Circular No. 123/2010/TT-BTC guiding the financial management mechanism for the Poverty Reduction Project in Northern Mountainous Provinces Phase 2

CIRCULAR

Guidelines for the financial management mechanism for the Poverty Reduction Project

 in the Northern Mountainous Provinces Phase 2

________________________

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

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 Funds;

Pursuant to the Financing Agreement No. 4698 - VN between the Socialist Republic of Vietnam and the International Development Association (IDA) for the Poverty Reduction Project in the Northern Mountainous Provinces Phase 2 signed on May 25, 2010;

After consultation with the Ministry of Planning and Investment, the Ministry of Finance hereby issues guidelines for the financial management mechanism for the Poverty Reduction Project in the Northern Mountainous Provinces Phase 2 as follows:

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability:

These Circulars provide guidance on the contents related to financial planning, account opening, expenditure standards, procedures for withdrawing funds, inspection, reporting, auditing, management of assets formed from the project, and responsibilities of relevant agencies in the state financial management of the Poverty Reduction Project in the Northern Mountainous Provinces Phase II funded by IDA loans and domestic counterpart funds.

In this Circular, the following terms are understood as follows:

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

1. "International Development Association" (abbreviated as IDA): is an organization under the World Bank Group (WB).

2. "Project": is the Poverty Reduction Project in the Northern Mountainous Provinces Phase 2 approved by the Ministry of Planning and Investment through Decision No. 116/QĐ-BKH dated January 22, 2010 and Decision No. 577/QĐ-BKH dated April 21, 2010 regarding the adjustment and supplementation of the approval decision on the feasibility study report of the Poverty Reduction Project in the Northern Mountainous Provinces Phase II.

3. "Project management agency": is the Ministry of Planning and Investment, People's Committees of Dien Bien, Hoa Binh, Lao Cai, Lai Chau, Son La, and Yen Bai provinces (hereinafter referred to as implementing provinces) for each part of the project implemented by the Ministry of Planning and Investment and the implementing provinces.

4. "Project sponsor": is the Central Project Coordination Board (under the Ministry of Planning and Investment), Provincial Department of Planning and Investment or Provincial Project Management Board, District Project Management Board, and Community Development Board (under the implementing provinces).

5. "Central Project Coordination Board (abbreviated as CPC)": is an entity established by the decision of the Ministry of Planning and Investment, with responsibilities and authorities defined in the establishment decision.

6. "Provincial Project Management Board (abbreviated as PPMB) and District Project Management Board (abbreviated as DPMB)": are entities established by the decisions of the People's Committees of the implementing provinces, with responsibilities and authorities defined in the establishment decisions.

7. "Community Development Board (abbreviated as CDB)": is an entity established by the decisions of the People's Committees of the districts in the implementing provinces based on the guidance of the Ministry of Planning and Investment and the People's Committees of the provinces, with responsibilities and authorities defined in the establishment decisions.

8. "Expenditure control agency": is the State Treasury System (STS).

9. "Project Service Bank (abbreviated as PSB)": is the Vietnam Agricultural and Rural Development Bank (VAB).

Article 3. Sources of investment capital for the project:

The total capital of the project is equivalent to 165 million USD, including:

- IDA loan (WB): 96.6 million SDR equivalent to 150 million USD (according to the exchange rate specified by the donor at the time of negotiation. The specific amount withdrawn in USD will apply the exchange rate specified by the donor at the time of disbursement).

- Domestic counterpart fund: equivalent to 255 billion VND or 15 million USD. Including:

+ Central budget allocation to the Ministry of Planning and Investment.

+ Central budget allocation with targeted funding for local budgets to implement the project.

+ Counterpart contribution from beneficiary communities in kind (local materials and labor).

Article 4. Financial Mechanism:

- IDA loan capital is allocated to the six project provinces through the mechanism of the State budget supplementing targeted funds to the local budget and allocating to the Ministry of Planning and Investment.

- Counterpart budget allocation capital:

+ The portion implemented by the Ministry of Planning and Investment: To be allocated from the central state budget within the annual state budget expenditure plan of the Ministry of Planning and Investment.

+ The portion implemented by the locality: To be supported with targeted funds from the central state budget to the local budget within the annual state budget according to Decision No. 210/2006/QD-TTg dated September 12, 2006 of the Prime Minister on issuing principles, criteria, and allocation standards for investment development expenses using state budget funds for the period 2007-2010 and Decision No. 27/2008/QD-TTg dated February 5, 2008 of the Prime Minister on issuing some mechanisms and policies for economic and social development in the midland and northern mountainous regions until 2010 and any supplementary or replacement documents (if applicable).

Article 5. Management Principles:

1. The Northern Mountain Poverty Reduction Project Phase 2 is an investment project funded by basic construction investment capital and managed under the current regime for managing basic construction investment and national policies on poverty reduction.

