Annex J7 g - Public Financial Management Risk Assessment Framework_Central MOWS.pdf

The USAID/Senegal PGST hereby confirms that the Stage 2 Report of the Ministry of Hydraulics and Sanitation has been reviewed by and represents the view of the Mission.

October 20, 2017

Public

Financial Management

Risk Assessment Framework

Stage 2 – Risk Assessment

Government of Senegal

Ministry of Hydraulics and Sanitation

Government of Senegal, Ministry of Hydraulics and Sanitation, PFMRAF Stage 2 Risk Assessment

Table of Contents

i. ACKNOWLEDGEMENT AND COMPOSITION OF ASSESSMENT TEAM

ii. LIST OF ACRONYMS/ABBREVIATIONS

I. EXECUTIVE SUMMARY

II. BACKGROUND/PROGRAM DESCRIPTION

III. ASSESSMENT SCOPE AND METHODOLOGY

IV. OTHER DONOR AND PARTNER RISK ASSESSMENTS PERFORMED

V. SUMMARY OF IDENTIFIED RISKS

VI. MAPPING OF IDENTIFIED RISKS AND PROPOSED FUNDS FLOW

VII. IDENTIFIED RISKS AND RECOMMENDATIONS

1. Entity Features

2. Budget

3. Procurement

4. Cash Management

5. Accounting and Reporting

6. Human Resources and Payroll

7. Internal control

8. Information Technology

9. Audit and Compliance

VIII. CONCLUSION

List of Tables

Table 1. Number of risks identified in each functional area, rated as low, medium, high, or critical. 14

List of Figures

Figure 1. Matrix of identified risks, denoted as the overall risk number corresponding to the risk rating worksheet in Appendix A. 15 Figure 2. Diagram of funds flow for internal funds. 17 Figure 3. Diagram of funds flow for external funds. 18

Required Appendices

Appendix A. Risk Rating Worksheet Appendix B. Results of Supplemental Sample Testing Appendix C. List of Individuals Interviewed Appendix D. Reliance Upon Donor/Partner Reports

Required Attachments

Attachment 1. Statement of Work. Public Financial Management Risk Assessment Framework Stage 2 Risk Assessment of Senegal’s Ministry of Hydraulics and Sanitation. USAID/Senegal.

June, 2017.

Attachment 2. Stage 2 Questionnaire. Evaluation of Risks in the Public Financial Management of Senegal’s Ministry of Hydraulics and Sanitation. June 2017.

i. ACKNOWLEDGEMENT AND COMPOSITION OF ASSESSMENT TEAM

Acknowledgement

The assessment team would like to express their deepest appreciation for the support provided by the Ministry of Hydraulics and Sanitation (MHS). We would especially like to acknowledge all the MHS staff who fully invested in this effort and whose support and cooperation was crucial to this endeavor.

Composition of Assessment Team

The USAID assessment team was a cross-sectoral group composed of the following members:

Full Name Title Affiliation

Abdoulaye Boly WASH Specialist Economic Growth Office, USAID/Senegal

Francis Carayol Financial Management Specialist

Financial Management Office, USAID/Senegal

Oumou Dia Legal Advisor Regional Legal Office, USAID/Senegal

Seynabou Diallo Economist Democracy and Governance Office, USAID/Senegal

Amina Gueye Financial Management Specialist

Financial Management Office, USAID/Senegal

Mamadou Niass Financial Management Specialist

Financial Management Office, USAID/Senegal

Emilie Reyes Program Specialist Financial Management Office, Program Office, USAID/Senegal

ii. LIST OF ACRONYMS/ABBREVIATIONS

Acronym1 Definition (French) Definition (English) ADEMAS Agence pour le Développement du Marketing Social Agency for the Development of Social Marketing ADIE Agence de l'Informatique de l'Etat State Information Technology Agency ADS Système de Directives Automatisées USAID’s Automated Directives System AFD Agence Française de Développement French Development Agency AOI Appel d'Offres International International Competitive Bidding AON Appel d'Offres National National Competitive Bidding APRHN Agence pour la Promotion du Réseau

Hydrographique National Agency for the Promotion of the National Hydrographic Network

ARMP Autorité de Régulation des Marchés Publics Procurement Regulatory Agency BCEAO Banque Centrale des Etats d’Afrique de l’Ouest Central Bank of West African States BH Brigades Hydrologiques Hydrological Brigades BPF Brigades des Puits et Forages Well and Drill Brigades CC Cour des Comptes Court of Auditors CC-PEPAM Cellule de Coordination-Programme Eau Potable et

Assainissement Coordinating Unit-Millennium Water and Sanitation Program

CDCS - Country Development Cooperation Strategy CDSMT Cadre de Dépense Sectorielle à Moyen Terme Framework for Medium Term Sectoral Expenditure CEI Cellule d’Enquêtes et d’Investigations Studies/Investigations Unit of ARMP CEP Cellule des Etudes et de la Planification Studies and Planning Unit CMP Code des Marchés Publics Procurement Code COA Code des Obligations de l’Administration Code of Obligations of the Administration COF Contrôleur des Opérations Financières Financial Operations Controller CPCSP Cellule de Planification, de Coordination et de Suivi des Programmes Planning, Coordination, and Program Monitoring Unit

