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Annex 7: Financial management and disbursement arrangements.

BOTSWANA: Botswana National HIV/AIDS Prevention Support Project

Executive Summary

1. A financial management assessment of the National Aids Coordination Agency (NACA) was carried out in accordance with the World Bank-Financed Investment Operations Financial Management Practices Manual dated November 3, 2005. The objective of the assessment was to determine whether NACA has acceptable financial management arrangements, which will ensure that:

(a) Proceeds of the loan are used for the purposes intended, in an efficient and economical way;

(b) The proceeds are properly accounted for;

(c) The periodic financial reports are accurate, reliable, and timely;

(d) Arrangements exist for an independent audit of the sources and uses of the loan proceeds; and

(e) The assets of the entity and the sub-implementing agencies are safeguarded.

2. The Bank's policy on Financial Management (FM), OP/BP 10.02, requires the borrower and the project implementing agencies to maintain financial management systems, including budgeting, accounting, financial reporting, internal controls, funds flow arrangements, and auditing adequate to ensure that they can provide the Bank with accurate and timely information regarding project resources and expenditures. The FM systems are expected to be in place at the commencement of the project implementation.

3. NACA is the main implementing agency responsible for the coordination of the implementation activities of the implementing line ministries, the civil society organizations and the private sector. The project will use the Botswana country financial management system, assessed to have met the requirements of Bank's OP/BP 10.02. There is however, the need to build capacity in NACA, the District Administration, and generally at the level of the civil society and private implementing organizations.

4. The overall risk rating for the project is moderate. Table1 below shows the key financial management risks and mitigating measures against these risks, which NACA's management may face in achieving the development objectives of the project.

Summary Project Description

5. The main objective of the project is to assist the Government of Botswana (GOB) in increasing the coverage, efficiency, and sustainability of targeted and evidence-based HIV/AIDS interventions by strengthening NACA's institutional and coordination capacity and financing strategic and innovative HIV/AIDS-related prevention and mitigation activities.

6. The project activities for the first two years will focus on the eastern border of the country, which includes the highest prevalence health districts, specifically, the South East, Kweneng East, Francistown, Selebi-Phikwe districts and the Goodhope sub-district. These are the five health districts that will be involved in Phase I of the project (Years One and Two). It should be noted that all 24 health districts will be covered in the second phase of the project, beginning in the third year of the project life. The fiduciary assessment of the Phase II districts will be conducted as part of the project supervision using an appropriate sample during Year Two of the project. No project funds will be advanced to the Phase II districts until this assessment has been completed and the District financial management arrangements are acceptable to the Bank, as reflected in the Loan Agreement. Six line ministries will also benefit under the project over the first year, after which the specific ministries involved may vary. These ministries, which are: i) Health; ii) Works and Transport; iii) Labour and Home Affairs; iv) Education; v) Local Government; and vi) Youth, Sports and Culture will focus on initiatives in line with the National Strategic Framework (NSF), which include: reduction of infection; provision of treatment care and support; strengthening of the management of the national response to HIV/AIDS; mitigation of the Psych-social and economic impact; and provision of a strengthened legal and ethical environment.

7. In addition, the project will make 45% of the loan funds available to Civil Society Organizations (CSOs) and the Private Sector. The project consists of three components: i) Support to NACA; ii) Support to Public Sector Ministries; and iii) Support to Civil Society Organizations and the Private Sector.

Country Issues

8. Botswana is a middle income country with a Country Policy and Institutional Assessment (CPIA) rating of 4.5 in Quality of Budgetary and Financial Management. It is one of the few Sub-Saharan African countries to have reached the upper middle income band. Botswana has sustained high economic growth over a number of decades. It has not taken loans from the Bank in the last two decades. As a result of the fact that no country level analytic work has been carried out by the Bank in the recent past, the financial management assessment did not report on the impact of the country level issues on the proposed project financial management systems. These issues would have been documented in the country analytic work, which include the: Public Expenditure Financial Accountability-Performance Measurement Framework (PEFA-PMF); Country Financial Management Accountability Assessment (CFAA) and others.

