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Financial Management and Analysis of Projects : 5. Reporting and Auditing
5.5. Reviewing Financial Reports
5.5.1. Introduction
5.5.1.1. Project Administrative Instruction
(PAI 5.09) sets out ADB's requirements for the delivery of
audited annual financial statements of projects and EAs, including
the monitoring requirements by ADB staff. PAI 5.09 also contains
the remedial actions that ADB will undertake in the event of noncompliance
with loan covenants relating to financial reporting and auditing.
5.5.2. The Review Process: Late or Unacceptable Financial Reports
5.5.2.1. The Project Officer responsible
for a particular project's implementation should ensure that
all requirements on progress reporting are prepared in a timely
manner acceptable to ADB. The Project Officer is responsible for
maintaining records on the schedule of the date of submission of
progress reports (and annual financial reports, auditor's
reports and completion reports), the actual date of receipt by ADB,
and date of completion of review.
5.5.2.2. The Project Administration
Unit may have installed a computerized monitoring system for recording
the receipt of covenanted audited and unaudited project accounts
and financial statements. The Financial Analyst or Financial Management
Specialist should in all cases review the interim or annual financial
reports of the project, with or without auditors' reports
and opinions.
5.5.2.3. The report should cover separately
the submission of (i) unaudited and audited project accounts and,
where applicable, (ii) the unaudited and audited financial statements
of EAs. Where loan documents require submission of unaudited and
audited financial statements beyond the closing date of the loan,
the monitoring of submission of financial statements and compliance
with financial performance covenants should continue. For additional
guidance on compliance categories, refer to PAI 5.09
5.5.2.4.
On the basis of this review, notice should
be sent to the borrower and EA acknowledging receipt of the financial
statements (and, where applicable, the Audit Report) and to point
out any violation of the loan's financial and audit covenants.
Remedial action to be taken within a reasonable time will be required
from the borrower and EA.
5.5.2.5. The Operations Coordination
Division, the Manager COPP, and the Assistant Controller, CTDO are
informed of the review results only if: (i) the audited annual financial
statements are unacceptable, (ii) the auditor's report contains
significant findings that would affect loan proceeds and implementation
of the overall project (or other accountability issues), or (iii)
the auditor's report contains any findings on the imprest
accounts and statements of expenditures.
5.5.2.6. A financial analyst should
report downward compliance trends with financial or audit covenants
to the Project Officer, which may ultimately result in noncompliance,
when a time-bound remedial action plan would be needed.
5.5.2.7. Receipt of a response to a request
for a time-bound plan of action should be closely monitored and
if the response is not received within the specified time, the lack
of a response must be noted as an issue to be addressed under the
loan.
5.5.2.8. A decision by a financial
analyst (or a Project Officer) not to recommend a time-bound remedial
action plan should be made in writing, reviewed, and if appropriate,
endorsed by the concerned regional department.
5.5.3. Compliance With Financial Performance Covenants
5.5.3.1. The majority, if not all,
financial performance covenants for a project include the clause
"except as ADB shall otherwise agree." The exercise of
the prerogative to "otherwise agree" rests exclusively
with management.
5.5.3.2. In cases where noncompliance
exists with a financial performance covenant, the regional department
should analyze the adequacy of the proposed actions to be taken
by the borrower and EA while assessing the probability of their
being successfully implemented within the period specified.
5.5.3.3. The Project Officer should
write a memo through the Operations Coordination Division outlining
the review and conclusions. Recommendations on whether management
should agree to a deviation from the covenant (including minor technical
deviations), or such other actions as the regional department may
propose, are put forward. The regional department should communicate
its decision to the borrower and EA.
5.5.3.4. The memo should also specify
whether the current auditor is acceptable to ADB or whether ADB
should ask for a replacement.
5.5.4. Communication with Government Auditors
5.5.4.1. Communications requesting
submission of audited financial statements should be addressed to
the EA and/or the borrower. However, in some cases, compliance with
the submission of audited accounts is delayed by difficulties encountered
in the government audit office. When delays are attributable thereto,
it is likely that similar problems are being experienced by other
divisions/departments.
5.5.4.2. PAI 5.09 - Submission
of APAs and FSs - sets out the procedures for ensuring
that APAs and CFSs are submitted by the agreed due date. PAI 5.09
also stipulates the actions to be taken when APAs and CFSs are not
provided as agreed. While PAI 5.09 requires that regional divisions
are responsible for communicating with EAs, with regard to government
auditors, in the interests of avoiding the duplication of efforts
and the possibility of inconsistencies in ADB's position,
it is desirable to coordinate all communication with government
auditors through the Operations Coordination Division. Assistance
from the Disbursement Operations Division in following up submission
of audited accounts may be sought by the concerned Project Officer/Regional
Division.
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5.4.10. Government Auditors | Next
5.6. Reviewing Auditors' Reports |
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