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					                Annex 1

   TERMS OF REFERENCE FOR AUDIT OF NGOS
(GFATM PROGRAMME- FY2008) IN NORTH SUDAN
                                                                                        TABLE OF CONTENTS
Introduction ....................................................................................................... 3
   A.        Background ............................................................................................ 3
   B.        Project Management .............................................................................. 7
   C.        Consultations with concerned parties: .................................................. 12
   D.        Description of Financial Reports to be audited ..................................... 12
   E.        Audit Services Required ....................................................................... 13
   F.        The Audit Report and Management Letter............................................ 14
        a.   Audit Report.......................................................................................... 14
        b.   Management Letter .............................................................................. 15
Annex 1: Audit Services Required ....................................................................... 17
Annex 2: Qualifications of an Auditor ................................................................... 19
Annex 3: Sample Audit Report (for an unqualified opinion) ................................. 20
Annex 4: Definition of Audit Opinions................................................................... 22
Annex 5: Categorization of Audit Findings by Risk Severity ................................ 22
Annex 6: Classification of possible causes of Audit Findings ............................... 23
Annex 7: Sample - Certified prior year (2007) Follow-up action plan - ................. 24
Annex 8: Sample - Current year (2008) Follow-up action plan ............................ 26
Annex 9: Specimen - Submission form for audited awards and audit opinions .... 27
INTRODUCTION

   A. Background

General information relating to UNDP – GFATM agreement

The General Assembly of the United Nations has established the United Nations Development Programme
to support and supplement the national efforts of developing countries at solving the problems of their
economic development and to promote social progress and better standards of life.
The Global Fund to fight AIDS, Tuberculosis and Malaria (GFATM) is a Swiss National Governmental
Organization (NGO), which grants seek to increase availability of reliable information to guide program
planning and management through baseline surveys and improved health management information
systems.
As the principal recipient of the North Sudan GFATM grants, UNDP implements or oversees the
implementation of the program in accordance with the terms of the agreement signed between UNDP and
the Global Fund (GF), which is administered using UNDP regulations, rules and procedures. The principal
recipient is responsible and accountable to the Global Fund for all resources it receives under the said
agreement and for the results that are to be accomplished. Additionally, UNDP’s role as principal recipient
covers four areas, namely: Institutional and Programmatic, Financial Management and Systems,
Procurement and Supplies Management, and Monitoring and Evaluation.
The principal recipient can provide GFATM funding to other entities (sub-recipients) to carry out activities
contemplated under the program. In this case, UNDP is responsible for the results it and sub-recipients are
to accomplish. The principal recipient’s accountability and reporting to the Global Fund includes funds
disbursed to all sub-recipients and to the activities that sub-recipients carry out using program funds. The
principal recipient is responsible for assessing that systems are in place before transferring funds to the sub-
recipient and for monitoring sub-recipients’ performance.


List of Projects and Agreement with sub-recipients
In 2008 UNDP signed agreements with sub-recipients to implement the HIV / AIDS Round 3 Grant across
the country:
HIV/AIDS Round 3 Grant:
  -WHO and UNICEF main sub-recipients, and not subject to audit as per agreement between UN
Agencies.
  -Six local NGOs, as showed in the table below with their areas of interventions for the period of April
2008 to April 2009.
     SRs                      Objective                                          Priority activities                       Duration of Agreement
  HIV/AIDS                                                                                                                 (start date- end date of
   Round 3                                                                                                                         contract)
                                                             Mapping of FSWs & Truck drivers according to SNAP
                                                             directions.
                                                             Conduct trainings of peer educators and Awareness raising
                                                             sessions.
             Assessment of HIV Knowledge, Attitude           Provision of VCCT and STIs services.
             Practice and Behaviour among the truck driver   Development and distribution of the Information Education
             and FSWs in the project area                    Communication materials and condoms
ACORD                                                                                                                        12/04/08 – 11/04/09
             Implementation of STIs, HIV and AIDS            Co-ordination with SNAP, States AIDS programme and
             services among the truck driver and FSWs in     existing non-governmental institutions at state and central
             the project area                                level for the implementation of activities with specially
                                                             with mobile VCCT
                                                             Hiring of technical and administrative personnel to
                                                             implement GF activities.


