aaf 01/10 framework document for accountants reports - icaew

March2010

TECHNICALRELEASE

FRAMEWORKDOCUMENTFORACCOUNTANTS’REPORTSONGRANTCLAIMS

TechnicalReleaseAAF01/10

TheICAEWoperatesunderaRoyalCharter,workinginthepublicinterest.Itsregulationofmembers,inparticularinrespectofauditors,isoverseenbytheFinancialReportingCouncil.Asaworld-classprofessionalaccountancybody,theICAEWprovidesleadershipandpracticalsupporttoover134,000membersinmorethan160countries,workingwithgovernments,regulatorsandindustrytomaintainthehigheststandards.TheICAEWisafoundingmemberoftheGlobalAccountingAlliancewithover775,000membersworldwide.

Copyright©ICAEW2010

Allrightsreserved.Nopartofthispublicationmaybereproducedorcopiedinanyformorbyanymeans(includinggraphic,electronic,ormechanical,photocopying,recording,tapingorinformationretrievalsystems)withoutwrittenpermissionofthecopyrightholder.

ThisguidanceisissuedbytheAuditandAssuranceFacultyoftheICAEWtoassistreportingaccountantswhenaskedtoprovidereportsongrantclaims.Theguidancedoesnotconstituteanauditingstandard.Professionaljudgementshouldbeusedinitsapplication.

Theguidancealsoreflectsgoodpracticeprinciplesforgrant-payingbodiesandgrantrecipients.Itimposesnomandatoryrequirementsbutisintendedtobehelpfultoboththoseinvolvedinprovidingspecialreportsongrantsandreturnsandalsotothosegrant-payingbodiesthatreceiveandrelyonsuchreports.

LawsandregulationsreferredtointhisconsultationpaperarestatedasofMarch2010.NoresponsibilityforanypersonsactingorrefrainingtoactasaresultofanymaterialinthispapercanbeacceptedbytheICAEWortheAuditandAssuranceFaculty.

ISBN:978-1-84152-985-1

March2010

Grantsfromgovernment,theEuropeanCommissionandotherorganisationscanbemajorsourcesoffinanceformanyUKpublicsectorbodies,businesses,charities,voluntarygroupsandacademicinstitutions.Recipientsareoftenrequired,asaconditionofthegrant,toasktheirauditors(orindependentaccountants)toreportontheirgrantclaims.

Thisframeworkdocumentdescribestheprocessbywhichreportsarerequestedfromaccountantsandhighlightssomecommonpitfallsthat,withproperplanningandgoodcommunication,caneasilybeavoided.Theobjectiveoftheframeworkdocumentistohelpall parties involvedwiththegrantreportingprocess.

• AccountantsGrantsdifferwidelyinnatureandcomplexity,sorequestsforreportscanalsobewide-ranging.Thisframeworkdocumentoutlinesthereportingpracticalities(fromplanningtoreportingstage)thataccountantsneedtoconsiderwhentheyareaskedtotakeonsuchanengagement.

• Grant-paying bodiesObtainingindependentaccountants’reportsisoftenanexcellentwayforgrant-payingbodiestogainassuranceonhowrecipientshaveusedtheirgrantfunding.Thisframeworkdocumentprovidessomegoodpracticeprinciplesthatgrant-payingbodiesmayfindusefulwhendesigninggrantschemesandwhichmayhelptomakethesearrangementsmorepracticableandcost-effectiveforall.

• RecipientsAcceptanceofgrantfundingcomeswithanobligationtocomplywithallofthegrant’sconditions.Itisthereforeimportantthatgrantrecipientshaveafullunderstandingofthereportingrequirements,andalsoobtainconfirmationthattheiraccountantwillbeabletoprovidetherequiredlevelofassurance.Thisconfirmationshouldbeobtainedatthegrantacceptancestage,ratherthanriskencounteringproblemslaterwhenfailuretoprovideassurancecanresultinclaw-backofgrantfunds.

Ifallthepartiesworktogetherandholddiscussionsearlyandattheappropriatestages,thiswillmakeforamoreeffectivegrantsprocess.Grantrecipientswillbeabletoaccessfundsquicklyandefficiently,whilegrant-payingbodieswillbeabletogaintheassurancethattheyrequirethroughthemostappropriateandcost-effectivemeans.Althoughthisguidanceprovidesseparatesectionsforeachpartytothegrant,westronglyrecommendthatallpartiesreadthewholedocumentsothattheyarefamiliarwiththeresponsibilitiesoftheotherpartiesaswellastheirown.

John ChastneyChair of the Public Sector Special Reports of Accountants Panel

Mike UsherChair of Public Sector Special Reports of Accountants Stakeholder Forum

FOREWORD

CONTENTS PAGE

SECTIONA:BACKGROUND 5HowthisframeworkcanhelpScopeofthisframeworkEffectivedate

SECTIONB:PARTIESTOTHEREPORTINGFRAMEWORK–THEIRROLESANDRESPONSIBILITIES 7SponsoringbodiesGrant-payingbodiesGrantrecipientsPartnershipsandcollaborationsIndependentaccountantsStatutoryauditagencies

SECTIONC:CONSIDERATIONSFORGRANT-PAYINGBODIES 10DesignofanewgrantschemeSettingoftermsandconditionsFactorstodeterminethereportingstructureWhoisbestplacedtoprovideareportDutyofcareTypesofengagementFactorsaffectingthetypeofengagementrequiredScope,natureandextentofworkFormatandwordingoftheaccountants’reportMatterstoconsideratthereportstage

SECTIOND:CONSIDERATIONSFORREPORTINGACCOUNTANTS 17Engagementterms Agreeingonengagementterms

LiabilityScopeofworkFormatofreport

ConfidentialityissuesDataprotectionFraudandillegalactsFreedomofinformation

SECTIONE:CONSIDERATIONSFORGRANTRECIPIENTS 22ApplicationprocessGrantofferandacceptanceResponsibilitiesandobligations Systemsanddocumentation

InterimclaimsFinalreturns

DutyofcareTypesofengagement

APPENDICES 24AppendixA: ListoftermsandconditionsthatcouldbeusefullyincludedinagrantschemetoprovideclarityAppendixB:Typesofengagements–optionsanalysisAppendixC:ProformareportsAppendixD:Examplesoftypesofwordingoropinionsthatmaynotbeacceptabletoaccountantsproviding specialreportsAppendixE:ExampleofamodeltripartiteengagementletterAppendixF:ExampleofstandardisedtermsofengagementAppendixG:Exampleofclarificationlanguageforanaccountants’reportAppendixH:LiabilitycapsandproportionalityclauseGLOSSARYOFTERMS 44

BIBLIOGRAPHY 47

ACKNOWLEDGEMENTS 48

5Frameworkdocumentforaccountants’reportsongrantclaims

SECTIONABACKGROUND

1. Thepublicsectorisresponsiblefortheprovisionofpublicservicesandfortheproperuseofpublicfunds.Animportantwayinwhichpublicsectorbodiescanachievetheirobjectivesisbyfundingtheactivitiesofotherorganisations.GrantfundingisprovidedbygovernmentdepartmentsandotherbodieswhichareultimatelyaccountabletoParliamentand/ortheEuropeanCommissionandwhichneedtomakegrantpaymentsinaccordancewiththelawandtherequirementsofpropriety,regularityandvalueformoney.

2. Similarconsiderationsapplytograntsbyortouniversities,charitiesandbusinesses.

3. Grantshavebecomeanessentialfundingstreamformanypublic,privateandnot-for-profitorganisationsandcanbeakeysourceofincomefor:

• charitableandvoluntaryprojects;

• environmentalandsustainabilityprojects;

• encouraginginnovation;

• helpingbusinessesdevelop,growandsucceed;

• developingpartnershipsonsocialprojects;

• developinginternationaltrade;and

• increasingtheUK’scompetitivenessandstrengtheningitseconomy(subjecttostateaidrules).

4. Onalargerscale,grantsareprovidedtofundcapitalexpenditureintheUK’sinfrastructure(eg,thebuilding,improvementandmaintenanceofourhighways)ortoaidinresearchanddevelopmentofnewandinnovativeprojects.

5. UKorganisations,largeandsmall,acrosstheprivate,publicandnot-for-profitsectorsreceivegrantfunding(referredtointhisdocumentas‘grantrecipients’)andsignificantamountsofmoneycomefromtheEuropeanCommission.Eachyearseesanumberofnewgrantschemessetuptohelporganisations.Insomecases,thefundingismadeavailabledirectlyfromthegrant-payingbody,whileinothercasesitismadeavailablethroughanintermediary.Someoftheresearchgrantsthatarenowavailableseektopromoteinternationalcollaboration.

6. Wheregrantfundingismadeavailablebycentralgovernmentonanunhypothecated1basisto,forexample,localgovernmentbodies,thisdoesnotrequireindependentaccountants’reports.

7. Beforeanygrantfundingschemeismadeavailabletograntrecipients,itisdesignedanddevelopedindetailbythegrant-payingbody.Grantschemescansometimesbecomplicatedandmayhavecomplexconditionsthatgrantrecipientsneedtounderstandandbeabletocomplywith,fromtheapplicationprocesstothereceivingandspendingofthemoneytothereportingonhowithasbeenused.Often,oneoftheconditionsoftheschemeisforthegrantrecipienttoobtainanindependentaccountant’sreportonwhetherthegrantmonieshavebeenspentforthepurposeforwhichthefundingwasprovidedandisinaccordancewithboththetermsandconditionsoftheschemeandtheofferletterattachedtothatspecificgrant.

8. Beforeissuinggrants,grant-payingbodiesneedtodecidewhatsortofevidencetheyrequiretoconfirmthatgrantmonieshavebeenspentonlyoneligiblecosts,orthatschemeobjectiveshavebeenachieved.Theyalsoneedtodecidewhethertoobtainevidencedirectlyfromthegrantrecipientorfromindependentthirdparties.Grant-payingbodiesoftendecidetouseaccountants’reportsandincorporaterequirementsfortheseintograntschemes.Itisworthnotingthatwhileaccountantsmaybebestplacedtoreportonfinancialinformationandothermeasurableoutcomesrelatedtofinancialreporting,accountants’reportsmaynotbecapableofprovidingformsofevidenceforallschemeobjectives.

1SeeGlossary

6 Frameworkdocumentforaccountants’reportsongrantclaims

EXAMPLE1:CLARITYISNEEDEDABOUTWHATISREQUIRED

Foronemajorinitiative,accountantswererequiredtocertifythatgrant-fundedexpenditure‘wasinaccordwithParliament’sintentions’.

Whereeligibleexpenditureisclearlydefinedinanofferletterortheaccompanyingtermsandconditions,accountantswillusuallybeabletoperformsuitabletestsandreporttheirfindings.

However,theycannotbeexpectedtoknowwhatwasinministers’mindswheninitiativeswereproposedandwhatMPssaidduringdebates.

How this framework can help

9. Accountantsandgrant-payingbodiesshareacommondesiretoachievegreaterconsistencyintheprinciplesadoptedinreportingongrants.Thereneedstobeclarityaboutwhataccountantsareabletoprovide2aswellasthestatutory,regulatoryandproprietyrequirementsthatgrant-payingbodieshavetoobservewhenrequiringsuchreports3.Achievinggreaterconsistencyamongallgrant-payingbodieswillbedifficult.However,thisframeworkdocumentprovidesgoodpracticeguidelinestohelpgrant-payingbodiesdecidewhatformofreporttheyneedandthebestwayinwhichtosecureit.

10. Thisdocumentusesasaframeworkthegrantslifecycle,fromtheinitialdesignanddevelopmentofagrantschemeandthedraftingofofferlettersthroughtoobtainingindependentaccountants’reportsontheuseofthemoniesatcompletionofagrant-fundedproject.Itconsidersthestepsthateachpartyneedstogothroughtomaketheprocesseconomical,efficientandsufficientlyeffectivetoenablethegrantrecipienttoaccessthefunding.Italsoprovidesgrant-payingbodieswithsomegoodpracticeprinciplestoenablethemtodecidebetweenthetypesofengagementandformsofreportthattheycanobtainfromindependentaccountantstogaincomfortthatgrantmonieshavebeenspentoneligiblecosts,forthepurposesintendedandinaccordancewiththetermsandconditionsofthescheme.

11. Inconsideringtheprincipleswithinthisframeworkandindeterminingthetypeofengagementrequiredofareportingaccountant,grant-payingbodiesareencouragedtotakearisk-basedapproachtotheprocessesthattheyputintoplace.Thisshouldstrikeanappropriatebalancebetweenthesize,natureandvalueofthegrant,andtakeintoaccounttheperceivedrisksassociatedwiththegrantandtheorganisationsthatarebeingfunded(someofwhichmaybesmallvoluntaryorganisationsorcommunitygroups).

12. Theframeworkimposesnomandatoryrequirementsbutisintendedtobehelpfultothoseinvolvedinprovidingspecialreportsongrantsandreturnsandalsotothegrant-payingbodiesthatreceiveandrelyonsuchreports.

Scope of this framework

13. Thereisawiderangeofsupportavailabletobusinesses,charitiesandothervoluntaryorganisationsthroughgrantsandotherfunding.Thisframeworkdocumentisrestrictedtoinstanceswhengrantfundingisprovidedtoorganisationsfromgovernmentandcharitiesandwhenthegrantsrequirereportsfromindependentaccountants.(Forotherfundingthatorganisationsreceivewhichrequiresareporttothirdparties,accountantsshouldrefertoICAEWguidanceAudit01/01,Reporting to Third Parties.)

14. ThisframeworkdocumentdoesnotcoveranygrantscertificationregimethathasbeensetupasaresultofseparatelegislationbystatutoryauditagenciessuchastheAuditCommission.

15. Thisframeworkdocumentisdesignedtoprovidegoodpracticeprinciplesinrelationtoreportingongrantclaimsandreturns.Itdoesnotconsiderwhethergrantrecipientshavetakenreasonablestepstoachievevalueformoneyanditdoesnotseektoaddresswhetherorganisationsareachievingefficiencysavings.

Effective date

16. Theimplementationdateofthisframeworkforreportingaccountantsis1April2010,fornewgrantschemesdevelopedonorafterthisdate.Itwouldbehelpfulifgrant-payingbodiesweretoconsiderapplyingthegoodpracticeprinciplesinthisframeworkfornewschemesdevelopedfrom1April2010.

17. Thenewframeworkdoesnotapplytoexistinggrantschemeswhosetermsandconditionsarealreadyinplace(includingthoseforwhichthegrantmaybepaidonaphasedbasis).Thereisnothing,however,tostopgrant-payingbodiesconsideringthegoodpracticeprinciplesinthisframeworkforexistinggrantschemesandusingthemasabenchmarkwhenthetermsandconditionsofeachschemearereviewed.

18. Audit3/03,Public Sector Special Reporting Engagements – Grant Claimswillremainextantforschemesinoperationbefore1April2010andcontinuingafterthatdatewheretheprinciplesoutlinedinthisnewframeworkhavenotbeenadopted.

2 Accountantsreportstothirdpartiesarenormallygovernedbyinternationalstandards(inparticular,ISAE3000,Assurance Engagements other than audits and reviews of historical financial information,andISRS4400,Engagements to perform agreed upon procedures regarding financial information.

3 IfthegrantinquestionispartlyorfullyEU-funded,requirementsforaccountantsaresetintherelevantEUlegislation.


SECTIONBPARTIESTOTHEREPORTINGFRAMEWORK–THEIRROLESANDRESPONSIBILITIES

19. Thereareanumberofpartiesthatmayhaveadirectandrelevantinterestinthereportingarrangementsforanewgrantscheme:

• sponsoringbodies;

• grant-payingbodies;

• grantrecipients;

• partnerorganisationsthatsharetheworksupportedbythegrant;

• independentaccountants;and

• statutoryauditagencies.

20. Thesevariouspartiesgenerallyfallintothethreemaincategoriesthatarecoveredinthisdocument:grant-payingbodies,grantrecipientsandaccountants.Eachcategorywillbeaffectedtovaryingdegreesandtheremayalsobedifferentuserswithinthevariouscategorieseg,internalauditdepartmentsofsomegrant-payingbodiesmayreviewthereportswhentheyevaluatetheirownoverallinternalcontrolframeworks.Thechainofresponsibilityforanawardedgrantcansometimesbelongwithanumberofintermediaries.Theremustbeappropriateconsiderationofthereportingrequirementsateachleveltoensurethattheneedsandrequirementsofallpartiesaremet.Thiswillmeanthatthegrant-payingbodiesneedtoensurethatallintermediaries,ateachlevel,havethenecessaryknowledgeaboutthegrantscheme,theprocessesandtheproceduresinplacetodeliverthegrantobjectives.

GrantRecipient

(SectionE)

IndependentAccountant(SectionD)

StatutoryAuditAgency

(SectionB)

SponsoringBody

(SectionB)

Grant-payingBody

(SectionC)

InternalAudit

(SectionC)


Sponsoring bodies

21. Sponsoringbodies(suchastheEuropeanCommission)whicharetheultimatepublic-sectorfundersofanactivitymaychoosetopassthefundingthroughasinglegrant-payingbodyorachainofgrant-payingbodiesratherthandirectlytothegrantrecipient.Sponsoringbodiescansometimesgivegrantsdirectly.ForexampleinNorthernIreland,theministerialgovernmentdepartmentsdistributelargequantitiesofgrants.Sponsoringbodiesrequireevidencethatallmoniespaidoutingrantstograntrecipientsarefullyaccountedforandareusedinaccordancewiththegrantconditions.WithinUKcentralgovernment,thesesponsoringbodieswilleachnormallyhaveanaccountingofficer.Thisisfundamentallyimportant,astheaccountingofficerisultimatelypersonallyaccountableforallfundsflowingfromthebodyanditisinpartbecauseofthisthatsupportingevidencesuchasindependentaccountants’reportsaresought.Sometimesthesponsoringbodyprovidesgrantsdirectlytograntrecipientswithoutgoingthroughagovernmentdepartment.Inthiscontext,thesesponsoringbodiesarereferredtoasgrant-payingbodiesinthisframeworkdocument.

