TERMS OF REFERENCE (TOR) FOR AUDITS OF UN-WOMEN NGO, GOV T, IGO AND GRANT PROJECTS

TERMS OF REFERENCE (TOR) FOR AUDITS OF UN-WOMEN NGO, GOV T, IGO AND GRANT PROJECTS

TABLE OF CONTENTS Introduction... 3 A. Background... 7 B. Project Management... 7 C. Consultations with concerned parties... 7 D. Scope and Objective of NGO, GOV T, IGO and Grant Audit... 8 E. Audit Services Required... 9 F. The Audit Report and Management Letter... 111 Annex 1: Audit Services Required... 155 Annex 2: Qualifications of an Auditor... 177 Annex 3: Sample Audit Report... 188 Annex 4: Definition of Audit Opinions... 222 Annex 5: International Standard for Audit (ISA) 450 and 710.. 23 Annex 6: Classification of Possible Financial Audit Findings...24 Annex 7: Categorization of Audit Findings by Risk Severity... 266 Annex 8: Classification of Possible Causes of Audit Findings....27 Annex 9: Template for NGO, GOV T, IGO and Grantee Auditors to Review and Sign the Updated Action Plans for Prior Year Audit Observations and Recommendations... 28 Annex 10: Template for audit data and observations... 29 Annex 11: Guidance on Formulating Audit Observations... 311 Annex 12: SAS 220 Guidance on Audit Materiality... 34 Annex 13: Checklist of Documents for the Auditor.......35 2

INTRODUCTION UN-Women s Global, Regional and Country Programmes are comprised of individual or component programmes, projects and grant projects. The activities for these component programmes and projects (hereinafter referred to as projects within this document) can be carried out either by non-government, government, non-un inter-government and other UN agencies or by UN-Women itself. Only projects implemented by Non-Government Organizations (NGOs), Governments (GOV Ts) and non-un intergovernmental organizations (IGOs) as an Implementing Partner (IP) or Responsible party (RP) for a UN- Women project is subject to NGO, GOV T, IGO and Grant audit procedures as stipulated in the Project Cooperation Agreement (PCA), Grant Agreement (GA) or Letter of Agreement (LOA). These IPs or RPs are accountable for the UN-Women-administered funds and/or resources that they received for the purpose of implementing UN-Women projects (including grant projects funded by UN Women s Fund for Gender Equality and the UN Trust Fund to End Violence Against Women). It is from these that an assurance on the proper use of UN-Women funds needs to be obtained through an independent audit. Throughout this document the term Implementing Partner (IP) or Responsible party (RP) is used to refer to the institution designated to manage a UN-Women project or grant project, currently identified as Implementing Partner in the PCAs and LOAs. UN-Women Country Office (CO), Multi-Country Office (MCO) or Regional Office (RO) shall hereinafter be collectively referred to as offices 1 within this document. 1. Overall UN-Women Projects/ Grant Projects Audit Coverage and Selection Criteria for Audit Planning To address the expectation of Management and the different oversight bodies, UN-Women requires an effective audit coverage of at least 40% (may be changed yearly) of its NGO, GOV T, IGO and Grant project expenditures for the fiscal year through NGO, GOV T IGO and Grant audits. In selecting the NGO, GOV T, IGO and Grant projects to be audited, a risk-based model will be used. A NGO, GOV T, IGO and Grant audit risk level will be assigned to each office based on the yearly risk assessment carried out by OAI, UNDP. Established thresholds will be applied in choosing the NGO, GOV T, IGO and Grant projects that shall be included for audit. In addition to the projects identified through the risk-based model, any project that meets one or more of the following criteria may also be included in the NGO, GOV T, IGO and Grant audit exercise: a) Those projects 100,000 (>=?? for grant projects)that will be closed during the year and have not been audited in their lifecycles; b) Those projects audited in any given year that resulted in a qualified financial audit opinion (i.e., subject to, except for, disclaimer or adverse) until it has received an unqualified financial audit opinion; c) Projects identified by the UN-Women offices as high risk based on their own assessment and other considerations; d) From the population of all the NGO, GOV T, IGO and Grant projects in all offices that have not been selected, the Audit Coordinator, Division of Management and Administration (DMA), HQ may randomly select and propose additional projects to be added to the annual NGO, GOV T, IGO 1 This also includes UN Women s Fund for Gender Equality and the UN Trust Fund to End Violence Against Women. 3

