Preparing the Strengthening of Public Financial Management ... · Financial Management for Rural Development Projects Final Report: October 2008 ... Appendix 11E – MAFF and MOWRAM

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.)

Project Number: TA 4988 CAM

October 2008

Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development Projects

Final Report: October 2008

Prepared by Les Henning, Nihal Fernandopulle and Russell Leith

Cambodia

Final Report Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development Projects

October 2008 Page i

CONTENTS

I. BACKGROUND AND INTRODUCTION 1

A. Objectives of the Technical Assistance 1

B. Implementation of the Technical Assistance 1

C. Rural Sector Description and Objectives 2

D. ADB Involvement in the Rural Sector 3

II. PUBLIC FINANCIAL MANAGEMENT REFORM 4

A. The Public Financial Management Reform Program (PFMRP) 4

B. PFMPR in Rural Development Ministries 6

C. ADB’s Contribution to PFMRP 9

D. External Audit Function 9

E. Internal Audit Function 10

F. Inter-governmental Financial Relations 13

III. OTHER ACTIVITIES AND OUTPUTS 15

A. PFMRP Annual Retreat 15

B. Equipment Procurement 15

APPENDICES

APPENDIX 1 – LIST OF PERSONS MET 16

APPENDIX 2 22

Appendix 2A – Summary of PFM Reform Program 23

Appendix 2B – ADB Submission on Cambodia PFMRP, Stage 2 Framework 28

APPENDIX 3 – Reviews of the Financial Management and Planning Functions of

MAFF, MRD and MOWRAM, Final Report

32

APPENDIX 4 – MAFF PFM Capacity Development Plan 92

APPENDIX 5 – MOWRAM PFM Capacity Development Plan 133

APPENDIX 6 – MRD PFM Capacity Development Plan 173

APPENDIX 7 – NAA Draft Capacity Building and Training Plan for Loan Projects 213

APPENDIX 8 – Assessment of International Audit Function in MOWRAM 224

APPENDIX 9 – Assessment of International Audit Function in MAFF 264

APPENDIX 10 – Assessment of International Audit Sub-Decree 290

APPENDIX 11 322

Appendix 11A - Report on workshops held for the NAA on auditing loan projects 322


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CONTENTS

I. BACKGROUND AND INTRODUCTION 1

A. Objectives of the Technical Assistance 1

B. Implementation of the Technical Assistance 1

C. Rural Sector Description and Objectives 2

D. ADB Involvement in the Rural Sector 3

II. PUBLIC FINANCIAL MANAGEMENT REFORM 4

A. The Public Financial Management Reform Program (PFMRP) 4

B. PFMPR in Rural Development Ministries 6

C. ADB’s Contribution to PFMRP 9

D. External Audit Function 9

E. Internal Audit Function 10

F. Inter-governmental Financial Relations 13

III. OTHER ACTIVITIES AND OUTPUTS 15

A. PFMRP Annual Retreat 15

B. Equipment Procurement 15

APPENDICES

APPENDIX 1 – LIST OF PERSONS MET 16

APPENDIX 2 22

Appendix 2A – Summary of PFM Reform Program 23

Appendix 2B – ADB Submission on Cambodia PFMRP, Stage 2 Framework 28

APPENDIX 3 – Reviews of the Financial Management and Planning Functions of

MAFF, MRD and MOWRAM, Final Report

32

APPENDIX 4 – MAFF PFM Capacity Development Plan 92

APPENDIX 5 – MOWRAM PFM Capacity Development Plan 133

APPENDIX 6 – MRD PFM Capacity Development Plan 173

APPENDIX 7 – NAA Draft Capacity Building and Training Plan for Loan Projects 213

APPENDIX 8 – Assessment of International Audit Function in MOWRAM 224

APPENDIX 9 – Assessment of International Audit Function in MAFF 264

APPENDIX 10 – Assessment of International Audit Sub-Decree 290

APPENDIX 11 322

Appendix 11A - Report on workshops held for the NAA on auditing loan projects 322


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Appendix 11B – Report on workshops held for Internal Audit in MAFF and MOWARM 325

Appendix 11C – Timetable to develop internal audit manuals for MAFF and MOWARM 328

Appendix 11D – Elements of internal audit work plans for MAFF and MOWARM 333

Appendix 11E – MAFF and MOWRAM organizational structures 338

Appendix 11F – Networking Arrangements between NAA and Internal Audit: TOR and

cost estimates

352

APPENDIX 12 – Cambodia Draft Law on Administration Management of Capital,

Provinces, Municipalities, Districts and Khans

356


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ABBREVIATIONS

ADB Asian Development Bank

AusAID Australian Agency for International Development

CAP Consolidated Action Plan

CARM Cambodia Regional Mission (ADB country office)

D and D Devolution and deconcentration

DPC Development Partners Committee

EAP External Advisory Panel

FMIS Financial Management Information System

IFAPER Integrated Fiduciary Assessment and Public Expenditure Review

IMF International Monetary Fund

MAFF Ministry of Agriculture Forestry and Fisheries

MOEYS Ministry of Education Youth and Sport

MOI Ministry of Interior

MEF Ministry of Economy and Finance

MOWRAM Ministry of Water Resources and Meteorology

MRD Ministry of Rural Development

NAA National Audit Authority

NSDP National Strategic Development Plan

PFM Public financial management

PFMPCRD Public Financial Management Program Cluster for Rural Development

PFMRP Public Financial Management Reform Program

PPTA Project preparatory technical assistance

RGC Royal Government of Cambodia

RRP Report and Recommendation of the President (of the ADB)

TA Technical assistance

TORs Terms of reference

WB World Bank


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I. BACKGROUND AND INTRODUCTION

A. Objectives of the Technical Assistance

1. The overall objective of the PPTA has been twofold: to assist RGC rural development ministries in planning to improve their public financial management (PFM) capacity particularly under PFMRP and, secondly, to assist ADB to design a program to aid those agencies in improving their PFM capacity. The activities of the PPTA have been directed at producing six main outputs: (i) an update on progress of the Public Financial Management Reform Program (PFMRP) during its Platform 1 implementation and during planning for Platform 2, (ii) review of progress in implementing PFM reforms in MAFF, MOWRAM and MRD, (iii) review of the implementation of the internal audit function in the three line ministries, (iv) review of the capacity of the NAA to carry out an effective external audit function, (v) training needs analyses of MAFF, MOWRAM, MRD and NAA to assess their need for PFM-related training and other skills development and (vi) preparation of capacity development plans for MAFF, MOWRAM, MRD to provide for PFM-related and other types of capacity development in those ministries.

B. Implementation of the Technical Assistance

2. The PPTA (4988CAM: Preparing the Strengthening of Public Financial Management for Rural Development Project) was intended to be implemented between December 2007 and August 2008. However, because of delays in recruitment of consultants, the implementation period has been from March to September 2008.

3. The executing agency for the project has been the MEF and the implementing agencies have been MAFF, MOWRAM, MRD and NAA.

4. The project commenced on 3 March 2008. Mr Les Henning, Public Financial Management Specialist/Team Leader, provided in-country inputs to the project from 3 March to 10 May and from 2 June to 30 August 2008. Mr Russell Leith, Institutional Development Specialist, provided inputs between 3 and 22 April, 14 May and 6 June, 17 June and 11 July and 24 July and 20 August 2008. Mr Nihal Fernandopulle, Audit Specialist, provided inputs between 6 and 20 April, 1 and 12 May, 11 June and 17 July and 28 July and 27 August 2008. National consultants Mr Ros Kheng, Budget Consultant, Mr Many Cheng, Capacity Development Consultant and Mr Nop Saravoan, Audit Consultant, have been employed continuously with the project since 10 February, 27 March and 5 May respectively.

5. A project inception report including work plan was submitted to the authorities and the ADB in early April 2008 and a mid-term report on progress to 30 June 2008 was submitted in early July. The PPTA team made a presentation of PPTA findings and recommendations to representatives of MEF, MAFF, MOWRAM, MRD and ADB in Phnom Penh on 26 August.

6. While accompanying ADB missions and during project interviews the project has met with a large number of officials from MEF, MAFF, MOWRAM, MRD and NAA and with other donor agencies. Team members have established good working relations with all of these officials and the project team is very grateful for the cooperation and assistance it has received. A list of persons met during the PPTA is included in Appendix 1 below.


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C. Rural Sector Description and Objectives

7. High economic growth rates since the mid-1990s have contributed to significant poverty reduction in Cambodia (from 47 per cent of the population in 1993-94 to 34.7 per cent in 2004 (latest figures available)). However, the impacts of growth have not been evenly spread and rural poverty at 39.2 per cent remained significantly higher than the national average in 2004.

8. The RGC is committed to sustaining high rates of economic growth and in meeting its Millennium Development Goal (MDG) targets. As Cambodia’s poverty reduction strategy, the National Strategic Development Plan (NSDP) 2006-2010 builds on the MDG targets and outlines a strategy for reducing poverty through rural development. Of the NSDP’s Rectangular Strategy’s four key components there are two which directly affect rural development: (A) Enhancement of the Agricultural Sector by (i) improving productivity and diversifying the agricultural sector, (ii) land reform and mine clearance, (iii) fisheries reform and (iv) forestry reform and (B) Further Rehabilitation and Construction of Physical Infrastructure through (i) further construction of transport infrastructure and (ii) management of water resources and irrigation. Of the 43 high level development targets set in the NSDP 2006-2010, eight are directly in the rural development sector and are shown in the following table.

Table 1: NSDP 2006-2010 Targets

Target Actual 2005

Target 2010

ENHANCE AGRICULTURAL PRODUCTION AND PRODUCTIVITY

Paddy yield per hectare (tons) 1.97 2.4

Irrigated land including supplemental irrigation (% of rice area)

20 25

Land reform: land titles to farmers (% of total agricultural land)

12 24

RURAL DEVELOPMENT

Rural roads rehabilitated (kms-out of 28,000) 22,700 25,000

Safe drinking water access (% of rural population) 41.6 45

Sanitation access (% of rural population) 16.4 25

ENVIRONMENTAL SUSTAINABILITY

Forest cover (% of total area) 60 58

Fuel wood dependency 83.9 61


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9. The most challenging strategic goal for the rural sector, however, will be to reach the target of reducing poverty to below 25 percent of the total population by 2010, from 34.7 percent in 2004. Because, as indicated above, a higher proportion of the poor live in rural areas, meeting the NSDP poverty reduction goal by 2010 will require well-targeted and increasingly efficient public sector programs, as well as significant private investment.

10. A serious deficiency in Cambodia’s public financial management system has been the low budget execution rate by ministries, i.e. rural ministries’ actual expenditures have frequently fallen significantly short of their approved budgets. For example, Ministry of Agriculture, Forestry and Fisheries spent only 90 percent of its current budget in 2003, although it increased its disbursement rate to 96.9 percent by 2007. Ministry of Rural Development increased its rate of current spending from 80.5 percent to 93.3 percent of approved budget over the same period and Ministry of Water Resources spending rate declined from 95.9 percent to 93.5 percent of budget over the same period. Poor PFM systems in line ministries have serious impacts on the efficiency and effectiveness of service delivery of line ministries’ programs and thus the attainment of poverty reduction goals.

D. ADB Involvement in the Rural Sector.

11. From the resumption of ADB operations in1993 to the end of 2007, ADB had supported the agriculture and natural resources sectors with a total approved amount of $125.5 million (five loans, one grant project and 25 technical assistances (TAs)). This comprises approximately one quarter of the total assistance approved by ADB for Cambodia. At the end of 2007, continuing loans and grants (three project loans, one program loan and one project grant) for agriculture and natural resources totaled $83.59 million or 15.9 per cent of ADB’s active portfolio in Cambodia. Also, in late 2007, the active TA portfolio in the agriculture and natural resources sector totaled nine projects for a total value of $7.05 million.


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II. PUBLIC FINANCIAL MANAGEMENT REFORM

A. The Public Financial Management Reform Program (PFMRP)

12. PFMRP was adopted in December 2004 in response to observed weaknesses1 (low budget execution rates, excessive payment arrears, fiduciary risks associated with cash-based transactions systems, low resource mobilization rates and poor control systems) in public financial management (PFM)2. PFMRP was established as a 10-year reform program, based on a sequenced platform approach:

• Platform 1: Making the budget more credible in terms of timely and predictable delivery of funds (including improving the comprehensiveness of the budget; strengthening macro-fiscal and revenue forecasting and streamlining spending processes);

• Platform 2: Implementing effective financial accountability;

• Platform 3: Achieving a fully affordable policy agenda through policy-budget linkage; and

• Platform 4: Achieving effective program performance accountability.

13. Stage 1 of the program covered the period 2005 to 2007, with 2007 also being designated as a transition year for planning the changes needed to move to Stage 2 of the program. The methodology in Stage 1 of the PFMRP was to design and implement a series of activities (and related actions) that would contribute directly to meeting the objectives of Platform 1 as well as a set of activities which were deemed to be prerequisites for commencement of Platforms 2, 3 and 4 in later years.

14. Major outputs of Platform 1 of the program included (i) establishment of a revenue mobilization strategy, together with improved macro-fiscal planning, (ii) improved resource flows from improved revenue collection techniques in National Treasury (also assisted by strong economic growth), improved cash management (including consolidating several hundred government bank accounts into the Treasury Single Account) and increased use of the banking system (rather than cash) for government transactions, (iii) incorporation of off-budget revenues into the budget, (iv) implementation of a debt management function in MEF, (v) streamlining the expenditure commitments and payments system to improve budget holders’ ability to spend in line with budget provision, (vi) reduction in the stock of payment arrears and measures to avoid re-accumulation of arrears and (vii) implementation of revised procurement procedures.

15. Activities undertaken in Stage 1 as prerequisites for later platforms included (i) redesign of the chart of accounts and budget classification and (ii) initial design of a government-wide Financial Management Information System, (iii) introduction of an internal audit function, (iv) redesign of the budget cycle, introduction of program budgeting on a pilot basis in selected ministries, (v) investigating options for fiscal decentralization and (vi) completion of a PFM capacity development plan.

16. The PFMRP was reviewed by an independent External Advisory Panel in early 2007. As a result of the review, it was recognized at the annual PFMRP retreat in Siem

1 World Bank/ADB, Integrated Fiduciary Assessment and Public Expenditure Review, 2004

2 MEF, Public Financial Management Reform Program: Strengthening Governance in Cambodia through

Enhanced Public Financial Management, 2004


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Reap in April 2007 that, while not all activities proposed under Platform 1 had been fully completed, sufficient progress had been made for the overall objectives of Platform 1 to have been substantially achieved and for planning for Platform 2 to commence.

17. MEF prepared, in consultation with development partners, a framework for implementing Stage 2 of the PFMRP from 2008 to 2010 in the document Building on Improved Budget Credibility toward Achieving Better Financial Accountability (also known as the PFMRP Consolidated Action Plan Stage 2 (CAP2)), which outlines the proposed second stage and the second platform of the PFMRP.

18. The activities in Stage 2 are grouped in three main types; (i) continuing Platform 1 activities that need to be strengthened in Stage 2, (ii) Platform 2 activities that are to be implemented in Stage 2 and (iii) activities for later platforms (3 and 4) which need to be commenced in 2008.

19. The continuing Platform 1 activities are (i) to further improve revenue policy and administration, (ii) debt management and (iii) cash and bank account management. The activities planned for Platform 2 are: (i) improving lines of accountability by clarifying roles, functions and responsibilities between levels of government and within spending agencies, (ii) improved instruments for encouraging responsible financial management including an incentives and sanctions regime, (iii) further completing implementation of the chart of accounts and the budget classification, (iv) improved budget implementation and financial management by further streamlining of the commitments and payments system and commencing implementation of the FMIS, (v) improved accounting, financial reporting and transparency by adoption of international accounting standards, quarterly and annual budget execution reporting and an improved budget document, (vi) completing the coverage and strengthening internal audit in line ministries, (vii) developing fiscal decentralization policy and strategy and (viii) building institutional capacity and motivational measures. Activities planned for Stage 2 as prerequisites for later platforms include (i) further integration of the recurrent and capital budgets, (ii) further inclusion of off-budget revenues and expenditures in the budget and (iii) further implementation of program budgeting.

20. The PPTA prepared a summary and comments on the PFMRP Stage 1 outcomes and activities proposed for Stage 2, a summary table of which can be found in Appendix 2A (full details can be found in Appendix 1 of the Mid Term Review). Also, the PPTA prepared the ADB’s submission to the RGC on the CAP2 which is included as Appendix 2B. In the submission the ADB indicated that it strongly supported the proposed framework as a suitable basis for Stage 2 of the program, but suggested some options for strengthening the framework. These were (i) inclusion of specific internal audit training activities for line ministries, (ii) further clarification of line ministries’ intended involvement in internal audit, program budgeting and further reform of the commitments and payments system. Also, clarification was required on whether further action would be required in Stage 2 on certain Platform 1 activities which remained incomplete (further out-posting of financial controllers to line ministries, preparation of an IT strategy, additional public expenditure tracking surveys (PETS) and completion of government asset registers.

21. CAP2 was adopted as the framework for PFMRP Stage 2 at the annual program retreat in June 2008, with implementation to commence in late 2008.


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greater transparency of bidding opportunities. (All ministries will be required to participate in the further procurement reforms.)

27. Other Stage 2 activities in which MAFF, MOWRAM and MRD will participate are (i) improving accountability by defining appropriate financial responsibilities between management levels in ministries (and between levels of government), (ii) implementing the new economic and administrative classifications in the chart of accounts and budget classification by 2009 and the new functional classification by 2010, (iii) improved and more frequent budget reporting, (iv) further deepening of internal auditing procedures introduced in Platform 1 including MEF quality control of internal audit reports and (v) implementation of new financial arrangements at sub-national level pursuant to the deconcentration and devolution organic law passed in 2008.

28. Further work will be undertaken in preparation for activities, which are to be fully implemented in Platforms 3 and 4 from 2011 to 2015. MRD and MAFF as pilot ministries for program budgeting will be required to review and amend their program structures and budgeting procedures in the light of lessons learned in Platform 1. All ministries will be required to bring donor-funded programs and projects into their budget preparation cycle to the greatest extent possible.

29. A major focus of Platform 2 will be capacity building in line ministries under the PFM capacity development plan prepared by the Economics and Finance Institute (EFI) of MEF in 2007 and approved by the Government as the blueprint for PFM capacity building until 2010. The plan provides for extensive (up to 8,000 participants across the public sector) training in 33 different PFM technical skills, (ii) broader skills development training (leadership, management), (iii) new human resources policies (accelerated advancement, job rotation, overseas scholarships and study tours). It is also proposed that the Merit Based Pay Initiative will become available to all line ministries to extend incentives to staff to improve their performance and to participate in the PFMRP. The proposed TAs to MAFF, MOWRAM, MRD and NAA under the proposed ADB program cluster should be designed to fit seamlessly with the PFM capacity development plan.

30. To assist the line ministries to prepare for PFMRP Stage 2 and for the ADB to design activities for its proposed rural development program cluster, the PPTA has carried out functional reviews of the finance and planning departments of MAFF, MOWRAM and MRD with the cooperation of the staffs of those ministries. The reviews, which are reported at Appendix 3, confirmed earlier findings such as those of the 2007 EAP that the take-up of PFM reforms in line ministries between 2005 and 2007 had been slight.

31. The main findings of the reviews were that (i) estimated receipts and expenditures of donor projects (which can comprise a large proportion of the resources available to the three ministries) were not being included in preparation of the ministries’ budgets, (ii) there was poor or non-existent coordination in including provincial departments’ budget estimates in the ministries’ budgets preparation, (iii) there was poor coordination between preparing the program and non-program budgets (MAFF and MRD), (iv) there was inadequate reporting of budget execution by provincial departments during the fiscal year, (v) accounting systems in the three ministries are rudimentary (although MAFF is introducing a commercial accounting package prior to its inclusion in the FMIS pilot in 2010), (vi) the internal audit function was not yet well developed in the two ministries (MAFF and MOWRAM) in which it had been introduced, (vii) although new procurement procedures had been introduced, fiduciary risks associated with public procurement by the ministries appeared to be still high and (viii) only a small, and probably inadequate, amount of PFM training had been provided to


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line ministries (in MOWRAM only three staff had attended PFM training provided by MEF during Stage 1).

32. The results of the reviews indicated that significant effort would be required in MAFF, MOWRAM and MRD for institutional and staff capacity building during PFMRP Stage 2. The reviews showed that there is a need for significant strengthening of PFM activities which were commenced in Platform 1 such as improving budget comprehensiveness (i.e. inclusion of off-budget revenue and expenditure items in the budget), procurement procedures, internal audit and implementation of the new chart of accounts, as well as the activities scheduled for Platform 2 such as improved accounting and budget execution reporting. The reviews also suggest that further effort will be required to consolidate program budgeting in the two ministries (MAFF and MRD) in which it has been piloted. There is a need for MAFF to engage with MEF in planning for introduction of FMIS.

33. To assist line ministries and ADB further in implementing PFM reforms, the PPTA prepared PFM capacity development plans for MAFF, MOWRAM and MRD, based on training needs assessments carried out in cooperation with the staffs of those respective ministries.

34. The methodology of the training needs assessments comprised three parts: (i) identification of the PFM training and other capacity development needs specified or implied in the PFMRP Stage 2 framework (CAP2) which included the PFM capacity development plan, (ii) by using the PFM Working Group in each ministry as a focus group in which middle to senior managers in the finance, planning and internal audit departments were asked to identify the development needs of their staff and themselves and (iii) a survey of the staff in the finance, planning and internal audit departments of the ministries to ascertain their views on their organization, their prior experience, training and qualifications and their perceived needs for their own development. The focus groups and surveys sought views on general skills development as well as focusing specifically on PFM training needs. Seventy-four respondents in MAFF, 33 in MOWRAM and 50 in MRD completed the survey questionnaire.

35. The responses, which are summarized in attachments to the capacity development plans for MAFF, MOWRAM and MRD, are included in Appendices 4, 5 and 6 respectively. The respondents indicated needs for a wide range of training in PFM topics which are to be provided in the EFI’s proposed schedule of training as well as other activities not currently scheduled by EFI such as enhanced procurement and internal audit training.

36. The capacity development plans have matched the demand for training with the scheduled training program which EFI proposes to deliver between 2008 and 2010. The proposed plans allocate a proportion of training places to each ministry for all of the PFM and related courses which EFI proposes to offer. In addition, the plans propose training in other areas not presently covered by the EFI schedule. These additional courses include enhanced internal audit, enhanced procurement, program budgeting, commitments and payments system changes, preparing budget execution reports, monitoring and evaluation techniques and implementing devolution and deconcentration. The training plan for each ministry also includes proposed staff numbers to be trained, training modality and implementation period. Training of rural development ministry staff on these supplementary topics would be suitable for inclusion in the proposed ADB TA project.


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B. PFMRP in Rural Development Ministries

22. While much of the focus of Stage 1 was on activities in MEF, line ministries also had a major role in its implementation. The involvement of line ministries including MAFF, MOWRAM and MRD in Stage 1 has included (i) streamlining the commitments and payments system (by removing commitments requirements for salaries and non-procurement purchasing and out-posting financial controllers to selected ministries), (ii) consolidation of ministries’ bank accounts to the Treasury Single Account in National Treasury to improve cash management and reduce fiduciary risks, (iii) reducing ministries’ payment arrears (which were paid out by MEF) to improve their ability to meet current year expenditures, (iv) deconcentration of procurement by introducing new purchasing procedures including raising the thresholds for line ministries to do their own procurement without prior MEF approval, (v) introduction of internal audit units in line ministries (units were set up in MAFF and MOWRAM but not MRD), (vi) introduction of program budgeting on a pilot basis in seven ministries (including MAFF and MRD, but not MOWRAM) and (vii) introduction of strategic budget plans in the budget preparation process as a first step to linking budget planning and policy priorities.

23. While there has been significant progress with the Platform 1 objective (improved budget credibility) (revenue out-turns are now within five per cent of budget estimates, MAFF’s expenditure execution rate has increased from 94 to 97 per cent between 2005 and 2007, MRD’s increased from 90 to 93 per cent and MOWRAM’s from 89 to 93 per cent), many of the reforms particularly at line ministry level have had limited impact and may not be sustainable in the longer term without further reinforcement.3 For example, while 23 of 35 budget-funded agencies have established internal audit units, it is unclear which, if any, are producing good quality audit reports, Further, despite efforts to rationalize the number of government bank accounts, ministries still hold a large number of accounts (about 1,800). (However, the rural development ministries hold only small numbers of accounts.)

24. In planning for PFMRP Stage 2, MEF has recognized the need for greater involvement of line ministries in the program in order to (i) meet the Platform 2 objective of ‘increased financial accountability’ and (ii) strengthen the reforms, which were introduced in Platform 1. There will also be a need to commence or strengthen activities, which are prerequisites for Platform 3 and 4. The assistance to be provided under the proposed ADB program cluster will be directed at meeting these objectives.

25. MAFF, MOWRAM and MRD will be brought into PFMRP implementation more closely in Platform 2 by including them (along with representatives of all other line ministries) on the PFM Reform Committee, the high level group that sets the policy direction and oversights implementation of the program. Also, all line ministries will be required to prepare their own PFM Ministry Action Plan and a PFM Capacity Building Plan.

26. Further enhancements of Platform 1 activities which will be implemented between 2008 and 2010 will include (i) further improvement of revenue policy and collection including implementation of an oil and gas revenue policy (It is expected that ministries such as MAFF which have significant non-tax revenues should review and periodically adjust the rates of their fees and charges) and (ii) further improvements in public procurement including implementation of procurement rules and regulations and standard bidding documents, MEF ex-post monitoring of ministries’ procurements and

3 External Advisory Panel report, 2007


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37. Other general development topics included in the training plans were business English, report and project proposal writing skills, project management, supervisory skills and basic and advanced IT packages. Consideration should also be given to including these topics in the ADB TA project or funding them from the project’s resources.

38. The capacity development plans also identified other personal development measures which would be suitable for finance and planning staff of the three ministries. These include scholarship schemes offered by various development partners, study tours and in-country courses such as the Japan/ADB Public Policy Training Program. The capacity development plans also recommend that the members of the PFM Working Group in each ministry should be admitted to the Merit Based Pay Initiative (MBPI) as a first step in extending that scheme to line ministries. An option which should be considered in relation to MBPI is whether funding of the scheme in the three rural development ministries would be eligible expenditure in the ADB TA project.

39. The PPTA was requested by the PFM Working Group in MRD to assist it in preparing the PFM Ministry Action Plan (MAP), which is the mandatory strategic plan for PFM reform activity in the ministry from 2008 to 2010. Although this task was additional to the existing TORs and work plan of the PPTA, the Director SEGF agreed that the PPTA should remain flexible in meeting ministry requests for ad hoc assistance and, as this appeared to be a significant activity, ADB would be prepared to rearrange other less significant activities from the PPTAs TORs and work plan, if necessary, to accommodate it. In the event, a draft of MRD’s MAP was prepared within existing project resources and can be found in Appendix 5 of the Mid Term Review. The draft has been submitted to MEF for comment and has been developed further with MRD staff, including discussion of a work plan to implement its various components. As well as assisting the ministry develop its internal audit function (see section 2.5 below) and its PFM capacity development plan (as detailed above), the project has advised the PFM Working Group in MRD on options for joining the MBPI.

C. ADB’s Contribution to PFMRP

40. ADB has contributed significantly since 2005 to activities of the Public Financial Management Reform Program (PFMRP) Platform 1. ADB provided assistance to the RGC in TA No. 2566CAM-Developing Capacity in Audit and Inspectorate Functions to establish the National Audit Authority (NAA). In TA No. 3634CAM–Strengthening Public Financial Management, ADB assisted the Government in 2004 and 2005 to (i) set up an internal audit function, initially in MEF and (ii) strengthen the institutional structure of the NAA. Also, the project assisted MEF to establish a medium term expenditure framework and a macroeconomic forecasting capability. In TA No. 4441CAM-Support to Public Financial Management Program, ADB assisted MEF to establish a debt management function. This activity involved setting up a debt management office in the ministry, installation of a debt management database, preparation of debt management procedures and a manual and staff capacity building. PFM-related technical assistance (although not formally part of the PFMRP) was provided to MAFF in TA No. 4428CAM-Strengthening National Program Budgeting for the Agriculture Sector which prepared a program-based financial management system including a new chart of accounts, a monitoring and evaluation framework and manual and a financial training manual.

D. External Audit Function

41. The National Audit Authority which was established under the Audit Law of 2000 is the supreme audit institution of Cambodia which reports directly to the National


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Assembly and Senate. In recognition of its independent status, the external audit function has not been formally included in the PFMRP. However, it has been acknowledged that external audit of the public accounts and performance and compliance auditing are essential to ensuring accountability over public resources (including donor-funded projects) and therefore effective service delivery to the rural development sector.

42. As indicated above, ADB has provided significant assistance for establishing and strengthening the external audit function in two TAs between 1999 and 2003. In recognition of its lack of experienced audit staff and its lack of capacity to undertake certain activities such as performance auditing, the NAA has requested the ADB to provide further assistance to strengthen its capacity. Accordingly, the outputs of this PPTA will be used in the preparation of the proposed TA to strengthen capacity in the NAA under the ADB program cluster.

43. A major output of this PPTA has been the preparation of an assessment of the capacity of the NAA (Appendix 2 in the Mid Term Review). The main findings of the assessment were review of (i) the audit law and sub-decree, (ii) NAA’s relationship with the legislature and legislative committees, (iii) NAA’s structure, staffing, processes and procedures and (iv) NAA’s relationship with the internal audit and inspectorate functions. The report also includes terms of reference for a proposed peer review of NAA by another national audit institution. RGC agreement in 2008 to such a peer review proceeding has been included as a policy action trigger for sub-program 1 of the proposed ADB program cluster. The report includes conclusions and recommendations for reform of the NAA and for improving its institutional and staff capacity.

44. Another significant output has been the completion of a capacity building plan for NAA which is included at Appendix 7. The plan is intended to fit under the NAA’s Strategic Development Plan 2007-2011 and focuses particularly on training and capacity building for loan project audits. It proposes training for NAA staff in (i) RGC and donor procurement procedures and auditing of procurements, (ii) donor project financial management requirements, (iii) donor standard operating procedures, (iv) audit planning, (v) review and evaluation of internal controls including IT controls, (vi) loan arrangements and English language training to allow auditors to understand manuals etc.

45. Initial training was provided to NAA staff (including the Deputy Secretaries General) by the PPTA in July 2008. The workshops delivered 14 hours of contact time to 28 staff of the authority on the procedures for auditing loan projects. Further detail on the content of the training and the outcomes are shown in Appendix 11A.

46. The PPTA is assisting the NAA to undertake a pilot performance audit of an ADB development project for school construction in MOEYS (Second Education Sector Development Project: ADB Loan No. 2122CAM). As part of the pilot audit the consultants have been training the staff of the audit department responsible for loan projects in audit planning, determining audit objectives, developing the audit program, preparing internal control checklists and carrying out the audit. Training was also provided on the key features of the procurement, financial management and project management regulations.

E. Internal Audit Function

47. An internal audit function was established in PFMRP Platform 1 as a prerequisite for achieving effective financial accountability which is the main thrust of



PFMRP Platform 2. With ADB technical assistance, the Internal Audit Department in MEF was formed in 2005 by transfer of 20 staff from the General Inspections Department. Internal audit standards and a code of conduct were prepared by MEF and disseminated to line ministries. Some training in audit procedures was provided to line ministries by MEF.

48. The Audit Law of 2000 requires each ministry to establish an internal audit function in accordance with the sub-decree on internal audit (No. 40/ANK/BK of 2005). Internal audit units have been established in MAFF and MOWRAM and a draft sub-decree to establish an internal audit function in MRD was approved by the Prime Minister in August 2008. The independent review by the External Advisory Panel (EAP) in early 2007 found that 19 ministries (subsequently increased to 24 of 35 budget-funded agencies) had established internal audit units but that only seven were found to be operational. The EAP found that the capacity of these units to carry out internal audits effectively was low. The report cited the findings of a WB appraisal which identified (i) internal audit skills development, (ii) guidance on internal audit methodologies and (ii) acquisition of sufficient resources as major requirements of line ministry internal audit departments.

49. An effective internal audit function is essential in line ministries to strengthen internal controls processes to reduce fiduciary risks and to provide assurances to development partners and other stakeholders. In PFMRP Platform 2 it is intended to complete the coverage of internal audit to all line ministries and to strengthen capacity in all ministries in support of the Platform’s main objective of increasing financial accountability. In continuation of its earlier assistance, the ADB program cluster will support a TA project to strengthen internal audit in MEF, MAFF, MRD and MOWRAM.

50. To support the preparation of that TA, the present PPTA has completed a number of outputs. Reviews of the internal audit capacity of MOWRAM and MAFF (shown at Appendices 8 and 9 respectively) have confirmed the view that capacity within the internal audit units is weak.

51. In the MOWRAM review it was found that, although the internal audit unit has a three year work plan and has produced five audit reports, its capacity to undertake audits at a professional standard remains low, due mainly to inexperience of the staff and lack of appropriate educational qualifications. Also there is no generally accepted auditing methodology in place and there are no internal audit procedures manuals. The report includes conclusions and recommendations for improving staff capacity and internal audit procedures, including a three year internal audit training plan which is at Annex E of the report.

52. The review of internal audit in MAFF reaches similar conclusions to the MOWRAM review. Generally, the capacity to undertake adequate internal audits is low and various measures to improve staff capacity and audit procedures will be required. The three year internal audit training plan outlined above is a generic plan and will be appropriate for MAFF and for MRD when its internal audit unit is established.

53. The PPTA assisted MAFF in undertaking a pilot audit of the payments cycle. The Agricultural Office of Steung Treng province was selected for the pilot audit. The internal audit department had scheduled to undertake this audit as part of its annual work plan for 2008 and the PPTA consultants assisted the audit team in executing this audit. The audit focused on evaluating the internal control systems relating to the payments system covering (i) repairs and maintenance of buildings and temples; (ii) accommodation expenses; and (iii) payments of subsidies to enterprises. These three



items of expenditure represent over 50% of the total expenditure of the 2007 budget allocation for this province.

54. Audit objectives, audit programs and Internal Control Questionnaires were developed together with a detailed planning document. Several training sessions were conducted with the audit teams before the commencement of each phase of the field audit.

55. The PPTA prepared an assessment of the existing internal audit sub-decree which is included as Appendix 10. The assessment concluded that the internal audit sub-decree is adequate to enable the functioning of an effective and professional internal auditing activity in the public sector, as it has been based on the practices recommended by international internal auditing standards. The sub-decree can be strengthened further by introducing provisions to require the establishment of audit committees, permitting external appointments to the more senior positions in the ministry audit departments, permitting the use of short-term experts and contractors for specialized areas of internal audit, requiring an external assessment of the internal audit function once every five years and by requiring that the ministries develop and maintain proper auditing procedures manuals.

56. A two-day workshop on internal audit concepts and procedures was delivered to 33 audit staff of MAFF and MOWRAM in July 2008. Details of the training topics and the outcomes are also shown in Appendix 11B.

57. The PPTA prepared a report advising on the content which should be included in proposed internal audit procedures manuals for MAFF and MOWRAM. The report is included as Appendix 11C. Similarly, an outline of the elements which MAFF and MOWRAM will have to consider in preparing their annual internal audit work plans is included as Appendix 11D. The factors to be considered include: (i) the annual revenue and expenditure cycles, (ii) auditing of procurement, inventories and fixed assets, (iii) auditing of trading and semi-commercial operations (MAFF), (iv) efficiency and effectiveness of projects, (v) resettlement schemes (MOWRAM) and adequacy of disaster and emergency relief programs (MOWRAM).

58. The shortcomings in the current organizational structures of MAFF and MOWRAM’s internal audit departments which were identified in the above reviews have been addressed in proposed new structures for the departments which are included in Appendix 11E. This appendix also includes proposed job descriptions for the various levels of audit staff in the two departments. Because of similarities in the functions of NAA and internal audit departments in line ministries there are risks of overlap and duplication occurring. For this reason, good coordination between these functions is essential and accordingly proposed arrangements for networking between the internal and external audit functions are outlined in Appendix 11F.

59. As indicated above, MRD proposes to establish a functional internal audit unit by the end of 2008. Sub-decree No 113 for establishing the internal audit department in MRD was approved by the Prime Minister on the 13 August 2008. A director and two deputy directors have since been appointed to IAD, although no other staff have yet been appointed. The department is not yet operational and the director has requested the assistance of the TA audit consultants to assist him during this initial stage of start up.

60. The project agreed with MRD’s PFM Working Group that the domestic audit consultant will work with the Director of IAD during September 2008 to assist him to:



• Draft a Prakas for the IAD based on the requirements of the internal audit sub-decree;

• Identify the key activities undertaken in the ministry;

• Draft a suitable organizational structure for the IA;

• Prepare an outline of the internal audit work plan; and

• Prepare position descriptions for each audit staff member

61. Advice was provided to the Director of IAD to increase awareness of the approach and purpose of internal audit and the techniques and methodologies that are used in modern internal auditing. The need to have a clear demarcation of responsibilities between the newly established internal audit function and the existing inspection function in MRD was also emphasized.

F. Inter-governmental Financial Relations (Devolution and Deconcentration-D and D)

62. As the majority of Cambodia’s poor live in rural areas, improving service delivery to rural communities is seen as an essential step for poverty alleviation. The 2003 IFAPER report noted that decentralization of service delivery responsibility is an essential part of public sector reform. Also, as noted by this project in the functional reviews of the three rural development ministries there is a lack of coordination between the central offices of the ministries and their provincial departments for budget planning and execution, thus detracting from the efficiency of service delivery in rural areas.

63. In PFMRP Platform 1 preparatory work on inter-governmental financial relations was commenced as a pre-requisite for reforms which were to be carried out in later platforms. In the 2007 EAP report progress was noted as (i) enactment in 2001 of a commune and sangkat organic law, (ii) setting up a Commune and Sangkat Fund (to receive central government funding equivalent to about 2.5 percent of recurrent expenditure each year) and (iii) establishment of a system of fiscal grants to communes and sangkats based on a simple fiscal equalisation formula.

64. However, the other levels of sub-national government (provinces, municipalities, districts, and khans) have lacked adequate legal mandates as to their institutional structures, roles and responsibilities (expenditure mandates) and revenue powers and sources. To this end, a devolution and deconcentration organic law was prepared and presented at a major conference in Sihanoukville. The PPTA consulted with the Development Partners D and D Working Group and the DPC on the draft law in March 2008 and prepared a summary and comments on the draft organic law (included at Appendix 12). As the law was introduced for passage to the National Assembly on 27 March 2008, there was no opportunity to engage the relevant ministries on the issues raised in the comments paper.

65. The organic law provides a clearly defined institutional basis for sub-national administrations. It legislates for expenditure responsibilities of the various levels of government to be determined and for a system of assigned revenue types (mostly non-tax revenues), shared taxes (with the central government) and conditional and unconditional transfers from the central government to sub-national administrations, which are to be included in a law on the financial regime and asset management of sub-national administrations. MEF has prepared drafts of the financial law, an early version of which was translated to English by the project team.



66. However, the implementation provisions of the organic law have been deferred for inclusion in 32 further laws, decrees and sub-decrees. The National Committee on Deconcentration and Devolution (within MOI) with the assistance of high level officials from other ministries is currently working on developing these implementation arrangements, although it is unclear when these tasks will be completed.

67. The PFMRP Stage 2 framework provides for a detailed plan to be prepared to support initial implementation of the fiscal and financial provisions of the D and D organic law (Objective 27). Also, Objective 21 of the framework proposes that the budget holders and lines of accountability at the various levels of government be clearly defined as a basis for improving accountability.

68. Because further policy development has been delegated to the National Committee (and which went into abeyance during the period of the 2008 national elections), the PPTA has been unable to engage further with the authorities on D and D issues. However, after the National Committee has completed the assignment of expenditure roles and of revenue types to sub-national levels, line ministries will require considerable assistance to implement the new arrangements. Therefore, it is recommended that the TA on strengthening PFM reforms in the three rural development ministries remain flexible in responding to assistance needs for the new arrangements.



III. OTHER ACTIVITIES AND OUTPUTS

A. PFMRP Annual Retreat

69. MEF conducted its annual review meeting for the PFMRP on 28 and 29 May 2008, at which the Prime Minister launched Platform 2 of the program. The ADB Country Director was requested to deliver a closing address on behalf of the development partner community. Mr Russell Leith attended the retreat as an observer.

B. Equipment Procurement

70. The project has completed procurement by competitive quotes of computers and other office equipment for the NAA, MAFF and MRD. This equipment is intended to contribute to increased productivity in these agencies.



APPENDIX 1 – LIST OF PERSONS MET



MINISTRY OF ECONOMY AND FINANCE ( MEF)

H.E. Aun Porn Moniroth Secretary of State

H.E. Hang Chuon Naron Secretary General, National Economic Council

Mr. Tep Vannda Assistant to H.E Hang Chuon Naron

H.E. Vongsey Vissoth Deputy Secretary General

Mr. Sunly Thearith Assistant to Deputy Secretary General

Mr You Channan Deputy Chief

Mr. Khuth Sakhan

Director of Administration and Financial Management

Department of Investment and Cooperation

H.E. Chan Sothy

Director of Department of Investment and Cooperation

Mr Pen Thirong

First Deputy Director of Department of Investment and Cooperation

Mr. Chhuon Samrith Chief, ADB Division

Mr. Hak Ponnarin Deputy Chief, ADB Division

Ms Sun Naly Deputy Director of Debt Management Unit

Reform Committee Secretariat (RCS)

Dr. Sok Saravuth Director of Department of Budget Management, PFM Reform Secretariat

Mr. Youk Bunna Deputy Head of Secretariat and Program Coordinator

Mr. Bou Vong Sokha Liaison Officer for PFM Reform Committee at RCS

Mr. Bun Roith Liaison Officer (CRS), Chief of Administrative Office (BD)

Mr. Nuon Vithya Liaison Officer ( PFMRC)

Mr. Ieng Auntouch Liaison Officer ( Revenue Group )

Internal Audit Department ( IAD )

Dr. Chea Vuthna Director of Internal Audit Department

Mr. Var Neov

Non-Tax Revenue Department

Mr. Aun Bunhak Director of Non-Tax Revenue Department

Mr. Thao Sokmuny Deputy Director of Non-Tax Revenue Department



Mr. Pen Vutha First Deputy Director of Department of Non-Tax Revenue

Department of Public Procurement

Mr. Chhim Sareth, Advisor to the Prime Minister & Director of Department of Public Procurement

Mr. Chhay Vuth Director of Department of Public Procurement

Mr. Vong Roda Vuth First Deputy Director of Department of Public Procurement

Mr. Ngan Phirum

Deputy Director of Department of Public Procurement

Mr. Huot Vathna Deputy Director of Department of Public Procurement

Department of Financial Affairs

Mr Ieng Sunly First Deputy Director of Department of Financial Affairs

National Treasury

Mr. Chhean Hieng, Deputy Director of National Treasury

Economics and Finance Institute ( EFI )

Mr. Seng Sreng Director of Economics and Finance Institute

Ms Soun Len

Training Coordinator of Economics and Finance Institute

ICT Unit

Dr Phan Phalla, Director of ICT Unit

FINANCE AND BANKING COMMISSION

H.E Phan Na

Secretary of Economic, Finance, Banking and Audit Commission

NATIONAL AUDIT AUTHORITY ( NAA)

H.E. Uth Chhorn Auditor General

H.E Chhay Kim Deputy Auditor General

H.E. Luk Nhep Secretary General

H.E Ung Silan Deputy Secretary General

Mr. Long Atichbora Director of Technical Department



Mr. Keo Chea Director of the 3rd Audit Department

Ms. Keo Sochenda Secretariat General Office

MINISTRY OF RURAL DEVELOPMENT ( MRD)

H.E. Lu Lay Sreng

Deputy Prime Minister and Minister of Rural Development

H.E. Mr. Yim Chhaily Secretary of State

H.E. Suos Kong Secretary of State

H.E. Sao Chivoan Under Secretary of State

H.E. Chuop Sam Ath Director General of Administration and Finance

H.E Hout Sarim Deputy Director General of Administration and Finance

H.E. Chan Darong

Director General of General Department of Technical Affairs

Mr. Sam Say Director of Supply & Finance Department

Dr. Mao Saray, Director of Rural Water Supply Department

Mr. Ma Sovanna

Director of Department of Planning and International Cooperation and member of PFM-WG.

Ek Sokheyna Deputy Director of Department of Supply and Finance

Mr. Hourt Sarim

Deputy Director General of Administration and Finance and member of PFM-WG

Mr. Toun Sophal

Deputy Director General of Administration and Finance and member of PFM-WG

Mr Ngoun Dara Deputy Director of Department of Rural Roads

MINISTRY OF WATER RESOURCES AND METEOROLOGY ( MOWRAM)

H.E Veng Sakhon Secretary of State

Mr. Chorng Seng Im Director of Finance Department

Mr. Muy Monin Deputy Director of Finance Department

Mr. Soeng Sophal Director of Internal Audit Department

Mr. Chhea Bunrith Director of Administration Department

Mr. Chea Chhun Keat Director of Department of Planning and International Coperation

Mr. Klok Sam Ang PMO Manager

Mr Chuon Bithol Program Manager



Mr Duong Sam Ang Chief of Finance Office

Mr Sam Rithy Technical staff of Finance Department

MINISTRY OF AGRICULTURE FORESTRY AND FISHERIES (MAFF)

H.E Chan Tong Yves Secretary of State

H. E Koum Saron Director General

Mr. Duong Bunny Director of Department of Accounting & Finance

Mr. Nhep Chanthet Director of Department of Internal Audit

Mr. Mong Leng Deputy Director of Department of Accounting and Finance

Mr. Kik Seng Director of Department of Planning and Statistics

Mr. Mouch Chantha Chief of Planning Office

Mr Che Savun, Chief of Office of Public Investment

Mr. Srey Vuthy Chief of Monitoring and Evaluation Office

Mr. Hong Ponnaka Chief of Finance Office

DEVELOPMENT PARTNERS

Mr. Peter Lindenmayer First Secretary Development Cooperation, AusAID

Mr. Jens Lauring Knudsen Agriculture & Rural Development Advisor, AusAID

Mr. Juergen Schilling Country Director, GTZ

Mr. Erik Illes First Secretary, Embassy of Sweden

Mr Sodeth Ly Economist, International Monetary Fund

Ms Jacinta Barrins Decentralization Advisor, UNDP

Ms Helga Wilkerling Audit Trainer, GTZ

Mr. Peter F. Murphy Senior Public Sector Management Specialist, World Bank

Mr Guillaume Prevost Economic Counsellor, Embassy of France

Dr Andrew Wardell Counsellor-Development, Royal Danish Embassy

Ms Louise Scura Lead Natural Resource Economist, World Bank

Ms Jolanda Jonkhart Programme Officer, European Union

Mr John Nelmes Resident Representative, International Monetary Fund

Ms Sandy Rost Audit Adviser, GTZ



ASIAN DEVELOPMENT BANK

Mr. Jaseem Ahmed Director, SEGF

Ms Rita O'Sullivan Senior Counsel

Mr. Kelly Bird Economist (Trade), SEGF

Mr. Arjun Goswami Country Director, CARM

Mr. Eric Sidgwick Senior Country Economist, CARM

Mr. Alain Goffeau Portfolio Management Specialist, CARM

Mr. Paulin Van Im Sr. Project Implementation Officer, CARM

Mr. Chamroen Ouch Programs Officer (Governance), CARM

Mr. Vanndy Hem Economics and Financial Sector Officer, CARM

Mr. Chantha Kim Economics and Financial Sector Officer, CARM



APPENDIX 2



APPENDIX 2A – Summary of the PFM Reform Program



PFMRP Stages and Platforms

Stage 1 (2005-2007)

Platform 1 Activities Prerequisite Activities for Later Platforms

1. Identification of public resources that escape inclusion in the budget

20. Re-design and integrate the accounting and budget classification systems

2. Measures to ensure that budget has impact on each category of expenditure

21. Initial design of FMIS

3. Develop a resource mobilization policy 22. Establish an internal audit function

4.Improve macro-fiscal framework and budget resource forecasting

23. Capacity development of internal audit staff

5. Strengthen debt management function 24. Piloting of expenditure tracking studies

6.Streamline commitments and payments process 25. Re-design budget cycle and institutional arrangements and reflect in new legislation

7.Widen the use of cheques and bank transfers for government payments

26 Pilot program-based budget analysis

8. Develop cash management planning 27. Investigate options for improving fiscal decentralization



9. Consolidate government bank accounts into the Treasury Single Account

28. Develop an IT management strategy

10. Eliminate stock of payment arrears 29. Initial design of an asset register

11. Take steps to avoid re-accumulation of payment arrears

12. Improve process for post-budget supplementary expenditure approvals

13. Develop revised procurement procedures

30. Capacity development measures (various) to support Platform 1

31. Motivational measures within MEF (mainly MBPI)

32. Investigate freedoms and flexibilities to encourage line ministries to engage in PFM reforms

33. Initial integration of functions in MEF

Stage 2 (2008-2010)

Strengthening of Platform 1 Activities Platform 2 Activities Prerequisite Activities for Later Platforms



11. Further improve revenue policy and administration (continues activities 3 and 4 above)

21 Improved lines of accountability by clarifying roles and responsibilities between levels of government and within spending units (continues activity 32 above)

31. Improve and expend program budgeting (continues activity 26 above)

12. Further improve debt management (continues activity 5 above)

22. Establish incentives and sanctions to encourage responsible resource management

32. Further improve comprehensiveness and integration of the budget (integrate capital and recurrent budgets, include off-budget expenditures in budget )( continues activity 1 above)

13. Further improve cash and bank account management (continues activities 7,8 and 9 above)

23. Further improve the chart of accounts and budget classification (continues activity 20 above)

14. Further improve public procurement (continues activity 13 above)

24. Improve budget implementation and financial management systems (further streamlining of commitments/payments system, piloting of FMIS) (continues activities 6 and 21 above)

25 Improved accounting, financial reporting and transparency

26. Improved internal auditing (continues activity 22 and 23 above)

27 Strengthen and develop fiscal decentralization (continues activity 27 above)



28. Institutional capacity building and motivational measures (various)



APPENDIX 2B – ADB submission on Cambodia PFMRP, Stage 2 Framework

(Prepared by ADB PPTA No. 4988CAM-Preparing for Strengthening of Public Financial Management for Rural Development)

1. Following significant progress with Stage I of the Public Financial Management Reform Program (PFMRP) between 2005 and 2007, the Ministry of Economy and Finance (MEF) has prepared, in consultation with development partners (DPs), a framework for implementing Stage 2 of the PFMRP from 2008 to 2010. MEF has circulated a draft document Building on Improved Budget Credibility toward Achieving Better Financial Accountability, which outlines the proposed second stage and the second platform of the PFMRP. (The version provided was Final Draft dated 19 March 2008.)

2. The Asian Development Bank (ADB) strongly supports the commencement of Stage 2 of the PFMRP as soon as possible in 2008 and endorses the framework document as a suitable basis for Stage 2 implementation. However, ADB considers that the document could be strengthened in a number of places by drafting changes, prior to its consideration at the annual review in April-May 2008 and endorsement by Government. The following comments are provided to assist in making those drafting changes.

1. Continuing Platform 1 Activities

3. It has been recognized in various reviews of the PFM program, eg the 2007 External Advisory Panel (EAP) report, that there would be a need to continue to deepen most Platform 1 reform activities well beyond the nominal implementation period, ie 2005 to 2007. It appears that most Platform 1 activities are being carried forward into Stage 2 with the exception of activities 2-budget impact on expenditure categories and 12-post-budget supplementary approvals which seem to be regarded as completed. It should be confirmed that these activities are now completed.

2. Stage 1 Activities which were prerequisites for Platform 2

4. With regard to activities which commenced in Stage 1 as prerequisites for later platforms, most have been included in Stage 2 in some form but with a number of exceptions. These exceptions are:

In Stage 1 financial controllers were out-posted from MEF’s Financial Affairs Department to a number of line ministries to streamline the commitments and payments process. Activity 24 deals in part with further streamlining of the commitments and payments system; however there is no mention of further out-posting to line ministries which did not receive a financial controller in Stage 1.

MEF completed several pilot public expenditure tracking surveys (PETS) in 2007. There are no continuing PETS activities shown in the document and it is unclear whether it is proposed to carry out more surveys during Stage 2. If further surveys are intended, this should be clarified in the document;

PFM Stage 1 had an activity (Activity 28) to develop an MEF IT strategy (separate from the FMIS activity). The 2007 External Advisory Panel review noted that it was unclear whether the ICT Unit in MEF or the Economics and Finance Institute (EFI) had main responsibility for IT planning and that this issue should be resolved. It now appears that a broader IT planning activity has been replaced by a plan to implement an MEF LAN/WAN (Activity 28a). It should be confirmed that it is no longer intended to develop a broad IT strategy;



Stage 1 Activity 29 provided for completion of a government asset register by entering inventory data into the database which had been developed. This activity was incomplete in early 2007; however, there is no mention of it in the Stage 2 document and it is unclear whether the activity has been completed since 2007 or has been terminated. Terminating this activity, if incomplete, would not be consistent with the plans to develop accrual-based accounting in Platform 2;

3. Other comments on Stage 2 activities

5. More general comments with regard to Stage 2 activities include:

Capacity development of internal audit staff was a separate activity in Platform 1. In Platform 2 (Activity 26), preparation and implementation of internal audit training and a manual are stated as key targets. However, a specific training component has not been included in this activity. This issue is of particular interest to the ADB as one of the major outputs of ADB PPTA project no. 4988-Preparing the Strengthening of Public Financial Management for Rural Development Project will be to identify a set of measures necessary to establish an effective internal audit function in MAFF, MOWRAM and MRD;

For activity 27 on strengthening fiscal decentralization, it should be made clear that activities 27.6 and 27.7 are necessary prerequisites to completing other activities in the section. Specifically, it will be necessary for MEF to determine in consultation with the National Committee on D and D what resources will be transferred from the central government to lower levels and what continuing funding arrangements (shared revenue, fiscal grants etc) will apply, before activities 27.1 to 27.4 can be completed fully. Similarly, some knowledge of which expenditure functions are to be assigned or delegated to the various levels by the National Committee will be needed before these activities can be carried out properly. To put the proposed financial arrangements on a firm legal basis, it would be useful to identify enactment of the proposed Law on Financial Regime and Management of Assets of Sub-national Administrations as a specific activity in Stage 2;

Under Activity 23 relating to the new chart of accounts and budget classification, a key target is to have completed piloting of accrual accounting in pilot line ministries in 2009 and 2010. However, there are no actions for implementing accrual accounting or training staff in line ministries. It is also noted that in the joint review mission in late 2007 concern was raised that introducing accrual accounting in the short or medium term may be infeasible because of the lack of suitably qualified accountants in MEF;

The PFM Capacity Development Plan shown in Annexe 5 does not appear to be linked to any specific activity in Platform 2 (although there are numerous references to individual training or capacity building actions). It would seem to fit logically with Activity 28a.

4. Involvement of Line Ministries

6. Annex 3 of the PFM draft includes descriptions of PFM Platform 2 activities which will require active engagement by line ministries. These actions comprise a comprehensive range of activities by line ministries but have some major omissions:

While it is proposed to complete the coverage of internal audit in all line ministries in Stage 2, the document does not detail any concrete actions which line ministries will be required to undertake to implement/improve the internal audit function. As indicated in the previous section this is an issue of particular interest to ADB in its continuing PPTA No. 4988CAM-Preparing the Strengthening of Public Financial Management in Rural Development Project;

In Annex 3, it is proposed that line ministries should design their own policies, strategies and manuals for carrying out functional reviews and that they undertake their own reviews. ADB considers that ministries will require considerable guidance from MEF or TA support to carry out



functional reviews and the need for this support should be reflected in the document. ADB TA 4988CAM will undertake functional reviews of the finance and planning (as relates to budget planning and execution) departments in the Ministries of Agriculture, Forestry and Fisheries, Water Resources and Meteorology and Rural Development over the next few months and the experience gained from those reviews should provide guidance for MEF and other line ministries carrying out functional reviews;

Although line ministries are intended presumably to be involved in developing the MTEF (Objective 32.1) and program budgeting (Objective 31) there are no specific actions in Annex 3 which will require their involvement;

There are no activities to involve line ministries in further improvements in the payments and commitments system or in the development of FMIS beyond a small number of ministry pilots by 2010. (See also comments above about out posting financial controllers to line ministries.) Completion of these activities is essential if effective control of and accountability for government expenditure is to be achieved and consideration should be given to extending this activity to all ministries by 2010;

There is no activity to engage line ministries in the consolidation of bank accounts (Activity 13.1), even though ministries are known to hold large numbers of accounts, albeit that many of these are donor project accounts which cannot realistically be closed in the short-term. Concrete actions should be included to require line ministries to justify the retention of all bank accounts which they would wish to maintain;

It is unclear whether line ministries are holding any payment arrears (or whether arrears have been consolidated by MEF) and whether they should in consequence be engaged in the exercise to liquidate arrears (Activity 13.4);

In the Capacity Development Plan (Annex 5) consideration might be given to specifying what underlying professional skills development, MEF, line ministries and their staffs will require. Some possible areas are further formal training in economics, accounting finance and auditing, legal studies, English language (various levels), research skills and report writing skills. To the motivational development measures could be added annual performance evaluations of all staff, career planning for all staff (not just high flyers) and introduction of a civil service code of conduct.

7. The process for engagement of line ministries in Stage 2 is strongly supported. However, to keep line ministries on track to complete the objectives of Stage 2 consideration should be given to making their activities time bound (possibly in the high level performance measures in Annex 7).

5. Performance Indicators-Annex 7

8. Monitoring of performance under CAP2 will include continued preparation of five of the fifteen performance indicators from Platform 1 (revenue outturn, real annual revenue increases, no new arrears and expenditures in line with budgets).

9. Consideration should be given to retaining performance indicator 9-all significant areas of both revenue and expenditure captured in both the budget and accounts of the government. While significant progress has been made in improving budget comprehensiveness such as improved banking arrangements it is not clear that all significant revenues and expenditures which were previously off-budget have now been captured in the budget. It is noted that Activity 32.2 has a target of reducing off-budget government expenditure to less than one percent by 2010 and at least 75 percent of donor projects being included in budget estimates. Appropriate performance indicators should be developed to monitor these targets.



The ADB would appreciate consideration being given to the above comments during further revision of the draft document.

Asian Development Bank

1 April 2008



APPENDIX 3 - REVIEWS OF THE FINANCIAL MANAGEMENT AND PLANNING FUNCTIONS OF THE MAFF, MRD AND MWRM, FINAL REPORT


Reviews of the Financial Management and Planning Functions of the

Ministry of Agriculture, Forestry and Fisheries,

the Ministry of Rural Development and

the Ministry of Water Resources and Meteorology

Final Report

Prepared by Russell Leith, Les Henning, Nihal Fernandopulle, Many Cheng and Ros Kheng for ADB PPTA No. 4988CAM- Preparing the Strengthening Public Financial Management for Rural Development Project.