Grant-paying bodies

22. Thesearethebodiesthatprovidefundingdirectlytothegrantrecipient.Grant-payingbodiesusuallyrequireevidencethatthemoniespaidoutingrantsarefullyaccountedforandareusedinlinewiththegrantconditions4.Wherethegrant-payingbodyisactingasanintermediaryforasponsoringbody,thenitmayberesponsibletothatsponsoringbodyforprovidingevidencethatithasdisbursedthegrantaccordingtothesponsoringbody’scriteriawhilelookingtothegrantrecipienttoprovideevidenceofeligibilitytoreceivethegrantandtoconfirmthatithasbeenusedforthedesignatedpurposes.Thusthegrant-payingbodysetsthetermsandconditionsofthescheme.Thedevelopmentoftheseiscrucialanditisessentialthatthegrant-payingbodyconsidersthetermsandconditionscarefully,consultingwithallappropriatestakeholdersbeforefinalisingthem.

23. Grant-payingbodieswillneedtobeclearabout:

• thepurposeforwhichtheyrequiretheaccountants’report;

• thetypeofengagement;

• thetypeofassurancetheyrequire;

• theformatofthereport;

• whattheyintendtodowiththereportoncetheyreceiveit;and

• thetimelinessandfrequencyofthereport.

24. Thegrant-payingbodywillconsidertheinitialapplicationfromthegrantrecipientbasedontheinformationprovided.Itishelpfulforgrantrecipientstobegivenguidanceandsupporttoenablethemtoprovidethenecessaryinformationatthestatedtimes.Grant-payingbodiesneedtobeabletoprovidepromptandtimelyclarificationtobothgrantrecipients’andaccountants’queriesandbeabletofollowuponissuesraisedbyaccountantsintheirreports.

Grant recipients

25. Thesearethebodiesreceivingfundsfromthegrant-payingbody.Theyareresponsibleforprovidingevidencethattheymeettheeligibilitycriteriaforexpenditurefinancedbythegrant-payingbody,andfordemonstratingthattheyhaveusedthegrantforitsdesignatedpurpose.Whenmakinganapplicationtheyneedtounderstandthetermsandconditionsofthegrantandinparticulartheirresponsibilitiesandobligationsinrelationtothegrant.

26. Grantrecipientsareultimatelyresponsiblefor:

• providingevidencethatthegrantmoniesarespentinaccordancewiththetermsandconditionsofthegrantandforthepurposesintended(eg,progressreporting,givingnoticeofunderspends);

• maintainingeffectiveadministrativeandfinancialsystemstosupportandrecordthetransactionsinrelationtothegrantscheme;

• keepingsupportingdocumentationandevidenceoftransactionsonbothincomeandexpenditure;

• operatingeffectivesystemsformonitoringdelivery(includingpartners)andinternalcontrol;

• preparinginterimandfinalclaimsandreturnsaccuratelyfortherelevantperiodsandbytheprescribeddeadlines;

• ensuringthatanyrequirementtoobtainanaccountants’reportonagrantclaimcanbemetbeforeacceptingagrant;and

• whererequired,engagingindependentaccountantstoreportonclaimsandagreeingthetermswhichmustbeconsistentwiththerequirementsofthefundingconditions.Wherepossible,thisshouldbeatripartiteagreementwiththegrant-payingbodyandtheindependentaccountants;otherwise,itshouldrefertothesetofstandardisedtermspublishedbythegrant-payingbody.

4 IntheUK,thiswilltypicallybeinlinewithHMTreasury’sguidancetofunders,Managing Public MoneyandtheWelshAssemblyGovernment’sManaging Welsh Public Money. WheremoneyhascomefromtheEU,grantconditionswillbesetbytheEuropeanbodyresponsibleforthegrantscheme.


27. Ifgrantrecipientsareunclearabouttheirresponsibilities,theyneedtodiscussthesefurtherwiththegrant-payingbodies(seeparagraph24above).

Partnerships and collaborations

28. Whereagrantrecipientispartofapartnership(withanumberoforganisationsreceivingthegrant)thepartnershipisusuallyunderobligationtoappointaleadpartnerwhowillhavetheresponsibilitiesoutlinedunderparagraph25.Thereshouldbeasignedagreementsettingouttherolesandresponsibilitiesofeachpartyinrelationtothedeliveryofthescheme.Theleadpartner,actingastheaccountablebody,mayneedtodrawalltheinformationtogetherinoneplace.Insomecases,theleadpartnermayberesponsibleforthedistributionofthegrantandforpenaltiesandclawbacksandmaythereforetakeonmuchoftheroleofthegrant-payingbody(describedunderparagraph22).Thepartnerswillneedtounderstandthattheaccountantswillnormallyhavearightofaccesstoallthepapersinrelationtotheuseofthegrantmonies.Insomecases,therewillnotbeadesignatedleadpartnerwhichmeansthatallpartnerscouldhavejointandseveralliability.WiththeincreaseinfundingreceivedfromEurope,internationalcollaborationsarebecomingincreasinglycommonplace:FrameworkProgramme7projects,forexample,arecollaborations.

29. Eachpartnermustensurethatindividuallyitiseligibletoreceivethegrantmoneyandthatitspendsitsallocationinaccordancewiththetermsandconditionsofthescheme.Itmustalsoprovidetheleadpartnerwithallthenecessaryinformationthatitwillneedtoconfirmthiswithinthedatesset.Foreaseofreference,whereorganisationswithinpartnershipsandcollaborationsindirectlyreceivegrantfunding,theyarereferredtowithinthisdocumentasgrantrecipients.

Independent accountants

30. Accountantsarenormallyengagedtoprovideanindependentreportonthegrantrecipient’seligibilitytoclaimexpenditureand/oruseofthegrantmonies.Althoughthereportsareissuedtothegrantrecipientwhowillbetheclient,itisrecognisedthatthereportsarealsoprovidedfortheuseofgrant-payingbodiesandworkisusuallycarriedoutintheknowledgethatthegrant-payingbodywillseethereportandmayrelyonit(seeparagraphs41to43).

31. Accountantswillconsidertheinformationcontainedwithinaclaimorreturninaccordancewithappropriateproceduresoranagreedscopeofworkandwillprovideanaccountants’report.Theywillneedtofamiliarisethemselveswithboththetermsandconditionsofthegrantschemeandrelatedofferletterandinparticularwhatinformationtheywillneedinordertobeabletoprovidethereportthatthegrant-payingbodyisseeking.Accountantsneedtoensurethatthetermsonwhichtheyareengagedareconsistentwiththerequirementsofthefundingconditionsandrelevantstandardsonengagements.Wherepossible,thisshouldbeatripartiteengagementwiththegrant-payingbodyandthegrantrecipient;alternativelyitshouldrefertothesetofstandardisedtermspublishedbythegrant-payingbody.Furtherinformationisdetailedinparagraph79.

32. Accountantshaveadutytotakereasonablecareinpreparingandprovidingthereportonatimelybasis,buttheyshouldnotbepressuredintomeetingdeadlinesifclaimsareonlyprovidedatshortnotice.

Statutory audit agencies

33. Whileindependentaccountantsarenormallyengagedtocarryoutworkandprovideanindependentreportonthegrantrecipient’seligibilitytoclaimexpenditureand/oruseofthegrantmonies,statutoryauditagenciescanprovidesimilarassurance.Statutoryauditagencies(theNationalAuditOffice,AuditCommission,WalesAuditOffice,AuditScotlandandtheNorthernIrelandAuditOffice)willoftenprovidereportsongrantsreceivedbypublicbodiesaswellasexaminegrantsgivenbypublicbodies.AsthestatutoryauditorsofUKpublicsectoraccounts,somereviewtheadequacyofmanagementproceduresforthecontrolofgrantexpenditureandconsiderwhethergrantscomplywithlegislationandprovidevalueformoney.Theymayalsoreporttothirdparties,suchastheEuropeanCommission,onspecificengagements.Theagenciesmayalsoactastheauditor(orappointauditors)tolocalgovernmentandNHSbodiesandhavetheirownarrangementsforcertificationofthoseclaimswhichfalloutsideofthisguidance.Someofthesearrangementsmaybeenshrinedinlegislation.Itisoftenhelpfultoconsultstatutoryauditagenciesonthedocumentaryevidencejustifyinggrant-fundedexpenditurethatthegrantrecipientmayberequiredtokeep.


SECTIONCCONSIDERATIONSFORGRANT-PAYINGBODIES

Design of a new grants scheme

34. Aspecificgrantschememayincluderegulationsthatareportwillberequiredtoconfirmthatthemoneyhasbeenspentforthepurposeintendedandinaccordancewiththetermsandconditionsofthescheme.Fornewschemesthatarebeingdesigned(whereanOrderorStatutoryInstrumentorActisbeingdrafted)orwheretherequirementsforanexistinggrantschemearebeingamended,itishelpfulifthegrant-payingbody(inconjunctionwiththesponsoringbody)considersthetermsandconditionsandthereportingstructure.

Setting of terms and conditions

35. Termsandconditionsofanyschemeneedtobesimple,clearandeasytofollowandproportionatetothesizeandnatureofthegrantandtheorganisationsthatarebeingfunded(someofwhichwillbesmallvoluntaryorganisationsandcommunitygroups).AppendixAprovidesachecklistidentifyingexamplesofthetypesofitemsthatagrant-payingbodymaywishtoincludewhensettingthetermsandconditionsofagrantscheme.

Factors to determine the reporting structure

36. Aspartofthetermsandconditions,grant-payingbodieswillneedtoconsiderthepurposeforwhichtheyneedareport,whatthereportshouldcover,andtheprocessbywhichtheyrequirethereporttobeprovided.

37. Relevantfactorsforgrant-payingbodiestoconsiderincludethefollowing:

• Whatisthenatureandriskassessmentofthegrantscheme?

• Whatarethetypesofbodythatwillbefunded?

• Whatarethesizeofgrantsthatwillbeawarded?

• Whatisthepurposeofthereportandisitproportionatetotherelativerisk,sizeofgrantandtypeofbodiesthatwillbefunded?

• Isthereaminimumlevelofgrantbelowwhichareportwillnotberequired?

• Arethereexistingsourcesofassurancealreadyinplacesuchasspotchecksorinternalassurancemechanisms,andthereforeisaseparatereportneeded?

• Whatformofreportisrequired(seemodelreportsinappendixC)?

• Whatarethecontracttermsunderwhichthereportisrequired?(seeexample3below)

• Whowouldbebestplacedtoprovidethisreportandareaccountants’reportsaneffectivesourceforfullorpartialassurance?

• Ifso,howwillthegrant-payingbodysecurethisengagementie,willitengagedirectlywiththeaccountantsorviathegrantrecipientandwillitexpectadutyofcarefromtheaccountant?

• Whereanindependentaccountants’reportisrequired,willthereneedtobeclarityabouttheacceptablequalificationsoftheaccountant?

• Whatwillthegrant-payingbodydowitheachreportonceitisreceived?

• Whowithinthegrant-payingbodywillberesponsibleforanalysingtheinformationcontainedintheaccountants’reportsandactinguponthisinformation?

• Howwillthegrant-payingbodydealwithreportsthatdonotprovidetheconfirmationrequired?

EXAMPLE2:SETTINGTHETERMSANDCONDITIONS

Specifyingwhatis(andisnot)eligibleforgrantandwhatevidencethegrantrecipientneedstomaintainisveryimportantespeciallywhengrantsareawarded.Thishelpsavoidmisunderstandingsandmistakeslater.Throughlackofclarity,errorscandamagebothfinancesandreputations,forexample:

• overpaymentsandalackofsupportingdocumentaryevidenceledtotheEuropeanCommission demandingreturnsof£31mfromnorthwestEnglandand£12mfromWalesin2008;and

• severalgrant-payingbodiesaswellasgrantrecipientshavebeenwounduporreorganisedafter seriousmismanagementofgrants.


EXAMPLE3:STANDARDISEDCONTRACTTERMSUNDERWHICHAPARTICULARTYPEOFENGAGEMENTISREQUIRED

Itisoftenthecasethatthegrant-payingbodywillrequestareportwhichcontainsawordingrequiringconfirmationsuchas‘the claim is in accordance with the grant-paying body’s offer letter including the schedules thereto’or‘the service has been rendered in accordance with the grant agreement’.

Manyoftheseofferlettersandgrantagreementscanbeverylengthyandcontainconditionsrelatingtoavarietyofmatters.Thesecaninclude:

• preconditionswhichmustbeinplacebeforeaclaimcanbesubmitted;

• inthecaseofcollaborativegrants,therequirementforallparticipantstoenterintoacollaborationagreementandprovideacopytothegrant-payingbody;

• compliancewithEUprocurementprocedures;and

• datesbywhichtheclientisrequiredtosubmitspecifiedclaimsforthevariousinstalmentsofgrant.Thereareanumberofinstancesinwhichthegrant-payingbodythenagreestoacceptalateordelayedclaimbutdoesnotamendthewordingoftheofferletter/agreement.

Inordertoconfirmthattheexpenditureonwhichanaccountantisreportingisinaccordancewiththetermsandconditionsoftheofferletter,itisnecessaryfortheaccountantstobesatisfiedthatsuchtermsasoutlinedintheexampleabove,havebeencompliedwith.Thiscanresultin:

• extraworkfortheaccountants;

• theassociatedextracostfortheclaimant;and

• additionalreservationsinareportinrelationtomattersalreadyknowntothegrant-payingbodyparticularlyinrelationtopreconditionsandlatesubmissionofgrantclaims.

Who is best placed to provide a report?

38. Thegrant-payingbodyneedstodecidewhomitrequirestoproduceareportbasedonanumberoffactorswhichinclude:

• theriskassessmentoftheoverallgrantschemecarriedoutduringthesettingofthetermsandconditions;

• themonitoringarrangementsalreadyinplace;

• theamountofgrantthateachindividualgrantrecipientislikelytoreceiveeg,iftheamountsaresmall,considerthemostcost-effectivemethodtoobtaintherequiredreport;and

• ifthereportisrequiredforaspecialistarea,whohasthenecessaryskillsandknowledgeofthatareatoprovidetherequiredreporteg,forcapitalworksareportbyeitheranarchitectorcostconsultant(formerlyaquantitysurveyor)mightbethemostappropriatemethodofgettingthenecessaryassurance.

39. Thegrant-payingbodyneedstoconsiderwhichofthefollowingwillbebestsuitedtoprovidethereportthatitrequires:

(a) The grant recipient (through self-certification)–ifthevalueoftheamountofgrantallocatedtoagrantrecipientorthenumberoftransactionsissmall,itmaybemorecost-effectivetohavethegrantrecipientself-certify.Thisreliesentirelyonthegrantrecipientprovidingtherequiredinformationaccurately.

(b) The grant recipient’s internal auditors–thisfallsintoasimilarcategoryto(a)above.Thereportwouldbeprovidedbysomeoneotherthantheofficerwithintheorganisationthatreceivedthegrant.Althoughtheinternalauditorsmaynotbeindependentoftheorganisation(unlesstheInternalAuditServicehasbeenoutsourced),theydoformpartoftheinternalcontrolframeworkoftheorganisationandwillbeindependentofthegrant-receivingdepartment.Thecostwouldbeminimalastheyareinternaltotheorganisationbutgrant-payingbodieswouldneedtoprovidedirectiononwhatneedstobedoneandbywhen.

(c) The internal auditors of the grant-paying body–somegrant-payingbodieshavelargeinternalauditdepartmentswhichmaybeusedtocarryoutchecksontheuseofgrantmonies.Ifthenumberofgrantswashighbutthevalueofeachwaslow,thenrandomspotcheckscouldbecarriedout.Thishastheadvantagethatthegrant-payingbodycandetermineitsownscopeofworkanddecidewhetheritwishestotargetcertaingrantrecipientsorcategoriesofgrantrecipients.Themaindisadvantageisthatitprobablywouldnotbeabletocarryoutchecksofallgrantrecipientseachyearsoarollingprogrammeofvisitsmayneedtobeorganised.Basedontheoverallriskassessmentandcost-benefitanalysis,thegrant-payingbodywouldneedtodecide


whetheritwanted100%coverageofbodiesovertimethroughtherollingprogramme.Thecostofthistypeofverificationwouldusuallyfalltothegrant-payingbody.Thisapproachcouldbecombinedwitheither(a)or(b).

(d) Specialists–sometimesthegrantisforapurposewhichmayneedspecialistknowledge.Itwouldseemsensibleinthesecasesforeitherspecialists(suchasenvironmentalauditors)orasinglefirmthathasknowledgeandskillsofthespecialistareatoprovidereportsfortheentiregrantscheme.Havingasinglefirmcarryoutthisworkcouldhelptoreducethecostsoftheengagement,asthespecialistswouldbuildupknowledgeofthegrantscheme.Itmayalsobuildtheconfidenceofthegrant-payingbodyinthefirm.However,thefirmwouldnotnecessarilyhaveanin-depthknowledgeofeachorganisationthathasreceivedagrantthroughthescheme.

(e) Independent accountants who are also the statutory auditors of the organisation–thiswouldprovidegrant-payingbodieswithanindependentreport.Usingtheexistingexternalauditorscouldbeadvantageousastheywillhaveanin-depthknowledgeoftheorganisation.However,theworkwouldneedtobecarriedoutunderaseparateengagement.Usingindependentaccountantswillalsoaddtothefeesthattheorganisationhastopayandthesecostsmaynotalwaysbeeligibleforgrant.Ifthegrant-payingbodyalsorequiresareportontheorganisation’ssystemsandcontrols,thiswouldbethesubjectofaseparateengagement.

(f) Independent accountants who are not the statutory auditors of the organisation–thiswouldprovideanindependentreport.Howeveranewfirmofaccountantsmaynothavethedetailedknowledgeoftheorganisationandmaythereforetakelongertobuildthatknowledgebeforecompletingtheworkormayevendeclinetoundertakegrantclaimworkforentitiesthatarenottheirclients.Iftheydoagreetotakeonthegrantclaimwork,theassociatedcostsmaynotbeeligibleforgrant.

40. Wherethegrant-payingbodyhascarriedoutitscost-benefitanalysisandhasdeterminedthat,becauseofthevalueoftheclaimandtheassociatedrisks,itrequiresanindependentaccountants’report,then(e)and(f)abovearelikelytobethechosenorrequiredoptions.Itwouldbehelpfulatthisstagetoconsultthisframeworkdocumentaboutthepurposeofthereport,thetypeofengagement,thescopeofworkand,finallythereportingrequirementsbeforeincludingthemintheenablinglegislation,OrderorStatutoryInstrumentorintotheschemetermsandconditions.Thegrant-payingbodyneedstoconsiderthefeasibilityofitsintendedrequirementsandwhetherwhatitrequires,andwhatitwantsareporton,isachievable.

