CHINA GREEN AGRICULTURAL AND RURAL REVITALIZATION PROGRAM-PHASE I (P177590) FIDUCIARY SYSTEM ASSESSMENT March 4, 2022 World Bank Contents Contents .................................................................................................................................. 2 Section 1: Conclusions.................................................................................................................... 3 1.1 Reasonable Assurance ........................................................................................................... 3 1.2 Risk Assessment .................................................................................................................... 3 1.3 Procurement Exclusions ........................................................................................................ 5 Section 2: Scope .............................................................................................................................. 5 Section 3: Review of Public Financial Management Cycle ......................................................... 6 3.1 Planning and Budgeting ......................................................................................................... 6 3.1.1 Adequacy of budgets ...................................................................................................... 6 3.1.2 Procurement profile of the program ............................................................................ 12 3.2 Budget Execution................................................................................................................. 15 3.2.1 Treasury management and funds flow......................................................................... 16 3.2.2 Accounting and financial reporting .............................................................................. 17 Lowest reasonable price method .......................................................................................... 20 Comprehensive evaluation method ...................................................................................... 20 3.2.3 Institutional procurement arrangements..................................................................... 28 3.2.4 Contract administration ............................................................................................... 28 3.3 Internal Controls .................................................................................................................. 38 3.3.1 Internal controls ........................................................................................................... 38 3.3.2 Internal audit ................................................................................................................ 41 3.3.3 Program governance and anti-corruption arrangements ............................................ 41 3.4 Auditing ............................................................................................................................... 46 3.4.1 Coverage ....................................................................................................................... 46 3.4.2 Staffing.......................................................................................................................... 47 3.4.3 Audit methodology ....................................................................................................... 47 3.5 Procurement and Financial Management Capacity ............................................................ 47 3.5.1 Staffing should be adequate in both numbers and experience ................................... 47 Section 4: Program Systems and Capacity Improvements ....................................................... 53 Section 5: Program Implementation Support ............................................................................ 57 2 Section 1: Conclusions 1.1 Reasonable Assurance Guangxi and Guizhou provinces, together with the World Bank, are in the process of preparing the Green Agricultural and Rural Revitalization PforR project. As part of preparing this operation, and pursuant to the World Bank’s Policy and its associated Directive on PforR financing of November 10, 2017, and June 20, 2019, respectively, as well as the World Bank’s PforR Fiduciary Systems Assessment Guidance Note issued on June 30, 2017, and OP/BP 10.00, the World Bank’s fiduciary team has carried out a Fiduciary System Assessment (FSA). According to the FSA, and given the agreed actions to strengthen the fiduciary systems, as reflected in the DLIs, Program Action Plan (PAP), and other proposed mitigation measures that will be implemented, the Program’s fiduciary systems, including the financial management (FM), procurement, and governance systems, are considered to adequately meet the requirements laid out in the Bank’s PforR Policy and Directive. They provide reasonable assurance that the program’s financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. 1.2 Risk Assessment Major FM risks identified in the FSA are the following: (1) Although the 14th Five-Year Plan has been prepared for green agriculture and rural revitalization, no budget is allocated to the plan. The financing gaps associated with toilet improvement and rural solid waste and wastewater collection, transfer, and treatment were identified during the assessment. (2) The budget quota was distributed to counties/cities in batches and some program funds were delivered in the second half of the year or even at year end, which prevents the county government from including the entire program funds in its annual budget and delays the implementation of planned activities (3) Some earmarked funds are integrated by the provincial government and distributed to counties (28 earmarked funds are integrated in Guangxi and 17 in Guizhou). But it is hard for the county to use these integrated funds in line with its development strategy and priorities since some upper-level government entities still monitor the achievement of the performance indicators attached to the earmarked funds. As a result, a mismatch between the funds requested and funds received for some activities was noted, and some activities, including in the village revitalization plan, couldn’t be implemented in an integrated manner. (4) “Program� is not a budget classification element in China and the required program financial reporting can’t be generated from the government treasury system. (5) Government auditors did not audit the program funds and prepare the program audit report. The proposed mitigation measures include the following: (1) Program-based budgeting should be prepared to ensure that program funds can be secured and related government entities should revise their investment direction and allocate more funds to the areas that are defined as the priorities in the PforR program. (2) Provincial entities should revisit their budget quota distribution and take actions to ensure that the budget quota can be timely distributed to the county/city. (3) Related government entities may need to revisit the fund integration and monitoring measures to give the counties more flexibility in fund use in line with their development strategy and priorities. (4) Several budget line items that are used to capture program expenditures have been identified and a tailored program financial reporting template will be designed for the proposed program. (5) The Bank will work with the Provincial Audit Offices (PAOs) to develop the terms of 3 reference (TOR) for program auditing to ensure that program funds can be audited in line with the Bank’s policy. The key procurement risks are the following. (1) The intervention of multiple agencies, such as finance, development reform, agricultural and rural affairs, rural revitalization, housing and urban-rural construction, natural resources, ecology and environment, water bureaus, and city administration bureaus (comprehensive administrative law-enforcement bureaus), etc., might be challenging to the implementation of the program. (2) Multiple implementation agencies involved in procurement transactions might not be aware of the lists of debarred and suspended firms and individuals declared by the World Bank and other multilateral development banks. Although most of the contracts are of small size, and it is unlikely that these contracts would be awarded to firms and individuals debarred or under temporary suspension by the World Bank or other multilateral development banks, (3) the World Bank may not be informed of fraud allegations and corruption issues during implementation. (4) Not all the program counties have a Public Resources Transaction Center (PRTC); they have to process open competitive procurement at municipal PRTCs and during busy seasons municipal PRTCs are lacking in rooms for conducting bid opening and evaluation sessions. Implementation agencies have to queue for room space, leading to delay in the procurement process, thus negatively affecting program implementation. (5) The program will be implemented at the township and county levels. Most of the program’s activities comprise simple works geographically spread out for the construction and/or rehabilitation of small basic infrastructure and small-value goods and services. Procurement will most often be conducted through direct contracting because of the contract’s tiny value, and thus limited interest of contractors, consulting supervisions, and design consulting firms in participating. (6) Contracts may not be completed within the contractual completion time and the contract completion audit may not be completed in a timely manner. The following mitigation measures have been proposed. (1) The regional/provincial program implementation agencies and the county program leading groups oversee and supervise the program implementation and the rights and obligations of each agency are cleared defined so as to (i) limit overlapping of responsibilities, (ii) define the role of each agency, and (iii) avoid undesirable delays; and a procurement agent is hired to assist with competitive bidding processes. (2) (i) Guangxi DARA and Guizhou RRB shall, upon project loan effectiveness, issue an official instruction to help the implementation agencies at the county level and township government to ensure that no contract will be awarded to a firm or individual that is on the debarred list or under temporary suspension; (ii) the updated lists of the debarred and temporarily suspended firms and individuals will be shared on a regular basis and whenever the list is updated with the agencies in charge of procurement; and (iii) the TOR for the annual external audit shall include the task of randomly selecting contracts and assessing whether they have been awarded to an ineligible firm or individual. (3) A PIP shall require the client to inform the World Bank of any credible and material allegations of fraud and any corruption issues as part of the program progress reports, as mandated in the Loan Agreement. (4) The implementation agencies plan the procurement activities ahead and book the bid opening and bid evaluation rooms as early as possible. (5) To avoid abuse in the adoption of non-competitive processes, the proposed mitigation actions involve the following: (i) the county government shall maintain a long list of qualified firms, contractors, suppliers, and service providers to have a wide range of options for inviting firms; (ii) the county government shall enhance data collection and, when possible, add the procurement method in the integrated financial management information system (IFMIS). (6) Human, financial, and policy resources should be allocated by Guangxi DARA and Guizhou RRB for close monitoring 4 of contract implementation progress to minimize or avoid foreseeable cost overruns and/or implementation delays. Taking into consideration the above-mentioned FM and procurement risks and the proposed mitigation measures, the overall fiduciary risk of the program is rated as Substantial. 1.3 Procurement Exclusions Under the program, no high-value contracts will be awarded that exceed the Bank’s Operational Procurement Review Committee (OPRC) thresholds.1 Section 2: Scope The scope of the Fiduciary System Assessment is based on the defined boundary and Program Expenditure Framework. The fiduciary team assessed the fiduciary systems of the key implementing agencies at the provincial and county level, including the Provincial Finance Department (PDF), Provincial Development Reform Committee (PDRC), Rural Revitalization Administration (RRA), Department of Agriculture and Rural Affairs (DARA), Department of Housing and Urban-Rural Construction (DHURC), Department of Ecological Environment (DEE), Department of Natural Resources (DNR), and Audit Office. A set of fiduciary assessment data collection sheets was provided to the program counties (12 in Guangxi and 15 in Guizhou) during the preparation mission and most of them submitted the required information. In addition, four counties (Bobai and Yulin in Guangxi and Xifeng and Xingren in Guizhou) were visited and the corresponding line bureaus were interviewed during the preparation mission. The FSA of the procurement system covers the implementation agencies responsible for carrying out major program procurement and contract implementation, as listed in Table 1. Seven program counties in Guangxi and 7 in Guizhou were selected. They represent all nine program prefectures in Guangxi and all five prefectures in Guizhou. Table 1: Procurement Implementation Agencies Province/counties Implementation agency Guangxi Agriculture and Rural Affairs Bureau (ARAB) Mashan, Rong’an, Ziyuan, Bobai, Yizhou, Xincheng, and Tiandong Rural Revitalization Bureau (RRB)* Housing and Urban-Rural Construction Bureau (HURCB) Administrative Law Enforcement Bureau (ALEB)* Ecology and Environment Bureau (EEB)* Natural Resources Bureau (NRB) Water Bureau Guizhou Agriculture and Rural Affairs Bureau (ARAB) 1 The OPRC thresholds for substantial risk projects are US$75 million for works; US$50 million for goods, information technology, and non-consulting services; and US$20 million for firm consultants. 