financial management issues in trust fund financial
TRANSCRIPT
Financial Management Issues in Trust Fund Financial Management Issues in Trust Fund and Development Grant Facility and Development Grant Facility Financed Financed
Operations Operations
Mozammal Hoque Mozammal Hoque Financial Management Anchor Financial Management Anchor
The World Bank The World Bank
March 4, 2009 March 4, 2009
l Total RETF portfolio is about $19.0 billion, which is about 20 percent of Bank’s operations
l Total parent Trust Fund is about 900 and 1500 child TFs
l Around 150 Grant Agreements are annually approved for DGFfinanced operations: Disburses about $170.0 million
l About 200 Trust Fund Proposals (TFP) and 15 Program Review Notes (PRN) are reviewed and approved annually by the CFPVPU.
TF and GPP Portfolio TF and GPP Portfolio
12,150
6,700
2,561
10,391
6,461
3,276
10,094
8,488
4,128
12,223
8,444
4,374
11,055
8,579
5,808
0
5,000
10,000
15,000
20,000
25,000
30,000
FY03 FY04 FY05 FY06 FY07
Total IBRD, IDA and TF Disbursements (US$ Millions)
TFs
IDA
IBRD
$0.2 million $5 million, 61%
$5 million $30 million, 26%
>$30 million, 13%
0%
20%
40%
60%
80%
100%
Trust Funds by Size
Disbursements in Trust Funds Disbursements in Trust Funds
0 500 1000 1500 2000 2500 3000
3500
FY02 FY03 FY04 FY05 FY06 FY07
BETF RETF FIF Others
l The requirements of OP 10.02 is applicable for all operations financed by TF and DGF.
l FM assessments are required for about 1500 TFs and 150 DGFfinanced operations every year.
l Require FM supervision and review Interim Financial Reports for all operations.
l Review audited financial statements for all operations and track the audit reports by the ARCS system.
l Overall, this is a huge load on the FM Specialists.
l The practical application of the requirements of the FM Policy is quite challenging
Application of OP/BP 10.02 Application of OP/BP 10.02
l l The entity The entity’ ’s arrangements are considered acceptable if its s arrangements are considered acceptable if its budgeting, accounting, internal controls, funds flow, budgeting, accounting, internal controls, funds flow, financial reporting, and auditing arrangements: financial reporting, and auditing arrangements:
l l are capable of correctly and completely recording all are capable of correctly and completely recording all transactions and balances relating to the project; transactions and balances relating to the project;
l l facilitate the preparation of regular, timely and reliable facilitate the preparation of regular, timely and reliable financial statements; financial statements;
l l safeguard the project safeguard the project’ ’s assets; and s assets; and
l l are subject to auditing arrangements acceptable to the are subject to auditing arrangements acceptable to the Bank. Bank.
All these have to be considered in the context of the project All these have to be considered in the context of the project specific circumstances, size and complexity specific circumstances, size and complexity
FM Arrangements FM Arrangements
Approach Approach
The extent and nature of each individual assessment will be affe The extent and nature of each individual assessment will be affected cted by considerations of risk, materiality and complexity of the pla by considerations of risk, materiality and complexity of the planned nned operation and the country environment in which it will operate. operation and the country environment in which it will operate.
The FM staff can either visit the proposed project implementing The FM staff can either visit the proposed project implementing entity (or entities) or conduct desk review of the proposed proj entity (or entities) or conduct desk review of the proposed project ect Financial Management arrangements in order to determine whether Financial Management arrangements in order to determine whether these are acceptable. these are acceptable. FMQ FMQ
Though its use is not mandatory, the standard Financial Manageme Though its use is not mandatory, the standard Financial Management nt Assessment Questionnaire (FMQ), provides an indicative list of q Assessment Questionnaire (FMQ), provides an indicative list of questions to uestions to be considered during the assessment. be considered during the assessment.
Desk Review Desk Review
Review of available financial statements, auditors opinion, mana Review of available financial statements, auditors opinion, management gement letter, financial rules and procedures, operations manual, other letter, financial rules and procedures, operations manual, other publicly publicly available information available information… …. .
