Terms of Reference for the Project Audit of PROSPECTS 3 YEAR 3

Selection Criteria:

Eligibility Criteria- Grading (Yes or No)

• Tax Clearance Certificate
• Business Registration
• Current practicing license issued by a recognized accountancy body

Technical Criteria

• Experience of the firm in conducting similar audits in the past 3 years
• Adequate experience and capacity (CV’s of the Key staff)
• Sufficient trained managers and workers (CV’s of the staff to be conducting audit)
• Prior Mercy Corps Audit Experience
• References from previous clients (Three references)
• Recognized bank account (copy of proof)

Sida’s Standard Terms of Reference for Annual Audit of Project/Programme Support including ISRS 4400

Introduction

The Mercy Corps hereafter referred to as the “Cooperation partner” wishes to engage the services of an audit firm for the purpose of auditing the Promoting Sustainable Partnerships for Economic Transformation IV (PROSPECTS IV) as stipulated in the agreement between the Cooperation partner and Sida. The audit shall be carried out in accordance with international audit standards (ISA) issued by IAASB[1]. In addition, an assignment according to International Standards on Related Services (ISRS) 4400 shall be carried out. The audit and the additional assignment shall be carried out by an external, independent and qualified auditor.

I. Objectives and scope of the audit

The objective is to audit the financial report for the period 1 October 2023 to 30 September 2024 as submitted to Sida and to express an audit opinion according to ISA, applying ISA 800/ISA 805, on whether the financial report of Promoting Sustainable Partnerships for Economic Transformation IV (PROSPECTS IV) is in accordance with the Cooperation partner´s accounting records and Sida’s requirements for financial reporting as stipulated in the agreement including appendices between Sida and Cooperation partner (Agreement).

II. Additional assignment; according to agreed upon procedures ISRS 4400, review the following areas in accordance with the Terms of Reference below

Mandatory procedures that must be included:

1. Observe whether the financial report is structured in a way that allows for direct comparison with the latest approved budget[2].

[1] The International Auditing and Assurance Standards Board (IAASB)

Template decision no:2021-002235 Department: VERKSTOD/JUR Other:

Version no: 1.2 Date: 20211110 Other:

[2] The budget is attached to the agreement with Sida as an annex and any updates should be supported by a written approval by Sida.

1. Observe and inspect whether the financial report provides information regarding:
2. Financial outcome per budget line (both incomes and costs) for the reporting period and columns for cumulative information regarding earlier periods under current agreement.
3. When applicable, compare if the opening fund balance[1] for the reporting period matches with what was stated as closing fund balance in the previous reporting period.
4. A disclosure of exchange gains/losses. Inquire and confirm whether the disclosure includes the entire chain of currency exchange from Sida’s disbursement to the handling of the project/programme within the organisation in local currency/ies, if applicable.
5. Explanatory notes (such as, for instance, accounting principles applied for the financial report).
6. Amount of funds that has been forwarded to implementing partners, when applicable.
7. a) Inquire and inspect with what frequency salary costs during the reporting period are debited to the project/programme.

Choose a sample of three individuals for three different months and:

1. Inquire and inspect whether there are supporting documentation[2] for debited salary costs.
2. Inquire and inspect whether actual time worked is documented and verified by a manager. Inquire and inspect within which frequency reconciliations between debited time and actual worked time is performed.
3. Inspect whether the Cooperation partner comply with applicable tax legislation with regard to personal income taxes (PAYE)[3] and social security fees.

4. a) Inspect and confirm that the unspent fund balance (according to the financial report) at the end of the financial year is in line with information provided in the accounting system and/or bank account.
5. b) Applicable the final year: Inspect and confirm the unspent fund balance (including exchange gains) in the financial report and confirm the amount that shall be repaid to Sida.

[1] I.e. funds remaining from disbursements made during previous reporting period/s

[2] Debited salary costs should be verified by supporting documentation such as employment contracts.

[3] Pay As You Earn

5. Procurements:
6. a) Inquire and inspect whether the Cooperation partner has purchased services or goods above the thresholds in the procurement guidelines annexed or referred to in the agreement. Obtain a list of all purchased services and goods during the reporting period and identify all transactions above the agreed threshold.
7. b) Select two of the identified transactions above the threshold [Insert threshold according to the agreement] and determine whether they were subject to bidding procedures and in compliance with procurement requirements, if applicable.

Follow up of funds that are channelled to implementing partners

Mandatory assignments that must be included if the Cooperation partner forward funds to implementing partners (IP’s):

Choose a sample of a minimum of 30% to 40% of the total of disbursed funds as well as 30% to 40% of the number of IP’s or a maximum of 10 IP’s.

2.1 Inspect and confirm whether the Cooperation partner has signed agreements with the selected IP’s.

2.2 Inspect and confirm whether the Cooperation partner, in all agreements entered with IP’s, included the requirement to carry out annual audits. The requirement shall specify that these audits shall be carried out with application of ISA (reporting according to ISA 800/805) and a separate assignment according to ISRS 4400 should be included for project/programme support. If agreements regarding core support are entered into with IP’s, the audit shall be conducted in accordance with ISA 700 or National standards on auditing.

2.3 Inquire and inspect whether the Cooperation partner has received financial reports and reportings from auditors from all IP’s included in the selected sample:

1. a) Inquire and inspect whether the Cooperation partner has verified if reports from IP’s are in line with the requirements in the Agreement.
2. b) Inquire and inspect whether the Cooperation partner has documented its assessment of the submitted financial reports and reporting from auditors including management responses and action plans from selected IP’s.
3. c) Inquire and inspect whether the Cooperation partner has documented its follow-up actions based on the information provided in the financial reports and the reporting from the auditor of the selected IP’s.

1. d) Inquire and inspect whether the Cooperation partner has reported substantial observations[1] from selected IP’s audit reports in its communication with Sida. List observations[2] from IP’s audit reports which have been part of this sample.

III. The reporting

The reporting shall be signed by the responsible auditor (not just the audit firm[3]) and shall include the title of the responsible auditor.

Reporting from the ISA assignment

The reporting from the auditor shall include an independent auditor’s report in accordance with the format in standard ISA 800/805 and the auditor’s opinion shall be clearly stated. The financial report that has been the subject of the audit shall be attached to the audit report.

The reporting shall also include a Management letter that discloses all audit findings, as well as weaknesses identified during the audit process. The auditor shall make recommendations to address the identified findings and weaknesses. The recommendations shall be presented in priority order and with a risk classification.

Measures taken by the Cooperation partner to address weaknesses identified in previous audits shall also be presented in the Management Letter. If the previous audit did not have any findings or weaknesses to be followed-up on, a clarification of this must be disclosed in the audit reporting.

If the auditor assesses that no findings or weaknesses have been identified during the audit that would result in a Management Letter, an explanation of this assessment must be disclosed in the audit reporting.

Reporting from the ISRS 4400 assignment

[1] Deemed substantial by the Cooperation partner.

[2] Observations included in Management Letters and if applicable, qualified audit reports.