5 Rural Revitalization Bureau (RRB)* Housing and Urban-Rural Construction Bureau (HURCB) Xifeng, Sinan, Yinjiang, Jinping, Administrative Law Enforcement Bureau (ALEB)* Taijiang, Sandu, and Xingren Ecology and Environment Bureau (EEB) Natural Resources Bureau (NRB) Water Bureau *The Ecology and Environment Bureau (EEB) and Natural Resources Bureau (NRB) in some counties only supervise the ecology- and environment-related activities implemented by other bureaus. No procurement activities were carried out by the EEB. There is no Administrative Law Enforcement Bureau (ALEB) in some counties; related business is managed by the HURCB. There is no Rural Revitalization Bureau (RRB) in some counties; related business is managed by the Agriculture and Rural Affairs Bureau (ARAB). Section 3: Review of Public Financial Management Cycle 3.1 Planning and Budgeting 3.1.1 Adequacy of budgets The program budget is prepared with due regard to government policy and implemented in an orderly and predictable manner. There is a reasonable expectation that the required resources will be appropriated in the financial years when required. However, it is also noted that no program budget is prepared for the 14th Five-Year Plan on green agriculture and rural revitalization and the difficulty of using the integrated earmarked funds by the counties. Budget preparation: Budgets are prepared at each level of government and each level of government follows a similar process, which is relatively standardized throughout China. At the county level, where the PforR will be carried out, sector entities prepare and submit their budget proposals to the corresponding technical division of the county Finance Bureau for review in early September. Both operating and capital budgets are reviewed for consistency and alignment with higher-level government priorities and policies. A “two up, two down process� is followed to arrive at the final budget proposal, which is presented to the county’s People’s Congress, generally in February. Since the county sector entities prepare their budget in line with the pre- noticed quota, there were no big gaps in most counties between the requested and approved program budget in the two provinces in the past three years (refer to Table 2 for details). However, there are quite a few exceptional counties in which the requested program budget could not be fully satisfied because of a shortage of available funds. Table 2: Comparison of Requested and Approved Budget in Guizhou and Guangxi provinces (unit: 10,000) Guizhou Province 2019 2020 2021 Program Requested Approved Requested Approved Requested Approved county budget budget % budget budget % budget budget % Total 137,020.74 178,532.51 130 141,462.16 152,702.12 108 167,428.52 150,201.52 90 Libo 5,281.27 5,281.27 100 2,276.71 2,276.71 100 2,038.48 2,038.48 100 6 Xifeng 885 171.21 19 740.27 740.27 100 580.58 580.58 100 Sinan 2,634.15 1,983.71 75 2,635.05 2,635.01 100 2,974.18 2,794.18 94 Duyun 6,027.50 6,027.50 100 9,251.89 9,251.89 100 11,349.08 11,349.08 100 Guiding 13,576.49 13,576.49 100 16,340.24 16,340.24 100 15,575.00 15,575.00 100 Xingren 10,840.97 10,840.97 100 10,901.34 10,901.34 100 10,855.36 10,855.36 100 Jiangkou 16,724.83 16,724.83 100 36,303.15 36,303.15 100 34,742.57 34,742.57 100 Luodian 58,282.53 58,282.53 100 28,554.00 28,554.00 100 41,406.31 41,406.31 100 Sandu 10,519.00 10,519.00 100 9,670.28 9,670.28 100 9,399.96 9,399.96 100 Yinjiang 8,515.00 54,535.00 640 10,544.00 31,368.00 297 10,927.00 19,400.00 178 Xiuwen 1,934.00 590 31 6,745.23 1,661.23 25 8,580.00 2,060.00 24 Songtao 1,800.00 - 0 7,500.00 3,000.00 40 19,000.00 - 0 Guangxi Province 2019 2020 2021 Program Requested Approved Requested Approved Requested Approved county budget budget % budget budget % budget budget % Total 168,882.98 105,318.66 62 240,272.29 113,763.23 47 196,587.37 88,351.64 45 Pinggui 3,742.82 3,742.82 100 3,406.91 3,406.91 100 2,592.14 2,592.14 100 Luocheng 16,781.83 16,781.83 100 29,137.44 29,137.44 100 21,877.41 21,677.11 99 Rong’an 3,175.69 12,845.91 405 4,667.65 4,615.32 99 3,964.64 9,988.14 252 Xingbin 18,216.57 18,216.57 100 19,987.66 19,987.66 100 21,049.00 21,049.00 100 Xincheng 2,241.88 1,980.34 88 2,735.63 1,250.79 46 1,121.66 1,121.66 100 Bobai 84,968.00 12,015.00 14 142,887.80 17,925.91 13 122,937.78 8,888.85 7 Yizhou 12,901.88 12,901.88 100 18,587.91 18,587.91 100 9,473.77 9,473.77 100 Mashan 5,382.27 5,382.27 100 9,208.46 9,208.46 100 8,888.96 8,888.96 100 Zhongshan 21,472.04 21,452.04 100 9,652.82 9,642.82 100 4,682.01 4,672.01 100 Program counties rely heavily on transfers from upper-level government to conduct program activities. The upper-level government transfers are normally distributed to counties in batches. Most central government transfers for the current year are distributed at the end of the previous year; the others and most provincial government transfers are delivered to counties in different months of the year. Several earmarked funds are selected to review the delivery of upper-level transfers in Guangxi Province (see Table 3 for details). Table 3: Delivery of Upper-Level Earmarked Funds in Guangxi 7 2019 2020 2021 Ear-marked funds Date % Date % Date % Date % Date % Date % Date % Date % Date % Date % Date % Date % Date % Rural production development fund Pinggui 12/28/2018 95% 07/02/2019 5% 12/17/2019 82% 07/23/2020 18% Ziyuan 100% 100% 100% Luocheng 12/21/2018 54% 09/27/2019 8% 07/22/2019 14% 12/31/2019 24% 01/02/2020 33% 08/12/2020 67% 01/05/2021 77% 06/21/2021 23% Rongan 12/21/2018 97% 06/06/2019 3% 12/12/2019 68% 07/17/2020 32% 12/17/2020 54% 05/27/2021 46% Xingbin Jun-19 63% Aug-19 37% Mar-20 7% Sep-20 93% Feb-21 95% Sep-21 5% 12/12/2019 Xincheng 12/21/2018 100% 37% 02/19/2020 10% 06/11/2020 -15% 07/17/2020 69% 05/27/2021 26% 12/18/2020 74% 12/31/2019 Bobai 06/25/2019 42% 11/29/2019 58% 04/24/2020 64% 12/24/2020 36% 03/01/2021 30% 08/24/2021 70% Yizhou 12/29/2018 76% 12/29/2018 10% 07/09/2019 14% 01/06/2020 55% 08/18/2020 39% 01/19/2020 6% 12/31/2020 96% 06/17/2021 3% 12/31/2020 1% Mashan 12/21/2018 80% 07/22/2019 20% 07/17/2020 17% 09/25/2020 83% 12/17/2020 100% Zhongshan Mar-19 11% Jul-19 89% Jan-20 95% Aug-20 Jan-21 86% Jul-21 14% Special funds for supporting modern agriculture system Luocheng 01/04/2019 90% 08/02/2019 10% 04/02/2020 19% 02/19/2020 05/20/2021 100% Mashan 100% 100% 100% Special funds for agriculture sustainable development Luocheng 12/21/2018 47% 06/12/2019 19% 09/27/2019 16% 12/30/2019 19% 07/28/2020 62% 09/24/2020 38% 12/27/2020 100% Xingbin 11/21/2019 47% 06/21/2019 14% Oct-19 39% 12/17/2020 81% 05/07/2020 11% 05/06/2020 8% 12/11/2020 67% 10/29/2021 1% 10/09/2021 5% 05/20/2021 25% 06/18/2021 3% Mashan 12/21/2018 75% 06/06/2019 25% 12/12/2019 11% 07/18/2020 70% 09/24/2020 19% 12/17/2020 19% 05/29/2021 81% Zhongshan Mar-19 100% Apr-20 02/02/2020 Mar-21 100% Special funds for improvement of rural living environment Luocheng 04/29/2019 39% 02/01/2019 5% 06/26/2019 50% 09/30/2019 6% 04/28/2020 0% 08/04/2020 91% 02/02/2020 8% 09/30/2021 3% 02/05/2021 97% Rongan 03/28/2019 100% 06/10/2020 100% 06/15/2021 75% 08/11/2021 25% Xingbin 07/11/2019 38% 11/14/2019 04/15/2020 52% 04/08/2020 48% 05/20/2021 16% 10/08/2021 3% 07/27/2021 38% 06/30/2021 42% Xincheng 12/29/2018 81% 03/27/2019 7% 10/23/2019 12% 03/29/2020 100% Yizhou 03/28/2019 11% 11/06/2019 89% 04/02/2020 100% 8 Mashan 100% 100% 100% Zhongshan Apr-19 21% May-19 79% Jan-20 8% Feb-20 92% Jan-21 25% Jun-21 71% Dec-21 4% Special funds for "Toilet Revolution" in Rural Areas to Promote Entire Villages Luocheng 09/05/2019 100% 03/11/2020 100% 06/15/2021 100% Tiandeng 08/29/2019 100% 07/27/2021 100% Rongan 08/26/2019 84% 12/10/2019 16% 07/15/2021 100% Xincheng 09/09/2019 10% 08/26/2019 90% 08/13/2020 100% 06/15/2021 100% Yizhou 09/03/2019 3% 09/16/2019 97% 06/16/2021 100% Mashan 09/03/2019 100% 100% Zhongshan Mar-19 82% Nov-19 18% Dec-19 12% Nov-20 100% Jul-21 100% Rural revitalization funds 0% Luocheng 06/14/2019 28% 06/26/2019 54% 07/29/2019 19% 02/29/2020 14% 03/12/2020 41% 04/13/2020 46% 06/20/2021 14% 06/21/2021 18% 06/18/2021 16% 07/09/2021 30% 07/19/2021 22% 06/16/2020 03/03/2020 Tiandeng 06/16/2019 29% 06/25/2019 41% 06/28/2019 7% 07/03/2019 23% 0% 48% 06/25/2020 40% 12/30/2020 11% 07/27/2021 7% 06/28/2021 73% 07/01/2021 18% 09/29/2021 2% 03/13/2020 07/15/2020 Rongan Dec-19 52% 06/13/2019 48% 02/18/2020 100% 06/18/2021 84% 06/15/2021 16% 07/23/2021 0% Xincheng 06/22/2019 12% 06/13/2019 7% 06/14/2019 81% 02/29/2020 32% 02/18/2020 17% 02/28/2020 13% 02/02/2020 38% 06/15/2021 49% 06/18/2021 36% 07/12/2021 2% 12/28/2021 12% Bobai 05/09/2019 100% 02/29/2020 99% 05/23/2020 1% 07/12/2021 100% Yizhou 06/26/2019 85% 07/18/2019 15% 03/06/2020 30% 03/06/2020 68% Dec-20 3% 06/17/2021 22% 07/01/2021 5% 07/13/2021 73% Mashan 100% 100% 0% 100% Zhongshan 01/04/2019 59% Jun-19 20% Oct-19 9% Dec-19 12% Apr-20 2% Jul-20 34% Sep-20 56% Dec-20 8% May-21 100% Rural revitalization cohesion funds 05/20/2020 06/08/2019 08/09/2019 03/13/2020 06/24/2020 05/08/2021 09/30/2021 Rongan 12/05/2019 39% 36% 9% 12/21/2018 16% 12/10/2020 50% 22% 16% 12/31/2020 12% 12/10/2020 44% 20% 06/30/2021 19% 5% 12/28/2021 12% 05/20/2019 09/24/2019 04/26/2020 07/10/2020 06/15/2021 10/28/2021 07/24/2020 10/09/2019 Xingbin 11/21/2019 70% Mar-19 7% 06/21/2019 20% 3% 12/17/2020 74% 05/21/2020 3% 05/06/2020 5% 05/07/2020 18% 12/11/2020 62% 10/29/2021 5% 10/08/2021 7% 05/20/2021 19% Mar-21 8% 11/18/2019 Yizhou 12/25/2018 57% 06/14/2019 25% 08/20/2019 18% 12/13/2020 80% 01/14/2020 2% 04/20/2020 14% 05/02/2020 4% 12/14/2020 66% 05/20/2021 25% 06/16/2021 6% 10/29/2021 2% 04/18/2019 12/02/2019 05/11/2020 07/13/2020 03/15/2021 09/30/2021 Zhongshan 12/17/2018 26% 01/31/2019 13% 06/13/2019 23% 38% 02/17/2020 11% 04/28/2020 51% 25% 13% 12/11/2021 62% 13% 05/19/2021 11% 06/16/2021 7% 6% 12/13/2019 05/21/2020 07/30/2020 04/20/2021 10/29/2021 08/16/2019 Three central government transfer items provide funds to county governments for carrying out the program activities, namely, “Transfer for poor areas,� �Transfer for central-local shared functions on agriculture, forestry, and water affairs,� and “Special transfers for agricultural, forestry, and water affairs,� of which the “Special transfers for agricultural, forestry, and water affairs� are earmarked transfers and the other two are general transfers. As shown in the expenditure framework assessment, the amounts of the three funding sources are much higher than those of the expenditures listed in the program expenditure boundary (see paragraph 22 of the technical assessment report), which indicates that the budget funding for the program is overall adequate and largely predictable. The budget preparation process at the county level appears to be carried out in an orderly and predictable manner. As reported by the program counties in Guizhou, most counties integrated upper-level transfers in their annual budget (see Table 4) although the distribution was in batches. Since most upper-level transfers are stable, the county government used to integrate the transfers in its annual government budget based on projections and then made adjustments in the second half of the year. Table 4: Budget Completion in Guizhou and Guangxi Provinces Whether upper-level transfers have been integrated in county budget Program county 2019 2020 2021 Libo Yes Yes Yes Xifeng Yes Yes Yes Congjiang Yes Yes Yes Sinan No No No Duyun Yes Yes Yes Guiding Yes Yes Yes Xingren Yes Yes Yes Jiangkou Yes Yes Yes Luodian Yes Yes Yes Sandu Yes Yes Yes Yanhe Yes Yes Yes Yinjiang Yes Yes Yes Xiuwen Yes Yes Yes Songtao Yes Yes Yes Zhenfeng Yes Yes Yes Whether upper-level transfers have been integrated in county budget Program county 2019 2020 2021 Pinggui Yes Yes Yes Ziyuan Yes Yes Yes Luocheng Yes Yes Yes Tiandeng Yes Yes Yes Rong’an Yes Yes Yes Xingbing No No No 9 Xincheng Yes Yes Yes Bibai Yes Yes Yes Yizhou No Yes No Mashan Yes Yes Yes Zhongshan Yes Yes Yes However, although the 14th Five-Year plan has been prepared for green agriculture and rural revitalization, no budget is allocated to the plan. Some government officials expressed their concerns about the shortage of funds in implementing the activities in the plan, especially the financing gaps associated with toilet improvement and rural solid waste and wastewater collection, transfer, and treatment, and these are activities that the Bank would like to support under the proposed program. Since these activities are defined as a local government responsibility, the transfers from upper-level government (central and provincial) are quite limited, and county governments are responsible for exploring the financing sources by themselves, although the financial capacity of most counties is quite weak. The main financing source is non-tax revenue (sales of land), but it is not stable and has been declining in recent years. The data on fund allocation of rural revitalization cohesion funds, which is one of the main financing sources for these kinds of activities, were collected and analyzed. Rural revitalization cohesion funds are mainly used in three areas: industrial development, rural infrastructure, and social development. About half of the funds are allocated to industrial development. The funds allocated to rural infrastructure were about 25 percent in 2020 and 22 percent in 2021, whereas the portion for toilet upgrading and wastewater and solid waste was about 3 percent in 2020 and 1 percent in 2021. Most counties did not even arrange for funds for these areas (see Table 5 for details). Table 5: Allocation of Rural Revitalization Cohesion Funds in Guizhou Province (unit: 10,000) Rural infrastructure For investment on Year/county Total amount toilet upgrading and Investment Percentage Percentage wastewater and solid waste Total 459,524.19 109,149.70 24 9,664.53 2 2020 226,096.33 56,791.37 25 6,368.30 3 Libo 8,046.00 1,563.82 19 - 0 Congjiang 59,968.00 13,686.83 23 6,248.44 10 Sinan 17,204.74 2,785.79 16 - 0 Duyun 6,620.00 1,192.56 18 - 0 Guiding 908 208.84 23 119.86 13 Xingren 9,832.18 2,660.14 27 - 0 Jiangkou 7,124.00 2,240.00 31 - 0 Luodian 22,029.20 4,977.00 23 - 0 Sandu 22,555.00 4,771.28 21 - 0 Yanhe 43,241.27 18,532.96 43 - 0 Songtao 14,503.95 1,454.95 10 - 0 10 Zhenfeng 14,064.00 2,717.20 19 - 0 2021 233,427.86 52,358.40 22 3,296.23 1 Libo 10,593.00 1,047.50 10 27 0 Congjiang 31,618.78 5,989.33 19 2,469.78 8 Sinan 16,384.00 2,820.52 17 - 0 Duyun 5,392.00 980.72 18 - 0 Guiding 705 142.13 20 105.75 15 Xingren 10,798.61 2,123.67 20 - 0 Jiangkou 9,070.00 2,624.00 29 - 0 Luodian 36,141.87 10,155.98 28 460 1 Sandu 31,925.00 8,999.96 28 47 0 Yanhe 35,054.32 9,745.41 28 0 Xiuwen 7,032.00 2,854.95 41 186.7 3 Songtao 25,027.28 2,063.00 8 - 0 Zhenfeng 13,686.00 2,811.24 21 - 0 Case I. From 2022 to 2025, the total construction funds required for solid waste treatment are about RMB 1.032 billion in Guizhou Province, and all the funds should be self-financed by the counties. The maintenance operating cost is about RMB 1.1 billion. Provincial government can invest only RMB 240 million and the remaining would be financed by the counties. Since the counties’ financing capacity is relatively weak, the PPP method is popularly used at the county level. The wastewater treatment rate was 10.2 percent in 2020 while the national average rate was 25.5 percent. In order to increase the rate to 25 percent in the 14th FYP period, annual investment will be RMB 800 million each year, whereas the available transferred fund is about RMB 300 million. There is a big financing gap in this area. The investment on solid waste treatment is about RMB 30 million a year in Xingren County of Guizhou Province, but the available funds can satisfy only one-third of the need. In order to achieve the performance indicators being set up by the upper-level government, the county has to delay payment to contractors/suppliers. It is noted that the amount payable to contractors is about RMB 37 million. It is also noted that, in order to mobilize the counties to use the upper-level transfer funds more efficiently in line with their development strategy and priority, some earmarked funds are integrated by the provincial government and distributed to the counties (28 earmarked funds are integrated in Guangxi and 17 in Guizhou). However, the mission noted that it is hard for the county to use these integrated funds in line with its development strategy and priorities since some upper-level government entities still monitor the achievement of the performance indicators attached to the earmarked funds and the counties could not freely use the integrated funds on those areas that are their priorities but not the upper-level government entities’ priorities. As a result, a mismatch between the funds requested and funds received for some activities was noted 11 during the field visit, and some activities, including in the village revitalization plan, couldn’t be implemented in an integrated manner. Case II. In Xifeng County of Guizhou Province, toilet improvement is managed by the county ARAB, while the construction of wastewater treatment and connection pipes is managed by the county Ecology and Environment Bureau. Since the county obtained some funds on toilet improvement several years ago, some households’ toilets were improved. But the wastewater generated could not be treated as there were no funds to build the connection pipes. Several years later, the county received a batch of funds to build a treatment pond and the pipes, but it had to destroy the individual septic tanks to connect to the pipes. There is no integrated manner to implement program activities. To address the above-mentioned weaknesses, it is recommended that (1) program-based budgeting be used to ensure that sufficient funds can be secured to implement program activities; (2) related government entities may need to revisit fund integration and monitoring measures to give the counties more flexibility in fund use in line with their development strategy and priorities; and (3) related government entities should revise their investment direction and allocate more funds to the areas that are defined as priorities in the PforR program. 