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Financial Management and Analysis of Projects :
7. Knowledge Management
Model TOR for PPTA Financial Consultants:
Nonrevenue-Earning Project
Terms of Reference for Consulting Services for Project Preparatory Technical
Assistance to
Design and Prepare for Implementation of a Nonrevenue-Earning Project:
Financial Management and Analysis
Guidance:
Advice on amending this model-to reflect country
and project-specific circumstances-should be sought
from a Financial Management Specialist. Previous efforts should
not be duplicated. For instance: (i) identify whether ADB or any
other agencies have previously conducted a Financial Management
Assessment of the EA: (ii) review similar projects that have been
prepared previously and identify generic materials, such as country-level
issues; (iii) review funds-flow arrangements for other similar projects
and identify mechanisms that have worked successfully and those
that have been suboptimal, and reflect these lessons in the design.
This model TOR is not meant to be used as a standard TOR for all
PPTAs. Rather, it may be used as a base which can be amended depending
upon the individual project at hand and terms may be added or removed
as considered necessary.
The
financial consultant will conduct a financial analysis of the proposed
Project and a financial management (FM) assessment of the Executing
Agency (EA), [name], and Implementing Agency (IA)[name]. This will
include providing assistance to prepare relevant sections of the
Report and Recommendation to the President (RRP) of ADB.
The
financial consultant's activities will be guided by, and outputs
prepared in accordance with, the Financial Management and Analysis
of Projects (the Guidelines), ADB's Operations Manual
(particularly OM G2, J7 and C4), ADB's Project Administration
Instructions (particularly PAI 5.09) and the ADB's Loan Disbursement
Handbook.3
The
financial consultant will work closely with counterparts in a manner
that assures that counterparts take responsibility for, and assume
ownership of, the project financial analysis. The financial consultant
will also liaise closely with the preparer(s) of the project economic
analysis to ensure that the financial analysis is fully consistent,
where relevant, with the economic analysis (including the poverty
impact assessment4).
Undertake
Preparatory Activities
(i)
Identify country and project-specific information and previous and
ongoing activities [7.7.1.1-7.7.1.2 Checklist].
Determine whether any other agency has appraised the EA and/or IA
[4.1.6 World Bank certification] or
has previously supported (or intends to support) institutional strengthening.
If so, determine the objectives, scope, and results of these activities.
(ii)
Review and, where necessary, complete the Financial Management Assessment
Questionnaire [FMAQ]. Discuss and agree
project steps and process with counterparts. Prepare a preliminary
Financial Management Internal Control and Risk Assessment (FMICRA)
[FMICRA]. Provide the FMAQ and the
FMICRA to ADB for review and comments.
Prepare
Project Financial Analysis
(iii)
Assist counterparts to prepare a preliminary Project Cost Estimates
Table for the proposed investment (and any defined subprojects)
taking into account all relevant financial costs and benefits [3.4.3-3.4.4
Cost estimates and 7.8.1.5 Contingencies].
(iv)
Assist counterparts to prepare a preliminary Project Financing Plan,
including proposed ADB lending, any prospective cofinancing, and
appropriate counterpart funds for local currency expenditures [3.4.6
Financing plans and 7.7.1.5 Checklist].
(v)
Assist counterparts to identify project revenue and cost risks and:
(a) conduct relevant sensitivity analyses; and (b) identify practical
risk-mitigation strategies and approaches [3.5.4
Sensitivity analysis and 7.11 Sensitivity and risk analysis steps].
Prepare a draft appendix of the Project Financial Analysis for inclusion
in the RRP. [3.7.3 RRP and 7.7.1.6 Checklist].
Provide the draft RRP appendix and the preliminary tables and analyses
(Project Cost Estimates Table, Financing Plan, and sensitivity analyses)
to ADB for review and comments.
(vi) Update the RRP appendix and the tables and analyses to reflect
ADB comments and suggestions.
Review
Subsidy Policies and On-grant Mechanisms
Guidance:
This section of the TOR may not necessarily be assigned to the PPTA
financial consultant.
(xxv)
Assist counterparts to design or review subsidy policies and on-grant
mechanisms [4.3.3 Linkages with cost recovery
and tariffs].
