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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1). Advanced Accounting III - Practical 1 Financial Management for Externally Financed Projects/Programs in Cambodia. Day 1: Sept. 27, 2010: Project Financial Policies and Standard. Day 1

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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

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  1. ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Advanced Accounting III - Practical 1 Financial Management for Externally Financed Projects/Programs in Cambodia Day 1: Sept. 27, 2010: Project Financial Policies and Standard

  2. Day 1 Project Financial Policies and Standard Content ADB Grant No.0133-CAM/Component 1: PFMRD

  3. Project Implementation Arrangement ADB Grant No.0133-CAM/Component 1: PFMRD 3

  4. 1. Project Cycle • After a project identification by RGC & DA, it is proposed and implemented • Steps from project identification to project completion comprise 9 steps • (see slide below) ADB Grant No.0133-CAM/Component 1: PFMRD 4

  5. 1. Project Cycle (continue) 1. Project Identification 2. PPTA Consultant Recruitment 9. Post Evaluation 3. Preliminary Project Design 8. Completion 4. Loan Processing 7. Project Implementation 6. Consultant Recruitment for detail design & assistance with implementation 5. Loan Negotiation ADB Grant No.0133-CAM/Component 1: PFMRD 5

  6. 1.1. Project Identification • A project is identified during periodic consultations between the RGC and the ADB/WB. • This is usually preceded by a study of Cambodia’s economic situation and its plans and priorities during a country programming mission of the DA (i.e. ADB/WB). ADB Grant No.0133-CAM/Component 1: PFMRD 6

  7. 1.2. Project Preparation (PPTA Recruitment) • A fact-finding mission of the DA (ADB/WB) obtains detailed information on all aspects of the proposed project, including the feasibility of the project, to justify processing to the next stage. • The preparatory work is undertaken through a project preparatory technical assistance (PPTA) funded by the DA (ADB/WB). • During project preparation, the Executing Agency (EA) and the financial management arrangements for the project are identified and the financial management capability of the EA is assessed. ADB Grant No.0133-CAM/Component 1: PFMRD 7

  8. 1.3. Preliminary Project Design • The PPTA team conducts project design by collaborate with the Bank mission, • Referring the PPTA report, the Bank is designed the PAM/PIM or Appraisal and brief the Loan/Credit or grant to Borrower/or Beneficiary. ADB Grant No.0133-CAM/Component 1: PFMRD 8

  9. 1.4. Project Appraisal • During project appraisal, the project’s soundness and viability is assessed and analysis. e.g. project proposal, sectors, sub-sectors, components, tasks, financial management , government structure….. • A more in-depth examination of the financial arrangements: • Financial management organizational structure, • Role and Responsibility for Staffing, • Funds flows, budgeting, accounting system and procedures, ADB Grant No.0133-CAM/Component 1: PFMRD 9

  10. 1.4. Project Appraisal (continue) • Financial management system and procedures, • Reporting and auditing arrangements • Any identified weaknesses in the financial management arrangements are discussed and an action plan developed to address the weaknesses. ADB Grant No.0133-CAM/Component 1: PFMRD 10

  11. 1.5. Loan Negotiation and Approval • After the project has been found to be suitable for financing, formal loan negotiations take place. • When negotiations are successfully completed, the proposed project is submitted for approval of the Board of Directors of the ADB/WB or DA. • Upon approval of the proposal, a credit/loan or technical assistance agreement is signed by the representative of the ADB/WB or DA and the representative of the RGC. ADB Grant No.0133-CAM/Component 1: PFMRD 11

  12. 1.6. Recruitment Consultants/Goods • At the beginning of the project, there are important items to be mobilized, i.e. consultants, office space, vehicles, office equipment,…. • Based on 18 months procurement plan or disbursement plan for a proper period of project being carry out. • These recruitment may proceed during the project preparation and then planned for available time of project effective and implementing. ADB Grant No.0133-CAM/Component 1: PFMRD 12

  13. 1.7. Project Implementation • After the signing of the agreements, a period of time is allowed for a credit/loan agreement to become effective • Preparation work may take some time to complete, the ADB/WB may approve the Government’s request to undertake advance procurement action during the appraisal stage (maybe 18 months procurement plan) of the project to expedite project implementation. • After a project is declared effective, the implementation proceeds. ADB Grant No.0133-CAM/Component 1: PFMRD 13

  14. 1.8. Project Completion • Once a project is complete, the project bank accounts are closed • The final financial statements are prepared and audited and a project completion report is prepared. ADB Grant No.0133-CAM/Component 1: PFMRD 14

