FINANCIAL MANAGEMENT IN

WORLD BANK OPERATIONS:

ANNUAL REPORT FOR FY09

Financial Management Sector Board

Operations Policy and Country Services

March 31, 2010

ABBREVIATIONS AND ACRONYMS

AFR Africa Region

ARCS Audit Reports Compliance System

CAS Country Assistance Strategy

CFAA Country Financial Accountability Assessment

COSO Committee of Sponsoring Organizations of the Treadway Commission

CPAR Country Procurement Assessment Report

CSR Controller’s Strategy and Resource Management

DPO/DPL Development Policy Operation/Loan

EAP East Asia and the Pacific Region

ECA Europe and Central Asia Region

FM Financial Management

FMSB Financial Management Sector Board

FY Fiscal Year

GAC Governance and Anticorruption

IASB International Accounting Standards Board

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IDF Institutional Development Fund

IFAC International Federation of Accountants

IFRS International Financial Reporting Standard

IMF International Monetary Fund

INT Department of Institutional Integrity

INTOSAI International Organisation of Supreme Audit Institutions

JET Joint Evaluation Team

LCR Latin America and Caribbean Region

LOA Loan Department

MDB Multilateral Development Bank

MNA Middle East and North Africa Region

MoU Memorandum of Understanding

MTEF Medium-term Expenditure Framework

NGO Nongovernmental Organization

OCCEFS Organization for the Superior Audit Institutions of Central America

OECD–DAC Organisation for Economic Co-operation and Development – Development Assistance

Committee

OP/BP Operational Policy/Bank Procedures (statements)

OPCFM Financial Management Unit, OPCS

OPCS Operations Policy and Country Services

PEFA Public Expenditure and Financial Accountability Program

PER Public Expenditure Review

PFM Public Financial Management

PFM-SCDI Public Financial Management Staff Capacity Building Initiative

PREM Poverty Reduction and Economic Management Network

PRIMA Portfolio Risk Management System

ROSC A&A Report on the Observance of Standards and Codes – Accounting and Auditing

SAI Supreme Audit Institution

SAR South Asia Region

SWAp Sectorwide approach

FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS:

ANNUAL REPORT FOR FY09

CONTENTS

Executive Summary ..................................................................................................................... iii

I. Introduction ................................................................................................................................1

II. The FM Sector: At Work in Partner Countries.....................................................................2 A. Regional FM Efforts ......................................................................................................3

B. Audit Oversight ............................................................................................................11

C. Helping Partner Countries Improve Their Financial Management ..............................12

III. The Sector Board and Anchor: FY09 in Review ...............................................................14 A. Supporting and Guiding Regional Efforts ...................................................................15

B. Global Partnerships and Activities ...............................................................................17

IV. The FM Sector: FY09 Institutional Agenda .......................................................................19 A. Financial Management Strategy....................................................................................19

B. Staff Development.........................................................................................................20

V. Looking Forward: FY10 Priorities and Challenges.............................................................21

Boxes

Box 1. Supporting Skills Upgrading—Africa’s PFM Staff Capacity Development Initiative .............. 3 Box 2. Building Country FM Systems: Mozambique .............................................................................. 4

Box 3. Internal Audit Capacity Building in East Asia and the Pacific .................................................... 5 Box 4. Strengthening Armenia’s PFM ....................................................................................................... 6 Box 5. First Programmatic Technical Assistance in Turkey .................................................................... 7

Box 6. PFM Capacity-Building Efforts in the LCR Region..................................................................... 7 Box 7. Audit Firms’ Capacity in the MNA Region .................................................................................. 8 Box 8. Capacity-Building in the MNA Region ......................................................................................... 9

Box 9. Supporting Quality of FM work in Investment Lending in India ............................................. 10 Box 10. Building Country FM Systems: Afghanistan ............................................................................ 11 Box 11. Supporting PFM Reform ............................................................................................................ 13 Box 12. Regional Experiences with Professional Capacity Development ............................................ 14

Box F1. Mainstreaming GAC: ECAFM Team Trains Task Team Leaders ......................................... 34

Tables

Table 1: Timeliness of Audit Reports due in FY09 and FY08 ........................................................ 12 Table 2: FM Sector Staffing ......................................................................................................... 20 Table 3: FM Sector Formal Learning Activities, FY09 ................................................................ 20

Annexes

Annex A. FM Economic and Sector Work, FY09 .................................................................................. 23 Annex B. FM Institutional Development Fund Grants, FY09 ............................................................... 25

Annex C. FIRST Initiative Grants, FY09 ................................................................................................ 27 Annex D. ROSC Accounting and Auditing Status Report, FY09 ......................................................... 28 Annex E. FM Sector Board Committees and Working Groups ............................................................. 31 Annex F. Promoting Information Sharing: Internal and External Learning Activities ...................... 33

FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS:

ANNUAL REPORT FOR FY09

EXECUTIVE SUMMARY

1. The objective of the World Bank’s work in the Financial Management (FM) Sector is to

support the achievement of development results by providing reasonable assurance on

borrowers’ use of Bank funds and by helping partner countries improve their financial

management. FY09, a year marked by the global financial crisis, underscored the importance of

FM and its oversight role, as development efforts cannot be effective in reducing poverty without

sound country financial management systems and the fiduciary assurance that funds are used for

their intended purposes.

2. Delivering Quality Services. FM Sector Staff are fully integrated into Bank project teams

supporting over 1,600 active investment operations representing a total commitment of about

US$136 billion. In response to the financial crisis, the World Bank more than doubled its FY08

lending commitments to nearly $50 billion. FM staff rose to the challenge and provided

increased levels of implementation support. During the year, to strengthen portfolio quality, the

FM Sector made progress towards updating the FM Manual1--a principles-based manual aligned

to the key directions of IL Reform, continued implementing IDA14 Internal Controls Review

recommendations, and started to upgrade the FM management information systems. The Sector

also supported Senior Management by providing corporate reviews of selected programs and

operations as well as input to the investment lending reform effort.

3. Building Partner Countries’ FM Capacity. Working collaboratively with other sectors,

the FM Sector continued to help partner countries implement public financial management

(PFM) reform initiatives through analytic work, stand-alone technical assistance, components of

investment projects and sectorwide approaches, and development policy lending. It promoted

accountancy reform, supported the greater use of country FM systems and, with the International

Organization of Supreme Audit Institutions (INTOSAI) and other donors, signed a Memorandum

of Understanding that provides for a coordinated effort in supporting the capacity-building

initiatives of supreme audit institutions2.

4. Global Partnerships. The Bank continued to lead and participate in several international

groups: the OECD-DAC Task Force on PFM, the MDB FM Harmonization Working Group,

and the PEFA Program. The Sector continued its participation in strategic partnerships with the

International Federation of Accountants (IFAC), INTOSAI and the International Accounting

Standards Board; raised awareness of FM development issues in their activities; and facilitated

partner countries’ adoption of internationally recognized standards, codes and practices. Also,

although the FM Sector worked with IFAC and other donors in supporting the establishment and

development of the accountancy profession in partner countries, considerably more needs to be

done going forward.

1 The Financial Management Manual for World Bank-Financed Investment Operations was issued by the

Financial Management Sector Board in February 2010 and became effective from March 1, 2010. 2 The Memorandum of Understanding (MOU) which was signed in Brussels in October 2009 culminated a

consultative process that began in Mexico in November 2007.

iv

5. Institutional Agenda. To maintain a structure and activities that support carrying out the

Sector’s mandate, the Sector sponsored a range of development and learning activities on topics

of interest to the FM community: PFM, governance and anticorruption (GAC), corporate

finance, trust funds and Bank operations.

6. Priorities and Challenges. During FY10—and well into the future—the Sector expects to

give particular attention to the following areas.

FM Sector Strategy. The strategy, which will provide a cohesive implementation

platform for FY11-13, will focus on three priorities: (a) delivering quality services,

including support for IL Reform and fragile states; (b) building partner countries’ FM

capacity; and (c) promoting global public goods.

Quality and internal controls. Following finalization and issuance of the FM

Manual, the Sector will continue to implement the recommendations of the IDA14

Internal Controls Review; implement Phase II of the Joint CSR/OPCS Evaluation of

Quality Arrangements; and strengthen its management information systems, ARCS

and PRIMA—which is being developed as an institutional system.

FM guidelines. The FM Manual will be rolled out in FY10, along with a range of

guidance notes and supplementary reference material. Guidance on the treatment of

FM in Country Assistance Strategies will also be updated.

Use of country systems. The Sector will continue its work to deepen and accelerate

the use of country FM systems; will continue collaborating with other Bank groups in

providing follow-up support for PFM reforms; and will monitor the use of country

systems.

Private Sector Accounting and Auditing. The FM Sector will continue to work with

partner country institutions to assess and implement accountancy reforms based on

recommendations in Reports on the Observance of Standards and Codes—

Accounting and Auditing (ROSC A&A). A review of lessons learned from these

assessments will identify good practices and inform the future conduct of the

program.

Governance and anticorruption. The FM Sector will continue its GAC work by

contributing to building country FM capacity, developing and disseminating guidance

on GAC issues in project preparation and supervision.

Global partnerships. The FM Sector will continue to engage and take leadership in

global partnerships with bilateral and multilateral donors, helping ensure that policy

and operational issues affecting FM are coordinated and that agreements related to

FM under the global aid effectiveness initiative move forward.

Learning and career development. The 2010 Fiduciary Forum, a broad-scale joint

Financial Management and Procurement learning event that brings together staff from

the Bank, borrowers, and development partners to learn and share experiences, was

hosted during March 1 – 5, 2010, attended by over 600 participants. The Sector will

v

continue to provide knowledge sharing and learning opportunities for its highly

decentralized staff, identify skills gaps, match staff to demand, and develop practices

and procedures to attract and retain staff with the appropriate skills. Moreover, the

Sector will continue to foster rotations, development assignments, and regional cross-

support.

FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS:

ANNUAL REPORT FOR FY09

I. INTRODUCTION

1. The objective of the Bank’s work in the Financial Management (FM) Sector is to support

the achievement of development results by providing reasonable assurance on borrowers’ use of

Bank funds and by helping partner countries improve their financial management, capacity, and

performance. In carrying out this mandate in FY09, the FM Sector continued its focus on quality,

and on supporting partner countries to implement measures to enhance their financial

management capacity and performance, while also positioning itself to address the challenges of

the coming years.

2. Expectations for the Year. The Annual Report for FY083 described a wide range of

activities through which the FM Sector had carried out its mandate. For FY09, the Sector

identified the need to enhance the quality of its work by focusing on several key areas.

FM and PR strategy. The joint strategy, to be finalized during FY09, was expected to

focus on optimizing the two Sectors’ joint contribution to the efficient and effective

use of public resources.

Quality and internal controls. A particularly strong focus on quality and internal

controls was expected to support the finalization and dissemination of the FM

Manual; implementation of the Joint Evaluation of Quality Arrangements being

carried out by Controller’s Strategy and Resource Management (CSR) and Operations

Policy and Country Services (OPCS); and oversight of FM information systems,

including ARCS and PRIMA—which is being developed as a corporate system.

Use of country systems. To deepen and accelerate the use of country FM systems,

the FM Sector planned to finalize and disseminate detailed guidance to help FM staff

in assessing the adequacy of country FM systems for use in Bank-supported

operations. The Sector would also continue collaborating with other Bank groups in

providing follow-up support for public financial management (PFM) reforms.

Private Sector Accounting and Auditing. The FM Sector would continue to work

with partner country institutions to implement accountancy reforms based on

recommendations in Reports on the Observance of Standards and Codes—

Accounting and Auditing (ROSC A&A), including promoting compliance with

international standards.

Learning and career development. Building on the positive results from field staff on

the 2007 Staff Survey, the Sector would continue to foster rotations, developmental

assignments, and Regional cross-support. The Sector would also continue to provide

3 See Financial Management in World Bank Operations, Annual Report for FY08 (SecM2009-0029), January 30,

2009.

