THE WORLD BANK - INTERNATIONAL FINANCE CORPORATION - MULTILATERAL INVESTMENT GUARANTEE AGENCY

THE WORLD BANK - INTERNATIONAL FINANCE CORPORATION - MULTILATERAL INVESTMENT GUARANTEE AGENCY

THE WORLD BANK - MULTILATERAL INVESTMENT GUARANTEE AGENCY - INTERNATIONAL FINANCE CORPORATION

Strengthening Trust Fund Management

1. Update on Portfolio Developments

2. Progress in Implementing the new Trust Fund Management Framework

3. Fiduciary Principles Accord with the UN

4. Compliance and Financial Reporting

3THE WORLD BANK - MULTILATERAL INVESTMENT GUARANTEE AGENCY - INTERNATIONAL FINANCE CORPORATION

Update on Portfolio Developments






Cash contributions were 41% higher in FY07

Largest amounts went to: GFATM (28%) GEF (11%) GAVI (10%) Afghanistan Reconstr. (6%)

339 donor agencies: Sovereign Gov’ts 79% (value) Intergovernmental Orgs. 11% World Bank Group 6% Private Non-Profit Entities 3% Private For-Profit Orgs. 1%

Donor Category FY03 FY04 FY05 FY06 FY07

Sovereign

Number of Countries 63 73 67 73 78

Number of Agencies 123 149 149 165 157

Non-Sovereign

Multilaterals 8 8 5 6 5

Funds, Foundations, Agencies, etc. 70 93 125 119 177

78 101 130 125 182

Total Number of Different Agencies 201 250 279 290 339

Cash Contributions to WBG-Administered TFs FY03-07

4,940

4,750

5,214

7,334

3,899

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

FY2003

FY2004

FY2005

FY2006

FY2007

$ million


Disbursements increased 33% in FY07

TF spending was 23% of IDA+IBRD+TF disbursements in FY07 (12% in FY03):

60% TF resources went to regional/global activities

29% to IDA countries

6% to IBRD countries

5% to blend countries

WBG TF Disbursements FY2003-07

2,561

3,277

4,128

4,374

5,808

0 1,000 2,000 3,000 4,000 5,000 6,000

FY2003

FY2004

FY2005

FY2006

FY2007

US$ million

12,150

6,700

2,561

10,391

6,461

3,276

10,094

8,488

4,128

12,223

8,444

4,374

11,055

8,579

5,808

0

5,000

10,000

15,000

20,000

25,000

30,000

FY03 FY04 FY05 FY06 FY07

Total IBRD, IDA and TF Disbursements (US$ Millions)

TFs

IDA

IBRD


Biggest spending growth in Health, Post-Conflict/Disaster Recovery, & Environment

Sector/Theme FY03 FY04 FY05 FY06 FY07 FY03-07

Health 95 442 950 1,145 2,368 5,000Debt Service 801 1,005 878 771 267 3,722Post Conflict/Disaster Recovery 343 432 657 679 776 2,887Environment 483 490 529 642 684 2,830Other Bank-Executed 409 421 383 304 271 1,786Other Recipient-Executed 131 171 263 261 370 1,195Others 60 66 153 234 632 1,145Infrastructure and Finance 164 150 187 177 189 867IFC, MIGA and ICSID 73 99 128 160 240 700Education 0 0 0 2 11 13TOTAL 2,561 3,276 4,128 4,374 5,808 20,147


Largest growth continued to be in FIFs

FY03-07: BETF disbursements

increased from $186m to $330m

RETF disbursements grew from $984m to $2.1b (e.g., post-crisis)

FIF disbursements grew from $1.31b to $3.1b (mainly for sectoral initiatives)

1,015 TFs in FY07: 85% <$20m 61% <$5m 24% <$1m

MDTFs increased from 118 to 285 in FY03-07: 71% of total disbursements 59

196

709

966

73184

984

1,318

99236

1,151

1,791

128274

1,488

2,238

160283

1,456

2,476

240330

2,111

3,127

0

1,000

2,000

3,000

4,000

5,000

6,000

2002 2003 2004 2005 2006 2007

Disbursements by the Type of Trust FundsUSD millions

FinancialIntermediary

Recipient-executed

Bank-executed

Other BankGroup

Trust Fund Category

FY07 Disbursements Number of Active TFs

US$m % FY07-end %

IBRD/IDA-Administered TFs 5,568 96% 822 81%

Bank Executed 330 6% 419 41%

Recipient Executed 2,111 36% 304 30%

Financial Intermediary 3,127 54% 97 10%

Other Bank Group-Administered TFs 240 4% 195 19%

TOTAL 5,808 100% 1,015 100%


Progress in Implementing the new Trust Fund Management Framework






TF Management Framework:Consultation/Approval Process

Extensive consultation with donors during and after May 2007 Donor Forum, and internally with World Bank management and staff

