SOL-687-14-000003_RFQ.pdf

Issuance Date: May 2, 2014

Questions Due Date: May 12, 2014, 4:00 p.m. Antananarivo local time

Closing Date & Time: May 23, 2014, 11:00 a.m. Antananarivo local time

SUBJECT: Request for Quotation (RFQ) No.: SOL-687-14-000003, SALOHI Program financial audit

The United States Government, represented by the U.S. Agency for International Development

(USAID), is seeking proposals from qualified local organizations interested in conducting the

SALOHI financial audit as described in the attached solicitation.

The Government expects to award one Firm, Fixed Price purchase order by June 13, 2014. The estimated period of performance is four (4) months from the effective award date. The authorized geographic code for procurement of goods and services under this contract is 937 which consists of the United States, the recipient country, and developing countries other than advanced developing countries, but excluding any country that is a prohibited source.

Any questions regarding the RFQ requirements must be submitted to Sandy Solofonirina, Contract Assistant, at ssolofonirina@usaid.gov no later than 4:00 p.m. Antananarivo local time on May 12, 2014. The Government will respond to all potential vendors by COB May 16, 2014.

Oral instructions or guidance from any USAID source prior to the award of the contract shall not be binding.

Proposals must be received by the Government on or before 11:00 a.m. Antananarivo local time on May 23, 2014, to be considered. They must be sent electronically Sandy Solofonirina, Contract Assistant at ssolofonirina@usaid.gov; submission of hard copies is not required.

Vendors must comply with any page limitations described in Section L of the solicitation, as well as with any other submission requirements; any pages in excess of the established limit will not be evaluated. The budget in the Cost Proposal must follow the format provided in this RFQ and is to include fixed prices for the deliverables specified in this solicitation. The prices must be based on costs that are realistic and reasonable for the services to be provided. The cost proposals shall be evaluated as part of the best value determination for contract award.

This request in no way obligates the U.S. Agency for International Development to award a contract, nor does it commit USAID to pay any cost incurred in the preparation and submission of a quotation in response hereto. Furthermore, the Government reserves the right to reject any and all quotations, if such action is considered to be in the best interest of the Government. The award is subject to availability of funds.

Sincerely, /s/

Michael Ashkouri

Regional Contracting Officer

USAID/Southern Africa mailto:ssolofonirina@usaid.gov mailto:ssolofonirina@usaid.gov

SOL-687-14-000003

SALOHI Financial Audit

PART I – THE SCHEDULE

SECTION B – SUPPLIES OR SERVICES AND PRICE/COSTS

B.1 PURPOSE

The purpose of this contract is to conduct financial audit of USAID/Madagascar SALOHI

Program.

B.2 CONTRACT TYPE

This is a Firm, Fixed Price Contract. The Contractor must perform the services set forth in

Section C, at a price consistent with Section B.3 of the Contract. For the consideration set forth in the contract, the Contractor shall provide the deliverables or outputs described in Section F and comply with all contract requirements.

B.3 CONTRACT PRICE

The total Firm Fixed Price of this contract is $_____________. The Contractor will not be paid any sum in excess of this amount.

B.4 PAYMENT SCHEDULE

Payment shall be made as follows:

- 10 percent upon approval of the audit program

- 50 percent upon submission and acceptance of the draft report

- 40 percent upon RIG/Pretoria approval of the final report

END OF SECTION B

SECTION C – DESCRIPTION/SPECIFICATIONS/STATEMENT OF WORK

C.1. PURPOSE

USAID/Madagascar Program Office seeks to have a financial audit of the fund accountability statement of USAID resources managed by Catholic Relief Services under Program

AID-FFP-A-09-00002-12, Strengthening and Accessing Livelihoods Opportunities for Household

Impact (SALOHI).

C.2. OBJECTIVES

The financial audit must include a specific audit of all CRS locally incurred costs under the

Cooperative Agreement # AID-FFP-A-09-00002-12.

The fund accountability statement of the locally incurred costs for SALOHI program is the basic financial statement to be audited that present the recipient’s local revenues, costs incurred, cash balance of funds provided by USAID, and commodities directly procured by USAID specifically for this program. All currency amounts in the fund accountability statement, cost-sharing schedule, and the report findings, if any, must be stated in U.S. dollars. The auditors should indicate the exchange rate(s) used in the notes to the fund accountability statement.

