Document of
The World Bank
Report No:
Restructuring PAPER
ON A
PROPOSED Project restructuring
of
Corporate and Public Sector AccountAbility Project
CREDIT IDA 44050
PHRD TF 57849
SECO TF 98323
March 27, 2008
TO THE
REPUBLIC OF AZERBAIJAN
August 9, 2011
Operational Services and Quality Department
South Caucasus Country Department
Europe and Central Asia Region
ABBREVIATIONS AND ACRONYMS
ACPATER / Azerbaijan Center for Professional Accounting and Audit Training, Education and ResearchERP / Enterprise Resource Planning
IFRS / International Financial Reporting Standards
MOF / Ministry of Finance
NASBO / National Accounting Standards for Budgetary Organizations
NASCO / National Accounting Standards for Commercial Organizations
PDO / Project Development Objective
PIE / Public Interest Entity
PMU / Project Management Unit
Regional Vice President: / Philippe E. Le Houerou (ECAVP)
Country Director: / Asad Alam (ECCU3)
Sector Manager / Director: / Ahmadou Moustapha Ndiaye/Gerard Byam
Task Team Leader: / Norpulat Daniyarov
Azerbaijan
Corporate and Public Sector AccountABility Project
P099924
Contents
Page
A. SUMMARY 4
B. PROJECT STATUS 4
C. PROPOSED CHANGES 5
ANNEX 1: Results Framework and Monitoring 9
Corporate and Public Sector AccountABility Project
RESTRUCTURING PAPER
A. SUMMARY
This Project Paper seeks approval for a Level II restructuring of the Corporate and Public Sector Accountability Project (CAPSAP), Credit no. 44050, with the accompanying PHRD Grant TF57849 and SECO TF98323. The major modifications proposed are: (a) addition of sub-component 2.3 “Unified automated accounting system for line ministries and budgetary organizations, (b) limitation of the scope of the sub-component 1.3 and (c) extension of the project closing date to December 31, 2013 from the current closing date of December 31, 2012.
· The Project Development Objective “ to strengthen accountability and transparency in financial reporting for the public and corporate sectors in line with international best practices” remains unchanged;
· The activities envisaged under the sub-component 1.3 “Improving the statutory framework and building capacity to regulate and oversee the audit function” to support the Chamber of Auditors are cancelled to shift the focus on establishing an agency within the Ministry of Finance to regulate the audit profession away from a self-regulated profession;
· A new sub-component 2.3 Unified automated accounting system for line ministries and budgetary organizations is added to support the implementation of the National Accounting Standards for Budgetary Organizations, and help the government to have effective control over spending of budget funds and generate reliable consolidated government financial statements
These changes and the project implementation delays require that the project be extended for a 12 month-period to December 31, 2013. Project restructuring is being undertaken primarily as a result of implementation challenges since the beginning of the project, which are now being addressed, and developments in the regulatory and legislative framework triggered by global developments, leading to a reassessment of the priorities and consequently the focus of the project by the Ministry of Finance. The scope of this project restructuring is consistent with the MOF request submitted on this subject to the Bank.
B. PROJECT STATUS
The latest progress towards achievement of the PDO, evaluated following the last mission of June 2011, is Moderately Unsatisfactory. Overall implementation progress rating is also Moderately Unsatisfactory. While improvement is noted in the overall project implementation, due particularly to an improving performance of the PMU, this has not yet been translated into significant progress in disbursements. It is expected that the significant number of ongoing procurement activities at different stages will translate into higher level of disbursements in the coming months at which moment the rating of the project will be revised.
The project implementation is significantly behind the original schedule. The delay was due to MOF’s revised assessment of the need to assist PIEs in introducing IFRS and, also, uncertainty about the respective roles and responsibilities of the MOF and the Chamber of Auditors in the audit regulation function. In addition, the signing of the SECO grant agreement, which finances the technical assistance to the Chamber of Accounts, was only completed in June 2011 due to Government internal arrangements. Furthermore, the selection process for the consultancy contracts to assist in establishing ACPATER has taken more time than originally anticipated. Most of these challenges are addressed now and attention can be focused on implementation.
C. PROPOSED CHANGES
· Results/indicators.
The results indictors have been revised to reflect current realities and amendments that are being introduced to project components. The major changes are summarized below.
Component 1: Indicators “Number of oversight visits performed by MoF of Chamber of Auditors”, “Number of staff in Chamber of Auditors trained in new methodology to inspect audit firms”, “Number of inspections performed by Chamber of Auditors in accordance with new inspection methodology” are being replaced with similar ones to reflect the shift in focus from Chamber of Auditors to MOF Agency in private sector audit oversight. Indicator “Number of IFRS financial statements reviewed by MoF for compliance with IFRS” is also being removed to reflect revised priorities of the MOF in enforcement of the “Law on Accounting”.