Duty of Care

41. Whereagrant-payingbodyhasdeterminedthatitdoesrequireanindependentaccountants’report,itthenneedstoconsiderwhetheritalsowantsaformal‘dutyofcare’fromtheaccountantsandthendeterminethetypeofengagementthatwouldbebestsuitedtoprovideitwiththecomfortthatitrequires.

42. Thisdecisionwillaffectbothhow,andthewayinwhich,thegrant-payingbodysetsitsrequirementsforthereport.Theoptionsare:

(a) tripartiteormultipartiteengagementwiththegrant-payingbody(ies),thegrantrecipientandtheindependentaccountantswhichallowsthethreepartiestoenterintodialogueaboutthepurposeofthereport,thetypeofengagement,thescopeofworkandthesortofreportrequired.Inthiscase,theaccountants’reportwouldbeaddressedtoboththegrant-payingbodyandthegrantrecipient.Althoughthiswouldbeidealastheexpectationsofallpartieswouldbeclarified,forlargegrant-payingbodieswheretherearenumerousgrantschemesandalargenumberofgrantsareawarded,itmaynotbepracticaltohaveanengagementletterwitheachindividualaccountant.

(b) standardisedengagementtermsincludedaspartofthetermsandconditionsandofferlettertothegrantrecipient.Standardisedtermsincludethetermsunderwhichthegrant-payingbodyiswillingtocontractwithaccountantsattheoutset.Thesedonotrequirethegrant-payingbodytosignindividualengagementletterswithaccountants.AppendixFprovidesanexampleofstandardisedengagementterms.Accountantswouldtakeontheworkiftheyacceptedthestandardtermssetbythegrant-payingbodyimplyingadutyofcaretothegrant-payingbody.Inthiscasetheaccountants’reportwouldbeaddressedtoboththegrant-payingbodyandthegrantrecipient5.

43. Somegrant-payingbodiesareclearthattheyaredisclaimingadutyofcarefromaccountants.Ifthisisthecase,thisneedstobestatedinthetermsandconditionstothegrantrecipientsothatitisexplicitfromtheoutsettoallpartiesinvolvedintheprocess.Therefore,oncethegrant-payingbodyhasissuedtheofferletter,theengagementisbetweenthegrantrecipientandtheaccountants,andsotheaccountants’reportshouldbeaddressedsolelytothegrantrecipient.

5 TheEuropeanCommissionhasdevelopedsuchastandardisedsetofengagementtermsaspartofitsFrameworkProgramme7.


Types of engagement

44. Thisframeworkdocumentoutlinesthreemainoptionsforanaccountants’report:

• reasonable assurance–providesa‘reasonableassurance’reportintheformofapositivewordedconclusion;

• limited assurance–providesa‘limitedassurance’reportintheformofanegativewordedconclusion;and

• agreed-upon procedures–doesnotcontainanassuranceconclusion,butsetsouttheagreedscopeofworkandproceduresundertaken,thefindingsfromtheprocedures,alongwithdetailsofanyexceptionsthataccountantshaveidentifiedfromtheirwork.

45. TheadvantagesanddisadvantagesofeachofthesethreeoptionsaresetoutinmoredetailinappendixB,withexamplemodelreportsforeachoptioninappendixC.Thereportingaccountants’considerationsareoutlinedinsectionDofthisframeworkdocument.Itisimportanttoappreciatethatitisnotpossibletocombinethethreeoptionseg,choosingthe‘agreeduponprocedures’optionbutexpectinga‘reasonableassurance’conclusion.

46. Ifmorehelpisneededtodeterminetheappropriatetypeofengagement,grant-payingbodiesmaywishtoconsult,asappropriate,withtheaccountants(whowillbeundertakingtheworkonthegrantclaim),thestatutoryauditagenciesandprofessionalbodies.Thiswillhelptoensurethattheexpectationsofallpartiesaremetandavoidproblemsthatcanariseduringtheprocess.

Factors affecting the type of engagement required

47. Keyfactorsindeterminingthetypeofengagementrequiredfromaccountantsinclude:

• theinformationthatthegrant-payingbodywantsfromtheaccountants’report;

• anypre-existinglegislativerequirementsthatspecifythenatureoftheaccountants’report;

• thelevelofprescriptionthatthegrant-payingbodyexpectsregardingthescope,natureandextentofthetestingtobecompletedbytheaccountants(orconversely,theamountofjudgementthataccountantsareexpectedtoapplywhenundertakingtheirwork);

• thelevelofconsistencythatthegrant-payingbodyexpectsinthescope,natureandextentoftestingtobecompletedbyaccountantsforanyspecificrangeofgrants;

• thecost-benefittrade-offthatmayexistbetweenthedifferenttypesofengagementsthatareavailable;

• anyevidenceorotherassurancethatthegrant-payingbodymayobtainfromothermeans(eg,self-certification);and

• theexpectationsorrequirementsofotherstakeholdersthatmayneedtomakeuseoftheaccountants’report,suchasthegrant-payingbody’sownexternalauditors.

48. If,forwhateverreason,theformandcontentoftheaccountants’reportisdeemedtobeparamount,orisprescribedbylegislation,thenthismaydeterminethetypeofengagementthathastobeprovided.Theformandcontentoftheaccountants’reportwilllargelybedeterminedbythetypeofengagementchosen.Itisnotpossible,forexample,tomandatetheexactproceduresthataccountantsmustundertake(otherthanasaminimum),withnoscopefortheaccountanttoapplytheirjudgement,whileexpectingaccountantstoprovidea‘reasonableassurance’or‘limitedassurance’conclusion.Toprovidesuchanopinion,accountantsneedtheabilitytoundertakewhateverprocedurestheyconsidernecessarytobeabletoreachtheirconclusion.

49. Itisimportanttonotethat,whilethereissomecorrelation,thetypeofengagementrequiredisnotnecessarilydirectlyrelatedtothelevelofworkundertakenbyaccountants.Instead,thetypeofengagementlinksdirectlytowhocontrolsthescopeofworkandthejudgementthattheyareexpectedtoapplyincompletingtheirwork.Thismeansthatthereislikelytobeconsistencyintheworkcarriedoutamongaccountantswhoundertakean‘agreed-uponprocedures’engagementwheretheprocedureshavebeenagreedwiththegrant-payingbody.However,thereislikelytobegreaterdiversitywhena‘reasonableassurance’or‘limitedassurance’engagementisrequiredasaccountantswilleachbeapplyingtheirownprofessionaljudgementindeterminingtheproceduresthatarenecessarytoobtaintheevidencerequiredforthereport.FurtherguidancecanbefoundinappendixB,includingexamplesofwheredifferenttypesofengagementsmaybeappropriate.

50. Inchoosingthetypeofengagement,grant-payingbodiesmaywishtonotethatthecostofeachengagementwilldependonthesize,complexityandvalueoftheschemeandtheriskassociatedwithit.Butingeneraltermsa‘reasonableassurance’engagementmaycostmorethana‘limitedassurance’engagement,whichmayinturncostmorethanan‘agreed-uponprocedures’engagement.Thereasonsforthisrelatetotheadditionalproceduresthataccountantsarerequiredtoundertakewhenforminganopinion,whichtypicallyinvolvesthejudgementofseniormembersoftheengagementteam.An‘agreed-uponprocedures’engagementwillthereforeusuallybethecheapestengagementanda‘reasonableassurance’engagementthemostexpensive.


51. Insomecases,thegrant-payingbodymaywishtoconsidersettingathreshold(usuallyofitsquantumofgrant)belowwhichinvolvementofaccountantsisnotrequired,onthebasisthatthecostoftheaccountants’workislikelytooutweighthebenefitofobtainingareportfromanindependentaccountant.Whetherornotthecostsofareportareeligibleforgrantisadecisionforthegrant-payingbodiestomakeonascheme-by-schemebasis.

52. Whereindependentaccountantsareappointed,thegrant-payingbody(andthegrantrecipients)shouldrecognisethattheaccountantswillnormallywanttohaveadiscussionwithboththegrant-payingbodyandalsothegrantrecipienttoclarifythebasisonwhichtheymayowethegrant-payingbodyadutyofcare.Furtherguidanceonthiscanbefoundinparagraphs77to80.

Scope, nature and extent of work

53. Thereareanumberoffactorsthatwillaffectthescope,natureandextentoftheworkthataccountantsarerequiredtoundertake.Theseincludethenatureandsizeofthegrantrecipient’sbusiness,thecomplexityofthegrantscheme,thenumberoftransactions,thenatureofthetransactionsandtheleveloferrororuncertaintythatthegrant-payingbodyispreparedtoaccept,theexperienceofthegrantrecipientandanyrelatedpartiesthatareinvolvedinthegrantsprocess.Thetypeofengagementmay,with‘reasonableassurance’engagementsandsome‘limitedassurance’engagements,requiremoreprocedurestobeundertakentoformaconclusiononthegrantclaim.

54. For‘agreed-uponprocedures’engagements,andpossibly‘limitedassurance’engagements,thescope,natureandextentoftherequiredworkshouldbeagreedbythegrant-payingbodyinadvance.Accountantswillthencompletethisworkandreportintheappropriateformat.Indeterminingtheamountofwork(includingsamplesizes),thegrant-payingbodywillthereforeimplicitlybedeterminingwhatlevelofoverallerrorand/oruncertaintyitispreparedtoacceptwhenassessingtheclaim.

55. If100%oftransactionsneedtobetestedthenthiswillhavecostimplicationsthatwillneedtobeconsidered;insomecasesitmaybeappropriate(eg,foragrantwithasmallnumberoflargetransactions).Theabilitytocarryout100%testingwilldependontherecordsmaintainedbythegrantrecipient.However,simplycheckingalltransactionstoinvoices,forexample,isnotalwaysproofthatthepaymentwaseligibleforgrant.Invoicescanbeamendedorcancelledandpricescanbemanipulated.

56. Inmostcases,itislikelythatthegrant-payingbodywillbecontentforworktobeundertakenonasamplebasis,althoughtestingofcertainkeyorhighvaluetransactionsmightstillbemandated.Inthiscase,thesizeofthesampletested(whetherdeterminedbyvalueornumber)willbedirectlyrelatedtothetypeofengagementandformofreportthatisbeingprovided.Thelargerthesample,themorelikelytheaccountantswillbeabletoidentifyanyerrorsorineligibleexpenditure.Thegrant-payingbodymaydeterminethatthesampleisrelatedtothevalueoftransactionseg,allthoseover£10,000or80%byvalue.

57. Whileitmaybeappropriateforagrant-payingbodytospecifyminimumproceduresfor‘reasonableassurance’andpossibly‘limitedassurance’engagements,accountantswillneverthelessneedtoapplytheirprofessionaljudgementinundertakingtheirwork.Toassistaccountantsinthis,grant-payingbodiesmaydecidetoindicatethe‘materiality’leveltowhichaccountantsneedtohaveregard.Thiswillhelpaccountantstodeterminetheleveloftestingandtheextentofevidencegatheringthatisrequiredinordertoreachtheiropinion.Thelowerthelevelofmateriality,thelargerthesampleandthegreatertheextentoftestingthataccountantswillneedtoundertakeinordertoprovidetherequiredconclusion.

58. Materialityhasbothqualitativeandquantitativeaspects.Inadditiontosettingeitherafixedmonetarylevelofmaterialityor,morecommonly,apercentagelevelofmaterialitythatvarieswiththesizeofthegrantclaim(quantitative),grant-payingbodiesmayalsowishtodiscusswithaccountantscertainspecifictypesoftransactionsthatmustbetestedirrespectiveoftheirmonetaryvalue(qualitative).

59. Thegrant-payingbodyneedstoagreeinadvancethescope,natureandextentofthetestingrequiredbyaccountantsfor‘agreed-uponprocedures’andpossiblyfor‘limitedassurance’engagements.Thiscanbedoneindiscussionwithprofessionalbodiesor,ifthereareonlyafewfirmsofaccountantscarryingoutthework,withtheaccountantsthemselves.Ifthisisnotdone,accountantswilleachneedtoagreethescope,natureandextentoftheirtestingonacase-by-casebasiswiththegrant-payingbody,tomitigatetheriskofundertakingalevelofworkthatdoesnotmeetthegrant-payingbody’sneeds.

EXAMPLE4:WHATFIGURESARETHEACCOUNTANTSREPORTINGUPON?

Reportsmustberelatedtoclaimsoraccountsinaspecifiedformat.

Agrant-payingbodyissueda‘certificate’fortherecipient’saccountanttosign–butdidnotprovideaclaimformorspecifyaformatfortheassociatedaccounts.Theaccountantdidnotknowwhatwasrequiredforthe‘entries’referredtointhecertificate.


60. For‘reasonableassurance’andalsopossiblyfor‘limitedassurance’engagements,thegrant-payingbodyshouldindicatethematerialitylevelthataccountantsareexpectedtotakenoteofwhenundertakingtheirwork.Intheabsenceofanysuchguidance,accountantsmayneedtoagreethelevelofmaterialitywiththegrant-payingbodyonacase-by-casebasisordeclinetoaccepttheengagementonthebasisthatitisunclearwhattheevaluationcriteriafortheengagementareinmonetaryterms.However,boththeassessmentofmaterialityandtherelativeimportanceofquantitativeandqualitativefactorsinaparticularengagementultimatelyremainmattersfortheaccountants’ownprofessionaljudgement.

61. Itisalsoimportanttoensurethatthescopeofworkexpectedofaccountantsisappropriateanddealswithmattersthataccountantscanreasonablybeexpectedtotestandonwhichtheyformjudgements.Ifsuitablecriteriaforevaluationdonotexistand/orcannotbeagreedwithaccountants,itwillnotbepossibleforaccountantstoundertakethework,orspecificaspectsofthework.Thisislikelytoleadtoqualificationoftheaccountants’reportortoaccountantsbeingunabletoaccepttheengagement.

Format and wording of the accountants’ report

62. Asalreadynotedinparagraphs44to52,thetypeofengagementthatisbeingsoughtbythegrant-payingbodywilldeterminetheformandcontentoftheaccountants’report.Modelexamplesofaccountants’reportsrelatingtothethreetypesofengagementscanbefoundinappendixC.

63. Careshouldbetakenwhenthegrant-payingbodyisrequiredtousetermsand/orexpressionsintheaccountants’reportwhichareprescribedbylegislationorthegrant-payingbodyintendstospecifywordingforaccountants’reports.Undefinedwordscanleadtomisunderstandings.Itisthereforeimportantthatprescribedtermsorexpressionsareclearlydefinedattheoutset.Accountantsshouldbeabletoaddtoanywordingprescribedbylegislationandmodifywordingsetbythegrant-payingbodyespeciallyifaccountantsareexpectedtoprovideanopinion.Withouttheabilitytoaddtooramendthewordingofthereport,accountantsmaybeforcedtoqualifythereportorevenresignfromtheengagement,simplybecausetheyareunabletosignuptotheprescribedwordingwhichdoesnotreflecttheirconclusionandopiniononthegrantclaim.

64. Inpracticeitshouldbenotedthatamendmentstoanytemplatereportsarelikelytobefairlycommonandwillsetoutsignificantissuesand/oradditionalmattersthat,intheopinionoftheaccountants,needtobebroughttotheattentionofthegrant-payingbodyandthegrantrecipient.Theabilitytoamendanystandardreportwordingexpectedbythegrant-payingbodymaythereforebeofdirectbenefittothegrant-payingbodywhereitprovidesadditionalinformationthatisofvaluewhenassessingcompliancewiththegrantclaimtermsandconditionsbythegrantrecipient.

65. Accountantsarenotboundtosignanyformofreport(pre-printedorotherwise)thathasnotbeendiscussedwiththemorthattheirprofessionalbodyhasnotrecommended(noraretheyobligedtosignanyformeveniftheirprofessionalbodyhasrecommendedit).Ifthebasicformandcontentofthereportistobespecified,thenitwouldbehelpfultodiscussthiswiththeprofessionalbodiesoftheaccountantswhoarelikelytobeinvolvedinundertakingtheworkonthegrantclaim.Often,anearlydiscussionwillindicatewhetherwhatthegrant-payingbodyisconsideringissomethingthataccountantswillbeabletoprovideareporton.Itwouldalsobehelpfultodiscusstheformofreportwithanyotherusersofthereport(eg,thegrant-payingbody’sexternalauditors)beforethestartoftheengagement.Earlydiscussionwillhelpensurethatexpectationsofallpartiesareunderstoodandcanbemetandavoidproblemsthatcanariseduringthereportingprocess.

66. AppendixDincludesexamplesofwordsthatoftengiverisetoproblemsforreportingaccountants.Indraftingthespecificationofaccountants’reportsitisimportanttouselanguagethatisfreefromambiguity.Forexample,undefinedtermssuchas‘review’or‘reasonable’arenotrecommendedunlessthereisacleardefinition.

EXAMPLE5:HAVE‘PERFORMANCEANDBUDGETARYINFORMATION’BEENREPORTEDONBYTHERECIPIENTALONE?

Sometimes,aninvestmentfundedbyagrantwillgeneratesavingsforrecipients’revenuebudgets.Thiswasthecasewithagrantforwasteminimisationandrecycling,asfuturelandfilltaxwouldbelessthaniftippingcontinuedatpreviouslevels.However,thegrant-payingbodywantedassurancethatrecipientswouldmaintaintheirbudgetstosafeguardlocalauthorities’expenditureonwastemanagement.

Accountantsonlyneededtoreportontheexpenditureonthenewactivitiesaslocalauthoritytreasurerswerelefttoself-certifythatsavingswere‘re-invested’inwastemanagementandnotdivertedtootheractivities.


Matters to consider at report stage

67. Thegrant-payingbodymaywishto:

• determineamaterialitylevelthatsupportstheleveloferrorand/orriskthatitispreparedtoaccept;

• ensurethatitwillunderstandtheimpactofanyerrors;

• considertheimplicationsofthevarioustypesofreportsreceived;

• beabletointerpretthequalificationsinaccountants’reportsoridentifyissuesandmakejudgementsandtakeappropriateactionaboutwhether:

- toaskaccountantstocarryoutfurtherwork(where,forexampletheaccountanthasindicatedmissingrecords);or

- nottopayfutureinstalmentsofgrants;or

- clawbackcurrentgrantsorinstalmentsalreadypaid;

• haveasysteminplacetoidentifylateormissingreportsandtakeappropriateaction(eitherfollowupwiththegrantrecipient,suspendpayments,imposeagreaterlevelofretentionorultimatelyclawback);and

• haveasysteminplaceforaccountantstoenterintoearlydialoguewiththegrant-payingbodywhentheyidentifysignificanterrorsordeficienciesinthegrantrecipient’srecords.

