Addendum to Fiduciary Systems Assessment        ESPES ‐2nd Additional Financing                                         April 21, 2021  1          TABLE OF CONTENT    I.      CONCLUSION ....................................................................................................................................... 4  II.      SCOPE ..................................................................................................................................................... 5  III.  REVIEW OF PERFORMANCE OF PUBLIC FINANCIAL MANAGEMENT CYCLE .............. 8  IV.  STATUS OF RISKS & MITIGATION MEASURES ....................................................................... 18  V.      IMPLEMENTATION SUPPORT  .......................................................................................................  25  ANNEXES ......................................................................................................................................................... 26                                                    2      ACRONYMS AND ABRREVIATIONS AF Additional Finance BOF Bureau of Finance BIs Budgetary Institutions COPCD Channel One Programs Coordinating Directorate DLI Disbursement-Linked Indicator EFY Ethiopia fiscal year ETB Ethiopian birr ESPES Enhancing Shared Prosperity through Equitable Services FEACC Federal Ethics and Anti-Corruption Commission FM Financial Management FPPA Federal Public Procurement Agency FSA Fiduciary Systems Assessment FY Fiscal Year GAC Governance and Anti-Corruption GC Gregorian calendar GOE Government of Ethiopia GPG General-Purpose Grant HCP Human Capital Project IBEX Integrated Budget and Expenditure system ICB International Competitive Bidding IDA International Development Association IFMIS International Financial Management Information System IFR Interim Financial Report IGFTS Intergovernmental Fiscal Transfer System IPF Investment Project Financing JRIS Joint Review and Implementation Support MoF Ministry of Finance ORAG Office of Regional Auditor General PAP Program Action Plans PEFA Public Expenditure and Financial Accountability PFM Public Financial Management P4R Program-for-Results SNNPR Southern Nations, Nationalities, and Peoples' Region SPG Specific Purpose Grant WoF Woreda Office of Finance ZoF Zone Office of Finance 3      I. CONCLUSION 1. Introduction: A Fiduciary System Assessment (FSA) for the 2nd Additional Financing - Enhancing Shared Prosperity through Equitable Services (ESPES) was carried out on Federal, Regional and Local Government entities that are implementing the program consistent with WB Policy, Directive and Fiduciary Systems Assessment Guidance Note for Program-for-Results Financing. Due to the Covid-19 pandemic, field visit to the regions and woredas was not conducted. However, virtual meetings were conducted with MoF, regions and woredas and important documents which are relevant for the assessment were shared electronically with the Bank. The objective of the FSA is to conclude whether the Program fiduciary systems provide reasonable assurance that the financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. 2. Reasonable assurance: The FSA concludes that the Financial Management, Procurement and Governance systems capacity and performance continue to be adequate to provide reasonable assurance that the funds will be used for the intended purposes with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability. 3. Risk assessment: The overall fiduciary risk of the program continues to be substantial. For the Financial Management, the key Financial Management risks identified include weak internal controls in the areas of cash on hand, cash at bank (bank reconciliation), timely settlement of advances, property management and ineffective internal audit process due to numbers and non- operational of system and risk-based audit, failure in disclosing annual budget, budget execution and audit reports on BoFs and ORAGs websites affects transparency. The same risk mitigation measures proposed in the 1st AF, providing areas focused institution trainings, development, and maintenance of websites of BoFs and ORAGs, in the form of Program Action Plans (PAPs) will continue, especially those that are not fulfilled. In addition, new DLRs and PAP are proposed. DLRs focusing on PFM reform strategies adopted by regions which includes the allocation of adequate resources to implement the reforms as noted in these PFM strategies is proposed. In addition, DLR, focusing Property management and internal audit is proposed. Furthermore, capacity building activities will be included in the IPF component of the program. As disclosed in the program expenditure framework section, there are no new expenditure and procurement profiles, only additional expenditures are planned in the same project duration. The overall expenditure framework and profiles are still the same focusing on basic services. Some reductions are made to the expenditure framework to allow for other project operations in the same area and this is documented in the revision to the expenditure framework of during the restructuring of the existing operation. Therefore, there is no need to change in financial management arrangements from the original and 1st AF of the program. These arrangements will continue to be applicable for this AF. 4. The procurement system both at federal and Regional remains to be governed by the same federal and regional proclamations. However, the Federal Government has finalized a revised proclamation which is expected to be ratified by Parliament soon. The existing Proclamation No. 649/ 2009 which has been governing procurement for more than ten years will be replaced by the new proclamation. Following the Federal ratification of the law, regional administrations are expected to revise their laws based on the new federal law. The same procurement risks identified in the earlier assessment remain particularly risk associated with capacity limitation including (i) not having adequate number of qualified procurement staff, (ii) inadequate resources assigned for procurement regulatory function, (iii) gaps in procurement planning, bidding document preparation, evaluation, contract management, and record keeping at decentralized level, (iv) lack 4      of simplified standard procurement procedure and documents that can be uniformly applied across Woredas, etc. On the other hand, progress is noted in improved function of procurement regulatory bodies in the manner they managed to deliver on the procurement DLI. The regulatory bodies are registering procurement process data and reporting on procurement performance through agreed KPIs, though a lot of the reporting needs further improvement. Similarly, the regional regulatory bodies are making effort to deliver on their responsibility to undertake procurement audit on procurement implementing institutions, again with much improvement needed on quality and coverage of the audits. Procurement expenditure profile at decentralized level still indicates the contract amounts of single contracts are much below the exclusion threshold under PforR operations, signifying the risk of encountering a high value contract within the program expenditure is low. Based on data reviewed for the EFY2011 (2019), the share of expenditure of the five sectors (Agriculture, Education, Health and Water) is significant at 54%. On the other hand, share of capital allocation, which is spent through procurement, within the four basic sectors has dramatically dropped to 21% which in the earlier assessment covering the period EFY 2007-2009 (2015-2017) was 70%. Overall procurement risk is rated Substantial. The risk mitigation measures under this AF will include improved DLR target and PAP actions to address the observed gaps. 5. Appropriate systems to handle the risks of fraud and corruption, including effective complaint-handling mechanisms, that have been agreed on and established in the parent and 1st AF will continue in this program as well. II. SCOPE 6. The scope of the FSA is based on the existing boundary of the program and expenditure framework that is the General-Purpose Grant (GPG) as disclosed under expenditure framework. Institutional Arrangements 7. For the FM, the Program will continue to use the government system (federal, regional and local level) for FM, procurement and governance. The Ministry of Finance (MoF) will continue to be the Implementing Agency for the current ESPES as well as for this additional financing of ESPES. Within MoF, the Channel One Programs Coordinating Directorate (COPCD) will continue to be the responsible body for coordinating the PforR activities across the basic service ministries, government bodies and sub-national government entities and for ensuring compliance with joint legal agreements. COPCD’s specific responsibilities under the PforR continue to include: i) directly supervising, reviewing, and monitoring progress of all aspects of PforR implementation, ii) ensuring timely fulfillment of actions in the Implementation Support Plan, and iii) leading and coordinating government’s involvement in the semiannual JRIS missions and other ongoing dialogues. MoF will continue to have the overall responsibility for budgeting in compliance with the Expenditure Framework, implementation oversight, financial management, flow of funds and accounting for the program funds as well as the implementation of the Program Action Plans. The Office of the Auditor General (OFAG) in addition to being a verifying agent will continue to audit Program accounts as per agreements. 8. At the regional government level, Bureaus of Finances (BoFs) will continue to have similar responsibilities at the regional level as MoF has at the federal level. Channel One Coordinators will continue to play active role at the regional level. BoF responsibilities include at least the following: i) receiving, consolidating, and transferring financial and expenditure reports from the Woreda Finance Offices (WoFs) to MoF; ii) receiving Woreda level plans for the basic service sectors and assisting Woredas in reconciling their plans within the agreed budget; iii) allocating budgets to 5      Woredas in line with the agreed fiscal transfer formulas; iv) reviewing and consolidating results reports from Woreda governments. 9. At local level, WoFs and Urban Administration Offices of Finance have similar responsibilities as those of the BoFs. Their responsibilities also include at least: i) undertaking regular M&E and coordination with Woreda sector offices; ii) undertaking operational tasks such as planning, supervision, and financial management; iii) submitting consolidated monthly reports, including monthly reconciliation of expenditures to BoFs; iv) reporting on a monthly basis on the actual use of block grants including basic services sub-program resources at local level and overall performance in relation to service delivery targets. 10. Councils at regional, zonal. woreda and kebele levels: i) provide general oversight of those sub-national government institutions involved in the PforR Program’s implementation; ii) review and approve annual development plans and budgets; and iii) facilitate information sharing and harness the involvement of citizens in the planning, budgeting, and management of delivering basic services. 11. For procurement, the program will continue to rely on the government system. Federal Public Procurement and Property Administration Agency (FPPA) is responsible for procurement oversight at federal level. Each Region has its own Regional Procurement Regulatory bodies, albeit at different organizational independence and capacity level, responsible to the Bureau of Finance (BoF). The institutional framework for procurement regulation and oversight is established at all levels of government. The Government has established a “Pool” system at Woreda level where pooled staff based at the Woreda Office of Finance (WoF) office procure goods, works and services on behalf of sectors. 12. The procurement organization encompass different layers of institutions responsible for procurement function at decentralized level with capacity level. The institutions that play critical role in procurement function for the basic service delivery are: (i) regional procurement regulatory bodies, (ii) basic sector regional bureaus, and (iii) Woreda level procurement units. The detail description and responsibility identified and explained in the IFA for the first AF is functioning without change. 