OPERATIONAL GUIDE ON DIRECT BUDGET SUPPORT AND POOLED FUNDING TO RECIPIENT COUNTRIES →
OPERATIONAL GUIDE ON DIRECT BUDGET SUPPORT AND POOLED FUNDING TO RECIPIENT COUNTRIES →
OPERATIONAL GUIDE ON DIRECT BUDGET SUPPORT AND POOLED FUNDING TO RECIPIENT COUNTRIES Prepared by Finance Division of the Human Resources and Corporate Services Branch in collaboration with the Direct Budget Support and Pooled Funding Working Group May 2005
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries ii Table of Contents Acronyms . v Overview . vi 1 General Introduction . 1 1.1 Introduction . 1 1.2 Scope of the Guide . 1 1.3 The Guide as a Living Document . 2 1.4 Planning Control Checklist . 2 2 Initial Assessments . 5 2.1 Introduction . 5 2.2 Initial Judgments . 5 2.3 Subsequent Judgments . 7 2.4 Selected Reference Material . 9 3 Managing for Results and Risk Mitigation . 10 3.1 Introduction . 10 3.2 Supporting the Shift to Host-country Government Accountability . 10 3.3 Principles for Managing for Results in Direct budget support and Pooled Funding.... 11 3.4 Required Results Management Documentation . 11 3.5 The Role ofRisk Management in Managing for Results . 11 3.6 Principles for Risk Management . 12 3.7 The Risk Management Process . 12 3.8 Action Plan for Capacity Development . 16 3.9 Selected Reference Material . 16 4 Diagnostic Work and Fiduciary Risk Assessment When Using Host-country Government Financial Management Systems . 17 4.1 Introduction . 17 4.2 Diagnostic Work . 17 4.3 Diagnostic Process . 17 4.4 Scope . 18 4.5 Choice of a Diagnostic Tool . 19 4.6 Available Tools . 19 4.7 Collaborative Efforts . 19 4.8 Due Diligence . 20 4.9 Financial Management Fiduciary Risk Assessment and Mitigation . 20 4.10 Financial Management Capacity Building Plan . 21 4.11 Procurement Fiduciary Risk Assessment and Mitigation . 21 4.12 Selected Reference Material . 21 5 Financial Authorities . 22 5.1 Introduction . 22 5.2 Current Financial Authorities . 22 5.3 Cash Management and Reporting Options . 22 6 Approval Process and Documentation . 24 6.1 Introduction . 24 6.2 When to Seek Treasury Board Approval . 24 6.3 Preparing and Processing TB Submissions . 24 6.4 Program Review Committee (PRC . 24
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries iii 7 Development of the RRMAF . 26 7.1 Introduction . 26 7.2 The Team Approach . 26 7.3 Results and Risk-Based Management and Accountability Framework (RRMAF . 26 7.4 Guiding Principles for the Development of RRMAFs . 27 7.5 Roles and Responsibilities for RRMAFs . 28 7.6 Selected Reference Material . 29 8 Arrangements Among Partners . 30 8.1 Introduction . 30 8.2 Documents Operationalizing Direct Budget Support or Pooled Funding . 30 8.3 Process . 30 8.4 Joint Financing Arrangements . 30 8.5 Bilateral Contribution Arrangements . 31 8.6 Selected Reference Material . 32 9 Payments . 33 9.1 Introduction . 33 9.2 Channelling of Funds - Pooled Funding . 33 9.3 Channelling of Funds – Direct Budget Support . 33 9.4 Channelling of Funds - Questions to Ask . 34 9.5 Basis, Timing and Frequency of Payments . 34 9.6 Unspent Funds at Year-End . 36 9.7 Suspension or Termination . 36 10 Auditing . 37 10.1 Introduction . 37 10.2 Internal Auditing . 37 10.3 Recipient Auditing . 37 10.4 Audit Planning . 37 10.5 Annual Audited Financial Statements/Reports . 37 10.6 Choice of Auditors . 38 10.7 Audit Findings and Recommendations . 38 10.8 Standards for Auditing of Public Funds . 38 10.9 Accounting Standards . 38 10.10 Interim Alternate Measures or Safeguards . 39 10.11 Selected Reference Material . 39 11 Monitoring, Reporting and Evaluation . 40 11.1 Introduction . 40 11.2 Monitoring of Progress toward Results . 40 11.3 Reporting on Results . 42 11.4 Evaluation . 43 11.5 Selected Reference Material . 44 12 Financial Reporting . 45 12.1 Introduction . 45 12.2 Principles and Practices for Financial Reporting . 45 12.3 Consolidated Financial Reporting . 46 12.4 Common Financial Report . 46 12.5 Frequency of Accounting by Recipient . 47 12.6 Format . 47 12.7 Capacity Building . 47
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries iv Annex A Key Definitions Annex B The Decision to Engage in Direct Budget Support Annex C Overview of Initial Assessment Areas for Direct Budget Support and Pooled Funding Other Relevant Links DAC Guidelines and Harmonisation Series– Harmonising Donor Practices for Effective Aid Delivery (OECD, 2003) World Bank Aid Harmonisation website: www.aidharmonization.org
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries v Acronyms CAW Country Analytical Work CDF Comprehensive Development Framework CDPF Country Development Programming Framework CEAs Canadian Executing Agencies CFAA Country Financial Accountability Assessment (World Bank) CIDA Canadian International Development Agency CPAR Country Procurement Assessment Review (World Bank) DAC Development Assistance Committee (OECD) EA Executing Agency EC European Commission GPRP Good Practice Reference Paper (DAC Donor Task Force) INTOSAI International Organization of Supreme Audit Institution IFAC International Federation of Accountants IPSAS International Public Sector Accounting Standards JFA Joint Financing Arrangement LFA Logical Framework Analysis MAF Management Accountability Framework MoF Ministry of Finance MTEF Medium Term Economic Framework NGO Non-governmental Organization OECD Organisation for Economic Co-operation and Development PAD Project Approval Document PEM Public Expenditure Management PER Public Expenditure Review (World Bank) PKMB Performance and Knowledge Management Branch PMF Performance Measurement Framework PRS Poverty Reduction Strategy RD Reference Desk (CIDA Roadmap) RBAF Risk-based Audit Framework (Treasury Board) RBM Results-based Management RMAF Results-based Management and Accountability Framework (Treasury Board) RRMAF Results and Risk-based Management and Accountability Framework SAI Supreme Audit Institutions (of recipient country) SAE Strengthening Aid Effectiveness SWAp Sector-Wide Approach TB Treasury Board TBS Treasury Board Secretariat Ts&Cs CIDA Terms and Conditions for International DevelopmentAssistance WB World Bank
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries vi Overview Acknowledgements The Guidelines are based on the work of the Direct Budget Support and Pooled Funding Working Group (WG), chaired by the Finance Division of the Human Resources and Corporate Services Branch. The WG was established in May 2002 and included representatives from Program Branches as well as from Policy Branch, Performance and Knowledge Management Branch, Contracting Division, Finance Division and Legal Services. It accomplished its objectives of: revisiting old and seeking new Treasury Board authorities; standardizing various operational aspects of direct budget support and pooled funding initiatives; developing this operational guide to assist program officers in their management of Direct Budget Support and pooled funding; identifying tools and options available; and providing a level of confidence that public funds are utilized with due diligence and in accordance with Central Agencies’ policies.
Special thanks go to the CIDA employees who developed or contributed to certain sections or chapters. Inquiries Requests for clarification/interpretation on any aspect of financial management in the branches should be directed first to the Branch Financial Management Advisors (FMA’s). Any further policy development required for this guide should be addressed with the Director of Financial Policies and Systems Section, Finance Division, Human Resources and Corporate Services. Purpose of the Guidelines This document provides operational guidelines for direct budget support and pooled funding initiatives to recipient countries when the onus for program planning and delivery, financial administration and reporting is put squarely on developing country governments. This Guide is the first of this nature to be issued. The Human Resources and Corporate Services Branch intends to work closely with Program Branches, Performance and Knowledge Management Branch, and Policy Branch to update this Guide as more experience is gained in the use of direct budget support and pooled funding.
CIDA, over the next few years, will build on its experiences by sharing knowledge internally and externally with program partners. Program officers are encouraged to share their experiences and best practices so that these may be incorporated into future versions of the Guide. This document should be considered a starting point. It will evolve over time as we learn by doing. Since the primary audience of the Guide is program officers, the emphasis is on the operational aspects of direct budget support and pooled funding. Two equally important aspects are covered. The first focuses on the new forms of financial, contractual, and legal requirements that have emerged. These represent a dramatic shift from the more typical bilateral approach with a discrete project, a Canadian Executing Agency, and well-documented procedures for CIDA implementation. The Guide highlights these changes and provides a base for understanding the new requirements. The second focuses on the changes needed in terms of developmental and managerial considerations. Here, changes are required in attitudes, skills, and judgmental abilities needed to plan and implement
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries vii direct budget support and pooled funding. It is not sufficient to deal with issues simply on a process or regulatory level. A need also exists to ensure that contextual issues are covered. The Guide indicates the kinds of essential judgments involved in operating direct budget support and pooled funding. Structure of the Guide The Guide has been structured in a way to cover the elements of the program cycle as well as provide information on financial, contractual, and legal issues. Helpful documents that support the Guide are found at the end of each chapter and in the Annexes.
An overview of the contents of the Guide is presented below. Chapter 1 begins with an overview of the context for new types of programming in CIDA. Canada Making a Difference in the World: Strengthening Aid Effectiveness called for new approaches to development cooperation and, with this, has come a need to adapt to funding instruments. Chapter 1 also defines the scope of the Guide and provides a Planning Control Checklist. The next six Chapters provide information on the program and approval cycle. Chapter 2 provides an overview of the initial and subsequent judgments CIDA officers must make in identifying and designing direct budget support and pooled funding. The information is a starting point for reviewing the feasibility of employing direct budget support or pooled funding, not a comprehensive framework for making those judgments.
Chapter 3 provides an overview of the principles for managing for results in pooled funding and direct budget support. It also provides insights into the areas that need to be considered to understand and manage associated risks. To date, there has been a great deal of emphasis placed on fiduciary risks. Other types of risks or benefits associated with direct budget support and/or pooled funding has not been investigated to the same extent. This Section provides a more comprehensive view of the management of risks and results.
Chapter 4 details the fiduciary risk assessments required when using host-country government financial management systems. When CIDA engages in direct budget support, in particular, it moves toward using host-country government financial management and accountability systems. Fiduciary risks require a highly specialized assessment that is not typical within CIDA. Chapter 5 details the financial authorities that govern direct budget support and pooled funding when the host-country government is in the lead.
Chapter 6 provides an overview of when approval is needed from Treasury Board. In cases where TB approval is not required, the CIDA Business Process Roadmap provides direction. Chapter 7 discusses Risk-based Audit Frameworks, Results-based Management and Accountability Frameworks, and the possibilities for a combined approach. These frameworks are essential elements for the proper design, approval and management of direct budget support and pooled funding. The next three Chapters cover financial, legal, and contractual requirements. Chapter 8 outlines the formal arrangements among signatories to direct budget support or pooled funding. Traditionally, projects have been executed through Memorandum of Understandings (MOU) between the host-country government and CIDA. Direct budget support and pooled funding require new arrangements. The Nordic Plus Donor Group, of which CIDA is a member, has agreed that a Joint Financing Arrangement (JFA) and an additional bilateral contribution arrangement constitute the contractual agreements required.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries viii Chapter 9 covers specific issues related to payments. Issues such as the basis, timing, frequency, and benchmarks for payments are covered. Chapter 10 reviews CIDA’s internal audit requirements and those by the host-country government. The last two Chapters deal with ongoing monitoring and tracking of progress and reporting. Chapter 11 outlines on-going monitoring and evaluation of direct budget support and pooled funding initiatives. It is becoming increasingly evident that direct budget support and pooled funding require more monitoring and a clearer focus on results tracking than do more traditional CIDA projects. Chapter 12 covers financial reporting. This Section outlines how CIDA program officers can ensure that proper financial reporting is undertaken.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 1 1 General Introduction 1.1 Introduction Over the years, CIDA's principal form of bilateral intervention in developing countries has been in the form of discrete projects with well-defined objectives and deliverables. Most of these projects have been managed by Canadian Executing Agencies (CEAs) operating under a contract (directive projects) or contribution agreement (responsive projects) with CIDA. Today there is increased emphasis on more programmatic mechanisms. While movement in this direction had begun prior to the 2002 publication of Canada Making a Difference in the World: A Policy Statement on Aid Effectiveness, the use of new programming instruments and heightened integration with host-country government plans, policies and programs has gained momentum since then. Furthermore, in 2003, the Treasury Board approved amendment to CIDA’s Terms & Conditions for International Development Assistance particularly in the areas of cash management and reporting provisions applicable to initiatives involving direct budget support and pooled funding to recipient country governments and their institutions. Thus, the Guide responds to the new programmatic changes, and the requirement from Treasury Board to develop tools and processes that will assist staff in planning and managing all aspects of direct budget support and pooled funding to recipient country governments and their institutions.
This Guide draws on existing CIDA procedures, regulations, policies, and other reference documents including the draft document on ‘CIDA Primer on Program-Based Approaches’. In particular, the Guide relies on, and complements the main Agency document for operations, the CIDA Business Process Roadmap. For example, direct budget support and pooled funding uses the Core Funding business delivery model. The Roadmap provides staff with guidance on the application of this model. 1.2 Scope of the Guide This Guide applies to initiatives involving direct budget support and pooled funding to recipient country governments and their institutions. It applies whenever CIDA uses direct budget support, or as part of a coordinated effort, pools its financial resources with other funding agencies (i.e. pooled funding). Specifically, this guide applies: • under a host-country government-led initiative (i.e. when the onus for program planning and delivery, financial administration and reporting is put squarely on developing country governments); and • when the Bilateral Aid Channel, government-to-government mechanism is used. The application of the guide is also valid for initiatives identified by the PRC committee in its mandate i.e. Program Based Approaches (PBAs). The definition of PBAs as found in the PRC mandate is: A PBA is a way of engaging in development cooperation based on the principle of coordinated support for a locally owned program of development. The approach includes four key elements: • Leadership by the host country or organization; • A single program and budget framework; • Donor coordination and harmonization of procedures; and • Efforts to increase, over time, the use of local procedures with regard to program design and implementation, financial management and monitoring, and evaluation
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 2 This Guide does not apply to initiatives under the Multilateral channels of delivery involving grants to a trust fund or a multilateral organization. In these cases, recipients of grants are multilateral organizations; they become accountable for the funds. Under the Bilateral Aid channel, funding is made by contribution payments. All payments are conditional. It should be noted that the CIDA Ts&Cs prohibit the Agency from providing “assistance whose primary aim is unconditional direct fiscal support to recipient country governments” (i.e. grants).
Generic Definitions Direct budget support is provided directly to host-country institutions to be spent as part of their overall program budget using their own financial management systems. Pooled funding refers to a situation in which a number of donors agree to contribute to a common fund or basket. This is done in a way that separates donor funds from those of the recipient partner. Pooled funding usually involves the use of a holding account reserved for particular purposes identified by agreement between the recipient government and donors participating in the pool. 1.3 The Guide as a Living Document It is expected that this Guide will be revised as CIDA g ains more experience with direct budget support and pooled funding instruments. With increased attention to capacity development issues, such instruments are liable to receive increased attention in the future. As CIDA demonstrates that the ability to manage these programming instruments and to utilize the new authorities accorded by the TB, it is likely that this Guide will be expanded to encompass a wider range of programming activities.
1.4 Planning Control Checklist The checklist on the following two pages provides an overview of the planning cycle for direct budget support and pooled funding. The checklist refers to specific chapters in the Guide where program officers can obtain detailed information on the planning cycle and its requirements; e.g., expected contents of RRMAFs, JFAs, risk assessments, etc.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 3 Steps to follow for approval Steps Reference Notes 1. Development of these complex programs requires a team approach. At a minimum, the CIDA team responsible for developing approval documentation (PAD) should comprise the Program Officer, one or more sectoral specialists, a financial officer, a contracting officer, a performance review officer and relevant field staff. 2. Team meetings should be scheduled to identify the strategy for getting the initiative approved. Depending on the level and type of approval required, corporate resources could be asked to join the team. 3. The team must assemble and analyze documents needed to draft the PAD. They include: w Program framework and Poverty Reduction Strategy, national development plan or equivalents w Country procurement assessment review (CPAR) w Country financial accountability assessment (CFAA) w Public expenditure review w Program expenditure reports w Multi-donor arrangement (if one already exists); w Any joint-donor results framework w Prior audits and evaluations by the Agency, the host-country government or other donors w Risk analyses carried out by other donors w All other documents produced by the host-country government on financial and procurement systems Chapters 2, 3 & 4 Adequate knowledge of the host-country government and its institutional capacity requires extensive input by field staff. The team may use specialists to help analyze certain documents.1 Field visits may be necessary, based on emerging analysis needs, and on the joint donor approach to which CIDA is committed.
Analysis of these documents will influence the program or project management strategy. CIDA’s Internal Audit Division should be consulted, depending on the situation. 4. The team adjusts the design of the CIDA program based on the institutional capacity assessment as well as the strategy for managing the initiative .2 If the team decides to rely on reports already produced by the host-country and on existing audit mechanisms, the team must ensure that the country can produce quality reports (data integrity) that will allow program result monitoring. 5. Performance and Knowledge Management Branch representatives must be consulted to identify evaluation requirements.
6. Determine if a TB Submission is required. Chapter 6 1 For financial matters, please contact your Branch's Financial Management Advisor. For contracting matters, please contact your Branch's Contracting Officer. 2 These evaluations go further than CPAR or CFAA. There is a necessity to make institutional assessments on the existing and (future) desirable institutional capacity to effectively plan and implement programs meeting beneficiary needs; to assess the institution’s or executing agency’s risks in handling the contracting and financial functions; to develop an action plan, as required, to shore up identified weaknesses; and to propose a monitoring plan, including audits.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 4 Steps Reference Notes 7. Prepare a project approval document (PAD) following instructions in the Roadmap. The PAD must contain a management strategy, a contracting strategy, risk analysis and mitigation measures. Roadmap 8. Prepare an RRMAF (an integrated RMAF/RBAF or Results and Risk based Management and Accountability Framework) Chapter 7 9. The approval process follows its normal course. For projects of $5 M or more, go to the Program Review Committee (PRC).
