50210 ILGRP PROJECT PAPER DATA SHEET Date: August 20,2009 Task Team Leader: Peter D. Ellis Country: Indonesia Sector ManageriDirector: Sonia Hammam Project Name: Initiatives for Local Country Director: Joachim von Amsberg Governance Reform Project Environmental category: B (Partial Responsible agency: Ministry o f Home Affairs, Dir. General o f Regional Autonomy Current closing date: September 30,2009 Revised closing date: September 30,201 1 P Indicate if the restructuring is: Board approved 3- RVP approved - 4: Does the restructured project require any exceptions to Bank policies? -Yes - X N o Have these been approved by Bank management? -Yes - N o I s approval for any policy exception sought from the Board? -Yes - X N o Revised project development objective/outcomes: f The development objective o the Project is to pilot support to district (labupaten) governments in improving transparency, accountability and public participatory practices and in undertaking reforms in j n a n c i a l management and procurement Does the restructured project trigger any new safeguard policies? N o RevisedFinanci ;Plan (US$m.) Source Local Foreign Total BORROWER 0.18 0.00 0.18 IBRD 13.01 1.49 14.50 IDA 13.53 1.47 15.00 UK: BRITISH DEPARTMENT FOR 10.80 1.20 12.00 INTERNATIONAL DEVELOPMENT (DFID) L O C A L GOVTS. (PROV., DISTRICT) OF 4.62 0.00 4.62 BORROWING COUNTRY Total ILGRP PROJECT PAPER Introductory Statement 1. This Project Paper seeks the approval o f the Executive Directors to introduce the following changes in the Indonesia Initiatives for Local Governance Reform Project, Loadcredit No. 4790-IND/4078-IND and Grant (TF55913-IND) and any accompanying amendments to the Project's legal documents. The proposed changes, following a detailed Mid-Term Review, are intended to refocus and put the Project back on track, as it has been rated Moderately Unsatisfactory on Performance since December 2006. Slow, but eventually strong consensus building with the Government to restructure the Project enabled the MTR only to take place in the final year o f the Project. 2. The Borrower's proposed changes include:* (i) reducing the planned number o f participating districts; (ii) completing the final round o f reforms, simplify the reporting o f reform requirements, and discontinue reform requirements that will be difficult to achieve within the next two years; (iii) providing additional incentives to performing Districts; (iv) improving implementation support; and (v) reallocating the undisbursed grant amounts to subprojects. This project paper also proposes to extend the closing date o f the Loan and Credit by 24 months to September 20 11, and the DFID Grant by 15 months to December 2010. These changes are expected to enable the Project to focus on the existing participating Districts and support them in achieving the development objectives in the next two years. 3. Pro-activity by the Government o f Indonesia (GOI) has created confidence that the performance o f the Project will improve in the coming months, as shown in the improvements identified during the MTR. We are confident that the proposed restructuring will allow the Project to improve i t s performance over the coming months, thereby allowing us to upgrade it to Satisfactory. Background and Reasons for Restructuring 4. The Project was approved by the Bank's Board o f Directors on June 9, 2005 and became effective on April 7,2006. The original closing date i s September 30,2009. 5. Project Development Objective. As stated in the Project Appraisal Document: "The development objective o the Project is to pilot support to district (kabupaten) f governments in improving transparency, accountability and public participatory practices and in undertaking reforms in financial management and procurement. " The Project provides incremental poverty-targeted investment funds to kabupatens that complete a predefined set o f the minimum reforms to finance priority rural infrastructure, as identified in their Poverty Reduction Strategy and Action Plan (PRSAP). The Project brings cross-cutting reform elements together, including more pro-poor budget allocations, to demonstrate and test reform implementation at the District level. Through Letter fiom Ministry o f Finance dated M a y 27, 2009, requesting the loan extension, revision o f category allocation under the loan and grant agreement, and project restructuring. 