## EXECUTIVE SUMMARY

## Source details

**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022058.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/pp/2022/english/ppea2022058.pdf.md)
- [Structured JSON version](/-/media/files/publications/pp/2022/english/ppea2022058.pdf.json)

---

### Purpose, scope, and review process
- Reviews experience with the safeguards assessments policy since the last review in 2015; review period covers September 2015 to April 2022.
- Policy objective: mitigate risks of misuse of Fund resources and misreporting of monetary data under Fund arrangements.
- An external panel of experts provided an independent perspective and reviewed confidential safeguards assessment reports; the panel report was circulated concurrently.
- FIN staff led assessments, coordinating with LEG; FAD leads on fiscal safeguards reviews (FSRs) jointly with FIN and LEG.
- Wide consultations with area and functional departments, central banks (video conferences during the pandemic and headquarters visits when travel restrictions eased), Executive Directors, and staff.

### Key activity and workload statistics
- Since 2015 policy review through end-April 2022:
  - 91 assessments completed representing 66 central banks.
  - 16 assessments were in progress at end-April 2022.
  - Activity in current review period slightly higher than previous review period, which had 83 assessments of 57 central banks.
  - In total, 102 central banks have been assessed since inception of the policy.
  - Nearly half of the total assessments during the current review period (i.e., 42 assessments) were conducted in the two-year period to end-April 2022.
  - Current review period had 12 first-time assessments, compared to 15 first-time assessments during the 2015 review period.
- Streamlining measures introduced in 2015 discontinued update assessments for augmentations of existing arrangements and in specific circumstances for successor arrangements.
- The 2015 streamlining measures resulted in a 25 percent reduction in assessments in the current review period:
  - 31 fewer assessments were yielded in connection with 17 augmentations, 13 successor arrangements that met the time-based criteria, and one on account of a strong track record.
  - Comparable total under previous framework would have been 122 assessments; the reduction represents 25 percent.
- Regional distribution (Policy Review Period 2010–15 vs 2015–22):
  - 2010–15: AFR: 28, 34% ; APD: 8, 9% ; EUR: 19, 23% ; MCD: 20, 24% ; WHD: 8, 10%
  - 2015–22: AFR: 34, 37% ; APD: 9, 10% ; EUR: 10, 11% ; MCD: 19, 21% ; WHD: 19, 21%
- Monitoring activity:
  - Number of central banks under safeguards monitoring increased by some 22 percent to 82 at end-April 2022 compared to 67 at end-August 2015; peaked in 2021 with 84 central banks being monitored.
  - Monitoring missions conducted during the current period: 12 (three in the prior period).
- Pandemic workload and staffing:
  - Pandemic emergency financing created an unprecedented pipeline of safeguards assessments (some 55 assessments), largely completed by reporting.
  - Staff overtime during the pandemic averaged over 15 percent, ranging from 7 to 25 percent.
  - Temporary and structural resources were reallocated, increasing total FTEs by six (three temporary and three structural staff) for a total staff complement of 20 as of end-December 2021. In mid-2022, the three temporary staff assignments lapsed.
  - Proposed exceptional circumstance clause to relax deadlines for safeguards assessments during global crises; proposed relaxations estimate additional time of three to six months depending on frequency of program reviews.

### Main findings on central bank safeguards and trends
- Overall risk profile:
  - Risk profile of central banks assessed during the current period deteriorated compared to the prior review period, partly reflecting revolving nature of Fund lending and high demand for emergency financing during the COVID-19 pandemic.
  - In each ELRIC category, the high and medium-high risk ratings increased by 11 to 18 percentage points when comparing the last two review periods.
  - Over half (62 percent) of the central banks in the current review period were either first-time assessments (12 central banks) or had not been assessed for a prolonged period (29 central banks).
  - Of the remaining 25 central banks subject to update assessments, almost two-thirds (16 central banks) had persisting acute capacity constraints or significant governance vulnerabilities.
- Common vulnerabilities:
  - Weaknesses in governance arrangements.
  - Capacity constraints in risk management functions affecting internal control environments.
- Areas with sustained good practices:
  - External audit arrangements.
  - Financial reporting.
- External audit pillar:
  - 65 percent of assessments have a low or medium-low risk rating in the external audit pillar.
  - About a third of assessments found heightened risks in external audit arrangements.
  - Shift toward higher external audit risk driven by first-time or long-gap assessments; such cases comprise 50 percent of banks assigned a High or Medium-High risk rating for their external audit mechanism during the period.
- Legal structure and autonomy:
  - 70 percent of assessments (52 central banks) during the current review period had recommendations for comprehensive amendments to the central bank laws.
  - Over 50 percent of these central banks have advanced the safeguards recommendations with either draft amendments submitted to Cabinet or Parliament having enacted an amended law.
  - In almost 60 percent of cases, strengthening the law was part of program conditionality and involved close engagement with authorities, primarily through technical assistance.

### Financial reporting, internal audit, and system of internal control
- Financial reporting:
  - 55 percent of assessed banks in the current review period apply International Financial Reporting Standards (IFRS).
  - Over 70 percent of central banks that apply IFRS have low or medium-low risk ratings.
  - Central banks that have not yet fully adopted IFRS have an incidence of high or medium-high risk ratings of over 70 percent.
  - Nearly all central banks continue to publish audited financial statements, some with delays.
- Internal audit:
  - Weaknesses primarily due to limited capacity and resources: low staffing levels, lack of professional certifications, limited training, and lack of IT audit expertise observed at 35 central banks.
  - Lack of independence of the internal audit function seen at 29 central banks; of these 29, 14 were either first-time assessments or had not been assessed in a long time.
  - Four central banks did not have an internal audit function.
  - Consequences: internal audit charters not in compliance with international standards; involvement in operational activities causing conflict of interest; weak organizational positioning undermining mandate fulfillment.
- System of internal controls (governance, risk management, lending operations, program monetary data):
  - Governance vulnerabilities in about a third of assessments: boards not fully constituted or lacking independence; absence of an audit committee in ten central banks; lack of expertise among audit committee members in 18 central banks; conflict of interest issues in audit committee composition in 11 central banks.
  - Risk management: 70 percent of central banks assessed are in the early stages of building a risk management function (informal or developing); nearly half were in the developing stage.
  - Lending operations: weaknesses noted in almost half of assessments; higher risks where no operationalized ELA framework, weak collateral frameworks, or quasi-fiscal lending/monetary financing occurred.
  - Program monetary data: lack of formalized procedures for data compilation in 23 central banks; need for alignment with Technical Memorandum of Understanding definitions in 10 central banks; recommendation for additional assurances via internal or external audits in about a third of central banks.

