Public Expenditure Tracking Survey

84 Pages·2016·2.39 MB·English

Final Report
Public Expenditure Tracking Survey (PETS)

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May 2016
Final Report
Public Expenditure Tracking Survey (PETS)
Table of Contents

Preface i
Acknowledgments ii
Executive Summary iii
Section 1. Introduction 5
Chapter 1. Assignment Objectives, Methodology and Sources 6
1.1. Objectives of PETS 6
1.2. Methodology for PETS 6
1.3. Data Sources 7
Chapter 2. Diagnostic of Public Financing in Higher Education Sector 9
2.1. Macro Review of Higher Education In Pakistan 9
2.2. PFM Landscaping 11
Chapter 3. PETS Exercise 18
3.1. General Characteristics of Data 18
3.2. Data Inconsistencies 18
3.3. Contribution made by PETS 18
3.4. Tracking of Expenditures 19
3.5. Quality Enhancement Cell 22
3.6. Cost Per Student 22
Section 2. Findings 28
Chapter 4. Information, Reporting and Monitoring Mechanism 29
4.1. MIS 29
4.2. Budgeting 30
4.3. Accounting and Reporting 30
4.4. Utilization Reports and Variance Analysis 31
4.5. External Audit 32
4.6. HEC Supervision 32
Chapter 5. Institutional Capacity 33
5.1. Governance 33
5.2. Internal Audit 34
5.3. HR Capacity 35
5.4. Procurement 37
Section 3. Conclusion & Recommendation 39
Chapter 6. Recommendations in the light of PETS 40
HEIs Centered 40
HEC Centered 41
Chapter 7. Balance Scorecard 43
7.1. The Four Quadrants 43
7.2. Application of Balance Scorecard 44
7.3. Universities that benefited from BSC Application 44
7.4. Application of Balance Scorecard on HEIs 45
Chapter 8. Steps for Development of MIS Model 49
Chapter 9. Governance Model 52
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Final Report
Public Expenditure Tracking Survey (PETS)
List of Tables
Table 1: List of Sample HEIs ....................................................................................................................................................................................... 8
Table 2: Number of Asian universities in global ranking of 701+Score............................................................................................................. 10
Table 3: Share of Tertiary Education Exp in GDP - Pakistan ............................................................................................................................. 11
Table 4: Recurring Grant in MTDF-II ................................................................................................................................................................ 12
Table 5: Development Grant in MTDF-II ............................................................................................................................................. 12
Table 6: Budget Process Case Study of University of Agriculture Faisalabad ................................................................................................... 13
Table 7: Variance of Budgeted and Actual Receipts – FY 2013-14 ..................................................................................................................... 14
Table 8: Variance of Budgeted and Actual Grants – FY 2013-14 ....................................................................................................................... 14
Table 9: Variance of Budget and Actual Own Income – FY 2013-14 ................................................................................................................ 15
Table 10: Segregation of Establishment Charges – FY 2013-14 .......................................................................................................................... 19
Table 11: Composition of Non-salary expenditures FY 2013-14 ........................................................................................................................ 21
Table 12: Research Expenditure - Budgeted and Actual FY 2013-14 ................................................................................................................. 22
Table 13: Internal Quality Assurance of HEIs (Performance year 2013-14) ..................................................................................................... 22
Table 14: Cost per Student - Discipline Wise FY 2013-14 (PKR) ....................................................................................................................... 24
Table 15: Cost per Student - Cadre Wise FY 2013-14 (PKR) .............................................................................................................................. 25
Table 16: Teaching Faculty cost %age of Total Discipline cost FY 2013-14 .................................................................................................... 26
Table 17: Faculty to Student Ratio FY 2014 – 15 ................................................................................................................................................... 27
Table 18: MIS of sample HEIs ................................................................................................................................................................................... 29
Table 19: Financial Reporting in HEIs ..................................................................................................................................................................... 31
Table 20 : Composition of member of Governing Bodies for the period FY 2013-2014 .............................................................................. 34
Table 21: Internal Audit in HEIs ............................................................................................................................................................................... 35
Table 22: Percentage of Vacant Positions in HEIs 2013-14 ................................................................................................................................. 36
Table 23: Faculty of HEIs 2013-14 ........................................................................................................................................................................... 36
Table 24: System Observations of Procurement in HEIs 2013-14 ..................................................................................................................... 38
Table 25: Customer Perspective Balance Scorecard KPIs .................................................................................................................................... 43
Table 26: Financial Perspective of Balance Scorecard ........................................................................................................................................... 44
Table 27 : Balance Scorecard applied to HEIs ........................................................................................................................................................ 45
Table 28: Inadmissible Allowances Status in Sample Universities ....................................................................................................................... 60

