Public Disclosure Authorized - The World...

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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 56355-PH

PROJECT PAPER

ON A

PROPOSED ADDITIONAL LOAN

IN THE AMOUNT OF US$59.124 MILLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR

KAPITBISIG LABAN SA KAHIRAPAN – COMPREHENSIVE AND INTEGRATED DELIVERY OF SOCIAL SERVICES PROJECT

August 29, 2010

Philippines Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS (Exchange Rate Effective April 20, 2010)

Currency Unit = Peso Php 44.56000 = US$1

FISCAL YEAR

January 1 –

December 31

ABBREVIATIONS AND ACRONYMS 4Ps Pantawid Pamilyang Pilipino Project (conditional cash transfer program) AF Additional Financing ACT Area Coordination Team ADSDPP Ancestral Domain Sustainable Development and Protection Plan BLGU Barangay Local Government Unit BSPMC Barangay Sub-project Management Committee CAS Country Assistance Strategy CBO Community-Based Organizations CCT Conditional Cash Transfer CDD Community Driven Development CEAC Community Empowerment Activity Cycle CIDSS Comprehensive and Integrated Delivery of Social Services COA Commission on Audit CPM Community-based Procurement Sub-manual CSO Civil Society Organization DA Designated Account DBM Department of Budget and Management DENR Department of Environment and Natural Resources DILG Department of the Interior and Local Government DSWD Department of Social Welfare and Development e-NGAS Electronic-New Government Accounting System FAM Finance and Administration Manual FM Financial Management FMR Financial Management Report FPIC Free and Prior Informed Consent GAD Gender and Development GOP Government of the Philippines IA Implementing Agency IAS Internal Audit Services IBRD International Bank for Reconstruction and Development IDA International Development Association IFR Interim Financial Report IP Indigenous People IRA Internal Revenue Allotment ISR Implementation Status Report KALAHI Kapitbisig Laban sa Kahirapan KC KALAHI-CIDSS

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KCAF KALAHI-CIDSS Additional Financing KPI Key Performance Indicator LGU Local Government Unit MCC Millennium Challenge Corporation MCT Municipal Coordination Team MDC Municipal Development Council MDP Municipal Development Plan M & E Monitoring and Evaluation MIAC Municipal Inter-Agency Committee MIBF Municipal Inter-barangay Forum MIS Management Information System MLGU Municipal Local Government Unit MOA Memorandum of Agreement MT Makamasang Tugon MTPDP Medium-Term Philippine Development Plan NAPC National Anti-Poverty Commission NCA Notice of Cash Allocation NCIP National Commission on Indigenous Peoples NSC National Steering Committee NSCB National Statistical Coordination Board NTWG National Technical Working Group NEDA National Economic and Development Authority NGO Non-governmental Organizations NPMO National Project Management Office ODA Official development assistance OM Operations Manual O&M Operations and Maintenance PDO Project Development Objective PLGU Provincial local government unit PMO Project Management Office PO People's Organization PSA Participatory Situational Analysis RPMO Regional Project Management Office SOE Statements of Expenditure SP Sub-project SWDRP Social Welfare and Development Reform Project TWC Technical Working Committee

Vice President: James W. Adams Country Director: Bert Hofman

Sector Director John A. Roome Sustainable Development Leader: Mark C. Woodward

Task Team Leader: Andrew N. Parker

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PHILIPPINES

Kapitbisig Laban Sa Kahirapan – Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS) Project

CONTENTS

A. Introduction ................................................................................................................ 8

B. Background and Rationale ....................................................................................... 8

C. Proposed Changes .................................................................................................... 10

D. Consistency with CAS ............................................................................................. 15

E. Appraisal of Restructured and Scaled Up Project Activities .............................. 15

F. Expected Outcomes ................................................................................................. 20

G. Benefits and Risks .................................................................................................... 20

H. Financial Terms and Conditions for the Additional Financing .......................... 22

ANNEXES

Annex 1: Implementation Status and Results Ratings ................................................ 16

Annex 2: Results Framework and Monitoring ............................................................ 17

Annex 3: Monitoring and Evaluation Framework ...................................................... 27

Annex 4: Financial Management and Disbursement Arrangements ......................... 35

Annex 5: Map IBRD 33466…………………………………………………………….50

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PHILIPPINES

KALAHI-CIDSS (ADDITIONAL FINANCING) PROJECT

PROJECT PAPER

EAST ASIA AND PACIFIC

EASPS

Basic Information (Original Project) Project ID: P077012 Project Name: Kapitbisig Laban sa Kahirapan-

Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS) Project

Team Leader: Andrew Parker Expected Closing Date: May 31, 2011 Environmental category: B Partial Assessment

Lending Instrument: Specific Investment Loan Joint IFC: Joint Level:

Basic Information (Additional Financing)

Date: September 28, 2010 Team Leader: Andrew Parker Country Director: Bert Hofman Sector Manager/Director: Mark C. Woodward

Sectors: Water supply (40%); General transportation sector (40%);Other social services (20%) Themes: Participation and civic engagement (33%); Rural services and infrastructure (33%); Conflict prevention and post-conflict reconstruction (17%); Indigenous peoples (17%)

Project ID: P114048 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Additional Financing Type: Scale Up,

Restructuring Joint IFC: Joint Level:

Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 59.124 Proposed terms: IBRD Flexible Loan with variable-spread, commitment-linked and level repayment schedule, 25 years of total maturity including a grace period of 10 years.

Source Local Foreign Total Financing Plan (US$m)

Borrower 45.700 0.00 45.700 International Bank for Reconstruction and Development

59.124 0.00 59.124

Total: 104.824 0.00 104.824 Borrower:

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Responsible Agency: Department of Social Welfare and Development Constitution Hills, Batasan Complex Philippines Tel: (63-2) 931-8101 Fax: (63-2) 931-8191 [email protected]

Estimated disbursements (Bank FY/US$m) FY 2011 2012 2013 Annual 29.500 23.300 6.324 Cumulative 29.500 52.800 59.124 Project implementation period: Start: January 1, 2011 End: May 31, 2014 Expected effectiveness date: December 16, 2010 Expected closing date: May 31, 2014

Does the project require any exceptions from Bank policies? Ref. Section Appraisal of Project Activities Have these been approved by Bank management?

[ ]Yes [X] No [ ]Yes [ ] No

Does the project include any critical risks rated “substantial” or “high”? Ref. Section Project Risks and Mitigating Measures

[ ]Yes [X] No

Project development objective Ref. Section Bank Response Empower local communities in targeted poor municipalities and selected urban areas to achieve improved access to sustainable basic public services and to participate in more inclusive Local Government Unit (LGU) planning and budgeting. Project description [one-sentence summary of each component] Ref. Section Bank Response Building on the Project's strong performance, the Additional Financing (AF) will expand the project's reach to 220 of the poorest municipalities within the 42 poorer provinces already covered. The AF will also introduce the following key enhancements to further improve project impact: (i) a reformulation of the Project Development Objective (PDO) to better capture the focus on community empowerment, (ii) strengthening the roles of the municipal local government units to integrate the key principles and mechanisms of KALAHI-CIDSS in local development planning; (iii) systematizing the engagement with the provincial local government units; (iv) the design and testing of the a CDD approach in urban areas, and (v) further simplification of the project's key performance indicators linked to a strengthened monitoring and evaluation system. The Additional Financing will support the original three (3) components with one additional component to cover the pilot-testing of the urban KALAHI-CIDSS as follows: a. Component 11 – Grants to Barangays in Rural Areas, will include not only direct sub-project investment grants but also technical assistance funds for communities and to cover the costs of capacity building activities for community volunteers; b. Component 2 - Capacity Building and Implementation Support will cover: (i) the costs incurred by Area Coordination Teams that support community facilitation activities,; (ii) capacity building for barangay and municipal LGUs; and, (iii) a clearly defined set of social accountability activities, covering the grievance redress system, third-party monitoring, and active information disclosure. c. Component 3 – Grants to Barangays in Urban Areas will support the project's piloting of 1 Project components 1-4 are equivalent to project parts A-D used in the project Loan Agreement.

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a KALAHI-CIDSS model in urban poor communities. d. Component 4 - Project Management and Monitoring and Evaluation focuses on the project costs that are specifically related to DSWD's management and monitoring of the project. Which safeguard policies are triggered, if any? Ref. Section Appraisal of Project Activities The original Project triggered three (3) safeguard policies: Environmental Assessment (OP/BP4.01), Indigenous Peoples (OP/BP4.10) and Involuntary Resettlement (OP/BP4.12). The same safeguards policies are expected to apply to the proposed Additional Financing as the same type and nature of subprojects will be supported and there would be no changes in the original project design. The project would retain its Category B environmental classification. No significant potentially adverse environmental impacts on communities or their surrounding areas are anticipated. The original project was in compliance with the safeguards covenants in the Loan Agreement. Bank supervision has consistently rated safeguards performance as satisfactory with no major issues. All sub-projects undergo screening to determine environmental risks or issues and proper mitigation measures were formulated by the community and reflected in the Environmental Management Plan as part of the sub-project design. No involuntary resettlement took place, nor is it anticipated under the AF, as nearly all sub-projects financed were small-scale infrastructure that required minimal land acquisition. Although the project has been compliant with all safeguards policies, the National Project Management Office prepared an enhanced Environmental Impact Assessment Guidelines, Indigenous Peoples Planning Framework and Land Acquisition and Resettlement Policy Framework to reflect the enhancements/innovations based on seven years of implementation. The enhanced safeguards instruments were disclosed locally through DSWD website (April 15, 2010) and through the Bank Infoshop (April 16, 2010) Significant, non-standard conditions, if any, for: Board presentation: None For effectiveness: (a) the Borrower has revised the Operations Manual (excluding its sub-manuals) in a manner acceptable to the Bank, in order to take into account the overall revisions in Project implementation and management arrangements from the Original Project to this Project; and (b) the Borrower has furnished to the Bank an Annex to the Project Implementation Manual, satisfactory to the Bank listing the additional provinces, and municipalities therein, eligible to participate in the Project Dated Covenant: The Borrower shall, not later than 6 months after the Effective Date, furnish to the Bank the fully revised Operations Manual, including all sub-manuals, and the fully revised Project Implementation Manual, all acceptable to the Bank.

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A. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide additional financing (AF) in the amount of $59.124 million to the Government of the Philippines for the Kapitbisig Laban Sa Kahirapan–Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS) Project (IBRD Loan No. 7147PH).

2. The proposed AF would support the restructuring and scaling up of the parent project through the following: (i) expansion of the project’s coverage to 220 of the poorest municipalities across 42 of the poorest provinces; (ii) adoption of two enhanced implementation modalities designed to support greater devolution to municipal local government units (MLGUs) and to pilot the KALAHI-CIDSS in selected urban poor communities; and, (iii) enhancements to the monitoring and evaluation framework.

Background and Rationale

3. Parent project. The original KALAHI-CIDSS Project was approved by the Board on August 23, 2002, with a loan amount of US$100.0 million and was declared effective on December 16, 2002. The initial closing date of June 30, 2009, was extended to May 31, 2011. The original development objective of the KALAHI-CIDSS project is to strengthen local communities’ participation in barangay2 governance, and develop their capacity to design, implement and manage development activities that reduce poverty.

