Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697795331179.pdf (Dominica)
HOUSING RECOVERY PROJECT AUDIT TERMS OF REFERENCE For Consulting Services to Audit the Financial Statements for the Housing Recovery Project for the period July 1, 2020, to June 30, 2021 FINANCED BY WORLD BANK CREDITS: IDA 62320 & DM3070 IMPLEMENTED BY THE Housing Recovery Project DURING THE PERIOD July 1, 2020-June 30, 2021 Introduction The HRP project comprised of four components; the fourth Contingency Emergency Response Component (CERC)being triggered by the Covid-19 emergency.
The total budgeted amount to be financed by the World Bank is $40M, of which $5.2M represents the CERC.

Component 1: Support for Housing Recovery Systems and Capacity Building This component will set up systems to manage, expedite and monitor the housing recovery programme and build capacity and sustainable framework for development planning in the housing sector.
It includes –development planning support to technical assistance centres (TAC) and the project at the local level, development of the management information systems, to support planning and monitoring processes in project agencies; technical design of a new physical development planning office.

Component 2: Support for Reconstruction of Houses This component will provide subsidies in the form of small grants for owner-driven reconstruction or replacement of houses that were classified as “destroyed”.
Eligible homeowners would use the grant and their resources, if necessary, to undertake the rebuilding works to a design of their choice.
Component 3: Project management and Coordination This component will support the establishment of PIU in the MOH to serve as the unit responsible for the overall implementation and coordination of the project activities, as well as the setting up of IST to be established within the Ministry of Finance Component 4: CERC This component was triggered to support COVID -19 in providing contributions to the elderly, employees and small businesses.
PROJECT MANAGEMENT The Project is implemented by the Ministry of Housing and Lands, supported by a Project Implementation Unit (PIU)) with oversight from the Ministry of Finance.

The Ministry of Housing and Urban Development is the technical lead for coordination amongst agencies in the Project, responsible for overseeing the PIU and day-to-day execution of activities and Project development.
The Ministry of Finance is directly involved in the management of the Project with the Ministry of Housing and Urban Development reporting on fiduciary matters and overall project progress to the Ministry of Finance.

The Ministry of Finance is responsible for coordinating financial management, contract management and monitoring of the project, in coordination with the PIU staff.
The PIU would also manage environmental and social safeguards aspects of the Project, as well as the Project reporting, monitoring and evaluation.

The Project Steering Committee and the Climate Resilience Executing Agency of Dominica (CREAD) provide administrative oversight and support to the PIU.

In accordance with the Project Appraisal Document (PAD), the project must have an audit report issued by a firm of chartered accountants annually.

Objective 1.
Objective 1.

The objective of the audit of the project financial statements is to enable the auditor to express a professional opinion on the project’s financial position as at June 30, 2021, and of the income and expenditure for the accounting period ending on that date.

The project’s books of account provide the basis for the preparation of the financial statements and are established to reflect the financial transactions in respect of the project.
Responsibility for preparation of financial statements 2.

The project’s management is responsible for the preparation of financial statements, including the maintenance of adequate accounting records and internal controls, the selection and application of accounting policies, the safeguarding of the assets of the project, and adequate disclosure.

As part of the audit process, the auditor will request from management written confirmation concerning representations made in connection with the audit.
Scope 3.

The audit will be conducted in accordance with International Standards on Auditing.

Those Standards require that the auditor plans and performs the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

4.
In complying with International Standards on Auditing, the auditor is expected to pay particular attention to the following matters, including special considerations for public sector entities: (a) In planning and performing the audit to reduce audit risk to an acceptably low level, the auditor should consider the risks of material misstatements in the financial statements due to fraud, as required by International Standard on Auditing 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements.
(b) When designing and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognize that noncompliance by the entity with laws and regulations may materially affect the financial statements, as required by International Standard on Auditing 250: Consideration of Laws and Regulations in an Audit of Financial Statements.
(c) The auditor should communicate audit matters of governance interest arising from the audit of financial statements to those charged with governance of an entity, as required by International Standard on Auditing 260: Communication of Audit Matters with those Charged with Governance.
2 (d) (e) The auditor should communicate appropriately to those charged with governance and to manage any deficiencies in internal control that the auditor has identified in an audit of financial statements, as required by International Standard on Auditing 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management.
To reduce audit risk to an acceptably low level, the auditor should determine overall responses to assessed risks at the financial statement level and should design and perform further audit procedures to respond to assessed risks at the assertion level, as required by International Standard on Auditing 330: The Auditor’s Responses to Assessed Risks.
(f) When certain aspects of an entity’s operations are performed by a third-party service provider, the auditor is expected to include an understanding and assessment of the internal control environment of the service provider during the audit process, as required by International Standard on Auditing 402: Audit Considerations Relating to an Entity Using a Service Organization.
(g) As part of the audit process, the auditor is expected to obtain written representations from management and, where appropriate, those charged with governance, as required by International Standard on Auditing 580: Written Representations.
(h) When the external auditor decides to use the work of an entity’s internal audit function to modify the nature or timing or reduce the extent, of audit procedures to be performed directly by the external auditor, the determination shall be in accordance with International Standard on Auditing 610 (Revised): Using the Work of Internal Auditors.
(i) In determining whether to use the work of an auditor’s expert or the extent to which the work of an auditor’s expert is adequate for audit purposes, the determination shall be made in accordance with International Standard on Auditing 620: Using the Work of an Auditor’s Expert.
In evidencing compliance with agreed project financing arrangements, the auditor is 5. expected to carry out tests to confirm that: (a) (b) All external funds have been used in accordance with the conditions of the relevant financing agreements, with due attention to economy and efficiency, and only for the purposes for which the financing was provided.

