Shanxi Inclusive Agricultural Value Chain Development Project (RRP PRC 48358)

FINANCIAL MANAGEMENT ASSESSMENT

A. Executive Summary

1. The financial management assessment (FMA) was conducted in accordance with theAsian Development Bank’s (ADB) Guidelines.1 The FMA considered the financial management capacity of the Shanxi Provincial Government (SPG), the executing agency (EA); the 17 project county governments, the implementing agencies (IAs); and the 19 project agribusiness companies and cooperative (PACs), the project implementation units (PIUs). The assessment covered funds flow arrangements, staffing, accounting and financial reporting systems, internal and external auditing arrangements, and financial information systems.

2. The Shanxi Provincial Finance Department (PFD), particularly its international division, asthe project imprest account holder, has sufficient financial management experience for donor-funded projects, including ADB project loans. The PFD has disbursed over $1 billion of the ADB loans involving the sectors of transport, agriculture, power, and environment to date. The FMA identified the main financial management risks at the level of the implementing agencies and PIUs.

3. The FMA identified the main financial management risks as follows: (i) implementationrisk—the IAs’ and the PIUs’ lack of familiarity with ADB’s disbursement procedures and requirements which could delay project implementation; (ii) compliance risk—the IAs’ and the PIUs’ lack of familiarity with ADB’s financial management requirements, particularly on accounting, reporting, and auditing which may delay project reporting and derail identification of issues on the use of loan proceeds; (iii) foreign exchange risk—the IAs’ lack of experience in managing foreign exchange that might increase the financial burden to the potential depreciation of Chinese yuan. The overall financial management risk rating of the project before considering mitigating measures is moderate.

4. The identified financial management risks will be closely monitored during projectimplementation. The financial management action plan is as follows:

Table 1: Proposed Action Plan for Financial Management Action Agency Timing

Recruitment of experienced consultant EA Upon the loan effectiveness

Development of financial management manual(s) EA, consultant 2 months after the loan effectiveness

Training on ADB’s financial management requirements, including accounting and auditing, loan disbursement, and foreign exchange risk management to the IAs and the PIUs

ADB, EA, consultant

3 month after the loan effectiveness

ADB = Asian Development Bank, EA = executing agency, IA = implementing agency, PIU = project implementation unit. Source: Asian Development Bank.

5. The EA and the IAs will enhance their coordination and capabilities by (i) setting clearinstitutional arrangements; (ii) recruiting a financial management consultant; (iii) undertaking training on ADB’s disbursement and financial management requirements for all financial management staff; (iv) developing uniform financial management handbook(s) for the budgeting, accounting, internal controls, reporting, and auditing arrangements in line with project activities; (v) streamlining of approval processes of the use of the loan proceeds; and (vi) close monitoring of loan covenants and compliance status during project implementation. With these appropriate mitigation measures, the project financial management arrangements are considered satisfactory.

1 ADB. 2005. Financial Management and Analysis of Projects. Manila; ADB. 2009. Financial Due Diligence: A Methodology Note. Manila; and ADB. 2015. Financial Management Technical Guidance Note: Financial Management Assessment. Manila.

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B. Methodology Being Used for the Assessment

6. The FMA was conducted in accordance with ADB’s Guidelines on the Financial Management and Analysis of Projects 2 and the Financial Management Due Diligence: Methodology Note.3 The FMA questionnaire (FMAQ) was used as a tool to collect necessary information for the FMA from the EA, the IAs, and the PIUs. The responses to the FMAQs were reviewed; and the financial staff of the EA, the IAs, and the PIUs were interviewed to ensure that the FMAQs had been correctly understood and responded. The conclusions of the FMA were drawn based on the corrected responses to the FMAQs. C. Financial Risk Assessment

Table 2: Financial Management and Internal Control Risk Assessment

Risk Type Risk

Assessment Risk Description Mitigation Measures

Inherent Risk Assessment

Country specific risk

M The lack of capacity at municipal and county level may both hamper effective financial control and constrain the shift of focus from controlling inputs to managing results.

Reinforce currently ongoing support in assessing and strengthening the public financial management capacity at subprovincial level through skills training, knowledge sharing, and organizational reviews

Entity specific risk M Financial management and internal control in place, but there may be a delay in withdrawal application for the ADB loan.

The EA to provide assurance that necessary control will be in place and ensure proper coordination mechanism to enhance processing of ADB’s disbursement

Control Risk Assessment

Implementing Agency

M Some IAs do not have experience with the ADB loan and management of foreign currency risks.

The EA will develop a set of financial management regulations specifically for the project before the effectiveness of the project.

Training and assistance from the EA will be provided to mitigate the foreign currency risk.

Funds Flow L The IAs’ and the PIUs’ lack of familiarity with ADB’s disbursement requirements and procedures

Training will be conducted before loan effectiveness to ensure that the IA and the PIU staff acquire the required knowledge.

Staffing L Staff are in place and are adequately qualified; but most of them, except staff from the EA and a few IAs, have previous experience in financial management and are familiar with ADB’s guidelines and policies.

Training provided by ADB and the project management consultant team support in capacity building and development, especially in procurement, disbursement, and project monitoring and reporting requirements.

Accounting and Reporting

L None An accounting policy and procedures manual for the PIUs will be drafted, covering the national accounting standards and the requirements of ADB.

Internal Audit L None Develop the financial management manual

2 ADB. 2005. Financial Management and Analysis of Projects. Manila. 3 ADB. 2009. Financial Due Diligence: A Methodology Note. Manila.

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Risk Type Risk

Assessment Risk Description Mitigation Measures

External Audit L The IAs are audited by the Provincial Audit Offices every year.

Consolidated financial statements will be audited by the Shanxi Provincial Audit Office, which has rich experiences with the ADB projects.

Reporting and monitoring

L Financial reports are prepared using cash-based accounting systems.

Prepare financial reports in accordance with accrual-based accounting system established by the requirements of ADB and the Ministry of Finance. Training will be provided for the accrual-based accounting system.

Information Systems

L Financial reports are generated by the computer system. Imprest account will be generated manually.

The EA and the IAs will use stand-alone computerized accounting system. Control mechanism will be provided on imprest account reconciliation.

Overall Risk M

ADB = Asian Development Bank, EA = executing agency, H = high, IA = implementing agency, L = low, M = moderate, PIU = project implementation unit, S = substantial. Source: Asian Development Bank.

D. Summary of Strengths and Weaknesses identified and their related risk mitigations

7. Overall, the organization structure, experience, and number of qualified accountants of the EA and the IAs are appropriate for the project management. The accounting policies and procedures, budgeting, and audit arrangements applied to the project by the EA, the IAs, and the PIUs are in place. The project can rely on the prevailing structure and system for its fiduciary arrangements in required quality with necessary mitigation actions taken to address identified weaknesses. 8. Although SPG and its agencies has implemented and is currently implementing a number of foreign-funded projects, some of the IAs and all PIUs do not have experience in managing foreign-funded projects. Currently SPG, the Shanxi Provincial Finance Department (PFD), and the Shanxi Poverty Alleviation and Development Office (SPADO) have limited staff to financially manage the project given the significant number of the IAs and the PIUs. It was suggested to hire a qualified external financial management consultant to assist and support the EA, the IAs, and the PIUs to provide the necessary financial management capacity, especially on disbursement, project monitoring, and reporting requirements. There are existing accounting policies and procedures, and the financial management system and controls are in place in the EA and the IAs. However, the IA and the PIU staff need proper guidance on ADB’s requirements; thus, it is recommended that the EA will develop a financial management manual based on the requirements of ADB and the Ministry of Finance (MOF) on project accounting and financial reporting, including appropriate internal control and coordination mechanism.

E. Country and Sector Financial Management Issues

9. The country partnership strategy (CPS) for the People’s Republic of China (PRC), 2016–20204 included a governance risk assessment. The assessment concluded that the PRC has strong financial management legislation, structures, and systems in place, which have been further reinforced in recent years and aligned with international standards. Major risks remain only

4 ADB. 2016. Transforming Partnership: People’s Republic of China and Asian Development Bank, 2016–2020.

Manila.

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where subprovincial levels are lagging behind in the implementation of reforms in core functional areas of financial management, i.e., accounting and reporting, accrual accounting and risk-based control, and internal audit. The lack of capacity at subprovincial level may both hamper effective financial control and constrain the shift of focus from controlling inputs to managing results. 10. The centralized payment processing system and the standardized budgetary system are examples of major improvements in expenditure management. Important initiatives already implemented include the strengthening of information management systems, the adoption of medium-term expenditure frameworks, performance budgeting, and the tightening of cash management through the development of the treasury single account system.

