Financial Management For Good Governance - From Deficit To Surplus

3
Financial Management
for Good Governance
From Deficit to Surplus
S.M. Khatib Alam

March 2008 Imran Yousafzai
150
100
50
Rs. Millions
-50
-100
-150
FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 Projected FY 2008-09 Projected FY 2009-10 Projected
City District Government Faisalabad, Pakistan

This document is produced as part of the Strengthening Decentralised Local Government in Faisalabad (SDLGF)
Project for the purpose of disseminating lessons learnt from the project. The views are not necessarily those of
DFID or the City District Government Faisalabad
(c) SDLGF March 2008
Parts of this case study may be reproduced for educational use, provided that such material is not printed and
sold. The authors expect that, any material which is used will be acknowledged accordingly.
Layout & Designed at:
FaizBakht Printers, The Mall, Jhang (Punjab) Pakistan.

VISION
“Pre-empting Poverty, Promoting Prosperity”
MISSION STATEMENT
“We will provide high quality services which compare with
the best in the country. We will work with everyone who wants
a better future for our District. We will establish an efficient,
effective and accountable District Local Government, which
is committed to respecting and upholding women, men and
children’s basic human rights, responsive towards people’s
needs, committed to poverty reduction and capable of
meeting the challenges of the 21st Century. Our actions will
be driven by the concerns of local people”
ACKNOWLEDGMENTS
This case study is the culmination of efforts by a number of individuals from government and
the technical assistance team. Firstly it is important to thank all those who have cooperated
with the team preparing this case study not only in the last few weeks but over the course of
the last four years. They have been critical to the work and demonstrated what is possible to
achieve in government when the right set of conditions prevail.
We would also like to thank the communities and elected representatives of the district that
assisted the SPU team in implementing this project and its various components.
The authors wish to thank Rana Zahid Tauseef, City District Nazim; Maj (Retd.) Azam
Suleman Khan, District Coordination Officer; and Dr. Tariq Sardar, EDO Finance & Planning
for their valuable contribution in making this project a huge success.
We are also thankful to: Mr. Ch. Zahid Nazir, ex-District Nazim Faisalabad; Mr. Tahir Hussain,
ex-DCO Faisalabad and Mr. Athar Hussain Khan Sial, ex-DCO Faisalabad for their valuable
contribution to the success of this project. We are also thankful to: Mr. Asad Islam Mahani, ex-
EDO Finance & Planning Faisalabad and Mr. Waseem Ajmal Chaudhry, ex-EDO Finance &
Planning, Faisalabad for their valuable contribution to the success of this project.
We are further thankful to all CDGF employees (past and present) and CDGF partner
departments but we would like to specifically mention by name the following: Mr. Muhammad
Akhtar, District Accounts Officer; Mrs. Saima Raza, District Officer (DO) Finance and Budget;
Mr. Muhammad Ramzan, DO Planning; Mr. Dilmir Khan, DO Accounts; Mr. Amir Tareen, DO
Revenue; Mr. Mehmood Wazir, DDO Revenue; Mrs. Talat Qamar DDO Accounts; Mr.
Ghulam Rasool Bhawana DDO Planning and Mr. Rana Saif, Assistant Finance & Budget for
their efforts in successfully implementing reforms in their departments.
We are thankful to all DFID Project Advisers and Management that have assisted in this
project since its start and we would like to specifically thank Mr. Mosharraf Zaidi, Governance
Advisor, DFID Pakistan; Mr. Wajahat Anwar, Deputy Programme Manager, Accountability
and Empowerment team, DFID Pakistan; Ms. Jackie Charlton, DFID; Mr. Alistar Moir, DFID
Pakistan and Ms. Nighat-un-Nisa, DFID Pakistan for their continuous support and
professional technical guidance since their involvement in 2004.
Our thanks are also to Dr. James Arthur, Dr. Richard Slater and Ms. Janet Gardener for their
valuable inputs throughout the project. We would also like to thank Mr. David Gray,
Governance Advisor DFID; Mr Roy Brockman; Ms. Joji Reyes and Ms. EJ Nacpil for their
valuable contribution in completing the case study.
We are thankful to Mehreen Hosain for proof reading the document and all the SPU team
members for their dedication, hard work and the many late hours spent designing,
implementing and documenting the work of this project. These include: Nadir Ehsan,
Mahmood Akhtar, Muhammad Shahid Alvi, Muhammad Tariq, Kashif Abbas, Ajaz Durrani,
Farhan Yousaf, Muntazir Mehdi, Gul Hafeez Khokhar, Mirza Muhammad Ramzan,
Muhammad Sharif,Humaira Khan, Sumara Khan, Saima Sharif, Mubarak Ali, Adnan Akram,
Sohail Anjum, Saleem Shehzad, SamiUllah, Arooj Sultana , Mamoona Mustafa and all long
and short-term international and national consultants.
FOREWORD
The City District Government Faisalabad (CDGF) is
changing. After a period of introspective assessment we
believe that we are now moving towards becoming a more
responsive, effective and efficient Local Government
through reforms that we initiated in May 2004.
It is with great pleasure that I say we have now additional

resources which three years ago seemed difficult. Our
budget for the forthcoming year will have money that we plan
to allocate based on those whose needs are greatest in
Faisalabad. We are currently in a very good state of affairs at
all levels. Our finances are considerably better then 3 years
ago, and with a surplus budget. We now have fiscal space to
allocate resources in those sectors that we deem critical to
fighting poverty in Faisalabad especially in Education,
Health and Community Development sectors.Our budgeting
process in this quarter has been the most participatory ever,
and we believe we are a leading district in undertaking
widespread consultations which have fed into the budget.
We will be further broadening the participation process.
The availability of credible and timely information is now

helping the Finance & Planning department to correctly
inform Local Government so that discussion can be made in
a rational manner. Our information systems allow us to
present accurate information to senior management during
our monthly meetings. This information enables top
management to prioritise its needs and identify areas that
need targeted investment. The challenge ahead is clear,
how to translate this progress into good financial
management? While the CDGF continue to rely upon
provincial support, there is much that can be done at home to
offset fiscal instability.
I would like to take the opportunity to thank our City District

Nazim for his valuable support to the reforms in our district. I
would also like to congratulate my City District team
members especially all the EDOs for working to achieve the
objectives in their departmental reforms programme. Finally,
I would like to thank our major partners in development, the
Department for International Development (DFID) UK and
their management consultants GHK International Ltd., for
assisting Faisalabad City District through the project
“Strengthening Decentralized Local Government in
Faisalabad”.
Maj. (Rtd.) Azam Suleman Khan
District Co-ordination Officer
City District Government Faisalabad
March 2008
The Clock Tower, symbol of Faisalabad
PREFACE
Starting from a base where there was very limited strategic human resource management,
little or no validated data for making informed decisions, poor levels of fiscal management,
limited technical capacity within our team and an almost non-existent policy for both gender
and communication, we have made, in this very short period of time, good steady progress.
These strategic aims form the basis of improving how we govern ourselves but also
supporting a paradigm shift that leads us to becoming a more citizen friendly District
Government. The F&P department has been hard at work in improving systems, processes
and procedures that will aid to improve services in the social sectors, such as education,
health and community development.
We continue to focus on fiscal transparency and therefore, we have been liaising with as
many stakeholders as possible, about the way we allocate and spend money. We have been
involving our politicians to make financial decisions. Hence our efforts to educate and train
our politicians in core areas such as gender, finance, governance and expenditure
management are leading to more accurate budgeting and planning. Cash flow has improved
because of the strong financial management in CDGF. The District prepared a realistic
budget in 2007-2008 and based on our cash flow position the Finance department is
confident that in the next financial year providing there are no adverse provincial decisions
taken, the CDGF is likely to have more fiscal space for development projects.
Planning remains at the heart of good financial management. We have therefore continued to
focus on building multi-year planning capacity within the Department. Cost benefit analysis of
Financial Management Information System reveals that it has brought savings of more than
Rs.10 Million per annum. The City District administration feels it more appropriate to focus on
maximizing existing revenue sources rather than trying to identify new revenue sources.
Revenues from advertisement and commercialization remain potentially the most attractive.
They constitute 68 percent of total district receipts and the department plans to improve
revenue collection from these sources.
The road ahead will present many challenges, not least convincing sceptics that these
reforms are not only important but a necessity. Other districts in Punjab and the country will be
looking to Faisalabad to see how we develop and whether Local Governments can indeed
deliver a level of service that people deserve. The onus is on all of us to work together for a
brighter future - we owe it to all the citizens of Faisalabad.
Dr. Tariq Sardar

Additional Project Director
Strengthening Decentralised Local Government in Faisalabad
March 2008
Office of the District Co-ordination Officer, Faisalabad

Table of Contents
TABLE OF CONTENTS
ACKNOWLEDGMENTS
FOREWORD
PREFACE
ACRONYMS
EXECUTIVE SUMMARY 1
BACKGROUND 4
OVERVIEW 5
THE CASE 7
IMPLEMENTATION AND IMPACTS 8
Design 8
Continuing to Build Local Capacity 8
Improvement in Financial Management 9
Making the Budgeting Process Work 12
Improvement in the Release of Grants 19
Expenditure Tracking System 20
Facilitating the Reconciliation of Financial Accounts 21
Facilitating the Pensioners in CDGF 22
Asset Management 23
Information Systems 23
Increase in Revenue Mobilisations & Fiscal Efforts 25
Influence on Corporate Policy towards Reduction of Poverty 29
Strengthening the Internal Accountability Mechanisms 31
DRIVERS OF CHANGE 33
Provincial Government and Legal Protection 33

Leadership 33
Location, Administrative Setup and Ownership 33
Link with Non-devolved Departments and Other Donors 34
Timely Technical and Financial Support 34
Innovative System and Processes 34
LESSONS & REFLECTIONS 35
Policy Change 35
Awareness 35
Replication 35
The Role of Survey 36
Consultation with Elected Representative 36
Availability of Technical Team 36
Financial Incentives 36
Understanding of Government Culture and Related Legislation 37
Table of Contents
Decentralisation of Revenue 37
Lack of Funds in not the Real Issue in the District 37
WAY FORWARD 38
Spatial Planning Farmework 38

E-Procurement 38
PIFRA Access 38
Receipt Facilitation Centers 39
Sustainability 39
CONCLUSIONS 40
BIBLIOGRAPHY 46
FIGURES
Figure 1: Improved Financial Management 10

Figure 2: Online Budgeting Process 16
Figure 3: Simplified Reconciliation system of CDGF 21
Figure 4: Financial Management Information System 24
Figure 5: Flow of Funds in the CDGF Account IV 26
Figure 6: Trends of Local Receipt from FY 2002-03 to FY 2007-08 28
Figure 7: Education Department’s Development Expenditure trend from FY 2002-03
to FY 2007-08 (upto November 2007) 31
ANNEX
Annex 1: A Case Study on Situation Analysis of CDGF’s Budget 2004-05 42

