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Strengthening Public Financial Management and Accountability and Managing Fiduciary Risk

Department for International Development  (2002)
7 pages (28.5KB)

The capacity of the state to raise resources, use them productively, and to account to citizens for their use are basic requirements for sustainable development. This DFID paper sets out a strategy for assistance in strengthening public financial management, accountability and managing fiduciary risk. Recent developments, worldwide, have highlighted the weak state of public financial management in the poorest countries. The process of developing and implementing poverty reduction strategies has focused attention on the budget as the central tool whereby governments translate policies and strategies into investment in pro-poor growth and service delivery. The developmental gains from improvements in the management of government resources are potentially huge. The challenge facing developing countries and donors is substantial and includes issues of fiduciary risk for donors seeking to channel money through government systems.

Past attempts at reform have had mixed results. Solutions have centred on measures such as revised budget classifications, computerised information systems and financial management training. In addition:

  • Evaluations of past reform efforts suggest that impact is likely to improve if DFID adopts a more holistic approach to public finance reform which (1) secures both political and bureaucratic leadership, (2) changes the incentives and behaviour of public officials, (3) increases public participation, and (4) promotes less complex technical solutions
  • Public finance issues need to be better integrated into poverty reduction strategies and donor assistance strategies, and reflected in monitoring arrangements for direct budget support operations. A substantial effort is needed to persuade donors to harmonise around country systems and to put in place new arrangements to ensure the effective use of both donor and country funds
  • The strategy is designed around three principle objectives which support increased aid effectiveness to (1) improve the quality of public financial management and accountability in poor countries, (2) reduce the transaction costs of aid, and (3) reduce the fiduciary risk to DFID funds.

The following are suggested as priority areas for action:

  • Implementing the new policy on fiduciary risk management in DFID, including risk assessment and the use of “safeguards”
  • Influencing donor practices in the area of financial management and accountability, with the objective of enhancing impact and reducing transaction costs
  • Improving the impact of Technical Assistance
  • Improving and expanding DFID’s access to financial management expertise
  • Experience suggests that a more holistic approach to public finance and accountability is needed to improve DFID’s impact
  • Traditionally, these issues have been dealt with as governance issues, but experience has demonstrated the value of bringing a broader set of perspectives to bear, including those of (1) political scientists, (2) macro-economists, (3) procurement experts, (4) social scientists, and (5) statisticians.

Source: DFID 2002, Strengthening Public Financial Management and Accountability and Managing Fiduciary Risk, Department for International Development, London.

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