13. For Governance, the Bank will rely on the Government’s system of fraud and corruption prevention and control. The structural arrangement for the control of fraud and corruption cover the FEACC, REACCs at Regional level and ethics officers assigned at WoF level. The Woreda council with its budget standing committee will continue to play an oversight role. The system of public complaint redress mechanism for all types of complaints arising during service delivery including mal-administration, mismanagement of resources and malpractice in procurement administration will also continue to be addressed by the above-mentioned structure. Expenditure Framework 14. The 2nd AF will scale-up PforR component of ESPES and increase its contribution to the GPG. The AF support of the Government Program, investing in two priority areas of the COVID- 19 response: protecting the poor and vulnerable and strengthening policies and institutions for rebuilding better. The scope of the Government program, the GPG, will not change. Domestic investment will account for 82 percent of the GPG budget. IDA investment, including ESPES, this 2nd AF and other operations that contribute to the GPG, represents roughly 10 percent of the total GPG budget. Other donor partner investments in the GPG make up roughly 8 percent of its budget. 6      By pooling funding with domestic resources, ESPES and the other World Bank and donor investments in the GPG contribute to the Government Program and help incentivize key reforms in the pro-poor sectors with widespread, national impacts. Tables 1 and 2 outline the Expenditure Framework and Program Financing. Table 1: ESPES 2nd Additional Financing Expenditure Framework FY21 - FY23 (Based on recurrent spending at woreda level, US$ millions) FY21 FY22 FY23 Estimate Forecast Forecast Total block grant transfer to regions 169,869.0 195,349.0 228,558.0 Total woreda budget (block grants) 4,111.0 4,111.0 4,182.5 Recurrent 3535.4 3535.4 3596.9 Capital 575.5 575.5 585.5 Woreda recurrent spending on basic service sectors Agriculture 364.1 364.1 370.5 Water 63.6 63.6 64.7 Education 1,389.4 1,389.4 1,413.6 Health 484.4 484.4 492.8 Rural roads 31.1 31.1 31.7 Total woreda recurrent spending on basic services 2,332.7 2,332.7 2,373.2 Total woreda basic service spending attributed to ESPES 2nd AF 1,276.2 1,276.2 1,298.4 Total woreda basic service spending attributed to other WB programs1 1,056.5 1,056.5 1,074.8 Agriculture 356.9 356.9 363.1 Education 426.6 426.6 434.1 Health 233.3 233.3 237.3 Water 35.0 35.0 35.6 Rural roads 4.7 4.7 4.7 Table 2: Program Financing (US$ millions) Financing Source FY16-18 FY19-21 FY22-232 Total (ESPES Original (ESPES 1st (ESPES 2nd AF) Program) AF) BORROWER/RECIPIENT 5,898 7,060 3,303 16,261 ESPES PROGRAM 600 700 250 1,550 OTHER DONORS 320 240 299 858 TOTAL 6,818 8,000 3,852 18,669 15. As can be seen above expenditures of the basic services are shared among ESPES and other WB Operations. Based on discussions with teams and OPCS, a memo is prepared to explain FM aspects including reporting and audit. This memo is appended here with this addendum. Please refer to Annex 7 for this.   1 Current WBG-supported programs include CALM (P170384), GEQIP-E (P163050) and the Health SDG- PF (P160108). The Expenditure Framework also includes future contributions by the HCP (P172284) currently under preparation, as well as placeholders for a potential PforR component under the One-WaSH program and for future investment in rural roads. 2 As noted above, the ESPES 2nd AF does not change the Program Closing Date. It was extended under the ESPES 1st AF to FY23 and will remain as such in the 2nd AF. The PforR component of the ESPES 2nd AF, however, was intended to fully disburse by FY21. The later Closing Date was to allow for implementation of the IPF component and ESAP3. 7      III. REVIEW OF PERFORMANCE OF PUBLIC FINANCIAL MANAGEMENT CYCLE Country PFM 16. Since the completion of the 1st AF, the PEFA 2018 and MAPS have been completed for Ethiopia. PFM reform strategy has been developed and implemented at federal level. All regions and the two-city administration have adopted the federal PFM reform strategy and implemented. The woreda PFM bench marking assessment continues to improve the system at lower level. Assessment on improvement of selected indicators (cash management and bank reconciliation), introduced in the 1st AF, has been conducted and the PFM bench marking assessment has been repeated. Both were under verification by OFAG (the verifier). 17. The Public Expenditure and Financial Accountability assessment for FY2018 indicate that while most indicators remained the same compared to previous years, the Debt Department has improved the recording of income and expenditure information in donor-funded projects, information to sub-national governments on their budget allocations is communicated on time and considered reliable, systems are in place for contracting loans and issuance of guarantees, and financial statements are compiled and submitted on time. Budget discipline at the aggregate level continues to be reasonably assured. Macroeconomic forecasting and fiscal forecasting are performing well, and payroll management and internal control continue to be reasonable. Audit coverage and quality have improved significantly, although the same unaddressed findings persist year after year.  The main weaknesses identified at the federal level are in tax collection, public access to budget information, medium-term perspective in budgeting, unreported extra-budgetary funds, and limited parliamentary oversight. Low tax collection by international standards is related to significant constraints in tax administration, both in terms of system shortcomings and poor capacity affecting implementation and compliance. With regard to policy-based budgeting, Ethiopia does not have a medium-term expenditure framework, limiting the Government’s ability to plan beyond a one-year horizon. Fiscal risk monitoring is weak and lacks complete and timely financial information, especially from SOEs, and there are challenges in the management and control of assets and liabilities including shortcomings in undertaking independent economic analysis for major public investments. Public procurement processes are also characterized by several weaknesses which undermine procurement efficiency and effectiveness, including: limited regulatory capacity of FPPA, delays in procurement processes, inadequate application of evaluation criteria, uneven use of standard bidding and contract documents, and weak contract administration capacity and practices. Planning and Budgeting 18. Budget: - The program will continue to use the government budget system. The assessment found that pre-budget discussions continue at the lower level, the annual budget preparation process adheres the budget rule and calendar, the annual budget is approved by the council both at region level, zonal level (in some jurisdiction) and woreda level. The approved annual budget is proclaimed both at region and woreda level and formal budget notification is sent by BoFs to public bureaus and woredas. The annual budget is recorded in the Integrated Budget and Expenditure system (IBEX) and budget is controlled at both transaction and reporting level. However as indicated in the PEFA 2018 report, almost all assessed regions poorly performed the budget documentation indicator- the comprehensiveness of the information provided in the annual budget documentation presented by the executive to the regional council. This indicator need attention to improve the transparency of public finances. 8      19. Fiscal transparency: - The fiscal transparency at lower (woreda) level is encouraging. Through the Financial Transparency and Accountability (FTA) initiative, woredas disclose annual budget, budget execution and external audit report to the public through various methods such as through FTA standard templates posted on standard notice board, brochures, T-shirts, banners, calendars, excel tabular formats along with pamphlets and electronic display boards. The annual regions subsidy is disclosed on MoF website. Somali and SNNPR have also disclosed the annual budget, budget executions and audit reports on the website of Bureau of Finances (BoFs)’s and Office of Regional Audit General (ORAGs). In other regions, the website of BoFs and ORAGs were not working and hence we could not check the disclosure of these financial information. To enhance the fiscal transparency, all regional BoFs and ORAGs are required to make functional their website and disclose budget, budget execution, audit report and other important resources for ease references. 20. Procurement planning: - Procurement planning is required under the Federal Public Procurement law as well as in regional laws. The laws establish procurement plans are expected to follow a model established by the regulatory framework and should contain information relevant to the procurement transactions including the subject matter of procurement, beneficiary, estimated value, procurement method, estimated dates for launch, bid submission and contract award and delivery. Only contracts that are stipulated in the procurement plan are supposed to be procured but this is not the practice. There are contracts which are not found in the procurement plan at both the regional and woreda levels. Those prepared exhibit several weaknesses. More importantly, the procurement plans prepared by the regional procuring entities are not prepared using standard format, lacking method, and cost. Some procuring entities do not submit their procurement plans within the specified time frame, creating difficulties on the regulatory agencies to follow up and plan. In addition, entities do not update the changes in their procurement plan and do not send the revised plans to the regulatory authorities; the procuring entities do not publish their procurement plan. These limitations on the procurement planning have negative impact on procurement outcomes such as (i) difficulty to follow up and monitor procurement performance with lack of milestones for the procurement activities; (ii) not providing sufficient heads up on the upcoming procurement opportunities to the private sector and thus lowering the level of competition; (iii) exposing to use less competitive procurement methods; (iv) creating problems for follow up and preparing audit plan for the regulatory bodies. 21. Procurement profile of the program: - Based on IBEX data for EFY 2011 (2019), on average 30% of the total regional budget for all sectors was spent through procurement which is a reduction from EFY2007 (2015) data when the share of procurement from total budget was 50%. Yet, the total amount allocated to be spent through procurement for eight regions is ETB 57.5 Billion, which is a significant amount. 22. When the data is seen specific for the four basic sectors (Agriculture, Education, Health, Water), the allocation for these basic sectors out of the total for all sectors is at 54%, with ETB 104 billion allocated for these sectors out of the total ETB 192 billion. Nevertheless, the capital expenditure or procurement share of these four basic sectors from their allocation is at 21% indicating the share has significantly dropped from the earlier assessment covering the period EFY2007-2009 (2015-2017), when the average capital expenditure from the total budget had been 70% during the period. The current allocation for recurrent expenditure is taking an average 79% of the total allocation in the basic sectors. But the amount for the 21% totaling ETB 22.2 billion to be spent through procurement at the four basic sectors in the eight regions is still significant. Detail of procurement allocation at regions and the basic sectors is presented in Table 2 and 3 below. 