The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) REPORT NO.: RES36164 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF IMPROVING QUALITY AND EFFICIENCY OF PUBLIC SECTOR AUDIT APPROVED ON APRIL 18, 2017 TO REPUBLIC OF NICARAGUA GOVERNANCE LATIN AMERICA AND CARIBBEAN Regional Vice President: Axel van Trotsenburg Country Director: Yaye Seynabou Sakho Senior Global Practice Director: Deborah L. Wetzel Practice Manager/Manager: Xiomara A. Morel Task Team Leader: Lourdes Consuelo Linares Loza The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) ABBREVIATIONS AND ACRONYMS CGR Office of the Comptroller General (Contraloría General de la República) ISSAIs International Standards of Supreme Audit Institutions INTOSAI International Organization of Supreme Audit Institutions NAGUN Recipient’s Government Audit Standards (Normas de Auditoría Gubernamental) OLACEFS Organization of Latin American and Caribbean Supreme Audit Institutions PDO Project Development Objective SAI Supreme Audit Institution SICA Audit Control System (Sistema de Control de Auditorías) The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P161359 Investment Project Financing Original EA Category Current EA Category Approval Date Current Closing Date 18-Apr-2017 28-Jun-2019 Organizations Borrower Responsible Agency Republic of Nicaragua Nicaragua Comptrollers' General Office Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 0.50 Total Financing 0.00 Financing Gap 0.00 DETAILS -NewFin3 The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) Project Development Objective (PDO) Original PDO The project development objective is to improve the quality and efficiency of public sector audit, thereby strengthening external oversight over the management of public resources in Nicaragua. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A4518 24-Apr-2017 01-Jun-2017 01-Jun-2017 28-Jun-2019 .50 .43 .07 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. BACKGROUND 1. The proposed restructuring aims to adjust the modality of implementation in the provision of specialized training to a selected group of officials from the Office of the Comptroller General (CGR) regarding Performance Audit. This activity was expected to be facilitated through a knowledge exchange with the Mexican Auditoria Superior de la Federación (SAI) as part of the existing internship program on Performance Audit through the Organization of Latin American and Caribbean Supreme Audit Institutions (OLACEFS). An official request was submitted by the Government of Nicaragua for the restructuring of the activity on February 7, 2019. B. PROJECT STATUS 2. The Project is financed through the Supreme Audit Institution (SAI) Capacity Development Fund and it was approved on April 24, 2017. The Project Development Objective (PDO) is to improve the quality and efficiency of public sector audit, thereby strengthening external oversight over the management of public resources in Nicaragua. The Project has four components: (1) Training of CGR’s Auditors and Staff on the deployment of updated auditing standards based on international standards; (2) Implementation of an integrated government audit system (Sistema de Control de Auditorías, SICA); (3) Implementation of a quality control system; and (4) Project management, monitoring and audit. 3. To date, both progress towards achievement of the development objective and implementation are rated moderately satisfactory. The current disbursement rate stands at about 75 percent of the total RETF amount of US$497,000. Presently, there is no outstanding Interim Financial Report or Audit. The Project closing date is June 28, 2019. The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) 4. The following results have already been achieved: i. 1,000 auditors have been trained through a combination of on-line and face-to-face training on the updated audit standards (NAGUN) based on the International Standards for Supreme Audit Institutions (ISSAIs). ii. A Code of Ethics and related documents were approved by the CGR’s Council in March 2018, as part of the CGR’s Integrity System, and is currently in effect. In addition, 256 CGR staff participated in a sensitization workshops on the application of the new integrity tools, and it is expected that nearly 1,300 “Ethic Commitment Acts” are signed by individual staff. iii. The implementation of a Quality Control System in compliance with ISSAIs is currently underway and scheduled to be completed by the end of March 2019. iv. The adaptation and implementation of the SICA system, through a cooperation agreement with the Chilean SAI, is well advanced. Software and hardware required for the adaptation, installation, implementation and operation of the system has been procured, development of functional adjustments was completed, the system was installed , and the testing of the system through pilot audits is underway. 5. Implementation of key project activities is generally on track. However, the specialized training for performance audit is considerably delayed due to external factors to the CGR. As per project design, this activity was expected to be facilitated by the Mexico SAI (Auditoría Superior de la Federación, ASF) in the framework of a Technical Cooperation Agreement signed between the ASF and the CGR in October 2017. Accordingly, preparatory work was undertaken, and the training was planned to start in April 2018, but it had to be postponed due to changes in the head of the ASF followed by an organizational restructuring. 