Partner Contracted Audit Workshop Seven Months Timeline 12

Partner Contracted Audit Workshop

Seven Months Timeline 12 11 Partner Submits Audit Report to USAID/WBG End Partner Prepares SOW 1 2 w 2 ee k ks USAID/WBG Approves SOW hs eks s s 8 w ee Audit Firm Finishes Field Work and Issues Draft Report 7 Partner Solicits, Evaluates and Selects 3 w e onth 8 eek 2 w Audit Firm Holds Exit Conference 5 weeks 3 Mont 4 M 2 week 9 s eek 2 w 1 w Audit Firm Issues Final Audit Report Partner Submits Additional Comments 1 ee w 10 Start USAID/WBG Approves and Submits Report to RIG/C USAID/WBG Approves Selection and Audit Contract 4 ek e 1 w ks 2 weeks Audit Firm Holds Entrance Conference 6 Partner Signs Audit Contract 5 3

Selecting the Applicable Scope of Work

Selecting the Applicable Scope of Work • Selecting the correct SOW depends on your award / subward type: 1 - Grants and Cooperative Agreements (excluding FOGs) Audit of the Fund Accountability Statement Scope of Work (Attachment No. 4 of the USAID/WBG Audit Guidelines) 4

Selecting the Applicable Scope of Work 2 - Contracts (excluding firm fixed price / firm unit price) Audit of the Cost Representation Statement Scope of Work (Attachment No. 5 of the USAID/WBG Audit Guidelines) 5

Selecting the Applicable Scope of Work 3 - Firm Fixed Price / Firm Unit Price Contracts, Fixed Obligation Grants (FOGs), and Fixed Amount Awards (FAAs) Examination of Compliance with Terms and Conditions of the Award (Attachment No. 6 of the USAID/WBG Audit Guidelines) 6

The SOW Sections You Need to Fill In 1. Audit Title 2. Background Information 3. Terms of Performance 4. Payment Terms 7

Completing the Applicable Scope of Work 1 - Audit Title: Use the language from the “Subject” of the Audit Notification Letter. Example 1: (Prime Co. ) 8

Completing the Applicable Scope of Work Example 2: (Sub Co. ) 9

Completing the Applicable Scope of Work 2 - Background Information Project Start and End Dates Expenditures incurred During the Audit Period Project Objectives Geographical locations of Operations Beneficiaries 10

Completing the Applicable Scope of Work (Background Info. ) Category of Major Costs Incurred (Salaries, Workshops, Construction, Food Supply, etc. Other Information: Period of Suspended Operations, Late Project Start Up, etc. 11

Where Can You Find the Background Information? Quarterly Reports Your Award & its Amendments Geo MIS / PMP Info 12

Sample 1 of Title & Background Information Audit of Prime’s Cost Representation Statement (see handout) 13

Sample 2 of Audit Title & Background Information Close-out audit of Sub’s Fund Accountability Statement (see handout) 14

Sample 3 of Audit Title & Background Information Close-out Examination of Sub’s Compliance (see handout) 15

Completing the Applicable Scope of Work – Terms of Performance 3 - Terms of Performance The time period to be inserted by the auditee for the duration of the audit engagement which covers the period from signing the audit contract through issuance of the final draft audit report by the audit firm to the auditee. • Per the timeline chart, it is recommended to provide the audit firm with 4 months to issue their final draft report.

Completing the Applicable Scope of Work – Payment Terms 4 - Payment Terms • Payment terms of audit fees are to be negotiated and agreed upon between the partner/auditee and the audit firm under PCA guidelines. However, for all non-close-out audits, at least 10% of the agreed upon fees must be withheld by the partner/auditee until issuance of the final report by the RIG, whereas negotiated payments of up to 90% of agreed upon fees can be paid before and/or upon issuance of the final draft report by the audit firm to the partner/auditee. 17

Completing the Applicable Scope of Work – Payment Terms 4 - Payment Terms - continued • For close-out audits, the partner/auditee and the audit firm may negotiate and agree to payment terms of up to 100% of the agreed upon fees to be paid upon issuance of the final draft report by the audit firm to the partner/auditee. 18

