THE NORWEGIAN DEVELOPMENT NETWORK

Resource and competence network for civil society organisations and other development actors

NDN PROMISING PRACTICES SERIES NO 3

PROMISING PRACTICES FIGHTING CORRUPTION BY PUTTING GOOD GOVERNANCE TO PRACTICE IN A CIVIL SOCIETY ORGANISATION PARTNERSHIP CONTEXT
Oslo, June 2005

This document has been prepared for Norwegian Development Network (NDN) by a number NDN member organisations and the NDN Secretariat and approved by the NDN Board 07.06.2005

Contents
1 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 3 3.1 3.1.1 3.1.2 3.1.3 3.1.4 3.2 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 Introduction Definition of central concepts Good governance Accountability Transparency Rule of law Participation Consensus orientation Responsiveness Equity and Inclusiveness Effectiveness and Efficiency Integrity Corruption Levels of intervention Own organisation Committed leadership Strategy and action plan Code of conduct Administrative routines and control mechanisms Partner organisation Project level Project contracts Tender processes External audits and audit agreements Project visits Corruption reporting and sanctions page 3 4 4 4 5 5 5 5 5 6 6 6 6 7 7 7 7 7 8 8 9 9 9 10 10 10 10 13 19 21 26 27 management and accounting 29 30

Appendices 1 Code of conduct 2 Checklist for internal control 3 Checklist for project contracts 4 Procedures for tender processes 5 Checklist for external audits 6 7 8 Audit agreements Review of financial procedures during project visits References

NDN wants to thank the following persons for their contributions to this document: Oddvar Espegren, NDN/Norwegian Missions in Development (leader of working group) Turi Hammer, NDN/T-consult Development Research and Consulting Odd Evjen, Elisabeth Mustorp and Eigil Schjander-Larsen, Norwegian Church Aid Atle Blomgren, Norwegian Missionary Society Ole Trapness, Norwegian Red Cross Yul Malde Shah, Save the Children Norway Thanks also to participants at a NDN seminar on March 16, 2004, whose comments and recommendations have been incorporated in the document.

Introduction

The term governance has been there since the cradle of human cooperation. It encompasses the processes of decision-making and the processes of getting the decisions executed, whether in a project, a programme, an organisation, a company, a municipality, a country or an international body. The term good governance adds the word good and indicates ways that the governance should be executed in order to fulfil certain criteria of democratic rule. Democracy again means: rule by the people. The people who are stakeholders in any project or organisation are the ones that have a stake in the operation, i.e. are affected by the decisions of that project or that organisation. It can be the people for whom the project or organisation is made, it can be the people working in the project or the organisation, it can be those funding the project or organisation, the society around it or the local government in the area, etc. Good governance is an important factor in mitigating corruption. Good governance promotes accountability, transparency, participation and responsibility, in the society at large, in civil society organisations and in development projects. NDN is considering preparing a document addressing how NDN member organisations and partners may promote good governance at society level. In its Good Governance and Anti-corruption Action Plan of 2000, the Norwegian Agency for Development Cooperation (Norad) states that corruption, by subverting formal processes, poses a serious challenge to any organisation or project. Corruption: Reduces representativeness and accountability. Suspends the rule of law and disrupts civil order and safety. Leads to disrespect for contracts. Allows tax evasion. Shields firms and other entities from competition. Results in unequal and costly provision of goods and services. Destroys democratic values such as trust and tolerance. Ultimately undermines the legitimacy of any project or organisation or actor in society at large. Corruption promotes privatisation of profit and socialisation of costs. The victims of corruption are most often the poor, the disempowered and other vulnerable members of society. Therefore, both public and civil development actors must fight corruption. The target groups of this document are boards and administrative leaders in organisations who are responsible for policy making and strategy formulation and project officers having day-to-day contact with partner organisations. The objective of this document is to help Norwegian NGOs and their partners develop codes of conduct, managerial systems and activities that fight corruption at project level. The underlying partnership principle applied is trust, but needing to verify. Annexed to the document are checklists and examples of codes of conduct, internal control, tender processes, contracts and audits employed by or based on documents from NDN member organisations. The annexes may be copied or adapted by other organisations and partnerships needing to develop or improve their managerial approaches and routines.

Definitions of central concepts

2.1 Good governance Good governance is difficult to define. As CSOs we have chosen a value-oriented definition quoted from V. K. Chopra (Towards Good Governance, Konark Publ. Dehli, 1997): Good governance is a system of governance that is able to unambiguously identify the basic values of the society where values are economic, political and socio-cultural issues including human rights, and pursue these values through an accountable and honest administration. Good Governance is therefore measured on the following 8 basic characteristics (UN definition), which all address sides of responsible behaviour towards the stakeholders: Accountability. Transparency. Rule of law. Participation. Responsiveness. Consensus orientation. Equity and inclusiveness. Effectiveness and efficiency. If one of these characteristics is lacking, the governance becomes less good. Each characteristic puts great challenges to any project or organisation and should be checked regularly by both the management and the responsible steering committee or board. It may even be important to have independent auditors look into the project or organisation to assure that the characteristics are being upheld according to the definitions. Based on a more narrow and financially-oriented perspective, the International Standard on Auditing (ISA 240 - 2003) states that good governance of an entity amounts to ensure, through oversight of management, that the entity establishes and maintains internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. Active oversight by those charged with governance can help reinforce managements commitment to create a culture of honest and ethical behaviour. 2.2 Accountability Accountability is the ability to measure all doings against proper, formalized detailed documentation: clear organisation with defined vision, mission, responsibility, authority and follow up, clear project mandate and definition of duties, responsibilities and follow up on detailed levels. Elected individuals and organisations should be answerable to the stakeholders from whom they derive their authority. Well-documented managerial processes, including decision-making and clear administrative structures with segregation of duties limit the possibilities of committing corrupt acts.

2.3 Transparency Transparency is openness about all activities and willingness and ability to show all details of all our doings to any stakeholder. Openness regarding policies, strategies, plans, reports and financial matters is vital to good governance. By being transparent, an organisation or institution will generate trust among its stakeholders; their own employees, their partners, the people they serve, the local community, the government or their private and public constituency and donors. Office bearers are more likely to be widely accepted and respected if they are elected through transparent, democratic processes. 2.4 Rule of Law The Rule of Law is the legal framework for our operation: national laws, by-laws, legal codes and international standards committing our organisation (e.g. International Financial Reporting Standards IFRS). Some legal frames are given, (i.e. national legal codes). Others are codes we voluntarily adhere to or guidelines given by donors. In countries where the judiciary system or the police force is biased, we may even have to establish internal codes for non-corrupt behaviour to be followed by own staff in cases where we are up against unethical behaviour from authorities. 2.5 Participation Participation is honest involvement and realistic processes of all relevant stakeholders, e.g. both men and women, both majority and minority, both mainstream and marginalized, both young and old, etc. Participation requires space in room and time for hearing the voices of all involved parties, including proper, accepted processes for hearings and how binding conclusions are reached. 2.6 Consensus orientation Consensus orientation is striving for unanimous agreement among the relevant stakeholders in all issues needing firm decision, as long as such agreement can be reached within the realistic time frame given. The way to practice participation is by trying to reach consensus even in difficult matters. Any difficult issue for decision is a matter of give and take. It is important that all parties feel that their concerns have been properly heard in the issue and that all parties feel they can live by the decision made. The closer a matter is resolved through consensus; the stronger is the commitment by all parties to respect the decision and the better is the quality of it. 2.7 Responsiveness Responsiveness is the ability to serve all stakeholders within a reasonable timeframe. In an accountable organisation or project, the stakeholders are defined. All stakeholders have the right to be served by the organisation or project management and staff. To be responsive is to deliver the relevant services to the stakeholders within a time frame which is acceptable to the stakeholders. Simple questions should be responded to rather quickly, whereas more complicated matters may require longer time. All relevant questions should receive an acceptable response. 2.8 Equity and Inclusiveness

7 Equity and Inclusiveness is the ability by a stakeholder to acknowledge that she/he belongs in the group of stakeholders and is recognized as such by the other stakeholders. The success of any organisation or project is depending on the involvement of all stakeholders, each with a specific set of roles. Exclusion of one or several groups of stakeholders will weaken the ability of the organisation or the project to meet its objectives. If a vulnerable population feels alienated in a project process, the result will at best be sub standard. The ability and willingness of the management to involve all stakeholder groups in a committing way is crucial. 2.9 Effectiveness and Efficiency Effectiveness and Efficiency in development work is the ability to produce results that meet the needs of the stakeholders while making the best use of the resources available considering sustainable use of natural resources and protection of the environment. We all want to produce results fast results. Sometimes the short-term results seem good and relevant, whereas they may, long term, prove to be disastrous for the target group (the rights holders). It is important that long-term sustainability is the test of whether an organisation or a project is successful. 2.10 Integrity Integrity is to adhere uncompromisingly to moral and ethical principles. The definition of such principles may, however, differ between persons and cultures. Partners engaged in fighting corruption should establish a common understanding of the negative impact of corruption through awareness building and by developing a common set of values.