2. The IDA loan capital for the Project is sourced from the state budget and managed according to state budget capital management regulations and donor regulations.

3. The ratio of IDA funding for each component and item is stipulated in the Financing Agreement and the Project Implementation Handbook issued by the Ministry of Planning and Investment in accordance with the Financing Agreement.

4. Budget accounting method: Monthly, based on disbursement reports from the Central Coordination Board and Provincial Project Management Boards, the Ministry of Finance will process the recording of state budget revenue from the IDA loan capital for the Project and record central state budget supplements for local budgets to implement the project in the provinces and record expenditures for the Ministry of Planning and Investment to implement the project at the central level.

Article 6. Responsibilities of Relevant Agencies:

1. The Ministry of Planning and Investment and the People's Committees of the provinces implementing the project shall be responsible for directing the maintenance of the financial management system for the project to ensure that the capital is used for the intended purpose and content approved, consistent with the conditions committed to in the Financing Agreement and current Vietnamese regulations.

2. The Central Coordination Board is responsible for managing the withdrawal of foreign capital, domestic counterpart capital, and payment for activities carried out by the Central Coordination Board for its project components, and is responsible for overall planning, consolidation of activity plans, financial plans for the entire project, and reporting on the implementation status of the entire project.

3. Provincial Project Management Boards are responsible for managing the withdrawal of foreign capital, domestic counterpart capital for provincial project activities, and are responsible for planning, consolidating activity plans, financial plans for the entire province, reporting on provincial project implementation status to the Central Coordination Board. Provincial Project Management Boards, District Project Management Boards, and Project Implementation Boards are responsible for managing and paying for project activities at the provincial, district, and commune levels according to the project plan and division of labor, providing complete and timely documentation and reports related to project expenditures within their respective provincial, district, and commune jurisdictions to the Central Coordination Board.

4. The National Treasury System is responsible for supervising project expenditures in accordance with current regulations on controlling investment fund payments.

5. Project service banks: carry out IDA capital settlement procedures according to the requirements of the Central Coordination Board and Provincial, District, and Commune Project Management Boards after the National Treasury has reviewed the expenditures. Service banks are responsible for guiding and providing the project with all necessary information to conduct domestic and international transactions through the banking system.

On a monthly basis or upon request, service banks are responsible for sending account statements and notifications of accrued interest, bank service fees, the difference between interest and fees, beginning and ending balances to account holders.

Within two working days of receiving notification of funds deposited into an account, the service bank must inform the account holder.

During implementation, service banks are entitled to charge banking service fees according to current regulations on collecting banking transaction service fees. These service fees are included in the total project investment amount.

Chapter II

SPECIFIC PROVISIONS

Article 7. Establishment and allocation of the project investment capital plan:

1. The project investment plan: shall be established through a community participation method, widely consulting with residents in villages within the project locality.

2. Establishing the investment capital plan:

The Central Coordination Board, Provincial Project Management Board, District Project Management Board, and Community Promotion Board shall be responsible for establishing and submitting for approval the project's investment capital plan from IDA funds and domestic counterpart funds according to Circular No. 27/2007/TT-BTC dated April 3, 2007 guiding the management and settlement of investment capital and operational capital with investment characteristics from state budget funds, Circular No. 130/2007/TT-BTC dated November 2, 2007 amending and supplementing certain points of Circular No. 27/2007/TT-BTC dated April 3, 2007 of the Ministry of Finance guiding the management and settlement of investment capital and operational capital with investment characteristics from state budget funds, and Circular No. 88/2009/TT-BTC dated September 29, 2009 amending and supplementing certain points of Circular No. 27/2007/TT-BTC dated April 3, 2007 and Circular No. 130/2007/TT-BTC dated November 2, 2007 of the Ministry of Finance guiding the management and settlement of investment capital and operational capital with investment characteristics from state budget funds. The specific process is as follows:

- Annually, based on the current procedures for preparing, submitting, and reviewing the state budget estimate, the Community Promotion Board shall prepare the commune capital plan (commune fully funded by IDA funds) and submit it to the District Project Management Board no later than July 15 each year.

- The District Project Management Board shall prepare the district investment capital plan including IDA funds and domestic counterpart funds, detailed by project components and activities (including expenditures for district and commune level project activities) and submit it to the Provincial Project Management Board no later than July 31 each year based on the project implementation progress at the district level and the commune capital plans of the Community Promotion Boards.

- The Provincial Project Management Board shall prepare the provincial investment capital plan including IDA funds and domestic counterpart funds (funds supported by the central budget for the project), detailed by project components and activities (including expenditures for district and commune level project activities) and submit it to the Department of Planning and Investment and the Department of Finance for inclusion in the annual provincial state budget estimate, to be reported to the People's Committee of the province for approval by competent authorities as required, and simultaneously send it to the Central Coordination Board for consolidation into the overall project capital plan no later than August 10 each year.

