WORLD BANK AND UNITED NATIONS FIDUCIARY PRINCIPLES ACCORD

FOR CRISIS AND EMERGENCY SITUATIONS

OPERATIONS POLICY AND COUNTRY SERVICES

September 19, 2008

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ABBREVIATIONS AND ACRONYMS

ARTF Afghanistan Reconstruction Trust Fund BP Bank Procedure CSP Consolidated Support Program (Timor-Leste) FAO Food and Agriculture Organization FIF Financial Intermediary Fund FMFA Financial Management Framework Agreement FPA Fiduciary Principles Accord IBRD International Bank for Reconstruction and Development IDA International Development Association ILO International Labor Organization ITF Iraq Trust Fund LHI Legal Harmonization Initiative MDB Multilateral development bank MDF Multi Donor Fund (Indonesia) MDRP Multi-country Demobilization and Reintegration Program (Great Lakes) MDTF Multidonor Trust Fund OP Operational Policy RETF Recipient-executed trust fund TFET Trust Fund for East Timor TSP Transitional Support Program (Timor-Leste) UN United Nations UNDG United Nations Development Group UNDP United Nations Development Programme UNEP United Nations Environment Programme UNESCO United Nations Educational, Scientific, and Cultural Organization UNFPA United Nations Population Fund UN-Habitat United Nations Human Settlement Programmes UNHCR Office of the United Nations High Commissioner for Refugees UNICEF United Nations Children’s Fund UNOPS United Nations Office for Project Services WB World Bank WFP World Food Programme WHO World Health Organization

WORLD BANK AND UNITED NATIONS FIDUCIARY PRINCIPLES ACCORD FOR CRISIS AND EMERGENCY SITUATIONS

CONTENTS

I. Introduction .............................................................................................................................. 1

II. World Bank/UN Collaboration in Crises and Emergencies: Experience and Outstanding Issues .................................................................................................................. 2

A. Cooperation Models...................................................................................................... 2 B. Remaining Challenges................................................................................................... 4

III. Context for the FPA .............................................................................................................. 5 A. Guiding Factors............................................................................................................. 6 B. Rapid Response Policy as a Catalyst for Renewed WB/UN Commitment................. 10

IV. The FPA Proposal................................................................................................................. 11 A. FPA Scope................................................................................................................... 11 B. FPA Premise and Parameters ...................................................................................... 11 C. Policy Considerations .................................................................................................. 15

V. Roles, Responsibilities, and Expected Outcomes ............................................................... 18 A. Role of the World Bank as TF Administrator............................................................. 18 B. Role of the UN (or WB) as Grant Recipient ............................................................... 19 C. Role of Donors ............................................................................................................ 19 D. Role of the Government.............................................................................................. 20 E. Expected Outcomes ..................................................................................................... 20

VI. Conclusion and Next Steps .................................................................................................. 21

Annexes

Annex A. Partnership Framework on UN/WB Cooperation in Crises and Post-Crisis Situations......................................................................................................................23

Annex B. Fiduciary Principles Accord (Draft) ............................................................................27 Annex C. Comparison of RETF Window and FPA-Based FIF Window ....................................35

WORLD BANK AND UNITED NATIONS FIDUCIARY PRINCIPLES ACCORD FOR CRISIS AND EMERGENCY SITUATIONS

I. INTRODUCTION

1. In approving the World Bank’s1 new policy on rapid response to crises and emergencies,2 Executive Directors underscored the importance of providing flexible and rapid assistance— in close collaboration with other development partners, particularly the United Nations (UN)—when responding to such situations. The new policy recognized the important role of crisis multidonor trust funds (crisis MDTFs)3 in supporting recovery programs and acknowledged the need for the Bank to rely on alternative implementation arrangements when the country’s capacity is weak and other international organizations (such as the UN) are better placed to implement initial recovery activities. Operationally, however, the Bank and the UN have had difficulty working together in such situations because their different legal and fiduciary frameworks, and their different procedures and policies, are not interoperable. This has undermined the effectiveness of WB/UN cooperation, particularly in the context of crisis MDTFs, and has contributed to delays and nonfinancial costs in circumstances that call for a rapid response. Therefore, Executive Directors also called upon Management to develop fiduciary framework arrangements for WB/UN cooperation and to discuss with the Audit Committee “the parameters and different models for Bank cooperation with the UN, reflecting different UN/Bank roles and functions in different situations.”4

2. Proposed Fiduciary Principles Accord. Working closely with UN counterparts, Management has developed a proposal for such a fiduciary framework—the Fiduciary Principles Accord (FPA), which it discussed with the Audit Committee on July 23, 2008. While this proposal was well received by many Audit Committee members, the Committee recommended a discussion of the FPA proposal with the full Board and made several suggestions on improving the clarity and comprehensiveness of the paper, which Management has attempted to reflect in this revised version.

3. Purpose of the Paper. This paper (a) outlines different models for WB/UN cooperation in crisis and emergency situations; (b) describes the difficulties encountered under each model and the efforts to address them; and (c) sets out the FPA proposed to improve WB/UN partnership and cooperation under crisis MDTFs in the critical early stages of the recovery effort. The proposed FPA reflects a shared WB/UN approach to fiduciary issues and would permit each institution to rely on its own fiduciary systems when executing activities financed under crisis MDTFs administered by the other. The FPA would enhance the Bank’s ability to respond rapidly to crises and emergencies in environments of weak capacity and would form an essential part of a broader effort to enhance WB/UN collaboration in crisis and post-crisis situations.

1 For the purposes of this paper, “World Bank,” “Bank,” or “WB” means IBRD and IDA. 2 See Toward a New Framework for Rapid Bank Response to Crises and Emergencies (R2007-0010/2), April 10,

2007, (Rapid Response Paper), and Operational Policy (OP) 8.00, Rapid Response to Crises and Emergencies. 3 Trust funds for crises and emergencies may also be established by a single donor. 4 See Rapid Response Paper, para. 44.

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4. Structure of the Paper. Following this introduction, Section II of the paper sets out models for WB/UN cooperation in emergency situations, describes progress made under some, and identifies outstanding challenges to be addressed. Section III discusses the context for developing the FPA, including lessons of experience in WB/UN collaboration under crisis MDTFs in weak-capacity environments that require implementation assistance during the early phase of recovery. Section IV lays out the premise, parameters, and policy considerations for the FPA. Section V discusses the roles of the WB, UN, donors, and beneficiary governments under this arrangement. Section VI provides the conclusion, describes risks, and sets out next steps.

II. WORLD BANK/UN COLLABORATION IN CRISES AND EMERGENCIES: EXPERIENCE AND OUTSTANDING ISSUES

5. The Bank and the UN have a long history of collaboration in responding to crises and emergencies. As the core international organization with a mandate for peacekeeping, humanitarian assistance, and emergency and disaster relief, the UN is an indispensable and central international partner in crises and emergencies. With the evolution and expansion of the Bank’s role in this area, the Bank has become a major partner and financier of post-crisis and emergency recovery, supporting national institution building, economic and social resilience, and recovery in countries vulnerable to natural disasters and conflict. The Bank and the UN also play important roles in assisting countries to mobilize, coordinate, and administer international support for recovery efforts. Given the strong complementarities between the UN and the WB based on their respective mandates, capacities, and comparative advantages, their close cooperation and partnership are more essential than ever for providing effective and timely support to national authorities and country populations in post-conflict situations and natural disasters.

A. Cooperation Models

6. While the modality for UN/WB cooperation is determined by the specific context and nature of each emergency or crisis situation, normally it falls within one or more of the following models.

1. Joint Needs Assessments and Recovery Planning

7. The WB and the UN have a well-established history of cooperating with affected countries and other partners—for example, regional development banks and organizations, and bilateral donors—in carrying out joint needs assessments and recovery planning to help mobilize funding against selected priorities in post-conflict and disaster situations.

2. Supporting Mobilization, Coordination, and Tracking of Aid

8. The WB and the UN work together in assisting country authorities to mobilize the donor resources needed to support the recovery effort, coordinate donor activities, and track aid flows. In this context, they collaborate on strengthening national capacity for aid coordination, and provide support to participating donors through various stages of the program (e.g., preparation of donor conferences, support to core donor groups, helping link the tracking of aid with budgetary processes). These tasks are particularly challenging for governments that lack experience, capacity, and resources.

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3. Supporting Country Implementation of the Recovery Program

9. The UN and WB may support the country’s implementation of a recovery program in several ways.

(a) Closely coordinated UN/WB operations

10. In most situations, the WB and UN work side by side in supporting distinct but usually interdependent activities that fall within their respective mandates and form part of an integrated recovery program. Proper sequencing and close coordination of such activities are essential to the success and sustainability of the recovery program and efficient use of resources. Increasingly, such activities are included in and monitored under Transitional Results Frameworks that provide the overall framework for coordinated assistance in a country.

(b) UN provision of critical goods and services with funds provided by IDA, IBRD, and Bank-administered MDTFs

11. The Bank’s Procurement and Consultants Guidelines5 specifically envision situations in which the UN is in the best position to supply critically needed goods or provide critical services to the member country under projects supported with IDA, IBRD, or Bank-administered trust fund resources (see para. 3.9 of the Procurement Guidelines and para. 3.15 of the Consultants Guidelines). Engaging of UN through the application of the Procurement and Consultants Guidelines is particularly important in the context of emergency projects, in which timely availability of specialized products (such as drugs and vaccines) or of specialized or technical services within the UN’s area of expertise (e.g., organizing community outreach and distribution programs) is essential to support urgent recovery activities.

(c) Contribution of WB expertise to UN-led in-country activities

12. The Bank is often asked to provide assistance and contribute expertise within its economic and development competencies to UN-led processes and activities (in such areas as security, peacekeeping, reintegration, and peace negotiations). The Bank’s contributions often focus on the areas of public finance, community reintegration, basic infrastructure rehabilitation, and post-crisis economic governance. Such contributions can be funded from various sources, including donor trust funds administered by the UN. This model for Bank/UN cooperation is in line with the new rapid response policy, which specifically recognizes the importance of supporting integrated recovery programs that draw on the expertise and comparative advantage of all international partners.

