GlobalCFO LLC

Global CF0, LLC (ContractualCFO): International Consulting, Accounting, Auditing and Training Firm

where to turn..

Let Us Be Your Solution and ease your current and tremendous workload, by being your right hand, for periods when your workload is excessive.  Let Us be an interim complement to you and your staff.

 

Annex 2a           

Assessment Questionnaire (indicative questions)

 

PILLAR

PILLAR SUBJECT TO ASSESSMENT (1)

1 INTERNAL CONTROL

YES

2I ACCOUNTING

YES

3 EXTERNAL AUDIT

YES

4 GRANTS

YES / NO <remove what is not applicable>

5 PROCUREMENT

YES / NO <remove what is not applicable>

6 FINANCIAL INSTRUMENTS

YES / NO <remove what is not applicable>

7 SUB-DELEGATION

YES / NO <remove what is not applicable>

(1) The Entity / Auditor should state here YES or NO to indicate whether the pillar is subject to assessment.

Pillars 1, 2 and 3 are always subject to assessment.

As regards Pillars 4 to 7 at least one of these Pillars should always apply and be subject to assessment otherwise no budget implementation tasks are entrusted.


 


PURPOSE AND USE OF THIS DOCUMENT

 

1    In a first phase the Commission will request the Entity to complete relevant questions in Annex 2a and to submit a completed Annex 2a to the Commission.

Attention: The Entity is requested to complete questions indicated with 'to be completed by Entity, 'TBCBE' in the column with heading 'Entity comments'. Key questions must only be completed by the Auditor based on his / her professional judgment and the assessment procedures and tests performed.

The Commission will provide a completed Annex 2a questionnaire to the Auditor as soon as possible after the Auditor has been contracted by the Commission but prior to the start of the Auditors' assessment procedures.

 

2    In a second phase Annex 2a will become a support tool for the Auditor to design, plan and perform the assessment procedures and to take into account the criteria which the European Commission deems essential or important for the Entity subject to assessment to comply with.

The completed questionnaire is an essential source of assessment information and evidence for the Auditor. However, it is by no means the only source for the Auditor to plan and perform assessment procedures and to draw conclusions. All information completed and provided by the Entity is indicative and provisional and subject to the assessment procedures the Auditor deems necessary. The Auditor must not rely on information until s/he has ensured through assessment procedures that information is sufficiently accurate and complete for the purpose of the assessment and to arrive at informed conclusions for key questions.

Hence the Auditor can modify, complete and add information in the 'Auditor comments' column as s/he sees fit. The Auditor may also add additional questions if s/he considers that this is necessary to arrive at an informed conclusion for key questions.

Use of the column 'Auditor comments'   It is highly recommended that the Auditor uses as much as possible comments and narratives in summary form to avoid entering lengthy texts in the column 'Auditor comments'. The Auditor may adapt the width and/or length of this column to enter information and comments. Alternatively, the Auditor may use attachments (e.g. long narratives and/or documents obtained from the Entity) which can be referred to.

The Auditor remains fully responsible at all times to design, plan and perform the assessment procedures s/he deems necessary to arrive at a conclusion for each pillar which is subject to the assessment. The Auditor must take into account the specific engagement circumstances and apply professional judgment throughout the assessment process.

 

 


 

PILLAR 1 - INTERNAL CONTROL

KEY QUESTION (level 1)

Auditor comments

 

Has the Entity set up set up and ensured the functioning in all material respects of an effective and efficient internal control system and in accordance with the criteria set by the European Commission?

 

 

Guidance

Article 38(3) Rules of application on the financial rules applicable to the general budget of the Union (Equivalence of systems, rules and procedures in indirect management; Article 60 of the Financial Regulation)

The Commission may accept that the accounting systems and the internal control systems used by entities and persons to be entrusted with budget implementation tasks on behalf of the Commission are providing equivalent levels of protection of the financial interests of the Union and of reasonable assurance of achieving the management objectives if they comply with the principles laid down in Article 32 of the Financial Regulation.

Article 32 of the Financial regulation applicable to the general budget of the Union (Internal control of budget implementation)

1.   The budget shall be implemented in compliance with effective and efficient internal control as appropriate in each method of implementation, and in accordance with the relevant sector-specific rules.

2.   For the purposes of the implementation of the budget, internal control is defined as a process applicable at all levels of management and designed to provide reasonable assurance of achieving the following objectives:

(a)  effectiveness, efficiency and economy of operations;

(b)  reliability of reporting;

(c)  safeguarding of assets and information;

(d)  prevention, detection, correction and follow-up of fraud and irregularities;

(e)  adequate management of the risks relating to the legality and regularity of the underlying transactions, taking into account the multiannual character of programmes as well as the nature of the payments concerned.

 

PILLAR 1 - INTERNAL CONTROL

Guidance (continued)

Article 32 of the Financial regulation applicable to the general budget of the Union (Internal control of budget implementation) (continued)

3.   Effective internal control shall be based on best international practices and include, in particular, the following:

(a)  segregation of tasks;

(b)  an appropriate risk management and control strategy including control at recipient level;

(c)  avoidance of conflicts of interests;

(d)  adequate audit trails and data integrity in data systems;

(e)  procedures for monitoring of performance and for follow- up of identified internal control weaknesses and exceptions;

(f)   periodic assessment of the sound functioning of the internal control system.

4. Efficient internal control shall be based on the following elements:

(a)  the implementation of an appropriate risk management and control strategy coordinated among appropriate actors involved in the control chain;

(b)  the accessibility for all appropriate actors in the control chain of the results of controls carried out;

(c)  reliance, where appropriate, on management declarations of implementation partners and independent audit opinions, provided that the quality of the underlying work is adequate and acceptable and that it was performed in accordance with agreed standards;

(d)  the timely application of corrective measures including, where appropriate, dissuasive penalties;

(e)  clear and unambiguous legislation underlying the policies;

(f)   the elimination of multiple controls;

(g)  improving the cost-benefit ratio of controls.

5.   If, during implementation, the level of error is persistently high, the Commission shall identify the weaknesses in the control systems, analyse the costs and benefits of possible corrective measures and take or propose appropriate action, such as simplification of the applicable provisions, improvement of the control systems and re-design of the programme or delivery systems.

 


 

1 CONTROL ENVIRONMENT - questions / criteria

Entity comments

Auditor comments

Key question (level 2): Does the control environment of the Entity provide an adequate basis for carrying out internal control across the organisation?

Note: Control environment includes the governance and management functions and the attitudes, awareness and actions of those charged with governance and management concerning the Entity’s internal control and its importance in the Entity

 

1.1 Integrity and ethical values.

Does management demonstrate a commitment to communicate and enforce integrity and ethical values?

 

1.1.1

Is there a written code of conduct that is communicated to all staff or a staff manual containing provisions promoting ethical behaviour and values?

TBCBE

 

1.1.2

Does management stress and communicate the importance of integrity and ethical values to staff (“tone at the top”)?

TBCBE

 

1.1.3

Are there procedures (e.g. disciplinary sanctions, financial and personal liability) for staff who do not comply with integrity rules and ethical values?

TBCBE

 

1.1.4

Are there procedures in place to deal with possible conflicts of interest at management level?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

1 CONTROL ENVIRONMENT (cont'd) - questions / criteria

Entity comments

Auditor comments

1.2 Organizational struc­ture and assignment of authority and responsibility.

Does the Entity have a clear and adequate organisational structure and are key responsibilities clearly defined?

 

1.2.1

Does the Entity have a clear organizational structure (i.e. the framework within which an Entity’s activities for achieving its objectives are planned, executed, controlled, and reviewed) which supports good management and governance?

TBCBE

 

1.2.2

What is the decision-making structure and who is the highest decision making authority?

TBCBE

 

1.2.3

Are reporting lines and responsibilities clearly defined? For example: are responsibilities, authorities and reporting lines clearly stipulated in employment contracts and/or operating manuals?

