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FinancialManagement

ForUSAID Recipients

Training Manual

Financial Management Office

Last Updated, November 2014

Financial Management for USAID Recipients of 180

Table of Contents

ContentsFOREWORD..........................................................................................................................7TRAINING OBJECTIVES.........................................................................................................7GLOSSARY OF TERMS...........................................................................................................8CHAPTER 1: USAID OVERVIEW..........................................................................................17

A. USAID History.........................................................................................................17B. Government Performance Results Act of 1993 (GPRA)........................................17C. USAID Forward.......................................................................................................17D. USAID Strategy and Foreign Assistance Framework.............................................20E. USAID’s Budget Cycle and Financing System.........................................................21

CHAPTER 2: FINANCIAL MANAGEMENT STANDARDS.......................................................23A. Minimum Standards for Recipients’ Financial Management Systems..................23B. Accounting Records, Forms, and Project Files.......................................................24C. Cost Principles........................................................................................................26

CHAPTER 3: INTERNAL CONTROL......................................................................................35A. Definition of Internal Control................................................................................35B. Fundamental Concepts of Internal Control...........................................................35C. Components of Internal Control............................................................................35

CHAPTER 4: FRAUD AWARENESS AND PREVENTION........................................................38A. What is fraud?........................................................................................................38B. Fraud impact..........................................................................................................39C. Why fraud is committed—The Fraud Triangle......................................................39D. Fraud Awareness...................................................................................................40E. Anti-Fraud Policy and Program..............................................................................40F. Fraud Risk Assessment Checklist...........................................................................44G. Reporting fraud......................................................................................................46H. Case Studies...........................................................................................................48

CHAPTER 5: FINANCING MECHANISMS AND PAYMENTS METHODS................................52A. Direct Reimbursement for Goods and Services.....................................................52B. Advances................................................................................................................52C. Payments...............................................................................................................55

CHAPTER 6: PROCUREMENT STANDARDS.........................................................................59A. General Procurement Standards...........................................................................59B. Procurement of Commodities...............................................................................63C. Case Study I: Procurement of Commodities..........................................................72D. Procurement of Professional and Consulting Services..........................................77E. Case Study II: Procurement of Professional and Consulting Services..................86

CHAPTER 7: PROPERTY MANAGEMENT STANDARDS........................................................87A. Types of Property...................................................................................................87


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To be revised when all modules are final

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Formatting: Please line up all ABCs (indented same) and line up all 123s

B. Ownership:.............................................................................................................87C. Property Usage, Maintenance and Control...........................................................88D. Marking and Branding...........................................................................................90E. Property Disposition..............................................................................................91

CHAPTER 8: RECIPIENT/SUB-RECIPIENTS RELATIONSHIPS................................................93A. Prime Recipient vs. Sub-recipient—General Roles & Responsibilities..................93B. Entering Into a Sub-recipient Relationship............................................................93C. Recipient and Sub-recipient Responsibilities........................................................94D. Sub-recipient Audits..............................................................................................95

CHAPTER 9: PERSONNEL AND PAYROLL............................................................................96A. General Policies and Procedures...........................................................................96B. Documentation......................................................................................................97C. Recruitment and Hiring.........................................................................................98D. Payroll Cycle...........................................................................................................99E. Leave Cycle...........................................................................................................100F. Summary of Internal Controls.............................................................................101

CASE STUDY.............................................................................................................103CHAPTER 10: TRAVEL & TRANSPORTATION....................................................................105

A. Summary of Policies and Procedures.............................................................105B. Travel Cycle and Related Documentation......................................................112C. Summary of Internal Controls........................................................................116D. CASE STUDY.....................................................................................................118

CHAPTER 11: ACCRUALS..................................................................................................120A. Definition of Accruals..........................................................................................120B. Importance of Accruals.......................................................................................120A. Accrual Process:...............................................................................................1201. Schedule and Responsibilities..............................................................................1202. General Procedures for Recipient’s Estimation...............................................1213. Example Accruals Computation: A total of 20 computers were ordered for $3,000 each. Only 15 were in stock and delivered initially. Payment of $45,000 was made for the first 15 delivered. Before the end of the quarter, the vendor delivered the other 5 computers and submitted an invoice for $15,000, but this was not paid by the end of the quarter.............................................................................................122Additional Information on Accruals Computation:.................................................122

CHAPTER 12: BUDGET MANAGEMENT............................................................................123A. Budget Benefits...................................................................................................123B. Budget Cycle........................................................................................................123C. Budget and Program Revision............................................................................126

CHAPTER 13: PIPELINE MANAGEMENT...........................................................................128A. Pipeline Definition..............................................................................................128B. Importance of Pipeline Management..................................................................128C. Pipeline Timing....................................................................................................129D. Increased/Excess Pipeline..................................................................................1292. Impact of Excess Pipeline....................................................................................130


E. Low Pipeline........................................................................................................1302. Impact of Low Pipeline........................................................................................131F. Managing Pipeline...............................................................................................131

CHAPTER 13: FINANCIAL REPORTING STANDARD FORM – SF 425.................................133A. Definition--Federal Financial Reports..................................................................133B. Frequency of Reporting.......................................................................................1331. Interim Report.....................................................................................................1332. Final Report..........................................................................................................1343. Early Submission of an SF-425.............................................................................134

C. Reporting with No Incurred Expenses.....................................................................135D. Delinquent Reporting..............................................................................................135E. Adjustments to Previously Submitted SF-425s........................................................135F. Final Draw Down of Funds.......................................................................................136G. Completing the SF-425............................................................................................136General Instructions....................................................................................................136

Step-by-Step Instructions........................................................................................137I. Pipeline Report as back-up documentation for SF425.............................................140Step-by-Step Instructions............................................................................................140

Common errors on partner VAT reports................................................................143CHAPTER 16: ASSESSMENTS AND CAPACITY BUILDING..................................................144

A. Pre-award Assessment........................................................................................144SECTION B – INSTITUTIONAL CAPACITY BUILDING..................................................146 Minimum organizational capabilities for determining the extent of technical assistance the recipient may require......................................................................146 Assess ability to maintain/manage auditable records (for cost reimbursement grants);.....................................................................................................................146 Assess availability of local/certified accounting services (for cost reimbursement grants);...........................................................................................146 Assess ability to procure/manage property/personnel; and..........................146 Assess management skills/resources..............................................................146The FOG checklist is completed by the selected FOG Team generally composed of representatives from USAID’s Development Objective/technical team, (usually the AOR- Acquisition Officer Representative) and the Office of Acquisition and Assistance. A USAID Financial Analyst is normally a part of the team when an advance of funds mechanism is envisioned. Using the checklist as a guide, the FOG Team conducts interviews with representatives from the potential partner and reviews and analyzes related documents appropriate to the FOG Checklist questions. If the advance payment mechanism will be used, the USAID Financial Analyst completes the Pre-award financial review checklist in Section A by reviewing appropriateness and applicability of the company policies covering financial, administrative, human resources, procurement, and travel procedures and performs analysis of financial records and related supporting documentation..................................................................................................................................146B. Payment Verifications..........................................................................................147


USAID/Mozambique normally does not require the submission of receipts and supporting documentation to accompany requests for reimbursements or liquidation of periodic advances; however, USAID Financial Analysts may periodically perform detailed payment verifications over payments made to recipients during the implementation of the agreement.......................................147The main objectives of payment verification are to verify the substance of the vouchers submitted by the recipient for reimbursement or liquidation of advance funding and to ensure the recipient’s financial transactions under the award have been in accordance with the recipient’s established policies and procedures and its agreement with USAID............................................................................................147Payment verifications involve review of all supporting documentation related to selected transactions under an agreement, checking for adherence to established policies, procedures, and regulations, and usually involve checks of prices and other details with independent sources. The verification will normally include a thorough review of a judgmentally-determined percentage of transactions (at least 30%); however, if errors, irregularities, or questionable practices are revealed, verification procedures will usually be extended to a larger percentage of the transactions up to 100%....................................................................................................................147FOGs are not subject to payment verifications as payment is based not on actual expenditures, but on a fixed amount to be paid to the implementing partner upon achievement of pre-agreed milestones...................................................................147C. Financial Reviews.................................................................................................147USAID Financial Analysts conduct the financial review using a checklist that includes the areas described above. The review procedures usually consist of interviews with the implementing partner’s senior management staff and other relevant staff, such as the Director, Program Coordinator, Administrative and Finance Official, Accountants, Procurement Officials, and Logistics Officer. In addition, the Financial Analyst observes performance of systems and transactions and performs testing of adherence to policies and procedures and detailed testing of some transactions. Generally the Financial Analysts select for testing a random sample of about 30% of financial transactions for the period under review; however, when deemed necessary they may test up to 100%.......................................................................148D. Organizational Capacity Assessment (OCA)........................................................149

CHAPTER 17: USAID FINANCIAL AUDITS..........................................................................153A. General Audit Guidance......................................................................................153B. The Audit Process............................................................................................157C. Fund Accountability Statement (FAS) Requirements.........................................162D. Cost Sharing.........................................................................................................166

CHAPTER 18: AWARD EXTENSION AND CLOSE-OUTS.....................................................168A. Award Extensions............................................................................................168B. Award Close Out..............................................................................................169

CHAPTER 19: OTHER IMPORTANT INFORMATION FOR RECIPIENTS...............................172A. Cost Sharing.........................................................................................................172B. Leveraging............................................................................................................175


C. Program Income..................................................................................................176D. Honoraria.............................................................................................................177

Contact Information........................................................................................................179


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Should ‘Recipient Contracted Audit be Letter I?

FOREWORD

Financial Management plays a pivotal role in any organization. Programs can run well, but with no financial discipline the programs will fail. In an economy where the resources are scarce, donors and other stakeholders want to be assured that the financial resources are properly accounted for to achieve desired results at optimal cost. The Financial Management System should provide a way of recording financial transactions, managing risk, and analyzing and interpreting information for decision making.

USAID provides funding to many organizations through grants, cooperative agreements, contracts, and other forms of assistance. The many organizations managing USAID funds have different accounting systems and practices. New recipients of USAID funding are met with some financial requirements that may not be common to their normal practice.

This manual has been designed as a practical guide to set up and manage an ideal Financial Management System for USAID recipients to support the success of programs.

TRAINING OBJECTIVES

The goal of this training is to equip all those persons charged with financial oversight of USAID funded projects with the requisite knowledge to discharge their duties of financial management effectively. Recipient organizations must understand the financial framework for managing USAID programs and activities. They should set up necessary controls to properly account for the funds and institute procedures to avoid or minimize loss, waste, and abuse of US government, other donor, and local partner resources. By the end of this training, participants should assess their own Financial Management Systems to determine if there are any deficiencies that need to be addressed. Implementing partner participants should also be alert to the risk of fraud and put in place measures that will detect, prevent, or mitigate potential loss.


GLOSSARY OF TERMS

A-133 Audit Audits of State, Local Governments, and Nonprofit Organizations, which spend more than $500,000 per year in federal funding. This audit is required even if the federal money you receive is passed through another agency.

ACA (Agency Contracted Audit) Audit (usually of a recipient) which is contracted by USAID

Accruals Anticipated expenditure/ estimate of the value of goods and services received for which payment has not yet been made

Accrued Expenditures Total of Disbursements and Accruals

Activity Approval Document (AAD)

It is a mandatory document required for all activities or projects in order to obligate funds. An AAD shows that all the appropriate planning has been done before an activity has been obligated. It also shows that an approving official(s) has cleared and signed-off on obligation requests.

Activity Manager Member of a Development Objective Team or sub-team who is responsible for the day-to-day management of one or more specific activities. The Activity Manager is selected by the development objective team, and may or may not also have the delegated authorities of a Contracting Officer’s Representative (COR)) whose authority to carry out contract management functions is designated by a Contracting or Agreement Officer

Administrative Approval The initial approval of an invoice or voucher received for payment. The approving officer is an employee (normally the CTO) directly concerned with acceptance of the supplies, services, etc., billed. The approval is necessary before the invoice or voucher is certified for payment by the authorized certifying officer, except as may be specifically exempted by USAID.

ADS Automated Directive System. It is a standardized system comprising (1) USAID internal policy directives and required procedures; (2) external regulations applicable to USAID; and (3) non-mandatory guidance to help employees interpret and properly apply internal and external mandatory guidance. URL: http://www.usaid.gov/policy/ads/

Advance Liquidation Accountability reporting for an advance. It is the report showing how advanced funds were used. The report should be accompanied by supporting documentation

Agreement Officer A person with the authority to enter into, administer, terminate and closeout assistance agreements, and make related


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Should be reviewed and revised after all other modules have been finalized. The whole document should be reviewed for terminology that may need to be included here, and any irrelevant terms should be taken out.

determinations and findings on behalf of USAID. An Agreement Officer can only act within the scope of a duly authorized warrant or other valid delegation of authority. The term "Agreement Officer" includes persons warranted as "Grant Officers." It also includes certain authorized representatives of the Agreement Officer acting within the limits of their authority as delegated by the Agreement Officer. (ADS Chapters 303, 304)

Annual Work Plan A plan submitted by a USAID recipient that describes the work that will be carried out during the year. The annual work plan should also list the positions expected to exist over the year or the life of the project.

AOR Agreement Officer’s Representative. The AOR serves as the technical liaison between the Agreement Officer and the grantee, and monitors the grant’s performance in achieving its purpose.

Audit plan An annual plan developed by USAID Missions, which outlines audit requirements for all foreign contractors and grantees. (ADS Chapter 591)

BFC (Bill for Collection) A USAID letter or form sent to a debtor for the amount due, including interest, administrative charges, and late penalties, if applicable. The debtor's due process rights are included in the initial bill for collection. (ADS Chapter 625)

Bi-lateral Agreement Agreement between two Governments

Budget Allowance Funding authorities given to missions from USAID/W.

Budget Cycle The period of time that a budget covers. USAID has a three-year budget cycle.

Burn Rate The rate at which funds are being utilized each month.

CDCS Country Development Cooperation Strategy

COAg (Cooperative Agreement) A legal instrument used where the principal purpose is the transfer of money, property, services or anything of value to the recipient in order to accomplish a public purpose of support or stimulation authorized by Federal statute and where substantial involvement by USAID is anticipated. (ADS Chapter 304)

COR Contracting Officer’s Representative Ref. ADS 302 & 303

Contractor A non-government organization or individual acting as an agent of USAID and carrying out a scope of work specified by USAID. (ADS Chapter 102)


Control The function of maintaining management accountability and oversight of personal property throughout its complete life cycle using various property management tools and techniques. (Chapter 518)

Control Deficiency A control deficiency exists when the design or operation of an administrative, programmatic, operational, accounting and/or financial control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance on a timely basis. A design deficiency exists when a control necessary to meet the control objective is missing or an existing control is not properly designed, so that even if the control operates as designed the control objective is not always met. An operation deficiency exists when a properly designed control does not operate as designed or when the person performing the control is not qualified or properly skilled to perform the control effectively. (FMFIA of 1982 and OMB Circular A-123) (Chapter 496)

Control Environment The organizational structure and culture created by management and employees to sustain operational support for effective internal control. (OMB Circular A-123) (Chapter 496)

Controller The individual responsible for discharging the financial management aspects of Mission operations. The Controller, who reports directly to the Mission Director, also provides advice and assistance to the Mission Director and other Mission officials with respect to financial practices and procedures applicable to program implementation. (Chapter 527)

Corruption Lack of integrity or honesty (especially susceptibility to bribery); use of a position of trust for dishonest gain

COR (Contracting Officer Representative)

The COR serves as the technical liaison between the Contracting Officer and the contractor, and monitors the contractor’s performance in achieving its purpose. Previously known as AOR.

DCAA (Defense Contract Audit Agency)

DCAA is responsible for performing all contract audits for the Department of Defense (DoD), and providing accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA also provides contract audit services to some other Government Agencies.

Direct Reimbursement A type of financing method where USAID partner/recipient expends its own resources and then requests reimbursement from USAID for actual cash disbursements.

Disbursements Payments made using cash, check, or electronic transfers.


Disbursements include advances to others as well as payments for goods and services received and other types of payments made. (JFMIP) Note: The Agency often uses the term “disbursements” to mean only “payments that liquidate obligations,” which actually is the definition for “outlays.” (ADS Chapters 200-203, 630, 631)

DSA (Daily Subsistence Allowances)

Same as Per Diem

EFT (Electronic Funds Transfer) EFT is the standard method for making Federal payments. EFT includes any method used to transfer funds electronically, including Fedwire, Automated Clearing House (ACH) transfers, Intra-Governmental Payment and Collection (IPAC) system, etc. (ADS Chapter 630)

Entitlement Travel Travel benefits provided to international staff working in Mozambique. These can include Home Leave, Rest and Recuperation (R&R) travel.

Financial Review A review of a USAID-funded organization’s financial policies, procedures, systems, and controls. This review is not conducted in accordance with standards approved by the Comptroller General of the U.S. (ADS Chapter 591)

FMO Financial Management Office -- usually referring to USAID

Fraud A fraud is an intentional deception made for personal gain or to damage another individual. Fraud is a crime.

FSN (Foreign Service National) A non-U.S. citizen employee of the host country hired by a USAID Mission abroad, whether full or part-time, intermittent, or temporary

FTR (Federal Travel Regulations) The FTR is the regulation contained in 41 Code of Federal Regulations (CFR), ADS Chapters 300 through 304, that implements statutory requirements and Executive branch policies for travel by federal civilian employees and others authorized to travel at government expense.

Functional Objectives / Strategic Objectives/Assistance Objectives

Now called Development Objectives. The most ambitious result that a USAID Operating Unit, along with its partners, can materially affect, and for which it is willing to be held accountable. (ADS Chapter 200)

Funds Accountability Statement (FAS)

FAS is an income and expenditure statement of a project or activity

GAAP Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are


generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.

Grantee Recipient of a USG Grant or Cooperative Agreement

Internal Controls The organization, policies, procedures, and tools used to reasonably ensure that (a) programs achieve their intended results; (b) resources are used in accordance with the Agency's mission; (c) programs and resources are protected from waste, fraud, and mismanagement; (d) laws and regulations are followed; and, (e) reliable and timely information is obtained, maintained, reported, and used for decision making. (OMB Circular A-123) (Chapter 596)

Letter of Credit (LOC) Letter of Credit is a method of advance payment for qualifying organizations under assistance agreements and certain contract awards that is negotiated and authorized by the Contracts or Agreement Officer. The Department of Health and Human Services (DHHS) is responsible for the payment and liquidation processes of USAID agreements using this method of financing. (ADS Chapter 636, 630)

Minority-owned firm A firm that is owned at least 50 percent by minority group members

Mismanagement The process or practice of managing ineptly, incompetently, or dishonestly

Misuse An incorrect, improper or unlawful use of something

MRA (Mozambique Revenue Authority)

Mozambique Government agency responsible for tax and customs (for surtax reimbursement claims)

NXP (Non-expendable Property) Items which are not consumed in use and which retain their original identity during the period of use and which normally require further accounting.

Obligation A term of appropriations law that means some action that creates a definite commitment, which creates a legal liability of the government for the payment of funds for specific goods or services ordered or received. It includes a range of transactions, e.g., contracts, grants, loans, guarantees, wages, and travel. (ADS Chapter 621)

OFM Office of Financial Management referring to USAID--usually FMO is used

OMB Office of Management and Budget. OMB's predominant mission


is to assist the President in overseeing the preparation of the federal budget and to supervise its administration in Executive Branch agencies.

PAD (Project Appraisal Document)

The PAD documents the complete project design and serves as the reference document for Project Authorization and subsequent implementation. The PAD should: define the development problem to be addressed by the project; provide a description of the technical approach to be followed during implementation; define the expected results at the input, output, purpose, and goal level (as presented in the final logical framework); present the financial plan and detailed budget; present an overall project implementation and procurement plan; and present the monitoring and evaluation plan. (Chapters 200-203)

Partner An organization or individual with which/whom the Agency collaborates to achieve mutually agreed upon objectives and to secure participation of ultimate customers. Partners include host country governments, private voluntary organizations, indigenous and international non-governmental organizations (NGOs), universities, other U.S. Government agencies, the United Nations and other multilateral organizations, professional and business associations, and private businesses and individuals. (ADS Chapters 101, 102, 200-203, 253)

Per Diem The per diem allowance (also referred to as subsistence allowance) is a daily payment instead of reimbursement for actual expenses for lodging, meals, and related incidental expenses. The per diem allowance is separate from transportation expenses and other miscellaneous expenses.

