Audit Firm - Financial Review of Project 020_002934

1. FUNDAMENTAL PRINCIPLES

These Terms of Reference (TOR) define the mandate of the auditor in connection with the financial review of project “Emergency response to storm Norma in Lebanon (020_002934)” implemented by Islamic Relief Lebanon, funded by Islamic Relief Sweden with main funding source by through Swedish International Development Cooperation Agency (SIDA)

The financial review will be based on the professional requirements and guidelines governing the professional work to be undertaken by an auditor in relation to an agreed upon procedure engagement as per International Standard on Related Services 4400

1. The Organizational Structure

Islamic Relief’s Lebanon (Registration number 2028545) is one of the leading humanitarian organizations intervening in Lebanon. It started its operations in 2006 and is currently working through 3 branches, Saida field Office, Beirut main Office and Bekaa field Office. IRW- Lebanon Office is officially registered under Republican decree No. 1047.

Islamic Relief Lebanon is headed by a Country Director as the officer-in -charge with support staffs that include Head of Programme, Finance Manager, Human Resource Manager,… etc based at support office in Lebanon. The organization’s area offices are based in Lebanon, Beirut, Tawfic Tabbara Street, Tawfic Tabbara Center, 8th Floor and Saida as a branch office.

1. In planning, conducting and reporting on the financial review, the auditor shall be given due considerations to the auditing and other standards promulgated by International Auditing and Assurance Standards Board (IAASB), In addition, the relevant standards of the Local accounting professional bodies as well as the local legislation on accounting and reporting in force in the country will be taken into consideration by the auditor.

1. Objectives and scope of the audit

The objective is to audit the financial report for the period January 25, 2019 to March 31, 2019 as submitted to Sida and to express an audit opinion according to ISA 800/805 on whether the financial report of the project “Emergency response to storm Norma in Lebanon” is in accordance with Sida´s instruction for financial reporting as stipulated in the agreement including appendix between Sida and Islamic Relief Sweden.

1. OVERALL PRINCIPLES OF THE FINANCIAL REVIEW

The auditor is required to plan, execute and report on the financial review engagement in order to form a professional judgment on the following matters relating to the activities and the organization:

1. Verify that the final reporting has been done in accordance with the existing agreement with IR Sweden on the correct templates provided by IR Sweden. If this is the case, please state this.
2. Verify whether implementation and reporting has been done in accordance with the time frames agreed upon with IR Sweden. If this is the case, please state this, otherwise specify deviations.
3. Verify that there is an agreement between IR Lebanon/IRW and any other implementing party and that this agreement has been established in accordance with the instructions in IRW’s agreement with IR Sweden. If this is the case, please state this, otherwise specify deviations.
4. Verify whether the budget provided in the financial report has been approved by IR Sweden. If this is the case, please state this. Please specify deviations (if any) from the approved budget by IR Sweden.
5. Verify that all budget deviations, per budget item, exceeding 10% of the total budget have been commented upon in IR Lebanon/IRW’s final report and that approval for these deviations has been received from IR Sweden. Please state all cases (if any) where this has not been the case.
6. Verify that the financial report is in accordance with the organization’s book-keeping and with reporting from other implementing parties (if any). If this is the case, please state this, otherwise specify deviations.
7. Verify and assess whether calculations underpinning the financial report are correct and based on reasonable assumptions.
8. Verify that costs labeled as “administrative costs” and “overhead” in the financial report  are in agreement with the percentage stated in the agreement between IRW and IR Sweden. If this is the case, please state this, otherwise specify deviations.
9. Assess whether there are material weaknesses in Organization’s internal control regarding the financial reporting. “Material” in this respect refers to weaknesses that normally would be reported in a management letter to the Board of Directors of the Organization.
10. Verify that a local audit, in compliance with IRW’s agreement with IR Sweden, has been performed in all cases where funds have been transferred to another implementing party. If this is the case, please state this. Specify deviations (if any).
11. Comment on how IRW has ascertained that the local auditor is qualified according to the specifications in the agreement between IRW and IR Sweden.
12. Highlight significant findings from the report done by the local auditor. If there are no significant findings, please state this.
13. Confirm whether there have been or have not been suspicions of corruption in the audited projects.

