FIDUCIARY SYSTEMS ASSESSMENT Section 1: Conclusions Reasonable assurance Overall, the assessment concludes that the examined Program fiduciary systems including financial management, procurement and anticorruption measures provide reasonable assurance that the financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability and for safeguarding program assets once the proposed mitigation measures have been implemented. Appropriate systems to handle the risks of F&C, including effective complaint handling mechanisms have been agreed and established. Currently, the PFM environment is in what can best be described as a transition phase in which several major reforms introduced by the LOLF have not yet been applied, resulting in subpar performances in the management of commitments, the implementation of public investments whether priority and co-financed, the management of public assets, in the budget adjustments during the financial year and the production of annual financial statements according to new standards. While there has been some improvement in some respects such as medium-term predictability, budget preparation quality, contract & debt management, other areas – such as revenue forecast & expenditure budget reliability, insufficient oversight, controls weaknesses, lack of timeliness for the preparation of fiscal and audit reports - continue displaying persistent weaknesses & deficiencies. The latter is equally true in the areas of management and monitoring of budget implementation, administrative and financial accounting, and supervision of extra-budgetary entities. Risk assessment The assessment concludes that the overall fiduciary risk of the PforR Program is assessed as Substantia l. The assessment provides reasonable assurance that the examined Program fiduciary systems including financial management, procurement and anticorruption for the elements of the Program Expenditure Framework are adequate to ensure that the Program funds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability and for safeguarding program assets once the proposed mitigation measures have been implemented. Appropriate systems to handle the risks of fraud and corruption (F&C), including effective complaint handling mechanisms have been agreed. Procurement exclusions Contracts for the procurement of goods, non-services and consultancy assignments under the Program that exceed the OPRC thresholds will be excluded from the PforR financing. The PCO will routinely monitor the PEF and identify any potential large contracts that may be of such a high value. Summary of PforR readiness assessment A PforR readiness assessment was carried out between April and June 2022. The conclusions of this assessment were taken into account for the preparation of the FSA. The assessment highlighted that public financial management (PFM) system in RoC is in transition. In 2017 and 2018, the Republic of Congo transposed the six directives of the CEMAC harmonized framework for public financial management. The implementation of the strategic plan for strengthening public finances 2020-2029 has been hampered by the lack of awareness of the political authorities, resistance to change in the administrations, the lack of financial resources and especially the lack of leadership to carry out the reform. However, since March 2021, there has been a new impetus in the implementation of structural reforms. The assessment concluded that RoC's PFM system includes the basic elements to move towards a performance approach. The changeover of the budget to program mode is scheduled for January 1, 2024. To strengthen cash management, the Directorate General of the Treasury (DGT) has closed all accounts held by public administrations with local banks and has instituted a Single Treasury Account (CUT). The Public Procurement Code, although in line with international standards, is currently from being updated. Section 2: Scope The fiduciary assessment comprises an analysis of risks in the existing country system that will be used to implement the program. They include the procurement, planning, budgeting, accounting, controls, funds flow, financial reporting, and auditing systems. The assessment is built on the country’s PEFA assessments and other general and sector-/institution-/project- or program-specific PFM assessments conducted for other PforR operations in the Republic of Congo. In addition, the assessment considered how the country’s governance systems manage the risks of fraud and corruption and how such risks will be mitigated. The assessment also incorporated the findings from consultations held with key stakeholders on core procurement issues and challenges that are relevant to the Program. Program implementation will be spearheaded by the existing Steering Committee (SC) on governance/PFM reforms under the Prime Minister’s office headed by the Finance Secretary will comprise and the Project Coordination Unit (PCU-PRISP) created and placed under the leadership of the MOP for the Integrated Public Sector Reform Project (PRISP, P160801). The Program will be coordinated through a strengthened PCU-PRISP of the MOP, that would liaise and facilitate implementation of various reform components by the respective participating institutions. The Fiduciary Systems Assessment (FSA) of the Government’s PFM systems including procurement and anticorruption relied on desk reviews and secondary sources on the key legislative instruments governing and regulating the financial management of the public sector within the macro-economic and fiscal framework. The primary reference document have been the 2020-2029 Public Finance Management