Ghana PFM for Service Delivery PforR (P176445) Fiduciary Systems Assessment Section 1: Conclusions 1.1 Reasonable assurance 1. 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. 2. Currently in Ghana, the PFM Act, 2016 (Act 921) regulates the financial management of the public sector within the general macroeconomic and fiscal framework and this legislation serves as the foundation for all financial management policies, regulations and other administrative procedures which govern the use and reporting on public funds by all MDAs. The Act also defines the responsibilities of persons entrusted with the management and control of public funds, assets, liabilities, and resources, to ensure that public funds are used judiciously and with due care and oversight including accounting and audit of public funds by the respective audit and anticorruption agencies. 3. Similarly, the PPA, 2003 (Act 663) as amended in 2016 (Act 914) provides for public procurement, establishes PPA, makes administrative and institutional arrangements for procurements, stipulates tendering procedures, and provide for related matters. The PPA then has the objective to harmonize the processes of public procurement in the public service to secure a judicious, economical, and efficient use of state resources in public procurement and ensure that public procurement is carried out in a fair, transparent, and non-discriminatory, environmental socially sustainable manner. 1.2 Risk assessment 4. The assessment concludes that the overall fiduciary risk of the Program is assessed as Substantial. 5. Planning and Budgeting: Despite the significant improvements in the processes of budgets and budget preparation, there are challenges that have an impact on budgeting and budget execution, and which may affect program implementation. These risks include inter alia; inadequate budget allocation for Program activities for government programs, lack of adequate budget releases (budget outturn), challenges of alignment of the work-plan and procurement plans with the budget, and timing of the cash flows or releases by the MoF. The assessment revealed that the budget estimates for revenue collection are overstated and unrealistic. These can pose a significant liquidity risk to the overall success of any government program. To address this challenge the program aims at strengthening planning and monitoring of the medium-term development plans and improve macro fiscal policy analysis and risk management of the Government. This will be achieved through a series of activities including supporting an enhanced coordination and alignment of external finance and effective donor coordination 6. There are still some capacity challenges in the preparation of PBB leading to inadequate alignment between development agenda, policy intent, and actual budget. That said however, the planning and 1 budgeting risk is assessed as Moderate due to the significant progress that has been made by the MoF, Budget Directorate and the Fiscal Decentralization Unit through the series of ongoing PFM reforms supported by IDA and other donors. Regarding the challenges of budget preparation and approval, the program funds will support the strengthening of budget formulation processes and enhance the development of best practices for legislative review and approval of budgets. 7. Expenditure commitment controls exist through GIFMIS but are not fully complied with, leading to huge expenditure arrears. There is evidence of MDAs committing for expenditure outside GIFMIS, also contributing to the accumulation of expenditure arrears. Whereas the planning and budgeting framework of national and sub-national government is relatively good and capable of supporting the Program, the risk associated with treasury management is high mainly due to delays in release of and insufficient funds for program activities, fundamentally because of the government's shifting of priorities and fungibility of cash. A key aspect of the program is to support the government’s efforts at predictability and transparency in budget execution. The PforR seeks to address this challenge through interventions in key strategic areas through activities and reforms that seek to; improve and sustain domestic revenue mobilization, improve external Resource Mobilization, enhance commitment control, improve cash, treasury and debt management and enhance procurement management and oversight. 8. Given that this program is aimed at enabling improved service delivery, a major constraint is that presently GIFMIS is not fully operational at the service delivery level. GIFMIS is yet to be fully rolled out to the district management offices of the service delivery functions such as health, education, and agriculture. Hence, GIFMIS doesn’t fully capture the IGFs, and donor funds used for public service delivery and public infrastructure at the sub-national level. Within the MoF and its agencies, there is an appreciable level of reporting since the agencies are centralized. Specifically on the issues of accounting and fiscal reporting through the use of GIFMIS, the program has two key sub objectives, namely (i) enhancing the integrity of financial data and (ii) support on going processes to achieve IPSAS compliant financial statement. The ultimate aim of the support under this objective is to improve the efficiency and performance of GIFMIS across all MDAs. 9. Whiles at least 99 percent of all budgeted entities (MDAs and MMDAs) have internal audit units tasked with the responsibility of ensuring compliance with all financial management laws and regulations, there are challenges in their effectiveness due to technical constraints, coupled with insufficient funding to strengthen IAA. This is due to factors including systemic weaknesses in the institutional set up of the IAU, inadequate staffing at the sub-national levels, lack of adequate technical capacity of some audit staff, MMDAs senior management not following up on the audit queries, and ineffectiveness in the functioning of the ACs. The PforR provides support and technical assistance for enhancing the independence and effectiveness of the internal audit function aimed at addressing the systemic weaknesses observed in the internal controls’ functions of the government. 