FINANCIAL MANAGEMENT AND PROCUREMENT TRAINING WORKSHOP

Malawi Sun Hotel, Blantyre 20th to 23rd April, 2016

FINANCIAL MANAGEMENT FOR SNIC PROJECT

Tokha ManyungwaFinancial Management Consultant

World Bank/SNIC

David Hastings Associates

Assurance & Advisory services

Address

Plot No. Area 12/314Mwambo RoadP.O Box 31478

Capital City Lilongwe 3

E-mail: info@dhamw.comWebsite: www.dhamw.com

Office phone : +265 1 770 279

Cellphone: +265 8 850 935

INTRODUCTION

• The basis of financial management for the SNIC project is the Financial Management (FM) manual issued in October 2012.

• The manual has five chapters as follows: Introduction; Institutional and implementation arrangements; funds flow and banking arrangements; accounting and reporting and auditing and anti-corruption arrangements.

CHAPTER 1: INTRODUCTION

CHAPTER 2: INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS

• This Chapter outlines the institutional, implementation and financial management responsibilities of the participating institutions in the project.

• The main participating institutions of the project are: Ministry of Finance, Department of Nutrition, HIV and AIDS (DNHA), Project Implementation Unit (PIT), Line Ministries, District Councils, Communities and Non Governmental Organisation (NGOs).

Department of Nutrition, HIV and AIDS (DNHA) Project Implementation Team (PIT)

• The DNHA is the point of entry for the Support of Nutrition Improvement Component (SNISP) Project and for nutrition policy dialogue.

• The DNHA provides leadership and is responsible for the day to day operations of the project.

• The Financial Management Specialist is entrusted with a responsibility to review adherence to Bank procedures with regard to fiduciary responsibilities. He is mainly responsible to monitor and coordinate funds to the NGOs and Line Ministries.

Composition of DHNA PIT

District Councils

INSTITUTIONAL ARRANGEMENTS

• The DC chairs the District Nutrition Committee (DNC). The committee is responsible for giving technical and advisory support to the DNHA, NGOs and communities in planning, budgeting and implementation of projects.

• The DNC is responsible for ensuring that activities undertaken project fall within the District Nutrition Intervention Framework.

District CouncilsFINANCIAL MANAGEMENT RESPONSIBILITY

The DCs have oversight of the financial policies and controls of the project funds at the assembly. The assemblies’ specific responsibilities include:

a) Development of District Nutrition budgets in consultation with Area Development Committees (ADC), Village Development Committees (VDCs), and the DNHA;

b) Ensuring accountability of project funds at District and Community levels;c) Ensuring adequacy and competency of staff performing Nutrition activities,

including financial management and accountability roles;d) Ensuring financial management procedures are followed, all financial

transactions are fully supported with documentation, and original documents are retained,

e) Cooperating with audit and Anti-Corruption Bureau teams and acting on their findings and recommendations; and

f) Ensuring that other funds flowing to the communities from sector resources and other donors are well coordinated with the Component A - SNISP project funding

NGOs

INSTITUTIONAL ARRANGEMENTS

• The overall responsibility of the NGO is to facilitate efficient and effective service delivery at community level towards improved nutrition financial intervention.

• NGOs are responsible for developing nutrition project proposals, advising the local communities on the availability of project resources and implementing nutrition intervention activities for the benefit of the communities in line with the DNHA project framework and within the agreed principles and guidelines.

NGOs

FINANCIAL MANAGEMENT RESPONSIBILITY

NGOs are grant beneficiaries of the Project Funds that implement and/or provide sub-granting support of interventions in support of the nutrition national response. NGOs are responsible for complying with all requirements governing their grant agreements with DNHA by adhering to the following:

a) implementing planned activities according to approved work plans under their respective grant agreements;b) managing and accounting for grant funds received from DNHA for supported projects;c) managing and supervising their projects; d) monitoring project activities, and resolving problems in project implementation;e) notifying DNHA in writing if there are any proposed changes in planned activities or budgets;f) submitting quarterly financial reports (inclusive of procurement activities) to DNHA; g) monitoring progress and submitting monthly activity and quarterly progress reports to DNHA;h) undergoing financial audits as per the contractual requirements;i) complying with national technical guidelines and protocols for nutrition service delivery;j) respecting guiding principles for service delivery: i.e. confidentiality, non-discrimination and non-judgmental

attitudes;k) allowing and accommodating for supervisory/monitoring visits by DNHA and/or its representatives and

stakeholders;l) making staff available for such visits;m) maintaining regular lines of communication with DNHA; n) sharing knowledge and experience from the project and its activities with DHNA; and o) Where relevant, coordinating all project activities with government and other related NGOs.

