LAW ON GOVERNMENT SPECIAL FUNDS. Chapter One. General Provisions

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1 Article 1. The Purpose of the law LAW ON GOVERNMENT SPECIAL FUNDS Chapter One General Provisions 1.1 The purpose of this law is to outline the type of government special funds and to regulate relations with respect to building up, expending, reporting of performance and monitoring of these funds. Article 2. The Legislation on Government Special Funds 2.1 The legislation on Government special funds is comprised of the Fiscal Stability Law, the Central Budget Law of Mongolia, the Public Finance and Management Law of Mongolia, this law and other legislative acts enacted in conformity with the above laws. 2.2 If the provisions of the international treaties to which Mongolia is a signatory are inconsistent with the above laws, then the provisions of the international treaties shall prevail. Article 3. Definitions of legal terms 3.1 Legal terms used in this law shall be determined as follows: "International treaty" as indicated in paragraph 3.1 of the Law of International Treaty; "Project performer" as indicated in subparagraph of the Law of Foreign Aid Coordination; Article 4. Applicability of the law 4.1 This law shall regulate relations pertaining to the Government special funds except for Social insurance fund, Social welfare fund, Employment promotion fund, Human development fund, Professional education and training promotion fund and national road fund /amended on February 6, 2007, February 13, 2009, and November 13 and 25, 2009/. 4.2 This law shall regulate relations concerning the expending and reporting of performance of grant aid and donations made by international organization, donor country, foreign country organization or citizen, Mongolian citizen or legal entity to Mongolia in order to help Mongolia recover from the disaster damage. Chapter Two Type and Classification of the Government Special Funds Article 5. Government Special Funds and their types 5.1 Government Special Fund is a part of income of the country s general budget, donations, and grant aid accumulated into a special account with the purpose of implementing particular functions and objectives of the government. 5.2 Income and expenditure report of the Government Special Fund is an integral part of the central budget performance report of Mongolia. 1

2 5.3 Government Special Funds shall be instituted and liquidated according to the law. 5.4 The following is types of the Government Special Funds: Tourism fund Nature protection fund Contingency fund Public liability fund Immunization fund Small and Medium Enterprise Government reserve fund Livestock protection fund Development Fund of Mongolia /annulled on November 25, 2009/ Social insurance fund Social welfare fund Culture and Art development fund Treasury education fund Crop production promotion fund National road fund Assistance fund for Mongolian citizens abroad Fund for Children Employment promotion fund Investment and development fund Promotion fund Science and Technology fund Health support fund Renewable energy fund /added on January 11, 2007/ Fund built up from the country s budget and grant aid and donations of donor country, international and foreign organizations according to the international treaty (hereinafter called Fund created according to international treaties )/amended on January 11, 2007/ Professional education and training promotion fund /added on February 13, 2009/ Military development fund /added on July 9, 2009/ Housing development fund /added on July 9, 2009/ 2

3 Human development fund /added on November 18, 2009/ Budget stabilization fund /added on June 24, 2010/ Clear air fund / added on June 24, 2010/ Article 6. Government Special Funds' classifications 6.1 Government Special Funds are classified as follows: Fund regulated by special laws; Fund whose resources are built up from budget only; Fund most part of whose resources are built up from budget; Fund most part of whose resources are built up from grant aid and donations; 6.2 The Fund indicated in subparagraph of this law comprises the Social insurance fund; Social welfare fund; Employment promotion fund; National road fund; Development fund of Mongolia /annulled November 25, 2009/ 6.3 The Fund indicated in subparagraph of this law comprises the Government reserve fund; Fund for Development of Mongolia; /annulled on February 6, 2007/ Contingency fund; 6.4 The Fund indicated in subparagraph of this law comprises the Tourism fund; Nature protection fund; Immunization fund; Small and Medium Enterprise promotion fund; Culture and Art development fund; Treasury education fund; Assistance fund for Mongolian citizens abroad; Fund for Children; Investment and development fund; Science and Technology fund; Health support fund; Renewable energy fund; /added on January 11, 2007/ Military development fund; /added on July 9, 2009/ Housing development fund; /added on July 9, 2009/ Clear air fund; /added on June 24, 2010/ 6.5 The Fund indicated in subparagraph of this law comprises the Public liability fund; Livestock protection fund; Crop production promotion fund; Fund built up from the country s budget and grant aid and donations of donor country, international and foreign organizations according to the international treaty. 6.6 Special funds specified in provision 6.5 shall operate on a self-financing basis. Chapter Three 3