July 2008


Page ii

CONTENTS

I. SUMMARY OF RECOMMENDATIONS AND CONCLUSIONS ......................1

A. Ministry of Agriculture, Forestry and Fisheries .............................................................. 1 B. Ministry of Water Resources and Meterology (MOWRAM) ........................................... 2 C. Ministry of Rural Development (MRD) .......................................................................... 3

II. BACKGROUND AND CONTEXT ...................................................................5

A. The Reviews................................................................................................................. 5 B. Terms of Reference...................................................................................................... 5 C. Review Methodology and Approach ............................................................................. 6

III. MINISTRY OF AGRICULTURE FORESTRY AND FISHERIES ..................7

A. Roles and Responsibilities............................................................................................ 7 B. Legislation .................................................................................................................. 11 C. Systems and Processes ............................................................................................. 11 D. Organization and Staffing ........................................................................................... 24

IV. MINISTRY OF WATER RESOURCES AND METEROLOGY (MOWRAM)28

A. Roles and Responsibilities.......................................................................................... 28 B. Legislation .................................................................................................................. 30 C. Systems and Processes ............................................................................................. 30 D. Organization and Staffing ........................................................................................... 39

V. MINISTRY OF RURAL DEVELOPMENT (MRD).......................................43

A. Roles and Responsibilities.......................................................................................... 43 B. Legislation .................................................................................................................. 45 C. Systems and Processes ............................................................................................. 46 D. Organization and Staffing ........................................................................................... 53

APPENDIX 1: LIST OF DONOR PROJECTS IN MAFF.......................................56

APPENDIX 2: LIST OF DONOR PROJECTS IN MOWRA ..................................58


Page 1

I. SUMMARY OF RECOMMENDATIONS AND CONCLUSIONS

A. Ministry of Agriculture, Forestry and Fisheries

Recommendation 1: Despite differences in program budget requests collected by the Departments of Accounting and Finance and Planning, there appears to be scope for rationalizing the amount of program data collected for budget preparation purposes. Also, after consultation with MEF, the program and non-program budgets should be integrated in a single budget preparation process as soon as possible.

Recommendation 2: In preparing for the implementation of the devolution and deconcentration (D&D) organic law, central agencies (MEF, MoI) should ensure that structures are put in place for line ministry finance and planning departments to be effectively consulted and included in decision-making in the preparation of provincial line departments annual budgets, to ensure that national service delivery mandates are adequately resourced.

Recommendation 3: That MAFF review periodically (at least biennially) the rates of its user fees and charges to ensure that charges are adjusted in a timely manner to reflect to the greatest extent possible the full costs of providing those services.

Recommendation 4: It is strongly recommended that consideration be given to ensuring that at least two staff members from each line department are trained on the use of the interim accounting system. This not only provides a back-up if a staff member is away from the office but also reduces the opportunity for any fraudulent actions to take place.

Recommendation 5: It is recommended that MEF’s ICT Unit and MAFF’s Department of Accounting and Finance start a dialogue immediately on expediting MAFF’s inclusion in the pilot phase of the FMIS.

Recommendation 6: That, in the course of implementation of PFMRP Platform 2, MAFF (and other rural development ministries) engage with MEF (through the Economic Working Group of the PFM Reform Committee) to implement a system of mandatory (initially quarterly and eventually monthly) expenditure and revenue reporting by provincial departments to central ministries.

Conclusion 7: The procurement process for state budget expenditures appears to meet formal MEF procurement requirements. However, the average times for procurement appear to be high and MAFF should take steps to streamline the process, if possible. Because of the low levels of scrutiny of MAFF procurements, further reform including introduction of ex-post review of procurements and further training of staff appear to be warranted.

Recommendation 8: In the course of PFMRP Platform 2 implementation, it is recommended that (i) the estimated receipts and outlays of all projects being implemented by PCU/PIU/PSU arrangements be included in the MAFF annual budget and (ii) all expenditures by projects be reported to the Department of Accounting and Finance on a regular (preferably monthly) basis.

Recommendation 9: The ministry should take steps to reconcile the differences in the numbers of accounts reported between itself and the banks. Where possible, MAFF should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

Conclusion 10: The methodology in the monitoring and evaluation framework provides a coherent basis for program planning, monitoring and evaluation. The


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weak points of the framework manual are that (i) there are no procedures proposed for verification of line department’s self-assessed information in the monitoring reports and (ii) there is no methodology for evaluators to make decisions on whether a sub-program is or is not at risk or requires further evaluation. These issues should be addressed by MAFF and by other ministries which are considering adopting the framework.

Recommendation 11: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, e.g. recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.

Recommendation 12: The three-year internal audit training plan developed by ADB PPTA 4988CAM should be implemented in the MAFF internal audit unit (by courses provided by the Economics and Finance Institute in MEF or by the proposed follow-on ADB internal audit TA).

Recommendation 13: That MAFF implement the PFM training and other capacity development measures proposed in the EFI PFM Capacity Building Plan and the MAFF PFM Capacity Development Plan.

B. Ministry of Water Resources and Meterology (MOWRAM)

Recommendation 14: That MOWRAM take steps to include donor-funded project and program expenditures in the annual Strategic Budget Plan and other budget preparation documents as envisaged in MEF Instructive Budget Circulars and in PFMRP Platform 2.

Recommendation 15: That MOWRAM complete a review of the coordination and approval process annually to monitor the effectiveness of that coordination and the information provided to MEF

Recommendation 16:

To improve accountability within MOWRAM central departments should be designated as separate budget holders (cost centres) and allocated budgets and record and report expenditures accordingly;

To encourage responsible financial management and improve budget implementation authority should be delegated from the Minister to the Head of the Department of Finance (and any other appropriate officials within the line departments) to authorize procurement and payment transactions;

To improve MOWRAM’s accounting and reporting the provincial departments and the project units should be required to submit monthly expenditure reports to the Department of Finance. The Department of Finance should undertake active monitoring of the monthly expenditure patterns;

On an annual basis the Department of Finance should initiate a mid-year review of budget execution involving senior management (Secretaries of State and heads of departments);

MOWRAM should investigate the possible introduction of a commercial accounting package prior to the introduction of the FMIS post-2011.

Conclusion 17: The procurement process for state budget expenditures appears to meet formal MEF procurement requirements. However, the average times for procurement appear to be high and MAFF should take steps to streamline the


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process, if possible. Because of the low levels of scrutiny of MOWRAM procurements, further reform including introduction of ex-post review of procurements and further training of staff appear to be warranted.

Recommendation 18: In the course of PFMRP Platform 2 implementation, it is recommended that (i) the estimated receipts and outlays of all projects being implemented by PCU/PIU/PSU arrangements be included in the MOWRAM’s annual budget and (ii) all expenditures by projects be reported to the Department of Accounting and Finance on a regular (preferably monthly) basis.

Recommendation 19: Where possible, MOWRAM should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

Recommendation 20: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, e.g. recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.

Recommendation 21: The internal audit process reforms (ie introduction of risk assessments) and the three-year internal audit training plan developed by ADB PPTA 4988CAM should be implemented in the MOWRAM internal audit unit (by courses provided by the Economics and Finance Institute in MEF or by the proposed follow-on ADB internal audit TA).

Recommendation 22: That the MAFF M and E framework be amended as necessary for implementation in MOWRAM.

Recommendation 23: That the Department aim to reduce the number of weekend hours worked by staff during the peak period of August to December by reviewing is processes and work practices to determine where efficiency gains may be made.

Recommendation 24: That MOWRAM implement the PFM training and other capacity development measures proposed in the EFI PFM Capacity Building Plan and the MOWRAM PFM Capacity Development Plan.

C. Ministry of Rural Development (MRD)

Recommendation 25: That MRD take steps to include estimated donor-funded project and program expenditures in the annual Strategic Budget Plan and other budget preparation documents as envisaged in MEF Instructive Budget Circulars and in PFMRP Platform 2.

Recommendation 26: That, while there is provision for the PFM Working Group to coordinate preparation of the program budget by the Department of Planning and Public Relations and the non-program budget by the Department of Supply and Finance, MRD takes steps to monitor the effectiveness of that coordination.

Recommendation 27: In view of the lengthy expenditure commitments and payments approvals process existing in MRD which requires the Minister to approve most payments, that the Ministry give high priority to reviewing and amending the delegations for budget holders (PFMRP Platform 2 Objective 21) and further streamlining of the commitments and payments approvals process (PFMRP Platform 2 Objective 21). Also, MRD should investigate the possible introduction of a commercial accounting package prior to the introduction of the FMIS post-2011.

Recommendation 28: That PFMRP Platform 2 measures which will improve the integrity of procurement (introduction of internal audit, sanctions regime for


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inappropriate behaviour, further procurement reforms and strengthening Platform 1 procurement reforms) be introduced as quickly as possible in MRD. Also, other measures such as empowering project consultants to assure quality of construction and more frequent donor inspections of projects should be implemented (as recommended by the 2007 Governance and Corruption Risk Assessment.

Conclusion 29: As with other ministries, a greater effort needs to be taken to include estimated donor project expenditures in the annual budget and to generate in-year reporting on budget execution.

Recommendation 30: The ministry should take steps to reconcile the differences in the numbers of accounts reported between its own count and that of the banks. Where possible, MRD should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

Recommendation 31: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, eg recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.


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II. BACKGROUND AND CONTEXT

A. The Reviews

1. The functional reviews of the three ministries, Ministry of Agriculture, Forestry and Fisheries (MAFF), Ministry of Rural Development (MRD) and Ministry of Water Resources and Meteorology (MOWRAM) have been undertaken within the scope of ADB PPTA No. 4988CAM-Preparing for Strengthening of Public Financial Management for Rural Development.

2. The Cambodian Government has requested Asian Development Bank (ADB) grant assistance to strengthen public financial management (PFM) in the line ministries that are supporting rural development. These functional reviews will assist the Government and ADB to develop the assistance proposal by assessing the ongoing PFM reforms in the rural sector ministries so as to identify areas of strategic focus for consolidating the current reforms and to prepare the groundwork for future reforms in a sequenced and prioritized way.

3. The review will clarify the roles and commensurate responsibilities and identify measures for organizational and administrative restructuring of the finance and planning departments of MAFF, MRD and MOWRAM. The objective will be to improve coordination, information flows and communications for efficient PFM performance outcomes.

4. Separate functional reviews have been completed for MAFF, MRD and MOWRAM. It is important to note that the reviews do not deal with all functions of each ministry. They have covered only the key financial management and planning areas in the ministries and other specific areas that have a direct relationship to PFM reforms. These areas include procurement, internal audit, planning and provincial administration offices.

B. Terms of Reference

5. The functional reviews of the three ministries have focused on the areas that work closely with the requirements of the PFM reform program. The terms of the review are summarized in the ADB Technical Assistance Report (project number 41082 of November 2007) Kingdom of Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development project.

6. The aims of the review are to:

• Identify the core functions of finance and planning within each ministry;

• To provide recommendations on how the effectiveness of finance and planning department could be improved.

7. To achieve these aims and assist MAFF, MRD and MOWRAM meet the objectives of the PFM program, the reviews have:

• examined current functions and roles, policies, procedures and practices of the finance and planning departments of the three ministries and how they relate to the PFMRP platform 2 activities;


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• identified operational and legislated mandates that are carried out in the finance and planning department of each of the ministries;

• reviewed financial management practices and assessed the merits of introducing other methods more closely associated with recommended ‘best practice;”

• ensured the roles, responsibilities and relationships of the finance and planning department in each ministry are clearly demarcated and defined;

• where appropriate, recommended appropriate personnel management structures and procedures to carry out the finance and planning functions so as to contribute effectively to the delivery of PFM reform platform 2 activities.

C. Review Methodology and Approach

8. The functional review process adopted has been a first-principles approach based on the review of existing documentation, physical inspections of offices and facilities in the ministries’ main offices, as well as detailed interviews and discussions with officers at all levels and within all departments associated with the finance and planning functions in MAFF, MRD and MOWRAM and with other associated stakeholders that the three ministries interact with.

9. The process essentially involved:

preliminary discussions with departmental senior managers to allow the review team to identify key stakeholder groups, to refine the review process and to raise awareness of key issues;

an initial environmental scan where legislation, relevant reports and documentation have been identified, collected and examined. This process continued throughout the review;

detailed interviews, work place observations and ongoing document collection from managers and staff within all divisions of the finance and planning departments in the three ministries;

identifying and interviewing other stakeholders, as it was considered important to obtain external observers’ views on doing business with each of the ministries.

10. The recommendations and conclusions of the review are contained in the various chapters.


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III. MINISTRY OF AGRICULTURE FORESTRY AND FISHERIES

A. Roles and Responsibilities

1. Basis for Roles and Responsibilities

11. Agriculture is a high priority sector in national development policy and is strongly supported by the Government,1 especially by the Prime Minister. Although other economic sectors have grown faster than agriculture in recent years, the Government continues to regard the farm sector as a key contributor to future growth for poverty alleviation in the rural communities where the majority of the nation’s poor live. To reflect the importance of agriculture, it is expected in the current National Strategic Development Plan that the land area under cultivation will increase by 21 percent between 2006 and 2010 and that irrigated land area will increase by 36 percent over the same period

12. MAFF is the lead public sector agency in agricultural development; others who participate include concerned local authorities, national and international communities and farmers who are developing the agricultural sector.

13. MAFF is operating within an approved Agricultural Sector Strategic Development Plan (2006-2010) with this plan providing inputs to national development in the medium term. The agricultural sector strategic development plan is also based on Sub-Decree 17 which provides MAFF’s mandate with sub-sector policies including crops and livestock policies, agricultural research and development policies, forestry policies and fisheries policies.

14. MAFF‘s stated long-term vision is to ensure:

Adequate and safe food availability for the entire population;

That poverty is reduced and that GDP per capita will increase;

Natural resources will be preserved and protected.

15. MAFF’s mission is stated as “supporting the economic growth of Cambodia by providing high quality services which result in a secure, safe food supply, increased agricultural output and adding value on a sustainable and cost effective basis to agricultural, fishing and forestry-based sectors”.

16. Financial resources for agricultural development are available from the national budget and foreign aid assistance. Therefore, in order to achieve the development goals and objectives, MAFF has to prioritize its programs and projects and allocate appropriate funding to support its programs and projects during 2006-2010. Total resources expected to be available to MAFF from 2006 to 2010 are estimated at around US$127.5 million.

1 In the National Strategic Development Plan 2006-2010, the four sides of Rectangular Strategy 1: Enhancement of the Agricultural Sector are stated as (i) improving and diversifying the agricultural sector (including nutrition and rural development), (ii) land reform and mine clearance, (iii) fisheries reform and (iv) forestry reform (including environmental protection).


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17. The strategic plan specifies several indicators which will be used to verify the outcomes and outputs of program and project implementation. The monitoring and evaluation will be carried out by the Department of Planning and Statistics in MAFF.

2. Role and Responsibilities of Department of Accounting and Finance

18. The Department of Accounting and Finance has the following responsibilities:

• Collection of budget data and coordination of budget preparation;

• Establishing the budget plan for the Ministry and monitoring its implementation;

• Keeping financial records and accounts;

• Managing accounts for the implementation of public procurement;

• Monitoring the operation of public procurement;

• Collecting the ministry revenue based on financial law;

• Monitoring the management of special accounts;

• Keeping records of and managing movable and immovable property, equipment, tools and materials stocks and preparing inventory records;

• Distributing supplies and materials to Departments and Units of the Ministry.

19. The Department of Accounting and Finance consists of four offices (Administrative Office, Accounting Office, Finance Office and the Public Investment Management Office), each operating with different roles and responsibilities. In general terms each office has a key role in helping to improve the process of accounting, financing and budgeting. The departments also deal with monitoring and evaluating the processing of expenditures and revenues of MAFF as a whole. Specific responsibility for the department includes the management and collection of income/revenue and expenditures with funding sourced from both government and donors (loan and grant) within MAFF. The appropriate collection and management of receipts and expenditures is based on RGC finance law and donor agencies’ requirements.

20. The four individual office responsibilities in summary are:

21. The Administrative Office – disseminating information related to financial accounting and budgeting frameworks, managing the information in account and budget records, planning departments’ income and expenses, human resource management and reporting of the department’s affairs and annual ministry budget.

22. The Accounting Office – deals with accounting and financial management within MAFF, disseminating and guiding accounting frameworks and regulations, managing and allocating materials, equipment and fuel to departments, monitoring the accounting and finance operations, controlling state assets and the rental, sale and exchange of state assets.


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23. The Finance Office – deals with budget expenditures and revenues of MAFF. It coordinates the chapters of budget expenditures and proposes the ministry’s budget, allocates approved budget income – expenditures and follows up budget operations, collects revenue based on finance law and manages special accounts.

24. The Public Investment Management Office – deals with co-funding, foreign aid and loan management. It coordinates agreements on investment aid and foreign loans, planning for aid and loan revenue, coordinating expenditures in compliance with donors’ and RGC procedures, manages and monitors the financial operation of foreign aid and loans for public investment and reports financial statements on investment aid and loans.

3. Role and Responsibilities of Department of Planning and Statistics

25. The Department of Planning, Statistics has the following responsibilities:

• Analyze and formulate the Short, Medium and Long Term Agricultural Development Plans and carry out the monitoring of plan implementation;

• Implementing whole sector and sub-sector surveys and collection, analysis and compilation of agricultural statistical information;

• Preparing and establishing agricultural strategic policies and programs and direct targeting of development;

• Preparing and formulating the Public Investment Program and direct Private Investment Programs in the agricultural sector and other development programs for food security and nutrition;

• Researching and disseminating market price information for agricultural commodities and studying supply and demand of domestic and overseas markets in order to facilitate farmers’ production decisions;

• Managing the Agricultural Technology and Science Document Centre;

• Collaborating with concerned institutions and cooperating with international communities on investment and planning activities related to the agricultural sector.

26. The Department of Planning and Statistics comprises six offices with each office having separate responsibilities. The offices include:

• Administrative and Personnel Office;

• Planning Office;

• Project Monitoring and Evaluation Office;

• Statistics Office;

• Agricultural Marketing Office;

• Environmental Impact Assessment Office.

27. Within the Department of Planning and Statistics, two of these offices have a close involvement with PFM related activities.

28. The Planning Office (11 staff) and the Project Monitoring and Evaluation Office (nine staff) work closely with the Department of Accounting and Finance on


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the preparation of the budget. The Planning Office initiates discussions with the line departments at the beginning of the annual budget cycle to ascertain what projects the line department will seek to implement in the coming year (see also a description of the monitoring and evaluation framework in section 4.9 below). From standard templates that are completed by line departments, the planning office is able to develop the project list for the next year for review by the MAFF senior management.

29. Input for the project list will be obtained from the line departments with supporting information provided by the Statistics Office, Agricultural Marketing Office and the Environmental Assessment Office. The Department of Finance and Accounting develops the financial budget from the project list. The project list is then developed into MAFF’s programs of activity (i.e. projects with similar objectives or outcomes are placed together on one program). In addition the planning office provides training to the line departments to develop their ideas into projects.

30. The Project Monitoring and Evaluation Office has been in operation for two years. Its primary role is to monitor and evaluate programs and projects within MAFF. The Office has nine staff and apart from the Chief of the Office the other staff have very limited experience in this type of work and to date have not received any training in the skills needed to carry out monitoring and evaluation work. The Office is still in its infancy but it has completed two years of monitoring and evaluating programs and projects. To date it has completed and submitted the ministry’s annual report to MEF from the information the office receives directly from the project leaders or line departments. The office also completes a quarterly review of MAFF projects; this review being completed within one month of the quarter’s end. The office currently does not have sufficient staff to independently validate the project information it receives. The financial information is validated with the Department of Accounting and Finance.

31. The office carries out monitoring and evaluation of a total of 73 projects (34 in program 1, four in program 2, two in program 3, 16 in program 4 and 17 in program 5). The quarterly report focuses on progress to completion for each project and program. The Office has yet to determine an appropriate methodology for carrying out its monitoring and evaluation processes.

4. Current state of departments

32. MAFF has a relatively large number of staff involved in finance, administration and planning; however, it is not able to mobilize these staff effectively. Many of the staff have good academic qualifications but have limited work skills and or experience in their specific area of work. Management staff at all levels within the departments require development to improve their skills base and leadership capabilities.

33. Low salaries are considered one of the major disincentives to attracting capable staff and retaining existing staff who have the potential to perform well. The scope of the ministry’s responsibilities presents large challenges given the current assessed level of capability. A September 2006 paper developed by the ‘Working Group on Roles and Responsibilities of MAFF Departments, Department of Personnel and Human Resources Development’ highlighted the above issues and also included the following comments on capacity challenges within MAFF:


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• Task allocation is ad hoc;

• Staff have very loose job descriptions if any;

• The HR development strategy is out of date;

• Immediate skill gaps are not always known;

• The understanding of logical frameworks and planning techniques is limited.

34. In addition to the PFM program the institutional and legislative frameworks as well as staff performance can be improved and strengthened through the following components of other programs: (i) MAFF Institutional Capacity Improvement (including primary mission groups), (ii) Agriculture and Water Resources legislative development and enforcement, (iii) Gender mainstreaming within MAFF.

B. Legislation

35. Every year, the Department of Finance and Accounting receives guidelines, circulars, sub-decrees and other Prakas as follows:

• Instructive Guideline on Preparation of Strategic Budget Plan;

• Instructive Circular on Preparation of Draft Annual Budget Law;

• Annual Budget Law for Management in the Year;

• Sub-decree: State Revenue Distribution based on Chapter of Annual Budget

• Law for Management in the Year;

• Sub-decree: State Expenditure Disbursement base on Chapter of Annual Budget Law;

• Instructive Circular on Budget Execution for the Year;

• Prakas: Obligation of Revenue Mobilization for Management of the Year;

• Prakas: Internal Budget Disbursement (requires ministries to transfer budget authorization to provincial departments).

C. Systems and Processes

1. Budget Planning and Preparation

36. MAFF has been one of seven 2 pilot ministries for the preparation of program budgets under PFMRP since 2007. Also, following the recommendations of an earlier ADB TA associated with the Agricultural Sector Program Loan (ADB TA 4228CAM) MAFF has been preparing a Medium Term Expenditure Framework (MTEF) since 2007 for internal planning purposes, in detail in six pilot departments but generally in all departments (provincial departments were also exposed to the concepts of MTEF). It is understood that MAFF now regard the MTEF and program budgeting as a combined planning exercise.

2 Ministries which previously had Priority Action Plan (PAP) funding have been selected by MEF to participate in the program budgeting pilots under PFMRP. It is expected program budgeting will be consolidated in the pilot ministries in PFMRP Platform 2 (2008-2010) but will not be fully implemented in all line ministries until PFMRP Platform 3 (2011-2013).


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37. MAFF has five programs and 31 sub-programs which cover expenditures directly chargeable to programs. Non-program expenditure includes salaries and allowances and ministry operating expenses.

38. From 2008, MEF has required a multi-step Budget Strategic Plan (BSP) be prepared by budget funded agencies 3 . As well as defining functions and responsibilities in their submissions, ministries are required to make a statement of medium-term policies to achieve the NSDP and the Rectangular Strategy and then to estimate the resources required to achieve those policies. MAFF has completed BSPs for the 2008 and 2009 budget years and their content includes the estimates of all central departments and budget-funded bodies and of donor-funded projects.

39. In addition MAFF has its own internal planning/budgeting mechanism for programs which was developed under ADB TA No. 4428CAM-Strengthening National Program Budgeting for the Agricultural Sector. This planning tool which is used for preparation of the program budget and is also closely linked to the program monitoring and evaluation mechanism which was also adopted by MAFF from ADB TA No.4428CAM. (see section 4.3 above and also the section on monitoring and evaluation below).

40. The Department of Accounting and Finance is responsible for budget preparation. In January and February the line departments (16 in MAFF) are asked to complete the P3 and P4 forms for the programs to be budgeted for. The line departments are required to send their completed P3 and P4 forms to the Department of Planning between February and May. Simultaneously, finance officers in each line department prepare budget requests for program and non-program items in their departments in formats approved by MEF (Budget Allocation of Non-Program Budget and Program Budget for 2009) and submit them to the Department of Accounting and Finance. The Department of Planning and the Department of Accounting and Finance work together to review and consolidate the budget. This budget preparation exercise does not include the budget estimates of the provincial departments and district offices of MAFF which are included in the budgets of the provinces.

41. There are some differences in the program budget information sought by the Departments of Accounting and Finance and Planning. Accounting and Finance collects requests by chapter, account and sub-account for the entire line department, whereas in form P4 Planning collects requests by program, sub-program and activity and by chapter only.

42. Preparation of separate program and non-program budgets by different departments raises the risk of loss of cohesion in budget preparation and execution. It is possible that any benefits of a program approach to budgeting will be lost by this split preparation method.

43. Recommendation: Despite differences in program budget requests collected by the Departments of Accounting and Finance and Planning, there appears to be scope for rationalizing the amount of program data collected for budget preparation purposes. Also, after consultation with MEF, the program and

3 Instructive Circular of Guidelines on Strategic Budget Plan Preparation for 2008 and 2009, No.01CG

of 13 April 2007 and 27 March 2008 respectively.


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non-program budgets should be integrated in a single budget preparation process as soon as possible.

Figure 1: Flow Chart of Budget Preparation in MAFF


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44. A major omission in the preparation of MAFF’s state budget is the lack of control over the budgets of the provincial line departments. Budget preparation (and execution) is implemented entirely from the provincial Economy and Finance and Planning offices (and the Governor’s office) to the MEF Budget Department and Department of Investment Cooperation, although there appears to be some flow of information between the provincial line departments and the ministry central office on budget preparation. However, there are a number of national mandates in MAFF (such NSDP and Agriculture Strategic Plan targets) which must largely be implemented at regional level. It is difficult to see how the MAFF central office can effectively manage and provide resources for these programs if it is not included fully in the budget preparation (and execution) process of the provincial departments.

45. Recommendation: In preparing for the implementation of the devolution and deconcentration (D&D) organic law, central agencies (MEF, MoI) should ensure that structures are put in place for line ministry finance and planning departments to be effectively consulted and included in decision-making in the preparation of provincial line departments annual budgets, to ensure that national service delivery mandates are adequately resourced.

46. In late May and early June the budget and programs are reviewed by the PFM Working Group (this process occurred for the first time in 2008). When the program has been approved by the working group it is sent to MEF for approval. In July the technical team within the Department of Accounting and Finance meets with MEF to defend and explain the budget. In August the management team meets with MEF management for a final discussion on the budget. Changes to the budget may be requested as a result of these two meetings. This amendment process can often delay obtaining approval from MEF, although approval is usually expected by September.

47. The approved budget plan is distributed to the line departments to break the budget down into sub-programs and chapters, accounts and sub-accounts (in terms of MEF Instructive Circular on Budget Implementation (No. 108 of 27 December 2008) A number of the line departments have difficulty with completing this part of the process. Specific training on developing and allocating program budgets is required to assist the accounting offices in the line departments more effectively understand and deliver the requirements of the process. Noting that the recurrent budget expenditure is already broken down into chapters when it is sent to MEF, thus there is no requirement for any further work to be done on this aspect of the budget after MEF approval is obtained.

48. However, the MEF Instructive Circular quoted above requires ministries to submit estimates of expected quarterly budget execution rates for MEF approval (mainly for cash management and budget control purposes). Also, provincial line departments are required to submit to provincial Economy and Finance departments (and thence to MEF Budget Department) their quarterly estimates of expenditure. Copies of these estimates are sent to ministry central offices-this appears to be one of the few points at which the central offices receive detailed information about budget preparation by the provincial departments.


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49. The proposed budgets in 2008 represent the following increases over last year:

• Research: 40 per cent ;

• Program Budgeting: 20 per cent;

• Recurrent Budget Items: 15 per cent ;

50. The recurrent budget increase is limited to 15 per cent by the government. In principle MAFF would like to include the PIP projects in the budget; they are not able to achieve this due to the Public Investment Office not receiving the reports in a timely manner. Overall, there are few if any donor-funded projects finding their way into the MAFF budget (see also section 62 below).

2. Non-tax Revenue

51. MAFF generates non-tax revenue from a range of user charges for services provided and from commercial activities (rubber plantations). Revenue collections in the ministry are significant, totaling over $7.5 million in 2007. In 2007 MAFF participated in a joint review of non-tax revenues with the Non-tax Revenue Department of MEF. It is understood that a number of charges were increased following the recommendations of that review but that other recommended increases have not been implemented.

52. Recommendation: That MAFF review periodically (at least biennially) the rates of its user fees and charges to ensure that charges are adjusted in a timely manner to reflect to the greatest extent possible the full costs of providing those services.

3. Accounting Arrangements

53. Currently, accounting transactions are recorded into spreadsheets (Excel). The existing government accounting framework is based on a series of circulars which MEF has issued over time. At present there is no accounting manual (a manual is expected to be prepared by MEF during PFMRP Platform 2). Also, MAFF draws on the accounting manual prepared by ADB TA No. 4428CAM.

54. MAFF will shortly introduce Conical Hat proprietary accounting software for a transitional period 4 . MAFF has received agreement from MEF to use this software. An agreement has been signed with the supplier in July 2008. This will enable the supplier to start business process analysis of MAFF’s requirements in late June 2008. The Conical Hat company plans to provide the training required to understand and use the software and on-the-job training to line departments from early July 2008. This is likely to be one-on-one training with up to 16 people from the Department of Accounting and Finance and one person from each of the line departments.

55. The National Treasury has been using a Conical Hat system for 18 months. Based on their experience in the National Treasury implementation Conical Hat

4 MAFF has been selected as a pilot ministry by MEF for introduction of the government-wide Financial Management Information System from 2011.


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expect that it is likely to take up to six months for the MAFF staff to be effective at using the system.

56. Recommendation: It is strongly recommended that consideration be given to ensuring that at least two staff members from each line department are trained on the use of the interim accounting system. This not only provides a back-up if a staff member is away from the office but also reduces the opportunity for any fraudulent actions to take place.

57. It is understood from MEF that MAFF has been selected as a pilot ministry for trialing of the proposed government-wide Financial Management Information System from 2010. However, discussions with the Department of Accounting and Finance indicate that senior MAFF staff are still unaware of the ministry’s inclusion in the pilot.

58. Recommendation: It is recommended that MEF’s ICT Unit and MAFF’s Department of Accounting and Finance start a dialogue immediately on expediting MAFF’s inclusion in the pilot phase of the FMIS.

4. Budget Execution

59. MAFF currently uses a chart of accounts (developed by ADB TA No. 4428CAM) that is different from the government’s recommended chart of accounts. When the Conical Hat accounting package is installed MAFF will move to using the government’s chart of accounts. After the budget is approved by MEF the accounting and line departments finalize the budget into the appropriate chapters and programs. By November MAFF has prepared the financial accounts that are sent to MEF to initiate the commitments process to commence.

60. One of the challenges to overcome in the program budgeting process is how to organize commitments and payments. This challenge is greater during these early stages the program budgeting implementation as the technical officers who have designed the projects have to date received limited training and their completed work often requires a certain amount of reworking by the Department of Accounting and Finance to ensure it is aligned to the proposed budget. The number of budget lines in a project presents significant challenges to the line departments at the moment, as any project with more the four line items is proving difficult to manage.

61. It is recognized that, although there is limited capacity available in the Department of Accounting and Finance, the team in the accounting and finance area should spend more time in the line departments helping the accounts staff in the line departments with their work. The environment will become more challenging for all staff when the Conical Hat system is introduced and the implementation and training for the PFM program starts. It is recommended that management review staff work-loads regularly and where necessary rotate work to ensure all of the staff receive the appropriate training opportunities. There are 10 staff in the accounting and finance team who are responsible for working with the 16 line departments.

62. All MAFF spending is recorded manually in two separate books (non-program budget and program budget). A monthly report on expenditure and revenue report is completed by the Department of Accounting and Finance no later


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than five days after month end. Also, the National Treasury prepares monthly reports on ministry expenditure and revenue transactions. The Department of Accounting and Finance states that it prepares reconciliations of their internal revenue and expenditure reports and the National Treasury reports. It is unclear whether there is a process in the ministry for senior management to review progress with budget execution, based on the execution reports. Line departments provide the accounting and finance team with their revenue items and the central office team captures the expenses.

63. MEF has established rules for virements between budget items following approval of the budget (The Prime Minister is required to approve transfers between chapters and MEF approval is required for transfers between accounts and sub-accounts.) MAFF appears to conform to these provisions. Also, a small contingency is approved in the budget, expenditure from which is approved by the MAFF Minister.

64. There is an MEF requirement for provincial departments to submit annual reports of expenditure to their central offices, but not for in-year reporting. MAFF states that some provincial departments submit monthly expenditure reports on a voluntary basis but that the majority does not. It is difficult to see how central ministries can properly monitor the implementation of national service delivery mandates at local level without receiving regular financial reports from provincial departments.

65. Recommendation: That, in the course of implementation of PFMRP Platform 2, MAFF (and other rural development ministries) engage with MEF (through the Economic Working Group of the PFM Reform Committee) to implement a system of mandatory (initially quarterly and eventually monthly) expenditure and revenue reporting by provincial departments to central ministries.

5. Budget Execution Rates

Budget Execution Rates

Year

(Riels millions)

Approved Budget Budget Out-turn Per cent of approved budget executed

2003 43,340 39,024 90.0 per cent

2004 47,700 38,552 80.8 per cent

2005 50,135 47,109 94 per cent

2006 56,819 55,941 98.5 per cent

2007 59,474 57,655 96.9 per cent

Source: MEF

66. The observed rate of budget execution (the percentage of the approved budget actually expended) has improved in recent years in most ministries. In the


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above table the trend of the execution rate in MAFF has been generally increasing in recent years. It is generally believed that the various reforms to improve budget credibility (improved cash management and payments processes, better revenue forecasting, reduced arrears etc) have increased the budget execution rate.

6. Procurement

67. The following summarizes the procurement process undertaken by MAFF for state budget expenditure. Procurement processes are expected to be undertaken in strict adherence to (i) Sub-decree No. 105–Public Procurement of 18 October 2006, (ii) Prakas No. 045-Implementation of Deconcentration for Public Procurement of 31 January 2005 and (iii) Circular No. 012 on Procurement Planning Guidelines of 7 December 2006.

68. The Procurement Unit (PU) in MAFF is chaired by a Secretary of State. Only the state budget procurements are controlled by the PU. The development projects are managed by other arrangements. In January each year the Procurement Unit prepares an annual procurement plan based on expected acquisitions to be funded from the recently approved state budget. The plan is submitted to MEF Public Procurement Department for approval.

69. In accordance with Sub-decree No. 105, line ministries are required to set up a Pre-qualification, Evaluation and Awarded-Contract Committee (PEAC). This committee is chaired by a Secretary of State. The PU is lead by the Director of Accounting and Finance Department. The preparation of relevant bidding documents is the responsibility of PU members with supervision from the Director of Accounting and Finance under control from the PEAC. The Department of Public Procurement of MEF acts as an observer at the bid opening stage (Stage 3) to ensure integrity of the process.

70. The procurement process is required to follow the seven stages summarized below: (i) Stage 1-Preparing bidding documents (PU), (ii) Stage 2-Pre-qualification (if required): (PEAC), (iii) Stage 3-Announcing and Disclosing Bidding Documents (PEAC), (iv) Stage 4-Evaluation Stage: (PEAC), (v) Stage 5-Contracting stage: (PEAC), (vi) Stage 6-Delivery/implementation stage: (PEAC) and (vii) Stage 7-Settlement and payment stage: (PEAC).

71. Details of the average time periods in stages 6 and 7 are included in the following table.

Average Period for the Procurement Process (Days)

Identified Procurement

Total Period

Document Preparation

Publication of selling, receiving applications opening bids

Evaluation Entering into the contract

ICB 120 20 50 30 20

DCB 50 10 20 10 10


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CP 40 8 15 10 7

PS 17 5 N / A 7 5

Key:

ICB – International Competitive Bid

DCB – Domestic Competitive Bid

CP – Consulting Price

PS - Price Survey

Monetary Thresholds for Procurement: For Goods, Constructions and Services

Monetary Limit according to Types of Procurement Method

Goods Construction Services

ICB From 1,000 million Riel From 1,200 million Riels

From 800 million Riel

DCB From 100 million Riel up to 1,000 million Riel

From 100 million Riel up to 1,200 million Riel

From 100 million Riel up to 800 million Riel

CP From 20 million Riel up to 100 million Riel


Less than 100 million Riel

PS Less than 20 million Riel Less than 20 million Riel

Separate Procurement

- No budget limit

- Shall have approval from the Ministry of Economy and Finance

- No budget limit


Source: Procurement Sub-decree

Key:



CP - Consulting Price

PS - Price Survey


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72. The procurement process in MAFF conforms to existing MEF guidelines and requirements. However, the level of scrutiny of actual procurements is low. There has not been a recent risk assessment of MAFF procurement (see ADB risk assessments of MRD and MOWRAM). However, because of the low level of scrutiny and generally inadequate training in new procurement procedures, the likelihood of fiduciary risks occurring is quite high.

73. Conclusion: The procurement process for state budget expenditures appears to meet formal MEF procurement requirements. However, the average times for procurement appear to be high and MAFF should take steps to streamline the process, if possible. Because of the low levels of scrutiny of MAFF procurements, further reform including introduction of ex-post review of procurements and further training of staff appear to be warranted.

7. Project Management Units

74. A list of donor-funded projects in MAFF is in Appendix 1. MAFF has a number of project management units to oversee its development projects, such as Project Coordination Units (PCUs), Project Implementation Units (PIUs) and Project Support Units (PSUs). A project office (or a PCU/PIU/PSU) is established for each development partner project. The location of the project office will be determined by the background of the development project and MAFF management’s needs; for example, a livestock or fishery project is likely to be located in the Departments of Animal Health and Production or Fishery Administration.

75. MAFF currently does not have effective management control of the development partner projects through the PU or the Department of International Cooperation and Public Investment Office that are based in the Department of Accounting and Finance. Development projects are spread across a number of line departments in the Ministry and with provincial departments directly. At present there is no authorized office to record and report on the overall amount of funds being received or expended on development projects.

76. Recommendation: In the course of PFMRP Platform 2 implementation, it is recommended that (i) the estimated receipts and outlays of all projects being implemented by PCU/PIU/PSU arrangements be included in the MAFF annual budget and (ii) all expenditures by projects be reported to the Department of Accounting and Finance on a regular (preferably monthly) basis.

8. Banking Arrangements

77. The number of bank accounts currently held by MAFF is as follows:

Account Type Number reported by bank Number reported by ministry

Salary 1 1

Project 34 44

Revenue 1 0


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Current 1 2

Others 5 16

Total 42 63

Source: MEF

78. It is understood that a number of accounts were closed during PFMRP Platform 1. There is probably not much scope at this stage to close donor accounts which are usually required by donors to be kept open for project implementation purposes. Therefore, the number of accounts effectively under the control of MAFF varies between eight and 19.

79. Recommendation: The ministry should take steps to reconcile the differences in the numbers of accounts reported between itself and the banks. Where possible, MAFF should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

9. Monitoring and evaluation

80. A monitoring and evaluation framework was prepared for MAFF under ADB TA project No. 4428CAM-Strengthening National Program Budgeting for the Agriculture Sector. The framework has been used by MAFF since 2007 and is being considered for implementation in the Ministries of Water Resources and Meteorology (MOWRAM) and Rural Development (MRD) under the forthcoming ADB program cluster for Strengthening Public Financial Management for Rural Development.

81. The purpose of the monitoring and evaluation framework is to introduce performance information in the ministry’s program budgeting, ie is based on the assumption that a program structure has already been established in the ministry. The framework has three phases (planning, monitoring and evaluation) and information is collected for each phase using standard forms or templates.

82. In the planning phase, the Department of Planning prepares two annual program planning documents which collect information on expected funding sources (internal and external) for each program for the following three years, program and sub-program objectives (outcomes) and targets and indicators. This data is used as input for preparing program budgets.

83. In the monitoring phase, the planning offices of implementing agency/technical departments prepare quarterly and annual reports on the outputs produced by each activity and sub-program. Also a report is required on the percentage or level achieved for each activity’s indicator(s) within the sub-program. Line departments are required to self-assess in these reports, together with disclosing any major problems which may be affecting completion of outputs. Departments are also required to report expenditure to date as a percentage of the annual budget for each activity and funding source (external and internal).

84. In the evaluation phase, the Planning Department prepares two evaluation reports from the data included in the line department’s monitoring reports. The evaluators rank whether the sub-program is meeting its objectives, completing its


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outputs and outcomes, meeting indicator targets, operating within budget and contributing to the program objectives. Also, the evaluators are required to provide an assessment of whether the sub-program is or is not at risk or requires further evaluation. Also, the Planning Department provides information to the Department of Accounting and Finance on proposed future years’ funding for the sub-program together with advice on whether the sub-program is at risk or not.

85. Conclusion: The methodology in the monitoring and evaluation framework provides a coherent basis for program planning, monitoring and evaluation. The weak points of the framework manual are that (i) there are no procedures proposed for verification of line department’s self-assessed information in the monitoring reports and (ii) there is no methodology for evaluators to make decisions on whether a sub-program is or is not at risk or requires further evaluation. These issues should be addressed by MAFF and by other ministries which are considering adopting the framework.

10. Asset Management

86. The arrangements for asset management have been determined by sub-decree No. 129 of 27 November 2006 on Rules and Procedures of State-owned Property and Public Entity Processing and Instruction No. 607MEF of 15 March 1999 on Preparing the Inventory Registers of State Assets. The objectives of the sub-decree focus on improvements in accountability by (i) preparation and revision of asset registers, (ii) arrangements for rental of state property, (iii) arrangements for sale of state property and (iv) arrangements for exchange of state property.

87. These regulations require central government agencies and provincial and municipal levels to establish committees to (i) review and prepare yearly updates of the asset register for submission to the State Property Department of MEF for review and approval (a major review of ministries’ asset holdings is required to be undertaken every fifth year with the last completed in 2004).

88. The asset register of MAFF is recorded on an Excel spreadsheet. The details recorded for each asset include: the purchase date, the cost of purchase and any maintenance carried out on the asset. The asset register is the responsibility of the Accounting Office. The Department of Accounting and Finance is responsible for all of the procurement processes. All new assets purchased are delivered to the line departments by the Department of Accounting and Finance and the line departments are required to update their own asset registers immediately to document the new asset. The line departments are required to submit updated lists of assets to the Department of Accounting and Finance annually. On behalf of MAFF the Department of Accounting and Finance sends a consolidated asset register to MEF Department of State Property annually after its annual review by the Central Committee on Inventory which is usually chaired by a Secretary of State

89. The asset management sub-decree sets out procedures for sale of state assets: (i) preparation of submissions which are sent for the Prime Minister’s approval via the MEF Department of State Property, (ii) establishment of an Evaluation Committee which includes an MEF representative to conduct the sale by competitive bidding and (iii) implementing the sale under MEF supervision. A similar process is followed for property exchanges between the Government and the private sector and for rental of state property held by line ministries.


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90. There appears to be only a limited policy in place for management of physical assets. For example, there is no policy on (i) establishing the effective working lives and replacement of different classes of assets, (ii) guidelines for depreciation of assets and (iii) while there are provisions in some ministries for a regular maintenance cycle of some assets (computers, photocopiers and air-conditioners), there appear to be no similar provisions for maintenance of motor vehicles.

91. In PFMRP Platform 1 there was an activity (Activity 29) to prepare a consolidated asset register in MEF State Property Department to record data submitted by line ministries from their individual asset registers. This activity was proposed as a prior action which would be continued in later PFMRP platforms. The 2007 External Advisory Panel report noted that very little progress had been made on this activity and there are no further asset management actions proposed in PFMRP Platform 2, particularly regarding the issues raised above, i.e. maintenance and replacement policies etc. Significant savings to the budget are usually available from effective implementation of a comprehensive asset management policy.

92. Recommendation: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, e.g. recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.

11. Internal Audit Function

93. The internal audit department (IAD) in MAFF was established in March 2006 by Prakas No 116. The IAD is responsible for carrying out independent reviews of the activities of the ministry. The IAD was established to fulfill the requirements of article 41 of the Audit Law of 2000 which requires each ministry to establish an internal audit function. The mandate issued for establishing internal audit in MAFF is strong and encompasses the responsibilities stipulated in the internal auditing sub-decree of 15 February 2005. The mandate permits the IAD to undertake financial, performance and compliance audits and authorizes the IAD to conduct evaluations of the adequacy of the internal control systems, the reliability of financial and operational reports, the adequacy of the systems in place to safeguard assets and the economy and effectiveness of resource utilization. The mandate also requires the IAD to coordinate the internal audit work with the NAA and to submit copies of internal audit reports to the National Audit Authority.

94. The IAD has a staff of 22 officers who were transferred to this department from the other areas of the ministry. The IAD is led by a director with two deputy directors, one manager, nine deputy managers, eight audit staff and one driver. None of the staff has had any previous internal auditing experience. The organizational structure for IAD provides for the establishment of three audit offices and one office for administration. Each of the offices is led by a manager. The director of audit reports directly to the minister.

95. IAD has prepared an annual work plan for 2008. 42 audits are planned in 2008, comprising eight departments, 24 provincial/municipal offices, five administrative public institutions and five public enterprises. This equates to 76 per cent of the total number of organizational units listed in Prakas No.116 that will be subject to audit coverage. The focus of audit work planned is on management of


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state property, verifying budget expenditures and collecting statistical data which is not used for any further analysis or verification. In 2007 40 audits were completed of the 44 planned. There is no risk assessment undertaken in preparing the work plan or any evaluation performed during the audit of the adequacy of the internal control systems. Internal auditing is a completely new activity for this ministry and the current staff has little knowledge or skills to undertake proper internal audits. The audit staff does not have an adequate understanding of the control principles that should be embedded in the procedures that have been designed; there are no internal auditing methodologies and procedures in place, and very little understanding of modern internal auditing tools, techniques and practices. A comprehensive training plan has been developed by ADB PPTA 4988CAM and should be implemented in MAFF to improve the knowledge and capacity of the internal audit staff.

96. Recommendation: The three-year internal audit training plan developed by ADB PPTA 4988CAM should be implemented in the MAFF internal audit unit (by courses provided by the Economics and Finance Institute in MEF or by the proposed follow-on ADB internal audit TA).

D. Organization and Staffing

1. Staff Resources

Department of Accounting and Finance

Department of Planning and Statistics

(Planning and Project Monitoring and Evaluation Offices only)

Total number of staff 40 20

Female staff 13 5

Master Degree 8 2

Bachelors Degree 21 14

Diploma 9 4

Special Skills 1 -

No formal qualification 1 -

Source: MAFF

97. The number of staff in the Department of Accounting and Finance and the Department of Planning (Planning and Project Monitoring and Evaluation Offices only) totals 60 and there are a further 16 finance staff in line departments. This represents around 1.2 per cent of around 4,700 staff in MAFF.

98. Staff in the finance and planning departments indicated that there are only occasional workload peaks which cannot be met from existing capacity. Some staff were concerned that there are no allowances or over-time payments for performing


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additional duties. Staff did not identify any particular tasks which are causing difficulty.

99. The Department of Planning indicated that it has sufficient staff, although existing staff require additional training. The Monitoring and Evaluation Office indicated that it has insufficient numbers of qualified staff. The Department of Accounting and Finance considers that it requires additional staff, although recent annual requests for up to five more staff have been declined. Overall, staff numbers are not seen as a critical constraint for either department.

100. The Department of Accounting and Finance has 21 computers among 40 staff and the Department of Planning has 18 computers for 20 staff. Although the departments have indicated that the numbers of computers are adequate to meet their current workloads, the ratio of PCs to staff appears to be quite low for organizations that have significant technical (numerical) workloads. None of the computers are networked, although all staff are able to access the internet. The PCs are using mainly basic office software (MS Word and Excel). The ministry has provided no IT training and most skills have been learned on-the-job or by staff taking external private courses of their own volition.

2. Training

101. Training was one of the main purposes and key outputs of the ADB TA project No. 4428CAM-Strengthening National Program Budgeting for the Agriculture Sector that was completed in 2006.

102. The key outputs documented for this project were:

Adequate procedural documents for improved program budgeting;

Improved awareness, knowledge, and skills of MAFF staff at various levels in planning and multi-year program budgeting;

That an appropriate information and monitoring system for public expenditures is established and implemented in the agricultural sector to facilitate the effective delivery of pro-poor agricultural support services.

103. The project team evaluated MAFF’s staff working in financial accounting, budgeting and planning at the central, provincial and district levels to identify their training needs and review currently available training programs and materials. The project also assessed and recommended other available training programs which could be appropriate for achieving the TA objectives and facilitating the PFM reform agenda for the agricultural sector.

104. The results of the study where limited by a number of factors including:

There is no documentation available in the human resource records on the training courses that staff attended. The information that is available in human resources is limited to the number of staff who have specific qualifications and the grade they obtained in these qualifications;

The difficulty in collecting information to assess the competence and capability of individual staff;

Only a small percentage of staff responded to individual questionnaires.


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105. The project documented a long list of suggested training ideas from staff. Staff proposed that training courses should be of a short duration, and the training programs should take into account what area they currently work in, their experience in the work place and their individual educational backgrounds.

106. Core competency training skills suggested by staff included:

• English language courses at various levels – short term professional language, and long term general English language;

• Using computerised accounting and financial system;

• Financial management and financial analysis;

• Budgeting and financial monitoring systems;

• Project management.

107. The capacity and competency of MAFF staff working in financial accounting and budgeting management is currently considered inadequate. Staff have been provided with few opportunities to improve their skills through structured training courses. The physical facilities for training are quite limited in MAFF. There are only two suitable training spaces available, namely a training conference room, comprising two training rooms, one large and one small. There are also limited tools to assist with the training e.g. computers, whiteboards, desks etc. Currently there is a lack of a network within MAFF to build up an awareness of training. There is no training library available to hold training manuals and materials and no person within MAFF has been assigned the responsibility of looking after training resources.

108. MEF provided training in 2006 and 2007 related to the PFM program. The Department of Accounting and Finance is not able to provide a list of who attended specific training courses, although line department and Department of Accounting and Finance staff are known to have attended a number of courses. These courses included: program budgeting (introductory), general accounting, new guidelines for procurement, new budget classification, preparation of SBPs, an introduction to manuals (financial management, monitoring and evaluation and training) completed under ADB TA No. 4428 and training in the monitoring and evaluation manual. However, this list may not cover all of the training courses attended by MEF staff as record keeping related to training is not thorough.

109. The current project ADB PPTA No. 4988CAM-Preparing for Strengthening of Public Financial Management for Rural Development is carrying out training needs assessments for MAFF, MOWRAM and MRD. The assessments are based on (i) the PFM training needs identified in the PFMRP Platform 2 Consolidated Action Plan (MEF document) and the Economics and Finance Institute (EFI) PFM Capacity Building Plan, (ii) staff surveys in the finance and planning departments of the three rural development ministries and (iii) focus groups drawn from the PFM Working Groups of the three ministries. The results of these assessments will be reported separately and are being used as the basis for preparing PFM capacity development plans for the three rural sector ministries. It is envisaged that the proposed training and other capacity development measures will be delivered through EFI and the proposed TA projects under the forthcoming ADB rural development program cluster and from other available sources.


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110. Recommendation: That MAFF implement the PFM training and other capacity development measures proposed in the EFI PFM Capacity Building Plan and the MAFF PFM Capacity Development Plan.


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IV. MINISTRY OF WATER RESOURCES AND METEROLOGY (MOWRAM)



111. MOWRAM‘s roles and responsibilities have changed substantially since 2003 /2004.Firstly as a department and then as a Ministry in its own right. A strategic development plan for the period 2006 to 2010 presents MOWRAM’s planned objectives, outputs and activities for this period. The three planks for this strategic plan are the RGC‘s Rectangular strategy, MOWRAM’s mandate as laid out in Sub – Decree 58 of 1999 and the National Water Resources Policy.

112. In the strategic plan MOWRAM has two areas of work in which it has set national goals:

• Water resources management and development; and

• Flood and drought management

• In addition to the national goals MOWRAM has established institutional goals in the following three areas:

• Water related legislation and regulation;

• Water resources information management; and

• Administration, management and human resources development.

113. The goal of administration, management and human resources development will be directly assisted by the capacity building plan developed during the ADB PPTA No. 4988CAM project. The capacity building plan is specific for the finance and planning departments. The other institutional goals relate to all of the organization and as such will need to be driven by the senior leadership team within the ministry.

114. MOWRAM has a mandate to manage all aspects of the nation’s water resources, to ensure that there is a sustainable basis for socio-economic development in water related sub-sectors such as urban and rural water supply, electric power generation and fisheries. This will always be a prime consideration when considering any new activities or refinements to existing processes and or activities within MOWRAM.

2. Role of Department of Accounting and Finance

115. The Department of Finance within MOWRAM has the following responsibilities:

• To mobilize the needs from line departments for preparation of the Ministry’s strategic budget plan, and expenditure projections;

• To ensure that the appropriate expenditures are applied to the correct chapter and that it meets correct budget line allocations;

• To manage and administer the asset register. A high priority responsibility is to ensure that the list of inventory registrations of state property is up to date;


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• To allocate the budget for fuel, spare parts and other materials to line departments;

• To maintain and record all of the accounting transactions for the Ministry;

• To complete all of the accounting and financial reporting that is required by MEF;

• To control and advise on the technical issues related to the public procurement process and manage the implementation of the procurement policies and operational processes; and

• To manage all aspects relating to minor revenue processes as required by the requirements of the annual budget law.

3. Role of Department of Planning

116. The Department of Planning within MOWRAM has the following responsibilities:

• To compile relevant Ministry data and statistics for reporting purposes;

• To prepare the long and short term Strategic Development Plans for the Ministry;

• To assist with the establishment of the public investment programs, public expenditure planning and development projects;

• To manage and maintain liaison with NGOs and Development Partner (DPs) for funds that support the implementation of programs and projects in water and meteorology;

• To coordinate the donor development projects, and manage the required monitoring and evaluating while the projects are being implemented; and

• To manage the preparation of all agreements, MOU’s and other cooperative documents between MOWRAM and NGOs and DPs.

4. Current State of Departments

117. A strategic development plan (for 2006 to 2010) for MOWRAM was completed in 2006. This plan identified three key institutional development goals with one of these goals being the development of the administrative, management and human resource areas within the ministry.

118. Within the strategic plan there are a number of obvious constraints that are considered likely to have an impact on the ministry’s ability to achieve its goals, these include:

• The number of external training opportunities for existing staff is quite limited;

• The capacity for MOWRAM to provide on-the-job training is limited by the:

• number of experienced staff; and

• limited funding being available for training;

• MOWRAM’s need to improve its capacity in administration, finance and management skills is regularly overlooked for funding and project opportunities by development partners and the government coordinating ministries. MOWRAM is perceived as a technical ministry and as such a


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significant proportion of funding from development partners is focused on projects to support developments that have a strong technical focus;

• The salaries within the ministry are not attractive enough to recruit new talent or retain capable experienced staff;

• The administration and management systems in MOWRAM’s finance and planning departments are out-dated and require substantial modernization before the new processes that are likely to be required for PFM can be introduced; and

• There is a very low staff turn-over in MOWRAM and as a consequence younger and potentially some of the more talented staff have limited opportunities to develop their careers in MOWRAM.

B. Legislation

119. Every year, the Department of Finance and Accounting receives the following guidelines, circulars, sub-decree, and other Prakas from MEF:



• Annual Budget Law for Management;

• Sub-decree: State Revenue Distribution based on Chapter of Annual Budget;

• Law for Management;

• Sub-decree: State Expenditure Disbursement based on Chapter of Annual Budget Law;

• Instructive Circular on Budget Execution;

• Prakas: Obligation of Revenue Mobilization for Management; and

• Prakas: Internal Budget Disbursement (requires Ministries to transfer budget authorization to its provincial department).



120. The development of the budget for MOWRAM is centralized within the Department of Finance. The initial step in the budgeting process cannot take place until the annual budget circular is received from MEF. The MEF circular usually is delivered in March of each year.

121. The Department of Finance is responsible for preparing the budget plan for MOWRAM. The budget plan details the input that is required from the Department of Planning and the line departments within MOWRAM. The staff from the Department of Finance and the Department of Planning commence the budget process by leading discussions with each of the line departments. These meetings are held to help determine what each line department requires in the annual budget.

122. The finance team is responsible for collating the line departments’ budget requirements and this information is used to develop MOWRAM’s financial budget. The budget will also incorporate any increases for certain operational costs such as salaries and fuel. The amount by which MOWRAM can increase operational


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costs by is set out in the annual budget guidelines sent to MOWRAM by MEF. The finance department aims to complete the initial draft of the financial budget by the end of April.

123. Recommendation: That MOWRAM take steps to include donor-funded project and program expenditures in the annual Strategic Budget Plan and other budget preparation documents as envisaged in MEF Instructive Budget Circulars and in PFMRP Platform 2.

124. This initial draft of the financial budget is discussed within MOWRAM’s central office and the line departments in May. The staff from the Departments of Finance and Planning are responsible for leading these discussions. After these internal discussions the next iteration of the budget is developed. This version of the financial budget is sent to MEF with an accompanying letter in early June.

125. Recommendation: That MOWRAM complete a review of the coordination and approval process annually to monitor the effectiveness of that coordination and the information provided to MEF

126. In August the Department of Finance follows up with MEF on the progress of the approval process for MOWRAM’s budget. There are often a number of discussions held on the budget between MOWRAM and MEF staff during this period. When MEF approve the budget MOWRAM regard this as their final budget plan.

127. In November the final version of the financial budget is sent by MOWRAM to the Council of Ministers for approval. The approved financial budget is available in January.

2. Budget Execution

128. The approved ministry budget is delivered to MOWRAM by MEF in the form of an aggregated budget for all central departments and a separate budget for each provincial department of water resources and meteorology. Each of these budgets is further broken down by the three-level economic classification (chapter, account and sub-account). The new budget classification and chart of accounts has been adopted by MOWRAM. Budget availability is by equal quarterly budget releases by MEF.

129. Budget and expenditures are entered into spreadsheets held by the staff in the Finance Department. Apparently, the attempted introduction of a QuickBooks accounting system in 2000-2001 from ADB TA No. 3292CAM-Capacity Building in the Ministry of Water Resources and Meteorology was not fully implemented and has been discontinued.

130. The central office payroll is prepared by the Administration Office (which advises all staffing changes monthly to the Council for Administrative Reform (CAR) for approval of the ministry’s official establishment). The Administration Office prepares the monthly payroll from the CAR database. National Treasury (NT) transfers funds for salary payments to a bank account which MOWRAM holds at the National Bank of Cambodia. The Cashier (Finance Office) draws cash from the bank account and all monthly salary payments are made in cash. MOWRAM states that it holds no other non-project bank accounts.


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131. Salary payments by provincial departments are processed by those departments and the provincial Departments of Economy and Finance.

132. The Finance Department head is also in charge of the ministry’s procurement unit. He has authority to approve cash purchases below one million riel, although all payments regardless of size require the approval of the Minister. Purchases above one million riel require the approval of the MEF Public Procurement and Financial Affairs Departments, and it is stated that MEF frequently reduce the approval below the amount sought even where there are sufficient funds available for the procurement. MEF Public Procurement Department frequently inspects the delivery of procurement items at MOWRAM offices.

133. The Department of Finance has no involvement in or knowledge of financial management or procurement for donor projects administered by project implementation units. MOWRAM does not currently have an out-posted MEF Financial Controller.

134. As MOWRAM currently has no revenue items, the Finance Department is not involved in revenue collection or recording. (Options for the introduction of water user charges under the recently passed Water Law are under consideration.)

135. MOWRAM receives monthly expenditure reports from NT which are reconciled to the expenditure spreadsheets by the staff in the Finance Department. Some provincial departments voluntarily provide monthly expenditure reports to the central Finance Department; however the only MEF requirement is for provincial departments to send end-of-year expenditure reports to the central office for preparation of the annual public accounts. Effectively, there is no financial oversight by the central office of the provincial departments. Also, the Finance Department receives no information about the expenditures of the project implementation units.

136. According to the latest available information (2005),5MOWRAM achieved a budget execution rate (percentage of approved budget actually spent) of 89.5 per cent including 80 per cent at central level which was partially offset by overspending of 28.3 per cent by provincial departments (which comprised mainly overspending in Chapter 11-Operation Costs).

137. Expenditure reports are not provided to senior management and there is no in-year process for senior management to review the progress of budget execution. The Director-General of Finance and Administration is effectively given sole management control of the budget and any in-year reallocations of budget are approved by the Minister on his recommendation.

138. Recommendations:

• To improve accountability within MOWRAM central departments should be designated as separate budget holders (cost centres) and allocated budgets and record and report expenditures accordingly;

5 RGC, Post-Budget Law 2005, p. 30


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• To encourage responsible financial management and improve budget implementation authority should be delegated from the Minister to the Head of the Department of Finance (and any other appropriate officials within the line departments) to authorize procurement and payment transactions;

• To improve MOWRAM’s accounting and reporting the provincial departments and the project units should be required to submit monthly expenditure reports to the Department of Finance. The Department of Finance should undertake active monitoring of the monthly expenditure patterns;

• On an annual basis the Department of Finance should initiate a mid-year review of budget execution involving senior management (Secretaries of State and heads of departments);

• MOWRAM should investigate the possible introduction of a commercial accounting package prior to the introduction of the FMIS post-2011.

