Finance issues that frame the roles, responsibilities, accountabilities and oversight functions of the entities in the CGIAR System

Transcription

1 Meeting of CGIAR Centers and Contributors on the CGIAR System Organization Washington, D.C. February 8-9, 2016 CGIAR/Transition Meeting.1/5 January 21, 2016 Finance issues that frame the roles, responsibilities, accountabilities and oversight functions of the entities in the CGIAR System

2 I. Introduction 1. In looking to elaborate upon the roles, responsibilities accountabilities and oversight functions of the entities in the CGIAR System with respect to financing, the finance working group has prepared this note to identify the issues that will need to be considered in order to determine the appropriate functions of each entity The work of the group will contribute to the development of the Framework Document, which will capture the general principles, objectives and purposes of the CGIAR System Organization, and outline the roles, responsibilities, accountabilities and oversight functions of the entities in the system. 3. While the principles guiding for the governance of the CGIAR System Organization are still under discussion, the draft principles include the following of relevance to the finance working group: (a) Effectiveness, efficiency, and transparency should be key performance goals; (b) Roles, responsibilities accountabilities and oversight for system entities should be clearly defined; (c) The principle of subsidiarity should guide policies, guidelines and implementation; (d) To the greatest extent possible, streamlined, system-level reporting on, and evaluation of, system activities should be promoted; and (e) Corrective action, when required, should be targeted. 4. As a starting point, the working group underscored that the system should operate as a partnership/network of collaborators with the centers and the financial contributors as the core elements of the system. The working group also recognized that in clarifying the roles, responsibilities, accountabilities and oversight functions of the system entities, there is a need to ensure an alignment among the system entities so as to promote efficiencies and effectiveness, and to simplify the system. 5. This note does not address the structure of, and the differences between, the three windows of the CGIAR Fund. It is assumed that the roles, responsibilities, accountabilities and oversight functions agreed for the system entities will be carried out consistent with the agreements on the use and oversight of the windows, in accordance with the operative provisions of the trust fund which may be amended in the future. 1 Section VI of this document is related to the Fund Council request that the World Bank provide fiduciary services to the CGIAR System. The section presents a proposal from the World Bank as to the services it may usefully provide to the CGIAR System. This section, therefore, is not an elaboration of issues but rather a suggested approach. 1

3 II. Issues related to the use of funds Resource mobilization 6. The guiding principles recognize the need to develop a robust Resource Mobilization Plan that fully takes into account the significant resource mobilization capability, infrastructure and incentives distributed across the system and seeks to promote synergies, not competition, in fund raising throughout the system. What process will be followed to develop and approve the plan? What, if any, are the roles and responsibilities of each system entity in the process? Determination of the use of funds 7. What is the process, and what is the role of each system entity, for preparing and approving proposals for funding (for CRPs, for annual financing plans, for administrative budgets)? 8. What are the triggers for the release of funds? To whom are those funds released, especially with respect to a CRP (centers or lead center)? Financial accountability 9. Once funds are approved and allocated, what is the accountability of each system entity for management of those funds? What does it mean to be accountable? How does the system ensure that the entity s accountability is being met? 10. What is the accountability of the System Organization to contributors? 11. What is division of responsibility between lead center and/or the CRP management unit and other centers receiving funding for the CRP? With respect to financial accountability, what is the role of a lead center and/or the CRP management unit? Is each center directly accountable to System Organization for the use of funds allocated to it or is the lead center and/or the CRP management unit accountable to the System Organization for funding provided to the CRP? What are the differences between multilateral funding and bilateral funding? Is there a difference in the role of the lead center and/or the CRP management unit for program performance, management, and financial accountability? 12. How will deficiencies or malfeasance and appropriate corrective action be identified? Who is responsible for recommending and/or approving correction action? Who is responsible for complying with the corrective action? 2

