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FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS:

ANNUAL REPORT FOR FY07

Operations Policy and Country Services OPCFM

December 28, 2007 ABBREVIATIONS AND ACRONYMS

AFR Africa Region CFAA Country Financial Accountability Assessment COSO Committee of Sponsoring Organizations (Treadway Commission) CPAR Country Procurement Assessment Report CPIA Country Policy and Institutional Assessment CSR Controller’s Strategy and Resource Management EAP East Asia and the Pacific Region ECA Europe and Central Asia Region FM Financial management FMSB Financial Management Sector Board FY Fiscal year GAC Governance and anticorruption IASB International Accounting Standards Board IBRD International Bank for Reconstruction and Development IDA International Development Association IDF Institutional Development Fund IEG Independent Evaluation Group IFAC International Federation of Accountants IPSASB International Public Sector Accounting Standards Board (IFAC) IFRS International Financial Reporting Standard INTOSAI International Organization of Supreme Audit Institutions IPSAS International Public Sector Accounting Standard ISA International Standard on Auditing LCR Latin America and Caribbean Region LOA Loan Department MDB Multilateral development bank MNA Middle East and North Africa Region OECD–DAC Organization for Economic Co-operation and Development – Development Assistance Committee OP/BP Operational Policy/Bank Procedures (statements) OPCFM Financial Management Unit, OPCS OPCS Operations Policy and Country Services PEFA Public Expenditure and Financial Accountability Program PEMFAR Public Expenditure Management and Financial Accountability Review PFM Public financial management PREM Poverty Reduction and Economic Management Network PRIMA Portfolio Risk Management System QAG Quality Assurance Group QSA Quality of Supervision Assessment RAPMAN Risk and Portfolio Management System ROSC A&A Report on the Observance of Standards and Codes – Accounting and Auditing (assessment) SAI Supreme audit institution SAR South Asia Region SWAp Sectorwide approach FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS: ANNUAL REPORT FOR FY07

CONTENTS Executive Summary...... iii I. Introduction...... 1 II. The FM Sector: FY07 in Review...... 1 A. Improving Partner Countries’ Financial Management...... 2 B. Providing Reasonable Assurance...... 8 C. Global Partnerships...... 12 III. The FM Sector: FY07 Institutional Agenda...... 14 A. Staff Development...... 15 B. Policies, Procedures, and Guidelines...... 17 IV. Looking Forward: Priorities and Challenges...... 19

Annexes Annex A: FM Economic and Sector Work, FY07...... 21 Annex B: ROSC Accounting and Auditing Status Report, FY07...... 23 Annex C: FM Institutional Development Fund Grants...... 25 Annex D: FM Committees and Working Groups...... 27

Boxes and Tables Box 1. South Asia gap analysis...... 2 Box 2. Regionally coordinated approaches to capacity building...... 3 Box 3. LCR: Taking stock of the use of country FM systems...... 4 Box 4. Innovative transition to the use of country systems...... 5 Box 5. A pilot project to improve Kenya’s internal audit systems...... 5 Box 6. Innovative arrangements for audit effectiveness...... 6 Box 7. Using corruption risk scan tools...... 7 Box 8. In-depth fiduciary review...... 7 Box 9. Efforts to improve audit compliance in MNA...... 11 Box 10. Audit exemptions granted during FY07...... 12 Box 11. Summary achievements of Joint Venture on Public Financial Management...... 13 Box 12. Achievements through partnerships with standard-setting bodies...... 15 Box 13. Regional knowledge and learning sessions...... 17

Table 1. World Bank lending for public financial management reform...... 3 Table 2. Financial management performance in QAG review...... 8 Table 3. Timeliness of audit reports due in FY07...... 11 Table 4. FM Sector staffing...... 16 Table 5. FM Sector – formal learning activities for FY07...... 16 ii

FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS: ANNUAL REPORT FOR FY07

EXECUTIVE SUMMARY

1. The objective of the World Bank’s work in the Financial Management (FM) Sector is to support the achievement of development results by helping partner countries improve their financial management and providing reasonable assurance on borrowers’ use of Bank funds. While substantial challenges remain, the FM Sector made encouraging progress in carrying out this mandate during FY07.

2. Improving Partner Countries’ Financial Management. The FM Sector completed a range of analytic and diagnostic reviews in financial management, and worked with partner countries to implement the findings of those reviews. Through dialogue, technical assistance, and financing, it assisted countries in strengthening their FM systems. It also intensified its work on governance and anticorruption.

3. Providing Reasonable Assurance. FM is fully integrated into Bank project teams supporting about 1,500 operations with a total commitment of approximately US$100 billion. Quality Assurance Group and Independent Evaluation Group assessments continue to confirm the quality of FM work. During the year the Sector launched RAPMAN-PRIMA, a management information system that, when fully operational, is expected to provide ready access to information that staff can use to enhance the consistency and quality of FM practices, procedures, and documentation. Looking forward, the IDA14 Internal Controls Review and a review of the FM Sector’s quality arrangements are yielding findings that the Sector is using to further improve quality and will incorporate into the upcoming revision of the FM Practices Manual and its supporting guidelines.

4. Global Partnerships. The FM Sector continued its involvement with bilateral and multilateral donors on FM issues of mutual concern—particularly harmonization of approaches and preparation for the Accra High-Level Forum on Aid Effectiveness. The Sector also continued its work with key international accounting and auditing organizations to promote the development, dissemination, and use of high-quality international standards.

5. Institutional Agenda. Internally, the Financial Management Sector Board has overall responsibility for FM in Bank operations, including strategy, quality, human resources, knowledge and learning, and partnerships. During the year it established a new committee and working group structure to help it carry out its responsibilities. Among other achievements, the year saw the issuance of policies, procedures, and related guidance; the development of a database on sectorwide approaches; the delivery of a range of innovative learning events and opportunities; and reintroduction of the “FM Sector News”. iii

6. Priorities and Challenges. In spite of this record of achievement, the Sector recognizes that much remains to be done. During FY08—and well into the future—it expects to give particular attention to the following areas:

 Strategic Approach. The Financial Management and Procurement Sector Boards have agreed that, rather than updating their strategies independently, during FY08 they will prepare a joint strategy, consistent with the Bank’s Long-Term Strategy and its renewed emphasis on governance and anticorruption.

 Use of Country Systems. While it is widely understood that the use of country FM systems in Bank-funded operations is the Bank’s default option when circumstances permit, the challenge for the FM Sector is to deepen and accelerate the use of such systems. To promote and facilitate this activity, the FM Sector is preparing detailed guidance to help FM staff in assessing the adequacy of country FM systems for use in Bank-supported operations. The Sector will also continue collaborating with other Bank groups in providing follow-up support for public financial management (PFM) reforms through stand-alone technical assistance, components of investment projects and sectorwide approaches, and development policy lending linked to PFM reform actions. As a measure of progress in PFM reforms in partner countries, the FY08 annual report will include a trend analysis of PFM performance.

 Governance and Anticorruption. Drawing on “Financial Management Sector: Approach to Governance and Anticorruption,” the FM Sector expects to intensify its governance and anticorruption (GAC) work at the operational level—assisting partner countries to improve their FM systems, strengthening fiduciary practices in Bank- financed projects, and working with global partners. The newly established FM GAC Working Group will provide guidance in this area, building on Regional initiatives.

 Quality Enhancement. As the Sector completes the process of populating the RAPMAN-PRIMA system with data, the system is expected to become an increasingly important tool in support of the Sector’s quality assurance arrangements. In addition, during FY08, reviews of internal controls over IDA operations and of the FM Sector’s quality arrangements are yielding findings that the Sector is using to further improve quality and will incorporate into the upcoming revision of the FM Practices Manual and its supporting guidelines. Management will also give increasing attention to enhancing the quality of PFM work.

 Staffing Issues. In the coming months and years, while the FM Sector will continue carrying out diagnoses, it will give particular emphasis to implementation. As it works on the agenda set out in this paper and looks ahead to likely future expectations, it needs to ensure that the Bank has the necessary skills—particularly skills in public financial management—to adequately support this work and ensure its quality. Besides continuing to provide innovative learning opportunities for its highly decentralized staff, the Sector needs to inventory the skills available, identify skills gaps, and develop practices and procedures to attract and retain staff with the appropriate skills. 1

FINANCIAL MANAGEMENT IN WORLD BANK OPERATIONS: ANNUAL REPORT FOR FY07

I. INTRODUCTION

.1 The objective of the Bank’s work in the Financial Management (FM) Sector is to support the achievement of development results by helping partner countries improve their financial management and providing reasonable assurance on borrowers’ use of Bank funds. In carrying out this mandate in FY07, the FM Sector focused on capacity building. It accelerated capacity-building initiatives in public financial management (PFM) by helping partner countries to continue strengthening their systems and to develop the accountancy profession. At the same time, it effectively discharged its fiduciary oversight responsibilities by building Bank staff capacity through regular guidance, robust quality assurance and monitoring arrangements, and knowledge, learning, and outreach activities. In addition, the Sector maintained strategic partnerships with global development agencies and professional institutions.

.2 Purpose and Structure of Paper. This paper reports on the FM Sector’s activities and accomplishments during FY07. Section II summarizes the year’s achievements; Section III describes the Sector’s institutional agenda; and Section IV sets out the FM priorities and challenges for FY08.

II. THE FM SECTOR: FY07 IN REVIEW

.3 The FM Sector’s Annual Report for FY061 identified the need for prioritized focus on four key areas:

 Implementation: supporting implementation of the FM Practices Manual, particularly on issues of fiduciary risk management and quality assurance arrangements; operationalizing PFM reforms as a follow-up to diagnostic work; and mainstreaming Reports on the Observance of Standards and Codes—Accounting and Auditing (ROSC A&A) assessments into Bank operations.

