looked at MTEF, we shall start addressing the plan, and practicalities, involved in moving to a mature PBB

5 phases in developing a performance budgeting framework

1. The “Set-up” stage of defining:

– outcomes & programs

– selection of indicators/specifying targets & benchmarks

2. Financial management training

3. Introduce operational flexibilities

4. Introduce evaluation and monitoring

5. Review and refine frameworks

Phase 1 - Six steps in “setting up” a performance monitoring regime

There are six basic steps to setting up a performance monitoring regime:

A. Defining outcomes and programs for measurementB. Selecting indicatorsC. Specifying targets, benchmarks and reference pointsD. Data collectionE. Analysis & assessmentF. Reporting

Step A. Defining outcomes, programs and activities – Examples from DG Budgets• Outcomes & Program structure

– Government objectives needs to be defined along with the means (programs/outputs) necessary to achieve those objectives.

• Be clear who is to be held responsible for performance– Alignment of program responsibility with responsible officers on the

organization chart

• Distribution of expenditures– All expenses need to be distributed among the various program

activities that make up the program

Step A. Outcomes, Programs, Activities and Responsibilities– An Example

DG- Budget

Directorate of Budget III

Directorate of Budgeting

System

Directorate of Budget II

Directorate of Budget I

Secretary of DG Budget

Directorate of Non-Tax Revenue

Directorate of Budget

Preparation

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Outcome/Objective:: To manage the state budget process to assure that the government’s goals and priorities are translated into annual budgets

1. Review of line ministry budgets

2. D

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3. E

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4. P

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Management and

Direction

Australian example and some similarities

Figure: Outcome 1 – contributing outputs

Current Main Programs (8 )and DGs Proposed Programs (12) and DGs

1. Revenue Increase and Fund Safeguarding 1. Budget Management and Reform ( DG Budget) DG Taxes Non-tax Revenue Increase and Fund Safeguarding DG Customs and Excises Budget System Implementation and Improvement DG Assets Management State Expenditure Effectiveness Secretary General 2. Debt Financing and Management (DG Debt)2. State Expenditure Effectiveness DG Budget 3. Fiscal Policy and Macro-economic Analysis (Fiscal Policy Board) DG Treasury Finance and Economic Stabilization DG Central-Local Fiscal Balance 4. Revenue Policy and Management (DG Tax)3. State Financial Accounting DG Treasury 5. Intergovernmental Fiscal Relations (DG Fiscal Balance)

4. Financial Institutions Development 6. Customs and Excises Management (DG Customs) Capital Market and Financial Institutions Management Board Secretary General 7. Capital Market and non-Bank Financial Institutions Regulation (Capital Markets Board)

5. Financial and Econmic Stabilization 8. Management of State Assets (DG Asset Management) Fiscal Policy Board Capital Market and Financial Institutions Management Board 9. Treasury Affairs (DG Treasury)

State Financial Accounting6. Debt Financing and Management State Expenditure Effectiveness DG Debt Management

10. Inspector General7. Budget Systems Implementation and Improvement DG Budget 11. Training and Continuing Profesional Education DG Treasury

12. Central Management and Direction8. State Assets Management Tax Court DG State Assets Management Secretary General

Public Accounts and Appraisal RegulationSupporting Programs (5) and DGs Center for IT Finanical System

9. State Apparatus Accountability Center for Policy Harmonization10. Manpower Management11. State Apparatus Infrastructure12. State and Government Leadership13. In-Service Education Many DGs involved in each supporting program

Distribution of all expenditures to programs

Step B. Selecting performance indicators

Remember performance indicators demonstrate that the government's requirements are met. There are two types of indicators:

Effectiveness indicators

– Effectiveness indicators reflect how effective the outputs are in achieving the outcome.

Efficiency indicators

– Indicators of quantity, quality and cost reflect the efficiency of the department’s performance in delivering its outputs.

Step B. Australian example of performance indicators for Budget outputs

In choosing output group indicators and targets, agencies should aim to answer ‘yes’ to all of the following questions:1. Is it possible to demonstrate the relationship between the indicators

and the outcomes the Government wants?