Presentations to Audit Committee (July 2007) and Budget Committee (September 2007) of the World Bank’s Executive Board

Approval by Executive Directors – October 30, 2007

Three Pillars:

1. Enhanced Strategic Focus and Selectivity

2. Strengthened Risk and Results Management

3. Enhanced Operational Efficiency and Sustainability

+ Policy Principles for accepting and managing trust funds at the World Bank


TF Management Framework:Key Implementation Actions

Formal launch by Managing Directors and CFO – November 2007

Detailed TFMF Implementation Plan prepared – November 2007

Donors informed of new policy principles and fee structure – December 5

Each Vice Presidency designated a senior TFMF focal point – December

High-level Steering Committee to oversee implementation – January 2008

IFC harmonized TF policies with IBRD/IDA -- informed donors January 7

New policy framework for TF management (OP/BP 14.40) being finalized for Board -- expected to become effective July 1, 2008


TFMF Pillar 1:Enhanced Strategic Focus & Selectivity

1. Country level:

Reflect TFs more systematically in operational programs Integrate TFs in Country Assistance Strategy (CAS)

2. Region/Sector level:

Put TFs in broader context of regional/sector business needs Integrate into strategic discussions at VPU level through TF

Management Plans

3. Corporate level:

Institutional review of strategic issues and risks Systematic monitoring of major partnership and TF initiatives Senior Management Review of especially large/complex TF

and partnership proposals and financial engineering initiatives


TFMF Pillar 2:Strengthened Risk & Results Management

1. Strengthening Standard Controls: Continued investment in automation to improve compliance and reporting

User Survey of e-Trust Fund project tools completed in December; results incorporated in design of follow-on TFast systems project

Bank-wide communication on new TF typology -- December 19, 2007 Data quality initiative to standardize definitions and reports Mandatory learning & accreditation program being updated Reviewing internal processes to rationalize roles and enhance efficiency

2. Tailoring Specialized Controls to Type-specific Risks: Integrated BETFs into FY09-11 planning/budget exercise Aligning RETFs with IBRD/IDA lending processes/systems (risk-adjusted)

Inclusion of "RE" projects over $5 million in reporting to Board

FIF oversight/review at institutional level

3. Strengthened Results Focus: Greater rigor and consistency of monitoring and evaluation


TFMF Pillar 3:Enhanced Operational Efficiency & Sustainability

1. Revised TF fee structure effective January 1, 2008: Minimum threshold for establishing a new TF is now US$1 million Continued cost-sharing by the Bank for BETFs and TFs for project preparation Set-up charge of $35,000 for each new TF that carries a standard fee For all other TFs, full cost recovery through customized fee arrangements

2. New Externally-Financed Output (EFO) instrument: Specified deliverables/timeframe in support of Bank work program; no minimum

or maximum size, no fees; reporting focused on outputs Detailed guidelines and standard legal templates prepared Accounting procedures designed System design finalized 13 EFOs signed for total of $6.9m ($540,000 average size)

3. Other Work in Progress: Improved cost estimation process/guidelines for customized fee arrangements Introducing more rigorous procedures for capturing TF administration costs Revising methodology for fee income allocation to different Bank units


Fiduciary Principles Accord with the UN






Multi-Donor Trust Funds:Key Vehicle For Channeling Aid to Crisis and Post-Crisis Situations

New World Bank policy on Rapid Response to Crises and Emergencies: specifically highlighted importance of MDTFs in supporting

coordinated, timely and effective response of donor community to crises and emergencies

Since 1994, US$5.4 billion in crisis response assistance channeled through MDTFs: US$4.3 billion administered by WB US$1.1 billion administered by UN

Reflecting lessons learned, new policy emphasized: close coordination and collaboration of all development

partners for effective response to crises and emergencies more effective collaboration and partnership between WB & UN