Completing the Applicable Scope of Work Exercise Complete the applicable Scope of Work for ABC Co. ’s first year audit (10 -15 minutes) 19

1 - Scope of Work Content – Fund Accountability Statement Illustrative Fund Accountability Statement 20

1 - Scope of Work Content – Fund Accountability Statement II- Objectives: What the auditor needs to do? • Conduct a financial audit – Express an opinion on the Fund Accountability statement. • Understand internal controls related to the award. • Assess control risk and identify reportable conditions. • Determine whether the recipient complied, in all material respects, with award terms and applicable laws and regulations. 21

1 - Scope of Work Content – Fund Accountability Statement III- Audit Scope: What steps and tests should auditors follow /conduct? A- Pre-Audit Steps • Lists some applicable documents that the auditors should review such as the agreement, budget, progress reports, etc. 22

1 - Scope of Work Content – Fund Accountability Statement B- What auditors need to test (sample only) • Direct & Indirect Costs • Procedures used to control the funds • Procurement procedures • Salaries and related benefits, travel & transportation, etc. • Technical assistance and services procured. • Compliance with USAID policies and local laws and regulations • Cost sharing schedule, if applicable. Auditors Can Definitely Go Beyond What is Listed! 23

1 - Scope of Work Content – Fund Accountability Statement C- Cost-Sharing Schedule D- Internal Controls This will determine the extent, timing and nature of tests to be applied. 24

1 - Scope of Work Content – Fund Accountability Statement E - Compliance with Award Terms and Applicable Laws and Regulations Key Areas Are: VAT, Vetting and Mandatory Clauses, Compliance with Local Laws including Income Tax Law, Expatriates’ Allowances (when applicable), Personal Use of Project-owned vehicles, End Use Checks, etc. F - Indirect Cost Rates Provisional Rate VS. Final Rates 25

1 - Scope of Work Content – Fund Accountability Statement G - Follow-Up on Prior Draft and Final Audit Reports including Pre-Award Surveys and Financial Reviews Any findings raised in prior draft, final audit reports, the preaward survey, and/or the financial review that have not been fixed by the time of the current audit, will be reported as current findings. H – Other Audit Responsibilities 26

1 - Scope of Work Content – Fund Accountability Statement IV- Audit Reports (attachment #1 under Partners Resources – Audit Matters) • The auditors should submit to the auditee the draft audit report. The auditee shall submit the draft report to the USAID/WBG to prepare for the exit conference if USAID/WBG plans to attend. • Once the auditors issue the final report to the auditee, the auditee shall submit the final report to USAID/WBG for general review. USAID/WBG will then submit the final signed report via email to the RIG/Frankfurt for technical review and issuance. 27

1 - Scope of Work Content – Fund Accountability Statement The report shall: A- Contain a title page, table of contents, transmittal letter and a summary which includes: (1) a background section (2) the objectives and scope (3) a brief summary of the audit results on the fund accountability statement, questioned costs, internal control, compliance with award terms and applicable laws and regulations (4) a brief summary of the results of the review of cost-sharing contributions; and (5) a brief summary of the recipient's management comments regarding their views on the audit results and findings. 28

1 - Scope of Work Content – Fund Accountability Statement B - Contain 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 awards. C- Contain a report on the auditor's review of the costsharing schedule. D- Contain the auditor's report on internal control. (Scope of auditor’s work and reportable conditions). 29

1 - Scope of Work Content – Fund Accountability Statement E - Contain the auditor's report on the recipient's compliance with award terms and applicable laws and regulations related to USAID-funded programs and projects. (material instances). All material questioned costs resulting from instances of noncompliance must be included as findings in the report on compliance and cross-referenced to the fund accountability statement. 30

1 - Scope of Work Content – Fund Accountability Statement F - If applicable, for local recipients, contain the schedule of application of indirect cost rate and the auditor's report on the schedule of application of indirect cost rate. G- Contain the auditor's comments on the status of prior audit recommendations. 31