and Grant audit exercise. This can include projects with unexplained long outstanding advances that may be identified by the Finance Section for the audit year. The auditor will produce one audit report with an overall audit opinion per NGO, GOV T, IGO and Grant project regardless of the number IPs or RPs engaged to implement the project. However, an audit opinion shall also be rendered for each IP or RP audited within the project. The offices shall be advised every year of their assigned risk level together with their project(s) identified for audit. Finalized audit reports are to be uploaded in a designated UN-Women extranet site. Once a computerized system is completed to support the UN-Women NGO, GOV T, IGO and Grant Project audits, the auditor will be required to use the computerized system to upload audit issues and recommendations. This is to facilitate monitoring and reporting of status of implementation of audit recommendations. Exceptionally, certain projects automatically selected for NGO, GOV T, IGO and Grant audits may be excluded from the audit plan, if there are valid and properly documented reasons why such expenditures may not be subject to a NGO, GOV T, IGO and Grant audit for the year. The documented reasons shall be reviewed by the Audit Coordinator, DMA, HQ and whether such expenditure shall be audited or not will be decided by the Director, DMA, HQ. 2. Brief Summary UN-Women NGO, GOV T, IGO and Grant Project Audit Requirements This Terms of Reference (TOR) is intended to provide guidance to UN-Women, IPs, RPs and auditors as regards the objectives, scope, timeline and deliverables of the NGO, GOV T, IGO and Grant audits. These audits are under the responsibility of the UN-Women offices. This TOR includes the audit services required (Part E and Annex 1) as well as areas to be covered in the audit report and management letter (Part F and Annex 3), as follows: Auditors must certify, express an opinion, and quantify the net financial impact on each of the following for each project audited: (i) UN-Women certified Financial Authorization and Certification of Expenditure (FACE) Form/Report, periodically submitted to and signed accepted by their respective UN- Women office (this may be the Project Statement of Expenditure exceptionally accepted by the UN-Women office )- for the audit period 1 January to 31 December 20 2 ; (ii) Statement of Cash position reported by the project as of 31 December 20. Auditors must provide a classification of possible financial audit findings (See Annex 6), while also identifying the possible cause of the audit finding (see Annex 8). Auditors must indicate the risks associated with their findings and provide a categorization by risk: High, Medium, or Low. (see Annex 7) 2 For grant projects, the audit period may include expenditures incurred from the start date of the signed Project Cooperation Agreement until 31 December of the audit year. This is only when the start date of the project was within the last six months of the preceding year and the project has not been previously audited. 4

Auditors must provide the monetary value of the Net Financial Impact of the qualification if the audit opinion on the cumulative FACE forms or Project Financial Statements is Qualified, Adverse or Disclaimer. The auditors are not required to certify nor express an opinion on the status of assets and equipment reported by the project. However, the auditor must obtain an understanding and examine the IP s or RP s internal control over asset management to ensure that adequate controls are in place to safeguard the assets purchased using UN-Women resources. A Critical Audit Requirement Following the International Audit Standard (ISA) 450 and ISA 710 that came into effect on December 2010, there is a new requirement regarding a previous year modified audit opinion 3. This audit standard requires that auditors, when expressing an opinion on this year s statements, to take into account the possible effect of a prior year modified opinion that has not been properly corrected or resolved. Consequently, a previous year modified opinion that has not been properly resolved may cause the auditors to issue a modified opinion in their current year audit report. If proper attention is not paid to this aspect, the risk could be a significant accumulation of unresolved modified opinions from previous years that would lead the UN BoA to issue a modified audit opinion on UN-Women financial statements. (Refer to Annex 5) Offices must ensure the audit services are adequately covered as specified in this present TOR. The submitted year-end project financial statement reports (i.e., cumulative FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System) must be duly certified by the IP / RP and Auditors and signed by UN-Women Offices Management which must be attached with the audit reports; the same applies for the Statement of Cash (cash and bank balances of the project). If the project does not hold any cash at hand or maintains a bank account, the auditors must clearly indicate this in the opinion page and certify it. 3. Follow-up to Resolve Audit Observations It is important, where applicable, that the NGO, GOV T, IGO and Grant audit results and issues, especially those that resulted to the audit qualification in the previous year audit, be properly addressed with conclusive actions. The same disposition should be done for any unsupported amount or the related Net Financial Impact (NFI) of audit qualifications. For the offices and UN-Women as an organization, these unsupported amounts mean that UN-Women has no reasonable assurance as to the use of this part of its resources. The recurrence of the same significant audit issues in the same projects without being duly resolved cannot be tolerated. This is unacceptable and offices must ensure adequate and direct action is taken to clear the unsupported amount and to prevent the same deficiencies from recurring in the future. If further guidance is needed, offices should contact the Audit Coordinator, DMA, HQ. The auditors are required to verify and validate the reported actions taken to address previous years audit recommendations for the project. These status of implementation of audit recommendations and/or actions taken to address resolution of audit issues are reported in the updated Action Plan submitted by the pertinent UN-Women Country Office or office responsible for the project audited. 3 A modified audit opinion means either a qualified opinion, a disclaimer opinion or an adverse opinion. 5

