ANNOUNCEMENT FOR AUDIT SERVICES

Term of Reference for external Audit services for Diakonie Katastrophenhilfe Regional office in Nairobi Date: 07.10.2024

Diakonie Katastrophenhilfe (DKH) East and Southern Africa Regional Office- Nairobi

1. BACKGROUND

Diakonie Katastrophenhilfe is the humanitarian assistance agency of the Protestant Churches in Germany with headquarters in Berlin and legally part of the Evangelisches Werk für Diakonie und Entwicklung (Protestant Agency for Diakonie and Development). The regional office of the East and Southern Africa region (DKH ESA Regional office) is domiciled in Kenya, registered as Diakonie Emergency Aid. The office is seeking to enlist the services of an external auditor to conduct an institutional audit of the Nairobi office for the years 2024, 2025 and 2026.

2.OBJECTIVE OF THE PROJECT AUDIT

The objective of the audit of the Project Financial Statements (PFSs) / institutional financial statements is to enable the auditor to express a professional opinion(s) on the financial position of the project / the office at the end of each fiscal year, on funds received and expenditures incurred for the relevant accounting period.

The auditor would carry out the institutional audit in accordance with the International Standards on Auditing (ISA), the International Standard on Assurance Engagements (ISAE) 3000 and the International Standard on Quality Control (ISQC), all in their most recent version. As part of the audit process, the auditor may request from DKH written confirmation concerning statements made in connection with the audit “Engagement Letter “.

3. PREPARATION OF ANNUAL FINANCIAL STATEMENTS

The responsibility for the financial statements including adequate disclosure of the DKH ESA Regional office lies with the office representative. The representative of the office is also responsible for the application of accounting policies in accordance with international financial reporting standards.

The project books of accounts provide the basis for preparation of the PFSs by the auditor and are established to reflect the financial transactions in respect of the project. The representative of the office maintains adequate internal controls and supporting documentation for transactions.

The representative of the regional office is responsible for ensuring the maintenance of proper accounting records in accordance with the generally accepted accounting principle as well as requirements of the DKH Regional Office. They are also responsible for the submission of all the accounting records related to the projects and all other relevant records (e.g. progress reports) and related information to the auditors according to time frame agreed with the auditor that allows smooth audit assignment.

4. SCOPE OF THE AUDIT

The Auditor designs and carries out the audit in accordance with the objective and scope of this engagement and the procedures. The Auditor may apply techniques such as inquiry and analysis, (re)computation, comparison, other clerical accuracy checks, observation, inspection of records and documents, inspection of assets, obtaining confirmations or any others deemed necessary in carrying out these procedures.

The auditor obtains sufficient appropriate verification evidence from these procedures to be able to draw up a report of factual findings.

The audit of the project(s) will include such tests and auditing procedures as the auditor will consider necessary under the circumstances. Special attention should be paid by the auditor as to whether:

a.) all applicable relevant Diakonie Katastrophenhilfe (DKH) rules and regulations and contractual engagements have been adhered to. These include the:

• Cooperation Agreement.
• Administrative Procedures.
• DKH Standards for reporting.
• Approved budget (cost Plan).

b.) funds have been provided and used in accordance with the relevant financing agreements, with due attention to economy and efficiency, and only for the purposes for which they were provided.

c.) goods, works and services financed have been procured in accordance with the relevant financing agreements, including specific provisions of DKH Regional Office Accounting, Procurement Policies and Procedures;

d.) all necessary supporting documents, records, and accounts have been maintained in respect of all project activities, including expenditures reported using Statements of Expenditure (SOE). The auditor is expected to verify that respective reports issued during the period were in agreement with the underlying books of account.

e.) Designated Accounts have been maintained in accordance with the provisions of the relevant financing agreements and funds disbursed out of the Accounts were used only for the purpose intended in the financing agreement.

f.) National laws and regulations have been complied with, and that the financial and accounting procedures approved for the project (e.g. financial procedures manual, etc.) were followed and used.

e.) Assets procured from project funds exist and there is verifiable ownership by DKH.

In complying with International Standards on Auditing, the auditor is expected to pay particular attention to the following matters:

1. Fraud and Corruption: Consider the risks of material misstatements in the financial statements due to fraud as required by ISA 240: The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements. The auditor is required to identify and assess these risks (of material misstatement of the financial statements) due to fraud, obtain sufficient appropriate audit evidence about the assessed risks; and respond appropriately to identified or suspected fraud.
2. Laws and Regulations: In designing and performing audit procedures, evaluating and reporting the results, consider that noncompliance by the DKH office with laws and regulations may materially affect the financial statements as required by ISA 250: Consideration of Laws and Regulations in an Audit of Financial Statements;
3. Governance: Communicate audit matters of governance interest arising from the audit of financial statements with those charged with governance of an entity as required by International Standards on Auditing 260: Communication of Audit Matters with those Charged with Governance:
4. Risks: In order to reduce audit risk to an acceptable low level, determine the overall responses to assessed risks at the financial statement level, and design and perform further audit procedures to respond to assessed risks at the assertion level as required by Internal Standard on Auditing 330: the Auditor’s Procedures in Response to Assessed Risks.
5. Advances**:** Travel advances and personal advances to local staff and expatriate staff

5. FINANCIAL STATEMENTS (FSs)

The auditor will prepare the financial statements in accordance with the international accounting standards and give a true and fair view of the financial position of the projects at the relevant date and of resources and expenditures for the financial year ended on that date

The Project Financial Statements (PFSs) should include:

1. A statement of funds received, showing funds received from the DKH Head Office in local and foreign currencies.
2. A statement of Expenditures (SOEs).
3. A Balance Sheet.
4. A cash flow statement.
5. A summary of the principal accounting policies that have been adopted, and other explanatory notes.
6. A list of material assets acquired or procured to date with project funds.
7. Table of project balances

As an Annex to the PFSs, the auditor should prepare a reconciliation of the amounts as “received by the Projects”, with those shown as being disbursed by the Bank (Balance on Hand).