11. The CPS assessment required that ADB should reinforce ongoing support in assessing and strengthening public financial management capacity at subprovincial levels, e.g., through promoting skills training (accounting and reporting), knowledge sharing (accrual accounting and risk-based internal control), and organizational reviews (internal audit). ADB should provide technical assistance and support training activities to finance staff in local authorities and project officers and extend support in strengthening the use, quantity, and quality of financial management through policy advice and technical assistance. F. Assessment of Executing Agency

1. Summary of Findings

12. Following the project implementing arrangements, the PFD will be responsible for financial management of the project, particularly ADB’s loan disbursement. The FMA of the EA was therefore conducted on the PFD. Based on the responses to the FMAQ given by the PFD and interview with its officials, it is concluded that the PFD satisfies ADB’s financial management requirements. The only weakness is that PFD does not have sufficient finance staff, comparing to the big number of the IAs and the PIUs to be involved in the project. A financial consultant is needed during the implementation of the project to help PFD provide training to and supervision on the IAs and the PIUs. More detailed assessments were given in the following sections:

2. Institutional Set-up

13. The PFD is one of agencies of SPG. Following the management system in the PRC, one of the PFD’s responsibilities is the overall management of international financial institution loans and grants. The PFD has various experiences in the managing the ADB and the World Bank loans. To date, the PFD has disbursed about US$1,015 million of the ADB loans involving the sectors of transport, agriculture, power, and environment; and US$1,237 million of the World Bank loans involving the sectors of education, health, environment, irrigation, transport, forestry, and power. 14. Specifically, the International Division of the PFD is responsible for the management of the ADB and the World Bank loans; while the Treasury Division of the PFD is responsible for the bank account management and accounting. There is proper segregation of duties and internal control between these two divisions.

3. Funds Flow

15. The subprojects under the project will be jointly financed by the ADB loan and equity from the PACs. Most of the ADB loan will be disbursed from the imprest account managed by the PFD, following ADB’s disbursement requirements. The ADB loan of the project will be disbursed

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through the imprest account either directly to the project counties for those under the direct management of the PFD, or indirectly to the project counties via the municipal finance bureaus (MFBs) for those under the direct management of the municipal governments. Figure 1 shows the fund flow diagram of the project.

4. Staffing

16. The officials of the International Division of the PFD have experience in managing the ADB loans, including operating the imprest account; withdrawing loans from ADB; and reviewing application for the ADB loans submitted by the IAs and the PIUs. The officials of the Treasury Division of the PFD have professional background and are competent to the management of bank account and accounting for several years. However, comparing to the big number of the PIUs to be involved in the project, the PFD does not have sufficient finance staff to provide training to and supervision on the PIUs for project financial management. A financial consultant is needed to be employed during the implementation of the project to assist in training the financial management staff in the IAs and the PIUs.

5. Accounting Policies and Procedures

17. The PFD applies the accounting policies and procedures for government fiscal revenues and expenditures issued by the MOF in 2015. This accounting system will be used to comply with ADB’s requirements on imprest account. To fully reflect its rights and liabilities, the PFD also applies the Accounting System for Onlending International Financial Institutes Loans issued by the MOF in 1999.

6. Internal Audit

18. The PFD has the Supervision and Inspection Division. One of its responsibilities is internal auditing. This division reviews the financial records made by the International Division once a year. To date, accountability issues have not been identified.

7. External Audit

19. External auditing of the project will be conducted by the Shanxi Provincial Audit Office (SPAO). Among others, the imprest accounts of the ADB loans were audited; and the findings were reflected in relevant project audit reports. To date, accountability issues have not been identified by the audit reports.

8. Reporting and Monitoring

20. Although the PFD prepares the financial statements of fiscal revenues and expenditures every 10 days; and only the annual statements are audited, the imprest account statements of the ADB-financed projects are only prepared and audited annually, which is part of project financial report and submitted to ADB on time.

9. Information Systems

21. Computerized accounting system is used by the PFD. All financial statements are generated by the system. However, the imprest account statements are prepared manually. G. Assessment of Implementing Agencies

1. Summary Findings

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22. The IAs are governments of 17 project counties in 6 municipalities. These IAs are classified into two groups: (i) counties under the direct management of the PFD, and (ii) counties under the management of their respective MFBs. These IAs are listed in Table 2.

Table 2: List of Implementing Agencies

Municipality County under the Direct Management of

the Shanxi Provincial Finance Department County under the Management of the Municipal

Government

I Changzhi 1 Qin County Government

II Datong 2 Guangling County Government 3 Datong County Government

III Jinzhong 4 Taigu County Government 5 Heshun County Government

IV Linfeng 6 Fenxi County Government 7 Fushan County Government 8 Quwo County Government

9 Xiangning County Government 10 Yaodu District Government

V Lvliang 11 Liulin County Government 12 Shilou County Government

VI Yuncheng 13 Ruicheng County Government 14 Yanhu District Government 15 Xinjiang County Government 16 Yuanqu County Government 17 Jishan County Government

23. Following the project implementing arrangements, the county finance bureaus (CFBs), the county agricultural commissions, and the county poverty alleviation and development offices will be involved in the project implementation. Only the CFBs have the responsibility for project financial management. Therefore, the FMAs of the IAs were conducted on the CFBs. Based on their responses to the FMAQs and interview with their officials, it is concluded that the CFBs satisfy ADB’s financial management requirements.

2. Institutional Set-Up

24. The institutional set-ups for project financial management vary from the IA to the IA.

(i) Except the IAs in Linfen and Yuncheng municipalities, the CFBs play the role of financial management. Each CFB has two sections involved in the project financial management. One is the agricultural finance section, the other is the treasury section. The first one focuses on the overall project financial management, while the second one manages the bank account which will be opened for receiving the ADB loan from the PFD.

(ii) In the IAs in Linfen and Yuncheng municipalities, separate financial management bureaus have been set up by an ADB-financed project—the Shanxi Integrated Agricultural Development Project, which was just closed in 2016.5 In the IAs in the Linfen Municipality, these bureaus are the management bureaus for international funds; while in the IAs in the Yuncheng Municipality, these bureaus are the management bureaus for international financial institution loans. These bureaus play the role of project financial management which is the role played by the CFBs in other IAs. However, some of the bank accounts are managed by the CFBs; and some are managed by these separate financial management bureaus.

3. Fund Flow

5 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Administration of Grants to the People’s Republic of China for the Shanxi Integrated Agricultural Development Project. Manila.

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25. The subprojects under the project will be jointly financed by the ADB loan and equity of the PACs. Most of the ADB loan will be disbursed from the imprest account managed by the PFD, following ADB’s disbursement requirements. The ADB loan of the project will be disbursed through the imprest account either directly to project counties for those under the direct management of the PFD, or indirectly to project counties via the MFBs for those under the direct management of the municipal governments. Figure 1 above shows the fund flow diagram of the project.

4. Staffing

26. All IAs’ CFBs, the management bureaus for international financial institution loan, and the management bureaus for international funds are equipped with qualified finance staff. These staff received professional education in the field of accounting. They also work for those bureaus for several years. They are familiar with the regulations of internal control. Some of them have the experience in managing the ADB project through the implementation of the Shanxi Integrated Agricultural Development Project (footnote 5). Some of them experienced the World Bank loan disbursement. Some do not have any experience in the ADB or the World Bank loan disbursement. However, since the CFBs, the management bureaus for international financial institution loan, and the management bureaus for international funds of the IAs are only domestic part of the procedure of ADB’s loan disbursement; and the PFD will provide guidelines and training for them on ADB’s loan disbursement, their lack of experience of ADB’s loan disbursement will not have significant negative impact on the project.

5. Accounting Policies and Procedures

27. The ADB loan received and appropriated by the CFBs, the management bureaus for international financial institution loan, and the management bureaus for international funds of the IAs will be recorded by the CFBs, following the accounting policies and procedures for government fiscal revenues and expenditures issued by the MOF in 2015. These accounting policies and procedures are also used to record and report the receipts and payments of fiscal revenues and expenditures.

6. Internal Audit

28. Every CFB has a Supervision and Inspection Unit. One of their responsibilities is internal auditing. These units review the financial records made for fiscal revenues and expenditures once a year. To date, accountability issues have not been identified.

7. External Audit

29. External auditing received by the CFBs of the IAs will be conducted by the SPAO, mainly for fiscal revenues and expenditures. The ADB loan through the CFBs of the IAs is not audit focus. To date, accountability issues have not been identified by the audit reports.

8. Reporting and Monitoring

30. Although the CFBs of the IAs prepare the financial statements of fiscal revenues and expenditures every 10 days; and only the annual statements are audited, neither specific financial reports will be prepared for the ADB loan received and appropriated; nor the audit on the accounts of the ADB loan. The imprest account statements of the ADB-financed projects are only prepared and audited annually, which is part of project financial report and submitted to ADB on time.

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9. Information System

31. Computerized accounting system is used by the CFBs. All financial statements are generated by the system. The staff got enough training to ensure the integrity and availability of the accounting information. H. Assessment of the Project Implementation Units

1. Summary Findings

32. There are 19 PIUs involved in the project preparation and implementation. The PIUs will be responsible for the routine works of project implementation, including procurement, contract management, financial management, accounting, and reporting, etc. Therefore, the FMAQs were sent to all PIUs. Some of PIUs gave their responses to the FMAQs before the project preparatory TA (PPTA) consultant visited the PIUs. Some did not give their responses to the FMAQs. The PPTA consultant conducted his due diligence. During the due diligence, the responses to the FMAQs were discussed and updated for those who had sent their responses. For those who did not respond to the FMAQs, the consultant discussed the company’s financial management and filled up the FMAQs during its due diligence. The review of the responses to the FMAQs shows that it is the first time for all PIUs to use the ADB loan, and they do not have experience in using the World Bank loans. None of the PIUs have experience in implementing foreign-funded projects. Particularly, none of them are familiar with ADB’s procurement and disbursement procedures. Procurement and financial management consultants hired by the EA will help the PIUs to implement the project following ADB’s procedures.

