Financial Management

and Administration
Manual FOR IFAD STAFF AND CONSULTANTS
Financial Management
and Administration
Manual FOR IFAD STAFF AND CONSULTANTS

The Financial Management and Administration Manual (FAM), along with the exhibits,
is intended as a guide for IFAD staff and consultants on various aspects of financial
management and administration. It is intended for use together with IFAD’s basic legal texts
and individual financing agreements.

The FAM is periodically updated to incorporate new guidance, as and when released.

The Financial Management and Administration Manual (FAM) was disseminated to IFAD staff
by the Director, Financial Management Services Division, on 26 September 2016. A revised
version was subsequently issued in June 2017.

Update – July 2018

Financial Management and Administration Manual

Interim inclusion in July 2018 version pending document design.

th
Effective date 8 February 2019.

Ineligible expenditure.

Where feasible, IFAD encourages use of measures (remedies) for managing B/R noncompliance so as to
minimise the disruptive impact on project implementation to the extent possible. The application of such
measures is intended to reduce the likelihood and frequency of suspension measures.

As per IFAD procedures, all identified cases of ineligible must be duly recorded, monitored and efforts made to
seek refunds in all cases. In practice, the context and impact of pursuing measures may outweigh the
materiality of the breach and cost-effectiveness of the course of action. On this basis Finance Officers are
encouraged to consider a broader toolkit of measures as a first recourse, as provided in the threshold based
approach outlined below:

Threshold Proposed / Applicable remedies Impact / Considerations

1. An amount equivalent to the identified
Low value ineligible expenditure to be deducted from
the subsequent WA.
Deductions from different categories
will lead to delays in processing the
WA and additional workload to
transfer costs between categories,
this remedy must therefore be
carefully considered.

2. B/R to refund an equivalent amount in the See Module H.4 Par. 51.
designated account or directly to IFAD.

3. B/R requested to provide substitute This remedy is limited to substitution

documentation, evidencing other of documentation / expenditures
Investment expenditures that meet IFAD’s eligibility within the same loan/grant facility.
projects: criteria.

Changes to the SOE thresholds or

<=USD100,000 4. Finance Officer to impose a reduced SOE permitted disbursement mechanisms
(or equivalent) threshold or, for applicable projects the will require an LTB/R modification. In
report-based disbursement method may be parallel the Finance Officer may
temporarily frozen. consider a change in the FM risk
or rating of the project.
5. Change to permitted disbursement modality,
either temporarily or for the remaining Changes to permitted disbursement
lifetime of the project - discontinue use of the mechanisms will require an LTB/R
Global/regional
DA mechanism (could be at executing modification.
and
agency level) for ongoing or new projects
Institutional
(the latter in case of expired loans for more
grant:
than 3 months).
This measure will limit the disruptive
<=USD50,000 6. Repayment of outstanding ineligible impact on the ongoing project,
expenditure from ongoing loan/grant to be however it may cause delays to start-
built into conditions precedent to withdrawal up of new projects.
for new loan/grant agreement.

As provided for in GC section 12.02

7. Cancel an equal amount from the remaining (iv).
amounts in the loan and/or grant accounts.

Any of the above described measures can be applied to the higher value threshold, as
deemed applicable.
High value
Further advances may be withheld
8. Temporarily ‘freeze’ disbursements. until the DA has been restored to its
proper level or documentation on
Financial Management and Administration Manual

Interim inclusion in July 2018 version pending document design.

th
Effective date 8 February 2019.

other eligible expenditure has been

submitted.
This is not formal suspension of the
B/R’s right to request withdrawals
Investment from the Loan and/or Grant
projects: Accounts, and therefore delays in
effective resolution should be
escalated.
>USD 100,000
9. Impose temporary delay / postponement of
approval of amendments to the Financing
or Agreement.

Global/regional Where clear commitment is shown on

and the part of the B/R to refund the
Institutional outstanding amount, however a delay
grant: may be experienced due to certain
10. Delay all remedies subject to an agreed
factors outside of the control of the
'settlement plan' of no longer than 3 months
B/R, a ‘settlement plan’ may be
(90 days), following which formal remedy
>USD 50,000 agreed upon for a limited time period
processes will start.
(up to 3 months). Failure to honor the
plan will result in roll-out of formal
remedial procedures, as deemed
appropriate.
11. 90 days after breach identification: Issue
warning notice, with reference to potential
application of remedies, including
suspension. 180 days maximum tolerance
(as per GC 12.01 (b)), after which the case
summary and remedy proposal to be
submitted to EMC for consideration.
12. Component-specific and/or Category-
specific, or Project suspension.
In case of suspension, the Fund may also:
a. Delay negotiations and/or board
presentation and/or signing of any new As provided for in GC section 12.01.
loan benefitting the noncompliant entity;
b. Declare Acceleration of Maturity (based
on GC 12.05)
Existing remedies, except for point (a) which
is being proposed.
13. Cancel in whole or in part the undisbursed
As provided for in GC section 12.02
amounts in the Loan and/or Grant Accounts,
(iv).
as per GC Section 12.02(a)(iv)
14. For non-country grants, failure to comply
with provisions of IC/CFS/03/2011 will result
in the recipient being blacklisted
15. (At closure) If there are unjustified obligations of less than USD 50,000 (or the equivalent), the amount of
such obligations will be accounted under a dedicated category identifiable as unjustified expenditure. A
revised amortization schedule will be prepared in accordance with the usual procedure. (FAM J.3 para.
12(c).
Contents
Exhibits
Abbreviations and acronyms
Definitions
Introduction
Enquiries/where to go for help

Module A
Principles of financial management and administration

Module B
Types of financing

Module C
IFAD project cycle overview

Module D
Financial management at project design and approval

Module E
The financing agreement and its negotiation process

Module F
Changes during implementation

Module G
Project supervision and financial management

Module H
Withdrawal and disbursement

Module I
Audit and financial reporting requirements

Module J
Loan repayments and debt servicing

Module K
Financial management and disbursement of grants

Module L
Supplementary Funds, Thematic Trust Funds and Funds from other IFIs

Module M
Key documents

Module N
Document retention
Exhibits
President’s bulletins, information circulars, checklists, templates
A-1 Information Circular IC/FOD/03/2012 FM resources for IFAD-funded
projects and programmes
A-2 President’s Bulletin PB/2016/02 Strengthening the Financial Operations
Department – realignment of the Controller’s and Financial Services Division
B-1 President’s Bulletin PB/2014/01 Plus /Rev.1 Additional financing
B-2 Policies and Criteria for IFAD financing
B-3 Guidance note on Single Currency Lending
C-1 Fiduciary Summary of the Country Portfolio
C-2 FMD Quality Assurance Procedures
C-3 President’s report (fiduciary template)
C-4 Information Circular IC/FOD/02/2013 Standard expenditure categories
C-5 Information Circular IC/FOD-PMD/01/2012 Revised IFAD loan and
grant management business model and interdepartmental cooperation
framework
D-1 Summary of Project Fiduciary Risk Assessment at Design (table)
D-1/A Detailed FMAQ Project Fiduciary Risk Assessment at Design
D-2 Summary of Financial Arrangements (annex 7)
D-3 Checklist for evaluating project accounting software
D-4 Risk Based Assurance Framework Methodology
E-1 Model Financing Agreement
E-2 Guidance Note – Retroactive Financing
E-3 Suspension Notice (unjustified obligations) 90 days
E-4 Suspension Notice (unjustified obligations) 180 days
E-5 Suspension Lifting Advice
E-6 Letter to the borrower/recipient (LtB/R)
E-7 Revisions to the LtB/R
G-1 Checklist for statement of expenditure (SOE) review
G-2 Detailed FMAQ Project Fiduciary Risk Assessment at Supervision
G-3 Summary of Project Fiduciary Risk Assessment at Supervision
G-4 Sample consultant TORs
G-5 Mission preparation – useful documentation and information
G-6 Checklist for review of interim financial reports
G-7 Minimum requirements for interim financial reports
G-8 Guidance Note – Payment of Final Disbursement
H-1 Risk-based disbursement guidelines (ex post)
H-2 Risk-based disbursement guidelines (ex ante)
H-3 Smart SOE forms
H-4 Decision Memo–Proposal for the abolishment of Special Commitment
Letters payment method
I-1 Conceptual Framework for Financial Reporting
I-2 IFAD Handbook on Financial
I-3 Assessment of national/regional accounting and auditing standards
I-4 Guidance note on Interim Financial Reports
I-5 Auditor assessment criteria (Criterios de evaluación del auditor)

v
 I-6 Guidance note on assessing capacity of SAIs
I-7 Initial warning notice (90 days)
I-8 Suspension letter (180 days)
I-9 Ilustrative tabke for audit report suspension
I-10 Peer review selection criteria
I-11 Guidance note on Performance Scores
I-12 Guidance for disclosure of audit reports
J-1 Historic IFAD lending terms
J-2 Arrears notice
J-3 Arrears suspension notice
K-1 Checklist of fiduciary due diligence for IFAD grants
K-2 Guidance on sub-recipients
K-3 Guidance on Eligible Expenditure Categories and Budget Justifications
K-4 Assessment of FM Risk Associated with Recipients and Projects
K-5 FMAQ (summary sheet and data sheet)
K-6 Ex ante review for WAs
K-7 Ex post review for WAs
K-8 Information Circular IC/CFS/03/2011 Internal procedures to close an
expired grant to a non-government recipient
L-1 Financial and Administrative Framework Agreement (FAFA)
L-2 Pillar-Assessed Grant or Delegation Agreement (PAGoDA)
L-3 President’s Bulletin PB/2014/08 Procedures for supplementary funds and
GEF-administered grants
L-4 President’s Bulletin PB/2013/12 Principles and procedures for mobilizing
and managing supplementary funds
N-1 President’s Bulletin PB/2012/04 Records management manual
N-2 Information Circular IC/ADM/02/2011 Introduction of a paperless workflow
for incoming, outgoing and internal correspondence

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Abbreviations and Acronyms
AA Authorized Allocation
ACD Accounting and Controller’s Division (IFAD)
AFS Audited Financial Statement(s)
ARTS Audit Report Tracking System
ASAP Adaptation for Smallholder Agriculture Programme
AUO Office of Audit and Oversight (IFAD)
AVP Associate Vice-President
AWP/B Annual Workplan and Budget
B/R Borrower/Recipient
CFS Controller’s and Financial Services Division (IFAD – now ACD and FMD)
CGIAR Consultative Group on International Agricultural Research
CI Cooperating Institution
COSOP Country Strategic Opportunities Programme
CPI Corruption Perceptions Index (Transparency International)
CPM Country Programme Manager
CPMT Country Programme Management Team
CSO Civil Society Organization
DA Designated Account
DO Disbursement Officer
DSF Debt Sustainability Framework
EC European Commission
EMC Executive Management Committee
EU/EC European Union/European Commission
EUR Euro
FA Financing Agreement
FAM Financial Management and Administration Manual
FM Financial Management
FMA Financial Management Assessment
FMAQ Financial Management Assessment Questionnaire
FMD Financial Management Services Division (IFAD)
FMDB Financial Management Dashboard
FMR Financial Monitoring Reporting
FMS Financial Management Specialist
FO Finance Officer
FOD Financial Operations Department (IFAD)
FXC FlexCube
GC General Conditions for Agricultural Development Financing
GEF Global Environment Facility
GRIPS Grants and Investment Projects System
IC Information Circular
ICP IFAD Client Portal
IFI International Financial Institution
IFR Interim Financial Report
IFRS International Financial Reporting Standards
IMF International Monetary Fund

vii
 INTOSAI International Organisation of Supreme Audit Institutions
IOE Independent Office of Evaluation of IFAD
IPSAS International Public Sector Accounting Standards
ISA International Standards on Auditing
ISSAI International Standards of Supreme Audit Institutions
IT Information Technology
LDH Loan Disbursement Handbook for IFAD Directly Supervised Projects
LEG Office of the General Counsel (IFAD)
LOT Lapse-of-Time
LPA Lead Project Agency
LtB/R Letter to the Borrower/Recipient
M&E Monitoring and Evaluation
MDB Multilateral Development Bank
MTR Midterm Review
NGO Non-Governmental Organization
NPV Net Present Value
OSC Operational Strategy and Policy Guidance Committee
PB President’s Bulletin
PBAS Performance-Based Allocation System
PCR Project Completion Report
PDR Project Design Report
PEFA Public Expenditure and Financial Accountability
PFM Public Financial Management
PFR Project Fiduciary Risk
PIM Project Implementation Manual
PIU/PCU/PMU Project Implementation/Coordination/Management Unit
PMD Programme Management Department (IFAD)
PSR Project Status Report
QA Quality Assurance
QAG Quality Assurance Group
QE Quality Enhancement
ROSC Report on the Observance of Standards and Codes
RSP Rural Sector Performance
SAI Supreme Audit Institution
SC Special Commitment
SDR Special Drawing Right(s)
SEC Office of the Secretary (IFAD)
SOE Statement of Expenditure
STF Spanish Trust Fund Facility (Spanish Food Security Cofinancing Facility)
TORs Terms of Reference
TRE Treasury Division (IFAD)
US$ United States dollar(s)
WA Withdrawal Application

viii
Definitions
1. Borrower. A Member State that receives a loan is called the borrower.
A political subdivision of a Member State may be designated as the borrower,
but in this case the Member State must act as guarantor.

2. Recipient. A Member State or other entity that receives a grant is called the
recipient. If the Member State receives both a loan and a grant, it is referred to
as the borrower/recipient. The General Conditions for Agricultural Development
Financing uses the term borrower/recipient in all cases in which a provision
applies to both loans and grants to Member States.

3. Guarantor. A Member State designated as such in a guarantee agreement.

4. Guarantee agreement. An agreement between a Member State and the

Fund by which such Member State guarantees the performance of another
agreement.

5. Project. Throughout the text of this manual, project refers to both projects
and programmes.

6. EU-funded grant means a grant funded by the European Union and

administered by IFAD. Such a grant may be provided on a stand-alone
basis or in combination with a loan/grant to an Investment Project.

7. Public Auditor means an SAI or other public office entrusted with public
audit responsibilities.

8. Grant means a grant financed by IFAD that is subject to the Policy for Grant
Financing1 and grants financed by supplementary funds2 as follows:
• Type A grants, which are:
i. Large grants (greater than and including US$500,001 or equivalent) that
are assessed as medium or high risk, as determined by IFAD;
ii. Small grants (up to and including US$500,000) that are assessed as high
risk, as determined by IFAD;
iii. EU-funded grants (regardless of amount or risk).
• Type B grants, which are:
i. Large grants (greater than and including US$500,001 or equivalent) that
are assessed as low risk, as determined by IFAD;
ii. Small grants (up to and including US$500,000 or equivalent) that are
assessed as medium or low risk, as determined by IFAD;
• Type C grants, which are grants of any amount provided to United Nations
agencies and Multilateral Development Banks.

1 As approved by the Executive Board at its 114th session of 22 and 23 April 2015.
Although subject to the Policy, contribution agreements, including micro-grants (up to and
including US $75,000 or equivalent) are not subject to financial reporting and audit requirements as
per the Handbook.
2 Grant-based resources from a donor received and administered by IFAD. Any specific
provisions required by the donor in relation to financial reporting and auditing are reflected in
the grant agreement.

ix
Acknowledgements
The revision of the Financial Management and Administration Manual (FAM) was
prepared under the leadership of the Director, Financial Management Services
Division (FMD). The Director would like to thank IFAD management and staff from
various divisions, namely the Office of the General Counsel (LEG), Programme
Management Department (PMD), Accounting and Controller’s Division (ACD),
Partnership and Resource Mobilization Office (PRM), Quality Assurance Group
(QAG), Communications Division (COM), and of course FMD staff, for taking the
time to review the various drafts and for their invaluable feedback.

xi
Introduction
The Agreement Establishing IFAD states, “The Fund shall make arrangements to
ensure that the proceeds of any financing are used only for the purposes for which
the financing was provided, with due attention to considerations of economy,
efficiency and social equity” (article 7(1)(c)). This Financial Management and
Administration Manual (FAM) describes the principles and procedures for project
financial management and disbursement applied by the International Fund for
Agricultural Development (IFAD or the Fund) to implement such arrangements. The
manual is based on the Fund’s General Conditions for Agricultural Development
Financing (General Conditions or GC), adopted in April 2009 as subsequently
amended,1 and, for IFAD grants, on the General Provisions Applicable to IFAD
Large Grant Agreements, as well as the Policy for Grant Financing and its
Implementing Procedure, which establish the rules and procedures for designing,
approving and implementing IFAD grants.

The policies and procedures described in this manual also apply to financing
agreements subject to previous versions of the General Conditions, unless they
are obviously inapplicable.2 Any questions as to whether specific procedures
should apply to a particular project or financing agreement should be addressed
to IFAD’s Office of the General Counsel (LEG) for legal aspects, to the Accounting
and Controller’s Division (ACD) for loan administration issues and to the Financial
Management Services Division (FMD) for financial management aspects. Should
any provisions of this manual conflict with the General Conditions, the provisions of
the latter will be applicable.

The Financial Management and Administration Manual (FAM), along with the
exhibits, is intended as a guide for IFAD staff and consultants on various aspects of
financial management and administration. It is intended for use together with IFAD’s
basic legal texts and individual financing agreements.

The Director, FMD, has authority to update the manual and to advise staff and the
extended workforce (and cooperating institutions, where applicable) of significant
changes to IFAD’s policies and procedures for the Fund’s financing.

This manual replaces the FAM in section 431.5 of the IFAD Manual.

1 Amendments of September 2010, February 2013 and most recently April 2014 (which
apply to projects approved by the Executive Board during and subsequent to its 112th session in
September 2014).
2 For example, lending on ‘blend’ terms, provisions for which were introduced in 2014.

xiii
Enquiries/where to go for help
This manual has been made available in digital and hard-copy versions.

The Financial Operations Department (FOD) is responsible for the adequacy and
appropriateness of procedures relating to financial management, disbursement and
loan administration of financing provided or administered by IFAD. Staff members of
FOD work closely with operations departments in IFAD and with borrower/recipient
project staff throughout the project cycle. They may be contacted at any time to
seek information or clarification on these procedures.

For additional help, please contact by e-mail:

FMD (fmdmailbox@ifad.org)
FMD_APR@ifad.org For enquiries relating to the Asia and the Pacific
(APR) region
FMD_ESA@ifad.org For enquiries relating to the East and Southern
Africa (ESA) region
FMD_LAC@ifad.org For enquiries relating to the Latin America and
the Caribbean (LAC) region
FMD_NEN@ifad.org For enquiries relating to the Near East,
North Africa and Europe (NEN) region
FMD_WCA@ifad.org For enquiries relating to the West and Central
Africa (WCA) region
FMD_Grants@ifad.org For enquiries relating to IFAD grants
FOD_EC_Team@ifad.org For enquiries relating to European Commission
matters
ACD_Finance_Support@ifad.org For enquiries relating to Loan and Grant
administration including debt servicing and
disbursements

xv
PRINCIPLES OF FINANCIAL MANAGEMENT AND
ADMINISTRATION MODULE A
 Module A
Principles of financial management and administration
• Principles and key considerations
• Anti-corruption policy

2
A.1 Principles and key considerations
1. This module presents the principles underlying
standard procedures for the management
and administration of IFAD financing.
These principles apply equally to all IFAD-
financed projects and to resources provided
to IFAD by other donor agencies1 unless
specifically excluded.
2. The Agreement Establishing IFAD states:2 “The
Fund shall make arrangements to ensure that the
proceeds of any financing are used only for the
purposes for which the financing was provided,
with due attention to considerations of economy,
efficiency and social equity.” This responsibility
is generally described as a “fiduciary obligation”
with respect to the investment funds approved for
financing provided by IFAD.
3. The primary responsibility rests with the
borrower/recipient (B/R) to maintain financial
management (FM) arrangements that assist in
meeting fiduciary obligations and that provide
reasonable assurance to stakeholders that
funds have been used as intended. IFAD’s role
is to support the B/R’s capacity to meet this
responsibility and to provide general oversight on
the design and functioning of FM arrangements
during project implementation. ‘Financial
management’ refers to the organization,
budgeting, accounting, internal control, funds
flow, financial reporting and internal and auditing
arrangements by which B/Rs receive funds, spend
them and record their use.
4. IFAD is committed to enhancing aid effectiveness
by encouraging the appropriate use of country
systems and institutions. In this context, IFAD
procedures and practices will be aligned with
country systems where relevant.
5. IFAD meets its obligations by:
(a) Using country public financial management
(PFM) systems, where feasible, during
implementation of IFAD projects; and
1 These include supplementary and complementary funds provided by donors and administered by IFAD (e.g. the Adaptation
for Smallholder Agriculture Programme [ASAP], Global Environment Facility [GEF], Spanish Trust Fund Facility [STF] and European
Union/European Commission [EU/EC] funds).
2 Article 7(1)(c).
3 ‘Disbursement risk’ is the risk that project funds are disbursed to an unauthorized recipient and/or not spent for the purposes
intended.
4 Further guidance on disbursement arrangements is available in module H.
(b) Obtaining reasonable assurance that
development funds are ‘used for the
purpose intended’ by assessing FM capacity
and risks during project preparation and
the implementation of each operation
and, where relevant, requiring the B/R to
implement specific actions to mitigate
risks posed by identified weaknesses, both
in the project design phase and during
implementation.
6. IFAD finance officers (FOs), in collaboration
with country programme managers (CPMs),
will monitor FM performance of financed
projects at regular intervals and provide
implementation support as needed. FMD will
assess disbursement risk3 initially on the basis of
overall project FM capacity and risks determined
in the project design phase. This will be taken
into consideration by FMD in determining
appropriate project disbursement arrangements.4
7. Financial administration of development projects
involves making funds available to B/Rs as
needed, in compliance with the terms with which
these have been approved.
8. During project implementation, these risks will
be periodically updated by FMD in the light of
implementation experience. Staff of ACD will
process disbursements after considering these FM
risks, in addition to the specific characteristics
of withdrawal applications (WAs), and will
determine the timing, frequency and scope of
ex post checks to be performed on the
applications.
9. In the light of disbursement experience, and
where appropriate, FMD staff will also update
FM risk ratings and modify disbursement
arrangements for the remainder of the project
period. Remedies, including suspension of
disbursements, may also be considered, in line
with IFAD procedures, after approval by the
Director, FMD.
Module A 3
 10. The General Conditions foresee ‘Special
Commitments’ (SCs) as a permissible
disbursement method, and therefore reference
to policies and procedures that govern their
treatment are described throughout this manual.
In practice, however, SCs are discouraged,
owing to their complexity and the manual
customization they require within IFAD’s
financial systems (as a matter of principle,
A.2 Anti-corruption policy
11. In 2005, IFAD adopted an anticorruption policy.5
Its goal is to prevent fraud and corruption in
IFAD-supported projects and in contracts at local,
national, regional and international levels.
12. The policy establishes zero tolerance for irregular
practices in projects financed through IFAD loans
and grants, whether supervised directly by the
Fund or by a cooperating institution (CI). The
policy also establishes zero tolerance for irregular
practices by staff, consultants or individuals
5 IFAD Policy on Preventing Fraud and Corruption, document EB/2005/86/INF.8.
4
manual customization capabilities are being
avoided in the development of new corporate
financial systems). Consequently, the option
of having SC letters may not appear in the LtB
template. Only in exceptional situations will
an SC letter need to be added, following FMD
clearance and approval by the Chief Controller
– for example, if, following examination, other
disbursement solutions have been found to be
unworkable.
acting as representatives of IFAD. ‘Zero tolerance’
means that IFAD will pursue all allegations falling
under the scope of its policy and that appropriate
sanctions will be applied where the allegations
are substantiated.
TYPES OF FINANCING MODULE B
 Module B
Types of financing
• Agreement Establishing IFAD
• Loans
• Single currency lending
• Additional financing
• Grants and supplementary funds
• Debt Sustainability Framework

6
B.1 Agreement Establishing IFAD
1. Article 7(2)(a) of the Agreement states:
“Financing by the Fund shall take the form
of loans, grants and a debt sustainability
mechanism, which shall be provided on
B.2 Loans
2. As defined in the Policies and Criteria for IFAD
Financing (section IV),1 loans are provided on
ordinary, blend or highly concessional terms2
as follows:
(a) Loans on highly concessional terms are not
subject to interest, but bear an annual
service charge of 0.75 per cent on the
outstanding principal amount of the loan,
and have a maturity period of forty (40)
years, including a grace period of ten (10)
years, starting from the date of approval by
the Executive Board.
(b) Loans on blend3 terms are subject to interest
on the principal amount outstanding at an
annual fixed rate of 1.25 per cent and an
annual service charge of 0.75 per cent, and
have a maturity period of twenty-five (25)
years, including a grace period of five (5)
years, starting from the date of approval by
the Executive Board.
(c) Loans on ordinary terms are subject to
annual interest based on the variable IFAD
reference interest rate, and have a maturity
period of fifteen (15) to eighteen (18)
years, including a grace period of three (3)
years. The maturity period for ordinary
term loans starts from the date IFAD has
determined that all conditions precedent
to withdrawal have been fulfilled in
accordance with GC section 4.02(b).
1 Refer to exhibit B-2 Policies and Criteria for IFAD Financing.
2 Until 2010, IFAD loans were also provided on intermediate terms, and from 2010 to 2013 on hardened terms. Definitions of
these financing terms were provided in the respective applicable General Conditions at the time.
3 ‘Blend’ terms were approved by the Executive Board at its Thirty-Sixth Session on 14 February 2013, in lieu of the
‘intermediate’ terms that had been offered earlier.
such terms as the Fund deems appropriate,
having regard to the economic situation and
prospects of the Member and to the nature and
requirements of the activity concerned.”
3. Prior to the introduction of blend terms, loans
were also available on intermediate terms, which
offered an interest rate per annum equivalent
to 50 per cent of the variable reference interest
rate, as determined annually by the Executive
Board, and a maturity period of twenty (20)
years, including a grace period of five (5)
years. IFAD currently has loans ongoing on
intermediate terms that were approved prior to
the introduction of blend terms.
4. The eligibility of each B/R for specific
lending terms is reviewed and determined
annually by the Programme Management
Department (PMD) and communicated
through annual e-mails.
5. The Policies and Criteria for IFAD Financing
further state (section IV(a)(iii)(6)):
The Executive Board may vary the grace period and
the amount of each instalment for the repayments of
loans received on blend terms and ordinary terms.
In so doing, the Executive Board, on information
provided by the President of IFAD, shall take into
account a country’s debt sustainability and debt-
servicing capacity. In submitting a proposal for the
lending terms to apply to a country for a loan to
the Executive Board, the President of IFAD shall
ensure that: (i) the grace period for the loan, which
shall be established in relation to the date on which
a loan becomes effective and the date upon which
disbursement of the loan is to cease, shall not exceed
six years; and (ii) the net present value in SDR of
the blend terms and ordinary terms specified in (2)
and (3) above is maintained.
Module B
A 7
 Staff should note that when borrowers request
an increase in the grace period to six years at
or prior to loan negotiations, specific approval
must be requested from the Executive Board.
For this purpose, the related request and any
additional supporting information must be
specifically stated in the President’s report.
6. Historically, loans provided from IFAD’s
regular resources have been denominated in
special drawing rights (SDR).4 With effect from
September 2014, the General Conditions were
amended to permit loans to be approved in
other currencies – the ‘denomination currency’.
In cases that involve the use of borrowed
funds, the Fund shall maintain the principle
of ensuring that it incurs no foreign currency
exposure. The underlying methodology for
supporting a denomination currency request
from borrowers is detailed in module J
section J.4.

B.3 Single currency lending

7. Historically, IFAD has experience in single (b) Pricing
currency lending, while also having benefited
For reference, SDR-denominated loans
from more recent experience as a result of
are priced at the SDR LIBOR six-month
activities financed through Kreditanstalt für
composite rate plus the applicable spread.
Wiederaufbau (KfW – the German Government-
owned development bank) and the STF. In mid- (i) EUR-denominated loans: the
2016, an initial tranche for single currency loans underlying interest rate will be
was made available in euros (EUR) and United EURIBOR plus the applicable spread.
States dollars (US$) for lending products only,5 (ii) US$-denominated loans: the
thereby excluding the financing of all types of applicable rate is the US$ component
grants. Countries receiving financing under the of the SDR LIBOR six-month
Debt Sustainability Framework (DSF) that have composite rate plus the applicable
been identified as ‘yellow light’ countries – that spread.
is, receiving financing on a 50:50 DSF grant
and highly concessional loan basis – are also 9. In situations in which there is a loan component
excluded from single currency lending for both grant (IFAD or ASAP) to be approved at the
portions of the financing. same session of the Executive Board, the
denomination currency of all financing streams
8. Single currency lending reduces the complexity should be harmonized in SDR. See also exhibit
for borrowers preferring to borrow in a single B-3 Guidance Note – Single Currency Lending.
currency and to subsequently manage the risk of
currency volatility through a debt management
office. Loans denominated in a single currency
are similar to SDR-denominated loans except
for two areas:
(a) Consistency of the currency is required
throughout the loan. To the extent possible
and at minimal cost, the currency of the
designated account (DA) and the loan
service payment currency should be the
same as the denomination currency of
the loan.

4 SDR comprise a basket of currencies as established and valued from time to time by the International Monetary Fund (IMF).
The composition of the basket, and the relative weights of the constituent currencies, are available at www.imf.org.
5 US$ and EUR single currency loans have been made available, subject to funds availability, for submission to the Executive
Boards from September 2016 onwards.

8
B.4 Additional financing
10. ‘Additional financing’ (also informally referred
to as a ‘top-up’) is an instrument that provides
further resources to supplement an existing
IFAD-financed investment project. Additional
financing may be considered under the
following conditions:
(a) To meet financing gaps of ongoing projects
caused by:
(i) Withdrawal of funding or proposal for
funding by a cofinancier;
(ii) Reduction in financing by project
beneficiaries, member governments
or domestic financial institutions
due to unforeseen and unavoidable
circumstances; and/or
(iii) Increase in project costs above normal
contingencies.
(b) To execute the second or subsequent phase
of projects if these projects were designed
for multiphase financing by cofinancing
partners or by IFAD;
(c) To scale up project activities through a
modular, thematic and/or geographical
expansion of activities/components found
to be achieving development results during
implementation; or
(d) To bridge financing between two projects
under a longer-term programmatic
approach.
11. Applicable guidelines for additional financing
can be found via the following link: Revised
guidelines for additional financing for
ongoing projects.6 The guidelines specify
eligibility criteria, including criteria applicable
to additional financing proposals, criteria
for submitting a proposal, the review
process, approval procedures and required
documentation.
6 See exhibit B-1 President’s Bulleting PB 2014/01/REV.1.
7 Please refer to exhibit C-4 Information Circular IC/FOD/02/2013; see also module E.
12. Amendment of the existing financing agreement
(FA) is the preferred option for FAs governed by
previous versions of the General Conditions,
as all new FAs are subject to the new General
Conditions and administering financing
governed by two different sets of General
Conditions would be difficult.
13. Additional financing may have the same closing
date and expenditure categories as the original
financing, and funds may thus be withdrawn
concurrently from both. Before finalization
of the new FA or amendment of the original
one, the FO and CPM should consider how
the resources of the original and additional
financing will be drawn down, that is, whether:
(a) On an equal financing basis;
(b) Progressively (based on the ‘age’ of the
financing); or
(c) Following another principle (e.g. the
movement of selected categories or
first drawing down the resources of
the additional financing if it has fewer
expenditure categories than the original
financing).
14. The manner in which expenditures will be
attributed to the original and additional
financing should be clarified in schedule 2 of
the additional financing. The standardized
category descriptions for the loan/grant
allocation tables in schedule 2 of the FA7
must normally be applied for the additional
financing. If it is considered necessary to
retain the original category descriptions for
the additional financing, FOs must verify
the compatibility with FlexCube (FXC) by
consulting ACD systems staff. See module
E section E.13 for a description of exchange
rates to be applied to the SDR/denomination
currency amount(s) of the total financing stated
in the FA.
Module B
A 9
 15. The FO and CPM should also agree on an
appropriate DA modality, if foreseen, including,
when necessary, other ways of increasing
the project’s overall authorized allocation
(AA). The AA amounts of both the original
and additional financing must be taken into
account to ensure that the DA replenishment
modality is applicable to both. The recovery
trigger for additional financing is based on the
cumulative balances of the unrecovered AA and
available financing. The letter to the borrower/
recipient (LtB/R) of the original financing
must be amended to include provisions for the
additional financing.

B.5 Grants and supplementary funds

16. IFAD provides global, regional and country- 17. Grants may be denominated in SDR or in other
specific grants from its own resources, and currencies (the denomination currency – see
grants financed by supplementary funds. Eligible module C, section C.5).
recipients of IFAD grants can include developing
18. Grants financed by supplementary funds are
Member States, intergovernmental organizations
usually denominated in the same currency as
(including United Nations agencies and CGIAR
that paid by the donor (module L provides
centres), civil society organizations, academic
further guidance).
institutions and the private sector. Large grants
extended to Member States are provided
through an FA. Large grants to other recipients
and small grants have their own grant agreement
models, which are not subject to the General
Conditions and are separately addressed in
modules K and L of this manual.

B.6 Debt Sustainability Framework

19. IFAD has adopted a model based on that of 20. Under the DSF, countries eligible for highly
the World Bank. Countries with low debt concessional lending receive financial assistance
sustainability (‘red light’ countries) are eligible on as grant rather than a loan basis. IFAD is
for assistance on 100 per cent DSF grant terms; expected to be compensated on a pay-as-you-go
countries with medium debt sustainability basis (according to the underlying amortization
(‘yellow light’ countries) are eligible for assistance schedule for principal amounts, while the interest
on 50/50 DSF grant/loan terms; countries with is forgone). Principal repayments should occur as
high debt sustainability (‘green light’ countries) replenishment contributions by Member States.8
are eligible for 100 per cent loans, on either
highly concessional, blend or ordinary terms.
Financing plans for yellow light countries must be
thoroughly assessed by IFAD and discussed with
the B/R to work out the most suitable allocation
of loan and grant funds throughout the project
implementation period. The most usual case and
the easiest to administer is 50:50.

8 Eligibility for DSF financing is determined by a country-by-country debt sustainability analysis conducted by the World Bank
and the IMF.

10
B.7 Operational Guidelines for the
determination of financing terms
applicable to IFAD’s Borrowers;
Principles and Procedures
21. Delegation of Authority. FMD is accountable for
monitoring and implementing the operational
procedures, in strong collaboration with OPE,
and other divisions as required.
22. Underlying parameters for determination of
financing terms. An underlying principle for
these operational guidelines is to follow the
principles set out in the Polices and Criteria
for IFAD Financing (the Policies) without
introducing significant changes from past
practice. Further changes to the operational
guidelines may be implemented for reasons of
clarity, enhanced transparency and subject to any
related policy changes, as relevant.
23. The Policies set out the definition for countries
eligible for highly concessional blend and
ordinary terms as follows, (Parag 15 (a) (ii)):
(i) Members having a gross national product
(GNP) per capita of US$ 805 or less in
1992 prices or classified as International
Development Association (IDA)-only
countries (The World Bank Operational
Manual-OP 3.10-Annex D), shall normally
be eligible to receive loans from IFAD on
highly concessional (HC) terms. The total
amount of the loans provided each year
on highly concessional terms shall amount
to approximately two thirds of the total
amount lent annually by IFAD;
(ii) Members which are eligible for IDA blend
terms will be eligible for IFAD blend
terms, provided that they are above the
IFAD threshold for eligibility for highly
concessional terms;
24. The Policies also establish that IFAD should
provide financing under the debt sustainability
mechanism (DSF) to eligible Member States, in
the form of grants or a combination of a grant
and a loan on highly concessional terms.
25. Triggers for Transition. The parameters
comprise the following:
a. The guiding principles and criteria shall be
normally applied in a consistent manner
for all Borrowers to ensure fair and equal
treatment of all Borrowers, in line with
IFAD’s policies and procedures.
b. Annually, the GDP deflator factor is
applied to the 1992 GNP thresholds, using
the OECD Economic Outlook database,
available on http://www.oecd.org/, to
calculate the equivalent current thresholds.
c. Once the thresholds have been calculated,
further conditions have to be considered in
preparing the financing terms, as follows:
– All IDA-only countries, HC terms are
applied automatically;
– For Blend countries, the cut-off points
are used based on GNI per capita to
determine if the country is subject to
HC or Blend lending terms;
– Countries eligible for IBRD financing
will be provided Ordinary lending terms
from IFAD
– Once the lending terms have been
identified, the DSF grant eligibility
percentage is applied.9

(iii) Members having a GNP per capita of

US$ 1,306 or above in 1992 prices shall
normally be eligible to receive loans on
ordinary terms.

9 As per the Operational Policies of the World Bank Operational Manual – OP3.10 Annex D

Module B 11
 26. Communication process for borrowers in 30. Debt servicing capacity issues. For countries
transition. FMD will present an information with specific debt-servicing capacity issues, an
memo to EMC annually, with an analysis of the assessment may be made by the President of
underlying reasons for change. In so doing, it IFAD of the Member State’s debt sustainability
will consult with OPE, PDMT and LEG. and its debt-servicing capacity in order to
determine the financing terms to be applied.
27. Definition of the length of transition period
This should be done on an ad hoc basis based
including Reversal. IFAD will continue to apply
also on country demand and in conjunction
changes on an annual basis by calendar year
with PMD regional teams. Any such assessment
(hence will be applied normally six months after
would be brought for endorsement to the
those of the World Bank).
EMC. In all cases, the Executive Board holds the
28. Communications with MDBs. Coordination delegated authority to approve financing terms
with other MDBs will be strengthened further for individual projects.10
to enhance knowledge of trends and expected
transition countries.
29. Communications with the Borrower when
applicable lending terms change. Following the
EMC communication for changes in financing
terms, a communication will be made to the
Borrower to explain timeframes and impact
normally through the Regional Director,
although PMD and FMD may agree differing
arrangements depending on the country context
(e.g. directly through the CPM). The CPM,
with strong support from the Finance Officer,
will provide necessary follow-up with direct
counterparts at Government level. Additional
information regarding the effective financing
terms will be published on IFAD web site as
appropriate.

10 LEG, PMD and FMD would consult to review such exceptional cases on a case by case basis.

12
IFAD PROJECT CYCLE OVERVIEW
MODULE C
 Module C
IFAD project cycle overview
• Introduction
• COSOP
• Project design
• OSC approvals
• Negotiation of the financing agreement
• Executive Board approval and signing of the financing agreement
• Project start-up, implementation and supervision
• Midterm review
• Project completion
• Evaluation

14
C.1 Introduction
1. IFAD activities in a particular country are
undertaken by a Country Programme
Management Team (CPMT), the composition
of which is approved by the regional divisional
director. The CPMT is a resource group of
stakeholders associated with the entire country
programme cycle (from formulation of the
country strategic opportunities programme
[COSOP] to project design, implementation,
supervision and completion). It consists of
an internal component, comprised of the
2. The IFAD project cycle normally takes place in
CPM, regional portfolio adviser, legal counsel
and FO, and other relevant IFAD staff (e.g.
from the Policy and Technical Advisory or
Communications Divisions) and an external
(in-country) component, usually including
the CPM (if outposted), representatives of
government ministries, directors of ongoing
IFAD projects, and representatives of CIs,
donors based in the country and civil society
involved in the IFAD country programme
(NGOs, community-based organizations,
farmers’ organizations, other member-
based organizations, indigenous peoples’
representatives, etc.).
phases. These are described in the following
paragraphs, together with the relevant FM
procedures to be implemented by FMD FOs.

IFAD Project Cycle

(the following are the ten steps to form the project cycle image)

10.
Project
Completion

9.
and Closing
1.
Results from
Mid-term the COSOP
Review
8.
Supervision
and
2.
Implementation Project
Support Design

7. 3.
Implementation Negotiation
of Financing
Agreement

6. 4.
Project start-up Board
and PIU
5. Approval
Signing of
Financing
Agreement
and LTB

Module C
A 15
 C.2 COSOP
3. The COSOP is the main instrument in defining 6. The results of this country-level FMA are
strategy and identifying opportunities for IFAD’s summarized for the COSOP in the Fiduciary
interventions at the country level, usually over Summary of the Country Portfolio, which is
a five-year period. As the starting point of the prepared by the FO before the meeting of the
project cycle, the COSOP normally contains Operational Strategy and Policy Guidance
outlines for future project ideas, as well as initial Committee (OSC) at which the COSOP will
selection of the project supervision modality be reviewed. The FO is required to submit a
and approach. brief of country financial data, included in
the PFM highlights. This PFM information
4. In the COSOP formulation phase, overall FM
is obtained from internal diagnostic reports
risk is assessed at the country level. Assessment
and country fiduciary summaries. The brief is
of country financial and audit systems is the
then incorporated into the COSOP document.
responsibility of FMD.1 This assessment is a desk
Exhibit C-1 Fiduciary Summary of the Country
review of the relevant documentation available
Portfolio.
on: governance; Transparency International’s
most-recent Corruption Perceptions Index 7. If the outcome of the assessment is negative
(CPI) scores; findings of any recent donor- (i.e. all components of national public FM
funded financial-management diagnostic systems are found unsuitable for project use),
reviews; and any recent reports from donors and then the COSOP will state that national systems
development partners (e.g. Public Expenditure cannot be adopted for the time being. If, on the
and Financial Accountability [PEFA] assessments contrary, the initial assessment is positive (i.e.
or similar). This information is supplemented some components of national systems are found
by data on each ongoing IFAD country portfolio suitable or partially suitable for project use),
and the FM risk ratings assigned to it. A country then the results will be stated in the COSOP
financial management assessment (FMA) text is and used as the foundation for a project-specific
drafted for input into the COSOP. assessment to be conducted during the
design phase.
5. When a Member State and IFAD are unable
to define detailed objectives or develop a
programme for the medium term, a country
strategy note (CSN) is prepared instead of an
RB-COSOP. In addition, subject to approval
by the Associate Vice-President (AVP), PMD,
CSNs can also be prepared for countries with
an allocation equal to or below US$5 million
under the performance-based allocation system
(PBAS). CSNs are expected to be transitional
documents, and most country teams are
expected to transition to full RB-COSOPs.

