Vocational Training Improvement Project FINANCIAL MANAGEMENT 11 -12

Vocational Training Improvement Project FINANCIAL MANAGEMENT 11 -12 January 2008

FINANCIAL MANAGEMENT CYCLE Budgeting Corrective Action Flow of Funds FM Accounting/ Internal Controls Audit Reporting, including claims

IMPORTANT PROJECT DOCUMENTS z Financing Agreement z Minutes of Negotiations z Project Appraisal Document (PAD) z Project Implementation Plan (PIP) z Financial Management Manual (FMM) of Mo. LE dated April 18, 2007 z Procurement Manual of Mo. LE dated April 11, 2007 z Memorandum of Understanding (Mo. U) between Go. I and states/UTs and between ITIs and state z Institutional Development plan (IDP) of each ITI

FINANCIAL MANAGEMENT MANUAL (FMM) z FMM has been developed for the project and has detailed guidelines for financial management procedures on budgeting, funds flow, accounting, financial reporting, audit etc. z The Manual is available for guidance of staff at all levels of the project (Go. I/state offices /ITIs), on project FM aspects.

FINANCIAL MANAGEMENT MANUAL (FMM) – important covenant z As per Financing Agreement, conditions for suspension include: “The Financial Management Manual. . has been amended, waived or abrogated so as to affect materially and adversely the achievement of objectives of efficiency, economy and transparency of …financial control and management and auditing and reporting or the implementation of the project. ”

FM RELATED COVENANTS IN FINANCING AGREEMENT: Key Points z Financial Management System z Annual Audit z Financial Records – maintenance and access z Financial Reports to be submitted to the Bank z Financial Management Manual z Finance staff at NPIU and SPIU z Delegation of financial powers at all levels of projects (NPIU/SPIU/IMC/Principal ITI) z Disbursement z Disclosure Management Framework

BUDGETING z Objectives Ø To facilitate allocation and flow of funds to all levels Ø Monitoring of expenditure against budget in Quarterly IUFRs z Go. I and states to bear project cost in the ratio 75: 25( North Eastern states and Sikkim in the ratio 90: 10) Mo. LE Ø Mo. LE to budget for its own expenditure and for centrally funded institutions States Ø States to budget for entire 100%, including Go. I share Ø Mandatory on the part of State Govt. / UT to make sufficient provision in their budget Ø States to certify that adequate provision has been made when making a request for release of each installment of central share Ø Budget for state/UT level activities to be prepared by State / UT on the basis of INSTITUTIONAL DEVELOPMENT PLAN (IDPs)

BUDGET CALENDER Rs. In Lakhs Year 1 Year 2 Year 3 Year 4 Year 5 Activity 1 Activity 2 Activity 3 Total

FUNDS FLOW Funds flow (Go. I to State) – Ist year

FUNDS FLOW Funds flow (Go. I to State) – 2 nd year 1 st installment -------80% of Central share (On submission of Utilisation Certificate & SOE of previous 1 st installment) 2 nd installment ------- 20% of Central share Ø State Govt. /UT to submit Utilisation Certificate for the total amount : Central share + State share

ACCOUNTING z Accounting on cash basis, using Government systems z As per GFRs applicable at Go. I and state level z Expenditure will be recorded and reported at time of payments and not at time of release of funds to a subordinate office z Summary of transactions to be sent to next higher level based on specific formats

ACCOUNTING z Each Office making payment to maintain regular Book of Accounts as per applicable government procedures z Adequate records to be maintained at all locations e. g. , vouchers, invoices, cashbooks, ledgers, asset registers z Completeness * To cover all sources and uses of funds * Uses : what was spent on what (by component, disbursement categories, agencies) * Balance: where the balances are lying - advances, etc. z Asset Records - Assets Created and Acquired

FINANCIAL REPORTING z Financial reporting from ITIs to SPIU, SPIU to NPIU within 30 days of end of each quarter z NPIU to submit consolidated Interim Unaudited Financial Reports (IUFRs) on a quarterly basis to The World Bank within 45 days of end of each quarter z As per CSS procedures states to submit UCs to Mo. LE in each financial year z The basis for reporting will be expenditure by the implementing entity and not releases (e. g. from Go. I to a state or from a state to an ITI)

