Organizational Assessment Guideline IRF Think Tank Development Initiative (TTDI)
Date: 12 March 2014
By:
Contents
Introduction and Outline ............................................................................................................ 3 PART A: Methodology .............................................................................................................. 4 1.
Why organizational assessment? ........................................................................................ 4
2. Methodology .......................................................................................................................... 5 PART B: Governance and Operations ....................................................................................... 7 3. Governance and Organizational Structure ............................................................................. 7 4. Strategic Planning ................................................................................................................ 14 5. Annual Planning and Operations .......................................................................................... 16 6. Risk Management ................................................................................................................. 18 7. Human Resources (HR) ....................................................................................................... 19 8. Communications................................................................................................................... 20 PART C: Financial Systems ..................................................................................................... 22 9. Budgeting ............................................................................................................................. 22 10. Financial Reporting ............................................................................................................ 24 11. Audit ................................................................................................................................... 27 12. Accounting ......................................................................................................................... 29 13. Authorizations and payments ............................................................................................. 31 14. Procurement ....................................................................................................................... 34 15. Anti-Corruption .................................................................................................................. 35
Introduction and Outline This Guideline aim at supporting the IRF staff members when conducting organizational assessments of potential partner think tanks under the joint IRF- Sida Think Tank Development Initiative (TTDI). The Guideline has a practical focus and is intended to provide insights in the core thematic fields of an organizational assessment. It will further provide practical tips for methodology and links to useful readings. It also summarizes the TTDI criteria for its partner organizations. The Guideline includes three sections: Part A focuses on methodology and tips for conducting an organizational assessment. Part B focuses on governance and organization. Part C focuses on financial systems.
PART A: Methodology 1. Why organizational assessment? The organizational assessment of potential TTDI partner organizations has two main aims:  to assess the CSO (Civil Society Organization)’s readiness to receive core support from the TTDI, and  to raise the organizational capacity and maturity of the CSO. Those CSOs with experience of working with international donors often have well developed project management system and systems for financial reporting to their donors. However, their internal control systems can be rudimentary and only allow the organizations to comply with the minimum requirements of the law of Ukraine. At the same time, the systems relevant for managing project funding are often not enough for a CSO to be ready to receive core support. While project funding is provided against a detailed budget where the CSO often reports back by providing receipts for each payment done under each budget line, core funding relies on the existing systems of the CSO. Core funding means funding the organization itself, and not its specific project activities. Instead, the funding should help the CSO to achieve its strategic goals. The second aim of the organizational assessment is to identify weak areas where the CSOs need to improve their organizations further. Thus, an organizational assessment has the ambition to help CSOs to become even more democratic, legitimate and sustainable. The main questions to answer in an organizational assessment are: - Does the organization fulfill the established criteria for a TTDI partner organization? - Does the organization fulfill the legal requirements of the law they are governed by? - Does the organization have a sufficient set of rules and regulations in line with best practice? - Does the organization implement its own charter and other established procedures?
2. Methodology This chapter aims at giving some practical advice and tips on how to conduct an organizational assessment. Documentation and implementation: The organizational assessment focuses on the systems established within the organization. The systems could be: Documented but not implemented (e.g. a written policy that is not used) Implemented but not documented (e.g. a procedure used that does not exist in writing) Documented and implemented (e.g. a written procedure that is used by all staff members) Ultimately, a good system would include procedures that are both documented and implemented. The assessment should preferably look at both aspects. Gathering data: Triangulation of data: In simple words, the triangulation of data means using data and input from two or more sources to make a general conclusion. A short article about triangulation and how it can be useful for assessments can be found here: http://www.write.com/writing-resources-articles/research-writing/research-process/datatriangulation-how-the-triangulation-of-data-strengthens-your-research For the TTDI organizational assessments, it is important to base recommendations on at least two sources of data: combining information from interviews with collection of written documentation as evidence/validation. Example: You wish to assess the procurement system of a CSO. To triangulate data, you can read the procurement policy (if existing), analyze a random selection of protocols or documents from performed procurements, and interview relevant staff members to let them describe the system and how it is used. Gathering Data: Conducting spot-checks The organizational assessment does not include a complete review of all operational measures taken in the organization. However, conducting spot-checks is important as an evidence tool of how well the CSO implements its procedures. As a rule of thumb, even if you chose random examples, always select the examples for spot-checks yourself (do not let the organization pick them for you). This to ensure maximum objectivity. Providing Recommendations: To give support to the CSO’s further development, the TTDI assessments should also include recommendations to the CSO for its organizational development. Recommendations could be:
“must have”, i.e. what the CSO needs to do to fulfill the requirements to receive core support from TTDI, or “should have”, i.e. what the CSO needs to improve to become a more efficient, stable and transparent organization To be useful for the organization, the recommendations need to be practical, concrete and realistic. Remember that it should be possible for the TTDI team to come back and measure if the CSO has implemented the recommendation or not. Example: Vague recommendation: “The CSO should improve its governance structure” Concrete recommendation: “The CSO should establish an independent Supervisory Board”
The practical steps to conduct an organizational assessment for TTDI The organizational assessment of a potential partner for the TTDI is done in four steps: 1. Limited call for potential qualified participants of TTDI and request documentation 2. Initial analysis of documentation 3. Visits and interviews with the CSO governing bodies, management and staff members. 4. Analysis and conclusions Further readings ICAC Corruption Prevention Department Hong Kong: Best Practice Checklist for Governance and Internal Control in NGOs http://www.icac.org.hk/filemanager/en/content_1031/ngo_e.pdf
PART B: Governance and Operations This section of the Guideline gives thematic insights in good governance principles and CSO operations. Each chapter includes: a thematic introduction and practical examples, a table of useful documentation to request from the CSO, links to further reading, and an overview of the established TTDI criteria for partner CSOs.
3. Governance and Organizational Structure Introduction to Good Governance The governance of an organization does not equal the management of an organization. While management is about managing the daily operations, governance includes: • Oversight of the organisation • Responsibility for achieving aims and objectives • Decision-making processes • Accountability • Delegated authority In some CSOs, governance and management are not clearly separated in different functions. This is not in line with principles of good governance, which includes: • Clearly defined decision-making powers: the charter should define the decisionmaking authority of the different governing bodies. •
Separation between oversight/governance and management: no person has both management and governance function. This principle is often referred to as segregation of duties.
•
Defined roles for members, Board and staff: the documentation of the CSO should give clear roles for the different functions, their mandate and their authority
•
Transparency: the CSO should function in a transparent manner towards its members, its staff and the general public
•
Accountability: the governance model should ensure that there is accountability from lower governing bodies to higher, and from the General Assembly to the target group.