9. However, the Report on Observance of Standards and Codes- Accounting and Auditing (A & A ROSC) for Botswana was carried out in 2006. The ROSC highlighted that Botswana had made considerable efforts in aligning its accounting and auditing practices with internationally accepted standards and codes; corporate accounting and disclosure practices had improved considerably over the last 5 years; monitoring and enforcement of financial reporting requirements in the banking sector had contributed to improved transparency of the financial sector. The report also indicated some of the areas that needed to be strengthened including: legal mandate for corporate entities to follow the international financial reporting standards (IFRS) in the preparation of financial statements; inadequate technical capacities of the regulators of the national accounting profession; shortcomings in professional education and training. The World Bank in this respect, has approved an Institutional Development Fund grant of about $486,000 to implement the recommendations of the ROSC. This will assist the Botswana Institute of Accountants to strengthen its institutional capacity to function as a modern and effective professional accountancy body in line with the improved approaches recommended by the International Federation of Accountants and recent global developments in the regulatory framework of accounting and auditing.


10. The project's finances will be disbursed through the government's tried and tested financial management system. With oversight by the PSC, NACA council, periodic external audit physical verification, the finance, administration and audit Committee, the Public Accounts Committee both at the Central and Local Government level, and the design of reporting forms for the CSO and CBO components, BNAPS will start from a position of relative strength.


11. Due to the weak capacity in Donor funded project financial management, monitoring of financial reporting at NACA is not effective. The identified inadequate monitoring and reporting, poor design of guidelines for effective reporting and limited capacity at NACA are some of the major obstacles to the successful implementation of the Global Fund Round 2 project.

12. The following financial management action plan is recommended.

Implementing Entity

13. NACA will coordinate implementation of the project through six line ministries, Civil Society Organizations and the Private Sector. NACA is a department in the Ministry of State President. It is composed of 4 Departments (Behavior Change Interactions and Communications; Program Planning; Monitoring and Evaluation; and Ministry Management). The Finance and Accounts units are in the Ministry Management Department. NACA has total staff strength of 91, with 6 staff in the Finance and Accounts Units. Two of the Units' (one in each Unit) staff transferred to other establishments are yet to be replaced by MFDP.

14. The entity is headed by the National Coordinator who is a Permanent Secretary and responsible to the Permanent Secretary to the President. NACA is familiar with the implementation of donor funded projects. There is however the need to build capacity at NACA for improved efficiency and effective project coordination. This will be addressed under BNAPS by establishing the Finance, Administration and Audit committee, designing reporting forms at all level, training of identified NACA staff and of the implementing ministries in donor funded project financial management and implementation, clear definition of roles and responsibilities at all the levels of management.

15. BNAPS monitoring and evaluation will be as provided in the Botswana's National Monitoring and Evaluation Framework.


16. The budgeting arrangements for the project will follow GOB's budgeting system. Expected donor funds with firm commitments are included in the annual national budget. Each donor funded project is allocated a code. Budgets for HIV/AIDS related activities form part of NACA's annual Budget. The BNAPS loan will accordingly be provided for in NACA's annual Budget over the life of the project. Budget discussions are held annually with individual ministries and departments. The Budget Review Committee submits the Budget to the Estimate Committee, and thereafter to the Cabinet. The Finance and Estimate (a committee of Parliamentarians) reviews the Budget before it is presented to Parliament in February each year. The Government's financial year is April to March.


Central Government

17. The Government Accounting and Budgeting System (GABS), a module of the "Oracle" is used for budgeting and accounting. It has been rolled out to all the Government ministries and departments, including NACA. The financial statements (FS) are generated by the system on a monthly basis. NACA will review and ensure accurate recording of its transactions on a monthly basis. Adjustment journals will be raised, as appropriate and submitted to the office of the Accountant General for posting.