3.1.2 Procurement profile of the program Procurement planning: The responsible implementation agency prepares the procurement plan based on the available allocated budget and/or according to the available funds. The procurement plan is submitted to the respective supervision authority and the finance department/bureau for review and clearance. Since the procurement plan is prepared by the implementation agency, which is the end-owner of the works, goods, and services to be procured, the plan is closely linked to its needs. During the FSA, the program counties (12 in Guangxi and 15 in Guizhou) were required to provide information on actual contract volumes awarded compared to the original cost estimates. Seven program counties that had seven program prefectures in Guangxi and seven program counties that had five program prefectures in Guizhou were selected for the assessment. The data provided appear in Table 6. Table 6: Actual Award Price against Cost Estimate Actual award price against cost Province/ estimate (%) Implementation agency county Works Goods Services Guangxi Agriculture and Rural Affairs Bureau 96.8 98 97.6 Rural Revitalization Bureau 92‒94 / 100 Mashan Housing and Construction Bureau 99 / 100 Natural Resources Bureau 90‒97 / 95 Water Bureau 98.6 99 99 Agriculture and Rural Affairs Bureau 99 / 98 Rong’an Rural Revitalization Bureau 95 / / Housing and Construction Bureau 99 / 90 12 Ecology and Environment Bureau / / 90‒100 Natural Resources Bureau 90 / / Water Bureau 99 99 99 Agriculture and Rural Affairs Bureau 97‒100 98.2 97.3 Rural Revitalization Bureau 95 / / Ziyuan Housing and Construction Bureau 92‒95 92‒95 92‒95 Natural Resources Bureau 95‒99.1 / 95 Water Bureau / 98.2 97.3 Agriculture and Rural Affairs Bureau 99 99.7 99.6 Housing and Construction Bureau / 99.8 no data Bobai Ecology and Environment Bureau 96.4 99.4 99.9 Natural Resources Bureau 97 99 99.1 Water Bureau 97 / / Agriculture and Rural Affairs Bureau 96.2 / 98.9 Rural Revitalization Bureau 98 96‒98 98 Housing and Construction Bureau / 100 / Yizhou Ecology and Environment Bureau 97 / / Natural Resources Bureau 98 / 100 Water Bureau 95.7 93.8 92.3 Agriculture and Rural Affairs Bureau 100 100 100 Rural Revitalization Bureau 99 / 99 Housing and Construction Bureau 90‒97.4 / 70‒99 Xincheng Ecology and Environment Bureau / 90 90 Natural Resources Bureau / / 95 Water Bureau 99.9 / / Agriculture and Rural Affairs Bureau 90‒100 / / Rural Revitalization Bureau 90 / / Tiandeng Housing and Construction Bureau 95 / / Ecology and Environment Bureau 98 / / Guizhou Agriculture and Rural Affairs Bureau 95 85‒99.7 / Housing and Construction Bureau / / 98 Administrative Law Enforcement Bureau 98 90.8 93 Xifeng Ecology and Environment Bureau / 100 91.4 Natural Resources Bureau / / 99.7 Water Bureau 96 94 72 Agriculture and Rural Affairs Bureau 95 / 90 Rural Revitalization Bureau 98.9 100 100 Sinan Administrative Law Enforcement Bureau / / 100 Ecology and Environment Bureau 93 / 98 13 Natural Resources Bureau / / 96 Water Bureau 98 98 96 Agriculture and Rural Affairs Bureau 83.8 89.6‒100 99 Rural Revitalization Bureau 98 / 97 Housing and Construction Bureau 98 98 / Yinjiang Ecology and Environment Bureau 98 98 98 Natural Resources Bureau 97‒99 / 96‒100 Water Bureau 98.4 90‒98 90‒95 Agriculture and Rural Affairs Bureau 90 97 / Housing and Construction Bureau 99.9 / / Administrative Law Enforcement Bureau 90 / / Jinping Ecology and Environment Bureau 95‒98 90‒98 / Natural Resources Bureau 96.8 / / Water Bureau 90 / 98 Agriculture and Rural Affairs Bureau 95 98 94 Rural Revitalization Bureau / / 98 Housing and Construction Bureau 95 98 94 Taijiang Ecology and Environment Bureau 99.9 / / Natural Resources Bureau / 98 100 Water Bureau 95.1 98.4 98.1 Agriculture and Rural Affairs Bureau 94.1 / 90 Rural Revitalization Bureau 89 / 97 Housing and Construction Bureau 99.8 / / Sandu Administrative Law Enforcement Bureau 99.9 / / Natural Resources Bureau 95‒99 / 95‒99 Water Bureau 98 98 70 Agriculture and Rural Affairs Bureau / 98.3 / Rural Revitalization Bureau 99.2 99 / Housing and Construction Bureau 95‒98 / 70‒95 Xingren Administrative Law Enforcement Bureau 85 96 80 Ecology and Environment Bureau 97 99.6 83.2‒99 Water Bureau 85‒99 95‒99 95‒99 Procurement overview: The PforR program will cover all kinds of procurement, that is, works, goods, and consulting services, and will consist of constructing/rehabilitating rural wastewater management systems and rural solid waste management systems (collection, sorting, and transfer); constructing treatment and recycling facilities for livestock and poultry manure; acquiring organic fertilizer; consulting services of engineering design and construction supervision; developing regulations, standards, and guidelines for good agricultural practices and infrastructure; developing mechanisms for budgeting, expenditure tracking, and reporting; developing mechanisms for M&E of rural infrastructure and public services; training in operations 14 and maintenance (O&M) of wastewater and solid waste systems; and training FCs, FAs, WUAs, input suppliers, agro-enterprises, and rural extension staff. The program-related provincial-level policies and guidelines will be developed by relevant provincial-level government agencies. Some of the activities related to decreasing th use of chemical fertilizer and toxic pesticide, recycling plastic film, and recycling livestock waste and crop straw would be financed through subsidies. Procurement Regulatory Framework: The procurement of works, goods, and material (which is incorporated into permanent works) and consultancy services related to works (including geological exploring and survey, engineering design, cost estimating and pricing, and construction supervision) usually follows the procedures specified in the Tendering and Bidding Law (TBL) and the related implementation regulations enacted by the governments at the central, provincial, prefectural, and county levels in accordance with the TBL. The TBL became effective on January 1, 2000. At the central level, the implementing regulations came into force on February 1, 2012, and were amended on March 1, 2017, March 19, 2018, and March 2, 2019. Other procurement follows the procedures stipulated by the Government Procurement Law (GPL) and the related implementing regulations promulgated by the governments at the central, provincial, prefectural, and county levels. The GPL became effective on January 1, 2003. At the central level, the implementing regulations for the GPL issued by the State Council became effective on March 1, 2015. 3.2 Budget Execution All budgetary entities were required to prepare accrual basis financial reporting starting from January 1, 2019. However, accrual basis financial reporting is neither submitted to the People’s Congress nor audited by external auditors. The primary financial report at each level of government is therefore the budget execution report, which is prepared on a cash basis. Several budget items that capture the program expenditures were selected and the data were analyzed to review budget execution status. The budget completion rate is quite satisfactory in the program counties of Guizhou Province (see Table 7), which demonstrates that the budgetary entities take budget execution seriously and, once the budget is approved, completion is not a questionable concern. Table 7: Budget Completion Rate in Guizhou and Guangxi Provinces (unit: 10,000) Guizhou Province 15 Program 2018 2019 2020 activities and related budget Budget Budget Budget items Final account % Final account % Final account % amount amount amount Total 311,335.64 371,280.30 119% 397,996.81 549,698.55 138% 590,244.10 704,965.71 119% Green 54,233.48 62,179.76 115% 77,334.19 111,785.63 145% 147,668.94 145,305.91 98% agriculture 21301 54,233.48 62,179.76 115% 77,334.19 111,785.63 145% 147,668.94 145,305.91 98% Rural 243,350.53 294,590.63 121% 305,305.80 423,997.54 139% 425,059.90 534,376.30 126% infrastructure 21103 27,237.40 32,998.49 121% 25,269.00 42,820.65 169% 34,707.00 30,423.21 88% 21205 10,666.43 15,216.00 143% 17,310.49 18,996.78 110% 12,149.67 15,696.67 129% 21305 205,446.70 246,376.14 120% 262,726.30 362,180.11 138% 378,203.23 488,256.42 129% Farmer's training 13,751.63 14,509.91 106% 15,356.82 13,915.38 91% 17,515.26 25,283.50 144% 2080702 7,672.93 8,655.31 113% 8,158.42 10,889.08 133% 8,526.66 14,567.12 171% 2080712 57 57 100% 69 555 804% 26.3 26.3 100% Guangxi Province Program 2018 2019 2020 activities and related budget Budget Budget Budget items Final account % Final account % Final account % amount amount amount Total 341,860.42 614,945.74 180% 438,268.60 673,603.40 154% 397,138.88 363,427.00 92% Green 68,289.00 78,092.55 114% 72,524.00 98,904.60 136% 86,629.00 64,110.00 74% agriculture 21301 68,289.00 78,092.55 114% 72,524.00 98,904.60 136% 86,629.00 64,110.00 74% Rural 265,311.00 522,650.97 197% 333,209.00 527,669.29 158% 287,593.00 280,951.00 98% infrastructure 21103 6,015.00 12,701.30 211% 9,406.00 18,509.18 197% 7,430.00 6,927.00 93% 21205 14,375.00 19,053.00 133% 21,823.00 24,593.00 113% 19,381.00 20,914.00 108% 21305 244,921.00 490,896.66 200% 301,980.00 484,567.11 160% 260,782.00 253,110.00 97% Farmer's training 8,260.42 14,202.23 172% 32,535.60 47,029.52 145% 22,916.88 18,366.00 80% 2080702 387 1,794.00 464% 144 678 471% 73 502 688% 2080712 - - - - - - 2130199 7,873.42 12,408.23 158% 32,391.60 46,351.52 143% 22,843.88 17,864.00 78% 3.2.1 Treasury management and funds flow Adequate funds are available to finance program implementation as planned. Fund availability: The upper-level government transfers are normally distributed to the counties in batches. Most central government transfers for the current year are distributed at the end of the previous year; the others and most provincial government transfers are delivered to the counties in different months of the year and some funds are delivered in the last quarter of the year. The provincial finance department sometimes integrates several earmarked funds and distributes these to the counties together. The county finance bureau logs the allocated budget quota in the budget system, which enables project implementing agencies to apply for payment following established procedures. Payment processing: An integrated financial management information system (IFMIS) has been established in both provinces. A payment plan for each contract is entered and approved in the system. The payment plan indicates the threshold for direct and authorized payments, which supports the two payment modalities in China’s treasury system. Supporting documents for direct 16 payments, applicable to larger payment amounts above the threshold, are reviewed and then approved by the relevant finance bureau sector division and signed off on by management before payment through the treasury system. Authorized payments for amounts below the threshold are entered in the treasury system by the budget entity and payment is made by the commercial bank and cleared overnight. Vendor or contractor invoices include vendor bank account number and other relevant information for making the payment. The budget entity retains the original documents. Since cash-basis accounting is being used by the county finance bureau, the budgetary entities are responsible for monitoring the payable amount due to contractors/suppliers. Based on the interviews with some counties, the payment period is sometimes about 6 months. Treasury: Each county maintains a Treasury Single Account (TSA) and makes payments through a network of commercial banks. The provincial-level treasury can transfer funds to counties at the time of quota allocation (through monthly transfers) or can monitor payment plans in the system and transfer sufficient funds for counties to cover payments. Counties participating in the assessment indicated that they had not experienced cash shortages. Indicators to measure cash flow availability were not observed. The lack of such indicators is not considered a weakness given the program’s strong funding and availability of cash when needed. Continued strong growth in China’s economy suggests that national and provincial governments will continue to make cash available to the program as needed. 3.2.2 Accounting and financial reporting In 2013, the MOF initiated a piloting reform for accrual-based government financial reporting. The provinces introduced accrual-based financial reporting on a trial basis, but the reports were neither submitted to the People’s Congress for review and approval nor subjected to the government auditors’ annual audit. In 2018, an accrual-based accounting regulation was issued by the MOF for the public sector in China to provide a concreate basis for budget-executing entities to record their transactions and prepare their financial reports on an accrual basis. The new regulation, which adopts international good practice and principles of the International Public Sector Accounting Standards (IPSAS), became effective on January 1, 2019. The first accrual-basis government financial report was prepared for FY 2019; however, the report has not been submitted to the People’s Congress and auditors since the related procedures and requirements are still under consultation and discussion. Since “program� is not a budget classification element, program-based financial reports cannot be generated from the government treasury system. Per analyzing program activities and related government budget line items, some budget items (see Table 8) that are used to capture program expenditures have been identified and the template will be designed based on these items. The financial reporting template will be finalized and agreed by both parties before loan effectiveness. However, the expenditures captured in these items are more than program expenditures as program expenditures are not tagged in the government treasury system. The information about these budget items can be generated from IFMIS directly, the data are reliable, and it is easier to track program expenditures by reviewing the detailed vouchers when the external auditors carry out the annual program audit. 