 Governance and anticorruption: setting out an approach to governance and anticorruption issues in operational work, building on the current FM operating model.

 Use of country systems: taking stock of progress and challenges in expanding the use of country FM systems, using more examples at the country and project level.

 Capacity building: delivering learning opportunities tailored to borrowers’ needs, and expanding learning opportunities to field-based Bank staff.

1 See Financial Management in World Bank Operations, Annual Report for FY06 (SecM2007-0064), February 16, 2007. 2

This report shows that in carrying out its two-part mandate during the past fiscal year, the Sector has made significant achievements in each of these areas.

A. Improving Partner Countries’ Financial Management: Support for Reform and Capacity Development

.4 Last year’s FM Annual Report acknowledged that, in recent years, a great deal of the Bank’s FM work had been focused on diagnosing areas in need of work, and it heralded a switch to focusing on implementation. In FY07, while work on diagnostics continued, it was complemented by the follow-up that is crucial to helping countries address weaknesses in their PFM systems. In addition, the FM Sector has continued its work on the use of country systems and has assumed an increasingly important role in the Bank’s enhanced attention to issues of governance and anticorruption.

1. From Diagnostics to Implementation

.5 By the end of FY07, analytic reviews of PFM systems had been completed for more than 100 partner countries: Country Financial Accountability Assessments (CFAAs), Country Integrated Fiduciary Assessments, Public Expenditure and Financial Accountability (PEFA) assessments, Public Expenditure Management and Financial Accountability Reviews (PEMFAR), gap analyses of public accounting and auditing standards, and institutional FM capacity assessments. (Annex A lists recently completed reviews, and Box 1 describes the South Asia Region’s approach to analyzing the gap between national public sector accounting and audit standards and international standards.) Increasingly, FM reviews were conducted jointly with development partners; reforms were supported under joint programs of activities and funding; and a shared set of performance indicators developed by the PEFA partnership program2 was used to monitor progress on implementation.

Box 1. South Asia gap analysis In FY07, the South Asia FM team assessed gaps in compliance with international public sector accounting and auditing standards in Bangladesh, Bhutan, Maldives, Nepal, Pakistan, and Sri Lanka. The assessments were intended to (a) inform a country’s accounting and audit authorities and other stakeholders where local practices stand relative to international standards for financial reporting and audit; (b) assess variances; (c) chart paths to reduce the variances; and (d) provide a basis for measuring improvements. The findings of assessments were discussed with country authorities, and remedial action plans were agreed. Country reports are available on the South Asia FM website.

.6 Support for Reforms. The FM Sector has collaborated with other Bank groups— particularly the Poverty Reduction and Economic Management Network (PREM) and the Procurement Sector—in providing follow-up support for PFM reforms through stand- alone technical assistance, components of investment projects and sectorwide approaches (SWAps), and development policy lending linked to PFM reform actions. As Table 1 shows, Bank funding for PFM reform has increased by about 46 percent over the past five years. FY07 capacity-building results included numerous examples: better budget preparation in Mali; improved treasury and cash management in Guatemala, Liberia, and

2 According to an unpublished PEFA update report Overview on the Status on Applications of PEFA Performance Measurement Framework, August 29, 2007, 45 country assessments were complete, 20 were substantially complete, and 37 were in progress. 3

Madagascar; use of automated systems for financial accounting and reporting in Afghanistan, Burkina Faso, Colombia, and Tanzania; a more effective internal audit function in Kenya; and a more capable supreme audit institution in Senegal. In Ghana, the budget proposals now provide substantial information to the public; monthly financial reports, consistent with international standards, are now available in a timely manner; an internal audit function has been established in ministries; and audits of the consolidated fund are up to date, enabling more effective oversight by the legislature.

Table 1. World Bank lending for public financial management reform (US$ millions) IBRD/IDA Commitment Lending area FY03 FY04 FY05 FY06 FY07 Public sector governance 2,464.06 3,373.90 2,636.36 3,820.88 3,389.65 Development policy lending 1,426.69 1,882.34 1,572.31 2,048.07 2,110.59 Investment lending 1,037.37 1,491.57 1,064.05 1,772.81 1,279.06

Public expenditure/public financial management 768.96 1,106.34 1,001.05 1,529.08 1,319.65 Development policy lending 681.49 901.15 857.52 1,279.43 1,148.73 Investment lending 87.47 205.19 143.53 249.65 170.93 Source: Business Warehouse.

.7 Training. FY07 saw growth in the use of regional and in-country FM training institutes for PFM capacity building. These institutes provide country-specific training curricula, significant savings in per capita training costs, and sustainable training over the long term (Box 2 provides examples).

Box 2. Regionally coordinated approaches to capacity building Africa. The Capacity Development Management Action Plan, a regional initiative that incorporates actions from the Africa Action Plan as well as from specific country Poverty Reduction Strategy Papers (PRSPs) and Country Assistance Strategies (CASs), helps partner countries to (a) improve their PFM systems, (b) increase the number of qualified financial management personnel, and (c) develop the capacity of country and regional training and accreditation institutions. The CDMAP will be delivered in collaboration with several regional PFM organizations. An FM training and accreditation program will be launched in FY08. Europe and Central Asia (ECA). The Public Expenditure Management-Peer Assisted Learning Program, supported by multiple donors, creates a network of public expenditure management professionals in ECA, providing opportunities for peer learning and knowledge transfer. Under the program, the ECA FM and PREM teams helped deliver workshops for the Internal Audit Community of Practice. The workshops, which were attended by representatives from 20 ECA countries, applied internal audit capacity assessment frameworks and established capacity building and knowledge sharing activities, including a website (www.pempal.org).

.8 Accountancy Profession. During FY07, 10 ROSC A&A reviews were completed, bringing to 73 the total number completed (see Annex B) and to 55 the number published. Following up on these reviews, the FM Sector worked with partner country institutions to implement accountancy reform and development action plans; modernize the statutory framework for accounting and auditing; strengthen the institutional capacity of national professional accountancy bodies; put in place high-quality education and training, including practical training in international standards; and develop independent 4

monitoring and enforcement arrangements to ensure compliance with applicable standards. Implementation of review recommendations was supported by the Financial Sector Reform and Strengthening (FIRST) initiative in Albania, Botswana, Georgia, the Maldives, and Tanzania. In addition, IDF grants were used to establish and strengthen FM institutions: 23 projects (including a number of ROSC-related activities) were approved during the year, a significant addition to the 44 projects that were ongoing (Annex C lists IDF grants for FM institutional reforms as at June 30, 2007).

2. Use of Country Systems

.9 The Bank’s Operational Policy (OP) 10.02, Financial Management, provides that Bank- supported operations should use the country’s own PFM system, if it is acceptable, as the default option for financial management. Moreover, Bank management has committed to making further progress on the Paris Declaration targets for aid effectiveness, which include a reduction in aid flows outside partner countries PFM systems. The Bank’s Governance and Anticorruption Strategy recognizes the importance of country systems by explicitly stating that the Bank Group will strive to strengthen, rather than bypass, country systems.3 For all these reasons, the FM Sector is fully committed to accelerating and deepening the use of country systems in Bank-supported operations.4

.10 FY07 Achievements. As Box 3 illustrates for one Region, the Bank is increasingly using country PFM systems when circumstances permit. Country PFM systems comprise several elements: planning and budgeting; accounting, reporting, and management information; internal audit; and external audit. The following summarizes the progress made.

Box 3. LCR: Taking stock of the use of country FM systems In FY07, the LCR FM team conducted a comprehensive stocktaking of the status of use of country systems. The results showed that as of November 2006, 90 percent of the Region’s 284 investment projects were using country planning and budget systems; 80 percent were executed using the country’s regular budget execution procedures; 61 percent used country accounting and reporting systems; and 32 percent were audited by the country’s supreme audit institution. The Region has developed a structured approach to increasing the use of country FM systems, which includes (a) a systematic review of information in existing country FM assessments; (b) an analysis of operational realities/impacts based on portfolio experience; and (c) collaboration with each country management unit in developing an action plan.

 Planning and budgeting. Bank disbursements for both development policy and investment lending operations were increasingly channeled through country budgeting systems. According to the Paris Declaration monitoring survey, virtually all IDA disbursements were reflected in governments’ budget estimates (97 percent, compared to 91 percent for all development partners).5

3 See Strengthening World Bank Group Engagement on Governance and Anticorruption (DC2007-0005), March 29, 2007, Principle 6: “The WBG will strive to strengthen, rather than bypass, country systems—better national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk for all public money, including that from the Bank”; accessible at http://go.worldbank.org/QNKKDXE1N0). 4 Meeting in June 2007, the Multilateral Development Banks’ FM Harmonization Group, chaired by the World Bank, also endorsed the use of country PFM systems as the default option, when circumstances permit. 5

 Accounting, reporting, and management information. In many countries, government accounting and reporting systems are being modernized and automated with the support of Bank-funded PFM reform programs and IDF grants (Box 4 provides examples).

Box 4. Innovative transition to the use of country systems Georgia. National-level migration to country systems. The Government is (a) moving designated bank accounts into the Treasury to begin integrating the Bank-financed project into country systems, and (b) integrating project staff into the line ministries under an agreed transformation plan. Nigeria. Establishment of project financial management units. State-level project financial management units, staffed with civil servant accountants, were established to provide common accounting, disbursement, and reporting services for all donor-funded projects. Through an IDF grant, the Bank has helped to develop staff capacity and to install an integrated computerized accounting system. Results have been evidenced in improved fiduciary arrangements, integration of donor- supported activities in Government budgets, and consistent compliance with donor fiduciary safeguards and reporting requirements. The Government is now seeking to expand the mandate of the project financial management unit to include Government debt monitoring support. Pakistan. PIFRA II, a PFM reform project, enabled 65 percent of overall Government expenditures to be made through a state-of-the-art SAP integrated financial management information system in FY07. In addition, the country adopted a risk-based public audit methodology. As a result, federal financial statements—prepared using the International Public Sector Accounting Standards (IPSAS) cash basis of financial reporting—were finalized and submitted within 12 months of the end of the fiscal year. The project’s monitoring and evaluation components also helped strengthen the Government’s focus on project results and outcomes.

