Circular No. 80/2006/TT-BTC guiding the financial management mechanism for the Forestry Development Project

  CIRCULAR

Guidelines for the financial management mechanism for the project

Developing the Forestry Sector

Pursuant to the Credit Agreement for Development No. 3953 - VN signed between the Government of Vietnam and the International Development Association (IDA) on April 4, 2005 regarding the Project for Developing the Forestry Sector;

Pursuant to the Agreement between the Government of Vietnam and IDA signed on April 4, 2005 concerning the co-financing grant from the Global Environment Facility (GEF) No. TF 053397 entrusted through IDA to implement the Project for Developing the Forestry Sector;

Pursuant to the Agreement between the Government of Vietnam and IDA signed on April 4, 2005 concerning the co-financing (through the Multilateral Trust Fund - MTDF) grant from the Government of the Netherlands No. TF 054523 and the Government of Finland No. TF 054524 entrusted through IDA to implement the Project for Developing the Forestry Sector;

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

Pursuant to Decree No. 17/2001/NĐ-CP dated May 4, 2001 of the Government promulgating the regulations on the management and use of official development assistance;

Pursuant to Decision No. 332/QĐ-TTg dated April 6, 2004 of the Prime Minister approving the Preliminary Feasibility Study Report of the Project for Developing the Forestry Sector;

Pursuant to Decision No. 1067/QĐ-BNN-LN dated April 27, 2004 of the Minister of Agriculture and Rural Development approving the Detailed Feasibility Study Report of the Project for Developing the Forestry Sector;

After reaching consensus with the Ministry of Agriculture and Rural Development, the Ministry of Finance hereby issues guidelines for the financial management mechanism for the Project for Developing the Forestry Sector as follows:

PART I: GENERAL PROVISIONS

1. Scope of application: This Circular guides issues related to state financial management for the Project for Developing the Forestry Sector. It may cover matters such as opening accounts, preparing financial plans, administrative expenditure standards, procedures for withdrawing funds, inspection, reporting, auditing, tax policies applicable to the project, and asset management formed from the project, as well as the responsibilities of relevant agencies in state financial management for the project.

2. Definitions: In this Circular, the following terms shall be understood as follows:

a) Project: The Project for Developing the Forestry Sector approved by Decision No. 332/QĐ-TTg dated April 6, 2004 of the Prime Minister on the approval of the Preliminary Feasibility Study Report of the Project for Developing the Forestry Sector.

b) Project Management Agency: The Ministry of Agriculture and Rural Development as stipulated in Decision 332/QĐ-TTg of the Prime Minister;

c) Project Proponent: The Ministry of Agriculture and Rural Development, People's Committees of Thua Thien Hue, Binh Dinh, Quang Nam, and Quang Ngai provinces, and the Vietnam Bank for Social Policies. To implement the relevant parts of the project, the Project Proposers establish project management boards as prescribed in Points h-m of this Clause.

d) Non-loan Components: These are components of the project directly implemented by the Ministry of Agriculture and Rural Development and the People's Committees of the four project provinces to provide support services for production forest planting activities within the project.

e) Loan Component: A part of Component 2 of the Project implemented by the Vietnam Bank for Social Policies to provide loans to organizations and individuals requiring capital to develop production forests within the project area, as stipulated in Decision 332/QĐ-TTg of the Prime Minister;

h)||| Central Project Coordination Board: An entity established by the Ministry of Agriculture and Rural Development to coordinate the overall operation of the project and directly manage the non-loan component, with functions, tasks, and authorities defined in the establishment decision.

i) Vietnam Conservation Fund Management Board: An entity established by the Ministry of Agriculture and Rural Development to manage the project conservation fund component, with functions, tasks, and authorities defined in the establishment decision.

