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Public Financial Management Risk Assessment Framework ...

Public Financial Management Risk Assessment Framework (PFMRAF) Manual A Mandatory Reference for ADS Chapter 220 New Edition Date: 07/28/2014 Responsible Office: M/CFO File Name: 220mae_072814 Table of Contents 1 Chapter 1: Public Financial Management Concepts .. 3 PFM, Governance, and Public PFM Value Partner Government PFM Sources of Chapter 2: Stage 1 Rapid Appraisal .. 8 Partner Government Systems (PGS) Government-to-Government Risk Management Team (G2 GRMT)..9 Preparation and Stage 1 Field Meeting Stage 1 Rapid Appraisal Mandatory Components Stage 1 Rapid Appraisal Final Report G2 GRMT Report Maintenance and Illustrative Steps Stage 1 Rapid Chapter 3: Stage 2 Risk Incentives and Shared Risk Risk Risk Treatment and Applicability to USAID s Risk Assessment and Risk Risk Treatment Preparation and Choosing the Assessment Joint

Assessment Framework (PFMRAF) Manual A Mandatory Reference for ADS Chapter 220 ... Only if the vulnerability to corruption is acknowledged can appropriate responses, such as recovery of losses, accountability, and enhancement of controls, be ... The opportunity to combat the abuse of public power for private gain, fraud and

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1 Public Financial Management Risk Assessment Framework (PFMRAF) Manual A Mandatory Reference for ADS Chapter 220 New Edition Date: 07/28/2014 Responsible Office: M/CFO File Name: 220mae_072814 Table of Contents 1 Chapter 1: Public Financial Management Concepts .. 3 PFM, Governance, and Public PFM Value Partner Government PFM Sources of Chapter 2: Stage 1 Rapid Appraisal .. 8 Partner Government Systems (PGS) Government-to-Government Risk Management Team (G2 GRMT)..9 Preparation and Stage 1 Field Meeting Stage 1 Rapid Appraisal Mandatory Components Stage 1 Rapid Appraisal Final Report G2 GRMT Report Maintenance and Illustrative Steps Stage 1 Rapid Chapter 3: Stage 2 Risk Incentives and Shared Risk Risk Risk Treatment and Applicability to USAID s Risk Assessment and Risk Risk Treatment Preparation and Choosing the Assessment Joint Statements of Work (SOW).

2 26 Stage 2 Stage 2 Risk Assessment Mandatory Components Stage 2 Risk Assessment Final Report G2 GRMT Report Maintenance and Confidentiality and Sharing Stage 2 Risk Assessment Illustrative Steps Stage 2 Risk 2 Chapter 4: PFMRAF Integration into Project Risk Mitigation Authorization for Use of Partner Government Systems (AUPGS)..35 Mandatory Components G2 GRMT Appendix 1: Sources of Information Appendix 2: Stage 1 Rapid Appraisal Checklist Appendix 3: Stage 2 Risk Assessment QuestionnaireChapter 1: Public Financial Management Concepts 3 Terminology Fiduciary Risk is the danger that funds allocated from the budget: (1) may not be controlled properly, (2) may be used for purposes other than those intended, and/or (3) may produce inefficient or uneconomic programmatic results.

3 Government to Government (G2G) assistance refers to when USAID disburses funds directly to a partner government entity, including all instances in which USAID finances a partner government entity of a bilateral foreign assistance recipient country to implement a project or project activity, including non-project assistance, using the partner government s own Financial Management , procurement or other systems. Partner Government Systems (PGS) includes all government systems involved in the Management of government operations regardless of function, including Financial , procurement, human resources, performance monitoring, audit, disclosure, adjudication, regulation, enforcement and others.

4 In the context of PFMRAF, Public Financial Management (PFM) systems are a subset of PGS. Public Financial Management (PFM) is a class of systems and elements thereof involved in the Management of Public resources. It primarily refers to the processes, procedures and activities associated with spending Public resources to include budgeting, treasury, cash Management , disbursement, accounting and reporting, audit and control, and may include the Financial Management features of various government systems such as procurement and human resources, as well as the Financial Management aspects of transparency, governance and Public accountability.

5 In the context of Financial Management and fiduciary risk identification, procurement may be referred to as a separate system from other systems involved in PFM for clarity and precision. Public Financial Management Risk Assessment Framework (PFMRAF) is USAID s risk Management process to identify, mitigate and manage the fiduciary risks encountered when considering G2G assistance. It focuses on fiduciary risks to which USG funds may be exposed to when administered directly by the PFM systems of the individual entities intended to implement G2G funded activities. PFMRAF assessments of individual entities must include all PFM systems that may be used in implementing an individual project.

6 PFM, Governance, and Public Accountability The PFMRAF is designed to assess not only the PFM environment of the partner country government, but also governance and Public accountability factors, including legal and regulatory matters, as well as political will for non-corrupt, transparent, accountable, and effective governance. Since sound PFM is an indispensable element of governance and Public accountability, these issues are examined and where shortcomings are noted, potential mitigation measures identified. All countries mobilize funds from domestic sources through taxes and fees and apply those funds by purchasing goods and services ranging from civil servant salaries to infrastructure projects.

7 Developing countries often tap resources from donors for necessary services or infrastructure investment that they 4 cannot pay for on their own. The mechanism for resource mobilization and application is the PFM system. The quality of PFM systems varies widely from country to country, within countries at various levels of government, and within governments from sector to sector and/or ministry to ministry. Sound PFM systems help foster democracy by enhancing accountability and transparency in decision-making. Transparent use of Financial resources empowers the people to exercise their sovereign control over the government and develop sustainable systems of Public services.

8 Conversely, weak PFM enables corruption or diversion of resources away from basic human services such as health and education. It also retards economic growth by driving business underground, imposing costs that make products and services noncompetitive, or impairing the ability of the government to establish and maintain macroeconomic stability. The critical point is that governance and Public accountability are inseparable from PFM. The focus on sound PFM is therefore essential to achieve our long-term goals of growing economies in democratically governed countries. Beyond strict PFM, other accountability enhancing projects may be required.

9 These may include Public administration and civil service reform, parliamentary strengthening, civil society development, strengthening accountability bodies, and enhancing government transparency and democratic accountability. Corruption Corruption presents a special problem. Corruption is found in the developing world, just as it is in the United States and every other country. While we do not accept corruption, we understand that it is inevitable. Corruption happens. This is not the issue. The issue is how the government responds to it. Only if the vulnerability to corruption is acknowledged can appropriate responses, such as recovery of losses, accountability, and enhancement of controls, be possible.

10 Obviously, where evidence of corruption is clear, and the partner government fails to respond with appropriate measures such as the establishment of codes of ethics, implementation of appropriate Financial controls, and prosecution of wrong doers, use of partner government systems should not occur. Where, however, the partner government adopts an anti-corruption program, demands accountability, and subjects the control environment to constant scrutiny and improvement, we should offer our goodwill and practical assistance. The opportunity to combat the abuse of Public power for private gain, fraud and other forms of corruption should be viewed as an opportunity to improve the lives of people in the developing world as is providing for economic growth or improved health outcomes.


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