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Document of
The World Bank and the MDTF Partners
Report No: 73328-MW
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED GRANT
IN THE AMOUNT OF US$19 MILLION
TO THE
REPUBLIC OF MALAWI
FOR A
FINANCIAL REPORTING AND OVERSIGHT IMPROVEMENT PROJECT (P130878)
28 FEBRUARY, 2013
Financial Management
Core Operations Services
Africa Region
This document is being made publicly available prior to Bank approval. This does not imply a presumed
outcome. This document may be updated following Bank consideration and the updated document will be
made publicly available in accordance with the Bank’s policy on Access to Information.
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2
CURRENCY EQUIVALENTS
(Exchange Rate Effective {February 25, 2013})
Currency Unit = Malawian Kwacha (MK)
US$1 = 369 MK
FISCAL YEAR
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
AGD
AR
CAATS
Accountant General Department
Accounts Receivable
Computer Assisted Audit Techniques
CABS Common Approach to Budget Support
CAS Country Assistance Strategy
CIAU Central Internal Audit Unit
CoA
CPD
CSA
Chart of Accounts
Continuing Professional Development
Controls Self-Assessment
DAD
DHRMD
DISTMIS
DR
ERM
Department of Aid and Debt
Department of Human Resource Management and Development
Department of Information, Systems and Technology Management Systems
Disaster Recovery
Enterprise Risk Management
FDI Foreign Direct Investment
FIMTAP Financial Management Transparency and Accountability Project
FROIP Financial Reporting and Oversight Improvement Project
GFEM Group on Finance and Economic Management
GFS
GoM
Government Finance Statistics
Government of Malawi
HIPC Heavily Indebted Poor Countries
IDEA Integrated Data Extraction and Analysis
IFMIS Integrated Financial Management Information System
IPSAS International Public Sector Accounting Standard
LG Local Government
LG&RD
MASAF
Local Government and Rural Development
Malawi Social Action Fund
MDA Ministries, Departments and Agencies
MDTF
MGDS
MoF
Multi Donor Trust Fund
Malawi Growth and Development Strategy
Ministry of Finance
MPRSP Malawi Poverty Reduction Strategy Program
MRA Malawi Revenue Authority
3
NAO
NLGFC
National Audit Office
National Local Government Finance Committee
ODPP
OPC
ORAF
PA
Office of the Director of Public Procurement
Office of the President and Cabinet
Operational Risk Assessment Framework
Performance Audit
PAC Public Accounts Committee
PAD Project Appraisal Document
PDO Project Development Objective
PEFA Public Expenditure and Financial Accountability
PFEM Public Finance and Economic Management
PFEMRP Public Finance and Economic Management Reform Program
PFEMSC
PFEMTC
PFEMU
PFM
Public Finance and Economic Management Steering Committee
Public Finance and Economic Management Technical Committee
Public Finance and Economic Management Unit
Public Financial Management
PI Performance Indicator
RBM
RBPFA
RCIP
SAICA
SN
TNA
TTL
TWG
Reserve Bank of Malawi
Results Based Process Focused Approach
Regional Communications Infrastructure Project
South African Institute of Chartered Accountants
Serenic Navigator
Training Needs Assessment
Task Team Leader
Technical Working Group
Regional Vice President: Makhtar Diop
Country Director: Kundhavi Kadiresan
Country Manager:
Sector Director:
Sandra Bloemenkamp
Edward Olowo-Okere
Sector Manager: Patricia McKenzie
Task Team Leader: Pazhayannur K. Subramanian
4
MALAWI
Financial Reporting and Oversight Improvement Project (P130878)
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT ...............................................................................................11
A. Country Context .......................................................................................................... 11
B. Sectoral and Institutional Context ............................................................................... 12
C. Higher Level Objectives to which the Project Contributes ........................................ 14
II. PROJECT DEVELOPMENT OBJECTIVES ..............................................................15
A. PDO............................................................................................................................. 15
Project Beneficiaries ......................................................................................................... 15
PDO Level Results Indicators ........................................................................................... 15
III. PROJECT DESCRIPTION ............................................................................................16
A. Project Components .................................................................................................... 16
B. Project Financing ........................................................................................................ 18
Lending Instrument ........................................................................................................... 18
Project Cost and Financing ............................................................................................... 18
C. Lessons Learned and Reflected in the Project Design ................................................ 19
IV. IMPLEMENTATION .....................................................................................................20
A. Institutional and Implementation Arrangements ........................................................ 20
B. Results Monitoring and Evaluation ............................................................................ 24
C. Sustainability............................................................................................................... 24
V. KEY RISKS AND MITIGATION MEASURES ..........................................................25
A. Risk Ratings Summary Table ..................................................................................... 25
B. Overall Risk Rating Explanation ................................................................................ 25
VI. APPRAISAL SUMMARY ..............................................................................................25
A. Economic and Financial Analyses .............................................................................. 25
B. Technical ..................................................................................................................... 26
C. Financial Management ................................................................................................ 26
D. Procurement ................................................................................................................ 26
5
E. Social (including Safeguards) ..................................................................................... 27
F. Environment (including Safeguards) .......................................................................... 27
G. Other Safeguards Policies Triggered (if required)...................................................... 27
Annex 1: Results Framework and Monitoring...............................................................................28
Annex 2: Detailed Project Description ..........................................................................................30
Annex 3: Implementation Arrangements .......................................................................................39
Annex 4: Operational Risk Assessment Framework ………………………………….….…….53
Annex 5: Implementation Support Plan ……………………………………….…………..…….56
Annex 6: Project Component Cost Table ………………………………………………….. …..58
Annex 7 Country at a Glance ……………………………………………………….....…… …..59
6
PAD DATA SHEET
REPUBLIC OF MALAWI
Financial Reporting and Oversight Improvement Project
PROJECT APPRAISAL DOCUMENT .
AFRICA
AFTME
.
Basic Information
Date: 28 February, 2013 Sectors: Central Government Administration
(70%) and Local Government
Administration (30%)
Country Director: Kundhavi Kadiresan Themes: Public expenditure, financial management
and procurement (50%), Other
accountability/anti-corruption (50%)
Sector Manager/Director: Patricia Mc Kenzie /
Edward Olowo-Okere
EA
Category:
C - Not Required
Project ID: P130878
Lending Instrument: Technical Assistance
Grant
Team Leader(s): Pazhayannur K.
Subramanian
Joint IFC:
.
Borrower: Republic of Malawi
Responsible Agency: Ministry of Finance
Contact: Newby Henry Kumwembe Title: Principal Secretary Administration,
Ministry of Finance
Telephone No.: 265-1788-211 Email: [email protected]
.
Project Implementation Period: Start
Date:
11 March-2013 End
Date:
30-June-2016
Expected Effectiveness Date: March 11, 2013
Expected Closing Date: June 30, 2016 .
7
Project Financing Data(US$M)
[ ] Loan [
X
]
Grant [ ] Other
[ ] Credit [
]
Guarantee
For Loans/Credits/Others
Total Project Cost : 19.00
Total Bank
Financing :
8.00 (Phase I)
Total Cofinancing :
Financing Gap : 11.00 (Phase
II)
.
Financing Source Amount(US$M)
PFEMRP MDTF (Phase I) 8.00
Financing Gap (Phase II to be funded out of future
contributions to MDTF)
Total
11.00
19.00 .
Expected Disbursements (in US$ Million)
Fiscal Year 2013 2014 2015 2016
Annual 4.37 6.68 5.10 2.85
Cumulative 4.37 11.05 16.15 19.00
.
Project Development Objective(s)
The objective of the project is to improve the internal controls, accounting, reporting and oversight of the
Recipient’s finances at the central and decentralized levels in its ministries, departments and agencies (MDAs). .
Components
Component Name Cost (US$ Millions)
Phase I Phase II Total
Accounting and Financial Management 3.9 5.3 9.2
Internal Audit 1.4 1.4 2.8
External Audit 2.0 2.7 4.7
PFEMRP Management 0.7 0.9 1.6
Contingencies 0.7 0.7
TOTAL 8.0 11.0 19.0 .
8
Compliance
Policy
Does the project depart from the CAS in content or in other significant
respects?
Yes [ ] No [X]
.
Does the project require any waivers of Bank policies? Yes [ ] No [X]
Have these been approved by Bank management? Yes [ ] No [ ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ ]
Does the project meet the Regional criteria for readiness for implementation? Yes [X ] No [ ]
.
Safeguard Policies Triggered by the Project Yes No
Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X .
9
Legal Covenants
Name Recurrent Due Date Frequency
1. Covenants applicable to project
implementation
Yes 1 to 3 months after
effectiveness
Ongoing
Description of Covenant
Clause B-4, Section II, Schedule 2 of the GA: The Recipient shall, by no later than three (3) months after the
Effective Date, select, engage and thereafter maintain throughout the period of project implementation, an
independent firm of professional auditors for purposes of auditing the project financial statements, with
qualifications and experience acceptable to the Association, and under terms of reference satisfactory to the
Association.
2. Effectiveness Condition No When condition
fulfilled
N/A
Description of Covenant
Section 4.01 of the GA: The project shall not become effective until satisfactory evidence has been furnished to
the World Bank that GoM has adopted the Project Implementation Manual acceptable to the World Bank.
3. Disbursement Condition on Part 3
(External Audit) of the Project
Yes When condition
fulfilled
N/A
Description of Covenant
Clause B-1 (b), Section IV, Schedule 2 of the GA: The Recipient shall appoint and maintain throughout the
project implementation, the Auditor General, with qualifications, experience and terms of reference satisfactory to
the World Bank.
4. Retroactive Financing No By effectiveness N/A
Description of Covenant
Section IV.B. 1(a) of GA: No withdrawal shall be made for payments made prior to the date of the Financing
Agreement, except that withdrawals up to an aggregate amount not to exceed $800,000 may be made for
payments made prior to this date but on or after April 1, 2012, for Eligible Expenditures under the Project.
.
10
Team Composition
Bank Staff
Name Title Specialization Unit UPI
Pazhayannur K.
Subramanian
Lead Financial
Management Specialist
Team Lead AFTME 80879
Michael John Jacobs Consultant Audit AFTME 237117
Annie Kaliati Jere Team Assistant Team Assistant AFMMW 290712
Steven Maclean Mhone Procurement Specialist Procurement AFTPE 318342
Khuram Farooq Consultant Accounting and
IFMIS
AFTME 342060
Trust Chamukuwa
Chimaliro
Financial Management
Specialist
Financial
Management
AFTME 382028
Nneoma Nwogu Counsel Legal LEGAM
Luis Schwarz Senior Finance Officer Disbursement CTRLA 82804
Non Bank Staff
Name Title Office Phone City
Twaib Ali Deputy Director, PFEM
Unit
+265-1-789337 Lilongwe
Patrick Liphava Principal Economist,
PFEM Unit
+265-999006250 Lilongwe
Elliam Kadewele Economist, PFEM Unit +265-999332705 Lilongwe
Andrew Tench PFM Advisor, MoF +265-1-788910 Lilongwe
.
Locations
Country First
Administrative
Division
Location Planned Actual Comments
Malawi MoF Lilongwe .
11
I. STRATEGIC CONTEXT
A. Country Context
1. Malawi is a landlocked low income country with an estimated Gross National Income per
capita of US$340 (in 2011), registering an average real GDP growth rate of about 7% per annum
for the last five years. It is also one of Southern Africa's most densely populated countries, with
an estimated population of 14.9 million as of 2010 and a significant percentage (50.7%) of them
currently live under the 1.25 dollar-a-day income poverty line. Income inequality also remains
high reflecting profound inequities in the access to assets, services and opportunities across the
population.
2. Until 2010, Malawi experienced solid growth through prudent macroeconomic policies
and a supportive donor environment. This performance was built on strong stabilization policies
since 2004, and the debt relief from the Heavily Indebted Poor Countries (HIPC) initiative which
helped to improve public expenditure management and created the fiscal space needed to
generate the momentum for growth. Growth was largely driven by high agricultural exports, and
rising Foreign Direct Investment (FDI) inflows related to mining and Government spending.
3. In early 2012 it was estimated that 2011 real GDP had slowed to about 1.4 percent. The
new Joyce Banda government has taken decisive policy measures to arrest the slowdown in the
economy and is already implementing a comprehensive package of economic reforms. These
reforms aim to address the current external imbalances with plans to cushion the vulnerable poor
against the impact through social protection programs, and facilitate a growth rebound in the
short term. In this regard, some decisive and credible measures have been taken by the
authorities to strengthen economic governance, while at the same time signaling to development
partners and the private sector of government's commitment to create a favorable environment
for a return to positive growth. Early indications are that the policy reforms are bearing fruit, as
many external credit lines have resumed and there is growing evidence of renewed confidence in
the management of the economy by private investors. The authorities are also committed to a
program of fiscal consolidation in their 2012/13 budget, while ensuring there is some room to
promote a private sector rebound.
4. The swift movement of President Banda’s government to approve changes and to repair
relations with donors and international financial institutions has put Malawi on a firm position to
regain macro-economic balance and return to a positive growth path. The policy reform
measures undertaken recently would now allow for a relatively quick return to a growth path that
is in line with Malawi's recent historical trend. The government's efforts to restrain fiscal and
monetary policy, in support of the recent devaluation of the Kwacha and adoption of a flexible
exchange rate regime, will support the quick recovery if sustained.
5. The Second Malawi Growth and Development Strategy (MGDS II) 2011-2016, which is
the country's second medium term plan, was approved by the Cabinet in April 2012. The MGDS
II is a medium term strategy designed to attain Malawi's long term aspirations as spelt out in its
Vision 2020 and strives to foster a more inclusive job creating growth to address the
unemployment problem as well as reduce poverty. The strategy reflects a general consensus on
12
the country's broad goals for growth, social equity, and governance. The MGDS II was
developed in an all-inclusive process. All levels of society, including women, the youth, private
sector, civil society and development partners were all involved in the MGDS II consultation
process. To respond to the need to accelerate the economic recovery process, the Government
has reprioritized the interventions in the MGDS II and has come up with a short term Economic
Recovery Plan, which was launched in late September 2012, focusing on short term measures to
restore macroeconomic stability while mitigating the impact on the poor.