C.2.1 Audit of USAID Funds

A financial audit of the funds provided by USAID must be performed in accordance with U.S.

Government Auditing Standards, 2011 revision, or other approved standards where applicable, and accordingly includes such tests of the accounting records as deemed necessary under the circumstances. The specific objectives of the audit of the USAID funds are to:

• Express an opinion on whether the fund accountability statement for the recipient’s

SALOHI programs funded by USAID presents fairly, in all material respects, revenues received, costs incurred, and commodities directly procured by USAID for the period audited in conformity with the terms of the agreements and generally accepted accounting principles or other comprehensive basis of accounting (including the cash receipts and disbursements basis and modifications of the cash basis).

• Evaluate the CRS SALOHI programs internal control related to the USAID-funded programs, assess control risk, and identify significant deficiencies including material weaknesses.

This evaluation should include the internal control related to required cost-sharing contributions.

• Perform tests to determine whether the CRS SALOHI program complied, in all material respects, with agreement terms (including cost sharing/counterpart contributions, if applicable) and applicable laws and regulations related to this USAID-funded program. 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 required cost-sharing contributions, if applicable.

• Perform an audit of the indirect cost rate(s) if the recipient has been authorized to charge indirect costs to USAID using provisional rates and USAID has not yet negotiated final rates with the recipient.

• Determine if the CRS SALOHI has taken adequate corrective action on prior audit report recommendations.

Auditors must design audit steps and procedures in accordance with U.S. Government Auditing

Standards, Chapter 4, to provide reasonable assurance of detecting situations or transactions in which fraud or illegal acts have occurred or are likely to have occurred. If such evidence exists, the auditors must contact the USAID Regional Inspector General office in Pretoria (RIG/Pretoria) and 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.

MISSION CONCERNS

The following, drawn upon the 2013 RIG audit, are some specific concerns that should be addressed during the audit:

1. Travel and per diem:

• The authenticity of hotel receipts and possibility of falsification of these.

• Similarly, the number of days per diem is claimed for could be incorrect.

2. Training:

The authenticity of training expenses and possibility of falsification of the supporting documents.

3. Commodity distribution:

Reconcile what has been received by the implementing partners with what have been distributed to beneficiaries.

4. Performance Data:

Note that a fourth mission concern relates to the reporting of performance data. FFP has instructed its regional M&E Specialist to work with CRS to resolve any outstanding concerns on performance reporting. The audit team, therefore, need not concern itself with this issue should it so arise as it is currently being addressed.

C.2.2 Review of Cost-Sharing/Counterpart Contributions Schedule

The audit should determine whether cost-sharing contributions were provided and accounted for by the recipient’s USAID-funded SALOHI program in accordance with the terms of the agreements, if applicable. The auditors will review the cost-sharing schedule to determine if the schedule is fairly presented in accordance with the basis of accounting used by the recipient’s

USAID-funded SALOHI program to prepare the schedule. The auditors should question all cost-sharing contributions that are either ineligible or unsupported costs. In addition, for audits of agreements that present a cost-sharing contribution budget on an annual basis and for close-out audits of awards that present cost-sharing contribution budgets on a life-of-project basis, the auditors will review the cost-sharing contributions schedule to determine if cost-sharing contributions were provided by the recipient’s USAID-funded SALOHI program in accordance with the terms of the agreement.

C.3. BACKGROUND INFORMATION

C.3.1. THE USAID/SALOHI PROJECT

On May 02, 2009, the U.S. Agency for International Development (USAID), Office of Food For

Peace (FFP) approved the Strengthening and Accessing Livelihoods Opportunities for Household

Impact (SALOHI) Program - AID-FFP-A-09-00002-12, a cooperative agreement with a total estimated cost of about $81,440,000 including commodities over five years to Catholic Relief

Services – United States Conference of Catholic Bishops (CRS) as the primary recipient. The program is aimed at reducing food insecurity among vulnerable households in 21 districts of 7 regions of Madagascar.

