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Financial Management and Analysis of Projects : 1. Introduction to the Guidelines
1.2. Rationale
1.2.1.
These Guidelines represent one of several initiatives that ADB is
taking to support improved operational financial management and
financial governance arrangements. The following key factors are
driving these initiatives:
-
ADBs fiduciary responsibilities are derived from the 1966 ADB
Charter, requiring ADB to be guided by sound banking principles.
Article 14 of the Charter sets out ADBs operating principles and
includes particularly:
In making or guaranteeing
a loan, the Bank shall pay due regard to the prospects that
the borrower and its guarantor, if any, will be in a position
to meet their obligations under the loan agreement. (Article
14 (vi))
The Bank shall take the
necessary measures to ensure that the proceeds of any loan
made, guaranteed or participated in by the Bank are used only
for the purposes of which the loan was granted and with due
attention to considerations of economy and efficiency. (Article
14 (ix))
In accordance with this, ADB
has adopted specific requirements for financial reporting
and management by its borrowing countries, including the borrowers'
executing agencies where applicable.
- The
international community, as a whole, is supporting the development
of guidelines, standards, and codes in relation to good financial
management and governance arrangements. These guidelines, standards,
and codes-to varying extents-all involve accounting and auditing
arrangements. They include Principles of Corporate Governance
(OECD), Code of Good Practices on Fiscal Transparency (IMF), Code
of Good Practices on Transparency of Monetary and Financial Policies
(IMF), Implementation of the Objectives and Principles for Securities
Regulation Assessment Surveys (IOSCO), International Accounting
Standards (IASB), International Standards on Auditing (IFAC),
and Draft Banking Supervision Guidelines (BCBS).
- OM
C4 (Governance) identifies four elements of good governance: (i)
accountability, (ii) participation, (iii) predictability, and
(iv) transparency. In particular, OM C4 states that ADB will focus
on: improving public financial management, and promoting transparency.
In relation to transparency, ADB will focus on the disclosure
of information … and … encourage loan project executing
and implementing agencies to produce, or improve the quality of,
annual reports and to disseminate these more widely to the public
at large.
- In accordance with Section 588
of the United States Foreign Assistance Act (FAA) 2001, the US
Secretary of the Treasury must certify to the US Congress that
ADB is fulfilling the requirements of the FAA. Ten percent of
the US congressional appropriation to ADB may be withheld in the
absence of such certification. The certification relates to ADB's
efforts regarding procurement reforms and financial management
reforms, including: (i) annual project audits by qualified independent
auditors, (ii) fraud and corruption investigations, (iii) assessments
of recipient countries' financial management capabilities, and
(iv) support to improve transparency and financial management
in recipient countries.
- The Harmonization Agenda has,
at its core, the objective of improving aid effectiveness by reducing
the transaction costs to the recipient country. Improved financial
management systems, at the country level, and agreement from development
partners to rely on these systems to the greatest extent possible
are critical to the harmonization efforts. The Development Assistance
Committee of the Organisation for Economic Co-operation and Development
(OECD-DAC) has developed a number of good practice notes, including
the Good Practice Paper on Financial Reporting and Auditing
(December 2002) and the MDB Technical Working Group on
Financial Management Harmonization have developed the Framework
for Collaboration Among Participating MDBs on Financial Reporting
and Auditing (February 2003).
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1.3. Objectives |
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