Circular No. 46/2004/TT-BTC dated May 27, 2004 of the Ministry of Finance guiding the financial management mechanism applicable to the rural income diversification project in Tuyen Quang province

CIRCULAR

GUIDING THE FINANCIAL MANAGEMENT MECHANISM APPLICABLE TO THE RURAL INCOME DIVERSIFICATION PROJECT IN TUYEN QUANG PROVINCE

Pursuant to Loan Agreement No. 578-VN between the Government of the Socialist Republic of Vietnam and the International Fund for Agricultural Development (IFAD) signed on February 18, 2002 for the rural income diversification project (RIDP) in Tuyen Quang province;

Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks and organizational structure of the Ministry of Finance;

Pursuant to the Government's Decree No. 17/2001/ND-CP of May 4, 2001 promulgating the Regulation on management and use of official development assistance source;

Pursuant to the Government's Decree No. 52/1999/ND-CP of July 8, 1999 promulgating the Investment and Construction Management Regulation; Decree No. 12/2000/ND-CP of May 5, 2000 supplementing a number of articles of Decree No. 52/1999/ND-CP; Decree No. 07/2003/ND-CP of January 30, 2003 amending and supplementing a number of articles of the Investment and Construction Management Regulation promulgated together with Decree No. 52/1999/ND-CP of July 8, 1999 and Decree No. 12/2000/ND-CP of May 5, 2000;

Pursuant to the Government's Official Dispatch No. 1073/CP-QHQT of November 13, 2001 notifying the Prime Minister's decision on approving the pre-feasibility study report on the rural income diversification project in Tuyen Quang province;

Pursuant to the Finance Ministry's Circular No. 44/2003/TT-BTC of May 15, 2003 on management and settlement of investment capital and non-business capital of investment nature from the State budget source;

Pursuant to the Finance Ministry's Circular No. 49/2001/TT-BTC of June 26, 2001 guiding the management, settlement and final settlement of capital construction investment capital managed by communes and district townships;

After reaching an agreement with the People's Committee of Tuyen Quang province, the Finance Ministry hereby guides the financial management mechanism applicable to the rural income diversification project in Tuyen Quang province as follows:

I. GENERAL PROVISIONS

I.1. Subjects of application

This Circular applies to the components of the rural income diversification project in Tuyen Quang province, which are funded by the State budget.

I.2. Interpretation of terms

The concepts and terms used in this Circular have the same meanings as in the Loan Agreement and are construed as follows:

1. The project means the rural income diversification project in Tuyen Quang province.

2. The Agreement means the Loan Agreement for the project signed on February 18, 2002 between the Government of the Socialist Republic of Vietnam and the International Fund for Agricultural Development.

3. IFAD means the International Fund for Agricultural Development, the foreign donor for the project.

4. SIDA means the Swedish International Development Agency, the foreign co-donor for the project.

5. UNOPS means the United Nations Development Program's Office for Project Service, the agency representing IFAD in performing the disbursement for the project.

6. The project owner is the People's Committee of Tuyen Quang province. To organize the implementation of the project and coordinate operations within the project, the project owner shall set up provincial project implementation coordination boards, district project implementation coordination boards, and commune development boards.

7. Provincial project implementation coordination board is a unit set up under the project owner's decision and responsible for conducting the project's daily implementing activities and managing borrowed capital.

8. District project implementation coordination boards are units set up under decisions of the People's Committees of districts where the projects are implemented, which prescribed in the founding decisions.

9. Commune development boards are units set up under decisions of the People's Committees of communes where the projects are implemented, which prescribed in the founding decisions.

10. Project implementation units mean provincial-level and district-level units of State agencies which shall directly organize the implementation of the components and mini-components of the project.

11. Project Service Bank is the Bank for Foreign Trade of Vietnam.

12. Mini-projects cover small-scale building and procuring activities in villages or hamlets and are proposed by local inhabitants so as to urgently improve the material bases, raise the socio-economic life and improve the production conditions for the poorest households in such villages or hamlets.

I.3. Management principles

1. The project is funded with the following capital sources: Support capital allocated by the central budget to Tuyen Quang province's budget from the source of capital borrowed by the Government from IFAD, SIDA's non-refundable aid capital, the reciprocal capital from Tuyen Quang province's budget and capital contributed by project beneficiaries.

2. Loans from IFAD and aid provided by SIDA for financing the project shall be managed by the Government according to the provisions of the loan and aid agreements and in compliance with the Government's current regulations.

3. All loans from IFAD and aid provided by SIDA for investment in the project constitute a capital source of the State budget, and must be fully incorporated in the State budget.

