CIRCULAR

GUIDING THE APPLICATION OF THE MECHANISM OF FINANCIAL MANAGEMENT FOR THE PROJECT OF FOREST PROTECTION AND RURAL DEVELOPMENT

Pursuant to:
The Agreement on Development Credit signed between the Vietnamese Government and the International Development Agency (IDA) on November 8, 1997 concerning the Project of Forest Protection and Rural Development;
The Agreement between the Vietnamese Government and the International Development Agency signed on November 8, 1997 concerning the co-financing by the Dutch Government through the consignment of the International Development Agency for the implementation of the Project of Forest Protection and Rural Development;
Decree No. 87/CP of August 5, 1997 of the Government promulgating the Regulation on the Management and Use of the Official Development Assistance;
Decrees No. 42/CP of July 16, 1996 and No. 92/CP of August 23, 1997 of the Government promulgating and amending the Regulation on the management of investment and construction; Decree No. 43/CP of July 16, 1996 and No. 93/CP of August 23, 1997 of the Government promulgating and amending the bidding Regulation; Decree No. 87/CP of December 19, 1996 of the Government providing details for the assignment of responsibilities in managing, elaborating, implementing and making the final accounts of the State budget and the Circulars guiding the implementation of these Decrees;
Decree No. 178/CP of October 28, 1994 of the Government providing for the tasks, powers and organization of the apparatus of the Ministry of Finance;
Joint Circular No. 81/1998/TTLT/BTC-NHNN of June 17, 1998 of the Ministry of Finance and the State Bank guiding the process, procedure and management of the drawing of fund from the Official Development Assistance;
Decision No. 693/TTg of August 27, 1997 of the Prime Minister approving the Project on Forest Protection and Rural Development;
After reaching agreement with the Ministry of Agriculture and Rural Development;
The Ministry of Finance provides the following guidance for the management and use of the different funds for the project:

Part I.

EXPLANATION OF WORDS AND TERMS

In this Circular these terms and words are construed as follows:

1.1. The project owner is the Ministry of Agriculture and Rural Development (MARD). The Central Project Management Board is set up by MARD to carry out the project and coordinate the activities in this implementation.

1.2. The Provincial Project Management Board is one of the five such boards (5 provinces) and 1 region covered by the project. Its powers and responsibilities are provided for in the decisions on the founding of the Project Management Board of MARD.

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1.4. Project is the Project of Forest Protection and Rural Development according to Decision No. 693/TTg of August 27, 1997 of the Prime Minister.

1.5. Loan is the IDA loan to the Vietnamese Government under the agreement on development credit No. 2996-VN for the project signed on November 8, 1997.

1.6. Aid Fund is the non-refundable aid from the Dutch Government to the Vietnamese Government under Aid Agreement No. TF 021604 for the project signed on November 8, 1997. This aid fund is consigned to IDA and is disbursed by IDA.

1.7. The Agreements are Agreement on Development Credit No. 2996-VN and Agreement on Non-Refundable Aid No. TF 021604 signed between the Vietnamese Government and IDA for the project signed on November 8, 1997.

1.8. Reciprocal Fund is the fund contributed by the Vietnamese Government to the project. It is included in the yearly investment in capital construction assigned to the MARD. This fund is allocated by the Central Budget to MARD to implement the project.

1.9. The Servicing Bank is the Vietnam Agriculture and Rural Development Bank (ARD Bank).

1.10. Special Account is the account of the project opened by the Central Project Management Board at the ARD Bank to receive or borrow the aid fund transferred from IDA.

1.11. Fund Allocation Account is the account opened by the project Management Boards at the various Provincial Development Investment Departments to monitor the use of the loans, aid funds and reciprocal funds allocated to the project.

1.12. The currency used in the Special Account is the USD.

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Part II.

