0. Project Implementation: Loan administration
April 2012

1. Project Implementation: Loan administration
We would like to acknowledge the contribution of the Programme Management Department in the preparation of this presentation that will introduce some concepts and guiding principles for Loan administration
For more information on the topic please refer to the supervision training material of February 2012

2. Table of Contents Loan Administration Principles & Framework
Letter to the Borrower/ Disbursement Handbook
Disbursement Procedures
Withdrawal Applications
Foreign Exchange Translation 2

3. Loan Administration Principles & Framework3

4. Basic Principles of Loan Administration
Only Eligible expenditure: proceeds of financing shall be used only for purposes for which financing provided
Due attention & consideration to economy, efficiency & social equity
Expenditure is eligible as & when incurred: Advance payments made by project other than contractual advances are ineligible
First withdrawal: First withdrawal from loan/ grant account is made normally only after financing is effective & disbursement conditions met, except for start-up advance if agreed at negotiations and included in the financing agreement (Schedule 2)
Written application: Borrower can request for withdrawal only by means of written application in specified format along with relevant supporting evidence 4

5. Basic Principles of Loan Administration
Eligible expenditure: the following conditions should be met:
Incurred by project party
During project implementation period
Reasonable cost of goods & services procured
Per procurement procedures as per Schedule 4 of FA/ LTB
Per approved AWPB
Per percentages stated in Schedule 2/ LTB against eligible categories
Not prohibited by UNSC under Chapter VII of UN Charter
Not following any coercive, collusive, fraudulent or corrupt practice
Per financing agreement documents
Retroactive Funding: If Schedule 2 of FA expressly provides for retroactive funding, eligible expenditure incurred for project purposes before financing effectiveness can be reimbursed from loan account after effectiveness
Letter to the Borrower/ Disbursement Handbook: Sent by IFAD to Authorised Representative of Borrower outlining important financing provisions, disbursement procedures & guidelines 5

6. Basic Principles of Loan Administration
Disbursement process in IFAD: On receipt of Withdrawal Application (WA), the following steps are taken:
CFS receives original documentation, while PMD receives a signed/scanned copy of the WA package
Review and checks are performed simultaneously by PMD and CFS
PMD certifies that the expenditures are in line with approved AWPB and that procurement procedures are currently applied
CFS performs checks regarding accuracy and completeness of WAs and eligibility of expenditures considering the applicable rules and regulations
CFS may conduct independent verification of WA & sends approved Payment order to the Treasury Division to make payment
CFS issues debit advice to Borrower & implementing agencies & generates billing statements on fortnightly basis
Non approval of WA: IFAD informs Borrower about reasons for rejection & suggests corrective action to be taken
NOTE: Ad hoc procedures for IFAD Country Offices reviewing the WAs 6

7. IFAD Project & Legal Documents
Project Documents
IFAD Generic Documents
Design Report
Financing Agreement
General Conditions
Minutes of Loan Negotiations
Amendments to Financing Agreement
Letter to the Borrower (LTB)
Project Implementation Manual (PIM)
Loan & Grant Administration Operational Manual
Loan Disbursement Handbook
Procurement Guidelines
Audit Guidelines 7

8. Financing Agreement
Schedule 2 - Allocation & Withdrawal of Financing Proceeds
Category No. & description
Loan amount allocated to each category
% of expenditures to be financed
Definition of terms
Start-up advance, if envisaged
Retroactive Financing, if envisaged 8

9. IFAD Financing Financing Milestone Dates
Denominated in Special Drawing Rights (SDR) (only exception supplementary funds)
Withdrawal applications made in different currencies
Disbursement is converted in SDR & deducted from financing amount
Financing Milestone Dates
Board Approval Date
Financing Agreement Date
Effective/ Entry into Force Date
Project Completion Date
Loan Closing Date 9

10. Project Financing Agreement
ENTRY INTO FORCE
Financing Agreement Date + Ratification, if required
PROJECT COMPLETION DATE
“X” anniversary of Effective Date
WINDING-UP PERIOD
Project Completion Date to Loan Closing Date
LOAN CLOSING DATE
Project Completion Date + 6 months 10

11. First Disbursement - requirements
Financing declared effective/ entry into force
Evidence of opening of Designated Account (DA)
Letter on WA authorised signatories received
Signatories of persons authorised to operate DA & specimen signatures received
Disbursement condition/s met
AWPB & Procurement Plan approved
Withdrawal Application in order 11