B. Sectoral and Institutional Context
6. The Government of Malawi (GoM) has been reforming its public financial management
systems over the last ten years. While this has yielded significant improvements in the legal
framework, IT systems and budget procedures, the full benefits of these reforms have not yet
been felt in terms of aggregate fiscal discipline, strategic allocation of resources and effective
service delivery. The authorities and development partners recognize the need to move to a new
phase of the reforms focused in greater implementation of the new rules and regulations, tighter
internal controls, greater attention to the benefits of public financial management (PFM) reforms
for Ministries, Departments and Agencies (MDA) and sectors and capacity development in the
various PFM institutions. The management of the PFM system is mainly concentrated within the
Ministry of Finance (MoF). Within the Ministry, the Secretary to the Treasury has a key
responsibility for budget planning and execution, while the Accountant General has
responsibility for producing timely and appropriate management and financial accounts. Within
MDAs it is the Controlling Officers who have overall responsibility for effective PFM.
7. The PFM reforms were being supported previously by donors through the Common
Approach to Budget Support (CABS) Group which has been providing assistance to the GoM
since 1997. With support from CABS suspended until 2005, since then many development
partners other than the CABS group are also providing support to the reforms and many more are
expected to join in these efforts. The reform efforts are coordinated between the Government of
Malawi and donors through Group on Finance and Economic Management (GFEM) meetings
that are jointly chaired by the Secretary to the Treasury and a representative from the donors.
Through the Financial Management Transparency and Accountability Project (FIMTAP)
financed by the World Bank and the European Union, capacity development assistance was
provided to Internal Audit, External Audit and the Office of the Director of Public Procurement.
The project also supported the acquisition, installation and operationalization of the IFMIS, the
Government Wide Area Network and general governance improvement among others. Through
the Malawi Social Action Fund (MASAF), the Bank helped in building capacity including FM
capacity at the District Level. There were also significant contributions to PFEM reform from
DfID, Norway, GIZ, UNDP and the EU. The EU Capacity Building Project for Economic
Management and Policy Coordination was instrumental in developing the Public Finance and
Economic management (PFEM) reform program and strengthening capacity in both the MOF
and the Ministry of Economic Development and Planning.
8. Though progress has been registered in several areas, there is much more to achieve.
Progress has indeed been made on many of the activities in the PFEM Action Plan during the
period 2006-2011 but many activities are well behind initial target dates and insufficient
attention and resources have been given to identifying and resolving bottlenecks. Several reforms
13
and improvements have been introduced but were uncoordinated and implementation lags
behind. It is evident that there needs to be a consolidation of what has been introduced and for a
more thorough attention to implementation with an assured stream of resources. A more
comprehensive approach has been established to provide strategic direction through a sector
wide approach to PFEM reforms. The government therefore introduced a PFEM Reform
Program (PFEMRP) and the support is being provided using a common basket funding
mechanism through the PFEMRP Multi Donor Trust Fund (MDTF) administered by the World
Bank (TF071796). PFEMRP is aimed at improving GoM’s macro-fiscal management,
accountability and transparency in public financial management and public oversight.
Interventions and support happening outside the MDTF are tracked using a PFM support matrix
maintained by the PFEM Unit and updated from time to time through discussions during the
GFEM meetings. PFEMRP covers ten reform areas (planning and policy analysis, resource
mobilization, budgeting, procurement, accounting and financial management including internal
audit, cash and debt management, parastatal financing, monitoring and reporting, external
auditing, and program management). This project covers three main areas out of the PFEMRP
namely accounting and financial reporting, internal and external audit and program management.
This has been decided as the immediate focus areas by the government and the MDTF partners
based on priority, available resources, and component readiness.
9. The GFEM, originally a donor grouping, was transformed in 2006 to a joint donor GOM
forum. This provides a management steer of PFM reform through participation of both GoM and
donors. It is now co-chaired by the Secretary to the Treasury and a head of a development
agency on a rotating basis. The Ministry of Finance recognized the importance of developing a
facilitating unit for PFEM reforms and acting as a secretariat, and thus set up a PFEM Unit in
2008. This was formally established through the Ministry of Finance functional review in 2010.
With this establishment of a unit to deal with PFEM, it became possible to consider developing a
more structured approach to PFEM reform. In addition to the GFEM there is a Government
PFEM Steering Committee of senior management which approves PFEM programs which are
developed and monitored by a PFEM Technical Committee.
10. Reform reviews have shown that PFM reform requires strong political commitment,
implementation designs tailored to the country context and government led coordination
arrangements. The FROIP Trust Fund will be managed by a high level unit in the Ministry of
Finance and the project design is derived from the GoM’s comprehensive Public Finance and
Economic Management Reform Program (PFEMRP) which has culminated from an increasing
awareness within GoM for overall PFEM reforms and have been guided by the results of the
Public Expenditure and Financial Accountability (PEFA) assessments.
11. Overall, four PEFA assessments have been conducted in Malawi in 2005, 2006, 2008 and
2011. The 2011 PEFA assessment was based on an analysis of performance for the years from
2007-08 to 2009-10. The main findings relating to budget execution, accounting and financial
reporting and internal and external oversight are summarized next.
12. Predictability and control in budget execution:
Reforms are on-going in the Malawi Revenue Authority
14
The Ministry of Finance has improved the cash management process
Debt management and payroll system are being operated efficiently
The procurement system continues to be unable to provide statistics with regard to the
implementation and comprehensiveness of competitiveness in public procurement
The Integrated Financial Management Information System (IFMIS) rollout process has
been concluded to the central government and 34 local councils
Although awareness seems to be rising with regards to internal control, the evidence does
not yet support the finding of improved control and internal audit procedures and
processes being implementing and taking effect.
13. Accounting, recording and reporting: Progress in the period under review has featured the
improved timeliness of the closure of the accounts and the production of the financial statement
for audit. Also, in-year budget execution reports are produced on a timely basis and with some
improvements is quality. However, management information at service delivery units still needs
to improve. A serious control concern identified is the backlog in bank reconciliations since July
2010. Timely bank reconciliation is an essential discipline in the ongoing checking and
verification of accounting practices across Government and it also provides assurance as to the
integrity of data used for reporting.
14. External scrutiny and audit: The period covered by this assessment has seen a backlog of
external audits and Public Accounts Committee (PAC) scrutiny cleared. However, there are still
weaknesses in the actions and follow up based on the recommendations of the National Audit
Office (NAO) and PAC. In summary, NAO and PAC scrutiny has been characterized by periods
when there has been no public scrutiny followed by intense activity to clear backlogs. In respect
of the Parliamentary Finance Committee, there is more opportunity for scrutiny of the draft
budget than for budget execution.
C. Higher Level Objectives to which the Project Contributes
15. The project objective is clear, relevant and important to Malawi as articulated in the
MGDS II consistent with FY13/16 CAS and is fully aligned to the Africa Regional Strategy. It is
also consistent with strategies of the various donors contributing to the MDTF and the
framework for CABS. It is designed to help the Government achieve improved public service
delivery through strengthened public sector management systems. In achieving these outcomes,
the CAS provides for joint efforts with other development partners and has accommodated the
multi donor approach to supporting PFM reforms. In terms of policy areas, the projects under
PFEMRP will contribute towards restoring prudent fiscal policy and sound macroeconomic
management. They are consistent with the ‘governance and public sector capacity’ cross
cutting/foundational pillar of the Bank’s Africa Strategy. By strengthening human and
institutional capacity in the public service, front line service delivery will improve, thereby
indirectly addressing the cross cutting issue of capacity development in MGDS II. The renewed
engagement with Malawi by development partners includes pilot use of national PFM systems
and the project is important to assist to develop the necessary PFM assurance.
15
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
16. The objective of the Project is to improve the internal controls, accounting, reporting and
oversight of the Recipient’s finances at the central and decentralized levels in its ministries,
departments and agencies (MDAs). Achievement of the objective will be assessed through
impact on relevant PEFA performance indicators.
Project Beneficiaries
17. The main stakeholders in this project are the ministries and budget users of the
implementing departments, agencies and districts and the beneficiaries of the results of the
internal and external audits since better oversight and management of funds means that more
resources will be available for good use across government programs. Consultations were held
with these stakeholders to understand the gaps with a view to tailor components to address the
existing deficiencies. It is also expected that the citizens of Malawi will benefit from more
effective service delivery facilitated by these reforms.
PDO Level Results Indicators
18. PEFA assessments of central government which includes the many tasks decentralized to
the districts in Malawi were carried out in 2005, 2006, 2008, and 2011. The PEFA assessments
have made an important contribution to the shaping and implementing of reforms and
improvements to the PFM system, and the GoM has expressed strong interest in using the results
of the 2011 PEFA assessment to help shape its future reform agenda. The achievement of the
project's overall development objectives will be measured by regular focused assessments of the
following key outcome indicators using the PEFA framework:
• Improved effectiveness of payroll controls and non-salary controls as measured by PEFA
PI-18 and PI-20.
• Improved compliance with rules as measured by PEFA PI-20
• Improved effectiveness of internal audit as measured by PEFA PI-21
• Improved information on resources received by service delivery units as measured by
PEFA PI-23
• Improved quality and timeliness of annual financial statements as measured by PEFA PI-
25.
• Improved scope, nature, and follow-up of external audit as measured by PEFA PI-26
• Improved scrutiny and response to external audit reports as measured by PEFA PI-28
• Improved service delivery resulting from PFM reform interventions to be defined during
the first two quarters of project implementation
16
III. PROJECT DESCRIPTION
A. Project Components
19. .This project is conceptualized to respond to the PFEMRP by focusing on improving the
Integrated Financial Management System (IFMIS) and oversight functions of internal and
external audit for better implementation of the rules and regulations, fuller utilization of IFMIS
functionalities and improved service delivery. The components for this project have been chosen
based on the joint priorities of the government and MDTF partners and readiness to implement.
The project is scalable and Phase I covers some urgent technical assistance, training and goods
procurement. The intention is to expand the reach of the project activities to Phase II with
subsequent funds once they are received.
20. Accounting and Financial Management (Component 5 of PFEMRP) US$9.2 million
(US$3.9 million in Phase I and US$5.3 million in Phase II) - This component is to improve the
systems and controls for accounting and financial management.
21. Sub-component 1- Accounting and IFMIS (Component 5.1 and 5.2 of PFEMRP) - This
sub-component would assist the Government to improve the efficiency and comprehensiveness
of Government accounting and financial management systems in its MDAs, the compliance with
the rules and regulations, and the comprehensiveness, transparency, and timeliness of fiscal
reporting. Following a yet to be concluded review of business process and functional
requirements (funded separately by EU with the consultants expected to be on board in
November, 2012), this is expected to be achieved in phases. Though phasing of activities will be
adjusted over the course of the project implementation to flexibly respond to the evolving ground
realities, a broad sequencing of activities is planned around two phases.
Phase 1 will cover: (i) the automatic capture of all Government revenues, expenditures
and financing transactions in IFMIS; (ii) ‘interfacing IFMIS with the Central Bank to
foster automation and hence efficiency in reconciliations’; (iii) implementation of an
electronic payments system (iv) implementation of Cash Basis International Public Sector
Accounting Standards (IPSAS); (v) harmonization of integrated financial management
systems at central and district levels; (vi) review of annual budgeting, accounting and
reporting processes and associated controls to be implemented through subsequent
upgrading of IFMIS to a web based version with comprehensive coverage of all relevant
modules and interfaces; (vii) purchase of new licenses if EPICOR or Serenic Navigator
(SN) softwares do not meet government requirements and ; and (viii) consulting services
to analyze expenditure arrears and make recommendations;
Phase 2 will cover: (i) roll out of budgeting module to all the MDAs; (ii) devolution of
financial management responsibility to MDAs; (iii) implementation of fixed assets
register, (iv) roll-out of business intelligence and reporting tools to select users of all the
MDAs and (v) decentralization support.
Activities that will stagger across both phases include: (i) getting government's core
IFMIS team trained in relevant technical certificate courses, (ii) improving the
competency of the accountancy service; (iii) developing the management skills to run
IFMIS effectively; and (iv) hiring of technical support staff for sustainability of the
IFMIS.
17
22. Sub-component 2 – Payroll Management (Component 5.1 of PFEMRP) - The Payroll
Management subcomponent would cover: (i) Business processes re-engineering, including
automated posting to IFMIS General Ledger through interface, follow up and cataloguing of all
processes including descriptions of operations and controls; (ii) roll-out of payroll system to the
regions; (iii) Improvement of quality of staff through specialized training for system
administrators and managers, and user training for users from various MDAs; and (iv) Adequate
audit coverage of payroll, (v) Development of payroll interface by Accountant General
Department (AGD); (vi) hardware support for decentralization of payroll operations to three
districts and (vii) support the establishment of Disaster Recovery (DR) center for payroll. This
could best be achieved through the cooperation of Department of Human Resource Management
and Development (DHRMD) staff and internal auditors in the various MDAs.
23. Sub-component 3 – IFMIS Roll out to districts (Component 5.1 of PFEMRP) – This
component would cover activities not included in GIZ funding to National Local Government
Financing Committee (NLGFC) associated with IFMIS roll-out to 8 remaining councils,
including purchase of servers and other hardware for back-up and disaster recovery, procurement
of generators, furniture, air-conditioners and networking, VPN Connectivity, laptops for
technical support team, technical training for database administrators and networking specialists.
24. Component 2 - Internal Audit (Component 5.3 of PFEMRP) US$2.8 million (US$1.4
million in Phase I and US$1.4 million in Phase II) - This component would focus on supporting
the Central Internal Audit Unit (CIAU) in further development of the Internal Audit Service
within the PFEMRP through: (i) Improvement of the governance and legal framework to provide
a wider range of internal audit services; (ii) Capacity building of the CIAU including the
development of a human resource development plan, support for the recruitment, retention and
training of CIAU staff; (iii) Establishment of quality assurance arrangements for high quality
audits and reports; (iv) Development and implementation of a system for reporting internal audit
performance to the CIAU and coordination with stakeholders.
