Annex J7 b - Public Financial Management Risk Assessment Framework_Central MSAS.pdf

JOINT USAID/WORLD BANK EVALUATION OF THE MINISTRY OF

HEALTH AND SOCIAL WELFARE

WITHIN THE FRAMEWORK OF THE PUBLIC FINANCIAL MANAGEMENT

RISK ASSESSMENT

FINAL REPORT

8/22/2014

TABLE OF CONTENTS

TABLE OF CONTENTS

ACCRONYMS AND ABBREVIATIONS

Scope of Work and Stage 2 Assessment Methodology

1. Flow of Funds for the MOH

2. Procurement

3. Ordering Goods and Services and Payment of Bills

4. Internal Controls and External Audit

5. Salaries and Staff Management

6. Information Technology

GENERAL CONCLUSION

Appendices:

Appendix 1: Statement of Work (SOW) Mapping

Appendix 2: PFMRAF Consolidated Questionnaire

Appendix 3: List of documents reviewed

Appendix 4: Team Composition

Appendix 5: MOH Personnel

Appendix 6: Detailed Findings

Appendix 7: PFMRAF Manual

Appendix 8: Testing Document

Appendix 9: Funds Flow Document

ACCRONYMS AND ABBREVIATIONS

Acronym Definition

ADB African Development Bank

ADS USAID’s Automated Directives System

ARMP Public Procurement Regulation Agency

CM Procurement Commission (chaired by DAGE)

COF Financial Operations Controller

CPM Procurement Quality Control Cell (reports to Secretary General)

DAFCP Finance, Accounting, and Staff Administration Division

DAGE Department of General Administration and Equipment

DCMP Central Public Procurement Directorate

DIEM Directorate of Infrastructure, Equipment and Maintenance

DMTA DAGE Supply Management Division

FAR Fixed Amount Reimbursement

GOS Government of Senegal

IAAF Financial and Administrative Affairs Inspector

IAD Internal Audit Department

IDB Islamic Development Bank

IC Internal Control

ID Investment Directorate

IGE State Inspector General

MEF Ministry of Economy and Finance

MOH Ministry of Health

NGO Non-Governmental Organization

PC Procurement Code

PFM Public Financial Management

PFMRAF Public Financial Management Risk Assessment Framework

RFP Request for Proposals

SIGMAP Procurement Software

SOW Statement of Work

TOMPRO DAGE Accounting & Finance Software

WB World Bank

EXECUTIVE SUMMARY

Background

In collaboration with the Government of Senegal (GOS), other donor partners, civil society and the private sector, the USAID/Senegal Health program seeks to improve the health status of the

Senegalese population. The five components of the USAID/Senegal Health Sector strategy are:

Health Systems Strengthening, Health Services Improvement, Community Health, HIV/AIDS and TB, and Health Communication and Promotion. The implementing partners of each of these components work closely together to coordinate USAID/Senegal Health programs and the activities under each component to ensure they are complementary. In carrying out these programs, the USAID/Senegal Health Office actively seeks opportunities to further

USAID/Forward Local Solutions efforts in close collaboration with other donors. This close collaboration led USAID/Senegal and the World Bank (WB) to identify a common interest in using GOS Financial Management systems to support activities within the Ministry of Health

(MOH). The encouraging findings of the World Bank’s Public Expenditure and Finance

Assessment and USAID’s Stage I assessment, led them to consider using a GOS/MOH financial management system for jointly developed health programs.

USAID/Senegal and the WB are both committed to strengthening leadership and national ownership in the management of GOS health programs. Accordingly, a joint risk assessment of the fiduciary management capacity of the MOH was conducted during the period February to

May 2013. The results of this fiduciary risk assessment are intended to identify risks, and recommend corrective actions where necessary to mitigate the identified risks and vulnerabilities. The assessment focused on the Département de l’Administration Générale de l’Equipment (DAGE) which oversees all financial and administrative operations in the MOH.

This includes the Programming and Monitoring Division, the division responsible for the implementation of procurement procedures for goods, works, and services and the chair of the

Commission de Marche (CM), the procurement entity within the MOH. The DAGE’s main functions include budget preparation and general administrative and financial oversight for fiscal commitments. As stated in the Statement of Work, the proposed implementation mechanism for

USAID/Senegal is the Fixed Amount Reimbursement (FAR) agreement. Given the current GOS systems and procedures after the change in government, it was determined that the FAR agreement was the most appropriate method. Thus, the Assessment Team focused on identifying the short-term risks (one to two years) to implementing a FAR agreement.

USAID and WB Collaboration Culminating in a Joint Risk Assessment

USAID and WB teams in Senegal recognized that while technical collaboration in health programming was sound, greater harmonization of donor processes would benefit both institutions and the GOS. USAID and WB teams are both interested in using host country systems to financially support similar activities within the MOH. To this end, the spirit of collaboration between the World Bank and USAID/Senegal made it possible to explore a harmonized coordinated framework for the risk assessment. The joint assessment avoided duplication of areas and efforts to be tested and limited the demands on the MOH. The joint assessment also allowed USAID and the WB to improve the effectiveness of our intervention by sharing best practices with greater reliance on using host country systems by donors instead of using ad-hoc and exterior process requirements. The team’s composition is outlined in Appendix

4. USAID/Senegal and the WB agree that the implementation of this consolidated approach had a positive effect on the sustainability of future investments in the health sector of Senegal.