1. Additional assignment; according to agree upon procedures ISRS 4400, review the following areas in accordance with the Terms of reference below

Auditors have to List any additional areas to be examined, e.g. following up on weaknesses identified in previous efficiency audits or reviews of internal management and control. Observe that if the budget includes salary costs that will be debited to the project/programme, agreed upon procedures ISRS 4400 (for information about ISRS 4400 as a standard, see the Audit Handbook) shall always be conducted and include a review whether these costs have been recorded in a systemized manner that allows for following-up. The size of the sample for the auditor to review under an additional assignment according to agree upon procedures 4400 need to be specified in the terms of reference.

OBSERVE! The areas of review below are examples and must be adjusted to the specific project/programme based on what is applicable and relevant in accordance with the appraisal phase and risk analysis. Consult your controller regarding relevant areas of review.

1. Follow up whether salary costs debited to the project/programme 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.
2. Examine whether the financial report includes a comparison, for every budget item, between the actual costs/expenditures of activities and the budgeted costs/expenditures as approved by Sida for the period.
3. Based on materiality and risk the auditor shall examine whether there is supporting documentation related to incurred costs
4. Follow up whether Islamic Relief’s Lebanon has implemented the following recommendations from the assessment of internal control: of previous audit, The examination includes reviewing whether the partner has implemented the action points as described in partner’s management response that has been submitted to Sida.
5. Examine whether foreign exchange gains and losses are disclosed in accordance with what is stipulated in the agreement including appendixes.
6. Examine whether Islamic Relief’s Lebanon compliance with the applicable tax legislation in regard to taxes (e.g.PAYE)[1] and social security fees.
7. Follow up whether Islamic Relief’s Lebanon has adhered to the procurement guidelines annexed to the agreement.
8. Review if outgoing balance for previous period is the same as incoming balance for the current period.
9. If Islamic Relief’s Lebanon applies modified cash basis as accounting principle, the auditor shall motivate whether the applied accounting principle is acceptable for this type of financial report.
    

1. Follow up of funds that are channeled to implementing partners
    

The sample test’s size of the review of agreements and audit reporting from implementing partners must be specified.

1. Does Islamic Relief’s Lebanon have signed agreements with its partner organisations?
2. Are the audit requirements in agreements with partner organisations in accordance with the audit requirements as stipulated in the Islamic Relief’s Lebanon agreement with IR Sweden and related Sida agreement?
3. Review whether there is an unbroken chain of audited financial reports according to the requirements as stipulated in the agreement between IRW and IR Sweden for funds disbursed to third parties. The review shall include whether the partner makes documented assessments of the audited financial reports submitted to Islamic Relief’s Lebanon and whether these reports are followed-up by the partner. The review shall also include any observations from auditors that IR Sweden/Sida should be informed about. The review shall include verification of contributions equivalent of a minimum of 80 % of the total of disbursed funds as well as 80 % of the number of contributions. The review shall also include any observations from auditors that IR Sweden/SIDA should be informed about.  
4. Are the same requirements for reporting exchange rate gains/exchange rate losses as stipulated in the agreement between IRW and IR Swedne, included in the agreements between the Islamic Relief’s Lebanon and its implementing partners?

1. The reporting

The scope of the audit shall be stated in the report and the methodology used shall be presented.

The reporting shall be signed by the responsible auditor (not just the audit firm) and title.

The reporting from the auditor shall include an independent auditor’s report in accordance with the format in standard ISA 800/805 and the auditor’s opinion shall be clearly stated, as well as a Management letter with audit findings and weaknesses identified during the audit process. The auditor shall regardless of materiality, quantify the amount for costs lacking sufficient supporting documentation. The auditor shall make recommendations to address the weaknesses identified and the recommendations shall be presented in priority order. If the auditor assesses that no findings or weaknesses have been identified during the audit that would result in a Management Letter, an explanation of this assessment must be disclosed in the audit reporting.

Measures taken by the organisation to address weaknesses identified in previous audits shall also be presented in the Management Letter.

The additional assignment according to agreed upon procedures ISRS 4400, shall be reported separately in a “Report of factual findings”.

1. DOCUMENTS OF REFERENCE

The following documents and matters are to be considered by the auditor as basic references for performing the financial review:

• Project agreement (Service Level Agreement SLA signed between IR Sweden and IRW code 020_002934); and
• Annexures as mentioned in the agreement.
   

1. Project Background

The crisis in Syria is well into its sevenths year, and Lebanon continues to host over one million Syrian refugees. This targeted humanitarian assistance has been critical to sustaining the refugee population and easing the strain on the host community. It is, however, less 20% of the US$ 542 million requested to ensure the well-being of refugees for basic assistance need. The situation of Syrian refugees in Lebanon remains highly precarious, as shown in this year’s vulnerability assessment for Syrian refugees VASYR and fund shortage. The majority of these Syrian Refugees are living in informal settlements made out of tarpaulin tents supported by wooden frames (VAF Assessment, UNHCR 2018).

