Development of Policy, Legal, and Insitutional Framework for - ppiaf

Development of Policy, Legal, & Institutional Framework for the PPP Program in Malawi
Final Report
The people who are responsible for development of projects cannot be the same people
who are responsible for assessment of those projects;
The people who are responsible for assessment of projects cannot be the same people
who formally issue approvals for those projects;
Similar to the point above, but focused on internal financial control: the people who
approve expenses cannot be the same people who pay the expenses;
The people who approve PDF funding cannot be the same people who expend the
PDF’s funds, for reasons similar to the accounting point above;
The Unit must have financial independence, so that its decisions regarding project
approvals are not influenced by financial dependence; and
The Unit must be independent of the industries in which the PPP transactions take
place, i.e. it must avoid industry capture.
The concepts above are not new, nor are they unique to PPP Units. But it is not unusual to miss
these points when designing a PPP Unit because the design’s focus is on outputs. We have
prepared this section to underscore the importance of avoiding any conflicts of interest inside of
the PPP Unit. Independence from political, financial, and industry capture are as important for
a PPP Unit as they are for a regulatory agency.
Segregation of Duties
So we apply the well-established accounting principle of Segregation of Duties. If the functions
of developing projects are segregated from the functions of approving projects then it will be
necessary for two or more persons to collude in order to defraud. With no segregation of
duties, no collusion is necessary and the temptation/risk is higher that a fraudulent event will
occur. Similarly, the function of approving a project must be separated from the process of
formally conveying that decision to external parties, for much the same reason that a person
who approves an invoice should not be the same person who writes the check.
PPP infrastructure projects often involve the investment of very large sums of money. It is
inevitable that some PPP Unit personnel will be approached by interested parties in efforts to
influence the Unit staff member’s decisions. If there is segregation of duties, such attempts to
influence will fail unless there is collusion within the Unit. So while we are recommending
matrix management for the Unit, that should in no way be construed to imply that the functions
of each member of the Unit’s staff will be allowed to have any decision-making authorities that
overlap the duty areas that must be segregated.
Segregation of PPP Unit and Project Development Facility
Turning now to the Project Development Facility, the person who approves a project for PDF
funding cannot be the same person who actually disperses the PDF funds. For this and other
reasons described below, we recommend that the PDF be separate from the PPP Unit. In that
design, the DG/CEO of the PPP Unit does not approve PDF funding; rather he or she requests
the funding. Then the Head of the PDF (who is accountable to a committee) makes the decision
whether or not to provide PDF funds. Continuing on the theme of segregation of duties the
Head of the PDF will not be authorized to actually disburse funds. It will be an accountant on
staff of the PDF who will “write the checks.”
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