Examples of how a CSO can have a mixed governance and management function: - The Executive Director is also the chairman of the Board - There is no external Board = staff are also board members - The Board is involved in daily management tasks Examples of potential influence of a lower governing body on a higher governing body:
- The Executive Director approves the agenda for the General Assembly - New members are approved by the Board (according to best practice, the General Assembly should approve new members) - The Executive Director has voting rights in the Board and/or the General Assembly While implementing a good governance model with clear segregation of duties can be a cumbersome process, there are clear gains for the organization to establish good governance structures: •
• • • • •
It safeguards the public interest: A CSO works with money from others, often tax payer’s money from donor organizations. As a result, there is a public interest that the CSO uses the funds in a good way. By having a transparent system, the CSO can ensure a better protection of these funds. It demonstrates integrity and encourages trust and confidence. It provides for organizational stability through establishing governing bodies instead of “one-man-shows.” It ensures objective decision-making where the CSO gets external input from outside the management team. It increases likelihood of fulfilling aims and objectives by having bodies that take strategic views on the daily operations. It prevents corruption as it establishes higher levels of internal controls.
In practice, the segregation of duties between governance and management often means that the CSO has a General Assembly as its highest governing body, an independent Board and an Executive Director appointed by the Board:
Remember that each organization has its own personal features and needs. There is no given model that fits all. What is important is to ensure that the main principles of good governance are kept to. Membership The good governance models discussed above assume that the CSO has members who represent the target group for the CSO activities: a media CSO might have media companies as members, a CSO working for a vulnerable group might have representatives from this group among its members etc. having members of the target group as members means that the CSO has legitimacy i.e. the credibility to talk on behalf of its target group. In Ukraine, it is quite common that the CSO GA members consist of employees or consultants working in the CSO. This creates a significant problem in terms of segregation of duties. At a minimum, it should be ensured that those receiving salary from the CSO are not a majority of the CSO members. Not all CSOs have members. Some CSOs do not aim to speak on behalf of a specific group of people. Think tanks could be found in this category. If a CSO does not have members, it needs to find its credibility and roots in the Ukrainian civil society in another way, for example through its Board members.
Decision-Making The Board of a CSO should, in line with good governance, be external and independent. This means that it should consist of persons that are not part of the management or staff team of the organization, i.e. those that are financially remunerated by the CSO. To be able to provide guidance to the CSO, a mix of different backgrounds and expertise can be fruitful. The Executive Director should be hired by the Board and report to the Board. The decision-making within the organization should be well documented and clear. In general, the decision-power should have its starting point with the General Assembly and thereafter be delegated to the Board and to the Executive Director. This delegation of power should be established in the charter. Further delegation of decision authority from the Executive Director to other managers or staff members should be documented and kept to. Example: According to the charter of CSO X, the Executive Director has the right to sign agreements on behalf of the CSO. During his leave, he delegates this right to his Deputy Director. This is documented in a Power of Attorney.
Example: The table below shows an example of a governance model and a scheme of delegation. The first table sets out the roles and responsibilities of each body. Roles and Responsibilities Subject
General Assembly
Board
CSO governance
Approval of statute and subsequent amendments
Abides by its role as set out in the statute
Executive Director/Management team
Election/appointment of Board members
Strategy
Approval of governance framework including scheme of delegation, Board terms of reference Receives strategic plan Sets and provides management team with overall strategic direction
Receives direction from Board Preparation of strategic plan for approval by
Subject
General Assembly
Board
Consideration and approval of strategic plan
Executive Director/Management team Board
Consideration and Preparation of annual approval of annual plans and budgets in line plans and budgets with the strategic plan for approval by Board
Annual plans and budgets
Approval of changes to plan/budget having a significant impact on strategy or financial position Receive regular financial reports indicating actual financial performance to budget and cash flow forecasts
Financial monitoring
Identify and submit proposals to Board where changes in work plans or budgets have a significant impact.
Closely monitor overall financial position (including cash flow) and performance against budget. Provide regular financial reports to Board
Modes of operation: this table sets out some of the practical ways that each body operates Subject
General Assembly
Board
How members appointed?
Approved by GA
Board Members elected/appointed by GA members
Frequency of meetings
Annual (but additional meetings can be requested by percentage of members)
At least quarterly
Executive Director/Management team Open recruitment processes. Appointment of Executive Director made by Chair of Board Meet as management team at least once a month
Chaired by? Remuneration of members
Usually Chair of Board No remuneration paid to members
Chair elected by n/a Board members Board members paid Staff paid salaries only in exceptional approved by the Board circumstances (eg if appointed to carry out a specific, time-bound project for the Board)
Useful documentation to request from the CSO Document Copy of registration Charter Meeting minutes from recent General Assembly and Board meetings Organizational chart Job description for the Executive Director
Purpose Confirm that the organization is properly registered with the Ukrainian authorities Review governance model Review decision-making model Review if the governing bodies work according to the governance model Review organizational model Review if it matches the charter and does not give the Executive Director a governing role
Links and further readings The Central and Eastern Europe Working Group on Non Profit Governance: A Handbook on NGO Governance: http://www.dochas.ie/pages/resources/documents/Governance_Handbook.pdf The Corporate Governance Association of Ireland: Code of Corporate Governance: http://www.dochas.ie/Shared/Files/4/CGAI_Governance_Code__FINAL.pdf Andrea Moncada: Think Tank Boards: Composition and Practices: http://onthinktanks.org/2013/03/25/think-tank-boards-composition-and-practices/ John Carver and Miriam Carver: Carver's Policy Governance® Model in Nonprofit Organizations: http://www.carvergovernance.com/pg-np.htm TTDI criteria Criteria
“Must” for mini grant
“Must” for organizational grant
“Should” for further development
Be mission-driven
Have a written mission/purpose
Have an independent board
Be prepared and willing to establish an independent Board during the mini-grant period
Have knowledge and understanding of Conflict of Interest issues The CSO is Legal Status properly registered with Ukrainian Authorities The CSO’s charter Registered as Think Tank allows for public policy work Clear decision-making n/a processes in the organization Conflict of Interest
Established formal structure
Have a staff and an office
Have a written mission/purpose in the strategic plan
Have a written mission/purpose that matches the strategic plan and is well-rooted in the organization Have an established Have a wellindependent Board functioning Board that implements its role as supervisory body and reports to the highest governing body. Have a documented n/a Conflict of Interest policy n/a
n/a
n/a
n/a
The CSO has a documented delegation of authority in line with the charter
The CSO has a documented delegation of authority that is relevant for its size and type of operations n/a
n/a
4. Strategic Planning The charter of the CSO should include a purpose or objective for the organization. Often, the CSO establishes an additional mission and a vision statement. A mission statement should explain the core reason why the organization exists and the target group. It should give an indication to what the organization should do and what makes the organization special or unique, and spread the organizational values and ideas of the organization among stakeholders and staff. The vision statement should be a future-looking statement that sets the targets the organization wants to reach, either in a decided time frame or in a long-term future without a time frame. The mission and vision statements are the starting points for the strategic planning of the CSO. An outline for a strategic plan could be as follows: Structure for a Strategic Plan VISION • beliefs – expectations – long term wishes MISSION • internal and external communication BUSINESS CONCEPT • my wishes/company’s competence • simple – understandable-controlling-delimiting