Component 2: “Number of budget organizations’ financial statements reviewed by MOF for compliance with NASBO” is being removed to reflect revised priorities of the MOF in enforcement of the “Law on Accounting”. Indicators “Comprehensiveness, relevance and understanding of internal control rules and procedures (corresponds to PEFA indicator PI-20(ii))”, “Coverage and quality of the internal audit function (corresponds to PEFA indicator PI-21(i))”,
“Scope and nature of external audit (corresponds to PEFA indicator PI-26(i))”, “Timeliness of submission of external audit reports to legislature (corresponds to PEFA indicator PI-26(ii))” are being revised to make them clearer and more measurable.
In addition, Indicator of “Number of Key budget organizations and Line Ministries using unified automatic accounting system” is being added to monitor progress in the implementation of the newly added sub-component 2.3.
Component 3: Indicator of “Number of new accounting and audit, tax related textbooks introduced at higher education institutes” is being added to monitor progress in accounting and audit related teaching reforms at the Higher Education Institutes, which is one of the key priorities of the MOF.
See Annex 1 for more details of the revised Results Indicators.
· Components.
Sub-component 1.3 is being modified to limit the project support to MOF only. The activities originally envisaged to support Chamber of Auditors are being removed at the request of the MOF. Additional sub-component 2.3 “Unified automated accounting system for line ministries and budgetary organizations” is being added. These changes do not affect the Project Development Objectives, which remain stated as in the original Project Appraisal Document.
These proposed changes are being introduced in line with the MOF current priorities. They would significantly improve transparency and accountability in the management of the public funds in the country, which is one of the key PDO outcomes. Modifications being introduced to Sub-component 1.3 would contribute to better oversight of private sector audit firms, which in turn would result in improved audit services in the corporate sector.
Sub-Component 1.3 Improving the statutory framework and building capacity to regulate and oversee the audit function.
This sub-component would focus entirely on supporting the Ministry of Finance in establishing an audit oversight agency within the ministry, including developing the Agency’s internal regulations and policies in line with international best practice to the extent possible. The other activities initially planned to support the Chamber of Auditors will be removed. This confirms the transfer of the audit oversight function from the audit profession to the Ministry of Finance.
Sub-Component 2.3 Unified automated accounting system for line ministries and budgetary organizations
A new Enterprise Resource Planning (ERP) platform will be procured along with implementation services to support the implementation of accounting system. The system will be rolled over to other Ministries and key Budget Organizations once implementation at initial pilot sites has been completed. The sub-component will finance procurement of software, hardware, implementation support and training of users of the new system. The integrated accounting system for Budgetary Organizations will be part of E-Government that is being developed in line with the recent Decree of the President of the Azerbaijan Republic.
The Ministry of Finance expressed the view that one of the key priorities of the CAPSAP should be the introduction of a unified electronic accounting system for all Line Ministries and key Budgetary Organizations. This will help the government to have better control over spending of budget funds and generate reliable and accurate consolidated government financial statements in a short period of time. The project will support phased implementation of accounting system at pilot sites: 4 key ministries and institutions of higher education:
i. Ministry of Education, along with higher education institutions funded by the state order system
ii. Ministry of Health
iii. Ministry of Tourism and Culture
iv. Ministry of Youth and Sport
Addition of this sub-component would strengthen accountability and transparency in financial reporting for the public sector, which is in conformity with the original PDO of the project.
· Financing
Project Costs (US$m.)Components/Activities / Current[1] / Proposed
A. Corporate Sector Accountability
- Assisting the PIEs in embedding IFRS
- Establishing appropriate legal and institutional frameworks and capacity for translation, adoption and enforcement of IFRS and NASCO
- Improving the statutory framework and building capacity to regulate and oversee the audit function. / 4.57
3.06
0.40
1.11 / 4.06
3.06
0.40
0.60
B. Public Sector Accountability
- Public sector accounting reform
- External audit and Internal Financial Control
- Creation of an electronic reporting system for public sector entities / 3.64
1.68
1.96
0 / 9.29
0.42
1.87
7.00
C. Strengthening accounting, auditing and financial management capacity
- Establish ACPATER
- Develop/Upgrade Accounting & Auditing Skills / 10.58
2.08
8.50 / 6.30
1.10
5.20
D. Project Management
- Consultant Services and Staff Costs- Operation and Maintenance (incl. equipment)
- Audit of Project Financial Statements / 0.76
0.57
0.10
0.09 / 1.45
1.20
0.10
0.15
Price Contingencies / 1.55 / 0.00
Value Added Tax / 2.90 / 2.90
Total Project Cost / 24.00 / 24.00
· Closing date
The closing date of the project will be extended to December 31, 2013.
