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F i n a n c i a l M a n a g e m e n t M a n u a l – U P H S S P

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TABLE OF CONTENTSChapter

NoParticulars Page No

1 Project Description 1-32 Financial Management System 4-53 Organizational Structure of Finance & Accounts wing 6-84 Budgeting & Funds Flow Mechanism 9-12

5Accounting Methods, Procedures, Policies and Records

13-15

6 Disbursement System & Reporting 16-237 Internal Control 24-258 Auditing 269 Procurement 27-3510 Delegation of Powers 3611 Attachments: 37

11.1 Terms of Reference for Statutory Audit 38-4911.2 Selection Procedure for Internal Audit 5011.3 Terms of reference for Internal Audit 51-5711.4 Interim Financial Reports (semi annual) Format – 1

Interim Financial Reports (semi annual) Format – 2Interim Financial Reports (semi annual) Format – 3Interim Financial Reports (semi annual) Format – 4Interim Financial Reports (annual) Format – 5Interim Financial Reports (annual)- Format 6

58-65

11.5Annual Budget Component/Sub-component & Activity wise;

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11.6 Treasury reports in form no. 5,8,11,12,12A & 12B 67-74


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Chapter -1

Project Description

Government of Uttar Pradesh has prepared a Health System Strengthening & Quality Improvement Project with assistance from the World Bank. The main objective of project is to strengthen the State’s health sector organizational performance to enable improved efficiency and quality of public service delivery and better engagement with the private sector. The Project will, therefore, support two key components of this reform strategy:

Component 1: Strengthening management and accountability systems will support:

(i) Strategic planning functions in the Health Department, working closely with the recently established Health and Knowledge Resource Center (HKRC) in the Family Welfare Department.

(ii) Improved use of data for program management in collaboration with the

existing Electronic Data Processing (EDP) Cell in the Department and expanding its scope to function as a Data Resource Center.

(iii) Strengthening the use of financial information for improved decision making through the existing accounting and auditing systems for treasury and society funds and over time enable the State to move to a unified financial management control system; and in undertaking the necessary procurement reform and strengthening of procurement and supply chain management systems; and

(iv) Introducing and strengthening social accountability action research to introduce community assessment of health and health care at the local level and use assessment information to stimulate community action to demand better services, enhance positive health behaviors and promote community audits of service delivery; and introducing facility based provider incentives in the public sector.

The total number of DLIs for this component is 4. Each of these DLIs will disburse on achievement of the associated DLI targets for each fiscal year i.e. 14 (in number) over the project period. The DLIs are associated with Component 1 are:

DLI 1: Percentage of districts using the personnel information system for paying salaries of health workers;

DLI 2: Percentage of districts with completed and published facility-based report cards detailing national health programs indicators and facility-level performance data;


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DLI 3: Percentage reduction in procurement cycle time

DLI 4: Percentage of Primary Health Centers participating in the social accountability pilots for which a service delivery assessment has been completed and at least one corrective action by government is verified by the community

Component 2: Improving quality of service delivery and private sector engagement will support:

I. Strengthening the institutional capacity for service quality improvement and supportive regulatory environment, this would include establishment and capacity building of the Quality Assurance (QA), Environment Management (EM) and Public Private Partnerships (PPP) Cells in the Directorate of Health.

II. Improvement of quality of service delivery at public sector hospitals to enable accreditation under the National Accreditation Board of Hospitals (NABH);

III. Contracting with private sector for improving quality of service delivery, which would include diagnostic services, non-clinical support services;

IV. Ensuring availability of the full complement of human resources required for accreditation at each selected facility, and health managers at the facility level

The total number of DLIs for this component is 3. Each of these DLIs will disburse on achievement of the associated DLI targets for each fiscal year i.e. 11 (in number). The 3 DLIs are associated with Component 2:

DLI 5: Percentage of hospitals under the accreditation program that annually produce data and monitor: service productivity, efficiency, quality, patient satisfaction, and accountability ;

DLI 6: Number of facilities using non-clinical service contracts (outsourcing to the private sector for housekeeping and laboratory services) in which a portion of payments are linked to quantifiable performance indicators ;

DLI 7: Percentage of hospitals under the accreditation program that have been certified for pre-entry level accreditation.


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CONSOLIDATED BUDGET BY COMPONENT, SUBCOMPONENT & ACTIVITY(Rs. in Millions)

COMPONENT, SUBCOMPONENT & ACTIVITY

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

Total

Component-1 Strengthening Management and Accountability SystemsSub-Component-1.1: Introducing Strategic Planning Function:

0.50 5.50 11.01 16.01 10.51 43.53

Sub-Component-1.2: Strengthening EDP Cell as Data Resource Centre Health Geographical Information Systems (HGIS)

5.00 225.41 78.43 88.63 56.43 453.91

Sub-Component-1.3: Strengthening Financial Management, Procurement, Supply Chain Management Systems in the Medical & Health Directorate

10.00 31.00 24.50 33.50 25.00 124.00

Sub-Component-1.4: Introducing and Strengthening Social & Providers Accountability in the Public Sector

1.00 13.00 32.00 32.00 34.00 112.00

Sub-Total 16.50 274.91 145.94 170.14 125.94 733.44

Component-2: Improving Quality of Service Delivery & Private Sector Engagement:Sub-component-2.1: Strengthening Quality Assurance & Improvement Cell in Medical Directorate

2.00 627.00 1029.00 514.50 504.00 2676.50

Sub-Component-2.2: Strengthening Environment Management Cell at Medical & Health Department

2.00 28.00 40.00 50.00 34.00 154.00

Sub-Component-2.3: Strengthening PPP function at Medical & Health Directorate

1.50 184.50 340.50 337.50 336.00 1200.00

Sub-Component-2.4: Introducing Health & Hospital Management Professionals in hospitals and health facilities

0.00 18.00 32.00 41.00 41.00 132.00

Sub-Total 5.50 857.50 1441.50 943.00 915.00 4162.50

Grand Total 22.00 1132.41 1587.44 1113.14 1040.94 4895.94

Project Support Unit Expenditure-10% of the Basic Cost including TAP mgmt fees for other consulting services

2.20 113.24 158.74 111.31 104.09 489.59

Total Cost of the Project excluding DLI 24.20 1245.65 1746.19 1224.46 1145.04 5385.54

DLI Component 500.00 500.00 500.00 750.00 0.00 2250.00

Total Project Cost 524.20 1745.65 2246.19 1974.46 1145.04 7635.54

Total Cost of the Project in USD 11.65 38.79 49.92 43.88 25.45 169.68

Annual Disbursement in USD by WB 11.57 34.64 44.09 39.80 21.63 151.73

State Share-15% in USD 0.08 4.15 5.83 4.08 3.82 17.95

State Share-15% in INR-MILLIONS 3.60 186.75 262.35 183.60 171.90 807.75


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Chapter-2

Financial Management System

2.1 Financial Management System:

For effective implementation of the Programme, it is proposed to adopt the main stream government accounting system, based on the success of implementing other externally aided projects in health sector in the other states. In addition, it is proposed to avail the benefits of treasury computerization, by establishing linkages with the treasury system for effective data transfer and financial reporting.

Goals of Financial Management System:Considering the special features of the Programme, the proposed financial management system aims at achieving the following goals:-

Efficient fund flow and its proper utilization usage at all levels Efficient accounting system Accurate and timely financial reporting system Compliance of applicable laws and regulations Utilization of funds for the purpose for which it is provided Timely submission of disbursement application Establishing a system of accountability and responsibility Enable proper forecasting and budgeting Enable decision making to ensure timely completion of the Programme by

achieving specified goals and objectives.

2.2 Approaches of Financing:

The UPHSSP has a concept of dual financing from the World Bank – (a) ProjectSpecific Lending for works, goods, technical assistance, training, incremental operating costs and (b) disbursement against the achievement of agreed Disbursement Linked Indicators or milestones/benchmarks; which will be againsteligible expenditures from the State budget. For part ‘a’ above, the UPHSSP will get funds through the State budget for project expenditure which will be incurred centrally from the Project Support unit of the UPHSSP and identified hospital locations.