### Implementation and impact of recommendations
- Implementation context:
  - Implementation rate slightly deteriorated in the current period, largely attributable to COVID-19 impacts from early-2020.
  - Pandemic effects included resource rechanneling to critical operations and limited office presence that slowed implementation.
  - About a third of central banks (23 banks) assessed had emergency financing not followed by a Fund program, reducing traction on implementation.
- Implementation rates:
  - Overall implementation rate: 69 percent in the current review period (prior period: 72 percent).
  - Implementation rate for recommendations under program conditionality: 82 percent in the current review period.
- Impact on risk ratings:
  - Central banks undergoing more than one assessment generally improved average risk ratings over time across regions, except the Western Hemisphere (WHD).
  - Region-specific improvements: Middle East and Central Asia (MCD) saw the biggest improvement; Asia-Pacific (APD) improved; Europe showed some improvement and retained the lowest risk rating.
  - Aggregation method: each ELRIC pillar risk-rating transposed to a number from one to four; composite average yields aggregated scoring where 1 = average of “low” ratings and 4 = average of “high” ratings.

### Misreporting and misuse experience
- Few misreporting cases on monetary data or misuse identified since 2010.
- Period September 2015–April 2022: one possible misreporting case identified in connection with inaccurate reporting of net international reserves; a special audit of foreign reserves was conducted by an international audit firm to establish extent of misreporting.
- No observed cases of direct misuse of Fund resources.
- Practice: ex-ante safeguards work fosters inter-departmental discussion and clarifies data components and TMO definitions; where additional assurances are needed, staff recommend internal audit involvement and, where warranted, external audit verification; safeguards staff assist in formulating terms of reference for special audits and forensic investigations.

### Panel conclusions and staff assessment
- Panel concludes the safeguards policy continues to be effective.
- Panel notes addition of fiscal safeguards reviews enhances Fund’s ability to safeguard resources and recommended refinements to safeguards modalities; staff broadly agrees and incorporated these in proposals.
- Staff considers the safeguards framework appropriate but proposes necessary refinements, including:
  - Establishing a stand-alone governance pillar in the safeguards framework to facilitate deeper engagement with central banks on governance (expanding ELRIC to GELRIC).
  - Enhancements to the modalities for FSRs introduced in the 2015 policy review.
  - Continued refinements to evaluation of central banks’ risk management functions and issuance considerations for central bank digital currencies (CBDCs).
  - Strengthened outreach to central banks.
  - Proposal that cases requesting access to Resilience and Sustainability Trust (RST) resources through a concurrent program under previously non-financing instruments (PCI and PSI) be subject to a mandatory safeguards assessment, similar to other Fund financing arrangements.
  - The Food Shock Window introduced in 2022 is subject to the timing and modalities of safeguards assessments for members with financing under the RFI and RCF.

### GELRIC framework (proposal)
- GELRIC expands ELRIC by adding Governance Arrangements as a stand-alone pillar, yielding six pillars:
  - (i) Governance arrangements;
  - (ii) External audit mechanism;
  - (iii) Legal structure and autonomy;
  - (iv) Financial reporting framework;
  - (v) Internal audit mechanism;
  - (vi) Internal controls system.
- Governance Arrangements pillar scope and objectives:
  - Practices and procedures for oversight board, audit committee, and senior executive team.
  - Key attributes: discipline; transparency; exercise of autonomy in practice; accountability; governance culture; responsibility.
  - Objective: ensure key bodies establish appropriate structures and systems to ensure close oversight and compliance, in practice, with the legal mandate of the central bank.
- External audit, Legal structure and autonomy, Financial reporting, Internal audit, and System of internal controls pillars retain the objectives and scopes described under ELRIC, with emphasis on international standards (e.g., ISA, IFRS, International Standards for the Professional Practice of Internal Auditing).

### Emerging topics: governance deepening, financial risk management, CBDCs
- Governance:
  - Proposal to establish the standalone governance pillar to allow deeper and more consistent analysis of governance structures, processes, and best practices; would not imply increased resource demands other than initial near-term staff investment to develop new procedures and internal guidelines.
  - Focus on de facto (non-legal) issues, Board effectiveness, governance culture, split of responsibilities, and oversight cascading into operations.
- Financial risk management:
  - Many central banks remain in beginning stages; assessments identify needs to strengthen staff technical capacity, management and board oversight, separation of risk management from internal audit, and processes such as risk registers, reporting and monitoring.
  - Recommendation: financial risk management should cover the whole balance sheet, including domestic operations and ELA, tailored to central bank capacity and maturity.
  - A maturity assessment tool was developed; assessments will more explicitly report stage of maturity.
- Central Bank Digital Currencies (CBDCs):
  - CBDCs definition and status: a claim on the central bank; countries at varying stages including issuance by The Bahamas, Jamaica, Nigeria, and the Eastern Caribbean Currency Union; some 15 countries in the pilot stage.
  - Risks identified for issuers: over-reliance on vendors/consultants; lack of dedicated risk management and project management; customized software integration issues; weak Board-level oversight; absence of cybersecurity frameworks.
  - Assessments will continue to review CBDC-related activities through GELRIC; staff proposes development of internal methodologies for consistency across safeguards teams, taking account of key principles in Annex III.

### Fiscal Safeguards Reviews (FSRs): scope, experience, and proposed strengthening
- FSRs are high-level reviews of state treasury operations covering broad aspects of Public Financial Management (PFM) processes; required for IMF lending arrangements with exceptional access and at least 25 percent of funds directed toward financing of the state budget.
- LETIFA framework underpins FSR scope: (i) Legal framework for budgetary appropriations; (ii) Government banking arrangements through the Treasury; (iii) Internal controls of public expenditure; (iv) Reporting of Financial data; (v) Independent Audit of government financial statements.
- Experience since 2015:
  - Four FSRs have been conducted since the 2015 policy review (Argentina, Egypt, Ecuador noted).
  - In 2015–21, GRA financing represented 88 percent of amounts drawn for budget support.
  - The four FSRs conducted covered about 81 percent of GRA resources, excluding emergency financing.
  - Since the 2015 review, seven countries had arrangements with exceptional access, of which three used actual budget financing and underwent FSRs; only three countries—Argentina, Ecuador, and Egypt—used exceptional access with at least 25 percent of Fund resources channeled to budget financing.
  - Two FSRs conducted during the pandemic each lasted three to four weeks, mobilizing 6-9 staff.
- Proposed enhancements to FSR modality and process:
  - Adopt standalone FSRs with in-person or hybrid engagement as the expected modality.
  - Strengthen review process with management approval of FSR mission briefing memos and reports.
  - Implement a formal follow-up mechanism by staff on implementation status of recommendations, with discussion in country staff reports.
  - Develop internal operational guidelines covering FSR scope, process, and monitoring framework.
  - Consider only PFM diagnostics no more than three years old for reliance.
- Threshold and HCCE interpretation:
  - Staff proposes that FSRs be required for any HCCE case with at least 25 percent of the resources directed to budget financing.
  - Benin had HCCE with at least 25 percent directed to budget financing and underwent an FSR voluntarily.
- Monitoring and confidentiality:
  - FSR reports should remain confidential, with management approval and follow-up similar to central bank safeguards assessments.

### Proposals, resource implications, and items for Board discussion
- Key proposals:
  - Establish a standalone governance pillar (GELRIC).
  - Emphasize broader coverage of financial risk management across the whole balance sheet.
  - Continue GELRIC-based review of CBDC activities and develop internal methodologies for consistency.
  - Strengthen FSR conduct: standalone in-person/hybrid reviews, management approval of reports, formal follow-up, internal operational guidelines.
  - Mandatory safeguards assessment where members seek access to RST resources through a concurrent PCI or PSI.
  - Proposed exceptional event clause to relax normal deadlines during global crises (proposal not adopted by the Board).
  - Strengthen outreach offering 1-2 events a year with geographic coverage at least once every two to three years; cost estimates US$55k per event assuming host central bank or regional training center.
- Resource implications:
  - Near-term transitional estimate: additional 2-3 FTEs to develop internal guidelines, enhance assessment approaches (governance, financial risk management, CBDCs), broaden outreach, and develop operational guidelines.
  - Structural resource needs related to new lending facilities through the RST to be considered in budget discussions as demand becomes clearer.
  - FSRs require more substantial resources than initially envisioned as low marginal cost exercises.
- Issues for Board discussion include:
  - Appropriateness and effectiveness of safeguards assessments policy in mitigating misreporting and misuse risks.
  - Proposals for a standalone governance pillar, broader financial risk coverage, and CBDC coverage in assessments.
  - Enhancements to FSRs and whether HCCE cases with significant budget financing should trigger FSRs.
  - Mandatory safeguards assessment for concurrent PCI/PSI access to RST financing.
  - Proposals to relax deadlines for completion of safeguards assessments during global crises.
  - Proposals to strengthen outreach with member countries.

*Source: SAFE GUARDS ASSESSMENTS: REVIEW OF EXPERIENCE — Executive Summary and excerpted sections (pp. ppea2022058).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Purpose and scope
- Reviews experience with the safeguards assessments policy since the last review in 2015.
- Policy objective: mitigate risks of misuse of Fund resources and misreporting of monetary data under Fund arrangements.
- External panel of experts provided an independent perspective and reviewed confidential safeguards assessment reports.
- Review period covers September 2015 to April 2022; panel report circulated concurrently. Chair of the panel will attend the Board discussion.
- Review was delayed from 2020 due to prioritization of COVID-19 pandemic work.

### Review process and stakeholder engagement
- Finance Department (FIN) staff led the assessments, coordinating closely with Legal Department (LEG); FAD leads on fiscal safeguards reviews (FSRs) jointly with FIN and LEG.
- Wide consultations: area and functional departments, central banks (video conference calls during the pandemic, and headquarters visits when travel restrictions eased), Executive Directors, and staff.
- Panel comprised central bankers and was able to engage virtually and in-person, and sought views of Executive Directors and staff from area and functional departments.

### Key activity and workload statistics
- Since the 2015 policy review through end-April 2022:
  - 91 assessments completed representing 66 central banks.
  - 16 assessments were in progress at end-April 2022.
  - Activity in current review period slightly higher than previous review period, which had 83 assessments of 57 central banks.
  - In total, 102 central banks have been assessed since inception of the policy.
  - Nearly half of the total assessments during the current review period (i.e., 42 assessments) were conducted in the two-year period to end-April 2022.
  - The current review period had 12 first-time assessments, compared to 15 first-time assessments during the 2015 review period.
- Streamlining measures introduced in 2015 discontinued update assessments for augmentations of existing arrangements and in specific circumstances for successor arrangements.

### Main findings on central bank safeguards
- Risk profile of central banks assessed during the current period deteriorated compared to the prior review period, in part reflecting the revolving nature of Fund lending and the high demand for emergency financing during the COVID-19 pandemic.
- Common vulnerabilities:
  - Weaknesses in governance arrangements.
  - Capacity constraints in risk management functions affecting internal control environments.
- Areas with relative sustained good practices:
  - External audit arrangements.
  - Financial reporting.

### Panel conclusions
- The panel concludes that the safeguards policy continues to be effective.
- The panel notes that the addition of fiscal safeguards reviews enhances the Fund’s ability to safeguard resources.
- The panel recommended refinements to safeguards modalities; staff broadly agrees and incorporated these in proposals.

### Staff assessment and proposed refinements
- Staff considers the safeguards framework to continue to be appropriate but identifies necessary refinements, including:
  - Establishing a stand-alone governance pillar in the safeguards framework to facilitate deeper engagement with central banks on governance.
  - Enhancements to the modalities for fiscal safeguards reviews introduced in the 2015 policy review.
  - Continued refinements to evaluation of central banks’ risk management functions and issuance considerations for central bank digital currencies (CBDCs).
  - Strengthened outreach to central banks.
- Staff proposes that cases requesting access to Resilience and Sustainability Trust (RST) resources through a concurrent program under previously non-financing instruments (PCI and PSI) be subject to a mandatory safeguards assessment, similar to other Fund financing arrangements.
- The Food Shock Window introduced in 2022 is subject to the timing and modalities of safeguards assessments for members with financing under the RFI and RCF.

### Role and nature of safeguards assessments
- Safeguards assessments are diagnostic, high-level reviews (not audits) covering five key areas (ELRIC): External audit mechanism; Legal structure and autonomy; Financial reporting framework; Internal audit mechanism; Internal controls system.
- Proposed GELRIC framework adds a standalone Governance arrangements pillar, yielding GELRIC: (i) Governance arrangements; (ii) External audit mechanism; (iii) Legal structure and autonomy; (iv) Financial reporting framework; (v) Internal audit mechanism; (vi) Internal controls system.
- Main output: confidential report with time-bound recommendations; Executive Director receives a copy; Board is informed of main findings in summary form in country reports.
- Safeguards recommendations may lead to technical assistance; implementation is monitored closely by staff.
- FSRs: high-level reviews of state treasury operations in exceptional access cases involving at least 25 percent of resources directed to budget financing.

### Lessons from the pandemic and operational implications
- The pandemic precipitated unprecedented demand for emergency financing and a large pipeline of safeguards assessments.
- The panel began work virtually and adapted engagement modalities during travel restrictions; later visits to headquarters resumed when feasible.
- Lessons learned informed proposals for outreach, monitoring, and modality refinements for FSRs and other assessment procedures.