                                                             Mapping of Prisoners according to SNAP directions.
                                                             Conduct trainings of peer educators and Awareness raising
                                                             sessions.
             Assessment of HIV Knowledge, Attitude           Provision of VCCT and STIs services.
             Practice and Behaviour among the Prisoners      Development and distribution of the Information Education
Rufaida      in the project area. Implementation of STIs,    Communication materials and condoms                             08/04/08 – 07/04/09
             HIV and AIDS services among the Prisoners       Co-ordination with SNAP, States AIDS programme and
             in the project area                             existing non-governmental institutions at state and central
                                                             level for the implementation of activities with specially
                                                             with mobile VCCT
                                                             Hiring of technical and administrative personnel to
                                                             implement GF activities
                                                             Mapping of FSWs according to SNAP directions.
                                                             Conduct trainings of peer educators and Awareness raising
             Assessment of HIV Knowledge, Attitude
                                                             sessions.
             Practice and Behaviour among the FSWs in
Ahfad                                                        Provision of VCCT and STIs services.
             the project area                                                                                                12/04/08- 11/04/09
University                                                   Development and distribution of the Information Education
             Implementation of STIs, HIV and AIDS
                                                             Communication materials and condoms
             services among the FSWs in the project area
                                                             Co-ordination with SNAP, States AIDS programme and
                                                             existing non-governmental institutions at state and central
     SRs                          Objective                                          Priority activities                       Duration of Agreement
  HIV/AIDS                                                                                                                     (start date- end date of
   Round 3                                                                                                                             contract)
                                                                 level for the implementation of activities specially with
                                                                 mobile VCCT
                                                                 Hiring of technical and administrative personnel to
                                                                 implement GF activities.
                                                                 Mapping of Prisoners according to SNAP directions.
                                                                 Conduct trainings of peer educators and Awareness raising
                                                                 sessions.
                Assessment of HIV Knowledge, Attitude
                                                                 Provision of VCCT and STIs services.
                Practice and Behaviour among the Prisoners
                                                                 Development and distribution of the Information Education
Global Health   in the project area
                                                                 Communication materials and condoms
Foundation      Implementation of STIs, HIV and AIDS                                                                              15/04/08-14/04/09
                                                                 Co-ordination with SNAP, States AIDS programme and
(GHF)           services among the Prisoners in the project
                                                                 existing non-governmental institutions at state and central
                area
                                                                 level for the implementation of activities with specially
                                                                 with mobile VCCT
                                                                 Hiring of technical and administrative persons to implement
                                                                 GF activities.
                                                                 -Mapping of Tea and Food Sellers according to SNAP
                                                                 directions.
                                                                 -Conduct trainings of peer educators and awareness raising
                                                                 sessions.
                Assessment of HIV Knowledge, Attitude
                                                                 -Provision of VCCT and STIs services.
                Practice and Behaviour among the Tea and
Nawafil                                                          -Development and distribution of the Information
                Food Sellers
Elkhairat                                                        Education Communication materials and condoms                   12/04/08- 11/04/09
                Implementation of STIs, HIV and AIDS
Organization                                                     -Co-ordination with SNAP, States AIDS programme and
                services among the Tea and food Sellers in the
(NEO)                                                            existing non-governmental institutions at state and central
                project area
                                                                 level for the implementation of activities with specially
                                                                 with mobile VCCT
                                                                 -Hiring of technical and administrative personnel to
                                                                 implement GF activities.
                Assessment of HIV Knowledge, Attitude            Mapping of Tea and Food Sellers according to SNAP
                Practice and Behaviour among the Tea and         directions.
Sudan Family
                Food Sellers                                     Conduct trainings of peer educators and Awareness raising
Planning                                                                                                                         08/04/08- 07/04/09
                Implementation of STIs, HIV and AIDS             sessions.
Association
                services among the Tea and food Sellers in the   Provision of VCCT and STIs services.
                project area                                     Development and distribution of the Information Education



                                                                                                                                                          5
     SRs                            Objective                                           Priority activities                           Duration of Agreement
  HIV/AIDS                                                                                                                            (start date- end date of
   Round 3                                                                                                                                    contract)
                                                                     Communication materials and condoms
                                                                     Co-ordination with SNAP, States AIDS programme and
                                                                     existing non-governmental institutions at state and central
                                                                     level for the implementation of activities with specially
                                                                     with mobile VCCT
                                                                     Hiring of technical and administrative personnel to
                                                                     implement GF activities.
The TOR is directed to the audit of special purpose financial statements, which are referred to as Combined Delivery Reports (CDR).




                                                                                                                                                                 6
         B. Project Management

      Description of the projects

      UNDP North Sudan Office is currently managing five grants from the GFATM, where one of these grants
      is subject to this audit: The HIV/AIDS Round Three Grant (SUD _305_G04 _H).

       SUD-305-G04-H         HIV/AIDS Round 3 Grant          Award ID 00039831        Project ID 00044832

      The goal of HIV/AIDS Round Three Grant is to fight HIV / AIDS in Northern Sudan to maintain the
      current level of HIV /AIDS epidemic less than 2% among general population (2004-2008), while avoiding
      stigmatization among vulnerable groups through provision of a package of preventive services and quality
      VCT services to high-risk and bridging population in large cities to increase the prevalence of safe sexual
      behaviors among them; reducing the vulnerability of general adult population and young people to HIV
      /AIDS; reducing the risk of transmission of HIV infection and other blood born infections through
      transfusion of blood products; improving the quality of life of PLWHA through provision of quality care
      and support and ensuring a secure environment for people infected and affected by HIV / AIDS.


      Project budget and Sources of funding

      As per the Global Fund policies and procedures: out of the life time budget of each grant the disbursement
      is done annually, or depending on the project needs, biannually, i.e., during 2008 UNDP received two
      installments of the grant totaling US$ 2,898,586.79 ; the table below indicates the details of the funds
      released to the Principal Recipient (UNDP):

      Grant                Life Time Budget           Phase 1 Approved       Phase 2 Approved       US$ Received
                           (US$) (2005-2010)                (US$)                  (US$)              (as of 31
                                                                                                     December
                                                                                                        2008)



Round 3 HIV/AIDS             20,682,531.00            7,842,140.00          12,840,391.00           7,145,772.65
          Contracting and disbursing funds to sub-recipients

          The financial management of the grants is one of the primary responsibilities of UNDP as Principal recipient. In this context, UNDP has ensured monitoring of
          the disbursements through adequate financial management systems.

          Being in line with the Global Fund performance based funding principle, UNDP disbursed funds to its sub-recipients only after achievement of targets and
          utilization of funds based on the bank statements.

          Usually UNDP provides NGOs (sub-recipients) with advance payments for the first quarter (Q1) to start the implementation of the programme; then on a
          quarterly basis, UNDP receive a progress report from the Sub-recipients. The progress report includes both programmatic and financial data. This report is
          reviewed by the Global Fund Unit and will include all the clarifications needed in order to enable the disbursement to be made for the next quarter.

