FY27 U.S. Based- IPA SOW 4272026.docx

UNCLASSIFIED

BLANKET PURCHASE ORDER DESCRIPTION

This blanket purchase order (BPA) requests audit services for Accountable Entities (AE) and foreign organizations without access to Independent Public Accountant firms to conduct audit and review engagements in accordance with U.S. GAGAS and other applicable standards.

1. INTRODUCTION

In many countries, the access to Independent Public Accountant (IPA) firms to conduct audit and review engagements in accordance with U.S. GAGAS is very limited or nonexistent.

Due to MCC’s reliance on the financial reporting from accountable entities (AE) and foreign organizations to produce its financial statements and data, MCC must have reasonable assurance that the AE financial reports are reliable and accurate. Sufficiently robust audits of that financial reporting by qualified Independent Public Accounting firms (IPA) are a central component of building that assurance.

2. AUDIT OBJECTIVE

The primary objective of this engagement is for the contractor to provide auditing services to conduct financial audits of the MCC resources managed by the AE/foreign organization and other recipient organizations under the MCC-funded grants described in this Terms of Reference, as well as conduct audits of other MCC-funded grants, contracts, and implementing agreements in accordance with the U.S. Government Auditing Standards issued by the Comptroller General of the United States and the “Audit Reference Overview”. The Audit Reference Overview on which these terms of reference is based can be and is subject to modification at any time at the discretion of MCC.

A financial audit of the funds managed by recipient organizations under MCC-funded grants, contracts, and implementing agreements must be performed in accordance with U.S. Government Auditing Standards, or other approved standards where applicable, and accordingly must include such tests of the accounting records as deemed necessary under the circumstances. The specific objectives of the audit of resources managed by AE/foreign organizations and its Covered Providers, if applicable, are to:

1) Express an opinion on whether the Fund Accountability Statement for the MCC-funded programs presents fairly, in all material respects, revenues received, costs incurred, assets and technical assistance directly procured by MCC and the Government (including by the AE/foreign organization and its Covered Providers, if applicable) for the period audited in accordance with MCC rules and regulations, other implementation guidance, and the terms of the CDF, CFF, Compact or Threshold Program, related agreements, conditions of award, and generally accepted accounting principles or other comprehensive basis of accounting (including the cash receipts and disbursements basis and modifications of the cash basis).

2) Evaluate and obtain a sufficient understanding of the Accountable Entity’s internal controls related to AE/foreign organization’s development and implementation of the Compact or Threshold Program using both MCC and Government funds, assess control risk, and identify significant deficiencies or material weaknesses in the design and effectiveness of these internal controls. This evaluation should include the internal control related to required cost-sharing contributions and Government contributions required for the Compact or Threshold Program.

3) Perform tests to determine whether AE/foreign organization complied, in all material respects, with the CDF, CFF, Threshold Program Development Funding Agreement, Compact or Threshold Program (including those MCC rules and regulations regarding Government Contributions), supplemental agreements, and applicable laws and regulations related to MCC-funded grants. All material instances of noncompliance and all illegal acts that have occurred or are likely to have occurred should be identified. Such tests should include the compliance requirements related to the required cost-sharing contributions, if applicable. Specifically, the auditor shall perform tests to determine whether AE/foreign organizations complied, in all material respects, with the MCC Program Procurement Guidelines, the MCC Cost Principles for Government Affiliates, AE/foreign organizations’ s Fiscal Accountability Plan or other similar plans in effect during the audit period, and the terms and conditions of the MCC-funded grant.

4) Determine whether the accountable entity has taken adequate corrective action on prior audit report recommendations, if applicable.

5) Auditors must design audit steps and procedures in accordance with U.S. Government Auditing Standards (GAS), to provide reasonable assurance of detecting instances or transactions in which fraud or illegal acts have occurred or are likely to have occurred. If such evidence exists, the auditors must contact MCC AFC Hotline at hotline@mcc.gov and report the issue to the OIG hotline at https://oig.usaid.gov/report-fraud . In addition, the auditor should exercise due professional care in pursuing indications of possible fraud and illegal acts so as not to interfere with potential future investigations or legal proceedings.

6) If applicable, conduct a review engagement of the cost-sharing schedule to determine if the schedule is fairly presented in accordance with the basis of accounting used by the AE/foreign organization to prepare the schedule and to:

i) determine whether cost-sharing contributions were provided and accounted for by the Accountable Entity in accordance with the terms of the agreements; and

ii) question all cost-sharing contributions that are either ineligible or unsupported costs.

