Technical and financial management of the project

1. Technical and financial management of the project Estonia Latvia Russia ENPI CBC Programme Project Management and Implementation training 20&21 February 2012

2. Sound project implementation For a sound technicaland financial management of your project youneed: • a monitoring system • a financial plan • a project accounting system • a procurement plan

3. 1. Monitoring system Why a monitoring system? • To keep track of how a project is progressing in terms of resource use, implementation, delivery of results and the management of risks • To support effective decision making with systematic and continual collection, analysis and use of management information

4. Monitoring system Monitoring is: • An information system • Performed on a systematic, regular basis • Based on indicators • Concerned with the facts! • Concerned with both financial and operational progress information • The information needed for monitoring should be identified when the project is first designed and/or when reviewed

5. Setting up the monitoring system Good monitoring depends on having reliable, relevant and timely informationabout the activities, outputs and outcomes of your project. This may be achieved by: • Setting up a shared, internet-based (intranet), information tool including the control of deadlines, activities, deliverables and indicators using available project management software • Requiring the project manager for each partner to submit a regular, short monitoring report to the Beneficiary providing information about the progress being made in implementing the project.

6. Sources of information for monitoring • The grant contract (your logframe, workplan…) • Contracting information (sub-contracts) • The record of project indicators at the levels of activities, outputs and results • The financial records – bookkeeping system • Special reports like quantitative surveys, questionnaires

7. Elements of Financial Monitoring • The value of the grant, the co-financing • The expenditure and revenue budget and the actual financial position for the reporting period • Expenditure & revenue • Cash flows • Cash flow forecast • Bank balances • Expected reimbursement claims for next period

8. Specific financial items to highlight • Actual expenditure significantly more than budget • Actual expenditure significantly less than budget (eg savings on procurement) • Delays in submitting payment requests • Unexpected ineligible costs • Significant change in exchange rates (effect on budget) • Any other unexpected financial issues

9. Content of Operational Monitoring • Synopsis of the Grant contract • Contracting (secondary procurement) • Input / activity/ output monitoring (efficiency) • Results monitoring (effectiveness) and impact • Risk monitoring • Sustainability • Horizontal and cross-cutting issues • Good practices • Prognosis for future • See annex on Operational Monitoring

10. Setting-up a monitoring system

11. The monitoring report • Monitoring is based on a standard template adapted to the project • Monitoring reports are usually collected on a regular basis (monthly, bi-monthly) • Report is based on tables – very little narrative • But with the possibility of highlighting unusual good or bad events • A good monitoring report is easy and quick to read • Monitoring will feed in project reporting

12. 2. Financial planning (1) Why should you revise project financial planning? Is it not enough with the project budget approved? Even though you prepared a budget including expenditure and sources of funding when preparing the application form, you have to take into consideration that: The budget doesn’t include an accurate monthly estimate for the whole project duration The approved budget does not have any forecast of the timetable for receipt of the sources of funding Not all expenditure imply an additional cash-flow, as they correspond, for example, to staff already working in your organisation

13. Why should you revise project financial planning? Even though there is a 90% grant contribution, the balance will only be received after the project closure. The pre-financing may not avoid completely some cash deficits during project’s lifetime. Therefore, it is important to make an accurate plan of receipts and payments in order to: Avoid any setbacks in project implementation due to cash shortage; Avoid misunderstandings among partners; Encourage partners to spend in time and contribute to a timely reporting and payment claim to JMA/JTS.

14. Steps for project financial planning Review your budget in detail to identify needs for minor adjustments in the initially estimated amounts; Confirm your sources of funding and, in particular, the dates of expected receipt of contributions by external donors; Prepare a monthly (or bi-monthly) forecast of all project expenditure; Estimate when you will be able to submit and receive further pre-financing; Prepare a project cash flow forecast.

15. Let’s see a practical example Our simplified case study will be a project with: Beneficiary and one partner 24 months duration No additional donors, no direct revenue, no in-kind contribution A limited number of budget items Let’s see the project budget See tables annexed

16. Planning and adjusting expenditure Staff costs Confirm which persons will be working for the project and see if they are already contracted or they have to be recruited Confirm the estimated monthly cost (as “month” is the unit of time in budget) Find out in which month the persons will start working and on what basis, if not full time

17. Planning and adjusting expenditure Staff costs Calculate the monthly cost

18. Planning and adjusting expenditure Other categories Revise the estimated amounts and other necessary assumptions Identify when invoices for services and goods will be paid, according to the delivery dates and credit terms (usually X days after delivery) Make a monthly estimate of paid expenditure for each categories Exclude “contingency reserve” and “administrative costs” from these estimations Let’s see a couple of examples See tables annexed

19. Planning and adjusting expenditure Other categories

20. Planning and adjusting expenditure Other categories

21. Planning payment claims Take the amounts of the first pre-financing Calculate the thresholds of minimum expenditure in order to be allowed to submit payment claims for further pre-financing (see your contract) Estimate the date for submission of payment claims and the receipt of the grant after the approval of the financial report by JMA/JTS Let’s see an example in two tables:

22. Planning payment claims • Do not forget to take into account the administrative costs to estimate when you will reach the threshold!