68. Rejectionofareportordelaysorrefusaltopayfuturegrantsshouldnotsolelybebecausethereportdoesnotreflectastandardformofwords.Thetermsandconditionsofboththegrantschemeandtheofferletterneedtoidentifythetriggerthatwillleadtorejectionofareportordelaysorrefusaltopayfuturegrants.Whereaccountants’reportsarefrequently‘qualified’foroneparticularreason,thenthegrant-payingbodycouldissueguidancetoclarifyhowtheparticularissueshouldbeconsideredanddealtwith(andupdateitsdefinitionsofeligibilityforanythingthatisnotclear).

EXAMPLE6:CLAWBACKOFGRANTMONIESWHERETHEACCOUNTANTDIDNOTUSETHEPRESCRIBEDFORMOFWORDS

AlocalauthoritywastheleadaccountablebodyforaEuropean-fundedActionPlan.TheActionPlansoughttoaddressthelackofprovisionofbusinessadvicetoSMEsinparticularlydeprivedwards.TheactualdeliveryoftheActionPlanwassplitintoanumberofsub-projectsdeliveredbythirdpartybusinessadviceproviders.Eachsub-projectwasrequiredtocompleteandsubmitanannualstatementofexpenditurewithanindependentreport.

Theaccountantstooneofthesub-projectsissuedareportwhosewordingwasnotanexactwordforwordmatchtotheproformaissuedbythelocalauthority.Thelocalauthorityrejectedthereportandsoughttocommenceclawbackoftheentiremoniesclaimedbythesub-project.Themeaningandcontextoftheissuedreportwasthesameastheproformareport.


SECTIONDCONSIDERATIONSFORREPORTINGACCOUNTANTS

69. Beforetakingontheengagementaccountantswillneedtoclarify:

• thepurposeoftherequestforthereport;

• thescopeofwork;

• towhomtheywillbereporting;

• towhomtheywilloweadutyofcare;and

• whatthereportwillbeusedfor.

70. Accountantswillwanttounderstandwhetherthereportisrequiredtoconfirmtheeligibilityofexpenditureand/orwhetherthereportwillbeusedtoconfirmthatthegranthasbeenspentinaccordancewiththeparticulartermsandconditionsandforthepurposesintended.Itisimportantthatthereisaclearunderstandingofthescopeandpurposeoftheengagementamongalltheparties.

71. Accountantswillalsoneedtoconfirmthatgrantrecipientsunderstandtheirresponsibilitiesinrelationtothetermsandconditionsofthegrantandtheneedtomaintaineffectivesystemsanddocumentationtorecordthetransactionsinrelationtothegrantscheme.Accountantsmaywishtoconsiderwhethertheyneedtoobtainwrittenconfirmationfromthegrantrecipientacknowledgingtheirresponsibilities.Itwillalsobeusefulforaccountantstounderstandattheoutsetwhoispayingforthereport:thegrant-payingbodyorthegrantrecipient.

72. Itisimportantthatbeforeagreeingtotakeontheengagement,accountantsconsidertheneedtodiscusswiththegrantrecipienttheformofreportthatthegrant-payingbodyhasrequestedandwhethertheaccountantswillbeabletoprovidethis.Accountantsshouldnotsignreportsuntiltheyhavebeenabletoperformsufficientworkandobtainsufficientevidencetosupporttheirfindings,opinionsand/orconclusions.Inallcases,accountantshavetherightnottoacceptanyengagementiftheyconsiderthattherequiredwordingistooonerousorwherethewordinghasnotbeenproperlydefined.Wheretheydonotfeelabletoacceptsuchresponsibilitytheyshoulddeclinethiswork.

Engagement terms

73. Inarrivingatanunderstandingaboutwhomayhaveaninterestintheaccountants’reportandforwhatpurpose,accountantsneedtoknowwhoisinvolvedintheengagement,whomaywishtorelyonitandthepartiesthatmaysufferadirectloss.

• Grantrecipient–willrequirethereportforthepurposeofmeetingoneofthegrantrequirements.Failuretoobtainanaccountants’reportcouldresultinthegrant-payingbodyclawingbackgrantmoniesthathavealreadybeenpaidtothegrantrecipient.

• Grant-payingbody–mayrequireareporttoconfirmthatthegrantrecipient’sclaimislimitedtoeligiblecostsand/orthatthegrantmonieshavebeenspentinaccordancewithboththetermsandconditionsofthegrantschemeandtheofferletter.Thegrant-payingbodymayberelyingonthereportevenwhenthereportisnotaddressedtothegrant-payingbody.

• Otherparties–asponsoringbodyoramatchfunderwhichhasindicatedthatitwillalsoseektorelydirectlyontheaccountants’report,particularlywhenitistryingtosatisfyitselfoftheregularityandproprietyofgrantsdistributedbythegrant-payingbodyforwhichitisultimatelyaccountable.

Anypartythatwillrelyonthereportandwhowillsufferadirectlossshouldconsiderbecomingapartytotheengagement(seeparagraphs41to43).

74. Theremayalsobeotherbodiesthatareentitledtoviewthereportsandaccountantswillneedtounderstandwhichbodiesmaychoosetousetheirreports,forwhatpurposeandwhethertheywillrelyonthereportbutwillnotsufferadirectloss.Forexample:

• sponsoringbodies–thatarereviewingthesystemsandprocessesinplaceatthegrant-payingbodyinrelationtotheadministrationofthegrantschemeratherthanreviewingtheaccountants’reportitselfmaychoosetoreviewasampleofaccountants’reportsaspartoftheirownreviewofthegrant-payingbody;

• auditagencies–connectedwithanyoftheaboveparties(includingtheEuropeanCourtofAuditors);

• parliament;and

• devolvedadministrationsandlegislatures.

Theremaybeotherbodiesorindividualsthatwishtohaveaccesstotheaccountants’reportormayhaveastatutoryrightofaccess.Theextenttowhichtheymayplacerelianceonthereportisnotalwaysclear.


75. Whentakingonthiswork,accountantsmayhavearesponsibilitytothosethatreceivethereport,relyonitandwhosufferadirectlossasaresultofthatreliance.Insuchcases,andwhereallthepartiesareknown,theexpectationsand/orscopeofworkshouldnormallybedeterminedwiththepartiesintheengagement.Insomecases,thismaybedifficulttodoasthegrant-payingbodymayalreadyhaveprescribedthescopeofworkanditsexpectationsaspartofitstermsandconditions.Itwould,however,notbereasonabletoexpectaccountantstoacceptaresponsibilitytothirdpartieswhoseinterestintheworkmaynothavebeenknownatthetimethattheworkwasacceptedandperformed.

76. Accountantswillneedtoconsiderandapplyappropriateengagementacceptanceproceduresinordertoassesstherisksassociatedwithtakingonanyengagementofthisnature.Theywillthendeterminewhether,inthelightoftheirassessmentandtherisk,itisappropriatetotakeontheengagementandifso,onwhatterms.

Agreeing on engagement terms

77. Iftheaccountantsarenotthegrantrecipient’sstatutoryauditors,thentheymaywishtoincludelanguagewithintheirengagementletterwhichclarifiestheirresponsibilitiesandliabilitytothestatutoryauditorofthefinancialstatements.Thetwoengagementsareseparate,withthestatutoryauditorsbeingresponsiblefortheirownauditreport.Thestatutoryauditorshavetodeterminewhatreliance,ifany,toplaceontheaccountants’workaspartoftheevidencefortheiraudit.Forthesamereasons,theaccountantsshouldincludesimilarclarifyinglanguagewithintheirengagementletterstotheauditorsofthegrant-payingbody.

78. Iftheaccountantsarethestatutoryauditorsofthegrantrecipient,thentheywillneedtocarefullymanagetheirrelationshipfortheseengagementswiththegrantrecipientandanythirdparties.Boththegrantrecipientandthegrant-payingbodywillneedclarificationthattheseengagementsareseparatefromthestatutoryauditengagements.Toprovidethisclarity,accountantsmay,withintheengagementterms,confirmthattheirresponsibilitiesinrelationtothestatutoryauditengagementareseparateandcarriedoutforadifferentpurposefromtheengagementtoprovideareportonthegrantfunding.

79. Dependingonthecircumstances,accountantsmaywishtoconsidertheapproachoutlinedinAAF04/6,Assurance Engagements: Management of Risk and Liability.Forthepurposeofthiswork,themostappropriatearrangementsforaccountantstoenterintowillbe:

(a) atripartiteormultipartiteengagementcontractwiththegrantrecipientandthegrant-payingbody,acceptingthattheyoweadutyofcarenotonlytothegrantrecipient(whoistheirclient)butalsotothosegrant-payingbodies,includingprovisionslimitingliabilityifappropriate(recognisingthatsuchacontractmaynotbeachievablewheretherearenumerousthirdparties).

(b) anengagementwiththegrantrecipient,withthefacilityavailableforotherthirdpartiestoenjoyadutyofcarefromtheaccountantsiftheyaccepttherelevanttermsoftheengagementwhichhavebeenpreviouslyagreedwiththegrantrecipientasiftheyhadsignedthatletterwhenitwasissuedincludingthesameprovisionslimitingliability6.

(c) iftherisksareconsideredtobehigheg,becausetheengagementitselfisconsideredtobeverycomplexortheaccountantisunabletoagreeacceptabletermswiththegrantrecipient(and/orgrant-payingbody),thentheaccountantscouldconsiderdecliningtheengagement.

80. Wherepossible,thetermsofengagementneedtobeagreedbyallthepartiestotheengagementwiththeagreedtermsrecordedinwritingintheengagementletter.AppendixEprovidesanexampleofmodelterms.Inreality,wheregrant-payingbodiesareadministeringalargescheme,itmaynotbepossibleorfeasibleforthegrant-payingbodytoenterintoindividualtripartiteormultipartiteengagementsforeachandeverygrantallocatedtoagrantrecipient.However,itmaybepossibleforthegrant-payingbodytopublishstandardisedengagementtermsaspartofitstermsandconditions,outliningthebasisonwhichtheyarewillingtobecomeapartytoanengagement(seeexample7below).

81. AppendixFprovidesanexampleofasetofstandardisedmodeltermswherethegrant-payingbodyisofferingtocontract,attheoutset,throughitstermsandconditions.Accountantsshould,however,notethattheabsenceofatripartite,multipartiteengagementletterorastandardisedsetoftermsdoesnotinitselfmeanthatadutyofcareisnotowedtothegrant-payingbody.Ifthepurposeforwhichthegrant-payingbodyhasrequestedthereportisclearwithinthegranttermsandconditionsandithasclarifiedthatitseekstorelyonthereportasaconditionofthegrant,andiftheaccountantstakeontheengagementwiththisknowledge,thentheremaybeanimplieddutyofcare.

6 Thiswillrequiretheconsentofthegrantrecipientwhichshouldbeobtainedintheengagementletter.


EXAMPLE7:STANDARDISEDENGAGEMENTTERMS

Somegrant-payingbodiesalreadyprovidestandardisedengagementtermsforgrantagreements.OneexampleistheDepartmentforBusinessInnovationandSkills(BIS)withitsGrantforBusinessInvestment(GBI)scheme.

Whereagrant-payingbodyprovidesstandardisedengagementterms,itdoesnotneedtosignanengagementletterasitofferstocontractwiththeaccountantonthemodelengagementterms.Oncetheofferisacceptedbythegrantrecipientandtheaccountantsuponsignatureandsubmissionofareporttothegrant-payingbody,thenecessarycontractisformedbetweenthegrant-payingbody,thegrantrecipientandtheaccountants.Aseparateengagementlettermayalsobeagreedbetweenthegrantrecipientandtheaccountantsbutitshouldbenotedthatthetermssetoutintheseparateengagementletterdonotbindthegrant-payingbody,otherthanthosetermssetoutinthestandardtermsissuedbythegrant-payingbody.

Liability

82. AccountantsintheUKareadvisedtoaddresstheirreportstogrant-payingbodieswhenthebasisandextentoftheirliabilitytothegrant-payingbodyisclearandagreedwithinanengagementletter.IndecidingandagreeingappropriateengagementtermsinEnglandandWales,accountantsshouldrefertotheguidanceintheICAEW’sMembers’ Handbook Statement 9.1: Managing the professional liability of accountantsandconsidertheconsequencesoftheContracts(RightsofThirdParties)Act1999.

83. Possiblewaysofarrivingataliabilitylimitandthroughseparatenegotiationare:

• tolimittheliabilitytotheamountofthegrant;and/or

• capitatafixedmonetaryamount.

84. Inmostcases,thegrant-payingbodywillseektorecoverlossesfromthegrantrecipientdirectlybutmayseektorecoverlossesfromaccountantswhereitbelievesthattheaccountantshavebeennegligentincarryingouttheirwork,orinprovidingthereport.

85. Oneoptionistolimitliabilitytothatproportionofthelossordamagesufferedbythegrant-payingbodyforwhichaccountantshavecontributedtotheoverallcauseagreedbetweenthepartiesor,intheabsenceofagreement,itwillneedtobedeterminedbythecourts(subjecttoanupperlimit).

86. Ifclarificationlanguageisusedinthereport,accountantswillneedtoconsiderwhetheritisreasonableandthereforelikelytobeeffectivetakingaccountoftherequirementsoftheUnfairContractTermsAct1977.Bearinmindthatsuchwordingisnotalwayseffective.Accountantsareadvisedtoseektheirownindependentlegaladviceontheeffectivenessofanyclarificationlanguagethattheyintendtoincludewithintheirreports.ExamplewordingforlimitingliabilityandclarificationlanguageareprovidedinAppendicesGandH.

Scope of Work

87. Accountantsneedtobeclearaboutwhatthegrant-payingbodyrequiresareporton.Thegrant-payingbodymaywantaparticularoutcomeandmayalsowanttheworktobecarriedoutinaspecificway.Accountantswillneedtoconsiderwhethertheycancarryouttheworkrequestedand,iftheyareableto,considerwhattheyneedtodotoprovidetheformofreportrequested.Iftherequirementsarenotclearlyexpressedinthetermsandconditionsofthegrantschemeandtheofferletter,accountantswillwanttoclarifywhatisrequestedofthemfromtheoutset,includingthetypeofengagementrequested(‘reasonableassurance’,‘limitedassurance’or‘agreed-uponprocedures’).

88. Dependingonthetypeofengagementthatisrequired,accountantswilldeterminetheproceduresthattheywillneedtocarryout(includingthematerialitylevelsandanysamplingmethods).Accountantswillneedtodeterminewhetherwhattheyhavebeenrequestedtoreportonisactuallycapableofbeingreportedon.

89. Theleveloftestingcarriedoutdependsonthetypeofengagementrequiredandshould,wherepossible,beagreedwiththegrantrecipientandthegrant-payingbodyattheoutsetoftheengagement.Thehighertheassurancerequired,themoredetailedthetestingislikelytobe.Themoretestingthatiscarriedout,themorelikelihoodthereisofanyerrorsbeingdetected.Itisworthnotingthat,howeverdetailedthetesting,notallerrors(whetherdeliberateorotherwise)maybedetected.


Format of report

90. Thetermsandconditionsofthegrantschemeandtheofferlettershouldmakeclearthetypeofreportrequiredwhichwillhelptodeterminethetypeofengagement,thescopeofworkandformofreport.

91. Agreeingthewordsandformofreportattheoutsethelpstoavoiddisagreementswiththegrantrecipientorthegrant-payingbodyatalaterstage.Theaccountants’reportshouldreflecttheagreementsetoutintheengagementletterandbesupportedbytheworkcarriedout.Thereportshouldmakeclear:

• forwhomitisprepared,whoisentitledtorelyonitandforwhatpurpose;

• thattheengagementwasundertakeninaccordancewiththeagreedengagementterms;

• theworkperformedandthefindings;and

• aconclusionorreportwhichcanbesupportedbytheworkdone.

92. Accountantsshouldtakecaretouseclearandpreciselanguagetodescribespecifictermsused(suchas’enquiry’or’inspection’).

93. Accountantsandgrant-payingbodiesneedtonotethatanyformofreportthathasbeenendorsedasacceptablebytheaccountants’professionalbodydoesnotnecessarilybindaccountantsbuttheymaywishcarefullytoconsiderthereasonsbehindtheagreementwiththeprofessionalbodybeforedecidingnottoagreetotherequestedformofwords.Accountantswillalsoneedtobearinmindthatsomewordingincludedwithinprescribedformsofreportsmightbewordingthatisenshrinedinlegislation.Ifthisisthecase,thegrant-payingbodywillnormallyhavedefinedthewordsclearlytoavoidanymisunderstandingslater.

94. AppendixCprovidesexampleproformareportswheneithera‘reasonableassurance’,‘limitedassurance’or‘agreed-uponprocedures’engagementisagreed.

Confidentiality issues

95. Incarryingoutthiswork,accountantsneedtobeclearaboutandunderstandtheirresponsibilitiesaroundclientconfidentiality.

96. Accountantsneedtounderstandthattheremaybestatutoryrightsofaccessforparties(suchasgovernmentdepartmentsorauditagencies)thatneedtoseetheirreports(andpossiblyworkingpapers)forstatutorypurposes.Thismaybeeithertoclarifyorconfirmtheprocessesthathavebeenputintoplacebythegrant-payingbodytoallocateandverifytheuseofgrantmoniesorbecausetheyhaveastatutorydutytoreporttoParliamentmattersofsignificancewhichmayariseoutoftheirreviews.

97. Theaccountants’workingpapersaretheirlegalpropertyand,exceptwherethereisastatutoryrightofaccess,accountantshavearighttorestrictordeclineaccesstothem.Theworkingpapersmaycontainconfidentialinformationaboutthegrantrecipientand,bypermittingaccesstothem,accountantscouldbeacquiringasignificantlegalrisk.However,refusingaccesscouldbeunhelpfultothegrantrecipientandthoserequiringtheaccess.Therearesomestepsthattheaccountantmightwishtoconsidertaking.Beforepermittingsuchaccess,accountantsneedtoconfirm,firstwhetherthereisastatutoryrightofaccess(complyingwiththesewillnotbreachprofessionalconfidentiality).Ifthereisnostatutoryrightofaccess,theaccountantsneedtoestablishthereasonsfortheaccessandagreeaprotocolwiththebodythatismakingtherequestonhowtheaccessmaybeobtainedsothattheinterestsofallpartiescanbeprotected.

