Council on archives international records management trust

Key Features of an IFMS

Traditionally governments have tended to regard the various sub-systems within financial management as being largely separate systems, within separate ministries or departments, carried out by persons with different skills.

An IFMS involves more than one organisational unit. It might be government-wide, in which case all of the departments of state and other organisations that contribute to the government’s finances would be included. Alternately, the IFMS might serve the whole of a local authority, where it could cover the individual departments as well as the independent services.

In linking the sub-systems together, the IFMS should include as a minimum

• 
  a uniform classification of accounts
  
• 
  an identified and cohesive legislative framework
  
• 
  a standard set of rules and definitions
  
• 
  one bank account.
  

These features are discussed in greater detail below.

Uniform Classification of Accounts

A uniform classification of accounts, or uniform chart of accounts, ensures that budgeting and accounting are co-ordinated, or that reporting is carried out against items in the budget. This extract from a chart of accounts illustrates the principle.

Group	Account	Sub Account
CHECKING	1000
	1001	BANK
CASH	1010	CASH
	1050
	1055	MY SAVNGS #1
	1060	MY SAVINGS #2

Figure 15: Chart of Accounts

This classification system will be determined by the Accountant General or the official with overall responsibility for the accounting function.

Classification of accounts can be developed in layers (nested) to meet the needs of different users. At the whole-of-government level, higher layers of aggregated data will be needed to meet the requirements of the parliament and external investors. At the policy-making level a different layer of categorisation may be needed, and within operational levels a far greater degree of breakdown will be necessary. As long as these categories can be aggregated up into the higher categories, the detail required can be specified to suit operational needs.

Standard and Consistent Legislative Framework

Any financial management system, whether paper or electronic, requires a standard and consistent legislative or regulatory framework. Each country will have its own specific legislation that identifies the broad framework within which government agencies operate. Such legislation identifies the responsibilities and accountabilities of the various officers of government and defines the measures of compliance. The package of legislation that sets the framework for the operation of the system will include a number of specific laws.

The legislation will define responsibilities for major financial functions such as budgeting, accounting, cash management, debt management and reporting and define the types of agencies that are subject to the provisions specified. Legislation might also address the organisation of different types of government agencies and the process of reviewing and monitoring government functions. (This last function usually takes place in the office of the Auditor General.) For example, it will state whether or not government-owned businesses and local government authorities are covered by audit or accountability requirements. It will also identify key reporting requirements for the agencies covered, and it will define internal and external audit functions. Relevant legislation might refer to the government’s financial management and accountability to the public.

Standard Set of Rules and Definitions

As the information from financial management systems will be aggregated to meet different user needs, standards and rules for the development, maintenance and use of an IFMS must be set centrally so that they will apply across all the parts using the system. International accounting standards are now being established by international bodies to allow comparisons across systems.

One Bank Account

Within an IFMS, all transactions and monies must flow through a single bank account. This account is usually established at the country’s central bank, and all revenue collection is consolidated into this account. There may be any number of sub-accounts established for individual agencies or programmes, but the IFMS systems ‘sweep’ the sub accounts daily and aggregate the transactions into the central account. The use of a single account enables the central finance unit of government to manage the cash for the whole entity and manage the overall finances.

Other Basic Issues to Consider

When analysing an IFMS, the following issues should also be considered.

Centralisation and Decentralisation of Responsibilities

Most IFMS are based on the principle that controls and standards are set centrally and their execution or operation is decentralised. There are many ways to achieve this division between centralised and decentralised management. Decentralising responsibility for the financial management to departmental heads and the heads of budgetary units helps them to monitor and manage more closely the finances for which they are responsible. But with this devolution of responsibility goes greater accountability. All parts of the government need to comply with procedures and policies related to reporting and managing performance.