11

Disbursement Procedure For

World Bank Assistance

Objective

Understanding different disbursement procedures Issues connected with claim preparation. To understand funds flow mechanism Maintenance of accounting records and audit

procedures.

Project Financing

Budgeting

Step-I Annual Requirement of Rupee resources for meeting

the expenditure of the Project Cost including World Bank funding is required to be approved by the Planning Commission.

Step-II Inclusion of the funds requirement approved under

step-I, in the Annual Budget of the Government.

World Bank Assitance

World Bank extends financial assistance through its three Constitutions namely:

International Development Agency (IDA) International Bank for Reconstruction and Development

(IBRD) Trust Fund (IDF)

World Bank also co-finances with Bilateral/ Multilateral agencies

Terms and Conditions of lending-IDA

Lending from internal resources in the form of contribution from member countries.

Carries no interest charges. But levies service charges of 0.75% p.a. on the amount drawn and outstanding.

Carries commitment charges of 0.50% p.a. on the undrawn balances of the credit subject to waiver.

Repayment maturities upto 35 years including 10 years grace period.

Terms and Conditions of lending-IBRD Lending from market borrowings Carries interest charges based on LIBOR base rate (plus

variable spread) Charges 0.25% of the total amount of the loan as front

end fee. Carries commitment charges of 0.75% p.a. on the

undrawn balances of the loan subject to waiver. The commitment charges have however been abolished for new loans signed/approved after May 2007.

Repayment maturities upto 20 years including 5 years grace period

Disbursement Procedures

I. Reimbursementa. Through Special Accountb. Outside Special Account

II. Direct Paymenta. Direct Payment with claimb. Direct Payment by Special Commitment

III. Report Based Disbursementa. F.M.R. -Based Disbursement

Cont.

Disbursement Procedures

I. a. Special Account World Bank makes an advance disbursement from the loan account for deposit to an Special Account to be used exclusively for its share of eligible expenditures

b. Outside Special AccountWorld Bank pays from the loan account to the Borrower’s account for eligible expenditures which have been incurred and paid for by the project out of its budget allocation or its own resources.

Cont.

Disbursement Procedures

II. a. Direct Payment The Borrower may request World Bank to pay

the supplier/contractor directly from the loan funds.

b. Special Commitment World bank at the request of the Borrower,

provides an irrevocable undertaking to reimburse a commercial bank for payments made or to be made to a supplier against a Letter of Credit (LC) financed from the loan account.

Cont.

Disbursement ProceduresIII. Financial Management Report (FMR) -Based

Disbursement

Under this procedure FMR as prepared by Project Implementing Authority and submitted to Financial Management Specialist & AAAD, are used to withdraw funds from the loan account by AAAD. For this purpose AAAD will prepare a withdrawal application as the case may be, and forward to World Bank Chennai office. Project is required to submit the actual for the past quarter and estimate of expenditure for next two quarters.

Claims

Reimbursement Withdrawal Application (By AAAD) Abstract Summary Sheets Documents : Invoice /

Bills Evidence of Payment (for documented Claims)

Direct Payment Withdrawal Application (By AAAD) Summary Sheet Invoice / Bill Bill of Lading / Airway

Bill Copy of LC in case of

Special commitment

Conditions Precedent to Disbursement

Loan Agreement to be declared effective. Procurement Procedures as laid down in the

agreement to be followed. Authorised signatory of AAAD to withdraw funds to

reach the Bank. Authorised Signatory of Project to sign claims to

reach Aid Account and Audit Division. Participatory Agreements to be entered into between

Government of India / State Government and the Project Executing Agency, if applicable.

Special Account

This is also known as desginated account. This is maintained with RBI Mumbai in US Dollar

currency. This is maintained separately for each loan/credit/ grant. This account is being operated by AAAD. AAAD is responsible for Annual audit of this account by

C&AG and sending audit certificate to the World Bank. This is only a proforma account.

Additional Central Assistance (ACA)

ACA under replenishment procedure (through Special Account) to the projects is released on the basis of exchange rate of RBI for USD on the date when Special Account is debited by RBI for normal loans.

The ACA for Back to Back loans/grants is released after disbursement from World Bank based on the exchange rate on the disbursement date.

For reimbursement outside Special Account ACA is released to the projects after getting disbursement from World Bank.

Rupee deposit by Ministries/ PSUs/ Autonomous Bodies

All Central Ministry/ Departments/ PSUs/ Autonomous Bodies are required to make provisions in their budget for Direct payments made from External Assistance.

Counterpart rupee for such payments is to be deposited in AAAD account maintained at RBI, New Delhi or SBI, Tis Hazari, Delhi.

In addition to it, interest at prescribed rate will also be payable by PSUs/ Autonomous Bodies.

