Audit of dfid contract: Access to Primary Healthcare in the Democratic Republic of Congo

Access to Primary Healthcare in the Democratic Republic of Congo

1. 
   Background Information
   

WORLD VISION wishes to engage the services of a qualified international auditing firm for the purpose of auditing the ASSP accounts, as stipulated in the contract between IMA World Health and WORLD VISION. The audit shall include an audit of the accounts plus process (i.e. in respect of procedures) through the analysis of a sample of expenditures and reconciliation with bank statements. The audit shall be carried out in accordance with International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC).

Project Approach

The overall project goal is to reduce morbidity and mortality in women and children under five by strengthening the national health system through an appui global support to eleven health zones. The ASSP program is structured around the six pillars of health systems strengthening, specifically: enhanced health service delivery and quality, improved and sustained human resources, enhanced and appropriate use of medicines and technologies, increased affordability of health services, appropriate and enhanced use of health services and, lastly, increased leadership and governance.

In each of the ASSP-supported health zones, IMA World Health, the consortium lead, is tasked with sub-contracting to an implementing NGO/FBO or implement themselves to provide an adequate package of support through health centers and hospitals to provide universal coverage for the population in a zone, consisting of essential medicines / supplies, infrastructure / equipment, training / supervision and the provision of salary incentives for staff (as required). Implementing agencies are required to ensure that user fees are not a barrier to care through their removal or heavy subsidization for vulnerable groups (such as pregnant women and children under five). Solar energy for facilities has been prioritized to ensure that the program is climate smart.

The project aims to strengthen empowerment and accountability at a number of different levels, ensuring that citizens have a greater voice and that both service providers and the government are more accountable for delivering quality basic health services.

2. 
   Terms of Reference
   
   1. 
      Responsibilities of the Parties to the Engagement
      

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  WORLD VISION is responsible for providing a financial report for the project financed by the Contract and for ensuring that the financial report can be reconciled with their accounting system and supported by their underlying accounts and records.
  

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  WORLD VISION acknowledges that the ability of the Auditor to perform the procedures required by this engagement effectively depend upon them, and as appropriate, their implementing partners, providing full and free access to program and finance staff and accounting records, including all relevant contract documentation and communication.
  

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  ‘The Auditor’ refers to the Auditor who is responsible for following the agreed ­upon procedures as specified in these ToR, and for submitting an audit report and management letter to IMA World Health.
  

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  The Auditor may be a member of the International Federation of Accountants (IFAC). Whether an IFAC member or not, the Auditor commits himself to undertake this engagement in accordance with applicable IFAC standards and ethics.
  

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  The Auditor shall gain an understanding of the engagement by reviewing all applicable documents as listed in Annex 1 to these ToR.
  

2. 
   Subject of the Engagement
   

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  ­verify that the expenditures reported by the Supplier in the Financial Report, have occurred, are accurate and eligible, and
  

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  ­review relevant policies and procedures as well as internal control procedures and report on any deficiencies identified in adherence to same, and
  

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  assess the Suppliers compliance with all applicable laws and regulations of the government of the Democratic Republic of Congo impacting the project, including but not limited to registration, taxation, social security, and gratuity etc.
  

Annex 1 to these ToR contains an overview of the scope of work and procedures to be performed.

3. 
   Reason for the Engagement
   

4. 
   Engagement Type and Objective
   

5. 
   Scope of Work
   

6. 
   Terms and Conditions of the Contract
   

7. 
   Planning, procedures, documentation and evidence
   

8. 
   Reporting
   

3. 
   Other Terms
   
   1. 
      Duration and Location
      

2. 
   Reporting Arrangements and Schedule of Deliverables
   

The Auditor will be required to submit the following reports and deliverables:

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  Detailed scope of work, dates for field work and site visits and schedule of client prepared documents required within 10 days of a signed engagement letter.
  
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  Draft final audit report to be submitted by June 15th, 2015 with exit conference date to be mutually agreed upon.
  
