TERMS OF REFERENCE FOR SOMALI NGO CONSORTIUM PROJECTS AUDIT
CARE International in Somalia has been providing development and lifesaving assistance across all regions of Somalia since 1981. Our programs go beyond meeting basic needs at the onset of an emergency to helping affected communities recover, rebuild their lives and become more resilient. In order to strengthen communities to better cope with future disasters and address persistent poverty and vulnerability, we are implementing a variety of longer-term development activities aimed at addressing the underlying causes of poverty in Somalia. Our development programs support marginalized women and youth through innovative projects in education, water and sanitation, sustainable environmental management, civil society development, peacebuilding and governance and small-scale enterprise development. CARE works in partnership with Somali and international NGOs, civil society leaders, universities, the private sector and local authorities in order to bring effective and lasting change to the most vulnerable communities.
The Somalia NGO Consortium (SNC) was first established in 1999 as a network of non-governmental organisations (NGOs) working together to improve international aid coordination and raise the presence and profile of NGO representation within the aid coordination structure for Somalia. Since inception, the Somalia NGO Consortium has grown as an effective network, actively supporting its members to promote dialogue, collaboration, learning experiences, information exchange and to advocate on issues of key concern.
Currently, the Consortium is the primary NGO coordination and representation mechanism, with a membership of 85 national and international NGOs working in all parts of Somalia/Somaliland, around humanitarian, development, peacebuilding, health, education among other thematic areas. Governed by a Steering Committee elected by the membership, the SNC provides a platform for information sharing and representation to governments, UN agencies, donor groups and multilateral organisations at local, national and international levels. The Consortium has offices and representation in Mogadishu, Hargeisa, Garowe and Nairobi and plans to expand its reach to constituencies in the remaining federal states through extensive outreach work from the current offices.
The SNC is currently co-funded through Swiss Development Cooperation (SOC), Somalia Humanitarian Fund (SHF), OFDA (USAID), BMZ (German Development Ministry), Sweden, Eu Novice, Oxfam and membership subscription fees. Legal and contractual responsibilities associated with funding and contracting are held by host agencies 1, as SNC is not a legally constituted entity, but rather a network of its membership.
Summary of the project
Somalia NGO Consortium
An enabling environment for the efficient and effective delivery of humanitarian and development assistance for all Somali people".
Mogadishu, Hargeisa, Garowe and Kismayu
1st June 2020
30th April 2021
US$ 650,000-$ 700,000
Swiss Embassy in Kenya( SDC)
CARE international/Somali NGO Consortium
Location of the documents to be audited
Mogadishu and Hargeisa
The Financial Information of the project/program shall be audited in accordance with International Standards on Auditing (ISA 805) “Special Considerations Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement”.
1. Fundamental principles
1.1 The financial audit of projects (“financial audit”) is to be carried out by an independent auditor (“the auditor”), having the required professional competence and experience (e.g. Certification by National Audit Oversight Authority), and in accordance with International Standards on Auditing (ISA).
1.2 These Terms of Reference (“TOR”) define the mandate of the auditor in connection with the financial audit of projects/programs of the partner, financed by the Federal Department of Foreign Affairs (FDFA). The financial audit is based on the professional requirements and guidelines governing the professional work to be undertaken by an auditor.
1.3 In planning, conducting and reporting on the financial audit, the auditor has to follow the ISA 805*.*
In addition, the relevant standards of the local accounting profession as well as the local legislation on accounting and reporting in force in the country in which the financial audit is carried out need to be taken into consideration by the auditor.
2. Overall principles of the procedures to be performed
The auditor is required to plan, execute and report on the financial audit engagement in order to conclude on the following matter: **
- 2.1 Principles of orderliness (financial regularity/reporting)
Furthermore, the auditor is required to assess whether the partner has adequate policies and procedures in place relating to the following matters (those matters are not covered by the audit engagement in accordance with ISA as mentioned above):
2.2 Existence, adequacy and effectiveness of the Internal Control System (ICS)
2.3 Conformity with the project objectives and adherence to the contract conditions
2.4 Economical conduct of business and effective use of financial resources
In order to respect these principles, the auditor has to analyse the questions mentioned in the annexed Questionnaire (Annex 1).While item 2.1 will be reflected in the audit report prepared in accordance with ISA, items 2.2 to 2.4 will be reflected by the answers of the auditor to the Questionnaire in the Annex 1. Recommendations to the management shall be formulated according to Annex 2 (Management Letter).
