Harmonized Approach to Cash Transfers
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UN harmonised approach to cash transfers using a risk-based tool
- UN agencies including UNDP, UNFPA and UNICEF have agreed a Harmonized Approach to Cash Transfers (HACT) for all situations and programmes.
- The HACT framework is a risk-based management tool that supports
- closer alignment of development aid with national priorities
- moves to strengthen national capacities for management and accountability,
- with the ultimate objective of gradually shifting to national systems.
- It serves as a simplified set of procedures on requesting funds, disbursing funds, providing assurance, reporting on funds as a way to effectively manage risks, reduce transaction costs and promote sustainable development in a coordinated manner.
Assurance planning, spot checks, programme monitoring, scheduled and special audits
Cash transfers, disbursements and reporting
- The macro assessment ensures adequate awareness of the public financial management (PFM) environment within which agencies provide cash transfers to implementing partners (IPs)
- It is not limited solely to the financial environment but also includes national procurement capacity, exchange rate volatility, presence of informal/black markets, etc.
- The micro assessment assesses the IP’s financial management capacity (including accounting, procurement, reporting, internal controls,) to determine the overall risk rating and assurance activities.
- The risk rating, along with other available information, is taken into consideration when selecting the appropriate cash transfer modality for an IP.
- Overall risk ratings:
- The Micro Assessment results in an overall risk assessment, which is a key input to determining the Adjusted Risk Rating for the IP and guides the types and frequency of assurance activities to carry out.
- Low risk – Indicates a well-developed financial management system and functioning control framework with a low likelihood of potential negative impact on the IP’s ability to execute the programme in accordance with the workplan.
- Medium risk – Indicates a developed financial management system and control framework with a moderate likelihood of negative impact on the IP’s ability to execute the programme in accordance with the work plan.
- Significant risk – Indicates an underdeveloped financial management system or control framework with a significant likelihood of negative impact on the IP’s ability to execute the programme in accordance with the work plan.
- High risk – Indicates an underdeveloped financial management system and control framework with a significant likelihood of negative impact on the IP’s ability to execute the programme in accordance with the work plan.
Cash transfers, disbursement and reporting
- This step provides guidance on the appropriate cash transfers modality to be applied based on the overall risk rating derived from the micro assessment conducted for the IP and the corresponding assurance activities.
- Other available information including the results of the macro assessment, strength of the IP procurement process, past experience with the IP, agency capacity and other factors are also taken into consideration.
- Three cash transfer modalities are available under HACT framework:
- Direct cash transfers – Funds are transferred by the agency to the IP before the IP incurs obligations and expenditures to support activities agreed in the work plan;
- Direct payments – Funds are paid by the agency directly to vendors and other third parties for obligations and expenditures incurred by the IP to support activities agreed in the work plan; and
- Reimbursements – Funds are provided by the agency to the IP for obligations made and expenditures incurred in support of activities agreed in work plan
Assurance planning and activities
- Assurance activities determine whether the funds transferred to IPs were used for their intended purpose and in accordance with the work plan.
- Properly planning for and implementation of assurance activities is an integral part of HACT framework.
- Assurance is obtained by carrying out spot checks, programme monitoring and scheduled audits as documented in the Assurance Plan.