Secret aid transparency weapon: financial management software

Guest post by Doug Hadden, FreeBalance

Is transparency a brute force technology exercise? Should IATI support require document screen scraping and financial management software data massaging?

International Aid Transparency Initiative (IATI) classifications, designed to enable aid effectiveness across multiple projects, provide compelling internal information for decision making. Many of us involved in the aid and development value chain are unfamiliar with the enabling power of accounting systems. Financial management software provides the underlying metadata or classifications for organizations. This includes the vast majority of classification information required by IATI. The modest computer accounting software can become your transparency backbone – the link to more detailed project information.

There is a very strong case for using financial management systems to automate IATI compliance and integrate donor and country systems. The result is comprehensive country and regional development visibility. A starting point for aid effectiveness analysis.

Commercial software programs include ‘financial coding blocks’ to classify all accounting transactions. (The result is often called the ‘chart of accounts’ or ‘budget classifications’.) These classifications often include:

  • Fund or revenue source
  • Program, project and activity information
  • Objectives and purpose
  • Economic domain or sector
  • Location
  • Organizational structure
  • Accounting codes

These accounting classifications are typically provided in hierarchical segments to facilitate management reporting and budget controls.  Commercial software uses ‘side tables’ or ‘tagging’ to roll up accounting data into alternative management structures. This is how governments support standards such as the International Monetary Fund Government Financial Statistics (GFS) and United Nations Classification of the Functions of Government (COFOG). These classifications are often different among organizations, although there are some similarities. Although classifications differ, detailed information can be recast to support alternative structures.

Of course, financial software cannot perform miracles: You can’t report on classification data that isn’t there. If you’re not capturing important information within your accounting system. Organizations considering the IATI path, but have deficient financial software configurations, have an opportunity to update to better practices. To support program budgeting and performance management by introducing new data segments, for example. And, these additions can be enabled without overly complicating accounting processes – when done right.

Classification information used in project documents can be added to coding blocks. Most financial software supports direct output to XML or to spreadsheets that support XML conversion. XML and open data development tools can be used to match documents to financial data to reduce brute force efforts.

We should not be concerned about disruption caused by changing accounting classifications. Classifications change frequently in the public sector to reflect organizational adjustments, changes in accounting methods (such as moving towards accrual) and adopting other standards. Bilateral government donors often have to adjust classifications to support national performance and transparency standards such as publishing expenses from politicians. We should look at the breadth of the IATI classifications as a management improvement opportunity.

dhDoug Hadden is the Vice President of Products for FreeBalance,  a global provider of Government Resource Planning (GRP) systems. Follow him @freebalance.

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