(d) UN as an “alternative implementer” of early recovery activities in weak-capacity environments under trust funds administered by the Bank

13. UN agencies are often best positioned (and represent the best or only alternative) to support weak-capacity countries in managing the early phases of a recovery effort. While this stage may be limited in time and scope in the context of the overall recovery program, it represents the most critical

5 See, Guidelines on Procurement Under IBRD Loans and IDA Credits, dated May 2004, revised in October

2006 (Procurement Guidelines), and Guidelines on Selection and Employment of Consultants by World Bank Borrowers, dated May 2004, revised in October 2006 (Consultants Guidelines).

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and time-sensitive phase of the recovery effort. UN skills, experience, and on-the-ground presence and knowledge can be essential for such start-up activities as distribution/provision of goods, cash, and services; repair of roads and bridges and rehabilitation of other essential infrastructure; and support to affected communities. Funding for such activities often comes from Bank-administered trust funds, including particularly MDTFs established to support the recovery program.

14. Progress. Over the past few years, the UN and World Bank have made considerable progress toward strengthening and improving the effectiveness of their cooperation along several of these models. For example, in the assessment and planning area, they have developed a common methodology for both post-conflict and post-disaster needs assessments and recovery planning and a shared approach to transitional results frameworks. There have also been examples (in Liberia and Haiti) of joint activities between the World Bank and peace-keeping missions, and of participating in common assistance frameworks (as in the Democratic Republic of Congo). In support of efforts to improve aid mobilization and coordination, the UN and the World Bank have collaborated in undertaking independent evaluations of MDTF performance and in using the findings of such evaluations to develop good practice and guidance notes to both improve the organizations’ performance in managing MDTFs and inform internal UN and WB reforms (including, on the Bank side, the adoption of the rapid response policy). Drawing on this work and a body of best practices and experiences, the two institutions have reached agreements on criteria and more predictable procedures for UN/WB cooperation in helping countries and donors determine the appropriate funding facility configuration in each case, including a more neutral, needs-based approach to the choice between single- and two-window trust funds. To enhance the effectiveness of their cooperation in crises and emergencies under all models, the WB and UN have agreed on guiding principles for such cooperation and mechanisms for strengthening links between the planning processes for political missions, peace-keeping missions, and humanitarian and reconstruction assistance, including communications protocol and troubleshooting mechanisms. These important achievements are captured in the proposed Partnership Statement on UN/WB Cooperation in Crises and Post-Crisis Situations (draft included as Annex A), which the two organizations have negotiated and are expected to sign in October 2008, together with the FPA.

B. Remaining Challenges

15. Despite this progress, however, serious challenges remain in two areas of UN/WB cooperation that are pivotal to effective delivery of post-crisis and natural disaster response.

1. Contractual Modalities

16. Under model 3(b)—UN supply of critical goods and services under Bank-financed projects—the WB and UN have faced persistent issues with contractual modalities. Since the UN supplies such goods and services directly to borrowing countries under Bank-financed projects, it is subject to the Bank’s procurement rules, which require that (a) the UN “qualify” as a unique supplier of such goods or services in each case, and (b) once qualified, enter into a contract with the borrowing country using a contractual form endorsed by the Bank. The current contract forms are formulated mainly to regulate the relationship between borrowers and a commercial contractor, so they do not apply fully to the business model of the UN as an international organization; and the negotiations of these contracts became even more difficult after October 2006, when the Bank’s Sanctions Reform came into effect. Specifically, the new provisions require borrowing countries to

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specifically reserve in their contracts with UN the Bank’s right to (a) investigate/audit records of UN agencies that act as suppliers of goods or services in cases of fraud and corruption, and (b) sanction UN agencies. As international organizations with their own set of internal rules, policies, and financial regulations—which include a single audit principle that precludes them from submitting to external audit by anyone other than the UN’s Board of Auditors—UN agencies have had real difficulties with signing contracts with borrowing countries that contain these provisions. As a result, negotiations between governments and UN agencies relating to agreements for supply of critical goods and services under Bank-financed emergency (and other) projects have stalled or broken down without agreements, exposing the Bank and the UN to significant reputational risks for lack of efficiency and delayed response in emergency situations.

17. Approaches. To address these pressing issues, the WB and UN began discussions of new agreement forms that will better balance the concerns and policies of both institutions. As a first step, a new agreement form has been negotiated with UNICEF—one of the largest suppliers of critical drugs and vaccines to developing countries, including under Bank-financed emergency and health projects—as a basis for discussion with other UN agencies that supply critical goods under Bank-financed projects. This process will be followed by similar negotiations on the provision of consulting services, which faces a unique set of issues. Once understandings are reached on the changes needed, and agreement reached on new contract forms that satisfy the concerns of both sides, Management will propose revisions to the Procurement and Consultants Guidelines to accommodate these changes and present them for approval by the Executive Directors. Management expects to be able to present the changes to the Procurement Guidelines later this fall and those for the Consultants Guidelines in the spring of 2009.

2. Facilitating UN Implementation

18. Under model 3 (d)—UN implementation of start-up recovery activities with funding provided under Bank-administered trust funds—the UN and the Bank have also faced serious issues and delays in concluding legal agreements because their fiduciary and legal frameworks are not interoperable. These difficulties arise when the WB, consistent with its policies, requires the UN, as a recipient of funds under WB-administered trust funds, to comply with the Bank’s fiduciary requirements, some of which are inconsistent with UN’s own internal fiduciary policies and procedures. These issues—highlighted by the Sudan case—were discussed with the Executive Directors in the context of the new rapid response policy and led to the development and negotiations of the proposed FPA as a new model for UN/WB cooperation in such weak-capacity situations. The remainder of this paper sets out the context, premise, parameters, and policy considerations underlying the FPA proposal, including the risks it poses and the benefits it would provide.

III. CONTEXT FOR THE FPA

19. The discussion of the rapid response policy focused on lessons of experience that point to the need for international agencies to be more proactively involved in helping weak-capacity borrowers manage the start-up phases of recovery. The rapid response policy permits the Bank, at the borrower’s request, to agree to alternative implementation arrangements for start-up implementation, including in particular implementation by UN agencies or programs active in the country. As the Rapid Response Paper also pointed out, however, “The Bank’s experience

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with finalizing legal agreements for such alternative implementation arrangements under country-specific MDTFs such as Sudan’s and the LICUS Trust Fund highlight the need for a more effective, cooperative and pragmatic approach to dealing with partner agencies in such circumstances,” suggesting the need to “adopt appropriate partnership arrangements with the relevant international agencies, including the UN, for implementation of such activities.”6 The FPA was developed as a model for facilitating such partnership and more effective WB/UN cooperation in situations that call for UN implementation of start-up recovery activities.

A. Guiding Factors

20. The development of the FPA was guided by several factors: (a) recognition of the important role of MDTFs in supporting a coordinated international response to crises and emergencies; (b) issuance of the 2007 Review of Post-Crisis Multi-Donor Trust Funds (the Review),7 which contained important findings and recommendations on improving the effectiveness of such MDTFs; and (c) lessons from the Bank’s and UN’s experience in Sudan and other crisis situations supported by trust funds. This section discusses each of these factors.

1. Importance of Crisis MDTFs

21. Country-specific crisis MDTFs have proven to be a key funding vehicle in supporting a coordinated and timely international response to crisis and emergency situations. Since 1994, donors have committed approximately $5.4 billion to such MDTFs. Of this amount, the Bank has administered $4.3 billion, of which only $279 million (or about 6 percent) has been executed by UN agencies on behalf of governments (see Table 1). The UN administers approximately $1.1 billion, the majority of which is for the Iraq Trust Fund.

Table 1. Bank-Administered Crisis and Emergency MDTFs Funding (US$ millions)

MDTF Year

established Total

committed Direct UN execution Fiduciary procedures used by UN

WB&Gaza Holst Fund 1994 270 --

Palestine Reform Fund 2004 313 --

Sierra Leone 2000 40 --

Timor-Leste TFET 2000 178 0.8 Bank procedures Timor-Leste CSP/TSP 2005 131 --

Great Lakes MDRP 2002 279 40 Negotiated to use UN procedures w/ FM waiver Afghanistan ARTF 2002 1,449 21 Fiscal agency agreement Iraq WB ITF 2004 477 -- Indonesia MDF 2005 599 113 Fiscal agency agreement Sudan MDTFs 2005 591 104 Interim agreement. FMFA w/ procurement waiver

Total 4,327 279 Source: Review of Post-Crisis Multi-Donor Trust Funds, supplemented with World Bank data.

6 See Rapid Response Paper, paras. 41 and 42. 7 Review of Post-Crisis Multi-Donor Trust Funds, World Bank, February 2007, Report No. AAA-15-1W,

available at Trust Fund Review link.

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2. MDTF Review

22. In 2007, the Governments of Norway, Canada, the Netherlands, and the United Kingdom commissioned a Review of Post-Crisis Multi-Donor Trust Funds. The Review found that MDTFs in post-crisis situations are “important instruments for resource mobilization, policy dialogue, risk and information management; are appreciated by host governments and are in line with Paris Declaration on Aid Effectiveness and DAC Pilot Principles for Engagement in Fragile States.”8 Because the overall performance of crisis MDTFs was found to be “uneven,” the Review examined both the instrument and its performance to identify strengths and weaknesses with a view to improving the design of future MDTFs. It took a cross-cutting look at such issues as governing structures, harmonization and coordination, the relationship between the UN and the Bank, and the effect of donor policies. It covered 18 crisis MDTFs, of which 13 were administered by the Bank and 5 by the UN. It also conducted nine in-depth case studies, six of which included field visits9 to seek the views of government officials, donors, civil society, and nongovernmental organizations (NGOs), as well as of UN and World Bank officials.

23. Review Findings. The Review contained important findings that have informed the Bank’s and UN’s work on improving their cooperation under crisis MDTFs generally and the FPA initiative in particular. Chief among the findings:

• A lack of interoperability between the legal and fiduciary frameworks of the Bank and UN has resulted in difficulties and delays in concluding legal agreements in weak-capacity environments that rely on UN implementation of start-up activities and has severely undermined the quick response called for in such situations.

• Unrealistic donor expectations regarding achievement of the objectives of speedy results on the one hand, and country ownership, capacity building, and the application of transparent effective and efficient fiduciary practices on the other, often exacerbate the tensions inherent in delivering an emergency response.