 Internal audit. In many countries, the adoption of professional practice standards, including risk-based internal audit methodologies, has enhanced the independence of internal audit units (Box 5 provides an example). Ministerial audit committees are increasingly recognized as country-based tools for strengthening governance. Several IDF grants to support internal audit reform initiatives were approved and implemented during the year—for example, in Armenia, Burkina Faso, Djibouti, Ghana, Lebanon, and Mali.

Box 5. A pilot project to improve Kenya’s internal audit systems The Institute of Internal Auditors and the Bank’s FM and Internal Audit Departments supported Kenya’s adoption of a risk-based internal audit methodology through a pilot project included in the Kenya Government’s PFM reform program. The program supports establishing ministerial audit committees, whose mandate corresponds with professional practice standards for corporate governance. Once Kenya adopted an audit methodology that complies with these standards, the Government’s Internal Audit Unit was engaged to audit Bank-funded projects—for example, the independent review of a claim for US$20 million in retroactive financing for drought-related expenses under an emergency project. This work was undertaken successfully with technical guidance from the Bank’s FM team. Relying on the country’s system not only enhanced the technical capacity of the Government unit, but also translated into significant savings in consultant costs.

5 See IDA’s Role in Enhancing Country-Level Effectiveness: Strengthening Harmonization and Alignment (Operations Policy and Country Services, October 2007). The Paris Declaration Baseline Survey covered 34 self-selected countries, 30 of which are IDA-eligible; for more information, see 2006 Survey on Monitoring the Paris Declaration—Overview of the Results (OECD-DAC, 2007). 6

 External audit and oversight. The FM Sector provides dialogue and technical support to help supreme audit institutions (SAIs) adopt professional practice standards. In FY07, 23 IDF grants (details included in Annex C) directly supported SAI reforms in the Regions, and others supported strengthening parliamentary oversight committees—for example, in Burkina Faso and Pakistan. Innovative practices—such as twinning arrangements between less experienced SAIs and highly experienced counterparts, and collaboration between private sector auditors and government auditors in joint audits of Bank-funded projects—resulted in the cost- effective transfer of knowledge and experience (see Box 6).

Box 6. Innovative arrangements for audit effectiveness Kyrgyz. Audit arrangements for the Kyrgyz Health SWAp include a twinning arrangement between the country’s SAI and a well-established national audit office in the region to allow the use of the country audit system for the Bank-supported project. This arrangement enhances audit effectiveness, builds capacity, and facilitates the transfer of technical skills. Peru and Ecuador. Memoranda of understanding between the Bank and the countries’ SAIs provided standard audit terms of reference, as well as audit process arrangements, to improve audit quality and compliance in Bank-funded projects.

.11 Staff Guidance. As the recent paper Use of Country Systems in Bank-Supported Operations: Status Report observed, the challenge for the FM Sector is to deepen and accelerate the Bank’s use of country systems when circumstances permit.6 Accordingly, the FM Sector is preparing detailed guidance to help FM staff to assess the adequacy of a country’s PFM system for use in Bank-supported operations. This guidance will not require staff to undertake new diagnostics, but will show how the existing diagnostics, particularly PEFA assessments, should be used to perform the fiduciary risk analysis required under Bank policies.

3. Governance and Anticorruption

.12 Because of the nature of its work, the FM Sector has always been heavily involved in governance and anticorruption (GAC) issues. Thus, during FY07, it was well placed to contribute to developing the Bank’s strategy to help member countries enhance governance and fight corruption,7 as well as to drafting the GAC Implementation Action Plan.

.13 Sector Approach. In June 2007, the Financial Management Sector Board approved a paper8 outlining the Sector’s approach to the GAC agenda: (a) to assist partner countries in improving governance and reducing corruption risk by strengthening their PFM systems, improving their corporate financial reporting standards and practices, and increasing the number of qualified FM professionals to work in the public and private

6 See Use of Country Systems in Bank-Supported Operations: Status Report (R2007-0079/4), October 15, 2007. 7 See Strengthening Bank Group Engagement on Governance and Anticorruption (DC2006-0017), September 8, 2006; accessible at http://go.worldbank.org/6HHK3NDGL0. 8 See Financial Management Sector: Approach to Governance and Anticorruption, Financial Management Sector Board, June 8, 2007, accessible at http://go.worldbank.org/LLPAE9S320. 7

sectors; (b) to strengthen fiduciary practices in Bank-financed projects; and (c) to work with global partners to support partner countries in this area, harmonize practices, and support development of international standards. In these activities, the Sector will work in close collaboration with internal partners (e.g., PREM, Controller’s Strategy and Resource Management, Department of Institutional Integrity, Legal, Procurement, Sectors, country management units) and external partners (e.g., multilateral development banks, bilateral donors, and global accounting and auditing bodies, as well as contributing to global initiatives such as the Stolen Asset Recovery Program). The Sector recognizes that the challenge is to implement this approach; in September 2007, it established an FM GAC Working Group and developed an action plan—“FM Activities in Support of GAC Implementation”—to implement anticorruption initiatives and promote consistent approaches across the Regions, where a number of innovative initiatives are already under way.

.14 FY07 Achievements. GAC-related achievements at the country level during FY07 included extensive analytic and advisory work on fiduciary issues, specifically designed to provide a more holistic view of GAC issues. In conducting joint fiduciary compliance reviews, FM teams collaborated with colleagues in Procurement and PREM, especially in high-risk operations and corruption risk assessments. Following up on these reviews, FM teams have worked with countries to develop country-, sector-, and project-specific remedial plans and monitor their implementation (Box 7 illustrates the use of corruption risk scan tools). Increasingly, the Bank is also following up such studies with support for critical institutions that combat corruption, including supreme audit institutions; computerization of government financial systems; strengthening of public sector internal controls and internal audit; improved financial reporting and audit in the private sector and state-owned enterprises; and enhanced legislative scrutiny of public finances. Countries in which such initiatives have been supported include Afghanistan, Argentina, Armenia, Azerbaijan, Burkina Faso, Belarus, Bhutan, Bolivia, Cambodia, Cape Verde, Ecuador, Ghana, Indonesia, India, Kenya, Lao PDR, Mongolia, Pakistan, Peru, Philippines, Sri Lanka, Thailand, Venezuela, and Vietnam (Box 8 provides an example). At the project level, FM technical support was provided for the adoption of risk-responsive audit methodologies, the increased use of public information and complaint handling mechanisms in community-based projects, and the improvement of institutional risk management and oversight arrangements.

Box 7. Using corruption risk scan tools ECA. A corruption risk scan module incorporated in arrangements for monitoring projects’ FM performance enables fiduciary staff to track high-fiduciary-risk projects in real time. The module adapts corruption risk indicators and draws upon data from several sources, including the Business Environment and Enterprise Performance Survey (BEEPS), World Wide Governance, Department of Institutional Integrity cases, procurement complaint databases, and Country Policy and Institutional Assessment (CPIA) ratings (PFM and corruption). Argentina. The Integrated Fiduciary Action Plan assesses the FM and procurement performance of projects using an easy-to-understand color-code rating—red (significant shortcomings in FM or procurement performance that could substantially compromise project implementation); yellow (moderate shortcomings that could compromise project implementation but are likely to be resolved); and green (minor shortcomings, or none). These indicators are presented and discussed at quarterly country portfolio review meetings. Although the indicators are applicable to particular projects, they can also be aggregated at the portfolio level. 8

Box 8. In-depth fiduciary review Cambodia. The Cambodia fiduciary review team comprised Department of Institutional Integrity forensic investigators and procurement and FM specialists. The review included detailed examinations of the procurement, financial management, disbursement, and contract administration and supervision processes; the quality and effectiveness of project outputs; and project preparation and design with regard to corruption risks. Key fraud and corruption risks were assessed, and mitigation measures identified. The review also examined the effectiveness of existing systems and controls, including audits. Measures for improvement included establishing strong internal controls and compliance monitoring arrangements; expanding terms of reference for project audits to include in- depth audit of financial internal controls and systems, and bundling most project audits under a single contract. A fiduciary action plan is now being implemented for the portfolio. Indonesia. Over the past two years the Inspectorate General of the Ministry of Health has been leading investigations of fiduciary compliance issues in Bank-supported operations. Collaboration with Bank teams has helped build Government ownership of processes and facilitated implementation of recommendations. 9

B. Providing Reasonable Assurance

.15 Arguably the FM Sector’s most notable achievement of FY07—or of any year—is that financial management is fully integrated into Bank project teams supporting about 1,500 operations with a total commitment of approximately US$100 billion.9 The FM Sector evaluates how well it has carried out the second part of its mandate—to provide reasonable assurance on the use of the Bank’s funds—in several ways: through independent quality reviews, internal quality assurance, and portfolio reviews.

1. Independent Quality Reviews

.16 One of indicators used to Table 2. Financial management performance in QAG review monitor FM performance is the (percent rated Moderately Satisfactory or better) Quality of Supervision reports QSA4 QSA5 QSA6 QSA7 issued by the Quality Region (FY00) (FY01) (FY03 and 04) (FY05 and 06) Assurance Group (QAG). The AFR 83 n.a. 86 92 Seventh Quality of Supervision EAP 79 n.a. 80 91 Assessment (QSA7) was ECA 88 n.a. 97 97 carried out during FY07, LCR 77 n.a. 100 100 covering disbursements for MNA 100 n.a. 90 87 FY05 and FY06. Of the 130 SAR 91 n.a. 93 100 operations sampled, 94 percent Bank overall 86 78 91 94 were rated Moderately Source: Quality Assurance Group, QSA7. Satisfactory or better for the FM aspects of supervision (see Table 2).

