1. THE WORLD BANK - INTERNATIONAL FINANCE CORPORATION - MULTILATERAL INVESTMENT GUARANTEE AGENCY

2. Strengthening Trust Fund Management
1. Update on Portfolio Developments
2. Progress in Implementing the new Trust Fund Management Framework
3. Fiduciary Principles Accord with the UN
4. Compliance and Financial Reporting

3. Update on Portfolio Developments
Progress in Implementing the new Trust Fund Management Framework
Fiduciary Principles Accord with the UN
Compliance and Financial Reporting

4. Cash contributions were 41% higher in FY07
Largest amounts went to:
GFATM (28%)
GEF (11%)
GAVI (10%)
Afghanistan Reconstr. (6%)
339 donor agencies:
Sovereign Gov’ts 79% (value)
Intergovernmental Orgs. 11%
World Bank Group 6%
Private Non-Profit Entities 3%
Private For-Profit Orgs. 1%
Donor Category
FY03
FY04
FY05
FY06
FY07
Sovereign
Number of Countries 63 73 67 78
Number of Agencies
123
149
165
157
Non-Sovereign
Multilaterals 8 5 6
 Funds, Foundations, Agencies, etc. 70 93
125
119
177
101
130
182
Total Number of Different Agencies
201
250
279
290
339

5. Disbursements increased 33% in FY07
WBG TF Disbursements FY
2,561
3,277
4,128
4,374
5,808
1,000
2,000
3,000
4,000
5,000
6,000
FY2003
FY2004
FY2005
FY2006
FY2007
US$ million
TF spending was 23% of IDA+IBRD+TF disbursements in FY07 (12% in FY03):
60% TF resources went to regional/global activities
29% to IDA countries
6% to IBRD countries
5% to blend countries

6. Biggest spending growth in Health, Post-Conflict/Disaster Recovery, & Environment

7. Largest growth continued to be in FIFs
Trust Fund Category
FY07 Disbursements
Number of Active TFs
US$m %
FY07-end
IBRD/IDA-Administered TFs
5,568
96%
822
81%
Bank Executed
330 6%
419
41%
Recipient Executed
2,111
36%
304
30%
Financial Intermediary
3,127
54% 97
10%
Other Bank Group-Administered TFs
240 4%
195
19%
TOTAL
5,808
100%
1,015
FY03-07:
BETF disbursements increased from $186m to $330m
RETF disbursements grew from $984m to $2.1b (e.g., post-crisis)
FIF disbursements grew from $1.31b to $3.1b (mainly for sectoral initiatives)
1,015 TFs in FY07:
85% <$20m
61% <$5m
24% <$1m
MDTFs increased from 118 to 285 in FY03-07:
71% of total disbursements

8. Progress in Implementing the new Trust Fund Management Framework
Update on Portfolio Developments
Progress in Implementing the new Trust Fund Management Framework
Fiduciary Principles Accord with the UN
Compliance and Financial Reporting

9. TF Management Framework: Consultation/Approval Process
Extensive consultation with donors during and after May 2007 Donor Forum, and internally with World Bank management and staff
Presentations to Audit Committee (July 2007) and Budget Committee (September 2007) of the World Bank’s Executive Board
Approval by Executive Directors – October 30, 2007
Three Pillars:
1. Enhanced Strategic Focus and Selectivity
2. Strengthened Risk and Results Management
3. Enhanced Operational Efficiency and Sustainability
+ Policy Principles for accepting and managing trust funds at the World Bank

10. TF Management Framework: Key Implementation Actions
Formal launch by Managing Directors and CFO – November 2007
Detailed TFMF Implementation Plan prepared – November 2007
Donors informed of new policy principles and fee structure – December 5
Each Vice Presidency designated a senior TFMF focal point – December
High-level Steering Committee to oversee implementation – January 2008
IFC harmonized TF policies with IBRD/IDA -- informed donors January 7
New policy framework for TF management (OP/BP 14.40) being finalized for Board -- expected to become effective July 1, 2008

