Annex 7: Financial management and disbursement arrangements.
123. The Financial Management Assessment of the implementing agencies capacity was conducted during the project preparation mission in January, 2008. The first project was approved on March 29, 2002 and it is expected to close on May 31, 2008. The financial management aspects of the first project were well managed. The complete report of the Financial Management Assessment is available in the project files.
124. Implementation Arrangements. The project will be coordinated by the PCU within the National HIV/STI Program (NHP) of the Ministry of Health (MOH). The PCU consists of an experienced team of professionals that have coordinated all activities of the first World Bank financed HIV/AIDS project. The staff has been trained in World Bank procedures and has performed satisfactory under the first project. The team also has experience with implementing other donor-funded projects including the GFATM. The unit is headed by Senior Medical Officer, a civil service position, who directs a core staff that includes the coordinators for the project components and subcomponents, an M&E officer, a financial manager and a procurement manager and their supporting technical and administrative staff. The fiduciary unit also manages the grant funds from the Global Fund. Project implementing entities include: The MOH through its four decentralized RHAs, supported by the centralized functions relating to the following services--National Laboratory, Blood Bank, Biomedical Waste Management; Four key non-health line ministries: Education, Tourism, Entertainment and Culture, Labor and Social Security, and National Security; Civil Society entities including the NGO sector, CSOs, churches and other Faith Based Organization (FBOs); and the private sector including the Jamaica Business Council, private companies, and the media.
125. Risk Assessment and Mitigation. As indicated in the Financial Management Assessment the risk of the project is rated moderate. This is due to the fact that (a) Jamaica has strong financial management and procurement capabilities; (b) the PCU and the MOH have experience and a good track record in implementing World Bank-supported projects.
126. Flow of Funds. The flow of funds mechanism under the proposed Project will be similar to that under the first Project. Under the Second HIV/AIDS Project, the GOJ will continue the usual practice of issuing warrants to cover full budgetary allocation for the project. The warrants will contain two parts: one for the GOJ counterpart funding and the other for the World Bank's portion. The arrangement for funding the warrant will be in keeping with the GOJ procedure adopted for the fiscal period 2006/2007. Cash paid out against the warrant issued will only be for the GOJ counterpart portion approved in the budget for activities to be implemented by RHAs and CSOs. The eligible Bank loan portion will continue to be funded through the Designated Account to be established for receiving World Bank resources. All project funds will be channeled through the PCU.
127. Loan funds will be disbursed to one Designated Account (US dollar account for Bank funds). As is the current practice in Jamaica, the Designated Account will be opened by the MOFPS and maintained in a commercial bank with a fixed ceiling of about 10% of the loan. In accordance with the recommendations made in the 2001 CFAA, and in effort to streamline the national account management, the Designated Account, for accounting purposes only, will appear as a sub-account within the government's Consolidated Fund. A second bank account (the project account) will be established in local currency to support the day-to-day operations and payments for expenditures eligible under the loan as was the case under the first loan. Advances covering projected three-month cash flows will be transferred from the USD Designated Account to the local currency project account to meet small eligible day-to-day local expenditures. A separate Bank account would be maintained to handle government counterpart funds. The PCU will reconcile (monthly) all the project accounts. The reconciliation for the Designated Account and the project account will be submitted to the Bank with each withdrawal application.
128. Additionally, the RHAs and Line Ministries (LMs) may open project accounts, under the project, for receiving financial support for eligible activities in their annual work plans. Under the guidance of the PCU, the LMs and RHAs will carry out project activities and process payment orders for eligible expenditures from the project account approved for funding the HIV/STI work plans. Periodic advances will be made to RHAs and LM to cover no more than 90 days of expected expenditures. Details of the controls and procedures pertaining to the management of the project accounts are contained in the Operations Manual.
129. The PCU will also disburse funds to Community Based Organizations (CBOs) and NGOs to implement the demand-driven subcomponent of the project. They will be assessed and placed into classes a, b, or c based on administrative capabilities. The administrative arrangement will be guided by the principles outlined in the HADDS Handbook. The accounting and reporting for all project funds will be on a monthly basis in accordance with the MOH's Legal Framework and Policy Framework documents. Where necessary, the PCU will ensure that monthly account reconciliations and financial reports are received and approved before continuing to disburse to the CBOs/NGOs.
