PACS Standard 6:

Financial Management

PACS Standard 6 forms part of GIACC’s Project Anti-Corruption System (PACS), which comprises 15 PACS Standards (see links at foot of this webpage).

Requirements

General management controls: The anti-corruption measures in paragraphs 10 (conflict of interest), 11 (decisions), 12 (communication) and 13 (records) of PACS Standard 1 should apply to all Project financial management processes including, but not limited to, those listed below.
Appointment and employment of finance managers: An appropriate number of managers of the Project Owner who are of appropriate skill and seniority should be appointed to manage the finances of the Project. These managers should be employed in accordance with paragraph 9 (employment procedures) of PACS Standard 1.
Financial management responsibilities: The Project Owner’s finance managers should ensure that, in relation to Project finances, and each financial process which they manage:
1. relevant Anti-Corruption Obligations are complied with by the managers, the Project Owner, relevant Suppliers and Sub-suppliers, sellers and lessors of land, and the personnel of each of these bodies
2. they are alert to any suspicions of corruption or breach of the Anti-Corruption Obligations, and they report any such suspicions, as soon as possible:
  1. to the compliance manager (paragraph 5 of PACS Standard 1), and/or
  2. under the reporting system in PACS Standard 13
3. Project accounts are maintained which comply with the law and international good practice accounting standards, and which accurately record and reconcile all Project assets and liabilities
4. accounts for each Project Contract are maintained which comply with the law and international good practice accounting standards, and which accurately record and reconcile:
  1. all sums owed to or by the Project Owner
  2. all payments made to or by the Project Owner
  3. the reasons for such sums and payments
5. no approval of payment to a Supplier is given by or on behalf of the Project Owner unless the finance managers who are giving approval have taken all reasonable steps to verify, and reasonably believe, that:
  1. there is a signed Project Contract in respect of which the payment is to be made
  2. a payment recommendation has been properly completed (paragraph 6 of PACS Standard 5)
  3. the proposed payee is the correct person to be paid under the Project Contract
  4. the payment is lawful and is properly due under the relevant Project Contract
  5. there are no suspicions of corruption in relation to the payment recommendation, the payee, or the payment
6. no payment to a Supplier is made by or on behalf of the Project Owner unless the finance managers who are making the payment have taken all reasonable steps to verify, and reasonably believe, that:
  1. a payment approval has been properly completed
  2. the account designated to receive payment is the account of the proper payee
  3. there are no suspicions of corruption in relation to the payment or payment approval
7. no payments to the Project Owner are accepted unless the finance managers who are accepting payment have taken all reasonable steps to verify, and reasonably believe, that:
  1. there is a signed Project Contract in respect of which the payment is to be received
  2. the payment is lawful and is properly due under the Project Contract
  3. there are no suspicions of corruption in relation to the payment
8. where the amount to be paid is over the equivalent of [US$ 100], all payments by or to the Project Owner are made through the banking system.

Guidance

G1: What is the purpose of PACS Standard 6

The purpose of PACS Standard 6 is to provide for measures which reduce the risk of corruption in the management of Project finances. Such corruption may include, for example:

the Project Owner’s finance managers making corrupt payments:
- of more than is due, to Suppliers who have paid a bribe to the finance manager(s)
- of more than is due, to Suppliers who are secretly owned, wholly or partly, by the finance managers
- to phantom Suppliers, and instead receiving the payment into their own account
the Project Owner’s finance managers extorting payments from Suppliers in return for making payments which are properly due.

G2: General management controls (paragraph 1 of PACS Standard 6)

Paragraph 1 of this PACS Standard provides that the general anti-corruption measures in paragraphs 10 (conflict of interest), 11 (decisions), 12 (communication) and 13 (records) of PACS Standard 1 should apply to all Project financial management. This means that all financial management processes, including, for example, approvals of payment, making of payment and receiving of payment, should comply with the requirements that:

no manager should act where s/he has a conflict of interest
there should be appropriate separation of functions
decisions should be made by an appropriate number of skilled, senior persons
all decisions, approvals, recommendations, and outcomes should be properly communicated and recorded.

G3: Appointment and employment of finance managers (paragraph 2 of PACS Standard 6)

Paragraph 2 of this PACS Standard provides that the Project Owner’s finance managers should be employed in accordance with paragraph 9 (employment procedures) of PACS Standard 1. This means, for example, that:

they should be obliged by their conditions of employment to comply with applicable anti-corruption laws and regulations, the Project Code of Conduct and relevant Project Procedures, and can be disciplined if they do not comply
if they are in a position which is exposed to more than a low corruption risk, then they should be vetted before they are employed, should be competent to undertake their role, and should declare any conflict of interest, and their performance bonuses and targets should be reviewed periodically to verify that there are reasonable safeguards to prevent them from encouraging corruption.

G4: Payments to be made through the banking system (paragraph 3 of PACS Standard 6)

The risk of corrupt payment is further limited by the requirement in paragraph 3 of this PACS Standard that payments over a minor value threshold (US$ 100 is suggested) should only be made through the banking system. This allows investigators to trace a payment to its ultimate recipient, and therefore uncover any potential corrupt payment.

G5: Could the controls in this PACS Standard be abused?

There is a risk that, even though the controls in this PACS Standard are designed to limit corruption, a corrupt public official or finance manager may ensure that these controls are by-passed. This risk is limited in PACS by:

the obligation on the Project Owner’s top management and compliance manager (who should be independent from the financial management process) to ensure that the PACS Standards are properly implemented (PACS Standard 1)
the raising of awareness among Project personnel of the importance of preventing and dealing with corruption through the Project Code of Conduct (PACS Standard 8) and training (PACS Standard 9)
the monitoring of the financial management process by the independent monitor (PACS Standard 11)
the independent financial audits (PACS Standard 12)
the ability of Project personnel and the public to report suspected corruption or breach of procedures (PACS Standard 13)
the obligation on the Project Owner to publish to the public all relevant information in relation to the financial management process (PACS Standard 15).