CPM Cellule de Passation des Marchés Procurement Unit CRF Contrôleur Financier Régional Regional Financial Controller CRD Comité de Règlement des Différends Dispute Resolution Committee CTB Coopération Technique Belge Belgian Development Agency DA Direction de l’Assainissement Directorate of Sanitation DAGE Direction de l’Administration Générale et de l'Équipement Directorate of General Administration and Equipment

DBF Division Budgétaire et Financière Division of Budget and Finance DCEF Direction de la Coopération Économique et

Financière Directorate of Economic and Financial Cooperation

DCMP Direction Centrale du Contrôle des Marchés Publics Central Directorate for Procurement Control DRPCO Demande de Renseignement et de Prix à Compétition

Ouverte Time-limited Open Competition Bids

DGPRE Direction de la Gestion et de la Planification des Ressources en Eau

Directorate of Water Resource Management and Planning

DH Direction de l’Hydraulique Directorate of Hydraulics DI2 Direction de l'Investissement Investment Directorate DMTA Direction du Matériel et du Transit Administratif de l’Etat Directorate of Material Management and Transit Administration of the State

DPPD Document de Programmation Pluriannuelle des Dépenses

Multi-year Expenditure Planning Document

1 For purposes of this report, some acronyms derived from French will retain their French acronym in this report and in the appendices. The French-derived acronyms may not always correspond with the acronym for the English translation.

The Investment Directorate (DI) has recently been renamed the Directorate of Economic and Financial Cooperation (DCEF).

DRH Divisions Régionales Hydraulique Regional Hydraulic Divisions G2G Gouvernement à Gouvernement Government-to-Government GOS Gouvernement du Sénégal Government of Senegal IAAF Inspection des Affaires Administrative et Financières Administrative and Financial Affairs Inspectorate IGE Inspection Générale d’Etat State General Inspectorate IGF Inspection Générale des Finances Finance General Inspectorate ITSS Inspection du Travail et de la Sécurité Sociale Labor and Social Security Inspectorate LPSD Lettre de Politique Sectorielle pour le

Développement Sectoral Policy Letter for Development

LuxDev Agence Luxembourgeoise pour la Coopération au Développement

Luxembourg Development Cooperation Agency

MDG - Millennium Development Goal MHS Ministère d'Hydraulique et de l’Assainissement Ministry of Hydraulics and Sanitation MEFP Ministère de l’Economie et des Finances et du Plan Ministry of Economy, Finance, and Planning OFNAC Office National de la Lutte Contre la Fraude et la

Corruption National Office for the Fight against Fraud and Corruption

OFOR Office des Forages Ruraux Office of Rural Boreholes OLAG Office National du Lac Guiers Lake Guiers National Office OMVS/ Organisation pour la Mise en Valeur du Fleuve

Sénégal Organization for the Development of the Senegal River

OMVG Organisation pour la Mise en Valeur du Fleuve Gambie

Organization for the Development of the Gambia River

ONAS Office National de l’Assainissement du Sénégal National Office of Sanitation of Senegal PFMRAF Cadre d'Évaluation des Risques en Finances

Publiques Public Financial Management Risk Assessment Framework

PPM Plan de Passation des Marchés Procurement Plan PSE Plan Senegal Emergent Emergent Senegal Plan PTA Plan de Travail Annuel Annual Workplan PTF Partenaires Techniques et Financiers Technical and Financial Partner PTIP Programme Triennal d’Investissement Public Triennial Public Investment Program RAP Rapport Annuel de Performance Annual Performance Report SAI Supreme Audit Institution SDA Services Départementaux de l’Assainissement Departmental Sanitation Services SDE Sénégalaise des Eaux Senegalese Water Service SIGFIP Système d’Information et de Gestion des Finances

Publiques Information and Public Finance System

SIGMAP Système Intégré de Gestion des Marchés Publics Integrated Procurement Management System SM Services de Maintenance SONES Société Nationale des Eaux du Sénégal National Water Company of Senegal SRA Services Régionaux de l’Assainissement SYSCOA Système Comptable Ouest Africain West African Accounting System TFP Partenaires Techniques et Financiers Technical and Financial Partner (also referred to as

Donor) UM Unités de Maintenance Maintenance Units USAID Agence des États-Unis pour le Développement

International United States Agency for International Development

WAEMU Union Economique et Monétaire Ouest Africaine West African Economic and Monetary Union WASH - Water, Sanitation, and Hygiene

I. EXECUTIVE SUMMARY

Purpose

Prior to funding governmental organizations, and in compliance with ADS 220, USAID requires a fiduciary risk assessment using the Public Financial Management Risk Assessment Framework (PFMRAF). USAID/Senegal, through the Economic Growth Office, intends to provide direct funding to the Government of Senegal’s Ministry of Hydraulics and Sanitation (MHS)3 to support complementary activities involving the implementation of water, sanitation, and hygiene activities (WASH). This report summarizes the results of a Stage 2 risk assessment conducted on the MHS to identify and analyze fiduciary risks, and propose ways to mitigate them.