10. Regarding audit and external scrutiny, over the years, the external audit functions of GAS have improved significantly through improved human resources and technical capacity and efforts have been made to enhance their ability to provide assurances on the use of public funds. Despite these efforts, an area which requires much technical support for their ability to perform audits is IT environment. External audit and parliamentary scrutiny are key oversight functions of the program, and this is addressed through (i) providing support and technical assistance for strengthening the independence and technical capacity of the Audit Service and, (ii) working with Parliament to strengthen its oversight functions and capabilities. 2 1.3 Procurement exclusions 11. 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. Section 2: Scope 12. Program implementation will be spearheaded by the MoF under the direct responsibility of the Chief Director. The Program will be coordinated through a strengthened PCO of the MoF, 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 for the IFA has been the PFM Act 921, 2016 and the subsequent regulations. Section 3: Review of Public Financial Management Cycle 3.1 Planning and Budgeting 13. Ghana's strategic planning, budget formulation and budget preparation have seen significant improvement over the last two decades, especially with the adoption of PBB in 2014 replacing Activity- Based Budgeting. The PBB framework defines strategic planning and budgeting with expenditure outlays to identified outcomes (or results) as opposed to inputs against outputs in the erstwhile Activity-Based Budgeting approach, making it much easier to relate planned program expenditures to expected results across MDAs and MMDAs. PBB also provides a platform for aggregating all sector programs targeted at delivering the required service outcomes. 14. The Program will support Ghana’s PFM Strategy which will serve as the bedrock of the government’s reform efforts in the PFM sector for the next five years. This operation will support the entire government program. Budgeting under the program will follow the GoG budgetary guidelines as issued by the MoF for agencies participating in the Program. Budget reforms both at national and sub- national levels have resulted in streamlining budget preparation processes with the issuance of annual budget guidelines to all MDAs and MMDAs in a timely manner, which contains preliminary budget ceilings providing reasonable resource allocation levels for budget preparation. Under DLI 6, the Program is supporting the introduction of hard budget ceilings to enshrine discipline and predictability in the process. 15. All Program expenditures will be budgeted both in the MTEF and the annual budgets (appropriations) of the MoF or any parent MDA of a participating agency not aligned to the MoF. 16. Under its Public Finance Management regulation 2019, Ghana established BCs in each MDA and MMDA to take the lead in coordinating the preparation of the MTEF and ensuring quality control of forward estimates. The BCs’ key tasks include strategy formulation, revenue collection review, resource allocation, and monitoring and evaluating budget performance. DLRs under the Program are targeted towards improving the performance of the BCs and the quality of the documents prepared. 3 17. For the Program funds flow to be consistent with Government processes and procedures, it is critical that the Program is included in the annual budget to be presented for approval by Parliament. The Budget for the Program will be part of the MoF annual allocations captured under the various budget headings constituting the PEF. 3.1.2 Adequacy of budget 18. Ghana has witnessed significant improvement in its 2018 PEFA Assessment. These improvements are in relation to the extent to which the budget is based on policy, predictability, and control in budget execution. However, as per the most recent PEFA Report1, there is a lack of effective budget releases, commitment control, and cash management which leads to cash rationing and accumulation of expenditure arrears. Specifically, though, for the PEF, there is some reasonable predictable government funding for the sector with a high budget execution rate. The MoF receives consistent funding from the Government for program implementation through the annual planning and budget process. 19. In terms of budget performance, the Ministry of Finance as the lead implementing agency for the PEF has over the past three years (2018 – 2020)2 had an uneven pattern in performance and this is not unique to the MoF but a similar trend across board. In the 2018 PEFA assessment, budget execution score for Ghana is D+ mainly because MoF is unable to deliver a predictable and timely release of funds to the MDAs during the year and this has an adverse effect on planning, service delivery and program execution. For the MoF itself, with the exception of 2020 whose actual released, expenditure and payment amounts were fluctuated due to COVID-related expenditures especially those supported by Development Partner Funds, its estimates and outturns have improved up to 2019. The scale of deviation of amount released improved from 37.3% in 2018 to -5.63% in 2019; actual expenditure improved from 36.4% in 2018 to - 6.97% in 2019; and actual payments improved from 24.69% to -7.22% in 2019. 3.1.3 Procurement planning 20. Based on a review of the procurement assessment over the past three years, it is noted that all the planned procurements carried out by the PCO under the Ministry emanated from user departments. The plans are linked to funds budgeted according to end-user needs. Procurement was realistically planned with goods, non-consulting services and consulting services correctly categorized under the applicable procurement method with the appropriate timelines. Procurement activities had adequate descriptions in the plan. 3.1.4 Procurement profile of the Program 21. Implementation of the government program primarily requires staff time, services of consultants, workshops, and training, which corresponds to recurrent spending of the implementing agencies under the Ministry. Under the program, expenditure will be incurred for goods, services, and consultancy. 3.2 Budget Execution 1 PEFA Performance Assessment Report, September 25, 2018 2 https://mofep.gov.gh/publications/budget-statements 4 22. 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. 