Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 32255-NG PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHE AMOUNT OFSDR 12.0 MILLION (US$ 18.10 MILLIONEQUIVALENT) TO THE FEDERAL GOVERNMENTOFNIGERIA FORA STATE GOVERNANCEAND CAPACITYBUILDINGPROJECT May31,2005 PublicSector ReformandCapacity BuildingUnit CountryDepartment 12 Africa Region This document has a restricted distribution and may be used by recipients only in the- performance of their official duties. Its contents may not otherwise be disclosed without World Bankauthorization. - 11- CURRENCY EQUIVALENTS (Exchange Rate Effective April 30,2005) Currency Unit = NigerianNaira NGNl.O. = US$0.00752 US$ 1.0 = NGN 132.95043 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AEA Activities Executing Agency AGS Accountant General o fthe State BATMIS Budget and Treasury Management Information System CAS Country Assistance Strategy CF Community Foundation CFAA Country Financial Accountability Assessment CoA Chart o fAccounts CPAR Country Procurement Assessment Report CPS Country Partnership Strategy CRP Core Reform Program CRS Cross River State DflD The Department for InternationalDevelopmento fthe UKGovernment E C European Commission ERGP Economic Reform and Governance Project FAD Finance andAccounts Department FCT Federal Capital Territory FGN Federal Government o fNigeria FM Financial Management FMF FederalMinistry o f Finance FMR Financial MonitoringReport FPM Financial Procedures Manual GAAP GenerallyAccepted Accounting Principles HFD Home FinanceDepartment o f the FederalMinistryof Finance HR HumanResource HRMIS HumanResource Management InformationSystem ICR Implementation Completion Report ICT Information and Communication Technology IDA InternationalDevelopment Association IFMIS Integrated FinancialManagement Information System IGR Internally Generated Revenue IPSAS InternationalPublic Sector Accounting Standard JISU Joint Bank Group Interim Strategy Update LAN Local Area Network LGA Local Government Authority LGAD Local Government Affairs Department o f the Ministryo f Inter-governmental Affairs, Youth Development, and Special Duties FOROFFICIALUSEONLY MDA Ministries, Departments and Agencies MDG MillenniumDevelopment Goals MF Ministry ofFinance (at the state level) MTEF Medium Term Expenditure Framework MYBF Multi-YearBudgetFramework NDDC NigerDelta Development Commission NEEDS National Economic Empowerment and Development Strategy NPCU National Project CoordinationUnit OAGF Office o fthe Accountant General o f the Federation OAGS Office o fthe Accountant General o f the State O&M Operation and Maintenance OSAG Office o f the State Auditor General PEM Public Expenditure Management PETS Public Expenditure Tracking Survey PFM Public Finance Management PFMU Project Financial Management Unit PHRD Grant Japan Policy and HumanResources Development Fund. PIM Project ImplementationManual PPC Public Procurement Commission SA Special Account S A D State Affairs Department inMoIGA SAG State Auditor General SBD StandardBiddingDocuments ssc State Project Steering Committee SCoA Standard Chart o f Accounts SEEDS State Economic Empowerment and Development Strategy SGCB State Govemance and Capacity BuildingProject SHoA State House o f Assembly SOE Statement ofExpenses SPCU State sub-proj ect Coordination Unit TFIGC Task Force on Inter-governmental Collaboration TOR Terms ofReference UNDP UnitedNations Development Programme VAT Value Added Tax WAN Wide Area Network WBI World Bank Institute Vice President: Gobind T. Nankani Country Director: Hafez Ghanem Sector Manager: Helga Muller Task Team Leader: Manga Kuoh This documenthasa restricted distributionand may be used by recipientsonly in the performanceof their official duties. Its contentsmay not be otherwisedisclosed without World Bank authorization. NIGERIA STATE GOVERNANCEAND CAPACITYBUILDING PROJECT TABLE OF CONTENT A. STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 COUNTRYAND SECTORISSUES ............................................................................................. 1 1 2 RATIONALEFORBANKINVOLVEMENT ................................................................................. 2 3 B .3 ... HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES 1.PROJECTDESCRIPTION .................................................................................................. ..................................... LENDING INSTRUMENT ......................................................................................................... 3 3 2 3.. PROJECT DEVELOPMENT OBJECTIVES AND KEY INDICATORS ................................................ 3 PROJECTCOMPONENTSAND CAPACITY BUILDINGSTRATEGY ............................................. 4 4. LESSONS LEARNED AND REFLECTEDINTHE PROJECTDESIGN ............................................... 7 8 C.5.IMPLEMENTATION........................................................................................................... . ALTERNATIVECONSIDERED AND REASONS FORREJECTION .................................................. 9 1 9 2. PARTNERSHIPARRANGEMENTS............................................................................................ INSTITUTIONAL ..................................................... AND IMPLEMENTATION ARRANGEMENTS 9 10 4. 3. MONITORING EVALUATION OF OUTCOMES/RESULTS .................................................. AND SUSTAINABILITY ................................................................................................................ 11 5 .. CRITICAL RISKS .................................................................................................................. 12 12 D APPRAISALSUMMARY .6 LOANS/C.REDITCONDITIONS AND COVENANTS 1. .................................................................................................. ................................................................... 12 ECONOMIC AND FINANCIAL ANALYSIS ............................................................................... 12 2. 13 3. TECHNICAL........................................................................................................................ FIDUCIARY 13 SOCIAL ............................................................................................................................... ......................................................................................................................... 4. 14 5. ENVIRONMENT ................................................................................................................... 14 6 . SAFEGUARD POLICIES ........................................................................................................ 15 7. READINESS IMPLEMENTATION 15 FOR .................................................................................... 8 . COMPLIANCE WITH BANKPOLICIES ................................................................................... 15 ANNEXES Annex 1: Country and Sector Background ........................................................................... 16 Annex 3: Result Framework and Monitoring ...................................................................... Annex 2: Major Related Projects Financed by the Bank and /or other Agencies ................23 24 Annex 4: Detailed Project Description................................................................................ 28 Annex 5: Estimated Project Costs........................................................................................ 41 Annex 6: Institutional and implementation arrangements................................................... 42 Annex 7: Financial Management and Disbursement Arrangements................................... 45 Annex 8: Procurement Arrangements.................................................................................. 53 Annex 9: Economic and Financial Analysis ........................................................................ 58 Annex 10: Safeguard Policy Issues...................................................................................... 59 Annex 11: Project Preparation and Supervision................................................................. 60 Annex 12: Documents in Project File.................................................................................. 61 .v- Annex 13: Statementof Loans and Credits.......................................................................... 62 Annex 14: Country at a Glance ........................................................................................... 64 TECHNICAL APPENDIX: ACTIVITIES UNDER COREREFORM THE PROGRAM.............................. 66 MAP IBRDNO.33458 - vi- NIGERIA State Governance and Capacity Building Project Project Appraisal Document Africa RegionalOffice AFTPR Local Foreign Total Borrower 0.00 0.00 0.00 Beneficiary States 0.00 0.00 0.00 IDA 6.30 11.80 18.10 Other Donors 0.00 0.00 0.00 FinancingGap 0.00 0.00 0.00 06.30 11.80 18.10 - vii- Addresses and ( IntactPersons: Address: Telephone Fax E-mail The Federal FederalMinistry o f 09-2346291-4, 2346951-4 Director, MULT Minister o f Finance Ahmadu Bello 09-2346928,2346930 -09-2343609 Finance Way, Central Business District, Abuja The Governor Office o f the Executive 077-543821,542611,542238 077-542611, ofBauchi State Governor, Government 543843 House, Yakubun Bauchi Road, Bauchi The Governor Office ofthe Executive 087-232786,235050,236400 I 087-232786, dduke@crossriverstate.com o f Cross River Governor, Governor's State Office, Hope Waddell Avenue, Calabar The Governor Office o f the Executive 062-417232,417229,417817 1062-410790 of Kaduna states Governor, Sir Kashim IbrahimHouse, Government House, Kaduna EstimatedDisbursements( BankFY/U$ Annual 5.6 5.8 4.3 2.0 0.4 Cumulative 5.6 11.4 15.7 17.7 18.1 Projectimplementationperiod: October 2005 - September 2009 Expectedeffectivenessdate: October 2005 Expectedclosingdate: March2010 Significant, non-standard conditions,if any, for: None. Boardpresentation: None. Grant effectiveness: None. Covenants applicableto project implementation: A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues 1.1 Economic Situation and Poverty. Nigeria i s the largest country in West Africa with a GDP o f about US$50 billion (2003) and a per capita income o f about US$320. It is highly dependent on oil which provides about seventy five percent o f government revenues and ninety five percent o f export earnings. Growth has been highly volatile and averaged just over 3 percent annually over the last decades-barely enough to keep up with population growth. Sixty percent o f Nigerians live on less than $1per day. Nigeria services only about half o f its annual external debt obligations o f over $3 billion (20 percent o f oil revenues). For several states, full debt service would leave little resources for other expenditures. 1.2 Political Developments and the New Emphasis on Reforms since 2003. The successful completion o f the 2003 presidential, gubernatorial, and legislative elections (at the national and state levels) was a landmark because, for the first time since the 1960's, Nigeria achieved a transition from one civilian government to another civilian government through contested elections. Right after the 2003 elections, President Obasanjo announced ambitious reforms aimed at laying the foundations for economic growth, employment creation, poverty reduction and more transparency and accountability inthe management o f public resources. InJuly 2003, he appointed a strongly reform minded economic team at the Federal level which quickly developed a comprehensive program: the National Economic Empowerment and Development Strategy (NEEDS). The NEEDS main elements include: (i) promoting macroeconomic stability; (ii)accelerating privatization and liberalization o f the economy; (iii)reforming the public service, including reforming public expenditure, budget and civil service; (iv) fighting corruption, improving government transparency and accountability; and (v) strengthening basic service delivery. Important early measures have included deregulating the downstream petroleum sector and committing Nigeria to the Extractive Industries Transparency Initiative (EITI), reinvigorating the anti-corruption efforts through the establishment o f the Economic and Financial Crimes Commission (EFCC) to complement the work o f the Independent Corrupt Practices and other Related Offenses Commission (ICPC), and strengthening macroeconomic policies (adopting a fiscal policy rule, reducing the fiscal deficit, limiting recourse to monetary financing o f the government deficit, and preparing a Fiscal Responsibility Bill). The new Federal administration also intensified the dialogue with the states on economic development and poverty reduction issues encouraging each state to develop its own State Economic Empowerment and Development Strategy (SEEDS). 1.3 Federalism and Intergovernmental collaboration. Today, there are thirty six states in Nigeria, in addition to the Federal Capital Territory. The 1999 Constitution increased the responsibility to the states in the delivery o f social services and the provision o f infrastructure. However, most powers accorded to the states are exercised concurrently with the FGN. This Concurrent Legislative List continues to cause debates over which tier o f government, federal or state, is best placedto deal with various areas o f policy (e.g. education, police). 1.4 States Finance. In spite o f initiatives taken by a number o f states in recent years to increase revenue mobilization, the states remain dependent on allocations o f oil revenue through the Federation Account, the pool into which oil and all VAT revenues are paid prior to - 2- distribution to the three tiers o f government. They rely on Federation Account transfers for at least three quarters o f their total budget revenues. Since the late 1990's, boostedby the oil boom and the depreciation o f the Naira, states have enjoyed strong revenue growth. At the same time, expenditures have risen sharply as states have beenobliged to follow the FGN's pay increases in 1998 and 2000 (totaling a two and half times increase of civil service pay and allowances), leading to a wage bill increase exacerbated by overstaffing andpayroll fraud. 1.5 While as a group, states do not appear to be in a fiscal crisis yet thanks to strong oil revenues, their public finances are overextended, and highly vulnerable to a weakening o f oil prices. A number o f states, in launching ambitious capital spending programs, have become committed to levels o f spending at times exceeding available resources, and have filled the gap through short term domestic borrowing, at high nominal interest rates. Intheir efforts to service their obligations, some states have built up fresh arrears to contractors and run late in meeting their monthly payrolls. What has been missing for effective fiscal policy has been clear and coherent development strategies for the states, which meets both poverty reduction and growth expectations o f the populations and addresses weaknesses in the machinery and capacity o f the state. However, this i s now changing with the development of the SEEDS inparticular. 1.6 The Need for a Sustained Capacity Building Effort. All states saw their governance capacity weakened over the years through failure to modernize public management systems, lack o f training, proliferation o f public agencies and enterprises, patronage based hiringpolicies, and systemic corruption. With excellence unrecognized, many performing civil servants left the service and young graduates with solid education and professional ambitions looked for employment inthe private sector and abroad. Even in a state like Cross River which appears to have resisted the erosion o f skills better thanks to a longer administrative tradition, the maintenance o f a sufficiently skilled civil service has not beenpossible. One o fthe reason is that state civil service training institutions are in decay and have not kept up with the evolution o f business processes and techniques in modern public institutions. Also, in most states, the responsibility for setting training priorities and selecting people for training has been overly centralized in the Office o f the Head o f Service while it should rest more with the M D A s to facilitate a strong link between staff training and the skills required to meet the operational objectives o f the service. 1.7 TheNeedfor a Comprehensive and Realistic Public Sector Reform Strategy. Inface o f serious institutional capacity constraints, states seeking to implement coherent economic development strategies need to develop a comprehensive and yet realistic public sector strategy. This entails addressing: (a) ineffective planning and budgeting, and the lack o f transparency and accountability in the use o f public resources including inadequate procurement practices; (b) the weak human resource management system which limits a state's ability to keep the staff strength o f the civil service inline with resources constraints and efficiency requirement; and (c) the need for a continuous effort to develop staff skills to enable good performance in the civil service There is also a need for improvements inthe broad area o f inter-governmental relations. 2. Rationale for Bank involvement 2.1 There are two principal reasons for the IDA to support public management reforms inthe states. First, the state (and the local government which fall under its purview) i s the tier of - 3- government principally responsible for the delivery o f basic services to the population. Therefore, the attainment o fNigeria poverty reduction objectives andmore generally the MDGs, which the intemational community including the Bank are firmly committed to achieve, largely depends on state governments' capacity to discharge their basic service delivery mandates in an efficient and accountable manner. 2.2 Second, the Bank's involvement will bringinwide-rangingintemational experiences and needed technical assistance to the reform efforts o f participating state governments. The Bank has accumulated substantial knowledge and experience on public sector reforms including public financial management and human resource management. State governments will benefit from IDAsupport to correct shortcomings o fexisting approaches to public sector reforms. 2.3 Finally, the Bank's involvement will bring needed financial resources to help fund the costs o f reforms. While state governments have put sizeable resources to improve their governance system in the past years, there still exists considerable financing gap to meet the existing enormous governance challenges given the damages done through many years o f military rules and mismanagement o f resources. Therefore, the Bank financing is much needed to complement the own reform efforts o fthe state governments. 3. Higherlevel objectivesto which the projectcontributes 3.1 The Project falls squarely under the objective o f the NEEDS and has been developed in response to requests from some fifteen state governments. It i s also fully consistent with the objectives and approach o f the CPS which (i) includes enhanced transparency and accountability for better governance as one o f the areas o f focus for partnership; (ii) emphasizes selectivity in Bank support to states; and (iii) recognizes the need for sequencing and phasingreforms. B. PROJECTDESCRIPTION 1. Lendinginstrument 1.1 The lending instrument is a technical assistance/investment loan. The essence o f the Project i s on institution-building and capacity strengthening with the assistance o f various types o f expertise from outside the public service and the necessary accompanying information and communication technology. Hence the use o f a TA which is best suitedto help build capacity in organizations directly concerned with formulating and implementing economic and institutional reforms. A Leaming and Innovation Loan was discarded because it would not have allowed the necessary broad coverage o f governance issues nor the total amount o f financing requested. 2. Projectdevelopmentobjectivesand key indicators 2.1 DeveZopment objectives. The Project development objective i s to enhance efficiency and accountability inthe management o f financial and human resources inparticipating states inline with state povertyreduction strategies. 2.2 Key indicators. The key performance indicators at the end o f the Project are the following: 0 The target share o f budget allocations to priority poverty reducing sectors/programs as defined inSEEDS i s met. - 4- 0 The deviation o f actual spending from approved budget in participating states does not exceed thirty percent. 0 The time taken to prepare audited annual reports in participating states i s reducedto less than six months 0 There i s no significant discrepancy betweenpayroll and a cleannominal roll 3. ProjectComponentsandCapacityBuildingStrategy 3.1 The three participating states (Bauchi, Cross river and Kaduna) have been chosen among six states which where identified during Project preparation through a transparent competitive process based on initial diagnostic/proposal documents presented by thirteen states out o f twenty four invited. The four criteria utilized in evaluating the initial proposals were (i)the quality o f diagnosis o f existing constraints, (ii)the overall reformprogram for the state's public sector, (iii) the relevance o f the activities proposed for IDA consideration, and (iv) track record between 1999 and 2002. The selection was further refined inlight o f the states performance in2003 and 2004 and the NEEDS and CPS which both required an even greater focus on a small number o f performing states. 3.2 The Project i s designed around two components: a Core Reform Program (CRP) to be implemented in all participating states; and State Specific Programs (SSP) selected by the states. Annex 4 provides a more detailed description o f the Project with costs summarized inAnnex 5. In addition, a Technical Appendix presents the sets of activities to be carried out under each subcomponent o fthe CRP. Project Component #1: The Core Reform Program (CRP)- US$ 13.8 million (average of US$4.6 per state) 3.3 This largest component o f the Project aims to increase the ability o f Bauchi, Cross River, and Kaduna states to improve the development and implementation o f public policies and programs. To that end, it will (i) help rebuild basic systems o f public financial and human resource management that meet a minimum standard in terms o f efficiency, accountability and transparency; (ii)promote the standardization o f PFM procedures and o f financial data production among the states o fthe Federationto allow appropriate data aggregation and analysis; and (iii)thereby, facilitate the formulation and implementation o fnational fiscal policies. 3.4 In each participating state, the Project will finance an integrated package of technical assistance, equipment and training to support the following set o f reforms: 0 Adopting a new public financial management legislation that meets the standards o f modem financial management in terms o f relevance, comprehensiveness, transparency, and accountability. The new legislation already drafted for the FGNwill serve as a guide for the new state legislations; 0 Reforming the budget preparation. The Project will finance the development and institutionalization o f a simplified multi-year budgeting framework (MYBF) for annual budget preparation, leading to more sustainable budget implementation, less "feast or famine", and no runup o f short term debt. The objective will be to present to the State - 5- House o f Assembly annual budgets which are part o f the MYBF starting from the budget for FY 2008 at the latest. The MYBF should state policies and priorities, and fiscal objectives clearly ina 3-year perspective for bothrevenue and expenditure (recurrent and capital). The first year o f the MYBF, which will include more detailed infomation, will be the annual budget to be enacted for the corresponding year. In addition, budget monitoring will be enhanced by publishing monthly statements on budget execution by ministries; Strengthening the accounting, expenditure control, and financial reporting functions by (i)implementing the Standard Chart o f Account (SCoA) being developed by the states' Accountants General and the Accountant General o f the Federation; (ii) overhauling existing processes such as commitment controls andpayment authorizatiodapproval; and ,(iii)improving financial reportingbythe ministries and the State government as a whole. Strengthening the external audit function. The Project will help modernize and strengthen external audit procedures and performance. This will include, adjusting the current legislations if necessary, clearing the backlog, and developing the capacity o f audit personnelwith the assistance o f experienced auditors from the private sector; 0 Implementing a small to medium size financial management information system focusing on the budget and treasury functions. The objective will be to improve efficiency, transparency and comprehensiveness using modern ICT. The Budget and Treasury M I S (BATMIS) will be implemented in a phased manner and, when hlly in place, support planning and budgeting, transaction processing, and reporting on the use o f financial resources. The system will be integrated in the sense that it will offer a reliable and unifieddatabase to and from which all financial data will flow and which will be shared by all users. The BATMIS will be a small to medium-range system using technologies that are simple and user friendly, utilizing off the shelf application software packages with appropriate customization. 0 Modernizing human resource management by focusing on the basic functions o f personnel registry management and establishment control and in coordination with the Ministryo fFinance. The activities supported will include (i) audits andpayparades staff when necessary, (ii)cleaning and reorganization o f personnel records, and (iii) implementing an automated and unifiedhuman resource management information system (HRMIS) for the civil servants. The HRMIS will have a proper interface with the BATMIS (if not one integrated module o f BATMIS) for consistency between nominal roll and payroll. 0 Implementing an extensive training program including (i)the adoption o f a training policy statement by the State Government; (ii) professional training for officers and middle managers from the central economic ministries and selected sector ministries, covering key areas o f economic and financial management in which the Project seeks substantial improvements (budgeting, accounting and reporting, payment management, and human resource and payroll), and (iii) computer skills enhancement program for a different categories o f civil servants in the eight to ten M D A s associated in the Project. - 6- The training will be provided locally by Nigerian training institutions with the assistance o f consultants and Project staff. Component#2: States SpecificReformPrograms-US$1.9 million 3.5 During Project preparation, the states expressed a strong desire for support in areas o f reform not included in the CRP but which are important to improve govemance and service delivery in their particular context. This will consolidate the ownership o f the Project by the state governments. It was agreed that the Project will support additional selected institutional reform and capacity building initiatives identified by the states (i)either before the beginningo f the Project (as indicated inthe next paragraphs 3.6 and 3.7; or (ii) duringProject execution as the needs emerge in the context o f the implementation o f their respective SEEDS. For the later, the Project includes a provision ofUS$ 170equivalent perparticipating state. 