DRA Joint Response – Audit Terms of Reference

1. Goal and design of the Somalia Joint Response

World Vision is implementing the Somalia Joint Response program funded by the Dutch Ministry of Foreign Affairs. The project started January 1st, 2019 and will terminate December 31st, 2019.

The overall goal of the Joint Responses is to jointly provide timely, relevant, efficient and effective humanitarian assistance to people affected by crises.

This Terms of Reference describes the audit activities concerning the financial statement to the Joint Response.

The activities described in section 3 result in an audit opinion on the financial statement, drawn up in accordance with auditing ISA 800/805 and a report in accordance with the text of annex A of this protocol.

2. Audit objective and scope

The auditor must establish that the transactions as accounted for in the financial statement comply with the decision on the award of the Joint Response specific grant. The audit must be carried out in accordance with the requirements laid down in this ToR and with the relevant auditing standards.

The audit subject is the financial statement for the year under review including processes and administrations relevant for the Joint Response.

The auditor must establish that the financial statements meet the requirements laid down and will ascertain that:

1. expenditures and receipts are accurate and complete;
2. expenditures and receipts relate to the activities
3. expenditures are legitimate and comply with the criteria laid down in points a. to e. The auditor must establish that:

a. expenditures are corroborated by supporting documents;

b. the grant recipient keeps project records and documentation with argumentation for linking (staff) costs to the project (such as timesheets). The information in the project records and other documentation agrees with the information in the financial administration;

c. the procurement procedures comply with the Principles and Procedures applicable to Procurement Contracts awarded within the framework of Humanitarian Aid Actions financed by the European Union, as laid down in Annex III of the Framework Partnership Agreement (FPA) between the organisation and ECHO;

d. tax and social insurance remittances have been made in accordance with the tax laws of the country where the organisation is established and for the period to which the audit opinion relates;

e. invoices are settled on the basis of actual costs or lump sum amounts set in accordance with the organisation’s internal policies.

3. Audit approach in respect of the financial statement (ISA 800/805)

The audit must be carried out in accordance with generally accepted auditing standards and in particular the auditing standards (Dutch- or International Standards on Auditing; ISAs) of the International Auditing and Assurance Standards Board (IAASB).

The minimum reliability level for audit purposes is 95%. Materiality is determined as follows for the purpose of drawing up the audit opinion:

Type of audit opinion Unqualified Qualified Disclaimer Adverse

Accounting errors See table below ≤ 6% – ≥ 6%

Audit uncertainties See table below ≤10% ≥ 10% –

Grant amount in the year concerned Permitted tolerance

Less than €1.5 million 3% of grant amount

Greater than or equal to €1.5 million and

less than €5 million €50,000

Greater than or equal to €5 million 1% of grant amount

Materiality must be based on total expenditure of the financial statement.

As part of the audit, the auditor examines explicitly whether the financial report meets the requirements mentioned in chapter 2 (bullet 3, a-e).

The audit opinion must be drawn up in accordance with the sample text provided in section 4 of this ToR, or based on a more recent sample text.

The audit opinion will be accompanied by a separate written report in accordance with annex A of this ToR. This is an exemption report and findings reported do not necessarily have consequences for the audit opinion, unless the auditor deems the findings of material relevance for the financial Joint Response report.

If the auditor has, in the scope of the audit, taken into account the set-up and functioning of the administrative organisation and internal control and more specifically:

i. authorisation of payments

ii. attribution of direct and indirect programme costs

iii. compliance with procurement procedures as laid down in the framework of Humanitarian Aid Actions financed by the European Union, ECHO

iv. adequate administrative processes to comply with the applicable legal framework for reporting,

he/she will take up the findings in this separate written report.

The auditor must request a letter of representation (LoR) from the grant recipient’s management stating that, to the best of their knowledge, the financial statement encompasses all transactions and receipts, is accurate and complete in every respect and that all grant conditions, including those beyond the scope of the audit, have been met. In the letter of representation, management must specifically confirm that they have complied with article of the grant decision, which states: ‘You may not offer to or accept from third parties anything of any kind whatsoever, if this could be interpreted as an illegal or corrupt practice. Such practices may provide grounds for the withdrawal of this decision or part thereof.’

4. Audit opinion on the financial report Joint Response

(ISA 800/805)

The audit opinion must in any event include the aim and scope of the audit, the audit criteria applied, where relevant, and the audit opinion.

An unqualified auditor’s report must be worded as follows or in accordance with a more recent model text as published on the IAASB website:

Engagement

We have audited the financial statement under the grant agreement Joint Response

dated XX-XX-20XX of [name of entity] at … [registered office] for the year …. .

Management responsibility

The financial statement, drawn up in accordance with the conditions in the grant agreement of XX-XX-20XX is the responsibility of the management of the entity (or other applicable name eg the board of the foundation etc). The management is also responsible for such internal control as it deems necessary for the financial statement to be drawn up without material misstatement as a result of fraud or error.

Auditor responsibility

It is our responsibility to issue an opinion on the financial statement, based on our audit. We conducted our audit in accordance with …. law and auditing standards, and with the ToR, specifically article 2 and 3. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain information on the amounts and disclosures in the financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. The activities depend on the auditor’s approach, which includes assessing the risk of the financial statement containing material misstatement as a result of fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the organisation’s preparation and fair presentation of the consolidated 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 organisation’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 Joint Response financial statement of (entity) over [year] has been drawn up in all material aspects in accordance with the conditions of the grant agreement for Joint Response xx of XX-XX-20XX

Restrictions on use and distribution

The financial statement has been drawn up for [name of lead party] and the Ministry of Foreign Affairs, so that [name of entity and name of lead party] can fulfil the reporting obligations pertaining to their Joint Response grant. As a consequence, the financial statement may not be suited to other purposes. Our audit opinion has been drawn up solely for the use of [name of entity and name of lead party] and the Ministry of Foreign Affairs and must not be distributed to or used by any other parties.

… [place], … [date]

… [signature]

… [auditor’s name]

… [name of audit firm