Madagascar - Accounting and Audit Organization and Training Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9078 PROJECT COMPLETION REPORT MADAGASCAR MADAGASCAR ACCOUNTING AND AUDIT ORGANIZATION AND TRAINING PROJECT CREDIT 1155-MAG Africa Country Department III Population and Human Resources Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS CFC - Centre de Formation en Comptabilite CIDA - Canadian International Development Agency CSR - Supreme Revolutionary Council DNEC - National Expert Accountant's Diploma EC c Expert Comptable INSCAE - Institut National des Sciences Comptables et de l'Administration des Enterprises MPFE - Ministry at the Presidency Responsible for Economic and Finance NPC = National Code of Accounts PCR = Project Completion Report RINDRA - Public Sector Management Consultancy and Accountancy Firm  you omcizL US ONLY THE WORLD BANK Washington. D.C. 20433 U.S.A. office d Dnvcgvr.C.gai Optatmt bvakaatnm October 12, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Madagascar - Madagascar Accounting and Audit Organization and Training Proiect (Credit 1155-MAG) Attached, for information, is a copy of a report entitled "Project Completion Report on Madagascar - Madagascar Accounting and Audit Organization and Training Project (Credit 1155-MAG)" prepared by the Africa Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment ' Thui document has a restricted distribution and may be used by recipients only in the performane of their offlcal dutis Its contents may not otherwie be disclosed without Word ank authorintion.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MADAGASCAR MADAGASCAR ACCOUNTING AND AUDIT ORGANIZATION AND TRAINING PROJECT (CREDIT 1155-MAG) TABLE OF CONTENTS Page No. Preface ................. i Evaluation Summary ................. ii PART I: OVERVIEW AND BANK'S PROJECT COMPLETION REPORT .... .... 1 1. Project Identity ..................................... 1 2. Background ........... ................................ 1 3. Project Objectives and Description ................... 2 4. Project Design and Organization ...................... 2 5. Project Implementation ............................... 3 6. Project Results ...................................... 5 7. Project Sustainability ............................... 6 8. Bank Performance ..................................... 6 9. Borrower Performance ................................. 7 10. Project Relationships. 7 11. Conclusions, Recommendations and Lessons Learned 7 ANNEX: GOVERNMENT COMMENTS ON BANK REPORT. 9 PART II: GOVERNMENT'S PROJECT COMPLETION REPORT .... ........... 13 PART III: STATISTICAL INFORMATION .............................. 60 1. Related Bank Loans and/or Credits ....... ............. 60 2. Project Timetable ................................... 61 3. Credit Disbursements ................................. 63 4. Project Implementation ............................... 64 5. Project Cost and Financing ............ ............... 66 6. Project Results ................................... 67 7. Status of Covenants .................................. 72 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  i PROJECT COMPLETION REPORT MADAGASCAR MADAGASCAR ACCOUNTING AND AUDIT ORGANIZATION AND TRAINING PROJECT CREDIT 1155 - HAG PREFACE This is the Project Completion Report (PCR) for the Madagascar Accounting and Audit Organization and Training Project, for which Credit in the amount of SDR 9,400,000 was approved on June 11, 1981. The Credit was closed on November 10, 1989, one year and six months behind schedule. As of that date there was an outstanding balance of SDR 9261 i.e. less than 0.1% of the Credit, which was cancelled. The PCR was prepared by AF3PH (Preface, Basic Data Sheet, Evaluation Summary, Part I Overview and Bank's Report, and Part III Statistical Annex) and the Borrower (Part II - Government's Project Completion Report). Preparation of this PCR started during the Bank's last supervision mission in 1989 and is based inter alia, on the Staff Appraisal Report; the Development Credit Agreement; supervision reports; correspondence between the Bank and the Borrower; internal Bank memoranda; and on an extensive case study prepared by the Bank's Operations Evaluation Department 1/ as part of a broader study of technical assistance projects in Africa. The Borrower was provided a copy of the Bank's contribution to the PCR to comment on. The Government provided some comments which were primarily explanatory in nature. There was no significant difference of opinion between the Government and the Bank. A translation of the Government's letter as well as the original letter in French is provided at the end of the Part I. 1/ Madagascar: Evaluation du Prolet Organisation et Formation en Comptablit6 et Revision (Cr6dit 1156), Operations Evaluation Department, The World Bank  ii PROJECT COMPLETION REYORT MADAGASCAR !4ADAGASCAR ACCOUNTING AND AUD:T ORGANIZATIOS AND TRAINING PROJECT CRBDXT 1155 - MAG EVALUATION SUOMYRY Obiective The objective of the project was to encourage the practice of modern accounting and auditing by upgrading the professional skills of accountants and auditors, and the *etablishment of a management consulting capability so as to help develop officient management, planning and financial control. The project had four componentst (a) the enactment of modarn accountancy legislation; (b) the establishment of an accounting school (Centre de Formation en Comptabilit6 - CFC); (c) the strengthening of the qualifications of the national auditing firm through training and other forms of assistance, and its expansion through the addition of a management consulting division; and (d) the strengthening of the management services capability of selected consulting firms through technical assistance in the fields of financial systems and procedures. Implementation Experience Implmentation of all components required the services of foreign consulting firms. There were delays in the implementatLon of component A partly because solecting the consultant for drafting the legislation took longer than expected. Use of a consulting firm for component B had not been planned but proved necessary to avoid excessive delays. This caused a significant cost overrun for component B. Canadian and French consultants made important contributions to component C. The government was so pleased by the success of the CFC that in 1984 it requested that the Bank finance the addition to CFC of a graduate school of managment. This was accepted (Credit MAO 1661) and the institution renamed Institut National des Sciences Comptables et de l'Administration des Entrepriess (INSCAE). Tho size of component n was significantly reduced in the course of the project, but two firms were successfully aided with the help of two French consulting firms. The borrcoer cooperated satisfactorily throughout the project. Results Overall the project should be viewed as a success. Modern accounting legislation adapted to the country's needs is in place and in the progress of being made effective. Rules governing the accountancy profession are being updated and local accountancy qualifications established. The accountancy school, formerly CFC, now INSCAE has produced more than 300 graduates of good quality and been expanded - nclude a two-year MBA program.  iii The national accounting firm RINDRA has greatly benefitee from the technical assistance received and is widely recognized for the quality of its auditing and consulting services. RINDRh operations would be profitable if it were not for the interest on the on-lending by the government of the proceeds of the Credit on terms that proved to be too onerous, and the amortization of the technical resistance received. RINDRA was expected to buy expertise at world market prices and sell the acquired expertise at the depressed prices paid for such services in the underdeveloped market of a poor country. The unexpectedly higher cost of component B required a reallocation of funds among components resulting in a significant reduction of funds available for component D. Two private consulting firms, however, did receive specialized technical assistance that enhanced their competence. Sustainability The accountancy legislation is in place and effective as of Januar 1, 1989. Some provisions concerning the accounting profession are still in the process of being enacted. INSCAE's (CFC) operating costs are still largely financed through Credit (MAG 1661) but government support will increase annually. When HAG 1661 is closed, INSCAE is expected to be fully supported by government funds and its own revenues. RINDRA's financial position is hopeless unless its debt to the government is drastically reduced. The debt may be converted to equity allowing RINDRA to become a private sector firm with a significant government stake in it if it is to continue as a financially viable accounting firm. Findings and Lessons Learned The political difficulties of introducing an accountancy law without the full cooperation of the existing accounting profession had not been foreseen. The profession, although very small, had significant political influence. The start up costs of the CFC far exceeded the original estimates because the problems of procuring needed technical assistance had been underestimated. The on lending arrangements for RINDRA proved too costly; it was impossible for the firm to absorb the full costs of foreign technical assistance and remain competitive in local markets. Both the Borrower and the Bank view the project as a success with some caveats. The major unresolved problem was that while the accountancy code was changed commercial law has not been changed tc conform to the new code. This issue has been taken up under Credit-1661 the follow on Credit to 1155.  PART I MADAGASCAR ACCOUNTING AND AUDIT ORGANIZATION AND TRAINING PROJECT CREDIT NUMBER 1155 MAG OVERVIEW AND BANK'S PROJECT COMPLETION REPORT 1. Project Identity Name Accounting and Audit Organization and Training Project Credit Number 1155 MAG RVP Unit AF3PH Country Madagascar Sector Education 2. Background 2.01 Immediately after independence in 1960, Madagascar's government encouraged investments in commerce and industry. As a result, value aided in the industrial sector increased from 5% of GNP in 1960 to about 17% in 1977. 2.02 The change in government in 1972 resulted in major policy changes, and many French managers and, technicians had left by 1975, when major foreign-owned enterprises were nationalized. Top management and accounting positions were then filled by people with inadequate experience. In the years that followed, many public enterprises suffered from weak financial management and were either unable to produce reliable financial statements or prepared financial statements only after excessive delays. 2.03 Although an accounting profession had been established by law in 1962, the profession had only 36 members, some with obviously inadequate qualifications, and no new admissions since 1971. Neither the university nor any other institution offered any professional level of training in accounting. Accounting at the University was not oriented to a professional qualification. 2.04 In the late '70s, the government took measures to ensure greater control over the newly nationalized industries and established a national audit company, RINDRA, in 1979. RINDRA was to provide audit services mainly to government owned and controlled companies.  2 2.05 In 1976, the government requested Bank assistan-e to finance technical assistance to RINDRA by the international accounting fir.n. Since this assistance was to be financed retroactively and the fees involved viewed excessive, the Bank initially declined. The Bank did, however, approve a subsequently submitted comprehensive accountancy project which aimed at reforming accounting related laws, establishing a professional school of accountancy, strengthening the effectiveness of RINDRA and upgjrading the expertise of Malagasy management consulting firms. The project was appraised on May 11, 1981. 3. Project Objectives and DGscription 3.01 The long run objective of the project was to assist in the improvement of business management through more effective accounting in both nationalized and private sectors. The project had the following four components? (a) A review of the existing accounting requirements for various types of enterprises and of the professional standards required from accountants and auditors, and the preparation and implementation of appropriate requirements in this respect, including proposals for legislation which, inter alia, would require enterprises in Madagascar to prepare audited accounts in accordance with specified standards and classification of accounts under a national accounting code. (b) Establishment and operation of an accounting training center (Centre de Formation en Comptabilitd) in Antananarivo, staffing thereof and the provision of training books and other course materials, supplies, services and equipment required for its operation. (c) Strengthening of RINDRA's audit activities through the provision of training and other assistance to its staff. To finan-7e these services, the government was to on lend to RINDRA USS 3.7 million of the loan proceeds at 12% p.a. to be repaid in ten years. The borrower would bear the exchange risk. (d) Strengthening of the management services capability of selected management consulting firms through the provision of training and other services in the fields of financial systems and procedures under sub-projects to be approved by the Association, and a feasibility study for the establishment of a public management consulting firm. 4. Project DesiLgn and Organization 4.01 The project was well-designed and apparently well-understood by all parties concerned. It was innovative in trying to create the prerequisites for the effective use of accounting as a planning and control tool by business management and the government. In this context, it addressed simultaneously the legislative, educational and professional dimension of the accounting function. It was also innovative in the sense that the  3 Anglo-Saxon concept of an audit was to be introduced in a society that hitherto was not acquainted with modern accounting and auditing. 4.02 The original project design was sound but unrealistic with regard to the technical assistance cost estimates of component B; staffing the CFC proved much costlier than anticipated. The assumption that the entire Malagasy teaching staff could be trained locally was wrong. Extensive overseas training was necessary to assure an adequately qualified teaching staff. Originally, the CFC was to hire its foreign Director General and teaching staff individually. When this proved impossible, a consulting firm was retained to recruit both the CFC's director and its foreign faculty. 4.03 The recurrent cost per student originally estimated at USS 2000.00 will be below that amount when the school no longer needs foreign teachers. Expectations with regard to RINDRA's ability to reimburse the loan advanced by the government to finance its technical assistance were totally unrealistic. Project planners were also too optimistic with regard to the time required to pass a comprehensive accountancy legislation (including required changes in the commercial law code). 4.04 With the exception of the shortcomings mentioned, the project's conception and design were sound and contributed to its success. 4.05 In 1983, the government requested and the Bank agreed to extend the assistance to RINDRA to include the creation of a management consulting arm which was to be operated as a division of RINDRA. This expansion of RINDRA replaced the originally planned feasibility study lor the establishment of a public consulting firm (Omega). 4.06 In 1985, the Bank co-financed with the Canadian bilateral aid agency, CIDA (or ACDI to use its French acronym), at the government's request, a feasibility study concerning the expansion of CFC into a graduate school of management through the addition of a two-year MBA program. This modification of the project, which involved changing the name of the CFC into INSCAE (Institut National des Sciences Comptables et de l'Administration d'Entreprises) was approved. With some delay, the necessary legislation was passed and the two-year MBA program started in 1988. INSCAE will be financed mainly under Credit 1661-MAG; there will be significant cc-financing by ACDI and France. 5. Project Implementation 5.01 Critical variances in project implementation 5.02 Component A (Accounting Legislation): the Bank rightfully considered timely implementation of the legislation as a prerequisite for the success of components B and C. Serious delays were experienced because it took two years to identify and hire the consulting firm which was to prepare the proposals for the accounting legislation. The local accounting profession, concerned that new laws may threaten its status, exerted considerable influence to modify and delay the legislation. Although most of the required legislation was enacted at the project completion date, important parts were still missing. These include provisions regulating accees to the  4 profession and the precise definition of the "cursus" leading to the qualification as Expert Comptable (EC). The performance of the French consulting firm was satisfactory. The Borrower submiitted a detailed PCR, which, makes, among others, the following statements: 'It is regrettable that the credit did not provide any funds for the dissemination of the "Plan Compteble" '. It does mention the many efforts (not financed by the credit) by INSCAE, RINDRA and other accounting firms to disseminate the law. It was because of those efforts that the Bank did not consider this to be a priority. 