Report No: ACS2880 Republic of South Sudan Country Integrated Fiduciary Assessment Southern Sudan Volume 2: Public Finance Management Assessment (Based on the Public Expenditure and Financial Accountability Framework) June 2012 AFTME AFRICA Document of the World Bank Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights(aworldbank.ore. World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 List of Abbreviations AFS Annual Financial Statement CIFA Country Integrated Fiduciary Assessment FAPRO Financial and Accounting Procedures Ordinance GoSS Government of Southern Sudan GRSS Government of the Republic of South Sudan HRMIS Human Resource Management Information System IFC International Finance Corporation IFMIS Integrated Financial Management Information System IPPDR Interim Public Procurement and Disposal Regulations IPSAS International Public Sector Accounting Standards LICUS Low Income Countries Under Stress MoFEP Ministry of Finance and Economic Planning MoFTI Ministry of Finance, Trade and Industry MoLPS Ministry of Labor and Public Service NBGS Northern Bahr el Ghazal State NGO non-governmental organization OECD-DAC Organisation of Economic Cooperation and Development-Development Assistance Center PEFA Public Expenditure and Financial Accountability PFM public finance management PI performance indicator PPU Procurement Policy Unit SDG Sudanese pound SMoFEP State Ministry of Finance & Economic Planning SPLA Sudan Peoples' Liberation Army SPLM Sudan Peoples' Liberation Movement SRA State Revenue Authority SSEPS Southern Sudan Electronic Payments System. SSLA Southern Sudan Legislative Assembly SSPAR South Sudan Procurement Assessment Report UNDP United Nations Development Programme USAID United States Agency for International Development USD US dollar III ÿþ World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Contents List of Tables and Figures ii List ofAbbreviations iii Chapter 1. Summary of Ratings 1 1.1 The National Government (GoSS/GRSS) 1 Chapter 2. Country Background 7 2.1. General 7 2.2. Legal Framework 7 2.3. Budget Performance and Functions 12 Chapter 3. Assessment of the PFM systems 17 3.1. Credibility of the Budget (PEFA Performance Indicators 1- 4) 17 3.2. Comprehensiveness and Transparency (Performance Indicators 5-10) 30 3.3. Policy-based Budgeting (Performance Indicators 11-12) 48 3.4. Predictability and Control in Budget Execution (Performance Indicators 13-21) 57 3.5. Accounting, Recording and Reporting (Performance Indicators 22-25) 114 3.6. External Scrutiny and Audit (Performance Indicators 26-28) 131 3.7. Donor Practices (D1-D3) 139 3.8. HLG 1: Predictability of Fiscal Transfers from GRSS 144 Annexes A: State Government Background Information 145 B: Pending Payments 156 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 List of Tables and Figures Table 1.1. GoSS/GRSS: PEFA Assessment Scores 1 Table 1.2. Summary of PEFA Ratings for Four State Governments 3 Table 2.1. Budget Performance at the GoSS/GRSS Level, 2008-11 13 Table 2.2. GoSS/GRSS Expenditure by Sector, 2008-10 14 Table 3.1. GoSS/GRSS: Budget Execution Rate for Total Primary Expenditures, 2008-10 19 Table 3.2. GoSS/GRSS Expenditure Composition Variance, 2008-10 21 Table 3.3. GoSS/GRSS Domestic Revenue Performance, 2008-10 22 Table 3.4. Age Profile of Pending Claims, 2010 24 Table 3.5. Jonglei State Own Revenue Performance, 2008-10 27 Table 3.6. Information Provided in Budget Documentation 34 Table 3.7. Six Benchmarks for Public Access to Information 39 Table 3.8. Legal and Regulatory Framework for Procurement 89 Table 3.9. Summary of Internal Control Systems 96 Table 3.10. Status of Performance of Internal Audit Units as of March 31, 2011 99 Table 3.11. Timelines of Annual Financial Statements, 2006-2009 120 Table A.1. NBGS: Approved Budgets, 2010 and 2011 146 Table A.2. NBGS: Composition of Revenues 147 Table A.3. NBGS: Expenditure by Sector, 2011 Budget 147 Table A.4. Aweil West County: Summary of 2011 Budget 148 Table A.5. Aweil West County: Expenditure by Sector, 2011 149 Table A.6. Unity State: Summary of Budgets, 2010 and 2011 150 Table A.7. Unity State: Expenditure by Sector, 2011 151 Table A.8. Western Equatoria State: 2009 - 2011 Approved Budgets 152 Table A.9. Western Equatoria State: Expenditure by Sector, Budget for 2009 - 2011 153 Table A.10. Western Equatoria State: Composition of Revenues, 2009 - 2011 154 Figure 2.1. GoSS Expenditure on Salaries, Operations, and Capital (in percent), 2006-10 15 II World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Chapter 1. Summary of Ratings 1.1 The National Government (GoSS/GRSS) The following table (1.1) shows the PEFA scores for the national government, formally named the Government of South Sudan (GoSS) until independence in July 2011, when the name was changed to the Government of the Republic of South Sudan (GRSS). The scores indicate the situation at the end of the previous financial year (calendar year) in the case of many indicators, for example those where comparison is made between the approved budget and the budget outcomes. For some indicators, the situation at the time of the assessment is what counts, for example the status of revenue administration. The scoring methods are twofold: In the Ml or weakest link method, a low rating for one dimension undermines the strength of the indicator being assessed; in the M2 or simple average method, some indicators show an upwards arrow, indicating that reforms are underway to improve performance, but the improvement has not happened yet. Each indicator contains one or more dimensions (columns i, ii, iii, and iv in Table 1.1), or sub indicators, that address the key elements of the PFM process. These are described with their relevant performance indicators. Table 1.2 shows the PEFA ratings for the four state governments assessed. Table 1.1. GoSSIGRSS: PEFA Assessment Scores A. Credibility of the Budget PI-1 Aggregate expenditure out-turn compared to original budget DA DA M1 PI-2 Composition of budget expenditure out-turn compared to D+ D A original approved budget M1 PI-3 Aggregate revenue out-turn compared to original approved D budget M1 PI-4 Stock and monitoring of expenditure arrears M1 D+ D B B. Comprehensiveness and Transparency PI-5 Classification of the budget M1 B B PI-6 Comprehensiveness of information included in budget documentation M1 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * .. PI-7 Extent of unreported government operations M1 D+ D B PI-8 Transparency of intergovernmental fiscal relationsM2 C+ B B D PI-9 Oversight of aggregate fiscal risk from other public sector D NA D entities M1 PI-10 Public access to key fiscal information M1 C C C. (i) Policy-Based Budgeting PI-11 Orderliness and participation in the annual budget process B B A C M2 PI-12 Multi-year perspective in fiscal planning, expenditure policy D+ D NA C D and budgeting M2 C. (ii) Predictability and Control in Budget Execution PI-13 Transparency of taxpayer obligations and liabilities M2 D+ C D D PI-14 Effectiveness of measures for taxpayer registration and tax D+A 12D assessment M2 PI-15 Effectiveness in collection of tax payment M1 D+ NR C D PI-16 Predictability in the availability of funds for commitment of D+ D C expenditures M1 PI-17 Recording and management of cash balances, debt and C guarantees M2 PI-18 Effectiveness of payroll controls M1 C+ B B A C PI-19 Competition, value for money and controls in procurement D C D PI-20 Effectiveness of internal controls for non-salary expenditure M1 PI-21 Effectiveness of internal M1 DA DA D D C. (iii) Accounting, Recording and Reporting PI-22 Timeliness and regularity of accounts reconciliation M2 PI-23 Availability of information on resources received by service DA delivery units M1 PI-24 Quality and timeliness of in-year budget reports M1 C+ C A C 2 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * .. PI-25 Quality and timeliness of annual financial statements D+ C D C M1 C. (iv) External Scrutiny and Audit PI-26 Scope, nature, and follow-up of external audit M1 D+ C D D PI-27 Legislative scrutiny of the annual budget law M1 C+ C C B C PI-28 Legislative scrutiny of external audit reports M1 NA NA NA NA D. Donor Practices D-1 Predictability of direct budget support M1 NA NA NA D-2 Financial information provided by donors for budget, reporting on project, and program aid M1 D-3 Proportion of aid that is managed by use of national procedures M1 Notes: NR = Not rated, as data not available. NA = Not applicable under the current situation. Shaded areas represent M2 scoring methodology; upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. Columns i, ii, iii, and iv represent dimensions-or subindicators-that address key elements of the PFM process. Table 1.2. Summary of PEFA Ratings for Four State Governments omosAggregate expenditure out-turn compared to original NRA NR NR NRA budget M1 Pl2 Composition of expenditure out-turn compared to originalNRNRR NA approved budget M1 Aggregate revenue out-turn compared to original PI-3 NRA NR D NRA approved budget M1 NRA NR NR NRA P1-4 Stock and monitoring of expenditure payment arrears M1 (i) NRA (i) NR (i) NR (i) NRA (ii) DA (ii) D (ii) D (ii) DA PI-5 Classification of the budget M1 B B B B Pl-6 Comprehensiveness of information included in budget C D documentation M1 PI-7 Extent of unreported government operations M1 NR NR NR NR 3 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (i) NR (i) NR (ii) D (ii) D C+ C+ C+ B (i) A (i) A (i) A (i) A PI-8 Transparency of intergovernmental fiscal relations M2 (ii) c (ii) c (ii) c (ii) B (iii) D (iii) D (iii) D (iii) D D D D D P1-9 Oversight of aggregate fiscal risk from other public sector (i) NA (i) NA (i) NA (i) NA entities M1 (ii) D (ii) D (ii) D (ii) D Public access to key fiscal information M1 D c D c PI-10 B+ B D+ B PI-1i Orderliness and participation in the annual budget (i) B (i) B (i) c (i) B process M2 (ii) A (ii) A (ii) D (ii) A (iii) NA (iii) D (iii) D (iii) D D D D D (i) D (i) D (i) D (i) D PI-12 Multi-year perspective in fiscal planning, expenditure (ii) NA (ii) NR (ii) NA (ii) NA policy and budgeting M2 (iii) D (iii) D (iii) D (iii) D (iv) D (iv) D (iv) D (iv) D C+ D+ D+ D+ (i) B (i) c (i) c (i) c PI-13 Transparency of taxpayer obligations and liabilities M2 (ii) B (ii) D (ii) D (ii) c (iii) D (iii) D (iii) D (iii) D C+ D D D+ Effectiveness of measures for taxpayer registration and (i) C (i) D (i) c PI-14 tax assessment M2 (ii) NA (ii) D (ii) c NA/NR (iii) D (iii)D (iii) D (iii) D D D D+ D (i) NR (i) NR (i) NR (i) NR PI-15 Effectiveness in collection of tax payment M1 (ii) NR ii) D (ii) B (ii) D (iii) D (iii) D (iii) D (iii) D PI-16 Predictability in the availability of funds for commitment of D D D D 4 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 expenditure M1 (i) D (i) D (i) D (i) D (ii) D (ii) D (ii) D (ii) D (iii) NA (iii) NA (iii) NR (iii) D c c D c PI-17 Recording and management of cash balances, debt and (i) NA (i) NA (i) NA (i) NA guarantees M2 (ii) c (ii) c (ii) D (ii) c (iii) NA (iii) NA (iii) NA (iii) NA D+ D+ C+ C+ (i) B (i) B (i) B (i) B PI-18 Effectiveness of payroll controls M1 (ii) B (ii) B (ii) B (ii) B (iii) B (iii) B (iii) A (iii) A (iv) D (iv) D (iv) C (iv) C NR D D D (i) NR (i) c (i) c (i) C PI-19 Competition, value for money and controls in (ii) NR (ii) D (ii) D (ii) D procurement M2 (iii) N R (iii) D (iii) D (iii) D (iv) NR (iv) D (iv) D (iv) D D+ D+ D+ c PI-20 Effectiveness of internal controls for non-salary (i) C (i) c (i) D (i) C expenditure M1 (ii) c (ii) C (ii) C (ii) C (iii) D (iii) D (iii) D (iii) c D D D B (i) D (i) D (i) D (i) B PI-21 Effectiveness of internal audit M1 (ii) D (ii) D (ii) D (ii) B (iii) NA (iii) NA (iii) NA (iii) B NR NR NR NR PI-22 Timeliness and regularity of accounts reconciliation M2 (i) D (i) B (i) D (i) B (ii) NR (ii) NR (ii) NR (ii) NR PI-23 Availability of information on resources received by DA D D D service delivery units M1 NA D D+ D+ (i) NA (i) D (i) C (i) D PI-24 Quality and timeliness of in-year budget reports M1 (ii) NA (ii) D (ii) D (ii) B (iii) NA (iii) D (iii) NR (iii) D 5 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 D D D D (i) D (i) D (i) D (i) D Quality and timeliness of annual financial statements M1 (ii) NA (ii) NA (ii) D (ii) D PI-25 (iii) NA (iii) NA (iii) D (iii) D PI-26 Scope, nature, and follow-up of external audit M1 NA NA NA NR C+ C+ C+ C+ (i) B (i) C (i) C (i) C Legislative scrutiny of the annual budget law M1 (ii) C (ii) C (ii) B (ii) B (iii) B (iii) B (iii) B (iii) B PI-27 (iv) NA (iv) NR (iv) NA (iv) C Legislative scrutiny of external audit reports M1 PI-28 NA NA NA NR D-1 Predictability of direct budget support M1 NA NA NA NA D D+ D D Financial information provided by donors for budget, (i) D (i) C (i) D (i) D reporting on project, and program aid M1 D-2 (ii) NA (ii) D (ii) D (ii) D Proportion of aid that is managed by use of national D D D-3 procedures M1 NR Predictability of transfers from federal government to A A (i) A NR regions (ii) NA HLG-1 (iii) NR Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NR = Not rated due to lack of data; NA = Not applicable because of circumstances explained in the text. Shaded areas represent M2 scoring methodology; upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. 6 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Chapter 2. Country Background 2.1. General The overall country background is described in Volume 1, Chapter 2. The general backgrounds of each of the four state governments are provided in Annex A of this volume. 2.2. Legal Framework AT THE GoSS/GRSS LEVEL The basis for the legal framework for public finance management (PFM) up to July 2011 was the 2005 Interim Constitution of Southern Sudan. The key sections concerning PFM may be summarized as follows: * Articles 87-88: The annual budget is to be presented to the Legislative Assembly of Southern Sudan (SSLA) before the end of the financial year (same as calendar year). If the SSLA does not approve the budget within 45 days, the President could issue a presidential decree on the budget, which would then be deemed to have been passed by the assembly. Supplementary budget laws are required if GoSS/GRSS proposes to increase spending above the level specified in the approved budget or if it proposes to transfer funds from one chapter to another. * Articles 91 & 195: The President of GoSS/GRSS is required to submit the final accounts of GoSS/GRSS to SSLA within six months following the end of the financial year. The auditor general of Southern Sudan has to submit his/her report on these accounts to SSLA within six months of the end of the financial year. * Article 184: GoSS/GRSS is to raise revenue from various sources through the legislative process. The Comprehensive Peace Agreement (CPA) outlined the type of non-oil-based taxes to be collected by the Government of National Unity and GoSS/GRSS. Fifty percent of non-oil revenue collected by the Government of National Unity in Southern Sudan, net of 8 percent administration fees, would be remitted to GoSS/GRSS. All spending of revenues has to be reflected in the annual approved budgets of GoSS/GRSS.1 "...the National Government shall allocate 50 percent of the national non-oil revenue collected in Southern Sudan, ...to the GRSS to partially meet the development cost and other activities during the Interim Period" (CPA: Chapter 3, section 7.3) 7 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * Article 185: This article provides specifically for revenue from oil sources. GoSS/GRSS is entitled to receive 42 percent of net oil revenue derived from oil producing wells in Southern Sudan after the payment to the Oil Revenue Stabilization Account and to four oil producing states in Southern Sudan (each receiving 2 percent of net oil revenue); net refers to the subtraction of pipeline and management charges from gross revenues. Regarding the Abyei Area, GoSS/GRSS is entitled to receive 42 percent of net oil revenue. Revenues also include GoSS/GRSS's share of withdrawals from the Oil Revenue Stabilization Account, as provided for under the Comprehensive Peace Agreement and established in 2006. Section 192 of the Interim Constitution of Southern Sudan states that the Oil Revenue Stabilization Account will be established from net government oil revenue derived from actual export sales above an agreed benchmark price (which would be established annually as part of the national budget). (The Oil Revenue Stabilization Account is also referred to under Performance Indicator 3 in Section 3 and the background component of Performance Indicator 13.) * Article 187: All GoSS/GRSS revenue is to be pooled into a Southern Sudan Revenue Fund, administered by the Ministry of Finance and Economic Planning (MoFEP). * Article 193: GoSS/GRSS and state governments may borrow money with the approval of the respective legislatures. Neither GoSS/GRSS nor the Central Bank of South Sudan is required to guarantee borrowing by state governments. * Article 194: All levels of government are to comply with generally accepted accounting procedures and standards, to be regulated under law. * Article 195: An independent Audit Chamber is established, its organization to be established by law. * Article 198: Debts or liabilities incurred by any level of government are to be the responsibility of that level of government. * Articles 126-137: These articles provide for a judiciary that is independent of the executive and legislative branches of government at both central and state levels. In terms of the legal framework for PFM, the judiciary would have the ultimate responsibility for ensuring this is adhered to. The judiciary would comprise the Supreme Court of South Sudan, the Courts of Appeal, the High Courts, and the County Courts. The president of the Supreme Court would be answerable to the President of South Sudan. * Schedules: These outline the legislative and executive powers of the Government of National Unity, GoSS/GRSS, state governments, and concurrent powers. 8 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 A new Transitional Constitution came into effect on July 1, 2011. The provisions covering PFM are broadly unchanged on the expenditure side, but some changes were made on the revenue side, reflecting the new responsibilities of GRSS in terms of the management of oil, customs, and value- added tax revenues. Perhaps a significant change has also been made on the external audit side, indicated by these articles: * Under Article 174, a National Petroleum and Gas Commission is to be established as a policy making body with respect to petroleum and gas resources. * Article 176 provides for the establishment of a National Petroleum and Gas Corporation. * Article 177 provides for the establishment of a National Revenue Authority. * Article 178 provides for the establishment of an Oil Revenue Stabilization Account, which would work along the same lines as the Oil Revenue Stabilization Account that operated under the Government of National Unity. The two percent of net revenue payable to the oil- producing states is to be increased to five percent, of which two percent will go to the state governments and three percent to the communities. * Article 178 also provides for the establishment of a Future Generation Fund to be funded from oil revenues. * Article 186, section (6) provides for the National Auditor General to be accountable to the President for the performance of the Audit Chamber. Article 195 of the previous Constitution did not specify this; in fact it did not specify to whom the Auditor General was accountable. The only laws covering public finance currently in place are the annual Appropriations Acts and the 2009 Taxation Act. The very detailed and comprehensive 1995 Financial and Accounting Procedures Ordinance, which covers the whole of Sudan, is now only partially observed. A Public Finance Management and Accountability bill was prepared in 2007, but at the time of the PEFA/SSPAR validation workshop on September 5, 2011, it had yet to be enacted. At the time of the drafting of this CIFA, it was learned that the bill had in fact been enacted. Indirectly related to public finance is the South Sudan Anti-Corruption Commission Act (2009), elaborated on below under "Institutional Framework." At the time of this review, a long overdue public procurement bill was due to be presented to the SSLA. This bill was to supersede the 2006 Interim Public Procurement and Disposal Regulations, which until then had been the only regulatory framework covering procurement. As the name suggests, the Interim Public Procurement and Disposal Regulations were supposed to be an interim 9 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 measure only, providing a generally sound set of regulations that covered procurement and which stated that open competition was the preferred procurement method. The implementation of these interim regulations has been beset with issues, as discussed in more detail in Volume 3 (SSPAR) and under Performance Indicator 19 in Chapter 3. The Audit Chamber bill was signed by the President as a provisional order in January 2011, and at the time of the PEFA assessment and SSPAR it was before SSLA for consideration and passage into law; this was still the case at the time of the PEFA/SSPAR workshop on September 5, 2011. When the bill is enacted, the major function and duties of the Audit Chamber will be very similar to those of any auditor general's office following International Organisation of Supreme Audit Institutions (INTOSAI). Legal framework for taxation The Personal Income Tax Act of 2007 covered only personal income tax. This was superseded by the more comprehensive 2009 Taxation Act, which included personal income tax, business taxes, levies on small and medium businesses, and excise duties on luxury consumables. Due to some technical deficiencies with the act, however, it was not announced, resulting in problems of implementation, since supporting regulations could not be prepared. For example, without such regulations, more discretion was provided to tax collectors than would otherwise have been the case, and an Appeals Board could not be established. Taxes administered by Government of National Unity and not covered by the PEFA assessment included personal income tax levied on the Government of National Unity staff working in Southern Sudan, business taxes and levies on corporate enterprises (i.e., large enterprises), excise and duties other than those covered by GoSS/GRSS, and value-added tax or general sales tax. The relevant laws were the Customs Act of 1986, Income Tax Act of 1986, Stamp Duty Act of 2002, and Value Added Tax Act of 1999. Prior to independence on July 9, 2011, very little work had been conducted to integrate the two sets of taxes under one tax law and prepare the systems necessary for administering them. An assessment made by USAID in 2010 on the future customs administration functions of GoSS/GRSS identified as challenges the lack of a comprehensive development and acquisition plan or strategy for GoSS/GRSS border infrastructure/equipment; lack of revenue collection, accounting, and exemptions procedures and controls; lack of focus on border enforcement/security with regard to the movement of weapons, drugs, and money; insufficient use of IT; and an inadequate ethics 2 program. 2 USAID, "Customs Assessment: Strengthening the Customs Service of Southern Sudan" (November 29, 2010). 10 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Section 17 of the 2009 Taxation Act provides for "Coordination of Tax Collection Administration and Tax Rates with the National and State Governments." Such coordination has been noticeably absent, as indicated by the lack of clarity in the division of tax collecting functions between GoSS/GRSS, state governments, and county governments. The result has been a multiplicity of tax collection points at jurisdictional boundaries (e.g., the border between Southern Sudan and Uganda and the Juba city boundary) and associated efficiency losses due to both the additional tax burden on road users and the amount of time it takes to go through all the collection points. This last issue was raised in the "GRSS Growth Strategy, 2010-2014" (January 2010) and in the finance minister's 2010 Budget Speech, and it was supposed to be addressed during 2010 (e.g., checkpoints were to be used only for security and not for collecting revenue). The issue still had not been addressed at the time of the PEFA assessment.3,4 More branches of the Bank of Southern Sudan, where revenues could more easily be directly deposited rather than being collected, would help to address the issue, but this would take time. The director of the Revenue Department of MoFEP indicated that a simplified more transparent system was being prepared and would be reflected in an amended Taxation Law. At the PEFA/SSPAR validation workshop on September 5, 2011, it was learned that amendments to the 2009 Taxation Act were currently being prepared, mainly to reflect the post-July 9 situation, under which GRSS now has authority over all taxes. Whether these amendments will take care of the jurisdictional issue remains to be seen. AT THE STATE LEVEL For the most part, the legal framework mirrors that at the GRSS level. Following the Interim Constitution of Southern Sudan, each state prepared its own State Interim Constitution of Southern Sudan, more or less the same as for GoSS/GRSS. States acted similarly with their Appropriations Acts, which reproduce those at the GRSS level almost word for word. In NBGS and Unity State, 2011 was the first year where Appropriations Acts were in place, since state- level legislative assemblies did not come into place until 2010. Many counties (including Aweil West, in NBGS, which was visited by the PEFA assessment team) did not yet have legislative assemblies. Unity State does not have its own tax administration system, but follows the 2009 Taxation Act. Western 3 Paragraph 48 of the Growth Strategy highlights multiple taxation as one of the three major constraints to growth: (the other two were security and poor infrastructure): "The issue of multiple taxation is evident to any observer travelling around the region. Widespread official and unofficial checkpoints are a big disincentive to those trying to get their produce to market". A report funded by AfDB on non-oil revenue collection in Southern Sudan (by Zeru Gebre Selassie, published in October 2009) found many instances of double and multiple taxation - i.e., the same item being taxed by different levels of government - as well as many official and unofficial checkpoints collecting taxes, fees and charges. At a workshop held in November 2009, it was agreed between MoFEP and State Ministries of Finance that, among other things, checkpoints would only be for security purposes, goods crossing from one state into another should not be interfered with, and goods would be taxed only at the final point of sale/consumption. This issue is also discussed in "Inter-governmental Fiscal Relations in Southern Sudan", Section 8, prepared by the Washington DC-based National Democratic Institute for International Affairs (author, Traci Cook) in 2008. The issue was also raised during the PEFA assessment team's presentation of its findings on April 28, 2011, and in the SSPAR in connection with the constraints it posed to private-sector development and thus the development of a competitive procurement market in South Sudan. 4 The issue was also raised by the Chamber of Commerce, Industry and Agriculture at its meeting with the assessment team on April 20, 2011. The chamber indicated that there were as many as 14 tax collection checkpoints at the Uganda-Southern Sudan border. 11 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Equatoria State, NBGS, and Jonglei State established their own Taxation Acts in late 2010/early 2011. Western Equatoria State and NBGS created separate semi-autonomous revenue authorities in 2011 (e.g., in NBGS, by the Revenue Authority Act of 2011 and accompanying tax acts). In terms of procurement, all the states follow the IPPDR. County administrations are governed by the Local Government Act, which is administered by the Local Government Board in Juba. A summary of this act is provided in the Annex to the PEFA assessment report on NBGS. 2.3. Budget Performance and Functions Table 2.1 shows actual expenditure exceeding budgeted expenditure by large margins, the excess being financed by revenues well in excess of budgeted amounts. Revenues and expenditures also grew rapidly prior to 2008: in 2005, actual revenue and expenditure amounted to SDG 1,870 million and SDG 452 million respectively. Borrowing was zero, as GoSS had no access to loan facilities. GRSS is in a fortunate position relative to other post-conflict countries due to its large oil-based revenues, comprising about 98 percent of total GoSS/GRSS revenues. They amounted to about five times the level of donor aid in 2009. These large revenues have enabled a public expenditure per capita per year of about $250 - a considerable sum when compared with the $61 per capita per annum in Sierra Leone during 2008.5 Given the enormous post-conflict investment needs, government planners have prioritized the use of these resources as follows: first, security; second, roads, primary health care, and basic education; and third, water and production.6 However, the downside of dependence on oil-based revenue is fluctuations in revenue performance due to fluctuations in global oil prices. Oil prices were particularly volatile in 2008-09. In order to try and reduce oil-price-induced fluctuations in government expenditures, GoSS worked with the Government of National Unity to put in place an oil revenue stabilization account mechanism. This had some success, as noted under Performance Indicator 3 in Chapter 3, though there were control problems at times (discussed under Performance Indicator 13). GoSS also endeavoured to increase the proportion of non-oil-based revenue to total revenue from very low levels, but without success. 5 F. Davies and G. Smith, "Planning and Budgeting in Southern Sudan: Starting from Scratch," ODI Briefing Paper 65 (November 2010) (see: http://www.odi.orq.uk/resources/details.asp?id=4980&title=southern-sudan-budqet-reforms- 6post-conflict). Government of Southern Sudan, "Expenditure Priorities and Funding Needs 2008-2011," prepared for the Sudan Consortium, MoFEP (April 2008). 12 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 2.1. Budget Performance at the GoSSIGRSS Level, 2008-11 (in SDG millions) Revenue 3,464 6,790 3,658 4,240 4,503 5,757 5,767 Oila 3,312 6,671 3,413 4,122 4,402 5,630 5,656 Non-0il 152 119 245 118 101 127 111 Expenditure 3,428 5,713 3,606 4,235 4,483 5,576 5,767 Salaries 1,647 1,873 1,840 1,977 2,179 2,206 2,433 Operational 770 1,453 899 165 80 1,057 544 Transfers to States & Multi- Donor Trust Fund 156 774 1,090 1,233 1,224 1,531 Capital 855 1,612 868 1,002 990 1,091 1,258 Balance 36 1,077 52 5 20 181 0 GoNU Direct 24 Exchange rate lossb 65 0 167 Statistical discrepancy/Accumulation or use of reserves' -35.8 -988 -52.1 -5.2 -20 -13.9 0 Memo item: Transfers to States 638 1154 1,090 1,228 1,219 1,527 % expenditure 11.2 25.7 21.9 Block grants 453 439 543 Conditional grants 185 651 676 Transfers to Multi-Donor Trust Fund 156 136 146 0 5 5 4 Source: GRSS budget documents. Bud. = approved budget; Act. = actual expenditure; Prov. = Provisional outcome. a. Oil revenues are net of direct expenditures debited by Government of National Unity. b. Exchange rate losses refer to losses on oil revenue transfers. c. Revenues and expenditures accounted for on a cash basis; unpaid approved payments requests are excluded from expenditures. The balance does not necessarily imply accumulation or de-cumulation of cash reserves due to possible inaccuracies in the recording of revenues and expenditures, as noted in Performance Indicator 24; for example, the positive balance in 2008 appears too high. 13 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 FUNCTIONAL CLASSIFICATION OF THE BUDGET Table 2.2 shows classification of the budget by sector. The largest sectors are security, public administration, infrastructure, and rule of law. The education and health sectors are relatively small, partly because of the responsibilities of the state governments in these areas. Table 2.2. GoSS Expenditure by Sector, 2008-10 (in SDG millions) Accountability 666.33 12.6% 333.10 8.8% 533.32 10.6% Economic Functions 148.20 2.8% 94.85 2.5% 162.38 3.2% Education 47.08 0.9% 234.09 6.2% 279.17 5.6% Health 400.12 7.6% 97.06 2.6% 139.38 2.8% Infrastructure 817.35 15.5% 536.30 14.1% 635.86 12.7% Natural Resources & Rural Dev't 196.45 3.7% 178.77 4.7% 185.35 3.7% Public Administration 512.63 9.7% 348.45 9.2% 844.73 16.8% Rule of Law 515.18 9.8% 529.35 13.9% 665.65 13.2% Security 1,884.64 35.7% 1,411.44 37.1% 1,505.53 30.0% Social & Humanitarian Affairs 84.10 1.6% 39.36 1.0% 72.82 1.4% Grand Total 5,272.08 - 3,802.76 - 5,024.20 - Source: GoSS budgets for 2008, 2009, and 2010 and provisional outcomes for 2010 (provided by MoFEP). Note: Excludes donor project funds and block grant transfers to states. Includes conditional state transfers (budgeted for under specific spending agencies). Thus, figures are lower than shown in Table 2.1. The 2010 outcome is provisional. ECONOMIC CLASSIFICATION OF THE BUDGET Table 2.2 and Figure 2.1 indicate that salaries are on average the largest component of GoSS expenditure, averaging about 42 percent of total expenditure during 2006 to 2010, and they are budgeted to remain at 42 percent in 2011. Operational expenditure, including transfers to the states, has averaged about 35 percent of total expenditure (also in the 2011 budget), with capital expenditure averaging about 23 percent (22 percent in the 2011 budget). 14 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Figure 2.1. GoSS Expenditure on Salaries, Operations, and Capital (in percent), 2006-10 60% - 50%- 0 % % 40 CL 40%- - 30%ap 4- t0 20%- 41 S10%- 0%- 2006 2007 2008 2009 2010 ----Salaries - Operational ---4---Capital AT THE STATE LEVEL Budget structures and outcomes have been similar in all four states. Detailed tables are shown in Annex A. The main characteristics are summarized here. Budget outcome data are not available, partly due to data quality problems, as indicated by all the state governments interviewed. State legislative assemblies are a recent development, not coming into existence until 2010 in the cases of NBGS and Unity State. The budgets for 2011 were the first ones meaningfully reviewed by the state legislative assemblies of these two states. Fiscal transfers comprise over 90 percent of state government financial resources in the case of NBGS, Western Equatoria State, and Jonglei State, and about 70 percent of the resources of Unity State, which receives substantial oil revenue. Tax revenues average about 80 percent of total state government revenues; they are shared 60:40 between county and state governments; the county taking 60 percent. Personal income tax revenues are by far the largest (at least 50 percent) of all tax revenues collected. Revenues were budgeted to increase sharply in 2011 in Western Equatoria State due to strengthened revenue administration. Wage and salary expenses are by far the largest component of expenditures: accounting for 62 percent of the total in NBGS, 54 percent in Unity State, 75 percent in Jonglei State, and 67 percent 15 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 in Western Equatoria State. Capital expenditures and transfers to counties comprise 10-15 percent of total expenditure, GRSS-level governments financing some capital expenditures directly. The public administration and rule of law sectors, by far the largest of the six sectors, comprise 39 to 57 percent of total expenditure. Education comprises 10 to 15 percent of expenditure, and for the remaining sectors (accountability and economic development; health, natural resource and social development; and physical infrastructure) the proportions vary somewhat between states but are usually lower than for education. Allocations for health and education appear low, but this is because of the large involvement of donors in these sectors, the capital spending of GRSS, and a higher percentage of expenditure on health at the county level financed by transfers from state governments. Total expenditures in the 2011 budgets were about 25 percent higher than the year before due to a large budgeted increase in conditional grants. At the county level, capital expenditures were budgeted to increase significantly in 2011, due to a budgeted increase in the capital grant transfer from GRSS. 16 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Chapter 3. Assessment of the PFM Systems 3.1. Credibility of the Budget (PEFA Performance Indicators 1- 4) Good practice in PFM emphasizes the importance of the budget being credible in the sense of being predictable, with actual revenues and expenditures being close to approved amounts. SYNOPSIS At the GoSS/GRSS level The credibility of the GoSS/GRSS budget is very low, as indicated by D ratings for Performance Indicators 1-4 and Performance Indicator 16. Revenues have exceeded budget projections by large amounts, enabling aggregate expenditures to be much higher than forecast--notwithstanding a large fall in oil prices in late 2008/early 2009 due to the global financial crisis. This revenue excess was not bad in itself, since it should have allowed spending agencies at least to execute their approved budgets with confidence. However, inadequate controls on budget execution led to a cash rationing regime and very high levels of domestic arrears (pending payments) despite the revenue over- performance. The inadequate controls were manifested by a lack of expenditure commitment controls and associated monthly/quarterly cash expenditure limits, as well as insufficient compliance with the Centralized Payments System--with spending agencies receiving funds from MoFEP instead of MoFEP paying suppliers directly. Moreover, politically strong spending agencies were able to obtain more funding than they had budgeted for without prior legislative approval (particularly in the case of large off-budget food grain/dura purchases) or to obtain cash releases for most of their budget early in the year. As a result, many less politically strong spending agencies were unable to execute their approved budgets, given the cash rationing system, or received the funding too late in the year to be able to deliver the services they were supposed to deliver. The IFMIS could have been used to control budget execution so that budget institutions would be able to execute their budgets in a predictable and timely manner, but it was not. 17 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 At the state level At the state level, a lack of data on revenue and expenditure for the three preceding financial years (2008-10) and even a lack of budgets precluded a rating under Performance Indicators 1-3. Nevertheless, the situation has been somewhat better than at the GRSS level, because, with the exception of Unity State (which receives a share of oil revenues), the bulk of financial resources received by state governments have been in the form of fiscal transfers from GoSS/GRSS, the monthly releases of which have tended to be predictable. The end-year stocks of pending payments were believed by state MoFEP officials to be low, although systems were not in place to monitor them, and the very large off-budget food grain/dura contracts were all made at the central government level. AT THE GoSS/GRSS LEVEL Performance Indicator 1: Aggregate expenditure out-turn compared to original budget The ability to implement the budgeted expenditure is important in enabling the government to deliver the public services financed by its budgets. This indicator measures the actual total expenditure compared to the originally budgeted total expenditure, but it excludes donor-funded project expenditure (over which governments have little control), interest payments (which in any case were zero, as GoSS/GRSS has not borrowed), and block grants to states (the predictability of these relative to budgeted amounts is reflected in the predictability of expenditures at the state level). The data for GoSS budgeted and outcome expenditure for 2008, 2009, and 2010 are summarized in Table 3.1, which also shows aggregate primary expenditure deviations during those three years, the last three completed financial years at the time of the PEFA assessment. Table 3.1 shows significant positive deviations in 2008, 2009, and 2010, albeit they decrease over time, the reason being the financing provided by larger revenues than budgeted for (Performance Indicator 3), reflecting unpredictability in oil prices and oil production volumes. The positive deviations detract less from the credibility of the budget than would be the case for negative deviations, since spending agencies should at least be able to execute their approved budgets. As indicated under Performance Indicator 2 and Performance Indicator 16, however, this has not been the case. 18 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 3.1. GoSS: Budget Execution Rate for Total Primary Expenditures, 2008-10 2008 Original Approved Budget 3,128.3 170% Actual 5,324.2 2009 Original Approved Budget 3,186.1 120% Actual 3,831.5 2010 Original Approved Budget 4,409.8 114% 1 _ lActual (provisional) 5,033.5 1 Source: MOFEP. Note: Excludes donor project funds and block grants to states. Includes conditional grants to states (budgeted for under specific budget institutions), as separating these out from budget institutions' own expenditure is problematic. The 2010 outcome is provisional. Performance Indicator 2: Composition of budget expenditure out-turn compared to original approved budget If the composition of expenditure varies considerably from the original budget, the budget might not be a useful statement of policy intent. Ideally, spending agencies should be confident at the beginning of the year that they will be able to implement their approved budgets. Such confidence facilitates planning for the delivery of public services smoothly during the year. (i) Extent of the variance in expenditure composition during the last three years, excluding contingency items.7 Measurement requires an empirical assessment of expenditure outcomes against the original budget at a sub-aggregate level. The basis for assessment is administrative functions (i.e., GoSS/GRSS spending agencies), specifically the top 20 spending agencies, which represented 89 percent of the GoSS/GRSS budget on average during 2008-10, and the remaining spending agencies pooled. (The composition of budgeted and reported expenditure by GoSS/GRSS spending agency is shown in Table 2.2.) Over-expenditure in some spending agencies was mainly funded through higher-than-budgeted revenues from 2008 to 2010 (Performance Indicator 3), but also by reallocations from other 7 Scoring methodology: Dimension (i) of PI-2 measures the extent to which reallocations between budget institutions have contributed to variance in expenditure composition beyond the variance resulting from changes in the overall level of expenditure (which is defined on the same basis as PI-1). It is calculated by summing up the deviations for each budget institution that are larger than the overall deviation, as applied to each budget institution in percentage terms, then expressing the sum as a percentage of the "adjusted" approved budget (i.e. the approved budget adjusted for the overall deviation). Contingency items are excluded from the calculation to avoid double-counting. Dimension (ii) measures the extent that the contingency item is allocated to budget institutions for spending, rather than its spending being non-transparently recorded as an expenditure under the contingency line. 19 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 spending agencies. Both methods required after-the fact supplementary appropriations, although this was not fully observed, as discussed under Performance Indicators 16 and 27. Reasons for over-expenditure included these: * Deficient tracking of expenditure in some agencies, leading to their receiving more than their budget ceiling; * Related to the above, deficient budgeting of contractual commitments: A proliferation of contracts was signed by GoSS/GRSS after 2007 outside the formal planning/ budgeting process, the most publicized of which were contracts (under MoFEP) to purchase food grains in order to build up reserves. The full extent of such contractual commitments was only fully captured during the 2009 GoSS planning process, following submissions as part of annual Budget Sector Plans. The budget processes for 2010 and 2011 were characterized by improved awareness of ongoing contractual commitments; * Politically strong agencies demanding and receiving more than their budget ceiling; and * Emergencies and unplanned priorities emerging after the date of budget approval. Large over spenders in all three years under review were the Sudan People's Liberation Army, MoFEP, and the President's Office. As indicated in the Supplementary Appropriations Acts, MoFEP's overspending was mainly due to its absorbing the over commitments that took place. The main systematic under spenders have been the ministries of Education, Health and Water Resources. The picture therefore appears to be one of politically powerful spending agencies spending substantially more than their approved budgets, at the expense of the spending agencies with major responsibilities for service delivery. (ii) The average amount of expenditure actually charged to the contingency vote over the last three years. This dimension recognizes that while it is prudent to include an amount to allow for unforeseen events in the form of a contingency reserve, accepted "good practice" requires that these amounts be vired to those votes against which the unforeseen expenditure is recorded. At the same time, the contingency reserve should not be so large as to undermine the credibility of the overall budget, and the expenditure should not charged directly to the contingency vote. The GoSS/GRSS budget in fact does not contain a contingency item, though in view of the difficulties in forecasting oil revenues, a contingency would seem to be a sensible precaution against revenue shortfalls. 20 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 3.2. GoSS Expenditure Composition Variance, 2008-10 2008 24.8% 2009 15.3% 2010 21.3% Source: MOFEP. a. The variance is half the amount shown in Annex A, indicating the sum of the deviations that are larger than the aggregate deviation. Mechanistic interpretation of this indicator should be avoided, as priorities may change during the year due to unforeseen circumstances, and unexpected cost savings may materialize, such as slower than expected implementation of an investment project, and such savings can be used to finance revised priorities. Nevertheless, the large size of the composition variance clearly indicates a credibility issue. Performance Indicator 3: Aggregate revenue out-turn compared to original approved budget Accurate forecasting of domestic revenue is an important factor in determining budget performance, since budgeted expenditure allocations are dependent upon that forecast. Nevertheless, forecasting errors do not necessarily imply technical deficiencies in forecasting, particularly during a period of volatile global oil prices. Again, as with Performance Indicator 2, mechanistic interpretation of this indicator should be avoided. During the period under review, revenue forecasting was carried out by MoFEP, supported by insight and data from the ministry's Petroleum Unit based in Khartoum. As noted under Performance Indicator 1, oil revenues comprise 98 percent of revenue and are hard to estimate accurately in both price and volume terms. Oil price forecasts are deliberately conservative (a 20 percent discount is applied to current oil price levels) in order to cushion against the risk of a decline in oil prices. Non-oil revenues include personal income tax, customs, value-added tax, and non-tax revenues. GoSS/GRSS has often stated the need to raise more non-oil revenue, but the share of non-oil revenue in total revenue has hardly changed. Table 3.3. GoSSIGRSS Domestic Revenue Performance, 2008-10 (in SDG millions) 21 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * * . * . Budg** . i Domestic revenue 3,488 6,790 94.7 3,658 4,241 15.9 4,503 5,757 27.8 Oil revenue' 3,336 6,671 100.0 3,413 4,122 20.8 4,402 5,630 27.9 Southern Sudan 3,032 Share - .. 2,888 2,007 -30.5 3,568 3,341 -6.4 Abyei share - - .. 325 164 -49.5 - - Oil Revenue Stabilization Accounth 304 .. 1,141 834 1,869 124.1 Arrears from Government of National Unity - .. 200 810 420 Non-oil revenue 152 119 -21.7 245 119 -51.4 101 127 25.7 Personal income tax 60 - .. 110 87 -20.9 52 61 17 Customs, VAT & other tax revenue 76 - .. 75 14 -81.3 20 27 35.0 Non-tax revenue 16 - .. 