3. Documents of reference
The following documents and matters are to be considered by the auditor as basic references for performing the financial audit:
Legislation: National law
Project/program: Agreement between FDFA and the partner relative to the project;
Project Document / TOR;
Budgets, financing plans, programs of project activities;
Project management procedures;
Any other documents concerning the project/program.
Accounting: Accounting documents subject to the financial audit;
Financial and operational reports concerning the project/program.
Auditor: Prior internal and external audit reports of the partner;
Any other information requested from the partner by the auditor.
4. Planning the financial audit
The auditor shall adequately plan the financial audit engagement well in advance of the work and ensure the execution of the financial audit of highest professional quality in an economical and efficient manner as agreed upon in the respective mandate in the name of the partner and the auditor.
On the basis of the information received during the planning phase, including the auditor’s risk assessment, the auditor shall determine:
· the type of transactions to be audited and the audit methods (full audit or sample selections);
· the type of physical counts or examination and the sites to be selected;
· the number of site visits to be planned.
The auditor ensures continuity in the audit approach of the financial audit engagement and the audit team, even if there is a change in the leader of the engagement team from the prior year.
5. Place of financial audit
The financial audit is to be carried out at the project/program environment (administrative offices and/or decentralised sites, if applicable).
6. Management representation of full disclosure
The auditor shall obtain a management representation letter signed by the management of the partner organization, certifying:
a) The acknowledgement of the organization's responsibility for the keeping of accounts and financial documents that are correct, complete, fair, representing the true facts, in conformity with the objectives of the project, the documents of reference (description of the project, contracts, budgets, etc.) and national legislation;
b) That all accounting records, supporting and other documents, minutes and any other pertinent information necessary for the audit be at the disposal of the auditor;
c) The completeness of information concerning property and goods;
d) The completeness of information concerning financing received or due and own financing concerning the audited period, for the project being examined; **
e) The availability of any information and explanations, either orally or by written confirmation, which might be required by the auditor in the execution of his mandate;
f) In the case of contributions to local NGOs, the declaration has to certify the completeness of information concerning financing received or due and own financing concerning the audit period, for the project being audited and for the examination of the consolidated financial statements of the organization. The consolidated financial information, including balance sheets and profit and loss statements of the project are to be attached to the declaration and form an integral part thereof. This declaration shall be provided together with the financial audit report.
7. Detailed financial audit procedures
Appropriate audit procedures are to be applied by the auditor in order to form a conclusion on the matters outlined below. These procedures applied, either on a full coverage or a sample selection basis may include: controls, checking, evaluation, inspection, interview, analysis and other audit techniques. When selecting the audit procedures, the auditor shall give consideration to the results of his risk assessment (during planning stage and during the course of the audit work).
Accordingly, the auditor must define and carry out suitable audit procedures in order to obtain an overview of the aforementioned aspects before the auditor assesses the individual findings and reaches a final independent opinion on the audit.
The auditor is expected to select and apply any other audit procedures that the auditor may consider necessary in the professional execution of the financial audit engagement.
Upon receipt of the financial audit report, the FDFA or any third persons designated by the FDFA reserve the right to request other audit procedures to cope with the change in circumstances in the project or of the organisation of the partner.
In addition, in order to respect the principles mentioned under Art. 2 above, the auditor has to analyse the questions in the annexed Questionnaire (Template Annex 1). Any answers with “no” have to be taken up as recommendations in the Management Letter (Template Annex 2).
8. Closing meeting
After the completion of the financial audit engagement, but before leaving the project or the premises of the partner, the auditor shall hold a closing meeting with the persons responsible for the project/program (directors) and the staff responsible for accounting and reporting. The meeting shall address the results of the audit, discuss major weaknesses in the project, administrative and financial management (including the deficiencies of individual staff members) and propose recommendations to improve the project management, the accounting procedures and the internal control system (ICS).
9. Financial audit deliverables
The audit report of the auditor shall provide an opinion on the financial information of the partner as per ISA (Template Annex 3).
The answers to the Questionnaire (Template Annex 1) and recommendations to the management (Management Letter according to Template Annex 2) as well as the management representation letter shall be provided as separate deliverables together with the audit report.
9.1. Currency and language of the financial audit report
The financial information contained in the financial audit report of the auditor is to be expressed in the currency provided for in the contract. The financial audit report of the auditor and all other documents resulting from the financial audit engagement must be prepared in English.
The financial audit report is to be signed by the leader of the audit team. The financial reporting subject to audit shall be signed by a representative of the management of the partner.
