Circular No. 110/2009/TT-BTC dated May 29, 2009, of the Ministry of Finance guiding financial management mechanisms applicable to programs and projects financed by the International Fund for Agricultural Development (IFAD)

THE MINISTRY OF FINANCE

Circular No. 110/2009/TT-BTC of May 29, 2009, guiding financial management mechanisms applicable to programs and projects financed by the International Fund for Agricultural Development (IFAD)

Pursuant to the Government’s Decree No. 131/2006/ND-CP of November 9, 2006, promulgating the Regulation on management and use of official development assistance (ODA);

Pursuant to the Government’s Decree No. 60/2003/ND-CP of June 6, 2003, detailing and guiding the implementation of the State Budget Law;

Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks and powers of the Ministry of Finance;

Pursuant to the Finance Ministry’s Circular No. 108/2007/TT-BTC of September 7, 2007, guiding financial management mechanisms applicable to ODA-funded programs and projects;

The Ministry of Finance specifically guides financial management mechanisms applicable to IFAD-financed programs and projects as follows:

Part I

GENERAL PROVISIONS

I. Scope and objects of application

1. This Circular specifically guides disbursement, accounting, reporting and supervision regulations applicable to programs and projects (below collectively referred to as projects) financed with IFAD loans or IFAD aid and co-financed capital sources for IFAD projects which are subject to IFAD’s procedures.

Non-refundable aid projects financed by IFAD or authorized to IFAD for management which are implemented independently (not co-financed under IFAD loan-financed projects) comply with financial management regulations under the Finance Ministry’s Circular No. 82/2007/TT-BTC of July 12, 2007, guiding the State’s financial management regulations applicable to foreign non-refundable aid belonging to state budget revenues.

2. Depending on management requirements and at the proposal of project-managing agencies, the Ministry of Finance may issue separate guidance for a number of specific IFAD-financed projects.

II. Management principles

1. IFAD-financed projects comply with financial management guidance applicable to ODA-funded projects in the following documents:

- The Finance Ministry’s Circular No. 82/2007/TT-BTC of July 12, 2007, guiding the State’s financial management regulations applicable to foreign non-refundable aid belonging to state budget revenues;

- The Finance Ministry’s Circular No. 108/2007/TT-BTC of September 7, 2007, guiding financial management mechanisms applicable to ODA-funded programs and projects;

- The Finance Ministry’s Circular No. 107/2008/TT-BTC of November 18, 2008, additionally guiding a number of provisions on state budget management and administration;

- The Finance Minister’s Decision No. 61/2006/QD-BTC of November 2, 2006, promulgating a number of spending norms applicable to ODA-funded programs and projects;

- The Finance Minister’s Decision No. 19/2007/QD-BTC of March 27, 2007, promulgating the Regulation on the accounting of state budget mutual ceasing of the Government’s foreign loans and aid;

- Documents amending, supplementing or replacing the above documents, and this Circular.

2. Non-refundable aid projects financed by IFAD or co-financed by other donors comply with spending norms under foreign aid agreements signed with donors. If those agreements do not contain spending norms, those prescribed by the United Nations applicable to capital sources of United Nations organizations in Vietnam will apply.

3. The Project Implementation Manual (PIM) and the Financial Management Manual developed under projects, approved by IFAD and promulgated by the managing agency serve as a basis for the management of and spending for projects.

III. Service bank and project accounts

1. Service bank means a commercial bank on the list of qualified commercial banks to be authorized to conduct foreign transactions for projects, as selected by the Ministry of Finance in coordination with the State Bank and donors.

2. Responsibilities of the service bank

The service bank shall, at the proposal of the account holder (the Ministry of Finance or the project-managing agency as indicated in the financing agreement), open a project’s relevant accounts and conduct payment and capital withdrawal transactions under current regulations.

The service bank shall provide the Ministry of Finance and project-implementing agencies with guidance and sufficient information for conducting domestic and overseas via-bank payment transactions.

The service bank shall credit the sum of money withdrawn from the donor to the project’s special account within 2 working days after receiving the credit note and notify the Ministry of Finance and the account holder of that sum of money.