Annex 2: Comparison of PESRP Funding from 2004 to 2008 43
Annex 3: Receipt Facilitation Model 45
Acronyms
ACRONYMS
AA Administrative Approval
ADP Annual Development Programme
AMC Asset Management Cell
BCL Budget Call Letter
BM Budget Management
BSF Budget Salient Features
CCBs Citizen Community Boards
CDGF City District Government Faisalabad
COs Collecting Officers
DAO District Account Office
DCC District Coordination Council
DCO District Coordination Officer
DDC District Development Committee
DDOs Deputy District Officers / Drawing and Disbursing Officers
DFI District Financial Information
DFID Department for International Development
DMS Document Management System
DO F&B District Officer Finance and Budget
DOA District Officer Accounts
DOP District Officer Planning
DOs District Officers
EDO Executive District Officer
EMIS Education Management Information System
F&P Finance and Planning
FMIS Financial Management Information System
FY Fiscal Year
GIS Geographical Information System
HRMIS Human Resource Management Information System
M&R Maintenance and Repair
MDG Millennium Development Goal
MTBF Mid-Term Budgetary Framework
NAM New Accounting Model
NBP National Bank of Pakistan
NFC National Finance Commission
PC1 Planning Commission Performa 1
PCF Provincial Consolidated Fund
PESRP Punjab Education Sector Reforms Programme
PFC Provincial Finance Commission
PIFRA Project to Improve Financial Reporting and Auditing
PLGO Punjab Local Government Ordinance
PMIU Project Management Implementation Unit
PPRSP Punjab Poverty Reduction Strategy Paper
RFC Receipt Facilitation Centre
RMIS Revenue Management Information System
SDP Strategic Development Plan
TMA Town Municipal Administration
UCs Union Councils
ZAC Zila Account Committee
Executive Summary
EXECUTIVE SUMMARY
The experience of the Strategic Policy Unit (SPU) of the City District Government Faisalabad
(CDGF) demonstrates how changes in financial management practices have fuelled the
District's transformation from being a Local Government in constant fiscal crisis to being a
Local Government that can take pride in its fiscal surplus. This situation has allowed the
District Government to provide more efficient service delivery and enabled it to take vital
steps toward targeting poverty.
The last three years of the reforms programme have been a watershed for Local Government
in Faisalabad. There has been a tremendous change in the District. Who could have
envisaged three years ago that the District Government would be wholly committed to ridding
the District of deprivation and replacing earlier ad hoc and reactive policies with a firm and
sustained commitment to development and modernization? The CDGF is now saving more
time, money, and human resources, with the benefits of efficiencies being transferred to its
citizens.
On the whole the financial management reforms component has been well accepted both by
the CDGF and Provincial Government, especially, since service delivery to client
departments has improved considerably as a result of the change issues identified and then “Devolution is not apposed
implemented by CDGF. because of capacity
constraints, shortage of
technical manpower, the
The following are a brief summary of the initiatives implemented:
quality of awareness of local
elected leaders or any such
The District’s first major intervention to reform the financial management process, thing. It is apposed simply
was to conduct a capacity development programme for financial officers, Drawing because it created such a
and Disbursement Officers (DDOs), clerks and accountants to prepare the budget in huge disruption in the
political economy of
accordance with the new rules and regulations;
corruption.”
Analysis of the cash flow has helped to present a macro level picture of Local Long Serving DMG Officer
Government finances enabling management to rectify micro level issues. The
Finance and Planning Department (F&P) has been able to inform politicians of the
need to exercise fiscal discipline and to avoid new development investment as a
prelude to zero based budgeting;
Analysis of the budget preparation process in 2005 exposed the District's ability to
manage its financial resources in a responsible manner. Close scrutiny of the process
and the way the budget had been implemented since 2003 shed light on the extent of
the financial problems facing the administration. This analysis was necessary to
inform financial managers and top administration about the current financial status of
the District and how best to use the resources available;
The budgeting process of Faisalabad used to be cumbersome and labour-intensive.
In the last three years, the departments took huge strides in improving the traditional
budgeting process. Much of this is due to better coordination, better training provided
to the officers involved in the process and ongoing technical support from the CDGF
reform initiatives;
Prior to the reforms process, the required data for targeting the poor was not available.
The identification of development schemes was undertaken on a highly politicised
basis with little regard for prioritising a pro-poor agenda. Elected representatives
were not conscious of poverty targeting while the majority of the Executive District
1
Executive Summary
Officers (EDOs) were not fully aware of the concept of poverty reduction. A key aspect
of the financial reforms process was to achieve more efficiency gains in resource
allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP);
The procurement process of CDGF was often constrained by the outdated Delegation
of Financial Power Rules, which were issued by the Provincial Government in 1990 to
delegate and authorize approvals at various levels for the purchase of differing goods
and services from suppliers and contractors. The CDGF raised its concerns to the
Provincial Government by suggesting the changes in the rules to make the
procurement more effective. The Provincial Finance Department in year 2006 revised
the Delegation of Financial Powers Rules which helped in the improvement of
procurement of goods and services in the District;
It has been difficult for departments to track monthly development and non-
development expenditure. The main reason has been the systems in place in the
departments were aligned to the District Accounts Office (DAO). The departments
were only preparing budgets at the departmental level while incurred expenditure
was recorded at DAO. The F&P department was thus unable to monitor expenditure
against the budget. The F&P department is now able to develop reports giving
individual line item expenditures and other components such as the Punjab
Education Sector Reform Programme (PESRP), National Programme for the
Improvement of Watercourses (NPIW), Chief Minister's Accelerated Programme,
and significantly CCB projects are now also classified;
Reconciliation of accounts in an accurate and timely manner is critical to fiscal
discipline. Rule 67 (3) of the Budget rules 2003 clearly states that it is the joint
responsibility of all key officers to submit accurately reconciled accounts to the District
Government. The appropriation of annual account is prepared by the DAO and that
did not give the true picture of expenditure detailed object wise but only informed
about the grant wise expenditure in the District. Therefore, the CDGF for the first time
made an attempt to reconcile the June 2007 annual accounts DDO wise, grant wise
and detailed object wise with the District Account Office;
Good strategic management relies on an organization's ability to manage its
information properly. It is only now, that the District has started to understand the
implications of having reliable information as the basis for its business decisions. For
a district as large as Faisalabad, having the right information at the right time will allow
managers to redefine Local Government services and allocate resources
accordingly;
Revenue generation in local receipts has been constantly improving since 2002-03.
In 2007-08 the District has made considerable progress in revenue collection. Up to
November 2007, the District has collected 92 percent more revenue than the previous
financial year. This upward trend in CDGF's local receipts, combined with more
successful efforts to increase the District Government's PFC award, strongly bolsters
Faisalabad's fiscal position for the future. Faisalabad's financial reforms process has
undoubtedly brought tangible fiscal rewards to the District Government. The financial
plans and reports are being prepared on time and with fewer errors;
Financial accounts are being reconciled allowing local policymakers to make
informed judgements and policies. Facilities for an on-line budgeting system are in
place. Financial planning and equitable resource allocation have been linked.
Commercial properties have been identified and properly valued enabling the District
Government to generate increased local revenues. The procurement process is
2
Executive Summary
being streamlined. Workshops and trainings are ongoing to continue to build a skilled,
knowledgeable, and well-motivated local work force. The Financial Management
Information System (FMIS) is at the core of the fiscal transformation.
The Finance & Planning department of CDGF through the technical assistance provided by
the reforms programme brought significant changes in the financial management practices of
the District. The Department analysed the reasons for fiscal deficit and undertook major steps
to bring improvement and efficiencies in the departmental business processes like budgeting,
expenditure tracking and release of funds etc. These efficiencies together with both the
Provincial directives and local policy changes have contributed towards the District moving
from a deficit situation to a surplus.
Keeping in view this upturn, CDGF remains optimistic that continuing with the financial
management disciplines will allow the District in the future to remain in surplus.
The fiscal space allowed the City District Government to target poverty, using evidence
based planning which built on data and information being generated at all levels. An example
of this is the District Citizen Perception Survey, which influenced the allocations in the
education and health sectors.
This wide acceptance of reforms in Faisalabad is intriguing. After all, similar or less intense
attempts to reforms in Pakistan particularly in the Punjab have been slow in producing results.
How is it then possible that reforms in Faisalabad could proceed, and were widely accepted
since 2004? Had the CDGF identified the major gaps regarding the employees’ existing
capacity and made them effective to plan an implement the proposed changes in Faisalabad’
financial management practices? Was the online budgeting systems instrumental in making
the CDGF budgeting process more efficient? How did the CDGF manage to monitor and track
the expenditure against the approved allocation and established strict financial discipline in
the district? Had the reform initiatives helped the CDGF in identifying the true potential of local
revenue? Had the CDGF improved the planning systems by developing tools to influence the
corporate policy towards targeting poverty? Had the reform initiatives changed the working
culture of the CDGF employees regarding knowledge sharing, team working, transparency
and mutual understanding?
These are just some of the issues addressed in the case study.
3
Background
BACKGROUND
The Strategic Policy Unit (SPU) was set up by the Faisalabad District Government in 2002, as
a policy think-tank. Its key aim was to act as a conduit in the district from which all reforms
programmes could be initiated. In 2004, the United Kingdom's Department for International
Development (DFID) agreed to provide technical assistance to the district through the
“Strengthening Decentralized Local Government in Faisalabad” and using the SPU as the
platform from which change would be driven.
The SPU over a four year period has acted as a key resource fostering social capital within the
City District Government and often being the focal point for local and international technical
assistance and programme development. With a cohort of key technical resources and
change management agenda it plays a key role in facilitating public sector reforms. It has
been instrumental in assisting Faisalabad to become a modern administration.
Pakistan's devolution in 2001 ushered a series of bold structural changes which created a
new tier of Local Governments comprising District Government, Town Municipal
Administration (TMA), and Union Administration. The objectives of the devolution, easily
discernible from various Government publications and ordinances, include improving the
Districts' financial management practices. Underpinning these objectives is the promise to
improve service delivery, particularly social services, and ultimately, the potential to reduce
poverty in the country.
The Government of Pakistan through devolution introduced a new system of Local

Government. But Local Governments are not a constitutional tier of Government, and are
established and assigned functional responsibilities through provincial legislatures, primarily
under the Punjab Local Government Ordinance (PLGO). District Governments have the
responsibility for delivering social and economic services, including elementary and
secondary education, primary and secondary health, agriculture and municipal services.
To make devolution function effective, the management of district and other local authorities
needed to be strengthened. Pakistan had only limited experience of Local Government and
did not have the systems, trained staff or the means of improving governance.
The process of devolution was undertaken quickly and many new initiatives were built into the
legislature, some powers of the Provincial Governments were decentralized to the District
level, but supporting processes and rules were not thought through sufficiently. For example,
there was a lack of in-house treasury arrangements at the District level, where a District
Accounts Officer (DAO) controls the accounting function making the Finance & Planning
(F&P) department dependent on it.
Box 1: Financial Management Functions in the City District Governments

In the City Districts the Key Financial Management functions are undertaken by four departments:
Finance and Planning department is responsible for budgeting, expenditure management, cash
management, reconciliation, pension, audit, development planning, enterprise and investment promotion;
The Revenue department assesses and collects local receipts, for example, building rent, license fee, local
rates;
The Municipal Services department assesses and collects the revenue from advertisement,
commercialization and bus stations;
The District Accounts Office which is a non-devolved department performs the functions of treasury in the
District.
4
Overview
OVERVIEW
To meet the challenges of devolution in 2001, the City District Government Faisalabad
established a Strategic Policy Unit (SPU), to drive the process of reforms. The District
Government Faisalabad obtained the assistance of the Department for International
Development (DFID) in providing technical assistance to develop and improve systems and
processes. As a first step, the City District Government Faisalabad prepared five year
evidence based Departmental Strategic Operational Plans (SOPs) in 2004 in line with the
District Government's Corporate Governance Plan (2004-2009).
The Finance & Planning (F&P) and Revenue departments had undertaken a very detailed
situation analysis of the departmental activities. The situation analysis critically highlighted
the management, organizational, financial and capacity constraints of the departments. The
key strategic issues that needed to be addressed were identified:
Financial management systems did not allow the F&P department to analyse the
District cash flow, issue an effective Budget Call Letter (BCL), track and monitor
expenditures & receipts or provide timely release of grants to the departments;
Users were not able to have access to financial information nor did financial reporting
mechanisms exist to assist in decision making. A key issue was the need to establish
an effective Financial Management Information System (FMIS);
Bottom-up-planning was non-existent, and most development funds were used by
councillors for local and ad hoc schemes and not for strategic district level
improvements. The City District Government was unable to plan for its capital
investment, a need essential to balance budgets and allowing the proper allocation of
money toward district functions was identified; Retained Account
Since 2001 up-to 2004, the Provincial Finance Commission (PFC) development
The money in the Retained
award was static and the increased amount from the National Finance Commission account is retained by the
Provincial Government and
is not distributed to the
districts as part of the PFC
award. This is mainly used
for the Provincial
Governments functions and
the Provincial Government
may provide funds to the
districts for various projects
in the form of conditional
grants.
Manual budgeting system in 2004
5
Overview
(NFC) went into the retained account only. Local receipts were low until 2006 when
the District Government was upgraded into a City District Government where
additional revenue sources such as advertisement, commercialization and General
Bus Stands fee came under the CDGF control. But there was no fare-based record of
revenue sources available. So yearly targets set by the departments for the local
revenue sources were unrealistic;
The Revenue department is the primary custodian of District Government assets. But
the department did not have any record of properties for which the department could
be held accountable for managing and maintaining the CDGF assets. Besides there
was no culture of asset management in the District;
The capacity and resources of the F&P department were not adequate or fit for
purpose for the delivery of quality public services;
The process of reconciliation of accounts needed improvement to enable
expenditure and receipts realized in line departments to be reconciled with the
District Accounts Office (DAO) and to publish financial reports of the District Officer
Accounts (DOA) on a monthly basis to be submitted to the Council for approval;
The utilisation of development funds was less than 70 percent, which can be traced to
the ineffective and inefficient budgeting process;
System deficiencies and lack of availability of financial data prevented top
management in determining investment priorities, leading to poor investments,
which were not effective in reducing poverty. Political will and ownership by the
District administration were needed in evaluating plans to ensure that health and
education programmes were allocated to the areas of greatest need;
Procurement of goods and services was inefficient in the District. Outdated rules, lack
of trust of suppliers, poor Government procedures and instructions, late fund
releases and the lack of effective financial control systems were the key problems.
Weekly brainstorming session of F&P department to identify key issues
6
The Case
THE CASE
This case study describes how the District undertook the financial reforms which are
essential to improve service delivery in critical sectors i.e. education, health, agriculture and
municipal services generally. It addresses a number of questions including the following:
What were the factors that allowed the District to become more fiscally responsible? How was
fiscal space created in becoming more transparent, accountable and efficient? How did the
FMIS help the City District Government Faisalabad in decision making? Why was it important
to improve the budgeting, reconciliation, releases and expenditure tracking systems in the
City District Government Faisalabad? Were the Provincial Government, local administration
and politicians supportive of the reforms process? How committed has the CDGF been in
their goals of investing and getting value for money on the education and health sectors?
Specifically, this case study focuses on the following areas:
a) Can one achieve efficiency by strengthening the capacity within the District
Government for effective planning and budgeting process?
b) How can improvements in the Financial Management systems help in bringing more
transparency and accountability?
c) How does the increase in revenue mobilization and fiscal efforts create more fiscal
space?
d) Did the City District Government influence the corporate policy towards reduction of
poverty?
e) Can one change departmental culture and behaviours by strengthening internal
accountability mechanisms to ensure professional integrity and financial propriety?
DO finance & budget Mrs. Saima Raza introducing FMIS to finance & planning department
7
Implementation and Impacts
IMPLEMENTATION AND IMPACTS

As part of the CDGF’s
internal monitoring process
to determine how the Design
District is performing with
respect to what is mentioned Faisalabad was committed to reforms and change and had set itself a series of challenges
in the corporate and that if met would result in marked improvements in local governance and public services. The
departmental operational
plans? Faisalabad under the first major step was to establish a good governance framework, which underpinned the
reforms initiatives developed reforms process and injected life into public services.
the bi-annual performance
reports, which presented During the inception phase of the reforms initiatives (from May-November-04) the district
detailed assessments for
corporate plan was prepared. The Faisalabad's 'Corporate Plan' provided the overarching
consideration by the district
assembly and other policy framework for service planning and delivery. The corporate plan laid out the Mission
stakeholders. This has statement, and core values of the District. The District Corporate Plan provided a clear
allowed the CDGF to be indication of where Faisalabad as a District Government wants to be and the principles by
held accountable and which the District want to get there.
transparent, as well as
informed all the relevant
stakeholders of the issues To achieve the corporate objectives, Departmental Strategic Operational Plans (SPOs) were
that Faisalabad faced prepared. The Corporate Plan and all the Departmental SOPs have not been prepared in
during the last 3 years of isolation, but have been informed in a number of ways including: seeking views from a
implementation. number of key stakeholders which included the Government, elected members, civil society
groups and monitoring committees.
The detailed situation analysis was conducted of the Finance & Planning and Revenue
departments. During the situation analysis, key change issues were identified and to address
those issues five years implementation plans were prepared highlighting the strategy,
objectives, activities, performance indicators, means of verification, time span and where
applicable, costs. These were discussed in the Zila council (district assembly) and approved
in December 2004.
Continuing to Build Local Capacity
Issue
The lack of service planning in the City District Government was a major cause for concern.
Poor departmental performance can often be attributed to a number of factors i.e.
interdepartmental relationships, weak reporting & management structures and a lack of
resources. However one of the most important areas is the lack of knowledge and skills
possessed by personnel on multi-year service planning and development, leaving
departments unable to plan and deliver professional services. Despite these skill gaps, the
District was still expected to deliver quality services.
Process
Realising this major gap, the F&P department organised training workshops for senior
officers, Drawing and Disbursing Officers (DDOs), Accountants / bill clerks of the City District
Government and other implementing and executing agencies.
DDOs training on budget & planning
8
Local capacity was weak, and needed to be boosted to effectively plan and implement all the
proposed changes in Faisalabad's financial management practices. Much of the success of
the reforms process was hinged on the ability of concerned staff to use the FMIS. Resource
Centres, established in the departments have provided on-line budgeting, reconciliation, and
expenditure tracking facilities for all DDOs. Training sessions were planned to cover various
modules of the FMIS.
Box 2: Identification and Training of the Master Trainers