4 Building up and Expending of the Government Special Funds Article 7. Common source of building up the Government Special Funds 7.1 The Fund indicated in subparagraph of this law consists of the following common sources: Central budget; Grant aid and donations by international organization, donor country, foreign and domestic organizations and citizens; Credit given by foreign countries and international organizations through the government; 7.2 The Fund indicated in subparagraph of this law consists of the following common sources: If indicated in particular law or international treaty, it shall be central budget allocations; Foreign aid money, equipment, inventory and other items; Assistance and donations by international organization, donor country, foreign and Mongolian organizations, legal entities and citizens; Income earned from the fund management; Other sources; Article 8. Government reserve fund 8.1. The portfolio manager shall, when planning allocations from the state budget to the Reserve fund, consider previous year s outturn of expenditures for the purposes indicated in paragraph 8.3 of this Law, research and forecast on potential changes in natural and weather conditions, survey and projections of price fluctuations for export and import goods in the world market, and sources and capacity of fiscal income The total amount of allocations to the Government reserve fund and Contingency fund shall be equal to up to 1% of GDP assumed for the budget in the particular budget year The resources indicated in paragraph 8.1 of this Law shall be expended for financing of following activities for which it is impossible to plan fiscal allocations in the particular year: Actions to mitigate the damages, limit the scope and eliminate the consequences of such natural disasters as snow and dust storms, drought, severe winters, floods, earthquakes, desertification, fire, severe human, livestock and plant epidemics, and pest infestations; Actions that prevent and mitigate losses caused by such large scale technical accidents as damages to building structures, installations, wiring and equipment due to non-compliance with production and technological regimen, transport accidents, and hazardous and radioactive spills; Actions to eliminate consequences of terrorist attacks and activities resulting in severe loss of human life, damages to health, property and environment; Actions related to implementation of newly approved legislation and Government resolutions during the fiscal year; Charges payable by the Government with respect to international court and arbitrage decisions, other expenses related to implementation thereof; Payments, duties and fees payable by Mongolia in compliance with international treaties, but for which no allocations were made in the particular year s budget; Expenses for complying with requests of local organizations and citizens and for resolving of contemporary issues Disaster relief aid and donations by sovereigns, international organizations, foreign and domestic organizations, citizens and legal entities shall be expended for only these purposes. 4

5 In cases where such resources are not sufficient, the shortfall shall be financed from the Government reserve fund. Article 9. Development Fund of Mongolia (this Article was repealed by law on February 6, 2007) Article 9 1. Budget Stabilization Fund The Budget Stabilization Fund shall comply with fiscal management principles and specific budget criteria and serve as a financial instrument for ensuring medium to long-term sustainability of the consolidated budget and applying the structural budget regime The Budget Stabilization Fund shall be formed from the following sources: Budget revenue in excess of the structural revenue estimated using the assumptions set forth in the Fiscal Stability Law; surplus of the structural budget balance; remaining balance of the Government Reserve Fund and Contingency Fund unused in the given fiscal year; earnings on financial operations of the Budget Stabilization Fund; other revenue/receipt Resources in the fund specified in 91.1 of this law can be transferred to the central budget for the following financing needs: difference between structural revnue plan and outturn of the given year; additional financing needs due to the circumstances set forth in Article 8 of the FSL The Cabinet shall make a decision on additional spending to cover the difference specific in provision of this Law and make the relevant records in the budget outturn If the resources in the BSF are not sufficient to fully finance the fiscal decifit specified in provision of this Law, the Government can borrow to finance the deficit not exceeding the public debt threshold set forth in provision of the FSL Resources of the BSF shall be deposited in a dedicated account of the Treasury with the Bank of Mongolia Under an agreement between the central public administration body in charge of finance and fiscal matters and the BOM, the latter shall administer financial managements of the BSF in order to ensure liquidity of the resources to be available for the financing need specified in provision 91.3 of this law, mitigate risks, and make efficient investment on the international financial market. Article 9 1 was added under a Law from June 24, Article 10. Contingency fund The Contingency fund resources shall be expended in the cases of severe interruption in budget revenue or similar increases in budget expenditure due to the following circumstances: Restrictions on agricultural product exports due to disaster events; Abrupt fluctuations in currency exchange rates on international financial markets; Abrupt decreases in domestic production and services due to disasters and unforeseeable events Abrupt price increase of flour, wheat, and petroleum products on domestic markets /added on May 22, 2008/ Article 11. Tourism fund The portfolio manager shall, when planning allocations from the state budget to the 5

