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Project Implementation: Loan administration

Project Implementation: Loan administration. April 2012. Project Implementation: Loan administration.

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Project Implementation: Loan administration

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  1. Project Implementation: Loan administration April 2012

  2. Project Implementation: Loan administration We would like to acknowledge the contribution of the Programme Management Department in the preparation of this presentation that will introduce some concepts and guiding principles for Loan administration For more information on the topic please refer to the supervision training material of February 2012

  3. Table of Contents • Loan Administration Principles & Framework • Letter to the Borrower/ Disbursement Handbook • Disbursement Procedures • Withdrawal Applications • Foreign Exchange Translation 2

  4. Loan Administration Principles & Framework 3

  5. Basic Principles of Loan Administration • Only Eligible expenditure:proceeds of financing shall be used only for purposes for which financing provided • Due attention & consideration to economy, efficiency & social equity • Expenditure is eligible as & when incurred: Advance payments made by project other than contractual advances are ineligible • First withdrawal: First withdrawal from loan/ grant account is made normally only after financing is effective & disbursement conditions met, except for start-up advance if agreed at negotiations and included in the financing agreement (Schedule 2) • Written application: Borrower can request for withdrawal only by means of written application in specified format along with relevant supporting evidence 4

  6. Basic Principles of Loan Administration • Eligible expenditure: the following conditions should be met: • Incurred by project party • During project implementation period • Reasonable cost of goods & services procured • Per procurement procedures as per Schedule 4 of FA/ LTB • Per approved AWPB • Per percentages stated in Schedule 2/ LTB against eligible categories • Not prohibited by UNSC under Chapter VII of UN Charter • Not following any coercive, collusive, fraudulent or corrupt practice • Per financing agreement documents • Retroactive Funding: If Schedule 2 of FA expressly provides for retroactive funding, eligible expenditure incurred for project purposes before financing effectiveness can be reimbursed from loan account after effectiveness • Letter to the Borrower/ Disbursement Handbook: Sent by IFAD to Authorised Representative of Borrower outlining important financing provisions, disbursement procedures & guidelines 5

  7. Basic Principles of Loan Administration • Disbursement process in IFAD: On receipt of Withdrawal Application (WA), the following steps are taken: • CFSreceives original documentation, while PMD receives a signed/scanned copy of the WA package • Review and checks are performed simultaneously by PMDand CFS • PMDcertifies that the expenditures are in line with approved AWPB and that procurement procedures are currently applied • CFS performs checks regarding accuracy and completeness of WAs andeligibility of expenditures considering the applicable rules and regulations • CFS may conduct independent verification of WA & sends approved Payment order to the Treasury Division to make payment • CFS issues debit advice to Borrower & implementing agencies & generates billing statements on fortnightly basis • Non approval of WA: IFAD informs Borrower about reasons for rejection & suggests corrective action to be taken • NOTE: Ad hoc procedures for IFAD Country Offices reviewing the WAs 6

  8. IFAD Project & Legal Documents Project Documents IFAD Generic Documents • Loan & Grant Administration Operational Manual • Loan Disbursement Handbook • Procurement Guidelines • Audit Guidelines • Design Report • Financing Agreement • General Conditions • Minutes of Loan Negotiations • Amendments to Financing Agreement • Letter to the Borrower (LTB) • Project Implementation Manual (PIM) 7

  9. Financing Agreement Schedule 2 - Allocation & Withdrawal of Financing Proceeds • Category No. & description • Loan amount allocated to each category • % of expenditures to be financed • Definition of terms • Start-up advance, if envisaged • Retroactive Financing, if envisaged 8

  10. IFAD Financing • Denominated in Special Drawing Rights (SDR) (only exception supplementary funds) • Withdrawal applications made in different currencies • Disbursement is converted in SDR & deducted from financing amount Financing Milestone Dates • Board Approval Date • Financing Agreement Date • Effective/ Entry into Force Date • Project Completion Date • Loan Closing Date 9

