United Nations Development Programme

Government of Mongolia

PARTNERSHIP FOR PROGRESS

PROGRAMME FOR GOVERNANCE AND ECONOMIC TRANSITION

PROJECTS FOR ACCOUNTABILITY AND TRANSPARENCY

Project Number: MON/97/120/A/01/99

Project Title: Support to the Economic Transition via Strengthened Financial Accounting and Transparency

Executing Agent: Ministry of Finance

Implementing Agents: Ministry of Finance State Auditing Board

Estimated Start Date: As soon as possible

Estimated End Date: To be determined

Brief Description of the Component and UNDP support:

The projects that comprise this component of UNDP's Governance and Economic Transition Programme, under the Partnership for Progress, will support the Government of Mongolia in establishing a framework for enhancing financial accountability and transparency. The projects will support the introduction of modern budgetary and accounting systems in Government, capacity strengthening for the State Auditing Board, development of the accountancy profession as well as the education and training of professionally qualified accountants to internationally acceptable standards.

For approved UNDP TRAC Resources:

On Behalf of: Signature Date Name/Title

Government

Executing Agent

UNDP

United Nations Development Programme

Government of Mongolia

PARTNERSHIP FOR PROGRESS

PROGRAMME FOR GOVERNANCE AND ECONOMIC TRANSITION

PROJECTS FOR ACCOUNTABILITY AND TRANSPARENCY

TABLE OF CONTENTS

INTRODUCTION: THE PARTNERSHIP FOR PROGRESS 1 - The Policy Framework

- Strategy for UNDP Support

- Programme Organization

- Programme Support

- General Comment

SECTION A: BACKGROUND - SITUATION ANALYSIS 3

- The Transition Process

- Budgetary and Accounting Systems in Government

- State Auditing Board (SAB)

- International Accounting Standards

- International Auditing Standards

- Accountancy Profession:

- Examinations and Licensing

- Other Accountancy Organizations

- Tertiary Level Accountancy Education

- Professional Accountancy Education

SECTION B: JUSTIFICATION 8

SECTION C: PROJECT OBJECTIVES 9

 SECTION D: PROPOSED STRATEGY 10

- Introduction

- New Budgetary and Accounting Systems in Government

- Mongolia Institute of Accountants (MIA)

United Nations Development Programme

Government of Mongolia

PARTNERSHIP FOR PROGRESS

PROGRAMME FOR GOVERNANCE AND ECONOMIC TRANSITION

PROJECTS FOR ACCOUNTABILITY AND TRANSPARENCY

TABLE OF CONTENTS

- Accountancy Education and Training:

- Introduction

- Existing Educational Institutions

- Mongolia Centre for Accounting Studies (MCAS)

- State Auditing Board

SECTION E: PROJECT INPUTS 25

SECTION F: PROJECT OUTPUTS/ACTIVITIES 25

SECTION G: MONITORING AND REPORTING 27

SECTION H: RISKS 28

SECTION I: LEGAL ASPECTS 28

SECTION J: BUDGET 29

APPENDIX 1: DRAFT TERMS OF REFERENCE FOR THE

STEERING COMMITTEE: NEW BUDGETARY

AND ACCOUNTING SYSTEMS, INCLUDING

ORGANIZATION AND STAFFING 30

APPENDIX 2: DRAFT TERMS OF REFERENCE: INTERIM

STEERING COMMITTEE/COUNCIL: THE

MONGOLIA INSTITUTE OF ACCOUNTANTS (MIA)

AND THE MONGOLIA CENTRE FOR ACCOUNTING

STUDIES (MCAS) 34

APPENDIX 3: DRAFT TERMS OF REFERENCE: CONSULTANCY

TO REVIEW THE STATE AUDITING BOARD (SAB) 37

INTRODUCTION: THE PARTNERSHIP FOR PROGRESS

1 The Policy Framework

 

1.1 The United Nations Development Programme has been an important supporter of Mongolia's development efforts since the 1970s. A new five year cycle entitled the Partnership for Progress, which covers the period 1997 to 2001, has begun. The UNDP activities support the Mongolian Programme of Government Action (Resolution 61 of November 1996), with its priority on economic growth under difficult transition conditions.

 

1.2 The impact of Mongolia=s dramatic transition process in the 1990's makes economic growth a precondition for solving problems, especially those related to poverty. The successful implementation of the different parts of the Government's Programme of Action is expected to generate growth. There are favourable conditions for Mongolia=s economic growth, including considerable natural resources, literate human resource base and growth oriented Government. However, significant obstacles exist such as limited infrastructure, growing poverty, a weak banking system, harsh climatic conditions and a vast territory.

 

1.3 UNDP's contribution to growth with equity will be three-fold: First, UNDP interventions will fully support the Government's Programme to stimulate equitable economic growth. Second, UNDP through its partnership role in the national poverty programme and natural resource management, will help the Government deal with various issues of people centered sustainable development. Third, UNDP will contribute significantly to the national capacity to formulate policy and to implement programmes which support sustainable human development by concentrating on strengthening governance capacities of the national government, local authorities and civil society.

 

1.4 The UNDP activities will bring together a multitude of partners in support of sustainable human development: Government authorities at the national and local level, civil society and NGOs, UNDP and the UN system, academia and the private sector, and bilateral and multilateral donors. The design of the Partnership for Progress combines global thinking with local actions to achieve impact and improve the well-being of the Mongolian people.

 

2 Strategy For UNDP Support

 

2.1 Based on the findings and recommendations of earlier interventions in the Country, UNDP's Partnership for Progress will be focused in three areas of special importance to sustainable human development in Mongolia: Governance & Economic Transition; Poverty Alleviation; and Environment/Natural Resource Management. A smaller amount of UNDP resources will also be allocated to improving the overall effectiveness of official development assistance (ODA) by strengthening national aid management and coordination capacity.

3 Programme Organization

3.1 The Partnership for Progress will address Agovernance@ through three components in the areas of: (i) democracy and people=s participation, (ii) sound governance, and (iii) economic transition. A Programme Support Unit will service all three components. A brief description of each component is provided below.

 

3.2 (i) Democracy and people=s participation. This component will include a project to support decentralization of authority, strengthening local self-governance capacity and promotion of people's participation in local decision-making processes. In the non-government/citizens organization sector, an intervention will support consolidation of democracy through strengthening of journalism.

 

3.3 (ii) Sound Governance. Projects in this key component will support the strengthening of governing institutions (Parliament, Executive Branch, Judiciary, Office of the President), public administration and civil service reform, financial management and auditing systems and the government's management information system.

 

3.4 (iii) Economic Transition. Programme components in this category will support the economic aspects of the transition to a market economy in a democratic society, including projects to support privatization, management development institution strengthening and a Athink-tank@ in support of economic/social growth.

 

4 Programme Support

4.1 A Programme Support Unit, established as part of the National Governance Programme, will provide the three components with the technical and financial support required for effective resource mobilization, technical advice, logistical support such as translation, outreach and donor liaison, component coordination and reporting.

 

5 General Comment

 

5.1 Following this brief introduction, the remainder of this Project Document will focus on the specific issues relating to financial accountability and transparency in Mongolia.

 

SECTION A: BACKGROUND - SITUATION ANALYSIS

1 The Transition Process

 

1.1 Over the past six years, Mongolia has been confronting the daunting challenge of social, political and economic reconstruction. Simultaneously, it has embraced the challenge of fully restructuring its economic production system, its political Amodus operandi@, its judiciary system, the principal public institutions and bureaucratic structures as well as the resilient cultural rigidities of the pre 1990's era. A new Government elected in 1996 is presently accelerating the reform process.

 

1.2 Significantly, the Country has moved very commendably with speed from a highly centralized and planned economy, characterized by restricted political activity and citizen participation, to an open, democratic and market oriented economy.

 

1.3 The aforementioned changes have been partly precipitated by the dismantling of the former Soviet Bloc and the subsequent suspension of all economic aid deriving from the Soviet Union, which had previously accounted for approximately 40% of Mongolia=s income. Additionally, the new political and economic configuration at the international level has intensified the need, indeed necessity, to fully redefine the mechanisms linking Mongolia to a globalized world.

 

1.4 In the context of meeting the opportunities of the next millenium, specifically in relation to financial accountability and transparency, Mongolia needs to prioritize the addressing of the issues discussed in the following Sub-sections i.e. Sub-sections 2 to 8 inclusive.

 

2 Budgetary and Accounting Systems in Government

 

2.1 The budgetary and accounting systems, as presently applied in Mongolia, have been a continuation from the earlier systems. Thus, they are quite inappropriate for the requirements of a market economy in a democratic society with various components of Government required to be operating on an accountable, transparent fashion.