9      Table 2: IBEX EFY 2011-Basic Sectors (Agriculture, Education, Health and Water) capital allocation and share [ETB x 000,000] Total All Four basic Sectors Capital - All Sectors Capital - four [ETB] sectors [ETB] [ETB] Sectors [ETB] Afar 5,373 2,665 50% 1,986 37% 1,043 39% Amhara 4,979 25,866 58% 12,676 28% 4,311 17% Benishangul-Gumuz 3,682 2,059 56% 826 22% 338 16% Gambella 2,578 1,205 47% 190 7% 163 13% Oromia 65,624 36,734 56% 17,843 27% 7,301 20% SNNP 38,671 20,188 52% 10,296 27% 3,128 15% Somali 17,090 7,883 46% 9,690 57% 4,757 60% Tigray 14,230 7,221 51% 3,991 28% 1,116 15% Grand Total 192,227 103,820 54% 57,498 30% 22,156 21%   Table 3: IBEX EFY 2011-Capital / procurement total regional allocation for each of basic sectors [ETB x 000,000] Agriculture Water Education Health Total Afar 341 369 207 127 1,043 Amhara 655 1,664 1,032 961 4,311 Benishangul-Gumuz 45 110 96 87 338 Gambella 60 35 36 32 163 Oromia 1,292 3,245 1,458 1,306 7,301 SNNP 662 827 1,066 572 3,128 Somali 1,568 1,388 1,111 690 4,757 Tigray 200 581 287 47 1,116 Total 4,823 8,219 5,293 3,821 22,156 23. Of the total regional budget, woredas take share of average 60% which is around total of ETB 116 billion. But the woreda’s share out of the total regional capital allocation is 29% for all sectors signifying most procurement is happening at regional sector offices level, while most of the recurrent allocation averaging 74% goes to woredas. When the data is observed for the four basic sectors, Woredas are allocated average 22% of the total capital allocation for the four basic sectors at the regions which is till a significant procurement load at Woredas to achieve the objective of delivering basic services. Table 4 below indicates allocation of capital expenditure through procurement at Woredas level. Table 4: IBEX EFY 2011-Capital / procurement Woredas level allocation for each of basic sectors [ETB x 000,000] Agriculture Water Education Health Total Afar 63 101 102 47 313 Amhara 185 270 588 187 1,231 Benishangul-Gumuz 25 6 38 24 93 Gambella - - - - - Oromia 130 248 423 104 905 SNNP 172 224 250 278 923 Somali 310 309 388 309 1,316 Tigray 30 26 126 12 194 915 1,186 1,914 960 4,975 10      Budget Execution 24. Treasury management and funds flow: - The Inter-Governmental Fiscal Transfer (IGFT) system is the primary mechanism by which the government plans to reach its development targets in basic service delivery. This system will continue for 2nd AF of ESPES. This method employs a principal-based allocation procedure to distribute funds between regions that is based on a parliamentary-approved algorithm. The algorithm takes into account various development metrics of regions including poverty rate, population size, and infrastructure gap. Once subsidies are transferred from the federal- to the regional-level, the regions take a similar approach in distributing funds to Woredas. 25. The data collected for the past three years (EFY 2010-2012) shows that the federal government has fully disbursed the allocated subsidy to regions. Assessed regions also disbursed 99% to 100% of the allocated subsidy to woredas for the past three years. The subsidy is available in orderly and predictable manner to regions and in turn to woredas. The 2018 PEFA reports corroborates these findings. 26. Disbursement based on achievement of results will continue for the 2nd AF. As of end of Feb 2021, the disbursement for the program is summarized in the table 5. Table 5: Bank Disbursement Original 1st AFA Total Disbursement IDA 57160 IDA 6130 TFA7523 USD SDR USD SDR USD USD Signed amount 431,500,000 600,000,000 431,000,000 600,000,000 4,548,267 Disbursed 427,220,956 597,657,222 356,225,999 499,124,551 4,548,267 1,101,330,040 21 The cumulative program expenditure for the original and 1st AF of ESPES as of October 10,2020 is presented in table 6. In addition, the comparison of actual and plans (Program expenditure performance) are shown in table 7 below. Table 6: Cumulative program expenditure Gross- original & 1st AF- GEQIP E share up to CALM share up to October Net-Original & 1st AF- ESPES July 7,2020 10,2020 ESPES In million In million In million In million In million In million In million In million Basic sectors ETB USD ETB USD ETB USD ETB USD Education 192,489.29 7,041.74 11,985.18 395.62 180,504.11 6,646.12 Health 84,628.67 3,133.79 84,628.67 3,133.79 Agriculture 55,329.87 2,016.50 5,142.22 143.64 50,187.65 1,872.86 Water 10,344.87 375.12 10,344.87 375.12 Road 1,672.84 53.23 1,672.84 53.23 344,465.54 12,620.37 11,985.18 395.62 5,142.22 143.64 327,338.14 12,081.12 Table 7: Program expenditure performance (in million Birr) 11      27. As indicated above, the Bank disbursement as of October 10,2020 USD 1,101.33 million did not exceed the net program expenditure USD 12,081.12 million. 28. As noted above the expenditure framework of ESPES is amended (restructuring of 2021) basically to document or capture of the reduction of or split of expenditures to other programs operations (CALM, GEQIP other upcoming ones like HCP). The IFRs will include schedules and explanations to show this split. Please refer to Annex 7 for a memo prepared in discussion with OPCS and teams to show the FM aspects/implications/arrangements of this split. 29. Accounting and financial reporting: The government accounting policies and procedures continue to be used for the program. Also, IBEX system is in use for transactions recording and reporting at regional, zonal and woreda level. The system is operating both offline and online mode. The number of online modes operators is increasing but needs more improvement. During the assessment, the percentage of online mode at region, zone and woreda level was 24%,79% and 28% respectively. In regions like Oromia, Amhara and SNNPR, zones are responsible to receive and consolidate woredas reports and then send to their respective BoFs. In other regions, woredas directly send their financial report to BoF. Woredas, and Zones are submitting the in- year and year-end reports within the stipulated deadline. Woredas and zones operating offline mode submit monthly financial statements both in soft and hard copies. At Zone and BoF level check lists have been prepared to control the quality of the financial reports. All assessed regions closed the EFY 2012 account and have submitted the financial report to MoF. MoF is submitting the quarterly IFR of the program timely and it is up to date. Procurement processes and procedures 30. Publication of procurement opportunities: Most public bodies at regional level publish their procurement tender on Either Addis Zemen or Ethiopian Herald Newspapers when using open bids method. The bid submission period for the national competitive bidding ranges from 15 to 30 days. The content of invitation is different from entity to entity and many critical elements are sometimes missing important information such as quantity of items, the bidding document submission place and time, and the financing source. 31. Procurement methods: Most of the procurement at woreda level is using shopping method. Woredas mainly use the local notice boards, invited suppliers using RFQ/letter or collecting the proforma by the procurement officers. The RFQ used by the woredas is not standard and misses different sections. Commonly, the regions and Woredas use Amharic and local languages when writing the invitation letter for shopping. 32. Bidding Documents: While bidding documents are generally prepared at regional implementing agencies, some shortcomings are identified e.g. eligibility and qualification criteria are not provided, and the use of specifications that are proprietary observed. Preparation of bidding documents is not supported by Standard Bidding Documents and lack complete information for potential bidders. The bidding documents contain only list of required materials and specifications. In some of the woredas where the SBDs are used, some of the important sections such as Bid Data Sheet, Evaluation and Qualification criteria, and Special Conditions of Contract are not properly filled out. The bidding documents do not provide clear and reasonable evaluation and qualification criteria. In most of the Woredas, the bidding documents consist of only the invitation to bid and bill of quantity and the evaluation criteria is not specified at all. 33. Bid Opening: In the regions and woredas, there is a tender committee to open bids but lacking basic procurement related training. The committee is comprised of either from members of 12      the procurement unit only or sometimes mixed with members from other user departments. In most of the cases, the committee consist an ad-hoc members/representative from audit and sectors/user departments during bid opening. The committee is mainly responsible for the opening and evaluation of bids in all woredas. Majority of the entities keep bid opening minutes and in most of the woredas the opening is recorded in the registration book. However, at some regions and woredas they do not have tender endorsing committee rather the review and approval of the bid evaluation report is done by the head of the public body or head of the procurement department as per stated threshold. 34. Evaluation: Bid Evaluation is conducted by the evaluation committee comprising the procurement staff and representatives from the user departments. After the bid submission and during the period of the evaluation, information on the examination, clarification and evaluation of bids/proposals is not disclosed to participants or to other parties not officially involved in the evaluation process, as regulated in the legal framework. The procuring entities follow different steps for evaluating bids using preliminary evaluation, and financial evaluation. The technical evaluation is not done in most woredas, because of lack of clear technical evaluation criterion in the bidding document. The common practice during evaluation is that the least price is considered after eligibility criteria and the arithmetic errors are checked. 35. Key weaknesses include lack of clear requirements and specification; lack of qualification requirements for some procurement contracts at regional and woreda levels; bidders are not notified the procurement outcomes; sometimes merit point system of bid evaluation is used while conformance criteria evaluation system is stated in the standard bidding document. In addition, regions and Woredas do not have a standard Bid evaluation template for bid evaluation report. 36. Contract management: Contracts are prepared in an abridged form without containing the essential provisions that clarify and share responsibilities between the supplier and public body. In most cases, the contract document provides only the agreed contract amount, the material and quantity to be delivered, delivery time and signature. When the contract document is prepared in a longer format, the sharing of responsibilities between the supplier and the public body is unfairly unbalanced which ultimately affect contract performance. Except for procurement of “Works” contract that is managed by the requesting work unit, contract management is the responsibility of the procurement team. The team composition in the revised pool manual suggests for “Contract Administration” expert which should be met, given the existing low capacity in contract administration.   37. Implementation of Key Procurement Performance Indicators (KPIs): The implementation of the KPIs in all regions and the three sectors (Agriculture, Education, Health) is progressing well albeit quality issues. 38. In addition to the IBEX data, the assessment looked into the KPI data that was submitted annually as part of DLR deliverable. The main data include the total procurement expenditure, list of procurement activities, share of open bidding procedure, and the bid process time. The data received indicates no large value contract exists at regional level that reaches the OPRC threshold for exclusion of contracts under PforR operations. The maximum contract amount identified is ETB 250 million (around USD 7 million) which is much below the threshold for Goods USD 30 million. However, it is noted that total amount of contracts reported under the KPI does not match with the data received from IBEX. This indicates that regions are not registering all the contracts at each sector. To address this quality issues the DLR recommended under this AF will require the KPI 13      report should include budget allocation and expenditure data that should be consistent with the KPI report. 