1. Vocational Training Improvement Project FINANCIAL MANAGEMENT 11-12 January 2008

2. FINANCIAL MANAGEMENT CYCLE FM Budgeting Flow of Funds Accounting/ Internal Controls Reporting, including claims AuditCorrective Action

3. IMPORTANT PROJECT DOCUMENTS zFinancing Agreement zMinutes of Negotiations zProject Appraisal Document (PAD) zProject Implementation Plan (PIP) zFinancial Management Manual (FMM) of MoLE dated April 18, 2007 zProcurement Manual of MoLE dated April 11, 2007 zMemorandum of Understanding (MoU) between GoI and states/UTs and between ITIs and state zInstitutional Development plan (IDP) of each ITI

4. FINANCIAL MANAGEMENT MANUAL (FMM) zFMM has been developed for the project and has detailed guidelines for financial management procedures on budgeting, funds flow, accounting, financial reporting, audit etc. zThe Manual is available for guidance of staff at all levels of the project (GoI/state offices /ITIs), on project FM aspects.

5. FINANCIAL MANAGEMENT MANUAL (FMM) – important covenant zAs per Financing Agreement, conditions for suspension include: “The Financial Management Manual..has been amended, waived or abrogated so as to affect materially and adversely the achievement of objectives of efficiency, economy and transparency of …financial control and management and auditing and reporting or the implementation of the project.”

6. FM RELATED COVENANTS IN FINANCING AGREEMENT: Key Points zFinancial Management System zAnnual Audit zFinancial Records – maintenance and access zFinancial Reports to be submitted to the Bank zFinancial Management Manual zFinance staff at NPIU and SPIU zDelegation of financial powers at all levels of projects (NPIU/SPIU/IMC/Principal ITI) zDisbursement zDisclosure Management Framework

7. BUDGETING zObjectives  To facilitate allocation and flow of funds to all levels  Monitoring of expenditure against budget in Quarterly IUFRs zGoI and states to bear project cost in the ratio 75:25( North Eastern states and Sikkim in the ratio 90:10) MoLE  MoLE to budget for its own expenditure and for centrally funded institutions States  States to budget for entire 100%, including GoI share  Mandatory on the part of State Govt./ UT to make sufficient provision in their budget  States to certify that adequate provision has been made when making a request for release of each installment of central share  Budget for state/UT level activities to be prepared by State / UT on the basis of INSTITUTIONAL DEVELOPMENT PLAN (IDPs)

8. BUDGET CALENDER Rs. In Lakhs Year 1Year 2Year 3Year 4Year 5 Activity 1 Activity 2 Activity 3 Total

9. FUNDS FLOW Funds flow (GoI to State) – Ist year

10. FUNDS FLOW Funds flow (GoI to State) – 2nd year 1 st installment -------80% of Central share (On submission of Utilisation Certificate & SOE of previous 1 st installment) 2 nd installment ------- 20% of Central share  State Govt./UT to submit Utilisation Certificate for the total amount : Central share + State share

11. ACCOUNTING zAccounting on cash basis, using Government systems zAs per GFRs applicable at GoI and state level zExpenditure will be recorded and reported at time of payments and not at time of release of funds to a subordinate office zSummary of transactions to be sent to next higher level based on specific formats

12. ACCOUNTING zEach Office making payment to maintain regular Book of Accounts as per applicable government procedures zAdequate records to be maintained at all locations e.g., vouchers, invoices, cashbooks, ledgers, asset registers zCompleteness *To cover all sources and uses of funds *Uses : what was spent on what (by component, disbursement categories, agencies) *Balance: where the balances are lying - advances, etc. zAsset Records - Assets Created and Acquired

13. FINANCIAL REPORTING zFinancial reporting from ITIs to SPIU, SPIU to NPIU within 30 days of end of each quarter zNPIU to submit consolidated Interim Unaudited Financial Reports (IUFRs) on a quarterly basis to The World Bank within 45 days of end of each quarter zAs per CSS procedures states to submit UCs to MoLE in each financial year zThe basis for reporting will be expenditure by the implementing entity and not releases (e.g. from GoI to a state or from a state to an ITI)