 

2.2 It is fully acknowledged by all concerned that remedial action in this area should be prioritized. Recently, the Government decided to follow the general lines of the New Zealand model in relation to Resource Accounting and Budgeting (RAB). This concept is elaborated on in Section D - Proposed Strategy.

 

2.3 It is also recognized that the important issue of internal auditing also requires early attention.

 

3 State Auditing Board (SAB)

 

3.1 In most developing countries, public sector auditing has a well established identity usually in the form of a Supreme Audit Institution (SAI). In Mongolia, the SAB was established in June 1995 as its SAI. The principle functions of the SAB are Ainter alia@:

 

• to monitor the budget allocations;

• to monitor expenditure;
• to monitor the preservation and storage of Government property;

• to monitor the expenditure of international aid and loans;

• to evaluate the ethical behaviour of high ranking public officers.

It is also empowered to check the accounts of the Central Bank, Investment Account and Joint Ventures.

 

3.2 The Chairman and eight other senior members of the SAI are appointed by, and report to, Parliament. In July 1996, the SAI joined the Asian Association of Supreme Audit Institutions (ASOSAI).

 

3.3 The Mongolian Government is thus taking the initial steps in establishing the SAB. However, the SAB appears to be inadequately resourced to enable it to comprehensively discharge its significant responsibilities.

 

3.4 In order to enhance the operational effectiveness of the SAB, it appears that external technical support will be required in relation to: staff training and development, the application of International Auditing Standards as promulgated by the International Organization of Supreme Audit Institutions (INTOSAI) and the International Federation of Accountants (IFAC), the deployment of computers in auditing as well as computer assisted auditing techniques (CAATs), value for money and statistical sampling techniques, development of audit manuals and standardized working papers, audit management/administration and quality control, audit reporting etc.

 

4 International Accounting Standards

 

4.1 Before 1991, modern accounting practices and independent auditing were alien concepts to Mongolia. In 1993, however, the Accounting Law adopted the International Accounting Standards (IASs), as promulgated by the International Accounting Standards Committee (IASC), and mandated business enterprises to observe them (to-date, 31 of the IASs have been translated into Mongolian).

 

4.2 During the past two years, the Accounting Council and the Mongolia Institute of Certified Public Accountants (MonICPA) have advised that about 50 of the 500 or so large enterprises are now applying IASs. Thus, the road ahead for full convertion and application of IASs by all large business enterprises is still very long and arduous. Undoubtedly, one of the major constraining factors is the paucity of relevantly qualified and experienced citizen accountants.

 

5 International Auditing Standards

 

5.1 The concept of modern auditing was not practised in Mongolia prior to 1991. The 1993 Accounting Law formally introduced the concept of auditing for the first time. However, the legislation did not specify which business enterprises should be audited. Neither did the legislation specify that audits should be conducted in accordance with International Auditing Standards. This has resulted in a myriad of approaches in the conduct of audits. It is also worth noting that, of the 440 business enterprises quoted on the Stock Exchange, less than 40% are audited by public accounting firms.

 

5.2 The aforementioned issues relating to auditing are very serious and require urgent actioning by the relevant authorities. In this regard, it appears that draft legislation is currently being considered by Government.

 

6 Accountancy Profession

 

Examinations and Licensing

 

6.1 The Accounting Law of 1993 established the Accounting Council, whose Chairman reports directly to the Minister of Finance. The Accounting Law vests in the Accounting Council the authority to administer the professional accounting examinations that qualify accountants as Ahighly qualified or professional accountants@ i.e. the title that is now assumed to be equivalent to that of ACertified Public Accountant (CPA)@ or a AChartered Accountant (CA)@, although neither of these two titles were used in the law. Likewise, the law empowered the Accounting Council to promulgate rules for the establishment of firms of Aprofessional accountants@ and to grant licenses to these firms to undertake independent audits.

 

6.2 In accordance with its mandate, the Accounting Council administered the first ever professional examinations in July 1993. Unfortunately, the examinations were prepared and graded by persons who themselves were neither CPAs or CAs. Significantly, whilst those examinations were intended to qualify successful examinees to establish and to conduct independent audits, auditing was not one of the areas covered by the examinations. This is an omission which the Chairman of the Accounting Council explained as being Afurther evidence of our lack of understanding of the independent audit and the professional competence required to undertake such work@.

 

6.3 The registration of accountants as CPAs or CAs (to-date, about 200 have been registered), when they do not possess internationally acceptable qualifications and experience, has a number of serious adverse side effects:

 

• it downgrades the profession in the eyes of the business and professional community;

• it lowers the aspiration levels of prospective students;

• it is less demanding on the educational system;

• it does not provide an environment which is conducive to the development of examinations at the appropriate level;

• it may result in the employment of persons with minimal technical skills as senior financial persons in an organization.

Other Accountancy Organizations

 

6.4 The Mongolia Institute of CPAs (MonICPA) was established in March 1996. Apparently, the Institute has already drafted proposals for standards of ethics for CPAs in Mongolia. However, interestingly, none of the members of the Institute are internationally qualified CPAs or CAs.

 

6.5 Two further organizations have also been established viz. the Mongolia Union of Auditors and the Association of Financial and Accounting Workers.

 

6.6 It is, perhaps, axiomatic to suggest that the proliferation of accountancy bodies in Mongolia is both inadvisable and undesirable. The situation should be regularized as a matter of considerable urgency by the Government.

 

6.7 It is strongly recommended that an independent professional accountancy body, to which reference is made in Section D/Sub-section 3, should be established by Act of Parliament as soon as is practically feasible by the Ministry of Finance. Otherwise, confusion, fragmentation, dissipation of energy and resources, diffusion of standards and lack of credibility by user groups is inevitable.

 

7 Tertiary Level Accountancy Education

 

7.1 In the April 1994 publication of the Ministry of Finance entitled AStrategic Plan for the Development of Accounting and Auditing Capability in Mongolia@, it was pointed out that recent efforts at upgrading the formal accounting education programmes have been Aindividualistic, haphazard and uncoordinated................. the professional accounting courses were grossly deficient and were mainly at the introductory level@.

 

7.2 Salient deficiencies manifested by accountancy training institutions include:

 

• presently available textbooks, which have been written in either Mongolian or Russian, are no longer relevant to current requirements;

• staffing constraints in terms of quality and quantity; furthermore, staff appear to have little or no relevant practical experience;

• salary levels are inadequate to attract and to retain the right calibre of people;

• educational facilities are very inadequate - classrooms, furniture, white-boards, flipcharts, overhead projectors, computers, library facilities etc.

• curriculum development - syllabi require revision in line with international developments;

• examinations - there are serious doubts about the standards of the examinations as they are not externalized.

7.3 The aforementioned deficiencies seriously undermine the capacity of Mongolia to produce internationally qualified accountants.

 

7.4 These shortcomings must be urgently addressed in order to create an appropriate enabling environment which will satisfy the Country=s present and future requirements for indigenously qualified accountants through providing top-class training facilities in-country.

 

8 Professional Accountancy Training

8.1 Through the assistance of a number of international organizations, considerable energy and resources have been expended in conducting professional educational seminars and in translating textbooks. It is also understood that a number of citizens are/will be sent abroad for international training and practical exposure.

 

8.2 Although the efforts to-date are commendable, they are quite inadequate in terms of addressing the country=s requirements for professional accountancy education programmes.

 

8.3 It is strongly recommended that a new initiative is urgently required, to which reference is made in Section D/Sub-section 4, in order to put in place an in-country accountancy educational infrastructure which will serve the current and future accountancy manpower needs of Mongolia.

 

7

SECTION B: JUSTIFICATION

1.1 Financial accountability is the requirement for one party to report on the deployment of funds entrusted to that party by a third party through independently and professionally audited financial statements. In the public sector, democratically elected governments are obliged to have their financial statements independently audited and to report to a variety of user groups. In the private sector, the directors of companies are accountable to both shareholders and other stakeholders. Meaningful accountability requires timely, understandable, reliable and relevant financial information.

 

1.2 Transparent financial reporting by both public and private sectors is a pre-requisite for a well functioning market economy. Indeed, financial accountability is an indispensable management tool, providing essential information for the effective monitoring and controlling of resources.

 

1.3 To ensure the effective and prudent management of Government resources, a reliable financial accountability framework is essential. It is submitted that such a framework should include the following key elements:

 

. a legislative framework that is relevant to the current financial reporting environment;

. the adoption and consistent application of internationally acceptable accounting standards to determine the amounts and the format of their presentation in the financial statements;

. professionally qualified and competent staff to prepare the financial statements;

. an independent and competent external audit; and

. an objective appraisal mechanism for assessing the performance of Government against agreed objectives.

