LFA Detailed Budget Review and Recommendation
June 2017
01 Introduction
This form is to be used in conjunction with the Global Fund’s Guidelines for Grant Budgeting, the Operational Policy Manual, Framework agreement and any further guidance provided by the Global Fund. The LFAs must keep up to date with all relevant Global Fund policies and technical matters (including any updates to this form) and should, as appropriate, design their own review tools and procedures.
In summary the LFA budget review is designed to ensure the budget is reasonable to achieve the grant objectives and is based on the most economic and efficient use of grant resources.
The objectives of the LFA budget review are defined as:
· confirm that the detailed budget, with its underlying assumptions is compliant with the Global Fund’s Guidelines for Grant Budgeting and other relevant guidelines and operational policies of the Global Fund;
· confirm that the budget is consistent with the proposal and addresses all Technical Review Panel and/or Grants Approval Committee clarifications;
· confirm that the budget adheres to the principles of transition between allocation periods and is within the maximum available funding for the given grant including any above-allocation funds communicated by the Global Fund in writing);
· address the economy, efficiency and effectiveness (value-for-money) of budget activities;
· confirm that the budget is consistent with the proposed programmatic targets in overall terms (relevancy of activities and quantity) and on a time basis;
· identify ineligible costs and confirm inclusion of mandatory charges;
· confirm that the budget does not contain duplication of funding with other Global Fund grants or other sources of funding;
· confirm the reasonableness of quantities, unit prices and cash outflows timings;
· confirm that the budget lines are classified correctly in accordance with the Global Fund Modular Framework, and correct assignment of relevant payees (Principal Recipient, sub-recipients);
· confirm the arithmetic accuracy of the budget.
02 Budget Review Process
The Budget Review Checklist is designed to guide LFAs in their budget review process. Completion of the review steps ensures the quality and depth of LFA budget review and findings and provides the Global Fund with the important information to be able to negotiate budgetary issues with Principal Recipients and ultimately to make grant investment decisions.
As a result of their review of the budget, the LFAs are expected to complete Section 1: Grant Data and Information Sources, as well as Section 2: Summary of Budget Review Conclusions. Section 3: Review Tasks to Be Performed includes a comprehensive list of tasks, which should guide LFAs in performing their review task as a reference, and does not need to be completed with line-by-line comments. In Section 2, the LFA is expected to provide concise summary of findings related to (1) overall value-for-money, (2) compliance with the Guidelines for Grant budgeting and (3) internal controls in budget management. LFA comments in Section 2 would help the Global Fund to finalize the negotiation of the budget with the Principal Recipients, and should include specific inconsistencies with the Global Fund’s Guidelines for Grant Budgeting that need the follow up.
Any adjustments to the budget, as well as the recalculation of individual budget lines should be done in the detailed budget itself and sent to the Country Team for their final review.
The Budget Review Checklist should be used for all grants going through the grant-making process, including High Impact, Core and Focused countries. It is however expected that the LFA should plan the budget review using a risk-based approach. Such an approach and scope of work should be agreed between the LFA and the Global Fund Country Team prior to the start of the work. The key risk may be defined as the risk of the budget being materially misstated, thereby resulting in either over- or under- commitment of resources for the period in question and potentially impacting materially the achievement of program objectives. When planning the budget review, the LFA shall determine the level of overall materiality. LFA applies professional judgment to determine the overall materiality to guide the scope of their review based on the results of risk assessment, understanding of the entity and its environment and appropriate discussion. The level of materiality normally should be agreed between the LFA and the Global Fund Country Team prior to the start of the work.
Before commencing the budget review the LFA is requested to undertake a first brief review/analysis of the budget to identify any key risk/issues, including the quality and completeness of the Principal Recipient’s budget. In cases where the budget is incomplete or contains significant formula errors, the LFA should inform the Country Team immediately, so that the detailed budget is re-submitted.
Table A below is aimed to assist the LFA in planning and tailoring its budget review procedures to areas of high and low risk.