12. Parties Involved Borrower IFAD Country Programme Manager
Controller and Financial Services Division
Treasury
International Banking Channels
Local banks 12

13. Letter to the Borrower/ Disbursement Handbook13

14. Letter to the Borrower/ Disbursement Handbook
Operational guidelines for withdrawal of loan/ grant funds for project purchases (procurement) of goods, works & consulting services, details of financial & audit reporting requirements
Explained to the Implementing Agency during Start-up mission
For new projects subject to revised General Conditions, Disbursement Handbook is an annex to revised Letter to the Borrower
Includes prescribed forms to be used by Implementing Agency in withdrawing funds from loan/ grant 14

15. Letter to the Borrower/Disbursement Handbook
. . explains the following topics:
Disbursement Conditions (Opening of Designated Accounts, appointment of officers authorised to operate DA & sign WAs, etc)
Disbursement Procedures
Designated Accounts
Instructions for Withdrawal
Annual Work Plan & Budget & Procurement Plan
Allocation of Financing Proceeds
Procurement of Goods, Works & Consulting Services, including Methods
Review of Procurement Decisions by IFAD
Programme Reviews & Periodic Assessments
Financial Reporting & Auditing
Project Completion/ Financing Closure
Amendments 15

16. Disbursement Handbook – Topics
Basic Principles & Financing Administration
Instructions for Withdrawal
Disbursement Procedures
Statement of Expenditure
Register of Contracts/ Contract Monitoring 16

17. Disbursement Handbook – Attachments
Sample letter of evidence of authority to sign WA
Instruction for completing forms
The various forms for use with 4 Disbursement Procedures
Initial Deposit Advance/Replenishment to Special/ Designated Account
Direct payment procedure
Special commitment procedure
Reimbursement procedure
SOE provision & eligibility
Project Checklist – Form & Instructions in completing form
Register of Contracts
Status of Financial Statements & Audit Report 17

18. Disbursement Procedures18

19. Disbursement Procedures
Withdrawal of Loan Funds
(Explained in the Letter to the Borrower)
Special Account
Procedure 1
Direct Payment Procedure 2
Disbursement Procedures
Reimbursement Procedure 4
Special Commitment Procedure 3 19

20. Special/ Designated Account (Procedure I)
A facility provided in Letter to the Borrower for advance funding from IFAD
Initial Deposit/Advance – paid in USD or other freely convertible currency
Replenishment applications should be submitted regularly using specified forms – usually on quarterly basis (see checklist) 20

21. Special/ Designated Account
General
Special Account/Designated provisions are found in in Section 4.04(d) of General Conditions
Article IV deals with Loan Account & Withdrawals - Withdrawals from loan & grant accounts, special commitments, WAs, transfers, allocation & reallocation of financing proceeds, value dates of withdrawals, eligible expenditures & refund of withdrawals
There are 3 stages in operation of the Designated Account during project life:
Payment of Authorized Allocation or Initial Deposit
Replenishment to Designated Account
Recovery of Authorized Allocation 21

22. Special Account
Payment of Authorised Allocation (Initial Deposit)/Advance
Review wording of disbursement conditions in Financing Agreement
Ensure receipt of evidence of opening of SPA/ DA & Letter on authorized persons to operate account
Check if opening of SPA is condition for effectiveness
After IFAD payment, issue SPA letter
The financing agreement may provide that authorised allocation/advance is paid in 1, 2 or more tranches
During project implementation, authorised allocation may be increased through amendment to financing agreement 22

23. Special Account Replenishment to Special/ Designated Account
Check following items
Exchange rate used
Frequency of submission of WAs
Adequacy of supporting documentation
Correct use of summary sheets
Replenishment during recovery period – should equal the balance of the agreed percentage of expenditures duly justified
Exercise care in reviewing WA to determine which expenditures are eligible under SOE & which are subject to supporting documentation
Usually minimum 20% of Authorised Allocation 23