 

The financial accountability framework is essentially the conduit through which governments report to the electorate and, as such, is closely linked to political accountability.

 

1.4 Financial accountability is an essential pre-requisite for sound economic development as it provides information which enables Government to plan, implement, monitor and appraise its activities. If timely, understandable, relevant and reliable financial information is produced, it enables Government:

 

. to compare its performance against budgeted expectations;

. to use the results as a basis for decision-making on resource allocations; and

. to assess the economy, efficiency and effectiveness with which resources were deployed.

 

1.5 Financial accountability and transparency are integral parts of international best practice for public sector management; indeed, public sector management development would be substantially weakened in their absence. Moreover, accountability and transparency are essential elements of good governance.

 

1.6 Inevitably, foreign investors place a high premium on social, political and economic stability. Additionally, investors require the added assurance that financial statements have been prepared in accordance with International Accounting Standards.

 

1.7 International Accounting Standards are a prerequisite to financial accountability because they ensure the reliability, consistency and transparency of financial information. The objectives of International Accounting Standards are: to assist in the exercise of judgement; to reduce the number of acceptable practices; to improve the information content of published financial statements; and to improve their comparability. Mr. Michael Sharpe, Chairman of the International Accounting Standards Committee (IASC), has intimated that: Amany world leaders and heads of big corporations tell me that they won=t go to China, Eastern Europe and Africa unless there is an accounting structure that they can understand............. But, they are happy to invest when countries use the IASC standards@.

 

1.8 Furthermore, foreign investors expect that financial statements will be independently audited by relevantly qualified and experienced professionals in accordance with International Auditing Standards, as promulgated by the International Federation of Accountants (IFAC).

 

1.9 In Mongolia, the Government has announced its unequivocal commitment to the principles of financial accountability and transparency. The onus is now on Government to create a suitable enabling environment in which these principles can flourish. Encouragingly, whilst the challenge is very daunting, there is a strong will both on the part of the new Government and potential international partners willing to assist.

 

SECTION C: PROJECT OBJECTIVES

Development Objective

 

1.1 The overall goal of the UNDP=s Governance and Economic Transition Programme and this specific project is to support Mongolia=s governing institutions to develop a sustainable capacity to direct the affairs of the nation in a responsive, equitable, participatory and cost-effective manner.

 

Immediate Objective

 

1.2 To develop and to apply a strategic programme as an integral component of UNDP=s Governance and Economic Transition Programme, the Partnership for Progress, which will establish the framework for enhancing financial accountability and transparency. The projects will support the introduction of modern budgetary and accounting systems in Government, capacity strengthening for the State Auditing Board, development of the

accountancy profession as well as the education and training of professionally qualified accountants to internationally acceptable standards.

 

SECTION D: PROPOSED STRATEGY

1 Introduction

 

1.1 UNDP will support the Government of Mongolia in measures necessary to improve the following key areas:

 

. legislation;

 

. systems, procedures and internal controls;

 

. capacity building in budgeting, accounting, financial management, financial reporting and auditing.

 

While UNDP resources are limited, they will be linked with expected inputs from the ADB and GTZ. Likewise, UNDP will attempt to mobilize additional cost-sharing resources.

 

1.2 Specifically, it is postulated that financial accountability and transparency issues in Mongolia should be addressed using a four-pronged approach comprising the following 4 modules:

 

. review and adaptation/revision of the present budgetary and accounting systems in Government (Ministry of Finance);

. the establishment of the Mongolia Institute of Accountants (MIA) by Act of Parliament and subsequent support actions;

. the proper resourcing of existing tertiary educational institutions and the establishment of the Mongolia Centre for Accounting Studies (MCAS);

. the proper resourcing of the State Auditing Board (SAB).

 

2 New Budgetary and Accounting Systems (including organization and staffing)

 

2.1 UNDP will, within it=s resources and those needed to be mobilized, support the Government of Mongolia in the process of developing:

 

2.1.1 a new resource based budgetary system for which the following steps are needed:

 

. produce a technical assistance project to support the implementation of Government of Mongolia=s new budgetary system;

 

. the new budgetary system should interface with Government of Mongolia=s Public Management Information System;

 

. amend the regulatory and legislative frameworks to support the successful functioning of the new budgetary system.

 

2.1.2 a new resource based accounting system for which the following steps are needed:

 

. produce a technical assistance project to support the implementation of Government of Mongolia=s new accounting system;

 

. the new accounting system should interface with Government of Mongolia=s Public Management Information System;

 

. amend the regulatory and legislative frameworks to support the successful functioning of the new accounting system.

 

2.1.3 a new organizational set-up to support the new systems, including the human resources and other logistical requirements;

 

2.1.4 capacity building by training staff.

 

2.2 Cash versus Accruals/Resource Accounting:

 

Cash Accounting

 

2.2.1 In general, cash accounting is very much the tradition in central governments, including Mongolia. Cash accounts have several merits including simplicity as well as being quick and easy both to prepare and to understand. Demonstrating compliance with cash spending limits is a further benefit offered by cash accounting - this being the basis upon which governments have traditionally budgeted and upon which public sector entities have generally been held accountable.

 

2.2.2 Cash accounting facilitates the work of Parliament, auditors and others in confirming that money was expended as planned and within the intended limits. However, cash accounting can be manipulated because the timing of receipts and payments can be varied from one period to the next. Thus, while the measurement of the transactions is easy and free from bias, financial reports prepared on a cash basis can, arguably, be less reliable and inconsistent over time.

 

2.2.3 Although cash accounting is useful in terms of assessing (short-term) economic impact and compliance with spending limits, its ability to inform decisions on stewardship and the state of finances is constrained to considerations related to cash resources and exclude physical and financial assets and liabilities. On its own, cash accounting provides no basis for judgements on performance in terms of economy and efficiency, nor on the achievement of goals or objectives.

 

The Case for Accruals/Resource Accounting and Budgeting

 

2.2.4 In recent years, a new system of accruals/resource based accounting and budgeting has been launched by several countries e.g. New Zealand, Australia, UK and elsewhere. The new system has revolutionized government accounting practices, standards and reporting systems in those countries.

 

2.2.5 Recently, the Government of Mongolia has also decided to introduce accruals/resource based accounting systems for the public sector, along the lines of the New Zealand model, to enhance improved management and accountability.

 

2.2.6 The salient features of resource accounting are as follows:

 

. a coherent accounting framework to fulfil a range of requirements from low level management information to high level financial reports;

. use of accruals accounting techniques, to provide a more accurate measurement of resources consumed;

. a financial reporting structure to match resources used to departmental objectives, and linking these objectives, wherever practicable, to quantified measures of output and performance;

. accounting for the use of capital and current resources consistently, in terms of resources consumed;

. provision of essential cash accounting information; and

. a system for reporting accruals accounting information to Parliament and the public.

 

2.2.7 It is postulated that the introduction of accruals/resource accounting in Mongolia should produce more accurate and relevant information on capital consumption. This should result in improvements in the use of existing assets and future investments decisions. But resource accounting is more than just accruals accounting. It brings with it a framework to capture costs and to match these to departmental objectives and (where appropriate) outputs, and to transmit this information to the relevant management level within a department.

 

2.2.8 With a better understanding of the full cost of their operations, Government Departments will be better placed to make decisions on the allocation of resources consistent with their overall priorities. For example:

 

. decisions about whether to provide a particular service in-house or through an external contractor or consultant will be facilitated, since the cost of the various options will be easier to compare;

. monitoring performance against objectives will be easier;

. with better information on working capital, control of cash flow will be more effective; and

. the development of charging systems will be facilitated as better accounting information is provided.

 

2.2.9 Resource accounting and resource budgeting are, of course, inextricably interlinked.

 

2.3 Financial Management Reform:

 

Accountability Model

 

2.3.1 The introduction of resource accounting and budgeting by the Government of Mongolia aims to improve performance by enhancing the accountability relationship between Ministers and Departmental Chief Executives.

 

2.3.2 The four elements of the accountability model on which the reforms are likely to be based are:

 

. clear Aex ante@ specification of the performance required of chief executives;

. devolution of decision-making authority to give chief executives control over the acquisition, utilisation, disposal and mix of inputs;

. incentives for chief executives to act in the Government=s interests;

. Aex post@ reporting of actual performance against specification.

