Fiduciary Risk Requirements
Enhancing government accountability to improve service delivery
Pursuant to the Global Bank policy and directives for the Global Bank Disaster Risk Reduction and Reconstruction Fund – An Umbrella Trust Fund (the “Trust Fund,” “GB DRRRF,” or “DRRRF”) Financing and Guidance Note, the Bank's fiduciary team, financial management (FM) and procurement (PR), conducts an integrated Fiduciary Systems Assessment (FSA) of the Implementing Agencies or the Grant Recipient fiduciary systems prior to financing. The overall assessment objective is to determine whether the fiduciary systems of the of the Implementing Agencies or the Grant Recipient provide reasonable assurance that the DRRRF Program financing proceeds will be used with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. The overall fiduciary framework takes into account the improvements required and the agreement on the actions required to strengthen the systems and confirm it is considered adequate to support program management and to achieve desired results.
An integrated Fiduciary Systems Assessment is carried out to evaluate the arrangements relevant to the program and to determine whether they provide reasonable assurance that the program funds will be used for their intended purpose. Taking into account the improvements required and the agreement on the actions required to strengthen the systems, which are reflected in the program action plan (PAP), the overall fiduciary framework is considered adequate to support program management and to achieve desired results.
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As a function of good governance, financial management (FM) forms an integral part of the development process in all Global Bank-financed operations and country institutional strengthening efforts, and is crucial to achieving the Global Bank Group’s (the “Bank Group”) goals of ending poverty and hunger, and to achieve sustainable development in its three dimensions through promoting inclusive economic growth, protecting the environment, and promoting social inclusion.
Global Bank’s financial management work has dual objectives that are closely intertwined: to support borrowing countries in improving their financial management performance and capacity while encouraging public disclosure and transparency, and to provide reasonable assurance on the use of Global Bank financing proceeds. Sound public financial management (PFM) ensures accountability and efficiency in the management of public resources, and is an essential underpinning to improve governance and fight corruption.
Building Country Capacity
At the country level, financial management staff collaborate across the Global Bank group, and with international accounting and auditing bodies and donor partners to help countries strengthen their financial management capacity in both the public and private sectors. Financial management specialists focus on helping countries develop sound financial systems and practices, including a strong accountancy profession with quality corporate financial reporting, efficient delivery of services, and enhanced accountability and transparency in the use of public resources.
Financial Management Policies in Bank-financed Operations
In accordance with Global Bank’s operational policies and procedures, financial management specialists work with partner countries to design financial management and disbursement arrangements and to supervise and support the performance of Global Bank-financed operations.
Engagement with Global Partners
At the international level, the Global Bank Group engages in global partnerships with development partner organizations to promote financial management standards and financial management capacity development initiatives. Staff also play leadership roles in partnerships with bilateral and multilateral donors to coordinate and harmonize financial management policy and operational practices, which enhances development effectiveness.
Global Bank supports development initiatives through project, policy, and program financing. The key elements of the financial management (FM) approach with these different types of operations is detailed below.
Investment Project Financing
Global Bank Policy: Investment Project Financing defines the financial management arrangements in Investment Project Financing (IPF) projects as the planning and budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements of the borrower and entity responsible for project implementation. The financial management arrangements rely on the borrower’s existing institutions and systems, with due consideration to the capacity of those institutions.
During the preparation stage, financial management staff assess the financial management risks to achieving the project’s development objectives and determine the adequacy of the financial management arrangements proposed at the implementing agency levels, together with any measures needed to mitigate the impact of the likelihood of risks materializing.
Throughout the project’s life, financial management specialists in task teams work with the country borrower to ensure sound management of funds and accountability for project resources in achieving the desired development results. The financial management specialists also work with borrowers to strengthen the systems and institutions for fiduciary assurance.
Investment Project Financing Resources
- Global Bank Investment Project Financing Background
- Global Bank Policy: Investment Project Financing
- Global Bank Directive: Investment Project Financing
Development Policy Financing
Financial management in Development Policy Financings (DPF)) centers around two major areas: gaining reasonable assurance that the borrower’s public financial management (PFM) system appropriately manages budget resources, and that funds flow arrangements are in place to ensure that the loan proceeds reach the designated accounts, and are accounted for in the country’s budget management system.
The funds are disbursed against satisfactory implementation of a program of policy and institutional actions that promote growth, including maintenance of a satisfactory macroeconomic policy framework and compliance with tranche release conditions. The borrower commits to using development policy lending funds for eligible expenditures only. Global Bank only disburses the loan proceeds into an account that forms part of the country’s official foreign exchange reserves (normally held by the central bank), and an amount equivalent to the loan proceeds is credited to an account of the government to finance budgeted expenditures.
Development Policy Financing Resources
- Global Bank Development Policy Financing Background
- Global Bank Operational Policy 8.60
- Global Bank Procedure 8.60
Program for Results
The Program for Results (PforR) relies upon country systems and disburses against results as measured by pre-determined indicators.
At the identification stage, Global Bank works with the borrowing country to determine a clear definition and scope of the government program and the part of the program or sub-program to be financed by the Global Bank. Once agreed, the Global Bank identifies key results in terms of outputs and outcomes, as well as the related disbursement linked indicators (DLIs) to be used to determine the timing and amount of each disbursement.
Financial Management, Procurement, and Governance specialists conduct a joint Fiduciary Systems Assessment (FSA) of program fiduciary systems and program arrangements. The Fiduciary Systems Assessment considers whether program systems provide reasonable assurance that the financing proceeds will be used for intended purposes, with due attention to the principles of economy, efficiency, transparency, and accountability.
