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Sub-recipient Audit Criteria

The UNDP Office of Audit and Investigations (OAI) applies a risk-based methodology for audits of Sub-recipients (SRs), using the basic premise of the risk-based approach to Harmonized Approach to Cash Transfers (HACT) financial audits. The lower the risk category for HACT financial audits that is assigned by OAI to a Country Office (CO), the higher the audit threshold above which the project is required to be audited. For example, if for a given year the threshold for a country in the high-risk category is US$300,000, then any SR with eligible expenditure totalling US$300,000 or more in that year has to be audited.

In addition to the risk-based selection approach, SRs that meet one or more of the following criteria should be selected for audit: 1) ‘once in a lifetime’ (OIL) audit; 2) SRs with a modified opinion in the prior year’s audits; 3) SRs identified as high risk by the CO. The considerations for high risk might be but not limited to the following: misreporting or delays with submission of reports, significant balances of inventories, loss of assets, turnover of key staff, new SRs in cases where UNDP recently transitioned to the PR role etc.

On an annual basis, OAI can amend the audit criteria and timelines for the HACT financial audits, therefore COs should carefully review the UNDP OAI Call Letter for HACT Audit Plans and not rely on the previous year’s Call.

Practice Pointer

The once in a lifetime (OIL) audit criterion detailed in the annual UNDP OAI Call Letter for HACT Audit Plans applies to cumulative SR expenditure per project, not per country. SRs must be audited at least once in their respective project’s life cycle, in the year in which the SR’s cumulative expenses (since project start date) reaches the amount detailed in the OAI Call Letter.

The information below helps illustrate the concept:

Country Risk Rating:        Medium (threshold: US$450,000)

Project Number:                                   0000xxxx       

Project start date:                           1 January 2021

Project end date:                            31 December 2023

Sub Recipient FY2021 Expenses Included in FY2021 audit plan FY2022 Expenses Included in FY2022 audit plan FY2023 Expenses Included in FY2023 audit plan
1* US$50,000 No US$50,500 No US$40,000 No
2** US$40,000 No US$270,000 Yes (OIL, $310,000 should be audited) US$310,000 No
3*** US$130,000 No US$140,000 No ( $below OIL threshold ) US$460,000 Yes (annual threshold, US$460,000 should be audited)

* Cumulative expenses did not reach US$300,000 during 2021-2023. Therefore, the SR should not be audited under OIL principle. Annual expenditures for 2021, 2022 or 2023 did not reach US$450,000. Therefore, the SR should not be audited under annual threshold principle because threshold of US$450,000 is not met.

** Cumulative expenses from FY2021 to FY2022 reached US$310,000 which is over $300,000. Therefore, the SR should be included in the audit plan for 2022 based on OIL principle. For this audit, cumulative expenditures for 2021-2022 in the amount US$310,000 should be audited. In 2023, the annual threshold of US$450,000 is not met. Therefore, the SR should not be audited in 2023.

*** Expenditures for 2023 (US$460,000) exceed annual threshold of US$450,000. Therefore, the SR should be selected for audit for 2023. Even though the cumulative expenditures for 2021-2023 exceed US$300,000 (threshold for OIL principle), only expenditures for 2023 in the amount of US$460,000 should be audited since the basis for audit in this case – annual threshold.

UN entities acting as UNDP SRs are audited under their own audit arrangement, in accordance with the ‘single audit’ principle, and are not covered by UNDP’s audit regime.

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