· Implementation schedule
Planned date of mid-term review / 06/30/2012Planned closing date / 12/31/2013
12
ANNEX 1:Results Framework and Monitoring
Azerbaijan: Corporate and Public Sector Accountivility Project
Project Development Objective (PDO): The main Project Development Objective is to strengthen accountability and transparency in financial reporting for the public and corporate sectors in line with international best practices.Revised Project Development Objective:
N/A
PDO Level Results Indicators* / Core / D=Dropped
C=Continue
N= New
R=Revised / Unit of Measure / Baseline / Cumulative Target Values** / Frequency / Data Source/
Methodology / Responsibility for Data Collection
2010 / 2011 / 2012 / 2013
Indicator One:
a. Transparency in the corporate and public sectors increased as measured by publishing annual financial statements by PIEs according to international standards. / C / Number / None / 2 / 3 / 5 / 7 / Annual / Annual Audit reports issued on financial statements of the PIEs. / PMU
Indicator Two:
b. Accountability established within Ministry of Finance and Chamber of Accounts to develop a functional and transparent public& private sector external audit as measured by % implementation of the revised SDP items for Chamber of Accounts. / R / % / None / Audit oversight agency created within the MOF / 100 % implementation of the revised SDP for Chamber of Accounts / Annual / PMU progress reports / PMU
Indicator Three:
c. Accounting and auditing profession strengthened through the establishment of training and certification programs and education standards At ACPATER in line with international standards. / C / Number of trained students at ACPATER / None / 0 / 100 / 1,200 / 2,500 / Quarterly / ACPATER Annual reports / PMU
:
INTERMEDIATE RESULTS
Intermediate Result (Component One): PIEs publish reliable and understandable annual financial statements; Credible corporate sector accounting and auditing regulatory function;
Credible corporate sector statutory audit profession.
Revised Intermediate Result (Component One):
Intermediate Result indicator One: Number of PIEs publishing annual audited IFRS financial statements within the statutory deadlines. / C / Number / None / 2 / 3 / 5 / 7 / Annual / Annual Audit reports / PMU
Intermediate Result indicator Two: Number of staff in MOF Audit Oversight Agency trained in new methodology to inspect audit firms. / R / Number / None / 2 / 5 / Annual / PMOF New Agency annual report / PMU
Intermediate Result indicator Three: # of inspections performed by MOF Audit Oversight Agency in accordance with new inspection methodology. / R / Number / None / 1 / 5 / Annual / MOF New Agency annual report / PMU
Intermediate Result indicator Four: Number of updated IFRS translated, explanatory notes issued / N / Number / None / 5 / 10 / Annual / MOF Accounting methodology Unit / PMU
:
Intermediate Result (Component Two): Public sector budget organizations produce high quality financial statements; Functional and transparent public sector external audit functions
Revised Intermediate Result (Component Two):
- Intermediate Result indicator One: # of NASBOs issued based on IPSAS and explanatory notes / C / Number / None / 7 / 31 / 41 / Annual / PMU Progress reports / PMU
- Intermediate Result indicator Two: # of budget organizations publishing annual NASBO financial statements within the statutory deadlines. / C / Number / None / 0 / 0 / 5 / 10 / Annual / Annual financial statements of the Budgetary Institutions. / PMU
- Intermediate Result indicator Three: # of Key budget organizations and Line Ministries using unified automatic accounting system. / C / Number / None / 0 / 0 / 5 / 8 / Annual / MOF Accounting Methodology Unit / PMU
- Intermediate Result indicator Four: % of total budget expenditures audited, using new methodology, by Chamber of Accounts. / R / % / None / 0 / 0 / 10 / 50 / Annual / Reports submitted by Chamber of Accounts / Chamber of Accounts
- Intermediate Result indicator Five: Number of Audited reports of entities of the central government submitted to the legislature within 12 months after year end / N / Number / None / 0 / 0 / 2 / 5 / Annual / Reports submitted by Chamber of Accounts / Chamber of Accounts
Intermediate Result (Component Three): Sustainable financial management human capacity.
Revised Intermediate Result (Component Two):
Intermediate Result indicator One: # # of accredited training programs (incl. undergraduate, graduate and vocational training programs) / C / Number / None / 1 / 3 / 5 / Annual / ACPATER Annual reports / PMU
Intermediate Result indicator Two: # of accredited educational facilities offering training programs / C / Number / None / 0 / 1 / 2 / 4 / Annual / ACPATER Annual reports / PMU
Intermediate Result indicator Three: # of accredited trainers / C / Number / None / 0 / 4 / 15 / 35 / Annual / ACPATER Annual reports / PMU
Intermediate Result indicator Four: # of students successfully passing the various training programs / C / Number / None / 0 / 100 / 1,200 / 2,500 / Quarterly / ACPATER Annual reports / PMU
Intermediate Result indicator Five: # of new accounting and audit, tax related textbooks introduced at higher education institutes. / N / Number / None / 0 / 0 / 2 / 5 / Annual / MOE report / PMU
*Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators)