MO

DU

LE 6

MODULE 6

AUDIT6.1 External Audit

6.2 Internal Audit

Annex 1: Internal Audit Committee Checklist

Annex 2: CNV Internationaal Audit Checklist

Annex 3: Guidelines for auditor’s report including the auditors ‘s questionnaire

COLOPHONCNV Internationaal

P.O. Box 2475

3500 GL Utrecht

The Netherlands

T: 00 31 751 1260

E: internationaal@cnv.nl

I: www.internationaal.nl

Author: Funding Support, Michael Schwerzel

© Copyright CNV Internationaal, 2015 All rights reserved. Any part of this publication may be reproduced by trade union partner organisations of CNV Internationaal without specific permission, provided that the source is cited as follows: “CNV Internationaal, 2015, Toolkit Financial Management for Trade Unions (P.O. Box 2475, 3500 GL Utrecht, The Netherlands)”.

If non trade union partner organisations of CNV Internationaal wish to reproduce parts of this publication, written permission from CNV Internationaal is required.

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MODULE 0INTRODUCTION AND OVERVIEW

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / | | | | | | | | | | | | | | | | | | | | | | | | | | \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

Purpose of the Financial ToolkitThis Financial Toolkit aims to help recipients of CNV Internationaal (CNVI) funds to improve their financial management capacities. It aims to help organisations to comply with the financial standards that are set out in the contract between CNV Internationaal and partner organisations worldwide. Its specific objectives are:

• To improve budgeting, accounting and financial reporting of partner organisations.

• To improve the transparency and accountability of partner organisations.

• To increase knowledge on the financial standards of CNVI.

• To increase skills of financial staff, working at partner organisations, to comply with these financial standards.

• To provide for best practices, tools and templates and to be a practical guidance how to use these tools and templates.

What the Toolkit is not

The Toolkit:

• is not a set of rules in addition to the existing legal, contractual and regulatory framework and guides.

• is not an interpretation of the existing contractual regulations.

• is not a substitute for reading the contractual conditions and existing guides and instructions.

Use of the Toolkit

The Toolkit is developed for recipient of CNVI funds. Recipients of CNVI funds can either be Confederations (direct funding) or Federations (indirect funding). Recipients of CNVI funds can be:

• National Trade Union Confederations that have engaged into a contract with CNVI;

• Trade Union Federations being member of the National Trade Union Confederation and participating in the National Program that is mainly funded by CNVI.

This Toolkit should be a guidance for organisations, and in particular for financial staff, to help them with specific tasks, like preparing a budget or a financial report. When working on a specific financial management area, organisations and financial staff can better prepare themselves by studying the corresponding module of the Toolkit first. By studying the corresponding module, organisations will better understand how to comply with the financial standards of CNVI and also be able to work with the provided templates. In principle the modules only need to be studied and used when organisations (or financial staff) are working on a specific financial management area. It’s not intended as a book to read from beginning to end but as a work book: only study a module when it’s relevant.

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Structure and content of the Financial Toolkit The Financial Toolkit covers 8 financial management areas and is structured into 8 modules. The content of the Financial Toolkit is:

Module 6 – Audit

6.1 External Audit P. 8

6.2 Internal Audit P. 14

Annex 1: Internal Audit Committee Checklist

Annex 2: CNV Internationaal Audit Checklist

Annex 3: Guidelines for auditor’s report including the auditors ‘s questionnaire

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The toolkit and the financial templates can also be downloaded from the partner intranet at CNVI’s

website, at http://www.cnvinternationaal.nl/

(see below “partner login” )

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MODULE 6AUDIT

/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / | | | | | | | | | | | | | | | | | | | | | | | | | | \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

REAL LIFE STORYA major labor NGO was the lead organisation of a largely funded Human Rights programme.

There were 5 other labor unions involved as partners in this programme. The labor NGO had to

submit a consolidated audited report to the donor organisation.

The financial report of the labor NGO complied with all donor rules. Next to that, the underlying

accounting systems were perfect. However, the performance of the trade unions was poor. One

did not submit a financial report at all, another report lacked supporting documents, another

was drawn in a very complicated format and the other reports contained many mistakes.

The audit firm of the labor NGO could not approve these financial reports. Because of that, the

labor NGO could not submit an audited report to the donor organisation and could not apply for

the next instalment.

They tried to communicate with the trade unions requesting them to send improved reports.

Unfortunately the trade unions were not able to comply. At the end the financial staff of

the labor NGO had to visit the trade unions one by one, in order to correct the financial

reports. This took them more than 2 months.

Finally the audit firm could approve the reports, and the next instalment could

be transferred. However, because of the poor performance of the partner

organisations, the project had a huge delay. Also, relations deteriorated.

Had the labor NGO prepared the trade unions better on the reporting

and auditing standards, this would not have happened. Al least not

to that extent it actually did.

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6.0 INTRODUCTION

Auditing can be distinguished into external and internal auditing, as is explained in the FPMF. Module 6 presents practical tools for both audit modes. Section 1 handles about external auditing and presents tools how to manage an audit. Basic question is: what can we do to enhance the audit process and its outcome? Section 2 handles about internal auditing. This section is intended for those who perform internal auditing tasks, like internal audit committees and CNV program officers, when visiting a partner organization. This Section explains basic rules for performing an internal audit and presents a checklist that can be used when performing the internal audit. This Module contains 3 annexes:

• Checklist internal audit committees

• Checklist CNVI program officers

• Guidelines for auditor’s reports including the auditor’s questionnaire

6.1 EXTERNAL AUDIT

CNVI requires that the financial report as described in Module 5 must be assessed and approved by an external auditor. This requirement applies for:

• Confederations

• Federations whose financial reports values more than € 25,000

Financial reports of federations, valuing less than € 25,000, will be audited by the auditor of the confederation. These federations will only submit their financial reports with supporting documents to the confederation, as explained in module 5, but do not have submit an auditor’s report.