3.2.1 Treasury management and Funds Flow for Program Implementation 23. The adoption and formal launch of TSA in August 2017 introduced functionality allowing the government to consolidate and know its cash position daily, with direct online access to all treasury- managed bank accounts held at the Bank of Ghana. This was an important milestone in PFM reforms in the country. As part of the TSA implementation plan, a number of government bank accounts held in commercial banks have been closed and transferred to the Bank of Ghana. There remain considerable government bank accounts held by commercial banks (for IGFs), as well as donor-funded project accounts and foreign exchange accounts not part of the daily cash consolidation framework. To this end the Program aims at strengthening government’s cash management by providing enhanced forecasting and coverage of cash balances in the TSA and ultimately lead to improved and timely payment for goods and services. Timely release of warrants is incentivized under DLI 7. The implementation of the TSA has been very satisfactory and recent reviews by the Bank indicates that over 90% of central government cash accounts in the TSA are now at the Bank of Ghana. This ratio has improved and as at December 2021 was at 95%3. In similar manner the percentage of budgetary spending units submitting cash forecasting plans to the MoF is at 95.83% 4. 24. The Program will use the Government’s cash management framework with the flow of funds through the TSA and all transactions being operated on the GIFMIS platform. The Program will be routed through the existing Government bank accounts (the Consolidated Fund, Sub-Consolidated Funds and Operational Accounts) for expenditure management. 25. To support implementation, the following outline of the treasury and cash management framework is envisaged: (a) For the Program funds flow to be consistent with GoG processes and procedures, it is critical that the Program is included in the annual budget to be presented for approval by Parliament. The Budget for the Program should be part of the MoF’s annual allocations captured under the various budget headings constituting the PEF. The overall budgeted amount will be an aggregated amount of the DLIs for all participating and beneficiary agencies including goods and services, and non-financial assets. (b) Once the Budget is approved by Parliament and loaded into GIFMIS, it will allow for the system controls of GIFMIS to be applied including not exceeding the maximum allocated amount and a full audit trail of all transfers etc., under that budget headings as it indicates the total approved amounts for a specific agency/department for a particular year. It will also show the disaggregation of the allocated amount for each specific participating agencies including allocations to the budget headings and accounts classes. This information will be readily available on the GIFMIS platform for monitoring. At the participating agency level, they will also have access to their individual approved allocations and the specific activities and procurements as approved. 3 MoF - Project Completion Report of the Public Financial Management Reforms Project (PFMRP), December 2021. © 2021 KPMG 4 Public Financial Management Reform Project (P151447) 10th Implementation Support Mission Aide-Mémoire. May 24-28, 2021 5 (c) The Second level of control – will also show the disaggregation of the allocated budget amount for each implementing agency (including GRA, External Resource Mobilisation and Economic Relations Division, Budget Division, SIGA, Public Investment and Assets Division, and CAGD) with PIUs with separate bank accounts and FM and procurement capacity. For other participating entities including Parliament, GAS, IAA, PPA, NDPC, sector MDAs etc, the PCO will directly make payments. For each implementing agencies they will also have access to their individual approved allocations, amounts held in their PIUs’ DA and the specific activities and procurements as approved. (d) IDA Releases – Once the results verification report from the IVA has been reviewed and confirmed by the task team and endorsed and communicated by the WB Country Management Unit, MoF/PCO will initiate the Withdrawal Application process by preparing and submitting disbursement applications to the World Bank, to reimburse funds into the MoF/PCO Sub-Consolidated Fund (CF) Account of the Government. (e) The Sub Consolidated Fund Account with the PCO(MoF) will be held under the MoF’s authority. For budgeting purposes, funds to be allocated for program management activities at the PCO shall be aggregated as part of those of the MoF General Administration budget line managed and controlled by the Chief Director. (f) Once advance funds are transferred into the MoF/PCO account, the Program Director shall transfer to each of these six implementing agencies, 50 percent of their proportionate share of funds based on the DLI prices allocated to the respective agency and these funds will be transferred into the respective Sub-CFs of these agencies. The remaining 50 percent will be disbursed to the respective PIU accounts once the initial advance has been spent and accounted for by them. The IDA funds kept in the MoF/PCO’s and PIUs’ Sub Consolidated Fund Accounts will not lapse at the end of the fiscal and the balances will be carried forward. 26. The IDA funding shall be disbursed under two disbursement windows namely (i) standard IPF of approximately US$10,000,000 and (ii) results- (DLI/DLR) window of approximately US$140,000,000. Funding under the IPF shall be maintained in a DA managed at the PCO, 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 PCO account for expenditures, while for the results-based window a 25% of the entire program funds (app $35 million) will be received as an advance upfront. 27. On subsequent IDA disbursements, 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. 28. 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 DLRs. The advance will be settled and replenished against amounts due on verified achievement of DLRs. 3.2.2 Accounting and Financial Reporting 29. The PFM Act, 2016 (Act 921) and Regulations 13 and 14 of the PFM Regulation, 2019 (L.I.2378) provide for the establishment of the GIFMIS. Section 8 (3 and 4) of the PFM Act, 2016 (Act 921) entrusts the responsibility for the integrity of public funds as well as other tasks with CAGD, with ultimate accountability to the Minister for Finance. The GIFMIS platform aims to support the management (accounting and reporting) of public funds i.e., the consolidated fund, IGFs, statutory funds, and donor funds. Presently the MoF and all its department and agencies are fully set up and using the GIFMIS platform to support financial management. 