Public Sector Governance and Accountability Series: Budgeting and ...

324 Stephen B. Peterson
that they would not otherwise make (Diamond and Khemani 2006). 2 Such
situations are an important reason for IFMIS failure.
Two themes underlie this discussion about IT in public financial
systems. First, IT should support, not drive, public financial management
reform. Second, the introduction of IT systems comes with considerable
risk, and the single most important factor in deciding on a strategy of
automation is the management of the associated risks, both of failure and of
wrong functionality.
Financial reform in developing countries should be driven by the design
of financial procedures. After the financial system design is formulated, the
automation strategy needs to be determined. That strategy must focus on
what components should be automated, what components should be integrated,
and what components should be both manual and automated.
Procedural reform can take two different forms: process change or process
innovation (typically called business process reengineering) (Davenport 1993:
11–15). Process change evolves existing procedures and workflows using IT in
a supportive role. Process change is a less risky strategy of reform because it
works with existing requirements and with existing developed knowledge and
user capacity, which is relatively low in developing countries. Process innovation
involves a radical and comprehensive restructuring of procedures and
workflows, and it uses IT as the driver of change. The limited success of
reengineering efforts in both the private and public sectors in the 1980s, 1990s,
and even now in industrial countries underscores the risks of a strategy of
process innovation, particularly in developing countries (Varon 2004).
Therefore, IFMISs may fail or underperform in developing countries
because they typically involve a high-risk strategy of process innovation.
Public bureaucracies in those countries have limited capacity, and improvements
are often best made through gradual strengthening of processes and
skills. The presence of limited capacity does not necessarily imply the presence
of dysfunctional financial procedures. In other words, process change
is a strategy of improvement, whereas process innovation is a strategy of
replacement, and the central question for financial reform, in the context of
automation or simply basic design, is whether existing procedures should be
improved or whether they should be replaced.
In his review of financial systems in anglophone and francophone African
countries, Ian Lienert concludes,
[T]he disappointing features observed are due not to the PEM [public
expenditure management] systems themselves, but in the way they operate....[I]n
the absence of attitudinal changes by all players of the budget