islamic relief report-18!10!12

8/13/2019 Islamic Relief Report-18!10!12

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UNITED NATIONS CHILDRENS FUND - UNICEF

INTERNAL CONTROL REVIEW REPORT

ISLAMIC RELIEF

September 2012


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United Nations Childrens Fund (UNICEF)Internal Control Review Report

Islamic Relief

Table of Contents Page

GLOSSARY OF ABBREVIATIONS ............................................................................................... 1

1. Background ................................................................................................................. 2

1.1 Introduction ............................................................................................................. 2

1.2 Audit Scope .............................................................................................................. 4

1.3 Assignment Objectives .............................................................................................. 5

1.4 Methodology ............................................................................................................ 7

2. Summary of Findings .................................................................................................... 9

2.1 Islamic Relief Kenya ................................................................................................ 10

2.2 Islamic Relief Somalia .............................................................................................. 11

3. Islamic Relief Kenya - Findings on Internal Controls Systems .......................................... 12

4. Islamic Relief Somalia - Findings on Internal Controls Systems ........................................ 34


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GLOSSARY OF ABBREVIATIONS

AWP Annual Work Plan

CPAP Country Programme Action Plan

FACE Fund Authorization and Certificate of Expenditure

HACT Harmonized Approach to Cash Transfer

IP Implementing Partner

IRK Islamic Relief Kenya

IRS Islamic Relief Somalia

PCA Project Cooperation Agreement

UN United Nations

UNICEF United Nations Childrens Fund


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1. Background

1.1 Introduction

Pursuant to the UN General Assembly Resolution 56/201 on the triennial policy review ofoperational activities for the development of the United Nations system, a number of UNAgencies have adopted a common operational framework for transferring cash togovernment and non government Implementing Partners.

Under the Harmonized Approach to Cash Transfers (HACT) Implementing Partners will usecommon forms and procedures for requesting cash and reporting on its utilization.Agencies will adopt a risk management approach and will select specific procedures fortransferring cash to partners, and undertake implementation of assurance activities to

determine whether expenditures that took place were for the purpose intended.

Islamic Relief

Islamic Relief (IR) is an International NGO established in Birmingham, UK in 1984,Registered Charity No: 328158. IRs main objective is to promote sustainable socialdevelopment by co-operating with local communities through relief and developmentprograms. IR aims to help the needy regardless of race, religion or gender.

IR is an NGO in consultative status (category special) with the Economic and Social Councilof the United Nations, full members of British Overseas NGOs for Development (BOND) andDisaster Emergency Committee (DEC), UK Platform of the Liaison Committee of

Development NGOs to the European Union and signatories to the Code of Conduct for TheInternational Red Cross and Red Crescent Movement and NGOs in Disaster Relief ". Themajority of IRs funding is from private donations; however, we also receive support frominstitutions such as DFID, ECHO, WFP, EC, UNICEF and UNHCR.

Vision: A caring World where the basic requirements of people are fulfilled

Mission: Islamic Relief is dedicated to alleviating the poverty and suffering of the worldspoorest people.

"Whoever saved a life, it would be as if he saved the life of all mankind" Qur'an 5:32

Islamic Relief Kenya

Islamic Relief Kenya (IRK) is registered under the Kenyan government NGO board (Reg.No. OP. 218/051/204/0374/3386) and opened offices in Nairobi and Mandera to run itsemergency programme in Mandera district as of 1stMarch 2006. IRK is currently involvedin drought recovery, rehabilitation and development programmes.

IR has secured License No. SDGT-502 on August 19, 2005 from the USA Office of ForeignAffairs Assets Control (OFAC) that it is not among Specially Designated Global Terroristpursuant to section 594.201 of Global Terrorist Sanction regulations, 31 C.F.R Part 594.

It has also won the UK charitable organizations 2006 accountability award.


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Nationally, IRK is an active member of the Food Security Steering Group, WESCORD,Health and Nutrition working group among others. It is also a member of District SteeringGroup and the various thematic groups. Currently, it is chairing the District Nutrition

working group meeting.

Current programmes of IRK

Health and nutrition programme:- Supplementary feeding programme, out patienttherapeutic feeding programme, support to district Ministry of Health in outreachprogrammes and accelerated polio campaigns, Vitamin SupplementationVaccinations, Outreach medical services, Health Education, capacity building ofcommunity health committees (CHCs) community health workers (CHWs). Most ofthese programmes are funded by DFID, IR-UK, UNICEF, WFP and ECHO.

Water and sanitation: - Water and sanitation facility rehabilitation / expansion,training of water resources management committees, water quality monitoring,hygiene promotion campaigns and training communities on good hygiene andsanitation practices. Funding is by UNICEF, ECHO, private donors and IR UK. IRKhas rehabilitated number of water points (borehole and pans) since 2006 as fundedby these donors.

Livelihood and food security: in the effort of increasing the resilience to shockthrough re-building the asset level of drought affected, IRK is supporting farmers inthe riverine irrigation along Daua River and micro-finance. Funding for theseongoing projects is from IR private donors, ECHO, IR-UK, IR-Switzerland and QatarCharity. It is hoped to receive support for riverine irrigation and water harvesting

based irrigation from EC.

Child welfare programme: over 750 children sponsored in Mandera and eachreceiving 93 Euro each quarter to supplement their basic needs food, health andeducation needs. Funding is obtained from IR one to one sponsorship programme

Islamic Relief Somalia

Islamic Relief Somalia (IRS) is registered under the Kenyan government NGO board (Reg.No. OP. 218/051/204/0374/3386) and opened offices in Hargeisa (Somaliland)Mogadishu (South Central) and Galkacyo (Puntland) to run its emergency/Livelihood and

Recovery programme in Somalia.

IR Somalia has been working in Somalia since 2006 providing varied integratedinterventions in line with humanitarian principles and code of conduct as way of ensuringthe relief efforts reach the vulnerable communities. Internally IR Somalia has a robustaccountability framework and a dedicated monitoring evaluation, accountability andlearning (MEAL) coordinator to oversee the implementation of the projects in tandem withcommunity expectation and aspirations.

The organization has close to 350 workforce spread all over Somalia with aim of ensuringthe delivery of right amount of relief efforts at the right opportune time when the needs

are eagerly anticipated by the beneficiaries. IRS has a human resource manual, IR code of


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conducts and induction package. The staff work rate is monitored through attendancesheet to ensure the smooth implementation of the project.

Nationally, IRS is an active member of the Strategic Advisory Group, HumanitarianCoordination Team (HCT), Clusters (WASH, Health and Education). IR was recentlyinaugurated as an active member of Return Consortium to secure funds and facilitate thereturning of community members to village of origin.

Current programmes of IRS

Health and nutrition programme: - IRS has been providing basic emergency healthservices in several areas through mobile services and fixed health post. In additionit supports the health Ministries and identified sites with essential medical supplies.In an effort to contribute towards reducing Global Acute Malnutrition (GAM) inparticular to Somalia context and more so South Central Somalia; IRS has beenrolling out supplementary feeding program to vulnerable children and mothers. Forthe purpose of sustainability and continuity, IRS normally conducts capacitybuilding trainings. Most of these programmes are funded by DFID, IR-UK, UNICEF,ECHO, CAFOD, DEC and IR partners.

Water and sanitation: - Water and sanitation facility rehabilitation / expansion,training of water resources management committees, water quality monitoring,hygiene promotion campaigns and training communities on good hygiene andsanitation practices. IRS has also been engaged in clean up exercise, refusecollection and provision of latrines as way of improving overall hygiene andsanitation in IDP settings. Funding is by UNICEF, ECHO, private donors and IR UK.

