Financial Reporting Standards of ILRI

By Mesfin Hailu

ILRI-N2Africa Project Financial/Grant Management Training Workshop October 16, 2015

Info center, Addis Ababa

Overview

• Financial Report Template Clarify purpose of each budget lines, discuss new

requirement i.e. detail expenditure listings

• Overview on finance related sections of the agreement (CRA)

Payment installments, budget shift, amendments, report due date

• Financial Reporting, Use of fund, Audits and Cost principle

Reporting, Detail expenditure listings, internal controls, Audit, Documentation, cost principle, Cost sharing, currency exchange losses/gains,

To create awareness on the minimum standards that are necessary to meet donor requirement in the financial administration and reporting of grant funded projects.

Use of Fund and Audit

Grant fundGrant funds MUST be used for the intended project purpose as described in the proposal/agreement document

No portion of the grant funds will be used to support and political or lobbying activity.

The major portion of a ILRI’s revenue is normally derived through the receipt of Donor grants – either “Unrestricted” or “Restricted”.

Grant cont’d…..

Restricted Grant: Restricted Grant revenue arises from a transfer

of resources to an entity in return with compliance relating to the

operating activities of the entity.

Unrestricted Grant: revenue arises from the unconditional

transfer of cash or other assets

to entity.

Utilization of fund

Unutilized funds shall be remitted to ILRI within thirty days from the end date

of the contract or on or before the submission of the final financial report.

Up to 10% budget variance is allowed. Prior written approval from ILRI will be

required for expenditure variance greater than 10%.

REPORTING

Partners are expected to submit;

1. Summarized Financial report on the template provided

2. A certified list of all line items (=transactions) per budget line, matching with

the totals reported of that period

Hence, the donor can randomly select a few (5-10) transactions from that list and request

them each time to provide scanned or copied documentation (invoices, bid doc, pay.sheet

etc.) for those transactions selected. N2 Africa 2015-Financial reporting Format.doc

Expenditure Category.docx IIT025-IWMI.xlsx

Financial report should be:

Accurate, current and complete

Records that identify adequately the source and application of funds.

Comparison of disbursement with budget amounts for each Award activity.

Written procedures for determining the reasonableness, allocability and allowability of costs

Accounting records that are supported by source documentation (correct project name at the source documents/invoices)

Satisfactory to ensure that the grant funds utilized and reported can be distinguished from other funds and accounted for separately

Reporting cont’d….

In case there is anything suspicious about any of

them, the donor can request more or initiate an

audit. Line item reporting format.docx

Receipts, PO’s, agreement document, payroll sheet,

invoices, wage pay documents, attendance sheet

Effective financial management and internal

control

•Accurately record all financial transactions and balances;

•Disburse grant funds in a timely, transparent and accountable manner;

•Prepare timely and accurate grant financial statements;

•Comply with all donor requirements related to the grant.

•Facilitate effective and suitable auditing arrangements

Internal control Audit

• Ensuring that charges to the program are proper and supported.

• Managing cash on hand and in bank accounts.

• Procuring goods and services that are authorized.

• Cost allocation system for allocations to the various funding sources

• Managing personnel functions such as timekeeping, salaries and benefits, attendance sheet

Bank Account

- Another useful tool to mitigate risks is to let the partner open up a separate dedicated bank account for receiving and spending project funds:

- This enables the partner to provide a bank reconciliation each reporting cycle, to show that total received funds minus reported costs equal the remaining bank balance.

Tips to Handle Audits

Understand what the auditor wants Assign one employee in your entity to work with

the auditors to facilitate the audit process Meet regularly with the auditors to discuss findings

Be clear and precise and be transparent in your discussion with the auditors

Prepare all documents/reports required for the review and arrange them in a way that can facilitate the audit process

What are common findings on Internal Control

Segregation of duties and organizational structure

Variation of expenditure reported from the system and source document

Bank reconciliation and follow-up on outstanding checks

Control Over Assets

Fixed Asset register

Physical inventory

Most Common Audit Findings cont’d…

Lack of adequate accounting system/record keeping

Unsupported costs

Costs incurred before start date and after end date of the project

Budget overruns

Un authorized costs

Most Common Audit Findings cont’d…

Wages, consultant fees or salaries not supported by time sheets or attendance records

Grant fund used for other purposes

Travel costs not supported by travel expense reports or adequate documentation

Lodging not supported by hotel/lodging receipts

Per Diem paid to residents or unauthorized persons

Training courses, workshops, and seminars not supported by signed attendance sheets,

