Maria Vannari & Ranjan Ganguli, ECSPS February 2005

1. Institution / Sector Fiduciary Assessments (IFAs/SFAs)An example – the Croatia Education Sector Fiduciary Assessment (ESFA) Maria Vannari & Ranjan Ganguli, ECSPS February 2005

2. Croatia ESFA • Why? • What ? • How? • Results

3. Why (did we do the ESFA)? • To support an upcoming Bank-financed SWAp operation, the Croatia Education Sector Support Program (ESSP) • A necessary step to implement a SWAp given the goals of a SWAp: • To strengthen an entire sector - It was supportive of the ESSP’s priority to strengthen the education sector’s management and leadership by providing the basis for formulating a concrete plan to strengthen the sector’s fiduciary arrangements • To pool funds & relying on country systems – It provided a basis for assessing and relying on the ESSP’s fiduciary implementation arrangements. • The CFAA and CPAR (and other analytics) were not specific enough

4. Terminology – IFA vs. SFA • IFA vs. SFA (Institutional vs. Sector assessment) • The name probably depends on the situation & sector specifics • IFA – when the focus of the assessment is a single institution • SFA – when the sector is decentralized or comprises many institutions • Don’t get hung up on the terminology – different parts of the same spectrum

5. What (is the ESFA)? It evaluates the education sector’s procurement and financial management systems. By reference to: • acceptable (not best) international practices, standards and codes; • relevant documentation; • compliance or walk-through testing; and • evaluation of the relevant procurement and financial management procedures and controls

6. How (did we sell the ESFA)? • The CFAA and CPAR, although invaluable, were not specific enough. (Consider that CFAAs and CPARs are no longer mandatory) • It was supportive of the ESSP’s priority to strengthen the education sector’s management and leadership • It was supportive of the ESSP’s goal of preparing the education sector for EU accession • The ESFA provided a basis for formulating a concrete plan to strengthen the ESSP’s fiduciary implementation arrangements • It will help determine how much loan funds the Bank will provide for the program, and when

7. How (did we organize the ESFA)? • Read the PCN, CFAA, CPAR and other sectoral and country background information • Met with the sectoral project task team and CU to form an idea of the institutions that we would look at during the scoping mission • One-week scoping mission - sent a draft report in which we set out the institutions and expenditure systems that we would look at during the final assessment mission as well as the preliminary findings and issues • Two-week ESFA mission • Drafted the ESFA and distributed within the Bank (ECSPS, the project task team and CU) for discussion – consider peer reviewers for future IFAs • Distributed a revised ESFA to the relevant in-country institutions and stakeholders. • In-country workshop to discuss and agree on the fiduciary issues – during appraisal mission • Devised action plans to feed into either the sector project (for sectoral issues) or relevant country programs (for wider country issues) • Fed conclusions of ESFA fiduciary assessment into the final project's fiduciary assessment (in the PAD)

8. How (did we focus the ESFA)? • started with looking at where the money on education are spent from different sources, including: MOE budget, MOF/Treasury, other ministries (!), education sector institutions, decentralized levels (counties, municipalities, schools)  • Identified who spends the money… • Then made an assumption who would be involved in spending the SWAp funds

9. How (did we do the ESFA)? • Institutional analysis • Institutional arrangements and administrative procedures • Accounting and financial reporting • Internal audit • External audit • Procurement systems • Systems analysis (based on EU model): • Identification of needs and planning, including budgeting • Tendering • Contract management • Authorization of payments • Execution of payments • Recording of payments • FM and Procurement staff worked together (pros and cons)

10. Results • Presented the risks; • FM Issues / Needs of the sector; • Procurement Issues / Needs of the sector; • Next steps for capacity-building; • Next steps for fiduciary implementation arrangements

11. ResultsMain institutions and expenditure systems

12. ResultsFM Issues / Needs of the sector • Perform a system-by-system analysis of MOSES’s financial management control framework; • Rationalize and integrate the various accounting systems of the MOSES; • Establish proper financial management control frameworks at the various education sector institutions; • Provide schools with guidance on financial management issues; • Simplify the administration of schools’ salaries; • Simplify the systems for the payment of salaries of the staff of MOSES. • Produce comprehensive sector financial statements; • Formulate a strategic plan, risk assessment and audit plan for the internal audit function of MOSES; • Establish rules, procedures and internal controls for new, revised and emerging systems

13. Results - Procurement Issues / Needs of the sector • Improve organization and management by establishing appropriate organizational structure to house procurement function and address staffing and training needs; • Improve efficiency of the system by developing model standard bidding documents (preferably in coordination with the PPO) ; • Improve procurement practices and efficiency by developing Users’ (Procurement) Manual; • Improve transparency and accountability by introducing public advertisement of contract awards and annual reporting on procurement activities for the past year ; • Improve efficiency of the use of the public funds by introducing adequate procurement planning and expanding it beyond one budget year time limit; • Introduce periodic procurement audit carried out by an independent experts

14. ResultsNext steps for capacity-building • Establish a core team (within the Ministry) to lead the initiative and • to discuss and agree upon: • Benchmarks for improvement (sector) • The action plans for improvement (sector, is broader than what is included in the education project)

15. Results – Next steps for fiduciary implementation arrangements • Assign counterparts in MOSES for the ESSP Coordinator for reporting on ESSP expenditures and procurement (Q1, 2005) • Agree on ESSP audit arrangements (Q1, 2005) • Establish Operational Procurement Unit (Q1, 2005) • Prepare procurement plan for first 12 months of ESSP (Q1, 2005) • Prepare a procurement manual for the ESSP with a description of agreed procedures (Q1, 2005) • Advertisement of upcoming tenders on MOSES website (ongoing) • Prepare annual reports on procurement activities for preceding year (starting 2006) • Establish TA facility for procurement capacity assessment and training of procuring entities at decentralized levels (Q2, 2005) • Establish mechanism for reporting on expenditures incurred for decentralized functions (Q4, 2005)

16. Results - IncentivesPerformance-based disbursementsProgram review cycle Jan-Dec Q4 Q1 review SAR1 SAR2 planning Q2 Q3 • Semi-Annual Review 1 (SAR1) • review the progress • financial review • amendments to Annual • Development Plan • -amendments to procurement plan • Semi-Annual Review 2 (SAR2) • Annual Development Plan • for next year • budget for next year • procurement plan for next year • financial update

17. Could do better • Joint assessment with borrower; • Timing and sequencing; • …

18. By the way …. SWAp • What is actually the difference (in regard to procurement and fm) between an “old-fashioned” Project and a fashion of the season – SWAp? • performance based disbursements • procurement – higher thresholds for ICB, less prior review • SWAp with reliance on country systems – controversy of the issue