39. While the KPI data has quality issues particularly related with the comprehensiveness of the data capture, the practice if encouraging. It is understood, the system building effort is a process that passes through obstacles and challenges and the end result cannot be achieved in one go. The effort requires continuous engagement and resource. The aim is to streamline the thinking and necessity of collecting data and measuring performance of procurement through KPIs. In the past none of the regulatory bodies considered this to be their basic duty, instead investing all their time on audit and trainings. The regulatory bodies are now putting great effort in the endeavor. It requires collecting and entering data at each stage of procurement process for each item. The envisaged capacity and streamlining of the system take time to reach a dependable stage. The initial aim was to make the exercise be a catalyst and eye opener for the regulatory bodies to improve the oversight system and achieve higher. And the exercise has fulfilled this objective. The below figures indicate the results of the two indicators using data collected the past three years (EFY 2010-2012). Table 8: Average Bid Process Period [days] EFY 2010 EFY 2011 EFY 2012 Region (2018) (2019) (2020) Amhara 51 52 44 Oromia 85 76 100 SNNP 36 66 42 Tigray 52 47 59 Figure 1: Share of Open Bid Amhara SNNP Share of Open Bid Share of Open Bid 150% 150% 93% 98% 94% 94% 99% 100% 100% 100% 85% 82% 100% 87% 79% 68% 75% 68% 65% 45% 37% 50% 27% 50% 0% 0% 2010 2011 2012 2010 2011 2012 Agriculture Education Health Agriculture Education Health Oromia Tigray Share of Open Bid Share of Open Bid 95% 150% 100% 83% 73% 96% 97% 87% 79% 57% 57% 57% 100% 77% 45% 44% 45% 50% 27% 50% 23% 24% 30% 0% 0% 2010 2011 2012 2010 2011 2012 Agriculture Education Health Agriculture Education Health   14      Internal control and internal audit 40. Internal controls: - The government internal control system continue to be used for the program. The government internal control procedures are incorporated in the regions’ financial administration proclamation, procurement and property administration proclamation, directives, guidance notes and manuals. Though internal control procedures are well captured in various documents, there is a challenge in implementation mainly due to capacity problems. The quarterly continuous audit, being carried out for the program, raised recurring issues mainly in the areas of cash on hand control, monthly bank reconciliation, property management, timely settlements of advances and receivables. The 1st AF of ESPES incorporated selective indicators (cash control and bank reconciliation) to improve the control. The assessment has been completed and it was under verification by ORAG. A set back to improve the controls in the areas of property management and payroll is mainly due to absence of appropriate application software. Unlike IFMIS, the IBEX system has no property management and payroll models to control the movement of fixed asset and stock items and to integrate HR records with the payroll database. DLRs are proposed to address the property management weaknesses. The PFM strategy being implemented at regional level is required to address these during the 2nd AF of ESPES. 41. Internal audit: - The internal audit arrangement at the original and 1st AF will continue to be used for the program.  The internal audit and inspection departments at regional BoFs are responsible for capacity building of internal auditors at regions and follow up and consolidate the quarterly internal audit reports of bureaus and woredas. Internal auditors at regional bureaus and woredas prepare annual audit plan and perform financial audit accordingly. Both submit monthly and quarter report to their office heads and to the internal audit and inspection department of BoFs respectively. Due to number of vacant posts and capacity problem, the internal auditors mostly focus on traditional audit-vouching, do not perform system and risk-based audit. The PEFA 2018 indicated that there was good internal audit coverage at the regional level, but the audit largely focuses on financial compliance with limited coverage on systemic audit. The PFM strategy being implemented at regional level should incorporate capacity building activities to improve the internal audit function at Woreda/sub national level. DLRs are also proposed to address the internal audit vacant posts. 42. Governance and Anticorruption: There is robust legal framework for addressing F & C risks in Ethiopia. FEACC and REACCs in cooperation with the Federal Attorney General have adopted both preventive and curative approaches in combating corruption in the country. FEACC will concentrate on the preventive side on expanding and promoting ethics and anti-corruption education, while Federal Attorney General focuses on the curative side on prosecution of alleged corruption offences. FEACC has signed MOU with REACCs on April, 2012 and with the Federal Attorney General and Federal police on August 2019 which established closer relationship in carrying out mutual cooperation activities, building capacities and compiling country level reports on F & C that will be reported to the Bank's Integrity vice Presidency (INT). Government’s determination in controlling F & C could be also being explained in structuring and the assigning of officers/ focal representatives in many of the offices and enhancing of anti- corruption alliances/ movements, preparation of training modules for officers and council members, provision of cascaded training and information sharing of the ESPES PforR fiduciary requirements. With regard to PforR operations, the involvement of BoF, REACCs and the relationship of FEACC with the World Bank will continue in this program operation as well. Moreover, at woreda level in addition to the internal auditors and their reporting relationship to the head of WoF, woreda cabinet, relevant sector, and to Ethics and Anti-Corruption (EAC) officers has been and also will be used to recover any mishandling of resources is further strengthened. 15      43. Unlike other P for R operations, which apply the ACG that requires submitting of a bi- annual verified compliant handling as well as fraud and corruption report from the beneficiary government institutions to the Bank through FEACC, the ESPES PforR apply strengthening of the system due to the fact that collecting a bi-annual report from more than 1000 beneficiary Woredas would not practical. Accordingly, the lead agency FEACC being having established vertical working relationship with all public institutions through the respective ethics units can coordinate the overall fraud and anti- corruption movement and the Bank’s requirements. Moreover, the system of public complaint redress mechanism for all types of complaints arising during service delivery including mal-administration, mismanagement of resources and malpractice in procurement administration will also continue. These structures also exist at woreda level (housed under the woreda administration) and with Kebele Managers’ office at village level. Complaints at the lowest level are presented to the Kebele Manager who is the first point of contact and is structurally accountable to the woreda administration. Auditing 44. Program audit: - The external audit arrangement of the program will continue during the 2nd AF. Office of Federal Auditor General (OFAG) will continue to perform both the quarterly continuous audit and the year end audit. OFAG submitted the program year end audit report for the year ended July 7,2020 and it is up to date. Continuous audit report for the quarter ended July 7, 2020 was already submitted and 1st quarter ended October 10, 2020 was not yet submitted. OFAG gave unqualified opinion for the year ended July 7, 2020 but the management letter raised several issues mainly generic in nature on the areas of cash, property management, settlement of advances and receivables and some ineligible expenditures which require attention. For past years, MoF has already submitted status report for rectification of audit findings raised in the audit report of previous years and all have been resolved. 45. ORAGs audit budgetary institutions’ books of account in their respective regions. Each ORAG present the consolidated audit report to their respective regional councils. The oversight role is performed by the budget and finance standing committee of the regional and woreda councils. As indicated in the PEFA 2018, ORAGs performance vary region to region on external audit report (audit coverage and standards, timely submission to the legislative, external audit follows up and audit institutions independence and legislative scrutiny of audit report (timing of scrutiny, hearing audit findings, audit recommendation by legislature and transparency). Somali and SNNPR’s ORAGs relatively performed well in both cases while Amhara and Oromia poorly performed on external audit report. 46. Procurement Audit: As one of the core responsibilities of the regulatory units, the assessment has noted that generally procurement audit has been undertaken on a regular basis guided by audit checklist adopted by each region. The data received from FPPPA indicates the regional regulatory bodies have increased their procurement audit coverage since the last assessment. According FPPPA data all regions except Afar have covered at least 15% of woredas as indicated in the below table. However, the audit reports are not publicized and have limited circulation between the auditee and the BoF and there is no practice in communicating the report to the wider public and regional administration. Hence, the incentive in addressing audit findings and working on the recommendations is limited. 47. The assessment received the Woreda audit reports of the regional regulatory bodies and noted that findings across regions are similar. The main findings of the reports include (i) issues 16      related with procurement plans such as procurement plan are not mostly prepared, plans not following template, plans not approved by authorized person, not choosing the right method in the plans or not including method, , implementations not done per the procurement plan, (ii) issues in the bidding documents such as use of brand names in specifications, not bidding document no prepared using standard, missing conditions of contracts, unclear evaluation criteria, unspecified bid validity period, not specifying bid opening date and time etc., (iii) bid invitation without completing the bidding documents, inviting same bidders repeatedly when limited tender and shopping method were used (iv) issues in bid evaluations such as evaluations not based on the bid evaluation criteria, disqualifying bidders for minor deviations, applying evaluation criteria not disclosed in the bidding document, not opening bid at the date and time indicated in the bidding documents, unavailability of bid opening attendance record and bid opening minutes, (v) issues in contract management such as not taking corrective action during implementation. Table 9: Procurement Audit Coverage [EFY 2011] Woreda Audit  Sectors Audit  S/N  Regions   No.  Coverage  No.  Coverage  Woredas  in %  Sectors  in %  1  Amhara  49  26.9  10  18.2%  2  Oromia  218  64.9%  16  28.0%  3  SNNP  49  31.1%  24  41.6%  4  Tigray  12  27.8%  5  12.2%  5  Somali  25  26.9%  10  17.6%  6  Ben/Gum.  6  28.6%  3  10.0%  7  Gambella  8  61.5%  6  13.3%  8  Harari  2  22.2%  2  4.5%  9  Afar  4  12.5%  2  4.5%    Financial Management and Procurement Capacity 48. Financial management-Staffing: Through the ESPES IPF budget, adequate number of accountants, IBEX expert, FTA experts, internal auditors are recruited and assigned at MoF, regions BoFs and ZoFs to support the regular government staff on PFM. These contract staff have adequate experience and skill compared to the government staff. Also, in the past three years, through the IPF budget, institutionalized trainings on budgeting, accounts, IBEX, internal audit have been provided to staffs at woreda level. Monitoring and support are being provide by MoF and BoFs to bureaus and woredas. These should be continued during the 2nd AF to enhance staff capacity.     49. Procurement-Staffing: There is a shortage of qualified staff in the regional regulatory bodies as well as at procurement implementing offices. Structurally the regulatory agencies have very few staff to carry out all the responsibilities of the bodies per the legal framework. For example, Oromia Procurement Regulatory Agency has only four procurement staff to carry out the procurement audit of the regional sector agencies, and the woredas. For the proper functioning of the regional regulatory agencies and to increase the procurement audit coverage as well as improve on quality, and there should be adequate procurement staff number, cross support by the FPPAA, and adequate guidance and training. 50. Inadequate allocation of resources including budget and facilities continues to be a key factor impeding the performance of the procurement regulatory agencies at the regional level. Almost all regional procurement regulatory bodies face problems related with insufficient budget 17      allocation and vehicle supply to travel to the woredas and carry out the procurement audit as well as follow up of the audit findings. This is having a direct impact for expanding the audit coverage of the regulatory bodies at both regional sector agencies and woredas. For example, Amhara procurement regulatory body faces serious problem in having sufficient budget, and it is not even possible to determine the amount of budget allocated specific for the procurement regulatory body. This is due to that fact that the regulatory body is still not considered as a cost center.   