3.6. Bauchi and Kaduna states are committed to modemizing their tax payers identification and data management systems in order to strengthen internally generated revenues (IGR) which remain very low (8 percent and 17 percent o f total revenue in 2003 for Bauchi and Kaduna respectively). The Project will help the two states (i) verify and expand the existing tax payer database including through in-house verification and market surveys and assessments; and (ii) implement a basic ICT infrastructure and staff training necessary for maintaining a sound and reliable tax administrationdatabase. 3.7 Cross River State has selected: (a) strengthening o f the Management Development Institute as a key element o f CRS's public service skills development program; and (b) improvement o f judicial service delivery through: (i) revision o f the rules o f civil procedure applicable inMagistrate courts and HighCourts inCRS; (ii) a comprehensive skills development program for judicial and administrative officers o f the High Courts and Magistrate Courts; and (iii)implementation o f a model court administration system in two pilot courts (one Magistrate Court and one HighCourt). Activitiesto be identified(nationallevel) 3.8 Inaddition to financing the activities relating to the two Project components above, the Project includes a provision o f US$ 1million equivalent to meet two types o f needs. First, there will be a need to pave the way for reforms that other states will have to embark on in line with their respective SEEDS. Indeed, in the growing number o f reformist states, meeting the challenges o f effective use o f public resources will require developing and implementing institutional and policy reforms similar to those included in the CRP. Second, there will be a need to finance selected studies and consensus building activities in the areas o f inter- governmental collaboration and fiscal federalism. The provision will be managed by the NPCU under the supervision o f the Federal Minister of Finance and inconsultation with IDA. - 7- ProjectCapacity BuildingStrategy 3.9 The Project has been designed with the belief that (a) capacity buildingrequires a multi- faceted and integrated effort sustained over the mediumto long term; and (b) solid first steps can be achieved in a reasonable period o f time provided the design o f operations includes (i)the creation o f an enabling environment through strengthening demand for change and good performance; and (ii) the strengthening o f the link between the development o f knowledge and skills and the operational deliveries of organizations. The role o f the SHoA in the implementation o f key components such as budget reform and strengthening of external audit in each participating state, the participation o f representatives o f the civil society and the SHoA in state steering committees, and the participatory and decentralized nature o f the Project implementation arrangements (including within the States) are meant to consolidate the demand for change and good performance and to broadenthe ownership o f the reforms. 3.10 On the supply side, the Project acknowledges the erosion o f the training capacity within the state civil services over the years. Buildingon recent efforts, the Project (i) the need stresses for a well thought through training policy as a condition for effective skills development; (ii) includes training o f trainers in areas where training capacity i s limited; (iii) on training focuses locally which is more cost effective than training abroad; and (iv) seeks to support the rehabilitation o f one training institution (the Management Development Institute in Calabar, CRS) which has a vocation to serve several states in the Eastern parts o f Nigeria. The main Project training activities are indicated inthe Technical Appendix. 3.11 Finally, the Project establishes a strong link between training, institutional changes and operational objectives. While the states have developed large staff training proposals for the civil service, the Project has chosen to focus on M D A s and functions that are directly concerned by the reforms targeted inthe various components. This is in line with the findings o f training need assessments conducted during Project preparation in Cross River and Kaduna States. The knowledge and skills development activities under the Project (combining on-the-job traininghoaching, specific technical skills development workshop and seminars, knowledge sharing and dissemination activities etc.) are not packaged as isolated and discrete "training components" but rather integrated in each component as one element necessary to bring about lasting changes in the aspects o f public management addressed by the Project. As a consequence, the ten percent o f project costs grouped under the "training column" o f the costing tables is only partly representative o f the skills enhancement effort planned under the Project. 4. Lessons learnedand reflectedin the projectdesign 4.1 The Project i s the first o f its kind for the Bank in Nigeria and, at the federal level, the ERGP, approved on December 14, 2004, is only inits first year of implementation'. However, the Bank has been involved in state level sector projects inNigeria over a long time (especially rural development, education, infrastructure, health). It has also capitalized from experience sharing with other donors who have been supporting state level governance reforms, most notably DFID and the EC. A number o f lessons learned have beenincorporated inthe Project. 'The ERGP supports financial management andprocurement reforms, the restructuring and rightsizing ofselected key federal agencies, the reform o f the pension management system, and the strengthening of statistics. - 8- 4.2 Selecting committedpartners. The Bank's global experience is that governance reforms are unlikely to be sustained without strong political commitment. InNigeria, while some states remain captive to patrimonial politics and are still trapped in the systemic corruption paradigm, this picture is by no means uniform, and there i s an increasing number o f states which are attempting to modernize and improve service delivery. This lesson has been built directly into the Project through the selection process o f the participating states which included the review o f reforms engaged by the states andpolitical commitment to further reforms. 4.3 Focusing on the basicsfirst and phasing institutional changes. Experience elsewhere inAfkica points to the importance of getting the basics of public management and governance right before embarking on ambitious reforms such as performance management in the civil service or program budgeting. Inaddition, the preparation o f the Project and the preparation and launching of the ERGP have confirmed the strong need for technical expertise from outside the civil service (federal and state levels alike) in order to achieve significant institutional changes while steps are being taken to build the staff capacity within the public service. An underlying belief i s that a second generation o f reforms will be needed in the participating states upon effective implementation o f the basic reform package included inthe CRP. 4.4 Capitalizing on similarities and implementing common reform packages. The Project economizes on resources by supporting the development o f common systems across states, in key areas o f PFM. The development o f common systems will also facilitate the subsequent rolling out o f the reforms into a large number o f states. Finally, the experience o f the SLGP supported by DfID has shown that state officials who are presented with a coherent set or menu o f reforms are more focused and effective intheir reform efforts than those who have to develop and sell reform packages intheir political environment totally by themselves. 4.5 Managing the information and communication technology (IClJproperly. The global experience also points to the shortcomings o f technology driven institutional development efforts characterized by oversized and too complex ICT solutions; and insufficient involvement o f key operational units and staff training. Thus, the Project (i) stresses the policy reforms and institutional changes that the new ICT will support; (ii) emphasizes the need to design the ICT solutions realistically in line with the actual needs o f the states and the roles of the concerned operational units; and (iii) considers skills development and technical support from a central ICT team as key elements of success o f change management. 5. Alternative considered and reasons for rejection 5.1 A wider CRP. Given the widespread policy and institutional weaknesses in public service inNigerian states, a key strategic choice has been to focus on some o fthe more amenable problems where there i s a higher probability o f achieving lasting results. Hence the Project focuses on basic public finance management sub-systems together with establishment control and payroll. An alternative project concept considered included a wider core reform package tackling procurement, debt management, and revenue mobilization as well as full fledged state civil service reform including the streamlining o f mandates and organizational structures of MDAs and the overstaffing o f state administrations. Inprinciple, this would have given more coherence to the design o f a state public management reform as a whole. However, such an - 9- approach would have been over ambitious from an operational point o f view and politically unfeasible inmany cases. 5.2 A project with a larger number of participating states. Ithas beenrightly observed that there should be a "critical mass" o f states embarking on common key governance reforms in order to achieve substantive and lasting changes in the way state governments function and deliver public services, and in the way fiscal federalism i s practiced inNigeria. DuringProject preparation, it was envisaged to include six to eight participating states, knowingthat the reforms included in the C W need to be implemented in many more State governments. However because Bank and other donors' experience with projects involving a large number o f states point to implementation and supervision difficulties resulting largely from low institutional capacity, it was felt that this first project o f its kind should be limited to three states and that a similar lending operation shouldbe considered a year or two after the launching o f this project. C. IMPLEMENTATION 1. Partnershiparrangements 1.1. Nigeria and Bank dialogue on state level public policies and governance intensified in 2004 with the launching o f the preparation of SEEDS. This dialogue i s conducted jointly with other donors and the Bank has the opportunity to continue to share experience especially with the DFID, which is already working on improving governance in four states (Benue, Jigawa, Ekiti and Enugu) and the EC which i s seeking to support governance capacity in further five (Abia, Cross River, Gombe, Kebbi, and Osun). 1.2 The Project will complement the efforts being deployed in several sectors with the support of the intemational community including other Bank assisted projects (education, health, infrastructure - see Annex2). Indeed, the institutional reforms (including increased transparency, predictability, and accountability), and capacity enhancement activities that the Project will support at the center in state civil service are designed to provide a more coherent and effective policy framework and more efficient operational processes that service delivery oriented sector program will benefit from. For instance, the reforms inbudgetpreparation and execution will be instrumental in improving resource allocation among (and within) sectors and monitoring the effectiveness o fpublic spending inthe social and infrastructure sectors. 2. Institutionaland implementationarrangements 2.1 Arrangements for the Individual State Public Sector Management Reforms component. The states will have the primary responsibility for the implementation o f the public management reforms included in their respective subprojects. Activities will be carried out by existing agencies according to their respective areas o f responsibility. To guide, support and coordinate the Activities Executing Agencies (AEAs) in each participating state, there will be (i) a State Steering Committee (SSC) on governance reforms chairedby the Govemor andincluding representatives o f the legislature and the civil society; and (ii) a State Project Coordination Unit (SPCU) located in one o f the lead AEAs. The SPCU will be responsible for the day-to-day monitoring of Project implementation in the state. It will be headed by a Coordinator with the rank of a Director or above and will be supported by a team with expertise in project - 10- management, procurement, ICT, and office management. State Project components will be implemented over a period o f four years. 2.2 A generic presentation o f the implementation responsibilities for each component o f the CRP is indicated in Annex 4. Because skilled staff are in limited number in the states civil service, the Project makes resource available to finance non civil service staff and consultants who will support the SPCUs in the implementation o f their respective subprojects. This will be inaddition to the Project resources allocated for the equipment, travel and the functioning o fthe SPCU duringthe four years o f Project implementation. The average allocation under the Credit for the equipment, staffing, consultants support, travel and functioning o f a SPCU during a period o f four years i s estimated at US $ 360,000 equivalent per state. 2.3 With respect to financial management, the Project Financial Management Unit (PFMU) which has been established in the Office o f the Accountant General o f each state will be responsible for managing the financial affairs o f the Project at the state level, includingensuring compliance with the financial management requirements o f the Bank and the state government. The PFMUs are also staffed with Intemal Auditors who will be responsible for the Project internal audit. 2.4 Arrangements for Coordiizatioiz and Support at the National Level. The overall Project coordination and the support to participating states in the implementation of their respective subprojects will be the responsibility o f a National Project Coordination Unit (NPCU) located in the Multilateral Institutions Department of the Federal Ministry o f Finance (FMF/MULT). The Project includes a provision o f US$ 263,000 equivalent for the hnctioning o f the NPCU. The NPCU will (i) technical support as requested by the states; (ii) provide conduct implementation monitoring missions and mid-termreviews; and (iii) coordinate, consolidate, and disseminate the information fi-om various components implementing agencies. The NPCU will include public finance management/ICT specialists to assist the states specify, procure and implement the BATMIS and HRMIS and, together with the contractors, provide training and technical support to the state subproject implementation teams. Staff dedicated from the Finance and Accounts Department o f the FMF will be responsible for managing the financial affairs o f the Project at the NPCU level, including ensuring compliance with the financial management requirements o f the Bank and the FGN. FAD/FMFwill be staffed by relevant qualified accountants. They will maintain adequate FM arrangements to support the deployment o f Project resources in an economic, efficient and effective manner to achieve the stated development objectives. The Project Intemal Auditors at the FMF will perform modem internal audit functions for the NPCU activities. 3. Monitoringand evaluation of outcomes/results 3.1 Monitoring and evaluation is a specific area o f focus o f the Project, due to its importance instrengtheningpublic administration, andthe nature ofthe Project that involvesmultipleAEAs. Performance monitoring will be based on performance indicators as included inAnnex3, as well as work programs to be transmitted to the NPCU annually. Special attention will be given to monitoring progress on staff skills development. In each participating state, the Office of the Head of Civil Service will have primary responsibility for monitoring the training activities and to report annually on achievements. Moreover, annual reports on sub-project implementation - 11- will be transmitted to the SHoA. Finally, another feature o fthe monitoring arrangements will be a peer review mechanism through which progress Project implementation ina participating state will be assessed by a team including officers from the NPCU and representatives o f other participating states to facilitate experience sharing. 3.2 The Project will be subject to a Mid-Term Review and Implementation Completion Report (ICR), which will both bejointly prepared by IDA, the NPCU, and the SPCUs. Results o f these reviews will be discussed ineach state before being presented to the State govemors and the FGN. 4. Sustainability 4.1 The reforms supported by the Project are expected to have a lasting impact on public management in the participating states and to showcase the benefit o f increased accountability and transparency. The Project designprovides reasonable assurancesregardingthe sustainability o f the activities supported in three ways: (i) the proposed new public management systems and policies are relevant to the needs o f the states inthe medium to long term as they face increasing development challenges and a more vocal citizenry that expects results and quality public service; (ii) the modular nature o f the changes to be supported enable a phased approach and a pace adjustable to local circumstances without backtracking; and (iii) the emphasis on staff training and internalization o f new processes and systems ineach component and sub-component o f the Project will consolidate the ownership o f the reforms by the state administrations. 4.2 In spite o f the above, two sustainability issues remain. First, whether the States will maintain a strong political commitment for reforms through the Project implementation period, given that nationwide elections are to be held in 2007. A mitigating factor is that while the govemors o f the participating States will not be eligible because o f the constitutional two-terms limit provision, their respective successors are likely to be members of their teadparty because o f the general good perception o f the current administrations in these states. Also, the involvement o f the SHoAs in the Project will likely provide for a steady demand for reforms from the legislature after the elections. 4.3 The second issue relates to the financing o f recurrent costs. For the gains from the investments inmodem public management systems to be sustainable, governments will have to devote more resources than in the past to the running o f government, particularly to regular maintenance and renewal o f equipment, and the allocation o f funds for regular staff training. This is especially true in the area o f ICT where there are license fees to be paid, periodic updating o f applications to be financed, and the capacity o f system operating staff maintained in an environment where I C T specialist trained by the state administration will find it difficult to ignore more attractive compensation in the private sector. However, the Project's support for improved budgeting should increase state governments' capacity to make provision for Operation and Maintenance (O&M) which are traditionally under funded. It was also agreed that the implementation o f the MYBF and the BATMIS will require the recruitment o f young universitygraduates ina number and under arrangements that facilitate their retention. - 12- 5. Critical risks Elections scheduled for 2007 Medium Careful selection o f the three participating states which brings less reformminded teams have a longer track record o f reform initiatives. to power inthe states Participation o f representatives o f the legislature and the civil society inthe SSC. Broadparticipation and Commitment to reformwithin a Substantial empowerment o f state officials including through intensive State i s uneven, and bureaucratic training to new business processes and change stakeholders favoring the status management. quo slow implementation Highlyvariable oil revenues derail Substantial Enactment o f the Fiscal Responsibility L a w at the national reform because o f l o w state level et applicability o f the law inthe states. Development revenues or by leading to o f a MYBF that encourages states to smooth oil price cycle excessive increases inspending by saving excess revenues. 6. Loandcredit conditions and covenants 6.1 Conditions of disbursement to support public sector reforms in a participating state under the Credit include (i)the signing o f a subsidiary agreement between the government o f a participating state and the FGN; and (ii) the adoption o fthe PIMbythe participating state. D. APPRAISAL SUMMARY 1. Economic and financial analysis 1.1 Expected benefits o f operations o f this kind in terms o f fiscal savings, effectiveness and efficiency will only fully materialize in the medium term and cannot be attributed to a single action, but a combination o f reforms. However, the positive contribution the Project will have on state finances and economic conditions can be summarized as follows. 0 The Project provides a means to better budgeting, andthus potentially better use o f public resources. The advantage o f a MYBF is that it provides a fi-amework within which overall budget magnitudes and sector allocations can be planned, enabling govemments - 13- to escape from the incrementalbudgetingfollowed by actual cash budget at the execution stage with substantial discrepancies with initially stated priorities. The MYBF will become an essential tool for governments once it becomes normal practice in all tiers o f government to save excess oil revenues. The MYBF is also a tool to enable SEEDS priorities to be better reflected in annual budgets, and also to rebalance as between current and capital spending and betweenthe wage bill and non-wage O&M. There is a significant pay-off implementing modem ICT based HR management systems when the transfer o f data to the new system i s accompanied by an independent staff audit and followed by appropriate control mechanisms. For example, in one o f the DFID supported states, HR system reform revealed payroll fraud o f the order o f 25 percent o f the total wage bill, inthe form o f ghost workers, improper hires and allowance abuse. 2. Technical 2.1 The Project concept and the design o f the main project components are based on analytical work included inthe State and Local Governance Study and the State Finance Stud?. Both reports provided the analytical framework o f reforms to be supported by the Project. Regarding the Project management, the discussions with officials from the state governments and the FGN, and the input from national consultants have been critical in developing institutional and implementation arrangements that facilitate the necessary technical leadership and support from the center and yet respect the principles o f federalism andthe provisions o f the Nigerian Constitution. 3. Fiduciary 3.1 Financial Management. Staff dedicated from the Finance and Accounts Department (FAD) o f the FMF and the PFMUswill be responsible for managing the financial affairs o f the Project at the NPCU and the state level respectively. FAD/FMF and PFMUwill be staffed by relevantly qualified accountants. They will maintain adequate FM arrangements to support the deployment o f Project resources in an economic, efficient and effective manner to achieve the stated development objectives. Specifically, they will be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly FinancialMonitoringReports and audited annual financial statements to IDA. The Internal Auditors at the FMF and PFMUs will perform modem internal audit functions for the Project. A generic FinancialProcedures Manual (FPM) has been developed for Bank financed projects inNigeria. This will be reviewed and made specific to the Project with an addendum to set out the Chart o f Accounts for the Project. A specific FPM has been developed for the PFMUs. Regarding flow o f funds and banking arrangements, the Project will follow disbursement procedures described in the World Bank Handbook. IDA will disburse the credit through four Special Accounts (SAs) i.e. one maintained by the NPCU for the Project coordination, and one each by the PFMUs in the three participating states. The Project will prepare and submit quarterly Financial Monitoring Report (FMR) and annual project financial statements to the Bank and relevant oversight government agencies. The arrangements will also provide relevant information to the NPCU and the SPCUs to facilitate the performance o f their oversight functions. Experienced and well-qualified external auditors will be appointed (on TOR The World Bank- State andLocal GovernanceinNigeria. ReportNo 2447-UNI, July 2002 The WorldBank-Nigeria State FinanceStudy. ReportNo 29147-NGApril 2003 - 14- acceptable to IDA) to audit the Project accounts, financial statements and transactions irrespective o f the source of financing. 3.2 The CFAA for Nigeria assessed the risk o f waste, diversion and misuse o f funds in the country as high. Overall, the Project risk i s considered as substantial and i s mitigated by ensuring that adequate financial management arrangements will be in place. The banking and funds flow arrangements include measures to safeguard Project funds. Also, adequate arrangements for Bank supervision will be made (see Annex 7). 3.3 Procurement. The Budget Monitoring and Price Intelligence Unit (BMPIU), established at the Presidency, has submitted approval and payment o f contracts at the federal level to a strict due process review, which i s in accordance with Bank financed procurement procedures. This has strengthened procurement discipline. Moreover, the procurement environment o f the Federal Government o f Nigeria (FGN) has improved when FGN was accorded an IDF Grant to help launch the procurement reform at the federal level. BMPIU has prepared and submitted to Parliament a procurement law, and the Government has issued circulars to establish procurement units ingovernment agencies and create a procurement cadre. Similar effort are yet to take place inthe state governments. 3.4 The SPCU in each State will have overall responsibility for coordination o f procurement activities at the state level. The SPCU will be staffed with appropriate technical Staff which will include a person with expertise inprocurement. Procurement capacity assessmentso f the SPCUs has been conducted in line with the OPCS guidelines, and were found to be weak. To build the needed procurement capacity in each agency, a variety o f measures are envisaged and planned under the Project as enumerated in Annex 8. Each State SPCUs which does not have an experienced Procurement Officer in its team, will engage Procurement Consultants to assist and mentor the SPCU designated Procurement Officer for a period o f 1 year from project effectiveness. The consultants' contracts will make adequate provision for capacity building and transfer o f knowledge to relevant agency staff. There are no existing procurement manuals at any o f the implementing agencies. Therefore, the Borrower will adopt the Generic Procurement Manual already developed for Bank assisted projects in Nigeria as part o f the Project Implementation Manual (PIM). 