11. TFMF Pillar 1: Enhanced Strategic Focus & Selectivity
1. Country level:
Reflect TFs more systematically in operational programs
Integrate TFs in Country Assistance Strategy (CAS)
2. Region/Sector level:
Put TFs in broader context of regional/sector business needs
Integrate into strategic discussions at VPU level through TF Management Plans
3. Corporate level:
Institutional review of strategic issues and risks
Systematic monitoring of major partnership and TF initiatives
Senior Management Review of especially large/complex TF and partnership proposals and financial engineering initiatives

12. TFMF Pillar 2: Strengthened Risk & Results Management
1. Strengthening Standard Controls:
Continued investment in automation to improve compliance and reporting
User Survey of e-Trust Fund project tools completed in December; results incorporated in design of follow-on TFast systems project
Bank-wide communication on new TF typology -- December 19, 2007
Data quality initiative to standardize definitions and reports
Mandatory learning & accreditation program being updated
Reviewing internal processes to rationalize roles and enhance efficiency
2. Tailoring Specialized Controls to Type-specific Risks:
Integrated BETFs into FY09-11 planning/budget exercise
Aligning RETFs with IBRD/IDA lending processes/systems (risk-adjusted)
Inclusion of "RE" projects over $5 million in reporting to Board
FIF oversight/review at institutional level
3. Strengthened Results Focus:
Greater rigor and consistency of monitoring and evaluation

13. TFMF Pillar 3: Enhanced Operational Efficiency & Sustainability
1. Revised TF fee structure effective January 1, 2008:
Minimum threshold for establishing a new TF is now US$1 million
Continued cost-sharing by the Bank for BETFs and TFs for project preparation
Set-up charge of $35,000 for each new TF that carries a standard fee
For all other TFs, full cost recovery through customized fee arrangements
2. New Externally-Financed Output (EFO) instrument:
Specified deliverables/timeframe in support of Bank work program; no minimum or maximum size, no fees; reporting focused on outputs
Detailed guidelines and standard legal templates prepared
Accounting procedures designed
System design finalized
13 EFOs signed for total of $6.9m ($540,000 average size)
3. Other Work in Progress:
Improved cost estimation process/guidelines for customized fee arrangements
Introducing more rigorous procedures for capturing TF administration costs
Revising methodology for fee income allocation to different Bank units

14. Fiduciary Principles Accord with the UN
Update on Portfolio Developments
Progress in Implementing the new Trust Fund Management Framework
Fiduciary Principles Accord with the UN
Compliance and Financial Reporting

15. Multi-Donor Trust Funds: Key Vehicle For Channeling Aid to Crisis and Post-Crisis Situations
New World Bank policy on Rapid Response to Crises and Emergencies:
specifically highlighted importance of MDTFs in supporting coordinated, timely and effective response of donor community to crises and emergencies
Since 1994, US$5.4 billion in crisis response assistance channeled through MDTFs:
US$4.3 billion administered by WB
US$1.1 billion administered by UN
Reflecting lessons learned, new policy emphasized:
close coordination and collaboration of all development partners for effective response to crises and emergencies
more effective collaboration and partnership between WB & UN

16. Strengthening WB/UN Collaboration & Partnership in Crises & Emergencies
Respond to a commitment made to WB’s Board during discussion of Rapid Response policy
address systemic issues that undermined effectiveness of WB/UN cooperation in crisis & emergency situations
Reflect findings and recommendations of 2007 Review of Post-Crisis MDTFs
commissioned by Norway, Canada, Netherlands, U.K. in collaboration with the WB (“MDTF Review”), with UN consultations

17. Strengthening WB/UN Partnership: Instruments under Development
Partnership Statement on WB/UN Cooperation
principles, linkage of planning processes, communications protocol, and troubleshooting mechanisms
Fiduciary Principles Accord (FPA)
designed to address problems and delays associated with lack of interoperability between legal and fiduciary frameworks of WB & UN

18. FPA: Specific Issues being Addressed
For WB-administered TFs, Bank policies & fiduciary requirements normally apply to all TF recipients, including UN
This requirement has resulted in significant delays in:
concluding legal agreements between WB & UN
start-up of urgent implementation activities by UN due to lack of interoperability between WB & UN internal rules and policies, particularly in fiduciary areas
In some situations (e.g., Sudan), donors had to agree specifically to permit UN to rely on its own fiduciary rules & procedures on an exceptional basis
Only other model -- fiscal agency (pure “pass-through” from WB to UN) -- undermines Trustee’s/Administrator’s ability to report on overall program progress or address serious issues (including fraud & corruption)