 

Underpinning Concepts

 

2.3.3 As happened in New Zealand, several fundamental concepts are expected to underpin the reform process in Mongolia, including distinctions between:

 

. inputs, outputs and outcomess;

. purchaser and owner;

. the Government and Departments.

 

2.3.4 Inputs are the resources consumed in producing outputs or services. Accountability implies that Departments should only be held accountable for those things they can deliver. Consequently, accountabilities will be divided so that:

 

. the chief executive will be responsible for producing the outputs agreed with the Minister for the price agreed; and

 

. the Minister will be responsible for the choice of outputs and, by implication, for their impacts on the community (outcomes).

 

2.3.5 The Government has both a purchase and ownership interest in Departments. As purchaser, it will be interested in the goods and services (outputs) it will be purchasing - their quantity, quality, cost and timeliness. As owner, the Government will be interested in the entity=s ability to deliver contracted outputs at least cost, both now and in the future. This means that the Government will be interested in efficient resource management, including financial management (working capital and asset utilisation), and any changes necessary to deliver future outputs.

2.3.6 The third distinction is between the Government as a whole and the individual Department. Chief executives will be held accountable for those things over which they have control i.e. by placing control over assets and expenses in the hands of the producers of the outputs, they can be made more directly accountable for the efficiency of production. Conversely, where the chief executive has no authority because of statute or regulations, or because the Government does not wish to delegate that degree of control to a chief executive, the accountability will remain with the Government.

 

Objective of Modern Financial Management Systems

 

2.3.7 Thus, arising from the above, the principal objective of a modern financial management system in the public sector in Mongolia will be to support management in their deployment of limited resources (inputs) with the purpose of ensuring economy and efficiency in the delivery of outputs (i.e.services and/or goods produced by departments in terms of quantity, quality, cost and time) required to achieve desired outcomes (effectiveness), that will serve the needs of the community (appropriateness).

 

2.3.8 The successful achievement of this objective will require underpinning by more flexible support systems, reporting structures and working practices than have traditionally been the norm in the public sector. Information technology, by virtue of its increasing versatility and potential to enable radical improvements to be made in the way business is conducted, presents unparalleled opportunities to devise new approaches to existing tasks and new ways of working.

 

2.4 Implementation - Stage 1

 

2.4.1 The successful implementation of accruals/resource based accounting and budgeting systems in Mongolia will require considerable investment. For example:

 

. in developing a strategy for change;

. in management and staff time;

. in training staff and developing their skills;

. recruiting specialist skills; and

. in information technology facilities.

 

2.4.2 Implementation must also be properly and efficiently planned, with the full support and commitment of top management (including senior public officers and politicians).

2.4.3 It is recommended that a Steering Group, comprising Senior Government Officers, should be established as soon as is practically feasible by the Ministry of Finance with responsibility for directing and guiding the successful introduction of the new budgetary and accounting systems. Indicative Terms of Reference for the Steering Committee are contained in Appendix 1.

 

2.4.4 UNDP will assist the Government of Mongolia by providing technical support to the Steering Committee, which should facilitate the Committee in discharging its significant obligations.

 

2.4.5 It is also recommended that a number of public officers should be appointed by the Ministry of Finance to work Ahand-in-hand@ as Project Team Members with the technical experts.

 

Inputs

 

2.5 It is estimated that the technical support from UNDP will be carried out over a period of 4 months and will require 8 person months of inputs, consisting of the following:

Person Months

. Team Leader - Government Accounting Specialist with organization, systems and developing country experience.

4. Computer/MIS Specialist 1.5.

Human Resource Development/Training Specialist 1.

Government Auditing Specialist 1.5

Total Person Months 8

 

Note: A decision as to whether to appoint a single technical expert or a team of experts for a more intensified period, will ultimately depend on the practical experience and qualifications of the selected person/persons. One distinct advantage of using a team of technical experts is that the work could be completed within 4 months. Also, the early active participation by citizens in the budgetary and accounting reform process is very desirable.

Timing

 

2.6 It is anticipated that the technical support will be split into two Phases. Phase 1 will last one month and will consist of 3 person technical months of inputs (one month each from the Accounting Specialist, Computer Specialist and Auditing Specialist) as well, of course, as the inputs provided by the counterpart Project Team Members. During this period, the Project Team will familiarize themselves with working papers and related documentation made available by Government of Mongolia (including codes, manuals, instructions etc on accounting, auditing and budgeting) and make initial assessments of the systems.

 

2.7 At the end of Phase 1, an inception/interim report will be submitted to the Steering Group by the Project Team. The report will consider the existing performance of the systems assessed, identify constraints to operations and will sketch out in broad terms their vision of how the systems, procedures and structures will look in the future (including possible options). A detailed Action Plan will also be submitted which will identify how the remaining months of the inputs will be utilized in following up the initial work undertaken in Phase 1.

 

2.8 Following comprehensive consultation with the Steering Group, the Project Team will carry out the interim report Action Plan during Phase 2.

 

2.9 Additionally, throughout the assignment, the technical experts will carry out a series of Workshops for public sector accounting officers in International Accounting Standards, designed to teach the fundamentals of the Standards rather than their technical detail.

 

Monitoring and Reporting

 

2.10 Importantly, the Steering Group should monitor and direct the activities of the Project Team very closely. It should ensure that the recommendations made are given full consideration by Government. Implementation of the recommendations accepted by Government will be the responsibility of the Ministry of Finance.

 

2.11 Following the commencement of Phase 2, the Project Team will report to the Steering Group every 3 weeks setting out, in brief, progress against the work plan and an updated Action Plan for the remainder of the period of the technical assistance.

 

2.12 A Draft Final Report will be discussed with the Steering Group during the final 2 weeks of the assignment. The Final Report, which should be completed during the final week of the assignment, will include an Action Plan for Implementation - Stage 2, which will set out a clear sequenced timetable for implementing the recommendations, target implementation dates and monitorable milestones/yardsticks.

 

2.5 Implementation - Stage 2

 

2.5.1 The Steering Committee will continue to direct and guide the project during Implementation - Phase 2. It is expected that substantial technical support will be required during Phase 2.

 

2.5.2 While UNDP resources are limited, they will be linked with possible inputs from ADB, GTZ, World Bank, IMF etc. Likewise, UNDP will attempt to mobilize additional cost-sharing resources.

 

3 Mongolia Institute of Accountants (MIA)

 

3.1 The proliferation of accountancy bodies in Mongolia, to which reference was made in Section A/Sub-section 6, is both undesirable and inadvisable. It is strongly recommended that a new body, the Mongolia Institute of Accountants (MIA), should be established by Act of Parliament as soon as is practically feasible.

 

3.2 The MIA should be the sole body responsible for the development and regulation of the accountancy profession in Mongolia. The establishment of the MIA will provide a statutory basis for formally regulating the accountancy profession in Mongolia as well as a structured framework within which the effective education and training of Mongolians can take place.

 

3.3 It is envisaged that the MIA will eventually become a member of IFAC/IASC. The MIA will also seek to implement internationally accepted standards of education, examinations, professional ethics and practical experience requirements for membership.

 

3.4 The American Accountancy Association fully acknowledges the importance of a strong national institute of accountants: AStrong domestic associations or institutes of accountants with their own framework, standards and requirements can provide status, strength and unification, and could help significantly in solving some of the acccounting problems faced by the developing nations@.

 

3.5 It is envisaged that the new professional body (MIA) should have at least two, and not more than three, categories of membership as follows:

 

Level 1: Accounting Technician

 

3.6 The accounting technician will be equivalent to the accounting technician in western economies. A qualified accounting technician will possess a specified and approved diploma or certificate in accounting, or will have passed the accounting technician examinations of the MIA. The body of knowledge required of an accounting technician should be broadly equivalent to the Foundation Stage Examinations of, for example, the Chartered Association of Certified Accountants (ACCA) in the UK, or the UK Association of Accounting Technicians (AAT), or other equivalent international standard, as modified to reflect the legal and commercial environment in Mongolia. An accounting technician should be required to possess a minimum of 12 months experience of accounting and administrative work and will be employable in the entire spectrum of para-professional accounting activities in the public, parastatal and private sectors.

 

Level 2: Registered Accountant

 

3.7 At this level, the accountant will be qualifed to perform the role of the financial and/or management accountant in an organization. Persons wishing to become registered at this level should possess a degree in economics, business administration or accounting. Depending on the extent to which the degree meets, in terms of depth and breadth of coverage of the registered accountant syllabus and standard of examinations thereof, additional examinations will be required. Accounting technicians should be able to continue their studies to the registered accountant level if they wish. The syllabus for this level of qualification should be broadly equivalent to the Certificate Level of the ACCA=s examinations, or of those of equivalent international accountancy bodies in other countries e.g. USA, Japan, Singapore, Hong Kong, Korea, Malaysia etc., as modified to incorporate Mongolian commercial, legal and taxation conditions. Accountants at this level should possess a minimum of three years approved professional experience in all core accounting activities.

