For discussion
FCR(96-97)100
on 31 January 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND

HEAD 710 - COMPUTERISATION
Treasury
New Subhead "LAFIS Departmental Reporting System"

Members are invited to approve the creation of a new Subhead "LAFIS Departmental Reporting System" with a commitment of $32.6 million under Head 710 Computerisation.

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PROBLEM
PROPOSAL
JUSTIFICATION

Present mode of operation
Benefits of the proposed system
FINANCIAL IMPLICATIONS
Non-recurrent cost
Recurrent costs
Cost-benefit Analysis
Implementation Plan
BACKGROUND INFORMATION
Cost-Benefit Analysis of the Proposed LAFIS Departmental Reporting System

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PROBLEM

The existing facilities in the Ledger Accounting and Financial Information System (LAFIS) for retrieving financial information from Government's centralised general ledger and budgetary control system are inadequate and inflexible in meeting departments' requirements for financial reporting, control and analysis.

PROPOSAL

2. The Director of Accounting Services (DAS), with the support of the Secretary for the Treasury, proposes to develop a LAFIS Departmental Reporting System (LDRS) as a sub-system to LAFIS and implement the LDRS in all government branches and departments at a non-recurrent cost of $32.6 million.

JUSTIFICATION

Present mode of operation

3. LAFIS was first introduced in 1983. It is a computer-based financial information system which runs on a central mainframe in the Treasury. Its purpose is to keep Government's accounts for which the DAS is responsible, and assist departments to monitor their expenditure position by providing financial reports on department's expenditure and commitments and on-line enquiry facilities for access to the information held in LAFIS. At present, there are over 500 LAFIS terminals installed in government branches and departments.

4. LAFIS has successfully performed its function as the central vote record for Government and has improved departments' financial information systems which, prior to 1983, were based on manual vote records. However, with the Government's continuing effort to devolve resources and spending decisions, as far as possible, to branch and departmental managers under the public sector reform initiative, there is an increasing demand from LAFIS users for more comprehensive and ready financial information. The functions of LAFIS, which were designed over ten years ago, cannot adequately meet today's needs. A consultancy study of the current system has identified the following areas which require improvement -

1. many users do not have the facilities to download data from the central LAFIS database to local personal computers (PCs) for local manipulation and presentation. Instead, they have to input the data retrieved from LAFIS to another PC before they can do any further manipulation to suit their needs;

2. the existing enquiry facilities, which were developed more than ten years ago, are rather rigid by current day standards. Each of the enquiry routines covers only a small number of data items and is of a pre-set format. For example, users cannot specify grouping of data according to their individual needs. They often have to make multiple enquiries to obtain the required financial information;

3. because of the rigid on-line enquiry facilities, departments tend to rely heavily on the financial reports produced centrally at the Treasury to monitor their spending level. However, the Treasury can only produce such reports as fast as the central computer permits. This means that we have to schedule the production of reports for various branches and departments and as a result, many departments are not receiving a report on the very last day of a month for them to monitor their expenditure month on month. The information in these reports may not be timely enough to meet departments' needs. This affects the close monitoring of expenditure by the departments concerned; and

4. the report formats are not tailor made to individual departments' needs. The system lacks the facilities for departments to construct their own style of reports to suit their particular needs.

5. In view of the above deficiencies, the consultant recommended that we should develop a LAFIS sub-system, namely, a Departmental Reporting System. DAS conducted a pilot scheme in three departments in 1995. The objectives of the pilot were to verify the usefulness and adequacy of the LDRS in operational environments and to assess the technical viability of implementing the system service-wide. Based on the findings of the pilot, DAS now proposes to implement the LDRS in all government branches and departments.

Benefits of the proposed system

6. The proposed system, which will provide an interface with existing LAFIS functions, has the following user-friendly features -

1. there will be much improved facilities enabling users to select, extract and download required financial information from the LDRS to local PCs for further manipulation;

2. the existing lengthy process of on-line enquiry will be simplified and departments will be provided with more intelligent on-line facilities to ascertain most up-to-date expenditure position of their departments. For example, instead of making enquiries of financial information on individual subheads of expenditure separately, users will be able to obtain detailed as well as summary financial information on all subheads or a number of subheads at the same time;

3. there will be local printing facilities enabling users to print selected financial information using standard PC software products. As a result, most of the existing monthly LAFIS reports now centrally produced by Treasury will no longer be necessary; and

4. users will be able to plan their desired financial reporting schedule. These reports may then reflect more promptly the department's current expenditure and commitments. Provision of more timely and useful information will facilitate vote controllers to discharge their budgetary control responsibility more effectively and efficiently.

