TERMS OF REFERENCE FOR ORGANIZATIONALAUDIT

YEAR ENDED DECEMBER 31, 2017

------

Table of Contents

BACKGROUND

WORKING PRINCIPLES

AUDIT OBJECTIVES

AUDIT SCOPE

DELIVERABLES

MANAGEMENT LETTER

AVAILABLE FACILITIES & RIGHT ACCESS

AUDIT SERVICES REQUIRED

QUALIFICATION OF THE AUDIT FIRM

TIME SCHEDULE

TERMS OF PAYMENT

PROPOSAL SUBMISSION DEADLINE

BACKGROUND

SABAH Bagh-e-Khazana Social Association (SBKSA) is registered in 2010 under Ministry of Justice of Afghanistan. It was registered as a Business Association by the war affected poor vulnerable women of Afghanistan. The objective of the association is to build a strong social-business organization of poor home-based workers for better livelihood, sustainability and to provide regular income to the maximum number of home-based women workers. SBKSA has organized 4000 women who have been trained on various vocations of food processing, garment making and surface ornamentation. These women are also imparted enterprise development skills and helped them to start their own business. SBKSA has registered office in Kabul with sub offices in provinces of Mazar-e-Sharif, Herat, Istalif, Baglan and Bagrami.

SBKSA has set up a Trade Facilitation Center in Kabul with start of art facility for Food Processing and Textile & Garment with the capacity of 200 women working a day. SBKSA has partnered with SEWA and Ministry of Women Affairs to provide training and value chain support to the war affected women of Afghanistan. SBKSA has also set up Community Facilitation Centers (CFC) in provinces of Mazar-e-Sharif, Herat, Baglan and Bagrami. The association helps their members in getting work and income security by promoting their enterprises, by placement programs and providing trade & facilitation support.

The SBKSA has a staff of 15+ women and men who have been experience of more than 11 years and have been trained by SEWA on study, research, design and implement women’s economic empowerment program, promoting women’s enterprise and provide value chain support. The staff of SBKSA has a good experience of working with women in Kabul and other provinces. SBKSA was the outcome of program implemented by SEWA for Afghan women from 2008. SEWA has imparted classroom, practical and on the job training to the staff of SBKSA since 2008 on various aspects.

WORKIN PRINCIPLES

SBKSA respects all laws and regulation of Islamic Government of Afghanistan especially the Non- governmental organization rules, Donors Rules and Income Tax Law of Afghanistan. To perform its humanitarian and development duties, the organization strictly respects the following principles:

Independency: As the real and 100 % independence is impossible in practice, for SBKSA independency means to keep the policy of interdependency with the stakeholders and partners with performing of all its activities in the light of overall goal of the organization.

Non-political: the organization doesn’t support any political party.

Equity:SBKSA is against all kind of discriminations and perform its service on the base of equity, which take into consideration the need of families and population.

Professionalism: in order to have efficient and good quality services the organization performs all processes of management of its projects with professional standards.

Transparency and accountability: the organization is ready to give reliable information regarding the management of its budget and projects to related organizations and the government

AUDIT OBJECTIVES

The purpose and the objective of the audit is to have an independent recognized firm opinion on the Financial Statement of the organization (Balance Sheet, Income & Expenditure statement and related notes), its internal control system, Tax and Calculation of Indirect cost rate of the organization along with the income and expenditure incurred from Working capital account for the period 01 January 2017 to 31December 2017.

AUDIT SCOPE

The preparation of the financial statements and other supportive document is the responsibility of SBKSA. The audit firm should start examining the financial documents and financial statement of SBKSA for the period mentioned. The Audit will involve verification of records, systems and controls to:

  • Determine that costs incurred are allowable, allocable and reasonable under the agreement terms, and to identify exceptions that have occurred or are likely to occur as a result of inadequate controls.
  • Evaluate the organization internal control structure, assess control risks, and identify exceptions, including material internal control structure weaknesses.
  • Determine whether the organization complied with agreement terms and applicable laws and regulations.

The following steps should be used as the basis for the review but they are not all-inclusive or restrictive in nature. Due professional care and judgment should be exercised to expand/modify them as appropriate.

