Update on Financial Management Assessment - Asian Development Bank
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Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001) Update on Financial Management Assessment of Benazir Income Support Program Project Number: 54181-001 April 2020 Pakistan: Emergency Assistance for Fighting the COVID – 19 Pandemic Page 1 of 11
Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
CURRENCY EQUIVALENTS
(as of 12 April 2020)
Currency unit – Pakistan Rupee (PKR)
PKR 1.00 = US$0.006
US$1.00 = PKR 166.4779
ABBREVIATIONS
ADB Asian Development Bank
AEFSs Audited Entity Financial Statements
APFSs Audited Project Financial Statements
BISP Benazir Income Support Program
FMA Financial Management Assessment
FMAP Financial Management Action Plan
GoP Government of Pakistan
ISAs International Standards on Auditing
IFRSs International Financial Reporting Standards
IT Information Technology
LFIS Loan and Grant Financial Information Services
PAM Project Administration Manual
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
PMU Project Management Unit
PPP Public-Private Partnership
Page 2 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
CONTENTS
I. EXECUTIVE SUMMARY .................................................................................................................. 4
II. INTRODUCTION ................................................................................................................................ 5
III. PROJECT DESCRIPTION ........................................................................................................... 5
IV. UPDATE ON FMAP....................................................................................................................... 5
V. PROJECT RELATED ADDITIONAL CONSIDERATIONS ......................................................... 9
VI. FUNDS FLOW ................................................................................................................................ 9
VII. PROJECT RELATED ADDITIONAL RISKS ASSESSMENT ................................................ 9
VIII. PROPOSED FINANCIAL MANAGEMENT ACTION PLAN (ADDITIONS) ....................... 10
Page 3 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
UPDATE ON FINANCIAL MANAGEMENT ASSESSMENT
BENAZIR INCOME SUPPORT PROGRAM
April 2020
I. EXECUTIVE SUMMARY
1. The Asian Development Bank (ADB) is contemplating to support the Government of
Pakistan (GoP) to address the outbreak of coronavirus disease 2019 (COVID-19) in Pakistan. In
this respect, ADB is assessing the feasibility of Pakistan Emergency Assistance Project: 54181-
001 (the Project). The Project will be implemented through two implementing agencies, the
National Disaster Risk Management Fund (NDRMF) and Benazir Income Support Program
(BISP), using the existing arrangements for National Disaster Risk Management Fund Project
and Social Protection Development Project, respectively. This Update on the financial
management assessment report (the Report) provides findings and conclusions related to the
progress made by BISP towards the implementation of the Financial management Action Plan
(FMAP) agreed between ADB and the management of BISP during the processing of Social
Protection Development Program (SPDP) – Additional Financing (AF), funded by ADB.
2. Since the effectivity of the SPDP – AF in November 2019, BISP has reported progress in
various areas, however, certain critical areas such as appointment of external auditors and hiring
of regular staff at key positions is yet to be implemented. Further, the cash transfer manual has
not yet been approved. Table 1 below provides a summary update on the progress:
Table 1: Summary of Progress on FMAP
FMAP Area Due (Y/N) Status
Develop and implement risk management Framework Y Implemented
Expedite the release of funds by the Finance division of GoP N Implemented
Establish Budget Scrutiny Committee Y Implemented
Develop roadmap for deployment of integrated MIS solution N In-progress
Signing of service level agreements with banks Y Implemented
Approval of cash transfer manual Y In-progress
Agreement with NADRA to be modified N Change needed
Conduct staffing needs assessment N No progress
Recruit regular staff at key positions N No progress
Roadmap to convert from cash to accrual basis of accounting N In-progress
Hire external auditors for FY 2019, 2020 and 2021 Y Not implemented
Settle audit observations by the government auditors Y In-progress
Reconciliation with AGPR N Implemented
Approve IT policy N In-progress
Note: Requirements falling due by 31 May 2020 have been considered as due.