TBCBE

 

1.2.4

Are job descriptions available?

TBCBE

 

1.2.5

How is the authority and responsibility for operating activities assigned and how are reporting relationships and authorization hierarchies established?

TBCBE

 

1.2.6

What are the policies and practices that relate to, for example, recruitment, orientation, training, evaluation, counselling, promotion, compensation, and remedial actions?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

1 CONTROL ENVIRONMENT (cont'd) - questions / criteria

Entity comments

Auditor comments

1.3 Governance oversight structure.

Does the Entity have an adequate governance oversight structure?

 

1.3.1

Is there a governance oversight body (e.g. oversight authorities, audit committee, regulators, governing board, executive body) which is independent of the management of the Entity?

TBCBE

 

1.3.2

Are there rules for the appointment, remuneration and resignation of members of the governance oversight body?

TBCBE

 

1.3.3.

If there is no governance oversight body, has management of the Entity taken measures to carry out its governance oversight responsibilities?

TBCBE

 

1.3.4

Does the Entity have an internal audit function? If yes, refer to section 5.2.

TBCBE

 

1.3.5

If no, how (what other measures) does management exer­cise oversight of the development and performance of internal control?

TBCBE

 

1.4 Process for attracting, developing and retaining com­petent individuals.

Does the Entity demonstrate a commitment to attract, develop, and retain com­petent individuals in alignment with objectives?

 

1.4.1

Does the Entity have formal and written human resources policies and practices?

TBCBE

 

1.4.2

Does the Entity have recruitment and remuneration policies?

TBCBE

 

1.4.3

Does the Entity have a staff development (covering development and training needs) and appraisal system?

TBCBE

 

 

PILLAR 1 - INTERNAL CONTROL

2 RISK ASSESSMENT - questions / criteria

Entity comments

Auditor comments

Key question (level 2): does the Entity identify risks to the achievement of its objectives across the Entity and are risks analysed as a basis for determining how they should be managed?

 

2.1

Does the Entity specify its objectives with sufficient clarity to enable the identifica­tion and assessment of risks relating to objectives?

 

 

2.2

Does the Entity have risk assessment procedures in place which allows management to identify, assess and address existing or potential issues that may hamper the achievement of the Entity’s objectives?

TBCBE

 

2.3

Are risks assessed on a project basis or globally?

TBCBE

 

2.4

Are risk assessment procedures documented?

TBCBE

 

2.5

Does the Entity have a Risk Register?

TBCBE

 

2.6

Does the Entity have risk assessment procedures which:

-                Identify events and risks affecting the achievement of the objectives?

-                Analyse the significance of risks and the likelihood of their occurrence?

-                Determine the actions and follow-up mechanisms needed in response to the risks?

-                Implement and modify controls to respond to changes in identified risks?

TBCBE

 

 

 

 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES - questions / criteria

Entity comments

Auditor comments

Key question (level 2): does the Entity deploy effective and efficient control activities?

 

3.1 General.

Does the Entity have formal and written policies and procedures for control activities?

 

3.1.1

Does the Entity deploy control activities

-     through formal, written policies and procedures?

-     that contribute to the mitigation of risks to the achievement of objectives to acceptable levels?

-     that are relevant i.e. based on an assessment of risks and of controls required to manage these risks?

TBCBE

 

3.1.2

Are the following key aspects addressed by the control activities deployed by the Entity:

      reliability of accounting and reporting (see Section 4 Information and Communication);

safeguarding of assets and information;

compliance with rules in procurement and other expenditure processes;

prevention, detection and correction of errors, fraud and irregularities.

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.2 Segregation of duties – general.

Is there effective segregation of duties for following key functions:

-       authorizing officer (i.e. mandate to authorise transactions for operational and/or financial issues) and accounting officer (i.e. authority to execute payments);

-       authorization, processing, recording and reviewing of transactions;

-     operational and financial supervision.

 

3.2.1

Is segregation of duties formally stipulated for example in an operating or procedures manual?

TBCBE

 

3.3 Safeguarding of information - documentation, fling and record keeping.

Does the Entity have adequate and effective procedures for documenting, filing and record keeping and controls over the completeness and accuracy of information?

 

3.3.1

What are the main features of the Entity's filing systems (electronic, paper, operating instructions, use of databases and electronic archiving systems)?

TBCBE

 

3.3.2

Identify and document key features of the filing system / procedures.

TBCBE

 

3.3.3

Does the Entity have a specific policy or procedures for the documentation and filing relating to the processes for grants, procurement and financial instruments?

Note: specific requirements may apply such as transparency and confidentiality.

TBCBE

 

 

 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.4 Information processing and computerised information systems.

Does the Entity have effective procedures and controls over IT systems which maintain the integrity of information and the security of data these systems process?

 

3.4.1

Does the Entity have formal and written procedures and controls with regard to its IT systems?

TBCBE

 

3.4.2

Does the Entity have adequate and effective procedures for initiation, approval, recording, processing and reporting of transactions?

 

 

3.4.3

Does the Entity apply an appropriate mix of manual and automated elements in internal control taking into account the nature and complexity of the Entity’s use of information technology and computerised information systems?

 

 

3.4.4

Do the controls over the Entity's IT systems include effective general IT controls and application controls?

 

 


 

PILLAR 1 - INTERNAL CONTROL

Guidance relating to computerised information systems

The Entity's business / activity processes result in transactions that are initiated, recorded, processed and reported by the information system which is either manually or computer operated or through a mix of manual and computer operated procedures.

Is there an appropriate segregation of duties for key accounting functions i.e. for the initiation, approval, recording, processing (i.e. transfer to the general ledger) and reporting in the financial statements?

The use of IT affects the way that control activities are implemented. Controls over IT systems are effective when they maintain the integrity of information and the security of the data such systems process, and include effective general IT controls and application controls.

General IT controls are policies and procedures that relate to many applications and support the effective functioning of application controls. They apply to mainframe, miniframe, and end-user environments. General IT controls that maintain the integrity of information and security of data commonly include controls over the following:

           Data centre and network operations.

           System software acquisition, change and maintenance.

           Program change.

           Access security.

           Application system acquisition, development, and maintenance.

Application controls are manual or automated procedures that typically operate at a business process level and apply to the processing of transactions by individual applications. Application controls can be preventive or detective in nature and are designed to ensure the integrity of the accounting records. Accordingly, application controls relate to procedures used to initiate, record, process and report transactions or other financial data. These controls help ensure that transactions occurred, are authorized, and are completely and accurately recorded and processed. Examples include edit checks of input data, and numerical sequence checks with manual follow-up of exception reports or correction at the point of data entry.

The use of manual or automated elements in internal control also affects the manner in which transactions are initiated, recorded, processed, and reported:

     Controls in a manual system may include such procedures as approvals and reviews of transactions, and reconciliations and follow-up of reconciling items. Alternatively, an Entity may use automated procedures to initiate, record, process, and report transactions, in which case records in electronic format replace paper documents.

     Controls in IT systems consist of a combination of automated controls (for example, controls embedded in computer programs) and manual controls. Further, manual controls may be independent of IT, may use information produced by IT, or may be limited to monitoring the effective functioning of IT and of automated controls, and to handling exceptions. When IT is used to initiate, record, process or report transactions, or other financial data for inclusion in financial statements, the systems and programs may include controls related to the corresponding assertions for material accounts or may be critical to the effective functioning of manual controls that depend on IT.

An Entity’s mix of manual and automated elements in internal control varies with the nature and complexity of the Entity’s use of IT

 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.5 Prevention, detection and correction of errors, fraud and irregularities.  

Does the Entity have adequate and effective procedures for the prevention, detection and correction of errors,  fraud and irregularities?

 

3.5.1

Does the Entity consider the potential for errors, fraud and irregularities in assessing risks to the achieve­ment of objectives?