2.3 Financial Management Manual:

This Financial Management Manual covers the following areas: Budgeting process Fund flow mechanism Accounting Disbursement system Audit arrangements Procurement arrangements


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As the project will be implemented through the main stream State TreasurySystem, the expenditure will be recorded on cash payment basis. The procurement of works, goods and services will be done following the prescribed procedure as per the World Bank’s procurement guidelines for works, goods and services. As regards the operational expenditure on project implementation, these will be done following the rules and regulation of the UPHSSP as well as UP Govt. financial rules. Standing Orders, Departmental instructions and circulars, issued from time to time shall be applicable to all accounting centers.

The Financial management manual and accounting systems shall be mandatory for all accounting locations under the Project.


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Chapter-3

Organisational Structure of the Project’s Finance and Accounts wing

3.1 The Project will be administered and monitored at various levels:

(1) Project Governing Board (PGB) of the UPHSSP at the apex level, headed by the Chief Secretary, GoUP.

(2) Project Steering Committee (PSC) of the UPHSSP headed by Principal Secretary Medical, Health and Family Welfare

(3) Project Coordination Team (PCT) under the Project Director, UPHSSP as described in PIP.

(4) Project Support Unit (PSU) headed by Project Director.

(5) Procurement Agent and Technical Services Provider

3.2 The Organizational structure of Finance and Accounts wing at PSU:A Financial Controller will head the Finance and Administration Unit at the PSU. The Financial Controller will be deputed from State Finance & Account services and he/she will not be below the level of Financial Controller. He/she will provide leadership and strategic direction on financial aspects of the projects, including development of financial capability at middle and lower level. He/she has overall responsibility for all finance, accounts and audit functions of the project; in addition he / she shall be responsible for compliance of the relevant Acts, Rules, and financial covenants of the project’s legal agreement.

UPHSSP will also hire the services of a financial management consultant/advisor (chartered accountant) for effective implementation of financial management system including disbursement of funds from the World Bank. The FM Consultant/Advisor will assist the Financial Controller and Project Authorities in financial management functions of the Project with specific focus on following:-

Implementing Internal Control Systems at all levels of the Project. Regular consolidation of financial information for the purposes of reporting. Training and capacity building support to project accounting locations Preparing Annual and Quarterly budgets and getting approval from PSC/EEC. Overseeing the proper maintenance of Project Accounting Records and

finalization of Project accounts Getting Accounts audited by Internal Auditors, Procurement Auditors and CAG

and ensuring compliance action.


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Submission of Interim Financial Reports (IFRs) and claiming reimbursements from the Bank.

All secretarial work related with preparing agenda for PSC/PGB and maintaining minutes of proceedings.

Proving financial progress report to Govt. GOI and the World Bank. Assisting FC, APD & PD on key decisions by providing financial management

support.

The following Account & Finance staff will assist to FC & FA in implementation of financial management functions of the Project.

Sl.No Position Responsibilities1- Assistant Accounts Officer -

firstTraining, capacity building and monitoring of project accounting locationsInternal Audit, AG Audit & Procurement Audit.

2- Assistant Accounts Officer -second

All Treasury Bills Checking, Getting Bills passed and signed by the DDOs and Record Keeping as per Financial Hand Book, Expenditure Reporting, Reconciliation with Treasury & AG (A&E) and submission of accounts to AG.

3- Accountant-first Payment checking and processing work for all activities under Component-1, Pay Bills Preparation, TA Bills, Medical Bills and other claims of staff and consultants.

4- Accountant-second Payment checking and processing work forall activities under Component-2.

5- Accountant-third All Treasury Bills Preparation. 6- Cashier Getting Treasury Bill Passed and collect the

cheque from Treasury and safe holding of cheque, EMD, Security Money, Bank Guarantee etc. at PSU. Reconciliation of Project expenditure with Treasury & AG every month.

The Financial Controller will also supervise the administrative and personnel related functions of the Project. One Asstt. Administrative Officer will assist him in related duties.

3.3 Accounting Units:The Project will have its main accounting centre at the PSU and significantexpenditure under the project will be incurred and controlled centrally from the State project support Unit. The project will also have accounting locations (40 in different phases) at hospitals under the process of NABH accreditation where recurring budget allocation will be provided for meeting day-to-day expenditure


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related with the hospital accreditation process. The project and Hospitals will keep separate set of Accounting Records as per the State Financial Handbook as applicable to all transaction in UP. At hospital locations, existing accounting staffworking in the hospital and handling the treasury and accounting function of the hospital will be responsible for handling all transactions related with the Project and it’s reporting to the PSU.

Role & Responsibility of Accountant at Hospital:1. To record all receipt of budget from UPHSSP/GOUP for the Project and

maintain separate accounting records of the Project as per the Financial Hand Book and Budget Manual of the State Government.

2. Make payment against the approved contracts of PSU after due verification and checking of bills for quantity, quality, rates and stock entry.

3. Prepare Treasury Bills for all payments. Record keeping as per Financial Hand Book, Expenditure Reporting to PSU, Medical & Health Directorate,Reconciliation with Treasury & AG regularly every month and submission of Accounts to AG through DG(M&H).

4. Proper upkeep of payment records in office.

5. Preparation of monthly financial & physical progress report required to be furnished to PSU.

6. Any other responsibility as assigned by the PSU or Hospital Superintendent.


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Chapter-4

Budgeting & Fund Flow Mechanism

4.1 Budget is a comprehensive and coordinated plan, expressed in financial and physical terms, of the operations and resources of the project for a specific period. The PSU will prepare Annul Action Plan (AAP) with financial budgeting for each activity in coordination with the relevant cell of the Medical & Health department proposed to be strengthened under the Project. The Technical Assistance Provider and Procurement Agent will also assist and provide relevantinputs for preparation of the AAP & Budget. The PSU will present the AAP with the Budget to the Project Steering Committee and Project Governing Board of the UPHSSP for approval. Based on the budgetary requirement, necessary budget provisions will be ensured in the State Budget of the Medical & Health Department. The State Government will make an annual allocation for the project in the budget of the Health Department under a separate head titled ‘World Bank Project’. At the state level, the budget would be approved by the state legislature as part of the overall budget of the Department. However (as explained subsequently) for the DLI component, the Bank will provide a share in financing of a line item of the existing state health budget. In addition to the normal budgeting process, the project shall ensure compliance to the agreed financial covenants for obtaining timely disbursement for programmatic funding.

4.2 Budget process involves identifying specific tasks to achieve the objectives of the project within a time frame, and allocating funds needed for accomplishing the same from the available or anticipated resources. The budget shall be prepared following government system of budgeting as per the state budget manual, circulars, instructions and guidelines issued by Finance Department and also ensure linkages with agreed components of the project as per the legal documents.

4.2.1 Two Layers of Budget: UPHSSP is responsible for providing much needed technical and financial assistance to the Directorate of Medical & Health for strengthening the systems and for improving health care delivery system by upgrading the hospitals upto NABH Accreditation standard with innovative approaches. Therefore, the Budget of the UPHSSP comprises of two parts:-A. Funds required under program support by UPHSSP at State Level –PSU.B. Funds required by selected hospitals for Program implementation under

Quality Improvement.

4.3 Creation of New budget heads:The Programme has proposed creation of new project specific budget heads (State Budget Heads) for ensuring greater budgetary control and effective monitoring of project expenditure. As the treasury has computerized its functions, it would facilitate in obtaining statements under the project specific heads and also to consolidate monthly utilization of funds for effective reporting and


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monitoring purpose. The new project budget heads proposed for creation are as follows:

Sl. No Major Head of Account

Nomenclature

1 2210-01-110-97-01UPHSSP- Strengthening Management and Accountability Systems

2 2210-01-110-97-02UPHSSP-Improving Quality of Service Delivery & Private Sector Engagement

The identified budget line items may undergo revision / change during the course of implementation of the project, and hence flexibility in the budget line items, has been provided with a stipulation that funds should be used for strengthening the systems and quality improvement in health care services. Any new activity introduced by the government during the project period to strengthen the systems and quality improvement in healthcare delivery would also be eligible for funding support under the Programmed Financing subject to agreement of the World Bank.

4.3.1 Preparation of Project budget: The activities budgeted shall be in-line with the agreed PIP, PAD and other related documents. The project shall ensure that overall expenditure under each of the agreed component does not exceed the total cost specified in the project documents. If the cost escalation is beyond the control of PMU, efforts shall be made to seek the approval from the PSC, PGB of the UPHSSP and Bank for its revision, by the reallocation of the budget provision. The intra-year budget variation will be approved by Project Director up to 15%, by Project SteeringCommittee up to 50% and by the Governing Board beyond 50%.