Scope and Methodology Used to Conduct the Assessment

The PFMRAF Stage 2 – Risk Assessment procedures were used to evaluate the MHS in nine functional areas, specifically: (1) entity features, (2) budget, (3) procurement, (4) cash management and treasury, (5) accounting and reporting, (6) human resources and payroll, (7) internal control, (8) information technology, and (9) audit and compliance. The assessment followed the scope and methodology presented in the Statement of Work (Attachment 1) and described further in Section III of this report. The field assessment was conducted by the USAID evaluation team from April 2017 to May 2017 at the MHS headquarters and its parastatal offices in various locations in Dakar, and at the Ministry of the Economy, Finance, and Planning (MEFP) office also located in Dakar. Staff were interviewed, and documents and policies were reviewed for compliance and adequacy. In July 2017, the assessment team met with key MHS personnel to review and discuss the results. The MHS is now in the process of finalizing their risk response plan.

Results

The identified risks and recommendations are summarized in Section VII of this report and in the risk rating worksheet (Appendix A). Risks are cross-referenced to the questionnaire (Attachment 2), mapped in Figure 1, and summarized in Table 1 of this report. A total of 27 risks were identified.

In general, processes at this entity are supported by strong procedural, regulatory, and legal framework as evident in the laws, decrees, orders, or circulars that apply to various areas. Of the risks identified, one risk was rated critical: the lack of an MHS procedures manual codifying all ministerial financial and administrative processes could result in non-standard practices and non-compliance. This represents a fiduciary risk that, due its potential impact and probability of occurrence, must be mitigated sufficiently to limit risk exposure. Twelve risks, falling across the various functional areas, were rated high. Some of these are noted below. Individually or in

3 In the Scope of Work (Attachment 1 of this report), the Ministry of Hydraulics and Sanitation is referred to as the Ministry of Water and Sanitation. Both terms refer to the same governmental entity.

combination, these represent fiduciary risks and various treatments were identified to help mitigate the risks.

An overarching weakness noted in the MHS is the lack of a coordinating mechanism that would provide the functional links when responsibilities are split across two or more entities. This issue was noted in multiple functional areas including entity features, budget, accounting, and information technology. A weakness in an otherwise well-regulated procurement process is the deficiency in contract monitoring during the execution phase. Weaknesses were also detected in accounting due to the lack of experience of certain entities in managing donor projects; the lack of systematic monitoring of commitments related to operating budget; accounting transactions entered at the end of the chain; poor controls on asset management; no definite method of apportioning overhead cost. Weaknesses were also detected in internal control and audit functions due to an insufficient number of qualified staff and the lack of an autonomous budget, equipment, and tools.

Note that some risks were determined to be development or operational risks. These are noted accordingly in Appendix A. When applicable, recommendations account for already existing efforts by the sector or other ministries to address the identified issue. The results of this assessment will inform the planning and design of the G2G project. Recommendations are included for risks that have to be explicitly accounted for as part of the design phase.

Conclusions/Recommendations

After assessing the MHS in accordance with the Statement of Work, the USAID assessment team has identified and documented relevant fiduciary and other associated risks. The team evaluated and rated the risks and proposed response measures which will be further elaborated in collaboration with the government entity as part of risk response planning. If the risk response measures are included and implemented as part of a risk response plan, the MHS should have adequate systems in place to manage direct funding. The assessment team concludes that USAID/Senegal can continue with project implementation.

II. BACKGROUND/PROGRAM DESCRIPTION

While overall access rates to safe drinking water and sanitation facilities have steadily increased in Senegal, there are disparities in results relative to water and sanitation, and urban and rural areas. This is evident when reviewing Senegal’s achievements towards meeting its Millennium Development Goals (MDG). The MDG for water and sanitation is to decrease the number of people without sustainable access to safe drinking water and basic sanitation infrastructure by 50 percent. While MDG targets for potable water and basic sanitation in urban areas have been met, the situation in rural areas is mixed, with rural sanitation lagging behind.

The USAID/Senegal water, sanitation and hygiene (WASH) project framework is based on the development hypothesis that if both the demand for water and sanitation and the supply of quality WASH services increase, the sustainable access to sanitation and water for multiple uses will increase and communities will improve their hygienic behaviors. Sustainable access and behavior change will lead to a reduction in diarrheal disease which will lead to reductions in malnutrition in the most affected regions, bolstering improvements in child health and economic development. The project will be implemented from FY2016 to FY2020, and will align with the Government of Senegal’s (GOS) post-MDG strategy for water and sanitation. The area of intervention is the Casamance regions of Ziguinchor, Sedhiou, and Kolda, as well as Tambacounda, Kedougou and Matam. These are areas of Senegal that have some of the lowest access rates to safe drinking water and sanitation, and are also some of the poorest with the highest malnutrition rates.

The project was envisioned to total approximately $48 million and encompass one contract to an international firm, one cooperative agreement to a local organization through the Development Grants Program, one or more government-to-government (G2G) agreements, private-public partnerships and/or micro-financing through the development credit authority (DCA), and a performance monitoring evaluation contract. These plans will have to be modified to reflect the current fiscal situation. However, for 2018-2020, the G2G portion is currently projected to be up to 10 million USD. The G2G agreement is anticipated to include four main components: (1) installation and rehabilitation of the rural water network infrastructure led by the Office of Rural Boreholes (OFOR), (2) installation of individual and household sanitation systems led by the Office of National Sanitation (ONAS), (3) hydrogeological and hydrological studies led by the Directorate of Water Resource Management and Planning (DGPRE), and (4) capacity building.

The primary focus will be on the first component. This component builds on a previous G2G agreement of 750,000 USD implemented by the Office of Rural Boreholes (OFOR) to rehabilitate water supply systems, manage performance-based contracts with service providers, and monitor and evaluate service delivery.