          The table below shows the amounts contracted and disbursed to the sub-recipients during the period from April 2008 to April 2009:


                        Amount
 Sub- Recipients                                                                                                                                                          Total
                     contracted as         1st disbursement US $         2nd disbursement US $         3rd disbursement US $         4th disbursement US $
HIV/AIDS Round                                                                                                                                                         disbursed
                     per agreement                  (date)                        (date)                        (date)                        (date)
    3 Grant                                                                                                                                                              (US $)
                         (US $)
ACORD                   87,350.00         34,940.02      19-Apr-08       26,205.01     17-Aug-08      17,470.01     15-Dec-08        8,735.00        7-Mar-09          87,350.04

Rufaida                 96,965.72         48,770.72      19-Apr-08       16,065.00     17-Aug-08      16,065.00     15-Dec-08        16,065.00       7-Mar-09          96,965.72

Ahfad University        95,550.00         31,815.00      19-Apr-08       32,235.00     17-Aug-08      25,200.00     15-Dec-08        6,300.00        7-Mar-09          95,550.00
Global Health                                                                                                       15-Dec-08                                          54,007.77
Foundation (GHF)        60,008.63         24,003.45      19-Apr-08       18,002.59     17-Aug-08      12,001.73                         0.00              -
Nawafil Elkhairat                                                                                                   15-Dec-08                                          94,199.70
Organisation (NEO)      94,199.70         46,499.70      19-Apr-08       15,900.00     17-Aug-08      15,900.00                      15,900.00       7-Mar-09
Sudan Family                                                                                                        15-Dec-08                                          60,008.63
Planning
Association             60,008.63         24,003.45      19-Apr-08       18,002.59     17-Aug-08      12,001.73                      6,000.86        7-Mar-09
TOTAL                  494,082.68        210,032.34                     126,410.19                    98,638.47                      53,000.86       7-Mar-09          488,081.86
          Nature of most significant disbursements:

ACORD: Mapping of FSWs and Truck Drivers, Awareness raising and training activities and TOT for peer educators
Rufaida: Mapping of Prisoners, Awareness raising and training activities and IEC activities.
Ahfad University: Mapping of FSWs, Awareness raising and training activities and provision of VCCT and STIs services.
Global Health Foundation (GHF): Mapping of Prisoners and awareness raining and training activities.
Nawafil Elkhairat Organisation (NEO): Mapping of Tea and Food Sellers, Awareness raising and training activities, provision of VCCT and STIs activities and IEC activities.
Sudan Family Planning Association: Mapping of Tea and Food sellers and awareness raising and training activities.
Sub-Recipient Contact Information

                       Contact information(physical address,
                                                                                                                 List of persons responsible for
Sub Recipient          phone numbers, fax numbers, website,    List of senior management (and contact details)
                                                                                                                 Financial/Accounting management
                       general email addresses)

                                                               1- Ilham Osman Ibrahim
                                                               ACORD Sudan HIV AIDS Thematic Leader
                       Elmufty Street Khartoum 2
                                                               0912395136
                       Khartoum, Sudan                                                                           Mohammed Saeed
ACORD                                                          Ilham_ibrahim@yahoo.com
                       83244556/7                                                                                Senior finance Officer
                                                               ilhamibrahim@gmail.com
                       83244560
                                                               2- Mohamed Salih Farah
                                                               ACORD Sudan Funding Officer
                                                               msalih@sudanmail.com

                       WWW.IPPF.ORG
                                                               1- Dr. Mohamed Ahmed Abu Salab
                       Badr street Eltief Block 22
                                                               2- Mrs.: Nagat Elhadi                             Eljac Suliman
SFPA                   Khartoum, P.O.Box 170, Sudan
                                                                                                                 Finance Officer
                       sfpaplanning@gmail.com
                                                               nagatelhadi@hotmail.com
                       sfpaplanning@hotmail.com


                                                               Dr. Nafisa Bedri, Professor, Faculty of Health
                                                                                                                 Dr Mohamed Moukhyer, 0918193879
AHFAD                                                          Sciences (also Director) 0912915694
                       Khartoum, Omdurman                                                                        (moukhyer@hotmail.com)
UNIVERSITY FOR                                                 nmbedri@gmail.com, nmbedri@hotmail.com
                       0912915694                                                                                Mr Nabeel Derias Polis,
WOMEN                                                          Mohamed Moukhyer, Project Coordinator
                                                                                                                 0129256140
                                                               918193879, moukhyer@hotmail.com


                                                               Dr. Yahia Salim Abu Grain, General Manager,
                                                               0912313151, abugrain06@yahoo.co.uk
                       Khartoum
GLOBAL HEALTH                                                  Mr. Yagoub Adam, 0912693709,
                       0912313151
FOUNDATION                                                     jackoub555@hotmail.com
                                                               Muatasim Mohammed Mahmoud, GHF
                                                               Coordinator, 0183426660
                                                     1- Ms. Manal osman Ahmed
               www.rhfsd.org                Email-
                                                      0912949579
               info@rhfsd.org
                                                       83255530                          Ehlamm Mohammed Abbas
RUFAIDA        Bader Street, Khartoum , Sudan
                                                      manal44_os@yahoo.com               Admin & Finance Officer
               P.O BOX :12093
                                                     2- Mrs. Enas Gafar
               rufaida2000@maktoob.com
                                                     Enas_28@yahoo.com


                                                     1- Project coordinator:
                                                         Ahmed Mohamed Ahmed             Financial Manager
NAWAFIL                                              Alderderi 00249122338732            Anas Khidr Babiker
               Khartoum,
ORGANIZATION                                         info@nawafil.org                    Osman
               info@nwafil.org
(NEO)                                                2- GF Focal Person:                 00249912478021
                                                         Omer Ahmed Abdelrahim Taha      anaskhidr@yahoo.com
                                                     00249916800044 omralsir@yahoo.com




                                                                                                                   11
   C. Consultations with concerned parties:

Prior to the start of audit work the auditor will be required to consult with the UNDP country office and the
implementing partner for each project. Further, upon completion of the draft audit report and management
letter, the auditor will be required to meet with the UNDP country office to debrief them on its major
findings from the audit and its recommendations for future improvements as well as to seek their feedback
thereon.