3. Procurement

139. The following summarizes the procurement process undertaken by MOWRAM for state budget expenditure. Procurement processes are expected to be undertaken in strict adherence to (i) Sub-decree No. 105–Public Procurement of 18 October 2006, (ii) Prakas No. 045-Implementation of Deconcentration for Public Procurement of 31 January 2005 and (iii) Circular No. 012 on Procurement Planning Guidelines of 7 December 2006.

140. The Procurement Unit (PEAC) in MOWRAM is chaired by Director of Engineering Department (Mr. Em Bunthoeun) and the Deputy Director of Finance Department (Mr. Muy Monin) leads the daily requirements of the unit. The preparation of relevant bidding document is a responsibility of PU members with supervision by PU leader with supervision and control by PEAC. PEAC is responsible for conducting the procurement process only.

141. PEAC have no authority to make decisions on awarding contracts but PEAC can make a recommendation to MEF for a specific contractor based on their evaluation process. The activities undertaken and the decisions made by PEAC are required to be reported to the Minister for acknowledgement and approval. In January each year the Procurement Unit prepares an annual procurement plan based on expected acquisitions to be funded from the recently approved state budget. The plan is submitted to MEF Public Procurement Department for approval.

142. In accordance with sub-decree No. 105, line ministries are required to set up a Pre-qualification, Evaluation and Awarded-Contract Committee (PEAC). This committee is chaired by a Secretary of State. The PU is lead by the Director of Accounting and Finance Department. The preparation of relevant bidding documents is the responsibility of PU members with supervision from the Director of Accounting and Finance under control from the PEAC. The Department of Public Procurement of MEF acts as an observer at the bid opening stage (Stage 3) to ensure integrity of the process.

143. The procurement process is required to follow the seven stages summarized as: (i) Stage 1-Preparing bidding documents (PU), (ii) Stage 2-Pre-qualification (if required): (PEAC), (iii) Stage 3-Announcing and Disclosing Bidding Documents (PEAC), (iv) Stage 4-Evaluation Stage: (PEAC), (v) Stage 5-


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Contracting stage: (PEAC), (vi) Stage 6-Delivery/implementation stage: (PEAC) and (vii) Stage 7-Settlement and payment stage: (PEAC).

144. Details of the average time periods in stages 6 and 7 are included in the following table.

Average Period for the Procurement Process (Days)

Identified Procurement

Total Period

Document Preparation

Publication of selling, receiving applications opening bids

Evaluation Entering into the contract

ICB 120 20 50 30 20

DCB 50 10 20 10 10

CP 40 8 15 10 7

PS 17 5 N / A 7 5

Key:



CP – Consulting Price

PS - Price Survey

Monetary Thresholds for Procurement: For Goods, Constructions and Services

Monetary Limit according to Types of Procurement Method

Goods Construction Services

ICB From 1,000 million Riel From 1,200 million Riels

From 800 million Riel

DCB From 100 million Riel up to 1,000 million Riel

From 100 million Riel up to 1,200 million Riel


CP From 20 million Riel up to 100 million Riel


Less than 100 million Riel

PS Less than 20 million Riel Less than 20 million Riel


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Separate Procurement

- No budget limit


- No budget limit


Source: Procurement Sub-decree

Key:



CP - Consulting Price

PS - Price Survey

145. The procurement process in MOWRAM conforms to existing MEF guidelines and requirements. However, the level of scrutiny of actual procurements is low. The 2007 ADB risk assessment of procurement in MOWRAM found that internal controls on procurement were low and that accordingly fiduciary risks were likely to be very high. These conclusions point to a need for further strengthening of the procurement reforms under PFMRP Platform 2.

146. Conclusion: The procurement process for state budget expenditures appears to meet formal MEF procurement requirements. However, the average times for procurement appear to be high and MAFF should take steps to streamline the process, if possible. Because of the low levels of scrutiny of MOWRAM procurements, further reform including introduction of ex-post review of procurements and further training of staff appear to be warranted.


147. A list of donor-funded projects in MOWRAM is included in Appendix 2. MOWRAM established a National Project Management Office (NPMO) in July 2007 to manage all new projects.

148. The NPMO is chaired by the Minister and two Deputy Managers as Secretary of State. The committee operates with 10 members. NPMO operates in two sections, the North-Western PMU and Eastern PMU. The Minister will delegate one of the Secretary’s of State to manage a new project and appoint a group to coordinate the activities of the project. The committee is made up of staff from the relevant technical departments and always includes one person from the Department of Finance.

149. Currently, all ADB-funded projects are managed by a PMU. These projects include: the North-West Irrigation Sector Project, the Water Resources Sector Project and the Tonle Sap Lowland Rural Development Project which commenced recently. A regular project activity report is required to be submitted to manager of the project and then to the Minister.

150. The Department of Finance, up to now has never received information on the donor projects in MOWRAM. As a consequence currently there is no the linking of donor project financial reports and the department’s financial reports.


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MOWRAM currently does not have management control of the development partner projects through the PU.

151. Recommendation: In the course of PFMRP Platform 2 implementation, it is recommended that (i) the estimated receipts and outlays of all projects being implemented by PCU/PIU/PSU arrangements be included in the MOWRAM’s annual budget and (ii) all expenditures by projects be reported to the Department of Accounting and Finance on a regular (preferably monthly) basis.


152. The number of bank accounts currently held by MOWRAM is as follows:


Salary 1 1

Project 12 12

Current 2 2

Total 15 15

Source: MEF

153. It is understood that a number of accounts were closed during PFMRP Platform 1. There is probably not much scope at this stage to close donor accounts which are usually required by donors to be kept open for project implementation purposes. Therefore, the number of accounts effectively under the control of MOWRAM is 3.

154. Recommendation: Where possible, MOWRAM should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

6. Asset Management




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157. The asset register of MOWRAM is recorded on an Excel spreadsheet. The details recorded for each asset include: the purchase date, the cost of purchase and any maintenance carried out on the asset. The asset register is the responsibility of the Finance team. The Department of Finance is responsible for all of the procurement processes. All new assets purchased are delivered to the line departments by the Department of Finance. The line departments are required to update their own asset registers immediately to document a new asset. The line departments are required to submit updated lists of assets to the Department of Finance annually. On behalf of MOWRAM the Department of Finance sends a consolidated asset register to MEF Department of State Property annually after its annual review by the Central Committee on Inventory. This committee is chaired by a Secretary of State



160. In PFMRP Platform 1 there was an activity (Activity 29) to prepare a consolidated asset register in MEF State Property Department to record data submitted by line ministries from their individual asset registers. This activity was proposed as a prior action which would be continued in later PFMRP platforms. The 2007 External Advisory Panel report noted that very little progress had been made on this activity and there are no further asset management actions proposed in PFMRP Platform 2, particularly regarding the issues raised above, i.e. maintenance and replacement policies etc. Significant savings to the budget are usually available from effective implementation of a comprehensive asset management policy.

161. Recommendation: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, e.g. recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.


162. The internal audit department in MOWRAM was established on 17 November 2006 by Prakas No 182. The IAD is responsible for carrying out independent reviews of the activities of the ministry. The internal audit department was established to fulfill the requirements of article 41 of the Audit Law of 2000 which requires each ministry to establish internal audit.


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163. The mandate issued for establishing internal audit is strong and encompasses the responsibilities stipulated in the internal auditing sub decree of 15 February 2005. The mandate permits the internal audit department to undertake financial, performance and compliance audits and authorizes the IAD to conduct evaluations of: the adequacy of the internal control systems; the reliability of financial and operational reports; the adequacy of the systems in place to safeguard assets; and the economy and effectiveness of resource utilization. The mandate also requires the IAD to coordinate the internal audit work with the NAA and to submit copies of internal audit reports to the National Audit Authority.

164. The IAD has a staff of 19 officers who were transferred to this department from the other areas of the ministry. None of the staff has had any previous internal auditing experience. The director of audit reports directly to the minister.

165. Decision No 004 dated 17 November 2006 on the organization structure for IAD provides for the establishment of three audit offices and one office for administration. The director of IAD heads audit office number 1 and the administration office. Each of the deputy directors head office number 2 and 3. The position of director of IAD is currently vacant as the previous director has been promoted to another position in the ministry. IAD has prepared a three year rolling work plan for 2008-2010. 15 audits are planned in 2008, 11 in 2009 and 27 in 2010. The plan focuses on audits of the departments located in Phnom Penh, the provincial and municipal departments and district offices.

166. There is no risk assessment undertaken in preparing the work plan nor any evaluation performed of the internal control systems. In 2007 five audit assignments were completed. The thrust of the audit is on verifying budget transactions with special emphasis on fuel costs and other large expenditure items and fixed assets.

167. Internal auditing is a completely new activity for this ministry and the current staff has little knowledge or skills to undertake proper internal audits. The audit staff do not have an adequate understanding of the control principles that should be embedded in the procedures to be followed.

168. There are no internal auditing methodologies and procedures currently in place. The staff has very little understanding of modern internal auditing practices. A comprehensive training plan has been developed by ADB PPTA 4988CAM and should be implemented in MAFF to improve the knowledge and capacity of the internal audit staff.

169. Recommendation: The internal audit process reforms (ie introduction of risk assessments) and the three-year internal audit training plan developed by ADB PPTA 4988CAM should be implemented in the MOWRAM internal audit unit (by courses provided by the Economics and Finance Institute in MEF or by the proposed follow-on ADB internal audit TA).

8. Monitoring and Evaluation (M and E)

170. It is proposed that an M and E system should be introduced, similar to that which was implemented in MAFF from an earlier ADB TA. The MAFF system would provide a good framework for monitoring outcomes in MOWRAM. However,


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because the MAFF M and E is based on a program structure it may be necessary to amend it for MOWRAM, which does not yet have program budgeting.

171. Recommendation: That the MAFF M and E framework be amended as necessary for implementation in MOWRAM.


1. Organization

172. The Department of Finance which currently has 30 staff (see table below) is responsible mainly for budget preparation and execution, procurement and asset management. Staff of the branch advised that an annual workload peak is experienced in the period August to December. This is due to the preparation of end-of-year payment requests, the initial preparation of the annual financial statements and collating the documents required for auditing. The staff in the department also indicated that the most challenging tasks presently facing them are controlling expenditures within budget approvals, monitoring administrative expenditures and preparing the monthly financial reports.

173. Current staff numbers are considered adequate by the Department to meet any variations in workload patterns and for meeting the department’s responsibilities generally. To cover the work that is required to be delivered during the peak August to December period staff will often work over the weekends. This is generally accepted by the staff and is regarded as a requirement to ensure the work is completed in a timely manner.

174. Recommendation: That the Department aim to reduce the number of weekend hours worked by staff during the peak period of August to December by reviewing is processes and work practices to determine where efficiency gains may be made.

175. The Department of Planning (26 staff) also experience quarterly and end-of-year workload peaks mainly associated with reporting requirements. However, the department considers that it has adequate staff numbers to meet its workload requirements. Staff advised that any improvements that can be made to the capability levels of the staff within the department will improve productivity levels. Currently within the planning department the majority of staff requires a high level of training in planning skills and general business skills such as English, computer usage and report writing.

176. It was beyond the capacity of this review to perform an analysis of the duties and workflows of individual staff in the departments and, therefore, it is not possible to make a judgment about whether restructuring of roles and responsibilities and of workflows of the departments would be warranted. However, the review has gained the impression that that, within the current limitations on adequate performance incentives (see below), staff capacity and computerization, there does not appear to be a pressing need for reorganization or downsizing of the two departments


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2. Staff Resources

Department of Finance Department of Planning

Number of staff 30 26

Female staff 8 7

Master Degree 0 0

Bachelors Degree 15 16

Diploma 4 5

Special Skills 0 2

No formal qualification

11 3

Source: MOWRAM

177. The number of staff in the Department of Finance and the Department of Planning total 56. This represents only 3.8 per cent of the 1461 staff in MOWRAM including staff in the provincial offices of the ministry.

178. Discussions indicated that the staffing complement of the department is stable. Of the 30 staff in the Department of Finance 28 have been in their current positions for more than two years; however, this may also be a negative aspect if it indicates a lack of mobility and access to advancement in the organization. A similar situation is evident in the Department of Planning with 24 of the 26 staff in their roles for more than two years.

179. Of the 30 in the Department of Finance, specific finance qualifications are held by 10 members of staff. None of the 26 staff in the Department of Planning hold specific planning qualifications. Planning staff do have tertiary degrees but they are in a variety of subjects and specialist areas other than planning.

180. It appears that the human resources management processes in the two departments and in the ministry as a whole are at a fairly basic level as there is no induction program for new staff (as staff are mainly drawn from other departments of the ministry the department sees no need for a formal induction program).

181. There is no formal documentation relating to a staff members job i.e. there is no written job descriptions which formally specify required qualifications, duties and responsibilities and reporting lines for individual staff (the mandate of responsibilities seems to rest entirely on the ministerial prakas which established the department) or an employment contract.

182. Staff attendance at work is not formally recorded; therefore it is difficult to determine how many of the staff attend work for the required period on a regular basis. It has been suggested that because of low civil service pay rates, staff in many ministries cut short their hours of attendance so that they can work at other jobs. The extent of this problem in MOWRAM has not been measured, but in the


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absence of effective attendance records the risk must be very high that it is significant.

183. The management and development of staff is relatively ad hoc as there is no formal evaluation of staff performance completed by managers or supervisors. The staff do not have a personal development plan nor is there a formal mechanism in the Department for job rotation to help staff to gain further and different experiences

184. The Department of Finance holds regular staff meetings to discuss work issues; however, we were advised that staff attendance at these meetings is very low while the Department of Planning never has staff meetings.

3. Training

185. In the last two years a limited number of staff within the accounting and finance and planning departments have received training. MOWRAM is not a pilot ministry for program budgeting within the PFM reform program and has received a limited number of invitations to attend PFM focused training sessions (as compared to pilot ministries such as MAFF and MOWRAM)..

186. Courses attended by MOWRAM staff in 2006 and 2007 include:

187. A Project Monitoring and Evaluation course run by MAFF. This course was attended by 24 MOWRAM staff (including 16 staff from the provinces) in 2006 and eight staff (all from central office) in 2007; A Strengthening Internal Audit course run by MEF. This course was attended by three staff from central office;ADB provided three accounting courses 2006. These were attended by seven provincial staff; A course on the Financial Reforms run by MEF was attended by 16 provincial staff in 2007;A course on Capital expenditure run by MEF was attended by three central office staff in 2007; and A course run by MEF on Public Financial Management Procedures was attended by two central office staff in 2007

188. If the significant changes that will impact the staff over the next few years are considered then the amount of training that staff have received in the last two years is minimal.

189. The current project ADB PPTA No. 4988CAM-Preparing for Strengthening of Public Financial Management for Rural Development is carrying out training needs assessments for MAFF, MOWRAM and MRD. The assessments are based on (i) the PFM training needs identified in the PFMRP Platform 2 Consolidated Action Plan (MEF document) and the Economics and Finance Institute (EFI) PFM Capacity Building Plan, (ii) staff surveys in the finance and planning departments of the three rural development ministries and (iii) focus groups drawn from the PFM Working Groups of the three ministries. The results of these assessments will be reported separately and are being used as the basis for preparing PFM capacity development plans for the three rural sector ministries. It is envisaged that the proposed training and other capacity development measures will be delivered through EFI and the proposed TA projects under the forthcoming ADB rural

190. Recommendation: That MOWRAM implement the PFM training and other capacity development measures proposed in the EFI PFM Capacity Building Plan and the MOWRAM PFM Capacity Development Plan.


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4. IT Capability

191. The Department of Accounting and Finance has 10 desktop PCs among 30 staff and the Department of Planning has five PCs for 26 staff. Although the departments have indicated that the numbers of computers are adequate to meet their current workloads, the ratio of PCs to staff appears to be quite low for organizations that have significant technical (numerical) workloads.

192. None of the computers are networked and there is no access to the internet. The PCs are using mainly basic office software (MS Word and Excel). The ministry has provided no IT training and most skills have been learned on-the-job or by staff taking external private courses of their own volition. There is no procedures manuals in place for the use of the PC’s and staff self manage the usage of the PC’s on a rotational basis.


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V. MINISTRY OF RURAL DEVELOPMENT (MRD)



193. MRD was formally created as a Ministry in January 1993 by Law NS/RKM/0196/12 which built upon the former State Secretariat of Rural Development under the Council of Ministers. Formally, the MRD had a multi-sectoral rural development mandate which was adapted by MRD officials from integrated rural development philosophy and approaches prevalent at the time the ministry was formed.

194. In practice, MRD is now solely responsible for two functions: tertiary rural roads and rural water supply and sanitation6. All other functions are supportive of these two functions; for example, community development of water user groups and health awareness around drinking water and sanitation. As a result of these two unique functions, most MRD outputs are in the form of small-scale built infrastructures (tertiary roads and structures, water pumps and wells)

195. MRD is not involved in recurrent service provision or cost recovery.

196. MRD is mandated to:

• Coordinate, cooperate, implement, observe and evaluate programs and projects to ensure their contribution to Cambodia’s rural development;

• Coordinating the activities of relevant ministries and aid programs;

• Actively implement independent research into issues for the rural development of Cambodia

2. Role of Department of Accounting and Finance

197. The Department of Administration and Finance is headed by a Director General who is assisted by a number of Deputy Directors General. The department is responsible for coordinating and managing the administration, personnel, material, equipment, accounting and finance, statistics, monitoring and evaluation, training, research and extension work within MRD.

198. The Department for Administration and Finance consists of four departments within its jurisdiction, namely:

• Department of Administration and Personnel;

• Department of Supply and Finance;

• Department of Training and Research; and

• Department of Ethnic Minority Development.

6

ADB RETA No. 6385 Governance and Capacity Building Initiative-Sector Governance and Corruption Risk Assessments, Cambodia-Ministry of Rural Development Revised Draft Report, June 2007


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199. The roles for each department are summarised as follows:

• Department of Administration and Personnel

o To coordinate activities of all central departments of MRD and the central departments and local institutions under MRD’s jurisdiction;

o To maintain the Ministry’s registry;

o To provide security at Ministry premises;

o To prepare statistics on MRD personnel;

o To prepare annual plans of future personnel needs for submission to the State Secretariat for Civil Services.

• Department of Supply and Finance

o To prepare the annual budget plan for MRD and monitor the execution of the budget;

o To coordinate all MRD expenditure;

o To administer MRD’s physical resources, material stocks and to prepare asset registers;

o To administer maintenance and repairs of MRD’s equipment and materials;

o To administer financial management and accounting;

o To monitor the technical implementation of public procurement;

o To receive and allocate materials and equipment for all departments under MRD jurisdiction.

• Department of Training and Research

o To assess training needs and organize delivery of training in MRD;

o To prepare the short-, medium- and long-term plans for training, workshops, research and extension work;

o To administer MRD’s resource centre and technical and vocational training centers at regional level;

o To research appropriate rural development technologies and gain experience from important key projects;

o To produce and publish the social, economic and technical documents resulting from research activities to be used as basic documents for training and extension work;

o To monitor and evaluate the training and extension work;

o To prepare workshops/seminars/conferences to increase the knowledge exchange between Government staff and rural communities;

o To prepare rural development programs and documents for distribution by radio, television, and the printed media to educate and disseminate information about the interests, activities, outputs and benefits of rural development.

• Department of Ethnic Minority Development


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o This department within the Department of Administration and Finance is responsible for programs for the advancement of Cambodia’s ethnic minorities. It does not have a significant role, however, in the development of PFM reforms in the ministry.

3. Role of Department of Planning and Public Relations

200. The department works closely with the Department of Supply and Finance on PFM issues, particularly budget preparation. The Department of Planning has five separate offices that are each responsible for different functions. The offices are:

• General Affairs Office;

• Planning and Statistic Office;

• Monitoring and Evaluation office;

• Asean and International Cooperation Office and;

• Information Technology Office.

201. The primary role of the planning department is to organize and develop the strategic development plan for MRD (both as a short-term and long-term plan). The strategic plan is developed in line with the medium term expenditure framework process recently required to be implemented by all ministries by MEF. In addition the department will draft proposals to establish, modify, reform, improve or abolish organizational structures and duties as directed in any specific situation, in conformity with the rights delegated by the Minister.

202. As inputs into the strategic plan the planning department is responsible for the following activities: data collection from various departments and provincial departments, data analysis, monitoring and the evaluation of department projects, program and work activities. In addition the department of planning is responsible for: reporting to the minister, the Council of Ministers, MEF, Ministry of Planning on a quarterly and annual basis and producing and distributing public bulletins and consulting with various ministry’s on poverty alleviation.

203. Other specific roles include:

• Preparation of the annual Strategic Budget Plan and the annual Public Investment Program;

• To coordinate foreign aid programs and follow up on their implementation;

• To advise, promote, monitor and evaluate planned implementation programs and outputs;

• To monitor and evaluate the investment budget in the implementation of the national strategic development plan ;

• To prepare and produce newsletters or bulletins to publicize statistics, activities and outputs of rural development project implementation.

B. Legislation

204. Every year, the Department of Finance and Accounting receives guidelines, circulars, sub-decrees and other Prakas as follows:


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• Annual Budget Law for Management in the Year;

• Sub-decree: State Revenue Distribution based on Chapter of Annual Budget

• Law for Management in the Year;

• Sub-decree: State Expenditure Disbursement base on Chapter of Annual Budget Law;

• Instructive Circular on Budget Execution for the Year;

• Prakas: Obligation of Revenue Mobilization for Management of the Year;

• Prakas: Internal Budget Disbursement (requires ministries to transfer budget authorization to provincial departments).



205. Budget preparation takes place in three phases: Phase 1- Strategic Budget Plan preparation (from March to May); Phase 2- Budget preparation (from June to September) and Phase 3–Budget approval (from October to December).

206. The guidelines on preparation of the Strategic Budget Plan (SBP) are issued by the MEF in an instructive circular each year. SBP preparation is divided into two parts: (i) Non-Program Budgeting (NPB) and (ii) Program Budgeting (PB) which was adapted from the former Priority Action Plans. The NPB is used for meeting operational costs (salaries, administration and management costs) and PB is used for expenditures on program activities. MRD has three programs: (i) Capacity Building, (ii) Rural Infrastructure & Rehabilitation, (iii) Health, Hygiene and Rural Economic Development.

207. The SBP is intended to link budget planning to the Government’s Rectangular Strategy and the National Socio Economic Development Plan 2006-2010. It is also intended that the SBP should consolidate the recurrent and the capital expenditures of the national budget and incorporate donor-funded projects into the budget. MEF has directed that the PFM working group has directed that the PFM working group in each ministry should be supplemented by representatives of the project management units to oversight SBP preparation but in practice MRD has not included donor-funded projects in the budget since it commenced preparing the SBP in 2007 (or prior to it). Main responsibility for preparing the SBP rests with the Department of Planning and Public Relations. The Public Investment Program (PIP) is also prepared by the Department of Planning and Public Relations but, because the PIP is largely funded by donors there is no connection between it and the SBP (or other parts of the budget preparation process).

208. The SBP is prepared in two parts: (i) a Ministry Policy Framework which includes policy targets for the medium term (three years), programs or strategies for achieving the targets and sources of revenue and (ii) budget data including


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recurrent and capital expenditures by program for three years and revenue projections for three years (not relevant for MRD which has no revenue items).

209. Technical departments and provincial departments make funding submissions to the Department of Planning and Public Relations. However, as MEF imposes an effective ceiling on the program budget (for 2009 the ceiling is 2008 expenditure plus seven percent) budget rationing is exercised by the Director General of Administration and Finance and the Department of Planning and Public Relations at their discretion. It is understood that, as a result, some provinces receive little, if any, funding for some programs.

210. Following approval by MRD senior management the SBP is submitted to MEF and negotiated upon with the latter in May.

211. The MEF approved SBP provides the basis for Department of Planning and Public Relations to commence preparation of the program budget in June. Simultaneously, the Department of Supply and Finance commences preparation of the non-program budget. Again, expenditure estimates for donor-funded projects and for the PIP are not included in the budget preparation.

212. The MEF sets overall broad sector (economic, social, general administration and defense and security) ceilings based on percentage increases from previous years recurrent expenditure, ie incremental budgeting but with some flexibility to vary sector priorities. Also, other budget parameters are provided by MEF, eg percentage increases allowable for salaries, control of utilities payments.

213. In August the budget items are negotiated with MEF and approval of the budget is given at chapter level (except salaries which are broken down further). The agreed budget is submitted to the Council of Ministers in October and to the National Assembly in November with time for discussion of the annual budget law prior to commencement of the new fiscal year in January.

214. Recommendation: That MRD take steps to include estimated donor-funded project and program expenditures in the annual Strategic Budget Plan and other budget preparation documents as envisaged in MEF Instructive Budget Circulars and in PFMRP Platform 2.

215. Recommendation: That, while there is provision for the PFM Working Group to coordinate preparation of the program budget by the Department of Planning and Public Relations and the non-program budget by the Department of Supply and Finance, MRD takes steps to monitor the effectiveness of that coordination.

2. Budget Execution

216. As with other ministries, MRD’s budget is approved at aggregate level by the National Assembly. Following discussion with MEF, the budget is disaggregated by line department and by chapter, account and sub-account. The Minister allocates an approved budget to provinces and delegates authority to the Governor as the budget holder responsible for overall provincial budget execution. The line departments at provincial level are directly responsible for managing their budgets and expenditure based on the proposed work plan. All payment requests are required to be approved by Governor for each budget item.


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217. It is intended that provincial Rural Development Departments provide monthly reports directly to MEF with a copies to be provided to MRD, although it is understood copies are only infrequently received by MRD.

218. For the central ministry's budget package, the minister is the budget holder responsible for overall budget execution. The ministry's budget is the total amount of integrated budget for all departments under the ministry’s management. To support the ministry's operational costs and keep within its budget package, the ministry will make a request for an advance from National Treasury to the ministry's bank account. The Cashier of Department of Supply and Finance is responsible for preparing documents to withdraw cash from its bank to keep at the ministry for administrative expenditures.

219. Payment requests for administrative expenditures are submitted and reviewed in line with the following process steps: The outposting of a financial controller from MEF and other reforms under PFMRP Platform 1 have streamlined the commitments and payments process in MRD to some extent, ie commitment approval is no longer required for certain non-procurement spending items such as salaries and utilities payments. However, the process for expenditure approval is still very lengthy, ie from the line department requesting payment to the financial controller, and the hierarchy of the Supply and Finance and Administration and Finance Departments, then to an Undersecretary of State, Secretary of State and the Minister.

220. Not all payment requests need to be submitted to the Minister for approval. The Director General of Administration and Finance can also approve payment requests for small payments. There are also times when the Undersecretary of State or Secretary of State approves payments instead of the Minister. However, there are no internal rules or Prakas for the approval delegations for these payments in the Ministry.

221. In the PFMRP Platform 2, significant activities will include redefining the most appropriate management levels as budget holders (Objective 21) and further streamlining the expenditure commitments and payments system (Objective 24).

222. Recommendation: In view of the lengthy expenditure commitments and payments approvals process existing in MRD which requires the Minister to approve most payments, that the Ministry give high priority to reviewing and amending the delegations for budget holders (PFMRP Platform 2 Objective 21) and further streamlining of the commitments and payments approvals process (PFMRP Platform 2 Objective 21).

223. Also, MRD should investigate the possible introduction of a commercial accounting package prior to the introduction of the FMIS post-2011.

224. Following approval of payment requests, payments are made through the National Treasury or the Cashier who makes cash payments to creditors. All administrative cost payments are made in cash from the ministry and no payments are made by cheque or direct transfers to bank accounts. The ministry has three types of budget utilization including direct payment, commitment and advance.

225. The Accounts Department of the Department of Administration and Finance records all accounting data relating to ministry expenditure in the computerized


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accounting system (Excel spreadsheets). The system uses the standard government chart of accounts. Monthly financial reports are produced for management to review before the report is submitted to the MEF. They are also reconciled to the monthly reports prepared by the National; Treasury. The Cashier is responsible for preparing documents for a “replenishment request” to the National Treasury for transferring funds to the ministry's bank account whenever it is needed.

226. For payments for goods and services purchased through a formal procurement process, the level of authorization of payment given to the minister is under 500 Million Riel and if more than this limited amount will have to obtain approval from MEF.

3. Procurement

227. The following summarizes the procurement process undertaken by MRD for state budget procurements. Procurement processes are undertaken in strict adherence to (i) Sub-decree No. 105–Public Procurement of 18 October 2006, (ii) Prakas No. 045-Implementation of Deconcentration for Public Procurement of 31 January 2005 and (iii) Circular No. 012 on Procurement Planning Guidelines of 7 December 2006.

228. In accordance with Sub-decree No. 105, line ministries are required to set up a Pre-qualification, Evaluation and Awarded-Contract Committee (PEAC). This committee is chaired by a Secretary of State. The MRD Procurement Unit’s (four staff within the Department of Administration and Finance) main function is to service the PEAC .Only the state budget procurements are controlled by the PU. The development projects are managed by other arrangements. In January each year the Procurement Unit prepares an annual procurement plan based on expected acquisitions to be funded from the recently approved state budget. The plan is submitted to MEF Public Procurement Department for approval.

229. The preparation of relevant bidding documents is a responsibility of PU members with supervision from the Director of Accounting and Finance under control from the PEAC. The Department of Public Procurement of MEF acts as an observer at the bid opening stage (Stage 3) to ensure integrity of the process.

230. The procurement process is required to follow the seven stages summarized below: (i) Stage 1-Preparing bidding documents (PU), (ii) Stage 2-Pre-qualification (if required): (PEAC), (iii) Stage 3-Announcing and Disclosing Bidding Documents (PEAC), (iv) Stage 4-Evaluation Stage: (PEAC), (v) Stage 5-Contracting stage: (PEAC), (vi) Stage 6-Delivery/implementation stage: (PEAC) and (vii) Stage 7-Settlement and payment stage: (PEAC).

231. The review was unable to ascertain whether there are any significant delays in the procurement process, as appears to be the case in other ministries such as MAFF. Although formal government procurement procedures are followed, significant concerns were raised in the ADB’s 2007 Governance and Corruption Risk Assessment about the integrity of the procurement process in MRD. The concerns related to road maintenance contracts being awarded by bargaining rather than being rules based, implementation is mainly by force account which avoids any competitive bidding and there is a lack of internal or external audit. The assessment found that major risks to both the national and projects budgets are


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staff-contractor collusion over the build-quality and the volumes delivered on infrastructure works.

232. Recommendation: That PFMRP Platform 2 measures which will improve the integrity of procurement (introduction of internal audit, sanctions regime for inappropriate behaviour, further procurement reforms and strengthening Platform 1 procurement reforms) be introduced as quickly as possible in MRD. Also, other measures such as empowering project consultants to assure quality of construction and more frequent donor inspections of projects should be implemented (as recommended by the 2007 Governance and Corruption Risk Assessment.


233. The following donor funded major projects (excludes World Food Program assistance and minor projects) are active in MRD:

Project Donor Amount ($m)

Timing Executing Agency

Northwestern Rural Development

ADB 31.9 2001-2008 MRD

Tonle Sap Lowlands Rural Development (loan)

ADB 10.5 2008-2015 MRD/MOWRAM/

MAFF/MOI

Tonle Sap Lowlands Rural Development (grant)

ADB 10.0 2008-2015 MRD/MOWRAM/

MAFF/MOI

Tonle Sap Rural Water Supply & Sanitation Sector

ADB 18.0 2007-2015 MRD

Provincial Rural Infrastructure

WB 8.0 2002-2007 (extended)

MRD

Tertiary Rural Road Improvement

KFW 9.0 2005-2008 MRD

Source: MRD

234. As with other ministries, the projects operate autonomously through project management units. The ADB’s 2007 Governance and Corruption Risk Assessment considered that, given the under-developed state of financial management systems in MRD, donors are likely to continue to disburse funding through project management units rather than use national systems.

235. Conclusion: As with other ministries, a greater effort needs to be taken to include estimated donor project expenditures in the annual budget and to generate in-year reporting on budget execution.


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236. The number of bank accounts currently held by MRD is as follows:


Salary 1 1

Project 10 5

Current 4 3

Total 15 9

Source: MEF

237. It is understood that a number of accounts were closed during PFMRP Platform 1. There is probably not much scope at this stage to close donor accounts which are usually required by donors to be kept open for project implementation purposes. Therefore, the number of accounts effectively under the control of MRD varies between four and five.

238. Recommendation: The ministry should take steps to reconcile the differences in the numbers of accounts reported between its own count and that of the banks. Where possible, MRD should close accounts which are no longer required and transfer any balances to the Treasury Single Account.

6. Budget Execution Rates

Year

(Millions of riels)

Approved Budget

Budget Executed Per cent of approved budget executed

2003 21,000 16,897 80.5 per cent

2004 23,600 16,27 70.5 per cent

2005 24,635 22,144 89.5 per cent

2006 33,206 30,014 90.4 per cent

2007 37,260 34,754 93.3 per cent

Source: MEF

239. The observed rate of budget execution (the percentage of the approved budget actually expended) has improved in recent years in most ministries. In the above table the trend of the execution rate in MRD has increased significantly in recent years. It is generally believed that the various reforms to improve budget


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credibility (improved cash management and payments processes, better revenue forecasting, reduced arrears etc) have increased the budget execution rate.

7. Monitoring and evaluation

240. The Department of Planning has a Monitoring and Evaluation Office but does not appear to have developed an effective methodology for project or program monitoring and evaluation.

241. As indicated in the functional review of MAFF, a monitoring and evaluation framework was prepared for MAFF under ADB TA project No. 4428CAM-Strengthening National Program Budgeting for the Agriculture Sector. The framework has been used by MAFF since 2007. The purpose of the framework is to introduce performance information in the ministry’s program budgeting, ie is based on the assumption that a program structure has already been established in the ministry. The framework has three phases (planning, monitoring and evaluation) and information is collected for each phase using standard forms or templates.

242. MRD senior management has indicated a willingness to adopt the MAFF monitoring and evaluation framework, which is expected to be implemented with assistance from the forthcoming ADB Public Financial Management Program Cluster for Rural Development.


243. The internal audit department in MRD was established on 13 August 2008 by sub-decree. A director has been appointed and several policy papers are under preparation including a new Prakas and organization structure for the department, staffing requirements, position descriptions and a work plan.

9. Asset Management



246. The asset register of MRD is recorded on an Excel spreadsheet. The details recorded for each asset include: the purchase date, the cost of purchase and any maintenance carried out on the asset. The asset register is the responsibility of the Accounting Office. The Department of Accounting and Finance is responsible for all of the procurement processes. All new assets purchased are delivered to the line departments by the Department of Accounting and Finance and the line departments are required to update their own asset registers


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immediately to document the new asset. The line departments are required to submit updated lists of assets to the Department of Accounting and Finance annually. On behalf of MAFF the Department of Accounting and Finance sends a consolidated asset register to MEF Department of State Property annually after its annual review by the Central Committee on Inventory (CCI) which is usually chaired by a Secretary of State. In MRD the CCI is assisted by a Technical Support Working Group comprising mainly staff of the Department of Administration and Finance.



249. In PFMRP Platform 1 there was an activity (Activity 29) to prepare a consolidated asset register in MEF State Property Department to record data submitted by line ministries from their individual asset registers. This activity was proposed as a prior action which would be continued in later PFMRP platforms. The 2007 External Advisory Panel report noted that very little progress had been made on this activity and there are no further asset management actions proposed in PFMRP Platform 2, particularly regarding the issues raised above, ie maintenance and replacement policies etc. Significant savings to the budget are usually available from effective implementation of a comprehensive asset management policy.

250. Recommendation: During PFMRP Platform 3 or in another policy context, if appropriate, MEF should undertake a general review of all policies relating to asset management, eg recording, maintenance, replacement etc, with a view to improving the efficiency of asset management.


1. Organizational arrangements

251. The Department of Supply and Finance which currently has 42 staff (see table) is responsible mainly for budget preparation and execution, procurement and asset management.

252. Staff of the branch indicated that an annual workload peak is experienced in the period October to November for the preparation of end-of-year payment requests, initial preparation of annual financial statements and documents for


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auditing. The department also indicated that the most challenging tasks presently facing them are controlling, expenditures within budget approvals, monitoring administrative expenditures and preparing monthly financial reports.

253. The department considers that current staff numbers are adequate to meet any variations in workload patterns and for meeting the department’s responsibilities generally.

254. The Department of Planning and Public Relations (61 staff) also experiences quarterly and end-of-year workload peaks mainly associated with reporting requirements. However, the department considers that it has adequate staff numbers to meet its workload requirements.

255. It was beyond the scope of this review to perform an analysis of the duties and workflows of individual staff in the department and, therefore, it is not possible to make a judgment about whether restructuring of roles and responsibilities and of workflows of the department would be warranted. However, the review has gained the impression that that, within the current limitations on adequate performance incentives (see below), staff capacity and computerization, there does not appear to be a pressing need for reorganization or downsizing of the two departments. However, it is noted that the numbers of staff in the Department of Administration and Finance (274) are large in relation to the size of the department as a whole (2,151) (about 13 per cent of total) and that scope may exist to rationalize the overall numbers of administrative staff.

2. Staff Resources

Department Male Female Total Number of Staff

Department of Administration and Finance

175 99 274

Department of Administration and Personnel

71 27 98

Department of Procurement and Finance

28 14 42

Department of Training and Research

60 52 112

Department of Ethnic Minority Development

16 6 22

Department Planning and Public Relations

48 13 61

Source: MRD


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256. Discussions indicated that the staffing complement of the department is stable. All 42 staff have been in their current positions for more than two years; however, this may also be a negative aspect if it indicates a lack of mobility and access to advancement in the organization. Of the 42 in the Department of Supply and Finance, finance qualifications are held by 10 members and of the 61 staff in the Department of Planning and Public Relations, planning qualifications are held by five staff members. The types and amount of training, particularly PFM training, which departmental staff have received in the past three years will be addressed in another study of training needs which this project is also conducting.

257. It appears that the human resources management processes in the two departments and in the ministry as a whole are at a fairly basic level: (i) there is no induction program for new staff (as staff are mainly drawn from other departments of the ministry the department sees no need for a formal induction program), (ii) there are no written job descriptions which formally specify required qualifications, duties and responsibilities and reporting lines for individual staff (the mandate of responsibilities seems to rest entirely on the ministerial prakas which established the department), (iii) there is no recording of staff attendance (because of low civil service pay rates, staff in many ministries cut short their hours of attendance so that they can work at other jobs. The extent of this problem in MRD has not been measured, but in the absence of effective attendance records the risk must be very high that it is significant), (iv) there is no formal evaluation of staff performance, (v) there are no personal development plans for individual staff and (vi) there is no formal mechanism for job rotation for staff to gain further and different experience. The Department of Planning and Public Relations holds regular staff meetings to discuss work issues while the Department of Supply and Finance never has staff meetings.

3. IT Capacity

258. The Department of Supply and Finance has five desktop PCs among 42 staff and the Department of Planning and Public Relations also has five PCs for 61 staff. Although the departments have indicated that the numbers of computers are adequate to meet their current workloads, the ratio of PCs to staff appears to be quite low for organizations that have significant technical (numerical) workloads. None of the computers are networked and there is no access to the internet. The PCs are using mainly basic office software (MS Word and Excel). The ministry has provided no IT training and most skills have been learned on-the-job or by staff taking external private courses of their own volition.


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APPENDIX 1: LIST OF DONOR PROJECTS IN MAFF


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PMU Name Project Title Donor Amount (US$) Timing Responsible Officer

Programme Support Unit (PSU/ASDP) Agriculture Sector Development Programme

ADB Loan No. 2022 3.3 Million 2006-08 Hong Narith, Project Executive

Project Coordination Unit (PCU/AIDOC) Agriculture Sector Development Project

ADB Loan No. 2023 5.8 Million 2004-09 Lor Raksmey, Project Executive

Technical Coordination Office (ECOSORN) Economic and Social Relaunching of the North-western Provinces EU 26 Million Euro 2006-10 Chan Sarut, Project Co-Director

SLPP/EU in DAHP Small Holder Livestock Project EU 6.8 Million 2005-10 Nou Vonika, Project Co-Director Project Implementation Office (FiA-PIO/ADB 1939 CAM)

Tonle Sap Environment Management-Component 2-Fishery Community Management

ADB Loan No. 1939 10.9 Million 2003-08 Eng Chea San, Project Manager

MAFF/PSU Poverty Reduction Project in Prey Veng and Svay Rieng

IFAD/UNDP/DFID/SIDA/WFP 15.49 Million 2004-11

Rural Livelihoods Improvement Project in Kratie, Preah Vihear and Rattanakiri IFAD/UNDP 9.52 Million 2007-14

Project Office in Training Centre Capacity Building for Forest Sector (Phase II) JICA 3.2 Million 2006-10 H.E. Ty Sakhun, Project Manager

Improvement of Vegetable Production and Postharvest Management Systems ACIAR

0.735 Million AU$ 2005-08

Project Office in CARDI Diversification and Intensification of Rain fed Lowland Cropping Systems ACIAR 0.88 Million AU$ 2007-10

Project Office in DAHP Best Practice Health and Husbandry of Cattle ACIAR 0.76 Million AU$ 2007-11

Project Office in DAHP Understanding Livestock Movement and the Risk of Spread of Transboundary Animal Diseases ACIAR 1.3 Million AU$ 2007-12

Project Office in DoP Cambodia Agriculture Marketing Information Project (CAMIP) CIDA 4.2 Million CAD 2006-10

Agriculture Development in Mine-Affected Areas of Cambodia (ADMAC) CIDA 4.48 Million CAD 2005-10

Project Office in Provincial DAFF Battambang rural area nurturing and development project JICA 2.5 Million 2006-10

Sources: (1). Public Investment Office (2). Technical Working Group on Agriculture and Water


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APPENDIX 2: LIST OF DONOR PROJECTS IN MOWRA

Draft Final Report Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development Projects

Page 59

Name of project Donor Starting Ending Project Cost (US$ 000) PMU

Responsible person

Capital Investment Projects

Stung Chinit Irrigation and Rural Infrastructure ADB/AFD 2001 2008 16,000 NW-PMU H.E. Veng Sakhon

Baray Irrigation Rehabilitation India 2006 2008 7,155 NW-PMU H.E. Veng Sakhon

Kandal Stung Irrigation Japan 2005 2008 15,000 NW-PMU H.E. Veng Sakhon

Technical Service Centre Irrigation System Japan 2002 2010 5,250 NW-PMU H.E. Veng Sakhon

The Study on Comprehensive Agricultural Development of Prek Thnot River Basin Japan 2005 2010 4,000 NW-PMU H.E. Veng Sakhon

Northwest Irrigation Project ADB 2005 2012 30,870 NW-PMU H.E. Veng Sakhon

Repairing Irrigation System by Food for Labour WFP 2003 2010 3,600 NW-PMU H.E. Veng Sakhon

Rehabilitation Basac Reservoir Japan 2008 2010 2,100 NW-PMU H.E. Veng Sakhon

Kamping Pouy II FAO 2006 2010 1,600 NW-PMU H.E. Veng Sakhon

Eastern Rural Irrigation System Rehabilitation IMF 2007 2009 33,800 Eastern-PMU H.E. Sam Sarith

Irrigation sectoral project France 2004 2009 4,800 NW-PMU H.E. Veng Sakhon

Water Resources Development Project in Krang Ponley River Basin EDCF, Korea 2004 2010 26,700 Minister Cabinet

Sub-total 150,875

Technical Assistance Projects

Preparing Inventory of Irrigation System Japan 2004 2010 450 NW-PMU H.E. Veng Sakhon

Master Plan of Cambodia Watershed Korea 2006 2009 1,400 NW-PMU H.E. Veng Sakhon

Development Water Resources 2008 2010 800 NW-PMU H.E. Veng Sakhon

Manage Master plan for irrigation system 2008 2010 3,000 NW-PMU H.E. Veng Sakhon

Sub-total 5,650

Source: PIP 2008-2010 and International Cooperation Office



APPENDIX 4 – MAFF PFM CAPACITY DEVELOPMENT PLAN


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MAFF PFM Capacity Development Plan

PUBLIC FINANCIAL MANAGEMENT CAPACITY DEVELOPMENT PLAN



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CONTENTS

I. PURPOSE ..................................................................................................................1

II. BACKGROUND..........................................................................................................2

A. Public Financial Management Reform Program (PFMRP) ............................................ 2 B. ADB Program Cluster (PFMPCRD) .............................................................................. 2

III. PROPOSED TRAINING PROGRAM.......................................................................3

A. Proposed EFI Training Program ................................................................................... 3 B. Proposed PFM Training for MAFF ................................................................................ 3

IV. OTHER CAPACITY DEVELOPMENT MEASURES ..............................................13

A. Merit Based Pay Initiative ........................................................................................... 13 B. Development Partner Schemes .................................................................................. 13 C. Other Capacity Building Measures.............................................................................. 14

V. RISKS TO CAPACITY DEVELOPMENT...............................................................15

ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008-2010 ....................................16

ATTACHMENT 2 – TRAINING NEEDS ASSESSMENT REPORT MAFFF .....................18

I. INTRODUCTION.......................................................................................................19

II. PROGRAM OVERVIEW ...........................................................................................20

A. Public Financial Management Reform Program (PFMRP) .......................................... 20 B. PFM Reforms and Rural Development ....................................................................... 20 C. Other Training Needs ................................................................................................. 21

III. THE TNA PROCESS.............................................................................................22

IV. TNA RESULTS AND FINDINGS...........................................................................23

A. Focus Group Results.................................................................................................. 23 B. Staff Survey Findings.................................................................................................. 23

V. TRAINING NEEDS ................................................................................................25

ATTACHMENT 1 – FOCUS GROUP RESULTS................................................................... 29 A. Focus groups results .................................................................................................. 29 B. TNA RESULTS AND FINDINGS ................................................................................ 30 C. About the respondents organization ........................................................................... 31 D. Assessment of knowledge and skills........................................................................... 32 E. Assessment of personal development ........................................................................ 36


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I. PURPOSE

1. The purpose of this document is to assist the Ministry of Agriculture Forestry and Fisheries (MAFF) in preparing a framework for (i) public financial management capacity development in MAFF as an organization (including provincial offices) and (ii) other capacity development needs of the Department of Accounting and Finance and the Department of Planning of the ministry. It is also intended to assist the ADB and Royal Government of Cambodia (RGC) agencies to prepare a technical assistance (TA) project to strengthen public financial management (PFM) in MAFF, the Ministry of Water Resources and Meteorology (MOWRAM) and the Ministry of Rural Development (MRD) under the proposed Public Financial Management Program Cluster for Rural Development (PFMPCRD).


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II. BACKGROUND

A. Public Financial Management Reform Program (PFMRP)

2. In Platform 1 of the Public Financial Management Reform Program (PFMRP), training in new PFM measures was provided between 2005 and 2007 to line ministries by the Economic and Finance Institute (EFI) and other departments of the Ministry of Economy and Finance (MEF). The training provided was mainly in the areas of: (i) basic accounting, (ii) new procurement procedures, (iii) internal audit, (iv) program budgeting, (v) budget preparation and (vi) and budget execution.

3. However, the report of the External Advisory Panel which conducted an independent review of the PFMRP in early 2007 found that many of the PFM reforms had not become firmly embedded in most line ministries and would require further strengthening. This, in turn, pointed to a need for further training of line ministries’ staff in PFM topics.

4. Platform 2 of the PFMRP which is scheduled to be implemented between late 2008 and 2010 has the objective of ‘increasing budget accountability.’ It is envisaged that, as line ministries will have a wider role and involvement in the implementation of Platform 2 than they had in Platform 1, there will be a need for much more extensive training of line ministry staff in PFM issues. The PFMRP Platform 2 framework document mandates that line ministries should prepare a PFM capacity development plan before the end of 2008, as well as a Ministry Action Plan, to guide them in implementing PFM reforms. The present document is intended to assist MAFF in preparing its capacity development plan.

B. ADB Program Cluster (PFMPCRD)

5. ADB has proposed to provide grant assistance between 2008 and 2010 to Cambodia to strengthen PFM, comprising a grant program component (budget support) and a grant project component. The project component will address institutional capacity development in the form of four technical assistance (TA) projects to be implemented between 2009 and 2010: (i) Strengthening the Effectiveness of the National Audit Authority (NAA), (ii) Strengthening Debt Management in MEF, (iii) Strengthening Internal Audit in MEF, MAFF, MOWRAM and MRD and (iv) Strengthening PFM Capacity in MAFF, MOWRAM and MRD.

6. The first project will focus on improving the capacity of the NAA to perform financial and other types of external audits. The second will strengthen the capacity of the MEF to manage Cambodia’s public debt and will be an extension of ADB’s significant contribution to improving debt management made in PFMRP Platform 1. The project to strengthen internal audit will involve participation of MAFF, MOWRAM and MRD as well as MEF.

7. The proposed project for strengthening PFM capacity in MAFF, MOWRAM and MRD is currently in the project planning and preparation stages. Such preparation will be influenced by the findings of this capacity development plan. Part of that planning also includes allocation of resources to each of the four proposed TA projects (from the proposed $4.1 million in the ADB program cluster).


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III. PROPOSED TRAINING PROGRAM

A. Proposed EFI Training Program

8. The mission and purpose of the Economics and Finance Institute (EFI)1 is to:

• Contribute to the building up of the human resource capacity of Cambodia’s public sector through training focused on public finance, public management and economics, with emphasis on policy and its applications;

• Develop and implement a program of applied research that stresses the key requirements for the improvement of economic and financial policymaking and management in Cambodia;

• Enhance the information technology capabilities of the Royal Government of Cambodia by establishing a strong IT training program.

9. The PFMRP Platform 2 framework document contains the PFM capacity development plan prepared by EFI in 2007. The plan, together with the EFI document ‘About the Economics and Finance Institute’ outlines the training program which EFI proposes to offer to line ministries during Platform 2 implementation. The proposed courses are shown in Appendix 1 which also includes a summary of the curriculum for each course (where it has been prepared). The training to be provided covers new PFM activities which will commence in Platform 2 as well as training to reinforce reforms which commenced in Platform 1, e.g. public procurement. EFI is currently seeking to engage a domestic training firm or institution to assist it in preparing the remainder of the curriculum, to deliver training services and to monitor the training outcomes.

B. Proposed PFM Training for MAFF

10. The proposed training program in MAFF has been determined by the demand for training as revealed by a training needs assessment, which has been matched with the ministry’s likely share of places in the EFI training program, together with other possible sources of PFM and other training.

11. ADB PPTA No. 4988CAM has completed an assessment of the training needs for PFM and related issues in MAFF. The methodology of the assessment comprised three parts: (i) a review of the training needs identified or implied in the PFMRP Platform 2 document and the PFM (EFI) capacity development plan, (ii) the PFM Working Group in MAFF was convened as a focus group in which the senior officers of the ministry could be canvassed in depth about their views on the training and other developmental needs of their staff and their own development needs and (iii) a survey, mainly of staff of the finance, planning and internal audit departments, to gather information about their qualifications, experience and prior training and, also, about what training in PFM and other areas they believed they would need in the future. The report of the ministry’s training needs assessment is included as Appendix 2 and has been used to develop the proposed training and other capacity development plans which are outlined below.

12. In addition it is considered necessary to provide training and capacity development in a number of related areas which are not presently covered by the proposed EFI training program. This additional training is essential to supplement PFM training in areas not covered by the EFI program or where EFI will be unable to provide enough training places

1 EFI, About the Economics and Finance Institute, 2008, p. 6.


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to the ministry2. This additional training also covers other topics not included in the PFM program but which are desirable for the general development of the ministry staff. It is proposed that that additional training be resourced from the forthcoming ADB technical assistance for rural development or be funded from other available sources.

13. The proposed training component of the capacity development program for MAFF is as follows:

2 Because of the limited number of EFI training places for most PFM courses, it is recommended that,

wherever possible, courses should be provided on a train-the-trainer basis and that MAFF (and other line ministries) should implement their own internal training programs by utilizing these trainers (possibly under the auspices of the proposed ADB TA project).


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Table 1: Training Needs

Technical Skills Relevant to PFMRP Platform 2 Activities

Topic Objectives and Description Delivered by:

Staff Level Staff numbers

Estimated training days +

Training period

Effective budget delegation

Understanding of control framework, management skills in engagement of staff and communication and management tools

EFI 1,2 7 2 2Q 2009-4Q 2009,

Interpreting accounting reports

Accounting principles. Analytical skills and financial review skills

( e.g. financial ratios, statistical reports etc)

EFI 4,1 7 2 3Q 2009

Use of chart of accounts and budget classification

Structure, principles and processes EFI 4 7 2 4Q2008-2Q 2009

Analyzing budgets Analytical skills, familiarization with the budget templates and tools for analysis

EFI 4 7 2 2Q 2009-4Q 2009

Responding to budget Reporting skills, communication skills

EFI 4,1 7 2 4Q 2009

FMIS implementation

(MAFF only)

An understanding of the systems, operational requirements, understanding and use of systems manual.

EFI 1,2,4 7 5 3Q 2011


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Use of FMIS (MAFF only)

Accounting, reporting applications etc

EFI 1,2,4 7 5

Change management with introduction of FMIS (MAFF only)

Change management principles, best practices and tools

EFI 1,2,4 7 5 3Q 2011-4Q 2011,

Public procurement management

Policies and processes, documentation, reporting and analytical techniques and requirements

EFI 1,2,3,4,5 75 5 3Q 2009-4Q 2009

Audit plan development

Guidelines for preparing a proper audit plan

EFI 1,4 7 5 2Q 2009-3Q 2009

Risk analysis as a basis for audit

Concepts of risk, incorporating risk into audit plans

EFI 4 7 5 2Q 2009-3Q 2009

Other internal audit training

Refer to Three Year Internal Audit Training Plan prepared by ADB PPTA No.4988CAM

PCTA 1,2,4 20 Various 2Q 2009-2Q 2011

Preparing departmental strategic plans

Analytical tools and techniques, principles of planning, government policies and requirements and reporting skills and techniques

PCTA 1,2 15 4 4Q 2009-1Q 2010

Program Budgeting Principles, policies, processes and development techniques and reporting skills

PCTA 4,2,1 15 4 4Q 2008-2Q 2009

Commitment s and Payments Process

Policy, processes and tools or templates

PCTA 3,4,5 50 2 4Q 2009-1Q 2010


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Preparing budget execution reports

Analysis skills and financial review skills

( e.g. statistical reports etc) Reporting skills

PCTA 4 50 2 4Q 2009, 1Q 2010

Preparing a procurement plan (supplements EFI procurement training)

Principles and processes of preparing a plan

PCTA 3,4,1 75 Maximum 2 days per course

2Q 2009

Procurement contract and negotiations (supplements EFI procurement training)

Principles and processes of contracts

PCTA 3,4 75 Maximum 2 days per course

2Q 2009, 3Q 2009

Procurement reporting (supplements EFI procurement training)

Analysis techniques and skills and methods of reporting

PCTA 3,4 75 Maximum1 day per course

3Q 2009,4Q 2009

Basic Accounting To complete accounting transactions

To complete reconciliations

Understand fundamental accounting principles

EFI, One-on-one

4,5 50 Will vary depending on need and time and method for the training

Ongoing from 2Q or 3Q 2009

Advanced Accounting To prepare final accounts, present accounting reports, to understand accounting principles

Interpret accounts

EFI, One-on-one, Tertiary courses

4 20 Will vary depending on need and time and method for the training



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Monitoring and evaluation

Principles of monitoring and evaluating work programs


PCTA, One-on-one

4,3 25 Maximum 2 days per course

4Q 2009-2Q 2010

Devolution and reconcentration

Principles of fiscal decentralization, new roles and responsibilities of sub-national levels, new revenue and grant assignments of sub-national levels

PCTA 1,2,3,4 50 Will vary depending on need and time and method for the training

1Q2009-4Q2010

Broader skill development for individual staff ( i.e. to be delivered at their level of capability)

Business communication written and verbal

Provide a base level for key communications with opportunity to practice and improve

Local T, workshop

1,2,3,4,5 ** Maximum 5 days per course


Report writing Provide a base level for key reports with opportunity to practice and improve ( linked to English language courses)

EFI, Local T,

1,2,3,4,5** 20 Maximum 5 days per course


Project proposal writing

Basic skills for preparing project proposals

EFI 1,2,4 7 Maximum 5 days per course


Work and customer service ethics

Work place organization, Best practice principles, provide the opportunity for staff to practice skills



MS Word Provide a level of skills appropriate for the level the staff member is working at

Local T 1,2,3,4,5** 20 Maximum 5 days per course



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MS Excel Provide a level of skills appropriate for the level the staff member is working at



Other software including any specific accounting packages

Provide a level of skills appropriate to the staff member’s level

Local T 1,2,3,4,5 ** 20 Maximum 5 days per course


Information technology (advanced)

Advanced IT applications EFI 2,3,4 10 Ongoing from 2Q or 3Q 2009

Project management Provide a base level of skills and processes that can be used

Local T 4,3 10 Maximum 5 days per course


Supervisory skills Work place organization, human behaviour, best practice principles and tools to assist in the work place



Presentation skills Provide a base level of skills and a tool kit to use

Local T 1,2,3 10 Maximum 5 days per course


Business English language

Provide a base level for key English communication with opportunity to practice and improve

Local T, Tertiary

3,4,5 30 Maximum 5 days per course


Staff management and organization

Best practice principles and management tools

EFI 1,2 25 Will vary depending on need and time and method for the training

1Q 2010-3Q 2010

Change management Leadership principles, change EFI 1,2 20 2Q 2009-4Q 2010


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and leadership management in organizations

Best practice governance

Best practice principles and governance tools

PCTA,

Study T

1,2.3 25 Will vary depending on need and time and method for the training

2Q 2009-4Q 2010

Best practice administration processes


PCTA, Job R,


4Q 2009-1Q 2010

Improving performance and productivity

Work place organization, human behaviour, best practice principles and management tools

PCTA,

Study T


2Q 2010, 2Q 2011

Description of delivery agents:

(i) PCTA=Proposed ADB program cluster TAs for strengthening internal audit and PFM reform in MAFF, MOWRAM and MRD

(ii) One-on-one=senior staff mentoring of junior staff in departments

(iii) Tertiary=Full-time or part-time tertiary courses for selected staff at local or international institutions

(iv) Study T=International study tour

(v) Job R=Job rotation

(vi)Workshop=Formal on-site courses

(vii) Local T=Local trainers engaged to train on specific skills, e.g. specialized IT training firm etc


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Description of staff levels:

1=Leadership team

2=Managers that report to leadership team (will manage their own team and area)

3=Team leaders /supervisors (will lead small teams, may be in specialist or technical roles)

4=Specialist roles, technical roles e.g. internal audit, accountants, planners

5=Administration and clerical staff

** As required by each individual- training to improve their ability to do their job.

+ Estimate of days required to complete course, although the number of days may be spread over a period of time


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IV. OTHER CAPACITY DEVELOPMENT MEASURES

A. Merit Based Pay Initiative

14. Sub-decree No. 29 of 2 April 2008 provides for the Merit Based Pay Initiative (MBPI) to be extended to line ministries by awarding salary supplements to staff as incentives to improve their work performance and to participate in the PFM reforms and other strategic priorities of the government. The requirements for staff in line ministries to be admitted to the MBPI scheme include: (i) identification of a donor who will fund at least 90 per cent of the MBPI and any associated payments, (ii) identification of the additional responsibilities and superior performance which would warrant the salary supplementation and (iii) preparation of a written job description, selection and transfer procedures and an appointment contract. Approval of MBPI applications will be through the Council of Administrative Reform and the MEF.

15. Based on the significant additional responsibilities the PFM Working Group members will be required to assume for implementing and oversighting the reform program, it is proposed that the nine Working Group members should be included in the MBPI scheme from 2009. Other staff should be admitted to the scheme in later years as their contribution to PFM reforms are demonstrated. Options which should be investigated include: (i) reaching agreement with MEF to funding from the State Budget (in recognition of the budget support to be advanced under PFMPCRD or (ii) funding from the ADB TA project, if a mandate exists for such types of projects.