- The Central Coordination Board shall prepare the investment capital plan from IDA funds and domestic counterpart funds to be implemented by the Ministry of Planning and Investment and submit it for consolidation into the annual plan of the Ministry of Planning and Investment. At the same time, the Central Coordination Board shall consolidate the investment capital plans of the provinces implementing the project into the overall project capital plan and report it to the Ministry of Planning and Investment for consolidation into the annual state budget expenditure estimate for decision by competent authorities, including:

- The portion managed by the Ministry of Planning and Investment (including both loan and counterpart funds): To be allocated in the Ministry of Planning and Investment's state budget expenditure estimate.

- The portion managed by localities (including both loan and counterpart funds supported by the central budget): To be allocated in the central budget supplementary expenditure estimate for local budgets.

3. Allocation of investment capital: Based on the general procedure for allocating the state budget:

- The Ministry of Planning and Investment shall allocate the investment capital plan to the Central Coordination Board detailed by source of funds: IDA loans and domestic counterpart funds, and simultaneously send the allocation plan to the Ministry of Finance (Investment Department, Debt and Foreign Financial Management Bureau, State Treasury). The State Treasury shall control the payment settlement of the project investment capital of the Central Coordination Board.

- The People's Committees of provinces implementing the project shall allocate the investment capital plan to the Provincial Project Management Board, District Project Management Boards, and Community Promotion Boards detailed by source of funds: IDA loans and domestic counterpart funds, and simultaneously send the allocation plan to the Ministry of Finance, and also send it to the provincial Department of Finance and the provincial State Treasury for monitoring and as a basis for controlling and settling the capital.

- The People's Committees of districts shall send the allocated capital plan to the District Finance and Planning Office and the district State Treasury for monitoring and as a basis for controlling and settling the capital for the project.

4. Assigning capital plans to investors: After completing the capital allocation as stipulated in Section 3, the Ministry of Planning and Investment, the People's Committees of provinces implementing the project, and the People's Committees of districts shall assign specific capital plan targets to investors to implement the project.

5. Reviewing capital allocation:

a) For the portion of the project managed by the Ministry of Planning and Investment: After receiving the capital allocation plan from the Ministry of Planning and Investment, the State Treasury shall control and settle payments according to regulations without waiting for the review opinion of the Ministry of Finance. The Ministry of Finance shall conduct a post-review of the capital allocation plan within five working days after receiving the capital allocation plan from the Ministry of Planning and Investment.

b) For the portion of the project implemented by provinces: After receiving the capital allocation plan from the provincial and district People's Committees, the provincial and district State Treasuries shall control and settle payments according to regulations. The provincial Department of Finance and the district Finance and Planning Office shall conduct a post-review of the capital allocation plan within five working days after receiving the capital allocation plan from the corresponding provincial and district People's Committees.

Article 8. Opening Accounts, Exchange Rates, and Account Interest

1. The Central Coordination Board and the six Provincial Project Management Boards shall open the following accounts:

a) The Central Coordination Board shall open: (1) a Designated Account denominated in foreign currency at the system of the Bank for receiving funds from the IDA loan source; (2) a Counterpart Fund Disbursement Account denominated in VND at the State Treasury to be disbursed and paid for project contents implemented by the central level.

b) Each Provincial Project Management Board shall open: (1) a Designated Account denominated in foreign currency at the branch of the Bank serving the province to receive funds from the IDA loan source; (2) a Counterpart Fund Disbursement Account denominated in VND at the provincial State Treasury to be disbursed and paid for project contents implemented by the province.

2. Each District Project Management Board shall open the following accounts:

a) A Project Account denominated in Vietnamese Dong at the Bank serving the district to receive funds from the Provincial Designated Account.

b) A Counterpart Fund Disbursement Account denominated in Vietnamese Dong at the district State Treasury to be disbursed and paid for project contents implemented by the district.

3. Each Commune Project Implementation Board shall open: a Project Account denominated in Vietnamese Dong at the Bank serving the district to receive funds from the District Project Account.

4. Payment and Accounting Exchange Rates: Payment and accounting exchange rates for expenditures from Designated Accounts shall apply the buying rate of the serving bank at the time of payment. For District and Commune Project Accounts, the Provincial Project Management Board shall use the buying rate of the serving bank at the time of transferring funds to the District and Commune Project Accounts, and this rate will be used when requesting additional funds from the Designated Account for the advance payments/disbursements made.

5. Account Interest: Interest generated on Designated Accounts opened at the serving bank is a revenue of the State Budget. The serving bank must open a separate account to track interest generated. Account interest is used to pay bank service fees. Upon completion of the project, any unused interest must be remitted to the State Budget. In cases where the generated interest is insufficient to cover bank service fees, the Central Coordination Board/Provincial Project Management Board shall prepare a plan to request counterpart funding to settle the difference. Annually, the Central Coordination Board is responsible for reporting to the Ministry of Finance on the usage of interest generated from the balances of the Designated Accounts of the project.