Chapter 6 Among other things, management / contracting strategies consider the results of sectoral economic analyses (CPAR, CFAA, PER). They must also consider key risks identified in the risk analysis within these documents. In situations involving direct budget support and pooled funding, the strategies and analyses identified above must be especially well documented. If a Treasury Board approval is required 10. Initiate discussions with the CIDA Coordinator for submissions Chapter 6,7 CIDA/Finance TB Submission Coordinator @ 994-0989 11. Consult the upcoming CIDA Guidelines on Preparing and Processing Treasury Board Submissions, the following documents are required: • The Submission document (PAD content) prepared in accordance with the upcoming CIDA Guide on Treasury Board Submissions • Results and risk-based management and accountability framework (RRMAF) • Memorandum from the President to Minister Chapter 6 Chapter 7 Chapter 6 Several drafts may have to be produced to meet TB requirements Consult the Performance and Knowledge Management Branch on RRMAFs. 12. Prepare the Contribution Arrangement to be signed with the host-country government, and a Joint Financing Arrangement where applicable. Chapters 7, 8, 9, 10 & 11 TB Policy on Transfer Payments Consult the Branch Contracting Officer, and Legal Services Please note that CIDA managers and officers are also responsible to ensure that attention to significant elements of the planning cycle (notably, the RRMAF) continues as the initiatives are implemented, monitored, reported on and evaluated.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 5 2 Initial Assessments 2.1 Introduction CIDA is committed to ensuring that its move towards increased use of direct budget support and pooled funding is grounded in sound management practices. In this regard, the Agency is adapting its practices and modifying a number of systems, policies, and procedures. While the existing regulatory framework continues to apply3 , additional measures are being adopted. Currently, there are no Agency accepted criteria for assessing the appropriateness or feasibility of direct budget support or pooled funding. To help fill this gap, this Chapter indicates the judgments that CIDA program officers should make when selecting and planning direct budget support or pooled funding. Section 2.2 discusses the type of issues considered when the initial “go” / “no go” decision is made. Section 2.3 presents the more detailed judgments that would follow a positive initial assessment.
2.2 Initial Judgments Individual Country Development Programming Frameworks (CDPFs) outline the nature of a CIDA bilateral program and the level of engagement with a host-country government’s policies and programs4 . A high level of engagement would typically involve, among other funding instruments, the use of direct budget support or pooled funding. Recent discussions with the Treasury Board (TB) and TB documents indicate external as well as CIDA specific considerations necessary to judge the appropriateness of undertaking direct budget support and pooled funding. Such considerations would include, for example: • the extent of country ownership and commitment; • the probability for effective donor harmonization; • the extent of CIDA’s internal capacity to manage its participation using such funding instruments.
Adequacy and Consistency of the Country’s Level of Owners hip and Commitment The adequacy of host-country government ownership of a poverty reduction program and its commitment to improve its planning and implementation capacity over time is a critical area to assess. National poverty reduction strategies or similar policies provide the opportunity for a host- country government and a donor consortium to focus efforts. Such a concerted effort, with an emphasis on the progressive use of host-country government processes and institutions, can result in building sustainable host-country government capacity.
To assess the levels of ownership and commitment, CIDA must make judgments based on empirical evidence. This includes assessing factors such as the steps already taken by host-country government to implement a particular plan, the convergence between the government’s plan and its actions to develop and implement it, formal undertakings, the degree to which these are being met, and the longer term prospects for consistency of the commitment. The degree to which the national development plans represent government and stakeholder priorities is also an important part of the 3 The Financial Administration Act (FAA), Appropriations Act, Environmental Assessment Act, CIDA Ts&Cs, TB Policy on Transfer Payments, Tied-Untied Aid Policy, as well as current operational procedures, as described in Roadmap, remain valid for all initiatives involving direct budget support and pool funding to recipient countries. 4 For a full discussion of this topic, see “Implementing the Strengthening Aid Effectiveness Policy: Principles, Approaches and Instruments” currently being translated and to appear on Entre Nous under CIDA Policy documents as well as linked to the CIDA Roadmap.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 6 ownership equation. The plans should be driven by a vision, which emerges within the country — not primarily through donor priorities. Some of the initial questions which need to be assessed are: • What analysis has been done or needs to be made to assess the political will and leadership to improve program effectiveness and accountability? How has this been demonstrated to date? What are the prospects for continued commitment and leadership? • What is the actual and potential involvement of stakeholders in the design, implementation, monitoring, evaluation, risk assessment, auditing and reporting of the program? • What is the program's contribution to poverty reduction and how is it linked to the national poverty reduction strategy (e.g. the PRS)? Is there a full understanding of the implications of implementing the program by the government?
Commitment of Donors to Harmonization Successful programming requires a donor/host-country government consensus on key policy and management issues. Ownership implies a host-country government role in leading a coordinated effort. Where a host-country government led coordination process is not possible, alternative arrangements should progressively transfer responsibility to the host-country government. At a minimum, donors must agree to harmonize practices, namely: common results framework, common financial reporting framework, and common monitoring, reporting and evaluation approaches and systems for these results. Multiple inconsistent donor practices burdens the host- country government. Where it is not possible to use host-country government systems, donors can ease this burden by adopting common systems and procedures. Such harmonization can lead to more sustainable development, assuming that the host-country government is active participants in decision-making.
With a great deal of hard work, donor coordination, led by the host-country government, will improve over the life of the initiative. However, to assess the probability of such an outcome, initial judgments such as the following need to be made: • Is there broad consensus between the host-country government and donors on key policy and management issues? Are conditions adequate for all partners to develop a satisfactory on- going dialogue? • Are the donors willing to provide support within an agreed framework to harmonize practices? Is there a willingness to burden share, that is, assume responsibilities for specific items such as institutional assessment on behalf of other partners? To what extent do the capacities of donor partners complement host-country government capacities and priorities? • Is there a broad consensus between the host-country government and donors on the parameters and conditions for an effective and transparent expenditure management framework?
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 7 Conditions within CIDA CIDA officers must make judgments regarding the extent of internal CIDA capacity needed to undertake this type of programming. Such assessments often focus on: • The extent to which the program supports CIDA’s CDPF for that country; • The adequacy of approaches to attaining in-depth country knowledge sufficient to ascertain commitment, progress and emerging risks; • Whether existing relationships with the host-country government and other donors are such that they have the potential to be expanded into the stronger partnership required for this type of initiative; • The ability to form and manage a team with specialized CIDA or external sectorial, technical and managerial competencies.
2.3 Subsequent Judgments Once a judgment is made that conditions warrant consideration of direct budget support or pooled funding, a more systematic analysis is required. Such analysis requires more than some sort of “yes/no” check against a set of criteria. Rather, the in-depth due diligence assessment called for in the TB Policy on Transfer Payments requires program officers to make a series of complex judgments, many of which are not typically included in more traditional project designs. Such analysis needs to be done in partnership with other donors and above all with the host-country government. A high level of host-country government involvement is necessary to ensure that there is full understanding of the implications of implementing the program and a commitment to common objectives. In some situations, this process may be easier. For example, in the case of direct budget support to a national development strategy, donors and the host-country government jointly do much of the analysis and program development. In other cases, such as pooled funding, this degree of host- country government involvement may be lower.
The judgments required at this stage fall into two broad categories – those that deal with the specific host-country and its program to be supported; and those that deal with CIDA internal processes. In-Depth Host-country Government Assessment Seven assessment areas require attention when developing interventions involving pooled funding or direct budget support. These assessments in the pre–PAD stage will determine whether the conditions for CIDA participation can be met, the likely magnitude of participation and the choice of instrument. From these assessments, it becomes possible to further develop the initiative. The seven areas are: 1. Macroeconomic assessment -- Does the national development strategy provide a sound framework for overall planning? Is the macro situation sufficiently stable to allow a level of predictability in sector funds?
2. Sector policy and overall poverty reduction strategic framework -- What is the host-country government aiming to achieve in the sector and how? Is there an adequate sector policy in place? Is it consistent with the National policy framework? Are there links with CIDA’s CDPF? Is the vision within the sector policy appropriate, affordable, and feasible, particularly in terms of the role of government? At what stage of economic growth will the host-country government be able to fund the program itself?
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 8 3. Sector Medium Term Economic Framework -- Is there a sector MTEF in place and approved at the political level? Is it comprehensive and realistic in its coverage of revenues and proposed spending? If not, is there a coherent action plan from which it is derived and steps in place to improve the MTEF? 4. Donor coordination/harmonization system-- Is there a host-country government organized donor co-ordination system in place? Does it include all the key donors (bilateral and multilateral)? Is it based on a clear structure of rules and partnership principles including harmonization? It there an aid harmonization plan or strategy contemplated or in development?
5. Institutional capacity -- Is there adequate leadership in the sector to direct and manage the sector program over time? Is there adequate capacity in the institutions to effectively implement the programming? What strategies are in place to promote capacity development and are these adequate? To what degree is there an alignment of “vision/results” and accountabilities / responsibilities in government, ministers, public sector managers in ministries, and beneficiaries? 6. Accountability and public financial management and procurement systems -- Is the quality of accountability and budgetary expenditure management sufficiently good to contemplate sector support? If not, are reforms to procurement and public expenditure management (PEM) systems being put in place to address the key weaknesses? Have CIDA and partner donors developed mitigations strategies to address the weaknesses?
7. Performance monitoring and client consultation mechanisms -- Is there a performance monitoring system in place to track progress in achieving results? Is there a systematic mechanism for consultations with clients and beneficiaries? Annex C provides more details on the seven areas of assessment. In addition, specific information can be found in the European Commission Guidelines for EC Support to Sector Programmes. To perform these assessments, CIDA may be able to use work done by the host-country government and by other donors. Still, CIDA program officers and other members of the CIDA team need to analyze such work to judge if it is adequate for CIDA’s purposes and the Agency’s level of risk tolerance as well as whether further initiatives are needed to fill gaps in the analysis of other partners. Finally, direct budget support or pooled funding instruments do not assume that a country has a level of capacity such that there is no probability of risk. An institutional capacity assessment that identifies capacity gaps is an essential component to develop a management and risk mitigation strategy. In particular, judgments, based upon an in-depth understanding of the context, host-country government institutional commitment, existing capacity and the potential for capacity development will determine ways to both mitigate risk and foster progressive host-country government ownership. In-Depth Assessment of Internal CIDA Requirements The concrete development results in terms of beneficiary benefits and institutional capacity building for sustainability will be defined in the programming stage. As noted above, the results and risks are highly dependent on the conditions within the country. Intertwined with the assessment of external issues, are a number of internal CIDA requirements that must be continuously re-visited as CIDA’s planning stage progresses.
Attainment of development results depends upon factors internal to CIDA and judgments must be made about the adequacy of internal conditions, such as the strength of CIDA’s management approach.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 9 The following are examples of judgments that need to be made in addressing CIDA’s capacity to manage and assume accountability: • Are there gaps in CIDA’s corporate results and risk management regime that could have a negative impact on the proposed investment? How can these, if any, be remedied? • Are the set of CIDA staff and field staff competencies– managerial, technical, and financial – as well as the competencies to engage in and leverage this type of programming adequate? More particularly, to what extent is there a capacity to systematically gather, analyse and use information strategically?
• Is CIDA able to contribute more than simply money, that is, does it have the mix of skilled individuals who are able to work within a harmonized host-country/donor consortia so as to foster the effective delivery of beneficiary benefits and foster capacity building needed for local ownership? If not, can this mix be assembled or recruited in a timely manner? • Is there internal capacity to address downstream ‘delivery’ of CIDA’s value-added role in a way that is consistent with the due diligence requirements implied in the in the TB Policy on Transfer Payments5 ?
• Does an adequate strategy exist to capture learning and keep knowledgeable staff involved over the long-term; are there succession strategies in place? • Has adequate consideration of the principles of decentralization – that a decision is best made by those closest to an issue – been applied in defining the roles of HQ/field personnel? • What is CIDA’s capacity to play a role in a probable long-term game-plan for gradually developing host-country government capacity and progressively devolving accountability and responsibility to host-country government institutions in terms of managing, monitoring, evaluating, etc.?
2.4 Selected Reference Material • Annex C to this Guide • Guidelines for EC Support to Sector Programmes, European Commission (Feb 2003) • DAC Guidelines and Reference Series – Harmonisation Donor Practices for Effective Aid Delivery • Guidelines for preparing a Country Development Programming Framework (CDPF) (Jan 2003) 5 CIDA Value Added: In reviewing submissions, Treasury Board analysts have asked CIDA to substantiate that Canadian participation can bring specific value-added in fostering development results. This is particularly important where Canada is a minor participant in a pooled funding arrangement when a seemingly large Canadian contribution of $93 million represents only 4% of the total pool. Questions then arise as to what developmental difference the Canadian contribution could make and what specific value-added Canada could achieve with its contribution. Hence, in assessing the appropriateness of CIDA’s participation, such questions should be addressed.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 10 3 Managing for Results and Risk Mitigation 3.1 Introduction This Chapter covers a key element in the preparatory phase of direct budget support and pooled funding initiatives. It provides an introduction to managing for results assessing and managing risks associated with the targeted results. The information gathered in the preparatory phase will support dialogue with funding partners and the host-country government, including the strategies and priorities within which specific donor interventions may be identified, and lay the groundwork for joint managing of, and accountability for the investment.
3.2 Supporting the Shift to Host-country Government Accountability Involvement in direct budget support and pooled funding involves a radical shift in the way that accountability and responsibility for results-based performance are assumed and fostered. This paradigm shift requires CIDA staff and field staff, in dialogue with partners, to not only focus on traditional developmental results. For example, an activity such as the vaccination of all school children could result in healthy, happy 100% vaccinated children. This approach entails shared accountability with our partners for the achievement of these development results. In structuring CIDA’s participation, the team must develop its performance measurement framework (PMF) to take into account not only development results, but also measure ways of Canada’s involvement in making a unique contribution. For example, CIDA’s enabling result, could be evident in the following results areas: • Promoting local ownership • Promoting the enhancement of local capabilities (program planning, delivery and management of resources - financial and contractual, as well as performance management and reporting) • Promoting accountability of local institutions to their own constituencies • Engaging in collaborative procedures and behaviour that enhance partnership and coherence and reduce transactions costs • Adopting new strategies for risk management that involve an optimal balance between donor control and local control and that promote rather than hinder local ownership. 6 The shift to host-country government accountability requires that a CIDA team’s terms of reference reflect the need to ensure that the consortium of program partners addresses such issues of local accountability. This assessment is essential to determine the reasonableness of expectations in attaining development results that initiatives involving direct budget support and pooled funding aim to achieve. This joint approach is thus an element of a risk mitigation strategy. Assessment of the partner country’s institutional capacity and governance will identify gaps in these areas, which constitute risks to attainment of program results. These aspects may present opportunities for a unique Canadian contribution in the area of capacity building. For example, opportunities may exist for partnership between partner country and Canadian civil society entities to work with beneficiaries in facilitating participation and ownership as well as transparency and accountability on the part of government.7 6 An initiative is underway to develop a framework to help teams establish an evaluation framework that will evaluate an initiative’s contribution to implementation of the SAE/DAC principles such as local ownership, recipient led-donor coordination, RC policy coherence, etc.
7 ‘… donors have … taken a rather narrow …technocratic view of what is needed for public sector reform, interacting exclusively with government, … funding consulting services, computers … in the absence of deep
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 11 3.3 Principles for Managing for Results in Direct budget support and Pooled Funding Management for results and measurement of results entails a process that begins with the design of the program and evolves over time. Achieving results in an effective way is in the common interest of both donors and the host-country government. A joint PMF, outlining desired results, appropriate indicators, responsibility for gathering data, and the mechanisms for assessing and measuring progress, as well as reporting, should be agreed between all parties as part of the overall multi-partner arrangement (see Chapter 8).
The challenge for CIDA in the context of direct budget support and pooled funding is to adequately monitor, measure and report on results in a manner that meets the requirements of both the Agency and TBS. It must do this in a multi-stakeholder context, which seeks to achieve development results while applying the principles of donor harmonization and minimizing the administrative burden on host-country partners. This is a challenge shared by all donors. Specific to CIDA, this approach is also based on enabling results. TBS will want evidence that there is value added by the Canadian contribution to the investment, and thus information on both development results achievements of the joint effort, and CIDA’s support to it through enabling results must be monitored and reported upon. (For more information, refer to Chapter 11.) 3.4 Required Results Management Documentation Given the complexity of direct budget support and pooled funding initiatives, the high visibility of this type of support and the concomitant risk factors, CIDA requires that a Logical Framework Analysis (LFA), and a PMF be prepared based upon the value-added of CIDA’s role and contribution. These documents should be consistent with the arrangement agreed on by partners regarding expected development result, and they should also reflect the value-added of CIDA’s contribution. The level of budget typically attached to direct budget support and pooled funding investments anticipates that many will require a TB submission including an RRMAF (Results and Risk-based Management and Accountability Framework). In this case, TBS will also require a visual, one-page logic model to complement the CIDA LFA. Refer to the RRMAF Guide (November 2004) for more details.
CIDA also encourages development of an RRMAF for pooled funding and direct budget support arrangements that do not require a TB submission since these documents provide a better framework for managing and reporting on results. The development of an RRMAF establishes the commitment for outcomes measurement and lays the groundwork for performance monitoring, reporting, audit and evaluation activities (Chapters 7 and 11). 3.5 The Role of Risk Management in Managing for Results Risk management is the process by which CIDA managers, field staff, implementing organizations and other partners identify, analyze, assess, mitigate, monitor, communicate and report on risks throughout the program life cycle. Risk management strengthens management practices, decision- making and priority setting. CIDA must manage its resources in a manner designed to achieve maximum value-for-money in an environment that is high risk. Every day program complexities are compounded by the certainty that unplanned changes will occur. Risk management is a key element of CIDA’s due diligence by ensuring that appropriate measures are in place to address unfavorable possible impacts and benefit from opportunities to enhance performance.
and sustainable demand for institutional reform, … insensitive to underlying demand and potential for change, (they) have not been good at focusing resources where they might have had he greatest long term impact.’ Reforming Public Institutions and Strengthening Governance, World Bank , Nov. 2001p. 7.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 12 In any program management endeavor, particularly for complex programs using direct budget support and pooled funding, the number of management elements on which a program officer might focus is virtually limitless. An effective way of limiting the number of elements is to perform a joint comprehensive risk assessment, with the key stakeholder to identify the sources of risks (i.e., risks areas that might impede management from achieving program objectives and/or results), for those factors which are beyond the control of CIDA, and for which the donors identify mitigating measures to reduce the risk associated with their contribution. At another level the focus should be on the enabling results: it is critical to assess the level of r isk, for those factors that are judged to be intolerable but that might be controlled by CIDA and to develop strategies to mitigate those risks to bring them down to a tolerable level by, for instance, providing technical assistance to deal with a capacity gap in the host-country government, or enhancing field presence to better participate in donor coordination and harmonization of donor practices.