2.11 Corruption In Latin, a corrupt person is someone who lacks moral integrity and acts unethically. However, corruption today is in many societies closely linked with system weaknesses. According to the World Bank definition, Corruption is the abuse of public power for private benefit". NDNs definition encompasses the public sector as well as the private sector and civil society: Corruption is the abuse of power for illegitimate individual or group benefit. Abuse of power is prevalent in organisations and/or societies where there is: Lack of transparency. Lack of accountability. Lack of democratic distribution of power. Inadequate legal and judicial systems. Lack of relevant capacity among office bearers. Severe income disparity. Inconsistencies in cultural values and ethical standards. Low levels of education. Corruption may occur in many forms: Bribery means that a person, organisation or institution improperly provide something goods or services against some form of improper remuneration. Bribery involves (at least) two parties. Embezzlement is the theft of resources for own use. It may involve only one person.

8 Fraud is a criminal deception or the use of false representations to gain an unjust advantage. It covers both bribery and embezzlement. Extortion is the act of obtaining something by force, threats or undue demands. Favouritism is the unfair favouring of one person or a group with something at the expense of others. Nepotism is favouritism shown to relatives in conferring offices or privileges. In some development contexts, distinctions are made between so-called corruption of greed and corruption of need or to grand and petty corruption. Implicit in the use of such concepts is an acceptance of certain forms of corrupt behaviour, e.g. which underpaid civil servants charge extra for their services. To our way of thinking, corruption is unacceptable, in whatever form it appears. Experience shows that organisations with a clearly stated zero-tolerance principle regarding corruption, find it easier to reduce corruption internally and in partnerships than organisations without such an explicit policy.

3 3.1

Levels of intervention Own organisation

3.1.1 Committed leadership The leadership should work out and publish a clear policy on corruption, for example in the organisations annual report. 3.1.2 Strategy and action plan Many CSOs have prepared anti-corruption strategies and action plans. Such plans should be developed with the staff, and the leadership must be responsible and committed to its implementation. Transparency International has, with the private sector, trade unions and NGOs, prepared Business Principles for Countering Bribery (June 2003). This document may serve as a format for an anti-corruption plan/programme. 3.1.3 Code of conduct Organisations should consider establishing a code of conduct detailing the manner in which corruption is to be prevented and, if necessary, handled. The code of conduct should state concerted principles forming the ethical basis of the organisation and how the code is to be implemented, i.e.: Complementary administrative structures and routines. Sensitization, training and motivation with respect to the code. Dissemination of information about the code. Reporting on violations of the code. Sanctions and legal measures. Revision of the code. Ratification of the code. Appendix 1 has an example of a code of conduct.

9 3.1.4 Administrative routines and control mechanisms Administrative routines should ensure adequate segregation of duties, a series of checks and balances and hierarchical authorisation levels. Anti-corruption work within organisations should also encompass control mechanisms regarding financial matters and compliance with applicable procedures and laws. A widely used system is the so-called COSO model1 that consists of: Control environment. Control activities. Risk assessment. Information and communication. Monitoring. Control mechanisms within an organisation will be most effective when those dealing with financial information and those with directly involved in project and programme implementation regularly monitor the consistency between accounting trends and real activity. For instance, significant increases in expenditure in the accounts would not be consistent with decreased volumes of activity in the field. Appendix 2 provides a rather detailed checklist based on this model, which may be used for internal control. Use of the checklist may help in the process of ensuring that procedures and systems are in place which limits the possibilities of corruption.

3.2

Partner organisation

Most NDN member organisations work in partnership with national/local CSOs who actually implement the interventions/projects. Some CSOs may choose partners freely; others are bound by international networks and agreements. In the selection of partner, some basic criteria should be considered: values, experience, development approaches, capacity/competence issues, leadership/governance style, and systems for planning, implementation, reporting, monitoring and evaluation including accounting/auditing. It may be useful to start small and strengthen the partnership using necessary time. Norwegian CSOs should promote corruption-free partnerships. Corruption and transparency should be on the agenda at all stages of partnership development and partners should be encouraged to establish their own code of conduct. Relevant training should be provided, e.g. in financial management, auditing and legal aspects. In addition to regular partner meeting we suggest country meetings between many partners of the same NDN member and meetings between several external partners and the local partner. Such meeting points are useful in exchanging experiences, learning from practice and combating corruption on a wider and deeper level. Such meeting points may be used to pursue corruption free culture in CSO networks, and plan for measures to combat corruption at a society/authority level.

Based on a model by COSO (The Committee of Sponsoring Organisations of the Treadway Commission.) an American voluntary private sector organisation formed in 1985 and dedicated to improving the quality of financial reporting through business ethics, effective internal controls, and corporate governance.

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3.3

Project level

Individuals belonging to an organisation without a zero-tolerance policy, faced with the possibility that a bribe may help them get past cumbersome and in cases illegal bureaucracy, may choose to pay instead of overcoming such obstacles through time-consuming legal action. While the bribe may solve the immediate problem, the payment reinforces a bribing culture and may contribute to inflate the amounts unduly requested for the same goods or services later on. Organisations should avoid all corrupt acts. While all countries in principle consider corruption illegal, there is notable cultural variation in how legal systems define and address corrupt behaviour. What is considered unethical and unacceptable in one country or region may be perfectly in order elsewhere. Norwegian NGOs are subject to Norwegian law also when working abroad. They should therefore take care to observe both Norwegian and local laws. The fight against corruption may be hampered by: Cultural obstacles: Respect for elders outweighs the quest for transparency. Personal fears: Danger of reprisals against oneself or own kin. Budget constraints: It may cost more to refrain from oiling the machinery than to pay a bribe to get a job done. Power constrains: transparency may reduce power. Anti-corruption measures should therefore be carefully chosen and timed, with due attention to the personal risks to those involved. 3.3.1 Project contracts Project contracts explaining duties and rights of the respective partners may be a good tool for ensuring integrity, transparency and accountability. Such contracts should encompass details on: Operational and financial management. Compliance with relevant guidelines and laws. Auditing. Reporting. Termination of the project. Liabilities. Revision of the contract. Appendix 3 provides a checklist for project contracts. 3.3.2 Tender processes Special attention should be given to major purchases, as risks of corruption may increase with amounts of money involved and lack of control of business relations. Appendix 4 provides an example of procedures for tender processes which may act as a safeguard against corruption in matters of purchases.

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3.3.3 External audits and audit agreements For audits, the International Standard of Auditing should be followed. According to this standard, The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Appendices 5 and 6 provide a checklist for external project audits and an example of an audit agreement. 3.3.4 Project visits Project visits are useful opportunities for both partners in a partnership to gain insight into field realities and make spot checks on anti-corruption practices. Such spot checks may be used to reaffirm anti-corruption work. Appendix 7 provide an example of a checklist for use during project visits. 3.3.5 Corruption reporting and sanctions Reporting corruption is a sensitive issue. The cooperating partners need to have discussed this matter beforehand, assessed risks to those reporting corruption and agreed on possible sanctions. Anti-corruption attitudes and practice require a focus on values, good communication skills, respect for culture and diversity, and integrity from all parties involved. Cases of corruption are to be reported to the partner and Norad as soon as possible. Corrective action and sanctions must then be taken. It may be useful to call on the services of an independent party (auditor) to investigate and define actions to be taken. Normally the implementing partner will carry the responsibility and consequently any economic losses.