B. Development Partner Schemes

16. A wide range of overseas training and study opportunities are provided by various development partners. For example, the Government of Japan offers 25 scholarships each year for Cambodians for post-graduate (masters) courses under the Japanese Grant Aid for Human Resource Development Scholarships (JDS). Courses are available in law economics, agriculture, rural development, ICT, infrastructure management, public policy and public administration, all of which are relevant to varying degrees to the capacity development of MAFF staff.

17. The Australian International Development Agency (AusAID) offers approximately 20 scholarships each year to staff who have worked for the RGC for at least three years. The scholarships are available for full-time post-graduate study at Australian universities in courses which are relevant to PFM in MAFF.

18. Also, the Government of Japan is funding a joint Japan/ADB Public Policy Training (PPT) Program in Cambodia (as well as in Vietnam and Laos). The program will provide in-country training between 2008 and 2010 in (i) leadership and management for mid-level to senior managers and (ii) specialized thematic courses for mid-level to senior managers within the Cambodian civil service. ADB has agreed with the RGC that the PPT thematic courses in Cambodia will focus on PFM capacity building.

19. It is envisaged that the courses will be delivered about three times a year by visiting faculty from leading Japanese universities. The leadership and management course will be run over five to 10 days and the thematic courses will be about five days in length. It is also expected that up to five post-graduate scholarships will be awarded to Japanese universities for staff who have completed the in-country courses. These courses would strongly complement the Change Management and Leadership and Strategic HRM courses to be offered by EFI.


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20. It is recommended that the ministry’s Personnel Department and senior staff of the Departments of Accounting and Finance and Planning monitor the availability of overseas training and development opportunities (from websites and newspaper advertisements) and actively promote the applications of staff who would be suitable for such training. Senior managers should also monitor the availability of other training courses such as the Public Finance and Expenditure Management course which was offered by the ADB Institute in 2005 and online training material at websites such as the World Bank Institute.

C. Other Capacity Building Measures

21. Developing the capacity of individual staff members will be only partially successful unless it is supported by appropriate institutional capacity building. Some measures which would complement individual capacity building would be for MAFF’s Personnel Department to:

• Assist the finance and planning departments prepare job descriptions for all staff;

• Maintain accurate personnel records for all staff ( including qualifications, training

courses attended, job descriptions, personal details, performance reviews);

• Assist the finance and planning departments to develop personal development plans for each staff member;

• Assist the finance and planning departments to implement annual performance reviews

for all staff;

• Train managers and supervisors on how to effectively manage staff and improve the

performance of staff; and

• Introduce mentoring arrangements for junior staff.

22. Introduction of these personnel measures may require the involvement and agreement of the Council for Administrative Reform.


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V. RISKS TO CAPACITY DEVELOPMENT

23. There are a number of risks inherent in implementing a capacity development plan. These risks and some possible mitigation measures which could be taken to deal with them are as follows:

Risk Factor Possible Mitigations

Lack of senior management commitment to capacity development

-Seek public commitment by the Minister to the plan

Donor TA support diminishes in the medium-term, resulting in reduced training effort

-Seek medium- to long-term donor commitment to support training

Supply of training services by EFI is inadequate for achieving effective outcomes

-Periodic independent review of EFI

-PCTA develops training outcome indicators which are implemented by MAFF

-Medium-term follow-up training implemented

Skills diminish in the medium-term following initial training

- Internal monitoring of training outcomes in the ministry



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ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008-2010

Course Course curriculum prepared

Number of training places allocated by MEF3

Understanding PFMRP Y 300

Staff management and organization Y 450

Information technology (Part 1) Y 600

Information technology (Part 2 ) Y 600


Professional accounting (Part 1) Y 600



Report writing skills N 150

Project proposal writing Y 150

Effective budget delegation N 150

Interpreting accounting reports Y 150

New chart of accounts N 150

Analyzing budgets N 150

Responding to budgets N 150

Audit planning N 150

Risk analysis for audit N 150

FMIS implementation Y 150

3 It is understood that these numbers of training places will be spread across all 35 budget-funded agencies and

attached provincial units.


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Use of FMIS Y 150

Change management for FMIS Y 150

Public procurement management N 1500

Strategic HRM Y 390

Change management and leadership Y 360


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ATTACHMENT 2 – TRAINING NEEDS ASSESSMENT REPORT MAFFF


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I. INTRODUCTION

1. This report presents the results of the training needs assessment (TNA) prepared under Asian Development Bank (ADB) PPTA No. 4988 CAM-Preparing the Strengthening of Public Financial Management for Rural Development. The project focused on the training needs of three (3) ministries: Ministry of Rural Development (MRD), Ministry of Water Resources and Meteorology (MOWRAM) and Ministry of Agriculture Forestry and Fisheries (MAFF).

2. The TNA is a valuable tool to assist with the effective design and implementation of training courses. The TNA will serve as a basis for developing the capacity building plan and it will help target training for specific groups of staff.

3. A training framework is presented in the report outlining potential timings of the proposed training courses along with suggested participants and how long each course could take.


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II. PROGRAM OVERVIEW


4. The PFMRP is a multi-stage program to reform Cambodia’s public financial management (PFM) system implemented from 2005, with a ten year planning and implementation horizon. It was designed in response to the systemic weaknesses identified in all aspects of PFM. The first stage of the PFMRP, Platform 1, was completed in 2007. Platform 1 was rolled out as a preparatory phase for later platforms and to improve budget credibility and the day-to-day management of public resources by delivering a reliable and predictable resource envelope to individual managers.

5. An independent review of the program in mid 2007 (the External Advisory Panel) found that much progress had been made in meeting the program’s objectives in Platform 1 and that the program had reached out significantly to line ministries (procurement, payments, cash management and arrears reforms, introduction of internal auditing, piloting of program budgeting and PFM training). However, the review also found that the reforms had acquired only limited take up in most line ministries and that further consolidation would be necessary in later platforms - such strengthening would require a major PFM training effort in and for the line ministries during Platform 2.

6. For the second stage of the program, the RGC with assistance from development partners has prepared a Platform 2 framework and has approved its implementation between late 2008 and 2011. The overall goal of Platform 2 of the PFMRP is to improve accountability for achieving effective financial management. Therefore, the main theme of Platform 2 is increased accountability of those who are responsible for the safe, efficient and effective management of public resources.

7. The program for PFMRP Platform 2 is outlined in a Consolidated Action Plan (CAP2) which includes reform activities to be undertaken by line ministries. The line ministries’ activities include or imply a number of capacity building measures including training. CAP2 also sets a requirement for line ministries to prepare Ministry Action Plans (MAPs) which will set out their PFM reform objectives and activities for the period 2008 to 2010, as well as ministry Capacity Development Plans. The current PPTA has been tasked with assisting MAFF, MOWRAM and MRD to prepare their PFM capacity development plans and this training needs assessment is intended as input for such plan preparation.

B. PFM Reforms and Rural Development

8. The soundness of Cambodia’s PFM system will strongly impact rural development outcomes. Pro-rural development policies will only be as effective as the PFM system which manages this policy objective. The current weaknesses in Cambodia’s PFM system are a real threat to the effective implementation of the National Strategic Development Plan and its rural poverty reduction agenda. The Government has recognized the challenge of rolling out PFM reforms to the rural development ministries. Involvement of the rural development ministries and a sense of ownership of the PFMRP by these ministries will be a pre-requisite to PFMRP success. Building capacity of MRD, MOWRAM, and MAFF for timely budget preparation; efficiency of budget execution; accounting accuracy; comprehensive and timely financial reporting, efficient procurement and internal audit is a priority. The underlying emphasis for PFM reforms in these ministries is continued development of capacity through acquisition of knowledge, skills, and leadership qualities (capacity development activities and change management measures).


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Adequately trained human resources are the key to make reform successful in MRD, MOWRAM, and MAFF.

C. Other Training Needs

9. Improvement in the overall capacity of MAFF will depend on the staff being competent in a broader range of skills than PFM. For this reason the assessment has examined the training needs for language and communications, report writing and other related skills.


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III. THE TNA PROCESS

10. The training requirements have been determined from three sources: (i) the capacity building needs identified or implied in the PFMRP Stage 2 Consolidated Action Plan (CAP) prepared by MEF and endorsed by the RGC in June 2008 for implementation from the end of 2008 until 2011, (ii) a focus group comprising the members of the PFM Working Group in MAFF which has been charged with responsibility for over - sighting and implementing PFM reforms in the ministry and (iii) a survey of the attitudes and knowledge of staff in the finance, planning and internal audit departments of the ministry regarding PFM and other issues.

11. Copies of the staff survey questionnaire and of key issues discussed by the focus group are included at Attachment 3 below.


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IV. TNA RESULTS AND FINDINGS

A. Focus Group Results

12. A focus group meeting was held on 8 August with four members of the MAFF PFM Working Group. The working group was provided with the questions to be discussed prior to the meeting. The questions are included in Attachment 3 below.

13. The members of the focus group are managers who are responsible for three of the key areas in the PFM program namely: budget preparation, budget execution and budget evaluation. The focus group members had a clear understanding of the requirements that the departments of accounting and finance and planning need to meet in the next three years. The group also recognized the current capability levels within each of the departments and the gaps that need to be addressed to improve the capacity of staff to meet the requirements of the PFM Platform 2.

14. The new information that staff would need training for could include: the objectives of PFM Platform 2, linking the budget plan to MAFF’s strategy and policy, the linking of the provincial departments plans and budgets, program budgeting and monitoring and evaluation of projects, budget delegation and the project life cycle.

15. A number of skills were identified by the focus group as requiring training in the early part of the program. These skills are necessary to implement the new methodologies and processes that will be required as the PFM develops. The important skills identified include: English language and communication, Information Technology skills, (including Microsoft Project), project management, task management (including delegation skills), project proposal writing, report writing, evaluation skills, monitoring skills, asset management and cash management.

16. The members of the PFM Working Group thought that within MAFF the members of the PFM working group and key staff from within the finance team should be eligible for the MBPI scheme. This would reflect the contribution that these staff members make to the implementation of PFM Platform 2. A number of options to fund MBPI were discussed with the group, including finding a donor to fund the payments and funding directly for the state budget. The PFM Working Group agreed to follow up with MEF how MBPI could be implemented.

17. The training priorities were identified as skills and knowledge needed to support the three key areas in the PFM program namely: budget preparation, budget execution and budget evaluation. Within these three areas there is a wide range of training options and approaches that could be considered. Further details on the focus group’s views are included in Attachment 1

B. Staff Survey Findings

18. The staff survey questionnaire was completed by 74 respondents from the Departments of Accounting and Finance, Planning and Internal Audit and selected finance staff from line departments in MAFF. All of the respondents (100 per cent) indicated that they had tertiary qualifications. Staff indicated that they had occupied their current position for 4.7 years on average, indicating a fairly low rate of staff mobility and turnover. The majority of respondents considered that most staff in their work area have appropriate qualifications and relevant work experience for their roles and that there are adequate numbers of staff for the organization’s current workload.


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19. Forty-five (61 per cent of respondents) indicated they had received training related to their jobs in the past three years. Of these staff, 23 had received training in accounting (with a significant number having attended two training courses). The majority had received training under a previous ADB TA project, with only one respondent reporting having attended an MEF accounting training. Five staff received training in budget procedures from the ADB TA and two attended budget training courses at MEF. Nine staff received training in program budgeting from the ADB TA. Two staff of the Internal Audit Department received audit training from the National Audit Authority. None of the respondents reported receiving training in procurement procedures. A significant result was that only three staff reported attending training provided by MEF in the previous three years.

20. Where respondents rated knowledge and skills areas highly in terms of importance to work and training priority the project team has determined that courses in these areas should be regarded as a high priority. Areas that matched this criterion (i.e. the respondents scoring would indicate these are important training needs) included: English language, business communication, Microsoft Word and Excel, commitments and payments process, improving performance, understanding systems and processes, managing staff, contract negotiations and program budgeting.

21. The respondents were asked to rank six skill areas that could help their personal development: communications, workplace ethics, note taking and report writing, supervisory skills, presentation skills and project management. The highest scoring areas were: supervisory skills, communications and project management.

22. Further detail on the survey results is included in Attachment 2.


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V. TRAINING NEEDS

23. The assessed requirement for training is included in Table 1 below. Because the success of PFM reforms will depend on the general capacity of staff in the finance and planning departments as well as other departments of the ministry, consideration must also be given to a wider range of training needs. Accordingly, the proposed training schedule also includes other non-PFM topics

.


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Topic Objectives and Description Delivered by: Staff

Level

Estimated training days

Training Period



EFI, Local trainers, workshop

All levels As required, max. 1 day for each course

On going From 2Q 2009

Report writing Provide a base level for key reports with opportunity to practice and improve

( linked to English language courses)

ADB TA All Levels Max. 1 day per course

On going from 2Q 2009

MS word Provide a level of skills appropriate for the level the staff member is working at

Local specialized trainers

All levels Max. 3 days per course

On going from 2Q or 3Q 2009

MS excel Provide a level of skills appropriate for the level the staff member is working at


All Levels Max. 3 days per course


Managing staff and improving performance

To provide management and supervision skills. Theory followed up by practical opportunities and Work place behaviour

Local trainers, workshop, one on one

From supervisor level upwards

Max. 3 days per course


Preparing a procurement plan Principles and processes of preparing a plan

ADB TA Specialists, Team leaders, Leadership team


2Q 2009

Procurement reporting Analysis techniques and skills and methods of reporting

ADB TA Specialists, Team leaders, Leadership team


3Q and 4Q 2009

Procurement contract and negotiation

Principles and processes of contracts ADB TA Specialists, Team leaders, Leadership team


2Q and 3Q 2009

Basic Accounting To complete accounting transactions and EFI, one on Specialists, Will vary on need and On-going from 2Q


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reconciliations one Administrators

specific skill 2009

Advanced Accounting To prepare final reports, present accounting reports, understand accounting principles and interpret accounts

EFI, one on one

Specialists Will vary on need and specific skill

On-going from 2Q 2009

Monitoring and Evaluation Principles of monitoring and evaluating work programs. Analysis, techniques and methods of reporting

ADB TA Specialists, Team Leaders and Managers


4Q 2009 – 2Q 2010

Commitments and payments process

Policy, processes, tools and templates EFI Team leaders, administrators, specialists


4Q 2009 – 1Q 2010

Preparation of budget execution reports

Analysis skills, financial review skills ( e.g. statistical reports etc), reporting skills

EFI Specialists Max. 2 days per course

4Q 2009, 1Q 2010

Chart of accounts and budget classification

Structure, principles and processes EFI Specialists Max. 2 days per course

4Q 2008 - 3Q 2009

English language A base level of key English communication with the opportunity to practice and improve

Local Trainer All levels Max. 1 day course On-going from 2Q 2009

Project Management skills Provide a base level of skills and processes that can be used

Local Trainer Specialists, team leaders

Max. 3 day course On-going from 4Q 2009

Program Budgeting Policies, Principles, processes, development techniques and reporting skills

ADB TA Specialists, Team leaders, Managers

Max. 2 day course 1Q 2009 to 3Q 2009

Work place ethics Best practice principles Local trainer All levels Max. 1 day course On-going from 2Q 2009

Analyzing budget Analytical skills, familiarization with budget templates and tolls for analysis

EFI Specialists Max. 2 day course 2Q 2009 – 4Q 2009

FMIS Implementation An understanding of the systems and operational requirements

EFI Administrators, Managers, Specialists

Max. 3 day course 3Q 2011

Use of FMIS Accounting and reporting applications EFI Administrators,

Max.3 day course 3Q 2011 - 4Q -2012


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Managers, Specialists

Change management with introduction of FMIS

Change management principles, best practices and tools

EFI Administrators, Managers,

Max. 3 day course 3Q 2011 -4Q 2012

Budget Delegation Understand control framework, management skills

EFI Leadership team and specialist

Max. 2 days course 2Q 2009 – 4Q 2009

Responding to budget Reporting skills communication skills EFI Specialists and Managers

Max. 2 days course 4Q 2009

Preparing department strategic plans

Analytical tools and techniques, principles of planning

ADB TA Specialists, Managers, Leadership team

Max. 3 day course 4Q 2009 – 1Q2010

Presentation skills Provide a base level of skills and a tool kit Local trainer Managers, Specialists


Project proposal skills Basic skills for preparing project proposals

EFI Specialists Managers

Max. 3 day course On – going from 3Q 2009

Devolution and Deconcentration Principles of decentralization, new roles and responsibilities

ADB TA Leadership team


Staff Management and improving performance

Best practice principles and tools EFI Leadership team Managers

Max. 3 day course 1Q2010 – 3Q2010

Change management Principles and practices EFI Leadership team


Leadership Principles and practices EFI Leadership team

Max. 2 day course 4Q2009 2Q 2010 3Q 2011

Best practice governance Principles and tools ADB TA Leadership team

Max. 3 day course 2Q 2009 – 4Q 2010

Administration processes Principles and tools ADB TA Managers and Administrators

Max.1 day course 4Q 2009 -1Q 2010

Specific Training for internal audit is detailed in a separate report “Three year training plan for Internal Audit” prepared by the Audit Specialist of the ADB PPTA No. 4988CAM project.


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ATTACHMENT 1 – FOCUS GROUP RESULTS

A. Focus groups results

1. The key areas that require training courses in the initial stages of PFM platform 2 within the Accounting and Finance and Planning Departments are: budget preparation, budget execution and budget and or project evaluation. Within these areas there are a number of specific skills and new information requirements that staff will need to acquire from specific training courses.

2. The new information in which staff will need training will include: the objectives of PFM platform 2, linking the budget plan to MAFF’s strategy and policy, the linking of the provincial departments’ plans and budgets, program budgeting and monitoring and evaluation of projects, budget delegation and the project life cycle.

3. Any training programs developed would need to consider how the linkage between provincial offices and central office can be improved and incorporated into any proposed training courses. There is significant change occurring within MAFF presently and the current capacity levels are not sufficient to handle the current rate of change. Therefore, the implementation of training needs to be done in terms of the priorities of each of the departments.

4. A number of skills were identified by the focus group as requiring training in the early part of the program. These skills are necessary to implement the new methodologies and processes that will be required as the PFM develops. The important skills identified include: English language and communication, information technology skills, (including Microsoft Project), project management, task management (including delegation skills), project proposal writing, report writing, evaluation skills, monitoring skills, asset management and cash management.

5. The PFM Working Group will have the responsibility of leading the changes within MAFF that will be required to implement the requirements of the PFM program. The working group advised that training courses in leadership, change management and monitoring and evaluation would be their highest priorities for training.

6. The Department of Accounting and Finance has received previous training from ADB projects. This training used the train–the-trainer method. The working group considered this worked well and would like to see future training continue to use the train-the-trainer method. Other training methods that could work well in MAFF include: on-the-job training, off-site courses for MAFF staff only, study tours to regional countries and coaching. The training program should look to combine the different methods and use a combination of short, medium and long courses.

7. The Accounting and Finance and Planning Department staff would be encouraged to attend training courses and specific skill development courses that are provided the following organizations; EFI, recognized tertiary education institutions in Cambodia and regional Asia (e.g. Thailand, Malaysia and Singapore), development partner projects e.g. ADB, World Bank etc, recognized training organizations in Cambodia and public sector counterparts in regional Asia.


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B. TNA RESULTS AND FINDINGS

Participants Profile

8. A total of 74 respondents from the Internal Audit, Planning, Accounting and Finance departments and the finance staff in the line departments completed the training needs questionnaire. The number of respondents represented 54.4% of the total staff within these departments. Of these staff, 55 (74.3%) and 19 (25.7%) are males and females respectively.

Table 1: TNA respondents by gender

Department Male Female Total Accounting and Finance 16 7 23 Planning 6 1 7 Internal Audit 16 4 20 Line Department staff 17 7 24 Total 55 19 74

9. The mean age of the respondents is 40 years old. Of the 74 survey respondents, 56 (75.6%) are between 31 and 50 years old (Table 2). The target for a major portion of the training program could come from this age group of 31 to 50 where the majority of the TNA respondents cluster. There are seven (9.5%) aged 30 and below, while 11(14.9%) are aged 51 and above.

Table 2: Age Profile of TNA Survey Respondents

Age Group Number of staff Percentage 20-30 7 9.5 31-40 33 44.6 41-50 23 31 51-60 11 14.9 Total 74

10. The mean length of service for the respondents is 4.7 years. Of the 74 survey respondents, 38 (52.8%) have a length of service between one and five years (Table 3). There are 13 (17.6%) staff with 10 years or more of service, only seven (8%) with less than one year’s service and 12 respondents did not indicate their length of service in their completed survey form.

Table 3: Length of Service

Number of years service Number of staff Percentage Less than 1 7 8

1 – 3 23 32.6 3 -5 15 20.2

5 -10 4 5.4 10 or more 13 17.6


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Did not respond in survey 12 16.2

11. In terms of educational attainment, all of the respondents had at least a tertiary qualification. Out of the 74 survey respondents, one has a PhD with the majority holding bachelors degrees or master’s degrees (Table 4).

Table 4 Educational Attainment of TNA Survey respondents

Highest Educational Attainment

Number of staff

Percentage

Diploma Certificate 13 17.6 Bachelor’s Degree/ University Degree

35 47.3

Master’s Post graduate Degree 25 33.8 Ph D / Doctorate 1 1.3

C. About the respondents organization

12. By examining the structure and functions, systems and procedures, management processes, staff, training, and organizational culture, the TNA identifies organizational issues and challenges that may have implications for training priorities and design, and ultimately for the efficacy of training programs for staff in the departments.

13. Survey questions related to the department’s organization were focused on the situation relating to staff and training. Staff were asked if their department had a clear direction on training and how well their department was set up to handle the work they were required to do.

14. Based on the weighted average scores from the respondents surveyed it would appear that the majority of staff considered that training was considered a priority and the individual needs of staff were being considered. A scale of 1 to 5 was used in the questionnaire with 5 being in total agreement with the statement. The respondents answers to the statements resulted in the following scores (note these were a combined score for the 4 departments who completed the TNA in MAFF);

• “There is a formal training program”- an average weighted score of 3.1; • “Training programs meet the needs of participants”- an average weighted

score of 3.66; • ”Continuing staff development program”- an average weighted score of

3.21; • ”Equal opportunity for everyone for training”- an average weighted score of

3.25; • ”There is monitoring and feedback on training and courses”- an average

weighted score of 3.67.

15. These scores indicate that a consistent view is held by the majority of respondents to training and the above average scores indicate that the respondents have a positive view to training within the department. The majority of the scores from each department were between 2.75 to 4.06. The exceptions were


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a score of 1.55 for “formal training plans in place ”from one department to a score of 4.29 from another department in response to the same statement.

16. The survey respondents were asked three questions relating to staff within their department. In terms of considering whether the staff within their department had the right qualifications an average weighted score of 3.31 indicates that overall the majority of respondents thought that most staff had appropriate qualifications for their role in the department. A score of 3.17 for the respondents’ response to the statement “the right number of staff’ would indicate that the majority of staff considered that their departments were staffed at an appropriate level. The score of 2.97 in response to the statement “relevant work experience” indicates that the respondents consider that their team has only a reasonable level of work experience. The majority of scores for the three questions on staff were in the range of 2.7 to 3.2 with the only scores outside this range being 3.75 from one department.

D. Assessment of knowledge and skills

17. The objective of a self-assessment of individuals’ knowledge and skills is three fold: to identify the knowledge and skills areas that the respondents perceived to be important for work, to gauge the respondent’s capacity level in those areas, and to determine what is considered to be a priority for training. This self-assessment should help determine the knowledge and skills areas that would be responsive to the needs of the staff in the departments in terms of increasing their capacity and enabling them to perform better in the job. The results of this assessment would help to determine the training programs and courses that could be specifically designed for these staff.

18. The knowledge and skills areas are grouped according to the following themes: administration and governance, procurement, budget cycle, program budgeting, budget execution, internal audit, information technology, business skills and personal development. A wide range of the aspects of knowledge and specific skills were examined within these themes. It gave the respondents an opportunity to provide responses in very specific skill areas and also general skill areas that could assist them with their job, for example workplace ethics or note taking, letter and report writing.

19. There is a relatively strong correlation in the responses in terms of the three self-assessment criteria i.e. importance to job, current capacity and the priority for training. The respondents found the various knowledge and skills areas very important in their work and rated the same areas high in terms of priority for training. The respondents rated their own capability in these areas as generally below average.

20. The survey asked questions about eight themes namely; administration and governance, procurement, budget cycle, program budgeting, budget execution, internal audit, information technology and other training. The responses cluster around a score of “3” which is above average in the range of choice between”1”and “4”. Based on the overall average of responses, information technology and other training (this would cover courses such as English language, business communication etc) are ranked highest on the list of importance to work and priority for training and respondents considered their current capability in these areas to be below average.


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21. The following tables set out the mean responses for each of the eight themes.

Table 5 Mean Responses on administration and governance

Sub theme Importance

to job Rank Current

capacity Rank Training

priority Rank

Understanding systems and processes

3.56 1 2.65 2 3.62 2

Best practice 3.29 5 2.57 4 3.52 4 Good governance 3.41 4 2.44 5 3.48 5 Managing staff 3.51 3 2.65 2 3.6 3 Improving performance

3.57 2 2.69 1 3.73 1

22. The respondent’s results show a consistent level of scoring in relation to the importance to job and training priority in two areas namely: understanding systems and processes and improving performance. These should be addressed as training courses that could be developed in the early stages of the training program.

Table 6 Mean Responses on Procurement

Sub theme Importance to job

Rank Current capacity

Rank Training priority

Rank

Understanding policies and processes

3.14 3 2.19 4 3.37 3

Procurement Plan 3.09 4 2.24 3 3.34 4 Administration requirements

2.96 5 2.06 5 3.24 4

Contracts negotiations

3.21 1 2.41 1 3.49 1

Recording and reporting

3.16 2 2.32 2 3.38 2

23. Procurement is a task that would be undertaken by both specialist and general staff. Training would need to be focused on the requirements of both groups. The responses demonstrate that courses in contract negotiation and recording and reporting in relation to procurement activities would be a high priority.

Table 7 Mean Responses on Budget Cycle




Rank


3.14 1 2.37 1 3.49 1

Analysis and forecasting

2.88 4 2.02 4 3.36 2

Revenue estimating

2.96 3 2.14 3 3.3 3


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Budget preparation

3.06 2 2.35 2 3.25 4

24. The respondents’ answers have placed a high priority on wanting training to better understand the policies and procedures relating to the budget cycle. The second ranked area for priority of training was analysis and forecasting; in this area the respondents’ current capacity received the lowest ranked score.

Table 8 Mean Responses on Program Budgeting Sub theme Importance

to job Rank Current


priority Rank

Understanding program budgeting

3.16 1 2.34 1 3.39 2

Monitoring and evaluating

3.03 2 2.22 2 3.41 1

25. Program budgeting and monitoring evaluation are two key components to the reform program. The scores from the respondents demonstrate that they understand the importance of these two areas with scores of 3.41 and 3.39 for training priority; these correlate to scores of 3.16 and 3.03 for the importance to the job.

Table 9 Mean Responses on Budget Execution




Rank

Basic accounting

2.93 4 2.11 5 3.15 5

Advanced accounting

2.89 5 1.89 6 3.10 6

Commitments payments

2.97 1 2.27 1 3.22 2

Chart of accounts

2.97 1 2.26 2 3.22 2

Budget reports 2.66 6 2.23 3 3.24 1 Monitoring expenses

2.94 3 2.18 4 3.19 4

26. The respondents’ scores show a consistent correlation between what is important for the job and the priority of training. This was particularly noticeable in the areas of budget reports, commitments and payments processes and the chart of accounts. The current capacity scores of the respondents 1.89 to 2.27 have been rated by the respondents as average only; this suggests that training in this area could improve the capacity of the respondents.

Table 10 Mean Responses on Internal Audit Sub theme Importance

to job Rank Current


priority Rank


Page 35

Understanding legislation and best practice

2.81 1 2.09 1 3.29 1

Audit planning 2.75 3 1.84 4 2.82 5 Methodology 2.79 2 1.87 3 2.93 4 Control methodology

2.70 5 1.83 5 3.01 2

Reporting 2.71 4 1.88 2 3.01 2

27. Internal Audit is a specialized function within the department. The scores for importance of the job are lower for this area than the other areas. The lower average scores could reflect the limited understanding of internal audit that respondents who were not working in internal audit have of the audit function. The training priority average scores of 2.83 and above indicate that the respondents consider training in the internal audit areas a high priority.

Table 11 Mean Responses on Information Technology Sub theme Importance

to job Rank Current


priority Rank

Basic IT concepts and use

3.52 2 2.47 3 3.66 1

Word 3.58 1 2.79 1 3.53 2 Excel 3.5 3 2.56 2 3.53 2 Access 3.31 4 1.79 5 3.49 4 Other packages

3.11 5 1.84 4 3.42 5

28. The correlation between the scores for importance to the job and priority for training is very high. The training priority scores are all greater than 3.4 and the importance to the job scores are greater than 3.11; this indicates that there is a strong need from the respondents to gain access to Information Technology training. Overall the current capacity levels are not considered strong by the respondents.

Table 12 Mean Responses on Other Training Sub theme Importance

to job Rank Current


priority Rank

English language

3.49 1 2.21 1 3.67 1

Business Communication

3.21 2 2.10 2 3.56 2

29. The respondents scores for training priority and importance to the job reflect how important it will be to ensure the early training courses in the training program has a strong focus on English and communication skills. The overall average score of 2.1 to 2.21 for the current capacity levels is considered a sound base level to work from.


Page 36

E. Assessment of personal development

30. The respondents were asked to score from 1 to 4 (with 4 being most important) six skill areas that would help to develop their personal capacity. Most of the six areas are also covered in the sub-themes. There is a strong degree of correlation between the scores from the respondents for the personal development section and the scores in the eight specific work areas.

31. The mean scores for the personal development areas were: communications 3.67, workplace ethics 3.25, note taking and report writing 3.29, project management skills 3.64, supervisory skills 3.71 and presentation skills 3.42. In summary these scores reflect a strong desire to undertake training in areas such as supervisory skills, communications and project management skills. An improvement in the individuals’ skill levels in these three areas is most likely to lead to an improvement of the ability of teams to improve their productivity levels.



APPENDIX 5 – MWRM PFM CAPACITY DEVELOPMENT PLAN


Page i

MINISTRY OF WATER RESOURCES AND METEOROLOGY




Page ii

CONTENTS

I. PURPOSE ..................................................................................................................1

II. BACKGROUND..........................................................................................................2

A. Public Financial Management Reform Program (PFMRP) ............................................ 2 B. ADB Program Cluster ................................................................................................... 2


A. Proposed EFI Training Program ................................................................................... 3 B. Proposed PFM Training for MOWRAM......................................................................... 3




ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008/2010 ....................................15

ATTACHMENT 2 – TRAINING NEEDS ASSESSMENT REPORT MWRM......................17

I. INTRODUCTION.......................................................................................................18

II. PROGRAM OVERVIEW ...........................................................................................19


III. THE TNA PROCESS.............................................................................................21

IV. TNA RESULTS AND FINDINGS...........................................................................22


V. TRAINING NEEDS ................................................................................................24

ATTACHMENT 1 – FOCUS GROUP RESULTS..............................................................28

A. FOCUS GROUP RESULTS........................................................................................ 28

ATTACHMENT 2 – TNA RESULTS AND FINDINGS ......................................................29

I. PARTICIPANTS PROFILE .......................................................................................30

II. ABOUT THE RESPONDENTS ORGANIZATION .....................................................32

III. ASSESSMENT OF KNOWLEDGE AND SKILLS..................................................33

IV. ASSESSMENT OF PERSONAL DEVELOPMENT................................................37


Page 1

I. PURPOSE

1. The purpose of this document is to assist the Ministry of Water Resources and Meteorology (MOWRAM) in preparing a framework for (i) public financial management capacity development in MOWRAM as an organization (including provincial offices) and (ii) other capacity development needs of the Department of Finance and the Department of Planning of the ministry. It is also intended to assist the ADB and Royal Government of Cambodia (RGC) agencies to prepare a technical assistance (TA) project to strengthen public financial management (PFM) in MOWRAM, the Ministry of Agriculture Forestry and Fisheries (MAFF) and the Ministry of Rural Development (MRD).


Page 2

II. BACKGROUND



3. However, the report of the External Advisory Panel which conducted an independent review of the PFMRP in early 2007 found that many of the PFM reforms had not become firmly embedded in most line ministries and would require further strengthening. This, in turn, pointed to a need for further training of line ministries staff in PFM topics.

4. Platform 2 of the PFMRP which is scheduled to be implemented between late 2008 and 2010 has the objective of ‘increasing budget accountability.’ It is envisaged that, as line ministries will have a wider role and involvement in the implementation of Platform 2 than they had in Platform 1, there will be a need for much more extensive training of line ministry staff in PFM issues. The PFMRP Platform 2 framework document mandates that line ministries should prepare a PFM capacity development plan before the end of 2008, as well as a Ministry Action Plan, to guide them in implementing PFM reforms. The present document is intended to assist MOWRAM in preparing its capacity development plan.

B. ADB Program Cluster



7. The proposed project strengthening PFM capacity in MAFF, MOWRAM and MRD is currently in the project planning and preparation stages. Such preparation will be influenced by the findings of this capacity development plan. Part of that planning also includes allocation of resources to each of the four proposed TA projects (from the proposed $4.1 million in the ADB program cluster).


Page 3




• Contribute to the building up of the human resource capacity of Cambodia’s public sector through training focused on public finance, public management and economics, with emphasis on policy and its applications;



9. The PFMRP Platform 2 framework document contains the PFM capacity development plan prepared by EFI in 2007. The plan, together with the EFI document ‘About the Economics and Finance Institute’ outlines the training program which EFI proposes to offer to line ministries during Platform 2 implementation. The proposed courses are shown in Appendix 1 which also includes a summary of the curriculum for each course (where it has been prepared). The training to be provided covers new PFM activities which will commence in Platform 2 as well as training to reinforce reforms which commenced in Platform 1, e.g. public procurement. EFI is currently seeking to engage a domestic training firm or institution to assist it in preparing the remainder of the curriculum, to deliver training services and to monitor the training outcomes.

B. Proposed PFM Training for MOWRAM

10. The proposed training program in MOWRAM has been determined by the demand for training as revealed by a training needs assessment, which has been matched with the ministry’s likely share of places in the EFI training program, together with other possible sources of PFM and other training.

11. ADB PPTA No. 4988CAM has completed an assessment of the training needs for PFM and related issues in MOWRAM. The methodology of the assessment comprised three parts: (i) a review of the training needs identified or implied in the PFMRP Platform 2 document and the PFM (EFI) capacity development plan, (ii) the PFM Working Group in MOWRAM was convened as a focus group in which the senior officers of the ministry could be canvassed in depth about their views on the training and other developmental needs of their staff and their own development needs and (iii) a survey, mainly of staff of the finance, planning and internal audit departments, to gather information about their qualifications, experience and prior training and, secondly, about what training in PFM and other areas they believed they would need in the future. The report of the ministry’s training needs assessment is included as Appendix 2 and has been used to develop the proposed training and other capacity development plans which are outlined below.



Page 4

12. In addition, it is considered necessary to provide training in a number of related areas which are not presently covered by the proposed EFI training program. This additional training is essential to supplement PFM training in areas not covered by the EFI program or where EFI will be unable to provide enough training places to the ministry. This additional training also covers other topics not included in the PFM program but which are desirable for the general development of the ministry staff. It is proposed that that additional training be resourced from the forthcoming ADB technical assistance for rural development or be funded from other available sources.

13. The proposed training component of the capacity development program for MOWRAM is detailed in Table 1. This list is extensive and should be used as the basis for the annual training program for the finance and planning departments. Training courses to be attended by staff should match their capability and personal needs as well as the departments’ needs. Training courses provided for PFMRP Platform 1 were of a general nature. As noted earlier there was not enough training provided during Platform 1, therefore overall capacity within the ministry for PFM is weak. A focused effort will be required to train the right people in the right skills to assist with the implementation of PFM Platform 2.


Page 5



Topic Objectives and Description

Delivered by:

Staff Level

Staff numbers


Training period



EFI 1,2 7 2 2Q 2010-4Q

2010,




EFI 4,1 7 2 3Q 2010


Structure, principles and processes

EFI 4 7 2 4Q 2009-2Q

2010

Analyzing budgets

Analytical skills, familiarization with the budget templates and tools for analysis

EFI 4 7 2 2Q 2010-4Q

2010

Responding to budget

Reporting skills, communication skills

EFI 4,1 7 2 4Q 2010

Public procurement

Policies and processes, documentation,

EFI 1,,3,4, 35 5 3Q 2010-4Q


Page 6

management reporting and analytical techniques and requirements

2010



EFI 1,4 7 5 2Q 2009-3Q

2009



EFI 4 7 5 2Q 2009-3Q

2009



PCTA 2,4 15 Various 2Q 2009-2Q

2011



PCTA 1,2 10 4 4Q 2010-1Q

2011

Program Budgeting

Principles, policies, processes and development techniques and reporting skills

PCTA 4,2,1 10 4 4Q 2009-2Q

2010



PCTA 3,4,5 35 2 4Q 2010-1Q

2011

Preparation budget execution


PCTA 4 35 2 2Q 2010,

1Q 2011


Page 7

reports ( e.g. statistical reports etc) Reporting skills




4Q 2009

Procurement contract and negotiations (supplements EFI procurement training)

Principles and processes of contracts

PCTA 3,4 355 Maximum 2 days per course

4Q 2009, 1Q 2010



PCTA 3,4 35 Maximum1 day per course

3Q 2010,4Q 2010

Basic Accounting

To complete accounting transactions



EFI, One-on-one



Advanced Accounting

To prepare final accounts, present accounting reports, to understand accounting principles

Interpret accounts





Page 8




PCTA, One-on-one

4,3 15 Maximum 2 days per course

2Q 2010

Devolution and deconcentration



2Q 2010




Local T, workshop

1,2,3,4,5 **

25 Maximum 5 days per course



EFI, Local T,

1,2,3,4,5** 20 Maximum 5 days per course





Ongoing from 4Q

2009

Work and Work place PCTA 5,3,2 20 Maximum Ongoing


Page 9

customer service ethics

organization, Best practice principles, provide the opportunity for staff to practice skills

5 days per course

from 2Q or 3Q 2009









Local T 1,2,3,4,5 **

20 Maximum 5 days per course

Ongoing from 1Q 2010


Advanced IT applications


Ongoing from 4Q 2009

Project management

Provide a base level of skills and processes that can be used



Supervisory skills

Work place organization, human behaviour, best practice principles and tools to assist in the work place



Presentation skills

Provide a base level of skills and a tool kit to

Local T 1,2,3 10 Maximum 5 days per

Ongoing from 2Q or 3Q


Page 10

use course 2009



Local T, Tertiary






1Q 2010 – 3Q 2010

Change management and leadership

Leadership principles, change management in organizations

EFI 1,2 15 4Q 2009 – 4Q 2010



PCTA,

Study T


2Q 2010 – 4Q 2010



PCTA, Job R,


4Q 2010 -1Q 2011

Improving performance and productivity

Work place organization, human behaviour, best practice principles and management tools

PCTA,

Study T


2Q 2011- 4Q 2011


Page 11


PCTA=Proposed ADB program cluster Tas for strengthening internal audit and PFM reform in MAFF, MOWRAM and MRD

(ii) One-on-one=Senior staff mentoring of junior staff in departments







1=Leadership team








Page 12


14. A well-designed capacity development plan provides the opportunity to transform the departments’ staff attitudes, commitment and the manner in which they engage the public. The training program would include specific technical skill development and the development of other skills for individual staff. These skills would be of a more general nature but are essential to ensuring that individual staff can carry out their roles adequately. This broader capacity development could be supported by a number of alternative measures and approaches. The recommended measures that MOWRAM could use to improve the overall capacity of its staff could include:



16. Based on the significant additional responsibilities the PFM Working Group members will be required to assume for implementing and oversighting the reform program, it is proposed that the PFM Working Group members (10) should be included in the MBPI scheme from 2009.


17. A wide range of overseas training and study opportunities are provided by various development partners. For example, the Government of Japan offers 25 scholarships each year for Cambodians for post-graduate (masters) courses under the Japanese Grant Aid for Human Resource Development Scholarships (JDS). Courses are available in law, economics, agriculture, rural development, ICT, infrastructure management, public policy and public administration, all of which are relevant to varying degrees to the capacity development of MOWRAM staff.

18. The Australian International Development Agency (AusAID) offers approximately 20 scholarships each year to staff who have worked for the RGC for at least three years. The scholarships are available for full-time post-graduate study at Australian universities in courses which are relevant to PFM in MOWRAM.



Page 13

20. It is envisaged that the courses will be delivered about three times a year by visiting faculty from leading Japanese universities. The leadership and management course will be run over five to 10 days and the thematic courses will be about five days in length. It is also expected that up to up to five post-graduate scholarships will be awarded each year to Japanese universities for staff who have completed the in-country courses. These courses would strongly complement the Change Management and Leadership and Strategic HRM courses to be offered by EFI.

21. It is recommended that the ministry’s senior staff of the Departments of Accounting and Finance and Planning monitor the availability of overseas training and development opportunities (from websites and newspaper advertisements) and actively promote the applications of staff who would be suitable for such training. Senior managers should also monitor the availability of other training courses such as the Public Finance and Expenditure Management course which was offered by the ADB Institute in 2005 and online training material at websites such as the World Bank Institute.


Developing the capacity of individual staff members will be only partially successful unless it is supported by appropriate institutional capacity building. A number of support mechanisms can be used together to build up the capacity of the ministry over time, these could include the development of HR policies to develop and complete these policies. It is recommended that MOWRAM establish a specialist HR team. Initially external expertise could be used in priority areas such as: developing job descriptions, setting staff performance criteria, personal development plans for staff and introducing some of the following measures which would complement individual capacity building. Some measures which would complement individual capacity building would include:

• Assist the finance and planning departments prepare job descriptions for all staff; • Maintain accurate personnel records for all staff ( including qualifications, training

courses attended, job descriptions, personal details, performance reviews); • Assist the finance and planning departments to develop personal development plans for

each staff member; • Assist the finance and planning departments to implement annual performance reviews

for all staff; • Train managers and supervisors on how to effectively manage staff and improve the

performance of staff; and • Introduce mentoring arrangements for junior staff.

22. Introduction of these personnel measures may require the involvement and agreement of the Council for Administrative Reform.


Page 14







-Seek medium- to long-term donor commitment



-PCTA develops training outcome indicators which are implemented by MOWRAM





The support functions required to support the implementation plan are not effective or capable

Required support functions established with external experts initially through PCTA

Internal monitoring of the implementation by PFM working group

Staff ( particularly specialist and technical staff ) do not spend sufficient time on the job because of the demands of the training program

Prioritise training program

Monitor the number of training course staff attend annually

Increase the number of technical staff to provide cover when staff are on training courses.

Ensure the time allocated for training courses does not exceed 5 days ( unless it is an approved study tour or tertiary training)

The development of HR policies lags behind the training program

Include the HR policies as a component of the implementation plan and the PFM working group will monitor progress on a six monthly basis.

Delays in setting up a specialist HR team Use external expertise for a longer period and enable train the trainer situations to develop with staff who have an interest in HR,


Page 15

ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008/2010


Number of training places allocated by

MEF2





















Page 16


Use of FMIS Y 150



Strategic HRM Y 390



Page 17

ATTACHMENT 2 – TRAINING NEEDS ASSESSMENT REPORT MWRM


Page 18

I. INTRODUCTION

1. This report presents the results of the training needs assessment (TNA) prepared under Asian Development Bank (ADB) PPTA No. 4988 CAM-Preparing the Strengthening of Public Financial Management for Rural Development. The project focused on the training needs of three (3) ministries: Ministry of Rural Development (MRD), Ministry of Water Resources and Meteorology (MOWRAM) and Ministry of Agriculture Forestry and Fisheries (MAFF).




Page 19

II. PROGRAM OVERVIEW


4. The PFMRP is a multi-stage program to reform Cambodia’s public financial management (PFM) system implemented from 2005, with a ten year planning and implementation horizon. It was designed in response to the systemic weaknesses identified in all aspects of PFM. The first stage of the PFMRP, Platform 1, was completed in 2007. Platform 1 was rolled out as a preparatory phase for later platforms and to improve budget credibility and the day-to-day management of public resources by delivering a reliable and predictable resource envelope to individual managers.

5. An independent review of the program in mid 2007 (the External Advisory Panel) found that much progress had been made in meeting the program’s objectives in Platform 1 and that the program had reached out significantly to line ministries (procurement, payments, cash management and arrears reforms, introduction of internal auditing, piloting of program budgeting and PFM training). However, the review also found that the reforms had acquired only limited take up in most line ministries and that further consolidation would be necessary in later platforms. Such strengthening would require a major PFM training effort in and for the line ministries during Platform 2.




8. The soundness of Cambodia’s PFM system will strongly impact rural development outcomes. Pro-rural development policies will only be as effective as the PFM system which manages this policy objective. The current weaknesses in Cambodia’s PFM system are a real constraint on the effective implementation of the National Strategic Development Plan and its rural poverty reduction agenda. The Government has recognized the challenge of rolling out PFM reforms to the rural development ministries. Involvement of the rural development ministries and a sense of ownership of the PFMRP by these ministries will be a pre-requisite to PFMRP success. Building capacity of MRD, MOWRAM, and MAFF for timely budget preparation; efficiency of budget execution; accounting accuracy; comprehensive and timely financial reporting and internal audit is a priority. The underlying emphasis for PFM reforms in these ministries is continued development of capacity through acquisition of knowledge, skills, and leadership qualities


Page 20

(capacity development activities and change management measures). Adequately trained human resources are the key to make reform successful in MRD, MOWRAM, and MAFF.


9. Improvement in the overall capacity of MOWRAM will depend on the staff being competent in a broader range of skills than PFM. For this reason the assessment has examined the training needs for language and communications, report writing and other related skills.


Page 21

III. THE TNA PROCESS

10. The training requirements have been determined from three sources: (i) the capacity building needs identified or implied in the PFMRP Stage 2 Consolidated Action Plan (CAP) prepared by MEF and endorsed by the RGC in June 2008 for implementation from the end of 2008 until 2010, (ii) a focus group comprising the members of the PFM Working Group in MOWRAM which has been charged with responsibility for over sighting and implementing PFM reforms in the ministry and (iii) a survey of the attitudes and knowledge of staff in the finance, planning and internal audit departments of the ministry regarding PFM and other issues.



Page 22

IV. TNA RESULTS AND FINDINGS


12. A focus group meeting was held on 18 August with three members of the MOWRAM PFM Working Group who advised that they were representing the views of the PFM working group. The working group was provided with the questions to be discussed prior to the meeting. The questions are included in Attachment 3 below.

13. The working group members had discussed the training needs of staff prior to the focus group meeting. A comprehensive list of training needs has been put together by MOWRAM. In the past MOWRAM staff have not received any training from the state budget. Any training received by staff has been associated with donor projects.

14. The focus group identified a number of training courses that were required in the early part of the program. These skills are necessary to implement the new methodologies and processes that will be required as the PFM develops. The important skills that were identified for early training courses were: accounting, financial reporting, inventory management, budget preparation, budget execution, budget reporting and work plan formulation. MOWRAM would send staff to EFI courses for training in these skills.

15. The members of the PFM working group acknowledged that they had a number of training requirements the high priority ones included: a greater understanding of PFM Platform 2, leadership, change management, delegation and project management.

16. The members of the PFM Working Group thought that within MRD the members of the PFM working group should be eligible for the MBPI scheme. This would reflect the contribution that these members make to the implementation of PFM Platform 2.

17. MOWRAM would encourage on the job training as the preferred training method. This method has worked well with the previous training staff have received on donor projects. One member of the PFM working group has been a recipient of a study tour. The group was keen to see more study tour opportunities for senior staff with tours focused in regional Asian countries.


18. The staff survey questionnaire was completed by 33 respondents from the Departments of Finance and Planning. Of the respondents who completed the questionnaire (84.4 per cent) indicated that they had tertiary qualifications. Staff indicated that they had occupied their current position for 5.2 years on average, indicating a fairly low rate of staff mobility and turnover. Although this average is distorted by three staff having 28, 24 and 23 years service and 10 staff not providing a response to the question. The majority of respondents considered that staff in their work area have the appropriate qualifications and relevant work experience for their roles and that there are adequate numbers of staff for the organization’s current workload.

19. Nine (27 per cent of respondents) indicated they had received training related to their jobs in the past three years. Of these staff, none had received training in accounting or procurement. The training received was of a varied nature with the courses undertaken including: leadership, monitoring and evaluation, French, English and Donor Financial Management.


Page 23

20. Where respondents rated the knowledge and skills areas highly in terms of importance to work and training priority the project has determined that courses in these areas should be regarded as a high priority by the ministry. Areas that matched this criterion (i.e. the respondents scoring would indicate these are important training needs) included: English language, business communication, Microsoft Word, commitments and payments processes, improving performance, understanding systems and processes, monitoring and evaluation, managing staff, basic accounting and budget preparation.

21. The respondents also scored skill areas that could help their personal development. They were asked to rank five skill areas only: workplace ethics, note taking and report writing, supervisory skills, presentation skills and project management. The highest scores recorded by the respondents were in the following areas; supervisory skills, report writing and project management.



Page 24

V. TRAINING NEEDS

23. The assessed requirement for training is included in Table 1 below. Because the success of PFM reforms will depend on the general capacity of staff in the finance and planning departments as well as other departments of the ministry, consideration must also be given to a wider range of training needs. Accordingly, the proposed training schedule also includes other non-PFM topics.


Page 25



Staff

Level


Training Period




All levels As required, Max.1 day for each course




ADB TA All Levels Max. 3 days per course




All levels Max.3 days per course













ADB TA Specialists, Team leaders and Leadership team


2Q 2009




3Q and 4Q 2009


Page 26


Principles and processes of contracts ADB TA Specialists, Team leaders and Leadership team


2Q and 3Q 2009

Basic Accounting To complete accounting transactions and reconciliations

EFI, one on one

Specialists administrators

Will vary on need and specific skill



EFI, one on one




Policy, processes, tools and templates EFI Team leaders, administrators and specialists

Max.2 days per course

4Q 2009 – 1Q 2010



EFI Specialists Max.2 days per course

4Q 2009, 1Q 2010



4Q 2008 - 3Q 2009




Local Trainer Specialists and team leaders

Max.3 day course On-going from 4Q 2009

Work place ethics Best practice principles Local trainer All levels Max.1 day course On-going from 2Q 2009



EFI Managers Max. 3 day course On-going from 1Q 2009

Best practice governance Best practice principles and governance tools

EFI Managers Max.2 day course Q3 2009



ADB TA Team leaders Max.2 day course Q4 2009


Page 27


ADB TA Team leaders Max.2 day course Q2 – Q3 2010


Local Trainer Managers Max. 1 day course Q4 2010


EFI Managers Max. 3 day course Q4 2009

Devolution and deconcentration Principles of fiscal decentralization, new roles and responsibilities of sub-national levels, new revenue and grant assignments of sub-national levels

EFI Managers Max. 1 day course Q3 2009

Project proposal writing Basic skills for preparing project proposals

EFI Managers, Specialists

Max.2 day course Q4 2009 – Q2 2010

Specific training for internal audit is detailed in a separate report “Three year Training Plan for Internal Audit” prepared by the Audit specialist on the ADB PPTA No. 4988CAM project.


Page 28

ATTACHMENT 1 – FOCUS GROUP RESULTS

A. FOCUS GROUP RESULTS

24. The members of the PFM Working Group who comprised the focus group wanted training courses in the initial stages of the training program to focus on areas of financial management and procurement and payroll management. The priority training courses would include: accounting, financial reporting, budget preparation, budget execution, budget reporting and work plan formulation.

25. A number of other training courses were identified by members of the group as important for the development of MOWRAM staff (it is important to ensure provincial staff are included in these training courses). These training courses would include: inventory management, procurement management, payroll management, project and performance reporting, statistics, workplace protocols and ethics, information technology skills, English language, internal audit reporting and internal audit concepts.

26. In addition specialist advanced training courses in accounting and finance would be considered a high priority for the head of the accounting and finance department to attend. Staff working on donor projects would still be required and encouraged to attend any specific training offered by the donor.

27. MOWRAM has limited space available for on-site training courses but would prefer the staff to be trained on site. There was a strong preference for the train-the-trainer approach to be used. If it was necessary staff could attend formal courses at training facilities away from MOWRAM. The PFM Working Group members were comfortable with the idea of MOWRAM staff being on training courses with staff from other ministries.

28. The PFM Working Group will have the responsibility of leading the changes within MOWRAM that will be required to implement the requirements of the PFM program. The training courses that the members of the Working Group considered would improve their capability to lead the implementation of PFM Platform 2 activities would include: leadership, change management, project management and delegation.

29. The staff within MOWRAM have limited experience of study tours and only one person within MOWRAM (a member of the PFM working group) has experienced a study tour. The group was keen to see more study tour opportunities for senior staff with tours to be focused in regional Asian countries.


Page 29

ATTACHMENT 2 – TNA RESULTS AND FINDINGS

inal Report Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development Projects

Page 30

I. PARTICIPANTS PROFILE

30. A total of 33 respondents from the Planning, and Finance departments within MOWRAM completed the training needs questionnaire. The number of respondents represented 60% of the total staff within these departments, of whom 23 (69.7%) and 10 (30.3%) are males and females respectively.

Table 1: TNA Respondents by Gender

Department Male Female Total Finance 11 5 16 Planning 12 5 17 Total 23 10 33

31. The mean age of the respondents is 36 years old. Of the 32 survey respondents, (noting one respondent did not provide an age), 21 (63.6%) are between 20 and 40 years old (Table 2). The target for a major portion of the training program could come from this age group of 20 to 40 year olds where the majority of the TNA respondents are clustered. There are six (18.1%) aged between 41-50, while five (15.1%) are aged 51 and above.


Age Group Number of staff Percentage 20-30 14 43.8 31-40 7 21.9 41-50 6 18.7 51-60 5 15.6 Total 32

32. The mean length of service for the respondents is 4.7 years. Of the 23 survey respondents (noting 10 respondents did not provide a response to this question), 14 (60.8%) have a length of service between one and five years (Table 3). There are three (26.1%) staff with 10 years or more service and only two staff (8.6%) have less than one year’s service.


Number of years service

Number of staff

Percentage

Less than 1 2 6.3 1 – 3 13 39.3 3 -5 1 3 5 -10 4 12.1 10 or more 3 9 Did not respond in survey

10 30.3


Page 31

33. Of the 33 survey respondents, 19 (59.4%) hold a bachelor’s degree and two (6.2%) have master’s degrees (Table 4). 6 (18.8%) of the respondents hold a tertiary diploma and

five (15.6%) of the respondents had not attained any tertiary qualifications. Table 4: Educational Attainment of TNA Survey respondents


Number of staff

Percentage

Diploma Certificate 6 18.8 Bachelor’s Degree 19 59.4 Master’s Degree 2 6.2 Ph D/Doctorate 0 0 No tertiary qualifications 5 15.6


Page 32

II. ABOUT THE RESPONDENTS ORGANIZATION

34. By examining the structure and functions, systems and procedures, management processes, staff, training and organizational culture, the TNA identified organizational issues and challenges that may have implications for training priorities and design and ultimately for the efficacy of training programs for staff in the departments.


36. Based on the weighted average scores from the respondents surveyed it would appear that the majority of staff considered that training was considered a priority and the individual needs of staff were being considered by MOWRAM. A scale of 1 to 5 was used in the questionnaire with 5 being in total agreement with the statement. The respondents’ answers to the statements provided the following average scores (note these were a combined score for the departments who completed the TNA in MOWRAM):

• “There is a formal training program”- an average weighted score of 2.81; • “Training programs meet the needs of participants”- an average weighted

score of 2.89; • ”Continuing staff development program”- an average weighted score of 2.97; • ”Equal opportunity for everyone for training”- an average weighted score of

3.64; and • ”There is monitoring and feedback on training and courses”- an average


37. These scores indicate that a consistent view is held by the majority of respondents to training and the above average scores indicate that the respondents have a positive view to training within the department. The majority of the scores from each department were between 2.5 to 3.88. The exceptions were a score of 1.94 for “formal training plans in place” from one department to a score of 3.67 from another department in response to the same statement.

38. The survey respondents were asked three questions relating to staff within their department. In terms of considering whether the staff within their department had the right qualifications, an average weighted score of 3.55 indicates that overall the majority of respondents thought that staff were well qualified for their role in the department. A score of 3.68 for the respondents’ response to the statement “the right number of staff’ would indicate that the majority of staff considered that their departments were staffed at an appropriate level. The score of 3.65 in response to the statement “relevant work experience” indicates that the respondents consider that their team has about the right level of work experience to carry out their roles. The majority of scores for the three questions on staff were in the range of 3.1 to 4.0.


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III. ASSESSMENT OF KNOWLEDGE AND SKILLS

39. The objective of a self-assessment of individuals’ knowledge and skills is three fold: to identify the knowledge and skills areas that the respondents perceived to be important for work, to gauge the respondents’ proficiency level in those areas and to determine what are considered to be training priorities. This self-assessment should help determine the knowledge and skills areas that would be responsive to the needs of the staff in the departments in terms of increasing their capacity and enabling them to perform better in their jobs. The results of this assessment would help to determine the training programs and courses that could be specifically designed for these staff.

40. The knowledge and skills areas are grouped according to the following themes: administration and governance, procurement, budget cycle, program budgeting, budget execution, internal audit, information technology, business skills and personal development. A wide range of knowledge and specific skills were examined within these themes. The questions gave respondents an opportunity to provide responses in very specific skill areas and also general skill areas that could assist them with their job, for example workplace ethics or note taking, letter and report writing.

41. There is a relatively strong correlation in the responses in terms of the three self-assessment criteria i.e. importance to job performance, current capacity and the priority for training. The respondents found the specified knowledge and skills areas very important in their work and rated the same areas highly in terms of priority for training. The respondents rated their own capability in these areas as generally below average.

42. The survey asked questions regarding eight themes, namely: administration and governance. procurement, budget cycle, program budgeting, budget execution, internal audit, information technology and other training. The responses for all areas cluster around scores of “3”to “3.3” which are above average in the range of choice between”1”and “4”. Based on the overall average of responses, budget execution, program budgeting and administration and governance rank highest on the list for importance to work and priority for training and in these areas respondents considered their current capability to be below average. The others areas of information technology and other training (e.g. communications and English language) also had above average scores that would indicate that training in these areas should be a high priority.

43. The following tables set out the mean responses for each of the eight themes:

Table 5: Mean Responses on administration and governance

Sub - theme Importance to job



Rank


3.91 1 2.45 2 3.78 4

Best practice 3.35 5 2.43 3 3.82 3 Good governance

3.42 4 2.16 5 3.73 5

Managing staff 3.6 3 2.28 4 3.87 1


Page 34

Improving performance

3.69 2 2.49 1 3.84 2

44. The respondents’ results show that all five sub-themes demonstrate a high priority for training with scores of 3.73 to 3.87. These scores are at a similar overall level to the scores in the importance to the job areas although the range in the importance to the job is wider being from 3.35 to 3.91. The current capacity scores in the range of 2.16 to 2.49 indicate that the respondents appear comfortable with their capacity levels. The respondents’ scores in these sub-themes suggest that training courses should be developed in the early stages of the program.

Table 6: Mean Responses on Procurement Sub - theme Importance

to job Rank Current


priority Rank


3.20 3 2.45 2 3.25 4

Procurement Plan

3.30 1 2.43 3 3.3 2

Administration requirements

3.22 2 2.16 5 3.37 1


3.13 4 2.28 4 3.18 5


3.06 5 2.49 1 3.3 2

45. Procurement is a task that would be undertaken both by specialist and general staff. Training would need to be focused on the skills required by both types of users. The responses indicate that courses in procurement planning and administering procurement policies would be the highest priority.