5.03 Component 3 (CFC-INSCAE): the cost of operating the CFC during the first three years (S 3.3 rnillion; exceeded the original estimates of the CFC for six years ($ 1.6 million). It had been planned that the newly appointed Director General of the CFC would hire individual accounting teachers without the help of an overseas coordinating institution. This proved to be impossible. To assure the timely start of the project, it became necessary to engage a Canadian consulting firm to recruit the CFC's director and the foreign teaching staff. The firm also assisted in arranging overseas training for future Malagasy teaching staff. The initial "Canadian" orientation of CFC's program was criticized by some local accountants. It occasionally caused some friction between French oriented and Anglo-Saxon (Quebecois) trained teachers. These problems practically disappeared with the requirements of the new accounting legislation were incorporated in the CFCs curriculum. None of the schools first graduates experienced any serious difficulties because of this so called "Canadian' orientation. At the beginning, the consulting firm's performance was very good, but its refus-l to cooperate with potential future co-financiers and a newly appointed, Bank approved, French Dean of Studies, necessitated the termination of all ties with that firm. 5.04 Component C (RINDRA): RINDRA's foreign Director General, appointed under the Credit, proved ineffective and controversial. He was replaced by a Malagasy director who turned out to be dynamic and efficient. Performance of the original consulting firm was satisfactory, while that of the second firm was generally appraised aa excellent. The expectation that RINDRA would be able to reimburse the loan advanced by the government turned out to be unrealistic. To expect RINDRA to acquire its needed additional skills at world market prices and then to sell them at similar prices on a market that, at least initially has little appreciation for such services, proved to be too optimistic. Although RINDRA is able to generate positive operating cash flows, paying interest and reimbursing this debt far exceeds its present and future capabilities. The decision to fina'.:e RINDRA's technical assistance through a loan was allegedly based on a f recast of RINDRA's earnings potential made around 1980. This forecast misjudged the market for auditing and consulting services in a developing country. In the early phases of development such a market is minimal. As it gradually develops it commands prices that are in tune with price level of its undeveloped environment, hence far below the world market level. 5.05 The delay of component A could have been reduced somewhat had it been made clearer from the start that a firm %ith international experience was needed. As _.t was, the three firms, essentially making up the Malagasy accounting profession, who wanted the contract for themselves, used their significant political influence to get on the short list and to influence  5 the choice of firms. This led to protracted delays. It would have been difficult to foresee these problems during project preparation. 5.06 The cost overrun for component B could have been reduced (but not avoided) if the absence of anyone to manage the initial establishment of CFC, and the problems of availability and cost of accounting teachers had beer correctly assessed. Ideally, a contract with a university should have been sought for the organization and management of the school. The assumptLon that RINDRA would be sufficiently profitable to repay the loan should have never been made. 5.07 The appraisal report d'd not identify the risk of delaying the project's completion by the delay of component A. The other risks, nameyL the timely appointments of foreign directors for the CFC and RINDRA, mentioned in the appraisal report were of no consequence. 5.08 Under component D only two sub-projects were successfully completed. Originally, this component also provided for a feasibility study for the establ.shment of a public consulting firm. The Borrower's Project completion report states (p. 40) that the conditions for this assistance were not stated clearly and never adequately publicized. This allegedly explains the delay in submitting projects for approval. Only two projects were submitted. Both were approved. The first submiss!.on was on November 17, 1983. 6. Project results 6.01 Component A: A modern accountancy law adapted to Madagascar's needs was passed in 1987 (Plan comptable). Still to be enacted are related changes in the Commercial Law Code, important provisions regulating access to the profession, and the "cursus" leading to the qualification" expert comptable". 6.02 The project's most successful component was the establishment and staffing of the CFC, latter renamed INSCAE. The school started operations in 1983 and currently graduates approximately 50 to 60 students from its three-year accountancy program and another 20 from its four-year professional accountancy program. Its fully tuition-financed evening school has an enrollment of approximately 400 per year. Graduates have no difficulty in finding appropriate employment. The project also provided that RINDRA prepare a study estimating Madagascar's demand for accountants. The study, started in 1983 but never completed, was to serve as a guideline for the future expansion of INSCAE's accounting programs. It will now be carried out by INSCAE. 6.03 component C: The technical assistance to RINDRA, despite some initial problems with an expatriate director, must be judged successful. RINDRA is now fully under Malagasy management. The auditing division presently has a staff of thirty-five qualified accountants who are organized along the lines of modern accounting firms with solid programs of internal training and quality control. RINDRA has as its clients some of Madagascar s biggest companies and is well known for the quality of its audit work.  6 6.04 The consulting division of RINDRA now employs 20 professionals, enjoys a good reputation and is now apparently operating at a profit before debt service. Because of its debt to the government, RINDRA will be financially viable only if this debt is drastically reduced or annulled. 6.05 The new accountancy law requires that accounting firms be fully independent. This precludes government ownership and control of an accounting firm. If RINDRA is to continue to function as an auditing firm, it must be reorganized as a private firm. Present plans call for the privatization of RINDRA and the reduction or annulment of its debt; the government will retain cnly a small minority interest in RINDRA's equity. 6.06 Component D (Technical Assistance to Malagasy Management Consulting firms): the two main private accounting and consulting firms, Fivoarana and Ramaholimihaso, received some effective technical assistance from French accounting and consulting firms that improved the quality of their services in the area of computerized systems. 7. Project Sustainability 7.01 A modern accounting legislation is in place, although some details concerning the regulation of the accounting profession are yet to be enacted. Both INSCAE and RINDRA have been instrumental in disseminating the new law through courses and seminars. The legislation has been carefully analyzed and modified to adequately meet the requirements of the Malagasy economy. It became effective on January 1st, 1989. 7.02 The accountancy training project should be viewed as a success. INSCAE turns out wwll-trained accounting graduates. All find employment at salaries significantly higher than those of university graduates. Foreign trained Malagasy teachers constitute about 80% of its teaching staff, and in the foreseeable future the program will no longer depend on expatriate teachers. Currently most of INSCAE operating costs are still financed by the Bank (Credit 1661-MAG). It is planned that the Government of Madagascar will finance an annually increasing share of these operating expenses. INSCAE is able to generate revenues from both the public and the private sector through its continuing education seminars and consulting. This revenue plus the tuition paid by students will never amount to more than 30% percentage of its annual budget. A study in 1987 required under the Credit agreement showed that many students would have difficulty in paying more than they do and recommended against increasing tuition fees for full-time students. 7.03 RINDRA's future success as an auditing and consulting firm depends only on its successful privatization and the reorganization of its financial structure. There are indications that both problems will be resolved in the foreseeable future. 8. Bank Performance 8.01 Bank Performances The Bank's Performance was satisfactory. It contributed to the project's success by strongly insisting that deadlines be observed and covenants respected (not always successfully). Overestimating RINDRA's financial viability and underestimating the cost of  7 initially staffing the CFC were the only important planning errors. Supervision missions of the project were carried out about twice a year by EAPED staff, from 1985 on with the assistance of an accounting specialist consultant. Supervision of the project was adequate. 8.02 There were three crises that had to be faced by the Bank: (1) when it turned out that the initial staffing of the CFC would require the services of a consulting firm, Bank staff decided quickly and correctly that the resulting higher cost outweighed the alternative of delaying the project; (2) when RINDRA's ineffective Director General was replaced by a Malagasy national, the Bank re'uctantly agreed to what turned out to be a sound decision; and (3) when the initially excellent work of the CFC's first con'ulting firm deteriorated to the point where the continued success of the project was threatened, the government was correctly permttted to cut all ties with that firm. 9. Borrower Performance 9.01 The Government consistently showed a strong commitment to the project. It fully supported the concept of creating the CFC as a "grande 4cole", separate from the university; it provided adequate premises for the school and gave full support to the politically difficult enactment of the accounting legislation. It seems willing to restructure RINDRA as a private firm to assure its continued functioning as an effective accounting and consulting firm. 10. Pro4ect Relationships 10.01 Government-Bank relationships were satisfactory throughout the project. Through the initial engagement of a Canadian consulting firm, it was possible to interest Canada's foreign aid (ACDI) program in the project. ACDI is now making a significant contribution to INSCAE's programs. The Bank was also successful in enlisting FAC assistance for financing of some highly qualified French teichers for INSCAE. 11. Conclusions, Recommendations and Lessons Learned 11.01 The Borrower's report makes the following recommendations: (a) Early creation of the "Conseil Supdrieur en Comptabilit4" to deal with some remaining legal problems, and new issues in accounting and auditing. (b) The early enact.,ient of the rules concerning the accounting profession. (4) Implementation of #2 will enable INSCAE to fulfill its original mission of training future "experts comptables". (d) The government should prepare a strategy to modify INSCAE's objectives and to assure its financial viability. (e) The financial reorganization of RINDRA by converting its de'-it to equity capital and changing its legal status into a partnership. (f) Another technical assistance contract to strengthen the consulting division of RINDRA.  11.02Bank's comments on above recommendations: - Recommendations " a" and " b" are reportedly in the process of being implemented. - Regarding recommendation " c", INSCAE is fully qualified and has the capacity to teach any preparatory "cursus" for the "expertise comptable" once such "cursus" is defined. - As to recommendations "d" and "e", INSCAE is presently preparirng a long range strategy which will be discussed and analyzed with the government, the Bank and the co-financters. The reorganization of RINDRA and the change of its legal status are currently being negotiated by RINDRA staff and the government. Final and successful conclusion of these negotLations is expected by mid-1990. - With regard to "f", RINDRA is presently the beneficiary of an ACDI financed technical assIstance program for its management consulting division. 11.03The political difficulties of introducing an accountancy law without the full cooperation of the existing accounting profession had not been foreseen. The profession, although very small, had significant political influence. The start up costs of the CFC far exceeded the original estimates because the problems of procuring needed technical assistance had been underestimated. The on lending arrangements for RINDRA proved too costly; it was impossible for the firm to absorb the full costs of foreign technical assistance and remain competitive in local markets. 11.04Both the Borrower and the Bank view the project as a success with some caveats. The major unresolved problem was that while the accountancy code was changed commercial law has not been changed to conform to the new code. This issue has been taken up under Credit-1661 the follow on Credit to 1155. There are no significant differences in the findings and conclusions of the Bank and those reported by the borrower.  9 ANNEX DEMOCRATIC REPUBLIC OF MADAGASCAR, Antananarivo, 7th September, 1990 Ministry of Finance and Budget GOVERNMENT COMMENTS ON BANK REPORT OFFICE OF THE MINISTER The Resident Representative, The World Bank RE: Government of R.D.M.'s commentaries about the report of Post evaluation of credit 1155-MAG. Dear Sir, Please find hereafter the Government of R.D.M.'s commentaries about the report of Post evaluation of credit 1155-MAG: a) General view In general, the report is an accurate reflection of the project's history. b) Political problems encountered in the introduction of the new 1987 Malagasy accounting plan Three years passed between the time when the French Consulting Firm started its activities and the publication day of the new accounting plan. We believe that the difficulties met during .his period of time were not due political reasons, but rather, the mair. reason for the publication delay of the new accounting plan were technical problems. The draft accounting plan prepared by the Consultant firm was the subject of two seminars organized by the firm at the Hilton Hotel, during which every detail of 540-page draft report was analyzed. The seminar participants included accounting professionals, accounting teachers in addition to key representatives of the Public and private sectors concerned with accounting issues. Other technical meetings followed those seminars before the document was finalized. For your information, the 1957 French plan revision officially started in 1971 and a waiting period of more than 11 years was necessary before the new French accounting plan was definitely established.  10 c) Concern of the Accounting Profession Regarding its Status The accounting profession did not have any reason to fear that its status would be Jeopardized by the new dispositions which concerned strictly technical matters. Indeed, such a change in the status accounting profession only happen in the context of a new law governing the profession which is currently governed by regulation no.62.104. d) Political problems in the new Accountinz Plan promulgation The new Accounting Plan promulgation decree, was considered in the Council of Ministers. The discussion was fairly straightforward as all Ministers gave their agreement. e) RINDRA File The miscellaneous points raised as well as the recommendations stated in the report are presently being considered in the context of a global settlement of the RINDRA issue. Yours sincerely, Leon RAJAOBELINA Minister  t11 ~ '-"-b '07 SEP IM MINISYtrk 090 PINANCES JT aU SUDGEKT Li MANINY Monsieur LE REPRESENTANT RESIDENT DE LA BANQUE IlONDIALE - ANTANANRIVO - N- WBC /SG/DPC 0 B J t : Comntairts du ouvernhmnt de la R.O.M. sur la rapport de Post &valuation du cr6it 1155-MM. Monsieur Lt Reprisentant. Ja1 1 mhonmur da vous faire connaitre quo le rapport du post Ivaluation du cridit 1155-NM applle do la part du Gouvernem_nt de la R.D.M. Its comentaires ci-apris *) Vue globale. Dans l'ansOle l rapport reflte correctawnt la vie du proJet. b) Problus golitiq rencontrhes dans 1'introductIon du nouveau pian comptab a m lpace 1557. Entre Is ammut Io le consultant frgacis Audit et systhms a commnei ses travoux et Io Jour de la parution du nouveau plan coptable 11 seat GcoulQ environ 3 ans. Nous esti* ns quo les difflcultAs rencontries au cours do cette pr1ode n'avalent *bsolumentu sa un carac- Le principal facteur qul a reterd# la purtlion du nouveau plan ccsptable est essentiellmnt dtordre tochnique. En effet, le projet de plan co qtabe pipar# par la cabinet framaips Audit et syst s a felt I obJet do doux shinaires animis per leurs autaurs I PlHotel Hilton et *u cours desquels ont At& examins cheque page d'un volum do 540 pages. --.I ~ ~ -4o-, Re~v~ lZ49+. ~~~~~~~~d  12 t1sif 3 Les participants l ces sb"inaires ftaient des prefessionnels de I& ceaptabilit#, des prefesseurs de l'Ense1- gnement Supiriour en gestien. des personnal1tds du secteur public concern6es per la co.ptabilitf (Pr6sident de la Chambre des Coptes, Directeur G6neral de l'inspection Gn#ra1e de l'Etat etc....) ainsi quo des op6ratours 6cononiques. Ces siminaires ont 6t0 suivis d'autres rOunions techniques avant de parmnir au docu ent final. A titre dlinforsation. on notere que la rivision du plan frangals de 1957 a comnenc6 officieTlemnt en 1971 et 11 a fallu une piriode de gestation de plus de 11 ans avant que le nouveau plan comptable franqais alt pris sa forum dffinitive. c) Inquiftude de la profession comptabe qjuant I son statut. La profession comptable n'avait aucune ruison de votr son statut mnac6 p.r les nouvel;s Gispositlons qu1 sont d'ordre puruumnt technique. Un changsmut Iventuel du statut de la profession comptable ne peut en effet intervenir que dans le cadre d'une nouvelle 101 organisait la profession coWtable laquelle mSt rZile actuell_emnt par l'ordonnace 62.104 d) Difficult# politi quo dans_la promulgation du nouveau Plam (mtab1 0. La pramlgatlon de nouveau plan comptable qui sest faite par d6cret pris en 'Conseil des Ministres i t tris facile pu1sque tous les Minist6res ont accordi lour visa lors de la camunication tournante y afffirente. 0) Dossier RINDRA tis divers points soulev6s dans le rapport ainsi quo los recoamandtions qul y sont foruulles sont actuell emnt exainmis dans le cadre d'un rgli_nt global de la situation de RINDRA. VeWuilez nsiour Le Reprisentant, l'assurance de ma haute consid ~~~~~~~~~~~~~~~~~~~~~~~~~~~I  13 PART II GOVERNMENT'S PROJECT COMPLETION REPORT 5/ 1. SUMMARY AND CONTEXT AND OBJECTIVE OF STUDY CONTEXT AND OBJECTIVE OF MISSION 1.01 In accordance with the provisions of Section 3.05.b of Development Credit Agreement 1155-MAG, the Government of Madagascar is to provide the World Bank, by six months following the closing of the credit or at any later date agreed with the World Bank, with a complete and detailed report addressing the following topics: - execution of and initial operations under the Project; - costs of the Project and advantages deriving or expected to be derived therefrom; - execution of obligations incumbent on the Government of Madagascar and the World Bank, respectively; - achievement of the objectives of the credit. 1.02 The purpose of our mission is to draft the completion report for the Accountancy and Auditing Organization and Training Project financed by Credit 1155-MAG on behalf of the Government of Madagascar. METHODOLOGY 1.03 The mission was carried out in the three following stages: - Survey of documentation (appraisal report, contracts, various correspondence, etc.); 3 Analysis of the documentation; - Discussions with various leaders who participated in project development, execution and monitoring. STRUCTURE OF REPORT 1.04 This report addresses in turn: - summary and background; - the description of the project; - conduct of the project; - results and problems; - conclusions and recommendations HISTORICAL OVERVIEW 1.05 The chronological starting point for this project was the idea of establishing a National Auditing Corporation in June 1978. Taking into account the suggestions of tht accounting profession and bearing in mind 5/ The borrower's report was prepared in French by Malogasy Consultants, Fiovarans and RINDRA, on behalf of the Government who submitted it to the Bonk. It was translated by the Bank. The original French version is available from Africs Files. Copies of tho French version are being supplied to the Operations Evaluation Department. This report was prepared for the Government and the World Bank Is not rosponsible for the opinions expressed ;n the report.  14 that the interventions of the National Auditing CorporatLon would be effective only if enterprises have the capacity and the legal obligation to submit their financial statements in a form which can be audited, in January 1990 the World Bank defined a "national accountancy project" which not only included auditing, but also covered the organization of the profession, the definition of a national accounting framework, the training of accountants, and enhancement of the intervention capacity of private accountancy firms. 1.05 The accountancy and auditing organization and training project, a project to assist the accounting profession, thus included the following four components: - Component A: Study of accounting standards and legislation - Component B: Creation and operation of an Accountancy Training Center - Component C: Strengthening of the activities of RINDRA Socialist Enterprise - Component D: Support of private management consulting firms. OVERVIEW OF THE CREDIT AGREEMENT 1.07 The project appraised by the World Bank in June 1980 was covered by Credit Agreement 1155-MAG signed June 11, 1981. In accordance with the terms of the agreement, the World Bank extended a credit of SDR 9,4CO,000 to the Malagasy Government. The breakdown of this amount by category of credit in accordance with the credit agreement and as finally allocated following adjustments is indicated in the following table: Category of Credit According to Subsidiary Upward Downward After Credit Credit Adjustment Adjustment Adjustment Agreement Agreement Consultants for 260,000 50,000 200,00 legislation Consultants for CFC 1,630,000 1,810,000 3,440,000 Consultants for RINDRA 2,200,000 3,600,000 1,160,000 4,160,0MO Consultants for private 820,000 426,000 396,000 fIrms Local CFC personnel 680,600 395,0ao 286,000 CFC procurement 900,0i0 900,000 Unallocated 2,940,000 2,140,060 2,090,000 s6,o00 TOTAL 9,400,606 2,980,000 2,986,006 9,400,000 PURPOSE OF THE COMPLETION REPORT 1.08 In accordance with the provisions of Section 3.05(b) of Development Credit Agreement 1155-MAG, the Malagasy Government is to provide the World Bank, not later than six months following the closing date of the Credit or any later date agreed with the World Bank, with a complete and detailed report on: - project execution and initial operational experiences;  15 project costs and the gains derived from it or expected to be derived from It; - performance by the Malagasy Government and the World Bank of the obligations incumbent on each of them, respectively; - accomplishment of the objectives of the credit. Our mission iL to draw up the completion report for the Accountancy and Financial Auditing Organization and Training Project under Credit 1155-MAG on behalf of the Malagasy Government. 2. GENERAL INTRODUCTION 2.01 Preparation of the project effectively waS spread over a three-year period from June 1978 to June 1981. The first 20 months were devoted to the pre-identification phase. The project, exclusively for technical assistance of a new kind for the World Bank, was not within the purview of any of its customary divisions, which produced a good deal of hesitancy. 2.02 The date on which the credit took effect, scheduled to be October 12, 1981, subsequently was postponed until May 6, 1982. The process of hiring of the Directors-General of CFC (Accountancy Training Center] and RINDRA, who were intended to be expatriates and whose appointment constituted one of the Bank's conditions for the entry into force of the credit, took nearly a year. The closing date for the credit, initially scheduled for March 30, 1989, was thus moved back to June 30, 1989. CONDUCT OF THE PROJECT Component A: Accounting Standards and Legislation 2.03 The component devoted to "accounting standards and legislation" had the following aims: examination of the regulations applicable to the various types of enterprises as regards accounting and of the professional standards to which accountants and auditors must adhere. - drafting and implementation of appropriate regulations, including draft laws which would require, inter alia, that Malagasy enterprises establish accounts which are audited in accordance with specific standards and with a national plan of accounts. 2.04 This component, considered to be a priority, was the one in which the greatest delay was experienced. The Bank had scheduled the introduction of new legal provisions on accounting legislation for July 1982, while the consulting firm which was to assist the Government in this work was not formally announced until January 29, 1985, i.e., two and a half years later. This delay is basically attributable to: - rather long delays in: + preparation of the short list of consultancies; + final drafting of the terms of reference; + international call for bids; + fine-tuning of the contract between the Government and the consultancy;  16 - problems of relationships between the Order, the Government and the Banks in effect, the Order argued for an expansion of the project as well as for its intensive involvement in project execution. For this reason, the President of the Order participated in the negotiations in April 1981. 2.05 These factors were compounded by the fact that the foreign experts selected for the study were unfamiliar with prevailing conditions in Madagascar, which led to lengthy discussions and numerous revisions during the course of conducting the study, and even required members of the firm Malagasy accounting profession (order, INSCAE, RINDRA) to participate actively and decisively in completing the study for Component A: critical analysis, formulation of recommendations, final drafting of the regulatory provisions and the annotated guide. 2.06 The 1987 code of accounts (PCG 87) constitutes the most palpable achievement of the project, as company law has yet to be affected. The project, however, provided for no financing for dissemination of the new code of accounts, and the request for World Bank financing made first by the Consultants and later by the Malagasy Government, has yet to be acted upon. Initial dissemination work has been begun anyway by local accounting consultancies and the INSCAE; several enterprises have already submitted their latest financial statements (1988) in accordance with the new code of accounts, whose effective date has been postponed until January 1, 1990. As regards the accounting profession, specific proposals have been submitted to the authorities to bolster the Ordre des Experts Comptables et Comptables Agr44s [Order of Expert Accountants and Authorized Accountants] under the transitional provisions and to create structures that will be called upon to define the training course to be routinely offered for purposes of obtaining the National Diploma of Expertise in Accounting. 2.07 Our principal recommendations relate mainly to the following points: - Creation as soon as possible of the Supreme Accountancy Council for resolving existing problems (sectoral codes of accounts, practical modalities for implementing certain accounting principles, etc.); - Publication of the legal and regulatory provisions governing the accounting profession: training using the course for expert accountants and organization of access to the profession under the transitional provisions; - Evaluation of the training needs relating to the 1987 general code of accounts and its dissemination, so as to define the steps to be taken. Component B: Creation and operation of an Accountancy Training Center 2.08 This component concerns: - creation of the Accountancy Training Center (CFC) in Antananarivo; - hiring of the staff needed by the Center; - furnishing of training manuals and other educational materials, supplies, services, and equipment necessary for its operation.  17 2.09 The operation of the Accountancy Training Center (CFC) began in February 1983, itself some 10 months behind schedule, owing in particular to the delay in hiring the Director-General and to the considerable work involved in rehabilitating the three stories made available to the Center in the "House of Products." Moreover, because of an inadequate project appraisal, the credit planned to cover 6 years was exhausted in 3 years, making necessary: - on the one hand, an adjustment in the initial credit by drawing against the non-earmarked funds and against the funds intended for Component D; and - on the other hand, the preparation of a second project in the amount of $13.1 million to continue the teaching of accounting, but under a new name: The National Institute for Accounting Sciences and Business Management (INSCAE), established in September 1986 and now financed by the new Credit 1661-MAG. 2.10 This being so, CFC endeavored to maintain the category of "grande 4cole" and provide complete or partial training to nearly 300 high quality accountants (number not including that of students in evening courses) before it was transformed into the INSCAE, which thus benefitted from its rolling start. 2.11 However, this pertaxns to Credit 1155-MAG, and does not cover the study on the current INSCAE (functioning and effectiveness of the Executive Board, degree of effectiveness of the Pedagogical Council, etc.), which is part of Credit 1661-MAG. Such a study is, moreover, envisaged by the management of the INSCAE. 2.12 Inter alia, it is necessary to study the ultimate coverage of CFC-INSCAE costs under the General State Budget. In addition, the management of the INSCAE currently wish to know: the status of the INSCAE as regards the other institutions for training accountants both in Madagascar and abroad; whether the structure and organization of the INSCAE are adapted to its activities; - whether its activities relate to the needs of the market both in qualitative and quantitative terms. 2.13 Accordingly, a study covering the three following components is envisaged: - pedagogical audit; - management audit; and - market study. Component Cs Activities of RINDRA Socialist Enterprise 2.14 The reinforcement of RINDRA's activities involves training of its supervisors and the supervision of its work by an outside consultancy. After two or three years of indirection initially, RINDRA now has a solie mastery of the audit function (a staff of 35 in the division), initial  18 experience in management counselling (a staff of 14 in the division), a sound internal organization, and a reputation for professionalism. 2.15 However, the long period of external technical assistance has proven extremely costly, making RINDRA's financial position unsustainable, all the more so as the terms for on-lending the credit ultimately proved to be too harsh. Indeed, given the burden of its debt to the Treasury (SDR 4.15 mil- lion over 10 years at 12 percent), the company is virtually at the point of ceasing payments. During the course of our mission, It was not possible to produce any document testifying to the anticipated capabilities of RINDRA to support financing on this large a scale. In addition, it bears noting that RINDRA's status as a socialist enterprise is not such as to ensure the stability of its senior staff. 2.16 As regards the study on needs for accountants in Madagascar provided for under the Credit Agreement, this was to be dealt with by the former expatriate Director-General of RINDRA, but ialtimately was not completed. In this connection, however, the INSCAE, at the request of its Board of Directors, intends to conduct a market study in order to determine both quantitative and qualit"cive accounting requirements with a view to adjusting class sizes provide teacher training at the INSCAE. 2.17 It would be advisable to revise the status of RINDRA so as to make it legally independent and to enable its higher ranking staff to have access to partnership. Moreover, a financial restructuring of RINDRA is mandatory so as to enable it to develop sufficient positive rolling capital and a sufficient gross self-financing margin. Comsonent Ds Support for Private Management Consultancies 2.18 This component enables the firms concerned to use the credit to finance support in financial and accounting organization from an outside consultancy firm. 2.19 As regards the component on enhancing the capacity of the private consultancies, 52 percent of the small amount of credit provided for had to be allocated to other needs, which made it possible to carry out on y two external assistance operations. This external assistance, however, did strengthen the capabilities of two private firms as regards management consulting services and bank auditing. 2.20 It must be acknowledged that project 1155-MAG is a success, this because the project made it possible for: - the country to have a more modern code of accounts that is adapted to its needs; - the accounting profession to clarify the problems relatlng to accounting regulations, ongoing training of accountants and the organization of access to the profession, under the transitional regulations; - CFC to provide partial or complete training to almost 300 acco ntants (excluding evening courses) before its activities were ta .an over by the INSCAE; - RINDRA to become a highly capable accountancy firm; and  19 - two private firms to take advantage of external assistance to strengthen their capacities in management consulting. 2.21 However, the project has the two following major weaknesses, which are strictly financial in nature: _ the initial loan allccation for a six-year period to CFC was exhausted in only three years; and - the financial structure of RINDRA is unsustainable owing to the terms for on-lending. BASIC DATA ON THE PROJECT PROJECT: Project for Accountancy and Auditing Organization and Training in Madagascar (1155-MAG) Component A Examination of the regulations applied to the various types of enterprises as regards accountancy and of the professional standards to which accountants and auditors must aspire; development and implementation of appropriate regulations, including draft laws which would require inter alia that the Malagasy enterprises draw up accounts which would be audited in accordance with specific standards and would establish a national accounting code. Component B Creation of an accountancy training center in Antananarivo; hirirn of the necessary staff for said center; and provision of the training manuals and other educational tools, supplies, services and equipment necessary for its operation. Component C Enhancement of the activities of RINDRA. Component D Strengthening of the capacity of domestic management consultancy firms. Borrower Government of Madagascar. Executing Agencies As originally planned: - Ministry of Economy and Commerce, as regards the consultancy services for purposes of helping develop accounting mechanisms and methods and preparing legislative measures.  20 Ministry of Higher Education as regards the establishment of an accountancy training center. RINDRA as regards technical assistance in auditing. Since February 28, 1984, the coordination of the entire project has been under the direct responsibility of the Ministry at the Presidency Responsible for Finance and the Economy. Execution of the Credit (Amounts in SDRs) PROJECTED ACTUAL Loan request to the IDA (initially 6/24/78 for strengthening the effectiveness and of RINDRA socialist enterprise 6/18/79 Preparation, identificat4.on Aug-Sep 79 Appraisal June 1980 Approval C/2/81 Signature 6/11/81 Effective date /l12/81 5/6/82 First review J/12/82 Second review 4/42/82 Concluding date .. 31/88 5/6/82 First review S.:;.0/a8 Second review 1.! 31/88 Terms of credit 9,400,000 Amount 0.75 percent of Service charge amount of credit drawn and not yet repaid Repayment perLod 50 years Grace period 10 years Subsidiary loan agreement between the Treasury and RINDRA Date of signature 1/25/82 Amount 3,000,000 3,000,000 Service charge 12% per annumn 12% per annum Repayment period 10 years 10 years Grace period 3 years 3 years  21 Codicil to the subsidiary loan agreement between the Public Treasury and RENDRA Date of signature 7/18/86 Additional amount 1,150,000 Credit increased to: 4,150,000 Service charge 12% per annum Repayment period 6 years Grace period 2 years Penalty interest (on all amounts 3.5% per annum due and paid at a date after the due date) Financial status of credit as at March 31, 1989 Amount 9,400,000 9,400,000 Amount released 9,359,809 Balance 40,190.83  22 3. HISTORY OF PROJECT ENTERPRISE MANAGEMENT ASSISTANCE PROJECT 3.01 In 1978, the Mlnistry of Economy and Commerce designed an enterprise management assistance project in cooperation with two major international firms. There were three components to this project: - creation of a National Auditing Corporation; - creation of a Management Consulting Company; - creation of a National Center for Management Training. 3.02 The Commission of the European Communities had previously shown great intereHt in the establishment of the National Center for Management Traininlg, an'd the Government of Madagaecar sought the cooperation of the World Bank for support of the first two project components. The request went unanswered. TECHNICAL ASSISTANCE PROJECT FOR STRENGTHENING THE EFFECTIVENESS OF RINDRA 3.03 After the establishment of RINDRA socialist enterprise on April 7, 1979, efforts were concentrated within this auditing firm. In June 1979, a credit of $2,300,000 was requested from the World Bank to finance technical assistance from the consulting firm for purposes of enhancing RINDRA's effectiveness, it being intended to provide retroactive coverage of fees, which were regarded as too high. This second request was not approved by the World Bank, which did, however, consider the issue at length before reaching its final decision. NATIONAL ACCOUNTANCY PROJECT 3.04 Taking into account the suggestions of the profession and the fact that RINDRA's activities would be effective only if the enterprises were both able and legally required to provide their financial statements in an auditable form, in January 1980 the Bank defined a "national accountancy project" including, to be sure, auditing, but also the organization of the profession, the definition of a national accounting framework, the training of accountants, and the enhancement ef the intervention capacity uf private firms. This intearated project was appraised by the Bank in June 1980 and was covered by Credit Agreement 1155-MAG signed on June 11, 1981. 3.05 A modest project entaillng assistance to a National Auditing Corporation thus led three years later to a project for assistance to the entire profession at a total cost of $14.2 million. Preparation of the project was somewhat time consuming. This project, focused solely on technical assistance, was of a new type for the World Bank, and did not fall within the purview of any of its divisions. This resulted in a good dea.. of hesitation. The World Bank finally took advantage of a number of missions to Madagascar by an expert from the Energy and Water Division and entrusted him with the project appraisal. PRINCIPAL CHARACTERISTICS OF THE PROJECT 3.06 The objectives of the project were:  23 - to restructure Madagascar's economic and financial information system so as to adapt it to the country's current needs; - to improve the skill level of accountants and auditors so as to enhance effectiveness in enterprise management, planning and financial control. 3.07 Establishment of the integrated project included the following components: - Component A: Study of Legislatlon and Accounting Regulations :This component is devoted to developing regulations which require enterprises to maintain their accounts, and have them audited, in accordance with specific regulations set forth in a national accounting code. Within this framework, the Malagasy Government will have the assistance of an outside consultancy for a period of 20 man/months. - Component B: Creation and Operation of an Accountancy Training Center: In addition to actually establishing such a Center, this component also provides for hiring its staff, providing training manuals and other materials necessary for its operation. Completion of this component will require 279 man/months of expert time. - Component C: Enhancement of the Activities of RINDRA Socialist Enterprise: The enhancement of RINDRA's activities will be the outgrowth of staff training and oversight of its activities by an outside consultant, which will entail 156/man/months of work over a period of 2 1/2 years. - Component D: Support for Private Management Consulting Firms: Interested firms will draw against the credit to obtain the support of an outside firm as regards consulting on accountancy and financial organization. Total involvement of 65 expert/months was provided for this component. COSTS 3.08 The cost of the project, estimated by the Bank at $14.2 million, may be broken down by component as follows: COMPONENT In domestic In foreign currency exchange Total Study of accounting legislation A 0.1 0.3 0.4 standardization Creation and operation of an 2.3 2.2 4.6 accountancy training center Strengthening the activities of 0.3 2.8 3.1 RINDRA socialist enterprise Support to private management 0.2 1.0 1.2 consulting firms Base costs 2.9 f.3 9.2  24 Provisions for: Unforeseen supplies and 0.3 0.6 0.9 equipment 1.9 2.2 4.1 Prico fluctuations TOTAL 5.1 9.1 14.2 3.09 The Accounting Training Center and RINDRA socialist enterprise are the two most costly components, absorbing 49 percent and 34 percent of the base costs, respectively. Provisions are also quite sizable, constituting 35 percent of total project cost. It also bears noting that the foreign exchange costs of the project are relative sizable (64 percent of the total). FINANCING ARRANGEMENTS 3.10 The financing arrangements for the project were established as follows (in millions of dollars): COMPONENT Domestic Foreign Currency Exchange Total Study of accounting legislation and standardization 0.1 0.8 0.4 Creation and operation of an accountancy training 2.3 2.2 4.5 center Strengthening the activities of RINDRA socialist 0.8 2.8 3.1 enterprise Support for private management consulting firms 0.2 1.0 1.2 Basic costs 2.9 8.3 9.2 Allo 1nces for: Unforeseon equipment 0.3 0.6 0.9 Price changes 1.9 2.2 4.1 TOTAL 6.1 9.1 14.2 The most expensive components are the Accountancy Training Center and RINDRA Socialist Enterprise, accounting for 49 percent and 34 percent of base costs, respectively; provisions were also sizable, constituting 35 percent of the total project cost. It bears noting, moreover, that the foreign currency share of the costs was relatively high (64 percent). 2.4. FINANCING ARRANGEMENTS The financing arrangements for the project are as follows (in millions of dollars): FrNANCING SOURCE Domestic Foreign Currency Exchange Total IDA Credit 2.4 9.1 11.6 Central Government Budget 1.6 -- 1.6 Self-financing by RINDRA and private firms 1.1 -- 1.1 TOTAL 5.1 9.1 14.2  25 3.11 The Bank thus provided financing for 81 percent of the total project cost. Due to antlcipated contributLons from RINDRA and from private firms, the Central Government's participation is relatively small. 3.12 In a departure from its customary practices, the Bank agreed to finance costs in local currency representing the equivalent of $2.4 million, corresponding to 95 percent of the costs payable ln local currency of tho consultants and of the local purchases of CFC as well as 60 percent CFC's personnel costs. 3.13 The IDA credit torms were established in accordance with the Convontion of June 11, 1981 as follows Amount SDR 9,400,000 Service charge 0.75 percent of the amount of the credit drawn and not yet repaid Repayment period 50 years Grace period 10 years. 3.14 The amount of the credLt may be broken down as follows (amounts in SDRs) Consultants for legislation 250,000 Consultants for CFC 1,630,000 Consultants for RINDRA 2,200,000 Consultants for prlvate firms 820,000 Local personnel--CYC 660,000 CFC purchases 900,000 Unallocated 2,940,000 TOTAL 9,400,000 3.15 In accordance with Article 3 of the credlt agreement, the borrower will on-lend to RINDRA the equivalent of SDR 3 million within the framework of a subsidiary loan agreement. This agreement, signed between the Public Treasury and RINDRA on January 25, 1982, sets the loan terms as follows: Service charge 12 percent per annum Repayment perlod 10 years Grace perlod 3 years The terms of the subsidiary loan agreement are thus "harsher" than the terms of the maln loant RINDRA wlll not, however, be responsLble for coverlng exchange rliks. DISBURSEMENT SCHEDULE 3.16 The dLibursement schedule for the IDA credlt established in global terms by the World Bank are lndlcated in the followLng table (Ln milllons of dollars): 1982 198 1964 19s 1986 1967 1966 Per fIscal yer 1. 2 2.0 2.8 2.2 2.0 1.5 6.5 Cumulative 1.2 8.2 5.6 7.7 9.7 11.2 11.5 Use of the credit would opan a period of seven years.  26 3.17 Given the increasing need noted in moat enterprisee, particularly the public enterprises, for assistance in the areas of organization and management, the Malagasy Government decided to setup up the management unit provided for when negotiating the accountancy and auditing organization and training project within an existing enterprise, in this case RINDRA sociallst enterprlse. The creatLon of a Management Consulting Department within RINDRA in March 1985 resulted in a further need for technical assitance, which was to result in an additional assistance contract with the original Consulting fLrm in March 1985. 3.18 In order to enable RINDRA to extend its activities in the area of computerized auditing and the auditing of banks and insurance companies, on the one hand, and, on the other hand, to bolster its internal management, a second assistance contract was signed in April 1985 with a French firm. 3.19 The credit allocated to the Accountancy Training Center, scheduled to be spread over six years, was fully utilized in three years. It was used to flnanced unforeseen expenditure at the appraisal level (teacher training abroad, recourse to consultants for purposes of hirLng technical assistants). The increase in the value of the dollar via-&-vie the SDR also reduced the dollar value of the credit. 3.20 In view of RINDRA's new requirements and those of the Accountancy Training Center, an adjustment in the credit proved necessary. The reallocation process, carried out in April 1986, was as follows (amounts In SDRs): Category of Credit According to Subsidiary Upward Downward After Credit Credit Adjustment Adjustment Adjustment Agreement Agreement Consultants for 250,000 s6,0O0 200,060 legislation Consultants for CFC 1,680,000 1,8X0,00 ,440,000 Consultants for RINDRA 2,200,000 8,000,600 1,150,000 4,160,000 Consultante for privete 820,060 426,000 895,000 f I rmo Local CFC personnol 880,060 896,000 266,000 CFC procurement P00,0me 900,000 Unallocated 2,940,000 2,140,000 2,090,000 50,000 TOTAL 9,400,000 2,998,000 2,966,000 9,400,000 3.21 The new requirements of RINDRA and the Accountancy TrainLng Center were largely financed by drawing on the non-earmarked funds and on the funds intended for Component D. 3.22 In order to ensure continuity for CFC activities, in 1985 the Government found it necessary to prepare a new project. CFC, whose activities had extended into the area of management training, assumed a new names "Institut National des Sciences Comptables et d'Administration d'Entreprises (National Institute for Accountancy and Business Management] (INSCAE). For operational purposes, the INSCAE received a new credit from the World Bank (Credit 1661-MAG) in April 1986. This situation complicates the appraisal of Component B of Credit 1155-MAG, which concerns CFC only;  27 the World Bank (Credit 1661-MAG) in April 1986. This situation complicates the appraisal of Component B of Credit 1155-MAG, which concerns CFC only; the performance of CFC thus cannot be assessed except in light of what has been accomplished by the INSCAE. Successive Delays in Effective Dates and Closing Dates 3.23 The effective date of the credit, scheduled for October 12, 1981, was postponed twice (January 12 and April 12, 1982) before finally coming into force on May 6, 1982. The Bank's conditions for the credit taking effect were as follows: - appointment of a Director of CFC and a Director of RINDRA, made official by decree; - the draft contract of the Director of RINDRA had to be submitted to him; - the subsidiary loan agreement needed to be signed. 3.24 The hiring of the Directors-General of CFC and RINDRA, who according to plans were to be expatriates, took almost a year, which explains the successive delays in the effective date. 3.25 The closing date for the credit was scheduled to be March 1988. At the request of the Government of Madagascar, the Wor'2d Bank agreed to roll the date back, first to September 30, 1988, subsequently to December 31, 1988, and finally to June 30, 1989. Financial Status of the Credit 3.26 As yet, there has been no financial audit on the use of Credit 1155- MAG. The information provided to us by the Ministry of Finance indicates the following status as of March 31, 1989 (amounts in SDRs): COMPONENT Domestic Foreign Currency Exchange Total Study of accounting legislation and standardization 0.1 0.3 0.4 Creation and operation of an accountancy training 2.3 2.2 4.6 center Strengthening the activities of RINDOA socialist 0.3 2.8 3.1 enterpris- Support for private management consulting firms 0.2 1.0 1.2 Basic costs 2.9 6.3 9.2 Allowances for: Unfor-seen *quipment 0.3 0.6 0.9 Price changes 1.9 2.2 4.1 TOTAL 6.1 9.1 14.2 3.27 During June 1984, the Bank authorized RINDRA to finance $125,000 in equipment from Category 3. As of March 31, 1989, almost all of the credit (99.6 percent) had been exhausted.  28 4. COMPONENT A: ACCOUNTING LEGISLATION AND STANDARDIZATION CONTEXT AND OBJECTIVES 4.01 There are few accounting experts in Madagascar, and they are extremely scarce in enterprises whose accounts are audited; financial information is unreliable and is presented in a different way by each iniividual enterprise. In 1981, when the project began, the overall status of the accounting profession had scarcely changed from that of 1970, for lack of any training in accountancy and owing to the fact that the prevailing legislation set forth no standards for the format or auditing of financial statements. The only official regulations applicable to financial statements that were effectively adhered to were those of the Tax Directorate, which required that companies with a turnover in excess of FMG 30 million (or over $150,000) submit statements which documented their tax returns in accordance with a given code of accounts; this accounting code, however, was limited to providing a breakdown of the accounting headings to be posted to the books, but did not govern the annual financial statements themselves. 4.02 The decree of February 7, 1969 had, to be sure, introduced and adapted the French code of accounts of 1947 (revised in 1957) to Madagascar, but no directives could be enforced. Moreover, the 1867 law on corporations stipulated only that financial statements had to be submitted to shareholders after review by an auditor, whose qualifications were not specified. The law does not indicate the proper content of the financial statements or the extend to which they had to be verified by the auditors, with the result that this auditing process is often rudimentary. The 1925 law on limited liability companies is just as lacking in specificity. 4.03 The objectives of the "Accounting Legislation and Standardization" component are thus to: - enable enterprises to obtain, in a timely manner, reliable and informative financial statements which allow for effective control and planning of management; - facilitate, through the uniform format of accounting information, the preparation of sectoral, regional, and national statistics which are of value at the various planning levels; - develop the accounting profession by creating a demand for individuals with the skills required to draw up, analyze, interpret and audit the financial statements prepared in accordance with the lawful professional standards. AGREED REFORMS 4.04 The new legislative measures envisaged should require that: - organizations functioning as companies maintain books of accounts, and prepare and publish in due time financial statements that are consistent with a new and more restrictive accounting code; - these financial statements be audited by authorized independent auditors, who shall certify that they correctly provide a faithful and honest image of the company's financial position, it being understood that this annual auditing requirement shall  29 be applied gradually, beginning with the major companies in the public sector; - the persons authorized to act as auditors have the minimum qualifications required; - the order of professional accountants and auditors define accounting and auditing standards, keep them up to date, propose amendments to them as necessary, and investigate any violations thereof. The preparation of legislation measures should also entail review of commercial law provisions (company law, criminal law, taxation, etc.). IMPLEMENTATION SCHEDULE 4.05 With the help of consultants, the Malagasy Government will carry out this portion of the project in accordance with the following timetable: - December 1, 1981: establishment of a committee entrusted with drafting the proposed legislation on: - existing laws; - organization of accountancy and auditing; - organization of the accounting profession; - April 30, 1982: submission of the new legislative proposals to the Government and the Bank; - July 31, 1982: passage of the legislation. 4.06 This component of the project has always been considered to be high priority. Its contents have an impact on a significant proportion of all the other components. IMPLEMENTATION Hiring of a consulting firm to assist the Government 4.07 In June 1981, the Ministry of Economy and Commerce drew up a short list of consulting firms to be approached. At the end of this cycle, in August 1982, one firm was ranked first. However, no contract was signed after the relevant negotiations. At the request of the Order of Accountants and Authorized Accountants, which sought to be involved in the project, the procedure was repeated. A new short list of consultants was then scheduled to be prepared by November 1982; as earlier, the list was composed solely of foreign firms. A request by the Malagasy Government to include local firms was submitted to the Bank in July 1983, but was refused for the following reasons: - the call for bids had already been issued in April 1983, and five of the six firms consulted had already replied; - the Bank felt that the Order had neither the experience nor the necessary skills to undertake by itself the study of the relevant legislation and the accounting code, and, as both judge and defendant, would lack the required independence. 4.08 After reviewing the bids in February 1984, a firm was selected though it was not the one ranked first following the first round. The contract was drawn up in May 1984 and signed in December of the same year. The  30 mission of the selected consulting firm was to cover a 12-month period beginning on the date of notification (January 28, 1985). 4.9 Thus, more than three years had passed between the drawing up of the first short list and the starting of work. Apart from the fact that the international call for bids took almost a year (their were two calls made), the delay in starting up the "Accounting Legislation and Standardization" component may also be explained by the problems of relations between the Order, the Government, and the Bank. In particular, the Order was extremely wary of the Government's "statist" options, which, in the socialist-oriented spirit of the times, had created RINDRA, and of the Bank, which was singing the praises of Anglo-Saxon styles of auditing and had a tendency to resort exclusively to Canadian consultants and teachers. The atmosphere relaxed thanks to the selection of a French firm for the study of legislation. 4.10 The consultants contract provided for a workload of 15 man/months (less than initially projected) to deal with the following objectives: - critical analysis of the situation as regards: - accounting standardization; - accounting legislation; - the teaching of accountancy; - proposals for new legal provisions regarding: - the new code of accounts; - the dissemination and teaching of the new accounting system. The contract provided for the involvement of a Malagasy legal specialist for 2 man/months. 4.11 The consulting firm submitted its reports with their analyses and proposals on accounting legislation, accounting standardization, and the teaching of accountancy in June 1985; the reports setting forth formal recommendations were submitted on January 15, 1986. The proposals, initially looked upon favorably by the parties concerned, were modified considerably, with the result that the consultants were unable to submit its final report until March 5, 1987. As of March 31, 1989, the "Accounting Legislation and Standardization" component cost SDR 195,902. 4.12 In its appraisal report of October 1981, the Bank provided for the creation of a committee which would write the draft legislation; this committee was never set up. In November 1981, the Order of Authorized Accountants suggested the establishment of a joint structure consisting of professionals and representatives of the public authorities. Reaffirmed on many occasions, this desire for concerted work was to bear fruit in December 1982, when the representatives of the Order and of the public authorities began to meet as an informal committee initially charged with drawing up the terms of reference and specifications for the services of the consulting firm called upon to assist the Government in carrying out the "Accounting Legislation and Standardization" component. 