  1. Financial Statements are prepared in accordance to generally accepted accounting principles and in line with organization policies and procedures.
  2. The funds have been accounted for in accordance to generally accepted accounting principles and in line with approved contracts.
  3. Whether the original documents tally with the figures reflected in the financial report and Financial Statements.
  4. Identify the risk points and assure these are monitored and assessed on a regular basis and supported by sound financial management practices.
  5. Ensure financial control framework applies sound judgment in the approval of expenditure and there are adequate regulatory checks and balances.
  6. Ensure that information used for financial and accounts related decision-making and reporting is timely, relevant and reliable.
  7. Ensure that financial reporting framework (monthly returns and others) addresses the need to have sound financial practices.
  8. Ensure expenditure reports, forms, guidelines, and all other financial and accounting documents are provided in ways that are conducive to their use in the financial accountability and decision making-process.
  9. Ensure the financial control framework addresses the management information requirements and expected attributes.
  10. Ensure that accounting and financial key risks expressed and assessed in procedures and practice and permit measurement and evaluation of efficiency.
  11. Ensure that appropriate strategic and operational plans are developed, applied, reviewed, and updated with suitable frequency.
  12. The financial activities implemented are reflected in the management decision-making process and financial control frameworks.
  13. Ensure that expense claimed in the financial statements is eligible.
  14. Ensure that expenses have been incurred and have been borne by the organization;
  15. Ensure that expenses are clearly broken down as laid down in SBKSA requirements;
  16. Ensure that expenses are adequately supported by appropriate vouchers, quotations etc. and have been properly accounted for.
  17. Ensure that expenses have been incurred during the audit period.
  18. Ensure that income and expenditure have been fully disclosed in the financial statement:
  19. Ensure that formal procedures are in place for the authorization of all expenditure including the use of funds earned from income generating activities;
  20. Ensure that all income from other sources has been disclosed in the financial statement;
  21. Ensure that formal procedures are in place for the acquisition and disposal of assets, and the nature of the assets acquired, are clarified;
  22. Ensure that assets are used exclusively to support running the operations of organization.
  23. Ensure that all liabilities are disclosed in the balance sheet:
  24. Ensure that liabilities that are not paid at year end are disclosed;
  25. Ensure that liabilities are entered into solely for the execution of the operations.
  26. Ensure that reserve funds, if any, are disclosed in the balance sheet:
  27. Ensure that restricted and unrestricted funds, if any, are clearly shown in the financial statement;
  28. Ensure that payroll and other taxes are deducted based on Government tax policies and paid to the government.
  29. 29. Calculate the indirect cost rate based on direct expenses of the organization of the organization for the period and give the organization an audit indirect cost rate.
  30. Auditors will also prepare the management letter at the end of audit fieldwork that will include comments and observations on the accounting records, systems and controls that were examined during the course of the Audit
  31. Identify specific deficiencies and areas of weakness in systems and controls and make recommendation for their improvement
  32. Report on the degree of compliance of each of the financial covenants on the financing agreement and give comments, if any, on internal and external matters affecting such compliance
  33. Communicate matters that have come to attention during the audit which might have a significant impact on the running and operation of SBKSA organization.
  34. Include management’s comments on the final management letter.
  35. The Audit report and management letter shall be submitted to SBKSA in English.

Current Projects

No / Project Name / Total Budget –USD
1 / Strengthen the livelihood Initiatives of HBWs in SAARC Region / 270,480 for 2017
2 / Working Capital (Used for Raw material and wages of HBWs (Home based workers) and return back as sales return into working capital account / The period form 1 .1.2017-31.12.2017

DELIVERABLES

1- Independent Auditors Report on Financial statements.

2- Independent Auditors Report on Calculation of Indirect Cost Rate.

3- Independent Auditors Report on compliance to the donors Rules and Regulations..

4-Management Letter

MANAGEMENT LETTER

The auditor will submit a management letter at the completion of the audit. The management letter should include at least the following topics/issues:

  • A general review of project progress and timeliness in relation to progress milestones and the planned completion date, both of which should be stated in the project document or the Donor Guidelines. This is not intended to address whether there has been compliance with specific covenants relating to specific performance criteria or outputs. However general compliance with broad covenants such as implementing the project with economy and efficiency might be commented upon but not with the legal force of an audit opinion.
  • An assessment of the project's internal control system with equal emphasis on;
  1. the effectiveness of the system in providing the project management with useful and timely information for the proper management of the project and
  2. the general effectiveness of the internal control system in protecting the assets and resources of the project.
  • A description of any specific internal control weaknesses noted in the financial management of the project and the audit procedures followed to address or compensate for the weaknesses. Recommendations to resolve/eliminate the internal control weaknesses noted should be included.

The management letter should also include the following:

  • The categorization of audit findings by risk severity: High, Medium, or Low.
  • The classification of possible causes of the audit findings.
  • Comments as to whether recommendations made in the management letter for the previous audit were implemented or, if not, the implementation status;
  • Management comments/response (SBKSA Management Board).

