United Nations Public Service Awards Case Studies

< Eight Thousand Scattered Pieces of Puzzle>

The financial management system of the Korean government before 2007 was like scattered pieces of a jigsaw puzzle.

It is well known that Korea had one of the fastest growth rates in the world. Its general budget of the central government increased more than three thousand fold in just over forty years, from 46 million dollars in 1961 to 147 billion dollars in 2006. However the sixty-year old framework for budget and accounting could neither keep pace with the ever growing scale of the public finance nor ensure the efficiency and transparency of public spending.

First of all, even though Korea had IT systems for financial management, it could not see the entire picture of public finance because of the lack of linkages between different systems and the exclusion of local government and public entities. Therefore, its capacity to manage risks in the face of a rapidly changing global economic environment was very limited. For instance, during the 1997 Asian financial crisis Korea was not able to manage all the public budgets well, leaving the vulnerable people, small businesses and self-employed to suffer more.

Second, most policies were managed separately by individual ministries and accounts without a holistic view and no one was sure of the budget scale or the benefit of each policy. Nor was it easy to cooperate with other ministries without the mechanism to do so. By way of illustration, a single objective of developing coastal villages and ports was divided into ten different nominal projects, each launched by different parties. The overlapping projects and the lack of information exchange resulted in spending more money compared to the social benefits from those projects.

Third, the old Financial Information Systems could not ensure transparency and accountability. Misuse or waste of government budget was not kept in check through the systems. The budget flow was not fully tracked, nor was it disclosed to the public. As a result, there were leakages of taxpayer money via the many loopholes of the systems.

What was the cause of all these problems? The root of all the troubles was the puzzle board, or Korea’s budget and accounting system. In other words, even though it had all the pieces for the people, the government was unable to come up with a complete picture because it did not have the right board for the puzzle. On the top of this, the demand for welfare was growing fast at that time. Thus, efficiency in financial management became imperative to ensure more benefits for the people with limited resources.

These circumstances highlighted the need for a powerful integrated financial information system along with fundamental reform of the budget and accounting.

What is the initiative about? (the solution)
<DBAS with Transparent Veins for flows of Finance> To cut this ‘Gordian Knot’, the Digital Budget and Accounting System (DBAS) integrates all the existing financial systems and provides “transparent veins” of public finance. The DBAS is an innovative tool that manages the entire fiscal process, ranging from budget formulation to accounting, and integrates fiscal information by linking fiscal information of all public entities. The system is also known as “dBrain,” because of its function as the digital brain for fiscal management. The most distinctive feature of the DBAS is that it allows a holistic view of public finance. It consolidates fiscal processes of fifty-one central government agencies and links fifty-five external systems and local governments, public entities and subordinate organizations, fulfilling the requirements of the IMF’s 2001 Government Finance Statistics (GFS) Manual. The system further reinforces risk managing capacity by enabling real-time information sharing in public finance, such as revenues, expenditures, national assets and public debts. The system also introduced the unique mechanism named ‘Project Management System (PMS)’ in order to manage all the government activities. Through the PMS, all government activities were aligned to 700 programs and 8,000 projects according to the purposes of their policies, which prevents overlapping and waste of the budget. All the information including the project details, budgets, execution progress and procurement status from external systems are gathered in the PMS on a project basis so that Project Managers can simply log on to the PMS to monitor their project status and perform all their duties. This sub-system holds public servants accountable and has simplified their work process. The third attribute is that all fiscal processes are now conducted online. The Electronic Bill Presentment and Payment (EBPP) system electronically processes all the steps of government revenue from notification to final payment. Even traffic violation fines are stored in the database of DBAS the moment a policeman offers a ticket to a driver. On the other hand, the Electronic Funds Transfer (EFT) system transfers money directly to vendors’ bank accounts for any government expenditure. Thanks to these systems, public servants do not have to directly receive or give cash, which leaves little chance of embezzlement. Currently, 300,000 transactions worth 4.5 billion US dollars in public budget are made every day to serve their original purpose in a transparent and seamless manner. Lastly, the DBAS has enhanced the government’s credibility by publishing seventy types of financial information on the website. Therefore, every Korean citizen can easily see what happens in public finance. In conclusion, due to the DBAS, Korea has improved competence, transparency and efficiency on its financial management. Eventually, the leakage of resources caused by bureaucracy are dramatically reduced and relocated to the welfare programs for social minorities such as women, children, migrants and the vulnerable. That is the reason why the World Bank mentioned the DBAS as one of the ideal FMIS models.