GOALS (should be SMART – Specific, Measureable, Achieveable, Realistic and Timely) • financial goals • financing – financial balance donatinos, contracts • market shares – new customers – positioning • organization – recruitment – succession plan • personnel – personnel development STRATEGY (how we achieve our goals)
RISK EVALUATION (Competitors, threats in the market, opportunities) (Our weaknesses and how to overcome them, what to focus on) ACTIVITIES AND PLANS (which should lead to strategic goals) • financial plans, budget, etc. • market plan – market activities • product development • plan for personnel and organization • plan for Board of Directors and top management •Possible changes in long-term financing Possible changes in owner/Board of Directors COMPANY BOTTLENECKS • which are the most important activities which lead to measureable results
Swedish Development Advisers
It is recommendable to have a strategic budget attached to the strategic plan, indicating the financial and human resources needed to implement the plan. It would also be important to
ensure that staff members, members of the Supervisory Board and other stakeholders are actively involved in the development of a strategic plan to ensure a direct ownership. Based on the strategic plan, the strategic planning needs to be linked to the operational planning of the CSO as follows:
The strategic plan should be broken down into annual plans and thereafter into project plans. This way, the organization creates a chain of results where the individual projects support the overall implementation of the strategic plan. The RBM Guideline from SDA provides more detailed input on how to establish a resultfocused, measurable strategic plan and a result assessment framework (RAF). Useful documentation to request from the CSO Document Mission and vision statement
Strategic Plan
Purpose Review if the mission and vision statements are updated and well established in the organization Review if the mission and vision statements align with the Strategic Plan Review if the Strategic Plan covers the planned organizational support period Review if the Strategic Plan has measurable
indicators and identified outcomes Review if the Annual Plan is linked to the Strategic Plan and focuses on results
Annual Plan
Links and further readings Denise McNerney (iBossWell, Inc.), Dominic Perri (Essential Conversations Group) and Margaret Reid (University of Arkansas): Strategic Planning Practices Result in Higher Performing Nonprofits http://www.strategyplus.org/Non-Profits.shtml Rick James, INTRAC: How to do Strategic Planning: A Guide for small and diaspora NGOs http://www.intrac.org/data/files/resources/729/Strategic-Planning-A-PLP-ToolkitINTRAC.pdf TTDI criteria Criteria
Strategic Plan
“Must” for mini grant n/a
“Must” for organizational grant The CSO has a result-focused updated strategic plan and a RAF valid for at least the time period of the organizational grant.
“Should” for further development The CSO has a system to ensure that it measures results rather than activities, including an monitoring & evaluation plan for its RAF
5. Annual Planning and Operations To move from the strategic level to the operational project level, an annual plan is needed. The annual plan should be an operational road map for the year to ensure that the CSO is moving forward in its implementation of the strategic plan, and be linked to an annual budget. An annual plan should not be confused with an annual activity plan, listing the planned events/products to be done during the year. Instead, the annual plan should focus on the results that the CSO intends to have during the year. Linked to its strategy, the CSO needs to have a system to ensure that it can properly plan, report and follow-up on its results. Thus, it needs a monitoring & evaluation plan that established how it intends to measure its results on project level and on consolidated level, including identification of those responsible for the task.
Useful documentation to request from the CSO Document Annual plan Monitoring and evaluation plan TTDI criteria Criteria
Annual Planning and Reporting
Purpose Alignment with strategic plan Alignment with strategic plan
“Must” for mini grant n/a
“Must” for organizational grant The CSO plans its operations on an annual basis The CSO has an annual report
“Should” for further development The CSO has an annual plan that establishes annual expected results in line with its Strategy. The CSO publishes its annual report online
Project Management
n/a
n/a
The CSO has some project management templates and planning tools at hand The CSO has a joint server for all its materials
Policy work and Networks
The Think Tank Index
The CSO has policy work as its main activity
The CSO has an implemented quality control procedure
n/a
The CSO TT has analytical staff members. Have a think Have a think tank Have a think tank tank index of index of at least xxx index of at least xxx at least xxx points points points
6. Risk Management While the future is difficult to predict, the CSO can actively identify, analyze and address main risks for the CSO and the implementation of its strategic plan. Therefore, the CSO needs a structured manner of conducting risk management at the strategic, operational and project level. These would need to be documented and systemic on an organizational level. The first steps on the way to start up more strategic risk management work would be to prepare a SWOT1 analysis and a risk strategy, including: Identification of risks Estimation of the consequences of each risk. Estimation of the likelihood that each risk will occur. A strategy for how risks will be mitigated, weighting costs vs. benefits. A system for documenting and tracking risks happening and the actions taken. N.B It is the risks to not achieving the Strategic Plan’s results, the results of the Annual Plan or the risk of project failing that should be the focus of the risk assessment. The decision on how to mitigate the strategic risks is the task of the Board and should be followed-up by management. The top management needs to assess operational and financial risks regularly and what activities to budget for and carry out. Project risks should be considered in each project design but this analysis can be made more explicit and documented in the progress reports to donors. Useful documentation to request from the CSO Document Purpose SWOT analysis Review its alignment with the strategic plan Risk management policy Review its alignment with the strategic plan Board meeting minutes Review if risk assessment is part of the discussions Links and further readings Better Evaluation: SWOT analysis: http://betterevaluation.org/evaluation-options/swotanalysis PM4NGOs: Project Management for NGOs, Discipline 4: Risk Management http://www.pm4ngos.org/index.php/discipline-4-risk-management TTDI criteria Criteria
1
“Must” for mini grant
Strengths, Weaknesses, Opportunities and Threats
“Must” for organizational
“Should” for further
Risk Management procedures
n/a
grant Have a risk analysis and plan for risk mitigation in its strategic plan
development An implemented risk management procedure
7. Human Resources (HR) “-What if I invest in the development of my staff and they leave? -What if you don’t and they do?” For a think tank, its employees and consultants are the main asset; it is the team and its competence that allows the think tank to produce high level results. Keeping its good staff members and having systems for staff development is therefore important for the sustainability of the think tank (and ultimately for a successful implementation of its strategic plan). It is not unusual that HR is seen as a support function, focusing on producing contracts and ensuring the legal aspects of the employment are fulfilled. However, the CSO should preferably establish systems for a good human resource management, documented in an HR policy and/or HR procedure. The HR system should at a minimum include rules and procedures for:
Performance management, including regular staff assessments and development measures for staff Procedures for hiring and firing staff Rules and procedures for vacation and leaves of absence Rules for compensation General rules for the office
Useful documentation to request from the CSO Document Purpose HR policy or HR procedure Review its quality and content Links and further readings HR Council.ca HR Toolkit: Developing HR Policies http://hrcouncil.ca/hr-toolkit/policies-guideline.cfm TTDI criteria Criteria
“Must” for mini grant
“Must” for organizational grant
“Should” for further development
HR procedures
Have gender and nondiscrimination policy
Job descriptions
The CSO hires n/a its staff and consultants with written contracts n/a Awareness of the gains of having a gender and nondiscrimination policy n/a TheCSO has job descriptions for its top managers.