6. STATEMENT OF EXPENDITURES (SOEs) / JOURNAL LISTING

1. The appropriate exchange rates are used, based on the DKH regional office (RO) financial policy if applicable;
2. The Exchange Rates Table includes the organization’s calculation methods for exchange rates;
3. The exchange rates in the Exchange Rates Table are the same as those used in the journal listing;
4. The columns in the voucher lists are filled with all the necessary details required;
5. In principle, all inspected documents have to be the original copies. Especially, proofs of payments are to be checked;
6. The items registered as capital assets correspond to those recorded in the inventory listing;
7. Examine, on a test basis, that there is supporting documentation related to reported expenditure. The size of the test shall be based on the auditor’s risk analysis, which should be stated in the report. The auditor shall report the identified amount in case there is any missing supporting documentation;
8. Follow up whether salary costs debited to the project are recorded throughout the duration of the year in a systemized way and examine whether the salary costs can be verified by sufficient supporting documentation;
9. Examine DKH compliance with rules and regulations with regard to applicable local taxes and social security fees;
10. Follow up whether DKH has adhered to DKH HQ Financial & procurement guidelines if applicable ;
11. The total withdrawals under the SOE should be part of the overall reconciliation of Bank disbursements;
12. The auditor should examine the eligibility of financial transactions during the period under examination and fund balances at the end of such a period;
13. The adequacy of internal controls for this type of disbursement mechanism;
14. The operation and use of the designated fund in accordance with the financing agreement;

7. DESIGNATED ACCOUNT

In conjunction with the audit of the FSs, the auditor is also required to review the activities of the Designated Account associated with the projects if any. The Designated Account usually comprises:

1. Income received from DKH Head office;
2. Interest that may have been earned on the accounts;
3. Withdrawals related to project expenditures;
4. Transfers from and to other projects
5. Account balances at the end of such a period.
6. Bank Charges

The table “project balances”, see Annex 1, is an obligatory part of the audit report

8. AUDIT REPORT

The auditor will issue an opinion on the financial statements (PFSs). The annual audit report of the project accounts should include a separate paragraph highlighting key internal control weaknesses and non-compliance with the financing agreement terms.

The addressee of the audit report is the authorized representative of the Office in this case, the regional director.

The following documents have to be delivered by the auditors:

• Auditor’s report/opinion including a compliance statement in respect of the DKH funds;
• Audited financial statement(s) of the project(s) under consideration (balance sheet, income and expenditure account of the project holder, receipt and payment account / cash flow statement of the project including opening and closing balances of funds and a plan-actual comparison / variance report with the approved budget);
• Management Letter (including comments on the implementation of previous year’s recommendations and new recommendations);
• Notes to the accounts (if relevant in the given context of the project):

1. list of income/receipts according to origin/source;
2. foreign currency transactions (incl. examination of exchange transactions);
3. list of all bank accounts in the country;
4. list and explanations of debts / accounts receivable related to debtors, amount, reason and time of emergence;
5. list and explanation of liabilities related to creditors, amount, reason and time of emergence;
6. statement on assets, in particular evidence of new acquisitions and the compliance with the DKH approval, if applicable;
7. legal claims of staff to severance pay and retirement pensions.
8. Advances to local and expatriate staff
9. Unspent balances per project per end of period (see annex 1)

9. MANAGEMENT LETTER

In addition to the audit report, the auditor will prepare a management letter, in which the auditor will:

1. Give comments and observations on the accounting records, systems and controls that were examined during the course of the audit;
2. Identify specific deficiencies or areas of weakness in systems and controls, and make recommendations for their improvement;
3. Report on the degree of compliance in the financing agreement and give comments, if any, on internal and external matters affecting such compliance;
4. Communicate matters that have come to his/her attention during the audit which might have a significant impact on the implementation of the project;
5. Give comments on the extent to which outstanding issues/qualifications issues have been addressed;
6. Give comments on previous audits’ recommendations that have not been satisfactorily implemented; and
7. Bring to the recipient’s attention any other matters that the auditor considers pertinent.

Ideally, the management letter should also include responses from the Office to the issues highlighted by the auditor.

10. AVAILABLE INFORMATION

The auditor should have access to all legal documents, correspondences, and any other information associated with the project(s) and deemed necessary by the auditor. The auditor will also obtain confirmation of amounts disbursed and outstanding at the Bank. Available information should include copies of the relevant: project appraisal document; financing agreement; financial management assessment reports; supervision mission reports and implementation status reports.

11. TIME FRAME AND DELIVERABLES

• The consolidated financial reports and accounting records under consideration must be made available to the auditors before the audit starting date.
• The auditing process shall be completed within 4 weeks.
• Two copies of the audited financial statements including the audit report, management letter and management response should be received by the audited DKH office no later than one week after completion of the audit.
• If there is any reason for a delay, this has to be communicated directly to the audited DKH office by either party (with copies of the correspondence to the other concerned party).

12. LANGUAGE

Audit report, Management letter and other communication shall be in English

13. FEES

The fees are computed on the basis of the actual time spent on auditing affairs and on the levels of skill and responsibility of staff involved. Unless otherwise agreed, the fees will be billed upon delivery of the documents listed under paragraphs 8 & 9 above and will be payable on presentation of the invoice. Diakonie Katastrophenhilfe reserves the right to reduce the fees in case of considerable delays caused by the auditing company regarding the agreed time frame.

14. OTHERS

Technical offers of more than 50 pages will not be accepted.

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