Furthermore, this initiative has subsequently encouraged other MOH donors to participate in this process by reviewing the joint USAID and World Bank risk assessment findings in order to develop one overall integrated MOH Public Financial Management (PFM) Mitigation Plan.

The scope of work (SOW) for the joint USAID and WB assessment followed section B procedures on ‘joint assessments’ in the ‘PFMRAF Manual’ (see Appendix 7) which provides the requirements for another donor (World Bank) to join USAID’s Stage 2 Risk Assessment.

During the planning stage, USAID ensured WB had “the right to provide input to and to approve the PFMRAF methodology and work plan,” which included adding additional questions to the questionnaire in Appendix 2 to address specific WB requirements. The WB was also responsible for fully addressing their questions during the review and USAID did not incur any additional expenses for WB requirements. As mentioned above, the SOW was collaboratively performed by USAID and WB staff which resulted in one agreed upon report with mutual recommendations. There was no scope limitations imposed upon USAID’s conduct of the assessment as per section B.

The WB and USAID jointly provided their findings to the MOH, allowing the MOH to provide input to this joint PFMRAF report. The MOH agreed to all the findings and risk mitigation measures highlighted in this report. As a result of this innovative joint PFMRAF, the MOH is currently coordinating a multi-donor risk assessment of its regional operations.

Summary of Strengths and Risks

It is important to keep in mind that there are inherent risks associated with PFM in any government. Consequently, the Public Financial Management Risk Assessment Framework

(PFMRAF) has been designed to identify the risks presented by a particular implementing approach when used to achieve a given development objective. “Identification” neither eliminates nor mitigates the risk. Positive actions are required for mitigation, but it is the nature of public financial systems that risk can never be eliminated.

Based upon the team’s assessment, the table below summarizes the twenty five (25) risk findings covered in the SOW (See Appendix 1 SOW Mapping for Details). All identified risks were discussed with and agreed upon by the MOH.

Number of ________ risks

Table A: Heat Map

Impact

4.Catastrophic High Critical Critical Critical

3.Serious

High

Critical

2.Marginal

Medium

1.Negligible

Low

Low

1.Remote 2.Occasional 3.Probable 4.Frequent

Probability

HR(1)

O

Classification PR OP IC HR IT USAID Stage 2 Risk Mitigation

Guidance

Critical requires stringent mitigating measures only if these have a high probability of success. Otherwise, we will terminate our exposure by delivering the assistance through other means. In rare cases where an effective transfer of risk mechanism exists and is deemed effective, we will consider transfer of the risk, albeit with a risk assessment of the ability of the transferor to deliver on its obligation.

High requires serious mitigating measures to treat the risk, but we will conduct G2G.

Medium 3 4 3 5 2 Medium requires mitigating measures but these may be periodic.

Low 4 1 1

Low requires monitoring and audit, but treatment of specific risks, such as payroll controls, will not be an ex ante requirement for G2G, as they might be under Medium risk conditions.

Table B: Heat Map by Area

The following section outlines identified key strengths and risks.

Strengths

The results of the assessment of the MOH/DAGE’s fiduciary management highlight the following key strengths:

Procurement laws and regulations in Senegal are consistent with international standards and the MOH is largely in compliance with such laws;

The MOH/DAGE’s control system for ordering goods and services is adequate and in compliance with GOS procedures;

The MOH/DAGE’s financial management section has extensive experience managing donor funds and is using robust accounting software with an efficient backup system that can protect data integrity and availability.

Risks

The assessment team identified the following two key (i.e. high) risks of the 25 risks summarized in this report:

LEGEND

PR -Procurement

OP - Ordering of Goods/Services & Payment of Invoices

IC -Internal Control HR - Human Resources and Payroll IT - Information Technology

The Internal Audit division of the MOH lacks the personnel and financial resources to fully perform their mandated duties of internal control oversight and ensure management is following its policies, procedures and controls.

The MOH has not documented its current management policies and procedures.

Conclusion

After assessing the MOH/DAGE in accordance with the scope of work, the joint USAID and

World Bank assessment team has identified and documented relevant fiduciary risks associated within the MOH/DAGE. The team also documented the potential mitigation measures for each respective risk identified. Based upon these steps, the assessment team concludes that project design can proceed accordingly. We will build upon the risks and mitigations identified in this

Risk Assessment report to develop a targeted mitigation plan for each of the respective project design activities.

Scope of Work and Stage 2 Assessment Methodology

Scope of Work

The goal of the Stage 2 Risk Assessment was to assess the fiduciary risks and ability of the GOS to provide an efficient, effective and accountable mechanism for delivering development assistance. Specifically:

a. Assess the ability of the MOH/DAGE to implement projects in an open and transparent manner and make recommendations to mitigate risks and strengthen partner country systems;

b. Assess the MOH/DAGE ability to manage execution of the project, provide appropriate controls over financial management, procurement and project implementation, and reporting, and make recommendations to mitigate risks;

c. Assess jointly with the World Bank as detailed in the Executive Summary under the

USAID and World Bank Collaboration and Joint Assessment section.

d. Assess the appropriateness of a FAR Agreement mechanism or recommend other feasible mechanisms.