6.1.1 How to prepare practically for an audit? Successful auditing means a good preparation and planning ahead. Key elements for success are:

6.1.1.1 Clear understanding between the organization and the auditor what the audit is about 6.1.1.2 Planning the audit long time before the audit actually takes place 6.1.1.3 Understanding the expectations of the auditor

These key elements are further explained, here below.

6.1.1.1 Mutual understanding what the audit is about Before the audit takes place, the (con)federation and the audit firm need to have a clear understanding what the audit is about. They need to answer questions like:

• What’s the purpose of the audit?

• Which (donor) rules must be applied for the audit?

• Which projects and accounts must be audited?

• Which deliverables must the auditor present at the end of the audit?

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The contracted audit firm needs to lay down these basics in a Terms of Reference. By doing this, the (Con)federation can verify that the auditor has understood the audit assignment. Unfortunately, it happens quite often, that auditors have another interpretation of an audit assignment, than a client or donor organization. Laying down the basics in writing, can prevent this from happening. In case of ill performance by the auditor, the (con)federation organization can refer to the agreement made. It ensures getting value for money from the auditor.

Which basics need to be addressed in the Terms of reference?

1. Purpose of the audit

The auditor must understand that the audit has 2 different purposes:

• Verify the eligibility of expenditures made and reported

• Assess the workings of the financial management of the organization.

The audit firm needs to recognize that not only the financial reports and the supporting documents need to be audited. CNVI’s funding program strives to improve the organizational and financial capacity of its partner organizations. The auditor plays an important role in achieving this goal. The auditor needs to assess the workings of the financial processes of the organization. The auditor needs to recognize elements in these processes (e.g. procedures, cash control, authorization etc.) that need to be improved. The auditor needs to recommend organizations and lay down their recommendations in a management letter, by which CNVI can support partner organizations to improve their organizational and financial capacities.

2. Reference to the donor rules The auditor needs to understand that the CNVI donor rules must be used as reference for the audit. These rules are laid down in the contract between CNVI and the Confederation and in the Financial Project Management Framework (FPMF). CNVI has attached the Document “Guidelines for Auditor’s Reports” (Annex 6.3) to the contract between CNVI and the Confederation. This document describes:

• Selection criteria and procedures for the auditor

• Important criteria that must be presented in the contract between the auditor and the Confederation

• Timelines when audits need to take place

• Terms of reference: contains the auditing procedure, guidelines for the audit itself, documents that the auditor needs to deliver including the management letter and the questionnaire.

KEY MESSAGE: MAKE SURE THAT THE AUDITOR HAS COPIES OF THESE DOCUMENTS AND KNOWS ITS CONTENT.

ESPECIALLY WHEN THE AUDITOR IS NEW, THIS MUST BE CHECKED AT ALL TIMES.

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The project(s) and bank accounts that need to be audited The auditor needs to understand that the audit must be focused on the program and projects that are funded by CNVI. No other projects need to be audited. However, if the organization can submit an Annual Account at the time of the audit, than the Annual Account should be audited as well.The financial reports

that need to be audited consist of at least:

• The financial project report of the confederation including supporting documents

• The financial project reports of the federations including supporting documents

• A consolidated financial report

The auditor must assess at least the financial project report of the Confederation, including supporting documents, and a representative sample of 40% of the financial project reports of the federations, including supporting documents.

Deliverables that the auditor needs to present at the end of the audit To avoid any misunderstanding, the auditor needs to specify which reports and statements will be delivered at the end of the audit. These documents will be at least:

• A checked and approved Financial Project report

• An independent Auditor’s report including its finding

• A management letter including recommendations for improvements

• A questionnaire filled in

• If available, the Annual Account

Section 6.1.3 presents more detailed information about these deliverables.

6.1.1.2 Knowing when the audit will take place and plan ahead

CNVI states that the confederation must send the Financial Project Report, including the Auditor’s report within 3 months after the completion of the project-year. For many organisations this will be quite a challenge. Planning ahead can help to organize the audit on time. Basically, there are several things you can do to manage that the audit can take place in March.

Planning with the project team and executive management As a finance manager of a Confederation (or larger federation) you’ll have to develop a financial project report before the audit takes place. You’ll only be able to do this after the project has been closed. Of course, as a finance manager, it is not your responsibility to manage and finish the project on time. However, you can only perform on time, when the project team delivers on time. Therefore the planning of the project and its end date must be discussed with the project and executive management of your organisation. They must realistically inform the financial manager when the project will be closed. Based on that information the financial manager will discuss a date with the auditor. After this date is set, management will be committed to finish the project on time.

KEY MESSAGE: COMMIT YOUR COLLEAGUES OF THE PROJECT TEAM TO THE PLANNED END-DATE OF THE PROJECT.