.17 IDA14 Internal Controls Review. In response to a request from the IDA Deputies,10 Bank Management launched an independent assessment of the internal controls over IDA operations and compliance with the Bank’s charter and policies. The assessment focuses on the design and operational effectiveness of controls over IDA operations at the transaction level, and on entity-level controls and the overall effectiveness and efficiency of the internal controls framework for operations. The assessment entails management self-assessment; review by the Internal Audit Department (IAD); and an evaluation of the overall process by the Independent Evaluation Group (IEG), in accordance with the Treadway Commission’s Committee of Sponsoring Organizations (COSO) paper on internal controls.11 Part IA, mapping controls and assessing design effectiveness, was completed in October 2006; Part IB, testing compliance with controls in a sample of documents related to CAS, investment lending, and development policy lending, was completed in May 2007. Among the key findings of these reviews are that (a) there are significant deficiencies in the timely accessibility of relevant documents and the 9 See Status of Projects in Execution (SOPE) Report – Fiscal Year 2007 (SecM2007-0439; IDA/SecM2007- 0591), October 10, 2007. 10 See para. 39 in Additions to IDA Resources: Fourteenth Replenishment—Working Together to Achieve the Millennium Development Goals, Report from the Executive Directors of the International Development Association to the Board of Governors (IDA/R2005-0029), February 28, 2005. 11 The COSO framework is a process that covers all aspects of internal control of an organization’s operation. It evaluates not only formal controls, but also informal controls, including ethics, trust, communication, organization behavior, and leadership. It incorporates “top-down” as well as “bottom-up” analysis. The COSO Framework is accessible at http://go.worldbank.org/ROAMGCMG00. 10

relevance of regional variances in FM guidelines issued to staff; and (b) there is a need to examine the quality control aspects supporting FM staff inputs to investment operations. Part II, currently in progress, is following up on the issues identified in Parts IA and IB. Once Part II is completed in December 2007, the final report will be made available to the public in accordance with IEG disclosure procedures. The FM Sector has already begun using these findings to enhance the quality of its work—for example, RAPMAN- PRIMA is improving timely accessibility to documents—and it will use them in revising the FM Practices Manual and its supporting guidelines.

.18 Independent Evaluations Group Review. In FY07, IEG examined CFAAs undertaken between July 1999 and December 200412 and found them to have been highly relevant to the Bank’s work and to have contributed substantially to positive development outcomes in the 10-country sample. Of the CFAAs evaluated, 71 percent were assessed to be of satisfactory quality, and the reviewers noted steady improvements in CFAA quality over the period under study. The report observed that CFAAs had fostered the integration of FM issues into Country Assistance Strategies and increased the availability of resources for PFM reform in several of the sampled countries. It also observed that donor collaboration on CFAAs increased over the evaluation period, leading to preparation and support of joint action programs in some countries. Bank Management welcomed the IEG evaluation report, noting that a memorandum to staff in July 2005 had addressed many of IEG’s recommendations.13 Management agreed on the need for increased attention to prioritizing and sequencing PFM reforms; disseminating PFM analytic work findings; providing more empirical data and sharper analysis in PFM analytic work; establishing better linkages with corruption issues in PFM work; supporting partner countries’ PFM reform programs in an integrated and harmonized way; providing staff training and more guidance to staff on internal processes and mechanisms for coordination on PFM issues in the Bank; and working with partners to increase the public availability of CFAAs and Country Procurement Assessment Reports (CPARs) on a more timely basis. Work in these areas is part of the Sector’s FY08 work program.

2. Internal Quality Assurance

.19 A range of recent internal reports have evaluated the quality of the FM Sector’s contribution to the Bank’s work.

.20 Reviews of High-Risk Operations. In light of the heightened institutional focus on governance and anticorruption and the need to strengthen management oversight of multidimensional project risks, in FY07 the Office of the Managing Director launched an OPCS review of high-risk projects.14 This review focused on projects at a very advanced stage of preparation, either before Board review or before project negotiations. The FM component of this review, aimed at possible shortcomings or omissions in FM due

12 See Country Financial Accountability Assessments and Country Procurement Assessment Reports—How Effective are World Bank Fiduciary Diagnostics? (CODE Report 2007-001), February 16, 2007. 13 See Memorandum from Danny Leipziger and James Adams, “Strengthening the Bank’s Public Financial Management Work,” July 21, 2005. 14 The report—Strengthening Bank Group Engagement on Governance and Anticorruption (DC2006-0017), September 8, 2006 —was initiated because of high systemic corruption, as identified by the Country Policy and Institutional Assessment, the World Bank Institute, or the Regions. 11

diligence, sought assurance that FM risk ratings were consistent with macroeconomic and country contexts, and that FM arrangements and proposed mitigation measures were appropriate to the assigned risk. The reviews found that the most of the selected projects’ risks had been adequately assessed and the proposed mitigation arrangements were adequate to manage them.15

.21 Management Review of Investment Lending. The Management Review of Investment Lending16 mechanism, introduced during FY07, promotes a complete and consistent approach to risk assessment in Bank investment lending and helps ensure that levels of management review are aligned with levels of risk. The FM Sector provides input to this process during Regional Operations Committee/Operations Committee meetings.17

.22 Evaluation of FM Sector Quality Arrangements. The FM Sector has worked with Controller’s Strategy and Resource Management Unit (CSR) to develop a proposal for a framework and methodology for evaluating FM Sector quality arrangements. The joint evaluation would focus on the following dimensions of FM work: (a) compliance— whether the Regions’ quality arrangements and FM work are consistently being implemented as designed and in accordance with the FM Practices Manual; (b) quality— whether the judgments being made (i.e., conclusions reached and recorded in accordance with the FM Practices Manual) are properly supported by evidence; and (c) efficacy— whether the FM work being carried out is sufficiently robust (i.e., compliant and of good quality) that CSR can rely on it as one element of its plans to reduce its ex-ante disbursement requirements and simplify disbursement processes. The results of the review would support the Controller in making an assertion in the Bank’s annual COSO report with respect to the adequacy of arrangements to ensure that loan funds are used for intended purposes. The methodology is being tested in the context of the IDA14 Internal Controls Review.

3. Portfolio Management

.23 March 2007 saw the rollout of an integrated financial management information system (known as RAPMAN-PRIMA) for tracking and monitoring FM project performance, such as risk profile and portfolio management.18 The successful development and ongoing implementation of RAPMAN-PRIMA across the Bank portfolio represents an important milestone in support of the FM Practices Manual.19 This system enables tracking and

15 Of the 50 operations reviewed, fewer than 5 were stopped or referred back to the Region for further work. 16 See Guidance Note on the Management Review of Investment Lending, OPCS, June 29, 2007. 17 The Sector is also involved in the quality of FM in development policy operations; see Financial Management in World Bank Operations – Annual Report for FY06 (SecM2007-0064), February 15, 2007. 18 The Risk and Portfolio Management system (RAPMAN) developed and used by ECA and MNA since FY04 was modified during FY07 to meet the requirements of the other four regions. The resulting system is called PRIMA (Portfolio and Risk Management system). RAPMAN/PRIMA is a web-based application that interfaces directly with core Bank systems, including SAP and the Project Portal. It comprises a risk management module and a portfolio management module and allows FM staff to document their field work and professional judgment in an organized central database. 19 As of October 31, 2007, project risk information for 76 percent of all Bank projects under implementation had been recorded in RAPMAN-PRIMA. It is expected that appropriate project risk information for all projects will be entered by December 31, 2007. Information on interim financial reports and use of country systems is expected to be available by March 31, 2008. 12

monitoring of the FM aspects of the investment and development policy lending portfolios throughout the project cycle; establishes systematic workflows to ensure timely processing of key FM fiduciary activities; and supports the implementation of a risk- based approach to the allocation of FM resources by helping focus management attention on high-risk areas. It also offers a rich data source for analyzing the investment lending portfolio by capturing all key FM information about a project, from FM assessment through FM supervision.

.24 Audit Compliance. The FM Sector monitors compliance with legal covenants pertaining to the submission of audited financial statements and audit reports. As Table 3 shows, the proportion of audits of loans, credits, and recipient-executed trust funds received on time improved in comparison with the previous year. However, the proportion of audit reports with clean opinions—which had risen slightly last year—returned to the FY05 level. Of the audits with qualifications, the highest proportion was for “exceptions”—22 percent for FY07, 18 percent for FY06, and 22 percent for FY05. Fewer than 2 percent were adverse or disclaimer opinions.20 This means, however, that nearly 25 percent of the audits were not fully satisfactory. Even in the challenging environments in which the Bank operates, the FM Sector will seek to improve the timeliness and nature of the opinions received. To this end, under the guidance of Regional FM managers, FM staff will intensify country-level efforts to strengthen controls and implementation, including invoking remedies as appropriate (Box 9 presents an example).

Table 3. Timeliness of audit reports due in FY07 (percentages) Received on time Received during FY FY06 FY07 FY06 FY07 IBRD/ Trust IBRD/ Trust IBRD/ Trust IBRD/ Trust Region IDA funds IDA funds IDA funds IDA funds AFR 67 53 78 55 86 81 93 77 EAP 59 64 66 73 77 81 83 95 ECA 52 62 62 68 70 77 76 83 LCR 44 40 49 51 66 58 77 69 MNA 60 26 53 68 80 54 80 84 SAR 9 9 25 21 83 71 94 79 Bankwide 51 50 61 60 77 74 86 82 Source: Business Warehouse—ARCS.

