FM for Specialized Operations Fiduciary Forum’08 Washington DC

Scope I. Conditional Cash Transfers II. Output-Based Aid/Output-Based Disbursements III. Avian Flu IV. Carbon Finance

Underlying Principles….  The same FM Policies and Guidelines are applied to various operations, however, their implementation needs to be adapted to the project-specific circumstances…  Three key questions: What are the project implementation structure and objectives? What are the project implementation structure and objectives? What financing instruments are being used? What financing instruments are being used? What are the main FM and operational risks which need to be addressed ? What are the main FM and operational risks which need to be addressed ?  Once the answers are clear, it is much easier to design and implement appropriate FM strategy, based on the WB Policies and Guidelines, and using the tools available in each particular case….

Conditional Cash Transfers – Key Definitions  CCT Program objectives Short-term poverty alleviation Short-term poverty alleviation Human Capital accumulation Human Capital accumulation  How it works Transfers to poor families Transfers to poor families Conditional upon investments in human capital (sending children to schools, bringing them to health centers) Conditional upon investments in human capital (sending children to schools, bringing them to health centers)  Similar programs are implemented by the govt’s of the developed countries (e.g. US Food Stamps program)  Accurate targeting and fulfillment of the pre-agreed conditionalities are essential for the successful achievement of the program’s objectives

CCTs – Implementation Principles  Typically high visibility – national initiatives, involving significant political risks  The WB financing supports the government-owned program, which is implemented via the existing country systems  Very often the CCT components of the project are paired with the capacity building measures  No program is immune from error or even some degree of fraud, even with best controls – acceptable level of risk  Efficient information system – the backbone of the successful CCT program

CCTs – Financial Management Considerations  Basic elements of the successful CCT program are not different from the other WB projects If FM capacity of the IA is already satisfactory – traditional internal controls need to be reinforced (e.g. additional accounting and reporting requirements, monitoring and reconciliation of payments) If FM capacity of the IA is already satisfactory – traditional internal controls need to be reinforced (e.g. additional accounting and reporting requirements, monitoring and reconciliation of payments) If capacity is weak – project design should include strengthening component If capacity is weak – project design should include strengthening component Due to the nature of the program - reliable information systems and internal controls are essential Due to the nature of the program - reliable information systems and internal controls are essential Some type of verification of the fulfilled conditionalities, complemented by adequate documentation – pre-condition for disbursement Some type of verification of the fulfilled conditionalities, complemented by adequate documentation – pre-condition for disbursement Financial and compliance audits are important, but tendency towards ‘over-auditing’ should be avoided (if possible) Financial and compliance audits are important, but tendency towards ‘over-auditing’ should be avoided (if possible) Special role for the SAI and Internal audits Special role for the SAI and Internal audits

Output-Based Aid (OBA)/Output-Based Disbursements  OBA is one method to improve delivery of basic services – such as water and electricity– when the inability of users to pay full cost justifies payment of performance-based subsidies to the service deliverers  Delivery of services is delegated to the third party (private sector, NGOs, CBOs, Gov’t owned enterprises)  Service providers are for the most part paid after delivery of the agreed output -> service provider assumes the risk of pre-financing the achievement of such outputs -> the outputs are independently verified prior to disbursement  Subsidies are usually disbursed in the form of fixed payments, calculated using an agreed-upon methodology  OBA is explicitly targeting the lower-income communities, OBD – high capacity IBRD members in the MIC group

Output-Based Aid (OBA)/Output-Based Disbursements  Sources of financing: traditional IDA, IBRD + GPOBA grants  GPOBA-funded projects – grant agreements can be signed directly with the service provider or fiduciary agent; stand-alone project or part of a bigger operation, but moving towards mainstreaming…  Information Sources: Procurement Issues in OBA Projects, Guidance Note for Procurement Staff – issued in February 1008, FM is currently being prepared… Procurement Issues in OBA Projects, Guidance Note for Procurement Staff – issued in February 1008, FM is currently being prepared… Structuring Output-Based Aid Approaches in WBG Operations, Guidance Note to Staff, November 2005 Structuring Output-Based Aid Approaches in WBG Operations, Guidance Note to Staff, November 2005 GPOBA website GPOBA website