The project is aligned with the first objective of the USAID Water Strategy4 which seeks to improve health outcomes through the provision of sustainable safe water supply, sanitation and hygiene. It is also aligned with USAID/Senegal’s Country Development and Coordination

USAID Water and Development Strategy, 2013-2018.

https://www.usaid.gov/sites/default/files/documents/1865/USAID_Water_Strategy_3.pdf

Strategy5 (CDCS) and articulated in the WASH Project Appraisal Document6 (PAD). It directly supports the first and second development objectives (DO) of increased inclusive economic growth and improved health status of the Senegalese population. Combining improved access to water and sanitation infrastructure with focused, locally-adapted, community-led behavior change campaigns will promote consistent and proper use of the new technologies and ensure improved health and nutrition outcomes. USAID’s WASH portfolio is fully integrated into the national Millennium Water and Sanitation Program, designed by the GOS to coordinate donor contributions towards meeting MDG targets for water and sanitation and is aligned with the Plan Senegal Emergent (PSE) that prioritizes water and sanitation.

Additional background information can be found in the SOW (Attachment 1) and the WASH

PAD.

USAID/Senegal Country Development Cooperation Strategy, 2012-2017.

https://www.usaid.gov/sites/default/files/documents/1860/Senegal_CDCS_2012-2017.pdf

Water, Sanitation, and Hygiene (WASH) Project Appraisal Document, Economic Growth Office, USAID/Senegal, December 11, 2014.

III. ASSESSMENT SCOPE AND METHODOLOGY

Scope of Application of the Risk Evaluation and Methodology

USAID has developed a Public Finance Management Risk Assessment Framework (PFMRAF) to facilitate the analysis and mitigation of risks associated with G2G assistance. A rapid appraisal or Stage 1 was conducted on the Government of Senegal in September 2011. The recommendation from the 2011 Stage 1 rapid appraisal was to perform a Stage 2 risk assessment for the GOS entities to which USAID plans to provide G2G assistance. USAID/Senegal is in the preparation stages of updating the Stage 1 rapid appraisal. The appraisal will be conducted in line with the next CDCS due for completion in June 2019.

The Statement of Work (SOW) for the Stage 2 risk assessment of the Ministry of Hydraulics and Sanitation (MHS) was approved in June 2017 (Attachment 1). The phases followed in this assessment are described generally in Section IV of the SOW. This Stage 2 risk assessment was conducted using the PFMRAF manual for Phase 2 - Risk Assessments7. The assessment focused on the nine functional areas as defined in the manual: (1) entity features, (2) budget, (3) procurement, (4) cash management and treasury, (5) accounting and reporting, (6) human resources and payroll, (7) internal control, (8) information technology, and (9) audit and compliance. The procedure followed these steps:

1. Review of relevant policies and legislation.

2. Interview of key personnel to gain a full understanding of processes and practices.

3. Evaluation of specific process flow by testing particular transactional data. The selection of items tested was based on the perceived risk. Source data were reviewed to verify compliance with policy and current practice

4. Assessment of identified risks. Risks could be the result of a weakness in the policies or procedures or exceptions observed in the review of operations that reflect a deviation in practice from the established policy.

5. Recommendation of risk response measures that can be taken to address identified risks. The details of how mitigation measure(s) must be conducted are not provided in this document but will be developed in collaboration with the MHS as part of their risk response plan.

The assessment, following the testing procedure above, was conducted by the USAID team from March 2017 to June 2017. From April 2017 to May 2017, the team conducted interviews and transactional testing at various offices in Dakar, including the MHS main office which houses the Department of General Administration and Equipment (DAGE) as well as the MHS’ departmental off-site offices, specifically the Office of Rural Boreholes (OFOR), National Office of Sanitation (ONAS), and the Coordinating Unit of the Millennium Water and Sanitation Program (CC-PEPAM). The team also interviewed staff at the Ministry of Economy, Finance, Public Financial Management Risk Assessment Framework (PFMRAF) Manual A Mandatory Reference for ADS Chapter 220 New Edition July 28, 2014.

and Planning (MEFP) for supplemental information on GOS information technology systems.

Risks were assessed and results will be discussed with MHS staff in July 2017.

Risk Rating and Analysis

The team evaluated individual risks and assigned risk ratings based on the impact and the probability of the risk. The team used the descriptive charts in the PFMRAF manual (2014) to guide the rating process. Impact ratings ranged from negligible to catastrophic, and probability ratings range from remote to frequent. The risk matrix was then used to assign a rating value of critical, high, medium, or low. The rating drives the appropriate level of mitigation. We also noted the applicable risk categories and specified when a particular risk must be accounted for in the design process.

Risk Mitigation

The evaluation team of USAID/Senegal proposed potential mitigation measures based on identified risks, their impact, and their ratings. Risks, ratings, and proposed mitigation measures will be discussed with the MHS. While this report may outline potential mitigation measures, the MHS and USAID will agree on the best method(s) to address risks. These will then be incorporated by the MHS in its risk mitigation action plan.

