Table of Content - World Banksiteresources.worldbank.org/INTVIETNAM/Resources/FM...Table of Content I- What is Financial Management? II- Why we need a good Financial Management system?

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Table of ContentTable of Content

I- What is Financial Management?II- Why we need a good Financial Management system?III- World Bank Policies and Guidelines on Project Financial

ManagementIV- When we should perform Financial Management

activities?V- How to strengthen Financial Management practices?VI- Recent changes to Project Financial Management

procedures

VII-Financial Monitoring Reports (FMRs)

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II-- What is Financial Management?What is Financial Management?

Process of planning and controlling financial resources to achieve optimum economic and financial benefits from an investment. The main elements of financial management system are: l Planning and budgetingl Internal controll Accounting systeml Financial reportingl Auditing

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IIII-- Why we need a good Financial Why we need a good Financial Management system?Management system?

� Provides the comfort needed by the lenders, borrower country and donor community.

� Provides information to manage project and monitor project progress.

� Reduces an eliminates frauds and corruptions in project.

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IIIIII-- World Bank Policies and Guidelines on World Bank Policies and Guidelines on Project Financial ManagementProject Financial Management

- Article Iii, Sec.5(B), of the Bank’s Articles of Agreement: The Bank should make arrangements to ensure that borrowers use loan Proceeds:

� Only for the purpose intended

� With due attention to economy and efficiency

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IIIIII-- World Bank Policies and Guidelines on World Bank Policies and Guidelines on Project Financial Management (conProject Financial Management (con’’t)t)

- Policies and Guidelines to facilitate compliance with Art.Iii, Sec.5(B):

Operational Policy 10.02 (OP 10.02)Bank Procedures 10.02 (BP 10.02)Guidelineso FARAHo LACI Implementation Handbooko The Project Financial Management Manualo Guidelines on Assessment of Financial Management Arrangement in Bank projectso Guidelines on Assessing and Designing accounting system and Accounting software.o Financial Monitoring Reports-Guidelines to Borrowersl Others…

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- OP 10.02Authoritaive source of the Bank’s project financial management

requirementsDescribe the minimum FM requirements for every Bank-financed project.Requires projects to:o maintain adequate financial management systemso prepare annual audited financial statementso have the financial statements audited and submitted to the BankDescribe the remedies available to the Bank in the event of non-

complianceo If the Bank does not receive acceptable audited FS, audited SAo If the audited FS reveal major deficiencies in internal controlso If there is inadequate evidence that funds have been used for eligible

expenditure

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- BP 10.02

�Describe application of OP 10.02 in the project cycle

�Recognise the CFAA as a starting point

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IVIV-- When we should perform Financial When we should perform Financial Management activities?Management activities?

- At stage Preparation, Appraisal and Approval

� Each project should have adequate Financial Management system

� Bank staff should assess the current system of the project and if not yet adequate should come up with an Action Plan for remedial action.

� If no system is in place should advise on the design and come up with timetable for implementation that proposed system.

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IVIV-- When we should perform Financial When we should perform Financial Management activities?(conManagement activities?(con’’t)t)

- At stage of Implementation l Project Implementing Entity should maintain a

sound FM system.l Appropriate audit arrangement should be made

and provide audited FS on timely basis.l FM system should be monitored through out

implementation process

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VV-- How to strengthen Financial Management How to strengthen Financial Management practices?practices?

1- Planning and budgeting

� Should have realistic plan� Should harmonise planning and reporting

information� Should have close link between plan and relevant

processes of project� PIU should monitor timeliness and costs including

procedures for remedial actions when required

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VV-- How to strengthen Financial Management How to strengthen Financial Management practices?(conpractices?(con’’t)t)

2- Internal control

l Suitable authorization procedurel Segregation of dutyl Safeguarding of assetsl Independent verificationl Monitoringl Reconciliation

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3- Accounting system

� Chart of accounts� Accounting policy� Bookkeeping procedure� Accounting software� Supporting document� Financial report system� System interface

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4- Financial reporting

� Financial reporting for Bank-funded projects: Project financial statement ( audited), periodic financial reports (unaudited).

� Financial reporting of implementing entities (audited)

� Deadline for receiving audited financial statements ( 6 months after the year end).