The recipient is a US-based organization receiving over $500,000 in USG resources a year and, as such, undergoes an annual audit of its USG grant and contract portfolio in compliance with OMB

Circular A-133. For this reason, the scope for this audit is limited to an audit of SALOHI project locally incurred expenditures incurred by the prime recipient and its subrecipients.

SALOHI is being implemented by a consortium of international NGOs in Madagascar led by CRS as the prime recipient and the Adventist Development and Relief Agency (ADRA), the

Cooperative for Assistance and Relief Everywhere, Inc. (CARE), and Land O'Lakes (LOL)

International Development Division as sub-recipients. CRS works through local development

NGOs to implement the program: CARITAS Fenerive Est, ODDIT, BDEM and FITEA. The members of the consortium shared among them the target geographic zones as follows:

ADRA: 43 communes in the regions of Amoron’I Mania and Vatovavy Fitovinany.

CARE: 15 communes in the regions of Atsinanana and Anosy.

CRS and its partners: 50 communes in the regions of Androy, Vatovavy Fitovinany and

Analanjorofo.

Land O’Lakes: 12 communes in the regions of Vatovavy Fitovinanay and Atsimo Atsinanana.

C.3.2. Locations of Accounting Records

SALOHI is headquartered at the CRS Office in Antananarivo and implementing partners have sub-offices in Tamatave, Mananjary, Manakara, Ambovombe, Amboasary, Vatomandry, Ambositra, Fenerive Est and Tolagnaro. The following table provides the location of financial documents by implementing partners. CARE is willing to ship these documents to Antananarivo should the auditors need access to them.

Partner Location of financial documents

Date of program closure

(documents will still be accessible in storage)

CRS Implementing Partners

(BDEM, ODDIT, CARITAS

Fenerive Est, FITEA)

Mananjary (BDEM)

Tamatave (ODDIT)

Fenerive Est (Caritas FE)

Fianarantsoa (FITEA)

Antananarivo (CRS Financial documents)

March 30, 2014 –May 30, 2014

CARE Vatomandry/ Mahanoro (bank is in Mahanoro)

Amboasary

Antananarivo

N/A (office not closing)

ADRA Antananarivo May 1, 2014 – June 15, 2014

LOL Originals at HQ (Minnesota), copies in Antananarivo

April 30, 2014 (Manakara), June 30 2014 (Antananarivo)

C.3.3. SALOHI’s Goal, Target and Location of Implemented Activities

The goal of the SALOHI program is to reduce food insecurity and vulnerability in 21 districts in eastern and southern Madagascar by 2014. Strategic Objectives (SOs) include:

SO1: Human capabilities of men and women from 96,000 households protected and enhanced.

SO2: Livelihood capacities of 82,000 food insecure households protected and enhanced.

SO3: Resiliency of 544 communities protected and enhanced.

The SALOHI program targets a total of 98,500 vulnerable households across all three of its SOs

(or approximately 492,500 people) in 120 rural communes located in 21 districts and three urban centers. The program is spread across 7 regions of the eastern and southern parts of the country

(Atsinanana, Atsimo Atsinanana, Anosy, Androy, Amoron’I Mania, Analanjorofo and Vatovavy

Fitovinany).

C.3.4. SALOHI Budget and Cost Share

As per the last amendment of the cooperative agreement, the total Food for Peace funding amounts to $81,440,000 including Section 202(e), ITSH, and commodities.

As for cost share contribution, the Recipient agreed to expend $4,553,916 in cash or in kind.

C.4. SCOPE OF WORK

The auditor should use the following steps as the basis for preparing audit programs. They are not all-inclusive or restrictive in nature and do not relieve the auditor from exercising due professional care and judgment. The steps should be modified to fit local conditions and specific program design, implementation procedures, and agreement provisions which may vary from program to program. Any limitations in the scope of work must be communicated as soon as possible to

RIG/Pretoria.

