Country Office Composite Audit

Data Owner	Narayanan Chettiar ([e-mail]), OAI
Availability in Data Warehouse	Available
Data Refresh Rate	Daily
Accountability Weighted Scoring	30%

Introduction

Calculation of Scoring

Part 1: Country Office Performance Audit (50% by default)

• Last CO Performance Audit

How do we determine the overall weight of Part 1?

• 0-2 years: 50% weight

• 2+ years: 40% weight

• 3+ years: 30% weight

• 4+ years: 20% weight

Note that the years are based on the issue date of the audit and is recalculated daily

We score only using each country's latest CO audit reports. Previous historical audit ratings are shown in the indicator drill down but are not considered in the scoring methodology.

For each audit result, we assign the following scores:

Audit Result	Score
Fully Satisfactory	100
Satisfactory / Some Improvement Needed	80
Partially Satisfactory / Major Improvement Needed	60
Unsatisfactory	0

Unsatisfactory is rated as zero. We want to significantly reduce the aggregate scores if even a small number of country offices in a region have Unsatisfactory audit ratings because these are so important to the organisation.

For Regional Bureau aggregation, we take an average of all the scoring, and the global average is calculated as an average of all country scores, not as an average of the Regional Bureau aggregation. This is to avoid skewed results, as different Regional Bureaus have different numbers of country offices. No weight is attached to country population size, amount of programming, or office size/budget.

Part 2: Project Audits (70% of [Indicator minus Part 1])

Let's start with some definitions:

• DIM/DEX — Direct Implementation Modality, this is where UNDP is the implementor.

• NIM — National Implementation Modality, this is where the Government is the implementor.

• NGO/Other — Non-Governmental Organization, IFIs (International Financial Institutions) or another UN Agency.

These can be further broken down as

• DIM/DEX

• NIM (non-HACT)

• NIM (HACT & Not Using National Auditors)

• NGO/Other (non-HACT)

• NGO/Other (HACT)

What is Harmonized Approach to Cash Transfers (HACT)?

The Harmonized Approach to Cash Transfers (HACT) is a framework designed to streamline and enhance the management of cash transfers within development programs. It emphasizes the assessment of the technical, managerial, administrative, and financial capacities of implementing partners before engagement. These capacity assessments are crucial as they determine the overall risk level associated with each partner and help identify the most suitable cash transfer modality for them.

HACT offers three distinct cash transfer modalities.

1. The first is Direct Cash Transfers, where the United Nations Development Programme (UNDP) advances cash funds to the implementing partner (IP), who then reports back on their expenses.

2. The second modality is Direct Payments, in which UNDP makes payments directly to vendors on behalf of the IP.

3. The third option is Reimbursement, where UNDP reimburses the IP after they have made their disbursements. Each modality is chosen based on the results of the capacity assessment, ensuring that the method aligns with the partner’s ability to manage funds effectively.

In addition to capacity assessments, HACT requires various assurance activities tailored to the partner's risk level. These activities include micro-assessments to evaluate the financial management capacity of the partner, spot checks to verify the accuracy of their financial records, and audits to review their financial records and internal controls. These assurance activities are integral to maintaining transparency and accountability in the management of cash transfers, ensuring that funds are used appropriately and effectively.

Qualified vs Unqualified Audit Opinions

All project audits will have one to three Qualified/Unqualified audit opinions:

1. CDR (Combined Delivery Report): All project audits will have this. Auditors do not review 100% of financial statements, and they look for financial misstatements.

2. Assets: Evaluates the value and condition of physical assets.

3. Cash on hand: Assesses the actual cash available with the implementing partner at the time of the audit.

In the Performance App, we only consider point 1, the financial statement from the CDR (Combined Delivery Report , due to the potential duplication across the three categories.

Some project audits will also have a audit rating as well, this is displayed in the Performance App but does not affect the scoring of this indicator.

On Audit Opinions

Unqualified (Favorable) Audit Opinion

An unqualified or "clean" audit opinion means that the auditor concludes that the financial statements give a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework (e.g. UNDP requirements).

Key points about unqualified opinions:

• Indicates the financial statements are free of material misstatements.

• The auditor has obtained sufficient appropriate audit evidence to support this conclusion.

• This is considered a favorable or "clean" audit opinion.

Qualified (Unfavorable) Audit Opinion

A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed, but the effect of any disagreement with management or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

Key points about qualified opinions:

• The auditor found some issues or limitations that prevent them from giving a fully clean opinion.

• The issues are not severe enough to warrant an adverse or disclaimer of opinion.

• The audit report must describe the nature and amount of the possible effects on the financial statements (the "Net Financial Impact").

Other types of opinions that can be issued, but are less common, are:

• Adverse opinion: The auditor concludes that the financial statements are materially misstated and do not give a true and fair view.

• Disclaimer of opinion: The auditor is unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

Calculation of Scoring

We get this from the "Reports" tab in Cards: OAIHACT Audits - R3000-Net Financial Misstatement for HACT Audits, and then the Non-HACT project audits will be from the export of the regular audit section in CARDS.

For HACT Audits, we will use the previous FY (Financial Year) reports for this only. This data set is updated once per year, around June. For Non-HACT Audits, these are closer to real time as the audit are published.

Sum of all $ amount of Qualified Reports = "Total Financial Misstatement |Absolute Value|" in the above report

Confirmed that Audited Expenditure is the Total audited expenditure for that project, inclusive of financial misstatement.

$TotalReports = "Audited Expenditure" in the above report

We need to confirm with OAI if Audited Expenditure is indeed the Total Amount, or we had to add Audited Expenditure + Total Financial Misstatement

The OAI Datasets includes a % calculation called "% NFM CY to Audited"

So for this part of the indicator, we get the weighted average.

So it SUM of Total Financial Misstatement / Sum of Audited Expenditure

We take the "% NFM CY to Audited" and multiply 20 to get the Indicator Adjustment Score.

100 - Indicator Adjustment Score = Indicator Score

Part 3: Long Outstanding Audit Recommendations ≥18 months (30% of Indicator minus Part 1)

This is calculated from the Audit Issue date fro any Outstanding Audit Recommendations that are "open"

Aged ≥18 Months	Points
0	100
1	60
1+	30

We take the Audit Issue date and then calculate as of today. We count anything with "Yes" in the below table as Open, and then calculate the age etc..

Add here that we only consider outstanding recommendations that are not older than 37 months

The field is reco_oai_status: Status of the recommendation (e.g., Implemented, In Progress, Not Implemented, Withdrawn).

OAI Recommendation Status	Definition	Count as Open?
Implemented	This is done to a satisfactory level	No
In Progress	Country Office is working on the recommendation actions.	Yes
Not Implemented	This is the default status. So the Country Office has not updated the status as "In Progress"	Yes
Withdrawn	OAI has decided to withdraw this, because the recommendation is no longer applicable	No
N/A	Not Applicable.	No