4.3.2 Budget Review:The Project will ensure a system of monthly plan review and monitoring meeting wherein physical and financial performance review will be done at the level of Project Director in PCT and quarterly review will be done at PSC and annual review will be done at PGB. The PSU will prepare, analyze and compare the actual expenditure against the budget on a monthly basis. The budget versusactual performance statement shall also cover the physical progress using key indicators for better review. The revision of budget shall be as per the requirement with the approval of the higher bodies.

4.4 Importance of Fund Flow:Adequate funds at the right time and at the right place will support the project. The success of the innovative project activities, like Quality Improvement & Accreditation, Strengthening EDP Cell, PPP Cell, EM Cell etc., depends to a great extent on the fund flow. The fund flow mechanism proposed hereunder would enable speedy and timely payments to the service providers and suppliers, which will motivate them to accomplish the given task in time, at a competitive cost.


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4.5 Sources of Funds:The main Sources of Funds for the Project are: The World Bank and Government of Uttar Pradesh

4.6 Funds from World Bank:The World Bank shall transfer the funds into a Special Account opened for the project with the Reserve Bank of India. This account is operated by the Controller of Aid, Accounts and Audit (CAAA), Department of Economic Affairs, Government of India.

The funds shall be reimbursed by the World Bank on a semi-annual basis for the project requirements based on the Interim Financial Reports (IFRs) submitted by UPHSSP.

4.7 Funds to State Government:Under the proposed arrangements there shall be back to back transfer of funds from the GOI to the State Government on receipt of funds from the World Bank. The State Government shall make the annual budgetary allocation for the project in the state budget under grant no. 32 of the Medical & Health Department under a separate ‘World Bank Project’ Budget code 2210-01-110-97-01 & 02.

4.8 Funds to UPHSSP :The UPHSSP will get release of budget from the State Budget through the Department of Medical & Health. The Department will get release from the Government against budget provision made in the State budget on half yearlybasis. The Departments in turn will release the budget to UPHSSP. The UPHSSP willincur all expenditure through the State Treasury. DDO code is already allotted to Project Director, UPHSDP and Financial Controller, UPHSDP.

4.8.1 Fund Disbursement by UPHSSP:The UPHSSP will incur all expenditure through the State Treasury and all financial transactions related with payments to suppliers, vendors, consultants and others will be made through the State Treasury. The State Treasury System will also be applicable for hospitals under accreditation where budget will be allocated and released by the Government for meeting recurring payments under the Project.

4.8.2 Periodicity & Triggers for transfer of funds:The UPHSSP will arrange the allocation of budget to hospital location on quarterly basis working out their estimated expenditure for the quarter. On submission of quarterly expenditure reports by the hospital, the PSU will get the budget allocation released from the DG (M&H) for next three months expenditure within 7 days after receipt of reports and budget requisition from the hospitals.


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Fund Flow Exhibit

Arrow Line shows flow of funds DLI Disbursement Plain Line shows submission of re-imbursement of claims

World Bank-85%

Govt. of India

UPHSSP

Finance Deptt, GoUP

M & H Deptt

GoUP Share-15%

Hospitals

Payments to Parties

Hospitals

Budget

Periodic Budget Allocation


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Chapter-5

Accounting: Methods, Procedures, Policies and Records

5.1 Accounting – Methods, Procedures, Policies and Records

5.1.1 Importance of Accounts:The success of any project to a great extent depends on its financial discipline and its accountability for the funds provided. The accounting system plays a crucial role in directing and guiding the Project to its goals and objectives. A sound accounting system reflects the variations or any deviations from the planned goals (budget) so that corrective action is taken and the system informsthe organization of any major changes or adverse situation in time for corrective action.

5.1.2 The Project Specific Requirements in Accounting:The Funding agency recognizes the local practices and standards. However, theissues in the accounting system adopted by the Project are as follows. To provide for full accountability for all funds provided by the funding agency Result in adequate financial statement disclosures; Ensure fair presentation of financial performance and position Be acceptable to the Auditors and the Bank.

5.1.3 Proposed Accounting System:As UPHSSP Programme is implemented by the Health & Family Welfare Dept. of Government of Uttar Pradesh, it needs to follow the Government accounting system on “Cash Basis of Accounting”. Thus, the accounting system shall be mainstream government accounting based on treasury operations. Therefore, provisions of the Uttar Pradesh Treasury Systems, UP Financial Handbook, Budget Manual and Standing Orders or instructions amended from time to time applicable to the Government of Uttar Pradesh shall be applicable to the Project accounting units as well as Hospital locations.

In addition, the project needs to furnish financial progress statements to various stakeholders and users. Timely and accurate financial data is very vital for decision making in the process of implementation and monitoring of the project at multiple levels. It may be noted that Uttar Pradesh Government has introduced the "Right to Information Act", hence, it is obligatory for all the accounting units to furnish the financial information to the public as and when demanded, through the accounting system apart from the frequent questions raised by the elected Members of Parliament / Legislature.

5.1.4 Accounting Policies: The Programme will adopt mainstream government accounting policies, which are being practicing as per UP Finance Rules and guidelines issued by


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government from time to time. In addition to this, the Project shall adopt the following general accounting policies”

S. No.Accounting Policy

on Proposed

1 Foreign Currency Transaction

Foreign currency transaction, if any, will be recorded in local currency at exchange or conversion rate prevailing on the date of the transaction and applied by the Bank, which has received or paid in foreign currency on behalf of UPHSSP, in line with the national accounting standards.

2 Treatment of Funds released (Advance) to Service Providers/ Contractors/ Others

Release of Funds – advances to Service Providers/ Contractors/ NGOs/ Others shall be governed by the terms and conditions of contract. Such payments shall be treated as “Advance” and charged as expenditure only after its settlement. However advances as per contract terms are eligible for financing from the World Bank.

3 Earnest Money Deposit and retention money

Earnest Money Deposit (EMD) and retention money recovered/collected shall be recorded in the Books of accounts as liability of the Project, till its refund or settlement.

5.1.5 Chart Of Accounts:A multi-layered Chart of Accounts has been designed for the – Uttar Pradesh Health Systems Strengthening Project to meet the financial reporting requirements of various stakeholders such as: Government of India Government of Uttar Pradesh State Project Support Unit - UPHSSP Implementing Units – Hospital Locations Statutory Auditors etc., and The World Bank

5.1.6 Classification of Project Transaction (Accounts) :In addition to mainstream Government standard accounting requirement, the project will maintain Interim Financial Report (IFR) reports to meet the specific reporting needs of stakeholders mentioned above by classifying the project transactions under State budget head, project component & sub-component, object head and Project location-wise etc.

5.1.7 Books of Accounts:As the project is implemented by the Health and Family Welfare Department, GOUP the Statutory books of accounts as required by the UP Financial Handbook Rules i.e. Cash Book,11-C Register, Treasury Register, Pay Bill Register, Contingency Register, TA Bill Register, BM-4, BM-5, BM-6, BM-8, BM-9 & BM-11 are required to be maintained. In addition to these, Project shall maintain following additional project specific records.


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Sl. No. Books of accounts and records SPMUHospit

als1 Contract Monitoring Register 2 WBR Number Register / Prior Review Contracts 3 Statement of Expenses Register 4 Project Ledger Account with details of Components / Sub

Components / Expenditure Object Head

5 Earnest Money Register, Security Money Register, Tax Deducted at Source Register, Medical Register, Bill Payment Register Treasury Cheque Issue Register, Traveling Expenses Register, Dak Receipt & Dispatch Register, Stationery Stock Register

6 Fixed Assets Register 7 Dead and Consumable Stock register 8 Workshop and Training Expenses Register 9 Reimbursement claims monitoring register

10 Funds Receipt Register

The list of books and registers mentioned above is only an indicative.

In addition to above, following records and documents shall be kept properly and safely as the same are required from time to time for classification and submission of information to various authorities, for audit by Internal Auditors, AG Auditors & Procurement Audit by the World Bank.

1. Treasury Payment Bills along with-supporting documents.2. Tender Notices, Tenders documents, Evaluation Reports, Comparative

Charts, Approval of the World Bank, wherever required, Approval of the competent authority/committee for administrative & Financial approval, Purchase orders, Contracts, Challans, Goods Receipt Notes.

3. Measurement Books, Running & Final Bills4. Bills and verification of Receipt Documents5. Material/Goods Indent Forms6. Other incidental documents required for accounts & audit.

