OPERATIONS POLICY & COUNTRY SERVICES

NUMBER 2

Presenting governments’ successful approaches to specific FM challenges.

Improving Mongolia
expenditure
The problem: Public financial management in Mongolia was
characterized by lack of timely and reliable information, weak
internal controls, and misappropriation of funds. As a result, fiscal

control and discipline, resource allocation, and service delivery suffered.

The approach: The introduction of an integrated financial

information management system, with associated changes in business

processes, has helped to improve fiscal discipline, strengthen
expenditure control, and provide key decisionmakers with better
information on which to base decisions.

Background process involved the following steps:

Since the mid-1990s Mongolia has been
implementing wide-ranging public sector reforms,
including reforms in public financial management:
instituting a medium-term budget framework that
would link policy priorities with budget resources,
In 1994 the improving budget comprehensiveness,
rationalizing the system of norms and
Government
procedures, introducing a Treasury single
began a series of
account system, and improving the reporting
innovations system in a framework consistent with the
focused on results International Public Sector Accounting Standard
and designed to and IMF Government Financial Statistics.
achieve better
balance between However, there was no effective financial
tight fiscal control management information system.1 Reporting was
and effective limited: annual budget execution reports to
Parliament were prepared by a different system
program
than the Treasury used, and Government
execution.
financial reports were not produced. Any controls
over expenditure that were in place were being
disregarded. Different agencies operated more
than 2,000 bank accounts; and because the
Treasury did not have an effective tool and
framework for managing these accounts, it had
to borrow from the Bank of Mongolia.
Mongolia’s solution
To improve transparency and accountability,
simplify procedures, and facilitate cash
management, the Government of Mongolia
decided to implement a new Government Financial
Management Information System (GFMIS) with
support from two Bank-financed projects.2 The
• development and application of a unified chart
of accounts conforming with International
Public Sector Accounting Standards
(2001—2003);
• establishment of the Treasury Single Account
system (2003);
• signing of contracts with suppliers IBM
Canada Ltd and its subcontractors
FreeBalance Canada as application software
provider and MCS Mongolia as network and
hardware provider (June 2003);
• software customization, including language
and specific control environment
(2003—2005);
• provision of training to government staff
(2001—2006); and
• assistance with change management and
business process reengineering (2003-2004).
The final GFMIS system is based on
FreeBalance’s Accountability Suite of products.
The government has implemented FreeBalance
eFinancials with its core modules: controls,
appropriations; general ledger,3 and
expenditures. The FreeBalance eFinancials can
produce standard budget execution reports; in
addition, users can prepare customized reports
using the Crystal report tool.