IV. STATUS OF RISKS & MITIGATION MEASURES 51. This addendum to assessment assessed whether there are any new fiduciary risks not originally envisaged manifested during implementation of the ongoing project (iii) whether the original mitigation measures effectively mitigated the risk and (iv) how any risk mitigation measures that were not implemented such as those in the PAP affected the performance of the Program and if additional actions are needed to address the risk. In this regard, the IFA notes in the program expenditures framework section that there are no new expenditure and procurement profiles. 52. As far as the risks and mitigation measures are concerned, for financial management, more or less the same risk profiles are noted. There are challenges in internal controls with repetitive internal control challenges are noted including weak property management, weak cash management. In addition, internal audit weaknesses are also noted again. Challenges to the oversight function including timeliness, transparency and follow up on audit findings is also an issue. These are more or less similar to the past issues and risks. Status of past mitigation measures are shown in table 5 and 6 below. FM PAP and DLIs are updated taking on board unfulfilled actions and are more focused on key issues like internal audit, system issues, internal control and M&E and accountability measures thereof to address repetitive findings. 53. Likewise, similar risks that were identified in the initial assessment were also identified in the current assessment with regard to procurement management system. The risks involve both the regulatory and operational environment at decentralized level. The regulatory environment has actually declined in terms of capacity to have effective oversight on procurement activities under respective jurisdictions. The assessment notes that not all PAPs recommended in the initial assessment were implemented. While the PAP action to ensure a minimum of 15% procurement audit coverage annually was somewhat achieved with quality issues by most regions, the PAP to finalize, disseminate and implement simplified Woreda procurement directive was not achieved and is still under process. Hence this revised assessment has recommended to keep these PAPs with some modification to be implemented in the AF project duration. On the other hand, the DLI action that has objective of strengthening function of regional regulatory units has shown encouraging progress. The regional regulatory bodies have started collecting procurement process data though analyzing data and reporting on performance with quality based on indicators remains to be achieved. During the AF period, performance measurement system using KPIs will be modified to address quality issue and will be scaled up to include Sidama Region and Dire Dawa City Administration in order to continue to strengthen and streamline the system through annual performance reporting. 54. As indicated above, on the governance aspect (fraud and corruption and compliant handling mechanism) the system is strengthen progressively starting from the parent program through the additional financing stage. Accordingly, during the parent program implementation the DLIs and PAP are focusing on assigning of Ethic officers at WoF level; and also developing training manual and provide training on effective oversight, transparency and accountability for budget for the Woreda council budget standing committee members. On the other hand, during the additional 18      financing period, the system is further strengthened by introducing the F&C and compliant recording system and providing decision on cases; rectification and follow-up of Woreda audit findings by the council. Under the proposed additional financing period strengthening of the system will continue. 55. Based on the above reasons, the fiduciary risk assessed for this operation is rated as “Substantial”. 56. Some of the PAP and DLIs will still continue to be applicable as noted in the table 10 and 11 below. In addition, new PAP and DLIs are identified in table 12 and 13 respectively below:     Table 10: Status of PAP-fiduciary    Action When Status Continue/cancelled Financial Management Internal control Year 1-3, 1st AF Both the quarterly This action will For repetitive internal control weaknesses, continuous and continue in the 2nd institute strong M&E system and take year end audit AF. accountability measures to ensure that report s of the The adopted region actions are taken. program showed PFM strategies should For long outstanding Advances, track long recurring internal address these outstanding balances and take action to control weakness in resolve them; the area of cash control, bank reconciliation, settlement of advances and property management Address system challenges that improve Year 1-3, 1st AF a) Payroll This action will internal controls: application continue in the 2nd a) Finalize and rollout a payroll software rolled out AF. application software. in Amhara and The adopted region b) Make sure existing property SNNPR region and PFM strategies should management record system is operational partially in Afar address these at local level. Find automation options region. Other including replication of existing efficient regions use MS- computer systems (if any). excel to process c) Improve websites of BoFs to improve b) No region disclosure to address PEFA concerns. currently uses d) Sustain and manage IBEX system at property woredas effectively. management application system c) Only Somali, SNNPR BoFs disclose fiscal information (Budget and audit report on their website. The 19      website in other regions were not functioning d) Good progress on use of IBEX but the number of woreda, operating on online mode, should further increase Internal Audit Year 1-3, 1st AF This action will a) Target reforms that address the internal a) Not yet continue in the 2nd audit challenge at decentralized level done AF. should be developed. b) Is being The adopted region b) Regions should fill vacant posts of done but needs PFM strategies should internal auditors at local levels. further address these. c) Build capacity of auditors on an improvement ongoing basis through regular trainings c) Is being done but needs further improvement Procurement Regional regulatory bodies maintain a Year 1-3, 1st AF MoF reported as minimum of 15% Woreda procurement achieved audit coverage annually Strengthen staffing and provide adequate Year 1-3, 1st AF The assessment still This action still needs resource (budget, transport, and so on) to finds this problem to be continued in this regional regulatory bodies to carry out unresolved at 2nd AF their function commensurate with the regional regulatory level of procurement spending in the bodies region Customize, rollout and implement Year 1-2, 1st AF Not yet achieved This action still needs simplified procurement directives and to be continued in this procedures on Woredas 2nd AF F&C and Complaints Handling Provide TOT to REACCs by FEACC; Year 1-3, 1st AF This action will REACCs conduct cascaded training to continue in the 2nd AF. Woredas on record keeping and reporting of F&C cases             20        Table 11: status of 1st AF Fiduciary DLI # DLI Amount Deadline Status DLR 8.5 Develop Federal PFM reform strategy $5 May-18 Achieved (baseline: no Federal PFM strategy exists in EFY 2009) DLR 8.6 All nine (9) regions and two (2) city $5 May-19 Achieved administrations adopt PFM reform strategy (baseline: no PFM strategy exists in any region/city-administration in EFY 2010) DLR 8.7 Improve results on the selected PFM $10 Nov-19 MoF reported that it is achieved and indicators: is currently finalizing verification- i) Cash Management: 40% of woredas However, no official reporting is submit to BoF on a quarterly basis made to the World Bank for review (as part of the financial report) and validate the said achievement. copies of their cash count statements. ii) Bank reconciliation: 55% of woredas submit to BoF on a quarterly basis (as part of the financial report) copies of their bank reconciliation statements, all by EFY 2011. DLR 8.8 Repeat benchmarking PFM evaluation $10 Nov-20 MoF reported that it is achieved and is currently finalizing verification- However, no official reporting is made to the World Bank for review and validate the said achievement. DLR 8.9 Improve results on the selected PFM $10 Nov-20 Outstanding- The DLI will continue indicators: for this 2nd AF i) Cash Management: 50% of woredas submit to BoF on a quarterly basis (as part of the financial report) copies of their cash count statements. ii) Bank reconciliation: 65% of woredas submit to BoF on a quarterly basis (as part of the financial report) copies of their bank reconciliation statements, all by EFY 2012. DLR 9.6 Procurement performance is reported $10 May-18 Achieved by four regions (Amhara, Oromia, SNNP, Tigray) based on KPIs on three basic sectors (agriculture, health, education) pertaining to analyzed data captured for EFY 2009 DLR 9.7 Procurement performance is reported $10 May-19 Achieved by four regions (Amhara, Oromia, SNNP, Tigray) based on KPIs on three 21      basic sectors (agriculture, health, education) pertaining to analyzed data captured for EFY 2010 DLR 9.8 Procurement data entry streamlined $10 May-20 Achieved and continue to be collected based on the KPIs on 3 basic sectors (agriculture, health & education) in the nine regions DLR 9.9 Procurement performance reported by $10 Nov-20 Outstanding- This DLI will be 9 regions based on the KPIs on 3 basic modified and continue in the 2nd sectors (agriculture, health & AF education), pertaining to analyzed data captured for EFY2011. DLR 10 Woreda Budget & Finance Standing $5 May-19 Outstanding-- This DLI will (b).4 Committee review annual audit continue in the 2nd AF findings and action has been taken in 15% of the woredas where audit report is submitted on woreda treasury accounts by ORAGs by May 1, 2019 DLR 10 Woreda Budget & Finance Standing $10 May-20 Outstanding-- This DLI will (b).5 Committee review annual audit continue in the 2nd AF findings and action has been taken in 25% of the woredas where audit report is submitted on woreda treasury accounts by ORAGs by May 1, 2020 DLR 10 100 woredas use electric record $10 Nov-18 Achieved (c).1 keeping (excel or more advanced systems) and use this system to report to BoF on F&C cases/tip offs according to the agreed format DLR 10 25% of woredas where at least one F & $15 Nov-20 Outstanding-- This DLI will (c).2 C case has been recorded with the continue in the 2nd AF ethics officer have referred the cases to REACCs for action. Proposed New PAP and DLRs Table 12: Proposed new PAPs Action When FM  MoF and Regions take actions to address PEFA 2018’s low scores in various aspects of Year 1 the PFM system. They should consider developing actions plans to address the issues and revise their PFM reform strategies.  