Attachment E SOW Financial Reviews.pdf

STANDARD STATEMENT OF WORK

FOR FINANCIAL REVIEW OF USAID/WEST AFRICA AWARDS

OBJECTIVES

The financial review will be conducted to provide limited assurance that the locally incurred direct costs billed to USAID by the U.S. based entity or all incurred costs by a local entity were accurately recorded, reported, supported by adequate documentation, and are allowable, allocable, reasonable and generally in accordance with the terms of the contract/grant. The specific objectives of this financial review are to determine the following:

• If adequate accounting and financial management systems are in place to manage funds expended by the contractor under the award, in compliance with the terms and conditions of the awards; relevant U.S. Federal Government accountability and fund management rules;

and generally accepted accounting/financial management practices.

• If expenditures aggregated and reported under the contract via the monthly billing, and other payments for goods and services made under the contract are bona fide and in line with the terms of the contracts and procedures set forth in FAR 31.201-1/6, FAR 52.216-7/8, and

AIDAR 752.7003.

• If property acquired under the award are utilized only for the purposes covered under the award.

• If transactions with sub-contractors are properly tracked, controlled, accounted for and reported FAR 30.607, 52.214-28, 52.244

SCOPE

The firm should use the following steps for the financial review. They are not considered all-inclusive or restrictive in nature and do not constitute relief from exercising professional judgment. The steps should be modified to fit local/regional conditions and specific program design, implementation procedures, and agreement provisions, which may vary from award to award. Any limitations in this statement of work must be communicated to USAID.

A. Pre-Review Steps

The firm must review the applicable documents considered necessary to perform the financial review.

The following is a list of documents applicable to this award:

1. The contract between USAID and the recipient, including subsequent modifications.

2. The subcontracts between the recipient and other implementing entities, as applicable.

3. The recipient’s contracts and subcontracts with third parties, if any.

4. The budgets, work plans, and written procedures approved by USAID.

5. Federal Acquisition Regulation (FAR), Part 31, Contract Cost Principles and Procedures.

6. USAID Acquisition Regulation (AIDAR), which supplement the FAR.

7. ADS Series 300: Acquisition and Assistance

8. 22 CFR 200 – Administration of Assistance Awards to U.S. Non-Government Organizations.

9. Final OMB Uniform Guidance: Cost Principles, Audit, and Administrative Requirements for

Federal Awards Subpart F, Appendix IV, Appendix V, Appendix IX

10. OMB circulars A-123 – Management Responsibility for Internal Control.

11. Cash management Improvement Act (CMIA) (Pub. L. 101 – 453), codified at 31 CFR Part 205.

12. OMB circulars A-127 – Financial Management Systems.

13. All program, financial and progress reports, charts of accounts, organizational charts, accounting system descriptions, procurement policies and procedures, operations policies and procedures, accounting and financial management forms, warehousing and distribution procedures for materials, as necessary, to successfully complete the required work.

B. Evaluation of internal control environment and risk assessment

The firm must review and evaluate the recipient's internal controls related to USAID programs under the award, to ensure they are adequate, in operation, and effective. The firm should conduct this evaluation using the Control Environment and Risk Assessment Checklists, in Attachment N.

These checklists must be completed and crossed referenced to supporting documents or to the internal control tests conducted.

C. Accounting and financial management systems

1. The firm must conduct a review of internal control documentation and evaluate the contractor’s accounting and financial management systems to determine if they meet the following financial management standards:

i. Accounting records are supported by documentation that identify, segregate, accumulate, and record all costs incurred and which fully disclose:

• the amount and dispositions by source of funds received;

• the total cost of the program or undertaking in connection with assistance received; and

• other records as will facilitate an effective audit.

ii. Existence of records that identify adequately the source and application of funds for sponsored activities. These records contain information pertaining to awards, authorizations, obligations, un-obligated balances, assets, expenditures, and income.

iii. Effective control over and accountability for all funds, property, and other assets.

