April 2012
Project Implementation: Loan administration
Project Implementation: Loan administration
We would like to acknowledge the contribution of the
Programme Management Department in the
preparation of this presentation that will introduce
some concepts and guiding principles for Loan
administration
For more information on the topic please refer to the supervision training material of February 2012
Table of Contents
1.
Loan Administration Principles & Framework
2.
Letter to the Borrower/ Disbursement Handbook
3.
Disbursement Procedures
4.
Withdrawal Applications
5.
Foreign Exchange Translation
2
Loan Administration Principles & Framework
3
Basic Principles of Loan Administration
⇉
Only Eligible expenditure: proceeds of financing shall be used only
for purposes for which financing provided
⇉
Due attention & consideration to economy, efficiency & social
equity
⇉
Expenditure is eligible as & when incurred: Advance payments
made by project other than contractual advances are ineligible
⇉
First withdrawal: First withdrawal from loan/ grant account is made
normally only after financing is effective & disbursement conditions
met, except for start-up advance if agreed at negotiations and
included in the financing agreement (Schedule 2)
⇉
Written application: Borrower can request for withdrawal only by
means of written application in specified format along with relevant
supporting evidence
4
Basic Principles of Loan Administration
⇉
Eligible expenditure: the following conditions should be met:






Incurred by project party
During project implementation period
Reasonable cost of goods & services procured
Per procurement procedures as per Schedule 4 of FA/ LTB
Per approved AWPB
Per percentages stated in Schedule 2/ LTB against eligible
categories
 Not prohibited by UNSC under Chapter VII of UN Charter
 Not following any coercive, collusive, fraudulent or corrupt practice
 Per financing agreement documents
⇉
⇉
Retroactive Funding: If Schedule 2 of FA expressly provides for
retroactive funding, eligible expenditure incurred for project
purposes before financing effectiveness can be reimbursed from
loan account after effectiveness
Letter to the Borrower/ Disbursement Handbook: Sent by IFAD to
Authorised Representative of Borrower outlining important financing
provisions, disbursement procedures & guidelines
5
Basic Principles of Loan Administration
⇉
Disbursement process in IFAD: On receipt of Withdrawal Application (WA), the following steps are
taken:
1.
CFS receives original documentation, while PMD receives a signed/scanned copy of the WA
package
2.
Review and checks are performed simultaneously by PMD and CFS
3.
PMD certifies that the expenditures are in line with approved AWPB and that procurement
procedures are currently applied
4.
CFS performs checks regarding accuracy and completeness of WAs and eligibility of expenditures
considering the applicable rules and regulations
5.
CFS may conduct independent verification of WA & sends approved Payment order to the
Treasury Division to make payment
6.
CFS issues debit advice to Borrower & implementing agencies & generates billing statements on
fortnightly basis
⇉
Non approval of WA: IFAD informs Borrower about reasons for rejection & suggests corrective
action to be taken
⇉
NOTE: Ad hoc procedures for IFAD Country Offices reviewing the WAs
6
IFAD Project & Legal Documents
Project Documents





Design Report


Letter to the Borrower (LTB)
Financing Agreement
General Conditions
Minutes of Loan Negotiations
Amendments to Financing
Agreement
IFAD Generic Documents