IRS has rehabilitated and drilled number of water points (borehole, shallow wells,berkhads and pans) since 2006 as funded by these donors.

Livelihood and food security: in the effort of increasing the resilience to shockthrough re-building the asset level of drought affected, IRS is supporting farmers inthe riverine irrigation along Juba river and micro-finance. Funding for theseongoing projects is from IR private donors, ECHO, IR-UK, IR-Switzerland, DEC andMiddle East Emerging Markets (MEEM). It is hoped to receive support for riverineirrigation and water harvesting based irrigation from EC.

Child welfare programme: over 890 children sponsored in Somalia and each

receiving $250 each quarter to supplement their basic needs food, health andeducation needs. Funding is obtained from IR one to one sponsorship programme

1.2 Audit Scope

Ernst & Young was contracted by United Nations Childrens Fund (UNICEF) to provide anoverall assessment of its implementing partners internal control system.

The purpose of the audit is to assess the existence and functioning of an implementing

Partner

s internal controls for the receipt, recording and disbursement of cash transfers


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and the fairness of a sample of expenditures reported in the FACE forms. The periodcovered under the review was from 1 January 2010 to 31 August 2012.

UNICEF also provided an additional scope to the Islamic Relief audit assignment. Theseare:

UNICEF Somalia Projects:

1. Education Project: South and Central Somalia Emergency Education Support focusedon the following items:

Incentives paid to teachers Human Resource Management Construction of Temporary Classrooms

Development of Child Friendly Playgrounds

2. WASH Project co-funded by UNICEF Somalia (75%) and Islamic Relief (25%):Assessment of the IRS access/presence in the Al Shabaab, AS, controlled area;ascertaining the IRSs contribution (25%) to the project and related fund flow;assessment of the water trucking component of the PCA.

UNICEF Kenya Project:

1. WASH project: Water and Sanitation facility development in North Eastern Provinceand Rift Valley (Turkana Central). Review of the overall project implementation and

transactions processing.

1.3 Assignment Objectives

The specific audit objectives were as follows:

i) Review of IRs programme management system; under this objective, we conductedthe following review procedures:

! Reviewed Project Cooperation Agreement (PCA), Fund Authorization andCertificate of Expenditure (FACE) forms and where applicable; UNICEF relevant

manuals, to determine whether requests for disbursements and reports onutilization of cash were provided for activities described in the PCA.

! Through interviews and review of progress reports prepared by IR, establishedwhether activities were implemented as planned. Where activities (timeliness,type, quantity) deviated significantly from the original PCA, established whetherthis was by mutual agreement by IR and UNICEF. Determined the causes forsignificant delays or changes, if any.

! Reviewed IRs system of monitoring progress and review of reports, includingfield monitoring visit reports and progress reports, to assess whether IR met itsresponsibilities for monitoring as described in the PCA.

! Reviewed whether recommendations recorded in the field/project monitoring

reports or minutes of meetings between IR and UNICEF have been implementedby IR.


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ii) Assessment of IRs internal controls; under this objective, we conducted thefollowing review procedures:

! Conducted a general assessment of internal controls according to establishedinternal controls standards.

! Reviewed whether recommendations made in the micro assessment or previousaudit(s) were implemented or, if not, determine the implementation status.

! Reviewed FACE forms, including the request for direct payments, to assesswhether they were signed by designated officials of IR.

! Reviewed the processes used by IR for authorizing expenditures and assesswhether they are in accordance with the PCA.

! Reviewed the process for procurement/containing of supplies and services andassess whether it is transparent and competitive.

! Reviewed the use, control and disposal of non-expendable equipment andassessed whether it is in compliance with government policies (or UNICEFrelevant manuals, where so specified in the PCA; and also, whether theequipment procured met the identified needs and whether it is used inaccordance with intended purposes.

! Reviewed relevant IT systems.! Where UNICEFs funds pay for the personnel or consultants, reviewed the

process followed for recruiting IRs personnel and consultants and assesswhether it is transparent and competitive.

! Reviewed IRs accounting records and assessed their adequacy for maintainingaccurate and complete records of receipt of funds provided by UNICEF anddisbursements of cash.

! Interviewed officials of IR, as necessary, to ensure full understanding of thefunctioning of the internal control system.

iii) Review of sample of FACE forms and transaction testing; under this objective, weconducted the following review procedures:

! Assessed whether the funds received from UNICEF were deposited into IRs bankaccount by verifying the bank statement.

! Reconciled the expenditure totals, per activity, on the FACEs to the list ofindividual transactions (i.e IRs accounting records).

!For each activity, reviewed the nature of expenditure and assess thereasonableness. Discuss any concerns with management.

! Selected a sample for testing, carried out a verification of the accuracy andcompleteness of supporting documentation (e.g. vouchers, invoices, purchaseorders, receipt of goods, bank transfers/checks, bank statements) thedescription of the transaction (per the accounting records) and per the PCA.

! Compared the price paid for goods or services against the market benchmarks.Include other appropriate measures of value for money.


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1.4 Methodology

The audit was performed using the Ernst & Young audit methodology, which requires

general planning and identification of areas of audit significance, as well as evaluating riskinherent in significant accounts.

Our procedures and tests have been tailored to meet the specific objectives of theassignment. Specific procedures performed are laid out in note 1.3.


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PRIVATE AND CONFIDENTIAL

September 20, 2012

60586571/27/sk/777

The Regional DirectorIslamic ReliefP O Box 18089NAIROBI

Dear Sir,

INTERNAL CONTROL REPORT FOR THE PERIOD 1 JANUARY, 2011 TO 31 JULY, 2012

We are pleased to submit our report on the internal control review of Islamic Relief Kenyaand Islamic Relief Somalia.

Our review of the organizations systems of internal control is carried out to assess theexistence and functioning of Islamic Relief Kenyas and Islamic Relief Somalias internalcontrols for the receipt, recording and disbursement of cash transfers and the fairness ofa sample of expenditures reported in the FACE forms.

We performed our audit as per the agreed terms of references dated 14 August 2012(UNICEF/AUDIT/IRK/2012-08-002) and as per the assignment objectives laid out in note1.3 of this report.

We were not engaged to, and did not perform an audit, the objective of which would be theexpression of an opinion on the accounts or items thereof. Accordingly, we do not expresssuch an opinion.

This report is intended for the information of Islamic Relief Kenya/Somalia Programmesand UNICEF. However, upon release this report is a matter of public record and itsdistribution is not limited.

Nairobi

..2012


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2. Summary of Findings

We have set out issues identified during the course of our audit and have not attempted

to indicate all possible improvements which a special review might develop. This reportcovers an assessment of the organisations internal control system.

A description of any specific internal control weaknesses noted in the financialmanagement of the organization and the audit procedures followed to address orcompensate for the weaknesses. Recommendations to resolve/eliminate the internalcontrol weaknesses noted have been included.

Risk Severity

The audit observations have been categorized by risk severity as high, medium or low.

These categories have are described below:

High: Action that is considered imperative to ensure that UNICEF is notexposed to high risks (i.e. failure to take action could result in majorconsequences and issues).

Medium: Action that is considered necessary to avoid exposure to significant risks(i.e. failure to take action could result in significant consequences).

Low: Action that is considered desirable and should result in enhanced controlor better value for money.


