LEBANON First Municipal Infrastructure Project ( P103875) Supervision mission (May 24-26, 2010) Aide Memoire 1. Following the FMIP Reconstruction Grant supervision mission conducted between February 22 and 26, 2010, the World Bank led a mission between May 24 and 26, 2010, to review the progress made under the FMIP Grant. The mission was conducted by Mr. Robert Maurer (Lead Urban Sector Specialist, Task Team Leader), and comprised Ms. Christianna Johnnides (Urban Specialist) and Mr. Olivier Lavinal (Institutional and Local Administration Specialist). The mission benefited from the inputs of Ms. Lina Fares (Procurement Specialist), Mr. Rock Jabbour (Financial Management Analyst), and Ms. Viviane Zoorob (Program Assistant). 2. The Bank team is grateful to all the officials met for the support and hospitality provided during the mission, and wishes to thank Mr. Walid Abou Jaoudeh, FMIP Project Manager, and the Project Coordination Unit (PCU) team for organizing and supporting its activities. I. MISSION OBJECTIVES 3. Within the context of a larger operational mission reviewing the portfolio in the urban sector and the almost completed rehabilitation works (under Component 1), the mission focused on the following priorities under the FMIP Grant: (i) assess the progress made in the preparation of the Local Development projects (under Component 2); (ii) and review the implementation schedule of the capacity building component (Component 3), with a special focus on the Municipal Finance studies. 4. This Aide Memoire covers the main findings of the FMIP Grant supervision mission, records the progress and agreements reached, and identifies the actions to be taken in the upcoming months. The main conclusions of the Aide Memoire will be confirmed by the Bank Management. II. OVERALL PROJECT IMPLEMENTATION STATUS 5. Overall, the project continues to make progress and is on track. In spite of the political uncertainties and degrading security conditions in 2007 and during the first half of 2008, the physical reconstruction was prioritized and is now substantially completed. Considering the time and efforts needed were greater than initially anticipated to address the population’s most pressing needs, the Government of Lebanon (GoL) has requested additional time to fully reap the Grant’s expected outcome. Based on the revised work schedule, the World Bank has approved the extension request on December 16, 2009 which led to the extension of the closing date for TF-057505-LE, from December 31, 2009, to June 30, 2011. 6. In the letters No 1392/S1 dated May 3, 2010 from the Minister of Finance, and the letter dated April 12, 2010 from the Minister of Interior and Municipalities, the Government of Lebanon has requested a reallocation of the Grant proceeds among categories. More specifically, the GoL has asked for the reallocation of US$4.4 million provided under the Unallocated Category to be transferred to the Works Category amounting to US$22 million as per the Grant agreement. The proposed reallocation would thus increase the total of the Works Category to US$26.4 million in order to cover the costs of the works incurred under Components 1 and 2 of the FMIP Project. Due to the challenging and uncertain context in which the reconstruction took place, a substantial amount had 1 initially been earmarked to the Unallocated Category. As the implementation made good progress and as there are no outstanding issues to cover, this amount can now be reallocated, in line with the initial Project Paper in which US$27 million had been divided between Component 1 (US$18 million) and Component 2 (US$9 million). As the reallocation among categories has no impact on the current overall allocation or on the Program Design, the mission deems the request feasible and realistic. 7. In terms of project management, the contract of the Project Manager was extended in order to take into consideration the extension of the project. Following the previous supervision mission, a staffing plan was prepared and submitted to the Bank team. The plan confirmed and detailed two main axes: (i) merging of the Procurement and Technical Departments; (ii) modalities and plan to progressively reduce the PCU staff from the current eighteen to eight by the end of June 2011. Furthermore, the PCU confirmed its efforts to improve the internal quality control procedures and substantially tighten the oversight and supervision of works. 8. Both the implementation plan and the structure of project management are satisfactory and should ensure that the development objective of the Grant be fully achieved. III. DETAILED PROJECT IMPLEMENTATION REVIEW Component 1 – Reconstruction of Municipal Infrastructure: 9. The civil work funded under Component 1 is now largely completed. In total, the 232 bidding document were reviewed and approved by the PCU, out of which 14 were cancelled because the works were executed by the municipalities or other donors. A total of 214 Evaluation Reports were reviewed and approved by the PCU as of April 30, 2010. Some 4 projects are still in procurement phase. In terms of project implementation, the mission recorded that only the project in Minieh led under the framework of the Nahr El Bared surrounding municipalities’ reconstruction was delayed. It was recommended that the PCU take the necessary steps to solve this issue before July 2010. 