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GIZ (Deutsche Gesellschaft f\u00fcr Internationale Zusammenarbeit) is one of the most active donors in Ukraine. The German development agency funds projects of municipalities, NGOs, educational institutions and business associations through financing agreements (grant agreements, local subsidies) and service contracts.<\/p>\n
GIZ financial reporting requirements are known for their level of detail. The organisation must keep separate accounts, stay within the budget by line item, document every procurement and, in many cases, submit a report from an independent auditor. Mistakes in these areas lead to repayment of funds, which is why it pays to understand the requirements at the start of the project rather than a month before the deadline.<\/p>\n
This article summarises the experience of MK Audit in auditing GIZ projects: which documents are needed, what the auditor examines, which findings occur most often and how to plan the timeline.<\/p>\n
For a Ukrainian organisation there are typically three cooperation formats:<\/p>\n
The audit obligation arises under financing agreements. The contract terms determine whether an audit is needed for interim reports or only for the final report, and who pays for the auditor (audit costs are usually included in the project budget). The requirements for the auditor and the scope of the audit are set out in the Terms of Reference that GIZ attaches to the agreement.<\/p>\n
The financial report is submitted in the GIZ format: a list of expenditure by budget line comparing planned and actual amounts, a calculation of the advance balance, income (including bank interest) and the amount to be transferred or repaid. The report is accompanied by a list of supporting documents showing the number, date, counterparty, amount in the payment currency and in the contract currency.<\/p>\n
GIZ expects project funds to be accounted for separately: a dedicated bank account or, at minimum, separate analytics in the accounting system. Each expense must be traceable from the budget line to the payment document. Mixing funds of several donors in one account without analytical separation is a typical cause of findings.<\/p>\n
Costs are recognised only within the approved budget. The agreement allows some flexibility between lines; exceeding the permitted percentage requires written consent from GIZ before the expense is incurred, not after.<\/p>\n
GIZ agreements contain procurement rules for the partner: for purchases above the set threshold, several comparable offers must be obtained (usually at least three), and the evaluation and selection must be documented. For larger amounts the procedure becomes more formal. The thresholds are stated in the agreement or in the GIZ general terms attached to it.<\/p>\n
The agreement fixes the currency (usually euro) and the method for converting hryvnia expenses. Exchange differences must be calculated consistently and documented. Exchange gains, like interest on the balance, usually reduce the amount payable by GIZ.<\/p>\n
Original supporting documents are kept for the period set in the agreement and must be available for inspection by GIZ, German public authorities and auditors. In practice this means a multi-year period after the end of the project.<\/p>\n
Depending on the Terms of Reference, the audit is carried out either as an audit of a special purpose financial report under ISA 800\/805 with an opinion, or as an agreed-upon procedures engagement under ISRS 4400. In the first case the auditor expresses an opinion on whether the project financial report is prepared, in all material respects, in accordance with the terms of the GIZ agreement. In the second, the auditor reports factual findings for the list of procedures.<\/p>\n
In both cases the auditor:<\/p>\n
Read about our approach to such engagements on the grant and donor project audit<\/a> page.<\/p>\nDocuments for the audit: checklist<\/h2>\n
| Group<\/th>\n | What to prepare<\/th>\n<\/tr>\n<\/thead>\n |
|---|---|
| Contractual basis<\/td>\n | Agreement with GIZ with all annexes, budget, correspondence on amendments and approvals<\/td>\n<\/tr>\n |
| Report<\/td>\n | Financial report in the GIZ format, list of expenditure, reconciliation to the accounts, previous reports and GIZ comments<\/td>\n<\/tr>\n |
| Bank and cash<\/td>\n | Statements of the project account for the whole period, cash book, expense reports<\/td>\n<\/tr>\n |
| Staff<\/td>\n | Contracts, orders, timesheets, payroll sheets, proof of payment of income tax, military levy and social contributions<\/td>\n<\/tr>\n |
| Procurement<\/td>\n | Requests, offers, evaluation records, supplier contracts, acceptance certificates, delivery notes, payment orders<\/td>\n<\/tr>\n |
| Events<\/td>\n | Agendas, signed participant lists, trainer contracts, invoices for venue and catering<\/td>\n<\/tr>\n |
| Assets<\/td>\n | Register of equipment purchased under the project, commissioning certificates, inventory count<\/td>\n<\/tr>\n |
| Partners and sub-grants<\/td>\n | Partner agreements, their reports and supporting documents<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nTypical auditor findings<\/h2>\nMost findings can be resolved before the report is finalised if the auditor works with the organisation in a dialogue rather than in an “arrived, recorded, left” mode. We send a preliminary list of exceptions and allow time for explanations and document searches.<\/p>\n Timeline: how to plan<\/h2>\nThe GIZ agreement sets the deadline for submitting the financial report after the end of the reporting period or the project, usually several weeks or months. The audit report is submitted together with the financial report or shortly afterwards. Practical recommendations:<\/p>\n
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