Circular No. 110/2009/TT-BTC guiding the financial management mechanism for programs and projects funded by IFAD resources.

CIRCULAR

Guidelines on the financial management mechanism for

programs and projects funded by IFAD capital

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

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

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008 of the Government stipulating the functions, tasks, and powers of the Ministry of Finance;

Pursuant to Circular No. 108/2007/TT-BTC dated September 7, 2007 of the Ministry of Finance guiding the financial management mechanism for ODA programs and projects;

The Ministry of Finance hereby provides detailed guidance on the financial management mechanism applicable to programs and projects funded by the International Fund for Agricultural Development (IFAD) as follows:

Part I
GENERAL PROVISIONS

I. Scope and Applicability

1. This Circular provides detailed guidance on certain provisions regarding disbursement, accounting, reporting systems, and supervision applicable to programs and projects (hereinafter referred to as "projects") funded by IFAD loans, IFAD grants, and co-financing sources for IFAD projects subject to IFAD procedures.

Projects funded by non-reimbursable IFAD grants or managed by IFAD independently (without co-financing with IFAD loan projects) shall apply the financial management regulations set forth in Circular No. 82/2007/TT-BTC dated July 12, 2007 of the Ministry of Finance guiding the state financial management system for non-reimbursable foreign aid from the national budget revenue.

2. For some IFAD projects with specific characteristics, depending on management requirements and at the request of the project’s managing agency, the Ministry of Finance may issue specific guidelines for such projects.

II. Principles of Management

1. IFAD-funded projects shall comply with the project ODA financial management guidelines stipulated in the following documents:

- Circular No. 82/2007/TT-BTC dated July 12, 2007 of the Ministry of Finance guiding the state financial management system for non-reimbursable foreign aid from the national budget revenue;

- Circular No. 108/2007/TT-BTC dated September 7, 2007 guiding the financial management mechanism for ODA programs and projects;

- Circular No. 107/2008/TT-BTC dated November 18, 2008 supplementing certain points on management and operation of the state budget;

- Decision No. 61/2006/QĐ-BTC dated November 2, 2006 on the issuance of certain expenditure standards applicable to projects/programs using ODA funds;

- Decision No. 19/2007/QĐ-BTC dated March 27, 2007 of the Minister of Finance promulgating the Regulation on recording income and expenditure in the state budget for government foreign loans and grants;

- Any amendments, supplements, and replacements of the above documents and the provisions of this Circular.

2. Non-reimbursable IFAD grants or non-reimbursable grants from other donors co-financing the projects shall be applied according to the expenditure standards specified in the agreements and memorandums of understanding signed with the donor. In cases where the agreement does not specify, the standards prescribed by the United Nations for UN organizations' funds in Vietnam shall be followed.

3. The Project Implementation Manual (PIM) and Financial Management Guidelines prepared by the project, approved by IFAD, and issued by the managing agency serve as a basis for implementing project management and expenditures.

III. Serving Bank and Project Accounts

1. "Serving Bank" refers to a commercial bank selected from a list of qualified commercial banks authorized to conduct foreign transactions serving the project, chosen by the Ministry of Finance in coordination with the State Bank and the donor.

2. Responsibilities of the Serving Bank

Upon the account holder's (the Ministry of Finance or the project managing agency as stipulated in the financing agreement) request, the serving bank shall open relevant accounts for the project and carry out payment transactions based on current regulations.

The serving bank has the responsibility to guide and provide the Ministry of Finance and project implementing agencies with all necessary information to facilitate domestic and international payment transactions through the banking system.

Within two working days of receiving notice of receipt from the donor, the serving bank shall credit the special account of the project and notify the Ministry of Finance and the account holder of the amount received.

Within two working days of executing a transfer order from the account holder, the serving bank shall send the account holder accounting vouchers for the expenditure, along with details of the foreign currency amount, VND amount, date of payment, and beneficiary to facilitate state budget accounting.

Interest earned on the balance in the special account shall be calculated at the interest rate specified by the serving bank or agreed upon between the serving bank and the account holder. The serving bank shall maintain a separate account to track interest accrued on the special account.

