Standard 8: Timely and comprehensive project financial set-up.
Set up a project financial management system based on updated activity plans that supports a quick start-up and effective financial management throughout the project.
Key Action 2: Work with partners to assess their financial management capacity and develop improvement plans.
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Why
The financial management capacity of CRS’ partners impacts the overall financial management of project resources. Prior to initiating project activities with new partnersPer Addendum 1 to CRS’ Subrecipient Financial Management Policy, “subrecipients that have been already assessed prior to October 01, 2017 are not required to be re-assessed unless the country program determines necessary or beneficial. This should not discourage a Country Program’s decision to re-assess if deemed necessary (risk wise) or beneficial (to recognize and appreciate improvements in subrecipient’s rating).” [1], and as appropriate for existing partners, CRS assesses partner organizations’ financial management capacities, systems and processes. As needed based on the assessment resultsAny partner organization whose overall rating in the sub-recipient financial management capacity assessment is below 75% of the maximum possible score for a given functional area must develop an ICIP. [1], CRS supports the partner organization to develop an internal control improvement plan (ICIP). Properly-managed sub-recipient financial management capacity assessments and support for partner financial management capacity improvement help CRS to:
- Exercise due diligence prior to executing a sub-agreement with any organization, to ensure the organization is capable of responsible stewardship of project financial resources.
- Determine how to allocate CRS monitoring and capacity strengthening resources most effectively and efficiently during project implementation.
- Establish appropriate controls to mitigate project risk until the ICIP issues are fully addressed.
- Establish or strengthen productive relationships with sub-recipients.
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Who
- Primary responsible: Head of operations (HoOps)
- The HoOps ensures CRS conducts a formal sub-recipient assessment before making the initial financial commitment to award funds; reviews improvement plans; and ensures proper documentation of assessments and improvement plans.
- Others involved: Project manager or chief of party (PM/CoP); finance manager (FM) or other assigned finance or compliance staff; head of programming (HoP) or other assigned programming staff; country representative (CR)
- The PM or CoP (if designated and available at the time of the assessment) works closely with the HoOps to ensure the financial management capacity assessment is completed, manages the relationship with the sub-recipient around the assessment process, and ideally participates as a member of the assessment team;
- The FM or other assigned finance or compliance staff conducts the assessment;
- The HoP or other pertinent program staff assist the PM/CoP and finance;
- The CR formally notifies the sub-recipient that CRS intends to perform an assessment, and supports with other partner communications around the assessment, as needed.
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When
- For new sub-recipients or other sub-recipients requiring an updated assessmentPer Addendum 1 to CRS’ Subrecipient Financial Management Policy, “subrecipients that have been already assessed prior to October 01, 2017 are not required to be re-assessed unless the country program determines necessary or beneficial. This should not discourage a Country Program’s decision to re-assess if deemed necessary (risk wise) or beneficial (to recognize and appreciate improvements in subrecipient’s rating).” [1]: Conduct sub-recipient financial management assessments before preparing the sub-recipient agreement, since assessment results will affect the reporting frequency specified in the agreement.
- Assessments may be conducted during the design stage (see Standard 3, key action 4 [2] for more information); for externally-funded projects, it’s more common to conduct the assessment during start-up. If assessments were not completed during the design phase, complete the assessment(s) in the pre-award start-up period if possible, once there is a strong indication of a likely win.
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How
This key action complements the non-financial partner capacity assessment described under Standard 6, key action 4 [3]. All aspects of the implementation of this key action are guided by CRS’ Subrecipient Financial Management Policy [4] (SRFMP). This key action focuses on the following key steps from the SRFMP:
Before and during the financial management capacity assessment
- The CR formally informs the partner about the upcoming assessment.
- For new partners, it may be useful for the CR or another senior manager to meet with the partner to explain the SRFMP process and address any questions.
- After discussing the need and plans for the assessment with the PM/CoP, the HoOps assigns one or more evaluatorsThe evaluators are the CRS staff who conduct the sub-recipient financial management assessment. For more information on the tasks of evaluators, see points 2.1b and 2.1m in the SRFMP.