3. SCOPE OF THE ASSIGNMENT

The Auditor should use the following steps as the basis for preparing their audit programs. These steps are not all-inclusive or intended to be restrictive in nature and do not constitute relief from exercising professional judgment and due professional care. The steps should be modified to address local conditions and specific program design, implementation procedures, and agreement provisions which may vary from program to program. Any limitations in the Terms of Reference must be communicated as soon as possible to the AE/foreign organization.

S1. Pre-Audit Steps Following is a list of documents related to MCC programs. The Auditor should review the applicable documents considered necessary to perform the audit:

1.1. CFF, CDF, Compact or Threshold Program, and any supplemental agreements by and between MCC, the Government, and the AE/foreign organization for development and implementation of the Compact or Threshold Program.

1.2. Other documents including but not limited to: a. Program Implementation Agreement (PIA), b. Bank Agreement, c. Procurement Agent Agreement, d. Fiscal Agent Agreement, e. Fiscal Accountability Plan, f. Procurement Operations Manual, g. Procurement Plan, h. Program Procurement Guidelines, i. Project Cooperation Agreement(s) (PCAs) j. M&E Plan, k. Implementation Plan(s), l. Audit Plan and m. Work Plans for the relevant Project or Project Activity.

1.3. The agreements between the AE/foreign organization and contractors and grantees, and any other entities implementing MCC-funded activities on the AE/foreign organization’s behalf.

1.4. The sub-agreements or implementing entity agreements between the AE/foreign organization and other implementing entities, if applicable.

1.5. Contracts and subcontracts with third parties, if any.

1.6. The budgets, implementation letters, and written procedures approved by MCC and the AE/foreign organization.

1.7. Applicable procurement laws and regulations.

1.8. All program financial and progress reports; charts of accounts; organizational charts; accounting systems descriptions; procurement policies and procedures; and receipt, warehousing and distribution procedures for materials, as necessary, to successfully complete the required work.

1.9. MCC’s Cost Principles for Government Affiliates in effect during the audit period.

1.10. Any previous audits, financial reviews, etc., that directly relate to the objectives of the audit.

S2. Fund Accountability Statement

The Fund Accountability Statement (FAS) is a financial statement that presents the AE/foreign organization’s revenues; the budgeted amounts by category and major items (i.e., Project and Activity); the revenues received from MCC and the Government for the period covered by the audit; the costs reported by the AE/foreign organization as incurred during that period; cash balance(s) on hand; and the commodities, assets, and technical assistance procured by MCC or the AE/foreign organization’s use. The FAS also includes one or more lines for expenditures directly managed by MCC for the benefit of the AE/foreign organization. The FAS must be presented in U.S. Dollars and the exchange rate(s) used must be disclosed in the notes to the FAS.

The Auditor must examine the FAS for all resources managed by the AE/foreign organization including the budgeted amounts by category and major items (i.e., Project and Activity); the revenues received from MCC and the Government for the period covered by the audit; the costs reported by the AE/foreign organization as incurred during that period; and the commodities, assets, and technical assistance directly procured by MCC or the Government for the recipient’s use. The fund accountability statement must include all resources managed by the AE/foreign organization identified by each specific Program or Agreement. The revenues received from MCC and the Government, less the costs incurred, after considering any reconciling items, must be reconciled to the balance of cash on hand and/or in bank accounts. The fund accountability statement must not include cost-sharing/Government Contributions provided from THE AE/foreign organization’s own funds or in-kind. However, a separate cost sharing/Government Contributions schedule must be presented as a separate FAS within the audit report.

The Auditors must not prepare or assist the AE/foreign organization in the preparation of the fund accountability statements, and the AE/foreign organization is solely responsible for the accuracy and content of the FAS before the audit commences.

The opinion on the fund accountability statements must be in accordance with the American Institute of Certified Public Accounts’ (AICPA) Statement of Auditing Standards No. 139, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks. The Fund Accountability Statement must separately identify those revenues and costs applicable to each specific agreement funded by MCC and the Government for the development and implementation of the Threshold Program. The audit must evaluate program implementation actions and accomplishments to determine whether specific costs incurred are allowable, allocable, and reasonable under the agreement terms, and to identify areas where fraud, waste, abuse, and illegal acts have occurred or are likely to have occurred as a result of inadequate internal control.

