17.04 Direct Financial Contribution (DFC)

This agreement is used when transferring funds to governments or government agencies to strengthen their technical and implementation capacity, and to support their technical cooperation requirements at the country level. 

DFCs are formalized through an agreement that is linked to an approved annual work plan. Where applicable, the agreement should show the relationship of the activity to the relevant UN system planning framework (e.g., a Results Matrix of the UN Development Assistance Framework (UNDAF), UN Development Assistance Plan (UNDAP) or Country Programme Action Plan (CPAP)). The DFC document should therefore clearly show how the DFC activities are linked to key programme deliverables/results. 

The activity described in the agreement must commence within three months from the date of the agreement and must be completed within a maximum of one year from commencement, or within the period of fund availability, whichever is earlier. Therefore, DFC activities should be planned for completion (i.e., to be delivered) by the award end date or end of the biennium, whichever comes first.

Commitments incurred in a financial period are for activities which must begin in that financial period. The final deliverable, an acceptable technical report and financial certification, will be due within three months of completion of the activity.

Primary responsibility for ensuring the adherence to and accountability for the implementation of activities, proper use of funds, and the involvement of UNAIDS during implementation in a manner that complies with provisions made in DFC fall under the responsibility of the contract signatory (i.e., Directors and Chiefs with relevant delegation of financial authority).

Payments under DFCs are normally made in local currency and must be made to the implementing partner and not to individuals.

Advance payments may be justified where substantial up-front payments are required (e.g., financing participants’ travel and meeting costs). Initial payments above 50% of the total amount must be explained and justified in writing and approved by the Director, Planning, Finance and Accountability Division. Advance payments of 100% should be avoided regardless of the total amount in question.

Payments are determined by deliverables and must only be released by UNAIDS upon acceptance of the required reports including any prescribed financial report duly completed and signed by the partners’ authorized official, and following certification by the UNAIDS technical officer responsible for the contract that the work is proceeding or has been completed satisfactorily. Financial reports must be checked by the UNAIDS official responsible for the project using the appropriate template (see “Financial Certification” section below).  

For interim payments, a minimum of 70% of the total amount previously transferred should be confirmed as spent (not only committed) before the next tranche is transferred. 

The final payment is only made on receipt of a financial statement formally certified by the head of the institution or the appointed responsible financial officer duly signed and stamped.

The final payment should be at least 10% of the value of the agreement and be made upon satisfactory completion of the work, receipt and acceptance of the output/final report and financial certification by UNAIDS. 
DFC payments shall be withheld from contractual partners (e.g. agencies, ministries, department, NGOs) that have overdue technical reports and financial certifications, unless the Regional Director exceptionally approves further payment upon receipt of sufficient justification for the delayed or incomplete reporting. 

The Director, Planning, Finance and Accountability must approve payments to partners with reports overdue by more than six months.

Financial certification

In countries where the Harmonized Approach to Cash Transfer (HACT) has been adopted, the Funding Authorization and Certification of Expenditure (FACE) form is an integral part of the DFC agreement and it is used as a key tool for budgeting and reporting against planned activities and expenditures. The FACE format is used by UNDG Executive Committee Agencies (UNDG ExCom) for funding implementing partners as well as for reporting on expenditures.

The UNAIDS Country Director in HACT countries, has the responsibility to report yearly to the Financial Services, Risk Management and Compliance Department on the detailed use of DFC contracts and the current implementation of the four processes in the HACT framework: 1) macro assessments; (2) micro assessments; (3) cash transfers and disbursements; and (4) assurance activities. Assurance activities include planning, periodic on-site reviews (spot checks), programmatic monitoring, scheduled audits and special audits.

The HACT accountability is based on the management of risks associated with cash transfers rather than on a system based on verification of expenditures and detailed reporting. UNAIDS needs to ensure it is part of the HACT working group at the country level where it exists. The HACT working group is a sub group of the UNCT, comprised of operations and programme staff from each participating agency.  It is tasked to advise on risk management approaches in implementing and monitoring HACT implementation, sharing lessons learned and best practices and developing a central repository of all HACT assessments, reports and materials.

For more information, please refer to UNDG Guidance on Policies on HACT

For non-HACT countries the following model formats for technical and financial reports should be used:

DFC Assurance, Monitoring and Reporting:

Programme monitoring provides agencies with evidence/assurance regarding the state of programme implementation compared to the work plan. 

In the case of non-HACT countries, the UCO must undertake monitoring and field visits to ensure activities described in the agreement are delivered satisfactorily in accordance with the workplan and are within the stipulated budget and timeframe.

In the case of HACT countries this process may either be undertaken as a shared activity between agencies with shared implementing partners, or the UCO may undertake monitoring and field visits, especially for joint programmes or areas of work specific to UNAIDS.

Micro-and macro-assessments, carried out jointly with the UN agencies at country level provide summary or detailed information about the partner's system of internal control and financial management capacity and key risk. The detailed micro-assessment could result in a risk rating from low to moderate to high. The assessment allows for informed decisions about prudent funding modes and terms, and the necessary level of assurance activities. 

The purpose of assurance activities is to determine whether the funds transferred to partners were used for their intended purpose and in accordance with the work plan. Without appropriate completion of the assurance activities, the HACT framework would only serve as a mechanism for risk assessment/identification, rather than a mechanism for risk management and mitigation. This would expose the United Nations to significant risk and audit findings.

Assurance activities include: 
  • on-site monitoring and spot checks of activities; examination of supporting documentation and accounting entries when deemed necessary in the books of the implementing partner which is a party to the agreement. Supporting documentation must be retained by the concerned government authority or non-governmental organization for 5 years following the end of the activity; 
  • audit is used to determine whether the funds transferred to partners were used for the appropriate purpose and in accordance with the work plan. Scheduled audits (financial and internal control) are performed during the programme cycle as per the agency assurance plan, on the basis of the partners risk rating and agency guidelines. The HACT focal point is responsible for managing the scheduled audit process including coordination with appropriate agency staff (programme and finance) and other agencies and documenting the analysis of audit results. 
For more details on the DFC and FACE form, please refer to PT.17.16 DFC detailed Instructions.