1 Assessment of country procurement systems is the responsibility of PMD and is described in detail in the Project Procurement
Guidelines and the IFAD Procurement Handbook.

16
C.3 Project design
8. The design phase, led by the CPM, starts 11. Project-specific assessments of the FM capacity
with elaboration of the project concept note of the implementing entity are carried out in
(sometimes part of the COSOP process), which this phase by FMD. A financial management
is more fully developed during design. specialist (FMS) in the field may complete the
The next step is preparation of the project design detailed assessments and documentation.
report (PDR), which incorporates the high-level The FO will review and clear the outputs to
country analyses contained in the COSOP, a ensure compliance with the guidelines.
detailed project description and project-specific The evaluation covers:
analyses, implementation and institutional
(a) Adequacy of planning/budgeting tools;
arrangements, project benefits, costs and
financing, project risks and sustainability, (b) Funds flow;
innovative features, and learning and knowledge (c) Internal control systems;
management strategies.
(d) Accounting systems;
9. As a member of the CPMT, the FO advises
the CPM in the design process, paying (e) Treasury management systems;
special attention to the project financing (f) Financial reporting and auditing; and
plan, categories of expenditure, financing
(g) FMA (module D).
percentages, operational modalities of project
and advance accounts, funds flow analysis, The evaluation thus ensures the practical
audit requirements, thresholds for the use application of existing regulations; existence
of statements of expenditure (SOEs), and of appropriate control mechanisms; presence
conditions precedent to withdrawal. The FO of sufficient, competent human resources;
briefs members of the design mission on adequacy of the organizational and functional
IFAD’s FM requirements and debriefs returning setup (including record-keeping); adequacy of
missions. Detailed procedures for assessment audit capacity (see module I, section I.1); and
of FM capacity and risk relating to design are overall management capacity of the B/R.
provided in module D.
10. Country officials are also involved closely in the
project design phase, during which the bulk of
negotiations with the government takes place.
Discussions, studies and analyses are carried
out at this stage, with a view particularly to
final decisions on essential aspects of project
implementation:
(a) Use of national procurement and FM
systems;
(b) Requirements for the FM and monitoring
and evaluation (M&E) systems to be
implemented in the project;
(c) Assessment of national audit capacity; and
(d) Supervision modality.

Module C
A 17
 C.4 OSC approvals
12. The FO prepares a Fiduciary Summary of the
Country Portfolio for each OSC meeting at
which COSOPs or project concept notes are
reviewed. The summary must be provided to
QAG two weeks before the OSC meeting.
This in turn requires the summary to be sent
at least thirteen working days prior to the OSC
meeting to the cluster’s respective team leader,
FMD, for his/her review and comments on the
Fiduciary Summary. These are forwarded to the
Director, FMD, who normally attends the OSC
meeting to provide guidance to the committee
and ensure that IFAD corporate decisions to
be submitted to the Executive Board include
information on compliance with corporate
financial policies and procedures – and also to
provide feedback with respect to any emerging
risks/challenges (see exhibit C-2, FMD Quality
Assurance Procedures). The final summary must
be shared with the OSC one week before the
meeting. FMD comments are incorporated in
the reports, and the documentation presented
subsequently to the Executive Board requires
FO clearance.

C.5 Negotiation of the financing

agreement
13. Once it has been completed, the PDR is produce meaningful analytical reports on
submitted for a final project quality check disbursements against categories of expenditure.
through the quality assurance (QA) process.
15. The draft FA is prepared by legal counsel and
Following a QA decision to submit the project
cleared by the CPM and FO. The CPM verifies
to the Executive Board for approval, the CPM
that the draft agreement is consistent with the
prepares a ‘President’s report’ that summarizes
PDR and that all necessary project conditions
the main implementation, institutional and
are incorporated as appropriate. The FO assists
financial aspects of the proposed financing. The
in the preparation of financial clauses: financing
FO prepares the financial aspects pertaining to
amount, lending terms and preconditions to
section IV(B) President’s report (fiduciary template)
disbursement, and the schedule 2 allocation
shows the format of a President’s report. After
table and withdrawal schedule, including
clearance in Scriptoria by the FO,2 LEG and the
arrangements for disbursement and retroactive
PMD regional director and approval by the AVP,
financing. Module E provides separate guidance
PMD, the report is submitted to the Executive
on schedule 2 allocations for those projects
Board. The PDR is made available to Executive
financed jointly from loan and DSF grants, as
Board members as well.
well as other financiers’ funds.
14. Expenditure categories presented in the FA
16. The FO explains the lending terms during
(schedule 2) have been standardized since
negotiations and requests the borrower to
2013.3 All future project cost categories must
confirm the dates when repayments will be
conform to these. FMD staff should include brief
due (twice yearly). S/he presents a tentative
explanatory notes in schedule 2 to clarify the
amortization schedule to the borrower, based
nature of eligible expenditure and strengthen
on assumptions as to when the loan will
expenditure eligibility checks by FMD at the
become disbursable, and the repayment dates.
time of disbursements. Requests for new
Once the loan has been approved, this must
category descriptions may be accommodated
be communicated to ACD. Where the loan
if these can be linked to the nearest underlying
is negotiated on ordinary terms, FMD must
category. The standard categories are linked
communicate to ACD as soon as disbursement
to global categories, which enables IFAD to
conditions are met.

2 E-mail clearance from the respective team leader must have been received prior to FO final approval.
3 See exhibit C-4 Information Circular IC/FOD/02/2013.

18
17. Where project financing approval is required in 19. During negotiations, key FM issues to be dealt
various denomination currencies, the following with in the LtB/R should also be explained to
procedure is applied: the B/R delegation to ensure clarity regarding
the aspects described.5 These include the
(a) Where project financing is from IFAD’s4
following project financial aspects: modality of
regular resources, and the main financing
provision of the DA, counterpart funds, flow of
is in SDR, exceptions may be authorized
funds, SOE thresholds and audit arrangements.
for the component grant in another
Where these were not fully determined during
denomination currency; this is subject to
the design phase, they may be further discussed
clearance by the Treasury Division (TRE) to
with the B/R delegation. Further detailed
confirm that IFAD’s currency exposure can
guidance with respect to selection of DA
be hedged.
modalities is provided in module H.
(b) Where the main financing (again from
20. At the conclusion of negotiations, the CPM
IFAD’s regular resources) is denominated in
and the authorized representative of the B/R
a denomination currency other than SDR,
initial the agreed FA and sign the minutes
the related component grant financing
of the negotiations, which have been cleared
is normally in the same denomination
by LEG and FMD.
currency as the main financing;
(c) For supplementary donor financing, please
refer to module L;
(d) For borrowed resources, financing will
typically be in the same currency as that
borrowed, unless agreed otherwise by the
AVP, FOD.
18. A draft FA is sent to the B/R as far in advance
of negotiations as possible, and the B/R is
invited to provide written comments. Almost
all design issues, including those relating to
FM and disbursement, should normally have
been extensively discussed with the B/R prior to
negotiations. Negotiations are usually held at
IFAD headquarters in Rome, but they may also
take place in the Member State or elsewhere,
via videoconference, or through exchanges of
correspondence. The CPM leads the negotiating
team and is assisted by legal counsel and the
FO. Legal counsel provides explanations of the
General Conditions and other legal matters.
The FO handles discussion of the articles and
schedules related to FM, and is responsible for
briefing the B/R on IFAD’s core disbursement
principles, withdrawal procedures, the LtB/R,
and loan repayment policies and procedures.
Final decision on the language used in the FA
rests with legal counsel.

4 Agreement Establishing IFAD, article 4, Resources.

5 FM aspects outlined in the LtB/R are discussed for information purposes and to ensure clarity on the side of the B/R; no
negotiations with regard to these specific FM elements takes place.

Module C
A 19
 C.6 Executive Board approval and
signing of the financing agreement
21. Projects are generally submitted to the Executive 23. In exceptional circumstances, Executive Board
Board for approval only after both IFAD and the approval may be provided on a conditional
B/R have initialled the negotiated text of the FA. basis. This could be for varying reasons:
The negotiated text is disclosed to the Executive technical issues in the project design that need
Board as an appendix to the President’s report. further clarification or due diligence, or because
negotiations have not yet been completed.
22. Certain projects may be submitted to the
When the specific exceptional circumstances
Executive Board under the ‘lapse-of-time’
are known beforehand, legal counsel must
(LOT) procedure.6 It is also possible to submit
be consulted and the President’s report must
projects to the Executive Board for a vote by
specifically disclose these circumstances and
correspondence:
request conditional approval accordingly.
(a) Negotiated FAs will be delivered to In all such cases, the date when all conditions
representatives at least five business days set by the Executive Board are fulfilled is
prior to the lapse of 30 days following recorded in FXC, and final maturity dates are
delivery of proposals (i.e. President’s determined accordingly.
reports and project design documents).
(b) If the negotiated FA is not posted on the
Fund’s website by the deadline, and/or
there are substantial changes with respect
to the terms and conditions presented to
members in the President’s report, the
proposal concerned is withdrawn from
the LOT approval process. It may be
resubmitted for approval later, either under
the LOT procedure or at a regular session of
the Executive Board.

C.7 Project start-up, implementation

and supervision
24. After Executive Board approval, the FA is signed
by the President of IFAD and an authorized
representative of the B/R. Once the FA has
been signed by the authorized representatives
of both parties (and ratified if required),
it enters into force. Once entered into force
according to section 4.02(b) of the GC, no
withdrawal ,except for start-up costs, shall be
made from the loan and/or grant accounts until
the first annual workplan and budget (AWP/B)
has been approved by the Fund and IFAD has
determined that all other conditions precedent
to withdrawal
(if applicable) have been fulfilled. These include:
establishment of the project implementation
unit (PIU);7 accounting systems, FM procedures,
and internal control systems in place; and DA
and project account(s) (if any) opened. Some
projects require retroactive financing and/or
start-up costs to ensure functionality.
The project is implemented by the PIU, with
periodic supervision and implementation
missions undertaken by IFAD to report on its
progress. These stages are treated in depth
in module G.

6 For applicable rules and procedures, see http://intranet/divisions/ead/es/doc/lapse.pdf.

7 This is often also referred to as the project coordination unit (PCU) or project management unit (PMU).

20
C.8 Midterm review
25. In accordance with GC section 8.03(b),
“if specified in an Agreement, the Lead
Programme Agency and the Fund shall jointly
carry out a review of Project Implementation
no later than the midpoint of the Project
Implementation Period (the ‘Mid-term
Review’).” The objective of the midterm review
(MTR) is to: evaluate the level of achievement
of development objectives and the project’s
C.9 Project completion
26. The ‘project completion date’ marks the end of
project activities. GC section 8.04 provides:
“As promptly as possible after the Project
Completion Date but in any event no later than
the Financing Closing Date,8 the Borrower/
Recipient shall furnish to the Fund a report on
the overall implementation of the Project, in
such form and substance as may be specified in
the Financing Agreement or as the Fund shall
reasonably request. At a minimum, such report
shall address: (i) the costs and benefits of the
Project; (ii) the achievement of its objectives;
(iii) the performance by the Borrower/Recipient,
the Project Parties, the Fund of their respective
obligations under the Agreement; and (iv)
lessons learned from the foregoing.”
C.10 Evaluation
29. The final phase of the project cycle is evaluation.
The Independent Office of Evaluation of
IFAD (IOE) assesses the impact of IFAD-
financed projects through country programme
evaluations (CPEs), which provide the building
blocks for preparation of a new COSOP for the
country. CPEs essentially entail an assessment of
three interrelated components:
8 Only in cases of ‘force majeure’ that impede timely delivery of PCRs can a waiver be requested from the AVP, PMD, by regional
directors (memo AVP, PMD, Operational Procedures on Completion Reporting, 11 November 2015).
expected impact on beneficiaries, dating from
project start-up; identify constraints and issues
related to all aspects of project implementation
(technical, institutional, organizational,
financial and administrative); and recommend
remedial action or reorientation of the project
as necessary. MTR recommendations may result
in amendments to the FA or cancellation of all
or part of the financing.
27. The project completion report (PCR) also
includes an analysis of project costs and financing:
adequacy of the financial projections in the
original design; financial execution against
loan allocation; timeliness and adequacy of
contributions from the various financiers; and FM
issues (e.g. flow of funds, accounting, financial
reporting and audit). The respective government
leads preparation of the PCR, and PMD oversees
the quality and timeliness of the completion
process and the report and provides support where
necessary. The PCR is shared with FMD for review
and feedback on financial and FM performance.
28. Guidance on project completion in relation to
financial closing and extensions to the completion
date can be found in modules E and F, respectively.
(a) The project portfolio;
(b) Non-financing activities: policy dialogue,
partnership-building and knowledge
management; and
(c) COSOP performance, in terms of relevance
and effectiveness.
Module C
A 21
FINANCIAL MANAGEMENT AT PROJECT DESIGN
AND APPROVAL MODULE D
 Module D
Financial management at project design and approval
• Objectives and principles of financial management assessment
• Responsibilities and roles of FMD staff
• Risk assessment methodology
• Designing project FM arrangements
• Database of risk ratings
• Risk-based disbursement – design of disbursement arrangements
• Approval processes

24
D.1 Objectives and principles of financial
management assessment
1. IFAD’s FM strategy requires assessment of the 2. Where the capacity is assessed to be less than
lead project agency’s (LPA) capacity to maintain adequate, assessment identifies the resultant
acceptable FM arrangements. This is considered FM risks and proposes measures to mitigate
acceptable if the arrangements for staffing, them. FMA is thus an integral part of the overall
budgeting, flow of funds, accounting, financial project fiduciary risk (PFR) assessment process.
reporting, internal control, and internal and The findings and conclusions of FMA are a
external auditing systems can ensure that the primary source of input into finalization of
executing and/or implementing agency has, or project design with respect to flow of funds and
will have, sufficiently strong FM systems in place accountability arrangements.
during project implementation. Such systems, in
3. The fiduciary risk of each project will be
turn, must have the capacity to properly manage,
assessed initially during project design and then
control and report project finances so as to
reviewed at least annually throughout the life of
ensure that project funds are used economically
the project. The ‘project fiduciary risk rating’ will
and efficiently for the purposes intended. An
be categorized as low, medium or high
FMA must be carried out in sufficient scope
(see section D.3).
and detail to provide IFAD with all needed
information on the LPA and other project
parties. FMA should include information on the
FM capacity of each project party involved in
handling financing proceeds1 and proposed FM
arrangements during project implementation.

D.2 Responsibilities and roles

of FMD staff2
4. Financial management staff begin their project implementation arrangements, past experience
engagement at an early stage of design and with the proposed implementing entity, the
remain engaged thereafter, from negotiations nature of components, and expenditures and
with the B/R through approval of the financing, the financing plan.
project implementation and closure. As
5. After OSC approval of the concept note, work
described previously, project design starts after
on design is initiated by the CPM. During
a project has been identified and a concept
project preparation, FMD staff assess the
note is approved internally at the OSC. For
FM capacity of the implementing entity and
this meeting, FMD prepares a country fiduciary
FM arrangements of the proposed project to
summary (see exhibit C-1 Fiduciary Summary of
identify risks relating to the accountability
the Country Portfolio), which includes comments
of funds. FM arrangements of the entity(ies)
on the country’s fiduciary environment, recent
responsible for the IFAD-financed operations
portfolio fiduciary experience and preliminary
include those for organization/staffing,
comments on the concept note. In drafting
budgeting, accounting, internal control, flow
these comments, FMD staff should consider
of funds, financial reporting, and internal and
fiduciary implications of the proposed design,
external auditing. FMD staff advise the CPM on

1 These normally include the LPA, project implementing agencies at central and subnational government levels and participating
financial institutions, as applicable.
2 The term ‘FMD staff’ comprises FOs as well as FMSs contracted by IFAD as short-term consultants under TORs approved by
the FO. When substantive work is done by FMSs, the output should be submitted to FOs, who will be responsible for its quality.

Module D
A 25
 appropriate risk-mitigating actions to ensure
accountability of funds, and discuss appropriate
FM and disbursement arrangements with the
7. FM staff work in collaboration with the relevant
B/R. When appropriate, specific covenants for
these actions are developed and inserted in the
FA. Results of the risk assessment and proposed
FM arrangements are documented in annex 7 of
the PDR (see exhibit D-2 Summary of Financial
Arrangements (annex 7).
6. All proposed projects are subject to quality
enhancement (QE) review, managed by the
Policy and Technical Advisory Division, and
to the QA process, coordinated by the Office
of the Vice-President. These processes aim to
improve the design of a project, taking into
account the experiences of similar projects and
lessons learned during implementation. The FO
D.3 Risk assessment methodology
8. Risk assessment considers project design
elements, as well as institutional capacity for
FM. The approach to be taken depends on
whether the entity that will manage funds
already exists or is still to be established, as
described below.
9. Assessing inherent risk. Country FM risk
may have been assessed during the COSOP
cycle. So, where a COSOP has been prepared,
it will provide relevant information on the
environment into which IFAD funds will flow.
However, if a COSOP has not been prepared,
an alternative basis for assessment of inherent
risk must be used, involving one or more of the
following sources:
(a) If available, recent IFAD experience within
the country/sector may provide a clear
indication of risk levels, in particular with
respect to PFM, institutional capacity and
governance;
(b) Results from recent assessments3 by other
donor partners, where available.
3 Typically, within the last three years.
4 www.idi.no or www.intosai.org.
26
clears the FM aspects of the negotiation package,
comprising the PDR, LtB and draft FA.
CPMs. When design work is carried out by
an FMS, the FO is responsible for the quality
of work. S/he reviews its technical quality
to ensure that inputs to the PDR adhere to
FMD guidelines and procedures, and that
an appropriate summary is presented in the
President’s report. FMA should take place during
the project design mission. Initial findings
should be discussed with the CPM at the earliest
opportunity, so that s/he may inform the project
design team. The draft FMA report should be
submitted to the FO and CPM at the end of
that mission for inclusion in project design
documentation.
The main international PFM diagnostics
currently in use include:
(a) Public Expenditure and Financial
Accountability (PEFA) assessments;
(b) Country Financial Accountability
Assessments (CFAAs), prepared by the
World Bank;
(c) Reports on the Observance of
Standards and Codes (ROSCs) (fiscal
transparency);
(d) Supreme Audit Institutions
Performance Measurement
Framework.4
(e) Where one or more of these reports
is not available, researching other
relevant national documents is
recommended, such as: legislative
documents, national audit authority
reports, reports stemming from anti-
corruption policy and the Economist
Intelligence Unit.
10. Currently, the diagnostic report most easily
available is the PFM Performance Assessment
using the PEFA framework.5 The findings of
the PEFA assessment become particularly
relevant when considering assessment of
country FM systems that could be used for
project implementation (e.g. treasury single
account and supreme audit institutions [SAIs]).
Reference may also be made to diagnostic
studies done by other bilateral or multilateral
donors where these are available. Note that
PEFA assessments generally focus on the central
government (e.g. ministries of finance) and do
not normally include subnational governments
or specific line ministries such as agriculture.
Where a project FMA has recently been
completed for a project financed by another
donor, its findings on institutional capacity can
be used and references appropriately quoted.
11. The perceived level of inherent corruption
within the country gives a general guide as to
the level of inherent risk within the context
of the country’s governance environment.
Transparency International’s annual CPI is a
useful indicator. IFAD’s rural-sector performance
(RSP) scores6 also provide a focused assessment
of potential risk in the rural sector in
which IFAD operates. An indicator of rural
accountability, transparency and corruption,
the RSP score is posted annually on the FM
dashboard by FMD staff.
12. This initial country-level inherent risk
assessment should be completed as a desk
review before the start of project-level
FMA, as the results will shape views on the
organizational structure to be adopted,
implementation arrangements and specific
demands that will be placed on the FM system.
The results of this review should be documented
in the Fiduciary Summary of the Country
Portfolio prepared for the OSC meeting.
13. Inherent risks may also arise from project design
features – such as complexity of implementation
arrangements – and distinctive features of
proposed implementing agencies – such as
5 Assessment reports are normally available at www.pefa.org.
6 RSP assessment scores are compiled and published annually by PMD and are fed into IFAD’s PBAS. The overall score is a
combination of scores for 12 indicators. One of them, the E(ii), scores ‘accountability, transparency and corruption in rural areas’,
and thus is referenced in the Risk-Based Disbursement Guidelines.
7 IFAD is a signatory to the Paris Declaration (2005).
8 In a variation of the ring-fenced model, a donor partner has already established a PIU for an earlier project, on the basis
described in paragraph 14(c), and this unit then takes on implementation of the new project as well.
weak capacity, legal structures or governance
arrangements. Staff should consider this risk
based on documented information about
project implementation arrangements.
14. In this context, implementation of an IFAD-
funded project will often be managed through a
PIU. Various PIU organizational models can be
adopted, depending on circumstances. Typically
these are:
(a) A permanent PIU is already
established – within the government
or ministry and staffed by government
employees – that manages implementation
of all current projects. The unit could be
established as either an integral component
within its existing organizational structure,
using corporate systems, or as a stand-alone
unit, using its own systems. Where feasible,
this organizational structure should be
the preferred option, as it supports IFAD’s
commitment to country ownership.7
(b) The government or the ministry creates
a PIU specifically for the project, which
will use its own discrete FM systems, but
will be staffed and led by government
staff, supported as necessary by external
specialists. This option provides a basis for
capacity-building and is the best solution
where there are significant weaknesses in
PFM capacity that cannot be remedied.
(c) The government or the ministry, together
with support from IFAD, creates a
dedicated PIU specifically for the project,
outside the government or ministry
organizational structure (referred to as
‘ring-fenced’). The PIU would create its
own discrete FM systems and would be
staffed by external specialists and mainly
non-governmental staff.8 This type of
model is the least desirable option, as it
provides little, if any, basis for building
in-house capacity, but may be preferred in
a risky country context (weak government
institutions) to ensure project effectiveness.
Module D
A 27
 (d) Experienced government or ministerial entities
with strong capacities may be charged with
additional responsibility for a new loan. The
entity would act as the main focal point in the
LPA, without the need for a PIU.
15. In general terms, the higher the inherent risk,
the more overtly FMD should seek to ensure
that appropriate FM arrangements are, or will
be, in place at the project level. The decision
must finally be taken in consultation with the
CPM. As a general rule:
(a) An assessment rated ‘high risk’ would
generate the conclusion that the country
PFM systems should not be used ‘at this
time’ without significant mitigation action.
(b) An assessment rated ‘medium risk’ indicates
that the preferred option is possible (i.e.
to use an organizational structure that
meets IFAD’s commitment to implement
the Paris Declaration rather than design a
ring-fenced solution). However, proposed
in-house arrangements must be carefully
appraised during project-level FMA
to identify, where necessary, feasible
mitigation actions that will ensure that
IFAD’s fiduciary obligations are satisfied.
Alternatively, FMA may identify specific
components of country systems that are
assessed as less risky and could be used for
project implementation.
(c) An assessment rated ‘low risk’ implies, in
normal circumstances, that the country
PFM systems should be used and that
the project design should be developed
accordingly. The decision at project level
could, however, be influenced by any
previous experience IFAD has had with the
implementing entity.
16. Identifying the entity responsible for FM of
the project. Once the key decision on project
implementation arrangements is made, FMD
staff can begin project-level FMA of the entity or
unit that will provide the FM function.
17. Initially, it is necessary to ascertain which
entity or unit will be the prime focus of the
assessment. For example, in a scenario where the
9 A ‘control risk’ is the risk that the controls put in place for financial management do not provide the assurance needed
regarding the use of funds.
10 FM arrangements would be ‘appropriate’ if the executing and/or implementing agency will have sufficiently strong FM
systems and controls in place to properly manage, control and report project finances, so as to ensure that project funds are used
economically and efficiently for the purposes intended.
28
ministry of agriculture is the LPA, but a separate
dedicated PIU within the ministry will handle
both technical and financial issues, FMD staff
should focus on the financial arrangements and
the controls in place or to be established in the
PIU. Alternatively, if the separate PIU within the
ministry may be responsible only for technical
issues, and the ministry would cover all FM and
disbursement from their existing structures, then
the focus should be on the FM capacity and
control environment within the ministry. The
decision on the most appropriate institutional
arrangement for each project is made by the
CPM, after taking into consideration technical
aspects, local government regulations and
advice provided by FMD staff with respect to FM
capacity and risks.
18. Project-level assessment of control risks.9
Comprehensive project-level risk assessment
should be conducted for every project
during the design phase to establish whether
appropriate10 FM arrangements within the
implementing entity – budgeting, accounting,
financial reporting, funds flow, external audit
and internal control systems – will be, or can be,
in place when project implementation begins.
Assessment should take into account project
design elements, as well as institutional capacity
for FM. In many cases, however, the PIU will
only be established towards the end of the
design phase, and thus, as described below, FMA
will have a significantly different focus to that
carried out on an existing unit.
19. Staff should apply inherent risk assessment
as the basis for deciding how far the country
or sector FM systems and processes can be
used for project purposes, Project purposes,
and the specific risk mitigation measures that
are required. The inherent risk assessment
performed will vary depending on whether or
not the PIU is already established.
20. FMA where the PIU exists
(a) Staff should aim to identify the key risks
and vulnerabilities facing the project
by focusing on the internal control
environment in the implementing entity or
unit and on designing the proposed funds
flow arrangements.
 (b) FMA should follow a structured approach,
and staff must use professional skill
and judgement to focus on the financial
controls specific to the entity or unit being
assessed.
(c) FMA will cover the following key
FM elements:
(i) Organization and staffing;
(ii) Budgeting (systems for annual budget
preparation and monitoring of
execution);
(iii) Funds flow and disbursement
arrangements;
(iv) Internal controls;
(v) Accounting systems, policies and
procedures (including information
technology [IT] systems);
(vi) Reporting and monitoring;
(vii) Internal audit;
(viii) External audit.
(d) FMA should:
(i) Assess the level of fiduciary risk and
be proactive in identifying actions to
mitigate identified risks, as well as
implement and maintain satisfactory
FM arrangements; and
(ii) Address the project’s FM supervision
approach (scope and frequency).
(e) Staff should design and flow-chart the
funds flow arrangements, including any use
of the country’s treasury system (i.e. single
treasury account) and imprest accounts
(both primary and secondary).
(f) Also as part of FMA, staff should agree
with the implementing entity or unit on
external audit requirements to ensure that
they are in accordance with IFAD policies.11
A review should be performed of the draft
audit terms of reference (TORs) to ensure
that the scope and nature of the audit are
appropriate and that the proposed auditor
satisfies IFAD’s criteria.
11 Refer to Operational Procedures for Project and Programme Audits (revised December 2011) – see module I.
12 This short review could take place during the project start-up workshop.
(g) The Financial Management Assessment
Questionnaire (FMAQ) should be used as
the basis for structuring the assessment and
to collect the basic data needed (see exhibit
D-1/A Detailed FMAQ Project Fiduciary Risk
Assessment at Design).
21. FMA where the PIU is not yet established
(a) B/Rs often create new, dedicated PIUs
specifically to execute IFAD-financed
projects. These units are often not
established, and consequently are not
operational, until funding for the project
is about to begin. In these circumstances,
the actual FM systems will not exist in the
initial stages of project preparation.
(b) Thus FMD staff should initially focus
on the adequacy of proposed FM
arrangements and review whether the
action plan prepared by the B/R to
implement the proposed arrangements and
mitigate identified risks is reasonable and
whether sufficient capacity and resources
will be available to implement it. FMD staff
should advise on conditions to be included
in the FA to ensure that the project will
have adequate FM arrangements in place
by the time project implementation begins.
(c) A review should take place prior to the
beginning of disbursements to ensure
that the expected FM arrangements are in
place and/or that conditions precedent to
withdrawal have been satisfied.12
(d) The modified FMAQ should again be used
as a checklist of issues to be considered in
the development of FM arrangements. FMD
staff should play a proactive role in the
development and finalization of the PIU
organizational structure by constructively
commenting on initial plans, including FM
aspects, implementing arrangements and
the nature of eligible expenditures.
Module D
A 29
 (e) FMD staff should complete the PFR (ii) It creates a structured framework for
assessment table and base all conclusions assessing primary data, which is the
about risk levels on the finalized basis for identification of risk and of
organizational structure plan. They should mitigation measures.
also ensure that the CPM receives the
(b) It is, however, clearly impossible for a
draft report at the end of the mission, as
single questionnaire to adequately cover
relevant extracts may be needed to agree on
the diversity of all IFAD operations. Thus
risk-mitigating actions and corresponding
the controls listed in the FMAQ should not
covenants where appropriate.
be viewed as definitive. FMD staff should
(f) FMD staff should not focus solely on use professional judgement to focus the
proposed arrangements within the PIU, as FMAQ on the internal control environment
certain control aspects to be assessed are specific to the entity being assessed. In
outside the PIU’s scope. For example, funds other words, FMD staff should add, delete
flow arrangements, asset management or modify the questions as appropriate.
systems and external audit arrangements.
(c) Where possible, the FMAQ should
22. FMA requirements with multiple initially be completed by the B/R on a
implementing entities self-assessment basis. Before the PIU even
exists, FMD staff should prearrange to meet
(a) Where project requirements indicate the
the head of the finance function within the
need for multiple implementing entities,
entity (LPA or ministry of finance staff) to
which is typically the case when a project
explain the basis of the assessment and to
covers several regional areas or discrete
talk through the issues. Even though this
subcomponents, FMD staff must ascertain
initial meeting will be pitched at a high
if these entities will be responsible solely
level, the head of the finance function may
for technical issues, such as monitoring
be reluctant or even unable to answer all
contractor performance, or whether
questions without support. Thus the most
responsibilities will also include cash
effective and most time-efficient basis is
disbursements and financial reporting.
often for FMD staff to work with entity staff
(b) Where the second-tier entity has a purely to ‘jointly’ complete the FMAQ. The key
technical role, there is no requirement to point is that FMD staff must involve entity
undertake an FMA at this level, as a detailed staff and must ensure that the head of the
assessment is only required at the level finance function is briefed on and agrees
at which project funds are managed and with the findings. If the FMAQ is completed
controlled. However, where funds do flow as a self-assessment, then FMD staff should
down to the second-tier level, an FMA must review the responses.
be completed on each individual entity,
(d) Under either approach, it is essential that
together with a review and identification of
FMD staff validate the information received
proposed funds flow arrangements between
by undertaking a physical review of the
the LPA (usually the controlling PIU) and
selected activities. For example, ‘walking
the second-tier entities, in order to consider
through’ information relating to bank
the need to establish first- and second-
reconciliations, fixed asset registers and
generation imprest accounts within the
accounting for new projects, as follows:
flow and to assess the risks involved.
(i) Bank reconciliations are completed on
23. Financial Management Assessment
a timely and regular basis. In order to
Questionnaire (see exhibit D-1/A Detailed
be satisfied that this is actually the
FMAQ Project Fiduciary Risk Assessment at Design)
case, FMD staff should examine the
(a) The FMAQ fulfils two key functions: actual monthly reconciliation working
(i) It provides a basis for the initial self- papers to check timeliness and
assessment, by the B/R, of existing FM comprehensiveness of the work.
arrangements; and

30
 (ii) An integrated fixed asset register is
used and all accounting entries are up
to date. Verification should include
checking that: the register is operative
and its content is complete; monthly
updating procedures are complied
with routinely; account reconciliations
are performed regularly; and balances
shown in the register reconcile with
balance sheet values.
(iii) The accounting system can accommodate
new projects. Verification should
include review of: the structure of the
chart of accounts to ascertain the level
of detail that can be captured; how
previous projects have been treated;
and monthly financial reports.
(e) It is important to note that FMD staff
should work with counterpart staff
throughout the validation exercise to
develop a shared understanding of results.
24. Assessing overall project FM risk
(a) Where an FMS performs the work, s/he
should finish the FMAQ by completing
the Summary of PFR Assessment at Design
table (exhibit D-1 Summary of Project
Fiduciary Risk Assessment at Design (table)) –
entering against each element the assessed
level of risk (i.e. high, medium, low) – and
should summarize the overall level of
risk, providing additional comments as
appropriate.
(b) Where FMD staff perform the work, the
FO should use the FMAQ as the basis
for completing the Summary of PFR
Assessment at Design table.
25. Mitigating fiduciary risk
(a) Regardless of which project organizational
model is established or proposed, FMD
staff may conclude that some degree of
institutional strengthening or capacity
development is required. They should thus
detail the particular weakness to address
and specify the type and level of mitigating
action or support needed.
(i) Clearly, some issues will be more
significant or pose a greater risk than
others. Thus FMD staff must look
at the materiality and underlying
cause of each ‘weak’ rating – it
may be that ratings of subsystems
covered by the average score are all
weak or perhaps it could be that just
one poorly performing subsystem
is pulling the average score for the
indicator down. FMD staff must make
a judgement on each indicator of
whether implementation of mitigation
measures can minimize the risk to the
point where it can be reduced from
‘high’ to ‘medium’.
(ii) Mitigation actions could be, for
example: (a) filling of currently
vacant staff posts in the finance or
treasury departments, or appointment
of additional qualified and/or
experienced staff in these departments;
(b) obtaining assurance from the
B/R that key staff currently in the
posts will not be transferred before
the end of the project; (c) initial
staff training; or (d) improvement
of financial accounting or treasury
management systems, which could
include implementation of proprietary
accounting software or revisions to the
chart of accounts. Similarly, mitigation
action may be focused on project
implementation arrangements.
(iii) Timing is an important factor in
the determination of recommended
mitigation actions. FMD staff should
agree on actions and time targets
during design, and reflect these in the
FMA. Actions considered more critical
in putting accountability in place
before funds are disbursed may be
proposed as covenants in the FA.
(b) It is important at this stage in the process
that FMD staff discuss any weaknesses
and any proposed mitigation actions with
the B/R. Thus actions needed to ensure
appropriate FM arrangements should be
agreed on and put in place by the start of
the project. The format and frequency of
proposed financial reporting should also
be developed and agreed with the PIU.
Module D
A 31
 26. Use of country FM systems13 national systems are not found suitable for
use by the project, the PDR must contain a
(a) IFAD is committed to implementing
description of specific arrangements to be
international agreements on aid
implemented at the project level to satisfy
effectiveness;14 and, in the context of this
IFAD’s requirements.
strategy, to aligning IFAD procedures and
practices with country systems.15 27. Documenting the results of FMA. Assessment
results should be documented in an FMA report
(b) However, IFAD also has to be continuously
filed together with the FMAQ as a working
mindful of its fiduciary obligations16 and to
paper in FMD records. Results of FMA and the
recognize that reliance on country systems
proposed FM project arrangements are presented
can increase risk. Thus careful assessment
in a separate annex to the PDR (exhibit D-2
is needed of country PFM systems
Summary of Financial Arrangements (annex 7)).
generally, and of fiduciary risk at sector
and project levels. IFAD balances these two 28. A summary of the risk factors and mitigating
requirements by: actions is also included in the President’s report.
It is not enough to ‘suggest’ risk mitigation
(i) Using country PFM systems, where
actions. IFAD must have agreed on action plans
feasible, during implementation of
with B/Rs during project design. Where IFAD
IFAD projects; and
proposes binding conditions for these actions
(ii) Obtaining reasonable assurance that (e.g. as withdrawal conditions), these must
project funds will be used for the be clearly referred to in annex 7 and in the
purposes intended by assessing FM President’s report.
arrangements during the preparation
29. Where projects are scaled up or additional
and implementation of each operation
financing is approved for an existing project (see
and, where relevant, requiring the B/R
module B), the PDR should clearly refer to cases
to mitigate risks posed by identified
where FM arrangements worked in the past and
weaknesses.17
where they did not.
(c) IFAD’s FM strategy acknowledges that
30. The FMA report should:
the use of country systems involves a
judgement, based on a comprehensive and (a) Either provide full assurance – signifying
context-specific assessment of fiduciary risk that there are sufficient, relevant, positive
in each case. assurances to confirm the effectiveness of
key controls;
(d) Thus, when country or specific project
circumstances demand some degree (b) Or indicate any weaknesses in financial
of ring-fencing, FM staff18 will design and internal control systems and propose
project implementation arrangements appropriate mitigation actions to remedy
that satisfy fiduciary requirements, but the shortcomings. In particular, the report
which are designed to strengthen (rather must identify specific project design or
than undermine) country FM systems. For implementation features that carry high
example, any PIU should be established risk and may need monitoring during
to supplement rather than bypass the implementation.
country’s regular PFM systems. Where
13 These may include, for instance, country treasury management systems such as single treasury accounts, budgets, integrated
financial accounting systems, internal audit institutions, administrative procedures for authorization of expenditures or SAIs.
14 The Rome Declaration on Harmonisation (2003), Paris Declaration on Aid Effectiveness (2005), Accra Agenda for Action (2008)
and Busan Partnership Agreement (2011).
15 In most cases, the project will be implemented by a PIU staffed by permanent government personnel, supported, if necessary,
initially by external consultants. It would be categorized as ‘using country systems’, regardless of whether the PIU is located within
a government ministry or is established as a stand-alone unit. Alternatively, if the PIU is ‘ring-fenced’ (see module D.3, paragraph
14(c)), it would not be categorized as ‘using country systems’.
16 ‘Fiduciary risk’ as used in IFAD means risk that IFAD financing is not used for the intended purposes, for example due to: theft,
fraud, corruption or diversion of funds to other uses. It also includes the risk that funds will not be spent efficiently and economically.
17 The Agreement Establishing IFAD requires that the Fund make arrangements to ensure that the proceeds of any loan or grant
are used only for the purposes intended, with due attention to considerations of economy and efficiency.
18 These may be FMD staff and/or FMSs with appropriate qualifications and experience. Their work will be closely supervised by
FMD. Guidance on QA of work done in the field will be issued subsequently.

32
31. An indicative structure for the report would be:
(a) Executive summary, which should include
the PFR assessment table and a concise
summary of the assessment’s overall
findings, conclusions and proposed
mitigation actions;
(b) Brief summary of the organizational
structure in place, or to be established,
that will control and manage project
financial issues;
(c) Detailed section highlighting the
primary strengths and weaknesses of FM
arrangements (for existing entities only),
including actions needed to address
weaknesses, which should support the
conclusions in the executive summary;
(d) Section summarizing proposed funds flow
and disbursement arrangements;
(e) Section identifying relevant issues that may
need to be included in the FA;
(f) Section highlighting FM inputs to be
included in the overall project supervision
plan;19 and
(g) Appendices containing the finalized FMAQ
and PFR assessment table.
D.4 Designing project FM arrangements
35. The FMA is one of several inputs that together
provide the basis for finalizing project
implementation arrangements. The FO’s
work should focus on identifying risk and
risk-mitigating actions that, where possible,
will enable use of PFM systems, rather than
creating a parallel (ring-fenced) set of new FM
arrangements specifically for the project.
36. Maximum use of in-house FM systems
and procedures will be achieved where the
implementing entity or unit manages the
project within the existing organizational
structure, using either an existing in-house
PIU or a new, dedicated PIU staffed by its
own resources. Where some FM weaknesses
have been identified, it may still be possible
19 For further details, refer to Guidelines: Supervision and Implementation Support of Projects and Programmes Funded from
IFAD Loans and Grants (September 2007).
20 Confirm how many staff with accounting qualifications and/or experience are/will be available.
32. The report should be as concise as possible,
commensurate with satisfying the CPM and
FO that sufficient work has been undertaken
for IFAD to be able to rely on the conclusions
drawn.
33. The FMA report should also provide the
minimum information required to adequately
describe and assess the project’s FM systems.
Any weaknesses or gaps identified during
the assessment should, where possible, be
adequately mitigated, and the action plan for
addressing them must be agreed with the entity
responsible for project implementation.
34. Supporting documentation. FMD staff should
make brief notes of findings and relevant
evidence that supports the conclusions.
(a) In determining the level of documentation
to be prepared and retained, FMD staff
should consider what another IFAD
staff member or FMS, with no previous
experience of the assessment, would need
in order to gain an understanding of
the work performed and of the evidence
supporting the conclusions reached.
(b) The CPM and FO should retain the
working papers at the end of the
assessment.
to use in-house FM systems with the support
of experienced external specialists. Thus FMD
staff, where possible, should propose mitigation
activities that enable the use of in-house
systems. The proposed arrangements should be
outlined for all FM components.
37. The FO should consider the following, at least,
when designing FM arrangements for a project:
(a) FM organization and staffing
(i) Identification of key financial staff
positions that will maintain financial
accounts; the capability20 of these
staff members to fulfil FM needs
in all participating implementing
organizations and locations of the
project, and when the positions are
expected to be filled;
Module D
A 33
 (ii) Availability of clear job descriptions
for key project positions, including
fiduciary positions. Descriptions of
contract types for staff.
(b) Budgeting
(i) Description of budgeting
arrangements, that is, is the project
included in national fiscal budgets?
If so, how will budget appropriations
be released for the project during
implementation? Will financing be
included in government budgets at
central and state levels or in budgets of
other participating organizations?
(ii) Description of the information systems
used for budgeting purposes. Will
these be integrated with accounting
systems?
(c) Disbursement arrangements and flow of
funds
(i) Description of the complete funds
flow, and accountabilities, preferably
also in flow chart format.21 Inclusion
of disbursement/withdrawal
arrangements from IFAD and other
financing sources and downstream
fund flows to intermediaries and end
beneficiaries;
(ii) Specification of funds flow
requirements for all financing sources
including counterpart funding and
cofinancing; frequency at which funds
are likely to be drawn down;22
(iii) Brief description of disbursement
methods, proposed SOE thresholds,
DA AAs and any unique funds flow
circumstances or requirements;
(iv) Comments on the appropriate
banking arrangements: location of
the DA;23 locations where project
local currency bank accounts
will be needed; consideration of
appropriate operating authorities;
specification of which accounts
will be pooled24 and which will be
segregated. Requirements for the first
disbursement must be specified.
(d) Internal controls
(i) Description of key internal controls
over commitment and authorization
of main expenditures. Any special
documentation requirements for
vulnerable expense categories must be
specified;25
(ii) Assessment of the status of the project
implementation manual (PIM) in the
PDR for implementation readiness;
whether there are other manuals
available; and whether government
procedures will be used or not;
(iii) Segregation/independence of
functions for accounting, payments
and procurement.
(e) Accounting systems, standards, policies
and procedures
(i) Description of key policies and
procedures that demonstrate the
adequacy of the plan for the project
FM system;26 whether these are
documented;27 provision of comments
on the accounting standards28 to
be followed and if these will be
acceptable to IFAD;

21 Upstream flows from IFAD to borrower, and downstream flows from borrower to intended beneficiaries or expenditure points.
22 Refer to module H procedures and confirm consistency.
23 Central or commercial bank, or treasury single account codes.
24 For funds from IFAD and other donors or beneficiaries.
25 Consider the risk of misuse of funds under each category, and determine accounting evidence that may be necessary to
confirm that funds reach intended beneficiaries. Special documentary requirements may be needed when funds pass through
intermediaries before reaching beneficiaries. If so, these requirements should be communicated to ACD through the FMDB tool.
26 Specifically confirm whether cash, modified cash or accrual accounting standards will be adopted; if the unit has sufficient
capacity and experience with these standards; and whether accounting will be on a double or single entry basis.
27 If documentation is not available for a new PIU, this should be stated and included in the action plan.
28 Accounting standards acceptable to IFAD include the International Public-Sector Accounting Standards (IPSAS) and the
International Financial Reporting Standards (IFRS). Refer to module G.10 for additional guidance.

