XYZ

Illustrative Management Letter
For the year ended
31 December 2010
11 July 2011
The Executive Board
XYZ
Dear Sirs
Management letter for the year ended 31 December 2010
We have recently comleted our audit o! XYZ "hich "e conducted in accordance "ith #nternational
Standards on $uditin% &'#S$s()* Those standards re+uire that "e lan and er!orm the audit to o,tain
reasona,le assurance that the annual !inancial statements are !ree o! material misstatements ,ut not !or
the urose o! exressin% an oinion on the e!!ectiveness o! the entity-s internal control* $n audit is
conducted to ena,le us to !orm and exress an oinion on the !inancial statements that have ,een
reared ,y mana%ement "ith the oversi%ht o! the Executive Board* The audit o! the !inancial statements
does not relieve mana%ement or the Executive Board o! their resonsi,ilities*
.o"ever/ in accordance "ith our normal ractice/ "e "rite to dra" your attention to certain matters "hich
"e identi!ied durin% our audit o! the !inancial statements o! XYZ !or the year ended 01 Decem,er 2010*
Those issues are set out in the attached reort*
1ana%ement resonses have ,een rovided throu%h the coordination o! the 2inance Deartment*
We "ould li3e to than3 the mana%ement and sta!! o! XYZ !or their assistance and co4oeration durin% the
audit*
We "ould ,e leased to rovide any clari!ication that you may re+uire on the issues raised in this reort*
Yours !aith!ully
Certified Public Accountants
The matters raised in this reort are only those "hich came to our attention durin% the course o! our audit and are not necessarily a comrehensive
statement o! all the "ea3nesses that exist or all imrovements that mi%ht ,e made* 5ecommendations !or imrovements should ,e assessed ,y you
!or their !ull commercial imact ,e!ore they are imlemented* This reort has ,een reared solely !or your use as directors and should not ,e +uoted
in "hole or in art "ithout our rior "ritten consent* 6o resonsi,ility to any third arty is acceted as the reort has not ,een reared/ and is not
intended/ !or any other urose
Report to management of X!
2or the year ended 01 Decem,er 2010
able o! contents
1 Summary er!ormance ratin%s on areas revie"ed**********************************************************2
2 Ban3 and 7ash*****************************************************************************************************************0
2*1 Dormant ,an3 account*****************************************************************************************************0
0 8aya,les and $ccruals*****************************************************************************************************9
0*1 :utstandin% leave days***************************************************************************************************9
9 Status o! rior eriod audit recommendations*****************************************************************;
1
Report to management of X!
2or the year ended 01 Decem,er 2010
2
Report to management of X!
2or the year ended 01 Decem,er 2010
1 "ummary #er!ormance ratings on
areas revie$ed
The ta,le ,elo" resents a summary o! the audit !indin%s* #n the ta,le/ "e have rovided summaries o!
each !indin% and a visual indicator o! the si%ni!icance o! each/ as assessed ,y Deloitte*
"ey to #ummary
Critical $ddresses a !undamental control "ea3ness or si%ni!icant oerational issue that
should ,e resolved ,y mana%ement as a riority*
$mportant $ddresses a control "ea3ness or oerational issue that should ,e resolved ,y
mana%ement "ithin a reasona,le eriod o! time*
%ood
Practice
$ddresses a otential imrovement oortunity in oerational
e!!iciency<e!!ectiveness*
3
Report to management of X!
2or the year ended 01 Decem,er 2010
&
Report to management of X!
2or the year ended 01 Decem,er 2010
2 %an& and 'ash
2'1 Dormant ban( account
Condition
Durin% our revie" o! the ,an3 reconciliations/ "e noted that the or%ani=ation maintains a >S Dollar ,an3
account 6o* 01209?;@AB "ith 7iti,an3 "hose last activity "as in $ril 2010*
6o deosits or "ithdra"als had ,een made in this ,an3 account since this date/ one year at the time o!
our audit*
Criteria
#t is a %ood ractice to close all the ,an3 accounts that are no lon%er used*
Cause
The XYZ Ban3 account num,er 01209?;@AB is currently dormant ,ecause it relates to an already !inali=ed
roCect !or "hich the donor elected to transact ,usiness "ith the XYZ via 7iti,an3*
XYZ chose to leave the account oen as other donors may re!er to channel their !unds throu%h the ,an3
!or !uture roCects*
)ffect
The dormant account may ,e used to eretrate !raud ,y either ,an3 or or%anisational sta!!*
Recommendation
1ana%ement should ensure that all dormant<inactive ,an3 accounts are closed in a timely manner i! they
consider them not necessary to revent any !raudulent activities !rom ta3in% lace
#ignificance
#mortant*
Management response
$s "ith all XYZ accounts/ there is no dan%er o! !raud as the account statements are received monthly and
,an3 reconciliation o! the account is carried out on monthly ,asis accordin%ly* The ,an3 reconciliation
statements !or all XYZ accounts/ includin% account num,er 01209?;@AB "ere made availa,le to the
auditors at the time o! audit*
Auditors comment
1ana%ement should consider closin% the dormant ,an3 account and reactivatin% it once they %et a ne"
donor "ho "ould re!er to channel their !unds throu%h the 7iti,an3 account*
*
Report to management of X!
