Circular No. 46/2004/TT-BTC guiding the financial management mechanism for the Rural Income Diversification Project in Tuyen Quang Province

CIRCULAR

Guidelines for the Financial Management Mechanism of the Rural Income Diversification Project in Tuyen Quang Province

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Based on the 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;

Based on Decree No. 77/2003/ND-CP dated July 1, 2003, of the Government stipulating the functions, tasks, and organizational structure of the Ministry of Finance;

Based on Decree No. 17/2001/ND-CP dated May 4, 2001, of the Government promulgating the Regulations on Management and Utilization of Official Development Assistance;

Based on Decree No. 52/1999/ND-CP dated July 8, 1999, of the Government promulgating the Regulations on Investment and Construction Management; Decree No. 12/2001/ND-CP dated May 5, 2000, supplementing certain articles of Decree No. 52/1999/ND-CP; Decree No. 07/2003/ND-CP dated January 30, 2003, of the Government amending and supplementing certain articles of the Investment and Construction Management Regulations issued together with Decree No. 52/1999/ND-CP dated July 8, 1999, and Decree No. 12/2000/ND-CP dated May 5, 2000;

Based on Circular No. 1073/CP-QHQT dated November 13, 2001, of the Government notifying the Prime Minister's decision to approve the Preliminary Feasibility Study Report of the Rural Income Diversification Project in Tuyen Quang Province;

Based on Circular No. 44/2003/TT-BTC dated May 15, 2003, of the Ministry of Finance on managing, settling accounts, and investing capital and operational funds with investment characteristics from the State Budget;

Based on Circular No. 49/2001/TT-BTC dated June 26, 2001, of the Ministry of Finance guiding the management, settlement, and payment of basic construction investment capital under the management of communes and towns;

After reaching consensus with the People's Committee of Tuyen Quang Province, the Ministry of Finance provides guidelines for the financial management mechanism for the Rural Income Diversification Project in Tuyen Quang Province as follows:

I. GENERAL PROVISIONS:

Part I.1: Scope of Application

This Circular applies to components of the Rural Income Diversification Project in Tuyen Quang Province that are funded by the State Budget.

Part I.2: Definitions

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

1. Project: The Rural Income Diversification Project in Tuyen Quang Province.

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

3. IFAD: The International Fund for Agricultural Development, the foreign financier of the project.

4. SIDA: The Swedish International Development Cooperation Agency, a co-financier of the project.

5. UNOPS: The United Nations Office for Project Services: the agency representing IFAD to disburse funds for the Project.

6. Project Owner: The People's Committee of Tuyen Quang Province. To implement the project and coordinate activities within the project, the project owner establishes the Provincial Project Coordination Board, the District Project Coordination Board, and Village Development Boards.

7. Provincial Project Coordination Board (PPCB): An entity established by the project owner's decision, responsible for implementing daily project operations and managing loan capital.

8. District Project Coordination Board (DPCB): An entity established by the District People's Committee's decision to implement the project; its responsibilities and authorities are defined in the establishment decision.

9. Village Development Board (VDB): Entities established by the Commune People's Committee's decision to implement the project; their responsibilities and authorities are defined in the establishment decision.

10. Project Implementation Units: These are provincial and district units of state agencies directly organizing the implementation of project components and sub-components.

11. Project Service Bank: Vietcombank.

12. Sub-project: Includes small-scale construction and procurement activities at village levels; proposed by villagers to improve urgent infrastructure, enhance economic and social living conditions, and production conditions for the poorest households in villages.

Part I. 3. Principles of Management

1. The project is funded from the following sources: Central Government budget support to the Tuyen Quang provincial budget from funds borrowed by the Government from IFAD and non-repayable aid from SIDA, matching funds from the Tuyen Quang provincial budget, and contributions from beneficiaries.

2. Loans from IFAD and SIDA aid for funding the project shall be managed by the Government according to the terms stipulated in the Loan Agreements and Aid Agreements, and in accordance with current Government regulations.