23. Planning of cash flows • Prepare a final table with: • The revenues and their month of receipt; • “Additional” foreseen expenditure paid for the project; • Monthly and cumulative cash flow and surplus/deficit taking into account the “additional” expenditure; • Other payments already budgeted in your organisation, such as permanent staff or administrative costs; • Monthly and cumulative cash flow and surplus/deficit taking into account all expenditure

24. Final remarks on financial planning • As with all estimates, the financial forecast is only useful if reviewed and updated on a regular basis • Discuss the planning with your partners, get information from them and reach a consensus on commitment for expenditure and payments • Cash forecasts tend to be optimistic; revenues arrive later and expenditure on time or earlier • Be prudent and ensure that no partner is blocked in their contribution to project implementation for lack of liquidity of funds • The tables and assumptions shown in this presentation • are just an example

25. 3. Accounting system requirements Art. 16.1 of General Conditions (annex II to the contract): The Beneficiary and partners shall keep accurate and regular accounts of the implementation of the project, using an appropriate accounting and double-entry bookkeeping system. The system: May be either part of the beneficiary’s and partners’ regular system or an adjunct to that system Shall be run in accordance with the accounting and bookkeeping policies and rules that apply in the country concerned Accounts, expenditure and revenue relating to the project must be identifiable and verifiable Details on interest accruing on funds paid by EC have to be provided

26. What is an accounting system? Accounting IS NOT a list of expenditure and revenue. An excel file is not an accounting system. General definition of accounting The systematic recording, reporting and analysis of the financial transactions of an entity. Common provisions on accounting by Financial Regulation (Article 132 of EC Regulation 1605/2002) The institution’s accounting system is the system serving to organise the budgetary and financial information in such a way that figures can be input, filed and registered The accounts shall consist of general accounts and budgetary accounts

27. General requirements on accounting All partners need to have a general accounting in conformity with national rules The project accounting has to be organised as a budgetary accounting in all partners The project accounting has to be kept in the national currency, as the translation to Euro will only be necessary for the financial report to JMA/JTS.

28. Use of exchange rates in the project Conversion: Translation: http://ec.europa.eu/budget/contracts_grants/info_contracts/inforeuro/inforeuro_en.cfm

29. What is double-entry bookkeeping? Definition of double-entry bookkeeping An accounting technique which records each transaction in at least two different accounts, as a credit and as a debit. Credit entries represent the sources of financing, while debit entries represent the use of this financing. Let’s see an example of expenditure in a project-dedicated accounting: The debit will indicate to which category of expenditure the invoice has to be imputed The credit will indicate if the invoice was paid by the beneficiary or a partner. In case of non-dedicated bank accounts, the entry should also indicate which one was used.

30. Reconciliation with reports Article 16.1. of General Conditions also indicates that: The financial report has to be properly and easily reconciled to the accounting and bookkeeping system and to the underlying accounting and other relevant records. For this purpose, the beneficiary shall prepare and keep appropriate reconciliations, supporting schedules, analyses and breakdowns for inspection and verification.

31. Setting up your accounting system Ensure that it is in conformity with the requirements of art. 16.1 of General Conditions Design it to provide the necessary information for the interim and final reports Use it periodically to allow a proper follow-up of the project budget and enable you to identify any major deviations beforehand Ensure that there is shared understanding by all partners. If it is a separate system, use the same for all the partnership; if it is included in the partners’ accounting, check its adequacy Ask support to the auditors on the conformity of the system by all partners several months before the first reporting

32. Archiving of supporting documents Requirements of your archiving system All transactions in accounting are referred to the necessary supporting documents (see presentation on eligible expenditure) The originals of the supporting documents have to be kept by each partner institution, but copies (either scanned or physical) are easily available by the Beneficiary in order to facilitate the financial controls by authorized bodies. A web-based document repository shared by all partners may be very useful for this purpose. The documents have to be archived in a way that they are easily accessible after the project closure. (7 years after receiving the balance payment)

33. 4. Procurement plan Delays in procurement procedures is one of the main risks for not keeping the working plan. Therefore: Identify which are the procurement procedures to be launched during the project implementation and who is the responsible partner Identify the applicable legislation and specific procedures and deadlines Insert the timing of the procedures in the working plan and ensure that no activity will be delayed for this reason Include the procurement plan in your monitoring system