At a minimum, the Auditor must:

2.1. Review direct and indirect costs billed to and reimbursed with MCC funds and the Government Contribution and costs incurred but pending reimbursement by MCC and the Government, identifying and quantifying any questioned costs. All costs which are not supported by adequate documentation or that are not in compliance with the Threshold Program, or any supplemental agreements, THE AE/FOREIGN ORGANIZATION’s Fiscal Accountability Plan, or MCC’s Cost Principles for Government Affiliates must be reported as questioned. Questioned costs that are pending reimbursement must be identified in the notes to the fund accountability statement as not yet reimbursed. Questioned costs that are pending reimbursement must be identified in the notes to the fund accountability statement as not yet reimbursed.

Questioned costs must be presented in the fund accountability statement in two separate categories:

· (a) ineligible costs that are explicitly questioned because they are unreasonable, prohibited by the Threshold Program Agreement and related agreements or applicable laws and regulations, or not program related; and

· (b) unsupported costs that are not supported with adequate documentation or did not have required prior approvals or authorizations. All material questioned costs resulting from instances of noncompliance with the Threshold Program Agreement and related agreement terms and applicable laws and regulations must be included as findings in the report on compliance. Also, the notes to the fund accountability statement must briefly describe both material and immaterial questioned costs and must be cross-referenced to the corresponding findings in the report on compliance.

2.2. Review general and program ledgers to determine whether costs incurred were properly recorded. Reconcile direct costs billed to, and reimbursed by, MCC and the Government to the program and general ledgers.

2.3. Review the procedures used to control the funds, including transfers to contracted financial institutions or other implementing entities. Review the bank accounts and the controls on those bank accounts. Perform positive confirmation of balances, as necessary.

2.4. Determine whether payment or disbursement requests made to MCC and any advances of MCC funds were supported with adequate documentation, including reconciliations of funds advanced, disbursed, and available. The Auditor must ensure that all funding received by AE/foreign organization from MCC, and the Government were appropriately recorded in the AE/foreign organization’s accounting records and that those records were periodically reconciled with information provided by MCC and the Government.

2.5. Determine whether program income was added to the funds used to further eligible program objectives, to finance the non-MCC share of the Program, or deducted from program costs, in accordance with MCC rules and regulations, other implementing guidance, and the terms of the Cooperative Agreement, related agreements, and conditions of award.

2.6. 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. Assess whether the procurements were in accordance with MCC’s Program Procurement Guidelines, the approved Procurement Plan(s) in effect during the period audited, and AE/foreign organization Fiscal Accountability Plan or similar plan.

2.7. Review direct and indirect salary payments to determine whether salary rates are reasonable for that position, in accordance with those approved by MCC when MCC approval is required and supported by appropriate payroll records including the AE/foreign organization staff employment agreements and timesheets. Determine if any overtime was charged to the program and whether overtime payments are allowable under the terms of the Threshold Program Agreement and related agreements. Determine whether allowances and fringe benefits received by employees, contractors, and consultants (whether employees of AE/foreign organization or an Implementing Entity) were in accordance with the employment agreements, consulting agreements, contracting agreements, implementing entity agreements, and applicable laws and regulations. Determine whether salary increases or changes in compensation and benefits received were consistent with the policies and procedures of the AE/foreign organization, and that they were appropriately reviewed, approved by MCC when MCC approval is required, and adequately documented. The Auditor must include unallowable salary, compensation, and benefit charges as questioned costs in the fund accountability statement.

2.8. Review travel, per diem, and transportation charges to determine whether they are reasonable, adequately supported, and approved. Travel charges that are not supported with adequate documentation or not in accordance with the Compact or Threshold Program Agreement and related agreements and regulations must be questioned in the fund accountability statement.

2.9. Review assets (such as supplies, materials, vehicles, equipment, food products, tools, etc.), whether procured by the AE/foreign organization or directly by MCC or the Government for the AE/foreign organization or any of their Implementing Entities’ use. The Auditors must determine whether commodities exist or were used for their intended purposes in accordance with the terms of the CDF, Threshold Program, and related agreements, and whether adequate control procedures have been placed in operation to adequately safeguard the commodities. As part of the procedures to determine if commodities were used for intended purposes, the Auditors must perform end-use reviews for an appropriate sample of all commodities based on the control risk assessment. End-use reviews would normally include site visits to verify that commodities exist or were used for their intended purposes in accordance with the terms of the IE Fund, CFF, CDF, Compact or Threshold Program, and related agreements. The cost of all commodities that cannot be verified must be questioned in the fund accountability statement. (The Auditor should determine the cost of commodities based on supporting documentation from the AE/foreign organization, MCC, or the Government, as appropriate).