Annex 1 Annex 2 Annex 3 Annex 4 Provides the audit services required or standard scope of audit. Describes the qualifications of an auditor and may help in the process of selecting auditors. Where the TOR is being supplied to a short list of firms as part of a request for proposals (RFP) and the firms short listed have been pre-qualified, then the list of qualifications would not be needed. This applies only to Auditors who are not from the Global Audit Firm. Is a sample of audit report that needs to be submitted by the auditor. A management letter needs to be attached to the audit report. (ISA 700, 705 and 706). Provides a definition of audit opinions Annex 5 Provides guidance on Reporting Prior Year Modified opinion not corrected (ISA 450 and 710) Annex 6 Annex 7 Annex 8 Annex 9 Annex 10 Annex 11 Provides the listing of possible financial audit findings Defines the three risk categories of audit findings Provides classification of possible causes of audit findings Provides a template sample of certified prior year updated action plan, as applicable Provides a Template for audit data and observations for Y2012 audits that auditors need to submit Provides guidance on formulating audit observations and recommendations Annex 12 Provides guidance on Audit Materiality (SAS 220) Annex 13 Checklist of documents for the Auditor 6

A. BACKGROUND OF THE PROJECT(S) PLANNING FOR THE AUDIT The auditor should obtain background information about the projects selected for audit. This should include a broad description of the project(s) in the context of its contribution to achieving the goals set in the project document(s). The auditor should understand the "purpose for which the funds are intended" in the context of project objectives as well as in terms of the specific budget for the project(s). The auditor should have a clear understanding of the roles of UN-Women and the Implementing partner (IP) or Responsible party (RP) with respect to the management and oversight of the project(s). The main focus of the audit to be carried out is of special purpose financial statements, which are referred to as UN-Women Funding Authorization and Certification of Expenditures (FACE) Reports (or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System) certified and submitted by the IPs or RPs. The list of projects and corresponding IPs or RPs identified for every audit year will be provided by the Audit Coordinator, DMA, HQ as the audit year s Final Audit Plan for UN-Women NGO, GOV T, IGO and Grant Projects. B. PROJECT MANAGEMENT The auditor should obtain an understanding of the project management of the projects to be audited. The Implementing partner (IP) or Responsible party (RP) needs to be identified and pertinent contact details obtained, including the physical address, phone numbers, fax numbers, websites and general e-mail addresses. Other details that the auditor must know for each project to be audited includes the following: An organization chart A list of senior officers together with their contact details A list of the contact persons responsible for accounting, financial management and internal audit together with phone numbers and email addresses A description of the project including the project budget by major expenditure categories and the sources of all funding for the project. C. CONSULTATIONS WITH CONCERNED PARTIES Prior to the start of audit work, the auditor will be required to consult with the UN-Women office, the government counterpart, if any and the IP or RP for each project. Further, upon completion of the draft audit report and management letter, the auditor will be required to meet with the pertinent IP or RP and the UN-Women office to debrief them on its major findings from the audit and its recommendations for future improvements as well as to seek their feedback thereon on the draft audit report prior to finalization. 7

D. SCOPE AND OBJECTIVE OF NGO, GOV T, IGO AND GRANT AUDIT The NGO, GOV T, IGO and Grant project audit will be performed based on the FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, for the audit year submitted by the IP or RP. The UN-Women offices and IP or RP should also include the statement of cash position or fund balance. The UN-Women offices will provide the auditors with copies of: i. The completed interim and year-end FACE forms or advance liquidation/project expenditure reports submitted by the IP or RP and signed accepted by the respective UN-Women office, duly certified as to their accuracy and completeness by a duly authorized IP or RP officer; ii. The direct payment requests by the IP or RP, if any; iii. Explanations for any other adjustments to the project expenditures made by UN-Women; iv. The Annual Work Plans (AWP) or Project Work Plan and Budget (PWP&B) for the period audited; v. Statement of Cash Position or Fund Balance as at the period audited; vi. The Project Cooperation Agreement (PCA), Letter of Agreement (LOA) or Grant Agreement (GA). For a comprehensive list of documents that must be provided to the auditor, please see Annex 10. The auditor will not be required to certify or express an opinion of the Annual Inventory Report of equipment, property and non-expendable materials and supplies. But these inventory report and records must be submitted by the IP or RP to UN-Women office every year. The auditor will examine the IP s or RP s internal controls over asset management to ensure that: a. All assets purchased using UN-Women resources (or transferred from UN- Women) are properly reflected in the IP s or RP s asset register; b. The IP or RP has procedures for periodically verifying the existence of the assets and reconciling to their asset register; and c. The IP or RP has procedures for disposing of assets and removing from the register. The objective of NGO, GOV T, IGO audits is to provide UN-Women Management with assurance on the proper use of the funds provided to the IPs or RPs in line with the provisions of the Project Cooperation Agreement (PCA), Letter of Agreement (LOA) or Grant Agreement (GA). More specifically, the NGO, GOV T IGO and Grant audits should provide assurance with regards to the following: a) Expenditures Expenditures reported by the IP or RP on the FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System: i. Represent goods and services procured to implement the activities included in the PCA, LOA or GA; ii. Are adequately supported by appropriate documentation that evidences the validity of the transactions reported and that the goods and services procured have been received and used to implement the activities within the PCA, LOA or GA; iii. Have been reconciled to the expenditures reported in the IP s or RP s accounting records and in the FACE forms or on a temporary exception, the Financial Statement Reports from 8