4. Social Not applicable 5. Environment 5.1 The environmental Category o f this project i s C. The activities plannedunder the Project do not include major construction or utilization o f materials that present substantial environmental risks. - 15- 6. Safeguardpolicies No safeguard policies are triggered by this project. Safeguard Policies Triggered by the Project Yes N o Envirdnmental Assessment (OP/BP/GP 4.01) [-I [ X I Natural Habitats (OPIBP 4.04) [ - I [ X I Pest Management(OP 4.09) [-I [ X I Cultural Property (OPN 11.03, beingrevisedas OP 4.11) [-I [ X I Involuntary Resettlement(OPBP 4.12) [-I [ X I IndigenousPeoples (OD 4.20, beingrevisedas OP 4.10) [ - I [ X I Forests (OP/BP 4.36) [ - I [ X I Safety o fDams (OP/BP 4.37) [ - I [ X I Projects inDisputedAreas (OP/BP/GP 7.60) [ - I [ X I Projects on International Waterways (OPIBP/GP7.50) [-I [ X I 7. Readinessfor Implementation 7.1 The terms o freference o f the major positions at the state and national levels were finalized at Appraisal andrecruitmenthelection o f candidates will be initiated upon Board approval. The procurementplans for the first eighteen months o fthe Projects components were also agreed upon at Appraisal. 8. Compliancewith BankPolicies The Project complies with all World Bank policies andno exceptions are necessary. - 16- Annex 1:CountryandSector Background NIGERIA: StateGovernanceandCapacityBuildingProject Geography and population. Nigeria has a land area o f 924,000 sq. km and is the most populous country in Sub Saharan Africa with an estimated population o f about 132 million, growing at about 2.6 percent annually. Nigeria's population comprises many different ethnic and language groups, the most populous being the Yoruba inthe South West, Igbo inthe South East, and HausaRulani in the North. The practice o f Islam is predominant in the North while Christianity i s predominant inthe South3. The climate varies greatly, from tropical rain forest in the South to dry savannah inthe North which is flat and sparsely vegetated with river flows that are generally seasonal. The land i s hilly and mountainous in the South East, along the border with Cameroon, and also inthe center where the Jos Plateau rises to one thousand meters. The Niger River, one of Africa's largest, bisects the country North to South. It converges with the other main river, the Benue, in the central region, and thereafter flows south as the Niger to discharge into the Atlantic Ocean through an extensive delta area. The average rainfall ranges from about 500 m d y e a r inthe north to over 2,000 "/year inthe south. EconomicconditionsandPoverty. Nigeria is the largest country inWest Africa andthe second largest economy inSub-Saharan Africa with a GDP o f about US$58.4 billion (2003). It i s highly dependent on oil--the 6thbiggest exporter o f oil inthe world--which provides about 75 percent of government revenues, 95 percent o f export earnings and represents about 30 percent o f GDP. Growth has been highly volatile and averaged just over 3 percent annually over the last three decades-barely enough to keep up with population growth. Per capita income was estimated at about US$300 at the end o f 2003. Nigeria's total external debt (which represented about 60 percent o f GDP in2003) i s estimated at about US$32.8 billion, 83.5 percent o f this owed to the Paris Club, and there are large external arrears. Inspite ofNigeria's considerable economic potential, the country has sufferedthe effects ofpoor macroeconomic management for decades (including over-valued exchange rates, high levels o f inflation, large aggregate public spending associated with ill-judged investment o f oil revenues and bloated civil service), and outright theft o f public monies. Nigeria i s in many ways two economies. Part o f it is a middle-income oil-producing economy covering a small percentage o f the population, with a per capita income of about US$2,200. The rest o fthe population is part o f a very poor non-oil producing economy, o f whom as many as two-thirds live below the income poverty line. The fundamental cause o f poverty in Nigeria is the economic stagnation that the country has experienced for almost two decades. Substantial poverty reduction would require annual growth o f around five percent in agriculture and eight to ten percent in the non- agricultural economy (excluding government and the oil andgas sectors). Politicaldevelopmentsand the new emphasis on reforms. At Independence inOctober 1960, Nigeria was a multi-party democracy with a federal constitution. Its parliamentary system and There is nevertheless a sizeable Christian population inthe North and there is a large population of Muslims inthe SouthWest. - 17- the independence that the judiciary enjoyed gave promise o f evolution toward a stable pluralistic political system in a law abiding society. This system was soon undermined by political forces driven by ethno-regionalism and growing corruption fuelled by the oil economy. Nigeria experienced two long periods o f military rule from 1966 to 1979 and from 1984 to 1999, and a costly civil war in the late 1960s over the attempted secession o f Biafra. The return to democratic governance in 1999with the new constitution o f the ThirdRepublic gave rise to three political parties which still dominate Nigeria politics today: the People's Democratic Party (PDP), the All People's Party(APP) and the Alliance for Democracy (AD). Elected for the first time in 1999, President Olusegun Obansanjo was reelected in 2003 for a second term. The successful completion o f the 2003 round o f presidential, gubernatorial, and legislative elections (at the national and state levels) was an historic landmark because, for the first time since the 1 9 6 0 ' ~Nigeria achieved a transition from one civilian government to another ~ civilian.government through contested elections. The party in power, the PDP, increased its controls over the two houses o f the National Assembly as well as over State Assemblies and State governments. The determination shown by the Nigerians inthe political front since 1999 to make democracy work has been a key appeasing factor inthe face o f continuous social unrest that includes ethnic violence (especially conflicts between farmers and herders on land issues), labor disputes, and riots inthe oil-rich Niger Delta region. Right after the 2003 elections, President Obasanjo announced ambitious reforms aimed at laying the foundations for economic growth, employment creation, poverty reduction and more transparency and accountability in the management o f public resources. In July 2003, he appointed a strongly reform mindedeconomic team at the Federal levelwhich quickly developed a comprehensive program: the National Economic Empowerment and Development Strategy (NEEDS). The NEEDS main elements include: (i) promoting macroeconomic stability; (ii) accelerating privatization and liberalization o f the economy; (iii) reforming the public service, including reforming public expenditure, budget and civil service; (iv) fighting corruption, improving government transparency and accountability; and (v) strengthening basic service delivery. Important early measures have included deregulating the downstream petroleum sector and committing Nigeria to the Extractive Industries Transparency Initiative (EITI), reinvigorating the anti-corruption efforts through the establishment o f the Economic and Financial Crimes Commission (EFCC) to complement the work of the Independent Corrupt Practices and other Related Offenses Commission (ICPC), and strengthening macroeconomic policies (adopting a fiscal policy rule, reducing the fiscal deficit, limiting recourse to monetary financing o f the government deficit, and preparing a Fiscal Responsibility Bill). The new Federal administration also intensified the dialogue with the states on economic development and poverty reduction issues encouraging each state to develop its own State Economic Empowerment and Development Strategy (SEEDS). Many o f the challenges highlighted in the NEEDS were signaled by President Obasanjo during his first term but political pressures, the need to minimize tension that could threaten the then nascent democratic institutions, and, perhaps, insufficient realization by the leadership o f the depth o f public institutional erosion, prevented the development o f a strong reform effort and delayed the implementation o f important measures. The second term administration o f President Obasanjo Government has embraced the reform agenda with more vigor, focusing on the - 18- NEEDS priorities. Political pressures though still present are mitigated by a larger number o f members o f the National Assembly and governors who share the view that major economic and institutional reforms should not be further delayed. There is a greater recognition o f the importance o f the quality o f spending in terms o f developmental impact as opposed to the mere size o f current and capital expenditures. Nigerian Federalism. Since Independence, it has been commonly accepted that federalism is the most suitable framework for keeping Nigeria as a single political entity. Today there are thirty six states in the Federation o f Nigeria, in addition to the Federal Capital Territory. Some are recent creations, carved out of existing states by the military regimes. Others trace their origins back to the Regional Governments that existed at the time o f Independence. The 1999 Constitution gave increased responsibility to the states inthe delivery o f economic and social services and for the provision o f infrastructure, both directly and jointly with local governments, while the Federal Government remains responsible for setting standards, coordinating policy, and discharging national functions such as security, foreign affairs, macroeconomic management. However, most powers accorded to the states in the Second Schedule o f the constitution are exercised concurrently with the Federal Government. This situation o f "concurrent list" continues to cause confusion and sometimes intense debates over which tier o f government, federal or state, i s best placed to deal with various areas o f policy (e.g. education, police). Also, while the functions o f local government are specified in the Fourth Schedule, local government authorities (LGAs) can exercise their responsibilities only in accordance with enabling legislation passed by the states. LGAs are therefore subject to state oversight and control to a large extent. The Constitution provides for the proceeds o f mineral revenues and major taxes to be paid into the Federation Account, and for the net proceeds, after certain deductions, to be distributed directly to all three tiers of government based on a formula determined by the National Revenue Mobilizationand Fiscal Allocation Commission every five years. Under the current formula, the Federal Government receives 54.68 percent, states governments 24.70 percent, and local governments 20.62 percent o f distributable proceeds. Inaddition, oil producingstates receive an additional "derivation" allocation. Due to the automatic pass through o f revenues to states, fluctuations ininternational oil prices have resulted inlarge swings in state finances. At the time o f transition from military to democratic rule (1999-2000), oil prices were low, but then proceeded to rise strongly. States generally increased budgets inline with revenues, and in some cases faster, through recourse to domestic borrowing. The federal authorities have sought to limit the automatic pass through o f oil revenues to state spending, for reasons o f macro economic management. At first, this was done by withholding allocations, and then, when this practice was successfully challenged by states in the Supreme Court, the Federal Government has sought to stabilize spending by mutual agreement. Most recently, the Federal Government has tabled a Fiscal Responsibility Law which seeks to sterilize revenues in excess o f the estimated long run sustainable price o f oil, and save the proceeds in a special account in the Central Bank for distribution when oil prices weaken. Many states, however, have resisted federal efforts to limit their access to Federation Account resources, partlybecause they view the present share o f states inFederationAccount transfers as too low (it - 19- was increased slightly in2002 ), partly because they believe the return to democracy requires an immediate dividend interms o frehabilitation andnew development spending, andpartly because o f lack o f trust - that funds sterilized in a central bank account might somehow be pre-empted and unavailable for distribution later when oil prices have weakened. In tum, it could be said that states have also demonstrated that the success o f any efforts to achieve overall macro stability inNigeria must recognize states as key players and will depend, to a good degree, on ensuring that states are fiscally disciplined and set fiscal targets for themselves consistent with macroeconomic stability objectives. The pressure from the states for large spending has been exacerbated by the example o f the FGN's own capital budget spending during the first three years after the retum to democratic governance in 1999, when large executive capital budgets were proposed to the National Assembly and further increased. Underlyingthese large capital budgets, mirrored in states, has been a belief by federal and state officials that sizeable capital budgets are necessary to repair existing andbuildnew infrastructure and enhance public service delivery, regardless of either the macroeconomic implications o f large spending, the absorptive capacity o f governments, and the efficiency o f spending and the capacity to meeting operating and maintenance costs o f the programs launched and assets created. Large public spending has also been seen as a way to sustain support from the National Assembly and the State Assemblies. Intergovernmental Collaboration. Ineffective arrangements for intergovernmental collaboration including in development matters has been a major shortcoming of Nigeria's federal system since independence especially with the military leaders' practice o f top-down commands and unilateral decisions which was a disincentive for the states in terms o f proper planning o f development activities and fiscal responsibility. Also, it i s widely acknowledged that states could learn much more from each other and shouldjoin forces more systematically in tackling common developmental problems insuch areas as capacity buildinginthe public sector, maintenance o f infrastructure, and the provision o f social services. Today, the attitude o f the leadership has changed at the federal and state level even if the "concurrent legislative list" remains a major issue and governors continue to argue that the share o f revenue given to the states and the local governments i s not inline with the responsibilities o f the sub-national tiers o f government for delivering public services. One o f the result o f the 2003 elections has been a more cohesive National Executive Council that allows more effective collaboration between the State Governors and senior Ministries o f the FGN. While the federal civil service i s still often perceived by the states as imposing constraints on their ability to fulfill their responsibilities, recent federal government initiatives (e.g. increased timeliness and transparency in revenue distribution to the states and LGs, greater involvement of state representatives in the development o f major draft bills) have confirmed that the current federal executive authorities are clearly supportive o f intergovernmental relations in which states increase their capacity to fulfill their responsibilities, and committed to facilitating experience sharing and development o f synergies among the states. Insum, the ability o f both federal and state governments to deliver the services expected from them and contribute effectively to the national development effort will depend to a large extent on the extend to which their roles and mandates are clearly delineated, and they can collaborate effectively to achieve common goals. - 20- Public Managementand InstitutionalCapacity. One o f the findings o f Bank analytical work inrecent years4is that while there is a great deal ofvariation across states inthe performance of their public service, all states saw their governance capacity weakened during the years o f military rule, through lack of training, failure to modernize public management systems, loss o f key staff, proliferation o f organizationalstructures and patronage basedhiringpolicies, failure to maintain equipment and buildings, systemic corruption, and generally, the substitution o f informality for established rules and procedures. In addition, steps were taken at the Federal level to deliberately reduce the independence o f the civil service, inparticular the job security o f career professionals. Inevitably this had an impact on state civil services, which became vulnerable to arbitrary actions by military governors. The retum to democracy offered an opportunity to reverse the deterioration in state services, and beginrebuildingcapacity. Insome states there has been a meaningful effort to control wasteful spending, improve procurement and limit patronage hiringetc. A new and younger generation o f governors, typically with a private sector background, came to power in 1999 and their number increased after the 2003 elections. Albeit still a minority, they have initiated (or are initiating) a genuine effort to restore dilapidated structures and improve services. Almost all states are heavily dependent on allocations from the Federation Account, the pool into which oil and all VAT revenues are paid prior to distribution. Allocations among the states are determined by the National Revenue Mobilization and Fiscal Allocation Commission, based on five criteria: equality, population, social development, land mass and terrain, and internal terms for states as a whole - between 1997 and 2001 boostedby the oil boom, by depreciation o f revenue generating effort. States have enjoyed strong revenue growth - about three fold inreal the naira and by stricter adherence to constitutional provisions for sharing revenues between the different tiers o f government. In some states - Akwa Ibom and Delta -revenue increases have been as high as about five fold in real terms. The accompanying ratcheting up o f spending has increased states' exposure and hence vulnerability to oil price shocks. The share o f statutory allocations from oil revenues in states' receipts has increased to about 82 percent in 2001 from about 66 percent in 1997. On the other hand, as o f FY 2003, internally generated revenues (IGR) constituted only a margin o f the states' annual revenue (e.g., 8% for Bauchi and 17% for Kaduna) making it impossible for the states to fund basic expenditure obligations from their own resources. The share o f personnel costs covered by internally generated revenues was as low as 13 percent inBauchi state in2000, before recovering substantially to reach 23 percent in 2003. This reflects rapid growth in personnel obligations driven by large size o f states' civil service, and by two wage increases enacted by the federal government in late 1998 and 2000. Although states are free to set their own government pay scales, there is a long established practice o f harmonized civil service pay and pensions across all tiers o f government, strongly reinforced by union expectations. This has been a further factor behindstate spending. The Federal Government has made decisions on its The Bank produced two reports inFY03, the State and Local Governance in Nigeria report, which assessed the existing capacity o f the states infulfilling their constitutional responsibilities, and the Nigeria State Finance Study, that provided a better understanding o f the public finance picture inNigerianstates. Both studies pointed to institutionaland policy reforms that could help states better deliver o n their mandate and manage their public finances ina more efficient and fiscally responsible manner. - 21- scales o f pay and allowances, and most recently pensions, without consultation with states, and this has become an issue inthe discussion between state governments and civil service unions. Exceptionally strong oil prices during 2004 and the beginningo f 2005 have again buoyed state finances, and states as a group are not in crisis. But in many states, the underlyingposition i s highlyvulnerable to a down turn ininternational oil markets. Before this happens, states needto rein in spending, and develop tools that will enable them to better manage budgets throughout the oil price cycle. Fearing a severe fiscal crisis caused by a weakening o f oil revenues and a high wage bill, progressive governors are keenly aware o f the need to control the wage bill and strengthen financial management while strivingto restore the capacity o f civil service. There has been some progress but, on the whole, few have been able to tackle effectively the more difficult challenge o f removing the institutional constraints to sustainable service delivery. The ability to define and carry out a coherent strategy for economic growth and poverty reduction i s limited, and those governors who genuinely desire to make a difference, are confronted by machinery o f government which i s dysfunctional and, for a large part, unresponsive to calls for improved service delivery. Indeed, a key constraint remains the performance o f the public service. At the federal and state levels alike, the public service has become bloated, de-skilled and unable to perform well either the key regulatory functions o f government, supply classic public goods such as law and order, and deliver key social services. Buildingon diagnostics started during the first term, the Federal Government has launched a Public Service Reform Program (PSFW), the first phase o f which, comprising the restructuring o f pilot ministries and the strengthening o f payroll and personnel systems, is being supported by the Bank through the Economic Reform and Governance Project, approved on December 14,2004. The federal level governance project has provided stimulus to reformist governors. The issues to be addressed under the Project. Given widespread policy and institutional weaknesses in public service in Nigeria, the key strategic choice for the Bank i s to support the rebuilding o fbasic systems o fpublic management and governance at both state and federal level; such as financial management, the civil service, procurement, and mechanisms to ensure transparency and accountability. The issues to be addressed under the Project fall in the followingbroad categories; The low institutional capacity and the lack of transparency and accountability in the use of public financial resources. In spite o f initiatives taken by some state governors since 1999, there is an urgent agenda o f system modemization and capacity building in public sector management, especially the way public resources are managed and spent. Many problems with public management in Nigerian States stem from institutional weaknesses including out o f date or incomplete statutes andregulations, poor prioritization associated with incremental budgeting, unrealistic budgets that result in poor budget performance, ineffective expenditure controls resulting from organizational and behavioral deficiencies, poor maintenance o f accounting records, and delays in producing financial reports, which are often o f poor quality. Moreover, internal and extemal audit arrangements are weak, and audited financial statements in many States are in arrears o f several years. In essence, the systems do not function in a manner that provides assurance o f proper financial accountability for public funds, and significant risks o f - 22- misuse o f funds and waste remain. Also, the current information and operating systems tend to be hagmented technologically with overlapping responsibilities, affecting the quality of economic and financial information and the accountability o f government departments and agencies. These deficiencies are combined with an insufficiently skilled personnel at the lower, middle, and senior levels alike. The ineffective management of human resource (including training policies and practices) which limits the state ability to develop and apply polices that keep the staff strength o f the civil service in line with resources constraints and efficiency requirement while maintaining appropriate skill levels invarious fields inthe public service. Inmost States, there is a need to formulate a coherent civil service training policy whose principles and identified funding sources would enable the necessary sustained effort in staff skill development. The still maturing nature of Nigerian federalism under a democratic system o f government explains the existing room for improvements in the broad area o f inter-governmental relations both between the Federal Government and the States and between the States and the Local Governments. The ability o f public organizations to deliver the services expected from them and contribute to the national development effort effectively will depend to a large extend on the extent to which their roles and mandates are clearly delineated and understood and they are put inapositionwhere they can collaborate effectively. This wouldbe facilitatedbyenhanced fiscal responsibility in the states and increased experience sharing among the states and between the states and the FGN. - 23- Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies NIGERIA: StateGovernanceandCapacityBuildingProject World Bank Economic Reform and Governance Not Yet Rated Not Yet Rated (approved: 12/14/2004) World Bank [Lagos MetropolitanDevelopment Inthe Pipeline Inthe Pipeline Project (approved 5131/2005) ] Other development agencies EU Economic Management and n.a. n.a. Technical Assistance Project DFID Economic Reform, Debt n.a. n.a. Management, Poverty Monitoring DFID State and Local Government n.a. n.a. Programme n.a. =not applicable 3 E v1 2s 0 0 5 3 E - 2' e2s E zE 0 0 * - .