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ADB Grant 0133-CAM Public Financial Management in Rural

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					     ADB Grant 0133-CAM: Public Financial
      Management in Rural Development
          Ministries (Component 1)
  Decentralization and De-concentration:Financial
Management for Externally Financial Decentralized and
  De-concentrated Project in Kingdom of Cambodia
                   Management Reports, Records,
Day 3: Oct. 27, 2010:
             Internal and External Audit

                        ADB Grant No.0133-CAM/Component
                                                          1
                                    1: PFMRD
                            Day 3
 Management Records, Internal and
         External Audit
                         Content

MANAGEMENT
  REPORT                  INTERNAL                    EXTERNAL
    &                       AUDIT                      AUDIT
 RECORDS



           ADB Grant No.0133-CAM/Component 1: PFMRD              2
 MANAGEMENT RECORDS




ADB Grant No.0133-CAM/Component 1: PFMRD   3
                         Overview
                                  Three types of financial management
Financial management              reports are required to be produced by
reports provide                   the EA/IA to support effective monitoring
important information             of the project’s financial position and
to the Project                    progress and to support sound
Management and to                 management decision making. These are:
external users on the
progress of project
implementation, and
the financial status of                       Management reports
the project.

                                               Quarterly Financial
                                              Management Reports


                                                   Annual Financial
                                                     Statements
        ADB Grant No.0133-CAM/Component 1: PFMRD                              4
                  Overview
• The MEF and ADB/WB and other donors use
  the project’s financial management reports
  and annual financial statements to monitor
  the financial performance of the project and
  to identify issues which require attention and
  management action.
• The annual financial statements also provide
  assurance that the financial resources of the
  project are being properly used for project
  purposes and are being properly managed
  accordance with the project’s agreements.
                ADB Grant No.0133-CAM/Component
                                                   5
                            1: PFMRD
       Example of FMR




ADB Grant No.0133-CAM/Component 1: PFMRD   6
Example of FMR (cont’d)




 ADB Grant No.0133-CAM/Component 1: PFMRD   7
   Internal Financial Management Reports


                                          Imprest/Special Account reconciliation.
 The following reports,
    together with the                       Accumulated project expenditures by
  project’s month-end                                                 category.
 trial balance, must be                      Statement of loan disbursement and
      prepared and                                   status of category balance.
       submitted to
        MEF-DIC:                        Accumulated disbursements by category.

                                      Accumulated contracts awarded by category.




The formats of all of the above forms are shown in Section 19 of the FMM.

          ADB Grant No.0133-CAM/Component 1: PFMRD                            8
    Internal Financial Management Reports
• Annual Budgets are based on the project annual work
  and procurement plans. Regular financial management
  reports must be prepared showing actual financial
  performance compared to budget, and the variations to
  budgets.
• Variations to plans, when analysed and reported,
  enable management to monitor progress and make
  decisions on project implementation and related issues.
• Analysis of variations to budgets should include:
    identification of the reasons for deviations;
    implications of the variations; and
    forecasts of the estimated revenue and expenditure
     based on the actual financial performance to date.
          ADB Grant No.0133-CAM/Component 1: PFMRD          9
    Internal Financial Management Reports
• Reports may also be required to monitor compliance
  with the financial policies and procedures of the project.
  Examples include:
 List of Outstanding Advances (yet to be liquidated)
 Outstanding Withdrawal Applications




          ADB Grant No.0133-CAM/Component 1: PFMRD         10
                  Example of Bank reconciliation
Balance per bank statement, 30/09/05                              $1,112.30
Add: Cheques paid in, recorded in the cash book, but not yet         208.20
credited to the account by bank
Less: Cheques paid by the company but not yet presented to the     (425.35)
bank for settlement

Corrected ending balance, 30/09/05                                  895.15        When the
                                                                               reconciliation is
Balance per cash book, 30/09/05                                    $805.15     complete, these
Add: Correction of undercast                                                  amounts should be
                                                                     90.00        the same
Corrected ending balance, 30/09/05                                  895.15




                       ADB Grant No.0133-CAM/Component 1: PFMRD                           11
Example Project Disb. by Category




      ADB Grant No.0133-CAM/Component 1: PFMRD   12
  External Financial Management Reports

EAs/IAs are required to submit financial management
reports each quarter of the financial year within
45 days for the World Bank and 30 days for the ADB
after the end of the quarter.