TBCBE

 

3.5.2

Does the Entity identify (sensitive) posts with risk of collusion (e.g. bank and cash management, procurement and purchase functions) and are there mitigating measures (e.g. rotation of functions, additional controls)?

TBCBE

 

3.5.3

Are there procedures for the reporting and follow- up of errors, fraud and irregularities?

TBCBE

 

 

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.6 Safeguarding of fixed assets.

Does the Entity have an adequate and effective fixed assets management system in place which ensures the safeguarding of fixed assets and tracks fixed assets for the purposes of financial accounting, preventive maintenance, and theft deterrence?

 

3.6.1

Does the Entity have a description or a procedures manual of its asset management system?

TBCBE

 

3.6.2

Obtain a sufficient understanding of the Entity's asset management system i.e. practices and procedures for the acquisition and management of land and buildings, machinery, vehicles, equipment.

Note: specific attention should be paid to procurement rules which are applicable for the acquisition of fixed assets (refer to Pillar 4 Procurement).

 

 

Guidance

Document the above procedure with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s asset management system.

Relevant issues include: roles and responsibilities (segregation of duties)  for management of assets, acquisition and purchase procedures, asset registration (use of asset registers, vehicle logbooks), controls and procedures for access, control and monitoring procedures, safeguard and access procedures, asset disposition and transfer of assets.

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.7 Safeguarding of inventories.

Does the Entity have an adequate and effective inventory (supplies, goods and materials) management system in place which ensures the safeguarding of inventories tracks inventories for the purposes of financial accounting, preventive maintenance, and theft deterrence?

 

3.7.1

Does the Entity have a description or a procedures manual of its inventory management system?

TBCBE

 

3.7.2

Obtain a sufficient understanding of the Entity's inventory management system (practices and procedures for the acquisition, purchase and management of supplies such as materials, tools, spare parts, office supplies etc.).

Note: specific attention should be paid to procurement rules which are applicable for the acquisition of supplies, goods and materials (refer to Pillar 4 Procurement).

 

 

Guidance

Document the above procedure (with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s inventory management system.

Relevant issues include: roles and responsibilities for the management of inventories, acquisition and purchase procedures, inventory records; safeguard, access and use; control and monitoring procedures, stock takings and reconciliations; use and disposal of stocks

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.8 Bank Management and safeguarding of cash in the bank.

Does the Entity have an adequate and effective bank management system in place which ensures the safeguarding of bank accounts and which allows for the proper accounting of cash collected and used?

 

3.8.1

Does the Entity have a description or a procedures manual of its bank management system?

TBCBE

 

3.8.2

Does the Entity perform regular (at least on a monthly basis) reconciliations of accounting data held in the Entity's accounts (general ledger account; cash book) with bank account data and in such a way that no material differences are left unexplained?

 

 

3.8.3

Obtain a sufficient understanding of the Entity's bank management system (practices and procedures for the management of bank accounts).

 

 

Guidance

Document the above procedure with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s bank management procedures.

Relevant issues include inter alia: roles and responsibilities (segregation of duties, access rights, use of a separate treasury function) for management of bank accounts, type of accounts (e.g. interest bearing, currencies used), use of dual signature procedures, regular bank reconciliations, supervision and control, use of dedicated / specific bank accounts for projects; treasury policies .

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.9 Cash Management and safeguarding of cash on hand.

Does the Entity have an adequate and effective cash management system in place which ensures the safeguarding of (petty) cash and which allows for the proper accounting of cash collected and used?

 

3.9.1

Does the Entity have a description or a procedures manual of its cash management system?

TBCBE

 

3.9.2

Does the Entity perform regular (at least on a monthly basis) reconciliations of accounting data held in the Entity's accounts (general ledger account; cash book) with bank account data and in such a way that no material differences are left unexplained?

 

 

3.9.3

Are there appropriate procedures for holding cash and cash counts?

 

 

3.9.4

Does the Entity clear and reconcile suspense accounts and advances i.e. of cash payments made, from which no expenditures have yet been recorded (at least monthly within 30 days of the end of each month)? Such advances may include travel advances and operational imprest accounts. This may also include transfers to other entities which are classified as expenditures when they are made, even if reporting on any earmarked portion of the transfers is expected periodically.

 

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.9 Cash Management and safeguarding of cash on hand (cont'd)

 

 

3.9.5

Does the Entity clear and reconcile suspense accounts and advances i.e. of cash payments made, from which no expenditures have yet been recorded (at least monthly within 30 days of the end of each month)? Such advances may include travel advances and operational imprest (* note) accounts. This may also include transfers to other entities which are classified as expenditures when they are made, even if reporting on any earmarked portion of the transfers is expected periodically.

 

 

3.9.6

Obtain a sufficient understanding of the Entity's cash management system (practices and procedures for cash management).

 

 

Guidance

Document the above procedure with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s cash management procedures.

Relevant issues include inter alia: roles and responsibilities (segregation of duties, access rights, use of a separate treasury function) for cash management; procedures for cash handling and limits of cash to be held; regular petty cash counts and reconciliations; management of cash advance (use, authorisation, limits, monitoring and clearance

(*) The imprest system is a form of financial accounting system. The most common imprest system is the petty cash system. The base characteristic of an imprest system is that a fixed amount is reserved, which after a certain period of time or when circumstances require, because money was spent, it will be replenished. This replenishment will come from another account source e.g. petty cash will be replenished by cashing a cheque drawn on a bank account.


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.10. Recruitment.

Does the Entity have adequate and effective procedures for the recruitment of staff (both permanent and temporary)?

 

3.10.1

Does the Entity have a description or a procedures manual of its recruitment system?

TBCBE

 

3.10.2

Obtain a sufficient understanding of the Entity's recruitment system (practices and procedures for the management of expatriate, local and other staff).

 

 

3.10.3

Perform a walkthrough of the recruitment process starting with the approval of the selection procedure to the signing of the employment contract.

 

 

Guidance

Document the above procedures with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s recruitment procedures

Relevant issues include: roles and responsibilities for the management of staff; selection and approval procedures; determination and approval of salaries, allowances and other conditions of employment; use of employment contracts; job descriptions.

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.11. Payroll and Time Management.

Does the Entity have an adequate and effective payroll and time management system?

 

3.11.1

Does the Entity have a description or a procedures manual of its payroll and time management system?

TBCBE

 

3.11.2

Obtain a sufficient understanding of the Entity's payroll and time management system i.e. practices and procedures for payroll and time management.

 

 

3.11.3

Are personnel database (* note) and payroll directly linked to ensure data consistency? Are reconciliations performed on a regular basis (in principle monthly)?

 

 

3.11.4

Are payroll and time management systems linked to ensure a correct calculation of salaries and wages where applicable?

 

 

3.11.5

Is authority to change records and payroll restricted and are audit trails available?

 

 

3.11.6

Are there appropriate (approval) procedures for changes to the personnel records?

 

 

(*) Effective payroll management should be underpinned by a personnel database (in some cases called the 'nominal roll' and not necessarily computerized), which provides a list of all staff, who should be paid every month and which can be verified against an approved establishment list and the individual personnel records (or staff files). The link between the personnel database and the payroll is a key control. Any amendments required to the personnel database should be processed in a timely manner through a change report, and should result in an audit trail. Payroll audits should be undertaken regularly to identify ghost workers, fill data gaps and identify control weaknesses.


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.11. Payroll and Time Management (cont'd)

 

 

3.11.7

Are there procedures for identifying control weaknesses and/or ghost workers? For example: are (annual) payroll audits performed by an internal audit capability?

 

 

3.11.8

Does the Entity have a system to allocate staff and salaries and related costs to projects?

 

 

3.11.9

What principles (i.e. plausibility of basic assumptions used and allocation keys) does the Entity use to allocate salaries and salary related costs to projects. How is time spent by staff for specific projects approved and recorded?