Article 9. Unit Prices and Expenditure Standards of the Project

Unit prices and expenditure standards using IDA loan funds and counterpart funds for the project shall be implemented according to Circular No. 219/2009/TT-BTC dated November 19, 2009, issued by the Ministry of Finance regarding certain expenditure standards applicable to projects/programs utilizing Official Development Assistance (ODA) funds and procurement unit prices and construction investment costs as stipulated by current regulations.

Article 10. Expenditure Control and Disbursement Management

1. Expenditure Control:

- All project expenditures shall apply pre-expenditure control procedures.

- The controlling authority: The State Treasury where the project sponsor opens an account shall implement expenditure control over project payment documents.

- Documentation and procedures for expenditure control: Shall be carried out in accordance with Circular No. 27/2007/TT-BTC dated April 3, 2007, Circular No. 130/2007/TT-BTC dated November 2, 2007, Circular No. 88/2009/TT-BTC dated April 29, 2009 amending and supplementing certain points of Circular No. 27/2007/TT-BTC dated April 3, 2007, and Circular No. 209/2009/TT-BTC dated November 5, 2009 amending and supplementing Circular No. 27/2007/TT-BTC dated April 3, 2007, issued by the Ministry of Finance guiding management and payment of capital investments and public investment funds from state budget sources or any subsequent amendments and supplements (if any).

- The controlling authority must clearly indicate in the payment request form the amount of capital to be paid from IDA funds and counterpart funds consistent with the financing ratio specified for each item and project.

2. Counterpart Capital Payment:

The State Treasury where the various levels of Project Management Boards conduct transactions shall make payments of the counterpart capital to the Central Coordination Board, Provincial Project Management Boards, and District Project Management Boards in accordance with current regulations on state budget capital management.

3. IDA Capital Disbursement:

Withdrawing funds from the IDA loan to pay for project activities through direct payment, repayment/reimbursement, letter of commitment, or special commitment shall be carried out strictly in accordance with the withdrawal procedures and processes stipulated in Circular No. 108/2007/TT-BTC dated September 7, 2007, issued by the Ministry of Finance and the Project Implementation Handbook. The withdrawal and payment through the Designated Account are regulated as follows:

a) Withdrawal to the Designated Account and payment from the Designated Account of the Central Coordination Board

(i). Initial withdrawal to the Designated Account of the Central Coordination Board:

Based on the account limit defined in the Financing Agreement and the projected expenditure needs for the next six months, the Central Coordination Board shall submit to the Ministry of Finance (Debt Management and Foreign Financial Affairs Department):

+ A letter requesting withdrawal;

+ A withdrawal form. Within five working days from receipt of complete and valid documentation, the Ministry of Finance will review and co-sign the withdrawal form to send to the donor.

(ii). Additional withdrawal to the Designated Account of the Central Coordination Board:

The Central Coordination Board shall submit a set of documents to the Ministry of Finance (Debt Management and Foreign Financial Affairs Department). The documents include:

+ A letter requesting additional withdrawal to the Designated Account of the Central Coordination Board;

+ A withdrawal form and bank statements in the format provided by the donor;

+ An expenditure statement prepared by the Central Coordination Board detailing expenditures from the Designated Account, broken down by date of payment, beneficiary, controlling authority, and confirmation number and date from the controlling authority for each expenditure. This statement serves as the basis for the Ministry of Finance to process income and expenditure records;

+ A payment request for investment capital with confirmation from the State Treasury (original copy). Payments listed on the bank statement must match the amounts confirmed by the controlling authority on the payment request for investment capital;

+ A reconciliation report of the Designated Account prepared by the Central Coordination Board.

||| A statement of account for the Designated Account prepared by the Bank, clearly showing all transactions on the account during the requested period for additional capital withdrawal, including detailed payments matching the expenditure statement and the amount confirmed on the Investment Capital Payment Request Form by the Expenditure Control Agency;

||| Within five working days from the date of receiving complete and valid documents, the Ministry of Finance will review and co-sign the Withdrawal Request Form to be sent to the sponsor for consideration. If the sponsor approves, the additional funds will be transferred into the Designated Account of the Central Coordination Board.

||| (iii). Payment from the Designated Account of the Central Coordination Board:

||| The Central Coordination Board submits to the State Treasury the documents and vouchers requesting payment according to current regulations.

||| Within five working days from the date of receiving complete and valid documents and vouchers, the State Treasury will control the payment documentation and confirm on the Investment Capital Payment Request Form the value of eligible investment capital for payment, including both IDA funds and counterpart funds (if applicable).