To train over 900 government officials was a major undertaking and given the limited resources available, it was
important to decide on a delivery model that would achieve the desired outcome within a suitable time frame. The
approach that was finally adopted included the use of master trainers from various departments as key resource
persons to deliver training to the DDOs in Towns. Consultations were held with departments as part of the process
to identify master trainers and 32 master trainers were identified with the support of the other departments
especially the Education department.
Encouraging broad-based citizen support of the City District Government's plans and
programmes entails more participation. A trilingual approach such as English, Urdu, and
Punjabi has been used to train stakeholder groups to facilitate understanding of the basic
concepts of translating plans into financial budgets. Different workshops have been
conducted involving District Council Members to discuss the benefits of locally-evolved
planning and to help them to understand their roles in the preparation, approval and
implementation of the budget.
Fiscal Space
Impacts “Fiscal space can be defined
as room in a government´s
A series of training workshops for the top, senior and middle management contributed to budget that allows it to
provide resources for a
district’s success by helping the CDGF to develop its human resources to meet its present
desired purpose without
and future needs. It has also improved the employees' performance, provided them jeopardizing the
professional development opportunities and became more efficient and effective in sustainability of its financial
managing the finances of the CDGF. Following are the benefits achieved through the reforms position or the stability of
process: the economy.”
l 960 DDOs and their account clerks trained on budget and planning; The error rate in
budget preparation from more than 33 percent to less than 3 percent as a result of this
training;
l Capacity building of all EDOs and other operational officers on Mid-term Budgetary
Frame work (MTBF) enhanced the understanding of District & Tehsil Officers on
MTBF, service planning & project planning;
l Technical training on FMIS imparted to the F&P department gave opportunity to the
F&P staff to use and modify the systems without reverting to consultants and experts;
l Training of 413 members of the District Council on Gender Responsive Budgeting
and budget & planning has been carried out which helped to increase their
understanding level on budget & planning.
Improvement in Financial Management
The experience of the CDGF demonstrates how politically and technically supported
changes in financial management practices can fuel a transformation from being a Local
Government in constant fiscal crisis to being a Local Government that can take pride in its
fiscal surpluses. This situation has allowed the District Government to provide more efficient
service delivery and enabled it to take the vital steps toward reducing poverty.
9
Following is a description of the activities and initiatives of reforms undertaken in the F&P
department of CDGF and Figure 1 describes this process.
Strengthening Fiscal Planning
Issue
A fiscal assessment showed that the City District Government's weak fiscal performance can
be traced in part to the poor linkage between policy making, planning, and budgeting. A lack
of interest or may be the poor appreciation of the relevant accounting procedures and policies
seemed to be among the underlying reasons for Faisalabad's fiscal deficit in 2004. Receipts
for development and non-development expenditures were inflated and inconsistent with local
receipts. There was a gap between the City District Government's recorded bank balance
and the actual available balance.
In January 2005, close scrutiny of the CDGF's process and the way the budget had been
implemented since 2003 shed light on the extent of the financial problems facing the
administration. To this point, the City District Government had been working on the
assumption that there was more money available to the administration than actual releases.
Section 112 (4) (a) PLGO As a result of the 2004-2005 budget analysis, the team identified that there were errors in the
2001 budget which subsequently resulted into the deficit budget in Faisalabad.
A budget shall not be Process
approved if the sums
required to meet estimated Generally, there tends to be a practice in the City District Governments that if the estimated
expenditures exceed the expenditure exceeds the estimated receipts, then for the sake of balancing the budget and
estimated receipts.
under the assumption that Provincial Government will make the loss good, an entry of grant in
aid from the Provincial Government is made on the “budget at glance sheet” of the budget
book.
The evidence suggests that due to the lack of capacity, enough care was probably not taken
and errors were made in the preparation of this important document. As an example the
situation is explained in Annex 1 where it is discussed as a short case study to learn from. The
financial situation was very tight for the CDGF and at that time of crisis, major steps were
Figure 1: Improved Financial Management
ISSUES REFORMS PROCESS
P AD
P AD
CDGF P AD
10
taken by the administration to ensure that greater fiscal responsibility was achieved.
Box 3: Steps Taken by the CDGF to Improve Fiscal Position
There was no new project executed by the F&P department. District administration took very difficult decisions
on seeing the tight financial position of the District, in order to pay outstanding liabilities before taking on new
ones;
The F&P department submitted a request to the Provincial Government that the current PFC share is not
enough to meet the development and non-development needs of the District and PFC share of the District
should be according to population and area of the District;
A further request was made to the provincial Finance department to help City District Faisalabad by providing
funds to cover the deficit of CDGF over the coming years.
The City District Government's fiscal position, however, began to look up in financial year
2006-07. The following factors contributed to this upturn in fiscal fortune:
l Improved budgeting systems of the CDGF;

l Effective expenditure tracking systems;
l Timely releases of funds to the departments and executing agencies in the CDGF;
l The District started receiving more resources when in October 2005, Faisalabad was
afforded the status of City District Government which brought with it enhanced
jurisdictions and resources; Section 111 (5) PLGO 2001
l Octroi grant of Rs. 655 million from the Provincial Government was provided to
CDGF; “Conditional grants from
the provincial retained
l The Municipal Service department became responsible for managing resources
amount shall be shown
from advertisement, commercialization and General Bus Stands, which had a separately in the budget and
positive impact on the fiscal surpluses of the District; shall be governed by
l CDGF received an increased PFC award from the Provincial Government on the conditions agreed therein”.
request of the City District Nazim and District Coordination Officer (DCO).
District Cash Flow analysis is a tool which helps to present a macro level picture of the Local
Government finances enabling management to rectify micro level issues. Armed with the
cash flow information, the Finance & Planning department is able to present a stronger case
on the basis of evidence, to senior and top management on the District's financial status.
Identifying and setting priorities becomes easier now in the light of information never
previously available. Cash Flow analysis is a useful tool since it allows managers to develop
numerous scenarios based on short and long-term forecasts.
WAY FORWARD
Sustainability
Receipts Facilitation Centres
Replication
Pre-empting Poverty,
Spatial Planning Framework Promoting Prosperity
E-Procurement
ery
e Deliv
ed Servic
Improv
11
In addition, the Finance and Planning department developed the FMIS which was compatible
with the national Project to Improve Financial Reporting and Auditing (PIFRA) and other
management information systems already in place, allowing more accurate and timely
analysis and planning.
Due to the recent changes in the political and administrative set-up at the Provincial
Government level, the finance department has changed the policy of fiscal transfers for the
District Governments. Under the current scenario, due to decrease in the PFC award, the City
District Government expects 8% decrease in the fiscal transfers from the Provincial
Government up-to June 2008. The City District Government Faisalabad by following the
Provincial Government guidelines has changed the fiscal strategy by reducing the non-
development non-salary expenditure by 13 percent and development expenditure by 10
percent Therefore, this strategy will no doubt affect the development and the service delivery
in the District but will also save Faisalabad from deficit in the coming years.
Impacts
The financial reforms process undertaken by Faisalabad has not been easy. But, it has
transformed the City District Government into one of the most progressive Local
Governments in the country. Due to the reforms implemented, Faisalabad has turned its
finances around and succeeded in generating a fiscal surplus for the first time in three years.
The prospects are strong for more funds in the coming years. The extra fiscal flexibility that
comes with the surplus funds affords the City District Government the chance to finally
increase public expenditure on sectors previously neglected.
Making the Budgeting Process Work
Issue
The Local Government Ordinance encourages a participatory budgeting process and

consulting stakeholders' is the first step in the budget cycle. Due to certain political and
administrative reasons, the City District Government Faisalabad did not follow the Budget
Rules 2003, and were issuing the Budget Call Letters (BCLs) without consulting stakeholders
(Citizens, elected members, CCBs, and NGOs).
Box 4: Budget Call Letter (Budget rule 11)

The Budget Call Letter shall be finalized after consultation with the relevant stakeholders. The "stakeholders"
include Councils, elected representatives, general public, women's organization, private sector, Citizen Community
Boards, Non-Governmental Organizations, Community Based Organizations, and other organizations.
City District Government estimates its local receipts based on historical data. In 2004-2005
the District Government Faisalabad did not have authenticated data and information to base
on and to assess the true potential of revenue. Therefore the targets set for revenue were not
realistic. Previously receipts were estimated on the forms prescribed by the Provincial
Government in the Budget Rules 2003. The District Officer Accounts was unable to track the
actual receipts against the departmental targets.
Budget cell of the Finance & Planning
department In 2004, the project identified the following major issues in the non-development budget:
Most of the District Council members (including chairpersons monitoring committees)

did not examine the departments' non-development budget during the budget session
12
or prior to the budget session and yet they approved the budget; Rule 57 (2) Budget Rules
There was no proper training for DDOs on budget preparation under the new rules; 2003
In the majority of cases, budget forms were prepared by DDOs' clerks but these forms “The Budget based on the
were not checked by the DDOs themselves and yet signed by them. The possible preliminary estimates as
reason for that has been lack of capacity and interest; approved by the Nazim shall
Completed forms returned by DDOs to District Officer (DO) Finance & Budget (F&B) be presented to the Council
for discussion as a draft
often contained errors and these forms were then returned to the concerned DDO for budget”.
rectification. The forms were then corrected by the DDO clerks and once again
passed to the DO F&B. If there were still errors, this process was repeated;
Various forms often contained exactly the same information but when they were
individually completed, the information was found not to match.
Box 5: Errors in the Completion of Budget Forms

The first test to look into the DDOs' budget was to see that the total figures of the Budget Detail Others (BDO 3) is
balanced with the establishment charges of the Budget Detail Current (BDC 3) and then total of BDO 4 is balanced
with allowances of BDC 3. The second test was to verify the establishment charges and all regular allowances with
BDC 6. But in most of the cases the figures were not balanced. The assistant who made those budgets did not know
the effect of one form on the other.
Similarly on the development side during the situational analysis, the F&P department
identified the following key issues in the development budget preparation process:
Lack of evidence based planning with most projects being identified by the local
politicians on the basis of political priorities. Often these politically motivated projects
tend not to be pro-poor or as such no conscious effort was made to identify the most
vulnerable and their needs;
The major portion of the District Government's funds were distributed throughout the
289 Union Councils equally and the remaining funds were not distributed on the basis
of the greatest need. The Local Government Ordinance envisaged a process where
projects would be prepared with complete community participation of all 21 members
of the Union Council and general public were to be consulted in identifying local
projects. However, frequently the UC Nazims have a very strong input and influence
on project selection, thus resulting in local development schemes without honest
community participation, as was envisaged in the Ordinance;
Budget preparation for any coming financial year should take six months to complete
from January-June in the preceding year, but in reality tends to be compressed in the
last two months. Projects tend to be identified continuously throughout January - June
without one single submission deadline. This not only increases the workload of the
F&P department but also impacts on the planning process. Projects are also identified,
at the last minute, during the budget preparation process in June, and are then
included in the budget document as “unapproved schemes”. At the end of June, the
ADP is submitted to the District Assembly and House for approval. These projects Rule 40 (1) Budget Rules
2003
therefore bypass the process of discussion or approval in the District Development
Committee (DDC); “The Annual Development
Block allocations for development projects in the ADP, with no regard for targeting Programme shall classify
deprivation and economic opportunity; projects by sector, function
and geographic location”.
The volume of carried forward schemes was quite substantial and was affecting the
development programme for the next year;
No gender responsive projects in the ADP.
13
In Faisalabad, the previous accounting system up to March 2005, only recorded cash
Rule 11 (6) Budget Rules payments and receipts on a daily basis. The problem with this system was that the recorded
2003 inflows and outflows had no direct relationship with the actual financial performance. The
obligations to make future payments could not be properly identified. It is a mandatory
“Each Head of Offices shall
prepare its budget in provision that the New Accounting Model (NAM) will be followed by all tiers of government in
accordance with the Budget their financial operations. The Project to Improve Financial Reporting and Auditing (PIFRA)
Call Letter approved by the based on NAM started its operations in District Faisalabad on 1st April 2005.
Nazim”.
Process
To address the above mentioned issues, the process followed is given here:
Budget Call Letter
Budget Call Letter (BCL) is the instrument in which the Local Governments communicate the
Rule 8 (2) Budget Rules
2003 vision/ policies/ priorities and targets fixed under various sectors/ programmes and
investments etc. Issuing the budget call letter is a legal requirement for the District
“The Nazim shall ensure Government - it provides direction and a macro-level perspective on financial policy. This is
that the needs of the an outline plan of who will take responsibility for preparing the final budget.
disadvantaged groups are
reflected in the priorities
and gender issues are It clarifies the steps needed to successfully complete the budget. BCL essentially sets out the
adequately addressed”. timing of events in the planning and budgeting process, the input required from other
stakeholders by the budget desk to enable the desk to compile the Local Government budget
framework and the information required by the stakeholders to enable them prepare their
input.
In 2007-2008 budget cycle, the CDGF managed to organize extensive workshops with the
departments and other stakeholders. The feedback was incorporated into the budget
Millennium Development preparation process and the findings shared with the District's political leadership. The
Goals stakeholders' consultations revealed that social sector investments remain a priority for the
people of Faisalabad, with spending on education and health a primary concern.
By 2015 all United Nations
member states, including the
Government of Pakistan, The fiscal surplus resulting from improved processes and prudent financial management
have pledged to meet the allowed the City District Government to target poverty, using evidence based planning which
following goals to: built on the data and information being generated at all levels. An example of this is the
Eradicate extreme poverty District’s Citizen Perception Survey, which influenced the allocations in the education and
and hunger
health sectors. Hence the budget 2007-2008 was more participatory and for the first time
Achieve universal primary
education spending limits were set for various sectors, departments were advised to follow the PPRSP
Promote Gender Equality indicators and the Millennium Development Goals (MDGs) in planning their resources for
and empower women various sectors.
Reduce Child Mortality
Improve Maternal Health Gender Responsive Budgeting was also introduced in the BCL as of 2006-07 and
Combat HIV/AIDS,
malaria and other departments and politicians were advised to submit budgets that are more gender responsive.
diseases
Ensure environmental This is expected to help the District administration in setting a budget which is more citizens
sustainability focused and gender responsive. The consultations also included an element of training, to
Develop a global ensure that stakeholders understood the budgeting process clearly. Similarly, departments
partnership for
and other stakeholders such as NGOs and elected representatives have been trained on
development
participatory and gender responsive approaches. All this bolsters their capacity to respond to
community needs and ensures targeted approaches to address poverty and marginalization.
14
Estimation of Receipts
The District Government bases its budget on the following types of receipts;
PFC award from the Provincial Government