3.6 Principles for Risk Management Risk assessment and management are integral parts of CIDA's planning and implementation activities. Risk refers to the uncertainty that surrounds future events and outcomes. It is the "expression of the likelihood and impact of an event with the potential to influence the achievement of an organization's objectives" (in CIDA's c ase the success of a funding intervention). Risk is a factor in all development assistance activities. For each intervention, the time and effort devoted to risk management should be commensurate with the size and complexity of the program, the probability and impact of the potential risks identified, and the consequences of failure. Donors face new challenges in contexts involving multiple stakeholders. Situations involving a partnership with and leadership by the host-country government, and requiring the use or making efforts to increase the use of local procedures, result in new areas of risk. 3.7 The Risk Management Process Risk identification begins with a description of the scope of the process (i.e., with a description of the risk universe). There are two parameters that help define the risk universe. • The range over which risks need to be considered (which will help ensure that the risk sources considered are inclusive in the context of the program’s objectives); and • The types of risks the program officer is particularly concerned with (which helps to characterize the risk identified).
A convenient way to define the range of risk is to ensure that risks have been considered for every level of the management process (i.e., at the input, process/activity, output and outcome levels as depicted in the LFA). All development initiatives require that a number of conditions should be satisfied before the anticipated development outcome is achieved. 1. CIDA funds should be additional to what would otherwise have been spent in the absence of CIDA funding (additionality); 2. Funds should be used for the purposes intended (fiduciary management); 3. Programs supported need to be efficiently implemented (efficiency); 4. Programs should have the desired results at outcome and impact levels (effectiveness); 5. Results should be sustainable (sustainability) 6. CIDA’s evaluation policy makes a solid argument for how to include relevance as part of the overall planning and management process (Relevance)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 13 This suggests a way of organizing the discussion of risks according to five important analytical categories as outlined in Box 3.1.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 14 Box 3.1 - Categories of Risk Inherent to All Development Cooperation Additionality risk Ø Risk that CIDA contributions for a particular purpose will not be additional to what would otherwise be available, in particular because the host-country government could offset donor expenditures for a specific purpose by reducing its own expenditures for the same purpose. Implementation risk Ø Risks and uncertainties that the program being supported may not be implemented or may not even be able to be implemented as planned, due for example to limited capacities, to insufficient funding, or to other constraints. Under-achievement risk Ø Risk that the reforms and programs will not produce the expected results or that targets may be overly optimistic. This form of risk requires an assessment of the likely effectiveness of the program being supported, and of intervening variables (such as climate or political strife) that might impede the program’s effectiveness. Fiduciary risk Ø Risk that direct budget support or pooled funding is not used for its intended purposes. Fiduciary risk is affected by the financial management and procurement capacity, regulations, practices, and procedures of the institution responsible for program implementation. Chapter 4 is dedicated to the fiduciary risk.
Sustainability risk Ø The risk that achievements attained may not be sustainable, for example due to weak local ownership or commitment, inability to sustain the cost of the program or insufficient capacity. Economic, political and governance risk Ø Risk related to the economic environment (i.e. regional currency crisis, global/regional recession, sharp spike of petroleum prices…), the politic al situation (i.e. war, regional conflict, terrorism, changes in crime/security situation) and the governance (i.e. corruption) of the host-country.
Legal risk Ø Any risk arising out of an issue or event which could require a legal response or action by the government of Canada such as legal advice, litigation or an alternate dispute resolution mechanism. One example of a risk would be that one of the parties to a multipartite arrangement alleges that a treaty has been created. Risk Assessment Risk assessment is a part of all analyses conducted during appraisal of CIDA interventions. Each analysis should identify not only the possible inherent risk (i.e. what is at risk), but also its probability or likelihood of occurrence. The combination of the risk’s intrinsic value, and the probability that this value will be jeopardized, results in a combined risk (sometimes called impact or consequence) to the program (see Reference Desk (RD) 3 – Assessing and Managing Risk - A Reference for Program Officers).
The risk assessment must review critical assumptions for achievement of the expected results, as well as warning signs that the assumptions behind the risks might not be holding true and what effect this situation might have on program implementation.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 15 A risk assessment requires professional judgment, and as such there is no precise set of instructions. Further, each partner donor involved in direct budget support or pooled funding may perceive risks differently and each may have a different degree of tolerance to risk. The RD 3 proposes a model for risk assessment and management. The following steps are essential elements to consider in any risk assessment: • Acquire a broad understanding and knowledge of the program mechanism; • Review documents dealing with CIDA policies and strategies; • Review and analyze relevant program-related documents and reports (e.g. Country Financial Accountability Assessment (CFAA), Country Procurement Capacity Assessment (CPAR), Public Expenditure Review (PER), host-country government's internal auditors reports; Auditor General reports; mid-term review reports; audit or evaluations of similar CIDA- funded direct budget support and pooled funding); • Identify appropriate assessments undertaken by other donors that could be used instead of a separate CIDA process, or complementary with it; • Meet with selected host-country government officials and staff to obtain first hand knowledge of laws, regulations, policies, practices, processes and systems being used to manage the host- country government program; • Ensure that coordinated/joint assessments and management processes be developed among donors, and between donors and the host-country government; • Dialogue with program partners and host-country government officials at subject-specific meetings; • Participate in monitoring activities, mid-term reviews and other such activities to collect additional information allowing for a more in-depth analysis of the strengths, weaknesses, opportunities and threats of the processes, practices and systems; • Consult within CIDA and with other donor agencies on subject-matter, or with thematic experts; • Validate and refine assessment results through separate discussions with other program partners and joint discussions between program partners and the host-country government; • Develop a risk table in consultation with other donors and the host-country government, including: the risk category, the description of the risk, its likelihood of occurrence, its potential degree of impact, the level at which the risk may occur (impact/outcome/output), the temporary safeguards (monitoring and control measures) required to mitigate risk and, where appropriate, the capacity building plan. Identify the residual risk and whether the residual risk is considered tolerable; • Ensure risk assessment information is provided to the host-country government; • Ensure risk assessment information is provided to other program partners; and • Record the documents reviewed and interviews conducted on file. Risk Mitigation Based on the findings of the risk assessment, and in consultation with partners and key stakeholders on the approach to manage that risk, a joint risk management strategy must be prepared. This could be done by CIDA or by another reliable like-minded donor on behalf of the donor group. The process of change manageme nt (see section 5.8 below) must be incorporated into the risk management strategy, and captured in program monitoring, reporting and evaluation. Supporting the capacity development of local partners is an important mitigating factor in the management of risks. Risk mitigation strategies, particularly for risks that are assessed as high due to a high likelihood of occurrence, often take the form of increased monitoring of relevant performance. This allows
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 16 management to detect deviations from desired performance and to take timely action to correct the situation. However, this form of risk mitigation may not mitigate all risks or may not bring certain risks down to a tolerable level. In these cases, more elaborate mitigation action may be required. Some possible mitigation strategies could include adjustments to the overall delivery mechanism of the program, to the governance framework, risk sharing or devolution and/or contingency planning. Program partners should jointly manage the risk mitigation process. Risk conditions should be monitored on an ongoing basis and with reference to agreed-upon indicators. 3.8 Action Plan for Capacity Development One of the ways to manage risks and maximize expected results in a sustainable way is to ensure that comprehensive measures are established to help partner governments improve their capacity to achieve development results and their accountability to local stakeholders for public funds. Among the wide range of host-country government capacities likely to require attention are the following: • Leadership, planning and design of development programs, and stakeholder participation; • Financial management (budgeting and accounting, procurement and contracting); • Management of development assistance by the host-country government, including donor co- ordination; • Program implementation and service delivery; and • Results measurement, monitoring, reporting, evaluation and accountability to stakeholders. These various capacity development challenges need to be approached strategically and dynamically and should be included as part of the program’s overall management process. Ideally, a capacity development action plan that pays attention to a range of issues should be developed, including: organizational regulations and processes, participatory processes, staffing, incentives, human resource development, obtaining and managing financial and human resources and measures to promote accountability for results. The action plan should also cover the associated timetable, cost estimates and assignment of tasks, including the roles and responsibilities of the host partner, various donors, and other stakeholders.
3.9 Selected Reference Material • A Framework for Identifying Risk in Grant and Contribution Programs (OAG & IC 2000) • Risk Management Policies and Publications (TBS 2001) • Reference Desk (RD) 3 – Assessing and Managing Risk - A Reference for Program Officers
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 17 4 Diagnostic Work and Fiduciary Risk Assessment When Using Host-country Government Financial Management Systems 4.1 Introduction This Chapter covers a key element in the preparatory phase of any donor-supported operation involving the use of host-country government financial management systems. What is required is diagnostic work and fiduciary risk assessment of the host-country government. Fiduciary risk implies anything that threatens to divert funds to uses other than those for which they were intended by CIDA. It includes the risk associated with, and stemming from the use of the host-country government's public financial management and procurement systems. The information gathered in this phase will support dialogue with program partners and the host-country government. When CIDA engages in direct budget support, funds are transferred to the host-country government, and once transferred, CIDA no longer has jurisdiction over the funds. Nonetheless, CIDA remains accountable to Parliament and to Canadian citizens for the effective use of these funds. Thus, CIDA needs assurance that funds provided under direct budget support or pooled funding are properly accounted for and used for the intended purposes.
CIDA must have the assurance that significant risk areas are identified and assessed, and that appropriate safeguards or other interim measures are in place to mitigate these risks. This includes managing fiduciary risk – the risk associated with, and stemming from the use of the host- country government's public financial management systems. 4.2 Diagnostic Work Diagnostic work consists of the assessment of the host-country government financial management systems, including policies, practices, and capacity. The assessments identify the strengths and weaknesses of public financial management systems and expose the risks of channeling CIDA funds through those systems. Information gathered during a country-level diagnostic review should provide input into the fiduciary risk assessment as well as financial management and procurement capacity building plans. 8 4.3 Diagnostic Process The diagnostic process includes (1) planning the review, (2) conducting the review, (3) quality assurance, (4) sharing the review report and (5) follow-up activity. Chapter 3 of the DAC Guidelines and Reference Series provides general guidance on this process. DAC also provides guiding principles for harmonization of donor practices in the area of diagnostic work (see Box 4.1). Overall, the process should be appropriate to and acceptable by the host-country government. In doing so, care should be given to the timing of the diagnostic exercise, to participatory consultation, national ownership, and building of national commitment.
8 Refer to NORAD and Sida’s Best Practice in Capacity Building in Public Finance Management in Africa (2002) for additional information on the topic.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 18 4.4 Scope In a public administration governance context, the diagnostic process includes assessment of the host-country government’s regulatory regime and standards, transparency systems, accountability trails, communication with parliament and civil society, publicly stated policies and rules, and reporting. In a public financial management context, the process includes five9 broad areas: (1) legal issues and organizational architecture; (2) expenditure programming and budget preparation; (3) budget execution; (4) accounting, monitoring, reporting, audit and external scrutiny; and (5) administrative and financial management capacity. These five broad areas cover fifteen major components (see Table 4.1 on the following page). Moreover, assessments of each of the five broad areas must cover reviews of the five factors listed below, to judge host-country capacity to prevent the diversion of funds to unintended or unauthorized uses.
• Institutional and operational organizations (relevant to the host-country program in question), including their mandates, objectives and responsibilities. • Human resources i.e. competency levels within the government. • Internal control systems, including personnel management, procurement, bookkeeping, accounting and financial reporting, internal audit. • Information management system, including records management and use of information technology. • Independent auditing systems. Tools have been developed to aid in these assessments (see section 4.6) 9 According to the WB’s Public Expenditure Management (PEM) diagnostic process. The WB’s CFAA (Country Financial Accountability Assessment and PER (Public Expenditure Review) have also been developed around the five areas.
Box 4.1 Diagnostic Work - Guiding Principles › Partner country governments should be fully involved in and have ownership of diagnostic reviews. › Harmonized diagnostic reviews alleviate the burden on partner countries – Donors should rationalize the scope, timing and conduct of diagnostic reviews so as to avoid unnecessary duplication of work, and should rely as far as possible on other donors' diagnostic reviews to satisfy their requirements. › Harmonization does not mean standardization – In many countries receiving development assistance, public financial management systems may fall well below international good practices. This does not mean that financial assistance should not be provided to these countries: each donor must decide what level of risk it accepts in providing funds through the partner country's budget, in relation to developmentalbenefits. Thus, different donors may make different decisions on the basis of the same diagnostic review.
› Diagnostic reviews should be responsive to country development context – Improvement in public financial management systems is part of the overall development agenda, driven by the partner country and supported by donors. Undertaking of diagnostic work will be influenced by and feed into the overall country support strategies. Diagnostic studies should be regarded as part of a process, not as a sing le product, and sequenced over time. › Diagnostic reviews should be conductive according to open and transparent processes – There should be full consultation with all stakeholders before completion. There should be "no surprises" when the final report is published. › Understanding the institutional and governance context– Review of public financial management systems are not simply "technical exercises". They require a full understanding of the underlying governance arrangements in a country, the informal rules and incentive structures, and the factors that can undermine efficient and effective delivery of public services through waste, mismanagement and corruption.
DAC Guidelines and Reference Series "Harmonizing Donor Practices for Effective Aid Delivery", p. 48 -49. © OECD 2003
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 19 4.5 Choice of a Diagnostic Tool CIDA may rely on other donors’ diagnostic tools or, through consultancy, may request an independent assessment. The choice of one diagnostic tool over another is subject to negotiation with other partners involved in the direct budget support. It is likely to be more cost-effective if one single diagnostic tool is used, one that meets the needs of all donors. Currently, however, there is no single tool appropriate to meet the needs of all partner donors. Extended work may be done to rectify gaps in the scope or coverage of the selected tool.
4.6 Available Tools The Public Expenditure and Financial Accountability (PEFA) Secretariat is currently looking into the possibility of creating a single assessment tool, one that would cover all components of a diagnostic review. CIDA will wait for PEFA results before pursuing this issue in order not to duplicate PEFA efforts. Table 4.1 lists 15 key components of a diagnostic review, and compares WB tools; e.g., the WB’s Public Expenditure Reviews (PERs), the WB’s Country Financial Accountability Assessment (CFAA), and the WB’s Country Procurement Capacity Assessment (CPAR) against these components. Additional tools, such as the WB Public Expenditure Management (PEM) including a Diagnostic Questionnaire, are listed in section 4.12 – Selected Reference Material. For the time being, any gaps in a specific tool will be addressed through the use of other tools. Table 4.1 – Coverage of Key Components by Key Tools Available Components Assessed, by Tools PER CFAA CPAR 1. Legal framework for expenditure management 2. Intergovernmental fiscal relations X 3. Relations between the government & non-government sectors 4. Structure of government 5. Budget coverage X X 6. Expenditure analysis X 7. Fiscal framework and expenditure programming X 8. Resource allocation process X X 9. Treasury, cash management & monitoring of expenditures X X 10. Public procurement and management of physical assets X 11. Internal control and internal audit X X 12. Accounting, reporting and records management X 13. Debt and aid management 14. External audit X 15. Quality, capacity, incentives & management of personnel X= Full and substantial coverage Source: Assessing Public Expenditure, Procurement and Financial Accountability: A Review of the Diagnostic Instruments (PEFA Secretariat, 2003) 4.7 Collaborative Efforts CIDA need not carry out by itself this diagnostic work. As noted in the DAC Guiding Principles (Box 4.1), harmonized diagnostic reviews alleviate the burden on partner countries. CIDA may rely on other donors or consultancy services. If, however, the host-country government undertakes a self- assessment, this assessment may need to be supplemented by other diagnostic work done by other partners or by CIDA itself.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 20 For collaborative efforts to be successful, it is necessary for all collaborators to agree on common standards and benchmarks that satisfy the domestic regulatory requirements of the donors both at the assessment level as well as at the management and monitoring stage. This can take the form of assessing the host-country government’s commitment to action plans (e.g. in the CPAR), and monitoring may include the ongoing progress against the action plans plus specific performance monitoring as may be the case.
4.8 Due Diligence As part of its due diligence process, CIDA must ensure such a diagnostic process has taken place and must review the results of this assessment. CIDA’s decision to participate in pooled funding or direct budget support must be undertaken based on an analysis of the strength and weaknesses identified as part of this diagnostic work. Role of the Financial and the Procurement Specialists As part of CIDA’s due diligence process, financial and procurement specialists must participate with the program officer in the review and analysis of the diagnostic results. This may involve assembling the results of the diagnostic or conducting part of it. If the diagnostic work is not done by CIDA, due diligence involves determining whether or not it is acceptable within the Canadian regulatory regime. At times, the CIDA financial and the procurement specialists may conduct a field visit to put all the information into context and to make recommendations on how the project should be articulated; i.e., to address the various financial and contractual residual risks and to play a role in the articulation of a technical assistance component meant to increase financial management and procurement capacity in the host-country government.
4.9 Financial Management Fiduciary Risk Assessment and Mitigation Within the context of these guidelines, the term "financial management" is used to include: (1) budgeting; (2) accounting; (3) funds flow arrangement (receipt and disbursement of funds); (4) internal control; (5) reporting and monitoring; (6) external audit of financial statements; (7) financial procedures manual; and (8) financial management staff of the host-country government and/or its institution(s) involved in the initiative.
