FIDUCIARY FORUM 2008 Disbursement

What’s New iLAP – new systems (February 2008) E signature pilot (November 2007) Reorganization of LOA (July 2007) New Disbursement forms (2007) Updated Disbursement Policy OP/BP (March 2007) Disbursement Guidelines (2006) New Legal Agreements (July 2005) Eligibility OP/BP 6.00 (April 2004) Decentralization (2003)

Session outline LOA organization - who does what Eligibility - Disbursement categories Advances – flexibility Supporting documentation - SOE Electronic WA – electronic signatures

The Loan divisions Part of CSR VP Disburses USD 20 to 22 billion each year 28,000 disbursement transactions 123 staff 7 regional centers

Controllers, Strategy, Resource Management (CSR) CSRVP CSRSICTRDRCSRRM

CTRDR Deputy Controller LOADM Disbursement Management LOAFC Fiduciary and Controls ACTCF Loan Services Group

Fiduciary and Controls Division (LOAFC) Clearance function during project identification through Board Monitor ongoing adequacy of fiduciary arrangements during implementation Participate in joint CSR/FM quality reviews

Disbursement Management (LOADM) Processing withdrawal applications Portfolio management Records management

Eligibility Reforms (2004) Removes old definitions of eligible and ineligible expenditures from OP (now covered in OP 6.00) Shifts determination of eligibility to what is needed for the project, in accordance with country financing parameters and the loan agreement New flexibility in setting up withdrawal categories in loan agreement (no longer tied to procurement methods)

Guiding Principles Bank loan proceeds finance the expenditures necessary to meet the development objectives of operations supported by the loan.

Guiding Principles acceptable oversight arrangements, including fiduciary oversight arrangements, are in place to ensure that such loan proceeds are used only for the purposes for which the loan is granted, with due attention to considerations of economy and efficiency.

Eligibility What are the Eligible Expenditures ? When are they incurred ? How are they valued ? When are they recorded by the Bank ?

Guidance “….Bank staff typically ….” !!! Review the cost estimate that the borrower prepares for the each project. This estimate is normally broken down by expenditure line items that facilitate management of the project and oversight of its implementation, and by time profile (at least annually).

Guidance On the basis of this review, Bank staff form a judgment as to whether all costs are necessary to meet the objectives of the operation. All necessary costs for which Bank staff are satisfied that acceptable arrangements are in place to manage associated risks are eligible for Bank financing

DISBURSEMENT CATEGORIES It used to be so easy Schedule I Goods Works Services Schedule II – Project description

Disbursement Categories Can match the needs of the project Type of expenditure Project component Single category Flexible

Disbursement Percentages Country Financing Parameters for most countries Mainly “up to” 100%

Eligible Taxes and duties Recurrent costs Local costs Special authorization (land etc)

What to expect More emphasis on making sure that Disbursement Categories match project needs

Advances The Basics What we used to do What are the changes

DESIGNATED ACOUNTS DECEMBER 31, 2007 Funds in Designated Accounts $ 6.2 billion (2003 $4.1 billion) DA inactive 6 months $ 807 million ( $52 million) DA inactive 12 months $128 million ( $ 8 million)

It used to be so easy Special Accounts up to 10% Initial Allocation up to 5%

OP pp 5 The Bank determines the amount that may be advanced into the designated account in accordance with the operation’s periodic financing requirements.

BP pp 7 When disbursement arrangements include the use of advances, the task team leader reviews the reasonableness of the borrower ’ s forecasts from time to time to ensure that these amounts are in line with the operation ’ s periodic financing requirements. The task team leader alerts the finance officer when forecasts are considered to be unreasonable, and recommends appropriate action

OP pp 5 The designated account is an account that is maintained exclusively for the project. It may be an account which is segregated for Bank proceeds, or an account which pools Bank proceeds with funds of the borrower, development partners, or both.

The Bank may advance loan proceeds into..OP12.00 pp5 an account of the borrower that is.. held in a financial institution acceptable to the Bank and operated on terms and conditions acceptable to the Bank (the “ designated account ” ) to finance eligible expenditures as they are incurred and for which supporting documentation will be provided at a later date

MARCH 2007 CHANGES NO MORE Second Generation Special Accounts 90 day advances 30 day advances Sub accounts

Transfers from DA to Other Accounts of the Borrower Loan proceeds on deposit in designated accounts may be transferred to another account of the borrower or the project if the need exists and if appropriate arrangements are in place to ensure that loan proceeds so advanced will only be used for the purposes intended. Disbursement Handbook para 119

WITHHOLDING ADVANCES The Bank is not satisfied that the borrower’s planned project expenditures justify the deposit. The Bank may, by notice to the borrower, adjust the amount it deposits or withhold further deposits into the Designated Account until it is satisfied that the financial needs of the project warrant further deposits;

What to expect No new advances where previous advances have not been accounted for by the disbursement deadline date (plus two months) Greater focus on the making sure that advances match project needs

Documentation thresholds The Basics What we used to do What are the changes What we are doing now

The Basics Supporting documentation – records Procurement prior review thresholds Not the same thing

The Basics Op pp 6 Supporting Documentation “The Bank may require records (e.g., receipts, invoices) for certain specific expenditures, and/or accept summary reports of expenditure (i.e., interim financial reports or statements of expenditure) from the borrower to support the application for withdrawal.”

What we used to do OP/BP Statements of Expenditure ODP 5.02 Statements of Expenditure Up to, but not exceeding, procurement prior review thresholds Normally should not be less than $50,000 Normally should not exceed $250,000

What are the changes LACI - PMR/FMR/IFR New Procurement Guidelines 2004 Procurement Plans Prior review first two contracts Updated Disbursement Policies OP/BP March 2007

What to expect Having “normal” documentation/SOE thresholds for each country Moving to higher documentation/SOE thresholds in lower risk MICs

eDisbursement Phase I: electronic withdrawal applications – eForms Previously, “PDF” form that could be filled out online, printed, signed and sent to Bank Now, eForm allows preparation online (in Client Connection) and provides “smart help” according to application type (e.g., advance, documentation of advance, direct payment)

“Smart help”? eForms pre-fills borrower information, designated account details, etc. Provides look-up tables for commercial banks, currencies, etc. Runs edits and checks to ensure form is complete, sufficient funds available Still requires printing, signing, sending

Phase II: eSignature Phase II: eSignature (pilot) under way Client prepares application online, attaches supporting documents, “signs” electronically (RSA SecurID), and eForm is automatically ed to LOA service account No printing, no physical signing, no mailing Rollout to all eligible clients post-pilot

Phase III: Full eDisbursement Phase III: eDisbursement means straight- through processing Client enters application request online and automatically updates loan disbursement records in iLAP Eliminates duplicative data entry by LOA, but builds in additional checks and balances to flag unusual / risky payments Manual/paper forms continue for clients without access to good IT infrastructure