  11. Project Financing Agreement Financing Agreement Date + Ratification, if required ENTRY INTO FORCE “X” anniversary of Effective Date PROJECT COMPLETION DATE Project Completion Date to Loan Closing Date WINDING-UP PERIOD Project Completion Date + 6 months LOAN CLOSING DATE 10

  12. First Disbursement - requirements • Financing declared effective/ entry into force • Evidence of opening of Designated Account (DA) • Letter on WA authorised signatories received • Signatories of persons authorised to operate DA & specimen signatures received • Disbursement condition/smet • AWPB & Procurement Plan approved • Withdrawal Application in order 11

  13. Parties Involved • Borrower • IFAD • Country Programme Manager • Controller and Financial Services Division • Treasury • International Banking Channels • Local banks 12

  14. Letter to the Borrower/ Disbursement Handbook 13

  15. Letter to the Borrower/ Disbursement Handbook Letter to the Borrower/ Disbursement Handbook. . . • Operational guidelines for withdrawal of loan/ grant funds for project purchases (procurement) of goods, works & consulting services, details of financial & audit reporting requirements • Explained to the Implementing Agency during Start-up mission • For new projects subject to revised General Conditions, Disbursement Handbook is an annex to revised Letter to the Borrower • Includes prescribed forms to be used by Implementing Agency in withdrawing funds from loan/ grant 14

  16. Letter to the Borrower/Disbursement Handbook . . explains the following topics: • Disbursement Conditions (Opening of Designated Accounts, appointment of officers authorised to operate DA & sign WAs, etc) • Disbursement Procedures • Designated Accounts • Instructions for Withdrawal • Annual Work Plan & Budget & Procurement Plan • Allocation of Financing Proceeds • Procurement of Goods, Works & Consulting Services, including Methods • Review of Procurement Decisions by IFAD • Programme Reviews & Periodic Assessments • Financial Reporting & Auditing • Project Completion/ Financing Closure • Amendments 15

  17. Disbursement Handbook – Topics • Basic Principles & Financing Administration • Instructions for Withdrawal • Disbursement Procedures • Statement of Expenditure • Register of Contracts/ Contract Monitoring 16

  18. Disbursement Handbook – Attachments • Sample letter of evidence of authority to sign WA • Instruction for completing forms • The various forms for use with 4 Disbursement Procedures • Initial Deposit Advance/Replenishment to Special/ Designated Account • Direct payment procedure • Special commitment procedure • Reimbursement procedure • SOE provision & eligibility • Project Checklist – Form & Instructions in completing form • Register of Contracts • Status of Financial Statements & Audit Report 17

  19. Disbursement Procedures 18

  20. Disbursement Procedures Withdrawal of Loan Funds (Explained in the Letter to the Borrower) Special Account Procedure 1 Direct Payment Procedure 2 Disbursement Procedures Reimbursement Procedure 4 Special Commitment Procedure 3 19

  21. Special/ Designated Account (Procedure I) • A facility provided in Letter to the Borrower for advance funding from IFAD • Initial Deposit/Advance – paid in USD or other freely convertible currency • Replenishment applications should be submitted regularly using specified forms – usually on quarterly basis (see checklist) 20

  22. Special/ Designated Account General • Special Account/Designated provisions are found in in Section 4.04(d) of General Conditions • Article IV deals with Loan Account & Withdrawals - Withdrawals from loan & grant accounts, special commitments, WAs, transfers, allocation & reallocation of financing proceeds, value dates of withdrawals, eligible expenditures & refund of withdrawals • There are 3 stagesin operation of the Designated Account during project life: • Payment of Authorized Allocationor Initial Deposit • Replenishment to Designated Account • Recovery of Authorized Allocation 21

  23. Special Account Payment of Authorised Allocation (Initial Deposit)/Advance • Review wording of disbursement conditionsin Financing Agreement • Ensure receipt of evidence of opening of SPA/ DA& Letter on authorized persons to operate account • Check if opening of SPA is condition for effectiveness • After IFAD payment, issue SPA letter • The financing agreement may provide that authorised allocation/advance is paid in 1,2 or more tranches • During project implementation, authorised allocation may be increased through amendment to financing agreement 22