6 Tourism fund, consider projects and actions to be implemented by the Government in the tourism sector during the particular budget year Resources as indicated in paragraph 11.1 of this Law shall be expended for the following activities: Production of audio and video imagery, books, postcards, brochures, albums to promote natural scenes, national culture, lifestyles and history of Mongolia; publication of specialized newspapers and magazines; organization of national and international conferences, meetings, exhibitions; Support to tourism infrastructure projects and program financing; Mitigation of tourism related negative environmental impact; protection of nature; Restoration, preservation and protection of natural, historical and cultural heritage. Article 12. Environment protection fund Sources of the Environment protection fund financing shall, in addition to resources indicated in paragraph 7.1 of this Law, consist of the Fees for eco tourism licenses issued for protected areas; Revenues as indicated in paragraph 4.2 of the Law on percentage and amount of royalty revenues to be expended on environment protection and natural resource rehabilitation activities Resources in the fund indicated in paragraph 12.1 of this Law shall be expended on the Projects and actions to assess changes in natural resources and environmental conditions, collect, process and analyze data; Incentives to citizens, corporate entities and organizations that introduce modern, non-hazardous, waste-free technologies for environment protection, optimal utilization and rehabilitation of natural resources, and mitigation of harmful environmental impacts; Organization of national and international workshops, theory and practice conferences, meetings and symposiums on environment protection issues; Financial support for procurement of appliances, equipment and measurement tools needed for environment protection, monitoring and research; Awards to local and foreign citizens for outstanding achievements in environment protection, rehabilitation, promotion and research; Actions to prevent natural disasters; Actions to monitor compliance with legislation on environment protection; Support for eco education as indicated in paragraph 48.2 of the Law on Environment protection. Article Clean Air Fund Resources of the Clean Air Fund shall be formed from the following sources in addition to those specified in provision 7.1 of this law: air pollution fee and compensation; other revenue/receipt The resources specified in of this law shall be spent for the following financing needs: provision of financial support for adoption of innovative methods and technology to protect air and reduce air pollution; 6

7 support to production of qualified clean fuels and stoves and subsidies for the purchase of them; capacity building of air quality monitoring and analysis, assessment of air quality conditions and evolution, development of standards, manuals, regulations, and methodologies pertaining to air protection, implementation of analysis projects; support to financing projects and activities aimed at improvement of energy efficiency and building insulation; support to community initiatives and projects aimed at air pollution reduction; support to projects and activities aimed at development of renewable energy and clean technology; awareness building of the public on air pollution reduction. / Article 12 1 was added under a Law from June 24, 2010./ Article 13.Immunization fund The Immunization fund shall be financed from sources indicated in paragraph 7.1 of this Law and income from voluntary immunization fees The portfolio manager shall, when planning allocations from the state budget to the Immunization fund, consider the amount of expenditures necessary for immunization activities during the particular budget year The amount of the immunization fee indicated in paragraph 13.1 of this Law shall be determined by the Cabinet member in change of Health affairs Resources in the fund indicated in paragraph 13.1 of this Law shall be expended on the Preventive vaccination; Financial support for preventive vaccination and immunization, supply of medicines, syringes and needles. Article 14. Small and medium enterprise development fund The Small and medium enterprise development fund shall be financed, in addition to sources indicated in paragraph 7.1 of this Law, from the Income from earned from fund-managed activities; Loan repayments; Other income The allocation from the central budget to form the SME Development Fund specified in provision of this Law shall be equal to at least 10 percent of the public investment program of the central budget. /This clause was added under the law from July 27, 2007/ Based on the Cabinet proposal, the parliament shall approve the budget for allocations from the central budget to the SME Development Fund in a given fiscal year depending on real growth of the SME sector and exchange rate developments. /This clause was added under the law from July 27, 2007/ Local governments can allocate resources to SME development fund and the amount shall be determined in the local budget and approved by Aimag, Capital City, soum and district Citizens Representative Khural/This clause was added under the law from July 27, 2007/ 14.5.Funds specified in provision 14.1 of this Law shall be expended for the following purposes: /added under the law from July 27, 2007/ job creation; 7