FINANCIAL REPORTING

DISBURSEMENT z Disbursement from the World Bank will be against quarterly IUFRs z If Audit Report indicates higher/lower eligible expenditure compared to IUFR, the same will be adjusted in the next report based disbursement z After mid-term of the Project further disbursement will be subject to achievement of certain benchmarks of project progress

RETROACTIVE FINANCING z Project will fund cost of upgradation of 100 ITIs on retroactive basis for eligible expenditures z Eligible Expenditures: y for activities which are included in the project description y made in accordance with Bank guidelines on procurement, financial management and safeguards y Total amount of retroactive financing will not exceed 20 per cent of total credit y Any expenditure in excess of 20 per cent of total credit will have to be borne by GOI/states y Eligible expenditures can be borne upto a maximum of 12 months prior to expected date of signing of Financing Agreement z Requirement of documentation for expenditures claimed under retroactive financing is the same as that for disbursement against payments after Financing Agreement is signed

AUDIT z External Audit by CAG (Mo. LE/ Centrally funded Institutions) and State AG (in case of states) z Audit to be as per terms of reference (TORs) agreed by the Bank with Mo. LE, and have been sent to CAG for approval z Corrective action to be taken at the level of state/institution z DGE&T to submit Consolidated Audit Report for the project to the Bank within 6 months of end of each financial year

INTERNAL AUDIT z 2 Management Reviews (December 2009 and December 2011) during project to cover: y Effectiveness of delegation y Funds flow constraints y Reporting arrangements etc. z Piloting Internal Audit by existing staff as per agreed TORs z Consolidation of findings of internal audit work at State level for analysis and strengthening internal controls z Adequacy of internal controls and internal audit to be assessed during review missions

OTHER KEY FM ASPECTSDelegation z Eligibility criteria for States/UTs include: y Establishing and maintaining SPIU with adequate staff and financial administrative autonomies, without frequently seeking approvals form state authorities y Agreeing to set up IMC with sufficient autonomy y Agreeing to grant financial and administrative powers to Principals of ITIs (as stated in Mo. U) z Eligibility criteria for Institutions include: y Regular full-time Principal with adequate financial and administrative powers (as stated in Mo. U) z Principal to have power to make small purchases up to INR 25, 000 (approx. US $500) without seeking approval of the ITI’s purchase committee z Principal to have power to award contracts up to Rs. 0. 90 million (approx. US $20, 000) per contract on recommendation of ITI’s purchase committee

OTHER KEY FM ASPECTSStaffing z NPIU: to have a Finance Unit z SPIU: States with more than 10 ITIs under the project to have full-fledged SPIU which will have separate Financial Management and Procurement units. Finance Unit will be managed by a Finance Officer z SPD: States with less than 10 ITIs will have SPD, and a combined unit for Procurement and Financial Management (headed by officers not below rank of Assistant Directors) z ITIs: existing accounts staff will carry out FM tasks for the project

DISCLOSURE MANAGEMENT FRAMEWORK z DGE&T and SPIU to display the following information on their websites: y Quarterly interim unaudited financial reports within 45 days of the end of each calendar quarter y Annual progress reports (Project and financial information) by May 15 of each fiscal year and Mid-term review report y Procurement related information as per the Framework

Financial Management – Key Points a Adherence to Legal Covenants for Financial Management as per Financing Agreement a Accurate and Timely Preparation of Plans and Budgets a Timely and Sufficient Flow of Funds to implementing agencies at all levels a Regular Maintenance of Project Records and Accounts a Regular and Accurate Financial Reporting at all levels of the Project a Timely submission of quarterly IUFRs to The World Bank a Regular Monitoring of Project Budgets at all levels a Timely Submission of Consolidated Annual Audit Report to the Bank a Strong Internal Control System in the project a Adequate delegation a Adequate staffing for finance function a Adherence to FM aspects of Disclosure Management Framework

Thank You