Effective Engagement of Accountable Local Governments in Development Assistance Projects Prepared in consultation with the Government Accountability Office

Effective Engagement of Accountable Local Governments in Development Assistance

Projects

Prepared in consultation with the Government Accountability Office

By:● Tara Baumgarten● Michaela Meckel● Jélan Passley● Maria Toniolo

Outline

●Background Information

●International Trends and Overview of Use of Local Systems

●Policy Goals

●Alternative Donor Approaches

●Evaluation of Alternatives

●Recommendations

Background

●International commitments to increase aid effectiveness:

●Paris Declaration (2005) ●Accra Agenda (2008)●Busan Partnership (2011)

●Aid delivered via recipient country public financial management (PFM) and local procurement systems

●Direct budget support

●U.S. has not yet met targets for use of local systems

Percentage of Aid Using Country PFM and Procurement Systems, 2010

Source: OECD 2010

United States World Donor Average

Sweden United Kingdom World Bank Asian Dev. Bank0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

11%

50%

64% 66%70%

90%

12%

44%

70%68%

55%

29%

Percent of Government Sector Aid Using PFM Systems, 2010Percent of Government Sector Aid Using Procurement Systems, 2010

Use of Local Systems

●Increase institutional capacity and sustainable development

●Risk Assessment

●Tools may be donor-specific, harmonized or borrowed from other institutions

●Risk Mitigation

●Variety of approaches to respond to risks such as corruption, poor accounting practices, and instability

Policy Goals

●Increase the percentage of effectively managed aid delivered via local systems

●Increase local institutional capacity

●Efficiently deliver aid

●Effectively identify and assess potential risks throughout the project

●Effectively manage risks throughout the project

●Compatibility with the U.S. context

United States

●11% of aid through recipient country PFM systems and 12% through local procurement systems in 2010

●Average partner PFM score of 2.17 (1 low – 6 high)

●Lack of harmonization in aid strategy

●USAID Forward

●Use of capacity assessments to strengthen institutions and responsibly administer aid via local systems

●Public Expenditure and Financial Accountability (PEFA) Framework

United Kingdom-DFID


●Average partner PFM score of 3.52

●Of aid delivered via local PFM systems in 2010, 64% was in the form of direct budget support, which increases the efficacy of aid

DFID Risk Assessment Overview

●DFID uses three main tools to conduct assessments:

●PEFA Framework

●Evaluates six dimensions

●Fiduciary Risk Assessments

●Evaluate quality of PFM systems

●Country Governance Analyses

●Assess quality of governance and instability

DFID Risk Management Overview

●Risk Management Program

●Anti-Corruption Policy Team

●Fraud Risk-Management Group

●Managing the Risk of Financial Loss program

●Empowerment and Accountability Resource network

●Pilot Strategic Intelligence Threat Assessments

Sweden



●Of aid delivered via local PFM systems in 2010, 73% was in the form of direct budget support

●Two main agencies: Ministry of Foreign Affairs and Swedish International Development Cooperation Agency (SIDA)

Sweden Risk Assessment Overview

●Transparency International Corruption Perception Index

●World Bank’s Country Policy and Institutional Assessment index

●Sweden’s assessments of previous involvement with a partner country, development strategy and human rights compliance

●Economic Intelligence Unit’s Democracy Index

●UNDP Human Development Index

Sweden Risk Management Overview

●SIDA Unit for Monitoring and Evaluation

●Performs regular audits

●SIDA Anticorruption code of conduct

●Suspends further aid disbursement until receiving repayment of mismanaged funds

●Swedish National Audit Office and Swedish Agency for Development Evaluation

●Monitor SIDA operations

Asian Development Bank



●Of aid delivered via local PFM systems in 2010 35% was in the form of direct budget support

●Asian Development Fund provides grants and low-interest loans to developing economies

ADB Risk Assessment Overview

●Country Partnership Strategy reflects the development and poverty reduction goals of partner governments

●Performance based allocation is based on each country’s performance and policies in place to effectively implement ADB projects

●ADB tailors Country Partnership Strategy when planning projects in countries with weak governance

ADB Risk Management Overview

●The Office of Anticorruption and Integrity monitors projects and receives complaints of possible corruption or misuse of funds