  15. 1.9. Post Evaluation • A post evaluation mission is undertaken by the ADB/WB at an appropriate interval after project completion. • Mission reviews: Preparation, design, appraisal, and implementation aspects of the projects, the costs and benefits, and the outcome of the project in relation to its initial objectives, identifies lessons learned from the project. • The mission’s findings, together with the project completion report, form the basis of the project performance audit report. ADB Grant No.0133-CAM/Component 1: PFMRD 15

  16. 2. Financial Management Arrangements • Before a project can be declared effective, the following key financial management arrangements must be in place for the project: • Financial responsibilities defined • Financial organizational structure decided and key financial staff recruited and train. ADB Grant No.0133-CAM/Component 1: PFMRD 16

  17. 2. Financial Management Arrangements (cont’d) • Financial accounting and financial management systems, processes and procedures developed and made operational • Funds flow arrangements defined Banking arrangements decided • Financial Management Manual developed (a separate SFMM is deemed necessary). ADB Grant No.0133-CAM/Component 1: PFMRD 17

  18. 3. Financial policies & Standard and Accounting system ADB Grant No.0133-CAM/Component 1: PFMRD 18

  19. 3.1. Fiscal Year and Reporting Periods • The RGC financial year is Calendar Year (1st Jan-31st Dec). • EAs must identify the financial year that will apply and agree this with the MEF and the ADB/WB. • Only the following financial years may be used by Project Teams: • January to December (Calendar year/Government Fiscal year and ADB Financial year). • July to June (Financial Year for the World Bank). ADB Grant No.0133-CAM/Component 1: PFMRD 19

  20. 3.2.Basis of Accounting and Accounting Standards • EAs (Project Teams) must identify the basis of accounting and the accounting standards that will be used for recording and reporting the financial transactions of the project. • The three bases of accounting and related accounting standards ADB Grant No.0133-CAM/Component 1: PFMRD 20

  21. 3.2.Basis of Accounting and Accounting Standards (cont’d) ADB Grant No.0133-CAM/Component 1: PFMRD 21

  22. 3.3.Currency of Recording and Reporting • Project Teams must record financial transactions and maintain the main project accounts and records should be in US dollars. • All prime financial reports must be in US Dollars (or According Agreement) • Subsidiary accounts, records and reports may be maintained in Riel (KHR) ADB Grant No.0133-CAM/Component 1: PFMRD 22

  23. 3.4.Foreign Currency Translation • Any transaction in Riel or other currency must be converted to US dollars at the official daily exchange rate of the day of the transaction that is declared by the National bank of Cambodia(NBC). ADB Grant No.0133-CAM/Component 1: PFMRD 23

  24. 4.Financial Accounting system ADB Grant No.0133-CAM/Component 1: PFMRD 24

  25. 4.1Overview accounting system • Records in a systematic and controlled manner the financial transactions and events of the project. • These records enable the monitoring and controlling of project funds and assists in project implementation. • The financial accounting system is made up of the General Ledger and the various sub ledgers. • Demonstrated by a flow chart in slide below. • The Accounting system may be manual or computerized. • Financial accounting data flows from the source documents to the accounting records and then is produced into financial reports as Desired. ADB Grant No.0133-CAM/Component 1: PFMRD 25

  26. 4.1 Overview Diagram Billing Company / Group / HQ Board and External Agency Cost Centres / Operating Departments Budget & Financial Reports, Management Reports Cash Management Billing Accruals Consolidation / Management Reports Accounting Policies Accounts Receivable Accounts Receivable details CM details Fixed Assets Accounts Payable General Ledger Assets data (Depreciation etc.) Accounts Payable details Project Accounting Accruals Project details Commitments Inventory details Purchasing Inventory Statutory, Tax & Regulatory, Management Accounts reports Check Reconciliation Payroll details Budget data Legal Entities Budgeting & forecasting Payroll Audit Grant No.0133-CAM/Component 1: PFMRD

  27. 4.2.Accounting Process (cont’d) • The major steps in the accounting processes are: 1. Transaction processing- approve and enter transactions. • 2. Posting to ledger- transactions from the various source records such as journals and cash books. • 3. Preparation of a trial balance - a listing of all debits and credits • 4. Month end adjustments - to make any adjusting entries. • 5. Preparation of an adjusted trial balance - listing of debits and credits after month end adjustments • 6. Preparation of financial reports and statements • 7. Closing entries - clearing of revenue and expense accounts. • 8. Closing trial balance - ensures that the ledger accounts remain in balance. 27

  28. 4.2.Accounting Process (cont’d) ADB Grant No.0133-CAM/Component 1: PFMRD 28

  29. 4.2.Accounting Process (cont’d) Computerized Accounting System 3.3 General Manual Accounting System Accounting process Analyze transactions Analyze transactions • Record transactions in manual record and then computerized accounting system • General Journal Entries (both manual and • computerized accounting system) • Receipt Journals for cash and bank • (computerized accounting system) • Payment Journals for cash and bank • (computerized accounting system) Manually record transactions in appropriate journal Manually post transactions to correspondence ledger accounts Manually prepare Trial Balance Complete month-end procedures checklist Manually prepare financial statements and put them in the required format Print out reports from computer and put them in the required format