Box 9. Efforts to improve audit compliance in MNA In June 2007 the MNA FM team collaborated with the Governments of Iraq and Jordan to host an external auditors’ capacity-strengthening workshop that featured an “audit toolkit” that is designed to provide technical guidance to auditors of Bank-supported operations. The toolkit includes detailed terms of reference for auditors, a summary of

20 The fact that more than one-quarter of the audit reports were provided by supreme audit institutions reflects increasing reliance on country systems; however, it also means that 72 percent of audit reports are still provided by private sector auditors, indicating the need to help supreme audit institutions build capacity to perform financial audits. 13

applicable international standards, and sample audit methodologies and reporting formats. The workshop was attended by 25 auditors representing 11 audit firms based in Baghdad, Erbil, Amman, and Cairo, as well as the Iraqi Fiduciary Monitoring Agent. Further details are posted at www.irffi.org.

.25 Audit Exemptions. In FY07, the FM Operations Review Committee approved two audit exemptions (see Box 10), and eight were awarded for operations under US$500,000 and for projects qualifying under the United Nations Development Programme exemption.21

Box 10. Audit exemptions granted during FY07 The 2007 Global Development Marketplace Grant Facility and the additional financing for the Pakistan Polio Eradication Project were exempted from annual financial statements audits under provisions of Operations Policy/Bank Procedures (OP/BP) 10.02, Financial Management. The exemptions were granted as in both cases alternative fiduciary arrangements were in place to ensure that funds are used efficiently and effectively for the intended purposes. Both programs have shown satisfactory fiduciary performance over the past few years; in effect, they are using an extension of the existing satisfactory financial management arrangements.

C. Global Partnerships

.26 As an extension of its mandate to help developing countries improve their public financial management, the FM Sector engages—and takes leadership—in two kinds of global partnerships. Through partnerships with bilateral and multilateral donors, it helps ensure that policy and operational issues affecting financial management are coordinated and that agreements related to financial management under the global harmonization initiative move forward. And through partnerships with global accounting and auditing institutions and relevant standard-setting bodies, it promotes inclusion of PFM development issues in their activities and facilitates partner countries’ adoption of internationally recognized standards, codes, and practices.

1. Bilateral and Multilateral Development Partners

.27 OECD-DAC Joint Venture on Public Financial Management. One of the goals of the Paris Declaration on Aid Effectiveness is to achieve greater reliance on countries’ PFM systems where there is assurance that aid will be used for intended purposes. This goal will require concerted action from partner countries and donors on various fronts: strengthening country PFM systems, adopting agreed frameworks for measuring performance, conducting joint analytic work, and coordinating the provision of technical cooperation. The Joint Venture on Public Financial Management supports the development community in achieving this goal and, more generally, facilitates the implementation of the Paris Declaration as it relates to public financial management. (Box 11 summarizes the key achievements of the Joint Venture.) In preparation for the Third High-Level Forum on Aid Effectiveness, to be held in Accra, Ghana, in September 2008, the Joint Venture is preparing a report on the use of country PFM systems. The report, which will form part of the Forum outputs, will take stock of implementation; draw lessons from experience; identify opportunities for and obstacles to greater use of

21 See Financial Management Framework Agreement between the World Bank and the United Nations, March 10, 2006, accessible at http://go.worldbank.org/3PEMNUJDZ0. 14

country systems; and set out issues, messages, and actionable commitments that will help donors and partner countries accelerate progress on the use of country systems. The Bank and the European Community, as co-chairs of the Joint Venture, are responsible for the overall coordination, management, and timely delivery of the report (with support from the OECD-DAC Secretariat and internal and external constituents).

Box 11. Summary achievements of Joint Venture on Public Financial Management Promoting good practice in implementing PFM by analyzing country case studies and working closely with regional and international PFM professional networks. The Joint Venture has published good practice papers on Budget Support (OECD 2005), Capacity Development in Public Financial Management (OECD 2005), and Financial Reporting and Auditing (OECD 2003). Harmonizing the measurement of performance in PFM by monitoring the adoption of harmonized measurement frameworks and by working closely with the PEFA Secretariat. The Joint venture has published Supporting Better Country Public Financial Management Systems (OECD 2005) and Measuring Performance in Public Financial Management (OECD 2003). Improving transparency of information on aid flows by supporting the establishment of accounting standards for disclosure of external assistance and by working with other organizations to set out good practice in recording aid flows in national budgets. The Joint Venture has worked with the International Public Sector Accounting Standard Board to elaborate a standard on Disclosure Requirements for Recipients of External Assistance (Financial Reporting Under the Cash Basis of Accounting). (The exposure draft of this standard—Exposure Draft 32—was approved in November 2007.)

.28 Multilateral Development Banks Financial Management Harmonization Working Group. Meeting in June 2007, the Multilateral Development Banks (MDB) Working Group endorsed the principle that the use of country systems should be the default option for MDB-funded operations when circumstances permit, but recognized that in some MDBs, inadequate FM staff capacity represents a significant operating constraint. Participants agreed to prepare a paper for senior-level MDB management highlighting the achievements of FM harmonization so far22 and flagging constraints, challenges, and opportunities for further progress. The African Development Bank is taking the lead in this effort.

.29 Public Expenditure and Financial Accountability. In recent years, the Bank has been participating in the PEFA initiative, a partnership of multilateral and bilateral development agencies that is working to harmonize donors’ PFM approaches. Following intense work, international consultations, and piloting, in June 2005 PEFA issued the PFM Performance Measurement Framework, an integrated and harmonized approach for measuring and monitoring PFM performance progress and focusing support on country- led PFM reform programs. The Framework incorporates a set of high-level indicators covering the entire budget cycle, which draw on international standards, and a PFM Performance Report that enables the indicators to be read and understood in context. Since June 2005, the Bank has been working with PEFA partners and the PEFA Secretariat to operationalize the framework. By the end of FY07, the Bank, the European

22 “Framework for Collaboration among Participating Multilateral Development Banks on Financial Management Diagnostic Work” and “Framework for Collaboration Among Participating Multilateral Development Banks on Financial Reporting and Auditing” are accessible at http://go.worldbank.org/8WNPOBQSJ0 15

Community, and others had used the framework to conduct 65 assessments23 in countries covering all six Regions, with almost 40 percent of them in Africa. A PEFA review of early implementation experience24 found that adoption of the framework is progressing well, with extensive donor participation and indications that the framework has facilitated donor harmonization and collaboration around PFM analytic work; however, in June 2007 the PEFA Steering Committee noted the continuing challenges of further quality improvement and timely completion and public availability of reports. In early FY08, an independent PEFA Impact Assessment is examining the impact of using the PEFA framework at the country level; the consultant’s draft report will be submitted to the PEFA Steering Committee meeting in December 2007.

2. Professional Institutions and Standard-Setting Bodies

.30 Timely, transparent, and reliable financial reporting and audit contribute to improved governance and better financial management in government; promote the growth of a competitive and responsible private sector; facilitate monitoring of companies and governments, thus influencing their behavior; strengthen the financial discipline of government business enterprises; and improve the assessment and collection of taxes on corporate profits. Moreover, openness and transparency in financial reporting play an important role in creating an environment that makes it difficult for corruption to flourish. For these reasons, the Bank funds the Global Financial Management Partnerships Program, which supports developing and disseminating global accounting and auditing standards covering both the public and private sectors. Under this program, in FY07 the FM Sector continued its strategic partnerships with key international accounting and auditing organizations to promote (a) the development of high-quality accounting and auditing standards, taking due account of developing country concerns and issues; (b) wide dissemination and adoption of these standards by more partner country governments; and (c) support for training and capacity-building initiatives to foster the skills and aptitudes required for successful implementation of the standards. (Box 12 highlights some FY07 progress and achievements.)

III. THE FM SECTOR: FY07 INSTITUTIONAL AGENDA

.31 The preceding section described the range of activities through which the Bank’s FM Sector carries out its dual mandate to improve FM performance in partner countries and to provide reasonable assurance on the use of Bank funds. The Sector also has a broad internal responsibility to maintain a structure and activities that support carrying out that mandate. This section summarizes the Sector’s internal activity in FY07.

23 According to an unpublished PEFA update report Overview on the Status on Applications of PEFA Performance Measurement Framework, August 29, 2007, 45 country assessments were complete, 20 were substantially complete, and 37 were in progress. 24 The report, “PFM Performance Measurement Framework: Final Report on Early Experience from Application of the Framework,” November 3, 2006, and further information on the PFM Performance Measurement Framework, are available on the PEFA website: www.pefa.org. 16

.32 Financial Management Sector Board. The Financial Management Sector Board (FMSB) has overall responsibility for financial management in Bank operations, including the FM Sector Strategy and related operational policies, procedures, and guidance to staff; the quality of operational work; human resources management; knowledge, learning, and outreach; and internal and external partnerships. The FMSB, which is chaired by the Chief Financial Management Officer, is made up of the six Regional FM Managers and representatives from the Loan Department, Procurement Group, Public Sector Group, and Legal Operations Policy. The FMSB is supported by two Standing Committees: the Human Resources Committee, which is responsible for human resources management, and the FM Operations Review Committee, which responds to requests for advice and policy interpretations on FM aspects of Bank-supported operations, and also provides clearances for specific decisions. In FY07 the FMSB established a new committee and working group structure to help it carry out its responsibilities (see Annex D). 17