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Schedule the audit and make an early

appointment with the auditor As most audit firms are very busy in the months February-March, and their audit schedules are fully booked in this time of year, it is strongly recommended to set a date with the audit firm already many months upfront, for instance in October. You may even mark in your agenda for the month October: “make appointment with Audit Firm in March”.

Often organisations make their

appointments with audit firms on too short notice. As a consequence, the audit firm may not be able to honour the required date, and the audit must be planned later.

Communicate with the federations and send reminders to the federations After the date is set with the audit firm, you should inform the federations. They need to know when they need to submit their financial reports to the Confederation. Do not expect that all federations will submit their financial reports on time. Sending reminders can be helpful. Reminding organisations on their reporting duties will certainly speed things up.

KEY MESSAGE: KEEP MOTIVATING YOUR PARTNERS TO SUBMIT THEIR REPORTS ON TIME. ASK THE PROJECT TEAM TO DO THE SAME;

COMMUNICATE THE SAME MESSAGE TO THE FEDERATIONS.

6.1.1.3 Expectations of the auditor Most audit firms work with an “Accountants Checklist”. On this checklist they specify which documents they need to receive before or during the audit. This checklist is an excellent tool for your own preparation. Therefore:

• Ask your auditor for this checklist

• If they do not have one, ask if they make such a checklist

• They should submit a checklist to your organisation, a couple of weeks before the audit start

6.1.2 The Audit process

Normally, audits start with a meeting between the head of Finance and the Auditor. It is recommended that the executive manager attends this meeting as well. An audit is an important moment that can have far reaching consequences. The attendance of the executive manager in this meeting reflects the acknowledgment of the organisation of this importance. In this meeting is discussed:

• the purpose of the audit

• developments that need special attention by the auditor (e.g. irregularities or non-compliance)

• auditing procedures and planning (e.g. setting a date for the final meeting)

• practical matters

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It is recommended to have a frank and open discussion with the auditor. In case of non-compliances with the requirements (e.g. some of the partner federations didn’t submit a financial report), it is better to discuss this instead of trying to hide it. You may expect that the auditor will find this non-compliance anyhow, and when the auditor is not informed about this upfront, it will give a poor impression. After this meeting, the (con)federation will present the prepared documents to the auditor (i.e. the financial project report including supporting documents). The auditor starts assessing the financial project reports and the supporting documents. Because an auditor will have questions or needs to have additional information, the finance department must be exempted from other duties as much as possible, to assist the auditor. If need be, executive management must be prepared to answer questions as well. If individual staff members are to be interviewed, the organisation must arrange a private room where confidential discussions can take place. Tip: arrange a quiet place where the auditor can work. Records should be up to date and files should be orderly organized. Having the files organized will contribute to the success of the audit and will cause no delay or disruption of the audit. If the auditor doesn’t have sufficient reports or documents to work with, the auditor might conclude that performing an audit is not useful. In that case, the auditor might insist that documents should be made in order, before the audit should continue. This will give a poor impression, cause delay and increase costs for extra audit fees. At the end of the audit the head of Finance, the executive management and the auditor have a final meeting. The auditor presents the findings of the audit and discusses topics that need to be improved. The auditor presents the final opinion. An auditor must always express an opinion. If the auditor agrees with the financial results as presented by the financial reports, the auditor will issue a report saying that, in their opinion, the accounts are fine. In the language of an auditor: “The reports (or statements) give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the Financial Statements.”

If the auditor doesn’t agree with the financial results as presented by the financial reports, the auditor will issue a report saying that, in their opinion, the accounts aren’t fine. In the language of the auditor: “We could not form and consequently refuse to present an opinion on the financial statements.” The auditor can also express a qualified opinion. In this case they have found some deviations from the standard. In this case they have to specify these deviations in an explanatory note.

Figure 6.1 Possible auditor’s opinions

Auditor opinion Comment

Unqualified Opinion The accounts and reports give a true and fair view

Qualified opinion The accounts and reports are fine, but the auditor has found some specified identified issues. These are explained in an explanatory letter.

Qualified: disclaimer The auditors can’t express an opinion because the records are too poor and incomplete.

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If the auditor cannot express an opinion immediate action must be taken

• Ask the auditor what needs to be improved, so that they can give an opinion after these improvements have been processed

• Try to correct the accounts, reports, documents so that the auditor can express an opinion.

• If this is doable, the audit should be repeated after a reasonable period of time.

• If this is not doable, inform CNVI and discuss which measures must be taken to get things right.

6.1.3 Deliverables: which documents need the auditor to deliver?

At the end of the audit the auditor needs to provide the following documents and reports.

1. Financial Project reports: Reporting Format Confederation (Appendix 5.2)

2. Divided Reporting Format Confederation (Appendix 5.3). Both reports must be stamped, signed and dated by the auditor

3. Independent Auditor’s report

In this report the auditor expresses a professional opinion. This opinion can be:

o Unqualified: accounts and reports are fine

o Qualified: basically accounts and reports are fine, but there are some issues

o No opinion: the auditors can not express an opinion. This is very bad.

4. Management letter, containing AT LEAST information on the following items:

o Irregularities / deviations from the terms of the contract.

o Assessment of personnel management.

o Assessment of the working of the financial management system, including internal controls.

o Recommendations for improvements of the financial management system.

o Implementation of Auditor’s recommendations of previous year.

o An analysis and judgment of the Annual Account, if available.

