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

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

2. 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

3. Update on Portfolio Developments • Update on Portfolio Developments • Progress in Implementing the new Trust Fund Management Framework • Fiduciary Principles Accord with the UN • Compliance and Financial Reporting

4. 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% Cash contributions were 41% higher in FY07

5. WBG TF Disbursements FY2003-07 5,808 FY2007 FY2006 4,374 FY2005 4,128 FY2004 3,277 FY2003 2,561 0 1,000 2,000 3,000 4,000 5,000 6,000 US$ 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

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

7. 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

8. Progress in Implementing the new Trust Fund Management Framework • Update on Portfolio Developments • Progress in Implementing the new Trust Fund Management Framework • Fiduciary Principles Accord with the UN • Compliance and Financial Reporting

9. 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

10. 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

11. 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

12. 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

13. 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

14. Fiduciary Principles Accord with the UN • Update on Portfolio Developments • Progress in Implementing the new Trust Fund Management Framework • Fiduciary Principles Accord with the UN • Compliance and Financial Reporting

15. 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

16. 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

17. 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

18. 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 interoperabilitybetween 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)

19. 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

20. 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

21. 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

22. Compliance and Financial Reporting • Update on Portfolio Developments • Progress in Implementing the new Trust Fund Management Framework • Fiduciary Principles Accord with the UN • Compliance and Financial Reporting

23. 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:Overview

24. 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

25. 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

26. Financial Reporting Arrangements:Overview • Statements of Receipts, Disbursements and Fund Balance (unaudited) • Required by administration agreements • Readily available to donors on the web • 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 • Single Audit • 20% of the portfolio by value at June 30, 2007; 87% by number of TFs (circa 850 TFs) • Required by administration agreements Audit Arrangements 2

27. Trust Funds by Size 100% 80% 60% 40% 20% 0% Trust Fund Portfolio: Trust funds vary by type and size • 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 15% > 20 million 5 million - $20 million 23% 62% < $5 million 3

28. Trust Funds by Type FY07 Disbursements, US$ millions Bank Managed Bank Executed $571m 122% increase since FY03 Financial Intermediary $3,127m 138% increase since FY03 Trust Fund Portfolio: Types of funds and growth (FY03-FY07) Trust Funds by Type FY06-end Balance, USD millions Linked to WB Operations The World Bank’s Operational Input Stand Alone Recipient Executed $2,110m 113% increase since FY03 Externally Managed Single Donor Multiple Donors Types of Trust Fund Arrangements 4

29. 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

30. 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

31. Single Audit FY09 and Beyond • 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”) Pro Forma Stmt 7

32. Questions for Consideration • 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?

33. Current Audit Arrangements

34. Single Audit FY09 and Beyond Note: Figures above are for illustrative purposes only Figures are unaudited and subject to change