The CSO has an HR policy and procedure
Have gender and nondiscrimination policy
The CSO has job descriptions for all its staff members.
8. Communications Having a strategy for the communication work is very important for a successful implementation of the strategic plan. Without external exposure and public usage of the think tank’s ideas, the efforts of the work is to a large extent in vain. The CSO should have a communication policy (that covers both external and internal communication). While the outline of a communication policy can differ from one organization to the other, the communication policy could include:
General principle of communication Target groups of the organization and key messages to convey Communication channels General principles for using e-mails and other channels of communication Communication responsibilities and monitoring of communication activities How to handle media requests Principles for speaking on behalf of the organization
Preferably, the CSO should also have a communication strategy for the same time period as the strategic plan where it in detail plans for the concrete communication goals and plans for the period. Useful documentation to request from the CSO Document Purpose Communication Policy Review of content and suitability for the organization Communication Strategy Review of content and suitability for the organization Review of linkages to the Strategic Plan
Links and further readings The Overseas Development Institute (ODI): How to write a communication strategy http://www.odi.org.uk/publications/5186-communications-strategy-planning TTDI criteria Criteria
Communication strategy
“Must” for mini grant n/a
“Must” for organizational grant n/a
“Should” for further development Have a communication strategy which include internal and external communication and is aligned with the strategic plan. .
PART C: Financial Systems Having a solid and transparent financial system that ensures good internal control in the CSO minimizes the risks of funds being misused. There is, however, a clear difference between assessing the financial systems and conducting a financial audit. Assessing the financial systems includes an analysis of whether or not there are documented procedures and systems to ensure directive, preventative and detective financial controls. The systems need to ensure that these types of control exist in order to ensure that core support-type of funds are managed appropriately. Links and further Readings: Secure the Future: NGO Financial Management Pocket Guide: http://www.securethefuture.com/our_experience/archive/financemng.pdf TTDI criteria Criteria
A documented financial system
“Must” for mini grant The CSO has basic procedures for its financial management
“Must” for organizational grant The CSO has a financial manual or similar documentation of its financial systems
“Should” for further development n/a
9. Budgeting For the implementation of the strategic plan, the CSO needs to develop a consolidated annual budget for the organization (not project by project). Since core funding ultimately is about funding the organizational development and the implementation of the strategic plan, the CSO also needs to have a consolidated annual budget that gives an overview of all its foreseen income and expenses. A Strategic Budget, covering the whole strategic period should establish, on a general level, the budget needed to reach the strategic objectives. Thereafter, a more detailed Annual Budget should be developed in line with the annual plan. ¨ The consolidated annual budget should: in a transparent manner include all foreseen income and expenses of the organization during the year, divide the income and expenses according to source of funding, preferably include activities that are yet to be financed, use a structure that allows it to be compared with the annual financial report.
Thus, it should be a document reflecting the strategic plan rather than a document reflecting the existing income sources. It should be approved by the Supervisory Board and be regularly monitored by both Supervisory Board and the Director. The budget development process and the budget monitoring procedures needs to be documented. Useful documentation to request from the CSO Document Purpose Annual budget Review its transparency and clarity, inclusion of all sources of income and expenditure Review its linkage to the annual plan and the Strategic Plan Strategic budget Review its linkage to the strategic plan Documentation of budget procedures Review its compliance with the statute Ensure that the procedure ensures approval of the budget on Board level and regular budget monitoring Project budgets, administrative budgets Review their outline and content (If no consolidated annual budget exists) Fundraising plan Review linkage to identified funding shortages in strategic and annual plan Links and further readings: Funds for NGOs: Some Tips on Financial Planning and Budget Management for NGOs http://www.fundsforngos.org/featured-articles/tips-financial-planning-budget-managementngos/ TTDI criteria Criteria
“Must” for mini grant
Annual consolidated budget
The CSO has project budgets for all its projects
Fundraising
n/a
“Must” for organizational grant The CSO has an annual consolidated budget that aligns with the strategic plan.
“Should” for further development The CSO has a budget policy and performs regular budget monitoring on board and management level.