If money is lost, something is lost. If health is lost, more is lost If integrity is lost, everything is lost!

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Appendix 1

Code of Conduct

Source: Adapted from a NDN member document

Preamble
This code of conduct is based on dignity, integrity, transparency and accountability. The party or parties that have signed this code of conduct have accepted to be bound by these principles and the control mechanisms given in the code of conduct.

Principles
Respect of human dignity: The organisation acknowledges the right of every man, every woman and every child, to be protected against corrupt practices. Promotion and protection of moral integrity The organisation acknowledges that all employees have the right and duty to resist corruption and to report on any corrupt act that he/she has witnessed or is a victim of; if threatened, he/she should be backed by the signatories to this code of conduct. Promotion of transparency The organisation acknowledges that the principle of transparency should be adopted in all major decision making processes and that activities and financial transactions should be documented. Such documentation should be made available to all relevant parties either unsolicited or upon request. This principle shall be restricted only if there is a valid reason. The organisation will undertake to promote this principle in its relationship with different public and private sector partners. Promotion of accountability The organisation acknowledges that the principle of accountability should be adopted in all financial transactions and major decision making processes. The organisation should actively promote this principle in its relationship with other partners. An active approach against corruption The organisation condemns every corrupt act, such as bribes, embezzlement, fraud, extortion, favouritism and nepotism, and it will ascertain that this is understood among its employees. Board members and employees shall not take advantage of his/her position when interacting with other employees or partners or other parties. In their organisational capacity, no person shall accept gifts from colleagues, partners or others, except for token items of appreciation. Neither shall bribes be received, nor provided. In their organisational capacity, no person shall take part in activities that generate personal profit (e.g. buying, selling, bartering). Board members and employees shall not commit the organisation, either financially or in any other way, unless officially authorised to do so. Employees shall administer with exactness and care the funds and material supplies entrusted to him/her, and be prepared throughout the assignment to render an account of the use of such funds and supplies. IMPLEMENTATION OF THE CODE Structure The organisation shall adapt its structures and procedures to the present code, especially in the following areas: Separation of different organisational bodies to enhance accountability (governance, management and control), transparency in financial management (for example double signature, publication of accounts, adoption of procedural codes), external independent auditing of accounts. Recruiting of members and personnel on the sole basis of professional competence. Documentation of the measures implemented to ensure accountability through organisation charts and procedures manuals. Publication of progress and financial reports including balance sheets. Self-evaluation of its own and partner organisations activities and openness to external evaluations if considered pertinent by any of its stakeholders.

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Information The organisation shall define the practical consequences of the adopted principles and explain these and the code to its personnel, consultants and partners. Sensitisation, motivation and internal training The organisation shall sensitise, motivate and train its personnel and its organs at all levels regarding all matters pertaining to the code. Reporting on violation of the code Employees shall be encouraged to notify their leaders if the principles of the code are violated. If no action is taken, violations of the code should be communicated to other signatories to the code. If violations of the code, and particularly the principle related to rejection of corruption, can be proven and verified, the employee and/or other signatories to this code should consider making the information publicly known. Employees reporting such violations, shall be protected against any reprisals by the organ that is signatory to the code. Internal sanctions Any partner organisation or employee(s) who violate the code, especially the principle of rejecting corruption, is liable to sanctions from the organisation. Legal measures The organisation shall take matters to court if sanctions are ineffective or laws are violated. According to its means, the organisation shall undertake to promote the independence of the judicial system if it has doubts on its independence. Setting up networks The organisation shall undertake to set up anti-corruption and pro-transparency networks.

Follow-up and evaluation of the code

Regular evaluation The organisation shall regularly follow up the implementation of this code and include the results in its annual reports. Revision of the code The code may be revised by the signatory organisations based on the experience acquired during its implementation.

Final provision
The code shall be ratified by the role of Board of Directors or similar organ.

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Appendix 2

Checklist for Internal Control

Source: Adapted from a NDN member document (Please note that the term delegates refers to expatriate field personnel.)

1 Control Environment
Ethical standards Without proper ethical standards within an organisation, it is an immensely challenging task to make a system that eliminates possibilities of fraud, financial mismanagement or corruption. An effort should therefore be made to affect the attitude of the personnel. The employers expectations could be communicated by several means. The organisation recognizes corruption as abuse of position with the aim of achieving financial or non-financial advantages for oneself or others (friends, relatives etc.) The organisation will say that a person has been involved in corruption if he has: Abused his own position. Persuaded others into abusing their positions. Been forced to make payments or other concessions to persons abusing their positions. There exists written codes of conduct that emphasize the importance of integrity and high ethical standards when faced with the various challenges of corruption. Examples: To refuse any financial or material gifts, or promises of such gifts or other advantages, except for the token presents that are customarily offered. Not to commit the organisation, either financially or in any other way, unless officially authorised to do so; to administer with exactness and care the funds and material supplies entrusted to him/her, and to be prepared throughout the assignment to render an account of the use of such funds and supplies. Acting in conformity with other instructions and directives from the organisation. The organisation practices an absolute zero-tolerance policy towards corruption. All cases of corruption or suspicions thereof are immediately reported to a superior and any confirmed cases are immediately brought to the attention of the donor. Should personnel in the organisation be forced to make payments or other concessions to presumably corrupt officials, the organisation will make these payments/concessions public and file proper complaints to the authority in question. The organisation has policies in place to protect employees that report on possible cases of corruption. Governance A clear structure of governance and management is of great importance for the handling of resources within an organisation. It is important to establish a clear understanding of who is accountable to whom. It is also important to establish sufficient checks and balances to balance authority and check the use of authority. The organisation has an organisational structure with clear lines of command. The organisation should have a clear and straightforward governing structure with well-defined roles for its general assembly, for the central or executive committee, for the chairman or president, and for the chief executive officer. The governing structure should be described in the organisations statutes Accountability should be well-established at all levels of governance and management. The organisation should avoid domination of the governing body by one person or one group. Decision making should be widely shared, with all employees (and volunteers) having access to the decisionmaking process and with provision for consultation and a wide expression of views.

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All personnel in the line of command, including board members, receive, on a regular basis, sufficient information, to carry out their responsibilities in a satisfactory way. Training should be provided both at governance and management level to establish a clear understanding of roles and responsibilities. Including members of the target group in decision-making processes would also increase the accountability towards the target group/beneficiaries of the projects The organisation has a control committee with a particular responsibility for internal control issues, herein checking compliance with donor guidelines. Human Resources Personnel dealing with accounting/finances are competent to perform the positions in which they are placed. There is a clear job description for every position Procedures Manuals The organisation has written manuals that describe lines of authority and responsibilities of employees (jobdescriptions). The organisation has manuals on accounting procedures (accounting policy) and internal control measures. Transparency Transparency regarding all transactions and decisions related to financial management is of utmost importance. Accountability is the most important aspect to prevent and detect corruption. This can only be ensured through proper documentation of every step in each financial transaction. Procedures must also be known and stated in writing. Complete transparency is observed in all transactions and towards representatives from the donors. Recruitment of personnel: Open advertisements to be used for recruitment. Interview panel of at least 3 persons to screen and interview candidates. Leader and employment conditions to be transparent to staff and donors. Staff spokesperson or union to be available for direct staff leadership dialogue. Transparency in all salaries and remuneration issues. For each project there are written contracts between the organisation and the donor. Guiding principles of partnership Between partners it is important to be clear about expectations regarding reporting, financial follow-up etc. from the beginning and make sure that these are formulated in written agreements. Furthermore, one should be clear about the consequences of failure to meet the agreed standards. Mutual accountability should be a key word and the organisations should strive to be good examples for one another. It is important to make an institutional analysis of a possible partner before entering into partnership. The donor organisation should be clear about the contributions that can be expected in terms of funds, in kind, technical support and personnel.