4. Project implementation performance. Project implementation progress and progress toward achieving the project development objective have been generally rated satisfactory (Annex 1). The ISR rating in 2008 was “moderately satisfactory” due to slow disbursement and financial management issues. The ISR rating for 2009 was improved to “satisfactory” after disbursements picked-up and FM issues were resolved (as explained in paragraph 31). The project is on track to meet or exceed most of its key performance indicators (Annex 2). Total disbursements as of March 31, 2010, reached $90.36 million. The project is in full compliance with all loan covenants. Key results of the project to date include:

a. Attained full-scale implementation in 2006 with a coverage of 4,229 barangays (villages) in 184 municipalities of the poorest 42 provinces, with almost all barangays committing to sustain the participatory processes introduced by the Project.

b. Financed 5,326 community sub-projects which benefited approximately 1.1 million households. About 50 percent of the sub-projects were basic social services facilities (e.g., water system, school buildings, health station and day care centers), with 28 percent for basic access infrastructure, such as access roads and small bridges. The rest of the sub-projects were community

2 A barangay is the smallest administrative division in the Philippines and is also the Filipino term for a village. It is the level of political representation closest to the people and is governed by barangay officials headed by an elected Barangay Captain and barangay councilors.

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enterprise facilities (12 percent) and environmental and disaster control infrastructure (10 percent). As of March 31, 2010, 99 percent of the sub-projects have been completed. A total of approximately $121 million has been invested in community sub-projects, leveraging more than $38 million in local counterpart contribution equivalent to 31 percent of the total sub-project cost. In addition, about 17 percent of the barangays have accessed funding from other sources to support their priority sub-projects.

c. Achieved a high level of sustainability indicated by a sustainability evaluation that showed 96 percent of a sample of 611 completed sub-projects was rated excellent or satisfactory. In addition, the project carried out functionality audits of 3,882 completed sub-projects, of which 87 percent were rated functional.

d. Initial positive results of the use of CDD approaches were documented by an independent impact evaluation of KALAHI-CIDSS (Lebonne and Chase, 2009). The participatory processes applied have led to positive changes in villages’ social and institutional dynamics. In particular, frequency of interaction between villagers and local officials has increased, suggesting an increase in the level of trust in local authorities. The results from the endline studies for the impact evaluation will be available during 2010.

5. Rationale for Additional Financing. The Government of the Philippines (GOP) is requesting AF to maintain the momentum of implementation by scaling up the geographic coverage and restructuring to enable more flexible implementation modalities. The AF would also permit implementation to continue during the political transition resulting from the general election in May 2010.

6. Geographic expansion. The AF would contribute to the scaling up of KALAHI-CIDSS into a nationwide CDD program, as envisioned in the current Country Assistance Strategy. The parent project covered 184 out of a total of 803 municipalities in 42 of the poorest provinces. Given the continuing high rates of poverty, the AF aims to expand the current coverage to reach a total of about 220 rural municipalities—most of which have a poverty incidence of 50 percent or greater—in the existing 42 provinces. A proposed grant from the Millennium Challenge Corporation3 (MCC) would increase the overall coverage of the KALAHI-CIDSS program to 367 municipalities across 48 provinces.

7. Enhanced implementation modalities. While the core operational approaches and systems, as defined in the project’s operations manuals and procedures, have proved successful and remain valid, the AF would utilize two enhanced modalities. First, an LGU-led CDD approach (called Makamasang Tugon (MT) in Filipino meaning “mass-based approach”) for previously supported municipalities that meet performance and

3 Millennium Challenge Corporation was created by the United States Congress in 2004 as an independent aid agency that provides assistance for poverty reduction.

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governance criteria4, and which was piloted under the parent project, would be formally adopted in the AF to support a more devolved, cost-effective implementation model. The MT approach is designed to give greater responsibility and authority to municipalities over program implementation at the local level, while retaining the Department of Social Welfare and Development’s (DSWD’s) monitoring and oversight functions. Second, the AF would support piloting of the KALAHI-CIDSS in selected urban poor communities which, although part of the original design of the KALAHI-CIDSS, was not implemented due to operational constraints.

Proposed Changes

8. Restated Project Development Objective (PDO). To better reflect the project’s core objective of community empowerment, it is proposed to restate the PDO from: “Strengthening local communities’ participation in barangay governance, and developing their capacity to design, implement and manage development activities that reduce poverty” (KALAHI-CIDSS Project Appraisal Document, p. 2) to “Empower local communities in targeted poor municipalities and selected urban areas to achieve improved access to sustainable basic public services and to participate in more inclusive Local Government Unit (LGU) planning and budgeting”. The restated PDO statement is intended to clarify and more sharply focus on the empowerment aspects of the project, while also introducing an element to better reflect the project’s current efforts to support LGUs in responding to community needs. Nearly all of the key performance indicators have been retained while others have been refined for clarity. New indicators are included to track progress towards the institutionalization of participatory approaches at barangay and municipal levels, which would be implemented through the LGU-led CDD approach.

9. Project components5. The AF would support the original three project components and would add a specific component to support pilot-testing of the urban KALAHI-CIDSS modality. To ensure alignment of proposed project activities with the revised PDO and Results Framework, the Project components would be adjusted as follows:

Component 1: Grants to Barangays in Rural Areas (US$50.000 million-IBRD). The component would have two sub-components: (i) planning grants to support communities in the identification of barangay needs and assessment of local resources and capacity, which would cover costs associated with community mobilization, preparation of proposals by community volunteers as well as project operations, maintenance and community-based monitoring, and (ii) investment grants to fund sub-projects selected by communities.

Component 2: Capacity Building and Implementation Support (US$1.700 million-IBRD). The component will cover: (i) Social mobilization activities following the “Community Empowerment Activity Cycle” (CEAC) put in place

4 In partnership with the Department of the Interior and Local Government, the MT was pilot-tested starting in 2008 in 33 municipalities that were selected using a set of filters designed to assess the performance of a municipal LGU in localizing the principles and key features of KALAHI-CIDSS. 5 Project components 1-4 are equivalent to project parts A-D used in the project Loan Agreement.

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during the first phase of project implementation; (ii) capacity building for staff of barangay and municipal LGUs (B/MLGUs); and, (iii) a clearly defined set of social accountability activities, covering the grievance redress system, third-party monitoring, and active information disclosure.

Component 3: Grants to Barangays in Urban Areas (US$0.900 million-IBRD). This component will cover both planning grants and sub-project investments in selected urban poor areas. Preparatory activities under this component would include: (i) community-based poverty mapping, (ii) the adaptation of the methodology used for social mobilization and planning to the urban context and subsequent development of specific operations manuals; (iii) testing of a grant-making mechanism for urban poor communities; and, (iv) a rigorous evaluation using mixed quantitative and qualitative methods. The nature and scope of sub-projects would be expected to respond to the specific concerns of urban poor communities including: housing, resettlement, livelihoods, and urban sanitation and environmental issues.

Component 4: Project Management, and Monitoring and Evaluation (US$6.377 million-IBRD). This component will finance incremental project management and operational costs. This will include contracting specialized staff who will assist DSWD to carry out its capacity building, supervision, and monitoring and evaluation functions. It will also cover the costs associated with: (i) strengthening the project’s management information system, (ii) conducting regular monitoring of project outcomes, (iii) carrying out external impact evaluations and specialized studies, and (iv) capacity building interventions for project staff and communities.

10. Results Framework. An updated Results Framework and Results Monitoring Matrix has been prepared including intermediate results and key indicators, which would help ensure that the planned design improvements can be captured by the project’s monitoring and evaluation system. A comparison of the original indicators from the PAD (revised after the Mid-Term Review through a Loan Amendment) and the proposed revised Results Framework has been prepared (Annex 2).

11. Area selection and coverage. Municipalities would be selected from within the 42 poorest provinces where the parent project has been operating.6 The small-area poverty estimates7 of the National Statistical Coordination Board, which provide a municipal-level poverty map for the entire country, would be used for selecting municipalities to be covered. Within each of the 42 provinces all municipalities with a poverty incidence of 33 percent or more would be eligible for support up to a maximum of 50 percent of the total number of municipalities. An estimated 220 municipalities will

6 The final list of provinces and eligible municipalities to be covered by the AF would be incorporated in the Project Implementation Manual, and any subsequent changes to the list would require clearance by the Bank. 7 National Statistical Coordination Board. 2009. 2003 City and Municipal Level Poverty Estimates. Manila, or as updated from time to time.

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be covered under the AF, comprising around 5,060 barangays8. In addition, the proposed MCC grant9 would support about 147 municipalities. Previously covered municipalities would continue to be eligible for support to maintain continuity of engagement. An estimated 112 of the 184 municipalities previously supported by the parent project would be covered under the AF, with most of the remainder covered through MCC’s support. The AF would support about 108 new municipalities, with MCC support adding a further 85 municipalities (Table 1).

Table 1: Expansion of Geographic Coverage of the KALAHI-CIDSS

No. of Municipalities Covered

New† Old‡ Total

KALAHI-CIDSS (2003-2009) 184 - 184

KALAHI-CIDSS Additional Financing (2010-2013) 108 112 220

KALAHI-CIDSS (Millennium Challenge Corporation, 2011-15)

85 62 147

† “New” municipalities refer to those that have not been previously covered by the KALAHI-CIDSS. ‡ “Old” Municipalities refer to the 184 municipal LGUs that were covered under the parent project, excluding 10 original municipalities that did not participate in the project. 12. Implementation modalities. A differentiated approach to municipalities supported under the AF would be adopted:

i. For “new” municipalities: Implementation will follow the established Community Empowerment Activity Cycle (CEAC) detailed in the existing operations manuals. Under the AF, based on lessons learned during implementation of the parent project, the CEAC manual would be enhanced to: (i) strengthen engagement with municipal LGUs to systematize the hand-over process to a municipal coordination team after 3 annual cycles; (ii) enhance the development of community-based organizations and links to barangay LGUs; (iii) sharpen facilitation techniques and processes for greater inclusion of marginalized and vulnerable groups (e.g., indigenous peoples, conflict-affected communities, women), drawing from experiences from the recently completed Japan Social Development Fund-Social Inclusion Project (TF54218).

8 The exact number of barangays covered will depend on the final selection of municipalities. 9 The MCC plans to provide $120 million in grants for the KALAHI-CIDSS over a five year period (CY2011-15). Funds would cover additional municipalities following the same set of procedures as would be utilized by the AF. DSWD, MCC, and the Bank have coordinated closely to ensure a common operational approach would be followed in both programs, including: (i) a single methodology for the selection of municipalities to be covered; (ii) a single senior management team at DSWD (including National Director, Deputy Director and Department Heads); and, (iii) adoption of the same set of operational manuals and guidelines.

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ii. For “old” municipalities: Implementation would follow the Makamasang Tugon (MT) approach. MT involves the same CEAC processes but under the direct facilitation of a municipal coordination team designated and financed by the municipal LGU with support from DSWD. The MT guidelines would be subject to further enhancement based on a full assessment of the lessons learned from the pilot-testing.

iii. For urban areas: The AF would support piloting in about 8 urban poor communities—in four cities in each of the island clusters of Luzon, Mindanao, and Visayas as well as Metro Manila—selected according to a transparent and objective process. The pilot-testing of a CDD approach for urban areas would be based on the same guiding principles and follow a community empowerment cycle similar to the approach adopted in rural areas in the parent project; however, given the very different context from rural areas, the implementation design and arrangements of the urban KALAHI-CIDSS are likely to be substantially different. The findings from the pilots would inform the design of an urban CDD model that could be expanded further under a future urban CDD program.

13. Enhancing provincial-level engagement. Given the decision to cover up to 50 percent of municipalities in any given target province, the AF would seek to enhance engagement with provincial LGUs and other stakeholders at the provincial level through more systematic and formalized arrangements to strengthen local poverty reduction strategies. The AF would support the key role of provinces in relation to: (i) provision of technical assistance and coordination for CDD implementation; (ii) oversight of municipal governance and its impacts on CDD processes; (iii) establishment of mechanisms for improved inter-municipal coordination; and, (iv) enhanced provincial-level poverty targeting. These arrangements would be described in details in a revised Project Implementation Manual.

