C4 Meeting our Financial Audit Requirements for the Use of Aid Funds

Background

DFID's Accounting Officer (the Permanent Secretary) is accountable to Parliament for DFID's spending. The National Audit Office (NAO), on behalf of Parliament, scrutinises DFID's systems for ensuring effective management and proper use of the development budget for their audit of our accounts. NAO has access to all DFID's books and files.

As a manager of taxpayers' money, DFID has to be able to provide assurance: (a) that we have paid money to the intended recipient and (b) that funds have been used for the purposes agreed. This is a key part of our broader responsibility for ensuring that our spending represents Value for Money (VfM) and contributes to delivery of the Millennium Development Goals (MDGs)

Evidence that we have paid money to the intended recipient is normally generated through the standard payments system (e.g. for all financial aid, Crown Agents Bank (CAB) provides us with a satisfactory degree of assurance that payments have been transferred to the intended recipient; and for non-financial aid our own accounting and banking systems provide this assurance).

Evidence that funds have been used for the purpose agreed can require further action, and project staff will often be involved in securing the additional evidence required.

The evidence we need to have about the use of funds varies depending on the form of aid:

• For Financial Aid in the form of Poverty Reduction Budget Support (PRBS), the basic accounting discharge is provided by CAB, which confirms that funds have reached, for example, the Consolidated Fund of the partner country concerned.
• However it is mandatory to undertake a Fiduciary Risk Assessment (FRA) as part of our PRBS appraisal, and that we put in place reasonable arrangements to monitor the partner Government's financial management. These arrangements would normally be based on the output of the partner Government's reporting and accounting systems, and the reports of the partner Government Auditor General, backed up by additional information or safeguards where necessary. In most cases our assessment and monitoring should be part of a common reporting and audit framework for all funders, and there will often be an agreed financial management reform programme to support and strengthen these local systems.
• For non-budget financial aid, where there is more detailed specification of what funds are to be used for, and where money is being reimbursed to the partner government for local expenditure, we need either:
  Annual Audited Statements (AAS) from the Auditor General which confirm that the partner Government has used DFID finances as intended or an alternative audit discharge through independent continuous audit or other external audit (see Processes and Tools below).
• For Financial Aid expenditure where a Procurement Agent is the buyer on behalf of the partner Government, no additional audit evidence is required. CAB use invoices and supporting vouchers and documentations associated with the payment to confirm what the money has been spent on.
• Where DFID itself buys goods and services, additional audit evidence is required.
• We use invoices, supporting vouchers and documentation associated with the payment to confirm what the money has been spent on.
  For grants to international organisations, we need evidence about the use of funds from the organisation's own audited accounts, or special audited statements. Our requirements are set out in (MOU) texts.
• For Accountable Grants to Civil Society Organisations (CSOs)/Non Government Organisations (NGOs) others, we need evidence about the use of funds through the receipt of Annual Audited Accounts, which show funds received from DFID, or through a separate audited statement. Our requirements are set out in the standard Accountable Grant letter.