1 - Scope of Work Content – Fund Accountability Statement V- Inspection & Acceptance of Audit Work and The Report Will be covered tomorrow. VI- Relationships and Responsibilities Examples: • The audit firm will contact USAID/WBG to obtain obligations and disbursements information. • The audit firm will contact RIG/Frankfurt for any audit scope limitation. • The auditee will contact USAID/WBG for any questions related to the audit process. 32

1 - Scope of Work Content – Fund Accountability Statement VI- Relationships and Responsibilities (Continued) • The audit firm shall immediately notify the auditee and USAID/WBG of any key/essential Personnel's departure and the reasons therefore. • The audit firm shall take steps to immediately rectify this situation and shall propose a substitute candidate for each vacated position along with an impact statement in sufficient detail to permit evaluation of the impact on the program. VII- Terms and Performance Refer to the audit timeline sheet. 33

2 - Scope of Work - Cost Representation Statement 34

2 - Scope of Work - Cost Representation Statement Similar to the Fund Accountability Statement SOW except that it covers the audit of the Contractor/Sub Contractor’s Cost Representation Statement instead of the Recipient/Sub Recipient Fund Accountability Statement. It also covers the other areas such as Internal Controls and Compliance with Contract Terms and Applicable Laws and Regulations. 35

3 - Scope of Work – Examination of Compliance v Financial statements are not audited/presented. The main objectives is to determine whether: 1 - The contractor/grantee complied with the award terms and conditions; and 2 - Had internal controls in place related to the award. Therefore, the auditor issues a report on compliance and a report on internal controls. 36

Scope of Work – Final Remarks v The Prime should use only one scope of work if it applies to more than one award / sub award. Example: If the partner has 5 subs who qualify for an examination audit, then use one examination SOW and provide the required info. For each of the 5 subs. Title 1 …………………. Background 1……………. . . Title 2…………………. . Background 2……………. . . 37

Scope of Work – Final Remarks v Once you complete your applicable SOW, you need to send it to WBGPCA@usaid. gov for review and approval. v DO NOT DELETE / MODIFY any of the applicable DO NOT DELETE / MODIFY SOW content. v Contact USAID/WBG if you need to add other items or concerns that you like to draw the auditor’s attention to or certain areas you want the auditor to focus on based on your knowledge of the project under audit. 38

Solicitation for Proposals

Subject: Solicitation of Proposals Main Steps for Partners: I. Prepare the Request for Proposal (RFP) package II. Send the RFP to all audit firms on WBG’s list of audit firms 40

Subject: Solicitation of Proposals I. Preparing the Request for Proposal (RFP) package: – Scope of Work, approved by USAID – Cover letter, explaining what Partner wants in the RFP Sample of cover letter – Sample Evaluation Criteria: ◘ Past Performance ◘ Past Experience ◘ Audit Team Qualifications ◘ Proposed completion schedule ◘ Proposed cost 41

Subject: Solicitation of Proposals Why is it important for the partner to include the evaluation criteria in the RFP? • • • Basis for evaluation – objectiveness Transparency – so that all audit firms receive the same treatment Consistency – compare apples with apples Equity – to fairly evaluate the proposals So that the Audit Firms address them in their proposals 42

Subject: Solicitation of Proposals II. Sending the RFP. v Partner issues the solicitation package to all the audit firms by email. Audit Firms List v In case of audit request for prime and sub/s, it is preferable for the partner to issue one RFP. v Time Frame: not more than 5 weeks for the entire RFP / Evaluation / Selection process. 43

Subject: Solicitation of Proposals Questions 44

Evaluation and Selection of Audit Firms 45

Evaluation & Selection of Audit Firm - Overview • Procurement Officer receives proposals from audit firms. • Requesting Office(r) forms a Technical Evaluation Committee (TEC) at request of Procurement Officer [Sample detailed technical guidance (optional – not PCA specific) to the TEC members for evaluating proposals included in the binder]. Sample Technical Guidance for TEC Members. doc 46

Evaluation & Selection of Audit Firm - Overview • TEC Reviews and evaluates proposals based on evaluation criteria in the RFP. • TEC prepares selection memorandum and draft audit contract. • Procurement Officer approves and submits selection memo and draft audit contract to USAID/WBG for review and approval. 47