130. Accounting Policies and Procedures. Administrative procedures will be in place to ensure that financial transactions are made with consideration to safeguarding project assets and ensuring proper entry in the accounting/monitoring systems. Before payments for acquisition of goods and services can be processed, a purchase order or contract must exist. The project accounting system will have the capacity to record financial transactions of the project, and produce financial statements useful to project management and meeting the Bank's and GOJ fiduciary requirements. The accounting system is designed to be able to capture all financial information and allocate among the project components. Furthermore, the accounting system will support the project management system, which oversees all work flows and procurement processes. Changes in one system should be reflected with revised/updated monthly/quarterly/annual actual funding needs and future budget estimates.
131. The project will also submit detailed monthly statements of expenditures to the Office of Finance and Accounts and to the MOFP's Economic Management Division in order that the project's expenditures are recorded on the Ministry's accounts as well as supervised by the unit responsible for management of external financing.
132. Segregation of Duties. The PCU has a clear organizational structure and procedures established according to the norms under the Financial Administration and Audit Act (FAA). Said procedures support an adequate segregation of procurement, budgeting, payment and recording activities. All payment orders/requests at the PCU Level are prepared and signed by component heads then passed to procurement and finance officers for comments and approval. They are then reviewed and signed by the SMO or designate.
133. Budgeting. The loan agreement and project cost tables will be the main inputs for the project budgets and counterpart (GOJ) funding estimates under the Capital Budget. The MOH will follow prescribed governmental budgetary heads, and in adherence to the FAA Act, the PCU/MOH will prepare at least:
* The annual work plan classified by activities, with goals/objectives, physical and financial programs, and cost;
* The summarized and detailed budget by major components and specific objects, specifying the source of funds;
* after approval by Parliament: the budget execution program broken down monthly, and the quarterly document of budgetary commitment authorization/cash flow;
* the monthly report on budgetary execution to be issued within 8 working days after the end of each month; and
* the quarterly report on evaluation of budgetary execution to be issued within 15 working days after the end of the quarter.
* Bank account reconciliations will be prepared on a monthly basis by the assigned officer and will be available within 8 days after the end of the month.
134. Safeguard over Assets. Assets acquired by the project will be in the custody of the respective institutional departments benefiting from such purchase. The PCU will keep detailed subsidiary records and an asset register of goods and equipment acquired under the project. The amounts in the register will be reconciled periodically against the respective accounting balances. At least one annual physical inspection will be undertaken by MOH staff, preferably with the participation of staff from the external auditors and the Auditor General's Department (AGD).
135. Administrative Monitoring of Financial Resources. As a coordinating entity it is mandatory that the PCU conduct regular monitoring exercises for all internal and external implementers. The monitoring should include physical site visits (no less than 3 per entity/annum) to review procurement processes, financial records, assess implementation: budget vs. actual and physical inspection of assets purchased. Following each monitoring visit a report is to be written no later than 10 days after.
136. Internal Audit. The PCU will be subject to review by the MOH's Internal Audit Department and the country's Auditor General's Department (AGD). Although no internal auditor will be assigned specifically to the project, the external auditors will perform visits on a bi-annual basis (see next section), and the AGD, under its sampling/material criteria, will audit the project at least once before completion as is required for governmental audits
137. External Audit. Annual project financial statements will be audited in accordance with International Standards on Auditing, by an independent firm and in accordance with terms of reference (TORs) both acceptable to the Bank and the GOJ. In addition to the audit opinions on the project financial statements, designated account and interim un-audited financial reports (IUFRs), the audit opinion will be required to deal specifically with: (i) observance of the procurement and consultants services provisions of the Loan Agreement; and (ii) special purpose audit carried out on a half-yearly basis to review the demand-driven subcomponent and activities carried out at the Parish level by CBOs and NGOs. The memorandum on internal controls ("Management Letter") will be issued after each semi-annual audit.
138. The PCU is expected to appoint the auditors (for both the annual and special audits) in time to undertake the audits and prepare the reports in a timely manner, with an annual contract to be renewed during the first quarter of each subsequent year, subject to satisfactory performance. The cost of the audits will be financed from the project.