Who proposed the solution, who implemented it and who were the stakeholders?
<Civil Society, the President and Thirty-three Innovators> The roots of the DBAS can be traced back to the civil society. The dynamic civil society in Korea is well known for its critical role in holding the government accountable. In particular, civil society continued to point out the waste of public finance. In a paradoxical move, a civic group had been giving “the worst case awards” for the wasteful projects in the early 2000’s. Besides, after going through the financial crisis in 1997, the Korean government itself had prepared for the reform of public financial management. However, it had difficulties before receiving the empowerment from the top authority. In May 2004, with the full support of the President, the Budget and Accounting Reinvention Office (BARO) was established. The BARO was composed of thirty-three people, who were government officials from different ministries, fiscal experts and IT professionals. And there was an advisory group consisting of notable scholars and civil specialists from economics, business management and the IT sector. This very office accepted the civil society’s call for efficiency in financial management. It took a different way from what most of the other nations did, in order to overcome the various resistances to the reform. With a reverse way of thinking, it initiated the launching of a new FMIS as the core strategy for all fiscal reforms. Building the DBAS did not mean a mere establishment of an information system; it was a project of enormous scale that transformed the entire budget and accounting system of a country. The BARO conducted a joint study on fiscal reforms with the World Bank for three months, and Professor Allen Schick from the University of Maryland, a world-renowned expert in public finance, took part in the study of a program based budget system. Experts from various professional fields were gathered to complete this project, and unlike ordinary system integration projects, the DBAS went through a specialized consulting process for setting up comprehensive strategy. In the run up to the development stages, many government officials, who were in charge of the work in their field, were involved in designing the process. This is often cited as the key to the success of the DBAS. Therefore, Korean NGOs from civil society could be identified as the initiators of the DBAS. The next recognition needs to be given to the President and his 33 hard-working members of the BARO. They were the fathers of the DBAS. The supporters were the media and the Korean people who really wanted to save taxpayer money and prevent corruption. However, it must be noted that the DBAS was created by the effort and sweat of the BARO Advisory group, IT engineers, Professor Allen Schick, and the World Bank staff.

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
<The Key to Success: Integration and Connection> As mentioned in the previous chapter, the main mission of the initiative was to make a smart and intelligent system for Public finance which can perform its role as a digital partner for financial management. With a new system, Korea aimed to strengthen its capacity of managing all the government activities in competent, transparent and efficient manners. In order to achieve this ambitious mission, BARO sketched an IT system which can provide a full, real-time view of the entire public finance. Integration and Connection was the very concept that could make this possible. The first strategy was to put the expansion of system coverage as the top priority. When Korea began to start the initiative, the old financial IT systems covered only the general budget of the central government and did not have a statistics system. Therefore, it was very difficult to measure the impacts of fiscal policies and make financial statistics in line with international standards. The DBAS extended the scope of coverage to include central and local governments, public entities and their subordinate organizations. This served as a basis of accurate measurement of the volume and efficiency of public finance. The second was the adoption of the performance-oriented program budget system. The budget was realigned in accordance with project units rather than items such as payrolls, preventing possible overlaps. Budgets with the same group of beneficiaries were allocated to the same program in order to prevent the overlapping and waste of budget. The system was also designed for the government to clearly see how its policy was handled by an organization through a certain program or project. The third was the replacement of the government accounting and bookkeeping methods. The accrual-basis accounting and double-entry bookkeeping was reflected in the system just like the systems of many private companies. With accrual-basis accounting, the government can predict and diagnose mid-and-long term fiscal risks in advance because public debts are recorded immediately. Double-entry bookkeeping helps enhance reliability of accounting information as it internally checks the accuracy of the data. In addition, an annual report was produced to check how taxpayer money was spent. Assessment of assets and debts was made every year as well. The last strategy was the making of the knowledge sharing space. Financial officers from the entire public sector access the DBAS through a standardized interface, and share information. The system has completely changed the way people work and think. Based on data that have been accumulated over five or even ten years, the system is becoming all the more useful as a hub of financial knowledge sharing that reproduces high value-added knowledge. Its role will continue to be expanded.

