Public Financial Management (PFM)

PFM covers the whole cycle of public money. It starts with forecasting revenue and preparing a budget in line with policy priorities, then legislative approval, followed by the release of funds and spending, which is subject to controls over commitments, payroll and procurement. Treasury functions manage cash, debt and bank accounts. Accounting and reporting record what was spent, and audit and legislative scrutiny close the loop. Strong systems let a government spend as the legislature authorised, avoid waste and theft, and give early warning of fiscal trouble. Many countries use an integrated financial management information system to run the process. International institutions such as the IMF and World Bank assess national systems with diagnostic tools, and such assessments often guide reform programmes and lending. Weak PFM shows up as budgets that are not followed, arrears to suppliers, ghost workers on payrolls and audit reports that are ignored. It decides whether public funds reach the services they were meant to pay for.

A ministry of education finds it is unable to say how many teachers it pays. A PFM reform links the payroll to a verified staff register, requires monthly reconciliation with the treasury and publishes quarterly spending reports. Within a year, payments to non-existent staff are found and stopped.