[1] to carry out the financial management capacity assessment.
- Per the SRFMP, the assessment should be conducted by a designated member of the country program finance department and/or internal audit team, compliance staff or the HoOps.
- Ideally, the PM or another member of the programming team should also participate in the assessment team
- The evaluator(s) work(s) with a staff member appointed by the partner to:
- Set the date for the assessment.
- Identify partner staff who will be involved in the assessment process.
- Conduct the assessment using the appropriate Subrecipient Financial Assessment Checklist [5] (see tools and templates).
Help the partner prepare for the assessment: To ensure an efficient assessment process, share the Subrecipient Assessment Document List [6] with the partner before scheduling the assessment date. This list helps clarify the scope of the assessment and helps ensure the partner prepares the required documents before the assessment. This in turn helps the partner and CRS to use on-site assessment time more efficiently.
- At the end of the assessment process, the evaluator(s) presents and discusses the findings with the leadership of the partner organization, before finalizing the assessment report.
Follow-up after the assessment
- Working closely with the PM/CoP or other designated program staff and finance subject-matter experts, the HoOps ensures that the partner prepares an internal control improvement plan (ICIP) [7] to address assessment findings.
- CRS may support the partner in developing the plan, but the partner must take ownership of the plan.
- The HoOps reviews the plan to verify that it covers all significant issues identified during the assessment.
Identify temporary mitigation measures as needed: When reviewing the ICIP, ensure that the plan prioritizes addressing internal controls that could compromise the sub-recipient’s ability to safeguard project resources. Until those issues are fully resolved, the sub-recipient must work with CRS to identify and implement measures to mitigate riskSuch measures could include: CRS staff accompaniment of partners in processes where current sub-recipient systems are weak (e.g., bid review and vendor selection processes); CRS procuring items on behalf of the sub-recipient; sub-recipient staff shadowing CRS staff to learn firsthand about specific systems/processes, etc. [1]
- The HoOps or his/her designee uploads SRFMP assessments and ICIPs to Gateway (see Job Aid: Entering Standard SRFMP Assessments [8]) and shares with the FM, with copy to the HoP, the pertinent PM/CoP, and the partner, within the timeframe specified in the SRFMP.
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Partnership
- Per SRFMP guidance, partners are full participants in the implementation of the sub-recipient financial management assessment and improvement planning.
- As part of CRS’ commitment to institutional strengthening within an overall partner capacity strengthening approach, CRS works with the subrecipient to develop a plan to improve controls, as necessary, related to all partner financial activities, not only those that are directly related to projects implemented in partnership with CRS.
- See pages 4-5 of the SRFMP [4] for special considerations if CRS is signing a subrecipient agreement with local government or a department or office within a larger government entity.
- The SRFMP does not apply to partners executing contracted activities. Country programs may consider using contracts, not subrecipient agreements, as the funding mechanism when deliverables can be clearly defined and measured and the nature of the activities warrants such treatment (see Standard 3, key action 3 [9] for additional guidance eon this topic). Consult CRS’ Office of Legal Counsel to determine the most appropriate funding instrument, if needed.
- The SRFMP also does not apply to funds transferred to local partners as a contribution (provided the contribution is not funding a cost-share project). Contributions, which are funded by CRS discretionary resources, do not require sub-recipient agreements. The nature of the partnership, staff size, access and security concerns, and the cost-effectiveness of operating through a subrecipient agreement are factors for CRS consideration when determining if a cash contribution or subrecipient agreement is more appropriate.
When CRS is a sub-recipient- Follow the same process for CRS second-tier sub-recipients.
Emergency projects- If it is not possible to conduct an assessment per the SRFMP before preparing the subrecipient agreement, prepare the agreement on the assumption that the partner has inadequate internal controls (i.e. require monthly advances and liquidations).
- Conduct a full assessment of each new subrecipient as soon as conditions permit, and adjust the partner’s risk status per assessment findings.
Published on CRS Compass (https://compass.crs.org)
- The CR formally informs the partner about the upcoming assessment.
- Primary responsible: Head of operations (HoOps)