Page 4 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
II. INTRODUCTION
3. The latest Financial Management Assessment (FMA) on BISP was performed during July
2019, as a result of which a comprehensive Financial Management Action Plan (FMAP), which
was agreed with the management of BISP. Since the Project is exposed to risks similar to the
existing projects being implemented by BISP, and that the latest FMA was performed during July
2019, a fresh FMA was not considered necessary for the Project processing. Alternately, an
update on BISP’s progress was obtained from the management of BISP which forms basis for
the progress noted in the Report.
III. PROJECT DESCRIPTION
4. The Project is being processed in response to the GoP’s request to ADB, made on 25
March 2020, for addressing the outbreak of COVID-19 in Pakistan. The Project is structured to
provide immediate and flexible financing to help the government quickly respond to the crisis,
which comprises two outputs: Output 1: a health and community component to support COVID-
19 emergency preparedness and response; and Output 2: a social protection component to
provide swift financial support to overcome basic needs of vulnerable and poor segments of the
society and to stimulate the economy. The Project is estimated to cost $305.3 million. The Project
is proposed to be implemented by two implementing agencies namely NDRMF and Benazir
Income Support Program (BISP).
IV. UPDATE ON FMAP
5. The ensuing tables provide update on the progress made by BISP towards the
implementation of the FMAP agreed during processing of SPDP – AF.
Area Risk management framework
Agreed mitigation measure BISP shall develop and implement a comprehensive and
dynamic Risk Management Framework that integrates a
consistent monitoring and reporting mechanism with the
feedback generated by the various governance, accountability
and monitoring organs of the organization.
Agreed timeline/ Within six months/ DG (Internal Audit), ADG (M&E)
responsibility
Progress Update and Risk Management Framework is in place, being implemented
Status by the Internal Audit (IA) and Monitoring and Evaluation (M&E)
Wings. A Risk Register is managed by the M&E Wing with
regular reporting to the management. Quarterly reports on
payment monitoring are also submitted to the management by
the M&E Wing. The IA Wing prepares quarterly progress
reports on the EFC Framework. A Special Investigation Unit
(SIU) has also been set up within the IA Wing to investigate
complaints. A Whistle blowing policy has also been approved
Page 5 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
and made effective and complaints being referred to the SIU.
However, the SIU is not adequately staffed.
Action item Maintain in FMAP. Validate progress.
Area Expedite the release of funds by the Finance division
Agreed mitigation measure With the creation of Social Safety and Poverty Alleviation
Division, the release of fund can be expedited through
development of a proper mechanism with Finance Division in
line with Finance Regulations.
Agreed timeline/ Within One year/ Finance Division, Social Safety and Poverty
responsibility Alleviation Division.
Progress Update and Funds are being released in accordance with the MOF’s policy/
Status strategy for release of funds issued vide their Office
Memorandum dated 15 July 2019 1.
Action item Maintain in FMAP. Validate progress.
Area Establish Budget Scrutiny Committee
Agreed mitigation measure Principal Accounting Office and Director General (F&A) to
constitute the Budget Scrutiny Committee.
Agreed timeline/ Within one month/ Principal Accounting Officer
responsibility
Progress Update and During the budget review process, budget is being scrutinized
Status by the committee headed by Principal Accounting Officer
(PAO) and DG F&A as an advisor. It also includes heads of all
the relevant wings.
Action item Maintain in FMAP. Validate progress.
Area Develop Roadmap for deployment of integrated MIS
solution
Agreed mitigation measure Based on approved technical feasibility study, MIS wing under
guidance from Board of Directors to develop the integrated
solution
Agreed timeline/ Within one year/ DG (F&A), DG (Cash Transfer), DG (Internal
responsibility Audit) and DG (MIS).
Progress Update and A management consulting firm has been engaged to undertake
Status a process flow mapping and will recommend the solution that
suits the BISP management system and develop an integrated
solution.