24. Special Account
Recovery of Authorised Allocation (Initial Deposit)/Advance
Timing of recovery: monitor 3 trigger points (see paragraph 230 of the loans & grants administration manual) , whichever comes first
Percentage of recovery: to be confirmed by CPM
Exchange rate to be used is historic rate at value date of payment of initial deposit
Maintenance of SPA/ DA Initial Deposit/ Advance Recovery Control & reconciliation of unjustified balance with LGS
At start of recovery – issue SPA/ DA Recovery Letter
Amount for refund to IFAD
Unjustified balance per IFAD records; not balance in bank
Unjustified balance should be reconciled with LGS
When the initial deposit is fully justified, any balance in bank should remain with Borrower & should not be refunded to IFAD; all future replenishments are processed as reimbursements to Government
Loan account cannot be closed by IFAD if Authorised Allocation/ Advance is not fully justified or unjustified portion is not refunded to IFAD 24

25. Special Account/ Statement of Expenditures
Special/ Designated Account
Statement of Expenditures
Relates to funding
Eligibility applies to all categories
Relates to the submission of prescribed form in lieu of required supporting documentation
Eligibility is limited to coverage provided in Financing Agreement or prescribed by IFAD 25

26. Special /Designated Account Reconciliation
To be provided with every WA for Replenishment
Reflects position of end of period covered by WA
Should reflect all bank balances supported by bank statements as per Special/ Designated Account Reconciliation Format
Each line of SPA/ DA Reconciliation should be completed per Notes & Instructions enclosed 26

27. Direct Payment (Procedure II)
Project instructs IFAD to make payment directly to a supplier, contractor, consultant, or any other third party
Minimum of approximately $20,000 equivalent for each Direct Payment
For payments below approximately $20,000, Project should use Designated / special Account funds
Documentation should show evidence of:
Amounts due (invoice, statement or demand note)
Initial or advance payments, progress payments on contract (as recorded on the contract monitoring form), progress certificate & invoice/ purchase order
Note: Payment instructions in WA must be clear & complete 27

28. Special Commitment (Procedure III)
Disbursement procedure for payment of goods covered under a Letter of Credit
Stages / Processes
Project opens LC & sends WA to IFAD, with copy of LC & contract (Form 301)
IFAD sends SC Letter to bank of supplier as guarantee of payment (Form 302)
Bank sends request for payment to IFAD when LC conditions are met (Form 303) 28

29. Special Commitment Procedure
General
A special withdrawal application (Form 301) is submitted by Project when agreed modality of payment for procurement of goods is through a Letter of Credit (LC)
This WA is processed & reviewed using Checklist 3 for Special Commitment
After processing by CPM, certified Checklist is forwarded to regional office (where applicable) 29

30. Special Commitment Procedure
Issuance of Special Commitment Letter
Based on the certified Checklist, regional office prepares a draft Special Commitment Letter (SCL), using Form 302 & sends it to finance division in Rome together with checklist for signature. LC details are duly reflected in the SCL. Completed SCL signed by Controller is mailed to negotiating bank (addressee of the SCL) with Form 303 as an attachment
The value of the Special Commitment (the amount requested in WA Form 301) is converted into SDR using prevailing IMF rate as of preparation date & small percentage added to cater for exchange rate fluctuations
SCLs that are issued for each loan/ grant are numbered sequentially
Checklist is used to verify the steps in preparation & issuance of SCL 30

31. Special Commitment Procedure
Payment Instructions on Special Commitments
Once the terms of LC are complied with, negotiating bank sends request for reimbursement via SWIFT to IFAD Treasury or through written request for payment (Form 303)
Treasury sends SWIFT message of negotiating bank to regional Office
After completion of checking process, Payment Order (PO) to pay the negotiating bank is prepared using prescribed format for Special Commitment payment
The Payment that is authorised in PO is recorded in Special Commitment Payment Summary, quoting WA number & LC Reference Number 31

32. Reimbursement (Procedure IV)
An expenditure pre-financed by Government or other sources
Reimbursed by IFAD in currency of expenditure
Reimbursement applications should be submitted normally within 3 months from date of payment 32

33. Withdrawal Applications33

34. Forms Withdrawal Application Forms Application Summary Sheets
Statement of Expenditure Forms
Register of Contracts
Special/ Designated Account Reconciliation Statement
Project WA Checklist
IFAD WA Checklist 34

35. WA Forms Withdrawal Application – Form 100
Sequential numbering irrespective of disbursement procedure used
All sections should be completed
Payment instructions must reflect complete name & address of bank & beneficiary’s account number, including correspondent bank, if required 35