8 long-term concessional loans for SME operations; /This clause was amended under the law from July 27, 2007/ loan guarantee; /This clause was added under the law from July 27, 2007/ professional advice and information provision; /This clause was added under the law from July 27, 2007/ training and re-training; /This clause was added under the law from July 27, 2007/ purchase of some types of insurance; /This clause was added under the law from July 27, 2007/ other activities set forth in the law. /This clause was added under the law from July 27, 2007/ Resources in the fund indicated in paragraph 14.1 of this Law shall be expended on the Creation of jobs; Loans to small and medium enterprises. Article 15. Culture and art development fund The Culture and art development fund shall be financed, in addition to sources indicated in paragraph 7.1 of this Law, from the Income from cultural performance shows, artist, history and culture exhibitions financed by the Fund; Income from cultural performance shows, artist, history and culture exhibitions and equivalent events organized abroad The portfolio manager shall, when planning allocations from the state budget to fund indicated in paragraph 15.1 of this Law, consider the amount of expenditures necessary for implementation of projects and actions for cultural promotion and protection of historical and cultural heritage Resources in the fund indicated in paragraph 15.1 of this Law shall be expended on the Protection, preservation, restoration and promotion of historical and cultural heritage; Implementation of projects and programs to promote and disseminate new literary creations; Financing of movies and documentaries, traditional and classical art creations; Support for production of video and audio imagery, books, arts and culture publications for international and domestic promotion of cultural and historical heritage and traditional art; Organization of culture and art performance shows, historical and cultural heritage and artist creation exhibitions abroad and in own country; Organization of culture and art events to promote children s aesthetical education; Procurement of appliances, equipment and supplies specifically needed by art and culture organizations; Organization of skill enhancement workshops and trainings for artists and individual working in art and culture, support for their participation in local and international art and culture events; Acquisition of best musical scores, artistic paintings, movies and literary works for preservation in the state fund; Awards and incentives for artists and individuals working in arts and culture for 8

9 outstanding achievements in international arts and culture fairs, competitions, exhibitions and book fairs; Incentives for corporate entities, organizations and citizens that made contributions towards preservation of historical and cultural heritage, promotion of national arts and culture. Article 16. Education treasury fund The Education treasury fund shall be financed, in addition to sources indicated in paragraph 7.1 of this Law, from the Student loan repayments; Resources mobilized in the course of rectifying violations pertaining to duplicated disbursement of grant money as well as other sources not prohibited by law The portfolio manager shall, when planning allocations from the state budget to the fund indicated in paragraph 16.1 of this Law, consider the amount of student loans, grants, number of students to receive tuition-free education and the benchmark rate of tuition Resources in the fund indicated in paragraph 16.1 of this Law shall be expended on the Provision of tuition loans; Provision of tuition grants; Financing of tuition from the state budget The Education treasury fund expenditure program shall be approved by the Cabinet. Article 17. Assistance fund for Mongolian citizens abroad The portfolio manager shall, when planning allocations from the state budget to the Assistance fund for Mongolian citizens abroad, consider the fund s revenue and expenditure performance during the previous year and the ending balance Resources in the fund indicated in paragraph 17.1 of this Law shall be expended for protection of civil rights and legal interests of Mongolian citizens abroad and provision of material and financial support thereto. Article 18. Fund for children The portfolio manager shall, when planning allocations from the state budget to the Fund for children, consider projects and actions to be implemented by the Government for child development and protection purposes during the particular budget year Resources in the fund indicated in paragraph 18.1 of this Law shall be expended on the Projects and programs within the child development and protection policy framework; Aid in special circumstances to protect children s rights and interests; Support to some activities by non-government organization with child and adolescent membership. Article 19. Investment and development fund Resources in the Investment and development fund indicated in paragraph of this Law shall be expended on the Loans, loan guarantees, and subsidy to cover loan interest payments; /added on May 22, 2008/ Consulting and training for entrepreneurs; Support for accessing foreign markets; Adoption of high technologies; Creation of business incubators. 9

