2. OIG/Pakistan USAID/Pakistan Presentation on USAID’s Financial Audit Program November 20, 2014 Islamabad, Pakistan Copyrights owned by USAID OIG Office of Inspector General

3. OIG Background InvestigationsAudits Performance Financial Copyrights owned by USAID OIG

4. Responsibilities of the Recipient If appropriate, Select an auditor with the approval of mission and use an approved engagement contract / SOW (for RCAs) Ensure that all records are available to the independent auditors, all accounting entries and adjustments are made and all other necessary steps are taken to enable the auditors to complete their work. Provide auditors with Management comments Consider withholding final payment to the auditors until the audit report is accepted by OIG (for RCAs) Take corrective action to resolve prior audit recommendations What am I to do?

5. Responsibilities of the Recipient Prepare Fund Accountability Statement, Cost Sharing Schedule, indirect cost rate schedule and GPFS Establish an INTERNAL CONTROL SYSTEM Have a audit performed of your firm’s General Purpose financial Statements (If provisional rates) What am I to do?

6. ** All transactions are recorded and that all recorded transactions are real, properly valued, recorded on a timely basis, properly classified, and correctly summarized and posted. Copyrights owned by USAID OIG Responsibilities of the Recipient Internal Control Over Financial Reporting Internal Control is a process to help: Ensure the reliability of financial statements and compliance with laws and regulations** Reduce risk of asset loss Promote effective and efficient operations

7. Copyrights owned by USAID OIG Responsibilities of the Recipient Internal Control Over Financial Reporting Roles and Responsibilities Everyone in an organization has responsibility for internal control. The Chief of Party and Management sets the “tone at the top” that affects positive control environment. Management is accountable to the board of directors, which provides governance, guidance, and oversight. Internal auditors evaluate the effectiveness of control system, and contribute to ongoing effectiveness – monitoring role. All personnel should be responsible for communicating upward problems in operations, noncompliance with the code of conduct, or other policy violations or illegal actions.

8. Questioned costs- What are they? Sample Questioned Costs Findings Copyrights owned by USAID OIG Travel, food, and utility costs incurred outside the agreement period Procurement of non-U.S. manufactured vehicles without obtaining a waiver of source and origin requirements from the contracting officer Personnel costs not supported by timesheets Fringe benefits not in accordance with the organization’s human resource policies Procurement not adequately supported with quotations Subrecipient’s total expenditures which the audit firm questioned as unsupported due to the pervasive effect of the subrecipient’s material weaknesses in internal control

9. General Principles for Determining Allowable Costs Reasonable for the performance and administration of award Conform to limitations of Circular or award Consistent with uniform policies Allocable under Circular Consistent treatment. Not already charged as IC GAAP Not charged to other awards as cost share in current or prior period Net of applicable credits Documented Incurred specifically for the award Benefits both award and other work and can be distributed in reasonable proportion to benefits received Is necessary for overall operation of the organization Not shifted from other cost objectives to overcome funding deficiencies Ordinary and necessary for operation of unit/award Conform to sound business practices, GAAP, arms length bargaining, federal/other laws/regs and award. Individual concerned acted with prudence for public trust Not deviate from established practices of unit

10. S#ItemEligible (√) / Ineligible(X) 1Donations(X) 2Organization furnished automobiles for personal use (X) Except as direct cost and with prior approval 3Fund raising(x) 4Federal income tax(x) 5Fines/penalties incurred as a result of compliance with specific award (√) 6Entertainment(x) 7Cost of housing/allowance(X) Except as direct cost and with prior approval 8Airfare costs in excess of the customary standard commercial airfare (coach or equivalent) (X) 9Foreign travel w/o prior approval(X) 10Bad debts(X) Class Quiz: Eligible/Ineligible

11. Sample Internal Control Findings Copyrights owned by USAID OIG Not requiring at least two signatures on checks Inventory of non-expendable equipment not updated Excessive payment of courier charges Lack of internal control policy on the proper use and care of the recipient’s motor vehicles Unsupported reimbursements of field executive expenses Lack of segregation of duties (accounting and the asset custody function) Standard Purchase Requisition Form, Purchase Order Form and Good Receipt Note not in use

12. Guidelines – Auditing and Reporting Requirements Compliance Copyrights owned by USAID OIG With provisions contained in the agreements (mandatory and other required provisions), cost principles, and other regulations that if not observed could have a direct effect on the Program Funds

13. Major compliance issues related to USAID financial audits Copyrights owned by USAID OIG 1- Non compliance with the provisions contained in the agreements 1.1.1 Non compliance with the provisions contained in required circulars for instance: FAR 31.2, OMB A- 122, A 21, A87 etc. 2-Non compliance with pertinent laws, regulations and policies 1.1 - Non compliance with the provisions contained in the mandatory/standard provisions to agreements

14. Examples of major compliance issues related to USAID financial audits Copyrights owned by USAID OIG 1- Non compliance with the provisions contained in the agreements Interim targets not achieved/ slow pace of progress Key persons did not put in the required number of days

15. Examples of major compliance issues related to USAID financial audits Copyrights owned by USAID OIG 1.1 - Non compliance with the provisions contained in the mandatory/standard provisions to agreements sub recipient agreements missing required clauses competitive practices not followed operational advances not kept in interest-bearing accounts costs share not provided as per the terms of agreement payments of various taxes explicitly prohibited by the terms of the agreement sub recipient costs not audited USAID approval not obtained when required e.g., international travel, change in key personnel, budget shifts

16. Competitive practices not followed Examples of practices that limit fair and unbiased competition: Selection criteria for vendor (financial capability, technical capability, manufacturing capacity, past experience, stock availability etc.,) was not preannounced. Detailed specifications for products was not included in RFQ. Examples of major compliance issues related to USAID financial audits

17. Copyrights owned by USAID OIG 1.1.1 Non compliance with the provisions contained in required circulars for instance: FAR 31.2, OMB A-122, A-21, A87 etc. Airfare costs in excess of the customary standard commercial airfare (coach or equivalent), Federal Government contract airfare (where authorized and available), or the lowest commercial discount airfare are unallowable except ….. charging market value rentals for the use of own cars timesheets not maintained Fines/penalties incurred as a result of violation of laws. Interest on borrowing costs

18. Examples of major compliance issues related to USAID financial audits Copyrights owned by USAID OIG 2. Non compliance with pertinent laws, regulations and policies Annual General Meeting not convened Taxes withheld not timely submitted to treasury Taxes not withheld on correct rates

19. Sample Findings in Management Letter Copyrights owned by USAID OIG Immaterial Instances of Noncompliance 1.Not submitting progress reports to USAID on time as required in the agreement 2. Delay in filing of income tax withheld

20. Guidelines – Auditing and Reporting Requirements Management comments below the recommendation Mgmt. opposes Mgmt. opposes NOT VALID VALID Discussion of Findings Copyrights owned by USAID OIG

21. Performance Audits – Common Findings Copyrights owned by USAID OIG 1.Project or key activities not achieving planned results or intended objectives. 2. Project or key activities experiencing significant implementation delays. 3. Sustainability of project activities is unlikely. 4. Inadequate oversight and monitoring of project activities. 5. Non-compliance with award provisions and other regulations.

22. End of Presentation… Thank You!!! Copyrights owned by USAID OIG