1. Technical and financial management of the project
Estonia Latvia Russia
ENPI CBC Programme
Project Management and Implementation training
20&21 February 2012

2. Sound project implementation
For a sound technical and financial management of your project you need:
a monitoring system
a financial plan
a project accounting system
a procurement plan
Let’s see these in details now! These need to be set up and regularly updated

3. 1. Monitoring system Why a monitoring system?
To keep track of how a project is progressing in terms of resource use, implementation, delivery of results and the management of risks
To support effective decision making with systematic and continual collection, analysis and use of management information

4. Monitoring system Monitoring is: An information system
Performed on a systematic, regular basis
Based on indicators
Concerned with the facts!
Concerned with both financial and operational progress information
The information needed for monitoring should be identified when the project is first designed and/or when reviewed

5. Setting up the monitoring system
Good monitoring depends on having reliable, relevant and timely information about the activities, outputs and outcomes of your project. This may be achieved by:
Setting up a shared, internet-based (intranet), information tool including the control of deadlines, activities, deliverables and indicators using available project management software
Requiring the project manager for each partner to submit a regular, short monitoring report to the Beneficiary providing information about the progress being made in implementing the project.

6. Sources of information for monitoring
The grant contract (your logframe, workplan…)
Contracting information (sub-contracts)
The record of project indicators at the levels of activities, outputs and results
The financial records – bookkeeping system
Special reports like quantitative surveys, questionnaires

7. Elements of Financial Monitoring
The value of the grant, the co-financing
The expenditure and revenue budget and the actual financial position for the reporting period
Expenditure & revenue
Cash flows
Cash flow forecast
Bank balances
Expected reimbursement claims for next period

8. Specific financial items to highlight
Actual expenditure significantly more than budget
Actual expenditure significantly less than budget (eg savings on procurement)
Delays in submitting payment requests
Unexpected ineligible costs
Significant change in exchange rates (effect on budget)
Any other unexpected financial issues

9. Content of Operational Monitoring
Synopsis of the Grant contract
Contracting (secondary procurement)
Input / activity/ output monitoring (efficiency)
Results monitoring (effectiveness) and impact
Risk monitoring
Sustainability
Horizontal and cross-cutting issues
Good practices
Prognosis for future
See annex on Operational Monitoring
See document attached for more information

10. Setting-up a monitoring system

11. The monitoring report
Monitoring is based on a standard template adapted to the project
Monitoring reports are usually collected on a regular basis (monthly, bi-monthly)
Report is based on tables – very little narrative
But with the possibility of highlighting unusual good or bad events
A good monitoring report is easy and quick to read
Monitoring will feed in project reporting
Monitoring is no double work, will need to do it anyway for reporting – but adds great value

12. 2. Financial planning (1)
Why should you revise project financial planning?
Is it not enough with the project budget approved?
Even though you prepared a budget including expenditure and sources of funding when preparing the application form, you have to take into consideration that:
The budget doesn’t include an accurate monthly estimate for the whole project duration
The approved budget does not have any forecast of the timetable for receipt of the sources of funding
Not all expenditure imply an additional cash-flow, as they correspond, for example, to staff already working in your organisation

13. Why should you revise project financial planning?
Even though there is a 90% grant contribution, the balance will only be received after the project closure. The pre-financing may not avoid completely some cash deficits during project’s lifetime.
Therefore, it is important to make an accurate plan of receipts and payments in order to:
Avoid any setbacks in project implementation due to cash shortage;
Avoid misunderstandings among partners;
Encourage partners to spend in time and contribute to a timely reporting and payment claim to JMA/JTS.

14. Steps for project financial planning
Review your budget in detail to identify needs for minor adjustments in the initially estimated amounts;
Confirm your sources of funding and, in particular, the dates of expected receipt of contributions by external donors;
Prepare a monthly (or bi-monthly) forecast of all project expenditure;
Estimate when you will be able to submit and receive further pre-financing;
Prepare a project cash flow forecast.

15. Let’s see a practical example
Our simplified case study will be a project with:
Beneficiary and one partner
24 months duration
No additional donors, no direct revenue, no in-kind contribution
A limited number of budget items
Let’s see the project budget
See tables annexed

16. Planning and adjusting expenditure
Staff costs
Confirm which persons will be working for the project and see if they are already contracted or they have to be recruited
Confirm the estimated monthly cost (as “month” is the unit of time in budget)
Find out in which month the persons will start working and on what basis, if not full time
Unit cost 2000 in real life 500 each month – compare to budget, total is OK

17. Planning and adjusting expenditure
Staff costs
Calculate the monthly cost

18. Planning and adjusting expenditure
Other categories
Revise the estimated amounts and other necessary assumptions
Identify when invoices for services and goods will be paid, according to the delivery dates and credit terms (usually X days after delivery)
Make a monthly estimate of paid expenditure for each categories
Exclude “contingency reserve” and “administrative costs” from these estimations
Let’s see a couple of examples
See tables annexed

19. Planning and adjusting expenditure
Other categories

20. Planning and adjusting expenditure
Other categories

21. Planning payment claims
Take the amounts of the first pre-financing
Calculate the thresholds of minimum expenditure in order to be allowed to submit payment claims for further pre-financing (see your contract)
Estimate the date for submission of payment claims and the receipt of the grant after the approval of the financial report by JMA/JTS
Let’s see an example in two tables:

22. Planning payment claims
Do not forget to take into account the administrative costs to estimate when you will reach the threshold!