19. FPA: A New Model For WB/UN Partnership & Cooperation under Crisis MDTFs
FPA Premises:
1. Fiduciary requirements/rules & procedures of World Bank & UN are designed to meet same due diligence goals & principles
2. Allow each organization to implement activities using own internal rules & procedures, based on an assurance that its rules & procedures are adequate to meet agreed fiduciary principles & goals
3. Reciprocity -- application of FPA to TFs administered by either WB or UN
FPA Elements:
1. Agreement on shared fiduciary principles and goals in financial management, procurement, project monitoring & reporting arrangements, addressing fraud & corruption, etc.
2. An assurance from each organization (to be renewed at agreed intervals) that its internal requirements, rules & regulations permit it to meet these principles & goals
3. An additional process for addressing allegations of fraud & corruption or other serious issues

20. FPA: Expected Outcomes
Quick, effective disbursement of MDTF funds in crisis & post-crisis situations when UN (or WB) implementation or direct support is needed
Timely conclusion of legal agreements based on an agreed template that allows each organization to implement such activities using own fiduciary rules & procedures
Consistent reporting on use of funds and implementation progress against expected outcomes & results
Enhanced role for donors as part of governing body to oversee progress and make decisions on proper recourse to address any issues

21. FPA: Topics for Discussion
Choice of Model
Use of own fiduciary rules based on assurance against shared fiduciary principles vs. compliance with Administrator’s fiduciary requirements
Roles
Governing Body vs. Trustee/Administrator vs. Implementing Agency
Information Needs of Donors
Financial Reporting
Progress Reporting/Results Monitoring
Special Issues/Concerns

22. Compliance and Financial Reporting
Update on Portfolio Developments
Progress in Implementing the new Trust Fund Management Framework
Fiduciary Principles Accord with the UN
Compliance and Financial Reporting

23. Compliance & Quality Assurance: Overview
BETFs
Reimbursed US$87,000 in FY07 (cf US$10 million in FY02)
RETFs (more anecdotal)
Bank reimbursed US$20 million in FY02
Reimbursements in FY07 probably less than US$5 million in total, by countries
CSR/TQC/LOA review of process compliance “OK”
QAG findings (FY08) are encouraging and confirm that quality depends on management attention
FIFs often support global programs, evaluated by IEG or externally, or have only a trustee role for the Bank

24. Compliance & Quality Assurance: Looking Ahead
Learning and Accreditation Program will be updated by end-2009
New TF Management Framework links TF usage more tightly to Bank business units’ strategy and success indicators
Risk-based fiduciary framework on RETFs will further enhance compliance and results
Greater emphasis on GAC, country systems and donor harmonization, as well as new system-based tools & reports will improve oversight, consistency and standards

25. Financial Reporting: Agenda
Overview of Financial Reporting Arrangements
Trust Funds Portfolio
Trust Funds vary by type and size
Types of trust funds and growth (FY03-FY08)
Overview of the Single Audit
Single Audit FY08
Single Audit FY09 and Beyond
Questions for Consideration 1

26. Financial Reporting Arrangements: Overview
Statements of Receipts, Disbursements and Fund Balance (unaudited)
Required by administration agreements
Readily available to donors on the web
Trust funds subject to separate financial statement audit
When required by administration agreement
80% of the portfolio by value at June 30, 2007; 13% by number of TFs (circa 130 TFs)
Special request from donors
IFRS; US GAAP; special purpose financial statements; cash-based
Single Audit
20% of the portfolio by value at June 30, 2007; 87% by number of TFs (circa 850 TFs)
Audit Arrangements 2

27. Trust funds vary by type and size
Trust Fund Portfolio:
Trust funds vary by type and size
Rapid growth in volume, diversity, and complexity of portfolio since FY03
There are 3 types of TFs:
Bank Executed
Recipient Executed
Financial Intermediary Arrangements
85% of the trust funds by number are less than $20m
Donor balance accounts currently total ~$180m 0%
20%
40%
60%
80%
100%
Trust Funds by Size
15%
> 20 million
5 million - $20 million
23%
62%
< $5 million 3

