Attachment I Other Types of Audit.pdf

ATTACHMENT I

OTHER TYPES OF AUDITS

There will be various types of audits which may be performed under this BPA. The details of the requirements will be provided as a specific Scope of Work document for each engagement. The methods used to accomplish the objectives will vary depending on the type of audit. While it is not possible to discuss every possible audit which may be requested, the following is a discussion on the more common types of audits and financial reviews.

1.Type of Audits

(a) Audit Survey.

Audit survey work is requested at times to help scope out an area of audit activity. Following are the objectives of an audit survey:

1. To obtain information about the project or program for use in planning the audit.

2. To identify amounts, effective dates, and expiration dates of subject agreements.

3. To determine the effective date of the last audits, audited value, the current audit period, and value to be audited.

4. To review the internal and administrative control systems and identify any significant weaknesses or reportable conditions.

5. To issue a survey report indicating survey findings and estimates of audit hours and billing rates.

6. To follow-up on prior audit recommendations.

7. To examine the recipient’s general-purpose financial statements.

8. To determine the actual indirect cost rates.

The following steps may be helpful in preparing an audit program. It is not to be considered as all inclusive or restrictive in nature and does not constitute relief from exercising due professional care and judgment. These steps should be modified to fit local conditions, the specific project design, and implementation procedures that may vary from program to program.

1. Hold an entrance conference with USAID Officers responsible for the program. Explain the purpose of the survey.

2. Review agreements, USAID Automated Directive System (ADS) and other pertinent information. Obtain copies of documents, records, reports and correspondence for audit work-papers and preparation of a survey report.

3. Perform survey steps to accomplish survey objectives.

4. Discuss survey results with appropriate USAID officials. If applicable, incorporate their comments in the audit survey report as appropriate.

(b) Audits of Contracts/Grants (including Host Country Contracts) and Local Currency

Trust Fund Verification Audits.

The objective of this type of examination is to perform a financial and compliance audit of a grant or contract for a specified period. The auditor should determine if grant funds are being properly accounted for and used as directed by the agreements or other applicable program documents.

Auditors shall test for situations and transactions that could be indicative of fraud, abuse and illegal expenditures and acts. If such incident exists, the non-Federal auditor should contact the

Regional Inspector General before extending audit steps and procedures.

The following steps should be considered for the audit. They are not to be considered as all inclusive or restrictive in nature and do not constitute relief from exercising due professional care and judgment. The steps should be modified to fit local conditions and the specific project design and implementation procedures that may vary from program to program.

(c) Performance Audits

The objective of this type of audit is to determine how well a project or program is performing.

The audit would be designed and carried out to answer a specific audit question such as whether the project's main goals are being achieved, whether selected project activities are effective in helping achieve program goals, whether project activities are being carried out in an efficient manner, etc. The Scope of Work for the specific performance audit work requested would either provide a series of specific audit procedures to be carried out in order to answer the audit question, or would request that the firm develop a detailed audit program as part of the Scope of

Work to answer the audit question. In either case, the firm would be asked to perform steps similar to those outlined under C.3.3.(a) in carrying out an audit survey. Namely, the firm would hold an entrance conference with USAID Officers responsible for the program, review relevant program documents, perform procedures necessary to accomplish the performance audit objective, discuss results of the performance audit work with USAID officials, and incorporate

USAID's comments into the performance audit report as appropriate.

Alternatively, the firm may under this subsection, be asked to provide technical audit services at a designated labor category to assist RIG/Pretoria in carrying out a performance audit (under

RIG/Pretoria supervision) of a USAID program. In this case, the firm would not be responsible to produce an audit report. Instead, the firm would provide audit services at a designated labor category to assist RIG/Pretoria in answering a performance audit objective. In this case, the

Scope of Work would specify the labor category to be requested (typically a "junior auditor/financial management advisor" or a "senior auditor/financial management advisor"). The auditor requested under this labor category would assist RIG/Pretoria auditors in answering the performance audit question. The Scope of Work would also specify the approximate amount of auditor labor to be provided (typically a single auditor for 4 to 6 weeks), the performance audit question that the auditor would assist in answering, and the specific audit procedures that the auditor would assist in performing.