At least 60% of the woredas in regions maintained internal audit department/unit with at Year 1-2 least 85% of approved internal audit positions filled  To enhance the fiscal transparency, all regional BoFs and ORAGs are required to make Year 1-2 functional their website and disclose budget, budget execution, audit report and other important resources for ease references Procurement 22       With assistance from FPPPA, BOFEDs prepare revised draft regional procurement laws Year 1-2 based on the newly revised federal law  Regional regulatory bodies maintain a minimum of 25% Woreda procurement audit Year 1-2 coverage annually F&C  FEACC will Provide training on record keeping and reporting of F&C to REACCs as well Year 1-2 as to WOFED ethic officers from at least to the hundred Woredas that have received computers through the program   Table 13: Proposed new DLRs Action Target Remark on baseline, Scalability, Verification protocol FM DLRs  DLR on Regional PFM strategy- Five (6) May 2022 Baseline- zero allocation of regional regional and Two (2) city administration governments’ budget for PFM reforms governments allocate agreed portion of their annual budget to implement PFM reforms Scalability- Yes -for number of regions that of their PFM reform strategies. For EFY allocated budget 2014 the agreed allocation will be (a) 0.1% of their EFY 2013 budget for Amhara Verification protocol- The Region revises or National Regional State, Southern Nations, endorses their existing PFM reform strategy. Nationalities and Peoples Regional State, The region allocates a portion of the EFY Somali National Regional State, 2014 annual budget (either at the beginning Benishangul Gumuz National Regional of EFY 2014 or during the supplementary State, Gambella National Regional State, budget hearing or calendar during the year- Addis Ababa City Administration, and Dire EFY 2014) to support the implementation of Dawa City Administration; and (b) 0.012% their PFM reform strategies and promises to of EFY 2013 budget for Oromia National allocate similar rates for future years. BoF Regional State. reports to MoF of the allocation of budget attaching the approval of the budget and their PFM reform strategy by April 2022. The MoF prepares consolidated report by May 2022. MoF calls OFAG to verify and submits the consolidated reports prepared and each regional report received from regions. OFAG reviews these reports, reviews budget proclamation/approval document and verifies that the region has indeed allocated resources for PFM reforms. OFAG submits their verification report to MoF by mid-June 2022. MoF submits to the Bank by end June 2022 (a) the consolidated report sent to OFAG and (b) OFAG’s verification report  DLR on Property management - 50% of May 2022 Baseline- 34% June 2017 Woreda PFM woredas in selected regions and city Benchmarking report administration governments: (a) conducted fixed asset count for EFY2013 (b) Scalability- Yes -for % of regions that reconciled with records (fixed asset achieved the 50% cap/rate registers) and (c) reported to BoF by end 23      February 2022. The selected regions and Verification protocol- 50% of Woredas in city administration governments are: each selected region conducted a fixed asset Oromia National Regional State, Amhara count and reconciled it with records (fixed National Regional State, Southern Nations, asset register) by end December 2021 and Nationalities and Peoples Regional State, reports to BoF by end January 2022. The Benishangul Gumuz National Regional BoF reviews woreda reports and prepares a State, Somali National Regional State, consolidated regional report on fixed asset Gambella National Regional State, Addis count and reconciliation and submits the Ababa City Administration, and Dire Dawa same to MoF by February 2022. The MoF City Administration. prepares consolidated report on count and reconciliation by March 2022. MoF calls OFAG to verify all and submits consolidated reports prepared and each regions’ reports (received from regions). OFAG reviews these reports, and conducts visits a representative sample of regions and woredas to verify that woredas indeed has counted and reconciled fixed assets and reported to BoF. OFAG submits verification reports to MoF by end May 2022. MoF submits to the Bank by June 2022 (a) the consolidated report on count and reconciliation sent to OFAG and (b) OFAG’s verification report. Procurement DLRs Oversight function of Regional Procurement Regulatory Bodies has been improved:  Eight regions (Afar, Amhara, Benishangul, Nov 2021 Scalability- Yes- it will be scalable based on Gambella, Harari, Oromia, SNNP, the % of eight regions achieving the target Somali) reported Procurement Performance (paid at 1/8 of total value for each region). to their respective Cabinets for each of the five basic sectors (Health, Education, Verification Protocol- FPPPA is the verifying Agriculture, Water, Roads) based on agreed entity. KPIs pertaining to analyzed data captured in EFY2013 with the following key elements addressed: (i) reports shall indicate performance comparison of current year with past years indicator results, (ii) reports shall include capital budget allocation and financial expenditure data of the reporting year and confirm the procurement report is consistent with budget and expenditure, and (iii) performance reports are signed off with Head of BoF or Head of Regulatory Body in case of independent structure;  Dire Dawa City Administration and Sidama June 2022 Scalability- Yes- it will be scalable based on Region commenced procurement data entry the % of the two administrations achieving the for five basic sectors (Health, Education, target (paid at 1/2 of total value for each Agriculture, Water, Roads) based on agreed administration). The verifier may fast track the 24      KPIs and furnished data captured in the first verification process for the three quarters data three quarters of EFY2014 and submit report by April 2022. Verification Protocol- FPPPA is the verifying entity F&C DLRs- No new DLRs are envisaged   V. IMPLEMENTATION SUPPORT 57. The Bank fiduciary team will continue to follow up implementation progress of the program by reviewing quarterly financial reports, quarterly continuous audit reports, annual program audit reports and relevant progress reports on the implementation of PAP and DLIs. In addition, fiduciary specialists will participate in supervision mission and bi-annual Joint Review and Implementation Support (JRIS) Mission. The objective of the implementation support is to assess the achievement of agreed actions and DLIs, the continuing adequacy of systems, to monitor risks and mitigation measures and covenants and agreements. 25      ANNEXES Annex 1: PEFA 2018: Overall summary of PFM performance scores Addis Oromia Amhara Tigray SNNP Somali Federal City Region Region Region Region Region Transfers from a HLG -1 higher-level NA NA D+ D+ A D+ B+ government Outturn of transfer HLG 1.1 from higher-level NA NA A A A A A government Earmarked grants HLG 1.2 NA NA D D A D B outturn Timeliness of transfer HLG 1.3 from higher-level NA NA A A A A A government Pillar I – Budget Reliability Aggregate PI-1 A D B A C B A expenditure outturn Expenditure PI-2 D+ D+ D+ C+ D+ C+ D+ composition outturn Expenditure PI-2.1 composition outturn by D D C C C B D function Expenditure PI-2.2 composition outturn by C D D C D* C B economic type Expenditure from PI-2.3 A C A A A A C contingency reserves PI-3 Revenue outturn D+ D B C C C D Aggregate revenue PI-3.1 C D B B B C D outturn Revenue composition PI-3.2 D D B D D C D outturn Pillar II – Transparency of Public Finances PI-4 Budget classification B B B B B B B Budget PI-5 C C D D D D C documentation Regional government PI-6 operations outside B A A A A A A financial reports Expenditure outside PI-6.1 B A A A A A A financial reports Revenue outside PI-6.2 C A A A A A A financial reports Financial reports of PI-6.3 B NA NA NA NA NA NA extra-budgetary units 26      Transfers to PI-7 subnational A B+ B C+ A C+ A governments System for allocating PI-7.1 A A A A A A A transfers Timeliness of PI-7.2 information on A B C D A D A transfers Performance PI-8 information for B+ D D+ C+ C+ C D+ service delivery Performance plans for PI-8.1 A D D C B C C service delivery Performance achieved PI-8.2 D D D D B D C for service delivery Resources received by PI-8.3 A D B A B B D service delivery units Resources evaluation PI-8.4 A C C C D C D for services delivery Public access to fiscal PI-9 D D D D D D D information Pillar III - Management of public finances PI-10 Fiscal risk reporting D D D+ D+ D D+ D Monitoring of public PI-10.1 D D C C D D D corporations Monitoring of PI-10.2 subnational D D D D D C D governments Contingent liabilities PI-10.3 D D D D D D D and other fiscal risks Public investment PI-11 D+ C D+ D+ D+ D+ C management Economic analysis of PI-11.1 D C C C C C C investment proposals Investment project PI-11.2 C C C C C C C selection Investment project PI-11.3 D C D D D D C costing Investment project PI-11.4 C C C C D C C monitoring Public asset PI-12 D+ D+ D+ D+ D+ C C management Financial asset PI-12.1 C C C C C C C monitoring Nonfinancial asset PI-12.2 D D D D D C D monitoring Transparency of asset PI-12.3 C C C C C C B disposal PI-13 Debt management A D D D D D D Recording and PI-13.1 reporting of debt and B D D D D D NA guarantees 27      Approval of debt and PI-13.2 A D D D D D D guarantees Debt management PI-13.3 A D D D D D NA strategy Pillar IV – Policy-Based fiscal strategy and budgeting Macroeconomic and PI-14 B C+ B B B C+ A fiscal forecasting Macroeconomic PI-14.1 B C B B B B A forecasts PI-14.2 Fiscal forecasts A C B B B B A Macro-fiscal sensitivity PI-14.3 C B C C C D B analysis PI-15 Fiscal strategy D D D D D D D+ Fiscal impact of policy PI-15.1 D D D D D D C proposals PI-15.2 Fiscal strategy adoption D D D D D D D Reporting on fiscal PI-15.3 NA NA NA NA NA NA NA outcomes Medium-term perspective in PI-16 D+ D+ D+ D+ D+ D+ B expenditure budgeting Medium-term PI-16.1 D D D D D D C expenditure estimates Medium-term PI-16.2 D D D D D D A expenditure ceilings Alignment of strategic PI-16.3 plans and medium-term D* D C C C C B budgets Consistency of budgets PI-16.4 with previous year's B A NA NA NA NA C estimates Budget preparation PI-17 B C D+ D+ D+ D A process PI-17.1 Budget calendar A C D C C D A Guidance on budget PI-17.2 B B B C C D A preparation Budget submission to PI-17.3 C D D D D D A the legislature Legislative scrutiny of PI-18 B+ D+ C+ C+ C+ C+ C+ budgets Scope of budget PI-18.1 B C B B B A B scrutiny Legislative procedures PI-18.2 A D C C C C C for budget scrutiny Timing of budget PI-18.3 A B C C A C A approval Rules for budget PI-18.4 adjustments by the B B C B B B B executive Pillar V – Predictability and Control in Budget Execution Revenue PI-19 C+ B C A A C+ B administration 28      Rights and obligations PI-19.1 B B B A A A A for revenue measures Revenue risk PI-19.2 C C C A A C C management Revenue audit and PI-19.3 A B C A A D D investigation Revenue arrears PI-19.4 D* A D A B C A monitoring Accounting for PI-20 C+ C+ D+ A C+ C+ C+ revenue Information on revenue PI-20.1 C A B A A A A collections Transfer of revenue PI-20.2 B A D A A B A collections Revenue accounts PI-20.3 C C C A C C C reconciliation Predictability of in- PI-21 year resource C+ C+ C+ B B+ B+ A allocation Consolidation of cash PI-21.1 C C C C C C A balances Cash forecasting and PI-21.2 B B B D B B A monitoring Information on PI-21.3 B B C A A A A commitment ceilings Significance of in-year PI-21.4 C C C A A A A budget adjustments PI-22 Expenditure arrears C+ C D+ C+ C+ A B+ Stock of expenditure PI-22.1 A C D A A A A arrears Expenditure arrears PI-22.2 C C A C C A B monitoring PI-23 Payroll controls C+ D+ C+ B+ B+ C+ C+ Integration of payroll PI-23.1 B B B B B B B and personnel records Management of payroll PI-23.2 A A A A A A A changes Internal control of PI-23.3 B B A B B B C payroll PI-23.4 Payroll audit C D C B B C B PI-24 Procurement D+ C D D D B B Procurement PI-24.1 D B D D D B A monitoring PI-24.2 Procurement methods A B D* D D A A Public access to PI-24.3 procurement D D D C C B C information Procurement PI-24.4 complaints D D D D D D D management Internal controls on PI-25 non-salary B A B+ B B B B expenditure 29      PI-25.1 Segregation of duties A A A A A A A Effectiveness of PI-25.2 expenditure C B B C C C C commitment controls Compliance with PI-25.3 payment rules and B A B B B B B procedures PI-26 Internal audit D+ D+ C+ C+ C+ C+ C+ Coverage of internal PI-26.1 A A B B A A A audit Nature of audits and PI-26.2 C C C C C C C standards applied Implementation of PI-26.3 internal audits and C C B B A A A reporting Response to internal PI-26.4 D D* C A B B A audits Financial data PI-27 B B B+ B C+ B C+ integrity Bank account PI-27.1 B B B C A B B reconciliation PI-27.2 Suspense accounts NA NA NA NA B NA C PI-27.3 Advance accounts C C A A C A C Financial data integrity PI-27.4 B B B C C C B processes In-year budget PI-28 D D+ C+ C+ C+ B+ C+ reports Coverage and PI-28.1 comparability of D B A A A A A reports Timing of in-year PI-28.2 D D B C C B B budget reports Accuracy of in-year PI-28.3 NA C C C C B C budget reports Annual financial PI-29 C+ C+ C+ C+ C+ C+ C+ reports Completeness of annual PI-29.1 C C C C C C C financial reports Submission of reports PI-29.2 B B B B B A A for external audit PI-29.3 Accounting standards C C C C C C C Pillar VI – External Scrutiny and audit PI-30 External audit C+ D+ D+ D+ C+ C+ B+ Audit coverage and PI-30.1 B D C C B B A standards Submission of audit PI-30.2 reports to the B C C D C B A legislature External audit follow- PI-30.3 B B C C A C B up Supreme Audit PI-30.4 Institution C D D D A A A independence 30      Legislative scrutiny of PI-31 B C+ B D+ A B+ B audit reports Timing of audit report PI-31.1 A A A A A A A scrutiny Hearings on audit PI-31.2 C B C D A A A findings Recommendations on PI-31.3 B C A D A A C audit by the legislature Transparency of PI-31.4 legislative scrutiny of B D D