Assets are safeguarded from unauthorized use.

iv. Comparison of actual outlays with budget amounts for each agreement. Financial information is related to performance and unit cost data whenever appropriate. The same chart of accounts is used for budgeting and reporting and variances between actual and planned results, are analyzed.

v. Maintenance of adequate procedures for determining allowable and allocable costs in accordance with the provisions of the award, applicable cost principles, and generally accepted accounting principles.

vi. Financial information disclosed for sponsored programs are accurate, current, and complete.

vii. Financial transactions and reports are subject to examinations or internal audit, by qualified individuals who are sufficiently independent of those that authorize the expenditure of funds.

viii. Existence of a systematic method to ensure timely resolutions of audit and financial review findings.

2. The firm must review procurement procedures to determine whether sound commercial practices including competition were used, reasonable prices were obtained, and adequate controls were in place over the qualities and quantities received.

3. Procedures performed by the firm to report on the effectiveness of the financial management systems and internal control procedures of the recipient, must include evaluation of the following:

i. Accounting and financial management operations and the capabilities of the recipient’s accounting and finance unit staff.

ii. Applicable payment and expenditure accounting policies and procedures, accounting forms, logs and registers.

iii. Procedures for initiating, authorizing, executing and accounting for retreats, seminars, workshops and trainings.

iv. Procedures for funding, tracking and reporting sub-contracts under the awards.

v. Procedures for recognizing and allocating joint or common costs among benefiting projects (USAID and Non-USAID), if applicable.

vi. Procedures for recognizing and allocating cost share to the USAID award, if applicable.

vii. Fixed assets usage procedures, including utilization of shared assets.

viii. Procedures for motor vehicles usage and maintenance.

ix. Procedures for activities planning, design, implementation, monitoring and evaluation, and close-out.

x. Basis and method of accounting for program expenditures under the award.

xi. Accounting data description and recording processes.

xii. Financial transaction measurement and processing system.

xiii. Financial reporting capabilities, financial report production and distribution processes.

xiv. Access and security of accounting system and data.

xv. Policies and procedures for documents protection, storage and control.

xvi. Methods by which significant class of transactions are authorized and initiated, documented and recorded, processed in the accounting system and placed in the financial reports and disclosures.

xvii. The payroll cycle and system.

xviii. Travel policies and procedures.

xix. Acquisition and payment for goods and services.

xx. Cash receipts and payment procedures.

xxi. Banking arrangements and treasury operations.

xxii. Policies and procedures for managing current assets (Cash, Inventory, Receivables, and Advances).

xxiii. Policies and procedures for managing and accounting for accounts payables and other liabilities.

xxiv. Procedures for managing and accounting for prepaid, deferred and accrued expenses.

xxv. Existing internal analytical checks – reconcilements and independent proofs of accuracy and completeness.

xxvi. Financial planning capabilities and budgeting systems – cash flows, project budgets, budgetary controls and funds management.

xxvii. Arrangements for maintaining oversight of sub-recipient’s financial management systems.

4. The firm shall document the evaluation of the effectiveness of the recipient’s internal control procedures and financial management system, using the internal control procedures questionnaire in Appendix 1. However, other internal control questionnaire could be used if it sufficiently documents the required procedures.

D. Substantive tests of internal control procedures and review of accounting records

The firm must evaluate program implementation actions and accomplishments to determine whether samples of costs incurred are allowable, allocable, and reasonable under the agreement terms, and applicable USAID rules. At a minimum, the firm must perform substantive tests or reviews that cover the following:

1. Review of financial reports (trial balances, financial status reports, ledgers, transactions reports) produced by the recipient.

2. Review of bank reconciliation statements and other accounting processes that are subject to reconciliations.

3. Review of selected accounting vouchers and records supporting at least 40% of costs charged to

USAID under the award, and covering transactions for a period, not less than half of the period under review.

4. Irrespective of the requirement in “D3” the samples of accounting records and vouchers reviewed must include the following:

▪ Retreats, seminars, trainings, and workshops.

▪ Travels, vehicle repairs, and property purchases.

▪ Payroll and employee compensation.

▪ Subgrants and subcontracts, if applicable.

▪ Allocation of common costs, if applicable.

▪ Cost share, if applicable.

▪ Re-imbursement for use of project assets.

▪ Program income, if applicable.

▪ Statutory payments like income tax, withholding tax, value added tax, and pension payments.