---------------------------Project(Illustration)Significant dates

Date of Agreement: ------------- Date of Effectiveness: ------------- Project Completion date ------------- Terminal date of Disbursement: ------------- Retroactive period ------------- To -----------

(Retroactive financing amount ---------- )

Schedule – I (----------------------Project )

Credit/Loan/Grant No.-------

Sl. No

Category Description

Amount of the Loan allocated (in SDR/USD)

% of Expenditure to be financed

1

2

3

Total

Contract Review

Prior review World Bank

Civil Works More than USD -----------

Goods More than USD -----------

Consultancy More than USD ----------- (For Firm)

Consultancy More than USD --------- (For Individual)

Contract Review

POST REVIEW WORLD BANK

Civil Works Less Than USD -----------

Goods Less Than USD -----------

Consultancy Less Than USD --------- (For Firm)

Consultancy Less Than USD -------- (For Individual)

Note-Training and Operating cost will be claimed inSOE forms.

INELIGIBLE ITEMS

Goods/Equipments:

Local Expenditure For Claiming 100 % Reimbursement

Sales Tax Central Sales Tax Excise

For Claiming 80 % Reimbursement Above Taxes are admissible but the charges such as Latter

of Credit opening charges and Bank charges are not admissible

Ineligible ItemsCivil Works Recovery of Security Deposit. Recovery of mobilisation advance Land acquisition cost Penalty paid to Govt. or any Govt. Organisation Levy of penalty on contractor for delayed/defective

execution Recovery towards fund Interest paid to the contractor on account of delayed

payment

Ineligible Items

Consultancy Bill

For claiming 100% reimbursement Income Tax Service Charge

For Claiming 90 % or 80% Reimbursement, above items are admissible

Form 1-B Schedule of Withdrawal of Proceeds

Date _________________IDA/IBRD Loan No. _______Application No. _________Summary Sheet No. _____

Payments made during the Period ____ to ______

1 In the case of U.S. Suppliers, please provide us with complete names and addresses ( including city and State)

If this application is not for replenishment of the Special Account, leave columns 10 and 11 blank.

Statement of Expenditures (SOE) Form 1-C Date _________________________

IDA/IBRD Loan No ____________Application No.________________

Summary Sheet No. _____________Payments made during the Period _______________to____________________

Supporting documents for this SOE retained at _____________________*1/ Items should be grouped by category, or alternatively, a separate SOE form may be used for each category2/ Consolidate payments by country of Supplier, except for US suppliers3/ For all suppliers or contractors from the US, the address should include the city and State.I certify that detailed information on expenditures incurred is available at a central location in the State Govt .

Abstract of Summary SheetName of the Project: ___________Name of the Project: ___________ IDA/IBRD CR./Loan No.___________IDA/IBRD CR./Loan No.___________Reference Period: ___________ Application No._________Date :__________Reference Period: ___________ Application No._________Date :__________

Summary Summary Sheet No.Sheet No.

Category Category

No.No.

Total Total Expenditure Expenditure

% of % of ReimbursementReimbursement

Claimed for Claimed for reimbursementreimbursement

RemarksRemarks

11 22 33 44 55 66

Category-wise Break upCategory-wise Break up

CategoryCategory AmountAmount

DOCDOC SOESOE TotalTotal

11

22

33

TotalTotal

Total___________________________________________________

ProjectProject AuthorityAuthority

Summary Sheet Form 1-B.

To be used for expenditure under contracts prior reviewed by the bank. Such claim should have W.B.R. No. In the remarks column against each contract. Post review contracts should not be claimed under form 1-B.

1.The period of the claim should be specific as from ………………… to ………………..…2.Separate summary sheet to be used for each category of expenditure.

3.Separate claim to be prepared for each currency of expenditure.

Cont.

Summary Sheet Form 1-B.

4. The claim should be in the currency in which the contract is concluded and not in the currency of expenditure.

5. Each Summary Sheet is independent by itself.

6. The bank financing percentage should be correctly indicated as per schedule I to the loan agreement.

7. The claim in INR should be entered in millions with three decimals whereas the claim in foreign currency should be in full with decimals. (E.G. .Rs.1,23,05,146 is to be shown as 12.305 million)

Summary Sheet Form 1-C.

To be used for expenditure under contracts post reviewed by the bank To be used for all training expenses, incremental operating costs,

study visits etc. The period of claim should be specific as

from ……………. To …………….. The claim should relate to total expenditure during the period

category wise separately. No need to list separately each expenditure under a contract.

Separate summary sheet to be used for each currency of expenditure.

The claim should be in the currency in which the contract is concluded and not in the currency of expenditure.

Cont.

Summary Sheet Form 1-C

The claim in INR should be entered in Millions with three decimals whereas the claim in Foreign Currency should be in full with decimals ( e.g. Rs. 1,78,56,423 is to be written as Rs..17.856 million).

The bank financing percentage should be correctly indicated as per schedule 1 of the loan agreement.

The Summary Sheet in form 1-C should have additional certificate as to the location at which the documents are retained.

The Summary Sheet in form 1-C under goods if claimed 100% furnish additional certificate that the claim is ex-factory and does not include taxes and duties and other charges.

Deficiency in Summary Sheet

WBR No. is not given in case of prior review contracts

Summary Sheets are not signed by the authorized signatory.

Retroactive Expenditure claim and Proactive Expenditure claims are prepared in the same summery sheet.

