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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
PRESENTATIONONFINANCIAL
RISKASSESSMENT& MITIGATION
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FINANCIALRISKASSESSMENT& MITIGATION
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FINANCIALRISK&
FRAMEWORK
Financial Risk
In Context of Grant Making
Mismanagement or loss of Funds/Resources entrusted to an NGO
Key Elements of Financial Risk
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KEYELEMENTSOF
FINANCIALRISK5
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FINANCIALMISMANAGEMENT
Ineffective Utilization
Improper Budgeting
Delayed Availability of Funds
Misuse of Funds
Erroneous/ Delayed
Reporting
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LOSSOFFUNDS
Loss of Funds in Transit
Diversion of Funds/ Assets
Legal Penalties
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Diversion
Not Allowed
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
AUDITAREAS
Budget
Reporting
Utilization of Grant Funds
Control systems
Payroll and HR Recruitment/ Records Legal Compliance
Governance
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
AUDITOBJECTIVES
Primarily depend on Donors
Perspective
Optimize overall Financial Risk to DonorFunds entrusted to Grantee/ Partner
Strengthen Financial Management
Systems of Grantee/ Partner
Optimizing or Minimizing the Risk?
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
AUDITMETHODOLOGY
Standard Audit Visit: 2 - 4 days
1. Meeting with the Chief Functionary and
key members of the team2. Courtesy meeting with Board Members
3. Discussion and review of Financial
Systems and Records:a) Identification and assessment of risks
b) Suggested mitigation measures
4. Debriefing with the Grantee/ Partner
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
AUDITMETHODOLOGY-1
Draft a report identifying all relevant
Risks along with feasible mitigations
Share draft report to Grantee/ Partnerwith copy to the donor agency for their
response and comments
Incorporate response from theGrantee/ Partner in report with
suitable comments and release final
report
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ASSESSINGRISK
Identify specific risk in the Existing
Systems and Controls
Assess whether single/ repeated errorsare due to:
A flaw in system design or lapse
List-out , review and assess the risksfor their implications
Gives an idea, whether risk is
significant enough for reporting
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REPORTING
Report all significant risks to the
Partner and the Donor
Emphasis on Identifying the Riskand its Implications
Risk Mitigation can be possible by
modifying or introducing a procedureor control
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RISKANDSUGGESTED
MITIGATION
Risk Suggested Mitigation
Signing a blank
cheque creates two
risks:1. Possible misuse of
the cheque by the
other signatory;
2. Abdication of hisofficial responsibility
(as an office bearer)
by the Finance
Trustee.
Partner may consider adopting a multitier
signatory approach to deal with the problems
arising due to nonavailability ofofficebearers at the location. Accordingly,
signing authority for operational needs up to
a certain monetary limit, say Rs.10,000 or
Rs.20,000, can be delegated to the accountant
or such other person, along with an office
bearer such as the Managing Trustee.
Cheques above this amount would
compulsorily require the signatures of two
office bearers.
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
RISKANDSUGGESTED
MITIGATION-1
Risk Suggested Mitigation
Expenses may be inflated and
Donor funds diverted through
use of fictitious or altered dutyslips, with or without the
knowledge of owner of the Taxi
Service.
Risk arises at a senior management
level in Partner organisation and
cannot be mitigated by anaccounting procedure.
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RISKANDSUGGESTED
MITIGATION-2
Risk Suggested Mitigation
This creates a risk that a bill
may be paid or accounted
twice, without the materialhaving been printed.
Proof or sample of the material
printed should be attached with the
bill and voucher. Also the bill shouldindicate clearly the items printed,
and the quantities of each item.
Delivery of the items should be
acknowledged on the bill by a
responsible person at Partner level.
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RISKANDSUGGESTED
MITIGATION-3
Risk Suggested Mitigation
Classification of salary as
consultancy payments can
lead to wrong deduction oftax and subsequent
imposition of interest and
penalty
Payments made to employees need to
be treated as salary and tax should be
deducted under section 192,irrespective of whether the
relationship is contractual or through
an appointment letter
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RISKANDSUGGESTED
MITIGATION-4
Risk Suggested Mitigation
Payment of salaries in cash
leaves open the possibility
of the actual payments notbeing recorded in the
register
Partner may pay all the employees,
drawing more than Rs.1500 per month,
through account payee cheques orbank transfer
Lack of a manual cash
record weakens control over
physical cash as cash cannot
be tallied properly
Partner should use a cloth bound cash
book which can be used as rough cash
book and should enter all the inflows
and outflows of cash in this book as
and when they occur
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RISKANDSUGGESTED
MITIGATION-5
Risk Suggested Mitigation
Risk of loss of
assets over a
period oftime, as
physical
verification
and tally
becomes
difficult.
Partner should maintain the Fixed Assets register
properly giving the following details:
Open one page for each type of asset. For example:one page for computer, one page for TVS, etc.
Details of assets purchased/donated
Give identification marks on each asset and also
copy these in the asset register
Location of asset should be mentioned in asset
register
Mention registration number of vehicles in the
asset register
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RISKANDSUGGESTED
MITIGATION-6
Risk Suggested Mitigation
Actual food
expenses may
be claimed oraccounted by
accountant at
inflated
figures.
If printed cash memo or rubber stamped slip is not
available for such expenses, then the plain paper
slips should show the place (location, village) andshops name by hand or the shop owners name. The
shop owner himself/ herself should be asked to
prepare and sign these. If the shop owner cannot
write then the slip can be prepared by the customer,
but must still be signed (or thumb impression
marked) by the shopkeeper.
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RISKANDSUGGESTED
MITIGATION-7
Risk Suggested Mitigation
There is a risk
of booking of
expenseswhich are not
supported by
adequate
operational
documents.
Attendance sheets and photographs should be
attached with the vouchers. Further, all attendance
sheets should carry the following information as aheader on all pages to mitigate the risk of mixing up
of sheets:
1. Title of workshop,
2. Date,3. Location,
4. Supported by,
A serial number should be put against each
participants name.
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RISKANDSUGGESTED
MITIGATION-8
Risk Suggested Mitigation
This type of improper filing can
lead to wrong assessment of
income which may lead toimposition of income tax and
penalty on Partner.
Partner should file a revised income
tax return after consulting a CA or
tax practitioner familiar with NGOtaxation
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BENEFITSFORDONOR&
GRANTEE
Coverage of Risk
Identification of Risk
Reduction of unexpected Risk Strengthened Grantees/ Partners
Systems
Reduced disruption of criticalPartnerships
Improved delivery of funds to donors/
Partners mission and cause
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
TRAINING
Train Audit Team leaders/ Members
Clarify the Concept of Risk Based Auditing
Involves a shift from locating actual errors toidentifying possibilities of errors
Visit field area to familiar with their
operating realities
Guard against overloading NGOs with
controls and procedures
Different Operating and Control environment
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A c c o u n t a i d T M Accounting for Aid.Aid in Accounting
WORKSHEETS
Invest some time developing
automated worksheet templates
Build up Risk Register with Mitigationtable
Helps in reducing costs with speed up
report writing
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SOFTWARE
Computer Assisted Audit Techniques Spreadsheets and SQL database
Audit Software in Western Countries
Auto Audit FOR WINDOWS
Reliant auditor
PAWS - Pentana Audit Work System
ERA - Enterprise Risk Assessor
Planning advisor
Omni Compliance
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A c c o u n t a i d T M
Thank you!
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