Periodic Advances An advance when payment is made to the recipient by issuance of a Treasury Check, through the Automated Clearing House (ACH), or by electronic fund transfer (EFTS). This method is used when an advance is justified but the conditions for a Letter of Credit (LOC) cannot be met. (ADS Chapter 636)

Personal Services Contract (PSC) PSCs are, by their nature severable, as the contract is for the services of the individual, not an end-product, and the organization would have received a benefit from the services provided even if the contract were to be terminated early. (ADS Chapter 603)

Pipeline The amount of funds obligated but not spent; the difference between cumulative obligations and cumulative expenditure

POV (Personally Owned Vehicle) A vehicle owned by an employee

Pre-Audit Survey A survey conducted by an auditor to briefly review the books and records of a partner/recipient in order to estimate the time and


effort required to conduct an audit

Pre-award Survey This is an evaluation of a prospective recipient's ability to perform under a USAID sponsored agreement. Such surveys are used to assess the adequacy of the recipient's accounting system to accumulate cost information under an agreement and/or the financial capability to properly manage USAID funds in accordance with USAID requirements

Procuring Instruments The type of instrument used for procurement such as Fixed Price Contracts, Cost Reimbursable contracts, Purchase Orders and Incentive Contracts

Program Areas One of the several categories in the Foreign Assistance Framework that identify broad programmatic interventions (such as Counter Narcotics, Health, or Private Sector Competitiveness). Program Areas can be funded by more than one appropriation account. (ADS Chapters 200-203)

Program Elements Program Elements are categories that reflect the different components of a Program Area. Examples would be Alternative Development and Alternative Livelihoods within Counter Narcotics, HIV/AIDS within Health, and Business Enabling Environment within Private Sector Competitiveness. (ADS Chapters 200-203)

Prompt Pay A legislation which requires USG to make all payments within 30 days of receipt of invoice and acceptance of goods and services. If an agency fails to pay within 30 days, the agency must pay an interest penalty. Prompt pay also requires payments to be made no earlier than 24 days, unless an exception applies that allows for earlier payment

PVO (Private Voluntary Organization)

Can be U.S. Private Voluntary Organization, International Private Voluntary Organization, and Local Private Voluntary Organization. A U.S. PVO is a non-governmental entity organized under the laws of the United States and headquartered in the United States that solicits and receives cash contributions from the U.S. general public; Is a charitable organization in that it is nonprofit and exempt from Federal income taxes under Section 501(c )(3) of the Internal Revenue Code, and is not a university, college, accredited degree-granting institution of education, private foundation, hospital, organization established by a major political party in the United States, organization established, funded and audited by the U.S. Congress, organization engaged exclusively in research or scientific activities, church, synagogue, mosque or other similar entity organized primarily for religious purposes; and Conducts, or anticipates conducting, overseas program activities that are consistent with the general purposes of the Foreign Assistance Act and/or Public Law 480. (See 200.4.1)


QCR (Quality Control Reviews) A review to assess the competency of an audit firm usually conducted by USAID RIG

RAAO Regional Acquisition and Assistance Officer. Same as Agreement Officer

RCA (Recipient Contracted Audit)

Audit which is contracted by the recipient. This is the preferred method over an ACA.

RCO (Regional Contracting Officer), now known as RAAO

Same as Agreement Officer

Recipient Contractor or grantee. Individual or organization which has received USG funds

RFTP Request For Technical Proposal. A solicitation for proposal that will be evaluated based on the technical aspect of the activity other than the cost or budget.

RIG (Regional Inspector General) USAID’s Regional Inspector General based in Pretoria, South Africa

Segregation of Duties A control activity where a single individual does not have the responsibility to approve, execute, record and maintain custody of assets

SF 1034 Standard Form 1034 "Public Voucher for Purchases and Services Other than Personal" a USAID form that should be used to claim reimbursement

DOAG (Development Objective Agreement)

Development Objective Agreement. USAID Document specifying a bilateral agreement terms and conditions between USG and a foreign Government

SOW (Statement of Work) Description of what work will be accomplished

Sub Commitment Money set aside under a bilateral agreement for a specific activity. Often MAARDs are used to sub-commit funds.

Sub-Elements The sub-classification of Program Elements. One Program Element can be made up of one or more sub-elements

Sub-Grantee Same as Sub-Recipient

Sub-obligation Money which USAID has agreed to award to an implementing agency upon signing a binding agreement e.g., contract or grant.

Sub-Recipient Recipients of a USAID award may decide to sub-award the work to other organizations. These organizations are Sub-Recipients and they generally do not have any direct relationship with USAID.


Unliquidated Commitments Funds not yet spent

Unobligated Balance The portion of budget authority that has not yet been obligated. The unobligated balance for unexpired accounts is still available for new obligations.

USDO United States Disbursing Officer. Designated USG payment officer

VAT (Value Added Tax) A form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate customer.In Mozambique, the VAT is currently at 17% of the value of the product/service and is payable to MRA.


CHAPTER 1: USAID OVERVIEW

A. USAID HistoryThe United States Agency for International Development (USAID) was created in 1961 through the Foreign Assistance Act of 1961. Until then, there had never been one single USG agency charged with foreign economic development, so with the passage of this Act foreign assistance activities underwent a major transformation. Leading this transformation was President John F. Kennedy, who recognized the need to unite development into a single agency responsible for administering aid to foreign countries to promote social and economic development. USAID is an agency charged with foreign economic development. Core strategies include:

Agriculture and food security Democracy, Human Rights and Governance Economic Growth and Trade Education Global Health Environment and Global Climate Change

B. Government Performance Results Act of 1993 (GPRA)The purpose of this Act was to improve the confidence of the American people in the capability of the federal government by systematically holding federal agencies accountable for achieving program results. The Act established requirements for agencies’ strategic plans, annual performance plans, and annual performance reports. The act aimed to, among others:

Improve federal program effectiveness Help federal managers improve service delivery Improve Congressional decision making Improve internal management

C. USAID Forward‘USAID Forward’ was initiated by USAID in 2010 to change the way USAID does business to increase the impact of USAID’s foreign assistance efforts and align them with the goals and strategies of the USG’s Quadrennial Diplomacy and Development Review (QDDR), the Paris Declaration on Aid Effectiveness, and Accra Agenda for Action. Under the Paris Declaration on Aid Effectiveness and further elaborated under the Accra Agenda for Action, international donors and donor recipient nations committed to increasing the use of host country systems and harmonization of donor procedures for more sustainable development. The USG (State Department and USAID) developed the


QDDR to embrace a set of foreign assistance effectiveness principles based on the Paris Declaration and the Accra Agenda. USAID Forward has been USAID’s effort to embody the principles of the QDDR, Paris Declaration, and the Accra Agenda and is a comprehensive package of reforms in seven key areas, as follows:

1. Implementation and Procurement Reform: USAID will change its business processes, contracting with and providing grants to more and varied local partners, and creating true partnerships to create the conditions where aid is no longer necessary in the countries where the Agency works. To achieve this, USAID is streamlining its processes, increasing the use of small businesses, building metrics into its implementation agreements to achieve capacity building objectives, and using host country systems where it makes sense.

2. Talent Management: USAID will explore ways to leverage the enormous talent that lies within the broader USAID family of foreign and civil service officers, and Foreign Service Nationals. To solve the world's biggest development challenges, it will improve and streamline processes so it can quickly align its resources to support the Agency's strategic initiatives, with better hiring and training tools as well as incentives. USAID must attract and retain the best people who reflect global diversity and who share the ability to be innovative problem-solvers.

3. Rebuilding Policy Capacity: To make smart, informed decisions, USAID has created a new Bureau of Policy Planning and Learning (PPL) that will serve as the intellectual nerve center for the Agency. PPL will promulgate cutting-edge creative and evidence-based development policies; leveraging USAID's relationships with other donors; utilizing its strength in science and technology; and reintroducing a culture of research, knowledge-sharing and evaluation.

4. Strengthening Monitoring and Evaluation: Learning by measuring progress is critical for high impact, sustainable development and, therefore, must be an integral part of USAID's thought process from the onset of its activities. That requires USAID to do a much better job of systematically monitoring its performance and evaluating its impact. USAID will be introducing an improved monitoring and evaluation process as part of these reform efforts, and it will link those efforts to its program design, budgeting, and strategy work.

5. Rebuilding Budget Management: USAID is rebuilding our budget capacity to allow for increased responsibilities and capacity to manage constrained budget resources and ensure the Agency will be able to align resources against country strategies, make difficult trade-offs, and re-deploy resources toward programs that are demonstrating meaningful results. In consultation with the Department of State, USAID has created an Office of Budget and Resource Management in the Office of the Administrator that will provide increased responsibilities over execution of its budget. With these increased


https://developedia.usaid.gov/wiki/index.php?title=Rebuilding_Budget_Management

https://developedia.usaid.gov/wiki/index.php?title=Strengthening_Monitoring_and_Evaluation

https://developedia.usaid.gov/wiki/index.php?title=Bureau_of_Policy_Planning_and_Learning_(PPL)

https://developedia.usaid.gov/wiki/index.php?title=Rebuilding_Policy_Capacity

https://developedia.usaid.gov/wiki/index.php?title=Talent_Management

https://developedia.usaid.gov/wiki/index.php?title=Implementation_and_Procurement_Reform

responsibilities, USAID will have to propose difficult funding tradeoffs in order to continue robust funding of key operational and program priorities.

6. Science and Technology: USAID has a proud history of transforming development through science & technology (S&T), from the successful use of oral rehydration therapies to the green revolution. As part of these reform efforts, USAID will upgrade its internal S&T capabilities, supporting the expansion of technical expertise and improving access to analytical tools like Geospatial Information Systems. It will also develop a set of Grand Challenges for Development, a framework to focus the Agency and development community on key scientific and technical barriers that limit breakthrough development progress. Finally, USAID will build S&T capacity in developing countries through cooperative research grants, improved access to scientific knowledge, and higher education and training opportunities.

7. Innovation: USAID is putting into place a structure for fostering innovative development solutions that have a broad impact on people, wherever they may arise. As part of these reform efforts, USAID is creating opportunities to connect its staff to leading innovators in the private sector and academia, and it has created the Development Innovation Ventures Fund-where creative solutions can be funded, piloted and brought to scale.

The Implementation and Procurement Reform (IPR) aims to achieve the following objectives:1. Strengthen Partner Country Systems2. Local Capacity Development3. Increase Competition4. USG Resources5. Strengthen Donor Collaboration6. Rebuild Internal Capacity

Under IPR, USAID has focused on building both Government to Government (G2G) partnerships and Local Capacity Development (LCD) of local (indigenous) non-governmental organizations, with the aim to strengthen systems of the host countries and improve the technical capacity of local partners for greater long-term sustainability.

More recently USAID embarked on a transition from the IPR to the Local Solutions approach as a signal that the USG is now moving through the reform stage into a deeper level of maturity and commitment in providing high quality development assistance to and through local systems.


https://developedia.usaid.gov/wiki/index.php?title=Science_and_Technology

D. USAID Strategy and Foreign Assistance Framework

The Office of U.S. Foreign Assistance Resources (F) sets overall goals and objectives for the whole Agency. USAID/W and overseas Missions (including Mozambique) formulate strategies aimed at USAID’s overall goals and objectives taking into consideration the host country’s development objectives. Each missions’ 5-year strategy is expressed in the Country Development Cooperation Strategy (CDCS). Under USAID/Mozambique’s recently approved CDCS, the Mozambique Mission now has new Development Objectives as follows:

DO 1 - Democratic governance of Mozambican institutions strengthened DO 2 - Resilient, broad-based economic growth accelerated DO 3 - Labor quality improved through education and training DO 4 - Health status of target populations improve

The USAID framework is the standardized structure that is used by USAID Mission’s worldwide for reporting progress toward achievement of objectives expressed in the strategy. The framework is composed of 6 Functional Objectives, namely:

Objective 1: Peace and SecurityObjective 2: Governing Justly and DemocraticallyObjective 3: Investing in PeopleObjective 4: Economic GrowthObjective 5: Humanitarian AssistanceObjective 6: Program Development and Program Administrative Costs

Under each Functional Objective there can be one or more Programs called Program Areas. For example, in Economic Growth we can have the following programs:

Agriculture Private Sector Competitiveness Economic Opportunity Environment

The programs can further be broken down into smaller units called Program Elements. For example, under Program Area Agriculture, we can have the following Program Elements:Agriculture Enabling EnvironmentAgriculture Sector Capacity

And finally, each Program Element can be made up of one or more Sub-Elements.For example, under Program Element Agriculture Sector Capacity, we can have the following Sub-elements:


Research & Technology Dissemination Land and Water Management Rural and Agricultural Finance Agribusiness and Producer Organizations Markets and Trade Capacity Agricultural Safety Nets & Livelihood Services

These program Sub-elements, Elements, and Areas in the above-described framework do not represent activities to be carried out; rather, they are an expression of how we can measure what progress has been made toward successfully achieving the goals of the Functional Objective.

USAID usually does not directly implement activities to achieve the planned results and objectives as expressed in the CDCS and this Framework. Instead, USAID is a donor agency, and funds other organizations or agencies, our partners, through various implementing instruments (grants, cooperative agreements, contracts, etc.) to carry out activities that contribute to the achievement of the goals stated in the framework.

E. USAID’s Budget Cycle and Financing System

USAID has a three-year budget cycle: that is, the funds that USAID will receive in FY 2016 were requested from Congress in FY 2014.

Based on a Mission’s long-term strategy, Missions prepare a yearly budget that is sent to USAID/Washington. USAID/Washington reviews the budgets, combines all the budgets from the various missions, and works with State Department to submit a joint budget to the U.S. Office of Management and Budget (OMB) and Congress in its Congressional Budget Justification (CBJ).

For example:In FY 2013, the USAID/Mozambique Mission was preparing and submitting its budget request for funds to be received in FY 2015.

One year later, in FY 2014, Congress was reviewing and approving the funds for FY 2015.

And in FY 2015 the Mission receives the FY 2015 funds they requested in FY 2013.

Expressed another way: In Fiscal Year, 2015, three things are happening with respect to USAID’s budget cycle:

USAID is requesting funds for use in FY 2017 The Congress is approving funds for FY 2016


USAID is receiving funds for FY 2015

Theoretically Missions receive their FY 2015 in FY 2015, but realistically often not until closer to the end of the fiscal year. This can affect our partners who receive their funding yearly. The funds flow:

OMB USAID/W Geographic Bureaus Missions Partners (Africa Bureau)

When the funds for a particular year have become available in USAID/Washington, the Mission receives a “Budget Allowance” from USAID/W that is communicated by e-mail or cable. This tells the Mission that they have the funds for a particular year and how much by each Program Objective, Program Area, Element, and Sub-Element.

Normally there are Development Objective Agreements (DOAGs) between USAID and the host country government, usually one for each Program Objective, in which we “Obligate” the funds to a whole set of activities, usually by Program Area, Program Element and Sub-Element. Obligating the funds means that they are approved, they are available, and USAID is making a commitment to the host government to use the funds in furtherance of results as described by the Sub-Element, Element, and Program Area.

Once funds are obligated in DOAGs, Mission Technical Offices (Health, Education, etc.) prepare Project Appraisal Document (PADs), which outline in more detail what activities should be carried out to achieve the desired results and how these activities support the overall goals and objectives as stated in the strategy and expressed in the framework. Once a PAD is approved by the Mission Director, a requisition is prepared by the Mission which sets aside (sub-commits) the funds for the particular activity and requests USAID to enter into an agreement with one or more implementing partners.

Finally, once funds are sub-committed for a particular activity, USAID can sub-obligate funds through contracts, grants, cooperative agreements, or other implementing instruments to individual organizations that carry out the activities, like NGOs, contractors, host government agencies, etc.

Allowance Cable Funds Allowed to USAID/Mozambique

DOAG Obligation

PAD Mission Director Approval of Broad Activities

REQUISITION Sub-commitment

Grant, COAG, Contract Sub-obligation


CHAPTER 2: FINANCIAL MANAGEMENT STANDARDS

All USAID recipients are required to establish and maintain accounting systems and financial records to accurately account for funds awarded to them. USAID does not prescribe a particular accounting system for the recipients; however, recipients’ accounting systems must meet certain requirements. These requirements establish the minimum standards necessary to achieve consistency in the financial administration of USAID funded projects.

A. Minimum Standards for Recipients’ Financial Management Systems

1. Accurate, current and complete disclosure of the financial results. The financial management system should ensure that financial data is reliable, up to date, and inclusive of all transactions necessary for timely preparation of reports. It is the responsibility of recipients to process all transactions in a timely manner and to verify the accuracy of all transactions posted to their projects and account. The quality of management decisions relies heavily on the quality of the data available.

2. Records that identify adequately the source and application of funds.The Financial Management System should be able to segregate data so as to identify where the funds are coming from and to what use the funds have been committed. USAID funds should be recorded and accounted for separately from other funds (other donors or recipient’s own funds).

3. Effective control over, and accountability for, all funds, property, and other assets. Recipients should adequately safeguard all such assets and assure they are used solely for authorized purposes. Extreme care must be exercised in safeguarding cash and items easily convertible to cash, such as accounts receivable. Appropriate physical safeguards must be employed to protect all assets.

4. Comparison of disbursement with budget amounts for each grant activity.Whenever appropriate, financial information should be related to performance and unit cost data. Actual expenditures or outlays must be compared with budgeted amounts for each grant or sub-grant.

5. Written procedures for determining the reasonableness, allocability, and allowability of costs Recipients should have in place written procedures to justify expenditures are incurred in a prudent manner. These procedures should help to determine that any cost incurred for the award is necessary for the award and consistent with policies and procedures.


6. Accounting records that are supported by source documentation.Supporting documentation must be relevant, valid, and adequate to provide evidence that the transaction took place.

B. Accounting Records, Forms, and Project FilesThe following standard accounting records should be maintained to properly account for USAID funds and other assets under the project:

1. General Journal: The purpose of the general journal is to record day-to-day transactions as they occur, with a brief description of each transaction.

2. General Ledger: The general ledger summarizes all entries made in the books of original entry (cash receipts book, cash disbursements, journal voucher, etc.) These books are the basis for the preparation of the financial statements.

3. Subsidiary Records: The subsidiary records must be maintained as a minimum requirement that correspond to the chart of accounts, for example: Payroll Register, Fixed Asset Register, Petty Cash Register, Advances/Accounts receivable subsidiary ledger, Accounts payable subsidiary ledger.

4. Standard Forms: There are three main types of standard forms.

a) Accounting Forms: Accounting forms serve as the method of documenting transactions that are recorded in the accounting records. The following list identifies some of the accounting forms that provide the basis for an efficient accounting system:

Cash receipt voucher Acknowledgement of receipt of goods or services Disbursement voucher Cash advance (petty cash) requisition Petty cash analysis/replenishment form Bank reconciliation form Journal Voucher

b) Personnel Forms: Job description form Job application form Record of solicitation notice, interview, and selection Standard contract/employment forms Performance evaluation forms Employee time and attendance cards Annual/sick/other leave forms Employee pay record forms Overtime authorization forms


c) Procurement Forms: Purchase request order form Purchase order form Receiving and inspection report form Technical Evaluation Memo Warehouse receipt/issuance form Procurement of expendable supplies form Work order/request for services form

5. Project Files: Files should be maintained in an orderly manner to facilitate easy & prompt retrieval. The following list identifies the basic files that should be maintained to ensure proper accountability for a project:

Original agreement files and amendments, including related correspondence. Budgets and their modifications. Voucher and/or payment document files by sequential number and period

covered. Personnel files. Purchase order and contract files. Financial policies and procedures files or manuals. Payroll and time attendance files. Audit files. Financial reports. Other files as the activity may require facilitating reference.

6. Supporting Documentation: Transactions must be supported by original documentation, as noted below:

a) Small Purchase Transactions – Original receipt or/and invoice

b) Major Procurement Purchase requisition Tender offers (evidence of competitive bids) Purchase order Contract Receiving and inspection report Invoice

c) Overseas Travel Hotel receipts for lodging Travel vouchers Original ticket

d) Surface Travel


Original cancelled ticket from common carriers, e.g., buses or trains Car rental contract and original receipt Travel voucher

e) Leased Office Space Original signed lease agreement Original receipts for rent paid

f) Salaries and Benefits Original contract with employee Time and attendance records Signed payroll sheets indicating receipt of payment Evidence of withholding of taxes & Social Security imposed by host country and

remittance of these withholdings to the proper authorities.

C. Cost Principles

1. Introduction: A cost is considered acceptable if it is allowable under USAID rules and regulations.

a) Allowable Cost: To be allowable under an award, costs must meet the following general criteria:

i. Be reasonable for the performance of the award and be allocable under these principles;

ii. Conform to any limitations or exclusions as to "types" or "amounts" of cost items such as limitations in the award budget or other award financial plans.

iii. Be consistent with policies and procedures that apply uniformly to both USAID financed and other activities of the organization;

iv. Be accorded consistent accounting treatment;v. Be determined in accordance with generally accepted accounting principles.

vi. Not be included as a cost or cost sharing of any other programs financed by USAID (or any other source, such as other donors) in either the current or a prior period; and

vii. Be adequately documented.

b) Reasonable Costs: A cost is reasonable if, by its nature or amount, it does not exceed the cost that would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. In determining the reasonableness of a given cost, consideration should be given to:

i. Whether the cost is of a type generally recognized as ordinary and necessary for the operation;

ii. Whether the individuals concerned acted with prudence in the circumstances;


iii. Restraints or requirements on the cost that are imposed by such factors as generally accepted sound business practices; and

iv. Significant deviations from the established practices of the organization which may unjustifiably increase award costs.

c) Allocable Costs: A cost is allocable to an award in accordance with the relative benefits received and if it:

Is incurred specifically for the activities financed under the award. Benefits the activities under the award and can be distributed in reasonable

proportion to the benefits received.