The list of books and registers mentioned above is indicative only.


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Chapter-6

Disbursement System & Reporting

6.1Disbursement:Obtaining the finance from the World Bank is referred to as Disbursement. Disbursement process as specified in the Development Credit Agreement shall be binding on the project. The Bank reimburses the cost at the agreed rate provided such expenditure has been incurred for the specified project activities, adhering to the procurement guidelines and norms of the World Bank.

6.2Method of Financing & Disbursement:

6.2.1 Extent of Financing:

The Bank and the GOUP have agreed in principle for 85 % financing of the actual expenditure by IDA and 15 % by the GoUP from its own resource, for disbursement categories with the exception of Program financing by way of DLI to the extent of USD 50 millions over a period of 5 years.

6.2.2 Retroactive financing will be available to the project under the following conditions: (a) the activities financed are included in the project description; (b) the payments are for items procured in accordance with applicable Bank procurement procedures; (c) such payments do not exceed 20 percent of the loan amount; and (d) the payments were made by the borrower not more than 12 months before the expected date of Loan Agreement signing.

6.2.3 Disbursement from the World Bank will be in two ways:-(i) Project Approach: The disbursement from the World Bank for the Project

activities shall be IFR (Interim Financial Reports) based. The Project will submit semi-annual Interim Financial Reports (IFRs) which will provide information on expenditure made in the previous semester and forecast for the subsequent semester. Semi-annual disbursements would be made based on these IFRs, reimbursing expenditure for the reporting period. IFRs will be submitted to the Bank within 45 days of close of the semester through CAAA, DEA, GOI. The IFRs for the period April to September will be submitted to the World Bank by 15th November and for the period October to March, by 15st May.

(ii) Specific program financing using DLIs: The funding to the State Government would be on achievement of pre-specified indicators as given in the “DLI Matrix” of the credit agreement. Disbursement based on DLIs will be for a part of the project, i.e. for SDR equivalent of USD 50 million. Values will be assigned to each of the DLIs in such a manner that the sum total of all the indicators for all the years adds up to USD 50 million. As and when


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the DLIs are met the GoUP will be eligible for receiving a sum of money equal to the value assigned for that indicator for that year; this disbursement shall be made by the Bank annually.

(iii) For the purposes of disbursement the Funds will be allocated as follows.

Disbursement Category

Category 1 Category 2

Short Name Traditional Disbursement DLI based DisbursementProject Cost US$120 million Not applicableBank credit allocation

US$102 million US$ 50 million

Eligible expenditure

Goods, works, non-consulting services, and consultants’ services, training and operating costs under the Project

Salaries and Allowances –Salaries and Dearness Allowance paid under Grant Nos. 32 (Medical – Allopathy) and 35 (Family Welfare)

Disbursement method/ cycle

85% of eligible expenditure/ semi-annual

Achievement of DLI as per independent verification and audits/ Annual

Linked with Specific project inputs under Component 1 and 2

DLIs linked with Component 1 and 2

Disbursement condition

None Achievement of DLI

(iv) An advance of up to US$10 million will be requested by the Project anytime during the lifetime of the project; this will be recovered by the Bank from disbursements that are made close to closure of the project period.

(V) The project components have specific project inputs that will be financed by the Bank; these are described below.

Specific project inputs for Component 1: Strengthening the Department of Health's management and accountability systems: The specific inputs to be supported under this component include consultant services (conducting studies, providing technical assistance and training), non-consulting services (GIS data), non-clinical equipment (Information Technology related hardware and networking equipment), hiring of non-governmental organizations to implement social accountability pilots, performance awards to facilities (provider incentive pilots) and operating costs (workshops, contractual staff for cells and other operating costs of project management).

Specific project inputs for Component 2: Improve the Department of Health’s capacity to perform its quality assurance role and more effectively engage the private sector: The specific inputs to be supported under this component include consultant services (conducting studies, providing technical assistance, training, handholding of facilities to achieve accreditation, accreditation fee),


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non-consulting services (outsourcing of diagnostic and housekeeping services), clinical equipment for hospitals undergoing accreditation) and operating costs (workshops, contractual staff for cells and facilities).

(VI) Disbursements Linked Indicators (DLIs)

A part of the project activities will be financed using DLIs; disbursement against DLIs would be on achievement of agreed indicators and targets are given below and in Annex 1 of the PAD in the “DLI Table”. There will be four rounds of annual disbursement in 2013, 2014, 2015 and 2016. There are 7 DLIs with 25 associated DLI targets over the project period. Each DLI target will have a value of US$ 2 million totaling to US$ 50 million over the project period. Each DLI is independent of each other, i.e., non- achievement of some DLI targets for a year will not hold up disbursement against other DLI targets that have been achieved for that year. The DLIs would be “floating” where non-achievement of a DLI target can be carried over to the next year to a maximum of one year.

(vii) Table: Disbursement Linked Indicators

Indicator Baseline End of Year 1

End of Year 2

End of Year 3

End of Year 4

Component 1: Strengthening the Department’s of Health management and accountability systemsDLI 1. Percentage of districts using the personnel information system for paying salaries of health workers

Nil -- 10% 30% 60%

DLI 2. Percentage of districts with completed and published facility-based report cards detailing national health programs indicators and facility-level performance data

Nil DRC established and 75% of staff in place with clear TOR; District report card formats developed; and Guidelines issued to the districts

20% 50% 75%

DLI 3. Percentage reduction in procurement cycle time

To be collected in the assessment report

Assessment completed and accept

10% reduction

20% reduction


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ed by the government, and Action Plan prepared

DLI 4. Percentage of Primary Health Centers participating in the social accountability pilots for which a service delivery assessment has been completed and at least one corrective action by government is verified by the community

Nil Pilot design developed, baseline completed, and evaluation framework developed

NGO hired and implementation started in treatment districts

20% 50%

Component 2: Improving the Department of Health’s capacity to perform its quality assurance role and more effectively engage the private sectorDLI 5. Percentage of hospitals under the accreditation program that annually produce data and monitor: service productivity, efficiency, quality, patient satisfaction, and grievance registration and redressal

Nil 30% 60% 90%

DLI 6. Number of facilities using non-clinical service contracts in which a portion of payments are linked to quantifiable performance indicators

Nil PPP cell established with at least 75% of staff in place with clear TOR; Performance based contract format developed for at least 2 outsourcing contracts

15 30 50

DLI 7. Percentage of hospitals under the accreditation program that have been certified for pre-entry level

Nil QA cell established and 75% of staff in

25% 60% 90%


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accreditation place with clear Terms of Reference

Total number of DLI targets for each year 4 7 7 7

Total expected annual disbursements 8 14 14 14Each DLI has a value of US$2 million. There a total of 7 DLIs and a total of 25 associated DLI targets

(Viii) World Bank guidelines on Investment Lending require that disbursement takesplace against an activity that is eligible for Bank financing. “Salaries and Dearness Allowance paid under Grant Nos. 32 (Medical – Allopathy) and 35 (Family Welfare)” would be considered as the Eligible Expenditure Program (EEP1) which the DLIs would fund.

(X) Expenditure reported on the EEP would be based on independently audited financial statements; the Comptroller and Auditor General of India (C&AG) through its offices in UP is the auditor for the state including the Health Department. The CAG’s audit report will be reviewed to confirm actual expenditure on the EEP which should be greater than the disbursement made. The audit process will be completed in the following manner (a) GOUP will provide the following documents: State Finance Accounts and Appropriation Accounts (issued by the AG (A&E)); State Audit Report (issued by the AG (Audit)) to review observations relating to the EEP if any; and Grant-wise expenditure details (issued by the Finance Department). All these are standard documents which are publicly available. (b) Since object head-wise details are not available in the documents issued by the AG, the health department will annually carry out reconciliation between the Appropriation Accounts and the Grant-wise expenditure details. Once reconciled2 the values as available from the Grant-wise expenditure details will be considered as the EEP.

(XI) These reports are issued by the C&AG and are made public only after they are placed before the State Legislature; further there is a weak co-relation between the timing of inputs and outputs. Taking this into consideration the disbursement cycle will be as follows.