Reform Strategy, as part of the process of modernizing public finance management, as well as , the organic law relating to financial legislation and budget execution (Loi Organique relative aux Lois de Finances - LOLF) adopted in 2017 and which lays the foundations for a renovated system applying internationally recognized good performance standards, particularly in the areas of budget documentation produced, budget preparation and reporting process. Section 3: Review of Public Financial Management Cycle The legal and regulatory framework for the proposed Program’s fiduciary systems appears to be comprehensive. In addition to the 2015 Constitution, the legal framework for PFM in Congo, since the transposition of the CEMAC directives of 2011, is mainly made up of a series of national texts, some adopted in 2017 and others in 2018. These include: (i) Law N° 10-2017 of March 9, 2017 on the code relating to transparency and accountability in the management of public finances, (ii) Organic Law N° 36-2017 of October 3, 2017 relating to finance laws, (iii) Decree N° 2018-67 of March 1, 2018 on the general regulations of public accounting, (iv) Decree N° 2018-68 of March 1, 2018 on the Chart of Accounts of the State, (v) Decree N° 2012-341 of March 1, 2012 on the table of State financial operations and (vi) Decree N° 2018-69 of March 1, 2018 on the State budget nomenclature (Nomenclature Budgétaire de l’Etat - NBE). However, pending the full implementation of these national texts resulting from the transposition of the CEMAC directives, certain previous texts governing the same matters remain applicable. In 2019, with the assistance of PWC, the Republic of Congo, the then MFBPP (Ministère des Finances, du Budget et du Portefeuille Public) developed the 2020-2029 Public Finance Management Reform Strategy, as part of the process of modernizing public finance management, the implementation of which through the plan Action Plan 2020-2022 includes budgeting by program objectives. Since 2017, the legal framework for public finance management has been thoroughly reformed, with the transposition of CEMAC directives on the harmonized framework for public finance management. In particular, the organic law relating to financial legislation and budget execution (Loi Organique relative aux Lois de Finances - LOLF) was adopted in 2017 and lays the foundations for a renovated system applying internationally recognized good performance standards, particularly in the areas of budget documentation produced, budget preparation and reporting process. In this vein, it has implemented the legal and institutional framework for public procurement in 2009, resulting in the creation of procurement management unit (CGMP) within each contracting authorities, the creation of an independent Regulatory Authority of Public Procurement (Autorité de Régulation des Marchés Publics – ARMP)), the General Directorate for Public Procurement Control (Direction Générale de Contrôle des Marchés Publics - DGCMP) and a shift toward the use of the open and transparent bidding as the rule of the public procurement.. However, insufficient capacity among public agencies due largely to the instability of the members of the CGMP, the non-compliance with the public procurement code lead to significant delays and deficiencies in public procurement. Goods contracts under the Program include computer hardware and accessories, software, office equipment, fixtures, and so on. The OPRC threshold for high-risk contracts of consulting services for firms and individual consultants is US$15 million. Individual consultants under the Program include IT consultants, economists, accountants, statisticians, public administrators, social sector specialists, sociologists, and so on. There are no works contracts for any new construction under the Program. The Program accounting and financial reporting will be done in accordance with existing Government procedures and will be subject to the existing internal control procedures which are being further strengthened under the various DLIs. 3.1 Planning and Budgeting While the Republic of Congo’s strategic planning, budget formulation and budget preparation have seen a measure of improvement in recent years, some weaknesses & deficiencies are still noted in the planning aspects. The strategic framework and the formulation of the budget are part of a process that is not sufficiently formalized and described in a budget circular that does not include all the required steps and is not sufficiently participatory and transparent. Although its formulation is based on the strategic framework of the National Development Plan (NDP), its basis and reference to public policies is very limited, especially in the absence of harmonized and costed sectoral policies. Macroeconomic and budgetary forecasts are established in the medium term macroeconomic and budgetary framework, but the impact analysis of new measures and the explanation of deviations are not yet included. Budget review procedures by the legislature are respected and carried out on time, and the obligation to inform parliament of budget changes during the year in accordance with the provisions of the (Loi Organique relative aux Lois de Finances) LOLF is done through the Amended Finance Law LFR. In terms of procurement, less than 50% of the procurement plans are validated by the DGCMP. It is noted that in practice, public procurement is characterized by the predominance of restricted tendering and direct contracting in the awarding. In addition, the non-budgeting in Commitment authorization - Payment credit to guarantee the payment of contracts signed and in