In recent years, IRL has distributed winterization items including (food parcels, fuel, blankets, clothes, plastic sheet, mattresses, pillow, heater gas, heater fuel, carpets, protection sets and hygiene kits). The number of beneficiaries has reached over 76,000 families (380,000 individuals) reached in three years. IR Lebanon team has implemented these winterisation projects successfully with strong contributions from all staff including Programme, Finance, Logistics, and Media delivering urgent assistance for refugees during harsh winter conditions. This intervention continues into this year as well through generous funding form donors which has reached up to 1 M USD allocated to support Syrian refugees and hosting community during winter. Therefore, Islamic Relief has a plethora of experience conducting similar interventions that address the needs of Syrian refugees and hosting community during dire winter conditions.

Lebanon started feeling the effects of a heavy storm on Sunday 6th January 2019. Heavy rain, high winds and colder temperatures were reported all over Lebanon. Some regions were affected by either flooding, erosions or heavy snow. Over the last week, access to the affected camps was restricted, thus IRL has been working closely with UNHCR and CBOs to monitor the situation and collect data for intervention.

Storm "Norma" has caused damage to infrastructure, roads and homes across Lebanon, putting at least 70,000 refugees at risk, more than half of whom are children, based on the latest humanitarian update. According to a recent report and need assessment by UNHCR, there is a significant need for intervention for in-kind donation as a result of this storm.

Syrian refugees in East Lebanon's are bracing for yet another potentially heavy storm, which is set to bring rains and snowfall.

The project will target Syrian Refugees who live in camps, random shelters and who did not receive sufficient assistance previously, while keeping an eye on vulnerable and poor Lebanese families.

This projects aims to provide 2,000 families, 1,200 whom are living in tents, will be provided with 1 Food Parcel (will be enough for 15 days), 2 Blankets, 2 fuel gallons of 9 litres (will support the families for 6 days), 2 mattresses, 1 plastic sheet (some families will receive two according to the tent size), and 1 hygiene kit (will support families for 1 month).

1. Following the Specific objectives intervention 

Improved the overall living conditions of Syrian refugees and the poor Lebanese host vulnerable community during the harsh winter and mitigate the risk of health deterioration.

Following are the brief of this project:

Project Name

“Emergency response to storm Norma in Lebanon”

Project PIN

020_002934

Funded By    

Islamic Relief Sweden - funded secured from Swedish International Development Agency  (SIDA)

Project Budget

SEK 2,863,500

Project Duration

January 25, 2019 to March 31, 2019

1. PLANNING THE FINANCIAL REVIEW

The auditor shall adequately plan the financial review engagement well in advance of the work and ensure the execution of the financial review of highest professional quality in an economical and efficient manner and within the agreed timetable.

On the basis of the information received during the planning phase, including his review risk assessment, the auditor shall determine:

1. The type of transactions to be reviewed and the review method (full or random sample);
2. The type of physical verifications and the sites to be selected;
3. The number of site visits to be planned.

The auditor undertakes to ensure continuity in the review approach of the financial review engagement and the review team, even if there is a change in the leader of the review team from the prior year.

1. PLACE OF FINANCIAL REVIEW

The financial review is to be carried out within the project environment (administrative offices and / or decentralized sites, if applicable).

1.  DETAILED FINANCIAL REVIEW PROCEDURES

Appropriate review procedures are to be applied by the auditor in order to form a professional judgement on the matters outlined below. These procedures applied, either on a full scope or random basis may include:

Controls, checking, evaluation, inspection, interview, analysis and other review techniques. When selecting the review procedures, the auditor shall give consideration to the results of his review risk assessment (during planning stage and during the course of the review work).

Accordingly, he must define and carry out suitable review tasks in order to obtain an overview of the aforementioned aspects before he assesses the individual findings and reaches a final independent decision on the review.

The auditor is expected to select and apply any other review procedures that he may consider necessary in the professional execution of the financial review engagement.