Year DLI verification Disbursement/ audit due date

$ Million Eligible Expenditure

1 Apr 2013 Jun 2013 08 Apr 11 – Mar 122 Apr 2014 Jun 2014 14 Apr 12 – Mar 133 Apr 2015 Jun 2015 14 Apr 13 – Mar 144 Apr 2016 Jun 2016 14 Apr 14 – Mar 15

1 Expenditure recorded on the EEP for FY 2009 -10 was Rs. 2370.82 crores2 A reconciliation was successfully carried out for FY 2009 – 10 during project preparation


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(XII) The cycle of disbursement on achievement of the agreed performance indicators and the subsequent confirmation (by Audit) of the eligible expenditure for which it was made, will be repeated each year.

6.3Key funding conditions :

a. The Statutory Audit Reports with accounts of the UPHSSP will be submitted to the World Bank within 6 months of the close of each financial year. While releasing the installment after receipt of the audit report, the Bank will consider all audit reports received till date and any variance between the audited accounts and the IFRs claimed will be adjusted accordingly. Viz. if the IFR amounts were less than the audited accounts, Bank will provide additional funds after due reconciliation and if the Audited expenditure is less than the IFRs figures Bank will reduce or adjust the claims.

b. DLI component - Yearly audited confirmation of eligible expenditure of the Medical & Health Department, GoUP as per audited Finance Accounts of the UP will be submitted to the Bank after approval of the Accounts by the State Legislature and obtaining the confirmation certificate from the Accountant General, Allahabad. Submission of Yearly audited confirmation of eligible expenditure to the World Bank will be through CAAA to obtain DLI Incentive disbursement against eligible expenditure of the department as defined in the Credit agreement.

6.4Financial Reporting

6.4.1 Need for Financial Reporting:

The primary objective of the financial reporting is to appraise the project management authorities and other stakeholders of the actual performance, and secondly to enable the project authorities to take objective and sound decision for effective monitoring, timely completion of the Project and to achieve the Project objectives. The financial reports are required by various users and stakeholders of the Project such as PSU, GoUP, GoI, the World Bank, Auditors, Legislature, Elected representatives, courts and public at large (Right to Information Act).

The UPHSSP will follow the Treasury Systems of Government Accounting for all financial transactions. The Project will also generate reports to meet the day-today requirements of the Project for effective monitoring and implementation as well as to cater the need of various stakeholders. The reports will be based on the basic accounting records at all accounting locations.

While preparing the reports adequate care will be taken ensure that the report generated are from the primary and secondary books of accounts and records maintained by the Project and meet the quality standards such as: - Accuracy; Completeness;


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Timelines; Useful to the end user; Consistent and reliable after passing through the internal controls tests.

Project will structure the reporting system with the format of reporting, its frequency of reporting, its origin and the end user, effective implementation and decision making as mentioned in the table below.

Financial Monitoring Reports for World BankReport Code

Particulars Originate End User Frequency of reporting

IFR–1

Budgetary Allocation, Quarterly Expenditure under Project Components and activity and forecast for next 6 months in format-1 annexed

PSUProject

authorities / Auditors/WB

Semi-Annually

IFR-2Expenditure by the State (a) by PSU (b) by Hospital Quarterly and Cumulative in Format-2 annexed

PSUProject


Semi-Annually

IFR-3 World Bank Funds requirement (excluding DLIs)in Format-3 annexed

PSUProject


Semi-Annually

IFR-4Report on Payments made against Contracts Subject to Prior Review in Format-4 annexed

PSUProject


Semi-Annually

IFR-5Report on Performance against Disbursement Linked Indicators in Format-5 annexed

PSUProject


Annually

IFR-6Report on Expenditure Summary by Categories in Format-6 annexed PSU

Project authorities / Auditors/WB

Semi-Annually

Interim Financial Reports (IFR) and Annual Audited Financial Statements including the Audit Report will be displayed on web-site of the Project/Department of Medical & Health as and when issued.

Budgeting & Accounting Reports

S.No Particulars Originate End UserFrequency of reporting

BR – 1

Annual Action Plan of Project Activities for the Financial Year - Project Component sub-component and activity wise as per attachment:5

PSUProject

authorities, GoUP

Annually

BM-4 Monthly Expenditure Report in BM-4


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BM-5 DDO Monthly Reconciliation Statement

BM-8Monthly Expenditure Statement to Director General (Medical & Health)

PSU DG(M&H) Monthly

BM-Reports will be in the format as per as per Financial Hand Book & Budget Manual of GOUP

Annual Reports

Report Particulars Originate End UserFrequency of

reporting

AR – 1Statement of Sources and Applications of Funds

PSUProject

authorities / Auditors

Annually

AR – 2Reconciliation of Claims to Total Applications of Funds

PSU Project authorities/

AuditorsAnnually


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Chapter-7Internal Control

7.1Need for Internal Controls:

Internal Controls are essential to ensure compliance with rules and regulations and applicable local laws, authenticity of financial and operational reporting and effectiveness of operations. Various internal control measures are designed to reduce the risks associated with Project financial management system. In addition the internal control system is expected to ensure timely reimbursement from the World Bank, accuracy and reliability of the books of accounts and financial statements.

The internal control measures proposed shall form part of the accounting system and are duly respected and adhered to on a routine basis – as a financial discipline to derive the optimum benefits of the FM system. The following are the select internal control measures to be followed to achieve the objectives of the FMS in addition to mainstream government adopted system:

a. Reconciliation of Payments with Expendituresb. Reconciliation of Expenditures with claims (Eligible for IDA financing)c. Review of financial progress against Budget (quarterly target) identifying the

reasons for varianced. Monitoring of major works/ procurement, supply, installation and

commissioning of equipments/goods, services, and consultancy contracts/ PPP etc, with respect to time. TAP & PSU shall monitor the physical progress and the achievement of benchmarks / milestones)

e. Monitoring of the Bank guarantees and obtaining bank confirmations, its renewals etc,

f. Numbering of assets and its periodic physical verificationg. Periodic review and reconciliation of the status of disbursement h. Periodical Review of progress of Project and compliance to the agreed legal

documents

7.2Financial Disciplines:

Apart from the above the following financial disciplines will have a great bearing on the quality of the finance and accounting records to generate timely, accurate and reliable financial statements:

Keep updated all books and records on daily basis. Record transactions legibly in Treasury Bill Register, Cash Book and Contingency

Register. Providing full and complete description of the Transaction as narration in the

“Treasury Bills” and books of account.


25

Providing cross reference such as bill no., invoice no., GRN no., cheque no., purchase order no., etc., in the payment order sheet, registers and books of account.

Authentication and marking of details of payments on bills and avoiding duplicate payments - stamping of bills immediately after payment

Preparation of monthly summary of transactions and certification by the Finance officer and reconcile the same with Treasury.

Submit monthly report to Medical Directorate Maintain consistency in classification of expenditure by sub-component and

object head. Reconciliation of all transactions with the treasury books / statements Update and act on the latest circulars, orders and implement it without any

delay. Obtain and update the minutes or proceedings of the meetings or

committees of its approvals for any activities and adhere to its decision. Ensure that sundry registers such as logbooks for vehicle, etc are maintained.

These internal control measures need to be addressed on a routine basis and shall be discussed during the monthly accounts meeting. The project shall educate and empower the accounts personnel during the periodical training session / workshops on the latest developments to ensure greater financial discipline and compliance to the rules and regulations.


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Chapter-8

Auditing

8.1 Need for Audit :

Auditing of accounts of the Project is a statutory obligation, it gives an assurance to the reader of the financial statements that necessary books of accounts, records are maintained and the funds provided have been used for the purpose for which they have been provided etc.

It is the responsibility of the Project to maintain the required books of accounts, records, documents etc., as per the Government of Uttar Pradesh’s accounting system.

8.2 Statutory Audit :The legal documents specify the requirement of audit including furnishing of the annual audit report. The Bank requires the project implementing agencies to have each year’s financial statements audited by an independent auditor acceptable to the Bank.

The Comptroller and Auditor General of India (CAG) through its office in Uttar Pradesh will be the statutory auditor for the project i.e. PSU and Hospitals accounts annually. The CAG’s office will conduct an annual audit of the operations of the project i.e. PSU and Hospitals accounts. The project intends to rely on the existing audit mechanism. Therefore, the UPHSSP will provide the World Bank with a consolidated report on audit of the project related expenditure. As per the legal requirements, project authorities will furnish the audit report to the World Bank within six months from the financial year-end.Terms of Reference for statutory audit are provided as an Annex to this Manual.