 

Level 3: Professional Level

 

3.8 This level of qualification should be equivalent to the internationally recognized Certified (CPA) or Chartered Accountant (CA) and holders should possess the highest standard of accounting and audit training. The standard of entry to the professional level examination will be successful completion of the Level 2 examinations or their equivalent. The professionally qualified accountant should, on demonstrating completion of supervised competence based audit training, be capable of obtaining an audit license (public practice certificate/permit).. The syllabus for the professional level examinations should be equivalent to the Professional Stage Examinations of the ACCA, or of those of equivalent international accountancy bodies in other countries e.g. USA, Japan, Singapore, Hong Kong, Korea, Malaysia etc., as modified to incorporate Mongolian commercial, legal and taxation conditions.

 

3.9 Once established, initiative, dynamic leadership and structured activity will be required from the Institute if it is to develop into a strong, vibrant and independent professional body. The major priority areas for the Institute over the next five years should be:

 

3.10 Council of MIA: It is envisaged that the affairs of the Institute will be managed by an Executive Council. The composition of the Council will be determined in due course. However, although it is expected that some members of the Council will be elected, the interests of the Government should be protected by it having the prerogative to appoint some Council members.

 

3.11 Committees of Council: The establishment of a comprehensive committee structure, which should assist the Council in discharging its obligations, is critical and might include Ainter alia@:

 

. Technical Advisory Committee with responsibility for technical pronouncements.

. Professional Development Committee with responsibility for continuing professional education for members.

. Education and Examinations Committee with responsibility for orchestrating Mongolia=s linkage with an internationally acceptable external examining institute.

. International Relations Committee with responsibility for liaising with IFAC, IASC, CAPA etc.

. Admissions Committee with responsibility for membership issues.

. Disciplinary Committee.

. Ethics Committee.

 

If Council and its Committees are to operate successfully, they will require the active support, encouragement and commitment of members of the Institute.

 

3.12 Harmonization: The Institute must promote the harmonization of accountancy education and training among tertiary educational institutions in Mongolia, including the establishment of exemption policies.

 

3.13 Institute Qualifications: The Institute must promote an awareness and acceptability of its qualifications in the public, parastatal and private sectors. This is particularly important in relation to the Government Scheme of Service if the public sector is to attract and to retain the much needed professional skills for senior accounting and finance positions.

 

3.14 Legislation: The Institute must ensure that the views of its members are communicated to the relevant authorities in relation to new or amending legislation.

 

3.15 Services to Members: A facility should be developed over time and might include Ainter alia@ the provision of a technical advisory service, developing an accounting resource centre, publication of an Institute Newsletter etc.

 

3.16 Executive Director: It is insufficient to identify the major priority areas for the Institute over the next five years if it does not have the resources at its disposal to fulfil that role. It is particularly important that the Institute should have its own Executive Director as well as administrative and support staff as soon as possible. The person appointed as Director should have the technical expertise and professional standing to contribute to the establishment and development of the professional environment which is required; that person is likely to require external technical support for at least 3 years.

 

3.17 Implementation - Stage 1

 

Inputs

 

3.17.1 Pending the establishment of the MIA and its Council, as well as the proposed MCAS as discussed in Sub-section 4 below, it is proposed that an Interim Steering Committee should be established under the auspices of the Ministry of Finance with the responsibility for directing and guiding the accountancy profession during the transitional period. The Committee should comprise senior accountancy personnel from the public (including educationalists), parastatal and private sectors.

 

3.17.2 The Steering Committee will, in effect, form the Interim Council of MIA with a timetable for completing its tasks and arranging for election of the first Council of the new professional body. During the transitional period, the Draft Terms of Reference of the Interim Steering Committee/Council are outlined in Appendix 2.

 

3.17.3 UNDP will support the Government of Mongolia by providing technical support to the Interim Steering Committee/Council for a period of about 6 months in order to facilitate the early establishment of the MIA and to assist the Interim Steering Committee/Council in discharging its substantial responsibilities. (It is envisaged that the technical expert will also be involved in the proposed MCAS, as discussed in Sub-section 4.12.2 below).

 

3.17.4 It is recommended that a Mongolian Executive Director for the MIA, as well as administrative and support staff, should be appointed as soon as is practically feasible by the Ministry of Finance to work Ahand-in-hand@ with the technical expert. The early active participation by citizens in the activities of the MIA is highly desirable.

 

Monitoring and Reporting

 

3.18 At the outset, the technical expert and the Mongolian Executive Director should jointly prepare an Action Plan for consideration and approval by the Interim Steering Committee/ Council. Thereafter, they should both report jointly on a monthly basis setting out, in brief, progress against the work plan and an updated Action Plan for the remainder of the period of the technical assistance.

 

3.19 A Draft Final Report will be discussed with the Interim Steering Committee/Council during the final 3 weeks of the assignment. The Final Report, which should be completed during the final 2 weeks of the assignment, will include an Action Plan for Implementation - Stage 2, which will set out a clear sequenced timetable for implementing the recommendations, target implementation dates and monitorable milestones/yardsticks.

 

3.20 Implementation - Stage 2

 

3.20.1 It is expected that substantial technical assistance will be required during Implementation - Stage 2. While UNDP resources are limited, they will be linked with possible inputs from ADB, GTZ, World Bank, IMF etc. Likewise, UNDP will attempt to mobilize additional cost-sharing resources.

 

4 Accountancy Education/Training

 

Introduction

 

4.1 A well qualified and appropriately experienced accountancy profession is critical for most economic activity and sustained economic development cannot be maintained without a reliable accounting framework.

 

4.2 Effective management is critical to the success of any business venture, any development initiative or project, however big or small. In most cases, management=s effectiveness is significantly reduced unless it is properly supported by a reliable accounting system that produces understandable, relevant and reliable accounting information on a timely basis. Financial information is required by management for planning, control and decision making purposes; it=s provision can only be assured through having an adequately trained and experienced nucleus of accountants having the necessary expertise.

 

4.3 In pursuance of Government=s training programmes, the need exists to produce the necessary indigenous skills to service the economy of Mongolia=s substantial current and ongoing requirements in the following sectors:

 

. Central and Local Government.

 

. State Auditing Board.

 

. Parastatal Corporations.

 

. Tertiary Education Institutions.

 

. Financial and Banking.

 

. Insurance.

 

. Private Sector including professional practicing firms.

 

4.4 In terms of meaningfully addressing Mongolia=s substantital demand for internationally qualified accountants, it is recommended that professional accountancy education should be tackled at two levels.

 

Existing Educational Institutions

 

4.5 As explained in Section A/Sub-section 7, existing educational institutions are very inadequately resourced in terms of discharging their professional obligations.

 

4.6 It is recommended that a detailed appraisal should be undertaken of these institutions in order to fully determine their specific resource requirements i.e. manpower, equipment etc. This is included as part of the Terms of Reference (Item I) for the Interim Steering Committee/ Council in Appendix 2.

 

4.7 In the light of this appraisal, it should be possible to solicit donor support in order to transcend the identified deficiencies.

 

Mongolia Centre for Accounting Studies (MCAS) - A New Initiative

 

4.8 At present, existing accountancy training institutions are not appropriately geared towards meeting the present and accelerating demand for accounting, auditing, taxation and financial management skills of the burgeoning Mongolia economy.

 

4.9 A new initiative is required from Government.

 

4.10 The priority requirement is for the establishment, as soon as possible, of an independent Mongolia Centre for Accounting Studies (MCAS).

 

4.11 MCAS should provide a suitable enabling education and training environment in order to facilitate students in acquiring internationally recognized accountancy qualifications in sufficient numbers to meet the present and future needs of the economy.

 

4.12 Implementation - Stage 1

 

Inputs

 

4.12.1 Pending the establishment of the MCAS and it=s Board of Directors/Governors, it is recommended that the proposed Interim Steering Committee/Council, as discussed in Sub-section 3.17.1 above, should also assume the responsibility for the Terms of Reference presented in Appendix 2.

 

4.12.2 UNDP will support the Government of Mongolia by providing technical assistance to the Interim Steering Committee/Council for a period of about 6 months in order to facilitate the early establishment of the MCAS and to assist the Interim Steering Committee/Council in discharging its substantial responsibilities. (It is envisaged that the technical expert will also be involved in the proposed MIA, as discussed in Sub-section 3.17.3 above).

