The Harmonized Approach to Cash Transfers

							                           The Harmonized Approach to Cash Transfers
                    Its application in a situation of weak implementing partners

The Harmonized Approach to Cash Transfers (HACT) has replaced a variety of cash transfer procedures
applied by different UN agencies. It is based on the principles for aid effectiveness as described in the
Paris Declaration.

1. HACT is a risk-informed approach to collaboration with government and other implementing partners,
and applies to all situations and partners. Some partners have relatively strong internal control systems,
and the cooperating UN agency can rely on these systems. Other partners may have weak systems, and
the UN agency may have to increase its own monitoring activities to seek the assurance that UN funds are
effectively used by the implementing partners for the intended purposes.


                HACT procedures                                               Old procedures
UN agencies assess the environment in which             The public financial management systems, or the
government and other implementing partners work         environment under which cash is transferred to partners, is
(done through assessments of the public financial       not assessed
management system; or macro-assessments)

UN agencies assess the financial management             UN agencies do not formally assess the partners’ financial
capacity of individual partners (micro-assessments)     management systems

Based on the findings of the macro- and micro           All partners and situation are treated the same
assessments, the UN agencies adjust their assurance
and capacity building activities

It is not sufficient just to obtain a “rating” of the partner’s capacity, but the assessment reports should be
used to identify exactly the areas where partner capacity and systems need strengthening, or where more
intense assurance activities have to take place.

2. Some UN staff believe that HACT cannot be applied to weak partners, because it may increase the risk
of mismanagement by the implementing partners. This is incorrect.

               HACT procedures                                            Old procedures
Implementing partners provide a certificate of          For UNICEF: implementing partners submit receipts for
expenditure (FACE), which is subject to audit           their expenditure

                                                        For UNDP: the specifically created project account is
                                                        audited annually

Closer programme monitoring, more intense field         UN agencies tend to rely on accounting information to
visits and observations, spot checks and – if need be   assure themselves that activities have taking place as
– special audits are conducted to assure themselves     planned
that activities took place and funds were used as
planned

The focus is on the implementation of agreed            The focus is on providing accounting reports
activities and results

Receipts for expenditure do in themselves not ensure that activities have been conducted, or that UN
agency funds were used to finance them. Many receipts (e.g. for fuel purchases) do not guarantee that the
funds were used for UNICEF-supported activities. This can only be determined by reviewing the
partner’s accounting practices, which is done through audits or spot-checks, as appropriate, and closer
programme monitoring. Likewise, in the case of a weak partner, conducting annual audits (as is current
practice by UNDP) does not provide assurance if these audits are qualified year after year. Instead, weak
management practices by implementing partners need to be addressed through capacity strengthening
activities.


3. HACT reduces transaction costs, and assists implementing partners to strengthen their own systems to
better manage their development responsibilities.

                 HACT procedures                                           Old procedures
Funds are provided for activities to take place       Funds are provided for activities to take place during the
during the next three months, as agreed in the AWP    next three months, but requests are often received on an ad-
                                                      hoc basis

Possibility of re-programming unutilized funds, for   Possibility of re-programming exists, but must be dealt with
other activities agreed upon in the AWP               on a case-to-case basis

Monitoring reports (FACE) to be received quarterly,   Piecemeal reporting on use of funds
summing up all received and outstanding
installments

No receipts required except for FACE –                Receipts have to be provided (to UNICEF) or separate
implementing partners keep their original             project accounts have to be maintained (UNDP) – in both
documentation and the integrity of their accounts     cases the accounting systems of implementing partners
                                                      require additional efforts or systems



HACT Advisory Committee
December 2008