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2.1 Islamic Relief Kenya

REF Summary of the issues Risk severity

(High/

Medium/Low)

3.1 Expenditure Review

3.1.1 Split Payments for the Same Invoice High

3.1.2 Unsupported Expenditure High

3.1.3 No list of Prequalified Suppliers Medium

3.1.4 Chart of Accounts Low

3.2 Payroll/Human Resources

3.2.1 Late Remittance of Statutory Deductions Medium

3.3 Cash and Bank

3.3.1 Errors in the Bank Reconciliations High

3.4 Fixed Assets

3.4.1 Incomplete Vehicle Log Sheets Medium

3.4.2 Vehicles under Third Party Title Ownership Medium

3.4.3 Controls over Fixed Assets Medium

3.5 Prior Year Recommendations

3.5.1 Prior Year Recommendations Not Acted on. Medium


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2.2 Islamic Relief Somalia

REF Summary of the issues Risk severity

(High/

Medium/Low)


4.1.1 Unsupported Expenditure High

4.1.2 Irregular Payments through Galaxy Star High

4.1.3 Incomplete Tender Analysis Forms High

4.1.4 Lack of Evidence on completion of Projects High

4.1.5 Award of tenders to Related/Same Entities High

4.1.6 Uncertified Bank Statements submitted by Bidders High

4.1.7 Inconsistencies in Accountability for Funds Issued High

4.1.8 Attendance List for Teachers with Same Signature High4.1.9 Counterpart Contribution not Verifiable High

4.1.10 Differences in Quantities Requested and Quantities Paid for High

4.1.11 Construction of Pit Latrines in Mogadishu Benadir Region High

4.1.12 Irregular Purchase of Drugs from Salochin Pharma High


4.2.1 Incomplete Personnel Files Low

4.3 Cash and Bank

4.3.1 Errors in the Bank Reconciliations High

4.4 Fixed Assets

4.4.1 Incomplete Asset register Medium

4.4.2 Missing Logbooks Medium


No prior year audits


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3. Islamic Relief Kenya - Findings on Internal Controls Systems


3.1.1 Split Payments for the same Invoice

Observation

We noted instances where a payment to a supplier was made in several cheques beingdrawn on the same date. For example Kshs 68,000 was paid to Abdi for tyres for KAV. Thepayment was paid using four cheques 3713, 3714, 3715 and 3716 each for Kshs 17,000.

Risk

This is done to by-pass authorization limits set by the organization.

Recommendation

Payments made to a supplier to settle one invoice should be done using one cheque toavoid unwarranted bank charges and to maintain audit trail on transactions

Management Comment

3.1.2 Unsupported Expenditure

Observation

There was an instance where one transaction from our sample was not fully supported,as shown below:-

Date No MemoAmount

KShs

AmountSupported

KShs

AmountUnsupported

KShs

31-Jan-11 GJ 2011/4Liquidation ofWajir Jan 2011 106,100 79,600 26,400

106,100 79,600 26,400

Risk

Payments may be made for services/goods not received.

Recommendation

All expenditure incurred should be supported with adequate documentation.

Management Comment


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3.1.3 List of Pre-qualified Suppliers not maintained

Observation

We noted that IRK does not have a list of pre-qualified suppliers and thus sourcing ofquotations is done randomly to any supplier.

Risk

IRK may not get value for money for the goods/services that it procures.

Recommendation

IRK should have a list of pre-qualified suppliers where quotations are sought. This canbe done at the beginning of every year and the list updated as management deems fit.

Management Comment

3.1.4 Chart of Accounts

Observation

We noted that the chart of accounts used in the field is too long. There is no control forthe creation of accounts. Field offices can create accounts at their own discretion. The

ledger from the field is used to update the ledger in the Nairobi office.

Risk

Lack of control in creation of ledger accounts may be misused as a loop hole forperpetrating fraud. Errors in these accounts may go undetected and thereforeuncorrected.Recommendation

The creation of new accounts should be done on approval by designated senior officialsof the organizations, possibly the finance manager in Nairobi..

Management Comment


3.2.1 Late Remittance of Statutory Deductions

Observation

NSSF for the months of September 2011 and December 2011 were remitted late asshown below:


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Month Due Date Date remitted Days Late

Sep-11 15-Oct-11 15-Nov-11 30

Nov-11 15-Dec-11 21-Dec-11 6

Risk

IRK may incur penalties.

Recommendation

Management should ensure that all statutory deductions are remitted by the due dateto ensure compliance with local regulations.

Management Comment

3.3 Cash and Bank

3.3.1 Errors in Preparation of Bank Reconciliations

Observation

The bank reconciliation statements prepared lacked some important information suchas the dates of the outstanding cheques. There were long outstanding items that were stillappearing in the bank reconciliation for February 2012 as shown below:

Date cheq no Description Amount KShs

29-Jan-10 2048 NHIF 16,000

19-Feb-11 2117 NHIF 16,000

25-Feb-11 3058 Khalil Building 179,000

25-Feb-11 3219 KPLC 7,990

25-Feb-11 3247 KPLC 2,570

27-May-11 3591 Hussein Ali 283,500

505,060

The bank reconciliations for Garissa, Wajir and Mandera are not revised after being reviewed inNairobi. The cash book balances for KCB Wajir and KCB Mandera showed a book overdraft dueto the field offices writing cheques which were in excess of the funds in the account. This hastherefore brought some differences in the amounts in the bank reconciliations and the auditedfinancial statements as shown below:

BankBank Reconciliation

Amount KShsAudited Accounts

Amount KShs Difference

Barclays KShs 41,347,592 41,394,858 (47,266)

KCB Wajir (6,179,851) 2,453,734 (8,633,585)

KCB Mandera (608,478) 445,793 (1,054,271)34,559,263 44,294,385 (9,735,122)


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There was no evidence that some bank reconciliation statements for Mandera and Garissa werereviewed. The bank reconciliations for May 2011 to Aug 2011 for Mandera were not reviewedwhile the bank reconciliations for March to May 2011 for Garissa were not reviewed.

Risk

Bank reconciliation is a key control tool and improper bank reconcilations may result inoccurence errors and/ frauds being penetrated.

Recommendation

Cheques should only be written once it has been confirmed that there are sufficient funds in thebank account. Bank reconciliation statements should be prepared and have all the vital detailssuch as the dates of the reconciling items. Stale cheques should be reversed once they are morethan 6 months old. Bank reconciliations should be reviewed by the finance manager.

Management Comment

3.4 Fixed Assets

3.4.1 Incomplete Vehicle Log Sheets

Observation

We noted that the vehicle log sheets maintained by the drivers are not signed by thestaff who uses the vehicle. The log sheets were signed by the driver only and thus thisdoes not adequately control the use of the organization vehicle.

Risk

Vehicles may be misused by the drivers.

Recommendation

The vehicle log should be updated to include two columns for signing, the drivers

signature and the staff who uses the vehicle. This will serve as a confirmation that thetrip was made and was for the purpose indicated in the log sheet.

Management Comment

3.4.2 Vehicles under Third Party Ownership

Observation

We noted that there are some vehicles maintained in the asset register of IRK whoseownership documents are not in the name of IRK.


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Specific examples include:

Registration Make Holder of Title

KBQ 525N Honda CRV AL Husnain Motors Ltd

KBQ 067F Toyotal Prado Alinur Maalim Ismail

KBR 748c Toyota Hilux Big Motors Ltd

Risk

The vehicles listed in the asset register may not belong to Islamic Relief and thus do nothave the title to the same. Further, ownership of such vehicles to IRK cannot beverified.Recommendation

All assets that title vests with IRK should be transferred to IRKs name. Any asset that

does not belong to IRK should be not be included in its asset register.

Management Comment

3.4.3 Controls over Fixed Assets

Observation

IRK does not carry out physical verification of its assets. The assets are also not tagged and thus

are difficult to trace the assets.The asset register is not complete as it did not include one vehicle, KBR 312P.The asset register did not have accurate information as some assets had a different price in theasset register as compared to the actual invoice as shown below:

Date DescriptionInvoice Amount

KShsAmount as per Asset

Register KShsDifference

KShs

02/08/2012 GPS 36,000 35,000 1,000

03/06/2012 Mobile phone 28,000 23,999 4,001

Total 64,000 58,999 5,001

Risk

Islamic Relief is not able to ascertain the physical existence and working condition ofthe assets if it does not conduct a regular verification of its assets.

