Documentof TheWorld Bank FOR OFFICIAL USE ONLY ReportNo.: 43295-BD PROJECT PAPER ONA PROPOSEDADDITIONAL FINANCINGCREDIT INTHE AMOUNT OF SDR30.7 MILLION (US$50.0 MILLIONEQUIVALENT) TO THE PEOPLE'S REPUBLIC OFBANGLADESH FOR THE SOCIAL INVESTMENT PROGRAMPROJECT June 4,2008 SustainableDevelopmentDepartment AgricultureandRuralDevelopmentUnit SouthAsia Region This document has a restricted distribution and may be usedby recipients only inthe performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. CURRENCYEQUIVALENTS (Exchange rate effective April 30,2008) Currency Unit = BDT ABBREVIATIONSANDACRONYMS AF Additional Financing M&E Monitoring and Evaluation AMT Appraisal and Monitoring Team (of SDF) MFI Micro-finance Institution BDT Bangladesh Taka MIS Management Information System BMD Bangladesh Meteorological Department MOF MinistryofFinance (of GOB) CAP Community Action Plan NGO Non-governmentalOrganization CAS Country Assistance Strategy OM Operational Manual CDD Community-Driven Development O&M Operations and Maintenance C O M Community Operational Manual PKSF Palli Karma Sahayak Foundation DFID Department for International Development PRSP Poverty Reduction Strategy Paper (United Kingdom) DRMT Disaster RiskManagement Team (of SDF) PDO Project Development Objective DRMU Disaster RiskManagement Unit (of SDF) PIP Project ImplementationPlan FD Finance Division (of MOF) PO Partner Organization FM FinancialManagement PP Procurement Plan FMR FinancialMonitoring Report SDF Social DevelopmentFoundation GOB Government o f Bangladesh SDR Special Drawinghghts IDA International DevelopmentAssociation SIPP Social Investment ProgramProject IUFS InterimUnauditedFinancial Statements SOE Statement o f Expenditure JDLNA Joint Damage, Loss andNeeds Assessment TA Technical Assistance Vice President: Praful Pate1 Country Director: Xian Zhu Sector Director: Constance A. Bernard Sector Manager: Adolfo Brizzi Task Team Leader: I Meena M.Munshi FOROFFICIAL USEONLY TABLEOF CONTENTS PROJECTPAPERDATA SHEET .............................................................................................. 1 I INTRODUCTION . ............................................................................................................ 2 11. BACKGROUNDAND RATIONALE FORADDITIONAL FINANCING ................2 I11. PROPOSEDAPPROACHAND CHANGES ................................................................. 5 I V. CONSISTENCYWITH THE COUNTRYASSISTANCE STRATEGY .................... 7 V . APPRAISAL OFRESTRUCTUREOR SCALEDUPPROJECTACTIVITIES .....7 VI . EXPECTEDOUTCOMES ............................................................................................ 10 VII . BENEFITSAND RISKS ................................................................................................ 10 VI11 FINANCIALTERMSAND CONDITIONSFORTHE ADDITIONAL . FINANCING ................................................................................................................................ 11 Annex 1 ProjectResultsFramework ........................................................................................ 12 Annex 2 Accountability. Fiduciaryand Procurement.includingFiduciaryand ProcurementRiskAssessment ................................................................................... 15 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. ... 111 PROJECTPAPERDATA SHEET Date: June 4,2008 Team Leader: Meena M.Munshi Sector Manager: Adolfo Brizzi Borrower: Government o fBangladesh Responsible agency: Social DevelopmentFoundation Current closing date: June 30,201 1 Revisedclosing. date June 30.201 1 Does the restructured or scaled-up project require any exceptions from IDA policies? oYes xNo Have these been approvedby IDAmanagement? oYes oNo I s approval for any policy exception sought from the Board? oYes xNo Revised project development objectives/outcomes The objective o f the project will remain consistent with that o f the Original Project, and will continue to support the Government o f Bangladesh and Social Development Foundation in developing effective and efficient financing and institutional arrangements to empower the poorest and most vulnerable and improve their access to small-scale local infrastructure, assets and livelihoods, with special emphasis on Cyclone Sidr affected communities and families. - Does the scaled-up or restructuredproject trigger any new safeguardpolicies? No - For Additional Financing [] Loan [x 3 Credit [] Grant For Loans/Credits/Grants: Total IDA financing: US$50 million Proposed terms: StandardCredit Communities I. Introduction 1. This Project Paper submits for the approval o f the Executive Directors a proposed Additional Financing credit in an amount o f SDR 30.7 million (US$50.0 million equivalent) to Bangladesh, for the Social Investment Program Project (SIPP, Cr.3740-BD). The proposed additional Credit will help finance the costs associated with restoration o f livelihoods o f Bangladesh's population, affected by Cyclone Sidr inNovember 2007. 2. No major changes are proposed to the Project Development Objective, design or implementation arrangements o fthe Original Project. The Additional Financing will help address the effects o f the cyclone, which devastated lives and livelihoods along the coastal belt o f Bangladesh on November 15, 2007. Cyclone Sidr affected 30 districts o f Bangladesh, killing more than 3,400 people and disruptingthe lives o f over 9 million people, particularly the poor and vulnerable, with extensive damage to crops, fisheries, forestry, livestock, housing, rural infrastructure and embankments. 3. Similar to the Bangladesh floods emergency o f 2007, the proposed Additional Financing forms part o f IDA'S comprehensive response to the Sidr disaster, addressingthe post-reliefperiod and aimed at livelihoods and asset restoration o f the poorest and most vulnerable families in the affected districts. As under the Original Project, it will employ a community-driven development (CDD) approach to supporting the creation and strengthening o f sustainable and effective institutional arrangements at the local level, through which communities are empowered to address their own basic needs through investments in small-scale infrastructure, social assistance and income-generating subprojects. Original Project activities will be extended into additional districts in the cyclone-affected coastal belt. The focus on capacity building o f the poor via strengthening and direct financing to village level institutions will be maintained, with an enhanced focus on building long-term preparedness for future natural disasters by mainstreaming disaster riskreductionmeasures into people's lifestyles and livelihoods. 4. PartnershiD Arrangements: The proposed Additional Financing does not envisage new partnership arrangements. However, existing cooperation arrangements with the Department for International Development (DFID), under the Bangladesh Country Trust Fund, and partnership with the Palli Karma Sahayak Foundation (PKSF) under the Second Additional Financing for Flood Rehabilitation, and with local NGO partner organizations will continue. Partnerships are also planned with selected local organizations specializing in disaster management and risk reduction inthe Additional Financingtarget areas, and partnerships with the private sector will be deepened. 11. BackgroundandRationalefor AdditionalFinancing 5. Original Project Design: Since 2003, the Government o f Bangladesh (GOB), with support from IDA and through the institutional channel o f the Social Development Foundation (SDF), has been implementing the Social Investment Program Project (SIPP). This i s a community-driven development (CDD) operation, which is exploring new ways o f delivering critical infrastructure services and social assistance to the rural poor, while at the same time addressing institutional organization and capacity-building needs at village level. Overall, this CDD approach entails a focus on community organization and principles o f participation, empowerment and downward accountability. The project has been successful in demonstrating the capacity o f rural villagers to prioritize needs, manage resources and implement subprojects, empoweringthem to play an active role in shaping poverty reduction efforts at the local level. 