Design
Fund-Flow Mechanism and Disbursement Arrangements
(vii)
Assist counterparts to design the project fund-flow mechanism. Where
applicable, review lending/onlending arrangements to ensure compliance
with ADB policy [OM D2: Lending and Relending
Policies]. The preliminary design should take account
of the financial management responsibilities of each involved entity
(EAs and IAs including entities in provinces/ districts) [ADB
Loan Disbursement Handbook]. As applicable, review or
suggest disbursement procedures, including Imprest Account and SOE
arrangements. Provide the proposed project fund-flow mechanism design
and disbursement arrangements to ADB for review and comments.
Assess
Agency Financial Management
(viii)
Assess the financial management capabilities-including
internal control mechanisms-of
the EA and IA, making use of the information provided through (i)-(ii),
among other things [OM G2, 4.2.1-4.2.8 Assessments,
7.7.1.3-7.7.1.4 Checklist and ADB Controller's Department Checklist
and Handbook for the Assessment of Borrower's/Executing Agency's
Internal Control and Accounting System]. Particular emphasis
should be placed on the capacity of EAs and IAs to manage and monitor
project disbursements, taking account of previous country disbursement
experience [see (ix)] [ADB Loan Disbursement Handbook].
Update the FMICRA. Prepare the draft FM Assessment Report. Provide
the updated FMICRA and the draft FM Assessment Report to ADB for
review and comments [FM assessment report].
(ix)
Update FM Assessment Report to reflect ADB comments and suggestions.
Where necessary, based on this assessment, make detailed recommendations
for institutional strengthening of financial management as part
of a time-bound action plan [4.2.6.3.9-4.2.6.3.18
EA appraisal, 7.7.1.3.9 and 7.7.1.4.4 Checklist]. Prepare
RRP appendix reflecting assessment findings and recommendations,
and provide to ADB [3.7.3 RRP].
Confirm
Fund-Flow Mechanism Design and Disbursement Arrangements
(x)
Confirm fund-flow mechanism design and disbursement arrangements.
Alternatively, where measures are recommended to strengthen EA and
IA financial management capabilities, but are unlikely to take effect
until after disbursements commence, propose alternative fund-flow
mechanisms and disbursement arrangements [ADB
Loan Disbursement Handbook].
Propose
Accounting and Auditing Arrangements
(xi)
Assess the acceptability of proposed accounting policies, including
financial reporting standards and general accounting practices,
of the EA and IA. Identify material differences, discuss these with
the entity's auditor (if possible), and, propose modifications where
necessary [4.2.8.4 Accounting policies, 4.2.5
Diagnostic studies of accounting and auditing, and 5.2.3 ADB accounting
policy requirements].
(xii)
Work with counterparts to propose reporting formats and timetables
[5.3 Financial reporting, 7.16-7.17 Model financial
statements, model project accounts].
(xiii)
Assess suitability of auditing standards and auditors and propose
auditor arrangements, including auditor terms of engagement [5.4
Auditing standards, 5.4.4-5.4.8 Auditor engagement, 7.18 Model auditor
TOR, 7.19 Audit report questionnaire].
(xiv)
Identify potential accounting, reporting, and auditing issues and
propose workable options. Update the FM Assessment Report, to reflect
proposed accounting and auditing arrangements, and provide to ADB
for review and comments, together with supporting materials (e.g.,
proposed accounting policy modifications, proposed reporting formats
and timetables, and proposed auditor terms of reference).
General
and Consultative Activities
(xv)
Together with ADB staff and other involved consultants, explain
the compilation of forecasts and analyses to counterparts, with
the objective of reaching agreement on: (a) the Project Cost Table,
(b) the Financing Plan, (c) financial projections, (d) financial
performance indicators, and where relevant (d) any proposed tariffs
and charges.
(xvi)
Together with ADB staff, counterparts, and other involved consultants,
explain the compilation of forecasts and analyses to cofinanciers,
with the objective of reaching agreement on: (a) the Project Cost
Table, (b) the Financing Plan, (c) financial projections, (d) financial
performance indicators, and where relevant (d) any proposed tariffs
and charges.
(xvii)
Where requested by ADB, provide project-related financial information
to assist the preparation of Aides Memoire, Memorandums of Understanding,
and other project-related documents.
(xviii)
Provide any other services that are reasonably requested by the
ADB Project Officer.
Reporting
(xix)
Provide the following documents and reports to ADB, with copies
to the EA and other concerned consultants and counterparts:
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3
Unless noted otherwise, the bracketed references are to the Guidelines.
4
ADB. 2001. Handbook for Integrating Poverty Impact Assessment
in the Economic Analysis of Projects. ADB: Manila.
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