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EUROPEAN COMMISSION

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EUROPEAN COMMISSION

    EUROPEAN COMMISSION UNITED NATIONS

    1Common terms of reference for a Verification Mission to

    

    < indicate agreed verification dates; Day Day Month Year>

Table of Contents

    1 GENERAL AND BACKGROUND ......................................................................................... 2 1.1 INTRODUCTION ................................................................................................................. 2 1.2 THE FINANCIAL AND ADMINISTRATIVE FRAMEWORK AGREEMENT ..................................... 2 2 OBJECTIVES ......................................................................................................................... 2 3 SCOPE ..................................................................................................................................... 3 4 METHODOLOGY .................................................................................................................. 4 4.1 VERIFICATION APPROACH ................................................................................................. 4 4.2 THE PROGRAMME / PROJECT MANAGEMENT CYCLE ........................................................... 4 4.3 VERIFICATION AREAS AND SUBJECTS ................................................................................ 5 4.4 METHODS VERIFICATION TOR AND QUESTIONNAIRE ........................................................ 5 4.5 SUPPORTING DOCUMENTATION ......................................................................................... 7 5 REPORTING........................................................................................................................... 8 ANNEX 1: KEY INFORMATION ON THE "ACTION" ............................................................... 9 ANNEX II: VERIFICATION QUESTIONNAIRE ....................................................................... 11

Verification Team of Commission Representatives

     her representatives> Agreed Place and

    date

     1 These Terms of Reference might be adjusted towards the specificities of each grant agreement /

    contract between the involved EC and UN organisations to ensure the optimal outcome of the intended

    verification for both parties.

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    Terms of Reference for a Verification Mission to

    xx - xx Month 200X

    1 General and Background

    1.1 Introduction

    As provided for in the verification clause of the Financial and Administrative Framework

    Agreement („FAFA‟) signed between the EC and the UN, the Commission and <name of the UN entity subject to the verification; for the purpose of these terms of reference (ToR) this

    will further be referred to as ‘UN entity’> have agreed to a verification visit at <name of the UN office and duty station> from <indicate verification dates; xx xx Month 200X>. The verification mission will be conducted by a verification team of Commission Representatives

    (see cover page).

    Following preparatory discussions and meetings held between <indicate Commission services or the Delegation> and <UN entity>, <UN entity> agreed to facilitate a verification visit by

    the <indicate Commission services or the Delegation> on <Day Month Year>. Annex I provides relevant background information concerning:

    ? A description of <the contribution-specific agreement> <describe the agreement between the Commission and the UN entity. Provide the title and date of signature of the agreement

    / contractual documents such as for example financing agreement or grant agreement. For

    the purpose of these ToR this document will further be referred to as ‘the Agreement’> ? A description of the <UN entity> and its mission, objectives, activities and organisation.

    ? A description of the <name of the Action financed by the Commission. For the purpose of

    these ToR this will further be referred to as ’the Action’>.

    ? An overview of the most recent financial status of implementation of <the Action>. ? A process description of the key aspects of the programme / project management cycle of

    <UN entity> insofar this is relevant for the management of <the Agreement>. 1.2 The Financial and Administrative Framework Agreement

    The FAFA, which was signed on 29 April 2003 and includes the texts of the 1994 verification

    clause and the 2001 agreement on the application of the verification clause, forms the basis

    and guidance for verifications to be carried out. Further to the verification clause provisions

    set forth in the FAFA, the present ToR aim to be a tool to facilitate the conduct of

    verifications.

    2 Objectives

    The objective of the verification is to acquire an understanding of, and to report on the

    adequacy of the system of accountability (accounting systems and procedures, control and

    procurement procedures, reporting, oversight/audit mechanisms) in place, to enable the

    Commission to report to its own institutions on the proper use of EC funds.

    The Commission may also request all relevant financial information (drawn from accounts

    and records) and seek clarifications of information, including verification of underlying

    documents. Such information will be in a form which makes it possible for the EC to verify

    the use, in line with the provisions of the FAFA, to which its funds or contributions have been

    put.

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    Terms of Reference for a Verification Mission to

    xx - xx Month 200X The verification will result in a report of factual findings including a conclusion and where

    appropriate recommendations. As this verification is not an audit, no audit report including an

    audit opinion will be issued.