Loan & Grant Administration
Operational Manual



Loan Disbursement Handbook
Procurement Guidelines
Audit Guidelines
Project Implementation
Manual (PIM)
7
Financing Agreement
Schedule 2 - Allocation & Withdrawal of Financing Proceeds
►
Category No. & description
►
Loan amount allocated to each category
►
% of expenditures to be financed
►
Definition of terms
►
Start-up advance, if envisaged
►
Retroactive Financing, if envisaged
8
IFAD Financing
►
Denominated in Special Drawing Rights (SDR) (only exception supplementary
funds)
►
Withdrawal applications made in different currencies
►
Disbursement is converted in SDR & deducted from financing amount
Financing Milestone Dates
►
Board Approval Date
►
Financing Agreement Date
►
Effective/ Entry into Force Date
►
Project Completion Date
►
Loan Closing Date
9
Project Financing Agreement
ENTRY INTO FORCE
Financing Agreement Date +
Ratification, if required
PROJECT COMPLETION DATE
“X” anniversary of Effective Date
WINDING-UP PERIOD
Project Completion Date to Loan
Closing Date
LOAN CLOSING DATE
Project Completion Date + 6
months
10
First Disbursement - requirements
►
Financing declared effective/ entry into force
►
Evidence of opening of Designated Account (DA)
►
Letter on WA authorised signatories received
►
Signatories of persons authorised to operate DA & specimen signatures
received
►
Disbursement condition/s met
►
AWPB & Procurement Plan approved
►
Withdrawal Application in order
11
Parties Involved
⇉
Borrower
⇉
IFAD
 Country Programme Manager
 Controller and Financial Services Division
 Treasury
⇉
International Banking Channels
⇉
Local banks
12
Letter to the Borrower/ Disbursement Handbook
13
Letter to the Borrower/ Disbursement Handbook
Letter to the Borrower/ Disbursement Handbook. . .
⇉
Operational guidelines for withdrawal of loan/ grant funds for project
purchases (procurement) of goods, works & consulting services, details of
financial & audit reporting requirements
⇉
Explained to the Implementing Agency during Start-up mission
⇉
For new projects subject to revised General Conditions, Disbursement
Handbook is an annex to revised Letter to the Borrower
⇉
Includes prescribed forms to be used by Implementing Agency in
withdrawing funds from loan/ grant
14
Letter to the Borrower/Disbursement Handbook
. . explains the following topics:
• Disbursement Conditions (Opening of Designated Accounts, appointment
of officers authorised to operate DA & sign WAs, etc)
•
•
•
•
•
•
•
•
•
•
•
Disbursement Procedures
Designated Accounts
Instructions for Withdrawal
Annual Work Plan & Budget & Procurement Plan
Allocation of Financing Proceeds
Procurement of Goods, Works & Consulting Services, including Methods
Review of Procurement Decisions by IFAD
Programme Reviews & Periodic Assessments
Financial Reporting & Auditing
Project Completion/ Financing Closure
Amendments
15
Disbursement Handbook – Topics
⇉
Basic Principles & Financing Administration
⇉
Instructions for Withdrawal
⇉
Disbursement Procedures
⇉
Statement of Expenditure
⇉
Register of Contracts/ Contract Monitoring
16
Disbursement Handbook – Attachments
1.
Sample letter of evidence of authority to sign WA
2.
Instruction for completing forms
3.
The various forms for use with 4 Disbursement Procedures
• Initial Deposit Advance/Replenishment to Special/ Designated Account
• Direct payment procedure
• Special commitment procedure
• Reimbursement procedure
4.
SOE provision & eligibility
5.
Project Checklist – Form & Instructions in completing form
6.
Register of Contracts
7.
Status of Financial Statements & Audit Report
17
Disbursement Procedures
18
Disbursement Procedures
Withdrawal of Loan Funds
(Explained in the Letter to the Borrower)
Disbursement
Procedures
19
Special/ Designated Account (Procedure I)
 A facility provided in Letter to the Borrower for advance funding from IFAD
 Initial Deposit/Advance – paid in USD or other freely convertible currency
 Replenishment applications should be submitted regularly using specified
forms – usually on quarterly basis (see checklist)
20
Special/ Designated Account
General

Special Account/Designated provisions are found in in Section 4.04(d) of
General Conditions

Article IV deals with Loan Account & Withdrawals - Withdrawals from loan &
grant accounts, special commitments, WAs, transfers, allocation & reallocation
of financing proceeds, value dates of withdrawals, eligible expenditures &
refund of withdrawals

There are 3 stages in operation of the Designated Account during project life:
1.
Payment of Authorized Allocation or Initial Deposit
2.
Replenishment to Designated Account
3.
Recovery of Authorized Allocation
21
Special Account
Payment of Authorised Allocation (Initial Deposit)/Advance
•
Review wording of disbursement conditions in Financing Agreement
•
Ensure receipt of evidence of opening of SPA/ DA & Letter on authorized
persons to operate account
•
Check if opening of SPA is condition for effectiveness
•
After IFAD payment, issue SPA letter
•
The financing agreement may provide that authorised allocation/advance is
paid in 1, 2 or more tranches
•
During project implementation, authorised allocation may be increased
through amendment to financing agreement
22
Special Account
Replenishment to Special/ Designated Account
Check following items

Exchange rate used

Frequency of submission of WAs

Adequacy of supporting documentation

Correct use of summary sheets

Replenishment during recovery period – should equal the balance of the
agreed percentage of expenditures duly justified

Exercise care in reviewing WA to determine which expenditures are eligible
under SOE & which are subject to supporting documentation

Usually minimum 20% of Authorised Allocation
23
Special Account
Recovery of Authorised Allocation (Initial Deposit)/Advance

Timing of recovery: monitor 3 trigger points (see paragraph 230 of the
loans & grants administration manual) , whichever comes first