24. Recommendations. The Review made several recommendations to improve UN/World Bank collaboration under crisis MDTFs. Overall, it confirmed that as two key international partners whose different comparative advantages are both required in post-crisis recovery, the UN and Bank should endeavor to improve mechanisms for collaboration and reduce barriers to interoperability through framework agreements. It also recommended a more proactive role for MDTF donors: in particular, it encouraged more open and frank discussions up front about the role that an MDTF administrator should play in managing trust fund contributions, especially regarding potential trade-offs between speed and the degree of fiduciary comfort. Moreover, because of the high-risk environments in which MDTFs tend to operate, the Review also suggested that donors, through the trust fund governance structures, should assume more responsibility for managing these risks. At the outset, for example, donors should be willing to accept nontraditional implementation arrangements such as direct UN execution, instead of government implementation. During implementation, donors should be willing to share risk with

8 See the Review, p. 1. 9 Afghanistan, Sudan, Indonesia, Iraq, Timor Leste, and the Great Lakes Region (Rwanda, Burundi, Republic of

Congo (Brazzaville) and Central African Republic.

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the MDTF administrator (e.g., by responding proactively if implementation issues arise). These recommendations closely reflect and are consistent with the views of Bank managers and staff who have experience in managing crisis MDTFs.

3. Lessons of Experience

25. The lack of interoperability between the WB and UN fiduciary and legal systems has long been an important obstacle to UN/WB cooperation in the context of Bank-administered emergency trust funds that rely on UN implementation of start-up activities. At issue was the Bank’s requirement that the UN had to comply with the Bank’s fiduciary requirements when implementing activities under trust funds administered by the Bank. UN agencies consistently countered that, as international organizations, they have their own sets of financial management and procurement rules and requirements, which were designed to meet the same fiduciary standards agreed by governing bodies made up of the same member governments or shareholders as the Bank’s. Moreover, the UN is legally prohibited from concluding agreements that include requirements that are inconsistent with the UN’s own internal rules and procedures (such as the single audit principle).

26. Approaches. To address these issues, the two institutions resorted to various approaches.

• Interim arrangements. Several MDTFs have provided funding to UN agencies through interim arrangements that allowed the agencies to use their own procedures (e.g., MDRP/Great Lakes and Sudan). Each of these arrangements involved lengthy negotiations between the Bank and UN and specific case-by-case approvals from the MDTF donors and Senior Management within the Bank and the UN.

• Fiscal agency arrangements. In Afghanistan and Indonesia (tsunami), activities implemented by UN agencies were treated under fiscal agency10 agreements. Under such an agreement, following the instruction of the trust fund governing body, the Bank’s only responsibility is to pass the funds on to the UN. The UN is then solely responsible for implementation using its own procedures, and the Bank is absolved of any responsibility or liability for that project (other than the transfer of funds). In the Afghanistan Reconstruction Trust Fund, a legal opinion11 provided the basis for a fiscal agency agreement because the activity was outside the Bank’s mandate (i.e., law and order). The Indonesia Multi Donor Fund, established after the December 2004 tsunami devastated Aceh and Naas, also provided for the UN to receive funds for implementation of activities under fiscal agency agreements. However, under the administration agreement with donors, the Bank still retained responsibility for monitoring and reporting on the overall portfolio, including the activities of implementing agencies such as the UN. The Bank was required to coordinate and provide consolidated financial and progress reports to the MDTF’s governing body, but had no legal basis to request the UN, as an implementing agency, to provide such reports as input.

10 Under the new trust fund framework, the “fiscal agency” category has been reclassified as a Limited Fiduciary

Arrangement under the broader FIF category. 11 “Legal Note on Police-Related Activities under the Afghanistan Reconstruction Trust Fund,” Ko-Yung Tung,

March 26, 2002. Under OP 8.00, the Bank is now able to participate in broader integrated programs that may include such activities.

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• Financial Management Framework Agreement. Recognizing the need for a more comprehensive solution to these issues, in March 2006 the WB and the UN concluded the Financial Management Framework Agreement (FMFA), which allows the UN to rely on its own financial management requirements when implementing activities funded by direct grants from the WB. The FMFA—which took almost two years to negotiate—has been used successfully under a number of agreements and has helped create a more cooperative relationship and partnership between the two organizations in the financial management area. It has also served as an important precedent for the FPA effort and paved the way for the broader FPA negotiations.

27. Lessons Learned. The experience with such approaches has highlighted real limitations and issues with each.

• The interim arrangements involved protracted negotiations at all levels—with the UN, with MDTF donors, and within the Bank—to allow the UN to use its own procedures and policies. These ad hoc solutions lacked the right frame of reference and were characterized by delays and inefficiencies. For example, reflecting lessons learned and recognizing the importance of UN implementation during the start-up recovery phase, the resolutions for the Sudan MDTF specifically provided for the UN to rely on its own financial management and procurement policies and procedures. Nevertheless, during negotiations between the Bank and the UN it became evident that issues remained as to what these provisions meant in practice in terms of the Bank’s residual obligations as a trust fund administrator, particularly in light of the Bank’s adoption of an enhanced regime on fraud and corruption. The result was long delays in beginning implementation of urgent activities, with the first Bank/UN agreement taking seven months to negotiate; severe donor criticism; and high reputational risks for the Bank.

• The fiscal agency arrangements had the advantage of avoiding such delays in negotiating and signing WB/UN agreements, since such agreements clearly allowed the UN to use its own procedures, with very limited fiduciary involvement by the Bank. Legally, such agreements also had the advantage of limiting the Bank’s financial exposure, since they confine the Bank’s obligations to verification of initial funds transfer. However, they exposed the Bank to substantial reputational risks: in the event of serious issues or allegations of fraud and corruption, the Bank would have no legal means to request that the UN take action or to apply remedies if appropriate action was not taken. They also undermined the Bank’s ability to monitor and report on the overall program supported by a given trust fund.

• The FMFA, while showing both the possibility and efficiencies of finding a comprehensive (instead of ad hoc) solution to the issue of interoperability, has also demonstrated the limitations of addressing one area at a time. In this regard, although grants under the Sudan MDTF benefit from the FMFA, the unresolved issues in the areas of procurement, anticorruption, and project oversight led to substantive delays in concluding the needed agreements and in commencing UN implementation, and thus to reputational issues for both the WB and UN.

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B. Rapid Response Policy as a Catalyst for Renewed WB/UN Commitment

28. The discussions and consultations between the WB and UN in the context of the Bank’s work on its new rapid response policy have strengthened the commitment among Management and staff of both organizations to strengthen the WB/UN partnership and cooperation in emergency situations and create a common operational platform for coordinated, timely, and effective post-crisis and emergency response. This effort focused on three areas: (a) establishing an agreed set of principles to guide and support UN/WB cooperation in crisis and emergency situations; (b) defining the communication channels and the assessment and planning processes to determine country-level collaboration and clear roles and responsibilities, particularly in areas of overlap between the WB and UN mandates and expertise; and (c) addressing lack of interoperability between UN and WB fiduciary and legal frameworks by agreeing on a new model for UN/WB cooperation built around fiduciary principles shared by both institutions. The work relating to the first two areas for strengthened cooperation has culminated in an agreement on the Partnership Statement on UN/WB Cooperation in Crises and Post-Crisis Situations, included as Annex A to this paper, and on other documents and guidelines supporting the Partnership Statement. Together, these documents establish guiding principles for better WB/UN cooperation in crisis and emergency situations; set out mechanisms for strengthened links between the planning processes for political missions, peace-keeping missions, and humanitarian and reconstruction assistance, including a communications protocol and troubleshooting mechanisms; reinforce both institutions’ commitment to use shared tools for assessment, planning, and determination of division of labor to better inform decisionmaking on the ground; and support a more systematic application of good practices and relevant experiences. Both sides agreed, however, that this effort would be incomplete without resolving the operational issues encountered in the context of MDTFs that include a transfer of funds to the UN for implementation of start-up recovery activities in weak-capacity environments.

29. Process. In this context, the WB and UN teams exchanged information about and many examples of the constraints each organization faces when asked to apply the requirements of the other. As independent international organizations with empowered governing bodies and a large body of binding internal policies and procedures, neither the Bank nor the UN may apply any requirements that are inconsistent with their internal rules or procedures. For example, the UN cannot agree to an audit or investigation by the Bank or Bank-appointed auditors, and neither institution can apply the other’s procurement rules since each is bound to comply with its own procurement rules, policies, and practices, including the use of its own eligibility criteria and standard contract forms. The UN has real difficulties with potentially being investigated, “sanctioned,” or “debarred” by the Bank, just as the Bank would find it hard to agree to being investigated, sanctioned, or debarred by the UN. Neither organization can automatically accept debarment or similar disqualification decisions made by the other organization unless they formally adopt a cross-debarment principle. Both the UN and the Bank have well-developed personnel policies and administrative processes for dealing with employee misconduct that safeguard the confidentiality of such proceedings and personnel records and protect employees from investigations and examinations by outside parties, except when the matter is turned over to state criminal authorities. These rules would rightly preclude the UN from investigating alleged misconduct by the WB employees and vice versa. Taking these issues into consideration, the UN and WB teams concluded that to resolve the issue of lack of interoperability between their institutions’ fiduciary and legal frameworks, they had to develop an alternative model of

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obtaining fiduciary assurances from each other when one organization transfers funds it administers to the other as part of a joint response to a crisis or emergency situation in weak-capacity environments.

IV. THE FPA PROPOSAL

30. The FPA was designed to address exceptional circumstances, envisioned under the new rapid response policy: at the request of a borrower with insufficient capacity to implement the needed start-up or early emergency response activities, the Bank would agree to UN implementation of such activities as an alternative implementation arrangement. This section sets out the scope, premise, parameters, and policy considerations of the proposed FPA.

