1. Tamil Nadu Empowerment and Poverty Reduction Project Audits and Risk Management

2. Tamil Nadu & project context Population: 72 million Industrialized state and second largest economy Rural poverty: agricultural labor, high inequality, low skills, weak access to credit and markets Project: 26 districts, 120 blocks 4,174 villages (33% of state) 970,000 target households Total IDA: US$ 274 million

3. Project Development Objective To empower the poor and enhance their livelihoods through: the development of community level institutions; enhancing skills and capacities of the poor (especially women, youth, differently-abled and the vulnerable); and financing demand-driven investments related to livelihoods for the target poor.

4. Fund flow and institutions 85% of funds utilized at village level Fund flow: IDA to GoI to GoTN to PVP State Society to PVP District Society (DPMU) to: Village Poverty Reduction Committee (VPRC), Panchayat Level Federations (PLF), Village Panchayat, economic activity groups to : self help groups, livelihood groups, individual assistance Key village institutions: VPRC, Gram Sabha and Social Audit Committees (SAC) and federations

5. Risks… Sheer scale of operations at the community level (over 4,000 VPRC’s/PLFs and over 60,000 SHGs) with over 85% of project funds flowing to the community institutions. Five main risk areas: (i) village level processes; (ii) FM weaknesses; (iii) procurement irregularities; (iv) information disclosure; and (v) complaints management: Lack of experience of CBOs to manage funds, i.e take decisions in a transparent manner and disburse/recover loans to SHG. Risk in targeting, elite capture, non-participatory decision making, Risk of intervention by project staff in the decision making Capacity to maintain proper books of accounts and include interest and loan calculations and provide monthly reports Risk of misappropriation and mis-use of funds due to over- dependency on the book keeper.

6. How mitigated… Mitigation & good governance measures at three levels: (i) Village - VPRC empowerment, COM, display boards, book keeping, SAC and sub-committees on FM and procurement; (ii) District and state – monitoring, compliance & audits (iii) Independent evaluation and external monitoring Project Governance Accountability and Action Plan developed in participatory manner SAC facilitates village specific GAAP – step by step guide Funds released in Tranches based on achievement of triggers, which include institutional (trained book keepers) and fiduciary performance conditions.

7. Audit components Statutory Audit: at State and District PMU levels – independent firm of chartered accountants Internal Audit: of state and district societies on a quarterly basis – appointed by General Body Village Audit: annual audits of 100% of VPRC, VP and EAGs – CA firms at district level (executive summary of findings placed in the GB) Social Audit: on all aspects of project implementation and adherence to principles by village committees. Appointed by Gram Sabha. Regular review of community group financial reports; investigation of petitions/complaints received; and peer audit of accounts (by community professional):

8. Social Audit Committees 5-7 member body Selected by the Gram Sabha & village assembly Monitors activities of VPRC, CLGs, VP Ensures compliance with core principles and investigates grievances Certifies fund utilization & achievement of milestones Reports to Gram Sabha & village assembly To ensure funds are spent for intended purposes in efficient and transparent manner

9. Complementary risk mitigation measures Targeting: participatory identification of the poor (validated by Gram Sabha) Social accountability tools (social audits, participatory monitoring, information disclosure) External process monitoring Robust grievance redress mechanisms – problem tree IT based Community accounting software Review of potential mis-use (130 cases totaling $300,000 – 50% recovered), case write- ups and refresher training Non negotiable principles: inclusion, equity, participation, facilitating, transparency and accountability

10. IT based Community Accounting * Books of accounts maintained by 20,000 trained community members * Data entry at village level * Consolidated at cluster level in 10 minutes * Tablets piloted in tribal areas

11. A few results Intermediate outcomes and impact evaluation: Around 30,000 new Self Help Groups (SHGs) formed (poorest women, youth, tribal and differently-abled. Over 4,100 livelihood groups (dairy, poultry, garments..) Total savings and credit with SHGs almost US$ 400 million - reduced burden of high cost debt & shift to productive uses Skills training of over 200,000 youth, with 82% in jobs - 31.6% more household members in higher skilled jobs Individual assistance to more than 200,000 differently-abled and vulnerable persons Increased participation in Gram Sabha meetings Increased say of women in intra-household decisions

12. Any questions? PVP problem tree

13. Technical Annex: Governance & Accountability Action Plan – Step by Step Guide Effectiveness of risk management framework

14. Governance & Accountability Action Plan – Step by Step Guide

16. Effectiveness of the risk framework and actions taken…… 130 confirmed cases of mis-use of funds - both at the CBO level and by project staff. Amount involved USD 300,000 of the above USD 150,000 has been recovered and balance is under process of recovery. Actions taken include (specific):  Change of office bearers/ book keepers  Suspension of funding to CBO  Recovery proceedings  Police compliant  Suspension and discharge of staff Systemic:  Rapid scan of all CBO’s managed by particular staff involved in mis-use.  New control measures or revised processes introduced when issue is considered a systemic risk.- (e.g 60 % of the mis-use cases related to loan repayment by SHG to PLF– system of direct repayment into banks and periodic balance confirmation process introduced)