Thursday, February 20, 2020

Puerto Rico government CFO takes charge of budgets

By on July 30, 2018

Editor’s note: A version of this story first appeared in the July 26 – Aug. 1 print issue of Caribbean Business.

The Office of the Chief Financial Officer will not only be the central nerve of the government’s financial decisions and fiscal plan compliance but will also launch efforts to detect economic crimes and in September begins the re-engineering of certain government agencies to stabilize their finances and obtain federal funding.

The CFO will also oversee all government procurement as the head of the General Services Administration, Ottman Chávez, will be one of the officials joining the office.

Caribbean Business met with CFO Raúl Maldonado (who is also the secretary of the Treasury Department), who says he is now spending more time in his new office at La Fortaleza because this location will grant him better access to agency heads.

Because of budget wrangling between the governor and the Financial Oversight & Management Board, Maldonado was still unsure about the CFO’s budget but says he has requested $5 million for operations. Within 60 days, the CFO expects to have an estimated 40 workers, consisting of consultants in the areas of financing, purchasing and human resources, who will come from the different agencies they will regulate.

What does the CFO do? The office will ensure agencies comply with the fiscal plan, prepare on time monthly and quarterly reports on revenues and budgets, and help agencies correct operational deficiencies. For the first time, all agencies will have an entity supervising their actions who will also have the power to intervene and make corrections.

Over the weekend, the Financial Oversight and Management Board congratulated the government for providing certain budget and payroll reports. Executive Director Natalie Jaresko said that submitting timely reports was a step toward transparency.

“For the first time in Puerto Rico’s financial history, all financial decisions by agencies will be centralized. This is very important because the fiscal plan has initiatives that permeate all agencies. That is, the savings have to be in all agencies. Managing the budgets’ cash and disbursements are items that involve all agencies, and the idea of the CFO is for a single entity to assist all agencies to comply with the fiscal plan. I believe that is the main goal,” he said.

If financial decisions are channeled through he CFO, how is that going to make the government more agile? “The CFO will channel the execution of the fiscal plan. The agencies will have to comply with all measures in the fiscal plan and the CFO will be the operational execution soul, who will assist agencies in complying with the fiscal plan. In simple terms, if I see that an agency needs resources to close its books, I assign them the resources and help them close the books, so they can comply. The idea is to fill in operational gaps but at the same time correct them. If I see that a process needs to be corrected, I do it to ensure the agency has a world-class system,” he said.

In that regard, the CFO will have the power to make changes in agencies regardless of what their charter laws say. The office also has the control of all agencies’ financial, purchasing and human resources, which will be joining the office to execute its work.

The CFO, however, will not have jurisdiction over public corporations, but the government is evaluating the law to change that. It will not have jurisdiction either over the consultants hired by the Financial Oversight & Management Board, even though it is a territorial entity, which has already spent millions on professional services.

That is the reason Maldonado said the oversight board consultants should not review the CFO’s work but instead work alongside his office to ensure compliance with the fiscal plans. “My petition to the board is for their advisers to work with us, not in reviewing our work, but in helping us to execute the fiscal plan. The board has excellent consultants. I would rather have them work with us because we [the government] are the ones paying them anyway,” Maldonado said.

The CFO will slowly, from now until December, integrate with each agency. Its first big project will be spending an entire month with the Health Department, in September, assisting them with their finances and billing because they must meet certain requirements to obtain federal funding. Afterward, it will tackle the Family Department, the Police Department, the Corrections Department and the Mental Health Services Administration. It will also send people to the Forensic Sciences Administration to help stabilize their finances.

As the number of agencies drop to 40 from 110 over the next five years, the CFO’s job will be made easier. The CFO will help agencies comply with monthly and quarterly budget reports for the fiscal plan and achieve transparency by publishing them. “We are going to make public how each agency is doing compared to the fiscal plan,” he said. If an agency does not meet the goals of the fiscal plan and spends more than what is required, Maldonado said “the agency’s budget will be cut. We will have the mechanism to make them comply.”

In an effort to help with compliance, the government will be establishing a unified financial system, whose implementation was delayed by Hurricane Maria. “It will take us 18 months to implement the system, so all agencies can communicate,” Maldonado said.

At the same time, a team of auditors is working to complete the 2016 audited government financial statements and begin the process with the 2017 audited financial statements.

It is also working on a program with the Police, Treasury and Justice departments to detect unusual transactions and economic crimes, such as money laundering in the private sector.

Joining Maldonado in the CFO office is Francisco Peña, who will be in charge of centralizing hundreds of government accounts by serving as a virtual treasurer for all agencies. Omar Rodríguez will oversee the audits and that agencies complete their reports, and Chávez will manage procurements as part of the CFO.

Regarding procurements, Maldonado said there will be a vendors’ website that will allow agencies to make purchases. “Vendors will be paid within 30 days, as long as they give us a discount. The government will save money and the vendors will be able to obtain loans from banks that they were [previously] unable to get because it took the government a long time to pay,” he said.

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