A. FPA Scope

31. The FPA would be limited to country-specific multi- and single-donor trust funds established to support recovery programs in weak-capacity environments, and it would apply to such trust funds only if they specifically provide for its application. Consistent with paragraph 9 of OP 8.00, in all such situations, alternative implementation by the UN would be limited to early recovery and would be coupled with capacity-building measures to enable a timely transfer of the implementation responsibilities to the national authorities. As the Audit Committee noted, this limited scope is appropriate for the FPA, since it is being proposed to address a narrow niche of circumstances encountered under crisis and emergency trust funds in weak-capacity environments. Despite this limited scope, however, the FPA is expected to have a significant impact on the ground in facilitating a timely and effective assistance during the critical early recovery phase in weak-capacity countries that are most dependent on such assistance. It also represents an important step in strengthening UN/WB partnership and cooperation in crisis and emergencies by addressing an area that has faced the most problems and criticism from countries and donors alike.

32. Existing Trust Funds. While the FPA is expected to be used primarily in future trust funds,12 if donors of an existing crisis MDTF determine that it could benefit from the FPA, they and the trustee could agree to amend the existing MDTF arrangements to permit application of the FPA for future grant agreements. This would make sense primarily for new grants under trust funds that are in early stages of implementation and would require the specific consent of all parties concerned (donors, beneficiary country, the Bank, and the UN).

B. FPA Premise and Parameters

33. The FPA represents an alternative model for obtaining fiduciary assurances between partner agencies while allowing them to rely on their own fiduciary requirements. It is built on the recognition that while the Bank and UN have complementary development mandates and shared goals, there are real differences between their governance structures, founding documents, 12 Given the Bank’s recognition of the important role UN agencies would have to play in the response to the food

crisis and in light of the advanced discussions with the UN regarding WB/UN partnership in crisis and post-crisis situations including the FPA, the recent resolution to establish the Food Price Crisis Response (FPCR) trust fund under the Bank’s Global Food Response Program specifically provided for the possibility of future application of the FPA to UN-implemented activities supported by the FPCR when the FPA is concluded and comes into force.

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and internal requirements, procedures, and practices. Rather than seeking convergence on the details and specifics of particular UN and Bank policies, practices, and procedures—an exercise that would be doomed to fail—the FPA focuses on defining and agreeing on shared fiduciary principles and objectives that form the basis for each organization’s internal requirements. The FPA is therefore premised on the following: (a) the existence of shared fiduciary principles; (b) a representation (renewed every two years) that each institution’s internal requirements and practices are consistent with these principles; (c) an agreed process for addressing serious issues (including fraud and corruption); and (d) reciprocity. (The current version of a draft text that forms the basis for the FPA negotiations with the UN is included as Annex B). This section examines these premises in greater detail.

34. Shared Fiduciary Principles. The Bank and UN teams have negotiated and agreed on what would constitute sound standards and practices in four specific areas: financial management; procurement; project design, implementation, and monitoring; and treatment of fraud and corruption. They were intended to strike the right balance between general principles that should be embedded in an adequate fiduciary system and sufficient specificity in key accountability areas. These agreed standards and practices would form an integral part of the FPA and serve as the benchmarks or parameters for each organization’s representations or assurances (they are set out in Attachment 1 to Annex B and summarized in Box 1).

35. Representation. By signing the FPA each signatory agency would be making a representation or providing an institution-level assurance that it has a sound fiduciary, accountability and oversight framework, and particularly that its regulations, rules, procedures, and administrative practices are consistent with the shared standards and practices set out in the FPA. All FPA signatories would have to renew these assurances or representations every two years. Each would also be under an obligation to notify the others of any significant changes that would undermine its ability to maintain these assurances; such a change would result in the organization’s withdrawal from the FPA and the right of a trust fund administrator to suspend any ongoing grant agreements with the organization. The purpose of this type of representation mechanism—long recognized in the auditing and legal professions—is to reconfigure WB/UN relationship into one of true partnership, trust, and mutual respect, facilitated by greater openness, transparency, and mutual accountability. Rather than relying on each organization’s ex ante assessment or due diligence of the other’s requirements and practices (which, given political and logistical issues, would be extremely difficult to do), the FPA relies on each organization’s “self-certification” that its internal requirements and practices are consistent with the agreed shared fiduciary standards. The FPA will be signed by a senior executive of each organization with the authority to make such representation.13

13 The World Bank’s Auditor General and some members of the Audit Committee suggested that the representation might be strengthened by an attestation by the internal auditor of the respective organization. The Bank’s Management considered this suggestion and discussed it with UN counterparts. As Management explained during the Audit Committee meeting, at the moment, there are no precedents of such internal audit attestations beyond financial reporting among the MDBs or within the UN. In fact, internal auditors of many UN agencies are not presently ready to provide such attestations, which some consider to be outside their current mandate or functions. Therefore, such an attestation would be impracticable at this time; however, if things in this area change in the future and move toward internal audit attestations on operational issues more broadly, the follow-on or “renewal” representations under the FPA could reflect such changes.

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Box 1. Elements of Shared Fiduciary Standards and Practices

Financial Management Principles • Sound financial management systems and arrangements to

(a) facilitate preparation of regular, timely and reliable financial statements; (b) support provision of a complete, true, and fair record of all transactions and balances; and (c) safeguard assets.

• Internal and external auditing arrangements in line with internationally accepted standards. • Provisions for special examination by external auditors in exceptional circumstances. • Mechanisms in place to continuously monitor and address/mitigate risks. Procurement Policies and Procedures • Based on principles of economy, efficiency, value for money, and transparency. • Appropriate procedures for different types of procurement (goods, works, services, etc.). • Use of a range of generally accepted procurement methods, including open competitive bidding, invitation to

bid to pre-qualified suppliers, and single-source selection. • Provisions for publication of contract awards. • Clear requirements, accountability, and authority to take procurement actions. • Use of contract documents that clearly define parties’ rights and obligations. • Appropriate processes/structures for monitoring procurement actions and timely reporting of issues and

complaints to officials with authority to address them and provide for remedies. • Ability to require contractors to disclose debarment decisions by other organizations. Project/Program Design/Preparation, Implementation and Monitoring • All activities fall within the organization’s mandate and are subject to internal review and approval process. • Activities are designed to avoid, mitigate, or minimize adverse environmental and social impacts and take a results-

based approach, with objective, time-bound, and monitorable indicators, including a monitoring and evaluation plan. • Preparation process includes appropriate participation by and consultation with relevant stakeholders. • Implementation is subject to reporting on sources and uses of funds (financial reports), implementation status,

progress, and results, as well as any challenges/issues. • There are project monitoring and evaluation arrangements/functions, independent of, or free of interference

from, management, to monitor achievement of outcomes as planned. Addressing Fraud and Corruption • Staff regulations and administrative procedures— including code of conduct and disclosure of financial information

by staff above certain level—are in place to ensure ethical behavior of staff and avoid fraud and corruption. • Procedures and administrative practices are in place to investigate or follow-up on any information relating to

the organization’s operations that indicates the need for further scrutiny (including fraud and corruption). • Mechanisms are in place to help against fraud and corruption, including Hotline and Whistleblower Protection. • There is an established internal investigations function that is either independent or set up to operate without

management interference. • Mechanisms are in place to exclude from the procurement process (on a temporary or permanent basis) firms or

individuals determined by the organization to have engaged in fraudulent or corrupt activities. • Organization may take due regard of exclusion or debarment decisions by other international organizations. 36. Process for Addressing Serious Issues. The FPA model would include a specific process for addressing serious issues (including fraud and corruption14) based on the elements of notification, reporting, elevation, and application of remedies, if needed. The grant recipient would be under an obligation to: 14 For the purposes of the FPA, the UN has agreed to use the Bank’s definitions of fraud and corruption as set out

in Sanctions Reform: Expansion of Sanctions Regime beyond Procurement and Sanctioning of Obstructive Practices (R2006/0149/4), August 1, 2006.

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• notify the trust fund administrator and the trust fund steering committee of any information that indicates the need for further scrutiny of its use of funds to which the FPA applies (including allegations of corrupt, fraudulent, coercive or collusive practices in connection with use of such funds);

• report to the trust fund administrator the actions it has taken and is taking in connection with such information in accordance with its accountability and oversight framework and established procedures, including information relating to any investigations and any follow-up actions (including application of its contractual remedies, efforts to recover misused funds,15 etc.); and

• participate in direct senior-level consultations with the trust fund administrator if the administrator reasonably believes that timely and appropriate action has not been taken.

If, after following this process, the trust fund administrator reasonably believes that the actions taken by the grant recipient have not been sufficient to discharge its fiduciary obligations with respect to the funds constituting the grant, it may exercise its remedies of suspension and termination in accordance with the provisions of the legal agreement for such grant. 37. Reciprocity. In line with the partnership principles underlying the FPA effort, and reflecting experience with crisis and emergency situations, in which both the Bank and the UN are asked to administer MDTFs in line with their respective comparative advantages, the FPA was designed as a reciprocal framework that would apply to crisis MDTFs administered by either the WB or the UN. This means that all signatories to the FPA—UN agencies and programmes as well as the Bank—would be providing the assurances and representations regarding standards embodied in the FPA, share periodic audit reports, and be subject to all other rights and obligations set out in the FPA and legal agreements to be concluded under the FPA, including the process for dealing with serious issues. The FPA would also apply when the Bank is asked to contribute its expertise to in-country activities or processes led by the UN in such areas as security, peacekeeping, reintegration, and peace negotiations (see model 3 (c)). This reciprocity is key to strengthening WB/UN partnership and cooperation and building trust and openness between the two organizations.

• Signatories and legal documentation. The FPA has been developed jointly by the World Bank and a group of UN agencies that are frequent participants in a coordinated WB/UN response to crises and emergencies: UNICEF (which coordinated the negotiations), UNDP, FAO, ILO, UNHCR, UNESCO, UNEP, UN-Habitat, UNOPS, UNFPA, WFP, and WHO. These institutions are expected to be

15 According to the UN’s rules and procedures relating to funds recovery, funds that are not recovered are written

off following a specified internal process. To reflect this, donors agreeing to the use of the FPA would have to recognize (through the Administration Agreement for a specific MDTF) that the Bank’s obligations in its capacity as trustee will not include any liability to the MDTF donors for unrecovered funds that are written off by the UN agency. In this regard, however, under the grants signed under the FPA, each UN agency receiving proceeds from Bank-administered TFs would be required to provide the MDTF administrator and the head of the MDTF governing body with regular progress reports on actions taken to address a serious situation and results obtained, including details of any recovery of funds or write-off of losses.

