Internal control systems

Performance has improved, due to the up-grading of the Lawson payroll control system, the strengthening of the payroll audit function and a comprehensive payroll cleansing exercise. The strengthening is continuing. The rating in the 2010 assessment should probably have been D+.

Dimensions (i) and (iii) appear to have been over-scored.

PI-19: previous framework. However, given that the recent changes in the legal and regulatory framework are not yet effective, dimensions (i) and (iv) would have received the same score in 2010. The format of the data collected by PPRA for its APERs, although very useful and shows increasing compliance by procuring entities with the PPA and its regulations, does not allow the scoring of dimensions (ii) and (iii).

PI-20:

No change in performance but controls are beginning to strengthen. Expenditure commitment control systems are not effective, as evidenced by a large increase in payments arrears in recent years. The situation may be worse due to the large nature of contracts in recent years.

Non-compliance with internal control systems is still widespread.

However, helped by an improving internal audit function and political leadership, compliance is beginning to improve.

PI-21:

Internal

audit (M1) C B▲

Performance has improved in terms of the regularity and distribution of reports and follow-up by MDAs on audit recommendations. The pace of strengthening is constrained by insufficient capacity and budget.

3.5.3.1 PI-18: Effectiveness of payroll controls

As a major component of expenditure, effective control of the payroll is an important indicator of sound financial management.

Background

The overall civil service is estimated at 478,000 staff comprising all MDAs, Executing Agencies, Local Government Authorities (LGA), and the Police Forces; the armed forces are not included. The Office of the Treasury Registrar performs the same function as PO-PSM in relation to Executing Agencies.

The Public Service Act makes all public sector employers (i.e. MDAs) responsible for the management of their payroll under the overall oversight of the Public Service Management Division of the Office of the President (PO-PSM). The payroll is controlled through a computerised database known as the Human Capital Management Information System (HCMIS, commonly known as “Lawson”, the name of the US-based company that owns the software), located in PO-PSM. The HCMIS includes all staff names and associated relevant data (e.g. birthdays), positions held by staff, salaries, and changes in employee circumstances (e.g. salary changes, promotions). Lawson, originally introduced in 2001, was substantially upgraded (to Lawson 9) in 2011, leading to a significant increase in the strength of payroll controls.

Facilitated by the upgrading of Lawson, payroll management was decentralised to MDAs during 2011-12, the MDAs inputting changes in personnel records into HCMIS directly rather than providing the data manually to PO-PSM for entry into HCMIS. The purpose was to sharply increase the timeliness and accuracy of incorporation of changes (e.g.

recruitments) in personnel data into HCMIS. Management of LGA human resources was fully decentralised to LGA level in November 2011 in terms of independence from PO-PSM, though the PO retained authority to hire.

The Chief Secretary of the PO controls the establishment list in terms of the numbers and definitions of positions and in terms of hiring and firing. Any request by an MDA to fill a vacant position, terminate a staff member’s employment, increase/decrease the number of positions or for promotions/relocations/leave has to be approved by the Chief Secretary and, if approved, budgeted for through the annual budget preparation exercise and reflected in the personnel and payroll records of MDAs, and then in HCMIS.

Reports prepared by the Internal Auditor General (IAG) during 2011/12 on the payroll of the Health, Education and Agriculture sectors in the pre-Lawson 9 period indicated delays by MDAs, Regional Secretariats and LGAs in adjusting their personnel records to reflect dismissals, absconders, retirements and deaths as representing significant payroll control issues in the form of ‘ghosts’. Payroll cleansing exercises over the last 2 years arising from these reports and facilitated by the HCMIS upgrade have resulted in a sharp reduction in ghosts. PO-PSM considers that HCMIS is now 90 percent clean. The annual reports of the CAG also note delays in updating personnel records resulting in ineligible salary payments,

but the amount of such payments decreased sharply in recent years (TZS 1.8 billion in 2009/10, TZS 142.7 million in 2010/11 and TZS 55.7 million in 2011/12.

(i) Degree of integration and reconciliation between personnel records and payroll ³¹ The upgrading of Lawson has sharply enhanced the consistency of the payroll with personnel records and has enabled routine and frequent reconciliation. The establishment list³², which is under the control of PO-PSM used to be entirely outside HCMIS, thereby requiring manual checking whether online entries made by MDAs/LGAs into HCMIS were consistent with the establishment list and approved budget; i.e. to check that each name corresponded to only one post and only one payment against that name; the Chief Secretary of PO authorised the checks. Under the upgraded system, the establishment list is now included in HCMIS, so that changes inputted by MDAs into HCMIS can be automatically cross-checked with the list. The process of placing people on the establishment list is still manual, but PO-PSM is in the process of fully integrating this process into HCMIS.

