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IFAD PROJECTSIFAD PROJECTS

FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT

SEMINARSEMINAR

NAIROBI, KENYA14-15 October 2008

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Presented by:Presented by:

RUTH FARRANTRUTH FARRANT

ROBSON MUTANDIROBSON MUTANDI

GODFREY MWANGI WANJOHIGODFREY MWANGI WANJOHI

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COURSE CONTENTCOURSE CONTENT

1.1. BACKGROUNDBACKGROUND

2.2. PROGRAMME/ PROJECT FINANCIAL PROGRAMME/ PROJECT FINANCIAL SYSTEMSSYSTEMS

3.3. FINANCIAL STATEMENTS FINANCIAL STATEMENTS

4.4. AUDIT OPINIONS AND REPORTSAUDIT OPINIONS AND REPORTS

5.5. CROSS-CUTTING ISSUESCROSS-CUTTING ISSUES

6.6. CONCLUSION AND WAY FORWARDCONCLUSION AND WAY FORWARD

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1.1. BACKGROUNDBACKGROUND

IFAD has a fiduciary role to ensure that IFAD has a fiduciary role to ensure that its funds are used for the purpose for its funds are used for the purpose for which intendedwhich intended

IFAD guidelines require all projects to IFAD guidelines require all projects to maintain accounts and records for our maintain accounts and records for our funds (either separately or within a funds (either separately or within a basket fund)basket fund)

Loan Financing Agreements require that Loan Financing Agreements require that financial statements are prepared that financial statements are prepared that are consistent with the GoK financial are consistent with the GoK financial regulations and IFAD audit guidelinesregulations and IFAD audit guidelines

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These Financial Statements must be These Financial Statements must be audited annually by a professional auditor audited annually by a professional auditor acceptable to IFADacceptable to IFAD

In all cases, the Loan Financing In all cases, the Loan Financing Agreements require that acceptable Agreements require that acceptable audited accounts and reports be received audited accounts and reports be received by IFAD no later than 6 months following by IFAD no later than 6 months following the financial year end, otherwise sanctions the financial year end, otherwise sanctions may be appliedmay be applied

1.1. BACKGROUND BACKGROUND (continued)(continued)

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Required for successfully managing the Required for successfully managing the financial resources of IFAD funded financial resources of IFAD funded programmesprogrammes

Where possible, national systems should Where possible, national systems should be usedbe used

2.2. PROGRAMME/ PROJECT PROGRAMME/ PROJECT FINANCIAL SYSTEMSFINANCIAL SYSTEMS

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Activities costingActivities costing

Budget ConsolidationBudget Consolidation

Funding for the Procurement PlanFunding for the Procurement Plan

Resource flowsResource flows

Asset statementAsset statement

Training planTraining plan

2.2. PROGRAMME/ PROJECT PROGRAMME/ PROJECT FINANCIAL SYSTEMS FINANCIAL SYSTEMS (continued)(continued)

a) Financial Planning through AWPBa) Financial Planning through AWPB

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Financial Sources by FinancierFinancial Sources by FinancierBy activities in the approved AWPBBy activities in the approved AWPBBy subcomponentsBy subcomponentsBy componentsBy componentsBy expenditure categoriesBy expenditure categories

2.2. PROGRAMME/ PROJECT PROGRAMME/ PROJECT FINANCIAL SYSTEMS FINANCIAL SYSTEMS (continued)(continued)

b) b) Financial Data Capturing and AccountingFinancial Data Capturing and Accounting

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2.2. PROGRAMME/ PROJECT PROGRAMME/ PROJECT FINANCIAL SYSTEMS FINANCIAL SYSTEMS (continued)(continued)c) Fc) Financial Managementinancial Management

Monthly, quarterly and annual reportingMonthly, quarterly and annual reporting

Managing the Bank accountsManaging the Bank accounts

Preparation of SOEs Preparation of SOEs

Preparation and submission of: Preparation and submission of: – direct WA claimsdirect WA claims– replenishment WA claimsreplenishment WA claims– reimbursement WA claimsreimbursement WA claims

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2.2. PROGRAMME/ PROJECT PROGRAMME/ PROJECT FINANCIAL SYSTEMS FINANCIAL SYSTEMS (continued)(continued)d) d) Financial MonitoringFinancial Monitoring

Monthly reconciliation of the SPA in the Monthly reconciliation of the SPA in the format required by LTBformat required by LTB