If the fiduciary risk assessment reveals that gaps and weaknesses exist, interim solutions or safeguards10 to mitigate the risks must be developed. There is no single solution to address gaps and weaknesses. All programs should be assessed indivi dually and the best strategy to deal with weaknesses devised. Ideally, the strategy would include capacity building and the provision of technical assistance to host-country staff involved in the delivery of the program. Based on an assessment of fiduciary risk, CIDA may be able to either (a) use the host-country government’s systems to manage funds; (b) employ temporary measures to allow for improvements to the systems and capacity of the government to take place to a point where donors can channel funds through government systems; or (c) initiate a dialogue with the host-country government about the public financial management reforms needed to address identified risks. 10 DFID’s Managing Fiduciary Risk When Providing Direct Budget Support provides, in its Annex B – Fiduciary Risks and Suggested Safeguards, good summary guidance on short term and longer-term measures to manage fiduciary risk and improve standards of public financial management and accountability.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 21 4.10 Financial Management Capacity Building Plan Based on the identified risks and diagnostic work, pooled funding and budgetary support initiatives should be accompanied by an action plan. These action plans are very often built in the initiative itself. The plan typically includes the identification of: needed improvements and capacity building; technical assistance; appropriate performance benchmarks; roles and responsibilities in the host- country government; and roles, responsibilities and needs of donors involved. 4.11 Procurement Fiduciary Risk Assessment and Mitigation The CIDA’s Guide for Procurement Risk Assessment and Mitigation represents the Agency's due diligence response to procurement risk. It aids CIDA Programs to identify, mitigate and manage procurement risk when contemplating programs that involve the use of host-country government systems to procure goods, works or services. It provides (a) a Risk Assessment and Mitigation Checklist for Partner Government Public Procurement systems in Annexes A to C; (b) possible risk mitigation strategies in Annex D; and (c) possible relevant indicators for performance measurement of the public procurement system in section 6.2.4. This document and its annexes have been developed based on WB material, ongoing thinking by the OECD/DAC Procurement Harmonization Group, and documents on the topic produced by other donors. Through the use of it, a procurement fiduciary risk assessment and mitigation strategy can be developed. The assessment can serve as the basis for discussions of public procurement reform with host-country governments. 4.12 Selected Reference Material CIDA Procurement Risk Assessment and Mitigation Guide World Bank References • Public Expenditure Review (PER) • Country Financial Accountability Assessment (CFAA) Guidelines to Staff and CFAA Schedule • Country Procurement Capacity Assessment (CPAR) Checklist and CPARs Schedule; • Public Expenditure Management (PEM), including a Diagnostic Questionnaire; • The Country Analytical Work (CAW) website facilitate coordination and cooperation among countries and donors with goals toward improving development impact and cost- effectiveness for both capacity building and knowledge sharing. The CAW provides a Document Library with access to project documents from partner agencies. Particularly of interest are existing assessments for specific countries (e.g., PERs, CPARs and CFAAs), studies and reports). It also has: Tool kits, Procedures shared by agencies for conducting analytic work, and Examples of Best Practices; Other References • Manual on Fiscal Transparency (IMF) • Managing Fiduciary Risk When Providing Direct Budget Support (DFID 2002); • Programme Support and Public Finance Management -A New Role for Bilateral Donors in Poverty Strategy Work, (Sidastudies no. 6)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 22 5 Financial Authorities 5.1 Introduction Grants and contributions are governed by the TB Policy on Transfer Payments. Departments receive their specific authorities through TB approval of terms and conditions. 5.2 Current Financial Authorities Bilateral Aid Program/Project Approvals The minister responsible for CIDA has limited financial authority for the approval of bilateral aid programs/projects (see Annex A of the CIDA Terms and Conditions (Ts&Cs). All programs/projects exceeding this limit (currently set at $20M) or not meeting the requirements of the Ts&Cs require a TB submission.
Program officers should refer to the following chapter, Approval Process and Documentation, for further guidance. Officers should also consult their Branch Financial Management Advisor and Contracts Manager with respect to the application of certain financial management exemptions and related procurement issues. Bilateral Aid Provisions Whenever CIDA engages in direct budget support or, as part of a coordinated effort, pools financial resources with other funding agencies, the applicable provisions are those of the Bilateral Aid channel’s government-to-government programs/projects. In both cases, funding is conditional and payments are made from the contribution budget. Note that the CIDA Ts&Csprohibits CIDA from providing “assistance whose primary aim is unconditional direct fiscal support to recipient country governments” (i.e. grants).
5.3 Cash Management and Reporting Options In 2001, TB approved an exemption to the cash management provisions of the TB Policy on Transfer Payments through the renewal of the CIDA Ts&Cs. In 2003, CIDA received two specific exemptions from the Policy for the cash management and reporting provisions when CIDA participates in a host- country government led initiative that entail program support to specific sector, theme or a developing country government’s strategy for poverty reduction. The exemptions obtained in 2003 deal with both pooled funding and direct budget support. They provide added flexibility with regard to cash management and reporting by a host-country government in receipt of CIDA funding. CIDA officers can use three options when planning and negotiating disbursements. The options available are summarized below to help program officers identify the option that is most efficient for program delivery and the attainment of program objectives: • Option 1: TB Policy on Transfer Payments. Advance payments are limited to monthly disbursements (with no dollar limit) based on cash flow requirements. • Option 2: Exemptions (obtained in 2001) from the TB Policy on Transfer Payments and as documented in the Framework Policy on International Development Assistance. Advance payments are restricted to a limit of $500,000 for each individual advance (total value of advances outstanding at any one time is not to exceed $1M) and conditional on submission of quarterly or more frequent financial statements showing disbursements made against such advance payments; or
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 23 Option 3. Exemptions (obtained in 2003) from the TB Policy on Transfer Payments specific to pooled funding and direct budget support under a host-country government-led initiatives (i.e. when the onus for program planning and delivery, financial administration and reporting is put squarely on the developing country government). In all cases, funding is conditional, and payments are made from the contribution budget. Note that the CIDA Ts&Cs prohibit CIDA from providing “assistance whose primary aim is unconditional direct fiscal support to recipient country governments” (i.e. grants).
The amendments and exemptions deal with the cash management and reporting provisions in situations where a) direct financial contributions are made directly to the recipient country’s overall national budget (direct budget support) and b) where the transfer of funds in a pool is done using a contribution arrangement AND where the host-country government is involved in the decision- making of the said funds. The amendments and exemptions are as follows: o An amendment to the Payment Provisions as detailed in the CIDA Framework Policy for International Development Assistance under the Bilateral Aid Channel of Delivery, government-to-government programs/projects such that: • annual or more frequent advance payments of contributions can be made as agreed upon by funding agencies and the host-country government in situations of direct budget support and pooled funding arrangements; • Individual advance payments of contribution have no dollar ceiling, but are restricted to cash flow requirements not to exceed a period of one fiscal year (i.e. the host-country government’s fiscal year);11 and • Only two advances may be outstanding at any one time, and appropriate justification will focus on achievement of results.
o An exemption to section 7.6.5 of the TB Policy on Transfer Payments to allow the calendar of payments to coincide with the host-country government's specific fiscal year. o An exemption to section 8.3.3 of the TB Policy on Transfer Payments to allow for annual or more frequent financial and non-financial reports and reviews as agreed upon by funding agencies and the host-country government. 11 Advance payments are no longer being limited to quarterly disbursements of $500,000 or to monthly disbursements on the basis of immediate cash flow requirements;
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 24 6 Approval Process and Documentation 6.1 Introduction Grants and contributions are governed by the TB Policy on Transfer Payments. Departments receive their authorities through the approval by TB of their program. When a program/project exceeds CIDA’s authorities a TB submission is required. A TB submission is an official document submitted by a minister on behalf of their department to seek approval or authority from TB ministers to carry out a proposal that the department would not be able to undertake otherwise or that would be outside its delegated authorities. 6.2 When to Seek Treasury Board Approval All programs/projects that exceed the minister’s aid program/project approval authority (see Annex A of the CIDA Ts&Cs; this limit is currently set at $20M) or do not meet the requirements of the CIDA Ts&Cs require a TB submission.
6.3 Preparing and Processing TB Submissions When preparing a TB submission, Program Officers should refer to the CIDA Guide on Treasury Board Submissions to obtain information on CIDA and TBS roles and responsibilities, timelines and practical advice on preparing and processing TB submissions. The CIDA Guide is intended to complement the TB document, A Guide to Preparing Treasury Board Submissions. If a need has been identified for a submission, certain steps must be followed. For full detail refer to Appendix A of the CIDA Guide. A summary is provided below: • Initiation/Notification – initiate the process within your branch and notify the Agency’s TB Submission Coordinator; • Drafting – prepare the submission using the TB Submission Template for Program (see Appendix C of the CIDA Guide); consult with appropriate Agency officials, including the Branch Financial Management Advisor, the Branch Contracting Officer and the Branch Performance Review Specialist; and send the draft submission and its annexes (e.g. RMAF/RBAF [See chapter 7 of these Guidelines]) for comments; • Initial review– consolidate comments received and make necessary changes; • Corporate/TBS Review– make necessary changes to the TB submission by incorporating the TBS Analyst’s comments and prepare a final draft; and • Departmental Approval –– includes the process of preparing the final submission and annexes, translation, briefing and sign-off.
6.4 Program Review Committee (PRC) All initiatives involving direct budget support or pool funding to the recipient countries going either to the Minister or to TB for approval (all proposals over $5M) must first be presented for consideration to the Program Review Committee (PRC), a sub-committee of Policy Committee. PRC’s role is to review proposals from a corporate perspective after they have been reviewed by TBS analysts but before they go to the Minister, and to make recommendations regarding the approval or revision of these proposals. PRC is composed of 13 members from across the Agency. Policy Branch chairs and provides secretariat services for the Committee.
More specifically, the PRC’s mandate is to:
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 25 • Ensure the application of due diligence in the planning, design, selection and approval of program based initiatives; • Review the initiatives, suggest revisions, modifications and improvements where warranted; • Ensure coherence in the application of such initiatives; • Provide an opportunity for quality assurance and peer input; and • Exercise a corporate oversight function in terms of the practice and method in the application of these initiatives.
CIDA Programs requesting PRC review must provide relevant documents to the PRC secretariat (Analysis and Research Division in Policy Branch) at least two weeks in advance of a meeting date. Documentation should include the draft Memo to the Minister, the PAD and its annexes (or equivalent items in the case of documents going to TB – TB Submission, the RRMAF), and any other documentation that the desk might consider advisable. Documents must make a convincing case for approval of the initiative and for the approach being proposed, while satisfactorily addressing issues of due diligence likely. Particular attention should be paid to the importance of submitting a coherent and complete argument in the case of submissions going to TB, despite the multiplicity of documents involved and the particular guidelines involved in this case.
Proposals for initiatives involving direct budget support and pool funding to recipient countries may be different from regular project proposals. For example, any logic model or LFA reflecting the joint framework agreed upon among donors and the host-country government should be included with the proposal, along with the CIDA LFA, as required by TB, which reflects CIDA’s added-value to the overall program being supported Prior to making their submissions some CIDA Programs have consulted with the PRC Secretariat on the issues noted above. This has resulted in documents being better appreciated by PRC members. More detailed information on the PRC is available on the SWAPS network extranet site. This includes the Committee’s detailed membership and mandate, draft documentation on PRC’s approach to due diligence, agenda, minutes of past meetings and written comments submitted by Policy Branch on proposals submitted to the Committee.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 26 7 Development of the RRMAF 7.1 Introduction The TB Policy on Transfer Payments requires that a TB Submission include an RRMAF (Results and Risk-based Management and Accountability Framework). 7.2 The Team Approach The program officer, in collaboration with the CIDA team (headquarters and the field) is responsible for the RRMAF; however, there are a number of support groups that should be involved in the process. These groups include: • the Branch Results-Based Management (RBM) / Performance Review Specialist and the Branch Strategic Analyst; • the Branch Finance Specialist; and • the Evaluation, Internal Audit and RBM Divisions of the Performance and Knowledge Management Branch (PKMB).
Finance Specialists provide input to the resource section of the program profile, the identification, assessment and management of financial risks (e.g. fiduciary risks) and the financial aspects of the program’s reporting strategy. RBM specialists provide input to the LFA, PMF, monitoring and results reporting sections of RRMAFs. PKMB’s evaluation officers or managers help in the development of the evaluation strategy and provide input to evaluation plans. Internal Audit Managers provide assistance in the development of the Audit section and provide input to any plans for internal audit of the program. Furthermore, all of these specialists can be of assistance in devising strategies for capacity building in the host-country government.
An important aspect of direct budget support or pooled funding is fostering the parallel development of host-country government capacity while delivering aid. Capacity building often includes the development of financial management capacities and associated mechanisms of internal and external auditing as well as monitoring and evaluation capacities. Inclusion of the relevant specialists in the program development team can enhance the quality of the planning process considerably. 7.3 Results and Risk -Based Management and Accountability Framework (RRMAF) The RRMAF provides TB with convincing evidence that the management approach for a particular CIDA program, program component, and/or funding initiative is both consistent with CIDA’s overall policies/objectives and internally consistent with RBM principles. The RRMAF should include the following sections: Introduction; Program Profile; Description of the Results Chain (including a logic diagram or model); Integrated Risk Management; Performance Measurement; Evaluation; Recipient Audit and Internal Audit; and Reporting Strategy.
An RRMAF for an initiative involving direct budget support and pool funding should be a simple and common-sense self-explanation of: • What the initiative is doing and how its activities relate to CIDA’s policies and objectives; • What it is expected to accomplish and for whom; its internal logic, and risks involved; • What information should be collected on a continuous basis in order to monitor the program/initiative, measure performance, and manage/mitigate risks; • What evaluation activities are required to assist in adjustments, reporting on results, reassurance with respect to basic rationale, and provide credible evidence with respect to effectiveness and efficiency;
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 27 • What audit activities are required to provide assurance that adequate financial and internal control and risk management strategies are in place; and • What reporting strategy is needed? This strategic approach provides program officers with increased flexibility to develop RRMAFs that reflect the unique nature of the specific CIDA policies, programs and initiatives, while maintaining accountability towards the achievement of results.
The benefits of RRMAFs are: • more precise alignment to corporate policies and objectives; • better link between performance at all levels; • a more effective accountability structure; • a heightened awareness of clients/stakeholders and an enhanced ability to distinguish between their needs and wants; • more learning and innovation, and better program design; • more effective performance measurement, risk assessment and mitigation, feedback, and improved life-cycle management; • greater appreciation of the “bottom-line” through periodic re-assessment of rationale and measurement of program results; • more focused and consistent monitoring and reporting; and • improved information base for communication and outreach. 7.4 Guiding Principles for the Development of RRMAFs The guiding principles for the development of these documents are consistent with initiatives involving direct budget support and pooled funding: • forward-looking, to ensure the framework establishes strategies and controls to address the events and issues that have the potential to influence the achievement of objectives to the end of the funding approval term; • credibility, to ensure that the process followed is systematic and respected by stakeholders, and that appropriately qualified personnel are involved in the risk assessment process; • communications, to ensure clear and simple language used to facilitate common understanding so that everyone can contribute; • shared ownership, to facilitate collaboration between managers and all stakeholders in the assessment and mitigation of risks, as well as meeting accountability requirements for risk management and reporting; • transparency, to ensure that stakeholders are aware of the nature and level of risk involved in management and operational service delivery; • utility, to ensure that the framework serves as a useful management tool for explaining and integrating risk factors and strategies at all levels of planning, decision-making and reporting; • flexibility, to respond to the ever-changing context within which policies, programs and initiatives operate and to thereby ensures that the frameworks are regularly revisited and adapted as necessary.
The guiding principles ensure that existing policy requirements remain sustainable; that performance measurement and reporting commitments can be met effectively; and that resource and workload capacities remain manageable.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 28 Guidelines for the CIDA RRMAF are currently being developed by CIDA and TBS. A CIDA-specific RRMAF is intended to facilitate the development of practices and procedures that satisfy the functions of promoting the achievement of objectives and mitigating risks to performance. When initiatives involving direct budget support and pooled funding do not require an RRMAF, a CIDA LFA and PMF will be considered the minimum required for the requisite approval process; however an RRMAF is recommended wherever possible. For further information on LFAs, PMFs, and related tools, refer to the Performance Review Branch documents on Results-based Management (RBM) available at Entre Nous/Toolbox/Performance Review and /Program Delivery. 7.5 Roles and Re sponsibilities for RRMAFs Program Managers are responsible for: • developing an accurate and comprehensive analysis of potential risks to the achievement of objectives, as well as cost-effective monitoring, mitigation and reporting strategies; • developing an accurate framework that reflects the design and operation of the program as well as reporting requirements; and • implementing the RRMAF while ensuring that data are collected and reported upon accordingly.
The Branch RBM/Performance Review Specialistis responsible for: • providing first line technical support to management for the development of the LFA and PMF; • reviewing RRMAFs; and • consulting with PKMB for quality assurance of the documentation and verifying the audit and evaluation information required for TB submissions. The Performance and Knowledge Management Branch is responsible for: • quality assurance of RRMAF, attached to TB submissions including providing assistance and advice to the Branches with regard to: o the Internal Auditing and Evaluation Section of the TB Submission, o the Internal Auditing section of the document, and other recipient audit strategies; and o the Evaluation section of the document, as well as advising on key methodologies and measurement issues implicit in performance measurement and evaluation strategies; o advise managers on due diligence reviews for programming approaches such as pooled funding and direct budget support; and • providing technical support to Branch Performance Review Specialists as well as training and tools to assist staff in RBM application.
When an RRMAF is developed to meet a TB commitment, TBS analysts can advise CIDA program officers and performance review specialists on general requirements related to the frameworks. This should be done during the preparation of the documents and before they are submitted to the CIDA Minister and the Board for approval. The TBS analysts involved include: the Program Analyst (the point-person in this process) and the Transfer Payments Policy Analyst, Performance Review Analyst, Evaluation Analyst and Audit Manager, all of whom support the TB Program Analyst.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 29 7.6 Selected Reference Material Treasury Board References: • Risk-based Audit Framework Guide, version 4.3.1 (2003) • Guide for the Development of Results-based Management and Accountability Frameworks (2001) • Guidance for Strategic Approach to Results-based Management and Accountability Frameworks (2002) CIDA References: • The Logical Framework: Making it Results-Oriented (1997) • RBM Handbook on Developing Results Chain (2000) • A Results Approach to Developing the Implementation Plan (2001), especially Chapter 6, Units 18 – 21 • Upcoming Guidelines on Results and Risk based Management and Accountability Framework (RRMAF)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 30 8 Arrangements Among Partners 8.1 Introduction Harmonization and alignment are major underlying principles essential to the design of direct budget support and pooled funding. While the «ideal practice » would be to attain full alignment of donor support with the budget, accountability system and legislation of the host-country government, actual practice shows that full alignment can often not (yet) be realized and a more gradual approach is often taken to contain and manage risks. Joint Financial Arrangements (JFAs) establish a framework for co- coordinating donor support and co-operation with the host-country government. JFAs need to be complemented by bilateral contribution arrangements concluded by each participating donor with the host-country government.