    It must be noted that the objective of the verification is not to audit <UN entity>. The Commission acknowledges the mandated primacy of UN oversight and control systems,

    including the principle of exclusive or single audit by United Nations External Auditors, and

    in keeping with internationally-accepted practice in the discipline of financial oversight and

    control, will endeavour to build reliance on these systems.

    3 Scope

    The scope of the verification will cover two main areas:

    ? A review of the adequacy of the system of accountability put in place by <UN entity> to account for, and report on, the use of the funds provided by <the Agreement> for <the Action>.

    Adequacy here has been taken to mean that the accountability system provides information

    to the EC representatives that EC funds are properly used in accordance with the principles

    of the FAFA and the conditions of .

    The approach to verify the adequacy of the system of accountability will take full account

    of the process operated by <UN entity> to plan, implement and complete the activities

    financed by <the Agreement>, i.e. the programme/project management cycle. Thus it is

    essential for the verification team to obtain a sufficient understanding of this process.

    This review will contribute to EC's understanding of the overall accountability system or

    internal control framework relating to the actions subject to verification. The review of the

    accountability system will only cover aspects which are relevant for the management of

    the activities of <the Action> and for the use of the funds provided by for <the Action>. Nevertheless some general aspects of <UN entity’s> organisation and internal control framework have to be addressed. This is necessary for the verification

    team to obtain a sufficient understanding of the framework within which <the Action> funded by is managed by <UN entity>. As an example, a review of the

    relevant reports of the previous verification missions to the <UN entity> can be taken into

    consideration for that purpose.

    ? Checks on the adequacy of the information supporting the implementation of the

    greement> and the <UN entity’s> use of the EC funds.

    The checks will be focused on all relevant information drawn from <UN entity’s> accounts

    and records and will be in a form which makes it possible for the Communities to verify

    the use to which its funds or contributions have been put. The checks will allow for the

    verification of a sample of this information to underlying supporting documents. Relevant

    information is all the information that relates to the accounting for, and reporting on, the

    use of the funds provided by for <the Action>. The checks on the

    adequacy of underlying supporting information are complementary to the review of <UN

    entity’s> accountability systems, and will be provided in accordance with paragraph 4.5.

    Adequacy here has been taken to mean that the supporting information relating to <the

    Action> and drawn from <UN entity’s> accounts and records, allow the EC to verify that

    the EC funds are used in accordance with the terms and conditions of <the Agreement>

    and compliant with the FAFA provisions as outlined in the respective sections of this

    agreement .

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    Terms of Reference for a Verification Mission to

    xx - xx Month 200X 4 Methodology

    4.1 Verification Approach

    The verification approach aims to ensure that:

    ? The results of the verification procedures provide information to the EC representatives

    that EC funds are properly managed in accordance with the principles of the FAFA and the

    conditions of .

    ? The verification team obtains a sufficient understanding of the organisation, activities,

    accountability system and the programme/project management cycle of <UN entity>. The focus of the verification work will be on systems, processes and procedures relating to the

    management (i.e. programming, implementation and closing) of <the Action> and compliance with the <Agreement>;

    ? The adequacy, existence and functioning of the systems and the adequacy of supporting

    information and documentation, based upon a sample can be verified;

    ? Accounting, auditing, internal control and procurement aspects, which are key verification

    areas, can be properly verified with regard to all relevant aspects of the programme/project

    management cycle for <the Action>.

    The verification approach can be illustrated as follows:

    Programme / Verification Verification Verification

    project areas subjects methods & management cycle techniques

     ? Action specific Organisation, key Review of systems,

    matters tasks and procedures and PROGRAMMING responsibilities financial and

    ? Accounting management Systems information:

     IMPLEMENTATION Procedures - interviews,

    ? Auditing meetings, Information, discussions

     documents, records CLOSING - walkthroughs

    ? Procurement Compliance with the

    FAFA and <the - reconciliations,

    Agreement> analytical procedures

    ? Internal control Special subjects: - examination and

     eligibility of verification of

     expenditure, visibility information and

     documents 4.2 The Programme / Project Management Cycle

    The verification team obtains a description of the programme/project management cycle that

    applies to the management of <the Action> (see Annex I). Key aspects are:

    Programming: identification, formulation (including budget), appraisal and approval of

    programme activities/ projects/sub-projects.

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    Implementation: implementation of programme activities/ projects/sub-projects, contracting,

    financing (commitments / payments) and eligibility of expenditures claimed, management,

    monitoring and control aspects.