6 30. The expansion of the coverage of GIFMIS has increased the volume of financial transactions processed through the system by MDAs and MMDAs. The recently concluded IPFMRP project monitored the proportion of budgetary expenditures in Annual Financial Statements of CAGD (including Consolidated Funds, Statutory Funds, IGFs and Donor Funds) which were processed through GIFMIS as a key indicator. The evidence gathered showed that the performance of the indicator stood at 99.7%. This meant that 99.7% of the budgetary expenditures in the Annual Financial Statement of the CAGD was processed through GIFMIS. The indicator performance shows a significant improvement from a baseline of 68.02% in 2014. The GIFMIS expenditure management functionality has been established in 260 MMDAs compared to a baseline of 5 MMDAs in 2014. Nearly all transactions now pass through the internal control structure within the GIFMIS and are properly classified and included in financial reports generated from the platform5. The successful rollout is a further boost to prudent public financial management and efficient use and accountability. The results showed that the project exceeded the end target by 100 additional MMDAs. 31. In terms of financial reporting, the MoF is required by law to complete and submit to CAGD, periodic revenue and expenditure variance analysis statement and other financial statements as may be required by CAGD. These are prepared on a cumulative basis and submitted to CAGD by the 15th day of the month following each quarter of each financial year. Within the MOF, the Director of Finance is responsible for the preparation of the consolidated financial reports of the Ministry. In accordance with Sections 79 and 80 of PFM Act 2016, DoF prepares quarterly financial reports, and annual financial statements in line with the current Chart of Accounts (CoA) and existing and applicable GoG financial management regulations, manuals, and guidelines respectively. 32. Presently the CAGD is fully compliant with the preparation and submission of periodic and annual accounts using a unified chart of accounts prepared to meet Government Financial Statistics (GFS). The 2020 Annual National Accounts on Public Funds was prepared based on whole Government Accounting, comprising the Consolidated Fund, Internally Generated Funds, Statutory Funds and Donor Funds utilized by MDAs, Statutory Fund Institutions, MMDAs and State-Owned Enterprises (SOEs). This is an expansion of the scope beyond the General Government Accounting basis used for the 2019 financial year, which excluded SOEs. These MMDA reports are available at the CAGD website6. 33. The financial reports are produced timely and annual financial information including approved budgets, budget execution reports, procurement Information and audit reports and financial Statements are published and available MoF websites, and that of the CACD and GAS. 34. For the Program, the DoF and 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. The Finance & Accounts department is mandated to ensure fiduciary oversight of the use of public funds. 35. To track and report on program activities and expenditure, the existing CoA in GIFMIS will be used to generate the required periodic financial reports and used to report to stakeholders. These financial 5Ministry of Finance - Project Completion Report of the Public Financial Management Reforms Project (PFMRP), December 2021. © 2021 KPMG 6 https://www.cagd.gov.gh/reports/annual-reports/ and https://www.cagd.gov.gh/reports/quarterly-reports/ 7 reports will be submitted to the stakeholders including donors and submitted to the Bank: Report Type Due Date Responsibility Scope Program IFR Half Year Reports Program Director Program Financial Reports Not later than 30 days after each six months period Program Financial Statements Annual Program Director Program Annual Accounts Not later than 60 days after each financial year Audited Financial Statements Annual Program Director Program Annual Audited Within six months after the end of Accounts each financial year 3.2.3 Procurement processes and procedures 36. The Ghana Public Procurement Act, Act 663 was assented into law on 31st December 2003 to provide for public procurement, establish the PPA; make administrative and institutional arrangements for procurement; stipulate tendering procedures and provide for purposes connected with these. The Act was amended, Act 914 on 11th May 2016 to make further provision for public procurement and to make competitive procurement the default procurement method and made it a requirement for restricted tender and sole sourcing to be carried out with justifiable proposals submitted to PPA for prior approval. The Act provides for clear and comprehensive system for procuring goods, works and services and makes provisions for complaint and addressing of grievances as well as procedures regarding bidder suspension and debarment. The law also ensures equal opportunities for all eligible bidders, fairness, and transparency in the procurement process given that bids are advertised widely, procurement decisions and information are made public and accessible. 3.2.4 Contract administration 37. Procurement performance across the Bank’s portfolio according to the last two Procurement Risk Assessment and Performance Report in March and September 2021 rated the PCO as Satisfactory. Agency procured goods, non-consulting services and consultancy services. The profile of the Program in respect of procurement categories include 18 packages for Goods, 15 packages for Technical services or non- consulting services and 73 packages for consultancy services All the procurable expenditures were within the current Operational Procurement Review Committee Threshold.7 Overall post procurement review risk rating improved over the last three years from Substantial risk in 2019 to Moderate risk in 2021. 