2014 © her majesty the queen in right of canada, foreign affairs, trade and development canada...

2014

© Her Majesty the Queen in Right of Canada, Foreign Affairs, Trade and Development Canada

DON’T FRET!

MANAGING FIDUCIARY RISK

AT DFATD

EDRMS 7340883

by Luc BélangerDirector, Financial

Management of G&C

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AGENDA

What is FRET? What is Fiduciary Risk? Why a risk assessment? What is Fiduciary Risk Management at DFATD? Who does what? Where does it fit in the assessement of a proposal? How does this affect me? What is the difference between a Grant or a

Contribution? Questions/comments

FRET? Fid. Risk? Why? At DFATD? Who? Where? How? Grant/Contribution? Questions?

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The FRET is short for Fiduciary Risk Evaluation Tool

The tool is designed to assess the fiduciary risk of the recipient as well as the project

4 risk levels: Low, Medium-Low, Medium-High and High

What is FRET?


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1. Funds are not used for their intended purposes.

2. Funds are not properly accounted for.

3. Goods and services delivered are not commensurate to the funds transferred.

Fiduciary risk accounts for the possibility that …

Corruption, fraud, mismanagement.

Bad bookkeeping, poor financial tracking.

Poor value for taxpayer’s money.

WHAT IS FIDUCIARY RISK?


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KEY POLICY DRIVERS Independent Blue Ribbon Panel on Grant and Contribution

Programs (2006):o Simplify the administration of federal grants and

contributionso Improve accountabilityo Reverse the culture of risk-aversiono Reduce red tape and adapt administrative requirements to

the level of risk

Moving government funding away from a one-size-fits-all, risk-averse approach

WHY : CONTEXT


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TB Policy on Transfer Payments (2008)o Requires all grants and contributions (G&Cs) to be

managed using a risk-based approach:

• To reduce administrative burden on recipients where the recipient and project risk is low;

• To balance control with flexibility; and• To have a systematic approach within and across programs and

departments.

TB Policy on Financial Management Governance (2009)o Requires a sound financial management governance

structure

WHY : CONTEXT(continued)


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Policy on Fiduciary Risk (currently for Development Portfolio only)o DFATD has defined roles and responsibilities for all funding

modalities and put in place the necessary tools to manage its initiatives by using a risk-based approach

Aid Effectivenesso Efforts are underway to develop common tools and

methodologies between donors



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• Independent Blue Ribbon Panel on Grant and Contribution Programs

2006



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An internal due diligence process in which Programs:

Identify and assess fiduciary risk

Respond to the risk

Use risk-based management approach in project management

Monitor risk and respond as required

WHAT IS FIDUCIARY RISK MANAGEMENT AT DFATD?


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DFATD’s Risk Management Tool which:

Produces a consistent and systematic assessment of fiduciary risk to improve the quality of risk management across DFATD programs

Allows for flexibility to include considerations that are unique and contextual

Provides an evidence base for all risk assessments

Documents and tracks risk responses overtime

Helps determine appropriate financial instrument, based on sound risk analysis

FIDUCIARY RISK EVALUATION TOOL (FRET)


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FRET - CR FRET - IO FRET - PO

Country Recipients International Orgs,Other donors,

Multi-donor Trust Funds

Partner Organizations (Canadian & Non-

Canadian)

Three versions, with a common risk factor structure with evaluation criteria tailored to type of recipient

THREE TYPES OF FRET


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Consistent and systematic assessment of fiduciary risk across all DFATD Development Gs and Cs $100,000 and above

Where possible uses international benchmarks, indicators & data sets (e.g. OECD, World Bank, IMF, PEFA, MOPAN)

FRET Structure of Risk AssessmentRecipient Risk Profile

Risk 1: Recipient Governance and StabilityRisk 2: Results Performance HistoryRisk 3: Recipient Financial Viability and StabilityRisk 4: Corruption & Fraud Control

Initiative/ Project Risk

Risk 5: Capacity of Local Responsibility CentresRisk 6: Recipient Procurement CapabilityRisk 7: Complexity Risk 8: Materiality

Overall Project Fiduciary Risk Level

HOW DOES FRET FUNCTION?


