AUDITS AND MANAGEMENT REVIEWS - Food Resources Manual

An audit is an examination of the activities of an organization or a component of an organization. An audit informs the organization how well it has been operating, usually pointing out strengths and weaknesses as well as making recommendations for improvement.

Food audits can be performed by U.S. Government representatives (for USG required audits), independent audit firms hired by CARE or the donor, CARE-USA’s Internal Audit Department, or CARE’s external auditors.

U.S. Government Audits

The U.S. Government's Office of Management and Budget (OMB) CircularA-133 establishes audit requirements for certain non-profit organizations like CARE that receive USG support. The annual A-133 audit is conducted by CARE USA's external auditors and Internal Audit Department (IAD) on a worldwide basis. The audit opinion pertains to CARE USA's U.S. Government operations in their entirety, not to a specific region, country office, or program. The U.S. Government does not require individual country offices to submit audits. CARE’s external auditors currently audit about four country offices annually. The annual, worldwide A-133 audits are intended to reduce the number of U.S. Government-required audits. Grant-specific audits, however, can still be required.

The A-133 audit typically examines controls for reducing losses and maintaining accountability as food is moved from the port to the beneficiaries. The focus is on the material aspects of the programs-- warehousing, accounting, end-use monitoring, and reporting.

In addition, the IAD audits approximately ten country offices each year. These audits cover all U.S. Government assistance, encompassing both food and funds, including monetization proceeds. Findings and recommendations from these audits can be used as support material for A-133 audits.

Grant-Specific Audits

Currently, no donors other than the U.S. Government have anything equivalent to an A-133 audit. Instead, an audit of a specific grant or project may be required in the grant agreement. This audit is usually conducted by a local external audit firm on behalf of the donor. The donor may allow CARE USA's Internal Audit Department to conduct the audit, since the IAD is sufficiently independent of the grant or project. The substantial advantage in having the IAD conduct the audit is that it will take much less country office staff time and will not result in unreasonable findings stemming from ignorance or inexperience. Many times external auditors have little knowledge and experience in auditing food programs. Regardless of who conducts the audit, the country office should obtain a copy of all contracts with donors.

Internal Audits and Management Reviews

  1. CARE USA Internal Audit Department
  2. The IAD audits programs that receive food aid from both U.S. and non-U.S. donors.

    Specifically, the goals of IAD are to:

    • Assess risk exposure by reviewing and evaluating management controls as well as internal accounting controls
    • Recommend appropriate improvements in internal accounting and operations where inadequate controls have been found, or where controls should be instituted
    • Recommend appropriate improvements in the accountability and safeguarding of CARE’s assets and the reliability of management data developed and reported to senior managers in country offices, CARE USA and CARE Finance in Manila
    • Report significant findings and recommendations to senior management in a timely manner, providing assistance with implementation plans, if necessary
    • Evaluate the effectiveness of management’s proposed actions to correct internal control deficiencies.

    The specific objectives of food audits are to review the:

    • Reliability of certain financial and operational information, such as waybills, warehouse inventory ledgers and Commodity Status Reports
    • Systems established to insure compliance with those policies, plans, procedures, regulations, and laws that could have a significant impact on operations and reports; and determine whether the country office is in compliance
    • Means of safeguarding food from loss and misuse, and as appropriate, verify the existence of such food.

    IAD submits an annual schedule of proposed internal audits to country offices for their concurrence and makes a reasonable effort to reschedule audit dates when the country office has a schedule conflict. The scope and objectives of the audit are submitted to the country office approximately one month before the scheduled beginning of the audit. The country office is asked to complete an Internal Control Questionnaire, which provides IAD with important planning information. Most of the information required is easily prepared from existing reports or documents.

    Internal audits of food programs are usually combined with internal audits of funds and property. These audits take about four to six weeks to complete.

    Internal auditors meet with staff at the principal office, review documents and systems, visit sub-offices, warehouses and distribution sites where material amounts of food are handled, and meet with local donors, if applicable. The IAD also will incorporate reasonable requests by the country office into the scope of the audit.

    All audit observations and recommendations are documented in writing and discussed with the country director and other staff before the auditors leave. Before issuing a final audit report, IAD provides the country office with a draft report and an opportunity to comment.

    The country office, with concurrence from the RMU, may explicitly disagree with and choose not to implement any recommendation. The RMU and the country director must accept the risks of not implementing the recommendations.

    CARE USA expects all accepted recommendations to be implemented within three months of the issue date of the audit report, unless an extension is granted. The final audit report is distributed to the executive staff at CARE USA, the Director of the RMG, FSU, BGA, and the appropriate RMU.

  3. Country Offices
  4. Senior management of each country office staff must be actively involved in monitoring its own food activities. Some country offices have created internal audit positions within the management structure of the country office.

    A senior manager can easily make a surprise physical count of food in a warehouse when visiting a sub-office or examine a sample of warehouse inventory records and stock cards and trace some of the entries to the source documents, verifying that the source documents have been properly authorized. Whether or not any discrepancies are discovered, this shows that senior management takes an active role in insuring that systems are in place and are properly operated to minimize the risk of loss and to promote effective food programs.

    Given the high value of food assets and responsibilities for safeguarding them, country offices should carry out an internal management review at least annually.The nature and extent of these reviews should be coordinated with regional managers at CARE USA Headquarters. Results of reviews can be used to support responses to the Program Division’s Management Assessment for Country Offices (MACO).