Box 12. Achievements through partnerships with standard-setting bodies International Public Sector Accounting Standards Board (IPSASB) The IPSASB issued a standard on the presentation of budget information in financial statements and Exposure Draft 32 on disclosure requirements for recipients of external assistance. Both address issues of consistency, completeness, and transparency in government financial reporting and are highly relevant to improved accountability in partner countries. Exposure Draft 32 was approved in November 2007. In addition, the IPSASB approved IPSAS22 (Disclosure of Financial Information about the General Government Sector) and IPSAS 23 (Revenue from Non-Exchange Transactions—Taxes and Transfers), and issued Exposure Draft 30 (Impairment of Cash-Generating Assets). International Accounting Standards Board (IASB) The IASB has continued its technical work of improving and updating International Financial Reporting Standards (IFRS). Of particular note has been the development of a new reporting standard, currently an exposure draft, for small and medium enterprises (the draft is being field-tested, and approval is expected in the second half of FY08), which will be of particular benefit to the commercial sector in developing countries. Meanwhile, there is growing international acceptance of IFRS: several developing and emerging market countries, including China, took steps to implement IFRS-based corporate financial reporting requirements during FY07. More than 100 countries now either mandate or permit IFRS. Public-interest entities’ application of IFRS for financial reporting is an important step that improves investors’ perceptions of risk and thus helps countries mobilize greater investment at lower costs. The accessibility of IFRS also improved during the year: measures were taken to reduce prices for publication in developing countries and to translate the standards into additional languages (now totaling nearly 40). In addition, on November 15, 2007, the US Securities and Exchange Commission (SEC) removed the requirement for non-US companies reporting under IFRS to reconcile their financial statements to the US’s generally accepted accounting principles—an important step toward providing the world’s integrating capital markets with a common language for financial reporting. International Organization of Supreme Audit Institutions (INTOSAI) The INTOSAI Professional Standards Committee has continued its active participation in developing new International Standards on Auditing (ISA), working with the main standards-setting body, the International Auditing and Assurance Standards Board (IAASB). It is also developing Practice Notes to facilitate supreme audit institutions’ adoption of ISA. Approval of the first Practice Note represented an important achievement during FY07, and others are under preparation. ______a The recently concluded Congress of INTOSAI in Mexico City (November 2007), which is the supreme organ of INTOSAI and is composed of all INTOSAI Members, approved nine ISA-based financial audit guidelines for SAIs Details are available at http://issai.org/composite-344.htm .33 The FM Anchor. The FM Anchor, which is based in Operations Policy and Country Services (OPCFM), serves as Secretariat to the FMSB and its committees and working groups, and supports implementation of their work program. It also provides operational guidance and support to FM staff, including targeted cross-support to the Regions.

.34 Staffing. The FM Sector has 151 professional staff. About 83 percent are located in the Regions, 6 percent in the FM Anchor, and 11 percent in the Loan Department. FM staff are fully integrated into task teams, and 73 percent of Regional FM staff are based in country offices.

A. Staff Development

.35 FM staff levels increased from 141 at end-FY06 to 151 at end-FY07 (Table 4). During FY07, 13 FM specialists were recruited (12 for country offices and 1 for the Washington office), and 3 departed. In addition, there were 20 staff reassignments and 14 changes of duty station. 18

Table 4. FM Sector staffing (as of June 30, 2007) AFR EAP ECA LCR MNA SAR OPCFM LOA Others Sector Washington 7 3 5 9 4 5 9 15 2 59 Country offices 23 16 10 12 7 21 0 3 0 92 Total 30 19 15 21 11 26 9 18 2 151 Note: Does not include staff on developmental assignment or secondment. Source: Peoplesoft

.36 Staff Rotation. In FY07, the FMSB’s Human Resources Committee observed that the number of emerging senior professional-level vacancies was unlikely to offer sufficient opportunity for staff to rotate and enjoy new challenges. To enhance skills and re- energize staff through greater mobility, therefore, it provided opportunities to rotate to other Regions or to a central department. A sectorwide exercise was successfully launched in which 8 of the 10 staff who met the criteria (more than five years in assignment) were rotated. This exercise enhanced the professional development of FM- mapped staff, including those in the Loan Department and country offices.

.37 Knowledge, Learning, and Outreach. The FM Sector is the Bank’s most decentralized, with 73 percent of its Regional staff in country offices. While this allows Sector staff to be maximally responsive to the needs of operations and of borrowers, it also presents a significant challenge: how best to provide training for such a dispersed group, so that they can maintain and increase their skills. To help address this challenge, during FY07 the Sector organized a total of 157 learning events, compared with 101 events during FY06 (see Table 5). These events reached 7,612 participants, up from 6,486 in FY06,25 and some 75-80 percent of them were offered in country offices.

Table 5. FM Sector – formal learning activities for FY07 Total Area of focus Target audience Region or learnin Private Total Donor FM Other department g events FM PFM sector audience Clients staff staff staff AFR 21 13 7 1 1,754 1,455 60 122 117 Anchor 35 24 9 2 572 29 96 369 78 EAP 9 7 2 0 938 799 89 50 ECA 5 3 1 1 267 190 62 15 LCR 19 13 2 4 1,432 1,207 215 10 LOA 46 45 1 0 1,457 1,264 64 129 MNA 2 1 0 1 136 120 16 0 SAR 20 4 16 0 1,056 870 152 34 Total 157 110 38 9 7,612 5,934 156 1089 433

Other knowledge, learning, and outreach activities during FY07 included the following:

 An initiative was launched to develop a database of good practices as a reference tool for staff.

25 The numbers for FY06 were significantly affected by staff attendance at the Fiduciary Forum and Learning Week. 19

 The internal FM website was substantially updated, with more than 150 new entries.

 Innovative “across-the-globe” interactive training sessions were introduced for country office staff.

 A number of PEFA framework training events supported by FM Anchor staff reaching a large number of borrowing country participants, FM staff, and development partners (for example, an event held in China in June 2007 attracted over 100 Government staff from the Ministry of Finance and National Audit Office).

 A report on the FM curriculum and delivery mechanisms was prepared, and its recommendations are being implemented.

 The “FM Sector News” was successfully reintroduced to promote the exchange of experiences and lessons learned within and outside the Sector.

 The FM Sector participated in OPCS outreach programs, including nine presentations of FM in Introduction to Bank Operations, two in Bank Supervision, and two for the Development Policy Lending Academies.

 Several Regional knowledge and learning events were carried out (see Box 13).

Box 13. Regional knowledge and learning sessions Latin America and Caribbean Region. In June 2007 the regional conference on Accounting and Accountability for Regional Economic Growth, jointly organized by the International Federation of Accountants (IFAC), the World Bank, and the Inter-American Development Bank, drew over 500 delegates from 44 countries. Participants shared experiences on strengthening financial transparency and accountability in both the public and private sectors, and intercountry dialogue and cooperation were cultivated at the regional level. Presentations and videos are available on the World Bank website at http://go.worldbank.org/2QLARJ5XI0. South Asia Region. In March 2007 the learning event Achieving Results in Financial Management, held in Lahore, Pakistan, focused on achieving results in capacity development and fiduciary assurance across the entire spectrum of FM activities. The training was attended by the South Asia FM team, procurement specialists, and a representative from OPCFM, thereby fostering communication and collaboration on the Bank’s results agenda across the Region. In addition, several key officials from the Punjab government’s accounting and finance divisions participated. Africa Region. The International Federation of Accountants, the African Development Bank, and the World Bank jointly sponsored a learning workshop for the Africa Region, which attracted more than 200 participants from 37 countries—representatives from the accountancy profession, governments, the donor community, and academia. Discussions focused on quality financial reporting, the needs of the accountancy profession in the Region, the role of the government in accountancy and accountancy development, and good governance and ethics. A major outcome was the establishment of an Africa focus group, which will coordinate dissemination and follow-up activities for the recommendations. Further information is available at http://www.ifac.org/DevelopingNations/africa_workshop.php. 20

B. Policies, Procedures, and Guidelines

.38 During FY07, the FM Sector issued a range of updated operational policies, procedures, and guidelines to staff.

 OPCS and CSR issued the updated OP/BP 10.02, Financial Management, and OP/BP 12.00, Disbursement, in March 2007. The statements, which apply to all IBRD loans, IDA financing, and recipient-executed grants financed from trust funds, reflect the Board-approved policy changes presented in the papers Audit Policies and Practices for World Bank-Financed Activities and Eligibility of Expenditures in World Bank Lending: A New Policy Framework,26 as well as the Bank’s modernization of its financial management and disbursement practices over the past several years. Among other things, OP 10.02 requires each project team to include an appropriately qualified and experienced FM specialist as an integral member; requires an FM capacity assessment for all operations, and interim financial reporting for all investment operations; and explicitly states the Bank’s support for the use of country PFM systems that are assessed to be adequate.

 The FM Guidance Note on OP 8.00, Rapid Response to Crises and Emergencies, issued in March 2007, sets forth guiding principles on oversight arrangements (including governance and fiduciary oversight) to ensure the appropriate scope, design, speed, monitoring, and supervision of FM in rapid response operations. The note requires FM staff to streamline and simplify ex-ante requirements while relying more heavily on such ex-post requirements as additional fiduciary controls and reviews. It also recommends ensuring that risk-mitigating measures suitable to available capacity are in place during implementation and, as appropriate, that they rely on partner institutions.

 The paper “Enhancing Control of Highly Pathogenic Avian Influenza in Developing Countries through Compensation: Issues and Good Practice” provides practical guidance to operational teams and governments on the core elements needed to operate compensation funds in an effective, transparent manner.

.39 Database on Sectorwide Approaches. During FY07, the FM Sector established a database on FM in operations that use SWAps, highlighting case studies that involve harmonization and alignment of implementation arrangements and cover a number of different sectors. The case studies demonstrate that (a) SWAps can be used in connection with subsectors or across multiple sectors; (b) it is possible to use common arrangements that incorporate use of country PFM systems even in high-risk environments, if appropriate risk mitigation is in place; and (c) with appropriate capacity strengthening built into the operation, sound country PFM systems can be an outcome of, and not necessarily a precondition for, undertaking a SWAp.