AVAILABLE FACILITIES & RIGHT ACCESS

The auditor will have full and complete access at any time to all records and documents (including books of account, QuickBooks, legal agreements, minutes of committee meetings, bank records, invoices and contracts etc.) and all employees of the entity. The auditor will have a right of access to banks, consultants, contractors and other persons or firms engaged by the SBKSA management.

1

AUDIT SERVICES REQUIRED

The scope of audit services shall cover the overall management of the project’s implementation, monitoring and supervision. The audit work should include the review of work plans, progress reports, project resources, project budgets, project expenditure, project delivery, recruitment, operational and financial closing of projects (if applicable) and disposal or transfer of assets. To this effect, the scope of the audit shall cover the following areas as they are performed at the level of the project:

Human resources

The audit work shall cover the competitiveness, transparency and effectiveness of the recruitment and hiring of personnel and include performance appraisal, attendance control, calculation of salaries and entitlements, payroll preparation and payment, and management of personnel records.

Finance

The audit work shall cover the adequacy of the accounting and financial operations and reporting systems. These include budget control, cash management, certification and approving authority, receipt of funds, and disbursement of funds, recording of all financial transactions in expenditure reports, records maintenance and control.

Procurement

The audit work shall cover the competitiveness, transparency and effectiveness of the procurement activities of the project in order to ensure that the equipment and services purchased meet the requirement of either the government (or NGO) or donors and include the following:

  • As applicable, delegations of authorities, procurement thresholds, call for bids and proposals, evaluation of bids and proposals and approval/signature of contracts and purchase orders;
  • Receiving and inspection procedures to determine the conformity of equipment with the agreed specifications and, when applicable, the use of independent experts to inspect the delivery of highly technical and expensive equipment
  • Evaluation of the procedures established to mitigate the risk of purchasing equipment that do not meet specifications or is later proven to be defective;
  • Management and control over the variation orders.

The audit work in the area of procurement shall also cover the use of consulting firms and the adequacy of procedures to obtain fully qualified and experienced personnel and assessment of their work before final payment is made.

Asset Management

The audit work shall cover equipment (typically vehicles and office equipment) purchased for use of the project. The procedures for receipt, storage, and disposal shall also be reviewed.

Cash Management

The audit work shall cover all cash funds held by the project and review procedures for safeguarding of cash.

General Administration

The audit work shall cover travel activities, vehicle management, shipping services, office premises, office communications, and records maintenance.

Information System

The audit work shall cover the information and communication systems and the control and security of equipment and data.

1

QUALIFICATION OF THE AUDIT FIRM

SBKSA invites submission of proposals from eligible audit firms, who have experience in external auditing of national/international organizations working in development sector. Other qualifications related to the proposal are:

  1. The auditor must be completely impartial and independent from all aspects of management or financial interests in the entity being audited. The auditor should not, during the period covered by the audit nor during the undertaking of the audit, be employed by, serve as director for, or have any financial or close business relationships with any senior participant in the management of the entity.
  1. The auditor should be experienced in applying either International Standard Auditing (ISA) audit standards, whichever is applicable for the audit. The auditor must employ adequate staff with appropriate professional qualifications and suitable experience with ISA standards, including minimum three years experience in auditing the accounts of entities comparable in size and complexity to the entity being audited. Experience in auditing of UN agencies supported projects is an asset.
  1. The interested audit firmmust have valid updated license issued by IASA and must be affiliated member of international accounting and auditing network. The auditor is required to attach scan copies of the above certificates/ evidence with proposal.
  1. The audit firm must have Afghanistan based working office, having rich local/international nonprofit organizations auditing experience. The auditor is required to briefly describe its experience in proposal.
  1. The interested audit firm should submit Technical and Financial proposals separately in sealed envelopes clearly mentioning ‘Technical Proposal’ and ‘ Financial Proposal’ and the name, address and contacts of the audit firm outside the envelops.

TIME SCHEDULE

The external Audit should commence within first week after signing of the agreement and will be completed within 10 days of the agreement:

PROPOSAL SUBMISSION DEADLINE

Interested qualified audit firms should submit their proposal no later than 04.00 PM 30April, 2018 to SBKSA main office, House # 2 Street Kart e Ariana, District 2nd , Adjacent to Kata sang masjid, Kabul Afghanistan.

Hard copies of proposal will submitted at above address and soft copy of the audit will be submitted in (Both are required)

Representative: Ms. Rahila Haidar and Ms. Zarlasht

Organization Name: SBKSA

1