8.2 Documents Operationalizing Direct Budget Support or Pooled Funding To operationalize direct budget support or pooled funding, two documents are required: (1) a Joint Financing Arrangement (JFA) replacing what used to be the Memorandum of Understanding (MOU) to be signed by all parties to the agreements, donors and host-country government; and (2) a subsidiary Bilateral Contribution Arrangement between the bilateral donor and the host-country government. The JFA establishes the framework for co-ordinating donor support and cooperation with the host-country government. The Bilateral Contribution Arrangement represents the actual funding instrument for the transfer of funds to the host-country government. The change in terminology from MOU to JFA is to accommodate the domestic regulatory framework of some donors. For CIDA this constitutes a change in terminology and not a change in document intent.
In early examples of support for SWAps, more traditional methods for contractual agreement were used. An MOU was signed with the host-country government followed by a separate Contribution Agreement to allow for the transfer of funds. In other cases, a Contribution Arrangement that combined both the MOU and the contribution agreement was signed. Some of these cases are still in effect and will continue to be so until the two-pronged approach (i.e., a JFA supplemented by bilateral contribution arrangements) is accepted by all.
8.3 Process The Program Officer leads the preparation and processing of the JFA and the Bilateral Contribution Arrangement and is assisted by a team of financial, contractual and legal experts. The Program Officer consults with the Contracting Officer who assists with the preparation based on standardized documents and consults with the FMA as required on financial requirements. Once the documents have progressed to a satisfactory level, Legal Services is consulted to review the documents before they are finalized.
8.4 Joint Financing Arrangements JFAs are the expression of the desire of the signatories to undertake support jointly, to work within one set of procedures applicable to all signatories, to monitor and measure results and to have a dialogue fed by the results of the monitoring. Joint financing should produce an added value over bilateral financing by individual donors inasmuch as it results in reduced transaction costs for management and monitoring, greater program efficiencies for all parties involved, and avoidance of duplication of effort by donors and host-country governments alike.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 31 The document Joint Financing Arrangements in Support of the Sector-wide Approach , prepared by the Nordic Plus Donor Group (CIDA is represented) provides a guide, template and checklist for the main items that are normally included in JFAs. The template is for guidance and ease of use in terms of items covered and the sequence in which they appear in the JFA . Examples of specific texts to be included in the JFA have been pre-agreed by the Nordic Plus Donor Group with the caveat that they are to be adjusted to existing circumstances when actual JFAs are developed. An outline is also provided to present the usual structure of JFAs, the way items are grouped into paragraphs, and the means to operationalize the principles of harmonization and alignment of donor assistance. According to the Nordic Plus Donor Group document, typical JFAs include: • Goals of the Program and scope of the JFA (e.g. reference to national plan, LFA, and bilateral arrangements); • Responsibilities and representation (e.g. responsibilities of donors, host-country government, joint responsibilities); • Contributions (e.g. donor «pledge », rate of exchange); • Consultations among signatories, decision-making process (e.g. mandate of meetings, type, frequency and timing of meetings, participants, chairing, minutes, documentation); • Organizational structure (e.g. mandate and participants of steering committees); • Payments (e.g. required documentation, procedures for approval and transfer of funds, payment schedule); • Procurement (e.g. choice of system, responsibilities, technical assistance, notifications); • Reporting (e.g. types, format and content, frequency and deadline, procedures for approval); • Review and evaluation (e.g. types, frequency, participation); • Audit (e.g. auditor, type of audit, frequency, costs); • Non-compliance (e.g., provisions for, sanctions); • Corruption; • Modifications, donor accession, withdrawal (e.g. procedures for amending the JFA); • Dispute Settlement; and • Entry into Effect. Agreement on a JFA is not easily achieved. Often many parties with different approaches and capacities are involved in negotiations for a JFA. Before starting negotiations on a JFA, it is recommended to identify the hurdles that may occur, develop a plan for their resolution and structure the negotiation process so that consensus can be achieved.
Delegated co-operation: the JFA can be modified to accommodate situations where one donor is elected to act as « lead donor » and to represent the donor group in the relationship with the host- country government. Usually a donor that has comparative advantage in a host-country, sector or specific tasks (e.g. monitoring) will qualify to act as a «lead donor ». Delegating responsibility for the management to a lead donor may lead to substantial savings in time and costs for donors and the host-country government. The DAC Good Practice Principles (Chapter 6) provide further guidance. 8.5 Bilateral Contribution Arrangements The bilateral arrangements between individual donors and the host-country government are supplementary to the JFA and identify specifics such as the particular donor's contribution. Any specific element needed by CIDA to comply with the TB Policy on Transfer Payments (e.g., right to audit) must be included in CIDA’s bilateral contribution arrangement. However, care must be taken not to introduce too many specific conditionalities since this would increase the administrative burden on the host-country government and run counter to the purpose of aid effectiveness. At some point in the future, a standarized bilateral contribution arrangement will be made available on the
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 32 CIDA contract preparation system and elaboration of the guide for the CIDA specific regulatory context will be available on EntreNous. The CIDA documents will build on the Nordic Plus Donor Group documents. 8.6 Selected Reference Material Joint Financing Arrangements in Support of the Sector-wide Approach, Netherlands Ministry of Foreign Affairs, February 2004 and other documents prepared by the Nordic Plus Donor Group on the PBA Extranet Site.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 33 9 Payments 9.1 Introduction Pooled funding and direct budget support instruments channel funds in different ways to host-country governments. In both cases, the principles of transparency and predictability of funding flows should be respected. Based on the TB Policy on Transfer Payments, payments should not be paid to host-country governments in advance of need. Payments should be timed to correspond as closely as practical to cash flow requirements. CIDA must base any provision for advance payment of a contribution on prudent cash management principles.
In situations of direct budget support and pooled funding, advance payments must be based on cash flow requirements identified through costed work plans. Advances may be made on an annual basis (i.e. single annual tranche payments) or more frequent basis, but should not exceed a host-country government’s projected expenditures for that fiscal year. Accordingly, particular attention should be taken to ensure that unused funds (i.e., advances) at the end of the host-country government’s fiscal year are not significant. Ongoing monitoring will ensure that due diligence is exercised in the management of Canadian public funds.
9.2 Channelling of Funds - Pooled Funding Pooled funds (i.e., where the resources of multiple donors are “pooled” together and reserved for particular purposes) are specifically designed to finance expenditures within a program. In a pooled funding arrangement, common rules for transferring resources into the Pool Fund (a separate holding account) for disbursing funds and for accounting and reporting of expenditures must be made clear and be formally agreed by all donors and the host-country government. The holding account can be owned by the host-country government or a number of donors, but the group of donors will approve payment out of it.
Payment of CIDA funds into a Pool Fund should not be done in the following circumstances: • when there is no financial management and accounting manual or when one does exist, it is incomplete or of poor quality; • when there are no satisfactory mechanisms for the maintenance of bank accounts and management of disbursements; and • when the personnel responsible for managing the fund do not have the experience and/or qualifications required and when an appropriate reporting and supervisory framework does not exist.12 9.3 Channelling of Funds – Direct Budget Support CIDA participates in Direct Budget Support when payments are made directly to a host-country government or its designate to be spent as part of the government’s overall Program budget using the host-country government’s financial management systems. The method for transferring resources, for disbursing funds and for accounting for expenditures must be formally agreed with the host-country government.
Payment of CIDA funds into the host-country government's payment system should not be done in the following circumstances: 12 Extracted with adaptation from the EC Guidelinesfor Manual for EC Support to Sector Programmes (2003).
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 34 • when it is difficult for the government to guarantee that the money transferred will reach the intended payment centres within a reasonable time; • when it is difficult for the government to provide guarantees that the money will be used in the manner intended; and • when the host-country government lacks financial management capacity.13 If these conditions cannot be met, other funding mechanisms should be examined as an alternative (e.g., designing a project with a local or Canadian executing agency). 9.4 Channelling of Funds - Questions to Ask When channeling funds through a direct budget support or pooled funding instrument, there are several questions that apply: • Is the transfer of money from the forex account to the Treasury bank account visible, for example, on account statements?
• Are there assurances that the value of the foreign currency drawn from the forex account equals the value of the foreign currency deposited? • Will the money transit via a commercial bank or be deposited in a commercial bank and if so, have the risks relating to the use of such commercial banks been assessed (i.e. what supervisory mechanism does the host-country government exercise over the banking system such that CIDA can safely deposit money in such an institution)? • Has the use of a separate account(s) on which the host-country government must report been considered?
• Are transfers of funds for programme support audited periodically on behalf of the host- country government by auditors independent from the government (Auditor General of the country or a private international accounting firm)? • Has CIDA identified its minimum audit requirements? 9.5 Basis, Timing and Frequency of Payments Basis of Payment –– Initial Payment In the case of direct budget support and pooled funding, CIDA may be required to make a significant, initial lump sum payment to ensure advancement of the Program’s implementation plan. CIDA may make an initial advance payment based on the following guidelines: • the initial payment must be predicated upon a positive assessment by CIDA of the viability and risk of using pooled funding or direct budget support over a traditional project-based approach; • may be released only upon the submission, by the host-country government, of a Program strategy, and a costed work plan for the initial year; • must be based on the host-country government's cash flow requirement taking into consideration the contributions of all other contributing donors.; and • must not exceed the cash flow requirement spanning the period from the time the contribution arrangement takes effect to the end of the host-country government's fiscal year end. Basis of Payment –– Subsequent payments Subsequent payments normally consist of advances against the work plan and budget for the coming period. According to the TB Policy on Transfer Payments, “To properly control advance payments, 13 Adapted Extracted with adaptation from the EC Guidelines for Manual for EC Support to Sector Programmes (2003).
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 35 timely accounting must be obtained from recipients. …an advance should be accounted before any further advances are issued.”14 A subsequent advance payment should be based on the results obtained from the previous payments. Payments are based on acceptable progress being made in terms of achieving expected program results. Therefore, selecting triggers for progress payments should be done with care: triggers should be short term; data for their measurement should be readily available; and situations known to cause delay in disbursement should be avoided. Decisions made jointly with other donors are preferable, but not always possible as they will depend on the program, the degree of harmonized practices with other funding agencies and the assessment of the risks involved. Decisions are normally based on: • cash flow requirement through costed work plans; • acceptable progress reports; • results of financial audits; • results of semi-annual or annual reviews; and • monitoring of selected performance indicators that have been established. Reasonable and acceptable progress will be defined and agreed upon between the donors and the host-country government prior to entering into a contribution arrangement. It is the host-country government’s responsibility to demonstrate actual results achieved. Reasonable progress should be addressed in the donors’ Joint Financing Arrangement when one exists. Reasonable progress should be defined taking into consideration: • work plans – supported by a value (e.g. dollars or person-hours) attached to each task, milestone and/or deliverable; and/or • achievement of a set of undertakings that are clearly defined and agreed upon between donors and the host-country government; and/or • performance indicators – supported by benchmark figures against which progress can be measured.
Timing of Payments Payments should as much as possible be timed with host-country government’s planning and budget cycle. In particular, the scheduling of payments is important and should coincide with the preparation phase of the national budget whenever possible, in order to facilitate and improve the macro- economic management of the host-country government. Frequency of Payments CIDA may make annual or more frequent payments. In determining the frequency of payments to a host-country government, the level of risk, materiality, quality and quantity of financial information and past experience with the host-country government must be analyzed. CIDA will work with other donors and the host-country government to identify an appropriate payment schedule. As the host- country government demonstrates results and the ability to manage funding, the frequency of payments may be revised. For instance, frequency of payments may be established initially on a quarterly basis. However, once donors obtain the assurance that appropriate systems and processes are in place to effectively manage funding, payments may be reduced to a semi-annual basis. 14 TB has granted CIDA exemptions and amendments to this policy. Please see Chapter 5, Financial Authorities, for a full explanation.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 36 9.6 Unspent Funds at Year-End CIDA should examine the level of unspent funds at year-end (the host-country government’s year- end) and take this information into consideration as part of the subsequent year payment. It may, however, happen that, subject to a donor's bilateral arrangement, unspent funds at year-end are returned to the group of donors prorated according to the level of participation in the pool. To the extent possible, CIDA program officers should advocate that unspent money be deducted from the following year planned payments 9.7 Suspension or Termination CIDA must retain its right to suspend payments to the program and/or terminate its agreement with the host-country government in the event of failure to implement, failure to achieve reasonable progress as per approved work plans or failure to furnish reports or furnish reports of acceptable quality. Prior to any suspension or termination, CIDA will inform the host-country government, in a timely manner, that suspension or termination may occur and will specify remedial actions that must be taken by a specific date in order to avoid the suspension or termination. In all cases, CIDA will work with the partner(s) to seek a resolution to the issues.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 37 10 Auditing 10.1 Introduction There are two types of auditing which should be of concern to the program officer. These are external auditing and internal auditing. External auditing is generally a service provided by professional audit firms and its scope is usually the provision of assurance that financial statements fairly represent the true financial state of the organization being audited. This chapter discusses a special case of external audit, recipient audit. Internal audit at CIDA is a service provided by professional internal auditors of the Audit Division in Performance and Knowledge Management Branch (PKMB). Elaboration of both types of service is provided below.
10.2 Internal Auditing An internal audit can provide valuable information to management by giving assurance as to the soundness of a program’s risk management strategy and practices, the management control framework and practices, and the information used for decision making and reporting purposes. 10.3 Recipient Auditing Recipient auditing is a form of external audit which provides assurance on the reliability of the financial information being submitted to donors as well as assurance regarding the level of compliance with the conditions stipulated in the contribution arrangement for the use of funds. Where the recipient is a country, the country may have its own external audit capability, a Supreme Audit Institution that will conduct the audit. The host-country government and the donors, including CIDA, generally commission this type of audit jointly, and CIDA should rely on the results. 10.4 Audit Planning The TB Policy on Transfer Payments emphasizes audit planning and the integration of risk concepts into transfer payment management. TB requires that Departments develop a RRMAF (see Chapter 7 for details). The RRMAF should: • Determine which recipients are to be audited; • Select appropriate auditors or indicate the acceptability of auditors when retained by the host- country government; • Determine whether the scope, frequency and scheduling of audits meet program requirements; • Coordinate audits with others involved in the audit of the same host-country governments; and • Determine follow-up action required on audit findings. In its Annex C, the TB Policy on Transfer Payments outlines 22 requirements that must be included in all contribution agreements. One of these requirements is a provision allowing the Minister the right to conduct an audit of the contribution agreement even though an audit may not always be undertaken.
10.5 Annual Audited Financial Statements/Reports These financial statements should coincide with the host-country government's fiscal year end. The audited annual financial report should be submitted within an agreed period after the fiscal year end. The DAC recognizes it to be good practice for this to happen within four to six months. The period set should reflect the capability of the host-country implementing/supervising agency to produce the
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 38 annual financial report on time and the ability of the responsible auditor to undertake the audit. The audit report will normally cover the audit of: • the Program financial records i.e. audited financial statements; • the performance of the funds spent in relation to the results obtained (value for money), noting the amount of CIDA funds and the percentage of its contribution to the overall Program budget; and • the host-country government budget execution for the funded Program. 10.6 Choice of Auditors The Supreme Audit Institutions (SAI) of the host-country government should be used when their capacity is judged to be acceptable. Where private sector auditors are used, the partners should ensure that the firm selected is recognized internationally and is objective (i.e. not involved in the provision of consulting services that would otherwise biase the audit opinion or indicate a potential conflict of interest).
10.7 Audit Findings and Recommendations Deficiencies or weaknesses noted in the system of internal controls as well as issues and concerns that result from the audit of the financial statements or reports may be Program specific or may have a much wider implications. This new information should also be reflected in the update of the risk assessment as part of the ongoing management of the Program. It is the program officer’s responsibility to see that the host-country government properly addresses these weaknesses and issues.
If necessary, these weaknesses and issues can be addressed as part of an action plan for capacity building (technical assistance) of the host-country government. Advice on both external and internal auditing, including advice on audit capacity building, may be obtained from the internal Audit Division in PKMB. 10.8 Standards for Auditing of Public Funds The DAC recognizes, as good audit practice for the auditing of public funds, the International Organization of Supreme Audit Institutions' (INTOSAI) international audit standards that focus on the public sector, the International Federation of Accountants' (IFAC) International Standards on Auditing (ISA), and national standards that are in all material respects consistent with either INTOSAI or ISA.
The DAC GPRP on Reporting on Financial Aspects & Auditing provides Technical Guidance Notes on Supreme Audit Institutions Eligibility Questionnaire and Private Sector Audit Firm Eligibility Questionnaire as well as on Standard Terms of References for External Auditors of Non-Revenue Earning Development Projects. Equivalent international standards for the practice of internal auditing may be found on the website of the Institute for Internal Auditors in the form of Attribute and Performance Standards. 10.9 Accounting Standards The DAC recognizes the work being done on International Public Sector Accounting Standards (IPSASs) by the International Federation of Accountants' Public Sector Committee. It is understood that these standards should serve as the good practice standard against which accounting procedures intended for use by internationally funded programs are judged for adequacy.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 39 10.10 Interim Alternate Measures or Safeguards Where the host-country government's accounting and/or internal control procedures need improvements to attain an appropriate level of safeguards for program funds and to produce the required financial reports, interim alternate measures are required. In addition to the implementation of an agreed action plan to strengthen host-country government systems and procedures, donor partners may require measures such as the establishment of a separate reporting entity with independent internal controls, books of account and reporting procedures. 10.11 Selected Reference Material • International Organization of Supreme Audit Institutions' (INTOSAI) international audit standards • International Federation of Accountants' (IFAC) International Standards on Auditing (ISA) • Institute for Internal Auditors in the form of Attribute and Performance Standards • International Public Sector Accounting Standards done by the International Federation of Accountants’ Public Sector Committee (IPSASs)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 40 11 Monitoring, Reporting and Evaluation 11.1 Introduction CIDA's implementation of RBM is expected to lead to better reporting on more clearly identified development results. When CIDA chooses to participate in direct budget support or pooled funding under, it identifies, in association with host-country governments and other program partners, the expected results and performance indicators for the program. The results are usually expressed in terms of the Millennium Development Goals, and/or existing National Development Plans or the PRS. It is not possible for each agency to attribute a direct link between their specific inputs and the expected results. Therefore, progress must be measured in terms of the collective efforts of the host-country government and the program partners while taking into account other supporting external factors. Accountability for results in this environment implies: • striving for one set of pre-defined development results and indicators with the program partners; • maximizing the expected results (both development and enabling results) while taking account of risk and uncertainty; • clear articulation of roles and responsibilities of the various partners, and an accepted set of governing management and reporting roles binding the contributors together with the host- country government; • investing in enabling results by building the capacity of host-country government to support the programming that is the object of the direct budget support or pool funding initiative; • making efficient and effective use of resources; and • demonstrating performance in terms of all of the above. To assure this accountability, the CIDA program officer should: • Review specific program related documents (i.e. performance indicators, annual performance reports) and financial reports to appreciate the level of progress; • Participate with other program partners in the conduct of joint mission reviews to better appreciate the level of progress being made in the field; • Participate in working groups with the host-country government and other partners, to engage in dialogue on operational issues and appreciate the level of progress achieved. Lessons from participating in these regular meetings may lead CIDA to increase its technical assistance in targeted issue areas; • Prepare annual performance reports reflecting CIDA’s contribution in the initiative. 11.2 Monitoring of Progress toward Results Program monitoring should reflect the progress toward achievement of expected results while taking risk factors into account. All activities related to monitoring of the overall Program should be reflected in the PMF, which contains a monitoring strategy and is included in the RRMAF. As early as possible in the process, donor partners and the host-country government should strive to agree upon impact, goal and purpose statements, and indicators relating to existing PRSs, NDPs or their equivalents wherever feasible. However, if this is not realistic, other appropriate statements and indicators can be developed or identified. The overriding principle is to capture the enabling environment and the process of change management during the life of the initiative, as well as the eventual achievement of results. If capacity development of the host-country government and its
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 41 institutions is critical to the process, resources should be applied to regularize data gathering and analysis so that the results related to this element are captured. Principles for Monitoring for Results Monitoring of progress toward results consists of: • continuous assessment of the program developments based on an established action plan and indicators; • continuous review of identified risks and assumptions as part of the normal program management process; and • effectiveness of the safeguards. The findings of monitoring reports may recommend program adjustments, including changes in the composition or nature of partnerships. The monitoring process may also propose a revision of the results statements to reflect the evolution of the program and suitable adjustments in the expectation of achievements of expected results. This is done to match the evolving context of the program environment with the external factors that affect it.