2. Are the indicators easily understood by non-technical stakeholders?

3. Are the indicators and targets:a Specific – clear, concise and precise;

b Measurable – quantified;

c Achievable – practical and reasonable;

d Relevant – to stakeholders (including Government, Parliament, customers, beneficiaries); and

e Time bound – related to a period of time or time limit?

In choosing output group indicators and targets, agencies should aim to answer ‘yes’ to all of the following questions (continued):4. Do the indicators provide sufficient and balanced representation of actions

taken, and goods and services delivered by the program/activity/service?

5. Do the indicators adequately capture the intended relationship between Government programs/services and outcomes (or, if not, is there a robust means of monitoring and evaluating the contribution of Government programs/services to the outcome)?

6. Will the results of measuring programs/services be available for evaluation and reporting in an appropriate form when needed for a reasonable cost?

7. Is there a mechanism for review and revision of program/services measurement to ensure that it remains appropriate and sufficient for agency and Government needs?

Step B. Testing some early Performance Indicators defined for Budget Management & Reform

Activity 1. Review of line ministry budgets• 1. Parliament adopts line ministry budgets with only minor

changesActivity 2. Develop and Implement budget system reforms• 1. PBB implementation (no. of line ministries) / 2. MTEF

implementation (no. of line ministries) / 3. PBB and MTEF guidelines issued and training provided to line ministries

Activity 3. Establish & monitor non-tax policy and revenue collection• 1. Actual non-tax revenues as a % of projectionsActivity 4. Prepare annual budget summaries• 1. Quality “I” accounts are produced in a timely manner

Outcome/Objective: To manage the state budget process to assure that the government’s goals and priorities are translated into annual budgets

Step B. Performance indicators for DG Treasury activities – indicators serve different purposes: accountability, analysis and decision-making

Activity 1. Budget execution• 1. Annual number of disbursements made/ 2.Annual

number of budget execution documents processed

Activity 3. Financial management of public service institutions

• 1. Number of public service institutions managed

Activity 7. Financial accounting and reporting • 1. Annual number of financial accounting reports issued

Step C. Specifying targets, benchmarks & reference points – Examples from Australian Customs

Output 2: Trade facilitation and revenue collection

Step C. Specifying targets, benchmarks & reference points – Testing of other earlier prepared indicators not endorsed by DG Customs

Activity 1. Development of customs technical procedures• 1. Number of technical procedures revised and issued/Number of new

technical procedures issued

Activity 2. Management and operation of customs facilities• 1. Number of individual facilities maintained and operated/Total square

metres of facilities maintained and operated/Square metre cost of maintaining and operating

Activity 3. Excise policy and procedures • 1. Number of new or revised procedures issued

Outcome/objective: To execute state laws and regulations on imports and exports and to collect taxes

Step C. Specifying targets, benchmarks & reference points – testing of indicators continued

Activity 4. Enforcement and investigations• 1. Number of investigations initiated / 2. Number of investigations

completed/ 3. Average cost per completed investigations

Activity5. Conduct of audits• 1. Number of audits initiated/ 2. Number of audits completed/ 3. Average

cost per completed audits/ 4. Average number of completed audits per auditor

Activity 6. coordination with international agencies• 1. Number of agreements concluded

Activity 7. Preparation of customs and excise regulations

• 1. Number of new and amended regulations issued

Step F. Reporting

• Internal reporting for Agency Management– Management’s requirements ideally issued

through the Chief Executive Officer of the Agency

• External reporting for Parliament – Government’s requirements ideally issued

through Minister for Finance

More this afternoon - Planning the introduction of “operating cost flexibilities” and revised accountability arrangements

• Defining outcomes, programs and performance indicators is only the start.

• Performance will be limited unless there is proper planning of operating cost flexibilities. The preliminaries before any reforms in this area must include:• Training• Defining running costs (where operational flexibilities are introduced) and

non running costs (related to expenditures over which the Government has total control and where operational flexibilities cannot be applied)

• Grouping costs within running cost to groups where flexibilities could be granted and planning the staging the degree of flexibility granted

• Planning the audit, review and evaluation mechanisms to be used