-E -C .C x $ 5 Z. - 28- Annex 4: DetailedProjectDescription NIGERIA: State GovernanceandCapacityBuildingProject Overall Component Design. The Project is designed to finance a set o f public management reforms aimed at modemizing basic systems o f public financial management, and human resource management. Because states are similar in the ways their public sectors are run, are accustomed to adopting approaches similar to the Federal Government, and common or similar solutions can be developed and deployed across all states, the Project will support a core reform program (CRP) inthe three participating states (Bauchi, Cross river, and Kaduna). Ineach state, the CRP will be supplemented by a state specific program (SSP) that addresses a limitednumber of challenges specific to the state. The CRP and the SSP will be implemented by the state government under arrangements spelled out in a subsidiary agreement with the Federal Government o fNigeria (FGN). The overall architecture o f the Project is as follows. Component Bauchi Cross Kaduna Total River Component#I: CoreReform Program (CRP) 4.6 4.5 4.7 13.8 Component#2: State SpecificPrograms 0.4 1.1 0.4 1.9 State Subproject Coordinationand Monitoring 0.4 0.4 0.3 1.1 Total Individual States Public Sector Reforms 5.4 6.0 5.4 16.8 of which Project Coordination,Implementation Support 0.3 and Monitoring (national level) Activities to be identcj?ed (national level) Total -1 States selection. The participating states have been chosen among six states which were identified during Project preparation through a transparent competitive process based on initial diagnostic/proposal documents presented by thirteen states out of twenty four invited. The four criteria utilized in evaluating the initial proposals were (i) quality o f diagnosis o f existing the constraints, (ii) the overall reform program for the state's public sector, (iii) relevance o f the the activities proposed for IDA consideration, and (iv) track record between 1999 and 2002. The selection process was further refined in light o f the states performance in'2003 and 2004 and the demonstrated commitment to reforms o f their respective executive and legislative leadership bodies. Another factor has been the new approach o f the NEEDS and Bank assistance strategy which both require to pilot the reforms in a small number o f states before supporting their implementation in multiple states. The three selected states have conducted at least one staff audits in recent years and intensified staff training efforts. They have also begun modemizing accounts, clearing the backlog on audit reports preparation, improving procurement procedures, strengthening revenue collection, and/or computerizing specific functions or set o f functions relating to public finance management. - 29- By component: Project Component #1 US$13.8 million equivalent The Core Reform Program for IndividualStates Overall component objective. The objective o f this component i s to help three states selected as pilots (Bauchi, Cross River and Kaduna) to rebuild basic public service management systems that meet a minimum standard in terms o f efficiency, effectiveness, accountability and transparency. In addition, the component seeks to promote the standardization o f procedures of financial management, and of financial data production among the states o f the Federation to allow appropriate data aggregation and analysis, and thereby, facilitate the formulation and implementation o f national fiscal policies. IDA will finance an integrated package of technical assistance, equipment and training for the upgrading o f key sub-systems o f public finance, and human resource management in each participating state. A: PublicFinance Legislation (Average cost: US$70,000 equivalent per state) Status. Public finance legislation and financial regulations inNigerian States are not up to date, resulting in imprecision regarding the applicable rules. States continue to refer to the Federal Finance (Control and Management) Act o f 1958 and are operating with the FGN's Financial Regulations o f 1976. Moreover, copies o f these regulations are generally not available, and staff have become increasingly ignorant o f their provisions. Reform objectives. (i)Ensure that public finance reforms are built on solid regulatory foundations by supporting the States in updatingtheir organic public finance laws and financial regulations; (ii) enable the states to commit themselves to a more predictable budget preparation and execution process, and to higher standards o f transparency and fiscal reporting; and (iii) provide an opportunity for the states to re-examine the roles and responsibilities ofboth line and central management agencies, the accountability o f vote holders, rules on debt and the creation of special funds, the treasury functions o f the Accountant-General, and the overall stewardship fbnction o f the finance ministry. Activities. This subcomponent will include: 0 Reviewing existing finance management legislations and regulations in light o f the principles o f modern public financial management, and the expected roles, responsibilities, powers, functions and penalties o f organizations and individuals. e Preparing the modern finance management legislations and regulations, including financial management and control law, and financial instructions. Currently, the Federal Government i s overhauling its organic finance law. For consistency and cost effectiveness reasons, the development o f modem financial legislation inthe participating states will be done in a coordinated way, the states using the new legislation already drafted for the Federal Government as a guide. - 30- 0 Printing and wide dissemination o fthe new finance laws andregulations. 0 Sensitization seminars for memberso f the State House o f Assembly (SHoA). 0 Preparing handbooks and training manager and staff on the new laws and regulations. Implementation. The development o f the new legislation will be a joint effort o f the participating states with the support o f the FMF and the NPCU. In each state, the Ministry in charge o f Finance will have the lead for this subcomponent working closely with other economic ministries and the Ministry o f Justice. The Auditor-General will also participate in this process with advice and guidance, and there will be close collaboration among the states and with the FGN. Expected results. N o later than two years after the effectiveness o f the state subproject, the state government and legislature will have enacted a new organic finance law covering budgeting, financial management and control, thereby creating a modem statutory framework providing for accuracy, comprehensiveness, transparency, and accountability in the management o f public finances. A major effort to disseminate the new laws and regulations will have been made within the civil service andthe legislative branch o fgovernment, and staff trained. B: BudgetPreparation (Averagecost: US$310,000 equivalentper state) Status. The need for a strong central budget function has been increasingly felt inmost Nigerian states over the last years as it became more and more evident that public spending was not effective enough in delivering services and enabling the political priorities o f democratically elected governors to be met. At the same time, significant risks o f misallocation and misuse o f funds have continued to exist. Some states have responded by investing in office technology to help with budgetpreparation. However, computer technology will do little to improve budgetsif the process o f budget preparation in Nigerian states is not underpinned by a sustainable fiscal strategy, and allocation imbalances, such as large capital programs without provision for operating costs or maintenance, are not addressed. Most state budgets remain unrealistic with large discrepancies between budgeted amounts and performance on both the revenue and the expenditure sides. Reform objectives. (i) Greater state government capacity to make and implement budgets which are fiscally sustainable, adequately fund priority programs and eliminate wasteful spending, and (ii) thestatestocontributetoNigeria'sfiscalandmonetarypolicyobjectivesinapositive enable way. Inthis connection, when enacted, the fiscal responsibility law being prepared by the FGN will require higher standards of fiscal management andtransparency at the federal level. This, in turn, will mandate a correspondingimprovement inbudgetcapacitybythe states. Activities. The Project will finance the development and institutionalization o f a simplified multi-year budgeting framework (MYBF) for annual budget preparation, leading to more sustainable budgetimplementation. The Project will help: (a) Institute a multi-year budget framework (MYBF) as the basis for annual budget preparation and execution, providing a three year perspective for aggregate revenue and - 31- expenditure (recurrent and capital). State fiscal objectives could include (i) targets for the current account and overall fiscal balance; (ii) debt to revenue ratio and sustainable debt service to revenue ratio; and (iii) consistency o f the budget and financial management practices with the requirements o f any fiscal responsibility law passed by the national and state levels. The first year o f the MYBFwill present the elements o f the annual budgetto be adopted by the State House o f Assembly, and the MYBF will be publishedas part o f each year's budget documentation. It will provide indicative sectoral ceilings for the outer years to facilitate strategic planninginthe ministries. Efforts will be made to better integrate the preparation o f the two parts o f the budget (recurrent and capital budget) and improve the capacity o f MDAs to prepare sound development projects. (b) Build the necessary capacity for MYBF via the training o f an adequate group o f budget and finance staff from the central ministries and the line MDAs, and acquisition o f necessary tools and techniques to enable improved policies and priorities formulation, fiscal objectives setting, and revenues and costs estimates. (c) Develop adequate call circulars for the MYBF and annual budget which indicate state priorities and annual expenditure ceilings for each ministry over the duration o f the MYBF, andthereby encourage aprocess o fbudget restructuring as betweenthe wage bill and non-wage O&M, and between current and capital spending. (d) Adopt an appropriate budget preparation calendar which allows more time for consultation on budget priorities andpreparation and scrutiny o f spending proposals. (e) Present budgets based on Multi-year budgeting framework (MYBF) to the State House o f Assembly starting from the budget for 2008 at the latest. (f) Rebuild processes and staff capacity for the analysis and screening o f capital expenditure proposals. (8) Organize training for central ministries and MDAs managers and staff in budget preparation and execution and sensitization seminar for members o f the SHoA. Implementation. The implementation o f this component will be ajoint effort o f several agencies coordinatedbythe Ministryresponsible for the preparation andmonitoring o f the budget. Expected Results: (i) improved fiscal policy formulation and implementation by instituting a mediumterm budget framework as part o f the normal economic management process; (ii) states budgets that reflect the stated priorities; (iii)better budget execution through more predictable cash releases, leading to more effective service delivery; and (iv) improved States' performance inmeeting their fiscal management andreporting obligations under any fiscal responsibility law passed at the national level and binding on all tiers o f government. Ineach participating states, the MYBFwill havebeenused for the preparation and execution o fthe state budget for 2007 and become fully effective by the 2008 budget. - 32- C:Accounting, Expenditure control and FinancialReporting (Average cost: US$280,000 equivalent per state) Status. The main common problems regarding treasury management, accounting and financial reporting systems include (a) the lack o f a unified and modem chart o f accounts that provides the appropriate level o f desegregation to allow effective policy analysis and reporting; (b) the lack of organized cash management with a cash plan that identifies and matches the flows o f revenues with those of disbursements, and provides forward estimates, (c) the existence of a large number o f agency bank accounts not always monitored effectively; (d) inadequate record keeping and often years o f delay intransmittingthe annual State government accounts to the Auditor General and (e) the lack of qualified, and properly supervised accounting staff, especially in the line ministries. In most cases, the cash budget supplants the statutorily approved appropriated budget, resulting in an unpredictability that undermines project and program execution, insufficient transparency and accountability, and sub-optimal borrowing practices that increases the financial risks and vulnerability o f the states when oil revenues diminish. Reform objectives: (i) provide a system o f accounting that reflects accurately and in accordance with recognized accounting standards the flow o f transactions and the year end stock o f financial resources o f the State government in a timely manner and serves as a key instrument in the formulation and implementation o f State Government policies; and (ii)reinstate effective expenditure control by overhauling existing processes such as commitment controls andpayment authorizatiodapproval. Activities. This subcomponent will help the States: a) Implant a modem accounting and financial reporting system based on the Standard Chart o f Accounts (SCoA) being developed for all the States by the OAGS and the O A G o f the Federation. The SCoA will be properly coded, and conceived with the capacity to reflect functions, agencies, programs, and items o f expenditure. b) Review current arrangements (in theory and in practice) and establish appropriate mechanisms and procedures for effective expenditure control, including the preparation o f new operating manuals as needed. This will involve key aspects o f expenditure control: checking for budget appropriations, prior commitments, verification for receipt o f goods and services, improvement o f reporting formats. c) Increase fiscal transparency including (i)reporting by M D A s to the Ministry o f Finance on budget execution; (ii) publication by the MF o f aggregate budget implementation reports on a quarterly basis; and (iii) improved financial reporting on the transactions o f the State government as a whole based on formats for quarterly progress reporting and annual performance reporting in line with the requirements o f the Federation Account Allocation Committee. The computerized system described below should have the capability for producing these reports and the report format should be included in the reporting module o f the system. d) Organize appropriate training for central ministries and MDAs managers and staff on accounting standards, budget execution, andreporting. - 33- Implementation. The OAG within the Ministry o f Finance will have a lead role for the implementation of this subcomponent. The implementation o f the computerized financial management information system described below will assist with financial reporting and be based on the Standard Chart o fAccounts. Expected results. Timely and reliable financial information to assist the state government in policy formulation and implementation, the MDAs inthe management o f their portfolios, and the State Assembly inexercisingits oversight responsibility. D:ExternalAudit (Average cost: US$250,000 equivalentper state) Status. While the law and regulations provide for the independence o f the State Auditor General', the office holder's ability to perform effectively is undermined in most cases by a number o f factors starting with the slowness o f the Public Accounts Committee (PAC) o f the SHoA to deliberate on the findings o f the Auditor General, and the state ministry o f finance to follow up on audit findings vigorously. In addition, insufficient funding for the Office o f the State Auditor General (OSAG), weak technical skills, unattractive recruitment and remuneration policies, and the lack of modern office equipment and information technology contribute to a culture o f financial irregularity, low demand for effective financial control systems, and weak audit function (internal andexternal audit). Reform objectives and activities. This subcomponent i s designed to help the participating states to address the weaknesses indicated above, focusing on external audit. It will assist the States to: a) Review and restructure the OSAG in line with current best practice in legislating greater independence instaffing and settingo f the state audit institution's budget. b) Review and modernize audit methods, techniques and reporting, includingthe planning o f audit work to improve its materiality, and the development o f audit manuals and programs. c) Buildingstaff capacity inthe OSAG to carry out audit in accordance with internationally recognized standards and modern audit practices. This will be achieved through (i) on- the-job training by seasoned auditors contracted from the private sector to OSAG staff and (ii) the completion o f an advance training course by ten promising officers o f the OSAG in modem auditing practices, internal control assessment, and preparation o f an auditor's report. The training will be provided by a Nigerian training institution with the collaboration o fthe seasoned auditors contracted fi-om the private sector. d) Consolidating demand o f an effective external audit function by (i) organizing an annual forum where the PAC/SHoA, the State Governor's Office, OSAG, the OAGS, and key MDAs, and representative o f the civil society come together to discuss the issues related to external audit function; and (ii)putting in place a State Committee on Audit to be chaired by a representative o f the SHoA, with the mandate o f monitoring action taken on the findings o f the SAG'Sreports, includingincentives and disciplinary sanctions which State Auditors-General operate within the legal framework provided by Section 125 o fthe 1999 Constitution o f Nigeria, for the most part states have not passed specific audit laws. The State Auditor General is appointedby the Governor on the recommendationof the Civil Service Commission and is confirmedby the State House o f Assembly (PAC). Termination o f office is regulatedby the Constitution. - 34- are backed up by legal provision. The committee will meet each quarter to discuss and agenda prepared by the SAG. Implementation. In each State, the OSAG will have primary responsibility for the implementation of the subcomponent, working with the state Ministryo f Finance. Expected results: (i) effective external auditing and more regular and rigorous review and follow up by the SHoA and the state executive leadership; leading to (ii) increased transparency and accountability inmanagement of state public resources. E:BudgetandTreasuryManagementInformationSystem-BATMIS (Average cost: US$2.9 million equivalentper state) Status. States currently operate their budget, financial management, payroll and accounting systems on manual or semi-automated systems6. Moreover, the effort to computerize business processes has often ledto systems developed separately utilizing software applications which are not compatible. The budget area has typically lagged behind. Where some computerization has been attempted this has usually only been partially successful with limited fhctionality (payroll and accounts preparation) As a result, information systems supporting the various economic and financial management functions are fragmented, data from various sources inconsistent and not always reliable. This affects policy analysis, formulation, and monitoring. It also results in weak expenditure control and delays in the production of annual accounts, in turn retarding external audit. Reform objective. (i)Implement a basic integrated Budget and Treasury Management Information System (BATMIS), which will support planning and budgeting, transaction processing, accounting, andreporting on the use o f financial resources; and (ii) make available a reliable and unified database, which will be shared by all users, and feed both state and FGN with the information that they needrespectively. The system should however provide a basis for future expansion and adoption o f key elements o f the budget and financial management reform agenda (Budget Reclassification, MYBF, improved financial reporting according to GAAP) Activities. Ineach state, the Project will: a) Implement a medium range system using technologies that are simple and user friendly. States will be encouraged to (i) use o f f the shelf application software packages with appropriate configuration; (ii) the departments responsible for the central hnctions group o f budgeting, budget monitoring, treasury and accounting in the same area in order to make it possible to build a Local Area Network (LAN); and (iii) establish effective application, technical and PFMskills necessary to operate, andmaintain the system. b) The BATMIS will be designed to handle transactions and other activities relating to budget preparation and execution (including payroll), accounting, and treasury management. To that end, the software packages to be used will have to include the following modules, as a minimum: General Ledger, Accounts Payable, Cash Management, Public Sector Budgeting, and Payroll. Operating initially on a cash basis, with the notable exception of the State ofLagos whichhas implemented anlarge automated system. - 35- the BATMIS will typically be anchored at the OAGS Head office or other department where it will be properly managed. It is anticipated that progressive business process review and change will be undertaken as the system develops and extends its coverage. c) Close interface betweenthe BATMIS and a computerized humanresource (HR) database will be sought. Inthe event a given State chooses to maintain a separate HR database, appropriate steps will be taken to provide an effective interface betweenthe HR database and the payroll sub-systemo f the BATMIS,including monthlyreconciliation and budget control before the preparationo fpublic service payroll. Implementation. Under the coordination and leadership o f the OAGS, the development and implementation of the BATMIS will be a joint effort o f a number o f agencies (budget department, accounting department, treasury, state planning commission, financial control units, computer center, line ministries, OHOS) because o f the very nature o f the information system that will integrate data relating to several functions. While each state will seek to benefit from the experience o f the others, the migration plans (transition from the current to the future information system) are likely to differ from one state to the other substantially as a result of differences in information technology and in house expertise. A central BATMIS implementation support team attached to the NPCU in Abuja will assist the states to specify, procure and implement the information system and, together with the contractors provide trainingand technical support for the State ImplementationTeams. In each state, an implementation team will be established to implement and support the system and to ensure that sufficient staff are trained to operate and maintain the system. The BATMIS will be deployed in a phased manner (development, piloting, rolling out) according to clearly spelled out implementation plans designed by the implementation team with the assistance o f consultants. For each state, it is expected that the BATMIS will be effective by the end o f the third year o fProject implementation. The Project support to developing and implementingthe BATMIS will also include assistance to finance (i) maintenance costs; (ii) salaries o f young graduates to be recruitedby the states to the become the main users o f the BATMIS in various M D A s (on a declining basis); and (iii) an intensive training program designed for different categories o f users (in supervising role, intensive users) and specialists (data base administrators, systems administrators, programmerdanalysts). A detailed presentation o f the BATMIS implementation plan i s included inthe TechnicalAppendix to the PADinProjectFiles. Expected results. A main outcome o f this subcomponent will be to provide each participating State with an information system and technology infrastructure that support the achievement o f its economic and financial policy objectives effectively while meeting the requirement o f modern and transparent business processes in the management o f public financial resources. Monitorable results will include the automation o f government financial systems, adoption o f best practice standards, efficient processing o f transactions, improved control, and timely production o f accurate state annual accounts and financial reporting. - 36- F:HumanResource Management and Staff Training Enhancement (Average cost: US$760,000 equivalent per state) Status. The large majority o f state have organizational duplication and MDAs composed of non motivated underpaid, under trained, loosely managed civil servants in excessive number (especially in the lower grades). At the same time, personnel records have not been well maintained, and there i s believed to be widespread allowance and payroll fraud in some states. Recognizingthe need to address these problems andto reflect the change o f the paradigm toward a greater role o f the private sector and the civil society organization in development, several states have taken steps to reduce State involvement inthe economy and attempted to stabilize (if not reduce) the size o f the civil service. So far the results have been limited. Payroll audits and civil service censuses conducted have been one-off exercises, and have not led to improved payroll and personnel data management systems. In many cases, serious uncertainty remains regarding basic data such as the staff strength and its breakdown, the pensioners, the personnel retiringbythe end ofthe year. Reform objectives: (i)provide each state with a modem human resource management information system (HRMIS) and the technology infrastructure that provides a sound and reliable data base on the personnel employed by or retired from the State government; (ii) enable effective establishment controls; and (iii)enhance staff training in economic and social development ministries. Activities. This subcomponent will finance the following activities: Review o f the existing human resources management policies, processes and information system; Staff audit, payroll parades and civil service census as necessary, to ensure that information to be inputted inthe new HRMIS is clean, ifnecessary by contracting out the conducting o f censuses and the inputtingo f data; Implementation o f an automated modem and unified establishment register and database o f public employees personnel records to consolidate and regularly update civil service files. The new HRMIS will have an effective interface with the BATMIS or preferably be one integrated module o f BATMIS enabling consistency check between the payroll and the nominal roll on a continuous basis as indicated under subcomponent l(a) section Eabove; Strengthening controls over personnel recruitment, and building the capacity o f Establishment Agency/Ministry to manage personnel registries and payroll functions in coordination with the Ministry o f Finance and the line ministriedagencies, and in a manner consistent with available resources, as determinedby the MYBF; Implementation of a comprehensive training program including (i) professional training in key areas of economic and financial management in which the Project seeks substantial improvements (budgeting, accounting and reporting, payment management, and human resource and payroll), and (ii) computer skills enhancement program for a different categories of civil servants in the eight to ten MDAs associated in the Project. The elements o f this program to be delivered locally by Nigerian training institutions with the assistance o f consultants and Project staff are presented in the Technical Appendix. - 37- Implementation. The subcomponent will be implemented by the departments responsible for establishment and training respectively, under the