Monitoring should be based on verifiable indicators identified and agreed to before implementation starts. They must be included in the program’s core documentation, e.g., the JFA with the recipient government and any subsidiary agreements with other participating donors. The five levels at which monitoring should be done are: • strategies, policies and systems (including the financial systems and institutional context of the direct budget support or pooled funding initiative); • inputs, including CIDA’s processes for donor harmonization and capacity development; • performance within the given sector or programming area impacted by the program; • outcomes (the medium-term effect of the support); and • impact on the reduction of poverty and/or other long-term objectives. Box 11.1 – Good Practices in Monitoring and Reporting › Relying and building on country systems: reporting and monitoring systems should enable and encourage ownership, by building on and strengthening partner country systems, avoiding the creation of parallel systems, relying on PRS monitoring where appropriate, and involving civil society.
› Co-ordinating donor reporting and monitoring systems: by agreeing on common reporting procedures and a common reporting framework, relying on other donors. › Simplifying donor reporting and monitoring systems, e.g. by relying on a constrained data set. › Making information more transparent, e.g. by sharing information online. › Rationalizing review missions, e.g. by conducting fewer missions, co-ordinating the timing of missions with partner countries, and conducting more joint missions with other donors.
Adapted from the DAC Guidelines and Reference Series "Harmonizing Donor Practices for Effective Aid Delivery", p. 59-63. © OECD 2003
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 42 Process The description of the overall monitoring should demonstrate that management is monitoring identified performance indicators. Moreover, it should provide assurance that CIDA has identified all significant risks for which a mitigation strategy was needed and has instigated appropriate controls with adequate means and measures. Typical monitoring objectives would include: • due diligence in determining eligibility of recipients and the expenditures of funds; • economic and efficient execution of planned activities and processes; • achievement of established results as well as unexpected outputs/outcomes; • risks or impediments to the achievement of outputs/outcomes; • the efficient, effective and economical use of resources; • whether or not the program is being administered in accordance with appropriate terms and conditions at all stages of the transfer payment life cycle (i.e. selection, administration, delivery and reporting); • whether or not the program is being managed in accordance to its RRMAF, as well as in accordance to CIDA’s policies and processes; • explanation of any variances of the above, and any action taken to correct or adjust the program accordingly; and • description of the detailed monitoring of compliance, which outlines the operational and financial procedures required.
Mitigation measures for key risks, included in the Program Risk Assessment, Identification and Management section of the RRMAF, should be updated to reflect current information emerging from the monitoring report(s). Informal Monitoring Although formal monitoring of the progress of the program is done in partnership with the host- country government and other donors, informal monitoring may supplement this process through periodic visits by the CIDA program officer and field staff, and by reports to CIDA of any Canadian technical assistants assigned to the program. Care should be taken that this informal reporting does not impose additional administrative burdens on the host-country government. The RRMAF requires a performance measurement strategy that includes the identification of suitable performance indicators identified in the PMF. Any informal monitoring mechanisms should be captured in the RRMAF as they provide evidence for performance from the CIDA perspective, as required by CIDA’s performance reporting cycle in accordance with TBS requirements. 11.3 Reporting on Results Reporting is required on achievements of the CIDA intervention. The reporting strategy should be contained in the RRMAF and should cover the spectrum of results. Documents that detail results reporting could include progress reports, annual reports, and the end of program report. In keeping with CIDA’s commitment to the harmonization of donor practices, results reporting should be participatory and made jointly among the partners. The OAG requires that the reporting on results encompasses CIDA’s entire results framework including cross-cutting themes (gender equality, environment), details performance assessments undertaken by CIDA-based reviews and/or joint efforts with other donors, and demonstrates that performance assessments have been undertaken. It is expected that the lessons learned through the evolution of the program be applied to support continuous improvement of the program.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 43 Investment-level reports (previously known as PPRs – project-program performance reports) are a critical step in the Agency’s program planning and reporting cycle. These reports provide evidence that contributes to a program-level performance report, for example, on a country or regional program (measuring results against expectations of the Country Development Programming Framework) or an institutional support program (such as those in Canadian Partnership Branch or Multilateral Programs Branch). These program performance reports then feed the Branch Performance Report (BPR), and ultimately, CIDA’s Departmental Performance Report (DPR) to Parliament, which is tabled every autumn, as required by the Government of Canada.
CIDA is required by TBS to indicate the progress that direct budget support or pooled funding has made toward achievement of agreed-upon development results. Nonetheless, the nature of such initiatives also exemplifies CIDA’s support to enabling results. Direct budget support and pooled funding clearly relate to at least four of CIDA’s five enabling results, specifically: appropriate programming orientation, appropriate sectoral and thematic focus, appropriate geographic focus, and institutional strengthening of CIDA’s partners.
11.4 Evaluation Principles of Evaluation CIDA expects evaluations to be results-driven, incorporating the principles and practices established by the Agency's RBM application. Evaluations are a critical part of the performance management lifecycle process and are expected to emphasize: • CIDA’s commitment to the effective and efficient use of its resources in supporting sustainable development to reduce poverty in developing countries; • The goal of contributing to a more secure, equitable and prosperous world; and • Performance in relation to the items found in the CIDA document, Framework of Results and Key Success Factors The evaluation strategy, as required by the RRMAF, identifies a set of issues and questions that will effectively capture attained results of the program. The evaluation findings will provide the basis for a thorough assessment of the relevance, success and cost-effectiveness of the program, and highlight information and lessons learned that would guide the decision-making process over the course of the program’s evolution.
PKMB’s Evaluation Division will need to be consulted with respect to RRMAFs in order to facilitate learning from the evaluation process in order to inform future investment by CIDA in direct budget support and pooled funding. Program evaluations that are to be led by PKMB would be worked into the PKMB work plan as required. CIDA’s participation in joint or multi-stakeholder evaluations/reviews can be done through the CIDA program/field staff or by the PKMB’s Evaluation Division. If they are joint or multi-stakeholder evaluations, the RRMAF should indicate what role CIDA plays and how learning from the evaluation will shape the continuous improvement of the program. The RRMAF should also clarify whose budget(s) will be used to fund the evaluation and the respective costs. If PKMB’s participation is required, the program officer must consult with the Evaluation Division to determine whether the appropriate resources will be available. The findings and lessons from joint or multi-stakeholder reviews in which CIDA has not participated, should be reported nonetheless and incorporated into CIDA’s programming.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 44 Evaluation Framework and Strategies Evaluation issues and questions should be identified in the pre-implementation stage of the program, and linked appropriately to specific performance indicators and methodologies. Program officers, in the development of an evaluation strategy, must take into consideration the need to establish a link that will allow subsequent evaluation of whether SAE principles (e.g. local ownership of capacity development) are being fostered as a result of this intervention. Evaluation frameworks must also answer the three core questions related to Relevance, Success and Cost- effectiveness (as outlined in the Government of Canada’s Evaluation Policy (2001). In the development of evaluation strategies and plans the program officer should consult the Branch’s Performance Review Specialist, as well as PKMB to determine the best approach. This facilitates the development of efficient and effective evaluation strategies, the review of ongoing evaluation plans and the provision of advice where there is a need for improvement in the evaluation capacity of the host-country government.
Usually a Formative Evaluation (or mid-term evaluation or review) is expected to be held around the mid-point of the program and a Summative Evaluation at the end to evaluate achievement of outcomes. Joint or multi-stakeholder evaluations/reviews and/or audits should be undertaken wherever possible, and should serve the needs of both donors and the host-country government. It is essential that the evaluations are prepared with care; the result may have significant impact on subsequent TB submissions. 11.5 Selected Reference Material Treasury Board References: • Guide for the Development of Results-based Management and Accountability Frameworks (2001) • Guidance for Strategic Approach to Results-based Management and Accountability Frameworks (2002) • Companion Guide - The Development of Results-based Management and Accountability Frameworks for Horizontal Initiatives (2002) OECD Documents: • OECD DAC CIDA References: • CIDA Evaluation Guide (2000) • How to Perform Evaluations - A Ten-Part Series • Roadmap RD 01 – Results-Based Management • Framework of Results and Key Success Factors (2000)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 45 12 Financial Reporting 12.1 Introduction The TB Policy on Transfer Payments requires that payments for direct budget support or pooled funding be managed in a manner sensitive to fiduciary risks, complexity, accountability for results and economical use of resources. As an aspect of this, CIDA, like other donors, requires the host- country government to submit financial reports needed for effective monitoring. The reporting requirements expected are one of the basic provisions to be included in the contribution arrangement. To the extent possible, donors involved in direct budget support or pooled funding should pursue alignment and adapt their reporting needs to fit with effective government systems. However, in many countries, current public expenditure management systems may be incomplete or have inappropriate classifications. It is therefore important to improve these systems since they are essential for increasing accountability regarding external assistance. Donors should work with host- country governments to be able to rely on country-owned reporting systems, e.g., through technical assistance and realistic plans for systems improvement.
Financial management reports prepared and submitted by the host-country government must provide CIDA with sufficient information to establish whether funds are used for the intended purpose. The assurance that the funds are used for the intended purpose is achieved at the micro and macro levels. To meet these objectives, the CIDA program officer should: • assess audited financial statements to gain assurance as to the use of funds and, to some extent, to gain assurance as to whether funds have been used for intended purposes; and • participate in a steering committee(s) with the host-country government and other program partners to assess the results of mission reviews, to influence policy dialogue and to ensure appropriate actions are taken in response to recommendations resulting from audit or review missions.
12.2 Principles and Practices for Financial Reporting Financial reporting is the process by which management reports on the financial status and progress of the host-country government Program. The financial report is designed to meet the financial information needs of the government as well as the agencies funding the Program regarding how resources have been used. The funding agencies include the host-country government and external funding agencies (multilateral, bilateral and/or NGOs). The government is usually both an owner and a funding agency.
Currently, there is no set of internationally acceptable financial reporting practices that meet the need of the host-country government as well as satisfy the financial information requirements of all funding agencies. The DAC Working Party on Aid Effectiveness and Donor Practices – Joint Venture on Public Financial Management (OECD DAC Working Party) is bringing together representatives from most of the key development agencies to address the issue of accounting standards. Until such a time as internationally acceptable financial reporting practices are developed, agreed upon and put into practice, the DAC guiding principles shown in Box 12.1, as well as the detailed guidelines presented in the following sections should be considered by CIDA program officers.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 46 Box 12.1 - Financial reporting - Guiding Principles › Donors should rely on partner country financial reporting systems when the financial reports meet the information needs of government and donors. When systems are judged to be unable to produce these reports, capacity building should be a priority of external assistance. › The financial report that meets the needs of the project management team and other external stakeholders should be sufficient to meet the needs of donors. A single financial report covering funds from all sources and all project disbursements facilitates both project management and aid co-ordination. Donors should report all resources transfers (including direct disbursements) associated with a project to the project management and the appropriate country authority (e.g. Finance ministry).
› International Public Sector Accounting Standards (IPSASs) provide a reference point, which can be used in determining a government’s accounting standards. Donor agencies should avoid defining their own national accounting standards as the basis of accounting for the project. DAC Guidelines and Reference Series "Harmonising Donor Practices for Effective Aid Delivery", p. 70-71. © OECD 2003 12.3 Consolidated Financial Reporting Financial reporting should be prepared on a consolidated basis, reporting all sources of funding and the use of these funds in a single financial report. There should be sufficient segregation of data to allow for the identification of individual sources of funds (i.e. amount of funding, by donor, including funding from the host government) and disbursements by major activity, as defined in program documents.
12.4 Common Financial Report The reporting requirements, including reporting frequency and format, of multiple donors should be mutually defined by the donors and the host-country government, agreed to through negotiations of the JFA. The specific needs of financial reporting shall be stated in the funding arrangement. The host-country government for each reporting period should submit a single report, covering the needs of all funding agencies. The DAC Task Force on Donor Practices’ Report on Financial Reporting and Auditing (Apr. 2002), in its Annex III, provides: 1) basic principles and financial reporting requirements to be observed when developing and agreeing on financial reporting procedures, which are based on international standards of accounting and auditing; and 2) a sample format for reporting. The following are basic requirements for financial reports: 1) Provide information on who is the reporting entity; 2) Provide information on the unit responsible for maintaining accounts and preparing the financial report; 3) State the accounting policy applied (e.g. accrual or cash basis); 4) Specify all sources of funding; domestic and foreign; 5) Present all cash receipts and their uses for the total program (i.e. the whole government program being supported) including all sources of funding and all uses; 6) Present all cash receipts and their uses both for the reporting period, cumulatively with delineation of both beginning and end cash balances; 7) Present an additional schedule showing planned sources and uses of funds, both for the period and cumulatively, to allow assessment of deviations between planned and actual resource use; 8) Contain a separate schedule with notes to explain major deviations;
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries 47 9) To the extent possible use the chart of accounts of the host-country government executing agency for classifications of revenue, expenditure, financing, opening and end balance; 10) A separate schedule to present the classification of expenditure by activity compatible with reports on physical progress; 11) Be presented on a quarterly, semi-annually or annual basis as agreed between the host- country government and program partners and following the fiscal year of the host-country government.
Sound accounting policies imply that the accounting entity reconciles accounts on a monthly basis. The financial reports should accordingly present the accounts for the relevant period within one month after the end of the period. 12.5 Frequency of Accounting by Recipient In determining the frequency of accounting by host-country governments, CIDA should take into account the administrative costs for itself and the partner, the appropriate risk factors, the likelihood of failure or diversion of funds to other purposes, the capacity of the host-country government to amalgamate all the information coming from regions and districts, and CIDA's previous experience with the host-country government. Reports should be submitted periodically (e.g. quarterly a nd annually) and should coincide with the host-country government's fiscal year. Consequently, the annual financial report should be the same as the fourth quarterly report but show only the year-to- date data compared with the annual budget and the cumula tive data from the inception of the program.
When operating under annual advance payments, accounting must be made within six months of the end of the fiscal year under which the payment was made. For instance, an advance payment made on January 1 of Year 1 (for a government whose fiscal year starting January 1 and ending December 31) must be accounted for no later than June 30 of Year 2. When operating under quarter or semi- annual advance payments, accounting for those advances must also be accounted for within a reasonable amount of time. No more than two unjustified advance payments may be made at any given time.
12.6 Format Reports will be in a format that the host-country government's systems can produce and that is acceptable to all donors. CIDA will work with other donors and the host-country government to identify such formats. Where material weaknesses are found, the host-country government will be expected to agree to an action plan to overcome them, and to be monitored by the donors. Donors will provide technical assistance, where necessary, to develop arrangements to produce such reports. 12.7 Capacity Building In almost all cases, the host-country government financial management systems will be imperfect. As part of the initial assessments before approval, an assessment will be undertaken to ensure that the processes being relied on are well understood, and any shortcomings are identified and analyzed in terms of their impact. In many cases, improving the quality/effectiveness of public finances will be one of the main objectives of the support being provided by CIDA and will be reflected through a capacity building program as part of the initiative.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries ANNEX A Key Definitions Direct budget support can be provided in a number of ways: These include the following: General Budget Support covers financial assistance as a contribution to a host government's overall national budget in support of a general strategy and medium-term budget agreed between the donor and host-country government. General budget support may be provided as part of a macro-economic reform package such as the IMF might support. In the latter case, the program being supported will normally be the country's overall Poverty Reduction Strategy. An example of general budget support in favour of macro-economic objectives in CIDA was the recent case of general budget support for Jamaica. An example of general support for a Poverty Reduction Strategy is the Ghana Poverty Reduction Strategy Budgetary Support Project.
Multi-Sector Budget Support also involves support of a general nature, but involves an element of earmarking for specific sectors. CIDA's support for Tanzania's Poverty Reduction Direct Budget Support Facility is an example. It provides direct budget support for education, rural roads, health and agriculture. Sector budget support covers financial aid earmarked for a discrete sector or sectors, with any conditionality relating to these sectors. It is normally provided with sector conditions requiring agreement and execution of an agreed policy and agreed expenditure plan for the sector, normally through a sector approach supported by the host-country government and the major donors. Funding is earmarked to help finance the agreed sector expenditure plan, and is disbursed and accounted for through Government systems possibly with some additional sectoral reporting. Examples include CIDA's support for the primary education sector in Uganda and Burkina Faso.
Sector earmarked support is a variant of sectoral budget support that limits the use of donor funds for specific expenditures or categories of expenditures within the sector. CIDA is making use of an earmarking formula of this sort in its support of the education sector in Senegal and Mozambique. Due diligence (diligence raisonnable) - reasonable care or attention to a matter, which is good enough to ensure that provided funding would contribute to the intended objectives of the transfer payment and stand the test of public scrutiny. This includes: (a) being guided by an understanding of the purpose and objective to be achieved; (b) supported by competence and capability of information, resources and skills; (c) a shared commitment to what needs to be done and an understanding of respective authorities, responsibilities and accountabilities; and (d) ongoing monitoring and learning to ensure reassessment and effectiveness.