  24. Special Account Replenishment to Special/ Designated Account Check following items • Exchange rateused • Frequency of submission of WAs • Adequacy of supporting documentation • Correct use of summary sheets • Replenishment during recovery period – should equal the balance of the agreed percentage of expenditures duly justified • Exercise care in reviewing WA to determine which expenditures are eligible under SOE& which are subject to supporting documentation • Usually minimum 20% of Authorised Allocation 23

  25. Special Account Recovery of Authorised Allocation (Initial Deposit)/Advance • Timing of recovery: monitor 3 trigger points (see paragraph 230 of the loans & grants administration manual) ,whichever comes first • Percentage of recovery: to be confirmed by CPM • Exchange rateto be used is historic rate at value date of payment of initial deposit • Maintenance of SPA/ DA Initial Deposit/ Advance Recovery Control& reconciliation of unjustified balance with LGS • At start of recovery – issue SPA/ DA Recovery Letter • Amount for refund to IFAD • Unjustified balance per IFAD records; not balance in bank • Unjustified balance should be reconciled with LGS • When the initial deposit is fully justified, any balance in bank should remain with Borrower & should not be refunded to IFAD; all future replenishments are processed as reimbursements to Government • Loan account cannot be closed by IFAD if Authorised Allocation/ Advance is not fully justified or unjustified portion is not refunded to IFAD 24

  26. Special Account/ Statement of Expenditures Special/ DesignatedAccount Statement of Expenditures • Relates to funding • Eligibility applies to all categories • Relates to the submission of prescribed form in lieu of required supporting documentation • Eligibility is limited to coverage provided in Financing Agreement or prescribed by IFAD 25

  27. Special /Designated Account Reconciliation To be provided with every WA for Replenishment Reflects position of end of period covered by WA Should reflect all bank balances supported by bank statements as perSpecial/ Designated Account Reconciliation Format Eachlineof SPA/ DA Reconciliation should be completed perNotes & Instructions enclosed 26

  28. Direct Payment (Procedure II) • Project instructs IFAD to make payment directly to a supplier, contractor, consultant, or any other third party • Minimum of approximately $20,000 equivalent for each Direct Payment • For payments below approximately $20,000, Project should useDesignated / special Account funds • Documentation should show evidence of: • Amounts due (invoice, statement or demand note) • Initial or advance payments, progress payments on contract (as recorded on the contract monitoring form), progress certificate & invoice/ purchase order Note: Payment instructions in WA must be clear & complete 27

  29. Special Commitment (Procedure III) Disbursement procedure for payment of goods covered under a Letter of Credit Stages / Processes • Project opens LC & sends WA to IFAD, with copy of LC & contract (Form 301) • IFAD sends SC Letter to bank of supplier as guarantee of payment (Form 302) • Bank sends request for payment to IFAD when LC conditions are met (Form 303) 28

  30. Special Commitment Procedure General • A special withdrawal application (Form 301)is submitted by Project when agreed modality of payment for procurement of goods is through a Letter of Credit (LC) • This WA is processed & reviewed using Checklist 3 for Special Commitment • After processing by CPM, certified Checklist is forwarded to regional office (where applicable) 29

  31. Special Commitment Procedure Issuance of Special Commitment Letter • Based on the certified Checklist, regional office prepares a draft Special Commitment Letter (SCL), using Form 302 & sends it to finance division in Rome together with checklist for signature. LC details are duly reflected in the SCL. Completed SCL signed by Controller is mailed to negotiating bank (addressee of the SCL) with Form 303 as an attachment • The value of the Special Commitment (the amount requested in WA Form 301) is converted into SDR using prevailing IMF rate as of preparation date & small percentage added to cater for exchange rate fluctuations • SCLs that are issued for each loan/ grant are numbered sequentially • Checklist is used to verify the steps in preparation & issuance of SCL 30