*Source: SAFE GUARDS ASSESSMENTS: REVIEW OF EXPERIENCE — Executive Summary (November 7, 2022).*

### 7.      The geographic distribution of assessments is largely unchanged except for two main

### 7.      The geographic distribution of assessments is largely unchanged except for two main

### Regional distribution of assessments
- Africa (AFR) represents the largest number of assessments completed: 37 percent.
- Asia Pacific (APD) proportion: 10 percent.
- Middle East and Central Asia (MCD) proportion: 21 percent.
- Western Hemisphere (WHD) proportion more than doubled to 21 percent in the current review period, reflecting a shift from Europe (EUR), which represented only 11 percent (about half of the proportion in the 2010–15 period).
- Changes in regional distribution affected the overall safeguards risk profile.

- Policy Review Period 2010–15 (regional counts and shares shown):
  - AFR: 28, 34%
  - APD: 8, 9%
  - EUR: 19, 23%
  - MCD: 20, 24%
  - WHD: 8, 10%

- Policy Review Period 2015–22 (regional counts and shares shown):
  - AFR: 34, 37%
  - APD: 9, 10%
  - EUR: 10, 11%
  - MCD: 19, 21%
  - WHD: 19, 21%

### Streamlining measures and assessment volume
- The 2015 streamlining measures resulted in a 25 percent reduction in assessments in the current review period.
- Under the streamlining measures:
  - 31 fewer assessments were yielded in connection with:
    - 17 augmentations,
    - 13 successor arrangements that met the time-based criteria,
    - and one on account of a strong track record.
- Comparable total number of assessments under previous framework would have been 122 assessments; the reduction represents 25 percent.
- Limited safeguards procedures for nine FCL arrangements were performed during 2015–22 (12 during 2010–15).
- Streamlining criteria included:
  - (i) time-based criteria if a prior assessment was conducted recently, i.e., within 18-months; or alternatively
  - (ii) if the central bank has a strong track record and the previous assessment was completed within the past four years, and no substantial issues were identified in the prior assessment or subsequent monitoring.

### Monitoring activity and capacity
- Monitoring is the second main activity of safeguards work; central banks undergoing a safeguards assessment are monitored until Fund credit is fully repaid.
- Number of central banks under safeguards monitoring:
  - increased by some 22 percent to 82 at end-April 2022 compared to 67 at end-August 2015.
  - peaked in 2021 with 84 central banks being monitored.
- Monitoring missions conducted during the current period: 12 (three in the prior period).
- Monitoring missions were mainly prompted by:
  - need to resolve long outstanding recommendations,
  - emergence of new safeguards vulnerabilities,
  - to support area departments in technical discussions on safeguards-related program conditionality.

### Analytical work, outreach, and collaboration
- Staff published three working papers and presented on safeguards experience as part of the IMF Analytical Corner series.
- Staff contributed to two regional publications on central bank governance.
- The Fund joined the International Operational Risk Working Group (IORWG) in 2018; the IORWG comprises 85 central banks and monetary and supervisory authorities and the Bank for International Settlements.
- Outreach activities during the review period included:
  - High-level governance forums: six such events since 2013, four during this period in 2020, 2019, 2018, and 2016.
  - Regional safeguards seminars: twelve seminars held during the current review period in Kuwait (four), Austria (three), Singapore (two), Mauritius, South Africa, and Barbados. Two virtual safeguards seminars were held in late-2021 (Kuwait center) and early-2022 (Mauritius center).
  - Collaboration with the World Bank: staff coordinated with and contributed to six internal audit and accounting workshops organized by the World Bank’s Reserve Advisory & Management Partnership (RAMP) during 2018-21.
- Staff provided advisory input including drafting terms of reference and reviewing results for special audits:
  - three special audits of foreign exchange reserve positions;
  - two forensic audits in connection with allegations of misappropriation of banknotes and foreign exchange, and an asset recovery process of a large commercial bank;
  - two special audits associated with undisclosed loans in a program context, and foreign exchange transactions between the central bank and quasi government agencies;
  - special audits of state-owned enterprises.
- Participation in IMF Central Bank Transparency Code (CBT) reviews:
  - Since adoption in July 2020, seven CBT pilot review missions have been completed.

### Lessons learned and resource implications from the pandemic
- The pandemic emergency financing created an unprecedented pipeline of safeguards assessments (some 55 assessments), largely completed by the time of reporting.
- Staff overtime during the pandemic averaged over 15 percent, ranging from 7 to 25 percent.
- Temporary and structural resources were reallocated, increasing total FTEs by six (three temporary and three structural staff) for a total staff complement of 20 as of end-December 2021. In mid-2022, the three temporary staff assignments lapsed.
- Despite adaptation to virtual engagements, sustained high demand was a challenge; remote missions retained elements such as advance questionnaires and occasional hybrid missions.
- Staff proposal for future exceptional circumstances:
  - introduce an exceptional circumstance clause to relax deadlines for safeguards assessments during global crises,
  - proposed relaxations: completion by the second review for lending arrangements (instead of by the first review), and by the first review of a subsequent new arrangement in emergency financing cases (instead of by Board approval of a subsequent new arrangement),
  - estimated additional time: three to six months, depending on the frequency of program reviews,
  - such relaxation would be in addition to necessary reallocation of staff resources.

### Trends in safeguards assessment findings
- Overall risk profile:
  - Compared to prior review periods, the risk profile of central banks assessed during the current period has deteriorated.
  - In each ELRIC category, the high and medium-high risk ratings increased by 11 to 18 percentage points when comparing the last two review periods.
  - Over half (62 percent) of the central banks in the current review period were either first-time assessments (12 central banks) or had not been assessed for a prolonged period (29 central banks).
  - Of the remaining 25 central banks subject to update assessments, almost two-thirds (16 central banks) had persisting acute capacity constraints or significant governance vulnerabilities.

- External audit pillar:
  - In the current review period, 65 percent of assessments have a low or medium-low risk rating in the external audit pillar.
  - About a third of assessments found heightened risks in external audit arrangements.
  - Identified vulnerabilities included audit quality issues (e.g., lack of either quality control review or relevant technical experience in the audit teams), delays in completion of audits, and weak auditors’ selection and rotation policies.
  - The shift toward higher external audit risk was driven by central banks that either had not been subject to safeguards assessments for a prolonged period or were being assessed for the first time; such cases comprise 50 percent of banks assigned a High or Medium-High risk rating for their external audit mechanism during the period.

