Public finance management reform: digitalization as a tool to lift processes to a new level of governance and eradicate systemic issues

By Oleksandr Hrubiian, Deputy Minister of Finance of Ukraine for Digital Development, Digital Transformations and Digitalization, and Dragan Jeremić, EU4PFM International Key Expert on IT

In Ukraine, the digitalization of public services and business processes in public institutions is developing at an unprecedented pace, thus contributing to the reform agenda, which is due to Ukraine’s desire to join the European Union (EU). On the other hand, the EU assisted in the process of coordinating Ukraine’s policy with the EU acquis, but at the same time, it provided tangible support – in expanding infrastructure, developing new software solutions for government agencies, and staff training. One such initiative is the EU-funded EU4PFM program, which works closely with PFM institutions to strengthen their capacity and prepare them for digital transformation, the cornerstone of which is the consolidation of IT resources for the sector of public finance management (PFM).

Consolidation of IT resources as a concept is a measure taken at the level of an organisation or sector of the economy to change the approach to IT management in order to reduce maintenance costs and optimise the use of existing resources – infrastructure, a pool of qualified specialists, and other administrative costs. Some estimates show that up to 70% of IT budgets in institutions are absorbed into operating costs, which can be reduced if assets, human resources, and services can be centralised and managed through improved capacity planning.

As a result, instead of a decentralised and diversified approach, a new and high-quality IT management model will be introduced using modern approaches to project management to ensure the effective operation of IT departments of the PFM, the consistency and controllability of IT projects, synergy from the use of joint solutions, increasing the manageability of IT processes and the efficiency of access to information, the introduction of unified IT standards.

It is also worth noting the dynamic development of the IT sphere, which in turn requires updating of hardware and software components not only because of security risks and threats of data loss, which can disrupt strategic systems and critical infrastructure but also because of the need to improve the service model, improving the quality of end-user support and services for the private sector and the general public, make them accessible, effective and free from fraud and corruption.

Undoubtedly, IT consolidation is a long process that can take several years, especially when it comes to institutions that are responsible for processing financial transactions of all types at the country level. The experience of other countries shows that such measures can bring significant benefits.

One of the qualitative steps taken by the Ministry of Finance on the way to IT consolidation in the PFM was the approval by order of the Cabinet of Ministers of Ukraine dated 17 November 2021 No. 1467-p of the Strategic Plan for the Implementation of Digital Development, Digital Transformation and Digitalization of the Public Finance Management System for the Period until 2025 (hereinafter – the IT Strategic Plan of the Ministry of Finance).

The main approach defined by this IT Strategic Plan of the Ministry of Finance is the IT consolidation of information resources and IT functions of the Ministry of Finance of Ukraine and central executive authorities, which activities are directed and coordinated by the Cabinet of Ministers of Ukraine through the Minister of Finance of Ukraine, with the priority use of cloud technologies, the creation of single data storage, the gradual transition to a new level of service-oriented systems by ensuring the availability of public services online.

Within the framework of the implementation of the IT Strategic Plan of the Ministry of Finance, by the order of the Ministry of Finance of Ukraine, there was created the Committee for the Management of Information Technologies of the Public Finance Management System (hereinafter referred to as the IT Committee), which, in accordance with the Regulation on this Committee, has the authority to consider and approve digital development plans and individual IT projects, monitor the implementation of IT projects of public finance management system entities implemented at the expense of the state budget and international partners.

All this is aimed at solving several of the main problems:

• insufficient level of influence and control in the field of the Ministry of Finance of IT systems and IT projects of subjects of the public finance management system;
• lack of full-fledged comprehensive automation of business processes;
• excessive fragmentation of the information landscape of IT systems, low level of integration and interaction;
• inconsistency in the development of information technologies of departments, which leads to excessive expenses and a high level of the total cost of using IT solutions;
• lack of comprehensive policies for protecting information and countering cyber threats;
• lack of common IT services and consolidated data for prompt and effective decision-making;
• insufficient level of human resources to support and develop information and communication systems.

The management sphere of the Ministry of Finance of Ukraine includes the state institution “Open Public Finance” (hereinafter – the IT institution), which, in accordance with the IT Strategic Plan of the Ministry of Finance, should provide IT services to the subjects of the public finance management system. Today, the IT institution has a flexible organisational structure that allows attracting highly qualified specialists in the IT industry.

Also, the IT institution already provides administration of most information resources and services of the Ministry of Finance of Ukraine.