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among the initial FPA signatories. Other international financial institutions and UN organizations16 that could benefit from the FPA as either administrators of crisis and emergency MDTFs or alternative implementers of urgent activities in weak-capacity environments could join the FPA in the future. By signing the FPA, each such institution or organization would be making a representation or providing an assurance to the other signatories that its internal policies, procedures, and practices are consistent with the agreed fiduciary principles that form the basis of the FPA.

• Legal modalities and agreements under the FPA. Each FPA signatory organization would be able to undertake activities using its own rules and procedures with financing from grants it may receive under a crisis MDTF17 administered by another FPA signatory. Such grants would be made using standard legal agreement forms being developed under the FPA, which should facilitate consistency and timely conclusion of legal agreements. All such agreements would reflect the governance structure of the given MDTF and the operational modalities for implementation, including the reporting requirements, process for handling serious issues (including fraud, corruption), and remedies.

C. Policy Considerations

38. As a mechanism designed to facilitate a more timely Bank response to crises and emergencies in partnership with the UN under country-specific crisis MDTFs, the FPA is consistent with Bank policies and with the Bank’s governance and anticorruption agenda.

1. Policies on Rapid Response and Trust Funds

39. The FPA is consistent with, and represents the long-awaited mechanism for operationalizing the provisions of, paragraph. 9 of OP 8.00: “To facilitate the timeliness and effectiveness of alternative implementation of start-up activities in weak-capacity environments, the Bank may adopt appropriate partnership arrangements with the relevant international agencies, including the UN, for implementation of such activities.” Given the critical nature of the early recovery phase to the success of the overall recovery program, the FPA is expected to have a significant impact on the ground. Thus it would help achieve the policy’s primary goal of of providing a timely and effective emergency assistance to affected countries.

40. Trust Funds Policy. The FPA is also consistent with, and has been facilitated by, the Bank’s adoption of the new framework for Bank-administered trust funds, approved by the Board in October 200718 and reflected in the revised OP 14.40, Trust Funds, effective July 1, 2008. The new OP 14.40 categorizes trust funds into three types depending on the role (financial or administrative roles, as well as one or more operational or partnership support roles)

16 Although local and international NGOs are frequently an important part of start-up implementation in crises and

emergencies, the FPA, as designed, could not appropriately include such entities and would therefore not apply to them.

17 The FPA would apply only to crisis MDTFs for which donors specifically agree to its application and reflect that in the relevant administration agreement.

18 See A Management Framework for World Bank-Administered Trust Funds (R2007-0198), October 30, 2007, and OP/BP 14.40, Trust Funds with Supporting Documents (SecM2008-0273), June 24, 2008.

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performed by the Bank. Applying this categorization to the FPA requires an examination of the role to be performed by the Bank with respect to both (a) the majority of the funds under such trust fund that would support implementation by the recipient government, and (b) specific FPA-based grants to the UN under such a trust fund.

• Trust Fund Nomenclature. Since the FPA would apply to a portion of country-based and government-implemented trust funds established to support a country’s recovery program, such trust funds would be classified as hybrids at the trustee level, incorporating two separate program windows: (a) an RETF (Recipient-Executed Trust Fund) component or window for channeling funds to the recipient country; and (b) a separate program window for the FIF (Financial Intermediary Fund) component, which would use the FPA to channel grants to the UN. It is expected that the majority of the funds under such trust fund would be routed to the country through the RETF window and support activities implemented by the recipient government. Consistent with the requirements that apply to RETFs, activities supported under this RETF component would be subject to appraisal and supervision by the Bank in accordance with its operational policies and procedures. The funds to be channeled to the UN through the FIF window would follow procedures as outlined below.

• Grants to the UN. For the limited portion of the trust fund that would finance grants to the UN under the FPA, the Bank would still perform a financial, administrative, and partnership role, but its operational role would be quite circumscribed. Specifically, the Bank would not appraise or supervise start-up activities implemented by the UN under such grants. Instead, the Bank’s role would be limited to (a) monitoring UN compliance with its obligations to submit periodic financial and progress implementation reports, (b) applying the agreed process for dealing with serious issues, including fraud and corruption, and (c) exercising contractual remedies, if necessary, in consultation with donors (through the trust fund governing body). Thus the role to be performed by the Bank under FPA-based grants to the UN is much more in line with the limited operational role envisioned under the financial intermediary funds (FIF) type, in that the Bank would be providing “a specified set of administrative, financial, and operational services” rather than performing the full operational role it performs under RETFs.

The FPA would therefore apply to hybrid trust funds that would include an RETF window for activities to be implemented by the recipient government and a FIF window for the early phase activities to be implemented by the UN. Such classification is consistent with the new OP 14.40, which specifically provides for the possibility of accommodating different grant types (at the grant account or disbursement level) under a single trust fund.19 (Annex C includes a table comparing the main features of the RETF window and an FPA-based FIF window under such trust fund.)

19 Paragraph 5 states: “While a grant account can be of only one type, at the trustee or program level a trust fund

may be a hybrid—that is, it may involve more than one type.”

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2. Treatment of Fraud and Corruption Issues Under the FPA

41. A great part of the FPA discussions with the UN focused on measures to address fraud and corruption—an issue of high importance to both institutions, donors, and beneficiary countries. Since the FPA premise of allowing each partner to rely on its own internal requirements and accountability framework meant that each institution would rely on its own procedures for addressing fraud and corruption, the sanctions provisions embedded in the application of the Bank’s procurement and sanctions guidelines (including the Bank’s right to investigate allegations of fraud and corruption) would not apply to FPA-based grants to the UN. Recognizing this limitation, the Bank developed a three-pronged approach to obtaining alternative safeguards in this key area: (a) agreeing on shared standards and practices for addressing fraud and corruption and including them in the FPA; (b) developing and agreeing on a specific process of notification, reporting, consultations, and remedies for addressing fraud and corruption allegations; and (c) agreeing to give “due regard” to each other’s debarment or disqualification decisions and preserving the right of each institution to refuse to finance contracts with firms it has debarred or disqualified.

42. Shared Standards and Practices. As set out in Attachment 1 to Annex B and summarized in Box 1, the shared fiduciary standards and practices that would form the basis for the FPA include a specific component on addressing fraud and corruption. The elements of this component, which was subject to a lengthy discussion between the Bank and the UN, cover the main ingredients of a system to address fraud and corruption both within the institution and vis-à-vis third parties in the context of operations. These elements are (a) staff regulations and administrative requirements and procedures to ensure the ethical behavior of management and staff; (b) established Hotline and Whistleblower Protection program; (c) an internal investigations function that is either independent or set up to operate without management interference; and (d) a system for exclusion from the procurement process (temporarily or permanently) firms or individuals determined by the organization to have engaged in fraudulent or corrupt activities. In providing its representation, each signatory to the FPA would be providing an assurance to the others that its internal policies, rules, and practices are consistent with the elements included in this component on addressing fraud and corruption.

43. Process for Addressing Fraud and Corruption. The agreed process for addressing serious issues and particularly fraud and corruption represents one of the key elements of the FPA. While each partner would address any allegations or information relating to fraud and corruption in accordance with its own accountability and oversight framework and established procedures, the requirements to notify the other party about any such allegations or information and inform it about the progress and results of an investigation and any follow-up actions is expected to open new channels of communication and a culture of cooperation between the two institutions in this important area. An agreement to use the Bank’s definitions as the basis for this process also represents a great step forward and a solid basis for building such enhanced cooperation. Finally, the inclusion of senior-level consultations and remedies to address any shortfalls identified as part of the overall process should help address potential issues and mitigate reputational risks that may arise in such situations.

44. Treatment of Debarred or Disqualified Firms. To preserve the Bank’s policy of not financing contracts with debarred firms while respecting the UN’s independence in selecting

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third-party contractors, the FPA would include a provision that (a) the UN agency through its procurement policies and procedures would require potential contractors or vendors to disclose whether they are subject to any sanction or temporary suspension imposed by the Bank; (b) the UN would notify the Bank of any decision to contract a firm debarred by the Bank before concluding a contract with that firm; and (c) the Bank could (and would) refuse financing of any UN contracts with firms it has debarred. To reflect the reciprocal nature of the FPA, the Bank would be obliged to do the same under grants it may receive from the UN when contributing expertise to UN-led in-country processes and programs. While this falls short of cross-debarment, on which there is no agreement at this time among the MDBs or with the UN, this process represents an important step forward in enhancing cooperation between the UN and the Bank in this area, and achieves a “virtual equivalent” to cross-debarment.

V. ROLES, RESPONSIBILITIES, AND EXPECTED OUTCOMES

45. The FPA premise of allowing each partner to rely on its own requirements would necessitate some shifts in the roles and responsibilities of all the participants, including in particular the trust fund administrator, the grant recipient, the donors, and the beneficiary country. In this regard, the FPA’s ability to facilitate a more effective and timely WB and UN support for early-phase activities in weak-capacity environments would depend on the ability of all parties to embrace and discharge their respective roles and responsibilities.

A. Role of the World Bank as TF Administrator20

46. When administering trust funds that provide for the application of the FPA, the Bank would play a much more limited operational role in connection with grants it would extend to the UN under the FPA window. Since such grants would be subject to the UN’s rather than the Bank’s policies and requirements,21 the Bank would not appraise or supervise such grants. Instead, the Bank would have a specific set of rights vis-à-vis UN implementing agencies, and obligations vis-à-vis the donors, in monitoring the agencies’ compliance with their obligations under legal agreements to which the FPA applies. The Bank would (a) conclude a legal agreement with a given FPA signatory (using standard agreement forms to be used under the FPA) after its proposal to implement specific start-up activities has been endorsed by the MDTF governing body; (b) disburse funds to the UN in accordance with the terms of such agreement; (c) monitor UN compliance with its reporting obligations (periodic financial and implementation progress reports), 20 While the WB’s usual role has been as the administrator of crisis MDTFs, the Bank can also be the recipient of funds

administered by the UN. In this case, the Bank could receive these funds as either RETFs or BETFs, depending on what the activities entail. When Bank receives funds under trust funds administered by the UN, the TF administrator role (and accompanying rights and obligations) described in this paragraph would be undertaken by the UN. The Bank can also be a donor to a crisis trust fund through contributions from net income (e.g., LICUS and Post-Conflict Funds, the new State- and Peace-Building Trust Fund, or the recently established Food Price Crisis Response fund). When activities financed under TFs funded by the Bank’s surplus call for using the UN as an alternative implementer, the FPA model could be used to facilitate such activities, subject to appropriate oversight by Senior Management through a committee that would comprise the vice presidents of OPCS, CFP, and CSR and the General Counsel. This committee would perform the functions of the TF governing body, described in this paper, as regards approval, monitoring, and making decisions about remedies in connection with UN-implemented activities. Once the FPA is in place, Management will revise OP 8.45, Grants, to reflect the criteria for FPA application to Bank-funded trust funds, including the State- and Peace-Building Fund.

