The Exchange: Strengthening Financial Management Institutions in MENA

Event Details

DATE: June 10, 2014

TIME: 3:15 pm

Location:Abu Dhabi, UAE

The Exchange was held over a two day period beginning on June 10-11, 2014.  It consisted of both plenary style sessions as well as concurrent breakout sessions. After the completion of the conference, we spent a day for specific thematic courses and country discussion meetings between the Financial Management Unit (MNAFM) and the relevant country stakeholders. Noting the important role that financial management institutions play in the public and private sectors and the challenges they face, this year’s Exchange brought together high-level policy makers and stakeholders to discuss and debate a wide range of topics including: 

-          Public Financial Management: PFM reform; strengthening local service delivery; transparency in sectors (e.g., extractive industries, security), transparency in government accounting and reporting; supreme audit institutions and parliamentary over-sight; and internal controls and internal audit

-          Corporate Financial Reporting: CFR reform; adoption and implementation of International Financial Reporting Stand-ards (IFRS); Audit Quality Assurance Systems Design and Development; Islamic banking and finance; the role of professional accountants as business advisors – supporting MSME Development; and Integrated Reporting. 

Exchange 2014 was attended by more than 250 representatives of public and private financial management institutions, academia, legislative and oversight institutions, donors, experts, and world bank staff.  They came from different parts of the world, including 13 countries in MENA and GCC. 77% of the participants were males; while 23% females. Among the attendees, around 50 speakers had presented in 20 sessions and 3 specialized courses.




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Strengthening PFM Institutions: Achieving and Sustaining Results

Lead Financial Management Specialist, Governance Global Practice, MENA, The World Bank

The role of financial management institutions is vital to well-functioning public and private sectors in the Middle East and North Africa (MENA) region. Likewise, effective financial management institutions are essential to achieving poverty reduction and shared prosperity. During the Public Financial Management (PFM) sessions of The Exchange 2014, speakers and participants reflected on the special challenges and opportunities of PFM institutional development with a particular focus not only on how to achieve results, but on how to sustain them in the long run. Why the focus on PFM?  At a global level, PFM helps countries in attaining: (i) sound fiscal risk management; (ii) allocation of public resources in line with government policy priorities through the budget; (iii) increased efficiency in the use of public funds; and (iv) transparency and accountability in the use of such funds. Based on World Bank experience and attendant demand from our MENA clients, The Exchange facilitated discussions on contemporary cross-cutting PFM reform considerations, as well as specific PFM topics.

Public Financial Management Reform - A number of current issues and lessons from PFM reform experience were discussed. Some of the common principles include the importance of properly defining the problem to be addressed, strengthening fundamentals first, and taking into consideration the political economy and other non-technical factors of reform. The pace of reform, prioritization and sequencing are also very important. Analytical results show that, in general, more attention is needed to: downstream versus upstream reform; de facto versus de jure results; and decentralized versus centralized systems. Capability is as important as capacity — central financial agencies (CFAs) must be well organized and managed.  Building tomorrow’s workforce remains a challenge for MENA countries in general, and for its financial management institutions in particular; hence, capacity development is a priority in sustaining MENA's public sector financial management reforms.  The notion of “PFM best practice”, that is, reforms aimed at increasing legitimacy— but not necessarily improved functionality— is being phased out. Instead, the focus is increasingly placed on the need for learning and adaptation, and examining what is reasonable and practical given a country’s legal, administrative and governance arrangements. An important input to the design of PFM reforms is performance measurement. In this respect, the Public Expenditure and Financial Accountability (PEFA) framework for PFM performance measurement was discussed, emphasizing the big effort underway to update the framework in line with evolving PFM practices in general, and with a view to closing some gaps in particular. However, the revision is not intended to change the PEFA framework purpose or undermine its comparability over time.

Internal Audit Development. Internal audit has the potential to make significant contributions to public sector effectiveness and progress. Internal audit can provide a strategically-aligned assurance service, and can help with risk identification and mitigation. In addition, it can be a proactive catalyst for positive change, providing trusted advice on risk, control and governance issues. The changing role of the Moroccan Control General des Finances is a case in point. Participants were also introduced to the European Commission’s Public Internal Financial Control (PIFC) framework and its layers of defense, including a functionally-independent internal audit function anchored in a central harmonization unit (CHU). The lessons learned from the establishment and operation of an actual Internal Audit CHU in the Turkish government were cited as an illustrative example.

Strengthening Local Government Service DeliveryThe Role of the Central Government evising and strengthening appropriate PFM and accountability systems at the local governmental level goes hand-in-hand with bringing service delivery closer to the citizenry. In this context, the question of finding the right balance between functional and expenditure assignment of responsibilities to local governments, as well as means of access to finance, were analyzed at length. Relevant experiences from India and South Africa, as well as the emerging agenda in Tunisia, were discussed.

Transparency in Sectors. As recent events attest, the people of the MENA region are becoming acutely aware of the importance of transparency in public sector administration. The experience of using e-government for enhanced service delivery and transparency was discussed. Moreover, participants were introduced to developments related to public finance transparency in specialized— but generally opaque areas— such as value-for-money in security budgets, and PFM considerations in resource-rich environments. Addressing these sensitive fields from a PFM perspective requires strategies and tactics to create political space and a professional approach.

Transparency in Government Budget Reporting and Accounting. The move toward effective and transparent budgeting and accounting systems will lead to better resource management and less waste in MENA countries. This session provided an overview of both the costs and returns of adopting the International Public Sector Accounting Standards (IPSAS), along with the contribution that government financial management information systems (GFMIS) can make to the publication of budget data in an accurate, easily accessible, and meaningful manner. The new Global Initiative for Fiscal Transparency (GIFT), a multi-stakeholder action network, seeks to advance and institutionalize global norms, along with significant, continuous improvements in fiscal transparency, participation, and accountability.  Ultimately, the quality of financial data needs to be grounded in strong internal controls, particularly with regard to the commitment control system.