FM Assessment FM Assessment
l The risk assessment should be completed to include assessments risk assessment should be completed to include assessments of Inherent, control, detection and residual risks. Based on the of Inherent, control, detection and residual risks. Based on the risks identified, appropriate risk mitigating measures and FM risks identified, appropriate risk mitigating measures and FM supervision plan have to be proposed. supervision plan have to be proposed.
l l Scope of the risk assessment should reflect specifics of the Scope of the risk assessment should reflect specifics of the project size, complexity and proposed implementation project size, complexity and proposed implementation arrangements arrangements. .
l l Preliminary conclusions of the FM Assessment (as well as Preliminary conclusions of the FM Assessment (as well as the proposed actions plan) should be discussed with the the proposed actions plan) should be discussed with the grant recipients grant recipients
Financial Management Risk Financial Management Risk
Reporting Arrangements Reporting Arrangements As part of the FM assessment, FM staff agrees interim As part of the FM assessment, FM staff agrees interim and audited financial reporting requirements. and audited financial reporting requirements.
OP 10.02 Financial Management states:
l The Bank normally requires the borrower to submit interim financial reports of which the format, content, periodicity and due date are acceptable to the Bank.
l The Bank requires that the borrower provides audited financial statements that reflect the activities of the operation supported by the Bank funds.
Exemptions from the standard policy requirements can be requested !!
Financial Reporting Requirements
Interim Reporting Format Interim Reporting Format
l l Flexible, may vary from project to project; Flexible, may vary from project to project; l l Generally prepared in the same currency as the Recipient Generally prepared in the same currency as the Recipient’ ’s book; s book; l l At a minimum, must include At a minimum, must include: : Ø Ø Period and cumulative cash receipts and payments by main income Period and cumulative cash receipts and payments by main income and and
expenditure classifications (actual and planned); expenditure classifications (actual and planned); Ø Ø Beginning and ending cash balances of the project; Beginning and ending cash balances of the project; Ø Ø When used as a basis for disbursement When used as a basis for disbursement – – forecast for the ensuing two forecast for the ensuing two
periods (e.g. grants to the UN organizations, which signed the F periods (e.g. grants to the UN organizations, which signed the FMFA). MFA).
Note: Note: Usually financial information already required by the projects would satisfy these requirements. Small grants might request an
exemption. .
Interim Financial Reporting Interim Financial Reporting
Bank FM staff is responsible to ensure that the Recipient's FM arrangements continue to be adequate throughout the Grant implementation period.
FM supervision activities may include:
l Monitoring progress against the FM conditions of Effectiveness (if any);
l Providing ongoing advice to clients on the FM related matters; l Reviewing Interim Reports; l Reviewing audited financial statements and auditor
performance; l Monitoring the continuing adequacy of FM systems; l Reviewing individual transactions; l Contributing to the Implementation Status report (or its
equivalent).
FM Supervision
The extent and nature of the supervision input required for each grant will be affected by:
l Findings from the FM assessment; l Considerations of risk; l Complexity of the grant; l Country Environment.
Ideally, effective grant supervision should be done in collaboration with the TTL.
FM Supervision
Review of Interim Reports Review of Interim Reports l l The Bank normally requires the borrower to submit interim financ The Bank normally requires the borrower to submit interim financial ial
reports (exceptions have to be approved by the RMFM); reports (exceptions have to be approved by the RMFM); l l Normal submission Normal submission within 45 days of the end of each agreed reporting within 45 days of the end of each agreed reporting
period; period;
l l TTL is responsible for reporting on overall grant progress, TTL is responsible for reporting on overall grant progress,
l l FM is responsible for reviewing financial progress aspects. FM is responsible for reviewing financial progress aspects.
Review of Audited Financial Statements
l Required for all projects, except when the exemption was granted (> 500K RMFM; < 500K FMORC);
l FM staff should consider timeliness of audited financial statements and seriousness of identified FM problems (if any);
l In case the problematic issues are identified – a set of remedial actions is available and document in ARCS.