C.4.1. Pre-Audit Steps

Following is a list of documents applicable to different USAID programs. The auditor should review the applicable documents considered necessary to perform the audit:

1. The agreement between USAID and the CRS SALOHI.

2. The sub agreements between the CRS SALOHI and other implementing entities, as applicable.

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

4. The budgets, implementation letters, and written procedures approved by USAID.

5. USAID Automated Directives System Chapter 636 – “Program Funded Advances”

6. OMB Circular A-122 "Cost Principles for Nonprofit Organizations" (2 CFR Part 230).

7. OMB Circular A-21 "Cost Principles for Educational Institutions" (2 CFR Part 220).

8. All program financial and progress reports; and 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.

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

C.4.2. Fund Accountability Statement

The auditor must examine the fund accountability statement for USAID programs including the budgeted amounts by category and major items; the revenues received from USAID for the period covered by the audit; the costs reported by the CRS SALOHI as incurred during that period; and the commodities directly procured by USAID for the CRS SALOHI's use. The revenues received from USAID less the costs incurred, after considering any reconciling items, must

A “fund accountability statement” is a financial statement that presents a USAID recipient’s revenues, costs incurred, cash balances of funds (after considering reconciling items), and commodities directly procured by USAID that were provided by USAID agreements. The fund accountability statement must be presented in U.S. dollars and the exchange rate(s) used must be disclosed in a note to the fund accountability statement.

reconcile with the balance of cash-on-hand or in bank accounts.

The fund accountability statement should not include cost-sharing/counterpart contributions provided from the CRS

SALOHI's own funds or in-kind. However, a separate cost sharing/counterpart contributions schedule must be included and reviewed to determine whether cost sharing/counterpart contributions were provided and accounted for in accordance with the terms of the agreement (see section IV.C. of this statement of work).

The auditors may prepare or assist the CRS SALOHI in the preparing the fund accountability statement of the recipient’s SALOHI programs funded by USAID from the books and records maintained by the CRS, but the CRS must accept the responsibility for the statement of SALOHI's accuracy before the audit commences.

The opinion on the fund accountability statement must comply with AICPA Professional

Standards AU-C, section 700 (Forming an Opinion and Reporting on Financial Statements) and

AU-C, section 705 (Modifications to the Opinion in the Independent Auditor’s Report). The fund accountability statements of SALOHI program must separately identify those revenues and costs applicable to each specific USAID agreement for the recipients USAID funded SALOHI 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 applicable cost principles, and to identify areas where fraud and illegal acts have occurred or are likely to have occurred as a result of inadequate internal control. At a minimum, the auditors must:

1. Review direct and indirect costs billed to and reimbursed by USAID and local costs incurred but pending reimbursement by USAID, identifying and quantifying any questioned costs. All costs that are not supported with adequate documentation or are not in accordance with the agreement terms must be reported as questioned. Questioned costs that are pending reimbursement by USAID must be identified in the notes to the fund accountability statement as not reimbursed by USAID.

a. Questioned costs must be presented in the fund accountability statement in two separate categories. Ineligible costs that are explicitly questioned because they are unreasonable, prohibited by the agreements or applicable laws and regulations, or not program related.

In addition, if a CRS SALOHI was required to place USAID funds in an interest-bearing account but did not, then the imputed interest that would have been earned is also classified as an ineligible cost. Unsupported costs 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 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 any corresponding findings in the report on compliance.

If the recipient does not receive any advances from USAID, i.e., it operates on a reimbursement basis, then the recipient will not hold any balances of USAID funds.

2. Review 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.

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

4. Determine whether advances of funds were justified with documentation, including reconciliations of funds advanced, disbursed, and available. The auditors must ensure that all funding received by the CRS SALOHI from USAID was appropriately recorded in the CRS

SALOHI's accounting records and that those records were periodically reconciled with information provided by USAID.

5. Determine whether program income was added to funds used to further eligible project or program objectives, to finance the non-federal share of the project or program, or deducted from program costs, in accordance with USAID regulations, other implementing guidance, or the terms and conditions of the award.

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.

7. Review direct salary charges to determine whether salary rates were reasonable for that position, in accordance with those approved by USAID when USAID approval is required, and supported by appropriate payroll records. Determine if overtime was charged to the program and whether it was allowable under the terms of the agreements. Determine whether allowances and fringe benefits received by employees were in accordance with the agreements and applicable laws and regulations. The auditors should question unallowable salary charges in the fund accountability statement.