n/a
The TT has a fundraising plan and a staff member
responsible for the fundraising
10. Financial Reporting The annual financial report of the CSO should give a transparent overview of all sources of income and expenses. It should be done on a regular basis and be compared to the annual budget. The process to develop a financial report should be documented and the reports should have been approved by the correct governing body. It should be possible to easily see what income sources the organization has had and how the funds from each income source have been used. To pass a financial audit, the organization needs to produce annual financial reports, i.e. a balance sheet and a profit & loss statement for the organization. Preferably, the CSO has a financial system that allows for automatic development of financial reports. However, among Ukrainian CSOs, many do not have an accounting software of this sophistication. Instead, they develop their reports manually in Excel. When assessing the financial reports, ask yourself: • WHAT reports exists today? • WHO developed the report? • HOW was the report developed? (Where did the data come from?) • WHO uses the report and how? Besides own financial reports for use in the organization, the CSO also needs to regularly report to the Ukrainian authorities. The tax report should be done on a quarterly basis and is in a cumulative way reporting on income and expenses. Thus, the report for the fourth quarter equals the annual income and expenses. A CSO only needs to report on the total income and the total expenses. A typical tax report from a CSO thus looks as follows:
It should be noted that the tax reports are cash-based i.e. “cash-in” and “cash-out” (please see chapter on Accounting for a more detailed overview of methods for accounting). If a CSO performs cash-based accounting, its end of the year records should equal the tax report. If the CSO performs accruals-based accounting, the end of the year records is likely to have some mismatch with the end of the year tax reports. In this case, the financial staff members of the CSO should be able to provide you with a clear overview of the different numbers and their origin. Useful documentation to request from the CSO Document Purpose Annual financial report (if existing) Assessment of clarity and transparency
Documented procedure for production of financial reports
Review how well it correlates to the annual plan (if existing) Review appropriateness of procedure and if it involves people with the right level of knowledge of what is needed in the organization
Links and further readings Mango: Financial Management Essentials- Handbook for NGOs http://www.mango.org.uk/Guide/CourseHandbook TTDI criteria Criteria
“Must” for mini grant
Have clear transparent and The TT provide proper reliable financial reports and timely financial reporting to the Ukrainian authorities
“Must” for organizational grant The TT produces balance sheets and profit and loss statements, which are approved by the Board.
“Should” for further development n/a
11. Audit External Audit As the organizational assessment does not include a full financial audit, it is of vital importance that the CSO has undergone a financial audit for its total operations before core support is provided. The audit of the CSO’s financial statements means that its financial statements have been checked by a qualified auditor, external to the CSO. The underlying accounting records have been checked and the auditor has issued an opinion on whether or not the financial statements reflect the actual financial situation in the CSO. For TTDI partners, Sida requires that the CSO’s financial statements are auditedOften, the CSOs lack funds to finance such audit and would need financial support to implement this requirement, for example through the TTDI mini grant. The Sida requirements for core support organizations include: core activities shall be audited annually, audits shall be carried out by an external, independent and qualified auditor using IFAC or INTOSAI standards, audit reports shall express an opinion whether the financial account is correct and gives a true and fair view of the core activities of the organization,
the auditor shall submit a management letter, which shall communicate any deficiencies and weaknesses in the organizational structure and the status of the organization’s internal control system, and the organization should formally reply on the conducted audit with a management response.
To document the audit processes, the CSO needs a separate audit policy on external audit. Such policy should include: rules for the frequency and scope of the external audit, Terms of Reference for the auditors how the auditor is to be procured, who within the organization is responsible for responding to the Auditors’ findings and recommendations, rules establishing that the General Assembly should review the financial audit and management letter, and systems and procedures of internal audit including reporting lines and responsibilities. Internal Audit Many Ukrainian CSOs have an audit committee established in their charter (a requirement under the former NGO law). The audit committee should report to the General Assembly. The Chartered Institute of Internal Auditors (www.iia.org.uk) provides the following overview of the different roles and objectives of an external and internal audit: External audit
Internal audit Evaluate and improve the effectiveness of Add credibility and reliability governance, risk management and control to financial reports from the processes. This provides members of the organization to its Objectives boards and senior management with stakeholders by giving assurance that helps them fulfil their duties opinion on the report to the organization and its stakeholders. Financial reports, financial All categories of risk, their management, Coverage reporting risks. including reporting on them. Improvement is fundamental to the purpose of internal auditing. But it is done None, however there is a duty Responsibility by advising, coaching and facilitating in for improvement to report problems. order to not undermine the responsibility of management. Links and further readings Sida: Audit Manual http://www.sida.se/Publications/Import/pdf/sv/Audit-Manual_1006.pdf
Chartered Institute of Internal Auditors: What is internal audit? Information to help you understand the role and value of internal audit: http://www.iia.org.uk/media/91287/0731_what_is_internal_audit_dec_2012.pdf Mango: Example of an Internal Audit Checklist for a small NGO: http://www.mango.org.uk/Guide/InternalAuditChecklist TTDI criteria Criteria
Financial audit
“Must” for mini grant n/a
“Must” for organizational grant Has undergone a financial audit according to IFAC standards
“Should” for further development Has an audit policy or established routine for conducting regular organizational audits according to IFAC standard with a defined ToRs for the auditor
12. Accounting Accounting systems While the organizational assessment should not review the complete accounting records, it should assess the accounting system. CSOs in Ukraine are likely to use one of the following accounting methods: -
-
Manual accounting (on paper): this is foremost likely to be found in very small and informal CSOs. Accounting in Excel: some CSOs do the accounting in own-constructed Excel sheets. While this at least provides an electronic accounting, it has several flaws including: o A high risk of human errors when entering numbers o A possibility to erase, change or add numbers without any traces in the bookkeeping Accounting software: the preferred and recommended way for accounting. In Ukraine, the software “1C” is used by a majority of the CSOs. Newer versions of this software offers possibilities to create financial reports automatically, and to conduct project accounting (i.e. to be able to set up separate accounts for each project), while older and simpler versions does not allow for this.
CSOs that do not have an accounting software that allows for project accounting often combine the accounting software (for overall accounting) with Excel sheets to keep an overview of each project account. Accruals-based and cash-based accounting Foremost for the analysis and assessment of the financial reports, it is important to understand the two main approaches to accounting, accruals-based and cash-based, and what effects these have on the financial reporting of the CSO. Investopedia.com describes the difference between accruals-based and cash-based accounting as follows: “The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized….The cash method accounts for revenue only when the money is received and for expenses only when the money is paid out. On the other hand, the accrual method accounts for revenue when it is earned and expenses goods and services when they are incurred. The revenue is recorded even if cash has not been received or if expenses have been incurred but no cash has been paid.” Example from Investopedia.com: Let's say you own a business that sells machinery. If you sell USD 5,000 worth of machinery, under the cash method, that amount is not recorded in the books until the customer hands you the money or you receive the check. Under the accrual method, the USD 5000 is recorded as revenue immediately when the sale is made, even if you receive the money a few days or weeks later. The same thing occurs for expenses. If you get an electric bill for USD1700, under the cash method, the amount is not added to the books until you actually pay the bill. However, under the accrual method, the USD 1700 is recorded as an expense the day you get the bill. While the Law on Accounting in Ukraine establishes accrual-based accounting as the principle, in practice most CSOs uses thet cash-based accounting method. In some ways it is an easier approach to use, and it is in line with the requests for reports to tax authorities (which are produced with cash-based data). However, it also creates a less transparent view on the financial situation of the CSO. Example: CSO X uses cash-based accounting. In November 2013, it pays the office rent for the next three months; November 2013, December 2013 and January 2014. The total cost is UAH 30,000. The accountant records the total amount as a cost in November 2013. By the end of 2013, the accountant summarizes the costs of the year in the annual financial report. Since the total paid rent amount has been recorded during the month of November 2013, she will include all the UAH 30,000 as a cost for the year of 2013. In reality though, this amount also includes costs for 2014 (i.e. office rent for January 2014). If CSO X instead would have used accruals-based accounting, the accountant would have recorded UAH 10,000 as a pre-paid expense = not a cost during 2013. The rent for January 2014 would be recoded in January 2014 as would be correct.