   D. Description of Financial Reports to be audited

Description of the Combined Delivery Report and Supporting Schedules
The report to be audited is referred to as the Combined Delivery Report (CDR). This report is prepared by
UNDP, using an in-house accounting software package called ATLAS. As described in more detail below,
the CDR combines expenditures from three disbursement sources for a calendar year. The three
disbursement sources include:
     1. Implementing partner (either Government or NGO)
         UNDP procedures require that where funds are advanced to the executing agency the agency must
         submit to the UNDP country office, on a quarterly basis, a financial report including (1) the status
         of the advance (2) a list of the disbursements made since the previous financial report, and (3) a
         request for a new advance. The UNDP country office enters the disbursements in ATLAS through
         the year as the financial reports are received. These implementing partner disbursements are
         recorded in the Government expenditure column in the CDR.
    2.   UNDP (country office, headquarters and other country offices)
         Disbursements made by UNDP from its own bank accounts are entered in ATLAS by the UNDP
         country office. These UNDP disbursements are recorded in the UNDP expenditure columns in the
         CDR. These disbursements may be classified as either direct payments or UNDP support services.
         This distinction, while very important for audit purposes, is not apparent from the CDR and can
         only be provided by the UNDP country office as a supporting schedule. A brief description of
         each category is provided below.
         a) Direct Payments - This is where the implementing partner is responsible for the expenditure
              but requested UNDP to effect payment to the vendor/consultant on its behalf. The
              implementing partner is accountable for the disbursement and maintains all supporting
              documentation. UNDP simply effects payments on the basis of properly authorised requests
              and gives the implementing partner a copy of the related disbursement voucher as evidence
              that payment was made.
         b)   UNDP Support Services - This is where the government and UNDP have agreed that UNDP
              will provide support services to the project and signed a Letter of Agreement. These support
              services must be described in the Letter of Agreement. UNDP is fully responsible and
              accountable for these expenditures and, accordingly, maintains all supporting documentation
              for the disbursement.
    3.   UN agencies
         The UN agency reports its expenditures to UNDP and to the government. The UNDP country
         office enters the expenditures in ATLAS. These UN agency expenditures are recorded in the UN
         Agencies expenditure column in the CDR.
At the end of the year, after receiving the fourth quarter financial report from the implementing partner and
the year-end expenditure report from the UN agency, UNDP prepares the CDR and submits it to the
implementing partner for signature. UNDP will provide the auditor with the signed CDR together with the
following supporting documentation.
     1. The quarterly financial reports submitted by the implementing partner.
    2.   A list of the direct payments processed by UNDP at the request of the implementing partner.
                  3.   A list of the disbursement made by UNDP as part of support services provided to the
                       implementing partner.
                  4.   The UN agency expenditure statement for the year.
          The signed CDR and supporting documentation for the year 2008 will be ready by 31 March 2009.

                  Cash balances

                  The following were the balances of funds (in USD) held by the SRs in the indicated dates:



    Sub- Recipients                                      Total SR expenditure        Balance in SRs          Balance in SRs
   HIV/AIDS Round 3                                       as per expenditure       (US$)* as of 31 Dec       (US$) as of 15
        Grant                       Total disbursed          report (US $)                 08                   April 09
ACORD                                     87,350.04             87,350.04                 203.26                8,565.16
Rufaida                                   96,965.72             96,965.72                 140.87                  1.94
Ahfad University                95,550.00                       95,550.00                     0                 2,371.32
Global Health Foundation
(GHF)                           54,007.77                       54,007.77                     0                    0
Nawafil Elkhairat
Organisation (NEO)              94,199.70                       94,199.70                2,285.67               3,506.95
Sudan Family Planning
Association                     60008.63                        60,008.63                 25.04                 3,676.13
         *Exchange rate: 1US$=2.27SDP


                  Total value of assets

                  The NGOs did not procure any item.


                 E. Audit Services Required

          The scope of the audit services is defined as follows:

                       The GFATM’s contributions in 2008 to the 6 NGOs are subject to audit.
                       The audit will be carried out in accordance with either ISA 1 or INTOSAI2 auditing standards.
                       The audit period is from 1 January to 31 December of the year 2008.
                       The scope of the audit is limited to the implementing partner expenditures, which are defined as
                        including (1) all disbursements listed in the quarterly financial reports submitted by the
                        implementing partner and (2) the direct payments processed by UNDP at the request of the
                        implementing partner.
                       The auditor will verify the mathematical accuracy of the CDR by ensuring that the expenditures
                        described in the supporting documentation (the quarterly financial reports, the list of direct
                        payments processed by UNDP at the request of the government, the list of disbursements made



          1.
               International Standards of Auditing (ISA) published by the International Auditing Practices Committee of
                      the International Federation of Accountants
          2
               International Organization of Supreme Audit Institutions



                                                                                                                         13
          by UNDP as part of support services, and the UN agency expenditure statement) are reconciled
          to the expenditures, by disbursing source, in the CDR.
         The auditor will state in the audit report the amount of expenditures excluded from the
          scope of the audit because they were made by UNDP as part of support services and the
          amount of total expenditures excluded because they were made by a UN agency.
         The auditor will state in the audit report if the audit was not in conformity with any of the above
          and indicate the alternative standards or procedures followed.
         The auditor will provide an opinion as to the overall financial situation of the project for the
          period 1 January to 31 December 2008 and will certify:
        1.   The Statement of Expenditure (CDR) for the period from 1 January to 31 December 2008;

        2.   The Statement of cash position reported by the projects as at 31 December 2008; and

        3.   The Statement of assets and equipment held by the project as at 31 December 2008.
.
         That the auditor will provide in monetary value, the net financial impact of any audit
          qualification (negative opinion: qualified, adverse, disclaimer) on the Statement of
          Expenditure (CDR) where applicable.
         That the auditor/audit firm will submit a draft audit report by 15 October 2009 and a final signed
          audit report with certified statements by 30 October 2009.
Note: Audit opinions must be one of the following: (a) qualified (negative), (b), unqualified
(favourable), (c) adverse (negative), or (d) disclaimer (negative). If the audit opinion is
other than “unqualified” (favourable) the audit report must describe both the nature and amount of
the possible effects on the financial statements. The report should also make a reference to the
section of the management letter with regard to the action taken or planned to be taken to address
issues underlying the qualification. A definition of audit opinions is provided in Annex 4.