- Legal structure and autonomy:
  - Strengthening legislation continues to be a challenge; 70 percent of assessments (52 central banks) during the current review period had recommendations for comprehensive amendments to the central bank laws.
  - Over 50 percent of these central banks have advanced the safeguards recommendations with either draft amendments submitted to Cabinet or Parliament having enacted an amended law.
  - In almost 60 percent of cases, strengthening the law was part of program conditionality and involved close engagement with the authorities, primarily through technical assistance.
  - Some assessments found relatively strong legal frameworks but weak compliance in practice, indicating further work is needed to ensure implementation.

*Source: FINSA database and text from the provided content unit.*

### 22.      Financial reporting. Adoption of

### 22.      Financial reporting. Adoption of

### Financial reporting: adoption and risk correlation
- 55 percent of assessed banks in the current review period apply International Financial Reporting Standards (IFRS).
- Staff’s experience: central banks that apply IFRS have a much lower incidence of significant vulnerabilities.
  - Over 70 percent of such central banks have low or medium-low risk ratings.
  - Central banks that have not yet fully adopted IFRS have an incidence of high or medium-high risk ratings of over 70 percent.
- Primary drivers of higher risk where IFRS not adopted:
  - Lack of transparency and consistency in financial reporting.
  - Delays in, or lack of, publication of audited financial statements (although nearly all central banks continue to publish audited financial statements, some with delays).

### Internal audit: capacity, independence, and deficiencies
- Key findings:
  - Weaknesses primarily due to limited capacity and resources: low staffing levels, lack of professional certifications, limited training, and lack of IT audit expertise.
  - These attributes were observed at 35 central banks.
  - Lack of independence of the internal audit function (limited or no functional reporting to the central bank Board) was seen at 29 central banks.
    - Of these 29, 14 were either first-time assessments or had not been assessed in a long time.
  - In addition, four central banks did not have an internal audit function.
- Consequences of weaknesses:
  - Internal audit charters not in compliance with international standards.
  - Involvement in operational activities that raise conflict of interest issues.
  - Weak organizational positioning undermining the function’s ability to fulfill its mandate.
- Recommendations/observations:
  - Access to training and professional certification requires strong senior management sponsorship and yields results only in the medium-term.

### System of Internal Control (ELRIC/GELRIC focus)
- Purpose: assess governance practices, policies, and procedures to safeguard assets and manage risks, focusing on governance arrangements, risk management maturity, lending operations (including ELA), and compilation of program monetary data.

- Governance
  - Focus areas: clear delineation of responsibilities among the board (with a majority of non-executive members), senior management, and sub-committees (e.g., audit committee); appropriate checks and balances and independent oversight.
  - Vulnerabilities:
    - Governance-related risks present in about a third of assessments.
    - Boards not fully constituted or lacking independence (majority executives).
    - Absence of an audit committee in ten central banks.
    - Limited oversight due to lack of expertise among audit committee members in 18 central banks.
    - Conflict of interest issues in audit committee composition owing to presence of executives or government officials in 11 central banks.
  - Staff plans: proposals to strengthen work on governance (see Section V in source).

- Risk management
  - Findings:
    - Scarcity of technical skills is a major constraint.
    - A maturity assessment tool was developed to benchmark risk management practices.
    - 70 percent of central banks assessed during the current review period are in the early stages of building a risk management function (informal or developing).
    - Nearly half of central banks were in the developing stage (approach/initiation documents established but not fully operationalized).
  - Observed focus: most central banks have an operational approach to financial risks centered around foreign reserves management.

- Lending operations
  - Weaknesses noted in almost half of the assessments.
  - Higher risks where:
    - No established or operationalized framework for ELA.
    - Weak collateral frameworks.
    - Engagement in quasi-fiscal lending activities or monetary financing (lending to government).
  - Notable instances:
    - Where legal frameworks did not safeguard financial autonomy, significant monetary financing impacted financial position.
    - Two cases where central banks used their own resources to legitimize/reform the mining sector, exposing them to financial and reputational risks and jeopardizing autonomy.
    - Emergence of quasi-fiscal lending particularly during the pandemic: unsecured lending to select sectors or state owned enterprises at concessional rates.

- Program monetary data
  - Shortcomings identified early, generally not leading to misreporting.
  - Specific issues:
    - Lack of formalized procedures for data compilation in 23 central banks.
    - Need for alignment with Technical Memorandum of Understanding definitions in 10 central banks.
  - Recommendation: additional assurances over program monetary data reported to the Fund through reviews by internal audit or external auditors in about a third of central banks.

### Implementation of safeguards recommendations
- Context:
  - Implementation rate slightly deteriorated in the current period, largely attributable to COVID-19 impacts from early-2020.
  - Pandemic effects:
    - Central banks rechanneled resources to critical operations.
    - Limited office presence slowed implementation.
    - Staff prioritized conducting safeguards assessments over following up on recommendations amid high demand for emergency financing; broader follow-up re-integrated from mid-2021.
  - About a third of central banks (23 banks) assessed had emergency financing not followed by a Fund program, reducing traction on implementation.
- Implementation rates (current review period vs prior):
  - Overall implementation rate: 69 percent in the current review period (prior period: 72 percent).
  - Implementation rate for recommendations under program conditionality: 82 percent in the current review period.

### Impact of safeguards assessments on risk ratings
- Trend:
  - Central banks that underwent more than one assessment generally improved average risk ratings over time across regions, except the Western Hemisphere (WHD).
  - Region-specific notes:
    - WHD deterioration partly explained by limited IMF lending to Latin America since early 2000s; first-time or long-gap assessments tend to identify significant vulnerabilities.
    - Middle East and Central Asia (MCD) region saw the biggest improvement.
    - Asia-Pacific (APD) also improved.
    - Europe showed some improvement and retained the lowest risk rating.

- Aggregation method:
  - Each ELRIC pillar risk-rating transposed to a number from one to four; composite average yields aggregated scoring where 1 = average of “low” ratings and 4 = average of “high” ratings.
  - A subsequent lower score signifies a shift toward risk ratings of low or medium-low (scores of 1 and 2).

### Misreporting and misuse
- Role of safeguards: key element in mitigating risks of misreporting and misuse of Fund resources, and in maintaining the Fund’s reputation as a prudent lender.
- Experience:
  - Few misreporting cases on monetary data or misuse have been identified since 2010.
  - Period September 2015–April 2022: one possible misreporting case identified in connection with inaccurate reporting of net international reserves.
    - Follow-up: a special audit of foreign reserves was conducted by an international audit firm to establish the extent of misreporting.
  - No observed cases of direct misuse of Fund resources.
- Practice:
  - Ex-ante safeguards work fosters inter-departmental discussion and clarifies data components and definitions in the Technical Memorandum of Understanding to avoid potential errors.
  - Where additional assurances are needed, staff recommend involvement of internal audit and, where warranted, an external audit verification; safeguards staff assist in formulating terms of reference for special audits and forensic investigations.

