Paul Welton

1
Managing Fiduciary Risk in relation to Poverty
Reduction Budget Support

• Paul Welton
• Senior Policy Adviser
• Financial Accountability and anti-Corruption Team
• CIPFA conference 16 June 2005

1 Palace Street, London SW1E 5HE Abercrombie
House, Eaglesham Road, East Kilbride, Glasgow G75
8EA
2
Presentation Overview

• Background Audit Discharge Requirements
• What is fiduciary risk?
• How does DFID address Fiduciary Risk when
  providing PRBS?

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Introduction

• Background- audit discharge requirements
• DFID is accountable to Parliament for how UK
  taxpayers funds are
• used.This requirement is commonly known as audit
  discharge.
• Audit discharge has 2 components
• Accounting discharge- evidence that funds paid to
  intended recipient.
• Fiduciary discharge- relates to evidence of the
  effective use of funds.

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What is Fiduciary Risk ?

• Fiduciary risk is the measure of uncertainty that
  fiduciary
• requirements are actually met.
• Fiduciary risk is defined as the risk that funds
• are not properly accounted for
• are not used for the intended purposes
• do not represent value for money
• DFID has developed an approach to managing
  fiduciary
• risk, based on the performance of Fiduciary Risk
  
• Assessments (FRAs).

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How does DFID address FR?

• A thorough evaluation of PFMA systems
  associated risks
• DFID does not require minimum standards to be met
• 8 Good Practice Principles 15 Benchmarks
• Includes the risk of corruption
• An assessment of credible programme to improve
• A DFID How to Note provides 7 general features
• A judgement on potential developmental benefits
• Work ongoing in DFID results from 2005 Joint
  GBS Evaluation important
• Explicitly recording the fiduciary risk
  assessment
• Subject to DFID central scrutiny

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Fiduciary risk assessments (FRAs)

• All budget support proposals must have an FRA
  assessment. This includes both general budget
  support (provided to national or sub-national
  government) and earmarked budget support
  (provided to a sector or a specific programme).
• Where partner government PFMA systems are the
  primary channel through which financial aid will
  be spent a FRA is mandatory
• Exceptions include non-budget financial aid where
  rules for meeting audit discharge arrangements
  are different.

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8 Good practice principles

• Clear rules for the budget process
• A comprehensive budget
• Budget supporting pro-poor strategies
• Budget as a reliable guide to actual expenditure
• Expenditure within the year is controlled
• Government procurement in line with principles of
  VFM and transparency
• Timely and accurate reporting of expenditure
• Effective independent scrutiny of government
  expenditure

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.addressing the risk of corruption

• What is required?
• explicit judgement on how the risk of corruption
  impacts PFMA performance
• formal systems
• real (actual) operation of formal systems
• wider governance institutional context
• assessment of risk mitigation
• credible programme of improvement / reform
• mechanisms for monitoring performance progress
• short-term safeguards

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.. how to assess whether a programme of
improvement is credible

• A set of questions against 7 general features
  not intended as
• checklist or exhaustive
• Government led
• Realistic and achievable
• Integrated and sequenced
• Relevant and sustainable
• Focus on capacity building
• Build demand for change
• Include performance indicators

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5 Key Messages

• A mandatory FRA, is included in all PRBS
  submissions
• DFID promotes a harmonised approach
• DFID does not require partner countries to meet a
  minimum standard of PFMA performance for PRBS
• FRAs subject to central support scrutiny
  process
• High risk does not necessarily preclude the
  provision of PRBS what is critical is that risk
  is thoroughly evaluated clearly presented