    F. The Audit Report and Management Letter

        a.       Audit Report
The audit report should clearly indicate the auditor’s opinion (Refer to Annex 3 for a sample Audit
Report). This would include at least the following:
          That it is a special purpose report and its intended use.
         The audit standards that were applied (INTOSAI standards, ISAs, or national standards that
          comply with one of these in all material respects).
         The period covered by the opinion.
         The net financial impact of the qualification on the CDR where applicable.
         The scope limitation (description and value) for those transactions that are the responsibility of
          UNDP (as part of support services) or a UN agency. Important to note: Such scope limitation
          should not be reason for qualified audit opinions, as such transactions would be excluded from
          the audit scope.
         Whether the Statement of Expenditure (CDR) for the period from 1 January to 31
          December 2008 is adequately and fairly presented. The disbursements made are in
          accordance with the purpose for which funds have been allocated to the project;

         Whether the Statement of Assets and Equipment is fairly and adequately presented as at 31
          December 2008; and




                                                                                                             14
         Whether the Statement of Cash Position reported by the project is fairly and adequately
          presented as at 31 December 2008.


         b.       Management Letter
The management letter should cover the following topics/issues:
        A general review of project progress and timeliness in relation to progress milestones and the
         planned completion date, both of which should be stated in the project document or AWP. This
         is not intended to address whether there has been compliance with specific covenants relating to
         specific performance criteria or outputs. However general compliance with broad covenants such
         as implementing the project with economy and efficiency might be commented upon but not
         with the legal force of an audit opinion.
         An assessment of the project's internal control system with equal emphasis on (i) the
          effectiveness of the system in providing the project management with useful and timely
          information for the proper management of the project and (ii) the general effectiveness of the
          internal control system in protecting the assets and resources of the project.
         A description of any specific internal control weaknesses noted in the financial management of
          the project and the audit procedures followed to address or compensate for the weaknesses.
          Recommendations to resolve/eliminate the internal control weaknesses noted should be included.
    The management letter should also include the following:
        The categorization of audit findings by risk severity: High, Medium, or Low. Definitions of
         these categories are given in Annex 5.
         The classification of possible causes of the audit findings. Definitions of these causes are
          given in Annex 6.
         Management comments/response to audit findings and recommendations (project management
          and/or UNDP, as applicable).
         Optionally, comments as to whether recommendations made in the management letter for the
          previous audit were implemented and the implementation status. Important note: This is not a
          substitute for the submission to OAPR of a ‘follow-up action plan/certified follow-up action
          plan’ (see Annex 7 and Annex 8).
More detailed guidance for the above general categories is provided below.



Review of project progress

As part of the general review of project progress, specific steps could include the following:

         Review annual and quarterly work plans, quarterly and annual financial reports, and requests for
          direct payments and assess in terms of their timeliness and their compliance with the project
          document or the AWP, and the UNDP User Guide on Results Management.
         Review the Annual Project Reports prepared by the implementing partner and assess in terms of
          compliance with UNDP guidelines and whether the implementing partner met its responsibilities
          for monitoring described in the project document or AWP.
         Review whether the decisions and/or recommendations of the above activities have been
          followed through by the implementing partner.
         Review the pace of project progress and comment on the causes for delays.
         Comment on whether implementation services of the UN Agency(s) were provided in line with
          project document or AWP.



                                                                                                         15
Assessment of internal control

The auditor is expected to conduct a general assessment of internal controls according to established
internal control standards. An example of established internal control standards is available from the
Organization of Supreme Audit Institutions (INTOSAI). The INTOSAI standards are intended for use by
government managers to use as a framework to establish effective internal control structures. For further
information, the INTOSAI Guidelines for Internal Control Standards can be found on the INTOSAI Web
site www.intosai.org. An overview of the standards can be found in the UNDP Contact tool (Chapter 6).

In addition to the above general assessment, additional specific steps could include the following:
          Review expenditures made by the implementing partner and assess whether they are in
           accordance with project document, AWP and budgets; and are in compliance with the UNDP
           User Guide on Results Management.
         Review the process for procurement/contracting activities and assess whether it was transparent
          and competitive.
         Review the use, control and disposal of non-expendable equipment and assess whether it is in
          compliance with UNDP User Guide on Results Management; and also whether the equipment
          procured met the identified needs and whether its use was in line with intended purposes.
         Review the process for recruiting project personnel and consultants and assess whether it was
          transparent and competitive.
         Review the implementing partner accounting records and assess their adequacy for maintaining
          accurate and complete records of receipts and disbursements of cash; and for supporting the
          preparation of the quarterly financial report.
         Review the records of requests for direct payments and ensure that they were signed by
          authorised government officials.


Recommendations for improvement

Recommendations should be directed to a specific entity so there is no confusion regarding who is
responsible for implementation. The response of the entity should be included in the management letter,
immediately following the recommendation.
Also, the auditor may wish to comment on “good practices” (if any) that were developed by the
implementing partner that should be shared with other project personnel.

Available Facilities and Right of Access

There should be a description of the nature and the location of all records belonging to the project. This list
should specify those records kept at the implementing partner's headquarters and those that are located at
other offices.
The auditor will have full and complete access at any time to all records and documents (including books of
account, legal agreements, minutes of committee meetings, bank records, invoices and contracts etc.) and
all employees of the entity. The auditor is advised that he/she has a right of access to banks, consultants,
contractors and other persons or firms engaged by the project management.




                                                                                                            16
ANNEX 1: AUDIT SERVICES REQUIRED


The scope of audit services shall cover the overall management of the project’s implementation, monitoring
and supervision. The audit work should include the review of work plans, progress reports, project
resources, project budgets, project expenditure, project delivery, recruitment, operational and financial
closing of projects (if applicable) and disposal or transfer of assets. To this effect, the scope of the audit
shall cover the following areas as they are performed at the level of the project:

Human resources
The audit work shall cover the competitiveness, transparency and effectiveness of the recruitment and
hiring of personnel and include performance appraisal, attendance control, calculation of salaries and
entitlements, payroll preparation and payment, and management of personnel records.