7. In short, by providing efficient enquiry and analysis facilities to users, the LDRS will give branch and departmental managers a more effective financial management tool. In addition, implementation of the LDRS will extend the availability of such financial management support to more officers in the department. At present, only staff in departments' finance divisions have access to LAFIS terminals. Other units of a department have to obtain the LAFIS information through the finance division. Upon implementation of the LDRS, the use of LAFIS on-line service will be extended to officers with financial responsibilities such as senior managers, budget controllers and cost centre managers. The estimated number of LAFIS workstations required, with the built-in LDRS, is around 1 100.

FINANCIAL IMPLICATIONS

Non-recurrent cost

8. DAS estimates that implementation of the proposed system will require a non-recurrent cost of $32,600,000, broken down as follows -

9. As regards paragraph 8(a), the cost of $25,715,000 is for the acquisition of mainframe peripherals, network servers and equipment, intelligent workstations and peripherals, data communication equipment and associated system software.

10. As regards paragraph 8(b), the cost of $1,428,000 is for the acquisition of professional services on software development and implementation.

11. As regards paragraph 8(c), the cost of $2,857,000 is for site preparation, cabling, hardware and system software installation.

12. As regards paragraph 8(d), the cost of $1,100,000 is for training of Treasury staff on system implementation and support, and for training of users on system operation.

13. As regards paragraph 8(e), the cost of $1,500,000 represents a 5% contingency on the cost items set out in paragraphs 8(a), (b) and (c).

14. The Treasury will redeploy existing staff for managing and supporting the development and implementation of the proposed system.

Recurrent costs

15. The estimated additional recurrent expenditure for maintaining and supporting the proposed new system after full implementation is $3,000,000 a year, made up as follows -

16. The Treasury will redeploy existing staff for maintaining the proposed system.

Cost-benefit Analysis

17. DAS estimates that there will be a saving of four million pages of paper, equivalent to about $1,150,000 a year, and 0.5 Clerical Officer II, equivalent to $142,000 in staff cost, arising from the substantial reduction in the production and delivery of financial reports which are currently centrally generated by the Treasury. In addition, the pilot scheme shows that on average each department can save around 30% of a Clerical Officer II arising from a reduction in report despatching and paper handling workload. The annual notional saving for about 90 government branches and departments totals $7,648,000 in staff cost, representing 27 Clerical Officers II. When departmental users are more familiar with the system, we expect more staff savings arising from less reliance on accounting staff to retrieve financial data. Although the expected staff savings are unlikely to result in the actual deletion of posts, the departments will be able to redeploy the manpower saved to meet the demand of other activities. The proposed system will break even in 2003-04, the fifth year after system implementation. A cost-benefit analysis is at the Enclosure.

Encl.

18. In addition, as explained above, the proposed system will improve the effectiveness of control and monitoring of public spending by Controlling Officers. Although the benefits in this regard are difficult to quantify, a more efficient financial information system would enable us to manage public finances more vigilantly at all times.

Implementation Plan

19. DAS plans to implement the proposed system according to the following schedule -

BACKGROUND INFORMATION

20. LAFIS was first introduced in 1983. Over the years, it had been gradually extended and became fully operational in all government branches and departments in 1991. It provides a local vote control and financial information facility to government branches and departments and covers all income and expenditure under General Revenue Account and expenditure on projects funded from the Capital Works Reserve Fund and other Funds. All the accounting transactions are updated to LAFIS by the Treasury and departments. The main categories of information held in LAFIS include -

1. approved estimates broken down into head and subhead levels and departmental expenditure at more detailed levels;
2. details of committed expenditure;
3. details of actual receipts and payments; and
4. patterns of the flow of expenditure in the year.

21. As part of our policy commitment to develop our financial information systems to enable branch and departmental managers to exercise their resource management responsibilities more effectively, DAS commissioned a consultancy study in August 1994 to review the Government Financial Management Information Systems. One of the terms of reference for this study was to review the adequacy and ability of LAFIS to meet the new information requirements and to recommend alternative solutions to support the evolving needs for financial and management information. The consultant has interviewed Treasury, Finance Branch, Efficiency Unit, five policy branches and 12 departments and conducted a questionnaire survey covering 45 of the remaining policy branches and departments.

22. Following the consultancy, DAS implemented a pilot scheme on LDRS in December 1995 in three departments, namely the Treasury, Environmental Protection Department and Water Supplies Department. Users of the three departments found the pilot system very useful in improving their financial report facilities. A number of departments have already registered their interest to be included in the first phase of the implementation of LDRS.

Finance Branch
January 1997

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Enclosure to FCR(96-97)100

Cost-Benefit Analysis of the Proposed LAFIS Departmental Reporting System
(at 1996-97 prices)

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