38. Award recommendations became effective upon approval of awards by the requisite approving authority. Approvals took between 1 -2 weeks depending on the approving authority. Performance securities were provided by suppliers to ensure that service providers abide by the terms of contract agreements. Goods, output reports and deliverables are inspected by the technical team and service delivery are monitored and certified by management. However, there were instances during which inspection and acceptance were carried out independently of the fiduciary team. Service providers and suppliers were paid on time between 3 to 8 weeks after acceptance and submission of invoices and other delivery documents. Contract completion schedules were generally met but completion date overrun was observed in some instances, especially with consultancy services. 7 Current OPRC, thresholds are US$50 Mill for Works, US$30 Mill for Goods, US$15 Mill for Services 8 3.3 Internal Controls Environment 3.3.1 Internal controls 39. The Government also adopted the Financial Administrations Regulations 2004, the Public Procurement (Amended) Act 2016, Act 914, and the various Financial Accounting Manuals of the MDAs, which further strengthened the legal and regulatory framework for internal controls at all levels of government. The MoF has an accounting and financial procedures manual – the Government of Ghana Accounting Manual – as prepared by CAGD that provides guidance on compliance with the internal controls regarding initiation, approval, authorization, payment and recording of financial transactions. The Manual enables compliance with not only the PFM Act, but it is also aligned with various PFM regulations and is designed to standardize and improve financial management practices within the Agencies and Departments of the Ministry. 3.3.2 Internal audit 40. Parliament in 2003, passed Act 658 that established IAA as an Independent Government Institution for purposes of ensuring internal control. Section 16 of the IAA Act 2003 mandates all MDAs and MMDAs to create IAUs. These units have the mandate to ensure the prevention and detection of fraud, the prevention and management of financial risk, and the control and safeguarding of public assets. Regulatory framework for internal audit is broadly consistent with sound financial management principles, but there are gaps in the implementation, particularly at the sub-national level. 41. The MoF and the participating agencies have functioning IAUs which have been assessed as having the right staffing and requisite skills set to ensure fiduciary oversight and compliance. Section 86 of the new PFM Act 2016, Act 921 requires all MDAs to create Audit Committees (ACs). The establishment of ACs is commendable but still at the early stages and yet to be assessed to determine its effectiveness. Several IAUs continue to carry out pre-auditing of payment vouchers to the detriment of internal control review, risk management and enterprise risk management and evaluations. This reflects a general lack of technical capacity within the Units at the MDA levels. 42. Each MDA is required to prepare annual audit plans approved by both IAA and MDA management. In addition, they are required to prepare and submit quarterly internal audit reports to both management and IAA within 14 days after the end of the quarter. Ad hoc audit reports are also prepared for specific internal audit assignments at the request of management. Important steps, albeit limited in scope, have been made in strengthening the internal audit function at the IAA and across MDAs and enhancing skills to audit in an IT environment. This challenge is compounded by the lack of adequate numbers of audit staff with the requisite knowledge in information systems audit and inadequate funding allocation to the IAA to undertake more periodic and sustained capacity building and skills training. 43. Specifically for the program the internal audit work will be done as part of the routine annual audit work of the respective implementing agencies. The respective IAUs are required to submit quarterly reports on the execution of the annual audit work plan. The IAD of the MoF is by far one of the most resourced in terms of staff skills and includes qualified auditors and accountants. Presently the unit is made up of 15 staff who perform various internal audit and risk management functions. An assessment 9 of the unit indicates in addition to their periodic audit programs, they have been compliant in preparing and submitting their statutory reports including quarterly internal audit reports, annual performance reports and annual statement on the implementation of Audit recommendations. The reports are submitted to the Minister, Parliament, Office of the president and the Auditor General to reflect the general level of compliance for all MDAs. 3.3.3 Program governance and anticorruption arrangements 44. Ghana has developed a progressive legal and institutional foundation8 for fighting corruption and promoting governance effectiveness in the public sector, although challenges remain. The challenges pertain to weak implementation and compliance with financial regulations and procedures, resulting in recurrent irregularities in MDAs’ audited accounts. The PFM Act (Act 921), adopted in 2016, provides a solid regulatory framework for managing F&C in public finances in the public sector. The law mandates all MDAs to maintain functional ACs to accelerate the fight against F&C at the MDAs level through effective implementation of recommendations for external and internal audit reports. While ACs are independent institutions, their members lack performance incentives and cannot attract highly qualified independent external members9. The ACs do not have sanctions powers, although they can commit offenders to appear before it. 45. The PFM Law section 83, paragraph 10 requires that where there is suspicion or allegations of fraud, or misuse of public funds, the Internal Auditor shall report the matter to the Director-General of the IAA who shall in consultation with the chairperson of the relevant ACs initiate an investigation into the matter. 46. Fiscal responsibility at the MDAs level, while improving, needs further strengthening to address F&C in the public sector effectively. The Auditor General’s audit of MDAs 2020 accounts uncovered many irregularities, suggesting weak internal auditing, ineffective enforcement of the law, weak monitoring of contracts, among others. The MoF is among the few MDAs that received disclaimer audit opinions on their financial statements in 2020. The ministry accounted for 34% of the total financial impacts arising from irregularities in MDAs’ 2020 accounts, with a more significant proportion of the reported irregularities stemming from failure to effectively enforce the law, resulting in an inability to collect taxes, debts, and default in debt payment to the government. 