PUBLIC SECTOR REFORMS SECRETARIAT MINISTRY OF FINANCE IMPLEMENTATION PERIOD: 1ST JULY 2020 TO 30TH JUNE 2022 DATE OF SUBMISSION: 21st OCTOBER 2020 Ministry of Finance The Government of Malawi is committed to improving the welfare of the people of Malawi and to transforming the country to achieve the middle-income country status. This will require a public service that is fit for purpose, results oriented and high performing to facilitate positive transformation of the economy and modernization of the country. The Reforms Performance Contracts will be used as mechanism to transform all public sector institutions to high performing institutions that will deliver quality services to the public and effectively implement policies and programmes that will contribute to the achievement of the national transformational agenda. The Reforms being implemented by Ministries, Local Councils, Parastatals Organizations and Constitutional Bodies are in line with the Vision and Mission of the Public Service which mainly seeks to provide services to the public in an efficient, effective and responsive manner in order to satisfy national aspirations in accordance with the Malawi Constitution. My Government hereby commits its total support to the Ministry by providing resources (financial, human and material) necessary for effective implementation of this Agreement. Ministries will be able to understand and translate people’s needs into policies and programmes and services to achieve ‘a better Malawi.’ Ministerial Statement of Commitment Hon. Felix Mlusu Minister of Finance I, Felix Mlusu, Minister of Finance commit myself towards the full implementation of the focus areas for reforms in the Ministry of Finance as outlined in the Performance Contract Document. This Performance Contract (hereinafter referred to as “Contract”) is entered into between the Government of the Republic of Malawi (hereinafter referred as GoM) represented by His Excellency the President of Private Bag 301, Capital City, Lilongwe 3, of the one part, and the Minister, Finance, of P.O. Box 30049, Capital City, Lilongwe 3, of the other part. WHEREAS The Government is committed to ensuring that services in the Ministry of Finance are well managed, supported and are cost effective in delivering quality service to the public in line with provisions of the Constitution of the Republic of Malawi. The GoM recognizes that the Ministry of Finance holds a vital key to contributing to national socio-economic development through the formulation of economic and fiscal policies that seek to manage Government financial and material resources and provide strategic guidance on economic and development planning. The purpose of this Performance Contract is to establish the basis for ensuring efficient and effective services are delivered to Malawians in line with provisions of the Constitution of the Republic of Malawi, the Public Service Act and relevant Acts; and by requiring the Ministry to raise standards of performance and behaviours of public servants in order to provide socio-economic policies based on high quality and timely statistics; mobilize and prudently manage public financial and material resources in order to achieve sustainable economic growth and development. The Ministry will also focus on improving public resource management so as to promote transparency, accountability, fiscal discipline, efficiency, and effectiveness in the management and use of public resources. This Contract therefore represents a basis for continuous provision of sustainable high economic growth, macroeconomic stability and sound financial management for socio- economic development; and to provide reliable statistics as Government endeavours to meet the needs and expectations of the Malawian people. This contract forms the basis for the evaluation of the Ministry’s agreed Key Performance Indicators. COMMITMENT BY THE MINISTRY OF FINANCE The Ministry of Finance on behalf of Public Sector institutions in the financial sector commits itself towards the full implementation of the focus areas for Reforms in the Financial Sector as outlined in the Performance Contract Documents for Parastatal Organizations in the Financial Sector. The following are the institutions: 1. Malawi Accountants Board (MAB) 2. Malawi Revenue Authority (MRA) 3. Public Private Partnership Commission (PPPC) 4. Public Procurement and Disposal of Assets Authority (PPDA) 5. Roads Fund Administration (RFA) 6. Financial Intelligence Authority (FIA) 7. National Audit Office (NAO) PART I: MANDATE, VISION, MISSION, AND STRATEGIC OBJECTIVES a) MANDATE The Ministry’s mandate is to formulate economic and fiscal policies that seek to manage Government financial and material resources and provide strategic guidance on economic and