Octroi Grant from the Provincial Government
Local receipts
Donors' money
Physical surveys were conducted to assess the true potential of the local sources of revenue Chart of Accounts
and computerized Budget Detailed Receipts (BDR) forms were generated and the The Chart of Accounts is an
departments were advised to fill in the electronic forms by using the Collecting Officer (CO) essential component of the
codes and new Chart of Accounts (CoA). This has helped the F&P department in setting accounting framework. It
realistic targets and tracking the departments' receipts against their targets on a monthly provides the structure by
which accounting
basis.
transactions are coded, and
thus used in financial
Non-Development Budget reporting.
The Finance & Budget officer is responsible for preparing the non-development budget
according to the new Budget Rules. The non-development budget is more than 85 percent of
the total budget in City District Faisalabad, and includes the following:
Establishment charges
Purchase of durable goods
Repair & Maintenance of durable goods
Commodities and services
Transfer payments
Miscellaneous items
The budgeting process of Faisalabad used to be excessively cumbersome and labour

intensive. In the past, it used to take at least 9,000 man-days from the numerous service
officers involved to prepare and finalise the budget. The error rate was more than 30 percent.
In reality, the process was typically compressed during the last two months of the financial
year, resulting not only in the workload of the F&P department surging during this period but
also in substantive delays in project implementation.
In the last three years, the departments took huge strides in improving the traditional
budgeting process. Much of this is due to better coordination, training provided to the officers
involved in the process and on-going technical support from the SPU team. The F&P
department has established a fully equipped Budget Cell in the DCO complex and 40
Resource Centres throughout the District. These Resource Centres are providing support to
the DDOs at their door step and they now do not need to visit the F&P Department for the
submission of budgets (Figure 2).
Gender Responsive Budgeting training
for district council members
CDGF now has an on-line budgeting system which has translated into fiscal planning and
operational efficiencies for the City District Government. Embedded as a distinct module in
the FMIS, Faisalabad's on-line budgeting system allows for highly effective budgeting and
timely approval of the budget by the City District Council.
15
Figure 2 : Online Budgeting Process

BSF & BM8-9 Forms
BSF forms mean Budget
Council
Salient Features forms and
these forms are used for
setting the annual targets Resource Centres (RCs)
for the sector/ departments. 40 RCs helping 600 DDOs
BM8-9 forms mean the DDO wise budget data entered & stored
Budget Management forms Approval of final budget Submitted to the Main server in web based FMIS
and are used for monitoring
the progress against the
targets given in the BSF F&P Department Head of Offices
forms.
Departments' own data entered & stored
Retrieval of verified data
Scrutiny and verification of RCs data
Consolidation of budget data Verified data submitted to the main server
Finalization of Draft Budget in web based FMIS
Performance Based Budgeting
Prior to FY 2007-2008, the CDGF could not measure the performance of departments
against the annual targets. To make the departments more accountable and improve service
delivery in the District, the CDGF in 2007-2008 introduced the concept of performance based
budgeting. All the departments were requested to submit annual targets against the
requested budget lines on Budget Salient Features (BSF) forms. This is now approved from
the District Council and is an integral part of the budget document. The EDOs of all
departments report the monthly progress against the BSF targets on the Budget
Management (BM) forms that bring more transparency and accountability in financial
management operations.
As an example, to improve the performance of the Education Department, especially the

elementary section of the Education Department and quality of primary education in the
District, the CDGF introduced the concept of school based budgeting.
The concept of school based budgeting is very new in Pakistan. Under the current set-up, on
the elementary side of the Education department, the Deputy District Officer (DDO)
Education is responsible for more than 300 schools. He or she also exercises financial
powers for those schools. Previously block allocations were made for these schools, and
therefore there was no criterion for the distribution of budgets to the individual schools.
To address this issue the F&P department introduced school based budgeting in Jaranwala
town as a pilot. Jaranwala town comprises 736 primary schools. All the schools were given
separate budget lines for few items. This is expected to provide an opportunity for more local
control and greater fiscal independence for primary schools, with resulting improvements in
the quality of education in the District. This will also help the Finance department of the CDGF
to work out the cost per child in the primary education system. The purpose is not to reduce
the cost at the expense of quality education but to improve the quality of primary education by
effective resource planning and strengthen the accountability mechanisms in the education
department.
16
However, the Education department is still facing problems in the disbursement of money.
According to the DDOs, handbook in which all the categories of the employees are mentioned
who could exercise the powers of the Drawing and Disbursing Officers, the majorities of
primary school head-teachers do not belong to these categories and are therefore unable to PC 1
utilise the budget. As a result, the office of the DO assumes the power to process the bills for
“PC1 stands for the
those schools. According to the treasury and audit rules, if one person exercises the power for Planning Commission 1.
the procurement of many cost centres, they have to undertake bulk purchases to achieve That is the form which is
economy. At the same time in accordance with rules, from the DAO, for every item in the cost used for the submission of
centre, separate bills per item per cost centre have to be produced. These inconsistent rules development projects”.
are one of many challenges currently faced by the Education and F&P departments.
Development Budget
In the Annual Development Programme (ADP) process, the identification of development

projects is very important and initiated at the Union Council (UC) level by UC Nazims, the
District Nazim and EDOs. The elected member of the District Council (Zila council) submit his
project proposal to the District Nazim or to any other of the senior administration officers. The
proposal is then forwarded to the appropriate EDO i.e. education or Works and Services etc.
The department then begins the process of preparing cost estimates for the projects, which
culminates in a BDD-4 form (PC-1). All projects that contain a building, roads or other
infrastructure component involve the EDO Works & Services. Once estimates are prepared,
the proposal is then routed to the EDO F&P's team, where a working paper for the proposals
is prepared for submission to the District Development Committee (DDC). Proposals
successful at this stage are then “approved schemes” and included in the budget for the
following financial year.
Box 6: Steps Taken by the Planning Wing of the F&P Department

Organized comprehensive training programme for elected representatives on budget and planning and
gender responsive budgeting.
Identification of schemes through the elected members in February with the Department attempting to submit
the draft budget in April 2008.
Development of the Planning module of the FMIS, which will reduce the times for budget processing,
preparing the working paper for the DDC and also for issuing the minutes of the DDC meeting.
In the past, block allocations were made as a result of which many sectors remained
neglected. Therefore, the CDGF in the Budget for 2007-08 made adjustments and in the
development allocation, the F&P department by following the Punjab Poverty Reduction
Strategy Paper (PPRSP) indicators has allocated a 5 percent increase over the previous
year's allocation for agriculture, 8 percent increase in community development, 11 percent
increase in education and 7 percent increase in the primary and secondary health care sector.
There has been a visible move towards ensuring that allocations and expenditures are pro-
poor, and reflect the District's commitments to achieving the Millennium Development Goals. Rule 64 (1)(IV) Budget
Rules 2003
Box 7: Budget Rules and Block Allocation
According to Budget Rules 2003 Section 58(3), No lump sum provisions shall be made in the budget the details of “Each Local Government
which cannot be explained. shall efficiently and
effectively manage the
The CDGF's improved fiscal position and the timely release of development funds has resources made available to
the Local Government”.
resulted in the timely execution of development projects. Further, it has reduced the number
of throw forward schemes from more than 3,000 in FY 2004-2005 to 1,468 in FY 2007-2008.
In the Finance & Planning department there was a need to have consistency in the
17
development project numbers. This issue was addressed by the planning wing of the F&P
department and allocated project numbers which were unique and consistent with the project
numbers used in PIFRA by the District Accounts office. Therefore, the Planning wing not only
allocated unique project numbers but also started tagging the individual development
schemes with the Geographical Information System (GIS). This will allow the F&P
department to assess the individual schemes according to the Provincial Government
Planning and Development (P&D) department’s prescribed planning and engineering criteria .
However, there is a need to develop synergy with planning at the UC and District levels. Once
this is achieved then it will be easier for the F&P department to understand local needs and
development priorities before approving projects at the DDC stage. If Town level and UC level
information was available, then the allocation of resources could be made on a priority basis.
At the moment, projects at the UC level are approved arbitrarily and not using official planning
guidelines.
Training on New Accounting Model
New Accounting Model
In NAM, the concept of Modified Cash-Based Accounting was introduced. Transactions

New Accounting Model regarding future commitment can now be recorded through NAM. By keeping a record of
future commitments that have been entered into, the budget position can be effectively
The New Accounting Model
(NAM) has been adopted as monitored and expenditures that may arise as a result of possible overspending in the budget
the New Accounting Model can be readily identified.
for Pakistan that not only
allows modified cash based Impacts
accounting but also allows
the commitments against
budget and allowing Improved Financial Management has brought greater efficiency in the CDGF budgeting
statements of receipts and process. It allowed the departments to evaluate the progress and asses where resources are
payments, asset and needed to be aligned in order to complete district's commitments. The CDGF is now in a
liabilities and cash flow better position to identify the priority projects by sector and location by introducing the pro-
statement. poor budgeting in the District. Following are the impacts of improved budgeting process in the
City District Government Faisalabad:
Consultation workshops were organised with departments, NGOs, CCBs, and

elected representatives for the budget 2007-2008 and 2008-2009;
An effective BCL was issued. In BCL 2007-2008 PPRSP indicators were strictly
followed. The concept of Gender Responsive Budgeting was introduced;
Greater fiscal space was achieved (for the first time the City District Faisalabad
produced a surplus budget);
A significant reduction in the budgeting process from inputs of 9000 man days to
3000 man days and a time-line of 45 to 9 days has resulted in savings of Rs.10
million;
School based budgeting was introduced in Jaranwala Town as a pilot;
The concept of performance based budgeting has been embedded into CDGF, and
EDOs have to report to the DCO on a quarterly basis;
The Planning module of the FMIS is helping the planning wing of the F&P department
in preparing the working paper to be submitted in the District Development
Committee, and has reduced the time needed for this process from two weeks to one
day.
18
Improvement in the Release of Grants
Issue
In the past, releases for non-development expenditure were given to departments through
the respective EDO before being received by a DDO. Access to funds would often depend on
the nature of the relationship between a particular DDO and EDO, if strained then delays
often occurred.
On the development side there was a practice to release 30 percent of funds against the Rule 64 (3) Budget Rules
approved allocation of individual projects. The large proportion of the majority of the individual 2003
projects were less than Rs 50,000 and the contractors were not willing to work on the 30
“Delay in payment of money
percent releases against those projects. This has resulted in delays in starting development due from a Local
projects and also affected utilisation. Most projects would not be completed and would spill Government shall be
over to the next year's budget (ADP). avoided”.
Process
A very large proportion of receipts emanate from the Provincial Government’s PFC award.
This award is received in 12 monthly equal installments; the problem with this arrangement is
that enough money is not available for releasing to DDOs in order to cater their spending
requirements. There was no criterion for the release of funds. This has led to the development
of a criterion for releasing funds which makes money available directly to the DDO, so that
they can use the funds immediately. The process bypasses EDOs, though they are kept
informed of the releases, gives enough flexibility to managers in spending money and cuts
additional bureaucracy.
Executing agencies tend to complain that the finance and planning department does not
release funds and therefore they are unable to complete their work within time and budget.
However, the evidence does not support this claim; executing agencies do tend to be
provided with funds. On the development side, the process of releases has now been
streamlined; 100 percent funds are released and Administrative Approval (AA) issued for
those projects which are approved in the DDC. The timely release of funds has not only
restored the confidence of contractors in the market but also improved the utilisation rate.
Impacts
The mechanism for releasing funds to departments lacked clarity in the past. This has led to
the development of criterion for releasing funds which ensures the availability of money to the
managers, so that they can use the funds immediately. The improved release process saves
time and consumes less human resources. The CDGF improved release policy has the
following benefits:
The timely release of funds has improved service delivery in the departments and will
help the executing agencies in completing projects on time;
Online direct releases to the DDOs, has also improved service delivery and the
utilisation rates especially in the education department.
19
Expenditure Tracking System
Issue
Previously it has been difficult for departments to track monthly development and non
development expenditure. The main reason has been that the systems in placed in the
departments were not aligned to the DAO. The departments were only preparing budgets at
the departmental level while incurred expenditure was recorded at DAO. The F&P
department was unable to monitor expenditure against the approved budget.
Process
In the expenditure tracking system which was previously followed, the DAO was sending
expenditure details to the office of the EDO F&P and the expenditure statements were not
disseminated further to the relevant DDOs and the concerned executing agencies. The
DDOs and bill clerks were compelled to visit the DAO office on average two to three times
every month to reconcile their accounts. This was a major cause of inefficiency within the
departments.
Rule 65 (2) Budget Rules The F&P department eliminated this by linking stakeholders with a centralised database that
2003 allows access to expenditure information against budget lines with the minimum of effort and
fuss. The CDGF through the FMIS has introduced a more effective and simpler expenditure
“Each Drawing and tracking system. Consequently, the Local Government's top and senior management are
Disbursing Officer (DDO)
now able to monitor expenditures against approved allocations and utilisation against
shad be responsible for the
expenditure actually releases at the respective cost centres.
incurred against the funds
allotted to him. The The FMIS through the resource centres enables the DDOs and the executing agencies to
expenditure shall be
track and monitor expenditure at the DDO level. It also produces reports function wise,
sanctioned in accordance
with the delegation of detailed object wise, programme wise, grant wise and project wise against the approved
Financial Power Rules”. budget allocations, thus allowing departments to implement Budget Rule 65 (4) (ii) & (iii).
Box 8: Budget Rule 65 (4) (ii) & (iii)

