Project Financial Statements & Quarterly Reports

1. Feb. 2012 Project Financial Statements & Quarterly Reports

2. Introduction IFAD has a fiduciary role to ensure that its funds are used for the purpose for which intended • Project Accounting and Audit procedures should be based on best market practice as per IFAD underlying guidelines. These provide accountability and credibility as to use of funds • IFAD guidelines require all projects to maintain accounts & records(separately or within a basket fund) • These accounts should be audited by an independent auditoron an annual basis within a set timeframe (normally 6 months) • Where possible, national systemsshould be used 1

3. Project Financial Statements (PFS) Objective • To provide information about the financial position, performance and resource flows of a project Basis of Preparation • Prepared in accordance with: • International Financial Reporting Standards (IFRS) (www.ifrs.org) • International Public Sector Accounting Standards (IPSAS) (accruals or cash basis) (www.ipsas.org) • National standards, if minimum disclosures are provided • These standards define what & how to report • Cash (when money is actually spent/ received) or accruals (when legal commitment incurred irrespective of cash) basis, as long as consistently applied 2

4. Spectrum of Accounting Bases Modified Cash Modified Accruals Cash Accruals 3

5. Spectrum of Accounting Bases Transactions recorded Cash paid/received Cash basis Modified Cash basis Transactions recorded cash, payables 4

6. Spectrum of Accounting Bases Transactions recorded when they occur, with exceptions Modified Accruals Transactions recorded when they occur, without exception Accruals 5

7. Financial Accounting & Reporting Monthly accounting/ reporting • Income & Expenditure Statement– by category/component as per legal agreement, plus resource flows, review actual costs versus budget • Special account & Bank reconciliations – all accounts • Fixed assets, Training plan, Withdrawal Applications - received/ claimed Other tips • Consolidate datafrom districts with PMU • Back up& Business continuity plans • Adequate filing systems - legally, project records need to be maintained for 10 years post closing 6

8. Financial Accounting & Reporting Quarterly reporting • Discussion of Project Progress against AWPB - highlights/ learning tips • Sources & Uses of Funds Statement • Uses of Funds by Project Activities (supports the Sources/Uses of Funds) • Physical Progress Report - physical outputs • Physical Progress Report - status of large works and services • Procurement Monitoring Report - narrative and tables • IFAD has no prescribed formats for Quarterly Reports - World Bank FMR Formats are recommended 7

9. Sample Quarterly Reports Format (World Bank) Example of an education project with significant construction activities, equipment purchases & training. The Sources & Uses of Funds Statement includes a cash forecast for the next 6 months, to facilitate project planning & monitoring. Physical progress is monitored by units of output, where practical, & by contract/work progress for construction activities. • Discussion of Project Progress • Sources & Uses of Funds • Uses of Funds by Project Activity • Physical Progress Report • Procurement Reports • Procurement Monitoring Tables 8 Source: WB FMR Pages 17-24 (Annex A Sample)

10. Project information and performance Statement of project management responsibilities Report of the independent auditor Statement of income & expenditures/ receipts & payments (by category) Statement of income & expenditures/ receipts & payments (by component Statement of comparative budget & actual amount Statement of Special Account Activities & Reconciliation SOE – Withdrawal Application Statement – annual & cumulative Status of funds (in SDR) Notes to the Financial Statements IFAD Project Financial Statements (PFS) Formats – Annual reporting (Cash basis) 9

11. Basis of reporting In accordance with the underlying accounting principles of reference the notes to the financial statements of an entity should: Present any information about the basis of preparation of financial statements Provide additional information which is not presented on the face of financial statements Significant Accounting Policies Basis of Preparation Cash Basis of Accounting Foreign Currency Transactions PFS – Notes to the Financial Statements (Cash basis) Suggested Minimum Disclosures: 10

12. Budget – basis of budget Cash/Fund Balances Direct Payments Government Counterpart Funds Other Donor Funds Other Receipts Non-current Assets (for disclosure purposes only) Yearly Procurements Allocation & Use of the Financing proceeds Reconciliation of Funds Disbursed by IFAD & Funds Received by the Project PFS – Notes to the Financial Statements (Cash basis) 11

13. Accrual basis of accounting “The IPSASB encourages governments to progress to the accrual basis of accounting and to harmonize national requirements with the IPSASs prepared for application by entities adopting the accrual basis of accounting.” IPSASB 12

14. Accrual basis of accounting “Accrual accounting was created to fill textbooks since it is more complicated than cash accounting” -CPA Student 13

15. Highlights of Project Accrual Accounting FINANCIAL STATEMENTS 1.Statement of Operating performance replaces statement of receipts and Payments 2.Balance Sheet reflecting project assets, liabilities and sources of financing 3.Statement of Cashflows 4.Additional disclosures in Notes to the Accounts 14

16. Highlights of Project Accrual Accounting STATEMENT OF OPERATING PERFORMANCE • Recognise income when earned, i.e WA approved by IFAD, NOT when funds are received by project. • Recognise expenses when incurred, i.e when billed to the project, NOT when paid. • Disclose income and expenses by category and component, same as cash basis 15

17. Highlights of Project Accrual Accounting • BALANCE SHEET • Recognise advances and prepayments as current assets in the balance sheet e.g in cases of replenishment of pre-financed expenditure • Recognise Fixed assets at historical cost or re-valued amount, less depreciation and impairment losses • Recognise payables as current and non current liabilities (due after one year) • Recognise IFAD funds received in advance as deferred income (e.g in cases of disbursement by revolving fund) 16

18. Highlights of Project Accrual Accounting STATEMENT OF CASH FLOWS • Adjustments to recoincile net cash to surplus/deficit • Changes in working capital • Cashflows from investing activities • Cashflows from financing activities 17

19. Benefits to IFAD Project Operations • Identifies project risks such as credit risk in projects with significant credit components, e.g in microfinance where project funds are advanced to beneficiaries • Identifies cross debts/commingling of donor/counterpart funds since balance sheet has sources of financing • Counterpart finances i.e tax exemptions can be accounted for even when no cash is paid out. • Analytical review of balance sheet items provides useful information for risk analysis. 18

20. Accounting Software for IFAD Projects Capacity Analysis • Expenditure by components & categories per legal agreement • Expenditure by Financier • Ability to print Financial Statements according to Govt/IFAD/IPSAS accounting policy • Advances utilisation by Service Providers & staff duly aged to facilitate follow-up • Bank balances held by service providers • Commitments beyond actual billings/ invoices • Budgetary control information to ensure expenditures do not exceed set limits • Bank reconciliation using the system • Receivables in form of replenishment applications in transit & any refunds that may be due from Government • Withdrawal application form automatically produced by the system • Contract & Procurement plan monitoring 19