Useful documentation to request from the CSO Document Purpose Accounting policy Review if the policy provides clear rules and responsibility Review if the policy provisions for the use of an accounting software Examples of payments conducted and Spot-checks if the established system is entries in the book-keeping properly implemented TTDI criteria Criteria
Accounting system
“Must” for mini grant The CSO has a trained accountant that performs accounting according to an established system
“Must” for organizational grant The CSO uses an accounting software for recording transactions
“Should” for further development The CSO performs accruals-based accounting
13. Authorizations and payments Authorization of an invoice means that the document is properly signed by the person with the authority to decide on the payment. Thereby the authorization is proving that the payment can be made. Conducting the payment means to send out the money from the account/pay out the money in cash. Example: The CSO receives an invoice from an event company after arranging a round table. First, the responsible project manager signs the invoice as approval that the costs are eligible and the event has taken place. Thereafter, the Executive Director signs as the person with legal status to authorize payments. This is the authorization process. The Accountant thereafter enters the payment in the internet bank client and approves the transfer with his/her electronic signature. Thereafter the Executive Director approves the payment with his/her electronic signature. At this stage, the money leaves the CSO account. This is the payment process. Why is this aspect so important for a CSO? When handling public funds (from donors, member fees etc.), the CSO is de facto managing funds that have been granted to the CSO for
a specific purpose. While in a private business, the owner or the director could perform payments on his/her own, a CSO handling funds from the public needs to have a higher level of control and transparency in its processes. As a general rule, the CSO should have a “four-eyes principle” in each step. This means that no one should be able to authorize or pay an invoice/cost without involvement of a second person. This is a crucial principle to establish good internal controls: it should be impossible for one person to authorize and/or pay anything on behalf of the CSO without a second signature. Example: The Accountant at CSO X does not have her own electronic signature for the internet bank client system, but borrows the flash drive from the Executive Director tolog in and enter the payments.. Thereafter the payments are signed by the Executive Director and the transfer is performed. CSO X thus lacks a “four-eyes principle” both in terms of payment. The CSO should have an established system of second signatures to ensure that no one authorizes or conducts payments on his/her own. For authorizations, an authorization list or a similar type of document needs to be established that defines who signs what. Signature rights needs to be clearly documented. The right of first signature should be given to the Executive Director in the charter. If the Executive Director has delegated this right to someone else in the organization, this needs to be documented in a Power of Attorney. Example: At IRF, the first signature right is held by its Executive Director according to its Charter Thereafter, the first signature right has been delegated to the Finance Director up to a limited amount. This delegation is documented in a Power of Attorney signed by the Executive Director. The first signature (from the Executive Director or the Finance Director) should always be accompanied with second signatures in line with the IRF policies. While it is not a requirement according to the Ukrainian law, it is advisable for internal control and transparency to establish a system where the Board approves very large payments jointly with the Executive Director. Payments should only be made once the proper authorizations have been documented, and should be done by two persons with separate internet bank signatures in the bank client system. This to avoid that one person has the possibility to clean the bank accounts of the organization. Cash payments generally means higher risks than bank transfers and should therefore be minimized. Using cash opens up for possibilities of fraud and weakens the control, as cash transfers are less traceable than bank transfers. If the CSO handles cash, it needs to have a set of safe cash transfer procedures that at a minimum should include: Established end-of-day cash limits
Proper documentation and book-keeping of cash transfers Regular internal controls for the cash box Example of a CSO without cash handling: CSO X does not handle cash. Salaries, invoices and business travel expenses are all paid through bank transfer. The CSO also performs many round table events in various regions in Ukraine. To avoid handling large amounts of cash and have high costs for administration, they use regional event organizers that invoice the costs directly to the head office in Kiev. The processes of authorization and payment needs to be documented in a policy, either a separate policy or as part of for example a financial manual. Specific regulations also need to exist for business travel: if there are no joint rules on choice of travel, per diems levels etc., the system does not protect from potential misuse. No manager or employee should have the authority to authorize his/her own travel expense report. Useful documentation to request from the CSO Document Documentation on authorization rights and processes Documentation on the payment process, including rules for business travel Examples of conducted bank and cash transfers TTDI criteria Criteria
High level of internal control for authorizations and payments
“Must” for mini grant
Purpose Review that the authorization process is documented and in line with good practice Review that the payment process is documented and in line with good practice Cross-checks of how well the system is implemented
“Must” for organizational grant The CSO has an The CSO has an established system authorization system and a to perform system for authorizations and payments that payments/transfers ensures at least two of funds signatures. All signature rights are properly documented.
“Should” for further development The CSO has a business travel policy
14. Procurement Procurement is the purchase of goods and services. Conducting a proper procurement before a purchase provides the organization with two important aspects; - It allows the organization to properly analyze the market and get the best product for the best price, and - It establishes a fair and open competition that minimizes exposure to fraud. The lack of a proper procurement process opens up for misuse of funds by over-paying for the required service/goods (purposely or non-purposely). Internal controls are weak if one person can decide on purchases for the organization. Without a procurement policy, there are no formal restrictions to prevent a person with signature rights to purchase anything at any cost. Therefore, the CSO needs rules around the purchase process. A good procurement policy should at least include: -
-
-
-
The establishment of procurement thresholds: depending on the size of the purchase, the organization can create different levels of procurements. While smaller purchases can be done with no procurement, larger purchases needs an open tender with a joint decision by several persons. The establishment of a step-by-step procurement process: the policy should give a clear overview of how the procurement should be implemented under each threshold level The establishment of a tender committee: For larger procurement, a tender committee should jointly analyze the incoming bids and take a decision on reward. The tender committee can include both finance and operations management representatives, but could also with preference select new representatives for each procurement. There should be a developed template for conducting the evaluation and document the decision. The definition of rules for exemption from the policy: the policy should define under which special circumstances the organization can make an exemption from the procurement policy.