TEC Reviews and Evaluates Proposals • The TEC must use the same selection criteria in the RFP to ensure transparency, equity, and consistency. • The TEC assigns a weight or score for each criteria. • Weight and score allocated to cost cannot be controlling factor. • The TEC reviews and evaluates the proposals and selects the audit firm. • The TEC documents the evaluation and selection process in a selection memorandum. 48

Sample Evaluation Criteria 1. Firm’s past performance in terms of: a) quality of work conducted b) quality of the audit reports, and c) timeliness. Ø Where to get information about audit firms’ past performance? a) Partner’s own experience with the audit firm. b) Other partners (reference checks). Evaluation Criteria of Audit Firms 2. docx 49

Sample Evaluation Criteria 2. Firm’s past experience in terms of conducting similar engagements, 3. Experience and credentials of the firm’s proposed team to participate in the audit, a) Appropriate mix of the audit team, and b) Level of involvement of each audit team member in conducting the engagement. Evaluation Criteria of Audit Firms 2. docx 50

Sample Evaluation Criteria - Continued 4. Proposed completion schedule, and 5. Cost. However, audit cost cannot be the only or controlling factor in the selection criteria. Please see sample evaluation criteria in the provided binder. Evaluation Criteria of Audit Firms 2. docx 51

Sample TEC Final Scoring Sheet Firm: Past Performance Weight/Score ABC Firm Past Experience Weight/Score Proposed Audit Team Weight/Score Proposed Completion Schedule Weight/ Score Cost Weight/ Score Total Score XYZ Firm DEF Firm Etc. 52

Questions 53

Content of TEC Memorandum (Selection Memo) Please see sample selection memo in your binder. q Name/Title of engagement being evaluated q Date q Names/titles of TEC members q Recipient of memo q Background information 54

Content of TEC Memorandum (Selection Memo) q Evaluation criteria and assigned weight/score to each criteria q Summary of Results for each proposal (technical & cost) q Recommendation and justification (if needed) Sample Technical Evaluation Committee Selection Memorandum. docx Sample Rejection Letter. docx 55

Exercise Let’s Evaluate a proposal! 56

Questions 57

Contracting the Audit Firm

CONTRACTING AUDITORS: OVERVIEW In this section we shall q. Review the audit contracting steps q. Review the content of the audit contract q. Look at a sample of an audit contract q. Summarize the contracting process through a quiz 59

SEVEN KEY CONTRACTING STEPS 1. Partner prepares draft audit contract 2. Partner forwards draft audit contract and name of selected auditors to USAID/WBG for approval The partner’s package for approval should include: § Forwarding letter from authorized representative § TEC Memo (Selection Memo), addressed to partner’s authorized representative must have the following attachments: Ø Each TEC member’s individual rating Ø Summary rating for all TEC members 60

SEVEN KEY CONTRACTING STEPS (Cont’d) § Draft audit contract Ø USAID approved SOW Ø USAID’s rights, including approval of this contract Ø Provisions in the auditee’s award that must be, by terms of the award, included in all subcontracts/sub-awards – Refer to Terms of Your Agreement. 61

SEVEN KEY CONTRACTING STEPS (Cont’d) Step 3. USAID/WBG approves audit contract and name of selected auditors and forwards approval to partner ØPreference, prepare one audit contract including all sub-partners, and / or for all sub-partners Note: In general USAID will provide approval for the selection of auditors and the audit contract within three weeks 62

SEVEN KEY CONTRACTING STEPS (Cont’d) Step 4. Partner forwards USAID/WBG approved audit contract to auditors for signature, as acceptance to provide audit services Step 5. Authorized audit firm representative signs approved contract, and returns to the partner Step 6. Authorized partner representative signs approved audit contract Step 7. Partner forwards copies of signed approved audit contract to the audit firm and USAID/WBG 63

SECTIONS OF AUDIT CONTRACT In general, audit contract must have four important sections q The cover page q USAID’s right to approve the contract q USAID mandatory provisions q The signature page 64