The Financial Management Reports that are required
to be submitted will be agreed by the ADB/WB
and other donors with the EAs/IAs during project
appraisal and negotiation.

The requirements will be set out in the project
agreements.
          ADB Grant No.0133-CAM/Component 1: PFMRD   13
     Annual Financial Statements

Responsibility for the Financial Statements
• The EA/IA and Project Management are responsible
  for preparing and issuing the annual financial
  statements for the project.

Principles of Financial Reporting
• The following fundamental principles must apply to
  all interim and annual financial statements on
  projects issued by the Government (as the
  borrower).............

          ADB Grant No.0133-CAM/Component 1: PFMRD   14
      Annual Financial Statements:
        fundamental principles
• Disclosure of full accountability for all funds of the
  Government, ADB/WB, and other donors.
• Compliance with loan covenants and ADB/WB requirements
  for project management.
• Adequate disclosure of all material information.
• A fair presentation in all material aspects of the financial
  performance and status of the project, and where applicable
  of the EA.
• A clear statement on the accounting policies and standards
  adopted in preparing the financial statements. The format of
  the financial statements of the project must be agreed
  between the ADB/WB and EA/IA.
             ADB Grant No.0133-CAM/Component 1: PFMRD      15
       Record Management

               Content

                                                Security and
                                                Safe Keeping
Overview       Project file
                                                 of financial
                                                   records


           ADB Grant No.0133-CAM/Component
           ADB Grant No.0133-CAM/Component 1:
                                                            16
                        1:PFMRD
                           PFMRD
                         Overview

• It is the responsibility of the EA /IA and the project
  management team to ensure that there is proper record
  management and security of information for projects.
  The records management policies, systems and
  procedures should be defined in the project’s
  implementation manuals.

• In particular, the records management for financial and
  procurements records must be clearly documented in
  the respective Procurement and Finance Manuals of
  the project.
                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                       17
                        Project File

• A Project File is required to be maintained by the
  project management responsible for the project in a
  safe and secure location.

• This is a permanent file and the project manager is
  responsible for ensuring its continued currency,
  relevance and security.




                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                        18
                  Project File (cont’d)

A project file must contain:
• all information gathered during fact-finding, appraisal
  and supervision of a project.
• This material is required to provide staff and
  management with continuous access to regularly
  updated information related to a project, its background,
  and on the executing agency and various institutions of
  government whose decisions are likely to have an impact
  on its performance during implementation and
  subsequent operation of the project.

                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                        19
                  Project File (cont’d)

• A project file must contain:
• all key data including maps of the project area(s),
  organization structures of government, including the
  various agencies involved in the project; details of
  original and amended economic and financial policy
  decisions which would affect the project and the EAs; the
  assumptions and basic calculations used for financial
  analysis, for financial performance indicators and for
  design of financial covenants.


                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                       20
                  Project File (cont’d)

• A project file must contain:
• copies of all computing software applications used in
  compiling data, including basic programming data and
  macros for software such as MS Excel which may be used
  to develop project-specific programs and analyses.

• The back up files are to be stored in a location separate
  from the storage of the original files.



                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                         21
                  Project File (cont’d)

• A project file must contain:
For purposes of disbursement records and supporting
  documents, copies of contracts, suppliers’ invoices,
  statements of accounts, official receipts must be stored
  in fire-proof cabinets in a safe location.

These must be retained for at least two years from the
  completion of the last audit of the project by external
  auditors.


                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                            22
   Security and Safe Keeping of financial records

• In accordance with the Cambodian general practice,
  financial records are required to be kept at least 10
  years.
• All relevant documents such as contracts, financial
  reports, bank documents
• business registration and licenses must be kept in a safe
  place or fireproof cabinets.
• The Head of the EA is responsible for ensuring that all
  records pertaining to the Project upon its completion
  must be kept in a safe and secure place.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                        23
   Security and Safe Keeping of financial records
                      (cont’d)
Contracts and Agreements:
• Must be readily available in agency’s place of operation.
  Originals must be filed in fireproof cabinets.

