Fiduciary Forum 08 Financial Management Issues in Trust

Fiduciary Forum 08 Financial Management Issues in Trust Fund and Development Grant Facility-Financed Operations Mozammal Hoque Financial Management Anchor The World Bank

Objective of the Presentation • Addressing two issues: - Issues in Trust Funds-financed operations; - Issues in Development Grant Facility-Financed Operations • TF and DGF Portfolio • Key fiduciary challenges • Emerging TF Reforms and the Way Forward • Where you could find information and Q & A

Types of Trust Funds • Recipient-Executed: Funds that the Bank passes on to the Recipient, for which the Bank plays an operational role – the Bank normally appraise and supervises the activities supported by these funds • Bank-Executed: funds directly executed by the Bank. Some Bank-Executed TFs may be hybrid! • Financial Intermediary Funds: funds involve financial engineering or complex finance schemes, or where the Bank provides administrative or financial services with only limited fiduciary or operational role.

TF and GPP Portfolio l Total RETF portfolio is about $19. 0 billion, which is about 20 percent of Bank’s operations l Total parent Trust Fund is about 900 and 1500 child TFs l Around 150 Grant Agreements are annually approved for DGF-financed operations l About 200 Trust Fund Proposals (TFP) and 15 Program Review Notes (PRN) are reviewed and approved annually by the CFPVPU.

Disbursements in Trust Funds

Application of OP/BP 10. 02 l The requirements of OP 10. 02 is applicable for all operations financed by TF and DGF. l FM assessments are required for about 1500 TFs and 150 DGF -financed operations every year. l Require FM supervision and review Interim Financial Reports for all operations. l Review audited financial statements for all operations and track the audit reports by the ARCS system. l Overall, this is a huge load on the FM Specialists. l The practical application of the requirements of the FM Policy is quite challenging

Key Issues -1 l From January 01, 2008, all TF-financed operations, which are $5. 0 million and above will follow the Bank’s standard control framework. l TF-financed operations, which are co-financed as part of Bank’s investment projects, the requirements of OP/BP 10. 02 are met as part of our normal project financial management work by the FM Specialists. l The fiduciary risks lies more with the Stand-Alone TF (FY 07 Disbursement - $970 million), which are not part of the investment projects. However, 64 percent of these operations are in crisis countries and FM issues are well supported. l The FM Anchor provides support to more than 200 Global Partnership Program with limited resources (About $170 million) l There about 64 in-house Secretariat to manage TF/DGF-financed programs – Only CGIAR and Cities Alliance have FM staff.

Key Issues -2 l Networks who manages a portfolio of about $350 million does not have adequate FM staff (Big Networks are SDN and HDN). l FM staff are not up-front involved in many TF-financed operations, which makes it difficult to conduct FM due diligence. l Adequate budget is required to provided FM support to TF and DGFfinanced operations l Data provided by the TF and GPP unit are not reliable and can not be captured by RAPMAN-PRIMA to apply a risk-based approach to TF and DGF-financed operations. l TF portfolio are not mainstreamed in the CAS and Country FM Strategy/Plan. l TF-financed operations are not part of the Country Portfolio Review l FM and procurement staff does not appear to have been systematically invited by task teams to comment on trust funded activities, unless such activities were co-financing existing Bank projects.

Key Issues - 3 l There is a severe shortage of procurement and FM staff, task teams reported that they were "desperate" for procurement and FM assistance. l These shortages on the Bank's side tend to affect and be compounded by capacity weaknesses on the client side. l Instances of "shadow" TTLs where the TTL of record is different from the individual making the decisions on the uses of the TF resources, l TTLs does not systematically document supervision findings and recommendations, and the problems identified are not effectively followed up and remedied. l Currently, there is no standard format for documenting supervision reports capturing all critical aspects of trust fund management. l There are deficiencies in (a) FMS review of audited financial statements, (b) management oversight of ARCS data, (c) Timing of supervision, and (d) identification and monitoring of high risk TF projects.

Key Issues - 4 l Bank singed FM Framework Agreement (FMFA) with UN and 18 UN organizations signed the FMFA l UN organizations, which did not signed FMFA, the requirements of OP 10. 02 applies. l Special type of operations such as Output-Based Aid may require immediate guidance if they use TF resources. l For Fiscal Intermediary Fund (FIF) type of operations, the requirements of OP 10. 02 are not required. However, for the recipient of FIFs, the Bank should conduct initial FM capacity assessment (e. g. GAVI). l FM capacity development requirements are not addressed for recipients in most cases (Exception: Global Village Energy Partnership) l Audit exemption is available for small TFs.

TF Reforms: E-TF Applications GRM Grant Reporting and Monitoring Donor Agreement TFP Trust Fund Proposal (IBTF) LOR Letter of Rep. Grant Agreement ? Trustee Admin. FM Due Diligence GFR Contribution Management GPA Grant Fund Request Grant Program Admin RAPMAN-PRIMA My TF Portfolio TRST Reliable TF Data Donor Center

Way Forward • FM Staff should be up-front involved in TF-financed operations • The value of TF may be from few thousands to a billion dollar, a “one size fits all approach” should not apply. • A simplified approach may be followed for low risk TF operations. • FM Manual is being updated to provide guidance to FM staff. TF Handbook is also being updated • TF should be included in the CAS, Country FM Strategy, and Country Portfolio Review Report. • CFPVPU/Network should appoint their own FM staff for providing FM support to TF and DGF-financed operations. • TF and DGF unit should provide reliable data so that RAPMANPRIMA could be effectively used to provide a risk-based support to TF. • TTLs should provide adequate budget for providing support to TF and DGF-financed operations

Sources of Information • OP/BP 14. 40 – Trust Fund • OP 8. 45 – Grants • Trust Fund Handbook – Being revised • Trust Fund Management Framework – Board Paper • OP/BP 10. 02 – Financial Management • Financial Management Manual (being revised). • TF Reform Update: E-TF Website • DGF Website • GPP website • TF Website • FM Website

Q&A Thank you