HARMONIZED APPROACH TO

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Nov 10, 2013 (3 years and 8 months ago)

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TOWARDS A

HARMONIZED APPROACH TO

CASH TRANSFER (HACT)



UNDP

HACT Refresher Session

2009


I.
Goal, Concepts, Principles & Implications of HACT


II.
Conditions to Introduce HACT:

Assessments and Assurance Activities


III.
Unified Requesting/ Reporting Tool:

Funding Authorization & Certificate of Expenditures
(FACE Form)

OUTLINE OF PRESENTATION


1. BACKGROUND



Part of reforming UN’s operational development activities and
harmonization efforts thru UN GA Resolution 56/201;



UN response to Paris Declaration on Aid Effectiveness;



HACT framework was adopted by UNDG’s Executive Committee through
a joint letter of 28 April 2005;



HACT is schedule for roll out in Guyana as of 1 April 2008;

I.

GOAL, CONCEPTS, PRINCIPLES & IMPLICATIONS OF HACT

3. DEFINITION AND CONCEPTS


3.1

Definition
:
HACT is a

set of principles and guidelines
governing the disbursement and reporting of funds for a UN
-
funded project transferred by UN funding agency to
Implementing Partner (IP) or other parties.

3.2

Key concepts
:


Harmonized:
Applied consistently by ExCom Agencies;



Cash Transfer:
Disbursement/advance of project funds from
UN agency to IP or other parties;



Implementing Partner:
National institution managing a UN
-
assisted project.

4.

RATIONALE



UN Agencies adopt a risk management approach in transferring
cash to Government based on joint assessment of financial
management capacities of Government and IP.



Gradually increase the use of Government systems,
accompanied with capacity building measures.



Reduce transaction costs in administering and executing UN
-
funded projects.



Lessen burden on IPs in managing such projects.

5.

PRINCIPLES OF HACT

5.1.

FOUR MODALITIES FOR CASH TRANSFER



Direct Cash Transfer to IP
:
UN agency transfers cash to IP’s
project bank account at IP request.



Direct Payment to Vendors
:

UN agency directly pays vendors
upon IP request.

5.1.

FOUR MODALITIES FOR CASH TRANSFER



Reimbursement of Costs Advanced by IP
:
UN agency transfers
cash to IP’s project bank account to reimburse expenditures that IP
paid out of its own funds.



Direct Agency Implementation
:
All project funds are directly
disbursed by UN agency (i.e. UN funding agency, specialized
agency rather than IP) in accordance with the agreed Annual Work
Plan.


RESPONSIBILITIES FOR OBLIGATIONS/ PAYMENTS

FOR CASH TRANSFER MODALITIES

Modality

Obligation/
Accountability

Payment

Direct Cash Transfer

Government/ NGO

Government/ NGO

Direct Payment

Government/ NGO

Agency

Reimbursement

Government/ NGO

Government/ NGO

Direct Agency
Implementation

Agency

Agency

5.2.

HARMONIZATION OF PROCEDURES


i.e. SAME
PROCEDURES USED FOR ALL MODALITIES



Same
Periodicity

of disbursements (quarterly), linked to AWP.



Same
Format

for requesting and reporting on use of
transferred funds by IPs (FACE form).



Joint
Assurance

activities undertaken by UN Agencies.

5.3.

EFFECTIVE/ EFFICIENT RISK MANAGEMENT


Assessment of
Financial Management Capacity

of each IP;


Selection of appropriate
Cash Transfer Modality/ies

for IP;


Undertaking of
Assurance Activities

to:

-
Maintain awareness of IP’s internal controls/financial
management practices;

-
Determine if funds were used for intended purposes;

-
Check accuracy of IP’s reporting on the use of funds to
ensure that presented expenditures were true and fair.

6.5.

AWP Should Specify:



Resource transfer modality/ies to be applied for each project.



Effectiveness of cash transfer modalities should be reviewed at
end of each year, and needed adjustments agreed upon for next
AWP.



II.

CONDITIONS TO INTRODUCE HACT:

ASSESSMENTS AND ASSURANCE ACTIVITIES

1. ASSESSMENTS REQUIRED FOR HACT INTRODUCTION


Assessment of National Public Financial Management System:
Macro Assessment


Assessment of an IP's Institutional Financial Management Capacity:
Micro Assessment


2. ASSURANCE ACTIVITIES


Periodic on
-
site reviews


Programmatic monitoring


Scheduled audits/ special audits

3.