Quarterly reconciliation of Project Quarterly reconciliation of Project expenditure to:expenditure to:

– IFAD disbursement statements including IFAD disbursement statements including the Historical Statementthe Historical Statement

– Loan Utilisation in SDRLoan Utilisation in SDR

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3.3. FINANCIAL STATEMENTSFINANCIAL STATEMENTS

The objective of a set of Financial The objective of a set of Financial Statements is to provide information Statements is to provide information about the financial position, about the financial position, performance and resource flows of an performance and resource flows of an entity or projectentity or project

Separate disclosure should be made of Separate disclosure should be made of contributions from Government, IFAD contributions from Government, IFAD loan, grants and beneficiariesloan, grants and beneficiaries

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Actual and budget data to be provided Actual and budget data to be provided for the current year and cumulative, for the current year and cumulative, analysed by relevant sub-component, analysed by relevant sub-component, component and expenditure categoriescomponent and expenditure categories

The Balance sheet should disclose bank The Balance sheet should disclose bank balances, fixed assets and liabilitiesbalances, fixed assets and liabilities

Annual and cumulative Statements of Annual and cumulative Statements of expenditures by withdrawal application expenditures by withdrawal application and Category of Expendituresand Category of Expenditures

3.3. FINANCIAL STATEMENTS FINANCIAL STATEMENTS (continued)(continued)

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The financial statements are prepared in The financial statements are prepared in accordance with internationally accepted accordance with internationally accepted standards. National standards may be standards. National standards may be used if acceptable to IFADused if acceptable to IFAD

Accounting policies adopted and any Accounting policies adopted and any other information deemed necessary for other information deemed necessary for the presentation of a true and fair view the presentation of a true and fair view of the accounts, including minimum of the accounts, including minimum disclosures per IFAD audit guidelinesdisclosures per IFAD audit guidelines

3.3. FINANCIAL STATEMENTS FINANCIAL STATEMENTS (continued)(continued)

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A reconciliation statement of the Project A reconciliation statement of the Project expenditure to the initial US$ deposit in expenditure to the initial US$ deposit in the Special Account, in accordance with the Special Account, in accordance with the IFAD letter to the borrower (LTB)the IFAD letter to the borrower (LTB)

A reconciliation statement of the A reconciliation statement of the Loan/Grant allocations per the Financing Loan/Grant allocations per the Financing Agreement and the disbursement to the Agreement and the disbursement to the year end balances in SDRs (including the year end balances in SDRs (including the balances of Loan/ Grant not yet balances of Loan/ Grant not yet disbursed)disbursed)

3.3. FINANCIAL STATEMENTS FINANCIAL STATEMENTS (continued)(continued)

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4.4. AUDIT OPINIONS AND REPORTSAUDIT OPINIONS AND REPORTS

The overall objective of the audit is to The overall objective of the audit is to ensure that the financial statements are ensure that the financial statements are truthfully and accurately presented, both truthfully and accurately presented, both for current year and cumulativelyfor current year and cumulatively

The audit should be performed in The audit should be performed in accordance with ISAaccordance with ISA

The Programme Accountant should be The Programme Accountant should be involved in the appointment process that involved in the appointment process that includes clear TORs. IFAD should also includes clear TORs. IFAD should also provide no-objectionprovide no-objection

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The Auditor is required to provide an The Auditor is required to provide an audit opinion on:audit opinion on:

(1)the financial statements (1)the financial statements (2)the eligibility of project expenditures (2)the eligibility of project expenditures

claimed through Withdrawal Applications claimed through Withdrawal Applications submitted during the yearsubmitted during the year

(3)whether the Special Account has been (3)whether the Special Account has been used in accordance with the Financing used in accordance with the Financing AgreementAgreement

4.4. AUDIT OPINIONS AND REPORTS AUDIT OPINIONS AND REPORTS (continued)(continued)

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TOR should include confirmation that TOR should include confirmation that goods, works and services have been goods, works and services have been procured in accordance with underlying procured in accordance with underlying loan covenants and GoK financial loan covenants and GoK financial regulationsregulations

TOR should include verification of TOR should include verification of whether the expenditures have been whether the expenditures have been incurred in accordance with the loan incurred in accordance with the loan covenants, approved AWPBs, and with covenants, approved AWPBs, and with due care to economy, efficiency and due care to economy, efficiency and value for moneyvalue for money