    Closing: closing of programme activities/ projects/sub-projects (e.g. final payments, final

    progress report, final financial report evaluation, audit, (where applicable) special procedures

    such as transfer of project equipment).

    4.3 Verification Areas and Subjects

    Accounting, auditing, internal control (with a strong focus on reporting) and procurement

    related to the action are major verification areas which, for the purpose of obtaining an

    understanding of these areas, are to be covered for all stages of the programme / project

    management cycle. Depending on the area, the stage in the programme/project management

    cycle, the procedures used by <UN entity> to manage the <Programme>, the area may be

    more or less relevant. For example: internal control is relevant for all stages (planning,

    monitoring, reporting and closing), procurement is primarily relevant during implementation

    and auditing is often primarily relevant during implementation and closing. Verification areas

    can relate to one or more verification subjects.

    4.4 Methods Verification ToR and questionnaire

    The verification will be performed in line with the objectives and scope as specified above,

    and in accordance with the operational principles for the planning and conduct as set out in

    the Agreement on the application of the verification clause of the FAFA.

    Planning

    The verification team:

    ? Arranges for a verification with signatories of the <agreement >and informs a single point of contact to ensure coordination to communicate with <UN entity> and requests <UN

    entity> to facilitate a verification visit;

    ? Draws up draft verification terms of reference and a draft indicative verification

    questionnaire;

    ? Sends information relevant to the verification to <UN entity>, holds consultations with <UN entity> and agrees on the scope of the mission. This may include questions the

    mission wishes to raise with management, the nature of financial information and details

    of the key processes. Sends the same information to AIDCO G2 for overall monitoring of

    UN verification missions.

    ? The level of sampling must be appropriate to the nature of the verification and its

    corresponding objectives and scope. It is not intended to carry out an audit of <UN entity>,

    for which the exclusive right belongs to the audit bodies of <UN entity>. The actual level

    of sampling to be applied for the verification shall, in line with the objectives of the <the

    Action>, the objectives and scope of each verification, the control systems in place and the

    's resources to support the verification team, be determined by the

    Commission and the <UN entity>. The verification mission may sample up to a maximum

    of 5 transactions per key process (procurement, recruitment including payroll,

    disbursements, budget management, logistics and reporting) per project as relevant to the

    project funded by the EC. Within these, the key relevant processes will be identified by

    mutual agreement between the and the verification team. The EC verification team will bring any transaction identified with a problem to the attention of

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    Terms of Reference for a Verification Mission to

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    the . Should the problem be substantiated by the and the EC verification team, then an additional 5 transactions in the same process will be sampled. If

    one or more of these extra 5 transactions reveals any further problem, the verification team

    will not pursue sampling but will refer to the Controller (or equivalent). Any disagreement on the substantiation of the problem(s) at any stage of the sampling between

    the and the EC verification team will be referred to the Controller (or equivalent).

    ? Agrees with <UN entity> the dates and exact location(s) of the verification, availability of

    management and staff to support the verification mission and access to information (e.g.

    systems and documents) including any field visits (e.g. to project beneficiaries) deemed

    necessary. The planning will take into account any previous verification missions to the

    .

    Conduct

    In order to facilitate the practical organisation of the verification mission, the verification

    team will complete, with the assistance of the where appropriate, a verification questionnaire. An indicative verification questionnaire („IVQ‟) is attached to these ToR

    (Annex II). The IVQ provides the basis to carry out planned procedures and tests but will be

    adapted and tailored during on-site work. Where necessary or appropriate the team will adapt

    planned procedures and tests to the circumstances and organisational structure in which <UN

    entity> manages the funds provided by <the Agreement> for <the Action>. Thus the team may adapt, cancel or add verification procedures and tests in agreement with the management of

    the <UN entity>. Wherever possible the verification team will search for relevant publicly

    available information before departure on missions and will verify and discuss it with the

    management of <UN entity> during the mission. In this respect, the verification team will also

    consult information obtained during previous EC verification missions, also by other teams,

    as well as during the four pillars exercise.

    The verification team will perform, among others, the following verification tests and

    procedures as agreed with <UN entity>:

    ? Meetings, interviews and discussions with the management and staff of <UN entity>; ? Where these have been made public, a review of the results of audits, checks and other

    controls (systematic or ad hoc) by audit bodies of the <UN entity>. The verification team will take into consideration the results of these audits, checks and controls on EC funded

    projects carried out by internal auditors of UN agencies, as well as statements made by the

    external auditors of the <UN entity>, with regard to assurances given to donors on the use

    of their funds. These procedures are complementary to the verification tests and

    procedures set out below. They should be seen as part of a process of obtaining an

    assurance and understanding of control systems, whereby Commission representatives

    may wish to confer with the organisation's internal audit function and external auditors in

    order to understand the overall operation of the internal and external audit function.