2 6. The Original Credit, in the amount o f SDR 13.5 million (US$18.24 million equivalent) , was approved on March 18, 2003, and became effective on April 20, 2003. The project was intended as a small-scale pilot, to be implementedintwo o f the poorest districts o f Bangladesh, to test new CDD financing and institutional arrangements for improving access to local infrastructure and basic services. Supervision ratings for the Onginal Project have consistently been satisfactory both for Development Objectives and ImplementationProgress. 7. A first Additional Financing Credit o f US$8 million was approved on May 24, 2007, to consolidate gains in the existing SIPP project villages and extend the CDD approach into four additional northwestern districts, with a focus on institution-building and livelihoods development. Subsequently, IDA acted quickly after floods in September 2007, by preparing an Emergency Flood Restoration Program. Inter alia, this Program (approved in January 2008) provided for cancellation o f US$25 million equivalent from an ongoing Water Supply Program project and reallocation inthe form o f a second Additional Financing credit o f US$25 million to SIPP, to help finance speedy recovery o f the flood affected population, particularly the poor and vulnerable. Given the magnitude o f needs on the ground now inthe cyclone-affected area, o f the country fundingpresently available to SIPP through the Original Project and the two Additional Financing Credits will not be sufficient, hence the proposed third Additional Financing Credit. The closing date for all the linked operations will be June 30,201 1. 8. ReasonsFor Additional Financing: Cyclone Sidr (Category IV) hit Bangladeshon the evening o f November 15, 2007, first reaching offshore islands in the early evening and then making landfall across the southern coast from Cox's Bazaar toward Satkhira. The first area hit by Cyclone Sidr was Hiron Point and part o f the Sundarban mangrove forest in Bagerhat. Heavy rains were experienced throughout the country, including in the capital Dhaka. According to the Bangladesh Meteorological Department (BMD), Cyclone Sidr had a radius o f 500 km with the eye o f the storm 74 lunwide and wind speeds reaching 220-240 kmper hour. As it moved north into central Bangladesh, the cyclone was downgraded to a Category I1tropical storm. 9. The cyclone caused extensive damage to lives and property, particularly in the southwestern districts. Overall 30 districts and about 9 million people (more than 2 million families) were affected. The death toll exceeded 3,400, and more than 55,000 people were injured. There was a nationwidepower outage for more than 24 hours. About 1.5 million houses were damaged and 4 million trees were destroyed. The livestock death toll was over 100,000. The cyclone hit at a time when aman rice, the predominant source o f food inthe area, was about to be harvested, and almost 113,000 ha and 1,400,000 ha o f crops, respectively, were totally and partially damaged. The crop loss was about 1.3 million tons. 10. A comprehensive joint damage, loss and needs assessment (JDLNA) undertaken by a team o f the Government o f Bangladesh (GOB)and international development partners led by IDA, estimatedthe total damage and losses caused by the cyclone to be BangladeshTaka (BDT) 115.6 billion (US$1.7 billion). More than two-thirds o f this was physical damage and one-third economic losses, concentrated in the housing sector (US$850 million, or 50% o f the total), productive sectors (US$ 490 million, 30%), and public sector infrastructure (US$230 million, 14%). The most affected sectors were, indecreasing order, housing, agriculture, transport, water control structures, education, and industry. As a result o f Sidr, an estimated 2 million people have lost employment and incomes in the affected districts. The JDLNA estimates that about US$490 million i s neededfor recovery o fproductive sector activitiesAivelihoods. 11. The effects o f the disaster were highly concentrated inthe districts o f Bagherat, Barguna, Patuakhali, Pirojpur, and Barisal, where according to a 2005 household survey poverty levels 3 ranged from 35 to more than 50% o f the population. Therefore, the disaster had a disproportionate impact on some o f the poorest population groups inthe country. The importance o f an effective recovery program cannot be overstated. The number o f deaths caused by Sidr, however, was far lower than in similar past events, thanks to improved disaster prevention measures, including a strengthened forecasting and warning system, coastal afforestation programs, cyclone shelters, and embankments. This highlightsthe effectiveness o f well-designed recoveryprograms and long-term approaches to disaster management. 12. The cyclone was the second natural disaster to affect Bangladesh within 12 months. The previous monsoon floods had caused extensive damage to agricultural production and physical assets, totaling US$ 1.1 billion'. The Bangladesh economy has thus sustained combined effects o f the cyclone and the floods o f 2007 in the estimated amount BDT 189.4 billion, or 4.7 % o f GDP (2007), which i s a measure o f the dramatic impact o f natural hazards on the country. The successive occurrence o f these events is a reminder o f the extreme vulnerability o f Bangladeshto frequent hydro-meteorological hazards. Climate change, in particular increased frequency o f extreme weather events, may exacerbate this problem further inthe future. 13. Responding to GOB'Srequest for rehabilitation and reconstruction assistance in the aftermath o f the cyclone, IDA is implementing a cyclone assistance program to help the country cope with the current situation and buildresilience to deal with future disasters. The program i s built on a three-phase approach: (i) quick-disbursing support to the GOBbudget (US$200 a million) under the Development Support Credit N,to help reduce pressure on the FY08 budget arising from non-programmed cyclone-related spending and financing o f immediate recovery needs; (ii) an Additional Financing to SIPP (US$50 million) to help restore livelihoods in cyclone-affected areas, through emergency assistance funds, community infrastructure, micro- credit, and income generating activities; and (iii) an Emergency Recovery Credit (IDA financing amount i s not finalized yet) for infrastructure rehabilitation and reconstruction that will be focused on the medium to long-term. 14. Supervision ratings for the Original Project have consistently been satisfactory both for Development Objectives and Implementation Progress. Thus far, the Original Project has demonstrated the benefits o f community level,planning and has generated positive community responses as a result o f their increased participation inimplementation o f village level activities, enhanced information and empowerment based at the village level, and cost effectiveness o f community implemented infrastructure activities. As o f March 31, 2008, the Original Project has reached about 2.0 million people through 1300 community subprojects; and about 15,000 community groups have been formed in950 villages to benefit from livelihood interventions. 15. The proposed Additional Financing i s included as part o f IDA'S cyclone assistance program (para. 13, item iiabove) given SIPP's track record on the ground. GOBand IDA have identifiedit as one o f the best instruments for channeling funds and technical support quickly and efficiently to communities/families under severe stress from the impacts o f the cyclone. This i s in fact the second time that SIPP has been called upon to provide such assistance: following the prior SIPP-Flood Restoration and Recovery Assistance Additional Financing (II) approved in January 2008 to assist communities affectedby the 2007 monsoon floods. 