18. The Finance Unit in NACA is headed by a Senior Finance Officer (SFO), acting as the Principal Finance Officer (PFO). The PFO was yet to be replaced. The SFO is a holder of a Masters degree in Accounting and Finance. She is assisted by an Assistant Finance Officer with a Bachelors degree in accounting. The Unit is responsible for issuance of letters of authority to spending units, including the ministries and other entities budgeted for under NACA. It also produces and reviews the entity's monthly financial report.

19. The Accounting Unit is headed by an Assistant Accountant with accounting technician qualifications. The other 3 staff in the Unit hold Diploma in Accounts and Business Studies, and the Accounting Technician (foundation) qualifications. The Unit is responsible for recording transactions in GABS, and reconciling the general ledger.

20. Each ministry and parastatal has an accounting unit as well as a finance unit. Payment vouchers are prepared by spending line ministries and parastatals. The Finance and Accounts units verify and record in the system and thereafter forward the payment vouchers to the Accountant General for payment. The system and operations are the same in each ministry. From the assessment of the finance and accounting system in operation in the three ministries (MOH, MWT, MLG) visited, the financial management risk that the project may face by the implementation of Component 2 is moderate.

Local Authorities

21. The Districts on the other hand use the "Great Plains" accounting software. The financial statements are however prepared manually using excel spreadsheet, but on timely basis. The Districts have selected a committee of some of their Treasurers to work on the creation of a chart of accounts, which they believe will enable the system to produce the financial statements. The target date for completion of the exercise is December 2008. The GABS and the Districts accounting systems are not interfaced. The districts prepare their financial statements (FS) within the eighth-month period stipulated in the Finance and Audit Act. The audit as stipulated in the Act is supposed to be carried out by the Auditor General within four months of the preparation of the FS. Also, from record available in the office of the Auditor General, the districts maintain adequate accounting books and records. The bank reconciliation statements were up to date. Each local Authority has an Accounts Committee. The committee reviews the annual audited financial statements. The FM assessment noted however that some years audited financial statements had not been reviewed by the committee. This will be covered in the audit terms of reference, in addition to clearing of the accounting backlog. The FM risk rating of the implementation of the project by the districts is moderate. There will however, be need to strengthen the staffing capacity of the districts when the remaining 19 projects become beneficiaries under the project.

22. During the project appraisal, it was noted that the annual audit of 3 of the districts participating in the first phase for FY06/07 was still outstanding. These districts are: Francistown; Kweneng; and the South East. For effective monitoring and audit of the financial statement of the project, the outstanding audit should be completed along with the FY 07/08 audit of the five districts during the first eight months of the project implementation.

23. A Local Authority (LA) is headed by a District Commissioner with the District Administration (DA) and District Council (DC) units. The DC is headed by the Council Secretary and the Council Treasurer is directly responsible to him. The District Aids Coordinator is in the DA arm of the Local authority establishment.

24. The International Public Sector Accounting Standards (IPSAS) form the basis of the preparation of the FS.

Internal Controls and Internal Auditing

25. Internal control comprises the whole system of control, financial or otherwise, established by the implementing agencies in order to achieve accountability at all levels; carry out the project activities in an orderly and efficient manner; ensure adherence to policies and procedures; safeguard the assets of the project; and secure the reliability and integrity of the accounting records and information. The key elements that ensure sound management and effective internal control systems include: (i) organizational structures, systems and procedures; (ii) segregation of functions to initiate, authorize, execute and record; (iii) physical control over assets; (iv) clear description of duties and responsibilities; (v) preparation of reconciliation statements; (vi) internal audit; (vii) integrity and performance of staff at all levels; and (viii) supervision by management.