CHAPTER 3: FUNDS FLOW AND BANKING ARRANGEMENTS

• The GoM receives funding from its Development Partners for the SNIC Project designated as Component A for implementation by the DNHA in Ministry of Health.

• The total project funding is US $43.1 million comprised of US$30 million by the IDA and Canadian International Development Agency (CIDA) TF co-financing with CA$13.5 million (US $13.1 million).

Allocation of Funds

• The Component A - SNIC project finances NGOs sub-projects, consulting services, project management, and goods (i.e., small equipment, basic pharmaceutical products).

• This component has two sub-components as follow:1. Sub-Component A1 - Maternal and child nutrition service

delivery at community level

This sub-component contributes to: a) A strengthened nutrition service delivery platform at community

level through provision of a “minimum package” of nutrition interventions offered in targeted communities.

Allocation of Funds

2. Sub-Component A2 - Strengthening policy and program development, management and coordination

This sub-component supports:

a) Joint planning with and financial support to the sectors for nutrition-relevant activities at central and district levels;

b) Orientation and training workshops with stakeholders; c) Monitoring, reporting, surveillance and operational research, including a

project specific gender analysis, particularly with gender-related perceptions of nutrition and care-giving roles and responsibilities at the household level;

d) Advocacy and strategic communication; e) Technical assistance for key responsibilities to fill gaps relevant to project

management and implementation as well as the stewardship, oversight and coordination function at central and district level; and

f) Improved office space for DNHA through lease and/or supply of office equipment.

Funds Flow

Funds Flow

Funds flow arrangements for the project through the bank accounts as highlighted in the figure (previous slide) are as follows:

• DNHA will prepare a six-month cash flow forecast based on agreed work plans then submit a withdrawal application request to the Bank (IDA) through the Ministry of Finance.

• IDA will process the withdrawal application and disburse funds to the Designated Account in US dollars.

• DNHA will transfer funds from the Designated Account into the Project Account as and when required in local currency

• Project expenditure can be paid from either the Designated Account or Project Account.

Banking arrangements

• The banking arrangements under the Component A - SNIC project will operate at National, District Council and Community levels as categorized below:

Level A: National

o The cooperating partner maintains a loan/credit/grant account (as appropriate) denominated (usually) in a basket unit of currency (SDR, UA, or other stable currency).

o The MoF/DNHA opened dollar-denominated Special Accounts (SA) to receive the proceeds of the external resources. Funds from the special account may be used to make direct payments or to transfer funds to a Kwacha Holding account maintained at the RBM

Banking arrangements

Level A: Nationalo Funds from the special account flows into a Kwacha holding

account at the RBM at the request of the MOF as initiated by the DNHA. The holding account operates as a transit account into which claims from commercial bank accounts will be settled.

o The Credit Ceiling Authority System was introduced to improve on the cash budget system. Under the system, funds are kept at the RBM in a related holding account to a commercial bank.

o The DNHA opened and maintain Local Currency Accounts (LCA) at a commercial bank. The DNHA is responsible for the control of these accounts and maintenance of related records.

Banking arrangements

Level B: District Council o Subject to special provisions of financing partners, funds are channeled

to District Councils through a Component A - SNIC project bank account maintained and monitored by the District Executive Committee (DEC) and Department Officers with a Commercial Bank within the District

Level C: NGO and Community Levelo Funds from the NGOs flows to Communities and Sub-contracted

agencies for sub-project implementation. The Communities and Sub-contracted agencies opened sub-project bank accounts in the name of the sub-project under implementation. Designated project members, in accordance with the signed agreement between the NGO and the Communities or their agencies controls the bank account and maintain cash book records and sufficient documents in support of transactions passing through the account.

CHAPTER 4: ACCOUNTING AND REPORTING

Responsibility• The Accounting Officer for each implementing agency has the

overall responsibility to ensure that accounting responsibilities and obligations applicable to Component A - SNIC project activities under their control are properly performed and delivered.

Accounting Systems• Various accounting systems will apply according to the

intended use of the accounting information at each level of implementation and the level of the development of accounting instruments available at the implementing agency. The accounting systems shall satisfy the objectives set out in the Public Finance and Management Act., 2003.

Accounting Policies

Accounting Convention• The accounts are prepared under historical

cost convention and on a cash basis without taking account of accruals.

Receipt Grants to district councils Foreign currency transactions Fixed asset and depreciation Consumable stores

Cash Receipting Procedures

• All receipts of the project shall be captured and acknowledged by issuing an official GoM/NGO receipt. Credits directly entered on operating bank accounts statement will be receipted first before being recorded in the cash book using a General Receipt (GR).