21 Including the UN’s rather than the Bank’s financial management, procurement, and safeguards policies.

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consolidate such reports, and submit them to the MDTF governing body; (d) invoke and participate in the process for addressing serious issues, including fraud and corruption, as needed, and report on status and outcomes to the MDTF governing body; and (e) exercise remedies, as appropriate, in consultation with donors through the MDTF governing body.

B. Role of the UN (or WB) as Grant Recipient

47. An FPA signatory receiving a grant to which the FPA applies (be it the UN or the Bank) would implement activities financed by such grant in accordance with its own requirements and procedures and subject to the terms and conditions of the legal agreement governing such grant. Such terms and conditions would include obligations to: (a) provide the administrator with periodic financial reports and narrative reports on implementation progress, measured against targets and benchmarks agreed with the trust fund governing body at the time of project approval; (b) address any serious issues, including allegations of fraud and corruption by applying its own rules and subject to the process of notification, reporting and escalation described in paragraphs 36 and 43 above, (c) take due regard of debarment decisions of the trust fund administrator when selecting sub-contractors under the grant with the understanding that the administrator would not finance contracts with such firms.

C. Role of Donors

48. The FPA approach would warrant a more proactive role for donors during all stages of trust fund grant process. Because under the FPA the Bank would not perform the appraisal and supervision functions covered in its operational policies—which is a hallmark of the Bank’s role under RETFs—the risk profile for donors would change. While the proposed FPA includes clear and sound mitigating measures to offset potential risks, the risks associated with the FPA are qualitatively different from the risks associated with RETFs. In this regard, important features of the FPA approach—including flexibility, trade-offs, and the enhanced role for donors—closely reflect the main recommendations of the MDTF Review. The FPA proposal was discussed and well received by donors at the Donor Forum in Paris on April 20, 2008, and during the February 2008 Roundtable under the Legal Harmonization Initiative (LHI).

49. Up-front Donor Involvement. For a given crisis MDTF, it would be important that the donors be involved from the outset in its establishment to acknowledge the limits of the obligations and commitments the Bank would be undertaking vis-à-vis the donors using the proposed FPA model. This means that donor consent to the application of the FPA would be sought ex ante and reflected in the MDTF Administration Agreement between donors and the Bank. At the individual project level, MDTF donors would be called upon—within the governance structure of a given crisis MDTF—to review project proposals and on that basis approve projects that would be implemented using UN agency rules and procedures.

50. Donor Role in Implementation. During implementation of projects under the FPA, the Bank as trustee would provide the MDTF governing body with consolidated periodic reports (financial reports and progress and results reports), inform the donors (via the trust fund’s governing body) of noncompliance with obligations set out in individual legal agreements for a given grant, and consult with the MDTF governing body on application of appropriate remedies. It would be important in terms of the collaborative nature and partnership-enhancing objectives

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of the FPA that donors—via the trust fund’s governing body—take an active role on important matters, including progress monitoring and oversight as well as application of appropriate remedies.

D. Role of the Government

51. The government, as beneficiary of the crisis MDTF, is the implementer of choice under Bank-administered trust funds. It is only in exceptional circumstances—usually when the government’s weak capacity is exacerbated by the crisis or emergency—that the UN would be asked to undertake implementation of some MDTF activities as an alternative. Under OP 8.00, such alternative implementation arrangements are considered “exceptional,” and they are subject to the approval of, and request by, the government. In addition, the government would normally be a member of the trust fund governing body that selects and approves projects proposed by grant recipients; in this capacity, it would also be involved in monitoring progress and considering any issues during implementation.

E. Expected Outcomes

52. Most importantly, the FPA approach would be expected to deliver timely results on the ground by facilitating quick, effective disbursement of MDTF funds in crisis and emergency situations when UN (or World Bank) implementation or direct support is needed. It would also yield three important corollary benefits:

• Timely conclusion of legal agreements based on agreed templates allowing each organization to implement activities using its own fiduciary rules and procedures.

• Consistent reporting on use of funds and implementation progress against expected outcome and results.

• Enhanced role for donors and the government as part of the governing body to oversee progress and be consulted on decisions on proper recourse to address issues of noncompliance.

53. Harmonization. Although the FPA is limited to responding to crises and emergencies in weak-capacity environments, it can make an important contribution to the Bank’s harmonization efforts. It is an innovative and alternative model for harmonization that focuses on principles and objectives, rather than seeking convergence on the particulars of polices and procedures. It also recognizes the importance of acknowledging and respecting differences in governance structures, founding documents, and internal requirements, while still seeking to achieve shared development outcomes. (This aspect was welcomed by many during the LHI, which forms part of the Paris-Accra aid effectiveness work.) Moreover, the WB/UN joint work in developing the FPA approach has already produced significant harmonization outcomes. In particular, in the area of fraud and corruption, the UN is moving to adopt new approaches, including new provisions on treatment of fraud and corruption under UN-administered trust funds.

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VI. CONCLUSION AND NEXT STEPS

54. The Bank is being called on to respond more effectively and quickly in crisis situations. Operationally, this often means that it needs to collaborate with the UN on the ground through the crisis MDTFs it administers. However, the differences between the legal and fiduciary frameworks of the Bank and UN have made collaboration difficult to achieve. Acceptable alternative arrangements must respect the integrity of both the UN’s and Bank’s fiduciary frameworks, for potential roles as either administrator or “implementer of last resort.” Donors, too, will need to play an active part in accepting these alternative arrangements, including by recognizing that the distribution of risk, obligations, and rights needs to be more fairly balanced among the Bank, the UN, and donors.

55. Balancing Risk. Crisis MDTFs by definition involve higher risk, because they are established in post-conflict, post-disaster, or fragile settings. In the past, a key risk to the Bank as administrator of crisis MDTFs was its sluggish response when UN implementation was needed, because collaboration with UN agencies entailed protracted negotiations on applicable requirements and legal agreements. While the FPA addresses that risk, there remains the possibility that in case of implementation difficulties the Bank will face reputational risk because the MDTF is considered a “World Bank trust fund.” The FPA contains features intended to mitigate this risk: agreed reporting requirements; a joint resolution mechanism for serious issues that merit further scrutiny, including fraud and corruption; inclusion of appropriate remedies; and a clear delineation among the responsibilities of the UN, the WB, and donors. As members of the Audit Committee pointed out, while the FPA does not provide ex ante guarantees, on balance it could well serve the purpose of effective global response to emergencies by forging a more effective partnership with the UN based on trust, complemented pragmatically with reasonable elements of self-certification, notification, and escalation if necessary, as well as reporting and review. While these measures are sound, they cannot eliminate all risks associated with agreeing to administer MDTFs in response to crisis situations generally, and using the FPA model in particular. On balance, however, the alternatives of inaction or a much delayed response when UN implementation is needed are more costly from a development point of view and pose much higher reputational risks for the Bank.

56. Risk Management. To help address these risks, and given the novelty and unique features of the FPA, Management will make a concerted outreach and dissemination effort to donors, member countries, and Bank staff, and will support and monitor its implementation. In this regard, it will be important to clarify the respective roles and responsibilities of the Bank, the donors, the UN, and the beneficiary governments, and the inherent risk-sharing under the FPA model. Management also proposes that, after the FPA has been in effect for two years, it will review implementation experience with this new approach to take into account the views of member governments, UN agencies, donors, Bank staff, and other stakeholders. Management will then discuss the findings of the review with the Executive Directors, along with suggestions on any needed modifications.

57. Next Steps. Since the FPA is consistent with provisions of OP 8.00 relating to alternative implementation arrangements and the provisions for accommodating different types of arrangements at the grant account or disbursement level envisioned in the new OP 14.40 (here a hybrid trust fund with a FIF window for FPA grants, and a RETF window for all recipient

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government-executed activities), the FPA does not require any policy exceptions or changes. Following this discussion with the Executive Directors, the WB and UN will finalize and sign the FPA in accordance with the parameters set out in this paper.

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DRAFT ANNEX A

PARTNERSHIP FRAMEWORK ON UN/WB COOPERATION IN CRISES AND POST-CRISIS SITUATIONS

Preamble The [title of signatory on behalf of United Nations] and the [title of signatory on behalf of World Bank], conscious of the critical and complementary roles that our respective organizations play in supporting early and sustainable recovery during and after crises, are committed to strengthening the partnership between our organizations in order to make the international response in these contexts more effective and sustainable. In pursuit of the goals set out in the United Nations Charter, the United Nations galvanizes the international community in response to crisis and post-crisis situations and engages in a variety of activities, including humanitarian assistance delivery and coordination, support to national reconciliation, re-establishment and maintenance of peace and security, transitional political processes, democratic governance, recovery and development Consistent with its mandate for reconstruction and development, the World Bank is a major financier of activities which support national institution-building, economic and social resilience and recovery in countries vulnerable to natural disaster and conflict. We recognize the interdependence of such activities and the importance of integrated political, security and development frameworks in pursuit of lasting recovery and achievement of the Millennium Development Goals. Developments within the World Bank and United Nations have improved the opportunities for our productive partnership. The United Nations has put in place structures and processes to ensure a more integrated UN approach and effective delivery in crisis and post-crisis contexts, including efforts to “deliver as one”, integrated planning processes, an evolving architecture for peace-building and humanitarian reform. The World Bank has developed new policies and tools to strengthen the speed and effectiveness of its response to crisis and post-crisis situations. Building on these measures, we welcome progress already underway to strengthen cooperation between the World Bank and United Nations entities. Important practical synergies have been achieved, in cooperation with national authorities, in situations such as DRC, Haiti, Liberia and the disaster-affected regions of Indonesia. In-country collaboration is supported by increased strategic coordination and collaborative policy development at Headquarters, including the establishment of joint approaches to post-conflict needs assessments and recovery planning, and World Bank participation in the Peace-Building Commission. The World Bank and the United Nations have also collaborated in contributing expertise and advice on development and economic aspects of peacemaking and post-crisis economic governance. Our partnership will vary depending on the specific context, evolution of crisis situations and the range of national and international partners involved. A flexible approach will remain the hallmark of an effective response. Our partnership can be further enhanced through clarifying the basic principles for our collaboration and strengthening mechanisms for strategic and operational

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coordination and cooperation. These include regular communication, strategic and operational planning, financial interoperability, and the deepening of a culture of collaboration.