111. ProposedApproachandChanges 16. The objectives of the proposed Additional Financing will remain consistent with those o f the Original Project, and will continue to support GOBand SDF in developing effective and 'WorldBankDamageAssessment Reportfor 2007 Floods 4 efficient financing and institutional arrangements to empower the poorest and most vulnerable and improve their access to small-scale local infrastructure, assets and livelihoods, with special attention to communities/families affected by Cyclone Sidr. 17. The main change will be an expansion into new districts in the southwest region o f the country, which were severely affected by Sidr, including Bagerhat, Barguna, Pirojpur and Patuakhali, as identified by the JDLNA. The project will cover about 14 o f the most affected Upuzilus and about 40 to 50 Unions (about 500 villages). The Upazilas with the highest concentration o f most severely-affected Unions and high incidence o f poverty will get priority. The key criteria for selection o f areas have been defined and agreed with SDF and are included in the Project ImplementationPlan. About 150,000 families will directly benefit from the livelihood support activities. However, the infrastructure rehabilitation and local-level institutional development will benefit approximately 1.O millionpeople. 18. Given the nature o f the post-Si& emergency, the Additional Financing will facilitate the restoration and recovery from the damage to livelihoods, assets, and infrastructure inthe affected communities and build long-term preparedness by mainstreaming disaster risk reduction measures into the lifestyles and livelihoods o fthe communities, specificallyby: a. empoweringcommunities-especially women and vulnerable families-and building their capacity and institutions to lead in identifying, planning, and implementing investments; managing funds; andmonitoring compliance with their rules; b. prioritizing support to poor and vulnerable families unable to regain their livelihood without targeted interventions; c. mainstreaming disaster risk reduction measures as part o f local development plans, employing a holistic approach to reducingriskto lives and livelihoods; d. focusing on immediate employment needs at first, butwithina longer-term vision o f sustainable livelihoods; e. building and strengthening systems at the local level that incorporate participation, inclusion, self-help, transparency, and accountability; and f. linkingwith other programs funded or managedby IDA, GOB,other donors, NGOs, MFIsand the private sector, to ensure synergy and avoid duplication. 19. As under the Original Project, the Additional Financing will include the following four components: (i) Strengthening SDF and ProgramManagement (US$ 3.5 million) will support information and communication, technical assistance and capacity building, monitoring and evaluation, and project management. Given the scope o f this operation, a separate Disaster Risk Management Unit (DRMU) will be established within SDF to plan and manage the program and provide technical assistance and support to field staff and local partner organizations. (ii) Institutional Development at Community Level (US$ 6 million) will support awareness raising and information sharing, institutional development and direct support to the affected communities workmg to form their own accountable, transparent, inclusive, autonomous, and sustainable institutions. 5 (iii) Implementation of Community Action Plans (US$40 million)will support livelihood and risk reduction subprojects, through financing the implementation o f small scale community and productive infrastructure subprojects, livelihood restoration and income generating activities, and provide technical assistance to increase the capacity of the affected and the poorest and most vulnerable groups to plan and implement these subprojects. (iv) Pilot Private Financing of Community Utilities (US$ 0.5 million) will finance technical advisory services for testing o f new approaches to mobilize private sector participation inthe program. 20. Implementation arrangements. Implementation arrangements under the Additional Financing will remain the same as those o f the Original Project, which have been performing well. Overall, project management will continue to be the responsibility o f the existing implementation agency, SDF. It has been agreed with SDF to strengthen its implementation capacity to respond to the emergency need o f reaching out to the affected communities quickly. At the national level, SDF is setting up a Disaster RiskManagement Unit (DRMU) headedby a Project Director to provide day-to-day guidance, technical assistance and implementationsupport to the field teams. SDF is also establishmg independent Appraisal and Monitoring Teams (AMTs) at the regional level to appraise the livelihood and disaster management plans o f the community and check compliance with agreed rules and procedures. At the field level, SDF is hiring local staff and partner agencies/NGOs for facilitation, dissemination and community mobilization. At the communitv level, community organizations o f the most vulnerable families will be responsible for planning, implementing and monitoring o f community livelihood and risk reductionplans. 21. The project will continue to be implemented according to procedures defined in its Project Implementation Plan (PIP), Operational Manual (OM) and the Community Operational Manual (COM). The changes inPIP, OM and COM have been agreed upon and these documents will be revised and finalized by July 31, 2008. The implementation o f the Community Action Plans (CAPs)/subprojects will continue to be the responsibility o f the community organizations. The fiduciary rules and procedures for procurement and financial management as detailed in the OMand COM, are satisfactory to IDA, and will remainunchangedunder the proposedAdditional Financing. Audit reports and reviews during supervision o f the Original Project c o n f m the effectiveness o f these arrangements. 22. Allocation of Credit Proceeds: The same expenditure categories will be maintainedas under the Original Project. IDA will fund 100% o f expenditures for all categories including incremental and operating costs. The bulk o f IDA funds will be transferred to the communities directly as matching-grants for subprojects under expenditure Category 1for which there i s no tax element, and there i s only an insignificant tax element in Categories 2 to 4 under consultancies and goods. Therefore, the financing percentages in these Categories are justified and are within the approved Country Financing Parameters. Expenditure Categories o f the Additional Financing are shown below: 6 Table1:Allocation of CreditProceeds Category Amount ofthe Additional Yo of Credit allocated SDR Million Expendituresto (US$ millionequivalent) beFinanced Sub-grants for subprojects under Part C 24.55 (40.00) 100% TA for partnershipswith privatesector 0.31 (0.50) 100% under Part D Goods, including vehicles and equipment 1.54 (2.50) 100% Services, including POs, audit, training 3.99 (6.50) 100% Incrementalstaff salaries and operating 0.31 (0.50) 100% costs I Total I 30.7 (50.00) I I IV. Consistencywiththe CountryAssistance Strategy 23. The current Bangladesh CAS (2006-10) aligns IDA assistance with the Government o f Bangladesh's National Strategy for Accelerated Poverty Reduction (PRSP), through two pillars which emphasize empowering the poor and improving the climate for growth, supported by a cross-cutting focus on good governance. Expanding poor people's ability to make choices and participate in constructive actions to improve their situation i s at the heart o f empowerment and poverty reduction. One way o f doing this i s through a CDD approach that engages the poor directly inpriority setting and increases both their control over and accountability for resources and decision-malung. These are the central principles on which SIPP operates, with the aim o f reducing poverty amongst the rural population, especially the "poorest o f the poor" and most vulnerable who are currently outside the reach o f most official development interventions. These principles take on even greater significance in the context o f the post-cyclone recovery and longer-term disaster risk reduction challenges which are critical to sustainable economic growth andpoverty reductionand o f deep relevance inthe highlyvulnerable Bangladeshi context. 24. The Additional Financing will support the deepening o f the Original Project's development impacts and i s therefore consistent with the CAS and the PRSP. V. AppraisalofRestructuredor Scaled-upProjectActivities A. Economic and FinancialAnalvses 25. Important aspects o fproject design under the Onginal Project, to be maintainedunder the Additional Financing, help ensure that community subproject investments represent the most cost-effective alternative. The demand driven nature o f the community subproject selection process helps ensure that scarce resources flow where they are most needed and that selected subprojects and institutional strengthening activities are the best alternatives for the communities. The direct involvement o f the communities has proven to generate significant cost savings when compared to similar works executedby public sector agencies. 