Payment Vouchers and Supporting documents:
• Must be filed in a separate binder numerically by month
  and year.
• Payment Vouchers must be filed separately from Receipt
  Vouchers.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                        24
   Security and Safe Keeping of financial records
                      (cont’d)
• Vendor Invoices/Purchase Orders and other documents:

These documents should be attached to the payment
  vouchers and filed accordingly.

• Official Receipts and Bank Receipt Journals:

Must be filed in separate files in receipt number order by
 month and year.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                         25
   Security and Safe Keeping of financial records
                      (cont’d)
• Advance Requests:

Must be filed in the advances folder with separate sections
  for outstanding advances and acquitted (liquidated)
  advances.
• Bank Account Authorised Signatories:

Original signature documents must be held in fireproof
  safe, with control over access and copying.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                        26
   Security and Safe Keeping of financial records
                      (cont’d)
• Bank Statements and Reconciliations: Must be filed in
  date order with separate files for each bank account.
  Must be held securely in fireproof location.
• Financial Management Reports: Must be filed in date
  order.
• Annual Financial Statements and Audit Reports: Original
  signed statements and audit reports must be held
  securely in fireproof safe.



                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                      27
   Security and Safe Keeping of financial records
                      (cont’d)
• Bank Statements and Reconciliations: Must be filed in
  date order with separate files for each bank account.
  Must be held securely in fireproof location.
• Financial Management Reports: Must be filed in date
  order.
• Annual Financial Statements and Audit Reports: Original
  signed statements and audit reports must be held
  securely in fireproof safe.



                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                      28
                      Internal Audit

• Regrettably at the present time no decentralized or de-
  concentrated project has a functioning internal audit set
  up. It is therefore imperative that priority be accorded to
  setting up satisfactory internal auditing arrangements for
  all decentralized and de-concentrated projects in the
  Kingdom of Cambodia.
• The Audit Law, promulgated by Royal Decree No.
  CS/RKM/1300/10 (10 March 2000), requires all line
  Ministries responsible for implementing externally
  assisted projects to establish an independent internal
  audit unit. This unit must be adequately staffed with
  qualified and experienced staff.
                       ADB Grant No.0133-CAM/Component
                            1: PFMRD
                                                          29
                 Internal Audit (cont’d)

• As part of the financial management arrangements for
  the project, EAs/IAs should ensure that the organization’s
  Internal Audit Unit carries out regular reviews of the
  internal control processes, systems, and procedures of
  the project, and that the audit findings are reported to
  the Head of the EA/IA, the Project Management, and the
  MEF.
• The internal audit findings and reports must also be
  made available to the National Audit Authority (NAA),
  and external auditors of the project.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                        30
                 Internal Audit (cont’d)

The Internal Auditors should work closely with the Project
  Management Team/EAs/IAs, to support and ensure that
  project’s operations are carried out in accordance with
  the relevant agreements, and are transparent, fair,
  cost efficient, and effective

The Project Management Team/EAs/IAs should agree the
objectives, scope and frequency of audits with the Internal
  Auditors


                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                        31
                 Internal Audit (cont’d)

• The Internal Auditor must report to the highest level of
  the EA/IA Management.

• In the project context the Internal Auditor should report
  to the Head of the EA/IA and to the Project Director.
• With regards to internal audits, the Cambodian law on
  Audit requires that all Ministries dealing with externally
  assisted projects must have an internal audit unit.
  Internal audit is a key element of the organizational
  system of internal controls.

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                         32
                     Scope of Audit
 All central and provincial operations/activities of the
  project
• Funds (donor and counterparts funds) are being used in
  accordance with Loan/Credit/Grant Agreements and only
  for the purposes of the project.
• Goods and services are being procured in accordance
  with the relevant ADB/WB or other donors procurement
  guidelines and Government regulations.
• Review the adequacy and effectiveness of internal
  controls and make recommendations for improving
  systems and tools.
                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                       33
                  Scope of Audit (Cont’d)
 All central and provincial operations/activities of the
  project
• Carry out regular review and monitoring of financial
  management and procurement functions, to ensure
  compliance with the relevant policies, procedures and
  practices and appropriateness of system of the project.
• Verify payments for provincial and commune activities to
  ensure appropriateness of documents and transaction.
• Undertake random visits to assess the adherence of the
  established procedures at all levels, particularly provincial
  and commune level and to ensure physical existence of
  project assets and results.
                      ADB Grant No.0133-CAM/Component
                                                            34
                              1: PFMRD
                 Scope of Audit (Cont’d)
 All central and provincial operations/activities of the
  project
• Review eligibility and appropriateness of the project
  expenditures incurred at the provincial and commune
  levels as well as to provide basic technical services (as
  required) for the proper recording and maintenance of
  project accounts at that level.
• Randomly review procurement transactions to ensure
  procurement transactions have been procured in
  accordance with the applicable procedures, the deliveries
  of goods, works and services are in accordance with
  contract quantities and quality.
                        ADB Grant No.0133-CAM/Component
                            1: PFMRD
                                                        35
                 Scope of Audit (Cont’d)
 All central and provincial operations/activities of the
  project

• There is proper control and safeguarding of cash and
  portable assets.

• Compliance with the Financial Management Manual and
  its supplements, and also compliance with all the
  Regulations on Financial Management for Use with
  ADB/WB and other Donor Funded Projects.

                      ADB Grant No.0133-CAM/Component
                                  1: PFMRD
                                                            36
                 Scope of Audit (Cont’d)
 All central and provincial operations/activities of the
  project
• Review of the fixed assets procured, including verification
  through physical checks of inventoryand ascertain
  whether the vehicles and other equipment are
  appropriately identified as being funded under ADB/WB
  assistance, such as project logo on vehicles. Also, to
  ascertain whether such assets are being utilized in
  accordance with the relevant Loan/Credit/Grant
  Agreement.

                      ADB Grant No.0133-CAM/Component
                                  1: PFMRD
                                                          37
           External or Independent Audit
• These audits must be carried out by independent auditors, to
  an acceptable standard by auditors acceptable to the
  ADB/WB.
• With regards to standards, ADB/WB will normally only accept
  the International Standard of auditing (ISA) developed by the
  IFAC or the INTOSAI standards.
• WB/ADB always requires that the external auditors prepare a
  management letter and a copy of this must be submitted to
  the ADB/WB together with the Audited Financial Statements.
• The method of selection of External auditors are also covered
  in this section.
• Sample Terms of reference both for Audit of an EA and for
  Projects accounts only are provided in ADB/WB Guidelines .

                     ADB Grant No.0133-CAM/Component
                                 1: PFMRD
                                                              38
     External or Independents Audit (cont’d)

 An independent opinion formed on the financial
  statements
 An audit includes:
   Assessing whether accounting and internal
     control systems are adequate
   Determining whether adequate documentation
     has been maintained
   Confirming that expenditures submitted to
     ADB/WB are eligible for financing and
     identifying any ineligible expenditures
   Examining compliance with loan covenants and
     other ADB/WB project management
     requirementsADB Grant No.0133-CAM/Component
                             1: PFMRD
                                                 39
          Audit Selection and Appointment

 Although borrowers are responsible for auditor selection,
  appointment and performance …… auditors must be
  acceptable to ADB/WB

 ADB/WB will ask borrowers to remove unacceptable
  restrictions, or otherwise arrange for an acceptable audit
  to be carried out

    ADB/WB wishes to be informed by a borrower of an
    ongoing or proposed appointment of an auditor, who
    should meet required standards in terms of
    independence, experience and competence. More
    specifically, ADB/WB will indicate the acceptability of an
                        of a No.0133-CAM/Component
    auditor in the formADB Grant“no objection”
                              1: PFMRD
                                                                 40
                  Auditor Engagement

 Auditors should be :
   Impartial and independent
   Well-established and reputable
   Able to demonstrate experience in auditing similar
     entities or projects

 Audit work should be assigned to personnel who have
  suitable professional and technical training and proficiency

 ADB/WB requires that auditor appointments be made in a
  timely manner …
 … and prefers to review a list of auditors and indicate
  those who may not meet our criteria
                      ADB Grant No.0133-CAM/Component
                                  1: PFMRD
                                                            41
                   Acceptability of Auditors

 ADB/WB expects auditors to act independently …

 … but where this is just not possible, we expect auditors to
  distance themselves from decision making and
  management