“In order to keep the total expenditure within the grant, every Head of Offices shall be informed monthly by each
Drawing and Disbursing Officer of the extent of commitments that have been made but not paid for against such
Grant or Grants and the extent of expenditure that is likely to be incurred during the remaining period of the financial
year”.
Impacts
Effective expenditure control is crucial for maintaining the financial discipline in the District.
The CDGF can now track and monitor the expenditure at the DDO, project and detail object
wise level. The following indicators explain the benefits of expenditure tracking system in
achieving the efficiency in the CDGF;
The Department is effectively monitoring expenditure against approved allocations

on a monthly basis, using the Expenditure module of FMIS;
There has been an annual increase of 131 percent in the utilisation of the
development budget as compared to the previous year (2005-2006);
There has been an annual increase of 12.50 percent in non-development (non-
salary) utilisation against the District Budgets.
20
Facilitating the Reconciliation of Financial Accounts
Issue
The previous process of reconciling Faisalabad's financial accounts was lengthy and did not
correct discrepancies on time. This old system of accounts reconciliation did not work
because too often the EDOs did not communicate the corrections made by the DDOs to the
District Officer Accounts. Hence, information available at the District Officer (DO) Accounts
level was not too reliable.
Process
Reconciliation of accounts in an accurate and timely manner is critical to fiscal discipline. Rule
67 (3) of the Budget Rules 2003 clearly states that it is the joint responsibility of all key officers
in submitting accurately reconciled accounts to the District Government. The rules also state
categorically, that bills will not be passed to defaulting DDOs.
Currently, Resource Centres accessible to EDOs, DDOs and DO Accounts are helping the
department in timely reconciliation of expenditure and receipts data with the District Account
Office(DAO).The DAO data is transferred to FMIS by the F&P department on a monthly basis.
The Resource Centres' teams are also trained on transferring data from the DAO to the FMIS.
The DDOs have to only match the figures with the DAO figures through an online
reconciliation module which allows them to modify data if they find any mismatch between
their own Expenditure records and the DAO data (Figure 3).
Figure 3: Simplified Reconciliation system of CDGF
DAO
EDOs
If not correct visit DAO
to rectify the records
es
O ffic
Reconciliation
of
Expenditure Data
ad 9
Ensure
e
Receipts &
sH 4
DO
oE 3
nt
i m atio
In t
If any changes are required
1
inform DAO
2
7 Online BM1 Form
DDOs
Authenticated Expenditure
5
Reconciliation
Prepare
Report
8
DOA
If any changes are required inform DDOs
21
At the month end the DO Accounts (F&P department) reconciles the modified data with the
DAO. This has brought about efficiency and effectiveness in a sense that the monthly verified
accounts are available on a monthly basis with the effort of one hour of officer's time and with
fewer error rates. The FMIS serves as the clearing house for the statements from the EDOs
and the DAO. It reconciles the statements and notifies all concerned officers including the DO
Accounts regarding all the changes required in a timely manner.
On the development side, the Planning module of the FMIS is helping the Department in the
reconciliation of development expenditure with the DAO. The physical progress from the
executing agencies is being updated in the Planning module by the DO Planning (DOP) on a
monthly basis to track the real progress of development schemes. It is further linked with the
Reconciliation module of the FMIS to reconcile the expenditure figures of executing agencies
with the DAO figures. Although the reconciliation processes has improved and systems
established in the CDGF, but there is a need to improve and build the capacity of the lower
and middle management on the online module of the FMIS in the resource centres.
Impacts
Reconciliation has always been a problem in the district’s accounts. The accounts were
generally not reconciled until the end of the financial year. The information was not intimated
to District Officer Accounts of the F&P department after the rectification from EDOs.
Therefore, the District Officer Accounts records, did not match with the District Accounts
Office. The information available at the District Officer Accounts was not reliable.
Under the reform initiatives the reconciliation processes and monthly reconciliation of
accounts have now been simplified. The PIFRA information is now recorded on BM1 & BM2
forms by the FMIS, online access of the reconciliation module is given to the Drawing and
Disbursing officers who can see and amend the record from their computers in their offices/
resource centres and submit the same information online to F&P department. This not only
facilitated the DDOs by not visiting the District Accounts Office unnecessarily but also brought
efficiency in saving the human and financial resources of the district.
Facilitating the Pensioners in the CDGF
Issue
The cases of retired employees are processed after retirement and can normally take 6 to 12
months before approval. This delay causes economic hardship on the families of retiring
employees. The office of the DO Accounts in the finance and planning department processes
the pension cases manually i.e. calculation of gratuity, pension etc., due to which more
human resources are consumed which has financial implications on the district and the
chances of errors are comparatively higher.
Process
The existing process was studied in detail and it identified major gaps in the processing of
pension cases in the District. All the relevant stakeholders were consulted for identifing the
key gaps in the system. The pension module of the FMIS was designed, developed and was
linked to the Human Resource Management Information System. All the relevant and
22
prescribed forms were designed and various formulas for the calculation of CDGF employees
pension were inserted.
Impacts
The CDGF is now capable of generating the reports of the employees who are retiring in
coming six months so that their cases can be processed and by the time they retire their cases
are ready for disbursement. The Finance & Planning department has simplified the pension
process and has reduced the pension calculation time from two days to one hour for the
CDGF employees. Previously the process would take from four to six months and was very
much dependent on the availability of one or two key employees of the F & P department.
Asset Management
Issue
In the CDGF there was no culture of asset recording and management. Most of the assets
have no value and there was no proper procedure to record the assets. The inventory records
were manually prepared which could easily get outdated, if there were continuing absences
by staff. Under the New Accounting Model (NAM), every district needs to maintain and record Rule 3 Property Rules 2003
its own assets.
“The Local Government
concerned, with approval of
Process its Council, shall take such
steps as may be necessary to
The CDGF in order to capture the picture of its assets conducted physical surveys. The ensure that the property
Revenue and Municipal Services departments coordinated their efforts and captured the vested in the District
Government, Tehsil/Town
detailed picture of those assets which are owned, managed and controlled by the City District and Union Administration
Government Faisalabad. The information was taken on the scaled maps along with their GPS respectively is managed and
information. maintained in the best
interest of the public for the
purpose of the Ordinance”.
Impacts
The CDGF has now established a comprehensive data base of all the immovable
(commercial and non-commercial properties), movable assets and the inventory records with
appropriate valuations in the District. This has not only brought transparency but also
introduced the concepts of accountability in asset recording and management
Information Systems
Issue
The CDGF while conducting an internal review and assessment of its management systems
and processes identified a number of areas that needed to be addressed urgently where
information and communication technologies could be used to bring about significant
improvements in the way the CDGF did business.
The information was lacking, and if available, it was scattered and was not regularly updated.
Critical decisions were thus being made on the basis of little or inaccurate information. Even
when data was digitised, it remained in disparate formats lacking a consolidated view to plan
and analyse the resource utilisation of the CDGF. It was noticed that the officers were greatly
23
dependent on the subordinate staff in searching for files and policy letters. The other critical
issue in the Department was that the Head of the Offices could not track the progress of the
files sent to the F&P department.
Process
Good strategic management relies on an organisation's ability to manage its information

properly. Only now is the District starting to understand the implications of having reliable
information as the basis for business decisions. For a district as large as Faisalabad, having
the right information at the right time will allow managers to redefine Local Government
services and allocate resources accordingly.
Such efforts are helping to avoid duplication that in the past characterised services such as
the construction of roads and buildings. The CDGF with the help of the reforms programme
redesigned their financial information needs and products so that greater fiscal responsibility
could be achieved. To address the information needs in the Financial Management sector,
the team helped the District in developing the information systems (Figure 4)
Figure 4: Financial Management Information System
Data from
PESRP Information
ZAC NAZIM DCO
Lahore From
EDOs
DDOs Departments
Executing
Agencies
Web based Financial
Online Reports through
DAO EDO IT
System PMIU
e
EM
od
IS
C
C
IS
od
EM
e
DDO & HRMIS
um be r
FMIS P e n al N
rso
COCode
Detail Revenue &
Object Municipal
Services
F&P Department
Department RMIS
Various modules of FMIS were developed to help the City District Government in estimation
of receipts, budget preparation, expenditure tracking, managing treasury, development
planning, asset management, release of funds, processing of pension cases and
reconciliation of accounts.
The bookkeeping module has not been developed so far. The department is aware of the fact
that this module is important and through this the DDOs will not only save time but will also
discourage rent seeking behaviours while processing the bills. It will also reduce the
dependency of the CDGF on DAO regarding expenditure data, and the reconciliation of
accounts will become much easier promoting greater efficiency.
24
Box 9: Functions of Financial Management Information System

Faisalabad's FMIS is a modular management information system designed primarily to:
Improve the accuracy, comprehensiveness, reliability, and timeliness of financial reports in the District;
Enhance public financial management accountability and transparency;
Build the capacity of public sector managers to use credible financial information for better and informed
decision-making;
Understanding of public financial management as a basic responsibility of all public officials at all levels;
provide a reliable basis for discussion of common public financial management problems; and facilitate the
development of uniform financial reporting formats to ensure greater transparency, permit comparability, and
increase the utilisation of sound financial management information.
One of the key issues identified in the situational analysis was related to the revenue
mobilization and fiscal effort. A Revenue Management Information System (RMIS) was
developed under the CDGF's reforms programme. The system helps the Revenue and
Municipal Services Department in assessing and collecting local revenue.
Further it was noticed that the officers were greatly dependent on the subordinate staff in
searching for files and policy letters. The other critical issue in the Department was that the Revenue Management Information
System (RMIS)
Head of the Offices could not track the progress of the files sent to the F&P department.
Therefore, the team after detailed discussions with the Department designed the Document
Management System. The system helps the Department in searching for important files,
policy letters and other related legislature to advise corporate management in a timely
manner. A more open and transparent culture exists in the Department, and the staff of the
F&P department can share and use information more effectively.
Impacts
After the development and implementation of FMIS, the CDGF can support many of the key
functions that the F&P department performs. It allows the District Government to regularly Section 111 (2) PLGO 2001
analyse the financial position of the District which is critical to its aim of improving fiscal
“To enable the budget
responsibility. The FMIS is helping the CDGF in online budgeting, effective expenditure preparation by Local
tracking, streamlining the release of grants, ensuring timely reconciliation of accounts, Governments the
managing treasury functions and performing planning functions more efficiently. Government shall,
sufficiently before the
Due to the RMIS, the CDGF has a very solid base to assess the revenue potential of the beginning of each financial
year, notify the Provincial
advertisement boards. This is evidenced by the virtual doubling of revenues, to 71 Million shares which may be
rupees, through outsourcing which was based on real knowledge of the situation through credited to the fund of Local
data collection and assimilation. The DMS is encouraging more open and transparent culture Government from the
in the Department, and the staff of the F&P department can share and use information more Provincial Allocable
Amount”.
effectively.
Increases in Revenue Mobilisation & Fiscal Efforts
Issue
According to the budget cycle, the draft budget has to be presented in the first week of April
and before presenting the draft budget the District Governments need to have a fairly good
idea about the cash inflow to the budget. The Provincial Government, however, usually does
not communicate the receipt figures to the District Government until the end of June and that
makes it difficult for the District Governments to follow the annual budget cycle.
25
The other issue with the PFC award is that the district receives this award in twelve equal
installments and for Faisalabad that created problems. The utilisation rate slowed down
because of insufficient funds in the District Account IV. There were no proper systems in
place to track receipts against targets. There were issues in the tax assessment process and
the actual potential of revenue was unknown. This resulted in setting unrealistic budget
targets. There was more room for corruption and service delivery was badly affected.
Types of Accounts
There are 4 types of When the District Government Faisalabad was upgraded to a City District Government and
accounts in the Provincial given municipal services functions in October 2005, the local receipts from outdoor
consolidated fund, advertisement, commercialization and general bus stand became part of CDGF revenues.
Account I (Non Food
There was a lack of capacity to manage the new department and its revenue sources.
Account), Account II (Food
Account), Account III
(Zakat Account) and Process
Account IV (District
government Account) in the Flow of Funds from Federal and Provincial Government
treasury system.
The main sources of City District Government's revenue came in the form of transfers from
the Provincial Government (the Provincial Finance Commission or PFC award) and local
receipts. Funds coming from the National Finance Commission (NFC) are directly transferred
to the Provincial Consolidated Fund (PCF) in twelve equal installments which is divided into
four accounts, Non-Food account, Food account, Zakat account and District Government
account. Deducting the interest payments and other Provincial Government liabilities, the
remaining balance is divided into Provincial retained amount and the allocable amount. The
retained amount is a portion of proceeds that is retained by the Provincial Government for
meeting its expenditures and making grants of money to District Governments. The allocable
amount is the Provincial transfer to the Local Government under the PFC award (Figure 5).
Figure 5: Flow of funds in the CDGF account IV
Federal Consolidate Fund
Provincial
Receipts
Provincial Donors
Consolidated Receipt
Receipts from Fund
Districts
Conditional Grant
Non-Food Non-Food Non-Food

Account (Acc.1) Account (Acc.2) Account (Acc.3)
Retained
(41.90%)
Allocable
(58.1%)
PFC Award “12 Equal