1.  FINDINGS AND RECOMMENDATIONS

In his financial review report, the auditor is expected to

• Explain and quantify any adjusting and/or reclassification entries, and to
• Formulate recommendations for the improvement of the internal control system (ICS) as well as of project and accounting procedures

1.  CLOSING MEETING

After the completion of the financial review engagement, but before leaving the project or the premises of the partner, the auditor shall hold a closing meeting with the persons responsible for the project/program (directors) and the staff responsible for accounting and reporting. The meeting shall address the results of the project review, discuss major weaknesses in the project, administrative and financial management (including the deficiencies of individual staff members) and propose recommendations to improve the project management, the accounting procedures and the internal control system.

1.  FINANCIAL REVIEW REPORT

1. Format of the Report

The review report of the auditor shall explicitly be responsive to the overall principles applicable to the review engagement.

We expect the report as per the below template prescribed by ISRS 4400 for Engagement to perform Agreed-upon Procedures regarding financial information:

INDEPENDENT AUDITOR’S REPORT

To: ISLAMIC RELIEF WORLDWIDE

Corporate Identity Number: [XXYYZZ-YYXX]

Opinion

We have audited the accompanying financial report of Islamic Relief Worldwide (IRW) in respect of the project [Emergency response to storm Norma in Lebanon (020_002934)] for the period from January 25, 2019 to March 31, 2019, indicating total costs of SEK 2,863,500.

In our opinion, the accompanying financial report corresponds, in all material respects, with the organisation’s accounts, and has also, in all material respects, been prepared in accordance with the agreement between Islamic Relief Sweden and Islamic Relief Worldwide dated 22/01/2019, the agreement between Swedish International Development Cooperation Agency ( Sida ) and Islamic Relief Sweden dated YYYY-MM-DD as well as based on the instructions for financial reporting received by Islamic Relief Worldwide.

Basis for Opinion

We have conducted the audit in accordance with International Standards on Auditing (ISA). Our responsibility according to these standards are further described in the section “Auditor’s responsibility for the audit of the financial report” in our report. We are independent in relation to Islamic Relief Worldwide according to the professional ethical requirements that are relevant for the audit of the financial report in Lebanon and have otherwise fulfilled our professional ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Basis of Accounting and restrictions on use

We would like to draw attention to the fact that the financial report has been prepared in accordance with the agreement between Islamic Relief Sweden and Islamic Relief Worldwide. The financial report has been prepared in order for the Islamic Relief Worldwide to fulfil the requirements imposed by Islamic Relief Sweden. Our report is intended solely for Islamic Relief Sweden and Islamic Relief Worldwide as well as Swedish International Development Cooperation Agency (Sida) and should not be distributed to parties other than Islamic Relief Sweden, Islamic Relief Worldwide and Swedish International Development Cooperation Agency (Sida).

Responsibilities of Management for the Financial Reporting 

The Management is responsible for the preparation of the financial report in accordance with the above-mentioned agreement and for the financial control which the Management deems necessary in order to prepare the financial report free from material misstatements, whether due to fraud or error.

In preparing the financial report [YY] is responsible for taking into account Management's assessment of the Organisation’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern basis of accounting unless Management either intends to liquidate the Organisation or cease operations, or has no realistic alternative but to do so. 

Management is responsible for the supervision of the Organisation's processes for financial reporting.

Auditor's responsibilities for the audit of the financial report

Our objectives are to obtain reasonable assurance about whether the financial report, on the basis of our assessment of the relevant sections of the agreement between Islamic Relief Sweden and Islamic Relief Worldwide, as a whole is free from material misstatement, whether these are due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is no guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or aggregated, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with ISAs we exercise professional judgement and maintain a professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate in order to form a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organisation’s internal control.
   
• Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Organisation's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Organisation to cease to continue as a going concern.
   
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, and related disclosures made by Project Management.
   
• Evaluate the overall presentation, structure and content of the financial report, including disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

[Auditor’s signature]

[Date of the auditor’s report]

[Auditor’s address]

REPORT OF FACTUAL FINDINGS

To Islamic Relief Worldwide

We have performed the agreed-upon procedures as specified below concerning the enclosed financial report to IR Sweden concerning project number 020_002934, for the time period from January 25, 2019 to March 31, 2019 Our engagement was performed in accordance with the International Standard on Related Services applicable to agreed-upon procedures engagements, ISRS 4400. The procedures were performed solely to assist you in your commitment towards IR Sweden regarding the provision of a report on how funds from IR Sweden have been used and are summarized as follows:

• 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.[2]
• Examine whether the financial report includes a comparison, for every budget item, between the actual costs/expenditures of activities and the budgeted costs/expenditures as approved by Sida for the period.
• Based on materiality and risk the auditor shall examine whether there is supporting documentation related to incurred costs
• Follow up whether IR Lebanon has implemented the following recommendations from the assessment of internal control. The examination includes reviewing whether IR Lebanon has implemented the action points as described in IR Lebanon’s management response that has been submitted to Sida.
• Examine whether foreign exchange gains and losses are disclosed in accordance with what is stipulated in the agreement including appendixes.
• IR Lebanon’s  compliance with the applicable tax legislation in regard to taxes (e.g.PAYE) and social security fees.
• Follow up whether IR Lebanon has adhered to the procurement guidelines annexed to the agreement.
• Review if outgoing balance for previous period is the same as incoming balance for the current period.

• If IR Lebanon applies modified cash basis as accounting principle, the auditor shall motivate whether the applied accounting principle is acceptable for this type of financial report.
• We have verified that reporting in accordance with the agreement with IR Sweden has been done on the correct templates provided by IR Sweden.
• We have verified that the project has been implemented and reported in accordance with the time frames agreed on with IR Sweden.
• We have verified that there is an agreement between Islamic Relief Sweden and Islamic Relief Worldwide that this agreement has been established in accordance with the instructions in IR Sweden’s agreement with Swedish International Development Cooperation Agency (Sida ).
• We have verified that the financial report includes information on accrued interest with regard to the funds obtained from IR Sweden and specifies whether the closing balance contains any unused funds from IR Sweden.
• We have verified that costs labelled as” administrative costs” and ”overhead” in the financial report are in agreement with the percentage stated in the agreement between IRW and IR Sweden.
• We have assessed whether there are material weaknesses in IRW’s internal control regarding the financial reporting.
• We have verified that a local audit, in compliance with IRW’s agreement with IR Sweden, has been performed in all cases where funds have been transferred to another implementing party.
• We have highlighted significant findings from the report done by the local auditor.

1. Currency and language of the financial review report

The financial information contained in the financial review report of the auditor is to be expressed in the currency provided for in the contract. The financial review report of the auditor and all other documents resulting from the financial review engagement must be in English.

1. Signature

The financial review report is to be signed by a representative of the auditor as well as by the leader of the review team.

Place and date of Signatures:

1.  THE SCHEDULE

Financial review period of the project will be since inception to project’s end as mentioned in the below table

Project Name

Emergency response to storm Norma in Lebanon

Project Period

January 25, 2019 to March 31, 2019

Last date for submission of proposal

Final selection of firm and awarding of audit contract

By one week of closing date of proposal submission

Start of audit field work

Within one week of contract signing

Draft financial statements available for audit

Upon deployment of audit team

Completion of audit field work and Discussion of audit observations

By one week of audit team deployment

Initial draft project financials and report

Immediately after completion of audit field work or maximum within one week of field work completion.

Sign off to final report by auditors

By one week of receipt of initial draft financials

Office Address:

Lebanon, Beirut, Tawfic Tabbara Street, Tawfic Tabbara Center, 8th Floor

Email Address :

procurement@islamicrelief-leb.org

1. THE TENDER PROPOSAL

Please provide the following information in the proposal, in the order identified in this section.

1. Details of your firm

Your proposal should:

•    Outline your structure, size and capabilities as relevant to us

•    Identify your firm’s major NGO clients.

•    Describe your engagement philosophy and methods

•    Provide two references of other NGO’s that are your clients that can be taken up as required.

1. Staffing

Your proposal should identify:

•    The partner and manager who will be assigned to the assignment, including details of their relevant experience and qualifications.

•    The time which the partner and manager (engaged on this assignment) will devote to this assignment

•    How you manage succession planning and staff continuity.

1. Audit approach

Your proposal should identify how you:

•    Determine engagement strategy and undertake planning

•    Address matters of engagement scope and materiality

•    Identify and respond to critical engagement issues

•    Control and co-ordinate the engagement process

•    Ensure appropriate responsibility for decisions on the engagement

•    Conduct the reporting arrangements

1. Fees

• Your proposal should include estimate of your engagement fee for this project in Lebanese Pound (LBP);

•    In addition, your proposal must provide:

•    An analysis of hours by grade of staff that will be involved on the similar assignments together with details of your hourly charge out rates.

•    The basis of charging expenses.

•    Your proposed billing schedule.

[1] Pay As You Earn

[2] If the budget includes salary costs to be debited to the project, the auditor shall always examine salary costs as stipulated here.