 

 

Guidance

Document the above procedures with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s payroll and time management systems.

Relevant issues include: roles and responsibilities for the payroll and time management; recording, calculation and approval of salaries and salary components (fixed / variable; overtime; social security. Special attention should be paid to the Entity's time management system: time keeping procedures and records (use of timesheets), supervision control and approval procedures.

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.12 Controls for other salary related expenditure and allowances.

Does the Entity have adequate and effective controls for other salary related expenditure and allowances?

 

Key question (level 3):

 

3.12.1

Does the Entity have a description or a procedures manual of its controls for other salary related expenditure and allowances?

TBCBE

 

3.12.2

What procedures and controls are in place for the determination and payment of allowances for travelling and accommodation (i.e. per diems)?

 

 

3.12.3

What procedures and controls are in place for the determination and payment of expenditure for training and personnel development?

 

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.13. Acquisition of services and costs of services.

Does the Entity have adequate and effective controls for the acquisition of services and for the accounting of costs for services?

 

3.13.1

What procedures does the Entity have in place for the contracting of services with external service provides (e.g. studies and research; advertisement, promotion, publication and visibility actions; evaluations; audit, accounting and legal services; technical assistance; translation and interpretation; organisation of conferences and seminars; visibility actions)?

Note: specific attention should be paid to procurement rules which are applicable for the acquisition of services (refer to Pillar 4 Procurement).

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.14. Expenditure controls for other (non-salary) expenditure.

Does the Entity have adequate and effective controls for other (non-salary) expenditure?

Note: this includes all costs other than salaries, salary related expenditure and allowances and costs of services. Examples: office costs such as rent, consumables and office supplies, utility costs (electricity, water, gas, fuel), taxes and levies (e.g. sewer and solid waste charges), cleaning and maintenance; communication (telephone, fax, internet); insurance, administration and accounting, printing etc.

 

3.14.1

Does the Entity have a description or a procedures manual of its controls for other (non-salary) expenditure?

TBCBE

 

3.14.2

Obtain a sufficient understanding of the Entity's system for expenditure control (practices and procedures for expenditure control).

 

 

Guidance

Document the above procedures with descriptions and references to relevant source material (e.g. systems, flowcharts, manuals etc.) and identify any shortcomings in the Entity’s procedures for expenditure control.

Relevant issues include inter alia: roles and responsibilities for expenditure control; management procedures which ensure that expenditure control is in line with the Entity's procedures; authorisation and approval of expenditure; performance of regular budget/ actual comparisons of expenditure.

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.15. Monitoring of operating performance.

Does the Entity have adequate and effective controls for operating performance?

 

3.15.1

Does the Entity have  a description or a procedures manual of its procedures for monitoring operating performance

TBCBE

 

3.15.2

What measures does the Entity have to review operating performance i.e. the progress made on the implementation of activities and projects?

TBCBE

 

3.15.3

Has the Entity adopted quality standards (e.g. ISO)?

TBCBE

 

3.15.4

If external standards are not used are there internal standards?

TBCBE

 

3.15.5

Does the Entity have procedures for the evaluation (ex-ante, during implementation and ex-post)?

TBCBE

 

3.15.6

By whom (internal or external) are these evaluations performed and how are results reported and followed-up?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

3 CONTROL ACTIVITIES (cont'd) - questions / criteria

Entity comments

Auditor comments

3.16. Compliance with regulations and rules for using funds.

Does the Entity have adequate and effective controls for ensuring compliance with EU regulations and rules for the funding of the Entity's activities and projects?

 

3.16.1

Does the Entity have a description or a procedures manual of its procedures to ensure compliance with regulations and rules for using funds?

TBCBE

 

3.16.2

Does the Entity have procedures in place which ensure that actual expenditure incurred and revenue received for activities and projects is in conformity with applicable rules i.e. conditions set out in contracts and agreements?

 

 

3.16.3

Does the Entity have procedures in place which ensure that specific rules and conditions are well known and respected? Such rules and conditions can relate to inter alia: the eligibility of expenditure, procurement rules (see Pillar 4), origin rules, rules for visibility of EU funded actions, rules for the transfer of assets at the end of a project.

 

 

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  - questions / criteria

Guidance

Information is necessary for the Entity to carry out internal control responsibilities to support the achievement of its objectives. Management of the Entity obtains or generates and uses relevant and quality information from both internal and external sources to support the functioning of other components of internal control.

Internal reporting (internal information and communication )

This concerns internal reporting which covers financial reporting and reporting on the qualitative aspects of the implementation of activities and projects within the Entity to the management of the Entity.

External reporting (external information and communication)

Two flows of external information and communication can be distinguished:

·        External reporting outbound: financial reporting and reporting on the qualitative aspects of the implementation of activities and projects by the Entity to external stakeholders.

This concerns essentially the annual financial statements of the Entity the accountability of the Entity towards its (external) stakeholders.

·        External reporting inbound: financial reporting and reporting on the qualitative aspects of the implementation of activities and projects by grant beneficiaries and Sub-Delegatees to the Entity.

This concerns the reporting flows from grant beneficiaries and Sub-Delegatees to the Entity and the accountability of these actors towards the Entity. Reporting is based on specific rules and conditions set by the Entity in order to comply with the requirements (including reporting requirements) for funding provided by the EU and other donors. These reporting flows constitute a vital element of internal control.

The above two types of external reporting are dealt with at PILLAR II Accounting.


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

Key question (level 2): Does the Entity have controls and procedures in place which ensure reliable reporting – both internal and external (inbound and outbound) – in line with applicable requirements and standards?

 

4.1 Internal reporting.

Does the Entity have adequate and effective controls for ensuring that internal reporting provides relevant and quality information to management?

 

4.1.1

Does the Entity obtain or generate and use relevant, quality information (internal and/or external sources) to compile management reports?

TBCBE

 

4.12

Does management of the Entity receive regular (monthly, quarterly) reports on progress made on objectives, activities, projects?

TBCBE

 

4.1.3

Does the information cover qualitative aspects of implementation such as for example use of performance indicators, implementation status and delays, key problems and issues)?

TBCBE

 

4.1.4

Does the information cover financial aspects such as budget – actual comparisons and analyses of expenditure incurred by activity / project?

TBCBE

 

4.1.5

Does the Entity internally communicate information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.2 External reporting (outbound ) – financial statements.

Does the Entity prepare and present annual financial statements which are reliable and in line with applicable international standards?

 

4.2.1

Does the Entity prepare and present annual financial statements which are reliable?

Reliable means that the financial statements:

-     represent faithfully the financial position, financial performance, and cash flows of the Entity;

-     reflect the economic substance of transactions, other events, and conditions and not merely the legal form;

-     are neutral, i.e. free from bias;

-     are prudent; and

-     are complete in all material respects.

 

 

Guidance

Year-end financial statements are a critical condition for transparency. The ability to prepare year-end financial statements in a timely fashion is a key indicator of how well the accounting system is operating, and the quality of records maintained.

In order to be useful and to contribute to transparency, financial statements must be understandable to the reader, and deal with transactions, assets and liabilities in a transparent and consistent manner. This is the purpose of financial reporting standards. Some countries have their own public sector financial reporting standards, set by government or another authorized body. To be generally acceptable, such national standards are usually aligned with international standards such as the International Public Sector Accounting Standards (IPSAS), of which some are relevant for countries that adopt accrual based accounting, while others are relevant for cash-based systems.

 


 

PILLAR 1 - INTERNAL CONTROL

                   

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.2.2

Does the financial information presented in the financial statements meet following qualities which make it useful for the users:

-     Relevance. Financial information should be relevant to the decision making needs of the users.

-     Materiality. There should be a focus on financial information which is expected to affect the decisions of the users.

-     Faithful representation. Financial information should be true and fair and free from misstatement.

