Afghanistan 2018

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Aggregate expenditure outturn was 70.3%, 73.1%, and 79.6% of the original approvd budget in the fiscal years 2014, 2015, and 2016 (equivalent to solar years 1393, 1394, and 1395, respectively).

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Variance in expenditure composition by program, administrative or functional classification was 36%, 20%, and 20% in fiscal years 2014, 2015, and 2016, respectively.

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Variance in expenditure composition by economic classification was 30%, 29%, and 24% in fiscal years 2014, 2015, and 2016, respectively.

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Actual expenditure charged to a contingency vote was on an average 9% of the original budget.

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Actual revenue collection was 66%, 58%, and 76% of budgeted revenues in the fiscal years 2014, 2015, and 2016, respectively.

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Variance in revenue composition was 23%, 44%, and 23% in fiscal years 2014, 2015, and 2016, respectively.

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Budget formulation, execution, and reporting are based on administrative, program, and economic classification using the GFSM 2001 classification standards. The Chart of Accounts is yet to be updated to comply with GFSM 2014. Functional classification has been adopted and will be used for SY1397 (2018) when there is a dedicated functional classification. There is a Chart of Accounts showing the structure that is not supported by detailed explanations for the codes. The Chart of Accounts was last revised in 1395; however, is not fully compliant with the GFSM 2014

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Budget formulation, execution, and reporting are based on administrative, program, and economic classification using the GFSM 2001 classification standards. The Chart of Accounts is yet to be updated to comply with GFSM 2014. Functional classification has been adopted and will be used for SY1397 (2018) when there is a dedicated functional classification. There is a Chart of Accounts showing the structure that is not supported by detailed explanations for the codes. The Chart of Accounts was last revised in 1395; however, is not fully compliant with the GFSM 2014

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GoIRA does not have a mechanism to determine the exact size of expenditure outside financial reports for the extra budgetary units and the expenditure of externally funded off-budget projects.

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GoIRA does not have a centralized mechanism to determine the exact size of the revenue outside fiscal reports.

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Detailed financial reports of extra budgetary units are not submitted to the government annually within 9 months of the end of the fiscal year.

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There are no pre-determined transfers from the Treasury to the provinces other than for activities and programs incorporated in the budgets of LMs. Thus, this dimension is not applicable as there are no direct transfers to provinces, districts, and municipalities

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Not applicable

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GoIRA adopted program-based budgeting and the notified structure allows the budget to include the program objectives, outcomes, and outputs and PIs. This structure is followed across the central government budgetary units. In practice, all but three budgetary units submitted the budget proposal on the notified structure.

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The information on achievements provided in the budget is largely qualitative and that too in summary form. It lags a link with the performance indicators identified in the prior year’s budget.

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There is no evidence that information on resources received by frontline service delivery units is collected and recorded.

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Independent evaluations and performance audits have been conducted for a few ministries and Kabul municipality in the years 2014, 2015 and 2016.

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The government makes available to the public 3 basic elements and 3 additional elements, in accordance with the specified timeframes (see Table 3.12).

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D There is neither evidence that audited annual financial statements for all SOEs and SOCs are published within six months of the end of the fiscal year nor are consolidated reports on the financial performance of SOEs and SOCs published by the central government annually.

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This indicator is assessed from municipalities’ perspective. Neither audited nor unaudited financial reports of the municipalities are published.

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No report is published by the central government annually that quantifies and consolidates information on all significant contingent liabilities and other fiscal risks of the central government.

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There are presently no economic appraisal manuals prepared for all sectors. Detailed and methodical economic analyses are carried out for donor-funded projects. In FY 1396, of the total development portfolio, 53 percent comprised of the non-discretionary (donor) grants.

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Before their inclusion in the budget, most major investment projects are prioritized by a central entity, however without a comprehensive and published criterion for project selection.

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The total cost of the project for the budget and the subsequent year are not included in the budget.

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Annual monitoring reports covering both physical and financial progress and providing causes for variation in the original and revised costs are not prepared.

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The government maintains a record of its holdings in major categories of financial assets. Fair market value systems are not in place for other financial assets such as interests in SOEs and SOCs. Cash basis IPSAS, as the accounting standard is not formally adopted and fully compliant; thus, publication of information is inadequate.

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The government maintains memorandum records of some fixed assets at the departmental level in a budget unit, which are not centralized at the budget unit level nor at the Treasury in the MoF. No records of non-produced assets are maintained. Holdings of nonfinancial assets are disclosed neither in budget documents nor in the Treasury financial statements.

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There are no written and approved procedures and rules for the transfer or disposal of nonfinancial assets, including a requirement for such information to be submitted to the Parliament either for information or approval.

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Debt records are complete, accurate, updated, and reconciled monthly. Annual debt sustainability analysis is conducted jointly by IMF and WB and report produced annually. Budget document contains debt statistics for 2-quarter duration extracted from the DSA.

