HACT micro-assessment for UN implementing partners
Before transferring significant funds to an organisation, a UN agency assesses its capacity to manage them. This is not an audit of financial statements but an assessment of systems: accounting, procurement, internal control, funds management and reporting. The outcome sets the partner’s risk rating, which in turn drives the cash transfer modality, the size of tranches and how often the partner is checked during the year.
A HACT micro-assessment evaluates an implementing partner’s capacity before large cash transfers. Five areas are assessed: accounting, procurement, internal control, funds management and reporting. The partner receives a risk rating that determines the transfer modality and the frequency of later assurance activities.
Why UN agencies run micro-assessments
HACT is the harmonised approach UN agencies use for cash transfers to implementing partners. Instead of treating every partner the same way, the agency assesses each one first and then sets the working regime accordingly. A low risk partner receives funds in advance and is assured less frequently. A high risk partner is reimbursed against actual expenditure, receives smaller tranches and undergoes more assurance activities during the year.
Civil society organisations, charitable foundations and public institutions receiving funds from a UN agency above a defined annual threshold.
Before the partnership starts or before the first significant transfer. It is repeated when the volume of funding or the structure of the organisation changes.
An independent audit firm engaged by the agency or by the partner with the agency’s agreement. The assessor cannot be the firm that keeps the organisation’s books.
The five areas assessed
Governance
Charter, structure, powers of the board and the executive director, segregation of responsibilities, HR policy, and whether written procedures exist and say who is accountable for what.
Accounting
Accounting policy, software, chart of accounts, project level accounting, allocation of shared costs, retention of source documents and period closing.
Procurement
A written procedure, thresholds, the number of quotations, selection minutes, conflict of interest, contracts and acceptance of goods and works.
Funds management
Bank accounts, signature rights, segregation between whoever initiates and whoever approves a payment, petty cash, cash flow planning and foreign currency operations.
Reporting and audit
How donor reports are produced, who checks them before submission, whether they reconcile to the ledger, what prior auditors concluded and what was done about it.
Risk rating and action plan
For each area the assessor records findings and recommendations. Together they produce the risk rating and the list of what the organisation should fix before the next assessment.
What to prepare in advance
Accounting policy, procurement rules, remuneration policy, travel rules. Nothing lowers the rating faster than rules that exist only in people’s heads.
Charter, register extract, board composition decisions, appointment orders, non-profit status confirmation and the staffing schedule.
Trial balances, project level records, donor reports for recent periods, financial statements and tax returns.
Audit reports and management letters from previous years, together with evidence that the findings were addressed.
What most often lowers the rating
The rules exist but are not documented. The assessor records weak control even where the practice is in fact sound.
The same employee prepares the payment, signs it and books it. Segregation of duties is a baseline requirement.
Grant costs are not separated in the ledger and the donor report is assembled by hand in a spreadsheet, which makes reconciliation impossible.
No thresholds, no minutes, a supplier chosen without quotations. The most frequent finding after missing written rules.
Rent and administrative staff are split between projects with no approved allocation methodology.
The previous auditor raised the same issues and nothing changed. To an assessor this speaks about management’s attitude.
If an assessment is coming and most of the points above describe your organisation, it is worth putting the system in order first. We do this as a separate engagement: we look at the books, the documents and the procedures and give you the list of fixes before the assessor arrives. See also donor capacity assessment and UN project audit under HACT.
What clients ask most often
How does a micro-assessment differ from a project audit?
An audit checks whether funds were spent correctly in a past period. A micro-assessment looks forward: whether the organisation is able to manage funds that are about to be transferred. The subject matter differs, and so do the reports.
Who commissions the micro-assessment, the agency or us?
It varies. Often the agency engages the assessor directly; sometimes it asks the partner to arrange the assessment against an agreed set of requirements. In the second case, send us the agency’s letter.
Can we prepare for a micro-assessment?
Yes, and it is the cheapest way to a better risk rating. Most findings concern missing written procedures and segregation of duties, and those can be fixed in a few weeks.
How long does it take?
Usually two to three weeks depending on the number of projects and the state of the documentation. A significant part of the work can be done remotely.
Can you perform both the assessment and the audit of the same organisation?
That is for the agency to decide; in some cases the assessor and the auditor must be different firms. We raise this at the outset so that no work has to be redone.
Request a proposal
Tell us which agency is running the assessment and on what timeline. We reply within one working day.