5. Questionnaire, filled in, stamped, signed and dated by the auditor.

6. If available, the Annual Account

In addition to these documents, the (Con)federation must add to these reports their comments on the findings of the auditor. Also, they must include actions they will execute to improve the financial management system, based on the recommendations of the audit.

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6.2 INTERNAL AUDIT

6.2.1 Internal audit standards

This section presents information on internal audits including checklists that can be used when performing an internal audit. Internal auditing can be performed either by an internal audit committee or by program officers of CNVI when visiting partner organizations. The focus of these audits differs:

1. The internal audit committee focuses on the performance of the treasurer. The treasurer carries financial responsibility and needs to give account to the members of the association. This is performed through the annual account. On behalf of the members, the internal audit committee checks if the annual account presents a fair and true view of the financial performance of the organization. So, the focus must lie on the accuracy of the annual, account, the systems that generated the financial information and on the financial performance of the organization.

2. CNVI program officers will be more focused on the validity of the financial project reports. They want to know if the financial project reports are true and fair. For this they will audit financial reports, bank and cash books, reconciliation sheets and above all supporting documents. Besides that, they are also interested in improving the financial performance of the organization. They will focus on actual financial performance problems and on the capacity of the organization to follow up recommendations made by the external auditors.

This Toolkit contains 2 example checklists that can be used for these audits.

Annex 6.1 presents the checklist for the internal audit committees

Annex 6.2 presents the checklist for the internal audit, performed by CNV program officers.

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6.2.2 Internal auditing by the internal audit committees

The FPMF indicates that each organization (i.e. confederations and federations) should appoint an internal audit committee. In addition they should have basic procedures in place on the responsibilities and tasks of the audit committee, about the frequency of internal auditing and about the election or appointment of members of the internal audit committee. The internal audit committee must perform an internal audit at least once a year. However, they may decide themselves to perform more internal audits, if they think this is needed. At the beginning of each internal audit some basic issues must be addressed. The internal audit committee must first establish the main goal of the audit. Is the internal audit focused on specific elements of the financial management system (like internal control, authorization, cash control etc.) or is it focused on the financial management system as a whole (like checking the annual account, financial performance of the organization, assessing sources of income of the organization etc.)? It is also possible to conduct an internal audit because certain stakeholders like members, donors or the board have raised specific questions. Than, the internal audit committee should focus on these issues, instead of issues it has raised itself.

Before starting the internal audit, the internal audit committee must draw up a plan. This plan presents:

• The focus of the internal audit

• Its deliverables (mostly a report with findings)

• Persons who will be audited

• Departments that will be audited

• Systems that will be audited

• Planning, when does the audit take place and when does the internal audit committee submits their report?

• To whom do they submit their report to? To the members, to the board, executive management?

• What will be the follow up of the internal audit?

• If necessary, rules of conduct when performing the internal audit.

The internal audit committee may find the use of checklist helpful. An example checklist is annexed to this module. The internal audit committee may adjust this checklist to their own needs, depending on the topic of the audit. The internal audit committee performs the internal audit according to plan. After that, they need to submit a report of findings. This report must be discussed and if necessary, actions for improvements must be taken by the executive management. CNVI should receive a copy of this report.

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6.2.3 Internal auditing by CNVI CNVI program officers will supervise the financial accountability during their visits to the partner organisation. The main purpose is to assess the financial progress of the project and to assist in solving difficulties. Before visiting the partner organisation the program officer must study the financial information the confederation has submitted to CNVI. The auditor’s report and management letter should be studied as well. Based on this information, the program officer can assess which financial topics should be addressed during visit and which processes and information should be checked. The program officer needs to inform the partner organisation that during the visit an internal financial audit will be performed. The program officer should specify which information will be assessed, so that the partner organisation can set an agenda for meetings and interviews. Appendix 6.2 contains the CNV Internationaal Audit Checklist. The CNVI program officer may use this checklist and adjust it to the specific situation of each partner organisation. The checklist has 4 sections:

• General questions: about the performance of the finance department > the focus lies on what should be done to improve, if necessary, the capacity of this department.

• Budget questions: about the budget process and its outcome > the focus lies on the quality of the budget and, if necessary, improvements of the process or outcome.

• Accounting records questions: about the use of basic accounting systems as described in the Toolkit > the focus lies on compliance and on possible improvements.

• Financial Reporting and Monitoring questions: about the process of reporting and its outcome > the focus lies on compliance with the FPMF and the Toolkit, use of the reporting systems and on possible improvements.

The CNVI program officer discusses the questions with the head of the Finance department. The CNVI program officer must decide if other staff members should be interviewed as well (e.g. the bookkeeper, the cashier, the project manager / coordinator, the executive manager, the treasurer). During the internal audit the program officer should at least investigate some financial project reports, submitted by federations. By auditing supporting documents, like invoices and bank statements, and verify these with the reported amounts, it becomes immediately clear if the reports are basically correct or not. The CNVI programme officer will report and discuss the findings to the executive management of the partner organisation. Actions that need to taken for improvement will be agreed upon. The CNVI programme manager will report the findings and agreements to the executive manager of CNVI and to the controller of CNV. If they conclude that further actions need to be taken, they will inform the partner organisation and communicate how the additional actions should be performed.

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ANNEX 6.1 INTERNAL AUDIT COMMITTEE CHECKLIST

To be used by internal audit committees

A. GENERAL

Ref Checklist Item Y/N N/A Notes

A1 Does the organisation have an up-to-date Organisation Chart which shows the staffing and committee structure?