### Emerging issues: Governance and framework evolution
- Observations:
  - 2010 and 2015 policy reviews endorsed increased emphasis on governance; assessments expanded coverage of governance arrangements including roles/responsibilities of the central bank board, audit committee, and executive management.
  - Many central banks continue to face de facto governance challenges despite legal reforms.
  - Current coverage of governance is fragmented across ELRIC pillars; cases exist where legal frameworks are sound but non-compliance or poor governance practices persist.
  - Increasing legal reforms (paragraph 20) call for greater attention to implementation and compliance.
- Proposal:
  - Establish a standalone governance pillar in the safeguards framework to allow deeper and more consistent analysis of governance structures, processes, and best practices.
  - This would expand the ELRIC framework to GELRIC.
    - GELRIC stands for: (i) Governance arrangements; (ii) the External audit mechanism; (iii) the Legal structure and autonomy; (iv) the financial Reporting framework; (v) the Internal audit mechanism; and (vi) the internal Controls system.
  - Focus of the governance pillar: de facto (non-legal) issues, broader coverage/discussion of good governance practices for oversight functions, evaluation of split of responsibilities among decision-making bodies, Board effectiveness, and governance culture.
  - Resource implications: addition of pillar would not imply increased resource demands other than initial near-term staff investment to develop new procedures and internal guidelines for the new pillar.

*Source: ppea2022058 - 22.      Financial reporting. Adoption of*

### 33.      The panel’s report enumerates areas that could be considered for the enhanced

### The panel’s report enumerates areas that could be considered for the enhanced coverage of governance practices

### Governance coverage and board effectiveness
- Existing safeguards work already covers: the legal framework; the board’s composition, independence, roles and responsibilities, including oversight; collegiality in the executive management team’s decision making; and delineation of responsibilities among the decision-making bodies.
- Key change: broader coverage in discussions with the authorities and in the safeguards assessment report, including on how oversight cascades into various central bank operations.37
- New frontiers to be developed:
  - Deeper coverage of the board’s effectiveness and their governance culture.36
  - Deeper engagement on modalities and “tone at the top”.
- Rationale:
  - These issues are particularly relevant in current financial conditions where central banks are likely to experience increased political pressure from governments.
  - A strong and professional central bank board that can withstand such pressure and help sustain central bank independence is of critical importance.

### Financial Risk Management
- Status and challenges:
  - Many central banks continue to broadly remain in the beginning stages of risk management.
  - Risk management remains a relatively underdeveloped area in many central banks.
  - Assessments identified needs to strengthen: staff technical capacity; oversight at both the management and board level; separation of risk management from internal audits in some cases; and risk management processes such as establishing risk registers, reporting and monitoring.
  - Progression of capacity in risk management typically takes time and is a medium-term process.
- Scope and gaps:
  - Assessments cover a wide range of risks including operational risk, cybersecurity, and business continuity.
  - Even central banks that have embraced wider risk management functions primarily focus on monitoring non-financial risks, while financial risk management is largely narrowly focused on foreign reserve operations.
- Leading practice and recommendations:
  - Financial risk management should cover the whole balance sheet to identify and monitor emerging risks, including those associated with domestic operations such as open market operations or emergency liquidity assistance.
  - Broader coverage beyond foreign reserve management can yield benefits through wider ex-ante identification of emerging risks in central banks with more advanced risk management functions.
  - Safeguards assessments have started to engage central banks on these issues, particularly where a central bank is deemed to have sufficient capacity.
  - Central banks need to continue to broaden their coverage of risk management.

### Central Bank Digital Currencies (CBDCs)
- Definition and status:
  - CBDCs are a digital form of a country’s fiat currency that is also a claim on the central bank.38
  - Countries are at varying stages: research, pilots, development, and issuance.
  - Countries that have launched issuances of CBDCs are The Bahamas, Jamaica, Nigeria, and the Eastern Caribbean Currency Union.39
  - There are some 15 countries in the pilot stage, albeit at different stages of readiness.40
- Objectives of issuing CBDCs:
  - (i) promoting financial inclusion for unbanked and underbanked populations;
  - (ii) introducing competition, leading to better access to money;
  - (iii) increasing efficiency and resilience in payment systems and lowering transaction costs;
  - (iv) improving transparency in money flows, suppressing money laundering or other illicit activities that are arguably more easily perpetrated with cash.
  - These objectives align with the Fund’s Bali Fintech Agenda (October 2018).
  - Central banks exploring or issuing CBDCs are investing considerable resources (staff, time, and capital expenditure).
- Safeguards assessment findings for issuers:
  - Risks identified were technical, operational and governance in nature:
    - Significant over-reliance on vendors and external consultants.
    - Lack of dedicated risk management for the project.
    - Absence of a comprehensive project management plan.
    - Highly customized software and platforms that may not easily integrate with existing accounting and operating systems.
    - Weak independent oversight at the Board level, including insufficient information flow partly due to limited staff technical expertise.
    - Absence of a cybersecurity framework that monitors emerging risks.
  - Recommendations provided: strengthen oversight, expand cybersecurity frameworks, and enhance project management.
- Ongoing assessment approach:
  - Assessments will continue to review CBDC-related activities through the prism of the GELRIC framework.
  - Relevant aspects to be examined include:
    - (i) review of staff capacity and the project management process in the pilot and issuance phases;
    - (ii) risk management considerations to identify and mitigate new and emerging risks;
    - (iii) implications on operational risks and central bank finances (seigniorage income changes) owing to the changes in the cash currency management operations as (retail) CBDCs are rolled out;
    - (iii) the governance arrangements, and reporting mechanisms, on the end-to-end processes for the CBDC project.
  - Without proper safeguards, exposure to additional risks could lead to financial losses with implications for the misuse of Fund resources and misreporting of information to the IMF.