execution and the long delay in approving the signed contracts are the major issues of credibility of the procurement plan. Since the website of ARMP is no longer functional no PPM is published. The reliability of the budget voted at the beginning of the year is very limited. Over the last three financial years (2018, 2019 and 2020), the revenue and expenditure forecast were overly optimistic, and the initial budget has not been executed as planned. The level of expenditure included in the initial finance law varied greatly during the year with the adoption of amendments to finance laws in each of the last three years. Budget execution at the payment level has been weak All Program procurement activities will be inserted in the procurement plan that will be approved by the DGCMP and published on ARMP website. The procurement plan will be elaborated using the one agreed with the IMF. 3.2 Budget Execution Budget execution monitoring at the country level is weakened by the limited performance of revenue management, which leads to very limited predictability in credit authorizations and transfers and the generalized recourse to discretionary management methods. The dearth of an interface between the computerized management systems in use and the limited role of budgetary control generate dysfunctionalities in expenditure management, especially due to the lack of transparency in the management of public contracts and the near-systematic use of the simplified procedure, increasing the risk of arrears and corruption. To improve budget management of the Program and monitor progress to take corrective action, the format for budget execution reports would be improved to disclose spending against approved and released budget disaggregated and supplemented with output data for release to decision makers, service delivery managers, and publications, in a user-friendly format. An expenditure reconciliation will be done at the end of the Program, which will decide whether a refund is necessary or not. Program expenditures will include Salaries and Wages, Travel, transportation, and training, Utilities and operating expenditures, Current repairs and maintenance, as well as Consulting and professional services. There is no contract in the Program which is close to the OPRC clearance thresholds. The OPRC threshold per high-risk contract of goods, IT, and non-consulting services is US$ 30 million. Goods contracts under the Program include computer hardware and accessories, software, office equipment, fixtures, and so on. The OPRC threshold for high-risk contracts of consulting services for firms and individual consultants is US$15 million. Individual consultants under the Program include IT consultants, economists, accountants, statisticians, public administrators, social sector specialists, sociologists, and so on. There are no works contracts for any new construction under the Program. The Program accounting and financial reporting will be done in accordance with existing Government procedures and will be subject to the existing internal control procedures which are being further strengthened under the various DLIs. Procurement processes and procedures The Congo public procurement was assented into decree Nr. 2009-156 on May 20, 2009 on public procurement code. 8 other decrees have been adopted as application tests (1. Decree No. 2009-157 of May 20, 2009 on ARMP; 2. Decree No. 2009-158 of May 20, 2009 on DGGT; 3. Decree No. 2009-159 of May 20, 2009 on DGCMP; 4. Decree No. 2009-160 of May 20, 2009 on the procedures for approving public contracts; 5. Decree No. 2009- 161 of May 20, 2009 on CGMP; 6. Decree No. 2009-162 of May 20, 2009 on the thresholds for the award, control and approval of public contracts; 7. Decree No. 2011-843 of December 31, 2011 amending and supplementing certain provisions of Decree No. 2009-162 of May 20, 2009 on the thresholds for the award, control and approval of public contracts; 8. Decree No. 202 2-1854 of October 12, 2022 amending and supplementing Decree No. 2009-161 of May 20, 2009 on CGMP). The public procurement code makes open competitive and transparent procurement the rule. It ensures equal opportunities for all eligible bidders, fairness and transparency in the procurement process given that bids are advertised at least on the website of ARMP and procurement decisions and information are made public and accessible. In practice, the public procurement is characterized by the predominance of limited request for bids and direct selection, the absence of a database that can provide all the information relating to public procurement and the non-compliance with the public procurement code by at least 50% of the contracting authorities. Procurement performance across the Bank’s portfolio according to the last Procurement performance report rated the PRISP PIU as Satisfactory. The CGMP of Ministry of Finance will benefit from the support of the PRISP PIU and from the assistance of a procurement expert who will be recruited to assist the CGMP. The public procurement manual will be revised and training will be provided to the CGMP staff. 