Within 2 working days after transferring money under the account holder’s order, the service bank shall send to the account holder a document accounting such money as an expense, enclosed with details of the sum of money in foreign currency, sum of money in Vietnam dong, date of payment and payee, for state budget accounting.

The special account’s balance is eligible for interest at the interest rate set by the service bank or agreed between the service bank and the account holder. The service bank shall open an account for separately monitoring the special account’s interests.

The project’s service bank is entitled to service charges at current rates set by the service bank. The project may use arising interests to cover these service charges.

The service bank shall, on a monthly basis or upon request, send to the account holder a statement on the special account, stating interests on the special account of projects; collected service charges; interest-charge difference; and balances at the beginning and the end of a period. Balances of accounts monitoring the special account’s interests also generate interests.

3. Project accounts

a/ Account at the service bank

The Ministry of Finance or the project-managing agency that is the account holder of loan/aid sources as indicated in the project’s financing agreement shall open a special account/aid account (below collectively referred to as special account) at the service bank to meet the project’s payment requirements in compliance with current regulations and terms in the financing agreement.

For a project with different financing sources, separate accounts must be opened for monitoring each source.

Bank service charges shall be paid with the special account’s interests and accounted in the project’s total expenses. Interests on accounts of financing projects constitute a state budget revenue. For a project consisting of a state budget-funded component and a component funded with ODA re-lent from the state budget which share the same special account (the time of re-lending ODA from the state budget is the time of withdrawing capital from the special account), this account’s interest constitutes a state budget revenue. Upon project completion, unused interests must be remitted into the state budget. If the interests are insufficient to cover bank service charges, the project owner that has been allocated state budget funds shall work out a plan to request allocation of domestic capital to cover bank service charges. The re-lending project owner shall pay bank service charges with his/her/its own capital.

b/ Accounts at the State Treasury

- Capital source account for receiving ODA: Depending on project implementation requirements and the written agreement with the donor, the project owner shall open the project’s ODA account at the State Treasury for receiving IFAD loans, IFAD aid and co-financed funds from the project’s special account and pay for the project after the State Treasury controls such spending. As designed in the project, the subordinate (district- or commune-level) project managing unit may open a deposit account at the district-level State Treasury for receiving capital from the provincial-level project management unit to pay for project activities.

- Domestic capital payment account: The project owner shall open an account at the State Treasury for receiving and paying domestic capital allocated from the state budget under current regulations.

4. Exchange rate

IFAD capital in foreign currency shall be converted into Vietnam dong at an account-transfer exchange rate set by the service bank at the time of transaction.

Part II

DISBURSEMENT MANAGEMENT, CAPITAL ACCOUNTING AND REPORTING AND SUPERVISION REGULATIONS

I. Regulations on disbursement

Capital withdrawal dossiers, procedures for spending control and payment of IFAD capital and domestic capital for IFAD-financed projects comply with the Finance Ministry’s Circular No. 108/2007/TT-BTC of September 7, 2007, guiding financial management mechanisms applicable to ODA-funded programs and projects.

1. Forms of disbursement applicable to IFAD-financed projects

Depending on the terms of financing agreements and the IFAD’s letters of disbursement, capital withdrawal and payment with IFAD capital by the mode of project financing shall be conducted in one or several of the following forms: capital withdrawal for direct payment; capital withdrawal for payment in the form of special commitment; capital withdrawal for refund/retroactive payment; payment via the special account; or other forms of capital withdrawal as agreed with donors. Project owners shall follow donors’ guidance on the application of forms of capital withdrawal and related pre-printed forms.

The Ministry of Finance shall guide a number of popular forms of capital withdrawal specified in Sections 2 and 3 below.

2. Special account/aid account procedures

Special account procedures means a process whereby the donor advances a borrower a sum of money into the special account opened at the service bank for the borrower to pay the project’s regular and lawful expenditures, reduce the number of withdrawals of capital from the donor and accelerate payment for project activities.