Host-country government refers to the recipient country government and its institutions. CIDA Program and/or Bilateral Program refers to the CIDA administrative unit that plans and manages interventions. Program (capitalized) generally refers to the host-country government’s overall program to which direct budget support or pooled funding applies. Initiative or program refers to the CIDA specific intervention.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries ANNEX B The Decision to Engage in Direct Budget Support There are a number of reasons for providing Direct Budget Support. Among the potential benefits are the following: Ÿ It can strengthen local ownership. Ÿ It can make host country government more accountable to its own people. Ÿ It can enhance long term financial planning by host-country governments. Ÿ It provides stronger incentives for donors and host-country governments to build capacity and stronger sector policies, by supporting reforms to the budget process; and to strengthen the effectiveness of government systems.
Ÿ It enables substantial savings in the transaction costs of aid delivery by eliminating separate project structures. Despite these advantages, which can be substantial, direct budget support is not always the most appropriate solution. Moreover, different situations will require different levels of direct budget support (e.g., general, multi-sectoral or sectoral). There are four factors that should be considered when decisions regarding direct budget support are being made: • The degree of consensus that exists between the host-country government and donors on policies and priorities, with regard to the budget and on broader aspects of the policy environment for poverty reduction • The net benefits of engaging at one level over another • The capacity of local institutions to deliver results and • The accountability of local institutions to their constituents. Information on these factors can help program officers select the most appropriate level of intervention. For instance, general direct budget support would not be indicated in the absence of a minimum consensus on overall policies and priorities at the national level. In that case, it may be easier to consider interventions at the level of specific sectors where such consensus does exist.
The main benefits to be derived from the adoption of direct budget support are better aid coordination and a more coherent policy and expenditure framework. These benefits are likely to be highest for aid dependent countries, where the number and range of aid projects is likely to be relatively large and to generate high transactions costs. However, the provision of direct budget support also involves costs (e.g., negotiating andmaintaining policy agreements) that may exceed the benefits in some cases. This is likely to be the case where aid dependence is low and where there is difficulty coming to a consensus on policies and priorities, as would be the case in “difficult partnership” countries with severe capacity and governance problems. Capacity issues may also play a role in decision-making. When capacity levels are extremely low, donors may prefer to retain the project approach or other intermediate solutions such as pooled funding. Alternatively, it may be possible to intervene under the direct budget support mode in some sectors but not in others.
As a rule, there will always be capacity problems in aid-dependent countries that are the prime candidates for direct budget support. This does not mean that CIDA would never give direct budget support. Indeed, the provision of direct budget support may provide the necessary opportunity to engage in dialogue with developing country governments on ways to reduce capacity constraints over the long term. As CIDA’s emerging policy on enhanced partnerships suggests, the key ingredient here is the existence of political will to collaborate with donors in
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries improving government performance. Under such circumstances, it may be possible to proceed with direct budget support accompanied by complementary measures in the form of conditionalities, safeguards and concrete measures to promote capacity development. Some of the possibilities are discussed in the following annexes Finally, there has to be sufficient human resources at CIDA to make direct budget support work; as this type of interventions require intensive inter-donor work, local consultation and monitoring among other activities.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries ANNEX C Overview of Initial Assessment Areas for Direct Budget Support and Pooled Funding INTRODUCTION As direct budget support and pooled funding are being planned, experience shows that there are several key factors that must be taken into account. These include the quality of host-country government leadership, political will and governance, a particular Program's potential contribution to poverty reduction, the degree of engagement by other donors, and the fit of Canada's expertise with the needs of the program. Documents developed by the donor community also outline areas for assessment. The European Commission, for example, has delineated seven assessment areas that are critical for successful initiatives. This Annex summarizes key questions that have emerged from international work. The assessment areas assist in determin ing whether the conditions exist within a country to effectively program for direct budget support and pooled funding. These assessments would be done at the identification stage and act as the foundation for determining: whether participation is justified; the choice of funding mechanism; and possible volume of funding. From these assessments, it becomes possible to further analyze the risks, the mitigation strategies, and methods for managing the process.
For each of the seven areas of assessment, the following are covered: • What is included in the assessment; • Why the assessment is needed; • Key questions to be addressed; and • Information sources available. Cautionary notes: 1. No country or situation will have all of the elements in place that are covered below. These analyses are not an attempt to judge a country against a strict set of criteria. Instead, the areas of assessment represent groups of questions CIDA staff need to think about in reviewing and preparing for direct budget support and pooled funding. Many of these areas are not typically included in a more traditional project designs. The assessments are aimed at developing a better understanding of the context and the requirements for moving forward. This includes assessing capacity and identifying gaps where improvements are required during the implementation of the intervention.
2. CIDA staff are not expected to undertake all these analyses. CIDA will often be able to rely on work done by the host-country government and other donors. What CIDA staff need to do is analyze the information, assess whether it is adequate for CIDA purposes, decide what the analyses mean for CIDA and its programming, and fill in any gaps in analysis as needed. It is on this basis that judgments can then be made.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 1 –– Macro-Economic What is covered in this Assessment? This assessment covers two main elements: soundness of the Host-country government national development strategy (e.g., poverty reduction strategy); and consistency of the macro-economic environment over time. Why is this Assessment Needed? There is a need to have a reasonable degree of macroeconomic stability within the country in order for the direct budget support and pool funding initiatives to be effective. This stability supports a higher degree of budget predictability, and increases the chances that government commitments to a sector will be met. A weak macroeconomic environment can easily derail a sector program15 through revenue shortfalls and financial problems within a country. In addition, an overall national development strategy (e.g., PRS) provides an important framework within which programs can be developed within a country. However, there is a need to have congruence between these overall strategies and macroeconomic policies. For example, if a PRS commits to a particular route of development, then the fiscal strategies, in particular, need to support this effort. Monetary and investment policies also need to align with the priorities. What are the Key Questions Being Assessed?
The assessment asks the following questions: Does the national development strategy provide a sound framework for overall planning? Is the macro situation sufficiently stable to allow a level of predictability in sector funds? Key Elements of the Assessment Specific Areas to Cover Is there a sound country national development strategy supported by donors? • Are the national development objectives clearly stated? • Are the objectives presented in a manner that is coherent and includes rele vant quantitative and qualitative targets to guide decision-making? • Are the targets realistic given the likely prospects for revenue expansion by government and receipt of external funding?
• Is the strategy consistent with CIDA’s CDPF? • Does the strategy adequately address the cross-cutting themes of CIDA, particularly gender equality and environment sustainability? • Was the strategy based on national consultative processes including structured input from political representatives, civil society, and the private sector? • How far is the strategy supported by other external funding agencies? Is the current macroeconomic environment reasonably stable? • What is the track record of economic management over the medium - to long- term (5 to 10 years)? • To what extent have there been significant macro-economic disequilibria in the past? What was the cause and what does this say about the potential risks of recurring disequilibria?
• Are there major legal, institutional or administrative constraints that cannot be addressed at the sector level? Would this impact significantly upon the achievement of sector policy objectives? • Is there an ongoing economic reform program? Has the government remained on-track with the program? What has been the cause of any problems? Are they fundamental issues or detailed aspects of implementation? 15 The term “sector” can refer to support to a PRS or a specific sector such as education, agriculture, or health.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements of the Assessment Specific Areas to Cover • What are the prospects for economic growth and are they realistically reflected in the medium term projections of tax revenues and private investment? • What has been the relative trend of financing between sectors? Is this consistent with projected financing for the sector in question? If a relative increase in the sector share of total public expenditure is foreseen, does this look credible?
• To what extent is the country dependent on external financing–either official transfers or foreign direct investment? How stable have these patterns been? What is the level of foreign exchange reserves? What would be the prospects for borrowing or for other contingency actions in the event of macroeconomic disequilibria? Is there a political commitment to funding the sector and ensuring supportive macroeconomic policies? • Is there political support for the sector? How is this demonstrated? Has it been fairly consistent over time?
• Has this commitment been translated into a commitment of public funding to the sector? • Are the macroeconomic policies supportive of the strategy and reflective of the commitments to the sector? • Is there political stability within the country? • Are changes in government possible in the short term (e.g., an election coming up) and if so, what impact will this have on these commitments? • Is the private sector prepared to support the sector in the manner in which it is projected within the strategy and the budgets?
What are the Information Sources that Can be Used? For macro-economic information: • Host- country documents and reports • CIDA’s CDPF • Economic Sector report (World Bank) • International Monetary Fund Reports For PRS: • Host-country government documents • CIDA’s analysis of PRS • Other donor assessments
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 2 –– Sector Policy and Overall Poverty Reduction Strategic Framework What is covered in this Assessment? • This assessment reviews the sector policy and its inter-relationship with the overall national policy framework or, in many cases, PRS. • In cases of budgetary support to a PRS, the analysis here relates to the PRS overall. In other cases, it is the sector policy per se. Why is this Assessment Needed? A clear and consistently applied sector policy is the foundation for supporting a sector program. It provides the framework within which discussions can take place with government, different perspectives shared, and agreements reached. The assessment of the sector policy then focuses on whether the right questions are being asked in the policy, processes are in place to debate issues, there is agreement on the overall direction for the sector, and the policy is clear and realistic. Without these elements, there is a limited basis for partnership.
A good sector policy includes elements such as the government’s role in the sector, a consensus on key policy and management issues for the sector, and a realistic assessment of the costs of implementation. The first issue is a particularly important one since the role of governme nt can exceed its implementation capacity or be inappropriate. What are the Key Questions Being Assessed? The assessment asks the following questions: • What is the government aiming to achieve in the sector and how? • Is there an adequate sector policy in place? Is it consistent with the National policy framework? CIDA’s CDPF?
• Is the vision within the sector policy appropriate, affordable, and feasible, particularly in terms of the role of government? Key Elements Of the Assessment Specific Areas to Cover Is the sector policy clear and consistent with the host-country government’s national strategic objectives? • Is the sector a key element within the national strategy (e.g., PRS)? • Are the stated sector policy objectives clear? Is the strategy for achieving them coherent and readily understandable? • Is the sector policy sufficiently precise to form an adequate basis for planning resource allocations? For example, do policies on service delivery include specific targets for access, defined quality norms and a clear statement of the intended level of public subsidy?
• Does the strategy appear affordable (in terms of projected resources over the medium term) and feasible, in terms of managerial and absorptive capacity? • Are the objectives of the sector strategy consistent with the government’s own national strategic objectives? Sectoral policy is a statement of the government’s objectives within a sector and a summary of how they will be achieved. Sector policies usually emerge from a range of decisions by government—including legal, administrative, policy statements, and budgetary. It is often necessary to refer to several documents in order to determine what is “sector policy”. In other cases, one document may clearly outline the policy—making it more transparent.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries What is the process for development, agreement, and implementation of the policy? • Has the policy been based on a structured process of consultation and involvement of sector stakeholders, including civil society? • Does it draw upon quantitative or qualitative survey data about the demands and concerns of the main users of government services in the sector? • Has the policy been examined and agreed to by the donors? • Have any weaknesses in the proposed sector policy, identified through third part assessments have been addressed? Are capacity building needs integrated? • Does the host-country government have the technical and managerial expertise needed to implement or effectively oversee the imp lementation of the agreed sector strategy?16 Is the sector policy’s vision of the role of government in the delivery of services effective, efficient and suitable?
• Is the intended role of government in the sector well defined? • Is the rationale for the intended role clearly presented? For example, is there a distinction drawn between a market management (or regulatory) role, interventions to correct for market failure, and interventions for social objectives? • Are those market failures to which the strategy is addressed (implicitly or explicitly) classifiable as market failures arising from public goods, externalities, uncompetitive markets or information failures? • In planning a sector strategy to correct for market failure, has attention been given to the different options available for government action, specifically: regulation of private sector providers; taxes and/or subsidies to redirect private behaviour; and direct provision of services by government? • Where the role of government is perceived primarily in terms of social objectives, such as direct alleviation of poverty or hunger, have the target groups been clearly specified? Has a feasible strategy for reaching them been defined?
• In terms of the planned provision of services by government, has a distinction been drawn between the financing and delivery of public services? • Does the approach to the delivery of public services: • take advantage of the potential efficiency gains that may be offered by contracting out government services to NGOs or the private sector? • take account of the complications of contract definition, management and supervision in choosing which delivery functions to contract out? • Taken as a whole, is the sector policy based upon an appropriate, affordable and feasible vision of the ro le of government?
What is the relationship between the sector plan and CIDA’s objectives? • Are the objectives and underlying principles of the sector strategy consistent with the development objectives of CIDA (e.g., Strengthening Aid Effectiveness)? the CDPF? • What is CIDA adding that would otherwise not be achieved under the program? What is its niche? • Is there proper attention to the issue of gender equality and other cross-cutting themes relevant to the sector? • Has an analysis been completed, either directly or indirectly, by CIDA of the sector, which provides a sound rationale for support of the sector policy? What are the Information Sources that Can be Used?
• Host-country government national policy document and annual assessments • Host-country government sector strategy and supporting documents • Host-country government evaluations and status reports on the sector • CIDA and other donor studies of the sector • CIDA documents and policy statements on specific sectors (e.g., Action Plan on Basic Education) 16 See Area 6 below for a more thorough discussion of this.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 3 –– Sector Medium Term Economic Framework What is covered in this Assessment? This assessment clarifies: • The expected level of available internal and external resources for implementing the sector action plan; and • How these resources will be utilized in pursuit of the policy. Why is this Assessment Needed? The MTEF acts as a broad guide to spending decisions within the sector. The rationale for an MTEF is: • To create a multi-year framework for planning which allows resource allocation to be matched to sector policy objectives; • To target public spending explicitly towards agreed outputs and policy outcomes rather than just inputs; • To permit spending plans for the sector to be made on an integrated basis, in which capital and recurrent expenditures are considered together; and • To permit a comprehensive view of all available resources and all planned spending (internally or externally funded) so that duplications and inconsistencies are avoided.
Ideally, the sector policy and the MTEF for the sector should be developed simultaneously. In addition, an action plan for the sector will provide the link the two elements by grouping spending programs in relation to the outputs they will produce. The resources available to achieve them will limit policy objectives. The MTEF provides a method of bringing together the action plan to implement the sector policy with the spending patterns needed and available. It is important to have realistic expectations about the MTEF, however. In few cases it will be a comprehensive medium term projection of available resources. A critical factor here is also the involvement of both the Sector Ministry (or Ministry responsible for the PRS) and the Ministry of Finance (MoF). The MoF’s involvement often provides two assurances to the process that: • The aggregate resource envelope attached to the sector plan is realistic, and committed to by MoF; and • The sectoral priorities are consistent with the broader national funding priorities. Without the involvement of the MoF, the process will not be integrated into the overall budget cycle and no assurances will be in place that the plans developed will be funded by the Government. What are the Key Questions Being Assessed?
The assessment asks the following questions: • Is there a sector MTEF in place and approved at the political level? • Is it comprehensive and realistic in its coverage of revenues and proposed spending? • If not, is there a coherent action plan from which it is derived and steps in place to improve the MTEF? MTEF is a system for planning actions and programming spending over a 3 to 5 year period. It reconciles the achievement of strategic objectives with respect for aggregate resource limits. Basically, it provides a method to match resources and plans for the sector. Few countries have MTEFs which cover the whole budget process of the country.
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements of the Assessment Specific Areas to Cover Is the rationale for a distinct sector MTEF adequate? • Does the MTEF have a reasonable coverage of the sector program, e.g., 60%? • Is resource allocation matched to sector policy objectives over a 3 to 5 year period and are such estimates reliable? • Are the results explicitly forecasted through defined outputs and policy outcomes? • Are capital and recurrent expenditures integrated within the expenditure plan? • Are the sources of all host-country government financial contributions transparent and are the estimates reliable?
• Has an endorsement been received at the senior political level (e.g., signed by the Sector Minister, Prime Minister/President, reviewed by Cabinet and/or Parliament)? • Has an endorsement been received from donors and other financiers of public sector activities? • Are contingency plans in place that address shortfalls in funding or cost overruns? • Has CIDA done an analysis, directly or indirectly, which provides assurance that duplications and inconsistencies are avoided in resource allocation and planned spending (internally and externally funded)?
Are the indicators of progress in the development of the sector MTEF adequate? • Are the cost estimates realistic and predictable when compared to trends in the recent past and with future revenue projections? • Are the results envisioned within the timeframe realistic and appropriate given the national development strategy? • Is the status and legal basis of institutional commitments transparent? • Do revenue projections indicate predictable funding beyond the 3 to 5 year period? • Is the current total spending within +/- 20% of the projected levels? Are future improvements in predictability likely?
Is the sector action plan coherent and realistic? • Is there a comprehensive action plan in place, from which spending plans in the MTEF are derived? • Alternatively (and preferably), is the MTEF presented in such a clear way that it itself constitutes a medium term sector action plan? • Are the outputs and outcomes clearly defined and logically linked to the sector action plan? • At what level of disaggregation are spending programs presented--the sub-sector level (e.g., primary, secondary, tertiary) or at a more detailed program level within each sub-sector (e.g., vaccination, mother and child health care, health information)?
• Does the presentation of spending on a program-by-program basis also include a corresponding breakdown of spending by economic category (e.g., salaries, non- salary recurrent expenses, transfe rs, capital investments.)? • Is there also some relationship to a geographic breakdown of spending, by province, region or district? • Is it clear that the three presentations of expenditure plans – by sub-sector or program, by economic classification and by geographical location are all fully consistent?
• Are there clearly defined outputs corresponding to each spending program? • Are there well-defined outcome targets for the sector as a whole, which derive from overall policy and are logically linked to the programmed outputs? • Is there a clearly defined process for the development and the evolution of the MTEF?
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements of the Assessment Specific Areas to Cover Is the MTEF all- inclusive for sectoral activities and is it integrated with the national budget? • Does the MTEF include all approved spending programs under both the recurrent and investment (or development) budgets? • Does the presentation of these budgets cover: sub-sector/program level; economic classification (e.g., salaries, non-salary recurrent expenses, transfers, capital investments); and geographic location?
• Are the recurrent cost implications of activities finishing in the early years of the MTEF taken account in the revenue projections and costs estimates for later years? • Is the MTEF comprehensive in its coverage of externally financed activities within the public sector? • Have explicit decisions been taken on whether to include NGO or private sector service delivery activities directly financed by donors? • Is the timing of the implementation plan consistent with the budget calendar of the host-country government?