1 ILGRP PROJECT PAPER 6. Project Design and Scope. The project has three components. a. Component A (Local Governance Reforms) supports Local Governments (LGs) to implement reforms in the Local Governance Reform Framework (LGRF), which has three areas: (i) basic democratization, including transparency and participation in planning and budgeting processes; (ii) financial management; i i procurement. The LGRF has four phases o f requirements: Entry to and ( i ) participate in the Project, Pre-Investment to access 1st (initial) investments, Year 1 and Year 2 Reforms to access 2nd and 3rd investments. This Component i s financed by the local District budget. (see Annex 1. Schematic Summary o f Reform Requirements and Investment Phases). b. Component B (Poverty Targeted Investments) provides incremental financing for) supporting pro-poor development expenditures in Districts that implement LGRF. c. Component C (Implementation Support) finances the facilitation, technical assistance and capacity building to District stakeholders to implement Component A. Consultants and facilitators are hired to provide the assistance. They are based in Jakarta (NMCs, the National Management Consultants), in three regions (RMCs, the Regional Management Consultants), and in the Districts -a (Kabupaten Facilitator and Kabupaten Engineer). The Project currently has 14 participating Districts (Batch 1) in nine provinces. In the original design, the Project would invite other Districts in the same provinces and select 26 o f them (Batch 2) to j o i n the project in early 2007. These Districts would get facilitation for reforms for 18 months to be eligible for investment funds, which would be provided by the subsequent ILGRP 2. 7. Project Progress: Past Performance and Implementation Issues. Since i t s start the Project has made progress towards achieving the development objective (ISR Ratings in Table 1). Participating LGs faced delays in investments, as subproject proposals were not verified in a timely manner due to limited facilitatiodtechnical assistancehpport from the National Project Secretariat (NPS). District facilitators and engineers were not hired until August 2007. The RMCs were only mobilized in mid April 2009-more than two years after the procurement process started. Four o f the thirteen positions in the N M C are s t i l l vacant, and will be dropped as they are not needed following the Project's restructuring. 8. As a result o f the lack o f support by the NPS to the Districts in the past, the first investment funds did not start flowing to the Districts until late 2006. Investment funds were not fully utilized in 2006, and had to be carried over to 2007 and 2008. As o f December 2008, o f the allocated US$9.3 million first investment funds, 84.5% were utilized. Of the second and third investment funds, a total o f US$18.6 million, remain unused. Finally, the selection o f Batch 2 Districts has not yet started. As a result, the overall implementation progress has been rated MU. 2 ILGRP PROJECT PAPER Table 1. ImplementationPerformanceRatings (from ISRs) 9. Program Management. Meeting the planned targets for reforms and investments has been impeded by management issues in the NPS, which also affected the Prpject's financial management, procurement, and disbursement. Under GO1 regulations, the working unit's (Satker's) term lasts for only one year, and they have to be reappointed every year. Delays started when the Executing Agency was unable to appoint the working units (Satker) under NPS o n time, including the procurement and financial management teams. The result was prolonged delays in processes. 10. Procurement. Similar problems occurred with the procurement team, who did not have a knowledgeable member in the field o f consultant procurement. Heace, selection results were slow and unsatisfactory. The procurement team was unabl?. b-, recruit consultants on time, particularly the N M C , who were intended to support the NPS exactly on these management areas. 11. Financial Management. There are two main issues related to financial management: (i) budget processing; and (ii) payments. First, due to delays in late disbursing investment funds, sub-project proposals from the Districts had to be revised because o f changes in unit costs. Secondly, there was a delay o f payments for consultants and field facilitators, whose contract renewals were also two-months late. Weak cash flow management contributed to paor operations o f the NPS, particularly in supporting the N M C in traveling to the Districts. 