25. Component 3 - External Audit (Component 9 of PFEMRP) US$4.7 million (US$2
million in Phase I and US$2.7 million in Phase II) - This component would focus on
strengthening the operational capacity of the National Audit Office (NAO) through:
i. Delivery of high quality and timely audit services by re-engineering audit procedures
through revision of audit manuals and training staff in new procedures including conduct
and reporting of regularity audit, performance audit, procurement audit and revenue
audit;
ii. Advising on appropriate conditions of service and training policies for competent and
motivated staff, supported by IT software for audit management and conduct;
iii. Provision of vehicles and computers for auditor operations;
iv. Provision of effective communication facilities for improved audit management and audit
reporting arrangements; and
v. Increased independence and accountability for the NAO in line with the independence
principles of ISSAI 10 of the International Standards for Supreme Audit Institutions,
annual audit of NAO, and stronger dialogue with stakeholders including PAC and donors.
18
26. Component 4 - PFEMRP Management (Component 10 of PFEMRP) US$1.6 million
(US$0.7 million in Phase I and US$0.9 million in Phase II) - The objective of the component is
to manage the agreed development program, provide procurement and financial management
support to the implementing departments and to monitor the objectives and performance against
the indicators. The PFEM unit will also be responsible for the financial management of the
overall trust fund program. Capacity building is required both in terms of staff training and also
additional appointments to support the main functions of the Unit. Main activities will include;
(i) procurement of full complement of professional staff required for the Unit either through
transfer from other units or through contract appointment; (ii) purchase of any office equipment
urgently required and incremental operating costs; (iii) training in program and project
management and procurement and/or financial management as required; (iv) annual audit of the
project by independent auditors; (v) supporting the development of ICT to enhance
communication with the other PFEM Institutions; (vi) facilitating the undertaking of PFEM
studies, reviews and assessments; and (vii) facilitating development and appraisal of remaining
components of the PFEMRP.
B. Project Financing
Lending Instrument
27. The project is an estimated US$8 million operation which is scalable to US$19 million which
will be financed by the PFEMRP Multi Donor Trust Fund administered by the World Bank.
This will be a grant executed by the Government of Malawi. To accommodate for the currently
available funds and the future pledges and funds flow to the MDTF, the project implementation
will be carried out in two phases – the first phase for a total amount of US$8 million and the
second phase for the remaining US$11 million. The initial Grant Agreement between the World
Bank with the Government will be for US$8 million which will be amended based on future
funds commitments to the MDTF.
Project Cost and Financing
28. The project costs are as follow:
Project
Components
Project Costs
(millions of US$)
MDTF Financing (millions of US$) % Financing
Phase I Phase II
1. Accounting and
Financial
Management
9.2 3.9 5.3 100
2. Internal Audit 2.8 1.4 1.4 100
3. External Audit 4.7 2.0 2.7 100
4. PFERMP
Management
1.6 0.7 0.9 100
Contingencies 0.7 0.7 100
Total Project
Costs
19.0 8.0 11.0 100
19
C. Lessons Learned and Reflected in the Project Design
29. The project design should be simple and designed for easy implementation and should
take into account the absorptive capacity of the country and the prevailing political context. The
Financial Reporting and Oversight Improvement Project (FROIP) design has been a country
product with limited guidance from the Bank. A long term in country Advisor has assisted the
GoM. The design and investment in IT infrastructure should anticipate expansion needs. The
consultant in IFMIS has long experience in this issue. FROIP includes substantial training aimed
at improving implementation capacities of relevant counterpart and implementing government
staff.
30. Capacity building should be centrally managed. FROIP has a project management unit in
the MoF. Project design should take account of grant financing from donors, which requires
more flexible design of capacity building activities. This will minimize duplication of efforts,
and encourage cost effectiveness. FROIP is funded through a Multi Donor Trust Fund with a
managing committee which will approve and monitor expenditure abased on agency request.
This will provide flexibility and control. Previous expenditures have been judged ineligible
because of differing perceptions on the provisions of allowances. The project will be clear on the
criteria for providing allowances and expenses will be closely monitored by the committee.
31. Changes in political economy are not predictable, but could be better adapted to if project
design allowed greater flexibility in implementation. It is pertinent therefore, to constantly
evaluate and adapt to change in circumstances to better maneuver public management reform
programs. The project management unit will adapt the project to such developments.
32. Recruiting specialists for M&E, IT, financial management, and procurement in the
implementing agency at the beginning of the project is very important so that there will not be
lack of skills in these matters, and implementation delays can be avoided. FROIP will address
this.
33. Inter-ministerial and donor coordination is crucial to the success of project
implementation. The MDTF management arrangement addresses this.
34. M&E technical committee meetings and annual and quarterly work plans are essential
tools for monitoring the progress of project activities. Further, regular guidance from the steering
and technical committees will facilitate smooth project implementation.
35. Based on the FIMTAP report, continuity of the team working on the project, especially
the Task Team Leader (TTL), is very important both for the Bank and the Borrower. Task
leadership of a complex project should be entrusted to senior and more experienced Bank staff,
and not to a fresh or newly recruited staff who does not have any operational experience with the
Bank projects. The FROIP is to be led by a very experienced Bank officer.
20
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
36. The individual components will be managed by senior officers responsible to the heads of
the relevant agencies – Accountant General, Auditor General, Internal Audit Director and Head
of PFEM Unit. The project is being implemented within the framework of the PFEMRP and will
be overseen by the PFEM unit in the MoF which will also be responsible for centralized
procurement, financial management and monitoring of the overall trust fund program. Special
arrangement will be made to ensure that the independence of the National Audit Office is
respected in consultation with the MDTF partners and the NAO. Capacity building will be given
to this unit both in terms of staff training and also additional appointments to support its main
functions.
37. Project implementation arrangements have been derived from the governance
arrangements set up for the PFEMRP as a whole and will consist of: (i) PFEM Steering
Committee; (ii) PFEM Technical Committee (PFEMTC); (iii) Technical Working Groups
(TWGs) and (iv) PFEM Unit (PFEMU). In addition to this, there is also a Joint Government
Donor Committee.
PFEM Steering Committee (PFEMSC): This is the highest level government body that
provides strategic policy guidance and oversight of Malawi's overall PFEM program. The
PSC is chaired by the Secretary to the Treasury with PFEM Unit providing secretariat
services. The PFEMSC has representation from key PFEM institutions with the PS
Economic planning and Development, Office of the President and Cabinet (OPC)-PS
Finance, OPC-PS Public Sector Reform, PS DHRMD, PS Local Government and Rural
Development (LG&RD), Auditor General, Accountant General, Director-Office of the
Director of Public Procurement (ODPP), Executive Secretary NLGFC, Commissioner of
Statistics, Commissioner General of Malawi Revenue Authority (MRA), Chairperson of
the PFEM TC. The committee meets semiannually to review progress on the PFEM
reform program outcomes and to adjust and amend the strategy and work program as
necessary.
PFEM Technical Committee (PFEMTC): PFEM Technical Committee is presently
chaired by the Director, Debt and Aid Division (DAD) and consists of directors of all
divisions in MoF, senior officers of the other organizations represented at the PFEM
Steering Committee (PFEMSC) as members; the PFEM Unit acts as secretariat to this
committee. Apart from the above, membership of the PFEMTC would include
Component Coordinators and representatives from line ministries and other relevant
officials as the Chair considers necessary including representatives of the MDTF donors
and the TF Administrator. PFEMTC meets every two months and its functions include
oversight of PFEM activities and review of the implementation progress of projects under
PFEM RP MDTF with inputs from the TWGs. They will report to the PFEMSC and will
ensure that implementing units comply with the policy guidelines as directed by
PFEMSC. PFEMTC can also call technical meetings with the participation of other
project representatives and DP's technical teams to discuss issues of cross cutting nature
and interface among the projects.
21
Technical Working Groups (TWGs): In the PFEM RP there are 10 proposed working
groups which would pursue the technical work of the PFEM RP. There may be others as
required for effective implementation of the PFEMRP. Currently, there are seven TWGs
operating - those for Audit, IFMIS & Financial Reporting, Macroeconomic forecasting
(also known as the National Accounts group), Cash Management, Procurement,
Domestic Revenue and Public Expenditure Reviews. The TWGs relevant to this project
(Audit and IFMIS) will provide technical input and participate in the preparation,
appraisal and monitoring of the project. TWGs are chaired by the Directors heading the
relevant technical department/unit. Membership of the TWGs will be expanded to
include Directors, Component Coordinators and representatives from line ministries and
other relevant officials as the Chair considers necessary and the representatives of the
MDTF donors and the TF Administrator. They will report to the PFEMTC and will
ensure that implementing units/departments comply with the policy guidelines as directed
by the PFEMTC and PFEMSC. TWGs will hold monthly review meetings. Their
specific responsibilities include: (a) preparation for relevant project appraisal and review
of progress reports towards the project's objectives; (b) preparation and submission of
annual work plans, budgets and procurement plans to PTC, PSC, and Donor Project
Team; (c) review of agreed performance targets; (d) analysis of implementation issues for
achieving key outputs; and (e) identification of critical risks that could hinder efficient
implementation of project activities and draw risk mitigation measures.
PFEM Unit (PFEMU): The PFEM Unit will be the key unit which facilitates the
PFEMRP. It also acts as secretariat to the various committees and it will provide support
for managing the day to day financial management and procurement transactions of the
projects. The PFEMU will be staffed with government officials and will include Deputy
Director who will report to the Director and the PS Administration who has overall
responsibility for PFEM RP and Specialists in Procurement, Financial Management and
M&E. The main functions of the PFEMU will be to: (i) provide logistical support and
guidance to the project teams and component coordinators; (ii) compile work programs
from the various working groups, budgets and procurement plans for each project; (iii)
monitor project implementation and prepare progress reports for the PFEMTC and
PFEMSC; (iv) submit consolidated annual work programs, budget and procurement plans
for review and endorsement by the PFEMTC and PFEMSC; (v) hold regular meetings
with focus groups and component coordinators to ensure appropriate linkage in the
activities under various components; (vi) maintain project accounts, manage designated
accounts and prepare project financial statements; (vii) submit withdrawal applications to
the World Bank for replenishment; (viii) make recommendation to the PFEMTC and
PFEMSC on how to effectively implement the agreed work plan; and (ix) carry on
periodic performance evaluation of all long term consultants (both expatriate and local).
Joint Government Donor Committee: This committee will be the main oversight body
for the overall management of the trust fund. The committee will be co-chaired by the
Secretary to the Treasury and the head of one of the contributing development partners to
the MDTF on a rotating basis and will include representatives from MDTF donors,
conveners of TWGs, or their representatives, Principal Accounting Officers or
representatives of the implementing departments of relevant components and the Head of
the PFEM Unit. The main functions of this Committee will be to: (a) review and monitor
22
the implementation of the MDTF in line with GoM’s overall PFEMRP; (b) review and
approve sub-projects submitted for funding out of the MDTF; (c) monitor progress on the
annual MDTF work program/plan, budgetary allocation/funding commitments and
disbursements and any other adjustments that may be necessary. The committee will
meet as needed but no less than semiannually.
Summary of Project Implementation Arrangements
Institution
Unit
Members/Composition Tasks/Responsibilities Reporting
PFEM Steering
Committee
(PFEMSC)
Chaired by the Secretary to the
Treasury. The PFEM Unit,
Ministry of Finance will serve as
the Program Secretariat.
Members: PS Economic Planning
& Development, OPC-PS Finance,
OPC- PS Public Sector Reform,
PS DHRMD, PS LG&RD, Auditor
General, Director ODPP,
Executive Secretary NLGFC,
Commissioner of Statistics,
Commissioner General of MRA,
Accountant General, and
Chairperson of PFEMTC
Provides strategic policy
guidance and oversight of
Malawi’s overall PFEM reform
program
Review progress on the
PFEMRP outcomes
Recommend actions for
modifying work programs/plans
regulations and policy or
implementation arrangements
PFEM Technical
Committee
(PFEMTC)
Chaired by the Director, DADM.
Members: Directors of all
divisions in MFDP (including
MRA and CIAU), senior officers
of organizations represented at the
PFEMSC, Component
Coordinators, representatives from
line ministries, MDTF
Administrator and representative
from MDTF donors
Oversight of PFEM activities
Review of project
implementation progress under
PFEM RP MDTF and provide
necessary guidance
Review and approve annual
work plans, budgets and
procurement plans
Review of agreed performance
targets
Resolve critical risk including
implementation issues
Submit funding proposals to
MDTF Administrator and DPs
- Reports to the
PFEMSC
- Prepares summary
report for PFEMSC
meetings
Technical
Working Groups
(TWG)
There are ten TWGs to pursue the
technical work of PFEM RP.
TWGs are chaired by Directors
heading the relevant technical
department/unit.
Members: Directors, component
coordinators, representatives from
line ministries and other relevant
officials as the Chair considers
necessary and representatives of
MDTF donors and the TF
Preparation for project
appraisal and review of
progress reports
Preparation and submission of
annual work plans, budgets and
procurement plans to PFEMTC,
PFEMSC, and Donor Project
Team
Review of agreed performance
targets
Analysis of implementation
- Reports to the
PFEMTC
- Prepares summary
report for PFEMTC
meetings
23
Administrator. issues for achieving key outputs
Identification of critical risks
that could hinder efficient
implementation of project
activities and draw risk
mitigation measures.