Controls?

Government contribution

• As the source of financing for the Component A - SNIC project reflects Government contribution, contribution in kind like office space, water and electricity shall not be valued as it is not part of the project cost.

• Nonetheless, the cost of Government staff attached to the DNHA/NGOs and not directly paid from Component A - SNIC project resources shall be valued on quarterly basis and the same shall be reflected as Government contribution in financial reports. Similarly, the assumption of 20% of labour cost of district staff involved in Project implementation shall also apply.

Beneficiaries’ contribution

• Included in the community sub-project cost is the contribution by the beneficiaries’ towards the cost of the Project. Considering that the contribution by the communities where the Project is implemented is in kind (e.g. sand, bricks and labour), the DNHA shall have to liaise with the district officers and establish the monetary value of the same for the purpose of reflecting in their periodic reports to stakeholders.

Payments

• At the DNHA/or any Implementing Agent (IA), there should be signed contracts, work plans or activities agreed upon and approved by the Steering Committee or the Ministry of Finance. This represents a requisition for expenditure. The Procurement Specialist/Internal Procurement Committee (IPC) endorses quotations/pro-forma invoices/invoices and submits them to appropriate authority for approval and authorization. The Project Manager forwards the quotations to the Director Finance for processing of payment.

• Procedures (refer to the details in the manual)

Petty Cash

• A float may be maintained for petty cash purposes with an established limit and approved by the management of the implementing agency in accordance with Government procedures.

Bank Reconciliation

• At the DNHA/or any Implementing Agent (IA), there should be signed contracts, work plans or activities agreed upon and approved by the Steering Committee or the Ministry of Finance. This represents a requisition for expenditure.

• The Procurement Specialist/Internal Procurement Committee (IPC) endorses quotations/pro-forma invoices/invoices and submits them to appropriate authority for approval and authorization.

• The Project Manager forwards the quotations to the Director Finance for processing of payment.

Assets

• New assets acquired for the Component A - SNIC project are/ or should have been procured through a centralized procurement arrangement at the DNHA. Those assets acquired through project funds shall remain project assets until the end of the project.

• A project fixed assets register shall be maintained by the Head of the Finance of each implementing agency in receipt of project assets. The Director of Finance at DNHA shall maintain a consolidated fixed assets register of all items acquired through specific project funds.

• All assets related to projects shall be identified, correctly recorded in project books and periodically verified. Civil Works will require a cost accumulation ledger for each works component and subsequently a fixed asset register.

Fixed asset controls and procedures

• The fixed asset register shall be maintained to show the following in relation to each asset: Source of Finance, Asset type description, purchase date, cost supplier, location/user, make/model, registration/serial number etc.

• The PS DNHA shall authorize procurement of fixed assets reflected on the procurement plan approved by the respective cooperating partner.

• The Head of Finance of the implementing agency shall ensure that the asset is recorded in the assets register at the time of receipt of the asset. The assets register should be updated on a monthly basis.

• Depreciation provision on fixed assets shall not be made, as this is GOM policy.

• A copy of the fixed assets register shall be circulated to management on quarterly basis.

• All major assets shall be comprehensively insured.• All assets shall be applied for official designated purposes only.• The implementing agency ensure maintenance of a file for each motorized

asset to contain details like service etc.

Fuel procurement and controls

• Fuel shall be procured based on an approved planned activity to be implemented. Occasionally, fuel may be procured for local running of pool vehicles.

• Considering that fuel is initially procured in form of coupons or credits loaded on cards, controls are required as the coupons and cards represent cash.

• Procedures?

Accounting Reports

• The accounting reports under the DNHA will be prepared to satisfy three main stakeholders:

(a) Government of Malawi;(b) Funding Partners (IDA and CIDA); and(c) Management of the participating

implementing agencies (management accounting reports).

GoM Reporting Requirements

• The DNHA will submit monthly expenditure returns to the MOF and cash controls on the Component A - SNIC project to the Accountant General by 10th of the month following the month under reporting.

• The expenditure returns will constitute:o Summary Statement of Monthly Development Expenditure;o Detailed Statement of Monthly Development Expenditure;o Summary Commitment Control System;o Detailed Commitment Control System;o Monthly Bank Reconciliation Statement;o Monthly Cash Controls Report

• The Monthly Expenditure Return will compare expenditure plus commitments with prorated budget provision.

Funding Partners Reporting Requirements

Interim Financial Reports (IFRs)

• The DNHA shall produce and submitted IFRs to the Funding partners on a quarterly basis.

• An annual IFR shall be audited by independent auditors. The terms of reference for the annual audit shall be cleared by the Funding partners.

