1. 2014 © Her Majesty the Queen in Right of Canada, Foreign Affairs, Trade and Development Canada DON’T FRET! MANAGING FIDUCIARY RISK AT DFATD EDRMS 7340883 by Luc Bélanger Director, Financial Management of G&C

2. 2 AGENDA  What is FRET?  What is Fiduciary Risk?  Why a risk assessment?  What is Fiduciary Risk Management at DFATD?  Who does what?  Where does it fit in the assessement of a proposal?  How does this affect me?  What is the difference between a Grant or a Contribution?  Questions/comments FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

3. 3  The FRET is short for Fiduciary Risk Evaluation Tool  The tool is designed to assess the fiduciary risk of the recipient as well as the project  4 risk levels: Low, Medium-Low, Medium- High and High What is FRET? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

4. 4 1.Funds are not used for their intended purposes. 2.Funds are not properly accounted for. 3.Goods and services delivered are not commensurate to the funds transferred. Fiduciary risk accounts for the possibility that … Corruption, fraud, mismanagement. Bad bookkeeping, poor financial tracking. Poor value for taxpayer’s money. WHAT IS FIDUCIARY RISK? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

5. 5 KEY POLICY DRIVERS  Independent Blue Ribbon Panel on Grant and Contribution Programs (2006): o Simplify the administration of federal grants and contributions o Improve accountability o Reverse the culture of risk-aversion o Reduce red tape and adapt administrative requirements to the level of risk Moving government funding away from a one-size-fits-all, risk-averse approach WHY : CONTEXT FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

6. 6  TB Policy on Transfer Payments (2008) o Requires all grants and contributions (G&Cs) to be managed using a risk-based approach: To reduce administrative burden on recipients where the recipient and project risk is low; To balance control with flexibility; and To have a systematic approach within and across programs and departments.  TB Policy on Financial Management Governance (2009) o Requires a sound financial management governance structure WHY : CONTEXT (continued) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

7. 7  Policy on Fiduciary Risk (currently for Development Portfolio only) o DFATD has defined roles and responsibilities for all funding modalities and put in place the necessary tools to manage its initiatives by using a risk-based approach  Aid Effectiveness o Efforts are underway to develop common tools and methodologies between donors WHY : CONTEXT (continued) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

8. 8 Independent Blue Ribbon Panel on Grant and Contribution Programs 2006 TB Policy on Transfer Payments TB Policy on Financial Management Governance 2008-09 FRET Risk-based management 2010-11 RBAM Administrative burden based on risk 2012 WHY : CONTEXT (continued) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

9. 9 An internal due diligence process in which Programs:  Identify and assess fiduciary risk  Respond to the risk  Use risk-based management approach in project management  Monitor risk and respond as required WHAT IS FIDUCIARY RISK MANAGEMENT AT DFATD? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

10. 10 DFATD’s Risk Management Tool which:  Produces a consistent and systematic assessment of fiduciary risk to improve the quality of risk management across DFATD programs  Allows for flexibility to include considerations that are unique and contextual  Provides an evidence base for all risk assessments  Documents and tracks risk responses overtime  Helps determine appropriate financial instrument, based on sound risk analysis FIDUCIARY RISK EVALUATION TOOL (FRET) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

11. 11 FRET - CRFRET - IOFRET - PO Country RecipientsInternational Orgs, Other donors, Multi-donor Trust Funds Partner Organizations (Canadian & Non- Canadian) Three versions, with a common risk factor structure with evaluation criteria tailored to type of recipient THREE TYPES OF FRET FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

12. 12 Consistent and systematic assessment of fiduciary risk across all DFATD Development Gs and Cs $100,000 and above Where possible uses international benchmarks, indicators & data sets (e.g. OECD, World Bank, IMF, PEFA, MOPAN) FRET Structure of Risk Assessment Recipient Risk Profile Risk 1: Recipient Governance and Stability Risk 2: Results Performance History Risk 3: Recipient Financial Viability and Stability Risk 4: Corruption & Fraud Control Initiative / Project Risk Risk 5: Capacity of Local Responsibility Centres Risk 6: Recipient Procurement Capability Risk 7: Complexity Risk 8: Materiality Overall Project Fiduciary Risk Level HOW DOES FRET FUNCTION? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

