Financial Management in projects involving Output-based Aid

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Financial Management in projects involving
Output-based Aid

• Xavier Chauvot de Beauchêne
• GPOBA
• SDN Week
• Washington, DC
• February 27, 2008

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What differs in projects involving OBA?

• Same requirements on Financial management
  (OP10.02)
• Assessment of Financial Management Arrangements
• Interim Financial Reporting
• Audited Financial Statements
• Same objective Borrowers maintains acceptable
  financial arrangements that provide assurance
  that the proceeds of the Loan are used for the
  purpose for which the Loan was granted.
• Sowhere are the differences?

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Projects involving OBA are different

• Implementing entity differ OBA linked to
  Service provider (SP), directly of through a
  fiduciary agentService Provider can be private,
  public or NGO/CBO (working under private
  principles), or governments.
• Risk allocation differ
• OBA gives comfort on use of funds Subsidy
  accounts for a portion of the cost of a
  pre-financed output.
• Economy and efficiency reviewed ex-ante,
  procurement, unit costs reviews.
• Linkage to expenditures differ Ouputs usually
  not tied to one contract, but the result of a
  number of goods and/or works and/or CS contracts.
  Unit costs monitoring onerous.Monitoring in FM
  system linked to output or beneficiary.

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Audited Financial Statements

• Annual audit, report provided within 6 months
• Accounting standards
• Auditing standards
• Scope of audit and auditor
• Have to be acceptable to the Bank
• Exemption possible if borrower has more cost
  effective mechanisms providing the Bank with
  equivalent assurance on the appropriate use of
  loan proceeds, on exceptional basis.

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Interim Financial Reporting (IFR)

• OP10.02 Format, content, periodicity and due
  date acceptable to the Bank.
• IFRs tailor-made to the project depend on number
  of service providers involvement of a fiduciary
  agent.
• Sources and uses of funds organized around
  outputs
• Statement of Expenses (SOEs) indicate number of
  outputs and subsidy per output
• Basis for output verification and disbursement.
• Used as a management tool verified quantity of
  outputs, unit costs monitoring (subsidy scheme),
  total expenditures, and amounts eligible for Bank
  financing.

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Assessment of FM arrangements

• Assess adequacy of Borrowers system of
  accounting, reporting, auditing and internal
  controls
• Assess Borrowers capacity
• Identify risks propose mitigation measuresto
  ensure that funds are used economically and
  efficiency for the purpose intended.
• Financial Management Questionnaire, adapted to
  OBA.
• Financial Management Guidance Note being prepared.