The project shall use accrued interest to pay service fees charged by the serving bank according to the current fee schedule of the serving bank.

Monthly and upon request, the serving bank shall submit to the account holder statements of the special account balances, accrued interest on the special account of the projects, service fees collected by the serving bank, the difference between interest and fees, opening and closing balances. Balances in the accounts tracking accrued interest from the special account shall also earn interest.

3. Project Accounts

a) Accounts at the serving bank

The Ministry of Finance or the project managing agency, as the account holder of the project's loan/grant funds as stipulated in the project's financing agreement, shall open a special account/aid grant account (hereinafter collectively referred to as the special account) at the serving bank in accordance with the project's payment requirements, current domestic regulations, and the financing agreement. Projects with multiple funding sources must open separate accounts to track each source of funds.

Projects with multiple sources of funding must open separate accounts to track each source of capital.

Banking service fees shall be paid from interest generated on special accounts and recorded as part of the total project costs. Interest arising from accounts under projects funded by the State Budget (SB) constitutes revenue for the SB. For mixed projects that have both components funded by the SB and components refinanced with ODA funds, where a single special account is used (the time when the SB refinances is the time when funds are withdrawn from the special account), the interest generated on the account is revenue for the SB. Upon completion of the project, any unused interest must be remitted to the SB. In cases where the interest generated is insufficient to cover banking service fees, the project owner receiving funding from the SB must prepare a plan to request matching funds for payment; the project owner receiving refinancing must settle the fees using their own funds.

b) Accounts at the State Treasury System (STS)

- Capital source account for receiving ODA funds: Depending on the implementing organization's requirements of the project and written agreement with the financier, the project owner opens an ODA capital source account at the STS to receive loan funds, IFAD grants, and co-financing funds transferred from the project's special account, and to make payments to the project after treasury disbursement control. According to the project design, lower-level project management agencies (districts, communes) may open deposit accounts at the district STS to receive funds transferred from the provincial project management board for project activities.

- Matching capital payment account: The project owner opens an account at the STS to receive and pay matching capital provided by the budget according to current regulations.

4. Exchange Rate Conversion:

The conversion of IFAD foreign currency funds into Vietnamese Dong is applied based on the transfer purchase rate of the serving bank at the time of transaction.

Part II
MANAGEMENT OF FUNDS RELEASE, ACCOUNTING, REPORTING, AND SUPERVISION

I. PROVISIONS ON FUNDS RELEASE

Withdrawal procedures, expenditure control processes, and payment of IFAD funds and matching funds for projects supported by IFAD shall be carried out in accordance with the provisions of Circular No. 108/2007/TT-BTC dated September 7, 2007, issued by the Ministry of Finance, guiding financial management mechanisms for official development assistance (ODA) programs and projects.

1. Forms of Funds Release Applied to IFAD Projects

Depending on the provisions in the agreement, financing agreement, and disbursement letter of IFAD, the withdrawal and payment of IFAD funds through project financing methods can be implemented in one or several of the following forms: direct payment withdrawal, special commitment payment withdrawal, repayment/reimbursement withdrawal, payment through a special account, and other withdrawal forms agreed upon with the financier. Project owners must comply with the financier's guidance on applying withdrawal forms and related forms.

The Ministry of Finance provides guidance on some common withdrawal forms in Sections 2 and 3 below.

2. Special Account/Grant Fund Account Procedures

The special account procedure is a form where the financier pre-funds a certain amount into a special account opened at the serving bank for the borrower to proactively pay for regular, legitimate project expenses, thereby reducing the number of requests for withdrawals from the financier and accelerating payments for project activities.

The limit of the pre-funded amount into the project's special account depends on the scale, characteristics, and specific spending needs of each project. The special account limit is usually specified in detail in the loan agreement/grant agreement and may be adjusted during project implementation based on the project's progress and payment needs.

a. First Withdrawal to the Special Account

The first withdrawal to the special account is based on the limit (or ceiling) stipulated in the Loan Agreement/Grant Agreement. For ODA loan projects funded by the State Budget, the Ministry of Finance may set an appropriate withdrawal limit based on the project's planned expenditures over the next six months and the cost of paying foreign interest, interest generated by the serving bank..