98. Accesstotheaccountants’workingpapersmaybepermitted–whilemanagingliabilityrisks–byusingclientauthorisationandreleaseletters.Byusingclientauthorisationthegrantrecipientgivestheaccountantswrittenauthorisationtoprovideaccess,informationandexplanationsandagreesthattheaccountantswillnothaveanyliabilitytotherecipientasaresult.Releaselettersentailthebodyrequestingaccesstoagree,amongotherthings,thattheaccountantsdonotassumeanydutyorliabilitiestothebodyasaresultofgivingsuchaccess.


Data protection

99. Dataprotectionlawsapplytothepersonaldataofindividuals.Relevantinformationmaycontainpersonaldata(forexampleaboutemployeesoraboutsoletraderswithwhomtheclientdoesbusiness).However,theaccountantmaybeobligedtoprovideaccesstorelevantinformationbylegislation.Therefore,wherepersonaldataisdisclosed,aslongastheinformationbeingprovidedisnecessarytodischargethatlegalobligation,therearenodataprotectionrisksforaccountants.

Fraud and illegal acts

100.Inthecourseofperformingprocedures,accountantsmaybecomeawareofuncorrectederrors,fraudorillegalactsattributabletothegrantrecipient’ssystem,managementoremployeeswhichmayaffectthegrantclaimed.

101.Unlessclearlyinconsequential,accountantsdeterminefromthedirectorsofthegrantrecipientwhetherthisinformationhasbeencommunicatedtothegrant-payingbody.Ifthedirectorshavenotcommunicatedthisinformationandareunwillingtodoso,theaccountantsinformtheauditcommittee,wherethereisone,oragroupofdirectorswithequivalentauthority.Iftheauditcommitteeorequivalentdoesnotrespondappropriately,theaccountantsneedtoconsiderwhethertoresignfromtheengagement.Accountantsgenerallyarenotrequiredtoconfirmwiththegrant-payingbodythatthegrantrecipienthascommunicatedsuchinformation.Accountantsmay,however,wishtoconsiderwhethertheyhaveotherreportingrequirementssuchasoneinrelationtoreportingmisconductbyanothercharteredaccountantorrequirementsunderotherrelevantlegislation.

Freedom of information

102.TheFreedomofInformationAct2000aimstoincreasethetransparencyandaccountabilityofpublicbodiesandthewayinwhichsuchbodiescarryouttheirwork.PublicauthoritiesarelistedintheAct.BroadlyspeakingapublicauthorityisdefinedbytheActasaUK-widepublicauthorityorapublicsectorbodyinEngland,WalesorNorthernIreland(similarlegislationexistsinScotland).Thepublichasastatutoryrighttoaccesstherecordedinformationheldbyapublicauthorityfrom1January2005.

103.Inrelationtoanaccountants’report,therefore,unlessavalidexemptionapplies,thepublicwillhavearighttoseeanaccountants’reportinrelationtoagrantschemethatfallsunderinformationheldbyapublicauthority.ObtaininginformationundertheFreedomofInformationAct2000doesnotcreateadutyofcarebetweentheaccountantsandtherequestor.


SECTIONECONSIDERATIONSFORGRANTRECIPIENTS

Application process

104.Whengrantrecipientsmakeanapplicationforagranttheywillneedtounderstandthetermsandconditionsofthegrantscheme.Grantrecipientsareresponsibleforprovidingevidencetothegrant-payingbodythattheymeettheeligibilitycriteriaforreceiptofgrantfunding.Thiswillbeattheapplicationstage.Thegrant-payingbodywillnormallyspecifywhatdocumentationitrequirestoconfirmeligibilityanditwillbethegrantrecipient’sresponsibilitytoprovidethecorrectdocumentationdirectlytothegrant-payingbodywiththeapplication.

Grant offer and acceptance

105.Onceagrant-payingbodyhasprocessedanapplication,checkedandconfirmedthattheeligibilitycriteriaforagranthavebeenmetandtheapplicationforagranthasbeenapproved,itwillsendagrantofferlettertothegrantrecipient.Thegrantofferletterwillcontain,orreferto,thedetailedtermsandconditionsthatthegrantrecipientmustcomplywithinordertoreceivethegrant.

106.Acceptanceofgrantfundingcomeswithanobligationtocomplywithallofthegrant’sconditions.Itisthereforeimportantthatgrantrecipientshaveafullunderstandingofthetermsandconditionsincludingtheirresponsibilities,obligationsandthereportingrequirements.Ifgrantrecipientsareunclearabouttheirresponsibilitiesandobligations,theywillneedtoclarifythesewiththegrant-payingbodyandpreferablyattheacceptancestage.

Responsibilities and obligations

Systems and documentation107.Grant-payingbodieswillprovidedetailedguidelinestograntrecipientssothatgrantrecipientscan

monitorcompliancewiththegrantconditions.Ifanyaspectoftherequirementssetbygrant-payingbodiesisnotclear,grantrecipientswillneedtoobtainclarificationfromthegrant-payingbodyandensurethattheyfullyunderstandtheirobligations.

108.Thegrant-payingbodywillsetoutthedocumentationthatitwillrequireasevidence.Itwillbethegrantrecipient’sresponsibilitytosetupandmaintainsufficientandeffectiveadministrativeandfinancialsystemswhichsupportandrecordthetransactions(bothincomeandexpenditure)inrelationtothegrantschemeandwhichwillprovidetherelevantsupportingdocumentationtoevidencethetransactions.

109.Grantrecipientswillalsoneedtomaintaineffectiveinternalcontrolandoperatingsystemswhichmonitorthedeliveryofthescheme’sobjectives(including,whereappropriate,deliverybypartnerorganisations).

Interim claims110.Grantmoniesmaybepaidatthestartofaschemeandatregularintervalsduringthecourseofthe

financialyearorgrantperiod.Aspartofthetermsandconditionsofthescheme,thegrant-payingbodymayrequirethegrantrecipientsperiodicallytosubmitevidencethattheyarespendingthegrantmoniesinaccordancewiththetermsandconditionsofthegrantschemeandinaccordancewiththepurposesintended.

111.Ifevidenceisrequiredperiodically,thegrant-payingbodywillnormallyrequirethisthroughthesubmissionofaninterimclaimorreturn.Thetermsandconditionsoftheschemewillprovidedetailsofhowinterimclaimsorreturnscanbesubmitted.Evidenceofexpenditureisusuallyprovidedthroughprogressreportingatregularintervalsduringtheperiodofthegrant,identifyingcrucialinformationsuchasunderspendsagainstprofiles.Itisthegrantrecipients’responsibilitytoensurethatinterimclaimsandprogressreportsproviderelevantandaccurateinformation,reflecttherelevantperiodandaresubmittedbytheprescribeddeadlines.


Final returns112.Attheendofeachfinancialyearofthegrantschemeandalsoatthecompletionstage(ifthegrant

schemeextendsoveranumberofyears),grantrecipientswillberesponsibleforprovidingevidenceandanindependentaccountants’reportthattheyhavespentthegrantmoniesinaccordancewiththetermsandconditionsofthegrantschemeandforthepurposesintended.

113.Thetermsandconditionswillprovidedetailsofhowperiodicandfinalclaimsandreturnsshouldbesubmitted.Itwillbeforthegrantrecipienttoensurethattherequirementsforobtainingandsubmittinganaccountants’reportonagrantclaimorreturncanbemetbeforeacceptingagrant.Theyshouldthereforeobtainconfirmationthattheiraccountantswillbeabletoprovidetherequiredreportwithinthetimerequired.Thisconfirmationshouldbeobtainedatthegrantacceptancestage,ratherthanriskencounteringproblemslaterwhenfailuretoprovidethereportcanresultinclaw-backofgrantmonies.

114.Whereappropriate,thegrant-payingbodywill,inthetermsandconditions,providedetailsofthereportingstructurethatitrequirestobeinplace,including:

• theformofreportrequired;

• thecontracttermsunderwhichthereportisrequired;

• whowouldbebestplacedtoprovidethisreport;

• howthegrantrecipientshouldsecuretheengagement(ie,doesitengagedirectlywiththeaccountantsorwillthegrant-payingbodybeapartoftheengagement?);

• thequalificationsthattheaccountantswillbeexpectedtohave;

• theinformationthatthegrantrecipientwillberequiredtomaintainandsubmittotheaccountantsinsupportoftheyearendorfinalclaimorreturn;

• where,whenandtowhomthereportisrequiredtobesubmitted;and

• theprocessthatthegrantrecipientwillneedtogothroughifaccountantsareunabletoprovidetheconfirmationthatthegrant-payingbodyrequires.

Duty of care

115.Grant-payingbodieswilldeterminewhethertheywantaformaldutyofcarefromaccountantsandthiswilldeterminethetypeofengagementthattheywillbewillingtoenterintowithaccountants(paragraphs41to43insectionC).Theaccountants’reportwillbeaddressedtothegrantrecipient.Ifthegrant-payingbodyagreestoenterintoatripartiteormultipartiteengagementorprovidesstandardisedengagementterms,theaccountants’reportwillalsobeaddressedtothegrant-payingbody.Thetermsandconditionsshouldexplicitlystateallthepartiesthatareinvolvedintheprocessandthus,towhomthereportshouldbeaddressed.

Types of engagement

116.Itwillultimatelybeforthegrant-payingbodytodeterminethetypeofengagementitrequires.Thetypeofengagementwillthendeterminethescope,natureandextentofworkthataccountantswillcarryoutandtheformatandwordingoftheaccountants’reportwillfollowaccordingly.Theoptionsandrelevantfactorsaffectingthetypeofengagementthatthegrant-payingbodymaydecideuponarelaidoutinparagraphs44to52insectionC.Thetermsoftheengagementwillpartlybedeterminedbythetypeofengagementchosen.Moreinformationonthisisprovidedinparagraphs73to81insectionD.


LISTOFTERMSANDCONDITIONSTHATCOULDBEUSEFULLYINCLUDEDINAGRANTSCHEMETOPROVIDECLARITY

1. Glossaryanddefinitionsofterminologyusedeg,expendituredefrayed.

2. Thestagesoftheapplicationprocess.

3. Whatisandisn'teligibleeg,cost,location,whocanapply?

4. Therateofsupport.

5. Maximumapprovedexpenditureandmaximumamountofgrantonoffer.

6. Whetherthegrantisforcapital/revenueorbothandifthegrantisnetofanyincome.

7. Virementbetweencapitalandrevenueorbetweenvarioustypesofcapitalandrevenue.

8. Anyrestrictionsonsourcingequipmentorsupplies.

9. Thesystems,proceduresandsupportingdocumentaryevidence(suchastimerecords)thatthegrantrecipientwillberequiredtomaintain,coveringthelengthoftheperiod,forhowlongandforwhom.

10. Clarityaboutwhattheyrequireareportonandthatwhattheywantareportoncanactuallybereportedon.

11. Theaccountingpolicies(includingwhetherthegrantreturniscompletedonanaccrualsorpayments‘defrayed’basis;andapportionmentmethodsforoverheads).

12. Processtobefollowedwhenthereareinstancesofdoublecounting/doublefunding,matchedfunding,additionality,contributionsinkind,expendituredefrayed.

13. Processtobefollowedwhenerrorsoccur,howtheseneedtobemanaged(eg,themethodofallocatingoverheadstothefundedactivity;therecordingoftimespentontheproject;thetreatmentofrevenueattributabletothefundedactivity)andinterventionoptions(eg,suspensionofpayments;re-profilingoffutureexpenditure;holdingretention;clawback/terminationofgrant).

14. Processtobefollowedwheneligibleexpenditureexceedsthefundinglimitandwhathappensifpartoftheexpenditureisdisallowed.

15. Cutoffpoints(suchasdeadlinedatesforeligibility,timingofinterimandannualreports,independentaccountants’reports)asthereneedtobeworkableperiods/deadlinesforrecipientstocompileclaimsandthenfortheaccountantstodotheworknecessaryforthereport.

16. Timelinessofandcompliancewiththegrant-payingbodiesreportingrequests.

17. Ifthegrantisallocatedtoapartnership,thenclarityaroundtheresponsibilitiesofeachpartnerinrelationtotheschemeasawhole.

18. Accessibilityandavailabilityofthetermsandconditions(possiblyonawebsite).

19. Formatofthereturnthatthegrantrecipientwillberequiredtosubmit(ensuringthatitaddsup).

20. Formatoftheaccountants’report(bearinginmindtheissueshighlightedinparagraphs47to66ofthisframeworkdocument).

21. Acontactnameforqueriesinrelationtotheengagementtermsandreporting(intheofferletter).

22. ForUKgrants,areferencetotheappropriateUKlegislationorregulationsthatthegrantschemeisgovernedby.

23. ForEuropeangrants,areferencetotheappropriateEuropeanDirectiveorconditionsofaid.

Thekeyissuehereisthatagrant-payingbodyneedstoconsiderandidentifywhichtermsandconditionsarerelevantforaparticulargrantscheme,whatitisthattheywantareporton,andwhowillprovidethereport.Thisis,bynomeans,anexhaustivelist.Theremaybeotheritemsthatarenotincludedherewhichmayalsoberelevanttohaveinasetoftermsandconditions.Itisoftenhelpfultoconsultstatutoryauditagenciesonthedocumentaryevidencethatthegrantrecipientmayberequiredtokeeptojustifytheexpenditure.

APPENDIXA

APPENDIXBTYPESOFENGAGEMENT–OPTIONSANALYSIS

TypeofEngagement Description NatureofReport Pros Cons

Agreed-uponProcedures Theexactscopeofwork(eg,typeoftest,samplesizesetc)isagreedbythegrant-payingbody,grantrecipientandtheaccountant.

or

thereportingaccountantfollowstheexactscopeofworksetoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody.

Theaccountantthenundertakestheseproceduresandreports the results.

Adetailed reportsettingouttheworkundertaken(ormakingreferencetothescopeofworksetoutinthetripartiteengagementletterormakingreferencetothesourceofanypre-agreedprocedures)andtheresultsofthetesting.

Thisisafactual reportandno conclusion is given.

• Clarityaboutthescope,natureandextentofthetestingagreedattheoutset.

• Grant-payingbodycansetouttheoveralltemplateforthereportinthelightofitsrequirements.

• Anyexceptionsthatareidentifiedaresetoutinthereport.

• Thegrant-payingbodyandotherpotentialusersofthereport(eg,thegrant-payingbody’sexternalauditors)areabletoreachaninformedjudgementbasedontheinformationprovidedinthereport.

• Simpleengagementfromtheaccountant’sperspectiveandtherefore,allotherthingsbeingequal,cheaperthanotheroptions.

• ProfessionalguidanceinplaceintheformofInternationalStandardonRelatedServices(ISRS)4400,Engagement to perform agreed-upon procedures regarding financial information.

• Timeneedstobesetasidetoagreethescope,natureandextentofworkupfront.

• Theaccountantwillonlycompletetherequiredworkandwillnotundertakeadditionalprocedureseveniftheyidentifyerrors(unlessthisisrequiredbythescopeofwork).

• Noconclusionisgiven.Thereforethegrant-payingbodyislefttointerprettheresultsandmakeajudgement.

• Thegrant-payingbodymaynothavethetime/skills/resourcestointerpretthereport/reachajudgement.

Agreed-uponproceduresmaybethemostappropriatetypeofengagementifthegrant-payingbodywantstosettheprocedurestomaintainconsistencyinthewaythataccountantscarryoutthework:

• obtaintheresultsovercompliancewiththetermsandconditionsatthelowestcost(althoughthiscanbeexpensiveiftheproceduresarelongandinvolved);• ensureconsistencyinthescope,natureandextentofworkundertakenbyreportingaccountants;and/or• receiveareportsettingoutdetailsoftheworkundertaken,thefindingsandalloftheexceptionsnoted.

Agreed-uponproceduresisunlikelytobethemostappropriatetypeofengagementwhenthegrant-payingbody:• wantsanassurance‘opinion’fromareportingaccountant;and/or• wantsaccountantstoapplytheirjudgementindeterminingthescope,natureandextentoftheworkrequiredtoprovideanassuranceopiniononthegrantclaim.

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LimitedAssurance Thescopeofworkisagreedbythegrant-payingbody,grantrecipientandtheaccountant

or

theaccountantfollowsthescopeofworksetoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody.

Theaccountantthenundertakestheseproceduresandprovides a ‘limited assurance’ conclusiononthegrantclaim.

A‘limitedassurance’conclusiononthegrantclaimintheformofa negative assurance statement(eg,‘havingcarriedouttheproceduresstated(eitherassetoutintheengagementletterorinaccordancewithanagreedframework),nothing has come to our attentiontosuggestthatthegranthasnotbeenspentfortheintendedpurpose’.

• Wheretheexactscopeofworkhasbeenagreed,everyoneisclearastothescope,natureandextentofthetestingthatisundertakenasthisisagreedattheoutset.However,thisdoesnotprecludeormitigatetheneedfortheaccountantsfromperformingotherproceduresinordertogathersufficientevidencetoreachtheirconclusion.

• Theaccountantprovidesaconclusiononthegrantclaimintheformofanegativeassurancestatement.Thereisnoneedto‘interpret’theresults,unlessthereisaqualifiedconclusion.

• ProfessionalguidanceinplaceintheformofInternationalStandardonAssuranceEngagements(ISAE)3000,Assurance engagements other than audits or reviews of historical financial information.

• Maybecheaperthana‘reasonableassurance’engagement.

• Noacceptedframeworkcurrentlyinplacecoveringthesetypesofengagements.‘Limitedassurance’engagementscanthereforetakevariousforms.Thesecanrangefrombeingsimilartoagreed-uponprocedureswork,throughtoengagementsthatareverysimilartoreasonableassurance.

• Asaresult,such‘limitedassurance’engagementscanbedifficulttoagreeinpracticeandagreed-uponproceduresora‘reasonableassurance’engagementmaybemoreappropriate.

• Requires‘materiality’tobesetoragreedbythegrant-payingbody,sothatreportingaccountantscandeterminethescope,natureandextentofthetestingwiththeexpectationsofthegrant-payingbodyinmind.

• Thegrant-payingbodysimplyreceivesaconclusion,ratherthanadetailedreport,unlessadditionalreportingisspecified(eg,detailsofallexceptionsidentified).

• Readersofthereportmaynotknowtheexactscope,natureorextentoftheworkundertakenbytheaccountant,unlesstheengagementletterisprovidedoradditionalreportingisspecified.

• Maybemoreexpensivethananagreed-uponproceduresengagement.