-     Comparability. Financial information should be comparable across periods and across organisations.

-     Verifiability. Information should communicate the underlying economics of the Entity's activities.

-     Timeliness. Disclosure of financial information should not be excessively delayed.

-     Understandability. The financial information must be understandable by users with reasonable knowledge of the Entity's activities.

 

 

4.2.3

Does the Entity prepare and present annual financial statements which are in line with applicable international standards? What is the applicable financial reporting framework? What are the basic regulations, rules the Entity needs to comply with for the preparation and presentation of its annual financial statements.

TBCBE

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.2.4

Other good practice disclosures

Do the financial statements of the Entity disclose:

-        the address and legal form of the Entity and jurisdiction under which it operates?

-        The nature of the Entity’s operations and its principal activities?

-        A reference to the legal and regulatory framework governing the Entity’s operations?

-        The name and identity of the controlling Entity (where applicable)?

-        Budget actual comparisons of appropriations / commitments and disbursement.

-        Details of sources of funding (amounts received / receivable and identity of fund providers)

-        Statements of financial position and of financial performance by type of activity, programme, project, (trust) funds and Financial Instruments for the period covered by the financial statements

 

 

4.2.5

Does the Entity comply with national accounting (including financial reporting) standards which apply in the country in which the Entity is established? (for example: the World Bank i.e. the International Bank for Reconstruction and development (IBRD) and the International development Association (IDA) comply with US Generally Accepted Accounting Principles (US GAAP).

 

 

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.2.6.

Does the Entity comply with international accounting standards (including financial reporting) or accounting policies and rules prescribed by specific regulations or conventions?

- International Public Sector Accounting Standards (IPSAS)

- International Financial Reporting Standards (IFRSs)

- Other specific conventions and rules such as for example the United Nations System accounting Standards (UNSAS)

TBCBE

 

4.2.7

What is the accounting basis for preparing and presenting the financial statements of the Entity:

- Accrual basis

- Cash basis

- Modified cash or modified accrual basis (i.e. mixed)

Footnote: Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid).  Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate.  The elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue and expenses.

TBCBE

 

4.2.8.

What is the financial year of the Entity?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.2.9.

Do the financial statements of the Entity include the following components:

-     statement of changes in net assets/equity statement of financial position (also referred to as balance sheet or statement of assets and liabilities)

-     statement of financial performance (also referred to as statement of revenues and expenses, income statement, operating statement, or  profit and loss statement)

-     statement of changes in net assets/equity

-     cash flow statement ; and

-     accounting policies and notes to the financial statements.

TBCBE

 

4.2.10

Are the financial statements of the Entity submitted for external audit within 6 months of the end of the financial year?

TBCBE

 

4.3 External reporting (outbound ) – specific  reporting to donors / fund providers.

Does the Entity have reporting procedures which allow adequate and timely reporting to donors / fund providers (including the EC) on the use of funds for projects, (trust) funds and Financial Instruments provided by them?

 

4.3.1

Does the Entity have specific and dedicated reporting procedures for activities, projects or (trust) funds and Financial Instruments financed by the EU or other donors?

TBCBE

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.4 External reporting (inbound ) –  reporting by Sub-Delegatees and grant beneficiaries.

Does the Entity take appropriate measures which ensure to a reasonable extent that Sub-Delegatees and grant beneficiaries provide reliable and timely reports on the use of funds provided to them by the Entity?

 

4.4.1

Does the Entity have specific and dedicated reporting procedures for activities, projects, (trust) funds and Financial Instruments financed by the EU or other donors?

TBCBE

 

4.4.2

Does the Entity provide conditions for reporting by Sub-Delegatees and grant beneficiaries on the financial and qualitative aspects of the implementation of activities, projects, (trust) funds and Financial Instruments?

TBCBE

 

4.4.3

Are conditions for reporting clearly and properly communicated (e.g. use of terms of reference, use of (web based) guidelines, instructions, brochures etc.)?

-     What are the main reporting conditions?

-     Are these conditions binding? For example: are conditions set out in (annexes) to agreements or contracts concluded by the Entity with Sub-Delegatees and grant beneficiaries?

-     Are consequences of non-compliance with conditions (e.g. rules for eligibility of expenditure) explained?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

4 INFORMATION AND COMMUNICATION  (cont'd) - questions / criteria

Entity comments

Auditor comments

4.4.4

Does the Entity monitor / verify whether reporting conditions are respected?

TBCBE

 

4.4.5

Does the Entity obtain and review progress reports made by the Sub-Delegatees and grant beneficiaries on a regular basis?

TBCBE

 

4.4.6

Does the Entity effectively and timely respond to issues that result from the review of these reports? Such issues may include: significant differences in budget to actual comparisons of expenditure, unusual expenditure items, (possible) ineligible expenditure, delays in project implementation, project activities not implemented as foreseen etc.

TBCBE

 


 

PILLAR 1 - INTERNAL CONTROL

5 MONITORING - questions / criteria

Entity comments

Auditor comments

Key question (level 2): Does the Entity monitor (the components of) its internal control system regularly and effectively?

 

 

5.1. Monitoring of (the components of) the internal control system (if the Entity has no internal audit function).

Does the Entity have adequate and effective measures to monitor internal control in case it has no internal audit function?

 

5.1.1

What are the main activities that the Entity uses to monitor (the components of) its internal control system?

TBCBE

 

5.1.2

How does the Entity initiate remedial actions to deficiencies in (the components of) its internal control system?

TBCBE

 

5.2. Internal Audit Function.

Does the Entity have an effective internal audit function?

 

5.2.1

Standards and internal audit charter

Does the internal audit function comply with the international professional standards and the code of ethics issued by the Institute of Internal Auditors (www.theiia.org)?

TBCBE

 

Guidance

Regular and adequate feedback to management is required on the performance of the internal control systems, through an internal audit function or equivalent systems monitoring function. Internal audit functions are in some countries concerned only with pre-audit of transactions, which is then considered part of the internal control activities.


 

PILLAR 1 - INTERNAL CONTROL

5 MONITORING (cont'd) - questions / criteria

Entity comments

Auditor comments

5.2.2

Standards and internal audit charter (cont'd)

Has the internal audit function adopted an internal audit charter which is consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards issued by the Institute of Internal Auditors?

Footnote: The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. The internal audit charter establishes the internal audit activity's position within the organization, including the nature of the chief audit executive’s functional reporting relationship with the board; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. Final approval of the internal audit charter resides with the senior management of the Entity or an oversight body (audit committee) where appropriate.

TBCBE

 

5.2.3

Independence

How does the internal audit function fits in the Entity’s organizational structure?

TBCBE

 

5.2.4

Independence

Is the internal audit function independent i.e. does it have freedom from conditions that threaten its ability to carry out internal audit responsibilities in an unbiased manner?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

5 MONITORING (cont'd) - questions / criteria

Entity comments

Auditor comments

5.2.5

Independence (cont'd)

Do the chief audit executive / head of the internal audit function have direct and unrestricted access to senior management and the oversight body as appropriate?

TBCBE

 

5.2.6

Objectives and scope of work

What is the nature of the internal audit function’s responsibilities?

TBCBE

 

5.2.7

Objectives and scope of work (cont'd)

What are the activities performed, or to be performed, by the internal audit function?

TBCBE

 

5.2.8

Objectives and scope of work

Does the internal audit charter define the nature of the (assurance) services provided to the Entity?

Note: Assurance services involve the internal auditor’s objective assessment of evidence to provide an independent opinion or conclusions regarding an Entity, operation, function, process, system, or other subject matter. The nature and scope of the assurance engagement are determined by International Standards for the Professional Practice of Internal Auditing.

TBCBE

 

5.2.9

Objectives and scope of work

Does the internal audit function prepare a risk assessment of the activities and/or organisational functions (e.g. departments, units)?

