Detailed Steps in Verification and Monitoring of SR Financial Reports and Records

Sub-recipient (SR) funding is provided based on performance, which includes project management and financial performance. SRs must keep up-to-date and accurate records and documents supporting expenses made within the SR agreement, and the approved work plan and budget.

• Original documents must be kept and provided to UNDP upon request
• UNDP will conduct verification missions to verify submitted financial report supporting documents. Verification can also be conducted in the UNDP office based on reports and documents provided by SR.
• As per SR agreement requirements, UNDP will hire an external auditor for auditing SR activity in relation to signed SR agreements (For more information, please refer to the following section of the Manual: SR Management )
• The Local Fund Agent (LFA) review may involve site visits to the SR

Common errors in SR reporting include:

• FACE not signed (or signed by someone not included in signatory authority forms)
• Sufficient supporting documents (as per the Monthly Financial Data Verification Of SR/SSRs checklist) for each financial transaction not attached
• Inaccurate financial reconciliation
• Incomplete variance explanation on budget versus actual expenditure sheet
• Incorrect UNDP Chart of Accounts or budget lines used for financial transactions
• Arithmetic errors
• Accrual base accounting used instead of cash-based accounting
• Bases for apportioned overhead costs of HQ not explained (i.e., rent or utilities sharing)

Eligible expenses are:

• Validated based on documentary evidence
• In line with the approved budget
• Used solely for programme purposes
• Consistent with terms and agreement of the SR agreement
• Incurred during the implementation period as set in SR agreement, workplan and its budget
• Pre-approved in writing by UNDP
• Compliant with competitive procurement processes and relevant financial and procurement procedures of the implementer

Ineligible expenses include goods and services that are:

• Expenditures incurred outside of the scope or period of the grant
  • expenditures incurred outside of Implementation period or Closure period. Expenditures in breach of the grant agreement
  • expenditures not approved in the budget, expenditures exceeding budgets outside the implementer’s flexibilities provided by the Global Fund Unsupported expenditures.
• Unsupported expenditures.
  • absence of supporting documents
  • insufficient and/or inappropriate supporting documents
  • missing or inappropriate signatures/authorizations
• Expenditures compromised by prohibited practices
  • falsified or fabricated documents
  • diversion of assets to non-Programme use
  • non-competitive tenders/collusion/inappropriate facilitation of payments
• Expenditures compromised by prohibited behavior: such practices that could be corrupt, fraudulent, coerciveExpenditures relating to other types of non-compliance or mismanagement of Grant Funds:
  • non-compliant taxes
  • expiration or spoilage due to negligence or mismanagement
  • cancellation costs
  • procurement irregularities. Prices more than the prevailing market prices. Inadequate contracting practices.
  • non-compliance with quality assurance.
  • failure to replace lost, stolen or damaged assets
  • non-complaint HR costs, increase in SR salaries or incentives without prior GF approval, etc.

Financial reporting (FACE) will include the following:

• FACE report
• Detailed information on transactions included in the FACE report
• Budget versus actual expenses analysis and explanations for variances
• Reconciliation of outstanding advances
• A bank statement reflecting expenses with closing balance as of reporting date and bank reconciliation
• A cash forecast for next quarter
• A copy of financial supporting documents against each transaction provided to UNDP along with the quarterly financial report
• A request for quarterly advance/disbursement

Minimum supporting documents for workshop/training include:

• Workshop agenda
• Signed & certified attendance sheet of participants
• Travel authorization form or travel itinerary
• Travel documents; boarding pass, air ticket, taxi bill
• Daily subsistence allowance (DSA) or per diem form
• If DSA and transportation costs of participants are paid in cash rather than through bank transfer as recommended, proper receipts from participants

Minimum supporting documents for M&E visits include:

• travel authorization form or travel itinerary
• travel documents: boarding pass; air tickets, taxi bills
• mission plan
• mission report
• DSA or per diem form
• If DSA and transportation costs of participants are paid in cash rather than through bank transfer as recommended, proper receipts from participants

Minimum supporting documents for salary payments include:

• attendance sheet, attendance report, individual staff time sheet
• Staff contracts
• Master payroll sheet
• Bank account copies
• Leave forms
• Payroll as per approved HR budget

Minimum supporting documents for local procurement include. For local procurement of health products, prior approval is required from the UNDP Global Fund Partnership and Health Systems Team (GFPHST).

• Approved purchase/service request form
• Assigned purchase committee form
• At least three quotations from market
• Bid-comparison statement
• Valid invoice
• Goods/service received note
• If payments to supplier are paid in cash rather than through bank transfer as recommended, proper receipts from supplier

The Monthly Financial Data Verification Of SR/SSRs checklist should be completed and signed. Outstanding or unresolved/disputed items should be escalated to the CO management as soon as possible or captured in risk register if the issues may lead to financial risks on grant performance.

Practice Pointer

In situations of extreme volatility or exceptional local market conditions, Country Offices (COs) should ask UNDP for Treasury-specific advice on risk mitigation measures for a particular operating environment. Procedures should include:

• Use of the direct payment modality to minimize currency risk associated with disbursing advances to SRs/Implementing Partners (IPs) in local currency.
• Monthly advances (rather than quarterly) to reduce the exposure between the time the advance is issued and the date the SR/IP spends the funds. As the local currency loses value at a high rate, funds disbursed at the beginning of the quarter would lose value before they could be used in the second and third month, negatively impacting the SR/IPs in meeting their targets.
• The SR advance balances should be kept minimal and the recording of the SR/IP FACE should be done using the monthly UN Operational Rate of Exchange (UNORE) (as opposed to the UNORE at the end of the quarter) to minimize unrealized exchange losses incurred on revaluation of SR advance balances.

Disbursement of SR advances in hard currency requires prior approval from the UNDP Treasurer.