34
 (ii) Confirmation of whether an
automated accounting software
package will be used for project
accounting purposes and its suitability
for project accounting. Comments on
how the system will ensure that all
financial transactions at all spending
entities/locations will be recorded
promptly into project accounting
systems. Assessment of the system for
required built-in controls (see exhibit
D-3 Checklist for evaluating project
accounting software);
(iii) Description of the adequacy
of processes for recording and
safeguarding project fixed assets;
(iv) Accounting systems, standards, policies
and procedures must be assessed at
both central and decentralized project
locations. Comments on how other
funds – contributed by beneficiaries,
government or cofinanciers in
cash or expenditures prefinanced
by beneficiaries or participating
organizations – will be captured in
the accounting system.29 Comments
on accountability mechanisms and
the basis for valuing and recording
contributions in kind and government
counterpart funding.
(f) Financial reporting
(i) Description of the financial reporting
systems, frequency and content, and
of the ability to report on project
expenditures;30
(ii) Identification of financial reporting
standards to be used;31
(iii) Internal audit;32
(iv) Identification of whether the internal
audit function exists, or is proposed,
and if it has adequate capacity
and coverage. If not, alternative
arrangements can be proposed. The
institutional arrangements to be
applied must be specified.
(g) External audit
(i) Brief overview of the SAI or private-
sector audit firm33, including
assessment of whether audit firms are
licensed and whether international
firms are present in-country.
Specification of required qualifications
of external auditors and of standards
to be accepted;
(ii) Description of the scope of external
audit, including addressing key
assurance issues;34
(iii) Other than the financial audit,
specifications of other audits if
necessary (e.g. operational or
performance audits).
38. Regardless of which project organizational
model is established or proposed, FMD may
conclude that some degree of institutional
strengthening or capacity development is
required. They should detail the particular
weakness to be addressed and specify the
type and level of support needed. The FO, in
consultation with the CPM, should decide
what, if any, actions should be taken towards
institutional strengthening or capacity
development, and how they should be
implemented. The FO should also always
ensure that the FMA report is reviewed prior
to financing negotiations – to assess progress
in implementing the ‘agreed on’ strengthening
arrangements and to determine which, if
any, covenants or conditions precedent to

29 Define how the FM system will ensure that expenditures are recognized and recorded in the accounting system only when
these are incurred.
30 Minimum financial reporting should normally include source and use of funds, reporting by expenditure categories and
components, and comparison with budgets. Suggested formats should be included in the PIM. Confirm frequency of interim
financial reporting (quarterly or semi-annually).
31 IFRS (normally applicable for revenue-earning entities) or IPSAS (normally relevant for public-sector or government reporting), or
other accounting and reporting standards.
32 If the function does not exist and if there is no agreement to arrange this coverage of project activities, the risk rating should
normally be ‘high’ for this component.
33 Based on the assessment, state whether an SAI will be used or private-sector audit services procured. If the latter, confirm that
the IFAD Guidelines on Project Audits will be followed, especially with respect to timeliness and quality. Confirm compliance with
module I procedures.
34 Refer to the standard template for TORs for the audit.

Module D
A 35
 first withdrawal must be included in the FA
so as to ensure that the project will have
adequate FM arrangements in place by the time
implementation begins.
39. In all cases, the FO is responsible for preparation
of the LtBs. Draft FAs should be cleared by the
FO and LEG prior to negotiations to confirm
that all covenants and instructions related to
appropriate FM risk-mitigating actions and
disbursement arrangements have been properly
reflected in these documents. It is mandatory
that the FMD FO participate in negotiations and
clear the draft minutes of the negotiations.
40. For each project, as part of overall
implementation arrangements, FMD staff
should develop an FM supervision plan,
based on an initial evaluation of the risks
assessed during FMA. The plan should
include specification of project FM reporting
requirements, and it should also set the
frequency and focus of on-site review visits.
It should highlight key risk factors to be
specifically monitored and how compliance
with covenants will be monitored. The FM
supervision plan should be coordinated with
the CPM, FO and other members of the CPMT
and be an integral part of the overall project
supervision plan.
D.5 Database of risk ratings
43. The Financial Management Dashboard (FMDB)
contains all individual project risk ratings under
the custodianship of the regional team leaders
and can be accessed through the following link:
FMDB. FOs create a new project record in the
database of risk ratings by following the primary
project details as soon as the concept note is
approved by the OSC. The record is updated
no later than the date of the QA meeting that
considers the project for submission to the
President. FOs also update risk ratings during
supervision and record changes in the FMDB
promptly after completion of mission reports.
44. Periodic reports can be generated from the
FMDB on risk and performance profiles for
individual or groups of projects. These reports
35 See footnote 30.
36
41. CPI score. The latest country assessment of the
Transparency International CPI, which ranks
more than 150 countries by their perceived
levels of corruption, should be used as the
source of prime data. The CPI ‘scores’ each
country from 0 to 100, as determined by
expert assessments and opinion surveys. The
corruption risk assessment is obtained from the
following table:
56 – 100 Low risk
31 – 55 Medium risk
30 and below High risk
In general terms, the higher the risk, the more
overtly FMD staff should seek to ensure that
appropriate FM arrangements are, or will be,
in place at the project level. In accordance
with IFAD procedures, additional controls are
mandatory for high risk projects.
42. RSP score. IFAD’s RSP score35 provides a
focused assessment of potential risk in the rural
sector in which IFAD operates. It provides an
appreciation of the performance of rural sector
institutions and policies. The RSP score is rated
as follows:
4+ Low risk
3.1 – 4.0 Medium risk
3.0 and below High risk
form the basis for periodic review of risk ratings
of regional portfolios by FMD team leaders and
the Director, FMD, to ensure consistency within
and across countries. The database of risk ratings
was set up with version control, which provides
an audit trail of changes. For version control to
function, the process is as follows:
• Open the file by ‘Checking it out’;
• Make and Save changes;
• Close file, at which point you will be
prompted to ‘Check in’–click on Yes;
• You will now be prompted to comment on
the changes made, at which point you can
do so.
D.6 Risk-based disbursement – design
of disbursement arrangements
45. The objective of the risk-based disbursement
methodology is to ensure that the procedures
for preparation and submission of WAs by B/
Rs, and their scrutiny at IFAD, are aligned
with identified, documented fiduciary risks.
The use of a structured assessment of FM risks
enables IFAD to place ex ante scrutiny of WAs
within a broader array of available assurance
mechanisms, such as FM arrangements, audits,
field supervision and ex post reviews of WAs.
Thus this methodology can yield efficiencies in
the processing of disbursement requests by B/Rs.
Disbursement aspect
1. Disbursement methods
When to authorize advances
When to authorize direct payment
When is reimbursement appropriate?
2. Designated account
Where is it located?
Initial advance/AA
Ceiling for advance
Frequency of reporting/justification
Imprest vs. revolving fund
Number of DAs needed
Currency of DAs
3. Advance justification
Supporting documentation: when, what?
SOE thresholds
Customized SOEs
Summary financial reports
4. Minimum application sizes for diverse disbursement
methods
5. Authorization of applications
46. Disbursement arrangements include the
proposed disbursement methods, designated
bank accounts, documentation thresholds
(e.g. SOEs) and any conditions precedent to
withdrawal or specific covenants related to
accountability. Risk factors to consider when
designing disbursement arrangements for a
project are summarized in the following two
tables:
Relevant FM risk factors
Nature of expenditure
Country inherent risks
Fiscal capacity, entity control environment
Country inherent risks
Selection of bank for DA: commercial or central bank,
or treasury single account
Project design
Responsibility for managing DA: PIU, LPA or ministry of
finance (if high risk, DA to be held at central level)
Denomination currency of financing
Accounting capacity
Reporting and monitoring of local cash imprest
balances. Size of AA normally from 3 months’ (high
risk) to 12 months’ (low risk) average expenditures
based on risk rating
Accounting capacity
Internal controls (past audit feedback on financial
controls; past disbursement experience)
Nature of expenditure and corresponding risks and
impact of control failure
Reporting and monitoring
Judgement of risk, compensating controls;
recommended frequency of WAs
Size of direct payments should be relatively high and
restricted to ‘high-value, lump-sum’ contracts
Borrower authorization procedures provide for internal
oversight
Module D
A 37
 Disbursement arrangements
Disbursement methods
DA facility: location, AA, frequency of Cash flow projections
applications, minimum size
Supporting documents for
justification
Withdrawal conditions
Considerations
Appropriate to project design, for
timely availability of funds
Meet requirements of procurement
plan, fiduciary accountability
arrangements, capacity
Simple
Type of financing plan (e.g. parallel
or cofinancing)
Roles of various project
implementing entities, including
fiduciary roles
Capacity to produce SOEs with
audit trails
Arrangements to ensure adequate
financial controls
Kinds of accounting records in terms
of feasibility, necessity
Existence and effectiveness of
internal audit
Readiness: for entire project or
specific components/categories
Some measures to strengthen
assurance
Methods aligned closely with legal
agreements (e.g. financing plan and
schedule 2), reflected in LtB/R
Strengthening of implementation
and fund-flow relationships between
national agencies and regional
entities
Consistent, clear definition of ‘eligible
expenditures’ in various documents
Fiduciary risk assessments
consistent for each country/agency
Selective use of direct payments
Minimum WA size varies with
risk rating
Documented and realistic
expenditure forecasts
DAs consolidated/pooled, with
multiple project accounts if needed
Quarterly submission of WAs
Customize SOE to include audit
trail for recipient, cofinancing
percentage, nature of expenditure to
be financed by other financiers
Copies of accounting records for
higher-risk expenditure categories
Semi-annual SOE audits
Clearer definition of ineligible
expenditures
Completion of specific risk mitigation
steps before first disbursement,
such as recruitment of key project
FM staff
Clearance of FM manuals (PIM)
by FMD

47. The specific disbursement arrangements there is alignment of project preparation

proposed for a project should be reflected in its
LtB/R.
48. At the time of WA processing by ACD, the
project’s fiduciary risk and WA characteristics
(size and disbursement method) will determine
the level of checks to be performed on the
WA during disbursement. For instance, direct
payment and SC WAs will be scrutinized
rigorously in each case. The underlying
principle is that, even in cases of accelerated
disbursements for WAs linked to projects
assessed as low risk, an appropriate level of
controls must be applied in order to effectively
mitigate the risks. For further details, refer to
module H.
49. Cofinancing arrangements
(a) Where IFAD is planning parallel
cofinancing with another donor and
schedules, opportunities should be sought
for sharing fiduciary risk assessment,
conclusions reached and, particularly,
agreeing on mitigation actions required.
In this case, a lead donor should be
nominated for the purpose.
(b) When cofinancing is to be undertaken
jointly with IFAD funds and to be
administered by IFAD, risk assessment and
the proposed FM arrangements should
cover all financing, including non-IFAD
sources. Options for harmonized financial
reporting and auditing among cofinanciers
should be explored. These aspects
should be specified in the project design
documents and FAs, with appropriate
covenants when appropriate.

38
D.7 Approval processes
50. The FO is responsible for completion of the 51. The FO should attend the Executive Board
following tasks prior to presentation of the session on the day the specific project is on the
project to the Executive Board for approval: agenda, and should brief the Director, FMD,
and team leaders on any advance queries raised
(a) FM contribution to the design report
by Board members and on major political,
completed and reviewed (annex 7);
fiduciary and economic developments in the
(b) Summary of the FMA report and mitigating country. If the FO is outposted, an alternate
actions included in the President’s report, headquarters-based substitute will attend,
along with the table on project expenditure in which case a full written brief should be
and the financing plan (exhibits C-3 completed beforehand. When LOT procedures
President’s report (fiduciary template) and D-1 apply, the FO must coordinate responses to
Summary of Project Fiduciary Risk Assessment queries raised by Board members with the CPM.
at Design (table) show the President’s report
template and the Summary of Project
Fiduciary Risk Assessment at Design);
(c) Draft LtB/R completed;
(d) Project overall FM risk rating entered in the
FMDB;
(e) Negotiations normally completed before
the Board presentation date. The FO
must ensure that changes arising from
negotiations, as reflected in the signed
minutes and FA, are suitably reflected in
the President’s report and design report,
making them consistent.

Module D
A 39
THE FINANCING AGREEMENT AND ITS
NEGOTIATION PROCESS MODULE E
 Module E
The financing agreement and its negotiation process
• Financing agreement
• Key dates and FA terms
• Fulfilment of conditions precedent to withdrawal
• Start-up costs
• Retroactive financing
• Disbursement arrangements
• Project completion date
• Financing closing date
• Counterpart funds and project accounts
• Grounds for suspension of withdrawals
• Expenditure allocation table
• Considerations for cofinancing
• Category allocation amounts and percentages
• Signing of the financing agreement
• Financing of taxes
• Letter to the borrower/recipient

42
E.1 Financing agreement
1. Financing for a particular project is provided
through an FA between IFAD and the B/R. Loan
component grants are also included in the FA.
The new model FA is subject to the revised
General Conditions approved by the Executive
Board in April 2009, as amended in 2010, 2013
and 2014. All references in this manual to
‘General Conditions’ relate to the latest edition.
2. All standard clauses applicable to FAs are
contained in the General Conditions. Each FA
contains only the provisions and details that
change from one project to another.
E.2 Key dates and FA terms
4. Entry into force. There are two key dates to
consider: the date of entry into force of the
FA, and the date that IFAD determines that all
general conditions precedent to withdrawal1
have been fulfilled in accordance with GC
section 4.02(b).
(a) The date of entry into force of the FA
is defined in GC section 13.01 as “…
the date when both the Fund and the
Borrower/Recipient have signed it, unless
the Agreement states that it is subject to
ratification, in which case …” it is “… the
date the Fund receives an instrument of
ratification.” If IFAD and the B/R sign the
FA separately, the relevant date is the date
of the last signature.
(b) The date of entry into force of the FA is the
beginning of the project implementation
period, and in accordance with GC
section 4.02(a), is the date after which
1 The date on which ACD receives written confirmation that the withdrawal conditions have been fulfilled is recorded in the FXC
as the ‘disbursable date’.
2 Payments related to start-up provided for in the FA may be made prior to fulfilment of conditions precedent to withdrawal for
expenditures incurred after the date of entry into force.
3. LEG is responsible for preparation of the draft
FA for negotiations, assisted by the CPM and the
FO, and for its finalization after negotiations.
Exhibit E-1 Model Financing Agreement provides
the model FA used in conjunction with the
General Conditions. All capitalized terms
used in the FA, which are not defined in it,
are defined in section 2.01 of the General
Conditions.
project expenditures become eligible
for financing, unless the FA includes an
exception to GC section 4.08 allowing
expenditures incurred before that date
to be eligible for financing (‘retroactive
financing’). As of the entry into force
date, withdrawals may be made from the
loan account, subject to the conditions of
withdrawal (GC section 4.02(b)). 2
(c) Entry into force is officially notified to the
B/R through a fax prepared by LEG, cleared
by the CPM and FMD and signed by the
divisional director. The fax, which is sent
by the division, specifies the date of entry
into force, the project completion date and
the financing closing date.
(d) FMD must notify ACD at the time of entry
into force so as to maintain the relevant
financial dates in FXC.
Module A
E 43
 E.3 Fulfilment of conditions precedent
to withdrawal

5. GC section 4.02(b) provides that no withdrawal
shall be made from the loan and/or grant
accounts until the first AWP/B has been
approved by the Fund and IFAD has determined
that all other conditions specified in the FA
as additional general conditions precedent to
7. The date on which IFAD determines that all
withdrawal have been fulfilled. The FA may
also establish additional specific conditions
precedent to withdrawal applicable to particular
expenditure categories or activities.3
6. Approval by IFAD of the first AWP/B is a
standard general condition of withdrawal
that applies to all FAs. Other conditions
of withdrawal – either ‘general conditions’
applicable to all categories, or ‘specific
conditions’ applicable to particular categories or
activities – may be set out in section E of the FA.
Based on FMAs conducted by FOs, FMD may
propose additional conditions of withdrawal to
ensure that essential financial arrangements are
established before funds are disbursed.
general conditions precedent to withdrawal
have been fulfilled, in accordance with GC
section 4.02(b), is the start of the maturity
period for loans granted on ordinary terms.
This shall apply even where a start-up advance
has been disbursed. FMD must notify ACD once
the conditions precedent to withdrawal are
fulfilled so as to maintain the relevant financial
dates in FXC.

E.4 Start-up costs

8. GC section 4.02(b) provides for withdrawals 9. Project start-up costs may be withdrawn
for project start-up costs, which would include by submission of a withdrawal application.
preparation of the PIM, procurement of Detailed procedures relating to withdrawal
accounting software and recruitment of key and disbursement of funds are provided in
project staff. Start-up expenditure may be module H.
incurred before the AWP/B has been approved
and other general conditions precedent to
withdrawal have been satisfied, provided that
the FA has entered into force, and subject to
the limits established in the FA, if any. IFAD
encourages the use of start-up costs as a way
of accelerating implementation readiness.
Where it is deemed appropriate to limit the
maximum amount that may be so withdrawn
and the particular category(ies) or activities for
such start-up costs, these should be specified in
schedule 2 of the FA. Should further clarification
on the start-up advance be required it can be
explained in the LtB/R.

3 FMD staff may seek copies of documents relevant to conditions precedent to withdrawal – to confirm compliance – where
these relate to fiduciary aspects. ACD should be notified accordingly.

44
E.5 Retroactive financing
10. Definition. Project expenditures are eligible 13. Disbursement. Upon entry into force and
for financing if they are incurred on or after after fulfilment of conditions precedent to
the entry-into-force date (GC section 4.08). To withdrawal, eligible expenditures are reimbursed
facilitate prompt execution of financed projects, to the nominated bank account. The prospective
on an exceptional basis and with the approval B/R prefinances retroactive expenditures at its
of the Executive Board, the Fund may finance own risk. If the financing is not approved by the
project expenditures incurred by the B/R before Executive Board, or does not enter into force,
entry into force. This type of financing is known expenditures will not be reimbursed. The B/R
as retroactive financing (see exhibit E-2 Guidance should request reimbursement of retroactive
Note – Retroactive Financing). expenditures in a separate WA, so as to simplify
monitoring. The finance assistant will check
11. Maximum amount. The maximum amount
compliance of the expenditures incurred prior to
that may be withdrawn for retroactive financing
entry into force with the provisions of the FA.
may be a specific amount for each category or
a global amount for two or more categories, 14. Accountability. Retroactive financing must be
preferably expressed in the loan denomination recorded in the FM system of the project and
currency. This amount should normally included in its first financial statements, with
not exceed 10 per cent of total financing. If appropriate separate disclosure of the amount
exceptional cases arise, they should be reviewed in notes to the accounts. These expenditures will
on a case-by-case basis and approved by the be subject to external audit. FOs must specify
Director, FMD, and appropriate justification separately this in the audit TORs as appropriate.
disclosed in the documents prior to submission
15. Eligible expenditures. The date after which
of the project for approval by the Executive
expenditures become eligible for retroactive
Board. The category allocation table of the
financing should not be earlier than the project
FA (schedule 2) should specify the limits
design date. As the FA specifies the date after
(e.g. amounts, categories) applicable to such
which expenditures are eligible, it is preferable
retroactive financing in the denomination
to choose the last day of a month, particularly in
currency.
cases in which claims will be submitted on the
12. Disclosure and approval. Provisions basis of SOEs. In accordance with GC section
for retroactive financing are included in 4.08(a)(i), all such expenditures must meet the
section E of the FA or under Schedule 2 of the FA other criteria for eligibility.
as an exception to the General Conditions. To
be eligible for retroactive financing, expenditures
must meet the criteria for eligibility set out
in GC section 4.08. The proposed amount of
retroactive financing, financing source, eligible
date for retroactive financing, justification
and applicable expenditure category shall be
specified in the design document and disclosed
in the President’s report or in the minutes of the
loan negotations. The eligibility date should not
normally precede the date the project design is
approved by the QA group, unless another date
is mutually agreed and stated in the FA.

Module A
E 45
 E.6 Disbursement arrangements
16. During negotiations, the FO will provide the
B/R negotiating team with clarifications and
guidance on all proposed project disbursement
arrangements expected to be developed during
project design. These include set-up of the DA,
project bank accounts, currencies and size of
authorized allocations, funds flow for these
(including those required for counterpart
E.7 Project completion date
17. This date is specified in section C of the FA,
usually as an anniversary of the date of entry
into force. It is rounded to the end of the
calendar quarter by IFAD for its own internal
reporting purposes (i.e. 31 March, 30 June,
30 September or 31 December). The ‘project
completion date’ is defined in GC section 2.01
as the date “on which the implementation of
the Project is to be completed.” It marks the
end of the project implementation period, and
eligible expenditures must be incurred before
E.8 Financing closing date
18. The ‘financing closing date’ is defined in GC
section 2.01 as “… the date on which the
right of the Borrower/Recipient to request
withdrawals from the Loan Account and/or
Grant Account ends, which is six (6) months
after the Project Completion Date or such later
date as the Fund may designate by notice to
the Borrower/Recipient.” In accordance with
GC section 12.02(b): “Any amounts remaining
in the Loan and/or Grant Accounts shall be
cancelled on the Financing Closing Date, except
for any unwithdrawn balances of applications
for withdrawal received by the Financing
Closing Date and any amounts subject to
undischarged Special Commitments, which
shall be cancelled upon the full discharge of
such Special Commitments.”
4 See module G for procedures that apply to payment of winding-up expenses.
5 If the B/R wishes to withdraw funds beyond the six months period between completion and closing, a formal extension of the
Financing Closing Date is required by approval of the AVP, PMD.
46
funds) and timing, if applicable. Guidance is
also provided on SOE thresholds, minimum
value and frequency of presentation of WAs
for replenishments. Instructions on these
disbursement arrangements are provided in the
LtB/R, a draft of which should be submitted to
the B/R for information (see section E.16).
that date, “… except that expenditures to meet
the costs of winding up the Project …” may be
incurred after the project completion date and
before the financing closing date (GC section
4.08(a)(ii)). For the purpose of determining
eligibility of expenditure, the term ‘incurred’
in this context means that the legal obligation
to procure goods, works or services must occur
before that date.4 In the same sense, credit lines
and matching grants must have been disbursed
in line with schedule 1 of the FA.
19. During the six-month period between the
completion and closing dates, the B/R can
submit WAs for expenditures related to
activities completed prior to the completion
date for processing by IFAD within this period.
Submission of WAs and additional information,
for the purpose of justification5, beyond the
Financing closing date may be granted on an
exceptional basis, if deemed necessary by the
Fund or upon request from the B/R, for a further
six (6) months post-Financing Closing Date
(or longer if required), and subject to approval
of the Director, FMD and to the conditions
under Module G.10 paragraph 55. Approval by
FMD should be obtained prior to the Financing
Closing Date, however exceptions may be
considered within the six (6) months following
the Financing Closing Date, at the discretion of
the Director, FMD. Expenditures for activities
 contracted or undertaken after the completion
date are ineligible for financing, except for
limited expenditures needed to wind up the
project. These require prior authorization by
IFAD (e.g. operating costs and salaries for core
staff needed to close the project, audit fees and
costs of the PCR). The CPM must agree on the
details of closing expenditures with the project
before the Project Completion Date.6

E.9 Counterpart funds and

project accounts
20. Section B of the FA indicates the amount and 23. Project accounts are provided for in section B of
nature (in cash or in kind) of counterpart the FA. These accounts should not be confused
financing provided by the B/R. If all or part of with the DA – they are accounts managed by
counterpart financing is provided to pay taxes project parties (which could include the LPA,
or to reimburse the project for paying them, PIU or an NGO responsible for implementation
this should also be indicated. When counterpart of part of the project), and the purpose of
funds or a part thereof are provided in cash, mentioning them in the FA is to obtain a
the funds should usually be deposited in a covenant from the B/R that the financing will be
separate, dedicated project account, which made available to such entities. Although it Is
will be included in the audited financial not mandatory to disclose DA arrangements in
statements (AFSs). Provisions stipulating the the FA, it is good practice to do so in section B.
agreed modality for the timing and amounts
of counterpart funds to be deposited into this
account should be indicated in the LtB/R.
21. IFAD-financed projects may include other
sources of financing that contribute to project
development objectives, are integrated into
the PDR and are disclosed in the President’s
report. In such cases, the FA should indicate the
source and amount of such financing and the
basis for sharing the cofinanced expenditures.
Further instructions on the flow of funds and
accountability will be given in the LtB/R.
22. GC section 7.02(b) states, “The Financing
Agreement may provide that the Borrower/
Recipient open and maintain one or more
Project Accounts for Project operations ….” The
LtB/R shall specify the number and use of such
project accounts and shall identify the project
party responsible for operating them. Unless
otherwise specified in the FA, such accounts
shall be operated in accordance with the
applicable rules and regulations of the project
party responsible.

6 See module G for procedures that apply to payment of closing expenses.

Module A
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 E.10 Grounds for suspension of
withdrawals
24. IFAD is under no obligation to continue
providing financing for a project that is
not successful. GC section 12.01 provides a
complete list of circumstances that allow IFAD
to suspend “in whole or in part, the right of
the Borrower/Recipient to request withdrawals
from the Loan and/or Grant Accounts”. There
are 26 optional grounds for suspension listed
(GC 12.01 (a)) (in addition to project-specific
grounds listed in the FA) and one mandatory
one (GC 12.01 (b)) – failure to submit the
required audit report satisfactory to IFAD within
six months of the deadline.7
25. GC section 12.01(a) provides broad grounds
for suspension and allows IFAD to suspend
financing if it determines that (v) “the Project
has failed to fulfil, or is unlikely to fulfil in a
timely manner, its purposes as stated in the
Agreement” or if (vi) “a situation has arisen
which may make it improbable that the Project
can be successfully carried out ….”
26. A project-specific suspension is initiated when
IFAD becomes aware of circumstances that
justify suspension under a project and decides
to take remedial action. If the circumstances
are related to poor performance, a decision
memo is prepared, after consultation by PMD,
FMD and LEG, giving the rationale and scope
of the suspension. This is submitted to the
President for approval through the AVP, PMD.
The suspension may be restricted to a specific
component or to selected categories
of expenditure. For example, it may be
appropriate to restrict suspension for audit non-
compliance by one of several project parties
to the disbursement categories that fund that
party’s activities.
7 Guidance on this is available in module I.5.
48
27. GC section 12.01(a) (xxiii) also allows
suspension if the B/R has defaulted in the
performance of any of the special covenants
listed in schedule 3 of the FA, provided that
the default has continued for a period of 30
days, and IFAD has determined that it has had,
or is likely to have, a ‘material adverse effect’ on
the project.
28. Section E of the FA lists additional grounds for
suspension specific to the project (GC section
12.01(a)(xxvi)). FAs for projects cofinanced by
other donors generally include an additional
ground for suspension that allows IFAD to
suspend in the event that the cofinancing
partner’s FA has been suspended. Such a
suspension is not automatic, and IFAD is never
obliged to suspend simply because a cofinancier
has suspended. Each case should be considered
on its merits by the CPM after consultation
with LEG and FMD.
29. Suspension of an entire country portfolio may
be exercised as a remedy in some circumstances
when the B/R is engaged in a conduct that
justify a portfolio suspension, such as force
majeure conditions and overdue loan service
payments. IFAD may suspend the entire country
portfolio, when a semi-annual loan service
payment is overdue by more than 75 days,
as per procedures outlined in module J.7
‘Overdue debt service’.
30. Unjustified obligations. A number of grounds Counsel and cleared by SEC, FMD, PMD and
for suspension are grouped under the heading TRE is sent, informing the B/R of the decision
of ‘unjustified obligations’ – these include taken9.
failure to provide a refund of amounts advanced
31. A suspension is lifted once the conditions
but not used for eligible expenditures (ineligible
identified in the suspension notice have been
expenditure), failure to provide an audit report
met and are acceptable to the Fund. The same
by the deadline, or failure to provide a PCR.
authority that approved the suspension will
In such cases, IFAD may decide to suspend
have the authority to lift the suspension.10
disbursements under the specific project or the
See also module J, section J.7, paragraphs 40-41,
entire portfolio. An initial warning notice is
specifically related to the lifting of debt-service-
sent by the Director, FMD, cleared by LEG and
related suspensions.
PMD, 90 days after the B/R has been notified
of such unjustified obligations.8 In the absence
of satisfactory remedial action by the B/R,
90 days after the date of the warning notice,
the suspension notice signed by the General

E.11 Expenditure allocation table

32. Each FA includes a schedule 2 containing
information on eligible expenditure categories
(the ‘allocation table’). This schedule presents
all basic provisions for withdrawal of financing
proceeds, including designation of:
(a) Categories of expenditure eligible for
financing;
(b) Specific amounts allocated to each category
and to each financing source;
(c) Percentage of eligible expenditures to be
financed under each category;
(d) Whether the above percentage is ‘net of
taxes’ or whether taxes are eligible for
financing;
(e) If the project financing plan includes
other sources of finance, and the manner
in which eligible expenditure would be
shared.
33. Category descriptions. The PDR contains a
full set of cost tables setting out estimated
project expenditures, grouped into categories.
To facilitate recording and uniform aggregate
reporting of expenditures in the FXC,
expenditure allocations are grouped into a
standard set of categories in schedule 2. For
administrative convenience, the allocation table
should normally group expenditure allocations
into no more than five of these categories, taking
into consideration the materiality of amounts
allocated to individual categories. If a higher
number of categories are required in special
circumstances, the Director, FMD, may provide
exceptional approval.

8 See exhibit E-3 Suspension notice 90 days.

9 See exhibit E-4 Suspension notice 180 days.
10 See exhibit E-5 Suspension lifting advice.

Module A
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 34. Standard categories comprise the following:

Standard expenditure categories – loans and Comments

DSF grants
Consulting services  
Credit, guarantee funds Define in schedule 2 the nature of underlying
expenditure and credit losses, if applicable
Equipment & materials
Goods & inputs  
Grants & subsidies 11
Define in schedule 2 who will receive these grants/
subsidies and the end use of eligible expenditure
Operating costs Define kinds of underlying expenditure in schedule 2
Salaries & allowances  
Technical assistance  
Studies & workshops  
Training  
Vehicles  
Works Formerly civil works
Unallocated

Additional categories for all grants except DSF

Allowances
Audit
Communication
Contingencies
Contributions Define underlying expenditures for which contributions
are being made
Miscellaneous
Overhead/management fees
Project management

Studies & research

Travel & allowances

Workshops & meetings

Additional category for OFID12 loans, European Commission-funded grants and other supplementary funds
Project components

11 Grants as listed here are provided by the borrower/recipient using resources from the loan and are therefore not to be confused
with grants referred in Module K.
12 OPEC Fund for International Development (of the Organization of the Petroleum Exporting Countries).

50
35. FA schedule 2 should include a brief definition
for expenditure categories where these are not
entirely clear, as this helps avoid any subsequent
disagreement during disbursement regarding
the eligibility of specific activities and their
allocation to relevant categories. Expenditure
categories, their definitions and the amounts of
financing allocated13 to each should reflect the
structure and financing plan of cost tables and
the PDR. These definitions will help determine
38. Circumstances that warrant a more complex
the specific category of expenditure to which
expenditures linked to specific activities are to be
charged. Definitions are particularly useful when
multiple sources of financing (e.g. beneficiary,
counterpart or supplementary funds) are to be
used for the same expenditure category, or when
there is room for ambiguity in the underlying
nature of eligible expenditures (e.g. operating
costs). Schedule 2 should also specify other
provisions related to the withdrawal of financing
proceeds, such as retroactive financing or start-
up costs, with their maximum amount (and
corresponding categories), when these apply.
36. In particular, categories such as ‘operating costs’
must be clearly defined so that IFAD and the
B/R have the same understanding of eligible
items. In general, recurrent costs (salaries and
operating costs) should not exceed 15 per cent
of total project costs. Recurrent costs exceeding
this percentage should be adequately justified
during the project design approval process.
E.12 Considerations for cofinancing
39. For cofinanced projects, IFAD and the
cofinancier should jointly negotiate
their respective FAs whenever possible. If
circumstances do not allow this, the lead
financier’s FA should be negotiated first.
40. In the case of cofinancing arrangements where
other donors jointly cofinance IFAD projects,
13 Once the Executive Board has approved the facility, amounts allocated to each expenditure category are recorded in the FXC
and can only be varied or reallocated after a due process (see module F).
37. The allocation table covers only IFAD-financed
project expenditures. Project activities or
components not included in the allocation table
are fully financed by the B/R or through other
financing sources arranged by the B/R. However,
for a comprehensive view of the financial
position, in such cases financial reporting
should include all sources and use of funds that
were disclosed for project approval.
category structure include:
(a) Projects implemented by diverse agencies,
each of which operates independently
and requires separate allocations for
management control purposes;
(b) Activities that are subject to withdrawal
conditions; and
(c) Critical activities for which the total
amounts disbursed should be limited
(for example, an innovative component
involving experimental activities on a pilot
basis).
the IFAD FA should normally have a covenant
for cross-effectiveness or cross-disbursement,
specifically when the project being approved
commits to development outcomes from the
combined financing. This must also be carefully
reflected in schedule 2 of the FA.
Module A
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 E.13 Category allocation amounts and
percentages
41. The amounts allocated for each category are
based on project cost estimates14 for the types
of expenditures involved and the relevant
eligible disbursement percentages. The category
amounts are normally rounded up or down to
the nearest SDR/denomination currency 10,000.
During project design, the amount of the
financing is calculated in US$.
42. FMD calculates the SDR/denomination currency
amount(s) of the total financing in the FA using
International Monetary Fund (IMF) exchange
rates prevailing on the last day of the month
preceding the date of the Draft for Negotiations
submitted by the B/R, provided the negotiations
were concluded within the same month. In cases
where no loan negotiations are held, such as
approvals subject to conditionalities or in the
case of additional financing, FMD calculates the
SDR/denomination currency amount(s) of the
total financing in the FA using the IMF exchange
rates prevailing on the last day of the month
preceding FMD final clearance (in scriptoria) of
the EB document.
43. The total amounts of each financing
instrument are rounded up to the next 50,000
denomination currency units for loans/grants
amounting to 10,000,000 denomination
E.14 Signing of the financing agreement
47. After the Executive Board has approved the
project and the B/R has completed any necessary
internal procedures prior to signature (such as
ratification of the FA if required), the FA can be
signed. FAs are usually signed in a ceremony
at IFAD headquarters, but may also be signed
elsewhere or separately by both parties.
48. The LtB/R is signed by the President and, if
possible, provided to the B/R at the ceremony.
14 The contingencies associated with each expenditure type are normally placed in the ‘unallocated’ category.
15 Document EB 92/45/R.8.
52
currency units or more, and to the next 10,000
denomination currency units for loans/grants
under 10,000,000 denomination currency units.
44. Disbursement percentages also take into
account any cofinancing arrangements, financial
contributions by beneficiaries and counterpart
contributions by B/Rs. The percentages of
expenditures eligible for financing are applied to
each invoiced expenditure as payments become
due.
45. GC section 4.07(c)(ii) allows IFAD to reduce
the disbursement percentage in the event that
no further funds are available for reallocation
to the category, so that further withdrawals
under the category may continue until project
completion.
46. Unallocated funds. The allocation table often
includes an ‘unallocated’ category. The amount
initially allocated to this category represents
contingencies used to calculate the appropriate
loan amounts and is generally 10 per cent of
the total of each financial product. The amount
allocated to this category is not immediately
available for disbursement until this has been
reallocated to other categories as provided for in
GC section 4.07.
49. If the right of the B/R to request withdrawals for
another project has been suspended, or if IFAD
has sent the B/R an arrears suspension notice
(see modules E, G, H and I), the FA cannot
be signed. Before the signing ceremony, LEG
verifies with FMD that neither of these events
has occurred.
50. If the FA is not signed within two years of
approval of financing by the Executive Board,
the approval will be automatically cancelled15
unless the Board grants an additional period.
E.15 Financing of taxes
51. In accordance with GC section 11.01, both IFAD
financing and loan service payments (principal,
interest and service charges on loans) are exempt
from all taxes. Similarly, FAs are exempt from
any taxes on signature, delivery or registration.
This means that the B/R may not, for example,
charge a tax on the financing itself, or impose
a tax on registration of the agreement – taking
money ‘off the top’ of the financing.
52. The General Conditions were amended in 2009
to allow the proceeds of IFAD’s financing to
be used to finance taxes that are not “excessive,
discriminatory or otherwise unreasonable”
(section 11.01(c)). For projects approved after
April 2014, payment of taxes is permitted
provided that: (a) the B/R has informed IFAD
in writing that it is impossible or impractical
to exempt the project from all or certain taxes;
and (b) the World Bank’s Country Financing
Parameters would permit the financing of such
taxes for a similar project.
53. When financing of taxes is permitted under the
criteria set out above, an assessment will be
made in the project design phase taking into
account: (a) prior experience in the country
and country FM performance; (b) whether taxes
and duties constitute an excessively high share
of project costs and are material; and (c) the
government contribution to other costs, such
as recurrent costs. Whenever possible, taxes and
duties on imported goods will be excluded,
based on the assumption that these taxes are
easily identifiable and can be exempted in most
countries. The decision on financing of taxes
will be made jointly by the CPM and FO. The
rationale for allowing the financing of taxes
must be included in the President’s report
submitted to the Executive Board. For projects
approved prior to 30 April 2014, an amendment
to the FA may be processed in accordance with
standard operational procedures if deemed
appropriate. However, this may require a
corresponding reduction in the scope of the
project.
54. If the financing cannot be used to pay taxes,
this must be reflected in the far-right column
of the table in schedule 2, which can either
state that amounts are ‘net of taxes’, or can
specify a percentage of eligible expenditures to
be financed that reflects the overall estimated
tax applicable to a particular category or
categories. For example, if the estimates for
the project show that 25 per cent of projected
costs will be taxes, this column would provide
that only 75 per cent of eligible expenditures
will be financed by the IFAD financing. In
such a case, the financing could be used to pay
costs that include taxes, but overall use of the
IFAD financing would be capped in a way that
requires the B/R to bear the overall burden of
taxes on the project.
55. Often the commitment of the B/R to provide
counterpart funds (see section E.9 above) is
simply a commitment to finance taxes paid by
the project. In other cases, the B/R may exempt
donor-financed projects from taxes, and the
counterpart contribution is the nominal value
of this exemption. In either case, the B/R’s
commitment should be set out in section B of
the FA.
56. Taxes that are “excessive, discriminatory or
otherwise unreasonable” are not eligible for
financing (GC section 11.01(c)). In general, taxes
are presumed to be reasonable unless the World
Bank’s Country Financing Parameters indicate
otherwise. If particular types of taxes are not
eligible for financing for this reason, that fact
should be reflected in schedule 2. If new taxes
are assessed that were not foreseen in the design
process, the CPM and FO, taking into account
the World Bank parameters and other relevant
factors, will determine whether they will be
eligible.
57. Nature of taxes. Taxes paid by the ultimate
recipient of an expenditure (e.g. income taxes
paid by a project employee or taxes on the
profits of a contractor) are not considered taxes
paid by the project. If payment of taxes has
Module A
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 not been approved (see paragraph 51), IFAD
funding cannot be used for indirect taxes such as
the goods and services (GST) or value added tax
(VAT). These should always be deducted from
the invoice and paid from government sources.
The situation is similar for a withholding tax, as
this refers to the deduction of tax at source from
payments (income) due to a receiving party,
E.16 Letter to the borrower/recipient
58. Scope and authority. The General Conditions
give IFAD unilateral power to impart
certain instructions to the B/R on matters
related to implementation of the project
and administration of the financing.16 For
example, GC section 4.04(a) provides, “When
the Borrower/Recipient wishes to request
a withdrawal from the Loan and/or Grant
Accounts or a Special Commitment, the
Borrower/Recipient shall deliver to the Fund
an application in the form specified therefor by
the Fund, together with such documents and
other evidence in support of such application
as the Fund shall reasonably request.” The
“form specified therefor by the Fund” and the
degree of documentation required to show
that expenditures have been made are matters
entirely up to IFAD to determine (provided,
of course, that IFAD’s requirements are
‘reasonable’).
59. For this reason, certain forms are attached to
the LtB/R, together with the Loan Disbursement
Handbook for IFAD Directly Supervised Projects
(LDH), in which procedures and forms to be
used by the B/R for the withdrawal of financing
proceeds are specified – these are the “form
specified therefor by the Fund, together with
such documents and other evidence in support
of such application” mentioned in GC section
4.04(a). In accordance with this provision,
the B/R is legally obligated to follow the
instructions set out in the LtB/R, the LDH and
any subsequent modifications of these sent by
an authorized official of IFAD.
60. FMD staff finalize a detailed draft LtB/R before
or during negotiations. This letter provides
instructions to the B/R for withdrawal of
16 Whenever the FA or General Conditions provide that the Fund ‘shall notify’ or ‘may require’, etc., it means that IFAD has
the legal authority to make a unilateral decision concerning the matter. Obviously, in most cases such decisions will have been
discussed with the B/R beforehand, but the power to make the decision rests with IFAD alone.
54
from the paying party, for onward remittance
to the tax authorities. Withholding tax is not
another type of tax, but a mode of tax payment.
As long as withholding tax can be seen as an
advance income tax under national legislation,
it is not considered a tax and can be paid from
IFAD project financing.
the financing (‘disbursement instructions’)
and financial accountability and auditing
arrangements for each project. It also specifies
procurement methods and applicable prior
review thresholds.
61. The LtB/R is signed by the President of
IFAD (named in the FA as the ‘authorized
representative’ of the Fund). In addition, it
delegates authority from the President to
the divisional director, CPM, Director, FMD,
and FO for supervision of the project and
administration of the financing.
62. The current model LtB/R is set out in exhibit E-6
Letter to the borrower/recipient (LtB/R), together
with exhibit E-7 Revisions to the LtB/R. Further
procedural guidance for its preparation is
provided in this module. A final draft should
be tabled at negotiations for the information
of the B/R, and its contents explained during
negotiations. The LtB/R requires clearance by
the CPM, LEG and SEC prior to submission for
signature by the President (or his designee) in
preparation for the signing ceremony. Revisions
to the LTB/R, unless pertaining to updates that
support an approved additional financing, do
not require LEG clearance.
63. The first LtB/R for any project is normally signed
by the President simultaneously with the FA.
The LtB/R is mandatory for investment loans,
DSF grants and component grants funded from
IFAD or other external resources.
64. Content. The following project-specific details
are usually specified in the LtB/R:
(a) Requirement of a DA to receive financing
proceeds (GC section 4.04(d));
 (b) Ceilings for the authorized allocation
(where applicable);
(c) Project accounts to be maintained (where
applicable);
(d) Counterpart funding (GC section 7.03);
(e) Applicable SOE thresholds;
(f) Start-up costs and retroactive financing
(where applicable);
(g) Prior review;
(h) Methods and thresholds for procurement
by differing expenditure types; and
(i) Financial reporting requirements and
deadlines for the appointment of auditors.
65. If multiple sources of financing administered
by IFAD apply (e.g. DSF grant, ASAP), each
financing should be stated separately, both in
the subject matter and within the text, with the
corresponding loan/grant number, dates and
amounts. Any special conditions applicable to
such other financing should be addressed in the
appropriate LtB/R paragraphs.
66. The letter should be addressed to the authorized
representative of the B/R indicated in section E
of the FA, at the address specified in the
agreement. Where customized SOE formats are
to be used for projects, the appropriate forms
are to be attached, as provided in annex 2 of
the LtB/R (see exhibit E-6 Letter to the borrower/
recipient (LtB/R)).
67. The SOE thresholds stated in the LtB/R will be
determined based on the project expenditure
profile and FMA conducted during design.
For low-risk projects, no SOE thresholds
should usually be specified, implying that no
supporting documents need be submitted
ex ante with the WAs. For medium-risk
projects, SOE thresholds may be eliminated or
determined at the discretion of the FO. However,
in all such medium-risk cases, the LtB/R should
seek to obtain supporting documents for a
sample of transactions to validate them before
approving disbursement. For high-risk projects,
thresholds are determined at the discretion of
the FO. SOE thresholds may be determined
for some or all expenditure categories, taking
into account the underlying fiduciary risks and
relative proportion of amounts allocated to
these categories.
68. Supporting documents requested should include
accounting evidence that is normally required
under generally accepted accounting practices.
Examples of such evidence include: copies of
invoices, receipts from contractors, contracts/
agreements when applicable, and documentary
evidence of delivery and acceptance of
contracted goods, works or services. For unusual
expenditure categories (e.g. equity financing,
guarantee funds.), if additional information or
supporting documents are considered important
in establishing the eligibility and end use of
funds, these should be specifically stated.
69. Banking arrangements should be clearly stated,
for both designated and project accounts. If
pooling of the DA is envisaged, this should
be specified. The section on project accounts
is intended to assist the project regarding:
(a) awareness that counterpart funds will be
deposited/provided efficiently and promptly to
the project; (b) transfer of financial resources
to project account(s) and how they should be
managed; and (c) information regarding the
deposit of financial resources by cofinancier(s)/
beneficiaries. The section on ‘maintenance
of a separate project account for counterpart
funds’ will only be inserted if the counterpart
contribution is also in cash.
70. Thresholds for IFAD’s prior review of
procurement activities, as well as methods of
procurement, are to be provided by the CPM
and described in the LTB.
71. Instructions should be provided for
specific accounting and financial reporting
requirements, such as accounting standards
to be used, inclusion of start-up costs and
retroactive financing, if applicable, and
consolidation of subproject agencies. If FM
capacity is expected to be in place (including
accounting software and staff capacity), the
requirement for interim financial reports (IFRs)
is to be inserted. The time period for which IFRs
should be submitted and their deadlines are
to be modified as applicable. Where necessary,
customized audit TORs that have not yet been
discussed during design should be attached.
72. The LTB/R should normally specify whether the
audit will be performed by the SAI or a private-
sector auditor acceptable to the Fund.
Module A
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CHANGES DURING IMPLEMENTATION
MODULE F
 Module F
Changes during implementation
• Changes and amendments to the financing agreement
• Category reallocation
• Extension of the project completion date
• Force majeure
• Dealing with de facto governments

