BANGLADESH COUNTRY PROGRAM

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					                                BANGLADESH COUNTRY PROGRAM


                                            AUDIT REPORT


                                              January 2007




                                       Internal Audit Division
                           Performance and Knowledge Management Branch




Canadian International Development Agency
200 Promenade du Portage
Gatineau, Quebec
K1A 0G4
Tel: (819) 997-5006
Toll free: 1-800-230-6349
Fax: (819) 953-6088
(For the hearing and speech impaired only (TDD/TTY): (819) 953-5023
Toll free for the hearing and speech impaired only: 1-800-331-5018)
E-mail: info@acdi-cida.gc.ca
The Internal Audit Team wishes to thank the management and staff of
               the audited unit for their co-operation.
               List of Abbreviations and Acronyms


ADB     Asian Development Bank
AEC     Audit and Evaluation Committee
AST     Agriculture Sector Team
BEMP    Bangladesh Environmental Management Project
BHPRP   Bangladesh Health and Population Reform Project
BRAC    Bangladesh Rural Advancement Committee
CAG     Bangladesh Comptroller and Auditor General
CAO     Chief Accounts Officer
CBO     Community-Based Organization
CBS     Canada Based Staff
CDPF    Country Development Programming Framework
CEA     Canadian Executing Agency
CEAA    Canadian Environmental Assessment Act
CFL     Canada Fund for Local Initiatives
CHC     Canadian High Commission
CIDA    Canadian International Development Agency
CPAG    Corporate Planning and Analysis Group
CPD     Country Program Director
CSO     Civil Society Organizations
CSR     Complementary Sector Reform
DAC     Development Assistance Committee
DFID    Department of International Development (United Kingdom)
DP      Donor Partners
DPE     Directorate of Primary Education
ESSP    Bangladesh Education Sector Support Project
FAA     Financial Administration Act
FAPAD   Foreign Assistance Project Audit Division
FCU     Financial Compliance Unit
FMA     Financial Management Advisors
FSD     Foreign Service Directives
FY      Fiscal Year
GCR     Government Contracting Regulations
GF      Gender Fund
GoB     Government of Bangladesh’s
HNPSP   Health, Nutrition and Population Sector Program
HNPSP   Health, Nutrition and Population Sector Program
HOA     Head of Aid
HOM     Head of Mission
HPSP    Health and Population Sector Program
HQ      Headquarters
IBRD    International Bank for Reconstruction and Development
ICAB    Institute of Chartered Accountants of Bangladesh
ICB     International Competitive Bidding
IDA       International Development Association
IMF       International Monetary Fund
JICA      Japan International Co-operation Agency
LCG       Local Consultative Group
LEIC      Local Enterprise Investment Centre
LES       Locally Engaged Staff
LFMO      Local Fund Management Office
MOPME     Ministry of Primary and Mass Education
MOU       Memoranda of Understanding
NGO       Non-government Organization
ODA       Official Development Assistance
OECD      Organisation for Economic Co-operation and Development
OGD       Other Federal Government Department
OMN       Salary and non-salary
PBA       Program Based Approaches
PDBF      Palli Daridro Bimochon Foundation
PEDP II   Primary Education Development Program
PFM       Public Finance Management
PKMB      Performance and Knowledge Management Branch
PPR       Project Performance Reports
PRC       Project Review Committee
PRSP      Poverty Reduction Strategy Paper
PSU       Program Support units
PTL       Project Team Leader
RBAF      Risk-based Audit Framework
RFP       Request for Proposal
RMAF      Results-based Management and Accountability Framework
RMP-III   Rural Maintenance Program-III
S&T       Scientific and Technical Advisors
SAE       Strengthening Aid Effectiveness
SWAP      Sector-wide Approach Programming
TA        Technical Assistance
TAR       Technical Assistance Regulations
TB        Treasury Board
TBS       Treasury Board Secretariat
TOR       Terms of Reference
UNDP      United Nations Development Program
UNFPA     United Nations Population Fund
UNICEF    United Nations International Children’s Emergency Fund
WB        World Bank
                                                 TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................................ 1

1.        INTRODUCTION .................................................................................................. 4

2.        BACKGROUND ................................................................................................... 4

2.1       Program Description.......................................................................................................... 4

2.2       Program Organization ....................................................................................................... 5

3.        AUDIT MANDATE, OBJECTIVES, SCOPE AND APPROACH .......................... 6

3.1       Audit Mandate and Objective ............................................................................................ 6

3.2       Scope and Approach .......................................................................................................... 6

4.        AUDIT OBSERVATIONS ..................................................................................... 7

4.1      Project Management—Stewardship, Risk and Results .................................................... 7
   4.1.1      Management of SWAPs.............................................................................................. 7
   4.1.2      Education Sector Support Project ............................................................................... 8
   4.1.3      Bangladesh Health and Population Reform Project (BHPRP) ................................. 12
   4.1.4      Other Projects: Success Stories................................................................................. 14

4.2       Risk Management ............................................................................................................ 15

4.3       Results and Performance................................................................................................. 16

4.4     Roles and Responsibilities—Accountability and People Management ......................... 17
   4.4.1    Delineation of Roles and Responsibilities ................................................................ 17
   4.4.2    Duties—PSU Director .............................................................................................. 17
   4.4.3    Relationship Issues.................................................................................................... 18

4.5     Program Support Unit ..................................................................................................... 19
  4.5.1     Background ............................................................................................................... 19
  4.5.2     Description of the PSU ............................................................................................. 19
  4.5.3     Observations and Recommendations........................................................................ 21

4.6     Gender Fund (GF) ........................................................................................................... 25
  4.6.1     Description of the Gender Fund................................................................................ 25
  4.6.2     Findings and Recommendations ............................................................................... 26

4.7      Canada Fund For Local Initiatives (CFLI).................................................................... 30
   4.7.1     Description of the CFLI ............................................................................................ 30
     4.7.2     Organization and Resources ..................................................................................... 30
     4.7.3     Findings and Recommendations ............................................................................... 31
     4.7.4     Conclusion ................................................................................................................ 33

5.       ALLOCATION OF RESOURCES ...................................................................... 34

6        AUDIT OPINION ................................................................................................ 37

ANNEX 1 – AREAS OF AUDIT PRIORITY .................................................................. 39

ANNEX 2 – LIST OF PROJECTS OF AUDIT FOCUS ................................................. 41

ANNEX 3 – EDUCATION SWAP: FUNDS FLOW DIAGRAM..................................... 44

ANNEX 4 – AUDIT OBJECTIVES AND CRITERIA...................................................... 45

APPENDIX 5—SUMMARY OF RECOMMENDATIONS............................................... 49
                                      Executive Summary

Background

This report presents the results of the internal audit of the Bangladesh Country Program. The
fieldwork was undertaken at the Bangladesh Division at Canadian International Development
Agency (CIDA) HQ and the Development Cooperation Section of the Canadian High
Commission (CHC), Dhaka, starting in August 2005 and was completed in December 2005. The
Program Support Unit (PSU) was included in the scope of the audit. The execution phase of the
audit, including supplementary validation and confirmation of facts at HQ, was completed in
March 2006.


Bangladesh Program

The Bangladesh Division, in Asia Branch, is responsible for the Bangladesh Country Program. It
has a total of 16 staff at HQ. In the field, the desk is supported by the Head of Aid, six Canada-
based staff (CBS) mobilized from CIDA and five (three professionals and two support) locally
engaged staff (LES) employed at the Canadian High Commission in Dhaka. In addition, the PSU
in Dhaka provides professional, technical, financial, administrative and logistic support to
Canada’s development cooperation program in Bangladesh and has a complement of 51 staff.

The Bangladesh Country Program’s goals as set out in the 2003–2008 Country Development
Programming Framework (CDPF) are to contribute to poverty reduction and sustainable
development in Bangladesh through support for social development, governance and the private
sector. CIDA is in the top ten of the bilateral donors but well short of the reach and influence of
the major donors who contributed from $300–600 million each in the last year. In more recent
years, CIDA’s aid budget has increased from a low of $36 million in fiscal year 2002/03 to an
approved $69 million cash ceiling for fiscal year 2006/07, nearly a 92% increase. The budgetary
allocations for Bangladesh over five years are $36 million for 2002/03, $47 million for 2003/04,
$52 million for 2004/05, $61 million for 2005/06, and $69 million for 2006/07. CIDA has been
active in Bangladesh since the early 1970s, and the Bangladesh Program has almost always been
one of the largest in the Agency, with levels in the 80s higher than at present.

The Bangladesh Program has been using sector-wide approach programming (SWAP) for the
health and education sectors, led respectively by the World Bank (WB) and Asian Development
Bank (ADB and supported by most of the principal bilateral donors. Most development partners
have moved to SWAPs, notably those in health and education, which are closely aligned with
key priorities of the Government of Bangladesh’s (GoB) development agenda, including the
recently approved WB and International Monetary Fund (IMF)–endorsed Poverty Reduction
Strategy Paper (PRSP).

Audit Objective, Scope and Approach

The Audit and Evaluation Committee (AEC), in considering the Preliminary Survey Report for
this audit, approved on a pilot basis a new and standardized approach along with a set of




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assessment criteria for the audit of country programs. The objective of the audit was to assess the
Bangladesh Country Program against the Management Accountability Framework (MAF)
elements, as defined by the Treasury Board Secretariat, with a focus on fundamental controls and
MAF elements identified as being of high risk in the Preliminary Survey Report. These include
stewardship, accountability and people, allocation of resources, risk management, and results and
performance.

The audit scope includes all activities, systems and processes in the Bangladesh Division at HQ
and the CIDA Mission in Dhaka, including the PSU as well as selected projects delivered in and
around Dhaka. The audit approach consisted of interviews with staff, selected representatives of
aid projects, international organizations, representatives of the Government of Bangladesh and
local NGO (non-government organization) partners as well as a detailed review of project and
other supporting documentation.

Opportunities for Improvement

•   We observed that the wording of the Treasury Board decision could be interpreted as
    authorizing funding for the Bangladesh Education Sector Support Project (ESSP)—the
    second Primary Education Development Program (PEDP II)—as a contribution. It has been
    disbursed as a grant by CIDA, in accordance with the original Agency design and Ministerial
    approval. We recommend that the situation be regularized.

•   We observed that the audit regime in place for the PEDP II project should be strengthened to
    work with CIDA’s consortium partners and monitored closely to provide adequate assurance
    of management and financial control to development partners and the GoB.

•   We observed that, given the complexities inherent to a multi-donor sectoral approach and
    some previous difficulties with Health SWAPs, Bangladesh Division should, as part of a
    viable risk mitigation strategy regarding its potential financial commitment to the Health,
    Nutrition and Population Sector Program (HNPSP), carefully review and assess the viability
    of the pooled funding as one element in the total CIDA programming. Other elements of
    CIDA’s commitment to the HNPSP—such as supporting the capacity of the Government of
    Bangladesh through parallel funding, including targeted technical assistance—may have risks
    that are more manageable.

•   We observed the need for the Bangladesh Division to update existing mechanisms for the
    delineation of duties and related accountabilities including protocols regarding the roles and
    relationships of Desk and Post staff so as to ensure an environment conducive to workplace
    effectiveness and well being.

•   We noted that the PSU, including management of the Canada Fund for Local Initiatives and
    the Gender Fund, is generally well managed. In all major respects, the PSU has in place the
    systems, procedures and controls for managing its operations in accordance with CIDA’s
    policies and guidelines. Nevertheless, the audit identified areas for improvement in
    accordance with the Terms and Conditions of the Director’s contract.




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Conclusion and Audit Opinion

The audit was conducted using standards for internal audit as published by the Institute of
Internal Auditors and in accordance with the Policy on Internal Audit issued by the Treasury
Board. AEC and Bangladesh Program management approved the audit criteria.
We conclude, except for those areas identified above as opportunities for improvement, that in
all major respects, CIDA’s Bangladesh Program operates with due regard for CIDA and
Treasury Board (TB) policies and adequate control over program operations is exercised. We
have made recommendations within each of the major areas.




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1.     Introduction

This report presents the results of the internal audit of the Bangladesh Country Program.
Research and interviews were undertaken at Canadian International Development Agency
(CIDA) HQ, Bangladesh Division, starting in July 2005. Fieldwork for the preliminary survey
was undertaken in August 2005 at the Development Cooperation Section of the Canadian High
Commission (CHC) and the Program Support Unit, both in Dhaka. A preliminary survey report
presented to CIDA’s Audit and Evaluation Committee (AEC) on November 16, 2005. The
execution phase of the audit, including supplementary validation and confirmation of facts at
HQ, was completed in March 2006.


2.     Background

2.1   Program Description

According to the 2003–2008 Country Development Programming Framework (CDPF) and other
documents reviewed, such as the 2004–2005 Bangladesh Country Program Performance Report,
CIDA’s programming in Bangladesh is designed to incorporate the key principles of
Strengthening Aid Effectiveness (SAE). According to documents reviewed, Canada’s overall
approach has maximized SAE principles including local ownership, use of program-based
mechanisms, enhanced policy dialogue, reduction in transaction costs and donor harmonization.
The program strategy includes selecting a smaller number of sectors of concentration, increasing
average project size, creating more synergy among CIDA’s projects, and increasing the
utilization of common donor reporting, procurement and monitoring. This is consistent with
Bangladesh’s Poverty Reduction Strategy Paper (PRSP), which was finalized in late 2005.

The Bangladesh Program uses a wide array of CIDA instruments and has begun to program
important parts of its activities within the framework of major sector-wide approaches (SWAPs)
for education and health/population, led by the World Bank/ADB and supported by the principal
bilateral donors. These are closely aligned in turn with key priorities in the Government of
Bangladesh’s (GoB) development agenda, including the recently approved, World Bank (WB)
and International Monetary Fund (IMF)-endorsed PRSP. This shift gives new impetus to
concerns for more transparent and accountable governance. CIDA’s participation in pooled
funding arrangements has contributed to gains in donor harmonization.

Bangladesh has an extensive donor coordination network. Canada has been an active member in
the annual Bangladesh Development Forum, the central high-level coordination mechanism, and
the Local Consultative Group (LCG), including its array of more than 20 sectoral/thematic sub-
groups. CIDA is in the top ten of the bilateral donors but well short of the reach and influence of
the three major donors, currently, the World Bank–International Development Association
(IDA), Japan and the Asian Development Bank (ADB). These three constitute over 50% of
Official Development Assistance (ODA).