Table 7: Mean Responses on Budget Cycle Sub theme Importance

to job Rank Current


priority Rank


3.49 2 1.73 3 3.55 1


3.47 3 1.66 4 3.39 2

Revenue estimating

3.18 4 1.76 2 3.34 4

Budget preparation

3.57 1 1.82 1 3.39 2

46. The respondents’ answers have placed a high priority on seeking training to better understand the policies and procedures relating to the budget cycle. The second ranked area for priority of training was analysis and forecasting and in this area the respondents’ current capacity was ranked lowest.


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Table 8: Mean Responses on Program Budgeting Sub - theme Importance

to job Rank Current


priority Rank


3.54 2 1.84 1 3.48 1


3.71 1 1.73 2 3.43 2

47. Program budgeting and monitoring and evaluation are two key components to the reform program. The scores from the respondents demonstrate that they understand the importance of these two areas with scores of 3.48 and 3.43 for training priority, which correlate to scores of 3.54 and 3.71 for the importance to the job. The current capacity levels are rated at below average by the respondents.

Table 9: Mean Responses on Budget Execution Sub - theme Importance

to job Rank Current


priority Rank

Basic accounting

3.7 2 2.18 2 3.48 3

Advanced accounting

3.45 6 1.88 6 3.39 4


3.63 5 1.94 5 3.38 6

Chart of accounts

3.71 2 2.28 1 3.39 4

Budget reports 3.69 4 2.13 3 3.52 2 Monitoring expenditure

3.79 1 2.06 4 3.53 1

48. The respondents’ scores show a consistent correlation between what is important for the job and the priority of training. This is particularly evident in the areas of monitoring expenditures, budget reports and basic accounting. The current capacity scores of the respondents 1.88 to 2.18 have only been rated by the respondents as average or less, which suggests that a high priority for training in this area could assist with improving capacity.

Table 10: Mean Responses on Internal Audit Sub - theme Importance

to job Rank Current


priority Rank

Understanding legislation and best practice

3.39 1 1.77 3 3.08 2

Audit planning 3.04 2 1.69 5 2.71 4 Methodology 2.80 5 1.86 2 2.71 4 Control methodology

3.00 3 1.99 1 2.98 3

Reporting 2.84 4 1.71 4 3.12 1


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49. Internal Audit is a specialized function within the department. The scores for importance of the job are lower for this area than the other areas. The lower average scores could reflect the limited understanding of internal audit that the respondents who were not working in the internal audit have of the audit function. The training priority average scores of 2.88 and above indicate that the respondents consider training in the internal areas a high priority.

Table 11: Mean Responses on Information Technology Sub - theme Importance

to job Rank Current


priority Rank


3.56 1 2.44 2 3.55 5


3.53 3 1.94 4 3.56 4

50. The correlation between the scores for importance to the job and priority for training is very high. The training priority scores are all greater than 3.55, indicating that there is a strong need from the respondents to gain access to information technology training. Overall, the current capacity levels with an average score of 2.2 rates their capacity above average in the area of information technology.

Table 12: Mean Responses on Other Training




Rank

English language

3.46 1 2.04 1 3.73 1


3.36 2 1.86 2 3.66 2

51. The respondents’ scores for training priority and importance to the job reflect how important it will be to ensure the early courses in the training program have a strong focus on English and communication skills. The overall average score of 1.86 to 2.04 for the current capacity levels is considered a sound base level to work from.


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IV. ASSESSMENT OF PERSONAL DEVELOPMENT

52. The respondents were asked to score from 1 to 4 with 4 being most important five skill areas that would help to develop their personal capacity. Most of the five areas are also covered in the sub themes. There is a strong degree of correlation between the scores from the respondents for the personal development section and the scores in the 8 specific work areas.

53. The mean scores for the personal development areas were: workplace ethics 3.00, note taking and report writing 3.74, project management skills 3.86, supervisory skills 3.84 and presentation skills 3.71. In summary these scores reflect a strong desire to undertake training in these areas. Improvements in an individuals’ skill levels in these areas will most likely to lead to improvements in the ability of teams to increase their productivity.



APPENDIX 6 – MRD PFM CAPACITY DEVELOPMENT PLAN


Page i

MINISTRY OF RURAL DEVELOPMENT




Page ii

CONTENTS

I. PURPOSE ..................................................................................................................1

II. BACKGROUND..........................................................................................................2

A. Public Financial Management Reform Program (PFMRP) ............................................ 2 B. ADB Program Cluster ................................................................................................... 2


A. Proposed EFI Training Program ................................................................................... 3 B. Proposed PFM Training for MRD.................................................................................. 3




ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008-2010 ....................................14

ATTACHMENT 2 - TRAINING NEEDS ASSESSMENT REPORT - MINISTRY OF RURAL DEVELOPMENT..............................................................................................................16

INTRODUCTION..............................................................................................................17

VI. PROGRAM OVERVIEW........................................................................................18


VII. THE TNA PROCESS.............................................................................................20

VIII. TNA RESULTS AND FINDINGS...........................................................................21


IX. TRAINING NEEDS ................................................................................................23

ANNEX 1 – FOCUS GROUP RESULTS..........................................................................27

ANNEX 2 – TNA RESULTS AND FINDINGS ..................................................................29

I. PARTICIPANTS PROFILE .......................................................................................30

II. ABOUT THE RESPONDENTS’ ORGANIZATION ....................................................32

III. ASSESSMENT OF KNOWLEDGE AND SKILLS..................................................33

IV. ASSESSMENT OF PERSONAL DEVELOPMENT................................................37


Page 1

I. PURPOSE

1. The purpose of this document is to assist the Ministry of Rural Development (MRD) in preparing a framework for (i) public financial management capacity development in MRD as an organization (including provincial offices) and (ii) other capacity development needs of the Department of Accounting and Finance and the Department of Planning and Public Relations of the ministry. It is also intended to assist the ADB and Royal Government of Cambodia (RGC) agencies to prepare a technical assistance (TA) project to strengthen public financial management (PFM) in MRD and in the Ministry of Agriculture Forestry and Fisheries (MAFF) and the Ministry of Water Resources and Meteorology (MOWRAM).


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II. BACKGROUND



3. However, the report of the External Advisory Panel which conducted an independent review of the PFMRP in early 2007 found that many of the PFM reforms had not become firmly embedded in most line ministries and would require further strengthening. This, in turn, pointed to a need for further training of line ministries staff in PFM topics.

4. Platform 2 of the PFMRP which is scheduled to be implemented between late 2008 and 2010 has the objective of ‘increasing budget accountability.’ It is envisaged that, as line ministries will have a wider role and involvement in the implementation of Platform 2 than they had in Platform 1, there will be a need for much more extensive training of line ministry staff in PFM issues. The PFMRP Platform 2 framework document mandates that line ministries should prepare a PFM capacity development plan before the end of 2008, as well as a Ministry Action Plan, to guide them in implementing PFM reforms. The present document is intended to assist MRD in preparing its capacity development plan.

B. ADB Program Cluster



7. The proposed project for strengthening PFM capacity in MAFF, MOWRAM and MRD is currently in the project planning and preparation stages. Such preparation will be influenced by the findings of this capacity development plan. Part of that planning also includes allocation of resources to each of the four proposed TA projects (from the proposed $4.1 million in the ADB program cluster).


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• Contribute to the building up of the human resource capacity of Cambodia’s public sector through training focussed on public finance, public management and economics, with emphasis on policy and its applications;



9. The PFMRP Platform 2 framework document contains the PFM capacity development plan prepared by EFI in 2007. The plan, together with the EFI document ‘About the Economics and Finance Institute’ outlines the training program which EFI proposes to offer to line ministries during Platform 2 implementation. The proposed courses are shown in Appendix 1.The training to be provided covers new PFM activities which will commence in Platform 2 as well as training to reinforce reforms which commenced in Platform 1, e.g. public procurement. EFI is currently seeking to engage a domestic training firm or institution to assist it in preparing the remainder of the curriculum, to deliver training services and to monitor the training outcomes.

B. Proposed PFM Training for MRD

10. The capacity development plan’s primary focus is orientated to the goals of the PFM. Recommended specific skill development in the proposed training program and broader capacity development for staff in MRD should be aligned to the PFM goals.

11. The proposed training program in MRD has been determined by the demand for training as revealed by a training needs assessment, which has been matched with the ministry’s likely share of places in the EFI training program, together with other possible sources of PFM and other training.

12. ADB PPTA No. 4988CAM has completed an assessment of the training needs for PFM and related issues in MRD. The methodology of the assessment comprised three parts: (i) a review of the training needs identified or implied in the PFMRP Platform 2 document and the PFM (EFI) capacity development plan, (ii) the PFM Working Group in MRD was convened as a focus group in which the senior officers of the ministry could be canvassed in depth about their views on the training and other developmental needs of their staff and their own development needs and (iii) a survey, mainly of staff of the finance and planning departments, to gather information about their qualifications, experience and prior training and, secondly, about what training in PFM and other areas they believed they would need in the future. The report of the ministry’s training needs assessment is included as Appendix 2 and has been used to develop the proposed training and other capacity development plans which are outlined below.



Page 4

13. In addition it is considered necessary to provide training in a number of related areas which are not presently covered by the proposed EFI training program. This additional training is essential to supplement PFM training in areas not covered by the EFI program or where EFI will be unable to provide enough training places to the ministry. This additional training also covers other topics not included in the PFM program but which are desirable for the general development of the ministry staff. It is proposed that that additional training be resourced from the forthcoming ADB technical assistance for rural development or be funded from other available sources.

14. The proposed training component of the capacity development program for MRD is detailed in table 1. This list is extensive and should be used as the basis of the annual training program for the finance and planning departments. Training courses to be attended by staff should match their capability and personal needs as well as the departments’ needs. Training courses provided for PFM Platform 1 were of a general nature. As noted earlier there was not enough training provided during Platform 1 therefore overall capacity within the ministry for PFM is lagging. A focused effort will be required to train the right people in the right skills to assist with the implementation of PFMRP Platform 2.


Page 5




Staff Level Staff numbers


Training period



EFI 1, 7 2 2Q 2009-4Q 2009,




EFI 4,1 7 2 3Q 2009


Structure, principles and processes EFI 4 7 2 4Q2008-2Q 2009

Analysing budgets Analytical skills, familiarization with the budget templates and tools for analysis

EFI 4 7 2 2Q 2009-4Q 2009

Responding to budget Reporting skills, communication skills

EFI 4,1 7 2 4Q 2009

Public procurement management

Policies and processes, documentation, reporting and analytical techniques and requirements

EFI 1,2,,4, 75 5 3Q 2009-4Q 2009


Page 6



EFI 1, 7 5 2Q 2009-3Q 2009



EFI 4 7 5 2Q 2009-3Q 2009



PCTA 1,2,4 20 Various 2Q 2009-2Q 2011



PCTA 1,2 15 4 4Q 2009-1Q 2010


PCTA 4,2, 15 4 4Q 2008-2Q 2009



PCTA ,4,5 50 2 4Q 2009-1Q 2010

Preparation budget execution reports


( e.g. statistical reports etc) Reporting skills

PCTA 4 50 2 4Q 2009, 1Q 2010



PCTA 3,4, 75 Max. 2 days per course

2Q 2009

Procurement contract Principles and processes of PCTA 3, 75 Max.2 days per 2Q 2009, 3Q


Page 7

and negotiations (supplements EFI procurement training)

contracts course 2009



PCTA 3,4 75 Max.1 day per course

3Q 2009,4Q 2009

Basic Accounting To complete accounting transactions



EFI 4, 50 Will vary depending on need and time and method for the training


Advanced Accounting To prepare final accounts, present accounting reports, to understand accounting principles

Interpret accounts







PCTA, One-on-one

4, 25 Max.2 days per course

4Q 2009-2Q 2010

Devolution and deconcentration



1Q2009-4Q2010



Page 8



Local T, workshop

1,2,3,4,5 ** Max. 5 days per course



EFI, Local T,

1,2,3,4,5** 20 Max. 5 days per course




EFI 1,,4 7 Max. 5 days per course


Work and customer service ethics

Work place organization, Best practice principles, provide the opportunity for staff to practice skills

PCTA 5,3,2 20 Max. 5 days per course



Local T 1,2,3,4,5** 20 Max. 5 days per course







Local T 1,2,3,4,5 ** 20 Max. 5 days per course



Advanced IT applications EFI 2,,4 10 Max. 2 days course


Project management Provide a base level of skills and Local T 4,3 10 Max. 5 days per Ongoing from


Page 9

processes that can be used course 2Q or 3Q 2009


Local T 2,3 10 Max. 5 days per course



Local T 1,2,3 10 Max. 5 days per course




Local T, Tertiary

3,4,5 30 Max. 5 days per course





1Q 2010-3Q 2010



EFI 1,2 20 2Q 2009-4Q 2010



PCTA,

Study T


2Q 2009-4Q 2010



PCTA, Job R,

2,3,5 25 Max. 2 days per course

4Q 2009-1Q 2010

Improving performance and

Work place organization, human behaviour, best practice principles

PCTA, 1,2 25 Will vary depending on need

2Q 2010, 2Q 2011


Page 10

productivity and management tools Study T and time and method for the training


(i) PCTA=Proposed ADB program cluster TAs for strengthening internal audit and PFM reform in MAFF, MOWRAM and MRD

(ii) One-on-one=Senior staff mentoring of junior staff in departments







1=Leadership team








Page 11


15. A well-designed capacity development plan provides the opportunity to transform the departments’ staff attitudes, commitment and the manner in which they engage the public. The training program would include specific technical skill development and the development of other skills for individual staff. These skills would be of a more general nature but are essential to enabling individuals to carry out their roles. This broader capacity development could be supported by a number of alternative measures and approaches. The recommended measures that MRD could use to improve the overall capacity of its staff could include:



17. Based on the significant additional responsibilities the PFM Working Group members will be required to assume for implementing and oversighting the reform program, it is proposed that the seven Working Group members and the Director of Internal Audit should be included in the MBPI scheme from 2009. Other staff should be admitted to the scheme in later years as their contribution to PFM reforms are demonstrated.


18. A wide range of overseas training and study opportunities are provided by various development partners. For example, the Government of Japan offers 25 scholarships each year for Cambodians for post-graduate (masters) courses under the Japanese Grant Aid for Human Resource Development Scholarships (JDS). Courses are available in law economics, agriculture, rural development, ICT, infrastructure management, public policy and public administration, all of which are relevant to varying degrees to the capacity development of MRD staff.

19. The Australian International Development Agency (AusAID) offers approximately 20 scholarships each year to staff who have worked for the RGC for at least three years. The scholarships are available for full-time post-graduate study at Australian universities in courses which are relevant to PFM in MRD.



Page 12

21. It is envisaged that the courses will be delivered about three times a year by visiting faculty from leading Japanese universities. The leadership and management course will be run over five to 10 days and the thematic courses will be about five days in length. It is also expected that up to up to five post-graduate scholarships will be awarded each year to Japanese universities for staff that have completed the in-country courses. These courses would strongly complement the Change Management and Leadership and Strategic HRM courses to be offered by EFI.

22. It is recommended that the ministry’s Training and Research Department and senior staff of the Departments of Accounting and Finance and Planning and Public Relations monitor the availability of overseas training and development opportunities (from websites and newspaper advertisements) and actively promote the applications of staff who would be suitable for such training. Senior managers should also monitor the availability of other training courses such as the Public Finance and Expenditure Management course which was offered by the ADB Institute in 2005 and online training material at websites such as the World Bank Institute.


23. Developing the capacity of individual staff members will be only partially successful unless it is supported by appropriate institutional capacity building. A number of support mechanisms could be used to build up the capacity of the ministry over time, These could include: the development of HR policies (to develop and complete these policies it is recommended that MRD establish a specialist HR team), plan and implement the use of external expertise in priority areas (initially this could include using external experts to develop job descriptions, establish staff performance criteria and personal development plans for staff) and introducing some of the following activities:

• Assist the finance and planning departments prepare job descriptions for all staff; • Maintain accurate personnel records for all staff (including qualifications, training courses

attended, job descriptions, personal details, performance reviews); • Assist the finance and planning departments to develop personal development plans for

each staff member; • Assist the finance and planning departments to implement annual performance reviews

for all staff; • Train managers and supervisors on how to effectively manage staff and improve the

performance of staff; and • Introduce mentoring arrangements for junior staff.

24. MRD’s Training and Research Department could initially take responsibility for these activities until an HR specialist team is established. Introduction of these personnel measures may require the involvement and agreement of the Council for Administrative Reform.


Page 13







-Seek medium- to long-term donor commitment



-PCTA develops training outcome indicators which are implemented by MAFF





The support functions required to support the implementation plan are not effective or capable

Required support functions established with external experts initially through PCTA

Internal monitoring of the implementation by PFM working group

Staff ( particularly specialist and technical staff ) do not spend sufficient time on the job because of the demands of the training program

Prioritise training program

Monitor the number of training course staff attend annually

Increase the number of technical staff to provide cover when staff are on training courses.

Ensure the time allocated for training courses does not exceed 5 days ( unless it is an approved study tour or tertiary training)

Staff attend inappropriate training courses

Attendance at all training courses to be approved by managers and the department’s training plan to be approved annually by the PFM working group

The development of HR policies lags behind the training program

Include the HR policies as a component of the implementation plan and the PFM working group will monitor progress on a 6 monthly basis.


Page 14

ATTACHMENT 1 – EFI PFM TRAINING PROGRAM 2008-2010


Number of training places

allocated by MEF2



















Use of FMIS Y 150




Page 15



Strategic HRM Y 390



Page 16

ATTACHMENT 2 - TRAINING NEEDS ASSESSMENT REPORT - MINISTRY OF RURAL DEVELOPMENT


Page 17

INTRODUCTION

26. This report presents the results of the training needs assessment (TNA) prepared under Asian Development Bank (ADB) PPTA No. 4988CAM-Preparing the Strengthening of Public Financial Management for Rural Development. The project focused on the training needs of three (3) ministries: Ministry of Rural Development (MRD), Ministry of Water Resources and Meteorology (MOWRAM) and Ministry of Agriculture Forestry and Fisheries (MAFF).




Page 18

VI. PROGRAM OVERVIEW


29. The PFMRP is a multi-stage program to reform Cambodia’s public financial management (PFM) system implemented from 2005, with a ten year planning and implementation horizon. It was designed in response to the systemic weaknesses identified in all aspects of PFM. The first stage of the PFMRP, Platform 1, was completed in 2007. Platform 1 was rolled out, in part, as a preparatory phase for later platforms and, also, to improve budget credibility and the day-to-day management of public resources by delivering a reliable and predictable resource envelope to individual managers.

30. An independent review of the program in mid-2007 (the External Advisory Panel) found that much progress had been made in meeting the program’s objectives in Platform 1 and that the program had reached out significantly to line ministries (procurement, payments, cash management and arrears reforms, introduction of internal auditing, piloting of program budgeting and PFM training). However, the review also found that the reforms had acquired only limited take up in most line ministries and that further consolidation would be necessary in later platforms. - Such strengthening would require a major PFM training effort in and for the line ministries during Platform 2.




33. The soundness of Cambodia’s PFM system will strongly impact rural development outcomes. Pro-rural development policies will only be as effective as the PFM system which manages this policy objective. The current weaknesses in Cambodia’s PFM system are a real threat to the effective implementation of the National Strategic Development Plan and its rural poverty reduction agenda. The Government has recognized the challenge of rolling out PFM reforms to the rural development ministries. Involvement of the rural development ministries and a sense of ownership of the PFMRP by these ministries will be a pre-requisite to PFMRP success. Building capacity of MRD, MOWRAM, and MAFF for timely budget preparation; efficiency of budget execution; accounting accuracy; comprehensive and timely financial reporting, efficient procurement and internal audit is a priority. The underlying emphasis for PFM reforms in these ministries is continued development of capacity through acquisition of knowledge, skills, and


Page 19

leadership qualities (capacity development activities and change management measures). Adequately trained human resources are the key to making reform successful in MRD, MOWRAM, and MAFF.


34. Improvement in the overall capacity of MRD will depend on the staff being competent in a broader range of skills than PFM. For this reason the assessment has examined the training needs for language and communications, report writing and other related skills.


Page 20

VII. THE TNA PROCESS

35. The training requirements have been determined from three sources: (i) the capacity building needs identified or implied in the PFMRP Stage 2 Consolidated Action Plan (CAP) prepared by MEF and endorsed by the RGC in June 2008 for implementation from the end of 2008 until 2011, (ii) a focus group comprising the members of the PFM Working Group in MOWRAM which has been charged with responsibility for over - sighting and implementing PFM reforms in the ministry and (iii) a survey of the attitudes and knowledge of staff in the finance, planning and internal audit departments of the ministry regarding PFM and other issues.



Page 21

VIII. TNA RESULTS AND FINDINGS


37. A focus group meeting was held on 15 August with six members of the MRD PFM Working Group. The working group was provided with the questions to be discussed prior to the meeting. The questions are included in Attachment 3 below.

38. The members of the focus group are all senior managers who are responsible for the key areas in the PFM program. The focus group members identified a number of issues that indicated that as a team they still require more detail and understanding of the PFM program,

39. The Working Group members wanted to have more training in key areas of the PFM program. They felt that this would enable them to provide more effective guidance to the teams they lead. Currently, they do not feel confident in their ability to deliver the requirements of the PFM program to their teams.

40. A number of skills were identified by members of focus group as requiring training in the early part of the program. These skills are necessary to implement the new methodologies and processes that will be required as the PFM develops. The important skills identified were all included in the EFI training courses and in order of priority were: understanding PFM, FMIS implementation, report writing skills, interpreting accounting reports, analyzing budgets and responding to budgets. It was important for the staff who report to the PFM Working Group members to be offered this training immediately after the Working Group team have finished their training. This is to ensure that the understanding of the PFM program by the members of the PFM Working Group and the staff is consistent with MEF’s requirements.

41. The members of the PFM Working Group thought that within MRD the members of the PFM Working Group should be eligible for the MBPI scheme. This would reflect the contribution that these staff members make to the implementation of PFM Platform 2.

42. MRD has been a recipient of study tours and the members of the Working Group considered these were an effective capacity building tool in the ministry. Staff who went on study tours were required to contribute back to the ministry by passing on the knowledge acquired to other ministry staff. This was usually completed by the train-the-trainer method. More study tours would be encouraged by the members of the Working Group. The skills that could be covered through study tours would include: project management, project proposal writing, management and leadership.


43. The staff survey questionnaire was completed by 50 respondents from the Departments of Accounting and Finance, Planning and Public Relations and staff involved with aspects of finance in the line departments. Of the respondents who completed the questionnaire (92 per cent) indicated that they had tertiary qualifications. Staff indicated that they had occupied their current position for 5.8 years on average, indicating a fairly low rate of staff mobility and turnover. The majority of respondents considered that staff in their work area have appropriate qualifications and relevant work experience for their roles and that there are adequate numbers of staff for the organization’s current workload.


Page 22

44. Twenty-seven (54 per cent of respondents) indicated they had received training related to their jobs in the past three years. Of these staff, none had received training in specific accounting courses but a number indicated that they had attended course at MEF related to PFM. These included: one member for improving capital expenditure, three for management of budgeting, one for program budgeting and one for procurement training. The other training received by the respondents was of a varied nature with the courses undertaken including: computer skills, leadership, monitoring and evaluation, report writing, English, policy and management.

45. If the respondents rated the knowledge and skills areas high in terms of importance to work and training priority the project has determined that courses in these areas should be regarded as a priority by the respondents. Areas that matched this criterion (i.e. the respondents scoring would indicate these are important training needs) included: English language, business communication, Microsoft Word and Excel, commitments and payments process, improving performance, understanding systems and processes, administration requirements for procurement, monitoring and evaluation, managing staff, basic accounting and understanding budget policies and processes for the budget cycle.

46. The respondents also scored skill areas that could help their personal development. They were asked to rank five skill areas only: workplace ethics, note taking and report writing, supervisory skills, presentation skills and project management. The highest scores recorded by the respondents were in the following areas: supervisory skills, report writing and project management.



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IX. TRAINING NEEDS

48. The assessed requirement for training is included in Table 1 below. Because the success of PFM reforms will depend on the general capacity of staff in the finance and planning departments as well as other departments of the ministry, consideration must also be given to a wider range of training needs. Accordingly, the proposed training schedule also includes other non-PFM topics.


Page 24



Staff

Level


Training Period




All levels As required, max. 1 day for each course




ADB TA All Levels Max. 3 days per course


MS word Provide a level of skills appropriate for the level the staff member is working at


All levels Max. 3 days per course


MS excel Provide a level of skills appropriate for the level the staff member is working at













2Q 2009




3Q and 4Q 2009


Page 25


Principles and processes of contracts ADB TA Specialists, Team leaders and Leadership team


2Q and 3Q 2009

Basic Accounting To complete accounting transactions and reconciliations

EFI, one on one

Specialists administrators

Will vary on need and specific skill



EFI, one on one




Policy, processes, tools and templates EFI Team leaders, administrators and specialists

Max.2 days per course

4Q 2009 – 1Q 2010



EFI Specialists Max. 2 days per course

4Q 2009, 1Q 2010



4Q 2008 - 3Q 2009




Local Trainer Specialists and team leaders


Work place ethics Best practice principles Local trainer All levels Max. 1 day course On-going from 2Q 2009

Analyzing budget Analytical skills, familarization with budget templates and tolls for analysis

EFI Specialists Max. 2 day course 2Q 2009 – 4Q 2009

Program Budgeting Policies, Principles, processes, development techniques and reporting skills

ADB TA Specialists, Team leaders, Managers

Max. 2 day course 1Q 2009 to 3Q 2009

Monitoring and Evaluation Principles of monitoring and evaluating work programs. Analysis, techniques and methods of reporting

ADB TA Specialists, Team Leaders and Managers


4Q 2009 – 2Q 2010

Devolution and reconcentration Principles of fiscal decentralization, new roles and responsibilities.

ADB TA Managers Max. 1 day course 2Q 2008- 3Q 2010

Change Management and leadership


EFI and ADB TA

Managers, team leaders

Max.3 Day course 4Q 2009- 3Q 2010

Staff management and Best practice principles and management EFI Managers, Max.3 Day course 4Q 2009- 3Q 2010


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organization tools team leaders Best practice governance Best practice principles and governance

tools EFI, ADB TA Managers Max. 2 day course 2Q 2009 – 4Q

2009 Best practice administration processes

Best practice principles and administration tools

EFI Team leaders Max. 2 day course 4Q 2009 – 2Q 2010

Responding to budget Reporting skills and communication skills EFI Specialists Max. 2 day course 1Q 2010 and 1Q 2011

Project proposal writing Basic skills for preparing project proposals

EFI Managers, Specialists



Local trainer Specialists and Managers


Supervisory skills Work place organization, human behavior, tools to assist in the work place

Local trainer Team leaders Max. 2 day course 3Q 2010 – 1Q 2011

Information Technology advanced Advanced It applications EFI Specialist Max. 3 day course On-going from 4Q 2099

Specific Training for internal audit is detailed in a separate report “Three year training plan for Internal Audit” prepared by the Audit Specialist of the ADB PPTA No. 4988CAM project.


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ANNEX 1 – FOCUS GROUP RESULTS

49. The members of the PFM Working Group wanted training courses in the initial stages of the training program to focus on the detail and principles of the PFM Platform 2 implementation. These training courses should be attended by the PFM Working Group members, followed by the staff who report to them. The members of the Working Group at present do not feel confident with their knowledge of the PFM Platform 2 requirements to provide their staff with the guidance required for the implementation activities. The members of the Working Group want to ensure there is consistency between the requirements of MEF and the implementation methods used in MRD.

50. The new information in which the members of the Working Group and the staff reporting to them will need training at the start of the program will include: the objectives and an understanding of PFM Platform 2 implementation, report writing skills, project proposal writing, effective budget delegation, interpreting accounting reports, analyzing budgets, responding to budgets.

51. In addition, training courses in procurement and accounting and finance would be considered a high priority for the heads of these departments to attend. Lower level staff should be required to attend training courses in procurement and accounting and finance if they are responsibilities in these areas.

52. A number of skills were identified by the focus group that lower level staff would require training in. These skills are necessary to implement the new methodologies and processes that will be required as the PFM develops. The important skills identified include: English language and communication, information technology skills, project management, project proposal writing, report writing and interpreting accounting reports.

53. The PFM Working Group will have the responsibility of leading the changes within MRD to implement the PFM program. The Working Group advised that training courses needed to have a practical orientation to enable the leadership team to implement what they have learnt from the training course quickly. The training courses that the members of the Working Group considered would improve their capability to lead the implementation of PFM Platform 2 activities would include: leadership, change management, project proposal writing, report writing and strategic planning.

54. Staff within MRD have recently experienced the benefits that can be gained from study tours. Fifteen staff have completed study tours in Korea. The participants of the study tour have passed their new knowledge to other staff members on their return. This approach uses the train-the–trainer process. Further study tours are being evaluated by MRD with possibilities including tours to Germany and Australia, with further opportunities available to Korea. The Department of Planning and Public Relations has been working on a joint three year project with Thailand for the past twelve months. The experiences gained by the planning department to date on this project have been very positive. From this experience members of the Working Group considered that for the future joint projects should be used where possible as a way of improving the capacity of staff.

55. Staff in the Accounting and Finance and Planning Departments have received on-the-job training in the MRD offices, usually after office hours. The main areas of


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training provided have been information technology skills and English language. If staff want advanced training in information technology and English language training they will be required attend a training course at one of the specified local training centers or EFI. One MRD staff member is presently on a scholarship studying at an Australian university.

56. There were a number of constraints identified by the members of the PFM working group that currently inhibit the development of capacity within MRD including: a limited number of computers available for staff to use, only a few staff understand what are the objectives of the PFM program and there are no training or process manuals available for staff.


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ANNEX 2 – TNA RESULTS AND FINDINGS


Page 30

I. PARTICIPANTS PROFILE

1. A total of 50 respondents from the Planning and Finance departments and staff involved with aspects of finance in the line departments completed the questionnaire. The number of male respondents who completed the questionnaire was 29 (58%) and the number of females were 21 (42%).

Table 1: TNA Respondents by Gender

Department Male Female Total Finance 8 4 12 Planning 9 5 14

Line Department 12 12 24 Total 29 21 50

2. The mean age of the respondents is 36. 6 years old. Of the 48 survey respondents, (noting two respondents did not provide an age) 35 (73%) are between 31 and 40 years old (Table 2). The target for a major portion of the training program could come from this age group of 31 to 40 where the majority of the TNA respondents are clustered. There are eight (16.7%) aged 41 - 50, while four (8.2%) are aged under 30.


Age Group Number of staff Percentage 20-30 4 8.2 31-40 35 73 41-50 8 16.7 51-60 1 2.1 Total 48

3. The mean length of service for the respondents is 5.85 years. Of the 50 survey respondents (noting 13 respondents did not provide a response to this question), 18 (48.6%) have a length of service between one and five years (Table 3). There are 12 (32.4%) staff with 10 or more year’s service. None of the staff indicated that they have less than one year’s service


Number of years service

Number of staff

Percentage

Less than 1 0 0 1 – 3 10 20 3 -5 8 16 5 -10 7 14 10 or more 12 24 Did not respond in survey

13 26


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4. Of the 50 survey respondents, 25 (50%) hold a bachelors degree and 11 (22%) master’s degrees (Table 4). Ten (20%) of the respondents hold a tertiary diploma and four (8%) of the respondents had not attained any tertiary qualifications.

Table 4: Educational Attainment of TNA Survey respondents


Number of staff

Percentage

Diploma Certificate 10 20 Bachelor’s Degree/ University Degree

25 50

Master’s Post graduate Degree

11 22

Ph D / Doctorate 0 No tertiary qualifications 4 8


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II. ABOUT THE RESPONDENTS’ ORGANIZATION

5. By examining the structure and functions, systems and procedures, management processes, staff, training, and organizational culture, the TNA identified organizational issues and challenges that may have implications for training priorities and design and ultimately for the efficacy of training programs for staff in the departments.


7. Based on the weighted average scores from the respondents surveyed it would appear that the majority of staff considered that training was considered a priority and the individual needs of staff were being considered by MRD. A scale of 1 to 5 was used in the questionnaire with 5 being in total agreement with the statement. The respondents’ answers to the statements resulted in the following scores (note that these were a combined score for the departments who completed the TNA in MRD):

• “There is a formal training program”- an average weighted score of 2.81 • “Training programs meet the needs of participants”- an average weighted

score of 2.9 • ”Continuing staff development program”- an average weighted score of 2.65 • ”Equal opportunity for everyone for training”- an average weighted score of

2.88 • ”There is monitoring and feedback on training and courses”- an average


8. These scores indicate that a consistent view is held by the majority of respondents to training and the above average scores indicate that the respondents have a positive view to training within the department. The majority of the scores from the finance and planning departments were in the range of 2.29 to 2.7. The staff with finance functions in the line departments scored this area higher with a range of 3.25 to 3.81.

9. The survey respondents were asked three questions relating to staff within their department. In terms of considering whether the staff within their department had the right qualifications an average weighted score of 3.13 indicates that, overall, the majority of respondents thought that staff were well qualified for their role in the department. A score of 3.29 for the respondents’ response to the statement “the right number of staff’ would indicate that the majority of staff considered that their departments were staffed at an appropriate level. The score of 3.29 in response to the statement “relevant work experience” indicates that the respondents consider that their team has about the right level of work experience to carry out their roles. The scores for the three questions on staff from each of the departments was varied with the finance department’s scores in the range of 3.71 to 4, the planning department’s scores in the range of 2.5 to 2.83 and the staff with finance functions in the line department’s scores in the range of 3.13 to 3.29


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III. ASSESSMENT OF KNOWLEDGE AND SKILLS

10. The objective of a self - assessment of individual’s knowledge and skills is three fold: to identify the knowledge and skills areas that the respondents perceived to be important for work, to gauge the respondent’s proficiency level in those areas, and to determine what is considered to be a training priority. This self - assessment should help determine the knowledge and skills areas that would be responsive to the needs of the staff in the departments in terms of increasing their capacity and enabling them to perform better in the job. The results of this assessment would help to determine the training programs and courses that could be specifically designed for these staff.

11. The knowledge and skills areas are grouped according to the following themes: administration and governance, procurement, budget cycle, program budgeting, budget execution, internal audit, information technology, business skills and personal development. A wide range of the aspects of knowledge and specific skills were examined within these themes. It gave the respondents an opportunity to provide responses in very specific skill areas and also general skill areas that could assist them with their job, for example, workplace ethics or note taking, letter and report writing.

12. There is a relatively strong correlation in the responses in terms of the three self assessment criteria i.e. importance to job, current capacity and the priority for training. The respondents found the various knowledge and skills areas very important in their work and rated the same areas high in terms of priority for training. The respondents rated their own capability in these areas generally below average.

13. The survey asked questions in eight themes namely; administration and governance, procurement, budget cycle, program budgeting, budget execution, internal audit, information technology and other training. The responses for all areas cluster around scores of “3”to “3.5” which are above average in the range of choice between”1”and “4”. Based on the overall average of responses budget execution, program budgeting and administration and governance rank highest on the list for importance to work and priority for training and in these areas respondents considered their current capability to be below average. The others areas of information technology and other training (e.g. communications and English language) also had above average scores that would suggest the training in these areas should continue to remain a high priority.

14. The following tables set out the mean responses for each of the eight themes:

Table 5 Mean Responses on Administration and Governance Sub - theme Importance

to job Rank Current


priority Rank


3.48 4 2.29 3 3.57 3

Best practice 3.58 2 2.11 5 3.58 2 Good governance

3.13 5 2.25 4 3.69 1

Managing staff 3.5 3 2.53 1 3.47 5


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Improving performance

3.62 1 2.43 2 3.57 3

15. The respondents’ results show that all five sub-themes demonstrate a high priority for training with scores of 3.47 to 3.69. These scores are at a similar overall level to the scores in the importance to the job areas although the range in the importance to the job is wider, being from 3.13 to 3.62. The current capacity scores in the range of 2.11 to 2.53 indicate that the respondents appear comfortable with their capacity levels. The respondents’ scores in these sub-themes suggest that training courses should be developed in the early stages of the program.

Table 6: Mean Responses on Procurement Sub - theme Importance

to job Rank Current


priority Rank


3.43 2 1.93 5 3.57 2

Procurement Plan

3.43 2 2.00 3 3.64 1

Administration requirements

3.77 1 2.00 3 3.38 5


3.38 5 2.15 2 3.46 4


3.43 2 2.43 1 3.5 3

16. Procurement is a task that would be undertaken by both specialist and general staff. Training would need to be focused on the special skills required. The responses from the respondents demonstrate that courses in procurement planning and administering procurement policies would be the highest priority.

Table 7: Mean Responses on Budget Cycle Sub - theme Importance

to job Rank Current


priority Rank


3.5 3 1.64 4 3.71 1


3.54 2 1.85 3 3.38 4

Revenue estimating

3.58 1 2.00 1 3.67 2

Budget preparation

3.17 4 2.00 1 3.45 3

17. The respondents’ answers have placed a high training priority in the areas of better understanding the policies and procedures relating to the budget cycle. The second ranked area for priority of training was revenue estimating. The current capacity levels of the respondents were scored at average or below with the scores in the range of 1.64 to 2.

Table 8: Mean Responses on Program Budgeting


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Sub-theme Importance

to job Rank Current


priority Rank


3.38 2 2.06 1 3.88 1


3.44 1 1.63 2 3.69 2

18. Program budgeting and monitoring and evaluation are two key components to the reform program. The scores from the respondents demonstrate that they understand the importance of these two areas with scores of 3.69 and 3.88 for training priority, which correlate to scores of 3.38 and 3.44 for the importance to the job. The current capacity levels are rated at below average by the respondents.

Table 9: Mean Responses on Budget Execution

Sub-theme Importance to job



Rank

Basic accounting

3.53 1 2.13 1 3.67 1

Advanced accounting

3.29 4 1.93 5 3.43 4


3.2 6 1.80 6 3.47 3

Chart of accounts

3.29 4 2 3 3.36 5

Budget reports

3.43 2 2.07 2 3.36 5

Monitoring expenditure

3.4 3 2 4 3.60 2

19. The respondents’ scores show a consistent correlation between what is important for the job and the priority of training. This is particularly evident in the areas of monitoring expenditure, budget reports and basic accounting. The current capacity scores of the respondents 1.8 to 2.13 have only been rated by the respondents as average or less, which suggests that a high priority for training in this area could assist with improving capacity.

Table 10: Mean Responses on Information Technology Sub-theme Importance

to job Rank Current


priority Rank


3.85 2 2.15 3 3.64 1


3.2 5 1.93 4 3.38 4


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20. The correlation between the scores for importance to the job and priority for training is very high. The training priority scores are all greater than 3.38, indicating that there is a strong need from the respondents to gain access to information technology training. Overall, the current capacity levels with an average score of 2.17 rates their capacity above average in the area of information technology.

Table 11: Mean Responses on Other Training




Rank

English language

3.68 1 2.42 1 3.58 1


3.31 2 2.31 2 3.57 2

21. The respondents’ scores for training priority and importance to the job reflect how important it will be to ensure the early training courses in the training program have a strong focus on English and communication skills. The overall average score of 2.31 to 2.42 for the current capacity levels is considered a sound base level to work from.


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IV. ASSESSMENT OF PERSONAL DEVELOPMENT

22. The respondents were asked to score from 1 to 4 with 4 being most important five skill areas that would help to develop their personal capacity. Most of the five areas are also covered in the sub-themes. There is a strong degree of correlation between the scores from the respondents for the personal development section and the scores in the 8 specific work areas.

23. The mean scores for the personal development areas were: workplace ethics 3.42 note taking and report writing 3.42, project management skills 3.86, supervisory skills 3.95 and presentation skills 3.58. In summary these scores reflect a strong desire to undertake training in these areas. Improvements in individuals’ skill levels in these areas will most likely to lead to improvements in the ability of teams to increase their productivity levels.



APPENDIX 7 – NAA DRAFT CAPACITY BUILDING AND TRAINING PLAN FOR LOAN PROJECTS


Page 1

NATIONAL AUDIT AUTHORITY: Draft capacity building and Training Plan for loan projects


Page 2

Topic Objectives and Description Outcomes Staff Level Estimated Hours

Tentative Training Period

1. PROCUREMENT MANUAL ISSUED BY MEF

1.1. Introduction. The training program on procurement will be broken down into the following modules shown below from 1.2 to 1.5

The latest version of the procurement manual for externally assisted projects issued by the Ministry of Economy and Finance should be used as a basis for developing training materials in relation to key areas of procurement.

Participants are expected to understand key principles, policies and procedures of procurement and use the procurement manual as a reference source when conducting loan project audits.

All auditors in Audit Department

3, some staff from Technical Department and SG Secretariat

4 hours June 2009

1.2. Principles of procurement policies of the RGC, ADB and WB

This module will cover the key principles of procurement policies of the RGC, ADB and WB.

The main objectives are to:

� Understand the principles of the Royal Government’s procurement policies;

� Understand the policies of ADB and WB;

� Understand the policies dealing with fraud, corruption and transparency in relation to procurement; and

� Procurement roles and responsibilities.

Participants are expected to:

� be able to use these principles in undertaking compliance audits of procurement policies;

� be alert to practices that divert from these principles;

� be able to recognize situations that involve conflicts of interest; and

� be able to determine whether the suppliers are qualified and eligible.

12 hours June 2009

1.3. Procurement review committee

This module covers the composition, duties and thresholds of the procurement review committees.

The main objectives are to understand:

� the duties of the procurement review committee;

� procurement review committee formation and thresholds; and

� roles and responsibilities of each committee member.


� be able to review the composition of each procurement committee and the roles and responsibilities of its members; and

� be aware of matters involving conflicts of interest and opportunities for potential corruption

6 hours June 2009


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1.4. Procurement methods and processes

This module covers the methodologies adopted for procurement of different items (goods, works, and services) and different stages of procurement processes.

The main objectives are to equip auditors with a sound understanding of:

� different methods of procurements of goods, works and services;

� packaging of procurement and bidding strategy;

� planning for procurement;

� specifications and terms of reference;

� bidding documents;

� bidding processes;

� bid opening procedures;

� bid and proposal evaluation;

� contract awards – goods, works, and consultant services.


� be able to review compliance with procurement methods and processes; and

� recognize indications of irregularities involving procurement.

18 hours July 2009

1.5. Contract management

This module covers key aspects of contract management.

The main objectives are to understand:

� contract effectiveness;

� contract supervision and administration for goods, works and consultant services contracts;

� payments for goods, works and services;

� receipt, inspection and issue of goods;

� delays in performance;

� termination of contracts;

� contract amendments

� letters of credit;

� insurance for goods; and

� records management.


� obtain a good understanding of the principles of contract management; and

� be able to apply these principles in auditing compliance with contracts.

18 hours July 2009


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2. FINANCIAL MANAGEMENT MANUAL ISSUED BY MEF FOR LOAN PROJECTS

2.1. Introduction The latest version of the financial management manual for investment projects issued by MEF should be used to develop the training materials dealing with key aspects of the financial management manual.

The course is expected to equip auditors with knowledge of financial management for investment projects.

4 hours July 2009

2.2. Project arrangement and financial management

This module aims at providing auditors with an understanding of:

� project implementation arrangements, planning and budgeting; and

� financial management responsibilities, polices and standards.

Participants are expected to be able to:

� assess the appropriateness of project implementation arrangements, planning and budgeting; and

� determine whether the financial policies and standards are appropriate for the project.

6 hours

2.3. Internal controls This module aims at equipping auditors with an understanding of key elements of internal controls. These would include:

� responsibilities for internal controls;

� key elements of internal controls;

� financial delegations and authorities;

� general financial internal controls;

� transaction processing controls; and

� computerized accounting system controls


� determine whether some key controls are missing;

� evaluate whether the existing controls are appropriate to the operations undertaken; and

� recommend how the existing controls can be improved or how the missing controls can established.

18 hours


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2.4. Financial policies, procedures and forms

This module aims at equipping auditors with an understanding of the financial policies, procedures, forms and internal controls of the following areas:

� cash and bank accounts;

� receipts and debtors;

� contract and other project expenditures;

� payroll expenditure;

� advances;

� assets;

� loan, credit or grant withdrawals; and

� counterpart fund withdrawals.


� have an overall idea of what processes and controls for each area of the project are expected to achieve;

� assess the controls surrounding each area of the project; and

� determine whether the financial policies and procedures of the project comply with the financial management manual.

18 hours

2.5. Financial management reports

and audits

This module will cover:

� periodic financial management reports;

� annual financial statements; and

� audit requirements.


� assess whether the financial management reports and annual financial statements comply with the requirements of financial management manuals and loan agreements; and

� assess whether the audit requirements (both internal and external) for the project are met.

12 hours


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3. STANDARD OPERATING PROCEDURES (SOP) MANUAL ISSUED BY MEF

3.1. Introduction MEF has issued the manual on standard operating procedures (SOP) to facilitate the day-to-day management and administration of externally assisted projects.

Participants are expected to understand the key guidelines in the manual when they come to loan project audits.

4 hours

3.2. Project roles and responsibilities.

This module will cover roles and responsibilities of agencies involved in development projects and inter-agency coordination.

Participants are expected to understand roles and responsibilities of agencies involved in development projects and inter-agency coordination.

2 hours

3.3. Project cycles. This should cover project cycles which include:

� project identification;

� project formulation;

� project implementation; and

� project completion activities.

Participants are expected to understand project cycles so that they can design appropriate audit procedures for each cycle.

12 hours

4. AUDIT PLANNING

4.1 Preparation of individual audit plan.

This course will provide auditors with tips and practical guides to preparing a good audit plan for an audit assignment.

Main objectives are:

� To specify audit objectives and scope of work;

� To understand how to gather information and identify risks associated with an audited activities; and

� To develop an effective audit programs.

Be able to prepare a good audit plan for an audited activity in accordance with internal auditing standards.

12 hours


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5. INTERNAL CONTROLS

5.1. Overview and characteristics of reliable internal control.

This topic will provide auditors with information and practical guidelines to having a good understanding of the principles of internal controls.

Main objective is to define the internal controls and its characteristics of reliable internal controls.

Be able to identify weaknesses in the existing internal controls systems in loan projects.

6 hours

5.2. Internal controls & management and external auditors.

This topic will provide auditors with information and practical guidelines to be able to understand the relationship of the internal controls and management and external auditors

Main objectives are to discuss with the following topics:

� Reliance on the internal controls

� Detection of fraud

� Scope and timing of review

� Continuing engagement

Be able to identify the reliability of internal controls and its relationship with management and external auditors.

6 hours

5.3. Review and

evaluation of internal

controls.

This topic will provide auditors with guidance on how to review and evaluate the internal control system.

Main objectives are to increase the understanding in the following areas:

� Identification of established internal controls;

� Testing of internal controls;

� Evaluation of internal controls;

� Confirmation of internal controls;

� Conclusion & recommendation; and

� Follow-up

Be able to review and evaluate the internal controls present in an operation.

12 hours


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6. LOAN AGREEMENTS

6.1. Overview of provisions in loan agreements.

This topic will provide auditors with an understanding of the intent and interpretation of the key provisions in loan agreements.

Auditors will be able to ensure that covenants in loan agreements have been complied with.

4 hours

7. INTOSAI STANDARDS FOR FINANCIAL REPORTING

7.1. Overview of the

Standards.

This topic will provide the auditors with a sound understanding of the standards and principles that are to be applied in conducting audits of the financial statements of projects.

Auditors will be able to express an opinion on the financial statements.

12 hours

8. INFORMATION TECHNOLOGY CONTROLS

8.1. Overview of IT

systems supporting

project management

and accounting

activities.

This topic will provide the auditors with a basic understanding of the key computer control issues that need to be evaluated during the audit of loan projects.

Auditors will be able to assess the risks that exist in the IT environment supporting loan projects.

4 hours

9. ENGLISH TRAINING

9.1 English lessons

with emphasis on

reading and

understanding the

language.

This course will allow the auditors in department 3 to increase their understanding of the English language. An English tutor will provide a suitable course to all the staff in department 3.

Auditors will be capable of interpreting loan agreements, contracts and the MEF operating manuals that are written in the English language more effectively.

90 hours

10. APPLICATION OF AUDITING PROCEDURES MANUALS

10.1. Familiarization

with the loan projects

auditing manual

To enable the staff to understand the methodologies and procedures for conducting a loan project audit from planning, execution, quality assurance through to audit reporting.

Auditors will have the knowledge to be able to execute audits of loan projects in accordance with generally accepted auditing standards and practices.

18 hours


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11. ON-THE-JOB TRAINING

11.1 On the job

training in

conducting loan

project audits

identified in the

annual work plan.

.

To enable the auditors to apply the methodologies and procedures outlined in the audit procedure manuals and the international auditing standards.

High quality audits to internationally accepted standards will be produced.

Ongoing



APPENDIX 8 – ASSESSMENT OF INTERNAL AUDIT FUNCTION IN MOWRAM


Page 1

MINISTRY OF WATER RESOURCES AND METEOROLOGY (MOWRAM)

ASSESSMENT OF INTERNAL AUDIT FUNCTION IN MOWRAM

Prepared by Nihal Fernandopulle

31 July 2008


Page 2

CONTENTS

I. INTRODUCTION......................................................................................................3

II. MANDATE ...............................................................................................................4

III. ORGANIZATION STRUCTURE OF IAD IN MOWRAM........................................6

IV. STAFFING..........................................................................................................11

V. IAD ANNUAL WORK PLAN ..............................................................................12

VI. AUDIT METHODOLOGY ...................................................................................14

VII. AUDIT REPORTING ..........................................................................................15

VIII. COMPLIANCE WITH INTERNAL AUDITING STANDARDS..............................17

IX. MEF INTERNAL CONTROL POLICY STATEMENT..........................................18

X. INTERNAL AUDIT SUB-DECREE .....................................................................19

XI. COORDINATION BETWEEN MEF, NAA AND MOWRAM ................................20

XII. AUDITING PROCEDURES MANUALS..............................................................21

XIII. TRAINING PLAN................................................................................................22

XIV. FINANCIAL BUDGET FOR IAD.........................................................................23

XV. REMUNERATION ..............................................................................................24

XVI. CONCLUSION ...................................................................................................25

ANNEX A – OUTLINE OF INTERNAL AUDIT METHODOLOGY .................................26

ANNEX B – POLICY STATEMENT OF INTERNAL CONTROL ...................................28

A. Background and Objective.......................................................................................... 28 B. Statement of Policy..................................................................................................... 28 C. Definition of internal control ........................................................................................ 28 D. Types of internal control ............................................................................................. 29 E. Application of Policy.................................................................................................... 29 F. Criteria for exemption .................................................................................................... 31 G. Responsibility and Authority........................................................................................ 31

ANNEX C – THREE YEAR INTERNAL AUDIT TRAINING PLAN ................................32


Page 3

I. INTRODUCTION

1. Article 41 of the Audit Law of 2000 requires each ministry to establish an internal audit function in accordance with the sub-decree for internal audit No 40/ANK/BK that was passed on 15 February 2005. The internal audit department in MOWRAM was established on 17 November 2006 by Prakas No 182.

2. The mandate (Prakas) issued for establishing internal audit in the ministry is a strong one and encompasses the responsibilities stipulated in the internal auditing sub-decree. The mandate permits the internal audit department (IAD) to undertake financial, performance and compliance audits and authorizes the IAD to conduct evaluations of: the adequacy of the internal control systems; the reliability of financial and operational reports; the adequacy of the systems in place to safeguard assets; and the economy and effectiveness of resource utilization. The mandate also requires the IAD to coordinate the internal audit work with the NAA and to submit copies of internal audit reports to the National Audit Authority.

3. Internal auditing is a completely new activity in Cambodia and there is very little understanding of the concept of and philosophy underlying internal audit in the public or private sectors. Moreover the lack of qualified accountants and auditors in the country makes it very difficult to attract internal auditors to work in the public sector given the low rates of remuneration that are on offer.

4. IAD was established in November 2006 and has a staff of 19. Most of the staff were transferred to IAD from other areas of the ministry. None of the staff working in the internal audit department have had any previous exposure to internal auditing. The ministry has not had the benefit of any technical assistance and has commenced to undertake a program of audit coverage with a little assistance from the MEF internal audit department. A work plan has been developed and five audits completed since the inception of the department.

5. There are no internal audit methodologies in place, the department does not have any auditing procedures manuals to guide them, work is undertaken without adequate planning or risk assessment, and the tasks carried out are more in the nature of an inspection function rather than what is expected of internal audit. There is no evaluation of the internal control systems. There is no capacity in the IAD. A major investment in training is required and this provides an opportunity for donor technical assistance to assist this group reach professional competence.


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II. MANDATE

6. The IAD has been assigned responsibility for carrying out independent audit reviews of the various activities undertaken by the ministry. The Prakas requires IAD to conduct its audit work in accordance with the internal auditing standards and professional code of ethnics issued by the Ministry of Economy and Finance.

7. The mandate requires IAD to evaluate the activities of the ministry with the objective of improving work efficiency of head office departments and provincial/ municipal offices under the Ministry. The mandate empowers the auditors with full rights and freedom to review all activities and accounting records of state properties and personnel.

8. The Internal Audit Department has been assigned the following responsibilities:

• Preparing annual audit work plans and submitting it to the Minister for review and

approval;

• Reviewing functions, operational activities and programs in appropriate fiscal periods

in planning, directing, organizing and monitoring based on guidelines, policies and

procedures;

• Determining the appropriateness, adequacy and efficiency of the internal control

systems for accounting, administration and operational activities;

• Reviewing the reliability, timeliness and transparency of financial information and

operations including the methods used to identify, measure, classify and report

financial information;

• Reviewing the existing systems to ensure compliance with policies, plans, laws,

regulations that have significant influence over operations and reporting.

Recommending improvements and changes in case of improper implementation;

• Reviewing the correctness of managing, safeguarding and custodianship of property;

• Evaluating the economy and effectiveness of resource utilization and recommending

improvements for implementation of operations;

• Reviewing the operations of programs and capital expenditures;

• Participating in planning, developing, implementing and operating significant

computerized systems to ensure that:

• users’ needs are clearly determined;

• appropriate internal controls are incorporated into the computer systems;

• appropriate steps are taken to test the computer systems; and


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• records of computer systems are complete and accurate.

• Performing audits of computer systems in fiscal periods and evaluating significant

data processing systems after installation to determine whether these systems meet

the planned objectives;

• reviewing the procedures and practices to ensure that measures have been

established to prevent frauds. If a fraudulent act occurs, the internal controls must be

so designed that the fraud will be detected in a timely manner;

• Reviewing the implementation of guidelines of the Royal Government regarding

behavior and ethics of civil servants;

• Coordinating the internal audit work with the National Audit Authority (NAA) to ensure

the adequacy of scope of work and to reduce overlap;

• Reporting to the Minister of Water Resources and Meteorology and submitting

reports at the conclusion of the audit to NAA in relation to:

• Improvements recommended;

• Confirming that audit activities are based on risks and economy, efficiency

and effectiveness of operations;

• The internal auditors’ coordinating with NAA to avoid overlapping audit work.

In case of uncertainty, NAA shall review and re-audit;

• Internal audit plan shall be appropriate, clear and sufficient; and

• Any obstacles in obtaining information and in access to records.

• Evaluating corrective plans or actions on IA’s findings. If such corrective actions are

considered unsatisfactory, hold further discussions to ensure that suggestions have

been satisfactorily implemented;

• Provide appropriate and adequate follow up to ensure adequate corrective actions

have been taken based on recommendations;

• The Director of IA reports directly to the Minister;

• Prepare audit reports and conclusions and submits to each unit under the Ministry

responsible for implementing the recommendations;

• Carry out all other duties assigned by the ministry.

9. The mandate is comprehensive and does not place any restrictions on the scope and extent of audit work that is to be undertaken. The mandate conforms to the requirements stated in the internal audit sub-decree of 15 February 2005.


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III. ORGANIZATION STRUCTURE OF IAD IN MOWRAM

Director

Deputy Director

Administration Office

Deputy Director

Office of Audit 1

Office of Audit 2

Office of Audit 3


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10. The Internal Audit Department of the Ministry of Water Resources and Meteorology has 4 offices as follows

• Office of Administration

• Office of Audit 1;

• Office of Audit 2; and

• Office of Audit 3.

11. The functions and duties of each of the offices in IAD are as follows:

The Office of Administration:

• controls the flows of administration, legal, technical and training documents;

• prepares short-term, medium and long-term planning for the Department;

• prepares programs and work plans for the Directors and is responsible for protocol and public relations;

• prepares annual reports of the Department;

• coordinates audit fieldwork;

• ensures the routine administrative chores are carried out, is responsible for security arrangements, and monitors the implementation of the Department’s internal regulations;

• prepare an annual budget for moveable and immoveable property;

• maintains the registers of moveable materials, immoveable materials and inventories and conducts inventory counts of the Department; and

• carries out other tasks assigned by the Department.

Office of Audit 1 is responsible for audits of departments and provincial/ municipal offices of Water Resources and Meteorology and sub-units as follows:

• Administration and personnel department;

• Finance department;

• Engineering department;

• Phnom Penh Office;

• Kandal Office;

• Takeo Office;

• Kampot Office;

• Kep Office;

• Svay Rieng Office;

• Prey Veng Office;

• Pre-condition, Evaluation and Contract Unit and Procurement Unit; and

• Other tasks assigned by the Department.


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Office of Audit 2 is responsible for audits of departments and provincial/ municipal offices of Water Resources and Meteorology as follows:

• Planning and International Cooperation Department;

• Agriculture Hydraulics Department;

• Water Resources Management and Conservation Department;

• Kampong Cham Office;

• Kratie Office;

• Stueng Treng Office;

• Ratana Kiri Office;

• Mondul Office;

• Preah Vihear Office;

• Kampong Thom Office;

• Kampong Speu Office;

• Sihanoukville Office; and


Office of Audit 3 is responsible for audits of departments and provincial/ municipal offices of Water Resources and Meteorology as follows:

• Hydraulics and Aquatics Department;

• Clean Water and Sanitation Department;

• Meteorology Department;

• Pailin Office;

• Battambang Office;

• Banteay Mean Chey Office;

• Oddor Mean Chey Office;

• Siem Reap Office;

• Kampong Chhnang Office;

• Koh Kong Office;

• Pursat Office; and


12. The responsibilities assigned to each audit office as per the mandate are as follows:

• Cooperates and prepares annual audit plans and submits to the director for review and approval;

• Conducts audits on functions, structures, visions, strategies, programs, measures, regulations, means and work delegations of units based on updated procedures, guidelines and objectives;


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• Conducts audits on implementation of laws, regulations, accounting and finance budgetary disciplines and good governance in financial transactions, in particular generation and management of income, budget expenditure, financing, debts and state property;

• Conducts audits for all complaints made by units under the Ministry of Water Resources and Meteorology;

• Maintains audit reports properly as a basis for monitoring the progress of the implementation of recommendations;

• Provides conclusions, recommendations as well as reports to the Director of the Internal Audit Department;

• Regularly monitors legal documents and reform activities of public accounting and finance of each unit;

• Coordinates with relevant units and institutions in order to generate sufficient and accurate information bases;

• Carries out other tasks assigned by the Department.

13. Each of the offices is headed by a chief who is assisted by a number of deputy chiefs and officers as necessary.

14. The IAD of MOWRAM is led by a director with two deputy directors.

15. As required by the Sub-decree No.40 for the Organization and Functioning of Internal Audit the head of internal audit has been accorded director level status and reports directly to the minister. There is no audit committee in MOWRAM. The internal auditing standards that were issued by the MEF permits the head of the organization if he so wishes to establish an audit committee. The internal auditing sub-decree however does not require an audit committee to be established.


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IV. STAFFING

16. The IAD organization structure provides for 20 positions, led by a director and supported with two 2 deputy directors, 3 chiefs, 4 deputy chiefs and 7 audit staff and 3 administration staff. The director position is currently vacant as the previous director has been promoted to another position in the ministry.