Control Activities

A good financial management system will reduce the risk of corruption considerably, and most aspects of financial management are of some relevance to corruption. We are, however, focussing some areas that we consider to be particularly important for internal monitoring or for the discussions between partners. Segregation of duties There is a clear distinction between the following functions: Authorization function, i.e. the right to authorize the use of funds. Custodial function, i.e. the right to handle funds (cash and bank), fixed assets and inventories. Recording function, i.e. the right to record vouchers in the projects accounts and to keep the projects registers of fixed assets and inventories.

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Design and Use of Adequate Documents and Records The following documents exist and are in use: Signature lists for authorization procedures. Authorized personnel-lists that show name, position and annual remuneration. Salary slips. Receipt books that facilitate checking authorization, recipient, dates and amount. Log-books for vehicles. Registers for fixed assets, inventories and delegated funds/assets. Stock-cards and journals. Contracts should be made between partners and with major suppliers, employees etc. Contracts of relevance for a project should be made available on request from the donor supporting the project. A written agreement showing the responsibilities of both (or all) parties involved is essential to avoid misunderstandings and to be clear about the expectations from the beginning of the partnership. It is of great importance to clarify the obligations of each party to the contract and the consequences of a failure to meet these obligations. Justification of income and expenses All expenditures should be approved in advance by an authorised person and properly documented. One should pay particular attention to possible duplicated or false invoices, and there should be proper control over issued and cancelled cheques. All transactions should be authorised and registered in accordance with generally accepted accounting standards and there should be a distinction between the authorisation, custodial and recording function. Control should exist to prevent unauthorised access to the computers and to make sure that files are backed up. All expenditures should be checked against budget before authorisation. All project expenses are justified by: Correct authorization. Original documentation with date, amount and identifiable name and signature of vendor. Approval of reception by a project official different from the one authorizing the goods/services. Stamping invoices as soon as they have been paid. If original documentation with identifiable name and signature of vendor cannot be obtained, the person with the authorization function assess whether the costs are probable and, if deemed probable, co-sign with the project official who incurred the cost. A procurement policy should exist and it should be strictly followed by all. All purchases should be properly authorised and be within budgets. There should be adequate segregation of duties in the purchasing functions. For purchases above defined cost limits there should be a tender process, and the tenders should be properly registered and handled by a tender committee. (Preferably at least three alternative suppliers), cf. Procurement policy (See appendix 4). Payroll disbursements are properly recorded and the related legal requirements (taxes, social security etc) are followed. Salaries are only paid on the basis of: Authorized list of personnel that gives names, positions and annual remuneration from the project. Work contract that complies with local legislation and contracts with donors. Travel costs and daily allowances are only paid on the basis of: Approved travel plan by proper project official. Brief report from the one undertaking the journey on what was accomplished. Properly justified travel costs. Daily allowance calculated according to organisations rules. Fees or other payments to contractors, consultants and temporary employees are only paid on the basis of: Written agreements/contracts that specify the nature of assignment and the remuneration. Proper documentation of what has been achieved approved by project officials. If various departments of the mother-organisation render services to a project, the project considers the motherorganisation as a third party and the conditions of 2.3.6 apply.

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Handling of inadequately justified expenses The accountant does not record vouchers that are not adequately justified. Rejected vouchers are investigated immediately. If the project manager concludes that adequate justification is impossible, the expense becomes the responsibility of the project official in question. Any advances that may have been paid are deducted from the project officials next ordinary salary. Financial contribution/income in cash is justified by: Date, name and signature of individual or of representative of group that makes the payment. Confirmation of reception by at least two project officials. Authorization by project manager. Adequate safeguards of funds and assets Separation of project funds Projects funds are only used for project activities and are kept completely separated from other funds. Project funds are under no circumstances lent to individuals or other units/projects within the organisations. Salary advances are avoided, but when required do not exceed one months salary and are deducted in full from the next months salary. Bank-account Funds from donor organisations are put in a separate bank-account. There are at least two signatories for the bank-account, the project leader and the finance director. There is a written document specifying the names and signatures of the signatories. There are regular (monthly) reconciliations between ledger and account and any difference shall be investigated immediately. The reconciliation is performed by an independent person. Cash Where banks are operating, cash holdings are kept at a minimum. Petty cash should be mainly for small and incidental expenses like small purchases or reimbursements in cash. A maximum amount should be indicated in the financial procedures manual. Cash is kept in a safe place. There is a written document signed by the project manager that specifies names and signatures of project personnel who may handle cash. The cashiers use pre-numbered cash payment receipts, one copy goes to the recipient, one to the cash voucher and one stays in the pad. There are cash journals where all transactions are recorded. There are regular reconciliations of all cash holdings in the project and any differences are investigated immediately. Unless in case of robbery, any cash deficits are deducted from the cashiers salary. Transfers of funds to local units The person at the local unit that has been authorized to handle funds shall give name and signature of the person that has the right to transport cash-advances for the unit. Only persons who receive a regular salary from the project may be authorized to carry cash-advances Photocopy of national ID-card of recipient is to be presented with the cash-payment voucher Register of fixed assets, inventories and delegated funds/assets There is a complete register of all fixed assets, inventories and delegated funds (funds/assets delegated to the villages or institutions (credit-funds, vehicles etc.) that for each item or group of items gives: Date of purchase. Original amount. Where the asset is to be found and which project official is in charge of it. Condition and estimated value at the end of the year. If an item has been sold: date of sale and price obtained. Each major item (value exceeding NOK 5 000) is listed separately while minor may be lumped together (e.g. computer equipment, office materials, medicines) even though the sum total should be less than NOK 5 000. Procedures should exist for acquisition of fixed assets. Project assets are used exclusively for project activities. Lending of equipment and vehicles should only be exceptions, should it happen there has been a formal approval by the project leader and the project has been appropriately remunerated. Logbooks for vehicles. For all vehicles there are log-books that specify date, purpose, destination, distance travelled (initial and closing meter reading).

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The logbooks include information on all expenses directly related to the vehicle (petrol, oil, maintenance etc.) The logbooks are to be verified by an authorised person at the end of each month. Stock All stock movements, both at central office and at local units, are recorded in a register with separate stock cards that for each item give: Quantity and date of reception. Quantities and dates of delivery from the store. Balance in the store. Any difference between actual stock and stock-cards are immediately investigated. If stock is destroyed, stolen or has deteriorated, the loss in value is reported to the donors before any write-off is decided upon. Use of delegated funds/assets For delegated funds/assets, there exist written agreements between the project and identifiable recipients that regulate the use. The project has a project official in charge of follow-up of all such delegated funds/assets Receivables and creditors The project follows up its receivables and creditors on a regular basis. The end-of year reporting includes information on possibly non-recoverable receivables. Provisions for possibly non-recoverable assets or write-offs of actual losses are not done without written approval from the donor. Only authorized accounting personnel has access to the computerized accounts. Handing over process (change of staff) All personal liabilities of the leaving employee are settled. Any project assets in the care of the leaving employee are returned and the registers are revised accordingly. All lists of authorizations are revised immediately. When a project manager is replaced, the new manager is responsible for verifying the accuracy of the projects books and registers before signing the work contract. Independent checks on performance It is important to ensure that an annual external audit will be done, in accordance with International Auditing Standards, by an auditing firm approved by the donor. Taking into consideration that external auditors detect a very small percentage of the revealed cases of financial irregularities, the auditors should to an increasing degree evaluate and make comments on the internal control mechanisms. Auditing reports and management letters must be made available on request from donor. Some important aspects to consider when giving standards for audits can be found in appendices 5 and 6. Reconciliations between cash, bank and ledger are carried out regularly. At least twice a year the projects accountant carries out physical controls of the register of fixed assets, inventories and delegated assets. The project is audited annually by a local auditor approved by the donor and the following is checked: That the information included in the accounts is correct and that the projects system of internal control is sufficient to ensure reliable reporting and adequate safeguards of funds and assets (financial audit). That the implementing partner has complied with specific guidelines from the donor (compliance audit) If the project is one out of many with different donors, the auditor will make sure that the same costs are not presented to more than one donor.