Public Finance
and Economic
Management
Unit (PFEMMU)
Headed by a full time Head of the
Unit who is a serving government
official
Serves as Secretariat of the project
comprising the following: (i)
Project Director, Addl. PD,
Procurement & Finance Specialist,
M & E Specialist, and Technical
component specialists and other
support staff
A team of Management/
Implementation Support
Consultants including long and
short term consultants for
providing TA support as required
Provide logistical support and
guidance to the project teams
and component coordinators
Compile work programs from
the various working groups,
budgets and procurement plans
for each project
Monitor project implementation
and prepare progress reports
for the PFEMTC and PFEMSC
Submit consolidated annual
work programs, budget and
procurement plans for review
and endorsement by the
PFEMTC and PFEMSC
Hold regular meetings with
focus groups and component
coordinators to ensure
appropriate linkage in the
activities under various
components
Maintain project accounts,
manage designated accounts
and prepare project financial
statements
Submit withdrawal applications
to the World Bank for
replenishment
Make recommendation to the
PFEMTC and PFEMSC on how
to effectively implement the
agreed work plan
Carry on periodic performance
evaluation of all long term
consultants (both expatriate
and local).
- Reports to the
Principal Secretary,
Administration,
MoF
- Prepares progress
reports including
financial,
procurement &
monitoring reports
Joint government
DP Committee
Co-chaired by the Secretary,
Treasury and head of one of the
principal donor partners of MDTF
Members: PSC chairs, PDs and
MDTF contributing donors
Jointly review and assess
implementation progress of the
MDTF program overall against
program benchmarks
Review financing decisions
Review disbursements to date
vis-à-vis project delivery status
Discuss and agree annual work
plans, budgetary allocation and
Detailed report on
overall progress of
project implementation
and on performance of
MDTF
24
any other adjustments that
might be necessary
B. Results Monitoring and Evaluation
38. The project’s Monitoring and Evaluation (M&E) framework will be a key instrument to
monitor progress towards achieving the project development objectives and informing the
PFEMTC on project performance including potential bottlenecks as they arise. The M&E
framework presented in Annex 1 captures the high level results that are expected to be achieved
during the life of the project. The periodic performance assessment of the project and the
resulting outcomes will be carried out jointly by the World Bank and the MDTF donors with the
support of the PFEM unit. Apart from this, the government in consultation with MDTF partners
plans to develop lower results indicators to track results in service delivery or improved
efficiency arising out of the proposed interventions. This is proposed to be done during the first
six months of project implementation to come up with a baseline for future tracking.
C. Sustainability
39. The MDTF is being locally managed within the MoF and project components are being
managed by affected agencies. Substantial parts of the project are directed at building staff skills
and capacity and the expansion of the IFMIS is to be undertaken in phases that will be adjusted
over the course of the project implementation to flexibly respond to evolving ground realities.
Although the project focuses on delivery though the use of external consultancies, the
consultants will work closely with the staff and deliver training and transfer learning as needed.
In addition to including this in consultants ToRs, the review mission teams would carry out
periodic checks to ensure that this is being achieved during the period of the project so as to give
room for taking necessary action where it is not being done. This should ensure that the
increased capacity would be retained in the ministries impacted by the TA interventions. Where
the activity is geared towards the building of information databases and the building of analytical
models, the training will also ensure that the staff would be able to update and maintain these
tools. In the area of Accounting and IFMIS, much of the proposed support centers on the
development and implementation of systems to remedy shortcomings in the Government's
existing framework, and to support the Government's strategic needs over the next few years.
All of the activities proposed are structured so as to promote sustainability of the systems after
the consultants have completed the design and implementation tasks. In each of these activities,
sustainability will be promoted through the comprehensive documentation of functional and
technical requirements, system design, system configuration and construction, system testing
scripts and testing reports, system policy and procedure manuals, system user guides, system
training plans, system training materials, documentation of historical data loading and migration
documentation. In addition, each consultancy - whether they be system developments or other -
will be structured to include a comprehensive capacity building element including the production
of policy and procedure manuals, training materials and the planning and delivery of a
comprehensive, detailed training program to guarantee the transfer of expert knowledge to GOM
staff and a foundation for the training of future staff recruited into these areas. In addition,
discussions are in progress for the South African Institute of Chartered Accountants (SAICA) to
25
partner with local Malawian universities or training institutions to develop competencies in
accounting and public financial management.
V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
Risk Category Rating
Stakeholder Risk Substantial
Implementing Agency Risk
- Capacity Substantial
- Governance Substantial
Project Risk
- Design Substantial
- Social and Environmental Low
- Program and Donor Moderate
- Delivery Monitoring and Sustainability Moderate
- Other (Optional)
- Other (Optional)
Overall Implementation Risk Substantial
B. Overall Risk Rating Explanation
40. Financial management reforms involve changes in rules, processes and systems that
affect the incentives of the decision makers in allocation and use of scarce public resources. This
reform process therefore is a venture with substantial risk. However, these risks are not unique
to the Malawi program and are faced in many countries implementing a similar reform program.
In the case of Malawi, the risks which might affect the successful implementation and
sustainability of this program are: (i) risks due to changing focal point for PFM reforms rated as
substantial; (ii) weak implementation capacity rated as substantial; and (iii) risks due to poor
governance/weak fiduciary environment rated as high. The overall program risk rating during
preparation and implementation is assessed as substantial. The Operational Risk Assessment
Framework (ORAF) in Annex 4 describes the risks and the mitigation measures completed or to
be addressed during implementation.
VI. APPRAISAL SUMMARY
A. Economic and Financial Analyses
41. The project would contribute to the objective of better accounting, and reporting of public
finances using a controlled, secure, and accountable system that is less prone to manipulation.
26
The quality of expenditure audit will be significantly enhanced as a result of the use of modern
techniques in compliance, certification, and performance audits. The project will support better
fiscal and financial management decision making in government; provide timely, comprehensive
and reliable budget execution data to line ministries and other spending agencies; allow for the
timely production of accurate and meaningful financial statements, based on international
standards; raise the capacity and competencies of the manpower responsible for budget
execution, internal auditing, accounting and financial and fiscal reporting, and external auditing.
Although difficult to quantify, each of these factors has a positive economic impact.
B. Technical
42. The program does not involve introduction of complex new technologies and the
implementing agencies and contractors are familiar with these. All technical issues will be
addressed during project appraisal and would include connectivity, capacity, and reliability of
communications links and arrangement for quality control of works implemented by various
contractors.
C. Financial Management
43. The FM systems of the ministry are generally in place to process project transactions and
produce reports as required. The PFEM unit which will be directly responsible for FM
arrangements of the project has adequate number of qualified and experienced staff. The
accounting system being currently used is the automated IFMIS. The same system will be used
for the project. The current chart of accounts in IFMIS does not allow processing transactions in
accordance with project activities or components. An excel spreadsheet will be used to further
analyze information in IFMIS and allow quarterly reporting in compliance with legal
agreements. It is expected that the chart of accounts in IFMIS will later (within one year) be
reconfigured in a manner that will allow project transactions to be processed in line with
activities and components. The mitigation measures that are planned in order to strengthen the
FM arrangements are:(i) FM staff to undergo training in FM and disbursement for World Bank
funded projects; (ii) reconfigure chart of accounts in IFMIS to allow transaction processing in
line with project components; (iii) Strengthen control environment around operation of
automated IFMIS by increasing risk awareness among users of the system; (iv) minimize
frequency of staff transfers and ensure that where that happens replacement is done promptly
with at least equally qualified staff. The details of the assessment are contained in annex.
The Financial Management assessment concluded that the financial management arrangements
meet the Bank’s minimum requirements under OP/BP 10.02. With the implementation of the
financial management action plan, the financial management arrangements for the project will be
further strengthened. The residual risk rating for the department is Substantial.
D. Procurement
44. Procurement under the Financial Reporting and Oversight Improvement Project will be
carried out in accordance with the “Guidelines: Procurement of Goods, Works and Non
Consulting Services under IBRD Loans and IDA Credits& Grants by World Bank Borrowers”
published by the Bank in January 2011; and "Guidelines: Selection and Employment of
Consultants under IBRD Loans and IDA Credits& Grants by World Bank Borrowers” published
27
by the Bank in January 2011. National Competitive Bidding (NCB) will be in accordance with
the Malawi Public Procurement Act of August 2003 which has been reviewed and found
satisfactory to the Bank with a few exceptions. The overall risk of the Ministry of Finance to
carry activities under the project is substantial as currently there is inadequate qualified staff
that can undertake procurement activities under the project using World Bank guidelines and
procedures. The Procurement Section needs to be strengthened by having Technical Assistance
as an interim measure to ensure that procurement capacity is sufficient to meet procurement
demands. Details of the technical assistance required are discussed in the procurement
assessment given in Annex 3. “Guidelines on Preventing and Combating Fraud and Corruption
in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006 and
updated in January, 2011, shall apply to the project.
E. Social (including Safeguards)
45. The project is expected to have positive social impacts through improved credibility on
government financial management. Transparent and accountable management of public
resources will lead to increased civic confidence in government. The computerization of
transactions and processes would lead to better and faster public services delivery.
F. Environment (including Safeguards)
46. As a Category C technical assistance program, the Bank’s environmental safeguard
policies are not triggered.
G. Other Safeguards Policies Triggered (if required)
47. None
28
Annex 1: Results Framework and Monitoring
MALAWI: Financial Reporting and Oversight Improvement Project
PDO Level
Results
Indicators*
Core
Unit of
Measure
(PEFA
score)
Baseline
(2010/11)
Targets
Frequency
Data
Source/
Methodo-
logy
Responsi-
bility for
Data
Collection
Description
(indicator
definition etc.) Dec.
2013
Dec.
2014
Dec.
2015
Dec.
2016
Indicator
One:
PEFA PI-18
PI-18 B+ B+ B+ B+ A Annual PEFA Self-
Assessment
PFEM
Unit
Predictability
and control in
budget
execution:
Effectiveness of
payroll controls
Indicator
Three:
PEFA PI-20
PI-20 C+ C+ C+ C+ B Annual PEFA Self-
Assessment
PFEM
Unit
Predictability
and control in
budget
execution:
Effectiveness of
non-salary
controls
Indicator
Four:
PEFA PI-21
PI-21 D+ D+ D+ C C Annual PEFA Self-
Assessment
PFEM
Unit
Effectiveness of
internal audit
29
Indicator
Five:
PEFA PI-23
PI-23 D D D D+ D+ Annual PEFA Self-
Assessment
PFEM
Unit
Accounting,
recording and
reporting:
Availability of
information on
resources
received by
service delivery
units
Indicator Six:
PEFA PI-25
PI-25 C+ C+ C+ C+ B Annual PEFA Self-
Assessment
PFEM
Unit
Accounting,
recording and
reporting:
Quality and
timeliness of
annual financial
statements.
Indicator
Seven:
PEFA PI-26 &
28
PI-26
PI-28
D+
D+
D+
D+
D+
D+
C
C
C
C
Annual PEFA
Assessment
PFEM
Unit
External audit
and legislative
scrutiny: Scope,
nature and
follow-up of
external audit &
Legislative
scrutiny of
annual audit
reports
Indicator
Eight
Improved
service
delivery
resulting from
PFM reform
interventions
Baseline
study Q 1
& 2 of
project
period
To be defined
during
implementation
30
Annex 2: Detailed Project Description
Malawi: Financial Reporting and Oversight Improvement Project
Component One: Accounting and Financial Management (Component 5 of PFEMRP)
1. The objectives of this component are to improve the systems and controls for accounting,
reporting and financial management. It has three sub-components as explained below.
Sub-component 1- Accounting and IFMIS (Component 5.1 and 5.2 of PFEMRP)
2. Objectives: This sub-component would assist the Government to improve the efficiency
and comprehensiveness of Government accounting and financial management systems in its
MDAs, the compliance with the rules and regulations, and the comprehensiveness, transparency,
and timeliness of fiscal reporting.
3. Implementation status: The Malawi IFMIS was implemented in 2005 on EPICOR Public
Sector Financials (version 7.2) platform for accounting and budgeting. Currently, EPICOR
system, upgraded to version 7.3.5 in 2007/08, being used in Malawi has the following modules
available:
a) Active Planner: used for compilation of annual budget and MTEF by only the Budget
Division users; ministries and agencies use spreadsheets to prepare budget requests;
b) General Ledger/CoA: implemented: multi-dimensional Chart of Accounts (CoA),
compliant with IMF’s Government Finance Statistics (GFS) implemented
c) Accounts Payables: implemented: being used for supplier maintenance, invoice and
payment processing
d) Commitment control/purchase orders: partially implemented with control weaknesses
e) Accounts Receivables (AR) and revenue management: Not implemented
f) Bank reconciliation: Not implemented; interfaces with central bank planned
g) Check printing: implemented; control weaknesses around handling of check books
h) Fixed Asset Management System: not implemented
i) Cash Management: partially implemented: only used for managing bank accounts,
not cash planning, forecasting and reconciliation.
4. As of now, the system has been implemented at all 52 line ministry headquarters in
Lilongwe and 3 regional treasury cashier offices. Most of the line ministries are connected to the
central servers and process their transactions on line. The Accountant General Department
(AGD) processes the transactions for a few off-line ministries. The system is primarily being
used to record current expenditures, make payments and produce reports. Donor funded project
payments are being processed outside the system. Interfaces with important external systems like
central bank, payroll, debt and aid management and revenues have not been developed.
5. Through the productive use of IFMIS, the government has been able to institute TSA
regime by centralizing the payments. The Government maintains a set of five accounts at
Reserve Bank of Malawi (RBM) for Government funds. Most individual spending Unit bank
accounts have been closed. Payments are centralized through the central payment office and are
made from one of these accounts. Remaining separate, ‘ring-fenced’ accounts relating to
31
respective projects are held at the RBM, from which checks are drawn by the respective projects
and payment information uploaded into IFMIS ex-post. Most expenditure transactions are
subject to budget availability checks before they are authorized for payment. Extra budgetary
funds are transacted outside the system.
6. The IFMIS system is not being leveraged to its full potential for a strengthened public
financial management environment due to several control weaknesses and incomplete coverage.