IV. OTHER DONOR AND PARTNER RISK ASSESSMENTS PERFORMED

Relevant donor and partner assessments, some performed immediately prior to the initiation of this assessment, are briefly summarized in Appendix D. The assessment team chose not to rely on these assessments exclusively for numerous reasons. In several cases, the reports were still in draft form and in the process of validation. More importantly, the assessments were not as comprehensive in scope and were lacking in key specificity needed to adequately assess the MHS’ financial management systems. While we did not rely on these assessments exclusively, when available, the assessment team reviewed results and used these to supplement and inform the overall assessment. When applicable, such assessments are referenced in the questionnaire (Attachment 2).

V. SUMMARY OF IDENTIFIED RISKS

A Stage 2 – Risk Assessment was conducted based on the nine functional areas as indicated in the SOW (Attachment 1) and the Stage 2 questionnaire (Attachment 2). The 27 identified risks are summarized in the risk rating worksheet (Appendix A) and mapped in Figure 1 of this report.

The identified risks, rated from low to critical and shown by functional areas, are summarized in Table 1 below.

One risk was rated critical: the lack of an MHS procedures manual that codifies all ministerial financial and administrative processes could result in non-standard practices and non-compliance resulting from undefined or poorly understood roles and responsibilities. This represents a fiduciary risk. Due to the potential impact and probability of the risk, the recommended mitigation must be undertaken to sufficiently limit exposure.

Twelve high risks were identified across the various functional areas. Individually or in combination, these also represent fiduciary risks and various treatments were identified to address these issues. It should be noted that some risks were determined to be development or operational risks. These are noted accordingly in Appendix A, and when applicable, recommendations include considerations to be taken into account during the project’s co-design phase. Twelve and two risks were rated as medium and low, respectively. Mitigation measures are discussed in Section VII and Appendix A.

Table 1. Number of risks identified in each functional area, rated as low, medium, high, or critical.

Functional Area Number of Risks per

Area

Risk Rating number of risks

Low Medium High Critical

1. Entity Features 2 1 0 1 0

2. Budget 4 1 3 0 0

3. Procurement 3 0 2 1 0

4. Cash Management and Treasury

2 0 2 0 0

5. Accounting and Reporting 7 0 0 6 1

6. Human Resources and Payroll 2 0 2 0 0

7. Internal Control 2 0 0 2 0

8. Information Technology 4 0 3 1 0

9. Audit and Compliance 1 0 0 1 0

Total 27 2 12 12 1

VI. MAPPING OF IDENTIFIED RISKS AND PROPOSED FUNDS FLOW

Risk Matrix

The identified risks are shown in Figure 1 below. More information can be found in the Risk Rating Worksheet (Appendix A) and the discussion in Section VII.

I M P A C T

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

Figure 1. Matrix of identified risks, denoted as the overall risk number corresponding to the risk rating worksheet in Appendix A.

1 3

5 4

9 17

10 15

8 7

Flow of Funds

The proposed funds flows are shown in Figures 2 and 3 below. Figure 2 illustrates the program execution process for goods and services procured using internal funds. The treasury has a single account at the central bank which acts as the government’s bank. The single treasury account works as follows: (i) all public resources including collected fiscal and non-fiscal revenue, treasury correspondents’ resources including local communities and public institutions, and resources mobilized within the framework of budget support are subject to a daily centralization (leveling) in favor of the principal account of the general treasurer; (ii) the other deposit accounts opened by technical and financial partners (TFP) at the central bank can only be centralized in the main treasury account after authorization by the TFPs; (iii) transfers to agencies and public institutions are directly executed by the general treasurer from his principal account; (iv) for payment implementation, the general treasurer supplies accounts in favor of debtors.

Figure 3 outlines the program execution process for external funds. For external resources, the funds flow will be as follows. USAID/Senegal will provide funds to the MHS through a new account opened in a commercial bank to facilitate payment for eligible expenses. The account will be managed in accordance with the disbursement procedures to be described in MHS procedure manual, and in the USAID/GOS Implementation Letter which will be signed with the MEFP. The account would be managed by the Directorate of Economic and Financial Cooperation (DCEF), formerly called the Investment Directorate (DI), in coordination with the Department of General Administration and Equipment (DAGE) who will work in close collaboration with CC-PEPAM8. The DAGE will manage the sub-account. The DCEF is housed at the MEFP and is in charge of payment authorization of donor projects in Senegal. In addition, the DCEF is responsible for coordinating with the MHS DAGE.

This entity has previous and ongoing experience managing donor funds.

Figure 2. Diagram of funds flow for internal funds.

Commitment

Liquidation

Authorization

E X P E N D I T U R E

C H A N N E L

Suppliers and service providers

Preparation of procurement files and selection of suppliers

Issuance of commitment letters

DAGE MHS Authorizing Officer

Processing of payments Account for Payments

DAGE , Controller

DAGE Credit Administrator

TFP Funds Budgetary resources

(fiscal and non-fiscal)

C A S H

F L O W

Receipt of goods and services

Verification of service completion

Payment order and issuance of the mandate

MEFP General Pay Officer

Transfers Transfers to local MHS entities

Principal Account of the General Treasurer

BCEAO

Resources of Treasury correspondents including local communities

Deposit accounts at BCEAO

Figure 3. Diagram of funds flow for external funds.

Donor Funds (including USAID)

Key Funds flow

Submission of supporting evidence and/or financial reports

Commercial Bank Account

(Managed by the DCEF in collaboration with DAGE)

Suppliers / Consultants Beneficiaries’ account

MHS

Sub-Account (Managed by the

DAGE)

VII. IDENTIFIED RISKS AND RECOMMENDATIONS

The identified risks and recommendations included in this section are summarized from: (1) the questionnaire found in Attachment 2, which should be consulted for more in-depth information and additional references, (2) the summary of transactional testing in Appendix B, and the risk rating worksheet in Appendix A. All identified risks identified in this report are cross-referenced to the questionnaire, and vice-versa.