Strengthening WB/UN Collaboration & Partnership in Crises & Emergencies

Respond to a commitment made to WB’s Board during discussion of Rapid Response policy

address systemic issues that undermined effectiveness of WB/UN cooperation in crisis & emergency situations

Reflect findings and recommendations of 2007 Review of Post-Crisis MDTFs

commissioned by Norway, Canada, Netherlands, U.K. in collaboration with the WB (“MDTF Review”), with UN consultations


Strengthening WB/UN Partnership:Instruments under Development

Partnership Statement on WB/UN Cooperation principles, linkage of planning processes, communications

protocol, and troubleshooting mechanisms

Fiduciary Principles Accord (FPA) designed to address problems and delays associated with

lack of interoperability between legal and fiduciary frameworks of WB & UN


FPA: Specific Issues being Addressed

For WB-administered TFs, Bank policies & fiduciary requirements normally apply to all TF recipients, including UN

This requirement has resulted in significant delays in: concluding legal agreements between WB & UN

start-up of urgent implementation activities by UN due to lack of interoperability between WB & UN internal rules and policies, particularly in fiduciary areas

In some situations (e.g., Sudan), donors had to agree specifically to permit UN to rely on its own fiduciary rules & procedures on an exceptional basis

Only other model -- fiscal agency (pure “pass-through” from WB to UN) -- undermines Trustee’s/Administrator’s ability to report on overall program progress or address serious issues (including fraud & corruption)


FPA: A New Model For WB/UN Partnership & Cooperation under Crisis MDTFs

FPA Premises: 1. Fiduciary requirements/rules & procedures of World Bank & UN are

designed to meet same due diligence goals & principles

2. Allow each organization to implement activities using own internal rules & procedures, based on an assurance that its rules & procedures are adequate to meet agreed fiduciary principles & goals

3. Reciprocity -- application of FPA to TFs administered by either WB or UN

FPA Elements:1. Agreement on shared fiduciary principles and goals in financial

management, procurement, project monitoring & reporting arrangements, addressing fraud & corruption, etc.

2. An assurance from each organization (to be renewed at agreed intervals) that its internal requirements, rules & regulations permit it to meet these principles & goals

3. An additional process for addressing allegations of fraud & corruption or other serious issues


FPA: Expected Outcomes

Quick, effective disbursement of MDTF funds in crisis & post-crisis situations when UN (or WB) implementation or direct support is needed

Timely conclusion of legal agreements based on an agreed template that allows each organization to implement such activities using own fiduciary rules & procedures

Consistent reporting on use of funds and implementation progress against expected outcomes & results

Enhanced role for donors as part of governing body to oversee progress and make decisions on proper recourse to address any issues


FPA: Topics for Discussion

Choice of Model Use of own fiduciary rules based on assurance against shared

fiduciary principles vs. compliance with Administrator’s fiduciary requirements

Roles Governing Body vs. Trustee/Administrator vs. Implementing

Agency

Information Needs of Donors Financial Reporting

Progress Reporting/Results Monitoring

Special Issues/Concerns


Compliance and Financial Reporting






Compliance & Quality Assurance:Overview

BETFs

Reimbursed US$87,000 in FY07 (cf US$10 million in FY02)

RETFs (more anecdotal)

Bank reimbursed US$20 million in FY02

Reimbursements in FY07 probably less than US$5 million in total, by countries

CSR/TQC/LOA review of process compliance “OK”

QAG findings (FY08) are encouraging and confirm that quality depends on management attention

FIFs often support global programs, evaluated by IEG or externally, or have only a trustee role for the Bank


Compliance & Quality Assurance:Looking Ahead

Learning and Accreditation Program will be updated by end-2009

New TF Management Framework links TF usage more tightly to Bank business units’ strategy and success indicators

Risk-based fiduciary framework on RETFs will further enhance compliance and results

Greater emphasis on GAC, country systems and donor harmonization, as well as new system-based tools & reports will improve oversight, consistency and standards


Financial Reporting:Agenda

Overview of Financial Reporting Arrangements

Trust Funds Portfolio

Trust Funds vary by type and size

Types of trust funds and growth (FY03-FY08)

Overview of the Single Audit

Single Audit FY08

Single Audit FY09 and Beyond

Questions for Consideration

1


Financial Reporting Arrangements:Overview

1. Statements of Receipts, Disbursements and Fund Balance (unaudited)• Required by administration agreements• Readily available to donors on the web