26. Under BNAPS, the institutional structure will be aligned to be more efficient and effective in resource mobilization, training of project implementation entities as appropriate, establishment of financial guidelines, framework for budget allocation. There is segregation of FM duties. The financial management assessment did not record internal control issues that require special attention.

27. NACA's internal audit unit is headed by a principal internal auditor and assisted by an audit clerk. The unit's capacity will be strengthened to effectively cover review of the financial activities of the project by focusing on risks as well as systems improvements besides compliance.

Customs Duties and Taxes

28. The BNAPS project will be finance project taxes (other than exempted taxes), as per the proposed Country Financing Parameters for Botswana.

Assessment of Civil Society Network

29. The risk level of the fiduciary systems of three of the five GOB registered Civil Society Network organizations were assessed and found to be moderate. The three Network organizations that were assessed were: i) BONASO; ii) BONELA; and iii) BOCAIP. Each of these three network organizations has adequately staffed finance department, in terms of qualifications and number. Their financial statements are prepared timely and they operate financial management and supplies manual approved by their respective governing boards. Their individual annual budgets are reviewed and approved by their respective boards. Each of the organizations maintains adequate accounting records. Their bank reconciliation statements were up to date as at the time of the appraisal. Two of these three network organizations were audited by PriceWaterhouseCoopers. All the civil society and private sector organizations are free to submit proposals under Component 3 in their respective capacities. BONASO has 160 affiliates. The organization has managed several donor funded projects, including Global Fund and ACHAP. BOCAIP, a faith based organization with eleven decentralized centers also has affiliates outside its eleven centers. It provides training services to government ministries in counseling with respect to HIV/AIDS. Each organization has established organizational structure. The risk of monitoring accountability by affiliates is greatly reduced by allowing each organization, including their affiliates to submit grant proposals in their respective capacities. Based on the risk assessment and review of the arrangement of the global HIV/AIDS Grant management, the risk rating for the project with respect to the implementation of the project by these organizations is moderate. It should be noted that all civil society networks, private sector organizations, and other registered non-governmental organizations are eligible to submit proposals under Project Component 3.

Flow of Funds and Disbursement Arrangements

30. The loan proceeds will be disbursed over a period of five years. Table 3 below provides the allocation of the loan proceeds into the agreed disbursement expenditure categories. BNAPS will use the Reimbursement method. Funds will flow from the Bank into the Government Remittance Account through GoB's depository account with the Federal Reserve Bank, New York.

31. Disbursements to NACA, the line ministries and the Districts will follow the Government's accounting and flow of funds procedures. The activities to be implemented by the line ministries, CSOs and the private sector will form part of NACA's annual budget. NACA's Project Steering Committee (PSC), already in existence, will approve the project annual workplan. Disbursements to the CSOs and private sector will flow from NACA through the Ministry of Local Government (MLG). MLG will issue sub-warrants to the benefiting District Councils.

32. Upon the effectiveness of the loan agreement, NACA will submit cash request (Project Memo) to MFDP for the estimated expenditure for the first six months of the project life based on the approved annual workplan. Subsequent requests will be on quarterly basis supported with invoices and receipts, using the GOB existing procedure, and must be within 20 days of the end of each quarter. MFDP will review the project Memo and verify the invoices before issuing finance warrant for the cash requests.

33. GOB, through MFDP will submit on quarterly basis, withdrawal applications supported by IFRs for reimbursement of eligible expenditures incurred and paid under the project. The Applications together with the IFRs will be submitted to the Bank within 45 days of the end of the quarter to which the reports relate.

Disbursement to the CSO and Private Sector

34. Based on the finance warrant, NACA will issue Letter of Authority to the Ministry of Local Government for disbursement of funds to the respective District Councils to meet the cost of the approved proposals submitted by these organizations. The authority to spend will be issued on quarterly basis. MLG will in turn issue sub-warrants to the District Councils. The District Aids Coordinator will monitor utilization of the Grant at the District level. Cheques for payment to CSOs and PSOs will be issued by the District Councils (Council Treasurers). District councils will use their existing bank accounts for the implementation of the project. MLG will however allocate an accounts code to the Project at the local authority level. The initial release of funds to each implementing entity will be for half of the estimated annual expenditure based on the annual approved work plan and the amount of the finance warrant.