Note: A cost allocable to a particular award may not be shifted to other USAID award or awards to overcome funding deficiencies or to avoid restrictions imposed by law or by the terms of the award.

d) Advance Understanding Between USAID and the Implementing Agency (IA): Under any award, the reasonableness and allocability of certain items of costs may be difficult to determine. This is particularly true with organizations that receive most of their support from USAID. In order to avoid subsequent disallowance or dispute based on unreasonableness or non-allocability, it is often desirable to seek a written agreement with USAID in advance of incurring special or unusual costs. The absence of an advance agreement on any element of cost will not, in itself, affect the reasonableness or allocability of that element.

e) Composition of Total Cost: The total cost of an award is the sum of the allowable direct costs less any applicable credits.

i. Direct Costs: Normally, all costs financed by USAID through an award are direct costs. Direct costs are those that can be identified specifically with a particular final cost objective such as a particular grant, project, service, or other direct activity of an organization. Examples of direct costs in the recipient's budget include such costs as:

Personnel costs Procurement of consultant services Procurement of commodities Cost of research activities

ii. Applicable Credits: The term applicable credit refers to those receipts or reductions of expenditures, which offset or reduce expense items that are allocable to awards. Applicable credits reduce the quoted price of a product or service. Examples of applicable credits include:

Purchase discounts Recoveries or indemnities on losses Insurance refunds


Adjustments for overpayments or erroneous charges Reimbursed VAT

2. Critical Cost Items: (See OMB circular A-122 as revised)

a) Illustrative Cost Items: The following list shows examples of cost items that might be incurred under an award, project, service or other activity of an organization. Depending on the agreement or prior approval by the Agreement Officer, these cost items may be allowable or unallowable.

Advertising costs Bad Debts Communication costs Compensation for personal services Donations and Contributions Host country cash contributions Host country in-kind provision of services, goods and space Employee benefits Entertainment costs Equipment and other capital expenditures Fines and penalties Interest and investment management costs Insurance Maintenance and repair costs Materials and supplies Meetings and conferences Memberships, subscriptions, and professional activity costs Organization costs Overtime In-country training and education costs (for non-employees) Professional service costs Public information service costs Publication and printing costs Rearrangement and alteration costs Recruiting costs Rental costs Taxes, tariffs, duties and other levies Training and education costs (for employees) Transportation costs Travel costs

b) Discussion of Selected Critical Cost Items: The following represents discussion of selected cost items.


i. Advertising Costs: Advertising costs are the costs of media services and associated costs. Media advertising includes magazines, newspapers, radio and television programs, exhibits, etc. Only those advertising costs related to the activities listed below are allowable:

Recruitment of personnel when considered in conjunction with all other recruitment costs

Procurement of goods and services Disposal of surplus materials acquired in the performance of the award Specific requirements of the award

ii. Bad Debts: Bad debts, including losses (whether actual or estimated) arising from uncollectible accounts and claims, and any related collections or legal costs are unallowable

iii. Communication Costs: Costs incurred for communications such as telephone services, local and long distance telephone calls, telegrams, radiograms, postage, etc., are allowable if incurred specifically for activities financed under the award.

iv. Compensation for Personal Services: Compensation for personal services includes all compensation paid for services of employees rendered during the period of the award. It includes, but is not limited to salaries, wages, incentive awards, and fringe benefits.

Reasonableness of Personal Services Costs: Compensation for employees on USAID-sponsored work is considered reasonable when:

It is consistent with that paid for similar work in the recipient's other activities

It is comparable to that paid for similar work in the labor markets in which the recipient competes for the kind of employees involved

It is consistent with the organization’s policy and does not exceed what USAID allows

Allowability of Personal Services Costs: Compensation for personal services are allowable to the extent that total compensation to individual employees is reasonable for the services rendered and conforms to the established policy of the recipient as applied to both USAID and non-USAID activities.

Fringe Benefits: Fringe benefits such as vacation leave, sick leave, maternity leave, and the like are allowable if these costs are in accordance with the recipient's approved internal personnel policy.

Incentive Compensation: Incentive compensation, including payments to employees based on cost reduction, performance, suggestion awards, safety awards, and the


like, in the absence of USAID prior written approval, and the like are unallowable. (These costs should be in accordance with the recipient's approved internal policy).

Salary Supplements: A salary supplement is defined as any payment which is additive to the regular pay and allowances that Host Country employees would be entitled to under existing Host Country regulations and practices for the positions in which they are officially assigned. Salary supplements are unallowable.

Overtime: Premiums for overtime work are unallowable unless written prior approval is obtained from USAID.

Supporting documentation for Salaries and Wages: Charges to awards for salaries and wages will be based on documented payrolls, employees’ contracts, position descriptions, supported time and attendance reports, and approval by responsible officials of the recipient.

i. Entertainment Costs: Costs for amusement, diversion, social activities, ceremonials, and costs for entertainment such as meals, lodging, rentals, transportation, and gratuities are unallowable.

ii. Equipment and Other Capital Expenditures: Capital expenditures, such as the acquisition or improvement of land, buildings, or equipment, are unallowable except with prior written approval of USAID.

iii. Maintenance and Repair Costs: Costs incurred for necessary maintenance, repair, or upkeep of buildings and equipment, are unallowable except with prior written approval of USAID.

iv. Meetings and Conferences: Costs associated with the conduct of meetings and conferences, including the cost of renting facilities, meals, speakers' fees, and the like are allowable if specifically budgeted according to a detailed financial plan and authorized in the award.

Costs of attendance at meetings and conferences sponsored by the host country or others, when the primary purpose is the dissemination of technical information, are allowable. This includes costs of meals, transportation, and other items incidental to such attendance.

Care must be taken not to charge the award for both subsistence paid to individuals and for payments made to a hotel or other facility for the cost of attendance at meetings and conferences. For example, if an individual receives per diem to attend the meeting or conference and also receives meals during the meeting or conference, the recipient is obligated to either reduce the per diem or to collect an


appropriate amount from the individual, in order not to incur double charges to the award for the same cost.

v. In-Country Training and Education Costs For Non-Employees: (For employee training and education costs, see Item (xi) below.)

The costs of the preparation and implementation of in¬-country training and education programs and workshops are allowable if they relate to a training element in the award and have been approved by USAID in advance. Except as otherwise provided in the award, such costs may include the following: Training materials and preparation of audiovisual aids Text books Duplication of materials and copying costs Fees charged by the educational institution Salaries and related costs of instructors Honoraria for guest speakers (see also Section on Honoraria for more details) Travel allowances Maintenance of facilities owned or leased by the recipient for training purposes Fair rental cost of commercial facilities for training purposes Stipends or subsistence allowances, Meals or coffee breaks provided in a workshop or training situation are allowable

provided that they are necessary to achieve the objectives of the training program. Award funds may not be used to pay subsistence expenses to training participants at their official duty station even where unusual working conditions are involved.

Scholarships, contributions or donations to educational or training institutions, including the donation of facilities or other property, are unallowable.

vi. Rental Costs:

Real Property: Real property rental costs are allowable to the extent that the rates are reasonable. In terms of such factors as: rental costs of comparable property, if any; market conditions in the area; alternatives available; and the type, condition, and value of the property leased.

Vehicles and Nonexpendable Property: Rental costs for these items are allowable only to the extent they are stipulated in the award.

vii. Training and Education Costs for Employees: Training and education costs described below are allowable only with the prior written approval of USAID, and if they are included in the agreement.

Training Programs: Costs of preparation and maintenance of a program of instruction, including but not limited to, classroom, on-the-¬job, and apprentice


training, designed to increase the vocational effectiveness of employees. These costs include:

Training materials Textbooks Tuition and fees when the training is at an institution not operated by

the recipient Rental of facilities

Award funds may not be used to pay subsistence expenses or provide free meals to employees at their official duty station even where unusual working conditions are involved.

Short-Term Specialized Programs: Costs for attendance of up to 16 weeks per employee per year at specialized programs specifically designed to enhance the effectiveness of executives or managers or to prepare employees for such position. Such costs include enrollment fees, training materials, textbooks and related charges, employee salaries, subsistence, and travel.

Part-time and Full-time College Level Education: When such costs are specifically included in the agreement between USAID and the recipient partner and the course or degree pursued is directly relative to the field in which the employee is now working or may reasonably be expected to work, costs related to part-time or full-time college level education may be allowable. Costs include training materials, textbooks, tuition, and fees. Part-time education covers undergraduate and postgraduate levels, while full-time education is for postgraduate level only and is limited to one school year.

viii. Transportation Costs: Transportation costs include freight, express, cartage, and postage charges related either to goods purchased, in process, or delivered. These costs are allowable. When these costs can readily be identified with the items involved, they may be directly charged as transportation costs or added to the cost of such items if paid simultaneously.

ix. Travel Costs: Travel costs cover the expenses for transportation, lodging, subsistence, and related items incurred by employees of the recipient who are in travel status on official business. Travel costs are allowable, subject to the three criteria below, when they are directly attributable to specific work under an award:

o Travel costs may be charged on an actual basis, or on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used results in charges consistent with those normally allowed by the recipient in the conduct of its regular operations.

o Air travel by other than economy class is unallowable.


o Foreign travel costs are allowable only when prior written approval has been received from USAID. Foreign travel is defined as any travel outside of the Host Country. Each foreign trip must be approved separately.

3. Examples of Unallowable Costs: The following types of expenses are examples of unallowable costs: Note that this is not an all-inclusive list

a) Advertising, with the exception of advertising for personnel, procurement, workshops and other advertising necessary to meet project needs

b) Bad debts and losses arising from other activities outside of project business. Any excess of costs over income on any award is unallowable as a cost of any other award. This includes, cost sharing and indirect costs. This means that you cannot transfer losses from other activities or projects and absorb them to the USAID project.

c) Commissions and contingency fees

d) Compensation outside of normal compensation policy

e) Contributions and donations

f) Customs duties

g) Depreciation

h) Dividend payments

i) Entertainment costs

j) Expressions of good will and/or condolences

k) Fines and penalties

l) Gifts

m) Interest

n) Lobbying costs

o) Losses on disposition of capital assets

p) Losses on other contracts including the recipient's contribution under cost-sharing contracts


q) Organization costs of business

r) Personal expenses such as coffee, tea and sugar

s) Retainer fees not supported by evidence of services performed

t) Salary supplements to host country employees

u) Employer's share of Social Security payments

v) Taxes


CHAPTER 3: INTERNAL CONTROL

A. Definition of Internal ControlInternal Control is defined as a process, affected by an entity’s Board of Directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

Effectiveness and efficiency of operations, Reliability of financial reporting, Safeguarding of assets Compliance with applicable laws and regulations

Internal control should exist in the basic management processes of planning, executing, and monitoring. It should not be viewed as an add-on to these basic management processes but should be viewed as an integral part of them and should be placed at strategic points in these processes to ensure that objectives are achieved.

B. Fundamental Concepts of Internal ControlFollowing are key concepts that underlie internal control:

A continuous, built-in component of operations, Internal Control is not one event, but a series of actions and activities that occur throughout an entity’s operations and on an ongoing basis. Internal control should be recognized as an integral part of each system that management uses to regulate and guide its operations rather than as a separate system. In this sense, internal control is a management control that is built into the entity to help managers run the entity and achieve their goals on an ongoing basis.

Internal Control is affected by People: People are what make internal control work. The responsibility for good internal control rests with all managers. Management sets the objectives, puts the control mechanisms and activities in place, and monitors and evaluates the control. However, all personnel in the organization play important roles ensuring controls are effective.

C. Components of Internal ControlInternal Control consists of five interrelated components. These components are:

Control Environment Risk Assessment Control Activities Information and Communication Monitoring


1. Control Environment: The control environment is the attitude that management has about internal controls. If management believes that internal controls are important, is committed to implementing controls, and communicates this view to employees, then internal controls are more likely to function effectively. However, if management views internal control as unimportant or as an obstacle, then this attitude will likely be communicated to employees through management's actions. An effective control environment is an intangible factor that sets the foundation for all other components of internal control.

Factors that affect the control environment include: Integrity and ethical values Commitment to competence Management’s philosophy and operating style Organizational structure Assignment of responsibility and authority Human resource policies and practices Management's monitoring of performance Budget control Compliance with laws & regulations Changing conditions

2. Risk Assessment: All organizations have certain risk involved in meeting their objectives (or providing services to their customers). This is based upon the premise that opportunity and risk are related; therefore, an organization is exposed to risk by simply fulfilling the opportunity that it has to achieve objectives. Risk assessment is the process used to identify, analyze, and manage the potential risks that could hinder or prevent an organization from achieving its objectives or lead to fraud, abuse, mismanagement, or waste of organization resources.

3. Control Activities: Control Activities are the policies, procedures, techniques and mechanisms that enforce management's directives. They help ensure that actions are taken to address risks. They include a wide range of diverse activities such as:

a) Authorization - Transactions and procedures are authorized in accordance with laws, regulations, and management policy.

b) Approval - Appropriate individuals approve recorded transactions in accordance with management's criteria.

c) Segregation of Duties - Separating responsibilities for approving, executing, recording, and maintaining custody of assets.


d) Design & Use of Records - Transactions & events are properly recorded (i.e. Use of pre-numbered forms).

e) Safeguards Over Access to and use of Assets & Records - Protects assets & records against physical harm, loss, or misuse.

f) Independent Checks and Reconciliations to third parties - Checks validity, accuracy and completeness of financial or other data. For example, checking reasonableness of prices with vendors; reconciling accounts against bank records).

4. Information and Communication: Information should be recorded and communicated to management and others within the entity who need it and in a form and within a timeframe that enables them to carry out their responsibilities.

To be effective, the information and communication system must accomplish the following objectives:

Describe transactions on a timely basis Measure the value of transactions properly Identify and record all valid transactions Record in the proper time period Present and disclose financial statements properly Communicate responsibilities to employees

5. Monitoring: Subsequent to implementing internal controls, organizations should periodically monitor and evaluate their effectiveness to ensure that the controls are functioning properly. Potential weaknesses in internal control structure may be identified by audit reviews or observation by employees. When management is notified of these weaknesses, it should take corrective action to resolve the identified problems.


CHAPTER 4: FRAUD AWARENESS AND PREVENTION

The purposeThe main purpose of fraud awareness and prevention is to promote recipients’:

Effectiveness by providing an adequate and uncompromised environment to accomplish the organization purpose;

Integrity by encouraging organizational adherence to moral and ethical principles and standards;

Detection of fraud by setting conditions and check points to disclose and report malpractices;

Prevention of fraud through measures to impend or stop improper actions to happen.

Management should take the necessary steps to minimize the risk of fraud, waste, and abuse occurring within their organization. The establishment of a strong internal control environment is one of the best deterrents and methods of curtailing fraud. However, a strong system of internal control is no absolute guarantee that all cases of fraud will be prevented.

A. What is fraud?Fraud refers to a deliberate act that usually involves the use of deception to obtain financial benefit or advantage from a position of authority or trust that often results in some form of loss to the organization defrauded and the perpetrator achieving a gain or advantage.

Fraud encompasses “an array of irregularities and illegal acts characterized by intentional deception”, including the following: Bribery – offering something of value for the purpose of influencing the action of an

official or decision in the discharge of his or her public or official duties; Extortion – refers to obtaining by threat control over property. In most cases, it is

done through a declaration of an intention or determination to inflict punishment, injury, in retaliation for, or conditionally upon some action or course;

Corruption – encompasses the use of power or office for private gain, commonly associated with bribery;

Embezzlement - illegal transfer of money by someone entrusted with its care, usually done in small amounts over long period;

Misappropriation – illegal, wrongful and dishonest use of property or funds; Collusion - a secret agreement, especially for fraudulent or treacherous purposes. It

is close related to conspiracy where there is an evil, unlawful, treacherous or surreptitious plan to beat the system.

Some fraudulent practices can be committed covertly or hidden from the view or perception of the majority, while other fraudulent actions are done in the open, but disguised to appear as normal operations. Although robbery is generally more violent and more traumatic than fraud and attracts much more media attention, losses from fraud far exceed losses from robbery. In fact, fraud is a pervasive problem, occurring at an alarming rate in both the public and private sector contexts.

B. Fraud impactWhen committed, fraud may have a negative impact for the organization, beneficiaries and the relationship with donors:

Organization – damages organization performance, delays or wholly frustrates the organization’s efforts/goals, thus hindering the organization sustainability and ultimately resulting in the organization bankruptcy;

Beneficiaries - In most cases, fraud in an organization will prevent goods and services from reaching the intended project beneficiaries.

Relationship with Donor - Poor financial or operational performance due to fraud can lead to termination of the agreement/contract with USAID or other donors and consequent debarment of the organization.

C. Why fraud is committed—The Fraud TriangleThe Fraud Triangle is a model for explaining the factors that cause someone to commit occupational fraud, which is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of organization resources or assets. The fraud triangle consists of three components, which together lead to fraudulent behavior:

Pressure is significant factor in causing a person to commit fraud. Pressure can include almost anything including medical bills, expensive tastes, addiction problems, etc. Most of the time pressure comes from a significant financial need or problem. Often this need or problem is non-sharable in the eyes of the fraudster. That is, the person believes, for whatever reason, that their problem must be solved in secret. However, some frauds are committed simply out of greed alone.


Opportunity is the situation that enables fraud to occur. Because fraudsters don’t wish to be caught, they must also believe that their activities will not be detected. Opportunity is created by weak internal controls, poor management oversight, and through abuse of one’s position and authority. Failure to establish adequate procedures to detect fraudulent activity also increases the opportunities for fraud to occur. Of the three elements, opportunity is the leg that organizations have the most control over. It is essential that organizations build processes, procedures, and controls that don’t needlessly provide opportunities for employees to commit fraud and that effectively detect fraudulent activity if it occurs.

Rationalization is a crucial component in most frauds. Rationalization involves a person reconciling his/her behavior (stealing) with the commonly accepted notions of decency and trust. Some common rationalizations for committing fraud are:

The person believes committing fraud is justified to save a family member or loved one;

The person believes they will lose everything – family, home, car, etc. if they don’t take the money;

The person believes that no help is available from outside; The person labels the theft as “borrowing”, and fully intends to pay the stolen

money back at some point; The person, because of job dissatisfaction (salaries, job environment, treatment

by managers, etc.), believes that something is owed to him/her; The person is unable to understand or does not care about the consequence of

their actions or of accepted notions of decency and trust.

D. Fraud AwarenessIn view of the widespread prevalent pressure to commit fraud, organizational management should design and maintain efficient and effective strategies to prevent fraud or at least to reduce its impact or incidence of the relevant anomalies.

Breaking the Fraud Triangle is the key to fraud deterrence and implies that an organization must remove one of the elements in the fraud triangle in order to reduce the likelihood of fraudulent activities. Of the three elements, removal of Opportunity is most directly affected by the system of internal controls and generally provides the most actionable route to deterrence of fraud.

E. Anti-Fraud Policy and ProgramAnti-fraud policy is based on the organizational objectives, principles, and core-values. The anti-fraud program outlines the actions, activities, and procedures to be taken to achieve the set objectives. An important part of the anti-fraud program is the internal


controls. Both anti-fraud policy and program are based on documents that form the ethical culture of the organization and will prescribe how cases of fraud or suspected fraud are dealt with.

The policy is an important step in demonstrating the entity’s resolve to resist, reject, and report fraud. Management should set forth clearly in written policies:

its commitment to fair dealing; Its position on conflict of interest; Its requirement that only honest employees be hired; Its insistence on strong internal controls that are well policed, and Its resolve to prosecute the guilty.

The fundamental elements of an effective anti-fraud program that should be established by each organization are:

Creating and maintaining a culture of honesty. Evaluating the risks of fraud and implementing the processes, procedures and

controls needed to mitigate those risks Developing an appropriate oversight process

1. Creating a Culture of Honesty and High EthicsThe first step in develop an effective system to prevent fraud in the organization is creating a strong culture of ethics and integrity throughout the organization. Creating a culture of honesty and high ethics should include the following:

Setting the tone at the top Creating a positive workplace environment Hiring and promoting appropriate employees Training Confirmation Discipline

Setting the Tone at the Top: The cornerstone of an effective anti-fraud environment is a culture with a strong value system founded in integrity. The code of ethics should reflect the core values of the entity and guide employees in making appropriate decisions during their workday. The code of ethics might include such topics as ethics, confidentiality, conflict of interest, intellectual property, sexual harassment and fraud.

Creating a Positive Workplace Environment:Without a positive workplace environment, there are more opportunities for poor employee morale, which can affect an employee’s attitude about committing fraud against an entity. Factors that detract from a positive work environment and may increase the risk of fraud include:

Negative feedback and lack of recognition for job performance Perceived inequities in the organization


Fear of delivering “bad news” to supervisors and/or management Less-than-competitive compensation Poor training and promotion opportunities Lack of clear organizational responsibilities Poor communication practices or methods within the organization

Hiring and Promoting Appropriate Employees:If an entity is to be successful in preventing fraud, it must have effective policies that minimize the chance of hiring or promoting individuals with low levels of honesty, especially for positions of trust. Proactive hiring and promotion procedures should include:

(i) Conducting background investigations on individuals being considered for employment or for promotion to a position of trust

(ii) Thoroughly checking a candidate’s education, employment history, and personal references

(iii) Incorporating into regular performance reviews an evaluation of how each individual has contributed to creating an appropriate workplace environment in line with the entity’s values and code of ethics.

Training:New employees should be trained at the time of hiring about the entity’s values and its code of ethics. This training should explicitly cover expectations of all employees regarding (1) their duty to communicate certain matters, (2) a list of the types of matters, including actual or suspected fraud, to be communicated along with specific examples, and (3) information on how to communicate those matters. In addition to training at the time of hiring, employees should receive refresher training periodically thereafter.

Confirmation (signature of code of ethics):All employees, particularly those working within senior management and the finance function, as well as other employees in areas that might be exposed to unethical behavior (for example, procurement, disbursement, and receipting), should be required to sign a code of ethics. Requiring periodic confirmation by employees of their responsibilities will not only reinforce the policy but may also deter individuals from committing fraud and other violations and might identify problems before they become significant. The confirmation shall reiterate the employee’s obligation to report fraud, waste, and abuse of organization resources.

Discipline:A thorough investigation should be conducted for each alleged incident of fraud. If allegations of fraud are substantiated, then appropriate and consistent actions should be taken against violators. Expectations about the consequences of committing fraud must be clearly communicated throughout the entity. For example, a strong statement from management that dishonest actions will not be tolerated, that violators will be


terminated and referred to the appropriate authorities can be a valuable deterrent to wrongdoing.

2. Evaluation Processes and ControlsNeither fraudulent financial reporting nor misappropriation of assets can occur without a perceived opportunity to commit and conceal the act. Organizations should be proactive in reducing fraud opportunities by:

Identifying and measuring fraud risks Taking steps to mitigate identified risks

Identifying and Measuring Fraud RisksThe fraud risk-assessment process should consider the vulnerability of the entity to fraudulent activity (fraudulent financial reporting, misappropriation of assets and corruption) and whether any of those exposures could result in a material misstatement of the financial statements or material loss to the organization.

The nature and extent of management’s risk assessment activities should be commensurate with the size of the entity and complexity of its operations. For example, the risk assessment process is likely to be less formal and less structured in smaller entities. However, management should recognize that fraud can, and does, occur in organizations of any size or type. Accordingly, management should develop a heightened “fraud awareness,” an appropriate fraud risk-management program and appropriate oversight.

When considering fraud risks in specific operations, management must determine which operational areas are most susceptible to fraud risk. Areas with previous losses, areas handling cash, procurement processes, and areas distributing and administering grants are examples of areas that may be more susceptible to fraud.

Taking Steps to Mitigate Fraud RisksOnce risk areas are identified by management, it is necessary to evaluate the adequacy of existing internal control activities and determine if further controls or changes to existing controls are required to reduce or eliminate the risk. Although there may be high risk fraud indicators in certain instances, other compensating measures may exist to mitigate the weakness in controls. It may be possible to reduce or eliminate certain fraud risks by making changes to the entity’s activities and processes. For example, the risk of misappropriations of funds may be reduced by implementing a central lockbox at a bank to receive payments instead of receiving moneys at the entity’s various locations. The risk of corruption may be reduced by closely monitoring the entity’s procurement process, etc.

3. Developing an Appropriate Oversight Process


Internal Audit Function: Management is encouraged to utilize an internal audit function in carrying out their oversight responsibility. An effective internal audit team can be extremely helpful in performing aspects of the oversight function.

Internal auditors can be both detection and a deterrence measure. In carrying out this responsibility, internal auditors should, for example, determine whether:

The organizational environment fosters control consciousness. Realistic organizational goals and objectives are set. Written policies exist that describe prohibited activities and the action required

whenever violations are discovered. Appropriate authorization policies for transactions are established and

maintained. Segregation of duties is formalized and prevalent throughout all organizational

functions. Policies, practices, procedures, reports, and other mechanisms are developed to

monitor activities and safeguard assets, particularly in high-risk areas. Communication channels provide management with adequate and reliable

information. Recommendations need to be made for the establishment or enhancement of

cost effective controls to help deter fraud

F. Fraud Risk Assessment ChecklistThe following are some of the fraud risk indicators that can be used as fraud indicators:

Are there new accounting, statutory or regulatory requirements that could impair the financial stability or profitability of the entity?

Are the following risk factors present when considering the susceptibility of assets to misappropriation? Large amounts of cash on hand or processed; Inventory characteristics, such as small size, high value, or high demand; Easily convertible assets Fixed asset characteristics, such as small size, marketability, or lack of ownership.

Is there a lack of appropriate management oversight (for example inadequate supervision or inadequate monitoring of remote locations)?

Are suitable procedures in place to screen job applicants for positions where employees have access to assets susceptible to misappropriation?

Is there adequate record keeping for assets susceptible to misappropriation? Are there appropriate segregation of duties and independent checks? Is there an appropriate system of authorization and approval of transactions (for

example, in purchasing)? Are there poor physical safeguards over cash, investments, inventory or fixed

assets? Does appropriate documentation exist for each transaction?


Is there a lack of mandatory vacations for employees performing key control functions?

Is there use of inappropriate hardware or software to perform important functions? Are there poor physical or logical access controls? Is there inadequate or inappropriate file access hierarchy? Is there a lack of a clear audit trail and transaction log? Is there shared or non-specific ownership of data? Is there a failure to restrict access to software and documentation to authorized

personnel? Are there program changes that have not been documented, approved and tested? Are there inappropriate data and program storage media? Are there inadequate detection procedures for system viruses? Are there transactions which are not recorded in a complete or timely manner or

improperly recorded with respect to amount, accounting period, classification, or entity policy?

Are there unsupported or unauthorized balances or transactions? Are there last-minute adjustments by the entity that significantly affect the financial

results? Is there evidence of the following?

Missing documents; Unavailability of other than photocopied documents when we expect original

documents to exist; Significant unexplained items on reconciliations including unreconciled suspense

accounts; Inconsistent, vague or implausible responses from management or employees

arising from inquiries or analytical or data analysis procedures; Fewer confirmation responses than expected or significant differences revealed

by confirmation responses; Missing inventory or physical assets of significant magnitude; Handwritten alterations to documentation, or handwritten documentation that

ordinarily is electronically printed; Significant difficult to audit figures in the accounts.

Do any of the following circumstances exist? Access denied to records, facilities, certain employees, customers vendors or

others from whom we might seek audit evidence; Undue time pressures imposed by management to resolve complex or

contentious issues or audit completion; Limitation in audit scope imposed by management; Unusual delays by the entity in providing information we request; Tips or complaints to the auditor about fraud;

Does any of the following behavior exist? A reluctance by management to engage in frank communication with

appropriate third parties such as regulators and bankers;


Evidence of an unduly lavish lifestyle by officers and / or employees; Aggressive application of accounting principles. Requiring excessively high stock levels and inventories to justify continuing

purchasing from certain contractors. Declaring items as excess and selling them while continuing to purchase similar

items. Purchasing items in response to favors, bribes or gratuities rather than valid

requirements. Improperly defining needs in ways that can be met only by specific contractors. Estimates are not prepared or are prepared after solicitations are requested. The receipt of goods and services is certified even though physical inspections

have not been performed. Contractors fail to meet the contract terms but nothing is done to force

compliance. Materials are provided to the contractor even though the contractor is being

paid to provide them. (Office space, furniture, Computer) Unsuccessful bidders usually become subcontractors after the contract is

awarded

G. Reporting fraudIt is the responsibility of the recipient to ensure that all employees are aware of the procedures to follow when fraudulent activity is suspected. The management should establish trusted channels of communication and put in place internal mechanism to ensure that all suspected fraud is reported so that they can be fully investigated and appropriate measures can be taken against perpetrators.

If fraud is suspected on USAID-funded projects, the recipient management should immediately take the following steps:

Immediately notify USAID/Mozambique – AOR/COR, OAA office, or OFM, providing basic information known about the suspected fraud. It is not necessary to have absolute proof of fraudulent activity before informing USAID. Even if only suspected, fraud allegations must be reported. Confidentiality will be maintained while further investigation is ongoing.

USAID/Mozambique will notify USAID’s Regional Inspector General’s Office (RIG). USAID is required to report any suspected fraud possibly involving USAID funds to our RIG. RIG decides whether they will open an investigation, or advice USAID/Mozambique to work with the implementing partner to ensure appropriate actions are taken; however, RIG has the right of first refusal.

Contact local authorities when appropriate

The Regional Inspector General also a whistleblower hotline that can be used to report cases of fraud. This is a complete confidential line, where the identity of the users is protected:

IG Hotline (800-230-6539 or 202-712-1023)


or by e-mail [email protected] Office of Inspector General (Tel: +27-12-452-2329 or fax: +27-12-346-2280).


mailto:[email protected]

H. Case Studies: FRAUD AWARENESS AND PREVENTION

Case Study I: CSP An organization known as Civil Society Platform (CSP) was awarded a $3,000,000 Cooperative Agreement for a two-year program to support its activities in monitoring local government institutions performance and advocating changes in policies to improve the wellbeing of local communities. USAID agreed to provide monthly advances to be expended within 30 days and liquidated 30 days later. CSP submitted the first liquidation report for the initial $120,000 advance four months later. The USAID Financial Analyst performed a financial oversight to verify the liquidation supporting documents, with the following findings:

Out of the $120,000 advanced, CSP had disbursed $45,000 within the authorized 30 days. $55,000 were disbursed after that period and $20,000 were kept in CSP bank account;

Procurement processes for transportation, meals, and accommodation services to organize 10 workshops at district level, involving a total of 200 participants, and costing $22,000 included at least three quotations, but all services were awarded to one company. Despite several attempts, the USAID Financial Analyst never managed to contact or locate the company that was paid for providing these services. Additionally, no evidence of such workshops taking place had been provided. CSP management said that those purchases were directly conducted by the Program Manager, and he attended all workshops. Unfortunately, the Program Manager was absent and incommunicable during the financial oversight, because he had to attend a funeral of close relative in a remote village; Besides authorizing all expenses by himself, the Financial Manager signed all bank checks with the Program Manager. All bank checks were of large amounts and issued to the bearer, who in all cases was the Financial Assistant of CSP. The Financial Assistant, in turn, withdrew the cash and passed small cash amounts to the Program Manager who made the payments to the vendors. In most cases, payments to the vendors, as evidenced by the receipt dates, were made three or four weeks after the corresponding amount had been withdrawn from the bank. No cash counts have been performed by CSP; CSP did not provide any supporting documentation for $35,000 of expenses claimed, stating that the suppliers did not provide invoices and receipts in time;

Signatures on a list of payments made to 70 local community activists invited from neighbor districts totaling $7,000 for their M&E and lodging expenses to

participate in workshops seemed to have been made by the same person: since the same handwriting signed all lists;

The total amount of $1,750.00 has been withheld from all employees for the Social Security, but has not been paid to INSS;

Right after receiving the first advance, the Project Manager was paid $25,000 to attend an intensive two-month course in South Africa on Managing Civil Society Organizations.

ASSIGNMENT: Discuss this case considering the following questions:

What do you believe happened with the total of $120,000 advance given by USAID? What is the basis for your suspicion?

What do you think were the weaknesses in CSP systems that might have led to this situation?

What is the level of responsibility of the Project Manager, Financial Manager, Program Manager, and Financial Assistant in what went wrong? Do you think there was collusion among them?

If you were the Chief of Party for this program, what steps could you take?


PHS Case Study

USAID funded a local NGO, PHS (Primary Health Services) to carry out health activities. One of the main activities of PHS under its agreement with USAID was to purchase Health Kits to be provided to local health clinics for their patients’ use at home. PHS had four employees to run the project: The Project Director, a Project Accountant, a Technical Advisor, and an Administrative Assistant. PHS also has a Board of Directors of four individuals from the local community, some of whom have little education. Only one signature is needed on project checks, and there are four signatories who can sign checks: three members of the Board of Directors and the Project Director. The Project Director has been described as being very hands-off when it comes to the day-to-day running of the project. PHS has a warehouse where the Health Kits were to be stored, but inventory stock cards are not kept.

To purchase the Health Kits, the Project Accountant and the Technical Advisor worked together to select a certain local vendor to supply the kits. 500 kits would be needed in all throughout the life of the project at a cost of 1000 USD per kit for a total of 500,000 USD.

The first purchase order was made for 100 kits at 1000 USD per kit. The Project Accountant prepared the purchase request and the purchase order. The Technical Advisor arranged for the delivery of the 100 Health Kits to PHS’s warehouse and signed the receiving documents. The Project Accountant prepared a check in the amount of 100,000 USD which was signed by the Project Director. A receipt was received from the vendor who supplied the kits and filed by the Project Accountant.

A few months later, the Project Accountant again prepared purchasing documents to the same vendor. Some Health kits were received by the Technical Advisor at the PHS warehouse, and the Project Accountant had one of the members of the Board of Directors sign a check to the vendor for 150,000 USD to pay for 150 kits. The Project Accountant prepared a receiving report showing 150 kits were received in this second order, but the vendor when questioned several months later showed documentation that he was only asked to supply 75 Health Kits in the second order, not 150, and only received payment of 75,000 USD .

A month after the second order, the Project Accountant prepared purchasing documents once more for the supply of 250 more kits, citing the same vendor. The Project Accountant prepared a check for 250,000 USD in the name of the vendor, which the Project Director signed. The Project Accountant prepared a receiving report showing that 250 kits were received. It was later determined that no kits from this third order could be located. Upon being questioned months


later, the vendor denied ever filling a third order for 250 kits or receiving payment for this order.

The USAID Activity Manager began to notice that PHS was behind on implementation of most of their activities. A training session they were supposed to hold in the use of the Health Kits did not take place on schedule and was continually delayed. The local clinics who were supposed to receive the Health Kits were reporting that they could not get new Health Kits to replace their stock. The USAID Activity Manager, who monitors PHS and reviews the financial reports monthly, was concerned that the reports were not being submitted as scheduled. When they finally arrived they were missing supporting documentation. The Activity Manager became alarmed and visited PHS, where he discovered that there was no inventory record of the 500 Health Kits, and only 30 Health Kits were found in the warehouse. In examining the purchase and payment files, he noted that the first receipt received from the vendor who supplied the Health Kits looked different from the second and third receipts. For one thing, the vendor’s stamp on the first receipt was different than the other two, and the second and third receipts were photocopies.

Upon being questioned by the USAID Activity Manager, the PHS Project Director admitted to signing some checks for the Health Kits, but said he assumed that all the kits were received and delivered to the clinics. The Project Accountant under questioning gave a written statement admitting to fraudulent practices in the case of the second and third procurement and that he had cashed the second and third checks at a local bank. He also implicated the Technical Advisor as an accomplice. The Technical Advisor could not be located and was believed to have left Mozambique. The USAID Activity Manager reported the apparent fraud to the USAID Controller.

ASSIGNMENT: Discuss this case considering the following questions: What went wrong? What were the internal control weaknesses?

What do you believe the Project Accountant’s motives were (what did he gain

before getting caught?)

What factors may have contributed to the Project Accountant’s being able to initially succeed in his fraudulent activities?

Do you believe there was any collusion between the Project Accountant and either the vendor, the Technical Advisor, or the Project Director? Why or Why not?


CHAPTER 5: FINANCING MECHANISMS AND PAYMENTS METHODS

USAID uses a variety of financing methods to ensure that organizations receiving USAID funds have adequate and appropriate financing for work carried out under agreements with USAID. The most commonly used are Direct Reimbursement and Advances. USAID Agency policy designates the Letter of Credit (LOC) method of financing as the preferred method when an organization is eligible to use this method; however, non-U.S organizations are generally not eligible for LOCs. USAID/Mozambique prefers the use of the Direct Reimbursement method of financing for its recipients. However, for those recipients who are not eligible for LOCs and who have shown that their financial management systems meet Federal standards for fund control and accountability, the Periodic Advance method of financing may be used.

A. Direct Reimbursement for Goods and ServicesUnder the Direct Reimbursement method of financing, the USAID partner/recipient expends its own resources for goods and services for activities authorized in the project agreement and then requests reimbursement from USAID for actual cash disbursements. This method of payment may be used with any USAID grant or contract, whether for profit or non-profit.

For USAID grantees/recipients, this method may be selected when the recipient is deemed to have adequate working capital available, or may be required when it has been determined that the grantee’s financial systems do not meet requirements for managing advances. In addition, a recipient who has failed to properly manage periodic advances in the past may be required to operate on a reimbursement basis.

USAID can make Reimbursement payment by either direct Treasury check method or by Electronic Funds Transfer; however, USAID/Mozambique makes payments only by Electronic Funds Transfer. For most recipients, USAID will make payment as close as possible to the 30th day after receipt of the billing. For a recipient whose advance payment mechanism has been terminated, USAID may process such reimbursements expeditiously so as to minimize the time elapsing between disbursement by, and payment to, the recipient organization.

B. AdvancesU.S. Federal policy allows for provision of advances in reasonable amounts to U.S or non-U.S. non-profit organizations, certain educational and research institutions, and International Private Voluntary Organizations (PVOs). Advances of funds are normally


not given to profit-making organizations, except under certain very exceptional circumstances.

USAID program recipients may be given advances provided they are found to meet certain criteria. To be eligible for advances, recipients must be determined to have:

Written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient.

Financial management systems that meet the standards for funds control and accountability, usually determined through capability assessments, known as NUPAS.

USAID also conducts follow-up financial reviews to ensure that recipients continue to comply with fund control and accountability standards.

The two main types of funds advances are through Letter of Credit (LOC) or Periodic Treasury Advances:

1. 1. Letter of Credit (LOC) Letter of Credit Letter of Credit is an instrument that authorizes the recipient to request an electronic draw down (or advance) of funds through the Bureau of Management, Office of Financial Management, Cash Management and Payment Division, Grants and Interagency Billings

Team. LOC is the preferred financing mechanism under Assistance Awards for providing advances to qualifying non-profit organizations, public international organizations, and commercial organizations. General criteria for using LOCs are:

The amount being funded equal or exceeds $120,000 per year There is a continuing relationship with the organization of at least one year The organization’s financial management system meets Federal standards for funds

control and accountability.

Generally, an LOC is not issued to:

Non-U.S. organizations: those organized, located and operated outside the U.S. International Organization located overseas except for United Nations For fee or profit contracts except in rare instances with appropriate approvals

2. Periodic Treasury Advance by Check or Electronic Fund TransferPeriodic advances are sometimes used when the advance is justified, but the conditions for an LOC cannot be met. In cases where periodic advances are allowed the organization’s financial management system must still meet the Federal Standards for Fund Control and Accountability; otherwise the reimbursement method is required.


3. Amount of AdvancesAdvances shall be limited to the minimum amount needed for "immediate disbursing needs" and are paid as close as is administratively feasible to the actual disbursements being made by the recipient organization. Immediate disbursing needs are:

a) For periodic advances: up to 30 calendar days (one month) from the date received until expended.

b) For advances under LOCs, seven days or less.

c) For Relief Programs the full amount of a grant may be advanced at the time of issuance, if:

The grant is in response to requests for contribution to relief programs; Quick response is necessary; and The funds are to be disbursed over a short period.

4. Limitations on Advances/Excessive Advances

a) Termination of AdvancesWhen an organization receiving cash advances has demonstrated an unwillingness or inability to establish and maintain procedures that will minimize the time elapsing between cash advances and their disbursement, USAID/Mozambique will terminate advance financing and will require the recipient to finance its operations with its own working capital. Payment to such recipients would be made by direct reimbursement.

b) Collection of Excessive/Outstanding AdvancesUSAID Controllers are required to ensure that outstanding advances for recipients are monitored on a continual basis, and that funds advanced are not in excess of immediate disbursement needs. Funds in excess of immediate disbursement needs must be refunded to USAID.

When a recipient is given an advance of funds, a time schedule is established for liquidating and/or returning the funds. If the recipient is late or fails to report expenses within the given timeframe, USAID considers that the outstanding advance balance is overdue and will take the following actions:

(i) Withhold new advances or deduct from subsequent claims from the organization if the grant is still active.

