A. BACKGROUND

Mongolia has received a credit from the International Development Association (IDA) under the Strengthening Fiscal and Financial Stability Project (SFFSP). The Objective of the SFFS Project is to improve fiscal policy and sustainability in a mineral-based economy, protect the poor and vulnerable, and restore confidence in the financial sector. The project is designed into five components: (I) Strengthening Macroeconomic and Fiscal Management; (II) Improving the Efficiency of Public Financial Management; (III) Enhancing Financial Sector Stability; (IV) Strengthening the Social Protection System; (V) Project Management and Monitoring. The objectives are to: Strengthening fiscal responsibility and implementing relevant policy measures, improving fiscal discipline, strengthening the resiliency of the banking system, improving public expenditure quality in social protection, providing support for Project implementation, coordination, monitoring and evaluation, including, inter alia, audit arrangements, reporting requirements, procurement and financial management activities respectively. For more details, please refer to the Project Appraisal Document Report No. PAD2269.

Mongolia has a well established social insurance system with an extensive set of pensions and related benefits, including old age; disability; survivorship; maternity; accident and short-term disability; health and unemployment insurance. All of its social insurance programs are contributory for employers and workers and are financed on a pay-as-you-go basis.

The Social Insurance Fund (SIF) is composed of 4 funds (sub-funds) as follows:

-The Pension Insurance Fund (PIF);

-Short term social insurance benefit fund; 

-Work place injury and occupational disease insurance fund; and 

-Unemployment insurance fund.

The four funds are managed by the Social Insurance General Office (SIGO). All of the social insurance funds need to manage their liquidity, including placing funds in short-term instruments pending disbursement. The Pension Insurance Fund PIF is managed entirely on a pay-as-you-go basis and the income from social insurance premiums is insufficient to finance expenses or pensions and benefits requiring a substantial State Subsidy so very little reserves are held beyond one year. On the other hand, the other three funds have accumulated considerable reserves (estimated at over US$ 350 million) and therefore do retain substantial investments beyond a one-year cycle. As per the Social Insurance Law, the accumulated resources in one fund cannot be used for a purpose other than its initial purpose (i.e. cannot be used for pension purposes, for example.). The reserves of these funds, by law, can be only invested in (i) Central bank securities; and (ii) deposits at commercial banks. An investment committee (National Social Insurance Board) charged with key strategic directions as well as charged with approving the key investment management decisions. There are however, no rules on the concentration of deposits in commercial banks, no guidelines linking such deposits to solvency of the institutions (one bank suffered from bankruptcy and social insurance reserves were lost in such bank), no guidelines which set out a competitive bidding process for the placement of funds, and no investment policies or risk-management systems guiding such placements.

The Social Insurance General Office (SIGO) is responsible for Social Insurance contribution collection, record-keeping, financial management, reserve management and payments. Benefit eligibility determination is undertaken in coordination with other agencies.  Financial management systems at SIGO have several deficiencies which the authorities have recognized and are seeking to remedy: (i) strengthening accounting systems; (ii) strengthening the internal and external audit and financial reporting systems; (iii) establishing a risk identification, attribution and monitoring system; (iv) strengthening governance including of investment management, liquidity management, and operations management; (v) revising the policies and procedures governing investment managment including guidelines and processes for establishment and revision of investment strategies, strategic asset allocation linked to the duration of liabilities (asset-liability management), and the guidelines and processes for liability forcasting; (viii) establishment risk management guidelines; and (ix) as needed, strengthening the guidelines for financial disclosure.

MLSP and SIGO wish to seek experienced international consultants to assist in preparing a report that would suggest revisions to the legal framework for financial management of the SIF, propose draft guidelines for risk management, and propose measures to strengthen the operational processes and staff training to carry out the proposed strengthening of reserve management.

B. OBJECTIVE OF THE ASSIGNMENT

The objective of the assignment is to develop draft legislation, guidelines and operational recommendations for strengthening the reserve management and liquidity management of the Social Insurance Fund.

C. SCOPE OF THE WORK

The consultant will carry out the following activities:

1. Governance structure, accountabilities and processes - Prepare recommendations to strengthen the governance of SIF of investment management. Review and assess the existing governance structure and processes including Governing Boards of the SIF, Investment Committee and other delegated authorities. Recommendations for strengthening should include legal changes and governance policies and procedures. Options for governance arrangements should be prepared including the structure and appointment of the investment committee of the SIF, committee functions, fiduciary responsibilities and accountabilities;  possible sub-committees (such as audit, risk management, and operations management); and responsibilities and accountabilities of SIGO management.
2. Accounting Systems, financial control, audit and financial disclosure. Review and assess the existing budgeting, accounting, financial control, audit and financial disclosure standards, guidelines and procedures for the SIF. 

• Prepare recommendations for modification to existing legislation and investment management guidelines.
• As may be necessary, prepare detailed recommendations for strengthening audit and financial control systems.
• Prepare and develop detailed recommendations for strengthening the disclosure of investments and performance, including measurement against relevant benchmarks.
• As needed, propose measures for strengthening financial information systems, operational procedures and staffing requirements.

1. Risk management 
   1. Investment management. Review and analyze the existing guidelines, mechanisms, policies and procedures for risk management including the investment policy, investment strategy, strategic asset allocation, and tactical variation in strategic asset allocation.  Evaluate policies and procedures for investment risk measurement, attribution, and risk limits. The scope of risks evaluated could include credit risks, sector or company risk concentration, credit risk evaluation, interest rate risk evaluation, and asset-liability duration risk management.