35. Each sub-implementing entity or establishment will submit quarterly financial returns (using GOB's procedures) to NACA within 15 days of the end of each quarter. To be eligible for quarterly funding each CSO or private sector will account for at least 75% of amounts received in the previous quarter. NACA will consolidate the financial returns and submit to MFDP with IFRs and Project Memo, within 20 days of the end of each quarter.

36. All supporting documents (invoices, payment vouchers, goods received notes etc.) will be retained by NACA and made available for review by periodic Bank supervision missions, internal and external auditors. The originals of these documents are however retained by the office of the Accountant General.

Flow of Funds Diagram


1--NACA submits request for quarterly release of funds (for six months as initial request)

2--MFDP issues Finance Warrant to NACA

3--NACA issues Letter of Authority to MoLG and the line ministries. MoLG issues sub warrants to District Councils for payments to implementing organizations.

4--MFDP submits reimbursement application together with IFRs to the Bank. The Bank disburses funds into GoB's account.

Note: Lines with circular tips indicate information flows, whereas lines with arrow tips indicate financial flows.

External Auditing

37. BNAPS financial statements will be audited annually by the Auditor General who is required by section 124 of the Constitution to audit the public accounts of Botswana and of all officers, courts and authorities of GOB. The audit will be in accordance with the International Organization of Supreme Audit Institutions (INTOSAI) auditing standards. The Auditor General will be required to: (i) express an opinion on the project financial statements; (ii) carry out a comprehensive review of the internal control procedures and provide a management report outlining any recommendations for their improvement. The audit report, management letter and NACA's response to the letter will be submitted to the Bank not later than six months after the end of each fiscal year, September 30 each year. The District Councils are individually audited by the Auditor General. The audit terms of reference will include physical verification of the subprojects and Civil Society Organizations (CBOs) on a sample basis. This will argument internal audit visits given the independence of the external auditors. It is recommended that the Local Authority Public Accounts Committee should review the audit reports of the participating Districts to the end of FY07 within one year of the project implementation.

Audit Report

Project specific financial statements

Due Date

Within six months after the end of each fiscal year--by September 30 each year.

38. Conditionally

(a) Negotiations Conditions

The conditions identifed as part of the Financial Management Assessment were met in advance of Negotiations and were: (i) agree Unaudited Interim Financial Report format; and (ii) produce the Operational Manual and Grant Guidelines.

(b) Effectiveness Condition

Standard effectiveness conditions, in addition to the following: NACA has recruited the following technical specialists for the Project: (i) a management and implementation senior specialist; (ii) a financial management specialist; (iii) a procurement specialist; and (iv) a District-level grant officer in each of the following Districts: South East District, Kweneng East District, Francistown District, Selebi-Phikwe District, and Goodhope Sub-District, all with terms of reference, qualifications and experience satisfactory to the Bank.

(c) Disbursement Condition

No withdrawals shall be made with respect to the Civil Society/Private Sector Component of the Project until: (i) Government has furnished evidence to the Bank for its approval that the first 20 grants under this component have been made in accordance with the criteria, terms and conditions set forth or referred to in the Operational Manual; and (ii) with respect to any Phase II Health District, until the Financial Management Assessment has been completed and the Bank has determined that the relevant Phase II Health District financial management arrangements are acceptable.