A2 What are the ORGANISATION’s main sources of income?

A3 What financial trends are apparent (e.g. funding growing or drying up)?

B. BUDGETING AND PLANNING

Ref Checklist Item Y/N Notes

B1 Which of the following budgets does the organisation have:

- project budgets? (e.g. those relating to one activity or donor-funded project)

- core costs (administration/overheads) budget

- organisation-wide budgets (i.e. consolidating all activities)?

- cash budgets or cash flow forecast?

- Others? [specify]

Try to get copies or sight of the most recent budgets available, noting

the period they refer to.

B2 Is the organisation’s annual budget formally approved by the Board and entered in the minutes?

Are significant changes to the budget approved by the Board? This could be verified by sight of the Minutes book.

C. ACCOUNTING RECORDS

Ref Checklist ItemY/N

N/ANotes

C1 Which of the following basic accounting records does the organisation keep: - Cashbook? - Petty cash book? - Analysed cashbook? - A file of invoices/receipts for all expenditures? - A file of receipts/vouchers for incoming funds? - A file of bank statements for each bank account held? - A fixed assets register?

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C2 Which of the following additional accounting records does the ORGANISATION keep: - Payroll records? - General ledger/nominal ledger? - Journal book? - Accounts Payable/Purchase Ledger? - Accounts Receivable/Sales Ledger? - Others:

Try to find out if these are enough or should more accounting records be

kept?

C3 Is the organisation aware of and complying with the accounting requirements of:

- the ORGANISATION’s governing document?

- Statutory regulations?

C4 Are the annual financial statements formally approved by Board members at an annual meeting?

This could be verified by sight of the Minutes book

C5 If relevant, what arrangements are made for accounting for and managing foreign exchange?

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D. INTERNAL CONTROLS

Ref Checklist Item Y/N

N/A

Notes

D1 Which of the following policy and procedures are written down:

- Delegation of authority (i.e. who signs what on behalf of the organisation and within what limits – cheques, purchase orders, leases, contracts, etc.)

- Cash handling and banking?

- Procurement and payment (i.e. how to order/purchase goods and services)

- Use and control of vehicles

Are these communicated to all staff and trustees?

D2 Is there any segregation of tasks to provide automatic ‘double check’?

Need to establish whether the financial admin tasks are shared by staff or concentrated in the hands of one or two people.

D3 Which of the following controls over incoming funds are followed:

- Numbered duplicate receipts issued for all incoming cash and cheques?

- Cash received and counted in the presence of more than one person?

- Cash coming in and petty cash floats kept separate at all times?

- Incoming receipts banked promptly and regularly? (at least weekly)?

- All incoming money banked and no amounts held over for petty cash “feeding”?

Variations should be explained

D4 What controls are in place over receipt books issued by the organisation?

For example, numbered duplicate books signed for and checked.

D5 What precautions are taken to ensure that cash, cheque books and other valuables held on the premises are safeguarded?

- Are keys of safe or cash box signed for?

- Is insurance held to cover contents of safe or cash box?

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D. INTERNAL CONTROLS (CONTINUED)

Ref Checklist ItemY/N

N/ANotes

D6 Which of the following controls over purchases are followed:

- Supporting documentation held for all items of expenditure (i.e. invoices, vouchers, receipts)?

- All expenditure properly authorised on a Payment Voucher?

- Invoices checked against orders made?

- Records kept of orders placed but not carried out?

- The quality and quantity of goods supplied checked against orders made?

- Payments only made against original invoices (i.e. not on monthly statements or photocopies)?

- Regular stock-taking undertaken?

D7 Which of the following controls over payments by cheque are followed:

- Conditions set down in the governing document about who can sign cheques complied with?

- At least 2 signatories on the bank mandate?

- Cheques and never signed in blank?

- A nominated signatory may not sign a cheque made payable to themselves?

- All cheque expenditure is recorded in the cashbook and noted with the relevant cheque number?

- Cheque stubs completed at time of payment?

- Cheques signed only with proper documentary evidence of the nature of the payment?

D8 Which of the following controls over payments by petty cash are followed:

- Every effort made to minimise cash payments?

- All payments by cash made from a cash float?

- The cash float drawn from the bank and not from incoming money?

- All petty cash payments have supporting documentation?

- Supporting documentation authorised by someone other than the cashier or claimant?

- Amounts of claim entered on a petty cash voucher?

- All payments noted in a petty cash book?

- All topping up withdrawals from bank noted in the petty cash book?

- Regular checks made of petty cash records by someone other than the cashier?

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D. INTERNAL CONTROLS (CONTINUED)

Ref Checklist ItemY/N

N/ANotes

D9 Which of the following controls over the organisation’s bank accounts are complied with:

- All bank accounts held in the name of the organisation, not individuals?

- Instructions to open or close accounts properly authorised and / or reported to Trustees?

- Secure records held for all bank accounts?

- Regular bank reconciliations carried out?

- Bank statements regularly inspected by the Trustees?

D10 Which of the following checks on accounting records are made:

- Cross checks made between bank statements and income and expenditure records to ensure no discrepancies between records?

- Checks made by someone other than the original recording officer (e.g. Internal Auditor)?

- Any restrictions placed on donated income identified and observed?

D11 If the organisation has paid employees:

Are personnel records kept and held separately from wages records?

Are salary levels properly authorised and recorded?