iv. the UNTF s Grant Management System, accepted and signed by the UN-Women office or to the statement of direct payments supplied by UN-Women, if any; Are properly presented in accordance with UN-Women accounting and reporting requirements or other acceptable accounting and reporting standards. b) Advances i. Advances reported by the IP or RP agree to the advances paid by UN-Women through the duly approved respective FACE forms or request for advance forms, whichever is available; ii. The beginning and ending balances of the fund account in the Statement of Cash Position reported by the IP or RP, agree to the balances confirmed by the UN-Women office on the FACE form or request for advance forms as reported by the IP or RP; iii. The closing cash balance reported by the IP or RP on the FACE form or request for advance form agrees to the fund balance in the FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System and to the IP or RP s accounting records. Where the IP or RP maintains a segregated bank account, then the cash balance should also agree to the bank statement balance. The list of possible financial audit findings can be found in Annex 6. Description of the certified Project Financial Statement Reports and Funding Authorization and Certificate of Expenditures Report (FACE) The FACE form replaces all financial reports and documentation prepared by IPs or RPs to request for funds and report expenditures. The FACE form received from the IP or RP and approved by the UN- Women project manager is used as the basis for recording project expenditures in ATLAS. The UN- Women project manager accepts, rejects or request an amendment to the expenditures reported on the FACE form. Accordingly, the designated official of the IP or RP is required to certify the accuracy of data and information provided on the FACE form after UN-Women office s review. The FACE form will not be processed without the appropriate signature from the designated IP or RP official. At the end of the year, after receiving the fourth quarter FACE form from the IP or RP, UN-Women offices, together with the pertinent IP or RP must ensure that the recorded data in ATLAS reconciles with the UN-Women office s approved FACE forms. UN-Women will provide the auditor, among others, with the ATLAS figures for each IP or RP under the project and FACE forms for audit. E. DETAIL OF AUDIT SERVICES REQUIRED The scope of the yearly audit required shall be of the selected UN-Women Projects and Grant Projects with the corresponding IPs or RPs identified under each selected project included in the audit year s Final Audit Plan for UN-Women projects and grant projects. Specifically, the audit should ensure: That it will be carried out in accordance with either ISA 4 or INTOSAI 5 auditing standards. 4 International Standards of Auditing (ISA) published by the International Auditing Practices Committee of the International Federation of Accountants 9

That the audit period is 1 January to 31 December of the year 20 6. That the scope of the audit is limited to the IP s or RP s advances received from UN-Women and project expenditures, which are defined as including: (1) all disbursements listed in the periodic FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, submitted by the IP or RP; and (2) the direct payments processed by UN- Women, if any, at the request of the IP or RP. That the auditor is required to verify the mathematical accuracy of the FACE forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, for the audit period and that the expenditures described in the supporting documentations are reconciled to the expenditures and advances reported in the corresponding FACE forms or submitted advance liquidation / project expenditure reports other than the FACE forms, if any. That the auditor is required to state in the audit report the amount of expenditures excluded from the scope of the audit, if any. These excluded expenditures may refer to any direct support services by UN-Women or expenditures made by a UN Agency. This scope limitation is not a valid reason for auditors to issue a qualified audit opinion on the reported project expenditures and fund balance for the audit year. That the auditor is required to state in the audit report if the audit was not in conformity with any of the above and indicate the alternative standards or procedures followed. That the auditor is required to express an opinion as to the overall financial situation of the project for the period 1 January to 31 December 20 and will certify: 1. The IP or RP reported project expenditures for the period from 1 January to 31 December 20; 2. The statement of cash position (cash and bank balances of the project) or fund balance reported by each IP or RP for the project as of 31 December 20. That the auditor is required to report in monetary value, the unsupported expenditures or the net financial impact of any modified audit opinion (modified opinions can be qualified, adverse, or disclaimer) on the reported project expenditures for the audit year. That the auditor/audit firm is required to submit a draft audit report by 15 April 20YY and a final signed audit report with IP or RP and UN-Women office signed cumulative FACE Forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, by 30 April 20YY. In addition, the auditor/ audit firm shall prepare and submit a summary report of the key trends and common weaknesses identified during all the audits carried out for the year. 5 International Organization of Supreme Audit Institutions 6 For grant projects, this period might include expenditures incurred from the start date of the signed Project Cooperation Agreement until 31 December of the audit year. This is only when the start date of the project was within the last six months of the preceding year and the project has not been previously audited. 10