In recent years, CIDA’s aid budget has been increased from $36 million in fiscal year 2002/03 to
an approved $69 million cash ceiling for fiscal year 2006/07, nearly a 92% increase. The




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budgetary allocations for Bangladesh over five years are $36 million for 2002/03, $47 million for
2003/04, $52 million for 2004/05, $61 million for 2005/06, $69 million for 2006/07, and
thereafter. CIDA’s Program in Bangladesh has been active since the early 1970s and has almost
always been one of the largest in the Agency, with spending in the 80s higher than present levels.

CIDA’s Multilateral Branch contributed $10 million a year in food aid, in addition to $17 million
in 2002/03 to support Bangladesh through multilateral organizations. As well, contributions of
CIDA’s Canadian Partnership Branch to Canadian organizations with activities in Bangladesh
totalled $2.89 million in 2002/03.


2.2   Program Organization

The Bangladesh Division, in Asia Branch, is responsible for the Bangladesh Country Program. It
has a total of 16 staff at HQ whose work is dedicated to the Bangladesh Program. In the field, the
desk is supported by the Head of Aid, six Canada-Based Staff (CBS) mobilized from CIDA to
work within the Canadian High Commission (CHC), Dhaka and five (three professionals and
two support staff) Locally Engaged Staff (LES) attached to the Canada High Commission. CIDA
CBS manage some projects and play a lead role in policy dialogue/coordination/knowledge
activities with the GoB and other donors in Bangladesh.

In addition, the PSU in Dhaka provides professional, technical, financial, administrative and
logistic support to Canada’s development cooperation program in Bangladesh. Five Bangladeshi
specialists (health, education, governance, private sector development and gender) have been
contracted by the PSU to provide advisory, technical and cultural expertise. The PSU currently
has a staff complement of 51 persons.

A range of advisory services to Canadian Executing Agencies (CEA) is also provided by the
PSU. The Local Fund Management Office (LFMO) operates within the PSU to implement small
development programs at the grass roots level. The LFMO coordinates two funds, the Canada
Fund for Local Initiatives (CFLI) and the Gender Fund (GF).

As part of its effort to streamline operations and achieve greater developmental
effectiveness/balance, the program has moved toward funding larger projects and maintaining
the number of projects to around 30.




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3.     Audit Mandate, Objectives, Scope and Approach

3.1   Audit Mandate and Objective

The Bangladesh Country Program Audit was originally approved by the AEC for 2004/05 but
was postponed until 2005/06 due to a change in priorities. The revised timing was included in the
2005/06 Audit Plan, approved by AEC in March 2005. The AEC, on November 16, 2005, in
considering the Preliminary Survey Report for this audit, approved on a pilot basis a new and
standardized approach along with a set of assessment criteria for the audit of country programs
(see Annex 4) and approved the audit objectives, scope and lines of enquiry that are discussed in
the following sections.

The objective of the audit was to assess the Bangladesh Country Program against the
Management Accountability Framework (MAF) elements, as defined by the Treasury Board
Secretariat, with a focus on fundamental controls and those MAF elements identified as being of
high priority in the Preliminary Survey Report, i.e., stewardship, accountability and people,
allocation of resources, risk management and results and performance. The fieldwork and
analysis phase of the audit provided a detailed examination and analysis of the issues identified
in the preliminary survey phase. The analysis includes an assessment of the relative significance
of the findings and their impact.


3.2   Scope and Approach

The audit scope included a review of the operations, activities, systems and processes in the
Bangladesh Division at HQ and the CIDA Mission in Dhaka, including the PSU, the Canada
Fund for Local Initiatives and the Gender Fund, as well as on-site visits to selected projects
delivered in and around Dhaka. The audit, including the preliminary survey and fieldwork
phases, took place from August 2005 to March 2006, and consisted of interviews with staff,
selected representatives of aid projects, international organizations, representatives of the
Government of Bangladesh and local NGO partners, as well as a detailed review of plans,
reports, project files and other supporting documentation.

The audit was restricted to the Bangladesh Program’s operations and did not include an
examination of Multilateral Branch; and examined only one project of the Partnership Branch. In
addition, two other specific areas related to the Bangladesh Division operations are scheduled for
coverage in separate agency-wide audits; the exercise and control of financial signing authorities,
and the management of overtime. Consequently, these areas are specifically excluded from the
scope of this audit.

The audit program and criteria conform to the audit objectives as stated above (section 3.1) and
focus on those MAF areas considered to be of high audit priority (see Annex 1). The MAF areas
considered as medium and low audit priority included policy and programs, alignment of
priorities and citizen-focused service. These MAF elements were excluded from detailed review
and reporting as the preliminary survey concluded that these were reasonably well managed and
the AEC accepted this recommendation.




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4.       Audit Observations

4.1     Project Management—Stewardship, Risk and Results

As part of the assessment of the Management Accountability Framework at the Bangladesh
Division Desk, the Dhaka Post and the PSU operations, we validated both operational and
financial controls as critical to three MAF elements of stewardship, risks and results. This
included determining, through an assessment of the ten projects selected for further examination
(see Annex 2), the degree of adherence to contribution agreements, terms and conditions, CIDA
policies, TB policies and Memoranda of Understanding (MOU) in place and the degree to which
risks and results are managed.

4.1.1    Management of SWAPs

As noted earlier, the CIDA program in Bangladesh, paralleling the evolution of approaches by
other donors, has developed new means of project support, most notably Program Based
Approaches (PBA). Given the materiality and scope of these new approaches (two SWAPs and
one PBA account for $17.3 million of projected expenditures for 2005/06 or 30%), the audit
examined them in detail during the fieldwork in order to better understand the rationale, the
mitigation strategies of identified risks associated with the different program delivery options
and the impact of the decisions.

SWAPs typically embrace many elements and an array of funding instruments. Funding can take
many forms, from direct budget support to recipient countries for a designated sector or sectors
through pooled donor funds managed usually via a trust arrangement with an International
Financial Institution (IFI), to more traditional elements such as Technical Assistance (TA) and
even responsive programming. A SWAP generally brings together many of the major donors in
the country in both strategic and collegial alliances.

CIDA’s “Operational Guide on Direct Budget Support and Pooled Funding to Recipient
Countries” (May 2005) notes

         “The main benefits to be derived from the adoption of direct budget support (by way of
         a SWAP) are better aid coordination and a more coherent policy and expenditure
         framework. These benefits are likely to be highest for aid-dependent countries, where
         the number and range of aid projects is likely to be relatively large and to generate high
         transactions costs. However, the provision of direct budget support also involves costs
         (e.g., negotiating and maintaining policy agreements) that may exceed the benefits in
         some cases. This is likely to be the case where aid dependence is low and where there is
         difficulty coming to a consensus on policies and priorities, as would be the case in
         “difficult partnership” countries with severe capacity and governance problems
         (emphasis added).”

According to the Bangladesh Division, Bangladesh is an “aid-dependent” country. However, as
noted, it is also a country with severe capacity and governance problems. The international




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donors, including the World Bank and the Department of International Development (United
Kingdom) (DFID) have asked Bangladesh in a public forum in Dhaka (mid-February 2006) to
prepare performance indicators of public finance management (PFM), as future aid would
depend on “such governance-related benchmarks.”

The Bangladesh CDPF noted the following risks under Capacity Development:

        “The management and implementation capacity of public institutions may be too weak to
        support extensive reforms in health and education. Sector programming and SWAP
        management have given new impetus to the call for more transparent and accountable
        governance.”

The Operational Guide mentioned above continues:

        “CIDA must retain its right to suspend payments to the program and/or terminate its
        agreement with the host-country government in the event of failure to implement, failure
        to achieve reasonable progress as per approved work plans or failure to furnish reports or
        furnish reports of acceptable quality.”

The CDPF noted that Canada (along with other donors) would be faced with longer time frames
for implementing improved management capacity of public institution partners. This implied a
need for a risk mitigation strategy that adjusted programming to achieve results under extended
time frames and manage the risks accordingly. It is unclear how this risk mitigation strategy is
being implemented. Such a strategy is critical to keeping the project on track, identifying
deviations and making adjustments where needed. The SWAPs entered into so far are for a
duration of five years and will demand careful monitoring and sustained engagement by CIDA
staff as constructive members of the participating donor consortium.

4.1.2   Education Sector Support Project

Funding Mechanism

The Education Sector Support Project ($67.41 M, 2003–2009) is one of two SWAPs in the
Bangladesh Country Program. The Education Sector Support Project has two components: One
supports the GoB’s second Primary Education Development Program (PEDP II), a capacity-
building project with major education outcomes; and a second component, the Complementary
Sector Reform (CSR), provides complementary technical assistance to support policy dialogue in
other education subsectors. This project comprised CIDA’s contribution to a $2.5 billion multi-
donor effort.

There is an issue relating to the final funding modality for this project.

The Bangladesh Education Sector Support Project, PEDP II (Education SWAP) was authorized
as a contribution by Treasury Board. It was disbursed as a grant by CIDA, in accordance with the
original Agency design and Ministerial approval. The use of the word “contribution” could have
been interpreted as meaning either providing funds in a generic sense or as a specific funding
arrangement.



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On March 4, 2004, the Vice-President, Asia Branch signed a “Grant Arrangement between the
Government of Canada and the Asian Development Bank concerning the Second Primary
Education Development Program in the People’s Republic of Bangladesh.”

This is consistent with CIDA guidelines for funding of multilateral institutions. The Funding
Agreement with the GoB and Canada dated February 11, 2004 states that the funding is in the
form of a grant, managed on CIDA’s behalf by the ADB. CIDA payments to date have been
charged to the grants vote and are coded for reporting as grants in the Public Accounts.

Recommendation

 1. The Bangladesh Division should regularize the status of Treasury Board’s approved funding
mechanism for the second Education Sector Support Project.

Management Response with Time Frame

       Agreed.
       Time frame: Completed

       Given the explicit intent of the project as approved by the then Minister to use grant
       funds and the CIDA policy to only use grants for funding to multilateral institutions, the
       Program sought guidance from the TB Secretariat on how best to clarify and regularize
       the funding status of this ongoing project.

       The word “contribution” was used generically, referring to transfers of funds without
       specifying the payment mechanisms (grant, contribution agreement, contract) to be used
       for the total disbursement of $67.41 million. The project was intended to provide $61.2
       million to the ADB as a grant and $3.0 million via a CEA contract for a complementary
       TA activity, plus contingency. The Results-based Management and Accountability
       Framework (RMAF)/ Risk-based Audit Framework (RBAF) had also explicitly stated a
       “grant co-financing” mechanism would be used with the ADB and a competitively bid
       contract for the TA.. Clearly some genuine confusion could have arisen notably in
       interpreting the wording. The advice of TB Secretariat is that the Bangladesh Division
       had clearly sought a grant authorization and had acted appropriately in implementation
       as a grant.

In assessing the management controls related to the Education SWAP we looked at the funds
flow and the audit regime in place. The funds flow related to the PEDP II is complex and Annex
III presents a diagram that depicts the funds flow.

With reference to the Education SWAP Funds Flow Diagram, it is interesting that despite the
need for and agreement to coordinate administrative and audit requirements in a SWAP setting,
three sets of procurement guidelines exist—those issued by the ADB, that of the GoB itself and
those of the parallel donor partners (DP).




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According to the principles of the Paris Declaration, there should be uniform usage by donors of
national (procurement) systems. However, the Bangladesh Division notes that CIDA, along with
most other donors, does not judge Bangladesh systems to meet its full expectations and, as part
of its risk management, indicates that it is taking a cautious stance. Encouragingly a new
National Procurement Law, largely designed by WB experts, is soon to be finalized.

In an environment of corruption, procurement guidelines are essential and the need for uniform
and agreed-upon procurement standards becomes even more important. For example, each of the
three different sets of procurement guidelines or standards could be subjected to an audit. For
audit findings to be uniformly accepted and interpreted, there should be one set of procurement
guidelines.

Documentation reviewed and results of interviews indicate that the ADB on behalf of the
PEDP II Consortium intends to rely on a three-level audit regime for procurement. The first level
will be internal audits by the Bangladesh Ministry of Primary and Mass Education (MOPME);
the second level will be external audits by the Foreign Assistance Project Audit Division
(FAPAD) of the Bangladesh Comptroller and Auditor General’s (CAG) office; and, the third and
final level will be procurement audits performed by international consultants engaged for that
purpose.

However, care should be taken to minimize the risk that three distinct audit teams audit three
different procurement procedures, with no chance of providing uniform and comparable
findings. It would be more in line with the goal of harmonization to have one audit that can be
relied upon by all parties so that duplication may be avoided and one set of findings presented.
This present audit regime was the consensus decision of the eleven donors and is being managed
and supervised by the ADB on behalf of the Consortium.

One element of the FAPAD audit process is in place and the ADB has indicated in
correspondence reviewed that normally FAPAD audits are perceived to be of reasonable quality.
In an effort to further improve that process, the GoB has agreed with the United Nations
Development Program (UNDP) that there be a project entitled “Institutional strengthening of
Foreign Aided Project Audit Directorate (FAPAD),” with the objective of providing “Technical
assistance to carry out audits of donor funded projects according to international standards.”,
according to the LCG Sub-Group on Governance, June 2004.The Bangladesh Division notes that
it is currently preparing a substantial Technical Assistance project with the CAG, as well as
support for a World Bank project for the still weak Public Accounts Committee of the
Bangladesh Parliament. It is expected that these projects will improve control and accountability.

Nevertheless, the other two audit processes are just starting and progress is anticipated to be slow
as far as the strengthening of the Ministry internal audit function is concerned. The April 2005
PEDP II Joint Annual Review mission noted that at present, there is no institutionalized capacity
for the first level of ministry executed internal audits.

In summary, the audit regime in place and its reliability remain weak. This points to the need for
continuing vigilance and efforts by CIDA, in concert with other donors, to enhance audit




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capability, quality and capacity. The situation should be monitored closely by CIDA through the
Consortium to ensure that it is viable and effective.

Recommendation

The Bangladesh Division, working with its Consortium partners, should
 2. take measures to reduce duplication of audit effort while contributing to a strengthening of
    the audit regime in place for the PEDP II project;
 3. pursue the development of one set of procurement standards against which audits may be
conducted.

