2.0 OBJECTIVES OF THE AUDIT
The audit exercise is expected to cover all program activities during the period:
For the TAAT II program from January 1, 2026 to December 31 2026 and the No Cost Extension (NCE) period to 31 March 2027, and attention must be paid by the auditors to the following in carrying out the audit:
1)
Report on the project achievements/outputs for each agency involved in the implementation of the projects, including through site visits;
2)
Undertake a comprehensive verification of the project’s assets as part of the audit.
3)
Ensure a comprehensive procurement review is done.
In conducting an audit of financial statements, the overall objectives of the auditor are:
a) To obtain reasonable assurance as to whether the financial statements are free from material mis-statement, whether due to fraud or error. The conduct of an audit allows the auditor to express an opinion on whether the financial statements are prepared in all material respects, in accordance with an applicable financial reporting framework.
b) To provide reasonable assurance that the project books of accounts provide the basis for preparation of the Project Financial Statements (PFSs) by the Project/Program Implementing Unit (PIU) and are established to reflect the financial transactions in respect of the project and that the PIU maintained adequate internal controls and supporting documentation for transactions.
c) To enable the auditors to express an independent professional opinion on the financial position of the Project, to assure that the Project funds have been used for their intended purposes and in accordance with the provisions of the Loan/Grant Agreement(s).
d) To obtain reasonable assurance about the achievement of project/program objectives by matching project/programs physical outputs and achievements to funds disbursed and the timing of the flows. The project/program technical report provides sufficient information and data to enable users to fully appreciate project/program achievements; and
e) To report on the financial statements and communicate as required by auditing standards in accordance with the auditor’s findings.
3.0 STAKEHOLDERS RESPONSIBILITIES
3.1 Project Management: The responsibility for the preparation of PFSs, including appropriate disclosure and project/program technical progress report lies with the Project/program Executing Agency. The PMU Management is responsible for:
a) The selection and application of the financial reporting framework in the preparation of the financial statements, which could be either the International Public Sector Accounting Standards (IPSASs), the International Financial Reporting Standards (IFRS), or National Accounting Standards;
b) Implementing internal control procedures that enable the preparation of financial statements that are free from material misstatement whether due to fraud or error;
c) Implementing technical project/program activities and preparing project/program technical progress reports; and
d) Providing the auditor with:
· Access to all information relevant to the preparation of the financial statements such as records, documentation and other matters;
· Additional information that the auditor may request from management for the purpose of the audit;
· Access to all project/program implementation sites for physical inspection and appreciation of project/program progress and
· Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence
3.2 Auditors: The auditors are responsible for formulation and expression of opinion on the PFSs.
a) The auditors would conduct the audit of the project in accordance with International Standards on Auditing (ISA) as promulgated by the International Auditing and Assurance Standards Board (IAASB), or International Standards of Supreme Audit Institutions (ISSAIs) issued by the International Organization of Supreme Audit Institutions (INTOSAI) or National Auditing Standards when these have been found to be acceptable to the Bank.
b) In accordance with these standards, auditors would request the Executing Agency for a written confirmation concerning representation made in connection with the audit including maintenance of proper internal control systems for the project/program, as well as acceptable documentation for all financial transactions, and the preparation of the applicable PFSs.
4.1 The audit will be carried out in accordance with the Standards specified in 3.2 above. It will include such tests and controls as the auditors consider necessary under the circumstances.
4.2 To demonstrate compliance with the agreed project/program financial management arrangements and requirements, the auditor is expected to carry out tests to confirm that:
a) All funds including counterpart funds and other external funds (in case of co-financing) have been used in accordance with the conditions of the financing agreement(s), with due attention to economy and efficiency and only for the purposes for which the funds were provided.
b) Goods, Works and Services financed have been procured in accordance with relevant financing agreement(s) and have been properly accounted for ;
c) All appropriate supporting documents, records and accounts relating to all project/program activities have been kept. The auditor is expected to verify that all reports prepared and issued during the period agreed with the underlying books of accounts;
d) Special accounts (SA) (if used) have been maintained in accordance with the provisions of the relevant financing agreements and in accordance with the Bank’s disbursement rules and procedures; and funds disbursed out of the SAs were used for the intended purpose as specified in the financing agreement (s);
e) The financial statements have been prepared and approved by project/program management in accordance with applicable financial reporting framework;
f) National laws and regulations (including country PFM systems) have been complied with, and that the financial and accounting procedures approved for the project (including accounting and procedures manual etc.) were followed and used;
g) Project/program’s fixed assets are real and properly valuated and project/program property rights or related beneficiaries’ rights are established in accordance with grant conditions;
h) Ineligible expenditures have been properly identified and reimbursed or refunded to the SA
i) Project/program physical progress is: (i) consistent with funds disbursed, (ii) technically in conformity with project/program designs and (iii) adhering, as far as possible, with project/program time estimates.
j) Determine if beneficiaries have received the benefit of payments made from the SA in respect of goods purchased, works delivered and services provided.