2.10. Review technical assistance and services (including implementing entity, grant activity advisory, or consulting services). The Auditor must determine whether technical assistance and services were used for their intended purposes in accordance with the terms of the CFF, CDF, Compact or Threshold Program, PCAs, Implementing Entity Agreement(s), or any other formal or informal agreements. The cost of technical assistance and services (including implementing entity, grant activity, advisory, or consulting services) not reasonable or not properly used in accordance with the agreements must be included as questioned costs in the fund accountability statement.

In addition to the above audit procedures, if technical assistance and services (including implementing entity, advisory, or consulting services) were contracted by the AE/foreign organization or an Implementing Entity from a non-U.S. contractor, the Auditor must perform additional audit steps of the technical assistance and services (including implementing entity, advisory, or consulting services) under this statement of work, unless the the AE/foreign organization has separately contracted for an audit of these costs.

When testing for compliance with the agreement terms and applicable laws and regulations, the Auditors must not only consider the agreements between the AE/foreign organization, the recipient organization, and MCC, but also the agreements between the AE/foreign organization, the recipient organization, and non-U.S. contractors providing technical assistance and services (including implementing entity, advisory or consulting services). The agreements between the AE/foreign organization, the recipient organization, and non-U.S. contractors should be audited using the same audit steps described in the other paragraphs of this section, including all tests necessary to specifically determine that costs incurred are allowable, allocable, reasonable, and supported under the CDF Agreement, Threshold Program, and related agreement terms. In case of any deficiencies or issues identified by the AE/foreign organization or MCC in the activity of any of the AE/foreign organization’s contractors, consultants, or other service providers (including an implementing entity or other recipient government organizations), the AE/foreign organization or MCC may require the Auditors to perform additional audit actions as needed to review compliance with the terms of the contract, CDF Agreement, Threshold Program, supplemental agreements, or rules, regulations, policies, and procedures of MCC, the Government, or the AE/foreign organization.

If technical assistance and services (including implementing entity, advisory, or consulting services) were contracted by the AE/foreign organization or the recipient organization from a U.S contractor, the Auditor is still responsible for determining whether technical assistance and services (including implementing entity, advisory, or consulting services) were used for their intended purposes in accordance with the terms of the CDF Agreement, Threshold Program, and related agreements. However, the Auditor is not responsible for performing additional audit steps for the costs incurred under the technical assistance and services agreements, since either MCC or a cognizant U.S. government agency is responsible for contracting for audits of these costs.

2.11. When the AE/foreign organization or an Implementing Entity charges indirect costs to MCC or the Government using provisional rates, review the allocation method to determine that the indirect cost pool and distribution base include only allowable items in accordance with CDF, Threshold Program, and related agreement terms. The auditors must be aware that costs that are unallowable as charges to MCC- or Government-funded agreements (e.g., fundraising) must be allocated their share of indirect costs if they represent activities that (1) include the salaries of personnel, (2) occupy space, and (3) benefit from the organization’s indirect costs. Indirect costs must be calculated after all adjustments have been made to the pool and base. When indirect costs are charged to MCC or the Government using predetermined or fixed rates, verify that the correct rates are applied in accordance with the agreements with and/or approved by MCC.

Any funds managed by MCC and/or other third parties authorized by MCC as part of a Threshold Program, pre-Threshold Program or supplemental agreement will not be subject to the detailed audit procedures described below, but summary information must be displayed in the consolidated Fund Accountability Statement.

Any questioned costs identified through audits of the AE/foreign organization’s Covered Providers must be reported in the audit of the AE/foreign organization since all uses of funds, whether by covered providers or by the AE/foreign organization itself, will appear in the AE/foreign organization’s fund accountability statement. Any internal control findings identified through audits of the AE/foreign organization Covered Providers must be reported in the audit of the AE/foreign organization if the internal control deficiencies could adversely affect the ability of the AE/foreign organization to record, process, summarize, and report financial data consistent with the assertions of the AE/foreign organization management in the fund accountability statement. Finally, any compliance findings identified through audits of the AE/foreign organization Covered Providers must be reported in the audit of the AE/foreign organization if the compliance deficiencies, alone or cumulatively, have a direct and material effect on the amounts in the AE/foreign organization’s fund accountability statement.