Note: Evidence of an effective internal audit (or systems monitoring) function would also include a focus on high risk areas.

TBCBE

 

5.2.10

Objectives and scope of work

Do the internal audit function elaborate a multi-annual (usually 3- years) audit plan as well as annual operational plans?  How and by whom are audit subjects selected and approved?

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

5 MONITORING (cont'd) - questions / criteria

Entity comments

Auditor comments

5.2.11

Objectives and scope of work (cont'd)

Do these plans incorporate an appropriate range of audit types including compliance, financial audits, payroll audits, system including information technology audits, forensic and performance audits?

TBCBE

 

5.2.12

Objectives and scope of work

Is the internal audit operational for all activities managed by the Entity?

TBCBE

 

5.2.13

Reporting

Are internal audit reports completed and issued to a fixed schedule and are they distributed to senior management and an oversight body or audit committee as appropriate?

TBCBE

 

5.2.14

Reporting (cont'd)

Does the internal audit function present regular (i.e. monthly, quarterly) progress reports to the management of the Entity and an oversight body / audit committee as appropriate?

TBCBE

 

5.2.15

Follow up on internal audit findings and recommendations

Are findings and recommendations resulting from internal audit duly addressed (to senior management of the Entity and an oversight body / audit committee as appropriate) and resolved?

TBCBE

 

5.2.16

Follow up on internal audit findings and recommendations

Does management of the Entity respond promptly to internal audit findings?

TBCBE

 

5.2.17

Follow up on internal audit findings and recommendations

Are internal audit recommendations implemented fully and timely?

Note: Evidence of an effective internal audit (or systems monitoring) function would also include action by management on internal audit findings. This is of critical importance since lack of action on findings completely undermines the rationale for the internal audit function.

TBCBE

 

 


 

PILLAR 1 - INTERNAL CONTROL

5 MONITORING (cont'd) - questions / criteria

Entity comments

Auditor comments

5.3. Management's assertion regarding the effectiveness of the internal control system.

Does management of the Entity make an assertion regarding the effectiveness of the internal control system?

 

5.3.1

Does management include a report regarding the effectiveness of its internal control system (i.e. an internal control report) in the annual financial statements / annual report of the Entity?

If yes, review the Entity's internal control reports of the last 3 years and the independent auditor's report on management's assertion regarding the effectiveness of the internal control system.

If yes, which type of opinion (unqualified, qualified) did the external auditors express on management's assertion regarding the effectiveness of its internal control system

TBCBE

 

 


 

PILLAR 2 - ACCOUNTING

KEY QUESTION (level 1)

Auditor comments

 

Does the Entity use an accounting system that provides in all material respects accurate, complete and reliable information in a timely manner and in accordance with the criteria set by the European Commission?

 

 

Guidance

Accounting policies are the specific principles, bases, conventions, rules, and practices applied by the Entity in preparing and presenting financial statements. A reliable basis means that the Entity applies accounting policies which are relevant to the decision making needs of users; and reliable, in that the financial statements:

-     represent faithfully the financial position, financial performance, and cash flows of the Entity;

-     Reflect the economic substance of transactions, other events, and conditions and not merely the legal form;

-     are neutral, i.e. free from bias;

-     are prudent; and

-     are complete in all material respects.

 

Article 38(3) Rules of application on the financial rules applicable to the general budget of the Union (Equivalence of systems, rules and procedures in indirect management; Article 60 of the Financial Regulation)

The Commission may accept that the accounting systems and the internal control systems used by entities and persons to be entrusted with budget implementation tasks on behalf of the Commission are providing equivalent levels of protection of the financial interests of the Union and of reasonable assurance of achieving the management objectives if they comply with the principles laid down in Article 32 of the Financial Regulation.

Article 32 of the Financial Regulation is set out on pages 3 and 4 of this questionnaire (Internal Control System)

 


 

PILLAR 2 - ACCOUNTING

1 ACCOUNTING  SYSTEM AND POLICIES – questions / criteria

Entity comments

Auditor comments

1 Accounting system and policies

 

 

Key question (level 2): Does the Entity use an adequate accounting system and does it have clear and written accounting policies?

 

1.1

Does the Entity apply accounting policies which:

-   are relevant to the decision making needs of users and which provide a reliable basis for preparing the financial statements of the Entity?

-   comply with the applicable national and / or international accounting standards or accounting policies and rules prescribed by specific regulations or conventions?

 

 

1.2

Does the Entity have a manual with accounting policies and procedures including detailed descriptions of accounting procedures for the various types of financial and accounting transactions?

TBCBE

 

1.3

Does the Entity operate a double-entry bookkeeping/accounting system?

Note: A double-entry accounting system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.

TBCBE

 

1.4

Does the Entity have a chart of accounts which properly reflects its operations and activities?

TBCBE

 

1.5

Does the Entity perform regular bank reconciliations and cash book reconciliations (where applicable)?

TBCBE

 

 

 

PILLAR 2 - ACCOUNTING

1 ACCOUNTING  SYSTEM AND POLICIES (cont'd) – questions / criteria

Entity comments

Auditor comments

1.6

Does the Entity perform regular reconciliations and clearings of suspense accounts and advances? Are separate (general ledger) accounts kept for the accounting of advance and final payments for different projects?

Footnote: reliable reporting of financial information requires constant checking and verification of recording practices. This is an important part of internal control and a foundation for good quality information for management and for external reports. Timely and frequent reconciliation of data from different sources is fundamental for data reliability.

TBCBE

 

1.7

Does the accounting system allow the processing and reporting of accounting and financial information relating to specific projects, activities, (trust) funds and Financial Instruments no matter whether these are financed by the Entity itself and/or external sources (such as the EC)?

TBCBE

 

1.8

Can the Entity ensure an accounting trail for transactions (income and expenditure) relating to specific projects, activities, (trust) funds and Financial Instruments no matter whether these are financed by the Entity itself and/or external sources (such as the EC).

TBCBE

 

1.9

How are advance payments made to the Entity by external organisations (e.g. the EC) for funding of specific projects, activities, (trust) funds and Financial Instruments accounted for in the Entity’s accounting records?

TBCBE

 

1.10

Does the Entity have procedures for ‘clearing’ advances paid by the Entity to Sub-Delegatees and grant beneficiaries (e.g. are advances cleared on the basis of audit reports on the use of funds submitted by Sub-Delegatees and grant beneficiaries)?

 

 

 


 

PILLAR 2 - ACCOUNTING

2 BUDGETING  – questions / criteria

Entity comments

Auditor comments

2 Budgeting

 

 

Key question (level 2): does the Entity have a budget system and procedures which result in transparent and reliable budgets for its operations and activities?

 

2.1

Are budget procedures formalised (e.g. budget manual or circulars)?

TBCBE

 

2.2

At which intervals are budgets prepared (annual, half-yearly, quarterly)?

TBCBE

 

2.3

Who are the key actors involved with the budget process?

TBCBE

 

2.4

Which accounting and other data sources are used?

TBCBE

 

2.5

Does the Entity have an appropriate budget classification system (classification criteria could for example include: operational and capital expenditure, activity-based budgets or functional, analytical classification, classification by project / sub-project).

TBCBE

 

2.6

Do budgets provide a coherent and clear presentation of projected / estimated costs in line with the Entity's activities, operations and projects?

TBCBE

 

2.7

Are budgets transparent and comprehensive and do they properly reflect the operations of the Entity?

 

 

2.8

Are assumptions used to prepare the budgets and to compute projected and estimated expenditure plausible? Are cost allocation keys, which are applied to compute budget cost data, based on logical, consistent and plausible assumption and principles? 

 

 

 

PILLAR 2 - ACCOUNTING

2 BUDGETING  – questions / criteria

Entity comments

Auditor comments

2.9

Are budget data relevant and reliable to be of real use to the management and / or other users?