Incorrect percentage claimed. Approval of World Bank wanting for the revised

contract cost when expenditure exceeds more than 15% of the original contract value.

Cont.

Deficiency in Summary Sheet Foreign Currency payments are claimed in INR. Name of location where the documents have been

kept not mentioned in case of SOE Claims. Passed/pay order not given on the invoice/voucher. More than one No. of application in case of same

category.

General / Miscellaneous

Claims are sent before the loan is declared effective. Incomplete documents attached with the claim. Illegible documents Amount claimed not conforming with the detail given

in the voucher. Alterations in Pay order or Memorandum of

payments leads to confusion. Cont.

General / Misc. Deficiencies Inadequate payment instructions in respect of Direct Payment

Claims. Insufficient Funds in loan or category. Incomplete evidence of payment. Taxes to be claimed when payment is actually done and not

independently. Extra rounding off. Non submission of audit report to the World Bank in case of

SOE claim. Not giving reason for lodging the claim after six months of the

period of Expenditure. Unacceptable evidence of payment especially in case of third

party payment, e.g. Commercial Bank’s advice simply confirming debit to project account does not form evidence of payment. It should be either receipt of payment by supplier/contractor or Commercial Bank’s advice indicating name of beneficiary and amount paid.

Audit Covenants

World Bank

1. Furnish to the Bank within 6 months from the end of each financial year (i) Certified copies of the Balance Sheets, Statement of Income and Expenses and related statements duly audited and

2. Furnish to the Bank within 6 months after the end of financial year the Report of Audit on the records and accounts of the project in such details as the Bank shall have reasonably requested.

Scope of AuditAudits of financial Statements for Bank funded Projects include-

1. An assessment of the adequacy of accounting and internal control systems to monitor expenditures and other financial transactions and ensure safe custody of project-financed assets.

2. Determination as to whether the project implementing agencies have maintained adequate documentation of all relevant transactions.

3. Verification that the expenditures submitted to the Bank are eligible for Bank financing, and identification of any ineligible expenditures, and

4. Verification that the annual financial statements can be reconciled with the total Claims made during the year

Financial Reporting – Audit As per financing agreement the borrower has to submit

acceptable financial statements /Audit certificate to the Bank with in six (6) months of the close of the financial year.

If Audit reports/certificate are not received on the above date, a notice giving three(3) months time is served by the World Bank and if Audit Report / Certificate are still not received the use of SOE may be suspended.

After this date the World Bank gives a four (4) months final notice and if the Audit Reports / Certificate are not received after expiry of this period, disbursement for the Project may be suspended.

In case suspension continues for 30 days the Bank may cancel the part of Loan that was subject to suspension.

General deficiencies in the Audit Reports1. Non-consistency and uniformity in the format of the financial

statements.

2. Non-disclosure and consistency in the accounting standard adopted.

3. Non-mentioning of management letter from the auditors highlighting internal control weaknesses observed.

4. Non submission of reconciliation of the SOE claims with the audited expenditure as per the financial statements.

5. Non submission of records to audit.6. Including of expenditure in SOE claims which is not actually

incurred.7. Claiming the advanced amount in the SOE and treating the

same as final expenditure without obtaining utilisation certificates from the institutions / agencies to whom the advances were given.

General deficiencies observed by the Audit

1. Timely and periodic bank reconciliation not done.

2. Non maintenance of fixed assets registers.

3. Non monitoring of advances.

Project Financial Management - I

Project Activities-Implementation Ensure proper procurement procedures are followed

before incurring Expenditure. Ensure availability of funds in the Budget for the

year. Ensure Expenditure is within the approved contract. Take advance action for revision of contract and its

approval if the expenditure is likely to exceed the contract value.

Ensure that no advance is given to the contractor beyond the ceiling provided in the contract.

All advances to contractors should be supported by a Bank Guarantee.

Advances are not to be treated as final expenditure in the accounts, till the expenditure is incurred.

No Payment is to be made without a valid invoice/bill duly supported by receipt by the payee.

Ensure production of all vouchers, etc. to the Accounting authority for compilation of Accounts and reconciliation of expenditure periodically.

Project Financial Management - I

EXTERNAL FUNDING Strictly observe Financial covenants as per Loan

Agreement and Project Agreement in so far as they relate to Project Funding, Maintenance of Accounts and Audit.

Ensure Periodical submission of Reimbursement claims to CAA&A and monitor its reimbursement.

Maintain Records/Registers to monitor that eligible expenditures as per the Agreement are claimed for reimbursement.

Maintain Records/Registers to monitor the category-wise disbursement status both in Rupees and USD.

Project Financial Management - II

AUDIT Ensure Audit Report for each year is sent to World

Bank within due date. Take timely action to resolve the Audit disallowances to

get revised Audit certificate sent to World Bank. Wherever World Bank recovers the disbursement made

based on unresolved Audit disallowances, prompt action be taken with the audit to get the revised audit certificate and obtain approval of the World Bank for reclaiming the Recovery made.

Submit reimbursement claim through CAA&A for all such recovery as soon as the Bank conveys their approval for the same.

Project Financial Management - III