As previously stated, USAID/Senegal Mission’s preference is to use the FAR Agreement implementation mechanism. In reviewing the draft milestones of the new Health activity the

Senior Regional Legal Advisor and Regional Controller verified that there are solid deliverables that can readily be priced/quantified. Given the proposed implementation mechanism, the joint assessment team focused the review of the MOH/DAGE processes relevant to this mechanism.

Accordingly, the joint risk assessment covered the following functional areas:

1. Flow of Funds

2. Procurement Process

3. Orders of Goods and Payment of Bills

4. External Audits and Internal Controls

5. Salaries and Staff Management

6. Information Technology

As the MOH/DAGE demonstrates its capacity for sound budget and financial management supported by effective internal control systems and procedures, USAID/Senegal will investigate further the use of other funding mechanisms to support GOS health projects.

Assessment Methodology

The team followed the PFMRAF Stage 2 process outlined in USAID’s Automated Directives

System (ADS) Chapter 220 (revised 26 March 2012) and its related references for this assessment . As part of process, USAID/Senegal and the World Bank jointly developed and approved the “Questionnaire of the Assessment Framework for Risks Associated with Public

Financial Management” (See Appendix 2 for Questionnaire). This questionnaire was adapted to take into account the specificities of the MOH and assess jointly with the World Bank as detailed in the Executive Summary under the USAID and World Bank Collaboration and Joint

Assessment section. The adaption of the questionnaire included both modifying and adding questions. As stated in the Scope of Work section above, this assessment was focused on processes relevant to the FAR Agreement implementation mechanism. Therefore, the final questionnaire excludes those sections (e.g Budget) that are not germane to the FAR Agreement implementation mechanism.

The risk assessment testing methodology included: interviews, observations, document reviews, and testing on a limited sample. See further testing details at:

1) Appendix 2- PFMRAF Consolidated Questionnaire, which identifies the specific testing techniques (e.g. observation, document review) used to confirm the existence of key processes and controls for each functional area;

2) Appendix 3- List of Documents Reviewed, which contains further details on the documents reviewed as part of the assessment;

Followed ADS 220 (March 2012) as all major activities for the Stage 2 PFMRAF (planning, fieldwork, report preparation) took place prior to the issuance of the new ADS. See the following timeline for details.

- December 2012 – Stage 2 Risk Assessment Statement of Work Drafted

- January 2013 – Stage 2 Statement of Work Approved by CFO/G2G

- April 2013 – G2G USAID/Senegal Health Project Appraisal Document issued

- May 2013 – Stage 2 Field Work started

- June 2013 – Stage 2 Field Work completed

- October 2013 – Approval of Health Office G2G Project Appraisal Document by Mission Director

- April 2014 – Draft Joint Risk Assessment issued by USAID/Senegal in coordination with Work Bank and

LuxDev

- July 2014 – New ADS 220 issued

3) Appendix 5- MOH Personnel, which contains further details on the MOH personnel interviewed as part of the assessment; and

4) Appendix 8- Testing Documentation, which outlines the testing methodology and items tested.

The joint assessment team held working sessions with personnel in key divisions of the MOH and the Ministry of Economy and Finance (MEF) including: the DAGE and various relevant divisions, the Directorate of Infrastructure, Equipment and Maintenance (DIEM), the internal inspection department, the General Secretariat of the Procurement Quality Control Cell (CPM), the Tracking Office of the State Inspector General (IGE), the Prime Minister’s Office, the

Financial Operations Controller (COF), and the Authorizing Officer of the MEF.

Each identified risk was evaluated for impact and probability to arrive at a score of:

Low (Green)

Medium (Yellow)

High (Orange)

Critical (Red)

These risk scores are consistent with definitions included in PFMRAF Manual (See Appendix 7) and summarized by risk matrix below.

IMPACT

Catastrophic High Critical Critical Critical

Serious High High Critical Critical

Marginal Medium Medium High High

Negligible Low Low Medium Medium

Remote Occasional Probable Frequent

Probability

Table B: Risk Matrix

In applying the Stage 2 guidance, the joint assessment team first analyzed the strengths and weaknesses in the fiduciary management capacity for MOH. Secondly, risks were identified;

and thirdly proposed risk mitigation measures were identified. The following sections (section 1 to section 6) identify the MOH processes and any identified key risks (risks identified as high or medium). Low risks are discussed in Appendix 6. Appendix 6 also provides the details (i.e.

Impact and Probability) for each identified risk.

1. Flow of Funds for the MOH

Proposed Funds Flow

As part of this assessment and based on the current risks identified, USAID/Senegal determined that the MOH/DAGE does not currently have the ability to fully use GOS systems to manage external funds. Therefore, USAID\Senegal is proposing a phased approach to gradually increase the use of GOS systems. The following section outlines the proposed next step (transitional phase) and the long-term goal for managing externally provided funds (i.e. USAID) using GOS systems. USAID\Senegal will work with the GOS and other donors to develop a plan to get from the transitional phase to the end goal. Appendix 9 provides a graphical representation of the two phases.