36. Application Summary Sheet
Form 101-A (SA) & 101-B (Direct Payment/ Reimbursement to Government)
For direct payment and for reimbursement of expenditures not eligible under SOE
Supporting documents must be attached
Form 102-A (SA) and 102-B (to Government)
Prescribed form for expenditures eligible under SOE
Supporting documents not required to be submitted;
SOE form must be signed by designated Project staff 36

37. Supporting Documentation
For expenditures that are eligible under SOE
Prescribed SOE Form 102A or 102B, with certification text, duly certified by 3 designated signatories: Project Accountant, Project Coordinator & WA signatory
For direct payment to a contractor, supplier or consultant
Summary Sheet Form 101B, together with the following, as applicable:
Copy of invoice (or Demand Letter, Statement), certified for payment by Project Coordinator
Copy of contract (for 1st progress payment) or contract monitoring form
Copy of purchase order
Copy of bank guarantee, for advance payment &/ or performance
Copy of delivery receipt for goods
Copy of certification for works completed on civil works
Copy of consultant’s report, if required, for final payment to be made
Note: Since original copies of above documents are retained by PCU for audit purposes, a photocopy is accepted as supporting documentation 37

38. Supporting Documentation
For replenishment to the Special/ Designated Account
The certified SOE form 102A, for eligible expenditures
Summary Sheet Form 101A with copy of above documents (as applicable) plus evidence of payment (receipt or bank statement), for expenditures not eligible under SOE
Special/ Designated Account Reconciliation Statement, together with Bank Statement by SPA/ DA holding bank
For Special Commitment
Copy of Letter of Credit opened by Project
Copy of contract
For all WAs, irrespective of disbursement procedure
Project Checklist certified by Project Accountant & Project Coordinator
Summary Breakdown by Category that adds up to WA amount
Copy of CPM’s No Objection to procurement of goods, works or consultancy services 38

39. SOE Procedure
CPM sends official notification on SOE coverage to Borrower
SOE arrangements specified in LTB
Amendment to Financing Agreement not required for changes in SOE coverage/ threshold unless SOE threshold is specified in Financing Agreement 39

40. Statement of Expenditure
Provision in Financing Agreement
The Financing Agreement provision for SOE is always found in Schedule 2
Items that should be taken into consideration
SOE cases, taking into account whether threshold is applicable on contracts or expenditure
The interpretation of the SOE coverage as provided in: (i) Financing agreement; (ii) Minutes of Loan Negotiation; or (iii) Agreement reached during Start-up Mission – giving particular attention to financial ceiling (usually $20,000)
The types of expenditures normally fully eligible under SOE. Examples: Credit, Local training, Local salaries & allowances, Operating Costs & Civil Works on Force Account 40

41. Statement of Expenditure
Prescribed SOE forms
SOE Form 102A for replenishment to Special/ Designated Account
SOE Form 102B for reimbursement of pre-financed expenditures
Certification text is required for each SOE form
3 signatures are always required: Project Accountant, Project Coordinator & WA Signatory
Other items to take note of
Relationship between SOE financial ceiling & procurement prior review threshold
Proper filing system in PCU to enable audit trail during supervision missions
Audit of SOE & separate opinion by independent auditor 41

42. For Prompt Disbursements
Ensure (1)
Authorised Signatories for WAs
Banking Instructions, including correspondent bank
Complete Supporting documentation
Statement of Expenditure eligibility
Procurement Procedures
Terms of payment (contract payment terms)
Currency of expenditure
Correct % of financing
Ensure (2)
Disbursement conditions are met (Sch 2 of Financing Agreement)
Withdrawal Application Size: Direct Payment: usually minimum approximately $20,000 Repl. to SPA/ DA: 20% of Authorised Allocation/ Advance (or more)
Exchange Rate correctly calculated
Accuracy of computations 42

43. Withdrawal Application Submission
WA Contents
Each WA submission should consist of the following
Required supporting documentation
Withdrawal Application Amount
If final WA amount approved is lower than WA submission, PO can be released & Project is advised on reductions made
If the final WA amount approved is higher than WA submission, Project should be advised on findings & corrections made (in practice WAs may be processed in reduced (not increased) amounts from what is indicated in Form 100. If amount payable is more than what is in Form 100, project is advised to claim in subsequent WA)
A WA can be authorised for partial payment & balance paid in separate PO
WA Checklist (Form 105) 43