oversight o f the State Head o f Service and in consultation with the Ministry of Finance. For each participating state, it is expected that the new HRMIS will be effective by the end o f the third year o f implementation o f its subproject. The BATMIS central support teams will also support implementation o f HRMIS in conjunction with the appropriate stakeholders. The states will also benefit from the assistance o f a Training Advisor located in the NFCU who will help in the planning, execution, and monitoring and evaluation o f training activities under the Project. Expected results:(i) elimination o f the ghost workers phenomenon and reduction o f other forms o f HR management related fraud; (ii)accurate and reliable personnel data for all state government employees; (iii)enhanced controls of establishment and salary bill; and (iv) substantial staff skills development ineight to ten MDAs. ProjectComponent#2 US$1.9 millionequivalent StateSpecificPrograms(US$1.9 millionequivalent) DuringProject preparation, the states expressed a strongdesire for support inareas o freformnot included inthe CRP but which are important to improve governance and service delivery intheir particular context. It was agreed that the Project will support additional selected institutional reform and capacity building initiatives identified by the states before the beginning o f the Project or as the needs emerge in the context o f the implementation o f their respective SEEDS. This will consolidate the ownership o f the Project by the state governments. Bauchi andKaduna States have identifiedthe modemization o f their respective tax payers identification and registry systems. CRS has identified the rehabilitation o f the Management Development Institute (MDI) located in Calabar and the enhancement o f judicial services. Together with the other subcomponents o f CRP, the specific programs have been prepared by the state governments with the assistance o f consultants. Inaddition, a provision o f U S dollars 170,000 equivalent has been made for each participating state to support additional public reform and capacity building initiatives that the state will decide to launch in consultation with IDA during Project implementation. A: Modernizingthe Tax PayerIdentificationSysteminBauchiand KadunaStates (Averagecost: US$214,000 equivalentper state) Status. As o f FY 2003, intemally generated revenues (IGR) constituted only a margin o f the states' annual revenue (e.g., 8% for Bauchi and 17% for Kaduna). This low share o f IGR and heavy reliance on Federation Account allocation has exposed states to unstable and irregular revenue inflows. In response, states have initiated several measures to increase the intemally generated revenues, including the provision of incentives to tax collecting department to retain certain share o fthe collected revenue, and engagement o f consultants to strengthen tax collection efforts. Two o f the challenges to these efforts, however, are the narrow tax base and poor record management intax administration. The current manual tax payer registry allows many loopholes for tax evasion and fraud. For example, Kaduna state estimates that current tax registry captures only 30% o f the potential tax base. - 38- Objectives: To increase IGR, the Project seeks to help (i) broadenthe tax base for state taxes and fees; and (ii)improve efficiency and accountability in tax collection and data management processes. Activities: (i) and expand the existing tax payer database including through in-house verify verification and market surveys and assessments; (ii) provide the two states with the basic ICT infrastructure and staff training necessary for maintaining a sound and reliable tax administration database; and (iii) adjust organizational structureshusiness processes and train staff as required bythe objectives indicatedin(i) (ii). and Implementation. The subcomponent will be implementedunder the leadership o f the Board o f Internal Revenue (BIR) incoordination with the ministries incharge o f finance andplanning. Expected results: (i) Increased accuracy o f the existing tax payer database, leading to improved state revenue performance; (ii) staff in BIR are sufficiently trained to maintain and make an effective use o f the new system B: Rehabilitation of the Management Development Institute inCalabar (Cost: US$400,000 equivalent) Status. The Cross River State (CRS) Government has developed a comprehensive public service reform including policy management process improvement, public sector restructuring (with privatization, voluntary departure scheme, service redeployment program), establishment control and human resource management (with modernization o f HR data base and records management), public finance management reform, and staff skills development. Several donors are contributing to different components o f this comprehensive reform under the coordination o f the CRS. In addition to the elements included in the CRP, the Project will support CRS by facilitating the rehabilitation o f the Management Development Institute (MDI) inCalabar which i s a central element o f the CRS effort to rebuild the capacity o f the public service. Objective. The objective o f this subcomponent i s to enhance the capacity o f the MDIto deliver effective training programs especially for the public service. Activities. This sub-component will finance the following activities. a) The CRS Government has contracted the Administrative Staff College o f Nigeria (ASCON) to assist in developing a strategic business plan for the MDI. The Project will support the completion o f the preparation o f the business plan that will cover such areas as the services to be delivered (training and development programs), the organization and management o f the institute, staffing and skill gaps inthe faculty, financial management, and facility improvement and equipment. This activity will be carried out with the contribution o f an experienced foreign training institution and completed within the first six months o fProject implementation. b) The Project includes resources to facilitate the immediate follow up on the actions indicated in the business plan. Preliminary analysis indicate that IDA contribution will be required to help introduce modem training aids, strengthen the library, increase the - 39- capacity o f faculty members especially in modern ICT, carrying out buildingrenovation works and facility upgrading, and equipping a limitednumber o fclass/discussion rooms. Expected results. (i) operational business planfor the MDI; (b) a more effective MDIwith a an stronger faculty and a set o f courses and seminars more relevant to the needs o f the public service. C: EnhancementofJudicialServices in CrossRiver State (Cost: US$600,000 equivalent) Status. Inline with national policies, especially the reform agenda put forward by the Attorney General and the Honorable Chief Justice o f Nigeria, the CRS Government has identified access to justice and quality o f judicial service delivery as important govemance issues, and is determined to support the state judiciary's efforts to improve its performance. As i s the case with other branches o f government, many years o f military rule and lack o f accountability and transparency in govemance have led to decay in the judicial process. The absence o f trained judicial and non-judicial officers, patronage-based appointments, the lack o f research materials, equipment and modem information technology, poor records management, and inadequate facilities, have severely affected the capacity o f the judicial system in CRS to deliver on its mandate. As o f 2004, it was estimated that the CRS judiciary had a total o f over 7,000 pending criminal and civil cases, with an average o f more than 400 cases each pending before several judges in the Calabar High Court. The slow process o f adjudication means that a case usually drags on incourt for two to five years. A major contributing factor is that the rules o f procedure are outdated, making it possible for private lawyers and prosecutors to capitalize on the gaps to file frivolous applications and repeatedly request adjournments favoring their clients. Such weaknesses allow for corrupt practices. Objectives. The objective o f the subcomponent i s to enhance the capacity o f the CRS Judiciary to improve service delivery. Activities. To set the stage for more substantial efforts in the years to come, the Project will support three sets o f activities: a) Revision and adoption o f the rules o f civil procedure applicable in High Courts and Magistrate Courts in CRS to enable the efficient and prompt trial and disposal o f cases filed; b) Preparation and initial implementation o f a comprehensive skills development program for judicial and administrative officers in the High Courts and Magistrate Courts. This will involve conducting a training needs assessment, including an in-depth review o f the existing training program, with a view to: (i)determining the gaps inthe existing training program; (ii)formulating a training policy that supports the training needs assessment; (iii)recommending appropriate training programs; and (iv) determining the teaching and research materials as well as the equipment required for the recommended training programs. The Project will also provide resources for organizing training programs based on the results o f the training needs assessment, including through the training o f three trainers, court administration and case management training, records management training, and other selected professional and ICT training; - 40- c) Piloting a model court administration system by: (i)developing a model for court administration (including organizational staffing structure, administrative and financial procedures, case management, records management, upgrading o f facilities and office equipment, provision o f books and reference materials); (ii) implementingthe model in two pilot courts (one Magistrate Court and one High Court); and (iii) out ancarrying assessment o f the implementation o f the model and developing a plan to rollout the model to a larger number o f courts at a subsequent time following this Project. Implementation. The Office o f the Chief Judge o f CRS will have the primary responsibility for the implementation o fthis subcomponent. To facilitate the coordinationo f activities a Technical Committee for Judiciary Services Enhancement chaired by the Chief Judge o f CRS will be established. The Committee will consist o f up to eight members, including the ChiefJudge or her representative, at least one other judge from the High Court, and two judges from the Magistrate Court. The CRS judiciary will benefit from the service o f consultants to support the activities indicated above. Among a set o f Performance monitoring indicators, judges sitting in the two pilot courts will be required to submit monthly returns to the Association showing how many cases they have disposed inorder to better trace the performance o fthese judges. Results MonitoringIndicators. (a) Adoption of revised rules o f civil procedure applicable in High Courts and Magistrate Courts. (b) Clearing o f backlog o f pending cases cleared in courts selected as pilot under the Project. (c) Three persons qualified through the training o f trainers program (in Court Administration and Case Management). Expected results. (i) preparation o f the staff skills development strategy and action plan; (ii) training o f at least three trainers to provide effective training and coaching in various aspects o f court management; (iii) development o f a tested model for court management; (iv) capacity building for two pilot courts with proper staffing structures and equipment to deliver judicial services with increased efficiency and accountability; and (v) effective application o f the revised rules o f civil procedure and speeding up o f the process o f adjudication in the High Courts and Magistrate Courts. - 41- Annex 5: EstimatedProjectCosts NIGERIA: StateGovernanceandCapacityBuildingProject Local Foreign Total Percentage Project Cost B y Component US $million U S $million US $million IndividualStates Public SectorReforms 5.1 10.4 15.5 90.1 Project Coordination, Supportand 0.3 0.0 0.3 1.8 Monitoring Unallocated (activities to be Identified) 0.6 0.8 1.4 8.1 Total Baseline Cost) 6.0 11.2 17.2 100.0 Contingencies(5Y0) 0.3 0.6 0.9 Total Project Costs1 6.3 11.8 18.1 Total Financing Required 6.3 11.8 18.1 IDA 6.3 11.8 18.1 Local Foreign Total Percentage Project Cost B y Category US $million U S $million U S $million Goods 0.6 4.9 5.5 30.4 Works 0.5 0.0 0.5 2.8 Services 2.9 5.4 8.3 45.8 Training 1.1 0.6 1.7 9.4 Operatingcosts 0.6 0.0 0.6 3.3 Unallocated 0.6 0.9 1.5 8.3 Total Project Costs1 6.3 11.8 18.1 100.0 Total Financing Required 6.3 11.8 18.1 IDA 6.3 11.8 18.1 Identifiable taxes and duties are US$ 0.0 mand the total project cost, net of taxes, is US$ 18.1 m. Therefore, the project cost sharing ratio is 100% percent o f total project cost net of taxes. - 42- Annex 6: Institutionaland ImplementationArrangements NIGERIA: StateGovernanceand CapacityBuildingProject 1. The Project will beimplemented over a period o f four years starting on or about October The institutional arrangements have been designed to: Support the basic principle o f Nigerian federalism that entrusts to the state government and House o f Assembly the responsibility for planning, budgeting and utilizingpublic resources internally generated or allocated to the state; Offer a fine balance between effective overall supervision and monitoring o f activities at the national level and the management and implementation responsibilities of individual project components; Empower the existing MDAs for the execution o f Project activities instead o f creating parallel structures outside o f existing government structures, and establish support structures to provide methodological support, operational assistance, and proper coordination only as necessary; Ensure that the implementing and coordinating units are properly equipped with the technical qualification and the logistical capacity to fully respond to the requirements o f effective implementation, monitoring and evaluation by the states and the concerned federal agencies; Create synergy among states by sharing knowledge and providing opportunity for mutual support; and Facilitate interaction between the Nigerian authorities and agencies and the Bank, especially the monitoring o f progress for achieving Project development objectives, and the conducting o f mid-terms reviews and ex-post evaluation by the Bank Project team. 2. The Project sets upthree leveldtypes o f management and implementation arrangements. Management and Implementation Arrangements for the IndividualStates Public Sector Reforms Management and institutional arrangements ineach state will include a State Steering Committee (SSC) on Governance and Capacity Building, a State Project Coordination Unit (SPCU), and several Activities ExecutingAgencies (AEAs)~ as represented bellow: I SPCU PFMU AEA is a generic term for departments or agencies already existing inthe organizational structure of a given administration with a mandate that relates to a set o f activities to be carried out under the Project. - 43- 3. Chaired by the Governor or hidher representative, SSC will comprise the commissioners o f key implementing agencies, the Head o f Service, the Accountant General o f the State, the State Auditor-General, a representative o f the State House o f Assembly, a representative o f the Judiciary, and two representatives o f the civil society. The State Governor will designate the representatives o f the civil society. The SSC will convene every quarter to: (i) review the implementation o f the State subproject and forward his analysis and conclusions to the NPCU. This includes the review o f quarterly reports prepared by the SPCU; (ii) annual work approve programs, budgets, and procurement plans; (iii)ensure that agreed performance targets and timeline o f both the CRP and SSP are met; and (iv) address critical issues that could hinder the implementation o f the Project. 4. Reporting to the SSC will be the SPCU. Under the leadership o f a full-time and qualified state Project Coordinator selected by the state underprocedure acceptable to IDA, the SPCU will be responsible for the day-to-day oversight o f operations, compliance with procedures and relations with the PFMU, the SSC, and the Bank. The main functions o f the SPCUs will be to: (i) technicalsupporttoAEAsonactivitiessuchasprocurement, inlinewiththerules provide and procedures agreed with IDA; (ii)act as the secretariat for the SSC; (iii) prepare work programs, budgets, procurement plans, etc based on inputs from the AEAs, and present this to the SSC; and (iv) monitor Project implementation and prepare regular progress reports and submit them to the SSC. To enable the SPCU to perform effectively, there will be monthly coordination meetings with the Project Coordinator, representatives from all the AEAs, and the Head o f the PFMU, under the chairmanship o f the Head o f Service, a Commissioner or any other highofficial designated bythe Governor. The purpose o f the coordination meetings will be to (i) review the monthly implementation progress reports prepared by the AEAs; (ii) the SPCU hold and AEAs accountable for delivering on set targets; (iii)address issues affecting project implementation; (iv) ensure appropriate linkage in the activities implemented by the AEAs; (v) submit consolidated annual work programs, budgets, andprocurement plans to SSC for approval; (vi) review quarterly implementationprogress reports to be presented to the SSC; and (vii) make recommendations to SSC on smooth and effective implementation o fthe Project. 5. The State Project Coordinator who will be in the rank o f a Director or above will be supported by a small team on a full-time basis including a Procurement Officer, and an Administrative Assistant and a drivedmessenger. In addition, depending on their respective needs, states will have the opportunity to hire the services o f consultant under short or longer term arrangements to assist the SPCU and the AEAs by overseeing specific technical aspects o f the subproject or the management o f the subproject as a whole. 6. Regarding the implementation arrangements within the AEAs, the head o f each AEA will deploy appropriate officers to the subproject activities with responsibilities for the following: (i) prepare work programs, procurement plans, budgets, and submit such programs and plans to the SPCU; (ii) prepare and submit monthly progress reports to the SPCU; and (iii) generally, more ensure the effective implementation o f the activities assigned to the AEA, in collaboration with other relevant officers in the AEA. The AEAs will not have to create new structures for the implementation o f the subproject (except for the regulatory body in the Governor's office regarding the procurement reform) but entrust that responsibility to existing department and divisions according to their role and functions inthe organizational structure o f the AEA. - 44- 7. Project management and implementation arrangements are expected to be similar inthe three participating states, including the project financial management by the PFMUs as described inAnnexes 4 and 7. However, the Projectprovides flexibility to accommodate for specific local operational environment. For instance, a given state may choose to entrust the responsibility for its subproject implementation to a unit that is currently implementing other similar operations under national or donor financing. Also the location o f the SPCU may vary. While in some states it may be felt suitable to locate the SPCU at the office o f the Head o f Service or a Commissioner, in other states the office o f the Govemor may be found more appropriate. The average budget for subproject management and implementation arrangement i s estimated at US $ 360 thousand equivalent. National Level Coordination and MonitoringArrangements 8. The coordination and facilitation o f activities under the Project as a whole will be the responsibility o f the National Project Coordination Unit located in the FMFNULT. The main responsibilities ofthe NPCUwill be to: 0 provide technical support as requested by the states and other components implementing agencies; 0 coordinate and consolidate the information from the various implementing agencies and PFMUs and circulate an annual overall project implementation progress report; coordinate the conduct o f subprojects and components mid-term reviews and post- evaluations and preparing overall project mid-termreview andpost evaluationreports. 9. The Head o f the NF'CU will be a highly experienced Nigerian project management specialist. He will be selected through a competitive process on the basis o fjob description and qualifications acceptable to IDA and supported by one officer detached from the HFD, an administrative assistant; and a drivedmessenger. The NPCU will also benefit from the experience o f seasoned international consultants including a public finance management/ICT specialist. The NPCU staff will interact with the SPCUs on a continuous basis and monitoring the subprojects implementation progress. The NPCU will assist the States implementation teams, especially inthe development and implementation o f the BATMIS. The mandates o f the NPCUand the TORSo f the NPCU staff were agreed upon duringAppraisal. NPCU annual work programs and budgets acceptable to IDA will be approvedby the Federal Minister o f Finance. A budget o f US$ 263,000 equivalent has been set aside within the Project for the staffing, equipment, and functioning o f the NPCU including the cost o f mid-term review and evaluation at completion. - 45- Annex 7: FinancialManagementandDisbursementArrangements NIGERIA: StateGovernanceandCapacityBuildingProject A. GENERAL Objectiveof the FinancialManagementSystem (FMS) 1. The objective o f the FMS i s to support the implementing units in deploying Project resources to produce the required outputs and with attention to economy, efficiency and effectiveness. Specifically, the FMS will be capable o f producing timely, understandable, relevant and reliable financial information that will enable the implementing units to plan, coordinate, monitor and appraise the Project's overall progress towards the achievement o f its objectives as well as ensuring that costs are under control and Project funds are used for the purposes intended. ImplementationArrangement 2. NationaUfederal level: Under the oversight o f the Federal Minister/FMF, the National Project Coordination Unit (NPCU) located in the FMF will be responsible for the overall coordination o f the Project including the day-to-day monitoring o f activities and the support to participating states. 3. Staff dedicated from the Finance and Accounts Department o f FMF (FAD/FMF) will be responsible for managing the financial affairs o f the Project at the national level. FAD/FMFwill be staffed by relevantly qualified accountants. Modem internal audit functions would be performed by the Intemal Audit Unit (IAU) o f FMF which will be staffed with professionally qualified and experienced accountants. The IAUwill carry out a systematic review, appraisal and reporting o f the adequacy o f the systems o f managerial, financial, operational and budgetary control and their reliability inpractice. FAD/ FMF will be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly Financial Monitoring Reports (FMRs) and audited annual financial statements to government and IDA. 4. State level: The Project is focused on govemance reforms and capacity buildingat the State level, and therefore, the States will have primary responsibilities for its implementation. There will be a separate State Project Coordination Unit (SPCU) for each participating State with responsibility for day-to-day monitoring o f Project implementation. Financial management (FM) in each state will be carried out by the State Project Financial Management Unit (PFMU) established in the Office o f the Accountant General o f the State (OAGS) under the proposed funds flow arrangements for Nigeria. Specifically, the PFMUwill be responsible for managing the financial affairs o f Bank-assisted projects inthe state, including the SGCB Project. Like the FAD/FMF at the nationab'federal level, the PFMUs will be responsible for preparing budgets, monthly reports, quarterly FMRs, annual financial statements and progress reports. They will also be responsible for ensuring compliance with the FM requirements o f the Bank and the government, including forwarding the quarterly FMRs and annual financial statements to IDA. - 46- B. RISKANALYSIS InherentRisks 5. The Country Financial Accountability Assessment (CFAA), which was conducted inCY 2000, revealed that the systems for planning, budgeting, monitoring and controlling public resources in Nigeria have deteriorated to a level that they do not provide any reasonable assurance that funds are used for the purpose intended. Risk o f waste, diversion and misuse of funds was highly rateduntilsuch a time as the CFAA recommendations have been implemented. Some o f the CFAA recommendations have been implemented and some are being implemented. A review ofthe CFAA is ongoing. The update ofthe CFAA, which is due before C Y 2006 will confirm the extent to which the risk has been reduced. ControlRisks 6. The overall Project risk from a financial management perspective i s considered substantial. Over time, it will be reduced to moderate as (a) the weakness described in paragraph 7 are satisfactorily addressed; and (b) the financial management action plandescribed inparagraph 34 is fully implemented. StrengthandWeaknesses 7. Strength: At the state level, the financial management functions of the Project will be handled by a PFMU situated in the OAGS under the funds flow arrangement for Nigeria. The segregation o f duties, internal check and monitoring, and effective modem internal audit - and arrangements feature relevantly qualified staff, effective internal control - including adequate computerized FM systems. The Bank is assisting in the computerization o f the FM systems o f the unit and training o f staff inBank procedures. Weakness: The main weakness is the shortage of professionally qualified accountants inthe public sector. This has beenmitigated at the State level with the establishment o fPFMUs. C. FINANCIALMANAGEMENT SYSTEMS FundsFlow andBankingArrangements 8. The overall project fundingwill be from the IDA. IDA will disburse the credit through four (4) Special Accounts (SAs) i.e one maintained by the NPCU for its activities; and one each by the PFMUsofthe 3 participating states. The three participating states haveestablishedPFMUs. 9. FADEMF and the PFMUs in the participating States will each maintain the following accounts: (i)aSAinUSDollarstowhichtheinitialdepositandreplenishmentsfromIDAwillbelodged. (ii)Current(Draw-down) Account inNairawithacommercialbanktowhichdraw-downs a from the Special Account will be credited once or twice per month inrespect o f incurred eligible expenditures. Following the immediate payments in respect o f those eligible expenditures, the balance on this account should be zero. - 47- (iii)Domiciliary(Interest) AccountinUSDollarsintowhichinterestontheSAbalanceswill a be credited. 10 Also, they will each maintain an IDA Ledger Loan Account (Washington) in US Dollars/NairdSDR to keep track o f draw downs from IDA credit. The account will show (a) deposits made by IDA into the commercial bank indicated by the borrower, (b) direct payments by IDA, and(c) opening andclosing balances. 