7. Direct payment facility, allowing users to make payment without purchase order and
commitment control, is being used without adequate access restrictions. Release of funds to
individual payments transactions without linkage to cash forecasts and commitments increases
the risk of rent seeking. There are control weaknesses in the system security involving access
rights, mostly through password sharing, to multiple users to over-ride budget availability check.
Non-tax receipts are collected by the respective field office or deposited in the designated local
bank branches through the deposit slips, which are bundled on monthly basis to be sent to the
Ministry, where they are entered in the IFMIS as monthly totals, losing voucher-wise break-up
required for bank reconciliation. Vendor creation process is ad-hoc and un-regulated. A custom
developed, home-grown system is being used to run the payroll, which is uploaded into the
IFMIS through a series of manual interventions, compromising controls at several steps along the
way.
8. The government is aware of these issues and is committed to improving the control
environment and coverage of the IFMIS through a comprehensive strategy. Key aspects of this
strategy involve urgent fixes, including strengthened system access controls, re-evaluation of
EPICOR as suitable technology platform, business process re-engineering and subsequent
revision of its accounting manual and IFMIS upgrade/re-implementation. This being supported
by funding from GIZ.
9. In this regard, the government wants to make an informed evaluation, whether EPICOR
system itself is suited to the needs of the governments or Serenic Navigator (SN), a Microsoft-
based ERP system, in operational use at the local governments with much higher level of user
satisfaction and technical support. Serenic Navigator offers a better opportunity to adopt uniform
technology architecture for supporting government’s financial operations at both the central and
local government level. On the other hand, an upgrade of EPICOR provides an opportunity to
leverage existing investments in software licenses, implementation, training, and change
management. Government also wants to consider a third option of looking at new software in
case both EPICOR and SN do not meet the requirements. However, third option has inherent
risks. It will not solve the underlying business process, implementation and compliance issues,
which mark the current EPICOR platform. Procurement process will potentially delay the
envisaged outcomes. The steep learning curve and change management issues involved in any
new technology will further increase the current capacity challenges. Opportunity to leverage
existing investments in software, hardware and training will remain unrealized. Due to these
risks, the third option will be considered only as a last resort. A provisional amount has been
allocated in the project costs to cater this eventuality that would involve purchase of new
software licenses in addition to other associated costs.
10. Before that evaluation can be carried out, govt. wants to develop its own functional
requirements, based on a comprehensive business process review, against which both the
software packages could be evaluated and compared for an informed decision. The re-designed
32
processes will become the basis of revision of detailed rules and procedures of the accounting
manual.
11. A firm to develop the functional requirements and carry out the technology evaluation
has already been hired through bilateral arrangements with the donors (EU is supporting this
though a framework contract). The outcome of this evaluation expected in the next 3 to 4 months
will determine the roadmap of the government to either upgrade EPICOR to version 9.0 or adopt
Serenic Navigator as central government’s IFMIS platform. This roadmap will help prepare the
detailed plan of activities for EPICOR upgrade or SN implementation to be supported through
this project immediately after project effectiveness. Similar implementations take 18-24 months
to complete as experienced in some other countries.
12. As part of this implementation, harmonization and integration with district government
financial management system will be further enhanced in areas of chart of accounts and
consolidation of financial statements including district government reports.
13. The capacity challenges to support and sustain the improved processes and IT
environment will be addressed through a combination of targeted trainings and technical
incremental staffing. The trainings will involve both on-site consultant-led trainings and off-site
short-term trainings at training institutes in the region for providing a combination of customized
and standard trainings. Government will be encouraged to design special incentives to retain the
trained staff as well as project-financed technical experts to be paid for through its own budget.
14. Currently, the capacity at the decentralized levels (district) looks better than at the
national level, especially in running the IFMIS system on a day to day basis. There are also some
parallel efforts through bilateral funding to strengthen capacity at these levels.
15. Govt. also plans to revise detailed procedures in the accounting manual after the business
process re-engineering.
16. Governments plans to develop its own fibre optics network through the Regional
Communications Infrastructure Project (RCIP) to connect these regions with Lilongwe. Planned
completion date for this backbone is December 2013. This will provide opportunity to
consolidate IFMIS technology architecture at one central data centre to strengthen standards,
leverage central support resources and save maintenance costs. In addition to these five date
centres, government has implemented a disaster recover (DR) site in 2007/08 within the premises
of the Department of Information, Systems and Technology Management Systems (DISTMIS) at
Old Town, Lilongwe.
17. Activities to be financed under this component: Key activities planned under this sub-
component will be carried out in phases. Though phasing of activities will be adjusted over the
course of the project implementation to flexibly respond to the evolving ground realities, a broad
sequencing of activities is planned around two phases - Phase 1 will cover: (i) the automatic
capture of all Government revenues, expenditures and financing transactions in IFMIS; (ii)
‘interfacing IFMIS with the Central Bank to foster automation and hence efficiency in
reconciliations’; (iii) implementation of an electronic payments system (iv) implementation of
Cash Basis International Public Sector Accounting Standards (IPSAS); (v) integration of
financial management systems at central and district government levels; (vi) review of annual
budgeting, accounting and reporting processes and associated controls to be implemented
through subsequent upgrading of IFMIS to a web based version with comprehensive coverage of
33
all relevant modules and interfaces (vii) purchase of new licenses if EPICOR or SN do not meet
government requirements and (vii) consulting services to analyze expenditure arrears and make
recommendations. Phase 2: (i) roll out of budgeting module to all the MDAs; (ii) devolution of
financial management responsibility to MDAs; (iii) implementation of fixed assets register, (iv)
roll-out of business intelligence and reporting tools to select users of all the MDAs and (v)
decentralization support. Activities that will stagger across all three phases include: (i) getting
government's core IFMIS team trained in relevant technical certificate courses, (ii) improving the
competency of the accountancy service and (iii) developing the management skills to run IFMIS
effectively and (iv) hiring of technical staff to support the project.
Sub-component 2 – Payroll Management (Component 5.1 of PFEMRP)
18. Objectives: This sub-component aims to strengthen payroll controls and decentralize
federal payroll operations to three regions.
19. Implementation Status: The Department of Human Resource Management And
development (DHRMD) under OPC is responsible for running the payroll. The custom-
developed system, called Global HRMIS, has 9 modules:
a. Payroll
b. Establishment management
c. Employee data management
d. Training
e. Recruitment
f. Industrial Relations
g. Performance Management
h. Benefits Management
i. Advances and Loan Management
20. The bespoke system (Visual Basic programming language using SQL database) was
operationalized in 2006. Currently, about 170, 000 employees’ payroll of 47 Votes is being
supported by the system. The system has full position management (establishment register)
features operational – there are about 183, 000 positions created in the system, giving a fair idea
of vacancies within the government’s establishment. Each position is created in the system by
the central staff responsible for running the payroll, after ensuring required approval
documentation for the position is available.
21. After the payroll has been calculated, DHRMD informs the Ministry/SU (via a form
GB32), summarizing the payroll against the relevant GL accounts- pay and allowances etc. The
Ministry/SU transfers this information into a payment voucher and manually enters the totals
into the IFMIS system. The summaries are checked for budget availability and the system
produces checks for each Bank etc. Payroll payments are directly deposited in to employee bank
accounts on the basis of the pay lists prepared by the Payroll system. At present, no automated
interface exists between the payroll system and the IFMIS, or between the payroll system and the
budget system to check for position/ establishment control.
34
22. The design of the interface has been completed and agreed between DHRMD and AGD.
DHRMD has completed the development of the first part of the interface and has been sending
the automated electronic payroll file to the IFMIS server since February 2012. AGD is working
with SoftTech to develop the second part of the interface that pushes this file information into
IFMIS. DHRMD also plans to establish disaster recovery (DR) center for payroll system through
government’s own financing. Provisions have been made in this project to cover financing gap
for the establishment of the DR site. Government also plans to decentralize the payroll
operations to three districts.
23. Activities to be financed under this component: The Payroll Management subcomponent
would cover: (i) Business processes re-engineering, including automated posting to IFMIS
accounts payable through interface, follow up and cataloguing of all processes including
descriptions of operations and controls; (ii) roll-out of payroll system to the districts; (iii)
Improvement of quality of staff through specialized training for system administrators and
managers, and user training for users from various MDAs; and (iv) Adequate audit coverage of
payroll, (v) Development of payroll interface by AGD; (vi) hardware support for decentralization
of payroll operations to three regions and (vii) support the establishment of DR center for
payroll. This could best be achieved through the cooperation of DHRMD staff and internal
auditors in the various MDAs.
24. Sub-component 3 – IFMIS Roll out to Local Assemblies (Component 5.1 of PFEMRP)
– This component would cover left-over activities from GIZ funding to NLGFC associated with
IFMIS roll-out to 8 remaining Local Assemblies, including purchase of servers and other
hardware for back-up and disaster recovery, procurement of generators, furniture, air-
conditioners and networking, VPN Connectivity, laptops for technical support team, technical
training for database administrators and networking specialists.
Component 2 Internal Audit (Component 5.3 of PFEMRP)
25. The component will strengthen the Central Internal Audit Unit (CIAU) so that it can
manage the Internal Audit Service to improve internal controls and resource utilization generally
across the budget sector. Previous projects have helped to establish Internal Audit Committees in
each agency but improvement in audit effectiveness has been hampered by insufficient trained
internal auditors and a program generally limited to the main urban centres. The CIAU will
operate a quality control and assurance system that will ensure that the internal audit function
performs its work in accordance with its charter.
26. Activities that will be supported are:
(i) Improvement of the governance and legal framework to provide a wider range of internal
audit services and improve quality and coverage.
Re-orientate and re-balance the work of the Internal Audit Service increasing the
emphasis upon risks and controls; strengthen its risk-based audit planning and pilot
a Risk Based Process Focused Approach (RBPFA) to auditing in 4 ministries before
rolling RBPFA out to all IAUs; develop standardized documentation for
35
implementation of the new approach; and hold workshops and training events to
support auditors applying the revised audit methods.
Promote awareness of risk management; develop and circulate Enterprise Risk
Management (ERM) guidelines for managers; publish guidelines and conduct
management awareness events about ERM and the revised audit focus; develop and
implement a degree of Controls Self Assessment (CSA) enabling managers to play
a part in identifying and rectifying possible control failures.
Implement IT audit services; introduce IT auditing techniques by piloting control
reviews of the IFMIS, Payroll, MALTIS and other government information
systems; and conduct testing using the Integrated Data Extraction and Analysis
(IDEA) software package that has already been procured.
Extend internal audit coverage to other areas for which assurance and consulting
services are required; and carry out pilot audits to finalize standard methodologies
for additional audit services introduced.
Provide overall entity-level assurance; hold workshops with NAO to agree on
proper Terms of References for the audit Technical Working Group; and refine and
accelerate improvements in the internal audit legal and policy framework.
Discuss with management the most appropriate arrangement for refining the legal
framework and implementing the internal audit Charter; publicize (printing and
packaging) the legal framework; undertake a series of sensitization workshops for
internal audit and management for the internal audit charter and legal framework
once approved; and seek management’s understanding and approval of the internal
audit manual and implement its contents through a sensitization workshop.
(ii) Provision of a competent staff through a range of basic, specialist and professional level
skills training.
Stabilize internal audit staffing resources; formulate and implement a human
resources development plan for the internal audit function to address internal audit
staff vacancy issues, the difficulty of retaining trained staff and any staffing needs
arising from the re-orientation of internal audit services; And recruit an experienced
external consultant in project management, and local IT audit and capacity building
coordinators to provide overall internal audit reform guidance and manage all the
aspects of the Project.
Ensure that all internal audit staffs are appropriately and adequately trained;
conduct internal audit staff training in ‘soft’ skills such as audit interviewing,
partnering with management etc.; conduct a series of courses leading to certification
in Internal Audit such as basic skills training, core modules, specialist modules and
degree courses to ensure staff have adequate training, knowledge and skills; update
training needs analysis regularly, and develop and implement a low cost policy of
36
continuing professional development (CPD); carry out study visits to identify
successful practices operating in other internal audit services; and develop and
implement a low cost policy of CPD.
(iii) Establishment of quality assurance arrangements for high quality audits and reports.
Strengthen the quality control of audit services and products; refine existing
continuous quality checks over audit outputs and strengthen compliance with them;
regularly survey audit clients to identify areas of potential improvement; and
develop working papers for appropriate methodologies and approaches that will
embody these quality control aspects.
Maintain periodic quality assessments; conduct an internal quality assessment of
each internal audit unit at least once every two years; conduct an external quality
assessment of the internal audit function at least once every five years; and conduct
IT control surveys in selected MDAs with the assistance and under supervision of a
consultant.
(iv) Development and implementation of a system for reporting internal audit performance
and management response.
Improve processes for collecting and analyzing data on the performance of internal
audit units; develop and implement improved guidelines for the collection and
analysis of primary audit performance measures, automated wherever possible; and
conduct a workshop to develop improved guidelines for the collection and analysis
of primary audit performance measures.
Improve processes for reporting audit performance and issues; conduct a short study
in order to develop procedures aimed at strengthening existing processes for
reporting internal audit performance; and develop a balanced scorecard approach to
measuring internal audit performance that should include information relevant and
holistic to a wide range of stakeholders.
Raise the profile of the internal audit function; develop and design an internal audit
website and newsletter for the dissemination of information about internal audit and
common control issues and solutions; carry out coordination and cooperation
meetings at agreed intervals with key stakeholders in areas including control work,
audit scheduling, exchange of audit reports and follow up by Internal Audit
Departments (IADs) on selected external audit reports.
Component 3 External Audit (Component 9 of PFEMRP)
27. The National Audit Office is reforming to become an independent Supreme Audit
Institution following an Institutional Review approved in January 2011 by Government. The
External Auditing component will strengthen the operational capacity of the National Audit
Office.
