Enhancing Operational Capacity of the Controller General of Brazil 1. Component: Development and Design of Institutional Strategic Plan To provide technical assistance to the SFC/CGU to re-articulate its role, approach and methodology in the execution of its Constitutional mandate.  This would be an integral step in helping to clarify and update the overall oversight and control framework through a clarification of roles, responsibilities and functions of various control units.  This would enable the SFC/CGU to implement fully a risk-based audit methodology, place increased reliance on improved sector and sub-national control functions, and bring about more comprehensive oversight of public expenditure. Outcome As is normal with the development of systems to increase fiscal transparency, measurable outcomes are difficult to establish. It is known, however, that a functional public financial management system has implications for public expenditure management at four main levels: (i) it contributes to fiscal discipline by providing timely and reliable information on budget execution and by enforcing expenditure limits in accordance with approved budgets and cash flows; (ii) increases operational efficiency by expediting and standardizing processes; (iii) supports preventive and ex-post controls through transactional safeguards and audit trails; and (iv) contributes to transparency by facilitating the publication of budget execution reports. Of course, the IDF grant would not support operation of the system but aspects of design, for which the outcomes will necessarily be key outputs. These will comprise the changes brought about by the financed activities, basically the existence of a well-designed strategic plan for institutional modernization, with embedded good practice in fiscal transparency/oversight and with clear plans for implementation. 2. Component: Development and Modernization of Investigative Tools and Methodologies To provide technical assistance to the CGU in the design and development of modern audit tools and investigative methodologies.  As public expenditure programs have become more complex and comprehensive in Brazil (majority of federal transfer programs have national coverage), there is an urgent need to not only become more efficient and effective in the oversight of public expenditure, but to increase the scope and impact of fiscal oversight to ensure a reduction in wasteful spending.  This component would assist the CGU in the development of new tools that will enable it to broaden coverage, improve technical methodology and techniques to detect instances of waste and fraud, and to improve its ability to rely on sub-systems of line ministries and sub-national governments. As is normal with the development of knowledge to increase fiscal transparency, measurable outcomes are difficult to establish, for which the outcomes will necessarily be key outputs. These will comprise the changes brought about by the financed activities, basically the design of new information technology tools (software, model for a new data warehouse, etc.),and the development of new audit and investigative tools, including forensic auditing, operational or performance auditing, sampling and testing methodologies, etc. and that contributes actively to the country's fiscal transparency and governance agenda. Overall goal. The ultimate development purpose of the grant would be to strengthen fiscal transparency - and, as such, governance, voice and accountability - through the refinement of the role, scope of work, methodologies, and work tools, as well as by establishing new partnerships and better integration of the control framework.  Specific objectives. The specific objective of the grant is to build capacity in the Controller General#s office (CGU) to enable the CGU to implement fully a risk-based audit methodology, place increased reliance on improved sector and sub-national control functions, and bring about more comprehensive oversight of public expenditure. The output of the successful completion of grant activities would be to provide the CGU with a complete, detailed plan for modernization of the oversight and control function of the federal government of Brazil. The proposed grant represents an important opportunity for the Bank to offer its expertise and technical assistance to the government of Brazil in helping it to modernize and upgrade a critical component of its core management systems as part of the government effort to improve the quality of public expenditure and oversight.  Rationale and Background. Despite the robust control framework in place for government operations, comprising various levels of oversight, there exist gaps with regard to the responsibility of oversight of large federal programs that transfer financial resources to sub-national governments and entities. It would also be important to clarify the respective roles and responsibilities of CGU the Tribunal de Contas da UniÃ£o (TCU), and the internal control units of federal and sub-national ministries to not only avoid overlap of functions, but more importantly to eliminate gaps in the framework for oversight and control.  The execution of internal audits, as well as periodic reviews by the Federal Secretary of Control (SFC), the CGU unit primarily responsible for audit and compliance reviews is contemplated in the GOB#s Decreto 3.591, which defines the internal control system of the Executive. Internal audit units, where they may exist, report to line ministries and are responsible for the oversight of day-to-day operations (primarily focused on compliance with rules and regulations for budget execution and procurement). The SFC audit teams operate on a system of #sorteos#, random selections of executing units and budget programs subject to audit - in theory, the SFC audit should be more focused on the attestation and reliability of financial statements and the proper usage of financial resources. While there be may cases of overlap of responsibilities or functions, in practice there is also a sizeable gap in the financial oversight and control framework.  Notwithstanding the described division of labor, the SFC works within the Executive branch of government - however given Brazil#s well developed federal system of government, it is unclear whether SFC#s role is limited to the audit of federal agencies while the audit of sub-national governments receiving federal funding are subject to audits carried out by a sub-national entity (e.g., Tribunal de Contas do Estado or State Secretaria de Controle). The situation is further complicated by the fact that the internal audit units of federal ministries and the internal audit units of sub-national government secretariats also lack clarity vis-Ã -vis their respective roles and responsibilities for the oversight of federally funded programs within the respective agencies and at different levels of government.