A. Guiding principles

The United Nations and the World Bank support the following principles in our respective engagement in crises contexts:

• Our roles and mandates differ, but our efforts are interdependent and must be mutually reinforcing.

• Integrated efforts are particularly important in working with national authorities and partners to strengthen national capacity for effective prevention and response and to support the implementation of national recovery and development strategies that encompass political, security, human rights, economic and social dimensions within the framework of the rule of law and good governance and within each institution’s mandate.

• We need to be flexible to respond to different country needs, taking into consideration the country context, national priorities, UN-mandated tasks, appropriate division of labor and the role of other regional and international partners.

• Regarding humanitarian action undertaken by the United Nations and its partners, the recognized humanitarian principles of neutrality, impartiality and independence will be respected.

B. Strengthening our collaboration in post-crisis settings

An effective strategic and operational partnership will be facilitated, inter alia, by progress in an initial four priority areas: 2.1 Communications. The United Nations and the World Bank will strengthen mechanisms for ensuring consistent and effective institutional contacts in crisis and post-crisis situations, inter alia through the following communications protocol:

• In the event of a crisis or a significant change in country circumstances, immediate contacts are made between the senior World Bank and UN officials in the country (normally the Country Director or Country Manager for the World Bank and the SRSG and Resident/Humanitarian Coordinator for the United Nations).

• At headquarters, agreed institutional points of contact and liaison between appropriate country desks support communications at country-level.

• Institutional points of contact are responsible for ensuring effective information sharing and coordination between headquarters and field offices, including attention to issues that cannot be resolved at the country level, and for on-going communication.

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• Regular country level communications between the World Bank and UN officials is maintained through existing coordination mechanisms, such as the UN Country Team.

2.2 Assessment, planning, and operational frameworks. Many of the planning processes for United Nations and/or World Bank support to countries in crisis and post-crisis situations are undergoing reform. The United Nations and the World Bank recognize that early strategic dialogue and engagement is an essential foundation that can be built upon as crisis management and recovery efforts move from planning to implementation, and agree to:

• Within existing frameworks to support national ownership, and with due respect to humanitarian principles, work to bring strategic planning and assessment processes into closer coordination across the political, security, development and humanitarian spectra, including participation in respective planning processes and the development of shared benchmarks/results frameworks and joint processes for monitoring and review.

• As part of this effort, use a common methodology for post-conflict and post-disaster needs assessments and a coordinated approach to recovery and planning.

• Collaborate in the analysis and presentation of external financing needs, including linkages between the relevant components to be funded.

2.3. Financing policies and procedures. The United Nations and the World Bank recognize that efforts to strengthen collaboration around funding mechanisms, as well as to resolve current problems with the lack of interoperability between their legal and fiduciary frameworks, are critical to enhance opportunities for collaboration. The United Nations and the World Bank welcome efforts to develop appropriate fiduciary arrangements, such as the fiduciary principles accord (FPA). 2.4 A culture of collaboration. In order to strengthen the culture of collaboration and promote cross-fertilization between the two institutions, the United Nations and the World Bank will:

• Participate in relevant respective training programmes for Headquarters and field

personnel, and develop, as appropriate joint training programmes to enhance staff understanding of shared approaches as well as instruments and approaches related to each organization’s differing areas of mandate and competence;

• Conduct joint events and regular briefings on crisis and post-crisis approaches; and • Conduct joint lessons learned exercises, joint missions where appropriate, and

collaborative research and assessments. The United Nations and the World Bank agree to review the partnership periodically—both globally as well as in the context of specific country experiences—in order to adjust institutional arrangements, document good practices, identify opportunities and constraints, and assure continual attention to the impact of our collaboration on the effectiveness of the crisis and post-crisis response.

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ANNEX B

FIDUCIARY PRINCIPLES ACCORD The Organisations of the World Bank each separately executing this Fiduciary Principles Accord, and the Organisations and subsidiary organs of the United Nations System each separately executing this Fiduciary Principles Accord A. Committed to closer collaboration in all aspects of their work in order to be better partners to member countries and in order to deliver assistance and support more effectively and more sustainably; B. Taking account of the unique role that each of them has in providing development (and in the case of the organisations of the United Nations System, also humanitarian assistance) and their respective comparative advantages in particular aspects of such assistance; C. Recalling that each of them has been established by, is governed by, and is accountable to, its respective member countries; D. Recalling further that each of them has fiduciary duties with respect to funds entrusted to it; E. Building on prior initiatives (including the Financial Management Framework Agreement between the World Bank and the United Nations dated 10 March 2006) to reduce transaction costs associated with operational aspects of their partnership and to improve the mobilization and disbursement of financial resources in particular from donor-supported trust funds during crisis and post-crisis, and emergency and humanitarian, situations.

Now agree as follows: Assurances of Sound Fiduciary Framework and Accountability and Oversight Framework

1. Each signatory to this Fiduciary Principles Accord (this “FPA”) assures each other signatory to this FPA that it has a sound fiduciary framework and accountability and oversight framework; 2. More particularly, each signatory to this FPA:

a. gives the following assurances to each other signatory to this FPA:

I. that its regulations, rules, procedures and administrative practices for: (A) financial management, including audit and control frameworks; (B) procurement; (C) programme or project design, implementation, and monitoring; and (D) prevention of fraud and corruption, are consistent with sound standards and practices, as more fully set forth in Annex 1 to this FPA;

b. gives the following undertakings to each other signatory to this FPA:

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I. that should it become aware of information that indicates the need for further scrutiny of its use of funds to which this FPA applies (including allegations of corrupt, fraudulent, coercive or collusive practices in connection with use of such funds), it will (A) notify the signatory to this FPA from which it received such funds and will inform it of the actions being taken as a result, and (B) give additional assurances to that disbursing organisation, through senior-level consultations, that its oversight and accountability mechanisms have been and are being fully applied in connection with such information, as is more fully set out in the applicable agreements referred to in Article 6 below; II. that for so long as it is a signatory to this FPA it will make available to the United Nations Development Operations Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services a copy of its audited financial statements and external auditors’ report on its financial statements within ten (10) days of such becoming public documents;

III. that it will re-state these assurances and undertakings every two (2) years, counted from the date it signs this FPA; and

IV. that it will notify the other signatories of this FPA promptly upon concluding either that it is no longer able to give the assurances set out in paragraph 2(a) above or that it is no longer in a position to provide the undertakings set forth in this paragraph 2(b), whereupon it will be deemed to have withdrawn from this FPA as of the day such notice has been received by both the United Nations Development Operations Coordination Office and the date such notice is received by the Office of the World Bank’s Vice-President, Operations Policy and Country Services.

Reliance; Standard Disbursement Agreement Terms

3. Each signatory to this FPA that disburses funds to another signatory to this FPA will, in the discharge of its fiduciary duties with respect to the funds disbursed, rely on the recipient organisation’s assurance of the soundness of the receiving organisation’s fiduciary framework and accountability and oversight framework. Funds so disbursed will therefore be received, administered, managed, expended, reported on, and audited, in accordance with the regulations, rules, procedures and administrative practices of the receiving organisation, including those relating to direct and indirect costs (including indirect programme support costs) and interest, and will be subject to the applicable agreement referred to in Article 6 below.

Entry into Force; Participation in this FPA and Withdrawal

4. This FPA will enter into force on the day on which one Organisation of the World Bank has signed this FPA and delivered it to both the United Nations Development Operations Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services and one Organisation or subsidiary organ of the United Nations System has signed this FPA and delivered it to both the United Nations Development Operations

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Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services. Other international financial institutions and multilateral intergovernmental organisations, and other Organisations of the United Nations System and their subsidiary organs, may become signatories to this FPA by delivering an executed copy of this FPA in accordance with this Article 4. A signatory to this FPA will be bound by the terms of this FPA as of the day on which it has delivered an executed copy of this FPA to both the United Nations Development Operations Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services. 5. A signatory to this FPA may withdraw from this FPA by delivering a written notice of withdrawal to the officials referred to above, with its withdrawal being effective as of the day on which such notice has received by both the United Nations Development Operations Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services. A signatory to this FPA will be deemed to have withdrawn from this FPA in the circumstances set out in Article 2(b)(IV) above. A signatory’s withdrawal from this FPA may result in termination of any ongoing agreement it has entered into pursuant to this FPA, consistent with the terms and conditions of such agreement.

Application; Standard Forms of Documentation 6. The provisions of this FPA will apply to funds: (a) disbursed either (I) by one of the Organisations of the World Bank signing this FPA to one of the Organisations or subsidiary organs of the United Nations System signing this FPA, or (II) by one of the Organisations or subsidiary organs of the United Nations System signing this FPA to one of the Organisations of the World Bank signing this FPA; that are (b) from a donor-supported trust fund administered by the disburser for crisis and post-crisis, or emergency or humanitarian, interventions; and (c) whether or not the disbursement constitutes a grant to the receiving organisation or a sub-grant to the receiving organisation.

7. The following standard forms of documentation, to be used in cases to which this FPA applies, are attached as Annex 2: a standard disbursement agreement, to be used for disbursements in category (a)(I) referred to above; and a standard Memorandum of Understanding to be used for disbursements in category (a)(II) above. The documents attached as Annex 2 may be amended from time to time by the written agreement of all the signatories to this FPA. 8. Nothing in this FPA shall prevent any two signatories to this FPA from agreeing, in appropriate circumstances and following such consultations as may be required under their respective internal procedures, to apply this FPA to the disbursement of any funds from one to the other, and from using such documentation for that disbursement as they may agree.