37
28. Activities to be supported will include the following:
Improvement of overall quality of work by improving the quality of audit manuals as
well as providing training in key areas of need. Review and further develop the manuals
for regularity audit, revenue audit, procurement audit, IT audit, and use of Computer
Assisted Audit Techniques (CAATS). Align the audit manuals and audit training guides
to meet international standards of auditing and to identify the use of CAATs. Arrange
appropriate training in the use of these manuals to conduct the audits. Train the NAO
accounting staff to prepare the NAO financial statements and broaden the auditors’
knowledge base by training NAO staff in how the performance of public sector
organizations is managed.
Improving internal career planning and training capacity. Develop effective conditions of
service to provide incentives. Conduct regular Training Needs Assessment (TNA) for
NAO staff to support the development and implementation of a training policy and plan
to deliver required audit and management competencies. The plan would include training
NAO managers in strategic human resource management.
Developing more competent and motivated auditors by providing software for greater
efficiency. Procure and install appropriate audit management software and CAATS
software. Arrange training in the use of this software.
Promoting more effective communication by reviewing network, hardware and
communication needs. The current ICT configuration would be assessed to identify the
further needs for network development and computers.
Acquiring necessary infrastructure including include goods acquisition of the ICT
network and hardware required. Tasks would include acquiring laptops and desktop
computers for staff, an effective intranet and extranet system including ICT hardware and
service contracts, LAN extension at Head Office and Regional Offices, short term
consultancies on LAN and server service, and providing website updates.
Improving the independence of the NAO by providing high level institutional building
support. This would include: study visits on comparative SAI communication,
accountability, independence, and parliamentary reporting practices within the region;
developing a communication strategy covering the main stakeholders including
development partners; short term consultancy for the realignment of the Public Audit Act
(PAA) in line with the Institutional Review Report and facilitating the process of
developing draft amendments of the PAA by Ministry of Justice; developing procedures
for Budget presentation to Parliament and the processes to be followed.
Improving NAO support for the related parliamentary committees – Public Accounts,
Budget and Finance. This would include informing parliamentary committees on
appropriate arrangements for the consideration of the NAO budget.
38
Component 4 PFEMRP Management (Component 10 of PFEMRP)
29. The objective of the component is to manage the agreed development program, provide
procurement and financial management support to the implementing departments and to monitor
the objectives and performance against the indicators. The PFEM unit will also be responsible
for the procurement and financial management activities of the overall trust fund program and
the projects funded under the same. Capacity building is required both in terms of staff training
and support to the main functions of the Unit. Main activities will include; (i) procurement of full
complement of professional staff required for the Unit either through transfer from other units or
through contract appointment; (ii) purchase of any office equipment urgently required and
incremental operating costs; (iii) training in program and project management and procurement
and/or financial management as required; and (iv) annual audit of the project by independent
auditors (v) supporting the development of ICT to enhance communication with the other PFEM
Institutions; (vi) facilitating the undertaking of PFEM studies, reviews and assessments; and (vii)
facilitating development and appraisal of remaining components of PFEMRP. In order to
support the development of PFEM RP management component within the PFEM RP, the
following key sub-components / activities are proposed: improving capacity for the management
of the PFEM RP; monitoring and evaluation of the PFEM RP; facilitation of and participation in
meetings; and improving IT systems and record keeping for PFEM. Organizationally, the Head
of the PFEM Unit will report to the Principal Secretary Administration in the Ministry of
Finance who will oversee the PFEMRP supported by the PFEM Unit. Given below is the
proposed organizational structure for the day to day management of the PFEMR Program and the
projects funded under the MDTF.
39
Annex 3: Implementation Arrangements
MALAWI: Financial Reporting and Oversight Improvement Project
Project Institutional and Implementation Arrangements
1. The project will be funded under the PFEMRP multi donor trust fund administered by the
World Bank and to be executed by the Government of Malawi managed by the Public Finance
and Economic Management Unit (PFEMU) in MoF.
Project administration mechanisms
2. Prevailing Trust Fund arrangements will be applied. Individual component chiefs in the
agencies will be responsible for project activities and all project related procurement and
financial transactions will be centralized at the PFEM Unit in MoF. Centralizing project
management at the PFEM Unit will provide for frequent monitoring of project progress and
flexibility in responding to any implementation difficulties that arise. The PFEM Unit will
manage the project and will be supported through: (i) procurement of the full complement of
professional staff required for the Unit either through transfer from other units or through
contract appointment; (ii) funding for the purchase of any office equipment urgently required and
any incremental operating costs; and (iii) training in program and project management and
procurement and financial management as required. As a Bank administered MDTF there will be
regular review missions to assist the PFEM Unit. It will be important to encourage and monitor
political buy in during the project reviews.
PFEM Steering Committee (PFEMSC)
1. This is the highest level government body that provides strategic policy guidance and
oversight of Malawi's overall PFEM reform program. The PSC is chaired by the Secretary to the
Treasury with PFEM Unit providing secretariat services. The PFEMSC has representation from
key PFEM institutions with the PS Planning, PS Finance, OPC, PS Public Sector Review, PS
DPSM, PS MLG&RD, Auditor General, Accountant General, Director ODPP, Executive
Secretary NLGFC, Commissioner of Statistics, Chairperson of the PFEM TC. The committee
meets semiannually to review progress on the PFM reform program outcomes and to adjust and
amend the strategy and work program as necessary.
Project Implementation Arrangements
4. Project implementation arrangements consist of: (i) PFEM Technical Committee
(PFEMTC); (ii) Technical Working Groups (TWGs) and (iii) PFEM Unit (PFEMU).
PFEM Technical Committee (PFEMTC): PFEM technical Committee is chaired by the
Director, DAD and consists of directors of all divisions in MoF (including MRA), CIAU,
senior officers of the other organizations represented at the PFEMSC as members; the
PFEM Unit acts as secretariat to this committee. Apart from the above, membership of
the PFEMTC would include Component Coordinators and representatives from line
ministries and other relevant officials as the Chair considers necessary and the
40
representatives of the MDTF donors and the TF Administrator. PFEMTC meets every
two months and their functions include oversight of PFEM activities, proposing and
reviewing PFEM activities. The PFEMTC will review the implementation progress of
various projects under PFEM RP MDTF with inputs from the TWGs. They will report to
the PFEMSC and will ensure that implementing units comply with the policy guidelines
as directed by PFEMSC. PFEMTC can also call technical meetings with the participation
of other project representatives and DP's technical teams to discuss issues of cross cutting
nature and interface among the projects.
Technical Working Groups (TWGs): In the PFEM RP there are 10 working groups
mentioned which would pursue the technical work of the PFEM RP. Currently, there are
seven TWGs operating those for Audit, IFMIS & Financial Reporting, Macroeconomic
forecasting (also known as the National Accounts group), Cash Management Domestic
Revenue, Procurement and Public Expenditure Reviews. The TWG relevant to this
project (Audit and IFMIS) will provide the technical input and participate in the
preparation, appraisal and monitoring of the project. TWGs are chaired by the Directors
heading the relevant technical department/unit. Membership of the TWGs will be
expanded to include Directors, Component Coordinators and representatives from line
ministries and other relevant officials as the Chair considers necessary and the
representatives of the MDTF donors and the TF Administrator. They will report to the
PFEMTC and will ensure that implementing units/departments comply with the policy
guidelines as directed by the PFEMTC and PFEMSC. TWGs will hold monthly review
meetings. Their specific responsibilities include: (a) preparation for relevant project
appraisal and review of progress reports towards the project's objectives; (b) preparation
and submission of annual work plans, budgets and procurement plans to PTC, PSC, and
Donor Project Team; (c) review of agreed performance targets; (d) analysis of
implementation issues for achieving key outputs; and (e) identification of critical risks
that could hinder efficient implementation of project activities and draw risk mitigation
measures.
PFEM Unit (PFEMU): The PFEM Unit will be the key unit which facilitates the PFEM
RP. It also acts as secretariat to the various committees and it will provide support for
managing the day to day financial management and procurement transactions of the
projects. The PFEMU will be staffed with government officials and will include a Head
of the PFEM Unit who will report to the Principal Secretary Administration in the
Ministry of Finance. There will be dedicated sspecialists including those for
Procurement, Financial Management and M&E for the project. The main functions of
the PFEMU will be to: (i) provide logistical support and guidance to the project teams
and component coordinators; (ii) compile work programs from the various working
groups, budgets and procurement plans for each project; (iii) monitor project
implementation and prepare progress reports for the PFEMTC and PFEMSC; (iv) submit
consolidated annual work programs, budget and procurement plans for review and
endorsement by the PFEMTC and PFEMSC; (v) hold regular meetings with focus groups
and component coordinators to ensure appropriate linkage in the activities under various
components; (vi) maintain project accounts, manage designated accounts and prepare
project financial statements; (vii) submit withdrawal applications to the World Bank for
replenishment; (viii) make recommendation to the PFEMTC and PFEMSC on how to
41
effectively implement the agreed work plan; and (ix) carry on periodic performance
evaluation of all long term consultants (both expatriate and local).
PFEM Unit Organization Structure
Financial Management, Disbursements and Procurement
Financial Management
5. FROI is part of PFM RP which is being coordinated by Division of Debt and Aid in the
Ministry of Finance. In particular the PFEM unit in the division of Debt and Aid will be
responsible for coordinating the PFM RP including financial management. The MDAs affected
by the program are Ministry of Finance, National Audit Office, Accountant General, Central
Internal Audit Unit, Office of Director of Public Procurement and Malawi Revenue Authority.
42
However FROI will cover IFMIS (Accountant General), Internal Audit (Central Internal Audit
Unit) and External Audit (National Audit Office). The PFM RP will be funded by a Multi Donor
Trust Fund which will be managed by the Bank. Financial management of the whole program
will be centralized at the department. However other beneficiary ministries and departments may
be involved in contract management. A financial management assessment of the department was
carried out with the aim of determining: (a) whether the department has adequate FM
arrangements in place to ensure the funds will be used for the purposes intended in an efficient
and economical manner and that it will be capable of correctly and completely recording all
transactions and balances related to the Project; (b) the Project’s financial reports will be
prepared in an accurate, reliable and timely manner; and (c) the acquired assets will be safely
guarded; and (d) the Project will be subjected to auditing arrangements acceptable to the Bank.
The assessment complied with the Financial Management Manual for World Bank-Financed
Investment Operations that became effective on March 1, 2010 and AFTFM Financial
Management Assessment and Risk Rating Principles.
Country Issues
6. The most recent piece of diagnostic work that provides up to date information on the
country’s public financial management (PFM) system is the Public Expenditure and Financial
Accountability Assessment (PEFA) of 2011. The PEFA 2011 assessment rated the credibility of
the Government budget at B down from A during the previous PEFA done in 2008. Aggregate
revenue outturn compared to budget scored D while stock monitoring of expenditure payment
arrears was NS due to unavailability of data for monitoring of the expenditure. The assessment
identified key risks related to project implementation in the areas of procurement, effectiveness
of internal audit especially in regard to the extent of management response to internal audit
findings, timeliness and regularity of accounts(bank accounts, suspense accounts and advances)
reconciliations, availability of information on resources received by service delivery units, scope,
nature and follow up of external audit issues and legislative scrutiny of external audit reports and
budget law.
7. Other country-level FM risks arise from the country’s overall governance environment
and corruption concerns. This is being addressed by strengthening of management oversight (the
focus of this project) through ministerial audit committees, enhancement of social accountability
mechanisms and capacity enhancement of integrity assurance agencies particularly Anti-
Corruption Bureau (ACB), National Audit Office (NAO), and Central Internal Audit Unit
(CIAU).
8. Through its Public Financial Management Reform Strategy, the Government remains
committed to strengthening fiduciary safeguards with a view to achieving economy, efficiency
and effectiveness in the use of public funds. The declared vision of the latest PFEM reform
program is to enable PFEM institutions to be effective and efficient in applying economic and
financial management to public financial resources and to be fully transparent and accountable
for such resources in line with government overall strategy and policies. Some of the issues
covered in the reform program that have a direct impact on financial management are
(i)harmonizing planning through use of Sector Working Groups; (ii) expanding use of IFMIS to
ensure fuller use for transaction processing and bank reconciliations; (iii)ensure good cash
management; (iv) develop the capacity for procurement procedures; (v) fully implement
procedures for use of internal audit; (vi) improve reporting on expenditure; (vii) building on
43
improved external auditing to improve coverage and quality; and(viii) improving follow up
procedures for reports and audits. The reforms will be implemented by the Government with
funding from the donors using the vehicle of a Multi Donor Trust Fund to be managed by the
World Bank. If the proposed reforms are successfully executed, the FM arrangements of the
government will be significantly strengthened.
9. The FM risk rating summary from the assessment done is represented in the table below:
Table.1: Malawi FM Risk Ratings
Risk Risk Rating
Risk Mitigating Measures
Incorporated into Project Design
Residual
risk
rating
Country Level
(i) Weak accounting
system which affects
the quality of financial
statements produced by
ministries
implementing projects;
(ii) weak audit
committees in
government ministries
that do not follow up on
the issues raised in the
audit reports to ensure
they are addressed by
the project; (iii) Weak
legislative scrutiny of
external audit reports;
(iv) problem of
timeliness and
regularity of various
accounts
reconciliations.
H The Accountant General is working on using the existing
chart of accounts to allow for creation of project sub
programs that will enable posting of transactions in line
with project activities and components. The internal audit
function is being revamped. The PFM RP will help improve
IFMIS functionality including timeliness and regularity of
various reconciliations.
S
Entity Level The internal audit
function in the Ministry
of Finance is very weak
H The project will be implemented by Department of Debt
and Aid which is familiar with Donor arrangements but
does not have experience in directly managing a project of
the size being developed. Internal audit function will be
strengthened under the PFM RP.
