Audit Service — Consultancy for Mid-term Expenditure Verification

Funded by the European Union Emergency Trust Fund (EUTF) for Africa, the German Red Cross (GRC) is implementing through the Egypt Red Cross (ERC) health and livelihood projects in Cairo, Egypt. The Action aims to improve the access and to eliminate the physical, social and financial barriers to health services, for especially African migrants-refugees and host communities, as well as barriers to livelihood opportunities. The project started in March 2021 and will continue until March 2022.

GRC is looking for an audit firm to perform a mid-term expenditure verification and to report in connection with a European Union financed grant contract. Detailed information about the scope and subjects of the expenditure verification can be extracted here.

1 Objectives and context

The Expenditure Verifier is expected

– to carry out the agreed-upon procedures listed in Annex 2, and

– to issue reports based on the template in Annex 3 which will support the Contracting Authority’s conclusions on the eligibility of the reported expenditure and the related follow-up.

The expenditure verification will be performed as a desk review in Egypt, Cairo, Nasr City (ERC HQ).

The Expenditure Verifier is not expected to provide an audit opinion.

2 Standards and Ethics

The Expenditure Verifier shall undertake this engagement in accordance with:

• the International Standard on Related Services (‘ISRS’) 4400 Engagements to perform Agreed-upon Procedures regarding Financial Information as promulgated by the IFAC;
• the IFAC Code of Ethics for Professional Accountants, developed and issued by IFAC’s International Ethics Standards Board for Accountants (IESBA), which establishes fundamental ethical principles for Auditors with regard to integrity, objectivity, independence, professional competence and due care, confidentiality, professional behaviour and technical standards.

Although ISRS 4400 provides that independence is not a requirement for agreed-upon procedures engagements, the Coordinator requires that the Expenditure Verifier is independent from the Coordinator and complies with the independence requirements of the IFAC Code of Ethics for Professional Accountants.

3 Requirements for the Expenditure Verifier

By agreeing these ToR, the Expenditure Verifier confirms meeting at least one of the following conditions:

• The Expenditure Verifier is a member of a national accounting or auditing body or institution which in turn is a member of the International Federation of Accountants (IFAC).
• The Expenditure Verifier is a member of a national accounting or auditing body or institution. Although this organisation is not member of the IFAC, the Expenditure Verifier commits to undertake this expenditure verification in accordance with the IFAC standards and ethics set out in these ToR.
• The Expenditure Verifier is registered as a statutory auditor in the public register of a public oversight body in an EU member state in accordance with the principles of public oversight set out in Directive 2006/43/EC of the European Parliament and of the Council (this applies to auditors and audit firms based in an EU member state).
• The Expenditure Verifier is registered as a statutory auditor in the public register of a public oversight body in a third country and this register is subject to principles of public oversight as set out in the legislation of the country concerned (this applies to auditors and audit firms based in a third country).

4 Scope

4.1 Contracts and Financial Reports covered by these ToR

The Contract(s) and Financial Reports subject to this expenditure verification are indicated on the cover sheet and in Annex 1.

4.2 Conditions for Eligibility of Expenditure

The conditions for eligibility are stipulated in the Contracts which are provided in Annex 1 (including riders).

5 Verification Process and Methodology

5.1 Preparation of the Verification

The Expenditure Verifier shall prepare the verification and to agree on the timing for carrying out the expenditure verification, notably with regard to fieldwork (if any) (see Section 5.2. for applicable maximum time lags). The Expenditure Verifier will then also confirm with the Coordinator the location(s) indicated in Annex 1 and ensure that relevant supporting documents as well as key staff will be available during the verification.

5.2 Preparatory Meeting, Fieldwork, Desk Review

The Coordinator foresees a preparatory meeting with the Expenditure Verifier which will be held by conference call or at Egyptian Red Crescent, HQ Office, 33 Abdel Razek Al Sanhoury, Nasr City, Cairo, Egypt.