Information and Communication

Ethical standards, division of responsibility as well as rules and procedures related to financial management all need to be communicated and understood within the organisation. Standards and rules should be given through written manuals, contracts or codes of conduct. It should, however, be acknowledged that such documents rarely are read very thoroughly and frequently by all employees. It is therefore important to conduct training both to ensure that each employee has the necessary knowledge and to ensure that there is a common understanding of the given standards. Personnel within the donor organisation, that is responsible for the follow-up of partners, must

19
know what questions to ask. Similarly, the management as well as personnel with finance and project responsibility, within the implementing organisation, should know how to detect irregularities. Regular reporting from personnel and departments There is regular financial reporting from all local units responsible for providing such reporting. Advances to local units are not paid before proper financial reporting for previous advance has been provided. Information flow Ethical standards, division of responsibility as well as rules and procedures related to financial management are communicated to all relevant levels and understood within the organisation. Standards and rules should be given through written manuals, contracts or codes of conduct, and training should be provided to ensure that the employees have a common understanding of these standards and rules.

4. Risk Assessment
The project can document that it has conducted regular assessments of internal and external risks that may influence: The reliability of financial reporting. The compliance with laws/regulations and donor guidelines. The partner should, at regular intervals, conduct assessments of the areas where risk of corruption is the highest, i.e. within procurement, segregation of duties etc.

5. Monitoring
Internal audits and reviews are important to improve routines and to detect and prevent financial irregularities. When there are several partners supporting one organisation, Partnership co-ordination meetings with all donors can be of great value and an efficient tool of co-ordinating the support and communicating about the projects and programs that are being implemented. This can also be a tool to detect, or avoid, corruption, as this kind of meetings normally improves transparency. The presence of personnel that are not employees of the implementing partner (country representatives and/or representatives from Head Office) can also be a tool to detect, or avoid, corruption. Country representatives can provide training within financial issues; governance and management to target this specific problem, but their mere presence can also have a preventive effect with regards to irregularities. Integrity issues in general should also be emphasised when recruiting and training delegates. There is regular supervision of personnel dealing with finances. The organisation has internal auditors that perform regular internal audits of the project and its internal control structure. Results and recommendations from internal and external audits are immediately followed up by the organisation. On-site visits and periodic evaluations should regularly be performed to ascertain that funds are spent in accordance with what is being reported and, furthermore, to determine the relevance and fulfilment of objectives, developmental efficiency, effectiveness, impact and sustainability for learning and improvement.

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Appendix 3
Source: Norwegian Church Aid

Checklist for project contracts

When entering into a new project, there has to be a contract between the Norwegian NGO (here called the donor) and the implementing partner (hereafter the partner). Normally there will be a contract that covers the entire period with annual attachments giving updated information on deadlines and so on. The following checklist gives the necessary points for such a contract together with concrete examples of clauses.

General information
Name of donor and implementing partner, name of project and project period

Specific information about project document and budget

Exact title and date of issue of the project document (PD) and long-term budget that is the basis of the contract. Instructions as to how changes in the project document may be done, e.g. that written approval from the donor must be obtained and that the changes must be included as attachments to the original PD Information about the budget and the financial obligations of the donor. If the donor cannot guarantee the full amount of the long-term budget, there should be a clause saying that the donor aims to fund the project as described in the PD. Actual financial support may deviate from PD if there should be deviations in the projects progress or if financial contributions from the donors back-donors (e.g. Norad or the Ministry of Foreign Affairs) should be reduced. Transfers of funds may be withheld or cancelled if the partner fails to comply with the obligations of this contract.

Requirements regarding management and accounting

General requirements that accountability and transparency are to be observed at all levels of management and accounting and that both the donor himself and his main back-donors have the absolute right to look into all matters of importance for the running of the project. Operational management: A clause stating explicitly that the project is to be run according to PD and specific instructions, e.g. about financial management, given by the donor. Financial management: The most important accounting issues that the project has to respect should be mentioned explicitly: The projects accounting shall comply with standard international accounting principles and must not contain elements in violation of local laws and regulations. The projects accounting shall use the accrual principle, i.e. costs are charged the year they occur, and not the year they are paid. The only exception is that fixed assets and inventories shall be expensed at time of acquisition and are not to enter into the projects balance sheet. There shall be a separate register of fixed assets and inventories. Accruals are only made for services or assets that have been received, but for which invoices do not arrive before the end of the year. In the cases of larger contracts, only the costs of the parts that are finished are included. Funds granted from the donor shall be spent (i.e. accounted for according to the accrual principle) within the year. A positive balance at the end of a year will either have to be paid back to the donor or, in case of an ongoing project, be deducted form next years transfers. A negative balance (over-consumption) at the end of a year cannot be included in next years accounts. The partner can apply the donor for an additional grant for the given year, but if this is not granted, the partner has to find other funds to cover the resulting deficit. Compliance with specific donor guidelines The most important accounting issues that the project has to respect should be mentioned explicitly: The donor practices a policy of absolute zero-tolerance of corruption (embezzlement, bribery, favoritism etc.) and is to be informed immediately of any confirmed cases of corruption. The partner shall set up a separate bank-account for project-funds and make sure that available project funds are not lent out to other purposes.

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The partner shall make sure that fixed assets and inventories belonging to the project are used for project purposes and that the project is properly remunerated for any loans. Handling of losses. Any losses resulting from embezzlement or from receivables that for different reasons cannot be recovered are to be refunded by the local partner. Write-offs or provisions for potential losses are thus not allowed except after explicit written approval from the donor. External audit: The partner shall ensure that the projects accounts are audited by a local auditor that is approved by the donor. The donors auditor has the overall responsibility for the projects financial reporting and has the right to go through the local auditors working papers.

Reporting
All required documents must be mentioned explicitly Annual narrative report
Annual financial report consisting of: Income and expenditure statement and Balance sheet with

Notes to the accounts including: Explanations of all major deviations from budget Details and explanations of debts and receivables per 31.12.xx Register of fixed assets and inventories Auditors report Annual plan w/budget for next year Semi-annual narrative and financial report Application for revision of budget

Specific obligations of the donor

A clause stating that the donor is responsible for sending annual attachments to this contract. These attachments will include: Granted financial support/budget for the given year Required reporting and deadlines for the various documents Transfer-plan for financial support. If there will be a budget revision during the year, the donor will send a revised an annual attachment with the revised detailed budget. The donor shall inform the partner of all matters of importance for the project and shall discuss issues concerning back-donors

Specific clauses concerning the termination of project

Financial obligations of the donor after the end of the project period.
The donor has no financial obligations towards the project after the end of the agreed project period. Any financial obligations at the end of the project period are the responsibility of the partner.

Obligations of the partner to minimise expenditure should the project terminate before the end of the project period. If the project should terminate before the end of the project period, the partner must take immediate action to minimise
all expenditure and obligations of the project.

Ownership and conditions of the use of remaining fixed assets and inventories. After the end of the project period all
remaining fixed assets and inventories become the property of the partner. If the partner wants to continue development activities, NCA will assume that remaining assets will be transferred to the new activities.

Liabilities
There must be provisions to make sure neither the donor nor the implementing partner may be subject to charges from any third party. Subject to the provision of this agreement, no party shall be liable to indemnification by any third party in respect of any claims, debt, damage, or demand arising from the implementation of the project. Where the employee of any part to this

agreement is injured, disabled or killed; or has any other claim in the source of her/his employment in this project, the party employing him/her shall be solely responsible in respect of all claims that may arise there from.

Duration, amendment, renewal and termination

A clause stating from what the contract is to enter into force. A clause saying what actions may be taken should there be disputes between the partners regarding the understanding of the contract. A clause stating that disputes that can not be solved through consultation, should be taken to the Mediation Court of Norway and that this courts ruling is binding for both parties.

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A clause stating that in the event of any misappropriation of funds, the donor reserves the absolute right to suspend and set conditions for resumption, or to terminate this contract.