26. Cost-benefit ratios o f such investments are high and analysis suggests that they are generally financially sustainable. Although community organizations receive a one-time matching grant to finance their action plans, they also contribute towards investment costs and take full responsibility for the operations and maintenance (O&M) o f physical assets. The strong sense o f ownership by recipients, because they have played such an active role in decision 7 making at all stages o f subproject selection and implementation, not only produces the kmd o f cost savings mentioned above (as communities carefully monitor the use o f very scarce resources), but also improves quality (as compared with similar works done by others), and i s a major factor explaining the strong prospects for sustainability o f investments. B. Technical Analysis 27. Technical viability of small-scale infrastructure works under the Original project has been demonstratedover the first five years o f implementation. At the time o f the 2006 Mid-Term Review, both quality and cost indicators surpassed those o f comparable works undertaken by the Local Government Engineering Division. Technical standards have been regularly reviewed by the IDA task team during supervision missions, looking at engineering designs, financial and economic feasibility, environmental impacts and O&M arrangements, and they have continued to be satisfactory. Indicative rates o f return are high, and SDF has carried out a comprehensive assessment to systematically document these. The affected communities that will participate under the Additional Financing will have an open menu and may use their budget envelope for socio-economic infrastructure needs, social and institutional assistance andor income generating subprojects. As under the Original Project, only technically feasible, simple, labor intensive and economically viable subprojects that can generate quick employment and can be easily maintained, operated and sustained by the communities will be eligible. All subprojects will be screened by qualified staff in subproject appraisal and monitoring teams o f SDF, and communities can contract technical assistance to assist in design and implementation of subprojects, and in strengthening o f their community-based organizations. C. Fiduciarv Analysis 28. During implementation to date, SDF's finance and procurement team has acquired significant experience inIDA guidelines and requirements, and community financial management and procurement. The financial management (FM) and procurement arrangements used in the Original Project, which are satisfactory to IDA, will be used under the Additional Financing. To reach out to the new areas, SDF i s strengthening its capacity and hiring additional dedicated procurement and FM staff within the disaster risk management unit at headquarters and dedicated finance and accountability specialists inthe regional appraisal and monitoring teams. 29. Experience to date has shown that the fiduciary controls in place at the national have functioned well, with appropriate controls and accountability measures at community level inthe Original Project districts. To further strengthen its work in the new areas, SDF i s reviewing existing controls and accountability tools to identify any high fiduciary risk areas or potentially corruption-prone processes, and will take any additional mitigation measures necessary to effectively reduce susceptibility and exposure to fraud and corruption. These activities are part o f a project-specific Governance, Accountability and Anti-Comption Plan, within the Project ImplementationPlan, and are included inthe project OM. Regular field level supervision by SDF staff and IDA supervision missions will be continued. A detailed Fiduciary RiskAssessment, and mitigating measures, i s included as Annex 2.. For the Original Project, external audits have been conducted by a private audit firmwithin six months of the end o f each fiscal year. Annual audited financial statements have been received on a timely basis. Audit observations included in the management letters have been followed up, and there are no outstanding audit issues pending from preceding years. Taking these various factors into account, the FM risk associated with the project has been rated as Modest. 8 30. Disbursements and Flow of Funds. As inthe original credit, IDA funds will continue to be channeled to the Special Account operated by SDF for S P P under a Subsidiary Grant Agreement between the Finance Division, Ministry o f Finance (MOF) and SDF. These arrangements have been working well under the Original Project. Current disbursements arrangements are based on Statements of Expenditures (SOEs) and SDF has decided to continue using SOEs for credit withdrawals purposes under the AF. However, SDF i s also studying the possibility o f switching to report-based disbursements for the Original Project and, if this procedure is adopted, it will also be applied for Additional Financing. Under the current Country Financing Parameters, 100%financing has been selected for all categories. A separate designated account would be opened for the Additional Financing and maintained inBDT.The bulk o f IDA funds will be transferred to communities directly as matching grants for subprojects under expenditure Category 1, for which there i s no tax element; there i s insignificant tax inexpenditure Categories 2 to 4. 3 1. Financial Reporting. Agreement has been reached with SDF on the format, content and periodicity o f Financial Monitoring Reports (FMRs). Under the Original Project, interim unaudited financial statements in an agreed FMR format have been received in a timely manner and are o f acceptable quality. This does not entail any specific FMRs for IDA, as a common set o f financial statements are prepared which meet the requirements o f SDF as well as IDA. The Finance Unit o f SDF will continue to prepare interim unaudited financial statements after collating financial data under the AF and will submit them to IDA following the same timeline i.e., 45 days after the end o f each quarter. 32. Procurement. SDF has developed adequate procurement capacity for the Original Project. It i s further expanding this capacity for the Additional Financing to be implemented in the cyclone-affected areas by: (a) hiring a Procurement Specialist dedicated to procurement activities to be carriedout through community associations; (b) providing procurement training to the beneficiaries, i.e., community groups, and institutionalizing appropriate internal controls (including social accountability measures); and (c) evaluating the end result o f the procurement activities performed by the community groups. SDF has developed a Community Operational Manual (COM) under the Origmal Project, and has included a chapter on procurement procedures to be followed also by the community groups under the Additional Financing. SDF has prepared an updated Procurement Plan (PP) for the Original Project as well as the Additional Financing. Given the demand-driven nature o f subprojects, the community level procurement cannot be planned up-front. However, the key rules, procedures and process steps for community level procurement have been agreed and are incorporated inthe procurement chapter o f the COM. The Project Paper will be updated annually or as required to reflect actual project implementation pace and needs. Based on the institutional assessment o f SDF under the Olginal Project, and talang the experience with community procurement into consideration, the project procurement risk has been rated as Moderate. D. Environmental and Social Aspects 33. Environmental: The Original Project has an Environmental Category B classification, with community subprojects subject to screening and impact assessment criteria as detailed inthe approved OM. To date, no adverse environmental impacts have been experienced. The proposed Additional Financing will fund community subprojects similar in scale and scope to those implemented under the Olginal Project. No subprojects are approved or funds transferred until the environmental viability o f the investments i s determined, and subproject agreements between SDF and the community organizations contain environmental compliance clauses as detailed in the OM. As detailed inSection 7, protectingand managing the natural resources surrounding the 9 affected populations ina manner that both enables community access to income-earning potential intheir environment andprotects theresource-base willbeakeyprojectpriority. 