2. Institutional Set-up

33. Nineteen PIUs are private commercial companies established in accordance with the PRC Company Law, and one PIU is a cooperative established under the PRC Law on Specialized Farmers’ Cooperatives. The following table lists all the PIUs, including their names, location, and year of establishment.

Table 3: List of the Project Implementation Units

S/N

Location

Enterprise

Year Establishment Municipality County

1 Changzhi Qinxian Shanxi Qinzhouhuang Millet Group Co., Ltd. 1982

2 Datong

Guangling Guangling Kitano Edible Fungus Industrial Development Co., Ltd.

2004

3 Datong Shanxi Phoenix Wine Industry Co., Ltd. 2012

4

Jinzhong

Taigu Shanxi Juxin Weiye Agricultural and Sci & Tech Development Co., Ltd.

2010

5 Heshun Heshun Lvhe Ecological Agriculture & Livestock Development Co. Ltd.

2011

6

Linfen

Fenxi Fenxi Hongchang Breeding Co., Ltd. 2009

7 Fushan Fushan Guhuan Husbandry Sci. & Tech. Co., Ltd. 2013

8 Quwo Quwo Lvheng Agricultural Development Co., Ltd. 2013

9 Xiangning Shanxi Qierkang Elaeagnus Biological Products Co. 2000

10 Yaodu Dist. Linfen Zhongde Farming Technology Development Co., Ltd.

2008

11 Lvliang

Liulin Liulin Fuzhongyuan Livestock Breeding Cooperative 2012

12 Shilou Shilou Shude Jujube industry Co., Ltd. 2002

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Yuncheng

Ruicheng Shanxi Tianzhirun Date Processing Co., Ltd. 2010

14 Xinjiang

Xinjiang Hefeng Grain Planting Technology Cooperatives 2013

15 Shanxi Xinjiang Vegetable Industry Development Co., Ltd. 1992

16 Yanhu Shanxi Kaisheng Fertilizers Group Co., Ltd. 1998

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S/N

Location

Enterprise

Year Establishment Municipality County

17 Yuncheng Xinke Taifang Vegetable Trading Co., Ltd. 2013

18 Yuanqu Shanxi Shanlihong Food Co., Ltd. 2000

19 Jishan Shanxi Jinglong Group Jinghua Livestock and Poultry Products Development Co., Ltd.

2005

3. Fund Flow

34. The PACs will sign the contracts and make payments to contractors of civil works and suppliers of equipment, materials, and so on following the payment clauses of the contracts. After payments to the contractors, the PACs will request for the ADB loan following the domestic procedures and requirements stipulated by PFD, together with supporting documents such as copies of contracts, invoices, and certificates. These requests and supporting documents will be reviewed and endorsed by the agencies of the IAs, such as the county agricultural commissions, the county poverty alleviation and development offices, the management bureaus for international funds, or the management bureaus for international financial institution loans. Then further review will be made by the CFBs of the IAs. Next review will be made by the agencies of the municipal governments, and the last reviewers are the SPADO and the PFD. When the requests for the ADB loan are reviewed and endorsed by the IAs and the EA, the ADB loan of the project will be appropriated from the imprest account, managed by the PFD either directly for those provincial directly-governed counties, or via the MFBs for those not provincial directly-governed counties, to the CFBs which represent the IAs. Figure 1 above shows the fund flow diagram of the project. A specific handbook for the ADB loan disbursement will be prepared by the PFD, and trainings will be provided as well.

4. Staffing

35. Each PIU has at least two finance staff, an accountant, and a cashier. Due to the small size of the PIUs, their finance staff directly report to the managers of the PIUs. The finance staff has been well educated and receive regular trainings in accounting. They are qualified in fulfilling the PIUs’ jobs on financial reports, payments, and budgets. 36. These finance staff will be involved in the financial management of the project. Unfamiliarity with ADB’s requirements will reduce the quality of project financial management. Trainings and assistance given by consultants can help the finance staff strengthen their capacities.

5. Accounting Policies and Procedures

37. The accounting policies and procedures, such as key accounting elements, accounting subjects and numbering, the format of financial statements, and the notes to the financial statements, adopted by the PIUs follow the requirements by the Accounting Standards for Enterprises stipulated by the MOF. The finance staff of the PIUs is knowledgeable and generally understand how to apply them to practice. 38. However, to strengthen the financial management of projects financed by international financial institutions, the MOF has also promulgated the accounting methods for these projects, including specific chart of accounts for projects, which are different from what applied to the routine business of the PIUs. Following these methods, a detailed accounting methods specifically designed for the project will be prepared by the PFD. Trainings, periodic reviews, and assistance given by consultants will help the finance staff of the PIUs use the accounting methods properly.

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6. Segregation of Duties

39. The functional responsibilities of the PIUs, such as approval, ordering, paying for, recording of a transaction, are performed by different persons. This practice will be also applied to the project. A handbook for project financial management will be prepared by the PFD.

7. Budgeting System

40. The PIUs prepare their simple budgets, and they are supervised by the managers. The actual expenditures and budgets are compared periodically. If significant variation occurs, explanation will be requested. This practice will be also applied to the project.

8. Cash and Bank

41. All PIUs have effective cash management system. The manager of each PIU is the authorized signature. All receipts are kept well from the beginning. The cash and bank statements are reconciled every month. This practice will be also applied to the proposed project.

9. Internal and External Audit

42. Internal audits are not carried out by all PIUs, taking into account the small size and simple business scope of the PIUs. All PIUs have external audits for their financial statements. All auditors gave their unqualified opinions to the financial statements. 43. The project accounts retained by the PIUs will be audited by the SPAO, following the PRC Audit Law. The SPAO has extensive experience in auditing the ADB-financed projects implemented in Shanxi Province. The audited financial statements together with audit reports will be provided to ADB.

10. Reporting and Information System

44. The financial statements of most PIUs are prepared and presented following the Accounting System for Enterprises. These computerized accounting programs have good after-sale services. The PIUs do not have computerized information systems as their size is small and business scopes are simple. 45. The PFD will develop a specific computerized accounting program for the project following the detailed accounting methods mentioned in subsection E.5. 46. The Project Progress Monitoring System could be a useful information system about the progress of proposed project implementation. This will be done by the EA at the early stage of project implementation. I. Conditions and Covenants

47. Hiring a financial consultant by the EA should be one of the disbursement conditions for the ADB loan, and the uniform financial management handbook should be prepared and distributed to all finance staff by the EA can be one of the covenants for project financial management before 30 June 2018.

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Figure 1: Fund Flow Diagram

a Two county-level districts, namely Yanhu and Yaodu, will go through their municipal governments: Yuncheng and Linfen, respectively, since they are under the management of these municipal governments. Source: Asian Development Bank.

Prepare the WAs and submit to ADB

Prepare payment requests, and submit to the CPMOs and CFBs

Consolidate, if needed; and review payment requests, and submit to the PPMO and PFD

Lending to the PRC: Loan Agreement LIBOR-based lending rate with 20-year amortization period, including 5-year grace period

Onlending to SPG/PFD: Onlending Agreement LIBOR-based lending rate with 20-year amortization period, including 5-year grace period

An imprest account will be established and maintained by PFD

17 Project County Governments (County Finance Bureaus and CPMOs)a

Contractors, Consultants, Suppliers

19 Project Agribusiness Companies and Cooperative

(PACs)

Shanxi Provincinal Government (Shanxi Provincial Finance Department

and PPMO)

People’s Republic of China (Ministry of Finance)

Asian Development Bank (ADB)

Loan and onlending arrangements

Indicative funds flow

Repayment

Flow of WAs and payment requests

CFB = county finance bureau, LIBOR = London interbank offered rate, PAC = project agribusiness companies and cooperatives, PCG = project county government, PFD = Shanxi Provincial Finance Department, PMO = project management office, PRC = People’s Republic of China, SPG = Shanxi Provincial Government, WA = withdrawal application.

Onlending to PCGs/CFBs: Onlending Agreements LIBOR-based lending rate with 20-year amortization period, including 5-year grace period

Onlending to the PACs: Onlending Agreements Rates over the policy-lending rate with 5–8 years, including grace period of 2–3 years

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FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE EXECUTING AGENCY

TOPIC RESPONSE

1. Implementing Agency

1.1 What is the entity’s legal status / registration? The executing agency (EA) of the proposed project is the Shanxi Provincial Government. Among others, only two government departments involve in the project preparation and implementation. They are the Shanxi Provincial Finance Department (PFD) and the Shanxi Poverty Alleviation and Development Office (SPADO).

1.2 Has the entity implemented an externally-financed project in the past (if so, please provide details)?

The EA has implemented many externally-financed projects over past 30 years. Most of them are the projects financed by the Asian Development Bank (ADB) and the World Bank loans. To date, the EA has disbursed about US$1,015 million of the ADB loans involving the sectors of transport, agriculture, power, and environment; and US$1,237 million of the World Bank loans involving the sectors of education, health, environment, irrigation, transport, forestry, and power.