3. The entire IFAD loan and SIDA aid for investment in the project constitute state budget funds and must be fully reflected in the state budget.

4. The People's Committee of Tuyen Quang Province is responsible for managing all investment funds for the Project effectively, in accordance with its intended purpose, and in compliance with the provisions of the Agreement and current Government regulations.

5. The Project shall open an account at the State Treasury System for transactions. The State Treasury System where the Project opens an account shall directly control expenditures for the Project through verification, confirmation of actual work volume, transfer of advance payments, and direct payment for eligible Project activities, in accordance with current regulations.

6. The Provincial Project Implementation Coordination Board is responsible for managing the entire IFAD loan, SIDA aid, and matching provincial budget funds, ensuring that funding is provided correctly for Project activities in accordance with current financial management regulations.

II. SPECIFIC PROVISIONS

Part II.1. Accounts under the Project:

1. The Ministry of Finance (Department of Foreign Financial Affairs) shall open a Special Account in US Dollars (USD) at the Project Service Bank to receive funds disbursed by IFAD.

2. The State Treasury of Tuyen Quang Province shall open a first-level fund account in Vietnamese Dong (VND) for the Project, detailing sub-accounts to receive IFAD funds transferred by the Ministry of Finance and matching provincial budget funds allocated to the Project.

3. Commune Development Boards shall open second-level fund accounts in VND at the State Treasury of the district to receive IFAD funds transferred by the Provincial Project Implementation Coordination Board. The Commune Development Board's account at the State Treasury of the district includes two sub-accounts: one for activities related to the Women's Livelihood Improvement Fund, and another for other activities.

4. The Provincial Project Implementation Coordination Board, District Project Implementation Coordination Boards, and Commune Development Boards shall open deposit accounts at the State Treasury of the province and district to conduct transaction settlements.

Part II.2: Financial Planning for the Project

1. Each year, the Commune Development Board shall prepare a work plan and budget, submitting it to the District Project Implementation Coordination Board in accordance with the procedures for preparing, presenting, and reviewing the state budget estimate. This plan shall be detailed quarterly, by source of funds, and by activity, based on the commune's economic and social development plan, priority activities determined by village communities, expenditure standards, and relevant project documents.

2. The District Project Implementation Coordination Board shall review and consolidate the annual work plans and budgets of communes into the annual work plan and budget of the district, submitting them to the Provincial Project Implementation Coordination Board. This plan shall be detailed quarterly, by source of funds, and by activity, consistent with the applicable standard rates and relevant project documents.

3. The Provincial Project Implementation Coordination Board shall review and consolidate the entire annual work plan and budget of the province, presenting it to the Provincial Project Steering Committee, Department of Finance, Department of Planning and Investment, and UNOPS by September each year for their review and comments.

4. After receiving comments from these agencies, the Provincial Project Implementation Coordination Board shall finalize the draft plan and submit it to the People's Committee of the province for consolidation into the annual provincial budget estimate.

5. The preparation, protection, approval, and announcement of the provincial budget estimate shall follow the procedures for preparing the annual budget estimate.

6. The annual work plan and budget, once approved by the People's Committee of the province, IFAD/UNOPS, shall be sent to the Ministry of Finance, Department of Finance, and the State Treasury where project funds are disbursed for monitoring and providing funds for Project activities.

Part II.3: Budget Standards

1. For administrative budget standards, apply the standards prescribed in Decision No. 112/2001/QĐ-BTC dated November 9, 2001 of the Minister of Finance on certain budget standards applicable to projects using ODA loan funds, or the standards issued by the Provincial People's Committee for projects in accordance with Decision No. 112/2001/QĐ-BTC.

2. For economic and technical standards, apply the standards according to current State regulations.

3. In cases where there are no established standards or unit prices, the Provincial Project Implementation Coordination Board shall submit to the Provincial People's Committee for issuance of temporary standards applicable to the Project based on comments from the Ministry of Finance.

Part II.4: Transferring IFAD Funds to Special Accounts and Project Fund Accounts

1. Transferring IFAD Funds to Special Accounts:

1.1 The withdrawal of funds from IFAD to the Special Account will be carried out by the Ministry of Finance (Department of Foreign Financial Affairs).