(ii) After 60 days, USAID issues the first collection or request for payment letter.

(iii) After the third collection letter USAID will start the Bill for Collection (BFC) procedure.


(iv) For outstanding advances up to $10,000: USAID issues a BFC after 30 days from the third collection letter.

(v) For outstanding advances of more than $10,000, USAID issues a BFC within seven days of the third collection letter.

(vi) If the grant has expired, a BFC is issued immediately

(vii) Past due BFCs will accrue interest and administrative fees.

5) Bank Accounts and Interest Earned

Advances of U.S. Federal funds must be deposited into interest bearing accounts, unless:

a) The recipient receives less than $120,000 in Federal awards per year.

b) The best reasonably available interest bearing account is not expected to earn interest in excess of $250 per year on Federal cash balances. Interest amounts up to $250 per year may be retained by the recipient for administrative expenses.

c) The depository requires an average or minimum balance so high that it is not feasible within the expected Federal and non-Federal cash resources.

d) The requirement is specifically excluded by other legislative authority.

Except for Public International Organizations (PIOs), interest amounts up to $250 per year may be retained by the recipient for administrative expenses.

C. Payments

1. CurrencyFor locally-based recipients, the amount of the advance of funds or reimbursement will be made in currency referenced in the terms of the agreement. Note that additional funds will not be provided based on loss due to exchange rate fluctuations. Grantees may need to track their awards both in Meticais and U.S. Dollar amounts depending on the requirements of their individual agreement. Below are procedures for payments to USAID-funded recipients under both the advance and the reimbursement method.

All requests for reimbursement, Advance and liquidation must be submitted to OFM through the following address:


Office of Finance Management USAID Mozambique Payment Section JAT Complex Rua 1241, No. 41 Maputo,Mozambique [email protected]

Usually USAID/Mozambique does not require submission of invoices/receipts at the time of reimbursement or advance request; however these claims may be subject to payment verifications by USAID Financial Analysts at any time and may be subject to audit

2. Direct Reimbursement Payments:

a) On a monthly basis (or more often if necessary) RRecipients submit their request for Reimbursement composed of the following:

Standard form SF-1034 Financial Report: budget vs. actual for current month and year-to-date

expenditures

b) The USAID FMO will perform an initial review of the voucher and all supporting documentation for completeness and accuracy. If errors are found, the voucher will be returned to the partner with an explanation of the problem. If the voucher appears to be correct and complete, the FMO will assign a payment date (usually within 30 days).

c) After the FMO’s initial review, the voucher will be forwarded to the AOR for review and administrative approval.

d) The AOR reviews the voucher and supporting documents for accuracy and compliance with the agreement provisions and budget. If the AOR identifies any improper claims when reviewing the voucher, they will suspend either the amount of the improper claim or the entire voucher amount, and will send a letter to notify the recipient of the amount suspended and the reason for the suspension.

e) If the AOR finds the voucher to be proper, he/she will administratively approve and return the voucher to the FMO to prepare payment through the US Disbursing Office.

f) A payment will be requested to be made as close to the 30 th day after receipt of reimbursement request as possible. In Mozambique all payments are made by Electronic Funds Transfer (EFT). Following processing and certifying the payment, the bank transfer process can take an additional 7—8 days to reach the recipient’s bank account.


4. Advance Payments

a) Advance Issuance

(i) In order to obtain the initial advance, the recipient must request an advance for the initial thirty days period of projected cash disbursement needs in detail upon signing the award or shortly thereafter.

(ii) Subsequent advance payment requests must be submitted at least two weeks prior to the period for which funds are needed, to ensure sufficient liquidity.

(iii) Based on the approved budget and cash disbursements needs, the partner shall use the following templates to prepare advance payment request:

Standard Form 1034

Advance Detailed advance request form – Detailed justification

Financial Report - actual expenditures for the current month and year to date expenditures.

Advance reconciliation template (Only on subsequent advance request) - current reconciliation of advances received and liquidated for comparison with USAID’s records

(iv) Upon receipt of the advance request voucher, FMO does an initial review, and if there are no unliquidated advances (other than the immediately preceding advance issued), and if the request is found to be complete and generally in compliance with the agreement purpose and budget, the FMO assigns a due date.

(v) The FMO sends the voucher to the Agreement Officer Representative (AOR) for administratively reviewing/approving the advance. The AOR has the full authority to adjust the voucher if the amount is deemed to be excessive.

(vi) Upon receipt of the administrative approval, FMO processes the advance and requests an Electronic Funds Transfer from the U.S. Disbursing Office to the recipient’s bank account in time for it to be received by the beginning of the subsequent month assuming the advance request has been submitted on time and UNLESS there are any advances outstanding from prior months, or any advance liquidations have not been received on schedule.


b) Advance Liquidation

(i) USAID/Mozambique assigns two weeks after the advance period for the recipient to report (liquidate) actual disbursements; therefore, when an advance has been received in a previous month, recipients should submit the advance liquidation voucher no later than the 15th day following the end of that month. The advance liquidation voucher should be submitted to FMO along with the following:

standard Form 1034 Financial Report - actual expenditures for the current month and year

to date expenditures. Advance reconciliation report -current reconciliation of advances

received and liquidated for comparison with USAID’s records. Check of unused advance – excess of advance not used during the 30

days period. (ii) The FMO will perform an initial review of the liquidation voucher and all supporting documentation for completeness and accuracy. If errors are found, the voucher will be returned to the partner with an explanation of the problem. If the liquidation voucher appears to be correct and complete, the FMO will forward it to the AOR for review and administrative approval.

(iii) The AOR reviews the voucher and supporting documents for accuracy and compliance with the agreement provisions and budget. If the AOR identifies any improper claims when reviewing the voucher, they will suspend either the amount of the improper claim or the entire voucher amount, and will send a letter to notify the recipient of the amount suspended and the reason for the suspension.

(iv) If the AOR finds the liquidation voucher to be proper, he/she will administratively approve and return the voucher to the FMO to record the liquidation of the advance.

(v) If the amount of the approved liquidation is greater than the amount of the advance, and there are no other advances to liquidate the expenses against, then the FMO will process a payment to the recipient.


CHAPTER 6: PROCUREMENT STANDARDS

A. General Procurement Standards

DefinitionProcurement is often defined as the act of obtaining or buying goods and services. It encompasses the idea of combined actions or joint efforts to purchase commodities or contract technical services commonly rendered by individuals or organizations with particular expertise.

The procurement process, however, has broader meaning since it includes preparation and processing of a demand or need, acquisition of goods and services meeting those needs, as well as the end receipt and approval of correspondent payment. It typically involves purchase planning, determination of standards and specifications, research and selection of supplier, analysis of best value, making the purchase and management of the contract.

The process of procurement is often part of an organization's strategy because the ability to purchase certain goods and services will determine if operations will continue. A good procurement process allows the organization to optimize the acquisition of high quality goods and services at the lowest possible price, delivered in a manner that best meets the organization’s requirements.

Procurement Policy It is important to note that the recipient organization is the responsible authority, without recourse to USAID, regarding the settlement and satisfaction of all contractual and administrative issues arising out of all procurements conducted by the recipient organization. This includes disputes, claims, protest of award, source evaluation or other matters of a contractual nature

The contractor/recipient has the main responsibility of setting up an appropriate framework within the organization to govern the entire procurement process. To attain this objective the organization should have a clearly written procurement policy, duly approved and in place. The procurement policy includes a Code of Conduct related to procurement and Procurement Regulations.

1. Code of ConductThe Code of Conduct sets out the tone for ethical conduct whenever the organization acquires goods and services. This document should state the organization’s core values--ethical and moral principles to be upheld by all organization members involved in procuring goods and services.

The contractor/recipient shall maintain written standards of conduct and ethics governing the performance of its employees engaged in the award and administration of procurement contracts. These standards should include principles such as conflict of interest, acceptance of gifts, integrity, confidentiality, and competency.

Conflict of interest - No employee, officer, or agent shall participate in the selection, award, or administration of a contract supported by Federal funds if a real or apparent conflict of interest would be involved. Such a conflict would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs, or is about to employ, any of the parties indicated herein, has a financial or other interest in the firm selected for an award.

Accepting gifts - The officers, employees, and agents of the contractor/recipient shall neither solicit nor accept gratuities, favors, or anything of monetary value from contractors, or parties to sub-agreements. However, recipients/contractors may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value.

Integrity – All agents, officers, and employees should conduct organization business, particularly procurement transactions, with complete honesty and uphold strong moral principles.

Confidentiality – Confidentiality refers to a set of rules or a promise that limits access or places restrictions on acquiring, handling, and disclosing certain types of information. In general, sensitive information is disclosed on a need-to-know basis, which means that information will remain confidential or hidden until it is needed to be known by a particular party. Information related to the procurement process and selection should be strictly limited to those in the organization who are directly involved in the procurement process as there is a need-to-know.

Competency – Competency refers to the measurable or observable knowledge, skills, abilities, and behaviors critical to successful job performance. All employees, including those responsible for procurement, should be encouraged to perform their duties with full competence.

The standards of conduct shall provide disciplinary actions to be applied in case of violations of such standards by officers, employees, or agents of the contractor/recipient.


2. Procurement RegulationsIn general, procurement regulations operationalize the procurement policy by:

setting measures to ensure free competition stating general procurement procedures outlining payment requirements Providing requirements when procuring commodities and services, including

necessary documentation, procurement cycle, and internal controls to be observed when managing and reporting procurement transactions.

a) CompetitionAll procurement transactions shall be conducted in a manner to provide, to the maximum extent practical, open and free competition.

Advertising: Solicitations for purchasing commodities should be advertised extensively, through the use of the most widely available means of dissemination to promote interest in, and competition for, USAID financed procurements in eligible geographic source areas. In particular, advertising shall be directed toward obtaining the maximum benefits of competition and giving qualified firms an opportunity to compete for an award. The contractor/recipient may also advertise in appropriate local, regional, and international journals, newspapers, or in accordance with local practice.

Micro-purchase: The recipient may designate a reasonable micro-purchase threshold under which more simplified acquisition procedures may apply. Procurements above the recipient’s micro-purchase threshold must be conducted in a manner to provide fair and unbiased competition, ensuring that all responsible sources are permitted to compete in an equal manner.

Bidding requirements: Solicitations shall clearly establish all requirements that the bidder or offeror shall fulfill in order for the bid or offer to be evaluated by the contractor/recipient. Any and all bids or offers may be rejected when it is in the contractor/recipient's best interest to do so.

Non-competitive practices: The contractor/recipient should be alert to organizational conflicts of interest or practices among contractors that may restrict or eliminate competition or otherwise restrain trade.

Unfair competitive advantage: In order to ensure objective contractor performance and eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements, statements of work, invitations for bids and/or requests for proposals, shall be excluded from competing for such procurements.


Balanced judgment: Awards shall be made to the bidder or offeror whose bid or offer is responsive to the solicitation and is most advantageous to the recipient, price, quality and other factors considered.

b) Procurement ProceduresAll contractors/recipients shall establish written procurement procedures. These procedures shall provide, at a minimum:

(i) Avoiding purchasing unnecessary items;

(ii) Where appropriate, making analysis of lease and purchase alternatives to determine most economical and practical procurement for the US Government;

(iii) When soliciting for goods and services, comply with following:

Provide clear and accurate description of the technical requirements for the material, product or service to be procured (shall not contain features which unduly restrict competition) as well as specific descriptions that bidders are required to meet when such items are included in the solicitation.

Positive efforts shall be made by contractors/recipients to utilize small businesses, minority-owned firms, and women's business enterprises, whenever possible.

The type of procuring instruments used (e.g. fixed price contracts, cost reimbursable contracts, purchase orders, and incentive contracts) shall be determined by the contractor/recipient but shall be appropriate for the particular procurement and for promoting the best interest of the program or project involved. Definition of contract types is given ahead.

NOTE: The “cost-plus-a-percentage-of-cost” or “percentage of construction cost'” methods of contracting shall not be used.

c) Payment RequirementsUSAID policy states that contractors and suppliers will be paid on the basis of goods delivered as evidenced by supporting documents, such as the vendor's invoice and receiving report.


B. Procurement of Commodities

1. General Regulations Governing Procurement of Commodities

a) Eligibility of Commodities: Below is a list of restricted and prohibited commodities.

(i) Restricted Commodities: Some commodities may be financed by USAID only if prior approval is obtained. These are:

Agricultural commodities Motor vehicles Pharmaceutical Pesticides Used equipment Fertilizers

(ii) Prohibited (Ineligible) Commodities: USAID financing of certain other commodities is normally prohibited or limited to very special cases. These commodities are:

Military equipment Surveillance equipment Commodities for support of police and other Law enforcement activities Abortion equipment and services Luxury goods and gambling equipment Weather modification equipment

b) Source and Nationality: All commodities and services that will be reimbursed by USAID should meet the source and nationality requirement set forth in 22 CFR 228. For a current list of countries within geographic code, see: http://auslnxapvweb01.usaid.gov/ADS/300/310.pdf.

2. Documentationa) Summary of Minimum Documentation Required: The following list is a summary of the minimum documentation required for the procurement of commodities:

Bidding Documents Purchase Requisition (PR) Purchase order (PO) Receiving and inspection report Vendor's invoice Receipt of payment Copy of Check/Cash payment


Fixed asset register

b) Description of Minimum Documentation Requirements:

(i) Bidding Documents : Before a vendor is selected, if the requirements for the procurement of the commodities have not been advertised, offers must be solicited from at least three vendors that could reasonably be expected to make an offer to supply the commodities required.

The technical committee or the purchasing department handles the bidding procedures. The bidding documents serve as evidence that the recipient has obtained the best offer for the purchase of the commodities. Bidding documents include: List of prequalified bidders, if any, prior to issuance of the solicitation

document Complete solicitation document, prior to issuance Advertisement or Notice to prospective bidders Financial and Technical Proposals (including the evidence of submission) Description of the contractor selection method List of selected contractors Bidding selection summary Technical committee approval Any decision to reject all bids Signed contract documents

(ii) Purchase Requisition (PR): A purchase requisition is a sequentially numbered and duplicated form used to request the purchase of needed commodities or inventory items. It should include a description of the equipment/materials needed.

(iii) Purchase Order (PO) : The purchase order is a sequentially numbered and triplicated form issued by the purchasing department to a vendor to initiate the purchase of a commodity or inventory item. The purchase order becomes a binding contract, either when it is countersigned or when the vendor begins to fulfill the order. The purchase order must be reviewed and approved by the purchasing department manager and should include a full description of the equipment/materials required, the price per unit, date of delivery, and payment terms. The procurement contract/purchase order must contain provision for legal measures to be taken for non-performance, non-delivery, or untimely deliver.

(iv) Receiving/Inspection Report: The receiving report is a sequentially numbered form used by the warehouse to record items received from vendors. The receiving/inspection report should be prepared as soon as the


goods/equipment are received by the warehouse and should include complete data for the delivered items such as exact quantity received, condition of the commodities/equipment, and any shortages or deviations from the specifications stated in the purchase order.

(v) Vendor’s Invoice : The vendor’s invoice is a commercial document issued by the vendor to a recipient/contractor, relating to items provided by the vendor and indicating the products, quantities, and agreed prices for products. The Recipient/Contractor must reconcile the invoice with purchase order and receiving report.

(vi) Receipt of Payment : The payment receipt is official and written acknowledgment that the supplier has received the payment for goods delivered to the recipient/contractor.

(vii) Check/Cash Payment : A copy of the check issued to the vendor in payment for the commodities received should be attached to the payment voucher package, which includes the purchase request, purchase order, receiving and inspection report, and vendor's invoice. The vendor should sign cash/check receipt upon receiving the payment. The recipient should make all efforts to avoid cash payments whenever possible.

(viii) Fixed Assets/Inventory Register : The fixed assets/inventory register is a record of the commodities procured (or otherwise received) by the project. The register can be maintained in a bound book or on individual subsidiary cards. The register should provide a sufficient description of each item, including:

Date procured Quantity Value of asset Invoice reference number Physical location of the item Serial number of the item General condition of the item when received Rate of depreciation of the asset Any additional information that would facilitate an annual physical

inventory

3. Procurement Cyclea) Work PlanThe recipient organization should submit an annual work plan to be approved by USAID. This work plan should itemize all commodities expected to be purchased over the life of the project by year. Management must ensure that no funds are utilized for


commodities not approved in the work plan; otherwise, a written request should be submitted to USAID prior to beginning procurement not previously approved.b) Requesting DepartmentThe requesting department prepares a Purchase Requisition (PR) listing the needed commodities with quantities and the required specification based on the approved work plan and sends it to the Financial Manager (or someone responsible within the Finance/Accounting Department) to verify budget availability, allowability, and allocability. Once it is cleared by the Finance/Accounting Department, the Purchase Requisition is sent to the Project Director, who is responsible for approving it.

c) Purchasing DepartmentThe purchasing department receives the Purchase Requisition (PR) after approval from the Project Director, and starts the procurement process through advertisement to potential suppliers to submit technical and financial proposals.

The Technical Evaluation Committee, composed of a minimum of three people, evaluates the bids received from various vendors to determine the best offer based on the prices and technical specifications, and selects the most advantageous offer.

After evaluating the proposals and selecting the most advantageous offer, the technical evaluation team prepares the memo and submits it to the Project Director for approval, and once approved the process is forwarded to the purchasing department.

When the purchasing department receives the approved memo, they inform the selected vendor and prepare and issue a purchase order/contract stating the specific quantities, quality, specifications, prices, terms of delivery and payment and prepare the Purchase Order (PO). The Project Director should approve the Purchase Order.

A copy of the Purchase Order is then forwarded to the receiving department to be used in monitoring the commodities when they are received. A second copy is sent to the finance department.

d) Receiving Department/WarehouseThe receiving department receives a copy of the Purchase Order to use for comparison of the specifications of commodities received with the commodities requested.

The commodities should be counted and randomly checked for any shortages or deviation from specifications. Any discrepancies should be reported in the receiving and inspection report.

When the commodities received have been reconciled as to the specifications for quality and quantity, a receiving and inspection report should be prepared and


approved by authorized personnel. The original report should be filed in the warehouse and a copy forwarded to the finance department to initiate payment.

The commodities received are then recorded in the "Item Cards" (warehouse inventory record), and in the fixed asset register, normally kept by the Finance/Accounting Department.

e) Finance/Accounting DepartmentBefore issuance of the Purchase Order, the finance/accounting department reviews a copy of the Purchase Requisition to check whether the commodities ordered have been approved in the work plan.

Copies of (a) the Purchase Requisition, (b) the Purchase Order, (c) the Receiving Report (RR), and (d) the vendor's invoice are received and reviewed by the finance department and any discrepancies (in quantities, specifications, etc.) are investigated.

The Finance Manager and the Project Director review and approve the package (supporting documents) for payment.

The Finance Department Accountant records the commodities in the fixed assets register/inventory book with cost value. A check, signed by the Project Director or EFT is issued to the vendor. The check is EFT’d/mailed/hand delivered to the vendor, and a receipt signed by the vendor is forwarded to the financial department.

4. Summary of Internal ControlInternal control over procurement of commodities aims to ensure that the organizations complies with appropriate laws, regulations, policies and standards, when procuring commodities, by conducting the procurement process in a free, transparent, effective and efficient way in order to obtain the best value, deter fraud, safeguard assets, and provide reliable information and records.

a) Independent Checks on Performance and Proper Valuation of Recorded AmountsTo ensure compliance with the controls, organization officers or their designees should be able to independently check, by reviewing, comparing, and reconciling the work of fellow workers working with procurement responsibilities, to ensure that related transactions have followed applicable rules and regulations. To be effective many of these verifications are built into the procurement process and others may be performed periodically or on a surprise basis by an employee independent of the personnel responsible for the information.

The table below presents the main functions related to procuring commodities and the responsible official who could perform independent checks for those transactions:


Document/Activity Responsible Official for independent check

Purchase Request: Ensures that commodities requested are for the benefit of the project and approved within the work plan by USAID

Project Director / Designated Person

Bidding Procedures: Ensures that proper bidding procedures have been followed and that the best offer has been selected (if material)

Project Director / Designated PersonPurchasing Manager

Vendor's Check: Ensures that check is for commodities that have been requested by the purchasing department and received by the warehouse

Project Director /Check Signatory Designated Person

Purchase Order: Ensures that the purchase order is prepared in accordance with the approved purchase request and for the selected vendor

Purchasing Manager/ Designated Person

Receiving/Inspection Report: Ensures that the commodities received agree with the purchase order as to specifications. Any discrepancy should be reported

Warehouse Supervisor/ Designated Person

Purchase Request: Ensures that commodities requested are within budget and in the work plan

Financial Manager

Payment Voucher: Ensures that details in vendor's invoice regarding specifications and quantity ordered agree with the Purchase Request, Purchase Order and Receiving Report

Financial Manager

Recording in General Ledger: Ensures that the accountant has properly recorded the purchases in the appropriate records (Fixed Assets Register, General Ledger and other subsidiary records)

Financial Manager

Vendors Invoice: Ensures that the invoice received from the vendor is for commodities delivered to the warehouse (Receiving Report) and for commodities requested by the purchasing department (Purchase Requisition & Purchase Order)

Accountant


b) Segregation of DutiesThe term segregation of duties means that different people will, to the extent practicable, perform the functions of ordering, purchasing, receiving, authorization and payment of procured commodities. From a segregation of duties perspective, the completion of more than one of these functions by the same person would be considered performing "incompatible duties". In other words, no one employee should have responsibility to complete two or more of these major responsibilities simultaneously.

