Action Plan & Regulatory Framework for Second Generation Treasury Reforms IDF Grant The Ministry of Finance and Economy (MOFE) of the Republic of Armenia is considering initiation of a second generation treasury reform, which has general government support. The reform process would incorporate a major improvement and expansion of the functionality of the government financial management system, including the production of accrual data conforming with both GFS (2001) and international accounting standards. However, because  of the scope of anticipated reforms, the risk of overstretching already  low requisite capacity in the staff of the line ministries, as well as the overall  importance for the whole public sector of ensuring success, an appropriate method of initiating reforms and building necessary capacity would be to run a pilot in a selected government agency (preferably either Ministry of Education or Health) and use the experience of the pilot, extrapolating it to other sectors, to design  a larger-scale reform agenda by developing an Action Plan for adopting more advanced practices of modern public financial management. The pilot, financed through the IDF Grant, will provide necessary material and background experience to analyze its outcomes, thus adjusting a  future large-scale Treasury modernization to local needs and implementation capacity. Piloting the below listed activities will also help to increase cost-efficiency of future upgrade of the financial information management system and clearly identify the areas where related technical assistance and capacity building will be required most. The pilot, funded through IDF Grant, will include support for and capacity building in the following areas that, if successful in selected sector, will have leverage and spillover effects across the public sector: Â·Budget execution, including expenditure control mechanisms and cash management, financial management information systems, and budget monitoring; Â·Introduction of accrual accounting and budgeting; Â·Development of legal/regulatory framework for budgeting and financial managemen t; Â·Development of appropriate organizational structures for budgeting and financial management; Â·Building capacity for government accountancy, increasing the supply of professional accounting and budgeting staff in the public sector, including provision of training programs.  Activities financed by the Grant will include: Â·Review of user needs and definition of the scope of the pilot in light of the functional priorities resulting from the review; Â·Defining the accounting standards for the pilot system and other management information functionality requirements of the pilot system, including for the production of GFS (2001) information; Â·Defining and documenting the business processes around the pilot system, including accounting instructions; Â·Defining software and hardware requirements specifications of the pilot system; Â·Developing the software and procuring and installing the hardware for the pilot system; Â·Testing and operating the pilot system in co-operation with the MOFE and the pilot agency; Â·Provide training to the MOFE and pilot agency staff  through series of seminars/workshops, study tours to successful transition economies with similar institutional background (Central Europe, Baltics) and on-job training; Â·Documenting the pilot system, the experience with operating it and the lessons learned for the design and execution of a possible full-scale Treasury modernization project; Â·Preparation of a detailed Action Plan for large scale upgrade of the Treasury, based on pilot system operating experience.