10. In the aftermath of the two previous World Bank supervision missions, the PCU was asked to conduct field visits in selected sites where substandard quality of works was reported. The PCU has improved its quality control procedures and increased the number of site visits. This effort will be pursued until the closing of the project in order to ensure timely and transparent handovers. Component 2 – Local Development Projects 11. As the reconstruction work is very well advanced, the Grant is now supporting economic recovery and local development in the municipalities that have suffered heavy damage. All of the eleven Cazas eligible under this component have presented their proposals and the Local Development Committee has selected (in two batches) fifteen priority projects with preference given to municipalities presenting the best potential to become growth centers for the local economy. All the technical files and the bidding documents are now in their final stage and several are about to start the execution phase. 12. The mission noted that the early outcomes of the municipal elections held on May 30, 2010 introduced significant changes in the municipal teams. The Bank team recommended that special focus be put on the municipalities where the municipal teams have changed and to obtain the endorsement of the new municipal teams. In order to avoid any disruption in project implementation, the mission strongly encouraged the PCU to have the new elected teams endorse the Operations Manual and the Management Plan. Special focus should be put throughout the upcoming summer to finalize the Management Plan of each of the fifteen local development projects. The role of the PCU will thus be instrumental in providing assistance to the municipalities, notably by drafting a template and holding preparation sessions as needed. The mission stressed the need to promote clear and 2 transparent selection and management criteria and processes and to deliver the sub-projects within the agreed timeframe. 13. In terms of funding, the mission noted in some projects a discrepancy between the allocated funds and the pre-bid cost estimate. The PCU clarified that there would be no cost overrun and for the cases where the cost is higher than the allocated amount, the municipality will take responsibility and cover the difference. The PCU stressed that this point was made very clear to all the municipalities. The mission recommended that it be reminded to all the municipalities, most notably to those where the municipal teams may change. 14. In a difficult operational environment, the Beneficiary Assessment (BA) is essential. In line with the tested methodology used for Component 1 (already completed) and as outlined in the inception report submitted on April 26, 2010, the BA for Component 2 will be conducted in two or three rounds of surveys (only a sample of three sub-projects will be assessed three times). The initial Beneficiary Assessment will be carried out immediately in the 15 targeted municipalities benefiting from local development projects. The first evaluation will provide the baseline against which the impact of the completed projects will be measured. The second (or third) rounds are scheduled to take place in June 2011, just before the grant closing, with special emphasis on the public/beneficiary target group in order to appraise the development impact of the sub-projects. Component 3 – Capacity Building 15. The Capacity Building component is central to the long term sustainability of the municipal sector policy dialogue in Lebanon. The analytical and advisory activities funded under the grant aim at upgrading both local government capacities to deliver municipal services and the central government to oversee the local authorities’ management performance. Within the broader context of developing the municipal sector, the key elements of the component include the establishment and launching of the Municipal Observatory and the implementation of the Municipal Finance Study Program. A. Municipal Observatory: 16. Under the FMIP Grant, the main objective of the Municipal Observatory is to provide a suitable knowledge base for sustainable and transparent municipal management. This requires the creation of a comprehensive and up-to-date information system allowing continuous monitoring of the municipalities’ performance in terms of resources mobilization, current expenditures allocation and capital investments. 