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innovative learning opportunities for its highly decentralized staff, identify skills

gaps, match staff to demand, and develop practices and procedures to attract and

retain staff with the appropriate skills.

Governance and anticorruption. The FM Sector planned to continue intensifying its

governance and anticorruption (GAC) work by developing guidance for identifying

and handling GAC ―red flags,‖ guidance on project design and supervision, and

enhanced audit and assurance techniques to address corruption risks in projects. The

Sector would work with the Department of Institutional Integrity (INT) to extract

lessons from INT’s experience of dealing with corruption cases and to conduct joint

training sessions.

CAS guidelines. Work on updating guidance on FM participation and contribution to

Country Assistance Strategies (CASs) was expected to be completed in FY09.

Global partnerships. The FM Sector would continue to engage with and take

leadership in partnerships with bilateral and multilateral donors to help ensure that

policy and operational issues affecting FM were coordinated and that agreements

related to FM under the global aid effectiveness initiative moved forward.

The Sector successfully carried out activities in all these areas4, establishing a strong basis for

growing and adapting to meet the future needs of the Bank and of client countries.

3. Purpose and Structure of Paper. This paper reports on the FM Sector’s FY09 activities

to enhance the quality of its work and promote development effectiveness. Section II summarizes

the work done by FM staff in and with partner countries; Section III describes the activities of

the FM Sector Board and Anchor; Section IV discusses some of the knowledge-sharing activities

the Sector conducted or sponsored; Section V describes the Sector’s institutional agenda; and

Section VI sets out the FM priorities and challenges for FY10.

II. THE FM SECTOR: AT WORK IN PARTNER COUNTRIES

4. FM Sector staff are fully integrated into Bank project teams, providing preparation

support to approximately 300 new investment IBRD/IDA operations (with a commitment value

of close to $50 billion) and implementation support to a portfolio of over 1,600 active operations

representing net commitments of about $136 billion.5 In FY09, as in every year, these staff

worked to provide assurance that the funds provided by the Bank were being used as intended. In

addition, in collaboration with other Bank staff and with other development partners, they helped

partner countries build their financial management systems and capacity. This section

summarizes the work of FM staff in the Regions.

4 Due to work program commitments and constraints, it was not possible to proceed with the Joint FM and

Procurement Sectors Strategy at this particular juncture. However, an FM Sector Strategy is under preparation

and is expected to be finalized by the end of FY10. 5 See World Bank Annual Report 2009.

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A. Regional FM Efforts

5. In FY09 the global financial crisis dominated the news and required significant attention

by many Bank staff and others who work in development. Responding to the crisis, the World

Bank more than doubled its FY08 lending commitments to nearly $50 billion. For many FM

staff this meant considerably increased workloads and the need to work innovatively to meet

borrowers’ greater demand for Bank-support. Alongside these efforts, the Sector carried out

economic and sector work, undertook country systems’ capacity building efforts and led

operational components and grant-financed operations in support of capacity building. Annex A

lists the FM Economic and Sector work the Regions carried out in FY09, while Annexes B and C

respectively list institutional development funds (IDFs) and FIRST Initiative6 grants managed by

FM.

1. Africa Region

6. The Africa Region’s FM team actively supported several partner countries in improving

their PFM systems,7 using analytic work, investment operations, technical assistance, training,

policy dialogue, and development policy operations (DPOs). To scale up the use of country FM

systems, the team integrated capacity-building measures into project design. In Kenya, for

example, the team supported the Internal Audit Department, National Audit Office, and other

institutions, and actively involved them in Bank-financed projects. The team completed the

development of an initiative to build the capacity of PFM staff in partner countries, i.e. the PFM

Staff Capacity Development Initiative (PFM – SCDI). Box 1 highlights a particular aspect of the

Region’s capacity building work.

Box 1. Supporting Skills Upgrading—Africa’s PFM Staff Capacity Development Initiative

A major factor constraining the development of PFM systems in Africa is the very low number of qualified

personnel. The PFM Staff Capacity Development Initiative, developed in collaboration with partner countries and

regional professional associations, aims to help improve the human resource skill base in PFM, accounting, and

auditing. The program is designed to:

a. Enable access for individuals, through employers and/or professional institutes and training institutions, to

accredited PFM professional qualification and training programs;

b. Assist capacity development of professional institutes and training institutions delivering accredited PFM and

private sector accounting and auditing professional qualification and training programs; and

c. Disseminate good PFM practice, targeted on gaps identified through PFM diagnostic work.

7. Use of Country Systems. The FM Sector held structured dialogues in various countries8

with the aim of integrating the use of country FM systems into operations. Under this approach,

6 The Financial Sector Reform and Strengthening (FIRST) Initiative is a multi-donor grant facility providing

technical assistance (TA) to promote financial sector strengthening. Further information available at

http://www.firstinitiative.org/ 7 PFM support is being provided to Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad,

Congo Brazzaville, Côte d’Ivoire, the Democratic Republic of Congo (DRC), Ethiopia, Gambia, Ghana,

Guinea-Bissau, Kenya, Lesotho, Liberia, Malawi, Mozambique, Madagascar, Mali, Nigeria, Niger, Rwanda,

Swaziland, Sierra Leone, Senegal, Sudan, Tanzania, Uganda, Zambia, and through regional institutions like the

West African Economic and Monetary Union (WAFMU). 8 The structured approach to advancing the use of country systems is being applied to seven countries: Benin,

Burkina Faso, Ghana, Mali, Malawi, Mozambique, and Uganda.

4

staff assess the FM-related risks and integrate appropriate mitigating measures; identify the

system elements that are adequate and those that need improvement; and discuss relevant actions

to improve systems with the government and other development partners. The team engaged

with partner countries and relevant stakeholders in several countries to continue strengthening

private sector accounting and auditing. Box 2 describes the experience in Mozambique.

Box 2. Building Country FM Systems: Mozambique

To scale up the use of recipient countries’ FM systems while ensuring adequate fiduciary assurance, the AFR FM

team developed a methodology to systematically assess the fiduciary risks of using country systems, to identify both

the areas in which the country systems could be used and the capacity-building and performance-improvement

measures that would be needed. This approach was pioneered in Mozambique in July 2008. The conclusion was that

the Bank would use the country’s FM system for investment projects, provided the authorities implemented some

cross-cutting measures: roll over unused project funds at year-end, improve the timeliness of issuance of audited

project financial statements, and develop satisfactory modalities of collaboration between private sector auditors and

the supreme audit institution.

Bank projects approved in Mozambique since the review are using the country FM system, with interim

supplemental measures in specific areas where there are weaknesses—five projects in sectors as diverse as private

sector development, health, telecommunication, decentralized finance, and rural development. The Bank is actively

supporting the development of PFM capacity, particularly in the area of internal and external oversight, to facilitate

the full transition to use of country systems.

The Government has welcomed the Bank’s proactive stance. It perceives clear benefits in terms of increased cash

flow (IDA funds flow into the Treasury instead of commercial banks), comprehensiveness and timeliness of budget

execution data, and reduction of transaction costs. In Mozambique, the Bank is now clearly in the lead among

development partners in using country FM systems, and the initiative has attracted extensive interest from bilateral

and multilateral partners.

8. Quality Assurance. The Region updated its quality assurance arrangements to factor in

lessons from implementation of the previous ones. It paid rigorous attention to improving audit

and interim financial reporting compliance. FM staff intensified country-level efforts to

strengthen controls and implementation, invoking remedies as appropriate. The Region

decentralized the entry of data into ARCS to the field offices, and trained additional country

office ACS staff to support these functions. Moreover, FM staff were held accountable through

the regular monitoring of results-oriented operational FM performance indicators. The outcome

has been a robust quality framework, as some of the monitored indicators highlight. A notable

achievement during the year was completion of updating audit reporting information in the

ARCS system. Information is now kept up to date and regularly monitored.

2. East Asia and Pacific Region

9. EAPFM focused on enhancing quality assurance arrangements, including improving

audit and interim financial reporting compliance. FM staff collaborated with colleagues from the

Poverty Reduction and Economic Management Network (PREM) to support countries’

implementation of a number of PFM reform initiatives, including enactment of PFM legislation,

roll-out of integrated financial management information systems, and capacity building for the

adoption of international financial reporting standards.

5

10. Use of Country Systems. The extent to which the Bank relies on country systems in the

Region is varied: countries such as China and the Philippines have used their national supreme

audit institutions (SAIs) to audit Bank- and other foreign-financed projects for many years, while

others, such as Mongolia, depend largely on private audit firms because of the low capacity of

their SAIs. To help build capacity in the Mongolian National Audit Office, the EAP FM team

facilitated a South-South exchange in which China’s National Audit Office staff trained 10

Mongolian staff on foreign funds auditing, management systems, and audit quality assurance. In

addition, two education projects in Vietnam have been designed to strengthen reliance on

country systems, with funding channeled through the Treasury and budget and allocation aligned

to the Government’s cycle.

11. Portfolio Reviews. Country and sector-level reviews of the FM performance of projects

were carried out—often jointly with Procurement and the Loan Department (LOA)—in four

countries: Cambodia, Indonesia, Lao, and Philippines. In each case, proposed remedies for

identified issues were closely aligned with efforts to strengthen the country’s systems.

12. Internal Audit Capacity Building. Dialogue with our client countries has been ongoing

for the last few years, culminating in various interventions to support Internal Audit. Our vision

is that the region will, in the medium-term, have a well functioning and effective public internal

audit; and an efficient value added control framework in the public sector. Box 3 provides some

examples.

Box 3. Internal Audit Capacity Building in East Asia and the Pacific

Vietnam. The Internal Audit Capacity Building IDF Grant supports the Inspectorate of the Ministry of Finance in

Vietnam in improving its effectiveness through enhanced capacity, mainstreaming modernized audit methodology,

greater use of technology and strengthening of the audit profession. This initiative is well aligned with the Country

Partnership Strategy and Vietnam’s 10th

Socio-Economic Development Plan that aims to improve the business

environment in the country, strengthen social inclusion, enhance management of the environment & natural

resources and improve governance systems.

Philippines. The Strengthening Capacity of Public Sector Internal Audit IDF Grant in the Philippines is directed

mainly to support two areas: (i) the establishment of systems and mechanisms for the internal audit framework, and

(ii) capacity building work that ensures the internal audit operations run effectively. This support will contribute to

ensuring continuity to the challenging reforms in the critical Public Financial Management area and assist the

government to implement its strategy on reforming the internal audit. This operation fits squarely in the 2009

Country Assistance Strategy broad objective of strengthening the Public Financial Management to a level that the

business community and other stakeholders will begin to perceive the positive change in the control environment,

leading to greater efficiency in use of public resources and delivery of services to the public.

Indonesia. The IDF Grant to support the State Development Audit Agency (BKP) on the pilot implementation of

the COSO (Committee for Sponsoring Organizations) Framework in Indonesia has facilitated the roll-out of the

COSO framework adopted by the government. The process also attempts to determine suitable approaches to

implementing the framework.

13. Strengthening Supreme Audit Institutions. The EAPFM team aims to address some of

the challenges in the downstream PFM reforms such as helping to strengthen Supreme Audit

Institutions in the region. An Institutional Development Fund (IDF) grant under implementation

supports the Pacific Regional Audit Initiative (PRAI) with the objective of strengthening

capacity of Supreme Audit Institutions (SAIs). It also aims to raise public auditing practices to

uniformly-higher standards across the Pacific sub-region, which in turn is expected to improve

6

transparency and accountability in management and use of public resources. The backlog of

public audit will be reduced significantly if not eliminated by year 2013 and the less developed

SAIs will begin to produce high quality audit reports. The impact of this outcome will enhance

skills acquisition by members through mutual knowledge sharing; as well as leading to high

quality and timely services to citizens.

