Financial Management in projects involving Output- based Aid Xavier Chauvot de Beauchêne GPOBA SDN Week Washington, DC February 27, 2008

2 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. So…where are the differences?

3 Projects involving OBA are different Implementing entity differ: OBA linked to Service provider (SP), directly of through a fiduciary agent; Service 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.

4 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.

5 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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8 Assessment of FM arrangements Assess adequacy of Borrowers system of accounting, reporting, auditing and internal controls Assess Borrowers capacity Identify risks propose mitigation measures … …to ensure that funds are used economically and efficiency for the purpose intended. Financial Management Questionnaire, adapted to OBA. Financial Management Guidance Note being prepared.