17 Table 8: Budget Items to Be Used for Reporting Program Expenditures # Code Budget line 1 2130101 Administrative operation 2 2130102 General administrative services 3 2130104 Business operation 4 2130105 Farm reclamation operation 5 2130106 Technology transformation and promotion services 6 2130108 Pest control 7 2130109 Agricultural product quality and safety 8 2130110 Law-enforcement supervision 9 2130111 Statistical monitoring and information services 10 2130112 Industry business management 11 2130119 Disaster prevention and relief 12 2130121 Agricultural structural adjustment subsidies 13 2130122 Agricultural production development 14 2130124 Rural cooperative economy 15 2130125 Agricultural processing and promotion 16 2130135 Protection, restoration, and use of agricultural resources 17 2130142 Rural road construction 18 2130153 Farmland construction 19 2130501 Administrative operation 20 2130502 General administrative services 21 2130504 Rural infrastructure construction Procurement following the TBL The Development and Reform Commission (DRC) at the central, provincial, prefectural, and county levels provides overall guidance for, and coordination of, all procurement activities that follow the TBL and its related implementing regulations. The relevant sectoral government authorities at the given level assume the day-to-day supervision responsibilities for procurement activities. The procurement methods allowed for by the TBL include open competitive bidding and direct invitation (limited competitive bidding or shopping), with open competitive bidding being the preferred method. Public resources transaction centers (PRTCs) exist at the provincial, prefectural, and county levels (only Bobai county has a PRTC) in Guangxi and at the provincial and prefectural levels in Guizhou. They provide an electronic platform for their clients (the implementing agencies) to publish procurement notices and to issue the bidding documents and any subsequent clarification and addenda. All bidders are required to register with the transaction center’s information system. They then submit bids and bid securities electronically. Bids are opened electronically. The transaction centers provide physical space for bid opening and evaluation and bid evaluation 18 committee members evaluate the bids in the monitored room in the PRTC. Together with staff from the relevant sectoral government authorities, the staff of the transaction centers assume the supervision and monitoring functions during the bid opening and evaluation, but do not participate in the bid evaluation. The transaction centers also provide a website for the publication of the contract award recommendation and, after the standstill period, of the final contract award. In all provinces, it is common practice for qualified procurement agencies to carry out procurement services on behalf of their clients. These agencies receive a special certification from the relevant government authorities. If the value of the contract to be procured exceeds a specified threshold (i.e., >= CNY4 million for works, >= CNY2 million for goods, and >= CNY1 million for services), procurement needs to take place through open competitive bidding at the local PRTC. If the value of the contract to be procured is less than the specified threshold, procurement can be carried out through limited competitive bidding or competitive negotiation, competitive dialogue, shopping, and single source, which are procurement methods under government procurement, and the procurement is not mandatorily required to be conducted at the PRTC but should be conducted following the GPL. The invitation for limited competitive bidding or shopping is sent to at least three qualified bidders. The procurement notice is published on the website of the Guangxi Regional Tendering and Bidding Public Service Platform (http://zbtb.gxi.gov.cn/), Guangxi Regional Public Resources Transaction Center (http://gxggzy.gxzf.gov.cn/), and the relevant prefectural website of the PRTC (for example, for Nanning, the prefecture of Mashan County, http://ggzy.nanning.gov.cn/), as well as the website of the Guizhou Provincial Tendering and Bidding Public Service Platform (http://ztb.guizhou.gov.cn/), Guizhou Provincial PRTC (https://ggzy.guizhou.gov.cn/), and relevant prefecture websites of the PRTCs (for example, for Guiyang, the prefecture of Xifeng County, http://ggzy.guiyang.gov.cn/). The procurement notice will also be synchronized with the website of the China Tendering and Bidding Public Service Platform (http://www.cebpubservice.com/). This contains information on civil works, goods, and services to be procured, including information on the quantity of the work activities/goods/service assignments; the location; the requested completion/delivery time; the name, address, and contact number of the client; the qualification and experience requirements of the bidder, etc. The client is responsible for preparing the bidding documents, with assistance from the procurement agency hired by the client (which normally helps with the commercial part of the bidding document), the design institute (which normally helps with the technical part of the bidding document), and sometimes a professional firm (which usually helps with the bill of quantities). Standard bidding documents are issued by various line ministries and sectoral departments. In accordance with the TBL and relevant implementation regulations, the bidding document must not contain biased qualification, experience, or technical requirements. Reference to specific manufacturers is also not allowed. After publication of the procurement notice, potential bidders are given at least five calendar days to acquire the bidding documents. Any request for clarification regarding the bidding document must be sent no later than ten calendar days prior to the deadline for bid submission and opening. The client is required to provide a response to such requests for clarification within three calendar days. Any clarification 19 or addendum shall be issued in writing to all the bidders no later than 15 days prior to the deadline for bid submission and opening (which needs to be extended if inadequate time is left). The time between the date of availability of the bidding document and the deadline for bid submission and opening is not less than 20 calendar days. According to the TBL and its implementing regulations, if the number of bids received is less than three, re-bidding must be conducted. All bids received by the deadline for bid submission and opening, and that are properly sealed, are opened and read out. Any bid that is not properly sealed will be rejected, unopened, and not read out. The amount of the bid security does not exceed 2 percent of the cost estimate, and is not more than CNY 0.8 million maximum. Validity of the bid security and validity of the bid are the same. The bid evaluation methods used are outlined in the Tendering and Bidding Supervision Regulation and Qualification Method issued by the Guangxi and Guizhou Housing and Urban-Rural Development Department. Two main bid evaluation methods (the lowest reasonable price method and the comprehensive evaluation method) are used in both Guangxi and Guizhou. Lowest reasonable price method The lowest reasonable price method can be used for any procurement. It is a more traditional procurement method and is similar to the Bank’s lowest evaluated compliant bid. The technical standard of the bidder is evaluated in line with the technical requirements of the issued bidding document and the bid price is verified by the bid evaluation committee if it is recognized as reasonable, with the lowest bidder winning the contract. Comprehensive evaluation method The comprehensive evaluation method, known as CEM, is applicable for special/large contracts. The CEM method helps to ensure that the contractor with the right experience and best technical proposal is selected by using rated criteria. The CEM requirements are a draft version of the management rules, which have no mandatory requirements. The bid evaluation committee (BEC) has five to seven members, one from the client and the others selected randomly from official sectoral expert databases maintained by the relevant government authorities at the central or provincial level. The experts are normally required to have a working experience of not less than eight years in the relevant sector. The contract is normally awarded to the reasonable lowest responsive/highest scored responsive bidder that meets the qualification and experience requirements specified in the issued bidding documents. The contract award recommendation is disclosed to the public, including all the bidders, and the standstill period is at least three calendar days. The contract award information is published on the website of the Guangxi Regional Tendering and Bidding Public Service Platform (http://zbtb.gxi.gov.cn/), Guangxi Regional Public Resources Transaction Center (http://gxggzy.gxzf.gov.cn/), Guizhou Provincial Tendering and Bidding Public Service Platform (http://ztb.guizhou.gov.cn/), and Guizhou Provincial PRTC (https://ggzy.guizhou.gov.cn/). It is also published on the prefectural website of the PRTC (for example, for Nanning, http://ggzy.nanning.gov.cn/; for Guiyang, http://ggzy.guiyang.gov.cn/). It 20 will also be synchronized with the website of China’s Tendering and Bidding Public Service Platform (http://www.cebpubservice.com/). Within 30 calendar days after the contract award, the client and the successful bidder sign the contract. The successful bidder will furnish to the client the performance security, if so required in the bidding document. The amount of performance security normally does not exceed 10 percent of the contract price. Within five calendar days of the contract signing, the client will return the bid securities to the bidders, including the saving interest amount accrued in the corresponding period. Procurement following the GPL The MOF and the finance authorities at the central, provincial, prefectural, and county levels provide overall guidance for, and coordination and supervision of, all procurement activities, which follow the procedures of the GPL and its implementing regulations. The relevant sectoral government authorities assume the day-to-day supervision responsibilities for procurement activities. If the value of the contract to be procured exceeds the specified thresholds (i.e., CNY 4 million for works, for goods, and services; CNY 3 million for Guangxi; and CNY 2 million for Guizhou), procurement shall be conducted through open competitive bidding at the local PRTC. If the value of the contract to be procured is less than the specified threshold, the procurement can be carried out through other methods described below. The procurement is not required to be conducted at the PRTC. The following procurement methods can be adopted under the GPL: ➢ Open competitive bidding (the preferred procurement method). ➢ Direct invitation. ➢ Competitive negotiation/competitive dialogue. ➢ Single-source selection. ➢ Shopping. ➢ Other methods that can be approved by the relevant government authorities. The procurement notice is published on the specified website of Guangxi Regional Government Procurement (http://www.ccgp-guangxi.gov.cn/) and Guizhou Provincial Government Procurement (http://www.ccgp-guizhou.gov.cn/). It is also published on the prefectural website of the PRTC (for example, for Nanning, the prefecture of Mashan County, http://ggzy.nanning.gov.cn/, and, for Guiyang, the prefecture of Xifeng County, http://ggzy.guiyang.gov.cn/). The procurement notice will also be synchronized with the website of the China Tendering and Bidding Public Service Platform (http://www.cebpubservice.com/). The procurement notice contains information on civil works, goods, or services to be procured, including information on the quantity of the work activities/goods/service assignments; the location; the required completion/delivery time; the name, address, and contact number of the client; the qualification and experience requirements, etc. At least five calendar days are made available to the potential bidders to acquire the bidding documents. 21 Any clarification or addendum is issued in writing to all bidders not later than 15 days prior to the deadline for bid submission and opening. The client is responsible for preparing the bidding document following the standard bidding documents issued by the MOF. The bidding documents should not contain biased qualification, experience, or technical requirements. Reference to specific manufacturers is also not allowed. The amount of bid security does not exceed 2 percent of the cost estimate. With respect to the evaluation criteria, the GPL provides two options for bid evaluation: (a) contract award to the lowest responsive bidder and (b) contract award to the highest rated responsive bidder. The BEC members are selected randomly from official expert databases for government procurement maintained by the relevant government authorities at the central or provincial level. The contract award recommendation is disclosed on the website of Guangxi Regional Government Procurement (http://www.ccgp-guangxi.gov.cn/) and Guizhou Provincial Government Procurement (http://www.ccgp-guizhou.gov.cn/) within two working days after the contract award recommendation is made. In addition, the information is published on the relevant prefectural website of the PRTC (for example, for Nanning, http://ggzy.nanning.gov.cn/; for Guiyang, http://ggzy.guiyang.gov.cn). Recently, the signed contract was also required to be disclosed on the relevant website. It will also be synchronized with the website of the China Tendering and Bidding Public Service Platform (http://www.cebpubservice.com/). If the number of qualified bidders or the number of responsive bids is less than three, re-bidding is required. The bid security is returned to the unsuccessful bidders within five working days after contract award notification and to the successful bidder within five working days after contract signing. Procurement performance Procurement is usually efficient. The time from publication of the procurement notice to the deadline for bid submission and opening is normally 20 calendar days. Bid evaluation is usually completed in one day. Once the evaluation is completed, the contract award recommendation is disclosed to all bidders for three days on the official website of the government and the website of the PRTC. If no complaint is received within the standstill period, the contract is awarded promptly and signed within 30 calendar days after the award. The bidding process is usually competitive. The data provided by the 14 selected program counties show that adequate competition exists. Table 9 shows the number of participating bidders. Since most of the contract value is below the threshold of open competitive bidding, competitive negotiation and competitive dialogue are often used, and a minimum of three bidders is mandatorily required by the regulations. In some counties, direct contracting is also allowed for works and services when the contract cost estimate is below the threshold of open competitive bidding in order to decrease the cost of bidding and increase efficiency. The contractor/service provider is selected from a long list prepared by the county finance bureau through competitive selection. A specific discount rate from the offered price by the contractor/service provider is also specified in the list of contractors/service providers depending on the category/type of the works/services. 