1.3 What are the statutory reporting requirements for the entity?

The EA reports to the Shanxi Provincial People’s Congresses. In addition, the PFD has to report to Ministry of Finance (MOF) and the SPADO has to report to the National Poverty Alleviation and Development Office.

1.4 Is the governing body for the project independent?

Yes, the EA is independent. The PFD and the SPADO are also independent from each other. But the internal divisions in charge of the preparation and implementation of the project are not independent.

1.5 Is the organizational structure appropriate for the needs of the project?

Yes, the organizational structure of the EA is appropriate for the need of the proposed project.

2. Funds Flow Arrangements

2.1 Describe (proposed) project funds flow arrangements, including a chart and explanation of the flow of funds from ADB, government and other financiers.

The ADB loan will flow to the project implementation units (PIUs) mainly from the imprest account and then paid to the providers of civil works, goods and services. The fund flow diagram shows the flow of the ADB loan and counterpart funds, excluding internal cash. The counterpart funds will be given by the PIUs mainly through company’s profits, equity injections, and local commercial bank loans, if necessary, and then paid to the providers of civil works, goods and services through those PIUs’ accounts.

2.2 Are the (proposed) arrangements to transfer the proceeds of the loan (from the government and/or the MOF) to the entity satisfactory?

Yes, they are the most proper arrangements under current circumstance, which can help the EA to monitor the use of the ADB loan.

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TOPIC RESPONSE

2.3 What have been the major problems in the past in receipt of funds by the entity?

Long approval process of withdrawal application for the ADB loan is the universal issue occurred in all ADB-financed projects in the People’s Republic of China (PRC).

2.4 In which bank will the Imprest Account be opened?

The imprest account will be opened in a commercial bank located in Taiyuan Municipality, Shanxi Province.

2.5 Does the (proposed) PIUs have experience in the management of disbursements from ADB?

No, none of the PIUs has experience in management of disbursements from ADB.

2.7 Does the entity have/need a capacity to manage foreign exchange risks?

No, The EA has the capacity to management foreign exchange risks. At least it has resources to hire experts to manage foreign exchange risks.

2.8 How are the counterpart funds accessed? Counterpart funds will be provided following the progress of project implementation.

2.9 How are payments made from the counterpart funds?

The counterpart funds will be paid in accordance with the contracts whatever they are entered with contractors of civil works, suppliers of equipment and materials, and providers of services.

2.10 If part of the project is implemented by communities or nongovernment organizations (NGOs), does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies?

No part of the proposed project will be implemented by communities or NGOs.

2.11 Are the beneficiaries required to contribute to project costs? If beneficiaries have an option to contribute in kind (in the form of labor), are proper guidelines formulated to record and value the labor contribution?

No individual beneficiaries exist.

3. Staffing

3.1 What is the (proposed) organizational structure of the accounting department? Attach an organization chart.

The EA has the responsibility to oversee the use of the ADB loan. The PFD controls all bank accounts opened for public finance, including the imrest account. The PFD has accountants and cashiers.

3.2 Identify the (proposed) accounting staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions and CVs of key accounting staff.

The accountants and cashiers of the EA have received professional education in accounting and have obtained certificates for accounting job as well. The major responsibilities of accountants are to record all funds receipts and payments. The major responsibilities of cashiers are to manage bank accounts.

3.3 Are the project financial and accounting functions staffed adequately?

Yes, the existing finance staff of the EA is also responsible for the imprest account.

3.4 Are the finance and accounting staff adequately qualified and experienced?

Yes, the existing finance and accounting staff are qualified and experienced in managing the ADB loan, because they have already obtained experience in managing the loans under other projects financed by ADB and the World Bank.

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3.5 Are the project accounting and finance staff trained in ADB’s procedures?

Yes.

3.6 What is the duration of the contract with the finance and accounting staff?

They are permanent staff of the EA.

3.7 Indicate key positions not contracted yet, and the estimated date of appointment.

All key positions have been contracted.

3.10 Does the project have written position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all the officers, managers, and staff?

Not yet. But the EA will develop a set of financial management manual and guidelines specifically for the project before the effectiveness of the project.

3.11 At what frequency are personnel transferred? The current personnel are stable.

3.12 What is training policy for the finance and accounting staff?

Finance staff must receive at least 5 days to continue education on accounting policies and practice.

4. Accounting Policies and Procedures

4.1 Does the entity have an accounting system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system?

The EA follows the accounting system promulgated by the MOF, which is designed for public finance. This accounting system will be used to imprest account. But the allocation of expenditures in accordance with the respective components will be done by the PIUs.

4.2 Are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained?

Yes, controls are in place. For instance, all applications made by the PIUs for the ADB loan must be first reviewed and approved by the implementing agencies (IAs) before they are submitted to the EA.

4.3 Is the chart of accounts adequate to properly account for and report on project activities and disbursement categories?

Yes, the chart of accounts can properly record and report the receipts and payments of the ADB loan.

4.4 Are cost allocations to the various funding sources made accurately and in accordance with established agreements?

No. Cost allocations will be done by the PIUs.

4.5 Are the General Ledger and subsidiary ledgers reconciled and in balance?

Yes, they are reconciled and in balance.

4.6 Are all accounting and supporting documents retained on a permanent basis in a defined system that allows authorized users easy access?

Yes, they are retained on a permanent basis, and only the people getting authorization from the directors can access the accounting and supporting documents.

Segregation of Duties

4.7 Are the following functional responsibilities performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction?

Yes. From the point of view of the EA, the justification of application for the ADB loan will be first reviewed by the IAs. Payments from the imprest account will be made by the EA. The custody of assets involved in the transaction will be done by the PIUs.

4.8 Are the functions of ordering, receiving, accounting for, and paying for goods and services appropriately segregated?

Yes. The EA has rules to segregate these functions to different people.

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4.9 Are bank reconciliations prepared by someone other than those who make or approve payments?

Yes, bank reconciliations are prepared by accountants. The approvals of payments are made by directors.

Budgeting System

4.10 Do budgets include physical and financial targets?

No. Normally the budget only includes financial targets.

4.11 Are budgets prepared for all significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance?

Yes.

4.12 Are actual expenditures compared to the budget with reasonable frequency, and explanations required for significant variations from the budget?

Yes. In the mid of a year, the budget will be reviewed and adjusted with explanations.

4.13 Are approvals for variations from the budget required in advance or after the fact?

Yes. They are required in advance.

4.14 Who is responsible for preparation and approval of budgets?

Sector budgets will be prepared by different provincial departments and consolidated by the PFD. The budget of the EA is approved by the Shanxi Provincial People’s Congress.

4.15 Are procedures in place to plan project activities, collect information from the units in charge of the different components, and prepare the budgets?

Yes. Project activities will be prepared by the PIUs. The EA will collect information from the different PIUs and then form an overall project budget.

4.16 Are the project plans and budgets of project activities realistic, based on valid assumptions, and developed by knowledgeable individuals?

Current project plans and budgets are prepared by design institute based on design norms issued by government. However, these norms do not reflect the market situation. The project budgets are overestimated. More accurate project budgets will be made at the early stage of project implementation.

Payments

4.17 Do invoice-processing procedures provide for: (i) Copies of purchase orders and receiving reports to be obtained directly from issuing departments? (ii) Comparison of invoice quantities, prices and terms, with those indicated on the purchase order and with records of goods actually received? (iii) Comparison of invoice quantities with those indicated on the receiving reports? (iv) Checking the accuracy of calculations?

These procedures will be adopted during the implementation of the proposed project.

4.18 Are all invoices stamped PAID, dated, reviewed and approved, and clearly marked for account code assignment?

All invoices are stamped PAID.

4.19 Do controls exist for the preparation of the payroll and are changes to the payroll properly authorized?

No. The salary policies for the EA staff are determined by central government.

Policies And Procedures

4.20 What is the basis of accounting (e.g., cash, accrual)?

The cash basis is adopted for accounting.

4.21 What accounting standards are followed? Accounting System for Public Finance is followed by the EA.

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4.22 Does the project have an adequate policies and procedures manual to guide activities and ensure staff accountability?

Not yet, but EA will develop a set of financial management regulations specifically for the project before the effectiveness of the project.

4.23 Is the accounting policy and procedure manual updated for the project activities?

No. But an accounting policy and procedure will be developed by the EA based on the MOF’s requirement on the project accounting and financial reporting financed by ADB and the World Bank.

4.24 Do procedures exist to ensure that only authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity?

No. But the accounting principle, policy and procedures used by the PIUs cannot be altered.

4.25 Are there written policies and procedures covering all routine financial management and related administrative activities?

Yes. The EA will issue a set of financial management regulations in writing, covering accounting and reporting, the ADB loan disbursement, and project financial management.

4.26 Do policies and procedures clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them?

No. But any transactions made by the EA must go through public procurement.

4.27 Are manuals distributed to appropriate personnel?

Not yet. But when it is ready, the project financial management regulations will be distributed to appropriate personnel, such as finance staff, managers of the PIUs.

Cash and Bank

4.28 Indicate names and positions of authorized signatories in the bank accounts.

The director of the PFD.

4.29 Does the organization maintain an adequate, up-to-date cashbook, recording receipts and payments?

Yes. The cashbooks are updated from time to time when receipts and payments incurred.