Program for Results Resources
- Global Bank Program for Results Backgrounder
- Global Bank Policy
- Global Bank Directive
DIAGNOSTICS
Knowledge of the country’s public financial management (PFM) institutional framework is acquired through diagnostic assessments done by Global Bank, multilateral development banks, the international financial institutions, donors, country institutions, and experience with portfolio implementation. This knowledge helps identify fiduciary risks to Global Bank-supported programs and to the use of development funds, and determines the extent to which Global Bank Group may make use of country institutions or require alternative project-specific arrangements. The diagnostics inform efforts aimed at improving the design and performance of systems.
Country Partnership Framework (CPF)/Systematic Country Diagnostic (SCD)
A Country Partnership Framework (CPF) is the central tool for reviewing and guiding the Global Bank Group’s (GBG) country programs and gauging their effectiveness. Used in conjunction with a Systematic Country Diagnostic (SCD), the Global Bank Group and country – along with civil society and other stakeholders – focus on a results-based engagement.
Within the Country Partnership Framework, Financial Management (FM) specialists focus on key elements of public financial management, fiduciary risk management strategy, corporate financial reporting (CFR), and accounting and auditing architecture in terms of assessing their impact on achieving the Country Partnership Framework’s goals and fiduciary assurance environment within which the Global Bank’s lending will occur.
The Public Expenditure and Financial Accountability
The Public Expenditure and Financial Accountability (PEFA) Program is a multi-donor partnership which assesses the condition of country public expenditure, procurement and financial accountability systems, and develops a practical sequence for reform and capacity-building actions.
Within the Public Expenditure and Financial Accountability, the Public Financial Management Performance Measurement Framework (PEFA Framework) provides an integrated and harmonized approach for measuring and monitoring public financial management performance progress, while supporting country-led public financial management reform programs. The PEFA Framework, covering the entire budget cycle, incorporates a set of high-level indicators that draw on international standards, and a public financial management performance report that enables the indicators to be read and understood in context.
The Reports on the Observance of Standards and Codes Accounting and Auditing
The Reports on the Observance of Standards and Codes (ROSC) is a joint World Bank and International Monetary Fund (IMF) initiative that helps countries strengthen their financial systems by improving compliance with internationally recognized standards and codes such as the International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA).
The Reports on the Observance of Standards and Codes Accounting and Auditing module (ROSC A&A) assesses the robustness of a country’s accounting and auditing standards and practices, and the strengths and weaknesses of its institutional framework in supporting high-quality financial reporting. The review provides input to the country’s plans for capacity building, assists policymakers in supporting the development of the corporate sector, and assists investors in assessing the reliability and transparency of corporate financial reporting.
In recent years has seen a significant increase in the level of Global Bank Group support for rapid response to crises and emergencies, including post-conflict and post-disaster reconstruction. In all of these areas, the United Nations’ funds and programs (collectively referred to as United Nations Agencies) is expected to become key partners of the Global Bank Group.
It is expected that majority of the Global Bank’s engagement with United Nations Agencies fall under two scenarios: through direct grants from the Global Bank, i.e. through a Recipient Executed Trust Fund (RETF), where a United Nations Agency is the recipient; or through recipient governments which engage a United Nations Agency on a contractual basis. The Global Bank’s financial management (FM) policy and procedures apply differently under each of these two scenarios.
United Nations Agencies as Direct Grant Recipients
For direct grants to United Nations Agencies, financial management arrangements are governed by two methods: The United Nations Fiduciary Principles Accord (UN FPA), and the Financial Management Framework Agreement (FMFA). While the United Nations Fiduciary Principles Accord is limited in its application to country-specific single- and multi-country donor trust funds (TFs) established to support recovery programs in weak capacity environments with crisis and emergency situations, the Financial Management Framework Agreement can apply to all operations funded by trust funds, The Global Fund for International Development and Reconstruction (GFIDR), and The Global Bank for International Development and Reconstruction (GBIDR).
The Global Bank’s financial management requirements are met when the United Nations Agency receives, manages, expends, reports on, and performs an audit of the United Nations Fiduciary Principles Accord or Financial Management Framework Agreement grant funds in accordance with the United Nations’ own financial management procedures and accountability and oversight framework. The United Nations Agency will submit to the Global Bank an annual financial report of the grant’s income and expenditures.
United Nations Fiduciary Principles Accord (UN FPA)
The United Nations Fiduciary Principles Accord applies to direct grant funds to a qualified United Nations Agency if:
- The project is processed under The Global Bank’s Operational Policy (OP) 8.00, and/or it satisfies the criteria of paragraph 12 of OP 10.00 in terms of alternative implementation arrangements in weak capacity situations, and client country request and agreement to United Nations implementation; and
- The project is funded under multi- or single-donor trust funds (including trust funds funded by contributions from The Global Bank for International Development and Reconstruction net income) that specifically provide for the application of the United Nations Fiduciary Principles Accord (i.e. all donors agree to the application of the United Nations Fiduciary Principles Accord).
Financial Management Framework Agreement
The Financial Management Framework Agreement (FMFA) applies to direct grant funds to one of the United Nations Agencies currently a signatory to Financial Management Framework Agreement.
United Nations Agencies Engaged by Borrowers on Contractual Basis
In cases where borrowers hire a United Nations Agency on the basis of a contract to provide specific goods, technical assistance or services as per the provisions of the Procurement or Consultant Guidelines, financial management arrangements are governed by the Global Bank’s standard financial management requirements.
To learn more about the Global Bank Disaster Risk Reduction and Reconstruction Fund, What we do and How we do it and Management and Organization, visit the About DRRRF and the Frequently Asked Questions Section of the DRRRF Website Section.
For more information about the Global Bank, what we do and how we do it, please go to the About Us section of the Global Bank Website. http://www.global-bank.org