17. Article 5 of the sub-decree No. 40 on the Organization and Functioning of Internal Audit requires that appointees to the position of director, deputy director, chief or vice chief of the office shall be civil servants possessing a recognized higher education degrees or equivalent qualifications in accounting, economics, business and finance. Three deputy chiefs, two chiefs and two deputy directors do not meet the qualification requirements of the sub-decree.

18. Of the 7 audit staff employed 5 staff does not possess the qualifications required by the internal audit sub-decree.

19. The experience criteria established in the internal audit sub-decree for senior audit staff in the director to deputy chief range is five years in financial management or public administration. There is two staff who does not meet these criteria.

20. Internal auditing involves reviewing the adequacy of the internal control systems in the ministry as well as undertaking reviews of the efficiency and effectiveness with which resources are being used. Internal auditors need to have a good understanding of the principles of management, internal control, accounting systems and accounting standards, internal auditing standards and methodologies, information technology, quantitative methods and human resources management to be able to perform effectively in their jobs. This is a reason why the internal auditing standards and the internal auditing sub-decree stipulates that auditors posses a degree in these disciplines. The task of training audit staff to become more competent and professional is made more difficult if the staff does not have a basic educational background in these subjects.


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V. IAD ANNUAL WORK PLAN

21. The IAD has prepared its 3-year rolling audit work plan from 2008 to 2010. Prakas No. 182 lists 34 auditable entities. A summary of the entities to be audited as per the work plan is shown below:

Auditee 2008 2009 2010

Number of departments 3 3 10

Number of provincial/ municipal offices 12 8 17

Total 15 11 27

22. The departments in the work plan above are mainly based in the head office in Phnom Penh with the remaining offices being based in the provinces. The table below summarizes the number of audit assignments that has been allocated to each audit office for each of the years 2008 to 2010.

Office 2008 2009 2010 Total

Audit 1 8 4 10 22

Audit 2 5 5 7 17

Audit 3 2 2 10 14

Total 15 11 27 53

23. The work plan has been prepared without conducting a proper risk assessment of the different and varied activities and operations that are being undertaken within the ministry. The preparation of a risk based audit plan is essential if audit effort is going to be directed to those areas that are considered to be of highest risk. With the limited resources in IAD it is essential that the audit work plan focuses mainly on those activities considered to be of highest risk. The audit work plan should also wherever possible be aligned with the overall priorities of the ministry so that internal audit can contribute to the achievement of the ministry’s objectives.

24. The current work plan has been prepared on the basis of allocating responsibility for the audits of all the provincial and municipal offices and head office departments that fall under the ministry to one of the three audit offices. The organizational units have been identified for audit coverage on a one, two and three year cycle, driven more by completeness of audit coverage rather than risk and alignment with the overall priorities of the ministry.


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25. The generally accepted practice in preparing a work plan is to firstly identify the key high risk activities that are being undertaken and for audit coverage to focus on these high risk areas. Based on an assessment of risk each activity should then be categorized as high, medium or low risk and frequency of audit directly correlated to risk levels. High risk activities are normally audited on an annual or semi annual basis whilst those considered medium risk can be covered on a two year cycle and low risk on a three year cycle. The objective of this frequency is to ensure that generally all the activities in the entity will be subject to audit coverage over a three year cycle. The thrust of the ministry’s responsibilities over the coming years is directed to (i) water resources management and development and (ii) flood and drought management. When developing a. work plan audit emphasis will need to be placed on reviewing the operations in these two areas which are priority areas of the ministry. The bulk of the ministry’s expenditure is planned on infrastructure to support irrigation, flood management, drainage and disaster relief programs, and in this context internal audit can add value by ensuring that sound control frameworks have been developed to manage these activities efficiently and effectively. The current work plan is also not realistic as no time budgets for each assignment have been compiled and no link established with the available man days. The costs of undertaking the annual work plans are also not estimated and adequately reflected in the financial budget bids of the department.


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VI. AUDIT METHODOLOGY

26. IAD does not have an appropriate internal audit methodology to enable it to conduct its work in accordance with generally accepted internal auditing standards. In the absence of a formal methodology the audit staff is undertaking reviews based on their individual perceptions of how the audit work needs to be undertaken during the audit assignment. The fact that the staff has not received any training in internal audit and none of the staff has had any previous internal auditing experience makes it imperative that methodologies are developed and staff trained in using these methodologies. The staff needs guidance and the tools to carry out an audit. The main challenge facing IAD is to improve the capacity of the existing staff. This would require an intensive training plan to be developed and implemented. The audit staff needs to have a clear understanding of the objectives of internal control and the techniques and tools for effective internal auditing. The immediate priority for IAD is to ensure that the staff is trained in applying modern internal auditing methodologies. A model of a standard internal audit methodology is shown in Annex A.


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VII. AUDIT REPORTING

27. A review of the contents of a sample of internal audit reports issued revealed that the format and presentation of the reports was appropriate although there was considerable scope to improve the quality of the findings.

28. The internal audit report is presented under the following headings:

• Members of audit teams;

• Members of auditee;

• Purposes of the audit visit;

• Items audited;

• Overview of auditee;

• Audit results;

• Auditors’ findings;

• Recommendations

• Auditee’s responses and

• Auditors’comments on auditee’s responses.

29. The following were noted:

The purpose of the audit as stated in the report is very broad and conveys the impression that a comprehensive internal audit has been completed when in fact the audit coverage is often limited to a check of the accuracy of the recording of assets in the registers and verification of supporting documents for expenditures. The audit report states that the purpose of the audit is to “enhance the effectiveness and efficiency and to reduce risks in its implementation through improving internal control systems based on analysis, evaluation and recommendations which are the outcome of the audit”. In execution of the audit work however there is no evaluation made of the internal control systems nor is there a methodology applied for evaluating the efficiency and effectiveness of the systems and to reduce risks.

The current approach of restating in the audit report the budget figures for expenditures estimated and spent under each of the expenditure chapters 60, 61, 62, 64 and 65 of the chart of accounts after verifying the supporting documentation with the budget records is not appropriate or relevant. Five audits have been completed covering expenditure on fuel, state property and state budget management. The main contents of the report relate to the details of the budget chapters with little information on the findings.

The execution of the audit work is not in line with the purpose of the audit as stated in the report. There is no audit plan established to enable the purpose of the audit to be accomplished. The audit teams have not received any training and they do not posses enough theoretical or practical knowledge of modern internal auditing. No standard audit programs are used when conducting an audit and there is an urgent need for training the staff in modern internal audit techniques and methodologies. In the absence of internal audit procedures manuals there is no guidance available to the audit staff to provide them with the tools that are required to conduct an audit in accordance with generally accepted auditing practices.


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The reports do not have any specific recommendations for improving the internal control systems or performance and add little value for strengthening the management control systems except that the visit by the audit team acts as a deterrent and may prevent staff from participating in any improper actions in the belief that it will be detected.

There is no inspection function in the ministry and the work currently performed by the internal auditors is more of in the nature of inspections which are primarily directed on verifying supporting documentation for payments and the existence of physical assets.

30. There is an urgent need to improve the quality of the audit reports issued. To be effective the report must make recommendations for improving the internal control systems, for safeguarding the assets, for improving the reliability and timeliness of the financial reports and for improving the efficiency and effectiveness over resources used. The audit staff is currently not capable of forming proper conclusions on these matters and a comprehensive training program recognizing both in house and on the job training is necessary to accomplish this objective.


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VIII. COMPLIANCE WITH INTERNAL AUDITING STANDARDS

31. The MEF has issued a comprehensive set of internal auditing standards that are based on the international internal auditing standards for the professional practice of internal auditing. The standards if applied will contribute significantly to improving the professionalism of the internal audit group. No training has however been provided on these standards and the audit staff have very little knowledge or understanding of the significance of these standards and of the manner in which they should be implemented when carrying out internal audits. The standards were issued by MEF Prakas No. 405 dated 31 May 2006 together with the code of ethics for internal auditors. The standards cover:

• Independence;

• Proficiency and professional care;

• Scope of work;

• Performance of audit assignments; and

• Management of the internal auditing function.

32. Any future training plans must focus on training the staff in implementation of these standards.


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IX. MEF INTERNAL CONTROL POLICY STATEMENT

33. The Ministry of Economy and Finance issued Prakas No. 1109 dated 3 November 2006 which requires each ministry and government institution to establish and maintain specific internal controls in conducting their operations. The controls outlined in this policy statement are broad and cover accounting, delegations of authority, segregation of functions, segregation of duties, reconciliations, procedures for controlling commitments, procurement, ordering, receiving and authorization of transactions and procedures for capturing, recording, classifying, verifying and reconciling transactions in the accounting system. This policy statement assigns responsibility for establishing and maintaining the control systems to the management of each ministry and public enterprise.

34. A copy of the Internal Control Policy Statement is attached as Annex B to this report.

35. The IAD is not being guided by the requirements of this policy statement when conducting audits. The contents of this policy statement had been explained to the IAD staff at a workshop arranged by the MEF Internal Audit Department in 2007, but there is still a lack of understanding in IAD of how these controls need to be implemented in the procedures and systems that are being followed. Line management at the ministry also has very little understanding on how internal control systems are designed and operated.

36. IAD must place greater focus on the control issues outlined in this policy statement and make an evaluation of the application of these controls when conducting audits. More detailed internal control checklists will need to be developed by MEF to enable a comprehensive evaluation to be undertaken of the internal control systems in existence. There are no written procedures kept by the departments and IAD will need to document the existing processes and systems as a starting point to undertake an evaluation of the internal controls in the procedures adopted


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X. INTERNAL AUDIT SUB-DECREE

37. Internal audit sub-decree No. 40 was issued by the MEF on the 15 February 2005. The sub-decree was issued as a requirement of article 41 of the Law on Audit of 2000. Article 41 requires internal audit to be established in each institution, ministry and public enterprise and requires an internal audit sub-decree to be issued for the organizing and functioning of internal audit. MOWRAM established the internal audit department on the 17 November 2006.

38. In drafting the Prakas No, 182 for establishing the internal audit department, MOWRAM was guided by the provisions of this sub-decree. There is scope to increase the understanding of the ministry management on the key features of the sub-decree. The sub-decree assigns responsibility to the ministry management for establishing and maintaining the internal control systems. Generally there is a lack of sufficient understanding on the underlying concepts and principles of internal control that are required to be included in the design of processes and procedures for recording financial transactions for producing reliable reports and safeguarding assets. The awareness within the management of the head office departments and offices of MOWRAM on the principles of internal control and how internal controls need to be designed in the procedures and processes for carrying out operations is low. IAD management will need to conduct an awareness program within the ministry to ensure that management understands the concepts of internal control and start a process for documenting the systems so that the application of controls can be managed. The ministry staff also needs to be further enlightened on the role and responsibilities of internal audit in relation to the control systems. The IAD will need to work closely with the senior management of the departments and offices to ensure that understanding of internal control and internal auditing systems is deepened.

39. Unlike several of the other ministries, MOWRAM does not have an inspection function in addition to its internal audit activity. MOWRAM is keen to see IAD operating to a professional level. Technical assistance and guidance from the MEF and the development partners will be required to achieve this objective.


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XI. COORDINATION BETWEEN MEF, NAA AND MOWRAM

40. Article 41 of the Law on Audit of 2000 requires each ministry and state institution to submit copies of all internal audit reports to the National Audit Authority. Since inception of the internal audit department in November 2006 five audit reports have been produced by IAD. These reports have not been copied to the NAA as required by the law. MOWRAM has however submitted a copy of the three year work plan for 2008-2010 and annual work plan for 2007 to NAA. The purpose of submitting the work plans is to ensure that duplication of audit work is avoided and that the plans recognize the key areas that need to be prioritized for audit coverage. Closer coordination of the audit work to be undertaken by NAA and IAD will result in more effective use of audit resources.

41. Though plans have been submitted and audit reports are to be submitted in the future to NAA, there is no process established between NAA and the ministries for coordinating the respective work programs of IAD and NAA, analyzing audit report findings, action to be taken on outstanding audit issues and follow up, networking arrangements and cooperation and sharing knowledge on audit matters of interest.

42. Under stage 2 of the PFMRP the IAD in MEF has been assigned some responsibilities for assisting the line ministries in developing capacity in internal audit. The responsibilities include:

• Completion of coverage and adequateness of internal audit departments in line ministries;

• Improve mechanisms to ensure effective response to audit findings in budget entities;

• Require internal audit departments to submit annual plans based on risk assessment criteria recommended by MEF for audit work plans;

• MEF reviews adequacy of sample of internal audit reports and provides constructive suggestions;

• Assist in organizational development of line ministries internal audit departments.

43. No formal processes have yet to be established by MEF IAD and the internal audit departments of the line ministries. MEF IAD is planning to establish these processes over the coming months.


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XII. AUDITING PROCEDURES MANUALS

44. There are no auditing procedures manuals available for use by IAD when conducting audits. Audit manuals provide valuable guidance to the staff in completing each step of the audit process. The manuals are particularly useful for training staff in the audit methodologies that have been adopted by IAD and in enforcing the auditing standards. The manuals will normally provide detailed checklists and questionnaires that are tools that can be used for identifying the internal controls that are applicable to a particular activity. The manuals also contain verification steps that should be followed in verifying the existence of controls in the practices followed. The manuals also provide guidance on other aspects of the audit such as quality assurance, preparation of working papers and reports. The use of audit manuals standardizes the processes to be followed in conducting an audit.

45. There is no consistent methodology followed and in the absence of audit manuals there is no assurance that the audit has been executed in a professional manner in accordance with the standards and best practice techniques. To improve the quality of auditing as well as to train the staff in adopting a professional approach to undertaking audit assignments, the development of these manuals is an urgent priority.


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XIII. TRAINING PLAN

46. It was observed that IAD capacity is low and internal audits undertaken to not meet professional standards. This is understandable given that the IAD is a new department and that the staff has no previous experience in internal audit. The staff has received very little training. IAD staff has only attended one workshop that was organized by the MEF internal audit department in 2007 and it is commendable that they have attempted to use the knowledge gained at this workshop in undertaking internal audit work. During meetings held with the internal audit group it was evident that they were very keen to receive training in internal audit and are reliant on donor support for this as there is no provision in the ministry’s financial budget for this training. An extensive training plan therefore needs to be developed and implemented over the coming years to enable the internal audit group to increase their knowledge, skills and competence.

47. An outline of a three year training plan is attached in Annex C of this report


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XIV. FINANCIAL BUDGET FOR IAD

48. IAD does not have its own budget nor do the other departments in the ministry have their own budget allocation. The budget for the whole ministry is administered by the Finance and Administration department of MOWRAM. IAD has to request approval from the Finance and Administration department to incur any expenses for activities it needs to undertake in carrying out its work plan. . After the payment request is approved by FAD the supporting documentation is submitted to the national treasury in MEF for payment. Although a work plan has been approved by the minister for IAD, in the absence of a budget allocation to IAD, execution of the work plan is dependent on the approval of FAD for funding the costs associated with the audit. This is particularly relevant for the audits of provincial offices as travel and accommodation costs are involved.

49. The audit staff is required to visit the provincial offices of the ministry to undertake audits and the current budget arrangements do not permit the audit staff to obtain a travel advance before the visit. IAD staff normally pays for their accommodation and travel costs out of their personal funds and after returning to the ministry submit a reimbursement claim for the amounts due to them. These claims are submitted to the national treasury for reimbursement and there are delays of up to two years sometimes in settling the claim. There have been instances where the full amount is not reimbursed to the employee with the paying officer retaining a percentage as a commission. IAD staff is reluctant to travel to the provinces because they have to outlay their personal funds on government business and risk losing a part of the personal funds outlaid.

50. Another problem IAD staff are faced with is the low rates paid for accommodation and meals. The current rate is $10 per night for accommodation and Riel 15,000 per day for meals. The IAD staff is not provided with an official vehicle for travel and often use their own vehicles to visit the provinces. The costs of fuel in such instances are paid for out of personal funds of the auditor and reimbursement claimed later. . The current allowances for accommodation and meals need to be revised to keep pace with the increases in the cost of living and inflation.

51. There is no provision in the budget for training of IAD officers. IAD has therefore to rely on technical assistance from the donors to make progress in this area.


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XV. REMUNERATION

52. Internal auditing is a specialized field and requires staff that is well qualified and experienced in modern management techniques, control systems, auditing methodologies and techniques, auditing standards and accounting and budgeting systems. Internal audit professional also need to be knowledgeable in information technology, quantitative analyses, business, risk management, engineering and law. As it is difficult for one individual to posses all this knowledge, depending on the nature of the activities conducted by the entity, collectively these skills and expertise must be available within the staff in the department. This is achieved by recruiting individuals with a mix of skills to the department. An option is to contract staff with specialized skills on a short term basis, but this may not be possible in the public sector.

53. The low salaries paid to government employees are a constraint to recruiting audit professionals to IAD. The low salaries may also encourage audit staff to resort to unethical or dishonest practices in carrying out their duties. The nature of auditing may require staff to be away from home for a considerable period causing disruption to family life. The small allowances given for away from home accommodation make it necessary for the auditors to stay in sub standard guest houses. Auditors often have to travel to the provinces by public transport which is inconvenient. In the current environment $10 per day for accommodation, Riel 15000 for meals and Riel 8000 ($2) per day for incidentals may need to be revised to be in line with inflation and increases in the cost of living.

54. With the establishment of the internal audit department there is a need for a few government vehicles to be allocated to this department for transportation to the provincial offices.


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XVI. CONCLUSION

55. MOWRAM has made good progress in establishing the internal audit department, appointing staff to the department, preparing a three year work plan and undertaking five audits covering fuel, state property and state budget. Audit reports have been issued and during discussions with the staff it was evident that the senior management and audit staff are keen to see the department improve the quality of the auditing services provided.

56. Currently the capacity to undertake audits of a professional standard is lacking mainly due to the fact that the staff has had no previous experience in internal auditing, many do not have the required educational qualifications and there has been very little training provided. The audit staff does not apply any generally accepted auditing methodologies, there are no internal auditing procedures manuals, no evaluations are performed of the adequacy of the internal control systems, and the approach to conducting an audit does not conform with modern internal auditing practice. There is an urgent need to train the staff in professional internal auditing methodologies and techniques and to place greater audit emphasis on the high risk activities such as infrastructure development and disaster relief operations. Work plans will also need to be more flexible to accommodate the unpredictable nature of emergency relief and IAD will have to be more proactive in undertaking audit coverage during the early stages of commencement of these projects. Given the nature of the operations carried out at this ministry there is enormous potential for internal audit to make a significant contribution towards achieving the ministry’s objectives.


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ANNEX A – OUTLINE OF INTERNAL AUDIT METHODOLOGY

1. Prepare entrance letter- to provide advance notice and courtesy to the auditee, (i.e. department/office to be audited) an entrance letter signed by the head of IAD is sent to the head of the department/office to be audited. The letter should include the date of starting the audit, estimated duration of the audit, names and positions of the staff in the audit team, objectives of audit and scope of work.

2. Hold entrance conference- the entrance letter is then followed up with a meeting with the department to be audited. During this meeting the objectives of the audit and other matters of interest are explained and discussed. In the case of the provincial branches it may not be convenient to arrange such a meeting due to their remote location. If possible the director of audit must attend this meeting and request that full cooperation and access to information, personnel and records be extended to the auditors during the course of the audit.

3. Conduct preliminary survey-this involves obtaining information about the function to be audited so as to enable the auditor to get a good understanding of the operations and procedures that are being carried out. Information relating to organization structure, position descriptions, accounting reports, other key reports, responsibilities assigned to the department, operating procedure manuals kept, policies, forms being used, budgets and delegations of authority are obtained and filed. A written summary of the sequence in which financial transactions are processed (or in both diagrammatic form by preparing flow charts and written narrative) must be prepared indicating the records/forms/registers/reports that are used/produced and the title of the officer carrying out the task.

4. Evaluate the internal control system- The purpose of the evaluation is for the auditor to determine whether key controls have been established in the existing practices and procedures followed. This is done by using an Internal Control Questionnaire (ICQ) (also called a checklist). By analyzing the existing procedures that have been documented the auditor would have obtained sufficient knowledge to provide answers to some of the questions. If this information is not available from the documented procedures, then the auditor may need to obtain answers to the questionnaire from the appropriate officer. At the end of this exercise controls that are existing and those that are missing will be detected.

When evaluating the systems of internal control the ICQ will assist in identifying important controls that are missing in the system. The procedures that have been documented by the internal audit team should also be analyzed to determine whether there are any unnecessary and excessive controls or instances of inadequate segregation of duties or absence of proper delegations of authorities.

5. Testing compliance with key controls- after the ICQ’s have been completed, some of the key controls that have been identified in the procedures must be checked to


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ensure that these controls are being followed. The testing is done by the auditor seeing evidence of the existence of the controls. The results of the completed ICQ must be recorded in the audit working papers.

6. Detailed Audit Programme (DAP)- this phase of the audit relates to verifying whether transactions have been correctly recorded in the key reports, procedures are being followed, authorizations are valid, revenues, expenditures and assets have been correctly accounted for and whether the operations are being conducted in such a manner that organizational objectives will be achieved.

Evidence of the audit tests conducted must be recorded in the working papers. Any breakdowns, shortcomings or departures from established policies and procedures will be recorded in the working papers, as a basis for inclusion in the audit report. Evidence to support the findings takes the form of photocopies of the documentation.

7. Quality Control – after steps 5 and 6 have been completed, this phase of the audit requires that the work of the audit team be reviewed by a senior member of IAD (director or deputy director) to ensure that all the work has been properly completed and the working papers are adequate and support the findings. The working papers must be prepared neatly and clearly and filed in a meaningful order so that the reviewer can conduct the review in an efficient and effective manner.

8. Audit report- at the conclusion of the audit, a report is prepared summarizing the findings and recommendations. The report is initially issued as a draft report for discussion purposes. The nature of the findings, the implications, the cause and the recommendation to fix the problem must be stated. The report must be balanced and if an area or operation has been well controlled and managed, this fact must be acknowledged in the report. Minor findings need not be included. After the draft report is discussed, a written response from the audited entity must be obtained, and the audited entity’s response included in the final report which is sent to the department audited. An executive summary (summary of the major items) of the final report has to be prepared and issued to the auditee as well as the minister.

9. Implementation and follow up on audit recommendations- usually after three or six months after the final report has been issued, there will be a follow up undertaken by internal audit to see whether agreed upon actions have been taken. The follow up may take the form of a discussion or written confirmation from the auditee, and when findings are significant more closer follow up is required within a short time of issuance of the report.


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ANNEX B – POLICY STATEMENT OF INTERNAL CONTROL

POLICY STATEMENT ON INTERNAL CONTROL

(Issued by the ministry of Economy and finance)

A. Background and Objective

The Law on Audit No CS/RKM/0300/10 dated 3rd March 2000 and the Internal Audit Sub-decree No. 40 ANK.BK dated 15th July, 2005, require all ministries and state organizations to take full responsibility for establishing internal control and internal auditing systems within their respective organizations.

This policy statement has been developed to assist all public sector institutions and enterprises and ministries to assess and improve their internal control and internal audit operations. Senior management as well as internal auditors needs to pursue this policy and have a greater understanding of internal control as a key management function to improve public sector accountability and administration.

This policy paper attempts to provide guidelines of the basic features of internal control that must be maintained in each organization. Flowing from this policy statement the Ministry of Finance and Economy intends to separately issue a more detailed accounting and internal control regulation that will cover the specific control procedures and accounting requirements that each ministry and organization must follow. The MEF will also provide ongoing technical assistance and training to the ministries and state organizations over the coming years to ensure that the policies, procedures and regulations relating to accounting, internal control and internal audit are being properly implemented and enforced.

B. Statement of Policy

It is the policy of the Royal Government of Cambodia that management of all ministries and public sector enterprises establish and maintain systems of internal control that are designed to ensure, as far as it is practical, that the objectives of the organization are achieved and comply with all applicable law.

C. Definition of internal control

Internal control is the composite total of all organizational and operating plans, systems, policies, procedures, and practices, as well as the attitudes and behavior of executive management and other employees, occurring within the organization and established by executive management, to achieve the basic objective of ensuring the disciplined and efficient conduct of the organization’s activities and operations in general, and specifically:

• To assure the organization’s assets are accounted for and safeguarded from losses of all kinds


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• To assure the accuracy and reliability of accounting and financial, operational and statistical information generated within the organization, and to assure the integrity of resulting financial reports produced for internal and external use

• To promote operating efficiency in all activities undertaken, and

• To inform and ensure adherence by all employees in the organization to prescribed laws, regulations, policies, procedures, plans and instructions

Internal controls are therefore mechanisms that provide assurance that financial records are accurate, that resources are efficiently used and adequately protected, risks are managed, laws are complied with and that objectives are achieved.

Internal auditing is part of the internal control system. It is a control tool that functions by independently measuring and evaluating the adequacy and effectiveness of all the other controls.

D. Types of internal control

Internal controls can be of three types:

Accounting controls deal with capturing, processing, accumulating, and reporting daily financial transactions. They minimize the chance for errors or fraud and ensure the accuracy of information. Examples of accounting controls are proper segregation of duties, independent verifications, and an appropriate system of authorization and/or approval.

Administrative controls are a higher level of management control. They inform management personnel about the performance of activities under their responsibility. Examples of administrative controls are organization structure, procedures, and performance reporting to management such as budgets and other comparisons of results with objectives to enable feedback, analysis and corrective action.

Operating controls are those controls related to non financial activities undertaken by non managerial staff. These are controls that are built into the operating/manufacturing processes to ensure goods are produced or services delivered in an effective and efficient manner.

E. Application of Policy

As guidance to management, the following features of internal control are considered to be essential and should be implemented in the operations conducted by each ministry and state enterprise:

• Compliance with the applicable code of conduct for employees/officers;

• Trustworthy personnel with the ability, training and experience required to perform satisfactorily the responsibilities assigned to them;

• A plan of organization with proper regard to the segregation of incompatible functions;

• Written delegations of authority with proper segregation of duties so that no one person is fully in charge of all aspects of a transaction. Segregation of duties involves assigning different people the responsibilities of authorizing


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transactions, recording transactions, and maintaining custody of assets with a view to reducing the opportunities to allow any person to be in a position to both perpetrate and conceal errors or fraud in the normal course of the person’s duties.;

• An adequate accounting structure at each operating unit including financial, budgetary and cost accounting techniques, a chart of accounts, and where applicable, charts depicting the flow of transactions;

• Procedures for controlling commitments, procurement, ordering, receiving and authorization of transactions;

• Procedures for capturing, recording, classifying, verifying and reconciling transactions in the accounting system. Accounting controls should be designed to achieve five basic objectives:

(a) Validation- the examination of documentation, by someone with an understanding of the accounting system, for evidence that a recorded transaction actually took place in accordance with prescribed procedures (b) Accuracy- the accuracy of amounts and account classifications is achieved by establishing control tasks to check calculations, extensions, additions, and account classifications (c) Completeness- the objective of completeness controls is to ensures that all transactions are initially recorded on a control document and accepted for processing once and once only. This is achieved by either sequentially numbering all documents or by preparing control totals for comparison before and after processing (d) Maintenance- the objective of the maintenance controls is to monitor accounting records after the entry of transactions to ensure that they continue to reflect accurately the operations of the business. The control system should provide systematic responses to errors when they occur, to changed conditions, and to new types of transactions (e) Physical security- it is important that all assets are adequately protected. Physical security of assets requires that access to assets and accounting records is limited to authorized personnel through the use of physical controls;

• Procedures for ensuring compliance with the applicable financial laws and regulations relating to revenues, expenditures, assets and liabilities. Where revenue is due, a sales invoice must be raised promptly at the time the amount is due and recorded as a debtor. Accounts receivable records should be accurate, complete, and maintained in a manner to indicate the length of time the debt has been outstanding. Procedures to follow up collection of old debtors should be in place;

• Detailed listings of all assets and liabilities including fixed assets, cash, bank balances, investments, debtors, inventories, loans and creditors. Control should be maintained to ensure that all assets exist and are in use for operations;

• Disposal of fixed assets should occur only after proper authorization has been given. Controls should ensure that the best possible terms are received for disposal;

• Transactions should be recorded in reasonable detail with promptness and accuracy;


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• Thorough review in the preparation of financial statements and other financial information;

• Procedures for managing and administering contracts and agreements;

• Regular monitoring by central, provincial, executive and departmental management;

• Review of the organization’s systems and controls by an extensive program of audits by the internal audit staff and external auditors.

F. Criteria for exemption

No exemptions are to be granted to ministries from establishing an internal audit function. However the Ministry of Economy and Finance will have responsibility for considering applications for exemption from establishing internal audit for certain institutions and state enterprises. In considering such applications, the following will be considered:

• The ability of the chief executive to ensure that proper internal control is maintained without the need for a separate internal audit function;

• The size of the institution or state enterprise taking into account the number of employees, the nature and value of assets managed and the agency’s cash flows;

• The nature of the risk profile of the institution or state enterprise, and

• Community interest.

G. Responsibility and Authority

The Secretary of State, Undersecretary of State, Secretary General, Deputy Secretary General, Director General or other equivalent executive positions and Directors of each operating department in the institutions, ministries and state enterprises have the prime responsibility for establishing and maintaining the organization’s internal control systems. In the provinces, the Governor of each province has the prime responsibility for establishing and maintaining the internal control systems. In the communes, the commune council is responsible for internal control.


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ANNEX C – THREE YEAR INTERNAL AUDIT TRAINING PLAN

The internal audit training plan has been prepared recognizing the fact that the internal audit group has had no previous training or knowledge of the profession of internal auditing. MAFF and MOWRAM have recently established an internal audit department and MRD has still to establish one. MRD has confirmed that they are in the process of drafting a sub-decree for establishing internal audit and it is expected that after the elections there will be a new department.

Currently there are 16 auditors in MAFF and another 16 in MOWRAM. This number excludes staff that is in non audit roles in the internal audit department.

The training plan provides for 14 workshops spread over the time frame June 2009 through June 2011with further ongoing involvement of the consultants in on the job training throughout the duration of the cluster TA.


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Topic Objectives and Description Outcomes Staff Level Estimated training days

Tentative Training Period

Budget

1. OVERVIEW OF INTERNAL AUDITING

1.1 Introduction to basic auditing concepts

This course is designed to assist the internal auditors understand the concept and philosophy of internal audit.

The course will cover :

1. Functions of management, accounting, external audit, internal control and internal auditing

2. Relationship between the internal auditor and external auditors.

3. Private vs. public sectors auditing

4. Benefits that flow from auditing

Increased understanding of function of auditing.

Auditors 2 days

Workshop

June 2009

2. LEGISLATION

2.1 Applicable financial management laws and regulations in Cambodia

This course will provide an overview of the key laws applicable including accounting, Audit Law, internal audit sub-decree, procurement, financial system law and Prakas defining role and responsibilities of the ministry and IAD

Familiarization with relevant financial management laws

Auditors 2 days

Workshop

July 2009


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3. INTERNAL AUDIT PLANNING

3.1 Development of an overall annual work plan for IAD

This course is related to management of IA function. It helps management of IAD to prepare the work plan to discharge its responsibilities focusing audit effort on the most important areas.


To appreciate risk assessment criteria

To provide guidance to management of IAD how to establish overall work plan

To obtain an understanding of risk based-multi-annual and annual audit work plan

Senior management will have a clear idea of the areas to be audited:

identify goals of IAD

prepare annual and multi-annual audit work plans based on risk assessment and analysis of activities

develop staffing plans, time budgets and financial budgets to carry out audit work schedules

Senior management

2 days August 2009

3.2 Preparing audit plan for sample of individual audit assignments

This course will provide supervisor and senior staff of IAD with practical guidelines to prepare a proper audit plan for the audit assignment.


To specify audit objectives and scope of work

To understand how to gather information and identify risks associated with the activities to be audited

To develop effective audit programs

Ability to prepare an effective audit plan for each audit assignment in accordance with internal auditing standards

Senior management

Ongoing

September2009


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4. INTERNAL AUDITING METHODOLOGY

4.1 Introduction to methodology and techniques of internal auditing

This course discusses the methodologies and techniques of internal auditing -- the tools internal auditors use to gather and evaluate information on internal control, testing, compliance and performance

Be able to:

• understand the techniques of internal auditing including standardized methodologies

• perform the audit assignment to a professional standard

All 2 day workshop and ongoing training assistance

September 2009

4.2 Specific audit procedures

This course will cover:

• Generally accepted audit methods and tools including sampling, quantitative methods, financial analysis, correlation, computer auditing and computer-assisted auditing.

• Communication with staff, relations with external auditors, and relations with management of ministries, institutions and senior management.

Increased capacity resulting in :

• application of effective and cost effective methods of internal auditing

• more effective interaction with inter ministerial management and employees and with external auditors

All 2 day workshop and ongoing training assistance

October 2009

4.3. Documenting procedures

This course will show the staff how to document a system that is to be audited

Staff will obtain a sound understanding of the steps and procedures that are being followed in recording a transaction or carrying out an operation

Ongoing with ministry

November 2009

5. INTERNAL CONTROL EVALUATION

5.1 Understanding principles of internal control

These sessions will provide supervisors and senior staff of IAD with a sound understanding of the principles of internal control that are required in systems.

Be able to identify controls that are existing and those that are missing in any activity

All 2 day workshop

November 2009

5.2 Review and Evaluation of Internal Controls

This component will provide supervisors and senior staff of IAD with an understanding of applying the tools required for evaluating the internal controls systems.

Main objectives are to be able to identify existing and missing controls by

• documenting existing procedures’

• developing internal control checklists

• evaluating adequacy of internal control systems

• verifying application of existing controls

• summarizing weaknesses

• suggesting improvements

Be able to review and evaluate the internal controls presented by each organizations and/or each departmental agency.

Audit teams

2 days workshop and ongoing

assistance

December 2009


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6. ON THE JOB TRAINING

Assist audit teams in conducting field audits as per work plan:

Procurement

Payments cycle and

Revenue management

Loan projects

The objective of this training component is to provide the audit team with practical experience in conducting an audit from planning through reporting using the methodologies and tools developed in the audit procedures manuals

Auditors will be capable of conducting audits to a professional standard

Audit teams

Ongoing with each ministry

July 2009 through March 2011

7. REPORTING

7.1 How to prepare an effective audit report

This training course will provide elements/contents and format of internal audit reports based on best practice and internal audit standards.


• To understand concepts of and guidelines in preparation and issuance of audit report.

• To provide for quality control procedures before an audit report is issued

• To present audit reports in line with internal auditing standards and best practice

IAD is able to prepare a timely and high quality internal audit report.

Senior management

and audit teams

2 day workshop and ongoing with ministry

September 2009 through June 2011

7.2 Activity report of Department

This course will provide IAD with practical guidelines for preparing activity reports.


• To obtain knowledge on format, contents and frequency of activity reports for internal audit department

• To understand elements of an activity report in line with internal auditing standards and best practices.

Activity report of IAD will be produced for top management on a regular and timely basis.

Senior management

Ongoing with ministry

August 2010


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8. CODE OF ETHICS AND INTERNAL AUDIT STANDARDS

8.1. Understanding code of ethic and internal auditing standards

(Part 1) -Overview of Internal audit standards

This course will cover principles and rules concerning code of ethics for internal auditors and overview of internal auditing standards.


• To understand principles and rules of code of ethic and processes for compliance

• To gain an overall understanding and application of internal auditing standards

• Internal auditors are able to apply code of ethics in managing IAD and conducting internal audit work.

• Internal auditors have a good understanding of internal audit standards.

All 1 day workshop

October 2010

8.2. Internal auditing standards

(Part 2) Performance of Audit Work

This course will provide internal auditor with technical know-how to conduct internal audit in an effective manner and in compliance with internal auditing standards.

Main objectives are to enable internal auditors to understand different steps/phases in conducting internal audit work such as:

• planning the audit,

• examining and evaluating information,

• communicating results and

• following up recommendations

Internal auditors are able to appreciate and apply the standards on “Performance of Audit Work” in conducting internal audit works.

All 3 days

workshop

October 2010


(Part 3) - Scope of Work and Professional Proficiency

The scope of work and elements of professional proficiency in conducting audits will be discussed in this course.


• To ensure that IAD maintains professional proficiency in delivering an internal auditing service

• To enable management of IAD to acquire a sound understanding of professional standards that is to be maintained.

• Internal audit coverage will be appropriate and in accordance with the internal auditing standards.

• Management of IAD understands concepts of professional proficiency and consistently applies it in delivering auditing services

All staff 2 days

workshop

November 2010


(Part 4) - Management of Internal Audit Department

This course will train the top management team in audit administration and managing the internal audit activity.


• To provide top management of IAD with knowledge on how a professional internal auditing practice is managed.

• To ensure that internal audit activities are managed in accordance with the standards for the professional practice of internal auditing.

Management of IAD effectively manages its internal audit operations and is able to strengthen and/or maintain the quality of audit work.

Senior managers of IAD

2 days

workshop

November

2010


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9. ACCOUNTING AND FINANCIAL MANAGEMENT

9.1 Fundamentals of accounting and financial management

This course will explain how a good accounting system works, objective and interpretation of financial statements, accounting policies and disclosure, budget formulation and execution, accounting systems used by the ministry and information technology security and information protection


• To understand the accounting system and financial statements and to identify weaknesses in the system

• To be able to determine the reliability and meaningfulness of the financial statements.

Ability to evaluate effectiveness of financial management systems used and provide recommendations for improvement

All staff 3 days

workshop

January 2011

10. PROCUREMENT

10.1 Procurement Regulations and bidding arrangements

This topic is related to the legislation and procedures that have been established by the MEF to manage the procurement activity.

The main objectives are to:

• Understand the key provisions stipulated in the procurement legislation and regulations

• Understand the audit procedures to be adopted to ensure that the legislation and procedures have been adhered to.

• Understand the processes to be followed in requesting bids for goods, works, and services

Ability to:

• evaluate compliance

• check fraud and corruption

• improve transparency

• check eligible suppliers

• prepare expression of interest

• check the member of procurement committee and the roles and responsibilities of its members

• check for conflicts of interest

• Understand how to procure goods, works and services

All

2 days

workshop

March 2011

10.2 Contract administration and management

The key objective is to increase the understanding of the audit staff in the risks that exist in contracts.

Staff will be able to conduct proper and effective audits of contracts

All 2 days workshop

May 2011



APPENDIX 9 – ASSESSMENT OF INTERNAL AUDIT FUNCTION MAFF


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MINISTRY OF AGRICULTURE, FORESTRY AND FISHERIES (MAFF)

ASSESSMENT OF INTERNAL AUDIT FUNCTION IN MAFF

Prepared by Nihal Fernandopulle

31 July 2008


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CONTENTS

I. INTRODUCTION......................................................................................................1

II. MANDATE ...............................................................................................................2

III. STAFFING............................................................................................................9

IV. IAD ANNUAL WORK PLAN ..............................................................................10

V. AUDIT METHODOLOGY ...................................................................................12

VI. AUDIT REPORTING ..........................................................................................13

VII. COMPLIANCE WITH INTERNAL AUDITING STANDARDS..............................15

VIII. MEF INTERNAL CONTROL POLICY STATEMENT..........................................16

IX. INTERNAL AUDIT SUB-DECREE .....................................................................17

X. COORDINATION BETWEEN MEF, NAA AND MAFF........................................18

XI. AUDITING PROCEDURES MANUALS..............................................................19

XII. TRAINING PLAN................................................................................................20

XIII. FINANCIAL BUDGET FOR IAD.........................................................................21

XIV. REMUNERATION ..............................................................................................22

XV. CONCLUSION ...................................................................................................23


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I. INTRODUCTION

1. Article 41 of the Audit Law of 2000 requires each ministry to establish an internal audit function in accordance with the sub-decree for internal audit No 40/ANK/BK (passed on 15 February 2005). Sub-decree No 105 established the internal audit department in MAFF on 22 August 2005.

2. The mandate (Prakas) issued for establishing internal audit in the ministry is strong, and encompasses the responsibilities stipulated in the internal auditing sub-decree. Essentially, the mandate permits the internal audit department to undertake financial, performance and compliance audits. It also authorizes the Internal Audit Department (IAD) to conduct evaluations of the adequacy of the internal control systems; the reliability of financial and operational reports; the adequacy of the systems in place to safeguard assets; and the economy and effectiveness of resource utilization. The mandate requires the IAD to coordinate the internal audit work with the National Audit Authority (NAA) and to submit copies of internal audit reports to the NAA.

3. Internal auditing is a completely new activity in Cambodia and there is, therefore, little understanding of the concept and its importance. Moreover, the public sector finds it difficult to attract internal auditors, given the low rates of remuneration offered. The lack of qualified accountants and auditors in the country further exacerbates the issue.

4. IAD was established in August 2005. Most of its 22 staff were transferred to IAD from other areas of the ministry and have had no previous exposure to internal auditing. A few of the officers transferred had worked previously in the Finance and Administration Department of MAFF (FAD). The ministry has not had the benefit of any technical assistance and has commenced a program of audit coverage with little assistance from the Ministry of Economy and Finance (MEF) IAD. Since its inception, the department has developed a work plan and in 2007 completed forty audits.

5. There are many weaknesses in the IAD. There are no internal audit methodologies in place, the department does not have any auditing procedures manuals to guide them, work is undertaken without adequate planning or risk assessment, and the tasks carried out are more in the nature of an inspection function rather than what is expected of internal audit. There is no evaluation of the internal control systems. There is no capacity in the IAD. A major investment in training is required to help this group reach professional competence. This opens an opportunity for donor technical assistance.


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II. MANDATE

6. Sub-decree No. 105 established IAD on 22 August 2005. The organization structure of IAD can be found in Chart 1 (below). The IAD is responsible for carrying out independent audit reviews of various activities undertaken by the ministry. IAD is required to conduct its audit work in accordance with the Internal Auditing Standards and Professional Code of Ethics, issued by the Ministry of Economy and Finance. Prakas No. 105 assigns responsibility to IAD for implementing the Sub-decree No 40 dated 15 February 2005 on the Organization and Functioning of Internal Audit.

7. Prakas No. 116 dated 20 March 2006 has assigned specific responsibilities to the internal audit department as follows:

• Prepares an annual audit work plans and submits to the head of ministry for review and approval;

• Reviews management's functions, activities, operations and programs within the organization at appropriate intervals to determine their proper implementation of planning, directing, organizing and controlling in accordance with guidelines, policies, and procedures, and in a manner that is consistent with the organization’s objectives;

• Determines the appropriateness, adequacy and efficiency of the internal control systems for accounting, administration and operational activities;

• Reviews the reliability, timeliness and transparency of financial information and operations including the methods used to identify, measure, classify and report that financial information;

• Reviews the existing systems to ensure compliance with policies, plans, laws, regulations that have significant influence over operations and reports. Recommends for improvement and changes in case of improper implementation;

• Reviews the correctness of the management, maintenance and custody of property;

• Evaluates the economy and effectiveness of resource utilization and recommends improvement on implementation of operations;

• Reviews the operation of programmes and capital expenditure against work results positively or negatively toward the set objectives and plans;

• Participates in planning, developing, implementing and operating significant computerized systems to ensure that:

o users’ needs are clearly determined;

o appropriate internal controls are incorporated into the computer systems;

o appropriate steps are taken to test the computer systems; and

o records of computer systems are complete and accurate;

• Performs audits on computer systems in fiscal periods and evaluates significant data processing systems after installation to determine whether these systems meet the planned objectives;


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• Reviews the procedures and practices to ensure that measures are laid out to prevent frauds. If a fraudulent act occurs, the internal controls would be able to detect it in a timely manner;

• Reviews the implementation of guidelines and management of the Royal Government regarding attitudes and ethics of civil servants;

• Coordinates the internal audit work with the National Audit Authority (NAA) to ensure the adequacy of scope of work and to reduce the overlap of work.

• Reports to the Minister of MAFF and sends the internal audit report at the conclusion of the audit to NAA in relation to:

o Improvements to activities based on the internal auditors’ recommendations;

o Audit activities should be based on risks and economy, efficiency and

o effectiveness of operations;

o The internal auditors should coordinate with NAA to avoid overlapping audit work. In case of uncertainty, NAA shall review and re-audit;

o Internal audit plan shall be appropriate, clear and sufficient; and

o Obstacles in obtaining information and in access to records.

• Evaluates corrective plans or actions on IA’s findings. If these corrective actions are not appropriate, re-recommend so that corrective actions can be acceptable;

• Provides appropriate and adequate capacities to monitor corrective actions based on recommendations;

• The director of IA shall report directly to the leader of the ministry;

• Prepares audit reports and conclusions and submits to each unit under the Ministry responsible for implementing the recommendations.;

• Carries out all other duties assigned by the ministry.

8. The mandate is comprehensive and places no restrictions on the scope and extent of audit work that is to be undertaken. The mandate conforms to the requirements stated in the internal audit sub-decree of 15 February 2005.


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Chart 1: Organization structure of IAD in MAFF

Director

Administration and Personnel Office

Audit 2 Office

Audit 1 Office

Audit 3 Office


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9. Prakas No 116 on the organization and functioning of the IAD requires that four offices be established: Office of Administration and Personnel; Office of Audit 1; Office of Audit 2 and Office of Audit 3.

10. The Office of Administration and Personnel has the following responsibilities:

• Controls the flows of administrative, technical and training documents;

• Prepares short-term, medium and long-term planning for the Department;

• Prepares programmes and work plans for department directors;

• Prepares annual reports of the department;

• Maintains the statistics of civil servants and prepares documents for promotion, demotion, facilitation of duties of civil servants, rewards, payrolls and social affairs and human resources development;

• Coordinates audit fieldwork;

• Ensures the normality of administration, security, order and strengthens the implementation of the department’s internal regulations;

• Initiates expenditure plans and monitors the annual budgets of the department;

• Maintains and processes accounting work, maintains registers of moveable materials, immoveable materials, inventories and conducts inventory counts of the department;

• Carries out other tasks assigned by the department.

11. Audit 1 Office is responsible for audits of:

• Departments and sub-units;

• Administration Department;

• Personnel and human resources development department;

• Forestry administration;

• Agriculture promotion department;

• Agri-motor department; and

• Units having planned expenditure budgets from credits and grants.

Administrative public institutions and public entities

• Research and Agriculture Development Institute;

• Fisheries Company;

• Chub Rubber Plantation; and

• Beung Ket Rubber Plantation.


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Provincial/ Municipal Agriculture Offices

• Kandal;

• Svay Rieng;

• Prey Veng;

• Kampong Cham;

• Kratie;

• Ratana Kiri;

• Mondul Kiri;

• Stueng Treng; and

• Other duties assigned by the department.


• Departments and sub-units

• Secretariat;

• Planning and Statistics Department;

• International Cooperation Department;

• Fisheries Department;

• Agro-industry Department; and

• Information and Document Centre.


• Cambodian Rubber Research Institute;

• National School of Agriculture – Kampong Cham;

• Agro-materials company;

• Chamka Andong Rubber Plantation; and

• Memot Rubber Plantation.


• Phnom Penh;

• Takeo;

• Sihanoukville;

• Kampot;

• Kep;


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• Koh Kong;

• Kampong Speu;

• Kampong Chnang; and



• Departments and sub-units

• Rubber Plantation Department;

• Agro-legislation Department;

• Accounting and Finance Department;

• Agronomy and Agricultural Land Improvement Department and

• Animal Health and Production Department.


• Royal University of Agriculture;

• Prek Leap National School of Agriculture;

• Snual Rubber Plantation;

• Krek Rubber Plantation; and

• Peam Cheang Rubber Plantation.


• Battombang;

• Siem Reap;

• Kampong Thom;

• Preah Vihear;

• Oddor Mean Chey;

• Banteay Mean Chey;

• Pailin;

• Posat; and


14. Each audit office has the following duties:


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• Cooperates and prepares and submits annual audit plans to the director for review and approval;

• Conducts audits on functions, structures, visions, strategies, programmes, measures, regulations, means and work delegations of units based on updated procedures, guidelines and objectives;

• Conducts audits on implementations of laws, regulations, accounting and finance, budgetary execution and good governance in financial transactions, in particular generation and management of income, budget expenditures, financing, debts and state property. Conducts audits on all complaints made by units under MAFF;

• Reviews audit reports regularly as a basis for monitoring the development of the implementation of recommendations;

• Provides conclusions, recommendations and reports to the director of IAD;

• Regularly monitors legal documents and reform activities of public accounting and finance of each unit;

• Coordinates with relevant units and institutions in order to generate sufficient and accurate information bases;

• Carries out other tasks assigned by the Department.

15. The Prakas also requires each office to be led by a manager and supported by a number of deputy managers as necessary. The audit offices 1, 2, and 3 have not been staffed as yet with any manager level positions and the offices are run by staff of deputy chief status. The two deputy directors are not in charge of any of the three audit offices or the administration office and the director uses the deputy directors to assist him in the daily operations of the department as he thinks suitable.

16. As required by Sub-decree No. 40 for the Organization and Functioning of Internal Audit, the head of internal audit has director level status and reports directly to the minister. There is no audit committee in MAFF. The Internal Auditing Standards that were issued by the MEF permits the head of the ministry, if he so wishes, to establish an audit committee. The internal auditing sub-decree, however, does not require an audit committee to be established.


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III. STAFFING

17. The IAD organization structure provides for 22 positions, led by a director and supported with two deputy directors, one manager, nine deputy managers, eight audit staff and one driver. The director position is currently occupied by an officer who was previously with the Finance and Administration department.

18. Article 5 of the sub-decree No. 40 on the Organization and Functioning of Internal Audit requires that appointees to the position of director, deputy director, manager or deputy manager of the department must be civil servants possessing a recognized higher education degree or equivalent qualifications in accounting, economics, business and finance. Two deputy chiefs although they possess degrees, the degrees do not meet the requirements as stated in the internal audit Sub-decree of February 2005. One audit officer does not have the educational qualifications stated in the internal audit Sub-decree and there are three audit officers who possess degrees that are not recognized in the internal audit Sub-decree.

19. The experience criteria established in the internal audit sub-decree for senior audit staff (director to deputy chief range) is five years in financial management or public administration. All IAD staff meets these criteria.

20. Internal auditing involves reviewing the adequacy of the internal control systems in the ministry, assessing the risk environment, the adequacy of financial reporting, the measures in place for safeguarding assets as well as undertaking reviews of the efficiency and effectiveness with which resources are being used. Internal auditors need to have a good understanding of the principles of management, internal control, accounting systems, accounting standards, internal auditing standards and methodologies, information technology, quantitative methods, and human resources management to be able to perform effectively in their jobs. This is a reason why the internal auditing standards and the internal auditing sub-decree require auditors to posses an educational degree in these disciplines. Training audit staff becomes more difficult if they do not have a basic educational background in these subjects.


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IV. IAD ANNUAL WORK PLAN

21. The IAD prepares an annual work plan. The IAD does not prepare a three year rolling work plan. A summary of the entities to be audited, as per the annual work plan for 2008 is shown below:

Auditee 2008

Number of departments 8

Number of provincial/ municipal offices

24

Administrative public institutions 5

Public enterprises 5

Total 42

22. The eight departments in the work plan above relate to the head office in Phnom Penh. The remaining offices are based in the provinces. The table below summarizes the number of auditable units that have been allocated to each of the audit offices for the year 2008:

Office Departments Provincial

and municipal

Administrative

Public

Institutions

Audit 1 6 8 4

Audit 2 6 8 5

Audit 3 5 8 5

Total 17 24 14

23. The annual work plan for 2008 covers 42 of the 55 units that comprise MAFF. In 2007 the IAD had completed 40 audit assignments which are very commendable. In 2006 nineteen of the twenty planned audits were completed. This would indicate that the audit staff is being used effectively. There is however scope to improve the quality and the focus of the audits.

24. The work plan was prepared without a proper risk assessment of the different activities that the ministry is undertaking. The preparation of a risk based audit plan is essential if audit effort is to be directed to those areas that are considered high risk. This is especially pertinent given the limited resources in IAD. The audit work plan should also, wherever possible, be


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aligned with the overall priorities of the ministry. This will ensure internal audit contributes to the achievement of the ministry’s objectives.

25. The current work plan allocates responsibility for the audits of all the provincial/ municipal offices and head office departments that fall under the ministry to one of the three audit offices. The organizational units have been identified for audit coverage on a one, two and three year cycle. The focus of audit coverage is driven more by attempting to audit as many units as possible rather than ensuring that activities that embrace the highest risks are subject to audit.

26. When preparing the work plan, each activity should be categorized as high, medium or low risk. A simple model that can be used is to develop a rating system for the key characteristics that need to be recognized for risk determination. Some of the characteristics that should be rated are inherent risk in the ministry’s activities, quality of management, stability of systems, materiality of transactions and tone at the top and commitment to establishing and enforcing a sound governance framework for transparent and control driven procedures. Audit frequency coverage is then developed to correlate directly with risk levels. High-risk activities are the most important to identify, as these become the focus of the audit coverage. High risk activities are normally audited on an annual or semi-annual basis, whilst those considered medium or low risk can be covered on a two or three year cycle, respectively. This process ensures that, generally, all activities are subject to audit coverage over a three-year cycle.

27. The thrust of the ministry’s responsibilities over the coming years is directed on development expenditures. The Agricultural Sector Strategic Development Plan 2006-2010 has estimated a sum of US$ 153 million to support the implementation of programs and projects. In the recurrent budget revenues for 2007 were estimated at US$ 8.9 million and expenditures were estimated at US$ 10.4 million. When developing a work plan, audit emphasis will need to be placed on reviewing the operations in these areas. The bulk of the ministry’s expenditure is planned on development. In this context, internal audit can add value by ensuring that sound control frameworks have been developed to manage these activities efficiently and effectively. The current work plan, however, has no time budgets or links established with the available man-days. The costs of undertaking the annual work plans are also not estimated, and not adequately reflected in the financial budget bids of the department.

28. The current work plan is approved by the director of audit. In order to make the work plan more effective it is recommended that the work plan be approved by the minister. The internal auditing standards too require that the work plan be approved by the head of the institution.


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V. AUDIT METHODOLOGY

29. IAD does not have an appropriate internal audit methodology to enable it to conduct its work in accordance with generally accepted internal auditing standards. In the absence of a formal methodology, audit staff is basing their work on individual perceptions of how the audits need to be undertaken. The staffs need guidance and the tools to carry out an audit. This is especially important given that staff has not received any training in internal audit and no staff has had any previous internal auditing experience.

30. Indeed, the main challenge facing IAD is to improve the capacity of the existing staff. This will require the development and implementation of an intensive training plan that covers the theory and application of modern internal auditing methodologies.


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VI. AUDIT REPORTING

31. A review of a sample of internal audit reports revealed that the format and presentation of the reports was inappropriate. There was considerable scope also to improve the quality of the findings.

32. The internal audit report is presented under the following headings:

• Covering letter from Director General of MAFF to the auditee;

• Cover letter from IAD director to the minister;

• Work activities of auditee;

• State property management; and

• Financial management.

33. The following were noted: There is very little reporting on findings. The audit report issued mainly contains a substantial amount of statistical data relating to the areas audited. There is no audit work done to arrive at an opinion nor is the data verified. The current approach of restating statistical data in the audit report is not appropriate or relevant.

34. There is no audit plan established to enable the purpose of the audit to be accomplished. The audit teams have not received any training and they do not posses enough theoretical or practical knowledge of modern internal auditing. No standard audit programs are used when conducting an audit and there is an urgent need for training the staff in modern internal audit techniques and methodologies. In the absence of internal audit procedures manuals, there is no guidance available to the audit staff in conducting an audit in accordance with generally accepted auditing practices.

35. The reports do not have any specific recommendations for improving the internal control systems or performance. They also add little value for strengthening the management controls systems, except that the visit by the audit team acts as a deterrent and may prevent staff from participating in any improper actions in the belief that it will be detected.

36. In the audit of state property the work currently performed by the internal auditors is more in line with the nature of inspections, which are primarily directed on verifying supporting documentation for payments and the existence of physical assets.

37. There is an urgent need to improve the quality of the audit reports issued. To be effective, the report must make recommendations for improving the internal control systems, for safeguarding the assets, for improving the reliability and timeliness of the financial reports and for improving the efficiency and effectiveness by which resources are used. The audit staff is currently not capable of forming proper conclusions on these matters. A comprehensive training program (recognizing both in-house and on-the-job training) is necessary to accomplish this objective.

38. practice the IAD director submits the internal audit report to the minister for review and approval before sending the report to the unit or department head audited. The minister may add some additional comments in a cover letter that is attached to the audit report and then submitted to the auditee. There are occasions when the audit report is routed through the


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Director General who prepares a cover letter and then forwards the report to the auditee. This practice has been adopted to provide more clout and authority to the auditors’ recommendations.


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VII. COMPLIANCE WITH INTERNAL AUDITING STANDARDS

39. The MEF has issued a comprehensive set of internal auditing standards that are based on the International Internal Auditing Standards for the Professional Practice of Internal Auditing. MEF Prakas No. 405 issued the standards, together with the code of ethics for internal auditors on 31 May 2006. The standards cover:

• Independence;

• Proficiency and professional care;

• Scope of work;

• Performance of audit assignments;

• Management of the internal auditing function.

40. The standards, if applied, will contribute significantly to improving the professionalism of internal audit group. The audit staff, however, have very little knowledge or understanding of the significance of these standards and of the manner in which they should be implemented.

41. Any future training plans must focus on training the staff in implementation of these standards.


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VIII. MEF INTERNAL CONTROL POLICY STATEMENT

42. The MEF issued Prakas No. 1109 on 3 November 2006. It requires each ministry and government institution to establish and maintain specific internal controls in conducting their operations. The controls outlined in this policy statement are broad and cover accounting, delegations of authority, segregation of functions, segregation of duties, reconciliations, procedures for controlling commitments, procurement, ordering, receiving and authorization of transactions and procedures for capturing, recording, classifying, verifying and reconciling transactions in the accounting system. This policy statement assigns responsibility for establishing and maintaining the control systems to the management of each ministry and public enterprise.

43. This policy statement was explained to the IAD staff at a workshop arranged by the MEF IAD in 2007. There is still, however, a lack of understanding in IAD of how these controls need to be implemented in the procedures and systems that are being followed. Line management at the ministry also has very little understanding of this policy statement on how internal control systems must be designed and operated. As a result, IAD is not being guided by the requirements of this policy statement when conducting audits.

44. IAD must place greater focus on the control issues outlined in this policy statement and make an evaluation of the application of these controls when conducting audits. More detailed internal control checklists need to be developed by MEF to enable a comprehensive evaluation to be undertaken of the internal control systems in existence. In stage 2 of the Public Financial Management Reform Program (PFMRP) which is currently in progress there is provision for improving the accounting and internal control systems of the government. Since there are no written procedures kept by the departments, IAD will need to document the existing processes and systems as a starting point to undertake an evaluation of the internal controls in the procedures adopted.


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IX. INTERNAL AUDIT SUB-DECREE

45. MEF issued the internal audit sub-decree No. 40 on 15 February 2005. The sub-decree was issued as a requirement of article 41 of the Law on Audit of 2000. Article 41 requires each institution, ministry and public enterprise to establish internal audits, and requires an internal audit sub-decree to be issued for the organizing and functioning of internal audit.

46. There is scope to increase the ministry management’s understanding of the key features of the sub-decree. The sub-decree assigns responsibility to the ministry management for establishing and maintaining the internal control systems. Generally, there is a lack of sufficient understanding within management of the underlying concepts of internal control. These concepts should be included in the design of processes/ procedures for recording financial transactions. This ensures the production of reliable reports and safeguarding assets. IAD management, working closely with senior management, will need to conduct an awareness program within the ministry on the concepts of internal control and on the role and responsibilities of internal audit in relation to the control systems.

47. In addition to its internal audit activity, MAFF also has an inspection activity. The work carried out by the inspection group is mainly confined to requests made by the minister on forestry and fishing issues, often in the nature of investigations. The inspection department was established long before the establishment of internal audit. There is benefit in having the inspection group continue operations as there are cases relating to illegal logging and breaches of fisheries regulations and concessions which can be more appropriately investigated by the inspection group rather than internal audit.