22 Table 9: Number of Participating Bidders Number of participating Province/ bidders Implementation agency county Works Goods Services Guangxi Agriculture and Rural Affairs Bureau 3‒7 3 ‒5 3‒5 Rural Revitalization Bureau 3‒5 / 3‒5 Mashan Housing and Construction Bureau 4 / 4‒9 Natural Resources Bureau 3‒7 / 3‒5 Water Bureau 3‒5 3 ‒5 3‒5 Agriculture and Rural Affairs Bureau 3‒5 / 3‒4 Rural Revitalization Bureau 3‒5 / / Housing and Construction Bureau 4‒13 / 4‒8 Rong’an Ecology and Environment Bureau / / 3 Natural Resources Bureau 3 / / Water Bureau 5‒10 4 ‒6 5 Agriculture and Rural Affairs Bureau 5‒7 3 ‒7 3‒7 Rural Revitalization Bureau Direct contracting Ziyuan Housing and Construction Bureau 3‒5 3 ‒5 5 Natural Resources Bureau 3‒8 / 3 Water Bureau / 3 ‒7 3‒7 Agriculture and Rural Affairs Bureau 3‒5 3 ‒5 3‒5 Housing and Construction Bureau 0 3‒10 0 Bobai Ecology and Environment Bureau 3‒5 3 ‒5 3‒5 Natural Resources Bureau 3‒6 3 ‒7 3‒10 Water Bureau 6 / / Agriculture and Rural Affairs Bureau 3‒7 0 3‒5 Rural Revitalization Bureau 3‒5 3 ‒5 3‒20 Housing and Construction Bureau Direct contracting Yizhou Ecology and Environment Bureau 4 / / Natural Resources Bureau 3‒14 / 3 Water Bureau 4‒9 5 ‒8 4‒6 Agriculture and Rural Affairs Bureau 3 3 3 Rural Revitalization Bureau 3 0 0 Housing and Construction Bureau 3‒10 0 3‒25 Xincheng Ecology and Environment Bureau 0 3 3‒4 Natural Resources Bureau / / 3 Water Bureau 3‒9 3 ‒9 0 Agriculture and Rural Affairs Bureau 3‒5 0 0 Tiandeng Rural Revitalization Bureau 3 0 0 23 Housing and Construction Bureau 3‒8 0 0 Ecology and Environment Bureau 3 0 0 Guizhou Agriculture and Rural Affairs Bureau 3‒6 3 ‒6 0 Housing and Construction Bureau 0 0 3 Administrative Law Enforcement Bureau 3‒5 3‒24 3‒5 Xifeng Ecology and Environment Bureau 0 3 3 Natural Resources Bureau 0 0 3 Water Bureau 3‒4 3 3 Agriculture and Rural Affairs Bureau 3 0 3 Rural Revitalization Bureau 3‒4 3 3 Administrative Law Enforcement Bureau 0 0 3‒5 Sinan Ecology and Environment Bureau 3‒5 0 3 Natural Resources Bureau 0 0 8 Water Bureau 3‒8 3 ‒8 3‒5 Agriculture and Rural Affairs Bureau 3 3 0 Rural Revitalization Bureau 3 0 3 Housing and Construction Bureau 3 3 0 Yinjiang Ecology and Environment Bureau 4 4 3 Natural Resources Bureau 3‒4 0 3 Water Bureau 4‒15 3‒14 3‒5 Agriculture and Rural Affairs Bureau 3 3 0 Housing and Construction Bureau / / / Administrative Law Enforcement Bureau 3 0 0 Jinping Ecology and Environment Bureau 3‒4 3 ‒5 0 Natural Resources Bureau 3 0 0 Water Bureau 3‒10 0 3‒5 Agriculture and Rural Affairs Bureau 4‒6 4 ‒5 3‒4 Rural Revitalization Bureau 0 0 3‒5 Housing and Construction Bureau 3‒5 3 3 Taijiang Ecology and Environment Bureau 3 0 0 Natural Resources Bureau 0 3 3 Water Bureau 5 3 3 Agriculture and Rural Affairs Bureau 3 0 3 Rural Revitalization Bureau 4 0 3 Housing and Construction Bureau 4 0 0 Sandu Administrative Law Enforcement Bureau 3 0 0 Natural Resources Bureau 3 0 3 Water Bureau 3‒4 3 ‒5 3‒4 Xingren Agriculture and Rural Affairs Bureau 0 3 ‒5 0 24 Rural Revitalization Bureau 3‒8 3 ‒8 0 Housing and Construction Bureau 4‒84 0 4‒6 Administrative Law Enforcement Bureau 3‒6 3 ‒4 3‒12 Ecology and Environment Bureau 7‒21 3 16‒22 Water Bureau 3‒84 3‒6 3‒6 Both the competitive bidding and non-competitive bidding method are used under both the TBL and the GPL. Table 10 shows the share of contracts procured through the competitive method and non-competitive method for each of the 14 selected program counties in FY 2021. Table 10: Procurement in FY 2021 Total value Total value of Total value of Percentage of contracts procured contracts procured of Province/county procurement through competitive through non- competitive (RMB method (RMB competitive method method by 10,000) 10,000) (RMB 10,000) value (%) Guangxi Mashan 200,079 159,297 40,773 80 Rong’an 86,870 67,378 19,492 78 Ziyuan 112,851 81,649 31,202 72 Bobai 424,151 334,971 89,180 79 Yizhou 48,446 48,446 0* 100 Xincheng 104,800 36,751 68,048 35 Tiandeng 47,201 20,033 27,865 42 Guizhou Xifeng 116,901 110,755 6,146 95 Sinan 561,703 531,167 30,536 95 Yinjiang 115,952 115,360 593 99 Jinping 38,462 23,365 14,962 61 Taijiang 130,017 106,049 23,967.37 82 Sandu 96,082 77,426 18,655 81 94 Xingren 921,192 865,031 56,161 *The value of contracts procured through the non-competitive method was unavailable. During the FSA, data were also collected on cancelation and re-bidding of procurements (see Table 11). There was very little cancelation and re-bidding. The reasons for cancelation and re- bidding include none of the bidders meeting the qualification requirements, some major works or goods being left out of the issued bidding documents, or the lowest evaluated responsive bid price significantly exceeding the cost estimate. Table 11: Number of Cancelations and Re-Bids 25 Number of Total number of Province cancelations and re- Implementation agency contracts /county bids 2019 2020 2021 2019 2020 2021 Guangxi Agriculture and Rural Affairs 10 130 62 0 0 0 Bureau Rural Revitalization Bureau 374 105 41 0 0 0 Mashan Housing and Construction Bureau 8 / 2 0 / 0 Natural Resources Bureau 15 14 / 0 0 / Water Bureau 205 222 124 0 0 0 Agriculture and Rural Affairs 2 2 6 0 0 0 Bureau Rural Revitalization Bureau 17 / / 0 / / Rong’an Housing and Construction Bureau 2 1 4 0 0 0 Ecology and Environment Bureau 2 1 / 0 0 / Natural Resources Bureau 2 1 / 0 0 / Water Bureau 295 143 27 0 0 0 Agriculture and Rural Affairs 38 46 61 0 0 0 Bureau Rural Revitalization Bureau 30 47 32 0 0 0 Ziyuan Housing and Construction Bureau 3 21 35 0 0 0 Natural Resources Bureau 17 / 85 0 / 0 Water Bureau 7 4 2 0 0 0 Agriculture and Rural Affairs 38 56 45 0 0 0 Bureau Housing and Construction Bureau / 1 1 / 0 0 Bobai Ecology and Environment Bureau 2 5 / 0 0 / Natural Resources Bureau / 9 8 / 0 0 Water Bureau / / 2 / / 0 Agriculture and Rural Affairs 31 36 27 0 0 0 Bureau Rural Revitalization Bureau 54 40 73 0 0 0 Yizhou Housing and Construction Bureau 2 3 5 0 0 0 Ecology and Environment Bureau / 4 / / 0 / Natural Resources Bureau 8 / / 0 / / Water Bureau 140 71 49 0 0 0 Agriculture and Rural Affairs / 2 1 / 0 0 Bureau Rural Revitalization Bureau 1 3 2 0 0 0 Xincheng Housing and Construction Bureau 18 5 17 0 0 0 Ecology and Environment Bureau 12 14 19 0 0 0 Natural Resources Bureau / 5 4 / 0 0 26 Water Bureau 2 5 23 0 0 0 Agriculture and Rural Affairs 112 87 27 0 0 1 Bureau Tiandeng Rural Revitalization Bureau 63 / 27 0 / 0 Housing and Construction Bureau 3 2 2 0 0 0 Ecology and Environment Bureau / 4 / / 0 / Guizhou Agriculture and Rural Affairs 19 24 20 0 0 1 Bureau Housing and Construction Bureau 3 1 / 0 0 / Administrative Law Enforcement Xifeng 9 7 10 0 0 1 Bureau Ecology and Environment Bureau 1 1 3 0 0 0 Natural Resources Bureau 3 3 9 0 0 0 Water Bureau 14 9 7 0 0 0 Agriculture and Rural Affairs / 1 5 / 0 0 Bureau Rural Revitalization Bureau 2 5 8 0 0 0 Administrative Law Enforcement Sinan 1 3 1 0 0 0 Bureau Ecology and Environment Bureau 1 4 2 0 0 0 Natural Resources Bureau / / 5 / / 0 Water Bureau 27 16 32 0 0 0 Agriculture and Rural Affairs 6 2 19 0 0 0 Bureau Rural Revitalization Bureau 4 3 3 0 0 0 Yinjiang Housing and Construction Bureau 8 / 2 0 / 0 Ecology and Environment Bureau / 6 10 / 0 0 Natural Resources Bureau 4 2 4 0 0 0 Water Bureau 2 16 7 0 0 0 Agriculture and Rural Affairs 8 8 13 0 0 0 Bureau Housing and Construction Bureau 1 1 / 0 0 / Administrative Law Enforcement Jinping 2 / / 0 / / Bureau Ecology and Environment Bureau 5 2 3 0 0 0 Natural Resources Bureau 3 / / 0 / / Water Bureau 4 10 19 0 0 0 Agriculture and Rural Affairs 17 28 23 0 0 0 Bureau Taijiang Rural Revitalization Bureau / 2 / / 0 / Housing and Construction Bureau 11 19 61 0 0 0 Ecology and Environment Bureau 2 / / 0 / / 27 Natural Resources Bureau 37 2 7 0 0 0 Water Bureau 2 3 3 2 0 1 Agriculture and Rural Affairs / 4 / / 0 / Bureau Rural Revitalization Bureau 1 3 6 0 0 0 Housing and Construction Bureau 1 / / 0 / / Sandu Administrative Law Enforcement 1 / / 0 / / Bureau Natural Resources Bureau 4 4 1 0 0 0 Water Bureau 10 1 4 0 0 0 Agriculture and Rural Affairs 3 6 2 0 0 0 Bureau Rural Revitalization Bureau 45 53 38 0 0 0 Housing and Construction Bureau 97 54 22 1 5 3 Xingren Administrative Law Enforcement 4 5 3 4 5 3 Bureau Ecology and Environment Bureau 6 12 9 0 0 0 Water Bureau 12 45 51 0 0 0 3.2.3 Institutional procurement arrangements Four parties are usually involved in the procurement process: 1. The implementation agency (the client). The implementation agency assumes the responsibility for procurement as well as contract implementation, which includes procurement planning and preparation of the budget, preparation of the bidding documents, organizing the procurement, participating in the bid evaluation, signing and executing the contract, supervising the quality of the work, and ensuring compliance with the contract terms. 2. Procurement agent: Each client will hire an independent external procurement agent. The agent’s responsibilities include assisting with the preparation of the commercial part of the bidding documents, publishing the invitation for bids, issuing the bidding documents, opening the bids publicly, organizing the bid evaluation (but not being a member of the BEC), and preparing the bid evaluation report. 3. Design institute: Each client will also hire an external design institute. The responsibility of the design institute is to assist the client in preparing the technical part of the bidding document. 4. The public resources transaction center: If the cost estimate of the contract exceeds the specified threshold, the procurement activities are carried out via the platform provided by the PRTC. 3.2.4 Contract administration Once the contract is awarded, the client signs the contract with the contractor, supplier, or consultant selected. The client is responsible for contract administration throughout the contract implementation period. The contractor, supplier, or consultant should not assign the contract to another party. However, subject to prior concurrence of the client, the contractor or consultant 28 can sub-contract some work and assignments as long as they are not critical components or activities. Regarding the timeliness of contract completion, most contracts are completed within the contractual period. In Guangxi, 44 out of 301 contracts (14.6 percent) could not be completed within the contractual completion time, and in Guizhou 22 out of 313 contracts (7 percent) could not be completed within the contractual completion time. The longest delay was one year and nine months. Some contract completion audits could not be conducted timely. Table 12 provides information on several contracts executed by implementation agencies in each county. Causes for time slippage include, among others, unforeseen geological events, change of design, bad weather, impact of COVID-19, and delay caused by lengthy land acquisition procedures. Table 12: Timeliness of Contract Completion Number of Number Number contracts of Percentage of time Province Implementation of completed contracts slippages against initial /county agency contracts within initial with time contract period surveyed contract slippage period Guangxi Agriculture and C1: 40% (180/252 days) Rural Affairs 10 7 3 C2: 33% (180/240 days) Bureau C3: 37% (180/247 days) Rural Revitalization 10 10 0 n/a Bureau Mashan Housing and 8 contracts not Construction 10 2 / completed Bureau Natural Resources 12 11 1 C1: 49% (365/540 days) Bureau C1: delayed 120 days Water Bureau 2 0 2 C2: delayed 90 days Agriculture and Rural Affairs 4 4 0 n/a Bureau Rural Revitalization 10 10 0 n/a Bureau Housing and Rong’an C2: 370% (60/282 days) Construction 5 / 2 C3: 208% (90/277 days) Bureau Ecology and Environment 1 1 0 n/a Bureau Natural Resources C3: 21% (330/400 days) 10 8 2 Bureau C7: 52% (330/500 days) 29 All 10 contracts are not Water Bureau 10 / / completed Agriculture and Rural Affairs 5 5 0 n/a Bureau Rural Revitalization 10 10 0 n/a Bureau Housing and Construction 10 9 0 C4 not completed Ziyuan Bureau C11: 423% (22/115 days) C14: 423% (22/115 days) delay Natural Resources 22 18 4 due to COVID-19 Bureau C21: 20% (150/180 days) C11: 33% (90/120 days) All 10 contracts are not Water Bureau 10 / / completed Agriculture and Rural Affairs 8 7 / C7 not completed Bureau Housing and Construction 2 2 0 n/a Bureau Ecology and Bobai Environment 7 7 0 n/a Bureau Natural Resources All 10 contracts are 10 / / Bureau under implementation C11: 11% (120/133 Water Bureau 12 10 2 days) C12: 8% (120/130 days) Agriculture and Rural Affairs 10 10 0 n/a Bureau Rural Revitalization 8 8 0 n/a Bureau Yizhou Housing and Construction 1 1 0 n/a Bureau Ecology and Environment 10 10 0 n/a Bureau 30 C1: 73.7% (365/634 Natural Resources days) 8 6 2 Bureau C2: 73.7% (365/634 days) C7-10 not completed, Water Bureau 10 1 5 C1-C3, C5-C6: 6‒29% Agriculture and Rural Affairs 3 3 0 n/a Bureau Rural Revitalization 6 6 0 n/a Bureau C4: 161% (180/470 Housing and days) Construction 8 5 3 C5: 57% (180/283 days) Bureau Xincheng C8: 33% (180/240 days) C1: under Ecology and implementation Environment 7 3 3 C5: 50% (60/90 days) Bureau C6: 50% (60/90 days) C7: 100% (60/120 days) Natural Resources 9 9 0 n/a Bureau 5 contracts not Water Bureau 10 5 0 completed Agriculture and C13-C15: 52‒57% Rural Affairs 10 / 3 7 contracts not Bureau completed Rural Revitalization 10 0 10 C1-C10: 4‒74% Bureau Tiandeng Housing and C1: 40% (200/280 days) Construction 7 5 2 C2: 40% (200/280 days) Bureau Ecology and Environment 4 4 0 n/a Bureau Guizhou Agriculture and C1: 50% (60/120 days) Rural Affairs 10 8 2 C2: 50% (60/120 days) Bureau Xifeng Housing and Construction 4 4 0 n/a Bureau 31 Administrative Law Enforcement 10 10 0 n/a Bureau Ecology and Environment 2 2 0 n/a Bureau Natural Resources 10 10 0 n/a Bureau 1 contract under implementation, Water Bureau 10 7 2 C8 & C9: 50% (30/45 days) Agriculture and 4 contracts under Rural Affairs 5 1 / implementation Bureau Rural C1, C5, C6, & C8: 29‒ Revitalization 10 6 4 67% Bureau Administrative Sinan Law Enforcement 5 5 0 n/a Bureau Ecology and Environment 7 7 0 n/a Bureau Natural Resources 5 5 0 n/a Bureau Water Bureau 10 10 0 n/a Agriculture and 5 contracts under Rural Affairs 12 7 0 implementation Bureau Rural Revitalization 10 9 1 C5: 150% (60/150 days) Bureau Housing and 2 contracts under Construction 10 8 0 Yinjiang implementation Bureau Ecology and 3 contracts under Environment 12 9 0 implementation Bureau Natural Resources 10 10 0 n/a Bureau 9 contracts not Water Bureau 22 13 0 completed Agriculture and Jinping Rural Affairs 10 10 0 n/a Bureau 32 Housing and Construction 2 2 0 n/a Bureau Administrative Law Enforcement 2 2 0 n/a Bureau Ecology and C1: 33% (180/240 Environment 8 6 2 days), C4: 100% Bureau (90/180 days) Natural Resources 3 3 0 n/a Bureau Water Bureau 2 2 0 n/a Agriculture and Rural Affairs 10 10 0 n/a Bureau Rural C1: 150% (30/75 days) Revitalization 2 0 2 C2: 33% (15/20 days) Bureau Housing and C1: 233% (72/240 days) Construction 5 3 2 C2: 114% (70/150 days) Taijiang Bureau Ecology and C1: 125% (120/270 Environment 2 0 2 days) Bureau C2: 150% (60/150 days) Natural Resources 10 10 0 n/a Bureau C6 & C7 under Water Bureau 8 4 2 implementation C1-C2: 20‒44% Agriculture and Rural Affairs 4 4 0 n/a Bureau Rural Revitalization 2 2 0 n/a Bureau Housing and Construction 1 1 0 n/a Sandu Bureau Administrative Law Enforcement 1 1 0 n/a Bureau Natural Resources C 4: 194% (180/530 9 8 1 Bureau days) C1, C4, & C8: 100% Water Bureau 15 11 4 (60/120 days) C3: 116% (60/130 days) 33 Agriculture and Rural Affairs 10 10 0 n/a Bureau Rural Revitalization 10 10 0 n/a Bureau Housing and All 10 contracts are not Construction 10 / / completed Bureau Xingren Administrative Law Enforcement 10 10 0 n/a Bureau Ecology and Environment 10 10 0 n/a Bureau 4 contracts are not Water Bureau 10 2 / completed, 4 contracts without final price In terms of cost control, cost variation can occur during contract implementation, leading to additional costs and cost overruns. Variations are handled in accordance with the terms and conditions of the contract. The final value is subject to strict clearance depending on the value of the variation and local regulations. For example, for contracts in the water and construction sector, variations are first certified by the project supervision engineer and then endorsed by the relevant