USAID FORWARD Objective 1/Use of Country Systems

1. USAID FORWARDObjective 1/Use of Country Systems “LESSONS LEARNED” ICGFM June, 2012

2. PAST EXPERIENCE WITH G2G FUNDING

3. Introduction to Risk andRisk Management • There are various standards, references and frameworks for risk and the risk management process. • These are some of the organizations that have established and published standards: • Australian and New Zealand Standard in Risk Management (AS/NZ 4360) • UK Institute for Risk Management • International Organization for Standardization Principles and Risk Management Standard (ISO 31000) • National Institute of Standards and Technology • Project Management Institute • Software Engineering Institute

4. Definition of Fiduciary Risk • The risk that funds will: • Not be controlled properly • Not be used for intended purposes • Produce inefficient or uneconomic programmatic results

5. What Does the PFMRAF Assess? Reputational Risks • Program Management Operational Risks • Shared Risk Financial Risks (Accountability) • Budgeting • Civil Service Training • Accounting • Procurement • Reporting • Audit • Donor image • Human Resources • Civil Service Laws • Internal Controls • Cash Management • Contracting Governance Risks • Media Freedom Democratic Risks (Accountability) • Oversight Quality • Institutional Capacity • CSO Vibrancy • Political Will • PFM Reform • Capacity Development Agenda • Public and CSO participation NOTE: This is illustrative and not a comprehensive account of all risks included in the PFMRAF.

6. Risk Management Process Plan Risk Management Identify Risks Analyze Risks Plan Risk Responses Monitor and Control Risks • Analyze Plans and Assumptions • Develop Risk Register • Qualitative and Quantitative Analysis • Update Register • Strategies • Contingencies • Update Register • Track Risks • Implement Responses • Update Register • Request Changes • Evaluate Effectiveness • Develop risk management policy and plan Continuous Communication and Collaboration • This process is a basic risk management process and very similar to the Project Management Institute’s process • Regardless of the industry, organization, or standards used, there are common themes for the risk management process • USAID applies this process and themes in its risk management process

8. Risk Appetite – Stage 2

9. Risk Treatment

10. OIG on IPR • “The OIG is fine with taking calculated risks.” • “No organization can eliminate risk.” • “The concept of risk management is fundamental to the concept of • internal control.” • “The concept of risk management” . . . Is fundamental to what • auditors do. . . “where auditors provide reasonable assurance, • but not absolute assurance. . . “ • “Risk management is thoroughly integrated into everything that USAID • does and into the work that the IG does. We won’t object to managers • taking thoughtful, calculated risks. Risks should be taken within a • carefully thought out, cost-effective system of internal control.”

11. Lessons Learned • It is possible to apply state-of-the-art management techniques, such as risk management, in the public sector. • It is not easy. Persistence and dedication are key. • You have to respect the power of the bureaucracy, but not be defeated by it. • Identify your friends and give them the credit for all accomplishments. • Anticipate opposition. Identify, then isolate or defeat your enemies. • Communicate. Communicate. And then Communicate. • This is not a game for sissies.

12. Lessons Learned • Partner countries welcome our initiative • Communicate the objective to the partner • “Partnership” requires informed commitment on both sides • Non-donor dependent countries may have lower G2G appetite • Harmonization reduces burdens on partners • Other donors welcome us to this space • We are sharing the burden, and cost, of risk management • Mismatch between risk bearing capacity of the United States and that of the partner countries • Imposes a moral and ethical burden on the risk assessment effort to protect the partner with the lower risk bearing capacity

13. Lessons Learned • An unforeseen, but major, red flag is a failure of the partner country to accept our fiduciary responsibility to our taxpayers • Other USG agencies have resisted when their diligence is less rigorous than ours • Skepticism about ability to implement a rigorous PFMRAF over the long term – MCC experience • Partnership, not patronage. • “Certification” is a flawed approach both from risk management and development viewpoints.

14. Lessons Learned • Thus far, few countries actually “fail” the PFM aspects • But the sample is questionable – self-selected missions prioritized by the regional bureaus. We may see more PFM “fails” when the process is opened to the entire agency • “Fails” are due to democratic accountability limitations • Whole-of-Mission effort • Democracy, governance, economic growth are linked with transparent and accountable public financial management • Risk management begins at the strategic (CDCS) level and proceeds throughout the project design process • Poor prior planning produces poor products

15. Evidence-based and data-driven – not just words but deeds • The PFMRAF has feedback loops designed into that are on the critical path to long term success. • We believe in the goal of working ourselves out of a job through sustainable development grounded in country ownership.