4.13 In February 1984, a monitoring committee was officially established; it was made up of 20 individuals representing the accounting profession and  31 the public authorities. The Committee, chaired by an Advisor to the President of the Republic, proceeded inter alia to: - study and finalize the terms of reference and specifications drawn up by the informal committee; - examine the reports prepared by the Consultants (guidance, control, approval). 4.14 A small, informal drafting committee for the new code of accounts aid the annotated guide was subsequently set up in late 1986; the monitoring committee participated in the drafting and final approval of these documents, which were published in September 1987 (Decree of September 17, 1987). 4.15 Since 1982, the representatives of the accounting profession have participated in a decisive manner in carrying out the work of Component A, and have done so at no charge. This participation made it possible to achieve results which reflected a broad consensus. 5. COMPONENT B: CREATION AND OPERATION OF CFC THE BANK'S OBJECTIVES 5.01 Three major factors motivated the establishment of the Accountancy Training Center (CFC): - Tne departure of foreign supervisors and technicians following the events of May 1972: these persons had previously held the majority of management positions in the enterprises. The situation was accentuated after the nationalizations of 1975. In many cases, these foreign personnel were replaced by officials who had no experience in commercial accounting or by accountants from the private sector who lacked the necessary qualifications. - The absence of any high-level educational and training institution in the area of accountancy: the only accounting courses offered are supplementary courses as part of advanced studies in management or economics, or the courses offered by the Chamber of Commerce and a few private business schools on the basic level. This lack did not make it possible to provide qualified middle-range staff to compensate for the departure of expatriates. 5.02 Moreover, this situation contributed to the stagnation of the accounting profession: no educational and training institution was awarding any diploma in accountancy. The membership of the Order (6 expert accountants and 30 authorized accountants) had remained at the same level since 1971. The Central Governmented needed enterprises to provide it with up-to-date and reliable financial statements for purposes of legal control and for purposes of macroeconomic information. The level and qualifications of Malagasy accounting supervisors as well as the use of an outdated code of accounts (1969) did not make it possible to meet these objectives.  32 AGREED ARRANGEMENTS 5.03 The fundamental role assigned to CFC is that of teaching accountancy. Several basic conditions were agreed for meeting this objective. 5.04 As regards teaching: - CFC was to provide courses during the day for graduates of secondary school (or the equivalent), and evening courses for persons already employed as accountants. These courses were to begin in 1982 and 1983, respectively. - The curriculum was to be established by CFC in consultation with the officers of the Order of Accounting Experts and the representatives of the business community, on the basis of the proposal prepared by the appraisal mission. - The full-time course was to include three cycles of studies: - a first cycle lasting 2 years for the accounting technician's diploma; - a second 2-year cycle for a master's degree in accountancy; - a third 1-year cycle, with a 2- to 3-year training session in an enterprise, for the expert accountant's diploma. - Entry into the first year was to be open to students holding the baccalaur6at following a competitive examination. Admission to the second cycle is open to graduates of the first cycle and to certain university graduates. - In order to plan its activities better, CFC was to carry out a study on the future market demand for qualified accountants. - For the first five years of the project, the first-year classes were to be limited to 2, and no class was to have more than 50 students. - The number of expatriate teaching staff was to be reduced gradually, with full staffing by Malagasy nationals beginning In 1989. 5.05 As regards financings - The cost of this 6-year project, including capital and operating costs, was estimated at $7.4 million, including $3.6 million in foreign exchange. - IDA financing was estimated at S6 million, with $1.4 million in Central Government financing for local currency outlays. - The average annual cost per student was estimated at $4,900 for the first four years (1983-1986) and expected to decline to $2,000 by 1989. 5.06 As regards organizational aspects: - The Ministry of Economy and Commerce was to assume administrative supervision of CFC. - CFC was to be managed by a Board of Directors made up of representatives from the Ministries of Economy and Commerce, Finance, and Higher Education, the future Higher Accountancy Council, the Order of Accounting Experts, the business community, and the Director of the institution. In addition to its teac.hing staff, the Center was to hire a Deputy Director, a Dean of Students, an Administrative Assistant, an Accounting  33 Officer and two secretaries, for a total of 18 persons for the duration of the project. ?ROJECT EXECUTION 5.07 Execution timetable: Six major dates mark the history of CFC: 12/14/81 Creation of CFC by Decree No. 81290 April 1982 Designation of the first Director of the Center October 1982 Opening of the Center February 1983 Admission of the first class of students March 1983 Initial night courses September 1987 Graduation of the first class (Master's degrees in Accountancy 5.08 The full-time courses began 12 months behind schedule, but the evening courses started only one month later, without the one-year lag provided for. The extremely large number of applicat.ons from the enterprises prompted this more rapid timing for the evening courses. 5.09 As regards teaching: The personnel hired and the number of students per class were maintained within prescribed levels. The figures are as follows: February 1983 1984 1985 1988 Cumulative Group 1 s0 46 60 40 Group 2 s0 49 49 43 TOTAL 100 94 99 83 378 5.10 The number of students in continuing training (night courses) is as follows: 1983 1984 l9i5 1988 Cumulative February 298 236 222 349 September 170 206 253 48.' TOTAL 468 440 476 813 2,198 5.11 The number of candidates for admission, ranging from 700 to 1,000, bears witness to the public's interest in training within CFC, and the limited number of applicants selected highlights the severity of the process. 5.12 The broad outlines of the program prepared by the appraisal mission were maintained in the various full-time training programs. 5.13 Initially, the contents of the materials taught were not always suited to the Malagasy situation (Anglo-Saxon accounting systems). The students, however, managed to adapt rather easily, and the contents of the program were successfully reoriented later (e.g., PCG 1987).  34 Officer and two secretaries, for a total of 18 persons for years one through five. PROJECT EXECUTION 5.07 Execution timetable: Six major dates mark the history of CFC: 12/14/81 Creation of CFC by Decree No. 81290 April 1982 Designation of the first Director of the Center October 1982 Opening of the Center February 1983 Admission of the first class of students March 1983 Initial night courses September 1987 Graduation of the first class (Master's degrees in Accountancy 5.08 The full-time courses beg&n 12 months behind schedule, but the evening courses started only one month later, without the one-year lag provided for. The extremely large number of applications from the enterprises prompted this more rapid timing for the evening courses. 5.09 As regards teaching: The personnel hired and the number of students per class were maintained within prescribed levels. The figures are as follows: February 1988 1984 1986 1986 Cumulative Group 1 s6 46 56 40 Group 2 S5 49 49 48 TOTAL 100 94 99 88 376 5.10 The number of students in continuing training (night courses) is as follows: 1968 1984 1986 1986 Cumulative February 298 235 222 349 September 170 206 263 484 TOTAL 4a8 440 476 818 2,196 5.11 The number of candidates for admission, ranging from 700 to 1,000, bears witness to the public's interest in training within CFC, and the limited number of applicants selected highlights the severity of the process. 5.12 The broad outlines of the program prepared by the appraisal mission were maintained in the various full-time training programs. 5.13 Initially, the contents of the materials taught were not always suited to the Malagasy situation (Anglo.-Saxon accounting systems). The students, however, managed to adapt rather easily, and the contents of the program were successfully reoriented later (e.g., PCG 1987).  35 5.14 The number of training hours through the fourth year (2 sessions per year) are as follows: 1st year 675 hours 2nd year 720 hours 3rd year 585 hours 4th year 338.5 hours These hours are consistent with the programs provided. 5.15 The dropout rate is higher than the anticipated 20 percent, especially for the first class. The main reason is that the majority of the students registered in the first class have also taken ccurses at the university in order to take advantage of scholarship opportunities. This situation has become less pronounced after the large number of failures. Another reason is the difficulty of the examinations, as the students are required to score at least 12/20 on average. The level for disqualification is 12/20 for core courses and 10/20 for ancillary courses. 5.16 Most of the students who have failed have been redirected toward the continuing (evening) program of training. Initial Students Dropout Students Dropout class size receiving rate (X) receiving rate (X) DSSC DESCA Number Number Percent Percont 1st 100 51 61 49 18 so 10 class 2nd 94 73 78 22 19 90 10 class 3rd 99 72 73 27 17 85 15 class Admission for the 4th year (DESCA preparation) is limited to the top 20 graduates among the holders of the DSSC. 5.17 The number of teaching staff is lower than projected, while the classes themselves have been more crowded. CFC was able to provide the courses in a proper manner because the number of teaching hours for permanent staff are three times higher than those for part-timers, and thanks to the assistance of expatriate teachers on short-term missions (3 months on average). 5.18 The staffing situation for teaching personnel is as follows: 1983 1984 1986 1986 1987 1988 1989 Expatriates 2 4 6 4 3 2 6 Malagasy nationals 2 6 7 7 13 9 10 SUBTOTAL 4 10 12 11 16 11 1i Part-time 7 a 6 12 17 11 23 contractual a TOTAL 11 13 18 23 33 22 39 Projected 18 36 43 54 83 63 63  36 5.19 The teaching personnel are always hired by competitive examination (teaching simulation test). The minimum qualifications required are a diploma from the second cycle of university studies together with sound professional experience. The professional position held by the candidate is thus also taken into consideration. 5.20 Six trainees were sent to Canada's University of Quebec at Trois Riviares (UQTR) for second cycle training in accountancy from 1984 to 1987. Three returned to teach at CFC. One stayed in Canada and two have failed their courses. Sending students abroad for training was not provided for in the initial costs of the project. The general level of the teaching staff appears to be meeting the needs for covering the teaching materials. 5.21 CFC has a separate office (Student Placement Office) in charge of finding positions for students in trainee stages or graduating. However, the office has confined itself to finding positions for trainees since 1987 so as to make the students themselves more accountable for their future professional path. 5.22 CFC also has adequate educational materials: its facilities are well maintained, Its library contains 30,000 items (3,000 titles), microcomputers, overhead projectors, etc. 5.23 Financial performance for the first 6 years is summarized below: Projected Projected Reallocations Disbursements (appraisal (credit (April 1986) as at 12/16/88 report) agreement) (SDR millions) (t millions) (l millions) (l millions) (1) (2) (3) (4) Consultants 1.9 1.630 3.440 8.462 Local staff 1.4 0.680 0.266 0.282 Supplies/equip. 1.2 0.900 0.900 0.826 TOTAL 4.6 8.190 4.606 4.670 5.24 The initial loan was fully utilized by 1984. Two particular points are salient in this regard: - the "consultants" heading is significantly greater than the forecast amount (+ $1.562 million). - sizable savings have been made with regard to local staff. 5.25 There are a number of reasons for this situation: - Some spending had to be redirected during the course of project execution, including: - the choice of using a consulting firm for hiving the director of the Center and 4 teachers, instead of individual hiring from specialized agencies (Louvain, HEC Lausanne, ESSEC Paris, etc.). This option was authorized by the Bank, which did not foresee the financial consequences. The impact was a swelling of the cost per man/month ($10,000 for the director and $8,500 for the  37 teachers, instead of an average of $7,200), for an increase of over 70 percent in projected costs. - Malagasy teachers were sent to Canada for training: 6 teachers were sent at a cost of $1,300 per man/month. - The dollar appreciated, reducing the equivalent of the credit (awarded in SDRs) from $11.5 million in 1981 to $9.9 million in 1985. - The delay in starting courses led to additional consultant costs: the contract with the first consulting firm Initially signed for $2 million over a 2-year period had to be extended by 9 months on 4/8/84 and by an additional six months on 11/13/87, increasing its cost to $3.3 million. 5.26 In order to ensure continuity in CFC activities, additional financing proved necessary. This second IDA credit, for $13.5 million (No. 1661- MAG), encountered approval difficulties in 1986 within the National Parliament. The new project added a management component to the initial training component for CFC, and the unit assumed the name of the INSCAE. - The average cost per full-time student as of 12/31/88 is estimated at $1,864 (full cost, including technical assistance); however, according to the forecasts in the Staff Appraisal Report the level of $2,000 would not be reached until the expatriate teaching staff was replaced in its entirety by Malagasy nationals (the conversion rate applied in the estimate is that of 12/31/88, namely $1 - FMG 1523.40). The exchange rate used in the report to the President of May 1981, was $1 - FMG 200. If costs are re-estimated using that rate, the cost per student $14,197). - Registration and tuition fees were not adjusted until 1988: Full Time Training Examination fee Tuition per Special exam subject field fee (tripled) 1983 1,000 21,000 5,000 1988 1,000 23,000 5,000 Evening courses Registration fee Tuition per session 1983 5,000 __ 1988 5,000 10,000  38 5.27 The average annual revenues per student (full-time) are estimated at FMG 337,000 in 1983 and FMG 369,000 in 1988, whereas the average cost per student was FMG 2,839,370 in 1988 (1,864 x 1523.4). 5.28 The former CFC (the present INSCAE) is supervised by the Ministry of Finance and Economy. CFC had frequent changes in directors: three different individuals served from 1982 to 1986. Disagteements have been noted, moreover, between the first consulting firm and certain Center Directors. CFC has a relatively sound operational structure, but hesitation has nonetheless been noted in the assignment of certain duties: job slots are provided for but remain vacant (Deputy Director, Dean of Students), and others not provided for have been filled (general coordinator, Director of Research), without significantly hampering the proper functioning of the institution. 6. COMPONENT C: STRENGTHENING THE ACTIVITIES OF RINDRA CONTEXT AND AGREED ARRANGEMENTS 6.01 RINDRA, set up as a socialist enterprise in April 1979, had become operational in October 1978. It was established in order to provide auditing services to the enterprises owned by the Central Government or controlled by it, in particular the socialist enterprises. 6.02 In 1980, the Director-General of RINDRA, whose training was limited to government accounting methodology, had acquired no working experience in a professional auditing office. The World Bank was of the opinion that to work effectively, the Director-General of RINDRA should be a competent authorized accountant with the desired degree of experience. The Malagasy Government agreed to appoint a new Director-General with the necessary experience and qualifications. 6.03 After its founding, RINDRA signed a 27-month technical assistance contract with an international accounting firm: - hiring auditors; setting up training programs in auditing, accountancy and management methods and mechanisms; - supervising the work carried out by the auditors. 6.04 This approach was deemed insufficient by the Bank, which felt that RINDRA needed international supervision for at least five years while the firm's involvement was scheduled for only 2 years and 3 months. Accordingly, the Bank provided under agreement 1155-MAG for a credit of SDR 3 million to strengthen, with technical assistance, the activities of RINDRA (operational work and internal management). The project included a training program with the following characteristics: - the organization of seminars in Madagascar; - the organization of training sessions abroad each year for one manager, so as to enable him to freshen his knowledge of the changing techniques for auditing and to bring himself up to date on the working conditions for his counterparts in the firm selected;  39 - sending two senior staff on training sessions of 3 to 4 months each for purposes of receiving supplementary training in auditing and broadening their experience by participating in audit missions conducted by the firm selected at its clients, offices. 6.05 Ultimately, RINDRA was to have the same full autonomy in technical spheres as regarde auditing and management that is enjoyed by an auditing firm, as well as autonomy on the level of -adling the internal training of its own personnel. 6.06 The balance sheet of RINDRA as at June 30, 1980 showed a net negative position of $0.8 million as a result of the losses sustained during its first 21 months of business ($1 million in cumulative losses). The Bank considered that if it could increase its business by reducing its fees, 1/ RINDRA would be in a position to repay to the Government a loan of SDR 3 million at 12 percent interest over 10 years and with 3 years, grace, and to pay it reasonable dividends. RINDRA was, moreover, to establish and maintain a sound financial position and sufficient working capital. EXECUTION TIMETABLE 6.07 Appointment of the Director-General of RINDRA was one of the conditions for activating the credit. As mentioned earlier, the planned implementation date of October 12, 1981 had to be postponed twice (January 12, April 12, 1982) before finally taking effect on May 6, 1982. 