Note: Audit opinions must be one of the following: (a) qualified (negative), (b), unqualified (favourable), (c) adverse (negative), or (d) disclaimer (negative). If the audit opinion is other than unqualified (favourable) the audit report must describe both the nature and amount of the possible effects on the financial statements. The report should also make a reference to the section of the management letter with regard to the related audit observation number and the action taken or planned to be taken to address and conclusively correct the issues underlying the qualification. A definition of audit opinions is provided in Annex 4. F. THE AUDIT REPORT AND MANAGEMENT LETTER FOR EACH PROJECT AUDITED The expected contents of the audit report and management letter and the topics or areas to be covered by the auditors are described in the following paragraphs. Audit Report The audit report should clearly indicate the auditor s opinion (Refer to Annex 3 for a sample Audit Report). This would include at least the following: That it is a special purpose and confidential report. The audit standards that were applied (ISAs, or national standards that comply with one of the ISA in all material respects). The period covered by the audit opinion The amount of expenditure audited The amount of unsupported expenditures or the net financial impact of the modified audit opinion on the cumulative FACE Forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, if modified. The reason(s) resulting in the issuance of a modified audit opinion, qualified, adverse or disclaimer opinion [the reason(s) must be also included in the management letter as an audit observation(s)]. The scope limitation (description and value), if any for those transactions that are the responsibility of UN-Women (as part of direct UN-Women office support service to the project in line with the terms of the PCA, LOA or GA). Important to note: Such scope limitation should not be reason for a qualified audit opinion as such transactions would be, in general, excluded from the audit scope. Whether the UN-Women cumulative FACE Forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System - for the period from 1 January to 31 December xxxx is adequately and fairly presented and whether the disbursements are made in accordance with the purpose for which funds have been allocated to the project; The Financial Audit must be carried out to express an opinion on the project s cumulative FACE Forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System that includes: Expression of an opinion on whether the statement of expenditure presents fairly the expenditure incurred by the project over a specified period in accordance with UN-Women accounting policies 11

and that the expenditures incurred were: (i) in conformity with the approved project budgets; (ii) for the approved purposes of the project; (iii) in compliance with the relevant regulations and rules, policies and procedures of the Government or UN-Women; and (iv) supported by properly approved vouchers and other supporting documents. Whether the result of the prior year s audits, resulting in modified audit opinions on the UN- Women cumulative FACE Forms or on a temporary exception, the Financial Statement Reports from the UNTF s Grant Management System, had conclusive actions to properly address an audit qualification in the previous year audit and the related Net Financial Impact (NFI). If there is a lack of conclusive actions, the auditors must take into account the possible effect of a prior year modified opinion that has not been properly corrected or resolved. Note: Consequently, a previous year modified opinion that has not been properly resolved may cause the auditors to issue a modified opinion in their current year audit report. If proper attention is not paid to this aspect, the risk could be a significant accumulation of unresolved modified opinions from previous years Express an opinion on the value and existence of the cash held by the project as at a given date, i.e. 31 December 20. Where a dedicated project bank account is opened and used solely for the cash transactions of a NGO, GOV T, IGO project, e.g. if the project is in a remote location. The auditor is required to express and opinion on the Statement of Cash Position where a dedicated bank account for the NGO, GOV T, IGO project has been established and/or the project holds petty cash. Where the project does not hold any cash, this should be disclosed in the audit report. The Financial Audit will be conducted in accordance with International Standards of Auditing (ISA). Together with the deliverable audit report is the long form management letter that lists the audit observations and recommendations classified as follows: a) Financial findings (including IP s or RP s management response); b) Management findings (including IP s or RP s management response); c) Compliance findings (including IP s or RP s management response); d) Other findings (including IP s or RP s management response). The management letter should be attached to the audit report and cover the following topics or issues: A general review of a project s progress and timeliness in relation to progress milestones and the planned completion date, both of which should be stated in the project document or PCA or LOA or GA. This is not intended to address whether there has been compliance with specific covenants relating to specific performance criteria or outputs. However, general compliance with broad covenants such as implementing the project with economy and efficiency might be commented upon but not with the legal force of an audit opinion. An assessment of a project's internal control system with equal emphasis on: (i) the effectiveness of the system in providing the project management with useful and timely information for the proper management of the project; and (ii) the general effectiveness of the internal control system in protecting the assets and resources of the project. 12

