Financial Management training for client
Process of planning and controlling financial resources to
achieve optimum economic and financial benefits from an
investment.The main elements of financial management
system are:
. Planning and budgeting
. Internal control
. Accounting system
. Financial reporting
. Auditing
Table of Content
I- What is Financial Management?
II- Why we need a good Financial Management system?
III- World Bank Policies and Guidelines on Project Financial
Management
IV- When we should perform Financial Management
activities?
V- How to strengthen Financial Management practices?
VI- Recent changes to Project Financial Management
procedures
VII-Financial Monitoring Reports (FMRs)
1
I- What is Financial Management?
Process of planning and controlling financial resources to
achieve optimum economic and financial benefits from an
investment. The main elements of financial management
system are:
Planning and budgeting
Internal control
Accounting system
Financial reporting
Auditing
2
II- Why we need a good Financial
Management system?
Provides the comfort needed by the lenders, borrower
country and donor community.
Provides information to manage project and monitor project
progress.
Reduces an eliminates frauds and corruptions in project.
3
III- World Bank Policies and Guidelines on
Project Financial Management
- Article Iii, Sec.5(B), of the Bank’s Articles of
Agreement: The Bank should make arrangements
to ensure that borrowers use loan Proceeds:
Only for the purpose intended
With due attention to economy and efficiency
4
III- World Bank Policies and Guidelines on
Project Financial Management (con’t)
- Policies and Guidelines to facilitate compliance
with Art.Iii, Sec.5(B):
Operational Policy 10.02 (OP 10.02)
Bank Procedures 10.02 (BP 10.02)
Guidelines
FARAH
LACI Implementation Handbook
The Project Financial Management Manual
Guidelines on Assessment of Financial Management Arrangement in Bank projects
Guidelines on Assessing and Designing accounting system and Accounting software.
Financial Monitoring Reports-Guidelines to Borrowers
Others…
5
III- World Bank Policies and Guidelines on
Project Financial Management (con’t)
- OP 10.02
Authoritaive source of the Bank’s project financial management
requirements
Describe the minimum FM requirements for every Bank-financed project.
Requires projects to:
maintain adequate financial management systems
prepare annual audited financial statements
have the financial statements audited and submitted to the Bank
Describe the remedies available to the Bank in the event of non-
compliance
If the Bank does not receive acceptable audited FS, audited SA
If the audited FS reveal major deficiencies in internal controls
If there is inadequate evidence that funds have been used for eligible
expenditure 6
III- World Bank Policies and Guidelines on
Project Financial Management (con’t)
- BP 10.02
Describe application of OP 10.02 in the
project cycle
Recognise the CFAA as a starting point
7
IV- When we should perform Financial
Management activities?
- At stage Preparation, Appraisal and Approval
Each project should have adequate Financial
Management system
Bank staff should assess the current system of the
project and if not yet adequate should come up
with an Action Plan for remedial action.
If no system is in place should advise on the
design and come up with timetable for
implementation that proposed system.
8
IV- When we should perform Financial
Management activities?(con’t)
- At stage of Implementation
Project Implementing Entity should maintain a
sound FM system.
Appropriate audit arrangement should be made
and provide audited FS on timely basis.
FM system should be monitored through out
implementation process
9
V- How to strengthen Financial Management
practices?
1- Planning and budgeting
Should have realistic plan
Should harmonise planning and reporting
information
Should have close link between plan and relevant
processes of project
PIU should monitor timeliness and costs including
procedures for remedial actions when required
10
V- How to strengthen Financial Management
practices?(con’t)
2- Internal control
Suitableauthorization procedure
Segregation of duty
Safeguarding of assets
Independent verification
Monitoring
Reconciliation
11
V- How to strengthen Financial Management
practices?(con’t)
3- Accounting system
Chartof accounts
Accounting policy
Bookkeeping procedure
Accounting software
Supporting document
Financial report system
System interface
12
V- How to strengthen Financial Management
practices?(con’t)
4- Financial reporting
Financial reporting for Bank-funded projects:
Project financial statement ( audited), periodic
financial reports (unaudited).
Financial reporting of implementing entities
(audited)
Deadline for receiving audited financial
statements ( 6 months after the year end).
13
V- How to strengthen Financial Management
practices?(con’t)
5- Auditing
Selection process of auditor
Work of auditor: Entity Financial Statements,
Project Financial Statements ( FS, SA with source
and application, SOE reliability), Compliance
audit, Operation audit.
Output of auditor: Financial Statement and
Management Letter.
Follow-up of audit findings.
14
VI- Recent changes to Project Financial
Management procedures
1- What is Changing
FM Assessments – More structured, risk-based, approach.
Better linkage to CFAA.
Reporting – FMR replaces PMR
Simpler, more Flexible
Customized to better fit borrower systems and the way
projects are managed and monitored
Disbursement information only included if disbursements
are report-based
Governance – Clarified roles of regional FM staff vis-à-vis the
Loan Department (Disbursements)
Bank’s Internal Signoff - on Assessments and Report-Based 15
Disbursements simplified
VI- Recent changes to Project Financial
Management procedures(con’t)
2- What is NOT Changing?
Requirement for all projects to have:
An FM and Procurement Capacity Assessment
Periodic reporting on fiduciary aspects of project
implementation
Project Audit Policies and Procedures
Choice as to Mode of Disbursement
16
VI- Recent changes to Project Financial
Management procedures(con’t)
3- How were changes decided?
Based on two Extensive Reviews
Included consultations with:
Bank staff at all levels
Borrowers in many countries
17
VI- Recent changes to Project Financial
Management procedures(con’t)
4- Timing and Impact of the Changes
Projects appraised:
Pre-July 1998 are not affected
July 1, 1998 – December 31, 2001 will have
option to convert to new procedures
After January 1, 2002 required to submit the new
FMRs as agreed at negotiations
18
VII- Financial Monitoring Reports (FMRs)
1- General
PMR vs. FMR
Underlying principles
Funds are used for intended purposes
Project implementation is on track
Budgeted costs will not be exceeded
Reports aligned with borrower systems as far as
possible
PMR-based disbursement is no longer the main
overriding objective of the reports 19
VII- Financial Monitoring Reports (FMRs)
(con’t)
2- Content of FMRs
(i)Introductory narrative discussion of developments
and progress
(ii)Financial Reports
Sources and Uses of funds (period and
cumulative)
Uses of funds by project components (budgeted
and actual, period and cumulative)
Format agreed between Project Accountant and
the Bank’s FMS. Some countries may use
common formats across projects 20