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EXAMPLE OF FRET FOR PARTNER ORGANIZATION


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RESPONSIBILITIES ROLESProgram Officer/ Manager • Manage risks (risk assessment, monitoring, mitigation and

reporting) Sector/ Thematic Specialists • Provide technical advice on relevant risk factorsFinancial Management Advisor (FMAs ) and Contracts Officers

FMAs and Contract Officers:• Provide technical advice and help review the FRETs• Ensure that fiduciary risks are appropriately taken into

consideration and that risk response measures are actions aiming at reducing or monitoring risks

• Complete CFOB Initiative Assessment regarding Fiduciary Risk

Contract Officers:• Review RBAM (both the administrative requirements and

the FRET’s risk response measures) with Development Officers

• Ensure risk response measures that prevail over administrative requirements are respected

• Draft and finalize agreements based on the RBAM

WHO : ROLES AND RESPONSIBILITIES


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Financial Risk Assessment Unit (FRAU)

• Perform FRET Quality Control, ensuring FRETs are completed properly

• Ensure that recipient financial risks are appropriately taken into consideration

• Complete FRET Financial Section (Risk Factor 3) for Partner Organizations and International Organization Recipients

• Administer FRET Database, ensuring risk information is properly shared

• Prepare the RBAM template

Fiduciary Risk Practices Development Unit (FRPD)

• FRET and RBAM maintenance • Coaching and Training Support • Fiduciary Risk Corporate Annual Reporting• Liaison with OGDs and other donors on fiduciary risk

management practices

Financial Compliance Unit (FCU) • Establish compliance audit plans based on risk• Coordinate, review, follow up on compliance audits• Plan, review and follow up on Financial Capacity Building

Activity (former Initial Visits)

WHO : ROLES AND RESPONSIBILITIES(continued)


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Complete FRET and initiate RBAM

AUTHORIZED PROGRAMMING PROCESS (APP)

The FRET is required for all grantsand contributions $100,000 and higher (excluding contracts)


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How does this affect me?


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Low risk Reduction in administrative burden

• Cash management Less restrictive• Reporting Fewer reports• Audit Save it for riskier initiatives• Monitoring Lower level of effort

• Approved in April 2012• Revised and automated in April 2015• Applies to all Gs & Cs (Development) $100,000 and over• Performed before final approval

RISK-BASED ADMINISTRATION MATRIX (RBAM)


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FRET: Level of Overall Residual Fiduciary Risk

FRET Assessment

Low - 1 Medium Low - 2 Medium High - 3 High - 4

Financial instrument

Grant or Contribution

Grant or Contribution Contribution Contribution

Advances One annual payment

Semi-annual payments Quarterly payments No advances or monthly advances

Financial Reporting

Grants: N/A Contribution: Annual project financial report

Grants: N/A Contribution: Semi-annual project financial report

Quarterly financial project reports and accounting for advances

Monthly financial project reports / monthly substantiation of expenses incurred

Narrative Reporting

Grant: One annual report Contribution: One annual Report

Grant: Semi-annual report Contribution: Semi-annual report

Quarterly reports Monthly reports

RISK-BASED ADMINISTRATION MATRIX (RBAM)


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GRANT• Must be used for the intended purpose• Do not require annual work plan• Are not subject to being accounted for

and not normally subject to audit• DFATD can suggest the reallocation for

the residual amount• Payments are unconditional• Require sufficient grant ceiling

CONTRIBUTION• When deemed necessary to:

Closely monitor progress and results

Receive an accounting of the use of funds, and

Have the right to carry out a recipient audit.• Residual amount and

disallowed expenditures must be repaid• Control over types of expenditures• Payments used for the intended purposes

WHAT IS THE DIFFERENCE BETWEEN A GRANT AND A CONTRIBUTION?


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Luc Bélanger

Director, Financial Management of Grants & Contributions

Alla Mozol Laporte

Manager, Fiduciary Risk and Practices Development

Lynn Hogan

Manager, Financial Risk Assessment

QUESTIONS / COMMENTS?


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Thank You

2014 © her majesty the queen in right of canada, foreign affairs, trade and development canada...

Documents

project risk

fiduciary risk management

culture of risk

level of risk

risk levels

risk assessment

fret riskbased management

fiduciary risk accounts