Financial management and good governance

IFAD guidelines require that the proceeds of loan and grant financing are used solely for the purpose intended under the related agreement, and in accordance with the activities described in the annual work plan and budget. Furthermore, that all projects/ grants are audited and certified regularly. Good financial management — whether for borrowers or grantees — means ensuring that funds are used appropriately, and in conformity with administrative, technical, financial, environmental, agricultural and rural development practices and good governance.

Financial management (FM) refers to the budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements by which borrowers and grantees receive funds, allocate them, and record their use. Good FM is important to a country’s development because it gives assurance to citizens that their taxes are being used appropriately, to donors and lenders that the funds they provide are being used appropriately, and to the private sector that there is an appropriate environment for investment and growth.

For IFAD, FM work involves two efforts:

1. Providing assurance that borrowers and grantees are using IFAD funds for the intended purposes
2. Assisting countries (in the case of programmes) and projects to improve their own FM capacities. FM is an integral part of the development process to achieve the Millennium Development Goals. One of the goals of the recent declarations on aid effectiveness (Paris, Accra, Busan) is to ensure greater reliance on countries’ public financial management systems where there is assurance that aid will be used for the intended purposes.

Sound public financial management ensures accountability and efficiency in the management of public resources, and is an essential underpinning to improve governance and fight corruption. Good corporate financial reporting standards and practices are essential for the functioning of a market economy. Maintaining strong fiduciary practices in IFAD-financed operations is needed to provide acceptable assurance on the use of funds provided by, and to sustain the confidence of its stakeholders.