28. FY07 Disbursements, US$ millions
Trust Fund Portfolio:
Types of funds and growth (FY03-FY07)
Financial
Intermediary
$3,127m
138% increase
since FY03
Bank Executed
$571m
122% increase since FY03
Trust Funds by Type
FY07 Disbursements, US$ millions
Bank Managed
Trust Funds by Type
FY06-end Balance, USD millions
Linked to WB Operations
The World Bank’s Operational Input
Stand Alone
Recipient Executed
$2,110m
113% increase since FY03
Donor Funds are a hybrid between bilateral and multilateral ODA. They are provided to the Bank, a multilateral development institution, but do not fully meet DAC’s criteria on “pooling” and executive control for the Bank as the receiving institution in order to qualify as multilateral ODA.
The Growth of the portfolio is primarily related to Fiscal Agency arrangements. These are multi-donor “Vertical” funds (see Aid Architecture) where the Bank has no direct operational involvement.
Fiscal Agency arrangements are (therefore) managed outside of the Bank’s normal administrative and operational framework. This is in effect a service that the Bank sells to the Donor Community (it should be priced as such, i.e. not only covering cost but also compensate for increased Bank risk exposure, Management time etc).
The other end of the spectrum are the traditional “Trust Funds” which are used, at the Bank’s discretion (within limits) to finance Bank activities (Bank Executed) and Project Financing (Recipient Executed). These have increased much more slowly over the last five years. They are relatively well integrated into the Banks normal administrative and operational framework.
Bank Managed projects which are subject to shared “Partnership” governance and (normally) freestanding from IBRD/IDA financing, have grown relatively rapidly. The Bank is “extending” its operational framework (e-TF; GP&RE product lines on Operations Portal) in order to improve efficiency and control in relation to these type of activities.
The Bank should remind donors of the trade-off they face between control/efficiency and the level of ad-hoc arrangements often created for partnerships with are not fully integrated into the Bank’s operational framework (incl. decision making). Higher Donor “Visibility” may facilitate for donors to accept standard Bank processes. Accountability should be clarified when the Bank implements projects approved under non-Bank governance structures.
Externally
Managed
Single Donor
Multiple Donors
Types of Trust Fund Arrangements 4

29. Overview of the Single Audit
Annual assertion by management over internal controls surrounding cash–based financial reports
Management assertion on internal controls
Contributions from Donors are recorded in the appropriate trust fund on a timely basis
Assets from underlying funds held in trust are segregated from funds of the Bank
Transactions are recorded in the underlying financial records and the financial reporting of each trust fund are valid and complete
Investment income is earned and credited to the appropriate trust fund in accordance with the terms and provisions of the agreements
Disbursements follow established Bank policies and procedures
Fees for administering each trust fund are charged in accordance with the terms and provisions of the trust fund agreements
Financial reporting is in compliance with the requirements set forth in the legal agreements entered into with the donors
External auditor’s attestation
Applicable audit standard (AT 501 issued by the US AICPA) 5

30. Single Audit FY08
AT 501 is being revised which necessitates a change in single audit approach for FY09 and beyond
No longer able to combine different entities with different financial reporting dates and different bases of accounting (cash vs accrual)
What Donors will receive for FY08:
Management assertion on internal control over financial reporting (ICFR) - same as previous years
External auditor attestation will be under International Standards on Assurance Engagements (ISAE 3000) instead of US AICPA AT 501 audit standard
Trust funds for which accrual-based financial statements are prepared are excluded from the single audit 6

31. Single Audit FY09 and Beyond
Management assertion and auditor attestation likely to be similar to FY08 (change in auditors)
Bank proposes to prepare a combined financial statement for all cash based trust funds and provide a management assertion thereon
Audited under International Standards on Auditing
Provide additional information in the form of notes and disclosures
Considering strengthening the single audit in future years (e.g. using “agreed upon procedures”)
Pro Forma Stmt 7

32. Questions for Consideration
Is the current level of audited TF financial information provided by the World Bank satisfactory?
Is the TF financial and other information that is currently available on the web satisfactory?
Will the future arrangements for the single audit satisfy the needs of Donors?

33. Current Audit Arrangements

34. Single Audit FY09 and Beyond
Note:
Figures above are for illustrative purposes only
Figures are unaudited and subject to change