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Final Report
Public Expenditure Tracking Survey (PETS)
List of Figures
Figure 1: Execution Framework................................................................................................................................................................................... 6
Figure 2: Higher Education Institutions- Pakistan ................................................................................................................................................... 9
Figure 3: Student Enrolment in HEIs ......................................................................................................................................................................... 9
Figure 4: Faculty Strength in HEIs ............................................................................................................................................................................ 10
Figure 5: PhD Output by Pakistani HEIs ................................................................................................................................................................ 10
Figure 7: Education Expenditure as % of GDP - Pakistan .................................................................................................................................. 11
Figure 8: Elements of PFM ....................................................................................................................................................................................... 12
Figure 9: Budgeting Process for HEIs ...................................................................................................................................................................... 13
Figure 10: Establishment Charges to Total Exp – FY 2013-14 ........................................................................................................................... 19
Figure 11: Share of pay and allowances in Establishment Charges – FY 2013-14 ........................................................................................... 20
Figure 12: Share of Non-Salary Expense in Total Expenditure FY 2013-14..................................................................................................... 20
Figure 13: Frequency of Meetings of BOT/Senate for the period FY 2013-2014 ........................................................................................... 33
Figure 14: Frequency of Meeting of BOG/Syndicate for the period FY 2013-2014. ...................................................................................... 34
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Final Report
Public Expenditure Tracking Survey (PETS)
List of Annexure
1. Comments Received on Draft Report and Responses Provided by the Consultant
2. Supplementary Information Emerging from the Survey
3. Terms of Reference
4. Control Checklist
© 2016 Grant Thornton International Ltd. All rights reserved.
Final Report
Public Expenditure Tracking Survey (PETS)
Acronyms
AGPR Accountant General of Pakistan Revenue
BCC Budget Call Circular
BOG Board of Governors
BOT Board of Trustees
BPS Basic Pay Scale
DFA Deputy Financial Advisor
DFD Data Flow Diagram
DAI's Degree Awarding Institutions
FA Financial Advisor
GTCPL Grant Thornton Consulting Private Limited.
HEC Higher Education Commission
HEI Higher Education Institute
HR Human Resource
HRM Human Resource Management
IAS International Accounting Standards
IBC Indicative Budget Ceiling
IFRS International Financial Reporting Standards
IPSAS International Public Sector Accounting Standards
KPIs Key Performance Indicators
MoPD Ministry of Planning & Development
MTBF Medium Term Budgetary Framework
MTDF-HE Medium Term Development Framework for Higher Education
MIS Management Information System
MoF MoF
NAM New Accounting Model
NEC National Economic Council
ORIC Office of Research, Innovation & Commercialization
P&D Planning and Development
PETS Public Expenditure Tracking Survey
PFM Public Financial Management
PPRA Public Procurement Regulatory Authority
PSDP Public Sector Development Program
QAA Quality Assurance Agency
QEC Quality Enhancement Cell
TESP Tertiary Education Support Program
TOR Terms of Reference
TRP Technical Review Panel
TTS Tenure Track System

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Final Report
Public Expenditure Tracking Survey (PETS)
Preface
Public Expenditure Tracking Survey (PETS) is an instrument to track the public funding at various stages in order to enhance
transparency, efficiency and effectiveness regarding the policy objectives of the expenditure concerned. PETS, an instrument
in a broader context of Public Finance Management (PFM) is a useful tool for diagnostic purposes that offers opportunities
for analysis at various layers to identify the main bottlenecks in the existing system and used in planning and execution of
allocated resources towards targeted improvements.

To address challenges in higher education in the country, the Government of Pakistan established Higher Education
Commission (HEC) as a body corporate in 2002 with the declared intention of reforming and expending the higher education
sector to make Higher Education Institutes (HEIs) more relevant to the need of the 21st century. HEC developed the Medium
Term development Framework for Higher Education [MTDF-HE I], which outlined development priorities for 2005-2010.
The framework focused on measures to increase access, improve the quality and relevance of learning and research, and
strengthen governance and management. As per MTDF-HE II, Interventions introduced by MTDF-HE I were largely met as
higher education sector experienced unprecedented expansion and improvement in quality of learning, however there were
still a large and unfinished reform agenda. Subsequent to MTDF-HE I, HEC presented MTDF-HE II (2011-2015) with overall
focus to enhance the capacity of Pakistani institutions of higher learning to produce high quality graduates, support innovation,
and improve the overall governance and management of the higher education sector.