14. Coordination with the conditional cash transfer program. Through the Social Welfare and Development Reform Project, implemented by DSWD, the Bank is also supporting a conditional cash transfer program—the Pantawid Pamilyang Pilipino Project (4Ps). During implementation of the AF, DSWD would develop and implement a coordinated strategy towards achieving greater synergy of outcomes and convergence between the two programs, based on a set of operational guidelines, on which DSWD has already initiated consultation with the Bank and other stakeholders.

15. Monitoring and evaluation (M&E). The parent project successfully established an M&E system that includes comprehensive data collection and validation at all levels of project implementation (community, municipality, region, and national); participatory monitoring by communities and LGUs; and the conduct of a range of evaluation studies on different aspects relating to project impact and design. As the coverage of the KALAHI-CIDSS expands, there is a need to take stock of current arrangements and introduce refinements and adjustments to the system. Based on an overarching M&E framework (Annex 3), the AF would strengthen the M&E system in the following key areas: (i) simplification of and efficiency improvements in the data collection process; (ii)

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information technology systems upgrading, both hardware and software; (iii) additional training for KALAHI-CIDSS project staff; and, (iv) enhancement of DSWD’s own capacity to manage and oversee evaluation studies. Within the first six months of implementation of the AF, DSWD would produce a revised M&E manual to reflect these enhancements that would be approved by the Bank.

16. Governance and anti-corruption (GAC). To complement the core M&E system, the KALAHI-CIDSS has also established three key GAC mechanisms designed to promote transparency and accountability of operations: (i) a grievance redress system; (ii) independent third-party monitoring; and (iii) an active approach to information disclosure at the community and agency levels. Under component 2 of the AF, the GAC focus of the project would be further enhanced. The grievance redress system, highlighted a number of cases where there was a breakdown in the participatory process leading to the suspension of some municipalities from the KALAHI-CIDSS program. The effectiveness of the system would be reviewed and a more complete picture of information requests, grievances and resolution patterns obtained. Adjustments would subsequently be made to improve future reporting through both formal and informal channels. Second, building on the independent monitoring conducted under the parent project10, DSWD would assess the potential for enhancing the role of civil society organizations, including the media in monitoring and providing independent feedback on project operations. This approach would be facilitated by the strengthened provincial-level engagement that is proposed as civil society capacity tends to be substantially greater at the province than at the municipal level. Third, DSWD would continue to refine and expand its approach to active information disclosure at the national and local levels. This would be achieved by making further design improvements to the current project website, and enhancing the availability of information both about project operations as well as the local planning and budgeting process. At the community level, the AF would continue to support efforts to embed transparency mechanisms in governance, e.g., through a new NGO partnership on local procurement. Fourth, drawing from local and global experience, the KALAHI-CIDSS would introduce a system of social audits that would be carried out after the completion of sub-projects as a means of further institutionalizing a participatory, results-oriented approach to project operations.

17. Estimated project cost and financing plan. As a flagship anti-poverty program and a core program of DSWD, GOP would contribute a significant proportion of total project costs, which includes a significant local counterpart contribution in cash and in-kind from LGUs and communities. About 85 percent of the loan proceeds would be allocated for barangay grants that support community sub-projects, while 10 percent would be allocated for project management and the remainder would be for the urban pilot (2 percent) and capacity building (3 percent) (Table 2). Based on exchange rate movements and price inflation since the parent project was developed, it is proposed to increase the size of the indicative municipal allocation from approximately $5,86511 to

10 Center for Policy and Executive Development, U.P. National College of Public Administration and Governance (November 2004-May 2005); “KALAHI-CIDSS: KKB – Integrated Monthly Monitoring” 11 Equivalent to Php300,000 at 2002 exchange rates.

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$9,76712 multiplied by the number of barangays in each municipality. The current percentage of eligible expenditures financed would be maintained under the AF.

Table 2: KALAHI-CIDSS Additional Financing by Component

Component IBRD (US$M)

GOP* (US$M)

Total (US$M)

IBRD Financing

(%) Grants to Barangays in Rural Areas 50.000 23.900 73.900 68

Capacity Building and Implementation Support 1.700 15.500 17.200 10

Grants to Barangays in Urban Areas 0.900 1.200 2.100 43

Project Management 6.377 5.100 11.477 55

Front-end Fee 0.147

Total 59.124 45.700 104.824 56 * includes estimated local counterpart contributions, in cash and in kind, from LGUs and communities of $31.4 million Consistency with CAS

18. The proposed activities in the AF are fully consistent with the current Philippines Country Assistance Strategy FY10-12 (Report No. 47916). The AF would contribute to the CAS’s overall objective of inclusive growth by improving the delivery of basic public services in poor areas (Strategic Objective 3 of the CAS) and also by enhancing local governance (Strategic Objective 5).

Appraisal of Restructured and Scaled Up Project Activities

19. Implementation arrangements. The project’s oversight and management arrangements will follow broadly the same arrangements as outlined in the KALAHI-CIDSS operations manuals and project implementation manual previously approved. DSWD will continue to serve as the Implementing Agency for the project with an Undersecretary as Director and Assistant Secretary as Deputy Director, both of whom provide overall policy directions and ensure project coordination with the Department-wide policies and directions. The technical management and supervision fall under the National Project Management Office (NPMO) headed by a senior DSWD official and supported by a full complement of technical and administrative staff with the competence required by the Project. As in the current operations, a Regional Project Management Office (RPMO), headed by the DSWD Assistant Regional Director, will continue to supervise day-to-day operations. An Area Coordination Team (ACT) would be directly hired in accordance with qualification standards required by the Project and deployed to each new municipality. The ACT would be supported and complemented by an MLGU-

12 Equivalent to Php465,000 at 2010 exchange rates.

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designated Municipal Coordination Team (MCT), which would eventually take over the facilitation and management function as part of a local sustainability planning process.

20. Oversight functions will be provided by the National Steering Committee (NSC) and National Technical Working Group (NTWG). The NSC and NTWG would be revitalized to confirm representatives under the new government expected after the May 2010 elections and to enhance the selection process and guidelines for broader representation of civil society and the private sector. The roles and responsibilities of the NSC and NTWG will likewise be reviewed and confirmed by its members to: (i) enhance coordination with other programs and ensure synergy with national policies on poverty reduction; (ii) strengthen monitoring responsibilities for effective risk and problem management; and, (iii) enhance resource mobilization and advocacy for CDD approaches. At the sub-national level, DSWD will initiate the organization of project oversight committees, linking with existing bodies, such as the Regional Development Councils through the Regional Social Development Committee, and/or the Regional KALAHI Convergence Groups.

21. The recent adoption of the Social Welfare and Development Reform Agenda (SWDRA), which positions KALAHI-CIDSS as the core community-based service delivery model, provides additional opportunities to mainstream the Project within DSWD’s operations. The mainstreaming agenda would be actively pursued through current efforts aimed at enhancing the delivery of social protection programs by reducing fragmentation and overlap and improving coordination, and by strengthening internal coordination mechanisms within DSWD as part of the on-going rationalization and restructuring process.

22. Environmental and social safeguards. The project would retain its Category B environmental classification. No significant potentially adverse environmental impacts on communities or their surrounding areas are anticipated. The parent project has been in compliance with the safeguards covenants in the Loan Agreement. Bank supervision has consistently rated safeguards performance as satisfactory with no major issues. All sub-projects undergo screening for environmental risks/issues and proper mitigation measures were formulated and reflected in the Environmental Management Plans by the communities. The negative list of prohibited investments with adverse environmental impacts was also implemented. The Environmental Impact Assessment Guidelines were updated to reflect new Regulatory issuances by the Department of Environment and Natural Resources and the updated options in the positive and negative list, taking into consideration the experience in the original loan project.

23. No involuntary resettlement took place as nearly all sub-projects financed were small-scale infrastructure that required minimal land acquisition most of which was publicly-owned land. Nevertheless, the NPMO has taken steps to ensure that deeds of donation are executed and filed for annotation by the municipal Register of Deeds which will be continued under the AF operations as reflected in the enhanced Land Acquisition and Resettlement Policy Framework.

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24. DSWD has undertaken a thematic review of the project’s Indigenous Peoples (IP) Strategy which provided information on IP presence in project areas and documented the lessons learned on the various mechanisms through which the inclusion of IPs was promoted during project implementation. These lessons were incorporated in the enhanced Indigenous Peoples Planning Framework which will be applied during the AF operations.

25. Although the project has been compliant with all safeguards policies, the National Project Management Office prepared an enhanced Environmental Impact Assessment Guidelines, Indigenous Peoples Planning Framework and Land Acquisition and Resettlement Policy Framework to reflect the enhancements/innovations based on seven years of implementation. The enhanced safeguards instruments were disclosed locally through DSWD website (April 15, 2010) and through the Bank Infoshop (April 16, 2010). The Project has been classified as a gender-responsive project based on the NEDA Harmonized GAD Guidelines.

26. Economic and financial analysis. Based on community needs identification and sub-project prioritization, it is expected that the KALAHI-CIDSS would continue to support a range of basic service delivery investments covering community infrastructure (roads, bridges, access trails), social sectors (water supply, schools, clinics, day care centers), and other community-based investments (community enterprise facilities, environmental protection, and others). An economic analysis conducted13 indicated that the overall economic internal rate of return for the project is approximately 20 percent, and rates of return for individual sub-project types vary from 16 percent for day care centers to 65 percent of water supply projects. The cost-benefit analysis carried out also indicated the unit cost of infrastructure is lower than that of other government agencies, with cost savings ranging from 8 to 30 percent.

27. With regard to operation and maintenance (O&M) of sub-projects, DSWD has undertaken a series of functionality and sustainability assessments to determine the effectiveness of O&M arrangements. While the assessments found that nearly all sub-projects had been completed as planned and were in use, they also identified weaknesses in the institutional and managerial arrangements relating to the community-based groups established to manage on-going O&M. Under the AF the performance of O&M groups would be enhanced by strengthening the links to municipal staff through the Municipal Coordination Teams (MCTs) and providing additional technical information and guidance. At the national level, DSWD would seek closer engagement with line agencies to enhance the consistency of KALAHI-CIDSS investments with relevant sector plans while, at the same time, advocating for the adoption of more participatory approaches in sectoral programs at the local level.

28. Procurement. Based on successful implementation of the procurement arrangements during the original KALAHI-CIDSS, arrangements under the AF would

13 Araral, E. and Holmemo, C. 2007. “ Measuring the Costs and Benefits of Community Driven Development: The KALAHI-CIDSS Project, Philippines”. World Bank Social Development Department, Working Paper Series No. 102.

18

remain unchanged, and would follow the Bank’s Guidelines: Procurement under IBRD Loans and IDA Credits published in May 2004, as revised in October 2006 and May 2010 (the Procurement Guidelines), and the Guidelines: Selection and Employment of Consultants by World Bank Borrowers published in May 2004 as revised in October 2006 and May 2010 (the Consultant Guidelines) and the provisions stipulated in the Loan Agreement.

29. At the community level, procurement for the KALAHI-CIDSS is undertaken by trained community teams based on the Community Procurement Sub-Manual. The following enhancements to the Community Procurement Sub-Manual are currently being finalized: making the overall procurement processing more efficient, particularly in the mandatory review beyond the Municipal Coordination Team level; ensuring wider participation of bidders (suppliers and contractors); the use of simplified procurement/bidding documents; clearer definition of the technical assistance requirements for sub-projects; and adoption of more standardized designs for sub-projects that would be reflected in updated technical guidelines for the project. Community bids and awards committees supported by the procurement team take the lead in implementing procurement supported by ACTs/MCTs who provide technical assistance in the community procurement implementation. The ACTs/MCTs also perform the role of internal auditors during the inter-municipal fiduciary review process. These arrangements, which have been consistently assessed as satisfactory, would be retained under the AF. National level procurement under the AF would be minimal and of small value within the current capacity of DSWD procurement staff.