6.08 In the absence of any precise indicators with regard to this issue in the project appraisal report, the hiring was scheduled to take place sometime during 1981. The assistance contract was to be for 2 1/2 years. 6.09 The Director-General of RINDRA was not named until April 1982, and did not take up his duties until October of the same year. The Director- General was supposed to be a competent, authorized accounting expert, for which reason he could not be found in Madagascar where accounting experts all already have their own firms and, moreover, are in short supply. 6.10 This first, expatriate Director-General, who had vigorous disputes with the audit staff of RINDRA, was to be replaced in March 1984, some 9 months before his contract came to expiry, by a Malagasy Director-General. The mission of the expatriate Director-General was regarded as a failure by all concerned; he cost RINDRA two years of salary payments. 6.11 Following limited consultations, an auditing assistance contract was signed in March 1982 with a firm. This contract, scheduled for 2 years, was to be extended to December 31, 1984. The result was scarcely more satisfactory: little had been done in the area of computerized auditing and the auditing of banks and insurance companies; omissions in the l/In the course of project appraisal, the Bank noted that the RINDRA's fees were 40 percent higher than those of the other accounting firms.  40 assistance provided were also noted as regards making improvements in the internal management of RINDRA. The Bank subsequently accepted a second assistance contract signed in April 1985 with another firm, initially for 29 months and subsequently extended to 44 months, or until December 31, 1988. Except in the case of the computerized accounting system, which had many imperfections, RINDRA was satisfied with the services provided by the latter firm. 6.12 As of December 31, 1988, the Malagasy expenditures under Credit 1155- MAG by the technical assistance firms are as follows: FIRMS Training Consultants abroad Equipment Supplios Other FIRM A (in US$) 1,641,276 69,841 67,772 36,135 146,460 FIRM 8 (in F) 6,827,266 1,023,691 712,907.34 697,764 2,297,776 Firm A thus cost $1.8 million and Firm B F 11.5 million ($1.9 million at the exchange rate of December 31, 1988). 6.13 As agreed during the appraisal and scheduled in the assistance contract, training sessions were organized in Madagascar for RINDRA personnel by both permanent and short-term missions, and, from 1983 to 1988, the managoirs, senior staff and junior staff of RINDRA received training in Canada and in France. 6.14 The number of hours of consultant involvement at RINDRA is shown in the following table: FIRM Period of activity Permanent consultants Consultants on mission FIRM A 1982-1985 6,912 hours 3,947 hours FIRM B 1986-1988 3,216 hours 6,634 hours The two firms thus intervened for 19,709 hours. These interventions pertained to the organization of RINDRA's internal management, the supervision of missions, and staff training proper. 6.15 The number of operational personnel at RINDRA during the period of involvement of the two firms was as follows: GRADE 1981 1982 1983 1984 1986 1986 1987 1988 Manager 2 2 2 4 4 4 4 7 Senior 4 7 7 7 7 6 11 10 Junior 20 16 14 12 12 9 12 12 Assistant -- -- -- 9 8 16 6 6 TOTAL 28 26 24 32 31 34 33 a6 6.16 Over the same period, 23 persons, including 3 managers, 2 senior staff, 11 junior staff and 7 assistants, left RINDRA. One manager set up his own firm; one of the two others took the position of Director-General  41 of a company; the senior staff, junior staff and assistants are for the most part working in private companies. It is nonetheless true that the 7 managers and 10 senior staff employed in 1988 have been working with RINDRA since 1981, and accordingly have fully benefitted from the technical assistance. Moreover, the number of RINDRA staff has been maintained through new hiring. 6.17 The number of operational personnel receiving training abroad over the years is as follows: GRADE 1983 1984 1986 1986 1987 1988 TOTAL Managor 1 4 1 2 4 a 15 Senior 4 a 6 1 3 6 22 Junior -- -- 2 1 -- -- 3 TOTAL 6 7 8 4 7 9 40 These 40 auditors received 9,880 hours of training. On average, somewhat over 2 managers and 4 senior staff and junior staff received training abroad each year, well exceeding the forecasts. 6.18 The creation of a management consulting unit was one of the project's objectives in assistance to the management of enterprises initiated by the Government in 1978. The idea of creating this management unit within RINDRA was not part of the appraisal of the accountancy and auditing organization and training project; it was incorporated into the project at a later time following a March 1984 request by the Malagasy Government. In the view of the Government, it was easier and less costly to set up the unit in an existing company than to create a new one; audit and management consulting work tend to complement one another, with one generally leading into the other. 6.19 The Management Consulting Department created in 1985 was to receive international technical assistance for: - hiring and training staff; - supervising intervention missions. A contract was subsequently signed in March 1985 with the consulting firm aiding the accounting division, initially for 18 months, then 24 months, and ultimately extended until June 30, 1988. 6.20 The costs of the technical assistance to the "Management Consulting" Department are shown by expenditure category in the following table: Source of technical casistanco Consultants Training Equipment Suppl ies Other FIRM A (in 603,815.63 43,986.20 81,102.79 27,304.64 202,644.26 USt) All in all, the assistance will have cost $958,852.52. 6.21 From 1985 to 1988, Firm A was involved on a permanent or short-term basis for a total of 9,068 hours; over the same period, the operational staff of the Management Consulting Department evolved as follows:  42 GRADE 1984 1986 1986 1987 1988 Manager -- -- 8 a 3 Senior -- -- 2 6 1 Juntor 16 10 6 18 10 TOTAL 16 1O 11 27 14 Three managers, 1 senior staff and 4 junior staff receLved training abroad. 6.22 The Management Consulting Department is highly unstable from the staffing standpoint; in 1988 alone, 13 persons resigned. Two of the managers, 1 senior staff member and 1 junior staff who received training abroad left the Department in 1986, 1987, and 1985, respectively. 6.23 To help RINDRA with execution of Component C of the project, it was planned for the Public Treasury to on-lend to it the equivalent of SDR 3 million within the framework of a subsidiary loan agreement. The agreement was signed in June 1981. 6.24 In order to finance the second contract for assistance to the Audit Department and the creation of the Management Consulting Department, a codicil to the subsidiary loan agreement, in the amount of SDR 1,150,000, was signed in July 1986. As of March 31, 1988, SDR 4,148,005.76 of the SDR 4,150,000 allocated had been spent. 7. COMPONENT D: STRENGTHENING THE CAPACITY OF PRIVATE FIRMS CONTEXT AND OBJECTIVES 7.01 The project for assistance to local firms in the area of accounting and financial organization is an integral aspect of the public authorities desire to enhance the reliability of the Information provided by enterprises, this by improving the skills of the local accounting firms called upon to assist them. However, for these offices to improve their technical skills, they must turn to foreign consulting firms or expatriate personnel, which entails foreign exchange problems. 7.02 To resolve these problems, the public authorities asked the IDA, as part of the accounting organization program, to include a component on Assistance to Local Firms to be financed by the credit. 7.03 There were two objectives for the project: - assistance from and training by foreign consultants at private local firms, focusing on new techniques in the area of accounting and financial organization; - feasibility study for the creation of a public management consulting agency. 7.04 The first component of the assistance will consist in training the personnel of the local offices in new organization techniques so as to enable them to provide the appropriate technical offices of local enterprises which need to improve the way they prepare their accounts and  43 improve their control and planning of operations. This training should address the following issues: - study of the accounting techniques used by companies for each cycle of activity; - evaluation of the quality of internal controls and the gathering of the necessary operational and financial data; - designing and providing assistance to enterprises for applying the most appropriate techniques. 7.05 The feasibility study on a public management consulting agency should consist in identifying the current requirements of the Malagasy economy as regards consulting services, surveying the existing consulting activities, defining areas for activity by the unit, and proposing a structure and timetable for introducing the new entity. COST OF PROJECT 7.06 The cost of the project was initially estimated at $1.5 million, including some resources for the management consulting agency, before a downward revision to SDR 820,000 prior to project execution. 7.07 The final reallocation to Component D amounted to SDR 395,000, this following the incorporation of the feasibility study component into Component C of the project. Expenses from Component D were to be financed 100 percent by the IDA. EXECUTION Assistance to Accountancy Firms 7.08 Four salient features have marked the life of this sub-component of the project during its execution phase, namely: - delay in initiating the project; - reluctance of local accounting firms to make use of the credit; - actual uses; - the reallocation of April 1986. 7.09 The first effective use of the credit was in May 1984, i.e., 24 months after it came into effect (May 1982), even though the credit agreement had bean ratified in June 1981. Among the reasons contributing to this delay are the plan on implementation modalities, the lack of any suitable information policy both for the users (local accounting firms) and for the final beneficiaries (enterprises), and the period of apprehension about the new accounting legislation and the standardization of the profession. 7.10 The Order of Expert Accountants to which all the major private accounting and management firms belong was skittish about the use of the funds which could be mobilized under Component D. This hesitation, demonstrated by the President of the Order in a memorandum of November 1981, is explained on the one hand by the inability of the parties concerned (private firms, enterprises) to bear the high cost of an organization mission from foreign accountancy firms and, on the other hand, by the fact that the procedure for granting credit was unclear.  44 7.11 The on-lending of these funds by the Government in the form of subsidies was requested by the Order, in accordance with clearly defined allocations and plans so that each Malagasy firm would receive proper training. In addition, no Information meeting was held for enterprises supervisors and economic managers with a view to developing initiatives for use of the credit. 7.12 Ultimately, two operations were financed by the credit, these through the two major private firms in the country, FIVOARANA and RAMAHOLIMIHASO. 7.13 RAMAHOLIMIHASO submitted the first request for financing under Component D of Credit 1155-MAG on November 7, l983. The aim of the financing was to develop suitable computerized solutions for problems of administrative, financial and accounting management, as well as for monitoring management and personnel management within the BFV. The request, supported by a technical assistance contract between RAMAHOLIMIHASO and a French firm, was approved by the IDA in December 1983. The contract amount was $320,000; the operation began in May 1984 and was completed in 1986. 7.14 FIVOARANA submitted its request in favor of another French firm in February 1985. This request, for $64,500, followed an offer for Information in associated offices for preparing the SNI's master plan for computerization and for defining the steps to be taken In the short and medium terms within the framework of said master plan. The operation was concluded in September 1986. 7.15 The Malagasy authorities' request for reallocation of the credit in favor of Components B and C was accepted by the IDA (telex of April 1986), which may be interpreted as a decision by both sides to close Component D of the credit before the initially scheduled concluding date. By reducing the amount allocated to $395,000 while the total drawings already made amounted to SDR 445,112.52, including the amount of SDR 31,111.88 paid to one of RINDRA's foreign consultants and charged incorrectly against Component D, virtually nothing remains for this component of the credit. FIVOARANA applied later to use the credit for personnel training, but was turned down because the remaining balance was too small. Creation of a public management consulting agency 7.16 In June 1983, i.e., two years after the credit agreement was signed, and at the request of the Malagasy authorities, the IDA submitted proposed terms of reference which defined the areas of future intervention of the management consulting company to be created (OMEGA). 7.17 In November 1983, the Malagasy Government, given the inherent cumbersomeness of creating a new company from scratch, had already opted for setting up the advisory unit within an existing firm, RINDRA, SERDI, or PNI, with preference expressed for RINDRA. 7.18 In March 1984, after a reminder was received from the Bank, a request for financing the feasibility study was submitted to the Bank. In its financing request, the Government expressed its desire to have the unit  45 incorporated within RINDRA, with a s'rict separation between that entity's accounting and auditisg functions and management consulting functions. 7.19 In May 1984, Lhe list of fiLms consulted about providing assistance to RINDRA management consulting uepartment was sent to the Bank. A Canadian firm was selected, and began work in May 1984. The assistance contract was financed from Component C of the credit. 8. ASSFSSMENT OF OVERALL PROJECT MANAGEMENT AND FOLLOW-UP THE BORROWER (GOVERNMENT OF MADAGASCAR) 8.01 The accountancy and auditing organization and training project took a considerable amount of time to get off the ground: it took a year to meet the implemsnting conditions, and there was a three-year gap between the init'al request and the signing of the credit. 8.02 The scheduled effective date of Octsber 12, 1981, which occurred in practice on May 6, 1982, was delayed because of: - the official appointment of the Director of CFC and of the Director of RINDRA; - the submission to the World Bank of the ptoposed contract for RINDRA Director; - signing of the subsidiary loan agreement by RINDRA and the Public Treasury. 8.03 The hiring of the Directors-General of CFC and RINDRA, who were intended to be expatriates, took almost a year, which explains the succession of delays in the effective date of the project and the delay in the initiation of Compcnents B and C. 8.04 While Components B and C actually entered the implementation phase in May 1982, it was necessary to wait until May 1984 and January 1985, respectively, for the initial execution of Components D and A. This delay is largely attributable to the rather lengthy delays in the international bidding procedures and to problems with relations between the Order, the Government and the World Bank, in the case of Component A, and to inadequate data for Component D, the balance of which was ultimately allocated to Components B and C when further requests for funding were submitted by Malagasy firms. 8.05 In the appraisal and initiation phase, the supervision of the project was under the direct authority of the Ministry of Economy and Commerce, whose duties were taken over in 1983 by the Ministry of Industry and Commerce and, beginning in 1984, by the Ministry at the Presidency Responsible for Economy and Finance (MPFE). 8.06 This series of changes resulted in a scattering of file materials and some confusion during certain periods of project execution. The first coordinator had a relative active role in getting the project going: participation in negotiations, and interviewing and selecting the consultants. The second coordinator within the MPFE principally had the role of general coordinator of the activities growing out of the project, assuming all the administrative functions: redistribution of telexes,  46 maintaining records on agreements and various documents, etc. He had the advantage of having good ties wLth the Treasury as regards releasing funds. 8.07 Components B and C were under the responsibility of the Director- General of RINDRA and the Director of the Accountancy Training Center, respectively. Components A and D were under the direct supervision of the project coordinator. 8.08 Management of the project overall was well designed for achieving the objectives of eaclh component, despite the frequent changes in project coordinators. FOR THE BANK 8.09 The World Bank's resident mission, opened after the project began, had no direct responsibility for project organization and very little involvement in it. It was the Ministry, the project coordinator, which kept it informed of progress with the project overall. 8.10 Several missions were carried out by the World Bank group during the execution of the project. Originally, project monitoring was entrusted to the Energy and Water Division , which was often on mission in Madagascar. Subsequently, monitoring of CFC would be turned over to the Education Division and, for a period of two years, the project was visited by two missions each half-year, one from the Energy and Water Division and the other from the Energy Division. 8.11 This situation was to change as from the third year, when the monitoring of the entire project was concentrated in the Education Division, which had arranged for the cooperation of a professor of accounting. The timing of missions, initially half-yearly, slowed beginning in 1984: April 1984, October 1985, July 1986, October 1987, and February 1988. 