2. Trust funds subject to separate financial statement audit• When required by administration agreement• 80% of the portfolio by value at June 30, 2007; 13% by number of TFs

(circa 130 TFs) • Special request from donors• IFRS; US GAAP; special purpose financial statements; cash-based

3. Single Audit• 20% of the portfolio by value at June 30, 2007; 87% by number of TFs

(circa 850 TFs)• Required by administration agreements

2

Audit Arrangements


Rapid growth in volume, diversity, and complexity of portfolio since FY03

There are 3 types of TFs: Bank Executed Recipient Executed Financial Intermediary Arrangements

85% of the trust funds by number are less than $20m

Donor balance accounts currently total ~$180m

184

977

1,326

236

1,149

1,793

274

1,487

2,238

292

1,456

2,466

331

2,110

3,127

-

1,000

2,000

3,000

4,000

5,000

6,000

FY03 FY04 FY05 FY06 FY07

Disbursements by the Type of Trust Fund US$ millions

FinancialIntermediary

RecipientExecuted

BankExecuted

IFC andMIGA TFs

Funds Held in Trust (Cash Only)

-

5,000

10,000

15,000

FY

03

FY

04

FY

05

FY

06

FY

07

US

$ m

illio

ns

TOTAL

Donor Pledges

36

5258

714 16

0

10

20

30

40

50

60

70

FY06 FY07 FY08 (YTD Dec 2007)

Am

ou

nt

in U

SD

bil

lio

ns

Cumulative Pledge Net Receivable from Donors

0%

20%

40%

60%

80%

100%

Trust Funds by Size

62%

15%

3

> 20 million

5 million - $20 million

23%

< $5 million

Trust Fund Portfolio: Trust funds vary by type and size


Th

e W

orl

d B

an

k’s

O

pera

tion

al In

pu

t

Types of Trust Fund Arrangements

Trust Funds by TypeFY06-end Balance, USD

millions

ExternallyManaged

Stand Alone

Linked to WB Operations

Recipient Executed$2,110m

113% increase since FY03

Single Donor Multiple Donors

Financial Intermediary

$3,127m138% increase

since FY03

Bank Executed$571m

122% increase since FY03

Trust Funds by TypeFY07 Disbursements, US$

millionsBank Managed

4

Trust Fund Portfolio: Types of funds and growth (FY03-FY07)


Overview of the Single Audit

Annual assertion by management over internal controls surrounding cash–based financial reports

Management assertion on internal controls Contributions from Donors are recorded in the appropriate trust fund on a

timely basis

Assets from underlying funds held in trust are segregated from funds of the Bank

Transactions are recorded in the underlying financial records and the financial reporting of each trust fund are valid and complete

Investment income is earned and credited to the appropriate trust fund in accordance with the terms and provisions of the agreements

Disbursements follow established Bank policies and procedures

Fees for administering each trust fund are charged in accordance with the terms and provisions of the trust fund agreements

Financial reporting is in compliance with the requirements set forth in the legal agreements entered into with the donors

External auditor’s attestation

Applicable audit standard (AT 501 issued by the US AICPA)

5


Single Audit FY08

AT 501 is being revised which necessitates a change in single audit approach for FY09 and beyond

No longer able to combine different entities with different financial reporting dates and different bases of accounting (cash vs accrual)

What Donors will receive for FY08:

Management assertion on internal control over financial reporting (ICFR) - same as previous years

External auditor attestation will be under International Standards on Assurance Engagements (ISAE 3000) instead of US AICPA AT 501 audit standard

Trust funds for which accrual-based financial statements are prepared are excluded from the single audit

6



Management assertion and auditor attestation likely to be similar to FY08 (change in auditors)

Bank proposes to prepare a combined financial statement for all cash based trust funds and provide a management assertion thereon

Audited under International Standards on Auditing

Provide additional information in the form of notes and disclosures

Considering strengthening the single audit in future years (e.g. using “agreed upon procedures”)

7

Pro Forma Stmt


Is the current level of audited TF financial information provided by the World Bank satisfactory?

Is the TF financial and other information that is currently available on the web satisfactory?

Will the future arrangements for the single audit

satisfy the needs of Donors?

Questions for Consideration


Current Audit Arrangements



Note:

Figures above are for illustrative purposes only

Figures are unaudited and subject to change

Documents

THE WORLD BANK - INTERNATIONAL FINANCE CORPORATION - MULTILATERAL INVESTMENT GUARANTEE AGENCY