Conditional District Govt Installments” Development
Grant Account (Acc.4) and Non-development
Own
Donor Source
Money Revenue
26
As explained above the main sources of CDGF’s revenue came in the form of transfers from
the Provincial Government (PFC award) and according to rule 90 of the budget rules 2003
“the Finance Department, Government of the Punjab shall communicate the preliminary
estimates of the respective Local Government share by the first week of March each year”.
The CDGF on numerous occasions requested the Finance Department of Punjab to intimate
the Provincial Government grants in March and release the awards on a quarterly basis.
However, the District despite having these constraints managed to release 100 percent funds
for the completion of development schemes. This not only improved the utilisation of funds
but also reduced the carried forward schemes in the ADP.
Local Receipts
The main contribution in the District's own source revenue (OSR) is from the Municipal
Services and Revenue departments, sharing a total of 81 percent of the total district own
receipts. In the Municipal Services department, the share of advertisement is 24 percent,
commercialization is 20.45 percent, and General Bus Stands is 23 percent, while in the
Revenue department, the share of building rent is 9 percent and licence fee is 4 percent
respectively. In order to identify the true revenue base of these major local receipts, the
Municipal Services department conducted a detailed survey of all outdoor advertisements,
commercialization activities, general bus stations and District Government assets.
Based on the survey results, it was possible to identify the financial leakages and areas of
improvements. For example, after conducting a survey on signboards it was identified that
there were many unauthorized hoarding boards installed in District Faisalabad. This resulted
in huge financial loss to the CDGF. In the shop signs survey, the survey team identified a large
number of businesses slipping through the tax net. After conducting a detailed situation
analysis and proper tax assessment, it was proposed that the department should be able to
improve its revenue base by outsourcing the advertisement component. In 2007 the
advertisement was outsourced for 65 percent more revenue than the previous financial year.
Monthly meeting of the revenue optimization committee Commercial properties of CDGF
27
The revenue from commercialization has also improved and an analysis of records from the
survey revealed that out of 1,555 commercial properties, only 140 applications for
commercialization have been submitted to the District Government from October 2005 to
November 2007. Most of these applications have been tended for setting up CNG & petrol
stations or small shops.
The applications for larger commercial shopping malls and markets have not been received
despite their construction throughout the District. Analysis based on a revenue assessment
shows that the potential of revenue enhancement from this activity is 600 percent more than
Rule 4 Property Rules 2003 the existing target. The District administration has been informed about the outcome and they
have been sending legal notices to the owners to abide by the laws and pay their taxes.
“District Government shall
appoint a manager
responsible for the The District administration has established an Asset Management Cell (AMC) in the Revenue
administration, control, department to look into timely collection of revenue, auctioning procedures, repair and
management and maintenance and encroachment issues. It will overall streamline the collection of revenues
maintenance of the and proper record maintenance which was not followed previously. Revenue generation in
properties”.
local receipts has been constantly improving since 2002-03.
In 2007-08 the District has made considerable progress in revenue collection. Upto
November 2007, the District had collected 92 percent more revenue than the previous
financial year. This upward trend in CDGF's local receipts, combined with more successful
efforts to increase the District Government's PFC award, strongly bolsters Faisalabad's fiscal
position for the future (Figure 6).
Figure 6: Trends of Local Receipt from FY 2002-03 to FY 2007-08
350.00
310.00
300.00
245.25
250.00
Amount in Million (Rs.)
200.00
150.00 132.67
100.00
48.22 48.84 43.00 51.65

50.00
32.91 98.94
20.09 20.35 17.91
0.00
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Collection from July - November Collection for whole Financial Year
28
Impacts
The revenue generation strategy of the CDGF has two objectives. Firstly to get maximum
from the existing sources by improving assessment and collection systems and secondly, try
to explore new avenues of revenue generation. The CDGF has done the cost benefit analysis
of different activities, the resources deployed and the stakeholders that benefited from
reforms initiatives. The following impacts reveal that CDGF has brought great efficiency and
the revenue mobilization and fiscal effort created fiscal surpluses:
l The Municipal Services with the Department has conducted and completed the
survey of all the commercial properties and advertisement boards, and a data-base
has been developed for the commercial buildings and advertisement boards. The
overall revenue of the Revenue and Municipal Services department has increased by
119 percent in 2006-2007;
l A Revenue Management Information System (RMIS) has been established, which is
helping the department in collection of receipts. It has reduced the time from 15 days
to 1 day. The system is saving more than Rs. 1 Million per annum by using fewer
human resources.
Influence on Corporate Policy towards Reduction of Poverty

Issue
A key aspect of the financial reforms process was to achieve more efficiency gains in
resource allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP). Prior
to the reforms process, the required data for targeting the poor was not specifically available
and the identification of development schemes was made on political bases. Poverty was not
generally considered by most of the elected representatives as a matter of priority because of
their strong political motives and lack of awareness about poverty targeting. Similarly, the
majority of the EDOs did not understand the concept of poverty.
A focus group discussion for Citizens’ Perception Survey
29
Process
CDGF has a clearly articulated vision for Faisalabad, 'Pre-empting Poverty, Promoting
Prosperity', and is taking many steps towards poverty reduction. A focus on pro-poor
approaches is integral to all departmental strategies with respect to both investments and
service delivery.
After three years of the reforms programme, the District is now better informed about where
poverty persists and where investments are required. Through the FMIS, spatial maps are
available which depict the clear patterns where the major chunk of investment has gone
during the past few years.
The district-wide Citizen Perception Survey that was conducted in all 289 Union Councils is
another tool available with CDGF. Spatial maps which show the investments made when
combined with the perception of the people within those Union Councils provide an
opportunity to the District to analyse the root causes of poverty, and provide evidence to
target local development needs.
One of the advantages of spatial representation of investments was that the top management
(City District Nazim and DCO) and the politicians could not ignore the fact that the neglected
or underdeveloped areas needed investment and it was imperative for them to address this
issue. The other advantage was that the Provincial Government started investing in these
areas which had been side-lined in the past and investments were made in the neglected
areas (Annex 2).
Impacts
CDGF can now track the investments Union Council wise and sector wise i.e. which Union
Councils have received the funds for schools, health facilities and for water & sanitation
services, enabling the District Government to identify the grey areas where no or little
investments have gone in the past. The CDGF is now targeting poor areas, kachi abadis,
slums and the most deprived areas.
The CDGF has increased its non-development budget (repair & maintenance component)
many-folds to maintain poor and essential infrastructure. Undoubtedly, these steps of
targeted investments for the poor, contribute to form the foundation of a district which is
specifically focusing on a pro-poor agenda. For a key service such as education,
development expenditure during 2007-2008 up to march 2008 was 20 percent of the total
development expenditure. This includes monies from vertical programmes, ADP, PESRP
and the District's own coffers (Figure 7).
One reason for the dip in the development expenditure of the District ADP in the education
sector was the delay in getting the budget for the FY 2005-2006 approved in April 2006. It was
therefore, difficult to incur expenditure on new projects when the budget was not approved.
Hence a number of these new projects were carried forward. Similarly for the health
department, the total development expenditure during financial year 2007-08 up to January
2008 was 21 percent of the total district development budget .
30
Figure 7: Education Department’s Development Expenditure trend from FY 2002-03 to

FY 2007-08 (upto November 2007)
500.00
158.21
450.00
400.00
350.00
142.95
Amount in Millions
300.00
63.54
51.75
250.00
200.00
150.00 275.00
73.99 3.83
100.00 172.49 177.26
129.58
50.00 2.44
0.00
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
Budgeted
Education Expenditure from Vertical programmes Education Expenditure without vertical programmes in ADP
Strengthening Internal and External Accountability Mechanisms
Issue
In Faisalabad, there used to be a strong culture of tardiness and weak planning among the
public employees. There was also no concept of team work which translated into
inefficiencies. Time management was a vague notion to many, adversely affecting the ability
of the District Government to deliver on-time, quality services. Knowledge sharing was an
alien concept, with most information treated as confidential.
Process
Rule 69 (1) Budget Rules
The District Government realised that changing the culture of its employees was of 2003
paramount importance for improved financial management. Computerised time keeping
systems were put in place and more recently, a Document Management System was “Each Local Government
shall submit a monthly
installed. Staff were required to attend short courses on team work, time management, and report to the respective
leadership. Council relating to the
expenditure incurred during
Section 114(5) of the PLGO states that a statement of monthly and annual accounts and such the month by the Local
Government”.
other necessary statements shall be placed at a conspicuous place by the Local Government
concerned for public inspection. A series of brainstorming sessions and discussion have
been held on how to best meet the need for making financial information available to the
public. The outcome of these consultations has led to the idea of a summary leaflet that
informs the public of the City District's annual budget and monthly expenditure in simple lay-
person's language. The leaflet was produced in English and Urdu and was the first of its kind.
This is a key communication aim and part of the process of improving public accountability
and developing client interest in Local Government affairs as part of the broader strategic aim
31
of bringing City District Government and citizens closer. The District Financial Information
along with the leaflet is published and distributed for public dissemination.
Impacts
CDGF efforts remain to build the departments' ability to implement successful and durable
systemic change that results in a more civilised culture. Streamlined systems and procedures,
result in more efficiency and effectiveness within the departments in performing its daily
operations by reducing the human and time resources. The CDGF through the reforms
initiatives has changed the culture of keeping the public information confidential. The
followings activities establish the fact that CDGF is now more open, transparent and
accountable than before:
Access is available to the web-based FMIS for all relevant stakeholders such as DCO,
Nazim, 11 EDOs and 40 Resource Centres;
Sharing of all financial information through the CDGF website is now a standard
procedure;
The Document Management System is helping the Department in searching for policy
letters and tracking files, receipt and dispatch register for tracking the status of files
from various sections and file storage for the storage of files in the system without
being dependent on the subordinate staff. The time for document search and retrieval
has been reduced from a couple of hours to two minutes and the human resource
requirement reduced from two to one person.
Reports being scanned into the Document Management System
32
Drivers of Change
DRIVERS OF CHANGE
Faisalabad's financial reforms process has produced notable accomplishments leading
others to suggest its replication in the other Punjab districts. The important factors that led to
the successful implementation of the reforms process are outlined below.
Provincial Government and Legal Protection
The Punjab Local Government Ordinance 2001 is legally supported until August 2009 by the
Provincial Government. The fact that these reforms, unlike prior reforms in Pakistan, were
legally embedded has had a huge impact on the reforms process. Everything the CDGF has
been doing was covered under the PLGO 2001 and other related legislatures such as budget
rules 2003, advertisement bye laws, commercialization rules 2003, and auction and
collection rights rules. The other contributing factor in the reforms process was the Provincial
Government's support. In the current Local Government set-up at the District level, the
Departments are not only reporting to the DCO in the District but they are also accountable to
the Provincial Government working under the departmental secretaries. All District
Government policies have to be consistent with the Provincial Government policy framework.
The Provincial Government, at various levels, fully supported and appreciated the CDGF
reforms initiatives and show-cased Faisalabad as a role model for other districts in its various
policy decisions.
Leadership
Faisalabad has been lucky to have dynamic local political leadership. The Zila Nazim is the
head of the District under the Local Government Ordinance and without the strong support of
the City District Nazim, it would have been difficult to drive the changes under the reforms
process especially in the finance sector. The Nazims of Faisalabad acknowledged the fact
that the District is on the right track and were patient until the actual fiscal space to execute
developmental works in CDGF, was available.
Similarly on the administrative side, all the DCOs over the past four years have been very
supportive of the change management issues in Faisalabad. They have also been the Ex-
officio project director for the SDLGF Project and played a key role in driving the reforms. The
present DCO was not only supportive but was instrumental in convincing the Provincial
bureaucracy (the Chief Secretary, Chairman P&D and other administrative secretaries of
various departments) about the benefits of reforms. The DCO on various occasions provided
DCO, Faisalabad - a key driver of change
good strategic direction to the SPU team in resolving the District's financial position.
Location, Administrative Set-up and Ownership
The Location of the SPU in the DCO office played a vital role in driving the reforms process. All
wings, except Enterprise & Investment Promotion, of the F&P department are located in the
DCO office. This provided an opportunity to the project team to work very closely with the
Department on daily basis. All strategies were consulted with the Department at various
levels and after their agreement were implemented by them. This sense of ownership would
be difficult to achieve had the team been located elsewhere. Consultation with other
departments also contributed to bringing the reforms process to the departmental level, and
consequently they were very receptive towards change.
33
Drivers of Change
Links with the Non-devolved Departments and other Donors
From the start, the Project adopted the strategy of not duplicating efforts and worked closely
with Provincial Government departments and other donor funded projects. Departments
such as the District Accounts and Regional Director Audit offices are non-devolved. By
recognising that solid relationships with them would be a catalyst for the reforms process, the
District Government was facilitated through the reforms programme in building good
relationships with these non-devolved departments.
The role of the DAO, which is a non-devolved department, is very important because all
expenditure is incurred at the DAO. Without the help of the DAO, it would have been very
difficult for the F&P department to build the link between the Federal Government's PIFRA
and the FMIS. This facilitated the District Government and the F&P department in cash
forecasting, expenditure management and reconciliation of accounts. The SPU team also
helped the Finance department in coordinating with other donor funded programmes and
projects such as Decentralisation Support Programme (DSP), National Commission for
Human Development (NCHD), Devolution Trust for Community Empowerment (DTCE),
National Reconstruction Bureau (NRB) and others. Various training programmes related to
the NAM and Planning & Budgeting were conducted in partnership and hence the District
avoided the duplication of efforts in building the capacity of officers and other staff members
of various departments.
Timely Technical and Financial Support

The newly devolved structures and rules were unfamiliar and due to the lack of explanation,
many things were unclear at the start of the reforms process. The local capacity and
understanding of the officers and sub-ordinates about the new system was limited. The City
District Government Faisalabad realized the need for technical support in 2002 and
established a unit in the Faisalabad District in 2002. The main purpose behind the SPU
initiative was to build a unit strengthened by providing technical support so it could later act as
a think tank for the District Faisalabad.
City District Government Faisalabad had limited resources and could not afford to hire the
services of experts to support the implementation of the reforms process. The Department for
International Development (DFID) provided this support to Faisalabad. DFID approved a
project Strengthening Decentralized Local Government in Faisalabad (SDLGF) and provided
technical and financial support in driving the reforms process in District. The consultants,
placed within the SPU, acted as credible facilitators of change.
Innovative Systems and Processes
It is true that bringing about change takes time and changing mindsets is a very difficult task in
the reforms process. The SPU operated on the premise that once systems and processes are
set-up with consultation, they play a major role in changing the mind set of people. For
example, the employees of the F&P department were not initially supportive of the
implementation of the FMIS because they saw it as a threat to their jobs. With time, as they
experienced real benefits from the streamlining introduced by the system, they realized that
these systems are there to help them. Thereafter they played a key role in strengthening and
developing the new systems in the Department.
34
Lessons & Reflections
LESSONS & REFLECTIONS

