DOCUMENT OF THE WORLD BANK FOR OFFICAL USE ONLY Public Disclosure Authorized GUIZHOU AGED CARE SYSTEM DEVELOPMENT PROGRAM Public Disclosure Authorized Fiduciary Systems Assessment Public Disclosure Authorized Public Disclosure Authorized January 30, 2019 ABBREVIATIONS AND ACRONYMS ACIF Aged Care Industry Fund AFD Agence Française de Développement CAB Civil Affairs Bureau CNAO China National Audit Office DA Designated Account DOCA Department of Civil Affairs DOF Department of Finance DLI Disbursement-Linked Indicator FB Finance Bureau FM Financial Management FSA Fiduciary Systems Assessment GOC Government of China GPDC Guizhou Provincial Discipline-Inspection Commission GPAO Guizhou Provincial Audit Office GPL Government Procurement Law IBRD International Bank for Reconstruction and Development INT Vice Presidency Integrity Department M&E Monitoring and Evaluation MOCA Ministry of Civil Affairs MOF Ministry of Finance NDRC National Development Reform Commission OPRC Operational Procurement Review Committee PAP Program Action Plan PforR Program for Results TSA Treasury Single Account TBL Tendering and Bidding Law WA Withdrawal Application ZBB Zero-Based Budget 1 Table of Contents Section 1: Conclusions ..................................................................................................................... 3 1.1 Reasonable Assurance ........................................................................................................... 3 1.2 Risk Assessment .................................................................................................................... 3 1.3 Procurement Exclusions ........................................................................................................ 6 Section 2: Scope .............................................................................................................................. 7 Section 3: Review of Public Financial Management Cycle .............................................................. 8 3.1 Planning and Budgeting ......................................................................................................... 8 3.1.1 Adequacy of Budgets ...................................................................................................... 8 3.1.2 Procurement Planning .................................................................................................. 10 3.1.3 Procurement Profile of the Program ............................................................................ 11 3.2 Budget Execution ................................................................................................................. 12 3.2.1 Treasury Management and Funds Flow ....................................................................... 12 3.2.2 Accounting and Financial Reporting ............................................................................. 13 3.2.3 Procurement Processes and Procedures ...................................................................... 14 3.2.4 Contract Administration ............................................................................................... 17 3.3 Internal Controls .................................................................................................................. 20 3.3.1 Internal Controls ........................................................................................................... 20 3.3.2 Internal Audit ................................................................................................................ 22 3.3.3 Program Governance and Anticorruption Arrangements ............................................ 22 3.4 Auditing ............................................................................................................................... 24 3.4.1 Program Audit .............................................................................................................. 24 3.5 Procurement and Financial Management Capacity ............................................................ 25 3.5.1 Procurement and Financial Management Capacity and Performance ........................ 25 3.5.2 Public Resource Transaction Center ............................................................................. 27 Section 4: Program Systems and Capacity Improvements ............................................................ 30 Section 5: Implementation Support .............................................................................................. 31 2 Section 1: Conclusions In accordance with the World Bank policy and directives for Program-for-Results Financing (July 10, 2015) and the earlier Interim Guidance Note (June 18, 2012), the World Bank’s fiduciary team carried out an integrated Fiduciary Systems Assessment (FSA) of the fiduciary systems in Guizhou and the five Program prefectures. The overall objective of the assessment was to determine whether the fiduciary systems of the Program provide reasonable assurance that the Program financing proceeds will be appropriately used, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. Based on the assessment and actions agreed to strengthen the systems, which are reflected in the Program Action Plan (PAP), and other mitigation measures, the Program’s fiduciary systems are considered broadly adequate to meet the requirements in the Bank’s PforR Policy and Directive. 1.1 Reasonable Assurance The Fiduciary Systems Assessment concluded that with the implementation of the proposed mitigating measures and actions included in the PAP, the Program’s financial management systems are broadly adequate and provide reasonable assurance on the appropriate use of the Program funds and safeguarding of its assets and the current procurement legal framework comprising the Government Procurement Law (GPL) and Tendering and Bidding Law (TBL) and the regulations and the procurement systems of Guizhou and the five Program prefectures provide sufficient assurance that procurement under this Program will be executed with adequate levels of transparency, competitiveness, efficiency and fairness. 1.2 Risk Assessment The key FM risks and mitigation measures are: 1) Three funding sources will exist under the Program. They include the government general budget, the International Bank for Reconstruction and Development (IBRD) loan, and the Agence Française de Développement (AFD) loan. AFD would follow the same fiduciary arrangements and disbursement principles as the Bank does under the Program. According to current debt management policies in China, the nature of the IBRD and AFD loans are defined and approved by the Ministry of Finance (MOF) as the debts to which the government will be taking guarantee obligation. As a result, the foreign loans cannot be incorporated into the existing budgeting and treasury systems. Two separate planning and budgeting lines—one for general budget and one for foreign loans—have to be going through under the Program. As such, inefficiency on the Program funds management may be caused. The guidelines to elaborate the mechanism integrating the planning and funds flow arrangements of the two budget lines produced by Department of Civil Affairs (DOCA) 3 and Department of Finance (DOF) will be concurred with the Bank and finalized by August 31, 2019. The guidelines will be circulated to each of the Program related implementing agencies and finance bureaus (FB) for them to follow strictly. The Bank’s task team and auditor will supervise compliance with the guidelines and the effectiveness of the Program funds management during implementation. 2) Zero-based budget reform (ZBB), i.e. the reform of optimizing the public resources allocation will be implemented by all government entities including aged care sector in Guizhou Province since 2019. The regulation issued by Guizhou DOF requires the government entities and finance bureaus to integrate the measurement and evaluation (M&E) throughout the budget preparation, implementation and performance evaluation. However, the ZBB concept has not yet been well understood by the visited county/district Civil Affairs Bureaus (CABs) and even most of the government entities at lower level. No guidelines are produced to elaborate the requirements and guidance on process. Results Area 3 (DLI 6) supports the improvement of aged care related public resources allocation and capacity through development of the guidelines on ZBB management, enhancement of the M&E system as well as strengthening implementation of the ZBB among the Program counties/districts, with an aim to enable the governments to better align aged care budget allocation with the expected outputs/outcomes in an efficient and effective way. 3) Multiple level implementing agencies are included. The aged care related expenditures in same nature are recorded with inconsistent budget account classification by certain districts/counties or in different fiscal years by one implementing agency, which may cause the Program budget execution reports are not able to reflect the exact budget execution status and abnormal fluctuation under certain budget accounts. In addition, the figures accounted under certain budget accounts are not limited to the Program related expenditures. In addition, given the nature of the IBRD and AFD loans, the related expenditures cannot be reflected in the general budget planning, execution and reporting system in accordance with the government existing budget law. As such, a Program specific financial report