A description of any specific internal control weaknesses noted in the financial management of the project and procedures followed to address or compensate for the weaknesses. Recommendations to resolve/eliminate the internal control weaknesses noted should be included. The management letter should also include the following: Effective audit observations/recommendations (guidelines in Annex 11) The categorization of audit observations by risk severity: High, Medium, or Low. Definitions of these categories are given in Annex 7. The classification of possible financial audit findings and the identification of the possible causes of the audit findings. The list and a brief description for each finding are given in Annex 6; while the list of classification of possible causes of audit finding can be found in Annex 8. Management comments/response to audit observations and recommendations (project management and/or UN-Women, as applicable). Indication of observations that affect the audit opinion (when qualified, adverse or disclaimer opinion is given) More detailed guidance for the above general categories is provided below. Review of project progress As part of the general review of project progress, specific steps could include the following: Review annual and quarterly work plans, quarterly and annual financial reports, and requests for direct payments, if any, and assess in terms of their timeliness and their compliance with the project document and the UN-Women Programme and Operations Manual (POM). Review the project s progress reports, prepared by the IP or RP for the audit period, and assess it in terms of compliance with UN-Women guidelines and whether the IP or RP met its responsibilities for monitoring described in the project document. Review whether the decisions and/or recommendations of the above activities have been followed through by the IP or RP. Review the pace of project progress and comment on the causes for delays. Assessment of internal control The auditor is not required to express an opinion on the effectiveness of the IP s or RP s internal controls, but should obtain an adequate understanding of those controls as per requirements of the applicable auditing standards. An example of established internal control standards is available from the Organization of Supreme Audit Institutions (INTOSAI). The INTOSAI standards are intended for use by government managers to use as a framework to establish effective internal control structures. For further information, the INTOSAI Guidelines for Internal Control Standards can be found on the INTOSAI Web site www.intosai.org. However, it should be communicated in the body of the report, any deficiencies identified at any stage of the audit that, individually or in combination, constitute significant deficiencies in 13

internal controls that could result in material misstatements of the expenditures reported, ineffective or inefficient delivery of activities or misappropriation of UN-Women-funded assets and funds. In addition to the above general assessment, additional specific steps could include the following: Review expenditures made by the IP or RP and assess whether they are in accordance with the project document and budgets; and are in compliance with the UN-Women Programme and Operations Manual (POM). Review the process for procurement or contracting activities and assess whether it was transparent and competitive. Review the use, control and disposal of non-expendable equipment and assess whether it is in compliance with UN-Women Programme and Operations Manual (POM); and also whether the equipment procured met the identified needs and whether its use was in line with intended purposes. Review the process for recruiting project personnel and consultants and assess whether it was transparent and competitive. Review the IP or RP accounting records and assess their adequacy for maintaining accurate and complete records of receipts and disbursements of cash; and for supporting the preparation of the quarterly financial report. Recommendations for improvement Recommendations should be directed to a specific entity so there is no confusion regarding who is responsible for implementation. The response of the entity should be included in the management letter, immediately following the recommendation. Also, the auditor may wish to comment on good practices (if any) that were developed by the IP or RP that should be shared with other project personnel. Available Facilities and Right of Access A list of description of the nature and the location of all records belonging to the project should be included in the completion of a pre-audit questionnaire by the pertinent UN-Women Country Office or office responsible for the project for audit. This list should specify those records kept at the IP s or RP's headquarters and those that are located at other offices. The auditor would have full and complete access at any time to all records and documents (including books of account, legal agreements, minutes of committee meetings, bank records, invoices and contracts etc.) and all employees of the entity. The auditor has a right of access to banks, consultants, contractors and other persons or firms engaged by the project management. If an auditor may not have unrestricted access to any records, person or location during the course of the audit, this restriction will be clearly defined with reasons and sent to the Audit Coordinator, DMA, HQ for possible consideration and discussion with the auditor / audit firm. 14