4.30 Do controls exist for the collection, timely deposit and recording of receipts at each collection location?

Yes. But from the point of view of the project, it is the responsibility of the PIUs, not the EA.

4.31 Are bank and cash reconciled every month? Yes.

4.32 Are all unusual items on the bank reconciliation reviewed and approved by a responsible official?

Yes. The unusual items must be approved by director of the PFD.

4.33 Are all receipts deposited on a timely basis? Yes.

Safeguard over Assets

4.34 Is there a system of adequate safeguards to protect assets from fraud, waste and abuse?

Yes. There is a system to protect assets belonging to the EA.

4.35 Are subsidiary records of fixed assets and stocks kept up to date and reconciled with control accounts?

Yes. Fixed assets and stocks are kept to date and reconciled with control accounts at the end of each year.

4.36 Are there periodic physical inventories of fixed assets and stocks?

Yes. Annually.

4.37 Are assets sufficiently covered by insurance policies?

No.

Other Offices and Implementing Entities

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4.38 Are there any other regional offices or executing entities participating in implementation?

Yes. The IAs and the PIUs will participate in the implementation of the project.

4.39 Has the project established controls and procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities?

Yes. The project will follow the normal practices of controls and procedures for flow of funds, financial information, and accountability.

4.40 Does information among the different offices and/or IAs flow in an accurate and timely fashion?

Yes. An information system will be developed by the EA before the effectiveness of the project.

4.41 Are periodic reconciliations performed among the different offices and/or IAs?

No.

Other

4.42 Has the project advised employees, beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property?

Not yet. But the EA will develop a set of financial management regulations specifically for the project before the effectiveness of the project.

5. Internal Audit

5.1 Is there an internal audit department in the entity? The PFD has the Supervision and Inspection Division, which is responsible for internal auditing. This division reviews the financial records made by the International Division once a year. To date, accountability issues have not been identified.

5.2 What are the qualifications and experience of audit department staff?

All staff has experience in public finance.

5.3 To whom does the internal auditor report? Governor of the EA.

5.4 Will the internal audit department include the project in its work program?

Yes. The accounts of the ADB loan are part of accounts to be audited.

5.5 Are actions taken on the internal audit findings? Yes.

6. External Audit

6.1 Is the entity financial statement audited regularly by an independent auditor? Who is the auditor?

External auditing of the entity financial statement will be conducted by the Shanxi Provincial Audit Office (SPAO).

6.2 Are there any delays in audit of the entity? When are the audit reports issued?

No.

6.3 Is the audit of the entity conducted according to the International Standards on Auditing?

No.

6.4 Were there any major accountability issues brought out in the audit report of the past three years?

No.

6.5 Will the entity auditor audit the project accounts or will another auditor be appointed to audit the project financial statements?

Yes, but the division of the SPAO is different from the division which audits the entity financial statement. Among others, the imprest accounts of the ADB loans were audited and the findings were reflected in relevant project audit reports.

6.6 Are there any recommendations made by the auditors in prior audit reports or management letters that have not yet been implemented?

No.

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6.7 Is the project subject to any kind of audit from an independent governmental entity (e.g., the supreme audit institution) in addition to the external audit?

Yes. The project will be audited by the SPAO which has the authorization from the China National Audit Office, the official auditor of sovereign debts.

6.8 Has the project prepared acceptable terms of reference for an annual project audit?

No. The annual project audit is a mandatory audit.

7. Reporting and Monitoring

7.1 Are financial statements prepared for the entity? In accordance with which accounting standards?

Yes. Financial statements are prepared for the EA in accordance with the Accounting System for Public Finance.

7.2 Are financial statements prepared for the implementing unit?

No. The EA will not prepare financial statements for the IAs and the PIUs.

7.3 What is the frequency of preparation of financial statements? Are the reports prepared in a timely fashion so as to useful to management for decision making?

Every 10 days.

7.4 Does the reporting system need to be adapted to report on the project components?

No. The project has its different reporting system.

7.5 Does the reporting system have the capacity to link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data?

No. The EA’s reporting system only focuses on public finance.

7.6 Does the project have established financial management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used?

Not yet, but a set of project financial management regulations will be developed by the EA before the effectiveness of the project.

7.7 Are financial management reports used by management?

Yes.

7.8 Do the financial reports compare actual expenditures with budgeted and programmed allocations?

No. But the project financial reports compare the actual expenditures with budgeted allocations.

7.9 Are financial reports prepared directly by the automated accounting system or are they prepared by spreadsheets or some other means?

Yes.

8. Information Systems

8.1 Is the financial management system computerized?

Yes.

8.2 Can the system produce the necessary project financial reports?

No. The system is not designed for the project.

8.3 Is the staff adequately trained to maintain the system?

Yes.

8.4 Does the management organization and processing system safeguard the confidentiality, integrity and availability of the data?

Yes.

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FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE IMPLEMENTING AGENCIES

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1. Implementing Agency

1.1 What is the entity’s legal status / registration? The implementing agencies (IAs) of the proposed project are 18 project county governments. Among others, only two government agencies involve in the project preparation and implementation, in most cases. The agency in charge of financial management is the county finance bureau or county international funds management bureau in Linfen Municipality or county international financial institution (IFI) loan management bureaus in Yuncheng Municipality.

1.2 Has the entity implemented an externally-financed project in the past (if so, please provide details)?

Five IAs in Linfen Municipality and five IAs in Yuncheng Municipality have just finished the implementation of one Asian Development Bank (ADB)-financed project. The other nine IAs do not have any externally-financed projects in the past.

1.3 What are the statutory reporting requirements for the entity?

All IAs report to county people’s congresses. In addition, the county finance bureau must report to the provincial finance department.

1.4 Is the governing body for the project independent? Yes, all IAs are independent.

1.5 Is the organizational structure appropriate for the needs of the project?

Yes, the organizational structures of the IAs are appropriate for the need of the proposed project.

2. Funds Flow Arrangements

2.1 Describe (proposed) project funds flow arrangements, including a chart and explanation of the flow of funds from ADB, government and other financiers.

The ADB loan will flow to the project implementation units (PIUs) mainly from the imprest account and then paid to the providers of civil works, goods, and services. The fund flow diagram shows the flow of the ADB loan and counterpart funds, excluding internal cash. The counterpart funds will be given by the PIUs mainly through company’s profits, equity injections, and local commercial bank loans, if necessary; and then paid to the providers of civil works, goods, and services through those PIUs’ accounts.

2.2 Are the (proposed) arrangements to transfer the proceeds of the loan (from the government and/or the Ministry of Finance [MOF]) to the entity satisfactory?

Yes, they are the most proper arrangements under current circumstance, which can help the IAs to monitor the use of the ADB loan.

2.3 What have been the major problems in the past in receipt of funds by the entity?

Long approval process of withdrawal application for the ADB loan is the universal issue occurred in all ADB-financed projects in the People’s Republic of China (PRC).

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2.4 In which bank will the Imprest Account be opened?

The imprest account will be opened by the executing agency (EA) in a commercial bank located in Taiyuan Municipality, Shanxi Province.

2.5 Does the (proposed) PIUs have experience in the management of disbursements from ADB?

No, none of the PIUs has experience in management of disbursements from ADB.

2.7 Does the entity have/need a capacity to manage foreign exchange risks?

No, none of the IAs has the capacity to manage foreign exchange risks.

2.8 How are the counterpart funds accessed? Counterpart funds will be provided following the progress of project implementation.

2.9 How are payments made from the counterpart funds?

The counterpart funds will be paid in accordance with the contracts whatever they are entered with contractors of civil works, suppliers of equipment and materials, and providers of services.

2.10 If part of the project is implemented by communities or nongovernment organizations (NGOs), does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies?

No part of the proposed project will be implemented by communities or NGOs.

2.11 Are the beneficiaries required to contribute to project costs? If beneficiaries have an option to contribute in kind (in the form of labor), are proper guidelines formulated to record and value the labor contribution?

No individual beneficiaries exist.

3. Staffing

3.1 What is the (proposed) organizational structure of the accounting department? Attach an organization chart.

The IAs have the responsibility to oversee the ADB loan disbursed by the PIUs. County finance bureaus control all bank accounts opened for public finance, including the bank account to be opened for the ADB loan. County finance bureaus have accountants and cashiers.

3.2 Identify the (proposed) accounting staff, including job title, responsibilities, educational background and professional experience. Attach job descriptions and CVs of key accounting staff.

The accountants and cashiers of the IAs have received professional education in accounting and obtained certificates for accounting jobs as well. The major responsibilities of accountants are to record all funds receipts and payments. The major responsibilities of cashiers are to manage bank accounts.

3.3 Are the project financial and accounting functions staffed adequately?

Yes, the existing finance staff of the IAs are also responsible for the accounting function of ADB’s loan receipts and payments.

3.4 Are the finance and accounting staff adequately qualified and experienced?

Yes, the existing accounting staff is qualified. Some of them have experience in managing the ADB loan.

3.5 Are the project accounting and finance staff trained in ADB procedures?

Not yet. The trainings in ADB’s procedures will be given by the EA at early stage of project implementation.

3.6 What is the duration of the contract with the finance and accounting staff?

The duration of the contracts with accounting staff is permanent.