Islamic Relief may also not be able to keep track of its assets if the register is notupdated with the accurate details.

Recommendation

Physical verification should be done at least once a year and the asset register updated

with the information obtained from the exercise.


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Management Comment


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3.5.1 Prior Year Recommendations not acted on

ObservationPrior year observations are tabulated below with recommendations there on and current status.

Observation Recommendation Management Action

1 Weak procurement Process

i) The organization did not maintain a record of bidders who hadparticipated in the tendering process

ii) Insecure public email addresses were provided as an alternativefor bids submission.

iii) Some procurement payments were supported with suspectquotations.

iv) A tender box had not been installed in the premises forsubmitting bids.

v) Bidders were not invited to witness the opening of bids.vi) The Local Purchase Book (LPO) was not securely kept under key

and lock.vii) Some tenders were issued 2 days to the tender submission

deadlineviii)An open tender for the supply of food packs had always

attracted only 3 bidders for all the sampled vouchers for periodunder view. This was despite the tenders being advertised innational newspaper. The same suppliers had interchangeablywon tenders on the different occasions.

ix) Two different suppliers of food packs (Fahma Traders and VeinLogistics) for relief of drought and Ramadan had the followingsuspect similarities; Same format of invoice and delivery notes; Both provided one cell phone number appeared to be by

i) The organization should urgently review itsprocurement policy in order to enhancecompetition and transparency by;

Prequalifying suppliers / contractors for regularsupplies and services for efficiency inprocurement process and to avoid dealing withunknown suppliers / contractors.

A procurement file for each tender / procurementshould be maintained with record of allparticipating bids, advertisement, procurementcommittee meeting minutes, copy of contract /order for audit trail and institutional memory.

A tender box should be installed in an openlocation within the office.

Access to the tender box and emailing addressshould be controlled to reduce chances of bids

being maliciously removed from the tender box oremailed bids being deleted.

The tender advertisement should indicate thedate of tender opening and invite willing biddersto witness the process.

Tenders should provide a reasonable time forpotential bidders to apply before the deadline forsubmission and opening of tenders. This would

Management recognized theweak procurement processand has so far institutedcontrols that will see a moretransparent procurementprocess and value for moneybeing realized. In the periodthrough and after the 2009-2011 audit, the followingmeasures have beeninstituted in order to ensurethat the weak areas areeliminated from the wholeprocess:-Operations Manager who wasin charge of procurement has

left the organization-A new Operations Managerhas just been recruited; thenew OM has huge experiencein dealing with USAID andOFDA procurements amongother donor funding; this is agreat advantage for IR Kenya as the USAIDs


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Observation Recommendation Management Actiontender process.-The management has agreedto embark on a supplier pre-qualification process for thosesupplies with expertise on IRKenyas main items ofprocurement. This processhas already begun; what now

waits is the analysis of theprequalification bids.

2 Questioned Payments

i) Some payments made in the field had the following issues: Digits altered to increase the paid amount thus unapproved

payments. Inconsistent details of recipients; ID Numbers and signatures. Recipients signatures seem to have been signed by the same

person. Wages paid were not supported with contracts. Suspicious supporting receipts attached Large amount paid in cash instead of cheque payment.

ii) A payment of KES. 300,000/= was supported with a bank depositreceipt of KES. 30,000/= instead of KES. 300,000/=

iii)Water trucking sheets seem to have been filled and signed by thesame IRK staff who prepared the form. Water trucking sheets aresupposed to be signed by community members on delivery of thewater.

iv)Some of the sampled suppliers / contractors were paid in cashinstead of cheque payment.

v) Cash payments were made to government line ministriessupported with requests on suspicious letters heads.

vi)Suspicious double payment for the same service / contract.

i) We advise the management to investigate thesuspected fraud in the above findings/cases andwhere it is confirmed, the misappropriatedamounts should be recovered from the concernedstaff. Disciplinary action as per Islamic ReliefKenya human resource policy should be takenagainst the staff involved. Suppliers found to havebeen involved in any unfair competition practiceshould be suspended from participating in anyfuture tenders.

ii) The management is advised to always issue casualworkers with contracts with terms ofengagement, period, ID number, telephonecontact and pay amount. Wage payments shouldbe supported with copies of the signed contracts

and attendance register. This would reduce therisk of paying nonexistent casuals or alteration ofamount paid.

iii) Islamic Relief Kenya should explore theadvantages of outsourcing some projectimplementation works e.g; slaughter of Ramadhangoats, loading / off loading of food packs, wastedisposal, digging of wells etc to local competent

There have been instanceswhere fraudulent staff havebeen involved in alteration ofdocuments among othermalpractices, themanagement recognizes thenegative impact this has so farinstituted the followingmeasures;-The organization hasinstituted controls to curb anyfuture possibility ofdocuments alteration; thoughspot checks of field officesand improving competency of

field finance staff.-Support documentationchecklist has been developed,reviewed and begunimplementation.-Limits of amounts made incash has been instituted andfollowed up; any amount paid


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Observation Recommendation Management Actioncontractors. IRK staff could be involved at thesupervision level. This could reduce the risk offraud in casual payments, minimize the risk ofhandling of large sums of cash and transfer otherliabilities due to work related risks to thecontractor.

iv) Internal controls on payments should includereview of support documents for; arithmetic

accuracy, authenticity, consistency, reality andwhere possible random third party confirmationsby calling recipients. This would ensure onlygenuine expenditure are authorized and minimizechances of double payments.

v) Cash payments to casuals and workshop / trainingparticipants should be supported with a signedattendance register. Where possible, the registershould include own handwritten names, ID /Passport number, date, telephone contact andlocation.

vi) Large payments to suppliers should be done bycheque to avoid risks associated with carryinglarge sums of cash.

to a single supplier exceedingKES 5,000.00 is made bycheque. Amounts higher thanKES 5,000.00 are always paidin cash except undercircumstances where areasare remote and beneficiariesdo not own bank accounts, but

this is clearly justifiedbeforehand.-The use of attendance sheetsin the payment for allowancesis being used at all times,ensuring that attendants signit on each day of training withown handwriting.-All casual engagements aredone with a simple contract,indicating the name, IDnumber, amount to be paid;before payment is done, thecontracting department signsto verify that the works doneis in accordance withspecifications.-Payments to government

representatives are done inaccordance with fully verifiedrequests and their allowancesare paid in accordance withthe government publishedrates.-Before payments are done;the Finance Manager takes


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Observation Recommendation Management Actiontime to verify them forarithmetic accuracy,authenticity of documentationand compliance with IRKenyas internal controls anddonor regulations.

3 Orphan 1-2-1 and OMEP Project

i) Payments under Orphan 1-2-1 and OMEP project werewithdrawn in cash from KCB Mandera and deposited to variousbank accounts instead of bank transfer. This includes Kes.6,300,110/= withdrawn by an IRK staff on 24/3/2009 againstrequired procedure.

ii) A cash withdrawal of KES. 2,400,000/= from KCB Mandera anddeposited to various CBO accounts in the same bank instead of abank transfer. One of the supposed deposits was supported withdeposit slip of KES. 30,000/= instead of KES. 300,000/=.

iii) Equity Bank only confirmed transfer of funds by a letter and bystamping the list of beneficiaries provided by IRK. No bankstatement was attached as evidence of payment.

iv) No Memorandum of Understanding (MOU) had been signedbetween Equity Bank, Mandera and Islamic Relief Kenyaoutlining their terms of agreement in dealing with thesepayments/transfers.

v) We established that an IRK staff was one of four the signatories

to Mandera Micro Credit Group bank account against procedure.A review of one of the letters to the bank revealed that the otherthree signatories could only sign by a thump. This contradictedwith the representation by IRK field staff and from details of theMOU with Mandera Micro Credit Group.

vi) Equity Bank, Mandera wrote letters to IRK confirming transfer offunds from Mandera Micro Credit Group account to OMEPbeneficiaries even though IRK was not the account holder. It is

The management is advised to urgently

investigate the various funds transferred underthe two projects and also randomly visit andinterviewing various beneficiaries on the differentlists. Where fraud is confirmed, disciplinarymeasures should taken against the concernedstaff as per Islamic Relief Kenya policy Legal dueprocess should be taken against any personsinvolved and recovery process for any lost fundsbe done.

We also recommend suspension of all future fundstransfer by Islamic Relief Kenya to Equity SalarySuspense account and Mandera Micro CreditGroup account. The organization is advised toopen a bank account with Equity Bank from wherefunds shall be transferred to beneficiaries bankaccounts.

Where collusion with bank branch staff issuspected, an independent confirmation be madewith the Equity Bank head office and furtherinvestigation into transaction between Manderamicro-credit group and beneficiaries.

All future deposits to beneficiary bank accountsshould be done by a bank transfers or cheques.

In response to the audit

findings above, themanagement has instituted

the following measures in an

effort to ensure that transfers

for One-to-One and OMEP

disbursements reach the

intended beneficiaries and in

the most effective and

compliant means.

-All payments to the One-to-

One orphans was done direct

from the IR Kenya Barclays

bank in Nairobi to their

respective bank accounts as

opposed to a withdrawal from

the IR Kenya KCB in Manderaand deposit into Equity bank.

-All payments to the OMEP

are done direct from the IR

Kenya Barclays bank in

Nairobi to their respective

bank accounts as opposed to

a withdrawal from the IR


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Observation Recommendation Management Actionexpected that confirmations were to be addressed to officials ofMandera Micro Credit Group who were the account holders. Thisraised questions of the relationship between the group and IRKgiven the legal status of the group.

vii) A review of the Mandera Micro Credit Group bank statementsrevealed lumpsum debits to the bank account instead of splitpayments to the various beneficiaries bank accounts.

viii)We noted that the following payments under OMEP II had been

withdrawn from KCB bank and deposited into Equity Bank SalarySuspense Account instead of Mandera Micro Credit Group orGroup accounts for distribution {see annexure III(b) for details}

ix) Equity Bank does not issue statements of account for fundstransferred through the Salary Suspense account to confirmpayments/transfers.

x) A letter (internal memo) dated 1/12/2010 to Equity Bank todebit Mandera Micro Credit Group bank account withKES.630,000/= was a refund for the funds was made by acheque to Mandera Micro Credit Group on 19/4/2011. The sameamount of Kes. 630,000/= was withdrawn from KCB bankaccount and deposited in Equity Salary Processing account on17/5/2011.

xi) The following inconsistencies were noted on the Islamic ReliefKenya transactions with Equity Bank, Mandera;- Suspicious letters on a template format with a substandard

presentation.- The rubber stamp that was used on the letters and

beneficiary list was different from stamp used on deposit slipsand bank statements by Equity bank. The stamp was smallerin size, lacked inscribed date and position holder.

- The bank accountant we interviewed introduced himself asthe acting branch manager. This contradicted his laterconfirmation that either the Assistant Branch Manager,Operations manager, or Treasury Manager could act asbranch manager in his/her absence.

Kenya KCB in Mandera and

deposit into Equity bank.

-Islamic Relief Kenya and

Worldwide intends to engage

a consultancy so as to come

up with a more viable way to

implement the OMEP project,

this will also involve therelationship IR Kenya will

have with the micro

enterprise group. To

commence once the HQ

finalizes the process.

-IR Kenya intends to

undertake an investigation

into the alleged collusion

between IR Kenya staff and

Equity bank representatives

in order to objectively

establish the actual status of

affairs. Upon obtaining the

findings, IR Kenya will take

the necessary action in

accordance with the existing

procedures. This has been

done and nothing substantial

relating to collusion was

established. IR Kenya shall

carry on with strengthening

its internal controls so that


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Observation Recommendation Management Action- No reason was provided for by IRK for not operating a bank

account with Equity Bank, Mandera to process beneficiarypayments. With a bank account IRK could be issued with bankstatements confirming how funds had been paid to thebeneficiaries.

- We could not independently verify the authenticity of Excelsheets provided by the IRK staff as bank ledger to evidencecredits to various beneficiaries including a credit to a bank

account with KES. 41,630/=.

such practices shall not be

experienced in the future.

4 Payroll and Statutory Compliance

IRK is statutory required to deduct from its local employees andexpatriates and remit; PAYE, NSSF and NHIF to respective bodies.IRK is also required to file annual returns with NGOs Board by the30thMay of each year.Some of these were delayed while there was no evidence ofremittance for some months.

The management should ensure that all expatriatestaff have valid work documents in compliancewith the Kenyan immigration laws. Whereissuance is delayed, applicable taxes should bededucted, accrued and paid once the permit hasbeen issued.

The management is advised to correctly computededuct and remit tax accruing from employee andexpatriates income using prevailing tax rates andremit the same to KRA to avoid possible penaltiesand fines by KRA.

All disallowable benefits including medical cashallowances should be included in the taxable ofemployees.

All statutory deductions from staff should betimely remitted to avoid penalties and fines.

Management is advised to move with speed toapply for renewal of the tax exemption certificate.

We recommend consolidation of Islamic ReliefKenya and Somalia programme financialtransactions to correctly report the financialposition of Islamic Relief financial transactions.

The management has been

able to ensure compliance

with the following in an effort

to abide by the prevailing

legal and institutional

requirements.

-All expatriate staff engaged

with IR Kenya now have valid

work permits; no expatriate is

allowed into the country

without due process and a

valid work/residence permit.

-All expatriate staff remit

their due takes in time as

other national staff - by 9th

of the next month.

-No staffs now receive cash

for medical allowances;

medical services are

contracted to an established


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Observation Recommendation Management Actionprovider (APA insurance

company).

-Islamic Relief Kenya and

Somalia is looking into

consolidating their accounts

once the audit process for IR

Somalia is completed. This

has been agreed with the IRHQ.

5 Fixed Assets Management

i) Some sampled assets purchased costing more than $ 500 hadbeen expensed.

ii) Fixed assets register was not updated, some assets weremissing from the fixed asset register.

iii) Other than motor vehicles, all other assets had not beeninsured.

Management is advised to consistently apply theorganizations policy on capitalization of assetsvalued at $ 500 or more for fixed assetspurchased. Any change to the policy should bedocumented for consistency.

The asset register should always be updated withmovement in assets including additions anddisposals. This would enable proper tracking ofthe assets.

The management is urged to evaluate the benefitsof taking insurance cover on assets to mitigate

financial loss in the event a theft or any naturalcalamity happening.

In response to the lack of

proper adherence to policy,

lack of proper documentation

and unrepresentative asset

register, the management has

instituted the following:

-Employment with a

competent and experienced

Operations Manager who will

be tasked with standard tasks

like; routine updates of assets

register, evaluate and explore

the cost/benefit of insuringassets other than vehicles

among other compliance

items.

-The management has

requested the logistics

department to furnish it with


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Observation Recommendation Management Actionmonthly updated assets

register, which will include

additions and disposals for the

reporting period.

-Staff capacity building is

currently under

implementation, in order to

ensure that all aspects ofassets management

practices are adhered to.