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Appendix 4

Procedures for tender processes

Source: Based on Procurement Manual for the International Federation of Red Cross and Red Crescent Societies, Chapters 6-8. (Please note that the term delegates refers to expatriate field personnel.) 6 OPENING OF BIDS OR PROPOSALS 6.01 General Unless specific reasons dictate otherwise, the opening of bids in the Federation is accomplished internally and there will be no public opening. When bids are to be publicly opened, such information will be included in the Request for Quotations (RFQ) to include the date, time and location of opening. 6.02 Procedures for Receiving Bids All bids and proposals are to be received by the requesting Purchasing Officer or Assistant and are to be time/date stamped upon receipt. In the case of bids submitted by facsimile, the machine time would meet this requirement if accurate. Fax machines should be checked regularly to ensure that the machine generated date and time are accurate. Sealed bids will be initialled by the receiving officer and placed in a locked container such as a cabinet or safe until the designated time for opening. Responsibility for determining as to whether public opening of proposals is required rests with the Head of the Service, Regional Logistics Centres (RLC) or Delegation, as appropriate, based on justification provided by the Purchasing Officer concerned. a. Any bids or proposals inadvertently opened before the due date are to be brought to the attention of the Head of the Service, RLC or Delegation for further action. In the event that the circumstances indicate the bids should be retained for evaluation, then the Purchasing Officer responsible will be replaced on the bid opening committee and the bid evaluation will be accomplished by another officer. b. Unsolicited offers (not on the invitee list) are to be brought to the attention of the Head of the Service, RLC or Delegation (as appropriate) for review. As a general rule, unsolicited offers will not be considered. However, if an unsolicited offer indicates a significant disparity in prices or suggests that the solicitation process was not adequately handled, the RFQ will be closed without action and reinitiated by a different Purchasing Officer. c. Any alterations to bid and Request for Proposal (RFP)/RFQ documents is expressly forbidden. Sealed bids and proposals may only be modified prior to the opening in writing and sealed in an envelope marked to cross refer to the original submission. Bids submitted by facsimile may be amended in the same manner, as long as the amendment is received prior to the announced bid closing time. d. Bids received after the announced bid closing time will be date/time stamped and placed in the case file, but will not be considered in the bid evaluation process. 6.03 Contacts With Suppliers During the bidding process, it is permissible to clarify points in the RFQ. However, any questions related to the bid which are not addressed on the RFQ but are material to the process and may alter bid submission will be accepted without answer, and a written summary of the question and the answer thereto will be provided to all Suppliers to whom the RFQ was submitted. No information of a material nature, such as the number of bids or proposals received, the names of the bidders or proposers, etc., may be divulged to any individual or the general public prior to the designated closing time of the bidding process, or prior to the time of bid or proposal opening for sealed bids. Costing data submitted in the suppliers offers will be treated as confidential information and may not be released outside of the Federation, or to those who do not need access to such information for the proper performance of their duties. 6.04 Bidding Irregularities Any unusual or questionable circumstances surrounding the receipt, opening or recording of the bids or the proposals will be reported to the Head of the Service, RLC or Delegation, as appropriate.

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7 EVALUATION OF BIDS OR PROPOSALS AND CONTRACT AWARD 7.01 Introduction Within the Federation, the quotations, bids or offers received from suppliers in response to a solicitation are evaluated in a process referred to as Comparative Bid Analysis, which is designed to ensure that the Federation receives the best product or service for the price paid. Contracts shall normally be awarded to the lowest acceptable bidder, with due consideration being given to the impact of the contract on programme interests. Where the interests of the Federation so require, all bids may be rejected. In the latter instance, the Head of Service, RLC or Delegation, as appropriate, or the head of a procuring office duly authorised shall record in writing the reasons for rejection of the bids and determine whether to invite new competitive tenders or enter into a negotiated contract. 7.02 Basic Considerations: a.The first consideration in the procurement process is to ensure that Federation requirements are procured at the best price in accordance with its financial regulations and rules. In the evaluation of bids or proposals, the overall value to the Federations programme is the criterion for determining the lowest bid or proposal, and the specifications in the invitation or request for proposal should be formulated to permit such an evaluation. After the opening of bids or proposals, if variables in the offerings can be attributed to discrepancies or ambiguities in the solicitation, the solicitation should be reissued. b. In determining the lowest acceptable bidder, the Purchasing Officer should consider whether or not the supplier has the capability in all respects to perform fully the contract requirements, and the integrity and reliability which will ensure good faith performance. Suppliers in financial difficulty may be required to demonstrate their capability to perform, or to post a performance bond. Suppliers with no visible supply of material on hand may be required to prove availability of a dependable source of supply prior to consideration of their offer. Likewise, a manufacturer may be required to submit proof of ability to manufacture or produce the required material. Rejection of a bid or a proposal because of a suppliers perceived lack of responsibility must be approved by the Head of the Service, RLC or Delegation conducting the procurement. c. Absolute impartiality must be shown to all bidders or proposers receiving the RFQ or RFP. Any additional information concerning any solicitation should be available to every solicited bidder or proposer. 7.03 Comparative Bid Analysis (CBA) a. All formal bids and proposals will be tabulated on a CBA worksheet. The Purchasing Officer will indicate on the abstract sheet the awards made by considering each suppliers bid in turn, and checking off the low bid or proposal for each individual line item. This having been done, each individual bid will be examined closely. If an item as offered by the low bidder or proposer is found to meet all the requirements of the request for proposal, that item by that bidder or proposer should be encircled on the CBA worksheet. b. Following completion of the CBA, the Purchasing Officer shall provide a justification on the worksheet for each recommendation of award and forward the worksheet and procurement file to the appropriate approving officer for the procurement decision. 7.04 Adherence to Specifications Only bids or proposals offering items with fundamental characteristics meeting or exceeding those in the solicitation shall be considered as acceptable unless programme emergencies dictate otherwise. Superficial characteristics which do not affect the programme value of an item and which are not included in the solicitation shall not affect the acceptability of the bid if the Purchasing Officer is satisfied that the superficiality is irrelevant. Before accepting a bid or proposal offering an article with specifications exceeding, or inferior to, those in the RFQ, the Purchasing Officer shall verify with the requisitioner that the item offered is acceptable. 7.05 Evaluation of Delivery Terms: a. When the delivery date is an important factor in awarding a contract, it should be so stated in the RFQ. Offers not meeting a required delivery schedule may be rejected. If all bids or proposals are disqualified under this condition and if readvertising is not feasible, it may be necessary to accept the best delivery terms. In this event, the Purchasing Officer shall notify the requisitioner. b. When an alternate delivery point is offered by the supplier, the cost of moving the material to its ultimate destination shall be determined and added on the CBA worksheet to offers made on that basis, for purposes of comparison with other offers. The impact on delivery time to the requisitioner should also be considered in this case. c. Where delivered bids are requested, and an origin bid is received or vice versa, the bid may be accepted or rejected depending on the circumstances. Usually a delivered price is the bidders origin

