Note: These OP/BP 10.02 and BP 10.02 Annex A together replace OP/BP 10.02, Financial Management, and BP 10.02 Annexes A, B, and C, dated August 1997; and the Operational Memoranda OP/BP 10.02, Financial Management, dated August 6, 1997, and Policy on Auditing of Bank-financed Projects, dated April 4, 2002. OP and BP 10.02 have been revised to reflect changes approved by the Executive Directors on February 20, 2003 and set out in Audit Policies and Practices for World Bank-financed Activities (R2003-007 and IDA/R2003-0013). Questions on financial management may be addressed to the Chief Financial Management Officer, OPCS. |
1. Financial management arrangements are the budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements of the entity or entities responsible for implementing Bank-supported operations. For each operation supported by a Bank1 loan, the Bank requires the borrower to maintain financial management arrangements that are acceptable to the Bank and that, as part of the overall arrangements that the borrower has in place for implementing the operation, provide assurance that the proceeds of the loan are used for the purposes for which the loan was granted.2 Where feasible, the Bank expects these financial management arrangements to be integral to existing borrower institutions and to enhance institutional sustainability. 2. Assessments of Financial Management Arrangements. The Bank assesses the adequacy of the borrower’s financial management arrangements during the preparation and implementation of each operation and requires the borrower to undertake appropriate measures, including institutional capacity strengthening, to mitigate risks posed by weaknesses that are identified. 3. Interim Financial Reporting. The Bank normally requires the borrower to submit interim financial reports of which the format, content, periodicity, and due date are acceptable to the Bank.3 4. Audited Financial Statements. The Bank requires that the borrower provide audited financial statements that reflect the activities of the operation supported by the Bank loan. It requires that the financial statements be prepared in accordance with accounting standards acceptable to the Bank4 and that the audit be conducted in accordance with auditing standards acceptable to the Bank.5 It further requires that the scope of the audit and the independent auditors who conduct it be acceptable to the Bank. The Bank normally requires that the financial statements be audited annually, and provided to it no later than 6 months after the end of the reporting period.6 The Bank may allow an exemption from these requirements if the borrower has more cost-effective mechanisms that provide the Bank with equivalent assurance that loan proceeds have been used appropriately.7 In all such cases, the Bank retains the right to request an audit. 5. Failure to Maintain Acceptable Financial Management Arrangements. If the borrower fails to maintain acceptable financial management arrangements, or to submit the required financial reports by their due dates, the Bank takes action to rectify the situation.8
“Bank” includes IBRD and IDA; “loans” includes credits and grants; and “borrower” includes grant recipients. This OP applies to all loans, credits, advances under the Project Preparation Facility (PPF), and grants financed from World Bank resources, including IDA grants and IDF (Institutional Development Fund) and other DGF (Development Grant Facility) grants, with the exception of Development Policy (previously known as adjustment) loans. This OP also applies to recipient-executed grants financed from trust funds, unless, exceptionally, the terms of the agreement with the donor make provision for different requirements. The policy for Development Policy lending and Guarantees are set out in OP 8.60, Development Policy Lending and OP 14.25, Guarantees, respectively. See OP 6.00, Bank Financing. Exceptions are approved by the Regional Manager, Financial Management, or the Head of the Financial Management Sector Board, and include, for example, operations supported by small grants and trust funds. Accounting standards acceptable to the Bank include International Public Sector Accounting Standards issued by the Public Sector Committee of the International Federation of Accountants and the International Financial Reporting Standards/International Accounting Standards issued by the International Accounting Standards Board. The Bank may accept national accounting standards that it considers to be equivalent to international standards. Auditing standards acceptable to the Bank include the Auditing Standards issued by the International Organization of Supreme Audit Institutions and the International Standards on Auditing issued by the International Federation of Accountants. The Bank may accept national auditing standards that it considers to be equivalent to international standards. Exceptions are approved by the Regional Manager, Financial Management, or the Head of the Financial Management Sector Board, and include, for example: (a) at the start and end of implementation, when audited financial statements may be prepared for a period of up to 18 months; (b) when the implementation period of the operation is expected to be less than 24 months, and a single set of audited financial statements may be submitted at the end of implementation; and (c) in PPFs, for which PPF activities may be included in the first audited financial statements of the follow-on project if the project becomes effective within 24 months of the date of the first disbursement under the PPF. In the case of operations not exceeding US$500,000 equivalent at the time of signing of the legal agreement, exemptions are approved by the Regional Manager, Financial Management, or the Head of the Financial Management Sector Board. In the case of all other operations, exemptions are approved by the Financial Management Operations Review Committee. BP 10.02, Annex A, Actions that the Bank takes in Respect to Noncompliance with Financial Management Requirements, sets out actions that the Bank takes.
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