●Investigates allegations of corruption

●Power to sanction businesses and individuals

●Independent Evaluation Department determines whether or not ADB policies and ADB programs are successful

World Bank

●71% of aid through local PFM systems and 55% through local procurement systems in 2010


●Of aid delivered via local PFM systems in 2010, 58% was direct budget support

●Largest local systems donor in 2010 in absolute terms ($11 billion)

World Bank Risk Assessment Overview

●Country Financial Management Strategy based on:

●Country Financial Accountability Assessment (CFAA)

●Public Expenditure Review (PER)

●Country Procurement Assessment Report (CPAR)

●Institutional & Governance Review (IGR)

●PEFA Framework (optional)

●Use of assessments by other donors

World Bank Risk Management Overview

●Accounting risk management

●Monitoring by financial management staff

●Corruption risk management

●Borrowers are required to report fraud and corruption

●Borrowers can be audited at any time

●Early termination if fraud or corruption occurs

Goal 1: Percentage of Aid Via Local Systems

●Other donors lead the way in use of local systems

●Larger donors, such as the U.S. and World Bank, tend to work with lower quality local PFM and procurement systems on average

Goal Impact Category Status Quo: U.S. Country Approach 1: DFID

Country Approach 2: Sweden

Multilateral Approach 1: ADB

Multilateral Approach 2: World

Bank

Increase Percentage of Effectively Managed Aid

Delivered via Local Systems

Amount of funds managed and quality

of recipient PFM systems

Low High Moderate Moderate Moderate

Amount of funds managed and quality

of recipient procurement systems

Low Moderate Moderate Low Moderate

Goal 2: Increase Local Institutional Capacity

●Risk assessments may improve local systems

●Capacity building may be necessary component

●Local involvement in institutional reform important





Bank

Increase local institutional capacity

Increase PFM system quality * High Moderate Moderate - Low Moderate

Increase procurement system

quality* Moderate Moderate - Low Low Moderate

Institutional reform is sustainable and

locally drivenLow High High Moderate Moderate - High

Goal 3: Efficiently Deliver Aid

●Donors harmonize efforts in a variety of ways, including assessments and large project co-financing

●Multiple large bureaucracies that handle different types of aid may present efficiency challenges





Bank

Efficiently deliver aid

Harmonization of aid stakeholder activities Low High Moderate-High Moderate - High Moderate

Aid is delivered efficiently (in terms of

time and money)Moderate High Moderate Moderate Low

Goal 4: Effectively Assess Potential Risks

●Assessing corruption and financial risk directly is more effective than as part of larger country assessments

●Evidenced by control of corruption scores





Bank

Effectively identify and assess potential

risks

Effectively identify and assess threat of

corruptionModerate High Moderate Moderate Low

Effectively identify and assess

weaknesses in accounting practices

Moderate High Moderate Moderate Low

Effectively identify and assess risks of

instabilityModerate Moderate Moderate-High Low Low

Goal 5: Effectively Manage Risks

●Active control mechanisms, quick responses, and long-term plans to mitigate risk appear most successful





Bank

Effectively manage risks throughout the

project

Effectively detect and respond to instances

of corruption throughout the

project

High Moderate Moderate - High Moderate Low

Effectively detect and respond to

weaknesses in accounting practices

throughout the project

Low Moderate Moderate Moderate - Low Moderate

Effectively detect and respond to instability

throughout the project

Moderate Moderate Low Low *

Goal 6: Compatibility with U.S. Context

●The World Bank aid scope is most similar to the U.S.

●DFID also shares similar foreign policy objectives

●Sweden is a smaller donor and may have scaling issues

●ADB has a limited regional focus but shares major recipients - Pakistan and Afghanistan





Bank

Compatibility with U.S. Context

Similarities of aid profiles and approach N/A Moderate Moderate Moderate High

Economic feasibility N/A Moderate Low Moderate - Low Moderate

Recommendations

●Ensure consistent and coordinated risk assessments across countries

●Expand use of the PEFA Framework evaluation tool

●Increase cooperation with other donors

●Increased use of PEFA could help

●Consider incremental approach to use of local systems

●Start with smaller projects or components of a partner country’s PFM system that operate well

Questions?

Documents

Effective Engagement of Accountable Local Governments in Development Assistance Projects Prepared in consultation with the Government Accountability Office