MACRO ASSESSMENT

3.1

OBJECTIVES:


Development Objectives:


Ensure awareness of Public Financial Management System
(PFM), including its status, weaknesses & strengths


Identify opportunities for capacity development



Financial Management Objectives:


Provide background information for selection of appropriate cash
transfer modality/ies & assurance activities


Indicate whether the Supreme Audit Institution (SAI) can be
used to audit partners

4.1

OBJECTIVES:


Development Objectives:


Determine status, strengths & weaknesses of IP's financial
management practices


Identify capacity gaps/ possible areas for capacity
development



Financial Management Objectives:


Help identifying most suitable Cash Transfer Modality


Guide decision on assurance activities' frequency and scope


Provide
risk ratings,
but not
“Pass
-
or
-
Fail”

4.

MICRO ASSESSMENT

4.2

KEY FEATURES:



Open, transparent and collaborative between IP and UN agencies.


Occurs once per programme cycle.


Conducted for IPs which receive
cash transfers

with a annual total
of USD100,000 or more from all UN agencies collectively.


UN agencies' joint Annual Plan for Micro Assessments. Agencies
with same IP jointly undertake assessment for that IP.


UN agencies themselves, SAI, or a qualified private accounting
firm may conduct assessment/ prepare a report.

For New Implementing
Partner/s

Check List will be used to assess the
Financial Management System

4.3

MICRO ASSESSMENT IN TWO
-
STAGE PROCESS:



STAGE 1: If adequate information on IP’s Financial Management
System exists and it confirms a low risk rating for the system,
only a simple assessment needs to be carried out, using
Checklist A
(below).



CHECKLIST A (Simple Assessment):


Worked with the partner past 2 years;


Adequate internal controls;


Timely financial reporting;


Same management team;


No major “incidents” (in project financial management);


Same programme type;


Same annual volume expected;

MICRO ASSESSMENT IN TWO
-
STAGE PROCESS:



STAGE 2: If the above information is inadequate and does not
confirm a low risk rating, a more detailed assessment needs to
be carried out, using
Checklist B
(below).



CHECKLIST B (Detailed Assessment):


Status of implementing partner


Funds flow


Staffing


Accounting policies and procedures


Internal audit


External audit


Reporting and monitoring


Information systems

5.

ASSURANCE ACTIVITIES

5.1

OBJECTIVES:



Maintain awareness of IP’s financial management practices and
internal controls.



Determine if project funds are used for intended purposes.



Check accuracy of IP’s reporting on use of funds, to ensure that
the presented expenditures were true and fair.

5.2

TYPES OF ASSURANCE ACTIVITIES:



Periodic On
-
site Reviews
of IP's financial records for cash
transfers (i.e. financial spot checks).



Programmatic Monitoring
of activities supported by cash
transfers (including field monitoring and annual reviews).



Audits:


Scheduled Audits

of internal controls for cash transfer.


Special Audits

may be conducted to address specific

weaknesses identified.


5.3

KEY FEATURES:



Frequency and scope of assurance activities depend on the
level of risks identified (by micro assessment) and amount of
cash transferred.



UN agencies invest more in assurance activities for IPs with
“weaker” financial management system and internal controls.



Assurance activities can be “educational” for an IP and help it
strengthen its financial management system.

5.4

SCHEDULED AUDITS:



UN agencies are required to schedule at least one audit per programme
cycle for each IP disbursing a total of USD 100,000 or more per year
from UN agencies collectively.



Scheduled audits should be coordinated among UN agencies,
particularly those with the same IPs.



Either SAI or a commercial audit firm can undertake scheduled audits.



UN Agency could commission an audit (to be included as one of CPAP
Clauses)

5.5

MANAGEMENT OF AUDITS



Scheduled or special audits can be conducted by SAI or
commercial audit firms.



If the SAI may undertake audits of IPs as per macro assessment's
findings, it will normally finance these audits (this should be
specified in CPAP). In all other circumstances, the audits will be
financed by UN agencies from programme funds.



Audits of IPs should be coordinated among the UN agencies, and
costs shared among those with IPs in common (as with other
assurance activities).



Findings from audits and other assurance activities are shared and
followed up among the Government, IPs and UN agencies.

Type of

Assurance Activities

Level of Assessed Risk

High

Significant

Moderate

Low

Financial spot check

(time/ year)

6/ year

4/ year

3/ year

1/ year

Special Audits

On demand

Programmatic monitoring
(as % of annual project
funds)

30%

25%

20%

10%

Scheduled Audits

(disbursing ≥ USD100,00
received/year collectively)


Every 12
months

Every 12
months

Every 24
months

Every 24
months

5.6

ASSURANCE ACTIVITIES TO BE CARRIED OUT BY UN
AGENCIES





III.

USE OF A UNIFIED REQUESTING/REPORTING TOOL


FUNDING AUTHORIZATION & CERTIFICATE OF
EXPENDITURES (FACE FORM)