Percentage of recovery: to be confirmed by CPM

Maintenance of SPA/ DA Initial Deposit/ Advance Recovery Control &
reconciliation of unjustified balance with LGS


At start of recovery – issue SPA/ DA Recovery Letter

Exchange rate to be used is historic rate at value date of payment of
initial deposit
Amount for refund to IFAD

Unjustified balance per IFAD records; not balance in bank

Unjustified balance should be reconciled with LGS

When the initial deposit is fully justified, any balance in bank
should remain with Borrower & should not be refunded to IFAD; all
future replenishments are processed as reimbursements to
Government
Loan account cannot be closed by IFAD if Authorised Allocation/
Advance is not fully justified or unjustified portion is not refunded to IFAD
24
Special Account/ Statement of Expenditures
Special/ Designated Account
• Relates to funding
• Eligibility applies to all
categories
Statement of Expenditures
• Relates to the submission of
prescribed form in lieu of
required supporting
documentation
• Eligibility is limited to coverage
provided in Financing
Agreement or prescribed by
IFAD
25
Special /Designated Account Reconciliation
To be provided with every WA for Replenishment
Reflects position of end of period covered by WA
Should reflect all bank balances supported by bank
statements as per Special/ Designated Account
Reconciliation Format
Each line of SPA/ DA Reconciliation should be completed per
Notes & Instructions enclosed
IFAD SPA
Reconciliation
26
Direct Payment (Procedure II)
Project instructs IFAD to make payment directly to a supplier,
contractor, consultant, or any other third party
 Minimum of approximately $20,000 equivalent for each Direct Payment
 For payments below approximately $20,000, Project should use
Designated / special Account funds
Documentation should show evidence of:
 Amounts due (invoice, statement or demand note)
 Initial or advance payments, progress payments on contract (as recorded
on the contract monitoring form), progress certificate & invoice/ purchase
order
Note: Payment instructions in WA must be clear & complete
27
Special Commitment (Procedure III)
Disbursement procedure for payment of goods covered under a Letter of Credit
Stages / Processes
 Project opens LC & sends WA to IFAD, with copy of LC & contract
(Form 301)
 IFAD sends SC Letter to bank of supplier as guarantee of payment
(Form 302)
 Bank sends request for payment to IFAD when LC conditions are met
(Form 303)
28
Special Commitment Procedure
General

A special withdrawal application (Form 301) is submitted by Project
when agreed modality of payment for procurement of goods is through a
Letter of Credit (LC)

