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Partner control procedures
Essentially, an Administration Handbook (AH) has to exist. The AH is a manual that must contain the financial relationship between the partner’s administrative functions and project activities. At the same time the AH must describe the internal control procedures within the partner.
The following are the minimum requirements for the AH and the partner should consider which special laws and other issues relating to the country that could influence the financial procedures and include these in the AH:
- Description of the partner organisation to ensure that at all levels in the structure and the internal upwards and downwards accountability is known. Furthermore this section should describe the job functions as well as responsibilities within the partner organisation.
- Description of procedures in relation to the mutual information flow between the various entities in the project.
- Description of the financial management procedures to be applied by all staff. The following financial procedures are minimum requirements to be included:
- Accounting procedures;
- Budgeting procedures;
- Cash flow management procedures;
- Monthly, quarterly and annual financial follow up and reporting procedures;
- Internal and external controls;
Partner procedures should exist to cover the following internal control features, which are elaborated in the AH:
- employing capable staff;
- clear delegation and separation of duties (within the available staff);
- proper authorisation and cheque signing procedures;
- physical safeguard of cash and other assets;
- adequate documentation and accuracy of recording;
- independent verification.
Employing capable staff
When hiring staff, the checking of references and verification of information submitted on the Curriculum Vitae by the applicant must be performed. A record should be kept in the personnel file of the procedure followed.
Employment of immediate family members within a direct line of responsibility should be avoided.
It should be made clear to employees where a conflict of interest may take place. All transactions handled by employees must be at ‘arms length’, with no connection to you, and not to connected persons. There must be no personal financial or material gain whatsoever resulting from the performance of the employee’s duties beyond their agreed remuneration.
The taking of vacations and rotation of staff duties are proven methods for ensuring that unsound practices are highlighted.
Clear delegation and separation of duties
All staff must be issued with a set of Terms of Reference (also known as a Job Description) clearly stating their duties and responsibilities at the time of appointment, and their relationship with other staff members; which the employee signs acknowledging their acceptance. The Terms of Reference should be reviewed on an annual basis as part of the staff appraisal and alterations made to reflect the current situation.
Separation of duties is difficult within the small operating units that exist. Where this is the case, the importance is stressed for authorisation of all major transactions by an independent responsible person.
The checking of control procedures is important where limited separation of duties exists and should be made by the donor representative.
Proper authorisation and cheque signing procedures
Payments to suppliers
All payments must be authorised by a responsible person for the project. This person must be independent from the person processing the payment. Authorisation means that the correct economic price has been charged; that the goods or services have been received in full; that the cost is within an approved budget; and that payment may then proceed. Original documentation must accompany the payment request.
Payments in cash to suppliers
In some developing economies where cheque payments are not fully recognised most payments are made in cash and then additional controls must be performed.
Where possible an invoice should be obtained complying with the legal requirements of the country. When proper documentation is not obtained, an independent opinion on the transaction is advisable, or where an invoice is not available, a document should be prepared showing sufficient detail of the transaction, which the supplier signs.
In addition to the responsible person authorising the transaction another senior person at the office must review and authorise the cash payments.
When confirming these transactions it is essential that on a random basis; suppliers are contacted to ensure the validity of their transactions, and prices be independently verified with other suppliers.
All cheques, electronic payments and bank transfers to suppliers should be authorised by at least two responsible persons jointly. When one of the signatories is going to be absent from the office, another senior person should be given the temporary authority to sign. Blank cheques should never be signed.
Electronic payment is becoming the normal method of payment using electronic or internet banking. Where direct crediting to a supplier’s account is possible by electronic means, a system must be so established whereby a second person authorises the payment. The authorising person’s password must not be available to anyone else and should be frequently changed. With the ease with which electronic payments can be made it must be recognised that this is a significant area of risk and controls must not be relaxed.
Transfers to Partners
Payments made to alliance partners will be in accordance with a contract, which should state the conditions under which the transfers will be made. It should therefore be confirmed that:
- Transfers are in accordance with contract and payment plan;
- The liquidity of the partner has been confirmed;
- The transfer has been approved by the project manager;
- Pre-emptive conditions have been complied with such as audit and reporting requirements;
- The alliance partner is meeting the requirements of maintaining adequate accounting records and controls;
A review of the partners accounting procedures should be performed before commencement of the contract or if not possible then early in the contract, and where necessary recommendations made for improvement. A partner risk assessment must always be performed before the contract is signed.
Payments for national staff salaries
The payroll should be authorised by a responsible person separate from the person preparing the salaries. When authorising salaries it should be checked that there have been no abnormal increases in salary and that all persons on the payroll can be verified as known employees. An internal audit check should be performed occasionally that salaries are in accordance with contracts of employment.
Payment of salaries will wherever possible be made electronically into employee’s bank accounts and staff should be encouraged to open a bank account for this purpose. The total amount transferred must agree to the authorised payroll.
Payments for taxes, social security, pension and medical aid must conform to national statutory requirements and be made within the required deadlines.