Management Response with Time Frame

       2)     Agreed.
       Time frame: Done

       This issue has been resolved with a collective decision of the PEDP II development
       partners. Procurement audits (other than FAPAD) are now being performed by a single
       firm with joint terms of reference and procurement guidelines that satisfy all donors.

       3)     Agreed.
       Time frame: Done

       Starting this year, a common, full-time procurement and internal audit process has been
       initiated using a single audit firm. The process will also follow common terms of
       reference and respect procurement guidelines and standards agreed by the PEDP II
       Finance and Procurement sub-group for this purpose. This process will include quarterly
       reporting to shorten the time frames for response and corrective action on any specific or
       systemic irregularities

Decision Making

The Code of Conduct for consortium members of which CIDA is a signatory indicates that
member representatives shall be deemed to represent their governments or agencies at all
meetings. There is an expectation that representatives would be authorized to make decisions
without recourse to their respective headquarters. In a SWAP setting, this conduct is deemed
desirable as it reduces the number of meetings necessary to arrive at a mutually agreed decision
on the part of the development partners. CIDA’s field staffs, unless designated as the Project
Team Leader (PTL), does not have this authority. Moreover, in the absence of an ‘approval-in-
principle’ status under updated Ts&Cs, the Program is often constrained in making early
commitments and implicitly weakened in its capacity to leverage overall design and policy
content of a SWAP in the critical planning phase.




                                                                                                   11
Recommendation

 4. The Bangladesh Division as a signatory to the PEDP II donor Code of Conduct should
    determine and provide the degree of decision-making authority required of CIDA’s
    development officers to ensure that it is consistent with the Code.

Management Response with Time Frame

        Agreed.
        Time frame: Done.

        The Division, in determining the appropriate degree of decision-making authority in the
        field, has respected established rules applicable to the delegation of CIDA authorities,
        recognizing these have important formal and practical limitations. Unlike many other
        bilateral donors, CIDA is largely centralized in terms of its authorities. To mitigate these
        formal limitations, the Program has now put in place a strong thematic approach
        comprising teams that bridge field and HQ staff. New protocols have been introduced to
        improve communications. Improved approaches to policy and implementation issues
        allow all necessary consultations even when the Project Team Leader (PTL) is in
        Headquarters, e.g., for the regular PEDP II consortium meetings. The PTL from HQ
        participates in the annual multi-donor review and thematic review missions to approve
        annual work plans and discuss key sectoral issues. The Division judges these an adequate
        response in the spirit of the (non-binding) donor Code of Conduct.



4.1.3   Bangladesh Health and Population Reform Project (BHPRP)

Health and Population Sector Program (HPSP) (phase V) is the second of the two SWAPs
funded by CIDA, in cooperation with the Government of Bangladesh (GoB) and a consortium of
donors led by the World Bank. The overall goal of the US $2.9 billion HPSP was to improve the
health and family welfare status of the most vulnerable women, children and poor of Bangladesh.
CIDA, by way of parallel and co-financing, contributes $28.4 million to the Bangladesh Health
and Population Reform Project (BHPRP), a component of the HPSP designed to provide quality
reproductive health care to the poor.

CIDA’s contribution agreement for the BHPRP started in 1998 and has been periodically
extended beyond the original end date of 2003 to 2007 through “no cost” extensions, as agreed to
by the donor consortium and the GoB. The HPSP has not spent a significant portion of the funds
allocated by the World Bank or the GoB. The Bangladesh Division annual review indicated that
a major reason for the lapse of funds was the lack of capacity on the part of the Bangladesh
partner, the Ministry of Health and Family Welfare (MOHFW) to absorb the funding. The
Division noted in its 2004/05 Bangladesh Country Program Performance Report, performance of
the health SWAP was below expectations due to the slow pace of policy reforms. Several other




                                                                                                 12
reviews and evaluations have highlighted similar concerns. For example, a draft World Bank
Implementation Completion Report (December 18, 2005), stated:

       “Of the ten principal risks identified, eight were considered to be “high.” While risk
       ratings were by and large appropriate, most mitigation measures were weak and
       based principally on the expectation that the MOHFW would actually be able to act on its
       prior commitments… In fact, it was not recognized that most of the proposed mitigation
       measures would face their own risks of failure.”

       “Governance problems and government bureaucratic delays had a negative impact on
       program implementation. GoB was particularly slow in addressing financial irregularities
       uncovered in annual audits. GoB’s performance in implementation is rated moderately
       unsatisfactory.

Since 2004, the Bangladesh Division has been participating in the development of the HNPSP
SWAP. The fiscal year (FY) 2004/05 program review by the Bangladesh Division dated
February 23, 2004 talked about a delay, even then, in bringing online the large Health SWAP.
CIDA, and most other development partners according to internal Bangladesh Division
correspondence reviewed, have delayed formally signing the agreement for the new SWAP, the
Health, Nutrition and Population Sector Program (HNPSP) as they cautiously await important
preparatory steps by the GoB.

Recommendation

 5. The Bangladesh Division, given its experience with Health SWAPs, should, as part of a
    viable financial risk mitigation strategy, reassess the use of pooled funding for the Health,
    Nutrition and Population Sector Program (HNPSP) while maintaining CIDA’s commitment
    to the HNPSP by supporting the capacity of the Government of Bangladesh through parallel
    funding and by providing targeted technical assistance.

 6. The Bangladesh Division should review its risk mitigation strategy for the Health, Nutrition
    and Population Sector Program (HNPSP), assess its adequacy, articulate a risk tolerance
    level and, in close coordination with its donor consortium partners, develop an approach to
    future programming.

 7. The Bangladesh Division in negotiating a Health SWAP agreement should ensure that there
    is an exit strategy by retaining the right of CIDA as per its own guidelines to suspend
    payments to the HNPSP program and/or terminate its agreement with the Bangladesh
    government in the event of failure to implement or achieve reasonable progress as per
    approved work plans.

Management Response with Time Frame

       5) Agreed.
       Time frame: an updated review of the project components and their riskiness will be
       completed prior to seeking Ministerial approval by end-FY06.




                                                                                               13
        The Division agrees with the Audit Team on the importance of assessing risk in the
        context of our engagement in this next multi-donor SWAP. CIDA is committed with its
        donor partners to a balanced approach within its contribution to the SWAP. The largest
        CIDA element is the existing TB-approved $45M Health Commodities program, being
        implemented via UNICEF and UNFPA (United Nations Population Fund). We are
        envisaging contributing $5 million to a pool that has total funding from other SWAP
        donors of over $750 million, including $300 million from IDA’s Board-approved project
        and $160 million from DFID. This will be only a modest part of this second CIDA
        project, Health Governance, which also covers procurement systems and enhanced client
        “voice.” The pooled funding would be managed by the World Bank and subject to a
        comparable auditing and risk assessment regime as the rest of the SWAP. This small
        component is judged as a reasonable and appropriate part of CIDA’s commitment to the
        joint efforts of our partner-donors and provides us a privileged seat at the table where we
        can influence larger policy and capacity issues in this $3b+ SWAP.

        6) Agreed.
        Time frame: A risk strategy will be a key part of the approval package due end-FY06.

        The Division agrees with the Audit Team on the importance of an effective and balanced
        risk mitigation strategy, developed with our donor partners. Donors have learned from
        large complex SWAPs involving massive structural reform, such as HPSP, that goals and
        objectives need to be more closely conditioned by institutional capabilities and the
        commitment. Donors are insisting on pre-conditions, including readiness assessments
        before moving ahead. Acting in concert, they are assessing the risk carefully in
        developing future programming. The planned component on citizens’ voice should lead to
        improved accountability and better outcomes.

        7) Agreed.
        Time frame: Done

        The Division has ensured, as per CIDA generic guidelines, that there is an exit strategy,
        the same as for other CIDA projects. Under the present (and any future) MOU, CIDA has
        reserved the right to suspend activities where the project is failing to meet agreed goals
        or implementation is seriously flawed. In a SWAP setting such as this project the “exit
        strategy,” including decisions to suspend or terminate, would be probably implemented
        in consort with other donors.


4.1.4   Other Projects: Success Stories

Support to the Palli Daridro Bimochon Foundation (PDBF) or Foundation for Elimination of
Rural Poverty

($14M, 33% disbursed, 2004–2008)
The project is designed to support the institutional growth of the PDBF (Phase II), which became
a semi-autonomous credit and savings institution in 2000, until it reaches self-sufficiency.



                                                                                                14
CIDA’s long involvement, since 1984, in this micro-finance initiative will culminate with PDBF
emerging as a fully functioning, stand alone, self-sustaining financial institution. In 2004/05,
PDBF’s head and regional offices were fully staffed (branch managers recruited competitively).
Indications of both capacity of management to deliver products and services, and the
appropriateness of those products and services could be seen in the strong take-up and
performance of new products: micro-enterprise loans, new saving products, and steady increases
in the number of PDBF’s clients (74,623).

During the audit, we visited two of the district offices of PDBF at Bhaluka, Mymensingh. We
visited one new branch and met with the local branch board consisting of young new members
who were representative of the community. We also visited an established branch that reported
an impressive turn-around in two years from 60 % to 112 % profit in operations. Internal reports
indicated that PDBF (Phase II) was ahead of schedule in reaching its target of 100% self-
sufficiency by the end of the year 2007/08. Supplemental to the oral reports from project
managers interviewed, we reviewed published annual reports with audited financial statements
and conclude that, at this time, PDBF (Phase II) is a successful project.

BRAC Education Program

A new three year, $20 million, multi-donor project using a PBA will provide non-formal
education to 1,300,000 poor children (60–65% girls). Given the Bangladesh Rural Advancement
Committee (BRAC)’s history of success in Bangladesh, donor confidence remains high with
BRAC’s strong leadership and management. For example, in 2004/05, BRAC, the country’s
leading NGO, operated 16,019 pre-primary schools with 453,338 learners (out of a total of
36,619 schools with 1,002,990 learners). Training was provided to 115 head teachers of formal
primary schools. Additionally, it was reported that 1,742 teachers were trained in mathematics
and 626 teachers in science.

During the audit, the Institute of Chartered Accountants of Bangladesh (ICAB) reported that
BRAC earned the National Award for Best Presented Published Accounts and Reports for 2004.
BRAC has also secured first position in the NGO-MFI Sector. This reflects BRAC’s
commitment to sound financial management, which according to BRAC managers includes a
100-person internal audit unit. Previously, BRAC had won a transparency award. The BRAC
organization is well recognized within Bangladesh and the donor community as an effective and
well-managed NGO. Based on our examination of CIDA’s support to BRAC, we concur with
this assessment.

4.2   Risk Management

After reviewing the Country Development Programming Framework, we can conclude that it
clearly outlines the risks of the Bangladesh Country Program and that a methodology is applied
to identify and manage risks through risk mitigation strategies. Many documents, such as
Country Program and Project Performance Reports and audit interview notes, showed that there
are processes in place for risk identification, assessment and quantification.




                                                                                              15
We analyzed project plans and other relevant documents, including Project Approval Documents
(PAD) regarding project responsibilities, key activities, risk analysis, and impact on the
Program’s operational, financial and administrative controls, as well as plans for monitoring
current and potential projects. Analyses of risks are often found in project files and these are
shared with partners and staff. After reviewing analyses and approval procedures for projects, we
conclude that established policies and guidelines are being followed. We can say that Project
Management pays adequate attention to risk management.

We were able to determine, by reviewing project files, that the services of the Financial
Compliance Unit (FCU) to monitor compliance with the terms and conditions of agreements
with executing agencies were regularly used.

With the noted exception of the Health SWAP, we can conclude that risks are clearly defined as
well as updated and properly monitored, so that the Program manages them effectively.


4.3   Results and Performance

Project Performance Reports (PPR) are prepared annually in an exercise that allows for
discussion within the CIDA team and with CIDA’s partners about performance expectations and
actual accomplishments, as well as for joint decisions on changes, including managing the risks
and challenges that can affect performance.

PPRs contribute to a live database that allows CIDA analysts to develop and provide analytical
information to the Agency, for example, what lessons are being learned, what kind of contractual
mechanisms are being used and what countries and sectors CIDA is working in. PPRs support a
number of information needs, both internal and external such as performance reports,
communications, handover notes) and OECD/DAC (Organisation for Economic Co-operation
and Development, Development Assistance Committee) reports.

By reviewing Bangladesh Country Program and Project Performance Reports, as well as the
CDPF, we were able to determine that the Bangladesh Country Program’s expected results are
clearly defined and communicated to the staff involved in the Program delivery. Also, Branch
Performance Reports provide a baseline to compare data and a compilation of results to-date of
the various Branch’s programs against plans.

We also examined the analysis of audit and evaluation reports available, some coming from the
FCU, for the ten projects in the focus of this current audit, as well as sector-wide evaluations.
Documents related to the Aid Coordination in Bangladesh, the M.O.P.A.N. Survey and the Field
questionnaire on Harmonization were also reviewed, in assessing the adequacy of the Division’s
reporting on results and performance.

From this work, we were able to determine that adequate processes are in place for the Division
to monitor and report accurately on results and performance and to take necessary corrective
actions.




                                                                                               16
4.4     Roles and Responsibilities—Accountability and People Management

In examining roles and responsibilities, we sought to determine if accountability for results is
clearly assigned and consistent with resources and if delegations are appropriate to capabilities.
As well, we set out to determine whether the Program has the human resources required to
achieve its stated objectives.

4.4.1    Delineation of Roles and Responsibilities

We interviewed staff at the Bangladesh Desk and the Post to obtain an appreciation of their
qualifications and experience. In terms of roles and accountabilities of staff at the Post and the
Desk for particular projects, it was not always clear as to the degree of independent action and
division of duties desirable in terms of efficiency and donor coordination.

During interviews, we noted that while each respondent had a defined portfolio of projects and
corporate responsibilities, available job descriptions were not in general, up-to-date. At the
Dhaka Post, although we found statements of qualifications for past posting opportunity
notifications for certain positions, we did not find any job descriptions signed by incumbents of
positions. We understand that job descriptions for the three locally engaged professionals have
been written up. However, job descriptions for the Canada Based Staff at the post were not
available. Aside from CIDA human resources requirements, including that of collective
agreements, the lack of job descriptions can contribute to a lack of clarity on the division of roles
and responsibilities and the related accountabilities and lead to other problems such as inequities
and decision conflicts.