1. In the transitional phase, USAID/Senegal proposes using a separate bank account managed by the DAGE. Upon completion of a milestone, the technical unit at the MOH will submit payment to a Steering Committee which is led by the MOH. The Steering Committee will be composed of members of the MOH, DAGE, USAID and WB and they will be responsible for directing and coordinating all G2G activities at the MOH. Upon review and approval of a milestone completion by the Steering Committee, the DAGE will submit a funding request to

USAID. Once USAID administratively approves the voucher and certifies payment, the funds will be transferred to a separate bank account managed by the DAGE. The account will be opened in a commercial bank to facilitate payment for eligible expenses. The account will be managed in accordance with the disbursement procedures described in the Financial

Management Manual for administrative and accounting procedures of the GOS. The DAGE is then responsible for forwarding on any payments to beneficiaries or outside vendors if necessary. . .. Chart 1 in Appendix 9 demonstrates the transitional phase funds flow.

2. The end goal is to fully use the GOS systems to manage USAID funds. Chart 2 in Appendix

9 outlines the proposed cash flow and expenditure processes fully using GOS systems and procedures. Key features of this process include opening a Trust Account at the central bank which is managed by the Treasury and administered by the DAGE. USAID/Senegal notes that this is a long-term goal that will be adjusted as necessary based upon the capacity of the GOS to manage USAID funds. This process is already being used by other donors such as Lux Dev which will provide USAID the opportunity to observe and learn from their experiences.

The joint assessment of the DAGE’s management of partners’ funds strove to determine whether current financial and accounting management systems offer sufficient guarantees of effective and efficient management of USAID/Senegal resources. The assessment results demonstrated the following strengths in the DAGE’s financial management capacity:

The team in charge of the accounting and financial management is familiar with donor procedures and effectively manages similar projects funded by the African Development

Bank (ADB) (1999 to 2012), the World Bank (management of Programme de

Developmment Integre de la Sante between 1998 and 2004 - Closed), the GAVI Fund and the Islamic Development Bank (IDB) Fund.

2. Procurement

Since 2007 the Government of Senegal has substantially revised the public procurement system in accordance with the guidelines of the West African Economic and Monetary Union and international standards including the establishment of two distinct institutions, the procurement oversight body, DCMP, and an independent regulating body, l’Autorité de Régulation des

Marchés Publics (ARMP). Both have a joint website which provides comprehensive and relevant information regarding bidding opportunities for private sector and activity reports for the general public.

As part of the public procurement system, the GOS Procurement Code (PC) is the framework for public procurement procedures at the MOH/DAGE. This code provides detailed procedures for the procurement plan, advertising bids, examining and accepting offers and the appeals process.

To facilitate the PC implementation, the GOS established and published the Procurement

Reference Guide which describes in detail the requirements for public procurement controls and procedures.

The MOH procurement process starts with each Division developing a procurement plan based upon its available budget. Upon completion of the Division’s plans, the MOH’s CPM staff compiles them into the Systems Integre Gestion Marche Public (SIGMAP) to prepare the

MOH’s annual procurement plan which is submitted to the DCMP for validation. The annual procurement plan is designed to incorporate both the ongoing and planned activities for the year.

The CPM staff is also required to publish an annual forecast report of future procurements to the public in order for potential bidders to plan appropriately. The Programming and Monitoring

Division within the DAGE is responsible for the implementation of procurement procedures for goods, works and services for the MOH. To this end, it is responsible for the coordination and monitoring of procurement activities funded from GOS resources and is involved in procurement projects funded by development partners. The Commission de Marche (CM), chaired by the

DAGE (through their Programming and Monitoring Division) and composed of representatives of other MOH entities (including the CPM, DIEM, General Directorate de Health, etc.) is charged with procurement of MOH goods and services. Throughout the procurement process, the

CM is required to comply with the mandatory procedures in the PC. All procurements must adhere to the following steps: (i) receipt of bids; (ii) opening of bids in the presence of bidders

(with the minutes of the opening bids meeting sent to bidders); (iii) evaluation of bids which must be completed within 15 days from the opening of the bids; and (iv) preparation of an evaluation report of the selected PC provisional awardee to be submitted to the DCMP. The PC also details the process for contesting and appealing award decisions when needed. The MOH is required to publish an annual report with details and an explanation to support its decisions of all procurements.

The joint assessment team reviewed the above procurement process including timing and authorization of bids and offers. They traced a sample of procurement actions, and walked through the entire process from the authorization of the procurement, through final payment to the vendor. See Appendix 8 for details.

The MOH has a computerized system for collection, dissemination, and management of procurement statistics including the monitoring of procurement-related complaints and appeals;

Generally, procurement laws and regulations in Senegal are consistent with international standards including a series of nationwide tender documents;

The MOH has prepared the required yearly procurement report on time and in accordance with the PC for the past three years. These procurement plans were published in the public procurement portal, and complied with the required format and substance set forth in the PC;

In the event of implementation delays or noncompliance of the contract terms, a written reminder is sent by the DAGE to the contractor for immediate action. Failure to act by the contractor can trigger a warning or termination. This was demonstrated when the assessment team noted that Engender Health, a local non-governmental organization (NGO), was terminated due to non-compliance with specific clauses of the contract;

Unsuccessful bidders have a channel to lodge complaints if they note deviations from the PC.