13. 13 EXAMPLE OF FRET FOR PARTNER ORGANIZATION FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

14. 14 RESPONSIBILITIES ROLES Program Officer/ Manager Manage risks (risk assessment, monitoring, mitigation and reporting) Sector/ Thematic SpecialistsProvide technical advice on relevant risk factors Financial Management Advisor (FMAs ) and Contracts Officers FMAs and Contract Officers: Provide technical advice and help review the FRETs Ensure that fiduciary risks are appropriately taken into consideration and that risk response measures are actions aiming at reducing or monitoring risks Complete CFOB Initiative Assessment regarding Fiduciary Risk Contract Officers: Review RBAM (both the administrative requirements and the FRET’s risk response measures) with Development Officers Ensure risk response measures that prevail over administrative requirements are respected Draft and finalize agreements based on the RBAM WHO : ROLES AND RESPONSIBILITIES FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

15. 15 Financial Risk Assessment Unit (FRAU) Perform FRET Quality Control, ensuring FRETs are completed properly Ensure that recipient financial risks are appropriately taken into consideration Complete FRET Financial Section (Risk Factor 3) for Partner Organizations and International Organization Recipients Administer FRET Database, ensuring risk information is properly shared Prepare the RBAM template Fiduciary Risk Practices Development Unit (FRPD) FRET and RBAM maintenance Coaching and Training Support Fiduciary Risk Corporate Annual Reporting Liaison with OGDs and other donors on fiduciary risk management practices Financial Compliance Unit (FCU)Establish compliance audit plans based on risk Coordinate, review, follow up on compliance audits Plan, review and follow up on Financial Capacity Building Activity (former Initial Visits) WHO : ROLES AND RESPONSIBILITIES (continued) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

16. 16 Complete FRET and initiate RBAM AUTHORIZED PROGRAMMING PROCESS (APP) The FRET is required for all grants and contributions $100,000 and higher (excluding contracts) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

17. 17 How does this affect me? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

18. 18 Low risk Reduction in administrative burden Cash managementLess restrictive ReportingFewer reports AuditSave it for riskier initiatives MonitoringLower level of effort Approved in April 2012 Revised and automated in April 2015 Applies to all Gs & Cs (Development) $100,000 and over Performed before final approval RISK-BASED ADMINISTRATION MATRIX (RBAM) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

19. 19 FRET: Level of Overall Residual Fiduciary Risk FRET Assessment Low - 1Medium Low - 2Medium High - 3High - 4 Financial instrument Grant or Contribution Contribution Advances One annual payment Semi-annual paymentsQuarterly paymentsNo advances or monthly advances Financial Reporting Grants: N/A Contribution: Annual project financial report Grants: N/A Contribution: Semi- annual project financial report Quarterly financial project reports and accounting for advances Monthly financial project reports / monthly substantiation of expenses incurred Narrative Reporting Grant: One annual report Contribution: One annual Report Grant: Semi-annual report Contribution: Semi- annual report Quarterly reportsMonthly reports RISK-BASED ADMINISTRATION MATRIX (RBAM) FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

20. 20 GRANT Must be used for the intended purpose Do not require annual work plan Are not subject to being accounted for and not normally subject to audit DFATD can suggest the reallocation for the residual amount Payments are unconditional Require sufficient grant ceiling CONTRIBUTION When deemed necessary to: Closely monitor progress and results Receive an accounting of the use of funds, and Have the right to carry out a recipient audit. Residual amount and disallowed expenditures must be repaid Control over types of expenditures Payments used for the intended purposes WHAT IS THE DIFFERENCE BETWEEN A GRANT AND A CONTRIBUTION? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

21. 21 Luc Bélanger Director, Financial Management of Grants & Contributions Alla Mozol Laporte Manager, Fiduciary Risk and Practices Development Lynn Hogan Manager, Financial Risk Assessment QUESTIONS / COMMENTS? FRET?Fid. Risk?Why?At DFATD?Who?Where?How?Grant/Contribution?Questions?

22. 22 Thank You