S
44
Risk Risk Rating
Risk Mitigating Measures
Incorporated into Project Design
Residual
risk
rating
Project Level The project is complex
with four components
and multiple sub
components with
activities taking place
in much dispersed
MDAs. Weak FM
capacity in most of the
MDAs, e.g. NAO
where independent
audit reports have
revealed serious FM
capacity problems. FM staff work on debt
and aid management as
opposed to normal
accounting functions
H FM work will be centralized under PFEM unit in the
Department of Debt and Aid
S
Budgeting Weaknesses
highlighted in 2011
PEFA include over
spending and unreliable
prediction of resource
envelope
S The project has fully outlined the activities to be carried out
to accomplish the objectives and these activities will inform
the budgeting process.
M
Accounting The IFMIS is not
configured in a manner
that allows project
activities to be
separately identifiable
H While the project activities will be processed in IFMIS
showing expense types without relating them to project
components, a separate report will be done in excel
showing expenses classified under various project
components. Once the chart of accounts is able to
incorporate project activities, the excel model will be
dropped.
S
Internal Control Weak control
environment
surrounding automated
IFMIS(eg weak
password control)
exacerbated by weak
internal audit function
H There are ongoing reforms to strengthen controls around
IFMIS and other accounting functions. The internal audit
function is also being strengthened.
The roll out of LPO module will compel online
authorization of transactions by senior managers.
S
45
Risk Risk Rating
Risk Mitigating Measures
Incorporated into Project Design
Residual
risk
rating
Funds Flow Foreign currency has
been susceptible to
diversion to other
government priority
areas starving the
projects of required
funds
S Project funding will be advanced through a US$ Designated
Account held at the Reserve Bank or a commercial bank
and an operating account at a commercial bank as agreed
by Bank. Quarterly monitoring of this arrangement will be
done via IFRs.
Since change of government, there has been significant
improvement in availability of foreign currency largely due
to resumption of budgetary support by donors. If this
continues there will be less pressure by government to
divert funds.
M
Financial Reporting The unit not
experienced in
preparing reports for
the Bank funded
projects
S The reporting format will be agreed with the Bank and
project FM staff will be trained in reporting for the Bank
funded projects. This will include production of audited
financial statements and un-audited interim financial
reports
M
Auditing being one of the
beneficiaries, the
Auditor General may
not be independent and
currently the NAO does
not fully use
International Auditing
Standards
S A private independent auditor will be recruited to audit the
project financial statements. Audit terms of reference will
be agreed with the Bank and NAO.
M
Overall FM Risk
Rating S The overall FM risk is considered Substantial; Even though
the project risks are considered moderate, the inherent risk
will weigh in heavily on the project given that it is
mainstreamed in the ministry of finance and therefore
susceptible to the overall ministry risks. With time the risk
could improve to Moderate.
S
H-High S-Substantial M-Moderate L-Low
Financial Management Arrangements for the Project 10. Budgeting arrangements: From the ten components of PFEMRP, four are in the PAD
that will have necessary activities spelt out and costed. This will be the basis of developing
annual work plans and budgets. The budgeted amounts will be incorporated in the IFMIS and
monitored as implementation progresses.
11. Accounting arrangements: The project accounting will be done in IFMIS where in the
current chart of accounts configuration components and project activities will not be highlighted
46
and as a result an excel spreadsheet will be used to classify expenses according to activities and
components. Once the reconfiguration of the chart of accounts that will allow reflecting expenses
under components is completed, the excel arrangement will be dropped and the project will be
able to produce reports direct from IFMIS.
Internal control and internal auditing arrangements
12. Internal Auditing. The Ministry has an internal audit department but the Audit Committee
is not functioning properly rendering the internal audit function non effective. The Central
Internal Audit Unit will be responsible for the internal audit function of the project, despite them
being beneficiaries of the project.
13. Internal Control Systems: The accounting and related transactions are guided by the
Public Finance Management Act and desk instructions that specify policies and procedures when
carrying out accounting and financial transactions. Based on PEFA 2011 report, there are
problems involving reconciliation of bank accounts and other controls. The report summarises
that despite the signals of increased awareness of measures and procedures for internal control
the PAC reports, internal audit reports and reports from the Auditor General point towards the
continued existence of errors and with a continued use of unjustified procedures. The internal
audit function will need to be strengthened in order to ascertain compliance with PFM Act and
desk instructions.
Funds flow and disbursement arrangements
14. Banking and Funds flow arrangements: The Ministry of Finance will be required to
open a Designated Account denominated in United States Dollars at the National Bank of
Malawi where funds from the Multi Donor Trust Fund will be transferred. From this account
funds will be transferred to the government consolidated account. The funds will be transferred
to the consolidated account as and when required. The corresponding beneficiary activities will
be updated with the funds transferred in IFMIS to ensure that expenditure is in accordance with
approved forecasts.
.
15. Financial reporting arrangements: The department will prepare quarterly un-audited
IFRs for the project in form and content satisfactory to the Bank, which will be submitted to the
Bank within 45 days after the end of the calendar quarter to which they relate. The format and
content of the IFRs will be agreed with the bank before negotiation. The Project’s annual
financial statements will be prepared using International Public Sector Accounting Standards.
16. Auditing arrangements: The audited financial statements will be submitted to the
Bank within 6 months after the end of the fiscal year along with the management letter. Audit
terms of reference for the project will be agreed with between the government and the Bank
before negotiation.
Financial Management Action Plan
17. The following actions need to be taken in order to enhance the financial management
arrangements for the Project:
47
Action Date due by Responsible
1 Agree the format of Interim Financial
Report with the Bank
Done IDA, Debt and Aid
2 Agree audit ToRs March 15, 2013 IDA, Debt and Aid
and NAO
3 Train accounting staff in FM and
disbursement procedures
June 30, 2013 IDA, Accountant
General
4 Improve awareness of control risks
around IFMIS
June 30, 2013 Accountant General
5
Enable chart of accounts in IFMIS to
ensure project reports are extracted from
the system
December 31, 2013
Accountant General
6
Ensure a less disruptive project FM staff
tenure
Throughout project
period
Accountant General
Conclusion of the assessment
18. The conclusion of the assessment is that the financial management arrangements meet the
Bank’s minimum requirements under OP/BP10.02. The overall residual risk rating for
Department is Substantial. The financial management action plan outlines the mitigating
measures, which, if implemented, would strengthen the financial management arrangements.
Disbursements
19. SOE based disbursement will be used. The project will submit the first withdrawal
application to the Bank after effectiveness based on the agreed float for the Designated Account.
The Bank will process the withdrawal application and deposit funds into the Designated
Account. Funds will then be transferred from the Designated Account to the government
consolidated account. The Designated Account will be replenished based on SOEs that will be
prepared and submitted to the bank on a monthly basis. Other methods of disbursement will
include direct payments, special commitments and reimbursements. Details concerning
disbursements will be spelt out in the project’s Disbursement Letter. The project shall have a
single disbursement category as defined below:
48
Disbursement Summary
Category MDTF (US$m) Total
(US$m)
%
Financing Phase I Phase II
(1) Goods, non-consulting
services, consultants’ services,
Training and Operating Costs under
the Project, except Part 3 of the
Project (External Audit component)
6.7 10.3 17.0 100
(2) Goods, non-consulting
services, consultants’ services
Training and Operating Costs under
Part 3 of the Project (External Audit
Component)
1.3 0.7 2.0
Total 8.0 11.0 19.0 100
Procurement
20. An assessment of Ministry of Finance on its capacity to carry out the procurement for the
project was undertaken to identify the gaps that could impede the execution of the project.
Procurement under the Project will be carried out in accordance with the Guidelines:
Procurement of Goods, Works and Non Consulting Services under IBRD Loans and IDA
Credits& Grants by World Bank Borrowers; January 2011; and "Guidelines: Selection and
Employment of Consultants IBRD Loans and IDA Credits& Grants by World Bank Borrowers,
January 2011. National Competitive Bidding (NCB) will be in accordance with the Malawi
Public Procurement Act of August 2003 which has been reviewed and found satisfactory to the
Bank with a few exceptions.
Legal Aspects and Procurement Practices
21. Public Procurement in Malawi is governed by the Public Procurement Act of August
2003. The Act requires procurement Regulations to provide, inter alia, threshold for use of
various procurement methods, bidding and bid evaluation procedures and contract management.
The Law further established the Office of Director of Public Procurement (ODPP) with oversight
for public procurement. The Office became operational in 2005 with the appointment of the
Director and other substantive officers. The Government also established Internal Procurement
Committees (IPC) and Specialized Procurement Units (SPU) in all Ministries and Departments
as the responsible bodies for procurement in the Ministries and Departments. Procurement
Regulations and Desk Instructions have been distributed to all procuring entities. The Office of
49
Director of Public Procurement has also established a dedicated website for sharing of
information, placing of adverts and notification of awards to the general public.
22. The Office of Director of Public Procurement issued a number of standard bidding
documents (SBD), the use of which is mandatory, covering works, goods, and services. The
Office further issued desk instructions, RFP and form of contract for Consulting Services as well
as request for quotations for goods, works and services. The Bank had reviewed the documents
and was found to be generally consistent with Bank Guidelines and may be used under NCB
procedures. However due attention to some issues should be given. These are related to clarity of
the evaluation criteria, award to the lowest evaluated responsive and qualified bidder,
participation of foreign bidders, domestic preference and advocacy for artificial division of lots
to promote participation of small enterprises in National Competitive Bidding and the
Registration or Classification that should not be used as criteria for bidding.
Organization, Functions and Staffing
23. Procurement under the Ministry of Finance is governed by the Public Procurement Law,
its Regulations and Desk Instructions. The Office’s annual budget and Procurement Plan
provides a framework for checks and balances for the smooth running of procurement,
disbursement and disposal system in accordance with Section (3) of the Public Procurement Act.
Procurement is triggered by requisition from user sections for the required kind of goods or
services.
24. The Ministry of Finance has an Internal Procurement Committee which is chaired by an
appointee of the Secretary to the Treasury. The current arrangements are that the Director of
Finance and Administration is the Chairperson of the IPC which has the responsibility for award
of contracts. Other members of the IPC include the Directors of Budget, Economic Affairs, Debt
and Aid, Pensions, Human Resources, and the Chief Accountant. The Procurement section is the
secretariat to the IPC.
25. The Procurement Section has an establishment of four posts, comprising one
Procurement Officer, one Assistant Procurement Officer, one Assistant Supplies Officer and one
Supplies Assistant Office all of which are filled. The Procurement Officer serves as Head of the
Section and reports to the Director of Finance and Administration. The assessment of the current
staff in terms of procurement requirements for the Financial Reporting and Oversight
Improvement Project is that the current staffs do not have adequate knowledge of World Bank
procurement procedures. The Procurement Section needs to be strengthened by having Technical
Assistance as an interim measure to ensure that procurement capacity is sufficient to meet
procurement demands. The TOR for the proposed TA should include provision for on-the-job
training. The alternative to a TA in procurement is to embark on training of the current staff in
World Bank procedures given that getting a Procurement Specialist on the local market may be
difficult due to shortage of qualified staff in Malawi.
26. Furthermore, existing procurement staff should have their skills improved through
attending short courses on procurement organised by ESAMI and other reputable international
training institutions. There is also need to include in the training program staff from other key
departments who will be closely associated with the Financial Reporting and Oversight
Improvement Project to support procurement in terms of preparation of the required documents,
such as bid specifications and Terms of Reference. It has also been noted positions for
procurement staff are at very junior positions and such that they do not attend Ministry of
50
Finance Management Meetings where critical decisions are made. In this regard it is
recommended that positions for Chief Procurement Officer, Principal Procurement Officer and
Senior Procurement Officer be created. The Chief Procurement Officer would be part of the
Ministry’s senior management and would attend management meetings.
27. Procurement staff is currently responsible for all procurements under the Ministry and
they would therefore be overwhelmed with more work once the project is fully functional.
However, proper planning by having procurement plans at the beginning of the financial year
would help ease pressure on the team. During the assessment it was noted that the Ministry of
Finance has in the past implemented IDA financed projects but these were not undertaken by
procurement section as it has recently been established by the Government.
Record Keeping
28. The assessment findings are that the procurement filing in the procurement section is
overall not done in a satisfactory manner. Documents are all filed in one file and not segregated
according to procurements undertaken. Improvements are needed to ensure that records should
be sorted following the chronology of the procurement processing and a check list should be
added at the beginning of the folder; financial information or rather copies thereof on contract
execution should be included in records. It will be important that the project should have its own
files once the project commences. There are 10 dedicated staff in charge of keeping records
in the open registry and most files are in good order.
Facilities and Support Capacity
29. The procurement section has one single office where the Procurement Officer and the
Assistant Procurement Officer sit and one computer. Documents could be seen on the floor.
There is need for two computers, and more storage facilities for its proper functioning. However,
the open registry on the other has 3 computers for 10 officers.
30. The overall risk of the Ministry of Finance to carry activities under the project is
medium and overall risk is substantial as currently there is inadequate qualified staff that can
undertake procurement activities under the project using World Bank guidelines and
procedures.
Issues to be addressed
Technical Assistance
31. Due to the limited knowledge that the current procurement staff have in World Bank
procedures, there is need for Technical Assistance in the form of a Procurement Specialist who
should initially support the project for a period of twelve months as the staff are being mentored.
Procurement Planning
32. There is need to have a provision mandating the preparation of a Procurement Plan along
the Annual Work Plan. The procurement plan should include as many contracts as possible that
are planned to be processed within the following 18 months period. The 18-month procurement
plan will include relevant information on all goods and consulting services expected to be
procured, and their estimated cost; procurement or selection method as well as timing in the
procurement/selection process. The overall procurement plan will be updated on an annual basis
51
in conjunction with the preparation of the Annual Work Program and Budget in accordance with
the Regulations.
Prior Review by the Bank
33. The Bank will review the Procurement Plan together with Ministry of Finance. Post
Procurement Reviews will be undertaken by the Bank on annual basis during project
implementation and will be governed by the procedures set forth in paragraph 4 of Appendix I to
the relevant Guidelines. All documentation used for the procedures of contracting, recruitment of
consulting services, evaluation and award shall be retained for subsequent examination by
auditors and IDA supervision missions.
