Consultancy on Audit of Microfinance Institution at Danish Refugee Council

Please find complete bidding documents in the following link: RFP-SOM-0018213 – Consultancy on Audit of Microfinance Institution

Terms of Reference (TOR) for Audit of Microfinance Institution

Who is the Danish Refugee Council

Founded in 1956, the Danish Refugee Council (DRC) is a leading international NGO and one of the few with a specific expertise in forced displacement. Active in 40 countries with 9,000 employees and supported by 7,500 volunteers, DRC protects, advocates, and builds sustainable futures for refugees and other displacement affected people and communities. DRC works during displacement at all stages: In the acute crisis, in displacement, when settling and integrating in a new place, or upon return. DRC provides protection and life-saving humanitarian assistance; supports displaced persons in becoming self-reliant and included into hosting societies; and works with civil society and responsible authorities to promote protection of rights and peaceful coexistence.

DRC has worked in Somalia since 1997, supporting communities affected by displacement caused by conflict and drought by building resilience and self-reliance. One approach DRC has been implementing has been to increase financial inclusion by working to build an inclusive financial ecosystem. By providing access to sustainable finance through formal financial service providers, the aim has been to support small business owners to grow their businesses and incomes to improve self-reliance as well as building capacity in financial service providers such as micro-finance banks.

ABOUT THE PROJECT

The project is implemented by Danish Refugee Council (DRC) and funded under Somali Resilience Program (SomReP) with financial support from SDC/BMZ. The SomRep is an ambitious approach to tackle the challenge of recurrent droughts and the chronic vulnerability among pastoralists, agro-pastoralists, and peri-urban households in Somalia. SomRep is being implemented through a consortium of 7 INGOs (ACF, ADRA, CARE, COOPI, DRC, Oxfam and WVI) and 1 LNGO with the Technical Unit housed under World Vision Somalia for coordination and provision of technical support/direction to the program. These 8 organizations have experience in Somalia and jointly aim to build resilient households and communities across Somaliland, Puntland and South-Central Somalia using their own potential and abilities other than depending on hand-outs. This approach was adopted to foster synergies on approaches and best practices by different members to better support the communities.

The main goal of SomRep is increasing the resilience of chronically vulnerable Somali people, households, communities and systems to climatic shocks and other related risk in pastoral, agro-pastoral and peri-urban livelihood zones

To achieve this, the consortium has over the years implemented multisector area-based integrated project activities including agriculture, livestock, economic development among other. Under economic development, SomRep has supported interventions like Village Savings and Loan Associations (VSLAs), IGAs and linking producer marketing associations to markets. Underlying the economic activities has been the approach to increase financial inclusion by working to build an inclusive financial ecosystem. By facilitating access to sustainable finance through formal financial service providers, SomRep has amalgamated the existing VSLA groups and private investors to form a formal financial service provider would help to support small business owners to grow their businesses and incomes to improve self-reliance as well as building capacity in financial service providers such as micro-finance banks. That is why SomRep through DRC supported the establishment of microfinance institution that would support provision of financial services to SomRep beneficiaries doing economic activities to grow their businesses in 2020. Since then, a number of beneficiaries have accessed loans from the microfinance to invest and grow their businesses. However, there is need for SomRep through DRC to keep learning about the activities and services provided by the microfinance institution to not only inform future programming but support the microfinance in service delivery.

OBJECTIVE AND SCOPE OF THE AUDIT

The objective is to audit microfinance institution that has been managing finances through a revolving fund between 2020-2022 from SomRep through DRC to strengthen and increase lending activities to targeted beneficiaries. While DRC has been working with the microfinance institution (MFI) as part of the project deliverables and supporting the institution with activities under the SomRep consortium, the donors (BMZ and SDC) through SomRep have requested an audit of use of project funds within the revolving fund as part of the learning process whose outcome would be used to guide to implementation of activities and strengthen the process and capacity of the microfinance institution.

The audit shall be conducted in accordance with International Standards of Auditing (ISA 805) to determine the financial and operational standing of the microfinance institution.

The audit report is for the sole use of Danish Refugee Council, SomRep, BMZ and SDC.

The revolving loan fund within the microfinance institution is about USD 540,000 for the period March 2020 to 30 April 2023 and an estimate of 940 loans issued and fully/partially repaid within the same period.

The scope of the audit;

1. Assess overall governance of the microfinance institution by looking at:

• Organogram
• Policies in place that govern financial, personnel and administration practices and procedures.

1. Assess the overall management and operations of the microfinance institution i.e. loan fund disbursements, monitoring and supervision. In specific;

• Assessment of the loan book developed as a result of the revolving fund, including financial flows and loan disbursements to selected beneficiaries/borrowers.
• Assessment of the institution’s selection criteria and due diligence process for borrowers, and alignment with DRCs agreed target criteria.
• Assessment of the portfolio at risk for the loan fund, late payment process and repayments and collections process undertaken at point of default including rate of recovery.
• Assessment of the recycling of funds within the revolving fund and the reuse of funds for further lending activities, including management of the revolving fund.
• Assessment of the funds remaining within the revolving fund to be used for continued lending activities to target beneficiaries.
• Review of Microfinance assets, liabilities, income and expenses through various financial records i.e. income statements, balance sheet, cash flow statements etc.
• Evaluation/review of the financial bookkeeping systems in terms of reliability, comprehensibility and correctness of the accounting entries and the integrity of the documentation (receipts and supporting documentation

1. Express an opinion on whether the financial statements of the Microfinance are presently fair, in all material respects, the funds disbursed by BMZ and SDC and its management for the period covered, in accordance to the memorandum of understanding;
2. Where applicable, report in monetary value, the net financial impact of any modified audit opinion (modified opinions can be qualified, adverse, or disclaimer) on the statement of expenses where applicable.

