1. 1 The new financial modalities LAF seminar June 2009

2. 2 INTRODUCTION PART I. GENERAL 1.1. Context 1.2. Sharing experiences 1.3 Position paper Controlling 1.4. Content PART II. RISK MANAGEMENT & MODALITIES 2.1. Risk management 2.2. Framework for the definition of the modalities 2.3. Case study PART III. ROLE of the LAF PART IV. PRACTICAL ASPECTS 4.1. Execution agreements 4.2. Approval of the disbursements 4.3. Financial staff 4.4. Financial reporting and FIT 4.5. Management of audits

3. 3 PART I GENERAL 1.1. Context 1.2. Sharing experiences 1.3. Position Paper Controlling 1.4. Content  Systems / responsibilities  Fields of Financial Management

4. 4 1.1. CONTEXT: Objective At the end of the training, the particiants can describe the context of the new financial modalities of BTC projects/programmes

5. 5 1.1. CONTEXT: Introduction  Paris Declaration of 2005 (Increase Aid Effectiveness) and Accra Agenda for Action in September 2008  H&A Plan of DGDC of 2007 -> Alignment with the partner systems -> Harmonisation between donors => New execution modalities ANNEXE : Paris Declaration

6. 6 1.1. CONTEXT: Alignment with the national systems Excerpts of the Paris Declaration: "Using a country's own institutions and systems, where these provide assurance that aid will be used for agreed purposes, increases aid effectiveness by strengthening the partner country's sustainable capacity to develop, implement and account for its policies to its citizens and parliament. Country systems and procedures typicllay include, but are not restricted to, national arrangements and procedures for public financial management, accounting auditing, procurement, results frameworks and monitoring." Paris Declaration on Aid Effectiveness, art 17.

7. 7 1.1. CONTEXT: Alignment with national systems Paris Declaration on Aid Effectiveness: Encourages to use to a maximum extent possible country systems and procedures Recognizes that there are circumstances under which donors have legitimate reasons not to use country systems. Where this is the case donor should work with partner countries to address weaknesses and strengthen country systems.

8. 8 1.1. CONTEXT: Alignment with national systems National systems for the management of funds = Those established in the general legislation (and related regulations) of the country and implemented by the public administration

9. 9 1.1. CONTEXT: Alignment with national systems INDICATOR 5a of the PD: Measuring the volume of Official Development Assistance that uses a partner PFM system as a percent of total aid provided to the public sector of this country. Public Sector Aid = Disbursements in the framework of an agreement with administrative bodies entitled to receive funds or to spend money on account of central administration.

10. 10 1.1. CONTEXT: Alignment with national systems I.e. the technical and financial partners have adjusted to: National budget execution procedures: The programmes supported by donors are subject to normal country budgetary procedures, namely procedures for authorisation, approval and payment (budget approval, budget execution, treasury system, etc.) National financial reporting procedures: Donors do not impose additional requirements on governments (no different bookkeeping system, no separate accounting). National auditing procedures : The donors do not impose additional accounts verification, nor do they make additional requirements for auditing.

11. 11 1.1. CONTEXT: Harmonisation “Implement where feasible common arrangements at country level for planning, funding, disbursement, monitoring, evaluating and reporting to government on donor activities and aid flows." Indicator 9. “Work together to reduce the number of separate, duplicative missions to the field and diagnostic reviews and promote joint training to share lessons learned and build a community of pratice.“ Indicator 10. Paris Declaration on Aid Effectiveness, art 32.

12. 12 1.1. CONTEXT: execution modalities In this context it is important to define the execution modalities of the BTC interventions Definition of the system= Belgian/ partner / third party system Definition of the responsibility= Belgian / joint / partner responsibility

13. 13 1.1. CONTEXT: execution modalities New financial execution modalities? = Which differs more or less of what has been called so far co-management and state-managed. = case by case (country, sector, intervention, geographical zone, type of activity, objectives etc.)

14. 14 1.1. CONTEXT: Figures CHART I: Modality _ Budget of the projects by formulation year

15. 15 1.1. CONTEXT: Figures CHART II: Modality by country_ Executed in 2008

16. 16 1.1. CONTEXT: Figures CHART III: Modality by country_ Planned for 2009

17. 17 1.2. SHARING EXPERIENCES In your countries, what specific financial modalities currently exist?