60 18 -70.0 29 39 34.5 Source: GoSS/GRSS budgets for 2008-2011. The 2010 outcome is provisional. a. Southern Sudan shares as prescribed in the Interim Constitution of Southern Sudan and explained in this report in Chapter 2, section 2.2 ("Legal Framework"). b. The Oil Revenue Stabilization Account is described under Performance Indicator 13. The impact of the fall in global oil prices is clear to see in 2009, with actual Southern Sudan oil revenue earnings falling significantly short of the budget estimate, as oil prices plummeted. The shortfalls were more than made up, however, through withdrawals from the Oil Revenue Stabilization Account and by the receipt of oil revenue arrears from the Government of National Unity. Non-oil revenue outcomes fell short of their target in 2008 and 2009. Performance Indicator 4: Stock and monitoring of expenditure arrears A large amount of arrears can indicate problems such as inadequate expenditure commitment controls, cash rationing, inadequate budgeting for contracts, under-budgeting for specific items, and lack of information. GRSS does not have a standard definition of arrears. In practice, however, arrears can be defined as "pending claims" outstanding at the end of the fiscal year, including contractual obligations that have been incurred without sufficient budget provision but which have been approved as payables 22 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 anyway (due to the legal obligation to pay) plus contractual obligations that have been incurred without sufficient budget provision and which have not yet been approved as pending claims (due to the requirement to verify if there is a legal obligation to pay). In summary, arrears can be defined as pending claims plus outstanding contractual obligations not yet included in pending claims. Pending claims Despite revenue outcomes exceeding budget estimates (Performance Indicator 3), considerable pending claims have built up, since the excess revenue has largely been spent while expenditure commitments have been entered into that are not included in the approved budget but which GRSS has a legal obligation to pay. The Accounts Department in MoFEP maintains a list of pending claims that includes the date when each payment request was approved. Since MoFEP does not formally define when an outstanding payments request becomes overdue, the assessment team has used 30 days as a cut-off point, roughly corresponding to the international definition.8 Most claims have been pending for much longer (a number of years in some cases) due to insufficient cash availability and, in some cases, disputes. Annex B shows a long list covering all spending agencies of pending claims (approved payments requests) awaiting prioritization for payment as of December 31, 2010. The total number of claims amounted to 2,629 and their value was SDG 2.3 billion. Table 3.4 indicates that 91 percent of the pending claims (i.e., SDG 2.1 billion) represent payments requests approved but still unpaid more than 30 days (1 month) later, as of the end of December 2010. This amount represents 47 percent of the 2010 approved budget (as shown in Table 3.1), approximately the same as for the 2009 budget. Contractual obligations not budgeted for and not yet included under "pending claims" The other main item of payments arrears relate mainly to contracts totalling SDG 5.7 billion (well in excess of the 2010 budget) to purchase grain and dura to build up food reserves. These were entered into by GoSS/GRSS, although they were not covered in the approved budget. The beginning of the accumulation of these arrears dates back to 2007. Only some of them are included under pending claims (e.g., SDG 70 million in 2011). Adding this number to pending payables, the proportion of arrears to total budgeted expenditure in 2010 rises to a massive 175 percent. Table 3.4. Age Profile of Pending Claims, 2010 Age Profile of Pending Claims Outstanding on 31 Pretg December, 2010 8 In the absence of a definition specific to South Sudan, the definition of a non-salary arrear used by the PEFA Framework is an invoice unpaid after 30 days. The GRSS system does not capture dates of submission of invoices. If it did, the time duration of the outstanding payment would be higher. 23 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Less than 30 days 198,335,627 9% Over 30 days 447,434,527 19% Over 60 days 124,183,264 5% Over 90 days 146,681,192 6% Over 120 days 1,393,509,094 60% Total 2,310,143,704 100% Source: MoFEP Accounts Department As indicated in the Budget Speeches for 2008-2010, MoFEP intended to sharply strengthen the expenditure commitment control systems to ensure that no contracts were entered into that were not consistent with the approved budget and projected cash availability. As announced in the 2010 budget speech (which highlighted the "staggering" amount of outstanding contractual obligations), a freeze was imposed on new contracts, pending an investigation-called a verification exercise-- into how existing contracts were negotiated and approved. As a result of this exercise, some contracts turned out to be invalid. The strengthened commitment control system was supposed to be established in 2010, according to the 2010 Budget Speech, but as of early September 2011, when the PEFA closing-out workshop was held, it was still not in place. One reason is that the PFM bill, originally drafted in 2007, had not yet been enacted. When MoFEP does not have sufficient cash to pay off pending claims and unbudgeted contractual obligations before the end of a given year, the paying-off is funded at the expense of spending agencies' approved budgets and correspondingly reduced public services relative to those implied by the approved budgets. For example, many pending claims for 2008 were paid out in early 2009 at the expense of the approved 2009 budget. With spending agencies entering into spending commitments according to approved budgets and then finding that their funding was not available, the cycle of pending payments/arrears then repeated itself. Indicator Score Assessment (M1) 2011 PEFA PI-1: DA The absolute deviations between out-turns and approved budgets were Aggregate 70%, 20% and 14% during 2008-2010 (Table 3.1); a C rating requires a expenditure deviation > 15% in only one of the 3 years. (The upward arrow indicates 24 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 performance increasing predictability each year.) PI-2: D+ (i) The variances in expenditure composition were 24.8%, 15.3% and 21.3% Composition during 2008-2010 (Table 3.2); a C rating requires a deviation > 15% in only of one of the 3 years. expenditure (ii) A (ii) Actual expenditures charged to the contingency vote averaged 0% of the performance original budget. PI-3: D Actual domestic revenue was above 116% of budgeted domestic revenue in Revenue both 2008 and 2010 (Table 3.3); a C rating requires a deviation > 15% in performance only one of the 3 years. 9 PI-4: D+ (i) Stock of arrears: Table 3.4 indicates that end-2010 pending claims comprised 47% of the approved 2010 budget. Payments due on Soitok & (i)D unbudgeted 1,738 grain/dura contracts dating back to 2007 were pmnt (ii) B outstanding at the end of 2010, equivalent to SDG 5.7 billion, and ayens representing up to a further 127% of the 2010 budget; a C rating requires the end-year stock of arrears not to exceed 10% of total expenditure. (ii) Availability of data on arrears: Data on pending claims is generated through IFMIS each month, permitting the identification of an age profile. This list may not include: * Invoices submitted by suppliers to spending agencies that are overdue before the payments requests are submitted to MoFEP; * Payments requests submitted to MoFEP near the end of the year that have not yet been processed; and * Unpaid contractual obligations that were not budgeted for, such as the food grains contract. These are shown in the 2010 Budget Book, but not in the 2011 book. They are mainly additional to pending claims, as only a small proportion is included in such claims each year. The data are not generated annually, but through a request to spending agencies for information, which may not be complete. Sources: MoFEP Accounts Department and Planning and Budgeting Department; GoSS/GRSS budgets; 2010 Budget Speech; and 2011 Accountability Budget Sector Plan. Notes: Upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. M1 indicates the "weakest link" method; M2 indicates the simple-average method. At the State Level Performance Indicators 1 & 2: Aggregate expenditure and composition of expenditure outturn compared to original approved budget This indicator has been revised, effective January 2011, so that overperformance is penalized as well as underperformance; over- performance reduces the predictability of the budget, as excess revenues are not known until later in the year, and so there is less time to plan for the efficient spending of excess revenues. 25 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 It was not possible to rate these indicators for any of the four states, since the budgets had not been approved by the state legislative assemblies and/or outcome data was not available. NBGS The 2008 and 2009 budgets were not reviewed by the State Legislative Assembly, as this was not yet operative; elections were not held until 2010. The Council of Ministers approved the budgets, but such approval lacks legitimacy as it does not necessarily reflect the public will. The State Legislative Assembly became operative in early 2010, following elections, but was not yet in a position to scrutinize the draft budget presented to it. The 2011 budget is the first one to go through the process of legislative scrutiny and final approval. In any case, the Ministry of Finance, Trade and Industry (MoFTI) did not record the expenditure outcomes for 2008-10. The 2011 budget document contains expenditure outcomes for the first nine months of 2010 only, and the ministry has doubts about the accuracy of the data, because (i) automated systems for recording expenditures were not yet in place; IFMIS was only installed at the beginning of 2011; and (ii) line ministries did not report to MoFTI on their expenditures financed by the petty cash advanced to them each month by MoFTI. Unity State The budgets for 2008 and 2009 were approved by the State Legislative Assembly, but the 2010 draft budget was not approved, due to political elections taking place. Otherwise, the same story unfolded as for NBGS. Jonglei State Approved budgets were in place for 2008-10, but expenditure outcome information has not been prepared by the state MoFEP for any of the three years. Western Equatoria State Budgets were approved for 2008-10, but expenditure outcome reports were not prepared for 2008 and 2009. A report for 2010 was prepared, but its accuracy is doubted by MoFTI, for the same reasons as for the other states. Aggregate expenditure outcomes are likely to have been close to the approved budgets of NBGS, Jonglei State, and Western Equatoria State, since more than 90 percent of their financial resources come from block and conditional grants from the central government, the predictability of which has generally been good. A significant (30 percent) component of Unity State's financial resources derives from oil under the oil revenue sharing formula administered by the Government of National 26 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Unity. With oil revenues less predictable than fiscal transfers, the predictability of aggregate expenditures is probably lower than for the other three states. Performance Indicator 3: Aggregate revenue outturn compared to original approved budget With the exception of Jonglei State, it has not been possible to rate this indicator. None of the other state MoFTIs had prepared revenue performance reports for any of the three years under review, since the revenue directorates (revenue authority in the case of NBGS) were not providing them. The states started to prepare periodic revenue performance reports during 2011. Revenue performance data in the case of Jonglei State indicate significant deviations from budgeted amounts of 86 percent and 53 percent in 2008 and 2010, respectively, as indicated in Table 3.5. Table 3.5. Jonglei State Own Revenue Performance, 2008-10 2008 10,059,651 1,456,036 -86% 2009 4,127,725 4,228,223 2% 2010 5,294,427 2,476,697 -53% Source: Revenue Directorate, State MoFEP The legacy of the wartime period, when tax payment was limited to certain small payments and action plans were difficult to implement due to security issues, contributed to the low level of revenue outcome. With revenues making up a very small proportion of total financial resources, revenue shortfalls do not make a significant difference to budget credibility. Performance Indicator 4: Stock and monitoring of expenditure payment arrears The state governments assessed have not systematically kept records of pending payments, but they do not consider arrears to be as major an issue as they are at GRSS, due to (i) the very high proportion of financial resources received in the form of predictable fiscal transfers from the central 27 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 government; and (ii) the unbudgeted food grain/dura contracts being a central government issue only. NBGS According to MoFTI, pending claims have been accruing since 2008, but it MoFTI has no record of the total stock of claims pending at the end of December 2010; the data are contained in individual folders and have not been collated. Systematic recording of pending claims only started in April 2011, in the form of an arrears ledger (showing dates of pending claims, nature of claim and date of payment); the recording of data was still work in progress. The clearing of all pending claims during 2011 was a priority, according to the Minister of MoFTI, and extra care was being taken in regard to entering into expenditure commitments. As indicated in the state level 2011 Appropriations Act and "Payments Procedures," just as at the GRSS level, spending agencies now have to obtain prior confirmation from MoFTI for proposed contracts above specified thresholds that sufficient funds are available. That is, agencies need confirmation that funds are available from their balances of budgetary appropriations to finance those proposed contracts, followed by the signature of the State Ministry of Legal Affairs, in order for the contract to be legally binding.10 All orders to purchase goods and services should be recorded as obligations (i.e., commitments) to be recorded against appropriated funds at the time the orders are placed or a contract is signed. Unity State A significant pressure for spending outside the approved budget tends to emanate from spending agencies with security responsibilities. In some cases, arrears stem from errors in the procurement and payments request process. As with NBGS, data on arrears are not collated. Payments against end-year arrears are not reflected in the subsequent year's budget. Instead, as at the GRSS level, payments against arrears creep into the subsequent year's payments in an ad hoc manner at the expense of funding of the approved budget. Contractors and suppliers have never submitted formal complaints to MoFTI over delayed payments, and no court case has ever been brought against Unity State, although teachers threatened to go on strike in 2009 due to salary arrears. Public procurement is conducted in Unity State entirely through single sourcing. Hence, even when not paid on time, contractors prefer not to formally complain for fear of jeopardizing a system that favors them. Jonglei State 1 Contracts for: goods worth over SDG 40,000, contracts worth over SDG 100,000 and consultancy services worth over SDG 20,000. 28 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Pending claims are recorded by the state MoFEP, but the outstanding pending claims as of December 31, 2010, were not available to the team. As a result, it was not possible to determine the extent of payments arrears at the end of 2010. Western Equatoria State The existing system of recording and accounting doesn't allow tracking of arrears. Spending agencies request cash requirements as per their budget and no request will be approved if it is not supported by the budget. However, there is no information on whether or not arrears exist. No. Credibility of Score: Score: Score: Score: Explanation Budget NBGS US Js WES PI-1 Aggregate Rating was not possible as: (i) legislatures expenditure had not been in place to approve budgets; (M1) outturn and/or (ii) expenditure performance data compared to was not available and/or its quality was original approved suspect. budget PI-2 Composition of Rating was not possible for the same expenditure reasons as in PI-1. (M) outturn omred NR NR NR NR compared to original approved budget PI-3 Rating was not possible for 3 of the states Agregaue odue to absence of a system for recording comrvned otr NR NR D NR and collating revenue performance data. o m p red to NR NR 0Jonglei State's revenue performance was origl awell below budgeted revenues in 2008 and 2010. P1-4 (i) NR: Arrears are known to exist, (Ml) particularly in NBGS, but the exact amount at end-2010 is not known as the relevant data had not been collated. With the help of IFMIS, State Governments are trying to strengthen record-keeping during NR 2011 and then clear identified outstanding Stock and NR NR NR pamns monitoring of (i) NR expndiure (i) NR ()D (i) NR (i) NR expenditure (ii) D payment arrears (ii) D ( (ii) D (ii) D (ii) D: As of the end of 2010, no system was in place for monitoring arrears. With the help of the recently (late 2010/early 2011) introduced IFMIS, all states are attempting to develop a system for monitoring arrears, NBGS and Western Equatoria State being the most advanced. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. 29 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 NR = Not rated due to lack of data. Upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. M1 indicates the "weakest link" method; M2 indicates the simple-average method. 3.2. Comprehensiveness and Transparency (Performance Indicators 5-10) The greater the comprehensiveness and transparency of the budget, the greater is its meaningfulness in terms of the provision of public services, and the greater the ability of the legislature and the public to hold the government to account. Synopsis At the GoSS/GRSS level Areas where GoSS/GRSS has been performing reasonably well, though there is scope for improvement, are these: * The budget classification system (Performance Indicator 5), which clearly shows the purpose of government spending, and thus creates the basis for a transparent budget preparation system (Performance Indicator 11); * The comprehensiveness and transparency of budget documentation (Performance Indicator 6); * The transparency of donor-funded operations, as reflected in reports generated by the donors on their planned and actual spending, and as facilitated through the Aid Management Unit in MoFEP and recently (2010) established IT-based Aid Information Management System (Performance Indicator 7, dimension 2); and * The transparency of the fiscal transfers system in terms of both the formulas used and the timeliness of notification to state governments of the amount of transfers they will receive for the next year's budget (Performance Indicator 8, dimensions 1 and 2). Areas where GRSS (including the Audit Chamber) is not performing well are these: * Lack of transparency in extra-budgetary operations in the form of revenues collected by spending agencies that are not deposited in MoFEP's bank account and are perhaps being spent by the agencies outside their approved budgets (Performance Indicator 7, dimension 1); 30 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * Insufficient enforcement of state government requirements to report to GRSS on the use of the conditional grants received by them from GRSS, although the State Transfers Monitoring Committee has been attempting to enforce the requirements (Performance Indicator 8, dimension 3; and Performance Indicator 9, dimension 2); and * With the exception of budgetary documentation, insufficient transparency of information being made available to the public in terms of budget performance reports, audited annual financial statements, and audit reports on spending agencies (Performance Indicator 10). Western Equatoria State The areas where GRSS falls short in performance are replicated at the state government level. State governments are also falling short in two main additional areas: (i) comprehensiveness of budget documentation; and (ii) transparency in donor-funded operations. With the exception of Unity State, budgets do not include any information on the planned spending of donor agencies, which also do not submit expenditure reports to MoFTIs. Donor agencies have a major presence in states and in areas such as education and health services, which in principle state governments are responsible for, and even provide a substantial proportion of the services. Lack of information about donor- funded operations potentially complicates the task of state governments in planning and budgeting for service delivery. However, caution should be exercised in interpreting the rating. Failure to include planned donor spending in budgets does not necessarily imply a lack of coordination. As discovered in the case of NBGS, donors might inform spending agencies of their spending plans informally, which the agencies then take into account when formulating their budgets. At the GoSS/GRSS Level Performance Indicator 5: Classification of the budget A robust classification system allows spending to be tracked on the following dimensions: administrative unit, economic, and functional/program. The classification system used for GoSS/GRSS budget formulation broadly meets these criteria. In recent budgets, expenditures have been coded in the following sequence: 31 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * By sector (there are 10 sectors; e.g. accountability is sector 1); 11 * By spending agency, 56 in number (e.g. Anti-Corruption Commission is coded 01, the first agency to appear in the budget estimates book); * By activity (6 digits, the first two representing the sector, the second two, the program under which the activity falls, e.g. the accountability program, which has the code 04, and the third two representing the activity number); there are 60 programs, excluding transfer programs, and close to 350 activities.12 The purpose of the program is set out in the narrative preceding each spending agency table; * By the directorate/department/unit that is responsible for implementing the activity (four digits, the first two represent the sector agency, the second two the Directorate/Department/Unit); for most spending agencies, the responsibility falls at Directorate level. * Under each activity, by chapter, subchapter, and sub-subchapter. For example, in this economic classification, (i) under chapters, Chapter 21 is Compensation of Employees, including transfers, Chapter 22 is Operating Expenditures, including transfers, and Chapter 28 is Capital Expenditures, also including transfers. (ii) Under subchapters, Subchapter 2110 is wages and salaries of Government of Southern Sudan employees. (iii) Under sub- subchapters, Sub-subchapter 21101 is salaries of employees, excluding allowances (which are captured under 21102). There are 36 subchapters and 130 sub-sub-chapters. The budget estimates book shows economic classification by activity only by chapter, but this is an aggregation built up from the sub-subchapters. This last economic classification is close to Government Finance Statistics, except that GFS classifies transfers as a separate chapter. This avoids the double-counting that occurs in the GRSS budget when, for example, transfers to state governments under Chapter 21 are counted as compensation of employees (e.g. a transfer from Ministry of Education to finance teacher salaries at state level), and then recorded as compensation of employees again at state government level. The detailed economic classification at the activity level poses potential cost allocation issues, particularly if an activity is the responsibility of a department/unit under a directorate (e.g., as in MoFEP). The 10 sectors are: Accountability, Economic Functions, Education, Health, Infrastructure, Natural Resources, Public Administration, Rule of Law, Security, and Social and Humanitarian Affairs. 12 The term activity would be better termed sub-program, as is the usual practice in a program budgeting structure, since the term is used again (in the last column of each table) to indicate in narrative form the specific activities. 32 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The structure clearly shows the purpose of government spending, both on a sectoral basis and on a program/activity basis. The 10 sectors are not identical to the 10 sectors under the classification of functions of government, but they are similar, and a bridging table, if one were constructed, would be able to map the relationship between the two. Similarly, to some extent the 60 programs could probably be mapped onto the 70 classification of functions of government subfunctions. Some programs cut across spending agencies, but the activities are specific to a spending agency and, in most cases, to the management of one directorate or department/unit under a directorate. However, the very detailed economic classification system is contrary to the program budgeting structure used by GRSS, which implies that the activity manager (e.g., the head of a directorate) has flexibility in allocating inputs to achieve the objectives of the activity. Streamlining the economic classification structure would reduce the extent of cost allocation issues. Arguably, greater flexibility would help to engender an improved culture of responsibility and accountability, and thereby contribute to strengthening budget execution. Ongoing and planned developments As elaborated on under Performance Indicator 11, a project is underway to streamline budget preparation, including the budget classification system. Performance Indicator 6: Comprehensiveness of information included in budget documentation Annual budget documentation should inform the executive, the legislative, and the general public and assist in informed budget decision making, transparency, and accountability. In addition to detailed information on revenues and expenditures, the annual budget documentation should include information on the nine elements in Table 3.6. For GRSS, five out of the nine information benchmarks shown are being met. Table 3.6. Information Provided in Budget Documentation Macroeconomic assumptions, Not currently produced at the GRSS 1 including at least estimates of No level. aggregate growth, inflation and exchange rate Source: 2011 Budget The 2011 budget is a balanced budget Fiscal deficit, defined according to (revenue plus grants equals 2 GFS or other internationally Yes expenditure). recognized standard Source: 2011 Budget. 3 Deficit financing, describing Yes A balanced budget was presented for 33 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 anticipated composition 2011. Source: 2011 Budget GRSS may incur formal debt (as provided for under the Interim Debt stock, including details at least Constitution of Southern Sudan), but to for the beginning of the current year date it has not incurred any. It has incurred informal debt (payments arrears), but this is not shown. Financial assets, including details at Financial assets are shown in the 5 least for the beginning of the current No annual financial statements only as year in a timely manner cash balances. Prior year's budget outcome, 6 presented in the same format as the Yes Source: 2011 Budget. budget proposal Current year's budget (either the revised budget or the estimated Yes Source: 2011 Budget outcome), presented in the same format as the budget proposal Summarized budget data for both revenue and expenditure according to 8 the main heads of the classifications Yes Source: 2011 Budget. used, including data for the current and previous year Explanation of budget implications of The budget provides a detailed new oliy iitiaive, wth etimtesdescription of budget activities for each new policy initiatives, with estimates sedn gny u n"xlnto of the budgetary impact of all major Nosofn policy ntia n provided revenue policy changes and/or some major changes to expenditure (although some explanation is found in the Budget Sector Plans). Source: 2011 Budget. Performance Indicator 7: Extent of unreported government operations Annual budget estimates, in-year execution reports, year-end financial statements, and other fiscal reports for the public should cover all budgetary and extra-budgetary activities of the government to allow a complete picture of government revenue, expenditures across all categories, and financing. (i) Level of extra-budgetary expenditure (other than donor-funded projects), which is unreported, i.e. not included in fiscal reports. 34 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The budgets of GRSS spending agencies are included in the GRSS budget, except in the case of the Ministry of the Sudan People's Liberation Army and Veterans' Affairs where, for security and political reasons, only total budgeted expenditure is recorded. The spending of this ministry is budgeted in the 2011 budget at about 25 percent of total spending agency expenditure.13 Unreported collection and spending of non-tax revenue as well as some tax revenue represent unreported extra-budgetary operations. Revenues collected directly by GRSS spending agencies are required under the Interim Constitution of Southern Sudan to be transferred to MoFEP's accounts, which are held at the Central Bank of South Sudan. MoFEP requests spending agencies to include non-tax revenue and the spending thereof in their budget submissions. It also requires that agencies report all revenues collected and the spending thereof, but there is a widespread perception that reporting is not entirely comprehensive. Taxes collected by the Government of National Unity are supposed to be deposited in MoFEP's account, but in the case of customs duties, some of them are retained by the collectors. It is difficult for MoFEP to monitor the situation, since a multiple copy-sequentially numbered receipting system is only partly in place. The 1995 Financial and Accounting Procedures Ordinance provided for such a system, allowing for tracking all the way from collection to deposit in MoFEP's account, but this is only now partially observed through the use of Form 15.14 This is a unique receipt that must be issued for all legal revenues collected. However, it is only in bi-duplicate form, one copy for the payer and one for the receipt pad for MoFEP, when ideally a third slip should be attached for the spending agency receiving the revenue. In any case, Form 15 is not always used and other single-copy receipts are used instead. The result is that no audit trail is left. Use of single-copy receipts makes it easier for spending agencies to keep the revenues for themselves and to spend them on items outside the approved budget.15 Apparently, however, as indicated at the validation workshop on September 5, 2011, Form 15 has been designed in triplicate form and was expected to be issued soon. One way for MoFEP to detect non-declared non-tax revenues collected by spending agencies would be through the agencies' bank statements. However, agencies are not required to disclose their bank statements to MoFEP, nor is the Central Bank of South Sudan itself; the draft PFM bill provides for this, but it has yet to be enacted. Spending agencies are required to transfer their end-of-year bank 13 The Constituency Development Fund (CDF), managed by the SSLA, is another example of non-transparency, but at the state government level. The CDF is a sizeable capital transfer (SDG 221 million in the 2011 budget) from SSLA to constituencies. A County Development Committee, chaired by the MP with the county executive director as secretary, then plans for and manages the funds (which are dispersed from the SSLA CDF account to each constituency's CDF account). 14 (i) Form 15, cash receipt handed to the payer with a copy kept on the receipt paid and which is eventually handed to the finance ministry; (ii) Form 67, Collectors' Account, where the collector records the amount collected; (iii) Form 39, Credit Advice, representing deposit of cash into bank account or cash safe; and (iv) Form 19, representing the recording of the deposit in the Cash Book/Treasury Book of the finance ministry. 1 The assessment team experienced this directly through the payment of airport tax at Juba airport in June prior to taking a domestic flight (as part of the state government PEFA assessment exercise). An unnumbered single slip receipt was issued, thus indicating the possibility that the revenue might not be surrendered to MoFEP; no receipt was issued at all for the return flight, despite the request for one. The same thing happened at Juba airport on September 6, when the assessment team left South Sudan. As mentioned to the assessment team by representatives of MoTR, this behavior is partly to get around insufficient funding from MoFEP to pay for wages and fuel requirements. A study commissioned by MoFEP in 2009 and funded by AfDB discusses the hazards of not having a proper receipting system in place (Zeru Gebre Selassie, "Non-Oil Revenue Study, Volume 1", October 2009). 35 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 balances to MoFEP's central bank account at the end of each year, but there is no effective mechanism to prevent them from transferring the balances instead to commercial bank accounts unauthorized by MoFEP. Anecdotal physical evidence of unreported revenue collection and the expenditure thereof cited by a number of interviewees includes luxury houses and cars (including along the Uganda-South Sudan border). Another area of unreported extra-budgetary operations is the spending of oil revenues prior to these revenues being deposited in MoFEP's bank account. The annual finance statements (as yet unaudited) of MoFEP for 2007 and 2008 refer to oil revenues (about $60 million) earned in 2005 being spent on road construction projects. A report prepared by Global Witness on transparency in the use of oil revenue due to GoSS/GRSS also refers to such use of oil revenues, though it indicates that such use of oil revenues diminished in 2007 and 2008 and did not occur during the first half of 2009. The team did not have access to the 2009 annual financial statements prepared by MoFEP, since they were not yet finished. (ii) Income/expenditure information on donor-funded projects which is included in fiscal reports GoSS/GRSS has made a concerted effort since 2006 to coordinate development partners and has encouraged them to report their expenditure plans for the next financial year as part of the GoSS/GRSS planning process and to report actual expenditures. Donor participation in Budget Sector Working Groups has made this process effective, and a Donor Book is published each year setting out what projects have been planned; how they notionally link to GRSS sectors; what are the programs and commitments/planned disbursements; and half-yearly expenditure reports (as also noted under D-2). All donor projects currently supporting GRSS are grant-funded. Information is more comprehensive for disbursement projections for the coming year than actual expenditures made in the current or previous year. Performance Indicator 8: Transparency of inter-governmental fiscal relations This indicator assesses the transparency of intergovernmental fiscal relations in terms of i. the transparency and objectivity in the horizontal allocation of fiscal transfers among sub- national governments; ii. the timeliness of reliable information to sub-national governments on their allocation; and iii. the extent of consolidation of fiscal data for the general government. 1 Global Witness, "Fuelling Mistrust," September 2009. 36 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 GoSS/GRSS provides conditional and block transfers to the 10 states, following a requirement in the Interim Constitution of Southern Sudan to decentralize. The extent of decentralization increased substantially in 2009. Transfers to the states have averaged about 20 percent of GoSS/GRSS expenditures in recent years (see Table 2.1 in Chapter 2) and finance the bulk of expenditure of state governments, the exceptions being the three oil-producing states, particularly Unity State. In 2006, GoSS had very little accurate data to work with, and transfers to the states were at first divided simply by 10. In subsequent years, and on the basis of information collected on payrolls (through teacher headcounts, etc.) a proportion of the transfers was provided in the form of conditional grants, the main criterion being the number of public servants requiring salary (e.g., teachers' salaries). Conditional grants also include a small operating-cost component and a capital expenditure component, the amount of the latter being assessed on a needs basis. The block grants (about 50 percent of total transfers) are still provided on the one-tenth sharing basis. Population, poverty, and other socioeconomic data collected in recent years by the Southern Sudan Centre for Census, Statistics and Evaluation will enable the development of an equalizing formula-based transfers system. Another significantly sized fiscal transfer is from the SSLA to state governments in the form of the Constituency Development Fund. This is a transfer to constituencies; a County Development Committee, chaired by the MP with the county executive director as secretary then plans for and manages the funds, which are dispersed from the Constituency Development Fund account of the SSLA to the account of each constituency. The allocation formula by state is non-transparent. The total amount budgeted in the 2011 budget is SDG 220 million, which is in the same range as the largest spending agency budgets, and it makes up a significant proportion of the total block transfers to state governments (SDG 727 million in the 2011 budget). The States Transfers Monitoring Committee has since April required monthly reports from the state government Ministries of Finance explaining the use of the transfers received from GRSS. Subsequent transfers are conditional upon the submission and comprehensiveness of these reports. Guidelines for the submission of reports were distributed to state governments in April 2011 ("Conditions for Use, Release and Reporting on Transfers to States in Fiscal Year 2011") by the MoFEP and Ministry of Labor and Public Service (MoLPS). The States Transfers Monitoring Committee held a workshop for state governments at the end of May 2011. The main finding was that most states had not complied with the new accountability requirements, with the principal exception of Western Equatoria State. Performance Indicator 9: Oversight of aggregate fiscal risk from other public sector entities This indicator assesses the extent to which the central government monitors the fiscal position of (i) autonomous government agencies and public entities and (ii) sub-national governments. The first 37 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 dimension is not applicable to GRSS, since it only has water and electricity corporations, which are fully on-budget and are not autonomous. Under the second dimension, fiscal monitoring of state governments is significantly incomplete, as summarized in the assessment text box below. Performance Indicator 10: Public access to key fiscal information The greater the public's access to fiscal information, the greater its ability to hold the executive branch of government to account for its use of public funds. Table 3.7 illustrates the benchmarks of public access to information that are met by GRSS. Only the first one is met. 38 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 3.7. Six Benchmarks for Public Access to Information (i) Annual budget documentation when Annual budget documentation is available on the GRSS submitted to legislature website (http://www.GRSS-online.orq/) and copies are also made available on request. (ii) In-year budget execution reports within Not publicly available. one month of their completion (iii) Year-end financial statements within 6 Not publicly available. months of completed audit (iv) Availability of external audit reports to the Not publicly available. public (v) Contract awards with value above US$ Not publicly available. 100,000 (approx.) are published at least quarterly (vi) Availability to public of information on Not publicly available. resources for primary service units Indicator Score Assessment 2011 PEFA PI-5 (Ml) B The budget formulation and execution is based on an administrative, economic and functional classification using at least the 10 main standard classifications of functions of government and the GFS standards or a standard that can produce consistent documentation according to those standards. The budget classification clearly indicates the purpose of government spending. PI-6 (Ml) B Recent budget documentation fulfils 5 of the 9 information benchmarks (Table 3.6). PI-7 (Ml) D+ (i) D The level of unreported extra-budgetary expenditure (other than donor-funded projects) constitutes more than 10% of total expenditure. The main Extra Budgetary Operations is that of the Ministry of Sudan People's Liberation Army & Veterans' Affairs. The budget shown in the annual budgets is only a one-line item, for security and political reasons, but it comprises about 25% of total spending agency expenditure. Some spending agencies may be collecting and spending own source tax and non-tax revenues without fully reporting the extent of such revenue to MoFEP. The amounts involved may be relatively small, but they are difficult to pinpoint precisely. Unreported EBOs may be even higher due to spending of oil revenues on un-budgeted items before they enter MoFEP's bank account. The annual financial statements for 2009 and 2010, when ready, would provide the information. Complete income/expenditure information is included in fiscal reports for all loan-financed projects and at least 50% (by value) of grant-financed projects. The annual donor books published by GRSS provide information on donor projects. Donor aid is all in grant form. 39 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (ii) B Donors are diligent about providing information on spending plans, but less diligent about reporting on actual expenditure. A B score is awarded. (An A score would require complete information for 90% of donor projects.) PI-8 (M2) C+ (i) B (i) The horizontal allocation of most transfers from central government (at least 50% by value) is determined by transparent and rules-based systems. The horizontal allocation of most transfers is determined in a transparent and rules- based manner. In the case of the block grants, the formula is simple (10% of total block transfers are allocated to each of the 10 states). The allocation of conditional grants is mainly determined by the number of people employed in a given function in a given state. The GRSS budget documentation clearly articulates the purpose of each of the conditional grants, and Budget Sector Plans (disaggregating by budget component/chapter) set out the details. However, the allocation by SSLA of the Constituency Development Fund to the states (for onward allocation to county governments) is not transparent. (ii) B State governments are provided reliable information on the allocations to be transferred to them ahead of completing their budget proposals, so that significant changes to the proposals are still possible. The states receive notification from GRSS indicating the transfers they will receive. They have often started their budget processes before they received the information on the amount of transfers, but the information is provided in sufficient time to permit significant changes to budget proposals. The amount of time was limited, however, in the context of preparing the 2011 budget, as the notification did not arrive until November. (iii) D Fiscal information that is consistent with central government fiscal reporting is collected and consolidated for less than 60% (by value) of state government expenditure. States have not been providing annual reports to GRSS on the use of fiscal transfers, which finance the bulk of expenditure. Monthly reporting to GRSS by states on the use of fiscal transfers only began in early 2011. PI-9 (Ml) D (i) NA GRSS does not have any Public Enterprises or Autonomous Government Agencies. GRSS does have electricity and water corporations, but they are fully on-budget and not autonomous. (ii) D No annual monitoring of state government fiscal position takes place or it is significantly incomplete. The state governments cannot currently borrow, although there is potential for fiscal liabilities to build up in terms of arrears, as actually happened in 2008, leading to establishment by GoSS of a SDG 20 million bail-out fund in 2009. Some annual tracking of the states' budget performance is evident, particularly in the case of the recently started system for monitoring the use of conditional grants, but it does not include comprehensive information for each of the 10 states nor is it consolidated for the purpose of fiscal oversight. The text under PI-8, dimension (iii), also implies a D rating. PI-10 (M1) C The government makes available to the public one of the six listed types of information. (Table 3.7). Sources: GRSS Budget Books for 2008-2011; Budget Classification System; Budget Sector Plans; Donor Budget Books; States Circular, 2010; interviews with various stakeholders including MoFEP, some spending agencies, States Transfers Monitoring Committee, Audit Chamber, Joint Donor Team, Multi-Donor Trust Fund, and NGO Forum; AfDB, Non-Oil Revenue Study, 2009; Global Witness, "Fuelling Mistrust" (September 2009). Notes: M1 indicates the "weakest link" method; M2 indicates the simple-average method. NA = Not applicable because of circumstances explained in the text. At the State Level 40 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Performance Indicator 5: Classification of the budget The classification system used by state governments is a simplified version of the one used by GRSS. Expenditures are clearly labeled by sector, spending agency, directorate within each agency, and chapter (i.e., salaries, operating or capital). There are six sectors broadly corresponding to functions: Accountability and Economic Functions; Education; Health; Infrastructure; Natural Resources and Social Development; and Public Administration and Rule of Law. Jonglei State has 10 sectors. Some sectors contain more than one spending agency. In Unity and Jonglei states, some sectors classify spending according to programs (e.g. Health, but not Education) as well as directorates, but they are just the same as directorates, so the extra layer of classification is redundant. Some sectors, e.g. Education and Health, specifically include development partner activities, although these are not coded according to economic classification. The directorates broadly correspond to sub-functions. For each directorate, information is provided on the planned activities to be undertaken. The activities themselves are not coded, as they are at the GRSS level. The sector categories are identical to those used in the classification of functions of government, but at this level of government the fit is close enough. What matters is that a budget classification system clearly shows the purpose of government spending, and in the states this is the case. Performance Indicator 6: Comprehensiveness of information included in budget documentation NBGS Three of the six benchmarks listed in Table 3.7 are not relevant: the fourth, since NBGS is not allowed to borrow and the sixth and eighth, which refer to historical data, since there was no budget for 2009. NBGS met the second, third, and seventh benchmarks, three out of six. Unity State Unity State is allowed to borrow but has not done so, so the fourth benchmark is not applicable. The second, third, and eight benchmarks were met. Jonglei and Western Equatoria States The fourth benchmark is not applicable, as with NBGS and Unity State. The second, third, seventh, and eighth benchmarks were met. 41 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Performance Indicator 7: Extent of un-reported government operations (i) Level of unreported extra-budgetary expenditure (other than donor-funded projects) NBGS The budgets of all spending agencies in NBGS and Aweil West County (the only county visited, but probably representative of all counties) include all public spending falling within their mandate. The issues at NBGS are broadly the same as at the GRSS level. Unreported collection and spending of domestic tax revenue (non-tax revenue) represent unreported extra-budgetary operations. As is the case with GRSS, anecdotal evidence suggests that not all revenue collected is deposited in the bank accounts of MoFTI and the Revenue Authority. A portion of revenue tends to be collected in physical cash form; the managers of the collectors are then supposed to deposit the money into bank accounts or into a cash safe (in the case of Aweil West County). Revenue components collected in this way include household tax (poll tax), local market revenues, and trading licenses (personal income tax, comprising about two-thirds of domestic revenues, is deducted at source by employers and deposited into the State Revenue Authority's bank account). It is difficult for MoFTI to monitor the situation, as a multiple copy-sequentially numbered receipting system is only partly in place, and spending agencies are not required to disclose their bank statements to MoFTI. 17 (ii) Income/expenditure information on donor-funded projects which is included in fiscal reports Most of the donor partners that operate directly with NBGS are NGOs; official multilateral and bilateral-funded programs and projects being implemented within NBGS come under the auspices of GRSS. The 2011 budget makes reference to only one NGO, CONCERN, which was implementing a project in the Natural Resources and Development Sector in 2011 (SDG 6 million in 2011). The budget document refers to the need to include donor operations within NBGS budgets in the future. One way of doing this would be to include donor agencies in Budget Sector Working Groups (as discussed under Performance Indicator 11). The 2011 budget for Aweil County West mentions support from several donor agencies, but the amount of support in financial terms is not indicated. 18 Unity State 17 The UNDP representatives who met with the assessment team on April 20 during the GRSS PEFA assessment also mentioned the issue of non-reporting of revenue collection at both state and county levels. 1 The donor agencies mentioned are: UNDP, UNICEF, Food and Agricultural Organisation, World Food Program, and a number of NGOs (CONCERN Worldwide, Sudan Bridge, AAA, NLM, VAD, DOR, and NRC). 