26 See Audit Policies and Practices for World Bank-Financed Activities (R2003-0007; IDA/R2003-0013), January 27, 2003; Eligibility of Expenditures in World Bank Lending: A New Policy Framework (R2004- 0026/1), March 26, 2004. 21

IV. LOOKING FORWARD: PRIORITIES AND CHALLENGES

.40 As this paper has shown, in the past fiscal year the FM Sector has continued to make substantial progress in the wide range of activities with which it carries out its mandate. Nevertheless, the experience of the last year, and the analytical work that has been carried out, has also revealed areas where significant challenges remain. Accordingly, during FY08 and beyond, while the Sector continues to emphasize moving from diagnosis to implementation and building capacity, it will focus on the following priorities and challenges.

.41 Strategic Approach. The Financial Management and Procurement Sector Boards have agreed that, rather than updating their strategies independently, they will prepare a joint strategy, consistent with the Bank’s Long-Term Strategy and its renewed emphasis on governance and anticorruption.27 The intention is to discuss the draft strategy at the joint Fiduciary Forum in March 2008 and to finalize it by the end of FY08. This innovative approach is expected to maximize the synergies between the two sectors and foster closer and more effective working relationships.

.42 Use of Country Systems. While it is widely understood that the use of country FM systems in Bank-funded operations is the Bank’s default option when circumstances permit, the challenge for the FM Sector is to deepen and accelerate the use of such systems. To promote and facilitate this activity, OPCFM is working in consultation with the FMSB and the Regions to prepare detailed guidance to help FM specialists assess the adequacy of a country’s PFM system for use in Bank-supported operations. The Sector will also continue collaborating with other Bank groups in providing follow-up support for public financial management (PFM) reforms through stand-alone technical assistance, components of investment projects and sectorwide approaches, and development policy lending linked to PFM reform actions. As a measure of progress in PFM reforms in partner countries, the FY08 annual report will include a trend analysis of PFM performance as reflected in ratings of relevant CPIA questions. Also, in future years, when a sufficient number of repeat PEFA assessments are available, the FM Sector will present a more detailed analysis of the PFM trajectory in partner countries.

.43 Governance and Anticorruption. Drawing on the paper “Financial Management Sector: Approach to Governance and Anticorruption,” the FM Sector expects to intensify its GAC work at the operational level: (a) assisting partner countries to improve their PFM systems, strengthen their financial reporting and auditing standards and practices, and increase the number of finance professionals working in the public and private sectors; (b) strengthening fiduciary practices in Bank financed projects, including “smart” design, use of techniques to enhance corruption risk monitoring during project supervision, and increased transparency and disclosure of information about project finances; and (c) working with global partners to support partner countries in this area, harmonize practices, and support the development of international standards. In these activities, the Sector will work in close collaboration with internal partners (e.g., PREM, CSR, 27 See Report on the Long-Term Strategic Exercise (SecM2007-0372), August 27, 2007 and Long-Term Strategic Exercise Draft Report Supplemental Note—Synopsis of Feedback Sessions (SecM2007-0372/1), September 11, 2007. 22

Department of Institutional Integrity, Legal, Procurement, Sectors, and country management units) and external partners (e.g., multilateral development banks, bilateral donors, and global accounting and auditing bodies, as well as contributing to global initiatives such as the Stolen Asset Recovery Program). The newly established FM GAC Working Group will provide guidance in this area, promoting consistent approaches across Regions, where a number of innovative initiatives are already underway.

.44 Quality Enhancement. As the Sector completes the process of populating the RAPMAN-PRIMA system with data, the system is expected to become an increasingly important tool for the Sector in tracking and monitoring its quality arrangements and enhancing the consistency of workflow arrangements and compliance with the FM Practices Manual. In addition, during FY08, the IDA14 Internal Controls Review and a review of the FM Sector’s quality arrangements are yielding findings that the Sector is using to further improve quality and will incorporate into the upcoming revision of the FM Practices Manual and its supporting guidelines. Also, in response to the IEG report, management will give increasing attention to enhancing the quality of PFM work.

.45 Staffing Issues. In the coming months and years, while the FM Sector will continue carrying out diagnoses, it will give particular emphasis to implementation. As it works on the agenda set out here and looks ahead to likely future expectations, it needs to ensure that the Bank has the necessary skills—particularly PFM skills—to adequately support this work and ensure its quality. Besides continuing to provide innovative learning opportunities for its highly dispersed staff, the Sector needs to inventory the skills available, identify skills gaps, and develop practices and procedures to attract and retain staff with the appropriate skills. 23

ANNEX A: FM ECONOMIC AND SECTOR WORK, FY07 Region Country Activity AFR Guinea Bissau Integrated Fiduciary Assessment Cameroon CFAA Togo CFAA (PEMFAR) Botswana ROSC A&A Cameroon ROSC A&A With other sectors Ghana External Review of PFM Lesotho PEMFAR Kenya Country Integrated Fiduciary Assessment Nigeria PEMFAR Gabon PEMFAR EAP Indonesia ROSC A&A Philippines ROSC A&A ECA Albania ROSC A&A Azerbaijan ROSC A&A Georgia ROSC A&A Kazakhstan ROSC A&A/JERP Kosovo ROSC A&A Serbia & Montenegro Integrated PFM Bosnia Fiduciary Update Macedonia Fiduciary Update Albania Fiduciary Update Kyrgyz Fiduciary Update LCR Guatemala ROSC A&A Panama CPAR/CFAA Paraguay ROSC A&A Uruguay ROSC A&A With other sectors Mexico Mexico States Fiduciary Performance Indicators MNA Egypt Institutional FM Cap. Assessment – Transport sector Egypt Institutional FM Cap. Assessment – HD sectors Egypt CFAA Jordan Institutional FM Cap. Assessment – Soc Dec Jordan Institutional FM Cap. Assessment – Education Morocco CFAA SAR India FM Literature Survey India – Rajasthan State State Financial Accountability Assessment Afghanistan Gap Analysis of Public A&A standards Bangladesh Gap Analysis of Public A&A standards Bhutan Gap Analysis of Public A&A standards Maldives Gap Analysis of Public A&A standards Nepal Gap Analysis of Public A&A standards Pakistan Gap Analysis of Public A&A standards Sri Lanka Gap Analysis of Public A&A standards With other sectors Afghanistan Public Finance Management Review Source: Business Warehouse Report of Economic and Sector Work/Analytic and Advisory Assistance 24

ANNEX B: ROSC ACCOUNTING AND AUDITING STATUS REPORT, FY07 As at June 30, 2007

No. Country Completed Published No. Country Completed Published AFR 42 Serbia Jun-05 Dec-06 1 Botswana May-06 Jun-06 43 Slovak Republic Nov-01 Feb-02 2 Burundi Jun-07 44 Slovenia Jun-04 Sep-04 3 Cameroon May-06 45 Turkey Jun-05 Jun-07 4 Ghana Jun-04 Aug-06 46 Ukraine (1) Aug-02 Feb-03 5 Kenya Nov-01 Jan-02 47 Ukraine (2) Jun-07 6 Malawi Jun-07 LCR 7 Mauritius Apr-03 Apr-03 48 Argentina Jun-07 8 Nigeria Jun-04 Dec-04 49 Brazil (1) Jul-02 9 Senegal Jun-05 Aug-05 50 Brazil (2) Jun-05 10 Sierra Leone Jun-06 51 Chile Jun-04 Dec-04 11 South Africa Apr-03 May-03 52 Colombia Jul-03 Mar-04 12 Tanzania Jun-05 Sep-05 53 Dominican Republic Feb-05 Nov-05 13 Uganda Jun-05 Sep-05 54 Ecuador Mar-04 Feb-05 14 Zambia Jun-07 55 El Salvador Jun-05 Oct-06 EAP 56 Guatemala Jun-06 15 Cambodia May-07 57 Honduras Jun-07 16 Indonesia Jan-06 Sep-06 58 Jamaica Jun-03 Jun-04 17 Korea Jun-04 Nov-04 59 Mexico Dec-03 Mar-04 18 Philippines (1) Dec-01 Jan-02 60 Paraguay Jun-06 Jan-07 19 Philippines (2) May-06 Jun-06 61 Peru Jun-04 Jan-06 ECA 62 Uruguay Jun-06 Jan-07 20 Albania Jun-06 Nov-06 MNA 21 Azerbaijan May-06 Sep-06 63 Algeria Jun-03 22 Bosnia & Herzegovina Jun-04 Feb-05 64 Egypt Aug-02 Jun-03 23 Bulgaria Dec-02 Jun-03 65 Jordan Jun-04 Jun-05 24 Croatia (1) Jun-02 Jul-02 66 Lebanon May-03 Jun-04 25 Croatia (2) Jun-07 67 Morocco Jul-02 Aug-02 26 Czech Republic Jun-03 Aug-03 68 Tunisia Jun-04 Jan-07 27 Estonia May-04 Sep-04 69 Yemen Jun-04 28 Georgia May-06 Jan-07 SAR 29 Hungary Jun-04 Sep-04 70 Bangladesh May-03 Ja-04 30 Kazakhstan Jun-06 Jun-07 71 India Dec-04 Jun-05 31 Kosovo Jun-06 Jan-07 72 Pakistan Jun-05 Dec-05 32 Latvia Jun-05 Sep-05 73 Sri Lanka May-04 Jun-04 33 Lithuania (1) May-02 Jul-02 34 Lithuania (2) Jun-07 Regional Coverage Completed Published 35 Macedonia, FYR Jun-03 Dec-03 AFR 14 9 36 Moldova Jun-04 Oct-04 EAP 5 4 37 Montenegro Jun-07 ECA 28 23 38 Poland (1) Jul-02 Aug-02 LCR 15 10 39 Poland (2) Jun-05 Sep-05 MNA 7 5 40 Romania Jun-03 Sep-03 SAR 4 4 41 Russia Jan-03 Total Regions 73 55 25