139. The PCU will prepare, if needed, an action plan to address any issues and recommendations contained in the audit reports. The action plan and follow-up activities will be communicated to the Bank.
140. The table below summarizes audit requirements:
Audit Report Due Date Project financial 4 months after the end of the reporting period statements (coincides (Coincide with GOJ requirements) IUFRs Same as above Designated and Same as above Project Accounts Special purpose Twice a year with the second letter 4 months within the end of the reporting period.
Reporting and Monitoring.
The Progress Reports to be prepared under the Project will summarize the progress of execution of activities in the annual work plan by component. It will provide a summary of related program activities financed by other sources of funding including the Government and other principle partners. It will provide the updated activity level process indicators and the latest overall project monitoring indicators.
141. Financial statements and Interim Un-audited Financial Reports (IUFRs) will be prepared quarterly, satisfying the Government and the Bank's monitoring and fiduciary purposes. The content and formats of the IUFRs have been agreed. The progress reports including the project financial statements, along with procurement sections, will be submitted no later than forty-five (45) days after the end of each quarter.
142. On at least, a monthly basis, the PCU will prepare the project's Sources and Uses of Funds Statement, a matrix classifying receipts by financing source and expenditures by financing source and disbursement category. The expenditures will be compared to the projected figures per the quarterly budgets prepared as indicated in the Budgeting section above. This report is submitted to the MOH's Finance and Accounts Division, and the MOFP's Financial Management Division
Disbursement Arrangements. The disbursements under the Second HIV/AIDS Prevention and Control Project will migrate from a transactions based-disbursement mechanism to a reports based-disbursement mechanism for disbursements via the Designated Account. In addition, disbursements will be made on the basis of project components. When submitting IUFRs as supporting documentation for reporting on the use of advances, the IUFRs must include a "Use of Cash Statement" that will be utilized to document expenditures that were incurred during the reporting period and a "Cash Forecast Statement" for the next two reporting periods that will provide the basis for the amount to be advanced. In addition the IUFRs will need to be supplemented by bank statements for the Designated Accounts, Designated Account Activity Reconciliation Statement, Project Account and RHA/LM Reconciliations. The balances in the IUFRs pertaining to disbursement categories will be required to be reconciled with those in Client Connection. The documentation to the Bank of payments made on the basis of retroactive financing would be made on the basis of reports. Supporting documentation for all payments under the loan would be made available for review by visiting Bank supervision missions and to the auditors. Direct payments would be fully documented.
143. Financial Management Action Plan. The PCU has satisfactorily met all the actions that were required to be completed prior to the commencement of project implementation, except for the opening of the designated account. Agreement has been reached that the designated account would be opened within 30 days after loan signing..
144. Financial Covenants. Bank's standard financial covenants apply for this project. They include the requirement to submit annual audit reports of the project's account and financial statements not later than four months after the end of each fiscal year and the requirement to maintain adequate financial management systems so that the project is capable of accurately recording project transactions and of preparing reliable financial reports.
145. Supervision Plan. The supervision of the PCU, the RHAs and other implementing agencies will focus on: (i) mix of number and qualifications of the staff working on the project, (ii) quality and timeliness of reports produced, (iii) the processing speed of administrative and financial matters, particularly payments processing. Bank's supervision mission will be every six months and will also include civil society organizations and governmental agencies to evaluate how these entities manage and account for project resources.
146. The timeliness of the audit also is to be monitored closely. The audits will be reviewed to ensure that it covers all relevant aspects and provide enough confidence on the appropriate use of funds by recipients.
Allocation of the Loan Proceeds Component Amount of the Financing Loan Allocated Percent in US Dollars Prevention Activities 3.248 97% Treatment, Care and Support 1.736 95% Institutional Strengthening, Program 3.046 72% Management, and Monitoring and Evaluation Health Sector Development and Support 1.945 93% Front-end Fee 0.025 Total 10.000
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$10 MILLION TO JAMAICA FOR A SECOND HIV/AIDS PROJECT|
|Publication:||Jamaica - Second HIV/AIDS Project|
|Date:||Apr 1, 2008|
|Previous Article:||Annex 6: Implementation arrangements.|
|Next Article:||Annex 8: Procurement arrangements.|