8. Review travel and transportation charges to determine whether they were adequately supported and approved. Travel charges that are not supported with adequate documentation or not in accordance with agreements and regulations must be questioned in the fund accountability statement.

9. Review commodities (e.g., supplies, materials, vehicles, equipment, food products, tools, etc.)

procured by the CRS SALOHI or directly procured by USAID for the CRS SALOHI's use.

The auditors should determine whether commodities exist or were used for their intended purposes in accordance with the terms of the agreements, and whether control procedures exist and 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 should perform end-use reviews for an appropriate sample of all commodities based on the control risk assessment (see section IV.D. of this statement of work). End-use reviews may include site visits to verify that commodities exist or were used for their intended purposes in accordance with the terms of the agreements. The cost of all commodities whose existence or proper use in accordance with the terms of the agreements cannot be verified must be questioned in the fund accountability statement. (The auditor should determine the cost of commodities based on supporting documentation available from the CRS SALOHI or USAID, as appropriate.)

10. Review technical assistance and services procured by the CRS SALOHI. The auditors should determine whether technical assistance and services were used for their intended purposes in accordance with the terms of the agreements. The cost of technical assistance and services not properly used in accordance with the terms of the agreements must be questioned in the fund accountability statement.

a. In addition to the above audit procedures, if technical assistance and services were contracted by the CRS SALOHI from a non-U.S. contractor, the auditors should perform additional audit steps on the technical assistance and services, unless the CRS SALOHI has separately contracted for an audit of these costs. When testing for compliance with agreement terms and applicable laws and regulations, the auditors should not only consider agreements between the CRS SALOHI and USAID, but also agreements between the CRS

SALOHI and non-U.S. contractors providing technical assistance and services. The agreements between the CRS SALOHI and the 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 agreement terms.

b. If the technical assistance and services were contracted by the CRS SALOHI from a U.S.

contractor, the auditors are still responsible for determining whether technical assistance and services were used for their intended purposes in accordance with the terms of the agreements. However, the auditors are not responsible for performing additional audit steps for the costs incurred under the technical assistance and services agreements, since either USAID or a cognizant U.S. Government agency is responsible for contracting for audits of these costs.

11. Review unliquidated advances to the CRS SALOHI and pending reimbursements by USAID when performing final closeout audits. Ensure that the CRS SALOHI has returned any excess cash to USAID. Also, ensure that all assets (inventories, fixed assets, commodities, etc.)

procured with program funds were disposed of in accordance with the terms of the agreements.

The auditors should present, as an annex to the fund accountability statement, the balances and details of final inventories of nonexpendable property acquired under the agreements. This inventory should indicate which items were titled to the U.S. Government and which were titled to other entities. These closeout audit procedures must be performed for any award that expires during the period audited.

C.4.3. Cost Sharing/Counterpart Contribution Schedule

USAID agreements may require contributions by the CRS SALOHI. Most agreements establish a life-of-project budget for such contributions; however, some agreements may establish annual budgets for those contributions. The review of the cost sharing schedule must be approached differently depending on whether the cost sharing/counterpart contribution budget is a life-of project budget or an annual budget. In either case, the review consists principally of inquiries of

CRS SALOHI personnel and analytical procedures applied to financial data supporting the cost sharing/counterpart contributions schedule.

The auditors may prepare or assist the CRS SALOHI in preparing the cost sharing/counterpart contributions schedule from the books and records maintained by CRS’s SALOHI program. The

CRS SALOHI must, however, accept responsibility for the schedule's accuracy before the review commences.

C.4.3.1 Agreement with Life-of-Project Cost Sharing/Counterpart

Contribution Budget

The SALOHI agreement is a life of project budget for Cost Sharing.