Propose guidelines and risk management procedures.  This should include an investment policy and investment strategy. The consultant should propose revised policies and procedures for risk measurement, attribution, monitoring and prudential risk limits. These may include guidelines on risk concentration for fixed deposits or other investments, prudential guidelines for related-party interests, guidelines on the mismatch between the duration of investments and liabilities, and guidance on stress-testing.

1. 1. Liquidity risk management.  Review the existing mechanisms for liquidity risk assessment for each of the funds in the SIF. Prepare recommendations for: (i) strengthening liquidity risk management including stress testing and applicable strategies for addressing asset/liability mismatches; and (ii) establishment of a systematic actuarial assessment for each of the schemes, including the periodicity and draft guidelines for such assessments.
   2. Operational risk management (as needed).  As needed, review and assess the existing operational risks at SIGO pertaining to investment management and the methods for addressing and mitigating such risks. These may include risks of data breaches; hacking or other cyber risks; risks of errors, fraud and corruption; and other risks such as clearing and settlement risks. As needed, prepare a program for strengthening risk monitoring and for addressing operational risks identified and which arise in the future.
2. Aggregate information disclosure. Review and assess the financial disclosure requirements and processes for all social insurance schemes. Prepare recommended guidelines for disclosure of applicable individual information including quarterly financial statements, annual audited financial statements, and indicators of risk.
3. Summary assessment of key challenges and recommendations.  Summarize the key challenges and proposed recommendations. Prepare a roadmap for addressing the key recommendations, including further analysis needed.

D. DELIVERABLES

All deliverables should be discussed with relevant officials of MLSP, SIGO and other entities such as the Ministry of Finance with incorporation of comments in order to ensure quality.  The international consultant will deliver the following outputs:

1. Deliverable 1. Inception report outlining the assignment, providing a work plan, specifying critical data and other information requirements, and preparing a draft annotated outline of the Consultants’ report.
2. Deliverable 2. PPTs for Client Workshop – The PPTs should summarize the key challenges and recommendations indicated in the draft report.
3. Deliverable 3. Draft Report – The draft report should generally follow the outline in the inception report. The report should include an executive summary no longer than 3 pages with a prioritization of key recommendations. Detailed recommendations for legal reforms, draft guidelines, and operational process reforms should be included as annexes to the report.
4. Deliverable 4. Final evaluation report integrating the analysis above and addressing the comments of key counterparts.

The following is the estimated timing of tasks and deliverable:

E. CONSULTANT’S QUALIFICATIONS/ SELECTION CRITERIA

This assignment will require a lead international consultant and a local consultant with the qualifications indicated below.

The lead consultant will be responsible for overseeing the analysis, production of the report, communications with the counterpart and presentation of the findings.[1]

Requirements for Lead Consultant

Education:            Suitable candidate should have MA in economics, finance or an MBA.

Experience:          Consultant should have at least 10 years of relevant professional experience with audit, accounting, financial control, investment and risk management systems; and at least 5 years’ experience working with public pensions and social insurance systems.

Language skills:   Excellent oral and written skills in English.

 D. SUPERVISION AND REPORTING

The consultant will report to Head of a Technical working group, who is the Director of Policy, Planning Department (PPD) of the MLSP.  The consultant will work on a day-to-day basis under the guidance of the Lead consultant and Director of PPD on technical matters related to the assignment. Work progress will be presented during the working group meeting or other meetings as needed.  

The Director of PPD shall evaluate the performance on agreed deliverables and approve the invoices for the delivered outputs.  

The consultant will prepare a 3-5 pages summary progress report detailing the achievements and impediments in executing the entire assignment effectively.  The MLSP and SFFS PIU will provide input to the evaluation of the consultant’s performance.

E. CONTRACT DURATION

Expected commencement date of the contract is August, 2020 and duration is approximately 14 weeks.

Based on the evolving needs of the Client and performance of the consultant, the contract may be extended if needed. If any task is not finished and approved by the Client within the agreed-upon timeline, the consultant should complete the task/s without any additional cost.

Payments will be released upon satisfactory completion of all deliverables due for each task, according to the following schedule:

• Submission of Deliverable 1 and 2 stated in the ToR conditional on the Client’s approval: 50 % of the total contract amount ;
• Submission of Deliverable 3 and 4 stated in the ToR conditional on the Client’s approval: 50 % of the total contract amount.  

F. INSTITUTIONAL ARRANGEMENTS

The consultants will have access to all necessary data and information and free access to the staff of the MLSP, SIGO and the FRC

The consultancy service shall be provided remotely, due to COVID-19 related international ban.

If you possess the above qualifications, please submit following documents via email to procurement@sffs.mn:

    1. Cover letter indicating why she/he considers her/himself suitable for the position.

    2. Detailed CV highlighting relevant skills/experience.

    3. Copy of diplomas or certificates; and,

    4. 2 reference letters from previous last two employers no later than 17:00, August 14, 2020.

The submitted documents will not be returned to the applicants. Please note that incomplete applications would not be considered for evaluation. Only selected candidates will be contacted. Candidates can be interviewed. Detailed terms of reference can be requested from procurement@sffs.mn.  Attn: Ms. Bayarmaa #205, 8/2 Building, UN Street, Chingeltei district, Ulaanbaatar 15160, Mongolia, Tel: 70120582

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