    Should the need arise, and where the audit disclosure policy of the so permits, the verification team may ask to see the content of non public audits;

    ? Review of information and systems;

    ? Walkthrough tests of the programme/project management cycle and related systems and

    procedures to determine how funds financed from <the Agreement> are tracked, controlled and reported upon within <UN entity’s> system of accountability.

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    ? Other tests and verification procedures which are complementary to the review of the

    accountability systems and walkthrough tests. These (substantive) tests include but are not

    limited to: analytical review of accounting and financial information, reconciliation of

    financial information with accounting records, verification of information with underlying

    documents and records (e.g. accounting records, invoices, payment documents, contracts,

    salary and staff records, project documents, etc.), verification of compliance with he

    Agreement> in particular eligibility of programme/project expenditure. It is understood

    that such other tests will be conducted under the provisions of the 5 samples established

    under the fourth bullet point under the “Planning” section under “4.4 Methods –

    Verification ToR and questionnaire” above.

    Indicative Verification Questionnaire (‘IVQ’) Part Description

    I General (organisation, objectives, activities, project management, reporting) II Accountability system - Programme / project management cycle (including walkthrough) III Action specific - Verification of information (financial and non-financial) IV Action specific other issues: visibility, contracting

    V Accountability system - Accounting

    VI Accountability system - Auditing

    VII Accountability system - Internal Control

    VIII Accountability system - Procurement -

    Benchmarks and criteria

    The Indicative Verification Questionnaire in Annex II of these ToR includes verification

    benchmarks and criteria as provided by the FAFA, and <the Agreement>. Debriefing

    At the end of the on-site verification, the verification team will arrange for a debriefing

    meeting with the management of <UN entity> and staff involved in the verification. The team

    will present its views on the conduct of the verification (a/o objective, scope, conduct,

    reporting aspects) as well as its preliminary findings and eventual conclusions.

    All Commission and staff involved should bear in mind the limited resources of

    both the and the verification team in terms of availability and capacity in

    handling these visits.

    Initial and final meetings between the mission and the organization's senior management are

    to be conducted at the start and end of the mission.

    4.5 Supporting documentation

    In accordance with the verification provisions of the FAFA, the , upon request, will make all relevant information available, including statements of accounts concerning the

    programme/project, where they are executed by the or by subcontracting. Such information, drawn from accounts and records, will be in a form which makes it possible for

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    Terms of Reference for a Verification Mission to

    xx - xx Month 200X the EC to draw conclusions on the adequacy of the accountability system put in place by <UN entity> and the use to which its funds or contributions have been put. The EC may request

    clarifications, including verification of specific documents and, as part of these checks, entity> staff will explain, with appropriate concrete examples, how the accounts are managed

    and the procedures used to ensure transparency and accuracy in the accounts and to guard

    against the misuse of funds and fraud.

    As part of the process of obtaining an assurance and understanding of control systems,

    Commission representatives may wish to confer with the organisation's internal audit function

    and external auditors in order to understand the overall operation of the internal and external

    audit function.

    Subject to considerations of confidentiality, original documents shall be shown to the mission

    to facilitate the check process. For the most part, copies of such documents will not be taken

    by the mission. However, requests for copies of such documents will be considered by the

     on a case-by-case basis and will be determined by the organisation‟s

    management in consultation with, as necessary and appropriate, its external/internal auditors.

    The verification team will respect the established confidentiality policy of the . This policy must therefore be transmitted to the verification team by the entity.

    5 Reporting

    The verification team will draw up a verification report which describes the purpose and the

    nature and extent of the verification work in sufficient detail to provide an appropriate basis

    for the conclusions and to allow the readers of the report to understand the work done. The

    report will describe the background and context, objectives, scope of work, sources of

    information and supporting documentation, main findings, recommendations where

    appropriate and conclusions. The verification team conclusions will be based on the work

    done taking note of instances where original documents were not made available by <UN entity>. The team will need to consider to what extent this would have an impact on the

    objective of the verification to report on the adequacy of the system of accountability and the

    proper use of EC funds.