 Auditors must be able to commence work at project start-up

 ADB/WB will accept government auditors for revenue-
  earning projects on the basis of a capacity review

 Borrowers should monitor auditor performance

 Auditor appointmentsGrant No.0133-CAM/Componentsuitable period
                   ADB
                       should be for a
                                 1: PFMRD
                                                                   42
          Auditor Terms of Reference (TOR)
 The TOR prepared for each audit must be acceptable to
  ADB/WB The TOR should not restrict auditor
  independence or limit their ability to meet other obligations

 A Management Letter is always required

 To clarify expectations, ADB/WB recommends that
  contracts or audit engagement letters be prepared

 ADB/WB requires government auditors to be independent,
  competent and to have suitable capacity consequently,
  ADB/WB may sometimes request audits to be conducted
  by private auditors

                      ADB Grant No.0133-CAM/Component
                                  1: PFMRD
                                                             43
                     Audit Reports
Contents of Auditor‟s Report (ISA 700) :
 Title
 Addressee
 Introductory paragraph: identification of the financial
  statements audited / statement of management and
  auditor responsibilities
 Scope paragraph: Nature of an audit / Reference to
  auditing standards / Description of work performed
 Opinion paragraph containing expression of opinion on the
  financial statements
 Also, Date of Report / Auditor‟s address / Auditor‟s
  signature


                    ADB Grant No.0133-CAM/Component
                                1: PFMRD
                                                        44
                        Audit Reports

           Unmodified                 Modified



                                No effect       Effect on
                               on opinion        opinion

                           Emphasis of matter

                                    Limitation on Disagreement
                                       scope

Slide 45
                Basic Unqualified Report
                                                                   Title
                                                                       Addressee
              INDEPENDENT AUDITOR'S REPORT
              (APPROPRIATE ADDRESSEE)
              Report on the Financial Statements
              We have audited the accompanying financial statements
              of ABC Company, which comprise the balance sheet as
              at December 31, 20X1, and the income statement,
              statement of changes in equity and cash flow statement
              for the year then ended, and a summary of the significant
              accounting policies and other explanatory notes.


Introductory                                                    Financial
paragraph                                                       statements
                                                                audited


   Slide 46
            Basic Unqualified Report (cont’d)
                                                   Equivalent obtained is sufficient
                 We believe that the audit evidence we haveterms
                 and appropriate to provide a basis for our audit opinion.
                 In our opinion, the financial statements give a true and fair view of
paragraph




                 ("or present fairly, in all material respects,") the financial position of
 Opinion




                 ABC Company as of December 31, 20X1, and of its financial
                 performance and cash flows for the year then ended in accordance
                 with International Financial Reporting Standards.

                 Report on Other Legal and Regulatory Requirements
                 [Form and content of this section of the auditor's report will vary
                 depending on the nature of the auditor's other reporting
                 responsibilities.]
                 AUDITOR
                 Date:                        Auditor‟s
                 Address:                     signature

      Slide 47
            Modified Auditors’ Reports
           Matters that        Matters that
           do not affect       do affect the
           the auditor’s        auditor’s
             opinion             opinion

 Emphasis of matter          Qualified opinion
                             Disclaimer of opinion
                             Adverse opinion



Slide 48
  Matters that do affect the opinion

                     MATERIAL       PERVASIVE


      Limitation     Qualified
                     „Except for‟   Disclaimer
      on scope

                     Qualified
      Disagreement                  Adverse
                     „Except for‟




Slide 49
           Reports to management
  •Primary purpose
     – to inform management of weaknesses in systems
  •Must state
     – only covers weaknesses that have come to
     auditor’s attention during audit – other weaknesses
     may exist
     – only for use by management




Slide 50
       Presenting control weaknesses
Present system ( Weakness)
During the course of our work we discovered that it was the
practice of the stores to order certain goods form X Co orally
without preparing either a purchase requisition or purchase
order.
Implication
There is therefore the possibility of liabilities being set up for
unauthorised items and at a non-competitive price.
Recommendation
We recommend that the buying department should be
responsible for such orders and, if they are placed orally, an official
order should be raised as confirmation.

Slide 51
           Example of Audit report




Slide 52
           Example of Audit report




Slide 53

				
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