Action item Maintain in FMAP.
1
http://www.finance.gov.pk/circulars/strategyForReleaseFund2019.pdf
Page 6 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
Area Finalize service level agreements with banks
Agreed mitigation measure BISP to finalize the service level agreements with bank on long
terms basis through competitive process.
Agreed timeline/ Within six months/ DG (Cash Transfers).
responsibility
Progress Update and Agreements with new banks signed.
Status
Action item Maintain in FMAP. Validate progress.
Area Approval of cash transfer manual
Agreed mitigation measure BISP Board to approve the cash transfer manuals.
Agreed timeline/ Within six months/ DG (Cash Transfers)/ ADG (Conditional
responsibility Cash Transfers).
Progress Update and Draft manual is under revision to be further amended in line
Status with new contracts with banks.
Action item Maintain in FMAP.
Area Amendment of agreement with NADRA
Agreed mitigation measure Agreement to be amended with NADRA to include the
provision of backups and disaster recovery plans.
Agreed timeline/ Within six months/ DG (MIS).
responsibility
Progress Update and A roadmap for an IT Security Policy and an IT Strategy has
Status been developed, with the target of obtaining an ISO-27001
certification.
Action item Include in the Project FMAP with requisite modifications.
Area Conduct staff needs assessment
Agreed mitigation measure BISP to conduct a study to identify the needs for recruitment of
BISP’s regular employees for all key positions.
Agreed timeline/ Within one year/ DG (Human Resources).
responsibility
Progress Update and The process for recruitment of HR Consultancy Firm was rolled
Status out in November 2019. After the EOI stage, the final proposals
upon evaluation were not found to be suitable. It has been
decided to re-advertise.
Action item Maintain in the FMAP.
Area Hire regular staff at key positions
Agreed mitigation measure BISP to recruit regular employees for all key positions
prioritizing F&A and internal audit staff.
Agreed timeline/ Within two years/ DG (Human Resources).
responsibility
Progress Update and BoD prioritized the appointment of DG (IA) as a regular
Status employee with a long-term contract. After one round of
advertisement, testing and interview, the top-ranking candidate
Page 7 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
did not join. The recruitment process is in the re-advertisement
phase.
Action item Maintain in the FMAP.
Area Convert from cash to accrual basis of accounting
Agreed mitigation measure BISP to develop a roadmap to migrate from cash basis to
accrual basis of accounting system.
Agreed timeline/ Within one year/ DG (F&A).
responsibility
Progress Update and KPMG has been hired to convert the accounts from cash to
Status accrual basis. The consultants have prepared provisional
financial statements for the last two years on accrual basis.
The project is in progress.
Action item Maintain in the FMAP.
Area Hire external auditors for FY 2019, 2020 and 2021
Agreed mitigation measure BISP to hire audit firm with vast experience and high ratings
for next 3 years.
Agreed timeline/ Within three months/ DG (F&A).
responsibility
Progress Update and EOI submitted by “A” rated audit firms were evaluated. Delay
Status occurred due to an unsuccessful first round of invitations for
EOIs. RFP to the highest ranking firm has now been issued.
The process is expected to be completed by end May 2020.
Action item Maintain in the FMAP.
Area Settle observations by government auditors
Agreed mitigation measure Internal audit department to improve coordination with
Government Auditors to expedite the settlement process and
suggest appropriate actions to audit committee in case of
finding involving embezzlement, fraud and corruption.
Agreed timeline/ Within three months/ DG (F&A).
responsibility
Progress Update and Management contends that efforts are being made for
Status settlement of audit paras related to Government Audits and a
significant portion of observations has been settled.
Action item Maintain in the FMAP.
Area Reconciliation with AGPR
Agreed mitigation measure Finance and Accounting Department to ensure timely
reconciliations. Variances in quarter-wise payments should be
documented and approved by BISP Management.
