Harmonized Approach to Cash Transfers to National Implementing Partners

Objectives of the new approach: Lower complexity of procedures and reduce transaction costs of development cooperation; Improve capacity of national partners to effectively manage aid; Minimize risks related to the utilization of funds and increase overall effectiveness

! NB: Harmonization of procedures for cash transfers is just the first step; Harmonization of procedures for procurement, recruitment and other aspects of UN operations will follow.

The new approach is based on the following principles: National ownership - Governments are in the drivers seat Strengthening capacity – reliance on Government systems Risk Management Assessments and assurance activities

Risk Management Assessment of financial management capacity; Appropriate cash transfer procedures; Awareness of the implementing partners internal controls through assurance activities

Determination of risks Macro assessment: – a review of existing assessments of the national public financial management system; – once per cycle, preferably during the CCA preparation

Determination of risks (cont.) Micro assessment: – assessment of the adequacy of the implementing partners financial management systems; – once per programming cycle; – threshold: US$ 100,000 collectively from UN Agencies

Assessments: Objectives Assist the Government to identify strengths and weaknesses in the PFM system and practices; Identify/coordinate areas for capacity building (development); Assist in the identification of appropriate cash transfer procedures (fiduciary)

Assessments: Basic Principles Not meant to impose conditionality; No rating for macro assessment is designated; Contribute to capacity development; Government should be involved;

Assessments: Basic Principles (cont.) Existing assessments to be used; If macro assessment not available, UN encourages Government to initiate one; UNCT jointly interprets the available diagnostic work, with experts assistance

Current modalities for transfer of financial resources: ModalityObligationPayment Direct Cash Transfer Government/NGO Direct Payment Government/NGOAgency Reimbursement Government/NGO Agency Implementation Agency

Harmonization: Modalities or Procedures? Mix of modalities provides for flexibility; Choice of modality depends on assessment of risk and experiences; Agencies may agree on a preferred modality, but decide individually which one to use; Diverse procedures generate high transactions costs; Agencies will use same forms and reporting procedures

Procedures to be harmonized: Disbursements (basis and periodicity) Reporting on cash utilization Assurance

Disbursements Based on activities described in AWPs; Requested by Implementing Partner, as part of the Funding Authorization and certificate of Expenditure (FACE);

Disbursements periodicity : – Direct cash transfers are requested and released on a quarterly basis (max.) to cover expected expenditures; – Direct payments are released based on the authorization of an appropriate designated official; – Reimbursements are requested and released following the completion of activities (could be quarterly)

Reporting: Direct payments: reporting based on agreements with Government; Reimbursement/Direct cash transfers: reporting by implementing partner (FACE) to Agency; Agency implementation: reporting by the implementing UN Agency to the Government and funding agency

Assurance Activities: Coverage, type and frequency of AA is guided by the level of risk and magnitude of cash transfers to an implementing partner (IP); Strongest AA will be directed to IP with the weakest financial management practices

Assurance Activities include: Periodic on-site reviews: spot-checks and special audits; Programmatic monitoring of activities and results; Scheduled Audits

Audits by private firms contracted by Agencies (Government should be informed of the arrangement); IPs that receive more than US$500,000 collectively from UN Agencies per cycle - audits scheduled at least once in the programme cycle; IPs that receive less than US$500,000, if necessary audit plans will be prepared by the UN Agencies

Scheduled audits: supreme audit institution Macro assessment establishes the capacity of the institution

FACE Certifies expenditures and provides a basis for the disbursement of funds for the next period; Permits disbursement on quarterly, not transaction basis; Cash disbursed, but not utilized – reprogrammed/refunded; No accompanying back-up documentation

Conclusions Reduces the most burdensome transaction costs for government counterparts; True harmonization in the area of assurance Simplification of both programme and financial operations

THANK YOU!