Place and date: _
For the partner: _
For the auditor: _
Annex 1: Questionnaire on the Overall principles of the procedures to be performed (2.2, 2.3 and 2.4)
Annex 2: Management Letter
Annex 3: Independent auditors’ report (Basis: ISA 805)
Scope of Work
The audit will be carried out in accordance with international standards of auditing. It will include such tests and controls as the auditor considers necessary including visits to project office and sites. In additional, the auditors will also make a sample from the expenditures incurred from 1st June 2020 to 30th April 2021, generally, the audit will focus on:
- A sample from the expenditures incurred from 1st June 2020 to 30th April 2021
- Contractual compliance and practice: To assess and confirm that that CARE International and its implementing partner is compliant with SDC contractual obligations. It will also entail confirming that CARE’s management practices, including administrative, contractual, financial and legal are in line with best practices.
- Financial management and internal controls: To assess and confirm that financial management and control environment of CARE international and its implementing partners has been designed and implemented in line with best and generally accepted accounting standards.
- Expenditure and reporting verification: To verify and confirm, on a sample basis, that reported expenditure and other financial reports issued by the Implementing Partner are accurate and a true reflection of the project’s financial activities, and also to confirm that all expenditures have sufficient support documentations.
- Contracting and procurement: To establish and confirm that transparent, accountable and appropriate procurement and contracting practices are established and are being followed.
- Regulatory and tax compliance: to confirm on whether CARE has complied with regulatory/tax laws.
Specific focus will be:
- To ascertain compliance of the laid down policies, SDC financial norms, accountable grant agreement, relevant legislations, various guidelines, manuals, accountability requirements, procurement guidelines (of goods, works and/or services) as applicable under the project.
- Expenditure verification for the project expenditures, and reporting on allow ability/eligibility, validity, accuracy and classification of costs into budget lines
- Verification that the administrative (indirect) costs do not exceed the maximum allowed fraction of the total direct eligible costs of the project per the approved budget.
- To ascertain and evaluate the adequacy and effectiveness of the financial management and internal control framework/ environment such as segregation of duties, approval of expenditure and cash & bank reconciliations
Instructions on Proposal Submission
The proposal should contain the following
- Profile of the firm.
- Experience of the firm in relation auditing NGOs (evidence documents like contract)
- List of the NGOs served by your firm with reference
- Financial proposal
- CVs of the key staff in your firm
- Valid practicing certificate
Proposal Submission: Deadline for proposal submissions is on or before) 22ND April 2021.Kindly submit your financial and technical proposals, as separate attachments in one email on or before the due date to: email@example.com
Submission Date of the Audit Report**:** The audit is scheduled to begin on 25th May 2021 and Signed Audit Reports should be submitted on 20th June 2021
Instruction to the auditor: If the answer is „no“ to one of these questions, further explanation is required in the form of a management letter point.
Existence, adequacy and effectiveness of the Internal Control System (ICS) – Principle 2.2
Is the internal organization (structures, functions, tasks, competencies, responsibilities, methods, procedures, segregation of duties etc.), based on your impression, adequate to the size and operations of the partner?
Are duties for vital functions and processes sufficiently segregated (e.g. entering commitments, entering and signing of contracts/agreements, authorizing and accounting of expenditures, reconciliation of cash on hand and in banks, follow-up on long outstanding debtors and creditors, etc.)?
Dou you obtain comfort that the ICS of the organization is in adequacy with its size and type of activities?
Is the ICS known, applied and documented?
Do you obtain comfort on compliance with applicable laws, regulations and instructions (e.g. taxes, salaries, social contributions etc.)?
Is an Organization Manual with local context specific regulations (threshold in amount and number of offers to be solicited for local procurements of goods and services, cash limit, etc.) in place and are they followed? Are they in line with local legislation?
Did you obtain an understanding of the design of the information and financial reporting system?
Has the Partner advised staff, beneficiaries etc. to whom to report any suspect of fraud, misuse, or waste of resources or property?
Conformity with the project objectives and adherence to the contract conditions – Principle 2.3
Is it ensured that signed project agreements (FDFA with partner and/or partner with subcontractor/s) exist before any payments are made?
Are the payments within your audit / review scope in accordance with the contract conditions and the agreed budget?
Is the classification of expenses and income in accordance with the agreed contractual budget?
Are approvals for variations from the budget/work plan required in advance of commitment of expenditure?
Is the financial reporting in accordance with the project agreement?
Is the financial reporting of the period under audit / review in line with the reporting timetable?
Do project responsible (operational and finance staff) visit field activities and are the findings of these visits documented?
Is a written confirmation of the balance of the FDFA advances available at project year end?