The limit of the sum of money advanced by the donor into the project’s special account depends on the size, characteristics and spending demand of each project. The special account’s limit shall be indicated in the financing agreement and may be adjusted in the course of project implementation on the basis of the project implementation progress and payment demands.

a/ First capital withdrawal into the special account

The first capital withdrawal into the special account shall be based on the special account’s limit (or ceiling level) indicated in the loan agreement/aid agreement. For projects funded with ODA loans allocated from the state budget, the Ministry of Finance may fix an appropriate limit of capital withdrawal on the basis of considering the project’s spending plan for the subsequent 6 months and the expense for paying interests to the foreign partner. The service bank shall pay arising interests.

To withdraw capital, the project management unit shall send to the Ministry of Finance (the Department for Foreign Debt and External Finance Management) a written request for capital withdrawal, capital withdrawal application and statements enclosed with the donor’s forms, and the project’s spending plan for the subsequent 6 months.

Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance (the Department for Foreign Debt and External Finance Management) shall, based on signed treaties, consider and sign the capital withdrawal application and send it to the donor.

b/ Transfer of money from the special account to the contractor/supplier

Transfer of money from the special account is the form of payment at the proposal of the project management, whereby the Ministry of Finance shall transfer money from the special account opened at the service bank to pay for goods/services to the contractor/supplier.

When wishing to withdraw money for transfer from the special account, the project management unit shall send to the Ministry of Finance (the Department for Foreign Debt and External Finance Management) the following:

- A written request for capital withdrawal;

- The contractor’s invoice/payment request;

- A written request for payment enclosed with the original certification of the spending control agency;

- Other documents supplementing and clarifying the above papers.

Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance (the Department for Foreign Debt and External Finance Management) shall consider and carry out procedures for transferring money directly into the contractor’s/supplier’s account.

c/ Withdrawal of capital from the special account to the capital source account at the State Treasury

To withdraw capital from the special account to the capital source account at the State Treasury, the project management unit shall send to the Ministry of Finance (the Department for Foreign Debt and External Finance Management) the following:

- Spending estimates for the sum of money requested to be withdrawn;

- Statement of the capital source account from the time of previous capital withdrawal to this time of application for capital transfer;

- Other documents, when necessary.

If money on the special account is sufficient, within 3 working days the Ministry of Finance shall consider and carry out procedures for transferring money to the project management unit.

Spending from the capital source account shall be made after it is controlled under current regulations of the State Treasury at which the project management unit opens its account.

In case projects have accounts opened for localities (districts or communes), provincial-level project management units shall, pursuant to current regulations, carry out procedures for making advances to districts or communes.

d/ Additional allocation to the special account

To withdraw capital for additional allocation to the special account, the project management unit shall send to the Ministry of Finance (the Department for Foreign Debt and External Finance Management) the following:

- A written request for the withdrawal of capital for additional allocation to the special account, capital withdrawal application, statements made according to a set form, and documents required by the donor;

- Dossiers and documents to be sent to the Ministry of Finance: Apart from documents required by the donor, for expenditures monitored in the form of expenditure statements, the project management unit shall make a statement of each expenditure from the capital source account, with the original certification of the State Treasury where transactions are made and send it to the Ministry of Finance. Such statement must indicate the date of payment, sum of money, payment details, payee, number and date of making the expenditure document;

- For expenditures for which the donor requires documents: The project management unit shall send a written request for investment capital payment with the original certification of the State Treasury. Each of such certified requests for investment capital payment may be used only once;

- The table for the special account crosscheck, made according to the form provided by the donor and signed by the project management unit;

- The special account statement, supplied by the service bank (for accounts whose owners are units);

- The report on IFAD capital disbursement, made according to a form provided in Appendix 4 to the Finance Ministry’s Circular No 108/2007/TT-BTC of September 7, 2007, guiding financial management mechanisms applicable to ODA-funded programs and projects, and detailed according to the state budget index;

Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance (the Department for Foreign Debt and External Finance Management) shall consider and sign the capital withdrawal application and send it to the donor for consideration and, in case the donor accepts the application, additionally transfer money into the special account.