6 Cash and Bank Management

A review of the cash and bank balances internal controls indicatedthat:-

i) No regular cash reconciliations were prepared for periodunder review.

ii) Lack of segregation of duties; the staff who prepares paymentvouchers, also writes the cheques, records paymenttransactions in the cashbook and acts as the official bankagent (authorized to withdraw cash from the bank).

iii) Most bank reconciliations were prepared late with backdated

signatures.iv) Cash levels in excess of the minimum allowed of KES.50,000

/= balances were kept in the office.v) Payment to some of the contractors were by cash instead of

cheque as the preferred mode of payment.vi) All sampled cancelled cheques did not have reason for

cancellation indicated on them.

The management is urged to adhere to itsfinancial guidelines on cash by ensuring that cashreconciliations are prepared at least once a weekand reviewed by the supervisor. The reconciliationcertificate should be filed for. Impromptu cashcounts should be performed by the supervisor toconfirm cash balances. This will reduce risk ofmisappropriation of cash.

The management is encouraged to explore waysof segregating duties in the finance departmentsby separating duties of staff who initiatepayments from writing of cheques andwithdrawing of cash from the bank. This wouldminimize risk of fraud arising due from lack ofsegregation of duties.

Bank reconciliations should be prepared on amonthly basis within a reasonable time,preferably before the 10th of the followingmonth. This will enable timely correction andminimize chance of errors or mistakes passing

The managementacknowledges weak pointsrelating to cash and bankpractices and has so farinstituted the followingmeasures:-Bank reconciliation is donethrough the QuickBookssystem as opposed to theexcel formats; this is done bythe 5th of the next month,reviewed and approved by a

supervisor. This is also dated.-Cash payment vouchers arenow being used to makepayments as opposed to theuse of journals; each cashpayment is verified andapproved before payment ismade.


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Observation Recommendation Management Actionunnoticed on bank statements / cashbook.

Management is advised to always pay suppliers /contractors by cheque. Cash should only be usedfor paying sundry office and field expenses.

-Cash reconciliation isperformed on a routine basisthrough the system; and eachtime before more cash isrequested.-There now is a separate stafffor making payments whilethe other does data entry; this

ensures segregation of dutiesbetween those makingpayments and those recordingthose payments.

7 Consultancies and Contracting

i) Withholding tax was not deducted on all the sampled labour feecharged by works contractors.

ii) Some of the sampled consultants were paid as casual workerswithout deducting Withholding tax for amounts that qualifiedfor deduction.

iii) Certificates of work completion issued to consultants andcontractors were not dated.

The management is advised to adhere to theIncome Tax requirements on Withholding tax.Withholding at the rate of 3% on all labour feesshould be charged and remitted to KRA before the20th of the following month. Where thecontractor does not distinguish between labourfees and cost of materials, the tax should becharged on the total invoice amount.

All other short-term contractors paid at least KES.24,000/= should be charged withholding at thepublished rate and remitted to KRA by the 20th ofthe following month to avoid possible fines andpenalties by KRA.

We advise the management to include a provisionfor date on certificates of work completion to helpin verifying compliance with contract terms on jobcompletion.

-Withholding tax of 3% on allconstruction contracts is nowdeducted as source andsubmitted to the KenyaRevenue Authority.-Consultancy tax of 5% is nowdeducted at source andsubmitted to the KRA.-On all construction contracts,the respective technicaldepartments contact personverifies that the work is donein accordance with thecontract before payment isdone. This is in form of acompletion certificate.


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8 Accounting Systemi) Field office control accounts were not reconciled with the

Nairobi office balances.ii) We noted double booking of accruals in books of accounts while

some expenses had not been accrued in the financial records.iii) Some prepaid expenses had been expensed instead of being

recognized as a receivable asset until utilized.

iv)

Deposits made during the period under review were notrecognized in the financial records but expensed.v) Mandera and Wajir cash books had negative balances.

The management is urged to always apply therecommended accounting standards on income andexpense recognition by matching incomes andexpenses to the period they were incurred. This wouldlead to consistency and correctness in financial reports

-IR worldwide has begunimplementing an onlinefinance system, it will soon berolled out in the field officesincluding IR Kenya; as thissystem is superior to theQuickBooks software

currently being used, this willgo a long way in enablingaccurate recording ofexpenses.-IR Kenya Finance Manager iscurrently looking into thebenefit of having a differentQuickBooks company in thefield offices as opposed to asimilar company both inNairobi and in the field offices.-The Finance Manager islooking in to other ways oftracking field transfers andexpenses in the place ofcontrol accounts, as at now,control accounts do not servetheir purpose.

-The Finance Manager intendsto ensure accrual recording iscentralized to avoid situationswhere accruals are double-posted. Also the FM is movingto ensure that accruals is onlydone based onContracts/POs/Invoices and


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Observation Recommendation Management Actionnot based on invoices as iscurrently done in someinstances.

9 Accounting for Advances

i) Some of the sampled project cash advance payments had been

directly expensed before the actual expenditure was accountedfor by staff.ii) There were no adequate procedures governing accountability

of project cash advances. The documented procedures lackedguidelines on the period for accounting for staff advances.

iii) Some liquidations had suspect supporting receipts /documents.

iv) Staff advances amounting to KES. 827,151/= had been writtenoff in the year 2010 without proper explanations.

v) We noted long outstanding advances some more than six (6)months old.

vi) No traceable log-in password in the multiuser QuickBooksaccounting systems

Management is advised to review and updateprocedures on staff advances to ensure propermanagement e.g all cash advances to be

authorized by a designated officer and recordedin the books of accounts as a receivable, eachadvance should be booked to individual staffledger account for ease of tracking. Afteraccounting for such advances, the expenditureshould then be recognized. Supporting documentsshould be attached to float liquidation forms,reviewed and authorized before the expenses areposted into the system. All unutilized advancesshould be immediately surrendered to the cashier.The policy should provide maximum period forfloat liquidation. Un-surrendered floats after theexpiry of the time limit should be recovered fromstaffs salaries.

The suspect receipts /documents should bereceived and verified for authenticity andcorrective action taken. Additional tests should bedone on all other staff advances taken during theperiod.

All uncollectable advances should be properly andadequately explained before being approved forwrite off.

All long outstanding advances should be reviewedand necessary action taken to recover them,where uncollectible approval for write off shouldbe sort.

In order to further strengthenstaff advance procedures, thefollowing safeguards are

currently being implemented;

-Staff advances are only givenin situations where a directpayment via cheque to asupplier/service provider is notfeasible and practical.-When staffs are issued with anadvance, its immediatelyrecorded as a receivable in theaccounts; this is then expensedwhen the advance is accountedfor.According to IR Kenyaprocedures, staffs are given amaximum of 10 working daysafter completion of theactivity to liquidate advances.


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We also urge the management of review of thecurrent policy manual to suite the localoperational environment.

10 External Audits

i) The latest external audited reports were for year 2008 accounts

which were signed off in the year, 2012 3 years late).The 2009,and 2010 audits have been concluded in year 2012 ( 2 years and1 year late respectively)

ii)The 2008 management letter was not availed for audit.iii)Lack of internal audit and monitoring department.

Management is urged to ensure that externalaudit to review the internal controls of theorganization and the books of accounts as

provided for in the IRW financial guidelines and incompliance with statutory requirements isconcluded on time. The external audit gives anassurance that accounting standards have beenadhered to, and that statutory and professionalrules have been complied with and the report is a'true and fair' representation of the affairs of theorganization. Where the audit is done late, theorganization may miss the benefits of promptlyimproving the internal controls where the auditorrecommends.