9. RESULTS AND PROBLEMS COMPONENT A: ACCOUNTING LEGISLATION AND STANDARDIZATION 9.01 The major contributions expected from this new Code of Accounts, as described by the Decree of September 17, 1987, are as follows: - the basic accounting principles are set forth explicitly; - the format of financial statements or accounting documents is standardized; - the financing table designed to trace an enterprise's financial flows during the fiscal year makes it possible to examine developments as regards investment requirements and the financing thereof, as well as causes for cash flow changes; - the table of standard magnitudes for the financial year or the profit and loss account provides a better description of the various stages of performance and facilitates compliance with management's requirements for the information needed for the national accounts;  47 - an appendix describes the rules which had previously governed the preparation of financial statements, and must make reference to any significant factor; - an annotated guide for the General Code of Accounts (PCG 87) formally stipulates the way the accounts function and the rules for appraisal which are allowed, which are such as to facilitate maintaining accounts as well as preparing fiiiancial statements in accordance with the fundamental accounting principles adopted. 9.02 Thus, financial statements drawn up in accordance with the new provisions of the General Code of Accounts should meet the needs of users for reliable, understandable, meaningful and comparable data, as was expected during the course of project appraisal. 9.03 It is regrettable, however, that the belated publication of the annotated guide on the accounting system and the absence of any policy on disseminating information on the PCG 87 did not make it possible for the enterprises to prepare in time for the introduction of the National Code of Accounts [NPC] in 1989 as scheduled. The obligation to implement it has, however, yet to be accompanied by any penalty, which should be incorporated in the revision of the tax laws. The financing requests sent to the World Bank by the consulting firm initially, and later by the Malagasy authorities, for dissemination of the new accounting code have gone unanswered. 9.04 To date, no new law has been passed as regards mandatory auditing for enterprises. It bears notin- however, that the auditing of accounts is carried out more and more, es. icially in the public enterprises, at the request of Malagasy or international financial institutions and at the request of the management bodies of the enterprises concerned. No new legal provisions revising business law have been passed. 9.05 The Order of Expert Accountants and Authorized Accountants currently has only 30 members (S expert accountants and 25 authorized accountants) as compared to 36 members (36 expert accountants and 30 authorized accountants) in 1981. The legal provisions governing the accounting profession should, however, be released shortly; the status of the profession overall may thus be expected to change. However, the Order has not yet defined its "normal restrictions," i.e., its professional and ethical code. 9.06 Since the establishment of the first informal commission, the desire for regular cooperation between professionals and representatives of the public authorities has become more and more apparent. It is therefore envisaged to establish a Higher Accountancy Council in which professionals, users, trainers and the public authorities would be involved. Its role would be to further develop and update the gains made. This Council, once under way, will have 6 years of experience w_th concertation and will have a portfolio of problems to be resolved that was opened nearly a decade ago.  48 COMPONENT B: ACCOUNTANCY TRAINING CENTER 9.07 CFC was able to maintain a solid training level thanks to its team of qualified and competent teachers, on the one hand, and to adequate working conditions, on the other hand. With the new INSCAE project, the 1989 objective of replacing expatriat teaching staff appears premature, owing to the small number of Malagasy .eachers for certain highly specialized topics and those receiving training abroad. 9.08 To date, CFC-INSCAE has trained some 600 students on a full-time basis and 3,400 students in evening courses. Admission to the institution is highly sought after among the student population (there were 1,300 applicants at the last competitive ex mination). A system of "regional" admiss'on quotas is currently being applied. The system functions as follows: - 60 percent of the new student admissions are not subject to quotas; - 40 percent are distributed in proportion to recorded population by region. 9.09 Proposals for granting scholarships and creating an internship are also under study (60 of them have been received). To date, some 160 students have been placed in enterprises, most of them in the private sector, generally in jobs that match their accounting training. One of the main reasons students are reluctant to work in the public sector is the lack of any equivalent for CFC diploma in the civil service. This situation is beginning to be resolved by the Government's ranking it equivalent to the specialized diploma in accounting (DSSC) obtainable through continuing education, in civil service category 6. Student services was initially very active in placing students: all the students from the first and second graduating classes are professionally employed. 9.10 Beginning with the third class, the placement rate has slowed considerably: 35/55 for the students with the DSSC and 5/17 for the students earning the DESCA. This slackening of f is surely independent of the quality of training received, and is attributable to: - Abandonment of the system of placing in enterprises, so as to make the students more responsible for their own futures; - The economic problem of increasing unemployment among the educated; - Delay in introducing regulatory provisions regarding the accounting profession. 9.11 As regards the use of funds, the most salient fact is the complete use of the credit by the second year, followed by a reworking of the project (creation of the INSCAE). 9.12 The final target of a cost of S2,000 per student has in large measure been met. This result must be regarded in relative terms, however, taking into account the depreciation of the Malagasy franc in terms of the U.S. dollar (exchange rate of May 1981: $1 = FMG 200; rate of 12/31/88: $1 - FMG 1,523.40). The cost of the institution overall seems high (about FMG 1 billion per year). Revenues from tuition fees and other sources fall far short of ensuring financial balance.  49 9.13 As for any institution of higher education, it is obvious that maintaining adequate levels of finance will depend on the degree to which Central Government subsidies are made available. 9.14 This mission, devoted to Credit 1155-MAG, has not addressed itself to examining the present INSCAE (operation and effectiveness of the Board of Directors, degree of effectiveness of the Pedagogical Council), which is covered by Credit 1661-MAG. COMPONENT C: STRENGTHENING OF RINDRA'S ACTIVITIES 9.15 The organization chart of RINDRA's auditing and management consulting operations as of December 31, 1988 appeared as follows: Management Com.?tt..I I_Dlr.ctor-Con.rli; _eneral Secretariat Managerial Control *nd Internal Audit | Itrl I l ~~Logistics DIRECTORATE-GENERAL i tiongers l_"~~~~~~~~~~~~Mn gtrI -r-~~~~~~r ~~~~~~~~I I IL@ Sonlor OMISSION CHIEFS* l j Senior MISSION CHIEFS] Juniors |Juniors ; ___ _, _ __ _ I . 1CONSULTING DIVISION jAUDIT DIVISIOIN 9.16 When the project was drawing to a close, RINDRA employed 95 persons, all of them Malagasy nationals. The staff could be broken down as follows: DEPARTMENT SUPERVISORS NONSUPERVISORY TOTAL AUDITING 35 12 47 MANAGEMENT 14 CONSULTING 9 23 DIRECTORATE GENERAL 9 6 15 TOTAL 58 27 85  50 9.17 The objective sought under Credit 1155-MAG as regards strengthening the activities of RINDRA is to see to it that the organization would ultimately have complete autonomy as regards technical competence in the fields of auditing and management of an auditing office, as well as regards handling the internal training of its staff itself. 9.18 After the second consulting firm left, the Audit Department, according to RINDRA, would no longer need technical assistance for internal management or in its operational activities. The technical assistance received from 1979 to 1988, provided by three different firms, was considered sufficient. 9.19 At end-1988, the operational personnel in the auditing area numbered 35 persons, including 7 managers, 10 senior staff, 12 junior staff and 6 assistants. There are 17 persons 2/ who have worked at RINDRA since the project began, all of whom are in a position to train new peraonnel. 9.20 The technical assistance planned for originally proved to be insufficient. At the end of the project, RINDRA considered that an additional year of technical assistance in the form of a specialist in organization and data processing was still necessary.At end-1988, the Management Consulting Department had a staff of 14: 3 managers, 1 senior staff and 10 junior staff. 9.21 At the outset, and in particular during the first two fiscal years, RINDRA undertook audits only upon instructions from the Supreme Revolutionary Council (CSR), without regard to the client's solvency or desiderata. Because of this procedure, the services rendered by RINDRA were not only limited to a small number of enterprises, but losses of 2/3 of invoiced value were posted. This situation would ultimately change, and since 1982 RINDRA has been working in the area of seeking markets (it is currently active elsewhere in Africa) and has received better guarantees with respect to new clients. Efforts have also been made to diversify the ways in which RINDRA may intervene: hiring, training, accounting organization, etc. 9.22 The figures below indicate the number of assignments broken down by sector of activity: 1978 to 19S1 SECTOR OF ACTIVITY 1982 1983 1984 1986 1986 1987 1988 Financial institutions -- -- -- 2 3 3 2 6 Ministries and other agencics 4 4 8 8 8 1S 17 21 Agricultural and agro- industrial sector 7 8 1O 13 16 19 20 23 Agroalimentary and lIvestock sector 8 11 13 13 15 17 19 21 2/Seven managers and 10 senior staff.  51 Trade and distributlon sector 1 3 6 4 6 8 6 9 Tourism and transporta- tion sector 6 8 11 8 18 14 18 16 Industrial sector 26 30 84 a8 41 46 62 s9 TOTAL 62 64 79 87 102 121 126 154 9.23 RINDRA thus is involved in all sectors of the economy. Even though the number of assignments has increased, this has not been the case as regards its turnover, especially since 1985. In turnover terms, the activities of the Audit Department have evolved as follows: (In millions of Malagasy francs) (Average) 1980-81 181 ) 1981-82 119 ) 161 1982-83 169 ) 1983-84 175 1984-85 332 ) 1985-86 213 ) 305 1986-87 283 1987-88 393 9.24 There are two distinct periods as regards turnover. From 1981 to 1984, average turnover was FMG 161 million per year, a figure which rose to FMG 305 million for the period from 1985 to 1988. In each period, turnover at current prices was more or less stagnant, reflecting a stabilization if not some slippage in activity levels. 9.25 The number of assignments of the Management Consulting Department, classified by sector of activity, is shown in the following table: SECTOR OF ACTIVITY 1984 1986 1986 1987 1988 Flnencial Institutions -- I 1 4 1 Ministries and other agencies 2 4 1 3 2 Agriculture and egroindustry 1 1 -- 2 2 Agroalimentary and iv-stock 2 1 1 -- -- Commerce and distribution 1 1 1 1 1 Tourism, transportation and othor services 1 -- 7 6 6 Industry - 2 6 7 6 Construction and public works -- 2 -- -- -- SMEs -- -- 2 6 4 TOTAL 7 12 18 27 22  52 9.26 There was a slight decline in the number of assignments in 1988 after growth from 1984 to 1987. In terms of turnover at current prices, the activities of the Management Consulting Department have developed as follows: (In millions of Malagasy francs) 1984-85 112 1985-86 184 1986-87 209 1987-88 200 The activities of the Management Consulting Department have changed little since 1986. 9.27 The apparent growth In productivity of labor, defined as the ratio of turnover to the number of operational staff, has developed favorably for both departments of RINDRA, as shown below (in millions of Malagasy francs)t Audit Management Consult- Department ing Department 1984-85 11 11 1985-86 6 17 1986-87 9 8 1987-88 11 14 9.28 It is thus not true that the Management Consulting Department has been less successful than the Audit Department, even though RINDRA has the reputation of being more an "auditor" than a "management organizer and advisor." 9.29 The intermediate operating balances corresponding to operations from 1986 to 1988 as well as 1981 (the reference year) are shown in the following table (in millions of Malagasy francs and percentage terms): CATEGORY 1981 1986 1987 1988 - Foe. and miscellaneous 11 459 533 622 - Final stock -- -- 37 63 - Initial stock -- (23) -- (37) PROOUCTION4 161 100X 438 1OOX 670 1103 649 1603 - TSFE (14) (89) (63) (94) - Transportation and (46) (48) (58) (90) moving - UMscel lan*oue overhoad* (22) (103) (98) (166)  53 - Expenses chargeablo to third parties 19 -- -- 68 VALUE ADDED 98 61X 194 46% 361 62X 376 68X - Personnol cost. (94) (193) (239) (312) - Taxee and levies (2) (4) (8) (6) GROSS OPERATING SURPLUS 12 7X 7 2% 104 18X 59 9X - Financing costs (15) (121) (448) (962) - Financial proceeds -- -- 11 -- CROSS OPERATING RESULT (3) -- (114) (263) (332) (583) (892) (1373) - SBS (1) -- (1) (1) - Write-offt and (263) (671) (691) (692) provisions - Windfall profits 365 132 s9 23 - Exceptional losses (90) (61) (81) (22) NET RESULT 18 11X (714) (164X) (962) (1673) (1684) (2393) GROSS SELF-FINANCING 271 168X (43) (103) (361) (63X) (972) (1373) MARGIN 9.30 In the latter years, RINDRA's operations were in the red, which is explained by a relatively sizable increase in financing costs, and, except in 1987, the rate of the gross operating surplus is low. 9.31 RINDRA's balance sheets for 1986 to 1988 as well as 1981 are summarized below (in millions of Malagasy francs): 1981 1986 1987 1988 ASSETS - Establishment costs 332 554 553 530 - Net fixed assets 35 203 195 165 - Operating assets -- -- 37 63 - Liquid assets 97 378 339 365 - Cash balances 29 239 235 258 TOTAL 493 1364 1358 1383 LIABILITIES - Capital 50 50 50 50 - Amounts carried forward -- (555) (555) (555)  54 - Results from preceding (219) (501) (1218) (2170) year - Results of current year 19 (714) (952) (1584) - Provisions for losses and 18 18 18 18 expenses - NET POSITION (132) (1702) (2657) (4241) - MedLum- and long-term 61 1495 1968 2060 debt - Short-term debt 292 628 812 1052 - Cash liabilities 272 953 1235 2512 TOTAL 493 1374 1358 1383 9.32 The financial position of RINDRA is unsustainable. The net position, which was already precarious in 1981, deteriorated to a negative FMG 4 billion in 1988. This situation stems from the successive losses posted in the preceding years, largely attributable to the amount of financing costs incurred under the credit. At the end of the project, RINDRA finds itself heavily indebted and, in contrast to what was anticipated at the project appraisal stage, its financial positLon is more and more out of balance. RINDRA Ls unable to repay the credit extended to it, and financial restructuring Ls mandatory. 9.33 The cost of the technical assistance to RINDRA as at June 30, 1989 may be summarized as follows (Ln millLons of Malagasy francs): HEADING Cross Value Amortization Not Value - Original Firem 19,517 619,517 0 - Fire A 1,431,747 1,431,747 0 - Firm B 1,452,296 1,253,048 199,237 - Local technical assistance 44,262 36,635 8,627 - Technical assistance from Firm A 33,690 11,230 22,460 TOTAL 3,481,601 3,261,177 230,324 9.34 As at June 30, 1989, technical assistance costs totaled almost FMG 3.5 billlon, over 90 percent of which has been amortized. Judging from the figures, RINDRA has obtained substantLal technical assistance. No other accountancy firm with the same standing or competence has received as much. 9.35 The amount, date of signature and terms of the loans contracted by RINDRA are indicated for each source of financing in the table which follows (in thousands of Malagasy francs):  55 Treasury advancos IDA onlonding IDA codicil - Amount FMO 272,000,000 SDR 8,000,000 SDR 1,160,000 - Date of agroment 1 1/26/82 7/18/86 - Repayent period 10 years 6 years - Crace period 3 years 2 years - Service charge 12 X per year 12 percent - Penalty Interest 2 9.36 The Treasury advances were all contracted before the June 1981 signing of Credit 1155-MAG, which represents the bulk of RINDRA's borrowing (the equivalent of slightly more than FMG 2 billion at the exchange rates on the dates of the on-lending agreement and the codicil). 9.37 As of June 30, 1989, the status of RINDRA's long- and medium-term debts was as follows: Amount at more Amount at less Amount released Equivalent (in than one year (in than one yoar (in FINANCING SOURCE as at 12/31/88 Ialagasy francs) Ialagasy francs) Mslagasy francs - Treasury FMG 272,000,000 -- -- 272,000,000 - IDA onlonding plus - IDA codicil SDR 4,160,000 3,699,106,410 1,982,208,226 1,616,899,194 The share of the loans at less than one year thus amounts to FMG 1,888,898,184. 9.38 RINDRA must also pay accrued interest totaling FMG 3,091,099,545 as at June 30, 1989. It also bears noting that the Malagasy franc equivalent of the IDA loan has increased significantly owing to changes in the exchange rate, which are thus also a factor in RINDRA's financial position. 9.39 It should also be recalled that it the appraisal report, the Bank maintained that if it increased its business by reducing its fees, RINDRA would be able to repay to the Government a loan of SDR 3 million at 12 percent interest in 10 years, with 3 years' grace, and to pay it reasonable dividends as well. In the course of our review, no one was able to provide us with any documentation that would justify such an assertion. 9.40 RINDRA's status as a socialist enterprises poses a number of problems: - from the standpoint of clients, some of whom think there is a link making RINDRA dependent on the Central Government; - from the standpoint of the staff, in that the company's status prevents them from achieving partnership standing. 9.41 Moreover, RINDRA's staff currently includes no expert accountants. Thus the enterprises will not be able to certify any accounts until such  56 time as the transitional provisions regarding access to the Order of Expert Accountants have been finalized and effectively implemented. 9.42 A study of needs for professionally trained accounts was provided for in the project's Credit Agreement. The World Bank recommended in its 1981 appraisal report that a study be carried out at the request of qualified accountants so as to enable CFC better to plan the level of its activities. The study, which was to cover a period of ten years, was to be completed by December 31, 1983. 