12. Disbursement. The Project has two Special Accounts, with the following status o f disbursement as o f August 12,2009: a. Loan 4790-INDKredit 4078-IND. The total amount disbursed was $14.2 million (48% o f the total loadcredit), including the front-end fee o f $72,500 for the loan portion and advance to the Special Account o f $10.9 million. The balance o f the Special Account was $5 million. Hence, the actual IDA expenditures were $8.9 million (30% o f the total loan and credit). b. DFID Grant 55913-IND. The total disbursement was $4.3 million (40.6% o f the total grant), including the Special Account balance o f $2.5 million. The actual expenditure o f the grant as o f December 2008 was $1.8 million (15% o f the grant). 13. Poverty Targeted Investment. The Project Appraisal Document stated that by Project closing, a total o f 72 subprojects will be implemented. Currently, the Project has already implemented 138 subprojects in the 14 participating Districts. During the Project 3 ILGRP PROJECT PAPER implementation, all participating districts have been able to manage more sub-projects than originally anticipated. 14. FuZfzZLment o Reform Requirements. Fulfillment o f the reform requirements has f been slow relatively to the planned schedule. However, significant progress has been made immediately prior to and during the MTR, which was completed on March 31, 2009. 15. While these reforms were implemented relatively slowly during the first two years o f the Project, reform implementation accelerated once the NPS started increasing i t s technical support to Districts in mid-2008. Since the last Supervision Mission (MTR), 11 Districts have completed the year 1 reform requirements, and are eligible to access the second investment funds. 16. Recent Project Management Progress. An encouragihg recent improvement i s the appointment o f the NPS team in January 2009. The NPS i s working much more closely with the N M C on Project management. This has, for example, sped up the process o f selecting the R M C candidates, which were mobilized during the first week o f May 2009. The NPS has also hired the new Team Leader for the NMC, starting April 1, 2009. 17. While it i s likely that the Districts can meet most o f the remaining reform targets by the Project's current closing date, it i s not feasible to start ne3s',,&vestrnentsy as they will not be able to complete the subprojects. The Project i s therefore expected to disburse only $17.8 million by September 2009 (49% o f credit/loan and 28% o f the DFID grant)-as shown in Figure 1. Figure 1. Projected Disbursement to End af Project, September 2009 45.0 r--- , 100% 40.0 90% 80% 35.0 70% 30.0 60% 25.0 50% 20.0 40% 15.0 30% 10.0 20% 5.0 10% 0.0 0% I IBRD/IDA 1 DFlDGrant 1 Total i 1 49% 1 28% j 43% ' 4 ILGRP PROJECT PAPER Proposed Changes 18. The Project Development Objective (PDO) remains unchanged. The PDO as specified in the Project Appraisal Document remains unchanged. However, the PDO specified in the Development Credit Agreement (DCA) will need to be revised to be consistent with the PDO stated in the PAD. References to the "Additional Participating Kabupatens" will have to be removed from the PDO in the DCA. 19. Reducing the scope o the Project. The Project will be limited to the existing 14 f districts and will not add the 26 new Districts (Batch 2). The reduction in scope will not affect achieving the PDO. Focusing on the 14 Batch-1 Districts will improve the quality o f reform implementation, and consequently higher likelihood o f full achievement o f the development objective. The Project restructuring will only require adjustment in the Key Performance Indicators (KPIs), as the number o f final Districts will be 14, instead o f 40. Based o n current performance, it is expected that at least nine Districts will continue to perform well. 20. Performing Districts will be rewarded with additional investment funds. The additional funds will send a strong signal that good performance i s rewarded. It i s estimated that at least nine performing Districts will receive additional investment funds. These fun&ze expected to be disbursed starting in mid-2010, and will be additional to their already allocated third investment funds. The additional investment funds for the performing Districts will come from: (i) reallocation from the non-performing Districts' investment funds; and (ii) reallocation o f unused portions o f the DFID Grant to subprojects. 21. f Implement the Final Round o Local Governance Reform Framework in parallel with Poverty Targeted Investment phase. Districts have implemented comprehensive sets o f reforms in the previous phases. Within the last round o f reforms there are reforms that are not clearly supported by current national regulations, or are not valid given current circumstances. Annex 2 provides a detailed description o f the reforms to be dropped from the last round, along with a rationale. GO1 therefore proposes that the six reforms listed in Annex 2 be dropped in order to ensure effective implementation o f the restructured Project. 