1. Review the following documents, as applicable, to become familiar with the associated cost principles.

(d). Agreed Upon Procedures

The objective of this engagement is to conduct agreed-upon procedures as specified in each task order in accordance with U.S. Government Auditing Standards issued by the U.S. Government

Accountability Office, attestation standards established by the American Institute of Certified

Public Accountants, and by the USAID Office of the Inspector General “Guidelines for Financial

Audits Contracted by Foreign Recipients (Guidelines).” Application of Agreed-upon Procedures

The performance of Agreed-Upon Procedures upon activities must be performed in accordance with U.S. Government Auditing Standards and accordingly include such tests of the accounting and other records as deemed necessary under the circumstances. Generally Accepted Government

Auditing Standards (GAGAS) incorporate the AICPA’s attestation standards. As such the agreed-upon procedures must also be performed in accordance with AICPA’s Statement on Standards for

Attestation Engagement (SSAE). As a result of performing the agreed-upon procedures, the audit firm will:

1. Communicate the findings of the agreed-upon procedures performed in the format prescribed under the “Agreed-Upon Procedures Report” section of this statement of work.

2. Describe the systems reviewed and related internal controls, policies and procedures and records to which the agreed-upon procedures were applied. The results should be presented in a format that identifies or references the procedures performed and related findings. Appropriate detailed explanatory notes should be provided.

3. Perform the agreed-upon procedures as outlined in each specific task orders in order to address and achieve the specific objective(s) prescribe in each specific task order. In accordance with

U.S. Government Auditing Standards, Chapter 6, when planning review-level or agreed-upon procedure level attestation engagements, auditors should be alert to situations or transactions that could be indicative of fraud, illegal acts, conflicts of interest and violations of provisions of the specific agreement. If indications of fraud, illegal acts, conflicts of interest or violations of provisions of the agreement exist that could materially affect the subject matter or assertion, auditors should apply procedures specifically directed to ascertain whether violations of provisions of the agreement has occurred and the effect on the subject matter or assertions. If such evidence exists the auditor should contact the USAID/West Africa Regional Financial

Management Services (RFMO) Controller and the Regional Inspector General, Office of the OIG in Pretoria/South Africa (RIG/Pretoria) immediately and should exercise due professional care in pursuing indications of possible fraud and illegal acts so as not to interfere with potential future investigations, legal proceedings, or both.

2. Regulations Description

USAID Procurement Contracts with Educational Institutions

Regulations; Code of (Includes OMB A-21)

Federal Regulations (CFR)

CFR 41 1-15.3

CFR 41 1-15.2 Contract with Commercial Organizations

CFR 41 1-15.6 Non-profit Organizations (Includes OMB A-122)

A.I.D. ADS 305.7 Host Country Contract

OMB Circular A-21 Office of Management and Budget (OMB) circular

For Non-profit Educational Institutions

OMB Circular A-122 OMB Circular for Non-profit other than

Educational Organizations

ADS 303 Mandatory Standard Provisions for Non-U.S., Non-

Governmental Grantees

OMB Circular A-110 OMB Circular for Grants and Agreements with Non-profit Organizations

2. Obtain grant documents, amendments, and other supplemental agreements and subcontracts.

3. Obtain financial or program reports submitted by the grantee.

4. Ascertain whether there is any negotiated advance understanding between the grant officer and the grantee on a particular cost.

5. Determine the extent of compliance with the pertinent sections of the USAID Standards provision applicable to the grant.

3. Audit Program Expenditures that exceed $750,000

Prepare an audit program to address the below areas, where expenditures exceed the $750,000 threshold. For example, the following steps may be applicable:

a). For USAID direct grants, determine whether the cost incurred in carrying out the purposes of the agreement were reasonable, allocable and allowable in accordance with applicable OMB

Circulars, and the terms of the agreement, standard provision or any negotiated advance understanding on a particular cost item. For host country contracts, refer to cost principles and suggested audit program contained in USAID ADS 305.7. Each host country contract should contain a provision stating how the allowability of costs will be determined. Allowable or unallowable costs may be listed in the document itself or incorporated by reference to USAID

ADS 305.7.

b). At a minimum, determine whether the grantee complied with significant terms of the agreement or attached provisions.