While the AE/foreign organization is the direct recipient of MCC and Government funds, the AE/foreign organization may enter into contracts or agreements for goods/service with other entities – either host country or foreign entities. Such entities, if the agreements are of a certain type (typically other than fixed price contracts) and exceed amounts specified and in the Audit Reference Overview, may qualify as Covered Providers and be subject to certain audits.

S3. Cost-Sharing Control

MCC agreements may require cost-sharing contributions by the recipient country government, as the Threshold Program between MCC and the Government in this case does. The type of cost-sharing government contribution selected, that is either a life-of-project budget or annual budgets, must be properly disclosed through the audit report. The review of the cost-sharing schedule must be approached differently depending on whether the cost-sharing budget is a life-of-project budget or an annual budget. In either case, the review consists principally of inquiries of the AE/foreign organization’s personnel and analytical procedures applied to financial data supporting the cost-sharing schedule.

The AE/foreign organization must prepare the cost-sharing schedule from its books and records. In addition, the AE/foreign organization must accept responsibility for the schedule's accuracy before the audit of the Government Contributions commences.

For an agreement with a life-of-project budget for cost-sharing contributions, it is not possible to determine whether the contributions have been made as required until the agreement ends. Nonetheless, MCC and the AE/foreign organization need reliable information to monitor actual cost-sharing contributions throughout the life of the agreement.

For agreements with a life-of-project budget for cost-sharing contributions, for each year that an audit is performed in accordance with the Audit Reference Overview, the auditors will:

For agreements with an annual budget for cost-sharing contributions, for each year that an audit is performed in accordance with the Audit Reference Overview, the auditors will:

Anticipated Government Contribution is provisioned in the Schedule 3 of the PIA.

S4. Internal Control

The Auditor must review and evaluate the AE/foreign organization’s internal control related to the development and implementation of the Threshold Program Agreement to obtain a sufficient understanding of the design of relevant control policies and procedures and whether those policies and procedures have been placed in operation. The U.S. Government Accountability Office's Standards for Internal Controls in the Federal Government (GAO-25-107721; 2025) may be helpful in assessing recipient internal controls. The auditor's understanding of the internal controls must be documented in the audit documentation file.

The Auditor must then prepare the report required by the Audit Reference Overview, identifying deficiencies in the design or operation of internal control.

A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s fund accountability statements will not be prevented or detected and corrected on a timely basis.

A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Any significant deficiencies or material weaknesses must be set forth in the report as "findings." Any other matters related to internal control—such as suggestions for improving operational or administrative efficiency or internal control, or control deficiencies that are not significant deficiencies or material weaknesses—should be included in a separate management letter to the AE/foreign organization and referred to in the report on internal control. The management letter should also be provided to the AE/foreign organization who will forward to MCC along with the audit report.

The major internal control components to be studied and evaluated include, but are not limited to, the controls related to each revenue and expense account on the fund accountability statement for each source of funds (from both MCC and the Government). The Auditors must:

4.1. Obtain a sufficient understanding of the internal controls to plan the audit and to determine the nature, timing, and extent of tests to be performed.

4.2. Assess inherent risk and control risk, as well as determine the combined risk. Inherent risk is the susceptibility of an assertion (e.g., an account balance) to a material misstatement, assuming there are no related internal control policies or procedures. Control risk is the risk that a material misstatement that could occur in an assertion will not be prevented or detected in a timely manner by the entity’s internal control policies or procedures. Combined risk (sometimes referred to as detection risk) is the risk that the auditor will not detect a material misstatement that exists in an assertion. Combined risk is based upon the effectiveness of an auditing procedure and the auditor’s application of that procedure.

4.3. Summarize the risk assessments for each assertion in the audit documentation. The risk assessments must consider the following broad categories under which each assertion should be classified: (a) existence or occurrence; (b) completeness; (c) rights and obligations; (d) valuation or allocation; and (e) presentation and disclosure. At a minimum, the audit documentation must identify the name of the account or assertion, the account balance or the amount represented by the assertion, the assessed level of inherent risk (high, moderate, or low), the assessed level of control risk (high, moderate, or low), the combined risk (high, moderate, or low), and a description of the nature, extent, and timing of the tests performed based on the combined risk. The summarized audit documentation must be cross-indexed to the supporting audit documentation files that contain the detailed analysis of the fieldwork. If control risk is evaluated at less than the maximum level (high), then the basis for the auditor's conclusion must be documented in the audit documentation files.