47. The National Anti-Corruption Action Plan (NACAP) has been rolled out since 2015, providing a coordinated approach to fighting corruption in the public sector. NACAP has had 143 broad activities (2014-2024) involving 325 implementing agencies for ten years. Its implementation has resulted in increased awareness of the evil of corruption. Support for training and provision of corruption tracking and reporting tools to government agencies has been a priority of NACAP. 48. The Office of Special Prosecutor (OSP) created in July 2017 was a critical milestone in the Government’s efforts to promote a zero-tolerance policy on corruption in the public sector. The OSP is mandated, among other responsibilities, to investigate corruption cases and prosecute public officials 8 Legislation recently adopted in this respect include the Anti-Money Laundering Act (2008); Civil Service Act (1993); Code of Conduct for Public Officers (1992); Public Financial Management Act (2016); Office of the Special Prosecutor Act (2018); Witness Protection Act, 2018 (Act 975); Right to Information (RTI) Act, 2019 (Act 989); Public Financial Management Regulations, 2019 (L.I.2378); Public Procurement (Amendment) Act, 2016 (Act 914). 9 Some of the existing external members are on multiple Committees and are not readily available for meetings, so even though ACs have been inaugurated, a lot of them have not been able to meet 10 indicted for acts of corruption. The OSP’s role is expected to complement the role of accountability institutions such as the Commission on Human Rights and Administrative Justice (CHRAJ) and Economic and Organized Crime Office while taking over the prosecuting role of the Attorney General. By 2019, the OSC received 46 complaints from the public and investigated two corruption allegations. 49. CHRAJ provides independent multi-purpose complaint handling functions for the public sector. It combines the roles of the anticorruption agency, ombudsman, and the country’s human rights commission. It is empowered to investigate corruption allegations and breaches of the code of conduct for public officers and human rights abuses. In its 2020 annual report, CJRAJ reported that 7,565 (out of 8,007) complaints received in 2020 were resolved. During the period, 158 F&C cases were received, of which 24 were resolved10. Only two out of 158 F&C allegations were registered against the MoF. 50. MDAs have functional client service units and service charters, which support grievance redress at the MDAs levels. The service charters are mandated for all MDAs. They describe service standards and delivery methods and timelines, and grievance mechanisms for those not satisfied with services offered or provided to them. The client service units of some MDAs lack an integrated ICT-based grievance redress system as they handle grievances manually. MDAs need to foster transparent collection and addressing of grievances. 51. The Program will be implemented through measures and processes, reflecting the Bank’s Anti - Corruption Guidelines (ACG) applicable to the Program-for-Results operations. (a) CHRAJ will be the Government’s focal agency for ACG application. On behalf of the recipient, CHRAJ will be responsible for undertaking investigations, criminal and administrative, under the Program, of all materials and credible allegations of F&C, keeping the Bank abreast of their progress and findings, and making public the conclusions. In accordance with the ACG, the Government will provide the Bank with reports annually or more frequently as warranted, reporting allegations of F&C under the Program received and registered. To the extent consistent with Bank policy, the Bank will refer the case to the government for investigation under the relevant criminal and civil laws if the Bank finds evidence of corruption practices. (b) If the Bank decides to conduct an administrative review into allegations or other indications of F&C in connection with the Program, conducted alone, together or paralleled with the government investigation, the government will cooperate fully with representatives of the Bank and take all appropriate measures to ensure the full cooperation of relevant persons and entities subject to the government jurisdiction in such investigations, including, in each case, allowing the Bank to meet with relevant persons and to inspect all of their relevant accounts, records, and other documents and have them audited by or on behalf of the Bank. If the Bank finds evidence of corrupt practices, the Bank will refer the case to the government for investigation under the relevant criminal and civil laws. However, the Bank may debar private individuals and firms on its own. (c) The Bank’s right to investigate or conduct review does not extend to the government’s exclusive jurisdiction of criminal investigations. (d) The government will ensure that any person or entity debarred or suspended by the Bank is not awarded a contract under or otherwise allowed to participate in the Program during 52. Complaints of citizens, including F&C, will be handled under the Program by CHRAJ and the 10Type of F&C cases received by CHRAJ in 2020 included - bribery, misappropriation of funds, embezzlement, extorsion, conflict of interest and abuse of office, fraud, and failure to declare assets. 