17. The establishment of the Municipal Observatory office is completed and the office space is furnished and fully equipped. The design stage of the database has been completed by the experts (IDS Consultants) and the system was tested and demonstrated and is now deployed in the Municipal Observatory Office. IDS set the Municipal Performance Management System “MPMS” software with 14 key indicators. A test of the software in 5 previously selected municipalities (Saida, Sour, Jbeil, Tripoly and Baalbek) on the basis of the 14 key performance indicators was run. 18. Due to several factors, mainly the difficulty to access the requested data, the project was delayed. The contract with IDS was thus extended until December 30, 2010 in order to finish their assignment and most importantly to lead the planned training module of the staff of the Municipal Observatory. 19. In terms of human resources arrangements, the mission noted that little progress had been made since the last supervision mission. This is a factor of great concern and impacts negatively on the sustainability of the project and of the sector. Although the Directorate General of Local 3 Administration (DGLA) – in charge of operating the Municipal Observatory – agreed that an Interim Team of 5 staff be deployed for a transition phase of 6 to 8 months (with support from the PCU) before the full 13 staff be functional in the Municipal Observatory, it is to be noted that very little progress has been made at this stage. 20. In this context, the Bank team urged that this action be prioritized and that a detailed description of the next steps envisaged to operationalize the Municipal Observatory be drafted. This action plan (listed under Annex 1) was done and sets the organizational chart, the appointment of staff, the training plan and the action plan for the Interim team. The mission also noted that arrangements to build the capacities of the staff were being discussed between the DGLA and UN Habitat and welcomed this initiative while clearly emphasizing that the most pressing need was to confirm and implement the necessary staffing arrangements in order to ensure sustainability and ultimately to lay the ground for developing the municipal sector. B. Municipal Finance Study: 21. The mission met with the PCU and ICMA, the contracted firm, to review the implementation of the Municipal Finance Study Program which is expected to extend over 8 months. The mission was pleased to note that despite initial delays and bottlenecks, the consultants were now on track. The Inception Report was amended to incorporate the points made by the Bank during the last supervision mission and the progress report was delivered. While attempting to stay within the agreed timeframe, ICMA requested an extension to produce the Draft Strategic Framework. The Framework, due in June 2010, will serve as the cornerstone of the work. 22. Although there has been substantial improvement over the past few weeks, the mission understood that the access to basic information needs to be improved. For example, the request to access the Statement of Accounts of municipalities was made to the Ministry of Finance and was sent to the MOIM; it is currently pending. The support of both the Ministry of Finance and the Ministry of Interior and of Municipalities is of utmost importance to facilitate the access to basic information and thus to pave the way for the production of timely and quality studies. It is all the more important that the Municipal Finance Study is expected to place the municipal finances on a more sustainable foundation. Within the framework of the Municipal Finance Cell, the study should also be seen as a unique opportunity to strengthen the partnership between the Ministry of Finance and the Ministry of Interior, both dealing with overseeing the municipalities. IV. FIDUCIARY ASPECTS A. Procurement: 23. In general, the procurement’s progress is very satisfactory. The project team followed up on the short comings on the design and execution of works observed in the supervision and ex-post review missions of October 2009. Corrective measures were brought and photos were submitted with that respect. In addition, the PMU management restructured the procurement and monitoring departments integrating them in one technical department, and enforced more solid site possession and temporary hand over modalities. The project is advised to publish contracts, regardless of amounts, on dgmarket, to be in compliance with the transparency Bank guidelines. 24. With respect to component 1, as of September 2009; (i) 232 Project Application Forms (PAFs) amounting a total of US$17 million have been approved by the PCU; (ii) 190 Contracts are signed for a value of US$15.4 million out of which US$11.8 million have been disbursed. Final completion date of works is expected by December 2010. For component 2, the PCU completed the assessment of fifteen (15) projects of a total cost estimated to US$9.5 million, five bidding documents till date has been approved. Final completion date of works is expected by June 2011. Component 3, capacity building, completion is expected by end December 2010. 