Audit of an International Technical Assistance Beneficiary in Ukraine: Registration, Tax Relief, Inspections

International technical assistance (ITA) is resources provided to Ukraine by donor partners free of charge to achieve goals set out in cooperation programmes. For an organisation receiving such assistance, the key concept is the status of recipient or beneficiary: it opens access to tax relief, but it also adds a separate layer of reporting and inspection that an ordinary grant does not have.

Below we explain how ITA projects are registered, what relief the status provides, which documents evidence the use of funds and what exactly an auditor of such a project checks.

Recipient and beneficiary: two different roles

A technical assistance project distinguishes two roles. The recipient is a Ukrainian resident that directly receives the assistance: a civil society organisation, a foundation, a company or an institution. The beneficiary is a central or local government body interested in the results of the project and responsible for embedding them in public policy.

The practical consequence for an accountant is simple: the relief and the reporting obligations apply primarily to the recipient, while the beneficiary confirms the public importance of the project at registration. Donor documents often use both terms interchangeably, so it is worth checking in the agreement and in the registration card which role your organisation actually holds.

Registering the project with the Ministry of Economy

A technical assistance project is registered with the Ministry of Economy of Ukraine. Without a registration card the tax relief does not apply and project costs are taxed on general terms. The package usually includes:

• an application in the prescribed form and a copy of the contract or grant agreement with the donor;
• details of the implementer, the recipient and the beneficiary, with evidence of their status;
• a procurement plan for goods, works and services to be bought with ITA funds;
• a letter of support from the government body acting as beneficiary.

The registration card is issued for the duration of the project and must be re-registered when the budget, the list of procurements or the timeline changes. The most common mistake: an organisation spends funds on items absent from the approved procurement plan and later cannot support its entitlement to relief.

What the status gives you

The main reliefs available to registered ITA projects are:

• VAT exemption for supplies of goods and services financed from ITA funds, within the approved procurement plan;
• exemption of assistance funds from corporate income tax for non-profit organisations, provided the funds are used for their intended purpose;
• exemption from customs duty on the import of equipment envisaged by the project.

Each relief works only together with documentation: the registration card, the procurement plan, contracts referring to the project and source documents carrying the corresponding note. A supplier that issues an invoice without marking the transaction as ITA-funded effectively deprives the recipient of the VAT exemption.

What the auditor of an ITA project checks

An ITA project review combines a normal donor project expenditure audit with verification of the conditions under which the relief applies. The auditor looks at the following areas.

Costs against the budget and the procurement plan

Actual costs are reconciled to the project budget and to the registered procurement plan. Spending outside the plan is not only a question for the donor but also a risk of VAT being assessed.

Procurement procedures

The auditor checks whether the supplier selection rules set by the donor were followed: collection of quotations, justification of the choice, absence of conflicts of interest, contracts and acceptance acts. We cover this area in more detail in our article on procurement checks in a grant project.

Accounting and analytics

ITA funds must be accounted for separately, with analytics by project and budget line, usually within account 48. The auditor verifies that project costs are not mixed with the organisation’s other activities and that the unspent balance at the reporting date is supported by a bank statement.

Personnel

Employment and civil-law contracts, timesheets, the allocation of time between projects, and the calculation of taxes and the unified social contribution are all tested.

Equipment and what happens to it

Equipment bought with project funds must be capitalised, tagged, counted in the inventory and, after the project closes, transferred in line with the agreement. A missing transfer act is a standard closing finding.

Documents to keep in the project file

Area	Documents
Project status	Registration card, procurement plan, correspondence with the Ministry, amendments to the card
Agreement	Donor contract, annexes, budget, donor-approved changes
Costs	Contracts, invoices, delivery notes, acceptance acts, payment documents, bank statements
Procurement	Requests for quotations, offers received, selection minutes, justifications
Personnel	Contracts, orders, timesheets, payroll registers, social contribution and income tax returns
Assets	Receipt documents, asset cards, inventory counts, transfer acts
Reporting	Interim and final donor reports, report on execution of the procurement plan

Typical problems for recipients

• spending started before the registration date, so the relief does not cover it;
• actual procurement differs from the registered plan and amendments were not filed in time;
• the supplier issued documents with VAT, the tax was paid from grant funds and never recovered;
• no separate analytics, project costs mixed with other activities;
• equipment not transferred after the project closed, or transferred without an act;
• the donor report follows the budget format but is not reconciled to the accounting records.

When to commission the audit

Donors usually require an audit after each year of implementation or at project closure. In practice it is more useful to run an interim review once roughly half the budget has been spent: findings can still be corrected instead of being recorded in the final report. What to do at the end of a project is covered in our article on the final audit at project closure, and a general overview of review formats is on the project audit page.

MK Audit has worked with donor-funded and technical assistance projects since 2000, is listed in the Ukrainian register of auditors (No. 4624) and is a member of DFK International. We issue reports in Ukrainian and English and, where required, in the donor’s template. If you run an ITA project and your donor requires an audit, send us a request: we prepare a commercial proposal after reviewing the assignment and respond within 1 day.