3.3 Treasury management and Funds Flow for Program Implementation The IDA funding shall be disbursed under two disbursement windows namely (i) standard IPF of US$15 million and (ii) results- (DLI/DLR) window of US$55 million. Funding under the IPF shall be maintained in a DA managed at the PCU-PRISP, while those of the PforR operation will be channeled through the government’s sub consolidated accounts of the MoF. IPF TA window funds will be held at the PCU-PRISP account for expenditures, while for the results-based window a 15 percent of the entire program funds (up to US$8 million) will be received as an advance. On subsequent IDA disbursements for the results-based component, transfers to implementing agencies will be replenished based on their corresponding achievement of DLIs/DLRs under their respective responsibility. Once the results have been verified by the IVA, the MoF through the PCO will initiate the Withdrawal Application process. A rolling advance of 25% of the PforR financing will be disbursed after effectiveness upon request by the MoF, to support the achievement of the DLI’s. The advance will be settled and replenished against amounts due on verified achievement of DLI’s. 3.2 Accounting and Financial Reporting Accounting and reporting have deficiencies related to the integrity of data and budget monitoring. The reliability of financial information, affected by internal control weaknesses, combined with the interface issues between the SIDERE and SIGFIP management systems and the implementation of the new State Accounting Plan, limits the reliability of reporting on budget execution in the course of the financial year, and does not permit effective budgetary management. The overall accounting and reporting performance for public expenditure is weak. The Directorate of the Treasury and Public Accounting (DGT Direction Générale du Trésor et de la Comptabilité Publique) is unable to carry out the bank reconciliation of all the accounts of the central budgetary administration and even less of the central administration, despite the presence of a public accountant reporting to the MFBPP, with each administrative public institution. The reconciliation of suspense accounts and advance accounts is irregular and subject to long delays even for a partial clearance. The processes in place to ensure the integrity of financial data in the information systems are not yet based on well-established procedures and they only offer a limited guarantee of security. If these clearances were not regularly carried out over the 2018, 2019 and 2020 financial years, it is because the DGB, the DGT and the DGBC did not receive the information expected, which would come from other actors located upstream in the public expenditure chain. These administrations find themselves handicapped by this lack of information which prevents them from clearing these outstanding suspense and advance accounts. At the origin of all these institutional, budgetary and accounting dysfunctions, is the non-compliance with the principle of the single Treasury account as stated in the 2018 RGCP, and non-compliance with exceptional procedures for the execution of expenditure by certain actors in the public expenditure chain. In addition, it was noted in the context of this assessment that there are no definitive guarantees in terms of security of information systems so that the integrity of the data is fully ensured. This reservation is based on the institutional and technical limits of the global information system (SIDERE and SIGFIP) and the absence of interconnections between the information systems specific to all these administrations which are involved in the revenue chain. and on that of expenditure. For the Program, the Program Director shall be responsible for ensuring efficient and effective financial management, accounting, and reporting, particularly with regards to timely receipt of all financial data from participating agencies and departments. To track and report on Program activities and expenditure, the existing chart of accounts (COA) as used by the MOF will be used to generate the required periodic financial reports and used to report to stakeholders. These financial reports will be submitted to the stakeholders including donors and submitted to the Bank: Table 3: Financial reports to be submitted Report Type Due Date Responsibility Scope Program IFR Semiannual reports Program Director Program Financial Reports Not later than 45 days after each three month period Program Financial Annual Program Director Program Annual Accounts Statements Not later than 60 days after each financial year Audited Financial Statements Annual Program Director Program Annual Audited Within six months after the Accounts end of each financial year To track and report on Program activities and expenditure, the existing COA as used by the MoF will be used to generate the required periodic financial reports and used to report to stakeholders. These financial reports will be submitted to the stakeholders including donors and submitted to the Bank. 3.4 Internal Controls Environment Internal controls The legal framework for internal control of public finances in Congo is based on a series of laws and regulations. The basic texts are: (i) Law No. 10-2017 of March 9, 2017 on the code relating to transparency and accountability in the management of public finances, (ii) Organic Law No. 36-2017 of October 3, 2017 relating to finance laws, (iii) Decree No. 2018-67 of March 1, 2018 on the general regulation of public accounting, (iv) Decree No. 2018- 68 of March 1, 2018 on State chart of accounts, (v) Decree No. 2012-341 of March 12, 2012 on the table of State financial operations and (vi) Decree No. 2018-69 of March 1, 2018 on the budget nomenclature of the state, A priori controls over the commitments of all public expenditure is exercised under the authority of the General Directorate of Budgetary Control (DGCB) through financial controllers placed with the sectoral Ministries and Institutions. The internal expenditure control system is not effective: the effectiveness of expenditure commitment control measures is weakened when a large part of the