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  1. 1. Financial Management & Systems (FMS) Assessment Tool [insert name of Principal Recipient] [insert proposal title] [insert country] [insert component] INTERNAL USE AND CONFIDENTIAL The information in these documents is confidential and is not subject to public disclosure pursuant to the Global Fund Documents Policy. This report is prepared for the Global Fund by: [insert name of LFA] [insert name of LFA lead assessor] [insert date] December, 2007
  2. 2. Introduction The Financial Management and Systems (FMS) of a Principal Recipient (PR) are vital for the successful implementation of Global Fund grants. To ensure that the FMS of a nominated PR fulfill the Global Fund’s minimum requirements, the Global Fund requires a satisfactory FMS assessment covering the following 7 areas prior to signing a Grant Agreement with that PR: A. Organization of the Financial Management function B. Budget system C. Treasury system D. Accounting system E. Purchasing system F. Assets management system G. Audit arrangements Purpose This tool allows for a focused assessment of the nominated PR’s financial management and systems to be used for the implementation of the Grant(s). The purpose of the assessment is to determine whether the PR: • can correctly record all transactions and balances, including those supported by the Global Fund; • can disburse funds to suppliers in a timely, transparent and accountable manner; • maintains an adequate internal control system • can support the preparation of regular reliable financial statements; • can safeguard the PR’s assets; and • is subject to acceptable auditing arrangements. Application This tool is a checklist that reviews the various elements of the financial management, control and accounting systems to be used under the Grant(s). The tool is to be used as a guide to complete Part V of the PR assessment report. Please note that all questions included in this checklist should be considered when completing Section V of the PR assessment report. Please ensure that any additional relevant issues that may arise during the assessment should also be addressed in the PR Assessment report. FMS Tool Contents A. Organization of the Financial Management function B. Budget system C. Accounting system D. Treasury system E. Purchasing system F. Asset management system G. Audit arrangements 2
  3. 3. A. Organization of the Financial Management function Yes, No, Accounting personnel N/A Is the accounting and finance organizational structure of the nominated PR clearly defined, with documented roles and responsibilities and sufficient segregation of duties, including A.1 for implementing the Global Fund grant? Please include a brief description of the accounting and finance organizational structure. Comments: Is the nominated PR’s staffing sufficient in both quality and quantity to rapidly absorb the A.2 Global Fund grant? Comments: Is there a person ultimately responsible for financial management, including for the Global A.3 Fund grant, and does that person have the appropriate skills and qualifications? Comments: Does the nominated PR have adequate policies and procedures in place to guide activities A.4 and ensure staff accountability? Comments: B. Budget system Budgets will form the basis for the grant amount and disbursement requests. Is there evidence to indicate that the nominated PR’s budgeting procedures are robust? This should B.1 include the review and updating of budgets. Comments: Has the nominated PR budgeting been reliable in the past? Consider for example budget vs. actual for other donor projects. B.2 Comments: Are salary and supplementation levels proposed for the nominated PR’s staff and typically incorporated in the budgets in line with salaries earned by staff employed on other donor B.3 funded projects in the same sector as the nominated PR? Comments: Are per diem rates applied properly authorized and not open to abuse? B.4 Comments: Are management reports (e.g. monthly management accounts and commentary) produced and if so are they appropriately used by the nominated PR for decision making? B.5 Comments: C. Accounting system Does the nominated PR have the capacity to absorb the increased volume of transactions C.1 generated by the Global Fund grant? Comments: Is there a Chart of Accounts that can include the Global Fund grant and does it provide the C.2 necessary level of detail to effectively monitor expenditure in a timely manner? Comments: 3
  4. 4. Is the Accounting system integrated with the other Financial Management systems? C.3 Comments: Indicate what basis of accounting – cash, accruals etc – is being used by the nominated PR and comment on whether it is appropriate for the Global Fund grant. C.4 Comments: Are systems (including appropriate chart of accounts) in place for the nominated PR to monitor actual expenditures against budget by period (indicate the frequency) and cumulatively? Are explanations sought for variances and corrective action taken where C.5 necessary? Comments: Are all accounting and supporting documents retained for a sufficient and specified time (e.g. 3 years) in a defined and safe (theft, fire , flooding etc) system that allows access only C.6 to authorized users? Comments: Is the financial management system computerized and if so what software is in use and is it appropriate for the task? If not computerized (1) are there plans to do so, and (2) are the existing manual systems capable of handling the anticipated volume of transactions under C.7 the Global Fund grant? Comments: When computerized accounting