Harmonized Approach to Cash Transfers to National Implementing

Partners

Objectives of the new approach:

Lower complexity of procedures and reduce transaction costs of development cooperation;

Improve capacity of national partners to effectively manage aid;

Minimize risks related to the utilization of funds and increase overall effectiveness

! NB:

Harmonization of procedures for cash transfers is just the first step;

Harmonization of procedures for procurement, recruitment and other aspects of UN operations will follow.

The new approach is based on the following principles:

National ownership - Governments are in the driver’s seat

Strengthening capacity – reliance on Government systems

Risk Management Assessments and assurance activities

Risk Management

Assessment of financial management capacity;

Appropriate cash transfer procedures;Awareness of the implementing

partner’s internal controls through assurance activities

Determination of risks

Macro assessment:

– a review of existing assessments of the national public financial management system;

– once per cycle, preferably during the CCA preparation

Determination of risks (cont.)

Micro assessment: – assessment of the adequacy of the

implementing partner’s financial management systems;

– once per programming cycle;– threshold: US$ 100,000 collectively from UN

Agencies

Assessments: Objectives

Assist the Government to identify strengths and weaknesses in the PFM system and practices;

Identify/coordinate areas for capacity building (development);

Assist in the identification of appropriate cash transfer procedures (fiduciary)

Assessments: Basic Principles

Not meant to impose conditionality; No rating for macro assessment is designated; Contribute to capacity development; Government should be involved;

Assessments: Basic Principles (cont.)

Existing assessments to be used; If macro assessment not available, UN

encourages Government to initiate one; UNCT jointly interprets the available diagnostic

work, with experts’ assistance

Current modalities for transfer of financial resources:

Modality Obligation Payment

Direct Cash Transfer

Government/NGO Government/NGO

Direct Payment Government/NGO Agency

Reimbursement Government/NGO Government/NGO

Agency Implementation

Agency Agency

Harmonization:Modalities or Procedures?

Mix of modalities provides for flexibility; Choice of modality depends on assessment of

risk and experiences; Agencies may agree on a preferred modality, but

decide individually which one to use; Diverse procedures generate high transactions

costs; Agencies will use same forms and reporting

procedures

Procedures to be harmonized:

Disbursements (basis and periodicity)

Reporting on cash utilizationAssurance

Disbursements

Based on activities described in AWPs;

Requested by Implementing Partner, as part of the Funding Authorization and certificate of Expenditure (FACE);

Disbursements periodicity:

– Direct cash transfers are requested and released on a quarterly basis (max.) to cover expected expenditures;

– Direct payments are released based on the authorization of an appropriate designated official;

– Reimbursements are requested and released following the completion of activities (could be quarterly)

Reporting:

Direct payments: reporting based on agreements with Government;

Reimbursement/Direct cash transfers: reporting by implementing partner (FACE) to Agency;

Agency implementation: reporting by the implementing UN Agency to the Government and funding agency

Assurance Activities:

Coverage, type and frequency of AA is guided by the level of risk and magnitude of cash transfers to an implementing partner (IP);

Strongest AA will be directed to IP with the weakest financial management practices

Assurance Activities include:

Periodic on-site reviews: spot-checks and special audits;

Programmatic monitoring of activities and results;

Scheduled Audits

Scheduled Audits

Audits by private firms contracted by Agencies (Government should be informed of the arrangement);

IPs that receive more than US$500,000 collectively from UN Agencies per cycle - audits scheduled at least once in the programme cycle;

IPs that receive less than US$500,000, if necessary audit plans will be prepared by the UN Agencies

Scheduled audits: supreme audit institution

Macro assessment establishes the capacity of the institution

FACE

Certifies expenditures and provides a basis for the disbursement of funds for the next period;

Permits disbursement on quarterly, not transaction basis;

Cash disbursed, but not utilized – reprogrammed/refunded;

No accompanying back-up documentation

Conclusions

Reduces the most burdensome transaction costs for government counterparts;

True harmonization in the area of assurance Simplification of both programme and financial

operations

THANK YOU!