58
F.1 Changes and amendments to
the financing agreement
1. The FA and General Conditions give IFAD the
authority to make the following unilateral
changes without the need for a countersigned
amendment:
(a) Postponement of the project
completion and financing closing dates
(GC section 2.01);
(b) Reallocation of proceeds among categories
in accordance with GC section 4.07;
(c) Reduction of percentages in accordance
with GC section 4.07(c)(ii).
2. Amendments. Most amendments to FAs require
approval by the AVP, PMD, with the exception
of those significantly changing the scope or
characteristics of the financing or the project
originally approved by the Executive Board.
LEG, in consultation with the CPM and FMD,
will determine if an amendment significantly
changes these aspects. In such cases, the
amendment must be presented to the Board
for approval.
3. Amendments may include changes to the
allocation table that introduce a new category,
a change in a category description, deletion of
a category or an adjustment to a disbursement
percentage for reasons other than those
described in GC section 4.07(c)(ii).
4. All amendments require a request from or the
agreement of the B/R’s authorized representative
prior to processing. A memorandum is prepared
proposing the amendment, following review by
the CPMT and clearance of the memo by LEG
and FMD, and subsequently sent, for approval
by the AVP, PMD. Once the amendment is
approved by that AVP, LEG prepares a letter
of amendment to be signed by the regional
divisional director after clearance by the CPM
and FMD. The amendment usually enters into
force on countersigning as of the date of the
amendment letter.

F.2 Category reallocation

5. GC section 4.07(b) requires IFAD to monitor 7. In normal practice, the CPM first reviews the
the level of use of the financing proceeds progress and projections of individual project
allocated to each category. components with the B/R to determine how
funds may need to be reallocated. Proposals for
6. As mentioned above, PMD and FMD must
a reallocation usually involve:
continuously monitor use of the financing to
determine if and when the amount allocated (a) Transfer of unallocated funds to one or
to an expenditure category has been depleted more of the other categories; or
or is about to be depleted. In accordance with
(b) Transfer of the anticipated savings in one
GC section 4.07(c), if IFAD determines that the
category to another category or categories
allocation to a particular category is insufficient,
for which the requirements are greater than
it may, by notice to the B/R, reallocate funds
were estimated in the design phase.
from one category to another. This allows
reallocations to be made expeditiously. Where
the reallocation would not meet the expected
shortfall, IFAD may decide to reduce the
percentage of expenditures to be financed from
the financing.

Module A
F 59
 8. Following the above review, the CPM discusses ensure that the proposed reallocated amounts
the proposal with the FO before notifying the for these categories do not result in a sizeable
B/R of the proposed revised allocations for and unreasonable percentage of the total
individual categories. Reallocation proposals financing amount. Reallocations should not
must include a table providing information result in allocations to recurrent costs (salaries
for each expenditure category on amounts and operating costs) in excess of 30 per cent of
authorized, already withdrawn, amounts total project costs. Any reallocation to recurrent
reserved to cover SCs, if any, and anticipated costs exceeding 30 per cent of total financing
future expenditures. To avoid category overdrafts must be approved by the Director, FMD, on
after reallocation approval, the table must also recommendation by the CPMT.
show WAs submitted, but not yet processed in
10. The resulting shifts in categories must not
the FXC by ACD or TRE, as well as any need for
impair the overall financial and physical
a further reallocation.
balance of the project. Once approved by IFAD,
9. The proposal for a reallocation must include the regional division notifies the B/R of the
a detailed explanation of the reasons, which amendment by fax or e-mail.
should be agreed with the B/R, either based
11. A need for changes may emerge, such as the
on an official request or clearly documented
deletion or modification of an existing category
in a mission aide-memoire. Transfers from
or the creation of a new category. These
unallocated funds require the clearance of the
could be identified in an MTR or other major
FO and approval by the regional divisional
review of project implementation, including a
director. Transfers among existing categories
detailed assessment of the project component
require the clearance of the FO and LEG and
costs associated with each of the expenditure
are approved by the AVP, PMD. In considering
categories. Such changes in the category
such proposals, attention should be paid to
structure usually require amendment of the FA.
recurrent cost categories such as ‘operating
costs’ and ‘salaries and allowances’, so as to

F.3 Extension of the project

completion date
12. The timely closing of projects is an essential (b) The project remains viable and the
part of efficient implementation and portfolio extension is likely to lead to the successful
management. IFAD projects are expected to achievement of project objectives.
close on time.1 The B/R is responsible for
15. The project completion date may not be
ensuring that project parties complete all project
extended if any of the following problems have
activities and that all eligible expenditures are
occurred and are continuing to occur at the time
incurred by the project completion date.
the extension is requested:
13. The completion date may only be extended in
(a) Project objectives have not been achieved
exceptional circumstances and in compliance
due to an overoptimistic design.
with the following procedures on receipt of the
B/R’s request or consent. (b) An extension has already been granted, and
the plan of action that was to have been
14. It can be extended only if all following
completed during the previous extension
conditions have been met at the time the
period has not been completed.
extension is requested:
(c) The B/R is in material non-compliance
(a) The CPM and B/R (and CI, if applicable)
with the FA, or the financing is under total
have made a concerted effort to address any
suspension.
issues affecting project performance.

1 President’s Bulletin PB 99/01.

60
16. The completion date may not normally be
extended beyond three years, except in cases
in which an extension is sought to reactivate
a project after a period of force majeure.
Extensions of more than three years must be
approved by the President.
17. It may not be extended solely for the purpose
of using unspent balances in the loan/grant
accounts, whether these are due to a devaluation
of local currency or other causes.
18. The project completion date may be extended
with respect to certain project components or
activities. In these cases, any undisbursed loan
amounts allocated for categories not relevant to
such components or activities will be cancelled
or reallocated.
19. If a B/R requests an extension, or if the
CPM determines that an extension might
be necessary, the CPM carefully reviews
the progress of project implementation. In
reviewing a request for extension, the CPM must
undertake an assessment of:
(a) Factors causing the delay in project
implementation;
(b) Additional time needed to complete project
implementation, consolidate project
achievements, finalize disbursements or
draw up a schedule for further withdrawals;
and
(c) Any special action called for on the part of
the B/R, LPA or IFAD to make it possible to
meet the extended project completion date.
20. All requests for extensions should specify:
(a) The period for which the extension is
sought;
(b) In the case of partial extensions, the
activities or components with respect
to which the extension is sought and, if
applicable, any related reallocations or
cancellations;
(c) An action plan for project implementation
during the extension period, including the
targets for physical progress, a schedule of
further disbursements and an indication
that either the full amount of the
undisbursed sums will be required or an
estimation will be made of the amount of a
partial cancellation; and
(d) An estimate of additional costs to be
incurred.
21. Requests for extension of the project completion
date are made through a memorandum setting
out all material facts in favour of the extension
in detail, as provided through the regional
director, following review by the CPMT, for
approval by the AVP, PMD. If the B/R initiated
the proposed extension, its request should be
attached. Otherwise, written acceptance by the
B/R of the proposed extension should generally
be obtained and attached to the memo. Where
requests for extension of the project completion
date extend beyond three years from the original
completion date, the President’s approval is
required.
22. If the extension request is approved by the AVP,
PMD, a fax is sent by the regional divisional
director to inform the B/R of the new project
completion date and financing closing date and
any other relevant matters (e.g. in the case of a
partial extension as provided above). LEG, FMD
and ACD should also be notified on approval
of the new project completion date. The B/R
must also be notified promptly if its request
for extension has been denied. An extension
of the completion date results in an automatic
extension of the financing closing date for an
equal period.
Module A
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 F.4 Force majeure
23. A period of force majeure is one in which
project implementation must be suspended due
to civil war, severe political unrest or similar
circumstances. Force majeure can apply to all
projects in a Member State, or only to one or
more of them. The AVP, PMD, has authority to
determine that a period of force majeure is in
effect or has ended – in either case, on the basis
of a memo from the CPM through the regional
divisional director, duly cleared by LEG and the
Director, FMD.
24. Special procedures for force majeure periods:
(a) If the project completion date occurs
during a force majeure period, it is
indefinitely postponed, for a period not
normally exceeding three years, unless
otherwise decided by the AVP, PMD.
Extension beyond three years must be
approved by the President.
(b) A decision that a period of force majeure
exists will result in suspension of
disbursements, subject to certain exceptions
(see module H, section H.10).
(c) If the AVP, PMD, determines that the
period of force majeure has ended,
implementation of the project may resume.
The decision to resume implementation
should include a determination as to
whether the project completion date
should be extended.
(d) At any time during a period of force
majeure it may be determined that “…
a situation has arisen which may make
it improbable that the Project can be
successfully carried out …” (GC section
12.01(a)(vi)), which would justify
cancellation.

F.5 Dealing with de facto governments

25. In September 2010, the Executive Board 27. The regional divisional director is responsible
adopted the Guidelines on Dealing with De for communicating with the de facto
Facto Governments. government and for verifying that this
government is in effective control of the country,
26. With regard to the ongoing country portfolio of
able to continue project implementation and
projects in a Member State whose government
prepared to honour the commitments made
changes without an orderly transition of power,
in individual FAs, including loan repayment
it is necessary to reconfirm the commitment of
obligations.
the de facto government to the undertakings
of the previous government before continuing
IFAD’s financing operations.

62
 PROJECT SUPERVISION AND FINANCIAL
MANAGEMENT MODULE G
 Module G
Project supervision and financial management
• Project start-up
• Project supervision
• Direct supervision
• Supervision by cooperating institutions
• Role of country presence and country teams
• Procedures for FM supervision
• Financial management support
• Interim financial reports
• Accounting and reporting standards
• Financing closure
• Loans and Grants System and tools

64
Project Supervision and Financial Management

1. Implementation of the project is the sole ‘Financial administration’ is defined as the

responsibility of the B/R. IFAD’s role is limited part of the supervision process that deals with
to supervision of project implementation issues of disbursement and flow of funds,
and administration of the financing. In some compliance with loan covenants, administrative
cases, however, supervision and/or loan management and FM aspects of implementation
administration are entrusted to a CI. such as budgeting and accounting, treasury
management, financial planning, internal
2. Responsibility for actual implementation of
controls, financial reporting and audit
project activities lies with the B/R (through
compliance. It involves identifying/anticipating
the designated LPA) and the project parties.
FM constraints and proposing appropriate
IFAD has a responsibility to ensure that project
measures to overcome issues and risks. This
implementation is efficient and that objectives
module provides detailed procedures on FM
related to project results, expected impact and
and loan administration requirements during
sustainability are achieved. This responsibility is
project supervision.
carried out by IFAD through project supervision
(including loan administration and FM) and 4. Implementation support encompasses all
implementation support. actions taken by IFAD to assist the B/R in
achieving the project’s development objectives.
3. The Agreement Establishing IFAD (article
This support is often delivered as a follow-up
7, section 2(g)) defines ‘supervision’ as the
to supervision missions and may take the form
“… administration of loans, for the purposes
of specific problem-solving or of training in
of the disbursement of the proceeds of the loan
implementation strategy, AWP/B preparation
and the supervision of the implementation of
and execution, technical issues, the M&E system,
the project or programme concerned ….”
reporting tools, the FM system, procurement
The objectives of project supervision are to:
and other financial issues.
(a) Assess the progress of project
implementation;
(b)  Identify/anticipate problems or constraints
in implementation; and
(c) Propose solutions or corrective measures
for improvement.

Module
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A 65
 G.1 Project start-up
5. The B/R normally organizes a start-up workshop
during which the project is officially launched.
It is attended by representatives of IFAD, the B/R
and beneficiaries, staff of the LPA, implementing
agencies and the various project stakeholders.
The objective is to reach a clear common
understanding of the legal and financial
conditions of project objectives and expected
results, and the roles and responsibilities of each
party. The workshop also serves to clarify IFAD
requirements and procedures relating to AWP/B
preparation, procurement, disbursements,
counterpart funding, FM, M&E systems and
reporting.
6. In addition to the CPM, the FO and/or subject
matter specialists may participate in the start-up
workshop to train project implementation staff.
G.2 Project supervision
8. IFAD project supervision is an ongoing
process that can be depicted as an annual cycle
comprising four key steps:
(a) Supervision planning. The CPM prepares
an annual supervision plan outlining the
main supervision and implementation
support activities to be conducted during
the project year (including MTR and
project completion reviews), as well as the
corresponding budget.
(b) AWP/B and progress report review. The
CPM approves the AWP/B and reviews
the periodic progress reports prepared
by the LPA, which are the main tools for
monitoring implementation progress. A
copy of the approved AWP/B should be
copied to FOs for information.
(c) Supervision missions. Normally led by the
CPM (or the CI), supervision missions are
organized to:
(i) Review implementation progress in
the field;
(ii) Review financial aspects of the project;
66
7. The content of this ‘hands-on’ training
session includes: operation of the designated
and project accounts, IFAD disbursement
procedures, preparation of WAs (including
the SOE mechanism), preparation of the
AWP/B and procurement plan, conduct and
monitoring of procurement activities, periodic
financial reporting and preparation of financial
statements, and elaboration of M&E system
requirements. The General Conditions, FA,
LtB/R, IFAD Guidelines on Project Audits, IFAD
Procurement Handbook and PIM all serve as
support material for this practical training.
In the event this training session cannot be
conducted as part of the start-up mission, it
should be organized shortly thereafter to avoid
a lack of the necessary tools for the project team
to perform their work satisfactorily.
(iii) Assist the LPA in improving technical
and financial execution so as to reach
AWP/B and overall project objectives;
and
(iv) Build the capacity of the LPA and
other project parties in various aspects
of project management. 
(d) In addition, the CPM organizes a follow-up
mission whenever the previous supervision
mission has identified a need to provide
implementation support on specific issues
and/or to resolve outstanding issues.
(e) Financial management. Financial
management staff and workforce (FOs
and/or FMSs) participate in supervision
missions to review the continuing
adequacy of FM arrangements and loan
administration, update fiduciary risk
assessments and agree on actions needed to
mitigate these risks.
9. IFAD policies and procedures relating to
supervision are set out in the following:
(a) IFAD Policy on Supervision and
Implementation Support (December 2006)
(‘supervision policy’) (www.ifad.org/
gbdocs/eb/89/e/EB-2006-89-R-4-REV-1.
pdf);
G.3 Direct supervision
10. The CPM has overall responsibility for the
entire project supervision process, under the
supervision of the divisional director. Other
parties involved may include:
(a) The portfolio adviser and team, who provide
direct support to the CPM in the discharge
of country programme management
responsibilities;
(b) The FO, who works closely with the CPM,
may directly participate in supervision
missions if considered necessary by
FMD; otherwise, a suitably qualified,
accredited mission FMS with the required
qualifications and experience will be
deputed to participate on behalf of FMD, in
accordance with published procedures1 and
with TORs cleared by the FO.
(c) The LEG Operations Unit, which provides
advice on issues relating to the FA or any
other issues having legal implications;
(d) LPA staff, who assist in the planning and
organization of supervision missions, and
are the main contacts for the supervision
mission team;
(e) The CPMT, whose IFAD and in-country
components participate in various activities
related to project implementation.
11. The CPM is responsible for organizing, leading
and reporting on the supervision mission, and
also for ensuring that the necessary follow-up
actions are taken. The specific tasks undertaken
as part of the supervision mission relate to both
programmatic/technical and financial aspects
of project execution. The programmatic review
typically focuses on the following:
1 See Information Circular IC/FOD-PMD/01/2012.
2 ‘Acceptance’ can also be characterized as non-objection.
(b) Guidelines: Supervision and
Implementation Support of Projects and
Programmes Funded from IFAD Loans and
Grants (September 2007) (‘supervision
guidelines’) (www.ifad.org/operations/
projects/supervision/guidelines.pdf).
(a) Assessment of the implementation progress
of each project component against the
AWP/B and overall project objectives
(including field visits to verify reported
physical progress);
(b) Discussions with beneficiaries regarding
their perception of project performance;
(c) Critical review of the M&E system and the
quality of project reporting;
(d) Identification of problems or constraints
in the technical, targeting, M&E or any
other aspect of project implementation and
consideration of the need to amend project
documents such as the logical framework
or AWP/B;
(e) Agreement on remedial actions to remove
constraints and resolve problems identified
during the mission.
12. Implementation of the project is carried out
in accordance with the AWP/B – an important
document that allows IFAD to monitor project
activity progress and control actual use of the
financing.
13. GC section 2.01 defines the ‘AWP/B’ as “the
annual workplan and budget for carrying
out a Project during a particular Project
Year, which includes the Procurement Plan.”
The ‘procurement plan’ is presented as “the
Borrower/Recipient’s Procurement Plan covering
the initial eighteen (18) month period of
Project implementation, as the same shall be
updated to cover succeeding twelve (12) month
periods.”
Module
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A 67
 14. GC section 7.01(b) sets out procedures for
preparation and approval of the AWP/B. The
LPA prepares the draft AWP/B and submits it
to IFAD for comments, review and acceptance.2
This means that IFAD must agree to the B/R’s
plans for implementation of the project, the
procurement plan, and the proposed sources
and uses of funds. As is the case with the
AWP/B, overseeing the procurement plan and
monitoring contract execution related to project
procurement is the responsibility of PMD.
15. GC section 7.05(a) provides, “Each Procurement
Plan shall identify procedures which must
be implemented by the Borrower/Recipient
in order to ensure consistency with the IFAD
Procurement Guidelines.” This means that the
procurement plan must specify procurement
methods and applicable thresholds, as well as
thresholds for prior review by IFAD.
16. Acceptance/non-objection of the AWP/B and
procurement plan are the responsibility of
PMD, as are all decisions related to the review
of procurement documents and prior review of
proposed procurement, in consultation with
LEG and FMD, where appropriate.
17. The approval of the AWP/B is the one condition
that must be adhered to prior to any withdrawal
of loan/grant funds from the loan/grant account
(see GC section 4.02(b)), with the exception of
retroactive financing and start-up costs.
18. The financial review undertaken by the FO or
FMS normally includes the following tasks:
(a) Confirmation that accounting staff with
the required qualifications and experience
continue to be available to the project;
(b) Review of project expenditures against the
AWP/B to ensure sufficiency of funds in the
various expenditure categories and project
components; identification of potential
cost overruns or savings;
(c) Analysis of the financial execution of
the AWP/B and review of the budget
monitoring system; assessment that the
reported financial progress is broadly
consistent with progress reports prepared
by project management;
(d) Analysis of financial commitments
and disbursements against a sample of
approved contracts;
68
(e) Verification of: SOEs (on a sample basis);
WAs against supporting documents and
accounting evidence to confirm their
eligibility for financing; and reconciliations
of the banking accounts, including the DA;
(f) Assessment of the adequacy of financial
accounting systems for recording and
reporting project transactions and of
administrative systems (personnel and
assets management);
(g) Review of the internal audit report to
confirm if its scope is adequate and if its
findings indicate significant weaknesses
in internal controls that have not been
addressed; verification of a sample of
transactions to determine if internal
controls to confirm eligibility of
expenditures and financial accountability
have operated satisfactorily and are in
compliance with the PIM;
(h) Verification of compliance with the FA with
respect to fiduciary covenants;
(i) Identification of problems or constraints
in the flow of funds to intended
end beneficiaries and financial and
administrative management aspects;
(j) Follow-up on external audit review
findings, recommendations and
outstanding issues;
(k) Agreement on remedial actions to remove
constraints and resolve problems identified;
(l) Confirmation of the risk rating or an
explanatory note in the case of a change in
risk rating following the mission.
19. At the end of the supervision mission, findings
are summarized in an aide-memoire, followed
by a management letter sent from the CPM
to the authorized representative of the B/R.
The supervision guidelines provide detailed
guidance for these reports. The section dealing
with financial aspects of the supervision mission
should include precise information on the
nature and extent of the review procedures
carried out (number and percentage of WAs
tested, basis for selection of sample, test
results, etc.), as well as an update on the
implementation status of previous supervision
mission and audit recommendations.
Procedures for the scope of FM supervision
are defined in Information Circular IC/FOD-
PMD/01/2012.
G.4 Supervision by
cooperating institutions
20. A small number of IFAD-funded projects
provide for appointment of a CI to administer
the loan and supervise project implementation.
The framework for appointment of the CI
is formally documented in a cooperation
agreement and supplemented for each project
by a letter of appointment that spells out the
effective date of the appointment and specific
CI responsibilities with respect to individual
projects.
21. GC section 3.02 defines the responsibilities of a
CI as follows:
(a) facilitating Project implementation by
assisting the Borrower/Recipient and
the Project Parties in interpreting and
complying with the Financing Agreement;
(b) reviewing the Borrower/Recipient’s
withdrawal applications to determine the
amounts which the Borrower/Recipient is
entitled to withdraw from the Loan and/or
Grant Account;
(c) reviewing and approving on a no-objection
basis the procurement of goods, civil works
and services for the Project financed by the
Financing;
(d) monitoring compliance with the Financing
Agreement, bringing any substantial non-
compliance to the attention of the Fund
and recommending remedies therefor; and
(e) carrying out such other functions to
administer the Financing and supervise
the Project as may be set forth in the
Cooperation Agreement.
22. GC section 3.04 provides that any action
taken by the CI in connection with these
responsibilities shall be regarded as an action
taken by IFAD. The CI normally administers
the loan in accordance with its own procedures,
as agreed between IFAD and the CI. The CI
is expected to administer IFAD loans and
supervise implementation of IFAD projects
with the same care and diligence it applies to
its own operations and in accordance with its
own operating procedures. FMD staff must
nevertheless maintain contact with the FM staff
of the CI and ensure that they (FMD) regularly
receive copies of audits and supervision reports
of missions conducted by the CI, and are
aware of obligations on key dates such as the
completion and closing dates.
23. With regard to procurement, in cases where
the CI also provides cofinancing, the FA may
stipulate that the CI’s procurement rules shall
apply. This arrangement prevents any conflict
due to a variance in the eligibility criteria and
procurement practices generally followed by
the two institutions. If no such cofinancing
arrangements exist, the applicable policies and
procedures are agreed with the B/R and specified
in the FA and other relevant documents.
24. PMD acts as the focal point for relations
with CIs. It organizes periodic meetings and
monitors the orientation, frequency, quality,
reporting and cost of the supervision activities
of these institutions. ACD carries out financing
administration and provides support where
required, while FMD is responsible for
performing audit reviews and for other FM
matters. As IFAD’s corporate IT systems develop
over time, it is expected that projects and
B/Rs will be able to access their individual data
directly.
Module
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 G.5 Role of country presence
and country teams
25. IFAD country offices operate with the support
of the regional portfolio adviser, the FO, LEG
assigned to the country and, more generally,
the CPMT.
G.6 Procedures for FM supervision
26. Financial management includes two interrelated
processes:
(a) The FM review conducted in-country as part
of supervision or implementation support
missions, usually once or twice a year;
(b) Financial progress monitoring, which is a
continuous process throughout the life of
the project.
27. The following paragraphs provide the
methodology for monitoring the FM
performance of a project, understanding
fiduciary risks and tracking financial activity
during implementation.
28. These procedures should be seen as a tool to
facilitate the work of the FMD staff member and
help him/her make decisions when assisting
CPMs/FOs in monitoring the financial aspects
of projects. They do not, however, seek to be
overly prescriptive and so do not replace the
application of professional judgement by FMD
staff and the FO.
29. Financial management. Monitoring of FM
during implementation should be seen as a
continuous process and should cover both:
(a) FM arrangements, to ensure that those in
place continue as planned throughout the
project; and
(b) Financial performance assessment as
planned, in terms of both budget and
timescale.
30. FM activities during supervision should adhere
to best practices adopted by IFAD within the
overall corporate fiduciary framework. Thus it is
necessary to review both financial performance
to date and the continuing adequacy of FM
arrangements by a combination of:
70
(a) Desk review of relevant documents.
Analytical review of periodic progress and
audit reports should be conducted as soon
as possible after the relevant information is
received. Key documents to be reviewed are:
(i) Project progress reports. These allow
FMD staff to obtain a snapshot of
the financial performance of the
project. The staff member should,
to the extent possible, focus his/
her work on: analytical reviews that
permit an overall view of the project
and its financial progress; review of
disbursement requests; comparison of
actual disbursement with the planned
annual schedule of expenditure; and
comparison of the overall forecast
financial outcome with the approved
budget and funding envelope.
(ii) Annual external audit reports on the
project financial statements. These,
including specifically the ‘management
letter’, will provide information on any
fiduciary risk aspects of the project.
In undertaking the reviews, FMD
staff should specifically consider the
timeliness of receipt of the AFSs and
whether or not the content of these
statements indicates any significant
fiduciary risk issues. Delays in
submission of audit reports – beyond
IFAD project audit policy and the
time agreed with borrowers – would
normally warrant remedial actions
under the IFAD Guidelines on Project
Audits.
 FMD staff should also consider
whether the quality of the audit report
and supplementary documentation
is of an acceptable standard and, if
not, should discuss concerns with the
CPM to decide actions to be taken,
including whether or not the external
auditor continues to be acceptable
for the purposes of IFAD-financed
operations.
Any issues arising from a routine,
stand-alone desk review of project
progress reports or AFSs should
be formally communicated to
the borrower/project, usually
electronically.
Exhibit G-5 lists other documentation
and information that may be relevant
and useful.
(b) Site visits to project locations to meet
with the implementing entity and PIU
staff to review the performance of the FM
system and verify a sample of controls and
individual disbursement transactions:
(i) Site review activity will consist of
periodic visits by the FMD staff
member, usually as part of scheduled
project supervision missions. S/he will
check that FM arrangements in place
at the beginning of the project are still
operative and that there is no new or
changed exposure to risk.
(ii) During project implementation, the
FMD staff member should periodically
review the continuing adequacy of
FM arrangements, undertaking, as
necessary, visits to project locations
to meet with borrower and/or LPA
FM staff. S/he should also verify a
sample of controls and individual
disbursement transactions. Any
changes to the FM arrangements
must be documented in the form of a
brief report and reflected in the aide-
memoire and/or supervision report.
The staff member, in consultation with
the CPM, should take prompt action
to minimize the new risk, as outlined
above in the case of adverse external
audit findings. Again, the borrower
and/or LPA should be notified of
any actions they should take and/or
actions to be taken by IFAD.
(iii) A ‘force account’ occurs when the
implementing agency uses its own
work force, equipment and other
resources to carry out civil works
(also known as ‘direct labour’,
‘departmental force’ or ‘direct work’).
The FMD staff member should
ascertain that force account staff have
provided construction or maintenance
work or other services at a reasonable
cost and that periodic certification of
progress and completion of works in
support of WAs have been submitted.
31. Timing of combined desk and site-visit
reviews. Supervision through site visits provides
greater reliability than desk reviews, as the
FMD staff member obtains first-hand evidence
of funds reaching intended beneficiaries,
expenditures being incurred and paid-for
outputs being realized, without any filters
that may reduce impact or reliability. Thus
these visits are a fundamental part of ongoing
financial due diligence. Where physical outputs
paid for by IFAD financing are realized, projects
should be encouraged to transparently and
publicly display on-site information on these
outputs.
32. Combined desk and site-visit reviews should be
undertaken on a predetermined schedule. The
timing and frequency should be recommended
by the FO in the light of underlying risks and
agreed with the CPM. Typically, these will be
semi-annual, but could be less frequent for
FMD staff if the results of the initial review, or
of subsequent reviews, are satisfactory. However,
the frequency of on-site reviews by FMD staff
should revert back to at least semi-annual if an
annual review or audit report reveals material
adverse issues. The FMD staff member should
structure his/her work and summarize findings
and conclusions according to the guidance
given in this document.
33. Monitoring project financial progress and
performance. Ongoing financial performance
should be periodically reviewed to check that
implementation is proceeding within budget
and is in line with initial estimates of the
phased expenditure profile. This task should
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 be completed either by the CPM or FO through
desk review of periodic progress reports. As
a minimum, FM inputs into project progress
reports must include:
(a) A statement showing actual cash receipts
and payments for the period (year-to-date)
and cumulatively (project life) by main
income and expenditure classifications; and
(b) Beginning and ending imprest account
balances.
34. Any significant inconsistency (e.g. overbudget or
underbudget expenditures) must be brought to
the attention of the B/R to discuss implications
and agree on remedial action.
35. Results of FM during implementation. The
FMD FO will document the results of findings
related to FM during implementation and, in
consultation with the CPM, update project
performance ratings (in project status reports
[PSRs]) and FM risk ratings, as appropriate.
36. Reporting findings and conclusions. The FMD
staff member should document the results of
a site-visit review in a brief report describing
the type of inspection performed and the work
completed (i.e. the walk-throughs and/or test
checks undertaken to verify effectiveness of
controls). Attachments to the report should
include an updated financial-management
performance assessment (see exhibit G-3
Summary of Project Fiduciary Risk Assessment at
Supervision), an SOE review checklist (see exhibit
G-1 Checklist for statement of expenditure (SOE)
review) reflecting mission findings, and the
proposed PSR ratings for FM. In this context,
the results obtained after the on-site review
would be either:
(a) Confirmation that the FM arrangements
are functioning as planned, with FMD
staff confirming verification that such
arrangements are sufficient and effective for
the project; or
(b) Indication that only some or none of
the FM arrangements are functioning as
3 Exhibit G-5 contains other documentation and information relevant/useful to the mission.
4 See exhibit G-2 Detailed FMAQ Project Fiduciary Risk Assessment at Supervision.
72
planned and that fiduciary risk issues
should be addressed.
37. In the latter case, the report should indicate
actions recommended to re-establish and/
or maintain satisfactory FM arrangements.
Similarly, FMD staff should report any
deficiencies identified in the FM arrangements,
including unsatisfactory arrangements in the
implementing entity, ineligible expenditure,
failure to submit audited financial reports
promptly, or audit findings indicative of
internal control weaknesses. FMD staff should
discuss these matters with the borrower and/
or implementing entity at the end of the site
visit, after consultation with the FO/CPM. The
borrower and/or implementing entity should
subsequently be notified by the CPM or FO of
any specific actions to be taken by IFAD.
38. When the FO is unable to join a mission,
project-level assessment should be carried out by
a qualified, experienced FMS. Key tasks of FMD
staff include a review of fiduciary aspects of the
project, including the existence and effectiveness
of the originally agreed FM arrangements (see
exhibit G-4 Sample Consultant TORs).
39. The FO (or FMS) assigned to the supervision
mission should carry out the following tasks:
(a) Preparation:3
(i) Consult the results of the latest
external-audit-report review prepared
by FMD;
(ii) Review the most recent project
progress reports.
(b) Reassess the project FMA performed
at design:
(i) Use the original FMAQ4 as the basis
for reviewing relevant information to
reassess the strengths and weaknesses
of FM systems;
(ii) Review actions taken to address
recommendations of the previous
year‘s supervision review,
recommendations raised by
external auditors regarding previous
 years’ management letters, and
recommendations raised by FMD
during the audit review exercise;
(iii) Perform an FM performance
assessment, using the questionnaire
provided as exhibit G-2 Detailed FMAQ
Project Fiduciary Risk Assessment at
Supervision;
(iv) Review sample WAs and SOEs to
verify the adequacy, completeness and
validity of claims, using the checklist
provided as exhibit G-1 Checklist for
statement of expenditure (SOE) review;
(v) If relevant, meet the SAI or the private
audit firm to discuss issues raised in
the latest audit report;
(vi) If relevant, meet cofinanciers to discuss
their FM experience.
(c) Reporting:
(i) A brief draft report is to be provided to
the FO/CPM, including:
(a) Updated FM performance
assessment;
(b) Summary of Project Fiduciary Risk
Assessment at Supervision
(exhibit G-3);
(c) SOE review checklist (exhibit G-1)
reflecting mission findings;
(d) PSR ratings on quality of FM,
audit, compliance with the FA and
disbursement.
(ii) Provide inputs to the aide-memoire
as follows:
(a) Input to main body of the aide-
memoire, section E. Fiduciary
Aspects, covering: (i) FM; (ii)
disbursement; (iii) counterpart
funds; (iv) loan covenants; (v)
external audit (including follow-up
to the findings of the audit review
exercise performed by FMD); and
(vi) the summary PFR assessment
table specifying agreed actions,
responsibilities and dates with
respect to fiduciary mitigation
actions, as relevant;
(b) Appendix 1: Summary of project
status report (PSR), covering:
(i) disbursement rates of domestic
and cofinancing funding sources
(section A, Basic Facts); (ii) ratings
for fiduciary aspects indicators
(section B.1); (iii) description of
fiduciary risks and their impact
on project performance (section
C.5); and (iv) follow-up action on
fiduciary aspects (section D);
(c) Appendix 5, Financial: actual
financial performance by financier;
disbursements by category and by
component: tables 3A, 3B and 3C;
(d) Appendix 6, Compliance with
Loan Covenants: status of
implementation – assessment
of loan covenants in relation to
fiduciary aspects.
40. IFAD manages its financing and that of external
donors so as to ascertain that proceeds are
disbursed in accordance with IFAD guidelines
and policies and with the legal clauses specified
in the FA. From IFAD’s viewpoint, standard
procedures consist of two major monitoring
tasks: disbursement, and audit and reporting.
(a) Disbursement monitoring and
authorization. Procedures for the review
and approval of WAs are set out in
module H.
(b) Audit and reporting. The B/R is responsible
for ensuring that projects are audited
on a regular and timely basis. As part
of the financing management process,
IFAD examines the procedure for the
appointment of auditors, monitors the
timeliness of financial statements and audit
reports, reviews audit reports to ensure that
project audits are conducted in accordance
with IFAD policies and procedures, and
follows up on issues raised by auditors.
Module I details IFAD audit requirements,
including monitoring procedure and
remedies in the case of non-compliance.
41. Procedures (including checklists) relating to
IFAD’s process for disbursement are provided
in module H.
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 G.7 Financial management support
42. It is mandatory that at least one FM mission
be fielded for each project at least once per
year. Supplementary missions may be required
according to the particular situation or
supervision needs of the project. Such support
is usually intended to monitor compliance with
financing conditions and to provide guidance
and support to B/Rs and project executing
agencies, with a view towards efficient project
implementation and disbursement of loan/grant
proceeds. The intention may also be to monitor
specific aspects of financing use (for example,
review of supporting documents concerning the
amounts withdrawn on the basis of SOEs – see
module H).
43. Disbursement guidance. Through the LtB/R,
the FO and CPM specify withdrawal procedures
to be followed by B/Rs and are responsible for
providing guidance to the B/R to ensure prompt
loan use, and for monitoring compliance with
loan conditions. Loan financing management
support missions focus on:
(a) Training PIU staff, who are responsible for
the preparation of WAs;
(b) Guidance on problems that may lead to
delays in disbursement;
(c) Resolution of problems that have arisen
with individual applications;
(d) Monitoring use of the DA (module H,
section H.5), both to verify adequacy of
controls and to ensure that they are being
implemented correctly;
(e) Review of the use of SOEs to verify
adequacy of systems and controls. Findings
arising from these reviews should be
summarized and attached to the back-
to-office report. A Checklist for statement
of expenditure (SOE) review is provided as
exhibit G-1;
(f) Examination of supporting documents in a
random sample of SOE applications.
44. These missions are usually conducted by the
FO assigned to the country and/or a specialized
service provider. The following PFR assessment
procedures are to be undertaken during
supervision missions:
74
(a) FOs, in collaboration with CPMs, are
responsible for monitoring the ongoing
adequacy of fiduciary arrangements.
(b) Reassessment of project fiduciary risk is
primarily based on results of the fiduciary
risk assessment undertaken during project
implementation, based on periodic project
supervision missions. This may comprise
a desk review of project documents
and reports, as well as field supervision
missions when appropriate. Findings on
internal controls and fiduciary concerns,
as reported in project audit reports, should
also be taken into consideration.
(c) The FO or FMS should carry out
reassessment of the fiduciary risk using
the methodology presented below and as
specified in the detailed FMAQ (See exhibit
G-2 Detailed FMAQ Project Fiduciary Risk
Assessment at Supervision). The Summary of
PFR Assessment at Supervision table (See
exhibit G-3 Summary of Project Fiduciary Risk
Assessment at Supervision) should be used to
summarize the findings and conclusions.
(d) The PSR is the instrument used by PMD
during the annual portfolio review process
to assess the status of a project in terms of
fiduciary aspects, implementation progress,
etc. The FO enters the ‘quality of financial
management (B1.1)’ rating (within the
‘fiduciary aspects’ component of the PSR
summary) in the respective column of
the database of risk ratings (usually by 30
June of each year). This is done to reassess
the project’s fiduciary risk rating during
implementation.
(e) Annual project audit-report review
ratings are considered when assessing the
‘quality and timeliness of audits’ rating
during the portfolio review process. Audit
ratings are meant to reflect the quality
and scope of audits and compliance with
covenants related to timeliness. These are
updated annually (usually by 31 August)
following the project’s audit review. The
FOs responsible for performing the review
are responsible for ensuring that audit
review ratings for their respective projects
are reflected in the Audit Report Tracking
System (ARTS) and taken into account
during the portfolio review exercise.
 (f) All project risk ratings should be reassessed
at least annually. For projects with a high
risk rating, a more frequent reassessment
of fiduciary risk during implementation
is recommended. Where a supervision
mission is scheduled to take place after a
gap of more than a year after the previous
mission, the FO should raise the fiduciary
risk rating by one notch, and this revised
rating should remain in place until the
results of the next mission are assessed.
G.8 Interim financial reports
46. The primary objective of financial reporting
is to help monitor financial progress and
provide assurance that financing proceeds have
been used for the intended purposes during a
reporting period.
47. The benefits of IFRs:
(a) They disclose deviations from the financial
plan and help provide potential solutions
to problems identified;
(b) Provide more timely information on
project performance and help early
identification of lapses in financial
accountability. Audit reports provide
the same benefit, but are generally only
provided annually;
(c) Strengthen the internal control system of
the project through improved monitoring
and communication between finance,
procurement and M&E staff and project
management;
(d) Link financial information to physical
progress and, as a result, help evaluate
the financial impact of project activities
and direct them towards achieving project
outputs;
(e) Help monitor continued adequacy of AAs
(through information on bank balances),
and streamline disbursement planning.
48. In addition to the benefits outlined above, it
is also important to be aware of the general
weaknesses or risks of IFRs:
(g) Where there is disagreement between FMD
and PMD as to the reassessed fiduciary
risk rating for a project, the Director, FMD,
as the authority responsible for ensuring
that appropriate financial management
procedures, including disbursement, are
applied, will have the final decision.
45. The FM capacity assessment questionnaires
to be completed during these missions are
provided in exhibit G-2 Detailed FMAQ Project
Fiduciary Risk Assessment at Supervision.
(a) They are not necessarily generated directly
from accounting systems being used for
projects. As a result, it is not possible
to rely on them to determine if normal
accounting controls have operated in these
reports.
(b) IFRs might provide unreliable information,
due for example to inaccuracies, absence
of audit trails, unexplained inconsistencies
and incomplete financial information.
(c) Currently there is no standard practice for
review of IFRs by FOs and PMD colleagues.
(d) Connection is lacking between quarterly
IFRs and AFSs.
49. Principles of IFRs. The guiding principles can
be summarized as follows:
(a) The overall objective is to provide regular,
timely financial information, offering
fiduciary assurance to IFAD during a
reporting period that the funds are being
used for the purposes intended and in the
most efficient way. IFRs should also focus
on providing comparative figures with
respect to the AWP/B and PDR.
(b) IFRs are not isolated. They should be
read together with related documents
such as the AWP/B, WAs, annual project
financial statements and audit reports – as
well as implementation, supervision and
completion reports – to get a complete
picture of the financial progress of a
project. As far as possible, the B/R should
not be required to provide IFAD with
information already available to the Fund.
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 (c) The format of IFRs should preferably follow
the IFAD sample format as presented
in exhibit I-4 Guidance Note on Interim
Financial Progress Reports. However, the
project can choose another format as long
as it is acceptable to IFAD. During the
design phase, the FMS/FO should look
into national and other-donor reporting
requirements to harmonize reporting
formats and reduce project workload. The
B/R’s own reporting systems should be used
as far as possible in generating the IFRs,
and common reporting and monitoring
arrangements should be agreed with other
donors involved in the project.
(d) Projects should prepare IFRs using the same
accounting basis/standard they use when
preparing annual financial statements.
Otherwise, the financial date of the IFR will
not reconcile with the data of the audited
annual financial statements.
(e) Similarly, the currency of IFRs should be
that of the annual financial statements. This
can be either the denomination currency
(the currency in which transactions are
recorded in the accounting system – usually
the local currency) or the presentation
currency (another currency in which
the transactions are recorded in the
accounting system, e.g. US$). The selection
of a presentation currency other than
the functional currency should be agreed
with IFAD/FMD during preparation. In
these cases, the accounting capacity of
the project should be strengthened by
including guidance on the exchange rates
to be used for conversion of transactions
and balances in the PIM/FM manual. The
exchange rate conversion should be in
line with the accounting standards used.
Note that an exchange gain/loss is not an
eligible expenditure in itself, and should
not be reported as a separate expenditure
item. Instead, if there are realized gains/
losses, these should be entered in specific,
approved expenditures/expenditure
categories. Exchange rate differences on
conversion of the opening and closing
bank balances (i.e. unrealized gains/losses)
should be disclosed separately.
76
(f) The financial information presented in
IFRs should always be generated using
proper accounting software. Excel is not an
acceptable form of accounting software and
should only be used to edit and combine
data to fit the agreed format.
(g) IFRs should be submitted on at least a
semi-annual basis. However, submission
on a quarterly basis is recommended. Non-
submission or irregular submission of IFRs
should be seen as a red flag and should be
followed up by the FMS/FO.
(h) As with the annual project financial
statements, only the cash beneficiary
contribution should be reported in the
IFR, consistent with the entry in the
accounting system. The in-kind beneficiary
contribution should not be included
in the reported figure under beneficiary
contributions, although the project should
track this for other reporting purposes.
(i) Although IFRs focus mainly on financial
data, some additional management
information reports (fixed asset register,
signed contract listing) and physical
progress indicators may also be included.
From an FM point of view, this is
encouraged and desirable, as these reports
motivate the financial controller/chief
accountant, M&E officer, procurement
officer and project director to communicate
with each other and compare figures,
reducing the risk of collusion, fraud and
mismanagement.
(j) Once the project begins producing IFRs,
auditors should certify that project financial
statements are in accordance with data
shown in the IFRs, as this would increase
IFR credibility. This could be specified in
auditor TORs and is important in moving
towards report-based disbursement.
50. Content of the IFR and sample reports
(a) The aim of IFRs is to answer the following
questions regarding a reporting period:
what expenditures were incurred, paid for
by which financing source, at what time
and purpose.
 (b) There is no one report that could provide
all this information; as a result, a set of
reports is needed. Exhibit G-7 provides a set
of mandatory reports to be provided by the
project, either quarterly or semi-annually.
These reports should be accompanied with
a set of explanatory notes and key checks to
make them as clear as possible for project
staff. As the ideal set of reports depends on
the project’s activities and the project risk
profile, some supplementary reports might
also be included to complete the set.
(c) Mandatory reports:
(i) Sources and uses of funds (all
financiers);
(ii) Summary of expenditures by loan/
grant categories and by financiers;
(iii) Financial performance by financier
and by component;
(iv) Statement of expenditures/
disbursements – WA statement;
(v) DA reconciliation statement (imprest
account/revolving fund);
(vi) Cash flow forecast;
(vii) Progress report on audit
recommendations.
(d) Supplementary reports are to be
customized to fit a project’s activity and
risk profiles, but could typically include the
following:
(i) Procurement progress report;
(ii) Physical progress report;
(iii) Rural finance/credit line report;
G.9 Accounting and reporting standards
52. Accounting procedures must meet international
standards. Standards acceptable to IFAD include
IPSAS, which may be on a cash or accrual basis.
For PIUs that are revenue-earning entities, IFRS
are appropriate. FMD staff must familiarize
themselves with key aspects of these standards
relevant to project financial statements and must
(iv) Implementing partner monitoring
report;
(v) Training and workshop monitoring
report (if such expenditure is a
significant proportion of total);
(vi) Project management cost report;
(vii) Fixed asset register.
(e) The need and capacity for such reports
should be based on risk/FM capacity
assessments and should be jointly
discussed by FOs and CPMs during the
project design process. A sample table
of supplementary reports is presented in
exhibit I-4.
(f) Generally speaking, expenditures reported
in IFRs (totals and by financier) should
match those reported by the project to
the government, as well as other possible
financiers. FMD staff should request
that a copy of reports submitted to the
government accompany IFRs submitted to
IFAD.
51. Reviewing the reports. When a project is in its
implementation phase and already producing
IFRs, the FO should review these reports and try
to amend/complement them (if necessary) to
reflect the IFAD IFR sample format and the risk
profile of the project. In this regard, supervision
missions provide a good opportunity to discuss
and inform project financial staff of the required
report formats and their benefits. The final
agreed format should be communicated to the
project by amending the LtB (see exhibit G-6 –
Checklist for review of IFRs).
confirm compliance. When alternative national
accounting standards are in use, FMD staff must
determine if the gaps would have a significant
impact and assess, case-by-case, if they may be
accepted. This assessment may be based also
on data provided by other IFIs such as the
World Bank.
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 G.10 Financing closure
53. The loan/grant account is closed by ACD after
the Financing Closing Date, upon receipt of the
confirmation from PMD and FMD in a timely
manner that processes as per paragraph 57
below are fully satisfied.
54. GC section 12.02(b) provides, “Any
amounts remaining in the Loan and/or
Grant Accounts shall be cancelled on the
Financing Closing Date, except for any
unwithdrawn balances of applications
for withdrawal received by the Financing
Closing Date…”,
55. Closing procedures.
(a) Closing notices. IFAD sends three
automated closing notices by email
directly to the Project Coordinator,
with copies to relevant project finance
staff and IFAD staff (a copy of each
email should also be sent to the CI
where applicable), to advise them
that the loan/grant account will be
closed on schedule, remind them
of submission requirements prior
to closure (see paragraph 55 (c)
below) and of the conditions related
to eligibility and/or ineligibility of
expenditure at completion as outlined
in Module E.8 paragraph 19. The notices
are issued in six month intervals as follows:
(i) Six months before the Project
Completion Date;
(ii) On Project Completion Date;
(iii) On Financing Closing Date.
(b) During the six-month period prior to
closing, there may be a higher frequency
of WA submissions, which whenever
possible, should be grouped together.
Engagement with project accountants
is recommended in order to manage this
process.
78
(c) By the Financing Closing Date, the B/R
must have submitted the final WA, PCR
and final audit report to IFAD (and to the
CI, if applicable), along with a response
to any issues raised by the auditor. The
B/R should also have fully justified the
DA or refunded any balance not justified.
(d) In the event the B/R wishes to request
additional time to justify an advance,
or to comply with the submission of all
required documentation, the B/R should
submit an official communication prior
to the Financing Closing Date requesting
additional time with rationale. The request
may also be initiated internally by IFAD,
and submitted to the Director, FMD, for
approval. After approval of the Director,
FMD, the Fund may agree to accept WAs for
justification for a period of six (6) months
after the Financing Closing Date (or longer
if required). Approval should be obtained
prior to the Financing Closing Date,
however exceptions may be considered
within the six (6) months following the
Financing Closing Date, at the discretion of
the Director, FMD. The B/R is subsequently
notified of the approval (and the CI, if
applicable).
(e) Appropriate audit coverage for expenses
incurred during the period between the
completion and closing dates should
be decided by the FO depending on the
materiality and project circumstances:
(i) extending the period under audit
beyond the financial year-end to
include this period;
(ii) accruing closing period expenses as
liabilities in the financial statements
for the period ending with the
completion date; or
(iii) relying on an authorized WA for
SOs for un-audited closing period
expenses.
 (f) Particular care should be taken when
effecting the final disbursement to/ on
behalf of the B/R to ensure that the total
authorized financing amount in the
denomination currency is not exceeded.
Final disbursements to the B/R may be in
a different transaction currency (e.g. US$
or a national currency of the B/R) than
that of the denomination currency (e.g.
SDR). They are entered as a withdrawal
against the loan/grant account using the
applicable exchange rate on the actual
value date of payment. When financing
is near full disbursement, modest
variations in the exchange rate between
the approval and value dates could lead
to an over-disbursement. Guidance Note
7 – Payment of Final Disbursement has
been provided as exhibit G-8.
(g) The Disbursement Officer (DO) should
ensure that a buffer is available to cover
possible exchange rate fluctuations.
The size of the buffer depends on the
currency of the disbursement and on the
approved amount.
56. Where an additional financing instrument
is ongoing, but the original financing
instrument(s) for that project is/are fully
disbursed, then the latter should be closed
in accordance with the procedures described
above provided that:
(a) The expenditures have been included in
the AFS; and
(b) The FO and CPM have agreed to waive
the requirement for submission of a
PCR (on the basis that it will be done
once all financing instruments have
reached the Financing closing date).
57. Closure of IFAD loan/grant accounts
(a) Prior to formal closure of the IFAD loan
and/or grant account, ACD requires
timely confirmations from PMD and
FMD through a closing checklist that the
following agreed processes are completed:
Withdrawal applications
(i) There are no WAs pending that were
received prior to the Financing
Closing Date;
(ii) There are no missing WAs; if a
missing WA is noted, the status of
the WA must be verified with the
project/CPM;
(iii) The CPM has received confirmation
from the project that the last WA has
been sent.
Authorized allocation (AA)
(iv) All ineligible expenditures have been
refunded;
(v) AA has been fully justified, or
refunded or written off (small
amounts) in FXC.
Final reports
(vi) Final audit report has been received
and reviewed b y t h e F O and
deemed satisfactory to the Fund;
and
(vii) PCR, if applicable, has been
satisfactorily received by CPM and
any required follow-up action taken.
(b) The Fund and the B/R should agree
on the disposition of project assets on
completion (GC section 7.16).
(c) The loan/grant accounts will be kept open
after the Financing Closing Date
for a period not to exceed six months
(or longer, subject to necessary approvals
in accordance with Module E.8 paragraph
19), if this is required, in order to:
(i) Disburse any withdrawal for which
a WA was received prior to the
Financing Closing Date;
(ii) Accept WAs for justification in
accordance with para. 55 d) above;
(iii) Permit IFAD to take remedial action
with regard to audits of the project;
(iv) Permit IFAD to take remedial action
with regard to the PCR; and
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 (v) Receive any refund the B/R is required
to make. If the B/R has not made
all required refunds of unjustified
obligations as of the date of closure of
the loan/grant accounts, the remedies
in line GC section12.01(a)(ii) will
be applied.
(d) Closure of the loan/grant account entails
ACD to:
(i) Cancel any unspent loan/grant
balance in FXC;
(ii) Close loan/grant account in FXC.
80
(e) Upon final closure of the loan/grants account,
an official letter is sent to the B/R with copies
sent to relevant internal stakeholders, which is
signed by the Director and Controller, ACD.
This formal communication is sent so as to:
(i) notify the B/R of the closure of the
loan/grant account;
(ii) provide a status of loan/grant funds (a
historic transaction report); and
(iii) provide final amortization schedule
which is revised following cancellation
of the unused balance (see module J,
section J.3).
G.11 Loans and Grants System and tools
58. The table below shows the systems currently in
use in IFAD to record financial data on IFAD
loan and grant operations, and to monitor
performance, FM and compliance with FA
conditions. Available reports can be accessed
through the IFAD Intranet.
System
FlexCube (FXC)
Grants and Investment Projects System (GRIPS)
Oracle Business Intelligence (BI)
Withdrawal Application Tracking System (WATS)
Audit Report Tracking System (ARTS)
Financial Management Dashboard (FMDB)
IFAD Client Portal (ICP)
Oracle Data Warehouse
Description
IFAD financial system to record financing instruments,
loan and grant disbursements, and loan repayments.
Fully integrated with Oracle BI, cash management and
accounting. Integration with other corporate systems,
such as GRIPS
Corporate system to record projects financed through
investment or grant programmes. Financial instrument
numbers are created in GRIPS and interfaced with FXC
so they are the same throughout all IFAD systems
Reporting tool to generate reports, manually or
automatically, for internal or external stakeholders.
For example, billing statements and debit advices are
automatically generated and distributed to the list of
recipients maintained in FXC
Tracking system to monitor the processing of WAs for
loans and grants
Tracking system to monitor submission and quality of
audit reports for investment projects and grants
Management tool to monitor financial performance of
projects. Integration with the IFAD Client Portal (ICP)
External stakeholders’ online portal, providing
information and offering a secure environment to initiate
financial transactions and document upload (including
WAs, related documents and banking instructions).
Integration with GRIPS, FMDB and the Oracle Data
Warehouse
Corporate data repository offering ACD/FMD/PMD-
specific reporting. Integration with the ICP
Module
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WITHDRAWAL AND DISBURSEMENT
MODULE H
 Module H
Withdrawal and disbursement
• Legal provisions for withdrawal of financing
• Conditions for withdrawal
• Disbursement arrangements and procedures
• Disbursement documentation/statements of expenditure
• Designated account
• Reimbursements
• Direct payments
• Special commitments
• Processing disbursements
• Processing disbursements during suspension