client staff at the site. They are subsequently submitted to the relevant water and construction bureau for clearance and to the local financial bureau for final approval. Table 13 presents information on cost overruns for several historical contracts for each county. Causes for cost overrun include, among others, unforeseen geological events, design changes, the need for additional work, etc. Table 13 shows that very few contracts were completed with cost overruns of more than 15 percent of the contract value. Table 13: Cost Overruns Number Number of Number of contracts of Range of cost County Implementation agency contracts with cost contracts overrun with cost overrun surveyed overrun >15% Guangxi Agriculture and Rural 0.1‒10%, average 10 8 / Affairs Bureau 4.5% Rural Revitalization 10 4 8.05‒9.14% / Bureau Mashan Housing and 10 / / / Construction Bureau Natural Resources C11 Works: 2% 12 2 / Bureau C12 Works: 12% 34 C1 Works: 20% Water Bureau 2 2 C1: 20% C2 Works: 8% Agriculture and Rural 4 0 / / Affairs Bureau Rural Revitalization 10 0 / / Bureau Housing and 5 / / / Construction Bureau Rong’an Ecology and 1 0 / / Environment Bureau Natural Resources 10 1 C2: 2% / Bureau All contracts not Water Bureau 10 / / completed Agriculture and Rural 5 0 / / Affairs Bureau Rural Revitalization 10 0 / 0 Bureau Ziyuan Housing and 10 0 / / Construction Bureau Natural Resources C1-C5, C7: 22 7 13‒31% Bureau 17‒31%, Water Bureau 10 All 10 contracts under completion audit Agriculture and Rural 8 0 / / Affairs Bureau Housing and 2 0 / / Construction Bureau Ecology and Bobai 7 0 / / Environment Bureau Natural Resources 10 0 / / Bureau 2 contracts Water Bureau 12 0 / without final price Agriculture and Rural All 10 contracts under implementation, no 10 Affairs Bureau final price Rural Revitalization 8 4 2.8‒5.2% / Bureau Housing and 1 0 / / Yizhou Construction Bureau Ecology and All 10 contracts under implementation, no 10 Environment Bureau final price Natural Resources 8 0 / / Bureau Water Bureau 10 0 / / Agriculture and Rural Xincheng 3 0 / / Affairs Bureau 35 Rural Revitalization 6 0 / / Bureau Housing and 8 0 / / Construction Bureau Ecology and 7 0 / / Environment Bureau Natural Resources 9 0 / / Bureau Water Bureau 10 2 4‒9% / Agriculture and Rural 10 All 10 contracts under implementation Affairs Bureau Rural Revitalization 10 / / / Bureau Tiandeng Housing and C1 Works: 4% 7 2 C2: 23% Construction Bureau C2 Works: 23% Ecology and All 4 contracts under implementation, no 4 Environment Bureau final price Guizhou Agriculture and Rural C8 Works: 3%, 10 2 / Affairs Bureau C9 Works: 4% Housing and 4 0 / / Construction Bureau Administrative Law 10 0 / / Enforcement Bureau Xifeng Ecology and 2 0 / / Environment Bureau Natural Resources 10 0 / / Bureau C5, C8, & C9: 2%, Water Bureau 10 3 / 3%, & 5% Agriculture and Rural 5 0 / / Affairs Bureau Rural Revitalization 10 0 / / Bureau Administrative Law 5 n/a / n/a Sinan Enforcement Bureau Ecology and 7 0 / / Environment Bureau Natural Resources 5 0 / / Bureau Water Bureau 10 0 / / Agriculture and Rural Yinjiang 12 0 / / Affairs Bureau 36 Rural Revitalization 10 0 / / Bureau Housing and 10 0 / / Construction Bureau Ecology and 12 0 / / Environment Bureau Natural Resources 10 0 / / Bureau Water Bureau 22 0 / / Agriculture and Rural 10 0 / / Affairs Bureau Housing and 2 0 / / Construction Bureau Administrative Law C1 Works: 13% 2 2 / Jinping Enforcement Bureau C2 Works: 1% Ecology and C1, C5, C6: 8 4 7‒38% Environment Bureau 24‒38% Natural Resources 3 All 3 contracts are under completion audit Bureau Water Bureau 2 All 2 contracts are under completion audit Agriculture and Rural C1 Works: 1.3% 10 2 / Affairs Bureau C2 Works: 2.9% Rural Revitalization 2 0 / / Bureau Housing and C1 Works: 9% 5 2 / Taijiang Construction Bureau C2 Works: 5.7% Ecology and 2 0 / / Environment Bureau Natural Resources 10 0 / / Bureau Water Bureau 8 1 C1 Works: 3.4% / Agriculture and Rural 4 3 C3 Works: 2.3% / Affairs Bureau Rural Revitalization 2 0 / / Bureau Housing and 1 0 / / Sandu Construction Bureau Administrative Law 1 1 15.9% 15.9% Enforcement Bureau Natural Resources C3: 30.4% 9 2 C3: 30.4% Bureau C5: 9.7% Water Bureau 10 1 C8: 13.6% / Agriculture and Rural Xingren 10 0 / / Affairs Bureau 37 Rural Revitalization 10 0 / / Bureau Housing and 10 All 10 contracts without final price Construction Bureau Administrative Law 10 0 / / Enforcement Bureau Ecology and 10 0 / / Environment Bureau Water Bureau 10 All 10 contracts without final price Regarding quality control, the supervision engineer and the client are responsible for daily oversight and quality supervision. The client is responsible for organizing final acceptance. Final acceptance is jointly conducted by representatives from the relevant government agencies, such as the local finance bureau, the Ecology and Environment Bureau, the Land Resources Bureau, the Water Bureau, the Housing and Urban-Rural Construction Bureau, and the Quality and Technology Supervision Bureau, as well as representatives of the client, in accordance with the applicable national specifications or national code and regulations. The survey showed that no major quality or performance issues have occurred for the surveyed contracts in the 14 selected counties. Payment is made by the client to the contractor, supplier, or consultant in accordance with the terms and conditions of the contract and without major delay. Normally, payment is made one to four weeks after the payment application is issued by the client. However, for most contracts, payment to the contractor, supplier, or consultant will halt once the total payment made reaches a certain percentage (normally 80 percent) of the total contract amount. The remaining 20 percent is paid once the government audit of the project is concluded (5 percent deducted as warranty). It normally takes one to six months for the government audit to be concluded after the contract is completed and taken over by the client. An efficient dispute resolution procedure is included in each contract. In case of a dispute, the first option is an amicable settlement between the two contract parties. If no agreement is reached, the dispute is referred to the relevant government supervision authorities for adjudication. If either party is dissatisfied with the recommendation of the adjudicator, the party can refer the dispute further to either the local arbitration commission or the court. Usually, contracts provide for both parties to invoke arbitration or lodge a legal suit. Contractual remedies are specified in the signed contract. The client is entitled to terminate the contract in case of a defect of the contractor, supplier, or consultant. This requires a written notification served in due course by the client to the other party. 3.3 Internal Controls 3.3.1 Internal controls A strong control environment was perceived during the assessment. The Chinese government takes internal control in the public sector very seriously. The Regulation on Internal Control of Administrative and Public Service Units was issued by the MOF in 2012. It provides detailed instructions and guidance to all budgetary units on strengthening their internal control function. Moreover, a set of basic internal control standards and practical guidance was issued by the MOF in recent years as a reference for all public sector entities. In 2014, the MOF issued the Basic Internal Control Rules (Decree No. 40), which provide a good model for other ministries and sub- 38 national government entities. All public sector entities are required to prepare an annual internal control report. There is adequate control over, and stewardship of, program funds, with well-defined delegation of authority. Following the national policy and regulations issued by the MOF and NDRC, the provincial governments have issued a series of regulations regarding fund management, implementation measures, result verification procedures, etc. For example, related government decrees (see Table 14 below) have been issued for some earmarked funds, which are the main financing sources of program activities, to regulate the usage of these funds to ensure that the budget could be used for the intended purposes. Table 14: Regulations Issued by Government Entities Earmarked fund Financing sources Government decree Funds for agricultural Administrative Measures for Agricultural production development Central government Production Development Funds Subsidy for farmland Administrative Measures on Subsidy Funds construction Central government for Farmland Construction Animal epidemic prevention and other Administrative Measures for Animal subsidies Central government Epidemic Prevention and Other Subsidies Agricultural resources and Administrative Measures for Agricultural ecological protection Resources and Ecological Protection subsidy Central government Subsidy Funds Interim Measures for the Promotion of Financial Reward and Subsidy Projects and "Toilet revolution" in rural Fund Management for Rural Toilet areas to promote entire Provincial Revolution in Guangxi Zhuang Autonomous villages government Region Interim Measures for the Special Special project for the Management of Investment in the Central improvement of rural Budget for the Improvement of Rural human settlements NDRC Human Settlements Interim Measures for the Special Management of Investment in the Central The special project of Budget for the Sustainable Development of modern agricultural Agriculture Development Gai Nong Jing Gui support system NDRC (2019) No. 2028 Provincial sector departments also established many regulations/decrees toward their responsible earmarked funds, and also conducted their regular or irregular supervision on these funds. Almost all program counties prepared detailed practicable guidance on these upper-level regulations/decrees. The IFMIS has been established in both provinces. County finance bureaus are required to report their budget execution monthly by using the data generated from the IFMIS so that budget execution can be monitored closely. Some county line bureaus also submit their monthly fund use 39 report to upper-level administrative bureaus/departments. Meanwhile, provincial sector departments conduct budget performance evaluation annually to assess whether public funds are used properly and the predetermined performance indicators are achieved. An MIS has also been set up in the rural revitalization administration sector with a quite comprehensive database so that every program activity can be tracked. Government officials conduct the field supervision by using the data generated from the MIS. A three-layer program activity supervision system has been established in both provinces: (a) provincial sector departments used to carry out regular supervision on some selected counties, for example, the provincial RRA supervised Xiuwen and Xifeng counties every year; (b) municipal sector bureaus also conducted regular review on some counties, for example, the municipal development and reform committee supervised Congjiang County every year and the municipal ARAB visited Xiuwen County every year; (c) county line bureaus supervised program activities in different manners, for example, regular self-check and irregular cross-verify were practiced in Xingren, Duyun, Ziyuan, and Yizhou counties, a third party was hired to supervise program activities in some counties in both provinces, and the internal audit unit conducted its regular review in several counties. Case III The Bureau of Agriculture of Ziyuan County has established an “internal audit work group� for the execution and final accounts of the bureau’s and directly affiliated units’ financial plans or unit budgets; financial revenues, expenditures, and related economic activities; economic benefits; financial management systems; cadre leaving; and the economic responsibilities. The main person in charge of the general unit is mobilized to work with economic accountability audits, construction project budgets (estimates), final accounts, national financial regulations, and department and unit rules and regulations. The implementation of internal control evaluation and supervision teams has been established by the County Rural Revitalization Bureau to be responsible for internal inspection on budget implementation at least once a year for supervision and inspection. Verification of the achievement of DLIs will rely on an independent third-party verification agent (VA) through on-site review. A detailed verification protocol has been designed and is reflected in the PAD. Internal control for procurement For procurement following the TBL, daily procurement is under the supervision and oversight of the Development Reform Commission and relevant sectoral government agencies at a high level. For procurement following the GPL, daily procurement is under the supervision and oversight of the finance authority and relevant sectoral government agencies at a high level. In terms of procurement decisions, a procurement plan is prepared by the client. It is subject to clearance and approval by its supervision authority and the finance bureau. The qualification and evaluation criteria are set by the client in the issued bidding document. The contract award recommendation is made by the BEC on the basis of these criteria. The decision for contract award cannot be overruled by the client. In case the decision for contract award needs to be revised, the BEC needs to re-convene. 40 With respect to the transparency and confidentiality of the procurement process, procurement is conducted via the platform of the PRTC, if the contract value exceeds the specified threshold. This process is witnessed by staff of the PRTC and supervised by inspection staff from the relevant government agencies. The bid opening and evaluation are carried out at the center. If the procurement is processed outside the transaction center, the client’s inspection staff and the staff from the DRC or local finance authority witness and supervise the bid opening and evaluation. The agencies involved in the procurement process include the client, the procurement agency, and the PRTC. All agencies have clear mandates, a clear segregation of function, and clearly defined responsibilities for different units and staff. Ethical standards apply to all their staff when carrying out their daily work. All procurement documents are kept for a specified time period. According to the TBL, procurement documents must be retained for at least 10 years after completion of the procurement. According to the GPL, procurement documents must be kept for at least 15 years after completion of the procurement. 