b. What were the key development and implementation steps and the chronology? No more than 500 words
<The 33-Months-Long Journey of 33 Innovators> The process of developing the DBAS was somewhat dramatic. The first phase was the Business Strategic Plan (BSP) from July to December 2004. The Budget and Accounting Reinvention Office (BARO), which opened in May 2004, performed a unique BSP procedure prior to building the DBAS. Its job was to set a new fiscal operation paradigm, and it needed a thorough and comprehensive roadmap to start with. However, the outcome of an analysis conducted by a professional consulting company was unexpected. It recommended adopting an Enterprise Resource Planning (ERP) package. If the government had adopted an ERP, then the institutional reforms would have become pointless since it would have had to comply with the standardized process of an ERP system. The new concept of a program based system, the basic structure for budgeting, accounting, asset management, etc., was not included in an ERP system. And it was evident that customizing an ERP system into a project based system would not be an easy task. Therefore, the Korean government was resolute in its desire to reform its system and determined that it was right to have public servants lead the design of the business process, and domestic companies lead the development of software. Under the leadership of the government, a new roadmap that served as the foundation of the DBAS was set up. The second phase was Business Process Reengineering (BPR) and Information Strategic Planning (ISP) from January to September 2005. Based on the comprehensive roadmap, the BARO has planned a program structure and interface system to consolidate existing systems and connect related external systems. Efforts were undertaken to promote the system and persuade officials to give their support. As a result, officials who were indifferent in the earlier stages grew increasingly interested in the new system and institution, and accepted them. The third stage was development and pilot operation of the system from October 2005 to January 2007. It was developed in just sixteen months even though there was no reference model. In this stage, some critics questioned how it could be possible to make a comprehensive system in such a short period without errors. However, the BARO conducted a lot of public hearings, and analyzed problems with their previously developed prototype to speed up the development process. In addition, the BARO decided to reuse what could be applied to the DBAS from the former IT systems. The Samsung SDS consortium also performed software programming processes tirelessly just like many Korean companies did in the 70’s when Korea achieved its economic miracle. In the end, all hardships were overcome by the sweat and toil of participants, and the DBAS was finally completed. The final stage of the process was the pilot operation and actual launch of the system, which started in January 2007. As the operation began in earnest, Korea took a leap forward in its capacity to manage public finance. This is the success story of the DBAS. Since then, the DBAS has continued to evolve.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
<Growing Pains Overcome by the Spirit of Compromise and Coordination> Most of obstacles could be solved by the leadership from the top authority. The President placed the making of the DBAS at the level of National Agenda. The BARO was composed of all relevant ministries so it could actively mediate the conflicting interests of various agencies. Furthermore, the Media and Civil Society strongly supported the initiatives. The biggest obstacle to adopting the DBAS was skepticism regarding integration of financial information. Assuming that their autonomy would be compromised, local governments and the Ministry of Education were opposed to the idea of disclosing and integrating their financial information. The BARO considered the opinions of the organizations, and decided that they can maintain their own systems but would have to provide general fiscal information and details on government-subsidized projects. Another major obstacle was competition among ministries to run the system. This was inevitable as national control over public finance was split between two ministries: the Ministry of Budget and Planning, and the Ministry of Finance and Economy. There were other problems because laws managed by competent authorities did not comply with each other. It was also hard to identify who was in charge of certain information. Nonetheless, most problems were resolved by placing the DBAS under the Ministry of Budget and Planning, and letting the staffs from the Ministry of Finance and Economy take charge of some if its activities. In February 2008, one year after the launch of the DBAS, two ministries were merged into the Ministry of Strategy and Finance (MoSF). Anti-Corruption is the top priority for all governments around the world. In order to enhance accuracy and prevent corrupt practices, the DBAS built much more strict internal control process in itself. It requires a meticulous process on the part of the public servants, the actual users of the system. This was one of the reasons why some officials were reluctant to use the system. What made it possible was systemic promotion of the DBAS through visual on-line training packages and off line training. By providing a lot of education sessions, it was able to increase the friendliness of the system and the utilization of the users. Having overcome the various obstacles, responding to other demands and circumstances, the DBAS has become more flexible and adaptable, opening doors to possible sharing and transferring of its data to others that need it.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
<Imbalance Makes Everyone Happy> Taxpayer money was spent to develop and build the DBAS, so the government has continued its efforts to reduce the budget and improve efficiency. As a matter of fact, the cost and benefit of the DBAS are not balanced, but the imbalance can satisfy everyone since the benefits far outweigh the cost. The total cost for BSP, BPR, ISP, software development, and hardware equipment amounted to approximately about 60 million dollars. The cost was reduced as some equipment was reused. On average, 225 people a month were involved in developing the system, making the total personnel input 3,600 man months. Operation of the system costs roughly 13 million dollars annually, showing relatively high cost-effectiveness for a system with 58,000 users compared to systems of advanced nations. The World Governance Index issued by the World Bank demonstrates this fact. Korea has shown dramatic improvement in corruption control, rule of law and government effectiveness since the DBAS began. <Table: Improvement in Governance> Country Control of Corruption, Rule of Law, Government Effectiveness 2000 2010 2000 2010 2000 2010 Korea 0.29 0.42 0.86 0.98 0.74 1.18 Source: World Governance Indicator 2011, World Bank One of the major benefits of the system is that it has enabled a preemptive and comprehensive response to global financial crises. In fact, when the global financial crisis hit in 2008, the government moved expeditiously to expand its fiscal spending to the public entities such as Housing and Land Company, effectively alleviating the pains suffered by vulnerable citizens. In the first half of 2009, it executed 60% of public project budgets earlier than planned, making Korea one of the three OECD countries, along with Australia and Poland, to post a positive economic growth during that period. Another key benefit is that the government has become capable of managing fiscal risks and fiscal consolidation. As the DBAS displays the bigger picture of whole public finance, the government can accurately see how much revenue is generated from a source at a certain point of time, and how much debt is to be repaid in the future. The government knows what to expect in terms of potential risks in its finance. Moreover, corruption and dishonest dealings are basically restrained by conducting all transactions online. Though exact figures remain uncertain, the system helped save enormous amounts of money. The disclosure of public financial information has improved the critical roles of the National Assembly and the public. The National Assembly can now easily analyze the performance of each policy action, and citizens can easily gain access to public financial information on the DBAS website. As national finance is mostly composed of taxpayer money, it makes sense that the taxpayers take part in monitoring how it is managed and spent. The DBAS now serves as the backbone of Korea, which aims to become an advanced country in terms of fiscal management.

