Terms of Reference for External Auditor- Annual Audit

1. Background

Oxfam Netherland (Novib )- country Somalia /Somaliland Office :Oxfam Netherlands (Novib ) is the Executing affiliates for Oxfam Somalia , the means it legally responsible to support the operations of the office .Executing affiliate support the office with policies and procedure , legal registration , support systems I.e accounting systems, procurement and HR.

Oxfam Netherlands (Novib) is the member of the confederations of Oxfam International made up of 18 Oxfam affiliates.

The Oxfam Somalia office has legal registrations in Kenya , Somalia and Somaliland and Puntland. The main office is based in Somaliland Hargeisa and the management teams sits in Hargeisa.

The office is mandated by both Oxfam international and Oxfam Netherlands to cover all the activities in Somalia, Somaliland and Puntland.

Country office is obliged to respect the tax requirements of the allocations it operates in Somalia.

Oxfam Somalia office receive fund from various external donors ,Oxfam international for operational support referred to as CRA (common resources allocations) and fund from Oxfam Netherlands to support both operations and partner activities through a discretionary funding pipeline.

From April 1, 2022- to March 2023 , the country office would have received from ECHO , ODA , SIDA ,and as well as all Oxfam affiliates to support in Humanitarian and development program activities (Income and Expenditure to provided upon request).the estimated total budget for the period of review is approximately Euro 12.3 million off all operational and program activities.

The country office operates in various regions of Somaliland , Puntland and Somalia. We have humanitarian field office based in burao, Garoowe and Mogadishu which covers the humanitarian activities in all the three country.

Oxfam Somalia’s program activities are implemented by partners in development and humanitarian sector activities are implemented by both Oxfam and partners current we have more than 9 partners active partners supporting the country office to implement.

The country office is management by country director who Is overall responsible for operations and program activities. The CD is supported by management team made up on business support manager , funding manager , HR Manager , HMP and a co opted member security advisor . the management team assist the CD to run the organization.

The Country Direct reports to the Oxfam international deputy regional director in Nairobi.

The CD is a member of country governance group which composed of the regional representative. Executing affiliates representative and Oxfam Affiliates representative.

The country office uses Pastel Accounting system to record its day to day transactions and reports on a monthly basis to Oxfam Netherlands office. The office use the Oxfam international procurement policies which guided in terms of procurement thresholds and authorization table

We relay 100% on Oxfam Netherlands ( Novib ) for all operating policy and procedures.

Objectives

The objectives of the audit are to enable the Auditor to express an opinion on whether the financial statements presents fairly, in all material respects, the actual expenditure incurred and the revenue received for the Country Office for the period from 01 April 2022 to 31 March 2023 with approximately portfolio of 12 to 13 million euro annually estimations. The contract assignment can be extended for three fiscal years.

1. Scope

The audit will be carried out in accordance with ISA[1] auditing standards. The audit period is 01 April 2022 to 31 March 2023. The contract assignment can be extended for three fiscal years.

Responsibilities of the parties to the engagement are reflected in Annex A.

1. Audit Procedures

The Auditor should exercise due professional care and judgment and determine the nature, timing and extent of audit procedures to fit the objectives, scope and context of the audit.

In conducting the audit, the auditor should:

• Express an opinion on the financial statements produced;
• Verify the presentation of financial statements is in compliance with accepted accounting and reporting principles and with the Manual Supporting and Accounting processes of the Country Office;
• Verify the Country Office is compliant with local laws and regulation including Country Office registration;
• Analyze and evaluate the financial management and internal controls are in place;
• Certify that the funds were utilized for their intended purposes according to the terms in the annual budget, specific project budgets, annual work plans, etc;
• Certify that project funds conform with Oxfam Novib/back donor directives where the Country Office expends funds for projects.

Special attention should be paid to:

• The budgetary procedures (establishing forecasts by activity/task or Output, conformity with the Annual Work plan forecasts, budgetary approvals and work plans by the responsible agent, budgetary amendments during the audit period, etc.);
• The management procedures of the funds (bank account, advances supported by forecasts and in conformity with Oxfam Novib’s policy, petty cash safekeeping, bank reconciliation, control of receipts, etc.);
• The financial aspects of personnel management (employee contracts, remuneration of salaries, allowances and other benefits, deductions at source according to regulations currently in force, remittances made to the proper authorities including Income Tax, annual personnel evaluations/appraisals, etc.) (NOTE: Verify that allowances have been paid in conformity to regulations and/or Oxfam Novib policy);
• The procedures for the hiring and payment of consultants (approval of selection and contracts by the proper authorities, contracts properly written with appropriate financial control over payments of fees and expenses including appropriate certification that the work was performed satisfactorily before a payment is made);
• The financial aspects of procurement (purchase orders, appropriate certification that the goods have been delivered in satisfactory condition before a payment is made);
• The procedures on the control of expenses (complete documentation, certification that the goods have been received or services rendered, issuance of check in the name of the supplier stipulated in the contracts/purchase orders, proper signatories, bank accounts, etc.);
• The mechanism for the recovery of costs (method of invoicing, control of invoices issued but unpaid), control of receipts generated by these revenues;
• The procedures on inventory control of non renewable stock (replacement parts, etc.) and assets (catalogued/inventoried on a regular basis, identification by serial number or other means, condition of the inventory, location, etc.);
• The policy for, and control of, the use of vehicles and fuel as implemented by the Country office; and
• The procedure and recovery mechanism for staff advances;
• The reporting mechanisms (financial and quarterly progress reports, explanation of variances, etc.).

