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Financial Management and Analysis of Projects :
7. Knowledge Management
7.8. Appraisal Checklist: Revenue-Earning Project
7.8.1.1. Preparation at Headquarters
7.8.1.1.1.
Meet with Division Manager and Project Officer to receive briefing
on ADB's approach to defining a revenue-earning project with respect
to the country, the sector, the project, and objectives of the appraisal
mission.
7.8.1.1.2. Study and note all positive
and negative attributes ascribed to country, sector and similar
projects in: (i) the Country Strategy Paper; (ii) relevant reports
on the country profile, institutions to be involved in design, authorization,
implementation, and operation of the project, particularly where
available, the proposed EA, including the Country DSAA (see section
4.2.5), where available; (iii) reports on project identification
and preparation. Obtain forecasts of inflation for the country concerned
from the Operations Coordination Division; (iv) reports on country
and sector project performance; (v) reports issued within the past
5 years on similar projects in the sector in the country.
7.8.1.2. Initial Steps
7.8.1.2.1.
Participate in or, where necessary, arrange meetings with key managers
and any counterparts representing managers in the EA to confirm
appraisal arrangements/ requirements. Make a judgment on the likely
efficiency of the managers and the counterpart(s).
7.8.1.2.2. Participate in, or where
necessary, arrange initial meetings with counterparts in all organizations
in the government likely to be concerned with project development,
to confirm appraisal arrangements/ requirements.
7.8.1.2.3. Ensure all managers and
staff to be involved in project planning and implementation have
copies of ADB's Handbook for Borrowers on the Financial Management
and Financial Analysis of Investment Projects, ADB's Loan
Disbursement Handbook, and ADB's Procurement Handbook.
7.8.1.2.4. Advise on the availability
of the web-based Financial Management Guidelines.
7.8.1.3. The Institutional Environment
7.8.1.3.1.
Confirm evidence provided through readings in paragraph 7.8.1.1.2.
7.8.1.3.2. Determine current organizational
structure and responsibilities with respect to the project of central
government, statement government(s), and sector agencies that will
be involved in project design, development, implementation and operation,
for example, Ministries of Finance and Economy, Industrial Production,
Planning and Development, Agriculture, Export Guarantee Agency,
etc.
7.8.1.3.3. Determine the likely acceptability
to ADB of current and/or proposed organizational and management
structure of the EA and/or consultants involved in preparing the
project's planning, programming, design, development, implementation,
and operation.
7.8.1.3.4. Understand the country's
financial sector, the role of the central bank and the banking system,
and their probable application to/impact on the project.
7.8.1.3.5. Explore current status
of positive and negative attributes in paragraph 7.8.1.1.2
above.
7.8.1.3.6. Determine the capability,
capacity, and current performance of the country's accounting and
auditing profession as it impacts, or will impact, on the EA and
on the project (review the Country DSAA, see section
4.2.5, where available).
7.8.1.3.7. Determine the capability,
capacity, and current performance of the government auditing profession,
particularly the Auditor-General's Office, as it impacts, or will
impact, on the EA and on the project.
7.8.1.3.8. Determine the actual, or
forecast anticipated, quality of accounting and bookkeeping capability,
and training in the EA to service the project and EA.
7.8.1.3.9. Determine the capability
of the financial managers designated to be responsible for the project,
against the background of 7.8.1.3.6
- 7.8.1.3.8.
7.8.1.3.10. Make recommendations for
modifications to organizational structures, financial management,
accounting/bookkeeping/inventory management staffs and training
necessary to support the project-share with Project Officer-and
where necessary, prepare an institutional appraisal of the EA to
support upgrading of institutional performance.
7.8.1.4. Financial Management Systems
7.8.1.4.1.
Taking into account 7.8.1.3.7
- 7.8.1.3.10 above, where there
exists an ongoing financial management system, accounting and bookkeeping
systems, computer/data processing systems, and an internal control
environment and internal control systems to support the project,
form a judgment on the acceptability, or otherwise, of these systems
and documentation. Examine the following systems and documentation
to the extent that they are likely to be necessary to support the
project:
Planning
and budgeting records
Payroll including HR records
Accounts payable
Accounts receivable
Taxes and duties
Inventories
Cost of manufactured goods
Project accounting records
Management and overhead
Ledgers and journal systems |
Bank
accounts and reconciliations
Records of stock issues and repurchase
Investors/Shareholders records
Equity records
Subsidies received
Grants/donations records
Loans received and repayments
Loans advanced
|
Cash
management
Dividends records
Asset and depreciation records
Internal controls and internal audit
Periodic and annual financial statements
External auditors' reports and opinions
|
7.8.1.4.2.In
cases where the EA is a public company owned wholly or in part,
by the government, the following two additional matters should be
reviewed: (i) Financial clauses of the Articles of Incorporation
(or Association) of the Company; and (ii) Minutes of company meetings
for the most recent three years (or such other period as may be
reasonable) in which financial policy, strategy, decisions, and
issues were recorded.