30. Financial management. A detailed financial management assessment has been prepared (Annex 4). The overall financial management system of DSWD meets the Bank’s financial management requirements. Despite this, the assessed financial management risk of the AF before the mitigating measures is considered substantial, with the main significant inherent risks of the Project being: (i) the wide geographic reach of project activities, including hard-to-reach areas with safety and security risks in some areas, which makes effective supervision difficult; and (ii) communities who are the direct beneficiaries of the project initially have minimal financial management experience. To reduce the financial management risk to moderate, existing mitigating measures that have shown effective impact will continue to be implemented. Financial management arrangements for the AF would follow those of the original KALAHI-CIDSS, which have been generally found to be adequate in mitigating the financial management risk, including:

i. Maintenance of separate books of accounts. ii. A Designated Account maintained for the project where all loan proceeds

released from the Bank are credited, with project bank accounts opened at the DSWD regional offices for the operating funds of the region.

iii. Monitoring and evaluation of the procurement and financial management performance at the community level conducted regularly by RPMO and NPMO and cross-barangay reviews by Barangay Sub-Project Management Committees, with copies of reports available during project implementation review missions.

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iv. Public disclosure of project accounts through Barangay Assembly meetings and the posting of information relation to sub-projects on notice-boards and in designated community project offices.

v. Grievance redress reports made available to the NPMO finance unit for assessment of any financial management issues and adequacy of actions.

vi. Capacity building on financial management conducted for community officers, community facilitators and RPMO.

vii. Reports of the project posted in the Project’s website. viii. Quarterly financial monitoring reports submitted to the Bank no later than 45

days after the end of each calendar quarter. ix. Annual project audited financial statements submitted to the Bank no later

than 6 months after the end of each calendar year. The audit of the financial statements of the Project shall be carried out by the Commission on Audit (COA). The audit shall also include a value-for-money audit, which would cover physical inspection of sub-projects and evaluation of the sustainability of sub-projects and the adequacy of the maintenance and monitoring operations representing at least 10 percent of sub-projects. The report would be submitted together with the annual project audited financial statements.

31. Under the AF, the following mitigating measures shall be enhanced:

i. The Grievance Redress mechanism to ensure greater efficiency and effectiveness.

ii. The National Steering Committee and National Technical Working Group shall be revitalized to include wider stakeholder representation especially from the civil society and private sector.

iii. The NPMO together with the RPMO shall ensure that audit findings/observations and recommendations by the COA in its audit of the project financial statements shall be fully resolved/addressed within one year from the end of the reporting period.

iv. The audit observations and recommendations issued by COA and IAS shall be fully resolved/addressed by DSWD within one year from the date of the issuance of the reports.

32. The financial reports under the Project have always been received by the Bank on or before the due dates. COA issued qualified opinions on the 2007 and 2008 audited project financial statements mainly due to delays in the submission of complete documents on sub-projects for audit, delayed completion of sub-projects, and other observations in terms of the sustainability and adequacy of maintenance of completed sub-projects. NPMO has reported that except for the issue on complete documentation of donated properties used for sub-projects, which at this point is no longer considered as a significant risk, all the observations and recommendations of COA and IAS have been fully addressed.

33. At the agency level, mitigating measures relating to DSWD have already been agreed and include: (i) strengthening the Internal Audit Service in accordance with terms of reference acceptable to the Bank; and (ii) resolving the issues reported by COA in its

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audit of the agency accounts based on a time-bound plan. These measures will be supported through the Social Welfare and Development Reform Project, and the AF will also benefit from these agency-wide reforms.

34. Project financing. The AF will bring the total loan amount for the KALAHI-CIDSS project to $159.124 million (Table 3).

Table 3: KALAHI-CIDSS Original and Additional Financing by Category (US$M)

Eligible Expenditure Categories

Current Allocation

Disbursed to Date

(March 31, 2010)

Proposed Additional Financing

TOTAL Revised

Allocation

(1) .Grants Under Parts A and C 90.6 77.9 50.900 141.500

(2) Goods, Consultants Services and Incremental Operating Costs

8.4 11.4 8.077 16.477

(3)Front-end fee 1.0 1.0 0.147 1.147

TOTAL 100 90.3 59.124 159.124

Expected Outcomes

35. The AF would provide continued support to GOP’s flagship anti-poverty program by building on the achievements of the past seven years of implementation experience. In addition to expanding the coverage of the KALAHI-CIDSS to a new set of poor municipalities, the AF would respond to two specific requests of GOP: (i) that the KALAHI-CIDSS should support a stronger role and set of responsibilities for LGUs—this is being achieved through expansion of the LGU-led CDD approach which would not only support greater devolution of project activities but would also contribute to the institutionalization of CDD mechanisms into the local planning and budgeting process of government; and, (ii) that the KALAHI-CIDSS should be better coordinated with other anti-poverty programs of DSWD—this would be achieved through closer operational coordination with the 4P’s conditional cash transfer program as part of DSWD’s reform agenda and GOP’s overall social protection framework.

36. In addition, as the results of the endline surveys for the quantitative and qualitative impact evaluations will become available during 2010, there will be ample opportunity to review and respond to the findings of the evaluations as part of the preparation process for scaling up the KALAHI-CIDSS program into a nationwide CDD program.

Benefits and Risks

37. The KALAHI-CIDSS is a unique program in the Philippines in terms of its scope of coverage and focus on community empowerment through bottom-up planning and

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community management of sub-project implementation. It provides an engagement platform for government and other development partners to link to some of the poorest and remotest areas of the country where public service delivery continues to lag. In addition to providing much-needed incremental investments for local service delivery, the KALAHI-CIDSS also provides a strong foundation based on community mobilization and empowerment from which other sectoral programs can benefit. The AF would therefore seek to deepen engagement with other sectoral programs, especially in the areas of education, health, water supply, and community infrastructure to enhance the strategic relevance of CDD approaches for service delivery.

38. The AF is assessed to have a moderate level of risk. As a relatively small government agency with a positive public reputation for good governance, DSWD has been able to operate in a low-key manner without becoming unduly caught up in political machinations. It has been consistently rated among the top government agencies by the Presidential Anti-Graft Commission in terms of compliance to the requirements of the Integrity Development Action Plan, the Government’s anti-corruption strategy framework. In addition, through its social welfare and development reform agenda, DSWD is playing a leadership role in the development of a national social protection strategy, which includes the KALAHI-CIDSS and other key DSWD programs (e.g., the conditional cash transfer program) as core elements of the overall framework. While these developments indicate a low level of overall institutional risk, the AF faces a number of specific risks that continue to require attention:

Potential risks and possible controversial aspects

Risk Rating Before

Mitigation

Risk Mitigation Measures Risk Rating After

MitigationImplementation Capacity

Recent approval of Social Welfare and Development Reform Project could stretch the department’s capacity to simultaneously manage all of the programs

S Devolved implementation model that would be supported by AF would enable DSWD to play more monitoring and oversight function.

Enhancements of provincial-level engagement, including coordination with civil society organizations, would provide supplemental capacity in support of project

Coordination arrangements between the KALAHI-CIDSS and SWDRP are being developed to ensure clear management and operational accountabilities.

M

Program While agreement has been reached to adopt the existing KALAHI-CIDSS manuals and operating procedures, the grant from the Millennium Challenge Corporation will test DSWD’s overall capacity and, its ability to coordinate effectively with the AF.

M Maintain close and open working relationship with MCC. Establish a joint management review committee and undertake joint supervisions. Implement cross-team visits to different program areas.

L

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Governance Governance risks at the local level (that include elite capture of benefits, misuse of funds, a lack of transparency and accountability in local decision making) will continue to pose as a challenge particularly in new areas.

M KALAHI-CIDSS successfully demonstrated its capacity and positive impact in difficult circumstances by adopting various mechanisms that mitigate governance risks. Additional mitigating measures would be adopted to include: Provision of additional technical assistance during sub-project implementation with a focus on organizational/leadership development.; Strengthening the community based monitoring and beneficiary assessments; Enhancing Grievance and sanction mechanisms and expansion of third-party monitoring through the support of civil society organizations

M

Community capacity to manage, implement, and oversee sub-project activities on the ground is often underdeveloped leading to weakness in operation and maintenance; financial management; and exclusion of marginalized/vulnerable groups.

M Adequate staffing would be ensured at all levels Continued training for communities and facilitators. Based on experience from a Japan Social Development Fund grant that focused on conflict-affected and IP communities and seven years of field experience, DSWD would continue to refine and customize its operational approaches to respond to local circumstances. Allocation of additional resources to strengthen DSWD’s support and oversight of high risk areas.

L

Overall risk rating: Moderate

L=Low; M=Moderate; S=Substantial

Financial Terms and Conditions for the Additional Financing

39. The government has selected an IBRD Flexible Loan in US Dollars, variable spread, level repayments, with total maturity of 25 years including a grace period of 10 years. Payment dates are May 1st and November 1st of each year.

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ANNEX 1

Implementation Status and Results Ratings

No. Date Progress towards achieving Project

Development Objective

Overall Implementation Progress

1 10/17/2002 Satisfactory Satisfactory





6 06/20/2005 Moderately Satisfactory Moderately Satisfactory








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Annex 2 - Results Framework and Monitoring

PDO Project Outcome Indicators14 Use of Project Outcome

Information Current Proposed Current Proposed

Assist the Borrower in strengthening local communities’ participation in barangay governance, and developing their capacity to design, implement and manage development activities that reduce poverty.

Empower local communities in targeted poor municipalities and urban areas to achieve improved access to sustainable basic public services and to participate in more inclusive Local Government Unit (LGU) planning and budgeting.

Current Project Outcome Indicators have been moved to the Intermediate Outcome level under the AF

% of households that report better access to or use of basic services compared to KCAF initiation % of households that report an increase in knowledge, skills and confidence to participate collectively in community development activities compared to KCAF initiation % of members from marginalized groups15 that attend Barangay assemblies % of legislated municipal budgets with at least 10 percent increase in allocation for community identified priorities compared to KCAF initiation

YR3 – Measure the achievement of the PDO

Component 1: Grants to Barangays in Rural Areas

Component 1: Barangay Grants The capacity of communities to determine priorities, influence resource allocation and implement community sub-projects is enhanced.

Number of barangays that have completed the core trainings for the KCAF volunteers

% of barangays that have completed training on participatory situation analysis, planning, project development, implementation, and monitoring and evaluation % of barangays that have completed specific raining on subproject management and

Assess whether the barangay grants are utilized to enhance capacities of the target communities relative to the principles and processes of CDD Assess whether KC volunteers are prepared to manage and implement sub-projects

14 In the original PAD (2002), indicators were developed using the old Logical Framework format. The AF will use the current Results Framework format. This has resulted in some adjustments in the level of indicators (Project Outcome and Intermediate Outcome) as highlighted above. 15 As identified by the communities during social preparation activities

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Percent of non-prioritized Barangays that have secured funding per cycle

implementation % of PSA identified priorities funded with non-KCAF sources

Assess whether other funding sources are mobilized to support community-identified proposals

Sub-projects implemented in a transparent, participatory, timely and cost-efficient manner.