Is the initiative sustainable and transferable?
<Evolution Continues After Completion> The DBAS has been stabilized and upgraded. The system which was launched in January 2007 is being used by 58,000 people. All public servants responsible for budget and accounting access the DBAS to perform their duties. The user satisfaction rate by survey has continued to improve every year, jumping to 64.5% in 2011 from 52.6% in 2008. System errors have dropped from 17 cases in 2007, to three in 2010, and to just one in 2011. The core process of DBAS system was designed first-hand by the government officials so it is easy to complement the system according to changes in fiscal law and environment. For instance, there have been several changes to Korea’s national asset law and address system after the adoption of DBAS, and adjustments were made in the system without much difficulty. The Performance Management System, recently added to the DBAS, will serve as the central pillar of the DBAS as it determines a project’s effectiveness and sustainability by providing assessment of project performance. Once the statistical analysis system and cost management system are improved, the government will be able to effectively diagnose the present and future of public finance and be more capable of setting long-term vision for finance. The DBAS consists of twenty one individual modules, including project management, budget formulation, national property management, accounting and settlement. Any number of modules of any type can be selected to form a customized system. The modules work just like Lego blocks. This very feature is what differentiates the DBAS from Commercial Off-the-Shelf (COTS) products. A public entity can adopt a part of the system that is suitable for its fiscal volume, and later, expand it with changes to its finance. This makes the system appropriate for central and local governments as well as international organizations. In particular, developing countries with basic IT infrastructure and a commitment to sound fiscal management may easily adopt the concept of DBAS with the help of Korea’s experience. Since 2009, officials from around ten developing countries have visited Korea’s Ministry of Strategy and Finance (MoSF) each year to learn its system. Some are even considering importing the system. The MoSF is also conducting joint programs with multilateral development banks, notably the World Bank, Inter-American Development Bank, and Asian Development Bank. What we seek through the international cooperation is not to export our system itself. We want other developing countries to refer to the concept of the DBAS for their own systems. We believe that with advanced ICT, all governments can help build a transparent society and ensure fair distribution of benefits for all citizens. The concept of the DBAS is truly transferable.

What are the impact of your initiative and the lessons learned?
<Leadership and Driving Force> The DBAS embodies change. It has transformed public governance from the ground up. This would not have been possible without concerted efforts from all levels, from the President to public servants on the frontlines, and even civil society. Korea achieved remarkable economic growth without any natural resources. By the same token, it achieved success in fiscal reforms thanks to its strong leadership and driving force. With this in mind, three lessons can be learned from the DBAS. First, information system projects with nationwide impact must be pursued on a strategic basis. The establishment of a system integrating all public finance means a huge challenge. Korea has conducted its Business Strategic Plan, an unusual process for the public sector, and had public servants with thorough knowledge of fiscal affairs design business processes. This has laid the groundwork for successful reforms. Second, a powerful organization should assume full responsibility for leading such reforms. With the support of the President, the making of the DBAS was given the importance of a National Agenda. Moreover, the BARO had been given legal authority and power to mediate conflicts among ministries. It was also effective to fully implement change management and encourage participation of experts and other stakeholders. Most notably, the support of the civil society and the people was critical for the development of the DBAS and the attainment of the reforms. Third, it is necessary to maintain consistent basic concepts of reforms and keep records of the process. The basic concepts of the DBAS are integration and connection. To adhere to these concepts, Korea has proposed and clarified connection standards and the scope of connection. Its efforts to maintain consistency in reform strategies helped it fully achieve the initial goal of the system. It has also kept a record of the reforms that can be utilized as teaching material to boost understanding of the system and its history. Korea has learned a lot from the international community. Now is the time for us to share with other countries our remarkable experience of realizing fiscal innovations in the form of an integrated system. We hope that the DBAS further develops into an FMIS with valuable information and heartwarming humanity that benefits all citizens of the world. Korea believes that all governments can reduce corruption and improve public governance. Let all the people around the world have better education, light and fresh water for their happiness, especially for the marginalized adorable children, those who do not even deserve to be beaten by flowers.


Institution Name:		The Ministry of Strategy and Finance
Institution Type:		Government Department
Contact Person:		Hyung Soo Kim
Title:		Director of Fiscal Management and Coordination Div
Telephone/ Fax:		82-2-2150-4910 / 82-2-2150-4918
Institution's / Project's Website:		www.mosf.go.kr / www.digitalbrain.go.kr
E-mail:		khs801@mosf.go.kr
Address:		Fiscal Management and Coordination Division, Rm 304, Ministry of Strategy and Finance, Government Complex
Postal Code:		427-725
City:		Gwacheon city
State/Province:		Gyeongi-do
Country:

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information