1.2 Based on actual expenditures, the Provincial Project Implementation Coordination Board prepares a request for additional fund withdrawal to the Special Account and submits it to the Ministry of Finance (Department of Foreign Financial Affairs), including the following documents:

- A withdrawal request form as prescribed by IFAD

- Expenditure vouchers (contracts, invoices, payment requests, expenditure statements, volume confirmation by the State Treasury where funding was provided)

- Other documents (if necessary) to prove legitimate expenditures

1.3 After verifying the legitimacy of the disbursement documents, the Ministry of Finance (Department of Foreign Financial Affairs) will sign off on the withdrawal request to send to IFAD.

2. Transferring Money from the Special Account to the First Level Project Fund Account:

2.1 When there are funds in the Special Account, based on the approved annual budget estimate of the Project by the Provincial People's Committee, and the project implementation progress, upon the proposal of the Provincial Project Implementation Coordination Board, the Ministry of Finance (Department of Foreign Financial Affairs) will process the conversion of foreign currency to VND and transfer it to the First Level Project Fund Account opened at the State Treasury of the province.

3. Transferring Advance Payments from the First Level Project Fund Account to the Second Level Project Fund Account of the Village Development Board at the District State Treasury (initial advance and supplementary procedures):

3.1 The Village Development Board bases its quarterly activity plan and budget on the approved annual activity plan and budget of the village, and sends it to the District Project Implementation Coordination Board no later than the 15th day of the month preceding the quarter planned.

3.2 The plan must include detailed information such as:

- Activities within the planning period

- Total amount of funding for each activity, detailed by source of funding and by month

- Implementing entity (Village Development Board or Women's Union)

- Amount of funding implemented in the previous quarter compared to the previous quarter's plan (summary report without detailed expenditure vouchers, confirmed by the State Treasury where funding was provided)

- Adjustments to the next quarter.

3.3 The District Project Implementation Coordination Board reviews, compiles, and proposes advance payments to the Village Development Boards to the Provincial Project Implementation Coordination Board.

3.4 The proposed advance payment amount is 100% of the anticipated costs to implement the next quarter's plans of the villages, adjusted according to the surplus or shortage of the previous quarter's advance payments.

3.5 Capital Transfer Process: Upon receiving the plan from the District Project Implementation Coordination Board, the Provincial Project Implementation Coordination Board reviews and requests the Provincial State Treasury to transfer capital from the First Level Project Fund Account to the Second Level Project Fund Account of the Village Development Boards at the District State Treasury. The initial advance payment amount equals 100% of the approved quarterly work plan and budget of the Village Development Boards. Subsequent advances are adjusted based on the surplus or shortage of previous advances.

(See diagram in Appendix 1).

Part II. 5: Payment for Project Activities from IFAD Funds

1. Fund Disbursement Authority: The provincial and district State Treasury Systems shall manage, supervise, and disburse funds for project expenditure activities.

2. Fund Disbursement Documentation: To make payments or advance payments for project activities, the implementing units at all levels shall submit to the State Treasury managing and disbursing the funds the following documents:

2.1 Initial Documentation Submission: Loan Agreement; Feasibility Study Report accompanied by the investment decision of the competent authority, or investment report; tender designation decision (if conducted through direct award); tender approval decision, economic contract, economic contract approval decision of the competent authority (if applicable under current regulations); total budget or budget approval decision; approved budget items; design approval decision (if applicable under current regulations).

2.2 Documentation for Each Payment or Advance Payment:

- Advance Payment: Request for advance payment; investment fund withdrawal form; advance payment guarantee (if required under current regulations); performance bond (if required under current regulations); and other necessary documents to prove legitimate expenditures.

- Payment: Completion Certificate for construction works with value calculation table; payment voucher for completed basic construction works (or detailed payment list for completed basic construction works); investment fund withdrawal form; request for investment advance payment settlement (if applicable); payment invoices and supporting documents; and other necessary documents to prove legitimate expenditures.