% of barangays with sub-projects implemented at technical standards and within budget % of barangays with sub-projects that meet basic financial reporting standards in FM&A manual Percent of completed community projects that passed the sustainability evaluation

% of completed KCAF subprojects implemented in compliance with technical plans and within schedule and budget % of completed KCAF subprojects that meet basic financial standards based on approved Finance and Administration Sub- Manual (inclusive of disclosure requirements % of communities with KCAF subprojects that have functionality evaluation rating of satisfactory or higher

Assess whether completed sub-projects comply with technical standards and cost-efficient Assess whether completed sub-projects comply with financial management standards Assess whether completed sub-projects are functional or, being used in accordance with the intended purpose and will be sustained in accordance in Operations and Maintenance Plan

Component 2: Capacity Building and Implementation Support (CBIS)

Component 2: Capacity Building and Implementation Support (CBIS) Participation, transparency and accountability strengthened in community and LGU priority setting and planning

Percent of Area Coordination Team (ACT ) with satisfactory annual performance based on their work plan Percent of Barangays that have committed to sustain the participatory process as part of the Barangay Sustainability Plan. Number of MLGUs that substantially comply with transparency

None % of barangays with community development plans prepared in accordance with KCAF participatory process % of LGUs that satisfactorily implement their Participatory,

Assess whether KCAF builds capacity for participatory local development process Assess the integration of KCAF participatory, transparent and

26

requirements per Memorandum of Agreement (MOA) Percent of MLGUs that meet with barangay representatives for inputs to the Municipal Development Plan (MDP) Number of MLGUs that provide technical assistance in SP preparation, implementation & monitoring based on the MOA Number of MLGUs that provide, at least, 80 percent of the counterpart based on the MOA Number of MLGUs with turnover MOAs Percent of registered grievances resolved in accordance with Grievance Redress

Transparency and Accountability (PTA) Integration Plans in accordance with the KCAF MOA and committed to sustaining the PTA as part of their sustainability plans. % of barangays with citizens, other than public officials, who participate in regular municipal-level resource allocation forum % of Makamasang Tugon municipalities that have established expanded Municipal Development Councils (MDC) for broader consultation with civil society representatives to obtain inputs for the MDP % of MLGUs that provide technical assistance in SP preparation, implementation & monitoring based on the Memorandum of Agreement (MOA) % of municipalities that provide their KCAF Local Counterpart Contributions (LCC) based on their LCC delivery plan None % of registered grievances satisfactorily resolved in accordance with Grievance Redress

accountable mechanisms in the LGU system that will ensure sustainability Assess whether there is broader representation of citizens at the MDC other than elected officials. Assess compliance of MLGU to provide technical assistance that will ensure technical and financial soundness of sub-project Assess compliance of MLGU to support KC

Assess whether the GRS is functional as one of the KCAF mechanisms for transparency and

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System (GRS) Manual

System (GRS) Manual

social accountability

Note: In the original PAD, this Urban activity was included under Component 1 (Community Grants)

Component 3: Grants to Barangays in Urban Areas Strategy for urban CDD developed and refined based on pilot-testing

Note: In the original PAD, this Urban activity was included under Component 1 (Community Grants) but there were no KPIs specifically for the Urban activity

Pilot implementation guidelines developed Pilot-testing in four urban poor areas completed (includes development of key performance indicators)

Guidelines will ensure rational and systematic pilot-testing Assess progress of pilot-testing

Component 3: Monitoring and Evaluation

Component 4: Project Management and Monitoring and Evaluation (M&E) Project oversight & management, local ownership of the project, and project learning strengthened.

None Multi-stakeholder oversight and coordinating committees at all levels are in place and functional in accordance with their respective Terms of Reference % of national & regional project teams that meet performance targets set by project management Framework for mainstreaming KC policies and approaches into DSWD operations adopted

Ensure involvement of multi-stakeholder in KC to draw expertise and linkages with other agencies

Assess adequate performance of the management teams Provide direction for ensuring institutionalization of KC in the DSWD in preparation for scaling up

ARRANGEMENTS FOR RESULTS MONITORING

Overall Outcome Indicators

1. Overall Outcome Indicators will primarily be monitored using administrative data from the enhanced management information system and the results of the impact evaluation which will be undertaken by external consultants. Component Indicators

2. The results indicators for all Components would be monitored as part of on-going supervision, relying primarily on the program’s management information system data from the program. DSWD will prepare quarterly and annual reports to monitor the indicators. Spot checks will be undertaken periodically while social audits will be done in a randomly-selected sample of communities with participation of external civil society organizations.

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Annex 2 - Arrangements for Results Monitoring

Project Outcome Indicators Baselines Target/Project Years Data Collection and Reporting

Current

Proposed Original At

appraisal

Year 1

Year 2

Year 3

Reports and Frequency

Data Collection Instrument

Responsible for Data

Collection and Analysis

- % of households that report better access to basic services compared to KCAF initiation

0

40% KCAF Impact Evaluation Reports at start and end of project

Question in KCAF impact surveys

External consultant team

- % of households that report increase in knowledge, skills & confidence to participate collectively in community development activities compared to KCAF initiation

0 30% KCAF Impact Evaluation Reports at start and end of project



- % of members from marginalized groups that attend Barangay assemblies

35%16 50% MIS Data KCAF Impact Evaluation Reports at start & end of project

Data capture from CEAC activities accomplishment reports from MCTs and ACTs Question in KCAF impact surveys

ACTs, MCTs, MMs, MIACs, RPMTs and NPMT


16 Data is taken from the midterm survey that was carried out for the impact evaluation in 2006.

29

- % of legislated municipal budgets with, at least, 10 percent increase in allocation for community identified priorities compared to KCAF initiation

0 TBD17 KCAF Impact Evaluation Reports at start and end of project



Intermediate Outcome Indicators Component 1: Grants to Barangays in Rural AreasNumber of barangays that have completed the core trainings for the KALAHI-CIDSS volunteers

% of barangays that have completed training on participatory situation analysis, planning, project development and monitoring and evaluation (Expected number of barangays covered by KCAF : 4,000)

N/A 50% 80%

80% 80%

Expected: 3,200 out of 4,000 covered

Quarterly KCAF Progress Reports

Data capture from CEAC activities accomplishment reports from MCTs and ACTs


- % of barangays that have completed specific training on subproject management and implementation

N/A 30% 40%

40%

40% Expected: 1,600 out of 4,000 covered


Data capture from CEAC activities accomplishment reports from MCTs and ACTs

ACTs, MCTs, MMs, RPMT and NPMT

Percent of non-prioritized Barangays that have secured funding per cycle

% of PSA-identified priorities funded with non-KALAHI-CIDSS sources

N/A N/A 10%

10%

10%


Data capture from record of communities and their funders


17 Will be determined after social preparation activities have been completed in all municipalities

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% of completed sub-projects (SPs) implemented in compliance with technical plans and within budget

% of completed KCAF subprojects implemented in compliance with technical plans and within schedule and budget

N/A N/A 85%

85%

85%


Data capture from reports of the KCAF engineering unit


% of completed sub-projects that meet basic financial reporting standards based on approved Finance and Administration Manual (FAM)

% of completed KCAF subprojects that meet basic financial standards based on approved Finance and Administration Sub- Manual

N/A N/A 85%

85%

85%


Data capture from reports of the KCAF/DSWD finance units


Percent of completed community projects that passed the sustainability evaluation

% of communities and/or barangays with KCAF subprojects that have functionality evaluation rating of satisfactory or higher

N/A N/A 85%

85% 85% Quarterly KCAF Progress Reports

SP sustainability evaluation reports of municipalities (using KCAF SET)

Municipal LGU/MIAC, MCT, ACT, MMs, RPMTs and NPMT

Component 2: Capacity-building and Implementation Support (CBIS) % of Barangays that have committed to sustain the participatory process as part of the Barangay Sustainability Plan

% of barangays with community development plans prepared in accordance with the KCAF participatory process

40% 80% 80% 80% Quarterly KCAF project progress reports

Copies of KCAF BAPs and BLGU resolutions

MCT, ACT, MMs, RPMT and NPMT CPS and M&Es

Number of MLGUs that substantially

% of LGUs that satisfactorily implement their

N/A 40% 80%

80%

80%

Annual KCAF Project Reports

BLGU sustainability plan/exit MOA by

MCT, ACT, MMs, RPMT and NPMT

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comply with transparency requirements per MOA

Participatory, Transparency and Accountability (PTA) Integration Plans in accordance with the KCAF Memorandum of Agreement (MOA) and committed to sustaining the PTA as part of their sustainability plans.

end of KCAF implementation

CPS and M&Es

% of MLGUs that meet with barangay representatives for inputs to the Municipal Development Plan (MDP)

% of barangays with some citizens, other than public officials, who participate in regular municipal-level resource allocation forum

N/A TBD

80% 80% 80% Quarterly KCAF project progress reports

Resolutions and minutes from KC MIBFs

MCT, ACT, MMs, RPMT and NPMT CPS and M&Es

% of MT municipalities that have established expanded MDCs for broader consultation with civil society representatives to obtain inputs for the Municipal Development Plan

N/A TBD 85%

85%

85%

Quarterly KCAF project progress reports

MDC resolutions Process observation reports from KCAF municipal project teams

MCT, MMs, RPMT and NPMT CPS and M&Es

Number of MLGUs that provide technical assistance in SP preparation, implementation & monitoring based on Memorandum

% of MLGUs that provide technical assistance in KCAF sub-project preparation, implementation & monitoring based on MOA

N/A N/A 80%

80%

80%


MLGU, BLGU and community reports


32

of Agreement (MOA) Number of MLGUs that provide, at least, 80 percent of the counterpart based on the MOA

% of municipalities that provide their KCAF LCC based on their LCC delivery plan

N/A N/A 80%

80%

80%


MLGU, BLGU and community reports


Percent of registered grievances resolved in accordance with Grievance Redress System (GRS) Manual

% of registered KCAF grievances satisfactorily resolved in line with the KCAF GRS

N/A 80%

80%

80%

Quarterly KCAF Grievance Redress Monitoring Report

Monthly recording of grievances and resolutions at community and ACT/ MCT, RPMT and NPMT levels

Communities, ACTs/ MCTs, RPMTs and NPMT

Component 3: Grants to Barangays in Urban Areas (New Component for which no indicators were developed as part of the original project) - Pilot implementation

guidelines developed

N/A Completed First six months of implementation

Actual guidelines KCAF NPMT SDU Unit

- Pilot-testing in four urban poor areas completed (includes development of key performance indicators)

N/A Completed End of Project Progress Reports

Completion report (of pilot testing

Same

Component 4: Project Management and M&E- Multi-stakeholder

oversight & coordinating committees at all levels are in place and functional in accordance with TORs

N/A Completed annually

Completed annually

Completed annually Annual KCAF

Project Reports Committee minutes of meetings and resolutions

MCT, MIAC, ACT, RPMT and NPMT

- % of national and regional project

N/A N/A

85% 85%


Annual DSWD Field Office

MCT, MIAC, ACT, RPMT

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teams that meet performance targets set by senior project management

reports and NPMT

- Framework for mainstreaming KC policies and approaches into DSWD operations adopted

N/A Completed annually

Completed annually

Completed annually


Copy of Mainstreaming Framework

MCT, MIAC, ACT, RPMT and NPMT

34

Annex 3: Monitoring and Evaluation Framework

A. Introduction

1. The Monitoring and Evaluation (M&E) framework for the Additional Financing (AF) utilizes both quantitative and qualitative approaches to assess on-going implementation progress and to measure overall project impacts. The first seven years of project implementation have yielded a number of findings:

Local experience and capacity in carrying out M&E of large-scale social programs was initially limited. The KALAHI-CIDSS is the first large-scale CDD program that has been implemented by DSWD so it has taken some time to develop the capacity to design and implement an effective M&E system. There remains considerable scope to further strengthen and deepen, while simplifying different elements of the M&E system.