10.All bank accounts will be reconciled with bank Statements on a monthly basis by the FAD/ FMF and PFMUs. The bank reconciliation statements will be reviewed by designated officials, and identified differences will be expeditiously investigated. 11. The FAD/ FMF and PFMUs will be responsible for preparing and submitting to IDA consolidated applications for withdrawal, as appropriate. Appropriate procedures and controls, which will be documented in the FPM, will be instituted to ensure disbursements and flow o f funds are carried out inan efficient and effective manner. 13 The FAD/ FMF and PFMUs will maintain a cumulative record o f draw-downs from the Credit that will be reconciled monthly with the Disbursement Summary provided by the Bank. 14 Detailed banking arrangements, including control procedures over all bank transactions (e.g. check signatories, transfers, etc.), will be documented in the Project Implementation Manual (PIM). FundsFlow Diagram Sources of Funds IDA Special Accounts Special Account ($) ($) for FMF for each State Drawdown (zero Drawdown (zero balance) Naira N C balance) Naira A/C I I - 48- DisbursementArrangements 15. Use of statements of expenditures (SOEs). All applications for the withdrawal o f proceeds from the credit will be fully documented, except for: (i) contracts with an estimated value o f less than US$ 250,000 for goods; (ii) contracts with an estimated value o f less than US$ 300,000 for works packages; (iii) contracts with an estimated value o f less than US$ 150,000 for consulting firms, and less than US$ 50,000 for individual consultants; and (iv) training, study tours, and incremental operating costs which may be claimed on the basis o f certified Statements o f Expenditures (SOEs). Documentation supporting all expenditures claimed against SOEs will be retained by FAD/FMF and the PFMUs, and will be available for review when requested by IDA supervision missions and project auditors. All disbursements are subject to the conditions o f the Development Credit Agreement and the procedures defined inthe Disbursement Letter. 16. Special account. To facilitate disbursements for eligible expenditures for goods and services under the W C U , FAD, and IAU activities, FMF will open a special account (SA), which will be managed and administered by FMF, in a commercial bank to cover part o f IDA's share o f eligible expenditures. The Authorized Allocation shall be limited to an amount equivalent to fifty thousand Dollars ($50,000) until the aggregate amount o f withdrawals from the Credit Account plus the total amount o f all outstanding special commitments entered into have exceeded SDR 200,000, then the allocation will be increased to US$lOO,OOO;. A SA will be opened by eachparticipating state: a for Bauchi and Kaduna States, Authorized Allocation ineach State shall be limitedto an amount equivalent to two hundred and twenty-five thousand Dollars ($225,000) untilthe aggregate amount o f withdrawals from the Credit Account plus the total amount o f all outstanding special commitments entered into have exceeded SDR 700,000, the allocationwill then be increased to US$450,000; o for Cross River State Authorized Allocation shall be limited to an amount equivalent to two hundred and fifty thousand Dollars ($250,000) until the aggregate amount o f withdrawals from the Credit Account plus the total amount o f all outstanding special commitments entered into have exceeded SDR 800,000, then the allocation will be increased to US$500,000. 17. To the extent possible, all o f IDA's share o f expenditures should be paid through the SAs. The SAs will be replenished through the submission o f Withdrawal Applications with appropriate supporting documents for expenditures on a monthly basis by FAD/FMF and the PFMUs. This will also include reconciled bank statements and other documents as may be requireduntil such time as the borrower may choose to convert to report-based disbursement. All disbursements will be channeled through the SAs and in lieu of a SA; the borrower may choose to pre-finance Project expenditure and seek reimbursement from IDA. 18. By effectiveness, the Project will not be ready for report-based disbursements. Thus, at the initial stage, the transaction-based disbursement procedures (as described inthe World Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursement, and special commitments. 19. WhenProject implementationbegins, the quarterly FMRsproducedbythe Project willbe reviewed. Where the reports are adequate and produced on a timely basis, and the borrower requests conversion to report-based disbursements, a review will be undertaken by the Task - 49- Team Leader (TTL) to determine ifthe project i s eligible. The adoption o f report-based disbursements by the project will enable it to move away from time-consuming voucher-by- voucher (transaction - based) disbursement methods to quarterly disbursements to the Project's Special Account, based on FMRs. 20 Detailed disbursement procedures will be documented inthe PIM. PlanningandBudgeting 21 Cash Budget preparation will follow the Federal Government and participating States' procedures. Additionally, financial projections or forecasts for the life o fthe project (analyzed by year) will be prepared. On an annual basis, the Project Accountants in FAD/ FMF and PFMUs (inconsultationwithkey membersofthe implementingunit)will prepare the cashbudgetfor the coming period based on the work program. The cash budget should include the figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications for project activities, schedules (including procurement plan), and expenditure on Project activities scheduled respectively for the quarter. (Guidance on the preparation o f budgets i s available in the Bank publication entitled "Financial Monitoring Reports: Guidelines to Borrowers".) The annual cash budget will be sent to the TTL at least two months before the beginning o f the project fiscal year. 22 Detailedprocedures for planning and budgetingwill be documented inthe PIM. FixedAssets and ContractsRegisters 23 At the FAD/ FMF and PFMUs, a Fixed Assets Register will be prepared, regularly updated and checked. A Contracts Register and a quarterly Contract Status Reports will also be maintained in respect o f all contracts with consultants and suppliers. Control procedures over fixed assets and contracts with consultants and supplierdvendors for states and federal levels will be documented inthe PIM. InformationSystems 24 Given the reporting requirements in the Financial Monitoring Reports Guideline, staff will be trained inthe use ofthe software incompliance with the FMannex o fthe PIM. Under the standard funds flow arrangements for Nigerian states implementing Bank IDA-financed projects, a computerized financial management system i s being developed and installed inthe PFMUs and the staff are undergoing relevant training. FinancialReportingandMonitoring 25 Monthly, quarterly and annual reports will be prepared(as outlined inparagraphs 28, 29, 30 and 31) for the purpose o f monitoring project implementation. The reports will be submitted to the project coordinators, project implementing units, government and IDA. In compliance with government reporting requirements, Monthly Returnswill be made to the Federal and State Accountants General, for incorporation inthe Government's accounts, as described inthe PIM. - 50- 26 Monthly: On a monthly basis, the FAD1FMF and PFMUs will prepare and submit the following reports to the State andNational Project coordinators: 0 A Bank Reconciliation Statement for each bank account; 0 Monthly Statement of cash position for project funds from all sources, taking into consideration significant reconciling items; 0 A monthly Statement of expenditure classified by Project components, disbursement categories, and comparison with budgets, or a variance analysis; and 0 Statement of Sources and Uses of funds (by Credit Category1 Activity showing IDA and Counterpart Funds separately); I 27 Quarterly: The following financial monitoring reports will be prepared by the FAD/ FMF and PFMUs on a quarterly basis and submittedto the Federal Minister, FMF, the States governments, and IDA: 0 Financial Reports which include a Statement showing for the period and cumulatively (project life or year to date) inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances o f the project; and supporting schedules comparing actual and planned expenditures. The reports will also include cash forecast for the next two quarters. 0 Physical Progress Reports which include narrative information and output indicators (agreed during project preparation) linking financial information with physical progress, and highlightissues that require attention. 0 Procurement Reports, which provide information on the procurement o f goods, work, and related services, and the selection o f consultants, and on compliance with agreed procurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlight key procurement issues such as staffing andbuildingBorrower capacity. 28 SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount. Each PFMU will submit a copy of the quarterly project financial monitoring reports to the SPCU. Also, it will forward a copy o f the reports to the NPCU for consolidation. a) Annually: The annual project financial Statements, which will be prepared by the FADEMFandPFMUs will include the following: a) Statement o f Sources and Uses o f funds (by Credit Categoryhy Activity showing IDAandCounterpart Funds separately); b) Statement o f CashPosition for Project Fundsfrom all sources; c) Statements reconciling the balances on the various bank accounts (including IDA Special Accounts) to the bank balances shown on the Statement o f Sources and Uses o f funds; d) SOE Withdrawal Schedules listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount; and e) Notes to the Financial Statements. - 51- 29. Each PFMUwill submit a copy o f the project financial statements to the FAD/FMF for consolidation. 30. Indicative formats for the reports are outlined in two Bank publications: (a) Financial Monitoring Reports: Guidelines to Borrowers-quarterly FMRs, and (b) Financial Accounting, Reporting and Auditing Handbook (FARAH) - monthly and annual reports. AccountingPoliciesandProcedures 31. All Project Funds will be accounted for by the Project on a cash basis. This will be augmented with appropriate records and procedures to track commitments and to safeguard assets. Also, accounting records will be maintained indual currencies (Le. Naira andUS$). 32. The Chart o f Accounts will facilitate the preparation o f relevant monthly, quarterly and annual financial statements, including information on the following: o Totalproject expenditures o Total financial contribution from each financier o Total expenditure on eachProject component/activity, and o Analysis of that total expenditure into civil works, various categories o f goods, training, consultancy services and other procurement and disbursement categories. 33. Annual financial Statements will be prepared in accordance with International Accounting Standards (IASs). All accounting and control procedures will be documented inthe FM annex of the PIM. This is a living document that will be regularly updated by the Project Accountants. A generic FPM that will form the FM annex o f the PIM has been developed for the federal level o f Bank financed projects in Nigeria. This will be reviewed and made specifically for the project with an addendum to set out the Chart o f Accounts for the Project. A specific FPMhas also been developed for the PFMUs. D.ACTION PLAN 34. The following actions are to be implementedas specified. ACTION By Whom By When 1 Open US Dollar SA; Current (Draw-down) Account in Naira; NPCU, ByProject Interest on SA (US Dollar) Account; and IDA advised o f FAD/ FMF launch authorized bank signatoriedspecimen signatures. and SPCUs 2 Appointment of extemal auditors for NPCU NPCU ByProject launch 3 Initial capacity buildinginBank procedures completed. NPCU, During Project SPCU, IDA launching I 1 I I workshom I - 52- SupervisionPlan 35. Supervision activities will include review o f quarterly FMRs; review o f annual audited financial statements and management letter as well as timely follow-up o f issues arising; participation in Project supervision missions as appropriate; annual SOE review; and updating the FMrating inImplementation Status Report (ISR). Audit Arrangements 36. Internal Audit. The Internal Audit Unit o f FMFwill perform internal audit activities for the NPCU activities. Regular internal audit reports will be submitted to NPCU, IDA and the Accountant General. At FMF, a professionally qualified internal auditor will be appointed to perform these internal audit activities. Similarly, at the state level, Project activities, records and accounts will be reviewed and subjected to internal audit by appropriately qualified Internal Auditors inthe PFMUs. Regular internal audit reports will be submitted to SPCU, the State ministry incharge o f finance, and the Accountant General for the State as appropriate. 37. ExternalAudit. Auditedproject financial statements for the Project will be submittedto IDA within six months after year-end. Relevantly qualified external auditors will be appointed based on Terms o f Reference acceptable to the Bank to perform these audits. 38. Besides expressing an opinion on the Project Financial Statements in accordance with International Standards on Auditing (ISAs), the auditors will be required to comment on whether counterpart funds have been provided regularly and used in accordance with the financing agreement. 39. In addition to the audit report, the external auditors will be expected to prepare Management Letters giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants inthe IDAagreement. Procurementarrangements The Project will observe procurement procedures outlined in the World Bank Procurement Guidelines o f M a y 2004 referred to in Annex 8. The Project accountants, internal auditors and support staff must be conversant with the Bank's procurement procedures, as internal control issues and the incurring o f liabilities will be matters o f concern to the financial management function. FinancialCovenants 40. The Project shall maintain financial management systems including records and accounts and prepare financial statements ina format acceptable to the Bank. This, inaddition to the SAs, should be audited each fiscal year and sent to the Bank not later than six months after period end. Quarterly financial monitoring reports will be prepared to include the financial reports, procurement reports and progress reports and forwarded to the Bank not later than 45 days after quarter end. - 53- Annex 8: ProcurementArrangements NIGERIA :State GovernanceandCapacityBuildingProject A. General 1. ProcurementEnvironment.As result o fthe CPAR o f2000 and a subsequent IDFGrant to help execute the agreed Action Plan, the Federal Government has made substantial progress with procurement Reform. A draft Procurement Law was submitted to Parliament inearly 2005, and circulars were issued to Government services to establish procurement units and recruit procurement staff, that would constitute over time the Federal Government's Procurement Cadre. The Budget Monitoring and Price Intelligence Unit (BMPW), established within the Presidency and responsible for the procurement reform agenda, instituted a due process mechanism for all contracts to ensure that public procurement i s carried out in accordance with the required principles and procedures. BMPIU is also member o f a high level Cash Management Committee chaired by the Minister o f Finance to certify that contracts for which budgetarypayments are requested have met the due process requirements. It is envisaged that the states inNigeria will adopt/adapt these procurement codification and transparent process when finally operational at the Federal Government level. 2. Guidelines:Procurement for the Project will be carried out inaccordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004: and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Credit Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame will be agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as requiredto reflect the actual project implementation needs and improvements ininstitutional capacity. 3. Procurement of Goods: Goods procured under the Project would include: project vehicles, computers and accessories, software, communication and office equipment, Journals and Publications, Copyrights and Intellectual Properties, etc. The procurement will be done using the Bank's SBD for all ICB and National Bidding Documents agreed with or satisfactory to the Bank. However, since there i s no National Standard Bidding Document, the Bank's Standard Bidding Document for Goods and works shall be adopted by the Borrower. For evaluation o f bids, the Bank's Standard Evaluation Forms will be used. Procurement for readily available off-the-shelf goods that cannot be grouped or standard specification commodities for individual contracts o f less than US$50,000 equivalent, may be procured under Shopping procedures as detailed in paragraph 3.5 and 3.6 o f the "Guidelines: Procurement under IBRD Loans and IDA Credits" and June 9, 2000 Memorandum "Guidance on Shopping" issued by the Bank. 4. Selection of Consultants: Consultancy services which includes sofiware development, studies, staff audit and verification, service-wide data collection, development o f service standards for the public service, etc., from firms and individuals would be selected using - 54- Requests for Expressions for Interest, short lists and the Bank's SRFPs, where required by the Bank' Guidelines. Short lists of consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The appropriate selection method for each consulting contract would be established inthe Procurement Plan. 5. OperatingCosts: The type o f operating cost that shall be financed by the Project were discussed at appraisal and agreed during negotiations and contained in the Project Credit Agreement. 6. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, will be presented in the Project Implementation Manual (PIM) that will be finalized before Project launch. B. Assessment of the agency's capacityto implementprocurement 7. The State Project Coordination Unit (SPCU) ineach State will have overall responsibility for coordination o f procurement activities at the state level. The SPCU will be staffed with appropriate technical Staff which will include a full-time person with expertise in procurement and office management. The SPCU will coordinate implementation o f Project activities to be undertaken by Activities Executing Agencies (AEAs) inthe given participating state. A National Project Coordinating Secretariat (NPCU) will be created and located inthe FMF. The National Project Coordination Unit (NPCU) will be responsible for the overall coordination o f the Project including the monitoring o f activities. The SPCUs where an experienced Procurement Officer does not exist, will hire a Procurement Consultant for a period o f not more than 1 year to assist with the implementation o f their procurement activities. Part o f the TOR o f the Procurement Consultant will include training and development of the SPCUs and AEAs designated Procurement Officer's skills inBank procurement procedures. 8. The Bank Senior Procurement Specialist has conducted an assessment o f the capacity o f the relevant agencies to implement procurement actions for the Project. The assessment revealed that, some o f the ministries (i.e.AEAs and SPCUs) do not have adequate experience in implementing World Bank financed projects. Therefore there i s a gross lack o f procurement capacity at the implementing agencies. 9. The key issues and risks concerning procurement for implementation of the Project have been identified and includes: (i) lack o f appropriate structure (staffing) in place to manage the procurement fbnction for implementation; (ii)lack o f appropriate Regulation (bidding documents, Standard Evaluation formats, etc.); (iii) o f experience in Bank procurement lack procedures, (iv) absence o f adequate record keeping; (v) absence o f procurement planning and noticeable split o f contracts leading to high cost o f contract in some cases; (vi) inadequate contract management systems and techniques; and (vii) frequent and undue political interference inprocurement decisions. 10. Corrective measures discussed and agreed during appraisal are: (i) creation o f appropriate implementation structure in each participating state i.e., establishment o f SSCs and SPCUs; (ii) recruitment o f relevant and experienced Procurement Officers by each SPCUs; (iii) engagement o f experienced Procurement Consultant by the implementing agencies where procurement - 55- capacity is lacking; (iv) adoption o f the Generic Procurement Manual for Bank assisted projects inNigeria by all the implementing agencies as part ofPIM; (v) training ofrelevantproject staff on Bank procurement procedures on a continuous basis during project implementation (vi) conduct o f contract management training for relevant project staffs; (vii) adoption o f Bank's Standard bidding documents for NCB in lieu o f National Standard document; and (viii) re- assessment o f procurement capacity o f various executing agencies-one year after Project effectiveness to ensure that appropriate capacity has been built. 11. Based on the initial assessment, the overall project risk for procurement is considered Substantial. C. ProcurementPlan 12. The Borrower, at appraisal had developed a procurement plan for Project implementation which provides the basis for the procurement methods. This plan was agreed between the Borrower and the Bank at negotiations. The agreed plan will also be made available in the project's database and in the Bank's external website. This planwill be included inthe Project Implementation Manual (PIM). The plan includes relevant information (including selectiodprocurement methods) on goods and consulting services as well as the timing of each milestone in the procurement process for each implementing agency. The agreed Procurement Plan will be updated by the Project in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity. 13. Publication of Results and Debriefing. Publication o f contract awards would be required for all ICB, NCB, Direct Contracting and the Selection o f Consultants for contracts exceeding a value of USD 200,000. Inaddition, where pre-qualification has taken place, the list o f pre-qualified bidders will be published. With regard to ICB, and large-value consulting contracts, the Borrowers would be required to assure publication o f contract awards as soon as the Bank has issued its `no objection' notice to the recommended award. With regard to Direct Contracting and NCB, publication of contract awards could be in aggregate form on a quarterly basis and local. All consultants competing for an assignment involving the submission o f separate technical and financial proposals, irrespective o f its estimated contract value, should be informed o f the result of the technical evaluation (number o f points that each firm received), before the opening of the financial proposals. The implementing agencies would be required to offer debriefings to unsuccessful bidders and consultants. 14. Fraud, Coercion and Corruption. All procuring entities as well as bidders, suppliers and contractors shall observe the highest standard o f ethics during the procurement and execution o f contracts financed under the Project in accordance with paragraphs 1.15 & 1.16 o f the Procurement Guidelines andparagraphs 1.25 & 1.26 o f the Consultants Guidelines. - 56- D. Frequencyof ProcurementSupervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the implementing agencies calls for 2 supervision missions to visit the participating states, and the NPCUto carry out post review o fprocurement actions. E. Detailsof the ProcurementArrangementsInvolvingInternationalCompetition The Project's activities for the first 18 months o f implementationare presented indetail inthe procurement planthat was agreed between IDA and the Borrowers duringnegotiations andwill be incorporated inthe PIM. Table A: Allocation o f Credit Proceeds ExpenditureCategory - Amount of the Credit PercentageofExpendituresto be allocated Financed (MillionUS$ Equivalent) 1. Goods 100% ofForeign and local 5.4 expenditure 2. Works 100%o fForeign and local 0.5 expenditure 3. Consultants' services, 100% o fForeign and local including audits 8.3 expenditure 4. Training, workshops, and 100%o fForeign andlocal study tours 1.8 expenditure 6. Incrementaloperating costs 100%o fForeign and local 0.6 expenditure 7. Repayment o f PPF 0.0 8. Unallocated 1.5 Total 18.1 1. Goods,Works, andNon ConsultingServices Prior Review Threshold: Procurement decisions subject to Prior Review by the Bank as stated in Appendix 1to the Guidelines for Procurement. A Goods ProcurementMethod PriorReview Comments Threshold (US$ equivalent) 1. I C B (Goods) 2 250,000 All 2. NCB (Goods) <250,000 None 3. Shopping <50,000 None 4. Direct Contracting Any Amount All - 57- B Works Procurement Method Prior Review Threshold Comments (US%equivalent) 1. ICB 2 300,000 All 2. NCB <300,000 None 3. Shopping <100,000 None 2. Selection o f Consultants Prior Review Threshold: Selectiondecisions subject to Prior Review by Bank as stated in Appendix 1to the Guidelines Selection andEmployment o fConsultants: estimated to cost less thanUS$ 100,000 equivalent shallbe Short list consisting entirely of national consultants: Short list o f consultants for services, estimated to cost less than$200,000 equivalent per contract, may consist entirely of national consultants inaccordance with the provisions ofparagraph 2.7 of the Consultant Guidelines. - 58- Annex 9: EconomicandFinancialAnalysis NIGERIA: State Governanceand CapacityBuildingProject 1. Capacity building operations o f this kind do not lend themselves to meaningfbl quantitative analysis o f the economic return. Expected benefits in terms o f fiscal savings, effectiveness and efficiency will only fully materialize in the medium term and cannot be attributed to a single action, but a combination o f reforms. Inaddition, since the Project does not provide resources for severance pay financing, there is no requirement for an explicit economic or financial analysis o f such investment. However the following paragraphs point to the positive contribution that the Project will have on state finances and economic conditions. 2. The advantage o f a MYBF i s that it provides a framework within which overall budget magnitudes and sector allocations can be planned, enabling governments to escape from the revenue and debt driven incremental budget ratcheting which has been a characteristic o f state levelbudgeting inpast years. This will become an essential tool for governments once the Fiscal Responsibility Law i s passed at the federal level, and it induces increased pressure on all tiers of government to save excess oil revenues. The MYBF is also a tool to enable SEEDS priorities to be better reflected in annual budgets, and also to rebalance as between current and capital spending and between the wage bill and non-wage O&M. The Project thus provides a means to better budgets, and thus potentially better use o f inputs. This cannot be easily quantified, but during supervision, Bank staff will look for qualitatively better state budgets. Improvements in fiscal reporting, accounting and auditing should reinforce better budget execution. 