42 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The budgets of all Unity State spending agencies include all public spending falling within their mandate. The situation at Unity State is broadly the same as at NGBS. Not all revenue collected is deposited directly into MoFTI's revenue account. Electricity bills are usually paid in cash to collectors who are supposed to deposit the money into the Electricity Account, which comes under the Ministry of Physical Infrastructure (its directorates include Power). MoFTI has access to the account, however, and the ministry cannot spend the funds in the account without MoFTI approval, which is contingent upon the proposed spending being covered by the approved budget. But some of the cash collected by tax collectors may get lost on the way and then may be spent on items that are not budgeted for. The same applies to collection of land fees, which are supposed to be deposited into the Land Fees bank account. Six other spending agencies also collect non-tax revenue (Health, Information, Local Government, Agriculture, Animal Resources, and Education) and deposit much of it into their own bank accounts, which are outside the purview of MoFTI. Some of the revenue is collected in the form of cash for later deposit into a bank account or cash safe, but as with cash received for the payment of electricity bills, some may be lost. As explained under NBGS above, a receipting system established under the 1995 Financial and Accounting Procedures Ordinance helps guard against the possibility of leakage, but most of this system is not used any more, apart from Form 15. The spending by ministries of the non-tax revenue they collect should be according to their approved budgets, and the ministries are supposed to apply first to MoFTI to spend the money. As a check, ministries are requested to provide copies of their monthly bank statements to MoFTI and are required to surrender end-of-year cash balances to MoFTI. In practice, this system does not work perfectly. Ministries resist requests by MoFTI for information and may be using non-tax revenue to spend on items not included in the approved budget. This situation is unlikely to improve until the draft PFM bill prepared by GRSS is enacted. The 2011 budget document shows donor spending planned in each sector in 2011 and actual disbursements in 2010 according to project (in total, not by economic classification), donor agency, and implementing agency. The actual spending does not take place using Unity State's PFM systems, so it is not shown in the 2011 Appropriations Bill. Jonglei State As with the other states, the one area where unreported extra-budgetary operations may occur is where spending agencies and counties have collected revenues directly and not transferred them to 43 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 state MoFEP accounts. The extent to which this occurs is not considered by the state MoFEP to be sizeable. Information on donor aid being provided to the state is not available, although it is known that donor agencies are implementing projects in the state in the same areas of responsibility as the state government (e.g., health and education services). Western Equatoria State Revenue recording is more organized than in other states, but the likelihood that some revenue may not be recorded is nevertheless high. Since February 2011, unlike in the other states, all spending agencies collecting all types of revenue have been supposed to deposit it directly into the bank accounts of the Revenue Directorate in MoFTI. Revenue is collected using form number 15, which is summarized by collectors in Form 67, in accordance with the 1995 Financial and Accounting Procedures Ordinance. Collectors are then supposed to deposit the cash into the bank account of the Revenue Directorate and submit the deposit slip and duplicates of the forms to the Revenue Directorate. The revenue collected is reconciled against the bank statements monthly. However, anecdotal evidence suggests that not all collected revenue is deposited in the bank accounts of MoFTI and the Revenue Authority.19 For example, county governments are supposed to remit 40 percent of the revenues they collect to the State Revenue Directorate. According to the 2011 revenue budget estimates, revenue collected in this way was budgeted at SDG 1.95 million, representing about one-third of all Western Equatoria State revenues. But not all these revenues are remitted in this way, so to the extent that county administrations do not record their collection and use, their use also represents unreported extra-budgetary operations. Tax auditing has not yet commenced. At the time of the assessment, staff of the Revenue Directorate were attending an auditing training in Tanzania, which may result in less leakage. Most of the donor partners that operate directly in Western Equatoria State (multilaterals, bilaterals, and NGOs) are doing so under the auspices of GRSS. No information is available as to the degree of their collaboration with MOFTI in budgeting and reporting, particularly in the case of NGOs. Performance Indicator 8: Transparency of inter-governmental fiscal relations NBGS As with other state governments, NBGSG provides fiscal transfers to its five counties in the form of transfers for paying salaries and transfers for funding operating expenses. Counties also receive 19The assessment team witnessed evidence that Form 15 might not be issued to taxpayers. The airport tax collectors charged the team SDG 20 each, and when asked for a receipt they said that they would provide it at the time of the return flight. At that time, the team reminded the airport staff about the receipt, but the staff refused to provide it. 44 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 funding from GRSS for capital projects, channeled through NGBS. As with the allocation formulas, they are very simple, following the same principles as the transfers from GRSS to NBGS. As shown in the 2011 budget for NBGS, the allocation from NBGS for operating expenses in each county is SDG 36,000. The allocation from NBGS for salaries is based on the number of employees in each county government, while the allocation from GRSS for the capital transfer is SDG 1.58 million per county. The amount of actual capital transfer is based on requests from counties based on capital projects indicated in their approved budgets.20 Since nearly all county resources come from fiscal transfers, the timeliness of resource notification is critical in preparing the budget. Notification came very late for preparing the 2011 budget--not until December. This was due to NBGS not receiving notification of fiscal transfers from GRSS until very late. Counties are supposed to report their resource inflows and expenditures to NBGS, but they have not been doing so. The requirements of the GRSS-level State Transfers Monitoring Committee emphasize the need for state governments and counties to submit monthly revenue and expenditure reports as conditions for receiving the next monthly tranche of transfers. The submission of such reports is only just getting underway. Unity State The system of transfers to counties is the same as for the other states. The 2011 budget for Unity State shows (in Table 10) for each county: * General transfers for salaries; * A 60 percent share of tax revenues collected in each county, personal income tax comprising more than half of tax revenues; * Transfers to cover operational expenditures in the health, education and agriculture sectors: equal amounts per county for health and education, and unequal amounts for agriculture, depending on the extent of agricultural activities; and * The GRSS transfer for capital expenditure. Notification to counties of fiscal transfers to them came very late for preparing the 2011 budget, not until December, for the same reason as with NBGS. 20 The NBGS budget shows an allocation of the Constituency Development Fund (CDF). This originates from the SSLA at GRSS level and is a fund that State Legislative Assembly members can allocate to development projects in counties. The allocation criteria seem non-transparent, but it appears that the projects are implemented outside of the county administrative framework. The Aweil West budget makes no reference to resources from CDF. 45 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Counties are not complying with the State Transfers Monitoring Committee requirements. According to the Unity State team, there is confusion concerning reporting by counties, the main issue being lack of capacity. Jonglei State The situation is the same as for NBGS and Unity State. Western Equatoria State The situation is much the same as for the other states, except that notification to counties of the amount of transfers with regard to the preparation of the 2011 budget was earlier (September) than for the other states. Performance Indicator 9: Oversight of aggregate fiscal risk from other public sector entities The state governments do not own any enterprises, so dimension (i) is not applicable. Oversight of the fiscal situation of county governments (dimension ii) has been minimal. County governments have not borrowed to date, although Section 79 of the 2009 Local Government Act permits them to do so. However, in principle the potential exists for fiscal liabilities to build up as arrears, if own- revenue collection and the receipt of the block grant fall short of budgeted amounts, but expenditures are incurred according to the budget. Counties do not report systematically to state governments on resource inflows and expenditures, hindering the monitoring of their financial situation. In the case of Aweil West County in NBGS, the commissioner claimed that the government has never had any pending claims. Performance Indicator 10: Public access to key fiscal information The state governments that were assessed only met the first benchmark of information for public access, namely the availability of draft budget documentation available to the public (as noted in Table 3.7 above). The budgets include the county budgets in summarized form. Pi Comprehen- Score: Score: Score: Score: Explanation siveness & NBGS US iS WES Trans- parency PI-5 Budget The system is broadly the same as for GRSS. (Ml) classification 46 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 PI Comprehen- Score: Score: Score: Score: Explanation siveness & NBGS US iS WES Trans- parency Comprehen- C rating; Fulfils half of the applicable siveness of benchmarks. Benchmark 4 was not applicable, PI-6 information since the states have not borrowed. The 6th & C C C C th (Ml) included in 8 benchmarks for NBGS were not applicable, budget as there was no budget for 2009. documentation (i) Domestic EBOs: The main unreported EBO is the spending of domestic revenue that is retained and not declared by spending agencies. The amounts are probably small in relation to total expenditures, but nevertheless they are not known. A rigorous receipting system is not in place that would guard against such un-reported government operations. Extent of N R NR NR NR (ii) Information on donor-funded projects. PI-7 unreported (i) NR (i) NR (i) NR (i) NR Information is deficient for NBGS and Western (Ml) government Equatoria State, partly because donors tend to operations (ii) D (ii) A (ii) NR (ii) D report to GRSS, even if they are implementing projects in expenditure areas falling under state responsibility. In the case of Jonglei State, it was not possible to determine if information was available. In contrast, planned donor spending is shown in Unity State budget documentation, as is actual spending in the current year, though not according to the budget classification system. (i) The horizontal allocation of almost all transfers (at least 90% by value for an A rating) to counties is determined by transparent and rules-based systems. Transfers are based on simple formulas, mainly relating to the number of civil service employees in each county, as the bulk of transfers is for paying salaries. (ii) Reliable information to county C+ C+ B administrations is issued before the start of the PI-8 Transparency of (i) A (i) A (i) A fiscal year but too late for significant changes to inter-governmental (i) A be made. Except for Western Equatoria State (M2) fiscal relations (ii) C (ii) C (ii) B (information provided in September), the (iii) D ) C (iii) D (iii) D information was not provided until December (iii) D 2010 in terms of preparing the 2011 budget. (B Transfers finance much of county budgets. (iii) Counties have not been reporting their revenues and expenditures to state govemments. As of March 2011, counties have been required by the STMC to report monthly to their state governments but are hindered in doing so by capacity constraints. PI-9 Oversight of D D D D (i) Public entities: State governments do not aggregate fiscal own any public entities. 47 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 PI Comprehen- Score: Score: Score: Score: Explanation siveness & NBGS US iS WES Trans- parency (Ml) risk from other (i) NA (i) NA (i) NA (i) NA (ii) Extent of state government monitoring of public sector county administration fiscal positions. As entities (ii) D (ii) D (ii) D (ii) D indicated under Performance Indicator 8, dimension ii, monitoring has been minimal. Though county governments do not borrow, the potential exists for them to build up fiscal liabilities and become a fiscal risk for state governments. For NBGS, Jonglei State, and Western Equatoria State, only the first benchmark-- availability of draft budget documentation to the PI-10 Public access to public--is met. Unity State has commenced key fiscal C C C C publishing budget performance reports, as of (Ml) information first quarter 2011, meeting the second element. Audits of annual financial statements and spending agencies have not yet been prepared, so benchmarks 3 and 4 are not applicable. Sources: State government 2011 Budget Books (2009 and 2010 also for Unity State); Aweil West County (NBGS) 2011 Budget Book; AfDB, Non-oil Revenue Study, 2009; 1995 Financial and Accounting Procedures Ordinance of Government of Sudan; interviews with MoFTIs (state MOFEP in Jonglei) and Revenue Directorates/Authorities; interview with Aweil West County Commissioner and staff; Ministry of Local Government, Jonglei; and presentation by STMC made at workshop in Juba, May 2011. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NA = Not applicable because of circumstances explained in the text. NR = Not rated due to lack of data. M1 indicates the "weakest link" method; M2 indicates the simple-average method. 3.3. Policy-based Budgeting (Performance Indicators 11-12) The indicators in this group assess to what extent the central budget is prepared with due regard to government policy. SYNOPSIS At the GoSS/GRSS level (i) Adherence to a budget preparation calendar There is no formal budget calendar as such. MoFEP staff indicated that a PFM law would probably be required in order to have a formal budget calendar. Strengthening of budget preparation processes has been a key achievement of GoSS/GRSS since the Comprehensive Peace Agreement, through the establishment of a budget preparation process and 48 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 the preparation of guidelines and standardized templates for spending agencies to use. The budget preparation process begins with a strategic phase, typically starting in June. Budget Sector Working Groups, representing the 56 spending agencies divided into 10 sectors, are required to prepare/update Budget Sector Plans using MoFEP-prepared guidelines and standardized planning templates. The Budget Sector Plans indicate any changes in strategic priorities and the spending ceilings for each spending agency to use in drafting budgets during the estimation phase. The Budget Sector Plans are reviewed by MoFEP, which provides feedback. A critical issue is that the Budget Sector Plans do not receive political scrutiny. This means that politicians are unable to exercise their rightful role in prioritizing the strategic allocation of financial resources in the best interests of the country. The strategic phase is followed by the detailed budget estimation phase, which commences with the issue of a Budget Call Circular in September/October each year (late October in 2009 and 2010). The Budget Call Circular includes spending ceilings for each spending agency, established on the basis of the Budget Sector Plans, the Council of Ministers being required to approve the ceilings first. The time of approval may vary each year between mid-September and early October, depending on the availability of ministers, who may have travel obligations. Spending agencies then prepare budget submissions on the basis of the Budget Call Circular. Submissions require sign-off by the MoLPS with regard the number of personnel indicated in submissions. Following review by MoFEP, the draft budget is prepared and submitted to the SSLA, following discussion and approval by the Council of Ministers. The SSLA has 45 days to discuss the draft budget, which means discussion must start by mid-November in order to finish by the end of the year, as required by the Constitution. Discussion is both at the committee level (Committee for Economy, Development and Finance) and at the full plenary stage. (ii) Clarity/comprehensiveness of and political involvement in the guidance on the preparation of submissions The guidelines and standardized templates used for drafting Budget Sector Plans are well drafted and clear. In the case of the 2011 budget, the Budget Sector Plans were based on the assumption that the indicative budget ceilings would be based on the 2010 budget, taking into account specific factors. Among those factors was the need to include expenditure commitments under existing contracts (to guard against further accumulation of arrears, as discussed under Performance Indicator 4) and to provide adequately for existing GoSS/GRSS salaries, state transfers, and minimum running costs. Preparation also required specifying the two highest-priority areas to which additional resources (maximum of 15 percent of the current year's budget) could be allocated if oil prices turned out to be higher than forecast. 49 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The guidelines also emphasized the need to include "own revenue" estimates, as required under the 2009 Taxation Act. Donor partners (members of the Budget Sector Working Group) were requested to provide estimates of expenditures (also using standardized forms) consistent with sector strategic objectives and priorities. The guidelines and standardized templates used for drafting the detailed estimates are also clear. The rationale set out in the Budget Call Circular for setting the expenditure ceiling for each spending agency is clear; it repeats the rationale stated in the Budget Sector Plan preparation guidelines and also mentions the rationale for specific cases identified during the strategic phase where spending should be increased. It stresses that if an item is not properly budgeted for, spending agencies cannot expect to receive additional funds during the year, and any additional funding would require a Supplementary Appropriations Act.21 An issue concerning the budget preparation process is the extent to which it is known in advance that "pending payments" (as discussed under Performance Indicator 4) are to be carried forward to the following year. Generally it is not known, so the carrying forward comes at the expense of spending agencies' approved budgets for that year. In terms of the scoring criterion, a high rating is justified, but in terms of the meaningfulness of spending ceilings to spending agencies, some may be skeptical.22,23 (iii) Timely approval of the draft budget by the legislature For 2008-10, the Minister of Finance presented the draft budget to the SSLA too close to the end of the fiscal year for it to approve the budget prior to the end of the year. The 2011 draft budget was not presented to the legislature until after the end of the 2010 fiscal year, due to the independence referendum process. (iv) Multi-year perspective in budgeting Public services are provided on a multiyear basis, so it is useful for the budget preparation process to have a link between budgeting and policy priorities (from the medium-term perspective) and the extent to which the projected medium-term costs of providing public services are integrated into the budget formulation process. 21 Not unsurprisingly, the spending agencies visited by the assessment team (Agriculture and Forestry, Education, Health, Transport and Roads) all claimed that the ceilings allocated to them were not high enough and bore insufficient relation to their plans. However, with little fiscal space available (due partly to the unfunded contractual obligations issue discussed under P1-4), there is little scope in the budget preparation process for significant shifts in sectoral allocations. However, the Joint Donor Team, interviewed by the assessment team, pointed out some apparent irrationalities in the setting of spending agency spending ceilings; for example, ceilings for the Ministry of Education that provide funds for building schools while the supply of teachers to staff them is insufficient. 22 For example, according to the Ministry of Health, it will have SDG 30 million of pending claims unpaid at the end of 2010 deducted from the 2011 budget provision indicated in the 2011 Budget Estimates. MoTR informed the assessment team that it does not know ahead of the budget preparation process the amount of pending claims that will be carried forward. 23 The extent of carry-over is reflected under PI-2 (end-year predictability of the budget), P1-4 for expenditure arrears, and PI-16 for the in-year predictability of the budget. 50 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (a) Links between budgeting and policy priorities. The Ministry of Agriculture and Forestry has a strategic plan for 2007-11 and, at the time of the PEFA assessment, was preparing a successor for 2011-15 (National Food Security Plan).24 The Ministry of Transport and Roads also has a strategic plan for 2007-11 and was in the process of preparing a successor. The expenditures of these two ministries comprise about 10 percent of total expenditure (per the 2011 budget). The strategic plans of the ministries of Education and Health expired in 2010. Both ministries admitted they were not realistic, partly because of the lack of a census, and both were preparing new multiyear strategic plans. Budget Sector Plans have some medium-term elements in the sense that objectives cover a three-year period, but they are focused on the next financial year. (b) Projection of costs over the medium term. No forward estimates have been undertaken as yet, either at the aggregate fiscal level or at the functional and economic classification level. With the help of technical assistance (a long-term adviser is to be appointed), the Macro-Fiscal Unit at MoFEP is developing a medium-term macro-fiscal framework, with initial focus on strengthening revenue forecasting and developing a monetary framework for the new country of South Sudan. MoFEP is working with the Ministry of Investment to prepare a framework for estimating the future recurrent costs implied by capital projects. Ongoing and Planned Developments With USAID-financed technical assistance, a new budget-preparation software package in database form (in place of Excel) began to be prepared in July 2010. The objective is to speed up budget preparation and improve its quality through a more rational budget classification, in terms of the relationships between administrative, program/activity and economic classification structures, and greater efficiency in data entry and usage. Under the existing system (as indicated under Performance Indicator 5), directorates in spending agencies are subordinate to program areas and their associated activities, with the result that responsibility for managing activities may be split between administrative units (mainly directorates). The system evolved in this way because the development of program structures preceded the creation of purpose-oriented organizational structures functioning as cost centers. However, a key principle of program budgeting is that it produces the best results when one manager is wholly responsible for a program, rather than responsibility for managing a program diffused among different managers. Under the system being developed by the technical assistance project, administrative units would hierarchically be in front of programs/activities. Indicator Score Assessment (M2) 2011 24 The assessment team was unable to access the strategic plan. The Joint Donor Team interviewed by the assessment team indicated that the strategic prioritization aspects of the plan were not given sufficient attention. 51 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 PEFA PI-11 B (i) B A clear annual budget calendar exists, but some delays are often experienced in its implementation. Most spending agencies are able to meaningfully complete their detailed estimates on time. The Budget Call Circulars guide the preparation of the draft detailed budget estimates. The date of approval by the Council of Ministers of the spending ceilings contained in the Budget Call Circular should be prior to the end of September, but may vary each year according to the availability of ministers. The deadline of end-October for submission of the 2011 estimates provided one week for preparation of the estimates, one week less than allowed for the 2010 estimates. Much of the work is in effect carried out during the strategic phase, which provides five weeks for preparing Budget Sector Plans, so two-three weeks to prepare the detailed estimates may be sufficient. (ii) A The Budget Call Circular issued for the detailed budget estimation process for 2011 appears comprehensive and clear and reflects ceilings approved by the Council of Ministers prior to distribution to spending agencies. (iii) C The legislature has, in two of the last three years, approved the budget within two months of the start of the fiscal year. Dates on which budgets were approved by the SSLA: * 2008 budget: 20 December 2008 * 2009 budget: 23 January 2009 * 2010 budget: 3 February 2010. * 2011 budget: early April 2011 (delay due to referendum). PI-12 D+ (i) D Multi-fiscal forecasts and functional allocations are not yet conducted. (ii) NA Scope and frequency of debt sustainability analysis. Article 193 of the Interim Constitution of Southern Sudan allows GoSS/GRSS to borrow, but it has not done so yet. (iii) C Existence of costed sector strategies. Some multiyear 'sector' strategies are in place (Ministry of Transport and Roads, 2006-11; Ministry of Agriculture and Forestry, 2007-11; together comprising about 10% of total expenditure). The (unrealistic) strategic plans of the Ministries of Health and Education expired in 2010, and new plans are being drafted. Since 2007, each of the 10 sectors has drafted Budget Sector Plans. Though comprehensive, they do not as yet have a multiyear perspective in terms of costs, though objectives and priorities are cast within a rolling three-year perspective. (iv) D Proposed investments are related to sector strategies to an extent. The future recurrent costs implied by investments are not estimated as yet. MoFEP and Ministry of Investment are jointly preparing a framework for estimating the future recurrent costs implied by ongoing and committed capital projects. Sources: Interim Constitution of Southern Sudan (Articles 87-88); Guidelines for preparing Budget Sector Plans for 2011-2013 and the subsequent ten Budget Sector Plans; Budget Call Circulars for 2010 & 2011; Annual Appropriations Acts; 'Budget at a Glance' for 2010 and 2011, prepared by MoFEP; meetings with MoFEP Planning and Budget Directorate staff, Head of Macro-Fiscal Unit in MoFEP, Ministries of Education, Health, Agriculture and Forestry, Transport and Roads, and with members of the Committee for Economy, Development and Finance (SSLA). 52 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Notes: NA = Not applicable because of circumstances explained in the text. NR = Not rated due to lack of data. M2 indicates the simple- average method. At the state level NBGS Budget preparation in NBGS and its counties is guided by MoFEP's "Guidelines for Integrated State and County Planning and Budgeting" (hereafter "Guidelines") dated May 2010, based on the planning and budgeting guidelines prepared for GoSS spending agencies in 2006, followed by similar guidelines issued in 2008 for state governments alone. The purpose of the May 2010 document was to ensure that state and county level plans and budgets are integrated. These are the key points in the "Guidelines": * Counties should fully participate in State Budget Sector Committees (similar in concept to the Budget Sector Working Groups at the GRSS level, the number and composition of sectors being the same). This would allow counties to set out the priorities developed in their Participatory Plans, which are prepared, based on guidance prepared by the GRSS-level local government board. Counties would have clear information on the resources they can expect to receive from the state, thus helping them to prepare their budgets. Counties are expected to complete their participatory plans by June 30. Budget Sector Committees meet during August-September. * The state MoFTI estimates the resource envelope for state and county expenditure combined, and divides the resources available between the state government spending agencies and the counties, creating budget ceilings. These ceilings should then be discussed by the State Council of Ministers in October and then communicated to state spending agencies and counties through a Budget Call Circular by end-October. * The state spending agencies should then prepare their budgets within the ceilings indicated in the Budget Call Circular, following the broad economic classifications and showing the main activities they plan to undertake. Technical guidelines for plan and budget preparation accompany the Budget Call Circular. The spending agencies also identify any planned transfers to counties; the State Ministry of Local Government draft budget indicates transfers to counties for general administrative expenditure, while sector spending agencies shows transfers to counties for sector-related expenditure. The spending agencies should then submit their proposed plans and budgets to MoFTI by mid-November. 53 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * Proposed plans and budgets should reflect the proposed spending and plans of donor agencies. The Aid Information Management System that MoFEP has prepared will facilitate this. Donor agencies are encouraged to be members of Budget Sector Committees. * MoFTI discusses the proposed plans and budgets with the spending agencies and compiles the state budget document. Some adjustments may be necessary to reflect the final notification by MoFEP of the resources that GRSS will provide to states and counties. MoFTI submits the draft budget to the State Council of Ministers for approval by the first week of December. The Council of Ministers then submits the draft budget to the State Legislative Assembly no later than December 15th, * Once the state budget document is ready, counties ensure that their budgets are consistent with it and then present them to the County Legislative Council (or Executive Council if there is no legislature as yet). In practice, the budget preparation process is not yet completely compliant with these guidelines, though progress is being made in that direction. The Planning and Budgeting Department in MoFTI was not fully staffed yet, though planning and budgeting specialists provided by UNDP (UN volunteers) had helped to fill the gap. Budget Sector Committees were still in the process of becoming fully functional and tended to lack the presence of donor agencies. Due to the absence of meaningful strategic plans (well-prioritized and -sequenced and realistically costed), plans have tended to follow budgets rather than budgets following plans. Nevertheless, the predominance of salaries (making up about 70 percent) in state government budgets constrains the possibilities for strategizing. The same holds true to some extent for the county budgets.25 As indicated under Performance Indicator 27, the State Legislative Assembly for NBGS was less than impressed by the quality of the 2011 draft budget submitted to it and made some significant changes in terms of the strategic priorities that it perceived. West Aweil County (NBGS) The county prepared a budget for 2011, broadly consistent with the "Guidelines," which it considers to be clear and understandable. The planning and budgeting function was established in 2007, but the first budget prepared according to a development plan was the one for 2009. The 2011 budget was the second one, with considerable assistance provided by the donor community; the budget document makes particular reference to the assistance from Sudan BRIDGE, an NGO. A participatory planning approach was used, following the "Guidelines", the plan being submitted to 25 UNDP representatives met by the GRSS PEFA assessment team on April 20 also indicated that links between planning and budgeting still required strengthening. UNDP has provided considerable capacity-building support to state governments over the last few years (Economic Planning Project, Local Government & Recovery Project, Rapid Capacity Placement Initiative (in connection with deployment of UNVs with PFM expertise). 54 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 MoFTI as the calendar required. The notification of fiscal transfers from GoSS and NBGS did not arrive until December 2010, leading to delays in approving the budget. The head of the planning and budgeting department indicated that the department is preparing a three-year strategic plan for 2012-14, under the guidance of the Local Government Board (part of GRSS). Unity State In principle, the budget preparation processes are the same as for NGBS, and the less-than-full compliance with them is broadly for the same reasons: i. A meaningful strategic plan has not been in place to guide budget preparation; the MoFTI was awaiting the finalization of the South Sudan Development Plan (expected after July 9, 2011) prior to replacing its less than meaningful current plan; and UNDP staff also emphasized that the linkages between planning and budgeting needed further strengthening on top of the considerable capacity support it had been providing over the last few years.26 ii. Donor agencies were not yet represented on Budget Sector Committees, though they had a significant presence in Unity State and were providing services that fell under the mandate of Unity State. To rectify this situation, Unity State wanted to sign a Memorandum of Understanding with donors to better align Unity State and donor priorities. iii. Capacity in counties was lacking. iv. Notification by GRSS of the amount of transfers to Unity State for the next financial year was late. Jonglei State and Western Equatoria State The issues are much the same as for NBGS and Unity State, although Jonglei State was significantly less compliant with the budget preparation procedures. 26 Economic Planning Project, Local Government and Recovery Project, Rapid Capacity Placement Initiative (in conjunction with the deployment of UNVs). 55 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Policy- Score: Score: Score: Score: PI based NBGS US iS WES Explanation P budgetingExlnto (i) Existence of and adherence to a fixed budget calendar: Budget calendars have been in place at the state level and have been generally adhered to, but delays have occurred, mainly due to delays in GRSS notifying state governments of the amount of transfers to them, particularly in terms of the preparation of the 2011 budget (even more so for Jonglei State). (ii) Guidelines on the preparation of budget submissions: The May 2010 "Guidelines for Integrated State and County Planning and Budgeting" are clear, even if adherence to them has been somewhat mechanical due to absence of meaningful strategic plans. With the exception of Jonglei State, State Councils of Ministers Orderliness & B+ B D+ B debated the spending ceilings proposed in the PI-1 1 participation (i) B (i) B (i) C (i) B Budget Call Circulars in relation to the 2011 in the annual budget preparation prior to their submission to (M2) budget (ii) A (ii) A (ii) D (ii) A spending agencies. process. (iii) NA (iii) D (iii) D (iii) D (iii) Timely budget approval by the legislature: (a) NBGS: Assessment was not possible, since the legislature had not been in place until the 2011 budget preparation process; (b) Unity State: The 2011 budget still had not been approved at the time of the PEFA assessment, the 2010 budget was not approved due to the elections, and the Unity State team did not know the date of the approval of the 2009 budget; (c) Jonglei State: The 2009 and 2010 budgets did not go through the state legislature. The 2008 budget went through it in November 2008 and the 2011 budget in May 2011; and (d) Western Equatoria State: The budget for the previous three years had been approved with more than three months' delay. (i) Multiyear fiscal forecasts and functional allocations: Forward estimates have not yet been undertaken. (ii) Scope and frequency of debt sustainability Multiyear D D D D analysis: State governments have not borrowed. perspective in PI-12 fiscal (i) D (iii) Existence of costed sector strategies: planning, (ii) NA (ii) NA (ii) NA (ii) NA Realistic strategic plans have yet to be prepared. (M2) expenditure They would be based on the GRSS Development policy, and (iii) D (ii) D (iii) D (iii) D Plan, under preparation at the time of the PEFA budgeting. (iv) D (iii) D (iv) D (iv) D assessments. (iv) Linkages between investment budgets and forward expenditure estimates: No linkages yet, since there have been no strategic plans and no forward expenditure estimates. 56 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Sources: GRSS, "Guidelines for Integrated State and County Planning and Budgeting," May 2010; Approved state government budgets; Interview with United Nations Volunteers planning and budgeting specialist, NBGS MoFTI; Interview with Local Government Board, GRSS; Interview with NBGS Minister of Finance; Interviews with MoFEP and state level MoFTI/state MoFEP staff; Interview with Jonglei State Ministry of Education; and Interviews with State Legislative Assemblies of NBGS, Jonglei State, and Western Equatoria State. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NA = Not applicable because of circumstances explained in the text. NR = Not rated due to lack of data. M2 indicates the simple- average method. 3.4. Predictability and Control in Budget Execution (Performance Indicators 13- 21) This section analyzes three different performance aspects of budget execution: Tax administration (Performance Indicators 13-15), in-year budget predictability and management of treasury and debt (Performance Indicators 16-17); and internal controls (Performance Indicators 18-21). TAX ADMINISTRATION (PERFORMANCE INDICATORS 13-15) Synopsis At the GoSS/GRSS level Tax administration reform is still in its early stages. Legislative framework. The 2009 Taxation Act has yet to be published, due to perceived problems in some of its provisions. As a result, regulations had not been put in place, thereby allowing a greater level of discretion to the tax authorities than would otherwise be the case (e.g., in determining the thresholds for categorizing businesses as small, medium, or corporate). With the coming of independence on July 9, the tax laws of the Government of Southern Sudan were supposed to be integrated with those of the Government of National Unity (as noted in Section 2.2), but they were not, although work on integration and the associated amending of the Act has since commenced. Hopefully, amendments will address inter-jurisdictional tax issues, given that individuals and businesses have been paying the same tax to different tax collecting jurisdictions at inter-jurisdictional boundaries, with associated welfare losses through higher tax and time-wasting burdens. These duplications were supposed to have been already resolved: the 2009 Taxation Act provided for coordination between different levels of government on tax administration 57 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 arrangements, and the issues had been publicly highlighted, for example in the 2010 Budget Speech.27 Taxpayer education. Education programs are still at an early stage of development. The Taxation Directorate (part of MoFEP) has a tax payers service unit, which has published brochures on registration procedures, but has provided little information on tax liabilities and other administrative procedures, partly because the Taxation Act has not yet been gazetted, and has not conducted any systematic taxpayer education program. A program is now (post-Independence) being prepared, taking into account GRSS's increased tax collection responsibilities. Tax Appeals Board. A semi-independent Tax Appeals Board is provided for in the 2009 Taxation Act but, at the time of this PEFA assessment, it had not been put into operation. Taxpayer registration. Registration has started in Juba for small- and medium-size businesses and NGOs. Registration is done through the issuing of unique Taxpayer Identification Numbers. As of April 2011, 1,028 taxpayers had been registered. Personal-income taxpayers are not registered yet, since employers, who must be registered, are required to withhold income tax from the wages and salaries of their employees. To strengthen enforcement of registration requirements, a rule prohibits a business from participating in a public tender unless it presents a Taxpayer Identification Number certificate. However, the tax registration system is not yet integrated with other government systems, such as for business registration or with the procedures for opening bank accounts. Occasional surveys have not yet been initiated to determine whether potential taxpayers are registered (e.g., by inspection of business premises). Penalties for not complying with tax registration and declaration requirements are laid out in the Taxation Law, and are generally sufficient to enforce the law.28 At the time of the PEFA assessment, a dedicated lawyer was working in the Taxation Directorate, which had five legal cases pending. The lengthy judiciary process, the limited number of staff (20), most of whom had limited experience, the under-training of tax auditors, and the limited awareness of tax law among taxpayers represent major challenges to enforcement of the law. The tax audit function. The tax audit function was only established in July 2010, and at the time of the PEFA assessment, audit staff were still being trained and had not conducted any audits. In any case, larger companies (for which the tax audit function is particularly relevant) were still covered by the tax laws of the Government of National Unity. Effectiveness of tax collection. At the time of the PEFA assessment, a mechanism for recording and following up on tax debts had not been put in place. As mentioned above under Performance 27 An assessment made by USAID ("Customs Assessment: Strengthening the Customs Service of Southern Sudan," November 29, 2010) identified a number of challenges, for example, lack of comprehensive GRSS border infrastructure/equipment development and acquisition plan. 28 For example, the penalty for failure is imprisonment of up to 5 years and fines of up to SDG 50,000. 58 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Indicator 7, considerable scope for leakage exists for tax collection, due to a lack of mechanisms for ensuring that collected taxes were deposited in the bank accounts of MoFEP. This is partly due to the insufficient controls on the usage of standard and regulated receipts. Leakage is particularly likely in cases where tax collectors contracted by MoFEP collect taxes in areas where there are no banks and then have to transport the funds to banks where MoFEP keeps accounts. Accounting for tax collection. A system is not yet in place to reconcile tax assessments with tax payments MoFEP has received, taking into account taxes assessed, taxes due, taxes collected, taxes receivable, and taxpayer debts, partly because of the lack of a system to monitor tax debts. One reconciliation issue is that some of the tax payments are made through banks without a system to indicate who paid what type of tax. Tax return forms are not available at banks that would enable banks to notify the tax authority as to who has paid a tax and what type of tax has been paid. After paying through banks, taxpayers are required to provide a deposit slip to the tax office in order to complete their tax returns. The Accounts Directorate often faces difficulties in tracing the type of tax or revenue collected so that it can record it under the correct accounting code. Fiduciary risks associated with the tax administration system. The PEFA indicators covering tax administration relate only to non-oil related taxes, since oil tax administration in the pre- independence period was handled by the Government of National Unity. The fiduciary risks to stakeholders stemming from weaknesses in non-oil related revenue administration have to be seen in the light of oil revenues averaging 98 percent of GoSS/GRSS revenues in recent years. This proportion will probably fall as GRSS assumes responsibility for the non-oil taxes previously administered by the Government of National Unity. If issues with the present system are not addressed, the fiduciary risk would increase. 