development planning and attainment of social economic development. b) VISION A sustainable high economic growth, macroeconomic stability and sound financial management for socio-economic development; and to provide reliable statistics. c) MISSION To provide socio-economic policies based on high quality and timely statistics; mobilize and prudently manage public financial and material resources in order to achieve sustainable economic growth and development. d) STRATEGIC OBJECTIVES i. To improve public financial management so as to promote transparency, accountability, fiscal discipline, efficiency and effectiveness in the management and use of public resources ii. To improve mobilization of domestic and foreign financed resources to fund the National Budget iii. To provide strategic guidance on economic and financial sector development to ensure stable macroeconomic environment that supports sustainable socio-economic growth and development iv. To improve institutional capacity for efficient and effective service delivery PART II: COMMITMENTS AND RESPONSIBILITIES OF THE MINISTRY OF FINANCE 1. Allocate adequate resources for reforms implementation; 2. Ensuring implementation of the reforms; 3. Conducting self-evaluation annually; 4. Resolving any issues that may arise after each self-evaluation; and 5. Submission of annual reports. 1 PART III: COMMITMENT AND OBLIGATION OF THE GOVERNMENT 1. Ensure sustainable, and timely funding for the key reform areas; and 2. Ensure that relevant Government institutions provide the support role required for the successful implementation of the key reform areas. PART IV: FOCUS AREAS FOR REFORMS AND JUSTIFICATIONS REFORM AREA 1: ESTABLISHMENT OF A FUNCTIONAL INTERNAL AUDIT IN GOVERNMENT Objective/aim of the Reform Area The aim of the reform area is to enable the Government of Malawi to have an effective Internal Audit Function in line with the provisions of the Public Finance Management Act (2003). Justification for undertaking the Reform Area The Internal Audit Function in Government, which is directed, supervised and coordinated by the Central Internal Audit Unit, is an important feature of good corporate governance and the Public Finance and Economic Management (PFEM) programme. However, there have been a number of challenges that have hampered its effectiveness. This was also evidenced by the recent PEFA assessment which downgraded internal audit in Government largely due to poor response rate to audit findings in Ministries. The challenges facing the Internal Audit Function include, but are not limited to, weak regulations on its mandate and enforcement of implementation of audit recommendations; insufficient coverage of audits in Ministries; untimely audits and their reporting; and generally incorrect positioning and placement. As such, the Ministry intends to improve the legal provisions for internal audit and audit committees; reposition internal audit through a functional review; institutionalize pre-auditing of all financial transactions to complement audits; roll-out continuous auditing to complement the current periodic audits and automate the current manual internal auditing processes. Benefits for Implementing the Reform Area The reform in internal auditing are envisaged to result in the following: i. The legal provisions will strengthen the mandate and role of internal audit and audit committees in Government thereby strengthening the oversight mechanisms over public resources, preventing abuse of public resources and promoting a culture of addressing audit findings; ii. The restructuring of the Internal Audit Common Service will improve its effectiveness and improve the professional independence and objectivity of internal auditors; iii. Pre-auditing of financial transactions has resulted in the timely detection of erroneous and potentially fraudulent transactions. It is also expected to improve the quality of Government’s financial statements by minimising misallocation of expenditures; iv. Continuous auditing of IFMIS will enable real-time detection of errors and irregularities by internal auditors thereby enabling their timely correction; v. The Internal Audit Management Software is expected to enforce compliance by Government internal auditors with the professional requirements of conducting internal 2 audit assignments in Ministries. It will also enable internal audit work to be conducted efficiently, effectively and consistently within Government; REFORM AREA 2: IFMIS FULLY CONFIGURED TO INTEGRATE ALL GOVERNMENT ACCOUNTS Objective/aim of the Reform Area The aim of the reform area is to improve MDAs’ systems and controls for accounting and financial management. Justification for undertaking the Reform Area This reform area would assist the Government to improve