34. The purpose of annual procurement post review will be to : (i) verify that the
procurement and contracting procedures and processes followed by the project were in
accordance with the agreed grant; (ii) verify technical compliance, physical completion and
price competitiveness of each contract in the selected representative sample; (iii) review and
comment on contract administration and management issues as dealt with by executing agencies;
(iv) identify improvements in the procurement process in the light of any identified deficiencies.
Use of National Standard Bidding Documents
35. All contracts will be undertaken under post review as there are no contracts above prior
review of US$ 500,000 for goods and non-consulting services and US$ 200,000 for consultant
services and therefore they will be no prior review thresholds but the following additional
procedures shall apply to National Competitive Bidding:
No bidder or potential bidder shall be declared ineligible to bid for reasons other than
those provided in Section I of the Procurement Guidelines;
Bidding documents acceptable to the Association shall be used;
The bidding documents and contract shall include provisions reflecting the Bank’s policy
relating to firms or individuals found to have engaged in fraud and corruption as defined
in the Procurement Guidelines;
Each bidding document and contract shall provide that bidders, suppliers and contractors,
and their subcontractors, agents, personnel, consultants, service providers, or suppliers,
shall permit the Association to inspect all accounts, records, and other documents relating
to the submission of bids and contract performance, and to have them audited by auditors
appointed by the Association. Acts intended to materially impede the exercise of the
Association’s inspection and audit rights provided for in the Procurement Guidelines
constitute an obstructive practice as defined in the Procurement Guidelines;
Unquantifiable criteria, such as local content, technology transfer, and managerial,
scientific, and operational skills development, shall not be used in the evaluation of bids;
and
Contracts may not be split into small lots, and their award may not be restricted to small
enterprises for purposes of promotion of the participation of small enterprises.
52
Environmental and Social (including safeguards)
36. As a Category C technical assistance program, the Bank's environmental safeguard
policies are not triggered. The program is expected to have positive social impacts through
improved credibility on government financial management. Transparent and accountable
management of public resources will lead to increased civic confidence in government. The
computerization of transactions and processes would lead to better and faster public services
delivery.
Monitoring & Evaluation
37. An M&E framework has been designed for this program (Annex 1) which defines the
high level results to be monitored during program implementation. In addition, a detailed M&E
framework will be designed for each project to monitor project level results. During each year,
detailed quantitative and qualitative reviews of progress will be undertaken to identify and
discuss issues and bottlenecks that may arise and impede achievement of targeted outcomes. This
work will be initiated by the project management in consultation with key stakeholders who will
all be part of the project technical team.
Role of Partners (if applicable)
38. As part of the joint donor collaboration in response to GoM’s PFEM reform program, the
project will be co-financed by EU, DFID and other partners interested in joining the PFM reform
agenda. The commitment of the development partners to maximize the overall project outcome
and impact while strengthening donor harmonization remains a characteristic phenomenon of
this program. The agreement of the donors and GoM to establish a single pooled fund
mechanism whereby respective donor contributions are not earmarked to individual components
or activities strengthens the comprehensive development approach to this reform program.
Implementing the harmonized framework among all the development partners, also in support of
reduction of transaction costs would require one set of monitoring and evaluation reporting, FM
and disbursement and procurement arrangements. The overall coordination of the reform
program and projects, from the development partner’s side will be carried out by the World Bank
(as Administrator) but in partnership with MDTF contributing partners and other partners, if any,
involved in overall PFM reforms.
53
Annex 4-Operational Risk Assessment Framework (ORAF)
Malawi: Financial Reporting and Oversight Improvement Project (P130878)
Stage: Appraisal
1. Project Stakeholder Risks
1.1. Stakeholder Risk Rating Substantial
Description: Risk Management:
There may be resistances for selected
agencies/ departments to give up
some of the functions they have been
performing for a long time or to take
on new activities.
(i) Phased implementation of the activities and components providing sufficient opportunities for detailed
consultations and testing of new concepts and (ii) through an effective change management strategy by
involving the stakeholders at every step. So far, all preparations have been done in a consultative manner
with inputs being provided by the respective component teams in the government.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
Both Implementation Yearly Ongoing
2. Implementing Agency Risks (including fiduciary)
2.1. Capacity Rating Substantial
Description: Risk Management:
Weak program management and
change management capacities
Dedicated program staffs have been assigned for coordinating and monitoring the program and sub-
projects. Components include activities to improve the competence of relevant staff.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
MoF Preparation and
Implementation Quarterly Ongoing
2.2. Governance Rating Substantial
Description: Risk Management:
Poor governance/weak fiduciary
environment appearing in many
externally funded projects could also
affect this program
Concurrent Internal Audit of the program and project transactions to trace and correct anomalies
Resp: Stage: Recurrent: Due Date: Frequency: Status:
Both Implementation Quarterly Not Yet Due
54
3. Project Risks
3.1. Design Rating Substantial
Description: Risk Management:
The Project has 3 main components
with different implementing
departments. So, coordination is
likely to be a challenge.
Proper governance arrangements have been designed for periodic monitoring and coordination. FM and
procurement are centralized at the PFEM unit level.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
MoF Implementation Quarterly Not Yet Due
3.2. Social and Environmental Rating Low
Description: Risk Management:
Being a technical assistance
program, there will be only minor
works in IFMIS computer network
sites and these are not expected to
entail major safeguard issues.
Preparation of specific safeguard studies for proposed works prior to appraisal of sub-projects as advised by
Bank’s Safeguards Specialist.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
Both Implementation Quarterly Not Yet Due
3.3. Program and Donor Rating Moderate
Description: Risk Management:
While the program has been broadly
accepted by the donors, the multi-
year fund commitments are not yet
clear from some donors. Lack of
clarity on donor audits after project
closure.
Funds commitments and timing of flows have improved and it is expected that full funding will be
available for this project as per current donor commitments. Detailed discussions to be arranged at the
corporate levels to agree on scope of individual donor audits after project closure.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
Both Preparation and
implementation
Ongoing
3.4. Delivery Monitoring and
Sustainability
Rating Moderate
Description: Risk Management:
Inadequate capacity and resources to
support follow on activities may
TA support will be provided to augment capacity and transfer knowledge and expertise to civil servants.
The recurrent cost implications of the program beyond closing date will be minimized through using and
55
impact the sustainability of PFM
reforms.
strengthening the country's existing systems.
Resp: Stage: Recurrent: Due Date: Frequency: Status:
Both Implementation Yearly Not Yet Due
4. Overall Risk
Implementation Risk Rating: Substantial
Comments: Financial management reforms involve changes in rules, processes and systems that affect the incentives of the decision makers in
allocation and use of scarce public resources. This reform process therefore is a venture with substantial risk. However, these risks are not unique
to the Malawi program and are faced in many countries implementing a similar reform program. In the case of Malawi, the risks which might
affect the successful implementation and sustainability of this program are: (i) risks due to changing focal point for PFM reforms rated as
substantial; (ii) weak implementation capacity rated as substantial; and (iii) risks due to poor governance/weak fiduciary environment rated as
high. The overall program risk rating during preparation and implementation is assessed as substantial.
56
Annex 5: Implementation Support Plan
MALAWI: Financial Reporting and Oversight Improvement Project
1. The Implementation Support Plan (ISP) describes how the Bank and other development
partners will support the implementation of the risk mitigation measures (identified in the
ORAF) and provide the technical advice necessary to facilitate achieving the Project
Development Objectives. The ISP also identifies the minimum requirements to meet the Bank’s
fiduciary obligations. Its content is as follows.
2. The main focus in terms of support to implementation during different stages of the project
is highlighted in the table below:
Time Focus Skills Needed Resource
Estimate
Partner Role
First
twelve
months
Staffing and building basic
capacity
Initiating critical procurements
Sensitization and awareness-
building (Importance of PFM
reforms; interacting with the
media; linkage to results on the
ground etc.)
Establishing M&E using lower
level results for activities and
reporting systems
FM, Procurement
A variety of technical
skills such as project
management, technical
specialists, procurement,
FM, and M&E
US$150,000
Participation in
meetings for
improved
development partner
coordination on PFM
interventions; support
for enhancing M&E
systems related to
linking results to
activities.
12-49
months
Component implementation
Knowledge transfer
Improved systems
Change management
Technical supervision
A variety of technical
skills such as IFMIS,
Internal and External
Audit, procurement, FM,
and M&E
US$600,000
Participation in
meetings for
improved
development partner
coordination on PFM
interventions; support
for enhancing M&E
systems related to
linking results to
activities.
Skills Mix Required
Skills Needed Number of Staff
Weeks
Number
of Trips
Comments
Team lead 12 per year 4/yr Overall implementation
support
Internal and External Audit
4/yr 3/yr
Expertise in internal and
external oversight
IFMIS 4/yr 3/yr Support on technical and
functional aspects
M&E Specialist 2/yr 1/yr M&E indicator tracking,
refinement, use
Procurement Specialist 6/yr 2/yr Procurement aspects,
57
procurement plan revision and
implementation monitoring,
procurement audits
Financial Management Specialist 5/yr 2/yr FM aspects, fund flow, FM
audits
Team Assistance 4/yr 1 Team support
3. A mission based approach will not suffice in being able to adequately and timely respond to
coordination and implementation issues. Currently, a significant part of the task team including
the Team Leader is decentralized and this will continue to enhance implementation support.
Fiduciary support is also provided at the country office. In addition to missions and on-call
support the task team proposes pro-active bi-monthly or monthly implementation support
meetings, including with team members/experts based outside of Malawi connected by
audio/video connection. This approach has proven to be effective in other investment programs
in Malawi and ensures efficient use of resources and responsiveness to the demands of the
Government. Lastly, program design places strong emphasis on monitoring and evaluation and a
focus on tracking results. This emphasis on information gathering and management will
complement implementation support by the World Bank Task Team.
58
Annex 6: Detailed Project Component Costs
No Component
PFEM RP
Link Total USD Equivalent MK
2012/13 2013/14
PHASE 1
TOTALS 2013/14 2014/15 2015/16
PHASE 2
TOTALS $'000 MK'000
1 Accounting and Financial Management 5.1 1,843.00 2,020.00 3,863.00 1,041.00 3,212.00 1,035.00 5,288.00 9,151.00 2,882,565.00
1.1 Accounting and IFMIS 878.00 2,000.00 2,878.00 587.00 2,062.00 935.00 3,584.00 6,462.00 2,035,530.00
1.2 Pay roll & Human Resource Management 5.3 400.00 20.00 420.00 200.00 300.00 - 500.00 920.00 289,800.00
1.3 IFMIS Roll Out to Local Assembly 5.2 565.00 - 565.00 254.00 850.00 100.00 1,204.00 1,769.00 557,235.00
Sub-Total 1 1,843.00 2,020.00 3,863.00 1,041.00 3,212.00 1,035.00 5,288.00 9,151.00 2,882,565.00
2 Internal Audit 5.4 870.58 521.42 1,392.00 263.02 1,166.45 - 1,429.47 2,821.47 888,763.05
2.1 Improved Institutional Setup 216.64 77.39 294.03 76.18 300.00 - 376.18 670.21 211,116.15
2.2 Availability of adequate and skilled staff 416.21 297.69 713.90 121.40 710.00 - 831.40 1,545.30 486,769.50
2.3 Establishment of Quality Assurance 5.39 10.79 16.18 34.70 60.00 - 94.70 110.88 34,927.20
2.4 Improve performance reporting and coordination 13.54 111.50 125.04 19.00 - - 19.00 144.04 45,372.60
2.5 Component Project Management 218.80 24.05 242.85 11.74 96.45 - 108.19 351.04 110,577.60
Sub-Total 2 870.58 521.42 1,392.00 263.02 1,166.45 - 1,429.47 2,821.47 888,763.05
3 External Audit 9 1,272.00 735.00 2,007.00 1,318.00 423.00 985.0 2,726.00 4,733.00 1,490,895.00
3.1 Deliver high Quality and Timely Audit Service 240.00 266.00 506.00 106.00 324.00 300.0 730.00 1,236.00 389,340.00
3.2 Availability of competent and motivated staff 520.00 235.00 755.00 758.00 50.00 445.0 1,253.00 2,008.00 632,520.00
3.3 Acquire, maintain equipment for effective
implementation of operational plans 200.00 100.00 300.00 208.00 13.00 100.0 321.00 621.00 195,615.00
3.4 Promote effective communication 233.00 120.00 353.00 222.00 36.00 140.0 398.00 751.00 236,565.00
3.5 Be a more independent institution 79.00 14.00 93.00 24.00 - - 24.00 117.00 36,855.00
Sub-Total 3 1,272.00 735.00 2,007.00 1,318.00 423.00 985.0 2,726.00 4,733.00 1,490,895.00
4 PFEM RP Management 10 382.00 356.00 738.00 433.00 331.00 124.00 888.00 1,626.00 405,090.00
4.1 Capacity building for PFEM RP Managenent 110.00 130.00 240.00 130.00 90.00 30.00 250.00 490.00 182,700.00
4.2 Improve PFEM record keeping , image building & ICT 130.00 73.00 203.00 105.00 53.00 22.00 180.00 383.00 120,645.00
4.3 Operation and Investment costs 142.00 153.00 295.00 198.00 188.00 72.00 458.00 753.00 101,745.00
Sub-Total 4 382.00 356.00 738.00 433.00 331.00 124.00 888.00 1,626.00 405,090.00
FROIP TOTAL 4,367.58 3,632.42 8,000.00 3,055.02 5,132.45 2,144.00 10,331.47 18,331.47 5,774,413.05
Contingency 668.53 210,586.95
GRAND TOTAL 4,367.58 3,632.42 3,055.02 5,132.45 2,144.00 19,000.00 5,985,000.00
MALAWI: FINANCIAL REPORTING AND OVERSIGHT IMPROVEMENT PROJECT
Phased Allocation ($'000)
PHASE ONE PHASE TWO
59
Annex 7: Country at a Glance
Malawi: Financial Reporting and Oversight Improvement Project