What are the Information Sources that Can be Used? • Host-country government sectoral policies, action plans and MTEF • Host-country government national budgets and analyses • CIDA and other donors analyses including information on “off-budget” activities • Sectoral assessments
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 4 –– Donor Coordination System What is covered in this Assessment? This assessment has two main elements: • The effectiveness of the government led system of donor coordination; and • Existence of agreements by the donors and the government for moving forward. Why is this Assessment Needed? One of the essential conditions for successful programming is a consensus between the Government and donors on the key policy and management issues for the sector. Government leadership combined with good donor coordination are two important elements for success. Coordination often begins with relatively informal meetings, and progresses towards more formal and structured approaches by the donor community. The host-country government should take the lead in the coordination effort. To move forward, there must be agreement within the donor community to harmonize their practices. Multiple inconsistent practices by donors impose burdens on the host-country government. Where it is not possible to use host-country government systems, donors can ease this burden by adopting common systems and procedures or adopting joint working arrangements that include shared decision-making. Such harmonisation can lead to stronger, more sustainable forms of aid co-ordination, assuming that partner countries are an active participant in the decision-making and that the donor harmonisation is in their interest.
Donors work together in partner countries in various ways. Some of these working arrangements, such as joint monitoring teams and joint high-level meetings, directly reduce administrative burdens on partner countries. Others, such as lead donor arrangements for particular sectors and donor co-ordination bodies, can create the potential for lower burdens of administering aid on host-countries. What is the Key Questions Being Assessed? The assessment asks the following questions: • Is there a government organized donor co-ordination system in place? • Does it include the key donors?
• Is it based on a clear structure of rules and partnership principles including harmonization? Key Elements Of the Assessment Specific Areas to Cover Is there an overall framework for development assistance that sets out a consensus for host-country government -led systems as agreed to by the host- country government and donors? • Is the host-country government clearly leading the co-ordination process? For example, does the sector ministry organise and chair consultative groups, working groups and similar arrangements and provide the secretariat? • Is there a clear definition of the meaning of participation in the sector approach/sector program? Is there a framework for dealing with donors who are not participating? Have the basic parameters been agreed to? • Are the structure, timing and content of planning and review processes fully clear to all parties?
• Is there a clear (and efficient) relationship between the structures established for donor co-ordination and the wider consultative networks introduced for the participation of other stakeholders in the sector program? • Is there a parallel process in place to promote donor-donor co-ordination in support of the sector program? Does this structure follow DAC good practice principles? • Is there a donor agreement in place outlining areas such as participants, objectives, management principles, responsibilities, governance structures, monitoring,
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements Of the Assessment Specific Areas to Cover dispute resolution, and an exit strategy? • Are the donors’ multi-year programs consistent with the host-country government’s financial planning horizon? • Do donors regularly provide the host-country government with full information on aid flows that is consistent with the budget cycle requirements of the host-country government? • Have donors and host-country governments agreed on performance indicators that are simple, measurable, prioritised and easily verifiable?
• Have the donors and host-country governments agreed on a framework for reviewing and monitoring their assistance? Is this incorporated into the host- country governments’ review p rocesses? multi-donor review and monitoring processes such as consultative fora? • Are donors supporting the leadership in aid co-ordination by the host-country government in order to link aid to development planning and budgetary processes? • Is there a joint risk management strategy, including monitoring activities, in place that mitigates the risk conditions?
Where a host-country government -led process is not possible, what alternative arrangements can be made between donors? • Is information on relevant donor operations in a sector (including consultancies, project proposals, reports) available to other donors and the host-country government? • Do the donor agreements set out the respective roles, consultation mechanisms, and behaviours expected of each donor in a multi-donor activity? • Are common procedures (donor harmonization) being implemented where appropriate (e.g., where they do not undermine the adoption of the host-country government’s system) and where benefits of standardization warrant the costs of negotiation?
• Are mechanisms in place to facilitate the sharing of lessons learned among the donors? Are the internal donor rules and culture (including within CIDA) conductive to the formulation of effective partnerships with the host-country government and other donors? • Is there a senior level champion among the donors responsible for promoting harmonisation and partnership at a high level in their organisations? • Can the country-based donor staff enhance the potential for the host-country government specific partnership working?
• Have the donor program managers been made aware of the flexibility permitted in applying internal procedures? • Are the donors managing the turnover of staff in the country and regional offices in order to maintain institutional knowledge and continuity in partnerships? • Have donors created the appropriate environment for staff to behave collaboratively and flexibly? What are the Information Sources that can be used? • Donor agreements in place or being developed (e.g., MOUs, Code of Conduct) • Studies and information on donor systems • Sector plans • OECD DAC Guidelines and Reference Series, Harmonising Donor Practices for Effective Aid Delivery
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 5–– Institutional Capacity What is covered in this Assessment? This assessment is one of the most important since it looks at two elements: • Leadership and political will within the host-country government for the program; and • Capacity to imp lement the program. Why is this Assessment Needed? Effective leadership from the sector ministry is critical for success. Without leadership, the process can become donor driven and will not have the political support to be effectively implemented. Implementation needs strong commitment by the leader and often requires capacity building to ensure effectiveness of programming.
Leadership capacity is a function of a series of factors including political will. The broader institutional environment plays a critical role. The structure of the formal and informal rules and regulations must be supportive. Organizational capability (including technical and managerial competencies) to respond effectively must exist. Other institutions, both public and non-public, must also be on-side and capable of supporting the effort and thus their capacity should also be taken into account. Capacity of both the leadership and the institutions will almost always be a constraint. This means that institutional and organisational development and change will be fundamental objectives of a sector program. Institutional assessments should address how this change will be managed and how capacity will be developed.
The institutional assessment can thus be broken into three broad parts: • Evaluation of the institutional framework including the legal basis for public and non-public institutions, the nature of relations between the sector ministry, the Ministry of Finance and Cabinet, and the nature of relations with decentralised service delivery entities; • Assessment of the organisational capacity of the key stakeholders, focusing in particular on the leadership and implementation capacity of the sector ministry; and • Assessment of the change management and capacity building process. What are the Key Questions Being Assessed?
The assessment asks the following questions: • Is there adequate leadership in the sector to lead and steer the sector program over time? • Is there adequate capacity in the institutions to effectively implement the programming? Key Elements Of the Assessment Specific Areas to Cover Is the institutional framework for the sector policy adequate? • Is the mission and role of the sector ministry clearly understood? • Are there inconsistencies between the de facto roles of the sector ministry, the role envisaged within the sector program and the de jure role defined in law and in public service orders? Are these inconsistencies of sufficient significance to create the potential for confusion?
• Are the regulatory and service provision functions of the ministry well defined? • In the area of service provision, is there a distinction drawn between financing and delivery so as to permit the contracting out of service delivery to the private sector or NGOs if appropriate? • Is the regulatory framework for the participation of non-government agents in the sector clearly defined? Is the regulatory framework respected? Or is it subject to
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements Of the Assessment Specific Areas to Cover arbitrary decision-making and potentially corrupt practices? • Are relationships between the sector ministry and the Ministry of Finance well structured and positive? • Is there clarity in the arrangements for service provision at the decentralised level? In particular, are the relative roles of the sector ministry, other central level ministries, local governments and local–level associations clearly defined? Does this adequately cover requirements for financing, service delivery, setting of standards and norms and supervision and inspection?
• In so far as there exist weaknesses in any of these areas, to what extent are they likely to constrain the implementation of the sector program? Can they be addressed and, if so, has adequate provision been made within the sector program? • If weaknesses cannot be easily addressed in the short to medium term, have the implications for the design and implementation of the sector program been properly considered? Does the host-country Ministry and other institutions have the leadership and implementation capacity?
• Do the governing bodies have the capacity to fulfi l their functions? • Are the organisational structure and the allocation of functions within it appropriate? • Does the key staff have the capacity to fulfil managerial and technical functions? • In the case of commercial entities, are the organizations financially viable? • For local governments and non-public institutions, is the quality of their relationship with the people they represent good? Do these groups have the capacity to participate as envisaged?
• Has a third part or donor partner carried out an institutional capacity assessment? Are the weaknesses identified in the assessment adequately covered in proposed capacity building plans and initiatives? Have the change management and capacity building processes in the priority areas been identified and are they adequate? • Are change management and capacity building processes adequate for finance/budget analysis, planning, management and reporting? Do they include capacity building for budgetary programming, monitoring of budget implementation, and, more generally, the support public finance systems improvements?
• Are change management and capacity building processes adequate for performance monitoring and evaluation system development and, to this end, support to information systems development (e.g., Education Management Information Systems)? • Are capacity building processes for follow-up and interpretation of the results of specific surveys/studies adequate? • Are capacity building processes related to procurement procedures adequate? • Are capacity building processes related to implementing procedures for the transfer of funds to local governments and for monitoring their performance adequate?
• Are capacity building processes related to procedures for the contracting of non- public entities participating in the sector program adequate? • Are the capacity building processes for audit, and internal and external control adequate? • Does CIDA have a role in supporting capacity building and change management? What are the Information Sources that Can be Used? • Institutional capacity assessment by the host-country government and donors
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 6–– Accountability and Public Financial Management Systems What is covered in this Assessment? This assessment focuses on the systems in place for accountability of the host-country government and financial management. Why is this Assessment Needed? Having a sound budgetary process within the host-country government is important regardless of the form of support being considered by CIDA. The sector plan and MTEF must function within this broader system, and, therefore, it is important to understand: how budget decisions are made, the quality of those budget and accounting systems, and the degree to which they are comprehensive. Where the host-country government budget and systems are being used for the sector program (e.g., direct budget support), this assessment becomes more critical for ensuring the integrity of the systems to be used. CIDA must ensure that the processes are understood. Impacts of any shortcomings must be identified and analyzed. This includes an analysis of the existing situation and the prospects for improvement. Where a host-country government program is concerned with improving the quality/effectiveness of the management of its public finances, the development of indicators for measuring progress is particularly important.
What are the Key Questions Being Assessed? The assessment asks the following questions: Is the quality of accountability and budgetary expenditure management sufficiently good to contemplate sector support? If not, are reforms to procurement and PFM systems being put in place to address the key weaknesses? Key Elements Of the Assessment Specific Areas to Cover Are the rules governing the national budget process clear? • Is a budget law in operation specifying fiscal management responsibilities? • Are accounting policies and account code classifications published and applied? How all-inclusive is the national budget?
• Are all government activities included in the budget? • Are donor funds integrated into the host-country government overall budget and accounting system? • Are investment (capital) and recurrent (operating) budgets integrated? • Are contingency plans in place to address funding gaps in the budget? Does the national direct budget support pro -poor strategies? • Are the budget allocations broadly consistent with: • the sectoral MTEF? • the national poverty reduction strategy (PRS)? How reliable are past budgets compared to actual expenditures? • Do past expenditures show a high level of consistency with the budget? • Is there a history of frequent in-year adjustments to the budget that might indicate unrealistic budgets or a lack of policy stability or commitment? Is there adequate control over expenditures within the year?
• Is there an effective segregation of duties? • Is there an effective system for the internal control of management operations? • Is there in-year reporting of actual expenditures? • Are there systems operating to control commitments and arrears? Is government procurement carried out in line with internationally accepted • Are theretransparent, non-discriminatory public procurement procedures that rule out conflicts of interest? • Are there methods for collecting, reporting and sharing public procurement information within government and with civil society?
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements Of the Assessment Specific Areas to Cover principles of value for money and transparency? • Is there motivated, adequate and qualified public procurement staff? • Is there a capacity to prepare procurement plans? • Is there appropriate use of competitive tendering rules? • Are standard bidding documents and bid evaluation methods used? • Do standard contract documents carry forward tender obligations into the contract? • Is decision-making recorded and auditable (e.g., sound records management)? • Are tender opportunities and contract awards publicly disseminated? • Is supplier performance monitored? Where required, is there a dispute resolution process and are sanctions implemented?
• Are internal management and control systems in place to ensure compliance with public procurement rules and procedures? • Are there asset management and inventory controls? • Are there competent and committed oversight authorities? • Is effective action taken to identify and eliminate corruption? Is expenditure reporting timely and accurate? • Are fiscal and bank records reconciled on a routine basis? • Are audited annual accounts submitted to parliament within the statutory period? Is there effective independent scrutiny of government expenditures? • Is there a national institution for independent external auditing? • Are government accounts independently audited? • Are the audit requirements for the sector program agreed to and specified? • Are government agencies held to account for mismanagement? • Are the auditors’ criticisms and recommendations followed-up? Is the quality of the assessments adequate and has capacity building been put in place to address weaknesses?
• Does the assessment include analysis of the existing situation and the prospects for improvement? Does the analysis cover any program prepared by the host-country government for improving the management of its public finances (including matrixes for corrective measures) and the role played by the donor community? Is there an action plan detailing the implementation of reforms, and can this be monitored by CIDA? • Are there indicators specified by which progress could be measured on improving the quality/effectiveness of public finances?
• Is the assessment of public finances based on work already done by the host-country government on its own or jointly with donors? • Does the initial assessment indicate whether there is any need for additional work in the course of the program in terms of diagnostic work and measurement of progress? For example, are there financial audits or compliance tests to be carried out each year? • Are the host-country government's authorities, especially those responsible for internal and external controls, involved in the financial audits or compliance tests? • Is there a role for CIDA in supporting the strengthening of institutions, partic ularly those responsible for controls?
• Has the host-country government reviewed these assessments and proposed corrective measures to address the problems identified? Does this include any issues related to the country's democratic structures and civil society? What are the Information Sources that Can be Used? The assessments here will rely heavily on the exhaustive work being done in many of these areas by the host- country government and other groups such as the World Bank. • Reports by the host-country government audit institution and financial control groups • Country Financial Accountability Assessments (CFAA), Country Procurement Assessment Review (CPAR) and Public Expenditure Review (PER) (World Bank) • HIPC Expenditure Tracking Assessment (World Bank and IMF), Fiscal Transparency Review (IMF)
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries AREA 7 –– Performance Monitoring and Client Consultation Mechanisms What is covered in this Assessment? This assessment focuses on: • Existence of a performance monitoring system that measures progress towards the achievement of policy objectives and targeted results; and • Existence of a systematic mechanism of consultation with clients and beneficiaries of government services and with non-government providers of services.
Why is this Assessment Needed? One of the reasons for engaging in direct budget support or pooled funding is to work with governments to direct attention towards the results of development spending. By looking at the full range of factors influencing the outcomes and impacts of development spending, methods can be found for establishing sustainable results. This includes overcoming policy and institutional constraints. If the policy and program implementation structures of the sector program are working well, it is possible for donors to disengage from the detailed management of inputs and activities and leave these responsibilities with the host-country government. The assumption is that by doing this, in the long term, there will be greater benefits to the partner country.
Underlying this approach, however, is the need to have effective mechanisms for monitoring progress and for client and beneficiary consultations. It is important that the indicators selected for monitoring performance of the initiative look at both the efficiency and effectiveness of the program in producing its targeted outcomes. This must be done in a realistic manner taking into account the constraints. Capacity building is likely needed here as well in terms of making improvements in existing systems. There should be methods for assessing the performance measurement systems and adjusting them over time. An important part of any performance monitoring system is the involvement of beneficiaries, client groups, and other sector stakeholders. For this reason, this assessment normally involves three areas of investigation: the appropriate framework for performance; methods for support to statistical and performance measurement systems; and client consultation mechanisms. What are the Key Questions Being Assessed?
The assessment asks the following questions: • Is there a performance monitoring system in place to track progress in achieving results? • Is there a systematic mechanism for consultations with clients and beneficiaries? Key Elements of the Assessment Specific Areas to Cover Has an appropriate performance measurement framework, linked to performance indicators, been defined? • Has a structure for performance measurement been established for the sector program through the leadership of the government?
• Has the team responsible for this included senior management within the ministry as well as statisticians and data processing staff? Is there a sense that the issue has been taken seriously at senior levels and that adequate internal consultation has been conducted? • Have all major stakeholders in the sector program been consulted? Have consultations involved not only donors and the core sector stakeholders but also the Ministry of Finance and, for decentralised components, the Ministry of Local Government (or equivalent)?
• Have these major stakeholders agreed on the framework and indicators? • Are the performance indicators specific, measurable, affordable, relevant, time-
Operational Guide on Direct Budget Support and Pooled Funding to Recipient Countries Key Elements of the Assessment Specific Areas to Cover bound, and differentiated by gender? • Is there a common set of performance indicators across the program sector? • Do the performance indicators cover the requirements both for short-term management information (data on inputs and outputs) and for performance measurement (outcomes and impacts)? • Is there a clearly developed framework for sourcing information and for verifying its accuracy?
• Is the structure of the performance indicators consistent with the: • way in which spending has been structured within the sector program and the sector MTEF? In particular, is there a consistent breakdown by sub -sector, program, and where relevant sub-program? • wider requirements of monitoring the national development strategy or PRS? • Is there an adequate review framework that permits a suitable management response to implementation issues while also facilitating policy and budgetary responses to broader performance issues?
Is support required to improve the statistical and measurement systems? • Are statistical and measurement systems deficient? Is there a clear plan of action in place for strengthening them? • Is the action plan: • relevant, feasible and coherent with the sector program? • building on existing strengths and capabilities so as to ensure that long-term capacity is developed and retained? • addressing the potential weaknesses in the demand for information? • considering how to make managers and decision-makers better users of information?
• structured so as to build on parallel improvements being made in client consultation systems? • Where client consultation systems are weak, is technical assistance for capacity building being provided? Has an appropriate client consultation mechanism been defined? • Is there a mechanism in place for a structured process of consultation with beneficiaries and other stakeholders? If not, is there a concrete plan to create one? • Does the client consultation plan differentiate between the different functions, which stakeholders may play, and the types of information, which therefore may be needed? Is there a clear distinction between mechanisms of consultation (where opinions are sought) from inputs into decision-making (where stakeholders are party to resource allocation or service management decisions)? • Is the structure of consultation mechanisms properly integrated with the framework for service delivery? Are local beneficiaries consulted and involved as appropriate? Is there an adequate linkage with local government? • Are the difficulties of obtaining representative inputs properly addressed? Are the difficulties normally associated with obtaining an adequate representation of women addressed?
• Is there an adequate balance between quantitative surveys and more qualitative, participatory processes? What are the Information Sources that Can be Used? • Host-country government statistical and performance monitoring reports • CIDA program monitoring reports