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  Final report and management letter due June 30th, 2015. Management letter to highlight, if any, material weaknesses in internal controls and noncompliance with the Contract. IMA World Health’s response shall be submitted to DFID with the management letter.
  

Scope of Work

Procedures to be followed

The Auditor shall design and carry out the audit in accordance with International Auditing Standards and the objective and scope of this engagement and the procedures to be followed as specified below. When following these procedures the Auditor may apply techniques such as inquiry and analysis, (re)computation, comparison, other clerical accuracy checks, observation, inspection of records and documents, inspection of assets and obtaining confirmations.

The Auditor shall obtain sufficient and appropriate verification evidence from these procedures to be able to provide an audit report and management letter. For this purpose the Auditor shall refer to the guidance provided by International Standards on Auditing. The Auditor exercises professional judgment as to what is sufficient and appropriate verification evidence where he believes that the guidance provided by ISA, the terms and conditions of the Contract and the ToR for this engagement are not sufficient.

1. 
   Obtaining a sufficient Understanding of the Project and of the Terms and Conditions of the Contract
   

• 
  The Auditor shall obtain a sufficient understanding of the terms and conditions of the Contract by reviewing the Contract and its annexes and other relevant information, and by inquiry of the Supplier.
  

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  The Auditor shall obtain a copy of the Contract (signed by the Supplier and the Contracting Authority) with its annexes.
  

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  The Auditor shall obtain and review copies of all Financial and Narrative Project Reports.
  

2. 
   Procedures to verify the Eligibility of Expenditure Claimed by the Supplier in the Financial Report for the Project
   

1. 
   General Procedures
   

The Auditor shall examine whether the Supplier has complied with the requirements for accounting and record keeping of the Contract. The purpose of this is to:

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  assess whether an efficient and effective expenditure verification of the Financial Report is feasible; and
  
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  report by means of a management letter important exceptions and weaknesses with regard to accounting and documentation requirements so that the Supplier can undertake follow-up measures for correction and improvement for the remaining implementation period of the Project.
  

The Auditor shall verify that the correct exchange rates have been applied for currency conversions where applicable and in accordance with the conditions of the Contract.

2. 
   Conformity of Expenditure with the Budget and Analytical Review
   

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  the budget in the Financial Report corresponds with the Budget for the Contract (authenticity and authorization of the initial Budget) and that expenditures incurred were foreseen in the budget or budget modifications.
  
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  the total amount claimed for payment by the Supplier does not exceed the maximum amount laid down in Article 4 Financial Limit of the Contract.
  
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  amendments to the Budget for the Contract comply with the conditions for such amendments (including where applicable the requirement for an addendum to the Contract).
  

2.3 Selecting Expenditure Items for Verification

Value should be the primary factor used by the Auditor to select expenditure items or classes of expenditure items as outlined in the Project budget for verification. The Auditor selects high value expenditure items to ensure an appropriate coverage of expenditures to obtain adequate grounds for consideration of the eligibility of total expenditures and of the quality and the reliability of internal control measures.

Selection of specific expenditure items or classes of expenditure items is based on Auditor’s judgment. The Auditor may use factors such as particular knowledge of the Project and the characteristics of the expenditure categories, classes and items being verified such as for example expenditure items that are unusual or inherently risky or prone to error.

3. 
   Verification of Expenditures
   

The Auditor shall verify that expenditures are necessary for carrying out the Project. The Auditor shall verify that expenditures for a transaction or action have been incurred for the intended purpose of the Project and were necessary for the activities and objectives of the Project. The Auditor shall further verify that the direct costs are provided for in the Contract Budget and comply with the principles of sound financial management, in particular value for money and cost effectiveness.

4. 
   Eligibility of Direct Costs
   

The Auditor shall verify the eligibility of direct costs with the terms and conditions of the Contract. S/he shall verify that these costs are real, accurate and eligible under the Contract and anticipated per the Contract Budget.

