Djibouti hosts a large portfolio of development projects relative to the size of its economy: ports and corridors, water and energy, health, education, social protection. Almost every financing agreement behind these projects requires an annual independent audit. For the project coordination units that live through these audits, here is what the exercise involves and how to make it a non-event.
What the donor is asking for
The terms of reference issued by the donor or agreed with the implementing agency define the scope: an opinion on the project financial statements, usually prepared on a cash or modified cash basis, an opinion on the statements of expenditure or interim unaudited financial reports used to draw funds, a review of the designated account, and a management letter on internal control and compliance with the financing agreement. Procurement reviews are sometimes added.
Each donor has its own vocabulary and its own templates: the World Bank refers to its financial management manual and interim financial reports, the African Development Bank to its disbursement handbook, the European Union to expenditure verification under its contractual conditions, the United Nations agencies to the harmonised approach to cash transfers. The underlying question is always the same: were the funds used for the purposes intended, in accordance with the agreement, and is the reporting to the donor reliable?
Eligibility of expenditure: where most findings arise
An expenditure is eligible when it falls within the categories and components of the financing agreement, was incurred during the eligibility period, followed the applicable procurement procedure, is supported by adequate documentation and was actually paid. Most audit findings in Djibouti concern the last two conditions: contracts without a signed deliverable acceptance, per diems without attendance sheets, fuel without logbooks, workshops without participant lists, or payments made before the goods were received.
Ineligible expenditure is not a technicality. The donor is entitled to ask for the refund of amounts that are not adequately justified, and repeated findings weigh on the financial management rating of the project and, through it, on future financing for the country. This is why a good coordination unit treats documentation as part of the activity itself and not as a task for the week before the auditors arrive.
The designated account and the reconciliation to the donor's records
The auditor reconciles the movements of the designated account with the project's books, with the bank statements and with the disbursement records published by the donor. Differences are frequent and usually explained by timing, exchange rate differences on the conversion of dollar or euro advances into Djibouti francs, or bank charges. What matters is that every difference is identified and explained, because an unexplained difference is, from the donor's point of view, a potential misuse of funds.
Preparing for the audit: a twelve-month task, not a two-week one
The projects that obtain clean opinions year after year share a few habits. They keep the accounting software up to date month by month and close each month formally. They file every supporting document, physically and electronically, under the accounting reference of the transaction. They prepare the project financial statements themselves, in the donor's format, before the auditors arrive, and they have a fixed asset register that is physically verified at least once a year. They also keep a follow-up table of the previous year's recommendations and are able to show what was done about each one.
The audit does not create the problems it reports. It only makes them visible to the people who can fix them.
What to expect from the auditor
An auditor who knows donor-funded projects will send a document request list several weeks ahead, will plan the fieldwork around the unit's own deadlines, and will discuss each potential finding with the coordinator before writing it down, so that the final report contains no surprises. The report itself must be delivered within the period set in the financing agreement, often six months after the year end, and must follow the donor's required format so that it can be accepted without a second round.
AXIAL Advisory & Audit audits projects financed by multilateral and bilateral donors in Djibouti and works in French and English with coordination units, ministries and implementing agencies. If your project has an audit coming up, we are happy to share our preparation checklist.
Related services : Donor project audits · Statutory audit