22. Even with the six dropped reforms, the Project i s s t i l l implementing significant reforms. For example, in the area o f Financial Management Reforms, only five o f the total 12 reform requirements will be dropped. For Procurement Reforms, only one o f the 15 reforms will be dropped. 23. Once the Districts meet a threshold o f having implemented 50% o f the last round o f reform requirements, the Project will allow for the remainder o f reforms to be implemented in parallel with the investment subprojects. In other words, Districts will become eligible for accessing funds for subprojects once they have implemented 50% o f their reforms for the last round. Districts will s t i l l be expected to complete the full set o f reforms. 24. Technical support by the NMC and RMC will be intensified to participating Districts. As the number o f Districts will not increase from the current 14 districts, the 5 ILGRP PROJECT PAPER RMCs will only need to be established in two regions, instead o f the planned three. The N M C i s also required to spend 50% o f their time in the field to help cover the 14 Districts. Each region will have specialists in governance, financial management, and procurement, in addition to a senior engineer. In addition, considering the smaller number o f participating Districts and the newly recruited RMC, the three vacant positions in the N M C will not need to be filled. All work can effectively be covered by the available consultants. 25. Reallocating the undisbursed parts o the DFID Grant by releasing the grant f category from "Consultants, Services, Workshops and Training" to be available for "Grant for Sub-projects." Currently, 40.6% o f the Grant has been disbursed. GO1 requests that the Grant reallocate funds Erom Component C to Component B to enable the Project to fully utilize the funds for investment sub-projects. The revised amount o f the Grant i s lower, since the requirements are less following the reallocation. Table 2 below provides the revised amount in each category o f the DFID Grant. Original Amount of Revised Amount o f o Y of , Grant Allocated (in Grant Allocated Expenditures Catevory GB Pounds Sterling) {in GB Pounds to be Financed Sterling) ` (1) Goods, consultant services, workshops and training under 6,500,000 4,115,000 100% Part C o f the Project (2) Grants for Subprojects 0 2,265,000 100% TOTAL 6,500,000 6,380,000 26. Extending the closing date to give more time to Districts in order to complete reforms and implement investment subprojects. GO1 requests that the restructuring be accompanied by an extension o f the closing date o f 24 months until September 30,201 1. It i s expected that by then Districts will have maintained the previous sets o f reforms, with all o f the Loadcredit expected to be utilized, as shown in Figure 2. The Loadcredit will be used to finance sub-projects, as well as capacity building and technical assistance, subject to approval o f reallocation and loan/credit/grant agreement amendments. Table 3 presents the reallocation o f the Loan proceeds, as proposed by GO1 letter dated May 27, 2009. GO1 requested an increase in Incremental Operating Cost (IOC) in order to enable them to provide more extensive implementation support to District Governments. 6 ILGRP PROJECT PAPER Figure 2. Actual and Projected Disbursement for IBRDADA - IBRD-4790 / IDA-4078 P 30.0 O 0''- 0.0 2005 2006 2007 2008 2009 2010 2011 +Plan 0.2 9.9 19.6 29.4 29.5 - --#-Actual 0 -Projection 0 .o 0.9 6.7 8.9 Table 3. Loadcredit Categorjr Revision Amount of Loan Allocated o Y of {Expressed in Dollars) Expenditures to be Financed Original Revised Amount Amount Grant for Sub-projects 9,7 15,000 9,670,000 100% IncrementalOperating Costs 205,000 250,000 100% -- -- + Front-end Fee 72,500 72,500 Amount due under Section 2.04 o f the Loan Agreement Unallocated -- -- TOTAL 9,920,000 9,920,000 14,500,000 14,500,000 Analysis 27. One o f the main changes in the proposed restructuring i s a reduction in the number o f participating Districts from the planned 40, to the existing 14. The funds originally intended for the 26 new Districts will be reallocated to Component B to finance additional sub-projects in good performing Districts. In addition, the investment funds for the non-performing Districts will be reallocated to the performing Districts. The 7 ILGRP PROJECT PAPER types and size o f sub-projects, and the process o f how they are selected, will remain unchanged. Hence, the restructuring will neither trigger new safeguard policies nor raise the environmental category o f the Project. The restructuring will also not change the social aspects as originally appraised, particularly in focusing on poverty reduction investments and civic participation, which i s enforced via the issuance o f the Local Regulation on Transparency and Participation that the Project facilitated. 