For the audit covered period, the auditors will review the cost sharing/counterpart contributions schedule to determine if the schedule is fairly presented in accordance with the basis of accounting used by the recipients of the USAID-funded SALOHI program to prepare the schedule. The auditors must question all cost-sharing/counterpart contributions that are either ineligible or unsupported costs. An ineligible cost is unreasonable, prohibited by the agreements or applicable laws and regulations, or not program related. An unsupported cost lacks adequate documentation or does not have required prior approvals or authorizations. All questioned costs must be briefly described in the notes to the cost sharing/counterpart contributions schedule. In addition, material questioned costs must be included as findings in the report on compliance. Notes to the cost sharing/counterpart contributions schedule must be cross-referenced to the corresponding findings in the report on compliance. Also, significant deficiencies in internal control related to cost-sharing/counterpart contributions must be set forth as findings in the report on internal control. (See sample cost sharing/counterpart contributions schedule at Example 6.2.A, and sample reports at Examples 7.6.A and 7.6.B of the Guidelines for Financial Audits Contracted by

Foreign Recipients provided by the Office of Inspector General)

C.4.4. Internal Controls

The auditors must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. In obtaining this understanding, the auditor must understand the design of the internal control related to USAID programs and determine whether they have been placed in operation. The U.S.

General Accounting Office's Standards for Internal Controls in the Federal Government

(GAO/AIMD-00-21.3.1; 1999) may be helpful in assessing CRS SALOHI internal controls. The internal control must be described in the audit documentation.

Auditors must then prepare the report required by the Guidelines, identifying any significant deficiencies or material weaknesses 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 financial 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 that a material weakness that is 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” (see paragraph

5.1.d of the Guidelines). 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 – may be reported in a separate management letter to the CRS SALOHI and referred to in the report on internal control.

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.

The auditors must:

1. Obtain an understanding of the design of the internal control related to USAID programs and determine whether they have been placed in operation.

2. Assess inherent risk and control risk, and determine the detection risk. Inherent risk is the susceptibility of an assertion, such as an account balance, to a misstatement that could be material, either individually or when aggregated with other misstatements, assuming that there are no related controls. Control risk is the risk that a misstatement that could occur in a relevant assertion and that could be material, either individually or when aggregated with other misstatements, will not be prevented or detected on a timely basis by the entity's internal control. Detection risk is the risk that the auditor will not detect a material misstatement that exists in an assertion. Detection risk is based upon the effectiveness of an auditing procedure and the auditor’s application of that procedure.

3. Summarize the risk assessments for each assertion in a single document included in the audit documentation. The risk assessments should consider the following broad categories under which each assertion should be classified: (a) classes of transactions and events for the period under audit (occurrence, completeness, accuracy, cutoff, and classification), (b) account balances at the period end (existence, rights, obligations, completeness, valuation, and allocation), and (c) presentation and disclosure (occurrence, rights, obligations, completeness, classification, understandability, accuracy, and valuation). At a minimum, the audit documentation should 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, timing and extent of the tests performed based on the combined risk. Summary audit documentation should be cross-indexed to supporting audit documentation that contains 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 described in the audit documentation.

a. If the auditors assess control risk 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 describe in the audit documentation 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 inefficient to test the controls.

4. Evaluate the control environment, the adequacy of the accounting systems, and control procedures. Emphasize the policies and procedures that pertain to the CRS SALOHI ’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in each account of the fund accountability statement. This should 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 and services.

d. Managing inventory and receiving functions.

e. Managing personnel functions such as timekeeping, salaries, and benefits.

f. Managing and disposing of commodities (such as supplies, materials, vehicles, equipment, food products, tools, etc.) purchased either by the CRS SALOHI or directly by USAID.

g. Ensuring compliance with 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 Section

IV.E. of this statement of work and presented in the compliance report.

5. Evaluate internal control established to ensure compliance with cost sharing/counterpart contribution requirements, if applicable, including both provision and management of the contributions.

6. Include in the study and evaluation other policies and procedures that may be relevant if they pertain to data the auditors use in applying auditing procedures. This may include, for example, policies and procedures that pertain to nonfinancial data that the auditor uses in analytical procedures.

In fulfilling the audit requirement relating to an understanding of the internal control and assessing the level of control risk, the auditor must follow, at a minimum, the guidance contained in AICPA

Professional Standards AU-C, section 315 (Understanding the Entity and Its Environment and

Assessing the Risks of Material Misstatement), AU-C, section 265 (Communicating Internal

Control Related Matters Identified in an Audit), and AU-C, section 935 (Compliance Audits)

C.4.5. 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 USAID programs, the auditors must, at a minimum, follow guidance contained in AICPA Professional Standards AU-C, section 935 (Compliance Audits).