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According to the Constitution and PFEM the National Assembly approves all loans, explicit contingent liability, and loan guarantee on a case-by-case basis and authorizes the Ministry of Finance for debt management. However, policies and procedures to provide guidance on borrowing, debt issuance and monitoring of debt management by the single entity unit are not notified.

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The government has a basic document guiding its debt management strategy approved in November 2005. The document has not been reviewed since. The IMF and the WB jointly conduct the debt sustainability analysis; however, GoIRA does not have a published medium-term debt management strategy - a requirement for rating of this dimension.

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The forecast for key macroeconomic indicators is provided for the budget year and the three outer years with summary narrative on assumptions sourced from the fiscal strategy paper (FSP). Office of the High Economic Council chaired by the President approves the FSP and the World Bank reviews the forecasts.

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Forecasts of fiscal indicators – revenue (by type), aggregate expenditures and budget balances for the budget year and 3 outer years along with underlying assumptions in a summary form are included in the budget. The comparative budget data is provided; however, explanation of the main differences from the previous year’s forecast is not included

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Fiscal forecast scenarios based on at least 4 alternative assumptions are included in the Fiscal Strategy Paper published on the MFPD website

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The FSP, published on the MoF website, includes fiscal impact of policy changes in summary but is not presented to the legislature.

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MoF prepares fiscal strategy paper but is not submitted to the legislature with the budget documents

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GoIRA prepares annual fiscal strategy papers that presents summary data on the fiscal outcomes, particularly for the revenue; however, the impact of the expenditure related policy proposals is not reported. The budget document presented to the legislature contains fiscal outturns for the previous fiscal year but does not provide an explanation for the deviations. The FSP (MTFF) is not mandated to be presented to the legislature and does not contain a discussion on the deviation in fiscal targets.

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The annual budgets (1395 and 1396) provided estimates of expenditure by broad economic classification for three outer years and the administrative classifications for the budget year only.

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The BC-1 (issued April 2016) did not contain medium-term expenditure ceilings.

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The costed sector strategies were available for only two of the 25 LMs and these were also not aligned with budget estimates.

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The budget document reports differences for the administrative and economic codes for the budget and previous years only and does not provide explanations for these observed deviations.

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There is a clear annual budget calendar issued. The 1396 calendar allowed just about four weeks. Delays were noted in the budget preparation for FY1396 (2017).

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There are clear budget circulars issued to budgetary units, covering total budget expenditure for the full fiscal year. The budget reflects ministry ceilings approved by the cabinet (or equivalent) before the circular’s distribution to budgetary units

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The executive has submitted the annual budget proposal to the legislature at 1.5 months before the start of the fiscal year and approved by the Parliament in the second month of the new fiscal year.

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The legislature’s review mainly covers details of expenditure and revenue for the budget year.

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The legislature’s procedures to review budget proposals are included in the Parliament’s Rules of Procedure and are largely adhered. However, the rules do not prescribe comprehensive procedure and support.

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The legislature has approved the annual budget within one month of the start of the year in at least two of the last three fiscal years

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There are clear rules for in-year budget adjustments by the executive that are compiled with in most cases, but they allow extensive administrative reallocations.

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Information on taxpayer redress procedures is available on the ACD website. Taxpayer guides are available for some key topics from the ARD website. However, comprehensive information is not published on the ARD website, including objections procedures.

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Overall risk management is not being used effectively in the ACD, with more than 65% declarations being diverted to red channelthe Red Lane Channel, which mandates physical inspections. Data indicate that physical inspections have detected less than 2% noncompliance, meaning proper physical inspections are not being conducted.

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In the case of the ACD, audit remains area of weakness. Out of approximately 147,000 declarations audited by post clearance audit teams, less than 1,000 declarations were found to be noncompliant. This indicates that while post clearance audits are completed in principle on paper, structured audits are not conducted in practice.

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Data on arrears from the ARD Large Taxpayer Office (LTO) indicate that approximately 92% of arrears are uncollectable, due to the inability to complete write-offs. Thus, arrears account for approximately 55% of the LTO annual revenue. Data were not available across the ARD and ACD.

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All revenues are deposited directly into specified subaccounts of the Treasury Single Account at Da Afghanistan Bank. However, some entities responsible for non-tax revenues still use manual processes to reconcile transactions.

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Payments are deposited directly in the Treasury Single Account at Da Afghanistan Bank, eliminating risks associated with transfers from other agencies.

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The ARD and ACD, which account for most government revenue, undertake complete reconciliation of collections and transfers to Treasury within eight weeks of each month. However, assessments and arrears are not regularly reconciled.

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Most of the bank and cash balances are consolidated on daily basis; however, some of the funds/accounts are outside of the consolidation process. The existence of the dormant accounts with DAB reflects on the quality of the consolidation process.

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A cash flow forecast is prepared for the fiscal year and updated monthly based on cash inflows and outflows information provided by the Budget execution directorate, AMD and the LMs.

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Budgetary units are provided reliable information on commitment ceilings at least quarterly in advance.

