FinDev Audit Report 2002
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M & J AUDIT COMPANY RESULTS OF AUDIT EXAMINATION OF KAU -501598-0002011 RESULTS OF AUDIT EXAMINATION OF KAU -501598-0002011 PROJECT FOR THE PERIODS OF JANUARY 01, 2002 – DECEMBER 31, 2002 and JANUARY 01, 2003 – JUNE 30, 2003 BAKU, AZERBAIJAN – 2003 CONTENT APPENDIXES A: THE MANAGEMENT LETTER BB:: FFIINNAANNCCIIAALL RREEPPOORRTT C: BALANCE SHEET D: FINAL REPORT D: FINAL REPORT E: FINAL AUDIT REPORT M & J AUDIT COMPANY Appendix A To: The Management of Novib, Holland From: M & J Audit Company, Azerbaijan Date: August 8, 2003 Subject: Audit examination of KAU-50 1598-0002011 project for the period of (1) January 01, 2002 – December 31, 2002 and (2) January 01, 2003 – June 30, 2003 The Management letter “M&J Accuracy Consulting LTD”, acting on the basis of Licence AT/029, dated October 19, 2001 of the Chamber of Auditors, carried out the auditing of grant projects of January 01 – December 31, 2002, “Future Financial Institution” Project of Oxfam GB International ...
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M & J AU DIT CO MP ANY R E SU L T S OF A U D I T E XAMINAT IO N OF KA U -5 01 59 8 -00020 1 1 PROJECT F OR TH E PERIODS O F JAN U ARY 0 1 , 2002 – DE CEMBER 3 1, 2 002 an d JA N U ARY 0 1, 2 0 03 – J UNE 30, 200 3
B A KU , A ZERBA I JAN – 200 3
AP P E N D IX E S A : B : C: D: E :
C O N TE N T
T H E MA N A GEME N T L ETT E R
F I N A N C I A L R E P O R T
B A L A NC E S H E ET
F I N A L R E P O R T
F I N A L A U D I T R E P O R T
M & J AUDIT COMPANY
Appendix A
To: The Management of Novib, Holland From: M & J Audit Company, Azerbaijan Date: August 8, 2003 Subject: Audit examination of KAU-50 1598-0002011 project for the period of (1) January 01, 2002 – December 31, 2002 and (2) January 01, 2003 – June 30, 2003 The Management letter “M&J Accuracy Consulting LTD”, acting on the basis of Licence AT/029, dated October 19, 2001 of the Chamber of Auditors, carried out the auditing of grant projects of January 01 – December 31, 2002, “Future Financial Institution” Project of Oxfam GB International Humanitarian Organization and the continuation of this project (meant for January 01 – June 30, 2003), and the subsidiary MF institution of OXFAM International Humanitarian Organization “Finance for Development” limited liability non banking credit institution, according to the Treaty terms AP 007058 dated August 4, 2003, from August 4, 2003 . The audit examination was held on the basis of a preliminary account and financial documents. The head of the organization is responsible for the correctness of documents presented to the audit examination. Our duty is to give an evaluation of the correctness of the financial accounts of the organization according to these documents. For the formation of a correct audit opinion, sufficient audit proof has been collected corresponding to International Audit Standards and requirements of proper legislative acts of the Azerbaijan Republic. During the examination, in order to give an objective opinion of the correctness of financial accounts, the discount principles presented to the organization and observation of the interior supervision were appreciated and accounts on all financial operations were analyzed. “Finance for Development” limited liability non banking credit organization was registered with Certificate 1067, on 23 September, 2002, in the Ministry of Justice of Azerbaijan Republic, and its regulation was confirmed. The organization founder is Oxfam GB International Humanitarian Organization, registered in the Charity Committee belonging to England and Wales.
