An External Audit of the Directorate-General for the Humanitarian Aid department of the European Commission (ECHO) is a detailed review of procedures and validation of the Directorate-General expenditure by staff who have specific in-depth knowledge of ECHO’s procedures, practices and outlook. These audits and verifications are generally based on internationally accepted auditing standards. The audits performed are sufficiently specific, complete, intensive and thorough to give ECHO the level of assurance required by Financial rules and regulations.
ECHO is also audited by the Internal Audit Service of the Commission and its own Internal Audit Capability, both of which focus on internal procedures and controls within ECHO and also by the European Court of Auditors which reports to the Budget Authority (European Parliament and Council). However, the audits by ECHO audit sector are, over one year, far more frequent and give greater audit coverage of ECHO's external activities.
The ECHO audit function was set up in 1995. In 2000 the audit function was re organized as part of the restructuring of the Directorate-General. Its mandate has been separated from the other tasks relating to Budget and Financial Management. The separation is to promote the operational independence and effectiveness of the audit sector which has been reinforced with extra staff and contract resources.
The objective of the audit function is to assess whether grants, which are direct financial contributions provided by ECHO to partners and beneficiaries ("partners") on the basis of written agreements, have been spent in accordance with laid down rules, and to provide recommendations to improve the financial management of its partners and the procedures and practices applicable to grant management.
ECHO's audit domain may be classified according to the procedures they fall under: audit of Partner Headquarters and field office and field projects; audit of subsidies, audit of Humanitarian Procurement Centres and audit of ECHO field offices. The section below considers the salient points of audit in each domain.
The audit plan aims to ensure all partners are audited at least once every two to three years. Selection of partners for audit can be more frequent dependent on the amount of funds given and the degree of perceived risks. A similar system exists for the audit of ECHO offices.
1. Partners - Headquarter Office and Field projects
All costs and documentation are drawn together at Partners’ Headquarters and the majority of auditing is therefore carried out in the Partners’ Headquarters.
The partner implements the activities that ECHO has contracted to it by means of field projects. This is therefore an essential area of audit as this is where the real work is carried out by the partner. Audits cover financial and operational aspects of the projects with visits and testing at on-going projects and local and regional partner offices and various project locations (e.g. refugee camps, health structures and distribution points). At present, these audits are undertaken primarily by the same externally contracted firm as for the HQ audits, minimally assisted by ECHO staff. They involve discussions with Partner's staff and beneficiaries.
In addition to the operational grants, normally following a call for proposals, ECHO receives requests from various sources and organizations to subsidize activities such as the promotion of humanitarian aid structures, training initiatives in the domain and increasing the awareness of humanitarian aid activities.
As the low value cannot, in most cases, justify visits to the recipient, ECHO has undertaken the following measures to gain audit comfort:
3. Humanitarian Procurement Centres
Under the FPA 2003, the principle of Humanitarian Procurement Centres (HPCs) came into force. HPCs are non-profit making, autonomous and professional structures, specialized in the technical and commercial management of supplies necessary for the implementation of humanitarian operations. They provide technical assistance in procurement to Humanitarian Organizations, putting at their disposal pre-established stocks, purchasing and logistics capacity. This principle has been created to ease the administrative burden of procuring goods for projects by ECHO Partners. When buying through an HPC, normal tender rules do not need to be followed as these are done via the HPC.
To be an ECHO accepted HPC, the HPC has to undergo an audit of its organization to verify adherence to the basic principles of procurement as laid down in Annex IV of the FPA.
4. ECHO field offices
To maintain its operational readiness, ECHO has offices in around 40 locations throughout the world staffed by ECHO experts/technical assistants. Since late 2002 these field offices are subject to regular audit by the ECHO external audit function.
Each audit is conducted in line with generally accepted auditing standards. Programmes have been developed to guide the audit; files are drawn up with supporting documentation leading to conclusions and a report is issued for each audit.
The audit methodology is being continuously developed in order to ensure more efficient, productive and effective audits.
Within the confines of business confidentiality, all audits are carried out in openness and transparency with the involvement of the auditees at each stage of the process. The audits are facilitated by exchanges of information not only from the partners to ECHO, but also from ECHO to the partners. The majority of ECHO’s audit reports have been completed with agreement between ECHO and the auditee on their contents. The results of the audits are discussed with the senior management of the partner concerned, including the actions that they intend to take. At the next audit visit the actions taken as a result of the recommendations will be subject to audit review.
Whilst the vast majority of ECHO partners have been found to have met at least a minimum standard of financial control and accounting, a need for certain improvements has been noted. In particular, many ECHO partners could improve the quality of financial information available for internal decision-making along with an improvement in the level of financial control and accounting between headquarters and field offices.
The audit sector in ECHO comprises 6 persons and forms part of Directorate B Resources, Finances, Legal affairs, Unit B/1 Budgetary planning and procedure, AMP/SPP, Audit, AAR, Information Technology and Information Systems, Document Management. In addition to internal staff, ECHO B.1 is endowed with sufficient budgetary resources to contract audits to outside firms. The calls for tender for the issue of new contracts are published in the Official Journal as and when appropriate. ECHO’s management safeguards the sector’s operational independence.
This information is given for reference purposes only. If in doubt please contact members of the Sector.
The audit strategy is primarily risk based and based on, inter alia:
The audit strategy is into an Annual Plan which can be changed as and when circumstances and the audit environment changes.