3. Eastern Europe and Central Asia Region

14. The global financial crisis severely affected many countries in ECA—including recently

graduated IBRD countries such as Hungary and Latvia, which returned to the Bank requesting

crisis-response financing in the form of DPOs. Since the Bank had very little lending and non-

lending activity in these graduated countries, there was no stock of current analytic work on PFM

to support the new requests for DPOs. Therefore, the FM team had to obtain information on the

adequacy of the country’s PFM systems by reviewing all previous Bank and IMF analytic work

and analyses completed by external organizations such as the Organisation for Economic Co-

operation and Development (OECD), European Union, nongovernmental organizations (NGOs),

and local ―think tank‖ institutions, complementing their findings with recent information on such

discrete PFM aspects as medium-term expenditure frameworks, implementation of performance-

based budgeting, budget classification, and IT systems. The crisis provided an opportunity for

the Bank to re-engage with several graduated member countries; but it also made clear the need

for countries to continue to fully implement PFM reforms, many of which had been deferred, not

considered as critical issues during the recent decade of economic prosperity.

15. Capacity Building. The ECA FM team increased its capacity-building efforts by leading

or contributing to diagnostic studies for guiding PFM development, helping countries develop

PFM improvement programs, and supporting implementation with advice, capacity-building

assistance, and knowledge sharing on PFM (Box 4 describes an example).

Box 4. Strengthening Armenia’s PFM

The Public Financial Management and Corporate Accounting and Auditing Project, currently under preparation,

covers many elements of Armenia’s PFM system that were initially supported through IDF grants, analytical work

and technical assistance. The project aims at coordinating the development of the interrelated elements of the PFM

system into a new level of improved accountability, operational efficiency, and fiscal discipline; and to help

establish modern corporate accounting and auditing framework at the national level. It will support (a) public sector

accounting; (b) internal controls and internal audit; (c) non-commercial enterprise accounting, reporting, and

monitoring; (d) implementation of the GFMIS; (e) update corporate sector accounting standards; (f) corporate sector

auditing; (g) public sector external auditing; and (h) e-procurement.

16. The ECA FM team also supported governments in strengthening their own institutional

arrangements for preventing and detecting corruption, specifically supporting key government

agencies responsible for the management and control of corruption risks—Ministries of Finance,

SAIs, and legislative oversight bodies. In this context, ECA FM was responsible for the task

management of 18 trust funds. FY09 was a year of firsts for the team: it managed its first-ever

investment loan in Azerbaijan; led its first-ever Public Expenditure and Financial Accountability

(PEFA) assessment in Montenegro, with the support of other development partners and the

Government; and provided the first programmatic technical assistance in Turkey (see Box 5).

7

Box 5. First Programmatic Technical Assistance in Turkey

The Programmatic Public Expenditure Review is designed to combine the Bank’s traditional diagnostic work (PER report

and PEFA assessment) with a diverse range of activities such as grants to support PFM report implementation, symposia,

trainings, and workshops to support and complement the Turkish Government’s efforts in implementing its PFM reform

agenda. One of the main deliveries in the program’s first year was the preparation of the first volume of a Public Financial

Management Performance Assessment based on the PEFA methodology, a study that was made jointly with Government

counterparts and Bank experts. The second volume will be a detailed assessment that will focus on the implementation

status of PFM reform at the line-agency level. The country office team is also launching a website for PFM in Turkey

(www.turkeypfm.org), to be managed by the Government.

17. Portfolio Quality. Consistently high ratings by the Quality Assurance Group confirmed

that ECA continues to have a robust risk-based quality assurance framework and a solid portfolio

and risk monitoring system.

4. Latin America and Caribbean Region

18. During FY09 the Bank introduced a strategic approach to FM work and enhanced

portfolio monitoring and quality assurance by adopting integrated fiduciary reviews in high-risk

environments. In capacity building, some of the highlights of FY09’s deliverables include the

first two PEFA assessments in LCR middle-income countries—Peru and Colombia—as well as

the completion and dissemination of three Brazil state-level assessments carried out with the

District of Brasilia (Box 6 highlights other capacity-building work in the Region). To share the

experience with global partners, the LCR FM team prepared a synthesis note on subnational

PFM frameworks, pointing to strengths and weaknesses that are common across subnational

entities in Brazil, and describing good practices.

Box 6. PFM Capacity-Building Efforts in the LCR Region

Supporting Regional SAIs. The IDF grant to the Central America Organization of Supreme Audit Institutions

(OCCEFS), having met its objectives and achieved satisfactory results, has given way to a follow-up grant designed

to respond to the organization’s continued demand for Bank services related to the collection of best practices and

recommendations on social audits and the SAIs’ work. To help improve the quality and timeliness of fiduciary

oversight conducted by SAIs in the Caribbean, the LCR FM team continued to support CAROSAI through an IDF

grant, with a view to creating large spill-over learning effects in small countries that have limited human and

institutional capacity.

Supporting the Implementation of PFM Reforms in Peru. The Bank delivered a Fiduciary Workshop for Peru’s

project implementing entities, which involved the active participation of officials from the Ministry of Finance

Budget and Accounting Directorates as well as the SAI, enhancing participants’ understanding of recent government

reforms in PFM (e.g., new budget classifications, new chart of accounts, and audit). In addition, the World Bank,

IMF, and US Treasury joined in providing a Cash Forecasting Seminar, helping different public sector actors who

are involved in the implementation of the Treasury Single Account to enhance their knowledge and understanding of

the importance of inter-institutional information-sharing to support a modern and efficient cash management.

19. Governance. To enhance governance at the country level and pilot innovation in

fiduciary work, the Bank made greater use of holistic approaches to address systemic portfolio

issues and gave increased attention to country-level fiduciary matters. Among other things, the

team (a) designed the Honduras Country Fiduciary Strategy, which covers policy, sectoral, and

portfolio fiduciary actions and is integrated with the overall country governance strategy; (b)

carried out portfolio ―sweep supervision‖ (in Guyana, Haiti, Jamaica, the Organization of

8

Eastern Caribbean States, and St. Lucia), and intensified joint FM-Procurement supervision

activities; (c) piloted the FM Red Flags for Fraud and Corruption Tool in the Argentina Health

Sector and provided recommendations for strengthening the overall governance framework for

the Sector.

20. Knowledge. The Bank prepared two publications: (i) Accounting for Growth in Latin

America and the Caribbean: Improving Corporate Financial Reporting in Support of Regional

Economic Development; and (ii) Accountability in Public Expenditures in Latin America and the

Caribbean: Revitalizing Reforms in Financial Management and Procurement9. Together with

development partners, the Bank supported knowledge and capacity-building through the Global

Distance Learning Network (GDLN) Series ―Europe meets LAC‖—to take stock of and

disseminate experiences in financial reporting and accounting.

21. Donor Coordination and Harmonization. The Bank deepened client engagement by

advancing harmonization with development partners and the use of Country Systems at national

and sub-national levels. The World Bank working jointly with the Inter-American Development

Bank (IADB) supported Honduras’ adoption of the UEPEX financial reporting module for its

entire portfolio, as well as in the Dominican Republic. Thus, allowing projects to report

financial information directly from budgetary execution, enhancing the control framework and

reliability of project reporting. In addition, other activities which have strengthened this agenda,

include: use of provincial IFMIS in Argentina; use of the Single Treasury Account in Costa

Rica— resulting in the full adoption of a discrete element of country system for project flow of

funds; and joint audit TOR’s with the IADB for the audits carried out by the Office of the

Controller General – Federal Accounting Council in Brazil.

5. Middle East and North Africa Region

22. The MNA FM team continued to implement a risk-based approach that focused on results

and regular progress monitoring. Country-level work included carrying out institutional FM

capacity assessments and contributing to the GAC agenda by performing special-purpose

reviews of selected high-risk projects in the Egypt portfolio. Partnership with key national and

regional institutions, as well as inclusion of FM issues in countries’ economic development,

continued to be high priorities. Box 7 describes a specific effort by the FM team.

Box 7. Audit Firms’ Capacity in the MNA Region

As the timeliness of audits for Bank-funded projects improves, the MNA FM team is directing its attention to the

quality of audit reports received from borrowers, conducting special-purpose reviews to identify areas in which the

Bank and development partners can help strengthen audit capacity in the Region. The team performed audit quality

reviews of two audit firms that perform 95% of the Iraq and Lebanon portfolios’ audits. The objective of the quality

review was to ascertain whether the audits comply with international standards, in terms of quality and scope and

whether the Bank can rely on the auditor’s opinion when assessing portfolio riskiness. The assessment findings

recommended actions to enhance the quality process at both firms.

9 Accountability in Public Expenditures in Latin America and the Caribbean: Revitalizing Reforms in Financial

Management and Procurement was published jointly with the Brookings Institution Transparence and

Accountability Project. For further details visit: http://intresources.worldbank.org/INTLAC/Resources/257803-

1252614034299/EBOOK.pdf

9

23. Differentiated Approach Towards Sustainable FM Systems. The team tailored

diagnostic tools and advisory contributions to meet country expectations, differentiating and

adapting to the needs of middle-income, fragile, post-conflict and oil-rich economies—including

assessing diagnostic fiduciary risks in West Bank and Gaza; furthering the use of country

systems in Egypt and Morocco; and using dialogue and capacity strengthening to support Iraq’s

SAI. The region also continued its support to client countries through building sustainable

systems supported by grants. Within the ROSC reform plan, MNAFM, through an IDF,

supported Egypt’s Capital Market Authority to enhance it capacity to enforce implementation of

International Standards. In Lebanon, IDF-support financed the establishment of sustainable

training tools on modern PFM topics. Through supplementary PCF-support, managed by

MNAFM, the Ministry of Finance in Lebanon was able to develop a monitoring and reporting

system to follow on the extra-budgetary allocations and donor-financing made available to

rebuild the country.

24. Portfolio Monitoring. Continuous efforts to monitor portfolio performance and FM

project risk through the Project Status Report (PSR) has yielded positive results. The MNA FM

team has been communicating the progress met on the PSR on a quarterly basis to the region;

and has facilitated the follow-up process with the sectors, regarding compliance—addressing the

disconnect between the FMS ISR FM ratings and the PSR rating. In addition, the region

conducted Special Purpose Reviews on selected high risk projects within the Egypt portfolio.

This comprehensive review is not limited to transaction verification, but also assessed areas of

risks and internal control weaknesses, covering 17% of the disbursements made using Statement

of Expenses (SOE) method. The review identified some weaknesses in the control framework

under two projects resulting in the disbursement of ineligible expenditures. Under one of the two

projects, such ineligible expenditures were reimbursed to the Bank, and follow-up actions have

been underway under the second. The outcome of this robust process has resulted in

strengthened FM quality for the MNA portfolio. Box 8 outlines capacity building efforts in

support of portfolio implementation issues.

Box 8. Capacity-Building in the MNA Region

The MNA FM team jointly with Disbursement colleagues, scaled-up capacity-building efforts and conducted 13

training workshops targeting auditors and project financial management staff, providing guidance on portfolio

implementation issues. These training workshops covered all of the active partner countries in the Region: Djibouti,

Egypt, Iraq, Iran, Jordan, Lebanon, Morocco, Tunisia, West Bank and Gaza, and Yemen.

25. Growth. Responding to the large growth in the portfolio as the global financial crisis

increased the demand for Bank services, the MNA FM team re-energized their practice by

recruiting six new talented and skilled professionals.

6. South Asia Region

SARFM introduced fiduciary reviews to enhance the focus on fiduciary risks, quality, and results

(see Box 9).

10

Box 9. Supporting Quality of FM work in Investment Lending in India

Maintaining Quality of Supervision. In a large country like India, it would be prohibitively expensive for the Bank

to supervise the funding of decentralized expenditures across all states and districts. It is also not cost-effective for

the Government to maintain separate records for the Bank-provided funds or get a separate external audit for these

expenditures and provide the audit reports. However, the decentralized activities (staff, mobility cost, and training),

accounting for about 15% of overall project costs, were critical to achieving project objectives. It was agreed that

selected decentralized activities would be funded through predetermined standard costs (the standard costs were

derived from a list of planned expenditures by districts and states, reviewed by Bank for reasonableness, and agreed

during negotiations). Instead of requiring audit reports for such expenditures, the Bank agreed that the fiduciary

assurance for such decentralized expenses would be obtained through integrated implementation-cum-fiduciary

reviews to be conducted by an independent consultant, who would determine if the activities are being executed, if

they are delivering planned outputs, and if the actual expenditure is broadly comparable with the standard costs.