 GENERAL PROVISIONS

I. AID FUNDS SOURCES:

1. The project is financed by the following sources:

1.1. IDA loans;

1.2. Non-refundable aid from the Dutch Government consigned to IDA;

1.3. Reciprocal fund of the Vietnamese government.

II. EXPENDITURES FOR THE PROJECT FROM THE FUNDING SOURCES

2.1. IDA loans sources

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- Social welfare programs

- Services in support of agriculture

- Forest control in intermediate areas

- Development of rural infrastructures

- Project management and strengthening of organization

2.2. Aid fund sources

- Control of protected forest areas

- Community plans

- Project management and strengthening of organization

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- Control of protected forest areas

- Community plans

- Land allocation

- Social support program

- Services in support of agriculture

- Control of intermediate forest areas

- Development of rural infrastructures

- Project management and strengthening of organization

2.4. IDA loans and aid fund from the Dutch Government are State budget revenues of the Vietnamese Government. The Ministry of Finance has the responsibility to channel them into the State budget and allocate them through the system of the General Development Investment Department to the MARD in order to carry out the ratified projects and monitor and manage the loans and debt payments when they are due (including both principal and interests).

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2.6. The project is financed by two sources, domestic fund and foreign fund. The allocation of domestic fund is carried out according to current regulations of the State. The foreign fund is allocated according to the stipulations of this Circular and in conformity with the regulations in the country and of the funding organization.

2.7. The MARD has the responsibility to use the fund according to the right purpose and the contents of the ratified project in conformity with the conditions already committed in the Loan Agreements, the Aid Agreement and relevant documents attached to the Agreements.

2.8 .The MARD has the responsibility to manage and supervise the properties of the project, of the Managing Board of the project according to the regime in force of the State.

2.9. The Agriculture and Rural Development Bank has the responsibility to service the drawing of fund from IDA to pay for the project with the consent of the Ministry of Finance.

In the process of drawing loans, the ARD Bank shall enjoy a service fee for each drawing (including fee for opening L/C, fee for sending documents, messages, facsimiles...) as currently prescribed by the State Bank Governor on the collection of service fees paid through the bank... This service fee shall be included in the overall expenditures of the project.

Part III

CONCRETE STIPULATIONS

I. OPENING AN ACCOUNT:

1.1. At the ARD Bank, the Central Management Board of the Project shall open two Special Accounts, one for the IDA fund and one for the Dutch fund (hereafter commonly called Special Account).

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1.3. At the local Development Investment Department, the Provincial Project Management Board shall open a Fund Allocation Account to receive the reciprocal fund and monitor the foreign fund allocated to the project in the province.

II. DRAWING UP AND REGISTERING THE FUNDING PLAN FOR THE PROJECT

2.1. Each year, basing itself on the regulations in the documents guiding the implementation of the Law on State Budget, the Law amending and supplementing a number of articles of the Law on State Budget, and on the regimes and norms of expenditures stipulated for the project, the Central Project Management Board shall draw up the draft budget for the plan year of the project and submit it to the Ministry of Agriculture and Rural Development so that the latter can integrate it into the yearly draft budget (for capital construction investment) of the Ministry which shall send it to the Ministry of Planning and Investment and the Ministry of Finance which in turn shall integrate it into the draft State budget and submit it to the Government and the National Assembly for approval.

2.2. The content of the funding plan of the project must reflect details of the work to be done, the source of loans and aid, the time table for the drawing of loans and aid and the necessary reciprocal fund for each item of the project.

2.3. Basing itself on the yearly draft budget assigned by the Prime Minister, the MARD shall allocate funds for the project and notify the Central Project Management Board.

After notification by the MARD, the Central Project Management Board shall draw up the detailed draft plan in conformity with the notification on the plan to submit to the MARD for approval.

Basing itself on the detailed yearly draft budget already approved by the Ministry of Agriculture and Rural Development, the Central Project Management Board shall elaborate the plan of fund drawing. The content of this plan must be detailed for each quarter and the content of each job and each source of funding including the reciprocal fund. Separate plans must be drawn up for each item to be paid according to the special account form. This plan must be registered with the Ministry of Finance (Foreign Financial Relations Department) and also to the related agencies (the General Investment Department and the ARD Bank).

On the basis of the yearly fund drawing plan already ratified, the Central Project Management Board shall quarterly draw up the plan for fund drawing through the Special Account and send it to the Ministry of Finance (the General Development Investment Department) for consideration and approval. This plan must be detailed according to the content of the work and the funding rate of each source of funding (loan and aid).