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3.7 Indicate key positions not contracted yet, and the estimated date of appointment.

All key positions have been contracted.

3.10 Does the project have written position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff?

No. Up to now, the proposed project has not developed any descriptions about the project management. This will be done by the consultant to be hired at early stage of project implementation.

3.11 At what frequency are personnel transferred? The current personnel are stable.

3.12 What is training policy for the finance and accounting staff?

Finance staff has to receive at least 5 days trainings on accounting policies and practice.

4. Accounting Policies and Procedures

4.1 Does the entity have an accounting system that allows for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system?

The EA follows the accounting system promulgated by the MOF, which is designed for public finance. This accounting system will be used to imprest account. But the allocation of expenditures in accordance with the respective components will be done by the PIUs.

4.2 Are controls in place concerning the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained?

Yes, controls are in place. For instance, all applications made by the PIUs for the ADB loan must be first reviewed and approved by the IAs before they are submitted to the EA.

4.3 Is the chart of accounts adequate to properly account for and report on project activities and disbursement categories?

Yes, the chart of accounts can properly record and report the receipts and payments of the ADB loan.

4.4 Are cost allocations to the various funding sources made accurately and in accordance with established agreements?

No. Cost allocations will be done by the PIUs.

4.5 Are the General Ledger and subsidiary ledgers reconciled and in balance?

Yes, they are reconciled and in balance.

4.6 Are all accounting and supporting documents retained on a permanent basis in a defined system that allows authorized users easy access?

Yes, they are retained on a permanent basis, and only the people getting authorization from the directors can access the accounting and supporting documents.

Segregation of Duties

4.7 Are the following functional responsibilities performed by different units or persons: (i) authorization to execute a transaction; (ii) recording of the transaction; and (iii) custody of assets involved in the transaction?

Yes. From the point of view of the IAs, the justification of application for the ADB loan will be first reviewed by the technical agency of the IAs. Payments of the ADB loan from the imprest account will be made by county finance bureaus. The custody of assets involved in the transaction will be done by the PIUs.

4.8 Are the functions of ordering, receiving, accounting for, and paying for goods and services appropriately segregated?

Yes. The IAs have rules to segregate these functions to different people.

4.9 Are bank reconciliations prepared by someone other than those who make or approve payments?

Yes, bank reconciliations are prepared by accountants. The approvals of payments are made by directors.

Budgeting System

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4.10 Do budgets include physical and financial targets? No. Normally the budget only includes financial targets.

4.11 Are budgets prepared for all significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance?

Yes.

4.12 Are actual expenditures compared to the budget with reasonable frequency, and explanations required for significant variations from the budget?

Yes. In the mid of a year, the budget will be reviewed and adjusted with explanations.

4.13 Are approvals for variations from the budget required in advance or after the fact?

Yes, they are required in advance.

4.14 Who is responsible for preparation and approval of budgets?

Sector budgets will be prepared by different county bureaus and consolidated by county finance bureaus. The budgets of the IAs are approved by county people’s congresses.

4.15 Are procedures in place to plan project activities, collect information from the units in charge of the different components, and prepare the budgets?

Yes. Project activities will be prepared by the PIUs. The IAs will collect information from the different PIUs and then form an overall project budget.

4.16 Are the project plans and budgets of project activities realistic, based on valid assumptions, and developed by knowledgeable individuals?

Current project plans and budgets are prepared by design institutes based on design norms issued by government. However, these norms do not reflect the market situation. The project budgets are overestimated. More accurate project budgets will be made at the early stage of project implementation.

Payments

4.17 Do invoice-processing procedures provide for: (i) Copies of purchase orders and receiving reports to be obtained directly from issuing departments? (ii) Comparison of invoice quantities, prices and terms, with those indicated on the purchase order and with records of goods actually received? (iii) Comparison of invoice quantities with those indicated on the receiving reports? (iv) Checking the accuracy of calculations?

These procedures will be adopted during the implementation of the proposed project.

4.18 Are all invoices stamped PAID, dated, reviewed and approved, and clearly marked for account code assignment?

All invoices are stamped PAID.

4.19 Do controls exist for the preparation of the payroll and are changes to the payroll properly authorized?

No. The salary policies for the IAs staff are determined by central government.

Policies And Procedures

4.20 What is the basis of accounting (e.g., cash, accrual)?

The cash basis is adopted for accounting.

4.21 What accounting standards are followed? Accounting System for Public Finance is followed by the IAs.

4.22 Does the project have an adequate policies and procedures manual to guide activities and ensure staff accountability?

Not yet, but the EA will develop a set of financial management regulations specifically for the project before the effectiveness of the project.

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4.23 Is the accounting policy and procedure manual updated for the project activities?

No. But an accounting policy and procedure will be developed by the EA based on the MOF’s requirement on the project accounting and financial reporting financed by ADB and the World Bank.

4.24 Do procedures exist to ensure that only authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity?

No. The accounting principle, policy and procedures used by the PIUs cannot be altered.

4.25 Are there written policies and procedures covering all routine financial management and related administrative activities?

Yes. The EA will issue a set of financial management regulations in writing, covering accounting and reporting, the ADB loan disbursement, and project financial management.

4.26 Do policies and procedures clearly define conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organization from them?

No. But any transactions made by the IAs have to go through public procurement.

4.27 Are manuals distributed to appropriate personnel? Not yet. But when it is ready, the project financial management regulations will be distributed to appropriate personnel, such as finance staff, managers of the PIUs.

Cash and Bank

4.28 Indicate names and positions of authorized signatories in the bank accounts.

The directors of county finance bureaus.

4.29 Does the organization maintain an adequate, up-to-date cashbook, recording receipts and payments?

Yes. The cashbooks are updated from time to time when receipts and payments incurred.

4.30 Do controls exist for the collection, timely deposit and recording of receipts at each collection location?

Yes. But from the point of view of the project, it is not the responsibility of the PIUs, not the IAs.

4.31 Are bank and cash reconciled every month? Yes.

4.32 Are all unusual items on the bank reconciliation reviewed and approved by a responsible official?

Yes. The unusual items must be approved by directors of county finance bureaus.

4.33 Are all receipts deposited on a timely basis? Yes.

Safeguard over Assets

4.34 Is there a system of adequate safeguards to protect assets from fraud, waste and abuse?

Yes. There is a system to protect assets.

4.35 Are subsidiary records of fixed assets and stocks kept up to date and reconciled with control accounts?

Yes. Fixed assets and stocks are kept to date and reconciled with control accounts at the end of each year.

4.36 Are there periodic physical inventories of fixed assets and stocks?

Yes. Annually.

4.37 Are assets sufficiently covered by insurance policies?

No.

Other Offices and Implementing Entities

4.38 Are there any other regional offices or executing entities participating in implementation?

Yes. The PIUs will participate in the implementation of the project.

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4.39 Has the project established controls and procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities?

Yes. The project will follow the normal practices of controls and procedures for flow of funds, financial information, and accountability.

4.40 Does information among the different offices and/or IAs flow in an accurate and timely fashion?

Yes. An information system will be developed by the EA before the effectiveness of the project.

4.41 Are periodic reconciliations performed among the different offices and/or IAs?

No.

Other

4.42 Has the project advised employees, beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property?

Not yet. But the EA will develop a set of financial management regulations specifically for the project before the effectiveness of the project.

5. Internal Audit

5.1 Is there an internal audit department in the entity? Every project county finance bureau has a Supervision and Inspection Unit, which is responsible for internal auditing. This unit reviews the financial records made for fiscal revenues and expenditures once a year. To date, accountability issues have not been identified.

5.2 What are the qualifications and experience of audit department staff?

All staff have experience in public finance.

5.3 To whom does the internal auditor report? Directors of the IAs.

5.4 Will the internal audit department include the project in its work program?

Yes. The accounts of the ADB loan are part of accounts to be audited.

5.5 Are actions taken on the internal audit findings? Yes.

6. External Audit

6.1 Is the entity financial statement audited regularly by an independent auditor? Who is the auditor?

The only external auditing received by the IAs’ county finance bureaus will be conducted by the provincial, municipal, and county government audit offices, mainly for fiscal revenues and expenditures. The ADB loan through the county finance bureaus of the IAs are not audit focus.

6.2 Are there any delays in audit of the entity? When are the audit reports issued?

No.

6.3 Is the audit of the entity conducted according to the International Standards on Auditing?

Yes. The project will be audited by the Shanxi Provincial Audit Office which has the authorization from the China National Audit Office, the official auditor of sovereign debts.

6.4 Were there any major accountability issues brought out in the audit report of the past three years?

No.

6.5 Will the entity auditor audit the project accounts or will another auditor be appointed to audit the project financial statements?

Yes, if necessary, but the division of the Shanxi Provincial Audit Office is different from the division which audits the entity financial statement.

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6.6 Are there any recommendations made by the auditors in prior audit reports or management letters that have not yet been implemented?

No.

6.7 Is the project subject to any kind of audit from an independent governmental entity (e.g., the supreme audit institution) in addition to the external audit?

Yes. The project will be audited by the China National Audit Office.

6.8 Has the project prepared acceptable terms of reference for an annual project audit?

No. The annual project audit is a mandatory audit.