Thedifferingnatureof‘limitedassurance’engagementsmeansthatitisdifficulttocommentonthemingeneralterms.Inmostcases,itislikelythatagreed-uponproceduresora‘reasonableassurance’engagementwillprovidethemostappropriatetypeofassurance.Grant-payingbodiesarethereforerecommendedtoconsidertheseoptionsbeforedecidingifa‘limitedassurance’engagementisappropriate.

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ReasonableAssurance Theoverallscopeofwork(oraminimumscopeofwork)isagreedbythegrant-payingbody,grantrecipientandtheaccountant(including materiality levels)

or

Theaccountantfollowstheoverallscopeofwork(oraminimumscopeofwork)setoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody,

but

the accountant determines the exact scope, nature and extent of the procedures required to support their opinion.Theaccountantthenundertakestheseproceduresandprovidesapositive conclusiononthegrantclaim.

Aconclusiononthegrantclaimintheformofapositive assurance conclusioneg,‘inmyopinion,thegrantclaimhasbeenpreparedinaccordancewiththegrantinstructionsandtheamountsrecordedhavebeenspentfortheintendedpurpose’.

Whileatemplatewordingcanbesuggested,itshouldbefortheaccountanttodeterminetheexactwordingoftheirconclusionwhichreflectstheirjudgementandislinkedtotheworkactuallycarriedout.

• Thegrant-payingbodyisprovidedwithapositiveconclusion(orotherwise)oncompliancewiththegrant’skeyfinancialtermsandconditions.

• Theaccountantisa‘financialexpert’,andhasdeterminedtheappropriatescope,natureandextentoftestingnecessarytoreachtheirconclusiononthegrantclaim.

• ProfessionalguidanceinplaceintheformofInternationalStandardonAssuranceEngagements(ISAE)3000,Assurance engagements other than audits or reviews of historical financial information.

Noneedto‘interpret’theresults,unlessthereisaqualifiedopinion.

• Aseachaccountantisresponsiblefordeterminingtheexactscope,natureandextentoftestingrequiredtosupporttheirconclusionthereislikelytobeinconsistencybetweentheamountofworkundertakenbydifferentaccountants.

• Requires‘materiality’tobesetoragreedbythegrant-payingbody,sothataccountantscandeterminethescope,natureandextentofthetestingwiththeexpectationsofthegrant-payingbodyinmind.

• Thegrant-payingbodysimplyreceivesaconclusion,ratherthanadetailedreport,unlessadditionalreportingisspecified(eg,detailsofallexceptionsidentified).

• Readersofthereportmaynotknowtheexactscope,natureorextentoftheworkundertakenbythereportingaccountant,unlesstheengagementletterisattachedoradditionalreportingisspecified.

• Toreachapositiveconclusiontypicallyrequiresadditionalprocedurestobeundertakenbytheaccountant.Thistypeofengagementcanthereforebemoreexpensive.

A‘reasonableassurance’engagementmaybethemostappropriatetypeofengagementwhenthegrant-payingbodywantsto:• obtainaconclusionfromanaccountant;and/or• allowtheaccountantstoapplytheirjudgementindeterminingthescope,natureandextentoftheworkrequiredtoprovideaconclusiononthegrantclaim.

A‘reasonableassurance’engagementisunlikelytobethemostappropriatetypeofengagementwhenthegrant-payingbodywantsto:• ensurethatthescope,natureandextentoftestingisthesameonallgrantclaims(althoughitispossibletospecifyminimumrequirements);• understandexactlywhatamountoftestinghasbeenundertakenbytheaccountant(althoughitispossibletorequestadditionaldisclosuresinrespectofthis);• beprovidedwithdetailsofallexceptions(althoughitispossibletorequestadditionaldisclosuresinrespectofthis);• avoidbeinginvolvedinsettingamaterialitylevelforthegrantclaim;and/or• minimisethecostsassociatedwithobtainingtherequiredassuranceoverthegrantclaim.

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(i)PROFORMAREPORT–AGREED-UPONPROCEDURES

Report of factual findings in connection with [project]

OFFER LETTER/CONTRACT DATED [DATE][Reference]

To:Directors[andGrantProvider]7

Thisreportisproducedinaccordancewiththetermsofourengagementletterdated[XX]forthepurposeofreportingtothedirectorsof[client](the‘company’)and[grantprovider](the‘grantprovider’)8inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].

[InsertappropriateclarifyinglanguagefromAppendixG]

[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedintheofferletter,andtoproviderelevantfinancialinformationtotheprovider.]

Our approachForthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththegrantofferletter,whichisattachedasAppendix[X]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.OurengagementwasundertakeninaccordancewiththeInternationalStandardonRelatedServices4400applicabletoagreed-uponproceduresengagements.Wewereaskedtoperformthe[Y]proceduresasdetailedinAppendix[X]andourengagementletter.

Weconfirmthatwecarriedout[X]outofthe[Y]procedures.Theresultsoftheseproceduresareasfollows:

Wewereunabletocarryoutthefollowingprocedures:[andstatereason]

or

Weconfirmthatwecarriedoutthefollowingprocedures(except[X]because...)

[Listoutthefindings,withdetailedexceptions(includingtheproceduresthatcouldnotbeperformed,whereapplicable)]

APPENDIXC

7 Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.8 Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.


Inherent limitationsOurprocedures,[asstatedinourengagementletter]donotconstituteanexaminationmadeinaccordancewithgenerallyacceptedauditingstandards,theobjectiveofwhichwouldbetheexpressionofassuranceonthecontentsoftheschedule.Accordingly,wedonotexpresssuchassurance.Hadweperformedadditionalproceduresorhadweperformedanauditorreviewofthescheduleinaccordancewithgenerallyacceptedauditingorreviewstandards,othermattersmighthavecometoourattentionthatwouldhavebeenreportedtoyou.Thisreportrelatesonlytothescheduleanddoesnotextendtoanyfinancialstatementsofthecompany,takenasawhole.

[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.9

Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grantprovider]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.]

Yoursfaithfully,

FirmofAccountantsOfficeDate

9 Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.


(ii)PROFORMAREPORT–LIMITEDASSURANCE

Independent Limited Assurance Report in connection with [project]



Thisreportisproducedinaccordancewiththetermsofourengagementletterdated[XX]forthepurposeofreportingto[thedirectorsofclient](the‘company’)and[grantprovider](the‘grantprovider’)11inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].


[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedinthegrantofferletter,andtoproviderelevantfinancialinformationtotheprovider.]

Our approachWeconductedourengagementinaccordancewith[establishedframework12/theproceduressetoutinourengagementletterdated[date]].Weperformedalimitedassuranceengagementasdefinedin[theframework/ourengagementletter].

Forthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththeofferletter,whichisattachedasAppendix[]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.

Theobjectiveofalimitedassuranceengagementistoperformsuchproceduresastoobtaininformationandexplanationsinordertoprovideuswithsufficientappropriateevidencetoexpressanegativeconclusionon[theschedule].[Alimitedassuranceengagementissubstantiallylessinscopethanareasonableassuranceengagementandconsequentlydoesnotenableustoobtainassurancethatwewouldbecomeawareofallsignificantmattersthatmightbeidentifiedinapositiveassuranceengagement.Accordingly,wedonotexpressapositiveopinion.]

Workisperformedinaccordancewiththe[applicableframeworkaslaidoutintheengagementletter].

[Includesummaryofwork]

10Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.11Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.12TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant-

payingbodyinitsschemetermsandconditions.


Inherent limitations[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.13


ConclusionBasedonourworkdescribedinthisreport,nothinghascometoourattentionthatcausesustobelievethattheaccompanying[theschedule]hasnotbeenpreparedinallmaterialrespectsinaccordancewith[theframework/ourengagementletter].or

Basedontheproceduresperformedwehaveidentifiedthefollowingexceptionsthat[theschedule]hasnotbeenpreparedinallmaterialrespects,inaccordancewith[theframework/ourengagementletter].

[listexceptions]


13Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.


(iii)PROFORMAREPORT–REASONABLEASSURANCE

Independent Reasonable Assurance Report in connection with [project]



Thisreportisproducedinaccordancewiththetermsofourcontractdated[XX]forthepurposeofreportingto[thedirectorsofclient](the‘company’)and[grantprovider](the‘grantprovider’)15inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].


[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedinthegrantofferletter,andtoproviderelevantfinancialinformationtotheprovider.]

Our approachWeconductedourengagementinaccordancewith[establishedframework16].Weperformedareasonableassuranceengagementasdefinedin[theframework].

Forthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththeofferletter,whichisattachedasAppendix[]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.

Theobjectiveofareasonableassuranceengagementistoperformsuchprocedures[onasamplebasis]astoobtaininformationandexplanationswhichweconsidernecessaryinordertoprovideuswithsufficientappropriateevidencetoexpressapositiveconclusionon[theschedule].

14Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.15Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.16TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant-

payingbodyinitsschemetermsandconditions.


Inherent limitations[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.17


ConclusionInouropinion,[theschedule]hasbeenprepared,inallmaterialrespects,inaccordancewith[theframework18].

or

Exceptfor[detailminorexceptionsnoted],inouropinion[theschedule]hasbeenprepared,inallmaterialaspects,inaccordancewith[theframework].

or

Inouropinion[theschedule]hasnotbeenpreparedinallmaterialrespects,inaccordancewith[theframework].

[insertdetailsofissuesleadingtoqualificationofopinion]



18TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant- payingbody.


EXAMPLESOFTYPESOFWORDINGOROPINIONSTHATMAYNOTBEACCEPTABLETOACCOUNTANTSPROVIDINGSPECIALREPORTS

1. Wording giving an opinion on a matter as a statement of fact when that matter, by its nature, is inherently uncertain or a matter of judgement

Examplesinclude‘we certify’,wordingwhichaccountantswouldnotnormally(exceptwhenrequiredtobylegislation)beinapositiontouseasitimpliescompleteaccuracy.Accountantsalsoavoidusingwordsorphrasessuchas‘correct’or‘accurate’or‘we have ensured’forassertionsthatcanneverbemadewithabsolutecertainty.However,accountantscancertifythattheyhaveperformedanexaminationinaccordancewithagreedcriteria.

2. The use of the term ‘true and fair’ or ‘presents fairly’ when financial information is not prepared applying an acceptable financial reporting framework such as UK Accounting Standards or International Financial Reporting Standards as adopted by the EU

Theuseofotherphrasessuchas‘present fairly’or‘properly prepared’areavoidedunlesstheyareclearlyplacedincontext,forexample,‘present fairly in all material respects in the context of reporting upon this grant claim in accordance with…’.

3. ‘Fair and reasonable’ opinions

Accountantsgenerallyavoidgiving‘fair and reasonable’opinionsastheyarenormallyassociatedwithinvestmentbanksmakingrecommendationstoshareholdersinrespectoftransactions.Thereisalsotheriskthattheymightbeconstruedasvaluations,whichcangiveindependenceproblemsforaccountants.

4. Wording that might suggest that the grant-paying body is able to rely on the statutory audit of the grant recipient

Accountantsavoidanypossibilityofalinkbecomingestablishedbetweenthespecialreportandthestatutoryauditreport.Forexample,theyavoidphrasessuchas‘we audited the accounts and we…’or‘during our audit we …’.

5. Opinions that are open-ended or otherwise cannot be supported by the work carried out by the accountants

Accountantsavoidphrasesthatareopen-endedunlessthescopeoftheworkisclearbyreferencetotheengagementletterorrelevantstandardsorguidance,forexamplephrasessuchas‘we obtained all the explanations we considered necessary’or‘we have performed such procedures as we considered necessary’arenotacceptable.Accountantsdonotgiveopinionsthatarenotsupportedbytheworkcarriedout,suchasassertionsaboutcompletenessthatcannotbesupportedbyalimitedamountofworkthathasbeenperformed.Accountantscoulduse,‘we have performed the tests laid out in the schedule/work programme which is attached to the engagement letter’.Thesewordswouldlinkthereportbacktothescopeofwork.Otherexamplesofinappropriatereportingincludeprovidingpositiveopinionsonsolvencyorprospectiveinformationwhichisinherentlyuncertain.Inthesameway,itisimpossibleforaccountantstobeablepositivelytostatewhetherreceiptofagranthascreatedorsafeguardedaparticularnumberofjobs.Inaddition,apositiveopiniononwhetherornotthegrantrecipienthasactuallyobtained‘value for money’canneverbegivenasVFMisanintangibleconcept.However,itisreasonabletodeterminewhetheraclienthassoughtVFMbyreferencetospecificcriteria.Areportcanonlygiveassuranceonthebasisoftheinformationavailableatthetimethatitisprovided.

6. Opinions which accountants do not have the necessary competence to provide

Accountantsavoidopinionsthatarenotwithintheirprofessionalcompetence,suchasanopinionofanactuarialnatureorapropertyvaluation,wheretherehasbeennoinputfromarelevantexpert.Anotherexampleofthiswouldbetheappropriatenessofinsurancecover.

APPENDIXD


7. Opinions on matters beyond the accountants’ knowledge and experience

Accountantsavoidgivinganyopinionabouthow‘appropriate’operationalinformationorrecordsbeingheldormaintainedbythegrantrecipientare,wheretheinformationorrecordsrelatetomattersconcerningthespecificoperationalcircumstancesofthegrantrecipientwhicharebeyondthescopeoftheaccountants’professionalknowledgeandexperience.

8. Wording that is open to interpretation

Certainwordsorphrasesmightbeopentointerpretationandtheseareonlyappropriatetouseinclearlydefinedcircumstanceswherethemeaningiswellestablishedandunderstood.Theword‘review’isbestavoidedasitcanbeunclearwhathasbeenreviewedandtheextentofthework.InadditionifthetermisuseditmaybemisinterpretedthatInternationalStandardsonReviewEngagementsasissuedbytheIAASBorInternationalStandardsonReviewEngagements(ISRE)(UKandIreland)2410,Review of Interim Financial Information Performed by the Independent Auditor of the Entityhasbeenappliedwheninfact,thisisnotthecase.

Wordstoavoidcanalsoincludeaccountingterms,suchas‘net current assets’insectorswherespecificadjustingitemsmightberecognisedwhenassessingliquidity.Accountantsalwaysdefinetermsifthemeaningmightbeunclearanddonototherwiseusesuchterms.Theword‘material’isavoidedunlessthiscanbereferencedtoacleardefinition.

9. Reports on internal controls

Reportsoninternalcontrolsareonlypossibleinwell-definedandwell-establishedcircumstances,wherethereportingarrangementshavebeenagreedinaclearmanner.Reportsonsystemsandcontrolsareavoidedwherethereareinadequatecriteriaspecified.Reportsincludeanindicationofthelimitationsofasystemandarerelatedtoapointintimeorperiod.

GeneralguidanceisgivenintheAPBBriefingPaperProviding assurance on the effectiveness of internal controlspecificallyinrelationtocertainentitiesinbothAAF01/06,Assurance reports on internal controls of service organisations made available to third partiesandITF01/07,Assurance reports on the outsourced provision of information services and information processing services.Itisalsousefultoclarifyinwritingtheresponsibilitiesofmanagementandinparticular,toindicatethattheyareresponsibleforidentifying,evaluatingandmanagingnewandchangingrisksonanongoingbasis.

10. Reports without addressees

Accountantsdonotprovidereportswhenitisuncleartowhomthereportisbeingprovided.

11. Reports on financial information which is not explicitly approved by the grant recipient

Thegrantrecipienthasresponsibilityforthefinancialinformationbeingprovidedanditis,therefore,notappropriatefortheaccountantstoreportonfinancialinformationunlessitisclearthatthishasfirstbeenapprovedbythegrantrecipient.

12. Qualifications in the covering letter only

Accountantsprovidequalificationsintheircoveringletteronlywhenapre-printedreport(withwordingthatisacceptable)isrequested.Inthiscase,aclearreferencetothereportandqualificationisincludedinthecoveringletterandthepre-printedreportshouldbeannotatedinsomewaysothatitisclearthatitshouldnotbereadinisolationfromthecoveringletter.Otherwise,suchqualificationsareincludedinthemainbodyofthereport,sothattheycannotbedetached.Henceaccountantsshouldincludeanyreservationsabouttheclaimorqualificationsontheclaiminthemainbodyofthereport.Inasimilarvein,allexplanationsofrespectiveresponsibilitiesofthegrantrecipient,grant-givingbodyandreportingaccountantsorlimitsbeingplacedoncirculationofthereportordisclaimingofliabilitybythereportingaccountantshouldbeincludedinthemainbodyofthereport.Coveringlettersshouldnormallybeusedtoexplaintotherecipientsoftheletterthatareportisbeingenclosed.

13. Opinions which would impair the auditors’ independence

Accountantsdonotprovideopinionsthatwouldimpairtheirindependenceasauditors.Forexample,wherethegrantrecipientisanSECregistrant,certainformsofvaluationopinionarenotpermittedfromauditors.


EXAMPLEOFAMODELTRIPARTITEENGAGEMENTLETTER

When a sponsoring body is to be bound into the engagement process, then all references to thegrant-paying body should also include references to the sponsoring body.

Government Grant Claim/ returns – the model tripartite agreement Addresseedetails:(i) The[grant-payingbody](ii) Grantrecipient

DearSirsGovernmentgrantreports/confirmationsWearewritingtoconfirmthetermsandconditionsonwhichyouhaveengaged[nameoffirm]toprovidereports/confirmationsinconnectionwith[descriptionornameofgrant]paidby[grant-payingbody]to[grantrecipient].Thesetermsandconditionswillapplytothereports/confirmationstobesuppliedfortheperiod[ended/ending…]andforsubsequentperiodsunlessotherwiseagreedinwriting.Wewillwriteseparatelytothegrantrecipientregardingpracticalmatterssuchasthetimingofourwork,staffingandourcharges.Ourinvoicewillbeaddressedto[grantrecipient],whowillbesolelyresponsibleforpaymentinfull.

Scope of our workWewillcompletetherelevantworkspecifiedbelowontheschedule(asdefinedintheofferletter).Thescheduleistobepreparedby,andisthesoleresponsibilityof[grantrecipient].Ourworkwillcomprisethefollowing:

[Setoutheredetailsofplannedworkrelevanttothenatureoftheclaimorgrant,typeofengagementandformandcontentofreportrequired]

[Havingsetoutthescopeabove,selectoneofthefollowing]

[Reasonable assurance]Onthebasisofourwork,wewillreportwhether,inouropinion,[theschedule]hasbeenprepared,inallmaterialrespects,inaccordancewith[theframework19].