3. Advance Payment/Settlement for Activities at Provincial Level:

3.1 Implementing units of the project shall submit requests for advance payment/settlement and detailed plans for fund usage to the Provincial Project Implementation Coordination Board. After reviewing and approving, the Provincial Project Implementation Coordination Board shall send these documents to the Provincial State Treasury for payment or advance payment from the first-tier project fund account for eligible expenditure activities. Supporting documents include those specified in Section 2 of this Part, depending on the type of advance payment/settlement and the nature of the advance payment/settlement.

3.2 Within five working days, the Provincial State Treasury shall review the documentation and make payment or advance payment from the first-tier project fund account for eligible expenditure activities at the provincial level according to this regulation and current state capital management regulations.

(See Diagram in Appendix 2).

4. Advance Payment/Settlement for Activities at District Level:

4.1 For advance payment/settlement, the District Project Implementation Coordination Board shall submit requests for advance payment/settlement and detailed plans for fund usage to the Provincial Project Implementation Coordination Board. After reviewing, the Provincial Project Implementation Coordination Board shall propose the Provincial State Treasury to make advance payment/settlement to the District Project Implementation Coordination Board.

4.2 Within five working days, the Provincial State Treasury shall transfer funds from the first-tier project fund account to the deposit account of the District Project Implementation Coordination Board (opened at the District State Treasury) or directly to the beneficiary's account (at the request of the District Project Implementation Coordination Board, if applicable) for advance payment/settlement of eligible activities at the district level.

(See Diagram in Appendix 2).

5. Advance Payment/Settlement for Activities at Commune Level

5.1 Advance Payment:

5.1.1 For basic construction works: Implemented according to Decision No. 76/2003/UB-QĐ dated June 6, 2003 of the People's Committee of Tuyen Quang Province regarding the issuance of regulations on investment and construction of basic construction works under the Rural Income Diversification Project of Tuyen Quang Province.

5.1.2 For other activities (equipment procurement, training, production improvement, natural resources...), the Commune Development Board shall make advance payments in accordance with the payment schedule stipulated in the signed contracts. In particular, for sub-projects without contracts, such as purchasing small goods and equipment, advance payments must be made based on the payment requirements of the supplier, not exceeding the payment requirements.

5.1.3 Advance Payment for Administrative Management Activity Costs: Maximum advance payment of seventy percent of the approved value according to the plan.

5.2 Procedures for Advance Payment/Settlement for Activities at Commune Level

5.2.1 For advance payment/settlement, the Commune Development Board shall submit requests for advance payment/settlement and relevant documents as specified in Section 2 of this Part to the District State Treasury. Within five working days, the District State Treasury shall review and make advance payment/settlement for eligible activities from the second-tier project fund account opened at the District State Treasury.

5.2.2 Advance payments/settlements for contractors/subcontractors with bank accounts shall be settled through direct bank transfers. Advance payments/settlements for contractors/subcontractors without bank accounts shall be settled through the Commune Development Board.

(See Diagram in Appendix 3).

6. After making advance payments/settlements from the first-tier or second-tier project fund accounts for project expenditure activities, the Provincial or District State Treasury where the funds were disbursed shall notify the Provincial or District Project Implementation Coordination Board to process accounting entries for the project. In cases of settlements for commune-level activities, the District State Treasury shall also notify the Commune Development Board.

7. The Provincial Project Implementation Coordination Board, the District Project Implementation Coordination Board, and the Commune Development Board must open accounting accounts to track project expenditures to fully reflect financial transactions of the project according to each source of funding, period, and detailed activity.

Part II.6: Allocation and Payment with Counterpart Funds

The counterpart funds for the Project shall be allocated from the provincial budget. Based on the work plan and budget of the Project approved by the competent authority and the assigned budget estimate, the Provincial Department of Finance shall allocate funds to the Project's source account at the Provincial State Treasury according to quarterly expenditure requirements (detailed monthly). The Provincial State Treasury shall control expenditures in accordance with current regulations.

