VZCZCXRO0746
RR RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #1911/01 1990712
ZNR UUUUU ZZH
R 180712Z JUL 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 0222
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 03 KABUL 001911 
 
DEPARTMENT FOR SRAP, SCA/FO, SCA/A, EUR/RPM 
STATE PASS TO AID FOR ASIA/SCAA 
USFOR-A FOR POLAD 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: KDEM PGOV AF
SUBJECT: Financial Management at the Provincial Level in Kandahar 
 
¶1. Summary.  The Afghan government's financial management at the 
provincial level in Kandahar has improved greatly over the past year 
with respect to financial and revenue accounting.  However, the lack 
of a consultative budget planning process between ministries in 
Kabul and their departments in Kandahar remains an obstacle to 
efficient functioning of provincial-level government.  Moreover, 
deficiencies in governmental functions such as private business 
registration and land titling limit the efficiency of revenue 
collection.  Like many provincial departments throughout 
Afghanistan, chronic understaffing and low salaries directly impacts 
effectiveness and operations.  End Summary. 
 
¶2. While international advisors have worked with the Ministry of 
Finance (MoF) in Kabul for several years to increase transparency of 
 national-level finance, revenue, and budgeting processes, little is 
known about financial management at the provincial level.  In light 
of frequently reported problems with provincial line departments 
receiving and executing their budget allocations, and the need to 
increase revenue collection in the provinces, experts from the U.S. 
Department of the Treasury (UST), Office of Technical Assistance, 
visited Kandahar in order to ascertain the present state of 
financial management and to assess the ways in which USG technical 
assistance might be useful at the provincial level. 
 
¶3. UST and Kandahar Provincial Reconstruction Team (KPRT) personnel 
visited Kandahar's Director of Finance ("Mastufi") at the 
headquarters of the provincial line Department of 
Finance("Mastufiat") in Kandahar City July 1,  The Mastufi, Ghulam 
Haider, had with him the heads of the Mastufiat's two sections:  Zia 
Uddin, Head of Finance, and Samat, Head of Revenue.  The Mastufiat 
is located in the relatively secure "Government Circle" area of 
Kandahar City, in an old but well-constructed and clean building 
with electricity and plumbing. 
 
Kandahar Mastufiat Functions and Work Load 
------------------------------------------ 
 
¶4. The functions of the Mastufiat are 1) to receive, disburse, and 
cost account monies from the MoF allocated to line departments and 
the Afghan National Security Forces (ANSF), and 2) to implement the 
revenue code by collecting taxes and customs fees on behalf of the 
MoF.  The Mastufiat is only responsible for "operating" budgets, not 
development budgets associated with specific donor-funded programs. 
The operating budgets consist of monies for 1) payrolls, and 2) 
goods and services.  In Kandahar Province, the Mastufiat is 
responsible for approximately 20,000 ANSF salaries and 8754 civilian 
salaries.  (Note:  The number of ANSF salaries is high because 
Kandahar's Mastufiat handles payroll accounts for all military and 
civilian employees of the ANA 205 Corps, headquartered in Kandahar 
but deployed across the south in Zabul, Kandahar, Uruzgan, and 
Helmand.)  The Mastufiat began paying ANSF salaries by direct 
deposit about one year ago.  However, the system for paying civil 
servants by direct deposit has not yet come on line due, according 
to Haider, to the various ministries' failure to make necessary 
arrangements with banks and issue employee ID cards. 
 
¶5. Concerning the Mastufiat's revenue function, Haider stated that 
revenues for the first quarter of 1388 were up 30 pct compared to 
the first quarter of 1387.  He attributed this increase to his 
deployment of more tax collectors and more aggressive collection. 
The sources of revenue continue to be customs fees and taxes, the 
former being the larger.  (Note:  The Mastufiat has customs 
inspectors stationed at the Spin Boldak border crossing point.)  The 
Mastufiat does not prepare tax bills for businesses and individuals; 
according to Haider, because businesses are generally not 
registered, the only way to collect taxes is for his staff to visit 
each place of business, evaluate the size and income of the 
business, and write up tax bills and receipts on the spot. 
 