Are checks made to verify existence of employees?

Are cash payments for wages and salaries avoided whenever possible?

If cash payments made, are they paid out by someone other than the payroll clerk and signed for?

Are staff employed under a proper contract of employment?

Is compliance with statutory tax regulations ensured?

D12 If the organisation owns fixed assets (vehicles, office equipment, buildings, etc.):

- Is an Assets Register/inventory held and updated regularly?

- Are assets checked regularly to ensure that they are still in good repair and in the proper location?

- Has insurance cover been considered?

- Is the use of fixed assets reviewed annually to ensure they are put to best use and serving the organisation’s interest?

- Are vehicles fitted with appropriate security and kept in a safe place overnight?

- Are buildings properly safeguarded?

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ANNEX 6.2 CNV INTERNATIONAAL AUDIT CHECKLIST

To be used by CNVI program officers when visiting partner organisations.

A. GENERAL

Ref Checklist ItemY/N

N/ANotes

A1 How many staff and/or Trustees are involved in financial administration for the organisation?

It is useful to note the job titles and approx. how many hours they spend on

finance admin work.

A2 Have any of the staff received finance-related training and/or possess accountancy qualifications?

Note details of qualifications/duration of training.

A3 Does the organisation have a Finance Manual – i.e. written down procedures which cover financial rules, routines and processes?

If yes, who has access to the manual?

Try to get sight of the manual or other written procedures to establish how

recently it was written/updated.

A4 Does the organisation have a copy of the FPMF and the Financial Toolkit?

If yes, who has access to these?

Try to get sight of these documents and see if it has been used or that the

pages look untouched.

A5 Does the organisation use a computer to store its accounting records? If yes, which program(s)?

Does the organisation use a computer to produce financial reports? If yes, which program(s)?

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B. BUDGETING AND PLANNING

Ref Checklist ItemY/N

N/ANotes

B1 Which of the following budgets does the organisation have:

- Project work plan budgets?

- Access to project work plan budgets of federations?

- core costs (administration/overheads) budget

- organisation-wide budgets (i.e. consolidating all activities)?

Try to get copies or sight of the most recent budgets available, noting the

period they refer to.

B2 What process is used to produce the work plan’s budget?

Find out who is involved, when they are produced, what method is used. Is it

developed with members of the project staff?

Try to find out if this process went well. Try to open a discussion if this

process should be improved.

B3 Did the organisation use the budget tools as described in the Toolkit and as explained in the Financial Training?

Try to collect feedback about this method and how it can be improved?

B4 Is the organisation’s work plan budget formally approved by senior management (i.e. executive management / Board) and entered in the minutes?

This could be verified by sight of the Minutes book.

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C. THE ACCOUNTING RECORDS

Ref Checklist ItemY/N

N/ANotes

C1 Which of the following basic accounting records does the organisation keep:

- Bank book?

- Petty cash book?

- A file of invoices/receipts for all expenditures?

- A file of receipts/vouchers for incoming funds?

- A file of bank statements for each bank account held?

C2 Does the organisation keep separate accounting records for the CNVI work plan?

- Bank book?

- Petty cash book?

- A file of invoices/receipts for all expenditures?

- A file of receipts/vouchers for incoming funds?

- A file of bank statements for each bank account held?

C3 How recently were the books updated?

- within the last 7 days?

- within the last 14 days?

- within the last 30 days?

- more than 30 days ago?

- more than 60 days ago?

C4 Were the accounting records available for your inspection?

If not, why?

C5 Is the organisation aware of and complying with the accounting requirements of:

- The Financial Project Management Framework?

- The Financial Toolkit?

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D. FINANCIAL REPORTING AND MONITORING

Ref Checklist ItemY/N

N/ANotes

D1 Does the organisation produce a financial project report?

If yes, does it contain:

- Consolidated reports?

- Financial project report of the Confederation

- Financial project reports of the federations?

- Supporting documents like:

- Invoices?

- Bank statements?

- Cash and bank books

- Reconciliation sheets?

- Other documents?

Try to establish an opinion about the completeness of the reports

D2 How did the Federations perform in submitting financial project reports to the Confederation?

- How much % of the federations have submitted a financial project report?

- How % of these submitted reports were fine?

- Did the Confederation perform a verifiable check (e.g. using the checklist?)

- What did the organisation do to encourage federations submitting financial reports and/or improving the quality of these reports?

Try to have a look at the reports including supporting documents the federations submitted

D3 Is the Financial Report audited?

- Did the auditor express an opinion? Which?

- Did the auditor produce a management letter?

- Did the Confederation agree with its content?

- Did the Confederation follow up the recommendations of the auditor?

- If yes, all of them? Try to find proof of this?

- If not, why not?

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D4 Does the organisation produce financial statements (including a Balance Sheet and Profit & Loss or Income & Expenditure account)? If yes:

- How often?

- Period covered by the most recent statements?

- Who receives copies of the financial statements?

Obtain copies of the latest set of statements if available.

D5 Are the annual financial statements subjected to an independent audit by a qualified professional?

If yes:

- When was the last external audit conducted and by whom?

- Was the audit report qualified or unqualified?

Obtain a copy of the latest audited statements if available.

D6 Does the organisation produce periodic reports for managers which compare performance against budgets? If yes:

- How often?

- Period covered by the most recent report?

- Who prepares the reports?

- Who receives copies of the reports?