CCTs VS OBAs/OBDs CCTsOBAs/OBDs Targeted Sectors Health, Education Infrastructure Payment Recipients Ultimate beneficiaries: families, individuals Service Providers (Private sector, NGOs, etc.) Typical implementation design Part of a bigger operation, often SWAPs Part of a bigger operation or standalone project Typical implementation mode Via existing country arrangements PIU/PCU, country own arrangements Disbursement arrangements Payments conditional on the fulfillment of pre-agreed conditionalities (clinic visits, etc.) Payments conditional on delivery of pre-agreed outputs (water connections, etc.) FM Risks Particular areas of focus include adequate organization of internal controls and payment process, consisting of a very large number of small payments Risks are shifted to outputs instead of inputs

CCTs VS OBAs/OBDs CCTsOBAs/OBDs Financial Reports Standard + CCTs calculations, verified and certified by an independent expert Achieved outputs, verified and certified by an independent expert Internal Controls  Clear allocation of responsibilities  Rigorous documentation of cash flow  Efficient and reliable information system  Internal business process monitoring – internal audits, spot checks  Strong focus on verification of delivered outputs  Performance risk is shifted to provider External audits  Financial  Compliance  IT  SAI should play a special role  Financial  Compliance

Avian Flu  Two main programs: Global Program for Avian Influenza (GPAI) and multi-donor Avian and Human Influenza Facility (AHIF) + various TFs  WB processes the Avian flu operations using its emergency procedures, allowing quick preparation and approval  Objectives of the projects: Build Adequate Institutional Arrangements (put in place legislations, design databases, establish compensation funds, etc.) Build Adequate Institutional Arrangements (put in place legislations, design databases, establish compensation funds, etc.) Provide Funds for Actual Compensation Payments Provide Funds for Actual Compensation Payments

Avian Flu – Essential Elements of Compensation Payment Systems  Legal Basis for Compensation Fund Administration  Financial needs assessment – how much will compensation cost ?  Funding sources – how will gov’t raise the money ?  Payment mechanisms – How will the payments be made ?  Payment instruments – cash; bank transfers; vouchers  Certification – on which basis will payment be made ?  Time frame for payment – how soon ?  How will disbursements be monitored ?  Financial and Social Accountability Mechanisms – audits, local governance reviews

Avian Flu –Recommendations and Challenges  Compensate the appropriate beneficiaries by appropriate amounts, with the shortest possible interval between reporting culling, culling and payment; use local payment channels with reimbursement from central compensation funds, to facilitate a rapid cash disbursement  Choose adequate instruments and arrangements to support payments process, depending on the chronology of the disease: i.e. disaster preparedness, crisis management, transition  Built eligibility databases as part of the emergency preparedness plans; In crisis situation however, building of eligibility databases and emergency payment procedures are likely to go on in parallel  Publish Program progress reports and financial statements: enhanced disclosure supports monitoring and evaluation of results, fosters credibility, transparency and accountability; After culling a paying list of farmers per village, including the amounts to be compensated should be posted or announced in a public space  Effectively use Operational and Financial audits  Main challenge is to achieve balance between front loaded ex-ante controls, simplicity, especially under difficult field conditions and weak institutional capacity and governance

Avian Flu – Reference Sources  Guidelines: Financial Management Aspects of Emergency Operations processed under OP/BP 8.00  Enhancing Control of highly Pathogenic Avian influenza in developing Countries through Compensation: Issues and Good Practices  FM Toolkit on Avian Influenza (FM website)

Carbon Finance  WB CFU uses money contributed by Gov’ts and companies in OECD countries to purchase greenhouse gas emission reductions (ERs) in developing countries  ERs are purchased on behalf of the contributor, within the framework of the Kyoto protocol  CFU does NOT lend or grant resources to projects, but rather contracts to purchase ERs similar to a commercial transaction; such purchases could be incorporated into the broader projects  Carbon Finance: Operational Processing and review Guidelines and Guidelines on Due Diligence Aspect of Carbon finance Operations (November 2007) – complement the relevant aspects of OP/BP Trust Funds  In the context of CF Operations due diligence does not include assessments relating to the application of the Bank’s fiduciary policies, including procurement, financial management, and disbursement…

Case Studies