9.43 The study, which was entrusted to RINDRA, was to be coordinated directly by the expatriate Director-General, but it ultimately was never produced. However, the INSCAE, at the request of its Board of Directors, has proposed to conduct a market survey to determine both the qualitative and quantitative needs for accountants, with a view to making appropriate adjustments in the class sizes and the training provided by the INSCAE's teaching staff. COMPONENT D: ENHANCING THE CAPABILITIES OF PRIVATE ACCOUNTING FIRMS 9.44 Despite the Bank's urging, vary few accounting firms have made use of this financing possibility; this, moreover, explains the decision to reallocate the remaining balance to other components of the project. The capabilities of private accounting firms have tended instead to be enhanced by means of more specific efforts The first such effort, by RAMAHO- LIMIHASO, involved the installation of the computerized management and personnel system of the BFV, and was regarded as quite advantageous by the company, at least as regards the personnel management side; the firm now considers itself to be in a position to provide this service to other enterprises without assistance from foreign consultants. The second effort, by FIVOARANA, dealt with the preparation of a computerized master plan for the BWI. It, too, was quite beneficial to the firm, which can now render the same consulting services without outside assistance. 9.45 Assessed from the standpoint of the experiences of these two firms, the results of the first subcomponent of Component D "Assistance to Private Firms" may be regarded as positive. However, one of the initial objectives of the project, to provide local enterprises with suitable techniques for improving their management systems, is far from having been achieved, as enterprises have not come forward to take advantage of the facility open to them because of their lack of information or insufficient borrowing capacity. 9.46 The OMEGA project, which was quite ambitious at the outset, ultimately led to the creation of a management consulting department within RINtRA. The activities of this subcomponent are discussed earlier. The accountancy and auditing organization and training project did not really get under way until four years after the initial request of June 1978. It was a project which dealt not with conventional areas of activity (planning, finance, agriculture, etc.) but with a profession which heretofore has been accorded little priority and all aspects of which needed to be addressed: legislation, organization, initial training and continuing training, refresher courses). For Madagascar as for the World  57 Bank, this was thus a pilot project, which could explain the initial foot- dragging. 10. CONCLUSIONS AND RECOMMENDATIONS RESULTS OBTAINED 10.01 The country now has a modern code of accounts on which the broadest possible coneensus has been reached. Since 1982, representatives of the accounting profession have taken an active part in developing this code, and teachers and business groups have been involved as well. The financial statements drawn up in accordance with the new provisions should be able to meet the needs of the various users (enterprises, banks, Central Government, etc.) for reliable, comprehensible, meaningful and comparable data, and facilitate the preparation of sectoral, regional and national statistics that are of value in the various stages of planning. 10.02 Efforts to disseminate the new code of accounts have been initiated by the local accounting firms and the INSCAE; a number of enterprises have already submitted their latest financial statements (for 1988) in accordance with the new code of accounts, the effective date of which was postponed to January 1, 1990. At the request of national and international financial institutions and of the management bodies of enterprises, accounts are audited more and more frequently. 10.03 As regards the accounting profession, a specific proposal was submitted to the authorities in May 1989 regarding: - expanding the Order of Expert Accountants and Authorized Accountants, after finalizing the criteria for membership of suitably qualified persons in the Order; - the structures to be set up for finalizing the course requirements for the National Expert Accountant's Diploma (DNEC). 10.04 As result of the project, all aspects of the accounting profession have been discussed widely, and the need for regular consultation between the public authorities and the accounting profession is now regarded as a given. 10.05 CFC, which began operations in February 1983, provided complete or partial training to almost 300 accountants (not including its evening courses) before its activities were prematurely taken over by the INSCAE. 10.06 RINDRA has become a highly capable accounting firm with staff trained in modern accountancy. It now has solid expertise in auditing (a division of 35 staff), initial experience in management consulting (a division of 14), a sound internal organization, and a reputation for professionalism. At present, RINDRA is working in Africa and is diversifying its activities to include hiring, training, and accounting organization.  58 10.07 The two major private firms were able to take advantage of external assistance which enhanced their qualifications in the area of management consulting. APPARENT WEAKNESSES 10.08 It is unfortunate that the belated publication of the annotated guide to the accounting system and the lack of any national policy on dissemination of the PCG 87 did not make it possible for the enterprises to prepare themselves in time for introducing the NPC in 1989 as planned. The requirement to introduce this new code of accounts is still not subject to any sanctions, which should be remedied in the course of the review of tax law. Requests for World Bank financing of the dissemination of the New Code of Accounts, initially from the project Consultants and later from the Malagasy authorities themselves, were never acted upon. 10.09 The sectoral codes of accounts, inter alia for banks, insurance, public works, etc., have yet to be drawn up. The legislative framework has yet to be revised, in particular as regards the obligations incumbent on companies. Now new law with respect to auditing has been passed. The Order has not yet defined its "standard proceedings," i.e., its professional and ethical code. 10.10 While CFC's objective was to develop a financially viable institution in a period of 6 years, following the change in option by the Bank, tne credit was exhausted in 3 years. With the new INSCAE project, inadequate training of the instructional staff remains a problem. Owing to delays and outside factors (economic conditions, legislation, etc.), it is beginning to become more difficult to place graduates. 10.11 RINDRA's status as a socialist enterprise is not conducive to preventing staff turnover. Its financial structure is unsustainable, specifically because of the terms on which RINDRA was on-lent funds from the IDA credit; interest payments have added enormously to the firm's financing costs. The earmarking of the credit to its various component parts was probably not sufficiently detailed, which resulted in some expenditures which might appear excessive: for example, $250,000 in materials and vehicles were purchased and subsequently resold to RINDRA staff. 10.12 The credit allocated was under-utilized. As a result, the objective of overall strengthening was not achieved. RECOMMENDATIONS 10.13 The Higher Accountancy Council should be set up as soon as possible with a view to: - resolving individual problems in accordance with accounting principles; - developing sectoral codes of accounts; - proposing new measures intended to adapt accounting standards to changes in the economic climate in Madagascar;  59 - cooperate in the drafting of laws and regulations which affect the accounting requirements of enterprises; - company law; _ criminal law; - tax law, etc.; - addressing the queries of persons working with the accounting system. 10.14 An effort should be made to speed the publication of legal and regulatory provisions governing the accounting profession. An appraisal should be conducted of training in the PCG 87 and its dissemination so as to determine the steps to be taken. 10.15 The recommendations regarding CFC effectively pertain to the general environment, namely: - Establishment of the provisions on the accounting profession and determination of the course of study for expert accountants so as to break these roadblocks; - Definition by the Central Government.of an INSCAE strategy so as to readjust the targets for financial viability in the medium term. 10.16 The financial situation of RINDRA must be restructured. This process, which could entail the capitalization of part or all of its loans by the Centrae Government, would enable RINDRA to develop positive working capital and to generate a sufficient gross self-financing margin. In order to bolster the activities of the management consulting division, a second technical assistance contract may be desirable. The financing of this contract should be assessed in the light of RINDRA's capacity to repay. 10.17 The legal status of RINDRA should be changed so that it can be legally autonomous. The change of status would also enable personnel to become partners in the firm. This would reduce staff turnover. The objectives of strengthening private auditing firms were not funded by the credit. They can only be incorporated into the ongoing development of the profession.  60 PART III STATISTICAL INFORMATION 1. Related Bank Loans and/or Credits ................................................. -Loan/Credit Year of Title Purpose Approval Status ........... ....................................................................................... ..................________ Credit 1661 MAG Upgrade level of April 16, Planned with Accounting e x p e r t i s e o f 1986 Closure and Management accountants, auditors is Dec. T r a i n i n g and managers to 31, 1992 Project improve management and financial control of enterprises and to improve procurement procedures (A continuation of 1155 MAG) ..---......................... ....---.....----........-.......-..-....----......--------......-....--.......-----................-  61 2. Proiect Timetable ITEM Date Date Date Planned Revised Actual - Identification 1978-1979 * Preparatio. Aug-Sept'79 - Appraisal June 1980 - Loan Negotiations April 1981 B Board Approval Feb. 6 1981 * Loan Signature Junell '81 - Loan Effectiveness Oct. 12,'81 Jan. 12,'82 May 6,1982 Apr. 12,'82 - Loan Closing March 31,'88 Sept.30,'88 Dec.31,1989 Dec. 31,'88 June 30,'89 Loan Completion' ' Component B was expanded by addition of a graduate business school (INSCAE) and is financed under 1661 MAC which has a planned closing date of December 1992.  62 2. Project Timetable (r;ontinued) MISSION DATA Sent Month No. of No. of Staff Date of Item by Year Weeks Persons weeks Report ----------------------------------------------------------------__------ Identification EAPEG 1978-79 1/ Preparation EAPEG 9/79 Appraisal EAPEG 6/80 4 3 12 5/11/81 Supervision I-A EAPED 2/ 11/81 2 2 4 11/25/81 Supervision I-B EAPEG 2/82 4 1 4 4/19/82 Supervision II-A EAPED 11/82 3 2 6 12/17/82 Supervision II-B EAPEG 12/82 3 1 3 1/31/83 Supervision III-A EAPED 4/83 3 2 6 6/07/83 Supervision III-B EAPEG 3/ 5/83 2 2 4 6/23/83 Supervision IV EAPED/EAPEG 11/83 2 2 4 2/15/84 Supervision V EAPED/EAPEG 4/84 3 2 6 6/12/84 Supervision VI EAPED 10/85 3 2 6 12/17/85 Supervision VII EAPED 6/86 2 4 8 8/14/86 Supervision VIII AF3PH 10/87 2 2 4 10/25/87 Supervision IX AF3PH 2/88 2 1 2 2/11/88 Supervision X AF3PH 1/89 3 1 3 3/20/89 1/ The initial Identification and preparation was carried by soveral divisions. The work was done mostly as part of the on-going work of those divisions and apart from occasional Back- to-Office reports, no formal reports wero prepared until the appraisal by EAPEG. 2/ Project was prepared by EAPEC but the Accounting Training Center fell under the supervision responsibility of EA F "Is the remaining components wore to be suporvised by EAPEG. This resulted in two sopa; . orvision misslons until the project was put solely under EAPED. 3/ This was the last independent supervision mission by EAPEO. The project came under full control of EAPED though EAPEG did assist on the next two supervision missions. After reorganization, the project foll undor the responsibility of AF3PH.  63 3. Credit disbursements _________________________ DISBURSEMENT SCHEDULE CREDIT IN 000 US $ FISCAL YEAR 1982 1983 1984 1985 1986 1987 1988 1989 1990 -------------------------------------------------------------------__-- ACTUAL 680 1,340 1,364 2,076 2,572 1,297 572 352 39 CUMULATIVE 2,025 3,389 5,456 8,037 9,334 9,906 10,258 10,297 PER APPRAIS 1,200 2,000 2,300 2,200 2,000 1,500 300 CUMULATIVE 1,200 3,200 5,500 7,700 9,700 11,200 11,500 GOVERNMENT BUDGET (MFMG) CONTRIBUTIONS TO CFC/INSCAE 1982 1983 1984 1985 1986 1987 1988 1989 ACTUAL 79 70 34 172 172 170 100 50 CUMULATIVE 149 183 355 527 697 797 847  64 4. Project Implementation IMPLEMENTATION Component A, Accounting Legislation Planned Actual Drafting of Oct. 1981 relevant legislation Submission of legislation April 1982 Enactment of legislation July 31, 1982 Government prepares Dec. 1982 short list of con- sulting firms; Efforts by local Jan.-July 1983 accountants to be included in short list rejected by the Bank; Consulting firm Nov. 1983 selected; Contract signed; Aug. 1984 Contractor submits June 1985 drafts for legisla- tion; Contractors final Jan. 1986 report; New accountancy law Law of Sept.17,1987 Pub.lished. Law will be in effect starting 1989. Not yet includ- ed in the law are provisions regula- ting the accountancy profession.  65 Component B: Centre de Formation en Comptabllite planned actual Establishment of the CFC December 14, 1981 through Decree No. 81290 Appointment of first Director Sept. 1, 1981 April 1982 Opening of the Center March 1, 1981 October 1982 First class of students started May 1, 1982 February 1983 Start of evening classes May 1, 1983 March 1983 First class graduates May 1, 1985 September 1987 Component C: RINDRA planned actual Appointment of foreign September 1, 1981 April 1982 Director General Foreign Director replaced March 1984 Consultants: Mahen Noiseux and Co. 1982-1985 Eurosept 1985-1988  66 5. Project Cost and Financing ----------------------------- Project Financing _________________ M. U. S. $ local Dis- Foreign Total bursements Disrbursements IDA credit: a. legisaltion 2.4 0.3 2,7 b. CFC 3.6 3.6 c. RINDRA 3.7 3.7 d. Local consulting firms 1.5 1.5 2.4 9.1 11.5 Government Budget: legislative review 0.2 0.2 CFC 1.4 1.4 1.6 1.6 Internally Generated Funds: RINDRA 0.8 0.8 Local consulting firms 0.3 0.3 1.. 1.1 Total project 5.1 9.1 14.2 Reallocatiom April 1986 After Per Credit April 1986 Disbursement Disbursements Categories Agreement Reallocation to 3/31/80 Balance DTS (000) DTS (000) DTS (000) DTS (000 1 Legislation review 250 200 196 4 2 Consultants for CFC 1,630 3,440 3,462 (22) 3 National Audit Co. RINDRA 2,200 4,150 4,148 2 4 Malagasy management 820 395 445 (50) 5 Consulting firms & 660 265 282 (17) CFC local staff 0 6 Goods for CFC 900 900 827 73 7 Unallocated 2,940 50 0 50 TOTAL 9,400 9,400 9,360 40  67 6. Project Results INSCAE Number of Students Enrolled in Accountancy Degree Programs 1983 1984 1985 1986 1987 1988 1989 Semester I II I II I II I II I II I II I II .______________________________________________________________________ 1st year students 100 86 100 83 100 96 86 70 109 95 78 56 60 2nd year students 79 58 97 93 100 97 66 67 75 65 56 3rd year students 56 56 87 81 101 85 59 56 62 4th year students 20 18 20 20 20 20 20 ----__--------__---------------------------------__-------------------- totals 100 86 179 141 253 245 293 266 296 267 232 197 198 graduates 3yr. program 53 74 75 56 graduates 4yr. program 18 19 19 Evening program-1) 234 220 237 406 364 392 400 year 1982 1983 1984 1985 1986 planned enrollment-2) 100 164 214 260 300 1) average per year 2) per appraisal for degree program Teaching Staff INSCAB/CFC 1933 - 1989 1983 1984 1985 1986 1987 1988 1989 Foreign 2 4 5 4 3 2 61 Malgasy 2 6 7 7 13 9 10 4 10 12 11 16 11 16 Adjunct 7 3 6 12 17 11 '3 TOTAL 11 13 18 23 33 22 39 1. increase due to start cf new MBA program.  68 RINDRA Auditing Division Auditing Engagements by Sector 1978 - 1988 1978 SECTOR & 1982: 1983 1984 1985 1986 1987 1988 1981 I _ - Financial Institutions - - - 2 3 3 , 5 - Ministries and Governmen Agencies 4 4 6 8 8 15 17 21 - Agriculture and Agroindustry 7 8 10 13 16 19 20 23 - Food and Animal Husbandr 8 11 13 13 15 17 19 21 - Commerce 1 3 5 4 6 8 5 9 - Tourism and Transport 6 8 11 9 13 14 13 16 - Industry 26 30 34 38 41 45 52 59 TOTAL 52 64 79 87 102 121 128 154 RINDRA STAFF June 30, 1989 DEPARTMENT PROFESSIONAL OTHER TOTAL Audit 35 12 47 Consulting 14 9 23 Administration 9 6 15 TOTAL 58 27 85  69 RINDRA Management Consulting Staff 1984 - '88 GRADE 1984 1985 1986 1987 1988 - Manager - - 3 3 3 - Senior - - 2 6 1 - Junior 10 .10 6 18 10 TOTAL 10 10 11 27 14 3 Managers, 1 Senior, and 4 Juniors have received training abroad RINDRA Consulting Division Consulting Engagements 1984 - 1988 SECTOR 1984 1985 1986 1987 1988 - Financial Institutions - 1 1 4 1 - Ministries and Government Agencies 2 4 1 3 2 - Agriculture and Agroindustry 1 1 - 2 2 - Food and Animal Husbandry 2 1 1 _ _ - Commerce 1 1 1 1 1 - Tourism and Transport I _ 7 5 6 - Industry 2 5 7 6 - Construction and Public Works 2 _ _ _ - Small Business _ - 2 5 4 TOTAL 7 12 18 27 22  70 RINDRA Technical Auditing Assistance Received (in hours) PERMANENT SHORT TERM FIRM PERIOD CONSULTANT CONSULTANCIES MNE 1982 - 1985 5.912 H 3.947 H EUROSEPT 1985 - 1988 3.216 H 6.634 H RINDRA Professional Audit Staf,! 1981 - 1989 GRADE 1981 1982 1983 1984 1985 1986 1987 1988 - Manager 2 2 2 4 4 4 4 7 - Senior 4 7 7 7 7 6 11 10 - Junior 20 16 14 12 12 9 12 12 - Assistant - - - 9 8 15 6 6 TOTAL 26 25 23 32 31 34 33 35 RINDRA Auditing Staff trained overseas GRADE 1983 1984 1985 1986 1987 1988 TOTAL - Manager 1 4 1 2 4 3 15 - Senior 4 3 5 1 3 6 22 - Junior - - 2 1 - - 3 TOTAL 5 7 8 4 7 40  71 RINDRA Revenues and -Orerating Expenses M. FMG 1981 1986 1987 1988 Revenues 161 435 570 649 operating expenses (149) (428) (466) (590) Operating Margin 12 7 104 59 Interest (15) (121) (448) (952) Amortisation and Depreciation *) (253) (671) (591) (692) *)Primarfly the amortization over five years of capitalized technical assistance costs.  72 7. Status of Covenants COVENANTS Credit Agreement Section 3.01 a - due diligence and efficiency. .. complied with b subsidiary loan agreement with RINDRA 3.02 a,b,c - procedures and conditions for complied with projects under component D 3.03 selection of oualified contractors complied with for component B and C 3.04 insurance of goods complied with 3.05 a - adequate records for CFC and RINDRA complied with b - project completion report complied with 3.06 premises for CFC complied with 3.07 a - review of existing accounting complied with standards and practices b - enactments of legislation with about 80% reference to component A complied with; still missing final enactment of rules governing the accountancy profession. 4.02 adequate records and audits complied with 4.03 a - efficient administration complied with b - maintenance complied with 4.04 survey of demand for accountants not complied and auditors in Madagascar by with; Dec. 1983 survey never completed; now survey will be done by INSCAE