• The financial information shall provide linkages with information on physical progress as well as procurement to ensure consistency.

Funding Partners Reporting Requirements

Contents of Interim IFRs

IFRs will consist of a set of quarterly financial statements presented in a standardized format. The statements will be presented according to financing partner’s category of expenditures and also in a consolidated format: These statements will be:

Statement of sources and uses of funds; Statement of sources and uses of funds by expenditure category; Statement of uses of funds by activity; Designated account activity statement; Payments made subject to funding partner’s prior review; Other contracted payments made during the quarter; Quarterly cash flow forecast; and Details of quarterly cash flow forecast.

Annual Financial Reports

• The DNHA annual financial reports shall include:

a) A statement of Sources and uses of funds reflecting quarterly uses by cooperating partner and cumulative totals.

b) Uses of funds by category and activity showing actual uses, planned uses, and variance analyzed as to current two quarters, cumulative to date, percentage of actual against plan and planned figures as per appraisal document.

c) Designated Account (DA) Activity Statement

Line Item Reports

• This shall follow GOM’s chart of accounts, showing separately all discreet activities by item and sub item.

• The IFRs over the project year should be drawn in such a manner as to be able to use the same as projects annual financial statements for auditing. This would be cost effective and result in timely auditing of the project’s annual statements.

Other reports

• Physical Progress Reports

o The reports shall include narrative information and output indicators initially agreed, linking them with the financial information and highlighting issues requiring attention.

• Procurement Reports

o These provide information on the procurement of goods, work, and related services, and selection of consultants, and on compliance with agreed procurement methods. It compares actual procurement performance against that planned and highlights key issues like complaints by bidders, borrower’s capacity, contractual disputes and unsatisfactory performance by contractors.

o In summary, IFRs cover the total project as described in the Project Appraisal Document (PAD) and reflect all activities, financing, expenditures, contributions in kind such as labour with appropriate valuations to be done to determine contributions in kind and recorded in the books of accounts.

•

Timing and Submission of Reports

• Quarterly reports shall be submitted within one month following the end of the quarter being reported.

• Audited annual financial statements including the Auditor’s Report shall be submitted within six months after the close of the financial year

CHAPTER 5: AUDITING AND ANTI-CORRUPTION ARRANGEMENTS

• Project auditing arrangements will take three forms. Internal Auditing, Technical Auditing, and External Auditing.

• Internal Auditing

o All project implementing agencies, other than communities, will ensure that they operate internal audit units. The head of the each implementing agency shall ensure that resources are allocated for internal audit function and that internal auditing plans cover DNHA activities. The Director of Central Internal Audit in the Ministry of Finance shall be responsible for coordinating action on the various internal audit reports.

AUDITING AND ANTI-CORRUPTION ARRANGEMENTS

Technical Auditing

• The DNHA shall make arrangements for Technical Audits to be undertaken for all areas that have been allocated funds for Component A - SNIC project implementation.

• The DNHA shall ensure that resources are allocated for Technical Audits.

• The DNHA shall be responsible for drawing up terms of reference for technical audits, and supervising the Technical Auditors, disseminating results of the technical audits, and following up with action on the audit reports.

AUDITING AND ANTI-CORRUPTION ARRANGEMENTS

External Audit • The National Audit Office (Auditor General) shall

be responsible for conducting audits or selecting and appointing, to act on his behalf, sub-contracted auditors to undertake statutory audits.

ANTI-CORRUPTION ARRANGEMENTS

• The Anti-Corruption Bureau will contribute to the Component A – SNIC project Governance process as well as lead in the implementation of the National Anti-Corruption Strategy. The Bureau will provide:-

a) capacity building to the Component A - SNIC project implementing agencies and their personnel;

b) Strengthen and promote corruption reporting system and improve the systems accessibility within the Component A - SNIC project framework;

c) Share information within with DNHA management for improvement of the fund delivery strategies;

d) Assist in the implementation of the National Anti-Corruption Strategy, within the Component A - SNIC project;

e) Work with other private agencies in relation to private sector concerns on matters affecting the Component A - SNIC Project; and

f) Undertake an evaluation of the impact of the anti-corruption strategies adopted for the Component A - SNIC project.

CONCLUSION

• The Financial Management Manual of October 2012 is to be used for the administration of the Nutrition, HIV and AIDS Project (NHP) Funds in respect of Component A – Support for Nutrition Improvement Component (SNIC) Project.

• The purpose of the manual is to describe the financial accounting policies and procedures to be followed. The manual also details the internal controls and specific methods to safeguard the project’s assets, check the accuracy and reliability of recorded accounting data, and promote efficiency in the accounting operations