  30. 5.Accounting Process • Certain primary accounting records that must be maintained in any accounting system. These are: • 1. Cash receipts journal (CRJ) • 2. Cash disbursements journal(CDJ) • 3. General journal (GJ) • 4. General Ledger(GL) • (FMM, Appendix 1 for some samples ) ADB Grant No.0133-CAM/Component 1: PFMRD 30

  31. 5.Accounting Process (cont’d) The primary accounting records that must be maintained within the financial accounting system of a project are:   Cash Receipts Journal/Book - a record in date order of cash funds received by the project in an accounting period, transactions are based on sequential numbering of official receipts and bank receipt vouchers (in the accounting software this is equivalent to Receive Moneys/Make Deposit Function).   Cash Disbursements Journal/Book - a record of expenditure transactions with dates, amounts and payees based on the sequential numbering of the payment vouchers and cheques/bank transfer authorities (in the accounting software this is equivalent to Make Payment Function or Task/Payment Function). General Journal - used to record non-cash transactions, such as direct deposits or direct payments, to the General Ledger (in the accounting software, this is equivalent to General Journal Entry Window). ADB Grant No.0133-CAM/Component 1: PFMRD 31

  32. 5.Accounting Process (cont’d) General Ledger - transactions from the Cash Receipts Book, Cash Disbursements Book General Journal Book are posted to the relevant ledger accounts. The ledger accounts are organised to identify the nature of the transaction and to enable summarising of financial data in the general ledger (with computerised accounting software, transactions are automatically recorded in the relevant ledger account when the transaction/journal is entered). Other registers and records are maintained to assist with managing and controlling the project’s financial activities and resources. Examples include asset registers, inventory registers, contract registers, withdrawal application registers, contract securities registers. ADB Grant No.0133-CAM/Component 1: PFMRD 32

  33. 6.Source Documents • The financial transactions are recorded in the financial accounting system from certain source documents. These are: • 1. Official Receipts • 2. Payment Vouchers • 3. General Journal Vouchers • 4. Cash Advance Forms • 5. Purchase Order (where this system is used) • (FMM, Appendix 1 for samples) ADB Grant No.0133-CAM/Component 1: PFMRD 33

  34. 6.Source Documents (Cont’d) The financial transactions are recorded in the financial accounting system from source documents. These documents should be standard and allow for proper control such as authorisation of transactions. The prime source documents of the financial accounting system are:   Official Receipt - used to document the receipt of cash and cheques. Dr Bank Account xxx Cr Liability/ Fund Receipt Account. xxx ADB Grant No.0133-CAM/Component 1: PFMRD 34

  35. 6.Source Documents (Cont’d) Bank Receipt Voucher - used to document the receipt of funds directly deposited to a bank account of the project, usually from the WB/ADB (loan/credit/grant disbursements) or the Bank (bank interest). Dr Bank Account xxx Cr Liability/Equity/Fund receipt Account xxx Payment Voucher - used to record payment transactions where mode of payment is by Cheque/LC/Withdrawal slip. The fund is drawn from project’s bank accounts. Dr Asset/Liability/Expense Account xxx Cr Cash in Bank/CA/name of bank xxx ADB Grant No.0133-CAM/Component 1: PFMRD 35

  36. 6.Source Documents (Cont’d) • Petty Cash Payment Voucher (PCV) - used to record payment of transactions from petty cash funds of the project. There is no direct posting of PCV to the general ledger, the transactions are recorded in the Petty Cash Book and then the expenditures are summarized and posted at regular intervals to the ledger.   • General Journal - used to record non-cash transactions which affect the project’s resources and obligations where there are no actual receipts or disbursements of funds. It is commonly used to record adjustments, accruals, reclassifications and settlement of cash advances. ADB Grant No.0133-CAM/Component 1: PFMRD 36

  37. 6.Source Documents (Cont’d) • Cash Advance Form - used to record transactions of cash advances which are treated temporarily as advances until they are liquidated/cleared.   • Purchase Order - used to record official orders of goods to suppliers or contractors. This procedure is not widely used in most projects in RGC, as the contract method of procurement is the preferred method of procurement in RGC. However there are some projects were this method of procurement is followed for purchasing of minor items. ADB Grant No.0133-CAM/Component 1: PFMRD 37

  38. 7.Five Steps in Analysing Processing Transaction Step 2 Apply the Rule of double entry Step 3 Record the entry Step 4 Post the entry Step 5 Prepare the trial balance Step 1 Analyze the Tran saction ADB Grant No.0133-CAM/Component 1: PFMRD 38

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