4. The People's Committee of Tuyen Quang province shall have to manage the capital sources invested in the project efficiently, for the right purposes and in compliance with the provisions of the Agreement and the Government's current regulations.

5. The project shall open accounts at the State Treasury system for transactions. The State Treasury system where the project opens its accounts shall control direct expenditures of the project through inspecting and certifying the implemented volumes, transferring advanced capital and making direct payments to the project's eligible activities according to the current regulations.

6. The provincial project implementation coordination board shall have to manage the whole capital borrowed from IFAD, aid capital from SIDA and the reciprocal capital from Tuyen Quang province's budget, ensuring that aids are used for the right purposes of the project's activities and in compliance with the current financial management regulations.

II. SPECIFIC PROVISIONS

II.1. Accounts belonging to the project:

1. The Finance Ministry (the External Finance Department) shall open a special account in US dollar (USD) at the Project Service Bank for receiving capital disbursed by IFAD.

2. Tuyen Quang province's State Treasury shall open a grade-1 capital source account in Vietnam dong (VND) for the project, detailed to sub-items, for receiving IFAD's capital transferred from the Finance Ministry and the reciprocal capital allocated by the provincial budget to the project.

3. The commune development boards shall each open a grade-2 capital source account in VND at the State Treasury for receiving IFAD's capital transferred from the provincial project implementation coordination boards. A commune development board's account at the district State Treasury consists of two mini-accounts: one for activities of the fund for improvement of women's livelihood and the other for other activities.

4. The provincial project implementation coordination boards, the district project implementation coordination boards and the commune development boards shall open their deposit accounts at the provincial or district State Treasuries for effecting payment transactions.

II.2. Elaboration of financial plans for the project

1. Annually, the commune development boards shall work out working plans and budget estimates,

5. The elaboration, protection, approval and announcement of the provincial budget estimates shall comply with the order and procedures for drafting annual budget estimates.

6. Annual working plans and budget estimates, after being approved by the provincial People's Committees and IFAD/UNOPS, shall be sent to the Finance Ministry, the provincial/municipal Finance Services and the State Treasuries which allocate capital to the project for monitoring and allocation of capital for the project's activities.

II.3. Expenditure norms

1. For administrative expenditures, the norms prescribed in the Finance Minister's Decision No. 112/2001/QD-BTC of November 9, 2001 promulgating a number of expenditure norms applicable to projects funded by ODA loan capital sources or norms promulgated by the provincial People's Committee for the project in compliance with Decision No. 112/2001/QD-BTC shall apply.

2. Economic and technical norms shall apply in compliance with the State's current regulations.

3. In cases where norms and unit prices are not available, the provincial project implementation coordination boards shall submit norms and unit prices to the provincial People's Committee for promulgation for provisional application to the project after consulting the Finance Ministry.

II.4. Withdrawal of IFAD's capital for transfer into the special account and capital source accounts of the project

1. Withdrawal of IFAD's capital for transfer into the special account:

1.1. The withdrawal of IFAD's capital for transfer into the special account shall be

1.2. Basing themselves on the actually spent amounts, the provincial project implementation coordination boards shall prepare dossiers of application for withdrawal of additional capital from the special account, then send them to the Finance Ministry (the External Finance Department), each comprising the following documents:

- An application for capital withdrawal, made according to a form set by IFAD.

- Spending documents (contracts, invoices, payment requests, expenditure lists, certifications of work volumes by the State Treasuries which allocate capital)

- Other documents (if necessary) for evidencing valid expenditures.

1.3. After checking the validity of disbursement dossiers, the Finance Ministry (the External Finance Department) shall sign the capital withdrawal applications and file them with IFAD.

2. Transfer of money from the special account to grade-1 capital source account of the project:

2.1. When there exist money amounts on the special account, the Finance Ministry (the External Finance Department) shall base itself on the annual budget estimates already approved by the provincial People's Committees and the project implementation progress to carry out the procedures for converting foreign currencies into VND and remit them into the project's grade-1 capital source account opened at the provincial State Treasury at the request of the provincial project implementation coordination board.

3. Transfer of advances from the grade-1 capital source account to the grade-2 capital source account of the commune development boards at the district State Treasuries (for first-time advances and additional procedures):

3.1. The commune development boards shall base themselves on their communes' approved annual operation plans and budget estimates to work out quarterly operation plans and budget estimates, then send them to the district project implementation coordination board not later than the 15th day of the month preceding the plan quarter.