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price plus transportation costs to destination. Where the delivered price under one offer is equal to the origin price plus transportation costs under another, acceptance of the former would be desirable as it reduces bookkeeping and accounting costs and may retain title to the shipment and risks of damage with the supplier. On the other hand, acceptance of an offer on an origin basis, when the delivered price and origin price are both known, may be justified if the separate contracting for transportation would reduce the overall cost. The Purchasing Officer shall keep in mind that bookkeeping and accounting costs as well as risks of damage would remain with the Federation in this case and these costs and risks must be considered. 7.06 Evaluation When Grouping Items When a bidder or proposer makes an all or none stipulation in his/her bid or proposal, the Purchasing Officer shall total the unit prices of the lowest acceptable offers under each item so as to determine the cost on an item by item basis. This total cost shall be compared with the total cost as represented by the all or none bid, bearing in mind that such a proposal would (a) save on administrative expense by making fewer contracts, (b) possibly eliminate inconsequential orders, and (c) provide interchange ability or uniformity of items, where related. The same logic would apply when the Purchasing Officer finds substantially little difference in the combining of separate line items among different suppliers, in which case acceptance of all items from one supplier may be justified even though splitting the contract may be marginally cheaper. 7.07 Offers of Lesser Quantity Offers to supply an item in less quantity than called for in the RFQ, if otherwise in order, may be considered for acceptance; however, an award for less than the full amount of the item or a split award shall not be made to the bidder quoting on the full amount unless (a) the RFQ provides for award in such manner or (b) the bidder agrees in writing that he will accept such an award. 7.08 Payment Discounts In evaluating early payment discounts offered, the Purchasing Officer should give the rate of discount precedence over the time element provided that the supporting Finance Office confirms that the time margin is sufficient to allow normal payment processes to take place. 7.09 Tie Bids or Proposals Tie bids are two or more offers exactly alike in prices and terms. Usually one factor in one of the offers will be more favourable, and however slight such a factor may be it should be made the deciding factor between the offers, provided such a procedure is rational. If a tie bid or proposal is actually encountered, the award should be made by a random drawing of the names of the bidders or proposers concerned such drawing to be accomplished by any mechanical means which will determine the successful bidder by pure chance. The drawing should be made by two or more employees of the Federation, other than the Purchasing Officer, who will provide the Purchasing Officer a written record of the result for the case file. The items so awarded should be encircled on the CBA worksheet, and an explanation should be shown therein. 7.10 Authorised Costs Exceeded Whenever the cost of a contemplated purchase exceeds the estimated cost, or some other maximum amount fixed by the Requisitioning Officer, the latter should be informed and further instructions requested. The award should be withheld until a written authorisation amending the requisition has been received. 7.11 Errors and Omissions a. Errors in Price. The Federation is not responsible for errors in price made by a bidder. However, if the Purchasing Officer has reason to believe that the offer of a bidder contains an error in price, he should, before completing the evaluation, request the bidder orally or by telegram to verify the prices in question. If the bidder replies that the prices are correct as quoted, the evaluation may then be completed without further question. A note of the fact that a query was made, together with the reply, should appear in the file. b. Failure of Bidder or Proposer to Furnish Data: Failure to furnish certain data with a bid or proposal, i.e., data which do not affect in any way price, quality, etc., even when required by the solicitation, will not require immediate rejection of the bid unless the bid so states. It is the responsibility of the Purchasing Officer to request the missing data from the bidders. If the request is not fulfilled, the bid may be rejected. c. Errors in Affixing Signature: All bids and proposals must be signed, and the typed or printed name of the individual signing should also appear. A doubtful signature, a missing signature or a signature evidently executed by someone other than the typed name, should be questioned. If there is no indication that signing was intended, an unsigned bid or proposal should be rejected.

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d. Corrections or Alterations: Corrections or alterations in a bid or proposal must be initialled by the individual who signs the bid or proposal. If this stipulation has not been complied with, the bidder or proposer shall be requested to confirm each change in writing. Upon receipt of the confirmation, it shall be attached to and made a part of the offer. No correction or other alteration in the prices or terms of a bid or a proposal shall be permitted after the time of closing. 7.12 Release of a Bidder The authority to permit modification or withdrawal of a bid or proposal after the bid closing because of a perceived mistake therein rests primarily with the Head of Service or RLC procuring, or the Head of Delegation, as appropriate. However, where the error is clearly clerical in nature, such as a transposition in figures, an error in the placing of a decimal point or in the unit of measure, then the request for modification or withdrawal may be acted upon by the Purchasing Officer, but will be documented in the procurement file. 7.13 Recommendation of Award Upon completion of the CBA and consideration of all the factors involved, the Purchasing Officer is required to recommend the final action with respect to a purchase, but has no authority to make the actual award unless such authority has been properly delegated. The recommendation should be reviewed and approved, suspended, modified, or disapproved by the Head of Service, Centre or Delegation or other authorised person, such action to be taken in writing on the CBA worksheet. In the event the lowest bidder or proposer is found unacceptable, then clear, concise and comprehensive justification must be provided in support of the decision. 7.14 Advance Notice of Award An Advance Notice of Award should be used when it appears that the notification of acceptance in its usual form cannot be delivered in time, or as quickly as desired. Particularly, if the expiration of the time limit for the acceptance of an offer is at hand, or immediate notice to the contractor to proceed is desirable for some other reason, an advance notice should be used. Advance notice of award accepts an offer and makes a binding contract. In these cases the formal papers following the advance notice are in the nature of confirmation. The advance notice may be rendered by facsimile. 7.15 Requests for Information by Suppliers: a. Prior to making an award, no information with respect to probable acceptance or rejection of any offer may be made available to any person other than an official of the Federation. The reasons for any delay in making the award may be made known upon request, if the furnishing of that information is not prejudicial to the interest of the Federation. b. After the award is made, should questions as to the outcome be put by unsuccessful bidders, the information supplied them should be limited to: (1) the name of the successful bidder, (2) the approximate price or prices at which the award was made, and (3) the basis of the award (e.g., whether the lowest bid met the delivery requirements, etc.). If the offer of the bidder making the inquiry was rejected for some reason other than price, a brief reason for the rejection should be given. The information made available to bidders or proposers may also be provided to others properly concerned (e.g., inquiries from missions and consulates). 7.16 Regrets Notification As a courtesy to the Suppliers which were not selected, the Purchasing Officer will send a brief fax stating: We regret to inform you that your offer for our RFQ No. ______ was not selected. Thank you for your efforts on our behalf. Should you require additional information, please contact the undersigned. Information provided to inquiries will be limited to that which is indicated in paragraph 7.15b. 8.0 EXCEPTIONS TO CALLING FOR BIDS OR PROPOSALS 8.01 Approved Exceptions Contracts may be awarded without calling for proposals, advertising or formal invitations to bid when: (a) The proposed contract involves commitments of less than CHF 1,000 and the goods or services being purchased are in conformity with specifications, delivery requirements and available funding. (b) The prices or rates are fixed pursuant to national legislation or by regulatory bodies with jurisdiction over the purchasing office. (c) Supplies or equipment have been standardised with such standardisation published and disseminated, thus rendering competition impracticable. Such cases will be reviewed before approval by the Committee on Contracts.

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(d) The exigency of the operation does not permit the delay necessary to conduct the bidding process. Before awarding a contract under this exception, the Purchasing Officer should consider the feasibility of splitting the requirement so as to award a contract for a part of it on an emergency basis and the balance by competitive bidding, if such a course would be acceptable to the requisitioner. (e) The contract relates to the purchase of proprietary articles or perishable supplies. This exception applies to articles for which only one source exists, and no similar article which meets the requirements of the requisitioner is available from an alternative source. (f) The proposed contract relates to personnel services other than staff services. (g) The award is granted to the lowest bidder in a recent bidding exercise (within the past ninety (90) days). 8.02 Telephonic Solicitations Quotations may be requested and accepted by telephone when the amount of a contract is under CHF 1,000 and the specifications and contract terms are simple and clearly understood by all parties or when the delivery requirement is urgent. In the latter case, the solicitation will be followed by written verification of the request and the responses must be in writing. Such transactions will usually be handled by facsimile. 8.03 Use of Exceptions Procurement officials should exercise sound judgement and caution in awarding contracts under any of the exceptions covered by the above paragraphs. Formal competitive offers should be sought whenever possible. In all events, a written record of the responses will be maintained on a CBA worksheet, and the evaluation processed as indicated in Section 7 of this manual.

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Appendix 5

Checklist for external audit of projects

Source: Adapted from a NDN member document The partner shall ensure that the projects accounts are audited on an annual basis by a local auditor that has been checked and approved by the donors external auditor. The audit shall be done in accordance with international auditing standards. The auditor also has to be aware of any special accounting principles imposed by the donor, e.g. Norads requirement that fixed assets and inventories are not capitalised but taken to cost at the time of acquisition. The external audit shall check: That the information included in the accounts is correct (financial audit) That the implementing partners system of internal control is sufficient to ensure reliable reporting and adequate safeguards of funds and assets (systems audit) That the implementing partner has complied with the specific guidelines from the donor (compliance audit) Examples of such specific donor-guidelines could be: that donor funds are to be kept on a separate bank account that project funds are not to be lent to other purposes that project assets are not to be lent without proper remuneration Note: If auditing only one project out of many projects and donors, the auditor will also look at the partners global accounts to make sure that the same costs are not presented to more than one donor. The partner is responsible for entering into a concrete agreement with the auditor. The donors auditor is responsible for checking and approving the local auditor and has therefore the right to go through the local auditors working papers. The donor is responsible for having its auditor send the local auditor the following well ahead of the audit work for the year: Audit instructions. Any new guidelines from the donors. The approved budgets for the year to be audited. The implementing partner is responsible for having the following documents ready and available on auditors arrival Trial balance sheet 31.12.xx. Trial Income and Expenditure Statement. Explanations of deviations from budget. Bank reconciliations for all bank accounts and photocopies of the last bank statements. Cash reconciliations and cash counting reports for all cash holdings in the project. Revised registers of fixed assets, inventories and delegated funds/assets. Detailed explanations (reconciliations) of all debtors and creditors. Signature lists for authorisation procedures at all levels of the project. List of bank signatories. Project contracts with donors. All relevant manuals and guidelines from the donor. The partner is responsible for ensuring that the final audit report is sent to the donor by the agreed deadline. The partner is responsible for following-up recommendations in the audit report.