(d) Covenants

Dated covenants:

i) No later than three months after the Effective Date, the Borrower shall have ensured that NACA has recruited the following long-term senior technical specialists for the Project (in addition to those recruited prior to effectiveness): (i) a second financial management consultant; (ii) a second procurement consultant, each with terms of reference, qualifications and experience satisfactory to the Bank.

ii) The Borrower shall ensure that its Office of the Auditor General has cleared all of the audit backlogs: (i) no later than eight months after the Effective Date for Phase I Health Districts; and (ii) by inception of Phase II Health Districts, to the Bank's satisfaction.

iii) No later than one year after the Effective Date, the Borrower shall have ensured that a detailed social analysis for the Project has been carried out, as satisfactory to the Bank.

iv) No later than six months after the Effective Date, the Borrower shall have ensured that all finance and accounting staff in the Public Sector Ministries and NACA necessary for Project implementation have been recruited, all with terms of reference, qualifications and experience satisfactory to the Bank.

Un-dated covenants:

i) Within the context of the overall national program, hold a joint annual partner: (a) retrospective review of program and project progress; and (b) prospective review of program and project plans for the coming year.

ii) Hold a project mid-term review.

iii) Maintain the Project Steering Committee throughout project implementation.

iv) Quarterly financial reports be prepared and submitted to the Bank no later than 45 days from the end of each quarter.

v) Annual audit reports will be submitted to the Bank by September 30 each year.

Supervision Plan

39. The project residual risk rating is "Low". However, two supervision missions will be conducted in the first year of implementation to ensure that the project's proposed FM arrangements are operating effectively given that the project would be the first Bank financed project after two decades. The Bank FMS will also:

* Review the quarterly IFRs as soon as they are submitted to the Bank.

* Review the annual audit reports and management letters with management response from the external auditors and follow-up on material accountability issues by engaging with the Task Team Leader, and/or the borrower.

Governance and Accountability

40. No issues of governance and accountability came to light during the assessment. The GOB Directorate of Corruption and Crime appears effective from the information gathered. The Directorate trains staff and also involves internal auditors in other establishments to conduct investigations. The principal internal auditor at NACA was so involved. To strengthen governance in the project, a Finance, Administration and Audit (FAA) Committee will be established. The committee will be responsible for oversight, governance, accountability and transparency at NACA. The Audit committee will develop procedures for receiving, retaining and treating complaints received by NACA council regarding accounting, internal controls and audit matters. The duties and responsibilities of the FAA committee and others are described in the Operational Manual.

Retroactive financing

41. During project appraisal, NACA has indicated its willingness to pre-finance a number of key activities. This potential for retroactive financing has been reflected in the legal documents. As per World Bank operations policy [OP 6.0, para.2(e)], retroactive financing is permitted under the following conditions: (a) the activities financed are included in the project description; (b) the payments are for items procured in accordance with applicable Bank procurement procedures; (c) such payments do not exceed 20 percent of the loan amount; and (d) the payments were made by the borrower not more than 12 months before the expected date of Loan Agreement signing.

42. Following these guidelines, it was agreed at appraisal that the project loan would allow for retroactive financing of the consultancy services associated with Component 1 (technical and fiduciary consultancy services for NACA, including the recruitment of the consultants required to be in place by Project Effectiveness). This proposed retroactive financing would be quite modest in size (less than one percent of the loan amount) given that these activities would take place during the few months between project approval and effectiveness. The date after which payments may be made was agreed at appraisal, confirmed during negotiations, and recorded in the Loan Agreement which provides that payments may be made up to an amount of US$500,000 from July 1, 2008 onwards.
Table 1: Risk Assessment and Mitigation

Risk Risk Risk Mitigating Measure

Inherent Risk

Country Level M Government is in the process of
1. Use of the outdated awarding a consultancy contract for
Financial Instructions the revision of the Finance and Audit
and Procedures and the Act.
Finance and Audit Act
(1993) Finance and Accounting staff in the
 line ministries and departments,
2. Audit of the project including NACA are trained on the
financial statements Government Accounting and Budgeting
may be delayed System (GABS). The staff also use
beyond 6 months of the GABS Manual.
the government
financial year. The project's financial statements
 will be prepared and audited as a
 special fund and submitted to the
 Bank by September 30 each year. This
 has been done for some donor funded
 projects in the past.