Part II.7: Responsibilities of Provincial Units in Managing and Using Various Sources of Funds

1. Provincial People's Committee shall be responsible for approving the annual work plans and budgets of the Project to incorporate them into the provincial consolidated budget estimate, comprehensively managing and coordinating the implementation of the project locally.

2. Provincial Project Coordination Board:

- Prepare the annual work plans and budgets, submit them to the competent authority for approval. Organize implementation according to the approved plan and settle accounts for the project's actual expenditures, ensuring all project expenses comply with the provisions of loan agreements and aid, project documents, and current government regulations.

- Manage and utilize loans in accordance with the current financial system. For construction-related expenditures, manage them under the current construction capital management system and in compliance with the provisions of loan agreements and aid, and project documents; other expenditures shall be managed under the ODA capital management system.

- For SIDA aid funds, prepare confirmation letters for aid as the basis for recording income and expenditures for the project.

- Report quarterly on the use of various sources of funds and project progress to the Project Steering Committee, Provincial State Treasury, and Provincial Department of Finance; prepare annual settlement reports and project completion reports (detailed by source of funds and activities) for submission to the competent authority for approval in accordance with current regulations.

3. Provincial Department of Finance:

- Participate in coordinating the project, assist the Project Steering Committee in monitoring the implementation of approved work plans and budgets.

- Organize supervision and inspection of the project in accordance with its functions.

- Based on the work plan and budget of the project approved by the competent authority, transfer counterpart funds quarterly to the Project's first-level source account for management by the Provincial State Treasury, which will allocate funds to the project according to the loan drawdown schedule.

- Implement accounting for the provincial budget of IFAD loan funds subsidized by the Central Budget for the provincial budget to implement the project.

- Review quarterly and annual reports, issue annual settlement notifications in accordance with current regulations.

- At year-end, aggregate the approved project settlement report into the local government budget settlement report in accordance with the State Budget Law; send the approved project settlement report to the Ministry of Finance (State Budget Department, Foreign Financial Affairs Department, State Treasury) for monitoring.

4. Provincial and District State Treasuries:

- Carry out opening of the first-level source account (Provincial State Treasury) and second-level source accounts (District State Treasury) for the Project.

- Receive IFAD funds and counterpart funds for the Project for allocation and expenditure control in accordance with this Circular and other current regulations.

- Monthly prepare statements of the first-level source account (Provincial State Treasury) and second-level source accounts (District State Treasury), reflecting transactions from the account, account balances, and reconcile with the Provincial and District Project Coordination Boards and Village Development Boards.

- Quarterly prepare reports on the verification, approval, allocation, and use of loan and counterpart funds for the Project and submit them to the Ministry of Finance (State Treasury and Foreign Financial Affairs Department).

- Organize accounting, statistics of the Project's various sources of funds. For beneficiary contributions from the Project, the State Treasury shall record them in the Project's general fund account (if contributions are made in cash).

- Coordinate with the Provincial Department of Finance to review and report quarterly and annual settlements. Inspect the project's implementation progress.

Part II. 8: Responsibilities of Relevant Units under the Ministry of Finance and Project Service Bank

1. Department of Foreign Financial Affairs:

- Monitor the overall progress of project implementation

- Implement the opening of a special account for the project. Review withdrawal documentation and sign withdrawal requests to disburse IFAD loan funds to the special account. Transfer provisional payments from the special account to the first-tier capital account upon valid request of the Provincial Project Implementation Coordination Board.

- Review and compile plans for annual borrowing and repayment for the project.

- Lead coordination with relevant agencies within the Ministry of Finance to study and propose solutions to the Minister of Finance for any issues related to the financial mechanism of the project.

2. State Budget Department:

- Record income and expenditure of IFAD loans and SIDA aid in the state budget and allocate supplementary targeted funding to the Tuyen Quang provincial budget for project implementation based on notifications issued by the Department of Foreign Financial Affairs.

- Coordinate with the Department of Foreign Financial Affairs to develop annual repayment plans for IFAD.