7. Reporting and Monitoring

7.1 Are financial statements prepared for the entity? In accordance with which accounting standards?

No. Financial statements are prepared for the IAs in accordance with the Accounting System for Public Finance.

7.2 Are financial statements prepared for the implementing unit?

No. The IAs will not prepare financial statements for the PIUs.

7.3 What is the frequency of preparation of financial statements? Are the reports prepared in a timely fashion so as to useful to management for decision making?

Every 10 days.

7.4 Does the reporting system need to be adapted to report on the project components?

No. The project has its different reporting system.

7.5 Does the reporting system have the capacity to link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data?

No. The IAs’ reporting systems only focuses on public finance.

7.6 Does the project have established financial management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used?

Not yet, but a set of project financial management regulations will be developed by the EA before the effectiveness of the project.

7.7 Are financial management reports used by management?

Yes.

7.8 Do the financial reports compare actual expenditures with budgeted and programmed allocations?

No. The financial reports of the IAs compare the actual expenditures with budgeted allocations.

7.9 Are financial reports prepared directly by the automated accounting system or are they prepared by spreadsheets or some other means?

Yes.

8. Information Systems

8.1 Is the financial management system computerized?

Yes.

8.2 Can the system produce the necessary project financial reports?

No. The system is not designed for the project.

8.3 Is the staff adequately trained to maintain the system?

Yes.

8.4 Does the management organization and processing system safeguard the confidentiality, integrity and availability of the data?

Yes.

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FINANCIAL MANAGEMENT ASSESSMENT QUESTIONNAIRE

PROJECT IMPLEMENTATION UNITS

TOPIC RESPONSE

1. Project Implementing Units

1.1 What is the entity’s legal status / registration? The proposed project will be implemented by

19 agribusiness companies and cooperative

(PACs). These PACs are commercial

companies and cooperative.

1.2 Has the entity implemented an externally-financed

project in the past (if so, please provide details)?

All PACs have never implemented any

externally-financed project in the past.

1.3 What are the statutory reporting requirements for

the entity?

All PACs prepare and submit their financial

statements to their shareholders, but not

necessary to have them audited.

1.4 Is the governing body for the project independent? Yes, all PACs are independent legally and

financially.

1.5 Is the organizational structure appropriate for the

needs of the project?

Yes, the organizational structures of all PACs

are appropriate for the need of the proposed

project.

2. Funds Flow Arrangements

2.1 Describe (proposed) project funds flow

arrangements, including a chart and explanation

of the flow of funds from the Asian Development

Bank (ADB), the government, and other

financiers.

The ADB loan will flow to the project

implementation units (PIUs) mainly from the

imprest account and then paid to the providers

of civil works, goods, and services. The fund

flow diagram shows the flow of the ADB loan

and counterpart funds, excluding internal

cash. The counterpart funds will be given by

the PIUs mainly through company’s profits,

equity injections, and local commercial bank

loans, if necessary; and then paid to the

providers of civil works, goods, and services

through those PIUs’ accounts.

2.2 Are the (proposed) arrangements to transfer the

proceeds of the loan (from the government and/or

the Ministry of Finance [MOF]) to the entity

satisfactory?

Yes, they are the most proper arrangements

under current circumstance.

2.3 What have been the major problems in the past in

receipt of funds by the entity?

Long approval process of withdrawal

application for the ADB loan is the universal

issue occurred in all ADB-financed project in

the People’s Republic of China (PRC).

2.4 In which bank will the Imprest Account be

opened?

The imprest account will be opened by the

executing agency (EA) in a commercial bank

located in Taiyuan Municipality, Shanxi

Province.

2.5 Does the (proposed) PIUs have experience in the

management of disbursements from ADB?

None of the PIUs has experience in

management of disbursements from ADB.

2.7 Does the entity have/need a capacity to manage

foreign exchange risks?

No, they do not need the capacity to manage

foreign exchange risks since the risks will be

borne by the IAs.

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TOPIC RESPONSE

2.8 How are the counterpart funds accessed? Counterpart funds will be provided following

the progress of project implementation.

2.9 How are payments made from the counterpart

funds?

The counterpart funds will be paid in

accordance with the contracts whatever they

are entered into with contractors of civil works,

suppliers of equipment and materials, and

providers of services.

2.10 If part of the project is implemented by

communities or nongovernment organizations

(NGOs), does the PIU have the necessary

reporting and monitoring features built into its

systems to track the use of project proceeds by

such agencies?

No part of the proposed project will be

implemented by communities or NGOs.

2.11 Are the beneficiaries required to contribute to

project costs? If beneficiaries have an option to

contribute in kind (in the form of labor), are proper

guidelines formulated to record and value the

labor contribution?

No individual beneficiaries exist.

3. Staffing

3.1 What is the (proposed) organizational structure of

the accounting department? Attach an

organization chart.

All PACs have one accountant and one

cashier. A few of them have finance

managers. But it is not necessary to have

accounting departments. The accountants

directly report to the managers of the PIUs, if

they do not have finance managers.

3.2 Identify the (proposed) accounting staff, including

job title, responsibilities, educational background

and professional experience. Attach job

descriptions and CVs of key accounting staff.

All accountants of the PACs have received

professional education in accounting and have

also obtained certificates for accounting jobs

issued by local governments. The major

responsibilities of accountants are to record all

funds received and expenditures incurred.

3.3 Are the project financial and accounting functions

staffed adequately?

Yes, the existing finance staff of the PACs are

also responsible for the financial and

accounting functions of the proposed project.

3.4 Are the finance and accounting staff adequately

qualified and experienced?

Yes, the existing finance staff is qualified, but

they do not have experience in the financial

management of ADB project.

3.5 Are the project accounting and finance staff

trained in ADB procedures?

No. They have not received trainings in ADB’s

procedures.

3.6 What is the duration of the contract with the

finance and accounting staff?

The duration of the contracts with finance staff

is permanent.

3.7 Indicate key positions not contracted yet, and the

estimated date of appointment.

All key positions have been contracted.

3.10 Does the project have written position descriptions

that clearly define duties, responsibilities, lines of

supervision, and limits of authority for all the

officers, managers, and staff?

Not yet. But the EA will develop a set of

financial management regulations specifically

for the project before the effectiveness of the

project.

3.11 At what frequency are personnel transferred? The current finance staff is seldom transferred.

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TOPIC RESPONSE

3.12 What is training policy for the finance and

accounting staff?

Finance staff must receive at least 5 days to

continue education on accounting policies and

practice.

4. Accounting Policies and Procedures

4.1 Does the entity have an accounting system that

allows for the proper recording of project financial

transactions, including the allocation of

expenditures in accordance with the respective

components, disbursement categories, and

sources of funds? Will the project use the entity

accounting system?

Yes. All PACs follow the accounting system for

commercial entities promulgated by the MOF.

However, the accounting system used for the

proposed project is different. It is particularly

designed by MOF for the projects financed by

ADB and the World Bank. The EA will develop

a detailed accounting system for the project

based on accounting system designed by

MOF.

4.2 Are controls in place concerning the preparation

and approval of transactions, ensuring that all

transactions are correctly made and adequately

explained?

Yes, there are controls in place. Since all

contracts have to be signed by the owners of

the PACs, it is simply to have all transactions

under control.

4.3 Is the chart of accounts adequate to properly

account for and report on project activities and

disbursement categories?

Yes, the chart of accounts can properly record

and report the project activities and

disbursement categories.

4.4 Are cost allocations to the various funding sources

made accurately and in accordance with

established agreements?

No. Costs are not necessary allocated to

various funding sources.

4.5 Are the General Ledger and subsidiary ledgers

reconciled and in balance?

Yes, they are reconciled and in balance.

4.6 Are all accounting and supporting documents

retained on a permanent basis in a defined

system that allows authorized users easy access?

Yes, they are retained on a permanent basis,

separately from other technical and

managerial documents. Only the people

getting authorization from the managers can

access the accounting and supporting

documents.

Segregation of Duties

4.7 Are the following functional responsibilities

performed by different units or persons: (i)

authorization to execute a transaction; (ii)

recording of the transaction; and (iii) custody of

assets involved in the transaction?

Yes. Only the owners of the PACs can make

decisions on transactions. The recording of

the transactions is made by accountants while

the custody of assets is made by engineers, in

general.

4.8 Are the functions of ordering, receiving,

accounting for, and paying for goods and services

appropriately segregated?

Yes. The function of ordering and receiving

goods and services are made by engineers.

The accounting for goods and services is

made by accountants, and the function of

paying for goods and services is made by

cashiers.

4.9 Are bank reconciliations prepared by someone

other than those who make or approve payments?

Yes, bank reconciliations are prepared by

accountants. The approvals of payments are

made by the owners of the PACs.

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TOPIC RESPONSE

Budgeting System

4.10 Do budgets include physical and financial targets? No. Most of the budgets only have the

financial targets. The importance of physical

targets are not realized by the PACs.

4.11 Are budgets prepared for all significant activities in

sufficient detail to provide a meaningful tool with

which to monitor subsequent performance?

Yes. All significant activities have budgets

which are used as a meaningful tool for

performance monitoring.

4.12 Are actual expenditures compared to the budget

with reasonable frequency, and explanations

required for significant variations from the budget?

Yes. The actual expenditures are compared to

the budgets every month. The reasons for

significant variations are reviewed and further

actions are taken for remaining months.