Are the management letter points by the project auditor brought up in past years resolved adequately and/or properly monitored by the management?
Is it ensured that any significant issues (e.g. fraud, management override of controls, etc.) noted in a review / audit report has been communicated to FDFA?
Are the partner and any subcontractor/s familiar with regard to VAT and any other tax regulation procedures on the procurement of material and services for the activities funded by FDFA?
Are there instructions on the approval of expenses (e.g. 4 eyes principle) and are they followed?
Is the correct application of fees and allowances as per contract ensured (e.g. fees, rent, travel expenses, hotel accommodation, per diem and other allowances for project experts/consultants)?
Are control procedures in place to match labor costs (hours) charged to the project with time sheets of the relevant personnel?
Is it ensured that the partner has correctly accounted for his hours on the project (effectively rendered services) in order to avoid double-charging of expenses (e.g. to different projects)?
Are all items (fixed assets) representing property of the project maintained and safeguarded?
Economical conduct of business and effective use of financial resources – Principle 2.4
Is it ensured that project specific financial resources are only utilized for the particular activities and projects?
Do adequate measures and procedures in the ICS exist, to ensure economical and effective utilization of committed resources?
Is it ensured that prices and rates for material, services and overheads are subject to regular verification?
Is the calculation of fees (charged for services to FDFA) transparent and documented?
Are all expenditures of expatriate employees reviewed and substantiated (rent, travel expenses, etc.)?
Are all expenditures related to local staff reviewed and substantiated (gross salary, social and pension contributions, income taxes, travel expenses, rent, etc.)?
Are there instructions on the non-use of project/program vehicles for private purposes?
Are there instructions for the use of equipment after the end of the project?
Are there instructions on the non-use of mobile and fix net phones for private purposes?
Any other issues
Management Letter (suggested format)
project/programme – financial statement period of:
partner’s name and address
auditor’s name and address
Date and Signature
The auditor was required to assess with the enclosed questionnaire whether the partner has adequate policies and procedures in place relating to the following matters:
Existence, adequacy and effectiveness of the Internal Control System (ICS) (principle 2.2 as mentioned in the standard ToR)
Conformity with the project objectives and adherence to the contract conditions (principle 2.3 as mentioned in the standard ToR)**
· Economical conduct of business and effective use of financial resources (principle 2.4 as mentioned in the standard ToR)
All questions answered with a “no”, are subject of a Management Letter Point, to be risk rated by the auditor and followed up by the partner.
Risk rating of Management Letter Points
Ø Matters of large or significant importance regarding control environment, accounting policies or practices, which might entail a material loss or material reporting error shall be rated by the auditor as a high Priority;
Ø Matters of medium importance regarding control environment, accounting policies or practices, which would be unlikely, entail a material financial loss or reporting error shall be rated by the auditor as a medium Priority;
Ø Matters of low importance regarding control environment, accounting policies or practices or comments relating solely to local reporting matters shall be rated by the auditor as a low Priority.
Findings and Recommendations
Management comments and proposed actions
Existence, adequacy and effectiveness of the Internal Control System (principle 2.2)**
Conformity with the project objectives and adherence to the contract conditions (principle 2.3)**
Economical conduct of business and effective use of financial resources (principle 2.4)**
Audit Report Template
Financial Information Audit of the Project/Program for the period of xy 20XX
*(name of project/program, project- and contract-number, period of financial statement)
Name and address of FDFA’s Partner
Background of the mandated organization
Short description of the general background of the partner organization:
Short description of the project/program objectives:
Name and address of Auditor
Independent auditor’s report
Independent auditor’s report on financial information
Implementing partner’s address and name of responsible person
On the FDFA Standard Terms of Reference, we have audited the financial information for the above mentioned project, which comprise the balance sheet as at 31 December xxx and the income statement for the year [period] ended, [….], and the notes to the financial information including a summary of significant accounting policies.
In our opinion, the accompanying financial information on project xxxx for the year [period] ended xxx are prepared, in all material respects, in accordance with the accounting policies described in the notes and comply with the requirements of the FDFA Standard Terms of reference dated xxxx.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the financial information” section of our report.
We are independent of the entity in accordance with the requirements of the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Management’s Responsibility for the Financial Information
Management is responsible for the preparation and fair presentation of the financial information. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial information that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibilities for the audit of the financial information
Our objectives are to obtain reasonable assurance about whether the financial information as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial information.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the financial information, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
Date of audit report
Annex: Financial Information (including notes), Questionnaire, Management Letter