The table below summarizes how responsibilities can be assigned to different officials, in order to ensure minimum segregation of duties:

Document/Activity Responsible Official(s)Prepares Purchase Requisition Requesting OfficeEvaluates and selects the best bid; Prepares selection memo

Technical Evaluation Committee

Advertises based on approved PRNegotiates with selected bidderPrepares Purchase Order

Purchasing Manager/Purchasing Office

Compares items received with Purchase OrderPrepares Receiving and Inspection ReportRecords stored items on stock cardsAssists in performing yearly physical inventory

Warehouse Supervisor/ Designated Person

Receives & reviews invoice package (vendor invoice) Purchase Requisition, Purchase Order, and Receiving Follows up on discrepancies in invoice packageInitiates check to vendor in settlement of the purchased commoditiesRecord commodities received in the perpetual records (Fixed Assets Register/Inventory Book). Records transactions in the General Ledger

Accountant

Verifies Purchase Requisition against budgetReviews Payment Package Reviews books and recordsParticipates in yearly physical inventory

Financial Manager

Approves purchase requisition; signs check for vendor Project DirectorPerforms an annual physical count of expendable items and reconcile differences to warehouse records and fixed asset register

Independent employee from Warehouse and financial department


Realistically, however, the size and resources of an organization may make an ideal segregation of duties impractical, and that is when compensating controls, such as independent checks by auditors must be considered. At a minimum the functions of authorizing, recording, and custody must be separated.

c) Safeguards over Access to Assets and RecordsSafeguarding of assets relates primarily to the physical controls of commodities which includes methods and measures adopted to protect assets from theft, robbery, and unauthorized use. Use of physical, mechanical, and electronic controls is essential. Examples of these controls include:

(i) Documents related to the procurement process, and payment and inventory record should be stored in locked files with access restricted to authorized persons only.

(ii) Commodities should be stored in a safe location (warehouse) or issued for use. Access to commodities should be restricted to authorized personnel only.

(iii) After processing payments, all documents should be stamped "PAID" to avoid misuse or the possibility of duplicate payments.

(iv) All non-expendable commodities should be recorded in the fixed assets register.

(v) All project-funded commodities should be tagged with the USAID emblem and a serial number.

(vi) All non-expendable items should be recorded on inventory cards and supervised by a responsible person (warehouse).

(vii) An annual physical count of commodities purchased should be conducted to identify any discrepancies between the fixed assets register and actual property on hand, reconciliation between the physical count and the fixed Assets register should be performed at least once a year.

(ix) No transfer between locations should take place without approval from the warehouse supervisor and recording of the transfer in the books.

d) Authorization of Transactions and Activities: The authorizing officer holds the ultimate responsibility in ensuring that the transaction is completed observing appropriate rules and regulations, by being the last check point before the transaction is completed. Therefore, the authorizing role goes beyond just giving a “go ahead”, but in reality certifies that he (she) has undertaken all


due diligence needed to certify that all rules and regulation pertaining to that particular transaction have been observed.

Below is the list of the main documents related to the procurement of commodities and their corresponding authorizing officials.

Document Activity Authorizing Official(s)

Purchase Request Manager/Requesting Department& Project Director

Bidding Document Purchasing Manager / Project Director

Purchase Order Purchasing Manager/Project Director

Receiving Report Warehouse Manager

Voucher Package Financial Manager

Vendor's Check Project DirectorFinancial Manager

It is important for management to continually evaluate the effectiveness of the controls in place, analyze those that may not be performing to their maximum potential, and implement changes as needed.

C. Case Study I: Procurement of Commodities


ABC is a USAID funded partner working in the field of agricultural development and the enhancement of crop productivity. ABC frequently requests the purchase of equipment and materials for the implementation of the new project.

The following is the procurement work plan as approved mutually by USAID and the ABC Project Director:

Procurement Plan

No. Description Quantity Value(US $)

1 Tractors 3 270,000

2 Vehicles 9 190,000

3 Computers 15 87,000

4 Lab. Equipment -- 40,000

5 Xerox copying machine 1 3,000

6 Printers 5 65,000

T O T A L 655,000

The Project Director received the following purchase request from the manager of the Agricultural Department requesting approval for the purchase of the following equipment and materials:


Purchase Request

Purchase Request # : 21Date : Dec 18, 2014Originator : Agriculture Department

No. Description Qty.1 Tractor 32 560 Ink Jet printer 63 Xerox copying machine 14 IBM computer 115 Vehicle 106 Scanner 2

Comments:

Estimated amount of Purchase Request is $ 600,000.The sole agent for the Tractors is the National Motor Corp.Please expedite this purchase request.

APPROVED BY:

Department Manager

The ABC Project Director did not have a copy of the procurement plan, so he forwarded the purchase request to the ABC Finance Manager for action.

The Finance Manager called the Accountant in charge of monitoring the procurement budget, and asked him whether the budget allowed proceeding with a purchase request having an estimated value of $ 600,000.

The Accountant stated that the budget allowed such a transaction.

The request was then handed over to the Agriculture Department to expedite the purchasing process based on their broad knowledge of the market, prices, vendors, and specifications of equipment.

A committee, formed within the Agriculture Department, performed a market survey for the needed equipment, and as a result, received the following offers:


Price Proposals


1st Proposal

The National Motor Corp.

Description Qty. Price ($)

Tractors 3 260,000

560 Ink Jet printer 6 60,000

Xerox copying machine 1 2,600

IBM computers 12 60,000

Vehicles 10 200,000

Scanner 2 19,800

Tractor's spare parts --- 5,000

T O T A L 607,400

Terms of delivery

10 days from Purchase Order receiving date

Terms of Payment

50 % payment in advance upon contracting50 % upon delivery

The committee agreed that the best offer received that meets project needs is the first offer since it was the lowest price offer; therefore, a purchase order was issued to the National Motor Corp. for the above items with 50% advance payment.

10 days later, the equipment was delivered to the ABC Agriculture Department as agreed, and a request was submitted to the Finance Department for payment of the remaining 50%. The request for payment was forwarded to the Project Director to take necessary action.


2nd Proposal

Global Trading Co.

Description Qty. Price ($)

Tractors 3 265,000

560 Ink Jet printer 6 65,000

Xerox copying machine 1 2,600

IBM computers 12 80,000

Vehicles 10 210,000

Scanner 2 19,800

T O T A L 642,400

Terms of delivery

3 days from Purchase Order receiving date

Terms of Payment

70 % payment in advance upon contracting30 % upon delivery

The Project Director was not fully aware of the contract that was made with the National Motor Corp. Therefore, the request was sent back to the Finance Manager to take action.

The Finance Manager issued a check for the remaining amount. A note was attached briefing the Project Director on the terms of the contract and requesting approval and signature of the check.

The check was signed and delivered to the vendor as agreed.

Please review the above and comment on the following:

1- Incorrect internal control procedures.2- Deviation from appropriate policies and procedures of the procurement process.3- Documentation that should have been used in executing the procurement process.


D. Procurement of Professional and Consulting Services

1. General Standards/Procurement of Professional and Consulting ServicesIn most cases the regulations and requirements for procuring Professional and Consulting services are similar to those used for procuring commodities, as discussed in the previous sections. The following standards are particular to the procurement services:

a) Definition: Professional and consulting services are usually rendered by individuals who meet the following criteria:

They are members of a particular profession. They possess a special skill. They are not employees of the organization. They usually serve on short-term contracts (Less than a year).

The project agreement, signed between USAID and the recipient normally spells out contracting procedures, source/origin rules, disbursement procedures, and other important matters. The major requirements are illustrated as follows:

b) CompetitionUSAID requires that the contractor/recipient follow competitive, technical selection procedures among qualified prospective contractors in procuring technical and professional services. Such competitive procedures include obtaining as many proposals as practical and competitive selection based on technical competence.

Advertising: similar to procurement for commodities, procurement of technical services shall be advertised extensively to promote interest in, and competition for, USAID financed procurements in eligible geographic source areas, through appropriate local, regional, and international journals, newspapers, etc. or in accordance with local practice.

Thresholds for Advertising/Solicitation of Proposals: Following are USAID thresholds for solicitation of proposals:

If the estimated contract value does not exceed $2,500 or equivalent, the procurement is under micro-purchase provisions and negotiation may be undertaken without formal solicitation of proposals.

If the proposed contract action is expected to exceed $2,500, but not exceed $15,000, at least three (3) quotes will be required.


If the proposed contract actions is expected to exceed $15,000, but not expected to exceed 25,000 the action should be advertised by displaying in a public place or by any appropriate electronic means;

If the proposed contract actions are expected to exceed $25,000 the action should be synopsized in the Government Point of Entry (GPE), which can be done by posting a written advertisement on the announcement board placed at the entrance of a relevant host government institution, such as a Mozambican Ministry, National Directorate, or any other public institution. USAID encourages partners to use these relevant host government announcement boards combined with other appropriate means, such as newspapers with wide circulation, radio, and television stations with large audiences to advertise and solicit proposals.

The recipient should consider setting lower thresholds adequate to the local circumstances. Records must be maintained in the contract file on the informal solicitation made.

Exceptions to Full and Open Competition

Follow-on contracts for implementation . If the contractor/recipient wishes to employ a contractor who has satisfactorily performed work in connection with the identification, development, or study of an activity, competitive selection need not be used provided that: The contractor was initially selected on a competitive basis, and All competing firms were initially advised in the Requests for Technical

Proposals (RFTP), that the recipient reserves the right to contract with the selected contractor for specified subsequent work.

Waivers for negotiation with a Single Source : Competition in procurement of services may be waived and negotiation with a single source only if one of the criteria below is met. Waivers must be supported by a written record of the reasons for negotiating with only a single source.

Special design or operational requirements require services available from only one source.

The Contractor can demonstrate the existence of an emergency situation in which the requirement for competition would result in unacceptable project delay.

Adherence to competitive procedures would result in the impairment of the objectives of the project.


If only one firm/individual responds to a solicitation for technical or professional services, technical and cost negotiations may be conducted with that firm without a waiver.

Cost & Technical Proposals: Cost proposals are submitted, but separated from the technical offer. The quality of the technical response to the solicitation is evaluated initially by the technical panel. Then costs are reviewed for the short list of responsive bids.

Selection: Selection shall be based upon evaluation of the relative merits of the technical proposals.

c) General Policies and Procedures: The policies and procedures for procurement of professional and consulting services also include the following:

(i) A signed contract is required.

(ii) Once the service is completed, evaluation of the services performed should be prepared and approved by the technical officer (Service Delivery Report).

(iii) A claim for payment submitted by the contractor should exist, supported by appropriate and complete documentation.

(iv) Compensation should not exceed either the USAID Foreign Service National (FSN) pay scale at Grade 12 or the maximum USAID threshold.

(iv) The nature and statement of work should be related to the services required.

d) Types of Contracts:There are several types of contracts allowed by US Government regulation for procuring professional and consulting services (Federal Acquisition Regulation - FAR - Part 16 Types of Contracts).

Below are presented the most preferred/recommended types of contracts to be used by USAID partners:

Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss; therefore, it is the most recommendable type of contract to be used by USAID partners.


Cost-reimbursement types of contracts provide for payment of allowable incurred costs to the extent prescribed in the contract. These contracts establish an estimate of total cost for the purpose of obligating funds and establishing a ceiling that the contractor may not exceed (except at its own risk) without the approval of the contracting officer. If a fixed-price type of contract cannot be used, the cost-reimbursement type would be the immediate option, since it also places part of the risk upon the contractor.

Level-of-effort contracts requires that (a) the contractor provides a specified level of effort over a stated period of time on work that can be stated only in general terms, and (b) the recipient pays the contractor a fixed dollar amount. This type of contract is appropriate for professional and consulting services performed by a single consultant, where engagement effort may vary over a considerable period of time.

There are additional types of contracts that can be used under very specific circumstances, some of which are mentioned below. Nonetheless, the recipient is recommended to consult with USAID prior to engage into the following types of contracts:

Incentive contracts are designed to obtain specific acquisition objectives by: (1) establishing reasonable and attainable targets that are clearly communicated to the contractor; and (2) including appropriate incentive arrangements. Incentives, for example, could include provisions to pay the contractor bonuses for meeting certain pre-established targets or standards.

Indefinite-Delivery Contracts (IDC) this type of contract includes “Task-order contracts” which means a contract for services that does not procure or specify a firm quantity of services (other than a minimum or maximum quantity) and that provides for the issuance of orders for the performance of tasks during the period of the contract.

Time-and-materials contract provides for acquiring supplies or services simultaneously on the basis of direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit; and (2) actual cost for materials. A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.

Agreement is a written instrument of understanding, negotiated between an organization and a contractor that (1) contains contract clauses applying to future contracts between the parties during its term and (2) contemplates


separate future contracts that will incorporate by reference or attachment the required and applicable clauses agreed upon in the basic agreement. A basic agreement is not a legally binding contract.

Apart of the types covered above, there are additional types of contracts not mentioned here, which are not commonly applicable for recipients. For additional information on types of contracts allowed by US Government, please visit: http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/16.htm

e) Responsibilities:

(i) Responsibilities of the Consultant :The consultant should submit:

(1) the required services within the time frame specified by both parties in the contract;

(2) his/her invoice describing the service(s) performed, and itemizing in detail the related direct costs, such as fee, travel, materials and equipment, if any, for which payment is invoiced;

(3) any required report or recommendation, such as Service Delivery Report (SDR),

as defined by the contracts.

(ii) Responsibilities of the Technical Officer: The technical officer should certify that:

(1) the services for which reimbursement is requested have been satisfactorily delivered;

(2) the reimbursement requested is in accordance with the terms of the contract;

(3) reports or recommendations required under the contract have been received and are in accordance with the terms of the contract.

2. Documentation The following list represents the minimum documentation required for the procurement of professional and consulting services:

Bids abstract and selection Service Requisition (SR) Contract signed by both parties. The contract should include scope of work,

amount, terms of payment, effective date, and end date. Service Delivery Report (SDR) approved by the technical officer Consultant's invoice


http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/16.htm

Consultant's receipt of payment Reports or recommendations as defined in the contract

3. Procurement of Services Cyclea) Contracting CycleThe recipient should submit an annual work plan to be approved by USAID. This work plan should itemize all services expected to take place over the year/life of the contract. Management must ensure that no funds are to be utilized for services not approved in the work plan; otherwise, a written request should be submitted to USAID for approval prior to use of funds.

The technical officer/requesting department submits a Service Requisition (SR) to the Project Director requesting consulting services. This request must be cleared first by the Finance/Accounting Office for availability of funds.

If the Project Director approves the request, it is forwarded to the procurement office for advertisement and conducting competitive bidding procedures (if necessary).

A Technical Committee evaluates the proposals, selects the best proposal, and prepares the Selection Memo to be sent for Project Director approval.

Once the Selection Memo is approved, the procurement office negotiates the contract with the consultant. If all parties agree on the terms of the contract, the consultant and the Project Director sign the contract.

The contract is signed in three originals, one for the consultant, the second for the Procurement Office, and the third for the Finance Department.

b) Payment CycleAfter the consultant delivers the services, he/she prepares a service delivery report (SDR). The technical officer confirms that services were delivered in accordance with the agreed-upon scope of work, by reviewing and approving the Service Delivery Report.

A contractor's claim or invoice is then forwarded to the Finance Department for payment. The Finance Department performs the following steps:

Reviews the claim, verifies that the contractor's claim is in accordance with contract terms and that a Service Delivery Report, approved by the technical officer, exists.

Prepares a voucher with the accounting classifications.


Prepares a check for the Project Director's review and signature.

The check with the supporting documents is forwarded to the Project Director for signature.

After the Project Director signs the check, the Accountant records the transaction in the cash disbursement ledger and the general ledger.

The check is then forwarded to the Cashier to be picked up by the consultant. The consultant receives the check from the Cashier and signs a receipt of payment.

A copy of the check and the payment receipt is then forwarded to the Finance Department to be filed with the supporting documentation. These files are retained for audit.

4. Summary of Internal Controla) Independent Checks of Performance and Proper Valuation of Recorded AmountsThe table below presents the main functions related to procuring services and the responsible official who could perform independent checks for those transactions:

Document/Activity Responsible Official(s) for independent checks

Selection of consultant by selection committee

Project Director

Evaluation of the performance of the Consultant

Program Manager orTechnical Officer

Proper recording of the financial data

Finance Manager

Overall supervision of financial and Technical work

Project Director

b) Segregation of DutiesThe table below summarizes how responsibilities can be assigned to different officials, in order to ensure proper segregation of duties:

Document/Activity Responsible Official(s)


Evaluation of bids and proposals Technical Committee

Approval of service requestApproval of technical committee selectionApproval/signing service contractSigns check to contractor

Project Director

Advertises procurement, using competitive proceduresNegotiates and prepares contract

Procurement Dept.

Approval of service delivery report Program Manager orTechnical Officer

Records transaction in accountsReviews invoice w/ documentationPreparation of check/payment

Accountant

Verifies budget/funds availableReviews invoice package

Finance Manager

Check distribution Cashier

c) Safeguards Over Access to Procurement Records

(i) Access to technical proposals should be limited to Technical Evaluation Committee or the Technical officers if no committee, and the Project Director only.

(ii) All files pertaining to procuring services, including bidding, selection, and contracts should be kept in locked cabinets with access limited to authorized employees only.

(iii) Access to Service Delivery Reports should be limited to the Project Director and Technical Officer only.

(iv) After processing of payments, all invoices and supporting documents should be stamped "PAID" to avoid misuse or the possibility of duplicate payments.

(v) Vouchers and checks should be pre-numbered.

(vi) Accounting records should be filed in locked cabinets with access limited to the Accountant only.

d) Authorization of Transactions and Activities


Below is the list of the authorizing officials responsible for the main transactions related to procuring services:

Document/Activity Responsible Official(s)

Request for services Project Director

Acceptance of selected consultant Project DirectorTechnical Officer

Consultant contract Project Director

Service delivery report Technical Officer

Payment voucher Project DirectorFinance Manager


E. Case Study II: Procurement of Professional and Consulting Services

You are a Technical Officer working on a USAID-funded project that needs a consultant to do a research study on the best ways to plant potatoes in Mozambique.

A. You submitted a request to the Project Director stating the need for this consulting service and the qualifications required. The Project Director approved your request and advised you to go ahead and look for a consultant.

Being experienced in this field, you knew of a consultant who had performed a similar job for another project and had done a good job. You contacted him to find out if he would be available to do this research. The consultant was available and agreed to do the research.

The amount of the level of effort contract was $12,000. The contract stated that the work should not exceed 3 weeks and the rate was $100/hour. This rate was inclusive of all other costs related to the research. Payment was to be made upon delivery of services. You and the consultant signed the contract. After signing the contract the consultant started the work.

B. The consultant finished the job in two weeks and submitted a payment request to the Finance Department. The payment request was for $12,000, itemized as follows:

80 hours of work $8,000Transportation charge $1,500Stationery supplies & printing of the research paper $2,500

$12,000

The finance manager approved the payment and requested that the Cashier issue a check in the name of the consultant for $12,000. Later on, the consultant received a note from the Cashier that his check was ready. The consultant received the check and went to the bank to cash the check.

A CPA firm performed a financial audit for this project and disallowed this payment in their audit report. USAID requested that the project refund the total amount paid to the consultant.

State the reasons why the auditors disallowed this amount. Your answers should point out the weaknesses in the contracting cycle, the payment process and the

documentation.


CHAPTER 7: PROPERTY MANAGEMENT STANDARDS

A. Types of PropertyProperty can be of four main types:

1) Intangible: Intangible Property includes, but is not limited to, intellectual property, including trademarks, copyrights, patents, and debt instruments, such as bonds, mortgages, leases, or other agreements between a lender and a borrower.

2) Real Property: Real property means land, buildings, or major improvements to land or buildings. 3) Supplies: Supplies and other expendable property refers to all other property, excluding real property, intangible property, and NXP; i.e. all other property that falls under the NXP thresholds described in 4 below.