If the control risk is assessed at the maximum level for assertions related to material account balances, transaction classes, and disclosure components of financial statements when such assertions are significantly dependent upon computerized information systems, the Auditors must document in the audit documentation files the basis for such conclusions by addressing (i) the ineffectiveness of the design and/or operation of controls, or (ii) the reasons why it would be ineffective to test the controls.

4.4. Evaluate the control environment, the adequacy of the accounting systems, and control procedures. Emphasis must be placed on the policies and procedures that pertain to the AE/foreign organization’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in each account of the fund accountability statement. This evaluation must include, but not be limited to, the control systems for:

a. Ensuring that charges to the program are proper and supported;

b. Managing cash on hand and in bank accounts;

c. Procuring goods, works, and services;

d. Managing assets, commodities (such as supplies, materials, vehicles, equipment, food products, tools, etc.), inventory and receiving functions;

e. Managing personnel functions such as timekeeping, salaries, and benefits for the AE/foreign organization and its Implementing Entities;

f. Managing and disposing of assets (such as vehicles, equipment, and tools, as well as other assets) purchased either by the program or directly by MCC, the AE/foreign organization, an Implementing Entity, or the Government; and

g. Ensuring compliance with Threshold Program Agreement and related agreement terms and applicable laws and regulations that collectively have a material impact on the Fund Accountability Statement. The results of this evaluation must be contained in the audit documentation section described in the sub-clause H the clause III (Scope of The Assignment) of this Terms of Reference dealing with the review of compliance with the Threshold Program and related agreement terms and applicable laws and regulations and presented in the compliance report.

4.5. Evaluate internal control established to ensure compliance with cost-sharing requirements, if applicable, including provision, management, disbursements, and reporting of the Government Contributions, if applicable.

4.6. Include in the study and evaluation other policies and procedures that may be relevant if they pertain to data the auditor uses in applying auditing procedures. This may include, for example, policies and procedures that pertain to non-financial data that the auditor uses in analytical procedures.

In fulfilling the audit requirement relating to an understanding of internal control and assessing the level of control risk, the auditor must follow, at a minimum, the guidance contained in AICPA SAS No. 145 (AU-C Section 315) and AICPA SAS No. 122 (AU-C Section 265), respectively entitled Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement and Communicating Internal Control Related Matters Identified in an Audit, as well as AICPA SAS No. 148 (AU-C Section 935), Compliance Audits.

S5. Compliance with Agreement Terms and Applicable Laws and Regulations

In fulfilling the audit requirement to determine compliance with agreement terms and applicable laws and regulations related to MCC programs, the auditors must, at a minimum, follow guidance contained in AICPA SAS No. 148 (AU-C Section 935) entitled Compliance Audits. The compliance review must also determine on audits of awards that present cost-sharing budgets on an annual basis and on close-out audits of awards that present cost-sharing budgets on a life-of-project basis if cost sharing contributions were provided and accounted for in accordance with the terms of the agreements. The auditor's report on compliance must set forth as findings all material instances of noncompliance, defined as instances that could have a direct and material effect on the fund accountability statement. Nonmaterial instances of noncompliance should be included in a separate management letter to the AE/foreign organization and referred to in the report on compliance. The management letter should also be provided to the AE/foreign organization who will forward to MCC along with the audit report.

The auditor's report must include all conclusions that a fraud, wasteful, abusive, or illegal act either has occurred or is likely to have occurred. In reporting material fraud, illegal acts, abuse, or other noncompliance, the Auditors must place their findings in proper perspective. To give the reader a basis for judging the prevalence and consequences of these conditions, the instances identified should be related to the universe or the number of cases examined and be quantified in terms of U.S. Dollar value, if appropriate. In presenting material irregularities (including fraud, waste, and abuse), illegal acts, or other noncompliance, Auditors must follow the reporting standards contained in Chapter 6 of U.S. Government Auditing Standards. Auditors may provide less extensive disclosure of irregularities and illegal acts that are not material in either a quantitative or qualitative sense. If the auditor concludes that sufficient evidence of irregularities (including fraud, waste, or abuse) or illegal acts exists, the Auditor must immediately contact the OIG and MCC AFC, and must exercise due professional care in pursuing indications of possible irregularities (including fraud, waste, and abuse) and illegal acts so as not to interfere with potential future investigations and/or legal proceedings.