TABLE A - INHERENT BUDGET RISK
HIGHER RISK / LOWER RISK· Grant size, i.e. large budget / · Grant size, i.e. small budget
· History of errors in budgeting / · No/insignificant record of errors in budgeting
· History of significant budget to actual variances, savings on unit costs, incorrect budget assumptions and unrealistic planning of activities / · Low budget variances
· Complex programs with multiple activities and implementers / · Simple programs with few activities and implementers
· Budget preparation lacks diligence, round sum estimates, limited independent quality review / · Well prepared budget, budget activities detailed and well explained, effective independent quality review
· Poor financial modeling, poor spreadsheet logic, manual interventions, no use of audit facilities / · Robust financial models used, little manual intervention, audit functions effectively used
· Few or no available references available against which to benchmark unit costs/quantities / · Readily available references for quantities and costings
SECTION 1: GRANT DATA AND INFORMATION SOURCEs
COUNTRY / APPLICANT: / PRINCIPAL RECIPIENT:
BUDGET AMOUNT: / GRANT NAME (if available) or DISEASE COMPONENT
CURRENCY: / DATE:
DOCUMENTS REVIEWED
Available?/Reviewed? / List of Documents / Comments
Funding request
Technical Review Panel recommendations
Summary budget
Detailed Budget
Performance Framework (PF)
List of health products and underlying quantifications
Current implementation period approved budget
Training plan and other implementation plans
Latest Progress Update/Disbursement Request
Additional documents reviewed
SECTION 2: SuMMARY of BUDGET REvIEW COnCLUSIONS
1. Overall Budget Approval Recommendation: Based on the budget presented and reviewed by the LFA, please outline the overall recommendation.OPTION 1: Recommend for Approval without iteration (fully compliant with GF requirements)
OPTION 2: Recommend for Approval with additional direct negotiation between the Global Fund & Principal Recipient (please provide rationale and indicate any missing information to recommend Option 1)
OPTION 3: Current state of the budget is not ready for Approval and significant rework is required.
1. Value-for-money: As far as can be determined and based on the data available, the grant budget is reasonable and demonstrates value-for-money.
2. Global Fund Guidelines for Grant Budgeting: The Principal Recipient’s budget is compliant with the Global Fund Guidelines for Grant Budgeting.
LFA comments:
3. Internal Controls in Cost Management: Based on your review provide a summary assessment of PR’s controls in cost management. Consider the following risks and relevant controls:
· Capacity and processes around monitoring and controlling budget spending;
· Understanding of key Global Fund policies and requirements to budgeting and reporting;
· Budget preparation capacity and procedures used, history of budget accuracy;
· Potential of duplicating expenses between other grants and/or donors;
· Clarity in implementation arrangements, including number, diversity and complexity of sub recipients/ sub-sub recipients;
· Availability and quality of reference sources for unit costs; level of costs not contributing to achieving targets, questionable value or need;
· Vague budget assumptions, wide range of unit costs for same activities, lump sums.
LFA comments:
SECTION 3: Review Tasks to Be Performed
# / Review Tasks to Be Performed /1. 1 The budget is within the available funding – that is, the funding approved for the funding request as adjusted with any above-allocation funds communicated by the Global Fund in writing.
1. 2 The budget is consistent with the Technical Review Panel recommendations and the funding request in all material aspects.
1. 3 The budget is consistent with the principles of transition between allocation utilization periods. Any existing or planned contracts and/or orders to be delivered before the end of the allocation utilization period have been reviewed to determine if they could be classified as financial commitments to be paid from the existing funds, or as financial obligations (orders that are unlikely to be fulfilled/delivered within the current allocation utilization period) to be included in the budget of the new grant.
1. 4 Possible duplication of funding with other funding is considered to the extent possible, whether Global Fund or other donors, and has not been included in the budget under review.
1. 5 Budget absorption capacity has been considered (with reference to past performance, spend rate etc...), and the budget proposed is feasible in terms of volume and timing of forecasted expenditures.