The payroll (list of people to be paid) is maintained by the Computer Services Department in MoF. Since November 2011, it has been part of HCMIS. Changes in the personnel database controlled by PO-PMS in HCMIS are reflected straightaway in the payroll component of HCMIS (through running the PA 100 function in HCMIS). These two components of HCMIS are segregated from each other, so that changes made in PO-PMS’

portion of HCMIS cannot be altered by MoF. Thus, reconciliation is immediate, though MDAs can check that the monthly payroll just made was consistent with the inputs they have made in HCMIS, as approved in the system by PO-PSM. The Budget Department has read-only access to HCMIS, so that it can know the amount of payroll to be paid and then request MDAs to input into IFMS their requests for payroll payment, which are then processed by the Central Payments Office in ACGEN.

Prior to the move to Lawson 9, the process of linking the payroll to HCMIS was not automatic and relied on manual data transfers, which were potentially prone to errors.

Contrary to what was stated in the 2010 PEFA assessment, the Computer Services Department in MoF did not control a specific payroll database directly linked to the HCMIS database, whereby changes to the latter would directly generate corresponding changes in the former. Instead, the PO-PSM manually extracted from HCMIS the list of people to be paid each month and then prepared a request for budget release for payroll payments for submission to Budget Department for approval.

31 The reconciliation exercise means: checking that (i) all civil servants who are being paid (i.e. the payroll) are included in the personnel data base (HCMIS); and (ii) the positions of all civil servants listed in the personnel data base match those in the establishment list. In countries which do not have a centralized personnel database system, the checking under (i) is directly between the payroll and the personnel database of each MDA.

32 The PEFA team was not shown the establishment list, but documentation such as the Public Service Act, the report of the Internal Auditor General on the personnel database of the health sector in 2008/09, and the annual reports of the

(ii) Timeliness of changes to personnel records and the payroll

The PO-PSM office shared data on annual records of changes entered into HCMIS by MDAs, including new hires, terminations, changes of salary scale, name change, status change, and promotion within and across votes. The upgrading of Lawson in November 2011 combined with a large –still on-going – payroll cleansing exercise has sharply improved the timeliness of changes to personnel records. Prior to the upgrade, it could several months for a change to personnel records to be reflected in the payroll. The payroll cleansing exercise that started in 2012 was partly based on audits of the education, health and agriculture sectors conducted by the Internal Auditor General, referred to in the Background above. The situation now, according to PO-PMS – as demonstrated by staff to the assessment team on HCMIS – is that changes in personnel records are quickly reflected in PO-PSM’s component of HCMIS, and, in turn, quickly reflected in the payroll. ³³

Cost savings have been realised through a sharp reduction in the number of ‘ghost’ workers (14, 000 ghosts were removed in 2012 alone), while efficiency gains result from recruitments, promotions, and reallocations being quickly reflected in the payroll and by a sharp fall in salary arrears.

PO-PSM provided the team with the following supporting evidence demonstrating significantly improved timeliness since the adoption of Lawson 9 in November 2011:

 Out of 374,387 HR data entered into HCMIS by various employers between October, 2011 and mid-July 2013, 88% (329,882) had been validated and approved by PO-PSM.

Much of the pending data were those entered in early July, 2013³⁴. PO-PSM projects that personnel records will be 100 percent correct by September 2013.

 Benefits registered so far are as follows:

- 3-6 months delay in effecting salary for new hires reduced to one month;

- 3-12 months delay in effecting salary changes (including for promoted employees) reduced to one month;

- 3-12 months delay in effecting transfers reduced to one month.

- Delays eliminated in removing employees from payroll (delays lead to the existence of ghost workers);

- MDAs are conducting a personnel data cleaning exercise through eliminating incorrect information and updating personnel information in personnel files. PO-PMS has identified problem areas and provided attachments to the HCMIS portal to facilitate the exercise.

- Backlog of papers waiting approvals by PO-PSM has been eliminated. Offices are now almost paperless.

- Human resource management (HRM) functions have been strengthened through the introduction of 1,041 Human Resource Officers (HRO) to manage HR and

33 PO-PSM indicated that the numbers of complaints submitted to it about delays in being paid had plummeted over the last year.

34 PO-PSM provided a Personnel Action Status Report to the team for October 2011 to July 2013.. In tabular format, the Report shows the types of changes (new hire approvals, name change approvals, promotion approvals between and within Votes, salary changes, status changes, termination and transfers) according to total requested changes (374,837), approved changes (329,882), approvals pending (26,460), and corrections pending (15,825).

payroll matters over the whole public service. Until now, these functions have been carried out by salary clerks, accountants, hospital secretaries, and record management assistants, none of whom have specific human resource management functions.

The Joint Assessment of the PSRP in March 2013 acknowledged that delays in salary payments even in remote areas were no longer an issue.

(iii) Internal controls of changes to personnel records and the payroll

The 2010 PEFA assessment pointed to weaknesses in internal controls. At MDA level, operators of HCMIS worked in close proximity to beneficiaries, raising the risk of data manipulation. Audit reports had mentioned deficiencies in internal control systems. At PO-PMS, the HCMIS was accessible to several users (operators and systems analysts), thereby posing challenges in preventing the payroll information from being lost, read, changed (intentionally or accidentally) or modified by people not authorised to do so. System controls were not sufficient to prevent entries by unauthorised operators.

The controls have strengthened sharply, mainly as a result of the up-graded HCMIS and the findings of the audits conducted by IAG on the health, education and agriculture sectors, as referred to in the Background above. Only specifically authorized staff in MDAs can make changes to personnel records and enter them into HCMIS; they generate a clear electronic trail in doing so. All changes are "confirmed" by the PO-PSM in the system prior to the change becoming "live" in the system; PO-PSM demonstrated the controls, including the audit trails generated by changes. Changes are only confirmed if sufficient supporting documentation has been provided. The Staff Inspection Department in PO-PSM checks for errors. Other improvements that have been made since the establishment of Lawson 9, include, starting in 2012, more personal identification information provided on each staff person in order to reduce the risk of multiple payments and payments to staff younger than 18 and older than 60 years.³⁵

Furthermore, the accountability framework for ensuring that controls are rigorously applied has been strengthened through the Chief Secretary of PO-PSM emphasizing that disciplinary measures will be imposed, for example, on Accounting Officers, whose staff delay entering terminations of officers into HMCIS. The Public Finance (Surcharge and Penalties) Regulations, 2005 under the Public Finance Act (2001) provides for penalties on Accounting Officers for ‘gross negligence in performance of their duties’ (Section 6).

35 The IAG reports prepared during 2012 on the education, health and agriculture sectors covering the period prior to the Lawson upgrade indicated outstanding control issues: (i) staff younger than 18 years and older than 60 (and therefore not allowed to be on the payroll); (ii) 6,500 duplicate names and over 2,700 suspected triplicate names, and thus a risk of staff members being paid more than one salary; (iii) staff on the wrong salary scale or not even on a salary scale; and (iv) double or triple payment of salaries arrears in the case of more than 2500 staff.

(iv) Existence of payroll audits to identify control weaknesses and/or ghost workers Payroll audits prepared by the Internal Auditor General (IAG) during 2011/12 and 2012/13 on the health, education and agriculture sectors indicate unreported changes and mismatches between payroll and staff working on site, all requiring significant retro-active adjustments;

these reports, however, cover FYs 2010/11, 2008/09 and 2007/08 and thus relate to the period prior to the Lawson upgrade. The audit reports noted the same type of issues in each year, pointing to significant internal control deficiencies and lack of appropriate corrective measures. The PO-PSM has responded to these reports by requesting MDAs to comply with rules and take corrective measures.

As a result, of these audits, the PO-PSM, MDAs and LGAs initiated a payroll cleansing exercise that eliminated more than 9,700 non-existent workers from the payroll (700 in MDAs and more than 9,000 in LGAs). PO-PSM considers that 90 percent of the data is now clean (as of end-August, 2013).

The IAG conducted a comprehensive payroll audit during January-March, 2013 and finalised a report on this in April 2013. It showed the report to the assessment team. The audits included head counts. The audit indicated payroll-related errors averaging about 7 percent for MDAs and Regions, and substantially higher error rates for public bodies (e.g. 54 percent for National Construction Council), the main reason being that these were hooked up to HCMIS much later than for MDAs and the controls they exerted were less robust than for MDAs. More such audits are planned.