4 B. Financial Management: 25. The project continues to be implemented by the Project Coordination Unit (PCU) hosted by the Ministry of Interior and Municipalities. The PCU moved to a new location in the Jdeideh area, Ogero Building. The project Financial Management (FM) arrangements undertaken by PCU, including staffing, internal controls, accounting reporting, budgeting and flow of funds and audit arrangements, continue to be adequate. 26. A Statement of Expenditures (SOE) review was made during the period from February 2010 till May 31, 2010 and the results are found to be compliant with the threshold as set in the grant agreement, the payments were confirmed to be eligible, and substantiated, the related internal controls acceptable, the supporting documents were properly arranged, and the files were easily and readily accessible. 27. In addition to the test of internal controls conducted on the SOE as part of the SOE review, the Bank also undertook tests of internal controls on Summary Sheets (SS) and Direct payments (DP) on a sample basis and checked their adequacy, reliability, maintain of a proper supporting documentation, existence of adequate authorization and approvals, and performance of a proper accounting recording. The results of the test are found acceptable. 28. A new Auditor is on board, the contract was signed on April 29, 2010 and the auditor immediately started the field work. As agreed the audited financial statements along with the management letter was submitted to the Bank on June 28, 2010. 29. The Project Financial Monitoring reports (FMRs) consisting of Project Sources and Uses of funds Statement, Project Commitments Sheet, and Designated Account Reconciliation Statement continue to be delivered on a timely manner and they are satisfactory. The FMRs for the first quarter of 2010 were received on time and deemed satisfactory. The mission reminded the PCU that the next FMRs covering the second quarter of year 2010 is due for submission to the Bank by no later than August 15, 2010. 30. The project is eligible to benefit from the e-Disbursement facility, which is a facility to enable electronic delivery of withdrawal applications through Client Connection. The Bank conducted a workshop (on June 11, 2010) to explain the new procedures and deliver the e-signature tokens to the eligible staff. The Head of the Finance and Accounting department at the PCU attended the workshop. This process is expected to improve the processing of withdrawal applications by both the Borrowers and the Bank, to achieve faster turnaround time, reduce transaction costs and improve the Borrowers management of the flow of funds while still retaining strong internal controls. 31. The Project disbursements and unpaid commitments from the Grant funds as of May 31, 2010 are equal to USD$ 15.03 million and US$ 4.21 million respectively. V. NEXT STEPS: 32. The following next steps were agreed:  The World Bank will respond to the request of the Government of Lebanon for reallocation among categories of the Grant proceeds by July 2010.  Transmit the Grant Progress Report covering the period April – June 2010 to the Bank by August 10, 2010. The PCU will draft a Management Plan template to be sent out to the fifteen municipalities conducting the local development projects (under Component 2) by August 2010.  Submit the project FMRs for the second quarter of 2010 by August 15, 2010. 5  Publish awarded contracts on dgmarket by August 31, 2010. 6 Annex 1: Detailed Action plan for the Municipal Observatory Annex 2: General Procurement Review Annex 3: Procurement Plan Annex 4: Financial Management Summary 7 Annex 1 First Municipal Infrastructure Project (FMIP Grant) Ministry of Interior and Municipalities First Municipal Infrastructure Project The Municipal Observatory (MO) Detailed Description for the Next Steps 8 Transition Phase and Organizational Charts The Initial Plan set for the Municipal Observatory is to hire an actual team composed of 13 employees (Figure 1) needed for operating MO. Hiring employees must be done by the Civil Service Board (‫ )مجلس الخدمة المدنية‬according to the legal procedure adopted in the Lebanese government and stated by law. However, hiring and team formation by the Civil Service Board might take months to finalize and cannot be done unless a decree for establishing a new department called the Municipal Observatory is issued. The Decree is still in process to be issued. Head of Section Head of Coordination Head of Scientific Head of Technical Subsection Research Subsection Support Subsection Financial Analyst Secretary Help Desk Secretary for Receiving Statistician Web Master data Data Entry or Operator Trainer Data Entry or Operator Figure 1: MO Team Structure