budget is executed without a priori control of commitments due to the excessive use of the exceptional/discretionary procedure. On the other hand, the completeness, relevance and understanding of ex ante control rules and procedures have improved in recent years. The current internal control environment is weak. Its organization deserves to be structured, professionalized, organized and then deployed within the entire sphere of the State in order to put risk management and internal control at the heart of budget execution in order to make it more reliable and secure. The internal control environment is marked by the fragility and uncertain nature of the normative framework. Due to a lack of clarity in the applicable texts relating to the execution of expenditure in Program Budgeting (PB) mode, the tasks and responsibilities cannot be correctly defined. The implementing decrees clarifying the precise role of the new players in the expenditure chain have not been published. The legal framework for the execution of expenditure in PB mode is therefore not clearly fixed, both from the point of view of the actors and the applicable control methods. The risk-based approach and its assessment have not yet been developed within the framework of the control of service operations. Whether it is the tax administration (DGI) within the framework of the planning of its tax audits, the budget controllers in the exercise of control over the administrative phase of the expenditure chain, the payroll service for the control of payroll statements or accounting services for their payment transactions, no service within the Congolese administration has yet implemented a risk-based approach based on risk mapping and control plans adapted accordingly. Control activities are centered mainly on the compliance of operations. In most cases the controls, even when they are systematized, do not allow them to play their role of filter. In the absence of a vision of risks, of a targeted approach and by process, there is a strong mismatch between the controls carried out and the risks they actually cover. Internal audit The Congolese internal audit system, exercised by the IGF or the IGE, is inefficient. Internal audit coverage and quality are weak. There is no coordination between the institutions responsible for internal control (IGE and IGF) and between them and the CCDB. In addition, the frequency and dissemination of reports is low. Thus, audit reports, when they exist, are not shared for verification and information sharing between audit institutions. Moreover, the reaction of the authorities to the conclusions of the internal audits is almost non- existent. There is no established organization or procedures for following up on recommendations. Furthermore, these institutions face challenges related mainly to the limits of human resources, which limits their capacity to respond. There is no framework for dialogue between the different oversight institutions to coordinate their annual intervention programs. The constitution of October 25th , 2015 provided the Court of Accounts and Budgetary Discipline (CCDB) with an autonomous framework that differs from that of other jurisdictions. However, an organic law must specify its powers, its organization, its functioning, and its procedures. The CCDB still does not have an organic law and its level of activity remains low. In practice, the CCDB encounters difficulties in fulfilling its mandate for the following reasons: (i) lack of organic law; (ii) insufficient qualified personnel to carry out the assigned tasks; (iii) lack of some documentation, in particular methodological guides; and (iv) insufficient financial resources. The internal audit function is not fully operational at the level of the internal control systems which are still unfamiliar with the exercise (IGE, IGF, CNSS and Inspections of the services in the ministerial departments) unlike the CNC whose involvement in this activity is older. Activity in this function remains focused on controls and financial compliance audits to the detriment of performance audits. Other limiting factors include: 1. limits in the effectiveness of the control of salary expenditure due to the inadequacy of the software. 2. limits in the effectiveness of a priori control over public expenditure commitments: non- compliance with the regulations enacted by the RGCP of 2018 on the execution of public expenditure based on exceptional procedures, technical malfunctions of SIDERE and SIGFIP and weaknesses at the level of the DGCB in terms of human and logistical resources. 3. the ineffective nature of the internal audit function within the revenue system / central administration - this function is still not very operational due to organizational and capacity problems aggravated by the weakness and insufficient human and logistical resources (including IT). 4. The mission of the Commissariat National aux Comptes CNC is limited due to institutional constraints. Its position at the level of the MFBPP with unsuitable institutional framework and insufficient personnel and logistical resources and an authority contested by certain public companies do not allow it to carry out its mandate. The Program internal audit function will be outsourced to an external audit firm to improve independence & objectivity. The PIU shall agree with the WBG, the content of the ToRs for the recruitment of an external professional practice firm to implement the internal audit function and carry out its subsequent recruitment. As necessary and based on projects activities to be performed, specific agreed upon procedures will be designed into the TORs.