TBCBE

 

2.10

How and by whom are budgets approved?

TBCBE

 

2.11

Can the accounting system produce comprehensive reports for actual expenditure incurred in comparison to the initial budget?

TBCBE

 

2.12

Are reports stating actual total expenditure compared to the originally budgeted total expenditure prepared on a regular basis (quarterly, half yearly) and issued within a reasonable period (1 month) of end of period?

TBCBE

 

2.13

Are differences between actual expenditure and the originally budgeted expenditure examined and properly explained?

TBCBE

 

2.14

In case the composition of expenditure varies significantly from the original budget are such variances properly approved?

TBCBE

 

2.15

Do reports on budget execution also account for expenditure made from transfers to parts (e.g. offices in other locations) of the Entity which operate in a more or less autonomous / independent way from the Entity's headquarters and /or transfers made to Sub-Delegatees?

TBCBE

 

 


 

PILLAR 2 - ACCOUNTING

3 ACCOUNTING AND BUDGETING FOR SPECIFIC PROJECTS, ACTIVITIES, (TRUST) FUNDS AND FINANCIAL INSTRUMENTS- questions / criteria

Entity comments

Auditor comments

The purpose of the questions in this section is to assess whether the Entity's accounting system can produce reliable and timely reports on the use made by the Entity – and / or by Sub-Delegatees and grant beneficiaries - of funds for specific activities, projects, (trust) funds and Financial Instruments. The users of these reports are the Entity's management and / or external parties which have provided funding (such as the EC).

3 Accounting and budgeting for projects, activities, (trust) funds and Financial Instruments

 

 

Key question (level 2): does the Entity have accounting and budgeting procedures which allow adequate and timely reporting to donors / fund providers (including the EC) on the use of funds provided by them for projects, activities, (trust) funds and Financial Instruments?

 

3.1

Does the Entity have an accounting system and procedures which allow generating relevant and reliable information for preparing reports (with financial and qualitative information) on activities, projects, (trust) funds and Financial Instruments financed by the EU or other donors?

TBCBE

 

3.2

Does the accounting system of the Entity allow the generation of financial reports for specific activities, projects, (trust) funds and Financial Instruments or generation of aggregate accounting data which can be directly used to compile financial reports?

TBCBE

 

Guidance

An Entity’s information system typically includes the use of standard journal entries that are required on a recurring basis to record transactions. Examples might be journal entries to record salary costs in the general ledger.

An Entity’s financial reporting process also includes the use of non-standard journal entries to record non-recurring, unusual transactions or adjustments. These may be necessary to account for cost items (including allocation of costs) relating to a specific project which are not covered by standard accounting procedures and journal entries.  In manual general ledger systems, non-standard journal entries may be identified through inspection of ledgers, journals, and supporting documentation.

 

 

 

PILLAR 2 - ACCOUNTING

3 ACCOUNTING AND BUDGETING FOR SPECIFIC PROJECTS, ACTIVITIES, (TRUST) FUNDS AND FINANCIAL INSTRUMENTS- questions / criteria

Entity comments

Auditor comments

3.3

To which extent does the Entity need to make additional journal entries, adjusting entries and /or other manual processing and manipulation of financial and cost data to prepare complete and reliable reports?

TBCBE

 

3.4

To which extend does the Entity use intermediate and / or (cost) allocation tables tracking the financial information presented in project specific information to the Entity's general ledger accounts and/or costing accounts

TBCBE

 

3.5

To which extent does the Entity make use of additional software (e.g. spread sheet applications like MS Excel) outside the Entity's regular accounting software to produce financial reports?

TBCBE

 

3.6

Obtain a sufficient understanding of how financial information (i.e. expenditure) for projects is accounted for in the Entity's accounting system (i.e. key assumptions, allocation principles) and how this information has been extracted and included (automatically/manual adjustments) in the financial reports.

TBCBE

 

3.7

Does the Entity have a budgeting system and procedures which allow generating relevant and reliable information for preparing budgets on activities, projects, (trust) funds and Financial Instruments?

Note: in principle the same questions apply as for the Entity's general budget process.

TBCBE

 

 

PFM

 

We, representatives of partner countries, multilateral and bilateral development organizations, parliaments and civil societ note that strengthening Public Financial Management (PFM) is essential for effective and sustainable economic management and public service delivery. We recognize that weak PFM systems can be detrimental to development outcomes. States can only be effective and accountable when they are underpinned by good PFM institutions and systems.

We urge Partner Countries to be ambitious in strengthening their PFM systems through credible reform programmes. We call on Development Partners to deliver important commitments made in Paris and in Accra on the need to increase the amount of external assistance that flows through a country’s PFM system- not as an end in itself- but as part of efforts to improve implementation of public policy and its results for sustainable development.

The Manila Consensus on Public Financial Management is not a ‘new recipe’ on PFM, but rather both a recognition and a deepening of efforts to strengthen and use country PFM systems. Recognising that: (i) more needs to be done at country level to support and strengthen PFM as an essential component of better economic governance; and (ii) international fora can assist in providing a peer review mechanism as well as a platform for knowledge sharing on strengthening and using country PFM systems, we propose the following for Busan and beyond:

I.We call on Partner Countries to demonstrate their political commitment to strengthening PFM through a credible reform programme, to ensure independent and well-resourced oversight institutions, and to increase transparency for better accountability to the public including through CSOs for all public resources, not only aid.

II.We call on Development Partners to honour their political commitment, in coordination with Partner Countries, to support capacity development in PFM and domestic revenue mobilisation and progressively increase their use of components of PFM systems for all aid modalities in order to contribute to achieving poverty alleviation.

III.We recognize the opportunity for Climate Change Finance to utilize country systems to the extent possible.

IV.We urge Development Partners to harmonise fiduciary and other risk assessments based on existing PFM assessment tools.

V.We urge Partner Countries and Development Partners to better define and monitor the outcomes of PFM reform programmes and PFM system use by Development Partners and to communicate to their respective publics these benefits for sustainable development outcomes.

VI.We recognize the need to review the monitoring frameworks on the strengthening and use of country systems at country level, including capturing partial use of country systems, and results from diagnostics which were not available at the time of the Paris Declaration (namely, PEFA).

In implementing these commitments, at country level, we call on Partner Countries and Development Partners, together, to strengthen policy dialogue and elaborate specific and actionable implementation plans to address the strengthening and use of country PFM systems in a co-ordinated and sustainable manner over the medium to long term. At international level, we recommend that a knowledge sharing and peer review platform on PFM be sustained and appropriate mechanisms developed in that regard post-HLF-4.

We support and encourage all development actors to base their activities and actions on the recommendations elaborated in Manila based on the work undertaken in the Task Force on Public Financial Management (2009-2011) – and as outlined in the following Annex to the ‘Manila Consensus’.

 Introduction

PFM institutions and systems cover all phases of the public resource management cycle for good financial governance. PFM underpins fiscal and macro-economic stability, guides the allocation of public resources to national priorities, supports the efficient delivery of services, and makes possible the transparency and scrutiny of public funds. Support to strengthening PFM systems must take into account different country contexts and policy spaces.

Using country PFM systems can provide additional incentives and momentum towards better development outcomes by developing national capacity and performance, by strengthening the country’s own systems in a more sustainable manner, reducing transaction costs in managing aid, fostering improved transparency and accountability, and bolstering domestic accountabilities between the Ministry of Finance, sector ministries, Parliament, the Supreme Audit Institution and citizens, at central and local levels.

In order to accelerate and sustain achievements so far, the following principles draw on recommendations from the Guidance developed by the Task Force on PFM and call Ministers and Heads of Organizations to make efforts to undertake the following:

1. Strengthen Public Financial Management as a tool for Good Financial Governance

Good Financial Governance is the responsive, prudent, effective, transparent and accountable management of public financial resources and requires robust budget and financial management, audit and oversight institutions that operate within the rule of law. In order to achieve Good Financial Governance, countries should lead efforts to design and implement PFM reforms, with particular attention to sequencing frameworks that consider prioritizing actions and change management principles; taking into context existing capacities in determining the scope, order and timetable for reform efforts; and recognising the role of political and not only technical factors.