To withdraw funds, the Project Management Board sends a letter requesting withdrawal, a withdrawal form, and supporting statements from the financier, along with the project's planned expenditures for the next six months, to the Ministry of Finance (Debt Management and External Financial Department).

Within five working days from the date of receipt of complete and valid documents, the Ministry of Finance (Debt Management and External Financial Department) will consider signing the withdrawal form to send to the financier based on signed international agreements.

b. Transfer Payment from the Special Account to Contractors/Suppliers

Transfer payment from the special account: is a method of payment where, upon the Project Management Board's request, the Ministry of Finance transfers money from the special account opened at the serving bank to the contractor/supplier's account for goods/services.

When there is a need to withdraw funds for payment transfer from the special account, the Project Management Board sends the following documents to the Ministry of Finance (Debt Management and External Financial Department):

- A letter requesting withdrawal;

- Invoice/payment request from the contractor;

- Payment request form confirmed (original) by the expenditure control agency;

- Additional documents to clarify the required documents in this section.

Within five working days from the date of receipt of complete and valid documents, the Ministry of Finance (Debt Management and External Financial Department) will process the direct transfer of funds into the contractor/supplier's account.

c. Withdrawal from the Special Account to the Capital Source Account at the STS:

To withdraw funds from the special account to the capital source account at the STS, the Project Management Board sends the following documents to the Ministry of Finance (Debt Management and External Financial Department):

- A letter requesting withdrawal to the capital source account, specifying the requested amount, account number, and location of the account;

- Budget estimate for the requested withdrawal amount;

- Statement of the capital source account from the last withdrawal date to the current request date;

- Other necessary documents.

Within three working days, based on sufficient funds in the special account, the Ministry of Finance will process the transfer of funds to the Project Management Board.

Expenditures from the capital source account are made after obtaining expenditure control approval according to current STS regulations where the Project Management Board has an account.

In cases where projects have accounts opened for local levels (districts, communes), the provincial project management board shall process interim advance requests for funds for districts and communes based on current regulations.

d. Supplementing Dedicated Accounts (TKĐB)

To withdraw additional funds to supplement Dedicated Accounts (TKĐB), the Project Management Board shall submit the following documents to the Ministry of Finance (Debt Management and External Financial Relations Department):

- A letter requesting withdrawal of additional funds for TKĐB, a Withdrawal Form, account statements according to the prescribed format, and supporting documents as required by the financier;

- Supporting documents submitted to the Ministry of Finance: in addition to the documents required by the financier, for expenditures made through account statements, the Project Management Board shall prepare detailed account statements showing each expenditure from the source account, with confirmation from the Treasury Office at the transaction location (original copy) to be sent to the Ministry of Finance. The account statement should detail the date of payment, amount, purpose of payment, beneficiary, and receipt number/date.

- For expenditures requiring supporting documents as requested by the financier, the Project Management Board shall submit a Payment Request Form for investment capital with confirmation (original copy) from the Treasury Office. Each Payment Request Form for investment capital with confirmation can only be used once.

- A reconciliation statement of TKĐB prepared according to the financier's model, signed by the Project Management Board;

- Account statements provided by the bank serving the account (for accounts where the entity is the account holder);

- A disbursement report of IFAD funding according to the form specified in Appendix No. 04 of Circular No. 108/2007/TT-BTC dated September 7, 2007, issued by the Ministry of Finance guiding financial management mechanisms for official development assistance (ODA) programs and projects, detailed according to the state budget classification;

Within five working days from the date of receiving complete and valid documents, the Ministry of Finance (Debt Management and External Financial Relations Department) will review and sign the Withdrawal Form to send to the financier for consideration. If the financier agrees, additional funds will be transferred to the TKĐB.