Policy Change
During the reforms process it was learnt that there are many changes which are only possible
if policy is changed at the Provincial government level. For example, in the improvement of
procurement processes it is important to follow the delegation of financial power rules and the
purchase manual. The policy regarding the delegation of financial power rules did not change
until 2007, which resulted in financial losses to the City District Government and this affected
service delivery in the District. Similarly the role of the Zila Accounts Committee is to
recommend policy change in the Punjab Local Government Ordinance 2001, like the Public
Accounts Committee in the Punjab Government. But, the City District Government is unable
to make any changes in the legislation without the Provincial Government. “Pakistan's long term
prospects will depend upon
the interplay of evolution in
Similarly, at the policy level due to the Provincial Government control mechanism regarding political and social
the revenue collection and maximization, the District's local revenue is also affected. For developments, economic
example, proposal for the new advertisement and fees for licensing and permits were policies to be pursued, the
submitted in July 2006. But the process of getting the new rates approved by the Provincial quality of governance and
institutions, and most
Government took eight months to issue final gazette notification, given the CDGF only four
important investment in the
months to collect the revenue for the whole financial year. There is similar case with the human capital. It has
Spatial Planning department where it is under staffed since the establishment of CDGF. Due become quite obvious from
to the lack of technical staff the Department is unable to track and monitor the progress of both Pakistan's own history
unauthorised commercialization activities and installation of illegal sign boards in Faisalabad. and the experience of the
developing countries that
It is reported that the lack of “on-time” sanctioning of new staff members and policies at the
sustained economic growth
Provincial Government level that are not conducive to change at the District level are causing and poverty reduction
considerable loss of revenue to the CDGF. cannot take place merely on
the strength of economic
Awareness policies. Political stability,
social cohesion, supporting
institutions, and good
To change the mind-set of the people is very difficult. In order to achieve this, it is important governance are equally
that the staff of the departments is made cognisant of existing issues and the way forward. important ingredients
Unless the people are fully aware, the chances of success are very low. In the absence of coupled with both internal
consulting the relevant stakeholders, the Departments do not take ownership, which is very and external environments
for achieving economic
important in business processes re-engineering under the reforms initiatives. success”.
Dr Ishrat Hussain
Replication Former Governor
State Bank of Pakistan
The CDGF has developed systems and processes during the reforms process. These
systems are not only developed but also implemented and used by the departments. One key
lesson learnt by the CDGF is that to make the reforms process successful, behavioural
change of the employees towards reforms is very important. This took CDGF three years to
change the existing mindset of the employees towards the improvements in the financial
management systems and processes.
The District Governments especially the City District Governments of Punjab now have an
opportunity to replicate those systems & processes in the financial management sector which
were carried out under the reforms processes in Faisalabad. However, keeping in view the
existing mind set of the employees and the technical capacity of the Finance & Planning,
35
Municipal Services and the Revenue departments, changing the behaviours of the District
employees towards reforms and technical expertise would be needed to replicate the
systems at a lower cost model in the other districts.
The Role of Surveys
Another lesson for the CDGF was that the District must have evidence based information
regarding their potential revenue sources. Conducting of surveys and their results have
provided a solid baseline of the local revenues available to the CDGF.
Consultation with Elected Representatives
Usually the district administrations do not share information and consult with the elected
representatives on the District's plans. The District’s administration apprehend that the
elected representatives at the local level are unable to understand the financial transactions
and the budgeting process and sharing information may create problems for the
establishment. The experience in Faisalabad demonstrated that after involving the
councillors/ elected representatives in the consultation process and building their capacity on
the budget & planning, there have been positive impacts. They are more aware of the District
Finances; they know the District's financial constraints and have realized that they need to
address gender issues in their future plans.
Availability of a Technical Team

Generally, in a project framework, consultants provide short term inputs and give strategic
direction to the Government. The Faisalabad experience indicates that it is important to break
the ice first, establish relationships and then implement the strategies which are important for
the reforms process. The availability of the Project Team on a full time basis, within the DCO
office, had a positive impact on the reforms process and the departments (Finance &
Planning, Municipal Services and the Revenue Department) were far more confident in
implementing the strategies prepared with the consultants.
A unique model was adopted by CDGF under the reforms initiatives. A combination of
International and local consultants were used by the project. This has helped the District in
many ways. Firstly, reduced the overall cost of the project by using more local consultants
and less international consultants input, secondly, the availability of local consultants on
fulltime basis rather than providing limited input within the specific timeframe and lastly the
capacity of local consultants have been strengthened by interacting with international
consultants in specialising the skills which are rare in Pakistan.
Performance Based Incentives

Performance based incentives helped the project to influence the willingness of employees to
exert and maintain their efforts towards attaining project goals. There is need to bring about
reforms throughout Pakistan's largely underpaid civil service. Salaries are often not enough
to meet basic needs and the pay of Government employees has failed to match increases in
inflation. The service structure, pay scale, minimum entry requirements, etc., of the Local
Government employees are seriously inadequate to cater to the demands of efficient
management and delivery of civic services. However, it is important that if the salary structure
36
as a whole is changed that attracts the right people to do the right job then it will consequently
improve the municipal finances & overall service delivery in the districts.
Understanding of Government Culture and Related Legislation
It is typical that District Governments strictly follow the legislature and notifications issued by
the Provincial Government. This rigidity made it difficult for the consultant team to work with
the District Government in the beginning. However, once an understanding of the culture and
constraints District Governments operated in was established, and relationships built, the
task became much easier. However when changes were introduced; supported by the Local
Government Ordinance, Budget Rules and the finance department notifications, these were
accepted and implemented by the various departments of the CDGF.
Decentralisation of Revenue
The Government has devolved various departments and functions to the District level but did
not devolve the revenue sources completely. The District Governments are still dependent on Land Revenue can be one of
the taxes that can be
cash injections from the Provincial Government in the form of the PFC award and other devolved to District
conditional grants. Government for better
collection and creating a
This is again an issue which is related to the Provincial Government. The District Government stake of the District
can not function efficiently unless revenue is decentralised completely. For example, the Government in its collection.
urban immovable property tax is collected by the excise wing of the revenue department and Even if Provincial
Governments reduce the
the District Governments do not receive any financial benefit, although the District Provincial Allocable
Government pays the salaries of the excise wing which is a semi devolved department. Amount equal to the amount
However, the District Government dependency on Provincial Government can be reduced if of taxes devolved, it shall
all the revenue sources are fully devolved. greatly suit District
Governments if land
revenue is devolved, which
Lack of Funds is not the Real Issue in the Districts shall be a tax of great
potential for District
Our Faisalabad experience tells us that money has not been the real problem in the District. Governments.
The real issue was the management of human and financial resources in an effective manner. DSP Policy Paper
Local Revenue Generation and Tax
Under the reforms programme, the CDGF improved the existing financial management Assignment
systems and processes which helped the District in establishing the financial discipline by
effective expenditure management and resource allocation to the social development
sectors. This helped the District’s administration in targeting the poverty by diverting the flow
of development funds to the neglected areas and increased allocation in the non-salary
component of the non development expenditure. The proper management of human and
financial resources not only increased the efficiency but also improved the service delivery in
the District.
37
Way Forward
WAY FORWARD
Spatial Planning Framework
Devolution Plan represents a big move towards the decentralisation of the provision of basic
services. However, the system of Local Governments continues to face coordination
Internal auditing
problems due to lack of clarity of functions and authority in running the affairs of the
Internal auditing is an Governments at district level. The project focus was remained to improve the service delivery
independent, objective in the District’s functions. Although most of the project activities have an indirect impact on the
assurance and consulting union councils and towns but directly the project activities were limited to the City District
activity designed to add Government's mandate. During the last four years, the CDGF realised that to effectively
value and improve an
embed the change or reforms in the Local Government there must be a strong link in all tiers
organization's operations.
It helps an organization a of Local Government like City District Government, TMAs & UCs, to have generally positive
accomplish its objectives by impact and to ensure participation of people in decision-making and local governance.
bringing a systematic,
disciplined approach to Integrated planning and effective resource allocation are very important for district
evaluate and improve the
effectiveness of risk development. The Local Government Ordinance supports integrated planning concepts in
management, control, and various sections, but the issue is that the Districts lack a spatial planning framework at the
governance processes. District level. In the absence of such a framework, the various executing agencies are
implementing development projects but the impact is not optimal. The City District
The Internal Audit plays an Government should focus on preparing a spatial planning framework that will support the
important role as framed by
the Local Government District Strategic Development Plan. This will likely target investments and result in more
Ordinance in evaluating noticeable impacts on the reduction of poverty.
fiscal governance processes
(PLGO section 115A). In E- Procurement
Faisalabad the absence of
an institution to undertake
this process had exacerbated The F&P department could not initiate an E-Procurement process in the District. However, to
the Government's financial remove the inefficiencies in procurement due to complex procedures and possible rent
problems until 2004. The seeking behaviour of staff, it would be prudent to start E-Procurement in the District. The
Provincial Government had District should have no problems in electronic transactions, first because electronic
set out a criterion for an
transactions are supported in the electronic ordinance and secondly systems and processes
Internal Auditor, which was
formally notified in 2004. are already established and Faisalabad is in a very good position to materialize this idea in the
However the institution to near future. This will not only restore the confidence of the suppliers but also save millions of
undertake this task remains rupees.
to be formed. If the
institution had existed it
would have provided PIFRA Access
guidance on sound financial
management. It is essential Currently the F&P department is greatly dependent on the District Accounts Office for the
that an institution is PIFRA generated reports. The FMIS is updated monthly, based on the month end reports
activated soonest so that it from PIFRA. To make the CDGF more independent and sustainable, it is important that the
can provide the checks and
balances necessary for EDO F&P has access to PIFRA information, as the CDGF is a major stakeholder in this
sound financial regard. This will also help the City District Government to generate reports on a real time
management. basis and the top management will be in a better position to make key strategic decisions.
Receipt Facilitation Centres

The Finance & Planning department developed a proposed model for the collection of
receipts to improve service delivery and to ensure transparency, accountability and efficiency
38
Way Forward
(Annex 3). Currently, the issue relates to the fact that clients from different towns must visit a
number of different departments to deposit the receipts.
Rule 76 Budget Rules 2003
If the concerned inspector or Collecting Officer (CO) is not available, the clients/citizens have
The primary obligation of
to revisit the department at a later point. Further, inspectors/COs usually hold on to the
the Collecting Officers shall
receipts for more than one day, which is contrary to the rules. There is also a reconciliation be to ensure that all the
issue between the departments and the DAO, due to the large number of receipts deposited revenue due is claimed,
against each head, which need to be further reconciled by each individual CO against their realised and credited
allocated head. immediately into the Local
Government fund under the
proper receipt head”.
Finally, for the same reason, the F&P department is unable to track and monitor receipts
against the targets set for each CO. By introducing the Receipts Facilitation Model, the clients
will only have to visit one Receipts Facilitation Centre (RFC) to deposit any of the receipts,
and would not have to visit each individual department to deposit funds. The proposed
system will greatly benefit the clients by providing them with a one window operation. Fewer
human resources will be required, as the RFC will require only one person to operate the
system. Furthermore, greater efficiencies will also be ensured by more timely reconciliation of
receipts by the departments with the DAO.
Sustainability
The amount of work carried out during the reforms process is commendable. However,
sustainability of the various reforms processes in the Financial Management sector is a key
challenge for the CDGF. The life of the DFID Project which has supported the development of
these new systems was four years and the implementation time was only three years, due to
an initial planning and diagnostic period.
In this limited time, it was difficult for the Project to fully ensure the sustainability of these
newly developed systems. However, keeping in view the City District Government's
commitment to ensuring that the key reforms initiatives are truly embedded and sustainable,
even without the technical support, a sustainability strategy was developed. The CDGF is of
course with the targets given in the sustainability strategy. In accordance with the
sustainability strategy the SPU has provided a check list to the Department, where they can
monitor their activities on a daily, weekly, monthly, quarterly and annual basis. The SPU, with
Project support, also facilitated the F&P department and the teams of the resource centres by
providing technical and operational training on the FMIS, also provided wireless telephone
sets to those resource centres where an internet connection was not available and helped the
F&P department in proper roll out of the systems to other departments.
The project also facilitated a consultation process with key stakeholders for FY 2008-2009 in
the months of August and September 2007. The submission of BM 8 forms against the BSF
forms of respective departments, reconciliation of accounts and the progress against
outstanding audit paras' are now regular features of the EDO conference, which is the
platform where all EDOs report the progress of their departments to the DCO on a fortnightly
basis.
39
Conclusion
CONCLUSION
The CDGF identified the major gap that the local capacity of the staff, officers and elected
representatives was weak, and needed to be boosted to effectively plan and implement all the
proposed changes in Faisalabad's financial management practices. The Finance & Planning
department built the capacity of public sector managers and sub-ordinate staff to use credible
financial information for more informed decision-making, and promoting an understanding of
public financial management as a basic responsibility of all public officials at all levels.
Workshops involving District Council members were conducted to discuss the benefits of
locally-evolved planning which helped them to understand their roles in the preparation,
approval and implementation of the budget. However, there is a need that the process of
Continuous Professional Development (CPD) continues in strengthening and improving the
existing Financial Management systems in the District.
Faisalabad through reforms process, provided opportunities to the administration for an on-
line budgeting system which helped the finance & planning department to make the
“I believe if districts get budgeting process highly effective and efficient. The budgets are now prepared based on the
their financial system right, participation of stakeholders and performance measures have been instituted to ensure
there is no way that there is transparency and accountability. Fund releases have been streamlined by setting criteria for
not going to be the right releases.
outcomes. Once they start
using money better, their
investments will start The administration is now able to monitor expenditures against approved allocations and
mattering more and once utilisation against releases at cost centres. More timely budget approvals and releases in
their investments start CDGF have also reduced the waiting time of suppliers and contractors for their payments.
mattering more then the Financial accounts are being reconciled in a timely manner with a reduced error rate allowing
impacts will be much more
local policy makers to make informed judgements and policies.
visible.”
Suleman Ghani
Chairman All the major local receipts have been analysed and proper tax assessments have been
Planning & Development Board
Government of Punjab, Pakistan carried out to identify the true potential of local revenue. This has resulted in setting realistic
budget targets and improved revenue collection. All District Government assets have been
identified and properly valued, making the assessment of fee much easier. The upward trend
in the District's local receipts, combined with more successful fiscal efforts to increase the
District Government's PFC award and effective expenditure management helped Faisalabad
in creating more fiscal space.
The decentralisation of revenue sources to the CDGF would have positive impacts and the
district would have more money available for the improvement of service delivery and
development projects to address poverty issues.
CDGF realised the need that the evidence based planning is extremely important to influence
the corporate policy towards reduction of poverty. Most of the projects identified and
executed prior to 2007-2008 by the local politicians were on the basis of political priorities.
The departments have now spatial maps available which depict clear patterns where the
major chunk of investment has gone during the past few years.
The fiscal space resulting from improved processes and prudent financial management
allowed the City District Government to target poverty, using evidence based planning which
40
Conclusion
built on the data and information being generated at all levels. An example of this is the District
Citizen Perception Survey, which influenced the allocations in the education and health
sectors.
The financial management reform initiatives have gradually changed the working culture of
the F&P department to some extent. This process required capacity development,
knowledge sharing and multiple consultation sessions to develop mutual understanding.
Experience suggests that developing a good relationship with the political regime and
establishment, has been key to driving the process of financial reforms.
Group photo of the master trainers for Planning & Budgeting training with the DCO Faisalabad (2005)
41
BL
A
N
K
Annex 1
Annex 1 A Case Study on Situation Analysis of CDGF’s Budget