“Finance for Development” is a non-profitable financial institution formed for the financing of people of low-wage, junior owners, IDPs and refugees, by alloting them micro loans. The financial source consisting of grants and donations was acquired legally and also incomes received from its micro-loan activity are necessary for the “Finance for Development” operation. The charter capital of “Finance for Development” forms 34,237,000 manats, of which 24,455,000 of it is in cash as a monetary contribution and 9,782,000 manats were deposited as in-kind contribution consisting of fixed assets. In order to conduct limited bank operation to “Finance for Development” in both local and foreign currency, a special agreement (licence) with the letter 02-10/110 was given by the National Bank of Azerbaijan Republic on April 11, 2003. The special agreement was registered with 133-GB on April 10, 2003, in the Central list of the National Bank. By the decision of the “Finance for Development” founders representative, Shovkat Alizade, on April 15, 2003, the “Finance for Development-Barda” branch was founded. On May 6, 2003, it was permitted with 133-GB/1 “to give Loans” to the Barda branch by the National Bank, Azerbaijan Republic. “Finance for Development” has IIN 140112276 going through registration in the Office of Taxes belonging to the Nasimi district on November 26, 2002. “Future Financial Institution” project was meant for January 01, 2000 – December 31, 2002 and was financed by “NOVIB , Holland, under the Management of Oxfam. The project was ” implemented directly by Azerbaijan Representation of Oxfam GB. This project was formed to help overcome poverty in the country, to increase business and work opportunities among IDPs, refugees and people of low wage, and for the purpose of facilitating the development of continual micro-enterprises. In order to carry out these goals, Oxfam GB founded the “Future Financial Institution” in Barda, 300 km south-west to Baku, in 2000. The audit examination of the Project for the period of January 01, 2001 – December 31, 2001was carried out by our Office in 2002.
After going through state registration in the Ministry of Justice, “Finance for Development” was not engaged in apportioning loans untill April, 2003, i.e. until receiving special agreement regarding granting loans. The activity was carried out within the project by Oxfam GB Azerbaijan Representative. On April 30, 2003 the project was handed over to “Finance for Development” by Oxfam GB. Taking into account the operation expenses, loan loss storages and other expenses, the monthly loan interest was 4%, the loan term being considered with monthly payments from 1 to 12 months. Until the beginning of the examination period, that is January 1, 2002, a grant rest remained amounting to 1,341.86 USA dollars. In order to carry out the project goals, according to the budget confirmed by “NOVIB”, a grant of the sum of 78,588 USA dollars was paid. In addition, a grant of 20,000 pounds for the AzB 416 B1 project and 20,355 pounds for the AzB 416 C1 project (the total sum 146,791.23 USA dollars for 2002) were allotted by Oxfam GB for the development of a loan portfolio. The allotment of the grant to the sum of 61,916 Euro was confirmed by “NOVIB” for the first six-month period of 2003. In fact, for the realization of the project goals, the grant totaling 146,791.23 USA dollars in 2002, and 59,959.69 USA dollars in the first six-month period was entered to “Finance for Development” by all donors for loan portfolio and operational costs. In addition, there was interest income from the credit to the sum of 82,773.96 USA dollars in 2002, and 62,800.26 USA dollars during the examination period in 2003. A part of the interest income was used for the covering of operational expenses, and the accumulated amount for the increasing loan portfolio. The book-keeping discount on the Project is held in local currency (manat) in accordance with the laws of Azerbaijan Republic. The operation in foreign currency was shown with the official market price of the National Bank until the operation day. Contracts were signed with people involved in the project, and a table discount was effected. However, according to the agreement
