TERMS OF REFERENCE

Annual Audit of Project support

Name of organization: Lao Microfinance Association (LMFA)

Period covered: 1^st October 2023– 30^th June 2024

1. Introduction

The predecessor of the Lao Microfinance Association (LMFA), the Microfinance Working Group for the Lao PDR (MFWG), was founded in May 2007 by a group of microfinance practitioners as an informal platform to exchange experience, represent microfinance sector interests and coordinate donor activities. In October 2013, the MFWG obtained its temporary license as a non-profit association (NPA) from the Ministry of Home Affairs (MoHA). Therefore, its name changed to Lao Microfinance Association (LMFA). LMFA got its permanent license by the middle of August 2018. The LMFA is the national microfinance industry’s umbrella organization. It gathers microfinance practitioners and other relevant stakeholders that share the goal of the association which is to improve access to appropriate and affordable financial services for poor and unbanked people. Lao Microfinance Association (LMFA) hereafter referred to as the “Cooperation partner” wishes to engage the services of an audit firm for the purpose of auditing the programme Leading the change, as stipulated in the agreement between the Cooperation partner and WWF Laos. The audit shall be carried out in accordance with international audit standards (ISA) issued by IAASB¹. In addition, an assignment according to International Standards on Related Services (ISRS) 4400 shall be carried out. The audit and the additional assignment shall be carried out by an external, independent and qualified auditor.

I.  Objectives and scope of the audit

The objective is to audit the financial report for the period October 2023 to June 2024 as submitted to WWF Sweden and to express an audit opinion according to ISA, applying ISA 800/ISA 805, on whether the financial report of the programme is in accordance with the Lao Microfinance Association (LMFA)

´s accounting records and WWF Sweden’s requirements for financial reporting as stipulated in the agreement including appendices between WWF Sweden and Lao Microfinance Association (LMFA) (Agreement).

¹ The International Auditing and Assurance Standards Board

II.  Additional assignment; according to Engagement to perform agreed upon procedures (ISRS 4400), review the following areas in accordance with the terms of reference below

Mandatory procedures that must be included:

1. Observe whether the financial report is structured in a way that allows for direct comparison with the latest approved budget².
2. Observe and inspect whether the financial report provides information regarding:
   1. Financial outcome per budget line (both incomes and costs) for the reporting period and columns for cumulative information regarding earlier periods under current agreement.
   2. When applicable, compare if the opening fund balance³ for the reporting period matches with what was stated as closing fund balance in the previous reporting period.
   3. A disclosure of exchange gains/losses. Inquire and confirm whether the disclosure includes the entire chain of currency exchange from WWF-LAOS’s disbursement to the handling of the project/programme within the organisation in local currency/ies, if applicable.
   4. Explanatory notes (such as, for instance, accounting principles applied for the financial report).
   5. Amount of funds that has been forwarded to implementing partners, when
3. ​
   1. Inquire and inspect with what frequency salary costs during the reporting period are debited to the project/programme. Choose a sample of three individuals for three different months and:
   2. Inquire and inspect whether there are supporting documentation⁴ for debited salary
   3. Inquire and inspect whether actual time worked is documented and verified by a manager. Inquire and inspect within which frequency reconciliations between debited time and actual worked time is performed.
   4. Inspect whether the Cooperation partner comply with applicable tax legislation with regard to personal income taxes (PAYE)⁵ and social security fees.

² The budget is attached to the agreement with WWF Laos as an annex and any updates should be supported by a written approval by WWF Laos

³ I.e. funds remaining from disbursements made during previous reporting period/s

⁴ Debited salary costs should be verified by supporting documentation such as employment contracts

⁵ Pay As You Earn

4. Review and confirm that the Cooperation partner screens IP’s and/or suppliers to ensure that such parties are not subject to the European Union’s financial sanctions list of persons, groups and organisations (EU Sanctions list).

Enquire whether there has been any reported findings from the screening process and if so, report on such findings.

5. ​
   1. Inspect and confirm that the unspent fund balance (according to the financial report) at the end of the financial year is in line with information provided in the accounting system and/or bank
   2. Applicable the final year: Inspect and confirm the unspent fund balance (including exchange gains) in the financial report and confirm the amount that shall be repaid to WWF-LAOS
6. Inspect and confirm the Budget and Forecast revision in the financial report

A new budget shall be set up whenever a major change arises. A major change is defined as more than 10 % variation in between budget lines and in between Outcomes. The overall budget cannot be increased. The budget changes shall be approved in advance by WWF Donor and a new amendment to the agreement shall be set up with the new budget attached.

Besides the revised budget a forecast/minor budget revision is allowed three times a year in connection to financial reporting. The forecast changes can only be used for changes of less than 10 % between budget lines. These changes are approved by WWF Sweden in writing. Where no Forecast has been prepared the Budget will be displayed in this column as well. If the Forecast is filled in and approved by WWF Donor, the Forecast will be considered as the new budget for the current Financial Year.

Follow up of funds that are channeled to implementing partners

Mandatory assignments that must be included if the Cooperation partner forward funds to implementing partners (IP’s):

Choose a sample of a minimum of 10 % of the total of disbursed funds as well as 10 % of the

number of IP’s or a maximum of 10 IP’s.

7. Inspect and confirm whether the Cooperation partner has signed agreements with the

selected IP’s.

8. Inspect and confirm whether the Cooperation partner, in all agreements entered with IP’s,

included the requirement to carry out annual audits. The requirement shall specify that

these audits shall be carried out with application of ISA (reporting according to ISA 800/805) and a separate assignment according to ISRS 4400 should be included for project/programme support. If agreements regarding core support are entered into with IP’s, the audit shall be conducted in accordance with ISA 700 or National standards on auditing.