4.4. AUDIT OPINIONS AND REPORTS AUDIT OPINIONS AND REPORTS (continued)(continued)

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Management letter containing Management letter containing weaknesses and observations on the weaknesses and observations on the adequacy of the accounting systems and adequacy of the accounting systems and procedures and matters which may have procedures and matters which may have a negative impact on project a negative impact on project implementationimplementation

Management response required within Management response required within 30 days30 days

Points of comments should be Points of comments should be accompanied with practical accompanied with practical recommendations for positively and recommendations for positively and conclusively dealing with issues raisedconclusively dealing with issues raised

4.4. AUDIT OPINIONS AND REPORTS AUDIT OPINIONS AND REPORTS (continued)(continued)

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5.5. CROSS-CUTTING ISSUESCROSS-CUTTING ISSUES

Significant gaps between the actual Significant gaps between the actual audited accounts and reports, and those audited accounts and reports, and those prescribed in the IFAD guidelinesprescribed in the IFAD guidelines

If the audit opinions are not clean/ If the audit opinions are not clean/ unqualified, these are potentially not unqualified, these are potentially not acceptable to IFAD and the financial acceptable to IFAD and the financial statements are to be re-done and re-statements are to be re-done and re-audited, or as otherwise to be agreed in audited, or as otherwise to be agreed in writing as an acceptable action planwriting as an acceptable action plan

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Absence of:Absence of:– Balance SheetBalance Sheet– Reconciliation of the Initial deposit of the Reconciliation of the Initial deposit of the

Project Special accountProject Special account– Reconciliation statement of the Project Reconciliation statement of the Project

Expenditure to the Loan/ GrantExpenditure to the Loan/ Grant– Presentation of Project expenditure by Presentation of Project expenditure by

componentscomponents– Compliance with deadlines. Delays range Compliance with deadlines. Delays range

from 1 to 20 months (sanctions may be from 1 to 20 months (sanctions may be applied after 180 days)applied after 180 days)

5.5. CROSS-CUTTING ISSUES CROSS-CUTTING ISSUES (continued)(continued)

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– Lack of documentary support for large Lack of documentary support for large amounts of expenditureamounts of expenditure

– Non-agreement of figures within the Non-agreement of figures within the Line Ministry and PMG treasury Line Ministry and PMG treasury accounting records, due to poor record accounting records, due to poor record keepingkeeping

– Sources and application of funds Sources and application of funds statements lack comparison with statements lack comparison with AWPBAWPB

– Lack of management letterLack of management letter

5.5. CROSS-CUTTING ISSUES CROSS-CUTTING ISSUES (continued)(continued)

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The ability of the project to demonstrate The ability of the project to demonstrate good financial management standards good financial management standards depends on the commitment and depends on the commitment and professionalism of the Project Accountant professionalism of the Project Accountant and district accountantsand district accountants

The quality of the financial statements The quality of the financial statements depends on following proper accounting depends on following proper accounting processes and maintaining timely, processes and maintaining timely, adequate and accurate books of account adequate and accurate books of account in accordance with the Accountant in accordance with the Accountant General’s circularGeneral’s circular

6.6. CONCLUSION AND WAY FORWARDCONCLUSION AND WAY FORWARD

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Adhere to the project financial and Adhere to the project financial and accounting system laid down in the accounting system laid down in the Project Implementation Manual (PIM)Project Implementation Manual (PIM)

Instil discipline and commitment in the Instil discipline and commitment in the preparation and production of monthly preparation and production of monthly financial statements and reconciliationsfinancial statements and reconciliations

Ensure that year end accounts are Ensure that year end accounts are prepared prior to the end of the 2nd prepared prior to the end of the 2nd month following the financial year endmonth following the financial year end

6.6. CONCLUSION AND WAY FORWARD CONCLUSION AND WAY FORWARD (continued)(continued)

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RReconcile the financial statements to the econcile the financial statements to the records of the Line Ministry and PMG records of the Line Ministry and PMG Treasury Accounting recordsTreasury Accounting records

Submit draft accounts to IFAD for review Submit draft accounts to IFAD for review prior to submission to the auditors to prior to submission to the auditors to meet the deadline of 3 months following meet the deadline of 3 months following year endyear end

Respond to the draft audit report within 2 Respond to the draft audit report within 2 week deadlineweek deadline

6.6. CONCLUSION AND WAY FORWARD CONCLUSION AND WAY FORWARD (continued)(continued)

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Questions and AnswersQuestions and Answers

?If in If in doubt, doubt, ask IFAD!ask IFAD!