  32. Special Commitment Procedure Payment Instructions on Special Commitments • Once the terms of LC are complied with, negotiating bank sends request for reimbursementvia SWIFT to IFAD Treasury or through written request for payment (Form 303) • Treasury sends SWIFT message of negotiating bank to regional Office • After completion of checking process, Payment Order (PO) to pay the negotiating bank is prepared using prescribed format for Special Commitment payment • The Payment that is authorised in PO is recorded in Special Commitment Payment Summary, quoting WA number & LC Reference Number 31

  33. Reimbursement (Procedure IV) • An expenditure pre-financed by Government or other sources • Reimbursed by IFAD in currency of expenditure • Reimbursement applications should be submitted normally within 3 months from date of payment 32

  34. Withdrawal Applications 33

  35. Forms • Withdrawal Application Forms • Application Summary Sheets • Statement of Expenditure Forms • Register of Contracts • Special/ Designated Account Reconciliation Statement • Project WA Checklist • IFAD WA Checklist 34

  36. WA Forms Withdrawal Application – Form 100 • Sequential numbering irrespective of disbursement procedure used • All sections should be completed • Payment instructions must reflect complete name & address of bank & beneficiary’s account number, including correspondent bank, if required 35

  37. Application Summary Sheet Form 101-A (SA) & 101-B (Direct Payment/ Reimbursement to Government) For direct payment and for reimbursement of expenditures not eligible under SOE Supporting documents must be attached Form 102-A (SA) and 102-B (to Government) Prescribed form for expenditures eligible under SOE Supporting documents not required to be submitted; SOE form must be signed by designated Project staff 36

  38. Supporting Documentation For expenditures that are eligible under SOE Prescribed SOE Form 102A or 102B, with certification text, duly certified by 3 designated signatories: Project Accountant, Project Coordinator & WA signatory For direct payment to a contractor, supplier or consultant • Summary Sheet Form 101B, together with the following, as applicable: • Copy of invoice (or Demand Letter, Statement), certified for payment by Project Coordinator • Copy of contract(for 1st progress payment) or contract monitoring form • Copy of purchase order • Copy of bank guarantee, for advance payment &/ or performance • Copy of delivery receipt for goods • Copy of certification for works completed on civil works • Copy of consultant’s report, if required, for final payment to be made Note: Since original copies of above documents are retained by PCU for audit purposes, a photocopy is accepted as supporting documentation 37

  39. Supporting Documentation For replenishment to the Special/ DesignatedAccount • The certified SOE form 102A, for eligible expenditures • Summary Sheet Form 101A with copy of above documents (as applicable) plus evidence of payment (receipt or bank statement), for expenditures not eligible under SOE • Special/ Designated Account Reconciliation Statement, together with Bank Statement by SPA/ DA holding bank For Special Commitment • Copy of Letter of Credit opened by Project • Copy ofcontract For all WAs, irrespective of disbursement procedure • Project Checklist certified by Project Accountant & Project Coordinator • Summary Breakdown by Category that adds up to WA amount • Copy of CPM’s No Objectionto procurement of goods, works or consultancy services 38

  40. SOE Procedure • CPM sends official notification on SOE coverage to Borrower • SOE arrangements specified in LTB • Amendment to Financing Agreement not required for changes in SOE coverage/ thresholdunless SOE threshold is specified in Financing Agreement 39

  41. Statement of Expenditure Provision in Financing Agreement The Financing Agreement provision for SOE is always found in Schedule 2 Items that should be taken into consideration • SOE cases, taking into account whether threshold is applicable on contracts or expenditure • The interpretation of the SOE coverage as provided in: (i) Financing agreement; (ii) Minutes of Loan Negotiation; or (iii) Agreement reached during Start-up Mission– giving particular attention to financial ceiling (usually $20,000) • The types of expenditures normally fully eligible under SOE. Examples: Credit, Local training, Local salaries & allowances, Operating Costs & Civil Works on Force Account 40