11 Program beneficiary agencies, using the grievance redress systems, mechanisms, and administrative structures of the institutions. (a) CHRAJ will be the primary designated institution to receive and address citizens’ complaints on the Program implementation. CHRAJ will be responsible for (i) receiving and responding to, and resolving complaints about unfair treatments and F&C under the Program; (ii) coordinating with beneficiary agencies to ensure that all complaints relating to unfair treatments and F&C received by the agencies pertaining to the Program are forwarded to CHRAJ for investigation and redress; and (iii) maintaining a register of complaints, preparing annual reports on grievance redress activities specifically for the Program, in accordance with the Program operation manual, regulations and the terms of the Participation Agreements. Technical support will be provided to the CHRAJ to support the implementation of key aspects of the CHRAJ’s action plan to improve the capacity. (b) Beneficiary MDAs’ role in the grievance redress process will include: (i) receiving and responding to and resolving complaints pertaining to rules and procedures under the Program; (ii) forwarding all complaints related to unfair treatment F&C to CHRAJ; and (iii) maintaining a register of complaints, preparing reports annually on grievance redress activities, to feed into CHRAJ’s annual report on Complaints Handling and Grievance Redress for the Program. Technical support will be provided to upgrade the agencies’ complaints handling systems and standards. (c) A memorandum of understating (MOU) will be established to facilitate the collaboration between CHRAJ and beneficiary MDAs in handling F&C under the Program. The MOU will provide institutional and operational guidelines for compliance with the Bank’s ACG requirements on respecting the Bank debarment list, transparent reporting, and effective handling of grievances, including F&C allegations. Outdated grievance Client service Units of MDAs are mostly 1. Modernization of grievance redress systems action redress systems and dysfunctional and offer little value for clients - plan – developed by beneficiary MDAs to (i) improve limited complaints lack essential modern equipment qualified grievance redress capacity, including the client service handling capacity of staff. Existing staff not trained in complaint units’ capacity, transparency, and accountability; (ii) MDAs handling. Lack of provision on addressing setting and implementing standards for complaint corruption cases - no formal linkage with handling, considering the needs of different groups; anticorruption institutions, e.g., CHRAJ. (iii) promoting proactive disclosure of information by Limited transparency on the complaint the agencies through online presence handling process, e.g., lack mechanisms for tracking grievances redress. Annual report on 2. Establish MOU between CHRAJ and the beneficiary grievance redress is not prepared. MDAs to (i) promote institutional coordination in the handling of F&C and (ii) provide institutional and operational guidelines for compliance with the Bank’s ACG requirements 3.4 Auditing – Program Audit 53. GAS is a constitutional government agency established under Articles 187 to 189 of the 1992 Constitution of the Republic of Ghana. It is further governed by an Act of Parliament - Ghana Audit Service Act 2000, Act 584 with unlimited powers to carry out financial, performance and other external audits of all public funds. Its audit reports, which meet INTOSAI standards, are submitted to parliament for scrutiny. Currently, GAS has a total of 90 district and regional offices. 54. There is a huge gap in IT audit capacity, especially with regards to conducting audits within the GIFMIS platform as well as the revenue agency’s IT infrastructure known as the Total Revenue Integrated Processing System (TRIPS). 55. The passage of the PFM Act provided some key changes to the role of oversight by (i) creation of 12 ACs, thereby strengthening financial accountability and independence and (ii) the deadline for submission of annual financial statements to CAGD. Section 80 of the PFM Act 2016 now requires all MDAs and MMDAs to prepare and submit annual financial statements within two months after the end of the preceding financial year. The role of the AC as per the Law is to ensure that the head of a covered entity, to which the AC relates, pursues the implementation of any recommendation contained in: (i) an internal audit report; (ii) Parliament’s decision on the Auditor-General’s report; (iii) Auditor-General’s Management Letter; and (iv) the report of an internal monitoring unit in the covered entity concerned particularly, in relation to financial matters raised, and prepares an annual statement showing the status of implementation of any recommendation and report on financial matters raised in an internal monitoring unit of a covered entity. 56. Related to the issue of audit oversight and accountability is the role of the Parliament's PAC. The PAC consists of up to 25 members and is chaired by a member who does not belong to the party which controls the Executive branch of Government. The Committee must examine the audited accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure of the government as presented to the House by the Auditor-General of Ghana. 57. In recent time, the technical capacity of the GAS has improved significantly, and the Service is therefore capable of providing reasonable assurance and professional audit opinion on the use of Program funds. Asides from the statutory financial audits, the Service can offer specific Program audits such as value for money audits, performance audits, procurement audits and specialized forensic audits as may be required during program implementation. 58. The MoF is required by law to within two months after the end of each financial year, prepare and submit to the Auditor General and CAGD, the accounts of the Ministry and make available these to be audited. As part of efforts at improving transparency the GAS regularly publishes on its website all reports that have been issued and submitted to Parliament. Our assessment indicates that the MoF has always complied with the submission dates and the most recent MDA Audit for the MoF for the year ending December 2020 was published on June 202111. The Program financial audit will be done as a stand-alone Program Audit including the IPF Component and shall be prepared and submitted by GAS. There shall be a single program audit opinion which includes the IPF component and adequate disclosure notes on the PEF. 3.5 Procurement and Financial Management Capacity 59. In terms of financial management capacity, the MoF and its agencies have an adequate complement of accounting, treasury, budget, and internal audit staff. Staff capacity within the MoF and its allied agencies has continuously been strengthened through the various donor programs including the currently on-going IDA projects namely, Public Financial Management Reform Project (P151447) and Economic Management Strengthening Project P152171). Our review indicates that generally there is an adequate mix of budgeting, treasury and accounting staff who are entrusted to manage public funds. 