Many Ukrainian CSOs does not have a procurement policy. Instead, they use the different procurement rules or policies of each donor financing its projects. However, for core support, the CSO needs to have its own organizational procedures, including a procurement policy. For the TTDI, the Sida’s procurement rules need to be implemented with the partner CSOs. The rules can be found as annex to this guideline and incorporates the main aspects mentioned above. Useful documentation to request from the CSO Document Purpose
Procurement Policy
Documentation from conducted procurement processes
To review the system, its appropriateness, its alignment with Sida’s procurement rules, and its implementation To confirm that the procurement procedures are followed in a random selection of procurement processes
Links and further readings: Report Annex 1: Procurement by Non-Governmental Organisations in the context of Sida-financed projects/programmes, version of 2013 TTDI criteria Criteria
Procurement policy
“Must” for mini grant n/a
“Must” for organizational grant Has a written procurement policy in line with Sida’s requirements
“Should” for further development Has implemented the procurement policy
15. Anti-Corruption No organization is immune to corruptive behavior and fraud. Organizations using public funds should have an additional focus on ensuring that there are protective measures taken to protect the CSO from fraud and misuse of funds. “There are generally three requirements for fraud to occur - motivation, opportunity and personal characteristics. Motivation is usually situational pressures in the form of a need for money, personal satisfaction, or to alleviate a fear of failure. Opportunity is access to a situation where fraud can be perpetrated, such as weaknesses in internal controls, necessities of an operating environment, management styles and corporate culture. Personal characteristics include a willingness to commit fraud. Personal integrity and moral standards need to be “flexible” enough to justify the fraud, perhaps out of a need to feed their children or pay for a family illness. It is difficult to have an effect on an individual’s motivation for fraud. Personal characteristics can sometimes be changed through training and awareness programs. Opportunity is the easiest and most effective requirement to address to reduce the probability of fraud. By developing effective systems of internal control, you can remove opportunities to commit fraud.”2 By establishing effective and efficient operations, a reliable financial system, and be in compliance with the law, a CSO can ensure a good internal control structure to prevent fraud or misuse of funds. However, the CSO also needs to be prepared on how to deal with reports on fraud if these would occur, and provide a context where its stakeholders would feel 2
University of California: “Understanding Internal Controls”, p. 3
comfortable to be whistle blowers. This is typically done through the establishment of an anticorruption policy that defines what the organization considers as corruption and establishes how the organization should deal with incoming reports on possible misconduct. For TTDI, Sida has a set of requirements that are to be followed by all organizations receiving Sida funds: The organization should have a documented and implemented anti-corruption policy The anti-corruption policy should establish a possibility to report suspicions on corruption anonymously The anti-corruption policy should ensure protection of the whistle blower The anti-corruption policy should establish clear steps of investigation Sida’s position vis-à-vis corruption and financial mismanagement NEVER ACCEPT! ALWAYS ACT! ALWAYS INFORM! Sida’s view is that corruption is a serious hindrance to development. Corruption: – undermines the rule of law – demoralises political systems and democracy – distorts competition in the market system – results in the inefficient allocation of scarce resources – affects the poor disproportionately – undermines respect for human rights – contributes to environmental degradation – affects the will to invest – destroys predictability and hope for the future Useful documentation to request from the CSO Document Anti-Corruption Policy
Code of Ethics Conflict of Interest Policy for the Supervisory Board
Purpose Review if the policy fulfills the Sida’s requirements Review if the policy is well implemented and known in the organization Review if the policy is well implemented and known in the organization Review if the policy is well implemented and known in the organization
Links and further readings: University of California: Understanding Internal Controls http://www-bfs.ucsd.edu/blink/ocbfs/acc/UnderstandIC.pdf
Sida: Sida’s Anti-corruption Regulation http://www.sida.se/Publications/Import/pdf/sv/Sidas-Anticorruption-Regulation.pdf Chr. Michelsen Institute, U4 Brief 2013:10: Donor anti-corruption strategies: Learning from implementation http://issuu.com/cmi-norway/docs/131219125823d5dae6e243ef40a88f1742f349ca7c05/6?e=1246952/6173581 Transparency International: International Principles for Whistleblower Legislation http://issuu.com/transparencyinternational/docs/2013_whistleblowerprinciples_en TTDI criteria Criteria
“Must” for mini grant
Anti-corruption policy n/a
“Must” for organizational grant The TT has an anticorruption policy that: a) Gives possibilities to report anonymously b) Provides protection for the whistle blower c) Gives clear instructions on how the investigation should be performed and by whom
“Should” for further development The TT’s staff members and consultants knows how to report a potential misconduct.
Annex 1 Procurement by Non-Governmental Organisations in the context of Sida-financed projects/programmes, version of 2013
1.
General principles
If the implementation of a Project/programme requires procurement by the Cooperation Partner, the contract must be awarded to the tenderer with the most economically advantageous tender (i.e. the tender offering the best price-quality ratio), or, in case of supply contracts not involving after-sales service, the sole award criterion should be the price. Contracts must be awarded in accordance with transparency and fair competition avoiding any conflicts of interest. Contracts must not be split artificially to circumvent procurement thresholds. To this end, the Cooperation Partner must comply with the rules set out in sections 2 to 6 below, subject to section 7. These lay down the minimum procedures to be followed and it is not precluded that other procedures offering more competition are utilised. Sida will carry out ex post checks on the Cooperation Partner´s compliance with these rules. Failure to comply with these rules would render the related expenditure ineligible for Sida funding. 2.
Eligibility for contracts 2.1.1.
Nationality
Participation in tender procedures administered by the Cooperation Partner is open on equal terms to all natural and legal persons. 2.2 Grounds for exclusion from participation in procurement Candidates or tenderers will be excluded from taking part in a procurement procedure if: (1)
they are bankrupt or being wound up, are having their affairs administered by the courts, have entered into an arrangement with creditors, have suspended business activities, are the subject of proceedings concerning those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or regulations;
(2)
they have been convicted of an offence concerning their professional conduct by a judgment which has the force of res judicata;
(3)
they have been guilty of grave professional misconduct proven by any means which the Cooperation Partner can justify;
(4)
they have not fulfilled obligations relating to the payment of social security contributions or the payment of taxes in accordance with the legal provisions of the country in which they are established or with those of the country of the Cooperation Partner or those of the country where the contract is to be performed;
(5)
they or persons having powers of representation, decision making control over them have been the subject of a judgment which has the force of res judicata for fraud, corruption, involvement in a criminal organisation, money laundering or any other illegal activity detrimental to Sidas/Swedens financial interests;
Candidates or tenderers must certify that they are not in one of the situations listed above. Points (1) to (4) do not apply to the purchase of supplies on particularly advantageous terms from either a supplier which is definitely winding up its business activities, or the receivers or liquidators of a bankruptcy, through an arrangement with creditors, or through a similar procedure under national law. 2.3 Exclusion from award of contracts Contracts may not be awarded to candidates or tenderers which, during the procurement procedure: (a) are subject to a conflict of interests; (b) are guilty of misrepresentation in supplying the information required by the Cooperation Partner as a condition of participation in the contract procedure or fail to supply this information. 3.