### Fiscal Safeguards Reviews (FSRs) — Background
- Purpose:
  - FSRs are a high-level review of state treasury operations covering broad aspects of Public Financial Management (PFM) processes.
  - FSRs evaluate the design of institutional safeguards at the state treasury and aim to provide assurances on the proper use of IMF resources in cases where these are directed for budget financing.
- Applicability:
  - FSRs are required for all IMF lending arrangements with:
    - (i) exceptional access; and
    - (ii) a significant proportion, i.e., at least 25 percent, of the funds directed toward financing of the state budget.
- Framework:
  - The scope of FSRs is based on the LETIFA framework, which encompasses the Public Financial Management legal framework for budgetary appropriations, treasury functions, internal controls, financial reporting, and independent audits.41
  - LETIFA stands for (i) Legal framework for budgetary appropriations; (ii) Government banking arrangements through the Treasury; (iii) Internal controls of public expenditure; (iv) Reporting of Financial data; and (v) Independent Audit of government financial statements.
- Evolution:
  - FSRs were adopted as part of the safeguards assessments policy following the 2015 policy review.
  - Four FSRs have been conducted since the 2015 policy review (Argentina, Egypt, Ecuador noted among arrangements meeting the FSR criteria).41

### Fiscal Safeguards Reviews — Lessons Learned and proposed strengthening
- General assessment:
  - The LETIFA framework remains appropriate but requires refinements; the standardized questionnaire guiding scope will be modified and tailored to facilitate a deeper risk-based analysis.
- Proposed enhancements:
  - Interdepartmental coordination:
    - All FSRs have been led by FAD in a multi-department effort with participation from FIN and LEG staff, drawing on enriched expertise.
  - Stand-alone reviews:
    - All reviews to date included a stand-alone in-person (or virtual during the pandemic) engagement component rather than a high-level desk review.42
    - Stand-alone reviews permit due diligence on information quality and verification of actual practices; in-person engagement was necessary to appreciate actual practices.
    - Staff will continue to consider ex ante country knowledge to determine interaction level; virtual missions were used when travel restrictions applied.
  - Review process of FSR reports:
    - Currently, FSR reports do not require management approval within the Fund, although management and the Executive Board are informed of key findings and recommendations in country staff reports.
    - Staff suggests aligning the FSR report process with that of central bank safeguards assessment reports and mission briefing memos, which go through management approval.
    - FSR reports should remain confidential, as with central bank safeguards assessments.
  - Monitoring mechanism:
    - Currently, there is no clear monitoring framework to follow up on FSR recommendations unless included in program conditionality.
    - Going forward, implementation status of recommendations should be followed up by staff and discussed in country staff reports.
    - A more systematic approach could increase compliance, including through more systematic inclusion of key findings in program conditionality and by designing tailored TA to support authorities.
  - Operational guidelines:
    - Develop internal operational guidelines covering FSR scope (informed by the questionnaire), the review process, and the monitoring framework, to ensure a consistent agreed approach across FSR participants.
- Note on timing of PFM diagnostics used:
  - At the 2015 policy review, a stand-alone review was envisaged only if there had been no recent PFM assessments (in the past six years). Staff now proposes to only consider assessments that are no more than three years old to ensure the relevance of information.43

### Threshold for Fiscal Safeguards Reviews
- Risk-based threshold:
  - The threshold for FSRs is risk-based and examined with respect to FSR coverage of budget support disbursements since 2015.
- Experience since 2015:
  - Since the 2015 review, seven countries have had arrangements with exceptional access, of which three used actual budget financing and underwent FSRs.
  - Only three countries—Argentina, Ecuador, and Egypt—used exceptional access with at least 25 percent of Fund resources channeled to budget financing.
  - The other countries had no budget financing (Ethiopia, Panama, and Somalia) or exceptional access (Chad) and were therefore not subject to FSRs.44
- Specific note:
  - Chad’s arrangement (2020 ECF/EFF) was initially for exceptional access, but subsequently moved to normal access at the first review, and thus did not require an FSR.44

*SAFEGUARDS ASSESSMENTS: REVIEW OF EXPERIENCE — excerpted content unit*

### 46.      The FSRs conducted covered a significant portion of the Fund resources provided for

### 46.      The FSRs conducted covered a significant portion of the Fund resources provided for

### Coverage and empirical findings
- In the period 2015–21, GRA financing represented 88 percent of amounts drawn for budget support.
- Almost all (97 percent) of the emergency financing in the 2015–22 period was provided in connection with the COVID-19 pandemic.
- The four FSRs conducted covered about 81 percent of GRA resources, excluding emergency financing, i.e., SBA, EFF, or PLL resources channeled to budget financing.
- From a big picture perspective, budget financing from the GRA accounts for around 70 percent of total budget financing, and emergency financing represents about 25 percent.
- Prior to the pandemic temporary increases, the access limits under the regular window of the RFI and under the RCF’s exogenous shock window were up to 100 percent of quota.
- Emergency financing does not give rise to an FSR unless obtained in the context of prior exceptional access that on a cumulative basis exceeds the exceptional access threshold.
- Since the HCCE policy was adopted, Benin is the only country that had HCCE with at least 25 percent directed to budget financing; Benin decided to undergo an FSR on a voluntary basis.
- Two of the FSRs conducted during the pandemic each lasted three to four weeks, mobilizing 6-9 staff.

### Policy interpretation and proposal on HCCE and FSRs
- The HCCE policy adopted in 2020 raised questions on the applicability of FSRs because prior EA thresholds were separate for GRA and PRGT.
- Under existing practice, a GRA EA with more than 25 percent of budget financing would require a FSR, but HCCE safeguards did not explicitly consider whether a high combined credit exposure case with significant budget financing would trigger a FSR.
- Staff proposes that FSRs be required for any HCCE case with at least 25 percent of the resources directed to budget financing.
  - Rationale: HCCE safeguards intend to mitigate financial risks to the PRGT and the GRA; requiring an FSR for any HCCE with at least 25 percent directed to budget funding would be consistent with the objective to safeguard Fund resources in cases with significant budget support.
- The HCCE does not apply to financing under RSF arrangements.

### Proposals for enhancements to the safeguards framework and FSR modality
- New governance pillar:
  - Staff proposes establishment of a new pillar on governance in the safeguards framework to facilitate deeper engagement with authorities and strengthen governance awareness and practice at central banks.
- Fiscal Safeguards Reviews (FSRs) — modality and process changes:
  - Adopt standalone FSRs with in-person or hybrid engagement as the expected modality.
  - Strengthen review process with management approval of FSR mission briefing memos and reports.
  - Implement a formal follow-up mechanism by staff on implementation status of recommendations, with discussion of developments in country staff reports.
  - Develop internal operational guidelines to ensure a consistent agreed approach by staff teams in the conduct of FSRs.
- Financial risk management:
  - Assessments will emphasize broader coverage of financial risk management in addition to operational risk management.
  - Shift to include domestic operations and the whole balance sheet, tailored to central banks’ capacity and level of maturity.
  - More explicit reporting of the stage of maturity will be incorporated in safeguards reports.
- Central Bank Digital Currencies (CBDCs):
  - Assessments will continue to review CBDC activities through the prism of the GELRIC framework.
  - Staff proposes to develop internal methodologies for consistency across safeguards teams, taking account of key principles in Annex III.
- Outreach:
  - Strengthen outreach to address capacity constraints at central banks through broader engagement including virtual platforms and regional thematic engagement on governance issues.
  - Staff proposes offerings of 1-2 events a year, with a goal of geographic coverage across the membership at least once every two to three years.
  - Cost estimates would be in the range of US$55k for each event, assuming the central bank hosts (or the event is conducted at one of the regional training centers).
- Other procedural proposals:
  - Mandatory safeguards assessment where members seek access to RST resources through a concurrent PCI or PSI.
  - Proposed exceptional event clause to relax normal policy deadlines during a global crisis:
    - Lending arrangements – shift the completion deadline from the first review of an arrangement to the second review.
    - Emergency financing disbursements – shift the completion deadline from the Board approval of any subsequent arrangement to the first review of any subsequent arrangement.
  - Note: This staff proposal was not adopted by the Board.