Finance
The audit work shall cover the adequacy of the accounting and financial operations and reporting systems.
These include budget control, cash management, certification and approving authority, receipt of funds, and
disbursement of funds, recording of all financial transactions in expenditure reports, records maintenance
and control.

Procurement
The audit work shall cover the competitiveness, transparency and effectiveness of the procurement
activities of the project in order to ensure that the equipment and services purchased meet the requirement
of either the government (or NGO) or UNDP and include the following:
      As applicable, delegations of authorities, procurement thresholds, call for bids and proposals,
          evaluation of bids and proposals and approval/signature of contracts and purchase orders;
        Receiving and inspection procedures to determine the conformity of equipment with the agreed
         specifications and, when applicable, the use of independent experts to inspect the delivery of
         highly technical and expensive equipment
        Evaluation of the procedures established to mitigate the risk of purchasing equipment that do not
         meet specifications or is later proven to be defective;
        Management and control over the variation orders.
The audit work in the area of procurement shall also cover the use of consulting firms and the adequacy of
procedures to obtain fully qualified and experienced personnel and assessment of their work before final
payment is made.

Asset Management
The audit work shall cover equipment (typically vehicles and office equipment) purchased for use of the
project. The procedures for receipt, storage, and disposal shall also be reviewed.

Cash Management
The audit work shall cover all cash funds held by the project and review procedures for safeguarding of
cash.

General Administration
The audit work shall cover travel activities, vehicle management, shipping services, office premises and
lease management, office communications, and records maintenance.




Information System



                                                                                                           17
The audit work shall cover the information and communication systems and the control and security of
equipment and data.

Note
The above scope shall cover those transactions performed at the level of the projects to include direct
payments made by UNDP CO as per UNDP Global Fund Management Unit’s instructions.

Scope Limitation
The above scope shall cover those transactions performed at the level of the project. Transactions/actions
that are performed by the UNDP office at the request and on behalf of the project are not to be included in
the audit scope. Important note: Such scope limitation should not be a reason for issuing a qualified
(negative) audit opinion by the auditors.




                                                                                                          18
ANNEX 2: QUALIFICATIONS                OF AN    AUDITOR

The auditor must be completely impartial and independent from all aspects of management or financial
interests in the entity being audited. The auditor should not, during the period covered by the audit nor
during the undertaking of the audit, be employed by, serve as director for, or have any financial or close
business relationships with any senior participant in the management of the entity. It is appropriate to
remind the auditor of any existing statutory requirements relating to independence and to require the
auditor to disclose any relationship that might possibly compromise his/her independence.
The auditor must be experienced in applying either ISA or INTOSAI audit standards, whichever is
applicable for the audit. The auditor must employ adequate staff with appropriate professional
qualifications and suitable experience with ISA or INTOSAI standards, including experience in auditing
the accounts of entities comparable in size and complexity to the entity being audited.
Curriculum vitae (CVs) must be provided to the client by the principal of the firm of auditors who would be
responsible for signing the opinion, together with the CVs of managers, supervisors and key personnel
proposed as part of the audit team. It would be appropriate to indicate required/minimum professional
qualifications necessary for the senior auditors/principals responsible for the audit. CVs should include
details on audits carried out by the applicable staff, including ongoing assignments indicating capability
and capacity to undertake the audit.




                                                                                                        19
A N N E X 3 : S A M P L E A U D I T R E P O R T ( for an unqualified opinion)


Auditor's report to:

The National Project Director and
The Resident Representative

    a) Certification of Statement of Expenditure
    We have audited the accompanying Statement of Expenditure (“the statement”) of the UNDP project
    number _________ [Atlas award and project number] for the period 1 January 200__ to 31 December
    200__. The statement is the responsibility of the management of the project. Our responsibility is to
    express an opinion on the statement based on our audit.
    We conducted our audit in accordance with International Standards of Auditing. Those standards
    require that we plan and perform the audit to obtain reasonable assurance about whether the statement
    is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
    amounts and disclosures in the statement. An audit also includes assessing the accounting principles
    used and significant estimates made by management, as well as evaluating the overall presentation of
    the statement. We believe our audit provides a reasonable basis for our opinion.
    In our opinion, the statement of expenditure presents fairly (unqualified (positive audit opinion), in
    all material respects the expenditure of __________ [insert amount in US$] incurred by the project for
    the period 1 January 200__ to 31 December 200__ in accordance with UNDP accounting
    requirements.

         Or (qualified (negative audit opinion)
    In our opinion, the statement of expenditure, except for (a), (b), (c), etc., presents fairly in all material
    respects the expenditure of __________[insert amount in US$] incurred by the project for the period 1
    January 200__ to 31 December 200__ in accordance with UNDP accounting requirements. The total
    net financial impact of this qualification is _________ [insert amount in US$].

         Or (disclaimer (negative audit opinion)
    We were unable to obtain sufficient appropriate audit evidence and accordingly are unable to
    express an opinion on the statement of expenditure of __________ [insert amount in US$] incurred by
    the project for the period 1 January 200__ to 31 December 200__. The total net financial impact of
    this opinion is_______ [insert amount in US$].

        Or (adverse (negative) audit opinion)
    We noted material differences between _________ and the statement of expenditure. As such, we do
    not express an opinion on the statement of expenditure, of __________ [insert amount in US$]
    incurred by the project for the period 1 January 200__ to 31 December 200__. The total net financial
    impact of this opinion is_______ [insert amount in US$].


    b)   Certification of Statement of Assets and Equipment
    We have audited the accompanying Statement of Assets and Equipment (“the statement”) of the
    UNDP project number _________ [Atlas award and project #] as at 31 December 200__. The
    statement is the responsibility of the management of the project. Our responsibility is to express an
    opinion on the statement based on our audit.
    We conducted our audit in accordance with International Standards of Auditing. Those standards
    require that we plan and perform the audit to obtain reasonable assurance about whether the statement
    is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
    amounts and disclosures in the statement. An audit also includes assessing the accounting principles
    used and significant estimates made by management, as well as evaluating the overall presentation of
    the statement. We believe our audit provides a reasonable basis for our opinion.