3. Capital withdrawal process applicable to credit projects or projects’ credit components

The withdrawal of capital for credit projects or projects’ credit components is made as follows: Based on the requirement to further provide loans and spend on project activities, the units that implement credit projects or projects’ credit components shall prepare dossiers for withdrawing capital from donors in order to further provide loans or spend on project activities in compliance with loan agreements or project agreements (if any) and current regulations on credit, bidding, procurement.

A dossier of application for capital withdrawal to be sent to the Ministry of Finance comprises:

- A written request for capital withdrawal, made by the credit component-implementing unit or project management unit (if the same special account is used);

- The capital withdrawal application, enclosed with statements of re-lent amounts as prescribed by the donor (the credit component-implementing unit shall sign for certification and take responsibility for the lawfulness, truthfulness and accuracy of the statements);

- Documents proving the lawfulness and legality of expenditures for project activities as required by the donor.

Within 5 working days after receiving a complete and valid dossier, the Ministry of Finance (the Department for Foreign Debt and External Finance Management) shall consider and sign the capital withdrawal application and send it to the donor.

II. Regulations on state budget accounting of IFAD capital

1. The specific process of accounting state budget capital complies with Circular No. 107/2008/TT-BTC of November 18, 2008, additionally guiding a number of provisions on state budget management and administration, and the Finance Minister’s Decision No. 19/2007/QD-BTC of March 27, 2007, promulgating the Regulation on the accounting of state budget mutual ceasing of the Government’s foreign loans and aid.

2. Process of accounting capital disbursed via the special account

a/ Accounting upon withdrawal of money to the special account: For IFAD capital amounts disbursed to the special account, the Ministry of Finance shall, based on the notice of money transferred to the service bank’s account, make an order of recording budget revenues and send it to the State Treasury for accounting into the state budget non-refundable aid as revenues or loans under regulations for debt monitoring on payable accounts.

b/ Accounting of expenditures from the special account:

- For expenditures from the special account to be paid to the contractor/supplier, the Ministry of Finance shall make an order of paying additional expenditures from the local budget in order to record as targeted allowances to the provincial-level Finance Service to implement projects;

- For capital amounts paid at the project’s capital source account: After transferring money to the capital source account, the Ministry of Finance shall monitor expenditures on the budget’s advance account. Based on the project owner’s report on ODA disbursement under Section 2.d, Part II of the Regulation on disbursement, the Ministry of Finance shall make an order of paying additional expenses from the local budget in order to record as targeted allowances to the provincial-level Finance Service; and based on documents received from the Ministry of Finance, the provincial-level Finance Service shall carry out procedures for recording as local budget revenues and as capital allocation expenses for project-implementing units under current regulations.

III. Reporting and supervision regulations

1. Monthly, quarterly and annually, the subordinate project management unit shall make a report on the use of IFAD capital on the capital source account, co-financed capital and domestic capital, and send it to the State Treasury where transactions are made for carrying out crosschecking and certification procedures and concurrently to the provincial-level project management unit. The provincial-level project management unit shall make the whole project’s report and send it to the State Treasury where transactions are made for crosschecking and further sending it to the managing agency, the provincial-level Finance Service and Planning and Investment Service as a basis for monitoring and supervision.

2. Finance agencies at all levels and project managing agencies may, independently or in coordination with concerned agencies, conduct regular or irregular examination and inspection of IFAD-financed projects with regard to financial management contents in accordance with this Circular.

Part III

ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 45 days from the date of its signing and replaces the Finance Ministry’s Circular No. 83/2000/TT-BTC of August 14, 2000, guiding the process of transferring money and accounting loans for IFAD-financed projects.

In case of supplementation, amendment or replacement of legal documents referred to in this Circular, the supplemented, amended or replaced documents will apply. Legal documents guiding financial management to meet specific requirements of projects or groups of projects, promulgated by the Ministry of Finance before the effective date of this Circular, remain effective.

Any problems arising in the course of implementation should be promptly reported to the Ministry of Finance for guidance and coordinated settlement.

For the Minister of Finance
Vice Minister
TRAN XUAN HA