3.2. A plan should include the following detailed information:

- Activities in the plan period.

- Total aid capital for each activity, detailed by capital source and month.

- Implementation unit (Development Board or Women's Union).

- Capital amount disbursed in the previous quarter in comparison with the previous quarter's plan (sum-up report, not enclosed with specific expenditure vouchers, with certification of the State Treasuries which allocate capital).

- Amount adjusted to the following quarter.

3.3. The district project implementation coordination boards shall consider, sum up and send requests for advances into the accounts of commune development boards to the provincial project implementation coordination boards.

3.4. Requested advances: 100% of the projected expenditures for implementation of the subsequent quarter's plans of

3.5. Capital transfer: Upon receiving plans of the district project implementation coordination boards, the provincial project implementation coordination board shall examine and request the provincial State Treasury to transfer capital from the grade-1 capital source accounts to the grade-2 capital source accounts of the commune development boards at the district State Treasuries. The first-time advanced capital amounts shall be equal to 100% of those stated in the approved quarterly working plans and budget estimates of the commune development boards. The capital amounts for the subsequent times shall be adjusted according to the over-advanced or under-advanced amounts of the previous times.

II.5. Payment for the project's activities with IFAD's capital source

1. Agencies managing the capital allocation: The system of provincial and district State Treasuries shall effect the management, control and allocation of capital for the project's expenditure activities.

2. Capital allocation management dossiers: For payment/provision of advances for the project's activities, the project implementation units of all levels shall send to the State Treasuries which manage and allocate capital the following documents:

2.1. Dossiers sent for the first time: The capital borrowing agreement; feasibility study reports enclosed with investment decisions of competent authorities, or investment reports; contractor designation decisions (if the contractor designation mode is applied); decisions approving bidding results, economic contracts and decisions approving economic contracts of competent authorities (if any, under current regulations); decisions approving total cost estimates or cost estimates; approved expenditure estimates; decisions approving designs (if any, under the current regulations).

2.2. Dossiers sent upon each payment or advance:

- For advance: a written request for advance; investment capital withdrawal paper; advance guarantee (if any, under current regulations); guarantee for contract performance (if any, under current regulations); and other dossiers necessary for evidencing valid expenditures.

- For payment: a written record on pre-acceptance test of completed construction and installation volume, enclosed with a table of calculated value of pre-acceptance-tested volume; a slip of payment price for completed capital construction volume (or a list of payments for completed capital construction volume); investment capital withdrawal paper; a written request for settlement of investment capital advances (if any); expenditure invoices and vouchers; and other dossiers necessary to evidence valid expenditures.

3. Advances/payments for activities at the provincial level:

3.1. The project implementation units shall send written requests for advances/payments and detailed funding use plans to the provincial project implementation coordination board, which shall examine and approve them, then send them to the provincial State Treasury for making payments or advances from the project's grade-1 capital source account for expenditure activities. Dossiers and documents include the dossiers specified in Item 2 of this Section, depending on advance/payment cases and advance/payment contents.

3.2. Within 5 working days, the provincial State Treasury shall examine dossiers and effect payments or advances from the grade-1 capital source account for activities eligible for payment at the provincial level according to this regulation and the State's current regulations on capital management.

4. Advances/payments for activities at the district level:

4.1. To get advances/payments, the district project implementation coordination boards shall send advance/payment requests and detailed plans on funding use to provincial project implementation coordination board, which shall consider and request the provincial State Treasury to

4.2. Within 5 working days, the provincial State Treasury shall transfer money from the grade-1 capital source account into the deposit accounts of the district project implementation coordination boards (opened at the district State Treasuries), or directly into the accounts of beneficiary units (at the requests of the district project implementation coordination boards, if any) for provision of advances/payments for activities at the district level.

5. Advances/payments for activities at the commune level

5.1. Advances:

5.1.1. For capital construction works: Decision No. 76/2003/UB-QD of June 6, 2003 of the People's Committee of Tuyen Quang province promulgating the Regulation on investment and construction management of construction works under the rural income diversification project in Tuyen Quang province shall be complied with.

5.1.2. For other activities (procurement of equipment, training, production improvement, natural resources

5.1.3. For advanced expenses for administrative management activities: Maximum advance shall be equal to 70% of the value already approved under plans.

5.2. Procedures for advances/payments for activities at commune level

5.2.1. To get advances/payments, the commune development boards shall send advance/payment requests and dossiers prescribed in Item 2 of this Section to the district State Treasuries, which shall, within 5 working days, consider and effect advances/payments for eligible activities from the project's grade-2 capital source accounts opened at the district State Treasuries.