The external auditor should be required to issuemanagement with a management letter auditfindings to be discussed by the management andactions on how the organization will address theissues highlighted put in place with timelines. The

management letter should be submitted to thehead office as provided for in the financialguidelines.

We advise the management to explore thepossibility of outsourcing internal functions toperform routine reviews of the procedures.

The management has agreedto ensure that there will be nomore delays in undertaking

annual audits; the 2012external audit shall be carriedout by Feb/March 2013 asprovided by IR regulations.The management also will lookinto ways of engaging internalaudits to establish and adviceon the status of internalcontrol systems.


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11 a) FinanceIn the field offices, the finance officer has both custody of assets andthe accounting roles. For example, same staff prepares paymentvouchers, maintains and writes and cheques, is also the bank agent.He / she is also in charge cash book and prepares reconciliations.

b) Procurement

The logistics is responsible for writing Purchase Requisition Notes,receives quotations, sits on the procurement committee, writes andauthorizes the L.P.O. and receives delivery of procured goods.

User department line manager(s) approves Purchase RequisitionNote, chairs the procurement committee, and authorizes payment.One line same manager also is a bank signatory.

c) ConsultancyThe programme manager (single) sources for consultants, draftsterms of reference, negotiates consultancy fee, countersigns thecontract, issues the work completion certificate, approves paymentand signs the cheque/bank transfer.

The management is advised to come up with a riskassessment tool that that reflects the probable riskexposures in line with Islamic Relief Kenyas type ofoperations.

Finance: There are twofinance staffs in each fieldoffice, finance officer andfinance assistant. Financeofficer is charged withsupervisory, verification andfield authorizations while the

finance assistant, isresponsible for makingpayments and recording them.The recorded transactions arereviewed by the financeofficer before they are sent toNairobi for further verificationby the staff in Nairobi. In theNairobi office, there issegregation of duties in mostof finance tasks; one financeassistant prepares paymentswhile the other records them.Finance officer reviews therecorded transactions foraccuracy. Finance Managerdoes overall review andapproval of all financial

transactions.Procurement: Purchaserequisitions are written by therequesting department; afterits all approved, they are sentto the logistics staff who willin turn source for quotationsand since there are more than


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Observation Recommendation Management Actionone logistics staff for eachfield office, there issegregation of duties as itsnot the same staff who sits inthe committee who alsoreceives the goods. LPOs arewritten by logistics staff butverified by the Operations

Manager before signed by thecountry director.Consultancy: Request forconsultants is done by therespective technicaldepartment, they also do theterms of reference; theservice is then advertised inthe national newspapers,quotations are analyzed by apenal constituting the head ofprograms, M&E and therequesting department.Completion certificate is doneby a representative of thetechnical department


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Risk

Significant weaknesses may still recur.

Recommendation

Prior year audit recommendations should be acted on to avoid recurrence of issues insubsequent audits and to improve on the organizations internal control.

Management Comment


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4. Islamic Relief Somalia - Findings on Internal Controls Systems


4.1.1 Unsupported Expenditure

Observation

There were instances where some transactions were not supported while others wereinadequately supported, as shown below:-

Date Document No. Description Amount KShs

21-Mar-12 JVN12/3/118 Water Trucking 1,777,792

Total 1,777,792

Food distributed to the communities made by Islamic Relief did not have a signed list toshow acknowledgement of receipt by the beneficiaries. However, communityrepresentatives, IRS distribution and monitoring staff sign the distribution.

DateDocumentNo. Description

AmountKShs

20-Jul-12 JVN12/7/086 3.2.Food Aid:3.2.Cereals 5,106,250

29-Jun-12 JVN12/6/173 C3.1.Food & Nutrition:C3.1.2.Wheat Flour 1,720,000

29-Jun-12 JVN12/6/194 D9.Cooking Oil-1000HH For 1 Month 4,829,3304-Apr-12 JVN12/4/029 C3.1.Food & Nutrition:C3.1.2.Wheat Flour 1,758,164



Total Items Distributed 19,218,744

Risk

Payments may be made for services/goods not received.

Recommendation

All expenditure incurred should be supported with adequate documentation.

Management Comment


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4.1.2 Irregular Payments made through Galaxy Star International Trading Limited

Observation

We noted that payments to some destinations in Somali are made through Galaxy StarInternational Trading Limited. Galaxy is company headquartered in Dubai and withoffices in Nairobi and Mogadishu. The agreement between Galaxy and Islamic Reliefstates that Galaxy shall transfer funds on behalf of the NGO to specific locations inSomalia at a commission charge of 1.6% of the total funds transferred.

The use of agent to transfer funds may indicate that Islamic Relief may not have accessor presence in the Al Shabaab controlled areas.

For example Dalmar Fuel Company supplied clean water to 3 Districts in Somalia at acost of USD 13,650. In the invoice dated 15 March 2011 the company supplied their

bank details. Islamic Relief transferred the funds through Galaxy instead of transferringthe funds directly to the bank account details provided by the supplier.

We were not able to justify the reason why suppliers in Somalia were being paid throughGalaxy instead of being paid directly to the suppliers in their indicated bank accounts

Risk

Fraud/Money laundering may be easily perpetrated.

Recommendation

Further investigation should be considered to determine the presence of Islamic Reliefin these areas and whether funds transferred through Galaxy are for the intendedbeneficiaries or Galaxy itself.

Management Comment

4.1.3 Incomplete tender analysis forms

Observation

The tender analysis opening tables had not been completed in several instancesincluding bids for Class rehabilitation, value USD 290,555, awarded to Barwaqo Trading andConstruction Company and Construction of temporary classrooms, value USD 102,851,

awarded to East African Construction Company. There was no evidence of detailed technicalanalysis of the bids on file.

Risk

Islamic Relief may collude with the suppliers to award tenders to specific suppliers.


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Recommendation

Further investigations should be conducted to identify the owners of the companiesbeing awarded tenders irregularly. The purpose of the investigation will be to identify if

there is a conflict of interest being exhibited by the management of Islamic Relief byvirtue of ownership of supplying organisation

Management Comment

4.1.4 No evidence of completion of projects

Observation

We noted that the infrastructure projects awarded to East African ConstructionCompany and Barwaqo Trading and Construction Company, project reports andphotographs of the completed projects or projects under implementation were not onfile.

These projects were worth a total of USD 393,406, as detailed below:

Reference Recipient Value (USD)

JVN 12/5/103 Barwaqo Trading and Construction 290,555JVN/12/5/102 East African Construction 102,851

Total 393,406

Risk

Payment may have been made to the construction companies for construction not yetdone.

Recommendation

Field visit should be conducted by an independent person/organisation to confirmwhether these projects were fully implemented. The independent person will beexpected to provide a report on the current status of these projects.

Management Comment

4.1.5 Tenders Awarded to Related/Same Entities

Observation

We noted that East African Construction Company, Barwaqo Trading and ConstructionCompany and Doy Construction Company submitted several documents including bank

statements and company profiles while bidding for construction and rehabilitatiatonprojects.


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We also noted that parts of their company profile documents had similar formats,including headers and font styles and their bank statements were all unsigned andunstamped and also originated from the same bank.

This implies that these three companies are related or are under the control of thesame entity; or that these documents were prepared by the same person.

Risk

The tender analysis done may not be of value as the quotations provided originate fromone source.

Recommendation

Further investigation should be considered to ascertain the authenticity of these

documents and the relationship of the three construction companies.

Management Comment

4.1.6 Uncertified bank statements submitted by bidders

Observation

East African Construction Company, Barwaqo Trading and Construction Company, Doy

Construction Company and Illays Construction Company submitted unsigned andunstamped bank statements from Dahabshil Bank as part of their bid documents. This isunusual as standard procedure for many banks is to sign/stamp statements intendedfor use by a third party, as proof of their validity.