2011 Indicator PEFA Assessment Score PI-13 (M2) D+ (i) C (i) Clarity and comprehensiveness of tax liabilities: With the exception of personal income taxes, the failure to publish the 2009 Taxation Law means that regulations have not yet been drafted that would provide greater clarity and reduce the extent of discretionary powers. Since independence on July 9, 2011, GRSS has taken over the Government of National Unity's taxation responsibilities, but in the absence of a comprehensive legal framework. (ii) D (ii) Taxpayers' access to education on tax liabilities and administrative procedures. The Taxation Directorate has printed and disseminated brochures on taxpayer registration procedures. No other brochures covering different tax liabilities and administration procedures have as yet been disseminated to taxpayers, nor has any taxpayer training being conducted. The non-publication of the Taxation Act impedes education of the public. In any case, the issue of taxpayer education now has to take into account the takeover by GRSS of the Government of National Unity's 59 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 responsibilities and the lack of a comprehensive legal framework to cover this. (iii) D The 2009 Taxation Act provides for the establishment of an independent tax appeals mechanism, but at the time of the PEFA assessment, this was not yet in place. PI-14 (M2) D+A Controls in the taxpayer registration system: According to the 2009 Taxation Act, all taxpayers and persons who withhold taxes should be registered. At the time of this PEFA assessment, about 1,000 tax payers - mainly based in Juba - had been registered and issued with unique Taxpayer Identification Numbers and registration certificates. The registration is limited to small and medium businesses and NGOs. Personal-income taxpayers' registration has not yet started, but employers withhold personal income tax on the salaries of their employees. The only linkage with other government systems is through the public procurement process. (ii) C Effectiveness of penalties for noncompliance with registration and tax declaration obligations: Penalties listed in the Taxation Act are comprehensive and sufficient in scale to enforce the law. Capacity constraints and lack of an operational tax audit function (dimension iii) impede the enforcement of the law. (iii) DA Planning and monitoring of tax audit programs: The tax audit function is still being established. Employment and training of staff have commenced. Tax audit plans are expected to be developed in the near future, with help from a USAID-funded technical assistance project. PI-15 (Ml) D+ (i) NR Collection ratio for gross tax arrears: Data on tax arrears are not yet collected. (ii) C Effectiveness of revenue collections: All taxes paid, either through banks or directly to MoFEP, are supposed to be deposited into the bank accounts of MoFEP. In principle, such deposits should take place at least weekly, but some taxes appear to be lost due to theft/accident and issues concerning the receipting system. (iii) D Frequency of complete accounts reconciliation: This follows from the No Rating for dimension (i). In addition, there are problems of reconciliation between the Taxation Directorate and Accounts Department. Sources: 2009 Taxation Act; Comprehensive Peace Agreement; Government of National Unity tax proclamations; Interview with head and staff of Taxation Directorate; Zeru Gebre Selassie, AfDB-funded Non-oil Revenue Study, October 2009; Interview with Chamber of Commerce, Industry and Agriculture. Notes: NR = Not rated due to lack of data. Upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. M1 indicates the "weakest link" method; M2 indicates the simple-average method. At the state level NBGS 60 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Background. The governor of NBGS announced a tax reform strategy in the State Legislative Assembly in May 2010 in response to the perceived dysfunctionality of the existing system. There were no linkages between different collecting agents claiming to work for the state government, no efficient coordination between the state and counties, and no indicators as to which types of taxes were collected at the state level, by whom, and how. The governor's announcement paved the way for the establishment of the NBG State Revenue Authority (SRA) in June 2010, initially by way of a Governor's Decree and then through the State Revenue Authority Act of 2011 in accordance with the 2010 Interim Constitution of NBGS. The SRA is the only institution responsible for collecting state revenue. Counties can continue to collect their revenues following the Local Government Act of 2005. The SRA is semiautonomous and accordingly is governed by a policy-making board, whose members are the Governor of NBGS (chairman), Minister of MoFTI (deputy chairman), representatives from spending agencies with economic functions, representatives of the private sector (State Chamber of Commerce and Workers Union), as well as the Commissioner General (Chief Executive Office) of the SRA, who functions as Secretary to the Board. The Commissioner General should submit annual financial statements and an annual performance report to the Minister of MoFTI within three months of the end of the previous fiscal year. The minister should then submit a copy of the annual report of SRA and the opinion of the Auditor General to the State Legislative Assembly within two months of receiving it. A tax expert assigned by UNDP assisted in the setting up of SRA, including the preparation of legislation. Financial assistance toward meeting the costs of the tax reform program came from the donor-funded Capacity Building Trust Fund. A significant cost has been the establishment of an Integrated Tax Administration System. Performance Indicator 13. The State Revenue Authority Income Tax Act came into force in early 2011, covering personal income tax, business profits, rental income, and investment income. Taxes apply only to residents of NBGS, and the definition of residency is clear. The Act is detailed and clear and discretionary powers appear limited. For example, definitions of what constitutes taxable income are clear, and rates, exemptions, deductions (e.g. depreciation provisions) and withholding provisions are clearly stated. A Memorandum of Understanding for the free movement of goods between NBGS and Western Bahr El Ghazal State was signed to avoid double taxation problems. An accompanying Income Tax Procedures Act determines the payments procedures for the taxes that fall under the SRA Income Tax Act. Anyone opening a business in NBGS has to obtain a Taxpayer Identification Number within seven days; failure to do so is punishable by fines and an interest penalty of 2 percent a month. The Act provides for an audit process, an appeals procedure (first to the Commissioner General of SRA, and then, if still not satisfied, to the court system), fines of 10 percent of tax liabilities to be levied in the instance of understatement of taxes due, and 61 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 penalties for tax fraud in the form of administrative fines of 100 percent of the evaded tax and criminal penalties, ranging between six months' and two years' imprisonment. Failure to withhold tax is met by fines of 100 percent of the unpaid tax and imprisonment for three months to two years. The Act provides for deposit by SRA of all revenues into a revenue account in the Ivory Bank, located in Aweil, with no right by SRA to withdraw funds from that account. This important provision was made possible by Governor's Decree Number 22 of 2010, prior to the SRA Act (unpopular with taxpayers). The MoFTI has the right to transfer the funds into its own account for the purposes of funding the budget. Legislation covering the other areas of tax falling under the mandate of SRA has yet to be prepared: sales tax, excise tax, property tax, and household tax. Income tax, including rental income tax, comprises 77 percent of all of NBGS's tax revenues, according to the 2011 budget. As mentioned under the assessment for GoSS/GRSS, a major tax clarity issue is the unclear division of tax responsibilities between different levels of government. The establishment of SRA has helped to clarify the divisions between the state and counties, but divisions between the state and GRSS remain to be clarified. To this end, an Inter-Governmental Fiscal Relations Task Force was established earlier in 2011. It prepared a report, which was still confidential at the time of the PEFA assessment, and which was expected to be discussed by the Council of Ministers after July 9. SRA has been conducting taxpayer education campaigns through public notice boards and posters (very prominent in Aweil), by holding workshops, by handing out SRA t-shirts, and through the sponsorship of sports events (e.g., the local soccer league). It started a publication, Aweil Revenue Times, in early 2011, the purpose of which was "to be a one-stop shop to conduct public awareness and campaign about the public responsibility to pay taxes." The SRA has its own partially functioning website, www.nbg-sra.org. It contains the Income Tax Act and tax registration forms for persons and businesses. The Income Tax Procedures Act provides for a rudimentary tax appeals system, as indicated under dimension (i). It is too soon to determine how well this is functioning. The Act does not go into nearly the same amount of detail as the GoSS Taxation Act of 2009. Performance Indicator 14. The 2009 GoSS Taxation Act requires tax payers and persons responsible for withholding tax to be registered. The SRA has been active in requiring potential taxpayers to obtain unique Taxpayer Identification Numbers and to register. The GRSS level Tax Directorate in MoFEP controls the issuance of Taxpayer Identification Numbers, so a taxpayer only need have one Taxpayer Identification Number. Registration is applied for by completing Personal and Business Registration Forms, both available from SRA headquarters in Aweil and at offices located in five out of the six counties, including Aweil West, as well as from the SRA website. Upon registering, the taxpayer is provided a certificate of registration, a copy of which was 62 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 provided to the team. So far, the registration campaign has covered the town of Aweil, where the bulk of taxpayers reside. Three thousand taxpayers have been registered, of which 2,400 are small- and medium-sized businesses. Since January 2011, the Taxpayer Identification Number system has been linked to the business license application system as a means of capturing potential taxpayers in the tax net. Business license applications require a Taxpayer Identification Number. The application is signed by both the Director of the Aweil Town Council and the Director of Revenue at the SRA. The business permit was digitalized to enable interconnectivity with the Taxpayer Identification Number system, as captured under the Integrated Tax Administration System. Interconnectivity will make tax auditing easier. Currently, the Taxpayer Identification Number system mainly applies to businesses. Most employees do not require Taxpayer Identification Numbers, as long as their employer has a Taxpayer Identification Number. The employer then withholds personal income tax liabilities from employee salaries and then hands the revenue to SRA. The new Integrated Tax Administration System has facilitated the increasing coverage of the Taxpayer Identification Number. The system is being designed and established with financial assistance from the Capacity Building Trust Fund, using the same Nairobi-based company (SIGNET) that designed EasyPay, the state's payroll management system (Performance Indicator 18). The Integrated Tax Administration System has 10 modules, of which the first covers business registration and the issuance of Taxpayer Identification Numbers. All the taxpayers registered have been captured in the system's database. Penalties for noncompliance are set out in the Income Tax Procedures Act, as described under Performance Indicator 13. The penalties appear sufficient, but it is too early to tell. The tax audit function is not yet in place. The relevant module under the Integrated Tax Administration System is being developed and is expected to be in place within the next few months. Performance Indicator 15. The SRA at present does not record tax receivables in a systematic way, though it knows who hasn't paid or who has underpaid and it may follow up (as related to the assessment team in one particular instance of a business owner who refused to pay his due taxes). A tax debtor tracking module is to be added to the Integrated Tax Administration System later this year. As noted under Performance Indicator 13, as of late 2010 all taxes due to SRA from taxpayers resident in Aweil are to be paid directly into SRA's bank account in Ivory Bank; MoFTI has control over this account (see Performance Indicator 17). As indicated by the Commissioner General, this 63 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 move was not popular with tax collectors, who apparently have given the impression that they are well-remunerated, more so than their senior colleagues. As noted in the Revenue Times, SRA claims it was able to persuade traders to pay taxes directly into the SRA bank account, particularly in the case of sales tax, business profits tax and trading license fees. Tax collectors in the counties and payam markets have to transport the physical cash to Ivory Bank in Aweil (referring to the 40 percent of tax revenues that accrues to NBGS). As noted above, the comprehensive receipting system provided for by the 1995 Financial and Accounting Procedures Ordinance helped guard against the possibility of leakage. However, only Form 15 is now used, and it is not enough to guard against leakage. The internal audit unit in MoFTI has raised this issue (Performance Indicator 21). A system is not yet in place to record tax assessments, taxes collected, taxes receivable, and tax payer debts and thereby enable reconciliation with tax receipts. Unity State Performance Indicator 13. Taxation is administered by the Directorate of Taxation, which is part of MoFTI. It has a number of departments, including the tax collection department, but does not have a tax audit unit. The state does not have its own Taxation Act but administers the GoSS Taxation Act of 2009. The Directorate and tax collectors face capacity constraints in all areas. Staff were due to receive training from the Tanzanian Revenue Authority, starting June 22, 2011. Oil revenues were administered by the Government of National Unity until independence, and the transparency issues concerning oil revenue administration applied just as much to Unity State as to GoSS/GRSS. The unclear division of tax responsibilities between different levels of government, which mainly affects the divisions between the GRSS and the states, is a major issue for Unity State, as for NBGS. There are no taxpayer education systems or campaigns in Unity State. Taxpayers do not have access to information on tax liabilities and administrative procedures, and no taxpayer complaints system has yet been established. Performance Indicator 14. The registration system required under the 2009 Taxation Act has yet to be developed. The rules prohibit a business from participating in a public tender unless it presents a Taxpayer Identification Number certificate, but this is merely academic since the awarding of tenders occurs entirely through single sourcing. The penalties for noncompliance are set out in the GRSS-level tax law. The issue at the level of Unity State is academic, since a registration system is not yet in place. Unity State also has not yet 64 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 designed a tax audit system, something that presupposes the existence of a registration and declaration system. Performance Indicator 15. The Taxation Directorate does not record or follow up on tax receivables, including those in arrears, and so there is no basis for measuring this ratio. The Taxation Directorate does not have its own bank account for the purpose of collecting taxes, but the MoFTI as a whole does. Some revenues, including non-tax revenues, are collected by spending agencies, and some of this is spent at source. Some taxes are collected by tax collectors, and these remit cash to the MoFTI irregularly. In other cases, for the large non-tax revenue heads (land fees and electricity tariffs) taxpayers deposit cash directly into bank accounts (the land fees account and electricity account). Withdrawals of cash or payments from these accounts are controlled by the respective collecting spending agency (Physical Infrastructure in the case of the electricity account) and by MoFTI. The standard Form 15 is used by tax collectors to receipt collections, but, as noted above, this is not sufficient for a comprehensive receipting system, as evidenced by the significant leakages that have been reported at various levels of the tax collection system. There is no system in place to record tax assessments, taxes due, taxes collected, taxes receivable, or taxpayer arrears and thereby enable reconciliation with tax receipts. Jonglei State The Taxation Directorate of the state MoFEP is assisted by a revenue specialist from UNDP. Performance Indicator 13. The state's 2010 Taxation Act is similar to the GoSS 2009 Taxation Act. It is fairly comprehensive and clear, but it has not yet been published and, in any case, it is being revised to address certain procedures and penalties. Accompanying regulations have yet to be drafted. The Taxation Directorate has a plan for educating taxpayers through awareness forums and brochures. Most taxpayers do not distinguish between trade-related fees and taxes. Excise taxes are better known than trade-profit taxes and personal income taxes. The awareness plans have not been implemented due to budget constraints. The Taxation Act of 2010 states as a requirement that a tax appeal system must be established, but this has not yet happened. Performance Indicator 14. A Taxpayer Identification Number system is not yet established. Businesses are provided with a sequential business ID, though this is not in accordance with the 65 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Taxation Act. No registration certificate is issued to businesses. There are about 11 big traders and about 800 petty traders. All public employees are paying personal income taxes through withholding by their employers. The Taxation Directorate plans to widen the scope of personal income tax collection to cover private-sector employees. The linkage between trade registration and tax registration as part of a control system is not yet established. Enforcement of the tax law is in its infancy. As mentioned above, taxpayers are mainly familiar with duty and excise taxes, dating back to before the Comprehensive Peace Agreement. The Taxation Directorate believes that focusing on tax education is necessary before focusing on law enforcement. A tax audit has not yet been conducted. The Directorate of Adjustment and Internal Audit is undertaking audits on revenue collection, but it is not yet auditing taxpayers. Security is a challenge to undertaking monitoring activities on tax collection at the county level. Performance Indicator 15. The Taxation Directorate does not record tax receivables after its assessment and does not follow up on tax payments due and tax debts. Tax revenue is recorded only when cash is received. All taxes collected are deposited into the bank accounts of the state MoFEP. The 40 percent state share of taxes collected at the county level is transported weekly to Bor and deposited in the revenue account of state MoFEP. The usage of photocopied formats for revenue collection poses potential internal control risks where some of the revenue collected may not reach the accounts of the state MoFEP; the comprehensive receipting system established under the 1995 Financial and Accounting Procedures Ordinance is no longer used, for the most part. The accounts reconciliation issue is the same as it is in NBGS and Unity State. Western Equatoria State Performance Indicator 13. Taxation is under the responsibility of the Directorate of Taxation in MoFTI, comprising a number of departments including the tax collection department and a tax audit unit under the director of administration. The Directorate established an SRA in 2010. This is still in the process of becoming semiautonomous in its operation. The Directorate administers the Western Equatoria State Taxation Act of 2010, which is modelled on the GoSS Taxation Act. The tax law is not supported by regulations. Detailed regulations could have helped to implement the Act's general statements by limiting subjectivity in tax law application. 66 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Capacity constraints are pervasive. At the time of the assessment, Western Equatoria State staff were attending training in Yambio from the Tanzanian Revenue Authority. As with the other states, a major tax clarity issue is the unclear division of tax responsibilities between different levels of government. The lack of clarity partly relates to the divisions between GRSS and the states, but it also relates to divisions between Western Equatoria State and its county administrations. Counties are supposed to receive 60 percent of the state tax revenues they collect and submit the other 40 percent to Western Equatoria State. No county has ever submitted tax to the state, although five counties reported some amounts collected in 2010. Because the state is in a postwar country, people have limited understanding about taxation and enforcement of the law is difficult. The state is currently conducting tax awareness campaigns. The Directorate distributes printed copies of the State Taxation Act to the public through the Chamber of Commerce offices in Yambio and in the 10 counties. Distribution is not wide, since only a few copies are printed due to resource constraints. Yambio does not have a book shop to help in selling copies to members of the public. Some information on tax education and administrative procedures is presented to the public through twice weekly one-hour talk shows on FM 90, a state-owned radio station that is the only station in Yambio. Taxpayers can phone in to the talk show with their views and questions and provide feedback to the SRA. Information is also distributed through the Chamber of Commerce offices in Yambio and the counties. A taxpayer complaints system is provided for in the 2010 Taxation Act, but it has not yet been established. A Tax Appeals Committee is being established. A draft letter proposing the formation of this committee was seen by the assessment team, but the key criteria for members to be independent from the executive were not clear. Performance Indicator 14. Taxpayer Identification Number certificates have not yet been issued but unique identification numbers are provided. Each identified taxpayer has a separate file, containing (i) the taxpayer application for registration, (ii) a copy of the business registration certificate from the Ministry of Commerce and Supply, and (iii) a copy of the Certificate of Incorporation, relevant to large businesses only, which are provided at the GRSS level. Tax receipts and documents are prenumbered, centrally issued, and accounted for. The Directorate of Taxation is planning with the Ministry of Commerce and Supply to set up a system whereby obtaining a business registration/trade license certificate is conditional upon the business having a taxpayer registration certificate. Companies registered at the GRSS level are required to be registered with the state. So far the Directorate has registered 750 businesses, and assessed about 300 traders among them, based on interviews about their sales activities. The state has innovative tax administration, collection, banking, and safe-custody procedures, such as door-to-door registration of taxpayers, including hawkers and small food vendors, and the linking of tax payment to the issuing of trade 67 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 licenses. Apart from using records of the Ministry of Commerce and Supply, the Revenue Directorate also obtains information from counties about registered traders. The penalties for noncompliance, as set out in the State Taxation Act, are sufficient to enforce the law, but they have not yet been administered since the SRA is still in its infancy and has not yet embarked on rigorous tax collections and enforcements. The administering of penalties was expected to gather pace after independence. A tax audit unit is in place under the Directorate of Taxation, although very little audit work has been undertaken to date, since the tax registration system is still being implemented. The tax audit capacity being developed at the GRSS level will help build up tax audit capability at the state level. Performance Indicator 15. The SRA started work in March 2011. Taxpayers who are assessed are required by policy to pay taxes in quarterly installments. Tax officers maintain records to follow up on the remaining balance. Tax receipts and documents are prenumbered, centrally issued, and accounted for, but the arrears are not centrally recorded and reconciled. However, the instalments basis and the payments thereafter can form a basis for recording tax arrears. This has not happened yet, since the stock of arrears is not expected to be large, based on the infant stage of the authority. The SRA does not yet have a methodical basis for following up arrears. At present it is preoccupied with taxpayer registration. All the tax collected is referred to as "Development Tax." This tax has been in effect since 1972 under an agreement whereby tax collections were to be invested for the development of the states. The revenue collected would not be remitted to MoFTI, and could only be withdrawn with the authority of the governor and only when revenue deposits reached a high enough level to finance investment projects. Revenues collected by tax collectors and spending agencies are banked directly to the Collection Account of the Revenue Directorate. Personal income taxes are deducted at the source, and MoFTI remits the monthly personal income tax collected to the Collection Account. The Directorate receives bank slips and reconciles these with Form 15 (the revenue receipts) and also checks against the bank statements. The standard Form 15 is used by tax collectors to receipt collections but, as noted above, this is not regarded as sufficient. Leakages occur at various levels of the tax collection system, as noted under Performance Indicator 7 with the example of the payment of airport taxes by the assessment team with no receipts issued, even after reminders. In addition, some counties are retaining some of the revenues they are collecting on behalf of Western Equatoria State. There is no system in place as yet to record tax assessments, taxes due, taxes collected, taxes receivable, and tax payer arrears and thereby enable reconciliation between taxes assessed and taxes 68 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 collected. As indicated under dimension (i), the various types of information are available for the most part but are kept as stand-alone files and are not consolidated for purposes of reconciliation. Strength of Score: Score: Score Score: P Tax NBGS US JS WES Exp ion Administra- tion (i) Clarity and comprehensiveness of tax liabilities. Regulations that would narrow the scope for discretion by the tax authorities have yet to be developed in Unity State, Jonglei State, and Western Equatoria State. (ii) Taxpayer access to information on tax Transpar- C+ D+ D+ D+ liabilities and administrative procedures. Taxpayer education is considerably more PI-13 ency of (i) B (i) C (i) C (i) C advanced in NBGS and Western Equatoria (M2) toblgatons (ii) B (ii) D (ii) D (ii) C State than in Jonglei (which has prepared a tax education program) and Unity State, which and liabilities (iii) D (iii) D (iii) D (iii) D hasn't started. (iii) Existence and functioning of tax appeals mechanisms. Though provided for in law, these are not yet in place in Unity State, have only just been established in NBGS, and are in the process of being established in Western Equatoria State. (i) Controls in the taxpayer registration system. The Taxpayer Identification Number system is being implemented in NBGS, the system being linked to the business permit system. In Western Equatoria State, taxpayer file numbers, but not yet Taxpayer Identification Numbers, are being allocated on the basis of a door-to-door registration system. Registration systems have yet to be developed in Unity State and Jonglei State. Effectiveness C+ D D D+ (ii) Effectiveness of penalties for of measures PI-14 for taxpayer (i) C (i) D (i) D (i) C noncompliance with registration and declaration requirements. The tax legislation (M2) registration (ii) NA (ii)NR/NA (ii) D (ii) C provides for penalties that are high enough to and tax assessment. (iii) D (iii) D (iii) D (iii) D have a significant deterrent impact. It is too early to tell how effective they are in NBGS and Western Equatoria State, while in Jonglei State and Unity State the registration systems are not yet established, so compliance cannot be judged. (iii) Planning and monitoring of tax audit and fraud investigation programs. These are not yet established, except in Western Equatoria State, where the tax audit function in place is not yet operational. PI-15 Effectiveness D D D+ D (i) Collection ratio for gross tax arrears. Data in collection are not being collected, except in Western 69 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Strength of Score: Score: Score Score: PI Tax NBGS US :JS WES Exlntion Administra- tion (Ml) of tax (i) NR (i) NR (i) NR (i) NR Equatoria State, where data are being payments collected, but not yet collated, though a debt tracking system is being developed. (iii) D (iii) D (iii) D (iii) D (ii) Effectiveness of transfer of tax collections to the Treasury. Systems are in place, but controls over them are not functioning perfectly, resulting in probable leakage, the amount of which is difficult to estimate accurately. In NBGS, a B rating would apply for taxes collected in Aweil City. (iii) Frequency of complete accounts reconciliation. The D ratings follow from the NRs for dimension (i). Complete reconciliation requires recorded information on tax debts. Sources: 2009 GRSS-level Taxation Act. NBGS: State Revenue Authority Act; Income Tax Act; Income Tax Procedures Act; Personal and Business Registration Forms; Tax Registration Certification; Business Permit Application Form; 2011 Budget; Revenue Times; and interview with Commissioner General of SRA. Unity State:" meeting with state officials. Jonglei State: State Taxation Directorate and Chamber of Commerce. Western Equatoria State: 2010 Taxation Act; interviews with Taxation Directorate and State Revenue Authority officials; draft letter in relation to proposed Tax Appeals Commission; tax files; tax collection schedules; and bank statement for SRA account. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NR = Not rated due to lack of data; NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method; M2 indicates the simple-average method. NA = Not applicable because of circumstances explained in the text. IN-YEAR BUDGET PREDICTABILITY (PERFORMANCE INDICATOR 16) AND TREASURY MANAGEMENT (PERFORMANCE INDICATOR 17) Synopsis In-year budget predictability Efficient budget execution would be characterized through spending agencies being able to enter into expenditure commitments according to work plans consistent with the approved budget, with confidence that funds will be available when needed to pay bills when due. The work plans would form the basis of month-by-month cash flow forecasts, in turn forming the basis of cash management plans under which cash is made available to pay bills when due. The actual situation in GRSS is more or less diametrically opposite. Budget execution is highly inefficient at the GRSS level and represents the biggest single weakness in the PFM system. The budget is executed through a stringent cash rationing system, resulting in low predictability of the availability of funds to pay bills when due, high levels of arrears (Performance Indicator 4), and 70 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 priorities for payment being determined by MoFEP rather than by spending agencies. This situation cannot be blamed on revenue shortages, since revenues have generally overperformed relative to budgets and therefore cash availability should, in principle, have been sufficient to pay bills. The situation has arisen from these causes: * An absence of work/procurement planning and cash flow forecasting systems; * Lack of control over expenditure commitments, partly through insufficient tracking of expenditure requests against budget provision; * The ability of the more politically powerful spending agencies to secure releases of funds into their bank accounts early in the year and before they were needed to make payments, contrary to the principles of the Centralized Payments System; * The ability of these agencies to enter into spending commitments not covered by their approved budgets without prior approval (e.g., the food grain/dura contracts) and without regard to the spending commitments already entered into by other spending agencies consistent with their approved budgets; and * The ability of the administrative sections of spending agencies to reallocate to themselves the budgets of the operational sections of agencies (e.g., increased budget allocations for ministerial travel) when these sections had already entered into expenditure commitments according to their approved budgets. A well-functioning IFMIS would have helped guard against the above, but the controls in the system have not been used to execute the budget. IFMIS has not been used to block any proposed expenditure commitments and payments requests that were inconsistent with approved budgets and projected cash availability. Instead, it has been used after-the-fact to record payments requests and pending payables. These deficiencies are also present at the state government level, but in-year budget execution predictability is somewhat better there, since the bulk of funding comes from transfers from the central government, whose monthly predictability has been good due to the high priority that the cash rationing system has accorded to them. In addition, the bulk of state government budgets is for wages and salaries, which also receive top priority for timely payment each month; GRSS and donor agencies tend to directly fund capital expenditures and non-wage recurrent service delivery expenses in service delivery areas under state government mandate, particularly in health and education. Treasury management 71 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 MoFEP has control over its own bank accounts and knows its daily balances. However, spending agencies also have their own bank accounts with substantive balances, notwithstanding the provisions of the Centralized Payments System. These balances are neither accessible nor known by MoFEP. Introducing a Treasury Single Account--which MoFEP wishes to do in the interests of efficient cash management to support efficient budget execution--requires that these balances should be both accessible to and known by MoFEP. The situation is similar at the state government level. At the GoSS/GRSS level Performance Indicator 16: Predictability in the availability of funds for commitment of expenditure Executing the budget effectively in accordance with work plans requires that spending ministries and agencies receive reliable information on the availability of funds within which they can commit expenditure. (i) Extent to which cash-flows are forecast and monitored According to the Terms of Reference of the Cash Management Committee, established in 2008, the Director of Planning in MoFEP is required to prepare cash-flow forecasts on a monthly and quarterly basis and to submit them to the committee. In practice, however, this has not happened.29 Cash-flow forecasting was supposed to start in May 2011, establishing the basis for quarterly budget allocations and monthly cash limits. The full participation of spending agencies would be required in terms of projections of monthly revenues and expenditures, the latter requiring that monthly procurement plans be prepared; but not all spending agencies have been preparing these (e.g., while the Ministry of Agriculture and Forestry has done this, the Ministry of Education did not prepare one until early 2011). (ii) Reliability and horizon of periodic in-year information to budget institutions on ceilings for expenditure commitments The only binding expenditure ceiling for spending agencies is their approved budget. Salaries and transfers to state governments comprise about 60 percent of the approved budget for GRSS and have the first call on cash availability. For the other 40 percent, spending agencies have in principle been able to enter into expenditure commitments for any amount up to the approved budget limit at any time of the year, regardless of the availability of cash for paying bills arising from the 29 The Ministry of Agriculture and Forestry indicated the importance of taking seasonality factors into account; funding requirements tended to be high in the first few months of the new fiscal year, prior to the start of the rainy season, but these requirements tended not to be taken into account when cash was being allocated. 72 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 commitments. The only control over expenditure commitments up to specified thresholds (see next paragraph) is exercised by the finance departments at the spending agency level, and that is based on whether sufficient balances are available in remaining uncommitted budgetary appropriations, as opposed to cash balances.30 In the case of spending agencies entering into contractual agreements exceeding the thresholds (SDG 20,000 for consultancy services, SDG 40,000 for goods, and SDG 100,000 for works), written confirmation that remaining uncommitted balances are sufficient is first required from MoFEP.31 This does not necessarily mean that sufficient cash is available when payables should be paid. Sufficient cash availability to pay bills is more likely, however, than for expenditure commitments entered into below these thresholds, since they are more likely to meet the priority criteria of the Cash Management Committee for allocating cash to pay bills when they become due. Ongoing and planned activities The MoFEP is fully aware of the deficiencies of the current budget execution system and wants to establish an efficient system according to internationally accepted best practices. This awareness and intention was already incorporated into the annual Appropriations Acts. One of the responsibilities of the Cash Management Committee, as outlined in these Acts, was to establish monthly cash spending limits according to projected revenue flows for the month. Once a spending agency's monthly limit had been reached, no more payments claims would be approved for that month. Petty cash transfers to spending agencies would form part of the monthly limit, as would a 10 percent contingency factor. The Accounts Department in MoFEP would circulate the updated monthly balances remaining to the spending agencies. At the time of the assessment, the Cash Management Committee was planning to put this system into place. Monthly cash spending limits would start in May 2011. The limits would be established on the basis of quarterly allocations, based on the cash flow forecasting exercise referred to under dimension (i). Quarterly allocations would be based on the approved budget, disaggregated by activity, directorate, and chapter; it would no longer be possible for a spending agency to commit and spend its entire budget early in the year. The allocations would be imported into the IFMIS, payments claims recorded against these allocations, and claims rejected if they resulted in the ceilings being breached. However, as of early September 2011, when the PEFA workshop was held, the new systems had yet to be established. (iii) Frequency and transparency of adjustments to budgetary allocations, which are decided above the level of management in spending agencies 30 As indicated in the 2009 and 2010 Appropriations Acts. 31 2009 and 2010 Appropriations Acts. 73 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Frequent and nontransparent adjustments to budgetary allocations harm the in-year predictability of the budget and may hinder control of budget execution, increasing the risk of payments arrears. Articles 87-88 of the Interim Constitution of Southern Sudan provide for in-year adjustments to the budget. Annual Appropriation Acts give legal form to the articles and provide a degree of transparency in making adjustments to the approved annual budgets.32 The following types of adjustments can be made. * Transfers from one line item to another line item within a chapter. According to the Appropriation Acts of 2010 and 2011, spending agencies may transfer funds between budget lines within a chapter without the approval of MoFEP. However, the 2009 Appropriation Act stated that the Minister of MoFEP had to approve transfer requests that do not exceed 20 percent of the category being reduced and that the Council of Ministers had to approve transfer requests exceeding 20 percent of the category being reduced. This provision did not apply to later Appropriations Acts, implying diminished transparency of adjustments.33 * (i) Transfers from one chapter to another, (ii) transfers from one spending agency to another, and (iii) an increase in the total spending ceiling, for any of which Supplementary Appropriations Acts are required.34 Legislative approval has to be given prior to the supplementary expenditure actually taking place, except in the following circumstances: national emergencies, emoluments of the President and Judiciary, GRSS contractual financial obligations, and court order awards. Supplementary Appropriations Acts were presented to SSLA for 2008 and 2010. The 2008 Supplementary Appropriations Act shows total supplementary expenditure of SDG 2.1 billion, consisting of several adjustments spread over 31 spending agencies, but with three agencies (SPLA Affairs, Transport and Roads, and MoFEP) accounting for 70 percent of supplementary expenditures in terms of value. The Supplementary Appropriations Bill was not approved until October 2008 - two months before the end of the fiscal year --suggesting that much of the supplementary expenditure had already been incurred and that approval mainly represented rubber stamping.35 32 Appropriation Acts 2009, 2010, and 2011. 33 Interestingly, this requirement is approximately the same as the requirement stipulated in the 1962 (i.e. colonial era) Treasury Instructions for neighboring Uganda, the stated rationale being that significant reallocations might adversely affect the quality of services that the budget was supposed to provide for. This provision also exists for all francophone countries in Africa, based on the organic French PFM Law of 1959. 3 The last-mentioned requirement is also stated in the SSLA's Code of Conduct (spending of surplus revenue relative to budget estimates and out of the legal reserve should not be spent except through prior approval of a Supplementary Appropriations Bill). 35 The Budget Speech for the 2008 budget explicitly refers to insufficient tracking of expenditure requests against budget provision leading to overspending by the ministries being approved ex post (i.e., rubber-stamped) through a Supplementary Appropriations Act. This was the case in the 2007 Supplementary Appropriations Act. Budget Department officials indicated to the assessment team that at least a proportion of the 2008 and 2010 Acts represented rubber-stamping. 74 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 No Supplementary Appropriations Bill was prepared for 2009, although actual expenditure was significantly larger than the approved budget (as in 2008 and 2010) and several spending agencies received increases in their budget, financed in part through decreases in the budget of other spending agencies. As in 2008 and 2010, SPLA Affairs and MoFEP took up the lion's share of the increase in expenditure (in the case of MoFEP, the increase was partly due to payments related to the food grain/dura contracts). According to the Budget Department, the reason there was no Supplementary Appropriations Act was that actual expenditure was running behind the approved budget nearly all year, and there was no time to process a Supplementary Appropriations Bill very close to the end of the year to cover proposed increases in expenditure. A portion of the increase was allocated to contractual financial obligations and did not require prior approval by SSLA. For the other components of the increase, however, a Supplementary Appropriations Bill should have first been presented to the Assembly. The SSLA approved a Supplementary Appropriations Bill on September 13, 2010, providing SDG 1.1 billion of additional spending (a 26 percent increase over the approved budget for 2010). The increases were spread over 38 out of the 51 spending agencies, the largest being for SPLA Affairs, the President's Office, MoFEP, Police, and SSLA, comprising 80 percent of the total increase. 36 Some of the spending had not yet occurred, indicating at least a degree of advance approval. Performance Indicator 17: Recording and management of cash balances, debt and guarantees (i) Quality of debt recording and management GoSS/GRSS has not incurred any debt to date (although in 2009 it attempted to but was unable to due to the refusal of the Bank of Sudan to guarantee the loan). (ii) Extent of consolidation of the government's cash balances MoFEP manages and controls 17 bank accounts. Eleven of them are foreign currency accounts held principally by CitiBank and Stanbic; one of them is for managing oil revenues. The six domestic currency accounts are held in the Central Bank of South Sudan and are for managing non-oil revenues, the pension fund, and the general account from which funds are withdrawn to cover expenditures. MOFEP can switch funds between the accounts at any time, and it knows the balances on the accounts on a daily basis. Spending agencies have their own bank accounts in the Central Bank of South Sudan, into which MoFEP deposits monthly petty cash advances and funds to pay wages, allowances (including travel allowances), and incentives. According to the 2009 "Payments Procedures," MoFEP is supposed to 3 The Joint Donor Team, interviewed by the assessment team, considered that excess revenues in 2010 should have instead been added to reserves rather than spending them in 2010 without proper Legislative Assembly scrutiny. Proposals to spend the excess revenues should have been considered in relation to the 2011 budget preparation exercise. 75 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 pay suppliers of goods and services directly for bills over SDG 4,000, but this is not always the case, MoFEP instead transferring funds to spending agencies, which then pay the suppliers.37 Non- tax revenue earned by spending agencies is also deposited into their bank accounts held in the Central Bank of South Sudan, though, as noted under Performance Indicator 7, it is suspected that some non-tax revenue is deposited into accounts held in commercial banks, possibly without the knowledge of MoFEP. Donor agencies tend to hold accounts in commercial banks, opened with the approval of the spending agency that the donor agency is working with. MoFEP knows the number of bank accounts held by spending agencies in the Central Bank of South Sudan but does not have information on the balances held in these accounts. It does not know the number of accounts held in commercial banks by spending agencies or by donor agencies under the auspices of line ministries. As a result, MoFEP is unable to calculate and consolidate all GRSS cash balances. According to MoFEP, the lack of clear financial management regulations deters its effort to compel ministries to report on their outstanding bank balances. The ministry believes that any new public financial management law and accompanying regulations should provide for such enforcement. A new PFM law has been drafted (the first draft was prepared in 2007). Among its stipulations are that all government revenues should be paid into the Consolidated Fund, managed by MoFEP and that all government expenditures should be financed from the Consolidated Fund, implying that spending agencies will not be able to hold their own bank accounts (paragraph 24 of the draft law); that is, a Treasury Single Account would be in place. The draft law has yet to be enacted. (Update: The draft law was enacted in late 2011, but it may have been revised somewhat from the version shown to the PEFA assessment team). (iii) Systems for contracting loans and issuance of guarantees According to the Interim Constitution of Southern Sudan, GoSS/GRSS and the state governments may borrow money with the approval of their respective legislatures. It is the function of the Council of Ministers to negotiate and conclude agreements on loans from abroad. The SSLA may exempt categories of loans from the requirement for its prior approval. Conditions stated for foreign borrowing are: (i) creditworthiness; and (ii) consistency with national macroeconomic policies and the objective of maintaining external financial viability. Neither the GoSS/GRSS nor the Central Bank of South Sudan are required to guarantee borrowing by any state government in South Sudan. No borrowing has taken place so far, and there are no specific procedures for contracting loans and issuing guarantees. 37 Anecdotal information provided to the team indicates that it is not uncommon for spending agencies to have bank account balances of SDG 100,000 or so at any one time. For example, the cash flow statement in the Anti-Corruption Commission Report for 2009 indicates balances exceeding this. 76 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Indicator Score (MI) 2011 Assessment PEFA PI-16 D+ (i) D (i) Extent to which cash flows are forecast and monitored: Though the Terms of reference of the Cash Management Committee requires the Planning & Budgeting Directorate of MoFEP to prepare monthly and quarterly cash flow forecasts, in practice this has not been done. (ii) D (ii) Reliability and horizon of periodic in-year information to spending agencies on ceilings for expenditure commitments: Expenditure commitment decisions are only linked to the approved budget. In principle, spending agencies can enter into commitments up to the limits of their budgets all at one time at the beginning of the year, regardless of the actual resources available for spending. (iii) C (iii) Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of spending agencies: D ratings (no transparency) would apply to 2008 and 2009 and a C rating (some transparency) for 2010. The rating applies to the last completed financial year, so a C rating is provided. PI-17 (M2) C (i) NA (i) Quality of debt data and recording: Not rated, as GRSS has no debt (ii) C (ii) Extent of consolidation of the government's cash balances: The available cash balance in the MoFEP-controlled bank accounts is known by MoFEP on a daily basis; the Cash Management Committee uses this information to prioritize payment requests submitted by spending agencies. However, balances of bank accounts under the control of spending agencies (and also donor agency accounts held under the auspices of spending agencies) are not known by MoFEP, which is unable to know what the overall consolidated cash position of GRSS is. (iii) C (iii) Systems for contracting loans and issuance of guarantees: GRSS may borrow with the approval of SSLA, but has not borrowed so far. The criteria for borrowing are laid out in the Interim Constitution of Southern Sudan (Article 193), but are stated in general terms. A PFM Act, which could stipulate explicit criteria, is not yet in place. Sources: CMC ToR and manual; interviews with MoFEP Planning & Budgeting Directorate and Accounts Directorate; MoFEP, "Cash Payment Procedures" (2009), "Procedures for Quarterly Allocations and Monthly Expenditure Limits" (February 2011), and "2011 Budget Execution Reforms-Recommendations" (February 2011); Interim Constitution of Southern Sudan; Annual and Supplementary Appropriations Acts; interview with SSLA; Draft PFM Act; list of MoFEP bank accounts; and GoSS/GRSS Annual Financial Statements for 2007 and 2008, Section 32 (cash balances). Notes: NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method; M2 indicates the simple-average method. At the state level 77 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Performance Indicator 16: Predictability in the availability of funds for commitment of expenditure NBGS A cash-flow forecasting system is not yet in place, but this is in the context of a situation where more than 90 percent of financial resources are derived from transfers from GRSS, the monthly flows of which are predictable, and where 75 percent is for salaries and transfers to counties. For the remaining 25 percent of expenditure covering operating costs and capital expenditure, as at the GRSS level, spending agencies can in principle commit up to their entire annual budget for these items at the beginning of the year, regardless of the availability of cash for paying bills arising from the commitments. In practice, however, this may not be such a big issue, as the monthly supply of petty cash advances to spending agencies tends to be reliable, particularly as the accountability provision was not enforced until 2011. IFMIS, which can be used as an instrument of expenditure control, was not introduced until late 2010. The issue of frequency and transparency of in-year adjustments to the budget does not arise, since the legislature was not fully functioning prior to the 2011 budget. Unity State The same issues arise, but predictability is a larger issue than in the other states, since 30 percent of Unity State's revenues come from oil, and these revenue flow are less predictable than the flows of transfers from GRSS. A system for in-year adjustments to the budget has not been in place - the first ever Appropriations Act was not until 2011. The frequency of adjustments to the budget has not been tracked, though the introduction of IFMIS in late 2010 will help in this regard. Jonglei State The same issues apply. Data were not available to the team regarding adjustments to the approved budget. Western Equatoria State The same issues apply. In-year adjustments to the budget, including supplementary budgets, are not common, since so much expenditure is financed by conditional grants. The frequency of in-year adjustments was not tracked prior to the introduction of IFMIS, and it is still not being tracked, even after the introduction of IFMIS in late 2010. Performance Indicator 17: Recording and management of cash balances, debt and guarantees 78 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Only dimension (ii), concerning management of cash balances, is relevant, since no state governments have borrowed. The issues concerning the management of cash balances are much the same as at the central government level. MoFTIs/state MoFEP know the balances on their own bank accounts on a daily basis and can access them, but they do not know the balances on the accounts held by spending agencies and/or their physical cash balances and cannot access them. They have the right to request the amount of balances held but do not tend to exercise this right (as noted by an official from Unity State, who stated, "the sovereignty of individuals and ministries is respected"). These balances may contain revenues earned by the spending agencies, which should be remitted to MoFTIs/state MoFEPs but are not. Western Equatoria State did not have a bank until 2010. As noted earlier, Western Equatoria State is different from the other states assessed. The MoFTI does not have automatic access to its revenue collection bank account, since the balances are reserved for development projects, and proposed spending has to be approved by the governor. PI Predict- Score: Score: Score: Score: Explanation ability & NBGS US iS WES control in budget execution (i) Extent to which cash flows are forecast: Cash-flow planning is not yet conducted. It is of relevance, however, to only a small portion of budgets, since the bulk of financial resources are in the form of predictable transfers from GRSS, while the bulk of expenditures are in salaries and transfers to counties, the amounts and timing of which are generally predictable. The petty cash advance system also provides an element of predictability. (ii) Reliability and horizon of periodic in-year Predicta- information to spending agencies on ceilings: bility in the D D D D Expenditure commitment decisions are only PI-16 availability (i) D (i) D (i) D (i) D linked to the approved budget. In principle, of funds for spending agencies can enter into commitments (M1) commitment (ii) D (ii) D (ii) D (ii) D up to the limits of their budgets all at one time at of the beginning of the year, regardless of the expenditure actual resources available for spending. However, discretionary expenditure commitment decisions only apply to about one- quarter of the budget with regard to operational and capital expenditure, and a portion of these are covered by predictable petty cash advances. (iii) Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of spending agencies: Adjustments to budgets are generally not being tracked, even since the advent of IFMIS late in 2010. Due to the lack of functioning legislatures in some states (e.g. NBGS), supplementary 79 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 P1 Predict- Score: Score: Score: Score: Explanation ability & NBGS US JS WES control in budget execution Appropriations Acts are a recent development. With such a large proportion of budgets being on non-discretionary expenditures, or financed in part through petty cash advances, the issue of in-year budget adjustments is not as significant as at the GRSS level. (i) Quality of debt data recording and reporting: No borrowing has taken place. (ii) Extent of consolidation of the government's cash balances: MoFTIs/state MoFEPs can know Recording the balances of their own bank accounts on a and C C D B daily basis. The Accounts Directorate in Jonglei manage- State does not prepare consolidations of these PI-17 ment of (i) NA (i) NA (i) NA (i) NA balances. The MoFTIs/state MoFEPs do not (M2) cash (ii) C (ii) C (ii) D (ii) B have knowledge of, or access to, the balances balances, on the bank accounts held by spending debt and (iii) NA (iii) NA (iii) NA (iii) NA agencies. guarantees (iii) Systems for contracting loans and issuance of guarantees: None of the states has borrowed, although they are allowed to do so, and none has guaranteed the borrowing of counties, which they are not required to do. Sources: Interim Constitution of Southern Sudan and state equivalents; Budget Acts; and Appropriations Acts. Interviews with MoFTI/state MoFEP staff, Revenue Directorate in Western Equatoria State, Ministry of Education in NBGS and Jonglei, and Ministry of Commerce and Supplies in Jonglei). Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State NR = Not rated due to lack of data; NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method; M2 indicates the simple-average method. INTERNAL CONTROLS (PERFORMANCE INDICATORS 18-21) Synopsis Robust controls are necessary for ensuring that PFM systems are working properly.38 With the main exception of controls over budget preparation and payroll management, substantial strengthening is needed in controls over non-wage budget execution, including procurement and revenue collection, and over accounting, reporting and real asset management systems, in order to reduce the risks of inefficiency, waste, and fraud in the use of public resources. The internal audit function operates at both central and state government levels, but its focus is still mainly on pre-audit (checking that 38They are not a sufficient condition; the PFM systems also have to be properly designed to achieve their purpose. 80 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 payments requests have been prepared properly) rather than on whether the controls in the PFM systems are working properly (i.e., a systems approach), though the function is gradually moving in the latter direction. At the state level, the internal audit function is significantly more developed in Western Equatoria State than in the other states reviewed. Payroll control (Performance Indicator 18) Payroll control has improved significantly in recent years due to the introduction of the South Sudan Electronic Payroll System, which computerized the monthly paysheet system already in effect and streamlined the wage and salary payments process, and to a computerized Human Resource Management Information System. Introducing the electronic payments system to spending agencies at the central government level (and to MoFTIs/SMoFEP at the state government level) and the Human Resource Management Information System (at central government level) also assisted in the cleaning up of personnel records through the identification and removal of thousands of ghost workers. In order for a civil servant to be paid, he/she had to physically show up to sign for wage/salary payment, at which point checks were made to confirm that he/she was registered in the Human Resource Management Information System, which in turn reflected cross-checks against personnel records. In this way, consistency was achieved between the personnel records, the Human Resource Management Information System and the Southern Sudan Electronic Payments System located in spending agencies. However, consistency between personnel records and these new human resource and the electronic payments systems does not ensure that the personnel records themselves are correct. The geographical dispersion of thousands of civil servants across the country (e.g., in schools) combined with the disruptions caused by the years of war and damage to infrastructure have resulted in personnel records often being out of date. People may be getting paid who are not actually working any longer--some may have died. Even at the ministry headquarters level in Juba, keeping personnel records appears to be a challenge, particularly for temporary non-classified labor. For example, at MoFEP, some temporary workers (cleaners) continued to be paid well after the end of their contracts, since the personnel records were not amended. The only way to check thoroughly is through head counts, such as were conducted for the education sector, but these are time-consuming and expensive, particularly during the rainy season. An ongoing project that will help to reduce the incidence of incorrect personnel records is the introduction of the Human Resource Management Information System at the state level (under a USAID-funded project). In harmonization, a second phase of the Southern Sudan Electronic Payments System is being planned (to be financed by the Capacity Building Trust Fund). MoLPS believes that the number of incorrect personnel records is now relatively small and that the main issue is now whether staff who are supposed to be working are in fact working and not taking unauthorized leave. This means strengthening attendance records and systems for leave monitoring. This is also the broad view held by the four state governments assessed. 81 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Procurement system (Performance Indicator 19) As discussed at greater length in Volume 3, the procurement system is not working as it should at the central government level. The 2006 Interim Public Procurement and Disposal Regulations of Southern Sudan stipulate that open competition is the default procurement method, but single- source procurement has in fact been the main method, despite periodic exhortations to spending agencies to use competitive methods, the last such exhortation coming in April 2011. The assessment team learned about a number of incidents where the single-source procurement process was clearly having undesirable consequences resulting in wastage of public money. For example, contractors have been paid for infrastructure projects, such as road construction projects, for which no work had actually been done. The main responsibility for procurement is at the spending agency level, the Procurement Directorate mainly playing an oversight and policy/regulatory role. The directorate claims that a Procurement Act needs to be in place in order for it to have more teeth. A Procurement Act has been drafted, but, like the draft PFM Act, there have been long delays in enacting it. Transparent procurement appears to be less of an issue at the state level than at the central government level, since the procurement of major items tends to be conducted by central government spending agencies. Expenditure control systems As already indicated (Performance Indicator 4 and Performance Indicator 16), these control systems are not working well, resulting in undisciplined budget execution and the accumulation of large stocks of arrears. IFMIS is in place and, in principle, it should be able to facilitate disciplined budget execution, but its expenditure control systems are being overridden. This is less of an issue at the state government level, since the bulk of expenditure is on wages and salaries and transfers to county administrations. Domestic revenue collection As already indicated (Performance Indicators 7, 15, and 17), not all domestic revenue that is being collected is being deposited at MoFEP, suggesting leakage. One problem is an inadequate receipting system; the very comprehensive system established under the 1995 Financial and Accounting Procedures Ordinance is not being used at the GRSS level, for the most part. It has fallen into disuse at the state government level also, but apparently to a lesser extent, particularly in NBGS and Unity state. Another issue is the lack of control by MoFEP and its state government equivalents over the bank accounts of spending agencies; own-source revenues may be deposited into these accounts, but MoFEP and its state government equivalents are not provided with any information on them. Accounting 82 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Bank reconciliation is a very important part of the accounting process, but it is only being conducted partially at present. This is due, as indicated above, to MoFEP/state government equivalents not having access to spending agency bank accounts, as well as to the fact that spending agencies, if they are conducting bank reconciliations, are not informing MoFEP/state government equivalents about them. Accounting by spending agencies for the use of petty cash advanced to them monthly by MoFEP is seriously deficient. MoFEP has procedures for accounting for the use of petty cash every month ("no accountability, no replenishment") but these appear to be ignored, despite periodic exhortations from MoFEP. The issue is the same at the state government level. Accounting by state governments for the spending of conditional transfers from GRSS-level spending agencies has also been lacking, although the new accounting system put in place by the State Transfers Monitoring Committee in early 2011 is tackling this issue. Real asset management The Civil Service Regulations contain procedures governing the use of government physical assets, such as vehicles (e.g., log books should be in place), but these appear generally to be ignored. Misuse and unauthorized use of government vehicles appears to be a serious issue at both central and state government, leading to the loss of substantial sums of public money that could be better used for financing public service delivery. GRSS Performance Indicator 18: Effectiveness ofpayroll controls Background Legislation governing the Civil Service was prepared following the Comprehensive Peace Agreement, but it has yet to be enacted due to some unresolved deficiencies. A Civil Service Provisional Order, signed by the President in 2010, instead provides the regulatory underpinning of the Civil Service. Under the order, a Policy Framework for the Public Service of Southern Sudan, a Public Service Manual, and Public Service Regulations have been in place since 2007. 39Employees are categorized as either classified or unclassified. Classified staff (from Grade 1 to Grade 14) are categorized as Super Grades, Administrative (professional), Technical (sub-professional), and Clerical. Employees from Grade 15 to Grade 17 are unclassified staff, such as technicians, messengers, and cleaners. All Super Grades employees are appointed by the President and the Council of Ministers. Administrative and classified staff are appointed by the undersecretary/director general of the concerned ministry or commission, subject to endorsement by MoLPS. The SPLA is included in the public service structure. 39 Interestingly, in relation to the discussion on Southern Sudan Anti-Corruption Commission in Section 2 - one of the policy components is the requirement for all persons holding public office to declare incomes, assets, and liabilities. 83 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Offices of the GRSS are based in Juba, but services are delivered nationwide, particularly in the Education, Health, Transport and Roads, and Agriculture and Forestry Ministries. These ministries therefore have offices around the country. All classified staff appointments must be processed through the MoLPS before issuing a formal letter of appointment. New positions approved by MoLPS during the year need to be approved by the SSLA. The MoFEP is requested to check that appointments are consistent with the approved budget, although in practice it has not checked. Unclassified staff in each spending agency can be engaged by the director of Administration and Finance of that agency, in consultation with the undersecretary of the ministry or director general of a commission. Personnel record control for classified employees is centralized under MoLPS. Personnel records for the unclassified staff are maintained by the Administration and Finance Directorates of the spending agencies. Two computerized systems - the Human Resource Information System (HRIS) and the Southern Sudan Electronic Payments System-- have been operational since 2010. They were designed with support from a USAID-financed project (for HRIS) and from the Capacity Building Trust Fund (for the payroll system). Work is ongoing to integrate the two systems. The electronic payments system uses built-in macros to automate calculation of pay, allowances, and deductions, and to sort records into paysheets (the basic payroll management instrument) by individual workstations. Paysheets are printed on self-carbonated paper in quadruplicate with a view to creating maximum visibility. The Southern Sudan Electronic Payments System has built on Excel-based payroll systems that largely replaced manual systems in 2008-2009, at both the GRSS and state government level. At the GRSS level, this electronic payments system is a database (MS-Access) system in stand-alone form in spending agencies; data is transferred to the MoLPS by wireless internet or by USB sticks (since internet strength is not yet strong enough for network connectivity). The Southern Sudan Electronic Payments System has strengthened accuracy and control of the payroll at both central and state government levels, and officials claim that the ghost worker issue has sharply diminished in importance.40 Progress on this has been uneven among the spending agencies, with slower progress being made in the Police Service (under the Ministry of Interior) and the Ministry of SPLA Affairs. Incentives and overtime payments are not passing through the Southern Sudan Electronic Payments System, so they are not subject to scrutiny by the MoLPS. The Policy Framework referred to above indicated that the incentives system would be streamlined. However, this has not yet happened, and incentive and overtime payments still comprise a significant proportion of total payroll costs. 40 The strengthening of payroll management was highlighted in the 2010 Budget Speech. The information on the Southern Sudan Electronic Payments System is partly contained in the inception report of the SSEDP project (June 2010) and "The role of improving teachers' payroll systems for education service delivery and state legitimacy in selected conflict-affected countries in Africa" prepared by Charles Goldsmith (team leader of the SSEDP project) as a background paper for the Education for All Global Monitoring Report 2011 under the auspices of UNESCO. An example of increased control was the improved ability of the Ministry of Education to detect the diversion of conditional grants to state governments for teacher salary payments to other purposes. 84 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (i) Degree of integration and reconciliation between personnel records and payroll data Payrolls are prepared by the Administration and Finance Directorates of the respective spending agencies. The GRSS payroll system is largely based on the UK system, which came into effect in 1923. The basic control is the payroll sheet (Form 7), the monthly preparation of which requires a number of sign-offs, resulting in a comprehensive audit trail. The accountant who prepares the payroll sheet signs it, and the sheet is checked by the establishment officer and then approved, first by the Administration and Finance director and then by the undersecretary. Each spending agency then submits its approved payroll sheet to the Undersecretary of MoLPS, who distributes the payroll sheet for each spending agency to three Establishment Officers, who then compare the payroll sheets against the Nominal Roll, which is contained in HRIS. Only payroll sheets that have passed this verification process will be endorsed by MoLPS and forwarded to MoFEP. As a further control, staff have to physically show up in order to sign for their monthly salary payment. Data held in HRIS may be consistent with individual personnel records kept in the headquarters of spending agencies, but these records may be incorrect. The actual number of Ministry of Education employees may differ from the records kept at headquarters due to the war-related disruptions and associated loss of records, the geographical dispersion of employees in the major service delivery ministries, and the absence of unique Personal Identification Numbers for staff and ensuing heavy reliance on matching names, which is difficult because different transcriptions may be used for the same name.41 In 2008, the Ministry of Education conducted a head count, which enabled at least a partial updating of personnel records, but head counts have not been conducted by other spending agencies. Head counts in a country such as South Sudan are expensive and logistically difficult to carry out due to the condition of the road network, particularly during the rainy season. In the meantime, the Ministry of Education's payroll sheets submitted to the MoLPS are generally approved and passed on to MoFEP for payment. This is because staff still have to be paid, and paysheets for the most part represent people who are indeed working. (ii) Timeliness of changes to personnel records and the payroll Changes in personnel records resulting from new recruits and salary changes are updated within a month both at the level of spending agency (for unclassified staff) and at the level of MoLPS (for classified staff); the cut-off date for incorporating changes into the payroll is the 20th of each month, though this is not always enforced. Changes due to resignations or terminations might not be relayed by spending agencies to MoLPS for some months, particularly for unclassified staff. For example, MoFEP had a large number of cleaners (unclassified staff) on its payroll even though it had outsourced cleaning services. MoLPS does not have any other way of finding out about resignations or terminations. This is also an issue in relation to conditional grants to state 41 Ideally, in the interests of efficiency, a census exercise would have been undertaken and unique Personal Identification Numbers assigned prior to the investment in the Human Resource Information System. 85 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 governments that include payments for unclassified workers. As of 2011, state governments must fund unclassified employees from their own revenues. (iii) Internal controls of changes to personnel records and the payroll Payroll sheets are prepared through Southern Sudan Electronic Payments System by an accountant in each spending agency, who has no role in the process of effecting payments. The payroll system is fully encrypted and password protected, and any changes to be made by the accountant require permission from the respective establishment officer at MoLPS to change it. The HRIS is set up in three stand-alone computers managed by three establishment officers at MoLPS. Each of the establishment officers has exclusive access to the database and each is in charge of about 17 spending agencies. These officers are rotated from time to time in order to maintain impartiality. Both systems (the electronic payments system and HRIS) generate audit trails for changes. Even good internal controls of changes to personnel records and payroll cannot guard against failure to change personnel records to reflect employee layoffs and unauthorized absences, particularly for unclassified staff. (iv) Existence ofpayroll audits to identify control weaknesses and/or ghost workers Payroll audits are conducted as one component of the internal audit system (Performance Indicator 21) in some of the ministries where internal auditors are assigned. For example, in 2010 internal auditors in the Ministry of Transport and Roads checked payroll sheets against personnel records and the nominal roll, and they discovered some ghosts in the process; the ghosts were then deleted from the paysheet. The audit process includes checking for unusual patterns. For example, spending agencies typically request no more than four monthly changes to payrolls. Changes significantly larger or smaller than that may raise red flags, warranting an audit. As noted above, the Ministry of Education conducted a comprehensive cross-country head count in 2008 (schools fall under the responsibility of state governments, but teacher salaries are largely financed through conditional grants from the Ministry of Education). The Audit Chamber audited the payroll in the Ministry of SPLA Affairs (2007/08), and other spending agencies as part of its financial audit (Performance Indicator 26). These audits identified payroll control weaknesses in the form of insufficient attendance monitoring, insufficiently frequent head counts, and insufficient routine checking of payroll sheets against personnel records, as noted above under dimension (ii) in the case of cleaners at MoFEP. 86 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Future audit work may focus more on staff attendance, since MoLPS suspects that the ghost workers issue largely stems from staff showing up to work late and taking days off without authorization. Ongoing developments and plans The USAID-funded project that is setting up HRIS is also involved in bringing personnel records of spending agencies up to date, focusing on the central government offices located in the states and on state government spending agencies. It is helping MoLPS put in place a personnel records database system that will reconstruct personnel records held in the spending agencies and integrate them with the personnel records on file under HRIS (held in MoLPS) and thereby enable complete reconciliation between the personnel records and payroll records. The same project will also focus on downstream aspects, such as monitoring of attendance and leave taking. Performance Indicator 19: Competition, value for money and controls in procurement A well functioning procurement system helps to ensure that money is used efficiently and effectively. The PEFA assessment was conducted mainly in April, prior to the SSPAR mission that conducted its field work in June. The findings of the mission, summarized in Section 3.5, are substantially consistent with the PEFA assessment. Procurement activities at the GRSS level are governed by the Interim Public Procurement and 42 Disposal Regulations, which became effective on June 29, 2006. The Procurement Policy Unit in MoFEP's Directorate of Procurement is in charge of overseeing procurement activities in all public bodies. As yet, it has not produced a procurement manual; according to the Acting Director General of the Procurement Policy Unit, a consulting company prepared a manual but did not hand it over to the Procurement Policy Unit at the end of its contract in December 2009. In order to provide a stronger legal basis for regulating procurement activities, particularly in the area of enforcement, a procurement bill was drafted during 2010 (with support from a USAID funded consulting firm). As of September 1, 2011, the bill had yet to be submitted to the Ministry of Legal Affairs and Constitutional Development. Procurement activities are mainly the responsibility of the finance departments in spending agencies. There is no formally established position of procurement officer or any formal institutional structure for procurement in the form of procurement committees. 42 Interim Public Procurement and Disposal Regulations, p. 8 ("Scope and Application"). 87 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The Ministry of Health indicated the following constraints to bringing procurement practices closer to international standards: * Many domestically based companies do not have articles of incorporation, bank account statements, audited accounts, proof of previous experience, or proof of insurance; this makes it difficult to compete under open competition tendering methods. * Prices suffer from large geographical disparities within South Sudan, partly reflecting poor road conditions and associated high transportation costs; this complicates bid preparation and evaluation. * Capacity constraints are significant. There are not enough engineering/technical staff who can provide the detail necessary in bidding documents, and not enough professional procurement agents who can prepare good terms of reference and evaluate bids. This is reflected in the bidding documents received, which do not offer enough detail on specifications. Insufficient English speaking skills also tend to put local companies at a disadvantage relative to foreign companies. (English has been the official language for a number of years, but Arabic, the official language of Sudan, is still used by people not yet versed in English. * People tend not to read newspapers, which is where tenders are advertised. (i) Transparency, comprehensiveness and competition in the legal and regulatory framework According to the regulations, open competition is the preferred method of procurement. All single sourcing procurements, procurement of goods and works using prequalification methods, and consultancy services to be procured using quality-based selection methods require the prior approval of the Procurement Policy Unit, whatever the value of the procurement, before awarding the contract to a successful bidder. Procurement of goods through request-for- quotation methods with a value of SDG 20,000 or lower and procurement of works with a value of SDG 50,000 or lower are approved by the undersecretary of the respective spending agency. Procurements of goods and works above these thresholds have to be approved by the Procurement Policy Unit. The legal and regulatory framework for procurement meets three of the six requirements, as outlined in Table 3.8. (ii) Use of competitive procurement methods The regulation provides clear guidance as to when less competitive bidding is to be used above thresholds. Based on the interviews conducted by the team with various spending agencies, the Procurement Policy Unit, and the Chamber of Commerce, little or no justification appears to be provided for use of less competitive bidding methods for much of procurement. Single-source procurement appears to be the norm, particularly in the case of the Ministry of Transport and Roads 88 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 and the Ministry of Agriculture and Forestry.43 Lack of proper procurement planning (spending agencies are supposed to prepare procurement plans at the beginning of the new fiscal year, but many do not, including the Ministry of Education until 2011), lack of competing suppliers, and volatile market prices were identified by government staff as the main factors for opting for less competitive bidding.44 Table 3.8 Legal and Regulatory Framework for Procurement Meet Requirements requirements? (Yes/No) (i) Be organized hierarchically, with precedence clearly established. Yes (ii) Be freely and easily accessible to the public through appropriate No means. (iii) Apply to all procurement undertaken using government funds. Yes (iv) Make open competitive procurement the default method of Yes procurement and define clearly the situations in which other methods can be used and how this is to be justified. (v) Provide for public access to all of the following procurement No information: government procurement plans, bidding opportunities, contract awards, and data on resolution of procurement complaints. (vi) Provide for an independent administrative procurement review No process for handling procurement complaints by participants, prior to contract signature. Neither internal procurement reports nor audit reports on procurement were available for review by the PEFA team. Neither the Procurement Policy Unit nor the four spending agencies visited by the assessment team keep organized records on the value of each public procurement and the procurement method used. The procurement regulations do not stipulate recording and reporting on procurement activities as a requirement.45 Until 2008, procurement activities were outsourced to a consulting firm, which prepared a report on procurement, but the Procurement Policy Unit did not disclose the report to the PEFA team for confidentiality reasons. 43 The Chamber of Commerce mentioned the lack of competitive bidding. One particular recent example was the Ministry of Energy's advertising for certain equipment when, in fact, a supplier for that equipment (from South Africa) had already been chosen. 44 Single-source procurement is not necessarily inferior to competitive procurement methods. The urgency with which inputs are required, very relevant in post-conflict countries such as South Sudan, needs to be considered. The point is that single-source procurement needs to be transparently justified. 4' The Procurement Policy Unit has requested spending agencies to submit regular procurement reports but as yet had not received any. The Ministry of Agriculture and Forestry indicated that it prepares quarterly, semi-annual, and annual reports, but the team was unable to access these. 89 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 To address this issue, MoFEP issued a Treasury Circular in April 2011 to spending agencies to remind them to ensure that all procurement activities are conducted in accordance with the Interim Public Procurement and Disposal Regulations.46 (iii) Public access to complete, reliable and timely procurement information Bidding opportunities are available to the public through local newspapers and notice boards and occasionally on the GRSS website. According to the Chamber of Commerce, some tenders are not publicized to the public in any form. Contract awards are not publicized either by the spending agency or by the Procurement Policy Unit; only the procedures that allow bidders to participate in the bid-opening process are publicized. 4 Public procurement plans are not available to the public. (iv) Existence of an independent administrative procurement complaints system. This dimension is scored according to whether a body reviewing complaints on procurement satisfies a number of requirements-for example, is comprised of experienced professionals, is familiar with the legal framework for procurement, and includes members drawn from the private sector and civil society as well as government. Articles 56 and 57 of Interim Public Procurement and Disposal Regulations provide for a mechanism for submitting complaints. A complaint should first be submitted to the head of the procuring entity, who should issue a written decision within 30 days. If the complainant is not satisfied he/she may submit the complaint to the Procurement Policy Unit, which has to review within 30 days. The decision of the Procurement Policy Unit is final. There is no independent procurement complaints body. In practice, complaints are not submitted in writing. Suppliers may complain verbally to the procuring spending agencies and the Procurement Policy Unit. According to the Chamber of Commerce, complaints are not addressed, except insofar as the complainants show a lack of understanding of the procedures involved. As a result, it is not possible to assess whether authorities address complaints according to the regulations. Performance Indicator 20: Internal controls for non-salary expenditure Controls concerning payroll, debt, and revenue management have been discussed under Performance Indicators 14-15 and Performance Indicators 17-18. (i) Effectiveness of expenditure commitment controls 46 Letter issued by 1 Under Secretary of Finance (MoFEP) issued on April 12, 2011. This was based on a Presidential Order dated August 29, 2010. This mentioned that resorting to single-source procurement reflected a lack of planning. Good planning would enable much procurement to take place through the request-for-quotations (RFQ) modality. 47 The Ministry of Agriculture and Forestry indicated that it could show contract awards to people on request, but this is not the same thing as publicizing awards. 90 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The Appropriation Acts prohibit spending agencies from spending beyond their appropriated budgets. Since 2009, in response to the food grains purchase scandal, agencies have not been allowed to enter into expenditure commitments exceeding SDG 20,000 for consultancy services, SDG 40,000 for goods, and SDG 100,000 for works without receiving written confirmation from the MoFEP that sufficient funds are available from the uncommitted balances against their budgetary appropriations. To ensure that this is the case, it is checked by the accountant at spending agency level and by the budget accountant and internal auditor at MoFEP. Following such confirmation, the contracts must be signed by Ministry of Legal Affairs and Constitutional Development. When contracts/agreements to purchase fall below those thresholds, spending agencies still are supposed to first check their planned purchases of goods or services are consistent with their approved budgets and within the balances of uncommitted appropriations. However, in practice, they might not check, and spending agencies might enter into expenditure commitments that are not provided for in the budget. The extent to which this happens is difficult to know. Expenditure commitment control that is based on the remaining balance of uncommitted appropriations does not ensure that approved expenditure commitments are matched by cash availability when payments requests are submitted to MoFEP. As elaborated above (under Performance Indicator 16), MoFEP is planning to introduce a system where prior approval of planned expenditure commitments is based not only on the approved budget but also on projected cash availability at the time when payment is due.48 (ii) Comprehensiveness, relevance and understanding of other internal controls and processes; and (iii) Degree of compliance with rules for processing and recording transactions Payments requests and payments. Internal control systems governing payments requests and payments are in place, as documented in MoFEP's Payments Procedures and Use of Petty Cash Procedures (both 2009). These are widely circulated and well understood. With regard to the use of petty cash (for payments no larger than SDG 4,000), duties are segregated between preparation, checking (including by the internal auditor), approving of payments requests, and approving of the actual payments. Payment requests exceeding SDG 4,000 have to be submitted to MoFEP for scrutiny. Payments requests exceeding SDG 1 million require the additional signatures of the Director General of the Budget and Revenue Department and the Undersecretary for MoFEP. Payments requests exceeding SDG 2 million require the additional signature of the Minister of MoFEP. A specific control feature is the requirement of a specimen signature from each accounting officer of each spending agency. Only payments requests bearing that signature will be considered. All payments requests have to be accompanied by the correct supporting documentation: Payment Request Form (or original authorization letter), supplier invoices, copy of contract and proof of 49 Annual Report of Southern Sudan Anti-Corruption Commission (2009). 91 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 approval by Ministry of Legal Affairs and Constitutional Development (for purchases above thresholds) and proof of receipt of goods or services. Payment claims submitted to MoFEP are provided with reference numbers for follow-up of payment status. Approved payment claims are recorded into the IFMIS, as are the actual payments. The Cash Management Committee has to approve payments according to priority. Recipients of payments are required to sign, as applicable. Bank account reconciliation and clearance of advances. The spending agencies visited by the team do not reconcile their bank account statements with their records of revenues and expenditures, the exception being the Southern Sudan Anti-Corruption Commission. As indicated under Performance Indicator 22, bank accounts controlled by MoFEP have not been reconciled by MoFEP since December 2009; this also appears to be the case with bank accounts controlled by spending agencies. For advances under petty cash procedures, the procedures are clearly laid out and well understood. In theory, MoFEP only disburses the next petty cash tranche once the spending of the previous tranche has been accounted for, but in practice the disbursements are often made without accountability. Payments are recorded as expenditures, with no separate memorandum recording follow-up in terms of what the money was actually spent on and whether the spending was consistent with the approved budget. The draft annual financial statements shown to the team indicate that a significant proportion of the advances are simply recorded as "advances" and not according to the type of expenditure. Property management. An established internal control system for property, equipment, and supplies is not yet in place; no goods-receiving and -issuing documents are currently used for evidencing the receipt and usage of such items. In some of the ministries visited, there was no fixed register and asset identification number, and annual inventory checks were not taking place. Anecdotal observations presented to the team indicated that government property was not always used for legitimate reasons, use of government vehicles being a notable example. The Southern Sudan Anti- Corruption Commission is an exception: its assets are registered and provided with identification numbers.49 The 1995 Financial and Accounting Procedures Ordinance contains detailed procedures for property management. In principle, this ordinance is still in effect, but in practice, except in some areas, it is not observed. The Public Service Manual (described below) provides for controls over use of government assets (Chapter 7), but these tend not to be complied with; for example, vehicle log books are supposed to be used, but they are not. Personnel controls. As mentioned earlier, GRSS has a well-articulated and well organized Public Service Manual. The manual addresses procedures on the entitlement of employees to compensation and benefits, for example the types of leave that can be taken and the format to be used for a leave 49 Annual Report of Southern Sudan Anti-Corruption Commission (2009). 92 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 certificate. The manual also contains procedures for termination, disciplinary issues, performance appraisal, vacation leave, study leave, sick leave and death (in the case of the last-mentioned, salary payments can be made to family members for three months after death). The procedures are clear and well understood, but are not always complied with. For example, as indicated in Performance Indicator 18, attendance control is weak and there are doubts whether all employees' absences from work are supported by approved leave certificates. The extent of compliance probably varies between spending agencies. For example, the interview with the Ministry of Agriculture and Forestry indicated a high degree of compliance.so Document controls: Although the Public Service Manual provides for document controls and office administration procedures in general, an appropriate level of internal control over accounting documents (e.g., payment vouchers) is not in place. These documents are not serially sequenced and prenumbered but, instead, they are loose printouts, making it difficult to control the completeness of document recording and to avoid possible fraudulent activities through omission or submission. Cash receipt vouchers used by different ministries for the collection of revenue are not centrally managed, and procedures on the control of unused documents are weak.51 Internal control over procurement process is governed by the Interim Public Procurement and Disposal Regulations which are well understood by many. However, as indicated under Performance Indicator 19, the rules are not well complied with and the procurement methods chosen often tend to be the restricted-competition methods, particularly single-sourcing. Table 3.9 summarizes the internal control systems in place, the level of understanding regarding them, and the degree of compliance with them. Degree of compliance with rules for processing and recording transactions. As shown in Table 12, there is partial compliance with some of the internal control procedures, including payments requests, IT usage, leave, and allowances. Compliance tends to be limited in the areas of reporting, bank reconciliation, documentation control, and employee incentive payments. Audit reports would have been useful sources of information for assessing these particular dimensions, but such reports were not available to the assessment team and, in any case, the audit function is not yet fully established. The main reason for insufficient compliance with regulations is the weak institutional environment that pervades government in South Sudan. Improving this environment may take time due to capacity constraints and political economy factors. Having achieved independence may permit some breathing space for politicians to focus more attention on strengthening the institutional environment, thus enabling strengthened enforcement of regulations. Table 3.9. Summary of Internal Control Systems 50 To the extent of making radio announcements if employees do not return to work on time following their leave. 51 The 1995 Financial and Accounting Procedures Ordinance contains very detailed procedures concerning documentation control, but it is no longer widely circulated and knowledge of it seems limited. 93 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 duties for documents anmcekigcn paymentdocuments and checking and payment approving them at the spending- agency level and then at the MoFEP level for payments requests in excess of SDG 4,000. The system is a legacy of the 1995 Financial and Accounting Procedures Ordinance. 94 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * * ** * . * 0* * * Reporting and According to the Payment The Payments Some spending agencies reconciliation Procedures manual, MoFEP is Procedures manual is visited by the team claimed required to submit monthly budget very clear (Section 10). they did not receive any execution reports to spending reports from MoFEP. agencies by expenditure chapter, MoFEP Accounts budget line item, and activity. Department said it would follow up. The Petty Cash Procedures The manualand Only a few spending manual and Appropriations Act Appropriations Acts are agencies are sending require monthly and quarterly very clear, monthly and quarterly accountability reports to be accountability reports on the submitted to MoFEP by spending petty cash advanced to agencies. them by MoFEP. This is despite each spending agency having a Directorate of Administration and Finance staffed with accountants. The annual financial statements for 2007 and 2008 show nearly three-quarters of the expenditure of petty cash not accounted for. The requirement for regular bank Little apparent Bank reconciliation reconciliation is not stated in the understanding of the statements related to Payment Procedures manual or importance of bank MoFEP accounts have not Appropriations Act (or in the draft reconciliation, been prepared since PFM bill). December 2009. Most spending agencies do not prepare bank reconciliation statements and therefore cannot produce their own financial statements. No procedures for periodic and Limited understanding No periodic or surprise cash surprise cash counts (apart from of the importance of counts. those contained in the now periodic cash count. generally not used FAPRO). TheprequiNo property management Little understanding of Little compliance with best Propgert procedure except one article on the importance of practices in property control. maagmet disposal of assets in the Interim control over public The only practicing spending Public Procurement and Disposal properties. agency is the Southern Regulations. Detailed procedures Sudan Anti-Corruption are contained in the generally not Commission, which includes used FAPRO. a list of properties in its annual report. No property receiving and issuing documents are used; no fixed asset registers are maintained. 95 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 * * ** * . * 0* * * Formats for the payment requests The Payment The formats for payments Dofoumeaon procedures are used. These Procedures manual is requests are strictly used at frcfrs a formats, however, are not pre- widely disseminated the spending-agency and numbered and serially sequenced, and used. MoFEP level. a usual requirement for internal control systems. Cash receipts, such as for non-tax MoFEP and spending Little control over receipt revenue, are not multi-copy, pre- agencies are aware of vouchers: little scrutiny, numbered, and serially sequenced the importance of periodic counting, and in a format centrally regulated by receipt controls. control over printing and MoFEP. Accountability for the usage. receipts and use of non-tax revenue is therefore very difficult to assure. aThe main software packages used Users understand the Complied with. Cont onh e by GRSS are FreeBalance, the importance and useofIT Payroll Management system relevance of security in (SSEPS), and the Personnel the use of these database (HRIS). All of these software systems. systems require a user password. Hence, unauthorized access is not permitted. cProcedures are contained in the The manual is widely Partly complied with, but AnnuriaT leave, Public Seovice Manual and are understood. staff may take unauthorized rae leave, clear as to the conditions for leaves of absence or may study leave, sick taking leave and the number of not return from official leave leave and other permissible leave days. on time. Employees applying for leave complete standardized forms. Procedures are contained in the The manual is widely Partly complied with. 