As an alternative Plan, the Project Coordination Unit “PCU”, DGLA&C and the Consulting Company “IDS” agreed on forming an operational team for a transition phase. The team composed of 5 or 6 employees (Figure 2) will be responsible for getting the needed training on the system, running the system, and giving the actual MO team the necessary training. The operational team will be trained to train more people in the future once MO is formed. MO Leader Technical Support Secretary Operations Manager Communications with Data Entry (1 or 2) Municipalities Figure 2: Operational team So, the full team (13 persons) will be formed through the Civil Service Board. The smaller team (5 persons) is necessary to allow MO to stand on its feet and subsequently train the full team (13 persons) with a proper handover. 9 The operational team during the transition phase has no scientific research officer in the operational team, so designing new performance indicators and evaluating and improving the performance indicators management system are beyond the capability of the team. Other tasks like verifying received data from municipalities and analyzing the financial data will be limited to simple verification and simple financial analyses. On the ground, the MO Leader is agreed to be the director of the DGLA&C (Mr Khalil Al-Hajal). Ms. Jeanine Abou Gharib (supplemented from Chayah Municipality to DGLA&C till 14-3-2011) and Ms. Elsy Bou Abboud (supplemented from Dekwaneh Municipality to DGLA&C till 20-3-2011) will work as Data enterers at the first stage. Eng. Haitham Al-Haddad (task coordinator- from the PCU) will temporarily occupy the job of Operations Manager. (Attached are the CV’s of Jeanine and Elsy). The PCU task coordinator is following up with the DGLA&C in order to insure more data enterers whom will communicate with municipalities in the future. Project Progress All the preparation work for the Observatory is completed which includes: the furniture, room coating and painting, parquet flooring installation, Air Conditioning and the electrical, telephone and data network cabling works for both the observatory and the servers’ room. In addition, all the desktops, servers, peripherals and software were properly installed. The system now is deployed by “IDS” in the Municipal Observatory Office. IDS set the Municipal Performance Management System “MPMS” software with 14 key indicators. A test of the software in 5 previously selected municipalities (Saida, Sour, Jbeil, Tripoly and Baalbek) on the basis of the 14 key performance indicators will be available before the end of June. Training Phase The training will be done in sessions where users will get the necessary help and follow-up in order to understand the features and functions of the system. Training is expected to begin by Mr. Mohammad Nour Eddine from IDS in the month of July on the “Municipal Workflow” Topic which will last for 10 days (2 hours per day). Upon the request of the DGLA&C, the following names were suggested to attend the training: Ahmad El-Rajab Jeanine Abou Gharib Elsy Bou Abboud Sawsan Bou Ghanim Houda El-Hajj Enaam Al-Moalem Eng. Ahmad El-Rajab is assigned by the Prime Minister to be the project coordinator of the Municipal Observatory from the DGLA&C side. Sawsan Bou Ghanim, Houda El-Hajj and Enaam Al-Moalem already work in the DGLA&C as “wage earners per hour” from the Independent Municipal Fund. They were assigned in the “technical system” for data entry in the DGLA&C. The reason for their attendance for training is that they can support if there is a deficiency of Data enterers and in giving the actual MO team the necessary training. 10 After training, DGLA&C and PCU team, the operational team, will be able to operate the system and start the pilot phase. In the pilot phase, the operational team will send IDS the needed feedback and any changes and modifications will be done within the approved scope and system boundaries. Action plan for the Transitional Team Data entered to the MPMS are of 2 kinds: financial and non-financial. The focus on the 1st stage is on the financial data. Financial data are collected from the DGLA&C and are agreed to be from 2004 till “to date”. If we consider the Lebanese municipalities to be approximately 1000, then for the six years we have 6000 Data Entry Forms to be entered. Data Entered first should be the most recent data and then backward. This latter will determine the rate of data entering and the need, or not, to get outsourced human resources for data entering. Non-financial data are collected through a questionnaire to be filled by municipalities. However, first, there must be an awareness campaign for the municipalities to introduce the Municipal Observatory - its mission and benefits and mutual duties of the MO and municipalities towards each others - and explain on how to communicate with the MO -each municipality according to its capability (via