Fiduciary Review of the National Highway Authority. During FY09 the SAR FM team carried out a drill-down

fiduciary review of two projects implemented by the National Highways Authority of India. The objectives were to

(a) achieve last-mile fiduciary assurance on the recently closed loans and ensure that the total Bank disbursement

had been audited, and (b) uncover the critical corruption and leakage risk areas for Bank operations through a

simultaneous review of historical internal audit reports, transactions, and historical statutory audit reports. The

results of the exercise led the team to suggest (a) restructuring of internal audit for Bank project implementation

units to address corruption risks and elicit lucid and articulate comments from internal auditors about the likelihood

of such risks; (b) historical financial statements audit for ongoing projects to replace the audit based on statements of

expenditure, to distance Bank-funded operations from the multitude of repeated qualifications on the entity audit

report; (c) restructuring of the terms of reference for the statutory audit to incorporate critical elements of financial

statements audit to achieve complete linkage between statements of expenditure and books of account; and (d)

enhancement of systems capability and transparency through the use of ERP type systems. The Highways Authority

has agreed to all Bank suggestions. The likely outcomes of the suggested interventions include (a) stronger

assurance on use of Bank funds through restructured financial statements audit with auditor reporting in prescribed

formats, (b) establishment of early warning signals through crisper and unambiguous internal audit, and (c)

transparency in National Highway operations through the use of better software that will provide for hard controls

on transactions and ready availability of back-up documents.

26. Pakistan’s Use of Country Systems. In Pakistan, besides using country systems in a

number of projects being managed under the auspices of autonomous and state-owned

enterprises, during FY09 the Bank agreed to the full use of government systems in two

performance-based sector investment loans—the Punjab and Sindh Education Projects. The

Bank is also taking actions to mitigate the risks of the challenges Pakistan faces: (a) the lack of

an internal auditing function in government; (b) delayed legislative scrutiny and oversight on

public expenditures; and (c) the fact that the country’s IT-based PFM system has yet to be fully

rolled out in one of the country’s four provinces, limiting the capacity to support the full

integration and mainstreaming of projects within government.

27. Bhutan’s Use of Country Systems. Bhutan’s small size and good governance make it a

good candidate for increasing the use of country systems, and a good potential beneficiary of the

Bank’s simplification agenda. Accordingly, the default position in designing the FM

arrangements for Bank-financed projects in Bhutan has increasingly been to use the country’s

own accounting and financial reporting systems to meet the Bank’s requirements.

28. In supporting the use of country systems, SAR, like other Regions, is approaching clients

through a differentiated approach that reflects their level of readiness (see Box 10).

11

Box 10. Building Country FM Systems: Afghanistan

At the outset of the Bank’s reengagement in Afghanistan, FM arrangements for project investments were fully

mainstreamed in the Treasury and the Auditor General. This meant that implementing agencies throughout the

Government could work without project implementing units—at least to the extent that FM was concerned.

The benefits were clear and undisputed: accurate and timely disbursements, and reliable year-end reporting with

audits meeting international standards. This was no small feat, given the capacity constraints of a post-conflict

country with a weak accounting profession and PFM system, as well as limited banking facilities. Ancillary benefits

included the capacity of the Government to control investment operations and report through the national budget on

them—an important benefit, given the significant share of public finances supported by the World Bank.

The challenges initially came in two forms: (a) risk to the entire portfolio if the centralized systems failed; and (b)

poor management reporting to the implementing units, including difficulty in preparing reliable, robust in-year

unaudited financial reports. The first risk was dealt with through training and guidance to help develop capacity in

the Treasury Department. The second took more time and was resolved by intensive involvement by the FMS in

Kabul who supported the investment projects.

The effort continues to face constraints. Dependence on Treasury for advisory services to maintain, develop, and

operate the centralized systems is expensive and undermines the development of local capacity; it has been agreed

that this support will continue while capacity is developed. In addition, the service projects are only as well served

as the line ministries and thus they suffer from all the shortcomings of the national budget process; however, they

are improving, and Afghanistan disbursement ratios are better than Regional and Bankwide averages.

29. Legislative Oversight Committees. The Region has created the SAR Legislative

Oversight Community of Practice to allow members of legislative oversight committees to share

information and good practices.

30. Partnering Cross-Sectorally to Address Operational Issues. To address commonly

faced fiduciary and operational issues in SAR’s growing portfolio, SARFM in partnership with

the South Asia Urban Unit, organized a joint Round Table and produced a guidance note in

support of providing greater clarity to the design and supervision of decentralized operations.

This has been followed by SARFM taking the lead in preparing an Operations Guide for Local

Governance projects in partnership with the Procurement and Safeguards Units in SAR.

B. Audit Oversight

31. The FM Sector uses three measures of project audit oversight:

Compliance. The FM Sector monitors compliance with legal covenants pertaining to the

submission of audited financial statements and audit reports. Table 1 shows the

proportion of audits of loans, credits, and recipient-executed trust funds received during

the year. Since FY08, EAP, MNA and LCR have made substantial improvements in

project audits received on time for IBRD/IDA operations. Audit delays remain a

challenge and the FM Sector is focused on improving this area, as outlined in paragraph

32.

12

Table 1: Timeliness of Audit Reports due in FY09 and FY08

Type of auditor. As in 2008, approximately 33 percent of project audits were carried

out by countries’ SAIs. The Sector supports increased reliance on SAIs.

Audit opinions. Of all audit reports, 85 percent had clean opinions (up from 82% in

FY08). Of the audits with qualifications, the highest proportion was for

―exceptions‖—13 percent for FY09, compared to 17 percent in FY08, and 22 percent

in FY07.

32. Audit Improvements. The FM Sector continued giving rigorous attention to improving

audit and interim financial reporting compliance by closely monitoring ARCS and PRIMA.

Under the guidance of Regional FM Managers, FM staff intensified country-level efforts to

strengthen controls and implementation, including invoking remedies as appropriate. At the same

time, Regional ARCS coordinators are working collaboratively with the FM Anchor to improve

compliance in these areas and resolve issues. A notable achievement during the year was

completion of updating audit reporting information in the ARCS system. Information is now kept

up to date and regularly monitored by the ARCS Coordinating Team, led by OPCFM and the

regions, thus ensuring that system issues are promptly addressed.

C. Helping Partner Countries Improve Their Financial Management

33. One of the major areas of responsibility for the Bank’s FM Sector is helping partner

countries enhance the quality of their financial management—that is, their ability to

appropriately use and account for all of their funds, both their own and those they receive from

development institutions. When PFM systems are considered adequate, the Bank and other

donors should be able to rely on them for project financial management. Indeed, the Bank’s

Operational Policy (OP) 10.02, Financial Management, provides that Bank-supported operations

should use the country’s own PFM system, when circumstances permit, as the default option for

project financial management; and internationally, the Bank has committed through the Accra

Agenda for Action to making further progress in this area. During FY09 the FM Sector

collaborated with other Bank groups—particularly PREM and the Procurement Sector—in

providing follow-up support for PFM reforms through stand-alone technical assistance,

components of investment projects and sectorwide approaches (SWAps), and development

policy lending linked to PFM reform actions (see Box 11).

(percentages)

Region

Received on time

Received during FY

FY09

FY08

FY09

FY08

IBRD/

IDA

Trust

funds

IBRD/

IDA

Trust

funds

IBRD/

IDA

Trust

funds

IBRD/

IDA

Trust

funds

AFR 74 61 77 59 91 85 92 75

EAP 74 65 60 58 89 73 87 79

ECA 60 67 61 71 70 76 78 84

LCR 53 42 46 43 75 52 65 59

MNA 54 50 41 50 83 67 77 54

SAR 16 23 27 29 70 61 89 83

Bankwide 59 54 60 54 84 73 85 73

Source: Business Warehouse—ARCS.

13

Box 11. Supporting PFM Reform

East Africa: Working jointly with the donor community, the Bank is providing leadership through Chairing / Co-

chairing PFM basket funds in Kenya, Uganda and Tanzania. These basket funds vary in size from US$ 30 m. to

US$ 110 m. and provide support for whole of government PFM reform activities - including support for the

accountability committees of Parliament, the Ministry of Finance, Line Ministries, and Local Governments. The

results are encouraging. For example, Parliamentary accountability committees have been empowered, their

members have received extensive capacity building, they now have the funding for field visits, produce incisive

reports and hold open meetings accessible to the media and the public.

Burkina-Faso: A comprehensive approach to strengthen the PFM system. AFTFM has taken a lead role in

strengthening the PFM performance of Burkina Faso and contributing to transform this small landlocked West

African country into a leader in PFM reforms within Francophone Africa. This evolution resulted from a holistic

approach that combined analytic work (AFTFM co-led the PER and led an analysis of key bottlenecks for effective

public sector reform), development policy lending (key reforms spanned the whole PFM cycle from budget

preparation to oversight) and non-lending technical assistance (e.g. support to the newly formed High Authority for

State Oversight and the SAI). AFTFM also provided assistance to the Finance Commission of Parliament, in order

to strengthen the demand side of the accountability chain.

Mexico: Accounting Harmonization Nonlending Technical Assistance. The Bank provides on-demand, just-in-

time advisory services to Mexico’s Ministry of Finance on the implementation (and at a previous stage, the design)

of the new government accounting law. The Bank contributed to the country’s ongoing program to develop

government accounting standards and systems, with the goal of increasing quality and harmonization (across

different levels of government) of budget reporting and government’s financial statements. The technical assistance

was complemented by FM and PREM-Public Sector collaborating in a performance budgeting federal loan and

subnational fee-based advisory services.

Timor-Leste Post-Conflict: Harmonization and Alignment in PFM. The PFM Capacity Building Project, funded

by a multidonor trust fund under the guiding principles of ensuring harmonization and alignment, has integrated all

similar bilateral agency projects under its umbrella. Its innovative governance arrangements include (a) strategic

management through the Ministry of Finance’s senior management committee, chaired by the Minister of Finance;

(b) regular World Bank oversight and supervision; and (c) overview by the joint donor supervising committee

chaired by the Minister of Finance.

Bangladesh. Aiming to improve aid effectiveness, a Multi-Donor Trust Fund (MDTF) for capacity building in

Public Financial Management has been set up to strengthen: Public Expenditure Management, the Office of the

Auditor General, and Parliamentary Oversight Committees. The MDTF is jointly managed by SAR’s FM and

PREM teams.

34. Accountancy Profession. During FY09, the FM Sector completed 13 ROSC A&A

reviews, bringing to 100 the total number completed (see Annex D) and to 79 the number

published. The FM Sector worked with partner country institutions to implement accountancy

reform and development action plans; modernize the statutory framework for accounting and

auditing; strengthen the institutional capacity of national professional accountancy bodies; put in

place high-quality education and training, including practical training in international standards;

and develop independent monitoring and enforcement arrangements to ensure compliance with

applicable standards (see Box 10). In addition, IDF grants were used to establish and strengthen

FM institutions (Annex B lists IDF grants for FM institutional reforms as of June 30, 2009).