[Limited assurance]Onthebasisofourwork,wewillreportthatnothinghascometoourattentionthatcausesustobelievethat[theschedule]hasnotbeenpreparedinallmaterialrespectsinaccordancewith[theframework/engagementletter].

[Agreed-upon procedures]WewillperformthespecifiedproceduressetoutinAppendix[X]andthisengagementletter.Uponcompletionandonthebasisofthoseprocedures,wewillprovideyouwithareportwiththeresultsofourfindings.Youhavebothagreedthatthescopeofourwork,asspecifiedabove,issufficientforyourpurposes.[Preparationofanydocumentthat[grantrecipient]mayberequiredtosubmitto[grant-payingbody]inconnectionwithourworkwillbetheresponsibilityof[grantrecipient]’sdirectors20,whowillalsoberesponsibleforensuringthat[grantrecipient]maintainsadequateaccountingrecordsandsuchotherrecordsasmayberequiredby[grant-payingbody].[Grantrecipient]’sdirectorswill,onrequest,supplyuswithconfirmationofmattersaffectingourworkwhicharedependentonthedirectors’judgement.]

Saveassetoutabove,wewillnotseektoestablishtheaccuracy,completenessorreliabilityofanyoftheinformationordocumentationmadeavailabletous.Ourworkwillnotamounttoanauditoffinancialstatementsandwillnotgivethesamelevelofassuranceasanaudit.

Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportsonthefinancialstatementsaremadesolelyto[grantrecipient]’smembers,asabody,inaccordancewith

APPENDIXE

19TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant- payingbody.

20Allreferencestodirectorsinthismodelmeaneitherdirectors,partners,proprietors,boardmembers,trustees,companysecretary,orotherauthorisedsignatory,asappropriate.


Chapter3ofPart16oftheCompaniesAct2006.Ourauditworkisundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Ourauditsof[grantrecipient]’sfinancialstatementsarenotplannedorconductedtoaddressorreflectmattersinwhichanyoneotherthansuchmembersasabodymaybeinterestedforsuchpurpose.21Inthesecircumstances,tothefullestextentpermittedbylaw,wedonotacceptorassumeanyresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformedinrespectofthoseaudits.

Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grant-payingbody]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.

Havingcarriedoutourworkwewillissuereports/confirmationsaddressedto[grantrecipient]and[grant-payingbody]intheformsetoutintheappendixtothisengagementletter,ifourfindingssupportthis.Indeterminingtheformofourreportwewilltakeintoaccount,(thoughwithoutbeingboundbyit)anyformofreportingthatthe[grant-payingbody]hassuggestedoragreedwiththeICAEWfollowingconsultationwiththem.Wewilldelivercopiesto[grantrecipient]atthesametime.Thisletterwillbeidentifiedinourreports/confirmationsasthe‘tripartiteagreement’underwhichourreports/confirmationshavebeenissued.Theaccountant’sreportsmustnotberecitedorreferredtoinwholeorinpartinanyotherdocument(including,withoutlimitation,anypublicationissuedbythe[grant-payingbody])withoutthepriorwrittenapprovaloftheaccountantexceptwherethereisalegalorstatutoryrightofaccess.Ifweneedtoqualifyouropinion,wewillissueaqualifiedreportbutwillcontinuetousetheagreedformofreportforallaspectsthatarenotqualified.

Other mattersOurdutiesandliabilitiesinconnectionwiththisengagementowedto[grantrecipient]andto[grant-payingbody]willdiffer.

[Detailanyexclusionsandlimitationsonthefirm’sliabilitytoboththegrant-payingbodyandthegrantrecipientandanyrelevantqualificationsrequiredtosatisfystatutoryreasonablenesscriteria.ConsidertheguidanceintheICAEW’stechnicalreleaseAAF01/10,Framework document for accountants’ reports on grant claims.

Ourdutyto[grant-payingbody]willbelimitedtodeliveryofreports/confirmationsintheagreedformtofacilitatethedischargeofitsstatutoryobligations.Deliveryofsuchreports/confirmations(orthesupplyofconfirmationthatweareunabletodosointheagreedform)atanytimewilldischargethatobligationinfull.Wewillnotowe[grant-payingbody]anyotherduty,incontract,negligenceorotherwise,inconnectionwithourreports/confirmationsortheirpreparation.

Thisagreementshallbesubjecttoandgovernedby[therelevantcountryandlegalsystem]andalldisputesarisingfrom,orunder,itshallbesubjecttotheexclusivejurisdictionofthe[relevant]courts.

[Detailorappendanyothertermsandconditionstoapplytothiswork.]

Pleaseconfirm,bysigningbelow,youragreementtothisletter.Onceyouhavedoneso,thisletterwillformatripartitecontractbetweenusinrespectofthematterscovered.Ifyouwishtodiscussanyaspectsofthisletter,pleasecontact[nameandtelephonenumber].

Yoursfaithfully

[Nameofaccountant]

[Grantrecipient]

[Grant-payingbody]



EXAMPLEOFSTANDARDISEDTERMSOFENGAGEMENT

(Agreed as part of the grant conditions instead of a tripartite engagement.)

Whereasponsoringbodyistobeboundintotheengagementprocess,thenallreferencestothegrant-payingbodyshouldalsoincludereferencestothesponsoringbody.Example:‘Inthesepre-agreedtermsofengagement,referencestothe[grant-payingbody]shallbereadasincorporatingreferencesto[sponsoringbody].’

Thefollowingarethepre-agreedtermsofengagementonwhichthe[grant-payingbody]engagesaccountantstoperform[areasonableorlimitedassuranceoragreed-uponprocedures]engagementandreportinconnectionwiththe[nameofgrantclaim].

The[grant-payingbody]acceptsthatanagreementbetween[grantrecipient],itsreportingaccountantsandthe[grant-payingbody]onthesetermsisformedwhentheaccountantssignandsubmittothe[grant-payingbody]areportassetoutinClause3herein.[NB: The [grant-paying body] will not need to sign anything. By publishing this document the [grant-paying body] confirms that these pre-agreed terms form its agreement with [grant recipient] and the reporting accountants. Once the accountants’ report is submitted to the [grant-paying body] in accordance with these terms the [grant-paying body] will accept that an agreement is formed. If the terms of the standardised engagement letter are to be revised, the [grant-paying body] will need to confirm its acceptance of the new terms before an agreement is formed.]

Inthesetermsofengagement:

‘[grant-payingbody]’referstothebodythatisprovidingthegrantfunding;

‘[grantrecipient]’referstotheorganisationthatisrequiredtosubmitthereporttothe[grant-payingbody];

and

‘theaccountant’referstothe[grantrecipient]’sreportingaccountants.

1. Introduction

The[grantrecipient]isrequiredtosubmittothe[grant-payingbody]reportsassetoutinClause3belowthatarealsosignedbyanaccountanttoprovideindependentassurance.Thesetermsofengagementsetoutthebasisonwhichtheaccountantwillsignthereport.

2. The [grant recipient]’s responsibilities

2.1 The[grantrecipient]isresponsibleforproducingthe[information],maintainingproperrecordscomplyingwiththetermsofanylegislationorregulatoryrequirementsandthe[grant-payingbody]’stermsandconditionsofgrant(‘thegrantconditions’)andprovidingrelevantinformationtothe[grant-payingbody]onabasisinaccordancewiththerequirementsofthegrantconditions.The[grantrecipient]isresponsibleforensuringthatthenon-financialrecordscanbereconciledtothefinancialrecords.

2.2 Themanagementofthe[grantrecipient]willmakeavailabletotheaccountantallrecords,correspondence,informationandexplanationsthattheaccountantconsidersnecessarytoenabletheaccountanttoperformtheaccountant’swork.

2.3 The[grantrecipient]andthe[grant-payingbody]acceptthattheabilityoftheaccountanttoperformitsworkeffectivelydependsuponthegrantrecipientprovidingfullandfreeaccesstothefinancialandotherrecordsandthe[grantrecipient]shallprocurethatanysuchrecordsheldbyathirdpartyaremadeavailabletotheaccountant.

2.4 Theaccountantacceptsthat,whetherornotthe[grantrecipient]meetsitsobligations,theaccountantremainsunderanobligationtothe[grant-payingbody]toperformitsworkwithreasonablecare.Thefailurebythe[grantrecipient]tomeetitsobligationsmaycausetheaccountanttoqualifyitsreportorbeunabletoprovideareport.

APPENDIXF


3. Scope of the accountant’s work

3.1 The[grantrecipient]willprovidetheaccountantwithsuchinformation,explanationsanddocumentationthattheaccountantconsidersnecessarytocarryoutitsresponsibilities.Theaccountantwillseekwrittenrepresentationsfrommanagementinrelationtomattersforwhichindependentcorroborationisnotavailable.Theaccountantwillalsoseekconfirmationthatanysignificantmattersofwhichtheaccountantshouldbeawarehavebeenbroughttotheaccountant’sattention.

3.2 Theaccountantwillperformthefollowingworkinrelationtoreportsrequiredbythe[grant-payingbody]:

3.2.1 Grantreturn:Theaccountantwill[carryoutareasonable/limitedlevelofassuranceassignmentorperformagreedprocedures(tests)][assetoutinthetermsandconditionsofthegrant]andsubjecttoanyadversefindingswillproduceareportintheformsetoutinAppendixX(theseshouldbeinlinewiththeICAEW’stechnicalreleaseAAF01/10,Framework document for accountants’ reports on grant claims).

3.2.2 Wherea[reasonable/limited]levelofassuranceisrequiredbythe[grant-payingbody],thecriteriaisidentifiedaspertheAppendixtothisletter.

3.2.3 Foranagreeduponproceduresengagement,thetestsarelaidoutintheAppendixtothisletter.

3.3 Theaccountantwillnotsubjecttheinformationprovidedbythe[grantrecipient]tocheckingorverificationexcepttotheextentexpresslystated.Whiletheaccountantwillperformtheaccountant’sworkwithreasonableskillandcare,theaccountant’sworkshouldnotbereliedupontodiscloseallmisstatements,fraudorerrorsthatmightexist.

4. Form of the accountant’s report

4.1 Theaccountant’sreportsarepreparedonthefollowingbases:

4.1.1 theaccountant’sreportsarepreparedsolelyfortheconfidentialuseofthe[grantrecipient]andthe[grant-payingbody]andsolelyforthepurposeofsubmissiontothe[grant-payingbody]inconnectionwiththe[grant-payingbody]’srequirementsinconnectionwith[nameofgrant].Theymaynotberelieduponbythe[grantrecipient],orthe[grant-payingbody]foranyotherpurpose;

4.1.2 withoutimposingontheaccountantandwithouttheaccountantassuming(orbeingperceivedasassuming)anydutyorresponsibilityandwithoutimposingoracceptinganyliabilitytoanyoneexceptthe[grantrecipient]andthe[grant-payingbody],the[grant-payingbody]maydisclosethereportstootherswhodemonstratestatutoryrightsofaccesstothereport;

4.1.3 neitherthe[grantrecipient],the[grant-payingbody][orothers]mayrelyonanyoralordraftreportstheaccountantprovides.Theaccountantacceptsresponsibilitytothe[grantrecipient],the[grant-payingbody]fortheaccountant’sfinalsignedreportsonly;

4.1.4 thereportwillbepreparedsolelyfortheconfidentialuseof[grantrecipient][andgrant-payingbody],andsolelyforthepurposeoffacilitatingthegrantclaim.Thereportwillbereleasedto[grantrecipient][andgrant-payingbody]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsent,exceptwherethereisalegalorstatutoryrightofaccess.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthereporttoanypartyotherthan[grantrecipient][andgrant-payingbody],weacknowledgethat[grantrecipient][andgrant-payingbody](oroneofthem)mayberequiredtodisclosethisreporttopartiesdemonstratingastatutoryrighttoseeit,toenablesuchpartiestoexercisetheirstatutoryrightsofaccesstothisreport;

4.1.5 tothefullestextentpermittedbylaw,exceptforthe[grantrecipient]andthe[grant-payingbody],thefirmofaccountants,itspartnersandstaffneitherowenoracceptanydutytoanyperson(including,withoutlimitation,anypersonwhomayuseorrefertoanyofthe[grant-payingbody]’spublications)andshallnotbeliableforanyloss,damageorexpenseofwhatsoevernaturewhichiscausedbyanyperson’srelianceonrepresentationsintheaccountant’sreports.


5. Liability provisions

5.1 Theaccountantwillperformtheengagementwithreasonableskillandcareandacceptsresponsibilitytothe[grantrecipient],the[grant-payingbody]forlosses,damages,costsorexpenses(‘losses’)causedbyitsbreachofcontract,negligenceorwilfuldefault,subjecttothefollowingprovisions:

5.1.1 Theaccountantwillnotberesponsibleorliableifsuchlossesareduetotheprovisionoffalse,misleadingorincompleteinformationordocumentationorduetotheactsoromissionsofanypersonotherthantheaccountant,exceptwhere,onthebasisoftheenquiriesnormallyundertakenbyaccountantswithinthescopesetoutinthesetermsofengagement,itwouldhavebeenreasonablefortheaccountanttodiscoversuchdefects.

5.1.2 Theaccountantacceptsliabilitywithoutlimitfortheconsequencesofitsownfraudandforanyotherliabilitywhichitisnotpermittedbylawtolimitorexclude.

5.1.3 Subjecttothepreviousparagraph(5.1.2),thetotalaggregateliabilityoftheaccountantwhetherincontract,tort(includingnegligence)orotherwise,tothe[grantrecipient]andthe[grant-payingbody],arisingfromorinconnectionwiththeworkwhichisthesubjectoftheseterms(includinganyadditionorvariationtothework),shallnotexceedtheamountof[to be discussed and negotiated].

5.2 The[grantrecipient]andthe[grant-payingbody]agreethattheywillnotbringanyclaimsorproceedingsagainstanyindividualpartners,members,directorsoremployeesoftheaccountant.Thisclauseisintendedtobenefitsuchpartners,members,directorsandemployeeswhomayenforcethisclausepursuanttotheContracts(RightsofThirdParties)Act1999(‘theAct’).NotwithstandinganybenefitsorrightsconferredbythisagreementonanythirdpartybyvirtueoftheAct,thepartiestothisagreementmayagreetovaryorrescindthisagreementwithoutanythirdparty’sconsent.Otherthanasexpresslyprovidedintheseterms,theActisexcluded.

5.3 Anyclaims,whetherincontract,negligenceorotherwise,mustbeformallycommencedwithin[insertnumber–eg4][years]afterthepartybringingtheclaimbecomesaware(oroughtreasonablytohavebecomeaware)ofthefactswhichgiverisetotheactionandinanyeventnolaterthan[insertnumber–eg6][years]afterrelevantreportwasissued(or,ifnoreportwasissued,whentheaccountantacceptedtheengagementinwriting).Thisexpresslyoverridesanystatutoryprovisionwhichwouldotherwiseapply.

5.4 Thisengagementisseparatefromandunrelatedtotheaccountant’sauditworkonthefinancialstatementsofthe[grantrecipient]forthepurposesofanyapplicablestatutoryorregulatoryorotherauditingframeworkandnothinghereincreatesobligationsorliabilitiesregardingtheaccountant’sauditwork,whichwouldnototherwiseexist.


6. Fees

Theaccountant’sfees,togetherwithVATandout-of-pocketexpenses,willbeagreedwithandbilledtothe[grantrecipient].The[grant-payingbody]isnotliabletopaytheaccountant’sfees.

7. Quality of service

Theaccountantwillinvestigateallcomplaints.The[grant-payingbody]orthe[grantrecipient]havetherighttotakeanycomplainttotheICAEW.The[grant-payingbody]orthe[grantrecipient]mayobtainanexplanationofthemechanismsthatoperateinrespectofacomplainttotheICAEWatwww.icaew.co.uk/complaintsorbywritingtotheICAEWattheICAEWProfessionalStandardsOffice,MetropolitanHouse,321AveburyBoulevard,MiltonKeynesMK92FZUK.

8. Providing services to other parties

Theaccountantwillnotbepreventedorrestrictedbyvirtueoftheaccountant’srelationshipwiththe[grantrecipient]andthe[grant-payingbody],includinganythinginthesetermsofengagement,fromprovidingservicestootherclients.Theaccountant’sstandardinternalproceduresaredesignedtoensurethatconfidentialinformationcommunicatedtotheaccountantduringthecourseofanassignmentwillbemaintainedconfidentially.

9. Applicable law and jurisdiction

9.1 Thisagreementshallbegovernedby,andinterpretedandconstruedinaccordancewith,[relevantcountry]law.

9.2 The[grantrecipient],the[grant-payingbody]andtheaccountantirrevocablyagreethatthecourtsof[relevantcountry]shallhaveexclusivejurisdictiontosettleanydispute(includingclaimsforset-offandcounterclaims)whichmayariseonanybasisinconnectionwiththevalidity,effect,interpretationorperformanceof,orthelegalrelationshipestablishedbythisagreementorotherwisearisinginconnectionwiththisagreement.

10. Alteration to terms

Alladditions,amendmentsandvariationstothesetermsofengagementshallbebindingonlyifinwritingandsignedbythedulyauthorisedrepresentativesoftheparties.Thesetermssupersedeanypreviousagreementsandrepresentations(unlessbasedonfraud)betweenthepartiesinrespectofthescopeoftheaccountant’sworkandtheaccountant’sreportortheobligationsofanyofthepartiesrelatingthereto(whetheroralorwritten)andrepresentstheentireagreementandunderstandingbetweentheparties.Thesetermsdonotaffectanyseparateagreementinwritingbetweenthe[grantrecipient]andtheaccountant.


EXAMPLEOFCLARIFICATIONLANGUAGEFORANACCOUNTANTS’REPORT

Where the grant-paying body signs the engagement letter or the pre-agreed terms published by the grant-paying body apply.

Ourreportispreparedsolelyfortheconfidentialuseof[insertnameofgrantrecipient][andinsertnameofgrant-payingbody],andsolelyforthepurposeoffacilitatingthegrantclaim.Thisreportisreleasedto[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsentexceptwherethereisastatutoryrightofaccess.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthisreporttoanypartyotherthan[insertnameofgrantrecipient][andinsertnameofgrant-payingbody],weacknowledgethat[insertnameofgrantrecipient][andinsertnameofgrant-payingbody](oroneofthem)mayberequiredtodisclosethisreporttopartiesdemonstratingastatutoryrighttoseeit,toenablesuchpartiestoexercisestatutoryrightsofaccesstothisreport.