28. Economic. As more funds will be used for sub-projects, the restructuring will change the economic aspect o f the Project. However, as in the original design, the programmatic nature o f the loan would only allow identification o f quantifiable economic benefits ex-post. Experience from other projects with similar sub-projects has shown that small-scale District (and sub-District) projects are economically viable. For example, the I C R for the Java irrigation loan indicates that rehabilitation o f small-scale irrigation systems generate EIRRs fr6m around 16 to 30%. Currently, the Monitoring and Evaluation Secretariat o f ILGR has included a study o f detailed economic analysis o f ILGR sub-projects in their 2009 work plan. 29. Social. With a smaller number o f Districts, the Project will be able to intensify i t s facilitation to improve the quality o f reforms, and enable the Districts to be the flagships of governance reforms, such as enhancing public participation in planning and budgeting processes, as well as in monitoring the project's implementation. 30. Institutional. Another c i h g e triggered by the restructuring i s the institutional arrangements. The present design will only have two RMCs, and the NMCs will have fewer members, as their main role will be focused on monitoring and supporting the Rh4Cs. However, all the Government institutions, including the Executing Agency, remain the same, although the consultant arrangement will be modified as there are fewer Districts to assist. . 3 1. Technical. The revised L G W will not introduce new reform requirements. Most o f the reforms are repeated from the previous rounds to enable Districts to start internalizing them. In this case, the restructuring will not create new complexity to the technical aspects o f the Project. Expected Outcomes 32. As discussed earlier, the proposed changes will not affect the overall PDO. However, Key Performance Indicators will need to be adjusted, and following the Bank's recent changes o f the result monitoring framework, the number o f output indicators will be reduced, and limited to one per component. Values will be revised to reflect the new targets, although definitions will be kept as initially proposed (see Annex 2). The changes o f the results monitoring framework have already been adopted by the participating Districts since the end o f the Mid-Term Review (March 2009). These revised results monitoring framework i s currently being promoted (socialized) through national and regional workshops with the Districts. 8 ILGRP PROJECT PAPER Benefits and Risks 33. Benefits. One o f the main benefits o f the restructuring i s to have better quality reforms in performing Districts, which lead to better governance through greater transparency, more public control and more efficient use o f public resources. The Districts' performance so far indicates there i s a strong commitment to reforms among District stakeholders. In addition, there will also be more investment funds for good performing Districts to implement sub-projects that have been identified in the PRSAP. Overall, better governance in performing Districts, together with increasing investments for subprojects will be the major benefits o f the Project. 34. Risks. One o f the major risks in the Project i s that cash flow management remains weak to support the activities, particularly field travels. Having the RMCs closer to the Districts significantly reduces the need to have long trips that require large cash advances. Technical assistance and sub-project proposal verification will also be decentralized to the regions. 