 

4.12.3 It is recommended that a Mongolian Executive Director for the MCAS, as well as administrative and support staff, should be appointed as soon as is practically feasible by the Ministry of Finance to work Ahand-in-hand@ with the technical expert. The early active participation by citizens in the activities of the MCAS is highly desirable.

 

Monitoring and Reporting

 

4.13 At the outset, the technical expert and the Mongolian Executive Director should jointly prepare an Action Plan for consideration and approval by the Interim Steering Committee/ Council. Thereafter, they should both report jointly on a monthly basis setting out, in brief, progress against the work plan and an updated Action Plan for the remainder of the period of the technical assistance.

 

4.14 A Draft Final Report will be discussed with the Interim Steering Committee/Council during the final 3 weeks of the assignment. The Final Report, which should be completed during the final 2 weeks of the assignment, will include an Action Plan for Implementation - Stage 2, which will set out a clear sequenced timetable for implementing the recommendations, target implementation dates and monitorable milestones/yardsticks.

 

4.15 Implementation - Stage 2

 

4.15.1 It is expected that substantial technical assistance will be required during Implementation - Stage 2.

 

4.15.2 While UNDP resources are limited, they will be linked with possible inputs from ADB, GTZ, World Bank, IMF etc. Likewise, UNDP will attempt to mobilize additional cost-sharing resources.

 

Proposed Country Visits

 

4.16 It is proposed that the technical expert will organize a visit for members of the Interim Steering Committee/Council to two or three countries (e.g. UK, USA etc.) with long-established accountancy bodies, as well as to a couple of neighbouring countries with younger but well- established professional organizations (e.g. Singapore, Hong Kong, Japan, Korea). This visit should underscore technical issues and training methods. The overall aim of the visit should be to seek to reinforce an attitude change in the participants. This will be achieved through exposure to developed market economies and to the highest quality teaching methods and practical accounting techniques. An additional objective will be for members of the delegation to visit professional bodies and educational institutions, to investigate their resources and structures and to gain an understanding of the environment is which they operate.

 

5 State Auditing Board (Supreme Audit Institution)

 

5.1 In addition to the financial audit (i.e. the independent examination of financial statements for the purpose of expressing an opinion thereon), the public sector auditor must consider whether:

 

(i) expenditure is regular i.e. that it has been applied for authorized purposed (propriety) and that it conforms to the authority which governs it (conformity); and

 

(ii) due regard is paid to securing economy, efficiency and effectiveness.

 

5.2 If the State Auditing Board (SAB) is to effectively discharge the aforementioned obligations in accordance with International Auditing Standards i.e. standards as promulgated by the International Organization of Supreme Audit Institutions (INTOSAI) and the International Federation of Accountants (IFAC), it is imperative that it is suitably resourced.

 

5.3 Identification of Technical Assistance Requirements - Stage 1

 

Inputs

 

5.3.1 UNDP will support the Government of Mongolia by providing a consultant for one month in accordance with the Terms of Reference contained in Appendix 3.

 

5.3.2 It is recommended that at least two/three Mongolian Training /Technical Officers should be appointed by the SAB to work Ahand-in-hand@ with the consultant. The active participation by Training/Technical Officers in appraising the activities of the SAB, and in identifying it=s technical assistance requirements, is very desirable.

 

5.3.3 If it appears that substantial external technical assistance will be required by the SAB, as seems likely, the consultant and the Mongolian Training/Technical Officers will prepare the necessary Terms of Reference for that work. These Terms of Reference for Implementation - Stage 2 should facilitate the early identification of a willing donor and may help to expedite the implementation process.

 

Monitoring and Reporting

 

5.4 It is envisaged that the consultant and the Mongolian Training/Technical Officers will liaise with, and will report jointly and directly to, the State Auditing Board. Throughout the assignment, Progress Meetings will be held with Senior Management.

 

5.5 Implementation - Stage 2

 

5.5.1 It is expected that substantial technical assistance will be required during Implementation - Stage 2.

 

5.5.2 While UNDP resources are limited, they will be linked with possible inputs from ADB, GTZ, World Bank, IMF etc. Likewise, UNDP will attempt to mobilize additional cost-sharing resources.

 

SECTION E: PROJECT INPUTS

1 Government Inputs

 

(To be fully determined)

 

2 UNDP Inputs

 

It is estimated that UNDP inputs will be as follows:

Person Months

. Technical Expert(s) to support the proposed Steering Committee and proposed Mongolian Executive Director 8

 

. Technical Expert to support the proposed Interim Steering Committee/Council and proposed Mongolian Executive Director

 

. Consultancy in relation to the State Auditing Board, includingthe provision of counterpart training to two/three Mongolian Training/Technical Officers 1

Total Person Months 15

SECTION F: PROJECT OUTPUTS/ACTIVITIES

New Budgetary and Accounting Systems: Implementation - Stage 1

1.1 A Steering Group, comprising Senior Government Officers, will be established under the auspices of the Ministry of Finance with responsibility for directing and guiding the successful introduction of the new budgetary and accounting systems (Stage 1). Indicative Terms of Reference for the Steering Committee are contained in Appendix 1.

 

1.2 UNDP will assist the Government of Mongolia by providing technical support to the Steering Committee; it will facilitate the Committee in successfully discharging its significant obligations, including the establishment of a framework for the introduction of resource accounting and budgeting systems in Government - this is elaborated on in Appendix 1.

 

1.3 A number of public officers from the Ministry of Finance will benefit from working Ahand-in-hand@ as Project Team Members with the technical experts.

 

1.4 Throughout the assignment, the technical experts will carry out a series of Workshops for public sector accounting officers in International Accounting Standards, designed to teach the fundamentals of the Standards rather than their technical detail.

 

1.5 Throughout the assignment, a series of Workshops will also be arranged as necessary for all relevant stakeholders to help them develop the willingness and ability to operate effectively in the new environment.

 

1.6 An Action Plan for Implementation - Stage 2 will be prepared. It will set out a clear sequenced timetable for implementing the recommendations that have been approved by Government, target implementation dates as well as monitorable milestones/yardsticks, The Steering Committee will continue to be responsible for directing and guiding the implementation during Stage 2.

 

1.7 Dialogue will be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

Mongolia Institute of Accountants (MIA) and the Mongolia Centre for Accounting Studies (MCAS)

1.1 An Interim Steering Committee/Council will be established under the auspices of the Ministry of Finance. The Committee will be comprised of senior accountancy personnel from the public, parastatal and private sectors.

 

1.2 The UNDP technical support to the Interim Steering Committee/Council will facilitate the early establishment of the Mongolia Institute of Accountants (MIA) by Act of Parliament and will assist the Interim Committee/Council in discharging it=s substantial responsibilities - this is elaborated on in Appendix 2.

 

1.3 The MIA will be modelled on international accountancy bodies elsewhere. It=s establishment will provide a statutory basis for formally regulating the accountancy profession in Mongolia as well as a structured framework within which the effective education and training of Mongolians can take place.

 

1.4 The UNDP technical support to the Interim Steering Committee/Council will facilitate the early establishment of the Mongolia Centre for Accounting Studies (MCAS), which will be modelled on international accountancy colleges elsewhere - this is elaborated on in Appendix 2. In time, MCAS will provide a suitable enabling education and training environment in order to facilitate students in acquiring internationally recognized accountancy qualifications in sufficient numbers to meet the present and future needs of the economy.

 

1.5 The proposed Mongolian Executive Directors of the MIA and MCAS, as well as the administrative and support staff, will benefit from working Ahand-in-hand@ with the technical expert.

 

1.6 Throughout the assignment, Workshops will be arranged as necessary for all relevant stakeholders.

1.7 The technical expert will organize a visit for members of the Interim Steering Committee/Council to two or three countries (e.g. UK, USA etc.) with long-established accountancy bodies, as well as to a couple of neighbouring countries with younger but well- established professional organizations (e.g. Singapore, Hong Kong, Japan, Korea).

 

1.8 An Action Plan for Implementation - Stage 2 will be prepared. The Interim Steering Committee/Council, in conjunction with the Executive Directors, will continue to be responsible for directing and guiding the implementation during Stage 2, pending the appointment of the Council of the MIA and the Board of Directors/Governors of the MCAS.

1.9 Dialogue will be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

State Auditing Board (SAB)

1.1 A comprehensive appraisal of the SAB will be undertaken jointly by the consultant and the proposed two/three Mongolian Training/Technical Officers - with the help, guidance and support of the SAB - in accordance with the Draft Terms of Reference outlined in Appendix 3. Throughout the assignment, Progress Meetings will be held with Senior Management.