Review of Reports
l Networks who manages a portfolio of about $350 million does not have adequate FM staff (Big Networks are SDN and HDN).
l FM staff are not upfront involved in many TFfinanced operations, which makes it difficult to conduct FM due diligence.
l Adequate budget is required to provided FM support to TF and DGF financed operations
l Data provided by the TF and GPP unit are not reliable and can not be captured by RAPMANPRIMA to apply a riskbased approach to TF and DGFfinanced operations.
l TF portfolio are not mainstreamed in the CAS and Country FM Strategy/Plan.
l TFfinanced operations are not part of the Country Portfolio Review
l FM and procurement staff does not appear to have been systematically invited by task teams to comment on trust funded activities, unless such activities were cofinancing existing Bank projects.
Some Issues in Addressing FM in TF and DGF Some Issues in Addressing FM in TF and DGF
l There is a severe shortage of procurement and FM staff, task teams reported that they were "desperate" for procurement and FM assistance.
l l These shortages on the Bank's side tend to affect and be These shortages on the Bank's side tend to affect and be compounded by capacity weaknesses on the client side. compounded by capacity weaknesses on the client side.
l l Instances of "shadow" TTLs where the TTL of record is different Instances of "shadow" TTLs where the TTL of record is different from from the individual making the decisions on the uses of the TF resour the individual making the decisions on the uses of the TF resources, ces,
l l TTLs does not systematically document supervision findings and TTLs does not systematically document supervision findings and recommendations, and the problems identified are not effectively recommendations, and the problems identified are not effectively followed up and remedied. followed up and remedied.
l l Currently, there is no standard format for documenting supervisi Currently, there is no standard format for documenting supervision on reports capturing all critical aspects of trust fund management. reports capturing all critical aspects of trust fund management.
l l There are deficiencies in (a) FMS review of audited financial There are deficiencies in (a) FMS review of audited financial statements, (b) management oversight of ARCS data, (c) Timing of statements, (b) management oversight of ARCS data, (c) Timing of supervision, and (d) identification and monitoring of high risk supervision, and (d) identification and monitoring of high risk TF TF projects. projects.
Some Issues in Addressing FM in TF and DGF Some Issues in Addressing FM in TF and DGF
l Bank singed FM Framework Agreement (FMFA) with UN and 18 UN organizations signed the FMFA
l UN organizations, which did not signed FMFA, the requirements of OP 10.02 applies.
l Special type of operations such as OutputBased Aid may require immediate guidance if they use TF resources.
l For Fiscal Intermediary Fund (FIF) type of operations, the requirements of OP 10.02 are not required. However, for the recipient of FIFs, the Bank should conduct initial FM capacity assessment (e.g. GAVI).
l FM capacity development requirements are not addressed for recipients in most cases (Exception: Global Village Energy Partnership)
l Audit exemption is available for small TFs.
Some Issues in Addressing FM in TF and DGF Some Issues in Addressing FM in TF and DGF
TF Reforms: E TF Reforms: E TF Applications TF Applications
GFR Grant Fund Request
Grant Agreement
GRM Grant Reporting and
Monitoring
My TF Portfolio Donor Center
TFP Trust Fund Proposal
(IBTF)
Donor Agreement
LOR Letter of Rep.
TRST Trustee Admin.
Contribution Management
FM Due Diligence
GPA Grant Program Admin
RAPMANPRIMA
?
Reliable TF Data
• FM Staff should be upfront involved in TFfinanced operations
• The value of TF may be from few thousands to a billion dollar, a “one size fits all approach” should not apply.
• A simplified approach may be followed for low risk TF operations.
• FM Manual is being updated to provide guidance to FM staff. TF Handbook is also being updated
• TF should be included in the CAS, Country FM Strategy, and Country Portfolio Review Report.
• CFPVPU/Network should appoint their own FM staff for providing FM support to TF and DGFfinanced operations.
• TF and DGF unit should provide reliable data so that RAPMAN PRIMA could be effectively used to provide a riskbased support to TF.
• TTLs should provide adequate budget for providing support to TF and DGFfinanced operations
Way Forward
• OP/BP 14.40 – Trust Fund • OP 8.45 – Grants • Trust Fund Handbook – Being revised • Trust Fund Management Framework – Board Paper
• OP/BP 10.02 – Financial Management • Financial Management Manual (being revised). • TF Reform Update: ETF Website • DGF Website • GPP website • TF Website • FM Website • FMFA/FPA
Sources of Information
Thank You
Q & A