Annex 5: Financial Management and Disbursement Arrangements : Khyber-Pakhtunkhwa Emergency Roads Recovery Project Inherent Risk The inherent risk is Country level risk is to Keeping in view the “High”. “Substantial Moderate”. not having any past experience of implementing the Bank projects and has implementation FHA’s experience of only one foreign (ADB) funded project closed in 2006, added by security situation which restrict travel to field, the inherent risk for the Project is “High”. Control Risk The control risk is assessed as but when a dedicated Accountant is hired from the market, “High”, accounting procedures in place are tested and regular Internal Audit is conducted, the control risk is expected to come down to at least “Substantial”. Residual Risk The residual risk rating of the Project is considered “High”. Risk Analysis FM Risk Initial FM Risk Risk Mitigation After Risk Mitigation Inherent Risk Adhering to the financial management Country Level Substantial policies and procedures. Moderate Control Risk Addition of a dedicated Accountant to Staffing High Substantial the FM team of FHA Realistic and timely preparation, Budgeting Substantial Moderate approval and monitoring of budget Following the accounting procedures Accounting High Substantial and maintenance of books of accounts. Internal Segregation of duties amongst High Substantial Controls accounting staff, regular internal audit Timely and realistic preparation of cash Funds Flow Substantial Moderate forecast Recruitment/training of FM staff Financial High ensuring timely and accurate Substantial Reporting preparation of financial reports Timely drafting of the financial Auditing Substantial statements by FHA and getting account Moderate audited Restricted and limited movement in the projects areas to review activities shall Detection Risk High Substantial be mitigated by regular interaction with FHA and desk reviews. Residual Risk High Substantial
Annex 5: Financial Management and Disbursement Arrangements : Khyber-Pakhtunkhwa Emergency Roads Recovery Project Inherent Risk The inherent risk is “High”. Country level risk is “Substantial to Moderate”. Keeping in view the FHA’s not having any past experience of implementing the Bank projects and has implementation experience of only one foreign (ADB) funded project closed in 2006, added by security situation which restrict travel to field, the inherent risk for the Project is “High”. Control Risk The control risk is assessed as “High”, but when a dedicated Accountant is hired from the market, accounting procedures in place are tested and regular Internal Audit is conducted, the control risk is expected to come down to at least “Substantial”. Residual Risk The residual risk rating of the Project is considered “High”. Risk Analysis Risk Initial FM Risk Risk Mitigation FM Risk After Mitigation Inherent Risk Country Level Substantial Adhering to the financial management policies and procedures. Moderate Control Risk Staffing High Addition of a dedicated Accountant to the FM team of FHA Substantial Budgeting Substantial Realistic and timely preparation, approval and monitoring of budget Moderate Accounting High Following the accounting procedures and maintenance of books of accounts. Substantial Internal Controls High Segregation of duties amongst accounting staff, regular internal audit Substantial Funds Flow Substantial Timely and realistic preparation of cash forecast Moderate Financial Reporting High Recruitment/training of FM staff ensuring timely and accurate preparation of financial reports Substantial Auditing Substantial Timely drafting of the financial statements by FHA and getting account audited Moderate Detection Risk High Restricted and limited movement in the projects areas to review activities shall be mitigated by regular interaction with FHA and desk reviews. Substantial Residual Risk High Substantial
616150PJPR0P120ersion0210July02011.docx