Aside from job descriptions, roles and related accountabilities may be delineated through
accountability accords, and/or project assignment memoranda. What is important is that there are
mechanisms that resolve apparent areas of overlap of responsibilities. This is discussed in the
following section under relationship issues.

4.4.2    Duties—PSU Director

The memorandum titled “Bangladesh - Program Organization” (dated 5 Feb. 2004 from the
Bangladesh Division Director to the Vice-President Asia Branch) and referred to as the “Who
does What” Paper) states as one of the Guiding Principles #3-12, “Following the change in PSU
directors this summer, no PSU Director will be tasked with project responsibilities outside the
management of the PSU itself.”

We noted however that
          The PDBF II project entails some 20–25% of the time of the PSU Director; and
          The PSU Director is on the Finance & Procurement Working Group of the PDBF II.

Such an assignment of responsibilities risks establishing an employer/employee relationship
between the Director and CIDA. Additionally, it does not adhere to the standard established by
the above noted Guiding Principles.




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4.4.3   Relationship Issues

Some relationship issues have an impact on the efficiency of program delivery. Guidelines exist
regarding the need for complementary roles and skill sets but these are not uniformly interpreted.
The guidelines include the Division’s own “Who does What” Paper, and the Asia Branch
Communications Protocol that delineate the division of duties between HQ Project Team
Leaders (PTLs), Development Officers at the Post and Technical Advisors (TAs). For example,
the “Who does what” Paper, paragraph #13 states: “HQ may communicate with field S&T (i.e.,
scientific and technical advisors), but they may not task them.” The audit found that there is
inconsistency in adhering to these guidelines, ultimately having a negative impact on operational
efficiency.

The Bangladesh Division reported that subsequent to our field visit, it held a major staff retreat,
in January 2006 involving Desk and Post staff. The retreat addressed current issues, including
operational policies and roles/responsibilities, and the Division reported that the retreat has
contributed significantly to team building. We commend this initiative.


Recommendation

 8. The Bangladesh Division should update existing mechanisms for the delineation of duties
   and related accountabilities including protocols regarding the roles and relationships of
   Desk and Post staff so as to ensure an environment conducive to workplace effectiveness and
   well being.

 9. The Division should review the contract of the PSU director and ensure it complies with
   CIDA’s “Guideline for Program Support Unit Projects,” in particular, Sections 5.1(g) and
   7.0

Management Response with Time Frame

        8) Agreed.
        Time frame: Done

        The Division has issued an update under the title “Delivering the Bangladesh Program -
        Guidelines for an Integrated Team” to the 2004 “Who Does What”? Document.. This
        drew upon discussions at a major staff retreat in the field. It provides a clear delineation
        of duties and accountabilities, including protocols regarding the roles and
        responsibilities of Desk and Post staff.

        9) Agreed.
        Time frame: Done

        The current PSU Director has extensive prior experience on financial management, as
        well as extensive country knowledge. He has exceptionally provided technical advice in
        this area, including formal due diligence advice on accountabilities for some projects




                                                                                                  18
           (both planned and operational). His contractual terms of reference have been updated to
           reflect this specialized role in a manner fully consistent with CIDA’s guidelines. He, as
           other PSU contractors, follows a work plan that is regularly reviewed by the PTL.


4.5       Program Support Unit

4.5.1      Background

This element of the audit included a review of the PSU’s operations, contracts and agreements
including the Memorandum of Understanding between the Governments of Canada and
Bangladesh, lease documents and insurance policies. Included in the review of operations was a
review of both the Gender Fund and the CFLI, which are carried out from within the PSU.

The Program Support Unit in Bangladesh is one of CIDA’s largest, employing some 51
contracted staff, including five sector advisors, one each to the Health, Education, Governance
and Private Sector Development Programs, contracted during fiscal year 2004/05, to improve its
professional service capacity. It has a budget of $5 million for the period 2002–2006. While the
PSU operations and resources were reviewed within the context of the Country Program audit,
because of its size the PSU warrants a distinct section in this report. This component of the audit
focused on the internal operations of the PSU and concentrated on the management,
accountability and financial control frameworks governing it. The work examined major
governing, operational and reporting documents related to the PSU. The purpose was to assess
the PSU’s adherence to CIDA’s guidelines for PSUs, particularly the systems, procedures and
controls instituted to manage, monitor and control the PSU. The Guidelines referred to are as
follows:

      •    Guidelines for Program Support Unit (PSU) Projects, June 2005
      •    Financial Management Framework for PSUs, December 2004
      •    Accounting and Financial Reporting Requirements for PSU Projects, updated December
           2004
      •    CIDA Guide to Contracting For Services Local Cost Financing


4.5.2      Description of the PSU

The PSU has operated for 20 years under a variety of administrative arrangements beginning in
January 1986 when an initial administrative unit was set up as part of the Agriculture Sector
Team (AST) Project.

The current PSU in Bangladesh is in its third phase and, as noted, has an approved budget of $5
million, funded from bilateral development assistance fund Vote 0300 contributions. Funding for
this third phase of the project was to be disbursed over a five-year period, from 2002 to 2006.
However, at the end of the fourth year, March 31, 2005, it was reported in the PSU’s annual
financial report and the SAP report that, as a result of a combination of under-spending and cost-
recovery, there were sufficient funds available to carry the project for an additional two fiscal



                                                                                                  19
years to the end of 2007/08 at no additional cost. This is based on the assumption that the
available contingency will be approved for disbursement that amounts to $350,000 or, in terms
of time, approximately half a fiscal year. Extending the PSU would also require amending the
MOU, which expired on June 30, 2006.

A Canadian Executing Agency (CEA) managed the PSU in its first two phases. In 1997, the
CEA was replaced by a “CIDA Director model,” whereby the PSU was managed by a CIDA
officer on “Leave with Pay.” The “CIDA Director model” when compared with the “CEA
model” operated a significantly lower cost PSU and improved the PSU’s ability to provide
project and program input that required knowledge of CIDA’s policies and procedures. The
“CIDA Director model” was maintained into Phase III when a policy decision at CIDA HQ was
made to discontinue using CIDA officers on leave of absence to manage PSUs. Since
August 20, 2004, the PSU has been managed by a co-operant (a Canadian consultant). The co-
operant’s contract is administered under the Technical Assistance Regulations (TARs) rather that
the Foreign Service Directives (FSDs) as was the case under the “CIDA Director model.”

The PSU’s goal is to increase the effectiveness of Canadian ODA to Bangladesh and contribute
to the achievement of the objectives of the country program. The PSU is mandated to facilitate
the effective, efficient delivery of CIDA’s program in Bangladesh by providing administrative,
logistical, financial, professional and technical support to CIDA projects and missions, visiting
officers and consultants.

Based on the Logical Framework Analysis included in the Project Approval Document for Phase
III, the expected results at the output, outcome and impact levels are as follows:

Outputs:

        1. Responsive, transparent and efficient administrative and logistical services;
        2. Timely, responsive and professionally competent technical and management
           consulting services;
        3. Accountable, effective and transparent management, administration and technical
           support;
        4. Task-specific outputs as appropriate for respective technical and professional
           assignments;
        5. Delivery of Canada Fund For Local Initiatives, Gender Fund, and Environment Fund.

Outcomes:

CIDA/CHC staff and consultants are able to conduct productive field missions in Bangladesh in
a cost-effective manner. CIDA/CHC staff and consultants are able to concentrate time and
energy on program delivery and results, avoiding operating constraints and administrative
burdens. PSU professional input will enhance program cost-effectiveness.




                                                                                                20
Impact:

CHC and CIDA HQ staff are better able to avoid administrative burdens and concentrate on
program delivery. PSU professional input to program delivery will enhance cost effectiveness
and efficiency of CIDA field operations. PSU will contribute to better sustainability due to use of
local professional resources.

4.5.3   Observations and Recommendations

Management of the PSU

The PSU Director was contracted by CIDA in the summer of 2004 in response to policy changes
within CIDA to discontinue using CIDA Officers as PSU Directors. Based on audit interviews
with staff and clients, the PSU Director has demonstrated leadership and is well respected by the
PSU’s key clients and consultants. Client satisfaction surveys over the past two years have, by
and large, been positive. The PSU has responded to the lessons learned from these surveys and
has taken corrective action where deemed necessary to improve its service delivery.

The PSU, over the years, has developed its capacities and knowledge to achieve its expected
results in administration and logistical support as well as program planning and project delivery
support. Some of the senior consultants in the PSU have been with the PSU for more than a
decade. The PSU has developed a comprehensive “Operating Manual,” which was updated in
August 2005. The purpose of the manual is to provide a comprehensive outline of the operating
principles and practices of the PSU. The PSU prepares quarterly progress reports, in consultation
with the desk and the post, on the achievement of results in relation to its annual work plan.

Legal Framework, Risks and Liability

The PSU has been operating since its inception on the basis of the Memorandum of
Understanding between the Governments of Canada and Bangladesh. During the years when the
PSU was managed by a CEA, legal status was not an issue. Currently, the PSU is not registered
as a legal entity in Bangladesh. The PSU Director assumes the legal responsibilities, risk and
liability with respect to all aspects of PSU operations. The Director signs purchase orders,
contracts and leases for all PSU activities, specified in the annual work plan of the PSU.

The PSU Director has signed contracts for CHC consultants who are not covered under PSU
contract, therefore not within his financial authority. For example, the PSU Director signed 23
contracts for the Bangladesh Environmental Management Project (BEMP). For such contracts,
the liability should be with the CHC, not the PSU Director, and therefore contracts not funded by
the PSU should be with the CHC.

There is sufficient insurance coverage in the PSU for collision and third party liability for the
assets and activities of the PSU. The contents of the office have been insured against fire and
theft. CIDA provides insurance for all PSU Directors annually for general liability. Therefore, in
addition to local insurance there is general liability coverage through CIDA’s insurance policy
for PSUs.




                                                                                                21
The PSU has always operated bank accounts and owned assets in the name of the PSU without
encountering difficulties. However, the MOU does not specify the PSU’s legal framework, but it
defines the roles of the GOB and CIDA, which allow the PSU to operate in Bangladesh. The
MOU gives the PSU, notwithstanding that it is a non-entity, the ability to operate within
Bangladesh as is the case with any CIDA project that has a start date and an end date. The PSU
has been in operation for 20 years under a number of phases, pursuant to a single MOU that has
been repeatedly extended and which expired on June 30, 2006 and was once again extended to
March 31, 2009.

Recommendation

10. The Head of Aid, on behalf of the CHC, must sign all 23 BEMP contracts to exercise the
    proper delegation of authority.

Management Response with Time Frame

       10) Agreed.
       Time frame: Done
       This management action (MA) has been overtaken by events. BEMP is now completed
       and the contracts previously signed by the PSU have been terminated.

Signatories on PSU Cheques

The PSU exercises good internal control in ensuring that there are always two signatories on
cheques issued by the PSU. Also, there is adequate segregation of duties between the recording
of accounting transactions and the custody over cash. The persons who are signatories of the
cheques are not involved in the recording of transactions or the preparation of the cheques.
Signatories on cheques are the Director and/or either the Manager, Administration and Technical
Services or the General Manager, Finance, Transport and General Services.

High Commission personnel, usually the Head of Aid, act as back-up signatories when the PSU
Director is away from Dhaka for an extended period. As well, the Head of Aid signs under
Section 34, of the Financial Administration Act, for PSU advances and as a signatory on CIDA
project cheques. Both these actions contravene the policies and regulations issued under the
authority of the Financial Administration Act, such as the Policy on Transfer Payment and the
Guide on Grants, Contributions and Other Transfer Payments.

Recommendation

11. The Head of Aid should ensure that, in compliance with the Financial Administration Act,
    only properly authorized personnel execute signing authority.

Management Response with Time Frame
     11) Agreed.
     Time frame: Done




                                                                                               22
       With reference to first observation concerning signatories of PSU cheques, other senior
       PSU staff will sign as back-up PSU signatories in the absence of the PSU Director. The
       Head of Aid (HOA) will not be involved.

       With reference to the signing of CIDA project cheques, there is now a new Deputy MCO
       at the CHC who, in addition to the HOA, will routinely sign cheques. The HOA will no
       longer be needed as routine back-up. The vast majority of “CIDA project cheques” are
       actually paid from Financial Encumbrances (FEs). Nonetheless, administrative
       procedures have been put in place to ensure the HOA will not sign CIDA cheques.

Requests for Advances

The PSU format for requesting advances is not in compliance with the Accounting and Financial
Reporting Requirements for Program Support Units. The PSU advance format is not based on
cash forecasts and requirements. The advance requested must answer immediate cash needs, for
example, for a typical three-month period. The request must detail the advances received to date,
the disbursements to date, the approximate amount of available funds, the approximate amount
of disbursements (forecast) until the next reporting date as well as the requested amount of the
advance.

Procurement of Goods and Services

The PSU applies the procedures specified in the CIDA Guide to Contracting for Services under
the Local Cost Financing Mechanism by Canadian Missions Abroad and CIDA HQ. The PSU, in
its manual of operating procedures, describes the processes used for selecting both consultants
and suppliers. A control framework in place in the PSU ensures sufficient rigour in the selection
of both consultants and suppliers for the purchase of services and goods.

The PSU illustrated its misunderstanding of the use of the terms competitive versus non-
competitive when it described, in its files, a process as being competitive when in fact it was a
non-competitive process. For example, the PSU calls the process “competitive” when it runs an
advertisement in the newspaper. Although, there is sufficient rigour in this “non-competitive”
process because the PSU generates both long and short lists, prepares an interview matrix rated
on the requirements of the consultancy and makes a recommendation for selecting the candidate
with the highest number of points, it is still not considered a “competitive” process under the
Government Contracting Regulations (GCR) because it does not include a proposal call for
competitive price. The recommended selection is offered a fee based on a fee established from
the PSU’s survey of consultants’ fees. Such a process would only be considered “competitive”
under the GCRs if there was a Request for Proposal (RFP) process in place, either open or
limited. For instance, it would be competitive if the short list were asked to submit proposals
including a separate price envelope.

Notwithstanding, there were a number of situations where the PSU resorted to requesting
proposals and such processes are competitive. During the audit, the requirements that
differentiate “competitive” from “non-competitive” processes were explained to the PSU.