In accordance with the operational principles of the Agreement on the application of the

    verification clause of the FAFA, the verification team will make available to <UN entity>'s management a draft verification report for comments prior to final issuance. The and the verification team agree that the comments will be sent by the , at the latest, working days after the receipt of the draft report.

    The final report will include all comments provided by <UN entity>.

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Annex 1: Key Information on the "Action"

    obtaining a good overall understanding. They should be drawn up by the verification team on

    the basis of information collected prior to verification from the UN entity (e.g. most recent

    financial overview, public available information) and Commission services or delegations

    (e.g. copies of financing and grant agreements, contracts etc).

The information should be considered as provisional and indicative and does not necessarily

    have to be fully accurate and complete. The purpose is for the verification team to obtain an

    overall picture and appropriate understanding of the agreement between the Commission and

    the UN entity, the programme, activities, and the organisational and overall framework

    within which the programme is managed by the UN entity.

The information and text provided in this model annex is indicative and sometimes examples

    are used to illustrate how information could be presented.

It is the responsibility of the verification team to obtain and present key information in a way

    which allows the team to get a good understanding for the purpose of drawing up

    appropriate verification ToR and an indicative verification work questionnaire and to plan

    verification work.>

1.1 Description of between the Commission and

    entity>

    < Explanation: this part should briefly describe the relevant agreements. There may for

    example be a Financing Agreement between the Commission and the Government of a

    beneficiary country and a Grant Agreement between the Commission and the UN entity

    concerned. This should be properly explained>.

    For example: <UN entity>, represented by the Director of the Country Office and the

    Commission, represented by the Head of Delegation of the EC to Country X have signed a

    Grant Agreement with an international organisation concerning the Programme . The

    table below summarises some of the main features of Grant Agreement (further referred to as

    „GA‟)

    Contract / project number Programme/Year / xxxx Project title Support to XXXXXXX Type of financing Grant agreement for implementation of project X

    Grant beneficiary UN entity Date of signature Day/Month/Year Time schedule for project implementation From till Day/Month/Year Total cost eligible for financing and xxxx ? maximum EC contribution

     xxxx ?

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    Terms of Reference for a Verification Mission to

    xx - xx Month 200X 1.2 Description of

    < Explanation: this part should describe the UN entity concerned. The description should

    include but not necessarily be limited to a description of the UN entity, its mission, objectives,

    main activities, the organisational framework, key responsibilities and tasks, important

    operating procedures, website reference e.g. http://www.unentity.org/)

    1.3 Description of the Action

    < Explanation: this part should describe the Programme which receives EC funding through

    the Agreement(s) described in Section 1.2. The description should include but not necessarily

    be limited to objectives, programme activities, organisational set up, key responsibilities and

    tasks, locations, contracting of activities to project beneficiaries, types of projects and key

    criteria to be met by projects>

    1.4 Description of the Financial Status of the Implementation of the

    Action

    < Explanation: this part should describe the most recent financial status of the Action on the

    basis of the latest financial report. Where applicable the financial overview may be supported

    by information (e.g. contract period, date started / closed etc) on a project-by-project basis.

    Financial information should be presented in an analytical and easy-to-read format and

    where appropriate be explained with narratives.>

    For example: on the basis of the latest information available (Financial report of <UN entity> to the Commission of Day/Month/Year) the financial status of the implementation of the

    Action is summarised in the table below. The figures in this table are indicative and are

    supported by a detailed breakdown of programme activities and information on a project-by

    project basis.

    Financial situation of the Action as per Day/Month/Year EC contribution 20.000.000 ? Total advances received by <UN entity> from Commission 12.000.000 ? Percentage of EC contribution paid 60 % Total amount committed by <UN entity> to programme activities. For 15.000.000 ? example: total 40 projects approved in 2003 2005 and contracts signed

    (see project breakdown)

    Total paid by the <UN entity>. For example: advance and final payments 12.000.000 ? to 40 projects (see project breakdown)

    Balance available for new projects 5.000.000 ? Expenditure incurred and reported by project beneficiaries 4.778.280 ? 1.5 Description of the Programme/project Management Cycle < Explanation: this part should describe key aspects of the programme / project management

    cycle.

    It is important that, particularly where programme activities are implemented through a

    range of projects or subprojects, the verification team obtains a programme/project

    management cycle description as early as possible, preferably prior to the verification, to

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