14

Box 12. Regional Experiences with Professional Capacity Development

III. THE SECTOR BOARD AND ANCHOR: FY09 IN REVIEW

35. The Financial Management Sector Board (FMSB) has overall responsibility for financial

management in Bank operations, including the FM Sector Strategy and related operational

policies, procedures, and guidance to staff; the quality of operational work; human resources

management; knowledge, learning, and outreach; and internal and external partnerships. The

FMSB, which is chaired by the Chief Financial Management Officer, is made up of the six

Regional FM Managers and representatives from the Loan Department, Procurement Group,

Public Sector Group, and Legal Operations Policy. The FMSB is supported by two Standing

Committees: the Human Resources Committee, which is responsible for human resources

management, and the FM Operations Review Committee, which responds to requests for advice

and policy interpretations on FM aspects of Bank-supported operations, and also provides

clearances for specific decisions. The FMSB is also supported by two other Committees and

three Working Groups (see Annex E). The FM Anchor, which is based in Operations Policy and

AFR. To increase the number of professionally qualified accountants and improve corporate financial reporting in

support of private sector-led growth, the Bank is supporting the establishment of professional accountancy bodies

in some countries (e.g. Ethiopia, Mozambique and Rwanda) and supporting the strengthening of the profession in

several other countries (e.g. Benin, Botswana, Nigeria, Senegal, etc). The Bank is also adopting a regional

approach in a number of areas. These efforts include an IDF grant provided to the Association of Accountancy

Bodies in West Africa (ABWA), under which member bodies have: (i) adopted the IFAC Ethical Code for

Professional Accountants and developed an enforcement mechanism; (ii) a common Audit Monitoring and Quality

Assurance Review Manual; and (iii) developed a Uniform Curriculum and Professional Examination Scheme

which is under implementation in Nigeria, Ghana and Liberia with a planned roll-out to other countries. ABWA

has also began publishing on its website journals and technical research papers on new and emerging

developments in accounting, auditing and finance.

EAP. EAP held a regional ―Training the Trainers Program‖ in International Financial Reporting Standards (IFRS)

using e-learning and GDLN, in partnership with the Institute of Chartered Accountants in England and Wales. The

pilot involved 135 participants from academia, government, and practice sectors from China, Indonesia,

Mongolia, Philippines, Thailand, and Vietnam. It aimed to (a) facilitate capacity building in IFRS across the

region, and (b) create a ―community of interest and expertise‖ and appropriate networks for ongoing knowledge

sharing. The program used a blended learning approach: self-study using IFRS learning materials; facilitated

GDLN-based workshops; and tutorial support through ―webinars‖ or ―clinics.‖ By identifying and developing

―key trainers‖ in each jurisdiction, the Bank will achieve greater leverage on the initial investment, and in turn

promote enhanced capabilities in IFRS knowledge and skills.

ECA. ECA’s corporate sector financial reporting activities are hosted in the Vienna Centre for Financial

Reporting, which is aligned to the Region’s evolving business model. It seeks to expand (a) the delivery of fee-

for-service activities through the SECO program for new EU-member states, and (b) multidonor trust-fund-

financed advisory services for country- and regional activities through the Road to Europe Program for

Accounting Reform and Institutional Strengthening Program. The Centre has recently signed fee-for-service

contracts with Slovenia and Estonia, and agreements with Latvia and Poland will be finalized in FY10.

SAR. In Bangladesh, following up on the recommendations of the ROSC report, the Bank facilitated a twinning

arrangement between the Institute of Chartered Accountants of Bangladesh (ICAB), Institute of Chartered

Accountants in England and Wales (ICEAW) and Chartered Institute of Management Accountants (CIMA) aimed

at improving ICAB’s training of professional accountants. In Sri Lanka, the Bank is supporting the capacity

building of the Accounting and Auditing Standards Monitoring Board (SLAASMB), the country’s regulator for

the compliance of private sector accounting and auditing standards.

15

Country Services (OPCFM), serves as Secretariat to the FMSB and its Committees and Working

Groups, and supports implementation of their work program. It also provides operational

guidance and support to FM staff, including targeted cross-support to the Regions.

A. Supporting and Guiding Regional Efforts

36. This section describes the wide range of activities through which the FMSB and the

Anchor have supported Regional staff in their FM work.

37. IDA14 Internal Controls Review and Action Plan. The 2008 IDA14 Internal Controls

Review exercise, an independent assessment of the internal controls over IDA operations and

compliance with the Bank’s charter and policies,10 concluded that while quality assurance

arrangements have been put in place to oversee the FM arrangements for the use of IDA

financing, the quality and documentation of these arrangements is inconsistent and does not fully

comply with the FM Practices Manual, particularly during project implementation. It identified

issues in three areas: (a) documentation related to the review of audited financial statements by

an FM specialist and management oversight of ARCS reports; (b) inconsistent quality

arrangements for the documentation of FM supervision work, including planning, reporting, and

follow-up on FM action items; and (c) inconsistencies and gaps in quality arrangements for

Regional FM managers’ oversight and monitoring of FM work during project supervision.

During FY09, the FM Sector continued to make progress toward addressing these issues,

monitoring quarterly progress reports.

38. Evaluation of FM Sector Quality Arrangements. The CSR/OPCS Joint Evaluation, an

assessment of FM Sector quality arrangements by a Joint Evaluation Team (JET), was

established during FY09. It focuses on the following dimensions of FM work: (a) compliance—

whether the Regions’ quality arrangements and FM work are consistently being implemented as

designed and in accordance with the FM Practices Manual; (b) quality—whether the judgments

being made are properly supported by evidence; and (c) efficacy—whether the FM work being

carried out is sufficiently robust that CSR can rely on it as one element of its plans to reduce its

ex-ante disbursement requirements and simplify disbursement processes. The results of the

review are intended to support the Controller in making an assertion in the Bank’s annual COSO

report with respect to the adequacy of arrangements to ensure that loan funds are used for

intended purposes. The JET will issue a report on its work program following completion of all

regional reviews, in the latter part of FY10.

39. PRIMA. PRIMA11 is currently being developed as a corporate system for recording and

monitoring critical compliance aspects of FM work. This new system, collaboratively developed

with the Information Solutions Group (ISG), will include improved functionalities, streamlined

application across Regions, and full integration into the Bank’s SAP Project Portal.

10

See IDA Internal Controls Review: Review of Quality Arrangements for Financial Management of IDA

Operations, OPCS/CSR, May 28, 2008. The assessment focused on the design and operational effectiveness

of controls over IDA operations at the transaction level, and on entity-level controls and the overall

effectiveness and efficiency of the internal controls framework for operations. It involved management self-

assessment; review by the Internal Audit Department; and an evaluation of the overall process by the

Independent Evaluation Group. 11

Portfolio Risk Management System.

16

40. Corporate Reviews of High-Risk Operations. The FM Sector continued to provide support

to corporate review of selected operations e.g., OC/ROC reviews, with OPCFM providing comments

and inputs into these operations. During 2009 an internal review carried out by OPCFM highlighted

some of the main issues. It noted a consistent relationship between the level of FM risks and weak

country PFM systems and observed that severe capacity constraints make it difficult to address FM-

related risks in the short to medium term, and in many cases implementing agencies had to use

outside technical assistance to bridge the capacity gap. It identified common mitigating measures

included in project design: (a) ring-fenced FM arrangements, sometimes combined with capacity

building; (b) capacity building through technical assistance and training; (c) strengthened

independent monitoring arrangements, including internal audit, more frequent external audits, and

special audits; and (d) development of social accountability mechanisms, especially for decentralized

projects. A web-based database featuring good practice examples was also developed.

41. Policies, Procedures, and Guidance. The FMSB and Anchor continued their practice of

providing up-to-date guidance to assist and support FM staff in carrying out their work.

Particularly notable in FY09:

Review of the Financial Management Manual. Work on revising the FM Manual

began with extensive consultation among FM staff, including a survey and discussion

at the 2008 Fiduciary Forum. As a result of this process, a revised, principles-based

Manual was finalized and issued in March 2010. The new Manual will be supported

by reference material, to be available on the FM website, that provide detailed

guidance on the key topics in the Manual and elaborate on the FM control framework.

Audit Quality. The Sector also developed an Audit and Assurance Toolkit to guide

FM Specialists in using financial statements audits, internal audits, and special-

purpose audits more effectively to help safeguard against corruption risks. The toolkit

provides advice to FM specialists, task team leaders, and others on how to use

financial and special-purpose audits more effectively to mitigate GAC-related risks.

PFM Practices. To share the good practices on PFM across different country

contexts, the FM Sector has created a PFM Good Practices Database, which provides

country cases, guidance, reference models, and other reference materials.

Interim Guidance Note on Assessment of Fiduciary Risk in the Use of Country FM

Systems. In July 2009, the FM Sector issued an interim guidance note12 to help FM

staff assess the risks in the use of a country’s PFM system in Bank-supported

operations. The Guidance will be updated in light of lessons learned.

Review of Financial Management Issues in CASs. During FY09, OPCFM carried

out a retrospective review13 of FM issues in country assistance strategies. Overall, the

review shows satisfactory coverage of the fiduciary environment for DPOs through

Country Financial Accountability Assessments and other analytic work related to

12

See “Assessment of Fiduciary Risks in the Use of Country FM Systems in Bank-Financed Investment Projects –

Interim Guidance Note to Staff”, OPCFM, July 2009. 13

See “Review of Financial Management Issues in Country Assistance Strategies (FY06-07)”, OPCFM,

November 2008.

17

PFM. In addition, it assessed the harmonization of PFM analytic and capacity-

building work and of the GAC agenda as satisfactory or good practice in 88 percent

and 78 percent of cases, respectively. Finally, the review indicated that there is room

for improvement in CASs’ discussion of fiduciary risks in the Bank’s portfolio,

measures to mitigate fiduciary risks, use of country systems, and auditing and

accounting. Drawing on the findings of this review, OPCFM prepared a good practice

note14 to update the 2001 Interim Guidance Note. The good practices note includes

broader coverage of FM issues, with attention to harmonization, use of country

systems, GAC, accounting and auditing, and a differentiated approach to CASs in

fragile and conflict-afflicted states.

DPL Retrospective. As a contribution to the Bankwide DPL review, OPCFM

reviewed the treatment of PFM and fiduciary issues in 121 DPOs approved between

April 2006 and June 2008.15 The report showed that PFM actions in DPOs have

delivered tangible results. In fact, PFM prior actions featured in a substantial majority

of DPOs, covering the full range of PFM issues. In most core DPOs, the PFM

analysis and program content were adequately documented. In almost all cases,

relevant PFM assessment reports were referenced in the Program Document, and

some rationale was provided for the PFM content of the operation.

Dealing with Governance and Corruption Risks in Project Lending. The note16

explains how to tailor FM work during the design and preparation of investment

projects to mitigate risks of fraud and corruption, especially in higher-risk

environments. Since standard FM work is already concerned with ensuring that Bank

funds are used for intended purposes, this note identifies what is incremental in

respect of (a) FM assessment work; (b) fiduciary risk mitigation measures, including

capacity building; (c) enhancing the effectiveness of external audit and assurance; and

(d) project readiness and supervision planning. Work is underway to develop a note

providing guidance on mitigation of risks during implementation support.

External and Internal Websites. The FM Sector has updated and reorganized its

internal and external websites to give them a more user-friendly navigation system. In

addition, it has undertaken a quality review to ensure that information is up to date and

in compliance with information security safeguards, and that it poses no institutional

reputational risk.

B. Global Partnerships and Activities

42. The FM Sector also works on the international level. Through partnerships with bilateral

and multilateral donors, it helps ensure that policy and operational issues affecting FM are

coordinated and that agreements related to FM under the global harmonization initiative move

forward. And through partnerships with global accounting and auditing institutions and relevant

14

See “Country Assistance Strategies: Good Practices in Financial Management”, OPCFM, June 27, 2009. 15

See 2008 Development Policy Retrospective: Public Financial Management and Fiduciary Issues, OPCFM,

May 21, 2009. 16

See “Dealing with Governance and Corruption Risks in Project Lending: Emerging Good Practices”, OPCS,

February 2009.

18

standard-setting bodies, it promotes inclusion of PFM development issues in their activities and

facilitates partner countries’ adoption of internationally recognized standards, codes, and

practices.

