Professional Documents
Culture Documents
ART. III, SEC. 5 (B), OF THE WORLD BANKS ARTICLES OF AGREEMENT: The Bank should make arrangements to ensure that borrowers use loan proceeds:
Only for the purposes intended With due attention to economy and efficiency
MODULE 1 Unit 1 - Tr. no. 1
NEGOTIATIONS STAGE
The Negotiations state is when borrower and lender Agree on, among other things: Structure, functioning, staffing of the FM systems and Reporting formats These agreements are recorded in the minutes of negotiations signed by both parties Whenever practicable, project director and financial director should be included in the borrowers negotiating team (easier in cases 2 and 3) than in case 1 MODULE 1
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FM PROJECT COMPLETION
Overall evaluation of implementation experience includes a review of FM performance throughout project life: the review will cover the following aspects of FM Planning & budgeting Internal control, including procurement & internal audit Book-keeping, accounting, IT, records management Financial reporting Independent audit opinions
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PROJECT FINANCIAL MANAGEMENT (PFM) ENVIRONMENT (contd) Elements of good PFM Systems:
Planning and Budgeting Internal Controls Records Management and IT Book-keeping and accounting Financial reporting Auditing
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INTERNAL CONTROL
Internal control is a process: effected by an organization, designed to provide reasonable assurance that objectives in the following areas are being achieved:
effectiveness and efficiency of operations reliability of financial and operational reporting compliance with applicable laws, and regulations
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For computerized accounting systems, all access restrictions should be imposed by means of passwords and different levels of user rights.
PRE-IMPLEMENTATION P&B
PRE-IMPLEMENTATION P&B INCLUDE:
Stakeholder Information Needs Reporting Content & Frequency Accounting Systems Budget Format & Content PAD Cost Tables
The first quarter in a project life usually involve minimal activities One-quarter of annual project activities and cost may not occur in the first (or indeed any) quarter of the year
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A good project accounting system should produce information that meet the needs of all stakeholders Harmonizing users information needs would help avoid setting up parallel systems to meet the need of different stakeholders
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In a health project, purchase of medicines In a rural development project, credit to farmers In an education project, purchase of textbooks In a railway rehabilitation project, purchase of new wagons
After listing what needs to be accounted for, the fourth question is:
COMPUTERIZATION
Computerization of accounting systems does not tell us what information we need, or what to do It merely helps us to obtain faster or more easily the information we have already decided should be prepared
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Certain types of project raise special issues requiring attention during the design of an accounting system: Multiple institutional participants or implementing agencies One agency implementing a project in several locations
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COMPUTERIZATION COMMITTEE
Set up a computerization committee to meet regularly to review the advisers progress reports and provide advice and input The committee should:
Define the precise computerization needs of the project Invite proposals from a few preselected suppliers
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MANDATORY REQUIREMENTS
The system must be: Capable of handling provincial district as well as headquarters transactions Multi-currency User friendly (e.g. Windows driven) Not prohibitively expensive Able to account under different bases (e.g. Cash, accrual, modified cash, modified accrual) Able to produce the PMR for the financial management initiative (formerly LACI)
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MANDATORY REQUIREMENTS(contd)
Capable of providing clear audit trails Able to track actual, budget, forecast and project life per the pad Able to link financial figures to physical performance indicators as required by project Equipped with user manual or documentation Able to track and search by specific references (e.g. The journal number allocated to each transaction or by cheque number) MODULE 1
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Able to generate reports for previous periods (e.g. Lost reports) Able to customize reports within reasonable limits
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COMPUTERIZATION
It may be prudent to run a manual and computerized system in parallel for some time, before finally abandoning manual system Even after that, there should be back up of all information and systems in electronic form
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Bank-financed projects are required to submit to the bank at regular intervals, not more than 6 months, periodic progress reports, FMR FMR stands for Financial Monitoring Reports
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CHARACTERISTICS OF FMR
FMR replaces the Project Management Reports (PMR), introduced by the World Bank on July 1, 1998, under the loan administration change initiative (LACI) The distinguishing characteristics of FMR are:
Distinction between project management (by Borrower) and project monitoring (by lender) New emphasis on maximum reliance on borrowers Accounting/reporting systems/format Format, content, and frequency more flexible Reflecting project size, sector, and complexity
MODULE 1 Unit 1 - Tr. no. 85
The same structure of financial information should normally be used for project planning, monitoring reports and annual audited financial statements, and implementation completion reports (ICRs) As far as possible, borrowers should not be required to provide the Bank with information already available to the Bank The requirements for financial and procurement monitoring should, as far as possible, be aligned with other bank requirements for project progress reporting and monitoring MODULE 1
Unit 1 - Tr. no. 87
While the reports to be submitted to the Banks should meet certain minimum requirements, they should be flexible and customized to each project or where possible, to each country and/or sector Monitoring expenditures in relation to physical progress is a key aspect of ensuring that the project is under proper financial control Wherever possible, common reporting and monitoring arrangements should be agreed with other donors involved in the project
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The FMR should normally include: Financial reports Physical progress reports, and Procurement reports
Cash inflows and outflows for the period (e.g., quarter), and cumulatively for the project life Expenditures should be reported according to project activities, not according to procurement/disbursement categories (although this may be reported as an addition) MODULE 1
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PROCUREMENT REPORT
The procurement report:
shows the status of procurement of goods, works, services, and consultants compares the actual procurement performance with the plan agreed with Bank at negotiations or in a subsequent review highlights specific problems (e.g., staffing or training needs)
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Explains deviations from plan, and proposes solutions to problems identified Format, content, frequency, and currency of reports Project outputs and other indicators for monitoring physical or other progress toward achieving project results How to deal with multiple implementation agencies, scattered project locations, and community-based project activities
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AUDITING ARRANGEMENTS
The Bank requires borrower and implementing entity to have annual financial statements audited in accordance with standards on auditing acceptable to the Bank (OP 10.02). The audit includes: Assessment of adequacy of accounting and internal control systems Determination of maintenance of adequate documentation of all transactions Verification of eligibility of transactions
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AUDITING ARRANGEMENTS
The three most common types of audit are: Financial statement audit, verification/confirmation Compliance audit, usually by internal audit, to confirm compliance with rules and regulations Operational audit, to assess performance, efficiency and effectiveness, requiring more than accounting skills
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NON-REVENUE-EARNING ORGANIZATIONS
The Bank may accept audit of financial statements of non-revenue-earning organizations and projects by SAI, provided they apply auditing standards of international organisation of supreme audit institutions (INTOSAI) to audit accounts of revenue-earning entities.
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Audit of statements of expenditure (SOE) and project management reports (PMR) involve more compliance checking, since their supporting documents are not sent to the Bank, but retained in PIUS.
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AUDIT OF SA
Audit of the special account (SA) statement verify that: SA transaction have been fairly presented Are in accordance with the loan agreement Funds have been used solely for project purposes
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SELECTION OF AUDITORS
Auditor are selected according to Bank guidelines for the selection of consultants. Terms of reference (TORS) are necessary, to cover auditor responsibilities peculiar to Bank-funded projects (e.g. SOES and SAS). TORs must be clear, specific and comprehensive, without in any way limiting auditor obligation to apply ISAS or GAAS. Samples of TORS are in FARAH.
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OTHER PFM PROBLEMS: ORGANIZING AND FINANCING THE FINAL AUDIT (contd)
This needs to be planned, discussed with the task leader and disbursement officer and all detailed steps agreed, at least one year before the closing date. Failure to plan for this well in advance of the closing date could result in borrower having to finance the audit from its own resources after the closing date.
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