ANNE 1: AUDIT SERVICES REQUIRED The scope of audit services shall be in accordance with International Standards for Audit (ISA) and cover the overall management of the project s implementation, monitoring and supervision. The audit work should include the review of work plans, progress reports, project resources, project budgets, project expenditure, project delivery, recruitment, operational and financial closing of projects (if applicable) and disposal or transfer of assets. To this effect, the scope of the audit shall cover the following areas as they are performed at the level of the project: Human resources The audit work shall cover the competitiveness, transparency and effectiveness of the recruitment and hiring of personnel and include performance appraisal, attendance control, calculation of salaries and entitlements, payroll preparation and payment, and management of personnel records. Finance The audit work shall cover the adequacy of the accounting and financial operations and reporting systems. These include budget control, cash management, certification and approving authority, receipt of funds, and disbursement of funds, recording of all financial transactions in expenditure reports, records maintenance and control. Procurement The audit work shall cover the competitiveness, transparency and effectiveness of the procurement activities of the project in order to ensure that the equipment and services purchased meet the requirement of either the government or NGO or UN-Women and include the following: As applicable, delegations of authorities, procurement thresholds, call for bids and proposals, evaluation of bids and proposals and approval/signature of contracts and purchase orders Receiving and inspection procedures to determine the conformity of equipment with the agreed specifications and, when applicable, the use of independent experts to inspect the delivery of highly technical and expensive equipment Evaluation of the procedures established to mitigate the risk of purchasing equipment that do not meet specifications or is later proven to be defective Management and control over the variation orders. The audit work in the area of procurement shall also cover the use of consulting firms and the adequacy of procedures to obtain fully qualified and experienced personnel and assessment of their work before final payment is made. Asset Management The audit work shall cover equipment (typically vehicles and office equipment) purchased for use of the project. The procedures for receipt, storage, and disposal shall also be reviewed. 15

Cash Management The audit work shall cover all cash funds held by the project and review procedures for safeguarding of cash. General Administration The audit work shall cover travel activities, vehicle management, shipping services, office premises and lease management, office communications and IT systems, and records maintenance. Note: The above scope shall cover those transactions performed at the level of the project. Scope Limitation Specify and describe audit scope limitation, if any. The reason for the scope limitation and impact on the audit should be explained. Note that for any direct payment requested from UN-Women, the IP or RP is accountable for the disbursement and maintains all supporting documentation. UN-Women simply facilitates effecting payment on the basis of properly authorized requests and gives the IP or RP a copy of the related disbursement voucher as evidence that payment was made. 16

ANNE 2: QUALIFICATIONS OF THE AUDITOR The auditor must be completely impartial and independent from all aspects of management or financial interests in the entity being audited. The auditor should not, during the period covered by the audit nor during the undertaking of the audit, be employed by, serve as director for, or have any financial or close business relationships with any senior participant in the management of the entity. It is required that the auditor disclose any relationship that might possibly compromise his/her independence. The auditor should be experienced in applying either ISA or INTOSAI audit standards, whichever is applicable for the audit. The auditor must employ adequate staff with appropriate professional qualifications and suitable experience with ISA or INTOSAI standards, including experience in auditing the accounts of entities comparable in size and complexity to the entity being audited. Curriculum vitae (CVs) should be provided to UN-Women by the principal of the firm of auditors who would be responsible for signing the opinion, together with the CVs of managers, supervisors and key personnel proposed as part of the audit team. CVs required for submission should include details on audits carried out by the applicable staff, including on-going assignments indicating capability and capacity to undertake the audit. 17

ANNE 3: SAMPLE AUDIT REPORT Auditor's report to: The National Project Director and The UN-Women Representative Format for Financial Certifications I. Sample Certification for Project cumulative FACE Forms or Financial Statement Reports for the audit year REPORT OF THE INDEPENDENT AUDITORS TO UN-WOMEN [insert project name] (Refer to ISA 700) We have audited the accompanying Project cumulative FACE Forms or Financial Statements ( the statement ) of the project [insert award and project number(s)], [insert official title of project] for the period [insert period covered]. Management of [insert name of IP or RP] is responsible for the preparation of the statement for <name/title> project and for such internal control as management determines is necessary to enable the preparation of a statement that is free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on the statement based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the project s preparation of the 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 project 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 presentation of the statement We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Clean Opinion: Option 1: (Unmodified) In our opinion, the attached statement of expenditure presents fairly, in all material respects, the expenditure of [insert amount in US$] incurred by the project [insert official title of project] for the period [insert period covered] in accordance with agreed upon accounting policies [if needed add - and the note to the statement] and were: (i) in conformity with the approved project budgets; (ii) for the approved purposes of the project; (iii) in compliance with the relevant UN-Women regulations and rules, policies and procedures; and (iv) supported by properly approved vouchers and other supporting documents. Modified Opinions (Refer to ISA 705) Option 2: (Qualified opinion) 18