43. Strengthening SAIs. Many SAIs face a range of development challenges, from limited

budgets to the lack of strategic plans. To support capacity-building initiatives, the World Bank

worked with the UK’s Department for International Development, the Canadian International

Development Agency, and a Task Force of the International Organization of Supreme Audit

Institutions (INTOSAI) to draft a Memorandum of Understanding (MoU) that was prepared in

FY0917. The MoU brings together like-minded donors and the SAI community in a common

approach to development support, with the overarching goal of accelerating the strengthening of

audit capacity in partner countries and improving domestic accountability. Donor support will be

provided through a hierarchy of activities, principally at the country level—where SAIs will

receive substantial support to help design and implement strategic development plans—but also

at the regional and global levels. Work under the MoU begins with the first Steering Committee

meeting in February 2010.

44. OECD-DAC Task Force on Public Financial Management. The Task Force (formerly

the Joint Venture on Public Financial Management), cochaired by Malawi and the World Bank,

is one of five task forces under the OECD-DAC’s Working Party on Aid Effectiveness. The Task

Force’s work program comprises four areas: (a) using country systems; (b) assessing country

systems; (c) effective capacity for reform; and (d) accountable and results-driven country

systems. Activities under way include work on assessing country systems and the preparation of

guidance on strengthening and using country systems and on parliamentary and SAI oversight.

45. Multilateral Development Banks Financial Management Harmonization Working

Group. The Bank has provided leadership to the MDB FM Harmonization Group for a number of

years. The group has made good progress in harmonizing FM policies and practices at the inter-

institutional level, the global and regional levels, and the country level: for example, common

formats for FM reporting, common approaches for selecting external auditors, joint approaches for

assessing fiduciary risks, and joint standards for auditing and financial reporting; joint publications;

and joint analyses of country PFM systems. The group has taken up GAC issues: members have

shared their approaches, and the Bank has shared its good practice note on project preparation

and draft note on project supervision. The World Bank has offered support to the African and Asian

Development Banks for strengthening staff capacity, by proposing staff training and arrangements

for exchange; and for purposes of knowledge exchange, the World Bank invited the MDBs to join

the Fiduciary Forum, held on March 1-5, 2010. During the latest meeting (Tunis, December 2009),

the MDBs agreed to strengthen collaboration in such strategic areas as: (i) implementation of the

MoU between INTOSAI and development partners; (ii) the dialogue with IFAC to support

developing and transitional countries in developing the accounting profession; (iii) efforts to

accelerate and deepen the use of country systems in designing and implementing programs/projects;

(iv) sharing of experiences across areas of mutual interest; and (v) development of terms of

reference for comprehensive auditing, including financial and performance auditing.

17

This Memorandum of Understanding (MOU) was signed in Brussels in October 2009, culminating a preparation

process that began in Mexico in November 2007.

19

46. Public Expenditure and Financial Accountability. Since 2003 the Bank has participated

in the PEFA program, a partnership of seven donors and multilateral development

organizations18

that aims to support integrated and harmonized approaches to assessment and

reform in PFM. The FM Sector is represented on the PEFA Steering Committee, endorsing the

―Strengthened Approach to PFM Reform,‖ which emphasizes country leadership of PFM

reforms, coordinated development partner analytics and aligned support, and joint monitoring

through the PEFA framework. As of October 2009, some 147 assessments in 106 countries have

helped to identify the strengths and weaknesses of countries’ PFM systems. With this

information, countries can work with donors to prepare an action plan for strengthening their

systems. Furthermore, over time repeated assessments will be able to document progress.

Meeting in December 2009, the PEFA Steering Committee agreed to (a) develop clear

methodological guidance on how to use PEFA assessments for PFM reform formulation; (b)

fine-tune the performance measurement framework; (c) ensure that the Monitoring Report for

2009 would include as a key recommendation that PEFA assessment reports disclose, as a

standard, a statement on resource use in implementing the assessment; and (d) finalize guidance

on carrying out repeat PEFA assessments.

47. Professional Institutions and Standard-Setting Bodies. The FM Sector continued its

strategic partnerships with key international accounting and auditing organizations (such as

IFAC and the International Accounting Standards Board, or IASB) to promote (a) the

development of high-quality accounting and auditing standards, taking due account of

developing country concerns and issues; (b) wide dissemination and adoption of these standards

by more partner country governments; and (c) support for training and capacity-building

initiatives to foster the skills and aptitudes required for successful implementation of the

standards. Although some progress has been made, substantially more needs to be done in order

to support the establishment and strengthening of the accountancy profession in partner

countries.

IV. THE FM SECTOR: FY09 INSTITUTIONAL AGENDA

48. The FM Sector has a broad internal responsibility to maintain a structure and activities

that support staff in carrying out the dual mandate to provide reasonable assurance on the use of

Bank funds and to help partner countries improve their FM performance. This section

summarizes the Sector’s internal activity in FY09.

A. Financial Management Strategy

49. In FY09 the FM Sector began articulating a strategy for carrying out its objective of

supporting the achievement of development results by providing fiduciary assurance on the use

of Bank funds and by helping partner countries improve their financial management. Work on

the FM Sector Strategy included consultations with key internal (OS, FM, and Regional

management, Procurement, PREM, IAD, INT and CSR) and external partners (IFAC,

IASB, and IFAC’s International Public Sector Accounting Standards Board). Strategic

18

World Bank, IMF, European Commission, UK's Department for International Development, Swiss State

Secretariat for Economic Affairs, French Ministry of Foreign Affairs, and Royal Norwegian Ministry of Foreign

Affairs.

20

priorities identified in this process included (a) delivering quality FM results in Bank operations;

(b) building partner countries’ FM capacity; and (c) promoting global public goods. The

Strategy is focused on results, identifying relevant monitoring indicators, and is expected to be

finalized by the end of FY10.

B. Staff Development

50. FM staff levels increased from 167 at end-FY08 to 174 at end-FY09 (see Table 3). FM staff

are fully integrated into task teams, and 62 percent of Regional FM staff are based in country offices.

Table 2: FM Sector Staffing

(as of June 30, 2009)

Location AFR EAP ECA LCR MNA SAR OPCFM LOA Others* Sector

Washington 6 3 11 9 3 4 9 18 3 66

Country offices 27 20 12 14 5 29 0 1 0 108

Total 33 23 23 23 8 33 9 19 3 174

Note: Does not include staff on developmental assignment or secondment.

* Others = SDN and IAD.

Source: PeopleSoft.

51. Staffing. To enhance skills and reenergize staff through greater mobility, the FM Sector

provided FM staff opportunities to gain experience in other Regions and the FM Anchor.

Overall, 5 staff were rotated through a sectorwide management exercise, 4 were promoted to

level GH, and 3 staff took on substantive cross-support responsibilities. During FY09, two FM

Managers moved to positions outside of FM, signaling demand for FM skills outside of the

Sector. FY10 will provide substantial opportunities for upward mobility, particularly as three of

the six Regional manager positions need to be filled. During FY10 the Sector will continue to

focus on (a) filling staffing gaps—and work to meeting the institutional gender-balance goals;

(b) making greater use of staff rotation, developmental assignments; (c) facilitating cross-support

among Regions and departments; and (d) managing emerging talents.

Table 3: FM Sector Formal Learning Activities, FY09

Area of focus* 52. Knowledge, Learning, and Outreach. As Table 3 shows, to help meet the training

needs of Bank and counterpart staff, the FM

Sector—all six Regions, the Anchor, and

LOA—delivered a total of 74 learning events,

reaching an audience of over 3,600

participants. (Annex F describes some of the

internal and external learning activities in

which the Sector was involved).

Region

or department

Total

learning

events

FM PFM Other

AFR 16 11 4 1

Anchor 12 3 3 6

EAP 7 6 1 0

ECA 8 2 2 4

LCR 14 7 11 1

LOA 13 13 0 0

MNA 7 7 3 1

SAR 9 5 3 1

Total 86 54 27 14

Trainings may have multiple areas of focus, as such the total number of

events may be smaller than the combination of areas covered.

21

53. FM Sector News. Other knowledge, learning, and outreach activities during FY09

included four editions of the FM Sector News, a quarterly newsletter than provides FM Sector

staff with updates on the latest toolkits, guidance, policy revisions, trainings, and good internal

practices in the Regions. This newsletter also offers Regional staff opportunities to share the

latest developments and features summaries of the policy direction of the FM sector and the

institution.

54. Administering the SAI Framework. The FM Anchor has been facilitating information

requests by World Bank Group members’ SAIs in accordance with the SAI Framework19 since

2008. Five requests for audits by supreme audit institutions were processed between November

2008 and December 2009. In September 2009 OPCFM reported to the Board’s Audit Committee

on these activities.20

V. LOOKING FORWARD: FY10 PRIORITIES AND CHALLENGES

55. As this report has shown, during FY09 the FM Sector continued to make substantial

progress in the wide range of activities with which it carries out its mandate, increasingly

focusing on improving quality and enhancing aid effectiveness. Looking forward, the Sector

expects to see changes in the amounts and nature of its work: for example, increased demands

for implementation support as the Bank’s lending commitments remain high; and increased

involvement in risk identification and mitigation as the Bank proceeds with investment lending

reform. Accordingly, during FY10 and beyond, the FM Sector will focus on the following areas.

56. FM Sector Strategy. Drawing on extensive consultations and on the analytic work

OPCFM carried out during FY09, the FM Sector Strategy will be finalized in FY10 and rolled

out during FY11. The strategy will provide a cohesive implementation platform for FY11-13,

will focus on three priorities: (a) delivering quality services, including support for IL Reform and

fragile states; (b) building partner countries’ FM capacity; and (c) promoting global public

goods.

57. Quality and Internal Controls. The revised FM Manual has been finalized and issued on

March 1, 2010. The FM Sector will disseminate the FM Manual and associated reference

material for staff; continue to monitor its quality arrangements to ensure their robustness;

develop a monitoring/compliance framework on quality and results FM indicators; upgrade and

ensure alignment of FM Systems (PRIMA and ARCS); complete Phase II of the ongoing

OPCS/CSR joint evaluation work; complete IDA Controls Review Retesting Process; and

monitor the implementation of the IDA14 Controls Review Action Plan.

58. Use of Country Systems. To deepen and accelerate the use of country FM systems, the

FM Sector will continue to implement ongoing capacity building initiatives, including carrying

out focused and structured dialogue on efforts towards strengthened country systems and

19

See A Framework for Audits by World Bank Group Members’ Supreme Audit Institutions: A Joint Policy

Framework for IBRD, IDA, IFC and MIGA (R2006-0129/2, IDA/R2006-0142/2, IFC/R2006-0200/2,

MIGA/R2006-0038/2), October 6, 2006. 20

See Retrospective Review of Audits by World Bank Group Members’ Supreme Audit Institutions, September 30,

2009.

22

promoting their usage. Efforts will also include: (a) expert/ peer reviews, guidance and hands-on

support on UCS work in specific countries; (b) extensive sharing of the various regional and

country experiences; and (c) peer-to-peer learning. The Sector will also continue collaborating

with other Bank groups in providing follow-up support for PFM reforms.

59. Private Sector Accounting and Auditing. The FM Sector will continue to work with

partner country institutions to implement accountancy reforms based on ROSC A&A

recommendations, including promoting compliance with international standards. A review of

lessons learned from ROSC A&A assessments will identify good practices and inform the future

conduct of the program.

60. Governance and Anticorruption. The FM Sector will continue its GAC work by

contributing to capacity building in FM; strengthening governments’ own institutional

arrangements for preventing and detecting corruption; and supporting the implementation of the

GAC Strategy. The Sector will provide further guidance to staff e.g., on issues relating to GAC

aspects of FM implementation support and a Red Flags Toolkit. In addition, it will roll out GAC

training to task teams and will work with INT on processes for referral and follow-up on GAC

issues. Finally, it will develop a GAC database to capture good practices across the Bank.