The results of the implementation of the IT Strategic Plan of the Ministry of Finance will be:

• introduction of a single information and communication system in the public finance management system, built on the interoperability of electronic information resources with simultaneous integrated protection of information, observance of technological independence, and ensuring the exchange of information in real-time;
• increasing the level of public confidence in the institutions of the public finance management system as a result of increasing the level of transparency and openness of data using information technologies;
• improving the quality of public and administrative services, as well as establishing interagency interaction between central executive authorities, which activities are directed and coordinated by the Cabinet of Ministers of Ukraine through the Minister of Finance of Ukraine, and other public authorities;
• implementing a unified information security policy in a single information and communication system, which will allow automated processing of information, including with limited access, in accordance with regulatory legal acts in the field of information protection; preventing influence of the human factor on automatic processing of information at the level of personnel responsible for the administration of a single information and communication system in the public finance management system without the possibility of access to primary data of accounting systems of subjects of the public finance management system, without access to modification of business processes, algorithms for their implementation.

Since the beginning of the full-scale military invasion of the russian federation into Ukraine, the Ministry of Finance of Ukraine, with the assistance of the project EU4PFM, has begun the implementation of a number of projects. So far some of these projects have already been implemented:

• there was performed the purchase of server, and network equipment to ensure the support and uninterrupted operation of IT products, IT infrastructure, and IT services by creating and putting into operation a backup site, which allows for the full deployment of information resources and services of the information and communication system of the Ministry of Finance of Ukraine and in general the subjects of the public finance management system;
• there was provided the organisation of remote access of users (employees of the Ministry of Finance of Ukraine) to the information and communication system and information resources of the Ministry of Finance of Ukraine, which involved the introduction of a hardware and software complex that provides remote access;
• there was begun the construction of a new information system for planning and monitoring the implementation of the state budget, consisting of two subsystems: the IT system “State Budget – Ministry of Finance” and an automated information system for online interaction with managers of state budget funds;
• there are being implemented measures that are provided for by the IT Strategic Plan of the Ministry of Finance.

An important measure in the implementation of the IT Strategic Plan of the Ministry of Finance is preparation for the creation of a private cloud for PFM institutions. PFM institutions are responsible for the receipt and expenditure of public funds, so they process confidential information that must be properly protected. Business continuity is also key. Storing and managing data in a private cloud will contribute to greater transparency of operations – monitoring actions will allow you to track each action to the source and executors. Relying on commercial cloud solutions is potentially not viable in the long term and can be a means of immediate emergency response, whereas an industry (private) cloud will serve a purpose in the long term and cost a reasonable amount of money. For Ukraine, which is a source of highly qualified IT specialists, it would be quite natural to bet on domestic IT developers and service companies. For all services that are planned to be provided in a private cloud, the Ministry of Finance will create an architecture with standardised requirements that will provide the same level of security and reduce operating costs. A system for monitoring incidents with a service agency will be established, which will promptly respond to user requests. The ultimate goal is to build a modern and effective information technology management system to ensure the support and further digital development of an effective and transparent public finance management system.

Thus, the Ministry of Finance assumes the role, risks, and responsibility for the administration of the relevant infrastructure, but in the end, it will provide a viable and secure solution, as well as eliminate the need for each of the PFM institutions to buy their own IT, which means significant savings in public funds.

All the above-listed initiatives of the Ministry of Finance are not easy and quick to implement, but they are feasible. During the ongoing war, their need becomes even more obvious, and therefore the support of partners is important. Through the EU4PFM program, the EU provides methodological and material support to the Ministry of Finance in the reform process. Ukraine has already demonstrated to the whole world its ability to meet challenges and remain sustainable. Public sector reforms that change outdated and inefficient practices by optimising the use of IT will definitely be successful and will give the expected results in the near future. The cooperation and commitment of all parties involved are some of the main factors of success. The best European practices will serve as a model, which will allow Ukraine to implement what turned out to be effective and applicable in its context. The gradual but continuous introduction of new IT management models will lead to significant changes.

IT consolidation is not easy to achieve, and it will bring an additional load at the beginning, but will significantly increase the efficiency of IT infrastructure management, application development, and management. It will also provide the needed level of cybersecurity, integrity, and accessibility with standardised operations such as incident, problem, and power management, end-user support, etc. The development of a special roadmap for each PFM institution will facilitate the implementation of a step-by-step IT consolidation process, as well as show some quick results, which will increase confidence in the process.

Joining the EU constantly poses new challenges to the PFM institutions, which they can solve only by working closely together. IT consolidation will be a great support along the way.