34. Social: Social impacts are expected to be positive, with project activities gradually leading to improved quality o f life o f the poor and vulnerable groups through enhancing their access to social and economic opportunities. Social mobilization activities will seek to identify and include the poorest, youth and women, introducing the principles and benefits o f collective action for both social and economic empowerment. While the tribal population i s insignificant in the project districts*, a Tribal Development Plan was developed under the Original Project. This will also be applicable to the AF, as needed, and the guidelines are detailed inthe OM. VI. ExpectedOutcomes: 35. The Additional Financing will continue to track outcomes expected under the Original Project, which are: (i) the numbers of poor benefited; (ii) numbers of viable community the organizations formed and functioning and (iii) fundshavings mobilized and non-project financing leveraged by community organizations. The Additional Financing will have some additional results indicators specific to integratingdisaster risk reduction into the lives and livelihoods o f the target groups. The success indicators include (a) an increase in incremental income o f affected families generated through wages and self-employment; (b) increased savings and decreased indebtedness to money lenders; (c) increased awareness o f early warning systems and appropriate responses; and (d) increased access to basic infrastructure and social services to improve quality o f life o fthe affected communities. A summary Results Framework i s included inAnnex 1. VII. BenefitsandRisks 36. The proposed Additional Financing i s expected to benefit approximately 1.O million rural poor in the cyclone-affected coastal districts o f Bangladesh, through rehabilitating and restoring their lost and damaged physical and natural assets and livelihoods sources, and empowering them through capacity building, skills development and community institutionbuilding, through which their social capital can also be restored and enhanced, and their disaster preparedness strengthened. 37. The Additional Financing should directly generate employment and incomes for about 150,000 o f the families most affected by the cyclone. Communities will be mobilized and supported in establishing sustainable, multi-functional community organizations that will be federated locally and at higher levels inorder to: (a) pro-actively identify and address livelihoods needs and priorities; and (b) strengthen voice, capacity, and slulls to articulate demands and seek services o fthe public sector and other developmental agencies. 38. There are nevertheless two risks facing the project. First i s the overall vulnerability of the cyclone-affected population and their natural resource base to further climatic shocks. This will be mitigatedbythe fact that the Original Project design is explicitly geared towards targeting vulnerable groups, improving their income earning opportunities and building social and economic capital in a way that better prepares them to withstand shocks. Inorder not to further weaken their resilience and degrade their physical environment, understanding the potential social ~ * ~~ ~ Inthe new districts to be covered under the Cyclone operation, the 2001 census data indicates the tribal population to be very small. InBarguna, where there is the largest population (Rakhain people), tribal minorities make up 1% of the total population. InPatuakhali, Bagerhat and Piorjpur, the proportions are 0.04%, 0.5% and 0.005%, respectively. As for most non-Chittagong tribal populations inBangladesh, the groups are scattered and relatively assimilated into the general population. 10 and environmental impacts o f project activities i s mainstreamed into project processes+.g., through arrangements to ensure the equitable distribution o f project benefits; through the participation o f community institutions; and through an environmental assessment and checklist for any physical works. 39. The Additional Financing will further address this risk through its focus on disaster preparedness, particularly at the level o f community institutions. The Community Action Plans (CAPS) will integrate Rehabilitation and Vulnerability Reduction Plans that address both immediate community livelihoods needs as well as medium and longer-term planning for risk reduction for both local people and their environment. Establishing and strengthening self- managed community organizations will enhance their voice, skills, and ability to manage andor adapt to future challenges. 40. The second risk i s the capacity o f the lead implementing body, SDF, to adequately monitor implementation and ensure the quality o f project activities and compliance with relevant fiduciary and safeguard controls. This i s being addressed by partnering with experienced disaster management organizations and the existing network o f partner organizations/NGOs in the field, already active in the cyclone area. In addition, SDF's planning; monitoring, management, and fiduciary oversight capacity in the affected area is being strengthened by setting up a Disaster RiskManagement Unitand regional Appraisal and Monitoring Teams (AMTs) This will ensure that project principles and guidelines are followed, and will enable SDF to successfully orient and monitor partners on the ground, including the communities themselves. 41. A fullrisk assessmentwas carriedout andresults arereflectedinAnnex 2. VIII. FinancialTerms and ConditionsForthe AdditionalFinancing 42. The Additional Financing will take the form o f an IDA credit on standard terms o f 10 years' grace and 40 years' maturity. 11 Annex 1 Project Results Framework ProjectDevelopmentObjective ProjectOutcomeIndictors Use of ProjectOutcome Information The objective o f the project will Evidence o f access to basic 0 Periodic evaluation o f project remain consistent withthat o fthe infiastructureand social impact on employment and Original Project, andwill continue to services to improve quality o f incomes support the Government o f life o f the affected 0 Number o f infrastructure points Bangladesh and Social Development communities, with at least 80% -paths,roads, embankments, Foundationindeveloping effective of target households benefiting ponds, house platforms, and efficient financing and fromprojectinterventions sanitation facilities, etc institutional arrangements to Evidence o f incremental rehabilitated under the project. empower the poorest and most employment and increased 0 Records to be kept by Project vulnerable and improve their access income o ftarget families, with Officers and SDF field teams to small-scale local infrastructure, at least 70% generating 20% cross-checked with baseline assets and livelihoods, with special more income survey. emphasis on Cyclone Sidr affected Evidence o f increased savings 0 Number o f community communities and families and/or decreased indebtedness3 organizations formed to promote of target families, with at least savings and provide loans to 50% decreasing indebtedness members for income generation as per information from community records cross- checked by POs and SDF field teams. 