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.
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 .
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 .
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.
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 hostcountry 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.
- 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 hostcountry 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 ongoing 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?
- 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 hostcountry 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.
- 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, decisionmaking 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)