BANK GROUP'S GUIDELINES FOR FINANCIAL GOVERNANCE ...

The African Development Bank
Guidelines for Financial Management and Financial Analysis of Projects © African Development Bank Group, 2006 This operational policy document is a revised version of The African
Development Bank Group Guidelines for Financial Management and Financial
Analysis of Projects that were approved by the Boards of Directors of the
African Development Bank Group on 27 November 2000. It is intended
primarily to guide Bank staff and other personnel of the Bank Group in
their identification, preparation, implementation, monitoring and
evaluation of Bank Group programs and projects in the Regional Member
Countries. It was prepared by the Operations Policies and Review Department, C.K.
Muthuthi (Task Manager), O. Fajana (Manager of POPR.3 until July 2005) and
G. Negatu (Acting Manager of POPR.3 after July 2005), under the overall
guidance of P. Afrika (Director of the Department). As per Bank
procedures, it was first reviewed internally by a Bank-wide taskforce,
followed by an Inter-Departmental Working Group and subsequently by a
Senior Management Committee, whose observations were incorporated into the
guidelines submitted to the Board of Directors of the Bank Group. The information and data contained in this document (including principles,
analyses, strategic objectives, and modalities shared in common with other
development agencies in the spirit of harmonization and collaboration)
together constitute intellectual property of the African Development Bank
Group held in trust for its 77 Member States and made available to the
general public under the current terms of the Bank Group Policy on
Disclosure of Information. The African Development Bank Group, its
shareholders, Management and staff are not accountable for any application
or misapplication whatsoever of the information / data provided herein. Please acknowledge the African Development Bank (AfDB) Group when use is
made of information and/or data contained in this document. African Development Bank Board Document Code: ADB/BD/WP/2002/49/Rev.2
African Development Fund Board Document Code: ADF/BD/WP/2002/55/Rev.2 ISBN: To be Assigned
Library of Congress Cataloguing: To be Assigned
Foreword As the premier financial development institution in Africa, the African
Development Bank (the Bank) has, since its establishment in 1964, dedicated
to financing the highest quality projects and programmes that maximize its
development impact. To enable it to achieve this objective the Bank has
mainstreamed good governance into its operations, in a manner consistent
with its charter, mandate, and development priorities. To this regards, the
Bank Group issued in 1999 its Policy on Good Governance that reflects the
growing consensus that good governance is an essential element of sound and
sustainable development. As part of the implementation process for its good governance practices,
the Bank's Board approved in 2000, The African Development Bank Group
Guidelines for Financial Management and Financial Analysis of Projects. As
a requirement, borrowers are asked to confirm that sound financial
management will be a primary objective of investment operations by the
efficient employment of appropriate modern financial management systems and
techniques in the design, implementation and operation of investments to be
supported by Bank loans. The support by borrowers for efficient financial
management is to be further evidenced by the provision and regular use of
effective financial and performance measurement and reporting systems
acceptable to the Bank. In 2004, the Bank launched a Bank-wide program to promote project quality
from inception to completion. Within this context the Bank has undertaken a
major review of the 2000 Guidelines to ensure that they mainstream
operations excellence and reflect current developments in financial
management and analysis practices. In December 2004, a Bank-wide taskforce
was appointed, under the leadership of the Governance Division, of the
Operations Policies & Review Department (POPR) to guide the revision
process. The review process, lasting over nine months, was carried out in
consultation with all concerned divisions, units and departments. The
taskforce was supported by a consultant. The revision process was
significantly informed by the Showcase Project Initiative (SPI) that was
launched by the Bank under the stewardship of CHRM, and the coordination of
FFMA. These revised Guidelines are an outcome of the review process. They reflect
changes in Bank mandate on governance and its policies and procedures since
2000. They outline the Bank's policy, approach and philosophy to financial
management of Executing Agencies (EAs) and financial analysis of projects
and programmes financed through the Bank's public sector lending window. These Guidelines have been prepared for the benefit of Bank staff and
others including consultants who evaluate financial management practices of
EAs and conduct financial analysis of projects and programmes. They are
available on the web and in a CD-ROM. This hardcopy version omits a
significant portion of the information available in the Knowledge
Management Chapter of the CD-ROM version. The advice, directions and recommendations in the Guidelines should not be
regarded as a substitute for initiative. This recognizes that the Bank
deals with countries and sectors that are at different stages of
development and that have different resource and staff constraints. Because
of these constraints, the Guidelines should be applied in a realistic,
practical, and flexible manner. Importantly, Bank staff should at all times
exercise resourcefulness and imagination in reaching sound professional
judgments.
African Development Bank. Acronyms & Table of Contents ACRONYMS The following acronyms are used in these Guidelines: ACCA Association of Chartered
Certified Accountants
ACFD Anti-corruption and Fraud Investigation
Division
AfDB African Development Bank
ADF African Development Fund
AMINA ADF Microfinance Initiative for Africa
APRM African Peer Review Mechanism
AR Appraisal Report
AsDB Asian Development Bank
AUDT Internal Audit Department
BASAL II New Basel Capital Accord
BCBS Basle Committee for Banking
Supervision (BIS)
BIS Bank for International Settlements
BOO Build-Own-Operate
BOT Build-Own-Transfer
BWIs Bretton Woods Institutions
CAMELS Capital adequacy, Assets,
Management quality, Earnings,
Liquidity, and Sensitivity
CAR Capital Adequacy Ratio
CBOs Community Based Organizations
CFAA Country Financial Accountability
Assessment
CGP Country Governance Profile
CHRM Human Resources Department, AfDB
CGAP Consultative Group to Assist the
Poorest
COSTAB Standard Project Cost Table
CPAR Country Procurement Assessment
Review
CSOs Civil Society Organizations
DAC Development Assistance Committee
EA Executing Agency
ED Exposure Draft
EIRR Economic Internal Rate of Return
FCDD Financial Charges During
Development
FFMA Financial Management Department,
AfDB
FI Financial Intermediary
FIL Financial Intermediary Loan
FMQ Financial Management Questionnaire
FNPV Financial Net Present Value
FIRR Financial Internal Rate of Return
FOCC Financial Opportunity Cost of Capital
GAAP Generally Accepted Accounting
Principles
GDP Gross Domestic Product
GECL General Council and Legal Services,
AfDB
GNP Gross National Product
HLF High Level Forum
IA Implementing Agency
IAASB International Auditing and Assurance
Board (IFAC)
IAD Internal Audit Division
IAPC International Auditing Practices
Committee (IFAC)
IAPS International Auditing Practice
Statement (issued by IAPC)
IAS International Accounting Standard
(issued by IASB)
IASB International Accounting Standards
Board (formerly IASC)
IFAC International Federation of Accountants
IFI International Financial Institution
IFRS International Financial Reporting Standard
(issued by IASB)
IMF International Monetary Fund
INTOSAI International Organization of Supreme
Audit Institutions
IOSCO International Organization of Securities
Commissions
IPSAS International Public Sector Accounting
Standard (issued by IPSASB)
IPSASB International Public Sector Accounting
Standards Board
ISA International Standard on Auditing
(issued by IAPC)
MDB Multilateral Development Bank
MFI Microfinance Institution
MIGA Multilateral Investment Guarantee
Agency
MOF Ministry of Finance
NEPAD New Economic Program for Africa's
Development
NGO Non-government Organization
NPV Net Present Value
OAG Office of the Auditor General
OCCF Oversight Committee on Corruption and
Fraud
OCR Ordinary Capital Resources
OECD Organization for Economic
Cooperation and Development
OM