made between the physical person for the rent of the office building in Barda during the payment, not taking into account articles 124.1 and 124.2 of the Tax Code of Azerbaijan Republic, 10 % tax was not taken from the source. The presented financial accounts were audited with primary book-keeping documents, and no transfers appeared. It was defined by the audit examination that all expenses on “Future Financial Institution” are confirmed by primary book-keeping documents, and the spent means were used for the realization of the project goals between January 01, 2002 – December 31, 2002 and January 01, 2003 – June 30, 2003. We consider that the accounts prepared and presented by us are in accordance with generally accepted book-keeping discount principles and International Audit Standards
To: From: Date:
M & J AUDIT COMPANY
The Management Novib, Holland M & J Audit Company, Azerbaijan August 08, 2003
Appendix B
Subject : Audit examination of KAU -50 1598-0002011 project for the period of (1) January 01, 2002 – December 31, 2002 and (2) January 01, 2003 – June 30, 2003 Financial report Income & Expenses (in USD) January – December, 2002 January – June, 2003 Financial income 1. Interest income 82773,96 62800,26 Total financial income 82773,96 62800,26 Non financial income 1. Grants 146791,23 59959,69 2. Other non financial income 32,65 Total non financial income 146791,23 59992,35 Operational cots 1. Provision for loan losses 2439,36 6125,63 2. Salaries and benefits 44934,29 30360,26 3. Other administrative costs 13921,03 18624,02 Transportation 2029,12 2081,33 Office rental costs 1307,93 2108,06 Maintenance 177,35 468,39 Communications 2220,17 1431,24 Office supplies 1517,50 879,51 Depreciation 1242,18 1924,95 Other operational costs 5426,77 9730,54 Audit fee Total operational costs 61294,69 55109,91 Excess (deficit) of income over 168270,50 67682,69 expenses M & J AUDIT COMPANY Appendix C To: The Management Novib, Holland From: M & J Audit Company, Azerbaijan Date: August 08, 2003
January – June, 2003 18129.8 53602.06 306281.54 -6125.63 12728.32 384616.09 34573.93 950.62 35524.54 6962.66 313734.53
Subject : Audit examination of KAU -50 1598-0002011 project for the period of (1) January 01, 2002 – December 31, 2002 and (2) January 01, 2003 – June 30, 2003 Financial report Balance sheet (in USD) January – December, 2002 Assets 1. Cash 25106.85 2. Bank accounts 4998.74 3. Gross portfolio outstanding 243936.11 4. Loan loss reserve -2439.36 5. Net fixed assets 2843.52 Total assets 274445.86 Liabilities 1. Shot term loans: Subsidized 2. Other payables Total liabilities Equity 1. Share holder equity 2. Donated equity, previous 166943.30 years 3. Donated equity, current year 4. Excess(deficit) of income over expenses, previous year 5. Excess(deficit) of income over expenses, current year Total equity Total liabilities and equity
146791.23 -60767.93 21479.27 274445.87 274445.87 M & J AUDIT COMPANY
To: The Management Novib, Holland
59992.35 -39288.67 7690.35 349091.55 384616.09
Appendix D1
From: M & J Audit Company, Azerbaijan Date: August 08, 2003 Subject : Audit examination of KAU -50 1598-0002011 project for the period of January 01, 2002 – December 31, 2002 Name of the project: Future Financial Institution Country: Azerbaijan Manager of the project: Jalal Aliyev Auditing firm: M & J Audit Company Partner in charge auditing firm: Kamil Avazov Staff in charge auditing firm: Lala Shikhaliyeva Report completed by: Lala Shikhaliyeva Date: August 8, 2003 Report reviewed by (from management): (signed) Jalal Aliyev 1. Incoming statement Transfers from Novib and OXFAM: 146791.23 Interest: 82773.96 Total income: 229565.19
Appendix D2
M & J AUDIT COMPANY
To: The Management of Novib, Holland
v Ailzova maK vayelihaikSha alL 
From: M & J Audit Company, Azerbaijan Date: August 8 , 2003 Subject: Final report of the audit of KAU-501598-0002011 project for the period of January 01, 2003 – June 30, 2003 Name of the project: Future Financial Institution Country: Azerbaijan Manager of the project: Jalal Aliyev Auditing firm: M & J Audit Company Partner in charge auditing firm: Kamil Avazov Staff in charge auditing firm: Lala Shikhaliyeva Report completed by: Lala Shikhaliyeva Date: August 8, 2003 Report reviewed by (from management): (signed) Jalal Aliyev 1. Incoming statement Transfers from Novib and OXFAM: 59959.69 Interest: 62800.26 Other non financial income: 32.65