84
H.1 Legal provisions for withdrawal
of financing
1. Article 4 of the General Conditions sets out (d) Any amount withdrawn from the loan/
core principles with respect to the withdrawal of grant accounts to finance an expenditure
funds: other than an eligible one, or not needed
thereafter to finance eligible expenditures,
(a) No withdrawal (except start-up costs) can
must be refunded to IFAD by the B/R (GC
be made from the loan/grant accounts
section 4.09).
before approval of the first AWP/B by the
Fund and fulfilment of all other conditions 2. GC section 4.01 provides, “Upon the entry into
precedent to withdrawal, as stipulated in force of a Financing Agreement, the Fund shall
the FA (GC section 4.02(b)). open a Loan Account and/or a Grant Account in
the name of the Borrower/Recipient and credit
(b) GC section 4.02(a) provides, “Between
the principal amounts of the Loan and the
the date of entry into force of the
Grant respectively thereto.” These loan and grant
Agreement and the Financing Closing
accounts are ledger entries in the accounting
Date, the Borrower/Recipient may request
records of IFAD, and the B/R can only withdraw
withdrawals from the Loan Account and/
from these accounts subject to the provisions
or Grant Account of amounts paid or to be
of the FA and the General Conditions and in
paid for Eligible Expenditures. The Fund
accordance with the procedures established
shall notify the Borrower/Recipient of the
by IFAD.
minimum amount for withdrawals.”
3. GC section 4.05 states, “Upon receipt of an
(c) Requests for withdrawals are subject to
authenticated and satisfactory application for
submission of an appropriate application,
withdrawal from the Borrower/Recipient,
together with the required supporting
the Fund shall transfer to the account specified
documentation and authorized signature(s)
by the Borrower/Recipient the amount
(GC section 4.04).
specified therein.”

H.2 Conditions for withdrawal

4. Section E of the FA indicates any additional may not be used for these expenditures prior
(generic/specific) conditions precedent to to compliance, and any amounts so withdrawn
withdrawal, apart from IFAD approval of the are subject to refund. Any other WAs submitted
AWP/B. Where only certain specific expenditures prior to compliance are returned.
are subject to conditions for withdrawal, their
6. The CPM monitors compliance as part of
category allocations, provided in schedule 2,
the supervision process and is responsible
are shown separately, where possible, so as
for determining, with support from LEG and
to ensure that project implementation and
FMD, when withdrawal conditions have been
expenditure can continue where these specific
met. When conditions are met, the CPM
additional conditions are not applicable.
sends notification to this effect to the B/R, and
Categories that cannot be disbursed until
informs FMD and ACD so that the FXC may be
satisfaction of conditions precedent to
updated to reflect compliance and availability
withdrawal should be clearly defined.
of funds in the relevant category(ies) for
5. In the LtB/R, the B/R is advised to withhold any disbursement purposes.
applications related to a specific component or
category(ies) subject to withdrawal conditions
until these conditions have been met. DA funds

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 H.3 Disbursement arrangements and
procedures
7. Disbursement arrangements comprise a set of
procedures grounded in the Fund’s fiduciary
policies and procedures, which are in turn
derived from its mandate to ensure that financing
proceeds are used only for the purposes intended.
These arrangements complement other policies
and procedures designed to provide that
assurance, such as FM and auditing.
8. Disbursement arrangements comprise
disbursement procedures and supporting
documentation.
11. Application for replenishment of the DA
9. The following disbursement methods1 may be
used by B/Rs to withdraw financing proceeds:
(a) Advances to the DA: initial deposits and
subsequent replenishments/justifications of
advances to DAs;
(b) Reimbursements: where the B/R prefinances
project financing costs;
(c) Direct payment: payments made by the Fund
to contractors on behalf of the B/R using
financing proceeds.
H.4 Disbursement arrangements
and procedures
12. Advances and initial deposits. In principle, it
is up to the B/R to decide how much it needs
to withdraw, and where the funds should be
sent. In practice, however, IFAD usually imposes
limits on the amount that can be withdrawn
and how funds withdrawn in advance are
managed. This is in line with GC section
4.04(d), which states that “If the Borrower/
Recipient requests a withdrawal from the Loan
and/or Grant Accounts for amounts to be paid
thereafter for Eligible Expenditures, the Fund
may, before transferring such amount to the
Borrower/Recipient, require that the Borrower/
Recipient provide evidence satisfactory to the
Fund showing that previous withdrawals have
1 The SC procedure was available to borrowers for financing imports of goods under a letter of credit, for which the Fund makes
a commitment to guarantee the letter issued by a bank for the B/R. This procedure will no longer be offered to borrowers for new
projects, and they will be encouraged to seek alternative mechanisms.
86
10. Minimum value of WA for replenishment
and reimbursement. The B/R is requested to
use the advance procedure/DA for all eligible
payments, including those above the minimum
application value, provided sufficient funds are
available in the account. They are encouraged
to reduce the frequency of WAs for DA
replenishments and reimbursements, and for this
purpose, a threshold is stated in the LtB/R of a
minimum value for WAs for replenishment and
reimbursement.
should be made by projects when the amount
withdrawn from the DA for expenditure incurred,
but with a WA not yet submitted, is equal to
about 20-30 per cent of the amount advanced as
the initial deposit. This is intended to minimize
the number of transactions in the loan account.
This threshold should not include amounts
transferred from the DA to project operational
bank accounts, but not yet spent. This level is the
minimum amount that must be reached before a
project submits the WA to IFAD.
been properly spent for Eligible Expenditures.
The Fund may place reasonable limits on
the amount that the Borrower/Recipient may
withdraw in advance or the overall balance
of such advance withdrawals, and may
require that such amounts be held in a freely
convertible currency and/or be held in an
account designated for that purpose ….” The AA
(or imprest ceiling) amount is the maximum
amount of advance that can be outstanding
at any time. This is determined during project
design, taking into account the nature of eligible
expenditure, and implementation and flow
of funds arrangements, and is defined in the
LtB/R. Advances outstanding at any time during
 project implementation should not exceed the
ceiling amount (unless through mutual, written
agreement).
13. As a rule, the B/R should not withdraw in
advance more than the amount budgeted for
any project year in the AWP/B. If the CPM and
FO agree that a lower amount is appropriate,
the B/R should be informed of the applicable
amount either in the LtB/R or a subsequent
communication. The total AA need not be
drawn down in a single tranche/advance,
and the LtB/R template provides for multiple
advances to be made within the AA based
on expenditure needs. The AA should be set
based on the highest peak of projected yearly
expenditure, so that, as advances increase
gradually, there will be no need to change
the LtB/R. The target advance level could be
an average of six months’ equivalent forecast
expenditure for medium-/high-risk projects
and up to nine months’ forecast for low-risk
projects. The advance level should be monitored
regularly by FMD staff based on IFRs, or at
each supervision mission, to ensure that the
project has adequate liquidity for projected
expenditures. To facilitate this monitoring,
projects should submit semi-annual expenditure
forecasts, which can be derived from approved
AWP/Bs and integrated into the semi-annual
IFRs (see module G and exhibit I-4 Guidance
Note on Interim Financial Progress Reports). FMD
staff are encouraged to adjust advances to the
project in the light of the changing pace of
expenditure during the project implementation
period.
14. Lower limits on the amount that may be
withdrawn in advance should only be imposed
as above; or when a determination has been
made that the B/R lacks the capacity to manage
a larger amount, or to avoid any misuse by the
B/R due to the nature of concessional financing
(i.e. withdrawing larger amounts to invest these
with interest). The interest payable to IFAD
may be greater than interest earned on the DA
advances, and depreciation of the DA currency
may occur, which could reduce the value of the
IFAD financing.
15. The B/R should provide satisfactory evidence
that previous withdrawals have been properly
spent for eligible expenditures. Towards the
end of the project implementation period, if
the overall balance of advance withdrawals not
justified by satisfactory evidence is high, IFAD
may impose a limit on subsequent withdrawals
or initiate recovery of outstanding advances
against future WAs. The purpose of these
measures is to ensure that the B/R does not have
to refund withdrawals at project end.
16. Justification, replenishments. Expenditures
are incurred periodically and are reported by
the project through a WA for replenishment.
Projects should submit WAs on a quarterly basis
or when 20-30 per cent of the initial advance
has been spent on eligible expenditure. This
requirement should be stated in the LtB/R. For
imprest advances, expenditures are incurred
periodically and are reported by the project
through a WA for replenishment, based on
supporting documentation/SOEs for amounts
spent.
17. For revolving fund advances, the frequency of
replenishments varies depending on the pace
of actual expenditure and the related reporting.
Regular replenishment requests for the DA are
the best way to ensure that the account is used
correctly. WAs should normally be submitted
quarterly, irrespective of the period of advances,
to allow for regular justification. Variations of
this interval will be aligned to the risk ratings.
Reported expenditures are recorded against the
expensed categories as justifications, first against
the oldest outstanding advance and then against
subsequent advances using the first-in/first-out
principle. The next advance will be granted
when at least 50 per cent of the previous and
100 per cent of all preceding advances have been
justified. Expenditures must be reported within
a 12-month rolling period, or as is specifically
detailed in the FA and LtB. If the justification
criteria noted above have been met, funds
have been used for the purposes intended in
accordance with the approved AWP/B, and the
outstanding balance advanced is insufficient
for the next period of AWP/B expenditures, a
new request for an additional advance will be
submitted, based on the AWP/B for the next
period. ACD staff will apply this logic when
reviewing WA submissions.
18. If there are amendments to the AWP/B
during the year, these revisions must be
shared with FMD and with ACD, so as to
allow them to consider any implications
for advances to the DA.
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 19. IFAD allows B/Rs to use SOEs for withdrawals proposed procurement decisions for larger
from the loan/grant accounts when the expenditures before B/Rs can award contracts.
expenditure amounts are small and
22. The use of SOEs in the place of normal, fully
documentation is voluminous. The types
documented WAs makes it impossible for
and categories of expenditures eligible for
IFAD to conduct an independent review of the
SOE withdrawals and applicable thresholds
supporting documents for every expenditure
are spelled out in the LtB/R. SOE thresholds
prior to the issuance of a disbursement
are determined by the results of country and
authorization. It is used where it is impractical
project-specific assessments conducted during
for the project to provide full supporting
the project design phase (module D). It is
documentation. The following alternative
important that these thresholds adequately
ex post review mechanisms are used to verify
reflect the FM capacity of the project and take
the eligibility of items claimed under SOEs.
into account the adequacy of its system of
internal controls. Exhibit G-1 provides the (a) Supervision missions use random sampling
methodology for on-site review of project SOEs. techniques to verify that the SOE procedure
has been employed correctly, that the
20. Statements of expenditure. SOE thresholds
required documentation supporting the
are determined by FMD staff after considering
SOEs has been properly maintained in the
underlying fiduciary risks, including overall
files and is readily available for inspection,
project FM risks and the probability and
that adequate arrangements have been
impact of control risks for relevant expenditure
made for timely submission of SOE audit
categories. Where there are significant
reports, and that SOE forms contain
changes in the project and/or the country
sufficient information to assist supervision
FM environment, or a new assessment of the
missions in the review process. Such
financial risk situation (e.g. based on findings
reviews are mandatory by FMD staff or an
of supervision missions), IFAD may decide to
FMS back to office report.2
modify the SOE thresholds and will notify the
B/R accordingly through revisions to the LtB/R. (b) To facilitate this check, additional
Since the introduction of risk-management information is available on the audit
disbursement procedures, FMD reviews SOE trail of each SOE transaction. This audit
thresholds continuously. Where these are rated trail should be used to verify transactions
low risk for the project, SOE thresholds are during supervision missions and when
revised upwards and the borrower is informed processing disbursements. Following
through an amendment to the LtB/R. Where the introduction of ‘Smart SOEs’,3 SOE
ratings are of high/medium risk, SOE thresholds thresholds should be eliminated from low-
are either maintained at the level decided in risk projects. For medium-risk projects, staff
the design phase, or may be reduced if the have the options of eliminating thresholds,
borrower’s capacity is not at the level forecast when considered appropriate, or of
originally. documenting specific transactions extracted
from the Smart SOE4 on a sample basis.
21. The SOE threshold on contracts applies to the
total value of contracts or expenditures, which (c) Independent auditors appointed by the
may vary according to the type of expenditure. B/R are required under the provisions of
For contracts with values above SOE thresholds, the IFAD Guidelines on Project Audits to
all related WAs must be accompanied by the supply an opinion on the adequacy of
normal supporting documentation. SOE the systems used to prepare SOEs and on
thresholds on small contracts are normally the availability of appropriate supporting
set at or below the procurement prior-review documentation. IFAD is responsible for
threshold, as IFAD reserves the right to review monitoring audit reports to ensure that
they are received promptly and that they
2 See exhibit G-1 Checklist for statement of expenditure (SOE) review.
3 In November 2014, the Controller’s and Financial Services Division (CFS) introduced a modified format of SOEs under the label
‘Smart SOEs’. Applicable to advances and replenishments only, the modified SOE format provides additional control information,
thus avoiding the need for submission of supporting documentation. The additional information discloses the complete audit trail of
each expenditure item, i.e. specific itemized references to approved budgets (AWP/B), payment voucher and bank statement.
4 Exhibit H-3 provides the forms for Smart SOEs.