There is a need to link more closely public expenditure with the revenue side of the budget (especially taxation). Better resource mobilization can create a culture of government accountability to the citizen-taxpayer, diversify and make more effective public finance, enable long-term financial commitments to citizens, and reduce dependence on aid flows.

In supporting capacity development for PFM reforms, Development Partners should respect country leadership and ownership and place government priorities on PFM at the centre of decision-making processes. Technical assistance aimed at strengthening financial management needs to reflect local context and capacity, be transparently sourced, and where possible managed by partner countries. Development Partners should provide their support in a coherent, coordinated and programmatic manner.

Both countries and development partners should ensure that national-level PFM reforms are followed through to the sector and local government levels and that their feedback contributes to improvement in these reforms.

Countries should institute national institutional mechanisms to learn from good practices of PFM reforms and manage knowledge on how to sustain reforms.

Recognising that strengthening components of Public Financial Management in fragile situations can be a powerful tool for economic growth, efforts should also focus on finding practical and innovative solutions to strengthening PFM systems in Fragile States.

2. Enhancing Skills to Achieve Better Public Financial Management

Countries should build and maintain competent managerial and technical staff capacities, including but not limited to professional accountants and auditors, with the knowledge and skills to sustain PFM reforms at different levels of government including at sector level. In accordance with each country context, the relevant professional bodies should play an important role in the development of competent professionals with the knowledge and skills to contribute to strong financial management, the production of high quality financial information, and the audit of this information.5 Recognising labour market forces and institutional weaknesses can be barriers to developing and sustaining PFM capacity, Development Partners should strive to support country requests for greater professionalization, building and maintenance of skills needed for sustainable PFM. Development Partners should also ensure sustainability of staffing by establishing some targets for permanent staff in government integrated Project Implementation Units (PIUs).

Both countries and Development Partners should recognize weak capacity and the need to link PFM strengthening to broader public administration and civil service reforms for example by recognizing the important role played by middle management. Skills beyond traditional financial management should also be increased- such as management, strategic planning, ethics and general public administration.

Development Partners should recognise that supporting the strengthening of PFM systems and integrating aid within those systems requires the right skill mix and staffing profile in development partner country offices; building capacity of staff through adequate training on partner country PFM systems and use of country systems; and development of manuals and staff guidance material.

3. Strengthen Fiscal Transparency

Countries, with support from Development Partners, should improve fiscal transparency through mechanisms to ensure that meaningful public budget and financial information at different stages of the budget cycle is accessible to the public, with due attention to quality, usefulness, accessibility and timeliness6 . In order to support country efforts to plan budgets and activities as well as to strengthen budget transparency, Development Partners should channel their resources through country PFM systems as a first option or alternatively provide reliable, timely and accessible information on ODA forecasts and actual disbursements to help partner countries reflect aid on plan, on budget, on parliament, on account and on report. Development Partners should ensure all aid is transparent (not only that which goes through a country’s systems). We also recognize that mechanisms need to be in place and Development Partners should support initiatives aimed at improving the public’s ability to access and interpret budget and financial information.

4. Improve Accountability through Oversight

Countries and their Development Partners should together make efforts to use aid as a catalyst to strengthen the ability of country oversight institutions, and Civil Society Organisations (CSOs), to engage in the budgetary process by enhancing their oversight capacity over not only aid but all public resources.

Legislators are urged to take on a proactive role in participating in discussions around strengthening and using national PFM systems. Development Partner support to parliamentary oversight should be better coordinated and provided on the basis of the legislatures’ own strategic and capacity development plans and through donor and partner country legislative dialogue. Development Partners should also contribute to the strengthening of supreme audit institutions on the basis of solid strategic planning and audit standards.7 Information gathering of evidence (statistics) and sharing (through CSOs) can have a significant impact on incentives for more transparent and accountable government.

Better integration of aid flows with national processes offers the opportunity for strengthened scrutiny by Parliament and Supreme Audit institutions (SAIs). Development Partners should ensure that aid flows and their use are accessible to the legislature and SAIs to allow for oversight over those funds and strengthen CSO capacity to engage in a dialogue on how aid is spent.

The quality of parliamentary and SAI involvement is an important factor in building donor trust- an essential element in allowing more aid to use country systems. Development partners should pay attention to their findings, including for their own funded programmes and to the extent possible also use SAIs to audit donor funds.

Recognising that building effective states requires an inclusive approach, countries and Development Partners should work together to train members of parliament and CSOs to access and use the technical content of budget and financial reports issued by the executive and audit reports produced by Supreme Audit Institutions.

5. Assess and Use Country Systems for Sustainable Development

In line with the commitments in the Accra Agenda for Action, donors should use country PFM systems as the first option for aid programmes in support of activities managed by the public sector. We recognize that there are significant and documented benefits to the strengthening of country systems when donors use them. The use of country PFM systems is not an "all or nothing" approach, but can be increased gradually in coordination with partner countries. The ‘use of country PFM systems’ is not limited to a specific aid modality and equally applies to project support. When Development Partners support the strengthening of country systems, they should foster the use of those systems for the delivery of their aid programmes. We call on countries and development partners to continue to monitor the use of country systems for various aid modalities and instruments. We commend government efforts to build capacity and take leadership over Project Implementation Units.

As committed to in the Accra Agenda for Action, Development Partners should transparently state the reasons for not using country systems when that is the option adopted. Recognising that fiduciary risk management is a major factor for most development partners and deserves attention, we underline the importance of assessing the opportunity of use of country systems through a more comprehensive risk/benefit analysis and an assessment of impact on sustainability. When supplemental features and safeguards are introduced to satisfy the fiduciary risk or information requirements of donors, these measures should not impose high transaction costs and should be designed in a manner that build upon rather than undermine the country systems and procedures.

While recognizing that Development Partners have different risk appetites, we note that there is further scope to collaborate on the significant number of fiduciary risk reviews and risk assessments through sharing findings, data gathering and the coordination of assessment missions. Joint country level planning of coordinated assistance strategies may present potential openings for joint assessments of country PFM systems and capacity, and we call on Development Partners to utilize such openings for coordinated assessments whenever possible. We call on countries to establish a coherent, integrated medium term strategy of diagnostic instruments which can be used and supported by its development partners.

6. Advocate for Public Finance as a core element of a more Effective State

We recognize the importance of communicating the benefits of stronger Public Financial Management as a core component of an Effective State. As such, we recommend that countries improve the awareness of all stakeholders including sector ministries, local government, legislatures, and civil society around the need and impact of stronger PFM for economic development. At country level, we urge countries and Development Partners to improve the awareness of the vast array of existing efforts to strengthen the components of PFM systems as well as existing diagnostic tools and fiduciary instruments.

We urge donor institutions to also communicate with their parliaments and accountability institutions and in particular around definitions of risks and expected benefits as well as developmental risks of not using country PFM systems. Donor institutions should support inter-parliamentary dialogue on priorities and monitoring of expenditures, in the interest of increased ownership, transparency and accountability.

The current debate on development cooperation is shifting focus: we are now moving from a discussion about process and mechanisms to results (from more effective aid (using country systems) to more effective institutions and policies underpinned by good country systems). As such, linking commitments on use of country systems to strengthening PFM systems and better service delivery sits at the crossroads of the more traditional –yet still relevant- aid effectiveness debate and future country-led development effectiveness commitments. The Manila Consensus on PFM and the above principles aim to contribute to the current debate and to provide impetus to future commitments in this area.

 


...services to all businesses including major Fortune 500 organizations.

Office:  +995 599 060622