Thisreportisdesignedtomeettheagreedrequirementsof[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]andparticularfeaturesofourengagementdeterminedbytheirneedsatthetime.Thisreportshouldnotthereforeberegardedassuitabletobeusedorreliedonbyanyotherpartywishingtoacquireanyrightsagainst[nameofaccountant]foranypurposeorinanycontext.Anypartyotherthan[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]whichobtainsaccesstothisreportoracopyandchoosestorelyonthisreport(oranypartofit)willdosoatitsownrisk.Tothefullestextentpermittedbylaw,[nameofaccountant]willacceptnoresponsibilityorliabilityinrespectofthisreporttoanyotherpartyandshallnotbeliableforanyloss,damageorexpenseofwhatsoevernaturewhichiscausedbyanyperson’srelianceonrepresentationsinthisreport.

[Freedom of Information Act wording – optional] If [insert name of grant-paying body] receives a request for disclosure of this report under the Freedom of Information Act 2000, [insert name of grant-paying body] is asked to consult with [insert name of accountants] and not to make any disclosure in response to any such request without taking into consideration any representations that [insert name of accountants] might make.

Where the grant-paying body does not sign the engagement letter and the pre-agreed terms published by the grant-paying body do not apply.

Ourreportispreparedsolelyfortheconfidentialuseof[insertnameofgrantrecipient]andsolelyforthepurposeoffacilitatingthegrantclaim.Thisreportisreleasedto[insertnameofgrantrecipient]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsent.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthisreporttoanypartyotherthan[insertnameofgrantrecipient],weacknowledgethat[insertnameofgrantrecipient]mayberequiredtodisclosethisreportto[insertnameofgrant-payingbody]orotherpartiesdemonstratingastatutoryrighttoseeit,toenable[insertnameofgrant-payingbody]andsuchotherpartiestoexercisestatutoryrightsofaccesstothisreport.

Thisreportisdesignedtomeettheagreedrequirementsof[insertnameofgrantrecipient]andparticularfeaturesofourengagementdeterminedby[insertnameofgrantrecipient]’sneedsatthetime.Thisreportshouldnotthereforeberegardedassuitabletobeusedorreliedonbyanyotherpartywishingtoacquireanyrightsagainst[nameofaccountant]foranypurposeorinanycontext.Anypartyotherthan[insertnameofgrantrecipient]whichobtainsaccesstothisreportoracopyandchoosestorelyonthisreport(oranypartofit)willdosoatitsownrisk.Tothefullestextentpermittedbylaw,[nameofaccountant]willacceptnoresponsibilityorliabilityinrespectofthisreporttoanyotherparty.

APPENDIXG


LIABILITYCAPSANDPROPORTIONALITYCLAUSE

Example of a liability cap for the accountants’ reporting engagement, where a duty is accepted to the grant recipient and to the grant payer.22

Tothefullestextentpermittedbylaw,thetotalaggregateliability,whetherto[insertnameofgrantrecipient]orto[insertnameofgrant-payingbody]orboth,arisingonanybasis,whetherincontract,tort(includingnegligence)orotherwise,of[insertnameofaccountants]foranylosseswhatsoeverandhowsoevercausedarisingfromorinanywayconnectedwiththisengagementshallnotexceed[insertamount](includinginterest).

Wherethereismorethanonepartytowhom[theaccountant]acceptsresponsibility,thelimitoftheliabilityspecifiedwillhavetobeallocatedbetweenthoseparties.Suchallocationwillbeentirelyamatterforthoseparties,andtheywillbeundernoobligationtoinform[nameofaccountants]ofit;if(forwhateverreason)nosuchallocationisagreed,thepartieswillnotdisputethevalidity,enforceabilityoroperationofthelimitofliabilityonthegroundsthatnosuchallocationwasagreedorthatanysuchallocationisofanunreasonablylowsum.

Possible words for a proportionality clause:

Subjecttothelimitationon[theaccountant]’sliability,which(withthisparagraph)shallhavenoapplicationtoanyliabilitywhichcannotlawfullybeexcludedorlimited,[theaccountant]’sliabilityshallinaggregatebelimitedtothatproportionofthetotallossordamage,aftertakingintoaccountcontributorynegligence(ifany),whichisjustandequitablehavingregardtotheextentoftheresponsibilityof[theaccountant]forthelossordamageconcerned,andtheextentofresponsibilityofanyotherpersonalsoresponsibleorpotentiallyresponsible(‘otherperson’).Inordertocalculatetheproportionateshareof[theaccountant]’sliability,noaccountshallbetakenofanymatteraffectingthepossibilityofrecoveringcompensationfromanyotherperson,includingtheotherpersonhavingceasedtoexist,havingceasedtobeliable,havinganagreedlimitonitsliabilityorbeingimpecuniousorforotherreasonsunabletopay,andfullaccountshallbetakenoftheresponsibilitytobeattributedtoanyotherpersonwhetherornotitisbeforethecompetentcourtasapartytotheproceedingsorasawitness.

APPENDIXH

22Thisisanexampleofaliabilitycaponly,whichwillbeoneofanumberofprovisionsrelatingtotheaccountants’liabilityandanylimitationsthereon.Forexample,theliability provisionswillneedtomakeitclearthattheaccountantsarenotseekingtoexcludethoseliabilities(suchasliabilityfortheirownfraud)whichcannotbeexcludedbylaw.

Terms Meaning


GLOSSARYOFTERMS

Accountants Thetermaccountants,referstoanindividualaccountant,firmofaccountants,partner,director,orengagementleaderwhoareresponsibleforthereportingengagement.Theaccountantsprovidetherequestedreportsseparatelyfromtheauditoftheannualfinancialstatementsoftheclient.Thetermaccountantsisthereforealsousedtodifferentiatefromauditorswhoaudittheannualfinancialstatements.

Additionality Theextrathingsthathappenasaresultofthegrant,suchasneworexpandedservices,morebeneficiariesparticipating,improvedaccesstowidentake-up.DemonstratingadditionalityisgenerallyamandatoryrequirementforprojectsreceivingEuropeanfunding.

Audit Anauditisusuallycarriedoutonanorganisation’sfinancialstatementsinaccordancewithstatutoryobligations.Anauditwillbesubjecttoaseparateengagement.Theauditreportwillbeprovidedseparatelyfromtheaccountants’reportongrantclaimsandreturns.Thetermauditorsisthereforeusedtodifferentiatefromaccountantswhowillprovideotherreportsonthesegrantsclaimsandreturns.

Auditagencies PublicsectorauditsintheUKaresubjecttoavarietyofauditandrelatedassuranceregimes.Thisworkiscarriedoutbyfivenational‘auditagencies’,whichare• NationalAuditOffice• AuditCommission• AuditScotland• WalesAuditOffice• NorthernIrelandOffice.Auditandassuranceworkisalsocarriedoutbyprivatesectorfirmscommissionedorengagedbytheauditagencies.

Clients Thegrantrecipients.Theorganisationsthatarereceivingthemoney.

CommitteeofPublicAccounts(PAC)

TheCommitteeofPublicAccountsisaSelectCommitteeoftheHouseofCommons.Historically,theprimarypurposeofthePAC’senquirieswastosatisfyitselfontheaccountingforandregularityandproprietyofpublicexpenditure.ThePACretainsitsinterestinthesematters,butitalsoexploresmattersrelatedtoeconomy,efficiencyandeffectivenessofgovernmentbusiness.

Contributionsinkind

Non-cashcontributionstoaprojectsuchasequipment,facilities,resourcesorvolunteertime.

Devolvedadministrations

PublicsectorbodieswhichsupporttheelectedgovernmentsinScotland,WalesandNorthernIreland.

Engagementletter

Thesearethetermsoftheaccountantsengagement(withtherecipient,andsometimesthegrant-payingbody).Thisenablesallthreepartiestoclarifyexpectations,thescopeoftheauditor’sworkandtheagreedformoftheaccountant’sconclusionandreport.Ifagrant-payingbodyawardsmanysimilargrants,itmayissuea‘standardengagementletter’.

Grant Theterm‘grant’coversawiderangeofpaymentsbygovernmentbodiesforvariouspurposes.Inthisguidance,referencetograntmoniesisinrelationtopaymentsmadebythegrant-payingbodytoanorganisationwherethegrantistobeusedforaspecificpurposeandthegrant-payingbodyseekstoimposespecificcontrolsovertheexpenditure.

Grantinaid Grantinaidiswhenagovernmentdepartmentorothersponsoringbodyfinancesallorpartofthecostsofanorganisationbutthebodyoperatesatarm’slengthandthesponsoringbodydoesnotseektoimposedetailedcontrolsovertheexpenditure.

Grant-payingbodies

Thesearethebodiesthatareprovidingthefundingdirectlytograntrecipients.

Grantrecipients Theseorganisationsreceivethefundingfromthegrant-payingbodies.

Terms Meaning


Matchfunding Matchfunding,(ormatchedfundingorpartnershipfunding)arrangementsarewhenthegrantrecipientisrequiredtomakeacontributiontotheproject,eitherthroughfundingorasacontributioninkind.Manygrants,includingthosefromEuropeanStructuralFunds,willmeetonlypartofthefullprojectcost.Thismeansthattheremainingcostshavetobemetfromothersources,the‘matchfunds’,anditwilltherecipient’stasktosecurethese.Potentialsourcesofmatchfundsinclude:• othergovernmentprogrammesandgrants;• grantsfromlocalauthoritiesandotherstatutorybodies;• contributionsfromthevoluntarysector,includingdonationsfromcharitiesandtrusts;• contributionsfromtheprivatesector;and• loansfromvariousorganisations.Matchfundingcaninclude‘contributionsinkind’aswellascash–exampleswouldbetheuseoftherecipient’spaidstaffontheproject,volunteers,andaccommodation.

NDPB Non-DepartmentalPublicBody.Theyarebetterknownas‘quangos’.Thesearenotpartofgovernmentdepartmentsandarenotstaffedbycivilservants.Examplesincluderegionaldevelopmentagenciesandnationalparkauthorities.

Objective(ofthegrant)

Thegrant’sobjectiveswillbethesupportedactivitieswhichwilldeliverthechangesthegrantismeanttobringabout.Theobjectiveneedstobesetwhenthegrantisfirstdesignedanditshouldfitinwiththegrant-payingbody’sownstrategicobjectives.Thisthenenablestheapplicationformsandbidevaluationschemetobewritten.

Offerletter Letterfromthepayingbodytotherecipientwhichconfirmsthatthebidorapplicationforgrant(includinganydeliveryplan)isacceptableandthatfundingisawarded.Theofferlettergivesfulldetailsofthegrant,including:• thenameoftherecipient(andanywiderpartnershipbeingfunded);• theeligibleactivitiesapprovedforfunding;• typesofeligibleexpenditure(andanythingelsewhichisineligible);• themaximumamountofgranttowhichtherecipientwillbeentitled;• thenatureofthegrant(capital,revenue);• therateofgrantsupportandthemaximumeligibleprojectcost(ifgrantislessthan100%);• theperiodofthegrant,showingtheprojectstartandenddatesandthelastdateforclaims;• theoutputstobedelivered,showingmilestonesandthefinaltargets;• thetermsandconditionsandanyotherguidance;and• aclaimform(andanyout-turnstatement).Thelettershouldincludearequirementfortherecipienttoreturnaformalletterof‘acceptance’.‘Offerletters’canalsobereferredtoas‘fundingagreements’.

ThePanel ThePublicSectorSpecialReportsofAccountantsPanelsetupbytheAuditandAssuranceFacultyoftheICAEW.

Payment(ofgrant)

Paymentstoorganisationswillnormallybemadeonthebasisofclaimformssubmittedbythegrantrecipient.However,grantstoindividualsarenormallymadeinfulloncetheapplicationisacceptedbythegrant-payingbody(althoughthetermsandconditionswillsetoutcircumstancesinwhichallorpartofthegrantcanberecovered).Paymentofgrantisconditionaloncompliancewiththetermsandconditionsandonsatisfactoryprogressbeingmadeagainstmilestonestowardstheendobjectivesandtargets.

Propriety LinkedtoRegularity.ProprietyistheconceptthatpatternsofresourceconsumptionshouldrespectParliament’sintentions,conventionsandcontrolprocedures,includinganylaiddownbythePAC.Itisconcernedwithstandardsofconduct,behaviourandcorporategovernance.Itincludesmatterssuchasfairness,integrity,theavoidanceofpersonalprofitfrompublicbusiness,even-handednessintheappointmentofstaff,opencompetitioninthelettingofcontractsandtheavoidanceofwasteandextravagance.

Terms Meaning


Publicsector Forthepurposeofthisguidanceonly,thepublicsectorisdefinedas:• governmentdepartmentsandtheirexecutiveagencies;• theNationalAssemblyforWalesandtheirsponsoredbodies;• tradingfunds;• bodiesnotadministeredasgovernmentdepartmentsbutwhicharesubjecttoministerialand

departmentalcontrol,forexampleNDPBs;• localauthoritiesandotherlocalgovernmentbodies;and• NHSbodies.Thisdefinitiondoesnotincludepubliccorporations(exceptwheretheyareNDPBs)orthenationalisedindustries.ThefirstfourpartsofthedefinitionarecollectivelyreferredtoasCentralGovernment.Additionally,itappliestobodiesthatreceivegovernmentgrantsforspecificpurposesalthoughtheyarenotpublicsectorbodies:• charities;• highereducationinstitutions;and• furthereducationcolleges.

Regularity Linkedtopropriety,regularityistheconceptthatresourceconsumptionshouldaccordwiththerelevantlegislation,therelevantdelegatedauthorityandtherequirementssetdownbyHMTreasuryinManaging Public Money.

Retention(ofgrant)

Grant-payingbodiesmaychoosetoprotecttheirpositionbyholdingbackasmallproportionofthegrantwhichthegrantrecipientwouldotherwisebeentitledto.Theretentionisthenreleaseduponfinalcompletionoftheprojectifalliswelland,whereanaccountant’sreportisrequired,withthelikelihoodthattheremaininggrantwillonlybepaidifthereportisreceivedwithoutanyqualification.

Specialreports Inthecontextofthisguidance,thesearespecificreportsprovidedbyanaccountanttograntrecipientsand/orotherpartiesinrelationtoworkperformedongrantclaimsorreturns.Theworkcarriedoutunderthesespecialreportsisunderaseparatearrangement.

Sponsoringbodies

Thesearethebodiesthatprovidetheinitialallocationoffundingtoagrant-payingbodytodistributethefundstograntrecipients.

Statutoryarrangements

Somereportstopublicsectorbodiesareputinplacethroughrequirementsoflegislation.

Termsandconditions

Issuedwiththeofferletter(orcontainedwithinit),thesesetoutwhatthepayingbodyrequirestherecipienttodoinreturnforfunding.Thetermsandconditionsneedtobespecifictothegrantbeingawarded.

Unhypothecated Grantfundingprovidedforageneralpurposeandwithnospecificconditionsattached,suchas(i)annualRevenueSupportGrantfromcentraltolocalgovernment;or(ii)annualgrant-in-aidprovidedtoaNon-DepartmentalPublicBody.

Virement Atransferofthegrantofferfromoneactivity(orexpendituretype)toanother,givingthegrant-payingbodyandtherecipientflexibilitytodealwithoverandunderspends.Asvirementswillamendthefiguressetoutintheofferletter,theywillnormallybeagreedinwritingbybothpartiesthoughthetermsandconditionsmayallowsmallvirements(sayupto10%ofthegrantawarded)tobemadebytherecipient‘asofright’solongasthechangeisnotifiedtothegrant-payingbody.


Audit 01/01, Reporting to Third Parties,ICAEW,2001

Audit 03/03, Public Sector Special Reporting Engagements – Grant Claims,ICAEW,2003

AAF 04/06, Assurance Engagements: Management of Risk and Liability,ICAEW,2006

Code of Practice on Guidance on Regulation,BetterRegulationExecutive,DepartmentforBusiness,

InnovationsandSkills,October2009

Intelligent Monitoring,NationalAuditOffice,June2009

Managing Public Money,HMTreasury,2009

Managing Welsh Public Money,WelshAssemblyGovernment,2009

Principles of Proportionate Monitoring and Reporting,theOfficeoftheThirdSectoroftheCabinet

Office,June2009

The Compact,TheCompactPartnership,December2009

Turning the Tables in England,TheOfficeoftheThirdSectorandtheNewPhilanthropyCapital,

September2008

BIBLIOGRAPHY


TheAuditandAssuranceFacultyoftheICAEWwouldliketothankthefollowingmembersofthePublicSectorSpecialReportsofAccountantsPanelandStakeholderForumfortheirinvolvementintheworkofthefacultyandinparticularfortheirparticipationinmeetings,contributingtodiscussionsandreviewingvariousdraftsoftheframeworkdocument:

PUBLICSECTORSPECIALREPORTSOFACCOUNTANTSPANEL

JohnChastney(Chair) IndependentTimBridle AuditScotlandStevenCain CIPFABrianCollins AuditCommissionMelanieCrooks RSMBentleyJennison(nowRSMTenon)NickDavies WalesAuditOfficeAnne-MarieLavigne ChairofFEESubCommitteeonCertificationofGrantsPhilipLenton DeloitteLLPPaulineMcGee BDOLLPKellyRosevear PricewaterhouseCoopersLLPCarolSayce KPMGLLPNeilSayers NationalAuditOfficePaulSpinks GrantThorntonLLPMikeUsher WalesAuditOfficeDavidWard KPMGLLP

PUBLICSECTORSPECIALREPORTSSTAKEHOLDERFORUM

MikeUsher(Chair) WalesAuditOfficeAndrewBaigent NationalAuditOfficeAdrianByrne PricewaterhouseCoopersLLPJohnChastney IndependentRuthElliot DepartmentforWorkandPensionsKarenEverett BournemouthUniversitySueGamble HMTreasuryBrianGray EuropeanCommissionSuzannaOrr HomeOfficeGavinPaterson AuditCommissionNickPayne DepartmentforBusinessInnovationandSkillsNickSharman HighwaysAgencyPhilippeTaverne EuropeanCommissionDavidThomson DepartmentofFinanceandPersonnelNorthernIrelandKerryTwyman ScottishGovernmentJimWager DepartmentforCommunitiesandLocalGovernmentPhilWinrow EnvironmentAgency

ACKNOWLEDGEMENTS

TECPLN9033

ICAEW

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T+44(0)2079208493

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