The compliance review must also determine – on audits of awards that present cost sharing/counterpart contribution budgets on an annual basis and on close-out audits of awards that present cost sharing/counterpart contribution budgets on a life-of-project basis – if cost sharing/counterpart 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 must be included in a separate management letter to the CRS SALOHI and referred to in the report on compliance.

The auditor's report should include all conclusions that a fraud or illegal act either has occurred or is likely to have occurred. In reporting material fraud, illegal acts, or other noncompliance, the auditors should 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 is quantified in terms of U.S. dollars, if appropriate. In presenting material fraud, illegal acts, or other noncompliance, auditors must follow chapter 4, 2011 revision if the auditors conclude that sufficient evidence of fraud or illegal acts exists, they must contact RIG/Pretoria and exercise due professional care in pursuing indications of possible fraud and illegal acts to avoid interfering with potential future investigations or legal proceedings.

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

1. Identify the agreement terms and pertinent laws and regulations 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

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 should be based on the risk assessment in 1.b above.

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 (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 should be cross-indexed to detailed audit documentation that support the facts and conclusions contained in the summary document.

2. Determine if payments have been made in accordance with agreement terms and applicable laws and regulations.

3. Determine if funds have been expended for purposes not authorized or not in accordance with applicable agreement terms. If so, the auditors must question these costs in the fund

4. Identify any costs not considered appropriate, classifying and explaining why these costs are questioned.

5. Determine whether commodities, whether procured by the CRS SALOHI or directly procured by USAID for the CRS SALOHI’s use, exist or were used for their intended purposes in accordance with the terms of the agreements. If not, the cost of such commodities must be questioned.

6. Determine whether any technical assistance and services procured by the CRS SALOHI were used for their intended purposes in accordance with the agreements. If not, the cost of such technical assistance and services should be questioned.

7. Determine if the amount of cost sharing/counterpart contribution funds was calculated and accounted for as required by the agreements or applicable cost principles.

8. Determine if the cost sharing/counterpart contribution funds were provided according to the terms of the agreements and quantify any shortfalls.

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

10. Determine whether the CRS SALOHI's financial reports (including those on the status of cost sharing/counterpart contributions) and claims for advances and reimbursement contain information that is supported by the books and records.

11. Determine whether the CRS SALOHI held advances of USAID funds in interest-bearing accounts, and whether the CRS SALOHI remitted to USAID any interest earned on those

This step is applicable on audits of awards that present cost sharing/counterpart contributions budgets on an annual basis and for closeout audits of awards that present cost sharing/counterpart contribution budgets on a life-of-project basis, as explained in paragraphs 4.12 and 4.13 of the Guidelines.

advances, with the exception of up to $250 a year that the CRS SALOHI may retain for administrative expenses. If the CRS SALOHI was required to place USAID funds in an interest-bearing bank account but did not, then the auditor should determine the amount of interest that was foregone by the CRS SALOHI, and this amount should be classified as ineligible costs.

C.4.6. Follow-Up on Prior Audit Recommendations

The auditors must review the status of actions taken on findings and recommendations reported in prior audits of USAID-funded programs. Paragraph 4.05 of the U.S. Government Auditing

Standards 2011 revision, states: "Auditors should evaluate whether the audited entity has taken appropriate corrective action to address findings and recommendations from previous engagements that could have a material effect on the financial statements. When planning the audit, auditors should ask management of the audited entity to identify previous audits, attestation engagements, financial reviews, and other studies that directly relate to the objectives of the audit, including whether related recommendations have been implemented. Auditors should use this information in assessing risk and determining the nature, timing, and extent of current audit work, including determining the extent to which testing the implementation of the corrective actions is applicable to the current audit objectives.”

The auditors must describe the scope of their work on prior audit recommendations in the summary section of the audit report. The auditors should refer to the most recent CRS SALOHI or agency contracted audit report for the same award (for a follow-up audit) or other USAID awards (for an initial audit). When corrective action has not been taken and the deficiency remains unresolved for the current audit period the auditors need 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 auditors must include a note to that effect in this section of the audit report.

C.4.7. General Purpose Financial Statements

Not required.

C.4.8. Indirect Cost Rates

Not required.