4.3 The assessment of internal control should include:
a) Testing the effectiveness of controls with regards to payments for goods, works and services for the period reviewed, based on a representative sample;
b) Testing the effectiveness of controls with regards to the procurement processes of the project/program based on a representative sample;
c) Testing the effectiveness of controls (including existence of adequate security, e.g. insurance etc.) over assets financed by the project/program and ensuring these assets are being used for the intended purposes;
d) Testing the effectiveness of good practice in the use of project/program fixed assets and other resources;
4.4 In complying with International Standards on Auditing, the auditors shall pay attention to the following:
a) Fraud and Corruption: In accordance with ISA 240 (The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements ) the auditors shall identify and evaluate risks related to fraud, obtain or provide sufficient evidence of analysis of these risks and assess properly the risks identified or suspected.
b) Laws and Regulations: In preparing the audit approach and in executing the audit procedures, the auditor shall evaluate the compliance with the provisions of laws and regulations that might affect significantly the PFSs as required by ISA 250 (Considerations of Laws and Regulations in an Audit of Financial Statements). In this context he will inquire from management whether the entity is the subject of any legal actions threatened, pending or in process; and assess the effect thereof on the financial statements and program/project resources and development objectives.
c) Governance: Communicate with the Management responsible for Governance regarding significant audit issues related to governance in accordance with ISA 260: (Communication with those charged with Governance); and
d) Risks: With a view to reducing audit risks to a relatively low level, the auditors will apply appropriate audit procedures and address anomalies/risks identified during their assessment. This is in accordance with ISA 330 (The Auditor’s Responses to Assessed Risks).
5.1 The auditor shall verify that the PFSs have been prepared in accordance with agreed accounting standards (refer to paragraph 3.2 above) and give a true and fair view of the financial position of the project at the relevant date.
5.2 For financial reporting purposes, the auditor shall verify and ensure the PFSs have been presented using the Borrower’s functional currency. Where functional currency is not used for the purpose of PFSs presentation, full exchange translation is required. The auditor shall obtain from management the rationale and justification for use of a presentation currency different from the functional currency.
5.3 The project/program financial statements will be prepared by project/program management in accordance with the applicable financial reporting framework and shall include:
a) Statement of Financial Position showing accumulated funds of the project/program, bank balances and other assets and liabilities of the project/program as at the close of each fiscal year;
b) Statement of Income and Expenditure (for revenue earning entities) or Statement of Receipts and Payments (for non-revenue earning project/programs)[1];
c) Cash Flow Statement that should disclose the cash flows during each fiscal year;
d) Notes to the Financial Statements describing the applicable accounting principles in place and a detailed analysis of the main accounts.
5.4 As an annex to the financial statements mentioned above, the report shall include:
a) A reconciliation between the amount shown as “received from the Bank” and that shown as having been disbursed by the Bank. The reconciliation should indicate the methods used for disbursement, i.e. SA, direct payment, reimbursement guarantee or reimbursement methods matching the disbursement methods with those recommended in the appraisal report and the disbursement letter.
b) A reconciliation statement for the SA shows amount received from the Bank, amount justified to the Bank, ineligible expenses made, amount to be justified, and bank balance. For the final audit, the project shall attach the SA reconciliation statement using the format contained in annex 12 of the Bank’s Disbursement Handbook.
c) An extract of the fixed asset register showing a comprehensive list of all fixed assets purchased to date using project/program funds. The list should include details such as; date of purchased, acquisition cost, unique identification marks/labels, asset location, date verified, asset condition and any other remarks.
6.0 SPECIAL ACCOUNTS AND OTHER PROJECT/PROGRAM BANKS ACCOUNTS
6.1 The auditor shall review and examine all documents relating to the use of the SAs to ensure:
a) All Statements of Expenditures (SOE) and reconciliation statement of SA submitted in support of SA replenishments are consistent with the supporting documentation.
b) The internal control governing the use of SA is adequate and could be relied upon to justify continuous requests for replenishment.
c) For each audit engagement, based on the outstanding balance reported by the Bank at the end of the financial year, the borrower will avail to the auditor, corresponding SOE justifying use of the amount unjustified in AfDB Books, for the audit in question.
d) The auditor is required to review specific SOE, reconciliation statement of SA and the related supporting documents and report on its accuracy and objectivity in the Management Letter. Any discrepancy – if material will be reported likewise in the Management Letter.
e) Any inter-account funds transfers between the SA and other project bank accounts on one hand; and between all project bank accounts (including SA) and other non-project accounts during the financial year are justified.
f) For last audit engagement, determine whether all SA liquidation procedures have been complied with including submission of all SOEs covering use of SA resources, transfer of unutilized SA balances and closure of SA, and final reconciliation statement of SA as an annex to the report, using the format contained in annex 12 of the Bank’s Disbursement Handbook.