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X. COORDINATION BETWEEN MEF, NAA AND MAFF

Article 41 of the Law on Audit of 2000 requires each ministry and state institution to submit copies of all internal audit reports to the NAA. In 2008 five audit reports have been produced by IAD and copied to the NAA as required by the law. MAFF has also submitted a copy of the annual work plan for 2008 to NAA. The purpose of submitting the work plans is to ensure that duplication of audit work is avoided and that the plans recognize the key areas that need to be prioritized for audit coverage. Closer coordination of the audit work to be undertaken by NAA and IAD will result in more effective use of audit resources.

There is no process established between NAA and the ministry for: coordinating the respective work programs of IAD and NAA; analyzing audit report findings; determining follow up action to be taken on outstanding audit issues; networking arrangements; and cooperation and sharing knowledge on audit matters of interest.

Under Stage 2 of the Public Financial Management Reform Program (PFMRP) the IAD in MEF has been assigned some responsibilities for assisting the line ministries in developing capacity in internal audit. The responsibilities include:

• Completion of coverage and adequateness of internal audit departments in line ministries;

• Improve mechanisms to ensure effective response to audit findings in budget entities;

• Require internal audit departments to submit annual plans based on risk assessment criteria recommended by MEF for audit work plans;

• MEF reviews adequacy of sample of internal audit reports and provides constructive suggestions;

• Assist in organizational development of line ministries internal audit departments.

48. No formal processes have yet to be established by MEF IAD and IAD of the line ministries for implementing this activity. MEF IAD is planning to establish these processes over the coming months.


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XI. AUDITING PROCEDURES MANUALS

49. There are no auditing procedures manuals available for use by IAD when conducting audits. Audit manuals provide valuable guidance to staff in completing each step of the audit process. The manuals are particularly useful for training staff in the audit methodologies that have been adopted by IAD and in enforcing the auditing standards. The manuals will normally provide detailed checklists and questionnaires that can be used for identifying the internal controls that are applicable to a particular activity. The manuals also contain steps that should be followed in verifying the existence of controls in the practices followed. The manuals also provide guidance on other aspects of the audit such as quality assurance, preparation of working papers and reports. The use of audit manuals standardizes the processes to be followed in conducting an audit.

50. There is no consistent audit methodology followed and, in the absence of audit manuals, there is no assurance that audits are executed in a professional manner in accordance with the standards and best practice techniques. To improve the quality of auditing, developing these manuals is an urgent priority.


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XII. TRAINING PLAN

51. According to observations, IAD capacity is low and internal audits undertaken do not meet professional standards. This is understandable given that the IAD is a new department and that the staff has no previous experience in internal audit. Except for a one day workshop held by MEF IAD in 2007 the staff has not received any other training. It is commendable that they have attempted to use the knowledge gained at this workshop in undertaking internal audit work. The internal audit group has indicated that they are very keen to receive training in internal audit, but are reliant on donor support for this, as there is no provision in the ministry’s financial budget for this training. An extensive training plan, therefore, needs to be developed and implemented over the coming years to enable the internal audit group to increase their knowledge, skills and competence.


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XIII. FINANCIAL BUDGET FOR IAD

52. IAD does not have its own budget, nor do the other departments in the ministry have their own budget allocation. The budget for the whole ministry is administered by the Finance and Administration Department (FAD) of MAFF. IAD must request approval from FAD to incur any expenses for activities it needs to undertake in carrying out its work plan. After FAD approves the payment request, the supporting documentation is submitted to the national treasury in MEF for payment. In the absence of a budget allocation to IAD, execution of the work plan is dependent on the approval of FAD for funding the costs associated with the audit. This is particularly relevant for the audits of provincial offices, as travel and accommodation costs are involved.

53. The audit staff is required to visit the provincial offices of the ministry to undertake audits. The current budget arrangements, however, do not permit the audit staff to obtain a travel advance before they commence the visit. The internal auditors normally pay for their accommodation and travel costs out of their personal funds, and submit a reimbursement claim once they return. These claims are then submitted to the national treasury for reimbursement. There can be considerable delays in settling the claim. There have also been cases where the employee does not receive the full amount because the paying officer retains a fairly high percentage as a commission. IAD has been provided with two motor vehicles and a driver to enable them to undertake visits to the provinces.

54. Another problem IAD staff are faced with is the low allowances paid for accommodation and meals. The current rate is $10 per night for accommodation and Riel 15000 per day for meals. The current allowances for accommodation and meals need to be revised to keep pace with the increases in the cost of living.

55. There is no provision in the budget for training of IAD officers. IAD has therefore to rely on technical assistance from the donors to make progress in this area.


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XIV. REMUNERATION

56. Internal auditing is a specialized field and requires staff that are well qualified and experienced in modern management techniques, control systems, auditing methodologies and techniques, auditing standards and accounting and budgeting systems. Internal audit professionals also need to be knowledgeable in information technology, quantitative analyses, business, risk management, engineering and law. As it is difficult for one individual to posses all this knowledge, depending on the nature of the activities conducted by the entity, collectively these skills and expertise must be available within the staff in the department. This is achieved by recruiting individuals with a mix of skills to the department. An option is to contract staff with specialized skills on a short-term basis, though this may not be possible in the public sector.

57. The low salaries paid to government employees are a constraint to recruiting audit professionals to IAD. The low salaries may also encourage audit staff to resort to unethical or dishonest practices in carrying out their duties. The nature of auditing may require staff to be away from home for a considerable period, causing disruption to family life. The small allowances given for away from home accommodation make it necessary for the auditors to stay in sub-standard guesthouses. Auditors often have to travel to the provinces by public transport, which is inconvenient. In the current environment $10 per day for accommodation, Riel 15000 for meals and Riel 8000 ($2) per day for incidentals may need to be revised to be in line with increases in the cost of living.


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XV. CONCLUSION

58. MAFF has made good progress in establishing the internal audit department, appointing staff to the department, preparing an annual work plan and undertaking forty audits in 2007. Audit reports have been issued and, during discussions with the staff, it was evident that the senior management and audit staff are keen to see the department improve the quality of the auditing services provided.

59. Currently, the capacity to undertake audits of a professional standard is lacking. This is because staff has had no previous experience in internal auditing and there has been very little training provided. The audit staff do not apply any generally accepted auditing methodologies, there are no internal auditing procedures manuals, no evaluations are performed of the adequacy of the internal control systems, and the approach to conducting an audit does not conform with modern internal auditing practice.

60. There is an urgent need to train the staff in professional internal auditing methodologies and techniques, and to place greater audit emphasis on the high-risk activities such as agricultural sector loan projects and programs, compliance with the key laws, regulations and concessions, revenues and expenditures, management of assets and state owned plantations and joint ventures. Given the nature of the operations carried out at this ministry, there is enormous potential for internal audit to make a significant contribution towards achieving the ministry’s objectives.



APPENDIX 10 – ASSESSMENT OF THE INTERNAL AUDIT SUB-DECREE


Page i

ASSESSMENT OF THE INTERNAL AUDIT SUB-DECREE


Page ii

CONTENTS

I. INTRODUCTION.............................................................................................1

II. INDEPENDENCE............................................................................................2

III. PROFESSIONAL PROFICIENCY................................................................4

IV. SCOPE OF WORK......................................................................................6

V. PERFORMANCE OF AUDIT WORK AND MANAGING THE INTERNAL AUDITING ACTIVITY .............................................................................................7

VI. CONCLUSION.............................................................................................8

ANNEXURE A – SUBDECREE ON ORGANIZATION AND FUNCTIONAL OF

INTERAL AUDIT....................................................................................................9

ANNEXURE B – AUDITING STANDARDS .........................................................14

ANNEXURE C – AUDIT COMMITTEE CONSTITUTION......................................26


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I. INTRODUCTION

1. The internal audit sub-decree No 40 ANK/BK was approved by the Prime Minister on the 15 February 2005. The sub-decree was issued to comply with the requirements of Article 41 of the Law on Audit dated 3 March 2000 which requires an internal audit function to be established in each institution, ministry and public enterprise. Article 41 of the law further states that the internal audit unit shall report to the head of each institution, ministry and public enterprise and shall submit its reports and conclusion to the National Audit Authority. The article also requires the procedures for organizing and functioning of the internal audit function to be determined by sub-decree.

2. The internal audit sub-decree has five chapters:

• General Provisions;

• Mission and Organization Structure;

• Functions and Responsibilities of Internal Audit;

• Standards for Internal Auditing and Code of Conduct;

• Final Provisions.

3. A translated version of the internal audit sub-decree No. 40 ANK/BK is attached to this report in Annexure A.

4. In order to conduct this assessment, the contents of the internal audit sub-decree have been benchmarked against the Cambodian internal auditing standards (that are compatible with the international internal auditing standards) and best practice for the profession of internal auditing.

5. There are five general standards which form the structure of the internal auditing standards; (i) Independence (ii) Proficiency and professional care (iii) Scope of work (iv) Performance of audit assignments (v) Management of the internal auditing activity

6. A copy of the internal auditing standards for Cambodia issued by the MEF in 2007 is attached as Annexure B.


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II. INDEPENDENCE

7. Article 2 of the sub-decree requires internal audit to be independent in performing its work. This article further provides for internal audit to have full, free and unrestricted access to all activities, records, property and personnel in the organization. Article 3 of the sub-decree requires the internal audit function to be established as a department reporting directly to the head of the ministry or institution or public enterprise. The reporting arrangements in the sub-decree ensure that the director of internal audit reports to the minister or the chief executive thus ensuring that independence is promoted and broad audit coverage ensured. The sub-decree meets the requirements of independence as stated in the standards.

8. There is scope to further strengthen the independence of the internal audit function by establishing audit committees. There is no requirement in the sub-decree to establish an audit committee. The internal auditing standards adopted by Cambodia states that the head of each state institution or boards of directors of public enterprises at their discretion may establish an audit committee to assist them in promoting the independence of internal audit. Neither the Cambodian internal auditing standards nor the sub-decree requires ministries to establish audit committees.

9. The establishment of audit committees helps strengthen internal audit independence. Whilst the head of internal audit reports to the minister and this is required by the sub-decree, it is recognized that there is the potential for audit independence to be compromised if the minister has the power to influence the objectivity of audit reports. By having the head of audit report to an audit committee functionally this provides an additional layer of protection and job security for the head of internal audit. At the same time it ensures that if there have been any serious breaches or mismanagement of financial resources or corrupt practices which directly or indirectly involves the head of the ministry, the minister’s power of influencing internal audit in these circumstances is somewhat diminished due to the presence of the audit committee.

10. There is scope to strengthen the internal audit sub-decree by requiring that the audit committee be involved in the recruitment, termination or transfer of the head of audit as well as endorsing the internal audit department’s financial budget. The sub-decree can also be strengthened by inserting a provision that the head of the ministry, agency, institution or state enterprise is prohibited from preventing the head of audit from conducting any investigation or review that the head of audit deems desirable. The sub-decree must also state that all audit reports are to be signed and approved for distribution by the head of audit without the prior approval of another senior officer or the head of the entity.

11. The sub-decree does not require internal audit reports be submitted to the MEF. To strengthen the effectiveness of internal audit it is recommended that the sub-decree be revised to include the submission of internal audit reports to the MEF so that proper follow up action can be taken by MEF on matters of public financial management where warranted. The Law on Audit of 2000 however requires internal audit reports to be submitted to the National Audit Authority. The sub-decree thus will need to require that procedures be established between NAA, internal audit in government ministries and entities and MEF for follow up and taking effective action on serious breaches reported by internal audit.


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12. One of the difficulties faced with regard in establishing audit committees in line ministries is its composition. Ideally the audit committee should have a majority of its members who are nonworking executives and are from outside the organization. Since internal audit is in its infancy in Cambodia as a starting point there could be merit in setting up an internal audit committee in each line ministry comprising top executives from within each ministry. When selecting the members it is advisable to appoint persons who are not directly involved in managing the key operations of the entity that will be regularly audited and also to have some technical experts on the committee. The audit committee should be made up of individuals who are independent of the day to day management of the entity and who have the necessary expertise to perform their duties effectively. One of the primary reasons for this independence is to ensure an unbiased perspective on reports and recommendations brought to the committee. To further strengthen the independence of internal audit a representative from the MEF can be appointed to the committee.

13. The tasks, responsibilities and the goals of management, internal auditors and the audit committee are closely intertwined in many ways. As the demand for enhanced accountability and quality of services in the public sector increases, so does the significance of the internal audit and audit committee relationship. The audit committee has a major responsibility in assuring that the mechanisms for achieving accountability and for reducing risk of management override are in place and functioning. A solid, well orchestrated cooperative relationship with the internal auditors can achieve the common goals of quality of services for the citizens and accountability over the use of public funds.

14. MEF may consider issuing an audit committee constitution which sets out the authority, role and responsibilities, membership, meetings and other matters relating to the operation of audit committees.

15. Annexure C attached to this report provides an outline of an audit committee constitution.


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III. PROFESSIONAL PROFICIENCY

16. The internal audit standard on professional proficiency requires that the internal audit staff possess the knowledge, skills and other competencies needed to perform their individual responsibilities. The internal audit activity collectively should possess or obtain the knowledge, skills and other competencies needed to perform its responsibilities.

17. The internal audit sub-decree article 5 requires that appointees to the position of director or deputy director of the internal audit department and chief or vice chief shall be civil servants possessing a recognized higher education degree or equivalent qualification in accounting, economics, business and finance. This article also requires appointees to posses five years experience in financial management or public administration.

18. The sub-decree requires internal audit staff below the level of vice chief to possess a higher education degree or equivalent qualification from a recognized faculty or tertiary institution in finance, accounting, auditing, business, information technology, law, engineering or economics.

19. There are three areas in the sub-decree that need to be reviewed:

The sub-decree requires that the positions of director, deputy director, chief and vice chief should be filled by staff from the civil service. This precludes good internal audit professionals from outside the civil service being appointed to the department to fill these positions. In the current state of internal audit development in Cambodia there is an acute shortage of skilled internal audit personnel within the government. The recruitment of internal audit professionals from outside will greatly assist in making more rapid progress in the development of effective internal auditing systems within the government. The requirement in the sub-decree that reserves these positions exclusively to civil servants should be removed.

The sub-decree does not authorize the internal audit department to recruit external experts and short term consultants or contractors to undertake special technical reviews where skills are not available internally. Since the sub-decree is silent on this matter there is a general feeling within the management of internal audit that the services of outside experts cannot be obtained for assisting the audit teams in areas where there is a lack of knowledge and competence. The financial budget of the audit department also does not make any provision for these services. The limited use of qualified outside experts to work with the audit teams will improve the quality of auditing, assist in training the audit staff and will accelerate the pace of internal audit development within the public sector. The sub-decree needs to be amended to permit the internal audit department to appoint short term consultants and experts to assist in auditing complex areas where no skills are available internally.

The sub-decree does not require an external assessment to be conducted of the internal audit department. The standards for the professional practice of internal auditing require that an external assessment should be conducted at least once every five years by a qualified, independent reviewer or review team from outside the organization. The size, complexity and industry of the entity should be considered in relation to the experience of the reviewer or review team. Senior management in the line ministry or institution needs to be assured that the internal


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auditors are discharging their duties in a professional manner in accordance with the internal auditing standards. External assessments will lift the credibility of the internal audit group within the organization and assist in improving the professionalism and competence of internal audit.


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IV. SCOPE OF WORK

20. Article 7 of the sub-decree defines the functions and responsibilities of internal audit. This article is comprehensive and complies fully with the responsibilities and functions as stated in the internal auditing standards. The sub-decree requires internal audit to submit its audit reports to the National Audit Authority. Though this is not a requirement in the standards it is a requirement in the Law on Audit of 2000 and adds clout to further strengthening the effectiveness of internal audit

21. As MEF has a key role to play in maintaining an effective public financial management system in the government, there could be merit in expanding the sub-decree to require that all internal audit reports also need to be submitted to the MEF within a stipulated time frame.


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V. PERFORMANCE OF AUDIT WORK AND MANAGING THE INTERNAL AUDITING ACTIVITY

22. The sub-decree does not have any specific articles relating to the manner in which the internal audit work is to be executed and the audit department managed. The internal auditing standards however cover this aspect quite thoroughly.

23. Article 8 of the sub-decree requires the MEF in consultation with the NAA to issue guidelines for professional standards of internal auditing, code of conduct, scope of work and authority for implementing the internal audit function. MEF in 2007 has issued a set of internal auditing standards and a code of conduct for internal auditors. The scope of work has been defined comprehensively in the sub-decree (article 7) and line ministries have been guided by article 7 in preparing the Prakas for establishing the internal audit department.

24. There is scope to expand the internal audit sub-decree by inserting an additional article that will require the preparation and implementation of audit procedures manuals for performing the audit work and managing the auditing activity. In order to ensure standardization of methodologies, comprehensiveness of coverage and consistency in the format of audit reporting, the internal auditing procedures manuals will need to be endorsed by the MEF internal audit department to ensure that it complies with the internal auditing standards.


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VI. CONCLUSION

25. The existing internal audit sub-decree is adequate to enable the functioning of an effective and professional internal auditing activity in the public sector. The sub-decree has been based on the practices recommended by the international internal auditing standards. The sub-decree can be strengthened further by introducing provisions that require the establishment of audit committees, permitting external appointments to the more senior positions in the audit department, permitting the use of short term experts and contractors for specialized areas of internal audit, requiring an external assessment of the internal audit function once every five years and by requiring that the ministries develop and maintain proper auditing procedures manuals in performing the audit work.


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ANNEXURE A – SUBDECREE ON ORGANIZATION AND FUNCTIONAL OF

INTERAL AUDIT

KINGDOM OF CAMBODIA

Nation Religion King

Royal Government of Cambodia

No. 40 ANK/BK

February 15, 2005

SUB-DECREE

ON ORGANIZATION AND FUNCTIONING

OF INTERNAL AUDIT

IN EACH INSTITUTION, MINISTRY AND PUBLIC ENTERPRISE

ROYAL GOVERNMENT

Seen the Constitution of the Kingdom of Cambodia;

Seen the Royal Decree No. ns/rkt/0704/124 dated July 15, 2004 on the Nomination of the Royal Government of Cambodia;

Seen the Royal Decree No. 02 ns/94 dated July 20, 1994 promulgating the Law on the Organization and Functioning of the Council of Ministers;

Seen the Royal Decree No Cs/rkm/0300/10 dated March 3, 2000 promulgating the Law on Audit of the Kingdom of Cambodia;

Seen the Royal Decree No Cs/rkm/0696/03 dated June 17, 1996 promulgating the Law on the General Statute of Public Enterprises;

Seen the Sub-decree No 20 ANK/BK dated April 30, 1996 on Organization and Functioning of Ministries and Secretariats;

Has been agreed by full session conference of the Council of Ministers on January 21, 2005.

IT IS HEREBY DECIDED

CHAPTER 1

General Provision

ARTICLE 1-

This sub-decree defines the organization and functioning of internal audit in each institution, ministry and public enterprise pursuant to article 41, chapter 9 of the Law on Audit promulgating by the Royal Decree No. Cs/rkm/0300/10 dated March 3, 2000.

CHAPTER 2


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Mission and Organization Structure

ARTICLE 2-

Internal audit within institutions, ministries and public enterprises shall be responsible for conducting an independent function in its operations and evaluating the organization’s activities as a service to management of institutions and ministries and the boards of directors of public enterprises.

The objective of internal auditing is to assist each member of the above institutions, ministries and public enterprises in the effective discharge of their responsibilities.

The management of institutions, ministries and public enterprises is responsible for establishing and maintaining system of internal controls.

Internal audit's role is to independently evaluate the adequacy of the internal control systems and to provide an assurance that the controls are in place and are working as intended.

In carrying out their duties and responsibilities, internal auditors will have full, free, and unrestricted access to all activities, records, property and personnel of the organization.

The primary objectives of internal auditing is to furnish analyses, appraisals, recommendations, counsel and information concerning the activities reviewed to institutions, ministries and public enterprises.

ARTICLE 3-

The organization structure of internal audit is equivalent to the Department which is directly under the head of institution and organizationally structured taking into account the size of the operations, nature and significance of its business risks, quality of management and materiality on the financial transactions and management of assets of the organization.

All public enterprises shall establish internal audit when this sub-decree is effective.

ARTICLE 4-

The appointment, resignation, termination or transfer of the position of internal audit staff shall comply with procedures specified in the Law on Common Statute of the Civil Servants of the Kingdom of Cambodia and the Royal Decree on Particular Statute of each Body.

Separately, the appointment, resignation, termination or transfer of the position of internal audit staff of public enterprise shall comply with procedures specified in the General Statute of the Public Enterprise and a decision approved by the board of directors.

ARTICLE 5-

Appointees to the position of director or deputy director of the department, chief or vice chief of the office shall be civil servants possessing a recognized higher education degree or equivalent qualification in accounting, or economics, or business and finance and shall have experience of at least five years in financial management or public administration.


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The internal audit staff should possess a higher education degree or equivalent qualification from a recognized faculty or tertiary institution in finance, accounting, auditing, business, information technology, law, engineering or economics.

ARTICLE 6-

All internal audit staff within institutions and ministries shall comply with the Common Statute of Civil Servants of the Kingdom of Cambodia; while the staff in internal audit within public enterprises shall comply with the General Statute of the public enterprises.

CHAPTER 3

Functions and Responsibilities of Internal Audit

ARTICLE 7-

The functions and responsibilities of Internal Audit are as follows:

Review management's functions, activities, operations and programs within the organization at appropriate intervals to determine their proper implementation of planning, directing, organizing and controlling in accordance with management instructions, policies, and procedures, and in a manner that is consistent with the organization’s objectives;

Determine the adequacy and effectiveness of the organization’s systems of internal accounting, administrative and operating controls;

Review the reliability, timeliness, and integrity of financial and operational information, as well as the methods used to identify, measure, classify and report such information;

Review the established systems to ensure compliance with those policies, plans, procedures, laws and regulations that could have a significant impact on operations and reports. In case that institutions, ministries and public enterprises do not comply with above mentioned regulations, it is necessary to suggest changes and improvements;

Review the management and safeguarding of the assets, and properly verify the existence of such assets;

Appraise the economy and efficiency with which resources are employed and identify opportunities to improve operating performance and provide recommendations;

Review operations of programs and capital expenditure projects to ascertain whether results are consistent with established objectives, goals and plan;

Participate in the planning, development, implementation, and operation of major computer systems to ensure:

the needs of users have been clearly specified;

adequate internal controls have been incorporated in the systems;

thorough system testing is performed at appropriate stages; and

computer system documentation is complete and accurate;


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Conduct periodic audits of computer system and make post installation evaluations of major data processing systems to determine that these systems meet their intended purposes and objectives and are secure, effective and efficient;

Review procedures and practices to ensure that measures are in place to prevent fraud. If frauds have occurred, the internal control system will detect fraud in a timely manner;

Review compliance with the government's management and guidelines on ethical conduct and behavior for public servants;

Co-ordinate audit efforts with the National Audit Authority to ensure adequate coverage and to minimize duplication of work;

Submit reports to the head of institutions, ministries and public enterprises and submit reports and audit conclusions to the National Audit Authority whether :

Appropriate action has been taken on significant internal audit recommendations;

Audit activities have been directed toward the highest exposures to risk and toward increasing efficiency, economy and effectiveness in operations;

Internal audit has coordinated with the National Audit Authority so as to avoid duplications. The National Audit Authority may review and re-audit if it is unclear;

Internal audit plans are adequate and concise;

Any restriction to access on information and records has occurred;

Submit annual internal audit plans to the head of institutions, ministries or the public enterprises for review and approval;

Evaluate any plans or actions taken to correct reported conditions. If such corrective actions are considered unsatisfactory, hold further discussions to ensure that suggestions have been satisfactorily implemented;

Provide adequate follow up on corrective action taken;

The head of internal audit shall report directly to the head of each institution, ministry or to the board of directors of the public enterprise;

Issue reports and audit conclusions to each management of institutions, ministries and public enterprise responsible for taking corrective actions on the recommendations; Internal audit must submit all reports and conclusions to its management and to the National Audit Authority.

Perform any other works or duties being assigned by the head of institutions, ministries and public enterprise.

CHAPTER 4

Standards for Internal Auditing and Code of Conduct

ARTICLE 8-

To enable the internal auditing function to be effectively implemented, the Ministry of Economy and Finance, in consultation with the National Audit Authority, shall issue guidelines for professional standards of internal auditing, code of conduct, scope of work and authority of management to be followed by internal audit.


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CHAPTER 5

Final Provisions

ARTICLE 9-

The head of each institution and ministries shall properly coordinate the allocation of tasks between the General Inspectorate Department or Inspection Department and Internal Audit.

ARTICLE 10-

Minister in charge of Council of Ministers, Minister of the Ministry of Economy and Finance, Ministers and Secretary of State of all Ministries, Institution and Chairman or Director-General of Public Enterprises shall implement this Sub-decree effectively from this day of its signature herein.

Made in Phnom Penh, February 15, 2005

Prime Minister

Hun Sen

CC:

Ministry of Royal Palace

General Secretariat of Constitution Council

General Secretariat of Senate

General Secretariat of National Assembly

National Audit Authority

Cabinet of Prime Minister

All Provinces and Municipalities

As states in article 10

Documents


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ANNEXURE B – AUDITING STANDARDS

Ministry of economy and finance

Standards for the Professional Practice of Internal Auditing

Introduction

Pursuant to Article 8 of the internal audit sub-decree No. 40 ANK/BK dated February 15th, 2005, the Ministry of Economy and Finance has developed the standards for the practice of internal auditing in the public sector. These standards must be followed by internal auditors in the public sector. The term “standards” means the criteria by which the operations of an internal auditing function are evaluated and measured. They are intended to represent the practice of internal auditing as it should be carried out in a professional manner. Compliance with the concepts enunciated by these Standards is essential before the responsibilities of internal auditors can be met.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed.

“Independence” as used in these standards requires clarification. Internal auditors must be independent of the activities they audit. Such independence permits internal auditors to perform their work freely and objectively. Without independence, the desired results of internal auditing cannot be realized.

There are five general standards:

1. Independence

2. Proficiency and professional care

3. Scope of work

4. Performance of audit assignments

5. Management of the internal auditing function

1. Independence

Internal auditors should be independent of the activities they audit. Internal auditors are independent when they can carry out their work freely and objectively. Independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of audits. It is achieved through organizational status and objectivity.

Organizational status


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The executive in charge of internal auditing should be responsible and report to the head of the organization who has the authority to promote independence and to ensure broad audit coverage, adequate consideration of audit reports and appropriate action on audit recommendations. The head of audit should have direct communication with the head of institution, ministry or board of directors. The head of each state institution or boards of directors of public enterprises, at their discretion, may establish an audit committee to assist them in promoting the independence of internal audit.

Objectivity

Internal auditors must perform their audits in such a manner that they have an honest belief in their work product and that no significant quality compromises are made. Internal auditors must not be placed in situations in which they feel unable to make objective professional judgments. Situations that may lead to potential and actual conflicts of interest and bias must be avoided when staff are assigned to a particular assignment. The head of internal audit must periodically obtain from the audit staff information concerning potential conflicts of interest and bias. Similarly audit staff must advise the head of any situations in which a conflict of interest or bias is present or may reasonably be inferred.

Internal auditors should not assume operating responsibilities. Objectivity is impaired when internal auditors audit any activity for which they had authority and responsibility. The results of internal auditing work should be reviewed before the related audit report is released to provide reasonable assurance that the work was performed objectively. The internal auditor's objectivity is not adversely affected when the auditor recommends standards of control for systems or reviews procedures before they are implemented. Designing, installing and operating systems are not auditing functions. Also, the drafting of procedures for systems is not an audit function. Performing such activities is presumed to impair audit objectivity.

2. Professional Proficiency

Internal audits should be performed with proficiency and due professional care. Professional proficiency is the responsibility of the internal audit function and each internal auditor. The head of internal audit should assign to each audit assignment those persons who collectively have the necessary knowledge, skills and disciplines to conduct the audit properly.

Staffing

The head of internal auditing function must provide assurance that the technical proficiency and educational background of internal auditors are appropriate for the audits to be performed.

The head of internal audit should establish suitable criteria of education and experience for filling internal auditing positions, giving due consideration to scope of work and level of responsibility.

Knowledge, skills and disciplines

The internal auditing function should possess or should obtain the knowledge, skills, and disciplines needed to carry out its audit responsibilities. The internal auditing staff should collectively possess knowledge and skills essential to the


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practice of the profession within the organization. These attributes include proficiency in applying internal auditing standards, procedures and techniques.

The internal auditing function should have employees or use consultants who are qualified in such disciplines as accounting, economics, finance, statistics, electronic data processing, engineering, taxation and law as needed to meet audit responsibilities. Each member of the unit, however, need not be qualified in all of these disciplines.

Internal auditors should possess the knowledge, skills and disciplines essential to the performance of internal audits. Each internal auditor should possess certain knowledge and skills as follows:

• Proficiency in applying internal auditing standards, procedures and techniques is required in performing internal audits. Proficiency means the ability to apply knowledge to situations likely to be encountered and to deal with them without extensive recourse to technical research and assistance.

• Proficiency in accounting principles and techniques is required for auditors who work extensively with financial records and reports

• An understanding of management principles is required to recognize and evaluate the materiality and significance of deviations from good business practice. An understanding means the ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and to be able to carry out research necessary to arrive at a reasonable solution.

• An appreciation is required of the fundamentals of such subjects as accounting, taxation, economics, commercial law, finance, project management, revenue/expenditure management, quantitative methods, and computerized information systems. An appreciation means the ability to recognize the existence of problems or potential problems and to determine the further research to be undertaken or the assistance to be obtained.

Supervision

The internal auditing function should provide assurance that internal audits are properly supervised. The head of internal auditing is responsible for providing appropriate audit supervision. Supervision is a continuing process, beginning with planning and ending with the conclusion of the audit assignment.

Supervision includes:

• Providing suitable instructions to subordinates at the outset of the audit and approving the audit program

• Seeing that the approved audit program is carried out unless deviations are both justified and authorized

• Determining that audit working papers adequately support the audit findings, conclusions and reports

• Making sure that audit reports are accurate, objective, clear, concise, constructive, and timely

• Determining that audit objectives are being met


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Appropriate evidence of supervision should be documented and retained. The extent of supervision required will depend on the proficiency of the internal auditors and the difficulty of the audit assignment. All internal auditing assignments, whether performed by, or for the internal auditing function, remain the responsibility of the head of internal auditing.

Compliance with standards of conduct

Internal auditors should comply with professional standards of conduct. Internal auditors should conform to high standards of honesty, objectivity, diligence and loyalty. The internal auditors are also bound to comply with the Code of Conduct pursuant to article 8 of the Internal Audit Sub-decree No 40 ANK/BK attached to these standards.

Human resources and communications

Internal auditors should be skilled in dealing with people and in communicating effectively. Internal auditors should understand human relations and maintain satisfactory relationships with auditees.

Internal auditors should be skilled in oral and written communications so that they can clearly and effectively convey such matters as audit objectives, evaluations, conclusions and recommendations.

Continuing education

Internal auditors should maintain their technical competence through continuing education. Internal auditors are responsible for continuing their education in order to maintain their proficiency. They should keep informed about improvements and current developments in internal auditing standards, procedures, and techniques. Continuing education may be obtained through membership and participation in professional societies; attendance at conferences, seminars, college courses, and in-house training programs; and participation in research projects.

Due professional care

Internal auditors should exercise due professional care in performing internal audits. Due professional care calls for the application of the care and skill expected of a reasonably prudent and competent internal auditor in the same or similar circumstances. Professional care should therefore be appropriate to the complexities of the audit being carried out. In exercising due professional care, internal auditors should be alert to the possibility of intentional wrongdoing, errors and omissions, inefficiency, waste, ineffectiveness, and conflicts of interest. They should also be alert to those conditions and activities where irregularities are most likely to occur.

In addition, they should identify inadequate controls and recommend improvements to promote compliance with acceptable procedures and practices.

Due care implies reasonable care and competence, not infallibility or extraordinary performance. Due care requires the auditor to conduct examinations and verifications to a reasonable extent, but does not require detailed audits of all transactions. Accordingly the internal auditor cannot give absolute assurance that non-compliance or irregularities do not exist. Nevertheless the possibility of material irregularities or non-compliance should be considered whenever the internal auditor undertakes an internal auditing assignment.


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When the internal auditor suspects wrongdoing, the appropriate authorities within the organisation should be informed. The internal auditor may recommend whatever investigation is considered necessary in the circumstances. Thereafter the auditor should follow up to see that the internal auditing function’s responsibilities have been met.

Exercising due professional care means using reasonable audit skill and judgment in performing the audit. To this end the internal auditor should consider:

• The extent of audit work needed to achieve audit objectives

• The relative materiality or significance of matters to which audit procedures are applied

• The adequacy and effectiveness of internal controls

• The cost of auditing in relation to potential benefits

Due professional care includes evaluating established operating standards and determining whether those standards are acceptable and are being met. When such standards are vague, authoritative interpretations should be sought. If internal auditors are required to interpret or select operating standards, they should seek agreement with the auditees as to the standards needed to measure operating performance.

3. Scope of Work

The scope of the internal audit should encompass the examination and evaluation of the adequacy and effectiveness of the organization:

systems of risk management,

governance processes,

internal control and

the quality of performance in carrying out assigned responsibilities.

(a) The purpose of the review of risk management is to assist the organization by identifying and evaluating significant exposures to risk and contributing to the improvement of risk management and control systems. The internal audit activity should monitor and evaluate the effectiveness of the organization’s risk management system. The internal audit activity should evaluate risk exposures relating to the organization’s governance, operations and information systems regarding the

Reliability and integrity of financial and operational information

Effectiveness and efficiency of operations

Safeguarding of assets

Compliance with laws, regulations and contracts

(b) The purpose of the review of the governance processes is to assess and make appropriate recommendations for improving the governance processes in its accomplishment of the following objectives:

Promoting appropriate ethics and values within the organization

Ensuring effective organizational performance management and accountability


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Effectively communicating risk and control information to appropriate areas of the organization

Effectively coordinating the activities of and communicating information among the minister/board, external and internal auditors and management.

The internal audit activity should evaluate the design, implementation, and effectiveness of the organization’s ethics related objectives, programs and activities.

(c) The purpose of the review for adequacy of the system of internal control is to ascertain whether the systems established provide reasonable assurance that the organization's objectives and goals will be met efficiently and economically.

The purpose of the review for effectiveness of the system on internal control is to ascertain whether the system is functioning as intended.

(d) The purpose of the review for quality of performance is to ascertain whether the organization's objectives and goals have been achieved.

The primary objectives of internal controls are to ensure:

• The reliability and integrity of information

• Compliance with policies, plans, procedures, laws, and regulations

• The safeguarding of assets

• The economical and efficient use of resources

• The accomplishment of established objectives and goals for operations or programs

Reliability and integrity of information

Internal auditors should review the reliability and integrity of financial and operating information and the means used to identify, measure, classify, and report such information.

Information systems provide data for decision-making, control, and compliance with external requirements. Therefore internal auditors should examine information systems, and, as appropriate, ascertain whether:

• Financial and operating records and reports contain accurate , reliable, timely, complete and useful information

• Controls over record keeping and reporting are adequate and effective

Compliance with policies, plans, procedures, laws and regulations

Internal auditors should review the systems established to ensure compliance with those policies, plans, procedures, laws and regulations which could have a significant impact on operations and reports, and should determine whether the organization is in compliance.

Management is responsible for establishing the systems designed to ensure compliance with such requirements as policies, plans, procedures, and applicable laws and regulations. Internal auditors are responsible for determining whether the systems are adequate and effective and whether the activities audited are complying with the appropriate requirements.


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Safeguarding of assets

Internal auditors should review the means of safeguarding assets and as appropriate, certify the existence of such assets. Internal auditors should review the means used to safeguard assets from various types of losses such as those resulting from theft, fire, improper or illegal activities, and exposure to the elements. Internal auditors when verifying the existence of assets should use appropriate audit procedures

Economical and efficient use of resources

Internal auditors should appraise the economy and efficiency with which resources are employed. Management is responsible for setting operating standards to measure an activity's economical and efficient use of resources. Internal auditors are responsible for determining whether:

• Operating standards have been established for measuring economy and efficiency

• Established operating standards are understood and are being met

• Deviations from operating standards are identified, analyzed, and communicated to those responsible for corrective action

• Corrective action has been taken

Audits related to the economical and efficient use of resources should identify such conditions as:

• Underutilized facilities

• Non productive work

• Procedures which are not cost justified

• Overstaffing or understaffing

Accomplishment of established objectives and goals for operations or programs

Internal auditors should review operations or programs to ascertain whether results are consistent with established objectives and goals and whether the operations or programs are being carried out as planned.

Management is responsible for establishing operating or program objectives and goals, developing and implementing control procedures, and accomplishing desired operating or program results. Internal auditors should ascertain whether such objectives and goals conform with those of the organization and whether they are being met.

Internal auditors should provide assistance to managers who are developing objectives, goals, and systems by determining whether the underlying assumptions are appropriate; whether accurate, current, and relevant information is being used; and whether suitable controls have been incorporated into the operations or programs.

4. Performance of Audit Work

Audit work should include planning the audit, examining and evaluating information, communicating results and following up. The internal auditor is responsible for


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planning and conducting the audit assignment, subject to supervisory review and approval.

Planning the audit

Planning should be documented and should include:

• Establishing audit objectives and scope of work

• Obtaining background information about the activities to be audited

• Determining the resources necessary to perform the audit

• Communicating with all who need to know about the audit

• Performing, as appropriate, an on site survey to become familiar with the activities and controls to be audited, to identify areas for audit emphasis and to invite auditee comments and suggestions

• Writing the audit program

• Determining how, when and to whom the audit results will be communicated

• Obtaining approval of the audit work plan

Examining and evaluating information

Internal auditors should collect, analyze, interpret, and document information to support audit results. The process of examining and evaluating information is as follows:

• Information should be collected on all matters related to the audit objectives and scope of work

• Information should be sufficient, competent, relevant, and useful to provide a sound basis for audit findings and recommendations

Sufficient information is factual, adequate, and convincing, so that a prudent, informed person would reach the same conclusions as the auditor.

Competent information is reliable, and the best attainable through the use of appropriate audit techniques.

Relevant information supports audit findings and recommendations and is consistent with the objectives of the audit.

Useful information helps the organization meet its goals.

Audit procedures, including the testing and sampling techniques employed, should be selected in advance, wherever practicable, and expanded or altered if circumstances warrant.

The process of collecting, analyzing, interpreting, and documenting information should be supervised to provide reasonable assurance that the auditor's objectivity is maintained and that audit goals are met.

Working papers that document the audit should be prepared by the auditor and reviewed by management of the internal auditing function. These papers should record the information obtained and the analyses made and should support the bases for the findings and recommendations to be reported.

Communicating results


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Internal auditors should report the results of their audit work. A signed, written report should be issued after the audit examination is completed. Interim reports may be written or oral and may be transmitted formally or informally.

The internal auditor should discuss conclusions and recommendations at appropriate levels of management before issuing final written reports.

Reports should be objective, clear, concise, constructive, and timely.

Reports should present the purpose, scope, and the results of the audit; and where appropriate, reports should contain an expression of the auditor's opinion.

Reports may include recommendations for potential improvements and acknowledge satisfactory performance and corrective action.

The Auditee's views about audit conclusions or recommendations may be included in the audit report.

The head of internal auditing or designee should review and approve/sign the final audit report before issuance and should decide to whom the report will be distributed.

Following up

Internal auditors should follow up to ascertain that appropriate action is taken on reported audit findings. Internal auditing should determine that corrective action was taken and is achieving the desired results, or that management or the board has assumed the risk of not taking corrective action on reported findings.

5. Management of the Internal Auditing Function

The head of internal auditing should properly manage the Internal Auditing activity. The head is responsible for ensuring that:

• Audit work fulfils the general purposes and responsibilities approved by management and as required in the internal audit sub-decree.

• The internal audit activity evaluates and contributes to the improvement of risk management, control and governance processes using a systematic and disciplined approach. Based on the results of the risk assessment, the internal audit activity should evaluate the adequacy and effectiveness of controls encompassing the organization’s governance, operations and information systems. This should include: reliability and integrity of financial and operational information; effectiveness and efficiency of operations; safeguarding of assets; compliance with laws, regulations and contracts

• The internal audit activity assesses and makes appropriate recommendations for improving the governance process in its accomplishment of the following objectives: promoting appropriate ethics and values within the organization; ensuring effective organizational performance management and accountability; effectively communicating risk and control information to appropriate areas of the organization; effectively coordinating the activities of and communicating information among the board, external and internal auditors and management

• Resources of the internal auditing function are efficiently and effectively employed

• Audit work conforms to the internal audit standards.


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Purpose, authority and responsibility

The head of internal auditing should have a statement of purpose, authority and responsibility for the internal auditing function. This is normally embodied in the mandate or audit charter. The head must ensure that a formal written charter approved by management is available for the function. The head of the internal audit function must sign audit reports that are to be issued.

Planning

The head of internal auditing should establish plans to carry out the responsibilities of the internal auditing function. These plans should be consistent with the internal auditing function's charter and with the goals of the organization. The planning process involves establishing:

• Goals

• Audit work schedules

• Staffing plans and financial budgets

• Activity reports

The goals of the internal auditing function should be capable of being accomplished within specified operating plans and budgets and, to the extent possible, should be measurable. They should be accompanied by measurement criteria and targeted dates of accomplishment.

Audit work schedules should include:

• what activities are to be audited

• when they will be audited and

• the estimated time required taking into account the scope of the audit work planned and the nature and extent of the audit work performed by others.

Matters to be considered in establishing audit work schedule priorities should include:

• the date and results of the last audit

• financial exposure

• potential loss and risk

• request by management

• major changes in operations, programs, systems, and controls

• opportunities to achieve operating benefits and

• changes to and capabilities of the audit staff. The work schedule s should be sufficiently flexible to cover unanticipated demands on the internal auditing function.

Staffing plans and financial budgets, including the number of auditors and the knowledge, skills, and disciplines required to perform their work, should be determined from audit work schedules, administrative activities, education and training requirements, and audit research and development efforts. Activity reports should be submitted periodically to management and the board where applicable. These reports should compare (a) performance with the department's goals and


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audit work schedules and (b) expenditures with financial budgets. They should explain the reason for major variances and indicate any action taken or needed.

Policies and procedures

The head of internal auditing should provide written policies and procedures to guide the audit staff.

The form and content of written policies and procedures should be appropriate to the size and structure of the internal auditing function and the complexity of the work. All internal auditing functions may not need formal administrative and technical audit manuals. A small internal auditing function may be managed informally. Its audit staff may be directed and controlled through daily, close supervision and written memoranda. In a large internal auditing function more formal and comprehensive policies and procedures are essential to guide the audit staff in the consistent compliance with the unit's standards of performance.

Personnel management and development

The head of internal auditing should establish a program for selecting and developing the human resources of the internal auditing function. The program should provide for:

• Developing written job descriptions for each level of the audit staff

• Selecting qualified and competent individuals

• Training and providing continuing educational opportunities for each internal auditor

• Appraising each internal auditors performance at least annually

Providing counsel to internal auditors on their performance and professional development

Quality assurance

The head of internal auditing should establish and maintain a quality assurance program, to evaluate the operations of the internal auditing function.

The purpose of this program is to provide reasonable assurance that audit work conforms with the internal audit sub-decree, the standards, and the internal audit charter. A quality assurance program should include the following:

• Supervision

• Internal reviews

• External reviews

• Supervision of the work of the internal auditors should be carried out continually to assure conformance with internal auditing standards, policies and audit programs

• Internal reviews should be performed periodically by members of the internal auditing staff to appraise the quality of the work performed. These reviews should be performed in the same manner as any other internal audit

External reviews of the internal auditing unit should be performed to appraise the quality of its operations. Qualified persons who are independent of the organization and who do not have either a real or an apparent conflict of interest should perform


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these reviews. Such reviews should be conducted at least once every three years. On completion of the review a formal written report should be issued. The report should issue an opinion on the function’s compliance with the standards and as appropriate include recommendations for improvement. ��

Glossary

Add Value- Value is provided by improving opportunities to achieve organizational objectives, identifying operational improvement, and/or reducing risk exposure.

Charter- The charter of the internal audit activity is a formal written document that defines the activity’s purpose, authority, and responsibility. The charter should (a) establish the internal audit activity’s position within the organization ;(b) authorize access to records, personnel, and physical properties relevant to the performance of engagements; and (c) define the scope of internal audit activities.

Code of Ethics- The Code of Ethics are principles relevant to the profession and practice of internal auditing, and rules of conduct that describe behavior expected of internal auditors. The purpose of the Code of Ethics is to promote an ethical culture in the profession of internal auditing.

Compliance-Conformity and adherence to policies, plans, procedures, laws, regulations, contracts, or other requirements

Conflict of Interest- Any relationship that is or appears to be not in the best interest of the organization. A conflict of interest would prejudice an individual’s ability to perform his or her duties and responsibilities objectively.

Control- Any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, directs and controls the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved.

Governance-the combination of processes and structures implemented by executive management/board of directors in order to inform, direct, manage and monitor the activities of the organization toward the achievement of its objectives.

Independence-The freedom from conditions that threaten objectivity or the appearance of objectivity

Risk-The possibility of an event occurring that will have an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood.

Risk Management-A process to identify, assess, manage, and control potential events or situations, to provide reasonable assurance regarding the achievement of the organization’s objectives.

��


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ANNEXURE C – AUDIT COMMITTEE CONSTITUTION

1 Overall purpose/objectives

The audit committee is appointed by the head of the agency/ ministry or by the board of directors of the institution/state enterprise to assist the head of the ministry/agency or board in discharging its oversight responsibilities. The audit committee will oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information. The audit committee will also review: the effectiveness of the entity’s internal financial control and risk management system; the effectiveness of the internal audit function; the independent external audit process; the entity’s process for monitoring compliance with laws and regulations affecting financial reporting and, if applicable, its code of conduct.

In performing its duties, the committee will maintain effective working relationships with the board of directors, management, and the external and internal auditors. To perform his or her role effectively, each committee member will need to develop and maintain his or her skills and knowledge, including an understanding of the committee’s responsibilities and of the entity’s business, operations and risks.

2 Authority

The head of the ministry/board authorizes the audit committee, within the scope of its responsibilities, to:

2.1 Perform activities within the scope of its charter.

2.2 Engage independent counsel and other advisers as it deems necessary to carry out its duties.

2.3 Ensure the attendance of entity officers at meetings as appropriate.

2.4 Have unrestricted access to members of management, employees and relevant information.

2.5 Establish procedures for dealing with concerns of employees regarding accounting, fraud, corruption, internal control or auditing matters.

2.6 Establish procedures for the receipt, retention and treatment of complaints received by the entity regarding accounting, internal controls, fraud, corrupt practices or auditing matters.

2.7 Be directly responsible for oversight of the work of the internal auditor.

2.8 Be directly responsible for oversight of the work of the external auditor.

3 Organization

Membership

3.1 In ministries the head of the ministry will nominate the members of the audit committee. In state enterprises and public authorities the board of directors will nominate the audit committee members and the chairman of the audit committee


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3.2 In ministries the officers nominated should be of high rank and not be involved in the any activities relating to finance or loan projects management. At least three people should be appointed to the committee. In state enterprises and public authorities the majority of members shall be independent non-executive directors of the state enterprise or public authority.

3.3 A quorum of any meeting will be two members

3.4 Each member should have skills and experience appropriate to the entity’s business.

3.5 Members will be appointed for a two year term of office.

3.6 The secretary of the audit committee will be the Secretary General or such other person as nominated by the minister or board.

Meeting

3.7 Only committee members are entitled to attend meetings. The audit committee may invite such other persons to its meetings, as it deems necessary.

3.8 The external and internal auditors should be invited to make presentations to the audit committee as appropriate.

3.9 Meetings shall be held not less than two times each financial year.

3.10 Special meetings may be convened as required. The secretary will convene a meeting on receipt of a request by the external or internal auditors.

3.11 The secretary shall circulate the agenda and supporting documentation to the audit committee members a reasonable period in advance of each meeting.

3.12 The secretary of the committee shall circulate the minutes of meetings to the head of the entity, members of the board, members of the committee, (and the head of internal audit and the external auditor where appropriate).

3.13 Members of the audit committee should attend every meeting of the committee.

3.14 The committee should meet with in-house legal counsel on a regular basis. A meeting with outside legal counsel should be held if it is deemed necessary.

3.15 The audit committee will meet with the external auditors (at least once a year) without management present.

4 Roles and Responsibilities

The audit committee will:

Internal control

4.1 Evaluate whether management is setting the appropriate ‘control culture’ by communicating the importance of internal control and management of risk.

4.2 Understand the internal controls systems implemented by management for the approval of transactions and the recording and processing of financial data.

4.3 Understand the controls and processes implemented by management to ensure that the financial statements derived from the underlying financial systems comply with relevant standards and requirements, and are subject to appropriate management review.


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4.4 Evaluate the overall effectiveness of the internal control and risk management frameworks and consider whether recommendations made by the internal and external auditors have been implemented by management.

4.5 Consider how management is held to account for the security of computer systems and applications, and the contingency plans for processing financial information in the event of a systems breakdown or to protect against computer fraud or misuse.

Financial reporting

4.6 Gain an understanding of the current areas of greatest financial risk and how these are being managed.

4.7 Review significant accounting and reporting issues, including recent professional and regulatory pronouncements, and understand their impact on financial reports.

4.8 Oversee the periodic financial reporting process implemented by management and review the key financial statements and annual financial statements.

4.9. Meet with management and the external auditors to review the financial statements, the key accounting policies and judgments, and the results of the audit.

4.10 Ensure that significant adjustments, unadjusted differences, disagreements with management and critical accounting policies and practices are discussed with the external auditor.

4.11 Review the other sections of the annual report before its release and consider whether the information is understandable and consistent with members’ knowledge about the entity and its operations and lack bias.

Compliance with laws and regulations

4.12 Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any fraudulent acts or non-compliance.

4.13 Obtain regular updates from management and legal counsel regarding compliance matters that may have a material impact on the entity’s financial statements or compliance policies.

4.14 Be satisfied that all regulatory compliance matters, related to the business of the entity, have been considered in the preparation of the financial statements.

Working with auditors

External audit

4.15 Discuss with the external auditor any audit problems encountered in the normal course of audit work, including any restriction on audit scope or access to information.

4.16 Ensure that significant findings and recommendations made by the external auditors and management’s proposed response are received, discussed and appropriately acted on.

4.17 Discuss with the external auditor the appropriateness of the accounting policies applied in the entity’s financial reports and whether they are considered as aggressive, balanced or conservative.


Page 29

4.18 Meet separately with the external auditors to discuss any matters that the committee or audit believe should be discussed privately. Ensure the auditors have access to the chairman of the audit committee when required.

4.19 Assist in coordinating internal audit

Internal audit

4.20 Review the activities, resources and organizational structure of the internal audit function and ensure no unjustified restrictions or limitations are made.

4.21 Participate in the appointment, promotion or dismissal of the internal audit head and discuss with the external auditor the standard of work of internal audit staff.

4.22 Review the effectiveness of the internal audit function and ensure that it has appropriate standing within the entity.

4.23 Meet separately with the head of internal audit to discuss any matters that the committee or internal auditors believe should be discussed privately.

4.24 Ensure that significant findings and recommendations made by the internal auditors and management’s proposed response are received, discussed and appropriately acted on.

4.25 Review the proposed internal audit plan for the coming year and ensure that it addresses key areas of risk and that there is appropriate co-ordination with the external auditor.

Reporting responsibilities

4.26 Regularly update the head of the entity or board about committee activities and make appropriate recommendations.

4.27 Ensure the head of the entity or board is aware of matters that may significantly impact on the financial condition or affairs of the entity.

4.28 Prepare any reports required by law or requested by the head of the entity or board, for example a report on the audit committee’s activities and duties to be included in the section on governance in the annual report.

Evaluating performance

4.29 Evaluate the committee’s own performance, both of individual members and collectively, on a regular basis.

4.30 Assess the achievements of the duties specified in the audit committee constitution and report the findings to the board.

4.31 Appoint a qualified expert to undertake an external assessment of the performance and quality of internal audit work at least once every five years

Review of the committee constitution

4.32 Review the audit committee constitution annually and discuss any required changes with the head of the entity or board.

4.33 Ensure that the constitution is approved or reapproved by the head of the entity or board



APPENDIX 11

APPENDIX 11A – Report on workshops held for the NAA on auditing loan projects


Page 1

APPENDIX 11A - REPORT ON WORKSHOPS HELD FOR THE NATIONAL AUDIT AUTHORITY ON AUDITING LOAN PROJECTS

1. The PPTA terms of reference for the international Audit Specialist requires the specialist to assist NAA staff in the pilot audit of a rural development project (TOR iii). To enable the audit staff to increase their understanding and approach to conducting audits of loan projects, four morning sessions of training (8.00 am to 11.30 am) were held from the 14 to 17 July 2008 for staff from the NAA. Twenty-eight staff from the authority participated in the training. The participants included three staff from Department 1, three from Department 2 and ten from Department 3, four from the Technical Department, one from Administration and Finance and five from the Secretariat General. In addition the two Deputy Secretaries General also attended the sessions.

2. The training sessions were undertaken by the international Audit Specialist with the domestic Audit Consultant assisting with the interpretations. The training tools used included a Power Point presentation, handouts of training materials and slides, model of a loan projects auditing manual, loan agreements, the government procurement, financial management and standard operating procedures manuals, and a sample of contracts issued for construction projects. Case studies on contracts management were discussed including the approach to auditing financial statements for purposes of meeting lender requirements.

3. Topics covered at the workshop included: structure of project management; budget preparation; accounting systems and procedures; procurement function and regulations; contracts management techniques and procedures; warehousing principles; external and internal auditing; asset management; audit objectives; financial reporting; internal controls; segregation of duties; reconciliation principles; dual control; sequential numbering; physical counts; segregation of functions; confirmations; secure storage; authorizations; certifications; cancelling of supporting documentation after payments; written procedures; loan agreement provisions; information technology; interpretation of terms and conditions in contracts; auditing rights; internal control checklists for cash cycle, receipts, payments, inventory, accounting, procurement, contracts, salaries, procurement and financial reporting.

4. Overall, there was good discussions and participation from the attendees. The presence of the two Deputy Secretaries General at the sessions was useful as they encouraged the staff to ask questions and acted as facilitators. At the end of the sessions positive feedback was received that the training had been very useful and that the NAA now has a better understanding of how loan projects should be audited. In the past, only four loans project audits had been undertaken and these audits had not been properly completed due to the delays the auditors were experiencing in obtaining information. The approach to auditing loan projects was to verify all the existing payment documentation since the inception of the project. The auditors had no clear audit objectives established prior to the commencement of the audit, the audit manual for loan projects that had been developed in an earlier ADB TA No. 2566CAM was not being used, the audit staff were not aware of the procurement, financial management and standard operating procedures manuals that had been issued by the MEF and were not conversant with the general conditions and provisions which were applicable to contracts.

5. At the conclusion of the workshops it was agreed that the approach to auditing loan projects will be changed and that specific audit objectives are to be established so that there is a clear expectation of the results of the audit. Copies of the key procurement, financial management and project management regulations were given to the NAA. The international Audit Specialist


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held a meeting with the Auditor General to provide him with feedback and recommendations for conducting loan project audits. It is pleasing to note that the recommendations relating to audit objectives and approach was accepted by the Auditor General who has since then instructed the directors of the audit departments to immediately change their approach to auditing loan projects in line with the training provided at this workshop.



APPENDIX 11B – Report on workshops held for Internal Audit in MAFF and MOWARM


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APPENDIX 11B - REPORT ON WORKSHOPS HELD FOR INTERNAL AUDIT IN MAFF AND MOWRAM

1. The TA terms of reference for the international Audit Specialist require the specialist to arrange initial training on internal audit for the three ministries and to raise the awareness of the internal audit function in the three ministries (TOR X). MAFF and MOWRAM have established internal audit departments whilst MRD has yet to establish the internal audit function.

2. A two day workshop was held on the 30 and 31 July 2008 for the audit staff in MAFF and MOWRAM to enable the staff to increase their understanding and approach to conducting internal audits. The NAA was also invited to participate. Thirty-three audit staff participated in the training comprising nineteen from MAFF, twelve from MOWRAM and two from NAA. The directors of internal audit from each of these ministries attended the training.

3. The training sessions were undertaken by the international audit specialist with the domestic audit consultant assisting with the interpretations. The training tools used included a Power Point presentation, handouts of training materials and slides, internal audit sub decree, internal control policy statement, law on audit and the Prakas issued for establishing the internal audit department. Methodologies on internal control identification and risk assessment including internal control checklists and samples of detailed internal auditing procedures were also discussed.

4. The participants were provided with an outline of a framework for determining risks and a model for preparing audit work plans based on risk assessment. The purpose of the workshop was to raise the awareness of the staff in increasing their knowledge of the basic principles of internal control, determining internal audit objectives and writing audit reports.

5. Overall, there was good discussions and participation from the attendees. The presence of the two directors of internal audit at the sessions was useful as they encouraged the staff to ask questions and acted as facilitators. At the end of the sessions positive feedback was received that the training had been very useful and that the internal audit staff now has a better understanding of how internal audit work has to be undertaken.

6. It was observed that the auditors had no clear idea of the nature of internal auditing. There was little understanding of the methodologies and procedures that need to be applied in conducting audits. The workshop provided the staff with an opportunity to raise questions and to reach a common understanding on the role and responsibilities and manner in which internal audit work has to be carried out. The participants were not familiar with the important role that the Ministry of Economy and Finance plays in the organizing and implementation of public financial management for the whole of government. The various regulations and laws issued by the MEF covering budget management, accounting, procurement, financial management and project management were explained and soft copies of the relevant legislation given to the directors of internal audit.

7. At the conclusion of the workshops it was agreed that the approach to internal auditing outlined during the workshop was different to that followed by the ministries. The participants accepted that a revised methodology was required and were keen to get further technical assistance to ensure that risk based internal audits in accordance with modern internal auditing standards could be conducted.


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8. Topics covered at the workshop included: internal audit sub decree; Prakas for establishing internal audit department; internal control policies; code of ethics for internal auditors; project management; budget preparation; accounting systems and procedures; procurement function and regulations; contracts management techniques and procedures; warehousing principles; external and internal auditing; asset management; audit objectives; financial reporting; internal controls; segregation of duties; reconciliation principles; dual control; sequential numbering; physical counts; segregation of functions; confirmations; secure storage; authorizations; certifications; cancelling of supporting documentation after payments; written procedures; loan agreement provisions; information technology; interpretation of terms and conditions in contracts; auditing rights; internal control checklists for cash cycle, receipts, payments, inventory, accounting, procurement, contracts, salaries, procurement and financial reporting; risk assessment; preparation of annual work plans; financial, performance and compliance auditing.



APPENDIX 11C – Timetable to develop internal audit manuals for MAFF and MOWARM


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APPENDIX 11C - TIMETABLE WITH A SET OF ACTIVITIES FOR DEVELOPING INTERNAL AUDIT MANUALS FOR MAFF AND MOWRAM

MINISTRY OF AGRICULTURE, FORESTRY AND FISHERIES

Activities Timetable

1. Risk assessment of key activities prepared. Nature of risks, materiality of monetary value, volume of transactions and quantitative data to be identified. Activities will cover head office departments, provincial and municipal offices; public and state institutions; and projects funded by overseas development assistance and domestically funded projects if material.

June 2009

2. Internal audit methodology for risk-based auditing to be documented; methodology to include planning, approach for documenting and understanding of existing systems, identification of controls, evaluation of internal controls, verification of internal controls, testing procedures, quality assurance, audit reporting and follow up procedures.