D A D D audit reports 31      Annex 2: Federal subsidy EFY 2009-EFY 2012 2009 2010 Proclaimed Actual  transfer % Proclaimed Actual  transfer % Blockgrant 28,387.10         34,127.2      120%          39,703        41,423.6 104% Oromia  SDG             3,894           2,336.4 60%            2,412          1,929.7 80% Blockgrant 20,302.51              24,292.1 120%          24,847        25,918.1 104% Amhara  SDG       2,788.80           1,673.3 60%            1,512          1,209.6 80% Blockgrant 17,582.87         20,471.7      116%          23,165        24,105.9 104% SNNPR  SDG 2413.2           1,447.9 60%            1,408          1,126.2 80% Blockgrant       7,107.62           8,209.2 115%          11,505        11,625.6 101% Somali  SDG 974.4              850.4 87%                699             698.6 100% Blockgrant       6,232.63           7,380.6 118%      6,929.81          7,035.1 102% Tigray  SDG 858              514.8 60% 422.1             337.5 80% Blockgrant       2,727.12           3,262.7 120%            3,467          3,466.6 100% Afar  SDG 374.4              328.4 88%                211             211.4 100% Blockgrant       1,875.64           2,250.1 120%            2,102          2,135.5 102% Benshangul  G  SDG 258              153.7 60%                128             121.2 95% Blockgrant       1,312.99           1,532.0 117%            1,512          1,526.7 101% Gambella  SDG 180              108.0 60%                  93               93.1 100% Blockgrant 874.26              975.1 112%                861             877.2 102% Harari  SDG 120                72.0 60%                  53               53.2 100% Dire  Dawa Blockgrant 1017.34           1,165.7 115%            1,013          1,035.3 102%  SDG 139.2                83.5 60%                  62               61.6 100% Total  Block gra      87,420.10         103,666.47 115,104.12         119%   119,149.56 104% Total  SDG 12,000.00              7,568.35      63%      7,000.00            5,842.11 83% 32      2011 2012 Proclaimed Actual  transfer % Proclaimed Actual  transfer % Blockgrant 45,281.82              45,281.8 47,497.02          100%      50,265.8 106% Oromia  SDG 2,067.6 2067.6           2,067.6 100%       2,067.60            100% Blockgrant 28,280.68              28,280.7 31,482.4 29,771.77          100%      106% Amhara  SDG 1,296.0             1,296           100% 1,296.0 1296            100% Blockgrant 26,414.80              26,414.8 27,718.06          100%      29,657.0 107% SNNPR  SDG 1,206.6 1206.6           100% 1,206.9 1206.6            100% Blockgrant 13,115.54              13,115.5 13,757.70          100%      14,103.4 103% Somali  SDG 598.8 598.8              100% 598.8 598.8               100% Blockgrant       7,909.79          7,909.8 100%       8,311.30           8,766.3 105% Tigray  SDG 361.8 361.8              100% 361.8 361.8               100% Blockgrant 3,956.4       3,956.40           100%       4,142.43           4,358.3 105% Afar  SDG 181.2 181              100% 181.2 181.2               100% Blockgrant       2,385.78          2,385.8 100%       2,502.65           2,623.4 105% Benshangul  G  SDG 109.8 109.8              100% 109.3 109.8               100% Blockgrant       1,721.43          1,721.4 100%       1,813.37           2,328.8 128% Gambella  SDG 79.8 79.8                100% 79.8 79.8                 100% Blockgrant 997.48                         997.5 100%       1,049.78           1,076.4 103% Harari  SDG 45.6 45.6                100% 45.6 45.6                 100% Dire  Dawa Blockgrant       1,154.97          1,155.0 100%       1,215.55           1,266.9 104%  SDG 52.8 52.8                100% 52.8 52.8                 100% Total  Block gra  131,218.70       131,218.70 100%  137,779.63        145,928.78 106% Total  SDG 6,000.00       6,000.00             100%       6,000.00             5,999.85 100% 33      Annex 3: Region subsidy 2009 2010 2011 2012 Actual   Actual  Actual  Actual   subsidy  subsidy  subsidy  subsidy  Budget subsidy transfer % Budget subsidy transfer % Budget subsidy transfer % udget subsid transfer % Oromia 22,143.80               22,140.00 24,332.68 100%             24,332.68 100% 27,922.17            27,922.17 100% Amhara                        ‐ ‐                 22,433.55             22,433.55 100% 27,861.46            27,861.46 100%  29,129.58  29,129.58 100% SNNPR 12,328.20               12,328.20 16,336.48 100%             16,336.48 100% 19,621.35            19,621.35 100%               ‐ Somali              3,203.47     3,205.73 100%             4,480.18 4,440.37      99%            5,022.60 5,020.07      100%               ‐ Afar              1,424.46     1,424.46 100%             1,772.70 1,772.70      100%            2,180.60 2,180.60      100%               ‐ Benshangul G              1,031.94     1,033.94 100%             1,395.44 1,389.73      100%            1,448.82 1,394.39      96%               ‐ Gambella 828.94                           703.25 984.21 85%                         657.65 67%            1,364.64        936.57 69%               ‐ Annex 4: IBEX rollout information PB/RSB/Branch office/College/faculty/court/TVT Zone +zone pool/ sub city Wereda Summary /Hospital/health center No Region Total off Total % From IBEX on IBEX off IBEX IBEX off IBEX on IBEX Total Total Total Total IBEX national line line on line line line off line on line line sight Total 1 Federal 260 140 120 0 140 120 260 8.00 2 Addis Abeba 108 108 50 50 0 123 123 0 281 0 281 8.64 3 Dire  Dawa 53 21 32 0 9 9 21 41 62 1.26 4 Afar 43 43 0 0 39 29 10 72 10 82 2.52 5 Harari   38 38 0 9 9 0 47 47 1.45 6 SNNPR 183 48 135 16 16 222 64 158 128 293 421 12.95 7 Gambella  52 32 20 3 1 2 14 3 11 36 33 69 2.12 8 Tigray 252 48 204 0 53 51 2 99 206 305 9.38 9 Benishangul   37 30 7 3 1 2 25 7 18 38 27 65 2.00 10 Amhara  171 47 124 13 12 1 182 73 109 132 234 366 11.26 11 Somali 84 63 21 11 9 2 99 25 74 97 97 194 5.97 12 Sidama 46 4 42 9 9 36 36 4 87 91 2.80 13 Oromia  651 51 600 21 21 336 36 300 108 900 1008 31.01 Total 1978 635 1343 126 110 16 1147 411 1,156         736    3,251 2,095      99.35 % 35.56 64.44   Annex 5: Staff data a) ESPES Contract staff Region Number Oromia 81 Amhara 64 SNNPR 110 Somali 39 Afar 20 Benshangul G 23 Gambella 12 DireDawa 14 Mof 103 34      b) Staff at basic sectors at regions Oromia Amhara SNNPR Somali Structure actual Vacant Structureactual Vacant Structure actual Vacant Structure actual Vacant BoF Treasury and finance 45 41 1 19 18 1 18 12 6 41 41 0 Inspection and audit 28 16 12 10 8 2 42 12 30 22 14 8 BoA Budget 15 14 1 2 2 0 13 12 1 14 3 11 Finance 17 17 0 8 8 0 14 14 0 13 9 4 Internal  audit 12 9 3 6 6 0 17 7 10 4 1 3 Property 88 65 23 6 6 0 20 17 3 7 4 3 BOH Budget 7 7 0 2 2 0 18 14 4 21 19 2 Finance 18 16 2 9 9 0 7 7 0 18 18 0 Internal  audit 9 4 5 6 6 0 14 9 5 4 2 2 Property 27 8 19 7 7 0 10 9 1 12 11 1 BoW Budget 7 5 2 4 4 0 14 11 3 18 18 0 Finance 18 17 1 10 10 0 13 12 1 18 18 0 Internal  audit 10 9 1 4 4 0 15 8 7 4 3 1 Property 129 100 29 7 7 0 20 14 6 10 10 0 BoE Budget 6 5 1 2 2 0 4 4 0 28 26 2 Finance 16 16 0 9 9 0 11 10 1 15 15 0 Internal  audit 13 7 6 6 6 0 14 12 2 4 3 1 Property 40 38 2 5 5 0 13 12 1 9 8 1 Road Budget 3 3 0 1 1 0 6 6 0 12 6 6 Finance 19 19 0 9 9 0 21 21 0 22 22 0 Internal  audit 12 8 4 4 4 0 12 7 5 4 3 1 Property 13 10 3 5 5 0 15 14 1 7 7 0 ORAG Audit staff 324 293 31 249 241 8 211 147 64 114 58 56 Support staff 101 89 12 96 94 2 75 65 10 46 24 22 425 382 43 345 335 10 286 212 74 160 82 78 35      Afar Benshangul  G Gambella DireDawa Structure actual Vacant Structure actual Vacant Structure actual Vacant Structure actual Vacant BoF Treasury and finance 16 13 3 12 11 1 16 15 1 19 16 3 Inspection and audit 10 10 0 9 9 0 11 11 0 10 8 2 BoA Budget 8 8 0 12 10 2 3 3 0 Finance 14 14 0 13 13 0 8 8 0 Internal  audit 5 5 0 5 5 0 1 1 0 Property 13 13 0 2 2 0 BOH Budget 15 15 0 27 16 11 12 12 0 9 6 3 Finance 14 14 0 13 13 0 13 13 0 9 8 1 Internal  audit 4 4 0 6 6 0 3 3 0 1 1 0 Property 15 15 0 4 4 0 6 5 1 BoW Budget 11 10 1 6 5 1 3 3 0 3 3 0 Finance 16 14 2 12 12 0 8 8 0 17 15 2 Internal  audit 5 5 0 6 5 1 1 1 0 3 3 0 Property 16 16 0 1 1 0 3 3 0 BoE Budget 7 7 0 6 6 0 5 5 0 3 2 1 Finance 12 12 0 16 16 0 8 8 0 7 4 3 Internal  audit 5 4 1 5 5 0 1 1 0 1 1 0 Property 14 14 0 1 1 0 5 5 0 Road Budget 9 9 0 5 5 0 2 2 0 4 4 0 Finance 10 9 1 9 9 0 4 6 0 10 10 0 Internal  audit 5 5 0 4 4 0 1 1 0 3 3 0 Property 9 9 0 2 2 0 7 7 0 ORAG Audit staff 65 46 19 36 36 0 48 33 15 Support staff 68 51 17 38 40 0 28 20 8 133 97 36 142 106 36 74 76 0 76 53 23 36      c) Staff at woreda Budget section Finance  section Internal  audit section Property section Structure Actual Vacant Structure Actual Vacant Structure Actual Vacant Structure Actual Vacant Bure   5 4 1 23 22 1 9 8 1 6 ‐ 6             Banja  5 4 1 22 21 1 9 9 0 23 20 3 Lume 9 9 0 18 16 2 11 10 1 12 10 2 Adaa 8 8 0 17 14 3 10 8 2 17 12 5 Awas 7 killo 6 5 1 13 11 2 6 5 1 10 9 1 Assosa 11 10 1 19 19 0 5 5 0 21 20 1 Bambasi 9 6 3 16 13 3 5 3 2 13 12 1 Arbaminch Zuria  4 4 0 28 28 0 8 8 0 13 13 0 Annex 6: External audit coverage a) Financial audit- in terms of entity EFY 2009 EFY 2010 EFY 2011 Total  entities Entities audited Coverage Total  entities Entities audited Coverage Total  entities Entities audited Coverage Oromia Amhara 442 281 64% 442 296 67% 442 324 73% SNNPR 125 109 87% 110 87 79% 88 66 75% Somali 155 137 88% 185 171 92% 198 179 90% Afar 91 66 73% 91 59 65% 91 56 62% Benshangul  G 73% 58% 52% DireDawa 96% 89% 85% b) Financial audit- in terms of budget 2009 2010 2011 Total  budget Budget audited Coverage Total  budget Budget audited Coverage Total  budget Budget audited Coverage Oromia 60% 62% 65% SNNPR   29,312,511,421.38   17,228,106,887.00 59%   32,163,232,125.82   20,068,570,316.00 62%   35,689,400,777.62   22,854,778,469.00 64% Somali 90% 90% 90% Benshangul  G 73% 75% 80% Gambella               7,774,411.00               6,004,737.86 77%           13,010,868.00               4,842,837.00 8,326,928.34 75%           13,126,296.00               63%             37      c) Performance audit- plan vs actual 2009 2010 2011 Planned Acutal Coverage Planned Acutal Coverage Planned Acutal Coverage Oromia 12 15 125% 15 17 113% 17 18 106% Amhara 12 11 92% 15 14 93% 10 7 70% SNNPR 8 8 100% 9 9 100% 10 10 100% Somali 1 1 100% 2 2 100% 4 4 100% Afar 2 0 0% 2 0 0% 2 2 100% Benshangul  G 4 4 100% 6 2 33% 6 3 50% Gambella Not done DireDawa 6 6 100% 6 6 100% 6 6 100%                                         38      Annex 7: Memo on Expenditure framework sharing between the ESPES (P151432), CALM (P170384), GEQIP E (P163050), HCP (P172284) and other future P4R operations Background 1. The ESPES program continues to finance Woreda-level recurrent spending, mainly salaries, to deliver basic services and the Woredas’ recurrent cost constitutes the ESPES program Expenditure Framework for the P4R component. These expenditures are part of the General-Purpose Grant (GPG) allocation of the government to the regions. At design, the ESPES-AF share from total woreda recurrent spending was estimated at 4.8 percent. Currently, the woreda recurrent expenditure share of ESPES, as calculated from different Interim Financial Reports, stood at roughly 8 percent, on average. In terms of sectoral shares, the contribution of ESPES for education, health, agriculture, water and rural roads stood at 9.0 percent, 8.1 percent, 9.7 percent, 7.6 percent and 5.1 percent, respectively. During the CALM PforR preparation, the issues of sharing the expenditure framework (EF) among different World Bank operations that support basic service sectors at the woreda level was brought up as an issue for discussion between the ESPES, CALM, FM and OPCS teams, and finally with Channel One Programmes Coordination Directorate (CoPCD) at Ministry of finance (MoF). It was agreed that the EF of ESPES at woreda level can be reduced to allow for the CALM project and other IDA-financed projects. This action is not intended to have implication on the decentralized woreda level allocation and spending. Rather it is required for the accounting and reporting purposes to show the contribution of different programs to basic service delivery at the Woreda level. Allocating expenditure among the programmes 2. Based on the analysis done by the ESPES team in consultation with the sectors and as indicated in the Table below, the ESPES EF over the next three years is reduced by the expenditure share attributed to CALM and HCP in agriculture, GEQIP-E AF and HCP in education, One WaSH and HCP in water, Health PforR and HCP in health, and possible rural road program by the WB. The amount to be excluded from ESPES-AF EF for the new HCP, CALM, GEQIP-E, Health SDG-PF, One WaSH and possible rural road program3 is estimated at USD 6.58 billion. Accordingly, the revised total cost estimate for the Program (the revised ESPES EF) will be USD 8 billion. Funding of the remaining ESPES EF from the Government, IDA and other development partners account for 88.2 percent, 8.8 percent and 3 percent, respectively. The detail EF of ESPES and the split made to other operation sis shown under Appendix I. the summary of the percentage of expenditure allocation is shown below. Woreda level % of ESPES % of % of GEQIP E % of HCP % of Other Total % of recurrent cost share CALM share share upcoming expenditure share operations share Education 80% of salary 100% of non- 20% of 100% salary salary Health 50% 20% 30% 100% Water 50% 20% 30% 100% Agriculture 10% 70%4 20% 100% Roads 80% 20% 100% 3. In addition to the allocation made above, the CALM, GEQIP-E and the potential HCP all have Specific Purpose Grants (SPGs) allocated for the programmes. With this complicated allocation of expenditure among programmes, it is essential to have a clear expenditure reporting and auditing   3 This is calculated by multiplying the total ESPES-AF expenditure framework by sectoral shares from the total woreda recurrent spending on basic services, shares to be released for sectoral programs and the HCP. Currently, from total woreda recurrent spending on basic services, agriculture accounted for 17%, education 59%, health 20%, water 3% and rural roads 1%. 