3. Withdrawal Process for Credit Projects or Credit Components of Projects:

The withdrawal of funds for credit projects or credit components of projects shall be carried out as follows: based on loan requests and expenditure requirements for project activities, the implementing unit/project credit component prepares withdrawal documents from the financier to implement further loans or expenditures for project activities in accordance with the loan agreement, project agreement (if applicable), and current regulations on credit, bidding, procurement, etc.

Documents for requesting withdrawal of funds submitted to the Ministry of Finance include:

- A letter requesting withdrawal of funds from the implementing unit of the credit component or the Project Management Board (in case of using the same special account),

- A Withdrawal Form accompanied by account statements of re-loans according to the financier's regulations (the implementing unit of the credit component signs to confirm and is responsible for the legality, truthfulness, and accuracy of the account statements).

- Supporting documents proving the legality and validity of expenditures for project activities as required by the financier.

Within five working days from the date of receiving complete and valid documents, the Ministry of Finance (Debt Management and External Financial Relations Department) will review and sign the Withdrawal Form to send to the financier.

II. Regulations on State Budget Accounting for IFAD Funding:

1. Specific procedures for implementing state budget accounting according to current regulations stipulated in Circular No. 107/2008/TT-BTC dated November 18, 2008, guiding supplementary points on state budget management and Decision No. 19/2007/QĐ-BTC dated March 27, 2007, issued by the Minister of Finance on the Accounting System for Recording Revenue and Expenditure of the State Budget for Government Foreign Loans and Aid.

2. Procedures for Accounting Disbursed Funds Through Dedicated Accounts (TKĐB):

a. Accounting when withdrawing money to TKĐB: for IFAD disbursed funds deposited into TKĐB, based on the bank's notification of funds deposited into the account, the Ministry of Finance issues a Revenue Entry Order to the Treasury Office to record the funds into the state budget, including recording revenue if it is non-repayable aid, and tracking debt on the payable account if it is a loan as prescribed.

b. Accounting for expenditures from TKĐB is carried out as follows:

- For expenditures from TKĐB paid to contractors/suppliers, the Ministry of Finance issues a Supplementary Local Budget Disbursement Order to record targeted subsidies for the Department of Finance to implement the project;

- For the portion of funds spent from the project's source account: after transferring funds to the source account, the Ministry of Finance tracks the expenditure on the budget provisional advance account; based on the ODA funding disbursement report of the project owner as specified in Section 2.d, Part II, Regulations on Disbursement, the Ministry of Finance issues a Supplementary Local Budget Disbursement Order to record targeted subsidies for the Department of Finance; based on the receipt from the Ministry of Finance, the Department of Finance processes the recording of local state budget revenue and capital disbursement to implementing units according to current regulations.

III. Reporting and Supervision System

1. Monthly, quarterly, and annually, lower-level project management boards prepare reports on the use of IFAD funds on source accounts, co-financing funds, and counterpart funds to be sent to the Treasury Office at the transaction location for reconciliation and confirmation, and also to the provincial project management board. The provincial project management board compiles the project's overall report to send to the Treasury Office at the transaction location for reconciliation and to send to the supervising authority, Department of Finance, Department of Planning and Investment as a basis for monitoring and supervision.

2. Financial authorities at all levels and project supervising authorities may independently or in coordination with relevant agencies conduct regular or spot inspections and audits of projects using IFAD funding regarding financial management as stipulated in this Circular.

Part III
IMPLEMENTATION

This Circular takes effect 45 days from the date of signature and replaces Circular No. 83/2000/TT-BTC dated August 14, 2000, issued by the Ministry of Finance guiding the circulation of funds and accounting of IFAD project loans.

Any regulatory documents cited in this Circular that are supplemented, amended, or replaced shall be implemented according to those supplementary, amended, or replacement documents. Regulatory documents guiding financial management according to specific requirements of projects/groups of projects issued by the Ministry of Finance before the effective date of this Circular shall continue to be applied.

During the process of organizing and implementing, if there are any difficulties, it is recommended that relevant agencies promptly report to the Ministry of Finance for guidance and coordination in resolving them./.