This audit will include such tests and controls as the auditor considers with a general focus on:

1. Day to day management of the Microfinance: This will include but not limited to loan processes, role of staff and board in day to day management of the microfinance.
2. Microfinance management information system: To assess and confirm the robustness of the loan management system used by the microfinance.
3. Financial management and internal controls: To assess and confirm that financial management and control environment of the microfinance institution has been designed and implemented in line with best and generally accepted accounting standards.
4. Microfinance expenditure vs income: To verify and confirm, on a sample basis, that reported expenditures are accurate and a true reflection of the microfinance financial activities, and also to confirm that all expenditures have sufficient support documentation.
5. Contracting and procurement: To establish and confirm that transparent, accountable and appropriate procurement and contracting practices are established and are being followed.
6. Regulatory and tax compliance: To confirm on whether microfinance institution has complied with the country’s tax laws and any other regulations.
7. Governance: To establish whether microfinance is managed as per expected governance standards in the corporate standards/microfinance standards
8. Portfolio at risk: To establish portfolio at risk for entire loan book and benchmark with normal recommended standards, Portfolio at risk to be in amount and percentage of entire outstanding loan portfolio

DELIVERABLES

The deliverables will be an audit report which includes; (i) the audited financial statements and (ii) a management letter and (iii) report on loan processes and procedures.

1. The audited financial statements: The Special purpose financial statement with an audit opinion on whether the financial statements of the microfinance present fairly, in all material respects, the funds disbursed by DRC and expenses for the period covered, in accordance with the terms and conditions of the memorandum of understanding.
2. Management Letter: The management letter should describe any audit issues/condition, criteria, cause, consequences/impact and recommendations to remediate the issues noted.
3. Report on loan processes and procedures guided by section 3 (b) above on audit scope.
4. Recommendations on areas that would guide SomRep in future programming on effective MFI management and use the same to support the microfinance institution in service delivery to clients.

DURATION AND PAYMENT

The audit will be expected to take place over a period of approximately 14 days from 1st July 2023 to 15 July 2023. The proposed number of days includes submission of draft audit report.

Payment will be made after satisfactory completion of the assignment.

CONDUCT VISIT TO THE MICROFINANCE INSTITUTION

It will be mandatory to visit the microfinance institution. Once a physical official visit is done and have engagement with staff and board members, then the audit may be done remotely at the audit firm’s premises. The required documents and/or information will be shared with the auditor through an online platform as well as the conduct of entry and exit meetings.

REQUIREMENTS/EVALUATION CRITERIA

The evaluation process consists of three stages: 1) Administrative, 2) Technical and 3) Financial. Each stage requires information and documents mentioned in this TOR.

SUBMISSION GUIDELINES

Interested firms that meet the above requirements should send both their proposal and other required documents as one attachment to email address tender.ro01@drc.ngo on or before 22 June 2023.

Please indicate “Proposal to conduct audit of Microfinance Institution – “RFP-SOM-0018213” in the subject line of your email application.

TERMS & CONDITIONS

The auditor must be completely impartial and independent from all aspects of the management or financial interests in Danish Refugee Council.

DRC will evaluate proposals and award the assignment based on technical and financial feasibility in line with DRC Procurement guidelines. DRC reserves the right to accept or reject any proposal received without disclosing reasons to applicants and is not bound to accept the lowest bidder.

CONFIDENTIALITY

All information presented, obtained, and produced is to be treated as DRC’s property and is considered as confidential for all other purposes than what is outlined in these terms of reference.

ADDITIONAL INFORMATION

For additional information regarding these terms of reference, please send your questions to Regional Supply Chain Manager EAGL: procurement.ro01@drc.ngo

Please find complete bidding documents in the following link: RFP-SOM-0018213 – Consultancy on Audit of Microfinance Institution

How to apply

Bids can be submitted by email to the following dedicated, controlled, & secure email address: tender.ro01@drc.ngo

When Bids are emailed, the following conditions shall be complied with:

• The RFP number shall be inserted in the Subject Heading of the email
• Separate emails shall be used for the ‘Financial Bid’ and ‘Technical Bid’, and the Subject Heading of the email shall indicate which type the email contains
  • The financial bid shall only contain the financial bid form, Annex A.2
  • The technical bid shall contain all other documents required by the tender, but excluding all pricing information
• Bid documents required, shall be included as an attachment to the email in PDF, JPEG, TIF format, or the same type of files provided as a ZIP file. Documents in MS Word or excel formats, will result in the bid being disqualified.
• Email attachments shall not exceed 4MB; otherwise, the bidder shall send his bid in multiple emails.

Failure to comply with the above may disqualify the Bid.

DRC is not responsible for the failure of the Internet, network, server, or any other hardware, or software, used by either the Bidder or DRC in the processing of emails.

Bids will be submitted electronically. DRC is not responsible for the non-receipt of Bids submitted by email as part of the e-Tendering process.

 

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