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5- Auditing

� Selection process of auditor� Work of auditor: Entity Financial Statements,

Project Financial Statements ( FS, SA with source and application, SOE reliability), Compliance audit, Operation audit.

� Output of auditor: Financial Statement and Management Letter.

� Follow-up of audit findings.

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VIVI-- Recent changes to Project Financial Recent changes to Project Financial Management proceduresManagement procedures

1- What is ChangingFM Assessments – More structured, risk-based, approach.

Better linkage to CFAA.Reporting – FMR replaces PMRl Simpler, more Flexiblel Customized to better fit borrower systems and the way

projects are managed and monitoredl Disbursement information only included if disbursements

are report-basedGovernance – Clarified roles of regional FM staff vis-à-vis

the Loan Department (Disbursements)Bank’s Internal Signoff - on Assessments and Report-Based

Disbursements simplified

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VIVI-- Recent changes to Project Financial Recent changes to Project Financial Management procedures(conManagement procedures(con’’t)t)

2- What is NOT Changing?

� Requirement for all projects to have:� An FM and Procurement Capacity Assessment� Periodic reporting on fiduciary aspects of project

implementation � Project Audit Policies and Procedures� Choice as to Mode of Disbursement

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3- How were changes decided?

Based on two Extensive Reviews Included consultations with:o Bank staff at all levelso Borrowers in many countries

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4- Timing and Impact of the Changes

Projects appraised:� Pre-July 1998 are not affected� July 1, 1998 – December 31, 2001 will have

option to convert to new procedures� After January 1, 2002 required to submit the new

FMRs as agreed at negotiations

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VIIVII-- Financial Monitoring Reports (FMRs)Financial Monitoring Reports (FMRs)

1- GeneralPMR vs. FMRUnderlying principlesl Funds are used for intended purposesl Project implementation is on trackl Budgeted costs will not be exceededl Reports aligned with borrower systems as far as

possiblel PMR-based disbursement is no longer the main

overriding objective of the reports

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VIIVII-- Financial Monitoring Reports (FMRs) Financial Monitoring Reports (FMRs) (con(con’’t)t)

2- Content of FMRs(i)Introductory narrative discussion of developments

and progress(ii)Financial Reports l Sources and Uses of funds (period and

cumulative)l Uses of funds by project components (budgeted

and actual, period and cumulative)l Format agreed between Project Accountant and

the Bank’s FMS. Some countries may use common formats across projects

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2- Content of FMRs (con’t)(iii)Physical Progress Reports l Linkage of financial information with Output

indicators or contract status for key activitiesl Outcome indicators generally not reported in

FMRsl Narrative information may be complement, or

even substitute, tabular information. Format should be agreed between project management, task team leader, and financial management specialist prior to negotiations

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2- Content of FMRs (con’t)(iv)Procurement Reportsl Generally for contracts not subject to prior review

but above a certain threshold l Format more standardized than other reports –

based on procurement process. Bank TTL or Procurement staff should agree with borrower as to range of contracts to be reported

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3- FMRs and Project Preparationl Project Appraisal – Bank, borrower, determine

format and content of FMRsl Negotiations – Bank, borrower agree the format

and content of FMRsl Ability to produce FMRs should be in place by

effectiveness l First FMR produced after first full periodl NO standardized formats for FMRs. Borrowers to

agree with the Bank on format and content that is consistent with the FMR Guidelines

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4- Scope and Frequencyl Scope – encompasses total project and not just

Bank financed portionl Currency of FMRs – normally in the currency

used for maintaining books of accountsl Frequency – flexible, normally quarterly. At least

semi-annuallyl Submission – within 45 days

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5- Disbursement and Audit Issuesl Borrower choice of disbursement mode-Bank

must agreel Disbursement information only included if

disbursements are report-basedl FMRs not the same as audited annual financial

statements (FMRs are NOT audited). But financial reports in FMRs should have similar format and content to annual audited financial statements

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6- Documentation Requirements For Report-Based Disbursement

l FMRsl Source of supply information l Breakdown of aggregate disbursements by legal

disb. category and disb. percentage l SA reconciliation statement l SA bank statement l Forecast of expenditures for the next two FMR

reporting periods. Calculation of disbursement request based on above information.

Documents

Table of Content - World Banksiteresources.worldbank.org/INTVIETNAM/Resources/FM...Table of Content I- What is Financial Management? II- Why we need a good Financial Management system?