9 PROJECT PAPER Annex 1 ILGRP Implementation Framework : 3 PRE-INVESTMENT { INVESTMENT PHASE 8 1 PHASE I I (3 years) I 10 Annex 2 Revised Requirements of Local Governance Reform Framework Initiatives or Local Governance Reform Project (ILGRP) A. General Requirements interest to participate in the program, and a commitment to' (a) implement specific governance reforms (particioation. transparency, procurement, financial management) to be undertaken in subsequent phases as Governance Reform Framework; (b) commit to establish the dL, Transparency and Participation, and Poverty Working Groups through public meeting; (c) undertake participatory poverty analysis and to institutionalize the poverty reduction strategy and action plan (PRSAP) into the Kabupatenplanning and budgeting process, and (d) adopt the Operational Manual, including the participatory planning and budgeting process, safeguards framework, and apprusal procedures for sub-projects Issue a Bupati Decree (SK Bupati) comprising instructions to. (a) Unchanged establish kabupaten-levelproject management unit to coordinate project activities; (b) implement the ILGR governance framework as agreed, in form, substance and timing; (c) follow the procedures in the Operational Manual, including the participatory planning and budgeting process, safeguards framework and appraisal procedures for sub-projects, and (d) amend the Bawasda's annual general audit program to include verification that the procurement and FM reform measures stipulated In the regulationshave actually been implemented 11 ILGRP PROJECT PAPER B. Transparency and ParticipationRequirements (Basic Democratization) Entry (Requirements to Par ipale in ILGR)` Announcement in mass media in each kabupaten regarding the Unchanged summaries o f local budget (APBD) and Report of Local Government Bupati's accountabrlity speech (ILPPD) in mass media. Announcement in mass media o f the availability o f the following Unchanged documents (locations, requirements, time, and the costs to get it): budget, Bupati's accountability speech, regional strategic plan (Propeda, Renstra), annual plan (Repetada, AKU and Strategies and Priorities), local regulations and spatial plan are available at the designated location(s). Pre-Znvestmenl lase Establish Transparency and Participation, and Poverty Working Not Applicable Groups through public meeting within 3 months of entry.' Rationale. the restructuring result is to drop the plan to recruit Second Batch Kabupaten. However, this was valid for the existina 14particpating districts Announcement in mass media o f the procedures, costs, and time Unchanged needed to get licenses and other services, such as I D cards, birth certificate, business license and building permits at least once a year, as well as being permanently posted at designated locations. This activity will be continued in Investment Phase. Submission o f draft local regulation (perda) on public access to Unchanged information (transparency) to DPRD, which contains assurance and mechanisms o f public access to: Information relatedto discussion on public policies in DPRD; Planning documents (Propeda, Renstra, Repetada, and spatial plans); e Draft and final documents o f all perdas, budget (APBD) and budget realization reports; Audit reports and their follow-ups, Bupati's accountability reports (LPJ), information on procurement policies, procedures and practices, on complaint resolution mechanism and results (follow- up). Submission o f draft local regulation (perda) on public access to Jnchanged decision-makingprocess (participation) to DPRD, that contains assurance of: 0 Public participation in drafting and finalization discussion o f any perda in DPRD, planning documents and budgeting processes (including Propeda, spatial plans, Repetada and APBD); Establishment of monitoring and evaluation mechanism of public satisfaction on service delivery; e Establishment of complaint resolution mechanism (incl. for procurement). Finalize PRSAP and prepare draft local regulation (perda) on Unchanged implementing the PRSAP. ' Only for Second Batch Kabupaten 12 ILGRP PROJECT PAPER Implement enhanced public participation in annual planning and Unchanged budgetingthat covers: Set budget ceiling as an input for dinas and kecamatan planning discussions Allocate block grant to villagekecamatan level. The information o f the allocation and guidelines are disclosed to public. * Public meetings on dinas programming (at least for 5 poverty priorities sectors) Public meetings on inter-dinas programming Public consultation on final draft of APBD This activity will be continued in InvestmentPhase. Investment Phase /ear I ) Issue local regulation (perdu) on access to public information Unchanged (transparency)Issue local regulation (pcrda) on acccss to decision- making process (participation) Issue local regulation (perda) on implementation of the PRSAP. Implementation o f perda on access to public information Unchanged (transparency) by announcingthe summar) o f planning documents (Propeda, Renstra, M U , Strategies and Priorities) and l i s t o f all perdas being issued in the last 1 year in mass media This activity will be continued in InvestmentPhase Year 2. Implementation o f perda on access to decisionmaking process Unchanged (partiti*cion)by at least discussing 50% o f the perdas being issued in Year 1 i f investment through intensive public consultations lnvestmeni Phase 'ear 2) Coniinued implementation of perdas on access to public information Unchanged (transparenc!) and access to decision making (participation). 