This WA is processed & reviewed using Checklist 3 for Special
Commitment

After processing by CPM, certified Checklist is forwarded to regional
office (where applicable)
29
Special Commitment Procedure
Issuance of Special Commitment Letter
•
Based on the certified Checklist, regional office prepares a draft Special
Commitment Letter (SCL), using Form 302 & sends it to finance division in
Rome together with checklist for signature. LC details are duly reflected in
the SCL. Completed SCL signed by Controller is mailed to negotiating
bank (addressee of the SCL) with Form 303 as an attachment
•
The value of the Special Commitment (the amount requested in WA Form
301) is converted into SDR using prevailing IMF rate as of preparation date
& small percentage added to cater for exchange rate fluctuations
•
SCLs that are issued for each loan/ grant are numbered sequentially
•
Checklist is used to verify the steps in preparation & issuance of SCL
30
Special Commitment Procedure
Payment Instructions on Special Commitments
 Once the terms of LC are complied with, negotiating bank sends request
for reimbursement via SWIFT to IFAD Treasury or through written request for
payment (Form 303)
 Treasury sends SWIFT message of negotiating bank to regional Office
 After completion of checking process, Payment Order (PO) to pay the
negotiating bank is prepared using prescribed format for Special
Commitment payment
 The Payment that is authorised in PO is recorded in
Special Commitment Payment Summary, quoting WA number &
LC Reference Number
31
Reimbursement (Procedure IV)
 An expenditure pre-financed by Government or other sources
 Reimbursed by IFAD in currency of expenditure
 Reimbursement applications should be submitted normally within 3
months from date of payment
32
Withdrawal Applications
33
Forms
 Withdrawal Application Forms
 Application Summary Sheets
 Statement of Expenditure Forms
 Register of Contracts
 Special/ Designated Account Reconciliation Statement
 Project WA Checklist
 IFAD WA Checklist
34
WA Forms
Withdrawal Application – Form 100
⇉
Sequential numbering irrespective of disbursement procedure used
⇉
All sections should be completed
⇉
Payment instructions must reflect complete name & address of bank &
beneficiary’s account number, including correspondent bank, if required
35
Application Summary Sheet
Form 101-A (SA) & 101-B (Direct Payment/
Reimbursement to Government)
For direct payment and for
reimbursement of expenditures not
eligible under SOE
Supporting documents must be attached
Form 102-A (SA) and 102-B (to Government)
Prescribed form for expenditures
eligible under SOE
Supporting documents not required to be
submitted;
SOE form must be signed by designated
Project staff
36
Supporting Documentation
For expenditures that are eligible under SOE
Prescribed SOE Form 102A or 102B, with certification text, duly certified by 3
designated signatories: Project Accountant, Project Coordinator & WA signatory
For direct payment to a contractor, supplier or consultant
Summary Sheet Form 101B, together with the following, as applicable:
⇉Copy of invoice (or Demand Letter, Statement), certified for payment by Project
Coordinator
⇉Copy of contract (for 1st progress payment) or contract monitoring form
⇉Copy of purchase order
⇉Copy of bank guarantee, for advance payment &/ or performance
⇉Copy of delivery receipt for goods
⇉Copy of certification for works completed on civil works
⇉Copy of consultant’s report, if required, for final payment to be made
Note: Since original copies of above documents are retained by PCU
for audit purposes, a photocopy is accepted as supporting documentation
37
Supporting Documentation
For replenishment to the Special/ Designated Account
⇉
⇉
The certified SOE form 102A, for eligible expenditures
⇉
Special/ Designated Account Reconciliation Statement, together with Bank
Statement by SPA/ DA holding bank
Summary Sheet Form 101A with copy of above documents (as applicable)
plus evidence of payment (receipt or bank statement), for expenditures not
eligible under SOE
For Special Commitment
⇉ Copy of Letter of Credit opened by Project
⇉ Copy of contract
For all WAs, irrespective of disbursement procedure
⇉
Project Checklist certified by Project Accountant & Project
Coordinator
⇉
⇉
Summary Breakdown by Category that adds up to WA amount
Copy of CPM’s No Objection to procurement of goods, works or
consultancy services
38
SOE Procedure
⇉
CPM sends official notification on SOE coverage to Borrower
⇉
SOE arrangements specified in LTB
⇉
Amendment to Financing Agreement not required for changes
in SOE coverage/ threshold unless SOE threshold is specified
in Financing Agreement
39
Statement of Expenditure
Provision in Financing Agreement
The Financing Agreement provision for SOE is always found in Schedule 2
Items that should be taken into consideration
⇉
SOE cases, taking into account whether threshold is applicable on
contracts or expenditure
⇉
The interpretation of the SOE coverage as provided in: (i) Financing
agreement; (ii) Minutes of Loan Negotiation; or (iii) Agreement reached
during Start-up Mission – giving particular attention to financial ceiling
(usually $20,000)
⇉
The types of expenditures normally fully eligible under SOE. Examples:
Credit, Local training, Local salaries & allowances, Operating Costs & Civil
Works on Force Account
40
Statement of Expenditure
Prescribed SOE forms

SOE Form 102A for replenishment to Special/ Designated Account

SOE Form 102B for reimbursement of pre-financed expenditures

Certification text is required for each SOE form

3 signatures are always required: Project Accountant, Project Coordinator &
WA Signatory
Other items to take note of