                                                                                               23
The Consultants’ fee survey was conducted using markers from a survey of 10 aid-related
organizations for senior, intermediate and junior consultants. Also the survey included support
staff, drivers, attendants and guards. The last survey conducted by the PSU was in June 2003.
The survey should be updated to ensure the validity of the results. A survey that is out-of-date
would not reflect timely market rates for fees thus limiting the PSU’s ability to negotiate proper
fees with potential consultants.

Security Measures

Physical Security

In 2005 Bangladesh had come under threat and attack from local terrorist bombing. Several
bombings of courthouses and public offices have caused deaths.

The PSU needs to undertake thorough risk/threat assessment. The assessment should identify
what needs to be done to mitigate or reduce risk, the vulnerability to threats and emergency
response plans.

Given the situation in Bangladesh, it is crucial that the PSU prepare a Threat Preparedness Plan
to respond to such threats. The PSU needs to identify required actions, assign responsibilities for
such actions, brief personnel on steps to be taken to prevent or minimize threats, give specific
and readily available instructions on how to deal with the threats that materialize, keep the threat
preparedness plan up-to-date, especially if circumstances change within the country, and ensure
personnel remain familiar with procedures. A comprehensive Threat Preparedness Plan, dealing
with different scenarios, is essential in an increasingly insecure and volatile environment such as
Bangladesh.

The Head of Aid and Mission Security Officer should be consulted in the development of the
Threat Preparedness Plan to obtain their input and possible threat avoidance guidance and to
ensure coordination with the Mission Emergency Contingency Plan which is prepared by the
CHC. The PSU Director has already established a liaison relationship with the CHC’s Security
Officer that should be drawn on in the development of the Threat Preparedness Plan.

Security of Information

With respect to Information Management and the security of PSU information, the PSU
Operations Manual does not include a written policy describing the measures necessary to
safeguard information in the PSU, nor a risk management plan, including contingency and
recovery plans.




                                                                                                  24
Recommendations

12. The Head of Aid should review the Terms and Conditions of the contract prescribing the
   duties and responsibilities of the PSU Director to ensure that they are complete, accurate
   and reflect all of the applicable guidelines

13. The Head of Aid should ensure that the PSU Director operates in compliance with the
    contract.

Management Response with Time Frame

         12) Agreed.
         Time frame: January. 2007

         There is a new HOA as PTL of the PSU project. The PSU Operations Manual is being
         currently updated to respond to current deficiencies on Information
         Management/security.

         13) Agreed.
         Time frame: Current— ongoing part of PTL role

         The HOA as PTL will monitor compliance on an ongoing basis. She has an important
         role in ensuring that the PSU director operates in compliance with his co-operant
         contract.


4.6     Gender Fund (GF)

4.6.1    Description of the Gender Fund

The Gender Fund (GF) Project began in 1992 and the first phase operated for three years on a
budget of $500,000. Phase II, 1995 to 2003 had a budget of $2 million and Phase III was
approved in June 2003 with a budget of $2.5 million to be disbursed over five years. The Gender
Fund’s day-to-day operations are managed by a Gender Fund Coordinator, located in the PSU’s
Local Fund Management Office (LFMO) and the GF shares a monitor with the CFLI.

The GF directly supports the goals of CIDA’s Gender Equality Policy, Poverty Reduction
Strategy and Social Development Priorities; in which gender equality and developing the
capacity of local organizations are an integral part. The goal of the Fund is to improve policy
development and regulatory reform of selected public and private institutions and link
governance more directly to poverty reduction in the area of women’s and children’s rights. The
GF promotes local ownership, capacity building and civil society engagement. The GF falls
under the Governance priority in the Bangladesh CDPF and directly supports the crosscutting
theme of gender equality.




                                                                                                25
The GF is expected to promote synergies between the Fund and the Bangladesh program as a
whole, through the work of the HQ responsible officer, Field PTL, Gender Coordinator, HQ and
Post Analysts and HQ gender. The GF team was to design a strategy to facilitate improved
synergies, which are to be reported in the Gender Fund’s annual reports. The strategy will
include assessing, cataloguing and sharing success stories and lessons learned with the Agency
staff (HQ and Post), Bangladeshi and Canadian academe; annual progress and monitoring
reports; and informal briefings.
Organization and Resources

There are three persons under contract to implement the Gender Fund. The total person years is
1.85, made up of the GF Coordinator (60% of available time), the GF monitor (50%), and a
junior GF consultant (75%). The GF’s administrative costs including consulting fees and PSU
overhead costs amounted to $33,314 for fiscal year 2004/05 which is approximately 7% of the
annual allocation of $500,000 for the GF. When applied to the actual amount disbursed for sub-
projects in 2004/05 (which was $251,166), the percentage of administrative costs is
approximately 13%, within the 11 to 14% range of the project budget as stipulated in the PAD.
The fund has been described as both proactive and responsive in its support of initiatives
implemented by local NGOs, civil society organizations (CSOs), community-based
organizations (CBOs) and WOs.

A major change from Phase II to Phase III was the decentralization of GF sub-project approval to
the Post. Prior to Phase III, all GF sub-projects with budgets greater than $15,000 were approved
by the Bangladesh Country Director in Headquarters. In Phase III, the Head of Aid, as chair of
the project review committee (PRC) approves sub-projects up to $50,000. Sub-Projects
exceeding $50,000 require CIDA HQ approval.


4.6.2   Findings and Recommendations

GF Annual Reports

The annual reports provide a summary of new projects approved during the year, a report on the
results of completed projects during the fiscal year, an update of performance on ongoing
projects during the fiscal year and the projected expected results of new projects approved during
the fiscal year. The report includes the monitoring and lessons learned during the course of the
fiscal year.

The report does not include a project status report showing the total project budget, amount
disbursed to date and amounts to be disbursed by year over the remaining life of the project.
Such a financial status report would allow one to quickly analyze how the project is disbursing
relative to its target/plan and be able to link this to the progress on achieving results. At this time,
the GF is disbursing at about 50% per year and at this rate will have disbursed only half its
budget at the five-year mark. This is not readily discernible without a project financial
status/progress report.




                                                                                                     26
Recommendation

14. The PTL should ensure that the Gender Fund’s annual report includes a project financial
    status report, which is linked to progress against the achievement of project results and the
    associated risks.

Management Response with Time Frame

       14) Agreed.
       Time frame: February 2007

        A new PTL has been recently appointed, as well as a full-time Gender Fund coordinator.
       A new annual strategic memo has been prepared that includes financial data. A mid-term
       evaluation and planning workshop will now confirm these new financial reporting
       formats and update project financial status


Project Management Strategy

The Gender Fund III Project was approved in June 2003 and the Project Management Strategy
has not been completed. There is a draft strategy that has a number of errors and is the cause of
confusion among the gender team in the field, especially with respect to roles and
responsibilities. The draft Project Management Strategy refers to the role of a Gender Advisor
who has a significant liaison role at the Post. For example, one section of the draft management
strategy states that projects between $15,000 and $50,000 will be approved by the Country
Program Director (CPD), when in fact the approval process for all projects up to $50,000 is
delegated to the Head of Aid.

The PTL who reports to the HOA and the Gender Fund Coordinator who reports to the PTL
expressed concern about the lack of clarity regarding their roles. The Gender Fund Coordinator
has not had a contract performance review completed during the four-year period the
Coordinator was under contract. Notwithstanding the concerns related to employer/employee
relationships, the GF Coordinator felt that there should be a consultant’s contract performance
assessment as to whether the terms of the contract have been met satisfactorily, especially before
a new contract is signed.

There was significant concern expressed by staff in the field about the lack of understanding of
each other’s role and the roles of those in HQ. This lack of communication and understanding is
causing stress among staff and it is believed to have an effect on synergies and overall
productivity. The HOA agreed that roles and responsibilities need to be clarified and that a
teambuilding exercise would provide a good forum for finding ways for the Post and HQ to work
better.




                                                                                                27
Recommendations

15. The Head of Aid should ensure that the Gender Fund Project Management Strategy is
    completed and inscribed within the legislative framework.

16. The Head of Aid in conjunction with the Country Program Director should ensure a clear
    understanding of roles, responsibilities and accountabilities, thereby promoting synergies
    and reducing conflicts.

Management Response with Time Frame

       15 &16 ) Agreed.
       Time frame: March 2007

       A new PTL has completed a first update of the Management Strategy. The PTL is also
       reviewing and revising the existing Terms of Reference (TORs) of the Gender Monitor,
       Gender Coordinator and Gender Consultant. She will work with the HOA in ensuring
       these staff understand the Strategy and their separate but complementary mandates.
       These updated understandings of roles, responsibilities and accountabilities will be
       incorporated as needed into the next update of the Management Strategy, prior to final
       approval by the HOA and the CPD.

Management of sub-projects

The GF has been reviewed several times since its inception by independent gender consultants
contracted by CIDA and the results of reviews have been used as lessons learned in the design of
Phase III and in the ongoing decision making of the GF.

Some of these lessons learned have dealt with improving project and organizational assessments.
However, a review of project files over two fiscal years revealed that the organizational
assessment tool has not been utilized. In addition, the existing institutional assessment tool does
not include a risk rating of the institution that is being assessed in terms of risks related to
culture, economic, financial and/or political/religious risks. Such a risk rating could be used as a
basis for determining the extent of monitoring required for a specific project.

It was noted that files are generally disorganized and there is no common index. Copies of
monitoring reports should be on file as well. Sub-project files should be “all inclusive” and their
contents should contain all relevant documents such as proposals, project/institutional
assessments, CEAA (Canadian Environmental Assessment Act) documents, photographs, PADs,
LFAs, progress reports, acknowledgement of payments, signed contribution agreements,
correspondence, end of project reports, financial statements, audit reports, etc.




                                                                                                 28
Recommendations

17. The Head of Aid should ensure that the Gender Fund uses the organizational assessment
    tool including a rating of risks for all sub-projects seeking approval and this be used by the
    PRC in its decision making.

18. The Head of Aid should ensure that the Gender Fund organizes its files to meet the
    Information Management Policy Requirements.


Management Response with Time Frame

       17& 18) Agreed.
       Time frame: March 2007

       The new HOA will work with the new PTL to ensure that the appropriate assessment
       tools are in use by the Gender Fund and its new Coordinator. Files are also being
       updated under the supervision of the new staff to meet IM Policy requirements.

Gender Fund Sub-Projects

The Gender Fund, over its three phases, has not had an audit of the Fund as a whole or of its sub-
projects. While there are no directives specific to Gender Funds, both CIDA’s Guidelines for
Program Support Unit Projects and CFLI Guidelines recommend such audits for their respective
projects. In order to provide assurance that funds are used for their intended purpose, an audit, as
an additional internal control measure, of the Gender Fund is recommended. A local audit firm
should be selected to conduct an audit of the Fund and sub-projects as soon as possible and it is
recommended that such audits be done on a regular, periodic basis.

Recommendation

19. The Head of Aid should ensure that an audit of the Gender Fund and its sub-projects is
    carried out and that this be done on a regular, periodic basis.

Management Response with Time Frame

       19) Agreed.
       Time frame: March 2007

       The final updated Management Strategy will include an audit plan providing for regular
       local audits of sub-projects.




                                                                                                 29
4.7     Canada Fund For Local Initiatives (CFLI)


4.7.1    Description of the CFLI

The CFLI in Bangladesh operates out of the Local Funds Management Office (LFMO), a unit set
up in the CIDA PSU to administer the CFLI, Gender Fund and up until its cessation last year, the
Environment Fund. The CFLI has been active in Bangladesh since 1972 and it complements
CIDA’s CDPF through small initiatives with NGOs, CBOs and other voluntary organizations.
The CFLI in Bangladesh allows the CHC to respond quickly and positively to requests for
support that by and large involve the active participation of the local community. Over the years
the CFLI has supported hundreds of community organizations, many of which are in the remote
areas of the country.

The general objective of the CFLI program is to enhance the economic, cultural and social life of
people of eligible developing countries. This is to be achieved by financing small projects
involving technical, economic, educational, cultural, and/or social development assistance to the
local populations. And as mentioned above, the CFLI Bangladesh contributes to the overall
results of the CDPF. The CFLI adds an element of flexibility to existing bilateral program
activities and must be compatible with Canada’s Official Development Assistance policies.


4.7.2    Organization and Resources

The Head of Mission (HOM) is responsible and accountable directly to the President of CIDA
for all matters relating to the CFLI program. The Head of Aid is responsible and accountable to
the HOM for the efficient and effective management of the CFLI. The HOA is responsible to
ensure that the CFLI is administered in accordance with the Guidelines for the CFLI and
appropriate Government and CIDA financial and contracting regulations and authorities,
including those relating to the management of local costs. There is a full time CFLI Coordinator
under contract with CIDA to manage the CFLI.

Each year CIDA establishes the amount of CFLI funds and the President of CIDA has the overall
responsibility and accountability for the management of CFLI funds. In 2004/05 the amount of
the CFLI budget was $900,000, of which $200,000 was for emergency funding for
reconstruction and rehabilitation due to severe flooding. The CFLI budget was $506,000 in
2005/06.




                                                                                              30
4.7.3   Findings and Recommendations

Organization of CFLI Files

It was noted that files are generally disorganized and there is no common index. The sub-project
files should be “all inclusive” and their contents should contain all relevant and necessary
documents such as proposals, project/institutional assessments, CEAA documents, photographs,
PADs, LFAs, progress reports, acknowledgement of payments, signed contribution agreements,
correspondence, end of project reports, financial statements, audit reports etc. Poorly organized,
incompletely or inadequately documented files make it difficult to determine the degree and
adequacy of management and financial control over the CFLI. Also failure to properly document
files and record decisions can leave the fund vulnerable to abuse or fraud.

Recommendation

20. The Head of Aid should ensure that CFLI files are properly documented and organized, to
    demonstrate proper management and financial control and compliance with Information
    Management Policy Requirements.

Management Response with Time Frame

        20) Agreed.
        Time frame: Done

        Action has been taken to improve accessibility of information, notably by adding an index
        to present PSU files.

        The CFLI files examined were the comprehensive volumes containing all relevant
        documentation. This present clean up of the files is part of a comprehensive exit strategy
        being carried out as CFLI responsibility is planned to move to Foreign Affairs and
        International Trade Canada, probably in 2007.