SECTIONS OF AUDIT CONTRACT: THE COVER PAGE The cover page should indicate [link] q The partner’s address, including physical location q The auditors’ address, including physical location q The purpose of audit, same as title in SOW q A list of documents that are part & parcel of contract, including the SOW 65

SECTIONS OF AUDIT CONTRACT: USAID’s RIGHTS USAID as the financing entity has rights which include, but not limited to, q Approving the terms of this contract q Approving the auditors q Approving report specifications q Approving any other documents related to this contract q Right to assure proper use of USG funds 66

SECTIONS OF AUDIT CONTRACT: USAID MANDATORY PROVISIONS The key mandatory provisions included in audit contract are: q. Prohibition against support for antiterrorism & Restriction on Facility Names (Mission Order 21) q. Value-added Tax and Customs Duties q. Source, Origin and Nationality q. Settlement of Disputes q. Audit and Records q. Payment terms q. All other Provisions in partner’s award(s) that must be 67 included in all subcontracts/sub-awards.

SECTIONS OF AUDIT CONTRACT: SIGNATURE PAGE The signature page should have q Partner’s official stamp q Auditors’ authorized representative’s name, title, signature, and date of signature q Partner’s authorized representative’s name, title, signature, and date of signature 68

SAMPLE AUDIT CONTRACT A hard copy sample of an audit contract is provided in the binder [insert link] 69

QUIZ Who does what? ? ? q. Who must approve audit contract before it is signed between the partner and the auditors? q. Who provides the list of eligible audit firms to the partners? q. Who prepares the audit contract under the PCA program? q. What are the examples of the USAID Mandatory Provisions that should be included in the Audit Contract? What are the basic four sections of a USAID audit contract? 70

ANSWERS TO THE QUIZ Who does what? ? ? q. Who must approve audit contract before it is signed between the partner and the auditors? [USAID/WBG] q. Who provides the list of eligible audit firms to the partners? [USAID/WBG] q. Who prepares the audit contract under the PCA program? [The partner] 71

ANSWERS TO THE QUIZ Who does what? ? ? q. What are the examples of the USAID Mandatory Provisions that should be included in the Audit Contract? [Antiterrorism, Restriction on Facility Names, Host Country Taxes and Custom Duties, Audit and Records etc] What are the four sections of an audit contract? [Cover Page, USAID Rights, USAID Mandatory Provisions, Signature] 72

Q & A ON CONTRACTING AUDITORS 73

Partner Contracted Audit Workshop Day 2 74

Audit Firm - Partner Communications 75

Engagement Letter (Optional for the CPA Firm) • The letter is written by the CPA firm and is sent to the client, who indicates approval through returning a signed copy to the CPA firm. • The Engagement Letter could replace (i. e. , serve in lieu of) the Audit Contract only if it includes all of the required elements we talked about under the “Contracting the Audit Firm” section above covered yesterday. Otherwise, it cannot be used in lieu of an audit contract. • The understanding must include four general topics: (1) objectives of the engagement, (2) management’s responsibilities, (3) auditor’s responsibilities, and (4) limitations of the audit. See Sample Engagement Letter in the binder.

Management Representation Letter • A formal, written statement drafted by auditors and addressed to the external auditor. • Through this letter, the auditee confirms that statements made to the auditor are accurate and complete. • Put on the auditee’s letterhead and dated on the last day of audit field work, the letter is to be signed by the partner on the last day of field work or a date after. • Should be signed by the highest management level. • Management refusal to furnish this letter ordinarily results in a disclaimer of opinion. See Sample Management Rep. Letter in the binder.

Management Letter Issued in conjunction with the audit report It identifies issues not required to be disclosed in the engagement report but represents the auditors concerns and suggestions noted during the engagement. It includes suggestions for improving operational or administrative efficiency or internal control, control deficiencies that are not significant deficiencies or material weaknesses, and nonmaterial instances of noncompliance. See Sample Management Letter in the binder.