Relationship between SOE financial ceiling & procurement prior review
threshold

Proper filing system in PCU to enable audit trail during supervision missions

Audit of SOE & separate opinion by independent auditor
41
For Prompt Disbursements
Ensure (1)
• Authorised Signatories for WAs
• Banking Instructions, including correspondent bank
• Complete Supporting documentation
• Statement of Expenditure eligibility
• Procurement Procedures
• Terms of payment (contract payment terms)
• Currency of expenditure
• Correct % of financing
Ensure (2)
•
•
Disbursement conditions are met (Sch 2 of Financing Agreement)
•
•
Exchange Rate correctly calculated
Withdrawal Application Size: Direct Payment: usually minimum approximately
$20,000 Repl. to SPA/ DA: 20% of Authorised Allocation/ Advance (or more)
Accuracy of computations
42
Withdrawal Application Submission
WA Contents
Each WA submission should consist of the following
• Required supporting documentation
• Withdrawal Application Amount
 If final WA amount approved is lower than WA submission, PO can
be released & Project is advised on reductions made
 If the final WA amount approved is higher than WA submission,
Project should be advised on findings & corrections made (in
practice WAs may be processed in reduced (not increased) amounts
from what is indicated in Form 100. If amount payable is more than
what is in Form 100, project is advised to claim in subsequent WA)
 A WA can be authorised for partial payment & balance paid in
separate PO
• WA Checklist
(Form 105)
43
Withdrawal Application Submission
Withdrawal Application Form 100
• The preparation & approval of WA at project level is a long process
involving project staff & concerned officers in relevant Ministry
• The Project is required to submit prescribed Form 100 signed by designated
WA signatory
• WA without authorized signatures will not be processed
• When a WA is not signed at all or only 1 of 2 required signatories signed,
project is required to send new WA with required signature or signatures
44
Withdrawal Application Submission
Written Communication
Written Communication from Project authority is required for the following:
• Change of WA authorized signatories – Original signed letter
from representative of Borrower
• When PO already issued & payment was made on WA, Project’s
request for adjustment in WA submitted – Original signed letter from
Project Coordinator
• Confirmation on increase in WA amount as result of review
• Change in bank where Special Account is maintained
• Change of account number, in same bank, due to changes in
bank’s system
• Confirmation of last WA submitted before closing of Loan
Account
45
Withdrawal Application Submission
Email Communication
Email Communication from Project authority is acceptable for the following:
• Change in the category to charge
• Information on correspondent bank or change in correspondent bank
• Any other relevant information provided by project relating to claim
in WA
Project should complete all sections in WA
46
Foreign Exchange Translation
47
Foreign Exchange Translation
Usage of Exchange rates
The usage of exchange rates in IFAD loans applies to one of the following
areas:
1.
Conversion of IFAD financing in US Dollars (USD) to Special Drawing
Rights (SDR)
2.
Conversion of withdrawals from loan account based on approved WAs
submitted in various currencies into SDR
3.
For replenishment to Special Account, conversion of local currency
expenditures funded from Special Account into currency denomination of
Special Account, e.g. USD, Euro
4.
Conversion of amounts submitted through WAs as justification of
authorised allocation (initial deposit) to Special Account
48
Foreign Exchange Translation
Conversion of IFAD Loan into SDR
 The IFAD loan is reflected in Design Report in US Dollars
 During financing negotiations between representatives of Borrower & IFAD,
US Dollar loan amount is converted into SDR using prevailing USD/ SDR
rate at the end of month preceding loan negotiation
 Likewise, amounts allocated to each category are converted into SDR
using same exchange rate
 Financing amount is fixed & is reflected in relevant sections of financing
agreement
 If the project is partially financed from a grant, known as project-component
grant, grant amount is also denominated in SDR
 SDR rate are listed on a daily basis by the International Monitory Fund &
available through its website – www.imf.org
49
Foreign Exchange Translation
Conversion of withdrawals made from Loan/ Grant Account
•
Loans & project-component grants are denominated in SDR
•
Disbursements from loan/ grant account are made in currencies in
which expenditures to be financed from loan/ grant proceeds have been
paid or are payable
•
Each withdrawal application that is submitted by Borrower is paid in
currency requested in WA & approved by IFAD
•
The payment made is converted into SDR using prevailing rate as of
value date of payment, i.e., date of debit of IFAD’s bank account for
equivalent amount of disbursement
•
For withdrawal requests denominated in currencies other than USD,
requests are converted first into USD using prevailing UN rate during
month of payment thereafter converted & SDR as above
50
Foreign Exchange Translation
Conversion of local currency expenditures funded from
Special Account

When preparing WA for replenishment to Special/ Designated Account, local
currency expenditures are converted into denomination of Special Account,
using prevailing rate at time of transfer of funds from Special Account to
Project Operating Account in order to recoup actual value of transfer made

One of the tools to be used by Project in monitoring special accounts
movements & operation is Special/ Designated Account Reconciliation
Statement. This statement is submitted with each WA for replenishment to
Special/ Designated Account
51
Foreign Exchange Translation
Conversion of WAs used as Justification (or Recovery) of Initial Deposit/
Advance to Special/ Designated Account
 3 trigger points for start of justification of initial deposit/ advance to
Special/ Designated Account; whichever comes first shall be applied:
a)
6 months before Project completion Date,
b)
When undisbursed balance of financing, less outstanding Special
Commitments, is equal to twice the amount of Authorised Allocation, or
c)
When the undisbursed balance of the loan is less than 10% of the total loan
balance
 When either of the trigger points is reached, each request for
replenishment to Special/ Designated Account will be used
partially or in full, as justification of Authorised Allocation/ Advance
 Exchange rate used for partial/ full justification is historic rate – rate
at which authorised allocation/ advance was paid
52