||| The Central Coordination Board submits to the Serving Bank a copy of the Investment Capital Payment Request Form confirmed by the State Treasury and processes with the Serving Bank to make payments from the Designated Account to the contractor or beneficiary.

||| Each payment from the Designated Account must comply strictly with the ratio of foreign capital/domestic capital as stipulated in Appendix 2 of the Financing Agreement.

||| b) Withdrawal to the Designated Account and payment from the Designated Account of the Provincial Project Management Board

||| (i). Initial withdrawal to the Designated Account of the Provincial Project Management Board:

||| Based on the account limit specified in the Financing Agreement and the projected expenditure needs of the provincial project for the next six months, the Provincial Project Management Board sends to the Ministry of Finance (Debt Management and External Financial Affairs Department):

||| - A letter requesting withdrawal of funds; - A withdrawal request form. Within five working days from the date of receiving complete and valid documents, the Ministry of Finance will review and co-sign the Withdrawal Request Form to be sent to the sponsor.

||| (ii). Additional withdrawal to the Designated Account of the Provincial Project Management Board: The Provincial Project Management Board sends a set of documents to the Ministry of Finance (Debt Management and External Financial Affairs Department). The documents include:

||| - A letter requesting additional withdrawal to the Designated Account of the Provincial Project Management Board;

+ A withdrawal form and bank statements in the format provided by the donor;

||| - An expenditure statement prepared by the Provincial Project Management Board clearly showing all expenditures from the Designated Account, detailed by payment date, recipient, expenditure control agency, and confirmation date of each expenditure by the expenditure control agency. This statement serves as the basis for the Ministry of Finance to record income and expenditure;

||| - The Investment Capital Payment Request Form confirmed by the Provincial State Treasury (original). The amounts on the expenditure statement must match the amounts confirmed by the expenditure control agency on the Investment Capital Payment Request Form;

||| - An expenditure statement prepared by the County Project Management Board clearly showing all expenditures from the county project account and the Investment Capital Payment Request Forms confirmed by the County State Treasury (originals);

||| - A reconciliation report of the Designated Account prepared by the Provincial Project Management Board;

||| - A statement of account for the Designated Account prepared by the Serving Bank at the provincial level; - A statement of the project account prepared by the Serving Bank at the county level;

||| - Monthly expenditure statements and account reconciliations of communes prepared by the Commune Development Boards (confirmed by the State Treasury and the Serving Bank at the county level);

||| - Monthly expenditure statements and account reconciliations of communes prepared by the County Project Management Board.

||| Within five working days from the date of receiving complete and valid documents, the Ministry of Finance will review and co-sign the Withdrawal Request Form to be sent to the sponsor for consideration. If the sponsor approves, the additional funds will be transferred into the Designated Account of the Provincial Project Management Board.

||| (iii). Payment from the Designated Account based on the request of the Provincial Project Management Board

||| The Provincial Project Management Board submits to the Provincial State Treasury the documents and vouchers requesting payment according to current regulations. Within five working days from the date of receiving complete and valid documents and vouchers, the Provincial State Treasury will control the payment documentation and confirm on the Investment Capital Payment Request Form the value of eligible investment capital for payment, including both IDA funds and counterpart funds (if applicable). The Provincial State Treasury simultaneously makes the counterpart fund payment (if applicable). The Provincial Project Management Board submits to the Serving Bank a copy of the Investment Capital Payment Request Form confirmed by the Provincial State Treasury and processes with the Serving Bank to make payments from the Designated Account to the contractor or beneficiary. Each payment from the Designated Account must comply strictly with the ratio of foreign capital/domestic capital as stipulated in Appendix 2 of the Financing Agreement.