We also noted cases of specific complaints which led to overturning award decisions after review by the DCMP;

The MOH’s CPM has successfully published their summary procurement plan from 2010 through 2013 on the public procurement web sites and in major newspapers.

Challenges/Weaknesses

Management and monitoring of contracts needs to be strengthened with an emphasis on aspects relating to the quality control of products or services provided;

Procedures for using Request for Proposal (RFPs) need additional controls;

Storage retention facility holding procurement records and archives does not properly safeguard the records nor facilitate ease of access to the records.

Procurement Risks

1) Procurement Risk 1: Reviews performed on the procurement procedures of the MOH indicate weaknesses in the management and monitoring of contracts with an emphasis on aspects relating to the quality control of products or services provided. For example, 2011

MOH performance report found that there were delays in the construction of hospitals in

Fatick, Ziguinchor, and in certain health centers. The team assessed this risk as Medium.

Mitigation: Improve contract management of procurement implementation with an emphasis on aspects related to the control of product quality and performance. USAID and the World Bank will provide technical capacity assistance in contract management during implementation of the activities. This will include providing technical support both during the preparation of tender documents for tender assessment and contract management. USAID and the World Bank will also jointly coordinate with the MOH to support an increase in procurement staff and trainings for both the DAGE and CPM. In addition, the CPM will seek to prepare a comprehensive annual report highlighting the nature of the deficiencies identified during the past year and a detailed account of contracts awarded by direct agreement as stipulated in Article 143 of the PC to allow for continual improvements.

2) Procurement Risk 2: Internal control vulnerabilities were identified in the DAGE’s procedures for using Request for Proposal (RFPs) by audit report commissioned by ARMP in

2011 and 2012. This lack of internal controls increases the risk of inappropriate actions. The team assessed this risk as Medium.

Mitigation: The World Bank, in conjunction with the MOH, are outlining methods to strengthen the RFP process. This will strengthen accountability and increase the transparency in the procurement process.

3) Procurement Risk 3: The storage retention facility holding procurement records and archives does not properly safeguard the records nor facilitate ease of access to the records.

Inadequate safeguarding of procurement records may lead to the loss or damage of key procurement files resulting in inefficient and ineffective procurement of goods and services as well as PC non-compliance. The GOS faces a financial risk if they are unable to provide complete procurement files to partners for reimbursement. In addition, the required procurement archiving manual has not been developed or published on the public web site by the CPM. The team assessed this risk as Medium.

Mitigation: The MOH is currently planning an archive facility which will house all procurement files. USAID will coordinate with the MOH to define the requirements for the archive facility.

This will also include developing and implementing the guidelines for the archiving of procurement files. In addition, these procedures will include the availability of the archived files on the public procurement portal.

3. Ordering Goods and Services and Payment of Bills

Ordering goods and services and the payment of corresponding bills represent a stage in the acquisition process that follows the procurement action (i.e. the signing of a contract award).

Within the MOH, this is a five step process: (i) the actual ordering of the goods/services; (ii) the receipt of the goods/services; (iii) the invoice certification process; (iv) the payment process; and

(v) materials management.

Strengths

Goods/Service Ordering o The control system for ordering goods is generally appropriate and in accordance with national procedures based upon: (i) The RFPs used for purchases of goods and services examined by the assessment team are generally well prepared and approved by the relevant authorities; (ii) Bid opening reports, contract award reports and receipt records and/or certificates of service are checked and approved; and (iii) Purchase

Orders are used for these transactions;

o Based upon the test review of 14 procurement files, the assessment team determined that the DAGE is in compliance with the procedures for ordering goods outlined in the procurement code. For example, the procurement files included all necessary signatures. The test review of the selected transactions for goods ordered also showed that they were planned, recorded and published in the public procurement portal in accordance with their procedures.

Receipt Goods/Service and Certification:

o Based upon the test review of the 14 procurement files, the assessment team noted that the receipt records attached to the payment documents were approved by the receipt commission and that payments were properly certified;

o The DAGE has instituted a Control Committee responsible to ensure that goods and services received conform to contract specifications prior to payment. The committee is composed of representatives from the DAGE divisions of internal control and accounting, and the Controller Operational Finances (COF) from the MEF. We noted that the committee has rejected specific payments for non-compliance which is an indicator that the committee is performing its role.

Materials Management: The joint assessment found that the supporting documents (e.g.

goods received document and materials requisition) for the movement of goods were regularly prepared by the DAGE. In addition, the test review noted that receipt of goods are recorded in the materials operations log book and ledger.

Identified weaknesses in segregation of duties and in the systems used to track goods and services until their final destination;

Assets purchased with partner funds are not consistently recorded in material accounting inventory records;

Physical inventories of DAGE assets have not been performed on a consistent basis.