Loan Component Project Management Board: An entity established by the Vietnam Bank for Social Policies to manage the loan component project, with functions, tasks, and authorities defined in the establishment decision.

l) Provincial Project Management Board (for 4 provinces) established by the People's Committees of the provinces within the project, with powers and responsibilities defined in the establishment decisions.

m) County Project Implementation Boards and Village Task Forces: Entities implementing the project established according to decisions of the county People's Committees or village People's Committees, with functions and authorities defined in the establishment decisions.

n) Expenditure Control Agency: The State Treasury System (STSS) for non-loan components, and the Ministry of Finance (Department of Foreign Financial Affairs) for the loan component.

o) Counterpart Funds: Contributions from the Government of Vietnam allocated in the annual state budget estimates of the Ministry of Agriculture and Rural Development and the project provinces under the current state budget decentralization, and the portion contributed by the Vietnam Bank for Social Policies in the project.

p) Re-lending Bank: The Vietnam Bank for Social Policies.

q) Serving Bank: The Vietnam Agricultural and Rural Development Bank.

r) (Special) Accounts: Special accounts in US dollars (USD) opened by the central project coordination board, the conservation fund management board, and the loan component project management board at the serving bank to receive advance payments from loan/grant funds for the project.

s) Project Management Boards authorized to withdraw foreign funds: The central project coordination board, the conservation fund management board, and the loan component project management board authorized to conduct transactions to withdraw loans/grants from abroad, and have submitted sample signatures to the Ministry of Finance (Department of Foreign Financial Affairs).

3. Principles of Management:

a) Loans and grants financing the Project are state budget funds and are managed in accordance with state budget fund management regulations and the regulations of the donors.

b) The STSS branch disbursing funds to the project is responsible for expenditure control, inspection, and confirmation of eligible payment/advance value for project implementation units to withdraw foreign funds, while directly allocating counterpart funds to the project (except for the loan component implemented by the re-lending bank).

c) The project is funded from two sources: domestic capital and foreign capital. Domestic capital is allocated in accordance with current State regulations. Foreign capital is disbursed/re-lent to beneficiary units in accordance with the provisions of this Circular, consistent with domestic regulations and those of the financier.

d) The Ministry of Agriculture and Rural Development, the provinces implementing the project, and the re-lending bank are responsible for using funds for their intended purposes, in accordance with the approved project content and in compliance with the conditions committed in the Agreements and related documents accompanying the Agreements.

 e) The Ministry of Agriculture and Rural Development, the provinces implementing the project, and the re-lending bank are responsible for managing and supervising the assets of the project and of the project management boards under the current State regime.

f) During the process of withdrawing loan and grant funds, the serving bank shall enjoy banking service fees according to the current regulations on charging service fees for bank payment transactions. The aforementioned service fee amount shall be included in the total project costs.

PART II: SPECIFIC PROVISIONS

1. Opening accounts:

a) At the serving bank

- The central project coordination board opens one Special Account to receive IDA funds for the non-loan component and one Special Account to receive grant funds under Agreement TF 054523 for technical support activities for the non-loan component;

- The conservation fund management board opens two Special Accounts, one for the GEF grant funds, one for the grant funds under Agreement TF 054524;

- The re-lending bank opens one Special Account to receive IDA funds for the loan component of the project.

b) At the provincial KBNN, the provincial project management boards open disbursement accounts to receive, allocate counterpart funds, and monitor payments, advances, and repayment of foreign funds for the project at the provincial level.

c) Project management boards may open deposit accounts at the KBNN system in accordance with current domestic regulations to receive funds for legitimate expenditures of the project management boards.

2. Financial planning for the project (not applicable to the loan component)

a) The approved annual financial plan of the project (for non-loan components) serves as the basis for controlling disbursements. The content of the annual financial plan of the project must detail the works to be carried out during the planning year, the counterpart funds, loan funds, grant funds, detailed by quarter, by major activities and implementing units of the project.

b) The preparation of the annual financial plan of the project is carried out in accordance with Joint Circular No. 02/2003/TTLT-BKH-BTC dated March 17, 2003, issued by the Ministry of Planning and Investment and the Ministry of Finance guiding the preparation of financial plans for programs and projects using official development assistance (ODA) funds.

c) Based on the budget estimate announced, the Ministry of Agriculture and Rural Development/Provincial People's Committees allocate the budget estimate for the Project/sub-project implemented at the provincial level in detail as specified in Point a of this Clause.

d) After the approval of the annual financial plan, the central project coordination board/the conservation fund management board registers the financial plan with the Ministry of Finance (Department of Foreign Finance) and the provincial KBNN controlling the project expenses for review and as a basis for monitoring, controlling expenses, and allocating funds; the provincial project management boards and the conservation area project management boards register the financial plan with the provincial KBNN controlling the expenses as a basis for monitoring and allocating funds.

e) For the loan component implemented through the re-lending bank, the re-lending bank proactively develops and approves the financial plan, allocates counterpart funds to implement in line with the loan withdrawal schedule.