                                                                                                               20
    In our opinion, the statement of assets and equipment presents fairly (unqualified/favourable), in all
    material respects the inventory balance of the project amounting to _________[insert amount in US$]
    as at 31 December 200__ in accordance with UNDP requirements.
    c) Certification of Statement of Cash Position
    We have audited the accompanying Statement of Cash Position (“the statement”) of the UNDP project
    number _________ [Atlas award and project #] as at 31 December 200__. The statement is the
    responsibility of the management of the project. Our responsibility is to express an opinion on the
    statement based on our audit.
    We conducted our audit in accordance with International Standards of Auditing. Those standards
    require that we plan and perform the audit to obtain reasonable assurance about whether the statement
    is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
    amounts and disclosures in the statement. An audit also includes assessing the accounting principles
    used and significant estimates made by management, as well as evaluating the overall presentation of
    the statement. We believe our audit provides a reasonable basis for our opinion.
    In our opinion, the statement of cash position presents fairly (unqualified (positive audit opinion), in all
    material respects the cash balance of the project amounting to ____________ [insert amount in US$]
    as at 31 December 200__ in accordance with UNDP requirements.

    This report is intended solely for the information and use of UNDP and the Government of XYZ
    Country (or NGO).

    Date of issuance:__________________________

    AUDITOR'S NAME (Please print) __________________

    AUDITOR’S SIGNATURE ______________________

    AUDITOR’S/FIRM ADDRESS ____________________
                         ______________________


Note: Audit opinions must be one of the following: (a) qualified, (b), unqualified, (c)
adverse, or (d) disclaimer. If the audit opinion is other than “unqualified” the audit report must
describe both the nature and amount of the possible effects on the financial statements (NET
FINANCIAL IMPACT). A definition of audit opinions is provided in Annex 4.




                                                                                                             21
   ANNEX 4: DEFINITION             OF   AUDIT OPINIONS


   Unqualified (Clean or positive) Opinion

   An unqualified opinion should be expressed when the auditor concludes that the financial statements give a
   true and fair view or are presented fairly, in all material respects, in accordance with the applicable
   financial reporting framework.

   Qualified Opinion

   A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be
   expressed but that the effect of any disagreement with management, or limitation on scope is not so
   material and pervasive as to require an adverse opinion or a disclaimer of opinion. A qualified opinion
   should be expressed as being ‘except for’ the effects of the matter to which the qualification relates.

   Disclaimer of opinion

   A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material
   and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and
   accordingly is unable to express an opinion on the financial statements.

   Adverse

   An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to
   the financial statements that the auditor concludes that a qualification of the report is not adequate to
   disclose the misleading or incomplete nature of the financial statements



   ANNEX 5: CATEGORIZATION                  OF   AUDIT FINDINGS           BY   RISK SEVERITY


High               Action that is considered imperative to ensure that UNDP is not exposed to high risks (i.e.
                   failure to take action could result in major consequences and issues).
Medium             Action that is considered necessary to avoid exposure to significant risks (i.e. failure to take
                   action could result in significant consequences).
Low                Action that is considered desirable and should result in enhanced control or better value for
                   money.




                                                                                                                22
   ANNEX 6: CLASSIFICATION            OF POSSIBLE CAUSES OF                 AUDIT FINDINGS


Compliance    Failure to comply with prescribed UNDP regulations, rules and procedures

Guidelines    Absence of written procedures to guide staff in the performance of their functions

Guidance      Inadequate or lack of supervision by supervisors

Human error   Mistakes committed by staff entrusted to perform assigned functions

Resources     Lack of or inadequate resources (funds, skills, staff, etc.) to carry out an activity or function
AN N E X 7 : S AM P LE - C E R T I FI E D   P RIOR YE AR      (2007) FOLLOW-UP          ACTION P LAN     -
[insert country office name] (to be submitted to OAPR xxxxxxxxx 2009)

                                                                                     Impact on                                                Action Plan         Implementation
                                                                                                       Impact         Possible cause
Sr No.                                  Observation                                 Audit Opinion                                         (Comments & Name of   status (completed, in
                                                                                                    Severity (High,      (guidance,
                                                                                                                                                                    progress, not
                                                                                       (Y/N)        Medium, Low)      compliance, etc.)       Focal Points)          addressed)

1         Award title:            [insert title]
          Award Number:              [insert number]
          Award total expenditure as per CDR:             [insert amount in US$]
1.1       Audit area: Financial Management (FM)
1.1.1     [insert audit issue and page number in audit report]                 Yes                  High              Compliance
1.1.2     [insert audit issue and page number in audit report]                 No                   Medium            guidelines
1.2       Record keeping systems and controls (RC)
1.2.1     [insert audit issue and page number in audit report]                 No                   Medium            guidelines
2         Award title:            [insert title]
          Award Number:              [insert number]
          Award total expenditure as per CDR:             [insert amount in US$]
2.1       Financial Management (FM)
2.1.1     [insert audit issue and page number in audit report]
2.1.2     [insert audit issue and page number in audit report]
2.1.3     [insert audit issue and page number in audit report]
2.2       Project progress and rate of delivery (PP)
2.2.1     [insert audit issue and page number in audit report]
2.3       Record keeping systems and controls (RC)
2.3.1     [insert audit issue and page number in audit report]

3         Project: Support to the National Governance Programme. Award Number: 33063; Total expenditure as per CDR: US$ 122,795.65
3.1       Management and use of equipment / Inventory (EQ)
3.1.1     [insert audit issue and page number in audit report]

Total overall implementation ____ (% implemented
a) Total completed___             b) Total in progress___   c) Total not addressed _______