Periodic Review 9. The signatories to this FPA agree to meet from time to time, and no less frequently than once every two years, to review the implementation of this FPA and, if it is felt necessary, to

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consult as to possible changes to this FPA, which changes will come into effect if adopted by all signatories to this FPA. Additional Provisions 10. Each executed copy of this FPA will be made publicly available on a dedicated internet site maintained jointly by the United Nations Development Operations Coordination Office and the Office of the World Bank’s Vice-President, Operations Policy and Country Services.

Dated as of [ ] October 2008 /s/ Food and Agriculture Organisation International Bank for Reconstruction and Development International Development Association International Labor Organisation Office of the United Nations High Commissioner for Refugees United Nations Children’s Fund United Nations Development Programme United Nations Educational, Scientific, and Cultural Organisation United Nations Environment Programme United Nations Human Settlement Programmes (UN-Habitat) United Nations Office for Project Services United Nations Population Fund World Food Programme World Health Organisation

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ATTACHMENT 1

COMPONENT 1: FINANCIAL MANAGEMENT PRINCIPLES The organisation maintains sound financial management systems and arrangements to

ensure that funds are used for the purposes intended with due attention to considerations of economy and efficiency and value for money. The organisation’s financial management systems and arrangements (which include its budgeting, accounting, internal controls, funds flow, financial reporting and internal and external auditing arrangements, and related policies, procedures and practices): facilitate the preparation of regular, timely and reliable financial statements; support the provision of a complete, true and fair record of all transactions and balances, including those relating to funds to which this FPA applies; safeguard assets, including assets financed by funds to which this FPA applies; and are subject to internal and external auditing arrangements in line with internationally accepted standards.

The organisation’s auditing arrangements allow, on an exceptional basis, for its external

auditors to be requested to perform a special examination. The organisation continuously undertakes appropriate measures, including capacity

strengthening, to mitigate risks posed by any weakness identified in its financial management systems and arrangements. COMPONENT 2: PROCUREMENT POLICIES AND PROCEDURES

The organisation’s procurement policies and procedures: require procurement actions to be taken on the basis of economy and efficiency, and value for money (with due consideration towards promotion of sustainable and competitive markets); require transparency to the maximum extent possible consistent with achieving all other goals of a sound procurement system; and have appropriate procedures for all different types of procurement (goods, works, consulting and non-consulting services etc.).

These procurement policies and procedures provide for a range of procurement

modalities including but not limited to open competitive bidding, invitation to bid issued to pre-qualified suppliers selected by the organisation, and single sourcing. In the case of open competitive bidding, the organisation’s procurement policies and procedures provide for timely and effective notification of bidding opportunities, use of bidding documents that clearly identify all requirements and evaluation criteria, and award based on those criteria as set forth in the bidding documents. The organisation may also have provisions for acceptance of unsolicited approaches from potential suppliers to be pre-qualified.

The organisation’s contract documents clearly define the contracting parties’ rights and

obligations. The organisation’s procurement policies and procedures also provide for publication of

award of contract in appropriate cases.

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The organisation’s procurement policies and procedures ensure clear identification of authority to take procurement actions and accountability for such actions. The organisation’s procurement policies and procedures and other applicable regulations, rules, and procedures, provide appropriate processes and structures for monitoring and evaluation of procurement actions and performance, and enable reporting of problems and complaints to officials with authority to address such problems based on appropriate mechanisms and in a timely manner and, where appropriate, provide for remedies. The organisation’s procurement policies and procedures do not prevent it from determining, through disclosure by potential contractors or vendors, whether a party to which it is considering issuing a contract is subject to any sanction or temporary suspension imposed by any organisation within the United Nations System including the World Bank. COMPONENT 3: PROGRAMME OR PROJECT DESIGN OR PREPARATION, IMPLEMENTATION

AND MONITORING

Programme or Project Preparation and Implementation

The organisation’s programmes or projects are based on the organisation’s mandate; are based on policies and procedures for programme and project design or preparation and implementation that are transparent and publicly available; are developed through a process that includes as appropriate participation by and consultation with relevant stakeholders including member government counterparts and others; are designed to avoid, mitigate, or minimize adverse environmental and social impacts; are based on a results-based approach or a similar conceptual approach; are focused on results; have objectives, indicators of achievement and assumptions that are clearly stated; have performance measures based on objectives that are specific, measurable, attainable, realistic and time-bound; include a monitoring and evaluation plan; and are subject to review and approval prior to implementation.

Reporting Arrangements

The organisation’s programme or project reporting requirements include a narrative progress report as well as a financial progress report, including financial statements, covering the whole programme or project. The narrative progress report is required to include: a summary of the programme or project and the context within which the programme or project is implemented; the activities actually carried out during the reporting period; any challenges encountered and measures taken to overcome challenges; changes introduced in implementation, including changes in the budget; achievements and results of the programme or project with reference to identified indicators; and the work plan for the following period. The organisation requires such reports as frequently as is necessary to ensure the reports are useful management tools and to provide meaningful reports and assessments of progress, achievements, and challenges.

Monitoring and Evaluation Arrangements

The organisation’s programme and project monitoring arrangements are designed to

ensure frequent monitoring of the implementation of its programmes or projects to test for on-

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going progress and the achievement of outcomes as planned. The organisation’s evaluation function (or its equivalent), while appointed by management, operates without interference or instruction by management and has access as it deems necessary to the member countries or shareholders. The organisation’s evaluation function uses the appropriate evaluation methodology for the programme or project being evaluated, and options may include desk evaluations, in-depth evaluations, and evaluations conducted mid-term, terminal or ex-post.

COMPONENT 4: ADDRESSING FRAUD AND CORRUPTION

The organisation’s officials are: subject to staff regulations, rules, procedures and administrative instructions that prohibit unethical conduct, fraud, and corruption; required, above an appropriate level of seniority and responsibility, to provide disclosure of financial interests so as to mitigate significantly the risk to the financial assets under the organisation’s control; expected to conduct themselves in accordance with the organisation’s code of conduct.

The organisation’s regulations, rules, procedures and administrative practices provide for

reasonable measures, consistent with its rules, procedures and administrative practices, to prevent and address any information that indicates the need for further scrutiny (including corrupt, fraudulent, coercive or collusive practices) in connection with its activities and operations.

The organisation has established mechanisms for significantly mitigating the risk of fraud

and corruption in its activities and operations including a “hotline” to receive allegations of fraud or corruption; protection for whistleblowers against retaliation; and an internal investigations function that, while appointed by and reporting to management, operates without interference or instruction by management.

The organisation has appropriate mechanisms in place to exclude firms or individuals

determined by it to have engaged in fraudulent or corrupt activities from participation in contracts with such organisation, whether indefinitely or for a specified duration; and is not prevented from giving due regard to similar decisions by other international organisations, including organisations that are signatories to this FPA.

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ANNEX C

COMPARISON OF RETF WINDOW AND FPA-BASED FIF WINDOW

Characteristic RETF Window FPA-based FIF Window Responsibility for project approval

Normally, WB as trustee (at times with involvement of MDTF Governing Body (the “TFGB”)).

TFGB.

Policies and requirements applicable to implementation of activities

All Bank Operational Policies. UN’s own policies/procedures.

Responsibility for preparation and Implementation

Recipient (usually government). UN.

Responsibility for appraisal and implementation supervision

Bank, using its policies for project appraisal and supervision.

UN, subject to TFGB’s (i) endorsement of project proposal, and (ii) monitoring of implementation progress, based on UN’s periodic financial and progress and results reports consolidated by TF administrator.

Disbursement Bank disburses to recipient using its standard disbursement policies, including a review of supporting documentation for eligible expenses.

Bank disburses to UN at agreed intervals, but monitors disbursements against agreed budgets and periodic financial reports.

Treatment of fraud and corruption

(a) Bank definitions of fraud and corruption apply;

(b) Allegations of fraud and corruption are subject to INT investigations and Bank sanctions;

(c) Firms debarred by the Bank are not eligible for funding.

(a) Definitions of fraud and corruption are same as the Bank’s;

(b) Allegations of fraud and corruption are not subject to INT investigations; instead, UN agency will address such allegations using its own procedures (including its own investigation), subject to the requirements to notify the WB of such allegation, inform it of actions taken and their outcomes, and elevate to senior-level consultations at the Bank’s request to address any questions/issues;

(c) UN agencies would require contractors to notify them if they have been debarred by the Bank and take due regard of such debarment in their contracting decisions; if a UN agency still wants to proceed with contracting a debarred party, the Bank could refuse to fund the contract by notice to the UN agency concerned.

Monitoring and reporting Recipient submits financial and implementation progress reports, agreed with Bank, against agreed results/ benchmarks.

UN submits financial and implementation progress and results reports, agreed with TFGB, against agreed benchmarks.

Content and process for exercising remedies

Standard Bank remedies exercised on the basis of the Bank’s decision as TF administrator in line with its

Suspension, termination, and request for a refund of misused funds that UN recovers using its own procedures, triggered by TF administrator, in consultation with TFGB, normally after conclusion

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Characteristic RETF Window FPA-based FIF Window operational policies. of the resolution process to address any serious

issues, including fraud and corruption.

Role of donors Standard as per Administration Agreement.

(a) Review and approve project proposals to be implemented by UN using its rules and procedures.

(b) Monitor project implementation on the basis of periodic UN financial and progress and results reports, consolidated by the TF administrator, and participate in consultations with TF administrator re issues resolution and application of remedies.

Role of Bank Appraisal and supervision of project implementation by grant recipient using the Bank’s operational policies (including appraisal, supervision, and fiduciary and safeguard policies).

(a) Exercise of specific rights vis-à-vis UN and obligations vis-à-vis the donors in monitoring UN’s compliance with its reporting and issue-resolution obligations under legal agreements to which the FPA applies.

(b) Consolidate UN periodic financial and progress implementation and results reports for TFGB and consult donors on any issues that may arise, including application of remedies.

Role of the Government Implementation of project activities following the Bank’s policies and under Bank’s supervision.

(a) Requesting/agreeing to UN implementation of specific activities on its behalf.

(b) Normally, as part of the TFGB, reviewing and approving a proposal for UN implementation, reviewing implementation progress, and participating in consultations on issues resolution, including application of remedies.