In planning and conducting the tests of compliance, the Auditor must:

5.1. Identify the pertinent laws and regulations and terms of the CDF, Threshold Program, and related agreements and determine which of those, if not observed, could have a direct and material effect on the fund accountability statement. The Auditors must:

a. List all standard and program-specific provisions contained in the agreements that cumulatively, if not observed, could have a direct and material effect on the fund accountability statement;

b. Assess the inherent and control risk that material noncompliance could occur for each of the compliance requirements listed in 1.a. above;

c. Determine the nature, timing and extent of audit steps and procedures to test for errors, fraud, and illegal acts that provide reasonable assurance of detecting both intentional and unintentional instances of noncompliance with agreement terms and applicable laws and regulations that could have a material effect on the fund accountability statement. This must be based on the risk assessment in 1.b. above; and

d. Prepare a single summary document in the audit documentation that identifies each of the specific compliance requirements included in the review, the results of the inherent, control, and combined (detection) risk assessments for each compliance requirement, the audit steps used to test for compliance with each of the requirements based on the risk assessment, and the results of the compliance testing for each requirement. The summary document must be cross-indexed to detailed audit documentation that support the facts and conclusions contained in the summary working paper.

5.2. Determine if payments have been made in accordance with the Threshold Program, and any supplemental agreements by and between MCC, the Government, the AE/foreign organization, and an Implementing Entity for development and implementation of the Cooperative Agreement, as well as any applicable rules, regulations, policies, and procedures of MCC or the Government.

a. Determine whether the AE/foreign organization is accurately tracking advance payments made to contractors and the liquidation of those advance payments consistent with the terms and conditions of contract agreements. Identify any material instances of non-compliance with agreement terms and/or instances in which the recipient’s records do not support a complete and accurate status of advance payments owed by contractors.

b. Determine whether the AE/Foreign organization is accurately tracking amounts retained from their contractors as a percentage of amounts invoiced, consistent with the terms and conditions of contract agreements. Identify any material instances of non-compliance with agreement terms and/or instances in which the recipient’s records do not support a complete and accurate status of amounts withheld from contractors.

c. Determine whether AE/foreign organization has an adequate system for ensuring that MCC funding is free of value-added taxes (VAT), and other such taxes, tariffs, duties and levies per the Cooperative Agreement. The system should identify VAT paid, claims for reimbursement, status of refunds, and outstanding balance. A note and/or schedule describing the recipient’s taxation control system and status of claims should be included in the Audit Report.

5.3. Determine whether funds have been expended for purposes not authorized or not in accordance with applicable agreement terms. If so, the Auditor must question these costs in the fund accountability statement.

5.4. Identify any costs not considered appropriate, classifying and explaining why these costs are questioned in accordance with the Cost Principles, applicable laws, and regulations.

5.5. Determine whether assets (such as supplies, materials, vehicles, equipment, food products, tools, etc.), whether directly or indirectly procured by MCC, the ae/foreign organization, the Government, or an Implementing Entity for use by the AE/foreign organization, the Government, or an Implementing Entity, exist or were used for their intended purposes in accordance with the Cooperative Agreement, and/or related agreements. Ensure that assets are marked in accordance with agreement requirements. If not, the cost of such assets must be questioned.

5.6. Determine whether any technical assistance and services (including implementing entity, advisory, or consulting services), whether directly or indirectly procured by MCC, the AE/foreign organization, or an Implementing Entity for use by the AE/foreign organization, or an Implementing Entity, were used for their intended purposes in accordance with the Cooperative Agreement, and/or related agreements. If not, the cost of such technical assistance and services must be questioned (including implementing entity, advisory, or consulting services).

5.7. If applicable, determine if the amounts of cost-sharing funds were calculated and accounted for as required by the Compact or Threshold Program Agreement and any related agreements or applicable rules, regulations, policies, and procedures of MCC or the Government.

5.8. If applicable, determine if the cost-sharing funds were provided by the Government in accordance with the terms of the Cooperative Agreement; that the AE/foreign organization properly and timely disbursed funds from the Government Contribution into the program; that the AE/foreign organization complied in all material respects with the policies and procedures regarding the source, use, valuation, timing, recording, and reporting of the Government Contributions required by MCC and the Government in support of the program; and quantify any shortfalls.

5.9. Determine whether those who received services and benefits were eligible to receive them.

5.10. Determine whether the AE/foreign organization’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.

5.11. Determine whether the AE/foreign organization (through its Fiscal Agent) complied with MCC’s Common Payment System Policy and Procedures.

