1. Audits of Global Fund grants LFA Finance Training Workshop October-November 2013

2. 2 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 Agenda Why the increased importance of audits? The expectations gap Salient points on the revised audit guidelines Conclusion

3. 3 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 Why the Increased Importance of Audits 1. The audits are designed to provide the GF with reasonable assurance that disbursed funds are used for the intended purposes in accordance with the Grant Agreement, the approved budget and the Performance Framework. 2. Audits provide the basis for decision-making on: disbursement of those funds, the renewal of grants within the framework of the GF’s performance-based funding principles and 3. Audits form an important part of the GF’s grant risk management framework.

4. 4 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 Why the Increased Importance of Audits, Cont…? Layers of Controls & Reviews PR LFA Audit Secretariat OIG Board 4. Annual audits are important part of the layers of control regarding proper use of GF funds

5. 5 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 High Level Panel Review Report “Audit of SRs: The external auditors of the PRs do not cover a significant portion of grant expenditure, because the implementation takes place at the SR, District or lower levels. The Global Fund’s current policy only mandates that PRs present an SR Audit Plan, but offers no guidance as to what the plan should contain. Each PR, therefore, determines the scope and extent of audit for disbursements to its SRs. An audit of consolidated financial statements might provide a more comprehensive opinion” -HLP

6. 6 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 High Level Panel Review Report  Problems with external audits, including selection and quality  The LFAs rarely talk to the external or internal auditors of The Global Fund’s grants, nor to National Auditors

7. The expectations gap!

8. 8 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 The expectations gap! CASE STUDY

9. 9 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 CASE STUDY The case study relates to the entire audit process of a public sector grant recipient, “Happy-go-Lucky” (hereinafter called “HGL”), starting from audit TORs up to the final deliverables (pertinent excerpts only). You are required to go through the case and respond to the following: Identify at least 8 deficiencies in the Audit TOR and recommend what can be improved in the audit ToR; Identify at least 8 issues relating to the quality or otherwise of the audit report and management letter and suggest how the auditor should have addressed these issues In your opinion, what role can the LFA play in ensuring that the GF gets value from the audit of grants

10. 10 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 CASE STUDY-DEFICIENCIES IN ToRs IFRS works on accrual basis, has very stringent requirements, and is generally non-aligned with public sector accounting requirements and practices. ToRs should be explicit on auditor’s experience and qualifications required. GF funding and expenditures need be clearly and separately identifiable in the financial statements or in the notes. The expected completion date of the audit is inconsistent with the deadline of six months after the end of the financial year. ToRs just state that the auditor is expected to issue an opinion. No mention of auditor independence. There should be a description of the nature and the location of all financial records. Period for which financial statements are prepared should be indicated. Clear reference should be made to one set of auditing standards. SR audit plan to be clearly specified.

11. 11 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 CASE STUDY-ISSUES IN THE AUDIT REPORT Financial Statements prepared in functional currency only. Prior year audit issues not properly brought to a closure. Casting errors in the financial statements. There was no audit opinion issued. The audit report is not signed. Notes with supporting schedules to the accounts are not complete and are messed up. Missing prior year comparative figures. The financial statement figures are different from the figures reported in the EFR and DUDRs for the same period. No audit recommendation on how to address the issues. No management comments.

12. 12 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 So what is really new in the revised audit guidelines? Global Fund would prefer aggregated grant-specific audit where feasible – this involves one overall consolidated audit opinion combining the balances and transactions of the PR and SRs; There would be a materiality focus in requirements. TORs would be largely standardized;

13. 13 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 So what is really new in the revised audit guidelines? cont.  All firms must be included on an accredited list of auditors of a recognized donor with operations in the country (e.g. World Bank, EBRD, OIG/RIG (USAID), European Commission (Court of Auditors) etc.).

14. 14 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 So what is really new in the new audit guidelines?-cont. GF’s direct, rigorous involvement in auditor selection process, with recourse in cases of gaps in hiring; Strict requirements on the audit timelines; Implications of audit reports on grant renewals, and commitment and disbursement decisions;

15. 15 LFA Training – Audits of GF Grants Geneva, October 2013 October – November 2013 Conclusion Improving the quality of an audit is a continuous process. CCM, LFA, PR, Auditors and the GF have a role to play. Audits should aim at complementing rather than duplicating work already done.

16. LFA Finance Training Workshop October-November 2013 Thank you… Any questions…