Quiz • Management refusal to furnish the Management Rep. Letter ordinarily results in a qualified opinion. True False • The Management Rep. Letter covers the responsibilities of the auditee and the auditor. True False • The Management Rep. Letter needs to be signed before field work starts. True False

Audit Field Work

Entrance Conference Ø The audit firm coordinates and schedules the audit entrance meeting. Ø The audit firm or the Partner notifies USAID/WBG of the date, time and place of the entrance conference. Preferable if the auditor is held responsible for notifying USAID/WBG Ø Typically held at the auditee’s premises. Ø USAID/WBG may or may not attend the entrance conference. 81

Entrance Conference Ø The entrance conference marks the official start of the audit engagement. Ø The audit could start before the entrance conference Ø Partner provides documents to auditors. Ø IF USAID/WBG plans to attend, USAID/WBG will notify the audit firm and the partner and how they will attend; in person, via teleconference, etc. Ø The audit firm writes minutes of the meetings and send to the partner and USAID/WBG. Ø Prime partner must attend the entrance conference(s) of the audit(s) of its sub-awardee(s). 82

Entrance Conference – Purpose Ø Ø Ø Introductions Background on the program/project Discuss audit scope and methodology Agree on audit timetable Request for documents to be provided to audit firm before start of field work Ø Very important to be timely. Ø Logistics – office space, equipment, etc. Sample Guidance on Entrance Conference. doc 83

Closing Meeting Ø Between auditors and partner’s management. Ø At end of field work and before issuing draft audit report. Ø Review and discuss all findings; material and immaterial findings. Ø Audit firm might prepare and hand in to the partner a management letter which would include all findings, in most cases this letter is issued with independent auditors’ final audit report. 84

Managing the Audit during the Field Work v Assign one senior employee in your entity to work and liaise with the auditors to facilitate the audit process. v Understand what the auditors want. v Meet regularly with the auditors to discuss findings. v Be clear and responsive to the auditors' inquiries and do not hide any information related to their questions. 85

Managing the Audit during the Field Work v On the other hand, be concise and do not voluntarily and unnecessarily expand the discussion to other areas when not asked by the auditors. v Prepare all documents/reports required for the review and arrange them in a way that can facilitate the audit process. Note: Lack of cooperation or non-responsiveness (not providing documents on a timely manner) has led to questioning the entire cost of the award. 86

Draft Audit Report v Upon completing the field work and the closing meeting, the audit firm issues a draft audit report to the partner who in turn will forward it to the USAID/WBG v The audit firm will then schedule an exit conference, but no sooner than five business days from the date the audit firm transmitted the draft audit report to the auditee and USAID/WBG allowing them time to review the report and prepare for the exit meeting. 87

Exit Conference Ø The audit firm coordinates and schedules the exit conference, and prepares the agenda. Ø The audit firm or the partner notifies USAID/WBG of the date, time and place of the exit conference. Ø USAID/WBG will attend the exit conference when there are findings. Ø The auditee has the right to waive the exit conference (recommended when there are no findings) – in writing to the audit firm copying USAID/WBG. Ø The audit firm must write the minutes of the 88 meeting and send to the partner and USAID/WBG.

Exit Conference - Purpose Ø Go over the report and the findings in the draft audit report. Ø Discuss the audit process from the date of the exit conference to date of submission of the independent auditors’ final audit report to the RIG/C. Ø If auditee has additional comments and documents to submit to the audit firm to respond to findings, the audit firm must provide the auditee with reasonable time to do, as agreed upon by the two parties. 89 Ø Normally, two weeks.