23. Planning of cash flows Prepare a final table with:
The revenues and their month of receipt;
“Additional” foreseen expenditure paid for the project;
Monthly and cumulative cash flow and surplus/deficit taking into account the “additional” expenditure;
Other payments already budgeted in your organisation, such as permanent staff or administrative costs;
Monthly and cumulative cash flow and surplus/deficit taking into account all expenditure

24. Final remarks on financial planning
As with all estimates, the financial forecast is only useful if reviewed and updated on a regular basis
Discuss the planning with your partners, get information from them and reach a consensus on commitment for expenditure and payments
Cash forecasts tend to be optimistic; revenues arrive later and expenditure on time or earlier
Be prudent and ensure that no partner is blocked in their contribution to project implementation for lack of liquidity of funds
The tables and assumptions shown in this presentation
are just an example

25. 3. Accounting system requirements
Art of General Conditions (annex II to the contract):
The Beneficiary and partners shall keep accurate and regular accounts of the implementation of the project, using an appropriate accounting and double-entry bookkeeping system. The system:
May be either part of the beneficiary’s and partners’ regular system or an adjunct to that system
Shall be run in accordance with the accounting and bookkeeping policies and rules that apply in the country concerned
Accounts, expenditure and revenue relating to the project must be identifiable and verifiable
Details on interest accruing on funds paid by EC have to be provided
Again, accounting different from project reporting!

26. What is an accounting system?
Accounting IS NOT a list of expenditure and revenue.
An excel file is not an accounting system.
General definition of accounting
The systematic recording, reporting and analysis of the financial transactions of an entity.
Common provisions on accounting by Financial Regulation (Article 132 of EC Regulation 1605/2002)
The institution’s accounting system is the system serving to organise the budgetary and financial information in such a way that figures can be input, filed and registered
The accounts shall consist of general accounts and budgetary accounts
Obvious to your accountant? Maybe not so for non experienced

27. General requirements on accounting
All partners need to have a general accounting in conformity with national rules
The project accounting has to be organised as a budgetary accounting in all partners
The project accounting has to be kept in the national currency, as the translation to Euro will only be necessary for the financial report to JMA/JTS.

28. Use of exchange rates in the project
Conversion:
Purpose
Which exchange rate
Bank transfer
Actual rate applied by bank
Reimbursement of subsistence costs to staff
National bank daily rate
Payment of invoices in foreign currency
Translation:
Purpose
Which exchange rate
Reporting
Average of monthly rates for the reporting period from Inforeuro
Decision on procurement procedure (verification of threshold)
Inforeuro rate of the month of launch of the procedure

29. What is double-entry bookkeeping?
Definition of double-entry bookkeeping
An accounting technique which records each transaction in at least two different accounts, as a credit and as a debit. Credit entries represent the sources of financing, while debit entries represent the use of this financing.
Let’s see an example of expenditure in a project-dedicated accounting:
The debit will indicate to which category of expenditure the invoice has to be imputed
The credit will indicate if the invoice was paid by the beneficiary or a partner. In case of non-dedicated bank accounts, the entry should also indicate which one was used.

30. Reconciliation with reports
Article of General Conditions also indicates that:
The financial report has to be properly and easily reconciled to the accounting and bookkeeping system and to the underlying accounting and other relevant records.
For this purpose, the beneficiary shall prepare and keep appropriate reconciliations, supporting schedules, analyses and breakdowns for inspection and verification.

31. Setting up your accounting system
Ensure that it is in conformity with the requirements of art of General Conditions
Design it to provide the necessary information for the interim and final reports
Use it periodically to allow a proper follow-up of the project budget and enable you to identify any major deviations beforehand
Ensure that there is shared understanding by all partners. If it is a separate system, use the same for all the partnership; if it is included in the partners’ accounting, check its adequacy
Ask support to the auditors on the conformity of the system by all partners several months before the first reporting
Project monitoring

32. Archiving of supporting documents
Requirements of your archiving system
All transactions in accounting are referred to the necessary supporting documents (see presentation on eligible expenditure)
The originals of the supporting documents have to be kept by each partner institution, but copies (either scanned or physical) are easily available by the Beneficiary in order to facilitate the financial controls by authorized bodies. A web-based document repository shared by all partners may be very useful for this purpose.
The documents have to be archived in a way that they are easily accessible after the project closure. (7 years after receiving the balance payment)

33. 4. Procurement plan
Delays in procurement procedures is one of the main risks for not keeping the working plan. Therefore:
Identify which are the procurement procedures to be launched during the project implementation and who is the responsible partner
Identify the applicable legislation and specific procedures and deadlines
Insert the timing of the procedures in the working plan and ensure that no activity will be delayed for this reason
Include the procurement plan in your monitoring system