3. Budget norms and unit prices for the use of loan funds, grant funds, and counterpart funds:

a) Administrative expenditure norms

- Apply the norms prescribed in Decision No. 112/2001/QD-BTC dated November 9, 2001, issued by the Minister of Finance on certain expenditure norms applicable to projects using ODA loan funds; Circular No. 118/2004/TT-BTC dated December 8, 2004, of the Ministry of Finance on the regulation of travel expenses and conference expenses for administrative agencies and public institutions nationwide (Section on payment for accommodation expenses at the place of work and lump-sum travel expenses); Circular No. 91/2005/TT-BTC dated October 18, 2005, of the Ministry of Finance on travel expenses for state officials and civil servants traveling abroad for short-term assignments funded by the state budget, and amendments and supplements to these Decisions and Circulars.

- For activities fully funded by grant funds, the Ministry of Agriculture and Rural Development agrees with the financier to issue norms based on consensus with the Ministry of Finance.

b) Economic and technical norms

- Apply norms in accordance with guidelines from the Ministry of Agriculture and Rural Development and current State regulations.

- In cases where there are no norms or unit prices, the project management boards of relevant components submit to the Ministry of Agriculture and Rural Development (or the re-lending bank for the loan component) for issuance and application to the project, based on consensus with the Ministry of Finance.

c) Norms for consultant fees

- The selection of consultants is carried out in accordance with domestic regulations and the regulations of financiers. The results of bidding or direct contracting, and signing contracts must be approved by the competent authority depending on the situation, with appropriate provisions regarding contract progress, payment terms... based on domestic regulations and the regulations of the financier.

- Domestic consultants: In the case of hiring individual consultants using loan funds or grant funds with counterpart funds, apply the provisions of Decision No. 112/2001/QD-BTC and amendments to this Decision. In the case of hiring individual consultants using 100% grant funds (without counterpart funds participating), the project management boards of relevant components submit to the Ministry of Agriculture and Rural Development (or the re-lending bank for the loan component) for issuance and application to the project, based on consensus with the Ministry of Finance.

d) Quota for credit capital: apply the provisions of the Credit Handbook of the Refinancing Bank, based on the principles stipulated in this part.

4. Procedures for withdrawing funds and advance payments from foreign sources:

The withdrawal of funds and advance payments, and payment from foreign sources shall be carried out in accordance with Circular No. 78/2004/TT-BTC dated August 10, 2004, issued by the Ministry of Finance, guiding the management of fund withdrawal for officially development assistance, with some provisions applicable to the Project as follows:

a) Withdrawal of foreign funds: this procedure is implemented at the central level, by project management units authorized to open and manage special accounts according to the Project documentation (including the Central Project Coordination Board, the Fund Management Board, and the Credit Component Project Management Board).

For the credit component, to withdraw funds into the Special Account, the Credit Component Project Management Board sends the following documents to the Ministry of Finance (Department of Foreign Financial Affairs):

- Request for fund withdrawal and withdrawal form according to the sponsor's template;

- List of loans made to individuals/units planting forests by the refinancing bank, confirmed by the central refinancing bank;

- Statement according to the sponsor's template.

b) Allocation of funds from the Special Account for non-credit components

- Expenditures for the project must be confirmed at the central level (for expenditures of the Central Project Coordination Board or the Conservation Fund Management Board) through the State Treasury where these boards have opened their disbursement accounts.

- At the provincial level, expenditure confirmations for the project are handled at the provincial State Treasury. In such cases, after verifying that the work volume meets the conditions for payment or advance payment, the State Treasury issues a confirmation letter for valid payment requests sent back to the provincial project management board. The provincial project management board submits the payment/advance request, confirmed by the State Treasury, to the Central Project Coordination Board to withdraw funds for project activities from the Special Account. Within two working days of receiving the provincial project management board's payment/advance request confirmed by the State Treasury, the Central Project Coordination Board transfers the payment/advance funds for project activities in the province.

- In cases where the provincial People's Committees allocate advance funding for projects in the province, based on detailed notifications from the provincial People's Committees regarding advance funding, the Ministry of Finance will guide the inspection, advance issuance, and repayment procedures in a separate document.