In the plan registered with the Ministry of Finance, it is necessary to specify the activities and funds performed by the central level and the activities and funds performed by each local level.

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2.4. The approved draft budget of the project shall be notified by the General Development Investment Department to the relevant local Development Investment Departments in order to monitor the use and allocation of the funds for the project.

III. PRINCIPLE OF ALLOCATION, NORMS AND UNIT PRICE FOR PAYMENT IN THE USE OF THE LOANS, AID AND RECIPROCAL FUNDS

3.1. Principle of allocation:

3.1.1. With regard to investment in forest management:

- Allocations for forest planting and protection shall be made monthly;

- Allocations for forest planting shall be made according to each reasonable technical period, including:

l Preparing seeds, fertilizers and conditions for planting

l Carrying out forest planting,

l Tending and protection of the plants in the first year.

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3.1.2. Infrastructure investment and public welfare fund shall be allocated and managed according to the current Regulation on the management of capital construction investment.

3.1.3. With regard to the funds of a non-business character:

- Expenditures on the Project Management Board and on agriculture and forestry promotion shall be advanced on a monthly basis. At the end of the month, the unit which advances the money shall have to settle the payment of the advanced money with the Development Investment Department according to the draft budget already approved by the competent authority and the current regimes of the State. After checking this payment, the Development Investment Department shall advance the expenditures for the following month.

- Expenditures on the resettlement and redistribution of the population covered by the project shall be allocated according to the actual number of families to be resettled in the project area within the ratified yearly plan. The Development Investment Department shall advance to the Project Management Boards 50% of the sum approved for each resettlement drive. After completing the population resettlement and redistribution drive, the Project Management Board shall have to draw up the dossier of payment which is to be certified by the provincial population resettlement agency in order to allocate the remaining sum according to the prescribed regime.

3.2. Norms and unit price in payment

3.2.1. Training and seminars in the country:

Average expenditures shall not exceed 200 USD/person/week (including documents, board and lodging, payment to rapporteurs...)

3.2.2. Training outside the country:

Expenditures on officials taking part in training and practicing abroad shall conform with Circular No. 32-TC/TCDN of April 21, 1995 and Circular No. 44-TC/TCDN of May 21, 1994 of the Ministry of Finance.

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The recruitment of experts shall be carried out according to the regulations inside the country (Decree No. 43/CP, Decree No. 93/CP) and provisions of the funding organizations. The dossiers of consulting experts (in foreign countries and in the country) must be officially approved in writing by the MARD.

Consulting experts in the country: consulting experts in the country must be selected carefully on the basis of the concrete demands of the project, the professional standard of the experts and the current regulations on the recruitment of consulting experts. The salary of a consulting expert in the country shall not exceed 500 USD/month.

3.2.4. For the volumes of capital construction: the current norms and unit prices in capital construction shall apply.

3.2.5. For the volumes of forestry work such as planting, tending and protection of forests, the norms to be applied are the same as the State-issued norms for the projects under the program of 5 million hectares of forests (under Decision No. 661/QD-TTg of July 29, 1998 of the Prime Minister) shall be readjusted according to each point of time.

3.2.6. For the volumes of other jobs, the current regulations shall apply.

3.2.7. In case no norm or unit price has been issued, the norms already approved by the MARD shall apply to each concrete instance on the basis of consultation with the Ministry of Finance and other relevant functional agencies.

IV. TRANSFERRING OUTSIDE FUND AMONG DIFFERENT LEVELS

4.1. Drawing fund from IDA for direct payment and protocol of special commitment letter:

This procedure shall be carried out at the central level.

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- The application for drawing fund according to the set form.

- The official dispatch asking to draw fund.

- A copy of the contract on the purchase of goods and equipment (sent only once).

- A copy of the contract on expert consultancy (sent only once).

- Copies of other economic contracts (sent only once).

- Documents to prove that the contracts are valid (documents ratifying the contracts of the Government or the competent agency of the Government, the opinions of IDA or the result of the bid examination for construction contracts or purchase of goods valued at more than 150,000 USD and contracts on hiring of experts valued at more than 100,000 USD for companies and more than 50,000 USD for individuals (sent only once).