60. Regarding procurement capacity, Ghana has created a procurement cadre in the public service. 11Report of the Auditor-General on the Public Accounts of Ghana: Ministries, Departments and other Agencies for the year ended 31 December, 2020 https://ghaudit.org/web/wp-content/uploads/Reports/2020/2020-MDAs-Report-Final-Reviewed.pdf 13 The procurement unit at the PCO manages the procurement of Goods, Non-Consulting Services and Consultancy Services. The unit is led by the procurement specialist supported by two procurement officers. The specialist has masters in procurement and a certified insurance professional. The qualification of the other personnel span from masters in MBA and first degree in accounting. The staff has successfully implemented the Public Financial Management Reform Project which closed in December 2021. Section 4: Program Systems and Capacity Improvements No. Issue Identified Comments Proposed Mitigation Action 1. Possible delays in the Once Program funds are transferred into An advance against achievement of DLIs will support initial release of Program the Consolidated Fund, the government momentum and regular steering committee meetings will funds. could use these funds without recourse monitor timely releases against the PEF. to the Program. Regular reports on the PEF to be presented at Steering Committee meeting to monitor sufficiency of funds for activities 2. Weak internal controls Historical evidence suggests that non- Regular training and capacity building for internal auditors on and internal audit compliance remains extremely high risk-based auditing and the systems-based audit techniques framework. thereby resulting in expenditure to reduce the incidence of financial irregularities. (PAP) overruns due to over commitments usually outside GIFMIS, procurement infractions, huge expenditure arrears, low technical capacities and funding challenges for internal auditors, and very weak executive action on audit findings and recommendations 3. Inadequate funding for Limits AC agencies to effectively carry The mitigation measures F&C institutions out their legal mandate and lack of (1) improving collaboration between beneficiary agencies and commitment to follow up actions by. CHRAJ in handling F&C allegations; (2) strengthening governance capacity of beneficiary agencies in targeted areas, including (i) improving capacity for client services and complaints handling, (ii) strengthening information disclosure and coherent online presence of MDAs. (PAP) 4. Weakness in the Systemic challenges in the strengthening Strengthening the role and functions of AC through training effectiveness of the and capacity of AC of the MOF and and capacity building of members of AC and Internal Audit role of Audit other implementing agencies to follow Units of MOF (PAP) Committees and the up status of compliance with audit challenges with recommendations. management follow ups. 5. Delays in Contractual Service providers, especially consultants 1.Technical team to be involved in procurement planning and completion schedules most often delay in completing preparation of contractual timelines to give realistic dates for and overrun assignments and production of reports completion. completion dates. which affects negatively on the 2.Technical team to speedily provide reviews to allow objective of the procurement activities. consultants to complete assignments as scheduled. 3. Team members to liaise with each other and collaborate throughout contract administration. (PAP) 6. Considerable level of Government implementing agencies Improve on the Procurement Complaint Management bureaucracy and delay find themselves with considerable Mechanism or System as stipulated in Act 663 as amended in addressing and bureaucracy during review and that ensures timely follow ups on tracking and handling review clearance on clearance in procurement decisions. procurement complaints/disputes at IAs. procurement-related Delays are to be minimized to reduce Assigned dedicated staff to follow up on tracking and issues and complaints. bureaucracy in addressing complaints handling. (PAP) and to handle grievances as speedily as 14 No. Issue Identified Comments Proposed Mitigation Action possible. 7. Need to improve the Challenges in conducting audits within Funds have been allocated for technical support including capacity of Audit the GIFMIS platform as well as the training of staff and purchase of computer-assisted audit tool Service and IAU for revenue agency’s IT infrastructure (CAATs). (PAP) conducting audits known as the Total Revenue Integrated within an automated Processing System (TRIPS). environment i.e., GIFMIS and TRIPS 8. Integrated Integrated procurement and financial Procurement and audits carried out together focuses Ghana Audit Service, per Regulation 2011, section 27(2f), will Financial Audits carried more on financial findings than conduct a separate annual Procurement audit on out by GAS. procurement related issues. procurements under the program. (PAP) OR A firm to carry out annual Independent Procurement Audit on procurements carried out under the program. Section 5 - Implementation Support 61. Within the MoF, it is envisaged that the PCO will work in collaboration with the External Resource Division of MoF, GIFMIS Secretariat and CAGD to effectively provide implementation support and guidance to track disbursements and develop a framework to monitor and report on the linkages between the various DLRs and program results. In support of the above, the Bank staff will provide technical implementation support aimed at monitoring of implementation progress and working with the task team to examine the achievement of Program results and DLIs that are of a fiduciary nature. This would include: (a) Supporting the implementing agencies to resolve implementation challenges and carry out institutional capacity building (b) Monitoring of the performance of the fiduciary systems and audit reports (internal and external), including the implementation of the PAP (c) Monitoring changes in fiduciary risks to the Program and, as relevant, compliance with the fiduciary provisions in the legal covenants 62. The Program will benefit from the Bank's policy of transparency and public disclosure and the publication of all relevant Program information including financial reports and other fiscal data, covering the entire program whether funded by GoG or IDA. 15