3.3.2 Internal audit Internal audit practice complies with the Audit Law and the related regulations as issued by the China National Audit Office (CNAO). Article 3 of CNAO Decree No. 11 of 2018 defines five types of internal audit: financial revenue and expenditure audit, accountability audit, performance audit, audit of the implementation of key policies, and internal control and risk audit. Based on the interviews with provincial entities and counties visited and the data collected, it is noted that the internal audit function has not been widely established in the two provinces. At the provincial level, no internal audit function has been set up in related departments, but the supervision and performance evaluation bureau (the unit responsible for the internal audit) within the provincial finance department carries out its inspection on the usage of program funds. At the county level, besides the supervision and performance evaluation unit being established within each county finance bureau, the county line bureaus are equipped with an internal audit unit, which is responsible for inspection-/internal audit-related tasks (Table 15). Table 15: Counties with Internal Audit Functions Being Established County Government entity Duyun Agriculture and Rural Affairs Bureau Ziyuan Agriculture and Rural Affairs Bureau Luocheng Development and Reform Committee Yizhou Rural Revitalization Administration Yizhou Housing and Construction Bureau Yizhou Ecology and Environment Bureau 3.3.3 Program governance and anti-corruption arrangements 3.3.3.1 Complaints and reviews Complaint handling mechanism for procurement following the TBL Two tiers of complaint handling exist for procurement following the TBL. Under the first tier, the bidder can lodge a complaint to the client regarding the bidding documents, the bid opening, or the contract award recommendation. The contract award recommendation is required to be disclosed for at least three calendar days. Any complaint regarding the contract award 41 recommendation must be submitted within this standstill period. The client is required to respond to the complaint within three calendar days. Under the second tier, the bidder can lodge any complaint to the relevant supervision authority regarding the bidding documents, the bid opening, the contract award recommendation, or other non-compliance with the procurement process according to the relevant laws, rules, and regulations within 10 calendar days from his/her awareness of the issue. Within three working days, the supervision authority shall determine whether the complaint is valid. If the complaint is determined valid, within 30 working days, the supervision authority shall issue its written judgment and determination. If the complainant is not satisfied with the resolution, the complainant is entitled to request an administrative review by a high-level government office or administrative litigation. Complaint handling mechanism for procurement following the GPL Similarly, for procurement under the GPL, two tiers of complaint handling exist. Under the first tier, the bidder can lodge a complaint to the client regarding the bidding documents, the procurement processing, the contract award recommendation, or other non-compliance with the procurement processing according to the relevant laws, rules, and regulations within seven working days from his/her awareness of the issue. The client is required to respond to the complaint within seven working days. Under the second tier, if the bidder is unsatisfied with the response from the client or if the client does not respond within the required time, the bidder can lodge the complaint with the relevant supervision authority regarding the bidding documents, the bid opening, the contract award recommendation, or other non-compliance with the procurement processing with the relevant laws, rules, and regulations within 15 working days after receiving the response from the client or after expiry of the required responding time, whichever is applicable. Within 30 working days, the supervision authority must issue its written judgment and determination. If the bidder is not satisfied with the determination made by the supervision authority or if the supervision government authority does not make its determination within the required time, the bidder can refer the matter to a high-level administrative review or invoke administrative litigation. During the fiduciary assessment, information was collected about the complaints received in the past three years. The data are summarized in Table 16, which shows very few complaints being received. All complaints are normally responded to within the time specified by the TBL or GPL and the applicable implementing regulations. Table 16: Complaints Received Number of Number of Total number of first-tier second-tier contracts County Implementation agency complaints complaints 20 20 20 20 20 20 2019 2020 2021 19 20 21 19 20 21 Guangxi Agriculture and Rural Affairs 10 130 62 0 0 0 0 0 0 Bureau Mashan Rural Revitalization Bureau 374 105 41 0 0 0 0 0 0 Housing and Construction 8 / 2 0 / 0 0 / 0 Bureau 42 Natural Resources Bureau 15 14 / 0 0 / 0 0 / Water Bureau 205 222 124 0 0 0 0 0 0 Agriculture and Rural Affairs 2 2 6 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 17 / / 0 / / 0 / / Housing and Construction 2 1 4 0 0 0 0 0 0 Rong’an Bureau Ecology and Environment 2 1 / 0 0 / 0 0 / Bureau Natural Resources Bureau 2 1 / 0 0 / 0 0 / Water Bureau 295 143 27 0 0 0 0 0 0 Agriculture and Rural Affairs 38 46 61 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 30 47 32 0 0 0 0 0 0 Ziyuan Housing and Construction 3 21 35 0 0 0 0 0 0 Bureau Natural Resources Bureau 17 / 85 0 / 0 0 / 0 Water Bureau 7 4 2 0 0 0 0 0 0 Agriculture and Rural Affairs 38 56 45 0 0 0 0 0 0 Bureau Housing and Construction / 1 1 / 0 0 / 0 0 Bureau Bobai Ecology and Environment 2 5 / 0 0 / 0 0 / Bureau Natural Resources Bureau / 9 8 / 0 0 / 0 0 Water Bureau / / 2 / / 0 / / 0 Agriculture and Rural Affairs 31 36 27 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 54 40 73 0 0 0 0 0 0 Housing and Construction 2 3 5 0 0 0 0 0 0 Yizhou Bureau Ecology and Environment / 4 / / 0 / / 0 / Bureau Natural Resources Bureau 8 / / 1 / / 0 / / Water Bureau 140 71 49 0 0 1 0 0 0 Agriculture and Rural Affairs / 2 1 / 0 0 / 0 0 Bureau Rural Revitalization Bureau 1 3 2 0 0 0 0 0 0 Housing and Construction 18 5 17 1 0 0 0 0 0 Xincheng Bureau Ecology and Environment 12 14 19 0 0 0 0 0 0 Bureau Natural Resources Bureau / 5 4 / 0 0 / 0 0 Water Bureau 2 5 23 0 0 0 0 0 0 43 Agriculture and Rural Affairs 112 87 27 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 63 / 27 0 / 0 0 / 0 Tiandeng Housing and Construction 3 2 2 0 0 0 0 0 0 Bureau Ecology and Environment / 4 / / 0 / / 0 / Bureau Guizhou Agriculture and Rural Affairs 19 24 20 0 0 0 0 0 0 Bureau Housing and Construction 3 1 / 0 0 / 0 0 / Bureau Administrative Law Enforcement Xifeng 9 7 10 0 0 0 0 0 0 Bureau Ecology and Environment 1 1 3 0 0 0 0 0 0 Bureau Natural Resources Bureau 3 3 9 0 0 0 0 0 0 Water Bureau 14 9 7 0 0 0 0 0 0 Agriculture and Rural Affairs / 1 5 / 0 0 / 0 0 Bureau Rural Revitalization Bureau 2 5 8 0 0 0 0 0 0 Administrative Law Enforcement / 2 / / 0 / / 0 / Sinan Bureau Ecology and Environment 1 4 2 0 0 0 0 0 0 Bureau Natural Resources Bureau / / 5 / / 0 / / 0 Water Bureau 27 16 32 0 0 0 0 0 0 Agriculture and Rural Affairs 6 2 19 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 4 3 3 0 0 0 0 0 0 Housing and Construction 8 / 2 0 / 0 0 / 0 Yinjiang Bureau Ecology and Environment / 6 10 / 0 0 / 0 0 Bureau Natural Resources Bureau 4 2 4 0 0 0 0 0 0 Water Bureau 2 16 7 0 0 0 0 0 0 Agriculture and Rural Affairs 8 8 13 0 0 0 0 0 0 Bureau Housing and Construction 1 1 / 0 0 / 0 0 / Bureau Jinping Administrative Law Enforcement 2 / / 0 / / 0 / / Bureau Ecology and Environment 5 2 3 0 0 0 0 0 0 Bureau Natural Resources Bureau 3 / / 0 / / 0 / / 44 Water Bureau 4 10 19 0 0 0 0 0 0 Agriculture and Rural Affairs 17 28 23 0 0 0 0 0 0 Bureau Rural Revitalization Bureau / 2 / / 0 / / 0 / Housing and Construction 11 19 61 0 0 0 0 0 0 Taijiang Bureau Ecology and Environment 2 / / 0 / / 0 / / Bureau Natural Resources Bureau 37 2 7 0 0 0 0 0 0 Water Bureau 2 3 3 0 0 0 0 0 0 Agriculture and Rural Affairs / 4 / / 0 / / 0 / Bureau Rural Revitalization Bureau 1 3 6 0 0 0 0 0 0 Housing and Construction 1 / / 0 / / 0 / / Sandu Bureau Administrative Law Enforcement 1 / / 0 / / 0 / / Bureau Natural Resources Bureau 4 4 1 0 0 0 0 0 0 Water Bureau 10 1 4 0 0 0 0 0 0 Agriculture and Rural Affairs 3 6 2 0 0 0 0 0 0 Bureau Rural Revitalization Bureau 45 53 38 0 0 0 0 0 0 Housing and Construction 97 54 22 0 4 2 0 4 2 Bureau Xingren Administrative Law Enforcement 4 5 3 0 0 3 0 0 3 Bureau Ecology and Environment 6 12 9 0 0 0 0 0 0 Bureau Water Bureau 12 45 51 0 0 0 0 0 0 3.3.3.2 Compliance with the anti-corruption guidelines The Chinese government has put multiple institutions in place to combat fraud and corruption. These are designed to prevent, report, detect, investigate, prosecute, and sanction fraud and corruption. First, within all implementation agencies involved in procurement, so-called discipline inspection commissions are in place that directly report to the discipline inspection commissions attached to higher-level supervision agencies. Second is the Ministry of Supervision at the central level with supervision departments/bureaus at the provincial, prefectural, and county levels. Third, under the Chinese People’s Procuratorate, anti-corruption departments/bureaus have been set up at the central, provincial, prefectural, and county levels. Fourth, audit offices exist at the central, provincial, prefectural, and county levels, and all agencies involved in procurement are subject to an annual external independent audit. All these agencies have comprehensive mandates to combat fraud and corruption while carrying out procurement. Any bidder or any party can report fraud and corruption issues to any of these government agencies. 45 Still, the Bank may not be informed of fraud and corruption allegations during implementation of the program. The program manual will therefore require the client to regularly inform the Bank of any credible and material allegations of fraud and corruption in the program progress report, as required in the Loan Agreement. The Bank’s right to conduct an inquiry into such allegations or other indications, independently of or in collaboration with the borrower, regarding activities and expenditures supported by the program, as well as its right to access the required persons, information, and documents will be observed in accordance with the standard arrangements between the government of the PRC and the Vice Presidency Integrity Department (INT) of the Bank. Procurement will be implemented by the implementation agency as established by each county, with assistance from the procurement agency. These parties may not have knowledge of the firms and individuals debarred and temporarily suspended by the World Bank and other multilateral development banks. Therefore, there is a potential risk that contracts might be awarded to ineligible firms or individuals. The proposed mitigation actions are the following: (a) The DARA in Guangxi and RRA in Guizhou Province shall, upon project loan effectiveness, issue a high-level official letter or official instruction to the implementation agencies to ensure that no contract will be awarded to ineligible firms or individuals. (b) Procurement staff in the DARA in Guangxi and RRA in Guizhou will check the latest Bank lists of debarred and temporarily suspended firms and individuals on a daily basis and share them with all implementation agencies. (c) the TOR for annual external audit includes the task of randomly selecting awarded contracts to check whether they have been awarded to ineligible firms or individuals. 3.4 Auditing 3.4.1 Coverage Both provinces and the counties received various external audits and inspections throughout the year, primarily focusing on the proper usage of public funds. The annual external audit findings on budget execution by the provincial audit offices (PAOs) are included in their annual report to the provincial People’s Congress, and the full audit report is published on the PAO official website. However, because of personnel shortage in the audit offices, not every budgetary unit is audited yearly. The audit strategy for government auditors is to conduct audits on a rolling basis and for the audits to cover multiple years. The county audit bureaus carry out audits on budget execution and have access to the necessary data without any restriction. Several material issues and systemic and control risks are usually detected and disclosed in the audit reports, and remedial action is taken by the audited units effectively and timely. The audit bureaus submit their audit reports to the legislature in a timely manner after receiving the financial reports. The standing committees of the county people's congresses provide timely approval of the audit reports and call for in-depth hearings on the main findings of the audit reports once a year. Although government auditors indeed audit program funds when they carry out a budget execution audit, accountability audit, and other types of audits, no specific program audit was conducted by the PAOs and audit offices of the interviewed counties on the usage of program funds in the past years. To mitigate this risk, an annual program audit is required and the audit of the proposed program will be conducted by the PAOs. Besides auditing budget execution and other provincial-level entities, the PAOs have been the auditors of Bank-financed projects in the two provinces for about three decades. The PAOs also have experience in auditing of PforR projects. The first year’s audit report issued by the PAOs is subject to a quality review by the CNAO. 46 To gain reasonable assurance on the proper usage of program funds, the CNAO and the PAOs will agree with the Bank on the audit TOR and conduct annual program financial statement audits that will be publicly disclosed. The CNAO and the PAOs will adopt the audit approach and coordination mechanisms used in other Bank-financed PforR operations. The PAOs will coordinate internally to minimize the chances of duplicate audits conducted by different auditors and to maximize reliance on each other’s findings. The auditors will conduct the financial audit on the PforR financial statements in accordance with the audit TOR to meet the Bank’s audit requirements. The audit report will be submitted to the Bank within nine months of the end of the calendar year. Each provincial PAO will issue an audit report separately for its own part. It has been agreed that the program audit will focus on the following aspects: • Whether the transfers from central and provincial governments have been delivered to the counties timely and completely. • Whether the program funds are used properly and in line with the applicable regulations and procedures by sampling of program counties. • Whether the Bank’s procurement and safeguard policies and requirements have been fully complied with by all counties. • Whether the domestic regulations and requirements have been strictly implemented. • Whether the program financial reporting fairly presents the sources and use of program funds. 3.4.2 Staffing The PAOs have been equipped with sufficient experienced auditors and can also use auditors from lower-level governments. 3.4.3 Audit methodology The external audit methodology used by provincial, municipal, and county auditors is established by the CNAO. It includes an annual department audit work plan, risk assessment, audit work programs, sampling methodologies, reports for each audit engagement, quality assurance, follow- up on recommendations made in previous audit reports, and electronic workpapers, among others. Auditors at all levels of the government appeared knowledgeable about the unit’s audit methodology and enthusiastically endorsed it. Its consistent use throughout the government is an audit system strength as this improves audit quality at lower levels of government where skill and experience levels are often much lower. It also facilitates communication and coordination among audit units at different levels in the government as the methodology provides a common language among these auditors. The common audit methodology will assist the PAO responsible for issuing the PforR financial audit opinion, and in coordinating audit work with county auditors. 