8.3 Internal Audit:The Project will hire a firm of chartered accountants to undertake the internal audit of the project on quarterly basis. The internal auditor will conduct audit of all operations of the project including procurement function based on the TOR & checklist provided by the project. The selection of the auditing firm will be against specific terms of reference (TOR) as approved by the Project SteeringCommittee/Sub-committee of the project and the World Bank. The Internal Auditors will be hired after inviting expressions of interest through advertisement in the news papers. The quarterly internal audit report will be examined by the PSU and corrective actions will be taken immediately. The report with compliance will be shared with the World Bank during WB Missions. Terms of Reference for internal audit are provided as an Annex to this Manual.


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Chapter-9Procurement Arrangements under the Project

9.1 Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines for procurement of goods, works and non-consulting services under IBRD loans and IDA credits & grants by World Bank borrowers” dated January 2011 (“Procurement Guidelines”) and “Guidelines for selection and employment of consultants under IBRD loans and IDA credits & grants by World Bank borrowers” dated January 2011 “Consultant Guidelines”. These Guidelines are separately available in PSU. In case of any inconsistency between this Manual and the Bank Guidelines, the latter will prevail.

9.2 All procurement under the project for goods and contracting out of the non-consultant services will be carried out by the Procurement Agent hired by the Project for the task. The PA will be hired against specific terms of reference (TOR) by inviting the expressions of interest by releasing the advertisement in the news paper/website. The procurement agent will also strengthen the capacity building of the CMSD staff as well as PSU by imparting training and standardizing the procurement process and bidding documents of the CMSD as per the GoUP financial hand book.

9.3 All procurement of consulting services under the project will be executed or assisted by the Technical Assistance Provider (TAP). The TAP will be hired against specific terms of reference for providing technical assistance to PSU and Medical Directorate in implementation of the project interventions and achievement of the benchmarks and indicators. The TAP will function in close coordination with PSU staff and Directorate Staff.

9.4 The procurement done by the Procurement Agent/TAP/PSU will be audited by the Internal Auditors appointed by the Project against specific TOR. The Auditor will thoroughly check the procurement process as per the World Bank’s procurement Guidelines and checklist issued by the Project. Statutory Auditors will also check the procurement function as per TOR on sample basis. The procurement audit report will be reviewed by the project management and will be shared with the bank during missions.

9.5 Monitoring and Supervision of Procurement:9.5.1 PA and TAP will prepare a consolidated summary report on prescribed

format containing important information on the progress on the procurement providing details on name of contract, estimated cost, actual cost, date of invitation, date of opening, number of bids received, number of bids considered responsive, date of award of contract etc.

9.5.2 The progress report shall also contain information on contracts awarded within the original validity of bids/proposals and those awarded with extended bid/proposals validity, percentage of contracts awarded in the


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first/second/third call, the implementation status, number of conferences carried out to build capacity of bidders etc.

9.5.3 The procurement report received by PSU (from PA, TAP as well as Remote Sensing Applications Centre, U.P., which may handle some procurement under the Project) and Bank’s Implementation Support missions shall be analyzed by the Project and an action plan to remedy the situation and take corrective measures shall be prepared and agreed with the Bank.

9.5.4 The Bank will carry out an annual ex post procurement review of the procurement falling below the prior review threshold mentioned in the PAD.

9.5.5 Complaint Handling Mechanism: The Project will nominate a “Complaint Redressal Officer” (CRO) in the project who will be in charge of handling all complaints related with the procurement under the project. His telephone number, name, e-mail id will be displayed on the department web-site and notice board of the PSU and Medical Directorate in prominent way at important locations. The CRO will keep a database of all the complaints received, examined and disposed off within reasonable time. Report on complaint redressal will be reviewed every month by the PCT and consolidated reports will be shared with the Bank during the missions. The protocol for dealing with the complaints is depicted in the following flow-chart. Anonymous complaints will also be dealt in the same manner except for issuing the acknowledgement and obtaining affidavit/additional information.


29


30

10.6 Methods of Procurement:

The Table 2 given below gives highlight of the various procurement methods to be used for this project. These along with agreed thresholds would be reproduced in the procurement plan. The thresholds indicated in the following table is for the initial 18 months period and based on the procurement performance of the project, these thresholds would be modified as and when required.

Table 2: Procurement MethodsCategory Method of Procurement Threshold (US$ Equivalent)

Goods and Non-consultant services

ICB >1,000,000LIB wherever agreed by BankNCB Up to 1,000,000 (with NCB

conditions)Shopping Up to 50,000 DC As per para 3.7 of GuidelinesPPP Services As per para 3.14 of

GuidelinesForce Account As per para 3.9 of GuidelinesFramework Agreements As per para 3.6 of GuidelinesProcurement from UN Agencies

As per para 3.10 of Guidelines

Performance Based Procurement

As per para 3.16 of Guidelines

Works ICB >15,000,000NCB Up to 15,000,000 (with NCB

conditions)Shopping Up to 50,000 DC As per para 3.7 of GuidelinesForce Account As per para 3.9 of Guidelines

Consultants’ Services

CQS/LCS Up to 300,000 SSS As per para 3.9-3.11 of

GuidelinesIndividuals As per Section V of

GuidelinesSelection of Particular Types of Consultants

As per para 3.15-3.21 of Guidelines

QCBS/QBS/FBS for all other cases(i) International shortlist(ii) Shortlist may comprise national consultants only

>500,000

Up to 500,000


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10. 7 Prior Review by the Bank: The Bank will have prior review of the following contracts:

Works: All contracts more than US$10.0 million equivalentGoods: All contracts more than US$1.0 million equivalent

Services (Non consultancy):All contracts more than US$1.0 million equivalent

Consultancy Services: > US$500,000 equivalent for firms; and

> US$200,000 equivalent for individuals

10.7.1 First two contracts issued by project and the selection of auditors shall be subject to prior review irrespective of the value.

10.7.2 The justifications for all contracts to be issued on LIB, single-source or direct contracting basis shall be subject to prior review.

10.7.3. In case of selection of individuals, the qualifications, experience, terms of reference and terms of employment shall be subject to prior review.

10.7.4. These thresholds are for the initial 18 months period and based on the procurement performance of the project, these thresholds would be modified.

10.7.5 The prior review thresholds shall be indicated in the procurement plan.

10.7.6 The procurement plan will be updated annually (or as and when needed) and will reflect the change in prior review thresholds, if any.

10.8 Requirements for Hiring of Govt. Institutions: Government owned enterprises or institutions in India may be hired for unique and exceptional nature, if their participation is considered critical to project implementation. In such cases the conditions given in clauses 1.13 of Consultant Guidelines shall be satisfied and each such case will be subject to prior review by the Bank.

10.9 The flow of procurement process for Goods and Non-Consulting Services indicating the responsibilities are as follows:-

S.No Activity Responsibility

1 PA to prepare procurement plan as per approved annual action plan in consultation and coordination with PSU.

PA/PSU

2 PA to obtain approval of PCT/EC and NOC from the WB on the procurement plan

PA/PSU

3 Indenting by hospital/cells of the Medical Directorate to PSU/PA based on annual action/procurement plan looking necessary infrastructure/human resource.

PA/PSU

4 Fixation of specifications and approval by the technical committee.

PSU

5 Indenting the requirement with specification to PA PSU

6 Preparation of bidding document by the PA and getting approval of PC and NOC from the World Bank

PA

7 Inviting of bids by advertisement in News paper/UNDB PA


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8 Pre-bid conference, issuing clarification on points raised during pre-bid meeting to all bidders, preparing minutes of the pre-bid meeting and modifying the bid documents accordingly

PA

9 Opening of bid bids, checking of EMD, verification of BG, depositing cash EMD in bank

PA

10 Evaluation of the bids based on parameters disclosed in the bid documents

PA

11 Recommendation by PA for lowest evaluated responsive bids (or rejection of all bids) to PCT/PSU/World Bank

PA

12 Review of evaluation of bids done by the PCT/PSU PCT/PSU

13 Presentation of procurement recommendation to Executive Committee for approval.

PCT/PSU

14 Authorizing the PA for issuance of NOA as per approval given by the EC.

PCT/PSU

15 Issuing of NOA to successful bidder and seeking performance guarantee of specified value within time as per tender document. Final award of contract will be placed on project/department web-site

PA

16 Signing of agreement on receipt of performance guarantee.

PA/PD

17 Forfeiting the EMD of defaulting bidder failing deposit of performance guarantee in specified form within due time.

PA

18 Communicating defaulted bidders to PSU/PCT and proposing consideration of L-2 bidders and seeking approval of EC.

PA/PCT/PSU

19 PA to take action on L-2 bidder as per approval of EC. PA

20 Ensuring timely supply, pre-delivery inspection, delivery at site, installation and commissioning of equipments

PA

21 Forwarding the bills of supply with necessary documentations, site receipt confirmation by the consignee locations, test reports etc with payment recommendations to PSU for releasing payment

PA

22 PSU to release payment after approval of competent authority.

PSU

23 PA to ensure monitoring of contract i.e. supply, pre-delivery inspection, dispatch, receipt at site, installation, testing and successful commissioning of the equipment, training on equipments, release of securities and final closure of the contract.