systems exist, is there a process for carrying out regular back-ups and will they be kept off the premises? C.8 Comments: Can the Accounting system support the production of financial reports, including statements of Cash Flow, Income & Expenditure and Balance Sheet in a timely and relevant C.9 way? Comments: Are there statutory reporting requirements and has the nominated PR complied with such requirements including audits? If not, what penalties, if any, has it faced? C.10 Comments: Is the nominated PR well rated among its current donors/lenders with regards to timeliness and relevancy of its reports? C.11 Comments: Are financial reports (e.g. monthly management accounts and commentary) produced and if so, are they appropriately used by the nominated PR for decision making? C.12 Comments: D. Treasury system Yes, No, General procedures for cash forecast, receipts, payments and banking transactions N/A In relative terms, will the Global Fund grant disbursements represent a substantial increase in payment activity for the nominated PR? D.1 Comments: 4
  5. 5. Can the treasury system support the production of cash forecast information for disbursement requests? D.2 Comments: Is the primary Bank, where the bank account to include the Global Fund grant is located, able to provide for fast and accurate disbursements? Similarly, where provincial bank accounts D.3 are used, can these fulfill the required functions? Comments: Is the primary Bank for the grant a trustworthy, stable and reputable institution, able to safeguard the funds? D.4 Comments: Are bank accounts held in the name of the nominated PR? D.5 Comments: Are there appropriate controls over management of petty cash including limits over the maximum levels of petty cash held? D.6 Comments: Are there appropriate controls built in to the banking arrangements, including for example proper authorization of disbursements, double signatures on cheques and transfers, use of D.7 account payee cheques and conduct of regular bank reconciliations? Comments: Has the nominated PR bank contracted on fair terms and are funds earning an equitable D.8 interest rate? Comments: Is the bank account which will include the Global Fund grant subject to currency fluctuation risk and if so, does the nominated PR or the primary Bank have the capacity to manage D.9 foreign exchange risk? Comments: In respect of payment for material items, are there appropriate checks prior to approving payment (e.g. checking agreement to approved orders, agreed pricing, approval by persons D.10 of appropriate seniority)? Comments: E. Purchasing system (for non-health products) Yes, No, General procedures N/A Is there a documented process for procurement of non health products and services? E.1 Please include a brief description of the procurement process for non health products Comments: Does the documented process include the following? (1) A code of conduct to avoid occurrence or perceptions of conflicts of interest (2) Methods of procurement and when different methods should be applied, (3) Procedures for requests for tenders, (4) E.2 Procedures for bid evaluation, (5) Procedures that are transparent and competitive. Does the nominated PR have a good track record of following these procedures? Comments: Are there approval systems in place, with certifying and approval officers and appropriate segregation of duties and delegation levels, for authorization of procurement of non health E.3 related assets and services? (e.g. vehicles, consulting contracts) Comments: 5
  6. 6. F. Asset Management System Yes, No, General procedures to safeguard assets N/A Is there a system of adequate safeguards to protect assets, including the Global Fund grant, from loss, fraud, waste and abuse? F.1 Comments: Will there be periodic physical inventories of fixed assets and stocks that are reviewed and compared to the fixed asset and inventory register, as appropriate, and discrepancies F.2 followed up and resolved? Comments: Are assets sufficiently covered by insurance? F.3 Comments: General procedures to safeguard assets held by sub-recipients Does the nominated PR have necessary procedures and checks in place to ensure the safeguarding of assets held by sub-recipients? F.4 Comments: G. Audit arrangements Please refer to the Global Fund’s Guidelines for Annual Audits of Program Financial Statements Yes, No, External audit arrangements applicable to the PR N/A Are the nominated PR’s annual financial statements audited by an independent auditor and to appropriate auditing standards? G.1 Comments: Were there any major issues brought out in the audit report or management letters (where these have been issued) in the past 3 years? Has the nominated PR’s management G.2 subsequently followed up and addressed these issues? Comments: Internal audit arrangements (where these exist) Are the activities of the nominated PR subject to review by an internal audit unit? Is this unit able to independently report its findings and are these findings reliable? G.3 Comments: Review past internal audit arrangements and reports (where these are relevant) and assess the quality and usefulness of such reviews. Consider quality and frequency of audits and G.4 follow up. Comments: Will and should the internal audit function include the Global Fund grant? G.5 Comments: 6
  7. 7. External audit arrangements applicable to Global Fund grant Are there plans to conduct annual audits which will include the Global Fund grant and do such plans meet the requirements of the Global Fund according to its Guidelines for Annual G.6 Audits of Program Financial Statements? Comments: 7