13 ILGRP PROJECT PAPER C. Financial Management Requirements Entry (Requirements to Pan Issue a Bupati's Decree (SK Bupati)` establishinga Financial Management Reforms Committee, with members from key stakeholder departments, and tasked with preparingthe detailed reform implementation plan and guiding the implementation of reforms. Pre-In vesrment base - Financial Management Reform Committee to prepare detaileL phased Unchanged implementation plans for the reform measures. These plans will be completed and presented to the Bupati and Project Secretariat ~ i t h i 3 n months after the Committee has been established. Provide an appropriate enabling legal framework for financial Unchanged managemenf reforms, by issuing 0 A local regulation (perda) on the Principles of Regional Finance in line with GR 105/2000 and Kepmendagri2912002 covering the reform areas to be implemented in Year 1 and 2 of Investment below; and a Bupati's decree (SK) on the policies, systems and procedures for the preparation and execution of the APBD, in accordancewith existing central regulations. The SK to also include reform agenda proposed in this project for implementation during the investment period, as stated below. Investment Phase ~ ear I ) - Implementation of reform actions proposed will be completed in each implementation o f reform actions proposed will be investment year in accordance with the SK on FM refonits and the completed in each investment year in accordance with the implementation plan prepared by the FM Reforms Committee. SK on FM reforms and the implementationplan prepared by the F M Reforms Committee 1) Strengthen orocedures for authorization of budget exoenditure, 1) Unchanged including * Authorize local government officials to make mid-year revisions in the budget allocation or budget target line items within certain pre- determined financial limits, similar to the authorities given to central government officials. To prevent potential misuse of "contingency budget" (Belanja Tidak Tersangka), specify clear criteria for expenditures that shall be funded from these funds, and the procedures governing the authorization and commitment o f such expenditure. 2) Imorove financial controls over management o f oublic funds, by uc 2) Imorove financial controls over management o f o & Segregate the functions o f the finance department (which shall be &.&, by responsible for the issuance o f payment instructions (SPM) and the Unchanged regional treasury (kas Daerah). Kas Daerah shall not receive, disburse or hold cash, but only Unchanged process banking transactions. Instruct Bagian Keuangan (Finance Dept) to undertake periodic Not Applicable comprehensive reconciliation o f cash accounts covering accounting records, bank statements, official and temporary proof of Rationale: Afer 3 years o implemeritation and all the f collections, and actual cash collection. e8ortput in place, wefound this reform agenda could not be completed within the time-frame available for project implementation, especially due to the limifed capacity o local governmentfinance unit s t a g most f f o whom do not have an accounting background 14 ILGRP PROJECT PAPER 3) Strenahen monitoring and accountabilitv of all public generated or received. bv ensuring funds generated or received. bv ensuring 0 All regional government bank accounts can be opened only with Unchanged authority from the Bupati 0 Heads o f all Work Units shall submit quarterly reports to Finance * Not Applicable Dept & Bupati declaring the name, location, and balances o f all bank accounts in the name of the Work Unit or officials thereof. f Rationale The submission o this report is seldom conducted by each work unit, since the role has been This activity will be continued in Investment Phase Year 2 covered by the local bank, where the LG keeps its jiin-mds. The currentpractice is that it's the local bank issues the monthlyfinancial report o each work unit, f and submit it to the Finance Department and Head o f District Therefore, this reform is no longer valid Implementationof reform actions proposed will be completed in each investment year in accordancewith the S on FM reforms and the implementation plan prepared K by the FM Reforms Committee. 