Kandahar Mastufiat Financial 
Management Procedures and Systems 
--------------------------------- 
 
¶6. At the center of the Mastufiat's financial management procedures 
is the Afghan Financial Management Information System (AFMIS), a 
computerized system that came online in Kandahar about a year ago. 
AFMIS connects the Mastufiat with the MoF in Kabul in near real 
time, showing all finance and revenue transactions and automatically 
updated balances for all accounts.  AFMIS also allows the Mastufiat 
to provide each Kandahar line department with a monthly transaction 
record and accounting sheet.  Transactions that are not completed 
electronically (including all civil service salaries and all goods 
and services expenditures) are recorded on paper requisition, 
receipt, and voucher forms; clerical staff perform manual data entry 
of these the records into AFMIS.  Apparently because the Mastufi and 
his staff do not fully trust AFMIS, they keep a paper master ledger 
as a back-up to record all transactions.  Staff accountants use 
paper records to perform the traditional bookkeeping function of 
 
KABUL 00001911  002 OF 003 
 
 
bank reconciliation; that is, reconciling the banks' records of 
credits, debits, and balances with the data in AFMIS. 
 
¶7. The AFMIS system includes a function for printing data on 
security-paper check forms.  According to Haider, the forms and the 
access code for the check-printing function were only accessible to 
four staff members.  As a management control, any department that 
submits a requisition for over AF 1,000,000 has to have the governor 
or his designee sign off on it.  Asked about whether Provincial 
Council (PC) members attempted to exercise any fiscal oversight, 
Haider stated that PC members occasionally stopped by the Mastufiat, 
and that they were welcome to inspect the financial and revenue 
reports. 
 
¶8. Finance Section Chief Zia Uddin, a young man, received one month 
of training at the MoF in Kabul on the use of AFMIS, and he, in 
turn, trained his assistants, who trained the data entry clerks. 
The older Revenue Section Chief, Samat, was less proficient with 
AFMIS, but evidently had younger assistants who worked with the 
system.  In fact, all of the Mastufiat staff observed using 
computers were young men (though Haider claimed he had "a few" women 
on his staff); the older men worked exclusively with paper records. 
 
Kandahar Mastufiat's Accomplishments 
------------------------------------ 
 
¶9. Asked about his view of the Mastufiat's accomplishments and 
successes, Haider first put his reply into context by pointing out 
that the department had "started from zero" and that the MoF had 
given him little technical assistance over the years.  Haider then 
stated that he could sum up the Mastufiat's progress in simple 
terms:  Within the past year, largely thanks to AFMIS and drawing on 
the skills of his staff, he has become able to explain clearly to 
the other provincial departments their budgets and current accounts. 
 He also acknowledged that the MoF had over the past year become 
much better about making the departments' operating budget 
allocations available in a timely fashion.  However, Haider said 
that he knew the recent improvement in financial management in 
Kandahar was only the beginning, and he noted several challenges his 
department faced. 
 
Kandahar Mastufiat Staffing Issues 
---------------------------------- 
 
¶10. Haider explained that the MoF's official staffing pattern 
("tashqil") for the Mastufiat authorized him a staff of 92 
professionals and clerical workers (civil servants), and 37 contract 
laborers.  He is at present short 29 employees in the 
professional/clerical category.  (Note:  All Kandahar line 
departments are staffed under their tashqils; the Mastufiat's ratio 
of authorized positions to employees is above average for the 
province. This is a widespread situation in both the central 
ministries and the provinces, due to the fact that the Tashqil is 
determined by the Civil Service Commission and the amount of budget 
provided by the Mof for salaries is usually less than the Tashqil.) 
According to Haider, he constantly attempts to recruit professional 
staff, but the salaries he is authorized to pay are not high enough 
to attract qualified persons.  The average salary for professional 
staff at the Mastufiat is USD 121 per month.  (Contract Laborers 
receive USD 60 per month, but there is no shortage of laborers.) 
Haider stated that he believed an average salary of USD 300 would be 
sufficient to attract the staff he needs, and would address as well 
the department's problem retaining employees.  He was skeptical 
about the planned pay raises under the Priority Reform and 
Restructuring (PRR) civil service reform program for employees who 
pass the civil service exam, noting that a number of his employees 
had recently passed the exam but did not receive a pay raise; 
according to Haider, "That might be the case for employees in Kabul, 
but the central government does not follow its own rules when it 
comes to the provinces." 
 