61. Global Partnerships. The FM Sector will continue to engage and take leadership in

global partnerships with bilateral and multilateral donors to help ensure that policy and

operational issues affecting FM are coordinated and that agreements related to FM under the

global aid effectiveness initiative move forward. The partnership with INTOSAI will move to

implementation during 2010, helping to strengthen country fiduciary systems, SAIs, and their

regional associations. Moreover, although some progress has been made in supporting the

establishment and strengthening of the accountancy profession in partner countries, substantially

more needs to be done.

62. Learning and Career Development. The biennially hosted Fiduciary Forum that brings

together fiduciary staff and development partner colleagues was hosted in March 1 - 5, 2010.

Themed ―Fiduciary Innovations for Development Effectiveness‖, its main focus was on

investment lending reform, the GAC agenda, use of country systems, and future directions of the

accountancy profession. The Sector will continue to provide knowledge sharing and learning

opportunities for its highly decentralized staff, identify skills gaps, match staff to demand, and

develop practices and procedures to attract and retain staff with the appropriate skills. Moreover,

the Sector will continue to foster rotations, development assignments, and regional cross-support.

23

ANNEX A. FM ECONOMIC AND SECTOR WORK, FY09

Region Country Activity

AFR Benin ROSC A&A

Burkina Faso PER

Cote d’Ivoire ROSC A&A

Democratic Republic of Congo ROSC A&A

Mali ROSC A&A

Niger ROSC A&A

Sudan Country Integrated Fiduciary Assessment (CIFA)

The Gambia Country Financial Accountability Assessment (CFAA)

Uganda PEFA

With other sectors Botswana PER

Ghana PER / PFM Review

Liberia PEMFAR

Mali PEMFAR

Niger PEMFAR

Tanzania PEFAR

Togo PEMFAR

EAP Laos ROSC A&A

Vietnam ROSC A&A

ECA Belarus ROSC A&A

Montenegro Integrative Fiduciary Assessment (IFA)

Tajikistan ROSC A&A

Turkmenistan ROSC A&A

Uzbekistan ROSC A&A

With other sectors Belarus PEFA

Bulgaria PFM Update

Turkey Public Expenditure & Financial Management Study

LCR Colombia Integrative Fiduciary Assessment (IFA)

Peru PEFA (led by the EU)

SAR Afghanistan ROSC A&A

Bhutan ROSC A&A

Pakistan PEFA

Pakistan Provincial Financial Management and Accountability

With other sectors Afghanistan Anti-Corruption Study: Vulnerability to Corruption in PFM

Source: Business Warehouse Report of Economic and Sector Work/Analytic and Advisory Assistance

25

ANNEX B. FM INSTITUTIONAL DEVELOPMENT FUND GRANTS, FY09

As of June 30, 2009

Region Country Activity

Amount

(US$)

AFR Africa SADC Public Sector Accounting Standards 499,000

Africa Institutional Strengthening of SAIs in English-Speaking Africa 927,000

West Africa Association of Accountancy Bodies in West Africa (ABWA) 676,000

West Africa Improving Public Sector in FM in FAAGWA Countries 665,000

Benin Support to Benin Accountancy Profession 365,000

Botswana Strengthening Financial Management Training and Accreditation in Botswana

486,300

Burkina Faso Strengthening Public Sector Control Institutions 378,000

Cape Verde Institutional Strengthening of the Cape Verdean Supreme Audit Institution 333,000

Ghana Support to Ghana Audit Services (SAI) 245,000

Ghana Support to Internal Audit Agency 498,000

Guinea Support to the Accountancy Profession 309,000

Lesotho Lesotho Institute of Accountants - Capacity Development 435,500

Mali Support to the Audit Institutions 484,000

NBA Capacity Building for NBA Procurement and Financial Management Capacity 499,000

Nigeria Enhancing the Quality of Accounting Practice 186,000

Senegal Support to the Accountancy Profession ONECCA 265,000

Swaziland Strengthening Public Expenditure Management 479,000

EAP Cambodia Strengthening the National Audit Authority 211,000

Cambodia Improving Corporate Financial Reporting 249,918

China Strengthening the Capacity of Provincial, Municipal and County Auditors 250,000

China Improving Management over Special Purpose Transfer Payment in China 300,800

Indonesia Strengthening Forensic Audit Capacity of State Audit Board (BPK) 300,000

Indonesia Strengthening Accountability for and Auditability of Disaster-Related Aid 300,000

Indonesia Improving links between Government Financial Reports & Sources of Funding 152,020

Lao PDR Project Standard Operating Procedures 200,000

Lao PDR Strengthening Financial Accountability in Private Sector 250,000

Philippines Strengthening the Capacity and Effectiveness of the Commission on Audit 300,000

Thailand Strengthening OAG Institution and Performance in Public Audits 335,000

Vietnam Capacity Strengthening for the Vietnam Association of Certified Public Accountants

227,940

ECA Armenia Piloting Fiduciary Control for Non-Commercial Organizations 425,000

Armenia Strengthening Capacity and Supporting Reform in the Public Sector Internal Audit System

196,700

Armenia Implementation of IPSAS Strategy 320,000

Armenia Building Government Capacity to Implement Government Financial Management Information System (GFMIS)

310,000

Croatia Enhancing Corporate Financial Reporting in Croatia 350,000

Georgia Strengthening the Institutional Capacity of the newly expanded Ministry of Environment

388,000

Kosovo Capacity Building in Kosovo's Public Sector Accounting 160,000

Kyrgyz Republic Institutional Capacity Enhancement for the Public Expenditure 315,000

26

Region Country Activity

Amount

(US$)

Management

Kyrgyz Republic Strengthening Local Government Capacity to Implement Intergovernmental Fiscal Reforms

384,000

Kyrgyz Republic Capacity Building for Public Sector Auditing 370,000

Macedonia Capacity Building in Macedonia's Public Sector Accounting 160,000

Moldova Capacity Building in Moldova's Public Sector Accounting 160,000

Serbia Enhancing Corporate Financial Reporting in Serbia 285,000

Tajikistan Strengthening Capacity in the Tax Service 496,000

LCR Argentina Fiscalia de Investigaciones Administrativas 232,000

Belize Building Institutional Capacity of Auditor General and Improving Quality of Public Procurement

350,000

Bolivia Strengthening Aid Coordination and Management Capacity for Effective Monitoring of Official Development Assistance

170,000

Bolivia Strengthening of the Bolivian Representatives Chamber of the Congress 212,000

Brazil Capacity Building for Management of Public Infrastructure Projects in Brazil's Federal Government

400,000

Brazil Enhancing Operational Capacity of the Controller General of Brazil 378,000

Caribbean Strengthening Fiduciary Oversight in the Caribbean through Caribbean Audit Institutes

436,500

Colombia Institutional Strengthening of the Legal Claims Management System 479,000

Dominican Republic Institutional Strengthening of the DPCA 319,956

El Salvador Strengthening Fiscal Management and Public Sector Transparency 401,800

LCR OECS: Strengthening Institutional Capacity for Project Implementation 403,450

LCR Strengthening of Andean SAIs 489,900

Mexico Fiscal Transparency 500,000

Mexico Municipal Capacity Building Strategy 352,850

Mexico Strengthening of the Federal Institute for Access to Information 477,000

Peru Strengthening Congressional Budget Oversight Capacity 493,500

MNA Egypt Enhancing Capital Market Authority Monitoring Capacity 309,000

Lebanon Developing Capacity Building Tools for Sustainable Governance 338,000

SAR Bhutan Improving Public Financial Management 287,000

India Andhra Pradesh Pub. Financial Management Strengthening 430,000

India Uttar Pradesh Capacity Building in the Finance Department 167,000

India Strengthening Internal Audit and Revamping of the Accounts Training Schools of the Government of Madhya Pradesh

250,000

Maldives Institutional Development and Capacity Building of the Auditor General's Office

496,000

Sri Lanka Capacity-Building of the Sri Lanka Accounting and Auditing Standards Monitoring Board

291,000

Sri Lanka Strengthening Parliamentary Oversight Committees 494,000

Source: Business Warehouse Report 2b1. List of Approved Projects (Lending and IDF)

27

ANNEX C. FIRST INITIATIVE GRANTS, FY09

As of June 30, 2009

Region Country Activity Approval Date

Amount

(US $ 000)