Relevant financing agreements include IDA 62320 and DM 3070.
Counterpart funds have been provided and used in accordance with the relevant financing agreements, with due attention to economy and efficiency, and only for the purposes for which they were provided.
3 (c) (d) Goods, works, and services financed have been procured in accordance with relevant financing agreements,1 including specific provisions of the World Bank Procurement Guidelines.2 All necessary supporting documents, records, and accounts have been maintained in respect of all project activities, including expenditures reported using Interim Unaudited Financial Statements (IFS) methods of reporting.
The auditor is expected to verify that respective reports issued during the period agreed with the underlying books of account.

Extended scope In consideration of peculiarities in the nature of the project’s activities, the auditor will be 6. required to carry out and report on the following additional procedures and outcomes.

7.

Audit of Contingency Emergency Response Component (CERC).
The auditor is expected to conduct agreed-upon procedures of an audit nature and submit the report of factual findings concerning the compliance of CERC expenditures with the CERC Manual and Emergency Action Plan.
In addition, the auditor will also report on the controls implemented by the implementing agencies for transparent transfer of funds and eligibility of beneficiaries: (a) (b) Review general and program ledgers to determine whether advances received through the designated account were properly recorded and regularly reconciled to Bank information3 and that expenditures incurred were properly recorded.
Review the procedures used to control the funds, including their channeling to contracted financial institutions or other implementing entities.

Review the bank accounts and the controls on those bank accounts.

Perform positive confirmation of balances, as necessary.

Provide comments on the accounting records, systems, and controls that were examined during the audit.
(c) Select a representative sample of expenditures and carry out the following detailed tests: (i) Review the control environment of the implementing entities to assess the effectiveness of controls in place, including: a.

Review the design and implementation of the existing controls in place relevant to the CERC b.

Test sample-based operating effectiveness of controls.
(ii) Conduct field visits and provide comments and observations on the outcomes of the field visits to a sample of the selected beneficiaries to validate the beneficiaries' eligibility and their proper receipt of funds.

Report on instances of noncompliance with the terms of the CERC Manual and Emergency Action Plan; 1 Depending on the complexity of procurement activities, the auditor may consider involving technical experts during the audit engagement.
In cases where such experts are involved, the auditor is expected to comply with provisions of International Standard on Auditing 620: Using the Work of an Auditor’s Expert.

Consideration to use of the work of experts should be brought to the early attention of the borrower and the World Bank for mutual agreement and appropriate guidance.

3 Sources will include the Client Connection loan recording system and loan account statements provided by the Bank.
4 (iii) Quantify and report expenditures that are considered to be ineligible and either paid out of the designated account or claimed from the World Bank; (d) (e) Perform data analysis by collecting records from multiple sources i.e.

PIU and Ministry of Housing MIS and IFS accounts to identify any inconsistencies.

Perform a test of details on transactions selected on a sample basis applied on the data provided by IFS and check the complete audit trail of the transactions i.e.
from the identification of the beneficiaries till reporting of disbursement of funds.

8. Review of internal controls Regardless of the level of risk, the auditor is required to review and evaluate the recipient’s internal control to obtain a sufficient understanding of the design of relevant control policies and procedures and whether those policies and procedures have been operated as intended.
The auditor must then prepare a report identifying significant deficiencies in the design or operation of internal control and other material weaknesses and reportable conditions.4 9.

The major internal control components to be studied and evaluated include, but are not limited to, the controls related to each revenue and expense account in the project financial statements.
The auditor must: (a) (b) the accounting and institutional arrangements, Obtain a sufficient understanding of internal control to plan the audit and to determine the nature, timing, and extent of tests to be performed.