c) Withdraw funds to the Project Account and make payments from the Project Account of the County Project Management Board. (i). Advance funding to the County Project Account: Annually, the County Project Management Board bases on the capital plan approved by the Provincial People's Committee to issue a letter requesting the Provincial Project Management Board to transfer the initial advance to the County Project Account opened at the bank serving the county, equivalent to 20% of the value of the approved plan of the County Project Management Board, but not exceeding 200,000 USD (Two hundred thousand US dollars). (ii). Supplement the County Project Account: Quarterly or when the balance in the County Project Account falls below 50% of the initial advance, the County Project Management Board requests the Provincial Project Management Board to supplement capital for the County Project Account. The documents sent to the Provincial Project Management Board include: + A letter requesting supplementary funding to the County Project Account; + Bank statements of the project account issued by the bank serving the county for each month of the quarter; + Bank statements of payments made from the County Project Account; + Payment vouchers with confirmation from the State Treasury of the county (original); + For payments under contracts above the threshold specified in the Statement of Expenditures (SOE) as per World Bank regulations, the County Project Management Board must send copies of the contracts and accompanying payment documents. Based on the request of the County Project Management Board, the Provincial Project Management Board transfers additional funds to the County Project Account. At the end of each year, the Provincial and County Project Management Boards reconcile the total IDA received and spent during the year. The advance for the next year's County Project Account equals 20% of the approved annual plan value of the County Project Management Board minus the end-of-year balance of the County Project Account, but not exceeding 200,000 USD. The ceiling of the County Project Account may be adjusted according to the actual implementation requirements, based on a written agreement between the Ministry of Planning and Investment and the World Bank. (iii). Payments from the County Project Account upon request of the County Project Management Board: The County Project Management Board submits the payment application documents and supporting documents in accordance with current regulations to the State Treasury of the province. Within five working days from receiving complete valid documents, the State Treasury of the county reviews the payment documents and confirms on the payment voucher the eligible investment capital value, including both IDA and counterpart funds (if any). The State Treasury of the county simultaneously processes the payment of counterpart funds (if any). The County Project Management Board submits to the bank serving a copy of the investment payment voucher confirmed by the State Treasury of the province and processes with the bank to pay from the County Project Account to the contractor or beneficiary. Each payment from the County Project Account must comply strictly with the foreign/local capital ratio stipulated in Appendix 2 of the Financing Agreement.

d) Withdraw funds to the Project Account and make payments from the Project Account of the Project Implementation Board.

(i). Advance IDA funds to the Commune Project Account:

- The Commune Project Account receives an advance from IDA funds equal to 100% of the value of signed contracts with contractors and 70% of the total estimated management and administrative costs of the Project Implementation Board approved by the County People's Committee.

- The Project Implementation Board sends the County Project Management Board a request for an advance to the Commune Project Account for submission to the Provincial Project Management Board. The documents include:

+ A letter requesting an advance to the Commune Project Account;

+ Decision on the annual plan assigned by the County People's Committee to the Project Implementation Board, including a list of sub-projects, the total estimated value of sub-projects, and total estimated management and administrative costs (only submitted once a year for the first advance);

+ Copy of the contract signed between the Project Implementation Board and the contractor.

- Within five working days, the County Project Management Board, based on the request of the Project Implementation Board, sends the Provincial Project Management Board a request for an advance. The documents include:

+ A letter from the County Project Management Board requesting the transfer of funds; + Copy of the Project Implementation Board's request letter;

+ List of information about contracts signed by the Project Implementation Board with contractors (including: Contract number, contract content, date signed, contract value, contractor name, contract execution period)

- Within five working days, the Provincial Project Management Board, based on the request of the County Project Management Board, transfers funds to the County Project Account. Within two days from receiving the funds on the County Project Account, the County Project Management Board must transfer the funds to the Project Implementation Board's Project Account. The amount transferred from the Provincial Designated Account through the County Project Account to the Commune Project Account for the purpose of the Development Budget component advance is considered a legitimate disbursement and the Provincial Project Management Board is permitted to submit a withdrawal request to reimburse the amount.

After the advance funds have been paid according to regulations, the Provincial Project Management Board sends a Statement of Expenditures and account reconciliation report by the Project Implementation Board, confirmed by the State Treasury of the county (confirming the settled payments) and confirmed by the bank serving the county (confirming the payments from the Commune Project Account) to process the return of documents to the Ministry of Finance.

(ii). Payments from the Commune Project Account upon request of the Project Implementation Board to contractors or construction parties:

When there is a need to spend from the Commune Project Account to pay contractors or suppliers, the Project Implementation Board submits the payment application documents and supporting documents in accordance with current regulations to the State Treasury of the county.

Within five working days from receiving complete valid documents, the State Treasury of the county reviews the payment documents and confirms on the payment voucher the eligible investment capital value.

The Project Implementation Board submits to the bank serving a copy of the investment payment voucher confirmed by the State Treasury of the county and processes with the bank to pay from the Commune Project Account to the contractor or construction party.

In case the contractor or construction party has an account at a bank, the Project Implementation Board processes with the bank serving to transfer the advance or payment to the contractor or construction party via bank transfer. In case the contractor or construction party does not have an account, the Project Implementation Board can write a check to withdraw cash from the Commune Project Account at the bank serving to pay the contractor or construction party in cash. (iii). Payment of management and administrative costs of the Project Implementation Board:

Clause - The administrative and management expenses allocated to the Project Implementation Board (PTX) shall be calculated at 6% of the actual value of IDA source funds for sub-projects. These expenses are utilized for organizing village meetings, office supplies, communication, and travel transactions.

Special allowances for managing ODA projects for PTX staff shall be implemented according to Circular No. 219/2009/TT-BTC dated November 19, 2009, issued by the Ministry of Finance, and the Handbook on Project Implementation issued by the Ministry of Planning and Investment. These allowances shall be paid from the counterpart project funds.