A wide variety of sub-project investments makes M&E challenging. Following the pattern of other CDD programs in East Asia, the KALAHI-CIDSS supports multi-sectoral sub-project investments based on an open-menu approach (subject to a short “negative list” of excluding activities) whereby villagers engage in a participatory planning and decision-making process to allocate resources for their self-defined development needs and priorities. Subprojects financed have included a range of community infrastructure (roads, bridges) and social investments (water supply, school building, clinics, and day care centers) and other types (environmental protection, community enterprise facilities). The diverse, multi-sectoral nature of these investments makes it challenging to monitor progress and evaluate impacts.

Funding for activities beyond project-focused M&E has been scarce, heavily reliant on external sources, and not sufficiently integrated within project management structures. Government of the Philippines’ (GOP’s) preference is to utilize official development assistance (ODA) projects primarily for investment purposes. There has been a reluctance to borrow for M&E activities beyond what is specifically needed to manage operations. This has led to a reliance on external funding through trust funds, which given the middle-income country status of the Philippines have been difficult to secure on a consistent basis. However, the recent decision by the Millennium Challenge Corporation (MMC) to support the KALAHI-CIDSS has already provided important resources for impact evaluation, and significant further work is planned.

It is not easy to balance simplicity and sufficiency of data collection. Similar to other CDD programs, the KALAHI-CIDSS generates an enormous amount of data at all levels of operation. It is not straightforward to identify what information is essential to collect and report up from the community to regional and national office levels for M&E. A key challenge for strengthening M&E under the AF would therefore be to review and simplify where possible the

35

current data collected and more closely align it with the development of robust and informative performance indicators.

The Philippines has some local research institutions that are able to conduct more complex impact evaluation studies but they would benefit from further capacity building. The impact evaluation work carried out to date has been led by two local institutions with support from Bank staff in Washington and Manila. While both organizations have demonstrated significant capabilities in designing and implementing the various local-level surveys required, further capacity building is required on the analysis and interpretation of results. Funding under the Social Welfare and Development Reform Project (SWDRP) and MCC provide a good opportunity to further strengthen these capacities during implementation of the AF.

Need to strengthen links between empirical findings and improved operational design. The purpose of the evaluations and studies conducted on the project is to build an empirical basis to inform policy and operational decisions. Stronger commitment is needed within government to use the findings from the evaluations to inform future program design and implementation. Also, best practices, and the underlying factors which contribute to those cases, should be fully documented and shared with other project actors. Without such links from studies to operations, these evaluations remain academic, isolated exercises.

B. Objectives of the KALAHI-CIDSS M&E System

2. The objective of the KALAHI-CIDSS M&E system is both to monitor on-going, more short-term implementation progress, providing project management and other stakeholders with timely and empirical information, while also assessing the longer-term impacts of the project to evaluate its overall performance. The monitoring function of the KALAHI-CIDSS supports periodic and timely collection of information to determine if program activities are being implemented as planned. It focuses primarily upon inputs and output levels. It is an ongoing process that continues throughout the project cycle, from training and community mobilization, through to planning, implementation, and maintenance. Results from monitoring are used to improve the quality of implementation and to adjust planning. Evaluation is the assessment of results periodically to see if the project is meeting its main objectives.

3. DSWD has prepared a revised M&E Manual that describes and provides overall guidance to operational teams on the M&E processes and functions. Given the agreement under the AF to assess options for simplifying the monitoring function, a further revised M&E Manual would be prepared within the first six months of implementation of the AF.

4. Based on the project objectives and main outputs, key performance indicators have been developed for the project and are tracked over time. The key performance indicators for the KALAHI-CIDSS are listed in Annex 4 of this Project Paper. These indicators are then reported upon through the field reporting system or through other monitoring and evaluation activities such as case studies, surveys, sectoral evaluations,

36

and supervision missions. The project MIS also plays a critical role in capturing and recording important information regarding results on a monthly basis.

C. Monitoring of the KALAHI-CIDSS

5. The KALAHI-CIDSS implements a range of different forms of monitoring:

Community participatory monitoring. In the KALAHI-CIDSS, there are community groups elected or assigned to oversee various stages of the program, for planning, decision-making, implementation, book-keeping, procurement, and operations and maintenance. Community monitoring is operationalized through different project design features, including: (a) information accessibility and transparency, such as the posting of the information on project activities and budgets on information boards and at project sites, and the availability of all project financial records are available for inspection; (b) open public meetings that promote community participation, transparency and accountability, where information is made available to participants for scrutiny and discussion; (c) a grievance redress system through which community members and the general public can channel complaints or inquiries with communications being easily accessed through post, text messaging, or communication with local government officials and project facilitators.

Government monitoring. DSWD staff play a critical role in monitoring and managing overall project implementation. Government officials at the national (National Steering Committee), regional (DSWD Field Offices), municipal (Area and Municipal Coordination Teams), and village levels are responsible for monitoring the program and ensuring that its objectives and principles are met, and check to ensure that project activities are proceeding according to plan and in compliance with established operating principles and procedures described in the project’s various operations manuals. As in the past, there will be regular implementation support missions and field visits of government officials to project sites. The oversight role of the National Steering Committee and Technical Working Group would be strengthened. During implementation, a more explicit role for provincial-level structures will be incorporated into project management.

Management information systems (MIS). Project information related to process, outputs and outcomes is entered and organized in a computerized MIS, which contains basic project information (e.g., project locations, status and type of subproject activity, investment information, etc.), project staff, financial information and complaints. The MIS would be strengthened under the AF through software and hardware upgrades and additional training for M&E staff at DSWD.

Reporting. Regular reporting on the progress and results of the KALAHI-CIDSS is vital to the success of the program. To be useful, data from reporting must be accurate, reliable, and timely. DSWD has established a system of monthly

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reporting from the community up to the regional and national office level. Over time, as the program has grown, the reporting system (especially in areas where there have been many subprojects under implementation at the same time) has become difficult to manage. Under the AF, DSWD would therefore conduct an assessment of the current reporting arrangements with a view to further simplifying and streamlining the reporting process, while ensuring that core project management information is made widely available – not only to project staff but also to external stakeholders, including through an upgraded project website.

Independent third-party monitoring. Although DSWD contracted the National College of Public Administration and Governance to conduct an independent assessment of the project in 2007, no regular independent monitoring arrangements involving NGOs have been established. Similarly, while there has been regular media coverage of the project this has tended to be more informative than investigative. Therefore under the AF, DSWD would assess different options for strengthening the participation of civil society groups, while recognizing that the presence of such organizations within poor municipalities is often limited. The project can draw on the experience of other development programs, such as the Philippines-Australia Community Assistance Program, to build the engagement with provincial-level NGOs.

Financial reviews and audits. The Commission on Audit is responsible for auditing KALAHI-CIDSS finances annually, which includes a 10 percent sample of sub-projects. As agreed under the SWRDP, DSWD will move to strengthen its own internal audit function, which will also cover KALAHI-CIDSS – for which an initial assessment has already been conducted. Further details of the financial management arrangements are presented in Annex 4.

D. Evaluation

6. From the project onset, DSWD has been committed to rigorously evaluating the project. This is especially relevant since (i) the KALAHI-CIDSS follows an innovative approach of delivering services to the poor and, (ii) the GOP is implementing other poverty reduction projects. An optimal allocation of resources between the different projects requires a good understanding of their respective impacts. As part of this process, the project team has been carrying out methodologically rigorous and operationally-relevant studies. The purpose of these evaluations and studies is to build an empirical basis to inform policy and operational decisions. To account for the inherent complexity of CDD projects mixed methodologies (qualitative and quantitative) have been used whenever possible. To further improve the relationship between researchers and the project team, the various parties recognize the need to strengthen the local capacity (both DSWD and local academics) to carry out impact evaluations of large-scale social programs. DSWD will be able to take a more prominent role in future evaluations and local academic institutions will be able to support them technically.

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7. A number of evaluation studies have been carried out, or are under implementation:

Economic Analysis - looked at the costs and benefits of seven major subproject (SP) categories18 which accounted for 82 percent of total subproject costs (Araral and Holmemo, 2007). The main findings suggest that the project overall is economically beneficial. Based on available information and plausible assumptions, the project will generate an overall estimated economic internal rate of return of 21 percent and a net present value of Philippine pesos (PHP) 1.03 billion. Further, investments to strengthen community participation and local governance will likely have a positive impact on operations and maintenance (O&M) performance. Finally, the project appears to be cost effective compared with traditionally implemented infrastructure projects in the Philippines. The unit cost of infrastructure in the project is generally lower than those of other government agencies, with cost differences ranging from 8 percent for school buildings to 76 percent for water supply subprojects.

Impact Evaluation 1st Phase - The KALAHI-CIDSS Impact Evaluation collects quantitative and qualitative baseline data in both treatment and control areas. This follows international best practices. Results-to-date clearly indicate that the project achieved what it promised to achieve and suggest potential modifications to project design for the next phase. Overall, this highlights the benefits of integrating the impact evaluation early in the project cycle. A first household survey was implemented in the Fall of 2003 in 135 barangays in the 16 municipalities with a focus on measuring social capital impacts. During this baseline survey, 2,400 households were interviewed. A second survey was fielded in the same 135 villages in the Fall of 2006. While each municipality goes through 3 cycles of subproject implementation throughout the project, sampled municipalities only went through one such cycle between the baseline and follow-up survey. The survey team managed to re-interview 2,092 households (about 87.2 percent of the original number of households). Further, rich qualitative data was collected in a sub-sample of 20 barangays (in 2 treatment and 2 control municipalities) in 2004. The end-line household survey and qualitative study are currently underway. Final results are expected in the coming months.

Since 2007, the project team was able to productively use available data to carry out relevant, high-quality, studies. Below is a summary of the key ones.

A first study analyzes how communities select their proposals and how resources are allocated across villages during the Municipal Inter Barangay Forum (Labonne and Chase, 2009). This shows that KALAHI-CIDSS was successful in targeting the poorest, best organized villages as it was designed to. Controlling for poverty, more unequal villages are more likely to receive funding. This surprising result is because in more unequal villages, the elected

18 Domestic water supply [both pump and gravity], roads construction and improvement, elementary school buildings, barangay health centers, and day care centers.

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village leader is more likely to override community preferences, and to influence inter-village competition such that project resources flow to their villages.

A second study looks directly at the social capital impacts of the project, demonstrating that the project had impacts on local institutions (Labonne and Chase, 2008). Participation in village assemblies, the frequency with which local officials meet with residents and trust towards strangers increased as a result of the project. However, there is a decline in group membership and participation in informal collective action activities. This may have been because households were time-constrained, so that in order to participate in project activities, they needed to temporarily reduce their participation in informal activities. An alternative explanation is that the project improved the efficiency of formal forms of social capital and thus households needed to rely less on informal forms.

A third study looks at the social capital of road building (Labonne and Chase, forthcoming). Indeed, some types of KALAHI-CIDSS subprojects (e.g., road projects19) might increase interactions with outsiders that could have a positive impact on social capital. Road projects are indeed associated with an increase in generalized trust. The most conservative estimate indicates that building a road is associated with a 4.5 percentage point (62.5 percent of the baseline mean) increase in generalized trust. Consistent with the argument that increased interactions led to more trust, access to markets improved in villages in which a road project was implemented. Further, after road construction, individuals most likely to engage in exchange have larger increases in trust levels.

A fourth study, not yet completed, assesses the project impacts on civil conflict. Following a methodology proposed by Barron et al. (2007), data on the occurrence of conflicts in 2003 and 2006 was gathered from local newspapers. This data is then matched with nationally representative household survey and budget data on all municipalities in the country. In the future, this study might be complemented with more ethnographic research to better understand the conflict dynamics in those areas.