Risk Assessment Of Organizations Applying For Funding

CFLI project assessments in terms of project needs were quite well done. However, only one
sentence covered the assessment of the organization’s capacity for conducting or implementing
the initiative and there was no rating of the risks related to the organization in terms of financial
capacity, cultural, political and/or religious risks. The risk rating could be on a scale of one to ten
or simply, low, medium or high and could then be used as a basis for determining the extent of
monitoring required for a specific project.




                                                                                                    31
Recommendation

21. The Head of Aid should ensure that the CFLI revises its project assessment tool to include a
    rating of risks for assessing the capacity of organizations applying for CFLI funding.

Management Response with Time Frame

       21) Agreed.
       Time frame: January 2007

       The HOA will ask the CFLI Coordinator to introduce a system for the rating of risks
       linked to the capacity of organizations accessing the CFLI.


Audit of CFLI Sub-Projects

The CFLI has not had an audit of the Fund or its sub-projects conducted since 1998. Section 10
of the CFLI Guidelines states, “In addition to CIDA’s corporate (Performance and Knowledge
Management Branch [PKMB]) audit and evaluation activities, the Head of Mission may
authorize a financial compliance review or evaluation of a specific Canada Fund project (or
group of projects). In such a case, the HOM may wish to consult with the Desk or FMA
[Financial Management Advisor] and refer to the Contracts and Contribution Agreements Audit
Policy.” Given that the CFLI program in Bangladesh has not had such an audit in many years, it
is timely to have an audit of the sub-projects.


Recommendation

22. The Head of Mission should authorize an audit, to be carried out in 2006/07, of the CFLI
    and its sub-projects.

Management Response with Time Frame

       22) Agreed.
       Time frame: March 2007

       The HOM has been alerted to this Audit recommendation and agrees to authorize a CFLI
       audit. The Division on her behalf has consulted with the FMA and CIDA Audit in
       preparing the TOR. The PSU will facilitate a local audit of the CFLI and its sub-projects.

Future of CFLI in Bangladesh

During the course of the audit, it was noted that the Canadian High Commission had informed
the PSU and the LFMO that countries of focus, including Bangladesh, would no longer receive




                                                                                               32
funding for the CFLI program. Since that announcement, there has been some uncertainty as to
when, and indeed if, this will be the case.

The LFMO was set up by the PSU as an administration unit to support local funds such as the
CFLI, Environment Fund and the Gender Fund. The Environment Fund no longer exists and the
CFLI may cease to exist at some point in the near- to mid-future. At the time of the audit there
were five contract resources providing support to the LFMO. CIDA and the PSU will need to
develop an exit strategy in the upcoming months to ensure a smooth transition to reducing
resources to a level that is required to continue administering the Gender Fund and to conclude
the CFLI, should this come to pass.

Recommendation

23. The Head of Aid should develop an exit strategy for the smooth conclusion of the CFLI in
    Bangladesh.

Management Response with Time Frame

        23) Agreed.
        Time frame: Done

         The CFLI is still operational in FY 2006/07. An exit strategy has been prepared and has
        been forwarded to BSB, HOM and relevant authorities in Foreign Affairs and
        International Trade Canada.



4.7.4   Conclusion

We conclude that the PSU is generally well managed and that in all major respects, the PSU has
in place the systems, procedures and controls for managing its operations in accordance with
CIDA’s policies and guidelines. Further, except for those specific situations identified above
where we make recommendations for improvement, the Gender Fund and the CFLI, have the
systems, procedures and controls for managing their operations with due regard for CIDA’s
policies and guidelines for local costs.

Nevertheless, the audit identified areas within the PSU for improvement. These improvements
are the responsibility of the PSU Director, operating in accordance with the Terms and
conditions of his contract. It is the responsibility of the Head of Aid, as Project Manager for the
PSU Project, to ensure that the required terms and conditions are included in the contract and
that the PSU Director complies with the contract.




                                                                                                  33
5.     Allocation of Resources
Program resources for both the aid budget and O&M (salary and non-salary) are allocated and
adjusted as required through a fairly rigorous process, which involves the Corporate Planning
and Analysis Group (CPAG), the Branch Management Group, the Bangladesh Program
Management and the Financial Management Advisors (FMAs). The FMAs along with Country
Program Managers perform an ongoing analysis of country aid budgets throughout the course of
the year. At the end of the third quarter, CPAG sends out a call letter to all branches launching
what is referred to as the “Third Quarter Review and Year End Aid Budget Strategy.” In
preparing the Branch’s response to the call letter, the FMAs perform such analyses as identifying
funds that may be in danger of lapsing and identifying the absorption capacity within the Branch
that could be considered for lapsing funds. Finally, the rationale is formulated for the re-profiling
of funds and any lapsing aid funds to future years. CPAG is involved in the decisions to re-
profile funds into future years based on the rationale provided by the Branch on a case-by-case
basis. For the Bangladesh Program, it has been necessary to provide the rationale for lapsing
funds on the old Health SWAP.

The Bangladesh Program has had an increase in its aid budget from $36 million in fiscal year
2002/03 to $69 million for fiscal year 2006/07, nearly 92%. The initial budgetary allocations for
Bangladesh over five years are $36 million for 2002/03, $47 million for 2003/04, $52 million for
2004/05, $61 million for 2005/06, $69 million for 2006/07, and thereafter. Bangladesh is
involved in new programming approaches and funding modalities; for example, there are two
large SWAPs in health and education whereby CIDA is providing co-funding in close
collaboration with many other donors including, but not limited to, DFID, the International Bank
for Reconstruction and Development (IBRD) and the Dutch.

The allocation of staff and contracted personnel at the Bangladesh Division at Headquarters, the
High Commission at Dhaka and the PSU at Dhaka is illustrated in the table below:


  Fiscal     Headquarters         Field – High               Field               Total    Budgetary
  Year            –               Commission                   –                          Allocations
              Bangladesh                                     PSU
               Division        CIDA      Locally     Consultants Sectoral
                               CBS      Engaged                    Advisors
                                        Personnel
2002/03                  18         5            5              40           0       68   $36,000,000
2003/04                  18         6            5              40           0       69   $47,000,000
2004/05                  18         6            5              39           4       72   $52,000,000
2005/06               16 (1)        6            5           47 (2)          4       78   $61,000,000
(1)
  This is the number of positions filled, compared with the previous years where the total
number includes vacant positions.




                                                                                                  34
(2)
   This is the number that appears in the PSU reports. However, the Program claims that it is 39.
If following their logic, the total of staff and consultants would be 70.

Sixteen positions are allocated to the Headquarters of the Bangladesh Program in Gatineau and,
in the field, the Bangladesh Program has 11 positions at the High Commission (6 CIDA
employees and 5 locally engaged personnel) and 51 consultants and sectoral advisors at the PSU.

During the course of the audit, we reviewed the Financial Modules of SAP for the fiscal years
2002/03, 2003/04, 2004/05 and the current fiscal year to determine whether the Bangladesh
Program lapsed funds.

Summaries of disbursements for aid budget, O&M (non-salary) and O&M (salary) since 2002/03
are shown in tables below:


                           Summary of disbursements for aid budget
      Fiscal Year        Budget           Actual          Free Balance            % Disbursed
                                         Disbursed
 2002/03                 $35,906,874      $35,883,716            $13,158                     100
 2003/04                 $53,253,974      $52,248,831              $5,144                    100
 2004/05                 $50,381,063      $50,372,660              $8,403                    100
 2005/06 (1)             $56,673,750      $42,145,099        $14,528,651                    74.3

                       Summary of disbursements for O&M (non-salary)
      Fiscal Year        Budget           Actual        Free Balance              % Disbursed
                                         Disbursed
 2002/03                   $411,194          $364,066          $35,591                        91
 2003/04                   $302,541          $302,541           ($784)                       100
 2004/05                   $429,104          $392,289          $34,342                        92
 2005/06 (1)               $387,759          $189,583          $60,148                        84

                          Summary of disbursements for O&M (salary)
     Fiscal Year          Budget                Actual          Free Balance         % Disbursed
                                              Disbursed
  2002/03                   $1,147,732           $1,093,735              $53,997               95
  2003/04                   $1,405,029           $1,397,570                7,459               99
  2004/05                   $1,416,655           $1,423,335             ($6,680)              100
           (1)
  2005/06                   $1,583,927           $1,255,938            $327,989                79
(1)
    Actual disbursements for the current fiscal year include purchase orders and commitments to
the end of the third quarter. In other words, disbursements for the fiscal year are on track.

Every year, the Bangladesh Program disburses most, if not all, of its budget. Analysis of the aid
budget shows the least difference between the budget and the actual disbursed, while on the other
hand, the analysis of disbursements for O&M (non-salary) reveals the lowest percentages
disbursed. However, these percentages have always been, at least since 2002/03, over 91%,
which indicates effective resource management.



                                                                                                35
Using the information mentioned above, a comparison of disbursements for the Bangladesh
Program at Headquarters, High Commission and PSU was done. From 2002/03 until now, the
disbursements for the Headquarters, the High Commission and the PSU have been fairly close to
100%.

Moreover, for the same time period, an analysis of the amounts spent on salaries at the
Headquarters, High Commission and PSU was completed. By comparing the disbursements for
salaries for fiscal years 2002/03, 2003/04 and 2004/05, we found that the amounts for all three
have increased over the years.


                           Summary of disbursements for salaries
      Fiscal Year     Headquarters        High               PSU                        Total
                                      Commission
 2002/03                   $375,051       $1,457,801           $334,781                 $2,167,633
 2003/04                   $429,545       $1,700,111           $315,873                 $2,445,529
 2004/05                   $533,370       $1,815,624           $367,598                 $2,716,592
 2005/06 (1)               $509,116       $1,502,282           $261,640                 $2,273,038
(1)
  Actual disbursements for the current fiscal year include purchase orders and commitments to
the end of the third quarter. In other words, disbursements for the fiscal year are on track.


During our review a number of individuals interviewed believed that the Program is under-
staffed at HQ. On its face, this argument would seem to have some merit in that the program aid
budget has almost doubled while the salary budget has increased only marginally; and the O&M
budget has declined.

Given the expected 92% increase in budget, the level of anticipated and active projects and the
associated management requirements are also expected to increase, putting additional demands
on HQ resources. Some of the pressures on HQ resources have been dealt with by transferring
PTL functions of a selected number of projects to the field. Projects are considered fully
decentralized when all PTL functions are delegated to the field and partially decentralized when
the “PTL,” or line authority, remains in Canada and certain functions related to the governance
and/or content of the project are delegated to the field.

Furthermore, at the time of the audit, the Bangladesh Program was seeking additional operating
resources for two PM-05s. The Bangladesh Program was preparing its business case for
additional resources and it indicated an immediate requirement for an additional PM-05 to
provide support to the Country Analyst due to the heavy workload in doing the day-to-day
routine analysis. The Program argues that the Country Program Analyst will be able to work
more strategically if an additional resource is obtained and that there is a need for an additional
PM-05 to fill the gaps resulting from the Health and Education SWAPs, which is an argument
that our review of the Program supports.




                                                                                                  36
After an examination of documents, such as 2004/05 Costed Work Plans, Memorandum—
Launch of Third Quarter Budget Review and 2005/06 Year End Aid Budget Strategy and Free
Balance Reports for 2002/03, 2003/04, 2004/05 and 2005/06, and interviewing staff at
headquarters, we were able to gather information on factors used for budget allocation and the
Bangladesh Division’s capacity to manage and implement current and new projects. Among
other things, Bangladesh Division’s FMAs described to us the processes by which the budget is
determined, allocated, adjusted, monitored and reported and how unspent funds are dealt with.

Based on the review of the processes used by the Bangladesh Program Managers and the FMAs,
the audit concludes that the Bangladesh Program utilizes a rational and rigorous approach in its
allocation of resources. In addition, we were able to determine that the Bangladesh Division
developed and submitted analysis of possible foci of projects identified and of needs expressed
by Bangladesh and on the country’s absorption capacity. Consequently, we can conclude that
Bangladesh Division’s funding is allocated and adjusted as a function of strategic direction, risk
assessment and expected results. Accordingly, we have no recommendations regarding the
allocation of resources.


6      Audit Opinion

The audit was conducted using standards for internal audit as published by the Institute of
Internal Auditors and in accordance with the Policy on Internal Audit issued by the Treasury
Board. AEC and Bangladesh Program management approved the audit criteria.
Except for the areas where we made recommendations, we can provide a high degree of
assurance that in all major respects, CIDA’s Bangladesh Program operates with due regard for
CIDA and Treasury Board policies and adequate control over program operations is exercised
over the MAF elements of Stewardship, Accountability, People, Allocation of Resources and
Risk Management and we can provide the following opinion with respect the MAF elements we
examined in detail:

    STEWARDSHIP
       • We validated both operational and financial controls as key elements of stewardship.
       Generally, there is a good adherence to contribution agreements, terms and conditions,
       CIDA and Treasury Board policies, program terms and conditions and MOUs in place.

    ACCOUNTABILITY AND PEOPLE
      • Roles and responsibilities are not always clear. The audit found that guidelines
      covering roles and responsibilities were not consistently met, interpreted or applied,
      creating friction, morale problems and reducing operational efficiency.

    ALLOCATION OF RESOURCES
       • Generally, program resources are allocated and adjusted as required as a function of
       strategic direction, risk assessment and expected results.




                                                                                                37
RISK MANAGEMENT
   • Organizational and strategic risks are generally well managed.

RESULTS AND PERFORMANCE

   • Generally, project and program results are monitored, measured and reported to
   senior management so as to support the decision-making processes.




                                                                                      38
Annex 1 – Areas of Audit Priority

All areas assessed by us as potentially of high risk were selected for further review in the
Fieldwork Phase. For high risk areas, we have done project and file reviews to validate controls
and substantive testing of transactions required to provide a high level of audit assurance that
controls are, or are not, working as designed. For areas identified as of medium or of low
priority, we have not directly reported on the audit work that was limited to documenting the
risks and the mitigation measures taken and/or proposed by management.