At the beginning of each planning year, the PTX may temporarily receive 70% of the budgeted administrative and management expenses assigned by the People's Committee of the district for related activities. When there is a need to spend administrative and management expenses, the PTX submits documentation to the State Treasury of the district to process payment control procedures. The documentation includes:

- A detailed payment schedule listing all proposed payments;

- A capital investment payment request form.

Within five working days, the State Treasury of the district will review and confirm that the conditions for payment are met. After confirmation, the PTX writes checks and withdraws cash from the district service bank.

By the end of each fourth quarter annually, based on the confirmed value of administrative and management expenses by the State Treasury of the district, the PTX sends a letter to the District Project Management Board (QLDA) requesting the District QLDA to propose the Provincial QLDA to transfer the remaining value of administrative and management expenses, but not exceeding 6% of the actual value of IDA source funds for sub-projects in the year.

(iv). Reconciliation of Village Project Account:

Monthly, the PTX prepares a statement of expenditures and reconciles the village account, obtaining confirmation from the State Treasury of the district (confirming settled payments) and the district service bank (confirming payments made from the Village Project Account), and sends it to the District QLDA within seven days from the end of the month.

The District QLDA aggregates data and prepares a statement of expenditures and reconciliation of village accounts, sending it to the Provincial QLDA within fifteen days from the end of the month.

Article 11. Accounting, Auditing, Settlement, Asset Management, Reporting, Inspection:

1. Accounting: All levels of Project Management Boards (QLDA) are responsible for fully and promptly reflecting expenditures on accounting vouchers and books in accordance with the provisions of the State Budget Law, accounting standards, and current state accounting regulations, as well as donor requirements.

2. Financial Statement Audit:

a) Independent Audit:

- Annually, the project accounts of the Central Coordination Board, Provincial QLDA, District QLDA, PTX, accounting records, vouchers, and accounting files must be audited by an independent auditing company in compliance with current laws.

- The selection of the auditing company is conducted through a bidding process for consulting services in accordance with the donor's bidding regulations. The Ministry of Planning and Investment directs the Central Coordination Board to sign an audit contract to conduct annual independent audits for the entire project.

- Financial statements audited by an independent auditor must be submitted to the Ministry of Finance, Ministry of Planning and Investment, State Bank of Vietnam, provincial People's Committees, and the World Bank within six months after the end of the fiscal year.

b) Internal Audit:

- Central-level internal audit work is carried out by the Inspectorate of the Ministry of Planning and Investment, provincial and district level by the provincial Departments of Planning and Investment, and at the commune level by the District Financial and Planning Offices, following a cycle of once a year. Detailed procedures for conducting internal audits are stipulated in the Handbook on Project Implementation.

- The internal audit report must be submitted to the World Bank within six months after the end of the fiscal year.

3. Annual Capital Investment Settlement and Project Completion Settlement:

The annual capital investment settlement and project completion settlement shall be carried out in accordance with the provisions of Circular No. 33/2007/TT-BTC dated April 9, 2007, issued by the Ministry of Finance guiding the settlement of completed projects funded by state capital, Circular No. 98/2007/TT-BTC dated August 9, 2007, amending and supplementing certain points of Circular No. 33/2007/TT-BTC dated April 9, 2007, Circular No. 46/2010/TT-BTC dated April 8, 2010, on the management and settlement of capital investment for infrastructure economic and social development projects in poor districts implementing Resolution 30a/2008/NQ-CP dated December 27, 2008 of the Government on the Program for Rapid and Sustainable Poverty Reduction in 61 Poor Districts, and Circular No. 108/2007/TT-BTC dated September 7, 2007, guiding financial management mechanisms for official development assistance (ODA) programs and projects, and any subsequent supplementary or replacement documents (if applicable).

Specifically, the settlement of the Village Development Budget component follows the guidelines in the Handbook on Project Implementation. The settlement report is reviewed by the District Financial and Planning Office and submitted to the Chairman of the District People's Committee for approval. The review period for a sub-project settlement report does not exceed fifteen working days.

4. Asset Management:

- The management and use of project assets and equipment must comply with current state regulations. Upon project completion or when assets are no longer needed during project implementation, they shall be disposed of in accordance with Circular No. 87/2010/TT-BTC dated June 15, 2010, issued by the Ministry of Finance, guiding the management and disposal of assets of projects using state budget funds upon project completion, and related legal documents.

5. Reporting system:

a) Reports of the PTX:

- Monthly, the PTX prepares a statement of expenditures for the village account, confirmed by the district service bank and the State Treasury, and sends it to the District QLDA within seven days from the end of the month.

- Quarterly, the PTX prepares a progress report on sub-projects and quarterly financial reports to submit to the District QLDA within fifteen days from the end of the quarter.