Tertiary Education Support Program (TESP) is a World Bank funded project with the objective to improve the conditions of
teaching, learning and research for enhanced access, quality and relevance of tertiary education. One of the important pillars
of TESP was Improvement of Fiscal Sustainability and Expenditure Effectiveness. The sustainability of public expenditures
on tertiary education is a core objective of TESP.

One of the key components of MTDF-HE II was Financial Management & Sustainability. Under this component
HEC embarked upon reforms to improve the financial management and accounting systems across the higher
education sector in order to enhance transparency, quality and reliability of financial information and
comprehensiveness as well as timeliness in financial reporting. One of the objectives under this component of
MTDF-HE II was to commission a PETS to identify inefficiencies, bottlenecks and institutional obstacles between
the sources of funds and the points of delivery.

Where sufficient funds are needed by HEC to implement the MTDF, HEC also needs to demonstrate effective and
efficient use of the funds allocated and released. Against this background, it was decided that a Public Expenditure
Tracking Survey would be completed, forming the basis for launch of this current exercise being led and implemented
by Grant Thornton Consulting Pvt. Ltd. (GTCPL).

i
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Final Report
Public Expenditure Tracking Survey (PETS)
Acknowledgments
GTCPL wishes to express their appreciation for the support and interest received from the HEC and TESP Unit as the main
counterpart for the project, especially in arranging and assuring the extended participation of the officials from the
Commission and Universities. Additionally we would like to acknowledge support extended by Ministry of Finance (MoF)
and AGPR for their cooperation to document funds flow process.

The genuine interest and insight of the members of Steering Committee of HEC for this project were not only rewarding, but
inspiring that enriched the understanding of the team, and guided us at each stage. The comments on the draft set of
deliverables were very helpful to align our efforts towards this final version. The team wishes to extend their gratitude. The
efforts of the survey implementing team leads and members at GTCPL are duly appreciated.

A special note of thanks for the Counterpart team at HEIs for staying closely engaged, enthusiastic and responsive in provision
of key information/documents. We hope that the recommendation put forth shall be helpful in achieving their targets and
objectives.

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Final Report
Public Expenditure Tracking Survey (PETS)
Executive Summary
In response to the efforts regarding implementation of Government's Higher Education Reforms program, as a part of the
second MTDF for Higher education (2011-2015), HEC and the World Bank jointly initiated TESP. The purpose of the
program is to enhance the capacity of Pakistani institution of higher learning to produce high quality graduates; support
innovation and improve the overall governance and management of higher education sector which is one of the common (italics) set of
agenda in MTDF HE I and MTDF HE II and way forward for MTDF HE III as well.

GTCPL was mandated by HEC to carry out PETS in order to document the efficiency in allocation and use of the funds
received by HEIs with a special focus on funds channeled through HEC. Key areas assessed at HEIs level included
Governance, Financial Management and Budgeting, Accounting and Reporting, Internal Audit, Human Resource,
Procurement and MIS.

Over the period of 6 years starting from 2008-09, higher education institutions in the country have increased by 60% at an
annual growth rate of 10% each year. Students Enrollment and Number of PhDs produced by the country also shows upward
trend in the last decade with achievement of MTDF II target of Producing 1000 PHDs per year since 2011 onwards. However,
spending on tertiary education as a share of GDP as well as share of total education expenditure has declined in 2013-14 as
compared to 2010-11 from 0.24% to 0.21% and 11% to 8% respectively. Per student spending trends declined from Rs. 38,928
to Rs. 30,546 during this period. Funds allocated for MTDF-1 were 31.61% less than those projected i.e. Rs. 175.33 billion
against the projected figure of Rs. 256.38 billion.

Funding of HEIs are derived through two avenues i.e. allocation from the federal government, as well as provincial
governments in rare instances, against the annual budget; and income from HEIs’ internal resources. Both sources are utilized
to meet the expenditures for operations of HEIs while these expenditures are broadly categorize as Establishment and Non
establishment charges. PETS exercise revealed that on average, income from own sources of sample universities constitute
49% of their total receipts which makes the portion of HEC grant for university funds just above 50%. Substantial portion of
the budget of universities is spent on establishment charges. In 2013-2014, on average 52 percent of the total receipts from
recurrent grants from HEC are allocated to salaries (employee related expenses) while this ratio goes to 56 % on average if we
compare it with total expenditure of universities including income generated from own sources. The selected universities also
differ in terms of the allocation for non-salary items with average spending amounting to 44% of their total expenditure on
non-salary and as low as below 2% average spend on research. Cost per Student both discipline and cadre wise shows
variations. Average cost per student based on the sample HEIs was driven equal to PKR. 140,609 while discipline-wise average
cost per student was calculated equal to PKR. 128,069.