1. Deliverables

The auditor is responsible for conducting the audit procedures as specified in the ToR.

In addition to the audit report, the auditor will also provide a management letter summarizing the observations on the accountability and internal controls. These would include the following:

• Comments and observations on the accounting records, systems and controls that were examined during the course of audit.
• Specific deficiencies and areas of weakness in systems and controls and recommendation for improvement.
• Any other matter that the auditor considers significant to report to the management.
• Audit findings should be categorized by risk severity: High, Medium, or Low.
• The observations in the “Management letter” must be accompanied by the implications, suggested recommendations from the auditors and the management comments on the observations/ recommendations.

1. Role of the auditor

• Meet with the country office Associate /Country Director (A/CD) to gain an appreciation of any specific concerns or risks with the financial management;
• Perform the audit at the premises of the Country Offices;
• Get management’s feedback/response to the draft management letter;
• At the end of the audit, debrief the A/CD at the Country Office.

1. Timeframe

The annual audit exercise can start as soon as possible after an external and independent chartered accountant is selected through the appropriate procurement procedure as mentioned in the Supply and Logistics Manual.

The final audit report and the management letter including Country Office management response should be submitted to relevant Business Controller by October 1, 2023.

Annex A: Example letter of engagement

INSTRUCTIONS FOR USING THIS ToR

The following letter is for use as a guide in conjunction with the considerations outlined in the International Standards on Auditing and will need to be varied according to individual requirements and circumstances.

This instruction should be removed from the Engagement Letter

To the Board of Directors or the appropriate representative of senior management,

You have requested that we audit the financial statements of <Country Office’s name> for the year ending 31 March 2023. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Our audit will be made with the objective of our expressing an opinion on the financial statements.

We will conduct our audit in accordance with International Standards on Auditing <or refer to relevant national standards or practices>. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that even some material misstatements may remain undiscovered.

In addition to our report on the financial statements, we will provide you with a separate management letter concerning any material weaknesses in accounting and internal control systems which come to our notice. We will pay special attention to those audit procedures stated in the ToR.

We remind you that the responsibility for the preparation of financial statements including adequate disclosure is that of the management of the organization. This includes the maintenance of adequate accounting records and internal controls, the selection and application of accounting policies, and the safeguarding of the assets of the organization.

As part of our audit process, we will request from management written confirmation concerning representations made to us in connection with the audit. We look forward to full cooperation with your staff and we trust that they will make available to us the records; documentation and other information requested in connection with our audit.

The fee for this engagement shall be <amount agreed per procurement of external auditor>

Estimated hours for audit

Partner

Manager

Senior

Junior

Total

Planning

Audit

Report

Our fees are based on time spent by members of our audit team. Individual hourly rates vary according to the degree of responsibility involved and the experience and skill required.

In case of circumstances that the budget might be insufficient, we will contact Oxfam <Country Office> immediately and discuss possible consequences with regards to our indicated fee. When actual hours remain under fee, we will invoice actual hours accordingly.

Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of terms of engagement.

Your sincerely,

<AUDIT FIRM SELECTED>

<signed>

<name of staff from audit firm selected>

Acknowledged on behalf of Oxfam Novib <Country office> by:

<signed>

……………….

Name:

Position:

Date:

Annex B: Format Auditor’s opinion

INDEPENDENT AUDITOR’S REPORT

To: <Appropriate addressee>

Report on the financial statements

We have audited the accompanying financial statements for the year ending 31 March 2023 of Oxfam <Country Office>, which comprise of the balance sheet as at 31 March 2023, and the statement of comprehensive income for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these financial statements and for the preparation of the management board report, both in accordance with International Financial Reporting Standards.

Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with <Country> Law and International Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of <name of entity> as at 31 March 2023 and of its result for the year then ended in accordance with <relevant Accounting Standards>.

<Location, Date>

<AUDIT FIRM SELECTED>

<signed>

<name of staff from audit firm selected>

[1]. International Standards of Auditing (ISA) published by the International Auditing Practices Committee of the International Federation of Accountants

How to apply

1. Application procedure:

Qualified Audit firms are requested to submit.

• Detailed technical proposal that clearly defines on how it is fitting to the proposed assignment include methodology and approaches, CV of the Senior auditors of firm and references of previous similar works.
• Financial proposal covering total amount for the assignment with two options of
  • Doing the audit remote while Oxfam provides all the scan documents.
  • Coming physically to Hargeisa office for the audit including tickets, meals and accommodations. Oxfam can provide visas for one month but not work permits.

Application package should be submitted to: som-consultancies@oxfam.org and indicate in External Annual Audit the subject line of the e-mail, submission not later than June 17th, 2023.