### Resource implications
- Near-term transitional resource implications estimated at an additional 2-3 FTEs to develop internal guidelines, enhance safeguards assessment approaches (governance, financial risk management, CBDCs), broaden outreach, and develop operational guidelines for public dissemination.
- Structural resource needs related to new lending facilities through the RST to be considered in budget discussions as demand becomes clearer.
- FSRs were initially designed as high-level, low marginal cost exercises, but staff experience shows these exercises require more substantial resources.

### Issues for Board discussion (listed focal points)
- Appropriateness and effectiveness of the safeguards assessments policy in mitigating risks of misreporting of program monetary data and misuse of Fund resources.
- Proposals to establish a standalone governance pillar, emphasize broader coverage of financial risks, and cover CBDCs in safeguards assessments.
- Proposals to enhance staff conduct of FSRs and whether HCCE cases with a significant proportion of resources directed to budget financing should be subject to FSRs.
- Mandatory requirement for a safeguards assessment where members have a concurrent PCI or PSI with access to RST financing.
- Proposals to relax deadlines for completion of safeguards assessments during global crises with significant demands on Fund resources.
- Proposals to strengthen outreach with member countries.

*Source: ppea2022058 - 46.      The FSRs conducted covered a significant portion of the Fund resources provided for*

### Annex II. The GELRIC Framework

### Annex II. The GELRIC Framework

### Overview
- Safeguards assessments are a diagnostic exercise carried out by IMF staff to evaluate key areas of control and governance within a central bank.
- The existing acronym ELRIC is expanded to GELRIC by establishing a stand-alone governance pillar to deepen assessment of governance arrangements and de facto practices of key decision-making bodies.
- The proposed six GELRIC pillars and the main safeguards assessment objectives for each are outlined below.

### Governance Arrangements
- Scope: practices and procedures for the oversight board, the audit committee, and the senior executive team (the Governor and deputy governors).
- Key attributes of good governance relevant to central banks:
  - discipline, represented by senior management’s commitment to promoting good governance;
  - transparency, necessary to facilitate effective communication to, and meaningful analysis and decision making by, third parties;
  - exercise of autonomy in practice, which is essential for a top decision-making body—for example, a central bank board—to operate without risk of undue influence or conflict of interest;
  - accountability, under which decision makers have effective mechanisms for reporting to a designated public authority, such as the parliament;
  - governance culture, which supports strong Board operations and dynamics through a structure and processes that enable consistent and efficient information practices that provide timely access to high-quality information and people;
  - responsibility, which entails high priority on ethical standards and corrective action, including for mismanagement where appropriate.
- Objective: ensure key bodies establish appropriate structures and systems to ensure close oversight and compliance, in practice, with the legal mandate of the central bank and exercise strong professional diligence in the execution of their fiduciary duties to the institution.
- Note: De jure aspects of governance will continue to be assessed separately in the legal structure and autonomy pillar of the framework.

### External Audit Mechanism
- Scope: practices and procedures enabling an independent auditor to express an opinion on whether financial statements are prepared in accordance with an established financial reporting framework, such as IFRS.
- Importance: this mechanism is important for the credibility of a central bank.
- Objective:
  - establish whether an independent external audit of the central bank’s financial statements is conducted regularly in accordance with internationally accepted auditing standards such as ISA;
  - ascertain that previous audit recommendations have been implemented;
  - ensure that the external audit opinion is published with the full audited financial statements.

### Legal Structure and Autonomy
- Rationale: Government interference in central bank operations undermines central bank autonomy and could increase the risks facing the central bank.
- A sound legal framework enshrines central bank autonomy and complementary transparency and accountability.
- Objective: assess the legal framework and its application in practice to:
  - establish whether the legal framework provides the central bank with an appropriate level of autonomy (including institutional and operational autonomy) along with adequate internal and external checks and balances;
  - ascertain whether key legal requirements are complied with without interference or override;
  - clarify if other legislation exists that could impair central bank autonomy;
  - determine whether the respective roles and responsibilities of the central bank and other agencies are transparently and explicitly defined in cases of shared monetary authority;
  - ascertain that the legal framework supports the other pillars.

### Financial Reporting Framework
- Rationale: Strong financial reporting principles and practices are essential elements of effective central bank operations and the provision of financial information to management and external parties.
- Characteristics of useful information: relevant, reliable, timely, readily available, consistent in presentation over time, and based upon recognized standards, such as IFRS.
- Objective: ensure that the central bank adheres to international good practices in the adoption of accounting principles for internal reporting to management, and the published annual and interim financial statements.

### Internal Audit Mechanism
- Definition: internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
- Role: helps achieve objectives by bringing a systematic, disciplined approach that adheres to international standards, to evaluate and improve the effectiveness of risk management, control, and governance processes.
- Objective: determine whether internal audits are performed in accordance with international standards, such as International Standards for the Professional Practice of Internal Auditing, and whether the function is assigned sufficient independence and authority to fulfill its mandate effectively, including whether procedures exist for communicating results without interference.

### System of Internal Controls
- Scope: assessment of risks and design of adequate mitigating controls, including behaviors, policies and procedures put in place by the board, senior management, or staff to manage risks and provide reasonable assurance regarding achievement of objectives in the following categories:
  - (i) conducting ethical, effective and efficient operations;
  - (ii) fulfilling accountability obligations, including through reliable financial reporting;
  - (iii) safeguarding resources against loss and misuse;
  - (iv) compliance with applicable laws and regulations.
- Relationship: risk management and internal controls systems are a key component of good governance and are effective if built on rules of conduct and integrity upheld by the governance bodies.
- Objective: ascertain the bank’s commitment to building and maintaining a robust control environment, with particular attention to operational and financial risk management and controls in areas of high importance for central bank operations and of significant relevance to a Fund arrangement, including:
  - reserves management;
  - accounting;
  - currency and banking operations;
  - cybersecurity and business continuity arrangements;
  - measures to ensure accurate and timely reporting of monetary program data.

*Source: Annex II. The GELRIC Framework.*

---


_Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022058.pdf_