Entity Level S The Finance and accounting units are
Limited FM capacity staffed with qualified accounting
in project financial personnel. Two Financial Management
management. Specialists (FMSs) will be hired and
 retained for a maximum period of 2
 years, to among other
 responsibilities, produce FM
 guidelines/procedures for the program
 as a whole, including Donor funded
 projects; establish resource
 mobilization and disbursement
 mechanisms; train at least 15
 identified staff of NACA and the
 implementing line ministries in Donor
 funded project financial management
 and implementation; conduct 10 site
 visits on monthly basis. The duties of
 the FMSs will be detailed in their

Project Level S Organization of training sessions by
1. Communities may NACA Financial Management Specialists
not have the capacity (FMS) to strengthen the basic
to implement accounting capacity at the CBO level.
 The District Aid Coordinator (DAC)
2. Procedures will provide assistance in
described in the strengthening the capacity of the
project operational communities to manage subprojects and
manual may not be funds. A technical assistant will be
followed properly by appointed for each participating DAC
communities and to assist in CBO capacity development.
grants may not be used
for the purposes A Technical Assistant will be
intended. recruited for each DA to further
 strengthen their FM capacity.

 There will be monthly site visits by
 the NACA FMS and regular audit by the
 internal auditors. The Principal
 Internal Auditor will include the
 project site visits in his annual

 Bank supervision missions will include
 review of use of IBRD funds.

3. Disbursement of M Disbursement of funds to the CSOs
funds through the DA and communities will be through the
with weak FM District Councils, which have proven
capacity and little records of having successfully managed
knowledge in project disbursement of donor funds.
financial management.

Control Risk M Budgeting and financial management
Budgeting capacity will be strengthened at NACA,
4. Weak budgeting DA and CSO levels to train the CBOs in
capacity at the CBO basic bookkeeping.
level resulting in
inability to The Private Sector Network currently
successfully provides assistance to other CSOs and
implement subprojects the CBOs.

Accounting S Simplified accounting forms will be
5. Delay in accounting designed with training on effective
for utilization of funds utilization. These forms will form
at the CSO and CBO part of the Annexes to the Operational
levels. Manual.

Internal Control M GOB expenses assets in the year of
6. Fixed assets register purchase and fixed assets register is
may not be maintained not maintained centrally but by
for the assets of the individual spending ministries. The
project. project will maintain a fixed assets
 register to record purchases and
 disposals of its assets.

Funds Flow M Use of the DA for disbursement
7. Funds may not purposes under the Global fund was
reach the intended reported unsatisfactory.
implementing Disbursement through the District
organizations, Councils will be more effective, as
especially at the they are familiar with donor funded
community level. project disbursement procedures. The
 District Aids Coordinator is not
 necessarily an accountant or has
 accounting background. The District
 Treasurer in the DC has accounting
 background with staff in the DC
 Accounting Unit.

Financial Reporting M Financial statements of the districts
8. Delay in the participating in the project will be
preparation of prepared and audited before September
financial statements at 30 each year. The FSs for the
the District Councils districts are prepared on time, ready
level. for annual audit by the Auditor

Auditing M Financial statements (FS) at the
9. Audit reports may Central and Local Authority levels are
not be issued on time. audited by the Auditor General. The FS
 will be audited and audit reports
 issued by 30th September each year.
 The Finance and Audit Act allows 12
 months for the Auditor General to
 submit the annual report. The project
 will be treated as a "special fund"
 for audit purposes.

Overall FM Risk M The overall FM risk is assessed as
Rating moderate. The inherent risks at the
 Country, Entity, and Project levels
 are mitigated by the use of the
 Country's FM systems with which the
 accounting staff are familiar; timely
 preparation and submission of interim
 financial reports; provision of
 targeted technical assistance for
 identified skills gaps; training staff
 in world bank financial management and
 disbursement procedures; and
 subjecting the activities of the
 project to internal and independent
 external audit.