5. 
   Accuracy and Recording
   

The Auditor shall verify that expenditures for a transaction or action have been accurately and properly recorded in the Supplier’s accounting system and the Financial Report and that it is supported by appropriate evidence and supporting documentation. This includes proper valuation and the use of correct exchange rates.

6. 
   Classification
   

The Auditor shall verify that expenditures for a transaction or action have been classified under the correct heading and subheading of the Financial Report.

7. 
   Reality (occurrence/existence)
   

The Auditor shall exercise professional judgment to obtain sufficient and appropriate evidence as to whether the expenditure has occurred (reality and quality of the expenditure) and ­where applicable ­assets exist. The Auditor shall verify the reality and quality of the expenditures for a transaction or action by examining proof of work done, goods received or services rendered on a timely basis, at acceptable and agreed quality and at reasonable prices or costs.

8. 
   Agency management/administrative fees
   

The Auditor shall verify that the agency management/administrative fees do not exceed the maximum allowable under the terms of the Contract.

9. 
   Verification Coverage of Expenditure
   

The Auditor shall apply the principles and criteria set out below when planning and performing the procedures for expenditure verification of Sections 2.3 and 2.4 above. This allows the Auditor to rationalize his/her verification work.

Verification by the Auditor and verification coverage of expenditure items does not necessarily mean a complete and exhaustive verification of all the expenditure items that are included in a specific expenditure heading or subheading. The Auditor should ensure a systematic and representative verification but depending on certain conditions (see further below) the Auditor may obtain satisfactory verification results for an expenditure heading or subheading by looking at a limited number of selected expenditure items.

The Auditor may apply statistical sampling techniques for the verification of one or more expenditure headings or subheadings of the Financial Report. For this purpose the Auditor examines whether the ‘populations’ (e.g. expenditure subheading or classes of expenditure items within an expenditure subheading) are suitable and sufficiently large (e.g. they should be made up of a large amount of items) for effective statistical sampling. This enables the Auditor to obtain and evaluate verification evidence to form a conclusion on the total of the population from which the sample is drawn. The Auditor may refer to IFAC International Standard on Auditing 530 ‘Audit sampling and other selective testing procedures’ for guidance.

10. 
    Expenditure Coverage Ratio (ECR)
    

The Expenditure Coverage Ratio is the amount of expenditure selected (for verification) by the Auditor expressed as a percentage of the amount of expenditure recorded by the Supplier in the Financial Report. The Auditor selects expenditure items (see Section 2.3.2). If the exception rate is 10% or less of the amount of expenditure verified, the Auditor completes the verification and continues with reporting. If the exception rate is above 10% the Auditor extends verification procedures until the ECR is at least 85% and at the discretion of the Auditor. The Auditor then completes verification and continues with reporting regardless of the exception rate.

The Auditor shall ensure that the ECR for each expenditure heading and subheading in the Financial Report is at least 10%.

Procedures to verify the adequacy of documented policies and procedures and the working and quality of internal controls.

This procedural and control review can be combined with the expenditure verification process, or through separate sample testing. Relevant findings and weaknesses will be reported in the management letter.

The auditor shall specifically, but not exclusively:

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  Assess adequate segregation of duties between approval, registration and payment
  
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  Check that expenses are signed off in accordance with the formal authorization levels
  
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  Verify that separate financial accounts are maintained for the contract in the administration, which register exclusively all financial transactions that relate to the contract.
  

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  Verify that each transaction has a unique sequence number which allows easy access to the original supporting documentation (i.e. 3rd party’s invoices, Receipts, Goods receipt notes, Tendering documents, Payroll records, etc.).
  

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  Verify that originating documents are marked with the sequence number and with all relevant information such as classification ­code, signatures for approval and for receipt of payment, payment date etc.
  

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  Verify that cash and bank balances are reconciled on a monthly basis
  
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  Verify the working of a fixed assets register and assess that assets procured under the contract are properly recorded, maintained and included in reporting.