Exit Conference – Best Practices v Last chance to bring up and correct errors, inaccuracies, misrepresentations, and resolve findings and recommendations that are not clear or do not match, so use it wisely. v The partner should get clear understanding of each finding, and should make sure that the ensuing recommendation addresses the finding. v The partner should be clear on what corrective action would address the recommendation. 90

Final Draft Audit Report Ø Audit firm incorporates the partner’s comments verbatim in the findings and as an appendix. Ø Audit firm responds to partner’s comments in the findings section of the report. Ø Audit firm issues the final draft audit report to the partner who submits it to the USAID/WBG. Ø USAID/WBG generally reviews, and if complete and accurate, USAID/WBG forwards the independent auditors’ final audit report to RIG/Frankfurt. 91

Final Draft Audit Report Ø Once USAID/WBG forwards the independent auditors’ final draft audit report to the RIG/C, the desk review process by RIG/Frankfurt may take several weeks or months. Ø RIG/Frankfurt may get back to the auditors one or more times with questions and comments on the content and quality of the report. AUDIT GUIDANCE. docx 92

Managing the Subs’ Audit Field Work Whether the prime partner contracts the audit of its sub-awardee(s) or the sub-awardee(s) contract their own audit, the prime partner is responsible for: 1) Ensuring that the sub-awardee(s) comply with the USAID/WBG PCA guidelines, process, and timeline. 2) Attending the entrance, closing and exit meetings for the sub-awardee(s)’ audits. 3) Liaising and channeling all communications and submissions between the sub-awardee(s) and the USAID/WBG. 93

Findings & Recommendations 94

Final Audit Report v Issued by the RIG/Frankfurt and includes the following: i. A transmittal letter from the RIG/Frankfurt to the USAID Director, including recommendations, if any. ii. The body of the CPA audit report, containing questioned costs, internal control weaknesses, and non-compliance recommendations in detail. iii. The auditee's response to the draft report. iv. The auditor's comments on the auditee's response. 95

Final Audit Report v RIG/Frankfurt will issue the final report to USAID WBG who in turn will issue to the auditee. v If the final report contains recommendations for the auditee, the USAID/WBG will continue to work with the auditee to resolve and close all outstanding recommendations. 96

Subject: Findings and Recommendations Final audit report issued with recommendations § Final recommendations are issued by RIG and not by the audit firm. § Per USAID rules and regulation, there is a set time frame to follow up on the open recommendations till they are finalized and closed out. § USAID Agreement/Contract Officer has the final authority on how to address and close these recommendations. I. Questioned costs II. Internal controls III. Compliance Sample of recommendation transmittal letter 97

Subject: Findings and Recommendations Resolving the Audit Recommendations; v USAID/Office of Contract Management (OCM) sends the determination letter to partner. In this letter USAID asks the partner to perform a defined corrective action/s with specify timeline for each action. (sample of determination letter) v Partner must ensure that corrective actions and requested improvements are addressed and completed by the timeline, and then submit to USAID/WBG proof of the actions taken. v USAID may go back to the partner to verify the corrective action/s and/or to seek more details on a specific action. 98

Subject: Findings and Recommendations Determination letter: What could be there? What the auditors found! Θ Refund USAID for the following: → Ineligible cost, unsupported cost… Θ Comply with USAID award terms & clauses. → Not including clauses in the sub-awards… Θ Utilize proper Accounting Program → Lack of appropriate accounting software, use of excel… Θ Establish Procedures. → To improve Internal control over: payments, timesheets… Θ Other matters…. 99

Most Common Findings & Recommendations: 100

Subject: Findings and Recommendations Please keep in mind: You are responsible to USAID for the disallowed costs and for the corrective actions of your subs! & There is timetable to complete these actions! 101

Subject: Findings and Recommendations Questions 102

Payments 103

Subject: Payments The Contract you have with the Audit firm must include Payment clause which lays the basis for the compensation schedule. payment terms of audit fees are to be negotiated and agreed upon between the partner/auditee and the audit firm. Make sure that the payment clauses provides you with adequate control mechanism over the audit engagement process. For all non-close-out audits (i. e. , annual audits), at least 10% of the agreed upon fees must be withheld by the partner/auditee until issuance of the final report by the RIG, whereas negotiated payments of up to 90% of agreed upon fees can be paid before and/or upon issuance of the final draft report by the audit firm to the partner/auditee. 104

Subject: Payments - continued For close-out audits, the partner/auditee and the audit firm may negotiate and agree to payment terms of up to 100% of the agreed upon fees to be paid upon issuance of the final draft report by the audit firm to the partner/auditee. 105

Subject: Payments Questions 106