                     BANGLADESH COUNTRY PROGRAM AUDIT
      TB MAF Element            Area of Audit Priority and Focus                               Risk

No.          Element           Report                       Description
                               Section
 1 Governance &
    Strategic Direction
1a) Alignment of Priorities                                                                    Low
                                N/A      Alignment with Other Donors’ Priorities
1b) Allocation of Funding        3.3     Allocation and Adjustment of Funding                  High
 2 Public Service Values        N/A      Reinforcement of the Values and Ethics’          Medium
                                         Importance
 3 Learning, Innovation         N/A      Program Manages through Organizational Learning, Medium
   and Change                            Corporate Knowledge and Lessons Learned
   Management
 4 Results and                   3.1     Results Information Supports the Decision Making      High
   Performance                           Process and Public Reporting
 5 Policy and Programs          N/A      High Quality Policy & Program Delivery Options        Low
 6 Risk Management               3.1     Organizational & Strategic Risks                      High
 7 People                        3.2     Human Resources in Place to Achieve Program           High
                                         Objectives
 8 Citizen-Focused              N/A      Standards for Service to the Public and Guide         Low
   Service                               Relations with Development Partners & Other
                                         Stakeholders
 9 Stewardship                   3.1     Compliance to CIDA’s Management Control               High
                                         Framework and Policies and Terms and Conditions
 10 Accountability               3.2     Assignment and Clarity of Roles and                   High
                                         Responsibilities for Results Consistent with
                                         Resources

Risk Identification

      For high-risk areas, we have performed detailed audit work; Report Section is referenced in
      third column.




                                                                                               39
For areas considered as medium risk, because even though some of their key controls and
management processes are adequate, others are questionable. These elements were not
specifically dealt with in the detailed audit work nor are they directly reported. However, certain
aspects might be covered in other sections since they are also part of involved processes;

Low risk areas have management processes and controls considered, in general, satisfactory.
Therefore, they represent a low risk for the organisation and have not been audited or reported
upon further.




                                                                                           40
Annex 2 – List of Projects of Audit Focus

The project information has been extracted from and the description of the performance is as
stated in the 2004/05 Country Program Performance Report Bangladesh Program, Asia Branch
and other CIDA program descriptions.

Bangladesh Health and Population Reform Project (BHPRP)
($28.4M, 71% disbursed, 1999–2005)

With a total budget of US$ 2.9 billion, the Health and Population Support Program (HPSP) is the
world’s largest SWAP-based maternal health and family planning program delivered in co-
operation with the GoB, the World Bank, and a consortium of donors. The program’s goal is to
provide quality health services to the poor with particular attention to maternal health and family
planning. Although the project did not achieve significantly increased access to quality health
care, there were some improvements in health outcomes, especially in maternal mortality rate
and oral contraceptives. In 2004/05, general performance of the health SWAP was below
expectations due to the slow pace of policy reforms.

BRAC Education Program
($20 M, 10% disbursed, 2005–2008)

This new multi-donor project using a PBA will provide non-formal education to 1,300,000 poor
children (60–65% girls) from poor areas of Bangladesh who dropped out of formal schools or
have never attended any schools, including children from ethnic minority groups and children
with disabilities. In 2004/05, the country’s leading NGO, BRAC, operated 16,019 pre-primary
schools with 453,338 learners (out of a total of 36,619 schools with 1,002,990 learners). Training
was provided to 115 head teachers of formal primary schools (1,742 teachers trained in
mathematics, 626 teachers trained in science). A variety of materials and curriculum have been
developed. Donor confidence remains high with BRAC’s strong leadership and management.

Community-Managed Health Care Project
(Total CIDA: $5M, Total Partner: $3M, 56% disbursed, 2001–2006)

The project’s purpose is to improve the sustainability and the effectiveness of the primary health
care system in 362 villages within four divisions of Bangladesh (814,000 people). In 2004/05,
capacities of 141 community-based organizations (CBOs) were strengthened (over 60%
members are women and children). Control over health resources by communities has increased.
Trained community health care personnel were available in the community clinics and referral
centres. Access to quality health services by vulnerable groups, particularly women and children,
has been improved.

Education Sector Support Project
($67.41 M, 2003–2009)




                                                                                                41
The project has two components: one will support the GoB’s second Primary Education
Development Program (PEDP II), a capacity-building project with major education outcomes,
and a Complementary Sector Reform (CSR) to provide complementary technical assistance to
support policy dialogue in other education subsectors. PEDP II has been designed in a
collaborative process between the GoB and 11 donor partners. The emphasis of PEDP II will be
on improving the quality of primary education by building the capacity of formal primary
education systems and institutions. The project organizational and institutional capacity
assessments began in January 2005. The CSR component, which provides complementary
technical assistance to support policy dialogue in other education subsectors, started in 2005.

Essential Health Commodities Project
($20M, 85% disbursed, 2004–2007)

The project’s purpose is to procure essential reproductive and child health commodities to
improve access to quality health care services to the poor, including women and children. The
project has two components: 1) procurement of contraceptives, drugs and vaccines; and 2)
project management and monitoring. Two contribution agreements were signed with UNICEF
and UNFPA for the procurement of essential drugs and vaccines, and with UNFPA for the
procurement of contraceptive commodities.

Gender Fund III
($2.5M, 10% disbursed, 2003–2008)

The Gender Fund supports small initiatives by Bangladeshi NGOs, CSOs, CBOs and gender
advocates to promote gender equality in Bangladesh and improved rights and conditions for
women and girls. It strengthens the capacities of these organizations to engage in policy dialogue
and advocacy with the Government of Bangladesh on gender equality issues.

Legal Reform Project
($15 M, 43% disbursed, 2001–2007)

The project’s goal is to support the development of a rule-based, effective, transparent and
predictable legal framework in Bangladesh. Part A of the project focuses on strengthening the
Ministry of Law’s Drafting wing and the Law Commission. Part B focuses on juvenile justice,
legal aid and alternative dispute resolution. In 2003/04, in Part A, progress was made in the areas
of providing training on law drafting (six legislative drafters, study tour to Canada for the
Minister of Law and two senior officials), updating the Bangladesh Code by the Ministry of Law
and an English-Bengali lexicon, and organizing a pilot project to develop the capacity of the Law
Commission. In Part B, training courses for juvenile professionals, probation officers and social
caseworkers were completed in pilot districts. Two awareness workshops on diversion and
juvenile justice were delivered in Jessore and Dhaka to 180 judges, magistrates, lawyers,
probation officers and justice system personnel.

Local Enterprise Investment Centre (LEIC) Project
(Canadian Partnership Branch, Private Sector Division funding: $10,751,676, 2004/08)




                                                                                                42
The objective of the Local Enterprise Investment Centre Project is to develop the local private
sector by helping small and medium enterprises (SMEs) have access to capital, innovative
knowledge, technologies and practices that will allow them to produce more and better goods
and services for import substitution and for export. This project focuses on the 27,000 medium-
scale enterprises considered nearly ready to expand or to export. The goal of LEIC is to
contribute to poverty reduction and sustainable development in Bangladesh by supporting the
development of SMEs that are close to being ready to invest and/or export thus producing
economic growth that will benefit the poor through the creation of more and better jobs, and
ultimately sustainable livelihoods.

Rural Maintenance Program-III (RMP-III)
(Bilateral $13.8M, Food aid $10M, 58% disbursed, 1995–2005)

The project’s purpose is to improve the socio-economic status of destitute rural women through
the development of a cost-effective rural road maintenance program. The wages of the women
employed as well as their training for undertaking income-generating activities when they
graduate from the program are paid for by monetizing food aid. The European Commission (EC)
has been co-funding this project with CIDA. By 2004/05, RMP helped create year-round jobs for
40,000 destitute women who maintained 65,000 kms of earthen farm-to-market roads in 4,150
unions. A total of 10,342 women have graduated through Income Diversification Component
(65% remained above destitute level); 104 RMP women were elected at the local level as Union
Parish members (cumulative); 2,086 elected female members were trained in leadership
development, and 1,968 have undertaken leadership roles in RMP.

Support to the Palli Daridro Bimochon Foundation (PDBF) or Foundation for Elimination of
Rural Poverty
($14M, 33% disbursed, 2004–2008)

The project is designed to support the institutional growth of the PDBF, which became a semi-
autonomous credit and savings institution in 2000, until it reaches self-sufficiency. CIDA’s long
involvement, since 1984 in this micro finance initiative will culminate with PDBF emerging as a
fully functioning, stand alone, self-sustaining financial institution. In 2004/05, PDBF’s head and
regional offices were fully staffed (branch managers recruited competitively). Indications of both
capacity of management to deliver products and services, and the appropriateness of those
products and services could be seen in the strong take up and performance of new products:
micro-enterprise loans, new saving products, and steady increases in the number of PDBF’s
clients (74,623).




                                                                                               43
ANNEX 3 – EDUCATION SWAP: FUNDS FLOW DIAGRAM




                                               44
Annex 4 – Audit Objectives and Criteria


              No.       TB MAF                Audit objective                        Audit critera
                        Element
               1    Governance &     To determine if the essential       See specific audit criteria below
                    Strategic        conditions—internal and external    for MAF sub-elements 1a and 1b.
                    Direction        coherence, corporate discipline
                                     and alignment to outcomes—are
                                     in place for providing effective
                                     strategic direction, support to the
                                     President and the Minister, and the
                                     delivery of results.
              1a) Alignment of                                           The Program has clearly defined
                  Priorities                                             and communicated its strategic
                                                                         direction.
                                                                         • Strategic direction is clearly
                                                                             defined for example through
                                                                             approved CDPF and project
                                                                             approval documents.
                                                                         • The Program maintains its
                                                                             strategic direction up-to-date
                                                                             and ensures it is internally and
                                                                             externally coherent.
              1b) Allocation of                                          Program funding is allocated and
                  Funding                                                adjusted as required as a function
                                                                         of strategic direction, risk
                                                                         assessment and expected
               2    Public Service   To determine if through their       The Program is managed in




                                                                                                                45
    Values           actions, Program leaders               compliance with the Values and
                     continually reinforce the              Ethics Code for the Public
                     importance of Canadian / public        Service.
                     service / donors’ community            • The Program has
                     values and ethics in the delivery of       communicated or made
                     results to development partners            available the Values and
                     and Canadians (e.g., democratic,           Ethics Code to its personnel
                     professional, ethical and people           and key development partners
                     values).                                   and Canadian executing agents
                                                                CEAs).
                                                            • Program management actively
                                                                participates in processes
                                                                designed to define or reinforce
                                                                the Agency’s values and ethics
                                                                framework as well as the
                                                                values of the donor
                                                                community.
3   Learning,        To determine if the Program            Program strategic planning and
    Innovation and   manages through continuous             management are improved on an
    Change           innovation and transformation,         ongoing basis, based on
    Management       promotes organisational learning,      knowledge, innovation and
                     values corporate knowledge and         performance management.
                     learns from its performance.
4   Results and      To determine if relevant               Program performance is
    Performance      information on results is gathered     effectively monitored, controlled
                     and used to support the decision       and reported on and corrective
                     making process, and to ensure that     actions are taken.
                     public reporting is balanced,
                     transparent, and easy to
                     understand.
5   Policy and       To determine if the Program            Agency policies are




                                                                                                  46
    Programs          research and analytical capacity is   operationalized, program design
                      developed and sustained to assure     options are developed and advice
                      high quality policy options,          is provided for Agency
                      program design and advice to          management decision-making.
                      President and Minister.               • Processes are in place to
                                                                 monitor the quality of policy
                                                                 options, as well as program
                                                                 design and implementation.
6   Risk              To determine if the Program           The Program has clearly defined
    Management        executive team clearly defines the    its risks and is managing them
                      Program context and practices for     effectively.
                      managing organizational and
                      strategic risks proactively.
7   People            To determine if the Program has       The Program has the human
                      the people, work environment and      resources—number, expertise—
                      a focus on building capacity and      required to achieve its stated
                      leadership that will assure its       objectives.
                      success.                              • The Program is supported by
                                                                the direction, work
                                                                environment and leadership it
                                                                needs in order to achieve its
                                                                results and to meet its long-
                                                                term capacity requirements.
8   Citizen-Focused   To determine if policies,             The Program has in place and
    Service           procedures and guidelines that        applies effectively performance
                      promote the focus on people and       standards for service to the public
                      partnerships exist and are applied.   and to its key stakeholders.
                                                            • Performance standards are in
                                                                place for service to the public,
                                                                to the Minister, to
                                                                development partners and to




                                                                                                   47
                                                                key stakeholders.
9    Stewardship      To determine if the Program           The Program has in place a clearly
                      control regime (assets, money,        defined control regime that is
                      people, services etc) is integrated   communicated and applied in an
                      and effective, and its underlining    effective way.
                      principles are clear to all staff.
10   Accountability   To determine if accountability for    Accountabilities are clearly
                      results is clearly assigned and       defined and are known by staff.
                      consistent with resources and if
                      delegations are appropriate to
                      capabilities.




                                                                                                 48
 Appendix 5—Summary of recommendations


           RECOMMENDATIONS                     ACCOUNTABILITY      MANAGEMENT RESPONSE & ACTION PLAN                 STATUS

1.The Bangladesh Division should regularize    Program Director   Agreed.                                          December
the status of Treasury Board’s approved                           The word “contribution” in the TB submission     2006
funding mechanism for the second Education                        proper was used generically, referring to
Sector Support Project.                                           transfers of funds without specifying the
                                                                  payment mechanisms (grant, contribution
                                                                  agreement, contract) to be used for the total
                                                                  disbursement of $67.41 million. The project
                                                                  was intended to provide $61.2 million to the
                                                                  ADB as a grant and $3.0 million via a CEA
                                                                  contract for a complementary TA activity, plus
                                                                  contingency. The actual TB submission in the
                                                                  annexed Results-based Management and
                                                                  Accountability Framework (RMAF)/ Risk-
                                                                  based Audit Framework (RBAF)) then
                                                                  explicitly stated a “grant co-financing”
                                                                  mechanism would be used with the ADB and a
                                                                  competitively bid contract for the TA. The
                                                                  same wording was in the TBS précis for
                                                                  Ministers. Clearly some genuine confusion has
                                                                  arisen, notably in interpreting the wording
                                                                  relating to “class of contributions.”
2.The Bangladesh Division, working with its    Program Director   Agreed.                                          Completed
Consortium partners, should take measures to                      This issue has been resolved with a collective
reduce duplication of audit effort while                          decision of the PEDP II development partners.
contributing to a strengthening of the audit                      Procurement audits (other than FAPAD) are




                                                                                                                               49
            RECOMMENDATIONS                  ACCOUNTABILITY    MANAGEMENT RESPONSE & ACTION PLAN                   STATUS

regime in place for the PEDP II project;                      now being performed by a single firm with
                                                              joint terms of reference and procurement
                                                              guidelines that satisfy all donors.