July 2009

3. Internal control checklists to be developed for revenue and cash receipts items covering land concessions, timber sales, forest by products, animal exports, management of zoo, sales of confiscated items and materials, permits for carpentry workshops, timber shop, permits for game fishing and shooting, leases of fishing lots, property leases, freezer facilities in Sihanoukville, permits for commercial fishing, prawning, aqua farming and crocodile farming, royalties, fees on inspections , livestock farming, fees from butchers, registration fees for pesticides, fertilizer, sale of seeds and food, fines and penalties. (Revenue collected in 2007 amounted to US$ 8.98m)

June through October 2009

4. Internal control checklists to be developed for recurrent budget expenditure and payments covering fuel and oil, food and agricultural produce, electricity, repairs and maintenance, accommodation allowances, salaries, position allowances, subsidies to public enterprises and subsidies to non-financial enterprises. (These items approximate to 70% of the total budget of US$14.87 m for 2007)

October –December 2009

5. Detailed audit programs to be prepared for evaluating efficiency and effectiveness of arrangements for ordering, purchasing, receiving, storing and issuing inventory items, maintenance spares, fertilizer, food, seeds and equipment utilization.

January 2010

6. Audit programs to be prepared for auditing rubber plantations and livestock units and other state enterprises that are engaged in commercial-type activities. Audit programs to cover production cycle, sales cycle, receipts cycle, payments cycle, stock cycle, accounting policies for replanting and birth of livestock and valuation of closing stock and land. (International accounting standard 41 for agriculture and

February 2010


Page 6

plantations sector to be applied as guidelines.)

7. Detailed audit programs to be prepared evaluating the efficiency and effectiveness of programs and projects and reliability of financial reports. Over the period 2006-2010 the following expenditures are planned: improving food security and diversifying agriculture $94.5m; improving agricultural research and extension services $16.316m; improving market access for agricultural products $13.150m; improving institutional and legislation frameworks $13.989m; improving land reforms $5.020m; improving fishery reforms $ 4m; and for forestry reforms

$6.3m. Audit programs to focus on compliance with procurement regulations, contract management, financial reporting, performance and asset recording and safeguarding.

June through December 2009

8. Audit programs to be developed for evaluating compliance with licensing agreements and concessions issued for agriculture, fisheries and forestry exploitation and for joint venture undertakings with private sector firms.

October 2009

9. Audit quality assurance procedures to be developed. June 2009

10. Guidelines for preparation of audit working papers to be developed. June 2009

11. Standards for preparing audit reports to be developed. June 2009

12. Separate section to be kept for inserting internal audit sub-decree, Prakas for internal audit department, MEF internal control policy statement, internal auditing

standards and code of ethics for audit staff.

June 2009

MINISTRY OF WATER RESOURCES AND METEREOLOGY


1. Risk assessment of key activities prepared. Nature of risks, materiality of monetary value, volume of transactions and quantitative data to be identified. Activities will cover head office departments, provincial and municipal offices; public and state institutions; and loan projects funded by overseas development assistance as well as domestically -funded projects if material.

June 2009

2. Internal audit methodology for risk-based auditing to be documented; methodology to include approach for documenting and understanding existing systems, identification of controls, evaluation of internal controls, and verification of internal controls, testing procedures, quality assurance, audit reporting and follow up procedures.

July 2009

3. The 2007 recurrent budget for MOWRAM does not show any revenue items. All applicable legislation will need to be studied to ensure that no

August 2009


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revenues are in fact due. Similarly land and property and other fixed assets such as equipment and bulldozer utilization records will need to be reviewed to determine whether any of these assets are being rented or hired. If there are any material sources of revenues detected internal control checklists will need to be prepared.

4. Internal control checklists to be developed for recurrent budget expenditure and payments. In 2008 total recurrent expenditure is estimated at US$ 6.079m of which 73% is attributable to fuel and oil, repairs, maintenance and rehabilitation of irrigation, drainage and reservoir infrastructure, salaries, position allowances, and social intervention costs.

June through October 2009

5. Detailed audit programs to be prepared for evaluating efficiency and effectiveness of arrangements for ordering, purchasing, receiving, storing and issuing inventory items, maintenance spares, pumps and irrigation equipment, fertilizer, food, and capital equipment utilization.

October through December 2009

6. The arrangements documented for resettlement operations will need to be studied and an audit program developed to ensure that proper processes are in place to eliminate or reduce corrupt practices or opportunities for fraud to take place.

January 2010

7. Detailed audit programs to be prepared for infrastructure projects in operation such as development and maintenance of canals and embankments, regulators and drainage channels, dug ponds, field layouts, installation of meteorological monitoring equipment and advisory extension services. (US$ 54.434 million planned over 2006-2010.) Audit programs to focus on compliance with procurement regulations, contract management, financial reporting and performance.

February through April 2010

8. Expenditure of $33.4 m is planned over 2006-2010 on flood and drought management, maintenance of flood management embankments, drainage channels. Audit procedures will need to be developed for evaluating adequacy of arrangements for disaster relief including processes for providing emergency relief, use of emergency pumping equipment and heavy construction machinery to carry out emergency repairs to channels and embankments.

May- June 2010

9. The increasing outsourcing of construction and infrastructure rehabilitation tasks require that the work of the contractors is properly supervised and certified. Audit programs for contracts management will need to be developed and major contracts audited regularly.

June 2010

10. Audit quality assurance procedures to be developed. June 2009

11. Guidelines for preparation of audit working papers to be developed.

12. Standards for preparing audit reports to be developed. June 2009


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13. Separate section to be kept for inserting internal audit sub-decree, Prakas for internal audit department, MEF internal control policy statement, internal auditing standards and code of ethics for audit staff.

April 2009



APPENDIX 11D – Elements of internal audit work plans for MAFF and MOWARM


Page 9

APPENDIX 11D - ELEMENTS OF INTERNAL AUDIT WORK PLANS FOR MAFF AND MOWRAM

MINISTRY OF AGRICULTURE, FORESTRY AND FISHERIES


1. Revenue cycle in recurrent budget.

The following sources of revenue will be subject to audit coverage: land concessions, timber sales, forest by-products, animal exports, management of zoos, sales of confiscated items and materials, permits for carpentry workshops, timber shops, permits for game fishing and shooting, leases of fishing lots, property leases, freezer facilities in Sihanoukville, permits for commercial fishing, prawning, aqua farming and crocodile farming, royalties, fees on inspections, livestock farming, fees from butchers, registration fees for pesticides, sale of fertilizer, sale of seeds and food, fines and penalties. Revenue collected in 2007 amounted to US$7.5m.

Audit focus will be on evaluating the internal control systems in place over the collection of revenue, accounting for all cash due from revenues, transfers of revenues to the national/provincial treasuries, processes in place for collecting overdue revenues, processes for monitoring compliance with concessions and agreements that form the basis for deriving revenues

November 2009

2. Expenditure cycle in recurrent budget.

Audits of expenditure covering fuel and oil, food and agricultural produce, electricity, repairs and maintenance, accommodation allowances, salaries, position allowances, subsidies to public enterprises and subsidies to non-financial enterprises. These items approximate to 70% of the total recurrent budget of US$ 14.87 m for 2007.

MAFF has 17 departments and sub-units, 14 administrative public institutions and public entities and 24 provincial and municipal offices. Each of these 55 organizational units will need to be audited on either an annual, biennial or triennial basis, based on a risk assessment of each unit. Units that are ranked as high risk will need to be audited annually, those of medium risk audited every two years and those considered low risk on a three year cycle.

Audit focus will be on verifying that the expenditures were incurred for business purposes, payments were made for goods and services that were received by the entity, internal controls over the expenditure cycle are adequate, transactions were properly authorized and invoices were independently checked and verified prior to payment.

January 2010

3. Audits of economy, efficiency and effectiveness of arrangements for ordering, purchasing, receiving, storing and issuing inventory items, maintenance spares, fertilizer, food, seeds and equipment

February 2010


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utilization.

This procurement and warehousing audit will focus on those organizational units that are engaged in procuring and storing materials and spares of high value. Audit emphasis will be on compliance with the procurement regulations, internal controls over independent certification of the quality and quantity of goods received into store, practices for issuing stocks and accountability over the use of these store items, disposal of stocks and accounting for any sales.

4. Audit of the following rubber plantations: Chubb, Beung Ket, Chamka Andong, Memot, Snual, Krek and Peam Cheang.

Audit focus to be on control frameworks over production, sales, receipts, payments, stocks, cash and bank balances and asset utilization. Audit will also focus on the relevancy of the accounting policies adopted for replanting programs, valuation of closing stock and land and financial reporting. (International accounting standard 41 for agriculture and plantations sector to be applied as guidelines.)

February 2010

5. Livestock units and other state enterprises that are engaged in commercial type activities.

Audit to focus on production, sales, cash receipts, payments, stock and accounting policies and controls over birth, death and disposal of livestock and valuation of closing stocks and land. (International accounting standard 41 for agriculture and plantations sector to be applied as guidelines.)

February 2010

6. Evaluating the efficiency and effectiveness of programs and projects and reliability of project financial reports.

Over the period 2006-2010 the following expenditures are planned: improving food security and diversifying agriculture $94.5m; improving agricultural research and extension services $16.32m; improving market access for agricultural products $13.15m; improving institutional and legislation frameworks $13.99m; improving land reforms $5.02m; improving fishery reforms $4.0m and for forestry reforms $6.3m.

Audit programs to focus on compliance with procurement regulations, financial management regulations, standard project operating regulations, contracts management, expenditure management, financial reporting, and asset recording and safeguarding.

January through June 2010

7. Compliance audit of agreements and concessions.

Evaluating compliance with licensing agreements and concessions issued for agriculture, fisheries and forestry exploitation and agreements for joint venture undertakings with private sector firms.

December 2009

8. Fixed assets management

Audit to focus on accuracy of asset records, existence, ownership, valuation, disposal, utilization, protection and safeguarding.

June 2010


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MINISTRY OF WATER RESOURCES AND METEREOLOGY


1. Revenue cycle

The 2007 recurrent budget for MOWRAM does not show any revenue items. All applicable legislation will need to be studied to determine whether there are activities which give rise to revenues. Similarly records relating to land, property and other fixed assets such as equipment will need to be reviewed to determine whether any of these

assets are being rented or sold.

August 2009

2. Expenditure cycle in recurrent budget.

In 2008 total recurrent expenditure is estimated at US$ 6.078m of which 73% is attributable to fuel and oil, repairs, maintenance and rehabilitation of irrigation, drainage and reservoir infrastructure, salaries, position allowances, and social intervention costs..

MOWRAM has nine departments and sub-units and 24 provincial and municipal offices. Each of these 33 organizational units will need to be audited on either an annual, biennial or triennial basis, based on a risk assessment of each unit. Units that are ranked as high risk will need to be audited annually, those of medium risk audited every two years and those considered low risk on a three year cycle.

Audit focus will be on verifying that the expenditures were incurred on business purposes, payments were made for goods and services that were received by the entity, internal controls over the expenditure cycle are adequate , transactions were properly authorized and invoices were independently checked and verified prior to payment.

November 2009 through March 2010

3. Audits of economy, efficiency and effectiveness of arrangements for ordering, purchasing, receiving, storing and issuing inventory items, maintenance spares, pumps, irrigation equipment, fertilizer, food, and equipment utilization.

This procurement and warehousing audit will focus on those organizational units that are engaged in procuring and storing materials and spares of high value. Audit emphasis will be on compliance with the procurement regulations, internal controls over procurement, independent certification of the quality and quantity of goods received into store, practices for issuing stocks and accountability over the use of these store items, disposal of stocks and accounting for sales.

December 2009 through April 2010

4. Resettlement operations.

Audit will focus on the adequacy of the control arrangements in place over resettlement activities including the adequacy of procedures, accountability of payments, valuations of assets acquired, and reasonableness of valuations, identification of eligible participants and timely delivery of services to those affected. The procedures in place for

February 2010


Page 12

resettlement operations will be subject to review by the auditors for adequacy and effectiveness and to ensure that proper processes are in place to eliminate or reduce corrupt practices or opportunities for fraud to take place.

5. Evaluating the efficiency and effectiveness of programs and projects and reliability of project financial reports.

US$ 54.4m expenditure is planned over 2006-2010 on development and maintenance of canals and embankments, regulators and drainage channels, dug ponds, field layouts, installation of meteorological monitoring equipment and advisory extension services.

Audit to focus on compliance with procurement regulations, contract management, financial reporting and performance.

May 2010 through July 2010

6. Efficiency and effectiveness of disaster relief and emergency relief programs and flood and drought management projects.

Expenditure of $33.4m is planned over 2006-2010 on flood and drought management, maintenance of flood management embankments, drainage channels.

Audit emphasis to be placed on the adequacy of the control procedures for evaluating adequacy for disaster relief, emergency relief and use of emergency pumping equipment and heavy construction machinery to carry out emergency repairs to channels and embankments.

July 2010 through September 2010

7. Procurement and contracts management of infrastructure rehabilitation and development

The increasing outsourcing of construction and infrastructure rehabilitation tasks require that qualified contractors are selected and that the work of the contractors is properly supervised and certified. Audits of procurement and contracts will need to be undertaken to ensure that the work of the contractors is properly supervised and payments made reflect work correctly completed. The auditors will ensure compliance with the regulations issued by the MEF for procurement, financial management and project management of externally assisted projects.

July 2010



APPENDIX 11E – MAFF and MOWRAM organizational structures


Page 13

APPENDIX 11E

A. MAFF

1. MAFF Current Organization Structure of Internal Audit Department

Deputy Directors (2)

Minister

Director

Admin Office Audit 2 Office Audit 3 Office Audit 1 Office

• Administration dept;

• Personnel and human

resources development

dept;

• Forestry administration;

• Agriculture promotion

dept;

• Agri-motor dept;

• Units having planned

expenditure budgets from

credits and grants;

• Research and Agriculture

Development Institute;

• Fisheries Company;

• Chub Rubber Plantation;

• Beung Ket Rubber

Plantation;

• Kandal;

• Svay Rieng;

• Prey Veng;

• Kampong Cham;

• Kratie;

• Ratana Kiri;

• Mondul Kiri;

• Stueng Treng; and

• Other duties assigned by

the Dept.

• Secretariat;

• Planning and Statistics

Dept;

• International Cooperation

Dept;

• Fisheries Dept;

• Agro-industry Dept;

• Information and

Document Centre;

• Cambodian Rubber

Research Institute;

• National School of

Agriculture – Kampong

Cham;

• Agro-materials company;

• Chamka Andong Rubber

Plantation;

• Memot Rubber

Plantation;

• Phnom Penh;

• Takeo;

• Sihanoukville;

• Kampot;

• Kep;

• Koh Kong;

• Kampong Speu;

• Kampong Chnang; and

• Other tasks assigned by

the Dept.

• Rubber Plantation Dept;

• Agro-legislation Dept;

• Accounting and Finance

Dept;

• Agronomy and

Agricultural Land

Improvement Dept; and

• Animal Health and

Production Dept

• Royal University of

Agriculture;

• Prek Leap National

School of Agriculture;

• Snual Rubber Plantation;

• Krek Rubber Plantation;

• Peam Cheang Rubber

Plantation

• Battombang;

• Siem Reap;

• Kampong Thom;

• Preah Vihear;

• Oddor Mean Chey;

• Banteay Mean Chey;

• Pailin;

• Posat;


the Dept.

Responsibilities as per Prakas No 116 (20 March 2006)


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2. MAFF Recommended Organization Structure of Internal Audit Department

B. Recommended Organization Structure of Internal Audit Department

Responsibilities as per Prakas No. 116 (20 March 2006) covering personnel, budgeting, accounting, payrolls, human resources, records management, advances, annual report, security, assets management,

Minister

Audit Committee

Director

Deputy Director Deputy Director Deputy Director

Office 1 - Agriculture

Office 2 - Forestry

Office 4 - Admin &

Personnel

Office 3 - Fisheries

Office 5 - Research, quality assurance, IT &

NAA/ MEF Coordination

• Agriculture Promotion

Dept

• Agro-Motor Dept

• Research & Agriculture

Development Institute

• Agro-Industry Dept

• Cambodian Rubber

Research Institute

• Kampong Cham National

School of Agriculture

• Agro-Materials Company

• Rubber Plantation Dept

• Agro-Legislation Dept

• Agronomy and

Agricultural &

Improvement Dept

• Animal Health and

Production Dept

• Royal University of

Agriculture

• Prek Leap National

School of Agriculture

• Commune/ district and

provincial/ municipal

depts

• Forestry

Administration

• Administration

Dept

• Personnel and

Human

Resources

Development

Dept

• Secretariat

• Planning and

Statistics Dept

• Commune/

district and

provincial/

municipal

depts..

• Fisheries

Company

• Fisheries

Administration

• International

Cooperation Dept

• Information and

Document Centre

• Accounting and

Finance Dept

• Commune/ district

and provincial/

municipal

departments

• Research

and training

• Quality

assurance

• IT audit

support to

offices 1,2

and 3

• Interface with

NAA/ MEF


Page 15

3. Comments on IAD organization structure in MAFF

1. The current organization structure for IAD has four offices which include one administration and personnel office and three technical audit offices. The administration and personnel office is in charge of all administration and personnel matters for the IAD and each of the three audit offices is in charge of the audits of departments and sub-units, administrative public institutions and public entities and provincial/ municipal departments relating to agriculture, fisheries and forestry.

a. Specialization

2. In the current organizational arrangements, each member of the audit staff will need to be competent in the technical aspects collectively relating to agriculture, forestry and fisheries. Each member of the audit staff thus needs to acquire industry knowledge relating to agriculture, forestry and fisheries in addition to auditing methodologies and procedures to be able to perform competently.

3. It is recommended that the department be restructured so that all agriculture related activities are assigned to one audit office, forestry related activities allocated to the second office and fisheries related activities assigned to the third audit office. Such an arrangement will encourage industry specialization within each audit office resulting in more effective audits being completed.

4. The head office departments which support all three industry sectors in MAFF have been allocated to Audit Offices 2 and 3 to distribute the work load more evenly as Audit Office 1which covers agricultural activities is considered to be the largest.

b. Deputy Directors

5. The department currently has two deputy directors. There are no clear responsibilities for the two deputy directors and in the existing organization structure the deputy directors are not responsible for managing any of the audit offices. The director of IAD allocates work as he deems fit to each of the deputies. It is recommended that each deputy director be assigned specific responsibilities for managing the execution of the work plan of the audit offices. The deputy directors must be made responsible for developing the annual and three year work plan for their respective areas of responsibility and made fully accountable to ensuring that the work plan is properly completed. Each of the deputies must be made responsible for all aspects of audit work commencing with planning through issuance of the final report. In the recommended organization structure the number of deputy directors has been increased from two to three, with each deputy being in charge of one audit office.

c. Quality assurance, research and training and information technology

6. The function of quality assurance has not been recognized in the current organization structure. The internal auditing standards of the RGC require that all audit work undertaken be subject to quality assurance and this is primarily the responsibility of each of the audit offices that are responsible for the conduct of the audit. It is also good practice for independent internal reviews of quality assurance to be done of a sample of audits completed to ensure that the audit


Page 16

work has been completed in accordance with the internal auditing standards and the auditing procedures manuals.

7. Since the IAD is at the very early stages of start up and the staff are not professionally qualified or experienced in internal auditing, there is a need for a research and training capability to be established to support the audit staff with training in modern internal auditing. There is no provision in the current organization structure for such a function.

8. The developments in information technology whilst essential in today’s management environment also create new risks that need to be managed properly. Internal auditors need to evaluate the risks and controls that are associated with computer operations. Within IAD there is a need to have at least one auditor who can be trained in computer audit to support the three audit offices when audits are being conducted of operations that are reliant on computer systems.

9. It is recommended that a separate office be established with responsibilities for research and training, information systems auditing and quality assurance. This office can report directly to the director. The information systems auditor will work with the three audit offices in assisting them in areas of information technology audit. This office will also coordinate the work flows between NAA and the MEF in regard to audit work plans and submission of audit reports.

10. Chart B above has been prepared and is the recommended organization chart for MAFF. The shortcomings noted in the current organizational structure have been addressed in the recommended structure.

11. The recommended structure also provides for the establishment of an audit committee within MAFF. This committee will have responsibility for oversight of the internal audit activity. The head of audit in addition to reporting to the minister will also report to the audit committee. The creation of such a committee will enhance the independence of internal audit. The audit committee should have at least three senior executives who are not heavily involved in the operations of the ministry that are subject to regular audit review. The committee’s independence will be further strengthened by having a representative from the Ministry of Economy and Finance on the committee.

B. MOWRAM

1. Current Organization Structure of Internal Audit Department


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Deputy Directors (2)

Minister

Director

Audit Office 3 Audit Office 2 Admin. Office Audit Office 1

• Administration and

personnel department;

• Finance department;

• Engineering department;

• Phnom Penh Office

• Kandal Office

• Takeo Office

• Kampot Office

• Kep Office

• Svay Rieng Office

• Prey Veng Office

• Pre-condition, Evaluation

and Contract Unit and

Procurement Unit; and


the Department.

• Planning and

International Cooperation

Department;

• Agriculture Hydraulics

Department;

• Water Resources

Management and

Conservation

Department;

• Kampong Cham Office

• Kratie Office

• Stueng Treng Office

• Ratana Kiri Office

• Mondul Office

• Preah Vihear Office

• Kampong Thom Office

• Kampong Speu Office

• Sihanoukville Office; and


the Department.

• Hydraulics and Aquatics

Department;

• Clean Water and

Sanitation Department;

• Meteorology Department;

• Pailin Office

• Battambang Office

• Banteay Mean Chey

Office

• Oddor Mean Chey Office

• Siem Reap Office

• Kampong Chhnang Office

• Koh Kong Office

• Pursat Office ; and


the Department.

Responsibilities as per Prakas No 182 (17 November 2007) covering personnel, budgeting, accounting, payrolls, human resources, records management, advances, annual report, security and assets management.


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2. Recommended Organization Structure of Internal Audit Department

B. Recommended Organization Structure of Internal Audit Department

Minister

Audit Committee

Director

Deputy Director Deputy Director

Office 1 Office 2

Office 3

Admin. & Personnel

Office 4

Research and training, quality assurance, IT

audit

• Administration and personnel

Dept.

• Clean Water and Sanitation Dept.

• Finance Dept.

• Engineering Dept.

• Kandal Office

• Takeo Office

• Kampot Office

• Kep Office

• Svay Rieng Office

• Prey Veng Office

• Pailin Office

• Phnom Penh Office

• Battambang Office

• Banteay Mean Chey Office

• Pursat Office

• Pre-condition, Evaluation and

Contract Unit and Procurement

Unit; and

• Planning and International

Cooperation Dept.

• Meteorology Dept.

• Agriculture Hydraulics Dept.

• Water Resources

Management and

Conservation Dept.

• Kampong Cham Office

• Kratie Office

• Stueng Treng Office

• Ratana Kiri Office

• Mondul Kiri Office

• Preah Vihear Office

• Kampong Thom Office

• Kampong Speu Office

• Sihanoukville Office

• Oddor Mean Chey Office

• Siem Reap Office

• Kampong Chhnang Office

• Koh Kong Office

• Other tasks assigned by the

dept.

• Research

• Training

• Quality

assurance

• IT

• Interface with

NAA/ MEF

Responsibilities as per Prakas No. 182 (17 November 2007) covering personnel, budgeting, accounting, payrolls, human resources, records, security and assets management


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3. Comments on iad organization structure in mowram

12. Currently, the IAD has 3 audit offices and one administration and personnel office. In the current structure responsibility for auditing the head office departments in MOWRAM and the provincial/municipal offices and administrative public institutions have been distributed equally between to the three audit offices. The three audit offices and the administration and personnel office report directly to the director.

13. There are two deputy directors in IAD but they do not have any specific responsibilities assigned to them. The director allocates work to the two deputies as he deems necessary. All four offices in IAD report directly to the director. It is recommended that the number of audit offices be reduced from three to two and that each of these offices be placed under the direct control of a deputy director. The deputy directors must be made responsible for developing the annual and three year work plan for their respective areas of responsibility and made fully accountable to ensuring that the work plan is properly completed. Each of the deputy directors must be made responsible for all aspects of audit work commencing with planning through issuance and follow up of the final report.

a. Quality assurance, research and training and information technology

14. There is scope to establish a separate office to undertake quality assurance reviews. The internal auditing standards of the RGC require that all audit work undertaken be subject to quality assurance. The primary responsibility for quality control should rest with of each of the audit offices that are responsible for the conduct of the audit. It is also good practice for an independent internal review of quality assurance to be done at regular intervals by a separate group to ensure that the audit work has been completed in accordance with the internal auditing standards and the auditing procedures manuals.

15. Since the IAD is at the very early stages of start up and the staff are not professionally qualified or experienced in internal auditing, there is also a need for a research and training capability to be established to support the audit staff with training in modern internal auditing. There is no provision in the current organization structure for such a function.

16. The developments and growth in information technology creates new risks that need to be managed properly. Internal auditors need to evaluate the risks and controls that are associated with computer operations. Within IAD there is a need to have at least one auditor who can be trained in computer audit to support the two audit offices when audits are being conducted of operations that rely on computer systems.

17. It is recommended that a separate office be established with responsibilities for research and training, information systems auditing and quality assurance. This office can report directly to the director. The information systems auditor will work with the three audit offices in assisting them in areas of information technology audit. This office can also coordinate the work flows between NAA and the MEF in regard to audit work plans and submission of audit reports.

18.


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19. Chart B is the recommended organization chart for MOWRAM. The shortcomings noted in the current organizational structure have been addressed in the recommended structure.

20. The recommended structure also provides for the establishment of an audit committee within MOWRAM. The establishment of audit committees is now an important element in supporting good governance and strengthening internal control and internal auditing. Audit committees have responsibility for oversight of internal control systems and internal and external auditing activities. The director of audit in addition to reporting to the minister should also report to the audit committee. The creation of such a committee will enhance the independence of internal audit. The audit committee should have at least three senior executives from within the ministry who are not heavily involved in the operations that are subject to regular audit review. The committee’s independence will be further strengthened by having a representative from the Ministry of Economy and Finance on the committee.

b. Position Descriptions

Director of Internal Audit Department

Authority:

21. The director of the internal audit department is authorized to direct a broad, comprehensive program of internal auditing within the ministry. Internal auditing examines and evaluates the adequacy and effectiveness of the systems of internal control established by the ministry to direct its activities toward the accomplishment of its objectives in accordance with ministry policies and plans. In accomplishing these activities, the director of auditing and members of the auditing staff are authorized to have full, free, and unrestricted access to all ministry functions, records, property, and personnel.

Responsibility:

22. The director of internal audit is responsible for:

• Planning , directing, managing, organizing, controlling and monitoring the internal audit function;

• Establishing policies and procedures for the auditing activity and directing its technical and administrative functions;

• Developing and executing a comprehensive audit program for the evaluation of the internal controls provided over all ministry operations and activities;

• Examining the effectiveness of all levels of management in their stewardship of ministry resources and their compliance with established policies and procedures;

• Recommending improvement of internal controls designed to safeguard ministry resources and ensure compliance with laws and regulations;

• Reviewing procedure and records and reports for their adequacy to accomplish intended objectives;

• Authorizing the publication of reports on the results of audit examinations, including recommendations for improvement and signing audit reports;

• Appraising the adequacy of actions taken by operating management to correct reported deficient conditions; accepting adequate corrective action; continuing reviews with appropriate management personnel on action the director of audit considers inadequate until there has been a satisfactory resolution of the matter;


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• Conducting special examinations at the request of management;

• Coordinates the audit program with the National Audit Authority and MEF;

• Ensuring that internal audit staff are skilled, competent and professional and perform audit work in compliance with the internal auditing standards of the RGC.

Reporting:

23. The director of audit will report to the minister, functionally and administratively. Periodically, the head of audit will report to the audit committee in accordance with the responsibilities outlined in the audit committee constitution.

Deputy Director of Internal Audit Department

Purpose:

• -Manage the audit office assigned.

• -Develop a comprehensive, practical program of audit coverage for assigned areas of audit.

• -Obtain accomplishment of the audit work plan in accordance with acceptable audit standards and

• stipulated schedules

• -Maintain effective working relationships with executive and operating management

• -Motivate and train staff

Authority and responsibility:

24. Within the general guidelines provided by the director of auditing:

• Prepare a comprehensive annual and long range program of audit coverage for the audit office assigned based on a risk assessment of operations and activities;

• Obtain and maintain an audit staff capable of accomplishing the internal audit function;

• Assign audit areas, staff, and budget to the audit teams;

• Establishes standards of performance and by review, determines that performance meets those standards;

• Provides the director of audit with reports on audit coverage and the results of the audit activity, and interprets those results so as to improve the audit program and the audit coverage;

• Ensures that a comprehensive training program is in place to ensure that staff keep abreast of modern auditing techniques and best practices;

• Reviews audit reports for quality control and thoroughness before the reports are submitted to the director of audit for approval and release;

• Ensures that the auditing procedures manuals are adequate and are being applied in the conduct of the audits and that the internal auditing standards are being complied with;

• Maintains sound working relationships with senior operating management of the ministry; and

• Carries out other tasks as requested by the director of internal audit.


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Reporting:

25. The deputy director will report to the director of the internal audit department.

Chief of Office

Purpose:

• -Supervise the activities of the audit teams assigned to the review of various organizational and functional activities;

• -Ensure conformance with acceptable audit standards, plans, budgets, and schedules;

• -Maintain effective working relations with operating management; and

• -Provide for and conduct research, develop manuals, audit programs and training guides.

Authority and responsibility

26. Under the general guidance of the deputy director of auditing:

• Supervises the work of auditors engaged in the reviews of organizational and functional activities identified in the work plan;

• Provides a comprehensive, practical program of annual audit coverage within the general areas assigned by the deputy director of auditing;

• Determines areas of risk, and classifies audit projects as to degree of risk and significance as to frequency of audit coverage;

• Schedules projects and staff assignments so as to comply with management’s needs, within the scope of the department’s overall program;

• Reviews and approves the purpose, scope, and audit approach of each audit project;

• Directs audit projects to see that professional standards are maintained in the planning and execution and in the preparation of working papers;

• Counsels and guides the audit teams to see that approved audit objectives are met and that adequate practical coverage is achieved;

• Reviews and edits audit reports and discusses the audit report with appropriate management in company of the audit team leader;

• Provides for and performs research on audit techniques;

• Provides formal plans for the recruiting, selecting, training, evaluating and supervising of staff. Develops manuals and other training aids;

• Reviews audit reports prepared by the team leader and ensures reports produced are accurate, comprehensive, objective and fair;

• Identifies factors causing deficient conditions and recommends courses of action to improve the conditions; and

• Provides for a flow of communication from operating management to the deputy director and director of audit. Assists in evaluating overall results of the audits.

Reporting:

27. The chief of the audit office reports to the deputy director of audit.


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Vice-Chief of Audit Office - Team Leader

Purpose:

• Conduct reviews of assigned organizational and functional activities;

• Evaluate the adequacy and effectiveness of the internal controls over those activities;

• Determine whether organizational units in the ministry are performing their planning, accounting, custodial or control activities in compliance with management instructions, applicable statements of policy and procedures, and in a manner consistent with ministry objectives and high standards of administrative practice;

• -Plan and execute audits in accordance with accepted standards;

• -Report audit findings, and to make recommendations for correcting unsatisfactory conditions,

• improving operations and reducing costs;

• -Perform special reviews at the request of management; and

• -Direct the activities of assistants.

Authority and responsibility:

28. Under the general guidance of the deputy director and chief:

• Surveys functions and activities in assigned areas to determine the nature of operations and the adequacy of the systems of control to achieve established objectives;

• Determines the direction and thrust of the proposed audit effort;

• Plans the theory and scope of the audit, and prepares an audit program;

• Determines the auditing procedures to be used, including statistical sampling and the use of electronic data processing equipment;

• Identifies the key control points of the system;

• Evaluates a systems effectiveness, through the application of a knowledge of business systems, including financial, manufacturing, engineering, procurement, and other operations, and understanding of audit techniques;

• Recommends the necessary staff required to complete the audit;

• Performs the audit in a professional manner, and in accordance with the approved audit program;

• Obtains, analyses and appraises evidentiary data as a base for an informed, objective opinion on the adequacy and effectiveness of the system and the efficiency of performance of the activities being reviewed;

• Directs, counsels, and instructs the audit assistants assigned to the audit, and reviews their work for sufficiency of scope and for accuracy;

• Makes oral or written presentations to management during and at the conclusion of the audit, discussing deficiencies and recommending corrective action to improve operations and reduce costs;

• Prepares formal written reports, expressing opinions on the adequacy and effectiveness of the system and the efficiency with which activities are carried out;


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• Appraises the adequacy of the corrective actions taken to improve deficient conditions.

Reporting:

29. The vice-chief of audit office reports to the deputy director.

Audit assistant

Purpose

• -Conduct or assist in conducting reviews of assigned organizational and functional activities;

• -Evaluate the adequacy and effectiveness of the internal controls over those activities;

• -Determine whether organizational units in the ministry are performing their planning, accounting, custodial or control activities in compliance with management instructions, applicable statements of policy and procedures, and in a manner consistent with ministry objectives and high standards of administrative practice;

• -Plan and execute audits in accordance with accepted standards;

• -Report audit findings and to make recommendations for correcting unsatisfactory conditions,

• improving operations and reducing costs; and

• -Perform or to assist in the performance of special reviews at the request of management.

Authority and responsibility

30. Under the general guidance of the deputy director and team leader:

• Surveys functions and activities in assigned areas to determine the nature of operations and the adequacy of the systems of control to achieve established objectives;

• Determines or assists in determining the direction and thrust of the proposed audit effort;

• Plans or assists in planning the theory and scope of the audit, and prepares an audit program;

• Determines or assists in determining the auditing procedures to be used, including statistical sampling and the use of electronic data processing equipment;

• Identifies or assists in identifying the key control points of the system;

• Performs the audit in a professional manner, and in accordance with the approved audit program;

• Obtains, analyses and appraises evidentiary data as a base for an informed, objective opinion on the adequacy and effectiveness of the system and the efficiency of performance of the activities being reviewed;

• Makes or assists in making oral or written presentations to management during and at the conclusion of the audit, discussing deficiencies and recommending corrective action to improve operations and reduce costs;


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• Prepares formal written reports as requested, expressing opinions on the adequacy and effectiveness of the system and the efficiency with which activities are carried out; and

• Appraises or assists in appraising the adequacy of the corrective actions taken to improve deficient conditions.

Reporting

31. The audit assistant reports to the chief of office.



APPENDIX 11F – Networking Arrangements between NAA and Internal Audit: TOR and cost estimates


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Appendix 11F - NETWORKING ARRANGEMENTS BETWEEN NAA AND INTERNAL AUDIT: TERMS OF REFERENCE AND COST ESTIMATES

A. BACKGROUND

1. Article 41 of the Law on Audit of 2000 requires each ministry and state institution to establish an internal audit department. The law also requires copies of all internal audit reports to be submitted to the National Audit Authority (NAA). The arrangements and responsibilities for the organization and functioning of internal audit are outlined in the internal audit sub-decree No. 40 ANK/BK dated 15 February 2005. Article 7 (12) of the sub-decree requires internal audit to coordinate audit efforts with the NAA to ensure adequate coverage and to minimize duplication of work.

2. The thrust of Platform II of the PFMRP which will commence at the end of 2008 includes improving internal control and making managers more accountable. Platform II has identified the following audit-related activities for implementation over the next two years:

• All budget entities to have internal audit established and adequate internal auditing systems in place;

• Improved mechanisms to ensure effective response to audit findings within budget entities;

• Internal audit departments in budget entities to submit annual audit plans based on risk assessment criteria recommended by MEF;

• Mechanisms to be established for reviewing audit reports and feedback of constructive suggestions;

• Auditing procedures manual to be developed for MEF internal audit department;

• Improved audit reporting formats to be developed; and

• Organizational development including capacity development and strategies and polices for successful internal auditing.

3. Internal auditing is a completely new activity within the RGC. Of the 26 line ministries 24 have established an internal auditing activity over the past two years. The internal audit functions have been established by these ministries without much assistance or expertise. There are no qualified internal audit professionals working in the government sector and there is currently very little understanding or knowledge of implementing effective internal auditing systems. The NAA is also a relatively young organization. Whilst it has an important role to play in monitoring the implementation of internal audit recommendations, the NAA too does not have sufficient capacity currently to monitor the effectiveness of internal audit. NAA has been fortunate in receiving technical assistance from key donors such as the ADB, World Bank, GTZ and DANIDA for improving its external auditing capability though little assistance has been provided to it in the area of internal auditing. The budget entities have to date not received any technical assistance in developing their internal auditing activity and are finding it difficult to make good progress towards achieving professional standards. To fill this need some assistance in internal control and audit is currently being considered under the PFMRP for all the budget entities and by the ADB for MAFF, MOWRAM and MRD.

4. The National Audit Authority, the MEF and the internal audit departments of the budget entities are the key stakeholders in improving accountability. Considering the urgent need to


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improve internal auditing capacity it will be useful to develop some networking arrangements between the internal audit departments of the budget-funded entities, MEF internal audit and the NAA to promote internal audit best practice and improve coordination of the internal and external auditing activity.

5. The establishment of a Coordinating Committee for Internal Audit (CCIA) could be a tool for improving communications, sharing knowledge, assisting each other and raising awareness of modern internal audit philosophy and practices among all the stakeholders.

B. OBJECTIVE

6. The objective of the CCIA is to encourage, promote, develop and raise the standard of internal auditing so that internal auditors working in the government are skilled and competent to undertake internal audits in line with the standards for the professional practice of internal auditing.

C. TERMS OF REFERENCE OF CCIA

7. The proposed terms of reference are to:

(i) Raise awareness of risks in the operations and activities undertaken by the budget funded entities as a basis for each ministry preparing a risk based audit work plan;

(ii) Discuss and provide guidance on standardizing the internal audit methodology, procedures, checklists, working papers and reporting formats;

(iii) Discuss and issue a consultative note on the annual report on the public internal audit activities and submit it to the Government;

(iv) Arrange for a one day workshop to be held each half year with the assistance of an in-country internal audit expert;

(v) Liaise with the professional accounting and auditing bodies, accounting firms and universities, business schools, EFI, Centre for Banking Studies and other educational institutions in Cambodia for raising the standard of internal auditing education;

(vi) Develop strategies for establishing a local association of internal auditors in Cambodia with participation of both the public and private sectors and endorsement from the International Institute of Internal Auditors;

(vii) Act as a source of information and knowledge and provide advisory services to internal auditors on any issues that emerge in the course of their work.

D. ORGANIZATION OF CCIA

Membership

8. There will be ten members appointed to the CCIA:

• Director of internal audit in MEF-Chairman;

• Director of internal audit in MOEYS;

• Director of internal audit in MOH;

• Director of internal audit in MAFF;

• Director of internal audit in MRD;

• Director of internal audit in NBC;


Page 28

• Director of Audit Office, NAA;

• A professor from a university or business college;

• Representative from a reputable public accounting firm;

• Head of internal audit of an international private sector organization.

9. Members will be appointed for a two year term of office. The secretary of the committee will be an internal auditor from one of the ministries as nominated by the committee. The MEF should provide the CCIA with the technical secretariat support.

Meetings

10. Proposed rules for meeting are:

(i) Only committee members are entitled to attend meetings. A member who is unable to attend a meeting may appoint another person from the organization to attend. The committee may invite such other persons (e.g. the DG, SG, head of internal audit from the private sector, audit expert from a consulting firm, academic from the university, NAA executive etc) to its meetings, as it deems necessary;

(ii) The NAA and internal audit directors and other experts should be invited to make

short presentations to the committee as appropriate;

(iii) Meetings shall be held not less than four times a year;

(v) Special meetings may be convened as required. The secretary will convene a meeting on receipt of a request by the chairman or member of the committee;

(vi) The secretary shall circulate the agenda and supporting documentation to the committee members a month in advance of each meeting;

(vii) The secretary of the committee shall circulate the minutes of meetings to members of the committee.

E. COST ESTIMATES FOR THREE YEARS

No Item US$

1 In-country internal audit expert’s fees and per diem (2 days consulting per year for three years at $800 per day net)

4,800

2 Conference costs – 2 from each ministry = 52 personsx2x3x$5

1,560

3 Secretarial services 15 meetings @$100 1,500

4 Refreshments for 15 meetings @$50 750

5 Meeting allowances 9 members x15x$20 2,700

6 Printing and photocopying research papers 2,000

7 Contingencies 2,000

Total $15,310



APPENDIX 12 - CAMBODIA DRAFT LAW ON ADMINISTRATIVE MANAGEMENT OF CAPITAL, PROVINCES, MUNICIPALITIES, DISTRICTS AND KHANS (D&D ORGANIC LAW-

SUMMARY AND COMMENTS


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CAMBODIA DRAFT LAW ON ADMINISTRATIVE MANAGEMENT OF CAPITAL, PROVINCES, MUNICIPALITIES, DISTRICTS AND KHANS (D&D ORGANIC LAW-

SUMMARY AND COMMENTS

1. The following is a brief summary of the main provisions of the draft law and some comments on its provisions.

A. Chapter 1 - General Provisions

2. Sub-national administrations are to be governed in accordance with the principles of “unified administration” (Article2).

3. Phnom Penh is divided into khans (7) and sangkats (76) (Article 4) and provinces are divided into municipalities and districts, with municipalities divided into sangkats and districts into communes (Article 5)

4. Communes and sangkats are to be administered under the existing Law on the Administrative Management of Communes/sangkats (Article 3) (except for some specific provisions in this organic law. Each administrative unit will have a council elected under the Law on Elections (Article 10).

5. Articles 6 and 7 provide the methods of changing the geographical boundaries of the various sub-national administrative units.

6. Comment: The concept of “unified administration” is not defined.

B. Chapter 2 - Councils

1. Section 1 Capital, Provincial, Municipal, District and Khan Councils

7. Councils are to be chaired by the person at the top of the candidates’ (party) list which occupies the most seats in the council (Article 17). The number of councillors to be elected to each council is to be determined by sub-decree initiated by the Minister of Interior within the range of numbers specified in Article 18.

8. Qualifications (age, citizenship etc) and disqualifications (death, criminal conviction etc) of councillors and procedures for filling vacancies are set out in Article 22-27.

9. Councillors are to be paid by the councils (Article 28) and are to be elected for five year. (Article 15).

10. Comment (minor): Article 14 is repetitive of Article 10.

2. Section 2 Roles, Duties and Authorities of Councils

11. Councils are to perform functions and duties which are assigned or delegated to them (Article 29).

12. Councils are to be accountable directly to all citizens for making decisions on priorities… (Article 34) and accountable to the Royal Government for following the Constitution, laws, sub-decrees and legal instruments (Article 35).


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13. The council shall formulate and approve a five-year development plan which is to be updated annually and an annual investment program (Article 37). Article 44 provides for capital, provincial, municipality and district councils to approve annual budgets and medium-term expenditure plans which are to be updated annually. Budget management is to be in terms of financial management laws and council budgets are to be balanced.

14. Councils are to be responsible for the effective management of state assets in their possession (Article 46)

15. Article 41 refers to actions which are to be taken following approval of the councils’ development plans.

16. In Article 44, the budgets of the khans and sangkats in Phnom Penh and the sangkats in the municipalities are to be included in the Phnom Penh capital budget and the municipal budgets respectively. Also, in later chapters, in Article 107 the khan and sangkat councils are to be under the supervision and management of the Phnom Penh Capital Council which shall delegate functions and duties to khan and sangkat councils (Article 108). In addition sangkat councils shall be under the supervision and management of municipal councils (Article 111) and shall have functions and duties delegated to them by municipal councils (Article 112).

17. Comment: With regard to Article 41 the law is silent on how or by whom the councils’ development plans are to be approved. Perhaps an approval process is envisaged in the last sentence of Article 39 which states that the procedures for formulation, management and implementation of development plans will be defined in a later sub-decree.

18. Comment: The provisions which remove most of the autonomy from lower level, ie khan and sangkat, councils (Articles 44, 107, 108, 111 and 112) raise a question of whether there should be elected councils at these lower levels. It also raises some practical issues on which the law is silent. For example, will bylaws passed by the lower level councils be capable of being overridden by the higher level council? Taken together, these provisions seem to create a considerable risk that local government at municipal level will be over-governed.

3. Section 3 Bylaws of the Council

19. Articles 32 and 53 to 61 deal with the powers of councils to pass bylaws, with Article 60 providing that procedures for preparation, amendment and repeal of bylaws are to be defined in a future sub-decree.

20. Article 57 specifies that the Constitution, laws, decrees and sub-decrees will take legal precedence over any council bylaws. Powers to impose monetary fines for contravention of bylaws are included in Article 59.

21. Comment: Although Article 61 allows for the collaboration of the police service in enforcing council bylaws, the law is silent on which courts will have competence to deal with matters arising from council bylaws (or other provisions of the organic law). Perhaps within the Cambodian legal system it is not necessary to specify which courts have competence in particular matters; however, this should be confirmed as being the case. More broadly, there are no provisions for residents’ rights to information about council activities or for redress of grievances.


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4. Section 4 Meeting and Internal Rules of Councils

22. This section provides some basic rules for the conduct of council meetings but allows for councils to develop their own internal meeting rules.

23. Comment: Article 66 provides for bylaws or council decisions to be approved by “votes of more than half of the total members of the council”. It is unclear whether this means that more than half must vote in favour of a particular motion or more than half of the members must be present and voting.

5. Section 5 Illegal Conduct of Councils or Council Officials

24. The law provides (Article 78) that any action or decision of a council which exceeds the power of the council or official shall be considered an illegal act. Illegal acts are to be notified to councils by the Minister of Interior for rectification (Article 81). The rest of the section deals with ways in which councils are to cancel, reverse or redress illegal acts.

25. Comment: The law is silent on how illegal acts are to be detected and brought to the notice of the Minister of Interior.

26. Assuming the English translation of Article 78 is accurate, the wording of this article is very loose in specifying that only acts which exceed the councils’ or officials’ powers will be illegal. There may be many types of actions which are grossly improper but which do not exceed the powers of the council or official.

6. Section 6 Solution of Local Conflicts

27. Section 6 requires councils to take action to resolve conflicts between citizens within their “jurisdiction”, with specified exceptions such as divorce, domestic violence and other criminal matters and matters which are before a court.

28. Comment: Jurisdiction is not defined although in English it may have two meanings- (i) it may refer to disputes related to the roles and responsibilities of councils which are to be assigned to them by the National Committee or (ii) it may mean disputes which occur within the geographical boundaries of the council. Article 91 seems to suggest the latter meaning but logically it should also include the former.

7. Section 7 Special Provisions of District and Commune Councils

29. This section provides for district councils to assist commune councils to improve their capacity to carry out their assigned functions, including the sharing of resources by two or more communes. District councils are required to report to the Minister of Interior where a commune fails to acquire the capacity to carry out it functions (Article 103) with a view to the central government providing additional support if required (Article 104).

30. Comment: No comment

8. Sections 8 and 9 Phnom Penh and Municipalities outside Phnom Penh

31. These sections provide for councils of the khans and sangkats in the capital and the sangkats in the municipalities to be under the supervision and management of the Phnom Penh Capital Council or the relevant municipal council.


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32. The law provides that the roles and responsibilities and working relations of these councils are to be determined by future sub-decree. (Article 109 and 113)

33. Comment: Comment on possible over-governing of these councils was given above.

C. Chapter 3-Committees of the Councils and Boards of Governors

1. Section 1 Committees of the Councils

34. This section establishes mandatory committees for each council- the Technical Facilitation Committee, the Women’s and Children’s Affairs Committee and the Procurement Committee (Article 114) and provides an option for councils to establish other special committees as they require (article 115). The section also specifies some basic rules for the operation of the committees.


2. Section 2 Technical Facilitation Committee

36. This committee is to be chaired by the governor and will comprise the heads of council units and the managers of line ministry branches at the provincial, municipal or district level as the case may be. The committees will be responsible for coordinating the development plans and budgets of the line ministry branches with the development and investment plans and medium-term and annual budgets of the councils (Article 124).

37. Comment: Coordinating the activities of the central government agencies with related activities of local councils is highly desirable. However, as outlined in section 5 below, a difficulty arises where the governor has a conflict or potential conflict of interest in managing both the council and line ministry operations.

3. Section 3 Women’s and Children’s Committee

38. The Women’s and Children’s Committee’s role will be to advise councils on gender, women’s and children’s issues which fall within the council’s responsibility, with membership to be drawn from women councillors and the general public (Article 128). Committees are to prepare annual reports of their activities (Articles 133-134).

39. Comment: The law is silent on the method of selection of members of the committee but provides (Article 135) for the Minister of Interior to issue guidelines on the establishment and working of the committees.

4. Section 4 Procurement Committee

40. The committees will be required to ensure that all procurement is undertaken in accordance with the Law on Public Procurement (Article 135).

41. Comment: The law provides for the establishment and functioning of procurement committees to be determined in a prakas from the Ministries of Interior and Finance and Economy.


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5. Section 5: Board of Governors

42. Section 5 (Articles 138 to 172) deals with the appointment of boards of governors for all sub-national councils except commune/sangkat. The boards are to be appointed on the recommendation of the Minister of Interior for four years (extendable) from officials of the Ministry of Interior (although officials of other ministries may be appointed). Councils may request the minister to remove a governor.

43. The roles and responsibilities of the governors are stated as:

• Representing government ministries and institutions in supervising, coordinating and directing all vertical line departments and units of government ministries that operate in the council’s jurisdiction (Article 154);

• As the representative of the Royal Government and other government ministries and institutions, the governor shall be accountable to the Royal Government, the Ministry of Interior and other ministries and institutions (Article 154);

• The board of governors shall provide comments and advice to the council, report to the council and implement decisions of the council (Articles 155 and 161 );

• The council shall monitor activities and performance of the board of governors and governor (Article 157);

• The board of governors or governor who make decisions or perform any activity under the jurisdiction of the council and have not been authorised by the council, the decision or activity shall be invalid (Article 158);

• The board of governors shall report to the council on the implementation of the council’s decisions…(Article 159). The board of governors shall take action to ensure that officials, units and staff of the council effectively fulfil their roles and duties… (Article 161);

• Personnel of the council shall be under the direct management and supervision of the board of governors on behalf of the council (Articles 161 and 174).

44. Also Article 166 provides that the board of governors shall consult with the technical facilitation committee (council officials and line ministry officials in the province/district) to ensure that the work plan and budget of ministries, institutions and departments of the government that provide services, equipment and infrastructure directly within the council’s jurisdiction will be well integrated within the five-year plan, annual investment program and budget of sub-national administrations.

45. Comment: It is clearly intended that the governors will be responsible both to the central government (for administering line ministry branches within the province/district) and to the province (for the administration of council functions). However, there is a high risk of conflict arising between the governors’ national and local responsibilities and between the various parts of their national responsibilities. For example, it is difficult to imagine that differences of view will not arise from time to time between local offices of the Ministry of Economy and Finance and spending ministries on budget issues or that the governors will be able to resolve these differences to all parties’ satisfaction.


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46. The law is silent on the intended relationships within the boards of governors but foreshadows a future sub-decree on the roles, duties and working procedures of the boards (Article 172).

47. Also, the law is silent on the relationship between governors in supervising line ministries at the various levels. For example, will decisions by provincial governors regarding the operations of a particular ministry supersede the decisions of district governors with respect to local branches of that ministry. It is clear from the law that the khans and sangkats in Phnom Penh and municipalities are to be subordinate to the higher level councils. However, it is unclear whether district governors are to be subordinate to provincial governors in dealing with line ministries.

48. Unless the sub-decrees on roles and authorities of the governor (Article 154) and the roles and duties of the boards of governors (Article 172) are very well thought through there is a high risk that one or both of the intended functions (national and local administration) will not be carried out properly.1

D. Chapter 4-Personnel and Units of the Council

1. Section 1 Personnel of the Council

49. Council personnel are to be under the direct management and supervision of the board of governors (Article 174). Officials of line ministries and agencies are not to be included as council personnel (Article 175). Terms and conditions of employment of council personnel are to be in accordance with the provisions on personnel of sub-national administrations (Article 177).

50. Each council is to appoint a chief of finance who is to be responsible to the administration director for financial management and procurement and for ensuring the proper audit of accounts (Article 180).

51. Comment: The law is silent on how the provisions on personnel of sub-national administrations (Article 177) are to be determined.

52. Making the finance director responsible for ensuring that financial audits are completed may put him/her in a conflict of interest situation. A better approach may be to have an audit committee of the council which would be responsible for ensuring proper audit, if councils have the capacity to carry out this function.

2. Section 2 Administration Director

53. Each council will appoint an administration director to manage the day-to-day operations of the council including implementation of the bylaws (Articles 183-185).

1 For example, Laos has adopted a system of ‘double subordination’ in sub-national administration which

is similar in some respects to the model to be used in Cambodia. However, the appointed provincial governors are Cabinet-level officials of the ruling Lao Peoples Revolutionary Party and operate with a great deal of personal autonomy. The effect has been to make it difficult to implement many national mandates at the provincial level. For example, major national taxes such as customs and excise have been retained and treated as provincial revenues when collected at the local level, rather than being remitted to the national finance ministry as required by law. This in turn has lead the central government to consider removing customs and excise and tax collection at provincial level from the governors’ supervision.


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The administration director will report to the board of governors and the council (Article 184).


3. Section 3 Units of the Council

55. Each council shall establish its own units according to its requirements (Article 189). However the Minister of Interior will initiate a sub-decree on establishment, functions and positions of officials in the units (Article 189). Units will be under the management of the board of governors through the administration director and the unit chiefs (Article 190-191).


E. Chapter 5-Implementation Process

1. Section 1 National Committee

57. A National Committee will be established by royal decree with membership from line ministries and agencies (Article 192). The committee will have its own budget (Article 210) and staff (Article 197) (to be located in the Ministry of Interior). The committee will have subsidiary Commissions on Functions and Resources, Fiscal and Financial Affairs and Personnel, with the roles and responsibilities of the commissions to be determined by future sub-decree (Article 194).

58. The committee’s functions will be (i) to review the responsibilities and functions of line ministries, institutions and departments at all levels to identify functions to be transferred to sub-national councils (Article 200) (and by implication those which will be retained at national level) and (ii) to ensure that the organic law is implemented (Article 201).

59. Article 206 provides that the decisions of the committee will have the force of law.

60. The committee is required to prepare a medium to long term plan for implementing the organic law, an annual work plan and budget and an annual report on progress with implementation (Article 211). The committee is eligible to receive funding from development partners (Article 212).

61. Comment: The law is silent on who will be qualified for membership of the committee or how they will be selected, although these issues could be included in the establishing decree.

2. Section 2 Functions (to be reviewed)

62. Article 215 details a list of the functions of ministries and departments etc that the committee should review. In reviewing and recommending transfer of functions to councils the committee will be guided by the following principles: (i) relevance to the jurisdiction of the council, (ii) manageable and practical for the council’s jurisdiction, (iii) beneficial and useful for residents within the council’s jurisdiction and (iv) having a strong impact within the council’s jurisdiction (Article 220). The committee shall determine which functions are obligatory and which are permissive (optional) and which are to be assigned and which are to be delegated to councils.


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63. The review shall ensure that transfer of functions is matched by transfer of appropriate resources for their management and implementation (Article 217).

64. Comment: The list of functions to be reviewed for possible transfer is typical of the activities carried out by sub-national government. It excludes, for example, defence, foreign affairs, economic policy, public order, law and justice and social welfare which presumably are to remain as national functions. It also excludes transport and communications which are usually at least partly local government function, although it may be intended that they be included under the infrastructure category.

3. Section 3 Obligatory Functions

65. This section distinguishes between obligatory functions which are assigned to councils and those which are to be delegated.

66. For assigned functions the transferring ministry will make an initial transfer of resources at the time of transfer but will have no commitment to provide continuing funding for the activity beyond that. The council will assume full responsibility for provision of the function. A delated function is one where the ministry provides initial and continuing funding for the activity and the council will in turn be accountable to the ministry for carrying out the function.

67. Comment: The types and amounts of services and the funding required for delegated functions are likely to change over time. However, the law is silent on a method for changing these arrangements between line ministries and relevant local councils. Also, as other commentators have observed, the mix of assigned and delegated functions will determine how much control the central government will continue to exercise over the delivery of services.

4. Section 4 Permissive Functions

68. This section requires councils to continue to administer permissive functions to the extent permitted by the initial transfer of resources from the concerned line ministry (Article 230), although councils may request the National Committee to vary or terminate the mandate to provide these services (Article 230).


5. Section 5 Assignment and Delegation of Functions

70. This section provides that transfers of functions to councils will be permanent (Article 233) and will be given effect by a law or sub-decree (Article 238).


6. Section 6 Financial Regime

72. Each council will have financial accountability to its residents and to the Royal Government (Article 243). The board of governors will be responsible for preparing the development plan, investment plan and annual budget for approval of the council and the governor will be the ordonnateur for the council (Article 245). Council financial administration shall be in accordance with existing national financial laws and the proposed Law on the Management of the Assets of Sub-national Administration (Article 245).


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73. Council revenue sources include local taxes, fees and charges and voluntary contributions, details of which are to be established by a law within the framework of the Fiscal Law (Article 246). Revenues from national sources will include (i) shared revenues, (ii) conditional and unconditional grants and (iii) agency fees for services supplied on behalf of national agencies (Article 247). Sharing of non-tax revenue between district and commune levels is to be subject to the proposed financial law (Article 248).

74. Councils are prohibited from borrowing or engaging in financial instruments that create liabilities (Article 253).

75. Comment: The prohibition on borrowing is consistent with the balanced budget requirement in Article 44 and is appropriate as it allows the Ministry of Economy and Finance to consolidate and manage the public debt of the nation. However, there may be a case for some slight relaxation to allow councils to take bank overdrafts for cash liquidity purposes, ie where the timing of revenue and expenditure flows do not match. Such a relaxation should be under the approval and supervision of the Ministry of Economy and Finance and on the condition that any overdraft is repaid within a designated period, say, six months.

76. The definition of conditional grants could be further clarified in Article 251 to mean grants from the central government which are made on terms and conditions set by the central government. Similarly, unconditional grants are made without conditions attached.

7. Section 7 Management of Assets of Sub-national Administrations

77. In transferring functions and assets the National Committee may require that assets are shared by two or more councils (Article 258). Ownership of transferred assets will pass to the concerned councils but they may not dispose of transferred assets within the approval of the Ministries of Interior and Economy and Finance (Article 256).

78. Councils will be required to maintain asset registers and to prepare annual maintenance plans as part of the budget cycle (Article 262).


8. Section 8 Personnel

80. Where a function is transferred to a council the personnel who administer the function shall also be redeployed to that council (Article 267) with the Ministry of Economy and Finance being required to transfer the salary and benefits of individual employees to the council (Article 272) and with the procedures for redeployment to be based on a future sub-decree to be initiated by the National Committee.

81. Comment: Individual civil servants may appeal decisions to redeploy them to councils but there are no provisions for councils to refuse to accept redeployed staff. There is therefore a high risk that ministries will use these provisions to transfer their ‘dead wood’ to councils.

82. General Comment: Within the draft of the law which was examined there are 32 issues cited where further laws, decrees, sub-decrees or prakas will need to be completed to implement or clarify the provisions of the organic law. The success of


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the D and D arrangements will depend very much on the detail of these implementing laws, particularly in regard to (i) which functions are to be assigned or delegated to local government, (ii) the types and amounts of financial resources to be transferred and (iii) whether the governor/board of governors model can be made to work satisfactorily, with proper accountability and without conflicts of interest. The attached figure outlines the relationships of the various parties in the organic law but does not show vertical relationships between the various levels.

Draft Final Report Cambodia: Preparing the Strengthening of Public Financial Management for Rural Development Projects

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Technical Facilitation

Committee

(Art. 114,123)

Womens & Childrens Affairs

Committee

(Art. 114,127-135)

National ministries

& agencies

(Art.123)

Administrative Director

(Art. 183-188)

Procurement Committee

(Art. 114, 136-7)

Chief of

Finance

(Art.179-180)

Other unit chiefs

(Art. 190-191)

Figure 1-D&D Institutional Structure: Organic Law

Commission on Functions and

Resources

(Art. 194)

Commission on Fiscal &

Financial Affairs

(Art. 194)

Commission on Personnel of

Sub-national Administrations

(Art. 194)

Other Commissions as required

(Art. 194)

Roles & responsibilities

Financial assignments

National Committee

(Art. 192-212, 213-221)

(Elected) Councils

-capital, province, municipal,

district, khan

(Art. 14)

(Appointed) Board of Governors

(Art. 138-171)