Iraqi Budgeting ١٠١• Iraq uses a one-size fits all template across the various Ministries.

• This generic format consists of nearly 200 separate line-itemscapturing everything from satellite hook-ups to maintaining orchards.

• The underlying budgetary accounting mixes the Unified Accounting System, Iraq’s Soviet-based accounting standards, with some vestiges of the book-keeping found in the British Empire.

• There are five primary Chapters – or sections – that cluster operating expenses, compensation and capital expenditures other than building projects.

• The remaining chapters focus on inter-governmental transfers or planning projects and lie outside of the annual budgeting exercise.

• Notwithstanding a laundry list of expense items, frequently costsspecific to the Ministry of Interior (the “Ministry” or the “MoI”) are difficult to capture under this all purpose frame-work.

• Such hard-to-place items include sustainment costs like warehousing expenses, life support or purchases of high technology crime prevention equipment (i.e., back-scatter vans).

Chapter One: Pay me or Trade Me

Chapters Two & Three:

Food for Naught

Chapters Four and Five:

Where’s the Beef?

FAILURE of the 2005 BUDGET

Lack of Credibility1. forecast of 128,000 employees; half the population of current personnel roster

2. Coalition’s de-centalization of national police force; splitting of the Finance and Administrative functions

3. omission of revised hazard duty pay levels granted in mid-2005 by order of the Prime Minister

Absence of Essential Communications to Operate De-centralized Institution1. IRMO budget advice programmed toward centralized budgeting and accounting; lacked communication

with the field

2. failure to reconcile personnel rosters under Deputy Minister of Administration and payroll ledgers under

Deputy Minister of Finance

3. MNSTCI-sponsored paramilitary units and police training classes established outside of Ministry’s

ability to fund them immediately

Lack of Capacity to capture new and unfamiliar expense burdens1. Key stake-holders at IRMO and within Ministry unfamiliar with the costs entailed to sustain deployments

mobile police and command units

2. Lack of institutional capacity to absorb generational leaps in policing technology

3. Poor advice from IRMO to implement stipends in lieu of more structured provision of life support

leading to up to $1 billion of costs shifting back onto MNSTCI

CONCLUSION: 2005 budget was caught “in between trains” and thus represented a hybrid of the

worst of centralized and de-centralized operations. The 2005 budget combined subsidized pricing from

a socialist régime and unreliable data from disconnected payroll accounting and personnel functions.

2005 Budget History: Anatomy of a Bail-out

Annualized spending includes the following additions to salaries:

• IQD 150 billion ($103.5 million) supplemental recently passed by the Council of Ministers;

• IQD 290 billion ($200 million) of monthly subsidies from the Ministry of Finance for hazard pay;

• IQD 75 billion ($51.7 million) to be re-allocated from Chapter Five (CAPEX); as well as,

• IQD 620 billion ($427.6 million) being requested from Ministry of Finance to cover hazard duty pay.

In early 2005, MNSTCI rescued the Ministry by agreeing to:

1. Pay for supplies and CAPEX but not for salaries; and,

2. Pay for life support other sustainment costs but not for food.

LESSONS LEARNED FROM 2005 BUDGET PROBLEM

• De-centralize the budgeting process

• Build capacity within governorates for identifying and costing out needed supplies, sustainment costs and support services

• Anticipate end-state police force levels for December 2006, not actual levels at the time of budgeting

• Shift budgeting advisory to area with human and financial resources able to infuse new budgeting practices and financial culture into the governorates

MEASURES TAKEN TO AVOID REPEAT OF BUDGET DEBACLE IN 2006

• Police Partnership Program established by CPATT (Spring 2006)

• Primary budgeting advice shifted from IRMO to CPATT (Spring 2006)

• Development of needs-based budgeting protocol by CPATT for use in the field (Spring 2006)

• IRMO providing technical assistance in top-down evaluative financial modeling to CPATT (Summer 2006)

• P-3 teams providing guidance and mentoring in identifying and quantifying sustainment, capital and other needs through CPATT bottom’s-up budgeting protocol (Summer 2006)

Review of New Budgeting Protocol

Ministry Ministry of Interior Contents of Budget Matrix

of Requirements Paper

Interior

2006

Chapter: Article: Type:

Budget

Requirements Requirement Line:

Cost:

Packet

Impact if not funded: Pure Money:

Col. Haleem Hassan / Accounting Director

Major Brian Lantz / CPATT

Major Henry Weber / CPATT Expenditures until half-year:

Expected money spent for year:

1. 2005 Budget for expense item 2. Year-to-date expenditures 3. Build in expenses for responsibilities transitioned

by MNSTCI net of responsibilities assumed by MNSTCI

4. Budget Balance left after expenditures adjusted for net assumption of responsibilities

5. Projected amount to spend until end of 2005 accounting for costs not captured by 2005 budget

6. Difference of remaining Budget Balance AND required amounts including previously uncaptured expenses

7. Justification for additional funds to be appropriated from government to cover shortfalls uncovered by projecting full-cost requirements for balance of 2005

8. Annualize projected full-cost budget for 2006

MoI’s Credible Budget 2006

Revised Comparison

The revised figures in the IRMO model exclude the following obligations likely not to be

assumed by the Ministry:1. academies in Jordan and Sulayminayah and expenses related to them;

2. voice-over inter-net protocol and other networks;

3. use of candidate screening tests and highly trained personal security details; and,

4. a national warehouse system for the Special Police.

NOTE: MoI and IRMO likely place sustainment costs in different chapters.

Talks with the MoI requires a 50% increase of hazard pay under the IRMO / CPATT model.

Conclusions• The 2006 MoI budget reconciles with IRMO top-down model. The

variance in salaries has two underlying drivers: an anticipated elevation in rank and pay integrated into the MoI budget and inaccurate assumptions on hazard-duty pay by IRMO.

• Recent evidence suggests that the IRMO model understates hazard pay by one-third.

• In chapters two and three, IRMO models for $255 million of life support life support costs some of which the MoI Budget may include in Chapter-1 as a stipend for lunch money.

• With these comments in mind, one can appreciate the extent to which the 2006 Ministry’s budgeting abilities have progressed under the guidance of CPATT to capture costs either excluded from the 2005 budget or beyond the Ministry’s capacity in the 2004 planning cycle.

• The underlying explanation for the MoI’s much-improved performance lies in training by the fielded P-3 teams and the governorates’ willingness to apply requirements-based protocols introduced by CPATT’s financial advisors.