4 Financial reporting 13. Recognizing that reporting follows accountability, who reports what and when? What is the scope of financial reporting for CRPs and administrative budgets of the entities of the System Organization? Should reports on CRPs intended for review by the System Council be limited to funds allocated from the CGIAR Fund or should the CRPs be requested to report to the System Council on CRP funding in its entirety, regardless of source? In this regard, it is important to recognize the different functions of in reporting as a function of accountability and reporting to provide information for general oversight of the system. 14. How to best promote consistent and credible reporting while keeping reporting streamlined and simple? 15. Which entity should be responsible for compiling aggregated (consolidated) CRP financial information coming from the centers the lead center, the CRP management unit or the System Office? Who is responsible for compiling information into reports to be submitted to the System Council to allow it to exercise its oversight functions and/or to provide information on the overall status of the system? Financial oversight 16. With respect to financial oversight, what is the role of the System Organization, the Center Boards, the lead Center, and the CRP management unit? How are these oversight functions related to each other? 17. What should be the key finance-related committees of the System Council and the mandate and composition of each such committee? Proposals include: (a) Finance Committee: a finance committee could have a mandate to keep under review accounting, investments, resource mobilization and treasury matters. (b) Audit and Risk Committee: an audit and risk committee could keep under review risk and internal control issues. (c) One committee may be sufficient to address finance, audit and risks. (d) Would these Committees include Council members, centers and/or independent qualified members, and what are the criteria and relevant expertise for selecting the members? Proposal that the Audit and Risk Committee should be chaired by an independent expert and comprised of only independent experts. 18. Assuming System Office is to operate with a light touch vis-à-vis the centers, what are the oversight responsibilities of the System Office with respect to funds 3

5 provided to the centers? Is it sufficient to agree upon policies, good practices guidelines, and periodic program and management reviews of the centers and the system? (Note that this issue is related to the Internal Audit functions see below and evaluations). III. Issue related to Financial Guidelines Acknowledging the subsidiarity principle for operations, are there common financial policies and related guidelines that should receive priority attention in the new system? 19. These may include: (a) accounting principles and framework (from 2016 on IFRS) (b) method for implementation of full cost accounting (c) ethical framework and related escalation process (d) process for escalation of issues (e) shared internal auditing standards (including, but not limited to IIA Standards) (f) similar requirements toward external auditors (g) method for indirect or overhead charges IV. Issues related to audits What are the key requirements of an effective internal audit function for the CGIAR System (including both internal audit and investigations)? 20. Elements to consider include 2 : (a) overall mandate of the internal audit function in the system looking to international best practice 3. (b) reiterating/confirming each Center Board responsibility for deciding on the most relevant layout of the Center s internal audit function. (c) specific mandate and role of the System Internal Audit Unit in facilitating audit functions in the system. This could include some or all of the following elements: i. performing reviews of CRPs for the shared benefit of the System Council and of participating partners; ii. performing cross-cutting audits and coordinating audit activities and communication; iii. combining the above with Centers that opt not to have their own internal audit department; 2 In reviewing proposed functions, issues regarding potential or perceived conflicts of interest will also need to be considered. 3 IIA Standards, Mission Statement, Definition and Code of Ethics of Internal Auditing and the Capability Model for the Public Sector 4