In our opinion, the attached statement of expenditure, except for the reasons indicated above in paragraphs (1), (2), (3), etc., [there should be a separate Basis for Qualified Opinion Paragraph where the basis for Qualified opinion is clearly explained] presents fairly in all material respects the expenditure of [insert amount in US$] incurred by the project [insert official title of project] for the period [insert period covered] in accordance with UN-Women accounting policies [if needed add: and the note to the statement]. Option 3: (Adverse opinion) In our opinion, based on the significance of the matter discussed in paragraph (1), (2), (3) etc. [there should be a separate Basis for Adverse Opinion Paragraph where the basis for adverse opinion is clearly explained] the statement of expenditure does not give a true and fair view of the expenditure of [insert amount in US$] incurred by the project [insert official title of project] for the period from [insert period covered] Option 4: (Disclaimer of opinion) Because of the significance of the matter described in paragraph (1),(2), (3), etc [there should be a separate Basis for Disclaimer of Opinion Paragraph where the basis for disclaimer of opinion is clearly explained] we were unable to obtain sufficient appropriate evidence to provide a basis for an audit opinion. Accordingly we are unable to express an opinion on the statement of expenditure of [insert amount in US$] incurred by the project [insert official title of project] and audited by us for the period from [insert period covered]. Emphasis of Matter [if applicable] (Refer to ISA 706) We draw attention to Note [insert number] to the statement of expenditure which describes the uncertainty related to the [insert the issue]. Our opinion is not qualified in respect of this matter. Auditor's Signature Date of the auditor s report Auditor s address 19

II. Sample Certification of Statement of Cash Position (Statement of Cash Position is required only if there is separate bank account for each of the projects and/or petty cash) (Refer to ISA 700) We have audited the accompanying statement of cash ( the statement ) of the project number [insert award and project number(s)], [insert official title of project] as at. Management of <project name/title> project is responsible for the preparation of the statement for project and for such internal control as management determines is necessary to enable the preparation of a schedule that is free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on the statement based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISA). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the project s preparation of the statement 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 project 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 presentation of the statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Option 1: (Unmodified) In our opinion, the attached Statement of cash position presents fairly, in all material respects, the cash and bank balance of the UN-Women project [insert official title of project] amounting to [insert amount in $US] as at [insert date] in accordance with the UN-Women accounting policies [if needed add: set out in the note to the statement]. Modified Opinions (Refer to ISA 705) Option 2: (Qualified opinion) In our opinion, the attached statement of cash, except for the reasons indicated above in paragraphs (1), (2), (3), etc., [there should be a separate Basis for Qualified Opinion Paragraph where the basis for Qualified opinion is clearly explained] presents fairly in all material respects the cash and bank balance amounting to [insert amount in US$] as at [insert date] in accordance with the UN-Women accounting policies [if needed add: set out in the note to the statement]. Option 3: (Adverse opinion) In our opinion, based on the significance of the matter discussed in paragraph (1), (2), (3) etc [there should be a separate Basis for Adverse Opinion Paragraph where the basis for adverse opinion is clearly explained] the statement of cash does not give a true and fair view of the cash and bank balance of [insert amount in US$] audited by us as at [insert date]. Option 4: (Disclaimer of opinion) Because of the significance of the matter described in paragraph (1),(2), (3), etc [there should be a separate Basis for Disclaimer of Opinion Paragraph where the basis for disclaimer of opinion is clearly explained] we were unable to obtain sufficient appropriate evidence to provide a basis for an audit opinion. Accordingly, we 20

are unable to express an opinion on the statement of cash in the amount of [insert amount in US$] audited by us as at [insert date]. Emphasis of Matter [if applicable] (Refer to ISA 706) We draw attention to Note to the statement of cash which describe the uncertainty related to [give explanation of the uncertainty]. Our opinion is not qualified in respect of this matter. Auditor's Signature Date of the auditor s report Auditor s address This report is intended solely for the information and use of UN-Women and the Government of YZ Country (or NGO or IGO). Date of issuance: AUDITOR'S NAME (Please print): AUDITOR S SIGNATURE: STAMP AND SEAL OF AUDIT FIRM: AUDIT FIRM ADDRESS: AUDIT FIRM TEL. NO. Note: Audit opinions must be one of the following: (a) qualified, (b), unqualified, (c) adverse, or (d) disclaimer. If the audit opinion is other than unqualified the audit report must describe both the nature and amount of the possible effects on the UN-Women Project cumulative FACE Forms or Financial Statement Reports (Amount of qualification/net Financial Impact). A definition of audit opinions is provided in Annex 4. 21