(a) Project Management                                                      |        (b) UNDP Country Office Management
Date: __________________                                                             |      Date: ______________________
                                                                                     |
                                                                                                                                                                                    24
(a) Certified by: _____________________________________                  |        (b) Certified by: _______________________________________
                   (Signature of National Project Director (NPD))        |                           (Signature of Resident Representative
                                                                         |
Name of NPD______________________________ Entity______________ |         Name of RR_____________________________________
                  (Please print)                                 |                          (Please print)
____________________________________________________________________________________________________________________________
(c) Auditor:
Date: __________________                                                 Audit Firm name and stamp/seal ______________________________
                                                                                                                       (Please print and stamp)
Certified by: _____________________________________              Name of Auditor ________________________________________
                  (Signature of Auditor)                                                             (Please print)




                                                                                                                                                  25
AN N E X 8 : S AM P LE - C U R R E N T     YE AR   (2008) FOLLOW-UP           ACTION P LAN

[insert country office name] (to be submitted to OAPR xxxxxxxx 2009)

                                                                                                                                                                       Target
                                                                                       Impact on         Impact                             Action Plan (Comments     Date and
                                                                                                                         Possible cause
Sr No.                                   Observation                                  Audit Opinion   Severity (High,      (guidance,          & Name of Focal         status
                                                                                                                        compliance, etc.)                           (completed, in
                                                                                         (Y/N)        Medium, Low)                                  Points)
                                                                                                                                                                     progress, not
                                                                                                                                                                      addressed)
1         Award title:            [insert title]
          Award Number:              [insert number]
          Award total expenditure as per CDR:             [insert amount in US$]
1.1       Audit area: Financial Management (FM)
1.1.1     [insert audit issue and page number in audit report]                  Yes                   High              Compliance
1.1.2     [insert audit issue and page number in audit report]                  No                    Medium            guidelines
1.2       Record keeping systems and controls (RC)
1.2.1     [insert audit issue and page number in audit report]                  No                    Medium            guidelines
2         Award title:            [insert title]
          Award Number:              [insert number]
          Award total expenditure as per CDR:             [insert amount in US$]
2.1       Financial Management (FM)
2.1.1     [insert audit issue and page number in audit report]
2.1.2     [insert audit issue and page number in audit report]
2.1.3     [insert audit issue and page number in audit report]
2.2       Project progress and rate of delivery (PP)
2.2.1     [insert audit issue and page number in audit report]
2.3       Record keeping systems and controls (RC)
2.3.1     [insert audit issue and page number in audit report]

3         Project: Support to the National Governance Programme. Award Number: 33063; Total expenditure as per CDR: US$ 122,795.65
3.1       Management and use of equipment / Inventory (EQ)
3.1.1     [insert audit issue and page number in audit report]
3.1.2.    [insert audit issue and page number in audit report]

Total addressed ____ (% implemented
a) Total completed___           b) Total in progress___     c) Total not addressed _______


                                                                                                                                                                                 26
        (a) Project Management                                                     |        (b) UNDP Country Office Management
    Date: __________________                                                       |        Date: ______________________
                                                                                   |
    Certified by: _____________________________________                    |       Certified by:    _______________________________________
                      (Signature of National Project Director (NPD))               |                        (Signature of UNDP Resident Representative
                                                                                   |
    Name of NPD______________________________ Entity______________         |       Name of RR_____________________________________
                  (Please print)                                           |                                (Please print)




1       2             3                4              5          6     7       8                9             10            11         12         13     14   15    16
                                                                                                                                                                   27
S/ Atlas Award Atlas Project Implem. Partner type Impl Fund        Y2008 Total   Y2008 NGO/NIM Y2008 Total           Y Y2008 Total Audit             Net         Root cause   Reason for (a)          General
N No.          No.           (GOV or NGO or       partner code     Expenditure   Govt expenditure GFATM              expenditure       opinion       financial of the issue   rendering Corrective comments
                             UND for GFATM        code ID          (Atlas CDR    audited and         Sub-recipient   excluded from rendered          impact of that           modified action
                             sub-recipients)                       amount)       certified (amount expenditure       audit: (e.g. CO (unqualified,   modified contributed     audit      planned or
                                                                                 from CDR) (e. audited               direct support to qualified,    audit       to the       opinion    taken by
                                                                                 g. advances, direct                 NIM exp., DEX disclaimer,       opinions modified        and        the project
                                                                                 paymts.) excludes                   exp., Agency adverse)           (qualified, opinion      provide    and/or the
                                                                                 CO direct support                   exp.)                           adverse or               breakdown country
                                                                                 to NIM                                                              disclaimer               of amounts office to
                                                                                 expenditure )                                                       opinion)                            address the
                                                                                                                                                                                         cause and
                                                                                                                                                                                         the issue(s)
                                                                                                                                                                                         that
                                                                                                                                                                                         contributed
                                                                                                                                                                                         /resulted in
                                                                                                                                                                                         a qualified
                                                                                                                                                                                         audit
                                                                                                                                                                                         opinion
  1




      AN N EX 9: - SPE CIM EN S UBM ISSI ON FOR M FOR AU DIT R EP ORT S AN D AU DIT                            OPINIONS        -   T O BE COM PLETED AND SIGNED BY                    NGO/NIM
      A U D I T O R S ( T E M P L A T E ) [insert country office name] (to be submitted to OAI xxxxxxx 2009)

      Note 1: Completion of this form is mandatory.
      Note 2: Amounts to be entered in columns 8 to 10 are components of the total CDR amount and must add up to the total CDR expenditure amount indicated in column 7: Y2008 total
      expenditure, as per Atlas generated CDR



                                                                                                                                                                                                     28
(1)

                                        Name of auditor and firm________________________________________


                                        Signature of auditor and stamp of audit
                                        firm_________________________________


                                                                                                           (please print)




 (2) Project management: ____________________________________
 _______________________________
                                                                                                  (Name and title)
                                                                                                (Signature and date)


 (3) Country Director or Resident Representative: ______________________
 _____________________________________
                                                                                  Name                                      (Signature and
                                                                                                                                 date)
(Please refer to the OAI website for the template in excel)




                                                                                                                                             29

				
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