4) Equipment (NXP): Non-Expendable Property (NXP) is tangible property that is categorized differently depending on whether the agreement covering the NXP is an acquisition (contract) or assistance agreement:

a) Assistance: Under assistance agreements, NXP is considered property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit.

b) Contract: According to the AIDAR definition applicable to contracts, NXP is defined as property that is complete in itself, does not lose its identity or become a component part of another article when put in use, is durable, has an expected life of two years or more, and has a unit cost of more than $500.

Note: Consistent with recipient's internal policy, lower thresholds may be established.

The total cost of Equipment or Non-Expendable Property (NXP) is comprised of all costs necessary to get the asset to the work site and prepare it for use, including invoice price, cost of modifications, accessories, negotiation costs, shipment and installation costs.

B. Ownership:

a) Title to supplies and expendable property normally vests with the recipientb) Depending on what is specified in the agreement between USAID and the recipient, ownership of Real Property and Equipment can either:


vest in the recipient with no further obligation to USAID; vest in the recipient with obligation to compensate USAID on disposition; remain with the U.S. Government; vest in the host government.

Note: In Mozambique, in nearly all cases, title to all Property financed by USAID vests in the recipient upon acquisition unless otherwise specified in the award.

C. Property Usage, Maintenance and Control The recipient shall maintain and administer USAID-funded property in accordance with sound business practice and should establish a program to be approved by USAID, for the receipt, use, maintenance, protection, custody and care of equipment, materials and supplies for which it has custodial responsibility, including the establishment of reasonable controls to enforce such program and to assure its full availability and usefulness for the performance of the agreement.

In addition, the recipient shall take all reasonable steps to comply with all appropriate directions or instructions that the Agreement Officer may prescribe for the protection of USAID funded property.

1. Usage of USAID funded Property

The recipient shall use and maintain all Property for the purpose of this award in accordance with the following procedures:

a) The recipient must use the Property for the program for which it was acquired during the period of this award, and must not provide any third party a legal or financial interest in the property (e.g., through a mortgage, lien, or lease) without approval of USAID.

b) When the Property is no longer needed for the program for which it was acquired during the period of this award, the recipient must use the Property in connection with its other activities, in the following order of priority:

(i) Activities funded by USAID, then(ii) Activities funded by other United States Government (USG) agencies, then(iii) As directed by the Agreement Officer (AO).

2. Maintenance


Adequate maintenance procedures should be implemented to keep the equipment in good condition. The recipient's maintenance program shall cover the following items:

(i) Preventive maintenance - generally performed on a regularly scheduled basis to prevent the occurrence of defects and to detect and correct minor defects before they result in serious consequences; and

(ii) Records of performed maintenance - records sufficient to illustrate all the maintenance actions carried out and deficiencies discovered and fixed as a result of inspections.

3. Control (Protection and safeguarding):A control system should be in effect to ensure adequate safeguards for the prevention of loss, damage, or theft of the equipment. Any loss or damage should be documented and investigated.

The organization should maintain a property control system which include, but not be limited to, the following items:

Asset register with all property record; Property annual inventory; Log book to control the vehicles usage; Secured and protected storage room with a fire extinguisher.

Note: The official property control records shall be kept so that the status of property may be readily ascertained.

a) Property records:Property records for equipment acquired with USAID funds should be maintained accurately and should include the following information:

1. Description of the equipment.2. Manufacturer's serial number or other identification number.3. Source of the equipment, including the Award Number.4. Indication of whether title vests in the recipient, host government,

USAID, or other U.S. government or non-U.S. government entity.5. Acquisition date and total cost.6. Unit acquisition cost.7. Location and condition of equipment.8. Ultimate disposition data, including date of disposal and sales price or

fair market value.

Property shall be recorded in accounting records in the month of acquisition. The total cost of Equipment or Non-Expendable (NXP) is comprised of: invoice price, cost of modifications, accessories, negotiation costs, shipment and installation costs.


b) Property Inventory:The physical inventory inspection should be performed to verify existence, current use, and the continued need for the assets.

An annual physical inventory shall be performed and the results reconciled with the inventory records. Any difference between physical counts and accounting records shall be investigated to determine the cause of the difference.

Annual inventory reports submitted to USAID yearly must contain a list and value of property as of the last report plus the acquisitions during the period ( purchased by recipient and/or transferred from USAID or others) LESS the disposals during the year.

c) Insurance:At a minimum, recipients must provide the equivalent insurance coverage for USAID-funded real property and equipment (NXP) as is provided for other property owned by the recipient, or funded from non-USAID sources. If the ownership of the property remains with USAID (Federally-owned), then the recipient is not usually required to provide insurance unless it is stated in the terms of the award agreement that they must do so.

If ownership of the property rests with USAID (Federally owned), the recipient is required to report any loss to USAID. However, even if title to USAID-funded property under an agreement does not vest with USAID, the recipient should report any theft or fraudulent use or mismanagement of USAID-funded property to USAID during the life of the agreement.

D. Marking and Branding“Branding” refers to how a program or project is named and positioned, who has funded it and identifies the sponsor of the work.

“Marking” refers to applying graphic identities or logos to program materials or project signage to visibly acknowledge the organization that is supporting the project or work.

All USAID funded commodities, equipment, programs, projects, activities, and public communications must be suitably marked with USAID’s brand or logo so that USAID and the American taxpayer are recognized as providing the assistance.


USAID policy requires that programs implemented under co-funded instruments, such as grants, cooperative agreements, or other assistance awards that usually require a cost share, are co-branded and co-marked. This policy applies to all assistance awards even when there is no cost sharing. Co-branding and co-marking mean that the program name represents both USAID and the implementing partner, and the USAID identity and the implementer’s logo both are visible and of equal size and prominence on program materials. In some cases, the USAID Agreement Officer may determine that USAID’s identity be larger and more prominent if USAID is the major donor and the program is especially important to USAID.Marking is not required for the recipient’s offices, vehicles, and items that the recipient procures for its own administrative use. However, if the vehicle is used for program-related activities, it should be marked with the USAID and implementer’s logos.

Reference: ADS 320.3.3, ADS 303.3.10, and 22 CFR 226.91

E. Property Disposition Upon completion of the award, the recipient must submit to the AO a property disposition report of the following types of property, along with a proposed disposition of such property.

1) All equipment that has a per unit current fair market value at the end of this award of $5,000 or more.

2) New/unused supplies with an aggregate current fair market value at the end of the award of $5,000 or more.

3) Real or Intangible property, of any value.

The recipient must dispose of property at the end of the award in accordance with the recipient’s property disposition report; otherwise, the Agreement Officer directs in writing within 60 days of the Agreement Officer’s receipt of the recipient’s property disposition report to dispose of the Property in a different manner. The Agreement Officer may give one or more of the following instructions:

1) The recipient may retain title with no further obligation

2) The recipient may be directed to sell the property under guidelines provided by USAID and pay the Federal government for that percentage of the current fair market value of the property.


3) The recipient may be directed to transfer the title to USAID or to an eligible third party, including another implementing partner or the host country government, in such cases, the recipient shall be entitled to compensation for its attributable percentage of the current fair market value of the property.

The Agreement Officer may direct, at any time, that title to the Property vest in the USG or third party. In such case, the recipient must maintain custody and control of the property until directed otherwise and must allow reasonable access to the property to the title holder. While in its custody and control, the recipient must follow the requirements above for protection and maintenance of the property and provide the Agreement Officer with an annual inventory of such property and follow any additional instructions on protection and maintenance as may be provided by the Agreement Officer.

Reference: ADS 303, 22 CFR 226.30 through 37 on property standards or for contract refer to AIDAR 752.255-70 and FAR 45.106. http://www.gpo.gov/fdsys/granule/CFR-2002-title22-vol1/CFR-2002-title22-vol1-sec226-30


http://www.gpo.gov/fdsys/granule/CFR-2002-title22-vol1/CFR-2002-title22-vol1-sec226-30

http://www.gpo.gov/fdsys/granule/CFR-2002-title22-vol1/CFR-2002-title22-vol1-sec226-30

CHAPTER 8: RECIPIENT/SUB-RECIPIENTS RELATIONSHIPS

(In this section, as in all sections of this manual, the terms sub-award, sub-grant, or sub-agreement are used interchangeably. Sub-awardee/awardee, sub-grantee/grantee and sub-recipient/recipient also have the same meaning).

A. Prime Recipient vs. Sub-recipient—General Roles & ResponsibilitiesPrime Recipient – Partner organization receiving USAID funds under agreement with USAID to undertake a particular activity or set of activities.

Sub-recipient – An organization under a direct agreement with a USAID prime recipient receiving USAID funds to carry out an activity or activities. USAID’s legal relationship is with the prime recipient. Sub-recipients generally have no direct relationship with USAID. All required USAID approvals and communications must be directed through the prime recipient.

USAID is not responsible for directly monitoring sub-recipients; however, USAID will monitor the prime recipient to hold prime accountable for oversight and monitoring of the sub-recipient.

It is important to note that although USAID does not have a direct relationship with the sub-recipient, if problems or concerns arise with performance, suspected mismanagement or fraud, USAID has a right to review sub-recipients books and records, call for financial review or audits, or take other measures; and

B. Entering Into a Sub-recipient RelationshipRecipients of USAID funds are responsible for ensuring that sub-awards under their awards are made only to responsible sub-recipients who have the potential to perform successfully and meet the goals of the project under the terms and conditions of a proposed agreement.

In deciding to enter into a sub-agreement with a particular entity, consideration should be given to such matters as integrity, record of past performance, as well as financial and technical resources necessary to perform under the agreement. A recipient must not enter knowingly into any sub-agreement with a person or entity that is included in the “List of Parties Excluded from Federal Procurement or Non procurement Programs”. You can obtain this list from the Mission Procurement Office or access:

http://epls.arnet.gov or


www.epls.gov

C. Recipient and Sub-recipient ResponsibilitiesOrganizations that provide USAID resources to other organizations to carry out USAID programs and activities are responsible for monitoring their sub-recipients and ensuring they adhere to the same standards and requirements as the prime with regard to financial and grants management.

1. Prime Recipient Responsibilities:

Assess financial operations of prospective sub-recipients to ensure they possess capacity to properly manage funds.

Ensure sub-recipients have effective internal control systems and a control environment that mitigates risk of misappropriation, fraud, and mismanagement.

Ensure USAID funds are used by sub-recipients in accordance with applicable laws, regulations, and agreement terms, including Standard Provisions contained in the prime recipient’s agreement with USAID.

Monitor performance of the sub-recipient to ensure achievement of programmatic goals and objectives in a timely and cost efficient manner.

Review and analyze vouchers, advance liquidation reports, and financial reports for appropriate spending rate and level of programmatic activities.

Ensure audits are performed over sub-recipients when warranted according to OIG guidelines.

2. Sub-recipient Responsibilities:

Adhere to the terms and conditions of the sub-agreement, including those flowing down from the main award.

In general, sub-recipients must adhere to the same standards and requirements as the prime recipient with regard to accounting and maintenance of financial records, audits, award revisions and budgets, purchasing and maintenance of property and equipment, advances of grant funds, procurement, cost principles and other standards.

All provisions of the appropriate “Mandatory Standard Provisions” attached to an agreement are applicable to sub-recipients as well as the recipient, unless a section specifically excludes a sub-recipient from coverage.

Maintain an effective system of internal controls that ensures that resources are used for authorized purposes and are protected against waste,


mismanagement, and loss and that ensure reliable information about the source, amount, and use of resources are secured, up-to-date, and recorded.

Provide timely reports, vouchers, and advance liquidation reports to the prime recipient as required and agreed upon.

Submit to audits as required according to agreement provisions and OIG guidelines.

Maintain financial systems that at a minimum include the following:

Accounting Records: Maintain accounting records that adequately identify the source and application of funds provided to them;

Allowable Costs: Maintain standards for determining the reasonableness, allowability, and allocability of costs incurred;

Source documentation: Ensure accounting records are supported by source documentation and that they show costs charged against funds were incurred during the effective period of the-sub recipient's agreement with the grantee

Budget controls: Have procedures in place to monitor expenditures against approved budget. (Prime recipients are not obliged to reimburse sub-recipient for expenditures exceeding approved budget)

Cash management: Maintain to minimize the time elapsed between receipt of funds from the prime and the actual disbursement of those fund

Financial reporting: Prepare and submit accurate, timely, current financial reports that represent a complete disclosure of the financial activity and status.

D. Sub-recipient AuditsNon U.S sub-recipients that expend $300,000 or more per their fiscal year in USAID funds must have an annual audit conducted in accordance with the “Guidelines for Financial Audits Contracted by Foreign Recipients” issued by the USAID Inspector General.

U.S sub-recipients that expend $500,000 or more per their fiscal year in USAID funds must have an annual audit conducted in accordance with the audit requirements contained in OMB Circular A-133.

Sub-awards (for profit organizations) of more than $10,000, but that do not reach the $300,000 or $500,000 threshold are still subject to USAID’s right to conduct financial reviews, require an audit, or otherwise ensure adequate accountability, regardless of the audit requirements.


CHAPTER 9: PERSONNEL AND PAYROLL

A. General Policies and Procedures

1. Written policies governing personnel and payroll should be:a) Prepared by the organizationb) Approved by USAID prior to award to ensure policies don’t exceed what is

allowed by USAIDc) Communicated to all employeesd) Implemented by the organizatione) Reviewed and revised periodically as needed

2. Personnel policies and procedures should cover:a) Recruitment and hiring of personnelb) Working schedule (e.g. working hours and holidays)c) Annual, sick, and other leave.d) Fringe benefits (e.g. social and medical insurance)e) Payment of allowances and bonusesf) Salary levels and grades (not to exceed USAID pay scale)g) Criteria for performance evaluation and promotionsh) Overtime calculation and approvali) Part-time and casual labor policies (i.e. hiring process and payment rates)

3. Personnel and payroll policies and procedures should describe the following cycles:a) Recruitment cycleb) Payroll cyclec) Leave cycled) Internal Controls related to personnel and payroll

4. The Recipient is responsible for establishment of the controls to ensure:a) Proper authorizationa) Accurate and appropriate computationb) Safeguarding of documentation and records, such as payroll records, pay slips,

checks or cashc) Proper distribution of pay checksd) Proper accounting for the payroll transactions

5. The organizational structure should separate duties and responsibilities into:a) Authorizing payroll


b) Recordingc) Custody of the assets (e.g., payroll checks) associated with payroll transactions

B. Documentation

1. Personal and Payroll formsa) Job description formatsb) Job Application Forms c) Records of Interviews & selectiond) Standard employment contracte) Employee Time and Attendance sheetsf) Leave Request Formsg) Overtime Authorization Formsh) Payroll Record Formsi) Performance Evaluation Forms

2. Personnel files: Personnel files must be maintained for each employee. They should include:a) Recruitment documents and recruitment evaluation/ justification for hiringb) Current position/job descriptionc) Application letter, CV, Bio datad) Signed employee contract and amendmentse) Leave requests and leave data (annual, sick, maternity, etc)f) Disciplinary reports, if anyg) Annual Performance Evaluation reports

3. Payroll Recordsa) Minimum required documentation

Time and Attendance Payroll Sheet Payroll Subsidiary Ledger General Ledger Bank Record (Receipts & Disbursements)

Time and Attendance Records: Daily time and attendance records must be maintained for each employee and show times in and out of work or number of hours worked each day as well as hours of leave (sick, annual, maternity, etc.) and holidays. Time and attendance must be recorded according to time each employee actually worked each day on each donor-funded project.

Payroll Sheet: A monthly payroll sheet must be prepared for each employee. It should include:

Name of employee


Regular hours worked Overtime hours worked Regular and overtime pay Other compensations Social Security (INSS), Income Tax (IRPS), and other deductions Net pay Signatures of employees for receipt of payroll

C. Recruitment and Hiring

1. Submission of Annual Work PlanThe recipient must submit an annual work plan to be approved by USAID. This work plan should list positions expected to exist over the year, or the life of the project.

Management must ensure that no funds are used for positions not approved in the work plan; otherwise, a written request for additional positions should be submitted to USAID for approval prior to use of funds.

2. Hiring and Selecting Project Employeesa) Permanent Employees

(i) The Personnel Department (Human Resources) receives approved personnel requisition form.

(ii) Hiring of employees may be accomplished through advertisements or solicitation from a reasonable number of candidates.

(iii) Applicants submit application forms to the Personnel Department.(iv) The selection committee examines the application forms and prepares the

selection memo indicating the selected candidate based on the qualifications required for the job. For most cases, selected candidates are evaluated and interviewed by a committee and the best candidate is selected.

(v) The Project Director approves the selection memo authorizing the Human Resource Department to proceed with negotiation with selected candidate.

(vi) Once the Human Resource Department and the selected Candidate agrees on the final terms and condition the contract the sent to the Project Director for approval

(vii) The appointee for the position must obtain the documents required by the organization and sign the contract before starting work.

b) The contract should include the following: (i) Brief description of duties and responsibilities(ii) Effective starting date of service (iii) Gross salary


(iv) Salary deductions according to applicable host government rules and laws.(v) Type and amount of allowances and fringe benefits, if any (bonuses,

overtime, compensatory time, etc.)(vi) Period of service or duration of contract(vii) Policies on attendance (working hours, etc.)(viii) Policies on leave (holidays, annual leave, sick leave, maternity leave,

leave without pay, etc.)(ix) Conditions for termination(x) Other items, as applicable

Changes in contract conditions must be documented by an amendment to the contract or a memorandum of notification to the file. A copy of either should be kept in the employee file.

c) Part-Time and casual labor (i) Part-time and casual labor employees are hired through engagement

letters.(ii) The engagement letter should include

Work to be performed Salary rate Method of payment Contract period

Note: See also Section on Honoraria

D. Payroll Cycle

1. TimekeepingThe individual employees or a designated Timekeeper, if there is one, records the daily attendance of employees. The employee signs his/her timesheet at the end of each pay period certifying hours worked and leave taken. At the end of each month/pay period the Timekeeper prepares a summary of each employee’s attendance and forwards it to the employee’s supervisor for review and approval. Depending on the size and configuration of the organization, the Project Director/Manager may perform the role of supervisor for approving time and attendance.

2. Preparing Payroll After the approval of the Project Director has been obtained, the summary time sheet is then forwarded to the Payroll Department for computation of salary, overtime, deductions, leave, etc. If there is no separate Payroll Department, this function will usually be performed by someone in the Accounts department. The Finance Manager reviews and approves the payroll sheet and forwards it to Payroll or Accounts.


3. Payment of Payrolla) The Payroll or Accounts section prepares checks for salaries and checks to the

government for taxes and Social Security. The payroll sheet and checks are then forwarded to the Project Director for review and approval.

b) The Project Director compares names and amounts on payroll sheet and checks on a random basis.

c) The Project Director signs the checks for payment and marks payroll sheet “paid” to avoid duplicate payment.

d) An employee not involved in recording payments in the accounting records, such as a Cashier or Administrative Assistant, distributes the checks to the employees, who sign receipts for the amounts received.

e) he Cashier, or other person responsible for this role would retains custody of unclaimed payroll checks in a securely locked location, such as a safe; however, checks not claimed in a reasonable amount of time would be returned to the Accounts Department for eventual cancellation.

4. Recording PayrollThe Accountant records the amounts in the Payroll Journal and bank book. The Payroll Sheet and Attendance Summaries are filed to serve as documentation supporting the payroll transactions.

E. Leave CycleThe leave cycle process comprise the following:

a) An employee requesting leave should complete a request for leave and forward the request to the Personnel Department.

b) Personnel Department checks the leave records to determine if there is available balance.

c) The request is then forwarded to the appropriate supervisor for review and approval.

d) A copy of the leave approval should go to Personnel for recording the leave in the employee’s leave records, and another copy sent to Payroll.

F. Summary of Internal Controls

1. Independent Checks on Performance and Proper Valuation of Recorded AmountsReview actual work performed against work plan, for example:


a) Project Director checks salary payment amounts to employee contractsb) Supervisors approve employees’ time and attendance reportedb) Finance Office performs periodic leave auditsc) Timekeeper records individual employee’s daily time and attendanced) Human Resources/Personnel Department checks available leave balances

2. Segregation of Duties

An ideal segregation of duties over the Personnel and Payroll function:

Responsible Official(s)

Document/Activity

Employee Signs contract of employment Prepare leave request form Prepare daily time and attendance and signs Signs for receipt of salary

Timekeeping Maintains employees' time sheets Prepares summary of employees' attendance

Personnel (HR) Receives approved personnel requisition form Receives applications for employment Negotiates with selected candidate terms and

condition of the contract. Maintains personnel files with rates of pay,

deductions, etc. Maintains leave register

Payroll unit (Accounts) Computes payroll/Prepares payroll sheets Prepares payroll checks Prepares tax reports Recording payroll data in accounting records Cancels checks not collected

Selection Committee Examines the Application forms and prepares the selection memo indicating the selected candidate

Supervisor (or may be done by Project Director)

Approves time & attendance for employees Approves leave

Project Director Approves hiring of employees/contracts Approves time & attendance sheet Approves payroll sheet Signs Checks

Cashier (or other) Distributes checks and retains custody of undistributed checks.