PA

24 PA to ensure safe custody of the procurement related documents and getting the procurement function audited by IA/SA/AG Auditors and Procurement Auditors

PA


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of the WB, if any.25 PA to ensure compliance of the observations of the

auditors on procurement function satisfactorily with approval of the PSU.

PA

26 PA to ensure furnishing of procurement information to CRO as and when needed, PSU, GoUP, PAC and to other under RTI/Arbitration/Litigation.

PA

10.10 Flow of procurement process for Consulting Services to be followed by the TAP/PSU.

Sr. No.

Activity Responsibility

1 TAP to prepare procurement plan as per approved annual action plan in consultation and coordination with PSU/Cell of the Directorate.

TAP/PSU

2 TAP to obtain approval of PCT/EC and NOC from the WB on the Consultancy Procurement Plan.

TAP/PSU

3 Requisition of consulting services by hospital/cells of the Medical Directorate to PSU/TAP based on annual action/procurement plan/situational requirement.

PSU/TAP

4 Preparation of TOR by the TAP and getting approval of PCT/PSU for the bigger assignments. TAP

5 In case of small assignment, TAP will prepare TOR and financial proposal for the assignment with pre-decided rates of different kind of consulting manpower for getting approval from the PCT/PD

TAP/PSU

6 TAP will invite EOI by advertisement in News paper for bigger assignments.

TAP

7 Evaluating the EOIs based on logical criteria and preparing a shortlist of 6 qualified consultants.

TAP

8 Getting the shortlist approved by the PCT/PD/WB TAP/PSU9 Preparation of RFP document by the TAP and getting

approval of PCT/PD and NOC from the World Bank, if needed.

TAP/PSU

10 Issuing RFP to shortlisted firms. TAP11 Arranging Pre-proposal conference, issuing clarification

on points raised during the meeting on TOR/RFP to all consultants, preparing minutes of the meeting and issuing amendments after obtaining Bank’s No Objection, if required.

TAP

12 Opening of technical proposals before the PSU committee

TAP/PSU

13 Evaluation of the technical proposals based on parameters disclosed in the RFP documents

TAP

14 Recommendation by TAP for technically responsive proposals with marks and obtaining approval of

TAP/PSU


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Sr. No.

Activity Responsibility

PCT/PD/WB, if needed for financial proposal opening in the presence of qualified firms and before the committee.

15 Combined evaluation to be done by TAP as per the procurement guidelines for specific mode of procurement.

TAP/PSU

16 Review of combined evaluation and recommendations of TAP to be done by the PCT/PSU

TAP

17 Presentation of procurement recommendation to Executive Committee for approval.

TAP/PSU

18 TAP to assist PCT/PD for issuance of NOA as per approval given by the EC (and after obtaining No Objection of the Bank) and getting agreement signed between PSU and selected consultant. Final award of contract will be placed on project/department web-site

PSU/TAP

19 TAP to monitor the work of the consultant on-day-to-day basis and put up their interim output deliverables before the PCT/PSU with comments and recommendations.

TAP

20 PSU to release payment after approval of competent of authority with recommendation from TAP.

PSU

21 TAP to monitor consultancy agreements, work of the consultants hired through TAP, ensure safe custody of the procurement related all documents and getting the procurement function audited by IA/SA/AG Auditors and Procurement Auditors of the WB, if any.

TAP/PSU

22 TAP to ensure compliance of the observations of the auditors on procurement function satisfactorily with approval of the PSU.

TAP/PSU

23 TAP to ensure furnishing of procurement information to CRO as and when needed, PSU, GoUP and to other user under RTI.

TAP/PSU

Note: Above division of responsibilities is only indicative and it would be detailed in the contracts to be signed with procurement agent and TAP.

10.11 Purchasing & Supply code of professional ethics

The staff of the Procurement Agent, Technical Assistance Provider and Project Support Unit associated with procurement function are required to uphold ethical code and to seek commitment to it by all those with whom they engage in their professional capacity and will take pledge to:-

Maintain the highest standard of integrity in all my business relationships. Reject any business practice which might reasonably be deemed improper.


35

Never use my authority or position for any personal gain. Enhance the proficiency and stature of the profession by acquiring and

applying knowledge in the most appropriate way. Foster the highest standards of professional competence amongst those for

whom I am responsible Optimize the use of resources which I have influence over for the benefit of

my organization Comply with both the letter and the intent of:

- the law of India.- agreed contractual obligations

Declare any personal interest that might affect, or be seen by others to affect, my impartiality or decision making

Ensure that the information I give in the course of my work is accurate Respect the confidentiality of information I receive and never use it for

personal gain Strive for genuine, fair and transparent competition Not accept inducements or gifts, other than items of small value such as

business diaries or calendars Always to declare the offer or acceptance of hospitality and never allow

hospitality to influence a business decision Remain impartial in all business dealing and not be influenced by those with

vested interests


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Chapter-10

Delegation of powers

10.1 Delegation of powers for procurement approvals:

The delegation of administrative and financial power for approving the bids of procurement of Goods, Services will be as under:

Sl. No.

Procurement Governing Board

Executive Committee

Project Director

1 Works Full Power Up to15,000,000 USD full power

Up to 100,000 USD full power

2 Goods Full Power Up to 1,000,000 USD-Full Power

Up to 100,000 USD Full power

3 Consultancies Full Power Up to 300,000 USD full power as per the procurement Guidelines of the Bank under SS, DC, LS, QBS, QCBS

Up to 100,000 USD full power as per the procurement Guidelines of the Bank under SS, DC, LS, QBS, QCBS and Individual Consultant

4 Services other than consultancies

Full Power Up to 1,000,000 USD-Full Power

Up to 100,000 USD Full power

5 Salaries, operational expenses and other recurrent expenditure

Full Power Full Power Full Power

Note: The above administrative and financial limits are applicable for single contracts. (The delegations of powers mentioned above are indicative and subject to approval By the Cabinet, GouP/Governing Body)

10.2 Delegation of powers to Project Director: As per Government order no……. dated………(copy attached at Annex-1)


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List of Attachments

Attachment 1: Terms of reference for Statutory Audit by the C&AG Attachment 2: Selection procedure for Internal AuditorsAttachment 3: Terms of Reference for Internal AuditAttachment 4: Interim Financial ReportsAttachment 5: Annual Budget Component/Sub-component & Activity wise.


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Attachment 1UPHSSP

TERMS OF REFERENCE FOR AUDIT OF FINANCIAL STATEMENTS3

Background:

The Government of Uttar Pradesh (GoUP) is preparing to launch its Health Systems strengthening and Quality Improvement Project (2012-17), which provides an opportunity for the government to prioritise the use of its resources and to address the major weakness in institutional capacities and systems. The Department for Medical & Health, Government of Uttar Pradesh in the process is preparing a second Uttar Pradesh health systems strengthening project (UPHSSP) in the state to be supported by the World Bank. The key challenges for the Department of Health, UP are to improve access to quality of health care services delivery and strengthen governance and management systems in health as well as regulating the private health sector service providers. Institutional development, strengthening systems and accountability including financial management and, generating demand side accountability, and introducing incentives for performance and piloting alternative delivery models, including public private partnerships (PPPs) are some key interventions under the Project.

PROJECT COMPONENTS

Component 1: Strengthening management and accountability systems will support: I. Strategic planning functions in the Health Department, working closely with the

recently established Health and Knowledge Resource Center (HKRC) in the Family Welfare Department.

II. Improved use of data for program management in collaboration with the existing Electronic Data Processing (EDP) Cell in the Department and expanding its scope to function as a Data Resource Center.