2004-05
Box case study

In January 2005, the Finance & Planning department conducted an analysis of its Budget 2004-2005. The evidence
proved that mistakes were made in preparing and finalizing the budget 2004-2005. The budget was then finalized
on the assumption Rs. 868 Million as opening balance in the District Account IV, but the actual opening balance was
Rs.653 Million. Receipts (Provincial and local) were inflated, such as grant in aid (unconditional grants from
provincial retained amount and non-development grants) were shown as receipts but there was no confirmation /
commitment from the Provincial Government in this regard. Secondly, the conditional grants of Rs.257 Million were
shown on the receipts side but were not mentioned on the expenditure side. Similarly, Rs.273 Million rupees was
shown as the target for the local receipts, but the maximum/ realistic potential was Rs.43 Million. Table A 1-1 gives a
picture that due to the above errors the district unknowingly approved a deficit budget of Rs. 820 Million.
The above analysis shows that great care needs to be taken while preparing the budget. It is an important financial
instrument and mistakes need to be avoided at all costs. This was a learning experience for the CDGF and to avoid
repetition of this scenario the CDGF planned to base its financial management practices in the future on more sound
facts and figures. The CDGF realised that it should not rely on the receipts which are not confirmed from the
Provincial Government and the targets for the collection of local receipts should be realistic.
Table A 1-1: Budget estimates 2004-2005 at a glance

Receipts Amount in Rupees
Situation should
Situation Reflected have been reflected
in budget 2004-2005 in budget 2004-2005
A Opening Balance on 01-07 653,000,000
a) Development 590,000,000
b) Non-Development 278,000,000
Total (A) 868,000,000 653,000,000
B Share out of Provincial Allocable Amount under P.F.C Award 3,588,612,000 3,588,612,000
Expected Conditional Grants from Provincial Retained Amount (2004-

2005) 257,166,000 257,166,000
Unconditional Grants from Provincial Retained Amount 10,000,000 0
Foreign-Aided Project Grant (S.P.U) 7,008,065 7,008,065
Fedral Development Grants 28,414,000 28,414,000
Non-Development Grants 381,177,000 0
Own Receipts 273,139,000 43,000,000
Total (B) 4,545,516,065 3,924,200,065
Grant Total (A+B) 5,413,516,065 4,577,200,065
CURRENT EPENDITURE
A a) Current Expenditure 3,440,055,673 3,440,055,673
b) S.NE.2004-2005 28,853,217 28,853,217
Total (A) 3,468,908,890 3,468,908,890
B Annual Development Programme (New) 949,200,000 949,200,000
Annual Development Programme (Ongoing) 302,532,000 302,532,000
Schemes against Conditional Grants from Provincial Retained

Amount(2004-2005) 0 257,166,000
C.C.B 419,167,000 419,167,000
Total (B) 1,670,899,000 1,928,065,000.00
Grant Total (A+B) 5,139,807,890 5,396,973,890
Closing Balance on 30-06-2005 273,708,175 -819,773,825
42
Annex 2
Annex 2 Comparison of PESRP Funding from 2004 to 2008
Figure A2-1: Expenditure trends from FY 2004 to FY 2006
43
Annex 2
Figure A2-2: Pro-poor resource allocation in FY 2007-08 (As of March 2008)
44
Annex 3
Annex 3 Receipt Facilitation Model
Figure A3-1: Proposed Model for the Collection of CDGF Local Receipts
FMIS I nfo
rm a
t ion
Sh a
r in g
Print Invoice & Receipt
(Challan Form 32-A)
IS On l
RM in e
eb
Ba s
ed
RMIS A cc
e ss
to W
oW
ss t eb
Ba s
A cce ed
On lin e RM
IS
Collection Account Collection Account
Deposit Deposit
Bank Statement
T)
Bank Statement
(I
In
er
te
NBP NBP Jhumra Town (RFC)
sf
rn
Lyallpur Town (RFC)
an
al
Tr
Tr
an
al
rn
sf
te
er
In
(I
Deposit
T)
Deposit
Information Sharing
Bank Statement IT IT Bank Statement
Jinnah Town (RFC) NBP NBP Jaranwala Town (RFC)
IT IT
Deposit Central Collection Account

Deposit
Bank Statement
Bank Statement
R e m i t t a n ce s
NBP
Iqbal Town (RFC) NBP Summandari Town (RFC)
IT
IT
Deposit
Deposit
Bank Statement Bank Statement
Madina Town (RFC) NBP NBP Tandlianwala Town (RFC)
Send Information
DAO State Bank of Pakistan
45
Bibliography
BIBLIOGRAPHY
Asian Development Bank, Department for International Development, and World Bank.
“Devolution in Pakistan-An Assessment and Recommendations for Action.” DFID, United
Kingdom.
Asian Development Bank, Department for International Development, and World Bank.
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Realities, A Citizen Focus Initiative”, June 2007. Faisalabad, Pakistan.
City District Government Faisalabad, 2007. Performance Report, 1st June 2007 to 30th
November 2007. Faisalabad, Pakistan.
City District Government Faisalabad, “Estimation of Receipts and Current Expenditure,

2007-2008.” Faisalabad, Pakistan.
City District Government Faisalabad, “Annual Development Programme, 2007-2008.”

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2007-2008.” Faisalabad, Pakistan.
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Operational Plan, 2004-2009.” Faisalabad, Pakistan.
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Department for International Development “Development Magazine, Issue 34, 2006” DFID,
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Planning Manual, Volume 1 & 2. Punjab, Pakistan.
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Punjab Local Government Budget Rules, 2003
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Punjab Local Rate (Assessment and Collection) Rules, 2001
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Punjab Local Government Accounts Rules, 2001
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Punjab Local Government Commercialization Rules, 2004
Punjab Local Government Fiscal Transfer Rules, 2004
Punjab Local Government Internal Audit Rules, 2004
DSP Policy Paper Local Revenue Generation and Tax Assignment
46
OUR OTHER PUBLICATIONS
1 2
Managing Change Human Resource Management
for Improving Service Delivery for Good Governance
Learning to embrace the challenge of good governance Building local government capacity for effective service delivery
S.M. Khatib Alam S. M. Khatib Alam

Karin Tang David Alan Watson
March 2008 Mahmood Akhtar March 2008 Muhammad Shahid Alvi
Self-
Actualization
Esteem
(self and others)
Social Needs
Safety and Security
Basic Physiological Needs
City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan
3 4 5
Financial Management Union Council Profiling Communications
for Good Governance & Service Mapping for Good Governance
From Deficit to Surplus For Pro-poor Planning & Investment Building local government capacity for effective service delivery
S.M. Khatib Alam S.M. Khatib Alam

S.M. Khatib Alam Janet Gardener Nadir Ehsan
March 2008 Imran Yousafzai March 2008 Muhammad Tariq March 2008 Humaira Khan
150
100
50
Rs. Millions
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FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 Projected FY 2008-09 Projected FY 2009-10 Projected
City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan
6 7 8 9
Citizen Voice in Local Governance Citizen Engagement Promising Change Measuring Change
The Citizen Perception Survey in Local Governance Six Case Studies on Whole School Development the education research component
S.M. Khatib Alam S.M. Khatib Alam

Sumara Khan Muhammad Tariq
March 2008 Mehreen Hosain March 2008 Mehreen Hosain March 2008 Dr. Fareeha Zafar March 2008 Dr. Fareeha Zafar
TS
ES
ER
INT ER
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UN OG
OMM ING T ER
GC T TH
TIN
AC OGE
OR GT
PP IDIN ION
SU DEC ULTAT
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SHARIN
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INFOR
City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan
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Teacher Training Public Private Partnership Management Information Systems Enabling Joined-Up Government
in Whole School Development in Education: from Policy to Implementation in Local Government Introducing Geographic Information System
Change and Transformation as a Reflective Process Value Addition and Best Practices Changing the dynamics of governance through ICTs
S.M. Khatib Alam Dr. Umar Saif

Nadir Ehsan Muntazir Mehdi
March 2008 Brigid Smith March 2008 Beala Jamil March 2008 Kashif Abbas March 2008 Gul Hafeez Khokhar
City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan City District Government Faisalabad, Pakistan
All case studies including other reports can be downloaded from the web site: http://www.faisalabad.gov.pk
ABOUT THE AUTHORS
S.M. Khatib Alam - Project Manager and Overall Team Leader
Khatib Alam is an international management consultant with considerable experience of

leading large and diverse teams on multi-disciplinary, complex and challenging projects
around the world. He has a particular expertise in strategic management, organisational
change management, institutional strengthening, urban development and corporate
social investment. Since 2004, he has been the Overall International Team Leader on
the innovative DFID funded SDLGF project.
Imran Yousafzai - Development Consultant
Imran Yousafzai is Public Financial Management Specialist. He has the experience in

the multidisciplinary areas of Financial Management, such as public sector financial
management, governance, management accounting, procurement, internal auditing,
risk management and supply chain management. He has been working on the DFID
funded project SDLGF since May-2004.
City District Government Faisalabad
DCO Office, Near Iqbal Stadium
Faisalabad, Pakistan
DISTRICT FINANCIAL INFORMATION
Tel: +92 (0) 41 9200205
Fax: +92 (0) 41 9200206
E-mail: email@faisalabad.gov.pk
Internet: http://www.faisalabad.gov.pk
DISTRICT ACCOUNTS OFFICE
(March 2008)
Strategic Policy Unit

2nd Floor, DCO Office
Near Iqbal Stadium, Faisalabad
Pakistan
Tel: +92 (0) 41 9201256
Fax: +92 (0) 41 9201257
E-mail: email@spu.com.pk
Internet: http://www.spu.com.pk
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Financial Management For Good Governance - From Deficit To Surplus

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Financial Management For Good Governance - From Deficit To Surplus

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3

S.M. Khatib Alam

City District Government Faisalabad, Pakistan

(c) SDLGF March 2008

Layout & Designed at:

FaizBakht Printers, The Mall, Jhang (Punjab) Pakistan.

It is with great pleasure that I say we have now additional

The availability of credible and timely information is now

I would like to take the opportunity to thank our City District

Dr. Tariq Sardar

Office of the District Co-ordination Officer, Faisalabad

IMPLEMENTATION AND IMPACTS 8

Provincial Government and Legal Protection 33

LESSONS & REFLECTIONS 35

Spatial Planning Farmework 38

Figure 1: Improved Financial Management 10

Annex 1: A Case Study on Situation Analysis of CDGF’s Budget 2004-05 42

The Government of Pakistan through devolution introduced a new system of Local

Box 1: Financial Management Functions in the City District Governments

Manual budgeting system in 2004

Weekly brainstorming session of F&P department to identify key issues

Specifically, this case study focuses on the following areas:

IMPLEMENTATION AND IMPACTS

Continuing to Build Local Capacity

DDOs training on budget & planning

Box 2: Identification and Training of the Master Trainers

Improvement in Financial Management

Strengthening Fiscal Planning

Figure 1: Improved Financial Management

ISSUES REFORMS PROCESS

l Improved budgeting systems of the CDGF;

Receipts Facilitation Centres

Making the Budgeting Process Work

The Local Government Ordinance encourages a participatory budgeting process and

Box 4: Budget Call Letter (Budget rule 11)

 Most of the District Council members (including chairpersons monitoring committees)

Box 5: Errors in the Completion of Budget Forms

Budget Call Letter

 PFC award from the Provincial Government

The budgeting process of Faisalabad used to be excessively cumbersome and labour

Figure 2 : Online Budgeting Process

Performance Based Budgeting

As an example, to improve the performance of the Education Department, especially the

In the Annual Development Programme (ADP) process, the identification of development

Box 6: Steps Taken by the Planning Wing of the F&P Department

New Accounting Model

In NAM, the concept of Modified Cash-Based Accounting was introduced. Transactions

 Consultation workshops were organised with departments, NGOs, CCBs, and

Improvement in the Release of Grants

Expenditure Tracking System

Box 8: Budget Rule 65 (4) (ii) & (iii)

 The Department is effectively monitoring expenditure against approved allocations

Facilitating the Reconciliation of Financial Accounts

Figure 3: Simplified Reconciliation system of CDGF

Facilitating the Pensioners in the CDGF

Good strategic management relies on an organisation's ability to manage its information

Figure 4: Financial Management Information System

Box 9: Functions of Financial Management Information System

Increases in Revenue Mobilisation & Fiscal Efforts

Figure 5: Flow of funds in the CDGF account IV

Federal Consolidate Fund

Non-Food Non-Food Non-Food

Most of the District Council members (including chairpersons monitoring committees)

PFC award from the Provincial Government

Consultation workshops were organised with departments, NGOs, CCBs, and

The Department is effectively monitoring expenditure against approved allocations