5.2.2. Advances/payments to contractors/construction units having accounts shall be

6. After effecting advances/payments from the grade-1 capital source account or the grade-2 capital source account for expenditure activities of the project, the provincial or district State Treasuries which allocate capital shall notify such to the project implementation coordination boards of the same level for carrying out the accounting procedures for the project. In case of payment for activities at the commune level, the district State Treasuries shall concurrently send notifications to the commune development boards.

7. The provincial project implementation coordination board, the district project implementation coordination boards and the commune development boards must open accounts for accounting and monitoring the project's expenditures for fully reflecting the project's financial transactions according to each capital source, period and detailed to each activity.

II.6. Allocation and payment with reciprocal capital

The project's reciprocal capital shall be incorporated in the provincial budget. Basing itself on the project's working plans and budget estimates already approved by competent authorities and the assigned budget estimates as well as quarterly expenditure demands (detailed to months), the provincial Finance Service shall allocate capital into the project's capital source account at the provincial State Treasury, which shall control expenditures according to the current regulations.

II.7. Responsibilities of the provincial-level units in the management and use of capital sources

1. The provincial People's Committee shall have to approve the project's annual working plans and budget estimates for incorporating in the general budget estimates of the province, comprehensively manage and coordinate the project implementation in its locality.

2. The provincial project implementation coordination board:

- To work out annual working plans and budget estimates, then submit them to the competent authorities for approval. To organize the implementation of the approved plans and settlement of project implementation capital, ensuring that all expenditures for the project are compliant with the provisions of the borrowing and aid agreements, the project's documents and the Government's current regulations.

- To manage and use the borrowed capital in strict compliance with the current financial regime. Expenditures of capital construction nature shall be managed according to the current regime of capital construction capital management and in compliance with the provisions of the borrowing and aid agreements and the project's documents. Other expenditures shall be managed according to the ODA capital management regime.

- For aid capital of SIDA, to make aid certifications to serve the mutual ceasing for the project.

- Quarterly, to report on the situation of use of capital sources and implementation progress to the Project Steering Board, the State Treasury and the provincial Finance Service; to make reports on annual settlement of disbursed capital and reports on the project completion (detailed according to capital sources and activities), then submit them to the competent authorities for approval according to current regulations.

3. The provincial Finance Service:

- To participate in the project coordination, and assist the Project Steering Board in monitoring the implementation of the approved working plans and budget estimates.

- To organize the monitoring and inspection of the project implementation strictly according to its functions.

- To base itself on the project's working plans and budget estimates already approved by the competent authorities to transfer on a quarterly basis reciprocal capital into the project's grade-1 capital source account so that the provincial State Treasury shall manage and allocate capital to the project according to the borrowed capital withdrawal schedule.

- To account into the provincial budget the IFAD's loan capital source provided as targeted support by the central budget for the project implementation.

- To verify the quarterly and annual reports, and notify annual settlements in strict compliance with the current regulations.

- At the year-end, to synthesize the project's approved settlement report into the local budget settlement according to the State Budget Law; to sent the project's approved settlement report to the Finance Ministry (the State Budget Department, the External Finance Department and the State Treasury) for monitoring.

4. The provincial and district State Treasuries:

- To open the grade-1 capital source account (at the provincial State Treasuries) and the grade-2 capital source accounts (at the district State Treasuries) for the project.

- To receive IFAD's capital source and the reciprocal capital for the project for allocation and to control expenditures according to the provisions of this Circular and other current regulations.

- To make monthly lists of the grade-1 capital source accounts (at the provincial State Treasuries) and the grade-2 capital source accounts (at the district State Treasuries), reflecting transactions on such accounts, account balances, and make comparison with the figures of the provincial and district project implementation coordination boards and the commune development boards.

- The provincial State Treasury shall make quarterly reports on the situation of evaluation, approval, allocation and use of the project's borrowed capital and reciprocal capital,

- To organize the cost-accounting and accounting of, and statistics on, the project's capital sources. For contributions of the project's beneficiaries, the State Treasury shall account them into the project's general capital source account (in case of pecuniary contributions).

- To coordinate with the provincial Finance Service in verifying the quarterly and annual settlements and settlement reports.

II.8. Responsibilities of the concerned units under the Finance Ministry and the Project Service Bank

1. The External Finance Department:

- To oversee the project implementation progress.

- To open a special account for the project. To check capital withdrawal dossiers and sign capital withdrawal applications for disbursement of capital borrowed from IFAD into the special account. To

- To inspect and sum up for working out annual borrowing and debt repayment plans for the project.

