Financial Management Reform & Audit Preparedness

Location: Addis Ababa (Central) and Regional Offices (Oromia, Hararge)

Date: September 10 – 21, 2012

Expert: Hazem Mansour

1. Executive Summary

This case study examines a strategic financial review of the IFHP in Ethiopia. The intervention was designed to prepare the project for an external Pathfinder International (PI) financial review, identify systemic compliance gaps, and transition the new Program Director and F&A Director into their roles with improved oversight tools.

2. Challenges & Problem Identification

Prior to the formal audit, a “Rapid Financial Review” revealed significant non-compliance with the project’s Operations and Finance manuals:

Documentation Gaps

Missing Records: Payment vouchers lacked copies of checks; payroll records for early 2009 were missing entire sets of timesheets.
Travel Compliance: No “Travel Approval Requests” were being used despite manual requirements. Expense reports lacked air tickets and boarding passes.
Procurement Flaws: Instances of high-value procurements (e.g., $3,834 for medical supplies) were missing purchase requests, purchase orders, or competitive bidding.

Financial Risk Factors

Outstanding Advances: Cumulative outstanding advances totaled approximately $525,000 in April 2012. Employees were being issued new advances (up to 5 or 6) before reconciling old ones.
Regional Inconsistency: Regional offices, specifically Oromia and East Hararge, showed the highest levels of un-reconciled old advances and unapproved vouchers.

3. Implementation Strategy & Intervention

The consultant employed a three-tier approach to stabilize the project’s financial standing:

Phase I: Internal “Rapid Review”

The consultant preemptively reviewed samples from 2009 and 2012 to anticipate audit findings. This allowed the team to complete missing documents where possible, such as asking staff to reconstruct missing 2009 timesheets while they were still employed.

Phase II: Structural Reforms

Process Modification: Merged the “Travel Advance” and “Authorization Request” forms into a single document to ensure no travel occurred without written approval.
Manual Alignment: Initiated a revision of the Finance and Operations manuals to ensure they reflected actual field practices and matched each other regarding petty cash and reconciliation timelines.
VAT Recovery: Established a team to collect invoices for VAT (> $500) to facilitate a refund request to USAID.

Phase III: Leadership Empowerment

Financial Management Checklist: Developed a comprehensive guide for the Chief of Party (COP) to provide a “6-Month Management Progress Review”.
Orientation: Conducted a formal finance orientation for the new Program Director.

4. Results of the Pathfinder International (PI) Review

The external review took place from September 17–21, 2012.

Category	Outcome
Findings	Many mirrored the consultant’s internal findings regarding travel and payroll.
Pushback	The domestic team successfully argued with the auditors that some “findings” were actually “recommendations” not mandated by law or donor policy.
Outcome	PI agreed to categorize minor issues as recommendations rather than formal findings.
Advances	Significant progress was noted, with the $525,000 balance reduced to a modified balance of roughly $88,700.

5. Lessons Learned & Final Recommendations

The report concludes with a blueprint for long-term sustainability:

Annual Internal Audits: Large projects should undergo an annual internal “audit-ready” review to prevent the accumulation of missing documentation.
Operational Integration: Use Monthly or Quarterly Travel Plans so the COP has visibility into activity implementation vs. budget spend.
Immediate Correction: Bio-data sheets in personnel files remained unsigned despite previous instructions, highlighting the need for rigorous follow-up by Boston-based and local management.