7.8.1.4.3. On the basis of examination
in 7.8.1.3.6, 7.8.1.3.8
and 7.8.1.4.1, determine the
nature and form of the accounting standards in use and their likely
acceptability to ADB. In the event that they would not be acceptable,
define ADB's requirements to counterparts of the EA and the borrower
(where applicable).
7.8.1.4.4. On the basis of examination
in paragraphs 7.8.1.3.6, 7.8.1.3.7
and 7.8.1.4.1, determine the
nature and form of the auditing standards in use and their likely
acceptability to ADB. In the event that they would not be acceptable,
define ADB's requirements to counterparts of the EA, the existing
auditing firm (if it is to be retained for the project) and the
borrower (where applicable).
7.8.1.4.5. In the absence of any,
or all, of the system elements set out in 7.8.1.4.1
above, define new or additional system requirements and documentation
necessary to support the project and advise a timetable to counterparts
for their introduction and full operation, including necessary staff
additions and training.
7.8.1.4.6 Review and, where necessary,
complete the FM Assessment Questionnaire (FMAQ). Discuss and agree
project steps and process with counterparts. Prepare a preliminary
Financial Management Internal Control and Risk Assessment (FMICRA).
Prepare a draft Financial Management Assessment Report or update
the existing Financial Management Assessment Report, if required.
7.8.1.5. Definition of Project Cost Requirements
7.8.1.5.1.
Review with counterparts and consultants
responsible for project design/preparation the project description
and specifications documents to understand the cost of each project
component (new assets) and their likely foreign and local costs
for each year of implementation, the total cost of each asset for
depreciation purposes (including financial charges during development),
and the forecast date(s) of their commissioning.
7.8.1.5.2.Review with the Project
Officer the likely adequacy and suitability of the existing tariff
and charges, or any new tariff and charges developed as part of
project design, for products/outputs/sales, etc. ensuring, where
necessary, that the tariffs and charges reflect cost savings proposed
as part of the project and take account of forecast inflationary
factors.
7.8.1.5.3. Where available, use COSTAB
software to compile all project costs and procurement documentation.
7.8.1.5.4. Review with counterparts
and consultants responsible for project design/preparation the project
cost table for comprehensiveness, adequacy of structure/descriptions
of base cost line items, and annual/periodic expenditures including
financial charges during development, where applicable. Ensure that
taxes and duties are clearly defined and capable of being easily
defined for exclusion from ADB financing.
7.8.1.5.5.Use a country/sector disbursement
profile to judge the likely accuracy of the forecasts of proposed
expenditures and ADB disbursements.
7.8.1.5.6. Examine the physical contingencies
and their legitimacy.
7.8.1.5.7.
Examine the price contingencies for
accuracy with respect to local and foreign costs, including application
of appropriate rates of local and foreign inflation.
7.8.1.5.8. Discuss with Project Officer
and, where appropriate, with counterparts, the Financing Plan and
disbursement profiles to determine the total financing requirements,
the amount and timing of receipt of each input of funds requirements,
the proposed amount of ADB's proposed total loan proceeds, of receipts
from cofinanciers, from internal funds, and from government counterpart
funds (where applicable).
7.8.1.6. Financial Projections for an Ongoing Production Operation
7.8.1.6.1.
Determine actual and forecast physical
output statistics and losses (industrial/agricultural products/electricity/water/telecommunications,
etc.) for at least 2 completed fiscal years prior to the start of
project implementation, for the period of project implementation,
and for at least 3 years of operation.
7.8.1.6.2. In consultation with the
Project Officer and counterparts, as appropriate, apply the tariff
and charges in section 7.8.1.5
to provide a revenue stream during implementation and thereafter.
7.8.1.6.3. In consultation with the
Project Officer and counterparts, as appropriate, determine a commissioning
schedule for the components of the project with related costs, and
prepare a depreciation schedule for the assets to be provided by
the project.
7.8.1.6.4. In consultation with the Project
Officer and counterparts, as appropriate, if it will be necessary
to revalue assets periodically through the implementation period
and thereafter to reflect the impact of severe inflation, prepare
a forecast depreciation schedule with and without the assets in
7.8.1.5.1.
7.8.1.6.5. In consultation with the
Project Officer and counterparts, as appropriate, prepare the EA's
operating costs with and without the project for at least 2 completed
fiscal years prior to the start of project implementation, for the
period of project implementation, and for at least 3 years of operation
and incorporate inflation as forecast in 7.8.1.5.7.