'aal c Public Service Manual, and are understood. clear as to the procedures for funeral, acting, transport, housing, statehouse, food, and other allowances. Guidelines and procedures Clear understanding of Staff may be paid incentives Staff incentive covering incentives are not in the issue of incentives of up to 3 months' salary. place. Internal controls over is limited. incentives are weak. 96 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Performance Indicator 21: Effectiveness of internal audit Background The new Government of Southern Sudan that resulted from the Comprehensive Peace Agreement inherited the legacy of internal audit from the Government of the Republic of Sudan as a predominantly prepayments check function. The Payment Procedures rules provide the regulatory basis for the continuation of this function. Once enacted, the draft Public Financial Management and Accountability Bill would provide the legal basis for progressing toward an internal ex-post systems audit function. Under the bill, each spending agency should be required to establish and maintain an internal auditor function; and internal auditors would have to be given unrestricted access to offices, persons, documents, and records necessary for the conduct of internal audits. Strengthening the internal audit function is highlighted as one of the reforms indicated in the "2011 Budget Execution Reforms" paper released by MoFEP in April 2011. In practice, the internal auditor function is in the early stages of progressing towards an ex-post audit system. The development is being spearheaded by the Directorate of Internal Audit in MoFEP, whose director general reports to the undersecretary (Finance and Administration) in MoFEP. Heads of internal auditor departments in spending agencies are at the director level and report to the ministers of the respective agencies, copied to the Directorate of Internal Audit in MoFEP. All GRSS auditors are hired (and fired) by the Directorate of Internal Audit. To augment independence, internal auditor staff are planned to be rotated among the spending agencies. Staffing and qualifications. Thirty trained staff were recruited to GRSS spending agencies in 2010, and 20 more were planned to be recruited in 2011.52 Staff are typically trained in both accounting and auditing skills at the Government Accountancy Training Centre (GATC). Minimum entry qualifications are not explicitly stated in the draft internal audit manual. Older staff tend to have diplomas or other certificates, and most of them stand to benefit from further technical training. Some of the new recruits have B.A. degrees in accounting or public administration. No locally hired internal audit staff have professional accountancy qualifications, though many are undertaking these courses. Through GATC, an audit advisor is assisting with development of technical skills, quality review, and preparation of an Internal Audit Policies and Procedures Manual. The manual was benchmarked from the International Standards for the Professional Practice of Internal Auditing. Capacity constraints mean that the expansion and strengthening of the internal audit function will not be rapid. Professional accountants and auditors are in short supply and are in demand by the private sector as well as the public sector. Replacing auditors who leave because of opportunities elsewhere (e.g., the private sector, donor agencies, NGOs) or to pursue long-term study opportunities (as in the Ministry of Education and the Ministry of Agriculture) can take a long time. 52 Progress report issued by the Directorate of Internal Audit in January 2011. 97 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Systems audits, as well as special and investigative audits, are beginning to be conducted, and progress is being made toward reaching the International Standards mentioned above, as evidenced by reports reviewed by the assessment team. For example, the internal auditor departments of the Ministry of Transport and Roads undertook a payroll audit during 2010 at the request of the minister. The ministry cleaned up its paysheets following the audit findings. The ministry's audit plan for 2011 indicated that the focus should be on priority risk areas, such as non-tax revenue collection (for example, landing fees collected at the airport, as noted under Performance Indicator 7). As another example, MoFEP's internal audit department is planning to conduct a systems review of budgetary controls at MoFEP itself. A summary of systems-oriented internal audit activities is presented in Table 3.10. Out of the 15 spending agencies shown in the table, only 4 have actually conducted systems audits, the remainder being still in the planning stage. The plan is to have at least two auditors in each spending agency, implying more than 100 auditors altogether. (i) Coverage and quality of the internal audit function. Out of the 54 spending agencies comprising GRSS, 15 had Internal Audit Units (28 percent coverage) as of 31 January 2011, up from 6 in January 2010. The security sector, comprising 23 percent of the budget, is the main sector with no Internal Audit Unit. Out of the 15 internal audit units, only 4 were actually conducting systems audits (Table 3.10). The internal audit manual, developed in 2010, meets international standards. The sample of reports reviewed indicated fairly good quality, with identification of risk areas and incorporation of these into audit plans (e.g., non-tax revenue collection systems in the Ministry of Transport and Roads). However, application and usage of these standards is not yet up to the required level of quality. Greater support from top management in spending agencies and continuation of capacity development would help to strengthen effectiveness. (ii) Frequency and distribution of reports. Reports are not regular but are issued as required. Since October 2010, when the internal audit manual was issued, five special audit and investigative audits had been prepared as of April 2011. Internal auditors in MoFEP are still fully engaged in pre-audit of payments requests, and to date they have not prepared any reports on the systems at MoFEP itself. 98 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 3.10. Status of Performance of Internal Audit Units as of March 31, 2011 1 Energy & Mining 1 * Revenue systems audit completed * Payroll systems audit completed 2 Telecom & Postal services 1 * First systems audit completed 3 Wildlife Conservation & Tourism 2 * First systems audit completed 4 Roads & Transport * Review of pay sheets on request completed 3 * First systems audit completed * Facing challenges with paysheet review 5 Culture, Youth and Sports 1 * One requested audit started * 2011 audit plan submitted * Inception report prepared; no internal auditor 6 Urban Water Corporation 1 activity yet 7 Commerce & Industry 1 * Risk assessment questionnaire distributed 8 Information & Broadcasting 1 * Audit plan for 2011 prepared 9 Education, Science & Technology (Higher 1 * Inception report submitted; no audit report yet. Education) 10 Cooperatives & Rural * Inception report prepared; no audit activity yet Development 2 11 War Veterans Commission 1 * One Petty Cash audit completed (July 2010) 12 Water Resources & Irrigation 1 * Internal audit staff currently being trained. 13 Legislative Assembly 2 * Progress not yet assessed 14 Human Rights Commission 1 * Progress not yet assessed 15 Ministry of Finance & * Systems audit will commence after approval of Economic Planning (MoFEP) 10 the ToR by the undersecretary Total 29 Source: MoFEP- Internal Audit Progress Report for the period ended January 31, 2010. 99 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The framework for the frequency of the distribution of reports is not explicitly stated in the manual, apart from the annual audit report. Section 2.2.4 of the manual states that each year, by February 1, the head of the internal audit unit in each spending agency is to present to the accounting officer and the minister a report on the performance of the internal auditor function over the previous year. The assessment team was granted access to one such annual report. The practice in countries where the internal audit function is fully operational is to produce reports with greater frequency. Section 8.7.2 of the internal audit manual states that internal audit reports should be distributed to the undersecretary, the minister, and the head of the directorate/section that was audited, as well as the Internal Audit Directorate at MoFEP. The distribution list does not include the Audit Chamber, although the chamber can obtain these reports upon request. It would be good practice to copy final internal audit reports to the Audit Chamber as part of the reporting routine. (iii) Extent of management response to internal audit findings. The audit manual has structured formats for recording management responses and detailed follow- up action plans, including identifying the officials responsible for follow-up. Some spending agencies respond to and follow up on internal audit recommendations, resulting in the writing of a letter to the internal audit unit indicating what measures they took based on the audit findings. The exemplary ones include the Ministry of Mines and Energy and the Ministry of Transport and Roads. The Ministry of Education, following a special audit report dated April 11, 2011, is implementing the audit recommendations. In some cases, agencies do not act on the findings. A committee has been formed within MoFEP to oversee audit reports, but it is not yet functional. As the internal audit function gets off the ground, management's responsiveness to audit issues should also gradually pick up. Indicator Score 2011 Assessment PEFA PI-18 C+ M1 (i) B (i) Degree of integration and reconciliation between personnel records and payroll data: The payroll for classified employees prepared by spending agencies is based on personnel records held in each spending agency, and is manually integrated with the Human Resource Management Information System at MoLPS, which contains the nominal roll, also based on personnel records held in each spending agency. The payroll for unclassified personnel is processed at ministries and checked against the personnel records held at each spending agency. Monthly payrolls are subject to review by the establishment officer in each spending agency for correctness against the personnel records. An A rating would require a direct link between the payroll and nominal roll. (ii) B (ii) Timeliness of changes to personnel records and the payroll data: Changes in personnel records (such as for new employment and salary changes) are updated within a month for both classified and unclassified staff. The dissemination of information to MoLPS/MoFEP by spending agencies on resigned or terminated staff, 100 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 particularly unclassified staff, may be delayed, since the system does not provide for timely dissemination. The proportion of such staff to total staff is low. (iii) A (iii) Internal controls of changes to personnel records and the payroll: The audit trail is reflected in the multiple signatures required for the monthly paysheets and the letters sent by the Directorate of Administration and Finance (for unclassified employees) or by MoLPS, as applicable. Changes to payroll records are required to be supported by official letters. The staff person in charge of maintaining personnel records is separate from the staff persons preparing paysheets and effecting payments. Access to the payroll system is password protected and only establishment officers have access to HRIS. (iv) C (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers: Internal auditors are assigned in 15 ministries. Some of these (definitely the Ministry of Transportation and Roads) are performing payroll audits. External auditors also conduct a payroll audit as part of their financial audit in the sampled ministries. Head counts at the national level have been conducted by the Ministry of Education. A B rating would require that a payroll audit have been conducted for all spending agencies at least once in the last three years. PI-19 D (M2) (i) C (i) Transparency, comprehensiveness and competition in the legal and regulatory framework: The legal and regulatory framework for procurement meets three of the six requirements listed in Table 3.8... (ii) D (ii) Use of competitive procurement methods: No records are available as to the value of procurement according to procurement method or based on the justification for using less than fully competitive methods. Single-source procurement is the main procurement method for procurement above the thresholds. (iii) D (iii) Public access to complete, reliable and timely procurement information: Only one of the four requirements is met, namely the publicizing of tendering opportunities. (iv) D (iv) Existence of an independent administrative procurement complaints system: The Procurement Policy Unit is the last port of call for submitting complaints; however, it is not independent, since it is involved in the process of procurement. Complaints are submitted only verbally, and appear not to be addressed. PI-20 D+ (i) C (i) Effectiveness of expenditure commitment controls: Commitment control is linked to the level of remaining unappropriated balances, but it is not linked to projected cash availability. As noted under PI-16, cash flow forecasting and related periodic cash spending limits systems have not yet been developed. Spending agencies may therefore enter into commitments without knowledge that the cash will be available for making payments to suppliers. A B rating would require commitments to be linked to cash availability. (ii) C (ii) Comprehensiveness, relevance, and understanding of other internal control rules/procedures: Understanding by spending agencies of the internal control rules is good in terms of payments request procedures, procurement procedures, IT controls, and personnel management. Understanding by spending agencies of the value of budget execution reports, bank reconciliation, and controls over the use of government-owned real assets is not good. The internal control procedures over real assets are far from comprehensive. 101 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (iii) D (iii) Degree of compliance with rules for processing and recording transactions: The understanding of rules is generally better than the compliance with the rules. PI-21 DA (i) D A (i) Coverage and quality of the internal audit function: The ex-post systems-oriented internal audit function is still at an early stage of development. The systems-based approach began to develop during 2010, with four spending agencies preparing reports. (ii) D (ii) Frequency and distribution of reports: Only a few reports have been prepared so far and on an ad-hoc basis. The only report whose required frequency is mentioned in the internal audit manual is the annual audit report. The distribution list excludes the Audit Chamber, which can obtain audit reports on request. (iii) D (iii) Extent of management response to internal audit findings: With the internal auditor function still in its early stages of development, the number of audit reports prepared is too small to measure the overall response of management. Internal audit recommendations have been followed up on, to some extent, in the case of the very few reports prepared so far. Sources: Administration and Finance Departments of the Ministry of Education, MoEST, Ministry of Health, Ministry of Agriculture and Forestry, and Ministry of Transport and Roads; MoLPS, "Policy Framework for the Public Service in Southern Sudan" (2007), "Public Service Regulations" (2007), and "Manual for the Public Service in Southern Sudan" (2007); Meetings with MoLPS; Meeting with Technical Advisor on Southern Sudan Electronic Payments System (CBTF-funded); Interim Public Procurement and Disposal Regulations; Director, Procurement Policy Unit; Chamber of Commerce, Industry and Agriculture; Appropriations Acts, 2009-11; MoFEP Accounts Directorate and Planning and Budgeting Directorate; Internal Audit Directorate in MoFEP (Director and Advisor); Director, Southern Sudan Anti-Corruption Commission; Auditor General (Audit Chamber); Internal Audit Manual; internal audit units in spending agencies met; Ministry of Education, special audit report; and internal auditor's Development Progress Report (LICUS- funded). Note: Upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. M1 indicates the "weakest link" method; M2 indicates the simple-average method. State level Performance Indicator 18: Effectiveness ofpayroll controls The main differences between payroll controls at the central level and those at the state government level are that-- * except for NBGS, the Southern Sudan Electronic Payments System tends to be managed by MoFTI/SMoFEP rather than by the spending agencies, which prepare the paysheets and then submit them to MoFTIs/SMoFEP; and * until recently, state governments have not had Ministries of Labor and Public Service; at the time of the PEFA assessments these were being established. Concomitantly, the Human Resource Management Information System was being extended to state government through the newly created MoPLS, a major objective being to bring personnel records up-to-date prior to incorporating these into the Human Resource Management Information System. NBGS 102 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 In contrast to the other states reviewed, NBGS has its own computerized payroll management system, known as Easy Pay. MoFTI decided not to adopt the Southern Sudan Electronic Payments System, rolled out to the other States during 2010, as it didn't have significant advantages over Easy Pay. Spending agencies prepare monthly paysheets in Easy Pay, which show the serial number, date of birth, job title, work station, gross salary, deductions, and benefits for each employee. The paysheet is submitted to the director general of the spending agency, who sends it to the Director General of Finance in MoFTI, who then submits it to the Controller of Accounts. After approval, the salary bill is paid into the bank accounts of spending agencies, which then make payments to staff, who have to show up with their ID card and sign the paysheet in order to receive their salary. Copies of the approved paysheet are provided to GRSS level MoFEP and to the spending agency. This system ensures that all those in a spending agency who are being paid appear on a paysheet prepared by the spending agency, but it does not ensure that all those whose names are on the paysheets should be on the paysheets, leaving the same issue as occurs at GRSS. Some names may be on the paysheets although the persons named have not actually been working for one reason or another (e.g., absenteeism, dismissal, death). This issue is more likely to arise in the case of unclassified workers. Accordingly, the newly established state MoLPS is preparing, under a USAID-financed technical assistance project, a nominal roll of personnel under the framework of the Human Resource Management Information System. Currently, the state MoLPS is collecting data on all state and county level employees, and is receiving training on how to prepare nominal rolls. Eventually it should be possible to have a complete matching of the payroll and personnel records. New appointees, salary changes, promotions, terminations, and retirements are reflected in paysheets and then in the payroll within one month. In the case of death, the family receives the salary of the deceased staff member for three months as a matter of the public service policy at the GRSS level. Unauthorized absences might not be reflected in the monthly paysheets. Three staff in MoFTI are authorized by a letter from the head of the Administration Department to operate Easy Pay. They have a secret password. Any corrections can be made only by sending a memo to the Director General of Finance at MoFTI and then receiving his written approval. At the spending agency level, the person who prepares the monthly paysheet is not the same person who checks the sheet, and that person in turn is not the same person who approves it. Final approval is made by the director general of the spending agency. No payroll audits have been conducted either by the Internal Audit Unit at MoFTI or by the Audit Chamber. However, the Internal Audit Unit has prepared formats for payroll audits. Unity State 103 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The Southern Sudan Electronic Payments System was introduced in Unity State in November 2010 and is managed by MoFTI. The use of the electronic payments system has sharply reduced the number of ghost employees. Before its introduction, some staff, even in grade 1, could be found among the unclassified staff (grades 14-16). A clean-up of the payroll facilitated by the Southern Sudan Electronic Payments System resulted in downsizing the payroll to 3,000 staff from over 7,000 (excluding the organized forces: police, wildlife, and fire brigade). Each spending agency has a human resources department, which holds personnel records under the control of an establishment officer. Some data is still missing from personnel records (e.g., date of appointment). The state MoLPS was recently established but it is not yet functional. One of its responsibilities will be to check personnel records and to oversee the establishment of a Human Resource Management Information System, as indicated under NBGS above. Nevertheless, Unity State considers that inaccurate personnel records have become a relatively minor issue. As at the GRSS level and in other states, a more significant issue was insufficient monitoring of attendance. MoFTI has a system of clocking in and out, using a counter book. However, not all ministries have this control, and it is possible that staff are being paid their full salaries even if they do not work regularly. The likelihood is greater in the case of unclassified staff. The Unity State officials noted that more controls on attendance and study leave were necessary and that a retirement age policy needed to be introduced. Spending agencies prepare monthly paysheets using the Southern Sudan Electronic Payments System. These were shortly to include Personal Identification Numbers, which would also be shown on employees' identity cards, thus adding a useful extra level of control when staff collect their monthly wages and salaries. As with NBGS, the payroll preparation process is rigorous. After approval, the salary bill is paid into the bank accounts of spending agencies, which then make payments to staff, who have to show up and sign the pay sheet in order to receive their salary; as indicated above, they would soon have to bring their unique identity cards with them. Copies of the approved paysheets are provided to the GRSS-level MoFEP and to the spending agencies. Changes to personnel records maintained in spending agencies can only be made by the establishment officers in those agencies. The authority to make the changes is clear, but changes might not result in an audit trail. With regard to changes to the payroll, the process is the same as with NBGS, with an audit trail being left. The electronic payments system is password-protected within MoFTI, and access is restricted to the four officers designated to operate it. Monthly payroll reviews are conducted by the Internal Audit Unit in MoFTI and have already contributed to the clean-up of the payroll. At the time of this assessment (June 2011), the Internal Audit Unit was a one-man department. These reviews do not amount to a payroll audit, which would also entail a review of the personnel records system. The Unity State officials were not aware of any payroll audits that had been conducted either by the Audit Chamber or by the respective line ministries. 104 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Jonglei State Both the Southern Sudan Electronic Payments System and the Human Resource Management Information System have been operational in Jonglei State since September 2010. Payroll is processed at state MoFEP by four staff in the payroll preparation unit for all ministries, and in counties for both classified and unclassified personnel. Payroll data are uploaded to the web-based database so as to be accessed by GRSS level MoFEP. Establishment officers at state MoLPS verify payroll sheets prepared by MoFEP's payroll managers against the Human Resource Management Information System on a monthly basis. Payrolls are paid only when checked and approved by MoLPS. New recruitment has to be approved by the state MoLPS. Then the information is passed through the Director General of Finance and Director General of Budget and Planning before reaching payroll mangers for inclusion in the payroll system. The state MoLPS is also responsible for communicating resigned and transferred staffs to the state MoFEP. The situation is the same as at NBGS and Unity State regarding timeliness for changes to the payroll and controls over changes to personnel records and the payroll. Both the Southern Sudan Electronic Payments System and the Human Resource Management Information System generate audit trails for changes. Payroll audit. On a monthly basis, the payroll manager physically observes when payroll payments are effected at the ministry level, including payments in the organized forces such as the police and military, to make sure the payroll is paid to an existing staff. The payroll manager investigates identical names in the payroll system to check whether they reflect the same person or not. During 2004, they found four cases where the same individuals were receiving payments from different agencies and ministries. The Directorate of Internal Audit and Adjustment in the state MoFEP has not been engaged in payroll audit. MoLPS conducted a head count in February 2011, and based on the ministry's notification, the State Ministry of Education then suspended the payroll payments of about 30 teachers. Western Equatoria State The Southern Sudan Electronic Payments System was first introduced in Western Equatoria State in 2008 in the Ministry of Education and was subsequently introduced in MoFTI in full electronic format in October 2010. The use of the electronic payments system has sharply reduced the number of ghost workers. The payroll preparation procedures are broadly the same as in the other states. A computerized Human Resource Management Information System, through which all personnel records will be brought up to date, is being set up. 105 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Since October 2010, the staff working in the Ministry of Education on the payroll have been transferred to MoFTI, which now prepares the payroll of all spending agencies except the Ministry of Wildlife, which has sufficiently qualified staff to prepare monthly payrolls. The staff in the payroll unit number only three, including the manager, who considers the unit to be very overstretched and believes more staff are needed. As with the other states, an issue is whether the checks carried out by the spending agencies are sufficient to ensure the accuracy of the personnel records that the payroll is based on. Insufficient monitoring of attendance may be one source of inaccuracy. Attendance registers are maintained in each department in Western Equatoria State. It is the responsibility of the Acounts and Finance director of a spending agency to take action against absenteeism by communicating requests to the payroll unit for deductions from payrolls and to inform establishment officers accordingly. Initial action may be only in the form of oral or written warnings to the staff member whose absenteeism has been detected. The assessment team looked at some registers in MoFTI and found them in order and reviewed by the Accounts and Finance director. The counter book (attendance register) seems to be primarily an administrative tool, however, as it is detached from the payroll system, which undermines its usefulness. MoFTI staff indicated that not all ministries may be enforcing this control in equal measure, and it is possible that staff are being paid their full salaries even if they do not work regularly or even if they do not work at all. The likelihood is greatest in the case of unclassified staff. Western Equatoria State officials noted that more controls on attendance and study leave were necessary, and a retirement age policy needed to be introduced. Internal controls of changes: Personnel records can only be changed by the MoLPS establishment officers that are physically located in spending agencies. MoFTI has proposed that physical monitoring/inspection should be introduced when salaries are paid, to ensure that payment is being made to the right persons. ID cards are not yet issued to employees to facilitate such monitoring. Monthly payroll reviews are conducted by the establishment officers. The internal auditor also reviews the payroll on a sample basis at least every three months. The assessment team looked at a sample of internal audit reports in respect of the payroll and found that they were detailed and captured errors. These reviews present some form of a payroll audit, because personnel records are also within the scope of the internal audit review. Western Equatoria State officials were not aware of any payroll audits that had been conducted either by the Audit Chamber or by the respective line ministries. Performance Indicator 19: Competition, value for money and controls in procurement 106 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 (i) Transparency, comprehensiveness and competition in the legal and regulatory framework The legal and regulatory basis for procurement at the state government level is the Interim Public Procurement and Disposal Regulations. The institutional set-up is therefore similar for all state governments, and the ratings for this dimension are also the same. (ii) Use of competitive procurement methods Since the larger procurements are conducted at the GRSS level through the conditional grant arrangements, much of the procurement at the state level is for smaller items, falling below the thresholds above which competitive procurement methods are required. Western Equatoria State uses competitive procurement methods to a small extent, but nevertheless the procurement process appears to be very rudimentary. None of the state governments assessed systemically collated their data on procurement to identify the type of procurement method used and the justification for using restricted competitive procurement methods. The single-source procurement method tends to be the only one used, even in situations where the request-for-quotations method could be used. The Procurement Policy Unit at the GRSS level ascribes this to the lack of procurement planning by state governments, while state governments tend to claim that the reasons are lack of competitive suppliers and fluctuations in market prices. (iii) Public access to complete, reliable and timely procurement information Public access to information is very limited in all four states; only in Western Equatoria State is any information available and then only through the state-owned radio station, where tenders are advertised but bid evaluation results are not. (iv) Existence of an independent administrative procurement complaints system Complaints mechanisms have not been set up in any of the three states assessed. The situation probably is the same in NBGS, but the assessment team was not able to obtain any information to confirm this. Performance Indicator 20: Internal controls for non-salary expenditure (i) Effectiveness of expenditure commitment controls The system of controls, including the threshold levels stated in annual Appropriations Acts above which MoFTI/SMoFEP prior approval is required for proposed contracts, is the same at the state level as at the GRSS level. The ratings are therefore the same. Commitment controls are far less relevant at the state government level than at the GRSS level. More than 90 percent (70 percent in the case of Unity State) of financial resources are in the form of predictable transfers from GRSS, and about three-quarters of state government expenditure is in the 107 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 form of salaries (about 60 percent) and transfers to counties (about 15 percent). Moreover, as indicated under Performance Indicator 19, procurement of larger items (capital expenditure) is mainly handled by GRSS-level agencies under conditional grant arrangements. A significant proportion of operating expenditures are nondiscretionary, such as utility bills, or are discretionary but require payment up front (e.g., fuel, travel). In the case of NBGS and Jonglei State, this dimension is even less relevant for the years prior to 2011, since state legislative assemblies were not functioning and there were no approved budgets. In Jonglei State, there was no system at all to control expenditure commitments. (ii) Comprehensiveness, relevance and understanding of other internal controls and processes; and (iii) Degree of compliance with rules for processing and recording transactions Payments requests and payments Internal control systems governing payments requests and payments are in place in all the state governments reviewed, with emphasis on the segregation of responsibilities. The procedures are well circulated and understood. NBGS: Procedures are documented in MoFTI's Payments Procedures, which came into force in February 2011, based on GRSS's Payments Procedures. Duties are segregated between preparation, checking, and approving of payments requests. Standardized forms in computerized format (in principle, for entry into FreeBalance) are contained at the back of the document.53 The procedures cover the use of petty cash, but MoFTI intends to issue a separate set of procedures for use of petty cash, as is the case at the GRSS level. All payments request forms have to be accompanied by the correct supporting documentation: supplier invoices, copy of contract/purchase order, and proof of receipt of goods or services. In reality, these payments requests and payments procedures have been in existence in manual form for some time under the framework of the 1995 Financial and Accounting Procedures Ordinance. They are still being used, alongside the new procedures, as evidenced by a sample payments request and payments authorization provided to the assessment team. Unity State: The same system is in place, although Unity State has not yet prepared any Payments Procedures as NBGS has done. A payments request process goes through a number of signatures, starting from the bottom of the hierarchy (the proposer), then moving to the top (director general), where approval is obtained and authority to go ahead is given (i.e., it then goes back down to the middle of the hierarchy). A good filing system is in place that helps ensure that records are kept in an orderly manner. 5 Commitment and Expense Form, Alternate Accounting Officer Nomination Form, Payment Authorization Form, Contract Budget Availability Form, Salary Commitment and Expense Form, Budget Item Transfer Form, and Claim Rejection Form. 108 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Jonglei State: The same system is in place. Procedures are well understood. Based on the assessment made on some of the payment documents, the team observed proper segregation of duties with evidence of audit trail and documentation. Western Equatoria State: Systems are in place similar to those of the other states, although Western Equatoria State has not yet prepared any Payments Procedures. All payments requests have to be accompanied by the correct supporting documentation: Copies of signed payments request forms were reviewed by the assessment team. The process of internal checks and control mechanisms for segregating duties into "prepared by," "checked by," "reviewed by," and "authorized by" were found to be followed. The staff have good understanding of the procedures. Accountability reports Spending agencies and county administrations are supposed to submit monthly accountability reports to MoFTI/state MoFEP for salary payments and use of petty cash. In practice, they tend not to meet the accountability requirements for the use of petty cash. The accounting treatment of advances as expenditures does not help in this regard. In NBGS, however, MoFTI withheld two months of salary from the Police Department and refused to replenish the petty cash fund of the Ministry of Health, both because of their failure to provide accountability reports. As noted under Performance Indicator 8, the State Transfers Monitoring Committee is requiring tightened accountability in 2011 from both state governments and counties for the use of conditional grants; accountability had previously been virtually zero. Only Western Equatoria State was complying with this requirement at the time of this PEFA assessment. Property management NBGS, Unity State, and Jonglei State: States tend not to have fixed asset registers with asset identification numbers, and annual inventory checks are not routine (and are not conducted at all in Unity State and Jonglei State; in NBGS, attempts to provide identification numbers to physical assets have been partially successful). It is not uncommon for government property and vehicles to be used illegitimately, with few controls over use. Use of government assets tends to be personalized; that is, there is no distinction between the idea of individual property and the idea government property. Some individuals apparently buy vehicles and register them using government number plates (GRSS) to evade paying taxes. The risks and penalties arising from detection are minimal. Petty cash in physical cash form is not always safeguarded well. The Unity State officials mentioned that a metal chest (a safe) belonging to MoFTI and kept at Ivory Bank had recently been broken into. Petty cash systems had not yet been audited to determine whether they provide adequate safeguards against loss and leakage. Western Equatoria State: The situation is better than in the other states. Control systems for property management are in place, though with scope for improvement. A fixed assets listing is maintained. The Procurement and Stores department undertakes some stock counts. A stock count 109 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 report includes key forms (one for acknowledgement of receipt of assets, the other to register use of assets). These forms are sequentially numbered and are based on the 1995 Financial and Accounting Procedures Ordinance. However, there is no formal assets register, and assets are not engraved with unique numbers; even government laptops cannot be distinguished from individual laptops, except for one laptop under the USAID-funded IFMIS project. Nevertheless, as in the other states, property and vehicles tend to be used illegitimately, with few controls over their use. Physical petty cash is well protected in a chest (i.e., a safe) belonging to MoFTI. The assessment team found the petty cash book to be well maintained and updated according to receipts and issues, and the stock of cash and issues was properly signed off by those at the various approval levels; the procedures used are from the 1995 Financial and Accounting Procedures Ordinance.54 Petty cash systems are part of the internal audit mandate, but no audit report was available to the team to confirm that the system provided adequate safeguards against loss and leakage. There were no petty cash records or balances or accountabilities provided to MoFTI by the liaison offices in Juba and Khartoum, and leakages at that level cannot be ruled out. Bank account monitoring and reconciliation As noted under Performance Indicator 22, bank account reconciliation procedures tend not to be followed or, if they are, MoFTI/state MoFEP does not know about them. As noted under Performance Indicator 17, spending agencies have their own bank accounts. While MoFTI/state MoFEP may request access to the respective bank statements, the practice is to leave ministries to manage their own bank accounts without any supervision. Thus, MoFTI cannot check that spending agencies are performing bank account reconciliations - which would represent an important accountability control - and cannot check on their non-tax revenue collections and the spending thereof. Documentation controls In Unity State, formats for payments requests are not prenumbered and serially sequenced, a usual requirement for internal control systems. In Jonglei State, no serially sequenced receiving and issuing documents are used for the receiving and issuing of properties and goods. In all states there are control weaknesses in the receipting process and subsequent use of the collected funds (as elaborated on under Performance Indicators 7 and 15). Personnel controls The Public Service Manual at the GRSS level is used at the state level. It is well articulated and well understood, but it is not well complied with in NBGS, Unity State, and Western Equatoria State. Principal control weaknesses are lack of monitoring of attendance, lack of compliance with leave conditions, lack of effective penalties for noncompliance, and insufficient regulation of incentive and overtime allowances, with considerable discretion being provided to supervisory Payment form 40 records payments, form 39 records receipts, while form 19 is in effect the cash book. 110 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 authorities. In Jonglei State, however, an attendance recording system and absentee reporting system are in place; reprimands are given out for unauthorized absence. Understanding and compliance In general, although the situation varies according to the type of control and between the states, compliance is generally worse than understanding, the main exception being Western Equatoria State, where the internal audit function has been more effective than in the other states. Performance Indicator 21: Effectiveness of internal audit With the exception of Western Equatoria State, the internal audit function is not yet well-developed, notwithstanding support provided by donors (particularly under the Low Income Countries Under Stress Fund). It has been established only in MoFTIs and state MoEFP (e.g., in NBGS in 2005), but it is underequipped in office space, office materials, personnel (e.g., only one staff person in Unity State) and funding. Reflecting the legacy of the old Government of Sudan system, internal audit tends to focus on prepayments checking, which is covered under Performance Indicator 20, rather than ex post systems checking under this indicator. Very few internal audit reports have been prepared so far. Western Equatoria State Western Equatoria State attaches far more importance to internal audit than the other states do. The function is fully established there with 15 staff, including 10 auditors, considerably more than in other states (e.g., Unity State has only one internal auditor). It covers all spending agencies under Western Equatoria State and its 10 counties. It primarily conducts financial audits covering revenue collection and payments, some investigative assignments, and limited systems audits. It also covers the payroll cycle on a sample basis and reviews some personnel records. Unlike other states visited, the internal auditor function there does not engage in pre-audits of payments, thus elevating its operational independence from the rest of MoFTI. The auditors have benefited from training organized by GRSS through the Low Income Countries Under Stress Fund. Also unlike in other states, the Internal Auditor Unit has its own office space. With more professional development, including in the area of written English skills, the internal audit function in Western Equatoria State could serve as a practice model for other states. The internal auditor produces reports, including a detailed end-year report, on the entities it audits, and shares them with the audited entity, MoFEP, and the state legislative assembly. The assessment team found these reports to be comprehensive and of good quality compared to other states visited. It is clear that infringements of regulations and procedures take place, though how widespread and routine they are is not clear. Relative to the other three state governments assessed, the extent of noncompliance may not be as great, since PFM systems are generally better developed. 111 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The internal auditor engages in entry and exit conferences, in contrast to other states visited by the assessment team. About 70 percent of the audit findings are acted upon by management. For example, in relation to the payroll, some staff were noted to be on the payroll after ceasing to be in employment. This was rectified in subsequent payrolls, and the issue was not raised again by the auditors in subsequent reviews. P1 Predictability Score: Score: Score: Score: Explanation & control in NBGS US Js WES budget execution (i) Degree of integration and reconciliation between personnel records and payroll data: A well established monthly payroll preparation process is in place, the robustness of which has improved under the Southern Sudan Electronic Payments System and is undergoing further improvement through the establishment of the Human Resource Management Information System. The main accuracy issue for personnel records is now inadequate attendance records. D+ D+ C+ B+ (ii) Timeliness of changes to personnel records and the (i) B (i) B (i) B (i) B payroll: Changes are made quickly regarding PI-18 Effectiveness appointments and promotions, but delays occur in of payroll (ii) B (ii) B (ii) B (ii) B recording terminations, resignations, deaths, and lack of (M1) controls (iii) B (iii) B (iii) A (iii) A attendance. (iv) D (iv) D (iv) C (iv) C (iii) Internal controls of changes to personnel records and the payroll: Audit trails are more complete - covering personnel record changes as well as payroll changes - in Jonglei State and Western Equatoria State, than in NBGS and Unity State. (iv) Existence of payroll audits: Jonglei State conducted a head count in early 2011. In both Jonglei State and Western Equatoria State, internal auditors look at personnel records as well as payroll data. No payroll audits have been conducted in NBGS. (i) Transparency, comprehensiveness and competition in the legal and regulatory framework: The legal and regulatory framework for procurement meets three of the six requirements listed in Table... (ii) Use of competitive procurement methods: No records-- D D D or only rudimentary records--are available. The bulk of Competition, (i) C (i) C procurement is conducted using single- source methods. PI-19 value for (i) C The bulk of large procurements are conducted at the (M2) money and NR ( D (ii) D (ii) D GRSS level through the conditional grant arrangements, controls in ii) (iii) D (iii) D but data is not available to determine why the request-for- procurement B (iii) D quotations method could not have been used for small (iv) D (iv) D purchases, instead of the single-source methods. (iv) D (iii) Public access to complete, reliable and timely procurement information: Minimal information is provided. (iv) Existence of an independent administrative procurement complaints system: None is in place. PI-20 Effectiveness D+ D+ D+ C (i) Effectiveness of expenditure commitment controls: The of internal system is the same as at the GRSS level, but it has less (M1) controls for (i) C (i) C (i) D (i) C relevance, since the bulk of financial resources are in the 112 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 P1 Predictability Score: Score: Score: Score: Explanation & control in NBGS US Js WES budget execution non-salary (ii) C (ii) C (ii) C (ii) C form of predictable transfers from GRSS and the bulk of expenditure expenditures are in nondiscretionary flows of financial (iii) D (iii) D (iii) D (iii) C resources and therefore very predictable. The relevance is greater for Unity State, which receives 30% of its financial resources as oil revenue. (ii) Comprehensiveness, relevance and understanding of other internal control rules/procedures: Various procedures and rules are in place and generally understood (e.g., Payments Procedures, GRSS public service manual, accounting for use of conditional grants and petty cash). (iii) Degree of compliance with rules: Compliance is generally worse than understanding, except in the case of Western Equatoria State, where PFM systems are more developed and the internal audit function has been more effective than in the other States. (i) Coverage and quality of the internal audit function: The internal audit function has barely started in NBGS, Unity State, and Jonglei State and is mainly involved in pre- transactions checking. It is under-facilitated. In contrast, the function is well established in Western Equatoria State, though quality could improve with further training. D D D B (ii) Frequency and distribution of reports: Very few reports PI-21 Effectiveness (i) D (i) D (i) D (i) B have been prepared so far by NBGS; none have been of internal prepared by Unity State, where the internal audit function (M1) audit (ii) D (ii) NA (ii) D (ii) B is not yet operational; and none have been prepared by (iii) NA (iii) NA (iii) NA (iii) B Jonglei State. In contrast, three reports are prepared per entity per year in Western Equatoria State, though not according to a structured timetable; they are issued to the auditee, MoFTI, and the state legislative assembly. (iii) Extent of management response to audit findings: Prompt action is taken by most managers in Western Equatoria State. Sources: GRSS: GRSS Public Service Manual (2007); sample paysheet of Ministry of Wildlife; sample of a completed payments request form and payments authorization (Form 17, from 1995 FAPRO); sample of a completed computerized 2011 payments request form under 2011 Payments Procedures; and internal audit plan for 2011-14. NBGS: Interviews with payroll unit, Accounts Department, and Internal Audit & Inspection Directorate in MoFTI; with the Director General of the state MoLPS, and with the Director General of the State Ministry of Education; 2011 Appropriations Act; and 2011 Payments Procedures. Unity State: Meetings with state officials; Interim Public Procurement and Disposal Regulations; budget documents for 2009, 2010, and 2011; Appropriation Bill (2011); Internal Audit Charter; GRSS Audit Manual; and Budget Analysis Report (March 2011). Jonglei State: Meetings in state MoFEP with the Director General, payroll managers, Director of Accounts, Directorate of Planning and Budgeting, Adjustment and Internal Audit Directorate, and Procurement Directorate; other meetings, including with state MoLPS, State Ministry of Education, Procurement Directorate of Commerce and Supplies, and Chamber of Commerce; and Internal Audit Manual. Western Equatoria State: Meetings with MoFTI officials, including payroll unit and internal auditor staff; 2011 Appropriations Bill; budget documents for 2009, 2010, and 2011; internal audit charter; internal audit reports; and GRSS internal audit manual. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method; M2 indicates the simple- average method. 113 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 3.5. Accounting, Recording and Reporting (Performance Indicators 22-25) SYNOPSIS At the GoSS/GRSS level The establishment of IFMIS may have improved the timeliness and accuracy of expenditure data, but nevertheless a number of issues remain that raise doubts about the accuracy and meaningfulness of budget execution reports and ultimately of the annual financial statements of GRSS. Oil revenue data may not be complete and in real-time form, due to their being based on bank advice statements rather than on source data. Comparison between MoFEP records and the Petroleum Unit's oil reports indicated large discrepancies for 2005-2008, indicating the possibility that revenues were being spent non-transparently prior to their entering MoFEP accounts. The discrepancies fell sharply after 2008 and, with the advent of independence, they should no longer be an issue. Non-oil revenue data may not be complete, due to the possibility that revenue-collecting spending agencies have not been depositing all revenue into MoFEP accounts and have not declared all the revenues they keep for themselves. Budget execution data tends to be generated semi-manually rather than through IFMIS. Apparent discrepancies between the expenditure data generated by MoFEP and the records of spending agencies may indicate data accuracy issues. Petty cash advances to spending agencies are classified as expenditures, partly because spending agencies are not preparing accountability reports. Payments by MoFEP to suppliers are sometimes made through the release of funds first into spending agency accounts rather than through direct payment to suppliers through the CPS, and this may also distort expenditure data if the spending agencies do not pay suppliers right away after receiving funds from MoFEP. Bank reconciliations are not performed in a timely manner by MoFEP in relation to its own bank accounts, while spending agencies do not disclose their bank account balances and bank reconciliations to MoFEP. Such reconciliations are a necessary input to the preparation of annual financial statements. 114 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Expenditure commitments are not recorded. Budget performance reports only reflect approved payments requests, actual payments, pending payments, and unappropriated balances remaining. Purchase orders/contracts (i.e., expenditure commitments) for which payments requests have not yet been prepared are not shown, so the reports overstate the unencumbered resources remaining. Annual financial statements have been prepared up to and including 2009. Timeliness is improving, although the time lag between the finalization of the statements and the end of the financial year that they refer to is still well over one year. The notes to the statements include comments on data quality issues. At the state level Recording, reporting, and accounting are generally in their initial stages of development. The quality of revenue and expenditure data for years prior to 2011 is generally considered by the state governments themselves to be deficient. Therefore, budget performance reports have either not been prepared or are considered to have little usefulness. Bank reconciliation has generally been performed only for bank accounts controlled by MoFTIs/state MoFEP directly. These reconciliations are likely to contain reconciling errors due to their failure to record suspense items (e.g., revenues of unknown classification) and advances, treating them instead as expenditures, which in turn is due partly to the fact that spending agencies do not account for their use of petty cash advances. The combination of revenue and expenditure data that are of doubtful accuracy and the lack of bank reconciliations free of errors has contributed to the failure to produce annual financial statements to date. Establishment of IFMIS did not start until late 2010/early 2011 for any of the four governments, and it has initially taken place only at the MoFTI/state MoFEP level. The establishment of IFMIS has already enabled budget performance reports to be more timely and accurate during 2011. AT THE GoSS/GRSS LEVEL Performance Indicator 22: Timeliness and regularity of accounts reconciliation Reliable reporting of financial information requires constant checking and verification of accountants' recording practices. This is an important part of internal control and a foundation for building good quality information needed by management and for external reports. Timely and frequent reconciliation of data from different sources is fundamental to ensure that data are reliable. (i) Regularity of bank reconciliations At the time of the PEFA mission in April, MoFEP had not fully reconciled any of its 17 bank account statements with its above-the-line revenue and expenditure records since December 2009. An important reconciliation issue was the recording of revenues. The oil revenues recorded were 115 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 based on bank advice statements rather than basic source documents. The oil revenues received by MoFEP during 2005-08, according to its records, were lower than the revenues indicated in the Petroleum Unit's oil reports by US$ 592.1 million (SDG 1.3 billion), as indicated in the annual financial statements for these years. The reasons, according to the annual financial statements, were that some revenues were spent prior to the deposit of revenues with MoFEP and there were delays in the Government of National Unity's depositing of revenues into MoFEP's account. However, the situation improved during 2010, because the Accounts Department in MoFEP placed a representative on the Government of National Unity committee that monitored oil revenue and production data and assessed arrears that were then paid by the Government of National Unity to MoFEP. Subsequent to the PEFA assessment, a formal, full reconciliation exercise was conducted during May-July 2011 for January 2010-May 2011. Since July 9, GRSS has been in sole charge of managing its oil revenues, and the reconciliation issue no longer applies. Bank reconciliations are prepared in only some of the spending agencies. MoFEP has no access to these accounts or to the bank reconciliation reports. Spending agencies do not generally prepare annual financial statements; if they did, the statements would include the balances in their bank accounts. Some of the bank reconciliations conducted by spending agencies may not in fact be true reconciliations; for example, one "reconciliation" provided to the assessment team by the Ministry of Education was actually a transactions ledger. (ii) Regularity of reconciliation and clearance ofsuspense accounts and advances Travel advances (per diems) and supplier advance payments are recorded as expenses at the time of payment. No separate memorandum records are maintained to monitor advance payments. As a result, the annual financial statements for 2005-2008 do not show these advances (as receivables), even as disclosure items. Advances of petty cash to spending agencies are also recorded as expenditures, even though in principle the agencies are supposed to account for the use of the advances, enabling their clearance and the classification of the actual expenditures. Balances on suspense accounts may arise due to unidentified revenue and payments. The annual financial statements for 2005 indicate uncleared end-year suspense account balances. Some of these balances have been carried over year-after-year. The 2006 annual financial statements indicate end- year balances that were carried over from 2005 amounting to USD 117 million as payment pending further information and explanation from six banks where MoFEP holds accounts. Performance Indicator 23: Availability of information on resources received by service delivery units Problems can arise in front-line service delivery units in obtaining resources that were intended for their use. This performance indicator covers primary education and health care service delivery units that are under the responsibility of GRSS and state governments. 116 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Conditional grants to state governments include grants for primary education and health, since state governments have primary responsibilities in these areas. These grants finance a large proportion of state government expenditures in these areas. One of the conditions is frequent reporting and accounting, but until March 2011 these conditions were not being enforced, as previously indicated. The increased emphasis on accountability since then is due both to a significant increase in the size of conditional grants in 2011 (relative to the previous year) and to strengthened IT packages that will enable reporting and accounting: the Southern Sudan Electronic Payments System and the IFMIS. Donor budget books provide information on what has been expended under each project in the previous year and the budget for the current year. They state the number of activities under each project, but without specifying the particular health centers or schools. Performance Indicator 24: Quality and timeliness of in-year budget reports The ability to "bring in" the budget requires that timely and regular information on actual budget performance be available both to MoFEP (and the Cabinet), in order to monitor performance and if necessary identify new actions to get the budget back on track, and to the line ministries, in order that they may manage the affairs they are accountable for. (i) Scope of reports in terms of coverage and compatibility with budget estimates Using IFMIS, MoFEP records approved payments requests, actual payments, and remaining appropriations balances on a monthly real-time basis, including disbursements to line ministries to pay salaries and related benefits and petty cash advances. Monthly budget execution reports sent to spending agencies reflect these records. The reports do not include expenditure commitments entered into prior to the commitments becoming payables, since the system does not as yet provide for this. Similarly, spending agencies are expected to prepare their own financial reports, showing own revenues, transfers from MoFEP, expenditures, and bank balance movements, but most do not. The IFMIS software, which would facilitate preparation of financial reports, has been installed in only eight of the spending agencies and is not yet fully operational. Some of the Directorates of Administration and Finance of spending agencies visited by the assessment team claimed that they did not receive monthly budget execution reports from MoFEP or that some of the reports were incomplete or inaccurate. Revenue collections are recorded on the basis of bank advice statements, and thus are not recorded on a real-time basis, since the statements may be submitted some time after the revenue is received. (ii) Timeliness of the issue of the reports 117 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Expenditure reports are prepared by the MoFEP Accounts Department on a monthly basis, using the IFMIS. Some spending agencies, such as the Ministry of Transport and Roads, complain that they do not receive such reports, but this may reflect internal dissemination issues. MoFEP submits quarterly financial reports to the SSLA every quarter. (iii) Quality of information Assessing the quality of financial reports would have been easier if audit reports had been available. As noted under Performance Indicator 21, the internal audit function is only just getting off the ground, and the Audit Chamber has not circulated any of its audit reports yet (discussed under Performance Indicator 26). According to the Directorate of Accounts in MoFEP, the quality of financial reports, in terms of the accurate capture of information, is fairly good. Submitted and approved payments requests are captured on a daily basis. The payments requests are being approved on the basis of supporting documentation provided by spending agencies (e.g., purchase orders, invoices, goods receipts notes). These are checked, verified, and approved prior to the submission of the payments request form to MoFEP and then checked again by MoFEP. Except for petty cash advances to spending agencies, for which no accountability reports are prepared and presented to MoFEP, all payments are captured in the IFMIS. Petty cash advances for which no accountability reports are presented are recoded as petty cash expense in a lump sum. However, as noted under dimension (i), some spending agencies, particularly the ministries of Education, Agriculture and Forestry, and Transport and Roads, expressed a concern about the quality of the monthly financial reports sent to them. Some expenditures unrelated to the Ministry of Education were often presented in the monthly reports sent to it by MoFEP. The quality of the oil revenue data is also suspect, as also indicated under dimension (i). The limited application of some accounting standards (according to the International Public Sector Accounting Standards)--such as the failure to record expenditure commitments, the absence of monthly bank reconciliations, the use of advances, the non-clearing of suspense accounts, and the recognition of revenue on the basis of net cash received as per bank advice slips (instead of real- time records of gross revenue receipts)--affects the quality of the in-year financial reports. Ongoing actions and plans Twelve new accountants have been recruited by MoFEP accounts to clear backlogs in accounting, including the reconciliation of bank accounts and the clearance of suspense accounts. Performance Indicator 25: Quality and timeliness of annual financial statements Consolidated year-end financial statements are critical for transparency in the PFM system. 118 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 At the time of the PEFA assessment, the most recently completed annual financial statements prepared by MoFEP were for 2006, 2007, and 2008. MoFEP expected to finalize the annual financial statement for 2009 by the end of June 2011. Preparation of the three statements (2006, 2007, and 2008) was contracted out to a consulting firm. The Accounts Directorate of MoFEP took over the responsibility of maintaining the accounts books and preparing financial statements in 2009 with the support of some regional accounts specialists working with the Directorate.. (i) Completeness of the financial statements MoFEP prepares a consolidated government financial statement annually, covering spending agencies at the GRSS level and transfers to the states but not the states themselves. The financial statements include budgeted and actual expenditures (payments) by sector as well as budgeted and actual revenues. Some revenues and expenditures are not included in the financial statements, specifically: * expenditures deducted at the source by the Government of National Unity from oil revenues, so that oil revenues are recorded as net amounts (the amounts deducted are, however, presented as a disclosure); * some of the revenues collected by spending agencies; and * Multi-Donor Trust Fund and other donor-funded expenditures incurred on behalf of GRSS. Transfers are recorded as expenditures at the time of transfer. Financial assets other than cash (both physical and in bank accounts) are not included in the financial statements. All advances paid to suppliers and staff are recorded as expenditures (e.g., advances paid for the purchase of vehicles are recorded as expenditures). The composition of the expenditures tends not to be reported to MoFEP. (ii) Timeliness of the submission of the annualfinancial statements Delays in submitting the annual financial statements to the Audit Chamber (Table 3.11) are mainly due to MoFEP's delay in taking over the accounting function from the consulting firm and to understaffing. The delays were also partly due to delays in the starting-up of World Bank-funded Low Income Countries Under Stress activities in this particular area. 119 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table 3.11. Timelines of Annual Financial Statements, 2006-2009 Year Date annual financial Date annual financial Months from statement was statement was end of fiscal approved by MoFEP submitted to Audit year Chamber 2009 May 5, 2011 May 5, 2011 16 2008 April 1, 2009 February 22, 2010 14 2007 April 1, 2008 February 22, 2010 26 2006 August 1, 2008 August 1, 2008 20 (iii) Accounting standards used According to the narrative in the draft financial statements, standards have been prepared in accordance with the International Public Sector Accounting Standards on a modified cash accounting basis, except where stated otherwise. Section 48 (3) of the draft PFM and Accountability Bill indicates that accounts should be prepared in accordance with international public sector accounting standards. Section 48 (5) states that the accounts prepared should state the basis of accounting (i.e. cash, modified cash, or accrual). The recognition of oil revenue as net receipt and the omission of third-party expenditures on behalf of GRSS (i.e., donor projects) are not in line with the cash basis IPSAS." The accounting policies stated in the annual financial statements in recognition of inventory, payables, accruals, contingent liabilities, and commitments have not been reflected in the 2006-08 statements or in disclosures to the statements. Indicat Score or 2011Assessment (M2) PEFA PI-22 DA (M2) (i) DA (i) Regularity of bank reconciliations: MoFEP-controlled bank accounts (17 in total) have not been formally and fully reconciled (i.e., without irreconciliable errors) with revenue and expenditure records since December 2009. MoFEP does not have access to information on spending agency bank accounts and does not know whether and how often bank reconciliations take place (the Southern Sudan Anti-Corruption Commission seems to be an exception). Subsequent to the PEFA assessment, a full reconciliation exercise was carried out for January 2010O-May 2011. With GRSS now administering its *Section 1.3.13 of IPSAS - "Financial Reporting Under the Cash Basis of Accounting," updated in January 2007 -- requires that total cash receipts should be reported on a gross basis. 120 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 oil revenue, a major reconciliation error will fall away. (ii) D (ii) Regularity of reconciliation and clearance of suspense accounts and advances: The accounting system does not capture advances. Suspense balances are reported for payments and receipts through banks for which no evidence was available. These balances have been carried forward for at least two years. PI-23 D A Availability of information on resources received by service delivery units: No comprehensive information has been available to date on resources received by basic service delivery units, which are mainly the responsibility of state governments. This situation is likely to improve starting in 2011, due to the State Transfers Monitoring Committee's announcement of tougher reporting and accounting requirements under conditional grants, which effectively finance much of the basic service delivery at the state level. PI-24 C+ (M1) (i) C (i) Scope of reports in terms of coverage and compatibility with budget estimates: MoFEP prepares monthly financial reports. Reports received by some spending agencies show comparisons to budget by activity and line items, according to economic classification. Some of the reports received by other spending agencies do not show the approved budget for performance analysis purposes. Expenditure commitments (commitments to purchase/procure) are not included. Revenue reports are not on a real-time gross basis, and therefore precluding revenue performance analyses. (ii) A (ii) Timeliness of the issue of reports: Expenditure reports are prepared by the MoFEP Accounts Department on a monthly basis using the IFMIS. Some spending agencies, such as the Ministry of Transport and Roads, complain that they do not receive such reports, but this may reflect internal dissemination issues. (iii) C (iii) Quality of information: All payments effected by MoFEP are recorded in IFMIS, though not directly generated by IFMIS. The payments are based on well documented and checked payment request forms and supporting documents. Nevertheless, some spending agencies claim that monthly performance reports sent to them contain errors. Expenditure out of petty cash advances tends not to be well documented. Revenues are recorded when advice slips are received from banks showing receipts in net terms with some expenditures deducted at source and thus not reported on. The bank advice slips are received some time after the revenues have been deposited, so monthly revenue statements may not be accurate. PI-25 D+ (M1) (i) C Completeness of the financial statements: Full information is not provided on: (i) oil revenues and related expenditures deducted at source; (ii) some own revenues of ministries and the spending from them; (iii) expenditures financed out of petty cash advances; (iv) donor-funded projects; and (v) some financial assets, including bank balances of spending agencies, and some financial liabilities. (ii) D Timeliness of submission of the financial statements: The annual financial statements for 2009 were submitted to the Audit Chamber in May 2011, 16 months after the end of the financial year. The delay is mainly due to the delay in MoFEP taking over the accounting function from KPMG. (iii) C Accounting standards used: Financial statements are presented consistently over time, with some improvement, including comparison of actual outturns against the budget. The annual financial statements are supposed to be prepared according to the cash- based IPSAS, but in practice they are not. 121 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Sources: MoFEP Accounts Department; MoFEP annual financial statements for 2005-08; sample of FreeBalance-generated monthly reports; Ministry of Agriculture and Forestry, Ministry of Education, Ministry of Health; Ministry of Transport and Roads, Administration and Finance Departments; Southern Sudan Anti-Corruption Commission; MoFEP and MoLPS, "Conditions for Use, Release and Reporting on Transfers to States in Fiscal Year 2011" (April 2011); Auditor General, Audit Chamber; IPSAS. Notes: Upward pointing arrow indicates progress being made but not yet enough to warrant a higher rating. M1 indicates the "weakest link" method; M2 indicates the simple-average method. At the state level Performance Indicator 22: Timeliness and regularity of accounts reconciliation NBGS Bank account reconciliation is not yet practiced, except in the case of expenditures financed by the block grant. The Accounts Directorate in MoFTI does not record revenue collections, thereby precluding comparison and reconciliation with deposits of revenue in MoFTI-controlled bank accounts, as recorded in the bank statements. Statements for MoFTI's block-grant bank account are checked against the block-grant cash book, which is electronically maintained under EasyPay (the payroll management IT package, as explained under Performance Indicator 18). Cash books are not maintained for expenditures financed from other MoFTI bank accounts; the bank statements can be checked against payments vouchers, but this is cumbersome. Spending agencies do not practice bank reconciliation; even if they did, MoFTI would not know about it. Suspense accounts and advances are not reconciled and cleared, since the accounting system is not yet developed enough. Advances, including advances of petty cash to spending agencies, are recorded as expenses at the time of payment, but in principle they should be recorded as advances until they are regularized as expenditures through the spending agencies accounting for their use. Unity State In Unity State, MoFTI has about five bank accounts under its control, all with Ivory Bank. Bank reconciliations are prepared monthly within the following month for these accounts. Spending agencies have their own bank accounts for salaries and operational funds, also maintained with Ivory Bank. These accounts are not independently checked by MoFTI. The Unity State officials were unsure whether all spending agencies prepare monthly bank reconciliations. MoFTI does not exercise its mandate to request access to spending agency bank accounts. 122 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Information on the oil revenue receipt bank account (different from the GRSS transfers account) was not available to the assessment team, and Unity State officials were uncertain about the information on this account. Discrepancies may be significant, since they are at the GRSS level. The state officials interviewed were not aware of suspense accounts and advances outstanding. The state does not prepare final accounts where such information would be reported. There are no advances paid to contractors. Suspense accounts may arise due to unidentified revenue and payments or suspense assets and liabilities. Jonglei State The state MoFEP in Jonglei State controls five bank accounts: development, block grant, state MoFEP main account, pension, and state MoFEP chest account, which is opened for emergency issues. These accounts are not reconciled regularly. The existing recording system does not allow the tracking of advance payments made to staff and suppliers. All payments made are recorded as expenses or transfers on the day of payment. Significantly sized suspense balances were reported in the financial reports for 2008 and 2007, respectively. These balances represent loans made to officials. There are no separate subsidiary records that could help reconcile and clear these loans. Western Equatoria State In Western Equatoria State, MoFTI has two bank accounts under its control with Ivory Bank, one for transfers from GRSS and the other for local revenue. Spending agencies have their own bank accounts for salaries and operational funds, also held at Ivory Bank. A review of the manual cash book indicated that bank reconciliations are prepared monthly within the following month for the MoFTI-treasury accounts. The PEFA assessment was conducted on June 24, 2011, and the reconciliation for May 2011 was already prepared and signed off for evidence checking by senior officials. The official responsible for maintaining bank accounts and preparing reconciliations had a wealth of experience in bookkeeping. He follows up with the bank immediately to trace and clear outstanding reconciling items in the subsequent month, especially for items that may be questionable. There are no long-outstanding reconciling items. It was not possible to review reconciliations of spending agency bank accounts, since MoFTI does not exercise its mandate to request access to spending agency bank accounts. Any reconciliation items discovered under dimension (i) might include suspense and advance items that may arise due to unidentified revenue and payments or suspense assets and liabilities. The 123 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 reconciliations reviewed by the assessment team did not indicate any such items. MoFTI staff were not aware of suspense accounts and advances outstanding in spending agency accounts. The state annual financial statement is prepared on a cash basis and does not allow the capturing of advances, which are treated as expenditures. Suspense accounts often originate from unknown bank deposits in relation to revenue. However, the revenue-related transactions are not recorded by accounts and are not included in the financial statement. Western Equatoria State does not pay advances to contractors. The most common type of advance is an advance of salary, which is supposed to be cleared the following month. Performance Indicator 23: Availability of information on resources received by service delivery units As noted for GRSS Performance Indicator 23, until March 2011 state governments had not been reporting on the use of conditional grants provided to them. This is changing under the State Transfers Monitoring Committee's new conditional grant accountability framework. Donor agencies provide assistance to the primary health care and education sectors through stand- alone projects outside state government PFM systems. However, they are not reporting on the resources they deliver to service delivery units. Service delivery units do not prepare reports on resources received by them and their parent spending agencies also do not prepare reports on resources delivered to the unit. Unity State prepares an annual report to the Council of Ministers with respect mainly to the education and health sectors. This report is activity-based and does not include financial information. Performance Indicator 24: Quality and timeliness of in-year budget reports NBGS In NBGS, MoFTI only began preparing monthly expenditure reports in January 2011, using FreeBalance, which was installed in late 2010. The reports contain summaries of expenditures by spending agency, with no information on expenditure by chapter and line item. Petty cash advances to spending agencies are classified as expenditures, with no indication of what they were spent on. The reports do not contain information on expenditure commitments and pending claims. Monthly revenue reports are not yet prepared, since the State Revenue Authority has not submitted information on revenue collections. The reports have been submitted in soft copy to MoFEP at the GRSS level, but not to spending agencies (contrary to the requirements of the Payments Procedures). Spending agencies do not prepare their own financial reports. The monthly expenditure reports prepared by MoFTI since the beginning of the year have been prepared within a month of the end of the month. 124 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 FreeBalance is not fully up and running, which might have implications for the quality of the reports. As of the time of this review, only one machine had been installed, another was needed. At its presentation at the workshop held for state governments in late May 2011, the State Transfers Monitoring Committee expressed some concerns over the quality of the monthly reports submitted by state governments on the use of conditional grants, which finance about 50 percent of state government expenditures. Some states were reporting far less expenditure than the transfers sent, suggesting that perhaps that not all expenditure was being recorded in FreeBalance. On the other hand, some states were reporting far greater expenditures than transfers, indicating that expenditures were perhaps being reported twice. Either way, recording procedures had to improve. Suggestions for improvements included: * Ensuring that payments requests are entered into FreeBalance prior to payments being made (the importance of this procedure in terms of control over budget execution was stressed in the GRSS level PEFA assessment); * Reducing the amount of funds automatically released to spending agencies each month and correspondingly increasing the amount of direct payments to suppliers by MoFTI; * Setting thresholds above which payments must be made by check or bank transfer; * Ensuring clear segregation of duties; and * Carrying out bank reconciliations. Unity State FreeBalance was rolled out in October-November 2010, and the first report was generated in March 2011, the information being roughly the same as for NBGS. Spending agencies are expected to prepare their own financial reports, showing own revenues, expenditures, and bank balance movements, and to submit these monthly reports to MoFTI. They have been doing so. Counties are also expected to report back to MoFTI, but they never do so. FreeBalance software has been installed only in MoFTI, though only three staff have been trained. The Unity State officials indicated the need to roll out FreeBalance to other spending agencies and the need for more training in its use. Spending agencies would then be in a better position to prepare in-year budget performance reports and annual reports. Quality of information. Unity State has not produced final accounts ever since the start of the Comprehensive Peace Agreement in 2005. The quality of information was such that until very recently it has not been possible to prepare meaningful in-year budget performance reports. The budget documents indicate expenditures and revenues for the first nine months of the fiscal year, but a quick review reveals data inconsistencies; Unity State officials were also skeptical of the 125 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 quality of the data. 56 The Budget Analysis Report prepared by MoFTI for January-March also lacks meaning, since it contains no expenditure data. Jonglei State In Jonglei State, FreeBalance became operational at the state MoFEP in April 2011. At the time of the PEFA assessment, transaction entries for January and February 2011 had been completed and the transaction entry for March 2011 was in progress. Budget execution reports show comparisons between the budget and actual budget execution by expenditure line item and spending agency. The reports do not yet cover budgeted and actual revenue collection. Spending agencies had never received any monthly reports from state MoFEP. The use of FreeBalance will make it easier to provide these reports. Spending agencies have not prepared any financial reports. The absence of bank reconciliation and the distribution by state MoFEP of budget performance reports to spending agencies for review raise serious concerns about the accuracy of the information. Some of the spending agencies interviewed also had not received the approved budget, thus hindering comparisons with budget performance reports. The use of FreeBalance will help to improve the quality of the reports, particularly once spending agencies obtain the chance to review the in-year reports. Western Equatoria State In-year financial reports for 2010 were prepared using Excel. These reports show actual expenditure detailed by chapter (code), subcode, and detail accounts and classified by month. The reports do not show the corresponding budget of the year. FreeBalance was rolled out in October 2010, and reports have been issued monthly since January 2011. As yet these have not been prepared in sufficient detail. The reports show expenditure by spending agency according to budget classification, but they do not capture the expenditures of liaison offices in Khartoum and Juba; MoFTI does not know how much is remitted to it and how much is spent. The reports include the spending by spending agencies of their petty cash, although as mentioned under dimension (iii), these may not be accurate. They do not show as yet unapproved payments requests and remaining appropriations balances, as they do at the GRSS level. Expenditure commitments (contracts and purchase orders) are not captured in FreeBalance. The reports do not include revenue collections, since these are managed by the Revenue Directorate, and the data are not yet entered into FreeBalance. The Revenue Directorate has started to prepare revenue performance reports; it issued a report showing monthly collections from May 5 Many of the figures shown in the 9-month report for 2010 indicate 75 percent performance, which is highly improbable., suggesting that the numbers are not real. 126 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 2010 to April 2011. But until now, revenue collections have not been reflected in budget performance reports. MoFTI is supposed to send its monthly financial reports to spending agencies. Spending agencies are supposed to prepare their own financial reports, showing own revenues, expenditures, and bank balance movements, and submit them to MoFTI and county administrations. Counties are also supposed to prepare reports and submit them to MoFTI. None of this is yet being done. As with other states, in Western Equatoria State there is a need to roll out FreeBalance to other spending agencies and a need for more training in its use. During 2010, in-year financial reports were submitted on a quarterly basis within five weeks of the end of each quarter. The FreeBalance report has been issued every month since January 2011. Quality of information. The financial statements produced for 2010 do not provide budget comparison information or budgeted and actual revenue collections. The quality of information was such that until very recently it had not been possible to prepare meaningful in-year budget performance reports. Significant deficiencies with the budget performance reports that have been prepared since January 2011 are these: (i) they exclude revenue collection; (ii) spending agencies do not report on the expenditures of their petty cash; expenditures are shown as advances from MoFTI; and (iii) expenditures do not include those of the liaison offices of Western Equatoria State in Khartoum and Juba. Performance Indicator 25: Quality and timeliness of annual financial statements (AFS) NBGS and Unity State In both these states, no annual financial statements have been prepared to date by MoFTI and the county administrations. MoFTI intends to prepare an expenditure report for 2011. Thus dimension (i) is assessed as D (a consolidated financial statement is not prepared annually), while dimensions (ii) and (iii) are not applicable. Jonglei State Financial statements were prepared by the Directorate of Adjustment and Internal Audit for 2007 and 2008. The Directorate of Accounts would like to focus on the preparation of financial statements for 2011, since the adoption of FreeBalance will make this easier than for other years. The financial reports prepared for 2007 and 2008 covered more than 80 percent of total expenditures within the state. They show revenue and expenditures by major classification (by type of transfer and revenue and by type of expenditures), but they do not show expenditures by line item under each spending agency. They also do not show actual expenditures from petty cash " Revenues are classified as block grant, conditional grant, personal income taxes, and revenues earned by spending agencies. Expenditures are classified as salaries and wages, operating costs, and capital expenditures. 127 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 transferred to spending agencies and from transfers to counties, nor do they show the expenditures of counties financed by their own revenues. Bank account balances and cash on hand are not included in these reports. The annual financial statement for 2009 had not yet been prepared by June 2011, which is 18 months from the end of the fiscal year. No disclosure is attached to the financial reports as to the accounting standard adopted for the preparation of the financial statements. Neither of the 2007 and 2008 reports was prepared in accordance with International Public Sector Accounting Standards. Western Equatoria State A financial statement was prepared for 2010. The financial statement shows only expenditure reports by chapters, subcodes, and detail accounts. It does not include information on revenue, budget, and financial assets and liabilities and other expenditures incurred by coordination offices outside Western Equatoria State. The situation is likely to improve in 2011 with the use of the FreeBalance System. At the time of the PEFA assessment, the preparation of the annual financial statement for 2009 had not been completed. Expenditures made in different coordination offices of the Western Equatoria State in Juba and Khartoum had not been included. As a result, the report was awaiting adjustment. All levels of government in the state are, according to the state's Interim Constitution, supposed to comply with generally accepted accounting procedures. There is no stated accounting standard for the financial statement prepared by Western Equatoria State, which was prepared on a single- entry accounting cash basis. Accounting, Score: Score: Score: Score: recording & NBGS US JS WES P1 reporting Explanation () Regularity of bank reconciliations: Timely reconciliation of MoFTI-held accounts (within 4 weeks of end of month) regularly takes place only for Unity State and Western Equatoria State. Timeliness and D C D C (ii) Regularity of reconciliation and clearance of PI-22 regularity of (i) D (i) B (i) D (i) B suspense accounts and advances: Data on (M2) accounts amounts are not maintained and/or amounts are reconciliation (ii) D (ii) D (ii) D (ii) D known but not cleared. Unreconciled items under (i) may reflect unrecorded suspense items. Petty cash advances tend not to be cleared, since expenditures out of them tend not to be accounted for. PI-23 Availability of No information is collected. As of March 2011, information on D D D D state governments must account monthly to State (Ml) resources Transfers Monitoring Committee for the received by expenditures out of conditional grants. Such 128 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Accounting, Score: Score: Score: Score: recording & NBGS US JS WES Pi reporting Explanation service reports may indicate resources received by service delivery units delivery units, but they may not drill down sufficiently to that level. (i) Scope of reports: Reporting is still in its infancy. Only Western Equatoria State prepared reports during 2010, which excluded revenues and budgeted amounts. With FreeBalance established in late 2010/early 2011, states have started to prepare monthly budget performance reports, which, however, exclude revenue, expenditure out of petty cash, and expenditure commitments. D D D+ D+ (ii) Timeliness of issue of reports: Western Quality and Equatoria State prepared quarterly reports during PI-24 timeliness of (i) D (i) D (i) D (i) D 2010. States were preparing monthly reports (Ml) in-year budget (ii) D (ii) D (ii) D (ii) B during 2011. reports (iii) D (iii) D (iii) D (iii) D (iii) Quality of information: Data quality was highly suspect in 2010. Quality is improving during 2011, but concerns remain: spending agencies are not being given the chance to review reports sent to them and bank reconciliations are not available to provide a check. Concerns were raised by GRSS MoFEP at the State Transfers Monitoring Committee workshop held in May 2011 about the quality of the conditional grant accountability reports being submitted to it by state governments. (i) Completeness of the financial statements: Only Jonglei State and Western Equatoria State had prepared annual financial statements at the time of the PEFA assessment, and they lacked essential information (e.g., revenue, expenditure out of petty D cash advances, and bank and physical cash Quality and D (i) D D D balances). PI-25 timeliness of (i) D (i) D (i) D (ii) Timeliness of submissions of financial annual (ii) NA statements: For Jonglei State and Western (Ml) financial (ii) NA (ii) D (ii) D Equatoria State, the annual financial statement for statements (iii) NA (iii) D (iii) D 2009 had not been prepared as of June 2011. (iii) Accounting standards used: These were not disclosed in the annual financial statements for Jonglei State for 2007 and 2008, nor in the draft annual financial statement for Western Equatoria State for 2009. The Jonglei State annual financial statement did not conform to IPSAS. Sources: GRSS MoFEP and MoLPS, "Conditions of Use, Release, and Reporting on Transfers to States in FY 2011" (April 2011) (all States), and "Use of & Reporting on State Transfers"; Benjamin Ayali, Chair of STIMC, presentation at workshop for state governments in Juba, May/June 2011. NBGS: Accounts Department of MoFTI; block grant bank account statement for January 2010 and cash book transactions for the block grant for August 2010. Unity State: Meetings with state officials in Juba; three-month budget analysis report (March 2011); budgets for 2009-2011. Jonglei State: Accounts Department and Directorate of Adjustment and Internal Audit, state MoFEP; annual financial statements for 2007 & 2008; FreeBalance monthly generated reports; Directorate of Commerce and Supply; State Ministry of Education; State Legislative Assembly. Western Equatoria State: Meetings with MoFTI officials; Cash Book and Reconciliation Statements; MoFTI accounts; draft Financial Statements for 2010; Revenue Progress Report, June 2011; 2010 and 2011 budgets. Notes: NBGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. 