AFR Ghana Capacity Building - Accounting Association November 09 310

Botswana Establishing Accounting Oversight Board December 07 88

Malawi ROSC A&A Country Action Plan November 07 86

Tanzania Updating Accounting and Auditing Legislation April 06 360

EAP Thailand SEC Audit Assessment Capacity June 09 275

Philippines ROSC Accounting and Audit September 07 245

ECA Montenegro Accounting and Auditing ROSC Follow-Up November 08 207

Georgia Development of Country Strategy & Action Plan August 06 89

LCR El Salvador IFRS Implementation July 08 246

Honduras Roadmap for Strengthening Accounting and Auditing February 08 478

Peru Strengthening Private Sector Accounting and Auditing February 08 200

28

ANNEX D. ROSC ACCOUNTING AND AUDITING STATUS REPORT, FY09

As of June 30, 2009

No. Country Completed Published

AFR

1 Benin Mar-09 Apr-09

2 Botswana May-06 Jun-06

3 Burundi Jun-07 Nov-08

4 Cameroon May-06

5 Cote d'Ivoire Jun-09

6 Democratic Republic of Congo Jun-09

7 Ethiopia Feb-08 Feb-08

8 Ghana Jun-04 Aug-06

9 Kenya Nov-01 Jan-02

10 Madagascar Jun-08 Aug-08

11 Malawi Jun-07 Sep-07

12 Mali May-09

13 Mauritius Apr-03 Apr-03

14 Mozambique Jun-08 Nov-08

15 Niger May-09

16 Nigeria Jun-04 Dec-04

17 Rwanda Jun-08 Nov-08

18 Senegal Jun-05 Aug-05

19 Sierra Leone Jun-06 May-08

20 South Africa Apr-03 May-03

21 Tanzania Jun-05 Sep-05

22 Uganda Jun-05 Sep-05

22 Zambia Jun 07

EAP

24 Cambodia May-07 Sep-07

25 Indonesia Jan-06 Sep-06

26 Korea Jun-04 Nov-04

27 Lao PDR Jan-09 May-09

28 Mongolia Apr-08 Jul-08

29 Philippines Dec-01 Jan-02

30 Philippines May-06 Jun-06

31 Thailand Apr-08 May-08

32 Vietnam Jun-09

ECA

33 Albania Jun-06 Nov-06

34 Armenia Jun-08 Apr-09

35 Azerbaijan May-06 Sep-06

36 Bosnia and Herzegovina Jun-04 Feb-05

37 Bulgaria (1) Dec-02 Jun-03

38 Bulgaria (2) Jun-08 May-09

39 Croatia (1) Jun-02 Jul-02

40 Croatia (2) Jun-07 Feb-08

41 Czech Republic Jun-03 Aug-03

42 Estonia May-04 Sep-04

No. Country Completed Published

43 Georgia May-06 Jan-07

44 Hungary Jun-04 Sep-04

45 Kazakhstan Jun-06 Jun-07

46 Kosovo Jun-06 Jan-07

47 Kyrgyz Republic Jun-08 Nov-08

48 Latvia Jun-05 Sep-05

49 Lithuania (1) May-02 Jul-02

50 Lithuania (2) Jun-07 Jun-09

51 Macedonia, FYR Jun-03 Dec-03

52 Moldova Jun-04 Oct-04

53 Montenegro Jun-07 Nov-07

54 Poland (2) Jul-02 Aug-02

55 Poland (2) Jun-05 Sep-05

56 Romania (1) Jun-03 Sep-03

57 Romania (2) Jun-08

58 Russia Jan-03

59 Serbia Jun-05 Dec-06

60 Slovak Republic Nov-01 Feb-02

61 Slovenia Jun-04 Sep-04

62 Tajikistan Jun-09

63 Turkey Jun-05 Jun-07

64 Turkmenistan Jun-09

65 Ukraine (1) Aug-02 Feb-03

66 Ukraine (2) Jun-08 Jun-09

67 Uzbekistan Jun-09

LCR

68 Argentina Jun-07 Jun-09

69 Brazil (1) Jul-02

70 Brazil (2) Jun-05 Sep-07

71 Chile Jun-04 Dec-04

72 Colombia Jul-03 Mar-04

73 Dominican Republic (1) Feb-05 Nov-05

74 Dominican Republic (2) Jun-09

75 Ecuador Mar-04 Feb-05

76 El Salvador Jun-05 Oct-06

77 Guatemala Jun-06

78 Haiti Dec-07 Oct-08

79 Honduras Jun-07 Dec-07

80 Jamaica Jun-03 Jun-04

81 Mexico Dec-03 Mar-04

82 OECS Countries Jun-08 Nov-08

83 Panama Jun-09

84 Paraguay Jun-06 Jan-07

85 Peru Jun-04 Jan-06

86 Uruguay Jun-06 Jan-07

29

No. Country Completed Published

MNA

87 Algeria Jun-03

88 Egypt (1) Aug-02 Jun-03

89 Egypt (2) Jun-08

90 Jordan Jun-04 Jun-05

91 Lebanon May-03 Jun-04

92 Morocco Jul-02 Aug-02

93 Tunisia Jun-04 Jan-07

94 Yemen Jun-04

SAR

95 Bangladesh May-03 Jan-04

96 Sri Lanka May-04 Jun-04

97 India Dec-04 Jun-05

98 Pakistan Jun-05 Dec-05

99 Afghanistan Mar-09

100 Bhutan Apr-09

Regional Coverage Completed Published

AFR 23 17

EAP 9 8

ECA 35 30

LCR 19 15

MNA 8 5

SAR 6 4

Total Regions 100 79

31

ANNEX E. FM SECTOR BOARD COMMITTEES AND WORKING GROUPS

1. The FM Sector’s delivery of the activities described in this report was greatly facilitated

by the active contribution and support of the FM Sector Board’s Committees and Working

Groups.

2. Quality and Results Committee. This Committee focuses on one of the FM Sector’s key

strategic priorities—delivering quality services. In achieving this objective, during FY09, its

main deliverables have included: (a) the revision of the FM Manual through a detailed process of

consultation, and the preparation of guidance to be rolled out in parallel; and (b) quarterly

reporting on the implementation of the IDA14 Internal Controls Review Action Plan. In addition,

the FMSB worked closely with CSR in reviewing and updating the failed controls

documentation to better align with the requirements of the FM Practices Manual and finalized

plans to retest controls that failed in the IDA14 Review.

3. Knowledge, Learning, and Outreach Committee. The Committee focused on organizing

and delivering a training program in areas identified as growing business lines for the FM

Sector—GAC, PFM, and corporate financial reporting—in addition to the on-going learning

program on Bank operations and trust funds. Other key accomplishments included the redesign

of the internal website, with a streamlined navigation and structure and reorganization of content,

to facilitate searches; and a review of the Bank’s external website to update its web security and

ensure against any potential reputational risk.

4. PFM Capacity Building Working Group. This Working Group promoted the preparation

of detailed draft guidance to help FM staff assess the adequacy of country FM systems for use in

Bank-supported operations; completed the first phase of preparation of the PFM good practices

database; and continued to engage with IFAC’s International Public Sector Accounting

Standards Board. In addition, it enhanced the dialogue with SAIs by participating at key

INTOSAI meetings on capacity building and standards. Finally, the Internal Audi Strategy is

currently being developed, and will be rolled-out during FY10.

5. Corporate Financial Reporting Working Group. This Working Group (a) updated the

ROSC A&A Diagnostic Tool, following recent changes in the accounting and auditing standards

that are used as benchmarks in the assessments; (b) supported and strengthened international

partnerships—including carrying out initial discussions with IFAC on enhanced cooperation,

through an MOU, to support accountancy development in member countries, greater alignment

and cooperation in support of member country reforms, and development action plans based on

the ROSC A&A program and the IFAC Compliance Program; (c) began work to enhance its

website, and created a separate website for Private Sector Accounting and Auditing, to improve

sharing of knowledge on corporate financial reporting and practices; (d) rolled out the corporate

financial reporting brochure globally, translating it into Arabic, Spanish, and French; and (e)

completed 100 ROSC A&A reports as of June 30, 2009 (see Annex D).

6. Governance and Anticorruption Working Group. This Working Group developed two

key pieces of guidance for FM staff on dealing with fraud and corruption risks at the project

level: a good practice note for FM specialists on dealing with GAC issues in project design, and

an audit and assurance toolkit to enhance the effectiveness of audit as a tool for combating fraud

32

and corruption. The Working Group organized a series of brown bag lunches during the year to

share good practices. It further developed the FM web-pages on GAC; they now include an

extensive projects database featuring good practice projects with GAC-related features, with

summary write ups on each of the projects and links to the project portal.

7. Operations Review Committee. This Committee considers requests from outside the

sector at the request of senior management, or where it judges that the issue is one that cuts

across two or more regions, relates to a network, or is a matter not covered by the current policy

framework. Decisions requiring FMORC clearance include exemptions from audit requirements

for operations with a value in excess of US$500,000 equivalent.

8. Human Resources Committee. This Committee is responsible for management of

human resources issues, in particular ensuring that unit managers have available to them staff

with the skills needed to meet their unit business objectives; that overall corporate skills and staff

profile targets are met; and that all staff are provided with appropriate career development

opportunities. The Committee addresses overall skills planning and allocation; and recruitment,

promotions, and separations. During FY09, there was a focus on managing the GG-level

rotations, through which 5 staff were successfully deployed to enhance their skills across other

departments in the Bank. During FY10 the Sector will continue to focus on (a) filling the

management positions and any resulting staffing gaps and will also pay attention to meeting the

institutional gender goals; (b) making greater use of staff rotation, developmental assignments,

and secondment to/from external institutions; (c) facilitating cross-support among Regions and

departments; and (d) managing emerging talents.

33

ANNEX F. PROMOTING INFORMATION SHARING: INTERNAL AND EXTERNAL

LEARNING ACTIVITIES

63. During FY09 the FM Sector sponsored a range of conferences and learning events to

allow FM practitioners both inside and outside the Bank to share knowledge, experience, and

best practices in enhancing the quality of their work.

64. PFM Reform. In December 2008, the International Consortium on Governmental

Financial Management organized their Annual Conference. The Bank’s FM and PREM Sectors

assisted in the design of the program and in the dissemination of good global practices. The

theme—―Country Perspectives on Advancing Public Financial Management Reform – What

Really Works?‖—attracted parliamentarians, ministers of finance, and representatives from

SAIs, donor agencies, and other organizations from 32 countries.

65. Building Institutional Capacity. In May 2009, the Eastern Caribbean Central Bank,

CARTAC, and the World Bank jointly hosted a dissemination workshop for the OECS ROSC

A&A, a study published by the Bank in June 2008. The 60 participants included accountants and

auditors, regulators, academics, and representatives from Guyana and Trinidad and Tobago. The

event represented an important step in developing a country-driven regional strategy and detailed

action plan, requiring the adoption of international accounting and auditing standards,

strengthening the accounting profession, and enhancing the oversight of statutory bodies. In

addition, to help build client capacity and promote greater use of country FM systems, the Bank

organized fiduciary workshops in the entire Caribbean sub-region, Argentina, Haiti, Jamaica,

Paraguay, Uruguay, Dominican Republic, Brazil, Colombia, Honduras, often in collaboration

with the IADB.

66. Fostering Sound Accounting and Auditing Practices. During FY09 the Bank undertook

the preparation of the Third CReCER Conference, inviting approximately 1,000 participants

from 32 countries, including policymakers, senior civil servants, financial sector regulators,

standard-setters, academics, accountants and auditors, private sector stakeholders, and the

international donor community. The conference aimed to take stock of accounting and audit

practices at the regional and country level, and share good practices and innovative approaches

to corporate and public sector financial reporting. The Conference held in September 2009,

which was a big success, will be reported in FY10.

67. Governance and Anticorruption. Drawing on the Bank’s Governance and Anti-

Corruption Strategy, the FM Sector developed and adopted a GAC FM strategy and

implementation plan to integrate GAC into its country-level work, under the leadership of the

GAC Working Group. Within the Bank, the FM Sector organized several learning events on

GAC for FM staff, including workshops on project design and supervision, and a series of brown

bag lunches on practical tools operational staff can use to address these issues in the project cycle

including—the Red Flags Toolkit being developed and piloted by LCR and SAR; use of social

audits in India; and e-procurement/e-governance. The FM Sector also developed extensive web-

based information and guidance for staff covering project design and supervision, country-level

diagnostic and capacity-building work on GAC, and information about corruption vulnerabilities

and mitigation measures. GAC guidance for project preparation and design, Dealing with

Governance and Corruption Risks in Project Lending, was published in February 2009, and

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similar guidance for supervision will be finalized in FY10. The FM Anchor has also taken the

lead role in coordinating the Bankwide GAC-in-Projects Working Group and Peer Learning

Network.

Box F1. Mainstreaming GAC: ECAFM Team Trains Task Team Leaders

ECAFM, working with the ECA Procurement team, developed a regional Fiduciary GAC training module for TTLs

as a complementary to the ECA GAC 101 course. The module was piloted in December and then repeated in a face-

to-face classroom environment both in Washington and in the field. The exit/entrance questionnaire and the WBI

evaluations showed that participants considered the module to be highly relevant to their work. The region has

proposed to offer this module more broadly in FY10.

68. Regional Fiduciary Fora. The FM and Procurement Sectors organize a Bankwide

Fiduciary Forum every other year; during non-Forum years, Regions organize learning events for

FM staff. This section notes some highlights of these events in FY09.

Africa Region’s Fiduciary Week (June 8-12, 2009, Ouagadougou). The 93 attendees

included participants from the FM Sector and representatives from the African

Development Bank and the Canadian International Development Association. With the

theme of ―Strengthening operational FM quality to improve the results of Bank

operations,‖ the event aimed to (a) develop steps to further enhance the quality of FM

work; (b) advance innovative FM arrangements in such areas as use of country systems

and GAC; (c) identify ways to help client countries advance their capacity building

agenda; and (d) enhance the FM group’s efficiency and effectiveness in working as a

team.

East Asia FM Retreat (May 4-8, 2009, Bangkok). At this retreat, 24 staff from across

the Region and OPCFM came together to discuss an enhanced supervision model and

a strengthened risk identification and management methodology from a hands-on,

practical perspective.

ECA FM Retreat (May 17-22, 2009, Salzburg). A total of 32 staff from a dozen

country offices, the Vienna Centre, and OPCFM and other Washington offices

considered ways for all FM staff to go beyond ―FM business as usual‖ and increase

the development impact of FM work.

Middle East and North Africa FM Peer Learning Week (June 15-19, 2009, Beirut).

The 36 staff of MNAFM reflected on past achievements and future opportunities to

increase their corporate relevance. The agenda included discussions on policy

updates, corporate priorities, and sharing of good practices, as well as a field visit to

the Baalback Cultural Heritage Project site.

South Asia Joint Procurement and Financial Management Learning Event (June 22-

25, 2009, Kathmandu). The 102 participants included a mix of sectoral, country team,

and OPCFM staff. The event aimed to (a) expose participants to operational areas where

fiduciary work could be combined to support development outcomes; (b) scale up the

fiduciary staff’s efforts to address issues of governance, controls, and project

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effectiveness; and (c) increase collaborative efforts and improve working relationships.

Participants focused on issues relating to working together in today’s Bank environment.

Latin America and the Caribbean Financial Management Learning Event (April 2009,

Washington, DC). A one-week staff training event took place providing twenty-four FM

staff and ACS from Country Offices the opportunity to practice the new quality

framework, share knowledge and find solutions to everyday challenges on the ground.