PETS exercise has contributed in tracking of the public expenditure and identifying the bottlenecks in the broader context of
PFM; whilst survey effectively tried to establish a link between the goals of MTDF II and its implementers i.e. HEC and HEIs.
The exercise succeeded in identifying the key discrepancies and also enhanced the understanding of the potential leakages,
institutional and human resource bottlenecks and system inefficiencies in planning, allocating and executing of public funds
at various levels.

Overall recommendations have been framed in line with results of PETS exercise which shall form implementation roadmap
for the HEIs and HEC. Through identification of bottlenecks and system constraints at various levels we have tried to establish
a linkage of the triangle MTDF as policy, HEC as implementer and HEIs as ultimate beneficiaries. These stakeholders need
to follow a phased process of reforms introduction, legislation and implementation under MTDF HE-III through following
set of key recommendations:

- Although the statutes of HEIs identifies the roles & responsibilities of the governing bodies however their effective role
in budget preparation, linking budgeting activity with long term business planning and MTBF, empowering finance and
planning committee, compliance with NAM, scrutiny of utilization reports and variance analysis, external and internal
audit to follow risk based auditing practices & independent reporting to hierarchy are some of the key recommendation
to strengthen budgeting, accounting and supervision mechanism at HEIs. To increase transparency and effective
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Final Report
Public Expenditure Tracking Survey (PETS)
disclosure of state of affairs at HEIs, minutes or decisions of key meetings, be placed on the website of the university,
must be communicated to HEC and should be made available to relevant stakeholders upon request.

- Since MTBF is an approach to budgeting that integrates policy-making, planning and budgeting within a medium-term
framework it is essential for the HEIs to align their budget estimates with IBC issued by MoF in line with MTBF. The
Finance Planning (F&P) Committee is a recommending body and the budget requires approval of the Syndicate/BOG as
per statutes of the Universities. This must be ensured and release of HEC recurring grant be linked to it.

- A comprehensive plan for adoption of NAM should be drawn by the HEIs. Preparation of financial statements by
Professional Accountants (considering system/capacity constraint of HEIs) will result in presenting the accounts in a
more professional way and more reliance on the same can be made as this practice reduces the possibility of a material
misrepresentation of financial information by the university. External audit of the universities shall be carried by
Professional Accountants.

- There should be an internal audit department reporting directly to those charged with governance of the HEI in order to
ensure its independence. Risk based post audit approach should be applied in a formalized manner by documenting high
risk areas and regular updating in light of changing conditions. Formal reports should be prepared with proper
documentation of all internal audit observation, issues resolved or any pending issues.

- Annual Planning, indexing total procurement transactions, development of complaint management system, non-
conflicted and dedicated staff deployment and contract administration and supervision should be ensured to strengthen
institutional capacity of the HEIs in the area of procurement.

- MIS at HEIs should be integrated capable of generating standardized reporting by HEIs to HEC, tailored specifically to
the HEIs needs, developed on the basis of suggested model and key steps as spelled out by PETS exercise.

- HR Capacities needs to be geared up for succession planning, establishing JDs and visiting faculty records and payments.

- Long term business planning at HEIs should be aligned with the overall objectives of institutions. Such a document shall
also help universities to implement and monitor its performance on Balance Scorecard Model, moreover activity based
budgeting and cost accounting shall also be ensured. HEIs need to gear up their efforts for application Balance Score
Card (BSC) Model at their universities with clear definition of overall vision and mission of the HEI, duly supported by
goals and Key Performance Indicators (KPIs) of the four perspectives of BSC Model i.e. Financial-Financially strong,
Customer Perspective-Making customers(employers) happy Internal Perspective-Operational excellence and Learning and
Growth Perspective. A plan of implementation shall be agreed by all the stakeholders with defined responsibilities and
implementation at HEIs within one year from launch.

HEC as well as the Universities should have budget monitoring cell in place to ensure regular budget monitoring. Budget
variance reports should be submitted to higher management on a regular basis to ensure compliance of budget. Representation
of HEC at HEIs through suitable nominee/expert must be made mandatory through participation at key board meetings.
HEIs funding formula to be rationalized with more emphasis on performance and need based grants. Establishment of
centralized Pay & Service Commission at HEC to adopt standardized pay and allowances for all Public Sector HEIs. HR
Capacities at HEC level needs to be strengthened to take up M&E role, close coordination and representation at HEI, Scrutiny
of budgets, Utilization reports, Financial Reports and other key documents.

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