3.pursue the development of one set of                        Agreed.                                            Completed
procurement standards against which audits                    Starting this year, a common, full-time
may be conducted                                              procurement and internal audit process has
                                                              been initiated using a single audit firm. The
                                                              process will also follow common terms of
                                                              reference and respect procurement guidelines
                                                              and standards agreed by the PEDP II Finance
                                                              and Procurement sub-group for this purpose.
                                                              This process will include quarterly reporting to
                                                              shorten the time frames for response and
                                                              corrective action on any specific or systemic
                                                              irregularities.




                                                                                                                             50
            RECOMMENDATIONS                        ACCOUNTABILITY      MANAGEMENT RESPONSE & ACTION PLAN                     STATUS

4.The Bangladesh Division as a signatory to        Program Director   Agreed.                                             Complete
the PEDP II donor Code of Conduct should                              The Division, in determining the appropriate
determine and provide the degree of decision-                         degree of decision-making authority in the
making authority required of CIDA’s                                   field, has respected established rules applicable
development officers to ensure that it is                             to the delegation of CIDA authorities,
consistent with the Code.                                             recognizing these have important formal and
                                                                      practical limitations. Unlike many other
                                                                      bilateral donors, CIDA is largely centralized in
                                                                      terms of its authorities. To mitigate these
                                                                      formal limitations, the Program has now put in
                                                                      place a strong thematic approach comprising
                                                                      teams that bridge field and HQ staff. New
                                                                      protocols have been introduced to improve
                                                                      communications. Improved approaches to
                                                                      policy and implementation issues allow all
                                                                      necessary consultations even when the Project
                                                                      Team Leader (PTL) is in Headquarters, e.g.,
                                                                      for the regular PEDP II consortium meetings.
                                                                      The PTL from HQ participates in the annual
                                                                      multi-donor review and thematic review
                                                                      missions to approve annual work plans and
                                                                      discuss key sectoral issues. The Division
                                                                      judges these an adequate response in the spirit
                                                                      of the (non-binding) donor Code of Conduct.
5.The Bangladesh Division, given its               Program Director   Agreed.                                             An updated
experience with Health SWAPs, should, as                              The Division agrees with the Audit Team on          review of the
part of a viable financial risk mitigation                            the importance of assessing risk in the context     project
strategy, reassess the use of pooled funding for                      of our engagement in this next multi-donor          components




                                                                                                                                     51
           RECOMMENDATIONS                    ACCOUNTABILITY      MANAGEMENT RESPONSE & ACTION PLAN                    STATUS

the Health, Nutrition and Population Sector                      SWAP. CIDA is committed with its donor             and their
Program (HNPSP) while maintaining CIDA’s                         partners to a balanced approach within its         riskiness will
commitment to the HNPSP by supporting the                        contribution to the SWAP. The largest CIDA         be completed
capacity of the Government of Bangladesh                         element is the existing TB-approved $45M           prior to
through parallel funding and by providing                        Health Commodities program, being                  seeking
targeted technical assistance.                                   implemented via UNICEF and UNFPA                   Ministerial
                                                                 (United Nations Population Fund). We are           approval by
                                                                 envisaging contributing $5 million to a pool       end-FY06.
                                                                 that has total funding from other SWAP
                                                                 donors of over $750 million, including $300
                                                                 million from CIDA’s Board-approved project
                                                                 and $160 million from DFID. This will be only
                                                                 a modest part of this second CIDA project,
                                                                 Health Governance, which also covers
                                                                 procurement systems and enhanced client
                                                                 “voice.” The pooled funding would be
                                                                 managed by the World Bank and subject to a
                                                                 comparable auditing and risk assessment
                                                                 regime as the rest of the SWAP. This small
                                                                 component is judged as a reasonable and
                                                                 appropriate part of CIDA’s commitment to the
                                                                 joint efforts of our partner-donors and provides
                                                                 us a privileged seat at the table where we can
                                                                 influence larger policy and capacity issues in
                                                                 this $3b+ SWAP.
6.The Bangladesh Division should review its   Program Director   Agreed.                                            A risk strategy
risk mitigation strategy for the Health,                         The Division agrees with the Audit Team on         will be a key
Nutrition and Population Sector Program                          the importance of an effective and balanced        part of the




                                                                                                                               52
             RECOMMENDATIONS                       ACCOUNTABILITY      MANAGEMENT RESPONSE & ACTION PLAN                   STATUS

(HNPSP), assess its adequacy, articulate a risk                       risk mitigation strategy, developed with our      approval
tolerance level and, in close coordination with                       donor partners. Donors have learned from          package due
its donor consortium partners, develop an                             large complex SWAPs involving massive             end-FY06.
approach to future programming.                                       structural reform, such as HPSP, that goals and
                                                                      objectives need to be more closely conditioned
                                                                      by institutional capabilities and the
                                                                      commitment. Donors are insisting on pre-
                                                                      conditions, including readiness assessments
                                                                      before moving ahead. Acting in concert, they
                                                                      are assessing the risk carefully in developing
                                                                      future programming. The planned component
                                                                      on citizens’ voice should lead to improved
                                                                      accountability and better outcomes.
7.The Bangladesh Division in negotiating a         Program Director   Agreed.                                           Completed
Health SWAP agreement should ensure that                              The Division has ensured, as per CIDA generic
there is an exit strategy by retaining the right                      guidelines, that there is an exit strategy, the
of CIDA as per its own guidelines to suspend                          same as for other CIDA projects. Under the
payments to the HNPSP program and/or                                  present (and any future) MOU, CIDA has
terminate its agreement with the Bangladesh                           reserved the right to suspend activities where
government in the event of failure to                                 the project is failing to meet agreed goals or
implement or achieve reasonable progress as                           implementation is seriously flawed. In a
per approved work plans.                                              SWAP setting such as this project the “exit
                                                                      strategy,” including decisions to suspend or
                                                                      terminate, would be probably implemented in
                                                                      consort with other donors.
8.The Bangladesh Division should update            Program Director   Agreed.                                           Completed
existing mechanisms for the delineation of                            The Division has issued an update under the
duties and related accountabilities including                         title “Delivering the Bangladesh Program -




                                                                                                                                    53
            RECOMMENDATIONS                         ACCOUNTABILITY      MANAGEMENT RESPONSE & ACTION PLAN                   STATUS

protocols regarding the roles and relationships                        Guidelines for an Integrated Team” to the
of Desk and Post staff so as to ensure an                              2004 “Who Does What”? Document.. This
environment conducive to workplace                                     drew upon discussions at a major staff retreat
effectiveness and well being.                                          in the field. It provides a clear delineation of
                                                                       duties and accountabilities, including protocols
                                                                       regarding the roles and responsibilities of Desk
                                                                       and Post staff.
9. The Division should review the contract of       Program Director   Agreed.
the PSU director and ensure it complies with                                                                              Completed
CIDA’s “Guideline for Program Support Unit                             The current PSU Director has extensive prior
Projects,” in particular, Sections 5.1(g) and 7.0                      experience on financial management, as well
                                                                       as extensive country knowledge. He has
                                                                       exceptionally provided technical advice in this
                                                                       area, including formal due diligence advice on
                                                                       accountabilities for some projects (both
                                                                       planned and operational). His contractual
                                                                       terms of reference have been updated to reflect
                                                                       this specialized role in a manner fully
                                                                       consistent with CIDA’s guidelines. He, as
                                                                       other PSU contractors, follows a work plan
                                                                       that is regularly reviewed by the PTL.
10.The Head of Aid, on behalf of the CHC,           Head of Aid        Agreed.
must sign all 23 BEMP contracts to exercise                            This management action (MA) has been               Completed
the proper delegation of authority.                                    overtaken by events. BEMP is now completed
                                                                       and the contracts previously signed by the PSU
                                                                       have been terminated.
11. The Head of Aid should ensure that, in          Head of Aid        Agreed                                             Completed
compliance with the Financial Administration                           With reference to first observation concerning




                                                                                                                                      54
            RECOMMENDATIONS               ACCOUNTABILITY    MANAGEMENT RESPONSE & ACTION PLAN              STATUS

Act, only properly authorized personnel                    signatories of PSU cheques, other senior PSU
execute signing authority.                                 staff will sign as back-up PSU signatories in
                                                           the absence of the PSU Director. The Head of
                                                           Aid (HOA) will not be involved.

                                                           With reference to the signing of CIDA project
                                                           cheques, there is now a new Deputy MCO at
                                                           the CHC who, in addition to the HOA, will
                                                           routinely sign cheques. The HOA will no
                                                           longer be needed as routine back-up. The vast
                                                           majority of “CIDA project cheques” are
                                                           actually paid from Financial Encumbrances
                                                           (FEs). Nonetheless, administrative procedures
                                                           have been put in place to ensure the HOA will
                                                           not sign CIDA cheques.




                                                                                                                55
            RECOMMENDATIONS                       ACCOUNTABILITY    MANAGEMENT RESPONSE & ACTION PLAN                    STATUS

12. The Head of Aid should review the Terms       Head of Aid      Agreed.                                            January. 2007
and Conditions of the contract prescribing the                     There is a new HOA as PTL of the PSU
duties and responsibilities of the PSU Director                    project. The PSU Operations Manual is being
to ensure that they are complete, accurate and                     currently updated to respond to current
reflect all of the applicable guidelines                           deficiencies on Information
                                                                   Management/security.
13.The Head of Aid should ensure that the         Head of Aid      Agreed                                             Current -
PSU Director operates in compliance with the                       The HOA as PTL will monitor compliance on          ongoing part
contract.                                                          an ongoing basis. She has an important role in     of PTL role
                                                                   ensuring that the PSU director operates in
                                                                   compliance with his co-operant contract.
14.The PTL should ensure that the Gender          PTL              Agreed.                                            February 2007
Fund’s annual report includes a project                            A new PTL has been recently appointed, as
financial status report, which is linked to                        well as a full-time Gender Fund coordinator. A
progress against the achievement of project                        new annual strategic memo has been prepared
results and the associated risks.                                  that includes financial data. A mid-term
                                                                   evaluation and planning workshop will now
                                                                   confirm these new financial reporting formats
                                                                   and update project financial status.
15.The Head of Aid should ensure that the         Head of Aid      15.&16. Agreed.                                    March 2007
Gender Fund Project Management Strategy is                         A new PTL has completed a first update of the
completed and inscribed within the legislative                     Management Strategy. The PTL is also
framework.                                                         reviewing and revising the existing Terms of
                                                                   Reference (TORs) of the Gender Monitor,
16.The Head of Aid in conjunction with the                         Gender Coordinator and Gender Consultant.
Country Program Director should ensure a                           She will work with the HOA in ensuring these
clear understanding of roles, responsibilities                     staff understand the Strategy and their separate
and accountabilities, thereby promoting                            but complementary mandates. These updated




                                                                                                                                56
            RECOMMENDATIONS                       ACCOUNTABILITY    MANAGEMENT RESPONSE & ACTION PLAN                  STATUS

synergies and reducing conflicts.                                  understandings of roles, responsibilities and
                                                                   accountabilities will be incorporated as needed
                                                                   into the next update of the Management
                                                                   Strategy, prior to final approval by the HOA
                                                                   and the CPD.
17.The Head of Aid should ensure that the         Head of Aid      17. & 18. Agreed.                                 March 2007
Gender Fund uses the organizational                                The new HOA will work with the new PTL to
assessment tool including a rating of risks for                    ensure that the appropriate assessment tools
all sub-projects seeking approval and this be                      are in use by the Gender Fund and its new
used by the PRC in its decision making.                            Coordinator. Files are also being updated
                                                                   under the supervision of the new staff to meet
18.The Head of Aid should ensure that the                          IM Policy requirements.
Gender Fund organizes its files to meet the
Information Management Policy
Requirements.
19.The Head of Aid should ensure that an          Head of Aid      Agreed.                                           March 2007
audit of the Gender Fund and its sub-projects                      The final updated Management Strategy will
is carried out and that this be done on a                          include an audit plan providing for regular
regular, periodic basis.                                           local audits of sub-projects.
20.The Head of Aid should ensure that CFLI                         Agreed.                                           Completed
files are properly documented and organized,                       Action has been taken to improve accessibility
to demonstrate proper management and                               of information, notably by adding an index to
financial control and compliance with                              present PSU files.
Information Management Policy
Requirements.                                                      The CFLI files examined were the
                                                                   comprehensive volumes containing all relevant
                                                                   documentation. This present clean up of the
                                                                   files is part of a comprehensive exit strategy




                                                                                                                                 57
            RECOMMENDATIONS                        ACCOUNTABILITY     MANAGEMENT RESPONSE & ACTION PLAN                     STATUS

                                                                     being carried out as CFLI responsibility is
                                                                     planned to move to Foreign Affairs and
                                                                     International Trade Canada, probably in 2007.
21.The Head of Aid should ensure that the          Head of Aid       Agreed.                                             January 2007
CFLI revises its project assessment tool to                          The HOA will ask the CFLI Coordinator to
include a rating of risks for assessing the                          introduce a system for the rating of risks linked
capacity of organizations applying for CFLI                          to the capacity of organizations accessing the
funding.                                                             CFLI.
22.The Head of Mission should authorize an         Head of Mission   Agreed.                                             March 2007
audit, to be carried out in 2006/07, of the CFLI                     The HOM has been alerted to this Audit
and its sub-projects.                                                recommendation and agrees to authorize a
                                                                     CFLI audit. The Division on her behalf has
                                                                     consulted with the FMA and CIDA Audit in
                                                                     preparing the TOR. The PSU will facilitate a
                                                                     local audit of the CFLI and its sub-projects.
23.The Head of Aid should develop an exit          Head of Aid       Agreed.                                             Complete
strategy for the smooth conclusion of the CFLI                       The CFLI is still operational in FY 2006/07.
in Bangladesh.                                                       An exit strategy has been prepared and has
                                                                     been forwarded to BSB, HOM and relevant
                                                                     authorities in Foreign Affairs and International
                                                                     Trade Canada.




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