10 Article 20. Science and technology fund The Science and technology fund shall be financed, in addition to sources indicated in paragraph 7.1 of this Law, from the income of fund-managed activities The total amount of allocations from the state budget to the fund indicated in paragraph 20.1 of this Law shall be no less that 1.5% of GDP The portfolio manager shall, when planning allocations from the state budget to the fund indicated in paragraph 20.1 of this Law, consider science and technology projects commissioned by the Government and expenditures for theoretical baseline research during the particular budget year Resources in the fund indicated in paragraph 20.1 of this Law shall be expended on the Baseline research on priority science and technology topics; Science and technology projects commissioned by the Government (state); Application of research results to production and services. Article 21. Health support fund The Health support fund shall be financed from to sources indicated in paragraph 7.1 of this Law and 2% of excise tax on tobacco Resources in the fund indicated in paragraph 21.1 of this Law shall be expended on the Projects and programs for tobacco and alcohol control, health support; Support for actions aimed to prevent tobacco and alcohol related diseases, protect public health; Actions to monitor and raise awareness of harmful effects of tobacco and alcohol use; Actions to increase availability of tobacco and alcohol rehabilitation treatments, medicines, tools and equipment; Research on harmful effects of tobacco and alcohol on human health and economy; Actions to improve quality and increase accessibility of healthcare and social welfare services for alcohol addicts; Support for non-government organizations, legal entities and citizens active in prevention of and combating against alcoholism. Article Renewable energy fund /added on January 11, 2007/ The Renewable energy fund shall be financed, in addition to sources indicated in paragraph 7.1 of this Law, from the % of income earned by legal entities with state and local government equity participation through emissions reduction trading in accordance with the Kyoto protocol under the United Nations Framework Convention on Climate Change; Other income The Renewable energy fund resources shall be expended on the Price gap subsidy for independent energy producers in accordance with paragraph of the Law on Renewable energy; Professional training in the area of renewable energy; Research on introducing new technologies and equipment to production and utilization of renewable energy; Renewable energy resource assessment. 10

11 Article Housing Development Fund Resources of the Housing Development Fund shall be formed from the following sources in addition to those specified in provision 7.1 of this law: income from lending operations The budget portfolio manager shall consider the cost of projects and activities to be implemented by the Government in the area of housing in order to plan for allocations from the central budgte to the HDF /.3. Resources in the HDF shall be spent for the following purposes: upgrading, improvement and construction of housing and its infrastructure; issuance of loans to individuals and legal entities for the purposes set forth in provision of this law. /Article 21 2 was added under the law from July 9, 2009/ Article 22. Public liability fund The Public liability fund shall be financed from: Sources indicated in paragraph 7.2 of this Law; Resources collected from legal entities engaged in provision of communication services Resources to be collected from legal entities as indicated in paragraph of this Law shall be equal to 2% of corporate income tax paid by the entities Resources in the fund indicated in paragraph 22.1 of this Law shall be expended on the Provision of basic communication services to remote areas and populations without access thereto; Installation, expansion, upgrade of communications network. Article 23. Livestock protection fund Resources in the Livestock protection fund indicated in paragraph of this Law shall be expended on the Assessment of pastureland carrying capacity, research on livestock winter pasturing; Upgrade of hay and fodder production equipment; Well rehabilitation, new well development; Special fund activity expenditures. Article 24. Crop promotion fund Resources in the Crop promotion fund indicated in paragraph of this law shall be expended on the Actions to promote irrigated crop production, install and upgrade irrigation systems; Actions to restore croplands, improve soil fertility; Development of seed farming; Modernization of agricultural equipment and technologies; Procurement of wheat meeting standard requirements from crop producers; Special fund capital asset maintenance and repairs. Article 25. Fund established in accordance with international treaty The portfolio manager shall, when planning allocations from the state budget to the fund 11