 

1.2 Arising from the appraisal, the SAB=s technical assistance requirements will be established for the many salient areas of activity enumerated in Appendix 3.

 

1.3 The Mongolian Training/Technical Officers will benefit from working Ahand-in-hand@ with the consultant.

 

1.4 If appropriate, as seems quite likely, Draft Terms of Reference will be prepared jointly by the consultant and the Mongolian Training/Technical Officers for Implementation - Stage 2.

 

1.5 If appropriate, dialogue will be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

 

SECTION G: MONITORING AND REPORTING

1.1 Monitoring and reporting arrangements have been previously outlined as follows:

 

New Budgetary and Accounting Systems: Section D/Sub-sections 2.10 to 2.12 inclusive.

Mongolia Institute of Accountants (MIA) - Section D/Sub-sections 3.18 to 3.19 inclusive; and the Mongolia Centre for Accounting Studies (MCAS): Section D/Sub-sections 4.13 to 4.14 inclusive.

State Auditing Board (SAB): Section D/Sub-section 5.4.

 

SECTION H: RISKS

1.1 The project is subject to the risks faced by all technical assistance projects in Mongolia, such as the availability of qualified national project staff, the absorptive capacity of the Ministry of Finance and the State Auditing Board in executing project activities, and the availability of Government cash or donor funds for future project implementation. However, in this case, the National Governance Programme approved by a Resolution of Parliament and headed by a high-level oversight committee - composed of the Speaker of Parliament, the Chief of the Cabinet Secretariat, the Chief of the Office of the President and the Ministers of Finance and Justice - is an important risk-reducing factor. This unprecedented level of political leadership will provide the project with a pro-active capacity to influence and redress risk situations as, or even before, they develop.

 

SECTION I: LEGAL ASPECTS

1.1 This project document shall be the instrument referred to in Article 1 of the Standard Basic Assistance Agreement between the Government of Mongolia and the United Nations Development Programme, signed by the parties 28 September, 1976. The host country implementing agency shall, for the purposes of the Standard Basic Assistance Agreement, refer to the government co-operating agency described in that Agreement.

 

1.2 The following types of revisions may be made to this project document with the signature of the UNDP Resident Representative, provided he or she is assured that the new other signatories of the project document have no objections to the proposed changes:

 

a) Revisions in, or addition of, any of the annexes to the document;

 

b) Revisions which do not involve significant changes in the immediate objectives, outputs or activities of a project but are caused by the re-arrangement of outputs already agreed to or by cost increases due to inflation;

 

c) Mandatory annual revisions which rephase the delivery of agreed project outputs or which reflect increased costs due to inflation, or which take into account agency expenditure flexibility.

 

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SECTION J: BUDGET - US DOLLARS 250,000

NOTE:

 

In view of the scope and depth of the assignments, and and in terms of ensuring that the work done is comprehensive and to an internationally acceptable standard, it would be desirable if the budget allocation for items 1 and 2 could be increased by about 50% i.e. a total of $250,000 + 50% x ($120,000 + $90,000) = $250,000 + $105,000, a total of $355,000.

 

APPENDIX 1: DRAFT TERMS OF REFERENCE FOR THE STEERING COMMITTEE: NEW BUDGETARY AND ACCOUNTING SYSTEMS, INCLUDING ORGANIZATION AND STAFFING

  

A Steering Committee, comprising Senior Government Officers, should be established as soon as is practically feasible by the Ministry of Finance with the responsibility for directing and guiding the successful introduction of the new budgetary and accounting systems. During this Stage i.e. Implementation - Stage 1, the Steering Committee should be responsible for setting the foundations and framework for a large scale implementation Project i.e. Implementation - Stage 2. The Steering Committee will be supported by a Project Team consisting of UNDP technical support as well as a number of public sector officers appointed by the Ministry of Finance. The responsibilities of the Steering Committee during Stage 1 will be:

1 Development of a Framework Strategy for Change

 

1.1 The introduction of Resource Accounting and Budgeting (RAB), if it is to deliver the full benefits to the Government of Mongolia, must be considered and treated as a major change programme. As such, a Framework Strategy for Change should be developed. It=s overall aims may include:

 

. To develop awareness of the aims and objectives of the RAB Programme for all those affected by it=s introduction;

 

. To provide the necessary information to allow finance and non-finance staff to understand the implications of the change on their daily work, including training and performance measurement;

 

. To provide the necessary training to enable finance staff to generate the new accounts and others to use the information provided; this will include not only skills training but also new ways of working and job descriptions;

 

. To ensure that the necessary support is available during the introduction of RAB to enable staff to effectively carry out their jobs;

 

. To provide appropriate communications to all staff on the RAB Programme and it=s progress.

 

1.2 In order to meet these aims, an integrated programme consisting of awareness, education, training, support and communications must be devised to help staff develop the willingness and ability to operate effectively in the new environment.

 

2 Workshops

 

2.1 As an integral part of the Framework Strategy for Change, a series of Workshops should be arranged as necessary for all relevant stakeholders.

 

2.2 Also, a series of Workshops in International Accounting Standards for public sector accounting officers will be given by the UNDP technical experts, designed to teach the fundamentals of the Standards rather than their technical detail.

 

3 Project Team

 

3.1 Clearly define the Project=s goals, objectives, scope and planning assumptions.

 

3.2 Identify Project Team members and structure and define appropriate roles and responsibilities.

 

3.3 Define project management practices, including monitoring and reporting.

 

3.4 Develop a detailed Action Plan.

 

3.5 Identify project risks and risk management procedures.

 

4 Accountability Model

 

4.1 The four elements of the accountability model in New Zealand, on which the reforms in Mongolia are expected to be based, are:

 

. clear Aex ante@ specification of the performance required of chief executives;

. devolution of decision-making authority to give chief executives control over the acquisition, utilisation, disposal and mix of inputs;

. incentives for chief executives to act in the Government=s interests;

. Aex post@ reporting of actual performance against specification.

 

4.2 Each of these four elements must be comprehensively addressed and defined by the Steering Committee for the Mongolian environment.

 

5 Underpinning Concepts

 

5.1 As happened in New Zealand, several fundamental concepts are likely to underpin the reform process in Mongolia, including distinctions between:

 

. inputs, outputs and outcomess;

. purchaser and owner;

. the Government and Departments.

 

5.2 Each of these concept/distinctions must be comprehensively addressed and defined by the Steering Committee for the Mongolian environment.

 

6 Financial and Management Reporting

 

6.1 Identify the Financial and Management Reports/Statements that Departments will be expected to produce following the introduction of RAB. Also, determine the format and content of these Reports/Statements as well as the frequency of their production. Is it the intention of Government to produce Whole of Government Accounts, or will initial efforts focus on successfully implementing RAB at the Departmental level only?

 

6.2 Identify and document the present budgetary and accounting systems and procedures. Assess existing strengths and weaknesses and implementation issues. Also, identify the financial and management accounting practices and procedures that must be developed in order to produce the Financial and Management Reports/Statements referred to in 6.1 above.

 

6.3 Fully document all financial and management accounting practices and procedures for RAB by preparing a comprehensive Resource Accounting and Budgeting Manual. The over-arching objective of this Manual will be to set out the principles and policies that will be applicable to RAB and to assist Departments in the preparation of Resource Accounts. It is imperative that this RAB Manual is kept up to date.

 

7 Addressing Technical Accounting Issues

 

7.1 An Action Plan for the implementation of International Accounting Standards in the public sector, adapted as necessary for Mongolia, must be developed.

 

7.2 Some of the other technical issues that will require action include Ainter alia@:

 

. the treatment of fixed assets, in particular such problem categories as:

 

- heritage assets i.e. assets which will be maintained in perpetuity. What about the national archives?

 

- infrastructure assets e.g. roads and rail networks;

 

- military assets.

. nature of the audit opinion: APresents Fairly@ versus ATrue and Fair@;

. the treatment of long-term liabilities, in particular employee pension costs;

. the definition of the Departmental boundary i.e. the reporting entity;

. capital charging - is it the intention to develop mechanisms whereby Departments will be charged for the cost of their capital employed? What basis of charging will be used (e.g. notional charge or a cash charge)?

32

8 Regulatory and Legislative Reform

 

8.1 Establish the extent to which the Budget Law, other legislation (including auditing) and regulations will require amendment to accommodate the requirements of RAB.