Agreed timeline/ Within six months/ DG (F & A) and DG (IA).
responsibility
Page 8 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
Progress Update and Reconciliations are now being carried out on monthly basis
Status with variances being reviewed and scrutinized on regular
basis.
Action item Maintain in the FMAP. Validate progress.
Area Approval of IT policy
Agreed mitigation measure Board to approve the IT policy (including the provisions to
conduct the information system audit on periodic basis) and
the, amendment in NADRA agreement.
Agreed timeline/ Within six months/ DG (MIS).
responsibility
Progress Update and A roadmap for an IT Security Policy and an IT Strategy has
Status been developed, with the target of obtaining an ISO-27001
certification.
Action item Maintain in the FMAP. Validate progress.
V. PROJECT RELATED ADDITIONAL CONSIDERATIONS
6. Staffing: A finance specialist recently hired under ADB Loan 3049 for the PMU of BISP
Graduation program is assisting the F&A Wing on ADB projects.
7. Accounting and reporting: Separate books of account will be maintained for the Project
while using existing systems and resources.
VI. FUNDS FLOW
8. BISP will establish a separate advance account for the Project funds promptly after loan
effectiveness at the National Bank of Pakistan (NBP). The advance account is to be used
exclusively for the ADB’s share of eligible expenditure. BISP will administer the advance account
and shall be accountable and responsible for proper use of advances from the advance account.
BISP will submit liquidation documents for the Advance Account to ADB no less frequent than
once every 6 months per calendar year.
9. The existing systems and controls for disbursements to banks shall be used for the
Project. Funds from the advance account are released to the partner banks after following the
procedure outlined in Regulation 4 of the BISP Payment Regulations, 2018.
VII. PROJECT RELATED ADDITIONAL RISKS ASSESSMENT
Risk Type Risk Risk Description Mitigating Measure
Assessment
Entity Substantial Retroactive financing might be The existing systems and
specific provided for ineligible beneficiary controls will be applied for the
payments. retroactive financing. BISP has
released funds to all eligible
beneficiaries following its
Page 9 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001)
standard procedures.
Retroactive Financing of
additional / emergency cash
transfer to all eligible
beneficiaries, reduced by US$
25 million contributed by the
WorldBank, up to the maximum
limit of US$ 90 million will be
retroactively financed under the
Project.
In addition to the standard
documentation required for the
processing of Withdrawal
Applications, the BISP shall
provide a certificate signed by
the concerned BISP
management personnel that
the Project funds allocated for
retroactive financing were
based on the list of
beneficiaries generated from
the entity’s MIS shared with the
Partner Banks for
disbursements to eligible
beneficiaries.
Substantial Funds transferred to banks might BISP shall obtain from the
not be timely and completely partner banks duly authorized
disbursed to eligible beneficiaries and validated Reconciliation
due to COVID related lockdowns Certificates of Disbursements,
and/ or service delivery duly supported by system
limitations of the partner banks. generated bank statements.
VIII. PROPOSED FINANCIAL MANAGEMENT ACTION PLAN (ADDITIONS)
10. Based on the identified risks and proposed mitigation measures, a time-bound financial
management action plan is given below:
Table 3: Financial Management Action Plan (FMAP)
Action Plan Responsibility Timing
In addition to standard documentation required for the BISP Upon raising
processing of Withdrawal Applications, the BISP shall provide a WA
certificate signed by the concerned BISP management
personnel that the Project funds allocated for retroactive
financing were based on the list of beneficiaries generated from
Page 10 of 11Emergency Assistance for Fighting the COVID-19 Pandemic (RRP PAK 54181-001) the entity’s MIS shared with the Partner Banks for disbursements to eligible beneficiaries. BISP shall obtain from the partner banks duly authorized and BISP Upon raising validated Reconciliation Certificates of Disbursements, duly WA supported by system generated bank statements. Page 11 of 11
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