Training Issues 
--------------- 
 
¶11. Haider enthusiastically welcomed the idea of UST training and 
mentoring support for the Mastufiat.  He complained that, although 
the MoF had provided training to several of his key staff members in 
Kabul, "the Afghan instructors just read out loud from books" and 
did not offer the trainees anything useful for their work in 
Kandahar.  Haider also expressed a characteristic Southern scorn for 
the two "Adam Smith Fellows" whom the British Department for 
International Development (DFID) funds to work on capacity building 
at the Kandahar Mastufiat.  He said the two Fellows were "useless" 
and "did nothing but sit around."  Moreover, they had a negative 
effect on staff morale because it was known they were paid USD 1800 
per month.  (Note:  It was evident from what Haider said that the 
two Fellows were Dari-speaking Tajiks, which in itself would 
practically rule out their ability to work effectively in the highly 
 
KABUL 00001911  003 OF 003 
 
 
conservative Pashtun culture of Kandahar.)  Haider appeared open to 
UST's proposal to have American experts visit the Kandahar Mastufiat 
periodically to provide mentoring and guidance. 
 
Vertical Communication Issues 
----------------------------- 
 
¶12. Haider cited another problem seems to affect every provincial 
line department:  Lack of communication between the Ministries in 
Kabul and their provincial departments.  In particular, Haider 
mentioned the lack of a consultative budget planning process.  The 
MoF sets targets for revenue collection by the Kandahar Mastufiat 
that appear to Haider to be arbitrary, and makes salary and goods 
and services allocations to departments that do not correspond well 
to their actual requirements.  In order to improve this situation, 
Haider suggested that a USDOT expert mediate a conference between 
the Kandahar Mastufiat and the MoF in order to work out a more 
effective budget planning process for all provincial departments. 
 
Reality Check:  The DRRD's 
Relationship with the Mastufiat 
------------------------------- 
 
¶13. Following the visit to the Mastufiat, UST and KPRT personnel 
visited the Kandahar provincial Department of Rural Rehabilitation 
and Development (DRRD) in order to evaluate the departmental 
financial management practices of this key department and their 
relationship to the Mastufiat.  DRRD Director Abdul Latif Ashna and 
his female Financial Management Officer, Nasima, provided 
information. 
 
¶14. According to Ashna and Nasima, the Mastufiat was helpful and 
efficient about providing the DRRD with monthly reports as well as 
in disbursing funds as required in a timely fashion.  The DRRD's 
financial management system is not computerized and is rudimentary, 
with only two object codes:  salaries and goods and services.  Like 
the Mastufiat, the DRRD only tracks its operating budget, not the 
development budget.  Ashna and Nasima stated that the MRRD in Kabul 
sent their budget allocations to Kandahar in a timely fashion, but 
like Haider, Ashna complained that the allocations were largely 
arbitrary due to the lack of a consultative budget planning 
process. 
 
Comment: Management Keeping Pace 
with Capacity Development 
--------------------------------- 
 
¶15. Though obviously inefficient in many respects - such as 
requiring ANSF and line department personnel to present requisitions 
personally at the Mastufiat to draw cash or checks for operating 
expenditures - the Mastufiat in Kandahar appears to run in an 
orderly, transparent fashion, with several management controls in 
place.  With respect to its revenue collection function, the 
Mastufiat is performing well within the limitations of not having 
functioning private business registration or land title mechanisms 
in Kandahar for the purpose of preparing tax bills.  In short, 
financial management problems at the provincial level in Kandahar 
are not due to deficiencies in the functioning of the Mastufiat, but 
rather to limited government capacity in other areas, and to the 
lack of a consultative budget planning process between Ministries 
and their provincial departments. 
 
¶16. The MoF and its department in Kandahar can be a positive driving 
force in developing more effective provincial-level budgeting for 
all Ministries, and for establishing mechanisms to support improved 
revenue collection.  The UST clearly has an opportunity to make a 
beneficial intervention in Kandahar in a mentoring role and as a 
mediator between central and provincial government institutions. 
 
EIKENBERRY