0 No. o f affected families earning income through employment and/or engagmg inincome generating activities 0 Ongoing assessment o f appropriateness o fproject strategy. IntermediateOutcomes IntermediateOutcomes Use of IntermediateOutcome Indicators Monitoring Component1. StrengtheningSDF 0 Evidence o f SDF national and 0 SDF national and field office andProgramManagementto field office staff providing staff and POsreceive positive support informationand services effectively and scores from the affected communications, technical assistance speedily as per the community communities and capacity building,monitoring, demands and agreed service 0 Regular assessmendfield evaluation andproject management. standards evaluations on the consistency of Establishment o f a Disaster Risk 0 At least 70%o f SDFNational messages transmitted to Management UnitinSDF to manage and field staff receive positive communitiesby field office staff the program, and provide technical scores from community and POs about the rules of the assistance and support to field staff assessment program and local POs 0 Six-monthly COM learning 0 Regular assessment o f degree of forum and revisions arranged organization andparticipation o f Indebtedness to informalmoneylenders and those lending at above market interest rates 12 and changes reflectedin community groups organized Operational Manual with the help o f field office staff and POs. 0Assessment o f quality o f subproject proposals presented bycommunity organizations. 0Service standards met Assessment at MTR and Y3 o f project o fthe degree o f community preparedness to deal withlocal disasters Component2. Institutional Minimumo f70% o fthe target Y1-Y3 assessmento frole o f Developmentat CommunityLevel community organizations project inaffecting institutional for raising awareness andinformation formed, managingfunds, and development at community level sharing, institutional development and implementing their plans as 0Y2-Y3 input to MTRand ICRto direct support to affected per agreed rules assess degree to which the communities working to form their Minimum70% o ftarget support provided by the project own accountable, transparent, populationmobilized into has affected the formation o f inclusive, autonomous and livelihood groups and started community groups and sustainable institutions mobilizing savings livelihood groups which are At least 50% o fthe decision accountable, transparent, makingpositions inthe inclusive, autonomous and community organizations/ sustainable groups are occupied by target women Component3. Implementationof At least 70% o fthe target 0Y1-3 Ongoing assessmento f CommunityAction Plansto support communities implement project's role inand capacity to livelihood and riskreduction minimumone priority improve families' recuperation subprojects, through financing the community sub-project as from Cyclone Si&. implementation o f small scale agreed intheir plan 0Y1-3 Track geographic coverage community and productive 0 At least 70%o ftarget and depth o f investment infrastructure subprojects, livelihood households generate 20% or Y1-3 Ongoing assessmento f restoration and income generating more income by Year 3 project targeting effectiveness activities and increase the capacity o f 0 At least 80% o ftarget MTRassesso fproject the affected and the poorest and most 0 households benefit from mechanisms to ensure that vulnerable groups to plan and project interventions community subprojects financed implement subprojects (infrastructure, s h l l are having an impact on development, savings and recuperating socio-economic credit etc) and have started infrastructure and livelihoods o f income generating activities affected communities and are 50% o fthe target population reducingtheir riskto future have decreased indebtedness disasters Component4. PilotPrivate Minimumof30% o flivelihood 0Y1-3Assessment base on FinancingRarticipationof groups linked to the private community groups and CommunityActivities, for testing sector either via TA or skills or livelihood groups records new approaches to mobilize private employment crosschecked by POs and SDF sector participationinthe program 0 At least five products/ field teams 13 partnerships (benefiting the Inputs to MTR andICRbased on affected families) cumulative information testeddeveloped with the private sectorlexternal agencies and scaled up inthe project area I I I 14 Annex 2 Accountability,Fiduciary and Procurement, includingFiduciary andProcurementRiskAssessment Accountability,TransparencyandMonitoring 1. Accountability and Transparency. There has been special focus under the Original Project on principles o f both upward and downward accountability, transparency, participation and equity. It has been widely acknowledged that clear and simple operational procedures for financial management (FM), procurement and functioning o f village level institutions, which are founded on principles o f downward accountability and transparency, are key to the "social accountability" framework. At the same time, this framework allows community members to demand upward accountability and transparency from their leaders and service providers, and to participate in monitoring their performance, thereby introducing increased understanding and application o fprinciples o f good "governance" at the local level. 2. Simple mechanisms have been in use for the Original Project such as maintenance o f books, accounts, regular village-wise information sharing through meetings, public display o f funds received, expenditure incurred, procurement information, etc. Under the Additional Financing, the accountability framework and tools will be further strengthened. Three immediate steps will be implemented: (i)community groups' "Social Audit Committees" will be strengthenedformed to monitor performance and accountability o f office bearers and service providers; (ii) a wide range o f existing and new practical tools used in monitoring accountability and performance o f community dnven work will be more systematically employed; and (iii) well defined training programs and modules will be provided, allowing sufficient time for participation and with clear criteria for training evaluation. While one o f the key responsibilities for the new FM and Accountability manager being recruited will be to assist the SDF management in the effective implementation o f the above actions, interim arrangements are already involving current staff inorder to avoid any disruption. 3. Monitoring SDF has a satisfactory and well functioning monitoring, learning and evaluation (ML&E) system, and the Additional Financing will build on and refine this system. Monitoring will be done at the following three levels: a. Community Level Monitoring and Supervision: The Original Project has developed a community level monitoring system - a simple and community fhendly monitoring matrix that captures key implementation milestones, selection o f beneficiaries, functioning o f community level institutions, and use o f funds. This village level monitoring matrix i s updated on a monthly basis and the key milestones and progress o f activities i s shared with the community members and submitted to the project field teams. In addition, the Onginal Project design provides guidelines and capacity building to beneficiaries in social accountability tools and practices. Both these systems - community monitoring o f progress and social accountability tools - will also be practiced under the Additional Financing. Mechanisms such as independent social audit, public displays, participation o f every one in the meetings, and conflict resolution at the community level will be further strengthened, and all qualitative and quantitative indicators will be monitored such that there i s early detection andresolution o f issues. b. Project Level Monitoring and Oversight:SDF is monitoring the Original Project through various tools, including regular in-house monitoring o f implementation progress, results, financial aspects and key milestones. SDF has developed a robust management 15 information system (MIS), and is regularly monitoring results and compliance o f the Original Project through the MIS. Secondly, SDF monitors the processes and compliance o f the community institutions and field level agencies and staff through the services o f an independent process monitoring agency which it contracts for this purpose. The process monitoring agency checks quality o f the program and compliance with fiduciary and accountability aspects on a monthly basis; and helps in identifying issues. This is an important tool for correcting the system and checking performance o f various partner organizations. SDF will continue this independent process monitoring system under the Additional Financing. Baseline information drawn from the experience to date of the Original Project, adjusted to capture pre-project values in the cyclone-affected target areas o f the Additional Financing, will be completed before the start o f the program. Independent impact evaluations will be conducted yearly to assess progress towards achieving the PDO. c. Independent Appraisal and Monitoring Teams (AMT): To enhance its monitoring capacity inthe context o fthe Additional Financing, SDF i s hiringindependent AMTs that will be based regionally to appraise community subprojects and check compliance with SIPP principles, procedures for transferring subsequent installments o f funds. 