Trust Fund Management Framework

Fiduciary ForumPresented by Trust Fund Operations Department

March 2008

At end FY2007, the WBG was holding a total stock of US$21.4 billion in TF assets, of which US$13.77 billion were in the form of cash and investments, and US$7.63 million in promissory notes.

Funds Held in Cash, Investments and Promissory Notes in FY2003-07

6,887

8,587

9,308

10,554

13,768

2,255

2,561

7,631

0 5,000 10,000 15,000 20,000 25,000

FY2003

FY2004

FY2005

FY2006

FY2007

$ millions

Cash and Investments PNs

Trust fund disbursements constituted an increasingly larger share of resources channeled to IDA-eligible countries and IBRD countries

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

Earlier Reforms

Since FY02, reforms to strengthen the TF control framework:

Standardization/simplificationSegregation of duties e-Trust Funds project: Mandatory Learning and Accreditation Program Phase-out of consultant procurement “tied” to nationalityPartnership Review (PRN) process

Impact of reformsFairly robust framework, with all trust funds subject to standard ex ante, implementation, and ex post controls that provide reasonable assuranceDonor confidence evidenced by growth of portfolio

TFMF ComponentsEnhancing Strategic Selectivity of the TF portfolio

Putting TFs in broader context of operational programs and business needs, particularly for large Trust Fund proposals

Strengthening Risk- and Results-ManagementRefined and strengthened standard controlsSpecialized controls tailored to type-specific risksStrengthened results focus

Enhancing Operational Efficiency and SustainabilitySimpler, output-focused EFO instrument in support of WB work, with no minimum or maximum size and no feesStreamlined fee structure with higher minimum TF threshold, continued cost-sharing by WB, and more use of customized arrangements

Expected OutcomesFramework for TF Management

TFMF Steering committeeIntegrate policies/procedures applicable to external financing/partnerships

WBG-wide harmonization on TFs On untying of funds, fees, risk management

Strengthened Strategic Focus of Donor Relations

Facilitate OVPs' dialogue with key donors through joint CFP/EXT donor country profiles

Pillar-1 Objective: Promoting a More Strategic Approach to TF Management

Promote use of VPU-level TF Management Plans

Get TFs more systematically reflected in CASs & CAS progress/completion reports

Establish a Senior Management Review mechanism (to review and approve large, innovative and evolving TF partnership proposals)

Pillar-2 Objective: Strengthen Risk Management & Controls

Refine and enforce standard controls (ex ante, implementation, ex post)

More systematically address portfolio-wide risks

Reassess efficiency/sequencing of clearance processes to improve coordination and reduce transaction costs for TTLs and donors

Federated Approach to TF Management

World Bank Managing Units

(Regions & Networks; HQ and Country Offices)

Recipients

Other Central Units(Legal, HR,

ISG,…)

Program Secretariats Operations Quality,

incl. Procurement &Financial Mgmt

Oversight(TQC, IEG, IAD)

Finance Units (CFP, CSR)

Don

ors

GoverningBodies

Increasing Focus on Risks and Results

Donors and Recipients want reassurance on use of, and outcomes from, TFs. New framework aims to provide through focus on risks and results.

Three main businesses:BETFs—World Bank-executed trust funds;RETFs—Recipient-executed trust funds;FIFs—Financial intermediary funds.

Different types of TFs carry differing risks. Most large programs supported by TFs have

separate annual reports on their activities and results; subject to periodic independent evaluations. However, TFs are also part of a much wider results picture; attribution is complex (as for IDA/IBRD).

Principles Governing Trust Fund Administration

Different types of TFs carry differing risks, which require tailored controls, thus:

BETFs: manage non-compliance, dependency by budget integrationRETFs linked to WB ops: manage operational risks by aligning with existing operational strategy and budget processes

For FIFs need additional targeted controls and a risk-based approach:

Upstream Senior Management review of proposal’s risks from operational, financial, and aid architecture perspective---both new and evolving TFs.Constitute Senior Manager strategic oversight group.Review organizational framework to ensure that regulatory imperatives (risk mitigation) are balanced with operational ones (e.g. timeliness).

Pillar 2 Planned Actions Apply existing upstream TF and partnership

review processes consistently and explicitly to all relevant fund proposals; including Senior Management Review of FIFs

Review roles and responsibilities of Central Units and efficiency of existing clearance processes

Improve efficiency of TF administration through simplification, automation .. Mandatory Bank-wide roll-out of newly-developed e-TF tools: TFP (replacing IBTF), GPA and GFR

Pillar 2 Planned ActionsStrengthen monitoring and evaluation

of trust-funded activities & sharpen their results focus

• ICM compliance to capture intermediate outcomes • Evaluations to cover all large TFs • IEG to review TFs in its country/sector evaluations

Develop systems & processes for EFOs (building upon existing reimbursable arrangements)

• Specified deliverables/timeframe; reporting focused on outputs; integrated in Bank's budgetary and HR processes

• Standard legal agreement template

Pillar 2 Planned Actions

Integrate BETFs (along with EFOs and TF fee income) with existing Bank administrative budget and WPA processes

• Guidelines and accountability framework

• integrate planning, forecasting, monitoring and reporting of BETFs with BB

Align RETFs with processes, systems, and oversight arrangements applicable to IBRD/IDA lending operations -- including fiduciary and safeguard policies and application of the results framework

Pillar 3 Enhancing Operational Efficiency & Sustainability

Increase in Minimum threshold for establishing a new TF to $1 million (from $200,000).

Donors can still contribute < $1m for WB work under a new, streamlined facility (Externally Funded Outputs, EFOs).

Pillar 3- Action: Revise Fee Structure

Set-up charge of $35,000 will be applied to each new TF that carries a standard fee (to meet average establishment costs). For all other TFs, WB will aim to recover full costs through customized fee arrangements. Refine processes to track admin. & operational costs, and Improve fee income allocation to operational & central VPUsWB will continue to share costs of administering and supervising TFs directly supporting our work or preparation of WB-financed projects.

TF Policy Related Actions

Issue New OP/BP (New OP embodying the Board-approved policy principles)

Update Trust Fund Handbook

Issue Compendium of External Financing Policies & Procedures

TF Acceptance CriteriaConsistency with the Bank’s purposes and mandate. Activities are in keeping with the Articles of Agreement of IBRD and IDA.

Strategic Relevance. Activities financed from the trust fund are aligned with the Bank’s strategies.

Risk Management and Controls. The risks arising from the trust fund, including those arising from any conflicts of interest or any restrictions on its use, are explicitly considered and are judged to be acceptable and manageable by the Bank.

TF Acceptance CriteriaGovernance. The Bank has decision-making authority in the use of the funds adequate to fulfill its roles in administering the specific type of trust fund.

Nationality Restrictions on Procurement. The Bank does not accept any contribution to a trust fund that imposes nationality restrictions on procurement (as distinct from nationality restrictions on recruitment, which may still be accepted)

Operational Efficiency and Sustainability. Trust funds are of a sufficient size to ensure efficient administration, and preferably are programmatic in design. The Bank recovers the costs of performing agreed roles in administering a trust fund, taking into account benefits associated with such funding.