88
 provide a satisfactory opinion with respect
to the use of SOEs.
(d) ACD staff conduct ex post reviews of a
sample of disbursements made for low-
and medium-risk projects on a regular basis
throughout the year, to determine whether
the risk-based disbursement guidelines
have been followed. The work and findings
are summarized in an ex post controls
report, which is shared with the division
and FMD.
24. The concept of eligible expenditures is
23. Eligible expenditures. GC section 4.08
provides that:
(a) The Financing shall be used exclusively to
finance expenditures meeting each of the
following eligibility requirements:
(i) The expenditure shall meet the
reasonable cost of goods, works and
services required for the Project and
covered by the relevant AWPB and
procured in conformity with the
Fund’s Procurement Guidelines.
(ii) The expenditure shall be incurred
during the Project Implementation
Period, except that expenditures to
meet the costs of winding up the
Project may be incurred after the
Project Completion Date and before
the Financing Closing Date.
(iii) The expenditure shall be incurred by a
Project Party.
(iv) If the Agreement allocates the amount
of the Financing to categories of
Eligible Expenditures and specifies
the percentages of such Eligible
Expenditures to be financed by the
Financing, the expenditure must relate
to a category whose allocation has not
been depleted, and shall be eligible
only up to the percentage applicable to
such category.
(v) The expenditure shall be otherwise
eligible in accordance with the terms
of the Financing Agreement.
(b) The Fund may from time to time exclude
certain types of expenditure from eligibility.
(c) Any payment prohibited by a decision of
the United Nations Security Council taken
under Chapter VII of the Charter of the
United Nations, shall not be eligible for
financing by the Financing.
(d) Any payments to a person or an entity,
or for any goods, works or services,
if making or receiving such payment
constitutes a coercive, collusive, corrupt or
fraudulent practice by any representative of
the Borrower/Recipient or any Project Party,
shall not be eligible for financing by
the Financing.
fundamental to the financing of projects by
IFAD. GC section 4.08 establishes positive
criteria that are necessary for an expenditure to
be eligible, but it might be more useful to make
a list of expenditures that would not be eligible:
• An expenditure for a cost that is not
‘reasonable’;
• An expenditure that is not for ‘goods,
works or services’;
• An expenditure that is not required for
the project;
• An expenditure that is not covered by
the relevant AWP/B;
• An expenditure for goods, works or services
that are not procured in conformity with
IFAD’s Project Procurement Guidelines;
• An expenditure not incurred during the
project implementation period, unless it
is for winding-down costs, in which case
it must be incurred before the financing
closing date;
• An expenditure not incurred by a project
party (e.g. unjustified advances to service
suppliers or project staff);
• An expenditure that relates to a category
that has been depleted;
• An expenditure that relates to a category for
which conditions precedent to waithdrawal
have not yet been met;
• An expenditure that is prohibited, implicitly
or explicitly, by the FA;
• An expenditure of a type that IFAD has
decided to exclude, provided that the B/R
has been properly informed in advance of
such exclusion;
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 • Any expenditure made in violation of
sanctions imposed by the United Nations
Security Council;
• Any expenditure that constitutes a coercive,
collusive, corrupt or fraudulent practice, as
these terms are defined in GC section 2.01.
25. The final determination as to whether an
expenditure is eligible is made by IFAD (or the
CI, if one has been appointed) in the context
of its financial administration of the project.
If, at any time, IFAD discovers that any amount
of its financing has not been used for eligible
expenditures (including cases in which it is
subsequently determined that an expenditure
was not eligible), it will require the B/R to
refund the amount. In serious cases, this can
provide the basis for suspension in accordance
with GC section 12.01(xxi).
26. It is to be noted that annual project audit fees
are an eligible expenditure.
27. Report-based withdrawal. In some cases, IFAD
and the B/R may agree to use the financial
monitoring system to advance financing
proceeds to the DA. Typically, this reporting
system is used in cases of cofinancing with
institutions that have agreed with the B/R
to adopt this system. In these cases, the B/R
submits advance WAs for replenishment of
the DA, supported by a financial monitoring
reporting (FMR) package. While tailored to the
specificities of each project, this package usually
contains the following information for the
reporting period:
(a) The FMR, which comprises: (i) a financial
report (statement of cash balances,
sources and uses of funds by expense
category, budget-to-actual statement); (ii) a
procurement report (implementation status
of the procurement plan and summary
of key procurement issues); and (iii) a
physical progress report (implementation
status of the AWP/B, linking physical
outputs to financial execution);
(b) The DA activity statement (and related
bank statements), which includes:
(i) reconciliation of the DA for the period;
(ii) a schedule of cumulative advances
received in and expenditures made from
the DA; and (iii) forecast expenditures for
the following two reporting periods;
90
(c) The summary SOEs extracted from the
DA by expense category, distinguishing
between contracts subject to IFAD prior
review and those subject to post review.
28. The FMR package is normally prepared on a
quarterly basis and submitted to IFAD with the
advance WA within 45 days of the end of the
quarter. Subsequent advances will usually be
made on the basis of reporting received for the
preceding quarter, together with an updated
cash flow forecast.
29. Criteria. The revolving fund mechanism and
the report-based withdrawal procedure are
preferably used for large projects that, in IFAD’s
assessment, possess adequate FM and internal
control systems. Specifically, report-based
withdrawals should only be used where FMA
of the country is positive and the project has
established:
(a) A sound FM system, including reliable
budget monitoring and financial reporting
functions;
(b) An adequate procurement monitoring and
reporting system;
(c) An effective M&E system that provides
reliable data/reports on project activities
and outputs, with a linkage to cost data.
30. Monitoring. Under the report-based withdrawal
procedure, IFAD does not review the supporting
documents for each expenditure prior to the
issuance of a disbursement authorization.
Instead, withdrawals from the loan and/or
grant accounts are authorized on the basis of
the information provided by the B/R in the
FMR package at the end of each quarter. This
information is subsequently verified by IFAD
during its supervision missions and through
the independent audits conducted annually.
The procurement plan and its implementation
should also be an essential reference in
establishing the amount to be disbursed.
H.5 Designated account
31. DA modalities. There are two modalities for
managing advances to the DA, summarized
below, and for which detailed guidance is
provided:
(a) Imprest account. In this method, an initial
amount is advanced to the DA, which is
then replenished periodically based on
documentation submitted to justify the
advance. The maximum advance is stated as
an AA. The FO may vary this ceiling during
project implementation if necessary, in
consultation with the CPM. Such variations
must be effected through an amendment to
the LtB/R.
(b) Revolving fund. In this method, an amount
is advanced to the DA and is based on a
forecast of expenditures for a period of 4-12
months (excluding anticipated SCs or direct
payments), as defined in the LtB/R. The
forecast should be determined based on
the AWP/B and the procurement plan: the
AWP/B should include a cash forecast that
shows the different sources of funds and
can be correlated with schedule 2 of the FA.
The FMA done in the design phase should
also be taken into consideration.
32. To determine the most appropriate modality,
FOs will consider aspects of project design,
including the number of implementing
agencies, flow of funds arrangements,
expenditure rate and FM risks. Factors to
consider include:
(a) The revolving fund modality may be
considered where the overall FM risk is
assessed as low.
(b) It would not be appropriate, in particular,
when the AWP/B process is not very reliable
or is unpredictable.
(c) Under this modality, restrictions on the use
of funds for specific expenditure categories
are often not feasible, as advances and
replenishments are directly linked to the
AWP/B and ex ante scrutiny is not effective.
(d) If funds advanced under the revolving fund
modality remain un-/underused, amounts
in the account could be significantly high
and could include amounts unspent from
lapsed budget periods. This may expose
IFAD to additional risks of unrecovered
advances at the time of closure. This would
also impose avoidable financing costs on
the borrower.
(e) If funds are intended to be disbursed/
spent at multiple spending locations,
including decentralized ones, obtaining
SOEs and documents for justification from
all locations may be time-consuming. In
such cases, the revolving fund method
may offer the borrower more flexibility in
maintaining a smooth flow of funds to the
project.
33. Banking arrangements. GC section 4.04(d)
states that “The Fund may place reasonable
limits on the amount that the Borrower/
Recipient may withdraw in advance or the
overall balance of such advance withdrawals,
and may require that such amounts be held in a
freely convertible currency and/or be held in an
account designated for that purpose ….”
34. IFAD may require that amounts withdrawn by
the B/R in advance be held in a DA. It may put
limits on the amounts disbursed into the DA
and may require that the DA be denominated in
a freely convertible currency.
35. As GC section 4.04(d) states that IFAD ‘may
require’ the use of a DA, as quoted above, this
is an obligation that can be imposed by IFAD
at any time during disbursement of financing.
GC section 7.02(b) provides that the DA may
be mentioned in the FA, but it is preferable
not to do so, as any changes in DA modalities
would require an amendment to the agreement.
Instead, these issues are usually addressed in the
LtB/R after discussion during negotiations.
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 36. In accordance with the B/R’s regulations, the DA
should normally be an interest-bearing account,
provided the funds remain readily available to
meet expenditures as these are incurred. The B/R
should account for interest earned and report on
its use. The use of interest to cover project costs
is encouraged, particularly if the B/R has any
difficulty making counterpart funds available to
the project.
37. Currency of the DA. Generally, the DA is
opened in a freely convertible currency, e.g. US$/
EUR. If the source financing is denominated in
a specific convertible currency, it is advisable
to open the DA in the same currency as the
commitment (e.g. the STF DA opened in EUR or
cases of single currency lending). While the DA
may be opened in other currencies if required by
the B/R, this must be done in consultation with
the FO and CPM – and after confirming with
TRE its facility in buying those currencies. Other
factors determining the choice of currency are:
risk of depreciation or volatility; designation of
the majority of the expenditures; and reporting
currency. The exchange rate risk is always to the
account of the B/R.
38. The FO will decide the need for a segregated DA
after completion of design-phase FMA, and this
decision should be documented in the PDR.
When a DA is required, this should also be
stated in the FA. The operational aspects of the
DA and the AA should be documented in the
LtB/R.
39. The obligation of maintaining a DA should only
be imposed when a determination has been
made that the B/R has adequate accounting
and control systems in place to manage these
financing proceeds in the ordinary course of
business. The obligation to maintain the DA
in a freely convertible currency should only
be imposed when the CPM and FO have
determined that there is a danger that the
national currency will undergo significant
depreciation.
40 The DA may be held in a commercial bank or
the central bank. The B/R is responsible for
selection of the institution and, accordingly,
bears all risk. The selected bank where the DA
account has been opened must be in a position
to: execute a large number of payments in a
variety of currencies and without delay; issue
regular monthly bank statements in sufficient
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detail to document eligible transactions
satisfactorily; and open letters of credit if these
are required for efficient project execution.
The bank should be reputable and in sound
financial condition, in order to ensure that DA
funds are secure. If the account is held with a
commercial bank, the B/R should verify that
bank charges are reasonable. These charges are
eligible expenditures under project financing.
41. Prefinanced expenditure. In cases in which all
project expenditures can be readily financed
by the B/R using its own resources, to be
subsequently reimbursed by IFAD, a DA is not
necessary.
42. The use of a DA is not intended to provide the
Fund with any protection: the B/R must use
the proceeds of the financing only for eligible
expenditures, and the failure to do so gives
the Fund the ability to suspend or cancel the
agreement, and to require an immediate refund
of amounts not used for such expenditures.
43. Pooled or segregated DAs. An important
distinction must be made between cases in
which the B/R chooses to keep the funds in a
segregated account and/or to maintain them in
a particular currency, and cases in which IFAD
imposes such requirements. If this is a unilateral
decision of the B/R, there is no need to make
any reference to it in the FA. The B/R simply
instructs the Fund where to send the money,
and maintains the account in accordance with
its own procedures. There may be cases in which
the B/R, for its own legal, administrative or
other reasons, requests that the requirement to
hold the funds in a DA is set out in the FA or in
the minutes of the negotiations. In general, this
request can be granted.
44. If IFAD requires the use of a DA for all funds
withdrawn in advance, then the B/R obviously
cannot make cash withdrawals until that
account has been opened, but it can still instruct
IFAD to pay suppliers directly or to issue SCs.
For this reason, opening of a DA should not be
made a general condition of disbursement.
45. Where the B/R’s accounting system permits, and
is robust, pooling of the DA (i.e. a single DA) is
encouraged when there are multiple financing
sources administered by IFAD (e.g. IFAD loan,
IFAD grant, ASAP, GEF). The advantages of such
an arrangement would be:
 (a) Only one overall WA would be required
for the DA at each replenishment request,
rather than multiple ones per financing
source each time.
(b) Project banking arrangements would be
simplified.
(c) At the time of financing closure, it is easier
to ensure full utilization and/or refunds
with respect to unused funds from any one
financing source.
46. The following guidelines/examples are provided
to implement DA pooling arrangements:
(a) The currency of the DA must be feasible for
all financing sources in the pool and agreed
with the B/R.
(b) AAs for the DA should be notionally
attributed to each financing source for
loan/grant accounting purposes. For
example, if the financing mix is IFAD loan
(US$9 million) and ASAP (US$1 million),
then the overall AA of, say, US$2 million,
should be attributed: US$1.8 million to
the IFAD loan and US$0.2 million to ASAP,
roughly in proportion to the financing
mix. This attribution will be required
for loan administration and accounting,
and to ensure that, at closing, the unused
advance balances are correctly attributed
to the financing source. This split of the AA
should be stated in the LtB/R.
(c) Control over ‘which-source-pays-for-what-
expenditure’ will move to the accounting
system, not the bank account. Project
accounting software should be able to
record each amount that the B/R receives
in the DA against the respective financing
source and book expenditures accordingly.
So each financing source will be a
separate ledger account, not a
separate bank account.
(d) Withdrawal applications: a combined WA
(advance or replenishment) for several
financing sources will be accepted, but it
should state separately the amount being
justified for each source. The bank account
given for each will, of course, be the same.
(e) SOEs must be separated for each financing
source or must show the share percentage
in the common SOE, so that the WA
amount can be traced to its SOE.
47. Pooling of IFAD funds into the DA may be
considered and encouraged as a means to
simplify accounting and reduce the volume of
WAs. Staff should consider opening just one
DA for all financing sources administered by
the Fund if the entity managing the DA has the
capacity to track and report on sources and uses
of funds. One should consider pooling when
the DA is only a conduit to transfer funds into a
pooled local currency project account.
48. Refunds. GC section 4.09 provides, “If the Fund
determines that any amount withdrawn from
the Loan and/or Grant Accounts was not used
for the purposes indicated or will not be needed
thereafter to finance Eligible Expenditures,
the Borrower/Recipient shall promptly refund
such amount to the Fund upon instruction by
the Fund. Except as the Fund shall otherwise
agree, such refund shall be made in the currency
used by the Fund to disburse such withdrawal.
The Fund shall credit the Loan and/or Grant
Accounts by the SDR Equivalent of the amount
so refunded.”
49. The B/R is required to provide refunds if:
(a) Amounts withdrawn in advance (whether
or not held in a DA) are not required to
meet further project expenditures;
(b) A contract or other expenditure included in
a WA and paid for by IFAD is subsequently
determined to be ineligible; this situation
may arise when SOEs are used (see
section H.9), or when contracts fall below
the prior-review threshold and contract
award procedures are examined during
a supervision mission; or during the
course of an annual external audit or
investigation; or
(c) A disbursement error leads to payment
of an incorrect amount or currency, or
payment to an improper beneficiary.
50. In practice, time allowed for receipt by IFAD of
refunds is usually no more than 90 days, unless
prior approval has been provided by the AVP,
FOD, allowing for up to 120 days.
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 51. Treatment of refunds. When FMD and/or
ACD determine that a refund is required, a
notice, cleared by the CPM and signed by the
Director, FMD, is sent to the B/R giving details
of the amounts to be refunded and providing
instructions on how the payment should
be made:
(a) For all financing, refunds must be received
in the same currency as the original
disbursement. To ensure that the amount
received completely offsets the balance
in the advance account, the applicable
exchange rate for conversion will be that
of the original disbursement. It should
be noted that the credit value date for
calculation of outstanding interest will be
the value date the funds are received in
IFAD’s bank account.
(b) Where the B/R fails to provide refunds,
suspension procedures in accordance with
GC section 12.01(a)(ii) are applied.
52. Early recovery of advance. For some projects,
expenditure levels peak in the middle of project
implementation periods. Recovery of the
advance should begin when the undisbursed
balance of the financing (including outstanding
SCs) is equal to twice the amount of the
advance. To allow for a smooth transition,
decreased advances to recover excess advances
are initiated by the FO and CPM when the
forecast expenditure starts to decline. To ensure
that funds are available to finance eligible
expenditures still to be incurred, a gradual
recovery of the advance is recommended – by
applying part of the amount documented in
each replenishment application to reduce the
outstanding advance. The recovery ratio for
subsequent applications may then be increased
to ensure that recovery is completed before
the financing closing date. In this manner,
outstanding advances are adjusted and will not
be excessive compared with actual needs. This
may normally be necessary only once or twice
during the entire project period, and the B/R is
notified of these adjustments.
53. One year before the project completion date,
the CPM and FO review the status of the DA
to decide whether additional advances into
the account are to be suspended or reduced to
ensure that the amount to be refunded by the
B/R at the financing closing date is as close to
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zero as possible. The B/R should be
notified of the procedures to be applied
during the remainder of the project
implementation period.
54. During a period of full suspension of
disbursements (see section H.10), no
replenishments are made to the DA. However,
the B/R may continue to use the amounts
already received in advance, whether in the DA
or elsewhere, to meet eligible expenditures.
Submission of applications documenting these
expenditures should continue on a regular basis.
Once the suspension is lifted, IFAD may agree
to make further disbursements so as to restore
the advance account to the ceiling amount.
Where disbursements are partially suspended,
only those expenditures related to components
or project entities not affected by the suspension
are eligible for replenishment.
55. Misuse of DA funds is rare when the B/R has
adequate control measures in place. If funds
are misused due to inadequate controls or a
misinterpretation of the eligibility criteria, IFAD
promptly notifies the B/R of any amount that
must be refunded or justified (through evidence
of other eligible expenditures financed from
the B/R’s own resources). Further advances
may be withheld until the refund has been
made or until appropriate documentation on
other eligible expenditures has been submitted.
While this remedy may be applied with some
flexibility (e.g. the eligible portion of an
application may be replenished at the moment
that the refund notice is sent), repeated misuse
or delays in effecting the refund may result in
withholding the processing of further advances
until the DA has been restored to its
proper level.
56. In addition to routinely reviewing advance
WAs, the CPM and FO should also monitor
DA activity. Special attention should be paid
to any DAs for which there have been no
replenishment applications in the previous six
months and to those for which the outstanding
advance is substantially greater than the
cumulative expenditure flow through the
account over a six-month period.
H.6 Reimbursements
57. Reimbursement procedures apply when the B/R
has prefinanced expenditures that are otherwise
eligible for financing under the FA and seeks re-
imbursement from the financing. The normal
WA (form 100) can be used to seek withdrawal
of funds from the loan/grant, up to a maximum
of six months after incurring the expenditure.
The WA must clearly indicate that the WA is for
‘reimbursement’ and the B/R authorized bank
account where funds are to be sent. Supporting
documents such as SOEs should be submitted in
H.7 Direct payments
58. A WA may instruct IFAD to pay a supplier
directly. In this case, the WA must identify the
date on which payment becomes due to the
supplier. This procedure is generally suitable for
high-value payments for large civil works, large
consultant fees and importation of goods for
which the use of a letter of credit is not practical.
A separate WA should be filled out for each
supplier and currency in which the payment is
requested. Applications for direct payment must
reach IFAD no less than two weeks before the
payment to the supplier becomes due. Detailed
procedures for submission of WAs for direct
payments are specified in the LDH, and ACD
procedural requirements are provided in
exhibit H-2 Risk-based disbursement guidelines
(ex-ante).
H.8 Special commitments5
60. GC section 4.03 provides, “Upon the Borrower/
Recipient’s request, the Fund may agree to make
an irrevocable commitment to pay amounts
necessary to guarantee a Letter of Credit used
to finance Eligible Expenditures (a ‘Special
Commitment’) on such terms and conditions
as the Borrower/Recipient and the Fund may
agree.”
5 The SC procedure was available to borrowers for financing imports of goods under a letter of credit, for which the Fund makes
a commitment to guarantee the letter issued by a bank for the B/R. This procedure should no longer be offered to borrowers for new
projects unless, following thorough review, no alternative mechanisms are possible.
the same way as for replenishment WAs. The B/R
is not authorized to directly transfer these funds
from the project DA. All such reimbursements
are subject to validation and authorization of
the WA by ACD. Remittance may be made by
IFAD to the B/R’s treasury or to authorized proj-
ect accounts that have been set up for counter-
part funds. All reimbursements must be in the
currency in which the expenditure was incurred,
as shown in the supporting documents attached
to the WA.
59. The use of this method of disbursement is
limited to exceptional cases of very large
payments, or where the contracts are complex
and more risk-prone and the underlying
supporting documentation requires review
prior to direct disbursement. FOs should
continuously review project expenditure
patterns and revise the direct payment level
where necessary to ensure that projects are
encouraged to use the DA for all or most
payments. To reduce volumes of direct
payments and the frequency of WAs in general,
it is critical that projects have enough advance
funds in the DA. To facilitate this, staff should
monitor liquidity in DAs regularly. A minimum
value threshold for direct payments should be
specified by FMD staff and inserted in the LtB/R.
61. The SC procedure is used to finance imports
of goods under a letter of credit. A commercial
letter of credit is a mode of payment frequently
used in making payments to a foreign supplier.
IFAD does not open commercial letters of
credit for the benefit of a B/R. Instead, it makes
a commitment to guarantee a letter of credit
issued by a bank for the B/R.
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 62. Under an SC, IFAD agrees to pay the negotiating
bank (on behalf of the B/R and from the loan/
grant account) for the latter’s payments made
or to be made to the supplier, under and in
accordance with the terms of a specified letter
of credit. The Fund’s obligation is irrevocable
and is not affected by suspension or cancellation
of the financing. Thus, until it is cancelled, the
amount of the SC is deducted from the amount
H.9 Processing disbursements
63. ACD receives WAs in one of two ways: by direct
input through the ICP, or via soft copy/hard
copy sent by the B/R directly to ACD. Soft-copy/
hard-copy WAs are manually inserted into
the ICP and a finance assistant uploads the
supporting documentation into the system. ACD
follows a paperless processing policy, by which
all reviews are performed on soft copy.
64. Review responsibilities. ACD has overall
responsibility and accountability for the
approval of WAs. The initial review is performed
systematically by the ICP, which runs a series
of predetermined validations based on the
type of disbursement indicated in the input of
the B/R. The WA is ‘navigated’ through the ICP
based on a set of parameters that recognize the
authorization requirements, fiduciary risk rating
and size/materiality of the withdrawal amount.
These validations direct the WA to one of three
routings:
Routing 1: Validation by finance assistant,
certification by CPM and approval by
disbursement officer (DO);
Routing 2: Validation by finance assistant and
approval by DO; and
Routing 3: ‘Straight-through processing’.
65. WAs that trigger validation warnings/errors
within the system are automatically directed
to routing 1, for manual validation by a
finance assistant.
66. In accordance with the report-based
disbursement procedure, finance assistants verify
WAs for overall completeness and accuracy, use
6 WAs relating to low-risk replenishments, reimbursements and justifications do not require CPM endorsement. In these cases,
DO approval is sufficient to trigger the transmission of a payment instruction to TRE. All other types of WAs, including low-risk
advances and direct payments, require CPM endorsement (may be subject to change).
96
available for withdrawal in the loan/grant
account. There is no charge for issuance. The
detailed B/R procedures for SCs are set out in
the LDH, and ACD procedural requirements are
provided in exhibit H-2 Risk-based disbursement
guidelines (ex-ante). Going forward, in practice,
IFAD will no longer approve SC arrangements
owing to considerations of efficiency and the
need to develop system customizations to
accommodate SCs.
of the correct procedure and forms, signatures
of authorized representatives, completeness of
forms, accuracy of computations, compliance
with LtB/R and LDH requirements, adequacy
of supporting documents, SOE eligibility and
certification, and correctness of the financing
percentage as described in exhibit H-3 Smart
SOE forms. The availability of funds in the loan
and/or grant accounts and allocated categories
are also verified.
67. WAs requiring CPM review6 are submitted to the
CPM for endorsement of both procurement and
AWP/B aspects before final approval by the DO
and transmission of a payment instruction to
TRE for processing.
68. Projects following the report-based
disbursement procedure require confirmation
that the FMR package has been satisfactorily
received before the WA can be processed for
disbursement. The FO provides confirmation
on whether the FMR package has been received
or is still pending through an automatic
interface between the FMDB and the ICP.
The information is made available to the
finance assistant during the disbursement
procedure, before final approval by the DO and
transmission of a payment instruction to TRE
for processing.
69. A limited selection of WAs may be eligible
for straight-through processing. Eligibility is
determined by the FO and controlled through
an interface between the FMDB and the ICP. By
providing instructions in the FMDB, the FO can
direct eligibility for straight-through processing
at the account level.
70. Detailed minimum verification steps are laid
out in the WA checklist in exhibit H-2 Risk-based
disbursement guidelines (ex-ante). Apart from
these minimum steps to review the correctness
and completeness of WAs, the following checks
may be applied on a random basis:
(a) Ensure that forms are used as prescribed
in the LDH and have been duly signed. As
SOEs are just supporting documents, the
signature of the head of the PIU will suffice.
However, WA form 100 must be signed by
the authorized signatories;
(b) Where a category is overdrawn, review the
latest status of the reallocation approval
process, with follow-up as appropriate;
(c) For payments in local currency made from
the DA, check the reasonableness of the
exchange rates applied;
(d) Ensure that direct payments are not
made to bank accounts of individuals
(only companies/institutions), except for
payment to an individual consultant;
(e) Ensure that advances claimed for
reimbursement are duly justified.
Unjustified claims should be rejected;
(f) Ensure that form 100 is signed in the
original or online approval provided
through the ICP.
71. In the case of submission by hard copy from the
project, the ACD finance assistant is responsible
for entering WA data into the ICP after
verification that:
(a) The financing is effective;
(b) There are no pending unsatisfied
conditions precedent to withdrawal related
to the withdrawal category(ies).
(c) Available financing funds are sufficient;
(d) Sufficient funds remain in the relevant
withdrawal category(ies), or justification
has been given for an overdraft;
(e) Replenishment amounts are within the
maximum amount that can be withdrawn
in advance (specified in the FA);
(f) The financing closing date has not been
reached, or the WA payment approval has
been received within an extended period
for submission of applications (module F,
section F.4);
(g) In the event that disbursements have been
suspended, the items fall within the list of
exemptions.
72. If a withdrawal application number has already
been used, or a message number (if required) is
missing or duplicated, the ACD or ICP system
will lead to rejection of the WA.
73. ACD will also apply initial reviews of WA
submissions and may hold or reject the WA for
issues that may include, but not be limited to,
the incoming message being garbled or illegible
to the extent that the amount or the payment
instructions are unclear, or the supporting
documentation is not sufficient.
74. All original documents (WAs and payment
approvals) are retained and filed by ADM in line
with IFAD’s document retention policies (see
module N, section N.1), as they are supporting
documentation for the final closure of the loan
and/or grant accounts and future debt recovery/
servicing.
75. Payment authorization. For projects directly
supervised by IFAD, the DO approves WAs and
the payment order is sent to the treasury officer
for remittance, which is normally processed via
SWIFT transfer.
76. For projects supervised by a CI, that
organization sends a payment instruction to
IFAD. Several applications may be grouped into
a single payment instruction, provided that the
currency and beneficiary are the same. Each
payment instruction includes the following
elements:
(a) IFAD’s loan and/or grant number and
project name;
(b) Application number, currency and
total amount;
(c) Total amount approved for payment
by IFAD;
(d) Amount related to each withdrawal
category and supplying country;
(e) Complete payment instructions, including
name and address of payee’s bank and
beneficiary’s account number, name
and address;
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 (f) A meaningful payment reference, to be
cited by payee bank to the payee, for
example loan, grant and application
numbers for a reimbursement application,
or contract and invoice numbers for direct
payment to a supplier; and
(g) SC number, if applicable.
77. The exclusion of any of the above items could
lead to payment delays while IFAD asks the
CI to seek additional information from project
authorities.
78. Risk-based disbursements. IFAD follows a risk-
based approach to approval of payments. Based
on assessment of the risk level of the project or
type of disbursement concerned, WAs may be
submitted to different levels of control and ex
ante or ex post reviews (see exhibit H-1 Risk-
based disbursement guidelines (ex-post)). Detailed
checklist procedures for ex ante WA processing
using the guidelines are provided in exhibit H-2
Risk-based disbursement guidelines (ex-ante), and
the following risk-based procedures are applied.
79. In the project design phase, disbursement
arrangements should take into consideration
the documented fiduciary risks and risk
mitigation measures that have been agreed and
covenanted. Disbursement arrangements should
be agreed with the B/R and recorded in the legal
agreements or LtB/R.
80. The FO is responsible for designing and
monitoring disbursement arrangements. Thus
s/he should monitor projects on a continuous
basis to establish whether it remains appropriate
to disburse funds to a project under existing
arrangements. The FO receives systematic
notifications of disbursement-related activities.7
81. In making this judgement, the FO places
explicit reliance primarily on:
(a) Quality of WAs – WA characteristics refer
to the payment type (initial deposit,
replenishment to an DA, direct payment,
reimbursement and SC), amount and
timing of the WA to be processed;
(b) Monitoring of the actual disbursement
performance and trends during
implementation;
7 The ICP sends automatic notifications to the CPM, FO and DO(s) for information only – even when formal approval is not
required – of key disbursement-related activities, including: submission of a new WA by project authorities, payment by TRE, or
rejection of a WA and its return to project authorities.
98
(c) External-audit-report review findings;
(d) Complaints brought to IFAD’s attention of
fraud and corruption in projects; and
(e) Findings from field-mission checks.
82. In addition, the FO’s professional judgement,
based on knowledge of the specific project and
advice of the CPM, if any, will determine the
PFR risk rating. This in turn will determine the
type and frequency of ex ante checks of the WAs,
to be carried out by ACD, and which are based
on the PFR rating (high/medium/low), taking
WA characteristics into account. The level and
detail of ex ante checks are specified in exhibit
H-3. Such checks may be enhanced or reduced
where deemed necessary.
83. Disbursements for low-risk project WAs will
generally follow a ‘funds flow’ principle,
rather than a point of control of underlying
expenditures. This contributes to the
achievement of efficiencies through accelerated
or fast-track disbursements, including the
possibility of straight-through processing. This
approach relies on regular, periodic in-country
checks by an FO or FMS and regular review
of audit reports by FOs. Where this is not the
case, it may jeopardize the ability to accelerate
disbursements.
84. Where inconsistencies are found in performing
the WA review, action should be taken
accordingly, depending on its nature (i.e.
transactional vs. systemic). Transactional
remedies include correcting inconsistencies,
requesting resubmission or rejecting a WA.
Project-level systemic remedies may include
changing disbursement arrangements and/or
documentation for the future and requesting
additional risk mitigation measures in project
FM. Generally, transactional remedies would
be the responsibility of finance assistants, and
systemic remedies of FOs.
85. Each FA identifies the designated representative
of the B/R. WAs must be signed by the person
holding this position, or someone who has
been authorized by that person. The LtB/R
includes a request to the B/R to provide
evidence of the authority of persons authorized
to sign WAs and their specimen signatures,
 along with a sample form. No WA can be
approved by IFAD unless it is signed by a person
whose specimen signature has been provided in
accordance with this procedure.
86. Follow-up on rejected WAs. In cases where
the review process described above reveals
significant errors, omissions or delays in
providing requested documentation or other
shortcomings in the WA submitted by the B/R,
IFAD may decide to reject the WA. The most
common causes of rejection of WAs include:
• Absence of communication of authorized
signatures to IFAD;
• Erroneous or incomplete banking
instructions;
• WA amount below the minimum threshold;
• Non-fulfilment of all conditions precedent
to withdrawal;
• Erroneous currency of expenditure (claim in
a currency other than the contract currency
or WA in a currency other than the DA
currency);
• Non-compliance with applicable
procurement procedures;
• Non-compliance with terms of payment of
contracts;
• Incomplete or inadequate supporting
documentation;
• Non-compliance with SOE eligibility
requirements;
• Claim of unjustified advances to service
suppliers or project staff;
• Incomplete description of expenditures (for
SOEs);
• Erroneous percentage of financing;
• Erroneous exchange rate;
• Computational errors;
• Non-compliance with the maximum time
allowance for resubmission of documents
or clarifications as requested by ACD
(maximum two weeks).
8 Two weeks is the maximum time frame for submission of missing/incomplete documentation or clarifications where requested
by IFAD, following which a WA will be systematically rejected.
87. The decision to reject a WA is made by the
finance assistant and/or DO. Whenever it is
determined that a WA or part of an application
is ineligible for financing or cannot be processed
as submitted, the finance assistant or CPM must
immediately send a notification through the
ICP, informing the B/R that the WA cannot be
processed by IFAD and explaining the reason(s)
for the rejection. The correspondence should
also indicate which specific corrective action(s)
the B/R should take (for example, submission of
additional supporting documents or clarification
of certain issues), as well as the maximum time
frame8 for receipt of the corrected WA by IFAD.
88. The finance assistant is responsible for following
up on the WA-related queries raised with the
B/R. The CPM and FO are always kept informed
of any issue. This follow-up is crucial to ensuring
prompt resolution of the related issues or
problems and timely processing of the WA. In
the absence of appropriate and/or timely action,
despite repeated reminders, IFAD may decide
to take one of the following remedial actions,
based on the context:
(a) Modification of the SOE or procurement
thresholds;
(b) Reduction of the advance ceiling allocation;
(c) Suspension of disbursements under the
financing;
(d) Suspension of the country portfolio;
(e) Cancellation.
89. Additional information. The finance assistant
notifies project authorities and provides
supplementary information in cases where:
(a) Part of an application has been found to be
ineligible;
(b) Payment of the authorized amount
will lead to an overdraft on the amount
allocated to a category;
(c) Part or all of the application is to be paid
only after a suspension of disbursements
has been lifted. This will be a standard
notification to the B/R from the ICP.
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 90. Category overdrafts. When processing WAs,
ACD will process a WA if the amount overdrawn
on an individual category is less than 30 percent
of the original category allocation. ACD should
notify the relevant FO of overdrawn categories,
for active follow-up with the CPM, so that the
need for a formal reallocation can be evaluated.
91. When a formal reallocation is not anticipated
and the project completion date is imminent,
payments on overdrawn categories will be made
on an exceptional basis, provided that:
(a) They occur within six months prior to the
project completion date; or
(b) The undisbursed balance of the loan is less
than 10 per cent of the loan amount. In this
case, unless an extension of the completion
date is envisaged, no formal reallocation
should be made and the disbursements
for eligible expenditures will continue
up to the closing date or until the total
drawdown of the loan amount.
92. Safeguarding against fraud. In accordance with
provisions of the IFAD Policy on Preventing
Fraud and Corruption in its Activities and
Operations (December 2005), IFAD applies
a zero-tolerance policy with regard to any
fraudulent, corrupt, collusive or coercive actions
in the projects it finances. This entails not only
pursuing all allegations of fraudulent practices
and applying appropriate sanctions, but also
promoting preventive control measures such
as assessments of national and project-specific
FM, auditing and procurement systems during
the project design phase. During project
implementation, the review process applied
to each WA by PMD and ACD staff prior to
authorizing disbursements constitutes one
of the main controls over the proper use of
financing proceeds.
9 Verification of authorized signature(s) must always be performed against the original hard copy.
100
93. The review process undertaken by IFAD should
thus be sufficiently rigorous to reasonably
safeguard against fraudulent use of funds.
Reviewers must use approved checklists to
ensure that adequate controls have been
performed prior to authorizing withdrawal of
funds.
94. Primary controls are:
(a) For payments reimbursing the B/R’s
account: verification of authorized
signature(s)9 and assurance that approval
of the WA payment is appropriate;
(b) For payments into a DA: verification of
authorized signature(s) and assurance that
the payment instructions are consistent
with the hard-copy evidence submitted
when the account was opened;
(c) For payments against a special
commitment: verification that the payment
request has been submitted by the
commercial bank holding IFAD’s SC; and
(d) For direct payments to the suppliers
of goods and services: verification of
authorized signature(s), monitoring of
procurement eligibility and verification
that the supporting documents submitted
with the application justify the payment
to the designated beneficiary. Payments
to individual bank accounts should not
be allowed, except for payment to an
individual consultant.
H.10 Processing disbursements
during suspension
95. The various grounds for suspension, in • Payments related to contracts signed
accordance with GC section 12, as well as before the suspension date for the
related procedures are outlined in section E.8 supply of goods shipped or delivered,
‘Grounds for Suspension of Withdrawals’. or for works performed, or for any
expenditures made on or before the
96. Exemptions from suspension
suspension date, provided the relevant
(i) Payments under SCs are not affected by applications are received by a specified
suspension of disbursements as long as the date, normally not more than 90 days
underlying letter of credit remains valid. after the suspension date.
(ii) When assessing exemptions from 97. Processing of WAs during suspension.
suspension, the CPMT must balance IFAD reviews all WAs to determine whether
IFAD’s fiduciary safeguards with the the claimed amounts fall within the list
possible disruptive impact on project of exemptions. If that is the case, the WA
implementation. If the cause of suspension payment approval indicates the amounts
was due to fraud, then the list of eligible for payment despite the suspension
exemptions would be kept very short in and the amounts to be paid by IFAD once the
order to avoid situations in which the suspension is lifted. Otherwise, the WA is kept
suspension would have little practical effect pending until the suspension is lifted, or is used
in limiting IFAD’s exposure and would to justify outstanding advances.
give little additional incentive to the B/R to
98. The B/R may continue to incur expenditure
come back into compliance. On the other
during a period of suspension, which if
hand, if the project’s suspension is triggered
in the event the suspension is lifted, may
by an unjustified obligation, IFAD normally
be reimbursed by the Fund provided the
exempts a number of items when it
expenditure is in line with IFAD’s eligibility
suspends disbursements. These exemptions
requirements as outlined in GC section 4.08.
are granted so as to avoid undue disruption
of project implementation and, to the
extent possible, to avoid causing harm to
innocent third parties. The items normally
exempted are:
– Claims for payment from commercial
banks holding SCs, guarantees,
qualified agreements to reimburse, or
qualified commitments issued by IFAD
prior to the suspension date;
– Payments to consultants and staff
where an interruption would cause
personal hardship or disrupt critical
work; essential office expenses –
exempted only in so far as they are
limited to a specific, limited period,
not normally exceeding six months,
and should be subject to review at
least once each quarter;

Module H
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102
FINANCIAL REPORTING AND AUDITING
REQUIREMENTS MODULE I
 Module I
Financial reporting and auditing requirements
• I.1 Applicability
• I.2 Roles and responsibilities
• I.3 Financial reporting
• I.4 Auditing

104
I.1 Applicability
1. Module I is applicable to Investment Projects 2. Where supervision arrangements are in
that are subject to IFAD’s General Conditions place with a Cooperating Institution (CI),
for Agricultural Development Financing and IFAD will assess the CI financial reporting
is based on the principles outlined in the and audit arrangements and recommend
Conceptual Framework for Financial Reporting measures to ensure adequacy and alignment
and Auditing of IFAD-financed Projects with the Handbook.
(the “Framework”) (exhibit I-1). Further
guidance on operational aspects intended for
IFAD B/Rs and other external stakeholders is
provided in the IFAD Handbook on Financial
Reporting and Auditing of IFAD-financed
projects (the “Handbook”) (exhibit I-2).

I.2 Roles and responsibilities

3. The primary responsibility for FM arrangements, (b) Monitoring use of funds, through review
including financial reporting and auditing, lies of interim and annual financial reports,
with the B/R. In line with Article 7 Section 1 (c) review of project audit reports; and
of The Agreement Establishing IFAD, the Fund (c) Implementation support and supervision
also has a fiduciary responsibility to “make missions, through technical training and
arrangements to ensure that the proceeds of follow-up on agreed action plans. See also
any financing are used only for the purposes Module D.2 Responsibilities and Roles
for which the financing was provided, with of FMD Staff.
due attention to considerations of economy,
efficiency and social equity.” In the context
of financial reporting and auditing, this
responsibility includes:
(a) Understanding the fiduciary risk
environment, through assessing the
acceptability of proposed financial
reporting and audit arrangements,
assessment of accounting and auditing
standards, and proposal of mitigation
arrangements as appropriate;

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 I.3 Financial reporting
4. Selection of acceptable accounting standards. (c) National/Regional accounting standards are
acceptable if deemed appropriate by IFAD.
(a) B/Rs are required to prepare annual
Acceptability of the accounting standards
financial statements in accordance with
is assessed on a case by case basis during
acceptable accounting standards. The
the Project design phase, following which
accounting standards may follow either
confirmation, or otherwise, on the use
an accrual or cash basis of accounting as
thereof is documented in the detailed
outlined below:
design report. Exhibit I-3 provides
Table 1: Summary of acceptable additional guidance on how to assess
accounting standards national/regional accounting standards.

Accrual Cash 5. Annual financial statements.

basis basis
(a) B/Rs are required to submit annual
IPSASa ü financial statements which include the
IPSAS Financial Reporting minimum prescribed disclosures as
under the cash basis of ü outlined in table 2.
accountingb
IFRSc ü
National/Regional
Accounting Standards if
deemed acceptable by ü ü
the Fund
a
As issued by the International Public Sector
Accounting Standards Board (IPSAS-B).
b
https://www.iaasb.org/system/files/publications/
files/IPSASB-2016-Handbook-Volume-2.pdf.
c
IFRS refers to International Financial Reporting
Standards issued by the IASB after 2001, and
International Accounting Standards that are still
relevant and were issued before 2001 by the
International Accounting Standards Committee
(IASC).

(b) B/Rs are encouraged to select standards

that are most appropriate to reflect its
operations. The standards adopted should
be specified in the notes to the audited
financial statements.

106
 Table 2: Minimum prescribed content of annual financial statements

Accrual Cash
Project financial statement
basis basis
Section A: Disclosures as prescribed by accounting standardsa
1. Statement of financial position (balance sheet) ü
2. Statement of financial performance/profit or loss (income statement) ü
3. Statement of changes in net assets/equity ü
4. Cash flow statement ü
5. Comparison of budget and actual amountsb ü ü
Notes, comprising a summary of significant accounting policies and other
6.
explanatory notes ü ü
7. Statement of cash receipts and payments ü
Section B: IFAD-specific disclosures provided as supplementary information c

8. Fixed asset scheduled ü ü

9. Withdrawal application/SOEs statement ü ü
10. Sources and uses of funds statement ü ü
11. Designated account statement and reconciliation ü ü
a Refer to selected accounting standards for illustrative disclosures (e.g. IFRS, IPSAS).
b Presented as a separate statement or as budget column in the financial statement. Cash basis financial statements –
may include as column in the statement of cash receipts and payments.
c Refer to Annex 1, 2 and 3 of the Handbook for illustrative disclosures.
d Fixed asset disclosure is not specifically required under the cash basis of accounting. It is requested that disclosure
be made for IFAD purposes where the cash basis of accounting is followed. Provide summary list of fixed assets
including movement in period and prior year comparatives in the financial reports. A detailed list (description, cost,
date of purchase, location of use) should be available for audit as required.

(b) B/Rs are required to deliver unaudited1
Project-specific financial statements
annually, within four (4) months of the
financial year-end, for the duration of the
implementation period (GC Section 9.02).
Earlier submission should be encouraged
to accelerate the audit process, at least
within three months.
(c) The financial reporting period will be
determined in consultation with the B/R
and is generally a period of twelve (12)
months which is expected to coincide with
the B/R‘s financial year unless otherwise
agreed with IFAD.2
(d) Where a Project is implemented by
several implementing units (within a
single entity), as a general principle, the
main implementing unit should prepare
a consolidated financial statement.
Exceptions will be considered on a case-
by-case basis.
(e) If in-kind contributions and/or counterpart
funding (usually from beneficiaries and/
or the government) are specified in the
financing agreement, the B/R is required
to make disclosure thereof in its annual
project financial statements. The B/R is
required to measure these contributions
in line with a pre-defined methodology
and retain all related calculations/
documentation for verification during
supervision missions and the audit process.

1 All Project financing sources, (namely IFAD Financing, counterpart contributions, beneficiaries cash contribution, co-financier
funds whether provided in cash or in the form of tax exemption) and in-kind contributions, must be duly valued and accounted for
in the Project financial statements. Start-up costs and expenditures incurred from retroactive financing must be accounted for and
included in the first set of aggregate financial statements (where applicable)
2 Refer to paragraph 18 for auditing reporting period for exceptions.

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 6. Interim financial reports (IFRs) and
report-based disbursements.
(a) B/Rs are required to submit unaudited IFRs
to IFAD with a frequency as agreed, to be
submitted within 45 days of the period
end. The format and content of the IFRs
must be discussed with the B/R during the
project design stage and documented in
the project implementation manual and/or
Letter to the Borrower as relevant. Exhibit
I-4 provides additional guidance on IFRs,
and proposes a sample format, although
a project may choose a different format,
subject to acceptability by IFAD.
(b) Projects utilizing the report-based
disbursement mechanism are usually
required to submit IFRs on a quarterly basis
in accordance with the format agreed with
IFAD in advance. In addition, projects must
provide a cash flow forecast, which:
i. Provides a forecast for the subsequent
quarterly reporting period;
I.4 Auditing
9. Selection of acceptable auditing standards.
(a) IFAD requires the use of internationally
accepted audit standards and requires that
all projects submit audit reports prepared
in accordance with one of the following
acceptable auditing standards:
Table 3: Summary of acceptable auditing
standards for financial statement audits
Public Private
auditor auditor
International Standards
of Supreme Audit ü
Institutions (ISSAI)a
International Standards
on Auditing (ISA)b ü Services (ISRE 4400), for agreed-
National/Regional Standards,
if deemed acceptable ü ü
by the Fund
a
Issued by International Organisation of Supreme
Audit Institutions (INTOSAI).
b
Issued by International Federation of Accountants
(IFAC) through the International Auditing and
Assurance Standards Board (IAASB).
3 Opening and closing cash balances disclosed separately for each bank account.
108
ii. Discloses the opening cash balances,
cash inflows, cash outflows and
closing cash balances;3
iii. Discloses the forecast per financier;
iv. Discloses the forecast per funding
instrument (loans, grants).
7. Where projects are administered using the
imprest account system, the amount of the
authorized allocation can be unilaterally
increased to accommodate cash forecasts. Such
a change must be communicated through a
revision to the LTB.
8. Assessment of financial reporting quality.
FOs are encouraged to review the unaudited
annual financial statements and provide written
feedback to the B/R within one month of receipt
thereof. The feedback should be focussed on
the quality of the financial reporting with
the expectation that the B/R will remedy any
shortcomings prior to the submission of the
audited annual financial statements. Refer
to paragraph 23. Audit review process for
further guidance.
(b) National/Regional Standards may be
acceptable if assessed positively by IFAD.
FOs are required to assess the acceptability
of national/regional standards during the
project design phase and document it in
the design report. Exhibit I-3 provides
additional guidance on how to perform
this assessment.
(c) In response to identified project risks, FOs
may determine that the audit scope should
be expanded and/or additional reporting
disclosures made. In such instances, the
following standards may be applicable and
are considered acceptable:
i. International Standard on Related
upon procedures where the auditor is
required to submit a report outlining
factual findings relating to the review
of financial information; and
 ii. International Standard on Assurance
Engagements (ISAE 3000), where
the auditor is required to provide
an Assurance Report other than a
financial statement audit report or
factual findings report.
10. Selection of the external auditor.
(a) The type of auditor will be determined by
IFAD prior to the conclusion of the project
design process. IFAD promotes the use of
national systems in the implementation of
projects, as such it is preferred that public
auditors conduct the audit of IFAD funded
projects where capacities and timing of
outputs are adequate.
(b) The FO should first consider the overall
status of the public and private auditing
professions of the country to determine
whether a public auditor or private audit
firm is best placed to conduct the audit. If a
public auditor is not deemed suitable, IFAD
must request the use of a private audit firm.
The B/R is responsible for the procurement
of private audit services, subject to no-
objection by IFAD. The FO/Project
may consider the criteria as outlined in
exhibit I-5 in determining the suitability of
the audit firm.
(c) The selection and use of private audit firms
does not preclude the performance of the
audit by the SAI, where the SAI’s mandate
requires the audit of externally funded
projects. In such cases, the FO will need to
detail the fact that SAI’s audit is acceptable
and submission to IFAD will be expected
in accordance with the SAI’s work plan. In
such cases, the private audit firm is required
to supplement the SAI and ensure timely
performance and delivery of the project
audit in accordance with IFAD’s GC. See
exhibit I-6 Guidance Note on Assessing
Capacity of SAIs.
4 Refer to exhibit I-3, table 1 and table 3 for possible sources of information to assist with assessment.
(d) Regardless of the choice of auditor, the FO
is encouraged to:
i. Perform an analysis of the status of
the audit profession in the country4
during the design phase, taking
into account convergence towards
international standards, where
applicable, and the capacity to handle
IFAD projects. This should be done
with the aim of gradually increasing
the number of audits performed by
the public auditor; and
ii. Strengthen dialogue with the public
auditor to build a relationship and
to identify opportunities for audit
services in the future. The FO or FMS
is encouraged to explore possibilities
for capacity-building initiatives where
the need is identified.
11. Auditor appointment procedure.
(a) Where a private audit firm is procured to
conduct the audit, the B/R is responsible
for the selection and appointment process.
In accordance with international best
practice, the auditors should be appointed
in advance of the start of the period to be
audited to allow the auditor sufficient time
to plan and carry out a comprehensive
examination of the B/R’s financial records
and accounts. The appointment process in
table 4 should be adhered to.
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 Table 4: Private audit firm appointment process

Step Procedures Guidance/timing

In due time to allow appointment of

ü The B/R prepares TOR for the audit
(Appendix 7 of the Handbook);
auditors by the start of the financial year
Development to be audited
of auditor ü The B/R sends the TOR to IFAD (FMD)
for review and no-objection;
terms of
reference
ü IFAD communicates the “no-objection”
to the B/R on the final TOR within (30)
days of receipt.
The B/R should attempt to finalize the
ü The B/R initiates the procurement
process using the agreed TOR;
procurement process at least thirty (30) days
Procurement before the start of the financial year. The
process ü The B/R informs IFAD (CPM and FO) of
the name of proposed auditor and the
auditor should be appointed before the start
of financial year to be audited.a
procurement process followed.
The B/R representative will sign and return
ü The B/R appoints the auditor;
a copy of the engagement letter to the
Auditor ü The appointed auditor issues a formal
engagement letter.b
auditor. Although SAI standard procedures
appointment may not require issuance of an engagement
letter, FOs should encourage this as a best
practice.
a In exceptional cases and as agreed with IFAD, the appointment may take place during the financial year but should
not unduly impact the auditor’s ability to perform his duties.
b Contents to include scope of audit, prescribed responsibilities, auditing standards to be used, compliance with
ethical standards and reporting format.