18. 18 1.3. POSITION PAPER Position Paper of Controlling on the New financial modalities  Presented to the Resreps in September 2008 ANNEXE: Position Paper

19. 19 1.3. POSITION PAPER 1) New modalities: Definitely, but progressively and in a controlled way 2) Notion of risks and acceptance of risks 3) Analysis of the risk environment and assessment of the risks 4) Definition of the financial modalities and the risk management 5) Role of Finances in the formulation 6) Consequences for financial management of projects in execution 7) Capacity development 8) Development and management of expertise in financial management of projects/programmes 9) Installation of knowledge management

20. 20 1.3. POSITION PAPER 1) New Modalities? …Definitely, but: PROGRESSIVELY: Added value, commitment of the partner, capacity of BTC and IN A CONTROLLED WAY: Based on analysis, motivated, risks managed, responsibility

21. 21 1.3. POSITION PAPER 2) Notion of risks and acceptance of risks New modalities = more risks = price to be paid It means: Accept a certain level of risk  Definition of Risk Appetite with external actors

22. 22 1.3. POSITION PAPER 3) Analysis of the risk environment and assessment of the risks Before defining the modalities evaluation of the risk environment - Analysis of the internal control systems - Taking into account institutional, organisanional and internal elements - Executed by BTC, subcontracted, by other actors, based on existing reports After the analysis:  Identify and evaluate risks  Base for the definition of modalities and control actions  Input for capacity development

23. 23 1.3. POSITION PAPER 4) Definition of the financial modalities and the risk management Quality of the internal control system?  Choice of modalities and control actions  Definition of the modalities on different points  No standard solution, good combination to be looked for- evolving  Balance between good fund management and strengthening the partner  Motivation file ! Time ! Other donors (parallel systems) ‏

24. 24 1.3. POSITION PAPER 5) Role of Finances in formulation New financial modalities? Crucial role of - The analysis of the internal control systems - Risk management = Expertise of Finances (adapt organisation and enhance expertise) ‏

25. 25 1.3. POSITION PAPER 6) Consequences for financial management of projects in execution  The start-up of the projects: Timing, support  The agreements and conditions: Framework, which options, preventive and corrective measures  Financial reporting: National systems, BTC only disbursements  The importance of the audits: Increasing importance, ToR, interpretation, follow-up etc.  The rhythm and execution rate: realistic and flexible

26. 26 1.3. POSITION PAPER 6) Consequences for financial management of projects in execution (ctd) ‏  Monitoring financial modalities: Applied and appropriate  The permanent monitoring of risks: Evolutions, adaptations  The importance of the current BTC tools and procedures: Decreasing importance, development of adapted procedures  The projects that are already defined: Revision, risk identification, support

27. 27 1.3. POSITION PAPER 7) Capacity development = Important objective future projects/programmes and conditions of access to funds Analysis = input  Capacity development services  In the field of financial management, internal control and internal and external risk management  etc. Explicit and defined objective (results, resources and measurement indicators) ‏

28. 28 1.3. POSITION PAPER 8) Development and management of expertise in financial management of projects/programmes  Impact on the role of financial profiles  Invest in new types of expertise: - Risk management - Capacity development - Fraud and corruption management - Audit - Public Finance Management  Flexible expertise

29. 29 1.3. POSITION PAPER 9) Installation of knowledge management - Gather and manage information (international tools, internal knowledge, knowledge of other donors) ‏ - History, evaluations - Transmission of information

30. 30 PART I. GENERAL 1.1. Context 1.2 Sharing experiences 1.3. Position Paper Controlling 1.4. Content  Systems / responsibilities  Fields of Financial Management

31. 31 1.4.1. CONTENT: Responsibilities / Systems Presentation by Benoît Piret / Christophe Maréchal

32. 32 1.4.2. CONTENT – Fields of Financial Management At the end of the training, the participants can list the constitutive elements of the financial execution modalities

33. 33 1.4.2. CONTENT - Fields of Financial Management Financial execution modalities of an intervention FINANCIAL MANAGEMENT FIELDS What processes are we talking about? 1. Budget elaboration and execution 2. Cash management and payments 3. Reporting and accounting 4. Audit and internal contol 5. Organisation chart and financial staff

34. 34 1.4.2. CONTENT - Fields of Financial Management Budget: Elaboration and Execution - Processes - Total amount - Level of detail of the budget - Budget flexibility (authorised variations) - Frequency of the follow-ups requested - Frequency of financial plannings requested - Content (type of expense) - Management of commitments

35. 35 1.4.2. CONTENT - Fields of Financial Management Cash flow and payments management - Specific banking account or not - Ceilings - Mandates - Double signature required - Frequency and conditions of disbursements - Transparency, bank statements - Working capital - Etc.

36. 36 1.4.2. CONTENT - Fields of Financial Management Reporting and accounting - Frequency of financial reports requested - Frequency of operational reports requested - Content of the reports (budget monitoring, planning etc.) - Approval of the reports - Level of detail required - List, copies or originals of invoices - Tools used (Excel, software etc.) - Etc.

37. 37 1.4.2. CONTENT - Fields of Financial Management Audit and internal contol - Frequency of the audits required - Type of audits required(financial, procedures, value- for-money etc.) - Internal, external, national, international audits - Joint, specific audit - Additional procedures (separation of duties etc.) - Action plan and follow-up of recommendations - Etc.

38. 38 1.4.2. CONTENT - Fields of Financial Management Organisation chart and financial staff - Participation to the choice of financial staff - Estimate of the number of staff necessary - The job profiles needed? - Role and responsibilities of TAs (international, national) - Role and responsibilities of financial staff - Etc.

39. 39 1.4.2. CONTENT - Fields of Financial Management Exercice