44. Withdrawal Application Submission
Withdrawal Application Form 100
The preparation & approval of WA at project level is a long process involving project staff & concerned officers in relevant Ministry
The Project is required to submit prescribed Form 100 signed by designated WA signatory
WA without authorized signatures will not be processed
When a WA is not signed at all or only 1 of 2 required signatories signed, project is required to send new WA with required signature or signatures 44

45. Withdrawal Application Submission
Written Communication
Written Communication from Project authority is required for the following:
Change of WA authorized signatories – Original signed letter from representative of Borrower
When PO already issued & payment was made on WA, Project’s request for adjustment in WA submitted – Original signed letter from Project Coordinator
Confirmation on increase in WA amount as result of review
Change in bank where Special Account is maintained
Change of account number, in same bank, due to changes in bank’s system
Confirmation of last WA submitted before closing of Loan Account 45

46. Withdrawal Application Submission
Communication
Communication from Project authority is acceptable for the following:
Change in the category to charge
Information on correspondent bank or change in correspondent bank
Any other relevant information provided by project relating to claim in WA
Project should complete all sections in WA 46

47. Foreign Exchange Translation47

48. Foreign Exchange Translation
Usage of Exchange rates
The usage of exchange rates in IFAD loans applies to one of the following areas:
Conversion of IFAD financing in US Dollars (USD) to Special Drawing Rights (SDR)
Conversion of withdrawals from loan account based on approved WAs submitted in various currencies into SDR
For replenishment to Special Account, conversion of local currency expenditures funded from Special Account into currency denomination of Special Account, e.g. USD, Euro
Conversion of amounts submitted through WAs as justification of authorised allocation (initial deposit) to Special Account 48

49. Foreign Exchange Translation
Conversion of IFAD Loan into SDR
The IFAD loan is reflected in Design Report in US Dollars
During financing negotiations between representatives of Borrower & IFAD, US Dollar loan amount is converted into SDR using prevailing USD/ SDR rate at the end of month preceding loan negotiation
Likewise, amounts allocated to each category are converted into SDR using same exchange rate
Financing amount is fixed & is reflected in relevant sections of financing agreement
If the project is partially financed from a grant, known as project-component grant, grant amount is also denominated in SDR
SDR rate are listed on a daily basis by the International Monitory Fund & available through its website – 49

50. Conversion of withdrawals made from Loan/ Grant Account
Foreign Exchange Translation
Conversion of withdrawals made from Loan/ Grant Account
Loans & project-component grants are denominated in SDR
Disbursements from loan/ grant account are made in currencies in which expenditures to be financed from loan/ grant proceeds have been paid or are payable
Each withdrawal application that is submitted by Borrower is paid in currency requested in WA & approved by IFAD
The payment made is converted into SDR using prevailing rate as of value date of payment, i.e., date of debit of IFAD’s bank account for equivalent amount of disbursement
For withdrawal requests denominated in currencies other than USD, requests are converted first into USD using prevailing UN rate during month of payment thereafter converted & SDR as above 50

51. Conversion of local currency expenditures funded from Special Account
Foreign Exchange Translation
Conversion of local currency expenditures funded from Special Account
When preparing WA for replenishment to Special/ Designated Account, local currency expenditures are converted into denomination of Special Account, using prevailing rate at time of transfer of funds from Special Account to Project Operating Account in order to recoup actual value of transfer made
One of the tools to be used by Project in monitoring special accounts movements & operation is Special/ Designated Account Reconciliation Statement. This statement is submitted with each WA for replenishment to Special/ Designated Account 51

52. Foreign Exchange Translation
Conversion of WAs used as Justification (or Recovery) of Initial Deposit/ Advance to Special/ Designated Account
3 trigger points for start of justification of initial deposit/ advance to Special/ Designated Account; whichever comes first shall be applied:
6 months before Project completion Date,
When undisbursed balance of financing, less outstanding Special Commitments, is equal to twice the amount of Authorised Allocation, or
When the undisbursed balance of the loan is less than 10% of the total loan balance
When either of the trigger points is reached, each request for replenishment to Special/ Designated Account will be used partially or in full, as justification of Authorised Allocation/ Advance
Exchange rate used for partial/ full justification is historic rate – rate at which authorised allocation/ advance was paid 52