Goods Ordering & Payment of Invoices Risks

1) Goods Ordering Risk 1: The DAFCP within the DAGE is responsible for final certification of invoices, accounting, and custody of assets. The team concluded that this is inadequate separation of duties that may increase the risks of both erroneous and inappropriate actions.

The team assessed this risk as Medium.

Mitigation: Supplies management should be a function of the DMTA (DAGE Division in charge of supplies), to separate the functions of accounting and maintaining resources.

2) Goods Ordering Risk 2: A World Bank study in 2003 related to the ordering of goods and services (Etude pour la mise en place d'un système de suivi des dépenses jusqu'à destination dans le secteur de la santé) identified weaknesses in the systems used to track goods and services until their final destination. The assessment team verified during their review that this weakness remains. Specifically, the system used by the GOS to distribute goods to the final destination is limited in capacity due to excessive bureaucratic processes. This in turn which increases the administrative workload burden which has resulted in delays and losses.

The team strongly believes that the MOH should focus more effort to improve and expedite the distribution of goods to their final destination. The team assessed this risk as Medium.

Mitigation: The DAGE must take steps to streamline and improve the health sector expenditure tracking system (for funds and goods). This process streamlining and improvement should decrease the administrative workload burden of the staff involved in the process. The tracking of goods and services to final destination needs to be strengthened in order to reduce the risks of losses and delays.

3) Goods Ordering Risk 3: Per GAVI report, assets purchased using external resources

(partner funds) are not consistently recorded in material accounting inventory records because the staff responsible for recording the assets did not participate in or were was not aware of the receipt of these goods. Accordingly, the DAGE is unable to inventory and account for all of its assets. The team assessed this risk as Medium.

Mitigation: The DAGE should ensure that all assets purchased with external funds are entered into the material accounting book in accordance with the policies and procedures manual. This can be accomplished through implementing the appropriate controls related to inventory management and recording. Appropriate controls include an annual inventory confirmation

(floor to record/record to floor) of assets acquired using donor funds, signed an approved by management and submitted to the donor.

4) Goods Ordering Risk 4: The team identified the following risks related to Inventory

Management:

Physical inventories of DAGE assets have not been performed on a consistent basis during the past three years. Physical inventories help ensure accurate accounting records;

DAGE assets purchased with internal funds are not coded or labelled to ensure inclusion in accounting records and inventory.

The team assessed this risk as Medium.

Mitigation:

The DAGE must systematically and regularly conduct annual inventories;

DAGE should use the equipment marking and labeling procedure for identification of purchased assets. Good resource management practices can contribute to safeguarding the

Ministry’s assets.

4. Internal Controls and External Audit

1. Internal Audit and Inspection framework

There are two independent bodies that play a role in the internal audit function for the MOH.

Currently they have no functional relationship and their activities are not coordinated:

a. The MOH has direct authority over their Internal Audit Department (IAD). The IAD includes an internal inspector of financial and administrative affaires (IAAF) and technical inspectors. The IAAF inspector is responsible for ensuring compliance with the laws, decrees, regulations and ministerial decisions governing the organization and operation of the

Ministry of Health. The IAAF inspector’s role includes ensuring adequate controls for the administrative, financial and technical management of all services, projects and programs, and institutions under the authority of the Minister of Health. The internal technical inspectors perform program and performance audits within the MOH.

b. The DAGE also has a separate and independent internal control department that is responsible for ensuring compliance with administrative, financial and accounting procedures at the DAGE.

In the findings below it should be noted that the MOH does not distinguish between GOS funded projects or implementing partner funded projects when performing their audits and inspections.

The checklists and standards used are identical.

IAD/IAAF

IAD lacks a coordinator responsible for the planning, coordination and monitoring of internal audit activities;

IAAF staff shortages and not attracting qualified personnel with a lack of a logistical/support and insufficient budget resources to perform their duties;

IAAF lacks annual activity planning and systematic monitoring of the IAD/IAAF internal audit recommendations.

DAGE

DAGE IC Department did not prepare an annual work plan and activity reports and had no system for monitoring outstanding audit recommendations;

Administrative, financial, and accounting procedures manual being used by the Ministry of

Health is not up to date

IAD Risks

Although the IAD provides the MOH with the structure for internal control services, the department, like the other departments within the MOH, faces deficiencies that are a limiting factor to fully exercising their fundamental oversight mission. IAD weaknesses include:

1) IC Risk 1: The IAD lacks a coordinator responsible for the planning, coordination and monitoring of internal audit activities in accordance with the provisions that define the

Ministry of Health organizational provisions. The team assessed this risk as Medium.

Mitigation: The MOH must arrange for the selection of a duly appointed coordinator for the

IAD in accordance with Order No. 014249/MSP/CAT of November 18, 1980 and the provisions of the recent draft decree organizing the MOH. This appointment should facilitate the planning, coordination and monitoring of internal audit activities. The World Bank has hired a consultant to review the activities of the IAD and IAAF and propose a combined structure which will result in better coordination and more effective and efficient internal audits and inspections.

2) IC Risk 2: The IAD and IAAF face operational difficulties due to:

Staff shortage (only one staff member in IAAF), which is clearly not sufficient to fully cover all of MOH’s requirements;

IAAF is not attracting qualified personnel because the IAAF staff do not receive the same compensation (i.e. lack of bonuses) as inspectors in other GOS departments;

A lack of a logistical/support system to properly monitor activities in the field (i.e. lack of transportation); and

Insufficient budget resources.