4. Experience under the Original Project has demonstrated that simple social accountability methods in combination with effective training can enable responsible monitoring at the local level, and this will continue to be a priority under the proposed Additional Financing. Fiduciary andProcurement RiskAssessment 5. The project i s implementedby SDF, an autonomous body establishedby the GOBin2001 and registered under the Companies Act o f 1994. Day to day management o f SDF is vested in a management team headed by a Managing Director appointed by the SDF Governing Body. The Governing Body o f nine persons i s responsible for determining the direction and scope o f SDF's activities, and the management and administration o f the Foundation. Overall policy direction and oversight i s providedby a 20-member General Body. 6. FinancialManagement Capacity Assessment. The financial management system o f SDF i s adequate to account for, monitor and report on project resources and expenditures. Under the AF, SDF will continue to maintain a sound community Financial Management system, to ensure appropriate downward accountability that maintains the integnty of accounts at the local level. 7. Summary of Overall Strength and Weaknesses. The FM strength o f the project i s SDF's finance division staff, who have been workmg with SIPP since its inception. Although the downward accountability framework i s still being internalized across the various tiers o f the operation, the finance staff are well versed in the overall concepts and requirements. Full implementation o f the FM and accountability framework for the communities will therefore not require startingfrom scratch. The key weaknesses i s the need for consistent institutionalization of the system o f governance and downward accountability, for which a dedicated team with clear understanding and mandate inthe new areas includedinthe Additional Financing, is essential. 8. The overall assessment o f FM arrangements including key areas for improvement i s outlinedbelow: 16 (a) Staffing: SDF has a Finance and Administrative Division; with six staff headed by a General Manager, and has succeeded in establishing a sound FM system at the center, i.e. SDF level, and is gradually moving towards establishing a downward accountability framework across all community-led programs. However, without reinforcement o f current staffing, SDF would be inadequate to perform FM functions at all tiers o f the program under the Additional Financing. To perform FM functions at the community level under the Additional Financing, SDF is therefore recruiting an additional Financial Management and Accountability Specialist, directly reporting to Project Director, Disaster Risk Management Unit. The FMand Accountability specialist will be supported by two accounts staff providing full time support in headquarter and field level. The two additional accounts staff will report to the FM Specialist. Separate TORSare beingpreparedfor these positions. (b) ComputerizationofFinancialManagement System. Overall, SDF's FM system i s a combination o f manually-based control functions and a computerized accounting package for posting of transactions. The key function o f the accounting package i s to consolidate financial information from the field and from central level to produce a set o f Financial Monitoring Reports (FMR). The use o f the computerized system has helped SDF to consistently meet the financial covenant to send quarterly FMRs within 45 days o f the end o f the quarter to IDA, and to prepare annual Financial Statements. (c) A computerizedFMsystemhavingbuilt-incontrol functions for bothsubprojects and other revenue and capital expenditures at the central level i s being considered. Under the automated system, pre-audit function will be completed at the transaction level rather than posting transactions after they occur. This will avoid time consuming pre-audit function and also help application o f control function in all areas with minimal human error. (d) InternalControland Audit. A system, including establishment o f procedures for ensuring standard internal controls, such as checking o f expenditures, appropriate documentation, level o f authorization, segregation o f incompatible duties, periodic reconciliation and confirmation o f bank balances, physical verification, annual financial audit including verification o f the accuracy o f FMRs, shall continue to be the responsibilityo f SDF finance department. Internal Audit has been carrying out periodic internal audit functions and submitting reports to the Managing Director. Supervision missions have confirmed that SDF has been conducting internal audits regularly and these have been a good source for monitoring o f its Financial Management system, particularly at the community level. The Governing Body has already demonstrated its commitment to the practice o f internal audits and will continue to monitor and review prompt follow-up action by management where necessary. It has been agreed that overall internal audit will be further strengthened under the Additional Financingby taking the following steps: (i) contracting o f two additional staff in the audit section; (ii) implementation o f an internal audit plan; and (iii)inclusion of managementresponses to the audit observations inthe internal audit report. 9. Interim Unaudited Financial Statements (IUFS). Interim unaudited financial statements inan agreed format (FMRs) have been received under the Original Project in a timely 17 manner and are o f acceptable quality. There have been no specific FMRs required for the project per se, as a common set o f financial statements has been prepared which meets the requirements o f both SDF and IDA. The Finance Unit/SDF will continue to prepare IUFS after collating financial data under the Additional Financing and will submit them to IDA following the same timeline, i.e. 45 days after the end o f each quarter. 10. Budgeting and Fund Flow Arrangements. National Level: The national budget includes sectoral allocations, and is approved by the Parliament. The project planning process for each year will follow the GOBbudgetingcycle and will be completed when the project estimates are included inthe National Budget and approved by the Ministry o f Finance for execution by the line ministries/departments. Communitv Level: As under the Original Project, under the Additional Financing the planning process at the community level will follow a `bottom-up' approach. Grants for subprojects are disbursed based on a signed Financing Agreement, specifying the mode and triggers for tranche release, submitted by the community organization and approved by SDF. Communities' budgetary procedures will follow the sub-grants, based on total resource envelop allocated to them, by planning and prioritizing in a participatory transparent manner and reflecting these in a Community Action Plan (CAP). From IDA and Government to SDF. IDA funds will be channeled to a separate Account to be operated by SDF under a Subsidiary Grant Agreement between MOF and SDF. Therefore a separate designated account would be opened for the Additional Financing and would be maintained in BDT. From SDF to DarticiDating Communities: Upon approval o f CAP and subproject proposals, SDF will transfer funds to the relevant Community Account. The transfer will be conditional on the communities' complying with project rules. 11. Reconciliationof Accounts. SDF's Finance Unit will carry out periodic reconciliation o f funds with community accounts so that any request for project funding can be based on balances remaining at the community account as well as funds to be disbursed. At present, however fund reconciliation at the community level i s carried out at the head office before disbursement o f the third and final installments to the community. 