 8.2 Draft the necessary amendments to the legislation and regulations.

 

9 Financial and Management Information Systems (F&MIS) Strategy

 

9.1 Identify, document and evaluate the scope and capability of existing computerised systems, resources and procedures to adequately accommodate and/or adapt to the functionality of the new budgetary, accounting and reporting procedures.

 

9.2 As appropriate, develop and document an overall F&MIS Strategy, which should interface with Government of Mongolia=s Public Management Information System.

 

9.3 As appropriate, identify and procure hardware/software requirements for Project implementation.

 

10 Organization and Staffing

 

10.1 Identify, document and evaluate the present institutional and staffing structures. Identify existing strengths and weaknesses and implementation issues.

 

10.2 Review the skill requirements for personnel at various levels to operate the new budgetary and accounting systems and procedures as well as institutional and staffing structures.

 

10.3 Assess the existing and proposed formal and informal training in the fields of accountancy, information technology and internal audit; recommend improvements and/or changes in line with the envisaged skills requirements.

 

10.4 Prepare a comprehensive Training and Development Plan.

 

11 Internal Audit

 

11.1 Appraise and recommend on the adequacy of the Internal Audit service to Ministries.

 

11.2 Identify existing operating constraints and make recommendations to overcome them.

 

12 Implementation - Stage 2

 

12.1 An Action Plan for Implementation - Stage 2 must be prepared. The Action Plan will set out a clear sequenced timetable for implementing the approved recommendations, target implementation dates and monitorable milestones/yardsticks.

 

12.2 The Steering Committee will continue to be responsible for directing and guiding Project implementation during Stage 2.

12.3 During Implementation - Stage 1, dialogue should be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

 

 APPENDIX 2: DRAFT TERMS OF REFERENCE FOR THE INTERIM STEERING COMMITTEE/COUNCIL: THE MONGOLIA INSTITUTE OF ACCOUNTANTS (MIA) AND THE MONGOLIA CENTRE FOR ACCOUNTING STUDIES (MCAS)

An Interim Steering Committee/Council should be established as soon as is practically feasible under the auspices of the Ministry of Finance with the responsibility for directing and guiding the accountancy profession during the transitional period. The Committee/Council should comprise senior accountancy personnel from the public (including educationalists), parastatal and private sectors. During this Stage i.e. Implementation - Stage 1, the Committee/Council should be responsible for setting the foundations and framework for a large scale implementation Project i.e. Implementation - Stage 2. The Interim Steering Committee/Council will be supported by a UNDP technical expert, Mongolian Executive Directors for the MIA and MCAS, as well as administrative and support staff. The specific responsibilities of the Committee/Council during Stage 1 will be:

Mongolia Institute of Accountants (MIA)

 

(A) The appointment of a Mongolian Executive Director as well as administrative and support staff, having prepared substantive Terms of Reference for all positions.

 

(B) The preparation of the Draft Accountants Act/Bill in order to accelerate the establishment of the MIA by Act of Parliament; the MIA should be the sole body responsible for the development and regulation of the accountancy profession in Mongolia.

 

(C) The development of proposals regarding the Rules, Regulations and Bye-laws under which the MIA will operate, and the necessary management and administration structures to implement them.

 

(D) The development of strict Codes of Behaviour for members, together with enforcement procedures. Such Codes will be linked to the practical and legislative environment. A structure must also be established whereby members, if they do not observe the Codes, can be disciplined in a manner which will both protect the public interest and safeguard members= own rights.

 

(E) The formal adoption by the MIA of IFAC, IASC and INTOSAI Standards. Members of the MIA will be expected to observe these Standards.

 

(F) The establishment of Examination and Qualification Procedures, including the drafting of syllabi, and the definition of categories of membership; examination linkages with an internationally acceptable accountancy body should, if possible, be established.

 

(G) Determination of membership responsibilities for the MIA and related mechanisms for determing who may be awarded membership; registration procedures and fees payable; the use of titles and designatory letters etc.

 

(H) The establishment of lines of communication between the MIA and current and proposed training institutions, including exemption policies. Representatives of the professional body should have an input into the content of degree and other courses offered in Mongolia.

 

(I) Arising from Section D/Sub-section 4, Paragraph 4.6, to undertake an appraisal of existing accountancy training institutions in order to fully determine their resource requirements (e.g. manpower, equipment etc.); also, to explore the possibility of securing donor support in order to transcend the identified deficiencies.

 

(J) The development of external relations with other professional organizations, regionally and internationally e.g. IFAC/IASC, CAPA, INTOSAI etc.

 

(K) Advice on how the MIA can establish a programme of support designed to reinforce the quality of its services to members and to assist them in maintaining an appropriate level of professional and technical competence.

 

(L) Sundry administrative matters including: Institute Logo, Institute Seal, design of various forms and certificates (e.g. application form, membership certificate, practicing certificate etc.), register of students and members, filing and administration procedures, P O Box, telephone, fax, E Mail etc.

 

(M) To identify the facilities required by MIA.

 

(N) Throughout the assignment, Workshops will be arranged as necessary for all relevant stakeholders.

 

(O) Implementation - Stage 2

 

An Action Plan for Implementation - Stage 2 will be prepared.

 

The Interim Steering Committee/Council, in conjunction with the Executive Director, will continue to be responsible for directing and guiding the implementation during Stage 2, pending the appointment of the Council of the MIA.

 

Dialogue will be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

 

 

Mongolia Centre for Accounting Studies (MCAS)

 

(A) To determine the most appropriate legal structure for MCAS e.g. perhaps, a company limited by guarantee.

 

(B) To determine the organizational structure, including the Board of Directors/Governors and reporting relationships, for MCAS.

 

(C) The appointment of a Mongolian Executive Director as well as administrative and support staff, having prepared substantive Terms of Reference for all positions.

 

(D) To identify the facilities required by MCAS:

 

. Buildings - including classrooms, library, offices, residential facilities for students, restaurant etc.

. Furniture and equipment - including computers for students, lecturers and administration.

. Transport.

. Educational materials, including translation requirements.

 

(E) To determine professional staffing requirements.

 

(F) Following consultation with employers, to establish the structure and Amodus operandi@ of educational programmes e.g. full-time, part-time, evening, day-release, correspondence, block release etc.

 

(G) To promote advertising and publicity for MCAS, by preparing a prospectus and liaising with employers in the public (including educational institutions), parastatal and private sectors.

 

(H) To establish administrative procedures regarding the enrolment of students e.g. enrolment forms, fees payable, admission criteria, exemption policies etc.

 

(I) Throughout the assignment, Workshops will be arranged as necessary for all relevant stakeholders.

 

(J) Implementation - Stage 2

 

An Action Plan for Implementation - Stage 2 will be prepared.

 

The Interim Steering Committee/Council, in conjunction with the Executive Director, will continue to be responsible for directing and guiding the implementation during Stage 2, pending the appointment of the Board of Directors/ Governors of the MCAS.

Dialogue will be established with prospective sponsors with a view to securing funding for the implementation of Stage 2.

 

 APPENDIX 3: DRAFT TERMS OF REFERENCE: CONSULTANCY TO REVIEW THE STATE AUDITING BOARD (SAB)

A comprehensive appraisal of the SAB will be undertaken jointly by the consultant and the proposed two/three Mongolian Training/Technical Officers - with the help, guidance and support of the SAB. Specifically, the evaluation will seek:

Identification of Technical Assistance Requirements - Stage 1

 

(A) To fully determine the present Amodus operandi@ of the SAB.

 

(B) To evaluate the efficacy of the SAB in practice.

 

(C) To determine whether the audit report of the SAB has sufficient added-value to contribute to the enhancement of financial control in Government.

 

(D) To identify and quantify the SAB=s technical assistance requirements. Specifically, to determine whether external technical support is required in relation to the following:

 

. Staff training and development.

. The practical application of International Auditing Standards as promulgated by INTOSAI and IFAC (including the translation of those pronouncements).

. The deployment of computers in auditing including computer assisted auditing techniques (CAATs).

Value for Money Auditing (economy, efficiency and effectiveness).

. Statistical sampling techniques.

. The development of procedures manuals and the use of standardized working papers.

. Audit management, including quality control procedures, and administration.

. Audit Reporting, including qualifications and the disclaimer of opinions.

 

(E) Throughout the assignment, Progress Meetings will be held with Senior Management.

 

Implementation - Stage 2

 

(F) If it appears that substantial external technical assistance will be required by the SAB, as seems likely, the consultant and the Mongolian Training/Technical Officers will prepare the necessary Terms of Reference for that work. These Terms of Reference for Implementation - Stage 2 should facilitate the early identification of a willing donor and may help to expedite the implementation process.