E. Potential Future Evaluation Studies

8. Future evaluation studies would be designed to answer two sets of questions. The first set, targeted primarily to outside stakeholders, relates directly to project impacts (i.e., is the project delivering results?) and the second set, targeted primarily to the project implementation team, relates to project design issues (i.e., how to improve project design?). While, due to the project’s innovative approaches, the team was primarily

19 About a third of all KALAHI-CIDSS subprojects are either road construction or road improvement projects.

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concerned about answering the first set of questions during the first phase, attention is slowly turning to the second set of issues.

9. Initial discussions have taken place with government and other stakeholders over future possible evaluations and studies. Following is an illustrative list, though actual implementation will depend on the team’s ability to secure adequate resources:

Poverty Reduction Study – This study would aim at measuring the project’s employment and poverty impacts. It would use data from the Family Income and Expenditure Survey and the Labor Force Survey from 2000 to 2009.

Municipal Governance Study – This study would aim at measuring the project municipal governance impacts. It would focus on two broad areas: the municipal budget process and electoral competition. Detailed yearly budget data is available from Department of the Interior and Local Government and electoral data can be gathered from Commission on Elections.

For those two studies, the availability of adequate data, coupled with the strict targeting criteria used to select municipalities in the 1st phase would allow a rigorous evaluation through a regression discontinuity design.

Infrastructure Assessments – While the team has been carrying out infrastructure assessments as part of project supervision, there is a need to institutionalize this process and to expand its scope. Thus the team would carry out infrastructure assessments throughout the new phase with an updated methodology.

Supply-Side Response Study – This study would look at LGU responses to the project in particular whether and how the project influences the MIAC. This would also include an in-depth analysis of how the project activities are being integrated in the municipal planning cycle.

Social Preparation Study – DSWD is interested in understanding the value of social preparation. Since social preparation is what defines the CDD approach, it is important to have robust evidence of its benefits (in light of its cost). Further, this might also prove important to convince decision makers to allocate resources for social preparation. The idea would be to implement KC the ‘regular’ way in a set of municipalities and to use a ‘lighter’ version of social preparation in another set of municipalities.

Impact Evaluation 2nd Phase - The project team, in close collaboration with the MCC team, is currently planning for a rigorous impact evaluation of the project’s additional financing. While the methodology is still being discussed, it is expected involve baseline, midterm and end-line household survey’s and qualitative studies. The qualitative component will be used to probe deeper into issues of community perception, local governance, and social capital. Further, most likely the evaluation will follow an experimental design whereby, among a pool of

41

eligible municipalities, the project would be allocated randomly. This will ensure internal validity.

Economic Analysis – As indicated above, the team carried out an economic analysis in 2006. This study would be repeated mid-way through the new phase and again once the project ends.

Leadership Study – This study would assess the program’s impacts on grassroots leadership. Indeed, anecdotal evidence indicates that some community volunteers end up being elected as barangay councilors, barangay captains and municipal councilors. This study would test if the project provides a platform for community volunteers to demonstrate and build on their innate leadership qualities.

10. Through the support of the MCC a Capacity-strengthening program for the Impact Evaluation of Large-scale Social Programs in DSWD is being developed. By the end of the program period, DSWD staff will be equipped with the tools and methods to: (a) identify areas where more research is needed in the programs they are implementing; (b) prepare adequate Terms of Reference including scope, timeline and budget; (c) select appropriate partners to carry out the impact evaluation; (d) critically assess the methodological choices; (e) supervise and provide adequate input to data collection, input and analysis; (f) adjust their programs according to results obtained. Links will be built between local academics and DSWD. This program will be implemented in close collaboration with the SWRDP team.

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Annex 4: Financial Management and Disbursement Arrangements

Philippines: Additional Financing for the Kapitbisig Laban sa Kahirapan – Comprehensive and Integrated Delivery of Social Services Project

Executive Summary

1. Scope of review - An updated financial management assessment review was carried out at the Department of Social Welfare and Development (DSWD) with the objective of ensuring that there is in place an adequate financial management (FM) system that satisfies the Bank’s OP/BP10.02 requirements for the proposed Additional Financing for the Kapitbisig Laban sa Kahirapan – Comprehensive and Integrated Delivery of Social Services Project (KALAHI-CIDDS or the Project). According to the requirements of OP/BP 10.02, the borrower and the project implementing entities should maintain financial management systems — including accounting, financial reporting, and auditing — adequate to ensure that they can provide accurate and timely information regarding project resources and expenditures. The review was carried out in accordance with the Bank’s guidelines under Financial Management Practices in World Bank-Financed Investment Operations. The review included (a) updating of the assessment carried out in 2009 on DSWD’s FM system and the inherent FM risks in the country for the recently negotiated Social Welfare and Development Reform Project (SWDRP); and (b) review of the results of the FM implementation reviews and compliance with the financial covenants under the original loan of the Project.

2. Overall conclusion - Overall, the financial management system of DSWD will meet the financial management requirement as stipulated in the OP/BP subject to implementation of agreed actions and mitigating measures.

3. The assessed financial management risk of the Project before the mitigating measures is considered substantial but could be reduced to moderate after the proposed and existing mitigating measures described below are implemented and have shown or continue to show effective impact. The main significant inherent risks of the Project are the (a) wide geographic reach, involving hard-to-reach (far flung) areas with high level of safety and security risk, (b) communities who are the direct beneficiaries of the Project with very minimal FM capacity, and (c) legal documentation of donated properties used in sub-projects are often not complete as the process to obtain and complete them is very difficult, which may lead to either delays in sub-project implementation or risk of interrupted use of sub-projects. On the risk due to incomplete legal documentation, under the original loan there was only one sub-project out of over 4,000 sub-projects implemented that was reported with a delayed start of sub-project construction while there were no reports on interrupted use/access of completed sub-projects due to issue of incomplete legal documentation on donated property. The mitigating measures relating to the DSWD as a whole will be addressed under the SWDRP such as the following, among others: (a) Strengthening of its internal audit unit by engaging reputable audit consultants with qualifications and terms of reference acceptable to the Bank; and (b) Resolving the issues reported by the Commission on Audit (COA), state auditors, in its audit of the agency accounts based on a time-bound plan. The mitigating measures implemented by KALAHI-CIDSS under the original loan, which shall also be carried out under the AF are as follows:

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i. Provision of technical assistance, training and workshops to strengthen the capacity of the local communities, municipal and community facilitators are covered under the implementation support and monitoring and evaluation components of the project.

ii. Hiring of an adequate number of skilled and qualified community facilitators who are familiar with the sub-culture of communities as the project implementation progresses.

iii. Training of community officers on basic financial management procedures, including simple recordkeeping and procurement.

iv. Monitoring and review of the financial management and procurement performance of the communities and physical verification of sub-projects by the community facilitators, Regional Project Management Office (RPMO) and national Project Management Office (NPMO).

v. Conduct of monthly cross review by Barangay Sub-Project Management Committees (BSPMCs), where one BSPMC visits another barangay and conducts review of the sub-projects implemented including the financial management aspect.

vi. A value for money audit which includes physical inspection, assessment of sustainability and adequacy of maintenance of at least 10% of the sub-projects by COA as part of its annual financial audit of the project.

vii. Project management reports posted in the Project’s website.

viii. Use of the grievance redress mechanism, with issues processed and reported at the community, regional and national level.

ix. Deeds of donation shall continue to be obtained for donated properties used in sub-projects.

x. Internal Audit Services (IAS) of DSWD shall continue to conduct annual reviews of the project with copies of its reports submitted to the Bank within 45 days after the end of each calendar year.

4. Under the AF, the following mitigating measures shall be enhanced:

i. The Grievance Redress mechanism to ensure greater efficiency and effectiveness.

ii. The National Steering Committee and National Technical Working Group shall be revitalized to include wider stakeholder representation especially from the civil society and private sector.

iii. The NPMO together with the RPMO shall ensure that audit findings/observations and recommendations by the COA in its audit of the project financial statements

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shall be fully resolved/addressed within one year from the end of the reporting period.

iv. The audit observations and recommendations issued by COA and IAS shall be fully resolved/addressed by DSWD within one year from the date of the issuance of the reports.

5. Financial Management Performance of KALAHI-CIDSS – The financial management system of KALAHI-CIDSS has been rated moderately satisfactory. The financial reports under the Project have always been received by the Bank on or before the due dates. COA issued qualified opinions on the 2007 and 2008 audited project financial statements mainly due to the issue of delays in the submission of complete documents on sub-projects for audit, delayed completion of sub-projects, and other observations in terms of the sustainability and adequacy of maintenance of completed sub-projects. NPMO has reported that, except for the issue on complete documentation of donated properties used for sub-projects as described earlier, all the observations and recommendations of COA and IAS have been fully addressed.

Risk Analysis.

6. A summary of the financial management assessment risk ratings is provided in the table below. The detailed discussion of each subject immediately follows hereunder.

Category of Risk

(Issues/Factors)

Risk

Rating

Risks Mitigating Measures In Place or

to be Adopted

Residual

Risk

Condition of Negotiations,

Board of Effectiveness

(Y/N?)

Inherent risk

Country level

1. Perceived high corruption in the country

S

H

1. Strengthening of the internal audit functions in government agencies is currently in progress. Please see detailed discussion under country financial issues above. 2. Part of the government’s actions to safeguard against corruption is the passage of the procurement law and its implementing rules and regulations, which are already implemented by all units of government Standard bidding documents were issued for mandatory use and the Generic Procurement Manuals to guide the agencies were approved and rolled out. Both of these documents were harmonized with development partners and the same are now being used for World Bank assisted projects.

M

S

N

N

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Category of Risk

(Issues/Factors)

Risk

Rating


to be Adopted

Residual

Risk



(Y/N?)

Entity

1. Inadequate institutional capacity at DSWD due to two large-scale programs simultaneously implemented

2. Internal audit unit not functioning in accordance with international standards.

S

1. The project will continue to have dedicated personnel under the NPMO and the RPMO. Local government (provincial and municipal) participation in supervising sub-projects shall be scaled up under the AF.

2. The Strengthening of the internal audit unit is addressed in the SWRDP.

M

N

N

Project

1. Wide geographic reach in the country and to places which are hard to reach by any mode of transportation making monitoring and verification difficult and FM capacity of communities is low.

S

1. The project shall continue to engage community facilitators to supervise the communities, who are supported by the regular visits of RPMO and NPMO. 2. Capacity building activities are inherent in the design of the project. 3. The project’s existing grievance redress system shall be further enhanced to be more effective and efficient. 4. COA’s audit coverage shall continue to include physical inspection and assessment of sustainability and adequacy of maintenance of least 10% of sub-projects.

M

N

N

N

N

Control risk S M

Budget

1. Delayed enactment of the national budget by Congress may affect timely release of budget & funds for the project.

M

National agencies can still continue to operate based on prior year’s approved budget. The Department of Budget and Management (DBM) has implemented the comprehensive release of funds in 2009.

L

N

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Category of Risk

(Issues/Factors)

Risk

Rating


to be Adopted

Residual

Risk



(Y/N?)

Accounting 1. Separate books of accounts are maintained for the project using the e-NGAS, the computerized bookkeeping system. 2. NPMO finance unit is staffed with adequate experienced finance staff, directly reporting to the Director for Finance and Assistant Secretary for Finance & Administration of DSWD.

S

1. Maintenance of separate books of accounts for the project shall be required to facilitate the preparation of financial reports and for the project not to be burden with the outstanding issues reported by COA on the agency’s accounts. 2. The project has Financial Management Manual of Operations and a community financial management manual, which are being updated when the need arises.

M

N

N

Internal controls 1. COA reported issues on instances of delayed submission of liquidation reports for petty cash, uncompleted and/or delayed sub-project implementation.