14. FINANCIAL REPORTING

15. DISBURSEMENT zDisbursement from the World Bank will be against quarterly IUFRs zIf Audit Report indicates higher/lower eligible expenditure compared to IUFR, the same will be adjusted in the next report based disbursement zAfter mid-term of the Project further disbursement will be subject to achievement of certain benchmarks of project progress

16. RETROACTIVE FINANCING zProject will fund cost of upgradation of 100 ITIs on retroactive basis for eligible expenditures zEligible Expenditures: yfor activities which are included in the project description ymade in accordance with Bank guidelines on procurement, financial management and safeguards yTotal amount of retroactive financing will not exceed 20 per cent of total credit yAny expenditure in excess of 20 per cent of total credit will have to be borne by GOI/states yEligible expenditures can be borne upto a maximum of 12 months prior to expected date of signing of Financing Agreement zRequirement of documentation for expenditures claimed under retroactive financing is the same as that for disbursement against payments after Financing Agreement is signed

17. AUDIT zExternal Audit by CAG (MoLE/ Centrally funded Institutions) and State AG (in case of states) zAudit to be as per terms of reference (TORs) agreed by the Bank with MoLE, and have been sent to CAG for approval zCorrective action to be taken at the level of state/institution zDGE&T to submit Consolidated Audit Report for the project to the Bank within 6 months of end of each financial year

18. INTERNAL AUDIT z2 Management Reviews (December 2009 and December 2011) during project to cover: yEffectiveness of delegation yFunds flow constraints yReporting arrangements etc. zPiloting Internal Audit by existing staff as per agreed TORs zConsolidation of findings of internal audit work at State level for analysis and strengthening internal controls zAdequacy of internal controls and internal audit to be assessed during review missions

19. OTHER KEY FM ASPECTS- Delegation zEligibility criteria for States/UTs include: yEstablishing and maintaining SPIU with adequate staff and financial administrative autonomies, without frequently seeking approvals form state authorities yAgreeing to set up IMC with sufficient autonomy yAgreeing to grant financial and administrative powers to Principals of ITIs (as stated in MoU) zEligibility criteria for Institutions include: yRegular full-time Principal with adequate financial and administrative powers (as stated in MoU) zPrincipal to have power to make small purchases up to INR 25,000 (approx. US $500) without seeking approval of the ITI’s purchase committee zPrincipal to have power to award contracts up to Rs. 0.90 million (approx. US $20,000) per contract on recommendation of ITI’s purchase committee

20. OTHER KEY FM ASPECTS- Staffing zNPIU: to have a Finance Unit zSPIU: States with more than 10 ITIs under the project to have full-fledged SPIU which will have separate Financial Management and Procurement units. Finance Unit will be managed by a Finance Officer zSPD: States with less than 10 ITIs will have SPD, and a combined unit for Procurement and Financial Management (headed by officers not below rank of Assistant Directors) zITIs: existing accounts staff will carry out FM tasks for the project

21. DISCLOSURE MANAGEMENT FRAMEWORK zDGE&T and SPIU to display the following information on their websites: yQuarterly interim unaudited financial reports within 45 days of the end of each calendar quarter yAnnual progress reports (Project and financial information) by May 15 of each fiscal year and Mid-term review report yProcurement related information as per the Framework

22. Financial Management – Key Points  Adherence to Legal Covenants for Financial Management as per Financing Agreement  Accurate and Timely Preparation of Plans and Budgets  Timely and Sufficient Flow of Funds to implementing agencies at all levels  Regular Maintenance of Project Records and Accounts  Regular and Accurate Financial Reporting at all levels of the Project  Timely submission of quarterly IUFRs to The World Bank  Regular Monitoring of Project Budgets at all levels  Timely Submission of Consolidated Annual Audit Report to the Bank  Strong Internal Control System in the project  Adequate delegation  Adequate staffing for finance function  Adherence to FM aspects of Disclosure Management Framework

23. Thank You