Risk Residual Conditions of
 Risk Negotiation

Inherent Risk

Country Level L NO
1. Use of the outdated
Financial Instructions
and Procedures and the
Finance and Audit Act

2. Audit of the project
financial statements
may be delayed
beyond 6 months of
the government
financial year.

Entity Level M One FMS will
Limited FM capacity be on place
in project financial by
management. Effectiveness
 and a second
 FMS by no
 later than 3
 months after

Project Level M NO
1. Communities may
not have the capacity
to implement

2. Procedures
described in the
project operational
manual may not be
followed properly by
communities and
grants may not be used
for the purposes

3. Disbursement of L
funds through the DA
with weak FM
capacity and little
knowledge in project
financial management.

Control Risk L NO
4. Weak budgeting
capacity at the CBO
level resulting in
inability to
implement subprojects

Accounting M No-
5. Delay in accounting Operations
for utilization of funds Manual
at the CSO and CBO completed
levels. during

Internal Control L NO
6. Fixed assets register
may not be maintained
for the assets of the

Funds Flow L NO
7. Funds may not
reach the intended
especially at the
community level.

Financial Reporting L NO
8. Delay in the
preparation of
financial statements at
the District Councils

Auditing L NO
9. Audit reports may
not be issued on time.

Overall FM Risk L

Risk Rating--H (High Risk), S (Substantial Risk),
M (Modest Risk), L (Low Risk) N (Negligible Risk

Table 2: Financial Management Action Plan

Action Responsible Due Date
Hire 2 Financial NACA The first financial
Management Specialists management specialist by
for a maximum period of project effectiveness
2 years to among other and the second financial
responsibilities: specialist no later than
--produce FM guidelines 3 months after project
 for Donor funded effectiveness.
--establish resource
 mobilization and
 disbursement mechanisms,
--train at least 15
 identified staff of NACA
 and the implementing
 line ministries in Donor
 funded project financial
 management and
--conduct at least 10 site
 visits on a monthly

Agree the Unaudited MFDP Completed by
Interim Financial Negotiations
Reports (IFRs) format

Training in Bank financial World Bank Between June-September
management and disbursement 2008

Produce Grant Guidelines NACA Completed
and Operational Manual

Replace the Finance, MFDP No later than 6 months
Accounting, staff after the Effective date
transferred in some of
the BNAPS implementing
line ministries and NACA,
to strength capacity of
existing units

Clear audit backlogs at Office of the Borrower shall ensure
the District Councils Auditor General that its Office of the
level Auditor General has
 cleared all of the audit
 backlogs: (i) no later
 than eight (8) months
 after the Effective Date
 for Phase I Health
 Districts; and (ii) by
 inception of Phase II
 Health Districts, to the
 Bank's satisfaction.

Local Authority Public Local Authority Within the first year of
Accounts Committee to Public the Project
update its review of the Accounts implementation
participating districts Committee
audit reports to the end
of FY07, and of all the
District Councils within
the second year of the
project implementation.

Table 3: Allocation of Loan Proceeds

Category Amount of Percentage of
 the Loan Expenditures
 Allocated to be financed
 (expressed (inclusive of
 in USD) Taxes)

(1) Goods and non-consultants' 6,600,000 100%

(2) Consultants' services 7,400,000 100%

(3) Training 3,600,000 100%

(4) Goods, Non-Consultants' 22,300,000 100%
Services and Consultants Services
under Subproject Grants

(5) Operating Costs 8,100,000 100%

(6) Unallocated 2,000,000

TOTAL AMOUNT 50,000,000
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Publication:Botswana - National HIV/AIDS Prevention Support Project
Date:Jan 1, 2008
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