- Annually, the Project Implementation Team (PIT) shall prepare and submit to the County Project Management Board (PMB) a final year-end report within fifteen days from the end of the year. The final year-end report shall include information on the activities of the Development Fund component for the year, a comparison of actual results with approved plans, and a presentation of issues that need resolution. At the same time, the PIT shall prepare and submit an annual financial report to the County Finance and Planning Office.

- The reporting forms of the PIT shall be carried out in accordance with the guidance provided in the Project Implementation Handbook.

b) Report of the County Project Management Board (PMB):

- Monthly, the County PMB shall prepare a statement of expenditures and reconcile accounts of communes and submit it to the Provincial PMB within fifteen days from the end of the month.

- Quarterly, the County PMB shall compile data from communes and prepare a quarterly financial report according to the form specified in Decision No. 803/2007/QD-BKH dated July 30, 2007, issued by the Ministry of Planning and Investment, and the guidance in the Project Implementation Handbook, and submit it to the Provincial PMB within twenty-five days from the end of the quarter.

Simultaneously, the County PMB shall prepare and submit a quarterly financial report in accordance with the provisions of Decision No. 214/2000/QD-BTC dated December 28, 2000, to the County Finance and Planning Office and the Provincial PMB within thirty days from the end of the quarter.

c) Report of the Provincial PMB:

- Within ten days from the end of each month, the Provincial PMB shall prepare a statement of disbursements made by the sponsor for the provincial project during the month according to the form specified in Appendix 4 of Circular No. 108/2007/TT-BTC dated September 7, 2007, and send it to the Debt and Foreign Financial Management Department (Ministry of Finance) for accounting purposes.

- Quarterly, the Provincial PMB shall compile data from counties and prepare a quarterly financial report according to the form specified in Decision No. 803/2007/QD-BKH dated July 30, 2007, issued by the Ministry of Planning and Investment, and the guidance in the Project Implementation Handbook, and submit it to the Central Coordination Board within thirty-five days from the end of the quarter.

- No later than January 31 of the following year, the Provincial PMB shall prepare an annual implementation report according to the form specified in Decision No. 803/2007/QD-BKH dated July 30, 2007, issued by the Ministry of Planning and Investment, and the guidance in the Project Implementation Handbook, and submit it to the Ministry of Planning and Investment, the Ministry of Finance, the Provincial People's Committee, and the World Bank.

- Simultaneously, the Provincial PMB shall be responsible for implementing the financial reporting system as prescribed in Decision No. 214/2000/QD-BTC dated December 28, 2000, and the reporting on the implementation of investment and capital payment of the project as stipulated in Circular No. 27/2007/TT-BTC dated April 3, 2007, issued by the Ministry of Finance.

d) Report of the Central Coordination Board:

- Within ten days from the end of each month, the Central Coordination Board shall prepare a statement of disbursements made by IDA for the activities of the Central Coordination Board during the month according to the form specified in Appendix 4 of Circular No. 108/2007/TT-BTC dated September 7, 2007, and send it to the Debt and Foreign Financial Management Department (Ministry of Finance) for accounting purposes. Quarterly, the Central Coordination Board shall compile data from provinces and prepare a quarterly financial report according to the form specified in Decision No. 803/2007/QD-BKH dated July 30, 2007, issued by the Ministry of Planning and Investment, and the guidance in the Project Implementation Handbook, and submit it to the World Bank, the Ministry of Planning and Investment, and the Ministry of Finance within forty-five days from the end of the quarter.

- No later than January 31 of the following year, the Central Coordination Board shall prepare an annual implementation report according to the form specified in Decision No. 803/2007/QD-BKH dated July 30, 2007, issued by the Ministry of Planning and Investment, and the guidance in the Project Implementation Handbook, and submit it to the Ministry of Planning and Investment, the Ministry of Finance, and the World Bank.

- Simultaneously, the Central Coordination Board shall be responsible for implementing the financial reporting system as prescribed in Decision No. 214/2000/QD-BTC dated December 28, 2000, and the reporting on the implementation of investment and capital payment of the project as stipulated in Circular No. 27/2007/TT-BTC dated April 3, 2007, issued by the Ministry of Finance.

6. Inspection Work:

Periodically and at random, the Ministry of Finance and the Ministry of Planning and Investment will inspect the implementation of the project and the use of funds. If improper use of funds is discovered, the Ministry of Finance will suspend fund transfers and handle violations according to current regulations.

The inspection of the implementation and use of funds for the Development Fund component shall be conducted regularly by the Central Coordination Board, the Provincial PMB, and the County PMB.

Chapter III

ORGANIZATION AND IMPLEMENTATION

Article 12. Effectiveness and implementation organization.

1. This Circular shall take effect 45 days from the date of signature.

2. During the implementation process, if there are any difficulties, relevant units are requested to promptly reflect them to the Ministry of Finance for study and resolution./.