email, fax, mail, etc…)- and how to fill and send data to the MO. Afterwards, the MO Communicates to MO stakeholders the percentage and names of cooperating and/or non cooperating municipalities. Coordinating with Other DGLA&C projects Un-Habitat projects aims on developing a capacity building program for the municipalities that will be adopted by the MOIM in the future. Un-Habitat expressed high interest in the Municipal Observatory and sees it as a powerful management tool for municipalities and helps with the awareness program that they are working on and agreed on providing the Technical support for the DGLA&C with the MO once available. The technical support is supposed to be hired by the Un- Habitat in July. The Un-Habitat is also interested in attending part of the training. Un-Habitat closing date is December 31st, 2011. The State University of New York- AlBany (USAID) Project which aims for completion of the automation of the administrative and financial procedures in all the municipalities. Since part of the project is updating the MOIM website including the Directorate projects, the PCU is coordinating with Ms. Ivana Assi about adding information to the website on the Municipal Observatory Project and linking its address. The Municipal Observatory is out of reach of any financial Information saved by the AlBany (USAID) Project. The AlBany (USAID) Project closing date is December 31 st, 2010 and the financial data will be handed over to the DGLA&C. 11 Annex 2 First Municipal Infrastructure Project (FMIP Grant) Procurement Review 1. PROCUREMENT PROGRESS: The project has been extended till June 30, 2011. In general, the procurement’s progress is very satisfactory. The project team followed up on the short comings on the design and execution of works observed in the supervision and ex-post review missions of October 2009. Corrective measures were brought and photos were submitted with that respect. In addition, the PMU management restructured the procurement and monitoring departments integrating them in one technical department, and enforced more solid site possession and temporary hand over modalities. The project is advised to publish contracts, regardless of amounts, on dgmarket, to be in compliance with the transparency Bank guidelines. 1.1 Component 1- Works: The project is maintaining a very satisfactorily and continuous increase path in procurement processing and disbursement. The progress as of January 31, 2010 is as following: - 232 Project Application Forms (PAFs) and bidding documents for a value of US$17 million were approved by the PCU; - 190 Contracts are signed for a value of US$15.4 million, out of which US$11.8 million are disbursed; The here below Table (1) recapitulates the above. Table 1: General Implementation Progress & Trend July 15, March 10, Sept. 15, Dec. 31, Jan.31, Totals per Following Dates Oct 15, 2008 2008 2009 2009 2009 2010 Number of BD (s) approved by 186 189 190 232 232 232 PCU. Value of BD (s) approved (US $). 14,969,406 15,038,027 15,089,417 17,324,749 17,324,749 17,324,749 Number of ER (s) approved by 130 137 163 178 199 200 PCU. Value of ER (s) approved (US $). 9,284,580 9,982,643 13,642,207 14,443,196 15,439,072 16,223,043 Number of Contracts signed. 111 122 144 175 188 190 Value of Contracts signed (US $). 6,488,872 7,215,012 10,455,415 14,430,102 15,328,925 15,373,306 Civil Works amount disbursed from Project Special Accounts 2,558,500 4,463,000 6,918,997 10,001,306 11,492,806 11,844,766 (US $). 12 1.2 Component 2- Works: The PCU has completed the assessment of fifteen (15) projects with a total cost estimated to USD 9,553,914. As of January 31, 2010, five bidding document out of 15 have been approved. The status of committed contracts and disbursements are reflected in the table (2) here below: Table 2: General Implementation Progress & Trend Sept. 15, Dec 31, 2009 Jan. 31, 2010 Totals per Following Dates 2009 Number of BD (s) approved by PCU. 1 3 5 Value of BD (s) approved (US $). 297,500 2,264,238 3,024,361 Number of ER (s) approved by PCU. 0 0 0 Value of ER (s) approved 0 0 0 (US $). Number of Contracts signed. 0 0 0 Value of Contracts signed (US $). 0 0 0 Civil Works amount disbursed from Project Special 0 0 0 Accounts (US $). 