(b) If a Public Auditor conducts the audit, its
TOR is usually defined by law, however,
IFAD may approach the Public Auditor
to request the performance of additional
audit procedures, in accordance with IFAD
minimum requirements.
(c) Grants financed by supplementary
funds, including EU-funded grants, may
require specific audit procedures which
should be incorporated into the TOR.
FOs are required to consider the EU FMG
(European Union Financial Management
Guide) for EU-funded grants and the
supplementary funds contribution
agreements. A standard TOR incorporating
EU-specific requirements is outlined in
Appendix 7 of the Handbook.
12. Auditor engagement period.
(a) Engagement of a private audit firm
following the procurement process
described above, the appointment period
may extend from one (1) year, up to,
but not exceeding, four (4) years, subject
to satisfactory performance annually
as assessed by the B/R and IFAD (refer
to paragraph 23 Audit review process for
assessment procedure). A tender for audit
services should be performed at least
once every four (4) years, to which it is
acceptable for the incumbent to apply. The
ongoing appointment will be considered
subject to the outcome of the audit
quality review process conducted by the
responsible FO. The appointments and re-
appointments should take place as soon
as possible prior to the start of the new
financial year.
(b) FOs should be aware of country specific
regulations related to auditor rotation,
especially where such regulations may
require auditor rotation on a more frequent
bases than IFAD’s prescribed 4-year period.
Where local regulations require a shorter
period, such requirements should be
adhered to.
(c) The auditor may only be discharged from
its position subject to IFAD approval.
13. Scope of the audit. When the financial audit
arrangements are determined during the
project’s design process, the FO must take into
account the type and size of financing provided
and identified FM risks. Risk factors can be
linked to country, institution and/or project
characteristics. To mitigate identified risks,

110
the FO may require audits with additional
scope and/or agreed upon procedures to be
performed. The FO should also consider the
14. FOs should consider expanding the scope of the
risks and cost implication of auditing an
audit or requesting additional reporting in the
increased number of financial statements and
following instances:
Table 5: Other types of audits/reporting
Type/
Description
scenario
When an IFAD project on-lends (provides
lines of credit) to implementing agents such
as NGO’s; micro-finance institutions and local
banks for the purposes of disbursing funds
to ultimate beneficiaries, IFAD may require
additional confirmation that the activities of
the implementing agents are in line with IFAD
Rural finance
facilities
requirements.
The supervision mission may identify concerns
related to a project’s procurement activities (e.g.
collusion between bidders/fraud in the contract
Procurement award process).
ü When the supervision mission highlights
a concern with use of project resources,
a performance audit may be considered.
This audit involves the assessment of the
efficiency, effectiveness and economy of an
organization’s use of resources.
ü A performance audit may be required if the
Project has a significant contract with a
third party (to deliver a system or service)
and IFAD does not have the ability to
assess the performance of the third party.
Performance/
value-for-
money
develop a risk-based solution using a cost-
benefit analysis.
Audit requirements
Request a factual findings report:
ü Test a sample of disbursements made by
the implementing agent(s) and
verify that funds have reach the intended
beneficiaries (also considering geographic
location) for the purposes intended.
ü Confirm that revolving funds are used by
implementing agent(s) in line with the terms
of the agreement between the project and
the implementing agent(s).
ü Confirm that the agreement between the
implementing agent(s) and the project are
aligned with the terms of the financing
agreement between IFAD and the Project.
Request a compliance audit to verify that:
ü The specific procurement contract was
awarded in line with an IFAD approved
procurement policy; or
ü All procurement contracts awarded for the
period under review were awarded in line
with an IFAD-approved procurement policy.
Request a factual findings report which
considers:
Effectiveness - Determine if the stated
üobjectives/defined goals/intended
outcomes of the program/function/system
were achieved and delivered on time.
Economy – Determine if program/function/
üsystem resources were acquired in the
appropriate quality and quantity at the right
time and place at the lowest possible cost.
Efficiency – Determine whether the
üprogram/function/system has increased
productivity and reduced costs.
Notes:
ü Develop terms of reference based on the
specific function/program/system in line with
the above guidance.
ü SAIs may not be able to undertake
performance audits – in such instances a
private auditor should be considered.
ü Performance audits can be performed by the
internal auditors and FOs should consider
inclusion in their work program if possible.
ü Performance audits may take considerable
time (and resources) to complete. FOs should
consider the cost versus benefit of requesting
such an audit.
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 Type/
Description
scenario
When the FO identifies the risk of non-
compliance with:
Compliance ü laws/regulations; or
matters
ü the terms of a specific contract; or
ü the project implementation manual
a compliance audit may be required.
If the designated account is held with the
country’s treasury and the FO is concerned
Designated with the misuse of funds, a review of the flow of
account flow funds and balance may be required.
of funds
IT systems When the FO identifies significant reliance on
an IT system or has identified concerns related
to an IT system on which the project places
reliance, an IT audit may be required.
15. Audit terms of reference. The B/R is responsible
for the preparation of the TOR and is
encouraged to consider the outline as included
in Appendix 7 to the Handbook. The FO is
required to consider additional procedures/
audits which are not covered and request
the B/R to incorporate this into the TOR.
FOs should pay specific attention to IFAD’s
disclosure requirements (refer to paragraph 31.
Public Disclosure of project audit reports/audited
financial statements) and ensure that the TORs
incorporate this requirement.
16. Audit package.
(a) The auditor is expected to submit an audit
package which includes, as a minimum,
the audited financial statements, the audit
report and management letter.
(b) The audit report will outline the audit
opinion on the audited financial statements
which will be either:
i. Unqualified – generally acceptable
to IFAD;
ii. Qualified – generally not acceptable
to IFAD, depending on the nature of
the qualification;
iii. Adverse – usually not acceptable to
IFAD; or
iv. A disclaimer of opinion – usually not
acceptable to IFAD.
112
Audit requirements
Request a compliance audit which considers
compliance laws, regulations, terms, etc.
Request a factual findings report which:
ü Considers the flow of funds in and out of
the designated account;
ü Provides evidence that funds have been
used in line with IFAD requirements;
ü Provides evidence as to balance as at
reporting period.
Request an IT audit which confirms:
ü Proper functioning of the IT system and
ability to provide reliable information;
ü Confirms existence of adequate controls
(e.g. authorised access to the system).
(c) The management letter is an integral part
of the audit package which documents
internal control issues identified by
auditors. The management letter should:
i. Outline the auditor’s
recommendations to improve
identified accounting and internal
control issues;
ii. Include project management’s
responses to the identified control
issues and their proposal to address
the issues identified; and
iii. Where applicable, follow up
commentary on the issues identified in
the previous year’s management letter.
(d) In addition, any ineligible expenditures
identified during the audit must be
outlined in the management letter.
17. Audit reporting period. IFAD generally requires
an annual audit of project financial statements,
in accordance with the financial year, however,
the frequency with which audits are required
may be changed by IFAD depending on the
risk profile of the project. In all instances, IFAD
will confirm the frequency with which project
financial statements should be audited.
18. The audit reporting period may be amended
for the first and/or final audits in line with the
following guidance:
 (a) For the first audit, where the project
commences during the financial year, these
procedures will generally apply:
i. If the period between the first
disbursement and the end of the
financial year is less than six (6)
months, IFAD may allow that the
results for the first financial period to
be included in the following financial
year audit, or;
ii. If the period between the date of the
first disbursement and the financial
year-end is greater than six (6) months
or when the level of disbursement is
regarded as high, IFAD may require
audited financial statements for the
period.
(b) For the final audit, IFAD may recommend
an audit reporting period which is longer
or shorter than 12 months but not
exceeding 18 months. This is to ensure
that the final audit can be concluded and
the audit report submitted to IFAD by the
Project Closing Date.5 In such instances
the FO must discuss and agree to these
requirements with the B/R well in advance
of the commencement of the final audit.
19. Monitoring compliance with finance
agreement covenants. Audit reports are
generally due within six (6) months of the
B/R year-end. In specific cases, a different
submission period can be agreed, but the
agreement must be outlined in the FA as an
exception to the General Conditions. If the audit
package is not received by the due date, or if
the audit package is deemed unsatisfactory, the
B/R must be notified. Where appropriate, IFAD
may consider engaging an alternative auditor in
accordance with GC Section 10.04.
20. If the audit package in satisfactory form is not
submitted to IFAD within ninety (90) days from
the stipulated due date, the FO must issue an
initial warning notice (exhibit I-7) to remind
the B/R that non-receipt of the audit report in
a satisfactory form within 180 days from the
stipulated due date will result in the suspension
of the project or portfolio and/or other remedies
as relevant.
5 As defined in the financing agreement, as advised by the auditor.
21. If the B/R fails to comply with this obligation
within 180 days from the stipulated due date
or unsatisfactory responses are obtained,
in accordance with the terms of GC section
12.01(b), by notice of a suspension letter
(exhibit I-8), the B/Rs right to request
withdrawals from the loan and/or grant
accounts will be suspended.
22. Exhibit I-9 provides an illustrative table
indicating various scenarios, apart from overdue
submissions, that may lead to suspension
during this monitoring process (e.g. incomplete
submissions, non-satisfactory responses).
23. Audit review process. The FO’s role is to carry
out timely reviews of the audit package and
assess these using appropriate risk-rating criteria
consistently. The main purpose of the reviews
is to determine whether the auditor conducted
a quality audit, and to assess the quality of the
financial reporting. The following procedures
should be performed, as a minimum, during the
review process:
(a) General
i. Ensure that the audit package is
complete and includes the audited
financial statements; audit report and
management letter;
ii. Compare the audit TOR with the
information provided and confirm
completeness;
iii. Review the audit report and financial
statements and confirm that relevant
international or acceptable (as agreed
with IFAD) accounting/auditing
standards have been used; and
iv. Review the financing agreement
and any specific audit/reporting
requirements and confirm that
this has been addressed in the
audit package.
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 (b) Audit report. vi. Specific to the withdrawal
application summary:
i. Review the audit report and confirm
that it has been signed/stamped by the • Ensure that withdrawals
auditor; are disclosed by type of
payment method;
ii. Review the audit report and confirm
that it has been prepared in line • Agree amounts of approved
with the minimum requirements withdrawal applications to IFAD
as outlined in ISA 700/750; ISSAI records for accuracy;
1700/1705 or the National/Regional
• Ensure withdrawal application
Standards (note: the basis of the
information is summarized by
financial reporting should be disclosed
category of funding (specified in
in the audit opinion);
the finance agreement).
iii. Determine acceptability of the audit
vii. Specific to the sources and uses of
opinion and/or factual findings
funds statement:
statement;
• Ensure disclosure is provided on
iv. Assess the appropriateness of the audit
a cumulative basis (from project
opinion, based on the overall financial
start) in addition to current/prior
disclosures provided.
period disclosures;
(c) Financial reporting.
• Ensure disclosure is provided by
i. Confirm that the financial statements both category and component
include all disclosures as outlined in (as specified in the financing
table 2; agreement);
ii. Ensure that supplementary disclosures, • Ensure disclosure is provided by
as outlined in table 2, are reconciled to financier and finance instrument;
the main disclosures provided in the
• Confirm that IFAD specific
financial statements;
information is reconcilable to
iii. Ensure that all project financing IFAD records.
sources6 are reported and accounted
viii. Specific to the designated account
for in the financial statements. Start-
statement and reconciliation:
up costs and expenditures incurred
from retroactive financing must be • Ensure that closing cash balances
accounted for and included in the first are reconcilable to total cash
set of aggregate financial statements balances disclosed in the
(where applicable); financial statements;

iv. Review the financing agreement. • Ensure that withdrawal

Where in-kind contributions and/ application information as listed
or counterparty funds are specified, here agrees to the withdrawal
ensure that related disclosure is application summary provided.
included in the financial statements;
v. Review the budget to actual
comparison and consider explanations
provided for variances;

6 Namely IFAD Financing, counterpart contributions, beneficiaries cash contribution, co-financier funds whether provided in cash
or in the form of tax exemption.

114
 (d) Management letter.
i. Confirm the completeness of the
management letter, in line with the
content prescribed, including time-
bound action plan, as relevant.
ii. Review the management letter and
identify internal control areas which
can be improved on by the B/R. If
required, the B/R can be requested to
improve controls and document this
in the PIM/FM where applicable.
iii. Ensure that prior year items have been
followed up and implemented.
iv. Record any identified ineligible
29. If the audit report has identified ineligible
expenditure in ARTS.
24. Quality assurance - peer reviews of project
audit reviews. As part of FMD’s quality
assurance procedures, project audit reviews
30. Assessment ratings. Upon completing the audit
are subject to internal peer review on a sample
basis. The peer review is an ex ante process that
is performed prior to final sign-off on the audit
report review. The sample for peer review shall
be determined in accordance with the criteria
listed in exhibit I-10.
25. Both the first review and the peer review must
be conducted timely in order to avoid delays
in finalisation of the audit report review (60
days from receipt). The peer review shall be
conducted in the spirit of promoting the best
application of international standards and shall
therefore be performed across regional/grants
teams, and includes FOs, Team Leaders and the
Director, FMD.
26. The peer reviewer is expected to provide
feedback on the adequacy of accounting
standards identified; the adequacy of auditing
standards identified; the reasonableness of
the auditor’s opinion; and acceptability of
recommendations to be shared with the
Ministry/Project/External Auditors (including
significance of items raised and compliance with
standards, Action Plan required, if relevant).
27. Each peer review performed must be recorded
through reporting of main observations noted
directly in ARTS. Where deemed necessary,
the FO and peer reviewer may wish to discuss
the outcomes directly. Any formal feedback/
replies by the Finance Officer may also be
recorded in ARTS.
28. Audit review follow-up. IFAD will
communicate the main concerns and results of
the audit review process within sixty (60) days
after receipt of the audit package. If required,
the B/R will be requested to submit additional
information/amended information. The
B/R may also be requested to submit a time-
bound action plan for correcting irregularities
identified by the auditor. IFAD may suspend
disbursements if the B/R does not take
appropriate action within the agreed time frame
(see exhibit I-9). FOs are specifically required to
capture any required actions communicated to
the B/R in ARTS and capture progress notes on
an on going basis.
expenditure, IFAD should inform the B/R of the
requirement to refund these amounts disbursed
and highlight this in ARTS.
review, prior to signing-off the audit report, FOs
must assign performance and risk ratings in
ARTS, as follows:
(a) Determination of audit risk rating
(high/medium/low);
(b) Assessment of the auditor performance
(highly unsatisfactory to highly
satisfactory);
(c) Assessment of financial reporting (highly
unsatisfactory to highly satisfactory); and
(d) PSR for quality and timeliness of audit
(highly unsatisfactory (1) to highly
satisfactory (6)). See exhibit I-11 Guidance
Note on PSR Descriptors. Once saved, this
rating will be fed into the Operations and
Results Management System (ORMS).
Assessment of the quality and timeliness
audits is a composite rating based on:
• Adequacy of scope and TORs, and
adherence to these;
• Timeliness of the audit report;
• Quality of the audit;
• Implementation of audit
recommendations or agreed action
plan in place to address them.
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 31. Public disclosure of project audit reports. 34. Once the FO is satisfied with the audit reports,
In line with EB approval7 IFAD is required to suitability for public disclosure, the regional
publicly disclose project audit reports relating supervisor (Team Leader) must be notified by
to investment projects, subject to IFAD review the FO via the disclosure workflow in ARTS.
and approval. IFAD’s policy is based on the The supervisor is required to perform a second
premise of full disclosure, which affirms and final quality review to ensure suitability for
IFAD’s commitment to transparency and public disclosure. Any further redactions at this
good governance and is in accordance with stage must be made directly by the supervisor.
international best practice. It is recommended that any additional
redactions are communicated back to the
32. Following audit sign-off, the FO must initiate
FO to be taken into consideration for future
the disclosure workflow in ARTS. FOs must
disclosures.
conduct a thorough quality review of the audit
report ensure that sensitive information that 35. Final approval for disclosure is provided by
may not be appropriate for public disclosure the supervisor in ARTS. The approved file is
is redacted as required. Exhibit I-12 provides automatically uploaded into the Operations
guidance to assist the review of audit reports for Document Centre (ODC), managed by
sensitive information. Further to the guidance OPE, and subsequently transmitted to the
provided, which may not be extensive enough Communications Division (COM) for upload
to cover all situations, FOs are required to use to IFAD’s website.
professional judgement to determine whether
any information should be redacted.
33. FOs must ensure that the following documents/
reports are excluded, in their entirety, from
the final document to be published on IFAD’s
website:
i. Cover letters which accompany the audit
packages submitted;
ii. Management letter;8
iii. Entity financial statements9 related to
investment projects;
iv. Institutional financial statements related to
stand-alone grants;
v. Internal audit reports (if applicable).

7 122nd Session of the Executive Board, 12 December 2017.

8 FO’s are encouraged to remind auditors that the audit package should be sent as separate documents to facilitate the upload
and disclosure process.
9 Refers to the entity responsible for project implementation.

116
LOAN REPAYMENTS AND DEBT SERVICING
MODULE J
 Module J
Loan repayments and debt servicing
• Loan repayment provisions
• Amortization schedule
• Revision of amortization schedule
• Denomination and loan-service payment currencies
• Billing procedures
• Handling of under- and overpayments
• Overdue debt service
• Debt settlement plan – policies and procedures

118
J.1 Loan repayment provisions
1. Lending terms. The Policies and Criteria for 2. As of January 2010, IFAD resets the variable
IFAD Financing, section IV(a)(iii), defines reference interest rate twice a year, on the first
the lending terms offered by IFAD. These are business days of January and July. For loans
currently: denominated in SDR, the IFAD reference interest
rate is based on a composite SDR LIBOR/
(a) Loans on highly concessional terms are not
EURIBOR2 six-month rate of the four currencies
subject to interest, but bear an annual
that constitute the SDR, plus a variable spread.
service charge of 0.75 per cent on the
For loans denominated in EUR, the IFAD
outstanding principal amount of the loan,
reference interest rate is based on the six-month
and have a maturity period of forty (40)
EURIBOR, plus a variable spread. Rates are
years, including a grace period of ten (10)
published on IFAD’s website (Interest Rates).
years, starting from the date of approval by
the Executive Board. 3. All the lending terms provide for a grace period,
which ranges from three years for ordinary terms
(b) Loans on blend1 terms are subject to interest
to 10 for highly concessional loans. According
on the principal amount outstanding at an
to GC section 5.01(g), “During the grace period,
annual fixed rate of 1.25 per cent and an
interest and service charge shall accrue on the
annual service charge of 0.75 per cent, and
outstanding principal amount of the Loan
have a maturity period of twenty-five (25)
and shall be payable semi-annually, but no
years, including a grace period of five (5)
payments of principal shall be due.”
years, starting from the date of approval by
the Executive Board. 4. In accordance with GC section 5.02(a),
“The Borrower shall repay the aggregate
(c) Loans on ordinary terms are subject to
principal amount of the Loan withdrawn from
annual interest based on the variable IFAD
the Loan Account in semi-annual instalments,
reference interest rate, and have a maturity
calculated over the maturity period minus the
period of fifteen (15) to eighteen (18)
grace period.”
years, including a grace period of three (3)
years, starting from the date that IFAD has 5. Previous applicable lending terms for loans
determined that all conditions precedent being serviced in IFAD’s current loan portfolio
to withdrawal have been fulfilled in are provided in exhibit J-1 Historic IFAD Lending
accordance with GC section 4.02(b). Terms.

1 ‘Blend’ terms were approved by the Executive Board at its Thirty-Sixth Session on 14 February 2013, in lieu of the
‘intermediate’ terms offered earlier.
2 LIBOR = London Interbank Offered Rate; EURIBOR = Euro Interbank Offered Rate.

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 J.2 Amortization schedule
6. GC section 5.02(a) provides, “The Fund shall
inform the Borrower of the dates and amounts
of the payments as soon as possible after the
start of the period of maturity of the Loan.” A
projected amortization schedule is prepared
by FMD for highly concessional and blend
term loans based on the date of approval of the
project by the Executive Board. The schedule
is discussed with the borrower during loan
negotiations and attached to the minutes of the
negotiations.
7. For a highly concessional loan, which has a 10-
year grace period, the first repayment is due on
the first semi-annual repayment date after the
tenth anniversary of the date of Executive Board
approval.
8. For a loan on blend terms, which has a five-year
grace period, the first repayment would be due
on the first semi-annual repayment date after
the fifth anniversary of the date of Executive
Board approval.
9. For loans on ordinary terms, a draft projected
amortization schedule is prepared by FMD
based on the best estimate of the date of
fulfilment of disbursement conditions and
provided to the borrower during negotiations
for advance information purposes only. As
soon as the Fund has determined that all
general conditions precedent to withdrawal
have been fulfilled, an amortization schedule
is prepared by ACD and sent to the borrower.
It is thus essential that the CPM inform FMD
and ACD promptly of fulfilment of withdrawal
conditions. The note to the borrower is drafted
by ACD.
120
10. In accordance with section 15(a)(iii)(6) of the
Policies and Criteria for IFAD Financing, the
Executive Board may vary the grace period and
instalment amount for blend and ordinary term
loans provided that:
(a) The grace period for the loan shall not
exceed six years; and
(b) Net present value (NPV) in the
denomination currency of the loan
is maintained.
11. The new amortization schedule with the revised
grace period will be prepared using these
parameters:
(a) The discount rate used to maintain NPV of
cash flows will be:
(i) For ordinary term loans, the current
variable interest rate applicable;
(ii) For blend term loans, the 2 per cent
rate, being the annual fixed interest
rate of 1.25 per cent plus the
0.75 per cent annual rate for
service charges.
(b) The first 10 instalment amounts (covering
the first five years of the repayment period)
will be amended to provide revised
repayment of equal amounts. The number
of instalments (of equal amounts), and the
corresponding period may be increased if
required.
J.3 Revision of amortization schedule
12. The amortization schedule is initially prepared (d) Prepayment of principal amount by the
based on the full amount of approved borrower. GC section 5.02(b) provides,
financing. This may be revised in the following “The Borrower shall have the right to
circumstances: prepay all or any part of the principal
amount of the Loan, provided that the
(a) Cancellation of the unwithdrawn loan
Borrower pays all accrued and unpaid
amount. In accordance with GC section
interest and/or service charges on the
5.02(a), when a portion of the loan is
amount to be prepaid as of the prepayment
cancelled based on GC section 12.02 or
date. All prepayments shall be credited
12.03, ACD prepares a revised amortization
against the remaining Loan instalments in
schedule that reflects the reduced loan
such manner as the Borrower and the Fund
amount and forwards this to the borrower.
shall agree.” Two options will be available
The revised amortization schedule is
to borrowers:
recalculated on the basis of the principal
amount outstanding, being the amount (i) Reduce the instalment amount,
actually disbursed minus the principal maintaining the same maturity
repayment already received by IFAD at the period; or
date of the cancellation. The maturity and
(ii) Accelerate the final maturity date,
grace periods remain the same and the
keeping the same instalment amount.
instalment amount is reduced.
13. In the event the borrower decides to prepay
(b) Where the cancelled undisbursed balance is
part of or the entire loan principal, FMD sends
less than 1,000 units in the denomination
a revised amortization table to the borrower,
currency, IFAD may reduce the amount
taking into account such prepayment.
from the last instalment, thus maintaining
the instalment amount and maturity period
unchanged.
(c) Upon closure of the loan account, if
there are unjustified obligations relating
to unjustified advances of less than
US$50,000 (or the equivalent), the amount
of such obligations will be added to the
outstanding loan amount and a revised
amortization schedule will be prepared
(see also Module E.8, Financing Closing
Date). If the amount of unjustified
obligations exceeds this amount,
suspension procedures in accordance with
GC section 12.01 (a)(ii) will be followed.
A revised amortization schedule will
only be prepared once the outstanding
obligations are fully refunded.

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 J.4 Denomination and loan-service
payment currencies
14. In accordance with GC section 2.01, the
‘denomination currency’, with respect to a loan
or grant, means the currency in which the loan
or grant is denominated (which may also be
SDR), as specified in the FA. Apart from those
approved in US$ in the early years of IFAD, all
IFAD loans have been approved in SDR. For
loans funded from other sources of financing,
the denomination currency may be different.
15. The borrower’s repayment obligation is in the
denomination currency of the loan.
16. GC section 2.01 defines the ‘loan-service
payment currency’ as the freely convertible
currency defined as such in the FA. This is
normally provided in section B of the FA and
is the currency the borrower or guarantor elects
for making payments of principal, interest or
service charges on the loan. IFAD normally
restricts the loan-service payment currency to
those included in the composition of the SDR.
The currency selected remains the sole currency
of payment throughout the life of the loan,
J.5 Billing procedures
19. As the borrower’s repayment obligation is
expressed solely in the loan denomination
currency, billing statements show amounts due
in both the loan denomination currency and
the loan-service payment currency, which is
specified in section B of the FA.
20. All IFAD loans are billed semi-annually on the
dates specified in the FA. The billing due dates
will be on the 1st or 15th day of the months as
agreed with the borrower. IFAD will bill on the
due date and provide the borrower with a period
of 30 days within which to make repayments.
21. For repayments of outstanding principal and
interest made within the 30-day period, the
value date of the payment is the billing due
date and no additional interest and other fees
are calculated. In such cases, IFAD will convert
the currency received into the denomination
currency using the exchange rate stated in the
billing statement.
122
although, in special circumstances, borrowers
may make payments in a currency other than
the loan-service payment currency. When this
occurs, IFAD will convert the currency received
into the denomination currency equivalent at
the value date of the repayment
(GC section 6.02).
17. Withdrawals from loans are made in the
respective currencies in which expenditures
to be financed have been paid or are payable,
or in such currency or currencies as IFAD may
select, and the loan accounts are debited by
the amounts withdrawn in the denomination
currency as of the value date of withdrawal
(GC sections 4.05, 4.06 and 6.01).
18. In accordance with GC section 6.03, the
applicable exchange rate for conversion between
the loan denomination currency and other
currencies, or from one currency to another,
is the rate published by the IMF as of the
value date.
22. For repayments of outstanding principal and
interest made outside the 30-day period (late
payment), the value date for calculation of
charges and interest is the day the money is
received in IFAD’s bank account, or the date
when adequate information is received from
the borrower instructing IFAD how to apply the
repayment funds, referred to as the payment
identification date, if later. IFAD will convert
the currency received into the denomination
currency using the IMF exchange rate of the
day on which funds are credited to IFAD’s bank
account.
23. All payments sent to IFAD must include a clear
reference to the loan number and/or correct
purpose, as specified in the billing statement.
Information insufficient for IFAD to apply the
funds will result in crediting the transaction in
IFAD’s books with a later value date, once all
necessary information is received.
24. Interest or service charges are calculated
on a daily basis on the amount of the loan
outstanding at any point in time. If amounts
are withdrawn from and then subsequently
refunded to the loan account, the borrower is
not entitled to a refund of the interest or service
charge paid.
25. Interest and service charges are computed on
the basis of a 360-day year of 12 30-day months
(GC section 5.01(b)). To compute the exact
amount of interest and other charges payable
by the borrower on the due date specified in
the FA, IFAD takes into account all loan-related
transactions up to the preceding day.
26. IFAD calculates principal billed in relation to the
amount disbursed and the scheduled principal
repayments in accordance with the amortization
schedule. IFAD will bill a borrower an amount
of principal only up to the amount disbursed
and outstanding at the billing due date.
J.6 Handling of under- and overpayments
29. If an underpayment is:
(a) Less than the equivalent of US$10,000, no
follow-up action is required;
(b) More than the equivalent of US$10,000,
the normal procedure for overdue debt
service is followed.
30. If an overpayment is:
(a) Less than the equivalent of US$1,000, it
will be applied to the interest or service
charges due at the next billing, without
notice to the borrower;
(b) More than the equivalent of US$1,000,
but less than the equivalent of US$10,000,
IFAD advises the borrower that the
overpayment is being applied to the
amounts due at the next billing;
27. If the amount billed is less than the instalment
amount, the difference will be included in
subsequent bills when cumulative amounts
disbursed reach the cumulative instalment
amounts specified in the projected
amortization schedule.
28. On the billing due date, IFAD calculates
principal, interest or other charges due up to the
due date. This calculation is made in SDR or the
loan denomination currency and then converted
into the loan-service payment currency at the
effective rate on the financial reporting date.
Details of the loan denomination currency
amount and the equivalent in the loan-service
payment currency for the principal, interest
and other charges are given in the semi-annual
statement of account (the billing statement)
sent to the borrower. This statement is
sent electronically.
(c) More than the equivalent of US$10,000,
the borrower is requested to provide
instructions for applying the overpayment.
Borrowers may elect one of the
following options:
(i) Apply against next instalment due;
(ii) Use to settle an outstanding amount
due from another loan; and/or
(iii) Refund back to the borrower.
31. An e-mail is sent to the borrower requesting
clarification on which of the three options the
borrower prefers.
32. The e-mail specifies that if the borrower requests
a refund, the relevant payment instructions
must be provided.
33. The excess funds are left pending until
such time as instructions are received from
the borrower.
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 J.7 Overdue debt service
34. Collection steps. If payment is not received by
the due date, the collection steps outlined below
are taken:3
(a) 10 days. A reminder e-mail of the expired
due date and overdue amount is sent;
(b) 30 days. An arrears notice, signed by the
Director and Controller, ACD, is sent
(exhibit J-2 Arrears Notice); and
(c) 75 days. An arrears suspension notice,
signed by the General Counsel, is issued
(exhibit J-3 Arrears Suspension Notice).
35. GC section 12.01(a)(i) provides that whenever
“[the] Borrower has failed to make any Loan
Service Payment when due, whether or not the
Guarantor or any other third party has made
such Loan Service Payment, … the Fund may
suspend, in whole or in part, the right of the
Borrower/Recipient to request withdrawals from
the Loan and/or Grant Accounts.”
36. Such suspension becomes effective on the
dispatch of a notice by the Fund to the borrower.
It continues until the Fund has notified the
borrower that the suspension has been lifted in
whole or in part.
37. The arrears suspension notice informs the
borrower that all IFAD projects in the Member
State have been suspended (a ‘portfolio
suspension’). Once this notice has been issued,
i.e. when the payments are overdue by 75 days,
projects are affected as follows:
(a) The borrower’s right to request withdrawals
for any IFAD loan or grant is suspended;
(b) No new projects will be submitted to
the Executive Board;
(c) FAs for new projects approved by the
Executive Board will not be signed;
(d) Amendments and modifications of FAs
will not be processed.
3 Copies of all communications issued by IFAD to the borrower regarding overdue debt service should be sent to
FMD for information.
124
38. Exceptions to normal follow-up action.
The collection steps described above are not
followed in the event that:
(a) Payments are owed in a currency whose
availability is unduly constrained on
international financial markets at the time
the payment falls due.
(b) A borrower reliably informs IFAD that
payment has been made. IFAD normally
requires evidence of the payment transfer
(that is, a copy of the transfer instructions
from the borrower’s bank to IFAD’s account
with the depository bank named in the
billing statement). Standard follow-up
procedures are then delayed for two weeks.
(c) The borrower has questioned the
amount due.
(d) The amount due is less than the equivalent
of US$10,000.
39. De minimis amounts. If the amount due
is less than the equivalent of US$10,000, it
is considered de minimis. The amount is
mentioned in notifications to the borrower
issued by IFAD with respect to other overdue
loans. No further action is taken unless another
loan becomes overdue for more than 75 days,
at which point the entire country portfolio is
suspended, including the loan(s) subject to the
de minimis procedure.
40. Lifting of debt-arrears-related suspensions.
Once IFAD has received payment from the
borrower for arrears that have resulted in
suspension, or the borrower has entered into a
debt settlement plan, suspension is lifted for
the entire portfolio, provided that:
(a) No loan service payment is overdue by
more than 75 days; or
(b) Total arrears are less than the equivalent
of US$10,000.
41. A notice prepared by ACD, cleared by TRE and
signed by the Director and Controller, is sent
to inform the borrower that suspension has
been lifted.
J.8 Debt settlement plan – policies
and procedures
42. The Executive Board may change the terms 44. IFAD’s internal process for formulating a debt
on which a loan is approved to a country settlement plan with a borrower is as follows:
exclusively for the purpose of resolving arrears
(a) Receipt of a formal request from the
that may arise from time to time in payment of
borrower for a debt settlement plan;
interest or service charges and repayment of the
proceeds of loans. (b) Endorsement by IFAD’s Senior
Management to negotiate a debt settlement
43. As a matter of policy, IFAD does not reschedule
plan with the borrower. The broad frame
loan repayments. At most it reschedules the
of reference for the debt settlement is
settlement of arrears, while leaving future
presented jointly by PMD, FMD and ACD
repayment flows intact. To ensure that
to the EMC for their endorsement;
settlement of arrears should not provide
countries with an incentive to default, there is (c) Negotiation of the terms of the debt
an implicit requirement that the NPV of the settlement plan with the borrower;
arrears settlement package should equal the NPV (d) Formal approval of the debt settlement
of the original lending terms and conditions. plan by IFAD’s Executive Board is required.

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FINANCIAL MANAGEMENT AND DISBURSEMENT
OF GRANTS MODULE K
 Module K
Financial management and disbursement of grants
• IFAD Policy for Grant Financing
• Scope, principles and objectives
• Financial review of grant proposals
• Quality enhancement, quality assurance, approval and
effectiveness
• Risk-based disbursement
• Financial reporting and audit requirements
• Financial management supervision
• Amendments to grant agreements
• Project completion and closure

128
K.1 IFAD Policy for Grant Financing
1. In April 2015, the Executive Board approved 5. ‘Small grants’ can be up to US$500,000 or
the new Policy for Grant Financing. In addition equivalent, whereas ‘large grants’ are those
to the new policy, a set of implementing above US$500,000 and up to US$3.5 million
procedures were developed to provide or equivalent.
IFAD managers and staff with a consistent,
6. The maximum implementation period is three
harmonized and transparent process applicable
years for small grants and five for large ones.
to all IFAD grants covered by
the policy. 7. The President of IFAD has authority to approve
small grants; large grants are subject to Executive
2. It is applicable to grants funded directly by IFAD
Board approval under the LOT procedure,
from its resources. It does not cover investment
through which grants are considered approved if
projects funded by ASAP or DSF grants.1
no request for consideration at the next session
3. The policy focuses on two specific types of of the Board is received within 30 days of the
grants: (a) global and regional grants, for which date of e-mail notification to Executive Board
the allocation of resources is managed outside representatives. In the event such a request is
the country-focused PBAS; and (b) country- received, the Quality Assurance Group (QAG)
specific grants, for which the allocation of will inform the sponsor, and the proposal will
resources is managed within the PBAS allocation be presented at the next Executive Board session
to ‘green’ countries, whereas ‘red’ and ‘yellow’ for approval. All grants to private-sector entities,
countries – within their PBAS allocation and regardless of size, must be approved during an
consistent with their COSOP – will continue to Executive Board session.
benefit from grants under the DSF mechanism.
4. When country-specific grants are designed as
stand-alone operations, their processing from
concept note to approval follows the Policy
for Grant Financing and its Implementation
Procedures. For country-specific grants that
finance a component of a loan-funded
investment project, grant concepts and quality
reviews are part of the overall investment project
review, processed along the lines of the regular
loan project cycle.

1 See module B, section B.5.

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 K.2 Scope, principles and objectives
8. In addition to its coverage of the policy, this
module is applicable to grants provided
through supplementary funds and contribution
agreements.
9. Grants are expected to satisfy three main
principles:
(a) Contribute significantly to a global,
regional or national public good related
to IFAD’s mandate;
(b) Focus on interventions where grant
financing has clear added value and a
comparative advantage over loans; and
(c) Not be used as a substitute for resources
from IFAD’s administrative budget.
10. The objectives of IFAD grant financing are to:
(a) Promote innovative, pro-poor approaches
and technologies with the potential to be
scaled up for greater impact;
(b) Strengthen partners’ institutional and
policy capacities;
(c) Enhance advocacy and policy
engagement; and
K.3 Financial review of grant proposals
12. Grant recipients include:
(a) Developing Member States;
(b) Intergovernmental organizations in which
IFAD Member States participate (e.g.
United Nations agencies, the Consultative
Group on International Agricultural
Research [CGIAR] and its member centres,
and IFIs);
(c) Civil society organizations (CSOs) (e.g.
community-based rural producers’ and
other organizations representing poor rural
people, and NGOs);
(d) IFAD-housed entities (e.g. the International
Land Coalition);
2 Guidance on sub-recipients is provided in exhibit K-2.
3 In the case of a first-time, large-grant recipient considered high risk, a field visit is recommended.
130
(d) Generate and share knowledge for
development impact.
11. The objective of this module is to ensure that
the fiduciary obligations of IFAD for all grant-
financed operations are met, in accordance
with the FMD Financial Management Strategy,
through:
(a) FM capacity assessment of recipients (and
sub-recipients2) through desk review of
relevant documents;3
(b) Development of FM and disbursement
arrangements: defining appropriate
fiduciary, FM and disbursement
arrangements in grant design documents
submitted for approval, which are
subsequently reflected in grant agreements
(applicable to large grants); and
(c) Accurate recording and maintaining of
data in the loans and grants administration
system (FXC) for all grant operations.
(e) Academic institutions; and
(f) Private-sector entities: for specific, agreed
grant-financed activities aimed at enabling
poor rural women and men to achieve
higher incomes and improved food
security.
13. FMD financial review of grant proposals ensures
that:
(a) Compliance with the policy with respect
to the eligibility of the proposed grant
recipients (and sub-recipients if any),
when applicable (e.g. unless through
a competitive selection process), is
reconfirmed with the grant sponsors, in
consultation with LEG;
 (b) The proposed recipient (and sub-recipient,
if any) has the required FM capacity to
efficiently manage, account for and report
funds usage;
(c) Complete financial due diligence is
undertaken on the proposed recipient;
see paragraph 14 for further guidance on
financial due diligence;
(d) Expenditures eligible for financing are
clearly and consistently defined in design
documents, President’s reports, grant
agreements and related legal documents;
(e) Expenditures to be financed (as defined
in cost tables) are reasonable and reflect
value-for-money principles (e.g. the level of
indirect costs should not exceed 8 per cent)
(further guidance is available in exhibit K-3
Guidance on Eligible Expenditure Categories
and Budget Justifications); and
(f) Responsibility for execution of the grant
operation is clearly defined as resting
with the recipient, and is at ‘arms-length’
from IFAD. This implies that IFAD
staff (including IFAD-appointed FMSs)
should normally not participate in the
management and execution of grant funds
executed by the recipient, as this could
represent a conflict of interest.4
14. In order to undertake FM due diligence on a
grant-financed project, it is essential to have a
good understanding of the following:
(a) Project objectives, components,
subcomponents and activities;
(b) Recipient (and sub-recipient) capacities as
implementing agencies;
(c) Amount and type of expenditure under
each component;
(d) Physical or other measurable indicators
of project progress that relate to the cost
of each component and subcomponent
(e.g. training of 100 farmers, construction
of 200 green houses, buying better tools/
equipment for beneficiaries, developing a
manual for farmers); and
(e) Sources and type of funding and cost-
sharing arrangements: IFAD financing vs.
cofinancing, cash vs. in kind, etc.
15. To conduct a review as described in paragraph
14, the requesting institution and sponsor are
also required to submit:
(a) A detailed budget breakdown by category
of expenditure (compliant with IFAD
standard categories) and by component
(including subcomponents/activities);
(b) A procurement plan5 and procedures;
(c) Procedures for awarding grants to sub-
recipients (if applicable);
(d) Relevant declarations from the recipient;6
(e) The recipient’s AFSs for the previous
two years for FMD review. As a general
principle, for recipients of both large and
small grants, IFAD requests submission
of AFSs to assess financial capacity and
soundness. In the case of United Nations
agencies, MDBs and CGIAR centres, this
requirement is waived;
(f) An FMAQ7. In any case, it is the
responsibility of FMD to confirm the
financial suitability of proposed recipients.
In the case of a repeated recipient, FMD
will ensure that there is no outstanding FM
or fiduciary issue to be resolved in relation
to previous grants (otherwise, specific
covenants could be included in the Grant
Agreement, e.g. conditions precedent to
withdrawal);

4 Please refer to articles 6.2 and 6.18 of schedule 6, General Provisions Applicable to IFAD Large Grant Agreements, in the
document Large Grant Agreements.
5 Where procurement of more than US$200,000 is envisaged under the project (including cofinancing).
6 Recipients must declare that they have read and are in agreement with the grant design document and budget and with the
relevant IFAD grant agreement template.
7 During the design phase, an FMAQ is required when a recipient has not received funds from IFAD in the past, or for a
considerable amount of time (18 months or more), or when the grant amount is significantly larger than the recipient normally
manages and the recipient’s financial integrity must be reconfirmed (see table following paragraph 58 for types of recipients that
must submit an FMAQ). The questionnaire is reviewed and approved as appropriate by the FO (FMD). The FMAQ (summary and
data sheet) is available as exhibit K-5.

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 (g) In addition, the grant sponsor should
submit legal documentation and the
eligibility and due diligence checklist,
to be reviewed and approved by counsel
(LEG). FMD should also confirm that the
recipient has not been blacklisted by the
World Bank, IFAD or other United Nations
agencies.
16. In the case of grants to private entities, the grant
sponsor must attach two additional forms to the
design document: the eligibility criteria and the
due diligence sheet (for private-sector entities
and privately managed, multi-donor trust
funds). Grants will not be provided for equity
or capitalization of such entities, or to finance
long-term operating costs or activities. Any grant
funding to private entities requires a counterpart
contribution from the entity’s resources of at
least 20 per cent of the grant amount.
17. When the source of funds being granted is
supplementary funds, FMD verifies that:
(a) The end use of funds is consistent with
the mandate of the donor, in accordance
with the contribution agreement
stipulated between the donor and IFAD.
Where possible, it is recommended
that the agreement between IFAD and
the donor be negotiated in parallel
with the agreement between IFAD and
the implementing partner to avoid the
possibility of inconsistencies between the
two agreements; this applies in particular
to European Commission (EC) funding
agreements.
(b) Ensure that any supplementary-fund FA
with the recipient clearly states that the
disbursement of funds from IFAD is subject
to execution of the contribution agreement
and actual receipt of donor funds (the
donor receipt is to be interfaced to FXC by
ACD through PeopleSoft JV).
(c) Any specific accountability and reporting
requirements of donor partners are
harmonized to the extent possible with
IFAD requirements and appropriately
reflected in the grant design document and
legal agreement.
(d) Specific documentation requested by
donors for disbursement of tranches to
IFAD is included.
8 See exhibit K-3 Guidance on Eligible Expenditure Categories and Budget Justifications.
132
18. When cofinancing is being provided to the same
operation by other financiers, the following
additional factors should be considered during
due diligence: disclosure of whether the
contribution is in cash or in kind; categories of
expenditure involved under the contribution;
and assurance that design documents and
legal documents reflect that the contribution
is reported in all financial reports to IFAD, and
that the contribution is subject to external audit.
In particular, the recognition and measurement
of contributions in kind should be disclosed in
the notes to the financial statements.
19. The design document, the grant agreement and
the President’s Report (the latter in the case of
large grants) should clearly state the amounts
being provided by other financiers, beneficiaries
or the recipient, and how expenditures would be
shared or attributed. The recipient should have
arrangements in place to account for all sources
and uses of funds.
20. These reviews/clearances by FMD and LEG
provide confirmation of key issues:
(a) Suitability of the recipient’s legal status and
capacity;
(b) Registration of the recipient in an IFAD
Member State;
(c) Evidence of the authority of the person
who will sign the agreement for the
recipient;
(d) Appropriateness of the proposal for legal
purposes;
(e) Suitability of the implementing agency’s
FM and fiduciary aspects, including its
absorptive capacity;
(f) Quality of the AFSs, audit reports, etc.; and
(g) Suitability of the grant budget, including
eligibility of the expenditure categories.8
If the requesting institution has received
grants from IFAD in the past, its financial
performance in managing the grant
resources also needs to be reviewed by
FMD. Please see section K.5 for further
guidance on the review required according
to the risk level of the grant. Any material
changes to the grant design made
subsequent to the review must be flagged to
LEG and FMD for clearance.
K.4 Quality enhancement, quality
assurance, approval and effectiveness
21. The QE and QA processes are applicable to
all IFAD-funded grants with the exception
of contributions to strategic partners and
microgrants. Grants awarded through
supplementary funds are subject to other
procedures.
22. For small grants, prior to the QE meeting, the
FO reviews the design package (small-grant
design document [SGDD] and additional
documentation requested at the concept note
stage) and provides comments to the originator
on required FM and disbursement arrangements,
in accordance with the FMA.9 After the QE
meeting, the FO reviews the revised document
package to confirm that fiduciary aspects
suggested earlier are reflected. The Checklist
of fiduciary due diligence for IFAD grants
(exhibit K-1) is then prepared by the FO, and,
along with a copy of the grant design report
(or concept note) and draft grant agreement,
forms the package of documents that require
FMD clearance.
23. Please note that if more than two small grants
are furnished to the same recipient in the same
fiscal year, and the aggregate value exceeds
$500,000, FMD procedures applicable to large
grants would apply.
24. Attendance of the FO at the QA meeting is
recommended, but not mandatory. In any case,
the FO must subsequently review the final post-
QA document package and confirm that no
material changes have been made that impact
fiduciary assessments and arrangements. If any
significant changes are noted, the Director, FMD,
and the grant originator must immediately
be alerted.
25. A summary of the FM and disbursement
arrangements is inserted into a President’s report
(under ‘Implementation arrangements’) before it
is uploaded into Scriptoria. Once the draft grant
agreement is prepared by LEG, the FO
will ensure that FM and disbursement
arrangements, as well as financial reporting
and auditing requirements, are inserted in the
grant agreement.
9 Elements of FM and disbursement arrangements suggested for inclusion are derived from the grants checklist and should
normally include financial reporting, auditing and disbursement requirements.
26. For large grants, the FO reviews submitted
documents prior to the QE meeting and requests
additional information from the grant originator
if required. The FO completes the checklist of
fiduciary due diligence. The checklist should
include the main review findings and proposed
specific FM and disbursement arrangements. The
main FM and disbursement recommendations
are submitted to the originator for inclusion in
the grant design report, and a summary included
in the President’s report. The FO, or the alternate
if the FO is away, should attend the QE meeting.
QE may also be conducted informally via e-mail.
27. Prior to the QA meeting, the FO must review
the QA documentation package to confirm that
FMD material submitted to the originator has
been adequately included in the QE reviewers’
compliance note. If any issues require internal
discussion within FMD, the FMD grants team
completes this before the QA meeting. Based
on this review, the Director, FMD, will provide
FMD clearance of the present proposal to the
QA meeting. If a difference of opinion between
FMD and the originator remains unresolved
before the QA meeting, the FMD representative
should raise this issue at the meeting and FMD
clearance will be deferred in case it is not solved
during this meeting.
28. An FMD representative must attend the QA
meeting. This should normally be the grants
cluster team leader. If the team leader is
unavailable, the FO in charge must attend.
29. At the QA meeting, the FMD representative
should present FMD’s position on fiduciary
aspects, as needed. If any change is proposed in
the nature of expenditure to be financed or the
implementation arrangements, a review of the
fiduciary implications should be undertaken
to consider any material effects. Prior FMD
clearance would be retracted until the review
is completed, and the FO or grants cluster
team leader should inform the originator
immediately.
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 30. LEG clearance is obtained before QA. After QA
approval has been obtained, the FO must follow
up with LEG to confirm that all fiduciary actions
and covenants are correctly reflected in the grant
agreement.
31. A summary of the FM and disbursement
arrangements must be inserted into the
President’s report (under ‘Implementation
arrangements’) before it is uploaded into
Scriptoria.
(b) Model large grant agreement for non-
governmental recipients (NGOs, CSOs,
international or intergovernmental
organizations);
(c) Small grant agreement for Member States;
(d) Model small grant agreement (for non-
governmental recipients); and
(e) Model contribution agreement for IFAD-
financed contributions and microgrants.