2or the year ended 01 Decem,er 2010
3 (ayables and )ccruals
3'1 +utstanding lea,e days
Condition
The !ollo"in% sta!! mem,ers had si%ni!icant leave days carried over to the year 2011 resultin% in accrued
leave lia,ility o! >SD @2/1;B as at 01 Decem,er 2010 &200B E >SD 92/BA2)*
#taff member Days Accrued
amount
-.#/0
$B7 2? 1/?@A
DE2 20 2/10;
F.# 9@*? ;/@@1
JGH 1? 1/9A0
16: BA*? ?A/;BA
The excess leave days !or the rest o! the sta!! "ere ho"ever su,se+uently aroved in 2e,ruary 2011*
$lthou%h the excess leave days !or 16: earned ,e!ore 1 January 2010 had ,een aroved ,y the
,oard/ the aroval !or the excess leave days su,se+uently earned in 2010 &0; leave days) had not
,een o,tained at the time o! audit* The leave days are exected to ,e aroved durin% the 1B
th
XYZ
Board scheduled on 0@ July 2011*
Criteria
$s er XYZ olicy/ outstandin% leave days should not exceed the re+uired maximum o! 19 days unless
there is aroval !rom the Executive Director*
#n addition/ ,est ractices re+uire sta!! mem,ers to %o on leave re%ularly to minimise !ati%ue and ,oost
their roductivity*
Cause
The XYZ "as not oeratin% at the otimal sta!! comliment in 2010* The understa!!in% meant that the
existin% sta!! had to voluntarily ste in and ta3e over extra duties* 1ana%ement encoura%ed sta!! to ta3e
their leave ,ut this "as di!!icult due to "or3 load*
1
Report to management of X!
2or the year ended 01 Decem,er 2010
)ffect
$ccumulation o! outstandin% leave days ,y emloyees %ives rise to otential lia,ility !or XYZ in terms o!
mem,ers o! sta!! "ho leave the emloyment o! XYZ and have to ,e aid/ as "ell as ine!!iciency and
reduction in roductivity due to !ati%ue*
Recommendation
1ana%ement should ensure that all outstandin% leave days are "ithin the set limit* $ll outstandin% leave
days in excess o! the re+uired maximum should ,e aroved ,y the Executive Director at the close o!
the eriod &01 Decem,er 2010) so that only the aroved &excess) outstandin% leave days are carried
!or"ard to the next !inancial year*
#n addition/ mana%ement should ensure that all sta!! roceed on leave at least once a year to minimise
!ati%ue and ,oost their roductivity*
#ignificance
#mortant
Management response
XYZ mana%ement is ma3in% e!!orts to recruit additional sta!! to hel relieve the excessive "or3load on
the existin% sta!!* .o"ever recruitment o! additional sta!! can only ,e done "ithin the limits o! availa,le
donor !undin%* 1ana%ement "ill continue to encoura%e sta!! to utili=e their leave days as aroriate* #t
is ho"ever consistent "ith XYZ olicies !or the resonsi,le authority to arove excess leave days !or
sta!! considerin% the overall interest o! the or%ani=ation and the nature o! its "or3*
2
* "tatus o! #rior #eriod audit recommendations
Audit finding Audit recommendation Management comments in prior year Current status
Iariances
,et"een the
%eneral led%er
and the assets
re%ister
The !ixed assets re%ister should ,e
reconciled to the %eneral led%er ,alances
on a re%ular ,asis and any di!!erences that
are identi!ied !ollo"ed u and resolved*
$s earlier advised the misallocation occurred in 200;
"hen there "as a chan%eover to an imroved 2ixed
$ssets accountin% so!t"are*
.o"ever the error does not have any e!!ect on the
dereciation movement since the a!!ected assets "ere
already !ully dereciated* The XYZ mana%ement too3
the necessary measures in 200B to reallocate and
ma3e adCustments in the !ixed assets listin% roerly in
the ne" so!t"are* This there!ore reduced the variance
,et"een the !ixed asset listin% and the %eneral led%er
on comuter e+uiment !rom >SD &;;B0) to >SD ABB
and the variance on o!!ice e+uiment !rom >SD @A@A
to >SD10* 1ana%ement under the advice o! Deloitte
and TouchJ "ill have to ma3e additional adCustments in
the %eneral led%er to ensure that the variance is
reduced to =ero*
5esolved*
$dvances
exensed on
receit
1ana%ement should see3 to resolve the
con!lict resented ,y the di!!erence in the
re+uirements o! section ;*1 o! the XYZ
%rant a%reement and the 5oyal Dutch
%overment re+uirements*
Since it is a re+uirement ,y the donor to exense all
commitments/ it "ill ,e di!!icult to treat advances !or
studies as receiva,les as advised/ since this is a
violation o! the donor reortin% re+uirements*
6o such
intances "ere
noted in the
current eriod*