12 established in accordance with international treaty, consider previous year s performance of operational funds, amount of grant funds to be allocated thereto Resources in the fund indicated in paragraph 25.1 of this Law shall be expended on the Projects, programs and activities indicated by the treaty; Projects, programs and activities agreed with foreign countries, international and foreign organizations. Article 25/ 1 /. Military Development Fund 25/ 1 /.1. Resources of the Military Development Fund shall be formed from the following sources in addition to those specified in provision 7.1 of this law: 25/ 1 /.1.1. relevant portion of the compensation for participation in peace keeping operations as set forth by the Cabinet; /This clause was amended under the law from May 20, 2010/ compensation for core and auxiliary equipment and other stuff of Mongolia s military forces deployed for peace keeping operations; /This clause was amended under the law from May 20, 2010/ 25/ 1 /.1.3. sales proceeds of some equipment written off from the arms balance sheet; 25/ 1 /.1.4. earnings from participation of military staff in national development activities; compensation for training and preparations for peace keeping operations. /This clause was amended under the law from May 20, 2010/ 25/ 1 /.2. Resources in the MDF shall be spend on the following purposes: improve capacity of military forces to participate in peace keeping operations; /This clause was amended under the law from May 20, 2010/ 25/ 1 /.2.2. training and preparations for military staff who are assisting with provision of security to people and environment and local protection in relations to anti-terrorist operations, natural disasters and technological accidents with widespread consequences, and other multilateral duties; 25/ 1 /.2.3. recovery and upgrading of military equipments and devices and enhancing the physical base for training; financing other operations related to participation in peace keeping operations; /This clause was amended under the law from May 20, 2010/ organizing peace keeping and humanitarian training in Mongolia; /This clause was amended under the law from May 20, 2010/ 25/ 1 /.2.6. improving social welfare of staff in the military services; 25/ 1 /.2.7. at least 70 percent of other revenue except for donations and grants for specified purpose under an international treaty to be spent for the purposes set forth in provisions of this law. /Article 25/1/ was added under the law from July 9, 2009/ if a military servant dies while participating in peace keeping operations, his/her family shall be made an one-time benefit in accordance with the law on pensions and benefits of military servants. /This provision was added under the law from July 2, 2010/ 12

13 Article 26. Decision to expend special fund resources The central administrative organization in charge of financial affairs shall review the amount of resources planned in accordance with the provisions of this Law by the portfolio manager for a particular special fund and incorporate it in the Fiscal framework and state budget proposal for the particular year in accordance with the procedures indicated in the Public sector financing and management law The decision to expend resources in the funds indicated in paragraph 6.3 of this Law shall be made by the Cabinet The Cabinet shall determine the organizational structure and staffing limits for funds indicated in paragraph 6.4 of this Law. The decision to expend resources in a particular fund shall be made by the Cabinet member in charge of the relevant issue The Cabinet shall appoint the entity authorized to expend resources in the funds indicated in paragraph 6.5 of this Law in each particular case. The entity authorized by the Cabinet shall be the project implementing agency The decision to expend resources indicated in paragraph 4.2 of this Law shall be made by the Cabinet based on a proposal by the Cabinet member in charge of emergency issues Expenditure programs for special funds indicated in paragraphs 5.4.3, of this Law shall be approved by the Cabinet /amended on February 6, 2007/. CHAPTER FOUR. Financing from special funds Article 27. Location of special funds Resources of special funds, excluding those indicated in paragraphs , of this Law, shall be placed in special accounts at the Treasury unless otherwise stipulated by international treaties. /amended on November 30, 2007/ Interest shall be paid on balance funds on the accounts indicated in paragraph 27.1 of this Law and balance funds of special funds indicated in paragraph 6.5 of this Law. Article 28. Forms of financing from special funds Financing from special funds shall be conducted in accordance with procedures indicated in the Public sector financing and management law Financing from the Government reserve fund shall be provided in the following forms: provide advance payments and finance by performance, i.e. phased financing in accordance with the features of a particular work or service and the amount required financing; direct financing, i.e. lump-sum financing upon completion of work or service The central administrative organization in charge of financial affairs shall determine the form of financing in accordance with the features of the project, activity, work or service to be performed and the amount of required financing. Article 29. Financing from Treasury The Treasury shall disburse special fund resources placed in accounts indicated in paragraph 27.1 of this law in accordance with the following procedure: financing for projects, programs and activities from special funds indicated in paragraphs 5.4.1, 5.42, , 5.48, , , , , , , , , of this Law in accordance with decisions by the entity indicated in paragraph 26.3 of this Law /amended on January 11, 2007/; financing from special funds indicated in paragraphs 5.4.3, of this Law in accordance with procedures approved as indicated in paragraph 26.6 of this Law /amended on February 6, 2007/; financing for projects, programs and activities from special fund indicated in 13