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Evidence exists of significant arrears. These are obligations not currently recorded in AFMIS. Surveys on arrears have not been routinely carried out with budgetary units to confirm existence or not of expenditure arrears.

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There are no procedures in place to monitor arrears in budget agencies. Data on the stock of arrears is not generated at least annually with a complete list by budget agencies indicating an age profile.

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No reconciliation between payroll and personnel data has been carried out during the last three years by MoE.

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The data for retroactive adjustments was not available to rate the indicator.

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High incidence of payroll related ineligible expenditure reported by the auditors and monitoring agent.

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Partial payroll audits have been conducted but the coverage has been limited largely owing to the lack of access due to security situation.

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On the procurement website, databases or records are maintained for contracts, including data on what has been procured, value of procurement, and who has been awarded contracts. All procurement entities have access to the Procurement Management Information System (PMIS) through their user credentials and regularly update their procurement information, However, there are cases of below-threshold contracts in which procurement entities have not entered information for all the awarded contracts.

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Competitive bidding is the default method for all procurement above AFN 5,000. A written justification is placed in the record of the procurement proceedings stating the reasons for employing single-source procurement method. During FY2016, 88.6% of procurement has been processed using competitive methods, 2.7% is restricted tendering, and 8.5% is singlesource method.

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Of the listed information requirements for public disclosures, not all procurement plans were available on the NPA website.

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According to Article 50 of the Procurement Law, there is an independent procurement-complaints address committee; the Administrative Review Committee follows processes for submission and resolution of complaints that are clearly defined and publicly available, exercises authority to suspend the procurement process, and issues decisions on time, however charges a refundable fee to entertain administrative reviews.

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Segregation of duties is prescribed throughout the expenditure process. However, issues with segregation of duties are mentioned in several internal audit reports, including many instances where the segregation of duties is compromised. More precise definition of important responsibilities is still needed

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Expenditure commitment control procedures exist for the development budget, but not for the operational budget, which provide partial coverage and are thus partially effective.

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Majority payments are compliant with regular payment procedures. Instances of non-compliance were highlighted in the SAO and ARTF monitoring agent’s reports.

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In accordance with the PFEM Law, there is an internal audit function at every state administration.

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The MoF internal audit is more developed and focuses on adequacy and effectiveness of internal controls. However, the line departments’ internal audit is focused on financial compliance and lacks documentation to demonstrate compliance with international standards.

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Internal audit units prepare annual audit programs. Four of the five internal audit units assessed completed more than 75% of the planned audits.

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Majority of the recommendations were implemented and the entities provide management response to the internal audit recommendations.

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Bank reconciliation for all active central government bank accounts takes place monthly within 15 days from the end of the month.

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Reconciliation of the first quarter’s revenue is completed within 1 to 2 months of the close of the quarter. Subsequently, monthly reconciliations are carried out.

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Reconciliation of advance accounts takes place monthly; however, SAO reported outstanding advances some of which are 8 years old.

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Access and changes to records are restricted and recorded and result in an audit trail but do not include financial integrity.

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Coverage and classification of data does not allow direct comparison to original budget.

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Budget performance reports by the Budget Execution Directorate are prepared quarterly and issued within 8 weeks of the end of the quarter.

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There are concerns about data accuracy. Expenditure is captured at the payment stage.

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Financial reports are prepared annually and are comparable with the approved budget. The financial reports do not include information on tangible assets and on guarantees and other contingent liabilities

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Financial reports are submitted for external audit within 6 months of the fiscal year-end, however SAO reports that the financial report was incomplete.

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The standards used to prepare annual financial statements (Qatia accounts) are not disclosed.

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All budgetary government entities are audited annually. The SAO has adopted International Standards of Supreme Audit Institutions (ISSAI) as its national standards but they are not fully implemented, and audit documentation mainly comprise supporting documents for the audit observations.

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For the last three fiscal years, the SAO submitted the Qatia audit reports to the legislature within three months of the receipts of the Qatia accounts from the MoF.

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The audit follow-up mechanism was operational in all three fiscal years, and formal response to the audit observations was provided to the audit entities.

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There is no provision in the Constitution related to external audit or the SAO. According to the SAO Law, the President has the powers to appoint and remove the Auditor General. However, according to the Constitution, the President is the head of the executive branch and a part of legislature. No approval from the legislative assembly is required to appoint or remove the Auditor General. The SAO can independently implement the budget once approved by the Parliament though the budget is subject to the MoF review and there have been some cuts.

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PAC reviewed audit reports on Qatia accounts within 6 months of receipt and submitted its report to the plenary session.

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PAC hearings to review audit reports on Qatia accounts are in-depth. All audited entities attend the respective PAC session. In addition, SAO and MoF representatives participate in all PAC sessions.

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PAC issues recommendations on actions to be implemented by the legislature but there is no systemic follow-up on their implementation.

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PAC hearings are not public and the PAC report is published neither on an official website nor by any other means easily accessible to the public.