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Appendix 6

Audit agreements

Source: Based on a document from the Programme Handbook of Save the Children Norway

Audit agreement for the year ending .............

Between (organisation, country) and (local auditor) 1. Appointment The local auditor is commissioned by the Secretary General, [Organisation], Oslo. 2. Scope of work The audit shall cover the accounts of Organisations own programme activities and the activities of Organisations partners. The local auditor may base his/her audit on the work of other auditors with respect to Organisations partners, but must take full responsibility for the complete audit of the country programme. The auditor shall carry out the audit in accordance with generally accepted auditing practices and the audit instructions that are distributed annually from Organisations principal auditor. In addition the auditor shall observe relevant rules and regulations, the Organisation programme handbook, the terms and conditions of employment for expatriates and Organisations agreements with partners. The resident representative is obliged to give the auditor the latest version of Organisations terms and conditions for employment of expatriate staff. For partner-managed projects the auditor shall check the audit reports from all partners to issue an opinion on whether or not the auditors reports are qualified, and confirm that the partners auditors are certified as authorised public auditors or certified public accountants. It is expected that visits to Organisation managed projects are included in the auditors work. Which projects and how often have to be agreed upon with the resident representative? 3. Legal compliance The auditor shall ascertain as to whether Organisations operations are in compliance with national laws and regulations, focusing on the following: Income taxes for Organisation staff (national and international). Staff employment, work permits, fringe benefits, employee tax withholdings and other compensations. Value added taxes and dues. Currency exchange regulations. Any other question with relevance to national laws and regulations. 4. Evaluation of internal controls The auditor shall evaluate and comment upon internal controls, with regard to their ability to safeguard Organisations assets and to ensure the completeness and accuracy of accounting records. The auditor is expected to assess the financial risks faced by the organisation and to plan his/her audit accordingly. This should form the basis for the nature of the auditors tests and help the resident representative in designing and implementing improved procedures for controlling financial activities. The auditor shall report weaknesses in internal controls and accounting procedures and practices together with recommendations for improvements to the resident representative. The scope for internal control may vary with the nature of activities in each programme. In general the following areas should always be evaluated, particularly with respect to country programme offices: cash and bank disbursements to pay for goods and services received controls over computerised applications and the information technology environment procedures for ordering, receiving, accepting and recording the acquisition of goods and services administrative procedures for project approval, planning and budgeting adequacy and effectiveness of the resident representatives procedures for controlling programme activities 5. Substantive audit work In addition to evaluating internal financial controls, the auditor shall perform substantive testing. The nature and extent will depend on the auditors risk assessments and the effectiveness of internal controls. The substantive tests shall always include: Physical inspection of material inventories and fixed assets.

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Tests of cash and bank disbursements to ensure that these are supported by original vendor invoices and that they represent bona fide settlement for goods and services actually received. Unsupported disbursements which cannot be explained shall immediately be reported under confidential cover directly to the Director of Finance and Administration at Organisations Head Office in Oslo. Evaluation and control of employee benefits, to ensure that these are in compliance with contracts of employment, including Organisations terms and conditions of employment for expatriates and local staff Tests that the cost recorded for goods, services, salaries, etc. are reasonable in the context of consumer purchasing power in the country. Testing to ensure that amounts reported in the quarterly estimates to the Head Office in Oslo are in accordance with the books of accounts and have been correctly classified in accordance with the chart of accounts. Verification to check that the required project documents are prepared according to guidelines and kept in the programme office. There should be a project agreement, a project summary and approval form, and a project plan and budget for each project accounted for in the accounting year. 6. Audit reports By 31 January the auditor shall submit audited financial statements covering the twelve months of the year ending 31 December. The audited financial statements shall cover all Organisation managed projects and verifications of financial transfers to Organisations partners. A verified list, specified per project, showing the approved budget, income and actual expenditure must be included as appendix. By 10 April the auditor shall submit final audited financial statements covering the audit of the partner managed projects (as outlined in paragraph 2). By 31 August an interim audit report for the first six months shall be submitted. The latter will cover Organisation managed projects and verifications of financial transfers to Organisations partners. The audit reports shall be addressed to Organisations principal auditor and to the Director of Finance and Administration, Organisation, Oslo, and signed copies sent to the resident representative. 7. Management letters and interim audit report The auditor shall report on internal financial control weaknesses and give recommendations in the form of a management letter and interim audit report. A draft shall be submitted to the resident representative for comments. The resident representatives comments shall be included by the auditor in the management letter and the interim audit report for submission to Organisations principal auditor and to the Director of Finance and Administration, Organisation, Oslo, together with the audited financial statements. 8. Language All reports must be written in English. 9. Additional services The local auditor is encouraged to give professional advice concerning internal financial controls, accounting procedures and compliance with local taxation regulation. 10. Relations between auditors Due to Norads requirements, Organisations principal auditor shall have the authority to review the working papers of the local auditor. Organisations local auditors shall have a similar authority to review working papers of partners auditors. The latter authority shall be included in the agreement with Organisations partners. 11. Fees Information on fees should be submitted by programme country auditors upon receipt of the audit instructions. Date: ________________ On behalf of the auditor

On behalf of Organisation

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Appendix 7: REVIEW OF FINANCIAL MANAGEMENT AND ACCOUNTING

PROCEDURES DURING PROJECT VISITS
From: Norwegian Missions in Development (Bistandsnemnda)

Request for a meeting with the person responsible for the projects accounting. This should not be the person responsible for running the project. Has the accountant sufficient qualification for this position? The general ledger accounts, do you find it well suited and reasonable considering the size and the extent of the project? Is the accounting done by computer? If yes, which program is being used? How up to date is the accounting? Is it more than three months behind? Is each accounting period (monthly, quarterly?) terminated by preparing a financial report? Request for the last financial report. Does the board of the project regularly receive financial reports comparing the budget with the accounts? Ask to se a folder with vouchers from this year. Are the vouchers numbered and organized in an orderly way? Are the vouchers certified by someone else, not the accountant? Expenses paid in Norway, are they charged to the account of the project locally? Salaries and social expenses for missionaries, are they included in the accounts made locally? Ask for an overview of the signatories for the bank accounts? When was the last reconciliation of the bank statement(s) and the general ledger? How often is the petty cash checked? When was the last time it was checked? Did anyone witness that the amount in the petty cash agreed with the cash book? Was there any difference between the petty cash and the cash book at that time? Ask to see a fixed asset register (e.g. stock of goods, cars etc) When was this list last reconciled to the general ledger? Has there been much waste? How was this reported? Choose an article from the fixed asset register and check that the quantity on the list agrees with the actual stock. Ask for a specification of debt and accounts receivables. Do they have problems related to financial management and accounting in the project? Do they have problems related to budgets and reports to the organization in Norway? Auditing: Is it a qualified person doing the auditing locally?

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Appendix 8:

References

International Standards of Auditing: International Auditing and Assurance Standards Board. Norad: Norads Good Governance and Anti-Corruption Action Plan 2000-2001. NHO: Standpoint Corruption. Oslo Transparency International: Corruption Fighters Tool Kit. Civil Society experiences in emerging strategies. Transparency International: Business Principles for Countering Bribery. June 2003. van der Merwe, Stian: Corruption and Governance: Towards Peoples Governance against Corruption. Occasional Paper No. 7/02 Norwegian Church Aid. Definition and discussion on good governance as seen by a scholar from Bangladesh is found on: http://unpan1.un.org/intradoc/groups/public/documents/other/unpan014209.pdf