  42. Statement of Expenditure Prescribed SOE forms • SOE Form 102A for replenishment to Special/ Designated Account • SOEForm 102B for reimbursement of pre-financed expenditures • Certification text is required for each SOE form • 3 signaturesare always required: Project Accountant, Project Coordinator & WA Signatory Other items to take note of • Relationship between SOE financial ceiling& procurement prior reviewthreshold • Proper filing systemin PCU to enable audit trail during supervision missions • Audit of SOE & separate opinionby independent auditor 41

  43. For Prompt Disbursements Ensure (1) • Authorised Signatories for WAs • Banking Instructions, including correspondent bank • Complete Supporting documentation • Statement of Expenditure eligibility • Procurement Procedures • Terms of payment (contract payment terms) • Currency of expenditure • Correct % of financing Ensure (2) • Disbursement conditions are met (Sch 2 of Financing Agreement) • Withdrawal Application Size:Direct Payment: usually minimum approximately $20,000 Repl. to SPA/ DA: 20% of Authorised Allocation/ Advance (or more) • Exchange Rate correctly calculated • Accuracy of computations 42

  44. Withdrawal Application Submission WA Contents Each WA submission should consist of the following • Required supporting documentation • Withdrawal Application Amount • If final WA amount approved is lowerthan WA submission, PO can be released & Project is advised on reductions made • If the final WA amount approved is higher than WA submission, Project should be advised on findings & corrections made (in practice WAs may be processed in reduced (not increased) amounts from what is indicated in Form 100. If amount payable is more than what is in Form 100, project is advised to claim in subsequent WA) • A WA can be authorised for partial payment & balance paid in separate PO • WAChecklist(Form 105) 43

  45. Withdrawal Application Submission Withdrawal Application Form 100 • The preparation & approval of WA at project level is a long process involving project staff & concerned officers in relevant Ministry • The Project is required to submit prescribed Form 100signed by designated WA signatory • WA without authorized signatureswill not be processed • When a WA is not signed at all or only 1 of 2 required signatories signed, project is required to send new WA with required signature or signatures 44

  46. Withdrawal Application Submission Written Communication Written Communicationfrom Project authority is required for the following: • Change of WA authorized signatories– Original signed letter from representative of Borrower • When PO already issued& payment was made on WA, Project’s request for adjustment in WA submitted – Original signed letter from Project Coordinator • Confirmation on increase in WA amount as result of review • Change in bank where Special Account is maintained • Change of account number, in same bank, due to changes in bank’s system • Confirmation of last WA submitted before closing of Loan Account 45

  47. Withdrawal Application Submission Email Communication Email Communicationfrom Project authority is acceptable for the following: • Change in the categoryto charge • Information on correspondent bank or change in correspondent bank • Any other relevant informationprovided by project relating to claim in WA Project should complete all sections in WA 46

  48. Foreign Exchange Translation 47

  49. Foreign Exchange Translation Usage of Exchange rates The usage of exchange rates in IFAD loans applies to one of the following areas: Conversion of IFAD financing in US Dollars (USD) to Special Drawing Rights (SDR) Conversion of withdrawals from loan accountbased on approved WAs submitted in various currencies into SDR For replenishment to Special Account, conversion of local currency expenditures funded from Special Account into currency denomination of Special Account, e.g. USD, Euro Conversion of amounts submitted through WAs as justification of authorised allocation(initial deposit) to Special Account 48

  50. Foreign Exchange Translation Conversion of IFAD Loan into SDR • The IFAD loan is reflected in Design Report in US Dollars • During financing negotiationsbetween representatives of Borrower & IFAD, US Dollar loan amount is converted into SDR using prevailing USD/ SDR rate at the end of month preceding loan negotiation • Likewise, amounts allocated to each category are converted into SDR using same exchange rate • Financing amount is fixed & is reflected in relevant sections of financing agreement • If the project is partially financed from a grant, known as project-component grant, grant amount is also denominated in SDR • SDR rate are listed on a daily basis by the International Monitory Fund& available through its website – www.imf.org 49

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