- To assume the prime responsibility for, and coordinate with the concerned agencies in the Finance Ministry in, studying and proposing to the Finance Minister for solution, the problems (if any) related to the project's financial mechanism.

2. The State Budget Department:

- To account the revenues and expenditures of IFAD's borrowed capital and SIDA's aid capital into the State budget and make entries of targeted additional expenditures for Tuyen Quang province's budget for the project implementation, on the basis of official statements made by the External Finance Department.

- To coordinate with the External Finance Department in working out annual plans on repayment of debts to IFAD.

3. The State Treasury:

- To record revenues to the State budget when carrying out the procedures for foreign currency conversion, record expenditures from the central budget when transferring money into the project's capital source account at the provincial State Treasury on the Finance Ministry's payment order (the State Budget Department).

- To professionally direct and guide the provincial State Treasury in management and control of expenditures and allocation of capital to the project according to the provisions of this Circular and other current regulations.

4. The Project Service Bank:

- To monitor the withdrawal of IFAD's capital into the special account and transactions on this account.

- After each withdrawal of foreign currencies from the special account at the request of the Finance Ministry (the External Finance Department), the Project Service Bank shall send to the Finance Ministry (the External Finance Department and the State Treasury) a notice on the date of withdrawal, money amount and exchange rate to serve as basis for the mutual ceasing of the State budget..

- Annually and quarterly (by the 5th day of the first month of the subsequent quarter), the Project Service Bank shall make detailed lists of the special account, clearly stating the expenditure contents, payment dates and amounts, VND equivalent amounts and exchange rates, then send them to the Finance Ministry (the External Finance Department and the State Treasury). Such lists must reflect the period-beginning and period-end account balances as well as interest amounts arising on the special account during the period.

- Within one month after the closure of the project's special account, to transfer the interest amount arising on the special account at the demand deposit interest rate to the Finance Ministry (into the Concentrated Foreign-Currency Fund account of the Finance Ministry at the Bank for Foreign Trade of Vietnam; account coded 212.210.371.000) or another account notified by the Finance Ministry).

- To enjoy service charges according to current regulations. Such charges shall be calculated into the project's total costs.

II.9. State budget accounting of IFAD's capital

1. The Finance Ministry (the External Finance Department and the State Budget Department) shall account IFAD's borrowed capital and aid capital as revenues into the central budget, and concurrently record as the central budget's expenditures the targeted supplements to Tuyen Quang province's budget when carrying out the procedures for transferring money from the special account into the project's grade-1 capital source account.

2. The provincial Finance Service shall base itself on the State Treasury credit notices and debit notices to record as revenues the targeted supplements to the provincial budget, and concurrently record as expenditures the transfer of investment capital source into the project's grade-1 capital source account, so that the provincial State Treasury make payments and supervise expenditures for the project.

II.10. Reporting, inspection and audit

1. Quarterly and annually, the provincial project implementation coordination board shall have to report to the provincial People's Committee, the Finance Ministry (the External Finance Department and the State Budget Department) and the Planning and Investment Ministry on the situation of use of borrowed capital, aid capital and reciprocal capital for the project. The provincial project implementation coordination board shall have to make quarterly and annual settlement reports,

2. The district project implementation coordination boards shall guide the commune development boards in making settlement reports on each specific mini-project according to the provisions of the Finance Ministry's Circular No. 49/2001/TT-BTC of June 26, 2001 guiding the management, payment and settlement of capital construction investment capital managed by communes or district townships. Settlement reports shall be evaluated and submitted by the district Finance and Planning Sections to the presidents of the district People's Committees for approval. The duration for evaluation of a mini-project's settlement report must not exceed 15 working days.

3. Regularly and extraordinarily, the Finance Ministry, the Planning and Investment Ministry and the provincial People's Committee shall inspect the project implementation, the use of the project's capital sources. If detecting cases of capital use at variance with regulations, the Finance Ministry shall suspend the capital transfer for handling of violations.

4. Annually, the project's special account, capital source accounts, accounting books and dossiers must be audited by an independent audit company in compliance with the regulations of the State and donors. Auditing schemes must be approved by the Finance Ministry. Settlement reports and audit reports shall be sent to the Finance Ministry and serve as basis for considering the supplementation to the special account or transfer of capital down to the project's grade-1 capital source account, and also as basis for the appraisal of the project implementation.

III. ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its publication in the Official Gazette. Any problems arising in the course of its implementation should be promptly reported to the Finance Ministry for study, amendment and supplementation.