5. Review of general and program ledgers to determine whether costs incurred were properly recorded. Reconcile direct costs billed to, and reimbursed by, USAID to the program and general ledgers.

6. Perform tests to determine whether the recipient's financial reports (including those on the status of cost sharing contributions) and claims for advances and reimbursement contain information that is supported by the books and records.

7. Review of personnel files, grant files, and selected procurement files.

8. Review of selected vehicle usage logs.

9. Review of advance or receivable aging reports.

10. Physical check on current asset (cash and inventory) balances.

11. Review of fixed assets register (non-expendable property) procured with USAID funds.

12. Review of indirect cost charges, if applicable.

13. Verification of existence and operating status of selected major vendors.

14. Ascertain whether the contractor ensured that audits of its sub-contractors were performed to ensure accountability for USAID funds passed through to sub-recipients. If sub-recipient audit requirements were not met, the firm must disclose this in the financial review report as a material weakness.

15. Determine if the recipient has taken adequate corrective action on prior audit or financial review recommendations.

16. The firm must question and report all cost claims considered ineligible, not supported with adequate documentation, or did not have required prior approval. All incurred costs, not meeting the requirements of the recipient’s policies and procedures must be reported as questionable costs.

E. Other financial review responsibilities

The firm must perform the following steps:

1. Hold entrance and exit conferences with the recipient. The USAID/West Africa must be notified of these conferences in order that USAID representatives may attend, if deemed necessary.

2. During the planning stages of the financial review, the firm must communicate through formal notification to inform the recipient regarding the nature and extent of planned testing and documents to be reviewed. Written communication is preferred. The firm must document the frequency of these communications in the working papers.

3. Institute quality control procedures to ensure that enough competent evidence is obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the recipient’s internal controls and financial management system. The firm may use its standard procedures for ensuring quality control, those procedures must, at a minimum, ensure the following:

▪ The financial review reports and supporting working papers are reviewed by a responsible, independent officer of the firm, who was not involved in the review. This review must be documented in the working papers.

▪ All quantities and monetary amounts involving calculations are notated (footed) and cross-checked.

▪ All factual statements, numbers, conclusions and monetary amounts are cross-indexed to supporting working papers.

4. Financial review findings should be adequately supported. USAID/West Africa reserves the right to review the working papers to ensure that assessments were done properly.

5. The firm should obtain specific representations from management concerning its knowledge of any actual fraud or suspected fraud affecting the entity, involving management or others, and potentially having a material effect on the financial statements. The firm should also obtain management’s acknowledgement of its responsibility to prevent and detect fraud. In reporting material fraud, illegal acts, or other noncompliance, the firm should place their findings in proper perspective. The Mission will then notify the Regional Inspector General

(RIG), Pretoria, to advise USAID/West Africa on the subsequent steps and actions.

V. FINANCIAL REVIEW REPORT

1. The firm must submit one hard copy and one electronic copy of the financial review report in

English to USAID. This report must follow the format in Appendix 1.

2. The firm must report all instances of weaknesses or deficiencies in internal control environment and all identified control risks. Internal control conditions not satisfying the assertions or other objective standards, must be reported as findings.

3. The firm must also report all instances of deficiencies in the recipient’s internal control procedures and financial management systems. Conditions not satisfying the assertions in or other objective standards, and not complying with the terms and conditions of the award must be reported as findings.

4. The firm must report identified costs claims considered ineligible, not supported with adequate documentation, not in accordance with the recipient’s policies and procedures, or do not have required prior approval, as findings. Details of questionable costs must be presented using a user-friendly format.

5. The report must include the firm’s actionable recommendations for:

▪ correcting identified internal control deficiencies;

▪ correcting identified financial management deficiencies;

▪ resolving identified questionable cost claims;

▪ mitigating identified control risk and vulnerability of USAID

▪ strengthening the recipient’s internal controls and financial management system.

6. The firm must provide an implementation matrix that will be used to monitor the implementation of the financial review findings.