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Implementation challenges. During
the implementation period a number of
challenges arose: end-users proved to
be unfamiliar with the concept and use
of integrated systems; there was staff
turnover both at the Ministry of Finance
and at the systems contractor, as well
as changes in Government and senior
Treasury management; and interagency
coordination was not strong. In
November 2003 the Government
established a Steering Committee,
chaired by the Ministry of Finance’s
State Secretary,4 to oversee
implementation. Weekly Committee
meetings and regular meetings of the
working groups established to oversee
various project components helped to
address issues in a timely way.
Beginning operation. Mongolia
lacked the operational staff for parallel
running. Therefore, the system went live
on January 3, 2005. After integral
system stabilization, the Government
signed the Operational Acceptance
Certificate on April 15, 2005.
Continuing development. The
Government has continued to develop
the system and expand its capabilities.
On January 1, 2006, Mongolia
introduced financial commitment
accounting to enhance cash
management, and it has purchased
revenue, purchasing, and assets
modules. (The Government now uses the
modified cash basis of accounting 5 but
is planning to move toward the full
accrual basis following the development
of an accounting policy for fixed asset
accounting. The asset module would be
implemented at that time.6 ) The
Government has prepared project codes
for donor projects, and it is expected that
donors will start using the system as their
financial management regulations allow
them to use country systems.
Coverage. The GFMIS is deployed in
the Central Treasury and all Provincial
Treasuries and works in real time, with
all sites connected on-line to the
Ministry of Finance. GFMIS manages
5490 budget entities, 2700 tax
revenue accounts, 1703 social
insurance accounts, and 2308 social
welfare accounts with 251 concurrent
users; it processes around 3,000
transactions daily. It has now been fully
rolled out to 250 districts and 50 large
budget entities.
World Bank role. The process of
developing and implementing the
GFMIS was led by the Government of
Mongolia. Success demanded extensive
dialogue among, commitment by, and
ownership of senior management and all
civil servants in the Government. The
Bank contributed to the effort with
financial support for the purchase of
hardware and software, for the training
of personnel, and for the technical
expertise needed to install the system.
Achievements and challenges
The implementation of the GFMIS has
done much to improve public financial
management in Mongolia. Among the
improvements:
• Wage and salary information are now
entered at a summary level.
Information on debt payments is
transmitted from Mongolia’s debt
management system to the Treasury
for inclusion in the GFMIS.
• Monthly budget reports for the
Government are available at the
Central Treasury one week after the
end of each month and are published
on the Government website; and
annual budget execution reports are
available within three months after
the end of the year.
• Cash balances on the Treasury
single account are available daily.
• December 31, 2005, marked the first
time the Mongolian Government
could fully reconcile the Treasury
account balance with checks issued
by the Treasury Department as the
fiscal year closed.
• Built-in system controls provide
undeletable and auditable trails for
expense transactions: each
transaction through GFMIS is cross-
checked with available funds and
outstanding commitments; the
system verifies that officials have
entered all necessary documentation
into the system; the system verifies
the payee’s bank account details
with the tax and customs
departments’ databases; the system
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then sends an electronic funds
transfer instruction to the Bank of
Mongolia; and an electronic
verification is sent to GFMIS to
inform management that the payment
has been made.
Implementation of the GFMIS has also
contributed to other important results.
The Government no longer needs to
resort to overnight borrowing; indeed, it
now it has an average daily surplus of
US$424 million. Treasury Department
calculations indicated that in 2005
alone improved financial controls saved
the Government US$62.3 million. By
maintaining this level of savings, the
Government expected to recover the
costs of introducing the GFMIS within
18 months.
Challenges for the future include further
developing the system and addressing
human resource issues.
Strong Government ownership
was built over time, initially
through knowledge exchange
visits to successful countries,
but even more when the system
became operational and the
Government realized what the
benefits would be.
Critical success factors and
lessons learned
Several factors were critical to the
success of this effort:
• the system had a strong champion—
the State Secretary for Finance;
• strong Government ownership was
built over time, initially through
knowledge exchange visits to
successful countries, but even more
when the system became operational
and the Government realized what
the benefits would be;
• Mongolia had in-house staff who
were capable of handling the pre-
and post-deployment problems;
• intensive training programs were
provided for staff;
• continued funding was available after
deployment for training and system
stabilization support; and
• the Government and the Bank had a
good and long-standing working
relationship, with associated
knowledge sharing.
The experience yielded a number of
important lessons for other such efforts:
• Knowledge transfer and training are most
successful when the practical benefits
of change can be demonstrated.
• A system going “live” is the
beginning, not the end; and funding
support is often required to help
stabilize the system after deployment.
• For turnkey projects, the terms of
reference need more specific details
up-front than other types of projects:
consultants and suppliers need to
ensure the presence of specific
experts during the contract
implementation stage.
• Sufficient attention needs to be given
to incentives, so that the government
can retain the technical and IT staff it
needs to guide the systems
deployment.
• Selection procedures for system
contractors should emphasize the
importance of team consistency.
• The implementation of a GFMIS is not
solely an IT project; sufficient
attention and time must be allowed to
reengineer business processes.

1 There was a partly automated treasury payment software system (BUMIS), but this system was fragmented, was used only at the Central Treasury, had no
automated budget control, had paper-based approvals, was subject to significant user manipulation, did not have adequate built-in checks or balances, did
not generate management reports, and most importantly did not produce audit trails for all transactions. Detailed information on public finance management
practices and issues can be found in the Mongolia Public Expenditure and Financial Management Review (World Bank, 2002).
2 Fiscal Technical Assistance Project and Economic Capacity and Technical Assistance Credit.

3 Accounts payable and receivable functionality is contained within the GL and in the expenditure and appropriations components.

4 The Committee membership included directors of Fiscal Policy and Coordination Department, Treasury Department, and Accounting Policy and
Methodology Department.
5 Commitment accounting is in operation.

6 The valuation of fixed assets is in progress; it is understood that the valuation of intangible assets such as museums and cultural sites will be more difficult
to accomplish.

MARCH 2008
FM Solutions are issued by the Financial
Management Anchor.

OPCS
This note was prepared with contributions from Ms. G. Oyungerel, Director of the operATIoNS

Project Coordination Unit, and Shabih Ali Mohib (smobib.worldbank.org). polIcY &

coUNTrY

SerVIceS

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