III. Strengthening the use of financial information for improved decision making through the existing accounting and auditing systems for treasury and society funds and over time enable the State to move to a unified financial management control system; and in undertaking the necessary procurement reform and strengthening of procurement and supply chain management systems; and

IV. Introducing and strengthening social accountability action research to introduce community assessment of health and health care at the local level and use assessment information to stimulate community action to demand better services, enhance positive health behaviours and promote community audits of service delivery; and introducing facility based provider incentives in the public sector.

3

Terms of Reference for CAG Audit of World Bank Assisted Projects in India, as circulated by the Department of Economic Affairs, Ministry of Finance’ O.M. No. 17/7/2006-F.II dated the 20th March, 2009, which are reproduced in the following pages, will be adhered to.


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Component 2: Improving quality of service delivery and private sector engagement will support:

I. Strengthening the institutional capacity for service quality improvement and supportive regulatory environment, this would include establishment and capacity building of the Quality Assurance (QA), Environment Management (EM) and Public Private Partnerships (PPP) Cells in the Directorate of Health.

II. Improvement of quality of service delivery at public sector hospitals to enable accreditation under the National Accreditation Board of Hospitals (NABH);

III. Contracting with private sector for improving quality of service delivery, which would include diagnostic services, non-clinical support services;

IV. Ensuring availability of the full complement of human resources required for accreditation at each selected facility, and health managers at the facility level

IMPLEMENTATION ARRANGEMENTS:

a. Institutional and implementation Arrangements

(1) Project Governing Board (PGB) of the UPHSSP at the apex level, headed by the Chief Secretary, GoUP.

(2) Project Steering Committee (PSC) of the UPHSSP headed by Principal Secretary Medical, Health and Family Welfare.

(3) Project Coordination Team (PCT) under the Project Director, UPHSSP as described in PIP.

(4) Project Support Unit (PSU) headed by Project Director.

(5) Procurement Agent and Technical Services Provider.

b. Financial Management Arrangements

The project is being implemented through the main stream State Treasury System. The project implementing locations are the Project Support Unit in Indira Nagar Lucknow and xxx Hospitals as per the list provided.

Objective:

The essence of the World Bank audit policy is to ensure that the Bank receives adequate independent, professional audit assurance that the proceeds of World Bank credit were used for the purposes intended,4 that the annual project financial 4 The Bank’s charter [Article III Section V (b) of IBRD’s Articles of Agreement and Article V Section 1(g) of IDA’s Articles

of Agreement] specify that: “The Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations.”


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statements are free from material misstatement, and that the terms of the credit agreement were complied with in all material respects.

The objective of the audit of the Project Financial Statement (PFS) is to enable the auditor to express a professional opinion as to whether (1) the PFS present fairly, in all material respects, the sources and applications of project funds for the period under audit examination, (2) the funds were utilized for the purposes for which they were provided, and (3) expenditures shown in the PFS are eligible for financing under the credit agreement. In addition the auditor will express a professional opinion as to whether the Interim Financial Reports (IFRs) submitted by project management may be relied upon to support any applications for withdrawal.

The books of account that provide the basis for preparation of the PFS are established to reflect the financial transactions of the project and are maintained by the project implementation agency namely the UPHSSP at PSU and Hospital level.

Standards:

The audit will be carried out in accordance with the Auditing Standards promulgated by the comptroller and Auditor General of India. The auditor should accordingly consider materiality when planning and performing the audit to reduce audit risk to an acceptable level that is consistent with the objective of the audit. Although the responsibility for preventing irregularity, fraud, or the use of loan proceeds for purpose other than as defined in the legal agreement remains with the borrower, the Audit should be planned so as to have reasonable expectation of detecting material misstatements in the project financial statements.

Scope:

In conducting the audit, special attention should be paid to the following:

(a) All external funds have been used in accordance with the conditions of the relevant legal agreements and only for the purposes for which the financing was provided. Relevant legal agreements include the Credit Agreement, the Project Appraisal Document, the Minutes of Negotiations and the Memorandum of Understanding;

(b) Counterpart funds have been provided and used in accordance with the legal agreements and only for the purposes for which they were provided;

(c) All necessary supporting documents, records, and accounts have been kept in respect of all project transactions including expenditures reported via IFRs. Clear linkages should exist between the books of account and IFRs presented to the Bank;

(d) The project accounts have been prepared in accordance with consistently applied government accounting standards5 and present fairly, in all material respects the financial situation of the project at the year end and of resources and expenditures for the year ended on that date.


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Project Financial Statements:

The Project Financial Statements should include-

(a) Statement of Sources and Applications of Funds: The contents of Project Financial Statement (PFS) are specific to the sector, the project design and the type of implementing entity. The formats therefore vary from one project to another. The formats of PFS are prepared in consultation with the implementing entity during the preparation of the project. See Annex-1 for an example of a Statement of Sources and Application of funds that could be prepared for a project implemented by core government departments.

(b) Reconciliation of Claims to Total Applications of Funds: The PFS includes reconciliation between expenditure reported as per the Statement of Sources and Applications of Funds and expenditure claimed from the World Bank through IFR based method of reimbursement. An example is shown at Annex – 2.

(c) Other Statements or Schedules such as:

A statement showing appropriate major heads of expenditure by Project Component/Sub-components

A summary of cumulative expenditures

(d) Management Assertion: Management should sign the project financial statements and provide a written acknowledgement of its responsibility for the preparation and fair presentation of the financial statements and an assertion that project funds have been expended in accordance with the intended purposes as reflected in the financial statements. An example of a Management Assertion Letter is shown at Annex – 3.

Interim Financial Reports:

In addition to the audit of the PFS the auditor is required to audit all statements of Expenditures (SOEs) and/ or financial management reports (FMRs) for withdrawal applications made during the period under audit examination. The auditor should apply such tests as the auditor considers necessary under the circumstances to satisfy the audit objective. In particular, these expenditures should be carefully examined for project eligibility by reference to the relevant financing agreements. Where ineligible expenditures are identified as having been included in withdrawal applications and reimbursed against, these should be separately noted by the auditor.

Audit Report:

An audit report on the project financial statements should be prepared in accordance with the Auditing Standards promulgated by the Comptroller and Auditor General of India. Those standards require an audit opinion to be rendered related to the financial statements taken as a whole indicating “ unambiguously whether it is unqualified or qualified and, if the latter, whether it is qualified in certain respects or in adverse or a disclaimer of opinion” In addition the audit opinion paragraph will specify whether, in the auditor opinion, (a) with respect to SOEs adequate supporting documentation has


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been maintained to support claims to the World Bank for reimbursements of expenditures incurred; and (b) except for ineligible expenditures as detailed in the audit observations, if any , appended to the audit report, expenditures are eligible for financing under the Loan/Credit agreement. A sample audit report wording for an unqualified audit opinion is shown at Annex-4. Relevant CAG auditing standards are reproduced in Annex-5.

The project financial statements and the audit report should be received by the Bank not later than 6 months after the end of the fiscal year. The auditor should also submit two copies of the audited accounts and audit report to the Implementing Agency.

The audit report is issued without prejudice to CAG right to incorporate the audit. Observations in the Report of CAG of India for being laid before parliament/ State or UT Legislature

Management Letter:

In addition to the audit report on the project financial statements, the auditor may prepare a management letter containing recommendations for improvements in internal control and other matters coming to the attention of the auditor during the audit examination where a management letter is prepared by the auditor, a copy of the same will be supplied to the Bank. Else, a written advice may be made that no management letter was prepared together with the audit report on the project financial statements.

General:

The auditor should be given access to any information relevant for the purposes of conducting the audit. This would normally include all legal documents, correspondence, and any other information associated with the project and deemed necessary by the auditor. The information made available to the auditor should include, but not be limited to, copies of the Bank’s Project Appraisal Document, the relevant Legal Agreements and a copy of Aide Memoires. It is highly desirable that the auditor become familiar with other Bank policy documents, such as OP/BP 10.02, the Bank's internal guidelines on Financial Management that include financial reporting and auditing requirements for projects financed by the World Bank. The auditor should also be familiar with the Bank's Disbursement Manual. Both documents will be provided by the Project staff to the auditor.


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Annex – 1EXAMPLE OF A STATEMENT OF SOURCES AND APPLICATION OF FUNDS

Name of the ProjectCredit/ No.

Statement of Sources and Applications of FundsReport for the year ended __________________

In Rs. Lakhs

Particulars Current Year

Previous Year

Project to date

Openin