5. Allocation and payment to conservation area management boards:

To disburse funds for conservation activities, the conservation area management board opens a fund-receiving account at a state-owned commercial bank in the locality and submits an advance request to the Conservation Fund Management Board.

For sub-projects of conservation area management boards approved by competent authorities and sponsors with implementation periods up to one year, based on the advance request from the conservation area management board, the Conservation Fund Management Board advances fifty percent of the foreign capital of the sub-project from the Special Account of the Fund Component into the conservation area management board's account.

For sub-projects of conservation area management boards approved by competent authorities and sponsors with implementation periods over one year, based on the advance request from the conservation area management board, the Conservation Fund Management Board advances the conservation area management board in two installments from the Special Account of the Fund Component into the conservation area management board's account. The first installment is fifty percent of the foreign capital of the sub-project. The second installment is forty percent of the foreign capital of the sub-project.

The conservation area management board manages the advanced funds and implements expenditures according to current financial regulations (correct unit prices, quotas, expenditure contents, and ratios of foreign capital support). Additional funding is replenished based on the approved annual financial plan, the actual progress of the project, and the legitimacy of expenditures from the previous advance.

The State Treasury's expenditure control over conservation area management board activities is pre-expenditure control.

To replenish the remaining funds according to the approved annual financial plan, the conservation area management board submits the following documents to the Conservation Fund Management Board:

- Request for additional funding;

- Detailed list of expenditures confirmed by the same-level State Treasury;

Progress report on completed works and projected progress for the next phase, detailed by time and activity. For works implemented under contracts of $20,000 or more, the conservation area management board attaches a copy of the contract. For works implemented under contracts below

$20,000, the conservation area management board only needs to provide a detailed contract statement. After reviewing these documents, the Conservation Fund Management Board requests the serving bank to transfer funds from the Special Account to the conservation area management board's account to supplement funding for the sub-project.

Any remaining foreign funds after the sub-project ends must be transferred back to the Special Account under the Fund Component within two months after the sub-project ends, except in cases where the sponsor and the Ministry of Finance grant an extension for disbursement.

6. Allocation and payment of counterpart funds:

Based on the approved annual counterpart fund plan (allocated to both central and local levels) of the project, the State Treasury system manages and allocates counterpart funds according to the project's implementation schedule, in compliance with current regulations on fund management and allocation.

7. Bank statements, interest on deposits:

a) Monthly, the serving bank sends the Ministry of Finance (Department of Foreign Financial Affairs) a statement of the Project Special Account at the bank, showing the amount withdrawn in the month; detailed usage according to each usage and exchange rate; bank fees, accrued interest, and end-of-month balance.

a) On a monthly basis, the Bank shall provide the Ministry of Finance (Department of Foreign Financial Affairs) with a statement of the Special Account of the project at the Bank, showing the amount withdrawn during the month; detailed usage for each transaction and exchange rate; bank fees, accrued interest, and the end-of-month balance.

b) While the loan amount, unutilized special account aid funds generate deposit interest (interest rate for demand deposits), annually, within six months from the end of the fiscal year, the serving bank shall transfer the remaining accrued interest (after deducting bank fees for the period) to the State Budget (the State's Foreign Exchange Fund account at the State Bank of Vietnam Branch) in Account Number 331.213.020.1, or another account notified by the Ministry of Finance.

- For the special account with IDA credit component funds, the accrued deposit interest on the account is considered revenue of the borrowing bank.

8. Accounting, Inspection, Audit, Reporting, and Settlement:

a) Accounting

- Project management boards shall maintain separate books to track project funding sources and perform accounting and statistical activities in accordance with current state regulations.

- Local Treasury Departments shall carry out accounting and statistical activities in accordance with guidelines provided by the Central Treasury Department.

b) Inspection

- The supervising authority of the project, central and local functional management agencies, and the Treasury have the responsibility to inspect the implementation of plans, financial management systems, and actual project deployment by the project owner, and promptly reflect any issues or difficulties encountered during management to the Ministry of Finance and the Ministry of Planning and Investment for appropriate resolution.

- Any violations discovered during inspection and audit shall be handled according to current regulations.