C.4.9. Other Audit Responsibilities

The auditors must perform the following steps:

1. Hold entrance and exit conferences with the CRS SALOHI. USAID Madagascar mission and

RIG/Pretoria should be notified of these conferences in order that USAID and RIG/Pretoria representatives may attend, if deemed necessary.

2. During the planning stages of an audit, communicate information to the auditee regarding the nature and extent of planned testing and reporting on compliance with laws and regulations and internal control over financial reporting.

Such communication should state that the auditors do not plan to provide opinions on compliance with laws and regulations and internal control over financial reporting. This communication should be in the form of an engagement letter.

3. Institute quality control procedures to ensure that sufficient appropriate 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 audit documentation are reviewed by an auditor, preferably at the partner level, who was not involved in the audit. This review must be documented.

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

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

4. The auditor must 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 CRS

SALOHI ensured that audits of its subrecipients were performed to ensure accountability for

USAID funds passed through to subrecipients (see paragraph 1.6 of the Guidelines). If subrecipient audit requirements were not met, the auditors should immediately notify the

USAID/Madagascar and RIG/Pretoria and consider whether they can audit the subrecipient costs themselves. If, after consultation with USAID/Madagascar and RIG/Pretoria, the auditors conclude that a restriction on the scope of the audit exists and the restriction cannot be removed, then the auditors should consider modifying their opinion and any costs that have not been audited as required must be questioned as unsupported costs.

5. Obtain a management representation letter in accordance with AICPA Obtain a management representation letter in accordance with AICPA Professional Standards AU-C, section 580

(Written Representations) signed by the recipient's management. See Example 4.1 of the

Guidelines for an illustrative management representation letter.

C.4.10. AUDIT REPORTS

The auditor must submit to the USAID/Madagascar a portable document format (PDF) copy of the audit report in English and 5 hard copies in English. The USAID/Madagascar will forward the report to RIG/Pretoria for processing. The format and content of the audit reports should closely

The auditors only express an opinion on the fund accountability statement, the indirect cost rate, and general purpose financial statements, if applicable, as indicated on Chapter 3 of the Guidelines.

follow the illustrative reports in Chapter 7 of the Guidelines. The audit report must specify the correct award number(s) of each award covered by the audit. The report must contain:

A. A title page, table of contents, transmittal letter, and 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 cost sharing/counterpart contributions were required during the period audited, and whether the recipients’

USAID-funded SALOHI program 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, status of prior audit recommendations,; (4) a brief summary of the results of the review of cost sharing/counterpart contributions; and (5) a brief summary of the CRS SALOHI's management comments regarding their views on the audit and review results and findings.

B. 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 agreement. The report must be in conformance with the standards for reporting in Chapter 4 of U.S. Government Auditing Standards 2011 revision, and 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 directly procured by

USAID for the SALOHI program for the audited period in accordance with the terms of the agreements and in conformity with generally accepted accounting principles or other basis of accounting. This opinion must clearly state that the audit was performed in accordance with U.S. Government Auditing Standards or specific alternative standards if applicable (see paragraph 2.9.d of the Guidelines). Any deviations from these standards, such as noncompliance with the requirements for continuing professional education and external quality control reviews, must be disclosed (See Example 7.1.A of the Guidelines).

2. The fund accountability statement identifying the program revenues, local costs incurred, and commodities and technical assistance directly procured by USAID for the fiscal year solely for the SALOHI program. The statement must also identify questioned costs not considered eligible for reimbursement and unsupported, if any, including the cost of any commodities directly procured by USAID whose existence or proper use in accordance with agreements could not be verified. All material questioned costs resulting from instances of noncompliance with 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 any corresponding findings in the report on compliance (see Example 6.1 of the Guidelines). All questioned costs in the notes to the

“Closeout” audits must specify that are closeout audits on the title page. A closeout audit is an audit for an award that expired during the period audited.

fund accountability statement must be stated in U.S. dollars. The U.S. dollar equivalent should be calculated at the exchange rate applicable at the time the local currency was disbursed to the recipients’ USAID-funded SALOHI program by USAID.

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.

C. A report on the auditor's review of the schedule of cost sharing/counterpart 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/counterpart contribution schedule.