3.5 Procurement and Financial Management Capacity 3.5.1 Staffing should be adequate in both numbers and experience A Provincial Project Management Office (PPMO) has been established in the DARA in Guangxi Province and in the RRA in Guizhou Province. Both PPMOs have experience in Bank operations and the Guangxi PPMO is implementing a PforR project. The interviews with provincial sector departments and four counties visited and the data collected from program counties indicate that they had adequate budget and staffing to carry out their functions. No delays in budget 47 preparation, budget execution/financial reporting, treasury operations, or inspection/auditing were noted that would indicate a shortage in personnel. The parties involved in procurement normally include the implementation agency, the procurement agency, and the design institute. Both the procurement agency and the design institute are professional firms that possess sufficient human resources with the needed expertise, skills, and experience. The implementation agencies have adequate experience in conducting the procurement and contract implementation. The procurement portfolios managed by the implementation agencies in the past three years are shown in Table 17. Table 17: Contracts Procured in FYs 2019 to 2021 Total number of Total contract value (RMB Province/ Implementation Category contracts 10,000) county agency 2019 2020 2021 2019 2020 2021 Guangxi Agriculture and Rural Affairs Works 10 130 62 3,199 13,084 4,265 Bureau Rural 122,24 Works 339 88 24 6,670 3,057 Revitalization 1 Bureau Services 35 17 17 1,129 623 262 Housing and Works 1 3 4 3,009 3,030 11,369 Mashan Construction Services / / 2 / / 15 Bureau Natural Works 14 13 / 20,391 4,270 / Resources Services 1 1 / 671 168 / Bureau Works 128 138 98 17,895 5,913 11,729 Water Bureau Goods 2 2 1 43 75 40 Services 75 82 25 985 1,025 1,253 Agriculture and Rural Affairs Services 2 2 6 140 241 410 Bureau Rural Revitalization Works 17 / / 3,086 / / Bureau Housing and Works 2 1 2 2,002 666 27,041 Construction Rong’an Services / / 2 / / 613 Bureau Ecology and Environment Services 2 1 / 50 61 / Bureau Natural Resources Works 2 1 / 1,257 2,330 / Bureau Water Bureau Works 242 62 21 15,525 12,800 4,751 48 Goods 2 3 1 1,500 1,290 386 Services 51 78 5 2,066 1,892 593 Works 31 5 27 4,028 438 3,560 Agriculture and 293,33 Rural Affairs Goods 5 28 18 125 236 7 Bureau Services 2 13 16 350 29 313 Rural Works 27 28 19 1,636 2,536 1,377 Revitalization Goods / 19 3 / 8 1 Bureau Services 3 / 10 95 / 186 Ziyuan Housing and Works 3 8 16 207 1,815 2,945 Construction Goods / 13 16 / 87 26 Bureau Services / / 3 / / 191 Natural Works 11 5 1 6,010 10,508 4 Resources Services 62 20 3 630 489 101 Bureau Goods 6 4 1 402 589 85 Water Bureau Services 1 / 1 33 / 165 Agriculture and Works 18 45 39 5,447 8,977 6,965 Rural Affairs Goods 1 2 / 300 1,107 / Bureau Services 19 9 6 297 485 490 Housing and Construction Goods / 1 1 / 98 200 Bureau Bobai Ecology and Works / 2 / / 2,537 / Environment Goods / 1 / / 50 / Bureau Services 2 2 / 327 377 / Natural Works / 1 / / 371 / Resources Goods / 1 1 / 250 129 Bureau Services / 7 7 / 1,575 14,964 Water Bureau Works / / 2 / / 728 Agriculture and Works 22 26 21 5,559 6,059 5,244 Rural Affairs Services 9 10 6 570 643 657 Bureau Rural Works 34 14 20 1,941 859 1,658 Revitalization Goods 16 22 52 160 247 645 Bureau Services 4 4 1 29 15 4 Yizhou Housing and Works 1 2 3 2,976 668 1,205 Construction Goods 1 1 / 300 24 / Bureau Services / / 2 / / 1,142 Ecology and Environment Works / 4 / / 863 / Bureau Works 1 / / 2,181 / / 49 Natural Resources Services 7 / / 256 / / Bureau Works 128 61 39 5,685 3,258 891 Water Bureau Goods 2 2 3 2,340 1,089 289 Services 10 8 7 560 250 180 Agriculture and Works / 1 / / 36 / Rural Affairs Goods / 1 / / 15 / Bureau Services / / 1 / / 8 Rural Works 1 1 / 67 1,971 / Revitalization Services / 2 2 / 268 269 Bureau Housing and 186,46 Works 10 3 10 6,997 1,859 Construction 0 Xincheng Bureau Services 8 2 7 125 62 5,580 Ecology and Goods 1 3 13 8 1 8 Environment Services 11 11 6 302 913 2,237 Bureau Natural Resources Services / 5 4 / 1,431 904 Bureau Water Bureau Goods 2 5 23 980 1,309 3,005 Agriculture and Rural Affairs Works 112 87 27 3,127 770 5,416 Bureau Rural Revitalization Works 63 / 27 1,483 / 2,714 Bureau Tiandeng Housing and Construction Works 3 2 2 4,554 132 41 Bureau Ecology and Environment Works / 4 / / 623 / Bureau Guizhou Agriculture and Works 11 13 6 389 1,436 1,214 Rural Affairs Goods 4 7 6 114 154 122 Bureau Services 4 4 8 13 39 187 Housing and Xifeng Construction Services 3 1 / 88 8 / Bureau Administrative Works 1 / 2 6,554 / 1,509 Law Goods / / 1 / / 390 Enforcement Bureau Services 8 7 7 681 163 2,943 50 Ecology and Goods 1 / 2 10 / 38 Environment Services / 1 1 / 14 18 Bureau Natural Resources Services 3 3 9 28 122 314 Bureau Works 6 7 3 3,199 1,460 3,645 Water Bureau Goods / / 1 / / 101 Services 8 2 3 183 30 32 Agriculture and Works / / 1 / / 306 Rural Affairs Services / 1 4 / 55 60 Bureau Rural Works 1 3 6 288 201 826 Revitalization Goods / 1 / / 3 / Bureau Services 1 1 2 216 176 184 ALEB Services / 3 / 2,504 4,717 6,199 Ecology and Works 1 2 / 150 802 / Sinan Environment Bureau Services / 2 2 / 163 149 Natural Resources Services / / 5 / / 4,822 Bureau Works 14 8 23 36,772 37,176 39,309 Water Bureau Goods 5 / 1 10,920 / 5,751 Services 8 8 8 5,858 6,132 1,320 Agriculture and Works 6 1 15 1,838 300 5,250 Rural Affairs Goods / 1 4 / 54 1,740 Bureau Rural Works / 2 / / 317 / Revitalization Services 4 1 3 102 84 178 Bureau Housing and Works 7 / / 3,623 / / Construction Goods 1 / 2 474 / 659 Bureau Yinjiang Ecology and Works / 1 1 / 127 1,132 Environment Goods / / 1 / / 143 Bureau Services / 5 8 / 7 66 Natural Works 4 / / 655 / / Resources Services / 2 4 / 8 148 Bureau Works 1 13 7 1,220 61,647 33,794 Goods / 1 / / 2,387 / Water Bureau No No Services 1 2 / / data data 51 Agriculture and Works 6 3 9 1,209 1,200 3,854 Rural Affairs Goods 2 5 3 105 163 62 Bureau Services / / 1 / / 13 Housing and Works 1 / / 92 / / Construction Goods / / 1 / / 29 Bureau ALEB Works 2 / / 371 / / Jinping Works 4 2 2 824 145 422 EEB Goods 1 / 1 172 / 118 Natural Resources Works 3 / / 713 / / Bureau Works 2 4 10 705 497 3,016 Water Bureau Goods / / 1 / / 16 Services 2 6 8 47 40 248 Agriculture and Works 4 9 6 516 2,066 2,413 Rural Affairs Goods 9 15 14 157 781 72 Bureau Services 4 4 3 30 73 42 RRB Services / 2 / / 113 / Housing and Works 2 9 11 525 9,094 6,547 Construction Goods / 1 / / 107 / Bureau Services 9 9 50 387 1,114 523 Taijiang Ecology and Environment Works 2 / / 370 / / Bureau Natural Goods / / 2 / / 10 Resources Services 37 2 5 322 18 1,056 Bureau Works 2 2 1 750 2,929 1,780 Water Bureau Goods / 1 1 / 18 58 Services / / 1 / / 293 Agriculture and Rural Affairs Services / 4 / / 1,411 / Bureau Rural Works / / 2 / / 113 Revitalization Services 1 3 4 150 232 63 Bureau Sandu Housing and Construction Works 1 / / 261 / / Bureau ALEB Works 1 / / 282 / / Natural Works 4 2 / 1,516 903 / Resources Services / 2 1 / 200 1,586 Bureau 52 Works 8 1 4 1,957 217 615 Water Bureau Goods 1 / / 214 / / Services 1 / / 31 / / Agriculture and Rural Affairs Goods 3 6 2 135 451 58 Bureau Rural Works 44 53 37 4,201 4,734 4,606 Revitalization Goods 1 / 1 60 / 199 Bureau Housing and 439,89 257,73 134,90 Works 66 48 18 Construction 0 7 3 Bureau Services 31 6 4 7,313 1,063 2,558 Xingren Works / 1 / / 1,614 / ALEB Goods 1 1 / 150 263 / Services 3 3 3 136 437 3,010 Ecology and Works 3 3 3 313 484 575 Environment Goods 2 / / 279 / / Bureau Services 1 9 6 5 96 34 Works 9 21 22 1,801 91,407 30,291 Water Bureau Goods 1 6 1 39 4,054 88 Services 2 18 28 7,313 1,063 2,558 Based on the assessment of the performance information and institutional arrangements, the fiduciary systems adopted have enough capability to ensure the successful implementation of the program and the achievement of its development objectives. Section 4: Program systems and capacity improvements The overall fiduciary risk of the envisaged PforR operation is rated as Substantial given the proper implementation of the proposed mitigation measures that follow: Program system risks and mitigation measures Type of action Risk Mitigation action Timing (PAP, DLI, etc.) Multiple agencies are The regional/provincial program Implementation N/A involved in procurement of implementation agencies and the the program, such as county program leading groups finance, development oversee and supervise the reform, agricultural and program implementation. The rural affairs, rural rights and obligations of each revitalization, housing and agency are clearly defined as (i) construction, natural limiting overlapping of resources, ecology and responsibilities, (ii) defining the environment, water role of each agency, and (iii) 53 bureaus, city avoiding undesirable delays. A administration bureau procurement agent will be hired (comprehensive to assist with competitive bidding administrative law processes. enforcement bureaus), etc., which might make the program implementation challenging. Municipal Public Resources Implementation agencies shall Implementation N/A Transaction Centers lack plan procurement activities as sufficient rooms for early as possible in order to conducting bid opening and reserve the bid opening and bid bid evaluation sessions. evaluation rooms. The contracts may be ▪ The Guangxi DARA and Guizhou Implementation PAP awarded to firms or RRA shall, upon project loan individuals that are effectiveness, issue a high-level debarred or under official letter or official temporary suspension by instruction to implementation the Bank or other agencies to ensure that no multilateral development contract will be awarded to banks. ineligible firms or individuals. ▪ One of the duties of the procurement staff in the Guangxi and Guizhou PPMOs will be to check the latest Bank lists of the debarred and temporarily suspended firms and individuals before contract award to ensure that the contract is being awarded to an eligible firm or individual. • The TOR for annual external audit includes the task of randomly selecting awarded contracts to check whether they have been awarded to ineligible firms or individuals. The program will be To avoid abuse in the adoption of Implementation N/A implemented at the non-competitive processes, the township and county proposed mitigation actions levels. Most of the involve the following: (i) the program’s activities county government shall maintain comprise simple works a long list of qualified firms, geographically spread out contractors, suppliers, and service for the construction and/or providers to have a wide range of 54 rehabilitation of small basic options for inviting firms; (ii) the infrastructure and small- county government shall enhance value services. The data collection and, when procurement will most possible, add a procurement often be conducted method in the integrated financial through direct contracting management information system. due to the contract’s tiny value and thus limited interest of contractors, consulting supervisions, or design consulting firms in participating. Contracts may not be Human, financial, and policy Implementation N/A completed within the resources should be allocated by contractual completion the Guangxi DARA and Guizhou time and the contract RRB for close monitoring of completion audit may not contract implementation progress be completed in a timely to minimize or avoid foreseeable manner. cost overruns and/or implementation delays. The Bank may not be The program manual will require Implementation PAP informed of any credible the client to regularly inform the and material allegations of Bank of any credible and material fraud and corruption allegations of fraud and during the implementation corruption in the program of the program. progress report, as required in the Loan Agreement. Although the 14th Five-Year Program-based budgeting should Implementation PAP Plan has been prepared for be prepared to ensure that green agriculture and rural program funds can be secured and revitalization, no budget is related government entities allocated to the Plan. The should revise their investment financing gaps associated direction and allocate more funds with toilet improvement to the areas that are defined as the and rural solid waste and priorities in the PforR program. wastewater collection, transfer, and treatment were identified during the assessment. 55 The budget quota was Provincial entities should revisit Implementation distributed to their budget quota distribution counties/cities in batches and take actions to ensure that the and some program funds budget quota can be timely were delivered in the distributed to the county/city. second half of the year or even at year end, which prevents the county government from including the entire program funds in its annual budget and delays the implementation of planned activities. Some earmarked funds are Related government entities may Implementation PAP integrated by the provincial need to revisit the fund integration government and and monitoring measures to give distributed to counties (28 the counties more flexibility in earmarked funds are fund use in line with their integrated in Guangxi and development strategy and 17 in Guizhou). But it is priorities. hard for the county to use these integrated funds in line with its development strategy and priorities since some upper-level government entities still monitor the achievement of the performance indicators attached to the earmarked funds. As a result, a mismatch between the funds requested and funds received for some activities was noted, and some activities, including in the village revitalization plan, can’t be implemented in an integrated manner. “Program� is not a budget Several budget items that are Not yet classification element in used to capture program effective China and the required expenditures have been identified program financial reporting and a tailored program financial can’t be generated from reporting template will be the government treasury designed for the proposed system. program. Government auditors did The Bank will work with the Not yet not audit the program Provincial Audit Offices to develop effective 56 funds and prepare the the TOR for program auditing to program audit report. ensure that program funds can be audited in line with the Bank’s policy. Section 5: Program Implementation Support During program implementation, the proposed fiduciary implementation support involves the following: • Work with the team to review program implementation progress, including the achievement of program results and implementation of the PAP. • Work with the team to assess the timeliness and adequacy of program fund appropriation as approved in the budget. • Continuously assess and monitor the performance of the financial management and procurement systems under the program and provide suggestions for enhanced efficiency and effectiveness. • Monitor application of the PforR anti-corruption guidelines. • Monitor the performance of the fiduciary systems and the audit report, including the implementation of the PAP. • Monitor the PforR financial statement reporting process and assist the client as necessary. • Monitor the contract implementation, including cost, time, and quality control. • Help the client resolve implementation issues and carry out institutional capacity building. • Assist the CNAO and the audit offices at the provincial and county levels in strengthening audit arrangements. • Hold regular training activities for provincial and county audit offices, particularly with respect to procurement post-audit to build capacity. • Monitor changes in fiduciary risks of the program and, as relevant, compliance with the fiduciary provisions of legal covenants. 57