Obtain copies of the latest budget comparison reports if available.

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ANNEX 6.3 GUIDELINES FOR AUDITOR’S REPORTS INCLUDING THE AUDITOR’S QUESTIONNAIRE

GUIDELINES FOR AUDITOR’S REPORTS

According to the contract with CNV Internationaal, the legal holder of the programme (i.e. the Organisation1) is required not only to submit the internal financial and activity report but also an annual report by the external Auditor. It is the Organisation’s responsibility to compose the financial reports according to CNV Internationaal’s guidelines (see chapter 5 of format 7 one year report2). It is the responsibility of the Auditor to make an assessment of these financial reports, and in addition, of the financial management system, internal control and administrative procedures of the Organisation (Confederation and the Sectoral organisations). CNV Internationaal considers the Auditor’s report as an independent and professional assessment on the financial result and management of the project and the Organisation. It is an integral instrument for a professional management and control system. CNV Internationaal has drawn up Terms of Reference on behalf of the audit and the Auditor . They form an integral part of the contract between CNV Internationaal and the Organisation. CNV Internationaal expects the Auditor to follow the guidelines and provide the documents as stated in the Terms of Reference. The Organisation must send the documents of the Audit report, as indicated in the contract, within 3 months from completion of the project-year, together with their written comments and action to be taken. CNV Internationaal considers the procedures and requirements mentioned hereafter as a valuable input for enhancing a professional financial management system. The financial project report(s) as well as the auditor’s report (includes the assessment of the financial project report, the management letter and the questionnaire) provide necessary information regarding the requirements of accountability with members and donors (of the Organisation and CNV Internationaal). Furthermore, it will give new lessons learned to further improve the financial management of the Organisation in the year(s) to come.

In order to meet both CNV Internationaal’s requirements and the Organisation’s needs, the following criteria and procedure for external auditing are set.

Selection criteria for the auditor

• The Auditor should be a member of a national body of auditors affiliated to the International Federation of Accountants (IFAC)3;

• The accountant office is not a one-man business;

• The Auditor should be registered with a national professional association. The office should be of good report, meaning that the office:

> Is a member - directly or indirectly via a national professional association - of the international organisation IFAC or another reputable international association of accountants;

Selection procedure for the auditor (applicable for four year)

Every four year, running parallel with a new multi annual plan, the Organisation will apply the following procedure:

1. The Organisation request of three accountant offices a written quotation for the audit including the

1 Please note that “the Organisation” refers to the Confederation and Affiliated sectoral organisations (included in the CNV funded workplan) responsible for the implementation of the programme, according to the contract with CNV-Internationaal.

2 PME Manual for result-Based four year and one year planning, monitoring and evaluation (PME) Version 2.1-2011 3 Applicable for the following countries (2013): Bangladesh, Colombia, Ghana, Guatemala, Indonesia, Madagascar, Niger, Nicaragua,

Moldova (http://www.ifac.org/about-ifac/membership/members)

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following documents:

• An offer for the audit (for an annual audit for four years);

• A certificate of registry of the accountant office with a national association;

2. Based on the criteria mentioned above, the Board of the Organisation will take the final decision in the choice of an accountant’s office.

3. The Organisation will submit, together with the submission of the new multi annual plan, the following documents to CNV Internationaal via the Organisation:

• An offer for the audit (for an annual audit for four years);

• A certificate of registry of the accountant office with a national professional association;

• A written explanation for choosing the selected accountant office (based on the three requests of quotations).

CNV Internationaal will, together with the multi annual plan, assess and approve the selected accountant office. In those cases that the selected accountant office does not fulfil the criteria and needs as set by CNV internationaal, a new accountant office will be selected by the Organisation following the same procedure. Also in those cases that the selected accountant office does not meet the criteria or needs of the Organisation and/or CNV Internationaal after the first, second or third year of auditing a new accountant office will be selected following the same procedure.

After approval of the multi annual workplan (including the proposal of the choice of the Auditor) by CNV Internationaal it is expected that:

1. The Organisation will draw up a written contract annually with the external Auditor concerning:

• The working programme and auditing approach as proposed by the auditor and based on the Terms of Reference of CNV Internationaal and the questionnaire;

• The time frame for the audit and the deadline for submitting the auditor’s report;

• The periodic exchange of information between the Auditor and the Organisation during the auditing process. The Auditor shall document this accurately;

• The audit fees and terms of payment;

• The documentation on the Auditor’s work. The files should be adequate and accessible to the Auditor

2. The audit will take place timely in order to meet the reporting requirements of CNV Internationaal. 3.The Auditor will discuss the auditor’s report (including the financial project report, the management letter and the questionnaire) with the Board of the Organisation. 4.The Auditor gives his/her advice on the further improvement of the financial management system, internal control, administrative procedures and financial reports (as is stated as well in the management letter) of the Organisation (Confederation and affiliated Sectoral Organisations).

5. The Organisation will send, together with the audit report, a letter regarding their opinion about the conclusions and recommendations of the auditor and the action the Organisation will take as a result of these conclusions and recommendations.

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1. TERMS OF REFERENCE

The auditing procedure

The audit shall be conducted according to the generally accepted auditing standards and the relevant national regulations. In addition to the audit as such, the Auditor is requested to provide his/her professional assessment on the financial management, the accounting system and the procedures for internal controls as well as the financial reports of the Organisation (i.e. Confederation and Sectoral Organisation4). As a part of this, CNV Internationaal refers explicitly to the documents considered as referential documents for the Auditor, which form part of the contract between the Organisation and CNV Internationaal:

• The signed contract, including all the appendixes5;

• The project plan including budget;

• The project report including financial report

• The reporting guidelines (including guidelines audit report).