1.3 Component 3- Project Management and Capacity Building: a- The three (3) studies are on track; (i) finance study inception report shall be submitted on February 22, 2010; (ii) beneficiary assessment 2nd assessment report extended to end June 2010; and (iii) municipal observatory extended till February 28, 2010 for delivering the training. b- The equipment (informatics and peripheral equipment) for the municipal observatory is at award stage while the furniture has been delivered. c- The PMU was restructured to integrate both Preparation & Procurement and Monitoring & Evaluation departments under a consolidated Technical Department composed of the following: (i) head of department (procurement), (ii) assistant head of department (M&E), (iii) project appraisal engineer, (iv) project implementation engineer, and (v) 5 field inspectors. In addition, for due diligence, each project will have a committee of three (3) members to perform site possession and temporary hand over. 1.4 Procurement plan: The PCU is closely monitoring the procurement plan/cycle and follow-up measures with the Municipalities and DGUP are taken to optimize the observed bottlenecks at the Directorate General of Urban Planning (approval of bidding document) and at the municipalities (evaluation of bids and contract signature). At DGUP, an acceptable 45-day duration is observed for processing documents. a- Component 1: except for one bid (Bebnine) expected to be completed by December 31, 2010 remaining contracts implementation is expected to be completed by end September 2010. b- Component 2 last contract is expected to be completed by end June 2011. c- Component 3 capacity building completion is expected by end December 2010. 13 3. FOLLOW UP ON FIELD VISIT (Supervision and ex-post review of October 2009) No field visits were conducted in this supervision. The project has brought corrective measures to the observed deficiencies in October 2009 supervision. Photography of the revisited two sites at Beddawi pertaining to the same contract NL-MD/02-G01 (US$461,000-“Pedestrian bridge” and “Asphalting”) and one at Deir Ammar NL-MD/08-G01 (US$358,000 for 1.8 KM asphalting and water channels) were submitted and found satisfactory. Moreover, during the post review mission, deficiencies were observed at the municipality of Dirdighaya (rear entrance accessibility of the High school) and at the municipality of Ebil Elsaki (removal of rubbles and cleaning of site). Both sites were revisited and corrective measures were brought, as per the PMU reporting. 4. POST PROCUREMENT REVIEW 4.1 A fifth and last EPR (EPR5) is planned to be conducted in October 2010. 5. NEXT STEPS ref What By When? 1 Publishing awarded contracts on dgmarket August 31, 2010 14 Annex 3 First Municipal Infrastructure Project (FMIP Grant) Procurement Plan 15 16 17 18 19 20 21 22 23 24 Annex 4 First Municipal Infrastructure Project (FMIP Grant) Financial Management Staffing. The financial and accounting department in the PCU is composed of a Head of Finance who is performing all the tasks assigned related to the FM aspects of the project. The World Bank FM team has been closely monitoring the project FM performance during supervision missions, through periodical review of Financial Monitoring Reports (FMRs) regular contacts and on need basis to ensure maintenance of adequate FM arrangements. Accounting & Reporting: The system-generated project FMRs continue to be timely received and satisfactory. They include a Statement of Sources and Uses of Funds, a Project Commitments Sheet and a Designated Account Reconciliation Statement. The FMRs for the quarter ending March 31, 2010 were delivered on May 10, 2010 and were deemed satisfactory. The mission reminded the project that the next FMRs for the second quarter of year 2010 are due not later than August 15, 2010. The accounting system continues to be adequate where all transactions entries are recorded and relevant financial data and reports are being generated on a timely basis. A fixed Assets list was obtained from the project and is being updated on a regular basis. Flow of Funds. The project flow of funds arrangements, including the Designated Account (DA) management and reconciliation continue to be adequate. The Grant Disbursements, as per the project records of US$ 15.03 million reconcile with the Bank records (Client Connection) on May 31, 2010 of US$ 17.17 million, by including the DA outstanding balance of US$ 2.34 million and subtracting reconciling items (consisting of 29 payments total amount of US$ 202,361 that do not appear in the Central Bank of Lebanon statement as they were not withdrawn as of end May 2010). The DA balance was reconciled to the Central Bank of Lebanon Statement as of May 31, 2010 with no differences noted except for the reconciling items mentioned previously. The Project unpaid commitments as at May 31, 2010 are about US$ 4.21 million. The mission reminded PCU to the need to keep an updated list of contracts financed by the project with the necessary information such as initial commitment, contract status (i.e. % of completion), advance payments amounts, bank guaranties obtained against advance payments, value of works completed, etc. in order to keep track of any problematic contracts that need additional follow up and prevent any pending matters especially around project closure date. The Bank is conducting a workshop to introduce the client to the latest improvement in withdrawal application processing. The e-disbursement workshop will be carried out on June 11, 2010 by a senior staff member from the loan department; this will enable the project to reduce paper usage, achieve faster turnaround, reduce transaction costs and improve the borrower’s management of the flow of funds while still retaining strong internal control. 