    The following checklist may be helpful in carrying out the reviews. The checklist is adapted from Attachment 14A, AID’s Suggested Checklist for Internal Reviews of PL 480 Title II Programs of Voluntary Agencies, Handbook Nine, January 1981. How extensively country offices will follow the checklist depends on the program’s operational environment, numbers of experienced staff, relationships with counterparts and known weaknesses of systems.

  5. Suggested Checklist for Management Reviews
    1. Responsibilities and Timing
    2. Senior managers of country offices will be responsible for reviewing their own operations each year and submitting findings and recommendations to regional managers and internal audit at CAREUSA Headquarters. The review may be conducted by members of the country office staff or experienced outside consultants.

    3. Places to be Reviewed
      • Country and regional offices
      • Counterpart offices -- main and regional
      • Ports
      • Warehouses
      • A representative sample of distribution sites.
    4. Overall Assessment of Agency’s Capability
      • Country office (appearance, size, location equipment, type of records, status of files and reports)
      • Size and capability of staff and number of field monitors
      • Scope and quality of previous reviews and action taken on previous recommendations
      • Agreements and effectiveness of their implementation.
        1. Summary of agreements:
          • Between country office and host government
          • Between country office and counterparts, including those at distribution sites
          • Between country office and contractors for services.
        2. Agreement coverage for the following:
          • Survey of cargo discharge from ships
          • Prompt duty free entry
          • Right of country office representatives to examine records of counterpart operations, inspect food in storage, and observe distributions
          • Travel in country and make decisions about the program
          • Confiscation and return by police of food found in black markets
          • Coverage of operational and distribution costs by donors and counterparts, including in-kind contributions
          • Counterpart reimbursement for losses.
        3. General recommendations for improving country offices’ capability.
    5. Review of Country Office Policy and Program Guidelines and Their Implementation
      1. Eligibility of Recipients
        • Written guidelines or criteria prepared by country office to share with groups requesting food. Are these guidelines known to counterparts and other local organizations? Are guidelines consistent with donor laws and regulations?
        • What criteria are supposed to be used before approving new projects or terminating others? Are they applied in practice? If not, why not?
        • Select three specific projects belonging to different projects using food resources in different ways, e.g., MCH, FFW or emergency distributions, and verify how eligibility requirements (including payment of nominal fees) were applied.
        • Formulate recommendations for improving eligibility guidelines and their enforcement.
      2. Computation of Food Requirements
        • How were individual food rations determined for each program category request to donors, e.g., an AER for Title II programs?
        • Compare requested rations with rations dispatched from warehouses and with rations actually distributed at the three selected project sites. Note and explain any discrepancies.
        • Is information on the number of beneficiaries per project updated before warehouse dispatch orders are emitted for a given project?
        • Compare existing stocks at selected project sites and warehouses serving them with “normal” distribution rates according to approved rations and number of beneficiaries. Account for losses or excesses.
        • Make recommendations about methods of computing, updating and controlling food requirements.
      3. Adequacy of Physical Facilities and Equipment
        • Ports
        • Main warehouse
        • Regional and secondary warehouses
        • Stores and distribution points at selected project sites.
    6. Review of Control Documents and Inventory Systems
      • The description of the country and regional office inventory system follows the “life-cycle” of a typical food shipment, from the development of the program plan and request to the donor through final reports on distribution and end-use. Each step will be numbered and any gaps in the inventory “system” noted.
      • The donor approved program plan should be checked against actual distributions by using “case histories” of specific shipments. Reference should be made to points where information systems were inadequate or where decisions were not taken despite adequate information, indicating why and who was responsible.
      • Make recommendations to improve country office information systems.
    7. Steps to Check in the “Life-Cycle” of a Shipment
      • Basis for preparing request to donors for estimated future needs or for emergencies
      • Basis for preparing program plans in coordination with donors, counterparts and other international or local NGOs
      • Basis for submitting Call Forwards
      • Usefulness and timeliness of shipping documents sent by CAREUSA’s Procurement Office and other CI member offices
      • Documentation and procedures required for clearing shipments through port
      • Independent discharge and delivery survey reports and filing of claims for marine and internal losses
      • Control of port losses and claims
      • Control of transport to main warehouses
      • Control of warehouse inventory and losses
      • Control of updated food requirements for each project or region
      • Basis for and frequency of warehouse dispatch orders to projects or regions
      • Control of transit losses during transport from main warehouses to regional, other secondary warehouses and at project sites
      • Control of losses at regional or other secondary warehouses and at project sites
      • Method of disposal of damaged food
      • Claims made for inland losses
      • Control of distribution from regional warehouses or other secondary warehouses to project sites
      • Methods of distribution, and control documents at projects sites
      • Frequency and form of end-use checks and inspections, including reports and actions taken
      • Control and utilization of funds from beneficiary contributions and the sale of empty containers
      • Actions taken to avoid sale or trade of food by beneficiaries
      • End-use reports provided by beneficiaries and by regional offices
      • Basis for preparing commodity and recipient status reports
      • Actions taken to ensure that overall distribution levels are within approved program plans
      • Coordination of food aid from different donors, including distribution of food from multiple donors and avoidance of giving the same beneficiaries multiple rations from different donors unless otherwise provided by program plans.
    8. Summary of Recommendations for the Management Review

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