4.13 Are approvals for variations from the budget

required in advance or after the fact?

Yes. It must be approved in advance.

4.14 Who is responsible for preparation and approval

of budgets?

The budgets are prepared by engineers and

consolidated by finance staff. The

consolidated budgets are approved by the

owners of the PACs.

4.15 Are procedures in place to plan project activities,

collect information from the units in charge of the

different components, and prepare the budgets?

Yes. The plans of project activities will be

prepared by the PACs. The EA will collect

information from the different PACs and then

form an overall project budgets.

4.16 Are the project plans and budgets of project

activities realistic, based on valid assumptions,

and developed by knowledgeable individuals?

Current project plans and budgets are

prepared by design institutes based on design

norms issued by government. However, these

norms do not reflect the market situation.

The project budgets are overestimated.

More accurate project budgets will be made at

the early stage of project implementation.

Payments

4.17 Do invoice-processing procedures provide for: (i)

Copies of purchase orders and receiving reports

to be obtained directly from issuing departments?

(ii) Comparison of invoice quantities, prices and

terms, with those indicated on the purchase order

and with records of goods actually received? (iii)

Comparison of invoice quantities with those

indicated on the receiving reports? (iv) Checking

the accuracy of calculations?

Yes.

4.18 Are all invoices stamped PAID, dated, reviewed

and approved, and clearly marked for account

code assignment?

Most of the PACs do not stamp PAID on

invoices. But they are approved by the owners

of the PACs.

4.19 Do controls exist for the preparation of the payroll

and are changes to the payroll properly

authorized?

Yes. The payrolls are prepared either by

Human Resource staff or by finance staff. All

payrolls are approved by the owners of the

PACs.

Policies And Procedures

4.20 What is the basis of accounting (e.g., cash,

accrual)?

The accrual basis is adopted for accounting.

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TOPIC RESPONSE

4.21 What accounting standards are followed? Either the Accounting Standards for

Commercial Enterprises or the Accounting

Standards for Small Size Commercial

Enterprises are followed by the PACs.

4.22 Does the project have an adequate policies and

procedures manual to guide activities and ensure

staff accountability?

Not yet, but the EA will develop a set of

financial management regulations specifically

for the project before the effectiveness of the

project.

4.23 Is the accounting policy and procedure manual

updated for the project activities?

No. But an accounting policy and procedure

will be developed by the EA based on MOF’s

requirement on the project accounting and

financial reporting financed by ADB and the

World Bank.

4.24 Do procedures exist to ensure that only

authorized persons can alter or establish a new

accounting principle, policy or procedure to be

used by the entity?

No. But the accounting principle, policy and

procedures used by the PACs cannot be

altered.

4.25 Are there written policies and procedures covering

all routine financial management and related

administrative activities?

No. Most of the PACs do not have written

policies and procedures for their routine

financial management. But the EA will issue a

set of financial management regulations in

writing, covering accounting and reporting, the

ADB loan disbursement, and project financial

management.

4.26 Do policies and procedures clearly define conflict

of interest and related party transactions (real and

apparent) and provide safeguards to protect the

organization from them?

No. Making profit is the only key factor to

determine transactions.

4.27 Are manuals distributed to appropriate personnel? No manual exists. But when it is ready, the

project financial management regulations will

be distributed to appropriate personnel, such

as finance staff, owners of the PACs.

Cash and Bank

4.28 Indicate names and positions of authorized

signatories in the bank accounts.

The owners of the PACs are the authorized

signatories in the bank accounts.

4.29 Does the organization maintain an adequate, up-

to-date cashbook, recording receipts and

payments?

Yes. The cashbooks are updated from time to

time when receipts and payments incurred.

4.30 Do controls exist for the collection, timely deposit

and recording of receipts at each collection

location?

Yes.

4.31 Are bank and cash reconciled every month? Yes.

4.32 Are all unusual items on the bank reconciliation

reviewed and approved by a responsible official?

Yes. The unusual items must be approved by

the owners of the PACs.

4.33 Are all receipts deposited on a timely basis? Yes.

Safeguard over Assets

4.34 Is there a system of adequate safeguards to

protect assets from fraud, waste and abuse?

Yes. The PACs have simple system to protect

assets from fraud and abuse.

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4.35 Are subsidiary records of fixed assets and stocks

kept up to date and reconciled with control

accounts?

Yes. Fixed assets and stocks are kept to date

and reconciled with control accounts at the

end of each year.

4.36 Are there periodic physical inventories of fixed

assets and stocks?

Yes. Annually.

4.37 Are assets sufficiently covered by insurance

policies?

No, except for the insurance for breeding

sows.

Other Offices and Implementing Entities

4.38 Are there any other regional offices or executing

entities participating in implementation?

No regional offices exist.

4.39 Has the project established controls and

procedures for flow of funds, financial information,

accountability, and audits in relation to the other

offices or entities?

No other offices or entities exist.

4.40 Does information among the different offices

and/or IAs flow in an accurate and timely fashion?

No different offices and/or IAs exist.

4.41 Are periodic reconciliations performed among the

different offices and/or IAs?

No different offices and/or IAs exist.

Other

4.42 Has the project advised employees, beneficiaries

and other recipients to whom to report if they

suspect fraud, waste or misuse of project

resources or property?

Not yet. But the EA will develop a set of

financial management regulations specifically

for the project before the effectiveness of the

project.

5. Internal Audit

5.1 Is there an internal audit department in the entity? No. The size of the PACs is small. It is not cost

effective to set up an internal audit

department.

5.2 What are the qualifications and experience of

audit department staff?

No internal audit department exists.

5.3 To whom does the internal auditor report? No internal audit department exists.

5.4 Will the internal audit department include the

project in its work program?

No internal audit department exists.

5.5 Are actions taken on the internal audit findings? No internal audit department exists.

6. External Audit

6.1 Is the entity financial statement audited regularly

by an independent auditor? Who is the auditor?

All PACs have their financial statements from

2014 to 2016 audited by local certified public

auditors (CPAs).

6.2 Are there any delays in audit of the entity? When

are the audit reports issued?

No. All audit reports are issued on time.

6.3 Is the audit of the entity conducted according to

the International Standards on Auditing?

No. The audit follows the Chinese standards

on auditing.

6.4 Were there any major accountability issues

brought out in the audit report of the past three

years?

All auditors gave their unqualified opinions on

the PACs’ financial statements.

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TOPIC RESPONSE

6.5 Will the entity auditor audit the project accounts or

will another auditor be appointed to audit the

project financial statements?

The entity auditors will audit the project

accounts, but they will not issue reports

specifically for the project. The project account

will be audited by the Shanxi Provincial Audit

Office which has the authorization from the

China National Audit Office, who is the official

auditor of sovereign debts.

6.6 Are there any recommendations made by the

auditors in prior audit reports or management

letters that have not yet been implemented?

No recommendations were made.

6.7 Is the project subject to any kind of audit from an

independent governmental entity (e.g., the

supreme audit institution) in addition to the

external audit?

The project will be audited by the Shanxi

Provincial Audit Office which has the

authorization from the China National Audit

Office, who is the official auditor of sovereign

debts.

6.8 Has the project prepared acceptable terms of

reference for an annual project audit?

No. The annual project audit is a mandatory

audit.

7. Reporting and Monitoring

7.1 Are financial statements prepared for the entity?

In accordance with which accounting standards?

Yes. The PACs prepare financial statements in

accordance with the Accounting Standards for

Commercial Enterprises or Accounting

Standards for Small Size Commercial

Enterprises.

7.2 Are financial statements prepared for the

implementing unit?

No. Financial statements are not being

prepared for the implementation units.

7.3 What is the frequency of preparation of financial

statements? Are the reports prepared in a timely

fashion so as to useful to management for

decision making?

Every month.

7.4 Does the reporting system need to be adapted to

report on the project components?

No. The project has its different reporting

system which will be required by the EA.

7.5 Does the reporting system have the capacity to

link the financial information with the project's

physical progress? If separate systems are used

to gather and compile physical data, what controls

are in place to reduce the risk that the physical

data may not synchronize with the financial data?

No. The reporting system focuses on financial

information only.

7.6 Does the project have established financial

management reporting responsibilities that specify

what reports are to be prepared, what they are to

contain, and how they are to be used?

Not yet, but the EA will develop a set of

financial management regulations specifically

for the project before the effectiveness of the

project.

7.7 Are financial management reports used by

management?

Yes.

7.8 Do the financial reports compare actual

expenditures with budgeted and programmed

allocations?

No. But the project financial reports compare

the actual expenditures with budgeted

allocations.

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TOPIC RESPONSE

7.9 Are financial reports prepared directly by the

automated accounting system or are they

prepared by spreadsheets or some other means?

The financial reports of most PACs are directly

prepared by automated accounting system.

A few PACs use spreadsheets to prepare

financial reports.

8. Information Systems

8.1 Is the financial management system

computerized?

No. Only accounting system is computerized.

8.2 Can the system produce the necessary project

financial reports?

No. But the EA will develop a system

specifically for the project.

8.3 Is the staff adequately trained to maintain the

system?

Yes.

8.4 Does the management organization and

processing system safeguard the confidentiality,

integrity and availability of the data?

Yes.