- Project disbursements found to be misused or improperly allocated through inspection and audit shall be recovered and deposited into the State Budget.

c) Audit

Annually, the special account, financial statements, accounting records, and accounting files of the project must be audited by an independent auditing agency in compliance with state regulations and agreements. One of the main contents of the audit is to verify whether project management boards comply with current state financial management regulations, including those stipulated in this Circular. Audit documents will be sent to the Ministry of Finance and serve as a basis for considering additional capital withdrawals for the special account or withdrawing capital from the special account for payment, as well as for evaluating project implementation.

The Ministry of Agriculture and Rural Development selects an auditing company to conduct a comprehensive audit of all non-credit components' financial activities in accordance with current regulations.

d) Reporting System

- Monthly, provincial project management boards and conservation area management boards are responsible for preparing and submitting implementation reports and financial reports to the provincial Department of Finance and the provincial Treasury where the funds were disbursed, and simultaneously sending them to the central project coordination board; conservation area management boards are responsible for preparing and submitting implementation reports to the county and provincial Departments of Finance and Treasuries where the funds were disbursed, and simultaneously sending them to the Conservation Fund Management Board. The report content should clearly reflect the project implementation status, the number of contracts signed, the capital payment situation according to contracts, capital sources and usage, procurement and project asset management situations, and other contents as prescribed.

- Provincial Treasuries where funds were disbursed are responsible for compiling and reporting to the Central Treasury and the provincial Department of Finance on fund disbursement and advance payment situations in their respective areas. Quarterly, based on reports from provincial Treasuries, the Central Treasury compiles and reports to the Ministry of Finance.

- Quarterly, the central project coordination board is responsible for reporting detailed expenditures from the special account, and consolidating reports from project management boards under non-credit and credit components to the Ministry of Agriculture and Rural Development, the Ministry of Finance, and related agencies regarding the use of loan, grant, and counterpart funds, procurement and project asset management situations, and other contents as prescribed.

- The central project coordination board discusses with project management boards to unify detailed reporting format guidelines for the project.

e) Annual Capital Settlement and Project Completion Settlement (not applicable to the credit component)

- Provincial project management boards prepare annual settlement reports in accordance with current regulations for local expenditures, confirmed by the provincial Treasury where the funds were disbursed, and submit them for review and approval by the provincial People's Committee, while simultaneously sending them to the central project coordination board.

The central project coordination board prepares settlement reports in accordance with current regulations for central expenditures of the non-credit component, confirmed by the funding agency, and submits them for review and approval by the Ministry of Agriculture and Rural Development; the Ministry of Agriculture and Rural Development settles the project implementation costs and project completion settlement with the Ministry of Finance; and concurrently compiles the entire project settlement for necessary work with relevant agencies.

f) Credit Component Settlement: carried out in accordance with current state regulations.

9. Tax Policy Applicable to the Project:

The tax policy applicable to the project shall be implemented in accordance with current tax laws. The project enjoys the following tax benefits:

- Goods imported using non-repayable ODA funds are exempt from value-added tax, special consumption tax, and import duties.

- Goods imported by the project using ODA funds are eligible for exemption from import duties and export taxes as stipulated in Clause 6, 10, and 18, Section I, Part D of Circular 113/2005/TT-BTC dated December 15, 2005, issued by the Ministry of Finance to guide the implementation of export and import taxes.

- The refund of value-added tax for projects using ODA funds is carried out in accordance with Clause 6, Section I, Part D of Circular 120/2003/TT-BTC dated December 12, 2003, issued by the Ministry of Finance to guide value-added tax.

10. Asset Management Formed from the Project:

The Ministry of Agriculture and Rural Development and the borrowing bank are responsible for managing, declaring, and registering assets formed from the project in accordance with current regulations. The management and disposal of project assets when the project ends are carried out in accordance with Circular No. 116/2005/TT-BTC dated December 19, 2005, issued by the Ministry of Finance to guide the management and disposal of assets of projects using state budget funds when the project ends.

PART III: IMPLEMENTATION ORGANIZATION

This Circular shall take effect fifteen days from the date of publication in the Official Gazette. During implementation, if there are any difficulties, the Ministry of Agriculture and Rural Development, the Refinancing Bank, and other relevant agencies must promptly reflect them to the Ministry of Finance for study, amendment, and supplementation./.