c). If approved inputs were not provided as required by the agreement, are there excess funds? If so, what are the plans for those funds and has USAID approved these program changes? If not, is a refund due under the standard provisions?

d). Determine if program income is being applied as directed by the grant, applicable standard provisions or USAID ADS 300.

e) Determine if funds provided under a grant have been expended for purposes not authorized or in accordance with the terms of the grant. If so, the grantee shall refund such amounts to USAID.

f) Determine whether performances under the grant are being monitored when appropriate. Steps may include obtaining statements from Activity Managers or USAID management, review of

USAID program evaluation reports, site visits, etc. If a foreign field visit is necessary for the audit step, assistance from USAID maybe requested.

g) Determine any noncompliance with the agreement, standard provisions, or ADS Series 300 that have or could have significant effect on project progress or achievement, project objectives or goals. Make appropriate recommendations to correct these conditions.

h) Explain in the report any costs not considered appropriate for reimbursement under the agreement and make recommendations for refund of those specified amounts. If costs are unsupported, make recommendations that they be held in abeyance as unacceptable until supported.

4. Report

Upon completion of the audit work and in coordination with RIG/Pretoria, the audit results will be discussed with USAID technical and Controller staffs. Also, in order to resolve issues as early during the audit as possible, these officials should be kept informed of significant results as they are obtained. The final meetings should, therefore, be more of a summary meeting with higher rank officials on the total results.

The reports should be prepared in cooperation with the required reporting guidelines for audits.

These reports will be evaluated and those institutions that have exceeded the $750,000 threshold will have their reports forwarded to the RIG/Pretoria for a determination. The auditor should provide (the number to be determined in each Task Order) copies in English of the final report (8

1/2" by 11" size paper) which shall:

(a) Contains a title page, table of contents, transmittal letter, and a summary which includes:

(1) a background section with a general description of the USAID programs audited, the period covered, the program objectives, a clear identification of all entities mentioned in the report, a section on the follow-up of prior audit recommendations, and whether the recipient has a USAID-authorized provisional indirect cost rate;

(2) The objectives and scope of the financial audit and a clear explanation of the procedures performed and the scope limitations, if any;

(3) a brief summary of the audit results on the fund accountability statement, questionable costs, internal control, compliance with agreement terms and applicable laws and regulations, indirect cost rates, status of prior audit recommendations, and, if applicable, the recipient’s general purpose financial statements on an organization-wide basis; (4) a brief summary of the results of the review of cost sharing contributions; and (5) a brief summary of the recipient's management comments regarding its views on the audit and review results and findings.

(b) Contains the auditor's report on the fund accountability statement, identifying any material questioned costs not fully supported with adequate records or not eligible under the terms of the agreements.

The report must include: (1) the auditor's opinion on whether the fund accountability statement presents fairly, in all material respects, program revenues, costs incurred, and commodities and technical assistance directly procured by USAID for the year then ended in accordance with the terms of the agreements and in conformity with generally accepted accounting principles or other basis of accounting;

(2) the fund accountability statement identifying the program revenues, costs incurred, and commodities and technical assistance directly procured by USAID for the fiscal year and also questioned costs not considered eligible for reimbursement and unsupported, if any, including the cost of any commodities and technical assistance directly procured by USAID whose existence or proper use in accordance with the agreements could not be verified; and

(3) Notes to the fund accountability statement, including a summary of the significant accounting policies, explanation of the most important items of the statements, the exchange rates during the audit period and foreign currency restrictions, if any interest earned or why no interest was earned.

(c) Contains a report on the auditor’s review of the schedule of cost-sharing contributions. The report must follow the guidance in the AICPA Statements on Standards for Attestation

Engagements, Attestation Standard (AT) for review reports AT100.64. The report must include:

(1) a review report on the cost-sharing schedule; (2) the cost-sharing schedule identifying questioned costs; (3) the cost-sharing schedule identifying the budgeted amounts required by the agreements, the amounts actually provided, and any cost-sharing shortfalls; and (4) notes to the cost-sharing schedule that briefly explain the basis for questioned costs and shortfalls, if applicable.

