Tool 8: WSI Financing and Audit Protocols

 

Quick reference

Tool A summary of key aspects of funding arrangements and processes that your WSI’s financing and audit protocols should address.
Related Key Activity
  • Establish equitable decision-making structures, communication, and finance.
Question Addressed There are private companies willing to invest in the WSI. How can we receive their funding while maintaining our independence and credibility?
Purpose Ensure compliance with moral and legal duties related to funding arrangements:
  • Reduce capture and other integrity risks.
Possible Users WSI initiators and participants.
Level of Effort Staff time and possibly resources for external expertise during negotiation of financial agreements; efforts for administering agreements depend on complexity.
WSI Phase 1: Incubation and Initial Analysis, 2: Formalization.

 

Guidance for implementation

Five steps to guide the development of an integrity risk assessment tool are suggested below:

Tool8-1Diagram
Tool8-2Diagram

Supporting Guidance

WSIs can engage the private sector to support — including financially — the development or implementation of water policies and services out of their own business interest. This requires high transparency standards and separation of roles in terms of financing and auditing vis-à-vis the governance and decision-making structure of a WSI. Otherwise, WSIs may run risks of capture, misleading expectations, or bad perceptions. Funding standards provide for a thorough due diligence investigation of funders, including an assessment of possible conflicts between public and private interests. Financial management and audit protocols then ensure the follow-through and implementation of agreed arrangements.

 

Recommendations
Minimum
1. Declaration of intentions and interests of WSI funder(s): These should go beyond the objective of the WSI and clearly state the individual benefits that a funder expects from investing in the WSI.
2. Financing agreement that separates the funding structure and the WSI operations: The results framework of the agreement should be aligned with the general objectives and outcomes of the WSI. The release of funds must not be bound to specific outcomes that benefit the funder. The funder shall not have any special rights (e.g., veto rights) in the WSI governance structure. The implementing partners shall have to justify only how money has been spent and how decisions on the use of funds have been taken, but not the content of decisions (which may not always be in line with the funder’s interests).
3. Basic disclosure of information: Basic information on the overall budget of the WSI, the funders, and the amounts each provides should be made available to the public.
Recommended
1. Comprehensive disclosure agreements: The financing agreement and related (audit) reports should be published and distributed to the utmost possible extent. If full public disclosure is not possible, other options are to disclose documents only to WSI participants and/or to disclose key information only to the public or WSI participants. Disclosing financial information is even more crucial in complex funding structures.
2. Independent oversight: Engaging a social witness in the negotiations of sensitive financing agreements and due diligence investigation of the funder can increase credibility. The social witness could be a community organization or a national or international NGO. (For more info, see Tool 11: Independent Oversight.)
3. Who is paying what: In a WSI that receives a mix of public and private funding, it is advisable to use public funds for sensitive WSI activities (e.g., development of master plans with direct impact on company operations; assessments that serve as basis for prioritizing measures and intervention areas; travel of public officials, community representatives and NGO partners with oversight function) and earmark private funds for activities that are less sensitive to capture (e.g., the implementation of already agreed measures).
4. Funding diversity: To mitigate power imbalances and negative perceptions, equal possibilities to provide funding should be assessed for all WSI participants, including those who engage at a later stage. Especially if there are conflicts between different (corporate) water users, options to engage with all parties should be explored and decisions documented.
  • An integrity risk assessment checklist for implementing partners and WSI participants that receive funding can be obtained upon request from GIZ, the Pacific Institute, or WIN.
  • Janek Hermann-Friede, Michael Kropac, Sarah Achermann, Johannes Heeb, and Lotte Feuerstein. 2014. Integrity Management Toolbox for Water Service Providers — Description of WSP Integrity Instruments (Berlin: cewas, WIN, and GIZ). Available at http://www.waterintegritynetwork.net/publications

 

Downloads

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