129 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method; M2 indicates the simple- average method. NA = Not applicable because of circumstances explained in the text. 130 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 3.6. External Scrutiny and Audit (Performance Indicators 26-28) SYNOPSIS The external audit and legislative oversight function was still in an early stage of development at the time of the PEFA assessment, particularly at the state government level. At the central government level, the external audit function, in the form of the Audit Chamber, has been in place since the Comprehensive Peace Agreement, initially contracted out to an external agency. The agency audited annual financial statements and some spending agencies, but audit reports were not submitted to the SSLA or publicized. The agency agreement ended in 2008, and an Auditor General was appointed to head the Audit Chamber. For various reasons, however, it was not until mid-2010 that a permanent and fully qualified Auditor General took up the position. Since then, the Audit Chamber has been increasing its capacity and improving the timeliness in its preparation of audits of the financial statements of GRSS and of audit reports covering spending agencies. At the time of the assessment, no audit reports had been submitted to SSLA, although such a submission was supposedly "imminent" (it still had not happened at the time of the PEFA workshop in September). Thus, the SSLA has not been able to play its role of reviewing audit reports. The SSLA is very keen to play this function through its Public Accounts Committee and to be better able to review draft budgets through its Committee for Economy, Development and Finance, and it expressed to the assessment team that it needed assistance to develop this capacity. The Audit Chamber's scope covers the state governments as well, but at the time of the PEFA assessment, no state governments had been audited. The state governments covered by the assessment did not have functioning legislative assemblies until 2010, and then they still did not have the technical capacity to review reports. That capacity is gradually being developed. For a few years, the SSLA has been in a position to review draft budgets submitted to it through its Committee for Economy, Development and Finance, as provided for under the Interim Constitution of Southern Sudan. Its review procedure is guided by a "Guidelines" document, the preparation of which was finalized in 2010. As mentioned above, the Committee for Economy, Development and Finance wants assistance to enable it to analyze draft budgets with more rigor. The state government equivalents of the Committee for Economy, Development and Finance and the Public Accounts Committee had little to do until 2011 in terms of reviewing draft budgets, and they had nothing to do in terms of reviewing audit reports. The state legislative assemblies are enthusiastic about the opportunity to play their role. The assembly for NBGS thoroughly reviewed the 2011 draft budget-the first budget it has been in a position to review-and made many changes to it. 131 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 AT THE GOSS/GRSS LEVEL Performance Indicator 26: Scope, nature and follow-up of external audit Background The Southern Sudan Audit Chamber was established in 2005 under the Interim Constitution of Southern Sudan. The Auditor General is appointed by the President of GRSS, with the approval of a two-thirds majority of the members of SSLA; removal from office also requires a two-thirds majority approval. The Audit Chamber is accountable to the SSLA, and the auditor general is appointed by the President. The Auditor General is required to present an annual report to the President and the SSLA. The budget of the Audit Chamber is independent and approved directly by SSLA. The chamber can also independently mobilize resources from development partners, and is therefore independent in principle from the executive branch of government. As of May 2011, the Audit Chamber had 90 staff, of whom 73 were professionals. The appointment of support staff is through the public service laws, except for the certified public accountants of the chamber who may not necessarily be subject to public service pay scales. This provides additional flexibility to the Audit Chamber to attract scarce skills to fulfil its mandate. However, the law specifying the functions, terms, and the conditions of service of the employees of the Audit Chamber has not yet been enacted. The current Auditor General, who was appointed in February 2010 and took up his appointment in July 2010, is well educated and well qualified for the position (he holds two masters degrees and is a certified public accountant). Currently only the Auditor General and one deputy have professional accountancy qualifications. The rest are degree holders, and some are pursuing professional accountancy qualifications, including through the Government Accounting Training Center. Staff are encouraged to attend International Organization of Supreme Auditing Institutions conferences as part of their continuing education. The Hugh Pilkington Trust was recently hired to teach English speaking and writing skills to auditors; English speaking abilities in South Sudan are in limited supply. Staff turnover and the limited supply of audit professionals are a challenge to the Southern Sudan Anti Corruption Commission. The Audit Chamber Bill was signed by the President as a provisional order in January 2011 and, at the time of the PEFA assessment, it was before SSLA for consideration and passage into law. When enacted, the major function and duties of the Audit Chamber would be very similar to those of any auditor general's office, following the guidelines of the International Organization of Supreme Auditing Institutions. The first Auditor General was appointed in 2006. A commission of five people was established; but technical expertise was limited. PKF (a UK consulting firm) was appointed in 2007 as a six- man team under a three-year contract to take charge of the external audit activities and strengthen the 132 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 capacity of the Audit Chamber. It started with audits of projects financed by the Multi Donor Trust Fund. It later assisted in auditing the 2005 and 2006 annual financial statements and, as of September 1, 2011, was finalizing the audit of the 2007 statement and had commenced auditing the 2008 and 2009 statements, following their receipt in June, 2011. It audited the Oil Revenue Account in Khartoum, covering 2005-2008. PKF's contract was extended for another year and is still ongoing. Recently, PKF assisted with the drafting of an external audit development strategy for the next five years. An experienced audit adviser, who served as Deputy Auditor General, is also providing technical assistance to the Audit Chamber. The auditor general submitted an annual report to SSLA for 2011 detailing the annual plan and performance for the office. In April 2011, he explained to SSLA the progress of his work and the challenges confronting the Audit Chamber. This dialogue was reported in the newspapers in Juba, which indicated that SSLA was supportive of the Audit Chamber and was eagerly waiting to receive the audit reports for 2005 and 2006. (i) Scope/nature of audit performed The Audit Chamber's scope in principle covers all public sector entities in South Sudan. Audits have covered 30 GRSS spending agencies, representing about 80 percent of expenditures. Three of these agencies -- SPLA, MoFEP and the Interior Ministry -- represent about 51 percent of expenditure. Specialized agencies, namely the Central Bank of South Sudan and the utility companies, have not been audited yet, and neither have any state governments. The GRSS financial statements are more comprehensive concerning income and expenditure levels and less so concerning asset and liability levels, equity structure, and cash flow. The audits also cover compliance with rules and procedures (including compliance with donor funding agreements), payroll cycles, procurement reviews, and the general internal control architecture. Performance and system audits are still in their early stages of development. No procurement audits or IT audits have been conducted so far, mainly due to limited human resource availability. Two nonfinancial audits were conducted by the Audit Chamber during 2010: an investigative audit at the Ministry of Commerce, based on the request of the Minister, and a cut-off audit for the month of December 2010 with the initiation of the Auditor General. The purpose of the latter was to examine issues concerning closing balances to check compliance with cut-off procedures. Ministries are obliged to deposit all their end-year holdings of cash on hand into MoFEP's main bank account. The Audit Chamber follows the standards laid out by the International Organization of Supreme Auditing Institutions and relevant International Auditing Standards issued by International Federations of Accountants, as noted in the Audit Manual (2010), the Audit Chamber Code of Ethics and Code of Professional Conduct, and the draft Audit Chamber Bill. A review of the audit files by the assessment team indicated that the chamber is diligent about complying with the standards of the " The PKF team audited the 10 States combined in 2009, but this was a legal error, as the law stipulates that each state, as a separate legal entity, should have a separate audit report 133 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 International Organization of Supreme Auditing Institutions. Senior auditors reviewed the work of their subordinates. No reports have been published yet, since the SSLA has not yet reviewed them (Performance Indicator 28). There is no legal obstacle to publication, which is expected soon in relation to the 2005 and 2006 annual financial statements. Audits of the annual financial statements and spending agencies are conducted on a sample basis. In the process of auditing, the chamber reviews the internal controls over assets, revenues, and expenditures. The audit includes payrolls, including ensuring that payroll payments are supported by sufficient personnel records and that no payment is made to a ghost worker. The chamber had sent management letters to some auditees, but no response has been received yet. The Audit Chamber uses the audit findings of internal auditors as additional input to its audits. (ii) Timeliness of submission of audit reports to the legislature According to the Interim Constitution of Southern Sudan, the Audit Chamber should present its report each year on the final accounts of GRSS to the SSLA within six months of the end of the fiscal year. As of September 1, 2011, the audit reports for 2005 and 2006 had "informally" been shared with SSLA; the annual financial statement had been submitted to the chamber in August 2008. The reports included annexes with respect to individual ministries that the chamber has audited. The audit for 2007 was still ongoing, but more than 80 percent of the work had been completed. The annual financial statements for 2008 and 2009 had been submitted to the chamber but the audit had not yet started, since the chamber had only recently received the draft financial statements from MoFEP. The audit backlog and delays in submitting audit reports to the SSLA are attributed to capacity issues as well as the vacuum that occurred when the first Auditor General left office. (iii) Evidence offollow-up on audit recommendations The Audit Chamber has provided limited feedback in the form of management letters to some auditees about its audit findings, but it has received no response (with the exception noted in the next paragraph). It had not conducted any exit conferences. MoFEP indicated to the assessment team its concern about lack of communication from the Auditor General. His reason for not communicating stemmed partly from his concern that the reports might reach the public, prior to discussions with the auditees about the findings and agreements on the mitigation measures that the auditee should take. The lack of communication from the Auditor General is a significant omission, given that audits are supposed to help auditees improve their financial performance. The exceptional case of good follow-up was an investigative audit conducted at the request of the Ministry of Commerce. The chamber's recommendations were implemented by that ministry. The successful follow-up was due to the accounting officer at the Ministry of Commerce requesting the audit. 134 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 As noted under Performance Indicator 28, SSLA also has a mandate to follow up on the implementation of audit findings through specialized committees, such as the Public Accounts Committee. This mandate will be tested once audit reports start being presented to SSLA. Performance Indicator 27: Legislative scrutiny of the annual budget law The power to give the government authority to spend rests with the legislature, and is exercised through the passing of the budget law. The SSLA was created under the Interim Constitution of Southern Sudan. Its membership is composed of members of the Sudan Peoples' Liberation Movement (70 percent), National Congress Party members (15 percent), and other political parties (15 percent), as stipulated by the Comprehensive Peace Agreement.59 The powers conferred upon the SSLA include discussions on all the statements made by the President; impeachment of the President and the Vice President of GRSS; and approval of the policies, plans and annual budget of GRSS. The Committee for Economy, Development and Finance is responsible for scrutinizing the annual draft budget submitted to it by the Council of Ministers. As noted under Performance Indicator 6, the draft budget contains detailed estimates only. The Committee faces challenges in terms of limited knowledge and skills in reviewing budgets and the lack of a supporting budget office. The procedures of the SSLA and its committees were established in October 2010 through the publication of a Code of Conduct, based on Article 84 of the Interim Constitution of Southern Sudan. The procedures are simple and clear; for example, it specifies four readings of the budget. The rejection of a recent Supplementary Appropriations Bill60 was an example of compliance with procedures. However, the lack of experience and the absence of technical backup for the Committee for Economy, Development and Finance mean that the procedures are not always respected. The Council of Ministers' late submissions of the draft budget result in the timelines stated in the Code of Conduct not always being met, but that is not the fault of the committee. The Committee for Economy, Development and Finance expects to receive the draft budget by mid- November (45 days before the beginning of the fiscal year). In recent years, it has received the draft budget much later, but the 45-day review time (over four readings) has still held (except in 2008, when the time allowed was only 10 days), though this has resulted in the budget being approved after the end of the year. The Appropriations Acts clearly stipulate the role of spending agencies, MoFEP, and SSLA regarding in-year budget adjustment. According to the 2010 and 2011 Appropriation Acts with regard to SSLA: 59 http://www.GRSS-online.org/ 60 The rejection was in relation to a supplementary expenditure request submitted to SSLA by the Council of Ministers to cover the cost of activities related to the Independence Day celebrations. 135 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 No funds shall be transferred from one chapter to another during the financial year, or from one Spending Agency to another, nor shall any money be spent on any activity that is not included in the Approved Budget's activity estimates, nor will overall spending be allowed to increase without the prior approval of the Assembly through a Supplementary Appropriation Bill. This provision appears not to be respected. Supplementary Appropriations Acts for 2008 and 2010 provided for extra spending for some spending agencies, but much of the spending had already taken place, so SSLA's approval was after the fact. No Supplementary Appropriations Bill was placed before SSLA in 2009, even though spending for some agencies was higher than their approved budgets. Performance Indicator 28: Legislative scrutiny of external audit reports The legislature has a key role in exercising scrutiny over the execution of the budget that is approved. A Public Accounts Committee is in place and is eager to carry out its function of scrutinizing external audit reports submitted to it. Like the Committee for Economy, Development and Finance, it is short of the technical capacity needed to review the reports. As indicated under Performance Indicator 26, at the time of the PEFA assessment, no audit reports had been submitted to it for the last three years, although subsequent to the assessment, the Auditor General shared the audited annual financial statements for 2005 and 2006 with the SSLA. Indicator Score Assessment (Ml) 2011 PEFA PI-26 D+ (i) C (i) Scope/nature of audit performed: About 80% of GRSS spending agencies have been audited each year (in terms of percentage of their expenditure). The type of audit is mainly financial and compliance, and it mainly comprises transaction-level testing. Systems audits are still at an early stage of development. International Organization of Supreme Auditing Institutions standards are followed, as documented in the Audit Manual. Human resource capacity constraints hinder the work of the Audit Chamber (ii) D (ii) Timeliness of submission of audit reports to the legislature: The audited 2005 and 2006 annual financial statements were shared with SSLA in June 2011, subsequent to the PEFA assessment. The unaudited annual financial statements were submitted in August 2008, the delay in auditing them being mainly due to the vacuum created when the first Auditor General left office. (iii) D (iii) Evidence of follow-up on audit recommendations: The Audit Chamber has not discussed its audit reports with the auditees, which are therefore not in the position to follow up on audit recommendations (the exception is the case of the investigative audit in the Ministry of Commerce, but this was requested by the Undersecretary). PI-27 C+ (i) C (i) Scope of the legislature's scrutiny: The documentation submitted to the 136 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Indicator Score Assessment (Ml) 2011 PEFA Committee for Economy, Development and Finance consists of detailed draft budget estimates only and only after these had been finalized. (ii) C (ii) Extent to which the legislature's procedures are well-established and respected: [As explained in the narrative.] (iii) B (iii) Adequacy of time for the legislature to provide a response to budget proposals: The Interim Constitution of Southern Sudan allows up to 45 days for review (as also stipulated in the Code of Conduct). This was the case for the draft budgets for 2009- 11. (iv) B (iv) Rules for in-year amendments to the budget without advance approval of the legislature: Clear rules are stipulated in the annual Appropriation Acts on the extent of in-year budget amendments without prior SSPA approval. However, these rules have not always been respected, as explained in the narrative. The 2010 Supplementary Appropriations Act, which is the relevant one for rating this dimension, contained elements of both advance and after-the-fact approval. PI-28 NA Not rated, since no audit reports have yet been submitted to the Public Accounts Committee. Sources: Interim Constitution of Southern Sudan; Auditor General; Audit Manual; SSLA; Audit Chamber Bill; Committee for Economy, Development and Finance; 2008 and 2010 Supplementary Appropriations Acts. Notes: NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method. AT THE STATE LEVEL Only Performance Indicator 27 is applicable, since at the time of the assessment, the Audit Chamber had not audited any state governments. Draft budget documentation submitted to state legislative assemblies by their Committees for Economy, Development and Finances (with the exception of NBGS) contain only details of revenue and expenditure and only at the end-stage of budget preparation. The budget documentation submitted to the NBGS state legislative assembly includes statements of policies and plans on which the draft budget is based. State legislative assemblies are guided by Parliamentary procedures based on the SSLA's Code of Conduct, finalized in 2010. Compliance with these procedures seems to be reasonable, at least regarding requirements for four readings of draft budget bills and up to 45 days available to review them. The C ratings for NBGS and Unity State mainly indicate that use of these procedures is newer for them than for the other two states. All SSLAs have been allowed at least a month to review draft budget estimates, and they consider this sufficient. The main problem is that, as noted under Performance Indicator 11, the budget estimates tend to be submitted to them very late. 137 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 The Appropriations Acts clearly stipulate the rules concerning in-year budget adjustments. This dimension was not applicable to the state legislative assemblies in NBGS and Jonglei State, since 2011 was the first year they had approved budgets, and no budget adjustments had taken place at the time of the assessment. Unity State did not have the information on budget adjustments during 2010 necessary for the assessment team to determine whether the adjustments complied with the Appropriations Act. For Western Equatoria State, a supplementary budget has not yet been prepared and submitted to the state legislative assembly. The requirements for adjustments appear to be respected, although it was difficult for the assessment team to determine whether the requirements were being fully met for budget adjustments that had taken place during 2010 without prior approval by SSLA. P1 External Score: Score: Score: Score: Explanation Oversight NBGS US JS WES & Legislative Scrutiny PI- Score, This indicator is Not Applicable, as 26 nature, and none of the State Governments had follow-up of been audited by the South Sudan (M1) external NA NA NA NA Audit Chamber at the time of the audit assessment. (i) Scope of the legislature's scrutiny: As noted in the narrative above. (ii) Extent to which the legislature's procedures are well established and respected: As noted in the narrative C+ C C+ C+ above. pl- Legislative (i) B (i) C (i) C (i) C 27 scrutiny of (ii) C (ii) C (ii) B (ii) B (iii) Adequacy of time for the the annual legislature to review draft budgets: At (Ml) budget law (iii) B (iii) B (iii) B (iii) B least one month; NBGS, 4 weeks; Unity State, up to 45 days; Jonglei (iv) NA (iv) NR (iv) NA (iv) C State, 5 weeks; Western Equatoria State, up to 45 days. (iv) Rules for in-year amendments to the budget not requiring advance approval by the legislature: As noted in the narrative above. PI- Legislative This indicator is not applicable, since 28 scrutiny of NA NA NA NA state legislative assemblies to date external have not received any audit reports to (M)audit review. 138 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Pl External Score: Score: Score: Score: Explanation Oversight NBGS US Js WES & Legislative Scrutiny reports Sources: All states: Budget documents, state Interim Constitutions and Appropriations Acts. NBGS: NBGS Legislative Assembly, "Parliamentary Procedures" (2010); meetings with State Committee for Economy, Development and Finances. Unity State: Meetings with Unity State officials; three-month budget performance analysis (March 2011). Jonglei State: Jonglei State Legislative Assembly, "Code of Conduct" (2010); CEDFPA; meeting with State Legislative Assembly Clerk and Deputy Speaker of House. Western Equatoria State: "Code of Business Regulations" (2010); meetings with state officials, Clerk to Parliament, and Director of Finance and Administration in the State Legislative Assembly. Notes: BGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method. 3.7. Donor Practices (D1-D3) This set of indicators assesses the transparency and comprehensiveness of the financial information provided by donors for budgeting and reporting on project and program aid and the extent to which donor partners use national PFM procedures. The more closely donors align their projects with the government's budget preparation cycle and budget performance reporting system, the more likely such programs/projects are to be well-aligned with the government's policy objectives and strategies. That in turn makes programs/projects more likely to be supportive of service delivery, and less likely to support non-transparent unreported extra-budgetary operations (also discussed under Performance Indicator 7). The more donors use the government's PFM systems, the less chance there is that scarce capacity will be diverted away from managing these systems, potentially harming the quality of the services the governments provide, such harm undercutting the benefits of the donor-funded programs/projects themselves. Moreover, the more donors use country systems, the more likely the programs/projects they are financing are to succeed, since success partly relies on the governments doing the following: i providing input to the programs/projects, particularly for recurrent expenditure; ii. financing the future recurrent expenditures generated by the capital projects the donors are financing; for example, projects associated with completed schools; and iii. providing complementary services; for example, maintaining roads that provide access to schools and health centers whose construction donors are financing. 139 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 SYNOPSIS Indicator D-1, concerning the predictability of budget support, is not applicable, since donors are not yet providing budget support. Concerning D-2 and D-3, concerning the extent of donors providing information to governments on planned and actual spending (D-2) and the extent to which they use country systems (D-3), progress has been made at the GRSS level with regard to D- 2, but not with regard to D-3. Donor estimates of planned and actual spending appear in the donor Blue Books, which comprise the donor equivalent of government budget documentation and are largely consistent with this. Estimates of planned spending tend to be more robust than estimates of actual spending. The estimates do not use the government's budget classification system yet, so information on the composition of spending according to economic classification (i.e., personnel emoluments, non-wage recurrent, transfers and capital expenditure) is not provided, but this should come in time. Progress has been made by virtue of coordination among donors through the Multi-Donor Trust Fund and the Joint Donor Team, as well as coordination between donors and the government, aided by the Aids Cordination Unit located in MoFEP. The Aid Information Management System, established in MoFEP in 2010, is also contributing to progress through the faster and more accurate flow of information. There is definitely scope for improved coordination, both between donors and between donors and the government, but coordination appears good relative to many other countries. This is the result of the cooperation and coordination processes established at the time of the Comprehensive Peace Agreement, in recognition of the immediate, urgent large amounts of external financing needed to address the low functionality of public services and infrastructure that years of conflict had led to. Formal interaction between donors and governments appears to be less developed at the state level than at the central level, with the exception of Unity State, where budget documentation includes donor spending plans under each sector. The main reason is that donor agencies tend to interact with GRSS. The agencies may plan and implement projects geographically located in their regions, but in terms of large capital projects, such as road construction, expenditure areas fall within the mandate of GRSS. The projects planned and implemented in expenditure areas under the mandate of the states tend to be funded by NGOs. These may liaise with regional governments, but their plans and actual spending might not be reflected in government budgets and budget performance documentation (except in the case of Unity State). Nevertheless, the liaison enables governments to plan their budgets with knowledge of what NGOs are doing. For example, in NBGS, the state-level Ministry of Education had a good cooperative relationship with NGOs, one of which funded equipment that the ministry would otherwise have had to fund out of its own budget. The scoring criteria that apply to D-2 do not adequately capture this situation. 140 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 AT THE GoSS/GRSS LEVEL A significant amount of donor funds are provided by agencies through the Multi-Donor Trust Fund, established in 2005 to coordinate funding for the reconstruction and development needs of Southern Sudan. The 14 contributing external donors are Canada, Denmark, Egypt, European Commission, Finland, Germany, Iceland, Italy, Netherlands, Norway, Spain, Sweden, United Kingdom, and the World Bank, which administers the fund. USAID, perhaps the largest single donor, with annual funding to South Sudan of about $300 million, is not a member. China also apparently provides significant aid financed through loans, but no records are available on the magnitude of that funding. Excluding China, USAID provides about half of all aid assistance in the country. The Joint Donor Team, comprising Netherlands, United Kingdom, Norway, Sweden, and Denmark, is the cochair of the Multi-Donor Trust Fund, alongside MoFEP. The Joint Donor Team plays an oversight function on overall fund performance. The Joint Donor Team coordinates with the Aid Coordination Unit of MoFEP and other donors through the Implementation Working Group, to follow up technical matters related to Multi-Donor Trust Fund performance (Multi-Donor Trust Fund Action Plan). Other pooling mechanisms that are supported by multiple donors are (i) the Sudan Recovery Fund, administered by UNDP, to meet recovery needs not covered by the Multi-Donor Trust Fund; (ii) the Capacity Building Trust Fund; (iii) the Strategic Partnership; and (iv) the Basic Services Fund. The combined amount of aid provided through these pooling mechanisms is about $300 million a year. Good records are maintained by the above-mentioned funds and bilateral support regarding commitments, disbursements, and expenditures. Planned expenditures in excess of $100,000 by the funds and donors are also incorporated in the GRSS Donor Book, which accompanies the GRSS budget documentation and includes USAID projections. Donors are increasingly making their aid projections known to MoFEP by August, consistent with the budget preparation calendar. In 2009, planned support was approximately $400 million, representing about 23 percent of the GRSS budget that year. Some NGO activities are included in the Donor Book (e.g., Oxfam, World Vision). An accounting firm prepares quarterly monitoring reports for the Multi-Donor Trust Fund. The Donor Book shows actual half-year expenditures by donor and project. The records of commitments and expenditures do not use GRSS budget classification codes. 141 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Indicator Score Assessment (Ml) 2011 PEFA D-1 (M1) NA South Sudan does not receive budget support. D-2 (i) C (i) Completeness & timeliness of budget estimates by donors for project support: Much of donor aid, the main known exception being USAID, is channeled through funds, of which the Multi-Donor Trust Fund is the largest. Both the Donor Book, which includes USAID projections, and the Multi-Donor Trust Fund quarterly monitoring reports provide detailed estimates of aid commitments for the next budget year. The government's budget classification system is not used. (ii) C (ii) Frequency & coverage of reporting by donors on actual donor flows for project support: Multi-Donor Trust Fund quarterly monitoring reports are prepared by PriceWaterhouseCoopers, indicating committed and disbursed funds and actual expenditures. The Budget Books show half-yearly expenditures, including for USAID, which accounts for about 50 percent of aid, excluding China. The government's budget classification system is not used. D-3 D Donor-financed projects are not using GRSS's PFM systems at this time. Sources: Donor Budget Books; Multi-Donor Trust Fund progress and quarterly monitoring reports; Joint Donor Team; UNDP; World Bank. Notes: NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method. AT THE STATE LEVEL NBGS and Western Equatoria State Donor agencies, particularly NGOs, provide support to NBGS and Aweil West County in the form of stand-alone projects. Only one of these (CONCERN) is indicated in the 2011 budget document, in terms of its planned support of SDG 6.2 million to the Natural Resources and Social Development sector. The budget document notes the need to incorporate the planned spending of donors in future budgets. The information is not provided according to the budget classification system. The Aweil West county budget for 2011 mentions the names of the several donor agencies providing aid, the sectors in which they are operating, and planned activities, but does not indicate the amounts of aid. Unity State As noted under Performance Indicator 7, the 2011 budget contains information about donors with regard to planned spending during the next budget year and actual spending during the current year, 142 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 the information being provided on a sector basis. The information for the next budget year is provided in August, consistent with Unity State's budget preparation calendar. The information is not provided according to the budget classification system used by Unity State. Jonglei State A few donors, including UNDP, SNV World, and STROMME Foundation attended the 2011 budget preparation workshop but did not provide any information on planned expenditures. Donor representatives indicated that they disclosed their plans through GRSS, as indicated in the Donor Budget Book, which accompanies the GRSS budget estimates. The budget book covering the 2010 budget contains estimates for two future years in addition to the current budget year. It contains some information on planned expenditures in the states, but no information on actual expenditures.61 The state MoFEP has not received any budget execution reports from donors. No. Donor Score: Score: Score: Score: Explanation Practices NBGS US Js WES Predict- Budget support is not provided. D-1 ability of direct NA NA NA NA (M1) budget support Financial (i) Completeness & timeliness of budget information estimates by donors for project support: As provided by D D+ D D+ indicated in the text above. D-2 donors for budgeting (i) D (i) C (i) D (i) D (M1) and repoting on (ii) NA (ii) D (ii) D (ii) D (ii) Frequency & coverage of reporting by donors son actual donor flows for project support: As project and indicated in the text above. program aid Proportion Donors are not using state government PFM and D-3 of aid that is procurement systems at this time. managed by D D D D (M1) national procedures Sources: Annual budgets; interview with Director General of NBGS Ministry of Education; meeting with Unity State officials; Unity State Strategic Plan, 2007-11; Jonglei State Planning and Budget Directorate, Jonglei State Directorate of Internal Audit & Adjustment; Western Equatoria State Strategic Plan, 2008-12. Notes: BGS = Northern Bahr el Ghazal State; US = Unity State; JS = Jonglei State; WES = Western Equatoria State. NA = Not applicable because of circumstances explained in the text. M1 indicates the "weakest link" method. 61 Donor Book 2010 143 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 3.8. HLG 1: Predictability of Fiscal Transfers From GRSS NBGS, Unity State, and Jonglei State obtain nearly all their funding from GRSS through block grants and conditional grants in a roughly 50:50 composition. Unity State, by virtue of its oil revenues, receives about 70 percent of its funding from GRSS. Timely monthly disbursement of funds is a high priority for GRSS, as noted in the GRSS PEFA assessment. This indicator is rated A for NBGS and Unity State. It is not rated for Jonglei State and Western Equatoria State, due to the non-availability of data, but if it were the rating would most probably also be an A, since the bulk of funding is for wages and salaries, the timely payments of which are also a high priority at both levels of government. NBGS, through its Minister of Finance and Director General of the Ministry of Education, indicated that funds generally arrive on time every month. The Unity State and Western Equatoria State 2011 budget documents indicate that 75 percent of the budgeted block grants and conditional grants had been disbursed during the first nine months of 2010, indicating a high degree of timeliness. For Jonglei State, actual transfers were lower than budgeted transfers by 9 percent in 2008 and by 2 percent in 2009, and were the same for the first nine months of 2010. However, data for all of 2010 were not available. Another transfer from GRSS goes straight to county administrations for financing capital expenditure. As indicated by Aweil West County (in NBGS), the transfers tend not to be timely, and this observation was similar to those made by state government officials from the other states who were interviewed. The main reason appears to be GRSS's dissatisfaction with the quality of the capital budgets prepared by counties; a reasonable quality budget represents the condition for disbursement. GRSS did not release any funds at all in 2010 to Aweil West County. 144 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Annex A: State government background information Northern Bahr el Ghazal State Key statistics and indicators * Population: 721,000; 53% is younger than 18; 92% is rural; the most rural of all the states. * Area: 30,543 sq. km.; one of the smaller states. * Population density is 24 persons/sq. km., higher than the average of 13/sq. km. for South Sudan as a whole, but considerably lower than in Uganda, where it is 136/sq. km. * 21% of the adult population (age 15 and above) is literate, lower than the 27% rate for South Sudan as a whole. * 76% of the population lives below the poverty line, the highest rate of any state in South Sudan. * 80% of households depend on crop farming or animal husbandry as their primary source of livelihood. Aweil West County has very fertile land and livestock herding remains a key component of the county's culture. * 66% of the population has access to improved sources of drinking water. Of the five counties, Aweil East is the largest in population, with 43% of the total population of NBGS, and Aweil Center is the smallest, with 6% of the population. Aweil West is the second largest county, with about 23% (166,217) of the population of the state. The county is divided into nine payams, administrative units of the county government, where many services are delivered.' Payams are themselves subdivided into bomas and villages. The 2011 Budget summarizes the state of roads, primary schools, primary health care, water supply, and general administration infrastructure in the county. Sources: South Sudan Centre for Census, Statistics and Evaluation, "Key Indicators for South Sudan," (2010); and 2011 Budget for West A weil County. Government structure The NBGS government comprises 19 spending agencies divided into six sectors: Accountability and Economic Functions; Education; Health; Natural Resources & Social Development; Physical Infrastructure; and Public Administration and Rule of Law. Services are provided in counties as well as in the capital city, Aweil. Total employees in 2011 are estimated at 11,382, up from 10,715 in 2010 (excluding county-level employees funded by transfers from NBGS). The administration for Aweil West County is divided into seven departments: General Administration; Education; Health; Agriculture; Water, Sanitation and Hygiene; Social 145 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Development; and Public Works. The number of staff, as listed in the 2011 budget, is 683, of which 583 are classified employees (Grades 1-12 and 14, according to the GRSS civil service structure, which is used also at lower levels of government) and 100 are unclassified staff (grades 13, 15-17). The bulk of employees work in the Education and Health Departments. Table A.1. NBGS: Approved Budgets, 2010 and 2011 (in SDG millions) Financial resources 121.4 152.9 100 Transfers from GRSS 113.5 141.6 92.6 Block 49.1 69.4 General 40 56.1 State Legislative Assembly (CDF) a 5.1 5.4 Counties (for capex) 4 7.9 Conditional grantsb 64.4 72.2 Own revenue 7.9 11.3 7.4 Tax 6.8 9.5 Non-tax 1.1 1.8 Expenditures 121.4 151.4 100 Salaries NAc 93.9 62.0 Operating NA 17.3 11.4 Capital NA 18.8 12.4 Transfers to counties & CDFb NA 21.4 14.1 Balance 0 1.5 Accumulation/use of reserves 0 -1.5 (- = accumulation) Source: NBGS 2011 Budget. Note: The table excludes county revenues and expenditures; 2010 budget performance not included in the document. a. CDF = Constituency Development Fund for projects in counties selected by State Legislative Assembly members: SDG 2.9 million in 2011, zero in 2010. The CDF is funded by a capital transfer from SSLA, b. Provided by 21 GRSS spending agencies for salaries (mainly), operating and capital expenditure. c. Not available in 2011 budget document. The 2010 budget document (the first approved budget) was not available to the team. 146 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.2. NBGS: Composition of Revenues (in SDG millions) Revenues 7.9 100.0 11.3 100.0 Tax 6.8 86.1 9.5 84.1 Personal income tax 5.2 65.8 4.0 35.4 Profits tax 0 0.0 0.5 4.4 Sales tax 0 0.0 2.4 21.2 Stamp duties 0.2 2.5 0.2 1.3 Excise duties 0 0.0 0.2 1.8 Household tax 1.4 17.7 1.5 13.3 Rental income tax 0 0.0 0.3 2.2 Property tax 0 0.0 0.5 4.4 Non-tax 1.1 13.9 1.8 15.9 Local market revenues 0.7 8.2 0.6 5.3 Trading licenses 0.5 5.7 1.2 10.6 Source: NBGS 2011 budget. Table A.3. NBGS: Expenditure by Sector, 2011 Budgeta (in SDG millions) Total Expenditure by sector 151.4 100.0 Accountability & economic development 16.4 10.8 Education 24.5 16.2 Health 7.1 4.7 Natural resource & social development 7.6 5.0 Physical infrastructure 8.7 5.7 Public administration & rule of law 87.1 57.5 a. The NBGS 2011 budget shows the sector composition of the 2010 budget, but the data appear not to be correct. The sector composition includes the transfers to the counties and does not indicate the expenditure composition of NGBS-specific expenditure. Since transfers to counties are only 14% of total expenditure, the expenditure composition is probably similar. 147 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.4. Aweil West County: Summary of 2011 Budget (in SDG thousands) 2011 Budget % Composition Financial resources 3,150 100.0 Fiscal transfers 2,950 93.7 Transfers from GRSS (for capex) 1,580 50.2 Transfers from NBGSG for salaries 1,334 42.3 Transfers from NBGSG for opex 36 1.1 Own revenue 200 6.3 Tax 120 3.8 Land tax 28 0.9 Household tax 45 1.4 Daily collections tax 15 0.5 Trading license tax 32 1.0 Non-tax 80 2.5 Permits 17 0.5 Court fees 12 0.4 Auction fees 27 0.8 Slaughtering fees 26 0.8 Expenditures 3,150 100.0 Salaries 1,334 42.3 Operating 236 7.5 Capital 1,580 50.2 Balance 0 Accumulation/use of reserves 0 (- = accumulation) Note: No information on 2010 budget in 2011 budget document. 148 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.5. Aweil West County: Expenditure by Sector, 2011 Budget (in SDG millions) Total expenditure by sector 3,149.7 100.0 Accountability, public administration & rule of law 1,487.7 47.2 Education 501.5 15.9 Health 731.5 23.2 Agriculture 121.5 3.9 Water & sanitation 307.5 9.8 Physical infrastructure 0 0 Source: Aweil West County 2011 budget. Unity State Key statistics and indicators * Population: 585,801, according to the Population and Housing Census 2008. * Area: 42,000 sq. km. * Unity State has oil fields. Under the 2005 Comprehensive Peace Agreement, Unity State is entitled to receive 2% of Sudan's net oil revenues. * Unity State is administratively divided into 9 counties, 80 payams, 323 bomas, and 1,195 villages. * 28% of the population is literate. * Crop farming and animal husbandry are the main livelihoods of 70% of households. * 68% of the population lives below the poverty line, the second highest rate of all the states. Sources: South Sudan Centre for Census, Statistics and Evaluation, "Key Indicators for South Sudan," 149 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.6. Unity State: Summary of Budgets, 2010 and 2011 (in SDG millions) Financial resources 160.9 182.9 100 Transfers from GRSS 113.5 142.9 78.1 Block 49.1 69.4 General 40 56.1 State Legislative Assembly 5.1 5.4 Counties (for capex) 4 7.9 Conditional grants' 64.4 73.5 Own Revenue 47.4 40 21.9 Oil 30 30 Tax 12 7 Personal Income 0 1.6 Other 12 5.4 Non-tax 5.4 3 Expenditures 161.4 183.4 100 Salaries NA 99.1 54.0 Operating NA 27.4 14.9 Capital NA 32.7 17.8 Transfers to counties NA 24.2 13.2 Balance -0.5 -0.5 Accumulation/use of reserves 0.5 0.5 = accumulation) Source: 2011 Budget a. Excludes transfers to counties. 150 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.7. Unity State: Expenditure by Sector, 2011 (in SDG millions) 2011 Budget % Composition Total expenditure by sector 159.2 100.0 Accountability & economic development 22 13.8 Education 20.5 12.9 Health 17.3 10.9 Natural resource & social development 15.1 9.5 Physical infrastructure 21.1 13.3 Public administration & rule of law 63.2 39.7 Source: 2011 Budget a. Excludes transfers to counties Jonglei State Key statistics and indicators were not available. Jonglei is the largest state in South Sudan, both by area (estimated at 122,581 sq. Km.) and by population (1,358,602 people). Jonglei State has 11 counties. Bor is the state capital. Socioeconomic development activities have been guided by the Jonglei State Strategic Plan 2007- 2011. A key challenge is lack of security, partly because of tribal conflict. Instances of violence have been common, including since independence, as periodically reported in the international news media. Much of the violence is inter-tribal. About 98 percent of the state's financial resources come from transfers from GRSS. This proportion has come down from 99.5 percent in 2007 due to the introduction of personal income tax on state government employees in 2008. Three-quarters of expenditures were on salaries in 2010, a somewhat higher percentage than in NBGS and Unity State. Capital costs comprised 15 percent of total expenditure. The sectoral distribution is roughly the same as for NBGS and Unity State, with the Public Administration and Rule of Law sector comprising 58 percent of total expenditure in 2010, Education and transfers to counties 13 percent each, and Health at 5 percent. As in NBGS and Unity State, total expenditure was budgeted to increase sharply in 2011. Western Equatoria State Western Equatoria State is in the southwest of South Sudan and is bordered by Central Equatoria State to the east, the Democratic Republic of Congo to the south, and the Central African Republic to the west. To the north lie Western Bahr el Ghazal, Warap, and Lakes states. The Western Equatoria State government is comprised of 20 spending agencies divided into six sectors: 151 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Accountability and Economic Functions; Education; Health; Natural Resources & Social Development; Physical Infrastructure; and Public Administration and Rule of Law (i.e., the same sectors as for the other states). Key statistics and indicators * Population: 619,000: 45% is younger than age 18; 84% is rural. This is similar to the figure for South Sudan, which is 83% rural. * Area: 79,343 sq. Km., one of the smallest states. * Population density is 7.8/sq km., lower than the average of 13/sq. km. for South Sudan as a whole, and considerably lower than in Uganda, where it is 136/sq. km. * 33% of the adult population (age 15 and above) is literate, a higher rate than the 27% literacy for South Sudan as a whole. * 42% of the population lives below the poverty line, the highest rate of any state in South Sudan. * 90% of households depend on crop farming or animal husbandry as their primary source of livelihood. * 40% of the population has access to improved sources of drinking water. * Of the 10 counties, Yambio is the largest in population, with 152,257 people, while Nagero has a population of 10,077. The average household has 7 members. Sources: South Sudan Centre for Census, Statistics and Evaluation, "Key Indicators for South Sudan," Table A.8. Western Equatoria State: 2009 - 2011 Approved Budgets SDG million Budget 2010 Budget 2011 Budget Composition Financial resources 113.3 117.7 143.2 100 Transfers from GRSS 111.7 115.2 135.2 94.4 Block 44.1 49.1 69.4 General 36.7 39.6 55.4 State Legislative Assembly 5 5.1 5.4 Counties (for capex) 2.4 4.4 8.6 Conditional grants 67.6 66.1 65.8 Own revenue (state level) 1.6 2.5 6.0 5.6 Tax 1.0 1.6 3.2 Non-tax 0.6 0.9 2.8 152 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 2009 % SDG million Budget 2010 Budget 2011 Budget Composition Expenditures 113.3 117.7 143.2 100 Salaries 77.8 79.3 96.3 67 Operating 11.4 12.3 17.7 12 Capital 12.1 12.2 9.3 6 Transfers to counties 12.0 14.0 19.8 14 Balance 0 0 0 Accumulation/use of reserves 0 0 0 (- = accumulation) Source: Budget documents. Table A.9. Western Equatoria State: Expenditure by Sector, Budget for 2009 - 2011a (SDG million) 2009 2010 2011 Total expenditure by sector 113.3 117.7 143.2 100 Accountability & economic development 7.1 8.1 7.4 5 Education 15.5 21.3 24.2 17 Health 7.4 6.6 8.8 6 Natural resource & social development 9.9 9.2 10.7 7 Physical infrastructure 8.0 8.0 9.3 6 Public administration & rule of law 65.3 64.5 82.7 58 a. The sector composition includes the transfers to the counties and does not indicate the expenditure composition of Western Equatoria State-specific expenditure. Since transfers to counties are only 14 percent of total expenditure, the expenditure composition is probably similar. 153 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Table A.10. Western Equatoria State: Composition of Revenues, 2009 - 2011 2011 2009 Budget 2010 Budget Budget Amount Compositio Amount Compositio Amount Compositio Total revenue 1,573,000 100% 2,500,000 100% 6,049,817 100% (A) Tax revenue 1,000,000 64% 1,590,000 64% 3,206,872 53% State personal income 1 tax 360,000 36% 572,000 36% 1,921,872 60% 2 Business profit tax 250,000 25% 397,000 25% 0% 3 Rental income tax 60,000 6% 95,000 6% 0% 4 Capital gains tax 1,000 1% 2,000 0% 0% 5 Stamp duty tax 20,000 2% 32,000 2% 35,000 1% Development tax on 6 trading license 78,000 8% 124,000 8% 500,000 16% Development tax on 7 professional license 25,000 3% 40,000 3% Development tax on 8 commodities 200,000 20% 318,000 20% 500,000 16% 9 Service charges 5,000 5% 8,000 1% 50,000 2% 10 Clearance certificate 1,000 1% 2,000 0% 100,000 3% 11 Rubber stamp 100,000 3% (B) Non-tax revenue 573,000 36% 910,000 36% 2,842,945 47% Land tax (survey fees, sale of plots & air strip 1 fees) 211,000 37% 335,000 37% 693,945 25% Agriculture products 2 (state farms) 4,000 1% 6,000 1% 6,000 0% 154 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 2011 2009 Budget 2010 Budget Budget Amount Compositio Amount Compositio Amount Compositio Forest products (timber & 3 non-timber) 135,000 24% 215,000 24% 700,000 25% Animal resources (animal 4 products) 14,000 2% 22,000 2% 22,000 1% Fisheries (fish products & 5 market fish tax) 15,000 1% 24,000 3% 24,000 1% State Ministry Of Commerce & Supply 6 (permit & verification fee) 74,000 3% 118,000 13% 649,000 23% Health (assessment of 7 age certificates) 45,000 8% 72,000 8% 550,000 19.6% 8 Cooperative 75,000 13% 118,000 13% 80,000 3% Police licenses (driving, vehicles & motorcycle 9 plate number) 0% 118,000 4% Source: Budget documents 155 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 Annex B: Pending Payments No of Pending Claims, December Spending Agency 31, 2010 Amount in SDG Ministry of SPLA Affairs 35 557,473,139 Ministry of Transport & Roads 110 380,331,765 Office of the President 110 361,983,254 Ministry of Finance & Economic Planning 377 322,067,160 South Sudan Legislative Assembly 21 136,544,334 South Sudan Internal Affairs Prisons 154 87,431,645 Ministry of Internal Affairs Ministry HQS 1 56,418,404 South Sudan Internal Affairs Police HQs 112 39,425,861 Ministry of Health GRSS 205 35,275,407 Advance Transfer to Abyei 2 28,000,000 Ministry of Cabinet Affairs 106 27,738,963 Ministry of Housing, Physical Planning 151 25,186,146 Ministry of Education Science & Technology 125 19,935,777 South Sudan Electricity Corporation 27 17,030,750 Ministry of Humanitarian Affairs 1 15,000,000 Ministry of Energy & Mining 50 13,677,281 Ministry of Higher Education 3 11,942,500 Ministry of Information & Broadcasting 69 11,493,110 Lakes State 10 11,354,700 Ministry of Labor and Public Service 45 10,184,494 Telecommunication and Postal Service 8 10,012,190 Ministry of Wildlife Conservation & Tourism 42 8,819,345 156 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 No of Pending Claims, December Spending Agency 31, 2010 Amount in SDG South Sudan Audit Chamber 8 8,084,148 Ministry of Regional Cooperation 67 7,855,183 Ministry of Agriculture and Forestry 31 7,408,314 Ministry of Animal Resources & Fisheries 40 7,080,554 War disabled widows & orphans 28 6,576,013 Western Bhar el Ghazal State 1 6,000,000 Ministry of Water Resources & Irrigation 47 4,868,695 Ministry of Culture & Heritage 47 4,729,772 Ministry of Commerce & Industry 37 4,594,984 Unity State 2 4,500,000 Judiciary of Southern Sudan 2 4,398,044 Ministry of Parliamentary Affairs 18 4,119,900 Office of the Vice President 45 3,977,197 Western Equatoria State 2 3,527,000 Ministry of Youth, Sports & Recreation 35 3,320,540 NBGS 2 3,246,000 SSRR Commission 12 3,061,973 Jonglei State 1 2,953,400 South Sudan Peace Commission 41 2,862,183 Ministry of Presidential Affairs 19 2,609,009 Ministry of Legal Affairs & Constitutional Development 25 2,474,226 South Sudan Internal Affairs Fire Brigade 41 2,266,118 Gender and Religion Affairs 31 2,147,931 Ministry of Investment 18 2,133,797 South Sudan Anti-Corruption Commission 7 2,030,245 157 World Bank South Sudan Integrated Fiduciary Assessment Vol. 2 No of Pending Claims, December Spending Agency 31, 2010 Amount in SDG Cooperative and Rural Development 41 2,010,756 South Sudan Human Rights Commission 10 1,929,605 South Sudan Demining Authority 20 1,564,769 South Sudan Urban Water Corporation 13 1,554,598 Ministry of Culture Youth & Sports 26 1,349,900 South Sudan Reconstruction Development Fund 19 1,015,667 South Sudan HIV/AIDS Commission 30 1,008,642 Ministry of Environment 15 1,001,710 SSCCSE 20 762,160 South Sudan Internal Affairs Administration HQs 9 734,065 South Sudan BCSSA Commission 3 504,228 South Sudan Employees Justice Chamber 12 479,730 South Sudan Land Commission 3 471,468 South Sudan FF AM Commission 12 403,546 Local Government Board 12 321,645 Warrap State 3 256,250 Northern Bahr El Ghazal 1 246,000 South Sudan Civil Service Commission 4 199,400 South Sudan Public Grievances Chamber 1 96,000 Ministry of Human Resource Development 2 54,116 South Sudan DDR Commission 1 20,810 South Sudan War Veteran Commission 1 7,187 Grand Total 2,629 2,310,143,704 Source: MoFEP Accounts Department. 158