The team assessed this risk as High.

Mitigation: The new fiscal and financial reforms have introduced major innovations advocating for performance management. The implementation of such reforms requires management controls based on effective internal risk-based oversight. For this purpose, it is necessary to:

Conduct an organizational, technical and legal audit of the internal control system of the

MOH in order to develop a capacity building action plan. The plan will provide the appropriate steps needed to redefine the functions of the internal inspection service and provide it with the logistical, financial, and human resources to implement these reforms.

As noted above the World Bank has already hired one Consultant to combine the two audit institutions in order to provide a more efficient and effective audit organization.

There is also a need to recruit one or two part-time consultants to monitor the action plan and provide technical assistance to reinforce internal controls and strengthen the control environment.

3) IC Risk 3: There is a lack of annual activity planning and systematic monitoring of the

IAD/IAAF internal audit recommendations. Thus, there is a lack of structured processes including regularly prepared status reports to resolve control audit issues and recommendations. In the current process, follow-up is only done on an ad-hoc basis. The team assessed this risk as Medium.

Mitigation: The Internal Audit Department needs to establish an annual work plan with regular updates and produce annual activity reports to monitor and address outstanding recommendations in a timely manner.

The findings of the 2011 final report on the organizational audit of the MOH conducted by the

Delegation for the Reform of the State and Technical Assistance have confirmed the above risks in the IAD operations. In conclusion, the audit stated that IAD is not functioning in accordance with Order No. 14249/MSP/CAT of November 18, 1980 with minor impact upon strengthening accountability and insufficient financial resources. GOS has acknowledge this risk and has undertaken initiatives such as revising the above order and requesting donor assistance, including

USAID, to strengthen the MOH’s internal controls and control environment.

DAGE Internal Control Department Risks

The DAGE Internal Control (IC) Department also faces deficiencies which are as follows:

4) IC Risk 4: The DAGE IC Department did not fully perform its duties in the following areas:

Per their defined organizational role, the DAGE IC Department is required to monitor audit recommendations resulting from the DAGE’s internal audits. However, the assessment team found that the DAGE IC Department did not prepare an annual work plan and activity reports and had no system for monitoring outstanding audit recommendations due to not having a full understanding of their roles and responsibilities and shortage of personnel;

The IC Department, which has only two (2) agents, faces coordination problems with other

DAGE offices. For example, the revision of the administrative, financial, and accounting procedures manual is experiencing delays because the DAGE IC Department, which should coordinate and lead the revision effort, is not involved in the revision process due to not having a full understanding of their roles and responsibilities and shortage of personnel.

This leads to further issues with the procedures manual (see IC Risk 5 below for further details);

In addition, the IC Department is not sufficiently involved in the monitoring of the external resources expenditures.

The team assessed this risk as Medium.

Mitigation:

DAGE needs to reinforce (including hiring more agents) their IC service while vesting it with real authority, including monitoring oversight of the internal DAGE audit report recommendations. Similarly, the IC service must have greater involvement in the external resource expenditures;

The IC service needs to establish an annual work plan and produce annual reports of activities as well as a regularly updated plan to monitor outstanding recommendations.

5) IC Risk 5: The administrative, financial, and accounting procedures manual being used by the Ministry of Health is not up to date (manual last updated in 2007). For example, the manual does not contain the procedures necessary to implement the 2008 GOS procurement reforms. Without an updated procedures manual, the MOH does not have the complete internal control framework necessary to ensure that its objectives are being meet. The team assessed this risk as High.

Mitigation: The DAGE, with the coordination of their internal control department, must expedite the revision of the administrative, financial, and accounting procedures manual and ensure personnel are properly trained. This manual will serve as a reference to outline management policies and procedures that are considered relevant and effective. This manual must contain all the tools for a transparent and effective management for the implementation, monitoring and control of all administrative, financial and accounting procedures. The World

Bank hired a Consultant to update the MOH policies and procedures manual. A first draft has already been submitted to the Ministry Management.

2. Monitoring and External Audit:

Background Within the GOS, the external audit function is performed by two entities, the Cour des Comptes and the ARMP. The Cour des Comptes conducts financial audits to inform the Parliament on the status of budget execution. In addition, ARMP conducts annual and comprehensive procurement audits across all the ministries (including the MOH), by relying upon independent auditing firms.

In addition, the team noted that the DAGE was regularly subject to a yearly financial and accounting audit (based on international standards), conducted by independent external audit firms, of the funds managed within the framework of the support of external partners (ADB, GAVI Fund etc.).

The ARMP conducted an independent audit of the MOH’s procurement procedures over the period of the assessment (2010, 2011 and 2012) and noted that the MOH has a well-managed procurement process;

In 2011 the external auditor issued an unqualified opinion on the 2011 GAVI fund and on the audit reports of the ADB project. In fact, the conclusions of the reports made available to the assessment team did not reveal any major issues in the management of the funds.