6. Following the extension of the Grant closing date approved by the World Bank in June 2018, the CGR re-opened discussion with the ASF to agree on new dates for the training but were informed that due to the still on-going restructuring, the ASF was not able to comply with the TA committed under the Cooperation Agreement. Since then, the CGR initiated a series of discussions with other partner SAIs in the Latin America Region that would have staff trained as facilitators for the delivery of the Program 3i without success. The latter led the CGR to request the Bank authorization to carry out the activity with the support of international consultants trained as Program 3i facilitators. The latter would be the only way to secure completion of this activity before the project closing date. C. RATIONALE FOR THE CHANGE 7. The Grant Agreement included a specific reference to the Mexico ASF as the project builds and relies significantly on collaboration and knowledge exchange with other SAIs in the Region (Chile for the audit system and Mexico for the specialized training). Accordingly, the CGR made every effort to concretize those arrangements including the signing of respective cooperation agreements, but in the case of the Mexico ASF, external factors, outside the control of the GoN, prevented the ASF to deliver on their commitments. 8. Therefore, there is need to amend the Grant Agreement to reflect the change in the implementation modality of the training. That change will provide the CGR the opportunity to complete a critical activity that comes to complement the other efforts in the implementation of international standards. It is important to mention that this change in the modality of implementation will not affect the quality of the training because the program training itself is already developed as part of the INTOSAI-IDI Program 3i, and the consultants will mainly play a facilitating role. Accordingly, the The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) consultants will be hired in accordance with the World Bank Procurement Regulations, and with terms of reference acceptable to the Association. 9. The proposed restructuring fully complies with the Bank Directive for Investment Project Financing. The Project’s Development Objectives remain achievable, and the performance of the Recipient is considered moderately satisfactory. The Bank and the Recipient agreed on actions that will be undertaken by the Recipient to complete the Project. The project is not subject to suspension of disbursements; and the Recipient does not have any outstanding audit reports nor there are audit reports which are not satisfactory to the Bank. D. SUMMARY OF KEY AGREED ACTION # Component Action Due Date Responsibility 1 1 Submit the ToRs for the hiring of April 5, 2019 CGR international consultants as facilitators of the Program 31 2 1 Complete the selection process of the April 20, 2019 CGR consultants 3 1 Submit detailed training scheduled April 30, 2019 CGR agreed with Mexico SAI for the specialized training. II. DESCRIPTION OF PROPOSED CHANGES 10. There are no changes to the PDO, safeguard ratings, institutional and implementation arrangements, and the end target dates in the results framework, except for the end target date of IR1 and IR5. 11. Changes to project activities. Description of activity (a) ( iii) under Part 1, Training of CGR's Auditors and Staff from the Internal Audit Units will be modified as follows: Part 1 (a) (iii) provision of specialized training to a selected group of CGR officials on performance audit. 12. Changes to the Results Framework S/N Description of Indicator Action Description of Changes Intermediate Indicators IR1 Core team of CGR auditors specialized in Performance Revised End target date revised to June audit 14, 2019. IR5 Core team of CGR auditors specialized in ISSAIs Revised End target date revised to June 14, 2019. The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Implementing Agency ✔ Project's Development Objectives ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Integrated Government Audit System (SIAG) implemented and formally adopted for use in CGR's audits Unit of Measure: Yes/No Indicator Type: Custom The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) Baseline Actual (Current) End Target Action Value No No Yes No Change Date 07-Nov-2016 11-Jun-2018 30-Apr-2019 20% Reduction in the time (number of days) used to carry out financial audit commitments in public sector entities Unit of Measure: Days Indicator Type: Custom Baseline Actual (Current) End Target Action Value 60.00 60.00 48.00 No Change Date 07-Nov-2016 11-Jun-2018 31-May-2019 Intermediate Indicators IO_IND_TABLE Core team of CGR auditors specialized in Performance audit Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 20.00 Revised Date 07-Nov-2016 11-Jun-2018 14-Jun-2019 SIAG adapted, installed and in operation for being used by CGR staff in pilot audits Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes No Change Date 07-Nov-2016 11-Jun-2018 28-Feb-2019 Quality control system implemented in accordance with ISSAI No. 40 Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes No Change Date 07-Nov-2016 11-Jun-2018 28-Sep-2018 Core team of CGR auditors specialized in ISSAIs Unit of Measure: Number Indicator Type: Custom The World Bank Improving Quality and Efficiency of Public Sector Audit (P161359) Baseline Actual (Current) End Target Action Value 0.00 0.00 30.00 Revised Date 07-Nov-2016 11-Jun-2018 14-Jun-2019 CGR s auditors and internal auditors of 249 entities trained in overall use of updated NAGUN based on ISAISs Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 1000.00 1000.00 No Change Date 07-Nov-2016 11-Jun-2018 30-Jan-2018