6.2 Counterpart contribution: The auditor shall review counterpart contribution to ensure;
a) Agreed cash contributions were budgeted in the central government annual budget and released on time to the project/program.
b) Ensure all counterpart funds have been used for the purpose of the project/program
c) Adequate basis exists for valuation of In-kind counterpart contribution for inclusion into the financial statements.
7.1 The audit procedures applied to the review of procurement shall include the examining of the following:
a) Compliance with the provisions of the Grant Agreement with regards to (i) mode of procurement; (ii) standard procurement documents; and (iii) the tendering processes;
b) Clarity and transparency in: (i) the evaluation of bids for the procurement of goods and works; (ii) the evaluation of consultancy proposals; (iii) the criteria and their application for the procurement of goods, works and selection of consultants; and
c) Conformity of the final contract with the approval of tender documents, with respect to the validity of any modifications and other changes made to the original contract during its execution (contract addenda).
7.2 The audit work also included the following aspects about the procurement processes
a) Procedures of publicity and their validity;
b) The bidding documents;
c) The bids/proposals opening procedures;
d) The evaluation of bids/proposals and the endorsement of the contracts; and
e) Any complaints from bidders or other concerned parties.
8.1 In accordance with ISA 620[2], the auditor shall review the physical progress of the project/program to
a) The achievements described in technical progress reports physically exist and adhere to required and agreed upon technical specifications;
b) The costs of the activities are in line with the project/program cost estimates in the project document(s);
c) project/programmed completion times are in line with the agreed life of project/program.
9.1 The audit report will comprise (i) A Report on the Financial Statements, and (ii) A Management Letter
a) The report on the financial statements will comprise:
· The auditor’s opinion on the consolidated program financial statements and each separate financial statement for each of the implementing agencies in the respective country, and
· A complete set of program’s consolidated and separate financial statements for each of the agencies implementing in the respective country and other relevant statements as indicated in section 5.3 above.
· In addition, the auditor will express separate audit opinion on the movement of the SAs and the Statements of Expenditures submitted to the Bank for replenishment of the main SA and also for each of the accounts for the implementing agencies in the respective countries.
b) In addition to the report on the financial statements, the auditor will also report on, but not limited to, the following, in the management letter:
· Give comments and observations on the accounting records, procedures, systems and controls that were examined during the course of the audit;
· Identify specific deficiencies and areas of weakness in systems and controls and make recommendations for improvement;
· Report on the degree of compliance with each of the financial covenants in the Loan/Grant agreement and give comments, if any, on internal and external matters affecting such compliance;
· Quantify the materiality and report on expenditures that are considered ineligible and were either paid out of the SA (s) or claimed from the Bank by the Borrower;
· Report on the pace of project/program progress and provide appropriate comments, if any, on internal and external factors affecting project/program implementation and achievement of expected results;
· Report on the quality of project/program achievements (general adherence to specifications and expectations) and provide comments and recommendations, if any, on ways to improve performance;
· Report on implementation progress in line with the life of the project/program and provide comments, if any, on internal and external factors affecting the likely completion of the project/program;
· Report on existence of project assets (including vehicles) verified through site visits, evidenced with photographs in the auditors’ management letter. The auditor shall confirm assets (including vehicles) are labelled and used only for project activities, and their movement and usage (particularly vehicles) are closely monitored and evaluated through the use of comprehensive vehicle log registers.
· Report on the effectiveness in management of the SAs (including strict adherence to requirements of the disbursement handbook etc.). For specific case of the last project audit, indicate the status of and actions taken by project/program management to clear all outstanding unjustified SA balances, as well as closure of the SA and transfer of any unutilized balances to the Bank.
· Communicate matters that have come to their attention during the audit which might have a significant impact on the implementation and sustainability of the project/program; and
· Bring to the borrower’s attention any other matters that the auditor considers pertinent.
9.2 The management letter will include reactions/comments from Project/program Management Team on the recommendations and weaknesses noted by the auditor.