1. 6 The budget takes into consideration any efficiencies and economies of scale in case of consolidation or complementarity to the existing implementation arrangements (including where there is any overlap among Sub Recipients and other implementing entities)
1. 7 Program Management Costs (program-management related Human Resources, overheads and other costs[1] as included in the relevant module) represent efficient and lean implementation structure, are aligned with the risk and assurance plans for the grant, and consistent with the benchmarks for similar profiled grants[2]
1. 8 Costs have been correctly classified to relevant cost inputs/grouping and interventions in accordance to the Modular Framework
1. 9 The Principal Recipient has the ability to report actual expenses across cost inputs/grouping and interventions in accordance to the Modular Framework
1. 10 Manual or automated checks on budget arithmetic has been done in which any obvious anomalies are spotted (e.g. spreadsheet logic errors, missing totals....)
1. 11 The budget contains all mandatory inclusions as recommended by the Global Fund (e.g. insurance) and does not include costs non-compliant with the Budgeting guidelines (e.g. Country Coordinating Mechanism costs are excluded)
1. 12 Annual total budget amounts are consistent between years and year-on-year trends are reasonable/explainable
1. 13 Costs are supported by detailed budget assumptions. A representative sample of individual unit costs has been checked to be at a minimum price for the quality/specification proposed
1. 14 Budget is aligned with the targets included in the Performance Framework. Scope and scale of activities budgeted, e.g. number of outreach workers, is appropriate for the objectives proposed.
1. 15 Budgeted costs across all implementers include all mandatory statutory payments in compliance with local laws and/or organizational policies.
1. 16 Unit costs are reasonable as reviewed against actual historical costs achieved, Principal Recipient/ sub-recipients standard rates, market data and/or official benchmarks, and are harmonized across disease programs and implementers in country.
1. 17 Other cost-efficient choices for activities have been considered by the Principal Recipient (e.g. distance learning, on-site coaching by senior staff, documented best practices, conducting meetings by conference call)
1. 18 Any expected income including from the revenue-generating activities and bank interest has been captured in the budget
1. 19 Timing of cash outflows aligns with the timing of payments for procurement and activities, as well as the targets as included in the Performance Framework.
1. 20 Exchange rates, taxation and inflation rates:
i) are reasonable and compliant with the Budgeting Guidelines;
ii) have been correctly and consistently applied throughout the budget and,
iii) appropriate and relevant for different type of transactions, and are backed up by reliable market data. Interlinkages between the key assumptions (e.g. inflation and exchange rates) have been made.
1. 21 The Principal Recipient’s efforts to obtain tax exemptions have been considered:
i) it has obtained tax exemptions as anticipated under the grant agreement
ii) the Principal Recipient is taking adequate measures to obtain exemptions with acceptable cost v benefit of increased efforts
iii) the budget fairly reflects the amount and timing of tax cash-flows, including anticipated tax recoveries
1. 22 Human Resources: If salary top-ups are included, has the transitional plan been put in place in the previous allocation period, and is there a clear progress towards sustainability and phase-out of any top-ups by the end of the grant
1. 23 Human Resources: Any budgeted incentives/top-ups are based on robust performance management framework and/or clearly measurable program outputs expected from staff or health workers receiving such incentives.
1. 24 Supervision: Supervision travel budget is supported by a national or program-level supervision strategy, detailed scope, frequency, participation and outcomes of planned supervision visits.
1. 25 Technical Assistance: The budget includes technical assistance costs linked to specific deliverables, and that otherwise cannot be delivered by existing resources available. All assignments are based on the Technical Assistance plan.
1. 26 Training: Training budget is based on training needs assessments, and have robust skill measurement or similar KPI framework to assess value added by the trainings
1. 27 Infrastructure: A needs assessment is developed in support of the funding request for infrastructure. The needs assessment includes the review of the existing assets and infrastructure in possession of the implementing entities and their remaining expected useful life, provides evidence of any replacement or new procurement needed, and includes a cost-benefit analysis to link expected increase in quality or coverage of targets with the total investment cost
1. 28 Infrastructure: The investment requested if material is part of the broader RHHS strategy of the country and is supported by other donors. Any duplication with government or other external funding has been reviewed