7.8.1.6.6. Prepare schedules of interest
payments due to lenders.
7.8.1.6.7. Prepare schedules of loan
repayments to lenders.
7.8.1.6.8. Using the results of 7.8.1.6.1-7.8.1.6.7,
compile an income statement for at least 2 completed fiscal years
prior to the start of project implementation, for the period of
project implementation, and for at least 3 years of operation.
7.8.1.6.9. For an ongoing operation-using
the projected annual investments from 7.8.1.5.1,
disbursements from 7.8.1.5.8, the schedules in 7.8.1.6.6-7.8.1.6.7,
and the results from the Income statements in 7.8.1.6.8-prepare
a cash flow statement for at least 2 completed fiscal years prior
to the start of project implementation, for the period of project
implementation, and for at least 3 years of operation.
7.8.1.6.10. For an ongoing operation-on
the basis of audited annual financial statements for 2 fiscal years
prior to implementation and the results of the Income Statement
in 7.8.1.6.8
and the Cash Flow Statements in 7.8.1.6.9,
prepare balance sheet for the period of implementation and 3 years
of operation.
7.8.1.7. Financial Projections for a New Production Operation
7.8.1.7.1.
Determine forecast physical output statistics and losses (industrial/
agricultural products/electricity/ water/telecommunications, etc.)
for the period of project implementation (if any), and for at least
5 years of operation.
7.8.1.7.2. In consultation with the
Project Officer and counterparts, as appropriate, apply the tariffs
and charges in 7.8.1.5.2 to
provide a revenue stream during implementation and thereafter.
7.8.1.7.3. In consultation with the
Project Officer and counterparts, as appropriate, determine a commissioning
schedule for the components of the project with related costs, and
prepare a depreciation schedule for the assets to be provided by
the project.
7.8.1.7.4. In consultation with the
Project Officer and counterparts, as appropriate, if it will be
necessary to revalue assets periodically through the implementation
period and, thereafter, to reflect the impact of severe inflation,
prepare a forecast depreciation schedule.
7.8.1.7.5. In consultation with the
Project Officer and counterparts, as appropriate, prepare the EA's
operating costs for the period of project implementation, and for
at least five years of operation and incorporate inflation as forecast
in 7.8.1.5.7.
7.8.1.7.6. Prepare schedules of interest
payments due to lenders.
7.8.1.7.7. Prepare schedules of loan
repayments to lenders.
7.8.1.7.8.Using the results of 7.8.1.7.1-7.8.1.7.7
above compile an Income statement for the period of project implementation,
and for at least five years of operation.
7.8.1.7.9. Using the projected annual
investments from 7.8.1.5.1, disbursements
from 7.8.1.5.8, the schedules in 7.8.1.7.6-7.8.1.7.7,
and the results from the income statement in 7.8.1.7.8-prepare a
cash flow statement for the period of project implementation, and
for at least five years of operation.
7.8.1.7.10.On the basis of the results of
the income statements in 7.8.1.7.8 and
the Cash Flow Statements in 7.8.1.7.9,
prepare balance sheets for the period of implementation and five
years of operation.
7.8.1.8. For All Projects
7.8.1.8.1.
Using the data from sections 7.8.1.6 and
7.8.1.7, compile appropriate financial
performance indicators including the FIRR for the project and, where
appropriate, the EA. Discuss proposed indicators with Project Officer
and counterparts, explaining logic of selection and methods of calculation.
7.8.1.8.2. With Project Officer, explain
in detail to counterparts the method of compilation and the forecast
results of all financial statements at all appropriate levels of
concerned institutions and managements with the objective of reaching
agreement on the Project Cost Table, the financing plan, the financial
projections and tariffs and charges proposed.
7.8.1.8.3. With the Project Officer,
meet with cofinanciers at mutually agreed locations (if possible
in the presence of counterparts) to explain the method of compilation
and the forecast results of all financial statements at all appropriate
levels of concerned institutions and managements with the objective
of reaching agreement on the Project Cost Table, the financing plan,
the financial projections and tariffs and charges proposed.
7.8.1.8.4. Draft the section of the
Aide Memoire relating to all financial aspects of the project and
discuss with Project Officer. Make any agreed amendments for presentation
of complete Aide Memoire to counterparts at appropriate levels.
7.8.1.8.5. Draft paragraphs for inclusion
in the financial section of the RRP, and prepare financial appendixes
to attach to the RRP. Review with the Project Officer.
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7.7. Appraisal Checklist: Nonrevenue-Earning Project | Next
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