The Dahabshil bank confirmation provided by another bidder (Jubba Valley Railway)were signed and stamped by the bank manager, unlike the other documents describedabove.

The bank statement submitted by East African Construction Company contained twotransactions bearing the same reference (Ref 5785675). The values of these twotransactions were different - one USD 380,000 and the other USD 82,000.

All other transactions in this and other bank statements were serialised, with therebeing no other transactions with the same single reference, unlike in this specificincident.

Risk

The bidders submitting their tenders may not be the actual account holders.

Recommendation

Further investigation should be considered to ascertain the authenticity of the bankstatements.


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Management Comment

4.1.7 Inconsistencies in accountability for funds issued

Observation

We noted that in the supporting schedules to journal voucher JVN12/6/202 for USD53,760 (Payment of teachers' incentives) the telephone numbers of individual teacherswere used as part of their identity criteria. Telephone number 615769696 was used torepresent two teachers, for two different payments of USD 420, as was telephonenumber 6153556.

Risk

Double payments may be made to some teachers.

Recommendation

Further investigation should be conducted by an independent person/organisation toverify the presence of teachers in the various schools.

Management Comment

4.1.8 Attendance lists for teachers

Observation

We perused the attendance list for teachers and noted that in some instances thesignature was similar for all the teachers.

Risk

Double payments may be made to some teachers.

Recommendation

Further investigation should be conducted by an independent person/organisation toverify the presence of teachers in the various schools.

Management Comment


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4.1.9 Counterpart Contribution not Verifiable

Observation

The WASH project is funded by UNICEF and Islamic Relief at 75% and 25% respectively.We found that there are 27 projects whose funds are banked in one Barclays Bankaccount. The funds from various donors are commingled in one account. Since all theprojects use one account, it was impossible to ascertain the 25% Islamic Reliefcontribution to the WASH project.

Risk

Islamic Relief may not be meeting its contractual obligation of contributing its 25%share of the budget.

Recommendation

A reconciliation of all the donor funds banked in Barclays Bank Account should beconducted to verify whether Islamic relief has been providing 25% of the requiredfunding.

Management Comment

4.1.10 Differences in Quantities Requested and Quantities Paid for

Observation

Islamic Relief entered into an agreement with Dalmar Fuel Company in respect toemergency response water supply on 8 March 2011. The agreement was to supply 8trucks of 10,000 litres of water to villages around Galdogob (total 80,000 Litres), 6trucks of 10,000 litres of water to villages around Harfo (total 60,000 Litres) and 7trucks of 10,000 litres of water to villages around Jariban(total 70,000 Litres).

We noted that contrary to this agreement, Dalmar Fuel Company invoiced for 800,000litres, 700,000 and 700,000 litres respectively This represents a loss of USD 25,605.

Dalmar Fuel Company seems to be primarily a fuel company given its name andcompany logo.

Risk

Islamic Relief may have paid for goods not received.

Recommendation

Further investigation should be considered to determine the actual quantity of watersupplied, the reason for the inflated invoices and the nature of this company.


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Management Comment

4.1.11 Construction of Pit Latrines in Mogadishu Benadir Region

Observation

Tayo Constructon Company was awarded the tender to construct pit latrines inMogadishu Benadir Region. We reviewed the documentation and noted that thefollowing mandatory pre-requisite documents as per the check list payment were notattached before the payment was made:

There are no 3 mandatory quotations attached. However there is an undated Billof Quantities which is not printed on the companys letterhead.

Bid evaluation form

Purchase Order Invoice Photos Company/supplier registration copy Screening compliance

Islamic relief issued a certificate of completion to Tayo Construction Company throughAshir Ibrahim Nageye. We noted that the certificate was issued on 15 April 2012. Thecertificate indicates that the project commenced on 20thMarch 2012 and completed on29 April 2012. The issuance of the certificate before the completion date casts doubton the construction of toilets.

Risk

Staff from the two companies may be colluding to perpetrate fraud.

Recommendation

UNICEF Somalia should consider instituting further investigation to confirm that the pitlatrines were constructed.

Management Comment

4.1.12 Purchase of drugs from Salochin Pharma

Observation

Islamic Relief purchased medicines for Health Facilities in Afgooye through LPO numberS/5334/11 dated 15 April 2011 at a cost of Kshs 6,182,398.00. We noted that thequotation received from Salochin Pharma was dated 16 April 2011. This implies thatthe LPO was issued before a quotation was received. We perused the bid evaluationform and noted that the document was undated and therefore we could not ascertainwhen the evaluation was done. However, we noted that the other quotations from other


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bidders; Rangechem Pharm Ltd, Ansell Pharm,. Ltd and Surgik Pharm. Ltd were dated15 April 2011.

Risk

There may be cases of collusion between the Islamic Relief staff and the supplier.

Recommendation

Further investigation should be considered to determine whether the bid was fixed tofavour Salochin and which Islamic Relief staffs were involved in violating organisationsprocurement procedure.

Management Comment


4.2.1 Incomplete Personnel Files

Observation

We noted that some personnel files lacked crucial documents. These include:

Name Position Documents Missing

Abdullahi Ahmed Media Coordinator Academic,C.V. andProfessional Certificates

Abdirisak Hassan Project Support Coordinator Academic and ProfessionalCertificates

Mohamed Adan Ali Logistics Coordinator Academic and ProfessionalCertificates

Mohamud Ali Mohamed program Coordinator Academic and ProfessionalCertificates

Alinur Ibrahim Sheikh Nutrition Officer Academic and ProfessionalCertificates

Alex Maingi Finance Coordinator Academic and Professional

CertificatesHassan Abdi Mohamed Programme Assistant Academic and ProfessionalCertificates

Amos Cherogony Wash Project Manager Academic and ProfessionalCertificates

Anthony Nyota IT Officer Academic and ProfessionalCertificates

Abdirizak Hussein Food Security CoordinatorAcademic and ProfessionalCertificates


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Risk

Employees hired may not have the requisite qualifications if they do not produce theircertificates

Recommendation

Personnel files kept should have all the relevant information that pertains to anemployee.

Management Comment

4.3 Cash and Bank

4.3.1 Errors in Preparation of Bank Reconciliations

Observation

The dates of preparation and review of bank reconciliations are not indicated and thuswe could not ascertain their timely preparation or review. Outstanding cheques are alsonot dated and thus it is difficult to know which cheques are stale.There was a long outstanding cheque (No. 102557) of KShs 22,400, which had gone stale andstill appeared in the bank reconciliation statement of June 2012.

Risk

Errors in the bank reconciliation statements may lead to misstatement of the cashbalances.

Recommendation

Bank reconciliations statements should be dated on preparation and on review.All stale cheques should be reversed.

Management Comment

4.4 Fixed Assets

4.4.1 Incomplete Asset Register

Observation

The assets register is incomplete as it lacks key details such as the assets tags/registration numbers of some vehicles. This makes it difficult to physically identify theassets.


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Risk

Islamic Relief may not be able to keep track of its assets if the register is not properly

updated with the correct details.Recommendation

The assets register should be kept up to date with key details that can be used toidentify the specific assets.

Management Comment

4.4.2 Missing Logbooks

Observation

Vehicle logbooks for all vehicles were not provided for our review and thus we could notascertain whether the title of the vehicles vests with IR Somalia. IR Somalia does notkeep the log books in their possession of all the vehicles in the field.

Risk

The vehicles listed in the asset register may not belong to Islamic Relief and thus do nothave the title to the same.

Recommendation

Vehicle logbooks shows the owner and thus for all its assets, IR Somalia should havelegal documents as proof of ownership.

Management Comment