ANNEX C: FM INSTITUTIONAL DEVELOPMENT FUND GRANTS As at June 30, 2007

Amoun Region Country Activity t (US$) AFR Africa SADC Accounting and Auditing 320,000 Africa SADC Public Sector Accounting Standards 499,000 West Africa (Regional) Association of Accountancy Bodies in West Africa (ABWA) 676,000 West Africa (Regional) Forum of Accounts/Auditors General in West Africa (FAAGWA) 665,000 Burkina Faso Strengthening Public Sector Control Institutions 378,000 Cape Verde Supreme Audit Institution 333,000 Congo, Dem. Rep. Strengthening of Accounting and Auditing Institutional Framework 380,000 Guinea Support to the Accountancy Profession 309,000 Malawi Support to the Accountancy Profession 200,000 Mali Improve Public Financial Management 216,000 Mauritania Support to the Accountancy Profession 273,000 Nigeria Common FM platform 475,000 Nigeria Enhancing the Quality of Accounting Practice in Nigeria 186,000 Senegal Support to the Accountancy Profession 265,000 Sierra Leone Support to Accountancy Profession 239,000 Approved in FY07 Africa Institutional Strengthening of SAIs in English-Speaking Africa 927,000 Benin Support to the Benin Accountancy Profession 365,000 Ghana Support to Ghana Audit Services (SAI) 245,000 Ghana Support to Internal Audit Agency 498,000 Mali Support to the Audit Institutions 484,000 EAP Cambodia Strengthening National Audit Authority 211,000 Cambodia Improving Financial Accountability in the Private Sector 256,000 China Strengthening Provincial, Municipal and County Auditors 250,000 Indonesia Public Expenditure Management and Financial Accountability 300,000 Indonesia Strengthening the Indonesian Institute of Accountants 257,000 Laos PDR Standard Operating Procedures for Externally financed projects 200,000 Mongolia Strengthening the Capacity of the National Audit Office (MNAO) 255,000 Thailand Strengthening of the Office of the Auditor General 280,000 Vietnam Introduction of International Public Sector Accounting Standards 228,000 Approved in FY07 Indonesia Strengthening Accountability for and Auditability of Disaster-Related Aid 300,000 Lao PDR Strengthening Financial Accountability in Private Sector 250,000 Thailand Improving Effectiveness of Public Expenditures in the Thai Health Sector 395,000 Vietnam Strengthening the Accounting Capacity of the State-Owned Commercial 304,000 Banks (SOCBs) Vietnam Capacity Building for Analysis of Wage and Social Insurance Policies 300,000 ECA Armenia Public Sector Internal Audit 197,000 Azerbaijan Accounting and Auditing Reform 340,000 Tajikistan Public Sector Audit Capacity Building 300,000 Uzbekistan Strengthening Capacity of Public Sector Audit Institutions 295,000 26 ANNEX C

Amoun Region Country Activity t (US$) Approved in FY07 Armenia Implementation of IPSAS Strategy 320,000 Armenia Building Government Capacity to Implement Government Financial 310,000 Management Information System (GFMIS) Croatia Enhancing Corporate Financial Reporting in Croatia 350,000 Kosovo Capacity Building in Kosovo's Public Sector Accounting 160,000 Kyrgyz Republic Capacity Building for Public Sector Auditing 370,000 Macedonia Capacity Building in Macedonia's Public Sector Accounting 160,000 Moldova Capacity Building in Moldova's Public Sector Accounting 160,000 Serbia Enhancing Corporate Financial Reporting in Serbia 285,000 LCR Argentina Institutional Capacity Building for the Auditor General Office (AGN) 500,000 Central America Strengthening of Institutional Accountability Systems through Supreme Audit Institutions with the Organization of Central American and 400,000 Caribbean Supreme Audit Institutions (OCCEFS) Honduras Enhancing Transparency and Accountability in Public Institutions 339,000 Approved in FY07 Latin America OECS: Strengthening Institutional Capacity for Project Implementation 409,450 Mexico Fiscal Transparency 500,000 MNA Djibouti Capacity Building – Budget Directorate 343,000 Approved in FY07 Djibouti Building Capacity to prepare Implementation of Integrated Social 244,000 Protection System Egypt, Arab Republic Enhancing Capital Market Authority Monitoring Capacity 309,000 Lebanon Developing Capacity Building Tools for Sustainable Governance 338,000 SAR Bangladesh Strengthening FM capacity of Government and Institutional Capacity of 450,000 Controller and Auditor General Bhutan Controller and Auditor General’s Office 370,000 India – Andhra AP Financial Management Strengthening 430,000 Pradesh India – Uttar Pradesh Capacity Building – UP Finance Department 167,000 India Institutional Strengthening Aid Accounts and Audit, Min of Finance 385,000 India Modernization & Capacity Building in the Office of the Controller and 490,000 Auditor General (CAG) India Modernization of Controller General of Accounts, Min of Finance 490,000 Maldives Capacity Building of Audit Office of Maldives 384,000 Nepal Public Audit Reform and Capacity Building Office of Auditor General 480,000 Pakistan Support to the Federal Public Accounts Committee 340,000 Bhutan Support the Preparation of Multi-Year Rolling Budget (MYRB) 330,000 Bhutan Improving Public Financial Management 287,000 Pakistan Strengthening of Financial Accountability by Supporting the NWFP 398,000 Public Accounts Committee and its Secretariat Source: Business Warehouse Report 2b1. List of Approved Projects (Lending and IDF) 27

ANNEX D: FM COMMITTEES AND WORKING GROUPS

1. During the FM Sector Board Retreat for Principals in September 2006, the following strategic priorities and key activities for the FM Sector were agreed:

 Fiduciary quality: fully implement the FM Practices Manual, related quality assurance arrangements, and an information system.

 Results: measure the impact of fiduciary work, better operationalize analytic work, and measure results.

 Human resources: develop and implement an action plan.

 Knowledge and learning: enhance delivery mechanisms for a decentralized network, establish and maintain a good practice database, and provide appropriate training for staff.

 Communications: provide clear and continuing messages to staff about the role of FM, and articulate and communicate the corporate role of FM to internal and external constituents.

 Partnerships: establish and maintain key strategic partnerships.

2. To support the achievement and delivery of these strategic priorities and key activities, the Financial Management Sector Board (FMSB) established a new structure of five committees and working groups.

 Quality and Results Committee. The Quality and Results Committee advises the FMSB on consistent application of and uniform adherence to Bank policy and Sector practices. The Committee provides leadership and services to better equip Bank and borrower staff to sustain strong operational performance; measure the impact of interventions; improve FM practices in partner countries; and ensure alignment with the Bank’s evolving business needs and quality standards. The objectives of the Committee are to (a) ensure that the FM Sector has adequate management information systems in place for FM managers and staff; and (b) align FM practices with the evolving business needs of the Bank and its partners, with particular emphasis on responsiveness to country needs, innovation, and informed, prudent risk- taking.

Two of the Committee’s salient achievements for FY07 include formulating the methodology to support the Joint Evaluation of Network Quality Arrangements and the provision of detailed guidance to FM staff in support of the rollout of OP 8.00, Rapid Response to Crises and Emergencies.

 Knowledge, Learning, and Outreach Committee. This Committee advises the FMSB in supporting Bank FM staff with communication, learning, knowledge- 28 ANNEX D

sharing, and general outreach. The Committee provides leadership and services in partner countries to ensure consistency with the Bank’s evolving business needs and quality standards. The Committee’s objectives are to (a) ensure that the FM Sector has access to the information, knowledge, and learning it needs to respond to the Bank’s evolving business needs in FM; (b) reach out to internal and external clients, as well as development partners, through sharing information and good FM practices; and (c) adapt FM learning, communication, and knowledge-sharing to the changing business needs of the Bank and its partners.

 PFM Capacity Development Working Group. The PFM Capacity Development Working Group focuses on (a) developing a PFM capacity development strategy and action plan; (ii) developing and updating guidance, tools, and methodologies for PFM assessment and capacity development approaches; (c) providing training in both the technical aspects of PFM and the generic skills required to manage capacity-building projects successfully; (d) identifying, documenting, and disseminating good practices and success stories in PFM capacity building; (e) tracking results in the area of PFM capacity development; (f) strengthening partnerships with key internal and external stakeholders in PFM capacity development;28 (g) supporting the FM, Procurement, and REM Sector Boards; and (h) providing feedback on the work of others within and outside the Bank.

 Corporate Financial Reporting Working Group. The Corporate Financial Reporting (Regulatory Policy and Capacity Development) Working Group’s objectives are to (a) promote high-quality financial reporting in the corporate sectors of World Bank Group partner countries, incorporating analytic work and capacity development interventions in the country programs; (b) ensure that the World Bank Group draws upon current global good practice when designing interventions in corporate financial reporting; (c) achieve consistency in the approaches taken by World Bank Group units; (d) influence the global regulatory and standard-setting debate in a manner that responds to the needs and the unique requirements of partner countries; and (e) promote consistency of approaches within the development community.

 Governance and Anticorruption Working Group. The purpose of this Working Group is to support the FM network’s effective implementation of the anticorruption action plan, and to promote consistency in the way anticorruption issues are handled by FM staff across the Regions. The Working Group will primarily provide a platform for sharing views and information on anticorruption activities and issues across the FM network. It will also act as a reference group for OPCFM when identifying and disseminating good practices, developing guidance and training for staff on anticorruption, and reviewing operations at the country level.

28 Internal stakeholders in PFM capacity development include the Procurement and PREM Networks and the World Bank Institute; external stakeholders include the PEFA Secretariat, World Bank Institute, IFAC- IPSASB, OECD-DAC Joint Venture on PFM, and INTOSAI.

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