9. Inquire and inspect whether the Cooperation partner has received financial reports and

reportings from auditors from all IP’s included in the selected sample:

1. Inquire and inspect whether the Cooperation partner has verified if reports from IP’s are

in line with the requirements in the Agreement.

1. Inquire and inspect whether the Cooperation partner has documented its assessment of the submitted financial reports and reporting from auditors including management responses and action plans from selected IP’s.
2. Inquire and inspect whether the Cooperation partner has documented its follow-up actions based on the information provided in the financial reports and the reporting from the auditor of the selected IP’s.
3. Inquire and inspect whether the Cooperation partner has reported substantial observation⁶s from selected IP’s audit reports in its communication with WWF Sweden. List observations⁷ from IP’s audit reports which have been part of this sample.

10. Overhead costs:
    1. Inquire and inspect if the agreed overhead costs are based on a cost recovery Obtain information on debited overhead costs within the project and confirm whether the costs are in line with the Cooperation partner´s routines for allocating overhead costs to different projects.
    2. Inspect whether there is a reconciliation between the budgeted amount and the actual costs for overhead on an annual basis

III.  The Reporting

The reporting shall be signed by the responsible auditor (not just the audit firm⁸) and shall include the title of the responsible auditor.

⁶ Deemed substantial by the Cooperation partner.

⁷ Observations included in Management Letters and if applicable, qualified audit reports.

⁸ If the audit firm is obliged to sign, refer to relevant legislation. Sida still needs to know who has been responsible for the audit assignment.

Reporting from the ISA assignment

The reporting from the auditor shall include an independent auditor’s report in accordance with the format in standard ISA 800/805 and the auditor’s opinion shall be clearly stated. The financial report that has been the subject of the audit shall be attached to the audit report.

The reporting shall also include a Management letter that discloses all audit findings, as well as weaknesses identified during the audit process. The auditor shall make recommendations to address the identified findings and weaknesses. The recommendations shall be presented in priority order and with a risk classification.

Measures taken by the Cooperation partner to address weaknesses identified in previous audits shall also be presented in the Management Letter. If the previous audit did not have any findings or weaknesses to be followed-up on, a clarification of this must be disclosed in the audit reporting.

If the auditor assesses that no findings or weaknesses have been identified during the audit that would result in a Management Letter, an explanation of this assessment must be disclosed in the audit reporting.

Reporting from the ISRS 4400 assignment

The additional assignment according to agreed upon procedures ISRS 4400 under section II, shall be reported separately in an “Agreed-upon procedures report”. Performed procedures should be escribed and the findings should be reported in accordance with the requirements in the International Standard on Related Services 4400. Report of factual findings for all applicable partners could be presented separately or consolidated. When applicable, the sample size shall be stated in the report

IV.        Project information for auditing

1.     Project Name

Greater Mekong Programme – Leading the Change 2, 2023-2028

2.     Project Donor

Primary Donor: The Swedish Agency for International Development Cooperation, Sida

Network Donor: WWF Laos

PROJECT NUMBER: 40002766

Agreement Number: FY24-022

3.     Project Location

Sexap Protected Area covering provinces of Sekong and Saravan of Laos

4.     Project Duration

01 October 2023 – 30th June 2025

5.       Project Budget 1^st October 2023 to 30^th June 2024

The audit will cover the whole period of the project from 1^st October 2023 to 30^th June 2024, for the total amount of 32,717 USD stated in the project agreement.

6.     Expected time for receiving audit proposal.

Friday, 15 May 2024

7.     Expected time needed for the audit (included audit field work)

1-9 August 2024.

8.     Expected time to receive audit report

First draft: 29^th Aug 2024

Final draft: 06^th September 2024

Final report: No later than 13^th September 2024

9.     Audit Deliverables

Independent Auditor´s Report (audit certificate) Audit Memorandum

The auditor shall also carry out an additional examine according to agree upon procedures ISRS 4400 and ISA 800/805 including ISRS 4400, and review the areas in accordance with the Terms of reference.

All audit deliverables shall be issued in physical copies and digital copies. The digital copies must be sent to WWF Laos by Audit firm.

V.  Audit Team Qualifications and Experience:

The Auditor will employ staff with appropriate professional qualifications and suitable experience in International Standards on Auditing and with experience in Terms of Reference for a financial, internal control system and procurement audit auditing financial information of entities comparable in size and complexity to the Entity. In addition, the audit team as whole should have:

• Experience with audits of Lao Civil Society Organization (CSO), development projects and programs funded by national and/or international institutions and/or donors
• Sufficient knowledge of relevant laws, regulations and rules in Laos would be an asset; this includes, but is not limited to taxation, social security and labour regulations, accounting and accounting information systems, procurement.
• The auditor must be registered with Lao Chamber of Professional Accountants and Auditor

(“LCPAA”);

• Excellent knowledge of Lao and English
• The auditor provides the CVs of all person proposed as team The CVs include information on the types of audits performed by the team members, demonstrating their abilities and capacity to perform the audit, as well as detailed information regarding any relevant experience.

VI.  How to submit the proposals

• Structure a detailed proposal addressing all the above-mentioned points;
• Provide estimates of daily rates of auditor and audit team, travel expenses, documentations expense, any other related expense in the financial part of the proposal.
• Interested candidates must submit the proposal to: Lao Microfinance Association (LMFA) by 17^th May 2024 before 3pm, at Unit 13, Ban Amone Village, Hom23 (23/3), Saysettha District, Vientiane Capital, or email mfa@laomfa.org