32. GRIPS. As soon as a grant is approved, FMD,
LEG and the grant originator(s) will be informed
by the Grants secretariat. ACD is responsible
for recording the new grant approval in IFAD’s
financial books.10 The grant number assigned to
the new grant is now generated in GRIPS, thus
it is the responsibility of the grant sponsor (and
not of FMD or ACD) to provide this number and
to ensure that all steps are taken to guarantee
that the grant number is entered into FXC for
ACD set-up of the grant account in FXC. FMD
staff should upload the following documents
to the FMDB on grant approval: checklist of
fiduciary due diligence for IFAD grants (exhibit
K-1), concept note and/or design document,
FMAQ, grant agreement and amendments, and
President’s report (for large grants and for small
grants to for-profit recipients).
33. Grant agreement. A grant agreement is required
for all grant-financed projects. Templates for
grant agreements and associated schedules
have been developed to streamline the project
start-up process. There are five standard format
agreements:
(a) Standard FA (for large grants to
Member States);
34. These can be used in all cases except for grants:
(a) To the Food and Agriculture Organization
of the United Nations (FAO), which
has a template modelled on its specific
requirements;11 or
(b) Financed from contribution agreements
with supplementary fund donors, for which
the grant agreements are modified to reflect
the terms specified in the contribution
agreement.
35. Preparation of grant agreements. Grant
agreements for small grants are prepared by the
grant sponsor; for all other grant agreements,
the sponsor provides LEG with the project
description (schedule 1). All agreements for
large grants and small grants to United Nations
agencies that do not use the standard agreement
format, are prepared by LEG in collaboration
with FMD. The reviews on grant agreements are
coordinated between LEG and FMD.
36. Grant effectiveness. The grant effectiveness
date is defined in all standard agreements as
the date on which the grant agreement is signed
by IFAD – either by the divisional director or
by the President of IFAD. On signature of the
agreement by the sponsoring divisional director,
the originating division will immediately inform
FMD and LEG of the signing and effectiveness
of the grant. In cases where the President of
IFAD signs the grant agreement, FMD, LEG and

un-
dit-

t (if
rds 10 The timely recording – in IFAD financial records and statutory accounts – of newly approved financial commitments (grants) and
their effectiveness is of critical importance. Normally in November, and in any case sufficiently in advance of the year-end closing
period, FMD establishes and publishes in-house the time frame and deadlines for approval and registration of all IFAD financial
onal
commitments related to the relevant fiscal year, including those related to grants.
on-
11 Other United Nations agencies may refuse to use the standard agreement format; in these cases, LEG will determine the
format to be used. There could also be other cases (mainly the World Bank or other IFIs) in which IFAD will be obliged to use the
recipient’s agreement format. This must be approved by LEG in all cases.

rd. 134
ter-
 the originating divisions will be informed of 38. Procurement. Procurement under grant-
the signature and effectiveness. In both cases, a financed projects follows procurement practices
scanned copy of the agreement is to be circulated of the grant recipient, except in the case of
by e-mail as soon as the agreement is signed, supplementary fund donors, where procurement
and in any case no later than five working methods will reflect the terms agreed on in
days from the signature date. If the recipient the contribution agreement with the donor.
fails to provide the documentation needed for Where procurement of more than US$200,000
disbursement of the grant within three months is planned under the project (including both
of the effective date, IFAD may terminate the the IFAD grant and cofinancing), the grant
agreement. Similarly, grant agreements that have recipient is required to submit to IFAD, as
not disbursed within 12 months of approval part of the grant design requirements: (a) its
may also be terminated. own procurement procedures or a statement
that it will follow IFAD’s Project Procurement
37. Workplan and budget. Except for grant
Guidelines; and (b) a procurement plan for the
financing from supplementary funds, the
project or activity.
eligible expenditures for activities foreseen by
the project and related grant disbursements to
finance such expenditures in advance must be in
accordance with a project workplan and budget.
Where the project implementation period is 18
months or less, a single workplan and budget
can be used to cover all activities and associated
expenditures. Where the implementation period
is longer than 18 months, AWP/Bs are required.
AWP/Bs submitted by the recipient to IFAD are a
‘condition prior to disbursement’.

K.5 Risk-based disbursement

39. FMA. The fiduciary risk-rating assessment of
each recipient and project will be carried out
initially during the project design phase.12 The
FO will annually review the risk rating for large
grants with an implementation period of more
than 18 months during implementation and
supervision.13 For other grants, the risk-rating
review may be desk-based and is left to the
discretion of the FO. Assessment is carried out
by FOs in collaboration with relevant grant
sponsors. The project’s fiduciary risk rating will
be categorized as low, medium or high. Results
of risk assessment will be documented, along
with the agreed risk mitigation measures, which
will be integrated into grant agreements.
40. During implementation, the risk rating of each
grant-funded project will be reassessed, based
primarily on findings made during review of
the audit report, supervision missions and
disbursement experience.
41. Risk-based disbursements. As part of project
design, FOs will recommend disbursement
arrangements aligned with the documented
fiduciary risk assessments to be agreed with the
recipient.
42. At the time of WA processing, the project’s
fiduciary risk, together with WA characteristics,14
will be considered in establishing the minimum
level of checks to be performed on the WA
during disbursement.

12 The ‘design phase’ refers to the process starting with the submission of concept notes to OSC, until the completion of the QA
process.
13 This may be done at the time of the annual grants status report (GSR) process.
14 ‘WA characteristics’ comprise WA amount, disbursement method and timing, and nature of the recipient.

Module K
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 43. The underlying principle is that, even in cases
of accelerated disbursements for WAs linked
to projects assessed as low risk, an appropriate
level of controls must be applied in order to
effectively mitigate the risks.15
44. The project’s FM risk rating and WA
characteristics will determine:
(a) Checks to be performed – timing, scope
and frequency;
(b) Consultations and remedies required; and
(c) Authorization levels required to review and
approve disbursements.
45. Monitoring and reporting. Risk ratings will be
recorded in the FMDB.
46. Structure of risk assessment. FM risks will be
classified into two groups:
(a) Inherent risks: risks inherent to the financial
control environment in which the grant
operation will be implemented, including
country or organizational environment, as
well as risks inherent to the design of the
project itself (see also paragraph 55);
(b) Control risks: risks that the control
mechanisms established to mitigate FM
risks fail during implementation and thus
do not provide the assurance needed.
47. Risk factors for each grant will be identified
through the standard FMAQ template (exhibit
K-5 FMAQ (summary sheet and data sheet)) and
the resulting conclusions documented. Desk
reviews will be conducted based on information
obtained from recipients, using FMAQ templates
designed to capture essential information. The
initial assessment should normally be completed
before the QE meeting. The exercise will result
in an assigned risk rating on a 3-point scale:
high, medium and low. Some recipients are
exempt from FMA; the assessment methodology
is described in paragraphs 14 and 16 of this
module.
48. For recipients identified as strategic partners and
repeat recipients (e.g. CGIAR centres), the FMAQ
exercise should be conducted at least once every
three years. Background information obtained
for a documented assessment will be stored to
allow easy access in subsequent years.
15 ‘Disbursement risk’ is the risk that disbursements are made to an unauthorized recipient and/or not made for
the purposes intended.
136
49. The default risk rating for United Nations
agencies, MDBs and IFIs is low.
50. The default risk rating for small grants (less than
US$500,000) is low, except for private-sector
recipients. If a higher risk rating is warranted,
FMD staff will document the justification.
51. The default risk rating for IFAD-funded grants
through contribution agreements is low.
52. The default risk rating for grants funded through
contribution agreements that IFAD has entered
into with supplementary fund donors (e.g. EC)
is high.
53. Defaults by a recipient on any fiduciary covenant
for a specific grant operation automatically
imply an elevation of the risk rating for the next
grant operation for that recipient.
54. Setting up the project record. FMD staff create a
new project record in the FMDB by entering the
primary recipient and project details. This will
be done at the time the concept note is approved
by the OSC meeting if the recipient has already
been identified. If the concept note involves a
competitive call for proposals, the record will be
created during the QE process.
55. Determining the inherent institutional risk (at
the recipient level). The inherent risk provides
an indication of the fiduciary environment into
which IFAD funds will flow. Factors to consider
include the country/regulatory environment,
institutional governance arrangements and
others. Inherent risks may also arise from specific
design features of the operation, such as complex
implementation arrangements. Additional
guidance is available in exhibit K-4 Assessment of
FM Risk Associated with Recipients and Projects.
56. Assessing control risk. Project-level FMA should
be conducted and recorded for each project
during the design phase. Assessment establishes
whether appropriate accounting, FM control
and reporting systems will be, or can be, in place
when funding begins.
57. Risk assessment templates have been designed
to capture essential information. The level of
intervention by IFAD staff will depend on the
nature of the recipient, past IFAD fiduciary
experience with that recipient and the size
of the grant.
 Recipient group Assessment method Assessment frequency
Small grant Large grant
United Nations agencies, No FMAQ assessment No FMAQ assessment N/A
multilateral entities

CGIAR centres No FMAQ assessment Self-assessment by Initial FMAQ during design

recipient (FMAQ)a phase; reassessment
once every three years
NGOs No FMAQ assessment Validatedb self- Initial FMAQ during design
assessment (FMAQ) phase; large grants with
implementation periods
longer than 18 months:
reassessment to be
conducted annually by
FO during implementation
and supervision
Private sector Self-assessment by Validatedb self- Initial FMAQ during design
recipient (FMAQ) assessment by recipient phase; large grants with
(FMAQ) implementation periods
longer than 18 months:
reassessment to be
conducted annually by
FO during implementation
and supervision
a
However, underlying reporting/audit timeliness should be documented.
b
Validation process shall seek confirmation on some key assertions, through personal visits when possible, or by obtaining
relevant documents.

58. The recipient’s capacity will be assessed with (b) Medium-risk projects will be reassessed
respect to organization/staffing, budgeting, annually through desk review only.
flow of funds, accounting, financial reporting,
(c) Low-risk projects will be reassessed in the
internal controls, and internal and external
case of non-compliance with the covenants
audit.
specified in the grant agreement.
59. Risk updates are normally done on the basis
61. Design of disbursement arrangements.
of financial reports received, annual project
Arrangements should be agreed with the
audit-report review findings and the quality
recipient and recorded in the design report or
of documentation submitted to support
grant agreements.
disbursements. Where a supervision mission is
scheduled, FMD staff may consider participating. 62. The FO is responsible for monitoring
disbursement arrangements and thus should
60. For large grants, if the implementation period is
monitor projects on a continuing basis to
more than 18 months, project risk ratings will be
establish whether it remains appropriate to
reviewed as follows:
disburse funds to a project under existing
(a) High-risk projects will be reassessed arrangements.
annually through a desk review and a
63. Disbursement methods and documentation16
supervision mission undertaken by the FO
will follow the same principles applied to
at least once every three years.
investment loans, with some adjustments for
the risk rating:

16 Please refer to specific reporting requirements for EU/EC–financed projects as outlined in the
European Union-Funded Programme: Financial Management Guide.

Module K
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 Risk rating Large grant
Imprest
Initial advance 6 months’ projected
High expenditure
Replenishment based on SOEs
Revolving fund
Initial advance – up to 50% of AWP/B if
implementation period is more than 18
months; up to 75% of approved grant amount
if implementation period is less than 18
Medium months
Replenishment if at least 75% of previous
advance and 100% of preceding advances
justified
Revolving fund
Up to 75% of AWP/B
Replenishment if at least 75% of previous
Low advance and 100% of preceding advances
justified
a
A higher-percentage advance may be considered as an exception in the case of United Nations agencies, MDBs or IFIs as
recipients, subject to prior approval by the Director, FMD.
64. Ex ante checks. Checks performed on WAs
will be placed within a broader framework of
assurance tools (guidance is available in exhibit
K-6 Ex Ante reviews for WAs), including:
(a) Ex ante checks on entitlement, accuracy
and substance of disbursement transactions
before disbursement. To support this,
the nature and quality of supporting
documents will be calibrated to the risk
ratings:
(i) High risk: disbursement will be
on an imprest basis, with six-
monthly advances/replenishments.
Documentation will consist of certified
Smart SOEs. Supporting accounting
documents will be requested on a
sample of transactions and validated
before disbursements are authorized;
138
Small grant
(Private-sector recipients only)
Imprest
Initial advance 6 months’ projected
expenditure
Replenishment based on Smart SOEs
(Private-sector recipients only)
Revolving fund
Initial advance – up to 50% of AWP/B if
implementation period is more than 18
months; up to 75% of approved grant amount
if implementation period is less than 18
months
Replenishment if at least 75% of previous
advance and 100% of preceding advances
justified
Revolving fund
Up to 75%a of AWP/B (or approved grant
amount if implementation period is less than
18 months)
Replenishment if at least 75% of previous
advance and 100% of preceding advances
justified
(ii) Medium risk: disbursement will be on
a revolving fund basis. Documentation
will be certified SOEs;
(iii) Low risk: disbursement will be on a
revolving fund basis. Documentation
will be certified SOEs.
(b) External audits of financial statements for
specific operations; and
(c) Externally audited institutional financial
statements of the recipient.
65. A segregated bank account is normally not
required unless the accounting capacity has been
assessed as weak.
66. Authorization of payments is according to the
current delegation of authority.
67. Ex post checks. Guidance on ex post review is
provided in exhibit K-7 Ex Post Reviews for WAs.
K.6 Financial reporting and audit
requirements
68. The recipient must submit semi-annual Financial
Reports including expenditure transaction lists17
and SOEs to IFAD.18 SOEs should follow the
template provided in the agreement and must
be signed by one authorized delegated recipient
in accordance with the authorizations submitted
by the recipient. Each SOE shall also include
expenditure from cofinancing, if any, and specify
whether the expenditure was in cash or in kind.
69. Transaction lists should be requested for all
large grants, EC-financed grants (regardless
of the grant size) and high-risk small grants.
These should be included in the audit exercise
to ensure eligibility of expenditure. IFIs, MDBs
and UN Organisations at times omit to submit
transaction lists; for this category of recipient
the omission is not treated as non-compliance,
though in practice submission of transaction
lists from all recipients should be strongly
encouraged. UN Organisations that are parties
to Co-delegation agreements with the EU and
IFAD have an obligation to provide IFAD, as the
Administrative Agency, with data, information
and reports for IFAD’s consolidation and
transmission to the EU. As Co-delegatees, the
UN Organisations are therefore obliged to
submit the transactions lists when required.
70. For grants implemented over a period exceeding
18 months, the recipient must provide AFSs.
If institutional AFSs are submitted rather than
project-specific AFSs, they should explicitly
disclose the use of funds provided by IFAD in
terms of revenues/receipts and expenditures/
payments. If this analysis is included in an
annex or exhibit of the AFSs, then the relevant
note should be included in the external auditor’s
opinion scope. AFSs should be submitted within
six months of the end of the recipient’s fiscal
year. Additionally, AFSs must be accompanied
by a management letter, which should be
received, at the latest, one month from
submission of the AFS.
71. For grants implemented for a period shorter
than 18 months, one AFS can be submitted for
the entire project implementation period. The
AFS should be submitted within six months of
the end of the project implementation period.
72. The cost of the audit exercise(s) can be included
in the operating costs paid from grant proceeds.
As a result, the project should have budgeted
enough funds to cover all project audits.
73. When audit reports are received and the required
documentation is complete, they will be
uploaded into ARTS for review.

AFS and
Grants Expenditure transactions lista
management letter
Large, EC-funded (all) and high-risk
√ √
small grantsb
Small low- and medium-risk √ X
a
IFAD should request and encourage submission of expenditure transaction lists from United Nations agencies, IFIs and
MDBs. Non-submission however will not necessarily be treated as non-compliance, unless in the case of UN agencies that
are party to an EU Co-Delegation Agreement.
b
See table following paragraph 58 for types of recipients that must submit an FMAQ.

17 Small grants rated medium or low risk are not required to submit a transaction list.
18 Financial Reports must be submitted within four months of the last day of the preceding six-month period.

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 K.7 Financial management supervision
74. Financial Management supervision of small
grants is carried out based on desk review of
documents. Missions should be planned for
large and higher-risk projects in consultation
with the Director, FMD.
75. Supervision of activities being implemented by
the recipient is the responsibility of the grant
sponsor. Overall financial supervision is the
responsibility of FMD.
76. The following tasks must be undertaken:
(a) Review of IFRs, if these have been required,
to determine financial progress;
(b) Review of AFSs of the recipient, with
appropriate disclosure of the funds received
from IFAD and spent. Follow up of audit
qualifications, if any;
(c) Compliance with any specific FM covenants
in the grant agreement;
(d) Balances outstanding in the DA (if
applicable) or advance(s) given. If the final
K.8 Amendments to grant agreements
79. Changes in the project completion date and
grant closing date, and/or project budget
(schedule 2):
(a) The recipient submits a request in advance
of the project completion date to the grant
sponsor providing sufficient justification
for the request.
(b) The grant sponsor prepares a draft
amendment letter and a memo supporting
the request to the responsible divisional
director.
(c) The draft amendment letter and memo are
cleared by FMD.
(d) The cleared amendment letter (two copies)
and memo are submitted to the divisional
director for signature.
140
advance was disbursed less than six months
before completion, justification should
begin three months before completion.
Otherwise, justification should begin six
months before completion;
(e) Physical site visits as part of supervision.
These are discretionary and may be
programmed only if warranted by serious
fiduciary concerns or if requested by the
sponsor; and
(f) Diligent review of SOEs, with reference
to supporting accounting evidence for a
sample of transactions. FMD staff may
request that the recipient make available
all documentation related to a specific cost
item or expenditure.
77. For United Nations agencies, only a review of
SOEs is undertaken.
78. For supplementary funds, the extent of
supervision should be as stated in the
contribution agreement with the donor.
(e) The sponsor distributes copies of the
countersigned letter to the sponsor and
FMD. FMD must notify ACD to update the
grant master data in FXC.
80. Grant extensions are limited to a maximum of
two years – for a one-year period each, in the
case of large grants, and to a one-time, one-year
period for small grants. The department head’s
approval is required to waive this provision.
Under no circumstances may the project
completion date be extended if it has already
expired. The project budget may not be increased
above the original total amount.
81. A request for a budget reallocation should not be 83. In the event that suspension or termination of
accepted in the following cases: a grant is required, the following procedures
should be followed. Suspension or termination
(a) The recipient has a category of expenditure
of the grant can be initiated by the grant sponsor
beyond the 10 per cent overdraft applicable
or by FMD. If initiated by the grant sponsor,
under the grant agreement. Exceptions
s/he requests LEG to prepare the draft letter
will be made if sufficient justification is
and cover memo, which is cleared by FMD and
provided for a reallocation of budget in
then sent to the responsible divisional director
core grant activities.
for signature and transmittal to the recipient.
(b) The rate of expenditure for personnel and If initiated by FMD, the same procedures apply
operating costs is far higher than the rate of with the sponsor’s clearance required, and the
expenditure for core grant activities. letter and memo are then sent to the divisional
director for signature and transmittal to
82. Changes to schedule 1 (project description) or
the recipient.
amendment to/addition of special provisions,
as well as changes to any implementation
agreement mentioned in schedule 1, paragraph
1.8: these are addressed in the same way, with
additional clearance by LEG after clearance by
FMD. Changes that significantly alter the scope
or characteristics of the project as originally
approved (as determined by LEG) should be
cleared by the QAG as well.

K.9 Project completion and closure

84. A large part of the FM of grants includes FMD
monitoring of timely closure of the grants
portfolio. This includes follow-up with the
grant sponsoring division to ensure that the
grant recipient provides final SOEs and refunds
of advances where this is the case, as well as
submission of the final AFS.
85. President’s Bulletin PB2011/4, Procedures for
financing from the grants programme, states,
“To ensure timely closure, CFS [now FMD] will
monitor the status of grants in the portfolio and
periodically highlight those that have reached
completion, but have not yet been closed, and
the reasons. It is then the responsibility of the
grant sponsor to follow up on outstanding
conditions with the recipient and expedite
compliance to allow for closure” (p. 17,
paragraph 79).
86. Information Circular IC/CFS/03/2011 (exhibit
K-8) gives procedures for the closure of expired
grants.19 FMD issues quarterly reports to:
(a) Identify grants that are near their closing
date; and
(b) Identify grants that have passed their
closing date and list the required
documentation to be submitted by
the recipient as stipulated in the grant
agreement.
87. The reports seek to encourage originating
divisions/grant sponsors to contact the recipient
to follow up on financial closure. They must
state what is required by FMD/ACD to process
closure.
88. Grant closure will follow these procedures:
(a) Four months after the grant closing date,
the grant sponsor sends a communication
to the recipient to request submission of
the missing documentation within 30 days.
The communication should clearly outline
the consequences of non-compliance. If
the grant recipient fails to respond, the
originating division will inform FMD.

19 An expired grant is a grant that is past its closing date, but has not yet been closed in IFAD accounts
and records.

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 Until a response or proper justification for
delaying submission of documentation is
received, the FO should add the recipient
to the internal ineligibility list for financing
and ensure that no new grants to the
recipients are cleared by FMD until such
justification is provided.
(b) FMD will review the documentation
and, unless there is a valid reason to do
otherwise, will carry out the required
procedures to close the grant. As and when
89. For all grants for which a successive phase
deemed appropriate by the Director, FMD,
the Office of Audit and Oversight (AUO)
may be consulted for matters related to the
anticorruption policy or the potential need
for an investigation. FMD will inform the
grant recipient of the financial and legal
consequences of the grant closure.
(e) FMD will flag the non-compliant recipient
and record it in an internal ‘ineligibility
list’. This list will provide a description
of problems encountered and will be
maintained by FMD and made available on
FMD’s xDesk site.
(f) Non-compliant recipient(s) can regain
eligibility if they are able to provide
adequate proof that past problems have
been resolved.
is intended, a grant evaluation is carried out
by IFAD (the grant sponsor, not IOE) or a
third party. Such evaluations should include
assessment of:
(a) Evidence of achievements of previous phase
objectives;

(c) Before closure, FMD must receive the final (b) Rationale for and value of continued
documentation as required in the grant investment;
agreement, as well as clearance of the grant (c) Clear description of an exit strategy (or
completion report from the grant sponsor. explanation of the lack of one); and
FMD/ACD staff must request the task
manager to follow up with the recipient (d) Compliance with all fiduciary obligations
regarding the refund of any advance as stated in the grant agreement.
balance outstanding.
(d) If the non-responding grant recipient
is a United Nations agency, the World
Bank or other similar international
public institution (including CGIAR
centres), before declaring ineligibility,
FMD will contact the finance sections
of the respective organizations to seek a
resolution of all outstanding matters.

142
SUPPLEMENTARY FUNDS, THEMATIC TRUST
FUNDS AND FUNDS FROM OTHER IFIS
MODULE L
 Module L
Supplementary Funds, Thematic Trust Funds and Funds from other IFIs
• Introduction
• Implementation procedures
• Project design phase
• Financing agreements

144
L.1 Introduction
1. Apart from its regular resources, IFAD
also manages a variety of funds including
supplementary funds, thematic trust funds,
and funds from other IFIs. These resources are
provided under supplementary fund donor
agreements or other framework arrangements.
Most agreements signed with these donors
normally define the terms and conditions
under which the resources provided to IFAD
will be managed and administered by the Fund
on conditions mutually agreed between IFAD
and the donor(s). In 1987, the President was
delegated authority by the Board to receive and
administer supplementary funds to support
IFAD projects and operations.1
2. As these are not IFAD regular resources,
donors may impose certain restrictions on
how these funds are used and reported on
by IFAD as an administrator on behalf of
the donors. President’s Bulletin PB/2013/12
PB/2013/12 Principles and procedures for
mobilizing and managing supplementary funds
(exhibit L-4) defined modalities and procedures
for all supplementary funds (see exhibit L-3
PB/2014/08 Procedures for supplementary funds
and GEF-administered grants).
3. In the past, IFAD has entered into various types
of supplementary fund, thematic trust fund and
other grant-based arrangements, such as:
(a) Agreements under which the donor
suggests general thematic and geographical
priorities, providing IFAD with the
flexibility to allocate grant funds to
beneficiaries;
(b) Agreements for providing financing support
to project-specific activities;
(c) Thematic facilities that finance thematic
programmes, technical assistance activities,
1 Parallel cofinancing of IFAD loan/grant projects by other major development banks is not discussed in
detail in this module.
international workshops, regional
conferences, hiring of consultants and
financing of single-purpose projects; and
(d) Funding of loan repayments for
specific projects.
4. Examples of the financing arrangements
include:
(a) Spanish Trust Fund Facility. In September
2010, the Executive Board approved the STF.
It enabled IFAD to provide and administer
loans to priority beneficiaries (including
managing reimbursement of principal
and interest) as a trustee on behalf of
the donor, using IFAD’s governance and
decision-making systems;
(b) Adaptation for Smallholder Agriculture
Programme (ASAP). A multi-donor
arrangement, ASAP was approved 2012.
Under this programme, pooled funds from
diverse sources are used to provide grants
to beneficiary countries to address climate
issues affecting smallholder agriculture;
(c) Contribution agreements with the
European Commission;
(d) Global Environment Facility (GEF);
Least Developed Countries Fund (LDCF);
Special Climate Change Fund (SCCF);
and Global Agriculture and Food Security
Program (GAFSP).
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 L.2 Implementation Procedures
5. In cases where the funds received are used to (b) Funds provided directly to the B/R by
finance or co finance an investment project or donor agencies, as parallel cofinancing
grant through a specific agreement between with IFAD supplementary funds, should
IFAD and the B/R implementation of projects preferably apply combined financial
is the sole responsibility of the B/R, while reporting and audit arrangements. FMD
IFAD’s role is limited to supervision of project staff should attempt to reach an agreement
implementation and administration of the with donor agencies and document this as
financing. In some cases, however, supervision appropriate.
and/or loan administration are entrusted to a
(c) All supplementary fund disbursements
CI, normally when the CI is a cofinancier of the
are subject to the condition that sufficient
project.
funds have been deposited with IFAD
6. IFAD’s overall fiduciary principles and and that IFAD has been notified of such
considerations, as outlined in module deposit in writing. IFAD shall have no
A, normally apply to all such financing obligation to extend any financing under
arrangements. Donors may however impose a supplementary fund account if no funds
certain restrictions on the use of their funds, are available.
which could entail reporting standards that
7. With respect to European Union requirements
differ from IFAD’s, as well as other fiduciary
for grant financing the dedicated manual
methods of compliance according to the donor’s
‘European Union: Financial Management Guide’
own procedures. For this reason, the following
(EU FMG) has been developed and constitutes
additional procedures, apart from IFAD FM
the reference for all financial administrative
procedures and assessments must be adhered to
aspects of EU cofinancing of projects or stand-
where financing or cofinancing is supplied by
alone programmes.
supplementary funds, thematic trust funds or
The FMD-ACD EU team is to be consulted
funds from other IFIs. FMD staff should consult
during the design of any EU-funded projects
contribution agreements between IFAD and the
and programmes.
donor(s) to understand specific accountability
requirements for each donor and reflect these
suitably in the FA and/or LtB/R. Default
requirements are the following:
(a) Supplementary funds administered by
IFAD designed either as stand-alone
projects or those blended into projects
as cofinancing with IFAD funds should
follow IFAD’s usual procedures with regard
to FM arrangements (e.g. budget format,
financial reporting and auditing), as well as
key contractual dates (e.g. reporting dates,
completion and closure dates), unless
otherwise specified in the FA. Projects with
blended resources must disclose amounts
disbursed and spent from the various
financing sources separately, which should
be submitted to IFAD
as appropriate.

146
L.3 Project design phase
8. Where projects administered by IFAD are
cofinanced or funded by supplementary funds,
thematic trust funds or from funds from other
IFIs, the PDRs and President’s reports should
separately state and identify these. This will
ensure that funding is separately tracked and
recorded within IFAD‘s financial and other
reporting systems. A review of the agreement
with the donor will also be required to ensure
that any donor conditions or restrictions are
reflected in the FA. Separate, specific clearance
is required for the PDR and FA, together with
verification of donor funding availability.
9. Disbursement arrangements with respect to the
pooling of Designated Accounts (DA): where
financed by both IFAD and supplementary
donors, projects are encouraged to use a
pooled, single DA for the multiple financing
sources administered by IFAD (e.g. IFAD loan,
IFAD grant, supplementary donor funds,
ASAP, Belgian Fund for Food Security, GEF).
Advantages of pooling the DA would be:
(a) Only one WA is prepared for advances,
SOE/s and replenishments each time,
rather than multiple separate ones for each
financing source;
(b) Project banking arrangements and the
required bank reconciliations are simpler;
(c) At the time of closure, it is easier to ensure
full utilization and to effect refunds for
total unused funds, rather than from each
financing source.
10. The following guidelines will assist in the
implementation of pooled DAs:
(a) The single currency of the DA must be
applicable for all financing sources in the
pool, and agreed with the B/R and donors.
(b) IFAD’s category allocation for schedule
2 can also be prepared on this pooled
ratio basis (i.e. normally, supplementary
fund donors do not impose restrictions
on the financing of certain categories).
Similarly, B/Rs do not require that certain
categories be funded on a loan or grant
basis, dependent on the project type of
expenditure (e.g. infrastructure, training
or staff costs).
(c) AAs for the DA should be notionally
attributed to each financing source for
project accounting purposes. For example,
if the total financing mix is IFAD loan
(US$9 million) and ASAP (US$1 million),
then an overall AA of, say, US$2 million
should be attributed on a pro rata basis
as US$1.8 million to the IFAD loan and
US$0.2 million to ASAP (i.e. in proportion
to the financing mix). This attribution ratio
will be required for loan administration
and accounting purposes, and to ensure
that, at project closing, the unused advance
balances are correctly allocated to the
different financing sources. This ratio
attribution split of AAs needs to be stated
in the LtB/R.
(d) The control over ‘which-source-pays-
for-what-expenditure’ will move to the
accounting system for expenditure rather
than the bank account. Project accounting
software should be able to attribute and
record each amount it receives into the DA
to the respective financing source and to
enter expenditures accordingly on a pro
rata basis. In other words, each financing
source will be a separate ledger account,
not a separate bank account.
(e) Withdrawal applications: a combined WA
(advance or replenishment) for several
financing sources will be accepted, but
these should state separately the amount
they require and are justifying for each
source. The bank account to be provided
will, of course, be only one.
(f) SOEs must either be separated for each
financing source, or show the sharing
percentage in the common SOE, so that the
WA amount can be traced to its SOE.
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 L.4 Financing agreements2
11. All specific provisions required by the donor 14. Disbursements. Framework agreements may
in relation to financial management and require that donor payments to IFAD be
administration must be reflected in the PDR, FA made in various tranches at differing intervals.
and LtB/R. Thus, when reviewing WAs that relate to
supplementary funds, the finance assistant
12. Currency. Additional care is required when
performs a manually initiated interface in
drafting the FA, particularly if the agreement
PeopleSoft to confirm funds available for
with the donor provides for financing
disbursement – that is, funds that have been
in a currency different from that of the
received from the donor and are subsequently
denomination currency of the financing or
available to cover cumulative WAs to date.
grant agreement. The denomination currency
IFAD applies its risk-based controls during
may be in any currency and not necessarily one
the WA review process, also performing other
of the currencies included in the SDR basket.
verification checks imposed by the donor, if any.
On receipt of supplementary funds, thematic
trust funds or funds from other IFIs in a 15. Unless otherwise specified by the framework
currency other than EUR and US$, IFAD`s bank agreement, IFAD standard categories of
will convert the funds into the bank account expenditure are applied to schedule 2 of the FA.
denomination currency (US$) at the spot rate of If the donor requires specific categorization of
the receipt date. expenditure, it must be applied in accordance
with the donor’s procedures. For example,
13. In this case, and in order to ensure that IFAD
the European Commission expressly requires
does not bear exchange rate risks, the financing/
expenditure to be reported according to
grant agreement with the B/R should specify
components that differ from IFAD’s standard
an indicative grant amount in US$ equivalent
categories.
to the amount received in non-US$ currency
received from the donor, net of IFAD`s 16. Key contractual dates. When establishing
management fee. The actual US$ amount will be the key contractual dates in the financing
determined based on the exchange rate applied agreement between IFAD and the B/R (e.g.
by the bank; the US$ grant amount in FXC will reporting dates, agreement completion and
be adjusted accordingly. closure dates) the corresponding dates in the
agreement between IFAD and the donor must be
Currency of
Currency of any taken into consideration. Reporting deadlines
the Supplementary
related grant should ensure that the B/R provides all required
Fund contribution
agreement(s)
agreement information to IFAD well in advance of the
between IFAD and
between the donor
the recipient dates on which IFAD is required to report to the
and IFAD
donor, and in general the agreement between
Euro Euro
IFAD and the B/R should complete and close
US$ US$
in advance of the respective completion and
Currency other than
US$* closing dates of the agreement between IFAD
Euro and US$
and the donor. This will ensure the FO has
* In this case the grant agreement should specify
an indicative grant amount in US$ net of IFAD`s sufficient time to review B/R reporting and
management fee. The actual US$ amount will be conduct any necessary verifications before
determined based on the spot exchange rate applied reporting to the donor.
by the bank upon receipt of funds. The US$ grant
amount in FXC will be adjusted accordingly, once the
final tranche have been received from donor and the
actual US$ amount determined by the bank.

2 Where possible, it is recommended that the agreement between IFAD and the supplementary fund donor, particularly in the
case of EC agreements, is negotiated in parallel with the agreement between IFAD and the implementing partner to avoid the
possibility of inconsistencies between the two.

148
17. European Union (European Commission).
Variable/incremental costs directly attributable
to project actions (e.g. hiring a support
accountant or grant officer, and office and
equipment costs – at project level) should
be included as a direct cost and specified in
annex 1 of the FA. FOs should foresee variable/
incremental costs for inclusion in annex 1
at the negotiation stage with implementing
partners. This will avoid these expenditure
items being claimed against the indirect cost
allowance during implementation. In line with
the supplementary funds self-funding principle,
IFAD generally charges the full indirect cost
allowance, which is 7 per cent of total direct
costs. FOs should also note that of the indirect
costs claimed under any EC agreement, IFAD’s
Budget and Organizational Development Office
allocates 1 per cent as a risk reserve.
18. FMA during supervision. Donors may
identify specific items for review during IFAD
supervision missions. Other requirements may
include: mandatory participation by the donor;
a higher frequency of supervision missions;
or differing evaluation procedures to be
applied. Compliance with these requirements
is mandatory based on the terms of the
supplementary donor agreement.
19. Audit and financial reporting. IFAD applies FM
procedures for accounting, internal controls,
audit and financial reporting to all loans or
grants funded by supplementary funds or
under other umbrella frameworks. However,
certain donors may impose additional and
possibly more complex requirements. FOs
must make project staff and recipients aware of
all requirements, including of any additional
reporting and/or audit requirements, as well
as missions to be conducted. For example, the
European Commission, under the Financial and
Administrative Framework Agreement (FAFA),
may call for various types of audit reviews:
pillar assessments and verification and anti-
corruption missions. Residual error-rate studies
(on transactions of closed projects) and audits
may be performed by the European Court of
Auditors, private external auditors or other EC
auditors in decentralized offices or in Brussels.
The FAFA and the EC agreement are provided
as exhibit L-1.
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KEY DOCUMENTS
MODULE M
 Module M
Key documents

152
Introduction

1. Article 7, section 1(c), of the Agreement
Establishing IFAD1 stipulates, “The Fund shall
make arrangements to ensure that the proceeds
of any financing are used only for the purposes
for which the financing was provided, with
due attention to considerations of economy,
efficiency and social equity.”
2. Most of these arrangements are set out in
the following official documents governing
the use of resources and the conditions of
IFAD financing:
3. The following policies, guidelines and
manuals are also available to the Fund, B/R
and/or various project parties to support
implementation of loans and grants:
• Loan Disbursement Handbook for
IFAD Directly Supervised Projects
• Policy for Grant Financing and grant
agreement
• IFAD Policy on Preventing Fraud and
Corruption in its Activities and Operations

• General Conditions for Agricultural • Project Procurement Guidelines

Development Financing (‘General • IFAD Procurement Handbook
Conditions’)
• Operational Procedures for Project and
• Policies and Criteria for IFAD Financing Programme Audits
• General Provisions Applicable to IFAD Large • IFAD Guidelines on Project Audits
Grant Agreements (schedule 6 of Large Grant
Agreements) • Implementing Procedures for European
Commission Financing
• Financing agreement (exhibit E-1)
4. These policies, guidelines and procedures are
• Grant agreement (exhibit K-2 Guidance mandatory, unless indicated otherwise in the
on sub-recipients/K-3 Guidance on Eligible relevant documents. Detailed instructions on
Expenditure Categories and Budget the majority of these procedures are contained
Justifications) elsewhere in this manual.
• Letter to the B/R2 (exhibit E-6)
• Contribution agreement between IFAD and
donor (for supplementary funds)
• Financial and Administrative Framework
Agreement (FAFA) (exhibit L-1) and Pillar-
Assessed Grant or Delegation Agreement
(PAGoDA) (exhibit L-2)

1 Available at www.ifad.org.
2 When a CI is involved in a project, a cooperation agreement and letter of appointment spelling out the CI’s responsibilities are
also signed.

Module
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DOCUMENT RETENTION
MODULE N
 Module N
Document retention
• Policies at IFAD
• Policies for the Borrower/Recipient

156
N.1 Policies at IFAD
1. Loan and guarantee agreements. IFAD retains
the original copies of FAs and any amendments
in its permanent records.
2. Withdrawal applications and supporting
documents. When the B/R sends the original
WAs and supporting documents to IFAD (or to
the CI, if applicable), they should be retained
until such time as no further queries regarding
loan use are anticipated. The recommended
minimum retention periods are:
(a) Original WAs, summary sheets and
supporting documentation: five years after
the financing closing date; and
(b) Supporting documents: one year after the
loan closing date (or five years after the
closing date if the documents have been
filed with the original WAs).
3. For projects under the supervision of a CI,
documents should be available for review by
IFAD on request, should the Fund wish to verify
the adequacy of CI review processes.
4. Paperless/electronic documentation. Where
projects provide WAs, summary sheets, forms
and supporting documentation electronically
in paperless form, IFAD will retain these
electronically. For electronic documents of
projects financed or cofinanced by the European
Commission, the period will be 10 years.
5. Billing statements. IFAD does not retain hard
copies of its billing statements, as they are
available electronically from FXC.
6. Disbursement notices. IFAD retains copies of
debit advices until one year after the financing
closing date. Other reports are retained only as
long as judged necessary by ACD.
7. Correspondence. IFAD retains any substantive
correspondence in its records for a minimum
of three years after issuance of the PCR. For
projects under the supervision of a CI, the
CI should retain substantive correspondence
on significant issues until no further queries
with regard to project implementation are
anticipated. This requirement is normally
satisfied if the correspondence is retained for
one year after issuance of the PCR.

N.2 Policies for the borrower/recipient

8. GC section 9.01 states that the B/R and other
project parties are to “… maintain separate
accounts and records in accordance with
consistently maintained appropriate accounting
practices adequate to reflect the operations,
resources and expenditures related to the Project
until the Financing Closing Date, and shall retain
such accounts and records for at least ten (10)
years thereafter.”

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