- Bank guarantee (guarantee for advance payment and guarantee for contract performance) in case of advance payment under contract.

- A copy of the bill of lading (in case of direct payment for the value of the goods) or the certificate of completion.

Within five working days after receiving the full valid dossier of fund drawing, the Ministry of Finance (the Foreign Financial Relations Department) shall have to examine and check and send its written opinion to the Central Project Management Board and the ARD Bank.

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After receiving the notice of IDA on the payment according to the application for fund drawing, the Central Project Management Board has the responsibility to inform the Ministry of Finance (the Foreign Relations Financial Department) in order to fill the procedures for budget accounting (recording debts, aid, expenditures for the MARD).

4.2. Drawing of fund concerning the Special Account

The first drawing on the Special Account shall be performed on the basis of the effective agreements, the annual draft budgets already ratified and the registered plan of fund drawing of the project.

The drawing of complementary fund from the Special Account shall be performed on the basis of the annual draft budget already approved and the registered plan of fund drawing of the project and the valid expenditures which have been paid for from the special account of the project.

To draw fund from the Special Account, the Project Management Board shall prepare the following documents to send to the Ministry of Finance (the Foreign Financial Relations Department).

- The application for fund drawing according to the IDA form.

- The official dispatch asking to draw fund.

In case of supplementary fund drawing from the special account the Central Project Management Board shall also send to the Ministry of Finance (the Foreign Financial Relations Department) the following documents:

- The list of expenditures made by the Central Project Management Board.

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- For the sums drawn from the Special Account to repay the Development Investment Department as prescribed in Part 5.3 below, there is no need of certification by the General Development Investment Department but they must be accompanied by the inventories of the Development Investment Department which advances the fund (copy).

- Detailed inventory of the use of the Special Account of the project made by the ARD Bank.

Basing itself on the Loan Agreement and the Aid Agreement, the draft budget already approved and the registered plan of fund drawing of the project within 5 working days, the Ministry of Finance shall examine and write its opinions and send it to the ARD Bank and to the Central Management Board.

On the basis of the written consent of the Ministry of Finance, within no more than two days, the ARD Bank shall coordinate with the Central Project Management Board to sign the application for fund drawing and send it to the IDA.

After receiving the notice that the money has been transferred to the special account of the project, the ARD Bank shall immediately inform the Ministry of Finance (the Foreign Financial Relations Department, the General Development Investment Department and the Central Project Management Board.

V. ALLOCATING FUND FROM THE SPECIAL ACCOUNT

To allocate funds from the special account on the basis of the valid expenditures, consistent with the contents of the project within the draft budget already approved and the registered plan of fund drawing and according to the regime and the assignment of responsibilities in the management and ratification of expenditures for the project.

The certification of the items paid for the project at the central level (from the special account to pay for the expenditures of the Central Project Management Board) shall be performed through the Development Investment Department where the Central Project Management Board opens the account.

The inspection and allocation of funds (including the reciprocal fund) for the project at the local level shall be performed through the Provincial Development Investment Department.

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Each payment from the Special Account shall comply with the rate of foreign/domestic fund prescribed in the Loan Agreements and Aid Agreements. In case a payment is found inconsistent with the prescribed rate, the Ministry of Finance shall suspend the drawing of supplementary fund for this expenditure.

Basing itself on the approved draft budget, the yearly plan of fund drawing already registered, the plan of quarterly fund drawing through the special account already ratified by the General Development Investment Department, and on the volume of work of the project qualified for payment, the Central Project Management Board shall propose to the ARD Bank to make the payments from the special account [in particular, for the last payments of the contracts or in the case of single payments of a contract, there must be prior certification by the Ministry of Finance (the Hanoi Development Investment Department)].

To have the ground to supplement the Special Account, the Central Project Management Board shall send the following documents to the Hanoi Development Investment Department to certify the validity of the expenditures from the special account according to the above plan:

- The decision on bid-winning (sent only once).

- Economic contracts signed between the Central Project Management Board and the bid winners already approved by the competent authority according to the prescribed regime (sent only once).