Internal audit units in MDAs have not yet started to prepare payroll audits. The CAG has not conducted payroll-specific audits, but mentions payroll control issues in its annual reports, the main issue being delays by some MDAs in adjusting personnel records in response to terminations, absconders, retirements and deaths (i.e. in relation to dimension (ii)).

On-going and planned activities

 Linking of the establishment list to HCMIS.

 Finalisation of the payroll cleansing exercise, with 100 percent expected by the end of September, 2013, by order of the Chief Secretary of PO-PSM.

 Roll out of a national identity card system.

 The IAG is planning to prepare another comprehensive payroll audit in 2014 at the request of the Chief Secretary of PO-PSM.

PI (M1)

Score 2010 PEFA

Score 2013 PEFA

Assessment

PI-18 C+/D+

(revised from NR)

B▲ Performance has strengthened sharply, and continues to strengthen, as a result of the up-grading of the Lawson payroll control system, the strengthening of the payroll audit function and the implementing of a comprehensive payroll cleansing exercise. The rating in the 2010 assessment should probably have been D+. Dimensions (i) and (iii) appear to have been overscored.

PI

(i) A B▲ Performance has improved through the advent of Lawson 9 in November 2011, which has led to full integration between the payroll and the personnel database and the automatic cross-checking of the personnel database with the establishment list. Changes to the latter by PO-PSM are still made outside HCMIS, but the list is in the process of being computerised within HCMIS. In effect, however, changes in the list are quickly reflected in HCMIS, as the PO, headed by the Chief Secretary, is in charge of both. The 2010 PEFA assessment incorrectly rated this dimension as A; this could not have been the case, as Lawson 9 had not yet been adopted. upgrade in November 2011 and an extensive payroll cleansing exercise. Most new recruits now receive their first salary payment by the following month at the latest, and most other changes entered by MDAs are now effective within a month. Payroll cleansing has led to a large decrease in the number of ghosts, the HCMIS now being about 90 percent clean (as of the end of August, 2013).The 2010 PEFA assessment did not rate this dimension due to lack of data, but the narrative implies a C or D rating.

(iii) C B Performance has improved. Controls over changes to personnel records and HCMIS have strengthened considerably since the upgrading of Lawson, which facilitates much quicker and streamlined changes to personnel records and less risk of unauthorised changes. The payroll cleansing exercise and the associated addition of more staff member identifying characteristics (in addition to name and salary) have also strengthened controls. An accountability framework makes Accounting Officers responsible for ensuring that changes in personnel circumstances are quickly reflected in HCMIS. The CAG reports indicate some instances of non-compliance with financial regulations with regard to personnel, although such instances are declining. The text in the 2010 PEFA assessment indicates that a D, rather than a C, rating was appropriate.

(iv) C B▲ Performance has strengthened. The IAG conducted payroll audits on the health, education and agriculture sectors during 2011/12 and 2012/13 and conducted a comprehensive payroll audit in 2012 covering all MDAs, at the request of the Chief Secretary of PO-PSM. A further comprehensive payroll audit is planned for 2014. The internal audit function in MDAs is strengthening.

3.5.3.2 PI-19: Competition, value for money and controls in procurement Significant public spending takes place through the public procurement system. A well-functioning procurement system ensures that money is used effectively for achieving efficiency in acquiring inputs for, and value for money in, delivery of programs and services by the government.

The dimensions for this indicator changed in January 2011 and are not comparable with the 2010 PEFA assessment ratings. It is possible, however, to apply the revised methodology to the situation in 2010.

Background

The current public procurement set-up is based on devolution of procuring authority to the procuring entities, i.e. MDAs, LGAs and PA&OBs in the 2000s. The Public Procurement Regulatory Authority (PPRA) was established (2005) under the Public Procurement Act (PPA), 2004 and its Public Procurement Regulations (PPR), 2005 as a regulatory and supervisory agency. It has the power to audit procurement proceedings and report on them.

Its annual performance evaluation (APER), which uses a compliance index to assess the procurement performance of each entity, is submitted to the Minister for Finance who has three months to table it before the Parliament where the Public Accounts Committee (PAC) usually examines it.

Its annual performance evaluation (APER), which uses a compliance index to assess the procurement performance of each entity, is submitted to the Minister for Finance who has three months to table it before the Parliament where the Public Accounts Committee (PAC) usually examines it.