The field work or desk review shall commence as soon as possible and not later than 3 calendar days after the signature of the verification contract or the date of availability of the Financial Report (i.e. financial report, supporting documents and other relevant information).

5.2.1 Engagement Context, Materiality, Risk Analysis, Sampling

The Expenditure Verifier’s procedures should include:

obtaining a sufficient understanding of the engagement context including the contractual conditions, the Coordinator and the applicable EC laws and regulations which are set out in Section 5 above (Scope). The Expenditure Verifier should pay specific attention to the contractual provisions relevant for the following aspects:

• documentation, filing and record keeping for expenditure and income;
• eligibility of expenditure and income;
• procurement and origin rules insofar as these conditions are relevant to determine the eligibility of expenditure;
• asset management (management and control of fixed assets; e.g. equipment).
• cash and bank management (treasury);
• payroll and time management;
• accounting (including the use of exchange rates) and financial reporting of expenditure and income; and
• internal controls and notably financial internal controls.

The understanding should be sufficient to identify and assess the risks of material errors or misstatements in the expenditure and revenue stated in the Financial Report in order to determine the size and structure of the expenditure sample to be tested, whether caused by error or fraud, and sufficient to design and perform further verification procedures.

• performing a risk analysis (Annex 2).

The outcome of the risk analysis has to be clearly described in the Verification Report (Annex 3, Section 2.1);

• determining the sample size;

For the purpose of determining what the overall material misstatement or error is, the Expenditure Verifier will apply a materiality threshold of 2% of the total amount of the gross reported expenditure with a confidence level of 95%.

• establishing the sample and selecting the individual items for testing (Annex 2).

The link between the risk assessment and the size and composition of the sample, as well as the sampling method (statistical/non-statistical) must be clearly described in the Verification Report (Annex 3, Section 2.2);

5.2.2 Fieldwork / Desk Review

The main task during the fieldwork or desk review will be to perform the substantive tests (Annex 2, Section 2). Key information about the testing process must be provided in the Verification Report (Annex 3, Section 4).

5.2.3 Debriefing Memo and Closing Meeting

At the end of the fieldwork or desk review, the Expenditure Verifier should prepare a debriefing memo, organize a closing meeting with the Coordinator in order to discuss the findings, obtain its initial comments and agree on additional information to be provided at a later date.

5.2.4 Documentation and Verification Evidence

The evidence to be used for performing the procedures in Annex 2 is all financial and non-financial information which makes it possible to examine the expenditure declared in the Financial Report.

The Expenditure Verifier documents matters which are important in providing evidence to support the report of factual findings, and evidence that the work was carried out in accordance with ISRS 4400 and these ToR.

5.3 Reporting

5.3.1 Structure and Content of the Report

The use of the Expenditure Verification Report template in Annex 3 of these ToR, including the annexed tables, is compulsory.

If the verification scope covers Financial Reports related to different Contracts, a separate and specific report should be issued for each Contract.

The report should provide basic information about the Contract and should describe the outcome of the risk analysis and its implications on the sampling. The report should also give an overview of the substantive testing and fully disclose the information regarding the items included in the expenditure population and in the sample. The report should finally detail the findings identified through the performance of the agreed-upon procedures.

The report should be presented in English.

The Expenditure Verifier will submit within 5 working days of the conclusion of the field work a draft report to the Coordinator for comments to be received within 5 working days. This delay expired, the Expenditure Verifier will provide the final report to the Coordinator within 3 working days from the receipt of the comments (if any).

5.3.2 Expenditure Verification Findings and Recommendations

The factual findings shall be reported in accordance with the formats and criteria specified in the Expenditure Verification Report template (Annex 3). The description of findings will include the standard applied (e.g. art. xx of the General Conditions of the Contract), the facts and the analysis of the Expenditure Verifier.

The verification report should include all financial findings made by the Expenditure Verifier, regardless of the amount involved. Changes in the financial findings occurring between the draft and final report as a result of the consultation procedure should be clearly and sequentially reported.

(1) Directive 2006/43 of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253 EEC.