- Written records of acceptance on completion of the volume already achieved between the project owner and the contractors and related papers.

Within 5 working days, the Hanoi Development Investment Department shall examine and verify the validity of each expenditure and shall send an official dispatch to the Central Project Management Board.

5.2. Allocation at the localities.

The reciprocal fund in the yearly plan which has been approved shall be notified by the General Development Investment Department to the Development Investment Departments for use (i) to provide reciprocal funds to the project according to the progress of the work and (ii) to be used as a source of fund to pay or advance payment to the valid proposals for payment or advance payment of the Provincial Project Management Boards.

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The Provincial Development Investment Department shall base itself on the yearly level of the reciprocal fund already notified in the provincial project to make payment or advance payment to the valid proposals for payment of the Provincial Project Management Board.

After making payment or advance payment to the project, the Provincial Development Investment Department shall conduct procedures to redeem the fund which has been advanced as payment or advance payment in the place of the foreign fund as stipulated in the following Part 5.3.

In order to be allocated fund, the Provincial Project Management Board shall send to the Provincial Development Investment Department the following documents:

- The proposal for payment or advance payment of fund according to the aid proportion from each source of funding.

- The yearly funding plan of the project notified by the higher agency including the targets for planting, tending and protecting forests already assigned (sent only once).

- The projected expenditure plan and the projected total expenditure plan (including supplements) already approved by the competent authority (sent once).

- The bid winning decision (sent once).

- The economic contracts signed by the Project Management Board with various families (on investment in forest management) and with the contracting units already approved by the competent authority according to the prescribed regime.

- The written acceptance of the volume already accomplished between the project owner and the contracting families, the contractors and other relevant papers.

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5.3. Reimbursement to the provincial development investment departments

5.3.1. After allocating the correspondence fund and advancing foreign fund to the Provincial Project Management Board (or not more than one month at most if the project involves expenditures within the month), the Provincial Development Investment Board shall propose reimbursement of fund and send the proposal to the Provincial Project Management Board and also to the General Development Investment Department.

The reimbursement proposal sent to the Provincial Project Management Boards shall be attached to the advance fund abstract drawn up by the Provincial Development Investment Department according to each allocation of fund each part of the project, the amount of fund allocation and the funding rate.

Within 2 working days after receiving the proposal for fund reimbursement and the abstract of the advance payment made by the Provincial Project Management Board, the provincial project management board shall examine and certify the payment or advance payment and forward the proposal to the Central Project Management Board for reimbursement to the Provincial Development Investment Department.

Within 2 working days after receiving the proposal for fund reimbursement of the Provincial Project Management Board, the Central Project Management Board shall propose fund drawing from the Special Account of the project and send such proposal to the ARD Bank.

After receiving the proposal of the Central Project Management Board for fund drawing, within 2 working days, the ARD Bank shall forward the reimbursement money to the Provincial Development Investment Department and at the same time notify the Central Project Management Board and the General Development Investment Department. The notice must specify the date of the money transfer, the amount of money and the exchange rate at the time of the transfer.

After receiving the notice of the ARD Bank, the Central Project Management Board shall inform the Provincial Project Management Board in order to monitor the use of the fund.

The reimbursement of fund to the Development Investment Department shall be used as one of the sources to advance fund to the subsequent installments.

In case the Investment Department has not enough fund to advance fund (for the foreign fund) to the Provincial Project Management Board, the Development Investment Department shall have to report to the General Development Investment Department. In this case, after checking the volume of work which is qualified for payment or for advance payment, the Investment Department shall write down a document certifying the valid demand for payment and send it to the Provincial Management Board. The latter shall send a payment proposal certified by the Development Investment Department which shall send it to the Central Project Management Board to draw fund for payment from the special account of the project.

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6.1. On the basis of the yearly ratified correspondence fund of the project (including the part allocated to the central level and that allocated to the localities), the system of the General Department for Development Investment shall carry out the management and allocation of the reciprocal fund according to the progress of the project implementation and in conformity with the current regulations on management and allocation of fund for capital construction.

