PASSING THE FIRST TEST OF FISCAL DECENTRALIZATION: AFAD PROVES CAPACITY TO HANDLE PROVINCIAL FINANCES, PAYS SALARIES

The Administrative and Financial Affairs Directorates (AFADs) have passed the ultimate test of fiscal decentralization and earned the trust and respect of both the Ministry of Finance (MOF) and local officials by successfully completing the financial procedures for Jan. and Feb. 2017. The respective AFAD in each of the 12 provinces has processed Jan. and Feb. salaries for the staff of the Governor’s Office (GO) and the three transferred provincial directorates of Agriculture, Education, and Health. Prior to Jan. 2017, all salaries were issued directly by the MOF. As a result of expert technical assistance from GSP/Taqadum, 2017 has ushered a tangible fiscal decentralization. The Iraqi financial system has completely changed.

In Jan., MOF required each AFAD to submit the individual trial balances for the GO and three directorates with the combined trial balance. In Feb., however, MOF did not require the individual trial balances, acknowledging the capacity of the AFADs to do their jobs and that fiscal decentralization was working. The new process means that the AFADs consolidate the trial balances for the four provincial entities, submit a single request for funds to MOF on behalf of the province. Once the funds are received, the AFAD issues the payments. The new process is more efficient, saving time, money, and staff resources. Eventually, once all seven targeted ministries are devolved, the AFADs will be responsible for financial procedures for the GO and 18 directorates in each province (26 in Baghdad).

GSP/Taqadum first began working with provincial financial officials and staff in 2012 to assist PCs and GOs to develop managerial and staff capacities to fulfill their responsibilities. As GSP/Taqadum began to prepare the national and local government entities for decentralization in 2015, the AFAD idea was born, and in 2016 the AFADs were officially approved and adopted. In 2017, thanks to the successful efforts of the AFADs, 756,000 Iraqi employees – individuals working in the GOs and three transferred directorates in 12 provinces – received their January and February salaries.

(Left to right) Najaf AFAD Accounting Section Manager, Mr. Hussain Alawi; Najaf AFAD Director, Mr. Abbas Kadhum Lafta; Najaf Second Deputy Governor, Mr. Taal Bilal; GSP/Taqadum National Budgeting Advisor, Mr. Najed Hamody; GSP/Taqadum Chief of Party, Mr. Cameron Berkuti; HCCPSEC Chair, Dr. Torhan al-Mufti participated in the landmark meeting with MOF, hosted by GSP/Taqadum in October 2016, to move fiscal decentralization forward

These employees provide not only for themselves, but for their families as well – an estimated 3.24 million individuals. In addition, payment of salaries for the directorates of education means that 4.5 million students and their parents can rest assured that schools are open, and teachers will continue teaching.

Before the implementation of Law 21, most of the provincial directorates were receiving their funds via the Treasury, with the exception of a few directorates, such as Agriculture, Education, Health, and Municipality, which were receiving their funds from MOF via their respective accounting units. The Treasury is a federal entity, and GSP/Taqadum originally suggested to open sections within the Treasury to finance the transferred directorates, but MOF refused because it wanted the Treasury to remain as a federal entity and not to become a local entity. In response to this, GSP/Taqadum then suggested the establishment of the AFADs as local entities to finance the transferred directorates.

The project’s financial experts began to develop the tools necessary to support the AFAD functions, including an Excel template to combine trial balances and electronic forms for expense reports. These tools were developed within the existing Iraqi systems and in compliance with all financial laws and regulations, thereby easing the transitioning and helping to ensure MOF approval. Yet, the provinces still faced strong resistance from the MOF – particularly with regard to the opening of operating and investment accounts in the provinces – until a breakthrough meeting with MOF officials, hosted by GSP/Taqadum on Oct 28-29, 2016, advanced decentralization efforts. (For details on this meeting, please refer to Weekly Report D446)

When the AFADs were approved, it was with one stipulation made by the MOF: the creation of the AFADs could not result in any additional financial burden – no funds would be provided for additional staff. The project worked with provincial officials and the GO to identify staff with the capacity and skills necessary to contribute to the successful establishment of the AFADs. The AFADs are now staffed with approximately 15 individuals who originally worked in the GO and the three devolved directorates. It is anticipated that once all of the targeted ministries are devolved, the AFADs will employ 45 individuals, the remainder of whom will also be transferred from devolved directorates.