Accountability and Oversight Framework - The Role of Supreme Audit Institutions and Parliaments. This session explored the external oversight framework and shed light on what is required for a Supreme Audit Institution (SAI) to increase its effectiveness in ensuring the proper use of public resources. Discussions revolved around the efforts of the International Organization of Supreme Audit Institutions (INTOSAI) in promoting the implementation of international standards (ISSAIs), as well as the perspective from the SAIs (e.g., Iraq and the United Arab Emirates) in implementing them. International cooperation leads to enhanced awareness and understanding of detailed ISSAI requirements, including practical implications of implementation, the need for wide stakeholder buy-in and ownership, feedback mechanisms, and informal and formal networks and cooperation. As importantly, the participants stressed the outcomes that can derive from effective collaboration between SAIs and Parliaments, enabling the latter to exercise fiscal oversight over the budget in line with a good system of checks and balances


Stengthening CFR Institutions: Perspectives on Corporate Financial Reporting

Gabriella KUSZ
Senior Financial Management Specialist
Governance Global Practice, MENA, The World Bank

The Exchange’s Corporate Financial Reporting (CFR) stream of event sessions was held alongside the Public Financial Management sessions from June 10-11, 2014 in Abu Dhabi, UAE. Sessions were designed to focus on the importance of CFR institutions and the strengthening of structures, systems and operations for those institutions integral to the production of high-quality financial information for the private sector. Attendees representing Ministries of Finance, Professional Accountancy Organizations (PAOs), audit firms, regulators, non-governmental organizations, international organizations, capital market authorities, universities and many others converged in the UAE for this important event.

Event Highlights  

·   Corporate Financial Reporting Reform. Panelists from the NBA Netherlands (the Dutch PAO), the Saudi Organization of Certified Public Accountants (CPAs), and the Conseil Supérieur de l’Ordre des Experts-Comptables and the Compagnie Nationale des Commissaires aux Comptes (French PAOs)  shared their experience in driving CFR reform within their own countries, as well as abroad. Discussions focused on the challenges facing CFR development and the manner in which panelists and their organizations worked to overcome such challenges and achieve success.  Additional discussions were held regarding the MENA Financial Management (MNAFM) strategy to promote CFR development and reform throughout the region.

·   Charting the Path toward the Adoption and Implementation of International Financial Reporting Standards (IFRS) in general, and IFRS for small and medium enterprises (SMEs) in particular.  Participants from the World Bank, the Yemeni Association of CPAs, the Egyptian Society of Accountants and Auditors, the National Council of Accountancy of Morocco, and the Ordre des Experts Comptables du Maroc (Moroccan PAO) presented their national experiences in developing plans for adoption and implementation of IFRS, and IFRS for SMEs. Discussions centered on what was learned from this process, providing insight and guidance to all attendees about their own respective national efforts.

·   Islamic Finance - An Opportunity for Large and SME Businesses.  Attendees had an opportunity to hear from experts from the Gulf Cooperation Council Accounting and Auditing Organization (GCCAAO), Deloitte, the Islamic Finance Knowledge Center (IFKC), and the World Bank.  They shared their perspectives regarding the rise of Islamic Finance, its development within the GCC, MENA and Southeast Asia— and opportunities for governments, accountancy professionals and MSME businesses around the world.

·   Audit Regulation and Quality Assurance – Furthering the Quality of Services Among Large and Small and Medium Practice (SMP) Firms. This session brought together panelists from the regulatory sector, international organizations and the profession to showcase the issues, challenges and experiences related to audit regulation and quality assurance for listed companies and SMEs alike. Panelists from the International Forum of Independent Audit Regulators, the International Federation of Accountants PAO Development Committee, the Egyptian Financial Services Authority, and the Palestinian Association of CPAs presented their perspectives on the rationale and purpose of systems of audit oversight and quality assurance.  They also provided examples and organizational experience in the design and development of such systems.

·   Integrated Reporting: An Introduction to the Concept and Practice. The session provided a foundational introduction to the concept of integrated reporting. Today, corporate reporting is moving beyond the confines of traditional financial reporting to include aspects relating to the environmental, social and governance of business operations as part of their reporting to stakeholders. Representatives from the Harvard Business School, the Global Reporting Initiative, the American Institute of Certified Public Accountants Business Reporting, Assurance & Advisory Services and XBRL Unit, and ARAMEX Corporation (based in Dubai, UAE) offered an overview of the subject of integrated reporting.  They tapped into their own research, knowledge and experience to offer guidance to accounting practitioners and private sector enterprises interested in implementing this form of reporting within their own entities.

·   The Role of Professional Accountants as Business Advisors Supporting MSME Development. Several views were presented regarding the positioning of professional accountants as advisors to businesses, as well as in facilitating the development of micro-, small- and medium-sized enterprises (MSMEs). MSME strengthening and development offers a strong opportunity for job creation, economic development and prosperity for the peoples of MENA. As such, representatives from the World Bank, the International Federation of Accountants Small and Medium Practices (SMP) Committee, and the American Institute of Certified Public Accountants Private Companies Practice Section (PCPS) presented their views on the important interrelationship between SMPs and MSMEs. Specifically, they discussed the work of international organizations and established PAOs, and provided insight into what is presently being done within the region to promote the development of SMP business advisors—  as well as to position SMP development as a policy imperative for governments, PAOs and the private sector.

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