6 iv. leading or facilitating the quality assurance of the overall internal audit function; and v. managing a shared pool of investigation specialists. (d) reporting line and accountability of Internal Audit Unit:: i. will need to define reporting lines of the head of the internal audit unit; in most international organizations, the head of the internal audit unit would report directly to the governance body, through its Audit and Risk Committee. ii. should clarify whether or not the System Council has the authority to commission an audit or investigation on a system-wide risk arising at a Center. How will funding be provided to carry out the internal audit activities? 21. Should the unit be funded as a system entity with an administrative budget to cover the cost of staff and activities or should it be financed in whole or in part through user fees? Funds could be required to cover the cost of: (a) an internal audit team and support functions; (b) development of tools and support to implement throughout the system; (c) quality assurance and processes to improve functioning of the system; (d) performance of CRP and cross-cutting audits; and/or (e) a joint investigation unit. External audit: What assurances will be required to ensure confidence in the CGIAR System s internal controls? 22. Should a policy be developed and approved by the System Council that would define the assurance to be obtained from external auditors? Options could include one or several of the following: (a) an expectation that centers would obtain unqualified assurance from external auditors; (b) a similar wording for all statements of assurance obtained from each center s external auditor; (c) an assurance on the financial statements of the centers and the System Office; and (d) an assurance on consolidated CRP accounts. 23. The policy should clarify whether the System Council or one of its committees should be informed of the external auditors management letter for each center, and if so, through which process. 5

7 V. Issues related to Risk Management and Escalation Recognizing that centers and CRPs have well developed risk management systems, is there a need for a shared risk management framework be developed and agreed by the System Council? 24. If yes, what is the scope and depth of the system s risk management framework? What are the system risks? Is there a materiality question depending on how much funding a centers receives from the Fund? 25. Such a framework could seek to harmonize: (a) definitions; (b) risk identification and assessment processes; (c) risk tolerances; (d) processes for mitigating risks and standards for reporting and communicating progress; (e) principles for an escalation process; and (f) the relationship between a System s risk management framework and the Centers respective risk assessments. 26. Escalation may be defined in different ways whether the issue will eventually be communicated to external parties (including contributors, strategic partners and national authorities), or it remains within the boundaries of the system as a whole, or specific elements of the system depending on the nature of the point to be escalated (or, in appropriate circumstances, de-escalated for center-only attention). VI. Fiduciary services to be provided by the World Bank 27. The decision of the Fund Council on the CGIAR System Organization, adopted at its thirteenth meeting in April 2015, provides, among other things, that the CGIAR System Organization will contract with the World Bank for the provision of fiduciary services. Approach 28. The World Bank proposes to provide advisory services to the System Council. It would, therefore, not endorse or approve actions but rather will submit its opinions to the System Council for its consideration. 29. The World Bank envisages a two-phased approach to the provision of these fiduciary services. 6

8 30. In phase 1, the World Bank will collaborate with the Systems Office during its first year of operations. Indicative services to be provided include review of: (a) planning & budgeting arrangements for the System Organization, especially as relates to income forecasting; (b) system accounting policies and guidelines and control frameworks; (c) effectiveness and independence of internal audit arrangements; (d) interim and annual reporting formats and arrangements including issues relating to periodicity of preparation and consolidation; and (e) processes in place for selecting and rotating external auditors, including, as relevant, the identification and selection of a lead System auditor. 31. Outputs in this phase will include: (a) proposing changes, as relevant, to System policies and guidelines; (b) supporting a collaborative process between the System Office and the centers, within the Centers Committee) to reach agreement on any proposed revisions to policies and guidelines; and (c) supporting operationalization of any new arrangements. 32. After the first year of operations, phase 2 of the fiduciary services will be triggered. In phase 2, the fiduciary services to be provided by the World Bank will focus on supporting ongoing implementation of agreed policies and guidelines. With agreed financial management procedures in place, the provision of these fiduciary services may only be needed for a few years, depending on how quickly there is systemwide confidence that agreed arrangements are being implemented. 33. Indicative services to be provided by the World Bank in phase 2 include: (a) support monitoring of satisfactory compliance with agreed financial policies and guidelines; and (b) review of the operation-in-practice of the agreed procedures for the timely identification, reporting and escalation and resolutions of problems. Specific Exclusions to the services to be provided by the World Bank 34. World Bank fiduciary services will not include: (a) review of the appropriateness of procurement policies and procedures; (b) any investigation by the World Bank Group s Integrity Vice Presidency; or (c) any audit by the World Bank Group s Internal Audit Department or by its external auditors. 7