3. There is a significant pay-off implementing modern IT enabled HRmanagement systems, assuming the transfer o f data into the new system i s accompanied by an independentlyverified staff audit. For example, in one o f the DFID supported states, HR system reform revealed payroll fraud o f the order o f 25 percent o f the total wage bill, in the form o f ghost workers, improper hires and allowance abuse. 4. Ifthe savings fromsystem modernizationare appliedto meetingthe severancepayments o f excess staff laid o f f in retrenchment programs (several states have attempted to eliminate unwanted staff in egregiously excess categories in GL01-06, but have been unable to complete separations because o f lack o fmoney to pay gratuities), states will be able to progressively tackle the crippling patronage appointment legacy o f military rule. This could set in train a virtuous circle o f rightsizing, pay reform and adequate O&M funding, which intumcould be benefit from subsequent IDA credit. - 59- Annex 10: SafeguardPolicyIssues NIGERIA: State GovernanceandCapacityBuildingProject Not applicable - 60- Annex 11: ProjectPreparationand Supervision NIGERIA: State GovernanceandCapacityBuildingProject ProcessingSchedule: Project Schedule Actual Identificationmission October 2002 Appraisal (completion) April 29,2005 Negotiations May5,2005 Board June 16,2005 Effectiveness October 1,2005 (planned) I Mid-TermReview I January2008 (planned) I Key Institutionsresponsiblefor the preparationof the project At the Federal level: FederalMinistryo fFinance; At the State level: Office o fthe State Governor; Office o f the Head of Civil Service; Ministries responsible for Planning, Finance, and Budget; Office o fthe Accountant General, Office o fthe Auditor General. Bureau o f Internal Revenue inBauchi and Kaduna States. Office o fthe Chief Judge and Management Development Institute inCross River State. Name Specialty Unit Manga Kuoh Task Team Leader AFTPR Michael Stevens Consultant, Public Management Specialist AFTPR K.Jairaj Sr. Public Sector Management Specialist AFTPR SameenaDost Counsel LEGAF Sheetal Asrani-Dam Counsel LEGAF I1EdwardOlowo-Okere Chau-Ching Shen I Sr. Finance Officer I I LOAG2 Lead FinancialManagement Specialist I AFTFM Adenike Mustapha FinancialManagement Specialist AFTFM Chinedum Nwoko Economist AFTP3 Alex Gbovega I Bavo " Consultant. Professor Political Science Univ.o fIbadan Awosemusi I Sr. Procurement SDecialist I AFTPC JunghunCho Young Professional AFTPR Piet Van Heesewijk Peer Reviewer ECSPE AdrianFozzard Peer Reviewer EASPR Vera Songwe Peer Reviewer EASPR Reynaldo P. Castro Consultant/Operations Analyst AFTPR NeliaDinkin Task Team Assistant AFTPR Gloria Kwembe Task Team Assistant AFc12 Precious Osamede Onuvae Consultant. ODerations Assistant AFCNG - 61- Annex 12: DocumentsinProjectFile NIGERIA: State GovernanceandCapacityBuildingProject A. Relatingto Project Implementation 0 Project ImplementationManual 0 DetailedProject Costs B.Bank StaffAssessments (including ESW) 0 World Bank 2000. Nigeriacountry Procurement Assessment Review 0 World Bank 2000. Nigeriacountry Financial Accountability Assessment 0 World Bank 2004. Lagos State FinancialAccountabilityAssessment 0 World Bank 2004. Lagos State ProcurementAssessment Report C. Relating to Bauchi State 0 Report on Bauchi State Public Expenditure analysis 1997-2000. ABU, Zaria. 2002 0 Bauchi State Proposal for World Bank intervention on State Govemance and Capacity Building. Bauchi State Government January 2003. 0 State Capacity Building for Good Govemance. Subproject Document for Bauchi State. Bauchi State Govemment.December 2003 D.Relatingto CrossRiver State 0 Public Expenditure Review 1997-2000. African Institute for Applied Economics, Enugu. May 2002 0 Cross River State - Staff Leaving Service Benefit as at 30 June 2003. HR Nigeria Limited(Consultants andActuaries). October 2003 0 Report on the Workshop on Training Needs Analysis for the Cross River State Public Service. ASCON. October 2003 0 Proposal for the World Bank Assisted Program: State Govemance andCapacity Building Project - Cross River State Sub-project Document. Cross River State Government. October 2004 0 Final Report on the Training Needs Analysis for the Cross River State Public Service. ASCON. March 2005 E.Relatingto Kaduna State 0 Kaduna State Proposal for World Bank intervention on State Govemance and Capacity Building. Kaduna State Government, January 2003 0 Kaduna State Training Needs Assessment (TNA) Study. Institute of Administration, ABU,Zaria, Aofit 2004 - 62- Annex 13: Statementof LoansandCredits NIGERIA: State GovernanceandCapacityBuildingProject Differencebetween expectedand actual Original Amount in US$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO88150 2005 Economic Reformand GovemanceProject 0.00 139.99 0.00 0.00 0.00 141.93 0.00 0.00 PO86716 2005 Sustainable Mngt. MineralResources 0.00 120.00 0.00 0.00 0.00 121.72 0.00 0.00 PO83082 2004 NG-MSME 0.00 32.00 0.00 0.00 0.00 33.47 3.37 0.00 PO71817 2004 NG: LocalEmpowerment& Env.Mgt Proj. 0.00 0.00 0.00 8.00 0.00 7.33 2.35 0.38 PO71075 2004 NG-Urb Water Sector Reform1SIL 0.00 120.00 0.00 0.00 0.00 122.28 10.89 0.00 (FY04) PO63622 2004 NG:Fadama I1 0.00 100.00 0.00 0.00 0.00 92.64 9.11 0.00 PO69892 2004 NG LocalEmpowerment& Envir.Mgmt. 0.00 70.00 0.00 0.00 0.00 75.30 5.71 0.25 PO80295 2003 Polio Eradication 0.00 28.70 0.00 0.00 0.00 50.71 9.37 0.00 PO71494 2003 Universal Basic Ed. 0.00 101.00 0.00 0.00 0.00 108.51 75.93 0.00 PO74963 2003 NG LagosUrban Transport Project 0.00 100.00 0.00 0.00 0.00 96.52 27.60 21.39 PO72018 2002 NG Transmission DevelopmentProject 0.00 100.00 0.00 0.00 0.00 87.57 63.33 49.43 PO69901 2002 Community BasedUrban Development 0.00 110.00 0.00 0.00 0.00 124.60 61.08 37.40 PO70290 2002 2nd Health Systems Dev. 0.00 127.01 0.00 0.00 0.00 126.61 55.76 6.55 PO70291 2002 HN/AIDS Prog.Dev. 0.00 90.30 0.00 0.00 0.00 81.51 37.03 -0.60 PO70293 2001 PRIVATIZATION SUPPORTPROJECT 0.00 114.29 0.00 0.00 0.00 102.54 56.39 21.68 PO69086 2001 Com.-basedPovertyReductionSIL 0.00 60.00 0.00 0.00 0.00 30.76 8.95 3.45 PO65301 2000 ECON.MGMT.CAP.BLDG. 0.00 20.00 0.00 0.00 0.00 4.57 -4.02 0.00 Total: 0.00 1,433.29 0.00 8.00 0.00 1,408.57 422.85 139.93 NIGERIA STATEMENT OFIFC's HeldandDisbursedPortfolio InMillionsof US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00 1999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00 1999 AEF Hygeia 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2000 AEF OhaMotors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.00 2000 AEF SafetyCenter 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 1997 AEF Telipoint 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00 1995 AEF Vinfesen 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 1994 Abuja Intl 1.75 0.00 0.00 0.00 1.75 0.00 0.00 0.00 2005 AccionNigeria 0.00 1.89 0.00 0.00 0.00 0.41 0.00 0.00 - 63- 2003 Adamac 25.00 0.00 0.00 15.00 11.56 0.00 0.00 6.94 2005 Africa Re 0.00 10.40 0.00 0.00 0.00 0.00 0.00 0.00 2000 CAPEFUND 0.00 7.50 0.00 0.00 0.00 7.09 0.00 0.00 2001 DeltaContractor 15.00 0.00 0.00 0.00 0.20 0.00 0.00 0.00 2000 DiamondBank 8.00 0.00 0.00 0.00 8.00 0.00 0.00 0.00 2000 FSB 8.40 0.00 10.50 0.00 8.40 0.00 6.00 0.00 1992 FSDH 0.00 0.86 0.00 0.00 0.00 0.86 0.00 0.00 2000104 GTB 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 2000 IBTC 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1981188 IkejaHotel 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.00 2002 NTEF 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 UBA 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 2004 UPDC Hotels Ltd 11.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Totalportfolio: 133.29 21.09 20.50 15.00 74.05 8.80 6.00 6.94 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2005 ZenithBank 0.03 0.01 0.00 0.00 Totalpendingcommitment: 0 03 0.01 0.00 0.00 - 64- Annex 14: Country at aGlance NIGERIA: State GovernanceandCapacityBuildingProject Nlgcrla 135 7 793 320 430 43.7 347 2 4 2 3 2 5 2 4 47 35 47 46 28 " I 1 83 703 57 58 32 35 87 94 $0 1893 2002 2003 214 46.7 54.4 23 3 26 1 12.7 47 1 4u.B %.a 20 2 2S.8 31.8 13 2 1c.1 2P.2 -10 1 .10.9 -2'7 4 0 3.3 2.B 1438 65 2 W 1 I 4 8 15.4 104 2092 2003 2003.07 .a15 107 $ 0 7 8 4 27 -11.1 32.4 4.5 3.32 14.2 13.7 519.3 s'2 4 0 310 17.2 71 4 62.3 177 17.5 17.5 M 2 1983.93 199353 4 s 4.0 3 6 4 3 21.5 7 5 3 3 3 -1 7 -4.4 3 2 13.2 8 5 9 5 - S I $ 0 - 65- IS83 1993 2002 23 2 80.4 $2.9 I 40 28 1 52.6 3.3 2: 0 15.5 32.12 *:7 8 0 364 53 -5.9 - 9 3 i983 1983 2001 10.330 9,324 ?I832 5.951 s?js7 15678 9,058 40 I4 no 91 3 2,m8 9,130 1,w5 771 1919 185 46 4,473 188 59 139 62 (39 89 266 100 156 1983 1993 2002 20161 r q n e 10,062 13,632 28,462 t3,827 10,720 1s79.3 23.m -3,089 A98 -106 5229 -1327 -2.346 .5 10I -8,444 847 1,393 1 657 -5,cc 't -2,158 -5.lO.3 -1,556 15rr31j 9 A 33 2 366 1,M§ 1,045 725 2 742 213 1,DIS 1&lO 7123.6 681 7125 466 '86 45.3 2 ~~~ ~ 1983 1993 2m2 Compositiond 2062 d r k (US$ mllj 17 562 33.6% 310,476 824 3,188 '1,275 38 1Iff 678 2.562 1,491 2 930 95 583 24.5 f 2 16 690 54 -126 1,015 a3 4 l O 9.31 2 481 3,246 0 0 517 156 435 151 $88 302 20 63 3% 310 189 220 2% -8 -le9 .157 58 261 15 68 $1 .263 244 -224 - 66- TechnicalAppendix:Activitiesunder the CoreReformProgram NIGERIA: StateGovernanceandCapacityBuildingProject 1. This Technical Appendix to the PAD has been prepared to facilitate the implementation o f the Core Reform Program (CW). For each subcomponent, it presents the sets o f activities to be carried out, the inputsrequired, and the time periods o f execution. A. PublicFinancialLegislation 2. Activities: Three sets o f activities will be carried out under this sub-component. Set 1. The preparation of an organic financial law and Jinancial regulations for the State (Project Months 1 to 12). Review of the existing legal framework onpublic financial management; Identification o f areas that needs revision in current laws and regulations such as clearer distinction between the responsibilities o f different actors, incorporation o f international accounting standards, implications o f the use o f modem ICT and requirements for greater comprehensiveness and transparency; Drafting o f an organic financial law that reflects the findings o f the review and the provisions ofthe FiscalResponsibility Act to be adopted at the Federal level. Drafting o f revised financial regulations with special attention given to clarity regardingthe underlying principles as opposed to detailed procedural issues. Treasury manuals will be developed to facilitate operation o f financial systems. This will enable the progressive implementation o f the new GFMIS and avoid having to re-issue regulations as the new ICT based systems are developed. These activities will be carried out jointly by all participating states andthe FMFwith the support o f the OAGF, international public finance management experts located in the NPCU, and local consultants contracted by the State. Three one-day seminars will be organized in each state during the preparation o f the new legislation for members o f the State House o f Assembly (SHoA), the State Executive Council and senior state officials. Set 2. Adoption of the new organicJinancial law and related financial regulations (before the end of Project Month 18); e The new organic financial law will be presented to and passed by the SHoA not later than by the end o f the second Project Year [September 20071. Thereafter, the State Government will adopt the related financial regulations and implement any organizational or procedural changes required. - 67- Set 3. Dissemination of and sensitization on the new financial law and regulations (Project Months 16 to 24); 0 Three thousand copies o f the newly adopted organic finance law will be printed and distributed widely (SHoA, State MDAs, the Judiciary, the LGAs, the civil society -private sector organizations, the academia, selected NGOs - and libraries). 0 Two thousand copies of the financial regulations will be printed and distributed to State MDAs andthe LGAs. e Fifteen one-day seminars will be organized to disseminate the new financial legislation and familiarize the various partieshsers concerned including one (1) for the SHoA, one (1) for the Judiciary, three (3) for the civil society, and ten (10) for State government and LGAs officials). 4. Implementation and Required Inputs. In the State, the Ministryin charge o f Finance will be the leadAEA for this component. Itwill work closely with the other economic ministries and the Ministry o f Justice, and liaise with the Auditor General. The seminars and workshops will be conducted by State officials and local consultants already involved inthe preparation o f the new legislation, under the coordination o f the Project Training Advisor located inthe NPCU. B. BudgetPreparation 5 . Objectives: The objectives o f the sub-component are to (i)increase the State Government capacity to prepare and implement budget which are fiscally sustainable, closely aligned with priority policies and programs; and (ii)enable the State to be in line with the requirements o f the Nigerian federation's fiscal andmonetary policy objectives. 6. Activities: Building on reform initiatives taken in recent years, the Project will help the State Government implement a Multi-Year Budget Framework (MYBF), a simplified version o f a medium term expenditure framework (MTEF), through the sets o f activities described below. Set 1. Capacity Assessment, Development of MYBF Strategy, and Consensus and Ownership Building (Project Months 1to 6) Review o f roles and responsibilities o f MDAs in charge o f budget preparation, economic planning,expenditure control, and sector ministries andagencies; Assessment of the capacity o f the same M D A s to apply new processes and procedures, (including the budget module o f the Budget and Treasury Financial Management Information System - BATMIS - described below) for the preparation and execution o f the budget and identification o f the skill gaps for budget preparation in a multi-year perspective; preparation o f the specific MYBFstrategy for the State with an action plan; Organization o f three (3) one-day budget reform consensus and ownership building seminars: one for the state political leadership (with participants from the legislative and executive branches); and two for managers and senior staff from central ministries and key spending MDAs. The seminars will enable the implementation team to share its findings andrefine its actionplan. - 68- Set 2. Strengthening the budgetavy basics (Project Months 5 to 10) Revision o f budget preparation process, including adjustments to the roles and responsibilities o f the major M D A s involved in the preparation o f the budget as needed. This will be initiated by a seminar with the participation o f the commissioners and permanent secretaries o f the MDAs. Progressive implementationo fthe BATMIS budget module. Revision ofbudgetclassification, and BATMIS CoA, including programclassifiers Revision o f the Call Circular to reflect the changes being introduced in the budget preparationprocess, including information on sectoral andministerial ceiling Development o f Operation Manuals based on new budget preparation process taking into account the BATMIS budget module implementation Four one-day sensitization seminar on concepts and operating mechanisms o f MYBF: one (1) for the State political leadership (with participants from the legislative and executive branches); and three (3) seminars for managers and senior staff from central ministries andkey spending MDAs; Interaction with BATMIS and HRMIS implementation teams to spell out requirements for the budget preparation function. Set 3. Development of Fiscal Policy with Sectoral Priorities (Project Months 6 to 11) 0 Development o f 3-year fiscal policy paper inline with SEEDS objectives; 0 Review o f sectoral spending patterns and development o f sectoral strategy papers and sector expenditure programs for both recurrent and capital spending (three to six sector ministries); 0 Development o f a preliminary expenditure framework that includes sectoral resource envelopes andpriority programs; 0 Step 3 will require a one-day methodology and work planning workshop in the beginning and, at the end, another one-day stock taking workshop on fiscal policy and expenditure framework implementation for MYBF implementation team and selected officials from central economic ministries and spending MDAs. Set 4. Trial Merge of MYBF with Annual Budget Processfor the budget of theyear 2007 (Project Months 11to 17) 0 Preparation o f a draft expenditure framework discussed by the State Budget Committee and the Executive Council with a total resource envelope and sectoral/ministerial ceilings; 0 Preparation o f a draft budget requests by spending ministries using MYBF-based call circular. This will include a methodology workshop for spending M D A s followed by support to the MDAsby MYBFimplementation team members as necessary; 0 Preparation o f a draft annual budget based on MYBF and reviewed by Executive council inlight ofbudget actually submittedto beSHoA for the year 2007. Set 5. Actual Merge of MYBF with Annual Budget Processfor Budget of 2008 (Project Months 20 to 27) - 69- Presentation o f expenditure framework to the State Budget Committee, and subsequently, the Executive Council to agree on the total resource envelope and the sectoral/ministerial ceiling; Preparation and submission o f budget requests by spending ministries using MYBF- based call circular; Presentation o fthe annual budgetbased on MYBFto the SHoA for approval Set 6. Consolidation of MYBF (Project Months 27 onward) Annual stock taking workshop on MYBF implementation process for MYBF implementation team and selected officials from central economic ministries and spending MDAs. Review achievements, identification o f areas o f improvement and development o f an action plan; Project year 4: Budget Retreat for State political leadership (legislative and executive) including the review o f the state experience with MYBF in terms o f budget preparation, approval process, and execution. 7. Implementation and required inputs. The ministries incharge o f budget will be the lead AEAs for this sub-component. It will designate a senior officer to act as the coordinator of the state MYBF implementation team of about ten (10) persons. The Team will be put in place before the end o f [July 20051. It will include representatives o f the economic central ministries and selected spending MDAs. To facilitate the effective implementation o f the sub-component, the Team will benefit from the services o f foreign and local consultants whose activities will be coordinated by the Public Financial Management Specialist - Budget Reform, located in the NPCU. The objective will be for the State Government to present to the SHoA annual budgets based on the MYBF starting with the budget for 2008 at the latest. However, any participating state ready to proceed with the merge o f MYBFwith the annual budget process starting with the budgetfor the year 2007 is encouraged to do so. C. Accounting,ExpenditureControlandFinancialReporting 8. Objectives: The objectives o f the sub-component are to (i) provide an accounting system that reflects accurately and completely in accordance with recognized accounting standards the flow o f transactions and the year end stock o f financial resources o f the State Government in a timely manner, and (ii) improve the integrity o f transactions through strengthened financial and internal control. Achievement o f these objectives will involve very close coordination with components B & E involvingthe implementation o f MYBF andBATMIS. 9. Activities. This sub-component will include the following sets o f activities. Set 1.Introducing a modern accounting andfinancial reportingframework (Months 1to 10) as a basisfor implementation of BATMIS and improvedfinancial reporting. - 70- 0 Review the accounting classification to check proper application o f the Standard Chart o f Accounts (SCOA) and reporting requirements which are developed and proposedby the FederationAccount Allocation Committee (FAAC); 0 Introduction o f new classifiers such as function, program, virtual poverty fund for introducingMYBFandpoverty-related expenditure tracking; 0 Production of updated Annual Accounts o f 2003 and 2004, if necessary, with reclassification oftransactions based on the SCOA; 0 Disseminationof the SCOA and reporting formats to all MDAs. Set 2. Improving internal control (Months 2 to 15) 0 Review o f the existing business processes/controls o f Treasury Department, from the receipt o f monthly transactions from all spending ministries and local governments to the production o f trial balance, general ledger, special ledger, monthly accounts, and annual accounts; 0 Revision o f business processes and distribution o f responsibilities among the state agencies to reflect the introduction o f MYBF and BATMIS. This will include introducing new commitment and cash control system for budget releases; 0 Development o f the principles for application inBATMIS and o f operationalmanuals which will be one o fthe keymaterial for stafftraining under the sub-component. Set 3. Providing Intensive training in Public Sector Accounting and Expenditure Control (Months 4 to 48) 0 Two (2) one-day seminar for managers (deputy directors, directors and above) Eight (8) two-day semi residential technical training sessions for accounting and financial management staff from the central economic and financial ministries, the spending MDAs, and the LGAs. 0 Training o f five trainers, out o f a pre-selected list o f at least eight candidates. The individuals confirmed will follow an appropriate training for trainers program in a reputable national institution. The candidates will have to have advanced skills inthe use o f computer software including at least one accounting software. They will be committed to at least three years o f service with the State civil service upon completion o f their training for trainers program. 10.Implementation and Required Inputs. The ministry incharge o f finance, acting through the OAGS will be the lead AEA for this sub-component. The activities will be supported and coordinated by the Public Financial Management Specialist located inthe NPCU. Additional consultancy services will be provided to facilitate the timely achievement o f the sub-component operational objectives and carry out the training activities untilthe trainers to be trained take over. - 71- D.External Audit 11. Objectives. The objectives o f the sub-component are to (i) improve the effectiveness and timeliness o f external audit function inthe State public sector, and (ii) increase the awareness o f the Public Account Committee (PAC) o f the SHoA, the Ministry o f Finance and spending ministries on the importance o f audit and their responsiveness to the findings o f the reports form the Office o f the State Auditor General (OSAG). 12. Activities. The sub-component i s designed to strengthen both the supply and the demand sides of external audit functions so that the quality o f auditor's report is enhanced and the findings o f the OSAG are followed up and corrective actions taken. The sets of activities planned are the following. Set 1.Increasing OSAG operational Capacity and Deliveries (Months 2 -28) 0 Contracting two seasoned auditors from the private sector for a budget equivalent to forty eight person-months. During the first year, they will provide continuous service in the OSAG and will be in line position, overseeing the work o f several officers. They will develop rolling two-year work programs that enable the OSAG to discharge its mandate immediately to meet the requirements o f increased transparency and accountability inthe use o f public resources in the State. The contracted auditors will have to have strong communication skills and a confirmed experience in conducting training sessions for accountants and auditors, and incoachingprofessional level staff. 0 Upgrading IT and office equipment inthe OSAGincoordination with activities o f Set 2. Set 2. Conducting ComprehensiveReview of Current Audit Practices (Months 3 - 6) 0 Business process review and revision o f external audit processes, including materiality setting techniques, auditing on payroll and major procurement, and auditor's report format. This reviewh-evision will be camed out by the senior auditors indicated above upon inception o f their assignments and will include a detailed action plan for further audit refondcapacity enhancement in the State. Specific attention will be given to the audit implications o f the introduction o fBATMIS and ICT based accounting systems. 0 Dissemination o f the review findings and recommendations. Once approved by the auditor General, the review findings andrecommendations, including the actionplan, will be presented to the SHoA andthe State Governor before beingmade public. Set 3. Building the Capacity of OSAGstaff(months 4 -40) 0 Provision o f on-the-job training by the seasoned auditors contracted from the private sector to OSAG staff. 0 Provision o f advance training to ten promising officers o f the OSAG inmodem auditing practices, internal control assessment, and preparation o f an auditor's report. The trainingwill be provided by a Nigerian training institution with the collaboration of the seasoned auditors contracted from the private sector. 0 Use o f computerized audit techniques. - 72- Set 4. Consolidating Demand of an effective External Audit Function (Months 6 - 48) Organization o f an annual public forum where the Office o f State Auditor General (OSAG), the OAGS, the central economic ministries, spending ministries, and State House o f Assembly, and representative o f the civil society come together to discuss the issues related to external audit function. The first such forum will discuss the review report and action planreferredto under Step 3. 0 Putting in place a State Committee on Audit to be chaired by a representative of the SHoA and will include representative o f the State Governor's office, selected ministries, and the State Auditor General (SAG). The mandate o f the committee will be to monitor action taken on the findings inthe Auditor's Report, includingincentives and disciplinary sanctions which are backed up by legal provision. The committee will meet each quarter to discuss and agenda prepared by the SAG. 13. Implementation and Required Inputs. The OSAG will be the lead agency for the implementation o f the sub-component. It will work closely with PAC/SHoA and liaise with the State executive branch o f government as necessary. E.BudgetandTreasuryManagementInformationSystem 14. Objective. The objectives o f this component are (i) implement a basic integrated to Budget and Treasury Management Information System (BATMIS), which will support planning and budgeting, transaction processing, accounting, and reporting on the use o f financial resources; and (ii)make available a reliable and unified database, which will be shared by all users, and feed both the State Government and the FGN with the information that they need respectively. This system will be consistent with the budget and accounting frameworks developed under components B& C. 15. Approach. The BATMIS will be based on a medium range off-the-shelf package that includes standard modules such as budgeting, commitmentkash management, general ledger, purchase order, accounts receivable, accounts payable, bank reconciliation, financial reporting, with capability to link to human resources/ payroll systems The system will provide for operation over a small scale Local Area Network (LAN) installation or State Campus based Wide Area Network(WAN). The system design should facilitate the adoption o f the budget and financial management reforms targeted under the Project (MYBF, Budget Reclassification, Improved financial reporting according to GAAP). - 73- 16. The system will facilitate the following core functionalities: Module Description Budgeting (multi-year) 0 Maintains multi-year forecasts 0 Maintains rolling adjustments to multi-year forecasts 0 Maintains records of contingent liabilities and fiscal risks 0 Automates annual budget preparation 0 Multi-year budgeting functionality. This i s desirable for integrating the MYBFand MTEFprocesses with annual budget preparation. Treasury General Ledger 0 Facilitates recordingof all individual transactions from other modules (TGL) 0 Includes Budget ClassificatiodCoA coding structures and provides for changes 0 Generaljoumal functionality 0 Structured accordingto the revisedchart o f accounts. 