3. National Treasury:

- Record state budget revenue when processing foreign currency conversion procedures, and record central government budget expenditure when transferring funds into the project's capital account at the provincial treasury upon receipt of the Ministry of Finance's (State Budget Department) payment order.

- Direct and guide the provincial treasury in managing, controlling expenditures, and disbursing funds for the project according to this Circular and other current regulations.

4. Project Service Bank:

- Monitor IFAD fund withdrawals to the special account and transactions from this account.

- After each foreign currency withdrawal from the special account at the request of the Ministry of Finance (Department of Foreign Financial Affairs), the Project Service Bank sends a notification to the Ministry of Finance (Department of Foreign Financial Affairs, National Treasury) regarding the date of transaction, amount, and exchange rate for recording purposes in the state budget.

- Annually and quarterly (on the fifth day of the first month of each quarter), the Project Service Bank prepares detailed statements of the special account, specifying the purpose of expenditure, date of payment, amount paid, equivalent VND amount, and exchange rate, and sends them to the Ministry of Finance (Department of Foreign Financial Affairs, National Treasury). The statement must reflect the beginning and ending balances of the account and accrued interest during the period.

- Within one month after closing the project's special account, transfer any remaining accrued interest to the Ministry of Finance (into the Central Foreign Currency Fund account of the Ministry of Finance at Vietcombank; account number 212.210.371.000 or another account notified by the Ministry of Finance).

- Receive service fees as stipulated currently. These fees are included in the total project costs.

Part II. 9: State Budget Accounting for IFAD Funds

1. Ministry of Finance (Department of Foreign Financial Affairs, State Budget Department) records the inflow of IFAD loans and aid into the central government budget, and simultaneously records outflows from the central government budget to supplement targeted funding for the Tuyen Quang provincial budget when transferring funds from the special account to the first-tier capital account of the project.

2. Department of Finance bases on notifications from the National Treasury to record additional targeted funding for the provincial budget, and simultaneously records transfers of investment capital into the first-tier capital account for the project for the provincial treasury to make payments, and monitors project expenditures.

Part II. 10: Reports, Inspections, and Audits

1. Quarterly and annually, the Provincial Project Implementation Coordination Board shall be responsible for reporting to the Provincial People's Committee, the Ministry of Finance (Department of Foreign Financial Affairs, State Budget Department) and the Ministry of Planning and Investment on the situation regarding the use of loan funds, grant funds, and counterpart funds for the Project. The Provincial Project Implementation Coordination Board shall be responsible for preparing quarterly and annual settlement reports, which shall be sent to the Provincial Treasury and the Department of Finance for review. Subsequently, the Department of Finance shall issue a notification approving the annual settlement report in accordance with current regulations.

2. The District Project Implementation Coordination Board shall guide the Commune Development Board to prepare individual sub-project settlement reports according to Circular No. 49/2001/TT-BTC dated June 26, 2001, issued by the Ministry of Finance, guiding the management, payment, and settlement of basic construction investment funds under the management of communes and towns. The settlement report shall be reviewed by the District Finance and Planning Office, submitted to the Chairman of the District People's Committee for approval through a Decision. The review time for each sub-project settlement report shall not exceed fifteen working days.

3. Periodically and urgently, the Ministry of Finance, the Ministry of Planning and Investment, and the Provincial People's Committee shall inspect the implementation of the project and the use of its funding sources. If improper use of funds is discovered, the Ministry of Finance will suspend fund transfers to address the violation.

4. Annually, special accounts, funding source accounts of the project, accounting books, and financial records of the project must be audited by an independent auditing company in compliance with state regulations and those of the financier. The audit program must have the agreement of the Ministry of Finance. Settlement reports and audit reports shall be sent to the Ministry of Finance and serve as the basis for considering additional special account funding or transferring funds to the first-level funding account of the project, and also as a basis for evaluating the project's implementation.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect fifteen days from the date of publication in the Official Gazette. During implementation, if there are difficulties, relevant agencies should promptly reflect them to the Ministry of Finance for study and amendment./.