4) Enhance accountability of Work Unit Heads for comoliance with regulations 4) Unchanged Require Work Unit Heads to issue annually a Statement of Responsibility to Bupati, with copy to Bawasda, affirming compliance with applicable rules and regulations, and that all revenue collected and donations received are deposited to the authorized Kas Daerah account 5) Not Applicable I 5) Strengthen procedures and svstems for revenue collections. f Rationale. Most o the ILGR participating Districts are 0 Require all tax/levy payments and other local collections to be f rural areas whereby all tadlevy are in theform o small deposited directly by taxpa. TS to the bank accounts of the local payments Therefore, this requirement is no longei vulid government, except for smh@ayments like parking fees and admission fees to museums, recreation centers etc. e Adopt use of serially numbered accountable receipt forms for all revenues. 6) Not Applicable 6) Strengthen effectiveness of internal audit function-by requiringthat Rationale. DPRD has access to annual audited financial copies of all Bawasda general audit reports are provided to DPRD statement conducted by BPK. This repori ES olso within 30 days o f being issued. accessible through the BFK website. Thzs development f was madepossibie through the implementation o the 7) Imolement greater transoarencv in local financial management, by Audit Law This requirement has therefore been covered requiringcompletion and publication in local newspapers or websites of and is no longer valid. summary quarterly financial reportshudget realization reports within 2 months of quarter-end. 7) unchanged 15 ILGRP PROJECT PAPER D. Procurement Reform Requirements in procurement reform, with the following tasks * Coordination with LPKPP * Lead and coordinate procurement reform in kabupaten Implementtrainings on procurement to other work unit * Oversee, monitor and report procurement practices Issue Procurement Bulletin in quarterly basis to publish information and opportunify in procurement including I Issue an SK Bupati' on the systems and procedures for 1 Unchanged / implementation of the Keppres 80/2003, with special attention to the following: a) Adoption o f standard bidding documents for kabupaten procured contracts, regardless o f source of funding. b)Establishment o f clear and robust mechanism for recording and handling of procurement complaints. c) Enforcement and public disclosure o f sanctions relating to procurement deficiencies. Impkment provisions o f Keppres 8012003 related to the following: Unchanged - a) Removal o f pre-qualification system for small contracts ( 15% > 12 district governments practicing Q 0 Unchanged At least 10 district governments 1 1 accepted standards o f procurement practicing accepted standards o f as verified by audits and studies by procurement as verifiebb-audits EOP. and studies bv EOP. I Q > 12 district governments practicing At least 10 district governments I sound financial management as practicing sound financial I verified by audits and studies by management as verified by studies 1 EOP. by EOP. I Q % increase in stakeholder Unchanged satisfaction with government service deliverv . 18 ILGRP PROJECT PAPER - - - - policies and budgets are (Completed) prepared through a 12 Districts issue local regulations o n 0 I O Districts issue local regulations on participatory process and mechanisms for public consultation mechanisms for public consultation reflect local priorities for and access to information by mid- and access to information and poverty reduction. term and functioning satisfactorily, functioning satisfactorily by EOP and 20 other districts prepare drafi (Completed) local regulations by EOP 0 Poverty reduction strategies and 0 Poverty reduction strategies and action p l a n s 7 issued and action plans are issued and implemente in 12 Districts by mid- implemented in 10 Districts term and in 20 other Districts by (Completed) 2. Improvements are made EOP in procurement and 0 Action plans in FM reform are 0 Action plans in FM reform are financial mangement prepared and implemented in 12 prepared and implemented in 10 processes Districts by mid-term and in 20 other Districts (Completed) Districts by EOP. 0 Action plans in procurement reform e Action plans in procurement reform are prepared and ilnplemented in 12 are prepared and implemented in 10 Districts by rnidlx~3n in 20 other and Districts (Completed) Districts by EOP . procurement and financial management) by EOP and monitoring, 55 staff supporting and monitoring, 20 staff supporting kabupaten governments District governments Prqject M&E system in place and Ie Unchanged - providing accurate and timely data o n progress and outcomes e Complaints received and resolved 0 Unchanged satisfactorily. 19