7. The firm must determine the significance of control deficiencies and provide a detailed control element report for all deficiencies considered to be material weaknesses and significant deficiencies.1

8. The report must include for each material weakness or significant deficiencies the following elements of findings:

▪ Criteria: The laws, regulations, contracts, grant agreements, standards, measures, expected performance, defined business practices, and benchmarks against which performance is compared or evaluated. Criteria identify the required or desired state or expectation with respect to the program or operation. Criteria provide a context for evaluating evidence and understanding the findings.

▪ Condition: Condition is a situation that exists. The condition is determined and documented during the engagement.

▪ Cause: The cause identifies the reason or explanation for the condition or the factor or

1 Deficiencies in the design or operation of internal controls that in the firm’s judgment, could adversely affect the recipient’s ability to meet the terms and conditions of the award; record, process, summarize, and report financial data consistent with the assertions of management in the financial reports submitted to USAID.

factors responsible for the difference between the situation that exists (condition) and the required or desired state (criteria), which may also serve as a basis for recommendations for corrective actions. Common factors include poorly designed policies, procedures, or criteria; inconsistent, incomplete, or incorrect implementation; or factors beyond the control of program management.

▪ Effect or potential effect: The effect is a clear, logical link to establish the impact or potential impact of the difference between the situation that exists (condition) and the required or desired state (criteria). The effect or potential effect identifies the outcomes or consequences of the condition.

VI. REVIEW AND ACCEPTANCE OF FINANCIAL REVIEW WORK AND THE

REPORT

The financial review plan (including detailed steps) and the draft report will be subject to approval and acceptance by the Controller, USAID/West Africa. After approval, the draft report will be discussed with the responsible technical officers of the contractor firm.

USAID/West Africa will perform desk reviews on every draft financial review report and may perform quality control reviews and testing of the working papers. The firm must ensure that all working papers supporting the findings of the financial review are available for USAID/West Africa to review, if necessary. USAID/West Africa must have access to all pertinent working papers and records of the recipient and their subrecipients and make excerpts, photocopies, and transcripts.

If USAID/West Africa does not accept the report because of deficiencies in the work, the firm must perform any additional financial review work requested, at no additional cost.

VII. RELATIONSHIPS AND RESPONSIBILITIES

The client for this contract is the Controller, USAID/West Africa. The firm will work in co-ordination with USAID/West Africa.

The USAID mission will meet with the contracted firm at the beginning of the financial review to explain financial/compliance areas of concern contained in the statement of work and provide any advice concerning the performance of the financial review. The USAID mission would provide the following information to the firm for the entrance conference:

▪ A list of all payments made through the monthly billing cycle for assets, equipment, materials, technical assistance and other goods and services provided.

▪ The signed contract and all other subsequent modifications.

USAID/West Africa may also provide written comments on the draft financial review report concerning the facts and conclusions, in order to obtain the best possible outcome. USAID/West

Africa will also attend the exit conference to provide inputs in the required areas.

The firm must properly maintain and store the working papers for a period of three years from the completion of the financial review. During this three-year period, the firm must immediately provide the working papers when requested by USAID/West Africa. Firms that are nonresponsive or do not provide timely responses to questions raised by USAID/West Africa shall be temporarily or permanently excluded from performing additional financial reviews.

VIII. TERMS OF PERFORMANCE

The effective date of this contract will be the date of the USAID/West Africa Contracting Officer's signature. The financial review must begin as soon as practicable after the signing of the contract.

From the contract start date, the firm must submit to USAID/West Africa:

▪ a complete financial review plan, with detailed steps to perform the task, in writing, within

20 calendar days;

▪ a draft indexed financial review report in English within 50 calendar days; and

▪ a final financial review report that includes revisions incorporating USAID/West Africa comments within 60 calendar days.

It is the responsibility of the recipient to ensure that all records are available, all accounting entries and adjustments are made, and all other necessary steps are taken to make it possible for the firm to perform the required work and present the final review report within 60 calendar days.

Payment will be as follows:

• 20 percent on the date that the financial review program (work-plan) is approved by

USAID/West Africa,

• 30 percent at the completion of the field work and submission of a draft report, and

• 50 percent on the date USAID/West Africa approves the final report.

If USAID does not accept the report because of deficiencies in the work or noncompliance with the scope of work, the contractor shall perform any additional work necessary as agreed with USAID/West

Africa at no additional cost to USAID/West Africa.