12. External Audit: Since SDF i s a limited company registered under the Companies Act 1994, it i s mandatory for its accounts be audited by a private audit firm. The external audit has been conducted by a private audit firm within six months o f the end o f the fiscal year. There has been no additional audit required under the SIPP as IDA has accepted SDF's annual audit that covers SIPP financed activities. However, additional audit can be carried our through C&AG, if Government considers necessary. 13. Annual audited financial statements under the original project have been received in a timely manner. Audit observations included inthe management letters have been followed up and there has beenno outstanding audit issues relating to preceding years. 14. Adequacy of Financial Management Arrangements. The FM arrangements under the Original Project will be largely followed under the proposed Additional Financing, with some further refinements and improvements. From the fiduciary perspective, the FM risk rating is Modest. FMRiskRatings andmitigationmeasures are outlined inTable 1below: 18 Table 1: FMRiskRatingSummary InherentRisk. RiskMitigatingMeasuresIncorporatedintothe Residual FMActionPlan. Risk. EntityLevel SDF's focus and ability to Implementationo fagreed Action Plan : (i) buildstrong communitybased guidancenote on accountability aspects for trainers M financial management and (ii)appointment o f a full time staff with clear job downward accountability descriptions, to work specifically on strengthening systems that ensure proper community level FMand accountability system.. checks andbalances at Job description and roles andresponsibilities o f this various tiers o fthe operation staff will be separated from those who focus on may be inadequate. SDF level FMissues (iii) Preparation o fTraining Plan, materials consistent with COM and evaluation criteria. (iv) SDF management with periodic updates on accountability framework by internal audit/ FM& accountability staff. ControlRisk. Timely and accurate reporting SDF management will continue its effort at full M ~ ~~ under the AF may not be computerization o f its FMsystem with checks built possible due to use of dual into the program. system- manual and computerized system and Finance Department's dependency on M I S for financial information. OverallControlRisk IM ResidualRiskRating IModest 15. FinancialManagementAction Plan. Inthe context o f scaling upunder the Additional Financing, SDF has committed to following additional activities to be implemented under an agreed time-bound action plan (Table 2) .Most o f the activities are extensions o f past activities and currently under work inprogress. 19 Table-2: FMImprovementActionPlan Issues Responsibility Completion Date a) A computerized financialmanagement system SDF Management. Sept 30,2008 with control function builtinto the system for subprojects as well as other revenue and capital expenditures at the central level. b) Recruitment o fthe FMandAccountability SDF Management August `Specialist and two additional Accounts staff 31,2008 c) Further strengthening o f Internal Audit functions SDF Management August 31, covering AF by: 2008. 0 appointment o f two additional audit staff 0 introducing an annual audit plan; 0 inclusion o f a managementresponse and a table showing current status o fprevious observation into the audit report. d) Furtherstrengthening o fAccountability SDF Management August Frameworkby taking following steps: 30,2008 0 formation and strengthening o f Social Audit Committee, 0 preparation o fmonitoring and result indicators on the Accountability Framework, 0 well definedtraining programs and modules consistent with COM, and criteria for training evaluation, a guidance note on accountability aspects for trainers, and 0 periodic updates on Accountability Frameworkby internal audit/ FM& accountability staff. 16. Disbursement Arrangements. For utilization o f IDA'Sshare o f expenditure, SDF maintains a Special Account, which under the Original Project has been working well. There will be a separate Designated Account for the AF and will be maintained in BDT. Current disbursement arrangements are based on Statements o f Expenditure (SOEs), and this will continue under the Additional Financing. However, SDF i s studying the possibility, under the Ollginal Project, o f switching to report based disbursements. If this takes place, then these disbursement arrangements will also be applied to the Additional Financing. 17. Consistent with the current approved Country Financing Parameters, the Government has selected 100% financing for all disbursement categories. The bulk o f IDA funds will be transferred to the communities directly as matching grants for subprojects under expenditure Category 1, for which there is no tax element; there i s insignificant tax in expenditure Categories 2 to 4. The same expenditure categories will be maintained, as under original project. 18. SupervisiodImplementationSupport. Inthe early stages o f the Additional Financing, FM supervision activities will focus on the adequacy o f implementation of the action plan. As the implementationmoves forward, desk review o f internal, external and social audit reports will be conducted. Site and field visits will be planned inclose collaborationwith FM accountability stafflfacilitators to ensure periodic assessment o f project FMpractices at all levels and reporting 20 after discussion with communities and project management. A field-based monitoring checklist incorporating accountability and operational issues i s beingdeveloped for use duringfield visits. ProcurementAssessmentandMitigationPlan 19. Based on the institutional assessment of SDF of the Original Project, the risk level in procurement is moderate, taking the community procurement into consideration. SDF will increase its procurement staffing to cater to the additional procurement activities inthe Cyclone- affected areas. Under the Additional Financing, SDF will place emphasis on: (i) providing procurement training to beneficiary community groups, (ii) evaluating procurement performance of the community groups, and (iii)evaluating the end result o f the procurement activities performedby the community groups. To achieve soundprocurement practices, SDF has prepared a Community Operational Manual (COM) under the Original Project, and this has beenrevisedto include a chapter on the procurement procedures to be followed by the community groups, also for the Additional Financing. Intensive monitoring and evaluation of the procurement training o f the community groups will be ensured by M&Etools being developed by SDF and to be shared with IDA and customized for the Additional Financing. The tools will envisage the trainers' capability inthe field as well as the adequacy of the training design, module andmaterials for the AF, including provisions for pointing out necessary corrective measureshggestions. Similar tools will also be developed for monitoring and evaluation of procurement performance o f the community groups including the evaluation of end-products of the procurement activities performedby the community groups. 20. Procurement Risk Mitigation Plan: (i)SDF has developed adequate procurement capacity for the Original Project, but it will be expanded under the AF by a hiringProcurement Specialist/Consultant dedicated to procurement activities to be carried out through community participation, including the aspects of social accountability relating to procurement activities performed by the community groups; (ii)Pilot Training Programs on the COM (including procurement procedures) will be held before start-up of project activities. The results obtained from the pilot programs will feed into corrective measures, if necessary, for the Procurement Training design for optimum effectiveness before full-scale start o f AF activities, and (iii) Tools beingdeveloped (as mentionedabove) will be applied intensivelyby SDF to monitor progress of AF procurement activities, results, and corresponding remediaymitigation measurestaken will be sharedwith IDA ina routine manner. Hiring of the Procurement consultant should be completed by August 31 2008, and a time table for completion of all actions as mentionedinparagraphs 20 and 21 should be finalized and sharedwith IDAby August 31 2008. 21