Behind the scenes: Maintaining financial integrity
20th Sep 2022 || By Isabel Petri
I am InfraCo Africa’s Finance Manager, based in our London office, and I oversee the financial performance of our project pipeline, from financial due diligence, to valuation, to mentoring the Finance teams of our project companies. I am keen to explore with you just why it is that we work so hard to monitor every penny of the funding we receive from our Owners, through PIDG, and why we place such focus on maintaining financial integrity through timely monitoring and reporting of how this funding is used.
Why is it important to keep track of the money we spend?
Financial integrity is first and foremost about ethics and doing what is right. As for any business, being able to demonstrate InfraCo Africa’s financial integrity is key to maintaining the company’s reputation and to safeguarding its investments and returns. The money we invest comes from our Owners – the governments of the UK, the Netherlands and Switzerland – and so we are accountable to the taxpayers of these countries. A significant part of this is to ensure we demonstrate that our work is delivering the best value for money and really making a difference. It is in our interests, as responsible shareholders, to ensure that the businesses we invest in thrive, deliver the much needed impact, generating financial returns for InfraCo Africa and our fellow shareholders. We also need to demonstrate and support the bankability of new infrastructure projects or technologies in order to attract further private sector investment into the sub-Saharan infrastructure space. These projects will improve living standards and power economic growth, investing in sustainable low-emission infrastructure supporting those most vulnerable to climate change.
In addition to this, prevention of fraud and financial mismanagement is fundamental to ensuring that our investments deliver the best possible development impact. If we cannot be sure that all of the money, we have invested in a project is reaching the intended party, we may firstly expose ourselves to concerns of financial mismanagement, but we would be unable to demonstrate to our Owners that we are delivering on our core mandate: providing inclusive development impact for some of the world’s poorest people.
What steps do we take on a day-to-day basis to maintain our financial integrity?
At an early stage, when an investment opportunity is identified, the InfraCo Africa Finance team supports our colleagues in Compliance to review financial statements and undertake financial due diligence work, reporting on our observations and raising any follow-up queries. Before we commit to an investment or contract, we need to ensure that the companies we are investing into are financially sound and that any concerns are addressed or mitigated. We also support our colleagues in Business Development and Investments as they carry out valuation assessments, enabling us to better understand the value of an investment so that we don’t over or under report on this value but at the same time continue to work towards maximising our returns. As and when required, we will engage local tax advisory and other consultancy services in country to ensure that the project is fully compliant with local tax laws and that the structuring is appropriate to ensure fair payment of tax (in line with the EDFI’s principles for responsible tax in developing countries). This work ensures that we have all the information required to obtain assurance over both financial and tax matters before entering into a new investment.
We work very closely with the PIDG Risk team to understand our portfolio in the wider PIDG context, identifying potential risks early and balancing our exposure across various sectors and geographies. Having this sounding board is also invaluable as we seek to operationalise new policies across the Group, around tax management and treasury for example. The key is ensuring that these policies remain at the forefront of our Special Purpose Vehicles’ (SPVs) operations, implementing clear, practical applications which enable our project companies to achieve the highest standards of financial integrity.
Once we decide to invest, the Finance team contribute to the preparation of new, or the review of existing, SPV financial management policies to ensure that the controls in place are appropriate and robust. We then regularly review financial statements to assess performance and to ensure best practice is implemented at all times. Key findings will be communicated to the team to incorporate any improvements, as required. Through our board positions on our project companies, InfraCo Africa can also closely monitor the implementation of the various policies.
When we decide to exit a project, realising our returns and recycling those funds into future investments, our partners and future acquirers can rest assured that the company has the highest levels of financial management to attract future private sector funding, something which is fundamental to our PIDG mandate.
Finally, and arguably most importantly, we always seek to lead by example. We report to PIDG and our Owners, receiving their input and recommendations to strengthen our own processes on an ongoing basis. For example, as part of our ISO37001 certification around our Anti-Bribery Management Systems (and the annual audits which are required to maintain such certification) which is managed by our Compliance team, the team draws on some of the examples provided here to demonstrate how we are adhering to financial best practice to support our compliance with the ISO standard.
So, how do we support our partners to demonstrate best practice?
We support our project partners to mobilise and develop the skillsets needed to embed transparent and robust financial management systems in their businesses. This process is collaborative – we need to work with our partners to align our expectations, balancing financial best practice with what is reasonable and proportionate for the size of the business. We then undertake financial checks of our project companies and subsidiaries, carrying out regular reviews of financial information to keep track of our investments and to flag any concerns early on. We also aim to add value wherever possible, through providing feedback where potential improvements could be made whilst always highlighting when processes are being done well and are in line with best practice. Regular monitoring is key as we often invest to scale a business and the processes and control environment that we put in place at the outset may need to change over time as a business grows. We remain able to act nimbly to adapt and finesse these policies as the need arises.
We are active investors and are 100% committed to the success of our projects. By working closely with our partners, InfraCo Africa – as a shareholder and investor – can be confident that our investment will always strive to succeed and deliver the anticipated financial returns as well as development impact. We can also be sure that the businesses we invest into are developing robust financial management systems for the future. By maintaining an open dialogue with our project companies, we can identify any areas where teams might benefit from further training. Colleagues across the Finance team are available for ad hoc queries in relation to both tax and financial matters and, where knowledge gaps are identified, we can deliver more formal training sessions tailored to the needs of each project team.
I was fortunate to visit projects in Uganda and Kenya last year, sitting down with the project company teams to better understand their day-to-day experience and to gauge awareness of the projects’ financial controls and accounting processes. It was invigorating to see our projects in action and to function as an external sounding board to challenge costs and assumptions as we explored together how we might maximise efficiencies and embed new financial models, reporting controls and PIDG policies into their work. As part of PIDG, we have access to a wealth of specialist knowledge and lessons learned in project finance and so, if we don’t know the answer, the chances are that someone in one of the other PIDG companies – InfraCo Asia, GuarantCo, PIDG Ltd and the Emerging Africa Infrastructure Fund – will. I was impressed to see, and felt throughout my visits, that the companies we work with are receptive to our advice and the value we can add but that they are also keen and very capable to drive these processes and change themselves.
What is next?
What is key to our plans going forward is expanding the training we deliver, not only for our partners and SPVs, but across our own team and with PIDG colleagues to build capacity and embed confidence around financial terminology, including how our policies and processes work in practice. A key part of our work is demystifying the role of the Finance function, specifically in connection with the monitoring and management of our portfolio companies, and to enable everyone connected with the business to take ownership of maintaining InfraCo Africa’s strong industry reputation for financial integrity.