Procurement of capital items not specifically included in the procurement plan/grant document

Payments made without an invoice or evidence of payment

What do we need to minimize audit risk

Support your costs/ Documentation

Description of the documentation that auditors will expect to find attached to a voucher

in order for it to be considered "supported”

Approved document describing the need for incurring the cost with a reference to a

specific budget element

Contractual documents (e.g., contracts, assignment letters, purchase orders, etc.)

describing the expected goods and services, duration, and related costs by rate or unit

price

What do we need to minimize audit risk

Evidence of receipt of the goods and services, signed by the authorized

cognizant person(s)

Clear calculation of the payment expected

Review and approval signatures

Need for quotations for any material purchase

What do we need to minimize audit risk

All original receipts and invoices need to be stamped with [name project-

PAID] stamp, if possible.

Invoices can never include costs for alcoholic beverages

Keep appropriate documents for any cost share contribution, if any

Project records will be maintained for minimum of seven years after end of

the Project.

List of Basic Files That Should Be Maintained

1. Original agreement files and amendments

2. Original budgets and modifications

3. Payment vouchers file that is sequentially numbered

4. Personnel files

5. Purchase order and contract files

6. Financial policies and procedures

7. Payroll and time attendance files, 8. Audit files, 9. Financial reports

Procurement Forms

Purchase Request Form

Purchase/Delivery Order Forms

Receiving and Inspection Report

Form

Warehouse Receipt/Issuance Forms

Work Order/Request for Services

Forms

COST PRINCIPLES

Why Cost Principle?

Determine costs that are acceptable as per the

award

A cost is considered acceptableif it is Allowable under general rules and

regulations of the award.

Factors affecting Allowability of costs

Reasonable

Allocable

Consistent with policies and procedures

Reasonability means

It does not exceed, in its nature or amount, that

which would be incurred by a prudent person.

Reasonable Costs are

Ordinary and necessary

Allocability Means

Incurred

specifically for the

award

Recruitment

Procurement

Travel

Losses (whether actual

or estimated) arising

from uncollectable

accounts and claims,

related collection costs,

and related legal costs.

Telephone Calls

Fax

Postage

Costs of alcoholic

beverages are explicitly

Costs of amusement,

social activities, and

ceremonials are

PartyPartyPartyPartyPartyParty

Capital expenditures - such as expenditures for the

acquisition or improvement of land, buildings, or equipment - are UNALLOWABLE except

with the prior written approval of Donor.

Cost of renting facilities,

meals, speakers' fees,

and the like if

specifically budgeted

pursuant to a detailed

financial plan and

authorized in the award.

.

Real PropertyVehicles

IF real property rental cost rates are reasonable in terms of market conditions, alternative available, etc.

IF vehicle rental

cost rates are

required in the

contract

Travel costs are allowable when they are directly attributable to specific work under an award.

Travel costs include transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the recipient.

Foreign travel is defined as any travel outside of country.

Air travel by other than economy class is UNALLOWABLE, unless otherwise authorized.

Costs of donations and contributions to others are

UNALLOWABLE

Costs of fines & penalties resulting

from violations of laws and regulations

are UNALLOWABLE

.

COST SHARING

1. Definition

2. Types of Cost Sharing

3. Principles

4. Guidelines

5. Conclusion

DefinitionCost Sharing is:• Contribution to the program cost• Value of goods and services directly

benefiting the program;• Means of mobilizing additional

resources for the program;• Usually described as a percentage of

total award cost.

Types of Cost Sharing1 Cash Contribution

Cash/money2 In-Kind Contribution

Real Property - LandExpendable Property - Supplies

Principles

Percentage is applied to the total award.

Verification is based on total expenditures at the end of each funding period (annual or life-of-project).

Guidelines

necessary and reasonable

allowable under the cost principles

approved in the budget

verifiable from the records

not included as contributions for any other similar program

Contributions Must Meet the Following Criteria:

Conclusion

• Keep deadline for financial and technical reporting• Timely use project funds to avoid underspending • Make sure that reported costs are incurred with in the

project period• Keep your financial documents for at least seven years • Timely check your burn rate (Spending Vs Budget)• Proper documentation is necessary for cost sharing• Agreement documents should be checked for proper

contributions

- If the recipient has expended the cost share amount less than the agreed amount or percentage of total expenditures, the donor may apply the difference to reduce the amount of incremental funding in the following funding period. - If the award has expired or has been terminated, the donor may require the recipient to refund the difference.

Conclusion cont’d…..

THANK YOU

The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI.

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