VII. ABSTRACT OF THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT, INTERESTS OF DEPOSITS

7.1. Every month, the ARD Bank shall send to the Ministry of Finance (the Foreign Financial Relations Department) the abstract of the Special Account of the project at the Bank, specifying the amount of money drawn within the month; detailed amounts used in each drawing together with the exchange rate and the end-of-the month balance.

7.2. For the amounts drawn from the Special Account to reimburse the Provincial Development Investment Department as stipulated in Part 5.3, the ARD Bank shall have to specify in the abstract the serial number and date of the proposal for reimbursement of the Local Development Investment Department attached to the fund drawing official dispatch of the Central Project Management Board.

7.3. While the loan from the special account has not been used and produces interests from the deposits (interest on demand deposits), on the 5th day each month the ARD Bank shall have to remit the whole interest arising from the special account to the State Bank (concentrated account of foreign exchange fund of the State at the State Bank (Transaction Service). Account number 331.213.020.1.

VIII. ACCOUNTANCY ACCOUNTING, INSPECTION, REPORTING AND FINAL ACCOUNTING

8.1. Accountancy accounting:

Project Management Boards shall carry out the accountancy accounting and statistics according to the current regulations of the State.

Local Development Investment Departments shall conduct accounting and statistics under the guidance of the General Development Investment Department.

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The higher management agency of the project, the functional management agencies at the Central and local levels and the General Development Investment Department shall have to inspect the implementation of the plan, the regime of financial management and the reality in the deployment of the project owner and report in time the outstanding problems and obstacles in the management process to the Ministry of Finance, the Ministry of Planning and Investment so that they may take measures of settlement.

Violations (if any) detected in the process of inspection and control shall be handled according to the current prescriptions.

The allocations for the project which are used not for the right purpose and not in conformity with the regime and which are detected through inspection and control shall be recuperated and remitted to the State Budget.

Each year, the Special Account, the books and accountancy books of the project must be audited by an independent audit agency in conformity with the regulations of the State and the Loan and Aid Agreements. The audit documents shall be sent to the Ministry of Finance and constitute one of the bases to consider the drawing of supplementary fund for the Special Account or the fund drawing from the Special Account to make payments or a basis to evaluate the execution of the project.

8.3. Reporting:

Every month, the Provincial Project Management Board has the responsibility to draw up and send the report on implementation to the Provincial Development Investment Department which provides the fund and also to the Central Project Management Board.

The Provincial Development Investment Department which provides the fund shall have to incorporate the reports into a report to the General Development Investment Department on the allocation and provision of funds in the locality. Quarterly, on the basis of the reports of the Development Investment Departments, the General Development Investment Department shall make a wrap-up report to the Ministry of Finance.

Quarterly, the Central Project Management Board shall have to report in detail the expenditures from the Special Account at the rate already approved by the Ministry of Finance for the MARD and to the Ministry of Finance (the Foreign Financial Relations Department, the General Development and Investment Department).

Every six months, the MARD shall have to make a general report to the Ministry of Finance (the Foreign Financial Relations Department and the General Development Investment Department), the Ministry of Planning and Investment and the State Bank on the implementation of the projects including the Project for Forest Protection and Rural Development, the use of the loans and aid funds, the reciprocal funds of the Government.

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The Central Project Management Board shall provide detailed guidance on the regime of reporting forms of the project.

8.4. Annual settlement of accounts and settlement of accounts on conclusion of the project:

The Project Management Boards in the localities shall make the report on the settlement of accounts concerning the expenditures in the locality certified by the Development Investment Department of the province which provides the fund in order to report to the Central Project Management Board.

The Central Project Management Board shall make the report on settlement of accounts concerning the expenditures at the central level certified by the fund providing agency and also a general report of the project to submit to the MARD for consideration and ratification. The MARD shall have to make the final settlement of accounts of the expenditures already carried out and the final settlement of accounts with the Ministry of Finance.

Part IV.

IMPLEMENTATION PROVISIONS

This Circular takes effect 15 days after its signing. In the course of implementation, if any problem arises, the Central Project Management Board, the MARD, the ARD Bank and other related agencies shall have to report in time so that the Ministry of Finance can study, amend or supplement.

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