5. Salaries and Staff Management

MOH employees in the DAGE, CPM, and DIEM include civil servants and contractors. Civil servants are governed by the general regulations of the civil service and their salaries are directly managed by the Pay Services of the MEF. The contract workers are directly managed by the

Human Resource Department of the Ministry of Health. They receive annual contracts that are consistent with the principles of the Labor Code duly approved by the Labor Inspector. Within the DAGE Financial Management Department there are three (3) offices: Finance and

Accounting, Personnel Management, Supplies and Materials.

MOH employees comply with GOS labor codes. Required taxes and deductions (income taxes and social security contributions) are calculated and deducted monthly on the basis of the payroll deduction structure of the Tax and Land Department and in accordance with principles of the Labor Code;

Most of the accounting staff have worked at the DAGE for more than ten (10) years and have a good understanding of the integrated project accounting management software (TOMPRO) used by the DAGE since 1998;

The DIEM staff (which includes experienced engineers), in collaboration with the DAGE staff, provide valuable input during the technical assessment of tenders made as part of the procurement process.

Lack of adequate and consistent training regarding financial management and accounting;

Experienced DAGE accounting staff is being used for other tasks outside the Office of

Finance and Accounting;

Staff involved in procurements do not have adequate training in GOS procurement procedures which has an impact upon meeting deadlines and requirements;

CPM is facing a shortage in human resources in regards to procurement specialist;

Contractor budgets are not adequately developed during the initial budget formulation phase;

Lack of controls (i.e. MOH does not adhere to initial contractor budget) during the approval of contractual salaries during the budget execution phase.

Salaries and Staff Management Risks

1) SSM Risk 1: Despite DAGE senior staff experience in managing external resources (e.g.

donor funds such as GAVI and IDB), there is a lack of adequate and consistent training regarding financial management and accounting. The team assessed this risk as Medium.

Mitigation: Build upon the capabilities of DAGE officers in financial management and accounting through continuous training including workshops.

2) SSM Risk 2: Experienced DAGE accounting staff is being used for other tasks outside the

Office of Finance and Accounting (OFA). Of the eight (8) accounting staff in OFA, only three (3) actually work in the Office. The other five (5) staff are assigned to Personnel, Material Accounting and Budget Commitment offices. This weakness leaves the OFA vulnerable especially if additional funds are provided by donors (i.e. USAID, World Bank).

In addition, there is not an officially appointed chief account in charge of managing the accounting of donor funds. The team assessed this risk as Medium.

Mitigation:

The DAGE should reinforce the accounting staff of the OFA to better manage outside donor funds (i.e. FAR Agreement Funds). This includes redeploying the five accounting staff currently located in other offices to OFA;

The DAGE should also appoint a chief accountant (prior to implementation of the FAR

Agreement) with the necessary skills and experiences in order to perform all of the accounting requirements.

3) SSM Risk 3: The MOH Staff in the entities involved in the procurement process (e.g.

DIEM, General Directorte de health) do not have adequate training in GOS procurement procedures which has an impact upon meeting deadlines and requirements. This weakness leaves the MOH vulnerable especially if additional procurement activities are requested by donors (i.e. USAID, World Bank). The team assessed this risk as Medium.

Mitigation: Develop a program to build the capacities of the Ministry of Health’s Senior Staff on procurement procedures (i.e. using SIGMAP/increase understanding of Procurement Code).

The proposed World Bank consultant will provide a capacity building program for senior staff.

4) SSM Risk 4: CPM is facing a shortage in human resources. There are only three agents (two procurement specialists and an assistant) who are responsible for all MOH procurement activities. This weakness leaves the CPM vulnerable especially if additional procurement activities are requested by donors (i.e. USAID, World Bank). The team assessed this risk as

Medium.

Mitigation: The MOH should hire a consultant to provide the various supply units at the CPM and DAGE with capacity building in procurement and contract management.

5) SSM Risk 5: The MOH has the following issues related to budget preparation and execution for the management of contractors:

The contractor budget is not adequately developed during the initial budget formulation phase;

Also, there is a lack of control (i.e. MOH does not adhere to initial contractor budget) during the approval of contractual salaries during the budget execution phase.

The above issues pose a general risk to the MOH due to non-compliance with the initial budget ceilings as well as potential delays in payment of contractors which requires a budget amendment. We also noted that there are frequent budget realignments during the course of the budget year in order to increase final contractor’s budgets. The following table outlines the contract worker initial budget and amendments from 2010 to 2012, which outlines the 4,287 million CFA in contractor amendments:

YEARS CONTRACTOR

INITIAL BUDGET

( FAI) (1)

CONTRACTOR

AMENDING ACTS

(2)

CONTRACTOR

FINAL BUDGET

(3)= (1+2)

Different %

(2/1)

2010 550,000,000 999,500,000 1,549,500,000 182 %

2011 1,050,000,000 1,740,986,863 2,790,986,863 166 %

2012 1,768,753,000 1,546,897,596 3,315,650,596 87%

TOTAL 3,368,753,000 4,287,384,459 7,656,137,459 127 %

(Sources: MEF – SIGFIP - Lois de finances 2010, 2011, 2012)

The team assessed this risk as Medium.

Mitigatio…