1. Entity Features

MHS entity features were evaluated by examining the organization, operations, and functions of the ministry, including its legal status, organizational structure, reporting relationships, internal and external factors affecting operations, key functions, and processes related to the programs.

The assessment team also reviewed relevant documents including decrees and orders.

Discussion

The Ministry of Hydraulics and Sanitation (MHS) derives its powers from Decree No. 2014-877 issued on July 22, 2014. Its primary mission is to sustainably promote integrated water resource management, universal access to drinking water, and adequate sanitation. Its responsibilities include: defining the state policy in the areas of hydraulics and sanitation; planning for the development of water and sanitation networks; protecting and allocating water resources;

determining the pricing structure; and ensuring institutional communication.

The general organizational structure of the MHS is defined in Decree No. 2014-853 issued on July 9, 2014. The MHS is composed of the Office of the Minister, a General Secretariat, National Directorates, other administration, and public establishments and national companies.

Structures and related services that fall under these categories are specified in the questionnaire (Attachment 2), and can also be viewed on the MHS’ website9. Briefly highlighted below are some of the structures or services that would be relevant to the G2G agreement.

There are four national directorates: Directorate of Hydraulics, Directorate of Sanitation, Directorate of Water Resource Management and Planning (DGPRE), and the Directorate of General Administration and Equipment (DAGE). The procurement unit (CPM), the Coordinating Unit-Millennium Water and Sanitation Program (CC-PEPAM), and Unit for Planning and Studies all fall under the General Secretariat. It should be noted that the latter two units’ functions were being combined during the course of this assessment, with the new unit renamed the Unit for Planning, Coordination and Program Monitoring (CPCSP)10. Internal inspection falls under the Office of the Minister. The Office of Rural Boreholes (OFOR) and the National Office of Sanitation of Senegal (ONAS) are parastatal public entities. The former manages water production and contracts out the operations and maintenance to private sector operators, and the latter is involved in soliciting contracts for public works in sanitation.

The organizational chart is available on the MHS website at http://www.mha.gouv.sn/Organisation-du-ministere.html.

The CC-PEPAM acronym is used for purposes of this report.

http://www.mha.gouv.sn/Organisation-du-ministere.html

Public policy is defined in accordance with the Sectoral Policy Letter for Development (LPSD) validated in January 2017. Program coherence is entrusted to the Unit for Planning, Coordination and Program Monitoring (CPCSP). Implementation of sectoral policy is carried out in accordance with the technical provisions related to the Multi-annual Expenditure Planning Document (DPPD), which is the operational framework for programming, budgeting, and monitoring the sector's various activities on a rolling triennial approach.

Structures exist for all key functions -- steering, coordination, planning, water resources management / mobilization, construction works, operation and maintenance, communication, training, administration and finance, monitoring and evaluation, information system, cooperation and partnership. However, this fragmentation of functions according to structure potentially limits efficiency and effectiveness. The lack of grouping of services within a restricted perimeter increases the compartmentalization of the directorates, limits the speed at which files are processed, and hampers the fluidity of communication amongst the structures. The Financial Operations Controller (COF) and the Delegated Authorizing Officer (DCO) are located outside the MHS headquarters, which may result in bottlenecks in implementation of public expenditures. Physical records must be transmitted to the COF and DCOs. The technical and financial partners (PTF) tend to entrust their resources to CC-PEPAM, an entity of the Ministry with staff mainly composed of contractors and with an office separate from MHS headquarters.

The risks identified for this functional area are both development risks.11

Identified risks and recommendations

Risk #1: Insufficient coordinating mechanism among the various entities of the Ministry.

[Attachment 2. Questionnaire Section 1: 1.2]

Potential effect of risk Could lead to delays in decision-making process, negative impacts on information and communication management; dualities of ministerial directorate and corresponding parastatal entity does not always lend itself to efficient public policy implementation.

Risk rating The impact is considered marginal and the probability probable, resulting in a high risk rating.

Recommendation(s)

● Establish clear coordination and information management procedures within MHS.

● Ensure top management leading role in project design and implementation.

● Have a communication plan incorporating coordination as a central element.

● Clarify functions of DAGE/CC-PEPAM DH / OFOR and DA / ONAS.

The risk categories are development, fiduciary and accountability, operational, and reputational as described in the PFMRAF Manual (USAID, 2014).

● Procedure manual should define and specify functional relationships between the DAGE and

CC-PEPAM.

Risk #2: Weakness in monitoring and regulatory mechanisms of the sector. [Attachment 2.

Questionnaire Section 1: 1.2]

Potential effect of risk Could lead to non-compliance with contract terms, lack of transparency in decision-making process; inconsistent implementation of sector policy.

Risk rating The impact is considered negligible and the probability occasional, resulting in a low risk rating.

Recommendation(s)

● Have a mechanism for regulating and monitoring commitments for performance contracts.

● Establish a supervisory committee of the entities with clear mechanisms of action.

2. Budget

The assessment team reviewed relevant portions of the budget act, regulations on public finance, and the budget process and standards. Key staff members were interviewed to better understand the budget process. Selected tests were conducted to understand the basis of compliance with regulations and policies.

Discussion

The budgetary process starts with the budget circular sent by the MEFP to sector ministries.12 The circular contains a set of rules regarding the budget process, and includes information on, among other things, government priorities such as those embodied in the Emergent Senegal Plan (PSE). Envelopes over three years are forwarded by the MEFP with a breakdown of the amounts allocated to investment and operations. Based on the indicative budget ceilings, the MHS launches a participatory process to prepare the annual work plan for budget preparation for year

n. Budget conferences are organized with sector ministries to review issues, though additional resources are generally not made available at these conferences. Because the scoping and circular letter notifying indicative envelopes is generally transmitted between June and July of year n-1, the time for budget preparation is reduced. The budgetary timetable lags behind the information to be provided by the MEFP to sector ministries.

The budget execution status is tracked through the Integrated Public Financial Management System (SIGFIP). The DAGE submits weekly budget status extracts to the Minister, and can trace the information on the expenditure file until it is taken over by the accountant. There are no periodic reports that analyze statistics or reject files by the delegated COF or delegated authorizing officer. Changes to the approved budget can be made according to procedures in

Circular No. 009107 of August 4, 2016 preparing the Finance Law of 2017.

accordance with the organic law relating to finance laws and noted in the circular on the establishment of appropriations.

Information on donor-funded investment projects included in the budget is provided by the Directorate of Economic and Financial Cooperation (DCEF) from the Triennial Public Investment Program (PTIP). The MHS informs the MEFP about projects that are ongoing or in negotiation with donors. While the DAGE is the entity charged with GOS budget programming, it does not currently have a comprehensive view of donor funding. CC- PEPAM, which is now attached to the General Secretariat of the MHS, is traditionally the structure in charge of donor support, including planning of activities through annual work plans. The integration of donor support into the general budget is not exhaustive and requires improvements. Estimates of external financing are provided by MEFP services based on signed agreements or projects for which funding is sought. The budgeted aid approach of the Luxembourg Development Cooperation Agency (LuxDEV) is a modality that could potentially ensure that donor support is better taken into account in the budget as the support is included in the budget preparation module of SIGFIP. This is not currently the modality USAID employs for its G2G agreements.

There is, in addition, a need by USAID staff to increase their awareness of the GOS budget calendar. With respect to USAID's G2G approach, it remains crucial that the negotiation phase is sufficiently advanced --at the latest by the end of June -- in order to inform the MEFP of the amount needed for the host government contribution and the type of expenses that it would support.

Identified risks and recommendations

Risk #3: The budget function is insufficiently coordinated among several entities of the Ministry.

It is broken down between the DAGE, the Directorates, and CC-PEPAM. [Attachment 2.

Questionnaire Section 2: 1.1, 2.1]

Potential effect of risk Fragmentation of budgetary function leads to inconsistent implementation of policies.

Risk rating The impact is considered marginal and the probability occasional, resulting in a medium risk rating.

Recommendation(s)

● Roles and responsibilities within the budget management function should be clarified in a

Procedures Manual that applies across the various MHS entities.

● Have a central entity that consolidates the various budget processes.

Risk #4: Limited experience of the DAGE in managing donor-funded projects. [Attachment 2.

Questionnaire Section 2: 1.1]

Potential effect of risk

Not having a comprehensive view of donor funding could lead to among other things, duplication of activities, or incomplete consideration of external resources for the sector.

Risk rating The impact is considered marginal and the probability occasional, resulting in a medium risk rating.

Recommendation(s)

● Involve the DAGE in negotiation and design of donor funding to the MHS.

● As the CC-PEPAM is now integrated into the MHS, a greater collaboration between the

DAGE and CC-PEPAM is encouraged to promote devolution of project implementation capacity to the DAGE.

Risk #5: Possibility to exceed the budget ceilings in the accounting systems (specific to the financial management tool, TomPro). [Attachment 2. Questionnaire Section 2: 1.1]

Potential effect of risk Increases the potential for misallocation, may lead to weakening of controls during the execution of donor programs.

Risk rating The impact is considered marginal and the probability occasional, resulting in a medium risk rating.

Recommendation(s)

● Development of a general manual of procedures that describes each step and the controls required will be needed.

● Using TOMPRO “budget monitoring” and “cost accounting” modules could assist in monitoring the budgetary process for expenditures that are not traceable on SIGFIP. Controls can be put in place so that verification cannot be forced, i.e. no option to override.

Risk #6: Insufficient awareness by USAID staff of GOS budget calendar and its constraints.

[Attachment 2. Questionnaire Section 2: 2.1]

Potential effect of risk Could lead to GOS not being able to set up resources related to host country contribution on time, potentially jeopardizing achievement of results.

Risk rating The impact is considered negligible and the probability occasional, resulting in a low risk rating.

Recommendation(s)

● Ensure that the design team identifies the activities to be taken into account in the GOS budget before the budget conference between line ministries and the MEFP. In response to the need for timely availability of counterpart contribution, the MHS has included in its latest budget a government-to-government line item that can be used to pre-finance activities if necessary.

3. Procurement

The procurement units at the MHS, ONAS and OFOR were interviewed. The CC-PEPAM procurement specialist, who is imbedded with the CPM at MHS headquarters, was part of the interview. The assessment team reviewed the procurement code, the procurement portal, and contracting practices and standards being used. Select items were tested to determine compliance with the regulations and policies.

Discussion

Public procurement in Senegal is framed by the Code of Obligations of the Administration (COA), the procurement code, and associated implementing orders. The functional framework is clearly delineated and the role of each office is well defined. The management of procurement and delegation of public services obeys the limitations and rules not only of budget programming but also the expenditure chain with respect to the public procurement code, supplemented by the various regulations in effect in Senegal. Procurement is supported by the existence of operational systems at the national level and at the level of the MHS. At the national level, the system is demonstrated through:

● a code of public procurement and its implementing mechanisms

● a priori control bodies (Central Department of Public Procurement or DCMP)

● a posteriori control bodies with regulatory authority (Public Procurement Regulatory

Agency or ARMP)

● a public procurement management software (Integrated Procurement Management

System or SIGMAP)

The assessment team evaluated procurement at the Ministry level with the MHS procurement unit (CPM) which is attached to the General Secretariat, and at the OFOR and ONAS structures, each of whom has their own CPM. The authorizing regulations are the same for all. The procurement unit is responsible for ensuring the quality of procurement records and the proper functioning of the procurement commission, which is responsible for opening the procurement process, evaluating tenders, and awarding contracts. Key functions are assigned, staffed, and with a clear system of responsibility defined by the code. There is, however, no internal document of procedures covering all financing, relying instead on the application of the procurement code. This is a deficiency noted further in the accounting section.

Procurement notices are published through the public procurement portal or through other media such as newspapers. While revisions to the plan would seem to suggest problems with the procurement planning process, changes were frequently due to unforeseen delayed insertion of several procurements into the plan as well as MEFP changes in the budgetary allocations that entailed revisions. This latter, in particular, is not something the MHS has control over. These frequent modifications do not pose a risk to our planned activities; however, we need to ensure that our activities are reflected in the procurement plan.

All procurement units have members who have gained extensive experience, or are in the process of gaining experience, in procurement and donor-funded projects. However, it should be noted that the control role of the procurement unit once the contract is awarded is not explicitly defined in the regulatory framework. As a result, the units play a limited role during the implementation phase.

While there is a record keeping and document management system in place, the archiving system in place is mainly manual and does not facilitate easy and fast retrieval of documents.

Identified risks and recommendations

Risk #7: The procurement unit has a limited role during the contract implementation phase.

[Attachment 2. Questionnaire Section 3: 4.2, 10.2-10.3]

Potential effect of risk Non-compliance with contract terms may not always be addressed according to regulations; e.g.

non-performing awardees are not systematically identified and reported to appropriate regulatory entity.

Risk rating The impact is considered marginal and the probability occasional, resulting in a medium risk rating.

Recommendation(s)

● Ensure that the procurement unit is updated on the progress of the contracts and is consulted on all contractual issues.

● The procurement unit should also have a follow up mechanism to ensure that important contract terms are highlighted to the contract manager and agree on a monitoring and follow-up plan.

Risk #8: Manual archiving system does not allow for efficient file management. [Attachment 2.

Questionnaire Section 3: 3.1-3.2]

Potential effect of risk Risks in securing sensitive award documentation, or timely location of needed files.

Risk rating The impact is considered marginal and the probability occasional, resulting in a medium risk rating.

Recommendation(s)

● Improve filing system in conformance with the ARMP template.

Risk #9: Insufficient monitoring of contract terms. [Attachment 2. Questionnaire Section 3: 4.2, 10.2]

Potential effect of risk Increased risk of non-compliance with contract terms. For e.g. payments made beyond contract end dates, delays in implementation do not result in financial sanctions despite contract stipulations.

Risk rating The impact is considered serious and the probability occasional, resulting in a high risk rating.

Recommendation(s)

● The contracting authority or the person responsible for managing the contract must ensure that the contractor complies with all the contractual clauses, and apply sanctions when necessary.

4. Cash Management

This functional area was assessed at both the DAGE and CC-PEPAM, entities that will both play a role in the proposed funds flow for the G2G agreement. Current practices were examined, and staff was interviewed to gain an understanding of cash management within the MHS. Funds flow for internal and external funds are shown in Figures 2 and 3 of Section VI of this report.

Discussion

The MHS public finance management is governed by several policies and procedures including the organic law relating to the finance laws of 2011 and amended in 2016, the act of 2016 enacting the finance law for 2017, and the decree establishing general regulations on public accounting. The DAGE is the administrator of departmental appropriations. The administrative accounting information can be followed and extracted from SIGFIP, the information system developed by the MEFP to capture commitments and payments, and to generate financial reports.

The DAGE administers funds of programs financed from the state budget of Senegal, and will be the entity managing the host government contribution. It has not previously managed donor funds and does not have a donor management system. As previously noted, donors have generally entrusted their resources to the management of CC-PEPAM. CC-PEPAM provided the assessment team with a manual of procedures specifying cash management procedures, although it is a provisional version specific to an urban and sanitation project (PEAMU). The manual, however, does describe operating procedures for the primary account at the DCEF and the sub-account; and the procedures were understood by their accountants. It does not seem that a cash plan based on projected expenditures related to planned activities and fundraising is available.

However, the assessment team verified that transfer/payment requests were made on time.

The procedures manual establishes the need for monthly bank reconciliations, and descriptions…