1. 1 IFAD PROJECTS FINANCIAL MANAGEMENT SEMINAR NAIROBI, KENYA 14-15 October 2008

2. 2 Presented by: RUTH FARRANT ROBSON MUTANDI GODFREY MWANGI WANJOHI

3. 3 COURSE CONTENT 1.BACKGROUND 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS 3.FINANCIAL STATEMENTS 4.AUDIT OPINIONS AND REPORTS 5.CROSS-CUTTING ISSUES 6.CONCLUSION AND WAY FORWARD

4. 4 1.BACKGROUND IFAD has a fiduciary role to ensure that its funds are used for the purpose for which intended IFAD guidelines require all projects to maintain accounts and records for our funds (either separately or within a basket fund) Loan Financing Agreements require that financial statements are prepared that are consistent with the GoK financial regulations and IFAD audit guidelines

5. 5 These Financial Statements must be audited annually by a professional auditor acceptable to IFAD In all cases, the Loan Financing Agreements require that acceptable audited accounts and reports be received by IFAD no later than 6 months following the financial year end, otherwise sanctions may be applied 1.BACKGROUND (continued)

6. 6 Required for successfully managing the financial resources of IFAD funded programmes Where possible, national systems should be used 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS

7. 7 Activities costing Budget Consolidation Funding for the Procurement Plan Resource flows Asset statement Training plan 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS (continued) a) Financial Planning through AWPB

8. 8 Financial Sources by Financier By activities in the approved AWPB By subcomponents By components By expenditure categories 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS (continued) b) Financial Data Capturing and Accounting

9. 9 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS (continued) c) Financial Management Monthly, quarterly and annual reporting Managing the Bank accounts Preparation of SOEs Preparation and submission of: –direct WA claims –replenishment WA claims –reimbursement WA claims

10. 10 2.PROGRAMME/ PROJECT FINANCIAL SYSTEMS (continued) d) Financial Monitoring Monthly reconciliation of the SPA in the format required by LTB Quarterly reconciliation of Project expenditure to: –IFAD disbursement statements including the Historical Statement –Loan Utilisation in SDR

11. 11 3.FINANCIAL STATEMENTS  The objective of a set of Financial Statements is to provide information about the financial position, performance and resource flows of an entity or project  Separate disclosure should be made of contributions from Government, IFAD loan, grants and beneficiaries

12. 12  Actual and budget data to be provided for the current year and cumulative, analysed by relevant sub-component, component and expenditure categories  The Balance sheet should disclose bank balances, fixed assets and liabilities  Annual and cumulative Statements of expenditures by withdrawal application and Category of Expenditures 3.FINANCIAL STATEMENTS (continued)

13. 13  The financial statements are prepared in accordance with internationally accepted standards. National standards may be used if acceptable to IFAD  Accounting policies adopted and any other information deemed necessary for the presentation of a true and fair view of the accounts, including minimum disclosures per IFAD audit guidelines 3.FINANCIAL STATEMENTS (continued)

14. 14  A reconciliation statement of the Project expenditure to the initial US$ deposit in the Special Account, in accordance with the IFAD letter to the borrower (LTB)  A reconciliation statement of the Loan/Grant allocations per the Financing Agreement and the disbursement to the year end balances in SDRs (including the balances of Loan/ Grant not yet disbursed) 3.FINANCIAL STATEMENTS (continued)

15. 15 4.AUDIT OPINIONS AND REPORTS The overall objective of the audit is to ensure that the financial statements are truthfully and accurately presented, both for current year and cumulatively The audit should be performed in accordance with ISA The Programme Accountant should be involved in the appointment process that includes clear TORs. IFAD should also provide no-objection

16. 16 The Auditor is required to provide an audit opinion on: (1)the financial statements (2)the eligibility of project expenditures claimed through Withdrawal Applications submitted during the year (3)whether the Special Account has been used in accordance with the Financing Agreement 4.AUDIT OPINIONS AND REPORTS (continued)

17. 17 TOR should include confirmation that goods, works and services have been procured in accordance with underlying loan covenants and GoK financial regulations TOR should include verification of whether the expenditures have been incurred in accordance with the loan covenants, approved AWPBs, and with due care to economy, efficiency and value for money 4.AUDIT OPINIONS AND REPORTS (continued)

18. 18 Management letter containing weaknesses and observations on the adequacy of the accounting systems and procedures and matters which may have a negative impact on project implementation Management response required within 30 days Points of comments should be accompanied with practical recommendations for positively and conclusively dealing with issues raised 4.AUDIT OPINIONS AND REPORTS (continued)

19. 19 5.CROSS-CUTTING ISSUES Significant gaps between the actual audited accounts and reports, and those prescribed in the IFAD guidelines If the audit opinions are not clean/ unqualified, these are potentially not acceptable to IFAD and the financial statements are to be re-done and re- audited, or as otherwise to be agreed in writing as an acceptable action plan

20. 20 Absence of: –Balance Sheet –Reconciliation of the Initial deposit of the Project Special account –Reconciliation statement of the Project Expenditure to the Loan/ Grant –Presentation of Project expenditure by components –Compliance with deadlines. Delays range from 1 to 20 months (sanctions may be applied after 180 days) 5.CROSS-CUTTING ISSUES (continued)

21. 21 –Lack of documentary support for large amounts of expenditure –Non-agreement of figures within the Line Ministry and PMG treasury accounting records, due to poor record keeping –Sources and application of funds statements lack comparison with AWPB –Lack of management letter 5.CROSS-CUTTING ISSUES (continued)

22. 22  The ability of the project to demonstrate good financial management standards depends on the commitment and professionalism of the Project Accountant and district accountants  The quality of the financial statements depends on following proper accounting processes and maintaining timely, adequate and accurate books of account in accordance with the Accountant General’s circular 6.CONCLUSION AND WAY FORWARD

23. 23  Adhere to the project financial and accounting system laid down in the Project Implementation Manual (PIM)  Instil discipline and commitment in the preparation and production of monthly financial statements and reconciliations  Ensure that year end accounts are prepared prior to the end of the 2nd month following the financial year end 6.CONCLUSION AND WAY FORWARD (continued)

24. 24  Reconcile the financial statements to the records of the Line Ministry and PMG Treasury Accounting records  Submit draft accounts to IFAD for review prior to submission to the auditors to meet the deadline of 3 months following year end  Respond to the draft audit report within 2 week deadline 6.CONCLUSION AND WAY FORWARD (continued)

25. 25 Questions and Answers ? If in doubt, ask IFAD!