0 Facilitates adoption of accrual accounting principles 0 Supports FinancialReporting Purchase Order & Accounts 0 Facilitates Requisitionand Order Management Payable (AP) 0 Facilitates Commitment Control 0 Records supplier details 0 Records supplier invoices 0 Records payments 0 Produces TGLjoumal entries 0 Reports on aged payables 0 Reports on commitments 0 Facilitates Accounts Receivable (AR) 0 Records invoices 0 Records receipts 0 Produces TGLjoumal entries 0 Reports on aged debtors Budget Execution 0 Maintains budget appropriations 0 Tracks budget commitments 0 Monitorsbudget execution Cash and Bank 0 Monitors cash usage Management 0 Produces TGLjoumal entries 0 Forecasts cash requirements 0 Supports bank reconciliations Consolidation 0 Data collection functionality 0 Consolidation functionality for budgets and forecasts Report Writer 0 Produces standard and ad hoc reports Interfaces 0 Integrationwith HRPayroll 0 Integrationwith Revenue/Other Systems - 74- 17. The BATMIS will be implemented in a phased manner (development, piloting, rolling out, and full-blown) according to clearly spelled out implementation plans designed with the assistance o f consultants. It is anticipated that the State functions, undertaken by Central Economic Agencies will be the first priority, followed by implementation in finance and accounting units inpilot sites with a subsequent rollout to other ministriedagencies. The phasing o f implementation will allow time for the development o f necessary ICT and application management skills and full ownership. The Project will promote the adoption o f common ICT standards and skills sets, the use o f a common ICT architecture and improved levels o f integration. The major BATMIS implementationprocesses would be undertaken inparallel with the reform o f budgeting, accounting, and expenditure control. Inaddition, the ICT infrastructure andhumanresource capacity existing ineach state will be utilized to the extent possible. 18. The initial focus will be on setting up, within twelve months o f project commencement, the core budgeting and accounting modules. This process will provide for both formal and action based learning for the implementation teams. Setting up these two modules first will allow the implementation teams to address the key conceptual issues (CoA, budget classification, MYBF) without disrupting ongoing operations inthe ministries. It will also allow the use o f the budget module for the 2007 budget preparation (in parallel) and use o f the GL for consolidation and reporting o f 2005 budget (inparallel).A pilot exercise will be implemented for Ministries prior to the rollout o f the system to all Ministries. 19. Activities. The activities plannedunder the sub-component are as follows. Set 1. Establishment of State Level Project Governance Structures and Mobilization of the BATMIS implementation Teams . 0 Establishment o f State level BATMIS governance arrangements including: A Coordination Committee of Key State Stakeholders (SMF, SGO, SOAG, SBD, SAG, Coordinator etc) will be responsible for: providing overall policy guidelines for the IFMS project, ensuring commitment at the highest levels, overseeing the IFMS project, setting overall priorities, confirming IFMS project goals and objectives, committing and monitoring resources and budget, reviewing IFMS project progress, endorsing milestone achievements, providing resolution o f escalated issues, endorsing organizational, policy and strategic changes decisions. Appointing a BATMIS Sponsor (the SAG inpreferably) who will be responsible for providing technical advice and guidance to the IFMS project, establishing project goals, objectives, and priorities, Establishing resources and budget, appointing the IFMS project team, articulating organizational, policy and strategic change issues arising from the IFMS project which require escalation to the Steering Committee, reviewing and reporting on IFMSproject progress to the Steering Committee. Establishing the BATMIS Management Team who will assist Sponsor to facilitate Project scheduling, resource management, Risk management, Communication, Change management and training, Procurement and ICT technical liaison and management o f the Contractor. - 75- The BATMIS Sponsor and BATMIS Coordinator will provide the link betweenthe State and the Central ImplementationTeam. 0 Establishing BATMIS implementation teams in the OAGS and identification o f champions in key user agencies. The BATMIS implementation team will include staff who are capable o f development o f FM, ICT, training, and audit/controls skills. During the implementation stage these teams will work closely with the implementingcontractor. Once implementation is complete the team will become the core application and ICT management team for the system thereby ensuring sustainability; Provision o f induction training for the project implementation teams; 0 Provision o f basic Office infrastructure and equipment for OAGS project implementation team; 0 Commissioning a training needs analysis (TNA) and training program development for staff involved in the BATMIS operation and resulting in a training strategy. Where necessary this studywill also consider restructuring implications; 0 Conducting training programs for both senior management and end users to sensitize and mobilize strong support from the leadership. Early sensitization and engagement o f all stakeholders (Budget / Macro / Audit etc) i s essential to ensure firm commitment andparticipation from stakeholders; 0 Developing a BATMIS conceptual framework to guide the implementation process from a P F Mperspective. 20. Inorder to successfully sustain the implementation of the IFMIS it is essential that the States develop the `in-house client side capacity' to facilitate overall supervision and management o f both the project and o f the IFMIS applicatiodICT concerned. The Governance arrangements provide for overall project management and integration with the State organisational arrangements. The IFMIS management involves the following three dimensions. 0 Management and staff capacity to use the system. 0 Creation o f application support capacity to manage, support and train the users and to interface with the ICT support function for technical problem resolution and ongoing application development. The longterm role o f the Project Implementation Group. 0 I C T support for management o f the Data Centre, LAN, WAN, Hardware and for ongoing technical management and development o f the system. (This can be either developed inhouse or partially contracted out) 21. The Table below identifies the units responsible for each o f these dimensions, the nature of the tasks to beperformed andthe skills that needto be developed. - 76- ApplicationUsers ApplicationManagement& ICT SupportUnit Support(Project ImplementationTeams) SMF(Budget1, OAGS Application Support Functions IT Suuport Function or ,Ministrv/Anencv Finance SMF(Budget) & OAGS Facilities Management and Accounting Units, (Computer Unit) Budget & Transaction data Application System set-up and Data Centre Management input (Budgets, Releases, maintenance. Database Administration Warrants, Commitments, Maintenance o f Budget Server Operating System Expenditure, Revenue, ClassificatiodChart o f Management. Journals etc) and Accounts. Network Administration Processing o f outputs User administration. Security Administration (Reports, Cheques etc). User training. Hardware User support & application SupportMaintenance Productiono fpre defined problem resolution. WadLANMaintenance and ad hoc reports using Application help desk Technical Application standard tools. Application Quality Control. Support- development, Rollout of Application to new interfaces, upgrades etc. users. Technical HelpDesk Change Management Skill Sets: SkillSets: Skill Sets: 1. Budget, Accounting 1. Budget, Accounting and 1. Technical Support- and Financial FinancialManagement LANIWANlNetwork Management Skills. Skills. 2. Computers operations 2. Specific BPEMS 2. BroadBPEMS application 3. Systems Support- DBA, processing functional skills. Systems Admin. skills. 3. Specific BPEMS Systems 4. Quality Assurance Management Skills. 4. BPEMS Application Problem identification and resolution skills. 5. User Training Skills. 6. Management, interpersonal and change management skills 22. The central BATMIS team will provide support for the induction training, TNA and Conceptual Development Process and for in service training of the various support groups.. It i s essential that the BATMIS implementation is driven from a PFMperspective with adequate ICT support. The PFM Advisor will provide the technical support for the conceptual development and the ICT Advisor will support the development o f the facilitating ICT framework. Set 2. SpeciJication and Acquisition of the BATMIS Software Package and implementation requivements - 77- 0 Undertake a Financial Management Study (FMS) as a basis for specification development. Existing studies from other countries inAfrica (Tanzania, Kenya, Uganda) can be utilized to accelerate the development o f these documents. The study needs to clearly elaborate the key features that an IFMIS would need to satisfy. Although it i s not necessary to provide a detailed specification for every aspect o f the system, as these are usually standard to all packages, it i s necessary to ensure the unique context specific state public sector requirements are recognized and provided for. The Study will also elaborate the ICT framework, implementation methodology andprocurement approach; 0 An IFMIS ICT policy will be prepared to guide staff inthe ICT implementationactivities related to the IFMIS. Such a policy would also address issues like the replacement plan for obsolete equipment and technology review and update for improved component performance. It will also provide standards for common platforms and skillrequirements; 0 Preparation o f the terms o f reference (TOR) and contracting o f a software implementation consultant (Contractor) Completion o f the consultant analysis and recommendation including the technical specification relating to the BATMIS, RFP documents, outline costing, evaluationinstrument; 0 Stakeholders review o f agreement with recommendations; 0 Completion o f supplier short-listing, tendering, negotiation and contracting of the BATMIS supplier using a turnkey. The tender documents will provide for a comprehensive mid-range system, that can be implemented on a turnkey and modular basis (Hardware, Software, Communications, Project Management etc). The aim i s to provide for a single contractor to take responsibility for all aspects of the implementation irrespective o f what work was subcontracted. The evaluation criteria will be pre-specified (Mandatory, Desirable, Discretionary) and weighted and the evaluation will involve an extensive analysis o f the proposals. Intensive negotiations encompassing representatives from the Government and the preferredbidder will need to be undertaken. Apart from the technical solution considerable attentionwill be given during the negotiations to capacity building, contract management, change management andquality assurance. 23. The scope o f the financial management study will be sufficient to ensure the expected deliverables are well defined up front and the specifications, evaluation criteria and tender documentation are sufficient to enable the procurement o f the BATMIS. The States will provide significant input to enable the consultants appreciate any unique accounting requirements. All stakeholders will participate in the design activities thereby creating awareness o f the need to change from manual processes. The design review will identify any institutional and management of change processes requiredto ensure the proper implementation o fthe BATMIS. 24. A quality assurance dimension will be designed into the project to ensure the proper management o f the project implementation from the supplier and purchasers perspective. Process flows associated with the functional specifications will be prepared. Costing for the proposed solution will be preparedinorder to ensure that the implementation is benchmarked for time and cost. A key deliverable for the contractor will be to transfer knowledge to the implementation teams, thus, emphasis will be placed on the contractors responsibility for supporting change management, long term sustainable operation o f the system, and providing sufficient on-the-job training for the State Government civil servants. - 78- 25. Sound procurement and contract management activities will beput inplace that ensure: 4 The procurement strategy provides for detailed negotiations with the preferred supplier to ensure value for money. 4 The proposed contractor has significant IFMIS implementation experience, curriculum vitae of the staff provided for implementation o f the application will be properly evaluated. 4 Licensing arrangements are comprehensive and transparent. The software will be purchased on the basis of perpetual concurrent licenses which will help to minimize the cost o f license acquisition and maintenance. Suppliers offering only named user licenses will be excluded as part of the procurement processes. The acquisition o f software will be purchased on the bases o f use for any Public Sector Entity subject to payment o f the license fee. It is. expected that volume discounts will be possible as the user base increases to include other Ministries andAgencies. 4 The contractor is fully aware o f capacity building and knowledge transfer as key requirements. . 4 The contractor is operating onshore, creating capacity inNigeria for sustainability ofthe implementation and reducing costs for implementation activities. A single point o freference for contractor management exists. 4 Contracts are drawn up providing for appropriate maintenance. 26. The central BATMIS implementation team will support all aspects o f the procurement process. A single process will be followed for all participating states with the State Project Sponsors and Coordinators playing a key roll in facilitating the decision-making processes on behalf o f the State. Set 3. Implementation of the Basic Modules (Public Sector Budgeting, Cash Management, General Ledger, Financial Reporting) in the Central Economic Ministries and ICT Infrastructure (Data Center LAN/Campus WAN), > Review and revision o f the State PFM-related business processes being undertakenby the central agencies; > Establishment (based on the Project Implementation Team) o f the Application Management Function in Office o f Accountant General and the Budget Division o f the State; P Development o f a detailed implementation plan. The planwill provide for: 0 Scope o fproject implementation 0 Resources required 0 Activities planned to be undertaken 0 Time frame for implementation 0 Specific time bound outputs 27. The plan will indicate the different activities planned for contract management, for training, change management, application management and any other issues that the management team requires to be plannedfor. All planned activities will be developed on a Gantt - 79- Chart that will be used for monitoring and reporting to the Management Team on a weekly basis. This chart will be the maintool o f management of the project activities by the project manager. The planwill be agreed and signed o f fbefore implementationproceeds. 0 Acquisition o f PFM software (all modules and users) and detailed mapping o f the software to the requirements; 0 Implementation o f core modules including public sector budgeting, cash management, general ledger. This will include configuration, user acceptance testing, data migration and production testing. It will also require definition o f roles and responsibilities o f the users and review o f existing controls and manual interfaces. The software will provide for differential implementations, according to the needs o f the sector (accruaVcash accounting); 0 Creation of BATMIS ICT Data Center (in existing agencies such as the Department o f Computer Center o f Ministry o f Finance inthe case o f Bauchi State) and setting up o f the LAN/WANinfrastructure; 0 Buildup o fBATMIS capacity utilization through the implementation o f a comprehensive package o f skills gap bridging courses o f different levels (basic, intermediate, and advance) for application managers, users, managers, and to-be I C T specialists. 28. This skills development will take place during each part of the implementation process including business process review, design, review, testing, parallel running, production testing, go live and post go live sign off. The Central Implementationteam will provide technical advice (PDFMand ICT) and support for each o fthese processes as well as assisting inthe management o f the contractor. Set 4. Pilot Implementation in 4 SpendingMinistries and Agencies 0 Implementation o f BATMIS basic modules (Public Sector Budgeting, PO, Ap, AR, GL, FR) at ministrylevel; 0 Pilot Ministrylevel I C T and Site Setup; 0 Provision o f intensive on-site user training and capacity buildingworkshops; 0 Regular structured discussions between the BATMIS implementation teams and the users group. 29. It is proposed that the Accounting Units inthe SMF and OAGS shouldconstitute two o f the sites with a further two selected from other Ministries. The pilot exercise will be used to setup and test the transaction processing functionalities o f the systems prior to full rollout to other ministriedagencies. The central Implementation team will again provide technical and problem resolution support. Set 5. Roll out to SpendingMinistvies and Agencies 0 Progressive extension o f tested BATMISmodules to all Ministries. 0 Rollout MinistryLevel ICT and Site Setup. 0 Provision o f intensive on-site user training and capacity buildingworkshops; - 80- 0 Regular structured discussions between the BATMIS implementation teams and the users group. 30. The lessons to be learned with pilot ministries implementation will be shared and reflected by the Central Implementation Team into fine-tuning roll-out plans. In addition, the implementation team would support capacity buildingand sustainability o f the implementation. 31. Implementation and Required Inputs. The OAGS (Project Sponsor) in the ministry in charge o f finance in each participating state, the Project Coordinator (& Implementation Group) and the central BATMIS implementation support team in the NPCU will have primary responsibility for the subcomponent, ensuring that sufficient staff are trained to operate and maintain the system. 32. At the state level and under the coordination and leadership o f the OAGS, the development and implementation o f the BATMIS will be a joint effort o f a number o f agencies (budget department, accounting department, treasury, state planning commission, financial control units, computer center, line ministries, Office o f the Head o f Civil Service) because o f the very nature o f the information system that will integrate data relating to several functions. A Steering Committee o f key stakeholders will support integration at all levels. While each state will seek to benefit from the experience o f the others, the migration plans (transition from the current to the future information system) are likely to differ from one state to the other substantially as a result o f differences in information technology and in house expertise. The central BATMIS implementation support team will assist the states to specify, procure and implement the information system and, together with the contractors provide training and technical support for the State ImplementationTeams. 33. For each state, it is expected that key modules o f the BATMIS will be effective by the end o fthe second year o f its subproject implementation. 34. Project management arrangements based on milestones, scope, cost and time will be elaborated. The agreed and documented project plan for the implementation o f the IFMIS will form the basis for monitoring the implementation. Proper reporting arrangements will be put in place to ensure the supplier provides progress reports to monitor performance. Such reports would comprise weekly reports, monthly reports, end o f assignment reports and will be complimented by regular review meetings with the contractor. Proper documentation and record keeping procedures will be maintained. A risk management plan, that would assist in the identification o f major risks, analysis o f their potential for occurrence and development o f mitigation strategies should these risks crystallize will be developed. The Central Implementation Teamwill assist the States to establish these arrangements. - 81- Major Implementation Risks 35. The following are assessed as the major implementationrisks andthe mitigatingmeasures: No. I Risk Probability Mitigating Measures i. Lack o f Top Management Commitment Medium Install effective Project Governance to drive the requiredchanges Arrangements. Maintain impetus and momentum to change 11 ... Insufficient Contractor Skills Medium Ensurethorough evaluationprocess 111. Resistance amongst staff to change to use High Undertake change management, the system training and capacity building activities iv. Insufficient skills and staff to support the High Recruit support for implementation implementation activities to completion activities. PC and Implementation Groups V. Input effort not sufficient to drive High Provide a performance based changes and not compensated for with incentive for the MDAs meeting the normal pay computerization objectives vi. vii. IIIApplication controls not properly High Ensure supplier resolves all implemented resulting into loss in application issues confidence o f the system Organisational policies remain static and High Change processes, procedures, portraying manual processes instead o f guidelines and structures in moving towards IFMIS implementation Ministries to institutionalize the activities IFMIS viii. Implementation o f the ICT poses IFMIS High Ensure that the pilot phase i s fully implementation constraints for those tests LAN/WAN ministries not yet covered ix. Contractor not able to support the system High Create capacity o f staff and focus onshore on deliberate knowledge transfer of I the implementation activities Require Contractor to create capacity. - X. Weak project management and Medium Use project plans and project monitoring o f outputs and deliverables documentation to ensure non resulting inimplementation slippages slippage F.HumanResourceManagement andStaff TrainingEnhancement 36. Objectives. To support the efforts made by the participating states in recent years to reduce fraud and corruption in the management o f human resources and improve staff perfonnance, the sub-component objectives are to (i) provide each state with a sound and reliable data base on the personnel employed by or retired from the State government; (ii) enable effective establishment controls; and (iii)enhance staff training in economic and social development ministries. - 82- 37. Activities. The set o f activities plannedunder this component are the following. Set 1.Staff audit and nominal role updating (Project months 9- 16) Comprehensive staff audit including payroll parades, where necessary, to ensure that information to be inputted in the new HRMIS and BATMIS Payroll module i s clean and up-to-date. This will require the contribution o f consultants. Harmonization o f the payroll andthe nominal role. Set 2. Human Resource records modernization (Project months 1-24) a Development o f a strategy and action plan for the modernization o f the state personnel record management with the assistance o f consultants who will be required to prepare a new recordsprocedures manual; a Facility upgrading and equipment of registries in the context o f the strategy implementation; a Records training for staff o f the Office o f the Head Civil Service o f the State Set 3. Installing a modern HMIS (Project months 6 -30) a Mobilization o f a HRMIS implementationteam and review o f current shortcomings a Specification and acquisition o f a software package in close coordination with the BATMIS implementation exercise. a Staff training to the HRMIS: HR officers inministries, managers, and ICT specialists Set 4, Enhancing staff training a Monitoring the training activities directly linked to each sub-component o f the Project to ensure the sustainability of the institutional reforms and business process change being introduced. a Adopting a State staff training policy statement. This will include a one-day validation seminar at the technical level before submission o f the draft to the State Executive Council. a Managing the Economic and Financial Knowledge Enhancement Program. Designed for middle level/mid-career staff, the program will cover such topics as national economic policies and state development strategy; budgeting and expenditure control; accounting and financial reporting; procurement methods and practices; and human resource management and payroll. A budget provision have been made to allow each state to send up to fifty officers to the program a Logistical support to the Office o f the Head o f Service. 38. Implementation and Required Inputs. Office o f the Head o f Service o f the State will be the lead agency for the implementation o f the sub-component, incoordination with the ministries in charge of planning, budget and finance and any existing computer center that currently contributes to the processingo f the payroll. - 83- 39. Special consideration will be given to ensuring that the technology platform for HRMIS will be compatible with the one to be developed under BATMIS component. In addition, although limited in scope, this subcomponent has been designed to facilitate more comprehensive human resource management including changes in organizational processes, structures, staffing, skill sets, management style and organizational culture. The ICT specialists inthe NPCU will also support the development and implementation of modem HRMIS inthe states, encouraging common solutions when feasible. 40. The Economic and Financial Knowledge Enhancement Program will be developed and executed for the three participating states by a reputable Nigerian training institution with the assistance o f the NPCU. - 84- MAP BRDNo. 33458 MAP SECTION