This will include obtaining an understanding of the project objectives, project components and activities, internal control environment, procurement arrangements, management oversight, and reporting arrangements.

It will also include reviewing the terms of the Loan Agreement.
Assess inherent risk5 and control risk6 and determine the combined risk.7 Summarize the risk assessments for each assertion in a working paper.

The risk assessments should consider the following broad categories under each assertion: (i) existence or occurrence; (ii) completeness; (iii) rights and obligations; (iv) valuation or allocation; and (v) presentation and disclosure.
At a minimum, the working papers should identify the name of the account or assertion, the account balance or the amount represented by the assertion, the assessed level of inherent 4 Material weaknesses are reportable conditions in which the design or operation of the specific internal control elements do not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements may occur and not be detected in a timely manner by management performing its normal functions.
Reportable conditions involve matters coming to the auditor’s attention relating to significant deficiencies in the design or operation of internal control that, in the auditor’s judgment, could adversely affect the recipient's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements.
5 Inherent risk is the susceptibility of an assertion, such as an account balance, to a material misstatement, assuming there are no related internal control policies or procedures.

6 Control risk is the risk that a material misstatement that could occur in an assertion will not be prevented or detected in a timely manner by the entity’s internal control policies or procedures.
7 Combined risk (sometimes referred to as detection risk) is the risk that the auditor will not detect a material misstatement that exists in an assertion.

Combined risk is based upon the effectiveness of an auditing procedure and the auditor’s application of that procedure.
5 risk (high, moderate, or low), the assessed level of control risk (high, moderate, or low), the combined risk (high, moderate, or low), and a description of the nature, timing, and extent of the tests performed based on the combined risk.

These summary working papers should be cross-indexed to the supporting working papers that contain the detailed analysis of the fieldwork.
If control risk is evaluated at less than the maximum level (high), then the basis for the auditor’s conclusion must be documented in the working papers.
If the auditor assesses control risk at the maximum level for assertions related to material account balances, transaction classes, and disclosure components of project financial statements when such assertions are significantly dependent upon computerized information systems, the auditor must document in the working papers the basis for such conclusions by addressing (i) the ineffectiveness of the design and/or operation of controls, or (ii) the reasons why it would be inefficient to test the controls.
(c) Evaluate the control environment, the adequacy of the accounting systems, and control procedures.

Emphasize the policies and procedures that pertain to the recipient’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in each account of the project financial statements.

This should include, but not be limited to, the control systems for: (i) Ensuring that changes to the project are properly supported.
(ii) Managing cash on hand and in bank accounts.

(iii)Procuring goods, works, and services in accordance with agreed arrangements.

(iv) Maintaining proper custody and management of procured goods and works and providing due acknowledgement of services received.

(v) Ensuring compliance with the terms of the funding agreement and applicable laws and regulations that collectively have a material impact on the project financial statements.
(d) (e) Include in the study and evaluation other policies and procedures that may be relevant if they pertain to data the auditor uses in applying auditing procedures.

This may include, for example, policies and procedures that pertain to nonfinancial data the auditor uses in analytical procedures.
In fulfilling the audit requirement relating to an understanding of internal control and assessing the level of control risk, the auditor must follow, at a minimum, the guidance contained in applicable International Standards on Auditing (as described in paragraph 19).

Project financial statements 10.

The auditor should verify that the financial statements have been prepared in accordance with International Public Sector Accounting Standards.
The financial statements should include: (a) (b) (c) (d) A statement of financial position; A statement of financial performance; A statement of changes in net assets/equity; A cash flow statement; 6 (e) When the entity makes publicly available its approved budget, a comparison of budget and actual amounts either as a separate additional financial statement or as a budget column in the financial statements; and (f) Notes, comprising a summary of significant accounting policies and other explanatory notes.
[The explanatory notes should include reconciliation between the amounts shown as “received by the project from the World Bank” and those disbursed by the Bank and a summary of movements on the project’s designated account.]

Review of Interim Unaudited Financial Statements 11.

The auditor is required to audit all IFS submitted to the World Bank in support of requests for periodic replenishment of the project designated account(s).
Expenditures should be examined for eligibility based on criteria defined in the terms of the financing agreement and detailed in the Project Appraisal Document.

The auditor should report any ineligible expenditures identified as having been included in withdrawal applications and reimbursed.

Review of designated accounts 12.

During the audit of the project financial statements, the auditor is required to review the activities of the project’s designated account(s).
Activities to be examined will include deposits received, payments made, interest earned, and reconciliation of period-end balances.

Audit reports 13.