Common procurement rules
The tender documents must be drafted according to best international practice. Sida will not publish notices and tender documents issued by the Cooperation Partner. The time-limits for tenders must be long enough to give interested parties a reasonable and appropriate period to prepare and submit their tenders. An evaluation committee must be set up to evaluate tenders on the basis of the exclusion, selection and award criteria published by the Cooperation Partner in advance in the tender documents. This committee must have an odd number of members, at least three, with all the technical and administrative capacities necessary to give an informed opinion on the tenders. 4. Specific rules for service contracts 4.1. Contracts from ₏ 300 000 and above Service contracts from ₏ 300 000 and above must be awarded by means of an international restricted tender procedure following publication of a procurement notice. The procurement notice is to be published in all appropriate media, in particular on the Cooperation Partner´s web site, in the international press and the national press of the country in which the Project/Programme is being carried out, or in other specialist periodicals. It must state the number of candidates which will be invited to submit tenders within a range of four to eight candidates, and must be sufficient to ensure genuine competition. All would-be service providers fulfilling the conditions referred to in section 2 may take part but only candidates satisfying the published selection criteria and invited in writing by the Cooperation Partner may submit a tender.
4.2. Contracts of less than € 300 000 but more than € 60 000 Such contracts must be awarded by means of a competitive negotiated procedure without publication, in which the Cooperation Partner consults at least three service providers of its choice and negotiates the terms of the contract with one or more of them. 4.3 Contracts of € 60 000 or less For services of a value of € 60 000 or less, the procedures established by the Cooperation Partner may be used, while respecting the rules and principles laid down in articles 1, 2 and 3 of this annex. 5. Specific rules for supply contracts (goods) 5.1. Contracts from € 300 000 and above Supply contracts (goods) worth € 300 000 and above must be awarded by means of an international open tender procedure following publication of a procurement notice. The procurement notice is to be published in all appropriate media, in particular on the Cooperation Partner´s web site, in the international press and the national press of the country in which the Project/Programme is being carried out, or in other specialist periodicals. Any would-be supplier which fulfils the conditions referred to in section 2 may submit a tender. 5.2. Contracts between € 100 000 and less than € 300 000 Such contracts are awarded by means of an open tender procedure published locally: the procurement notice is published in all appropriate media but only in the country in which the Project/Programme is being carried out. A local open tender procedure must provide other eligible suppliers with the same opportunities as local firms. 5.3. Contracts of less than € 100 000 but more than € 60 000 Such contracts must be awarded by means of a competitive negotiated procedure without publication, in which the Cooperation Partner consults at least three suppliers of its choice and negotiates the terms of the contract with one or more of them. 5.4. Contracts of € 60 000 or less For supply contracts of € 60 000 or less, the procedures established by the Cooperation Partner may be used, while respecting the rules and principles laid down in articles 1, 2 and 3 of this annex. 6.
Use of negotiated procedure
The Cooperation Partner may decide to use a negotiated procedure on the basis of a single tender in the following cases: (a) for the purposes of humanitarian aid and civil protection operations or for crisis management aid. Crisis situations may be invoked only when they have been formally recognised by Sida. Sida will inform the Cooperation Partner if a crisis situation has been declared and the period for which the declaration will be in force.
(b) in which the services are entrusted to public-sector bodies or to non-profit institutions or associations and relate to activities of an institutional nature or designed to provide assistance to peoples in the social field; (c) in which contracts extend on-going activities: (i) not included in the main service contract which have become necessary to perform the contract for unforeseen circumstances, and provided that the additional services cannot be technically and economically separated from the main contract without serious inconvenience for the Cooperation Partner and the aggregate amount of additional services does not exceed 50% of the value of the principal contract; or, (ii) which consist in the repetition of similar services entrusted to the contractor providing services under the main contract, provided that: (a) a contract notice was published for the first service and the possibility of using the negotiated procedure for new services for the Project/Programme and the estimated cost were clearly indicated in the contract notice published for the first service; and (b) the extension of the contract for a value and duration not exceeding the value and the duration of the main contract. (d) for additional deliveries by the original supplier intended either as a partial replacement of normal supplies or installations or as the extension of existing supplies or installations, where a change of supplier would oblige the Cooperation Partner to acquire equipment having different technical characteristics which would result in either incompatibility or disproportionate technical difficulties in operation and maintenance; (e) in which the tender procedure has been unsuccessful, that is where no qualitatively and/or financially worthwhile tender has been received. In such cases, after cancelling the tender procedure, the Cooperation Partner may negotiate with one or more tenderers of its choice, from among those that took part in the tender procedure, provided that the initial terms of the tender procedure are not substantially altered; (f) where, for technical reasons, or for reasons connected with the protection of exclusive rights, the contract can be awarded only to a particular service provider; (g) where warranted by the nature or particular characteristics of the supplies, for example, where performance of the contract is exclusively reserved for the holders of patents or licences to use patents; (h) for contracts declared to be secret, or for contracts whose performance must be accompanied by special security measures or when the protection of the essential interests of Sida/Sweden or the partner country so requires; (i) for contracts in respect of supplies quoted and purchased on a commodity market;
(j) for contracts in respect of purchases on particularly advantageous terms, either from a supplier which is definitively winding up its business activities, or from the receivers or liquidators of a bankruptcy, an arrangement with creditors, or a similar procedure under national law; (k) where a new contract has to be concluded after early termination of an existing contract. Such a decision has to be substantiated by reason of non-performance by the supplier or by reasons for termination similar to grounds for exclusion as mentioned under section 2.2. 7. Special cases Different rules than those specified in this annex may apply in the following cases, with the exception of the principles described in section 1 which always apply. 7.1. Central Buying Offices Where the Cooperation Partner uses a central buying office as service provider, it must be selected in conformity with the procedures set out above for service contracts. This central buying office applies the rules imposed on the Cooperation Partner.