2. Communities generally weak in financially management.

S

1. Additional financing shall still be supporting capacity building and monitoring/supervision in financial management for communities, community facilitators, RPMO and NPMO. 2. Enhanced grievance redress system shall continue to be implemented. 3. Involvement of civil society and private sector shall be revitalized. 4. Project management reports shall continue to be posted in the project’s website.

M

N

N

N

N

Funds flow 1. Loan proceeds take long period before it is credited into the Designated Account from the Central Bank of the Philippines. Delays will create risk of not releasing funds to the communities on time.

2. Centralized release of grants to communities takes long for funds to get to the communities due to the different levels of review of the documents requesting for release of funds.

S

1. The promptness of the deposit into the Designated Account for the loan proceeds has been discussed with DBM and the DOF. 2. DSWD is experienced in closely following up the credit of the loan proceeds to the Designated Account from the responsible government agencies. 3. NPMO shall continue to work closely with RPMO on the prompt and complete submission of documents supporting request for fund release. Compliance with established service standards shall be monitored regularly.

M

N

N

N

Financial reporting Financial reporting still to be done by NPMO finance and the main finance unit of DSWD.

M

Submission of annual project audited financial statements and FMRs were always on or before the deadline and were found to be complete and comprehensive.

M

N

Auditing There has been a recent reorganization in COA that may result to some COA auditors not familiar with Bank policies and

M

NPMO finance to meet with the COA auditors in their visits to the regions and orient them on the financial management arrangements under the

L

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Category of Risk

(Issues/Factors)

Risk

Rating


to be Adopted

Residual

Risk



(Y/N?)

procedures and the arrangements under the project

Project. N

Overall Risk Rating – S M

Risk Rating: H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

Financial Management Arrangements for the Project

7. The financial management arrangements for the AF will follow those of the original loan, as summarized below, which are found to be adequate.

i. Maintenance of separate books of accounts. ii. A Designated Account shall be maintained for the project where all loan proceeds

released from the Bank are credited. Project bank accounts shall be opened at the DSWD regional offices for the operating funds of the region.

iii. Monitoring and evaluation of the procurement and financial management performance at the community level shall be conducted regularly by RPMO and NPMO and cross barangay reviews by BSPMC, with copies of reports available during project implementation review missions.

iv. Grievance redress reports shall be made available to the NPMO finance for assessment of any financial management issues and adequacy of actions.

v. Capacity building on financial management shall be conducted for community officers, community facilitators and RPMO.

vi. Reports of the project shall be posted in the Project’s website.

8. External Audit – The audit of the financial statements of the Project shall be carried out by COA.

9. Financial Reporting – The reports required under the Project shall be the same as the original loan, which are as follows:

i. Quarterly financial monitoring reports shall continue to be submitted to the Bank no later than 45 days after the end of each calendar quarter.

ii. Annual project audited financial statements shall be submitted to the Bank no later than 6 months after the end of each fiscal year. COA shall also include a value for money audit, which would cover physical inspection of sub-projects and evaluation of the sustainability of sub-projects and the adequacy of the maintenance and monitoring operations representing at least 10% of sub-projects and the report to be submitted together with the annual project audited financial statements.

10. Funds Flow/Disbursement Arrangements – The funds flow shall follow the same arrangements as the original loan. The disbursement methods available under the loan are the

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advance, direct payment and reimbursement methods. Report of utilization of the loans to the Banks shall be through the submission of Statements of Expenditures (SOEs) and Records (invoices, receipts). The AF shall be disbursed over a period of 3 years based on the following categories of expenditures:

Category Amount of the Loan Allocated

(expressed in USD)

Percentage of Expenditures to be financed

inclusive of taxes (1) Grants under Component 1 and Component 3 of the Project

50,900,000 100% of Grant amount disbursed

(2) Goods, consultants’ services and incremental operating cost

8,076,190 100%

(3) Front-end Fee 147,810 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07 (b) of the General Conditions

TOTAL AMOUNT 59,124,000 11. The Project funds are composed of the loan proceeds and government counterpart funds. The funds from the loan proceeds will flow from the World Bank to the Bureau of Treasury account at the Central Bank of the Philippines. After the issuance of the Notice of Cash Allocation (NCA) by DBM, the funds will be credited to the Designated Account of the project maintained by DSWD central office. DSWD shall open and maintain a Designated Account (DA) in Dollars, in a commercial bank acceptable to the Bank, with a maximum allocation of $6 million. The funds advanced to the DA shall be liquidated through the submission of Withdrawal Applications for replenishment and Statements of Expenditures (SOEs) and/or Records (invoices, receipts). Disbursements under the Project shall comply with Bank policies and procedures on disbursements and financial management as reflected in the Bank’s Disbursements Handbook and Financial Monitoring Report Guidelines. All reimbursements to the DA shall only be for eligible expenditures based on the agreed eligibility/financing percentage in the Loan Agreement and shall have adequate supporting documents. Attachments of supporting documents to the SOEs for withdrawal applications shall be based on threshold limits of SOEs. Funds shall be transferred to the regional offices, which are drawn from the DA and deposited into the regional offices’ project bank accounts based on the estimated project quarterly cash requirement of the region. The regional offices shall submit to the central office of DSWD monthly SOEs to liquidate the funds transferred. Maintenance of project bank accounts at the regional offices is necessary due to the following reasons: (i) there is a logistical problem in making all payments from the DSWD central office where the Designated Account will be maintained because some contracts or expenditures are entered into or incurred at the regional of DSWD, and (ii) the Philippine government is unable to provide working capital to the project to pre-finance the Bank’s share of the expenses.

Financial Covenants

12. The financial reports that shall be submitted to the Bank are as follows:

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i. Unaudited Interim Financial Reports (IFRs) no later than 45 days after the end of each calendar quarter using the same format as the original loan.

ii. Annual audited project financial statements no later than 6 months after the end of each fiscal year together with a copy of the auditors’ management letter and the report on the results of the value for money audit.

Supervision Plan

13. The frequency of the FM supervision will be in line with the FM Manual and East Asia and Pacific FM regional guidelines and is dependent on the FM risk rating of this project in any given year during project implementation. The scope of the supervision is left to the professional judgment of the FM specialist. It may cover any of the following, among others: (1) review of the continuous maintenance of adequate FM system by DSWD; (2) review of selected transactions, where deemed necessary and visits to selected sub-projects; (3) review and discussion of the grievance redress reports and the RPMO and NPMO finance supervision reports; (4) follow up of timeliness of FM reporting and actions taken on issues raised by external auditors; (5) review of financial reports of the project; (4) follow up on the status of the agreed actions; and (6) review of compliance with the financial covenants. In addition, the FM implementation review should include desk review of the quarterly FMRs, audited project financial statements and management letters submitted to the Bank.

Iligan

PasigQuezon

GeneralSantos

Lucena

ViracBatangas

BoacMamburao

Romblon

Santa Cruz

Antipolo

BalerPalayan

TarlacIba

MalolosBalanga

Trece Martires

Laoag City

ViganBangued

Tabuk

Ilagan

Cabarroguis

BontocLagawe

BayombongLa Trinidad

Lingayen

Kabugao

Basco

Puerto Princesa

Pili

Sorsogon

Daet

MasbateCatarman

BoronganCatbalogan

Naval

Maasin

Bacolod

Dumaguete Siquijor

Tagbilaran

Mambajao

Surigao

San Jose

Tandag

Tubod

Prosperidad

TagumNabunturan

MatiKidapawan

DigosIsulan

Marawi

Malaybalay

OroquietaDipolog

Ipil

IsabelaCity

Jolo

KaliboRoxas City

San Jose deBuenavista

Jordan

Alabel

PanglimaSugala

Zamboanga Shariff Aguak(Maganoy)

San Fernando

Tuguegarao

BaguioSan Fernando

Legaspi

Tacloban

Cebu

Butuan

DavaoCotabato

Cagayande Oro

Iloilo

Pagadian

Koronadal

Calapan

Calamba

MANILA

1

2

4

6

7

11

14

17

18

19

20

2122

16

23

2425

27

31

39

42 46

47

49

54

75

59

62

65

66

71

73

74

76

81

80

77

78

63

3

5 9

10

8

12

13

15

28

29

30

26

32

33

34

35 36

37

38

40

41

43

44 45

48

50

51

52

53

55

56

58

61

64

68

69

70

60

67

72

57

ZAMBOANGA CITY

ICAR II

III

IV-A

V

IV-B VI VII

VIII

IX X

XIII

XI

XII

ARMM

NCR

MALAYSIA

Celebes Sea

Moro

Sulu Sea

Leyte Gulf

Visayan

Sea

Mindoro Strait

SibuyanSea

Phi l ippine

Sea

Babuyan Channel

Luzon Strai t

Gulf

DavaoGulf

MindanaoSea

BatanIslands

BabuyanIslands

PolilloIslands

LubangIslands

Catanduanes

TicaoSibuyanTablas

Busuanga

SemiraraIslands

CuyoIslands

Culion

Linapacah

Dumaran

Bugsuk

Balabac

Cagayan Sulu

Tawi-Tawi

Sulu

Basilan

Mindanao

CamiguinSiquijor

Negros

Panay

Bohol

Cebu Leyte

SamarMasbate

Marinduque

BuriasMindoro

Palawan

Luzon

Dinagat

Siargao

Sarangani

20ºN

10ºN

5ºN125ºE

120ºE

125ºE

IlocosIlocos NorteIlocos SurLa UnionPangasinan

Cordillera Admin. Reg.AbraApayaoBenguetIfugaoKalingaMountain Province

Cagayan ValleyBatanesCagayanIsabelaNueva VizcayaQuirino

Central LuzonAuroraBataanBulacanNueva EcijaPampangaTarlacZambales

National Capital Reg.

CALABARZONBatangasCaviteLagunaQuezonRizal

MIMAROPAMarinduqueMindoro OccidentalMindoro OrientalPalawan*Romblon

BicolAlbayCamarines NorteCamarines SurCatanduanesMasbateSorsogon

Western VisayasAklanAntiqueCapizGuimarasIloiloNegros Occidental

Central VisayasBoholCebuNegros OrientalSiquijor

Eastern VisayasBiliranEastern SamarLeyteNorthern SamarSamarSouthern Leyte

Zamboanga PeninsulaZamboanga del NorteZamboanga del SurZamboanga SibugayZamboanga City

I1234

CAR56789

10

II1112131415

III16171819202122

NCR

IV-A2324252627

IV-B2829303132

V333435363738

VI394041424344

VII45464748

VIII495051525354

IX555657---

Northern MindanaoBukidnonCamiguinLanao del NorteMisamis OccidentalMisamis Oriental

Davao Reg.Compostela ValleyDavao del NorteDavao del SurDavao Oriental

SOCCSKSARGENNorth CotabatoSaranganiSouth CotabatoSultan Kudarat

CaragaAgusan del NorteAgusan del SurDinagat IslandsSurigao del NorteSurigao del Sur

Autonomous Reg. inMuslim MindanaoBasilanLanao del SurMaguindanao**SuluTawi-Tawi

X5859606162

XI63646566

XII67686970

XIII7172737475

ARMM

7677787980

**Shariff Aguak (Maganoy) andSultan Kudarat serve as co-capitalsof the province.

*Executive Order 429, May 23, 2005,provides for the transfer of Palawanprovince (#31) from Region IV toRegion VI; Administrative Order 129holds EO429 in abeyance until animplementation plan is approvedby the President.

PHILIPPINES

0 50 100

0 50 100 Miles

150 Kilometers

IBRD 33466R4

MAY 2009

PHIL IPPINESSELECTED CITIES

PROVINCE CAPITALS

REGION CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

REGION BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.

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