14 paragraph in accordance with decision by the entity indicated in paragraph 26.4 of this Law /amended on January 11, 2007/ The Cabinet decision to expend resources in the special fund indicated in paragraph of this Law shall be implemented in accordance with the following procedure: the central administrative organization in charge of financial affairs shall transfer the funds to the account of the portfolio manager responsible for the implementation of the activity; the portfolio manager shall transfer the funds to the account of the project and/or activity implementing organization; where financing has been granted in the form indicated in paragraph of this Law, the portfolio manager shall review the report by the implementing organization of the work performed with advance funding and shall make the request to the central administrative organization in charge of financial affairs for the next phase of financing Direct transfer of funds by the Treasury to the current account of a government and nongovernment organization and/or individual implementing a project, activity, work or service financed from the Government reserve fund is prohibited. CHAPTER FIVE. Special fund performance reporting and monitoring Article 30. Special fund report The portfolio manager shall prepare special fund expenditure reports on bi-annual and annual basis, incorporate them into the report indicated in paragraph 39.2 of the Public sector financing and management law and submit to the central administrative organization in charge of financial affairs Entities authorized to expend the resources in the fund indicated in paragraph of this Law shall follow the procedures indicated in paragraph 30.1 of this Law to an equal extent The implementing agency of a project and/or activity financed from the Government reserve fund shall prepare expenditure reports and submit to the portfolio manager within the determined timeframe Financial statements of special funds shall be audited in accordance with the Law on Public audit and be given an audit opinion The central administrative organization in charge of financial affairs shall incorporate expenditure reports of the Government reserve fund and Contingency fund into the report indicated in paragraph 37.2 of the Public sector financing and management law and report to the Cabinet and Parliament /amended on February 6, 2007/ Year-end expenditure reports of special funds along with an audit opinion shall be made available to the public through daily publications media within 20 days after report completion Reports on financing and expenditures of special funds established in accordance with international treaties shall be provided to the donor and the donor shall be able to conduct an audit thereof. Article 31. Monitoring of special fund expenditures Financial supervision of special funds shall be conducted in accordance with procedures indicated in Article 64 of the Public sector financing and management law If considered necessary, a relevant Standing committee of the Parliament may review special fund expenditure reports The state central administrative organization in charge of financial affairs shall monitor expenditures of the Government reserve fund /amended on February 6, 2007/ The portfolio manager shall oversee expenditures and performance of projects and activities in the particular sector implemented with financing from the Government reserve 14

15 fund The State audit office has the right to conduct an audit of capital utilization and expenditures of the Government reserve fund and Contingency fund in accordance with procedures stipulated in the Law /amended on February 6, 2007/ Monitoring of expenditures of special funds indicated in paragraph of this Law shall be conducted in accordance with international treaties and this Law /amended on January 11, 2007/. CHAPTER SIX. Other provisions Article 32. Prohibitions on special fund activities Expenditures exceeding budget appropriations and expenditures on purposes not stipulated by the law are prohibited Except where international treaties require placement of funds in commercial banking institutions, placing of special funds in non-treasury accounts is prohibited. Article 33. Liability for violations Where an official guilty of violating provisions of Article 32 of this Law, or using and/or expending special fund resources without approval by authorized organization and/or official and/or granting financing to unauthorized recipient, is not subject to criminal liability, the judge or state authorized inspector shall impose a fine of tugrug depending on the severity of the violation Where paragraph 30.3 of this Law has been violated, the state authorized inspector shall impose a fine of tugrug on the legal entity and a fine of tugrug on the official involved. Ts.Nyamdorj, Speaker, State Great Hural of Mongolia 15