The auditor will issue an audit opinion on the financial statements and a separate audit opinion on the extended scope for the Audit of Contingency Emergency Response Component (CERC).
In addition to the audit opinion, the auditor will also, either in the audit report or in the 14. management report: (a) (b) (c) (d) (e) provide comments and observations on the accounting records, systems, and controls that were examined during the audit; identify specific deficiencies and areas of weakness in systems and controls and make a recommendation for their improvement; report on instances of noncompliance with the terms of the financial agreement(s); quantify and report expenditures that are considered to be ineligible and either paid out of the designated account(s) or claimed from the World Bank; communicate matters that have come to attention during the audit that might have a significant impact on the implementation of the project; and (f) bring to the borrower’s attention any other matters that the auditor considers pertinent.
15.

The auditor’s opinion on the financial statements and management letter should be received by the Bank no later than December 31, 2021, six months after the end of June 30, 2021(the project fiscal year-end).

7 General 16.
7 General 16.

The auditor is entitled to unlimited access to all information and explanations considered necessary to facilitate the audit, including legal documents, project preparation and supervision reports, reports of reviews and investigations, correspondences, and credit account information.

The auditor may also seek written confirmation of amounts disbursed and outstanding in the Bank records.
The auditor is encouraged to meet and discuss audit-related matters, including input to the 17. audit plan, with the World Bank project task team.

18.

The auditor should review the Bank's financial reporting and auditing requirements contained in Operational Policies OP 10.00 Investment Project Financing; OP 9.00 Program for Results Financing; OP 8.60 Development Policy Lending.
The auditor should also be familiar with the Bank’s Disbursement Handbook and Financial Monitoring Reports for World Bank-financed Projects: Guidelines for Borrowers, November 30, 2001; Guidelines: Procurement under IBRD Loans and IDA Credits, January 2011; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers, January 2011.

8 APPENDIX The following statements are the minimum requirement and should be incorporated in the audit report.
Name of project Sources and Uses of Funds - Amounts in US$'000 FOR THE YEAR ENDING JUNE 30, 2021 Current Period CUMMULATIVE Actual SF 2 SF1 Actual SF 2 SF 1 RECEIPTS Source of Financing Government World Bank Designated Account Direct Payment Retroactive Financing Total Receipts (A) LESS EXPENDITURES Component 1 Component 2 Component 3 Total Expenditures (B) RECEIPTS LESS EXPENDITURES Net Change in Cash (A - B) Foreign Exchange Adjustment BANK BALANCES Opening Cash Balances Designated Account Project Account Total Opening Balance Closing Cash Balances Designated Account Project Account Total Closing Balance 9 HOUSING RECOVERY PROJECT AUDIT TERMS OF REFERENCE Name of Project Statement of Cumulative Investments Year Ended JUNE 30, 2021 Categories Current Year US$ Prior Periods Cumulative US$ Category 1 Category 2 Category 3 Total Note: This statement is required for each source of finance.
HOUSING RECOVERY PROJECT Project Implementation Unit (HRP/PIU) TERMS OF REFERENCE (TOR) DESIGNATED ACCOUNT RECONCILIATION STATEMENT LOAN/CREDIT/PPF/COFINANCIER NUMBER ______________ Source of Financing US$ US$ (Tota l) SF 1 SF 2 1 TOTAL ADVANCED BY WORLD BANK (OR COFINANCIER) LESS: ELIGIBLE EXPENDITURE FOR THE CURRENT YEAR ENDED ____________ DOCUMENTED BY WORLD BANK LESS: CUMULATIVE ELIGIBLE EXPENDITURE FOR THE PRIOR PERIODS ENDED ____________ DOCUMENTED BY WORLD BANK PRESENT OUTSTANDING AMOUNT ADVANCED TO THE DESIGNATED ACCOUNT (1 - 2) BALANCE OF USD DESIGNATED ACCOUNT PER BANK RECONCILIATION STATEMENT AS AT YEAR END ______________________ BALANCE OF PROJECT ACCOUNT PER BANK RECONCILIATION STATEMENT AS AT YEAR END ______________________ PLUS: ELIGIBLE EXPENDITURE FOR THE CURRENT YEAR DOCUMENTED AFTER THE YEAR-END PLUS: TOTAL AMOUNT WITHDRAWN AND NOT YET CLAIMED 7 REASON: _____________________________________________ PLUS: AMOUNTS CLAIMED IN PREVIOUS APPLICATIONS NOT YET CREDITED AT DATE OF BANK STATEMENTS APPLICATION NO.
WA # XXX WA # XX SUBTOTAL OF PREVIOUS APPLICATIONS NOT YET CREDITED 8 LESS: INTEREST EARNED 9 TOTAL ADVANCE ACCOUNTED FOR (NO.

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9) 10 DIFFERENCE (3 - 9) 1 EXPLANATION OF ANY DIFFERENCE SHOWN IN LINE 10 Page 11 of 11