4 The expenditure for Afar and Somali regions is taken out as the program doesn’t operate in lowlands. Since the amounts are insignificant compared to the total expenditure hence the percentage is taken at total 39      arrangements which clearly show that there is no overlap of expenditure and facilitate for smooth reconciliation of expenditure for each of the programmes at end of the project cycle. Furthermore, it is important to ensure that the entire EF of the programmes is covered by external audits. The approach on expenditure allocation, reporting and auditing is described below. Preparation of financial statement 4. The government prepares one financial statement for expenditures of basic service sectors at woreda level. This report is prepared by CoPCD and is submitted quarterly to the Bank as part of the ESPES P4R. The current financial statement of the government captures all basic service sectors expenditure at the woreda level and hence will not dismantled to match the expenditure frameworks of the various operations, as this will not be efficient. The government will continue to prepare the financial statement as is. The total expenditure reported by the ESPES IFR’s Statement of Sources and uses of Fund includes total expenditures (which includes the ESPES, CALM, GEQIP, potential HCP expenditures and remaining expenditure for other operations). 5. To show the portion of expenditure allocated to ESPES and the other operations, a new reconciliation schedule is included in the IFR of ESPES showing the revised expenditure framework for ESPES. This schedule will show the expenditure that remains for ESPES and excluded expenditure, which is taken by GEQIP, CALM, HCP and others. This schedule, shown under Appendix 2, attached to the quarterly IFR of ESPES, will show the total expenditure reported, the amount that has been allocated to GEQIP, CALM, HCP and also the expenditure that remains for ESPES and other potential programmes. This schedule will be used to make the expenditure reconciliation at the end of the ESPES P4R when comparison is made for the amount disbursed by the Bank and the expenditure reported by the government for ESPES. 6. CALM and GEQIP E have semiannual financial reports that are submitted to the Bank. The pipeline HCP and any other future programmes will also have this reporting requirement. Each of these projects will show on their semiannual financial reporting, the amount of expenditure they took from ESPES as well as their own allocated expenditure through the SPG. Similar schedule noted above as attached on the ESPES reporting will be used for these P4Rs as well. These schedules will be used to show the total expenditure reported for the programmes and will be used for reconciliation of expenditure at the end of each of the programs. The template is attached to Appendix 3. 7. The budget codes for these expenditures to be shared among the programmes is shown under Appendix 4. As the list is big, it may not be necessary to reflect these in each IFR submission. The full detail is captured on this memo and will be used as reference point for anyone who wants to see the codes. 8. The current closing date for ESPES is May 2023. Once ESPES closes, the reporting of the entire expenditure framework will be overtaken by the HCP which will go up to FY 2026. The same procedures described above will continue under the HCP. External audit report 9. The audit report submitted under the ESPES captures the entire basic service deliver expenditure at woreda level. This audit report is submitted to the Bank every year within 6 months of the year end. As the coverage is significant, there is a continuous audit process throughout the year on quarterly basis. This one audit report will continue to be submitted under the ESPES program. 10. The expenditure framework for CALM, GEQIP and HCP is mixed with the basic service recurrent expenditure of the government at woreda level as described above and Specific purpose grants for the sectors which are for earmarked expenditure. As such, these programmes have two audit reports submitted to the Bank to cover the entire expenditure framework of the programmes. The general-purpose grant part of the expenditure framework will be covered by the audit done under ESPES and specific purpose grant is audited separately covering the remaining part of the expenditure framework. 40      11. The overall audit report review for ESPES will continue to cover all the findings noted on the report. The Bank will continue to review the SPG part of the audit under each program and will also reflect on the impact of the findings of the ESPES audit report for each of the sectors. For example, for GEQIP-E audit, it will take the findings from the ESPES audit on education sector and reflect on its impact on the GEQIP operation. Appendix 1 – Expenditure framework split between ESPES and other programmes ESPES-AF Expenditure Framework5 to be shared to other sectoral programs Amount to be Share of % of total excluded from expenditure for expenditure ESPES EF (Mln other sectors US$) Total expenditure framework for additional financing 14,583.30 Agriculture 17% 2,178.75 CALM 70% 1,694.58 HCP 20% 484.17 Education 59% 2,685.37 GEQIP-E (100% of non-salary) 100% 1,299.37 HCP (20% of education salary) 20% 1,386.00 Health 20% 1,480.20 Health SDG-PF 30% 888.12 HCP 20% 592.08 Water 3% 218.75 One WaSH 30% 131.25 HCP 20% 87.5 Rural Roads 1% 20% 20.42 Total 100% 6,583.48 Revised ESPES-AF Expenditure Framework (USD, millions) Original Loan    AF Loan FY19–21 Total FY16–18 Before After Before After       Restructuring Restructuring Restructuring Restructuring Total expenditure framework 6,818.00 14,583.30 14,583.30 21,401.30 21,401.30 Less: 90% agriculture exp for other operations including 20% for HCP       2,178.75 - 2,178.75 100% of non-salary recurrent cost for education plus 20% of salary for       2,685.37 - 2,685.37 HCP 30% health exp for other operation plus 20% for HCP       1,480.20 - 1,480.20 30% water expenditure for other operation plus 20% for HCP       218.75 - 218.75 20% for road allocation       20.42    20.42 Revised ESPES EF 6,818.00 14,583.30 7,999.82 21,401.30 14,817.82 1. Borrower/recipient 5,898.00 13,643.30 7,059.82 19,541.30 12,957.82 Share 87% 94% 88.20% 91% 87% 2. IBRD/IDA 600 700 700 1,300.00 1,300.00 Share 9% 5% 8.80% 6% 9% 3. Other donors (Austria, EU, AfDB) 320 240 240 560 560 Share 5% 2% 3.00% 3% 4%   5 This relates to recurrent spending. 41      Appendix 2 – New Reporting template introduced as part of ESPES IFR showing the expenditure allocation for ESPES and other programmes Ministry of Finance Agriculture and education sector expenditure apportionment table for ESPES, GEQIP and CALM* For the Quarter Ended____________________(in USD/ETB)   For the quarter ended….  For the year ended …..  Cumulative for project life….  Description  Amount in ETB  Amount in USD  Amount in ETB  Amount in USD  Amount in ETB  Amount in USD  Agriculture sector              Agriculture sector reported expenditure              for the quarter as per the ESPES report  Less: agriculture sector expenditure of Afar              region           : Agriculture sector Expenditure of              Somali region  Agriculture sector expenditure to be              shared between ESPES and CALM                 70% portion of CALM (1)                             10% portion of ESPES                             20% HCP              Education sector              Education sector Non salary recurrent cost              for the quarter as per the ESPES report to  be shared between ESPES and GEQIP E                  100% non‐salary cost of              education for education in region and  woredas (2)  42      TOTAL SUMMARY OF EXPENDITURE ALLOCATED TO ESPES   For the quarter ended….  For the year ended  Cumulative for  …..  project life….  Description  Amount in  Amount in  Amount  Amount  Amount  Amount  ETB  USD  in ETB  in USD  in ETB  in USD  10% of agriculture              expenditure  80% of salary              expenditure of  Education  expenditure  50% of health sector              expenditure   50% of water              expenditure   80% of road sector              expenditure   Total expenditure              allocated to ESPES    Appendix 3: New Reporting template introduced as part of CALM and GEQIP E IFRs showing the expenditure allocation from ESPES and its own allocations 43        44      Appendix 4 – budget codes for recurrent expenditure of the government which is shared among the various programmes   45        Annex 8: Assessed implementing entities for FM a) Documents which are relevant for the assessment were obtained electronically from MoF, Oromia, Amhara, SNNPR, Somali, Afar, Benishangul-Gumuz, Gambella regions and Dire Dawa administration. Tigray region was not assessed due to the current situation. The recent readiness assessment report was referred for Sidama (new region). Harari region did not provide the requested documents and information for the assessment. Two woredas from each region were selected for the assessment. Lume and Ada'a woredas (Oromia), Bure and Banja woredas (Amhara), Assosa and Bambasi woredas (Benishangul-Gumuz) Arbaminch Zuria (SNNPR) have provided the requested documents and information. The documents and information obtained from Awash 7killo woreda (Afar), Gog woreda (Gambella), and Awbre woreda (Somali) were incomplete. The other, Asayta woreda (Afar), Gambella woreda (Gambella),  Damot Gale woreda (SNNPR) Kebribeyah woreda (Somali) did not respond. b) List of people discussed Name Position Gizachew Shite ESPES, Internal Audit Coordinator, MoF Tesfaye Gemechu Channel one coordinator, Oromia region Zayede Finance coordinator, Lume woreda (Oromia region) Abebayo Finance coordinator, Ada’a woreda (Oromia region) Getachew Chire Channel one coordinator, Amhara region Yechale Zeleke Finance coordinator, Bure woreda (Amhara region) Fentahun Teferi Finance coordinator, Banja woreda (Amhara region) Mahamud Yesuf Channel one coordinator, Somali region Yusuf Amhed Finance coordinator Awbare (Somali region) Abdirakib Yusuf Finance coordinator Kebri-bayah (Somali region) Tarekegn Nuramo Channel one coordinator, SNNPR Zaza Chebu ESPES IPF accountant, SNNPR BoF Amanuel Ugo Finance coordinator Arebaminch zureya woreda (SNNPR) Girmaye Finance coordinator Damot Gale woreda (SNNPR) Hussien Ahmed Channel one coordinator, Afar region Wondu Sisay Finance coordinator, Asaita woreda (Afar region) Dawit Tesfay Finance coordinator, Awash 7 kilo woreda (Afar region) Getachew Disassa Channel one coordinator, Benishangul-Gumuz region Meki Shumhon Assosa woreda finance head (Benshangu G, region) Zeleke Mekuryaw Plan & Budget Team Leader, Bambasi woreda (Benshangul G region Obong Oboya Channel one coordinator, Gambella region Opiew Ojulu Finance coordinator, Gog woreda (Gambella region) 0917834640 Finance coordinator, Gambella Woreda (Gambella region) Nuredin Mohammed Finance coordinator, Harari region Asamnew Bezabh Channel one coordinator, DireDawa Administration Dawit Shimelis Director EMCP, MoF Degu Lakew Director COPCD, MoF 46