25 This process however, is optional as it would still be possible to prepare withdrawal application in paper format. The head of the finance and accounting department at the PCU will be attending the workshop. Summary of Project Financial Status as of May 31, 2010 Category Allocation Commitments Disbursements Committed not paid (1) Goods 600,000.00 164,578.00 164,578.00 0.00 (2) Works 22,000,000.00 16,347,391.00 13,055,816.00 3,291,575.00 (3) Consultants' services 2,000,000.00 1,788,353.00 1,028,334.00 760,019.00 Salaries till (4) Project 868,022.00 704,783.00 163,239.00 31/12/2010 Management 1,000,000.00 Costs Running 78,817.50 78,817.50 0.00 Expenses (6) Unallocated 4,400,000.00 0.00 0.00 0.00 Total 30,000,000.00 19,247,161.50 15,032,328.50 4,214,833.00 Budget. A budget plan was submitted to the Bank showing disbursements for the remaining period of 2010 and up to June 30, 2011. Total estimated disbursements up to June 30, 2011 are US$ 29.875 million which is in line with the initial allocated plan. However the unallocated portion is planned to be used in the Works categories in its totality as was foreseen during the initial stage of project planning. Internal Controls. A test of Internal Controls was conducted on a sample basis in order to ensure that payments are eligible, the supporting documents are properly arranged, the files are easily and readily accessible, proper authorization and approvals are obtained, and proper recording is done. The sample consisted of one Withdrawal Applications (WA) (Summary Sheet, SOE and Direct payments; WA# 14 – Total amount US$ 1,211,813.50) related to the period from Feb-10 till May-10. The following were checked: For Works:  The contract signed between the municipality and the contractor is substantiated by an order to begin work from the municipality.  An application form is filled by the contractor describing the work performed and containing the amount to be paid Clearance of the Application form by the PCU consultant engineer and the municipality engineer, then by the Control and Evaluation department in the PCU, and finally by the PCU manager  Payment voucher is prepared by the accounting department and jointly signed by PCU manager and Head of Finance  Check is signed by PCU manager and the Head of the General Directorate for Local Administrations and Municipalities’ Council. 26 For Consultants:  Clearance of Individual consultants’ invoice by the Head of the monitoring and evaluation department and PCU manager.  Payment voucher prepared by the accounting department which is jointly signed by PCU manager and Head of Finance.  Check signed by PCU manager and the Head of the General Directorate for Local Administrations and Municipalities’ Council. Administrative and Office expenses:  Clearance of invoices and verification of respective products received by a committee composed of which Control and Evaluation Engineer, Support engineer (assistant to the PCU manager) and Head of Finance.  In case of IT equipments, additional clearance of the Head of IT department is needed  Payment voucher prepared by the accounting department which is jointly signed by PCU manager and Head of Finance.  Check signed by PCU manager and the Head of the General Directorate for Local Administrations and Municipalities’ Council All the above authorization and approvals were checked in the test which is in line with the segregation of duties principle. The internal controls applied in this sample are found acceptable. The accounting system is administered by the IT department and used by the Head of Finance who accesses the system via a username and password. Statement of Expenditure (SOE) Review. Since the internal controls are assessed effective as indicated in the above, the amount of testing related to the SOE was reduced. Accordingly, the SOE review was conducted on 50% of the project’s payments made between Feb-10 and May-10 and falling under the SOE criteria (equivalent to US$ 366,967). All payments reviewed were confirmed to be eligible, complying with the SOE criteria, and substantiated, the related internal controls were deemed acceptable as per the above, and the files were easily accessible. Auditing. A new auditor was assigned and the contract was signed on April 29, 2010. The new auditor started the field work and the audited financial statements along with the management letter are expected to be submitted by the due dates. The Bank reminded the project of the importance of submitting the audit report with the management letter by no later than June 30, 2010. Action plan: Action Responsible When Submit the project FMRs for the quarter ending June 30, PCU August 15, 2010 2010 Submit the audit report for the year ending December 31, PCU June 30, 2010 2009 27