(d) Contains the auditor’s report on internal control. The auditor's report must include as a minimum:

(1) the scope of the auditor's work in obtaining an understanding of internal control and in assessing the control risk, and; (2) the reportable conditions, including the identification of material weaknesses in the recipient's internal control. Non-reportable conditions should be communicated to the recipient in a separate management letter that should be referred to in the report on internal control and sent with the audit report.

(e) Contains the auditor's report on the recipient's compliance with agreement terms and applicable laws and regulations related to USAID-funded programs. The report must follow the guidance in SAS No. 74.

Material instances of noncompliance must be described in a separate section. Nonmaterial instances of noncompliance should be communicated to the recipient in a separate management letter that should be sent with the audit report. All material questioned costs resulting from instances of noncompliance must be included as findings in the report on compliance. Also, the notes to the fund accountability statement that describe both material and immaterial questioned costs must be cross-referenced to any corresponding findings in the report on compliance.

(f) Contains the schedule of computation of indirect cost rate and the auditor's report on the schedule of computation of indirect cost rate. This should be a separate report prepared in accordance with guidance set forth in SAS 29 (AU551).

(g) Contains the recipient’s general-purpose financial statements on an organization-wide basis and the auditor's report on them. These statements and the report on them only apply to recipients with an indirect cost rate that needs to be audited, unless the mission specifically requests that the statements be audited.

The draft audit report will be subject to approval and acceptance by RIG/Pretoria and will be discussed with responsible Government and/or USAID officials. Recommendations will be included in the Office of the Inspector General's audit recommendation follow-up system.

5. Workpapers

The work and work-papers generated and obtained under each Task Order should be primarily in

English and will be subject to review and oversight by RIG/Pretoria. The public accounting firm must properly maintain and store the working papers for a period of three years from the completion of the audit. During this three-year period the audit firm shall immediately provide the working papers when requested by the USAID mission or the RIG and allow them full access and copies of their working papers. Public accounting firms that are non-responsive or do not provide timely responses to questions raised by the USAID mission or RIG office shall be temporarily or permanently excluded from performing additional audits.

6. Inspection and Acceptance of Audit Work and the Report

USAID and the RIG/Pretoria is responsible for assuring that the work performed under this statement of work complies with U.S. Government Auditing Standards and the "Guidelines for

Financial Audits Contracted by Foreign Recipients." ADS591. To accomplish this objective, USAID will perform desk reviews on every draft audit report. USAID also will perform quality control reviews of the working papers of sample final audit reports received, from the independent auditors, if required.

For quality control reviews, the audit firm must ensure that all audit records related to USAID agreements are available to enable RIG auditors to complete and support their review. To this end, the USAID must have access to all pertinent working papers and records of the recipient and their sub-recipients and make excerpts, photocopies, and transcripts, if required.

If the RIG rejects the work of an audit firm due to noncompliance with the Guidelines, no payment shall be made until the RIG finds the report to be acceptable. USAID must withhold final payment for any work determined to be substandard until acceptable corrective action is taken. Should the audit firm fail to make its report acceptable, either a different recipient-contracted audit firm shall be asked to complete the work or the firm itself be trained and capacity built, in order to issue a quality output. In such case, the audit firm will not be considered acceptable to perform future audits until capacity is built and USAID determines through its audit firm evaluation process, that the firm has undergone an external quality control review, implemented the resulting recommendations, and is capable of substantially improved performance.

7. Term of Performance of Task Orders

The audit should normally begin within 15 days from the effective date of the task order and the draft report should be received by USAID within 80 days after the audit started. After USAID’s approval of the final draft report, a copy shall be submitted to USAID and the auditee. An exit conference should then be held within 10 days of issuance of the draft report. Suggested modifications to the draft report, if any, should be fully considered at that time and the final draft should be issued to the auditee for comments after USAID approval. The auditee should then be provided 15 days to make written comments to the draft report. The auditor will incorporate these comments into the final draft report. An advance copy of the completed final report will be provided to USAID for review and revision, if any.

USAID will then transmit the final report to appropriate parties. Recommendations will be included in RIG/Pretoria's follow-up and closure system. Final payment to the non-Federal auditor will be made after the final reports have been accepted and detailed billing information, if required, has been received.

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.