1. Financial Reporting Standards of ILRI By Mesfin Hailu ILRI-N2Africa Project Financial/Grant Management Training Workshop October 16, 2015 Info center, Addis Ababa

2. 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,

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

4. Use of Fund and Audit Grant fund Grant 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”.

5. 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.

6. 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%.

7. 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.xlsxN2 Africa 2015-Financial reporting Format.docExpenditure Category.docxIIT025-IWMI.xlsx

8. 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

9. 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.docxLine item reporting format.docx Receipts, PO’s, agreement document, payroll sheet, invoices, wage pay documents, attendance sheet

10. Effective financial management and internal contro l 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

11. 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

12. 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.

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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.

20. 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

21. Procurement Forms ^ Purchase Request Form ^ Purchase/Delivery Order Forms ^ Receiving and Inspection Report Form ^ Warehouse Receipt/Issuance Forms ^ Work Order/Request for Services Forms

22. COST PRINCIPLES Why Cost Principle? Determine costs that are acceptable as per the award

23. A cost is considered acceptable if it is Allowable under general rules and regulations of the award.

24. Factors affecting Allowability of costs Reasonable Allocable Consistent with policies and procedures

25. Reasonability means It does not exceed, in its nature or amount, that which would be incurred by a prudent person.

26. Reasonable Costs are Ordinary and necessary

27. Allocability Means Incurred specifically for the award

29. Recruitment Procurement Travel

30. Losses (whether actual or estimated) arising from uncollectable accounts and claims, related collection costs, and related legal costs.

31. Telephone Calls Fax Postage

32. Costs of alcoholic beverages are explicitly

33. Costs of amusement, social activities, and ceremonials are Party

34. 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.

35. Cost of renting facilities, meals, speakers' fees, and the like if specifically budgeted pursuant to a detailed financial plan and authorized in the award..

36. Real Property Vehicles 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

37. 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.

38. l Foreign travel is defined as any travel outside of country. l Air travel by other than economy class is UNALLOWABLE, unless otherwise authorized.

39. Costs of donations and contributions to others are UNALLOWABLE

40. Costs of fines & penalties resulting from violations of laws and regulations are UNALLOWABLE

41. . COST SHARING

42. 1.Definition 2.Types of Cost Sharing 3.Principles 4.Guidelines 5.Conclusion

43. Definition Cost 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.

44. Types of Cost Sharing 1 Cash Contribution  Cash/money 2 In-Kind Contribution  Real Property - Land  Expendable Property - Supplies

45. 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).

46. 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:

47. 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

48. - 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…..

49. THANK YOU

50. The presentation has a Creative Commons licence. You are free to re-use or distribute this work, provided credit is given to ILRI. better lives through livestock ilri.org