Guidelines for the audit of the Confederations and affiliated Sectoral Organisations

1. Review of all relevant documents connected with the contract between the Organisation and CNV Internationaal as well as other contracts of the Organisation, and all other documents concerning its rights and obligations;

2. Assessment of the annual account (including the classification), prepared by the Organisation, to check their accordance with the specific referential documents indicated above (including financial project report) , and examination of the completeness, accuracy and legitimacy of income and expenditure stated in these financial reports;

3. Verification of the segregation of obligations and responsibilities (accounts of expenditures, cash controls, inventory);

4. Judgement of the existing administrative procedures, including the measures and procedures for the internal control and their applicability regarding financial transactions and the application of funds (specifically internal audit commission of 3 persons);

5. Assessing whether or not the Organisation has made formal contracts of employment with all its personnel and to what extent these contracts are in accordance with the national regulations and to what extent the Organisation complies with the national regulations and laws (e.g. tax laws, social security benefits etc);

6. Examination of all bank accounts related to the programme, determining accordance between bank balances and balances indicated in the financial administration of the Organisation; These also include the bank accounts of the Sectoral Organisations the funds are transferred by the Confederation for the implementation of the sectoral plans.

7. Examination of a representative sample (40%) of payment transactions of the programme, determining justification and completeness (e.g. contracts of consultants, participants list etc), and verification of exchange transactions from foreign into national currency of funds received for the programme;

8. Verification of the existence and ownership of assets paid by CNV Internationaal on behalf of and by order of the Organisation;

9. Estimation and judgement based on a risk analysis, of the capability of the Organisation to monitor the programme and the activities from the point of view of financial management and general programme management.

4 i.e, those sectoral organisation that are included in the workplan financed by CNV

5 If any, other smaller projects funded by CNV Internationaal are included in the auditing of the multi annual plan.

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Documents

The Auditor includes the following documents (as integral part) within the audit report:

a) Financial project report prepared by the Organisation exclusively using the format of the budget statement which has been provided when the project was granted (see chapter 5 financial report of format 7), including the Auditor’s judgement on this project financial report. The tables of chapter 5 of format 7 are an integral part of the auditor report.

b) The annual account (including statement of revenues and expenses and balance sheet)

c) Management letter including:

1. Any irregularities or deviations from the terms of the contract as signed by the organisation and CNV Internationaal;

2. An assessment of the Organisation’s personnel management, employment contracts and compliance with the national regulations;

3. An analysis and judgement of shortcomings, irregularities, risks and fraud of the financial management system, internal controls (including internal audit commission of three people), internal administrative procedures and the financial reports as prepared by the Organisation;

4. An analysis en judgement of the Annual Account (statement of revenue and expenses and the cash balance sheet) with regard to the integration of the financial project report;

5. The Auditor’s analysis with respect to the implementation of recommendations from the previous Auditor’s report;

6. Recommendations for improvements of the financial management system, internal control (including internal audit commission of three people), administrative procedures and Financial reports for the Confederations and affiliated Sectoral Organisations.

d) Questionnaire This questionnaire is to be used by the external Auditor at the end of the audit. Please fill in the appropriate boxes. Please note that the answer “No” requires one of the following actions by the Auditor:

• reporting

• extended auditing

• an explanation

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N° Question Yes No Not applicable

1 Did you receive a written agreement for the auditing?

2 Did you receive the written Terms of Reference?

3 Did you discuss the objectives of the audit with the general manager and the financial manager of the Organisation?

4 Did you make use of an audit engagement letter?

5 Did you review all relevant documents, like:

•The contract with CNV Internationaal

•Permanent contracts

•Documents concerning rights and obligations?

6 Are the expenses in accordance with the approved budget in the contract?

7 Did you detect any contradictions regarding the finances of the project with respect to the contract (in this case, the answer “Yes” requires an explanation)

8 Did you review the foreign exchange transactions of funds received from CNV Internationaal and other donors?

9 Did you find that any gains or interest from the transactions mentioned under 8 were used for purposes as described in the contract only?

10 In case of large purchases, did you conclude that the procurement and supply procedures are in accordance with the criteria? (prequalification, short list, tender, lowest price for investments and sources of interest, internal control steps for the supply process)

11 Did you evaluate all other internal controls mentioned in the Terms of Reference?

12 Are you able to affirm that none of the expenses found in the referential documents has been/will be on-charged to another organisation?

13 Did you verify compliance by the Organisation with the national and/or local legislation?

14 Did you ask all the important questions to the management?

15 Did you review the follow-up of the recommendations made in the previous auditor’s report?

16 Did you conclude your recommendations mentioning the amount of recommendations that were implemented as well as the amount of recommendations that are to be implemented yet?

17 Did you bring out a management letter?

18 Did a concluding discussion take place with the client’s management?

19 Did you discuss the necessary follow-up?

20 Did you encounter any restrictions during the audit? (in this case, the answer “Yes” requires an explanation)

21 Are you able to affirm that the Organisation is capable of monitoring the programme from the point of view of financial management and general programme management?

22 Do you have any concluding remarks or advice for CNV Internationaal?

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