5.12. Determine whether the AE/foreign organization (through its Fiscal Agent or Accountant) held advances of MCC and Government funds in interest-bearing accounts, and whether the AE/foreign organization (through its Fiscal Agent) remitted to MCC, and the Government (as applicable), any interest earned on those advances. If the AE/foreign organization was required to place MCC funds in an interest-bearing bank account but did not, then the Auditor should determine the amount of interest that was foregone by the AE/foreign organization, and this amount should be classified as ineligible costs.

5.13. Determine whether the AE/foreign organization complied with MCC’s Common Payment System Policy and Procedures and whether the AE/foreign organization (through its Fiscal Agent or Accountant) had adequate systems in place to monitor the amount of periodic spending authority authorized by MCC, if applicable.

S6. Follow Up on Prior Audit Findings and Recommendations

The Auditors must review the status of actions taken on findings and recommendations reported in any pre-award and in any prior audits of the Threshold Program. The Auditor must refer to the most recent audit report for the same award (for a follow-up audit), or other MCC-funded awards and any pre-award survey (for an initial audit). When corrective action has not been taken and the deficiency remains unresolved for the current audit period and is reported again in the current report, the Auditor needs to briefly describe the prior finding and status and show the page reference to where it is included in the current report. If there were no prior findings and recommendations, the Auditor must include a note to that effect in this section of the audit report.

For the first audit period, this follow-up task is not required.

S7. Assessing the AE/foreign organization’s Information System (IS) Controls In the Planning Stage, the Auditor, with the assistance of an IS controls specialist or an IS auditor, should use an appropriate methodology to understand the design of IS controls and whether they have been implemented and to determine whether IS controls are likely to be effective and should therefore be considered further in the audit.

The auditor should obtain an understanding of the AE/foreign organization’s internal control components – control environment, risk assessment, information and communication, monitoring, and control activities – sufficient for assessing the risks of material misstatement of the financial statements whether due to error or fraud, as well as for determining the nature, extent, and timing of further audit procedures.

The Auditor shall:

7.1. evaluate the AE/foreign organization’s control environment, the adequacy of the financial management and accounting systems, appropriateness of segregation of duties and access controls in place; and

7.2. assess the contingency plan and the risk of unplanned interruptions and disasters, and security management.

Emphasis must be placed on the policies and procedures that pertain to the AE/foreign organization’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in each account of the fund accountability statement. This evaluation must include, but not be limited to, the control systems for:

i. Ensuring that disbursements to the program are properly recorded and supported;

ii. Ensuring adequate change management within the financial management system is properly authorized;

iii. Access controls that limit or detect inappropriate access to the financial management system;

iv. Logical segregation of duties embedded within the financial management system and documented policies in place;

v. Ensuring proper security administration within the financial management system; and

vi. Ensuring there is a documented comprehensive contingency plan.

S8. Other Audit Responsibilities The Auditors must perform the following steps:

8.1. Hold entrance and exit conferences with the AE/foreign organization. The MCC must be notified of these conferences in order that their representatives may attend. The audit firm is required to hold an Entrance Conference before the audit starts and an Exit Conference informing the Accountable Entity of its results and findings.

8.2. During the planning stages of an audit, communicate information to the AE/foreign organization regarding the nature and extent of planned testing and reporting on compliance with laws and regulations and internal control over financial reporting. Such communication must state that the Auditors do not plan to provide opinions on compliance with laws and regulations and internal control over financial reporting. This communication must be in the form of an engagement letter. Auditors must document the communication in the audit documentation files.

8.3. Institute quality control procedures to ensure that sufficient competent evidence is obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. While auditors may use their standard procedures for ensuring quality control, those procedures must, at a minimum, ensure that:

a) Audit reports and supporting audit documentation files are reviewed by an auditor, preferably at the partner level, who was not involved in the audit. This review must be documented in the audit documentation files;

b) All quantities and monetary amounts involving calculations are footed and cross-footed; and

c) All factual statements, numbers, conclusions and monetary amounts are cross-indexed to supporting audit documentation files.

8.4. Ascertain, before preparing its proposal for the audit engagement (or if this is not possible, at the earliest opportunity during the engagement itself), whether the AE/foreign organization ensured that audits of its Covered Providers were performed to ensure accountability for MCC funds passed through to the Covered Providers (see paragraph 1.6 of the Audit Reference Overview). If audit requirements for Covered Providers were not met, the auditors should disclose this in the Fund Accountability Statement and consider qualifying their opinion.

8.5. Obtain a management representation letter in accordance with AICPA…