Unfortunately, in organizations with limited staff, ideal segregation of duties is not always possible. At a minimum, segregate Authorization, Recording and Custody.

1. Safeguards over Access to Assets and RecordsPhysical controls are activities that assure physical security of assets and records.

Physical controls within the personnel and payroll cycle include:

a) Access to personnel and payroll-related forms, files, and documents should be limited to appropriate personnel in personnel and payroll departments.

b) Signed and unsigned payroll checks should be kept in locked cabinets and a log kept of all checks (used and unused)

G. CASE STUDYFor a certain USAID-funded project implemented by XYZ Organization, USAID approved the budget for salaries for five (5) positions. Three of the positions were to be funded by USAID and two were to be funded by the Government of Mozambique.


The Project Director of XYZ Organization had a nephew, Joao, who was an accountant. The Project Director felt that Joao was a hard-working person who had good experience. Thus, the Project Director decided to hire Joao to work for the project.

Joao signed a contract with the XYZ Organization’s Personnel Manager and started work immediately after signing the contract.

The following employees work for the project:

Name Position Status Salary/Month

Fernanda Finance Manager Hired by the project 6,000 USD

Joao Accountant Hired by the project 4,000 USD

Suzana Secretary Hired by the project 3,000 USD

Mohamed Procurement Hired by the project/Clerk part time 150 USD/day

Gaspar Filing clerk Host Government employee (salary to be paid directly by host 2,000 USDgov’t)

There was no budget for a timekeeper position, thus XYZ Organization did not maintain records for time and attendance.

Several months into the project, the Project Director felt that there was a need for employee training in the area of work organization skills. There was a provision for training in the budget. He hired a university professor to present a two-day course on the subject to project employees. The professor requested payment of 2,000 USD for preparation of the course.

At the end of the month, Joao prepared the salary check for 22,000 USD. He posted this amount in the ledger under the “Salaries” line item. The amount for the salaries was itemized as follows:

Salary—Fernanda 6,000 USDSalary—Joao 5,000 USDSalary—Suzana 3,000 USDSalary—Mohamed 3,750 USDSalary—Gaspar 2,000 USD


Salary—University lecturer, Dr. Fisher 2,000 USD

Total salaries for the month: 21,750 USD

The Finance Manager and the Project Director signed the check and Joao cashed the check. He put the salary for each employee into an envelope labeled with the employee’s name and distributed the envelopes to the employees.

Determine the weaknesses in the personnel and payroll activities shown in this case study. Your answers should identify unallowable costs, internal control weaknesses, and non-compliance with USAID rules.


CHAPTER 10: TRAVEL & TRANSPORTATION

A. Summary of Policies and Procedures

1. Travel Authorization and Approval

a) Travel AuthorizationTravel is allowable only when it is necessary to accomplish the purpose of the project effectively and economically. Authorization to travel must be obtained prior to the travel.

When authorizing travel for conference and meeting attendance the approving official must ensure that the number of attendees from the project designated to attend is necessary and justified.

Travel authorizations must clearly specify the purpose of the travel. Travel may be authorized for purposes such as:

Site visits Participation in training courses Attendance of conferences Meetings and Special missions Entitlement travel for international staff

The travel authorization should include an estimate of the costs of travel to be incurred over the period covered by the authorization.

b) Prior Budget Approval for International Travel International travel refers to anywhere outside the country where the field office/project is located (the host country). When costs for International travel or transportation will be paid for with USAID funds, direct charges for foreign travel costs are allowable only when each foreign trip has received prior budget approval. Prior budget approval will be deemed to have been met when:

(i) The trip is identified by the number of trips, number of travelers per trip, and the destination countries, AND

(ii) The information on destination, purpose, number of trips and travelers is incorporated in the award proposal, the implementation plan, or an amendment to the award, AND


(iii) Costs related to the travel are incorporated in the approved budget to the award.

The Agreement Officer may approve international travel which has not been incorporated in writing, in which case the Agreement Officer’s approval should be included in the agreement file.

c) Notification of International TravelWhen international travel has been included in the Agreement between USAID and the recipient partner, or when Agreement Officer approval has already been obtained for such travel, additional notification to USAID for planned international travel is ONLY necessary when

(i) the primary purpose of the trip is to work with USAID Mission personnel OR

(ii) the recipient expects significant administrative or programmatic support from USAID.

When notification is required the following procedures should be observed:

(i) The recipient sends a written notice to the USAID Agreement Officers Representative (AOR) as far in advance as possible, but at least 14 calendar days in advance of the travel.

(ii) The notice should contain the award number, the name of the AOR, the traveler’s name, date of arrival, the purpose of the trip, and destination.

(iii) The USAID Mission will respond only if travel has been denied. If travel is to be denied, the AOR at USAID should contact the recipient within 5 working days of receiving the notice.

2. Per Diem

a) Components of Per DiemPer Diem is a daily payment for lodging, meals and related incidental expenses for authorized travel away from the official work place.

Per Diem rates applicable are based on the lodging plus system, which includes two components: 1) lodging and 2) meals and incidental expenses (M&IE).

Lodging:Lodging includes expenses for overnight sleeping facilities.

Lodging does not include accommodation on airplanes, trains, or buses as the


transportation expenses cover these.

Meals:Meal expenses include expenses for breakfast, lunch, and dinner.

Incidental ExpensesIncidental expenses covered by the M&IE portion of per diem include certain expenses that are related, necessary, and attributable to the travel, such as:

Fees and tips to porters and waiters Transportation between places of lodging or business and places where

meals are taken Laundry, dry cleaning and pressing (except in the U.S. where these can be

claimed separately). Fans, air conditioning, heating and TV sets in the rooms

Expenses covered by meals and incidental expenses may not be billed separately because they are considered to be covered under the fixed rate of M&IE.

b) Per Diem Rates The recipient organization’s per diem rates and policy for local and international travel should be documented in writing in the organization’s policy manual and adhered to on a consistent basis.

In determining what per diem rate recipient employees should use:In the case where a per diem rate for employees is specified in the agreement between USAID and a USAID-funded partner, the rate established in the agreement is the one that should be used for travel—(the rate is not always specified in the agreement).

For most travel, the per diem rate will not be specified in the Agreement/grant, in which case the USAID partner should use its own internally established per diem rates for all travel, as long as they do not exceed the U.S. Government’s established rates for the particular locality. (rates are found at: http://aoprals.state.gov/web920/per_diem.asp)

When special per diem rates have been established by USAID for local in-country travel, these rates should be used unless the recipient’s own internal rates are lower.

c) Computation Rules for Per Diem

(i) Rule 1—Travel of less than 12 hours, no Per Diem.


http://aoprals.state.gov/web920/per_diem.asp

(ii) Rule 2--Travel of More than 12 Hours (but less than 24 hours)

When lodging is not required, the allowable per diem is 75% of the destination M&IE rate.

If more than one temporary duty point is involved, the per diem allowance will be calculated using the highest of the M&IE rates for the locations where official business is performed.

(iii) Rule 3--Travel of More than 24 Hours

Day of Arrival and Departure The allowable per diem is the actual cost of lodging, if any, plus 75% of the

applicable M&IE rate.

Full Calendar Days of TravelThe allowable per diem is the actual cost of lodging plus the applicable M&IE rate. If traveling between two locations during the same trip, use the per diem for the destination point. If returning to the official duty station, the rate applicable to the previous day should be used.

d) Reimbursement Limitations on Per Diem(i) Expenses incurred and claimed are allowed only to the extent determined to

be necessary and reasonable for the project.

(ii) Employee/traveler will be reimbursed for: A fixed allowance for meals and incidental expenses (M&IE) based on the

locality. Receipts are not required. Actual lodging costs incurred up to the applicable, fixed maximum rate for

commercial or other lodging, Receipts must be provided

(iii) In Case of Double Occupancy: If both employees are official government or USAID-funded recipient

employees, one half of the double occupancy charge for lodging shall be allowed for each of the employees.

If only one is an official government or USAID-funded recipient employee, then he/she will be reimbursed only for the single room rate, i.e., the non-official person's charges will not be covered by the project.

(iv) In Case of Lodging with Friends or Relatives When an employee lodges at the home of a friend or relative, no part of the

per diem allowance will be allowed for lodging unless the traveler can


demonstrate that the host actually incurred additional costs in accommodating the traveler.

Sitting Fees/Attendance AllowancesWhile reimbursement for reasonable travel expenses as described in the paragraphs above is allowed when sponsoring meetings, conferences, and training events, USAID/Mozambique normally does not allow ‘sitting fees’ to be paid to event participants.

3. TransportationIn choosing the mode of transportation, the most expeditious means of transport practicable and commensurate with the nature and purpose of the duties should be used. Travel should be planned according to the “usually traveled” route.

a) Local Travel

(i) Commercial CarriersTransportation costs include commercial bus, air, rail, and other fares, which are reimbursed in addition to the per diem allowances.

If public transport, which is generally preferable, is used, the cost should be reimbursed against actual cost of bus ticket by the usually traveled route. Bus ticket and/or receipt are required.

(ii) Privately Owned ConveyanceUse of privately owned vehicles (POVs) should be adequately justified and previously approved by a responsible official. Reimbursement of transportation costs is made on a cost constructive basis (i.e., actual cost compared to the cost of public transportation to the same destination by the usually traveled route).

If two or more employees travel together in the same vehicle, reimbursement will be payable to only one of them.

The limitations set for this type of expense can vary from one project to another depending on the internal policy of the recipient and the rates used. The general rule is that the traveler using his POV would be reimbursed at the per km rate established in the sponsoring organization’s own policy manuals, not to exceed the per km rate used by the U.S. government.*

*Currently the USAID government GSA has an established rate for use of a POV of $ .575 per mile. This rate is updated quarterly on the GSA website www.gsa.gov


http://www.gsa.gov/

(iii) Vehicle RentalUse of rental vehicles is generally not allowable unless it has been approved in advance and its use has been determined to be less costly than the use of public transport. Such determination or cost analysis of rental vehicle vs. public transport should be documented and kept on file.b) International Travel

(i) Use of U.S. Flag Air Carriers (Fly America)The Fly America Act established a legal requirement that all U.S. government-financed air travel be performed on U.S. flag carriers where such service is available. When a foreign flag carrier is used for any reason, the traveler or the authorizing officer must prepare a statement of justification for the use of foreign flag air carriers. This statement should be attached to the travel voucher. The Federal Travel Regulations (FTR) lists acceptable justifications and they can be found in the following link: http://www.gsa.gov/portal/content/102886.

A U.S. Flag Carrier is the one that holds the following requirements:

a) A certificate under USC 49b) A code share agreement with a U.S. Carrierc) Open Skies Agreement (US: EU States)

Following are the exceptions for not using a U.S. Flag Carrier:

a) No U.S. Flag carrier operatesb) A foreign carrier re-routes without noticec) A foreign carrier flight is less than 3 hours and a U.S. carrier would double

or triple the timed) A U.S. carrier increases the number of aircraft changes outside U.S. by 2 or

more vs. foreign carriere) A U.S. carrier would extend travel time by 6 hours or moref) A U.S. carrier requires a connecting time of 4 hours or more overseas

Note: When a U.S. carrier offers non-stop service, it must be used unless it would extend travel time by 24 hours. 4. Other Allowable Travel and Miscellaneous ExpensesExpenses that are attributable and necessary to the travel shall be allowed when approved. Some of these, such as rental car, require specific prior authorization. Types of allowable expenses include:

a) Travel on railroads, ships, buses and other usual means of conveyance


b) Use of rental car ONLY IF specifically authorized and demonstrated to be more advantageous than other usual means of transport. Cost benefit to the US government must be documented.c) Transfer, storage and checking of baggage necessary for the purpose of official traveld) Official telephones, telegraphs, and cable messagese) Use of computers, printers, fax machines and scannersf) Commissions for conversion of currencyg) Fees for travelers checks, money orders, ATM transactionsh) Fees and photographs required for the issuance of passports and visasi) Required inoculationsj) Foreign country airport exit fees k) Necessary official typewriting servicesl) Hire of conference room for official usem) Bottled water (except in the U.S.)n) Lodging tax (in the U.S. ONLY)o) Usual taxicab and airport limousine fares, to and from airport and hotels, to and from hotel and place of business, although courtesy transportation services furnished by motels/hotels should be used to the maximum extent possible.

Note: Generally, travel costs related to USAID sponsored in-country workshops, training

etc. include only per diem at applicable partner’s established rate and local transport if approved and do not include reimbursement of the above miscellaneous items.

5. Travel Advances for EmployeesA project may provide an advance of travel funds for estimated expenses that an employee is expected to incur in connection with authorized travel. Travel advances may not exceed 80 percent of the estimated travel expenses of the employee.

Projects must establish internal financial controls that include procedures for review and settlement of outstanding travel advances immediately after the travel is completed.

The Accounting Department must ensure that any amount previously advanced is deducted from the total expenses allowed upon liquidation.

Any employee who has travel advances outstanding from previous trips may not receive additional advances until past advances have been settled.

6. Travel Vouchers

a) Preparation of Travel Reimbursement Vouchers


Authorized reimbursement forms (travel vouchers) must be used to claim reimbursement for travel expenses.

The employee must itemize on the travel voucher on a daily basis each expense for which reimbursement is claimed.

All receipts, travel authorization, and supporting documents should be attached to the travel voucher. Copies of tickets for commercial carriers should be attached, including any unused tickets. Receipts are required for the following expenses regardless of the amount:

All lodging costs associated with the travel Excess baggage (with prior approval) Car rental (with prior written approval)

Such expenses as telephone calls, local transportation (taxis, buses, etc), parking fees, and other allowable miscellaneous expenses may be aggregated, but any individual expense greater than $75.00 must be itemized and accompanied by receipts.

b) Submission of Travel VouchersTravel vouchers must be submitted within five working days after completion of the trip, or every 30 days if the employee is in continuous travel status; otherwise the traveler may be subject to automatic payroll deduction of advanced amounts and a memo should be attached to the voucher reporting reason for the exception.

c) Review of Travel VouchersA supervisory approve of the travel voucher is required to confirm that the travel for which expenses are being claimed was performed as authorized.

The Finance Office must ensure that the voucher is properly prepared according to project regulations and procedures and that required receipts are attached before the voucher may be approved for payment.

Expenses claimed that are not in accordance with project or USAID regulations and not properly supported by receipts when required, will be deducted or disallowed from payment.

B. Travel Cycle and Related Documentation

1. Before Travel

a) Preparing a Work Plan and Financial Plan


Each project should prepare a work plan to be approved by the project technical office and the project director. The project technical office must specify in the work plan all activities needed to accomplish project objectives.

After approval, a financial plan must be developed which incorporates the work plan plus all of the estimated costs associated with each of the activities authorized in the work plan.

The financial plan should be approved by USAID. The purpose of the plan is to ensure that travel requests and expenses charged are within the limitations of USAID rules, regulations and budget. The financial plan defines what is allocable to the project.

The Project Manager must approve any deviation from the work plan or the financial plan.

b) Submitting and Approving Travel Request

The traveler must submit a travel request to the Supervisor for approval. The travel request should include:

Name of traveler Destination and intermediate locations of travel Purpose of travel Duration of travel and travel itinerary Mode of travel

Requests for rental cars or any mode of travel out of the ordinary may be allowed only with prior approval of the Project Manager.

The approved travel request is submitted to the Finance Manager to ensure that the costs are within the limitations of the project budget and the financial plan approved by USAID.

If the Finance Manager determines that the trip costs are not within the limits of the financial plan (budget), the request will be refused.

If the Finance Manager determines that the trip costs are within the limitation of the financial plan, he indicates that funds are available and the travel request is submitted to the Project Manager for approval. The Project Manager approves the travel request and, if a travel advance is needed, forwards it to the Accountant.

c) Preparing the Advance Voucher


The Accountant prepares the advance voucher for payment to the traveler after determining whether or not the traveler has outstanding or unliquidated advances. If there are outstanding advances no further advances may be given to the traveler until the previous advance is settled.

If the travel advance is authorized, the Accountant prepares an estimate of the travel expenses that the traveler is expected to incur. The accountant then calculates 80% of the total estimate and advances this amount to the traveler.

The advance voucher should be prepared based upon allowable per diem rates established by the recipient within the limits approved by USAID.

The advance voucher is then submitted to the Finance Manager for review and approval.

d) Preparing and Processing the Advance Check

After approval, the Accountant prepares a check for the traveler. The check and the approved advance voucher are forwarded to the Project Director for approval and signature. The Project Director returns the check and voucher to the Finance Office to be recorded in the advances sub-ledger.

The check for the travel advance is then submitted to the Cashier to be picked up by the traveler.

The traveler receives the check and signs for it on the voucher itself or on a separate receipt. The signed voucher or receipt must be kept with the cashier and a copy forwarded to the Finance Office for filing and audit purposes. The paid voucher should be stamped “PAID” to prevent duplicate payment.

2. After Travel

a) Submitting and Approving Travel Voucher

Upon returning from the trip, the traveler submits a travel voucher to the Finance Office so that the advance can be liquidated and any remaining per diem costs may be processed. The travel voucher should include:

Lodging receipts Travel/Transportation tickets, including unused tickets Receipts for any individual expenses greater than $75.00 The exact itinerary as traveled, including dates and times of arrival and

departure for each location Amounts of claim (less advance)


Technical trip report, when required

The travel voucher is then forwarded to the traveler's supervisor for approval. This approval certifies that, to the best of the supervisor's knowledge, the trip took place and that the associated expenses are valid.

The approved travel voucher is submitted to the Accountant for auditing of the claim and calculation of the remaining amounts due either to or from the traveler.

The travel voucher is then sent to the Finance Manager for approval.

b) Preparing and Processing the Reimbursement Check

The check and travel vouchers are prepared by the Accountant for the remaining amount due either to or from the traveler.

The check and travel vouchers are forwarded to the Project Manager for review, approval and check signature. In cases where amounts are due from the traveler there would be no check for the traveler, but the Project Manager should review the travel voucher to ensure proper calculation.

After approval, the check and travel vouchers are forwarded to the Accountant who records the amounts in the accounting records and adjusts the advance ledger for the previously recorded advance.

If there are amounts due to the traveler, the check is then submitted to the Cashier to be picked up by or distributed to the traveler.

The traveler receives the check and signs for it on the voucher or on a separate receipt. The signed voucher or receipt must be kept with the Cashier and a copy forwarded to the Finance Office for filing purposes.

When a balance of unused travel advance is due from the traveler, the traveler refunds the amount due to the Cashier who deposits the funds in the bank. The original deposit slip is kept with the Cashier and a copy is submitted to the Finance Office for recording and filing purposes. The Cashier provides a receipt to the traveler for the funds received.

The Cashier should keep a check register received and delivered to show dates of receipt, dates of delivery, and status of checks (delivered or not) and payees' signatures.


C. Summary of Internal Controls

1. Independent Checks on Performance and Proper Valuation of Recorded AmountsReview actual performance against work plan, budgets, forecasts, and compare per diem rates used on vouchers to authorized per diem rates.

2. Segregation of Duties

a) Typical segregation of duties over the travel function should be similar to the following:

Responsible Official(s) Document/Activity

a. Technical Officer/Supervisor of Traveler

- Receives travel request- Ensures that travel request is within limitations of the project's plan- Approves travel request and voucher

b. Financial Manager - Ensures that calculated travel advance is within allowable and approved per diem

- Verify funds available per financial plan- Reviews calculations on travel voucher and related document- Holds bank checks - Performs periodic review of recorded amounts on the travel advance subsidiary ledger

c. Accounting Department - Prepares travel advance voucher- Prepares payment checks- Records transactions in related books and records- Reviews calculations prepared by traveler and makes adjustments where applicable- Distributes pay checks (or Cashier)

d. Project Manager - Approves travel request- Reviews calculations approved by the supervisor and Finance Manager - Signs advance & reimbursement payment check


NOTE: Duties and responsibilities for travel and transportation should be appropriately separated. However, cost-benefit considerations may affect the organizational structure and complete separation may not be feasible. Compensating controls will likely be established when segregation of duties is not maintained. Typical compensating controls may require more supervision from the Project Manager, and at a minimum the functions of authorizing, recording, and custody should be segregated.

3. Safeguarding Access to Assets and RecordsPhysical controls are activities that assure physical security of assets and records.

Physical controls within the travel cycle include:

a) All travel documents should be pre-numbered and be kept in locked cabinets with access limited to authorized personnel only.

b) Approved travel requests and vouchers with attached documentation should be filed in numerical sequence for adequate reference and control.

c) All documents should be stamped “PAID” to avoid misuse by unauthorized personnel or the possibility of duplicate payments.

d) Unsigned and signed checks should be kept in locked cabinets, and the keys held by authorized personnel.

e) Records such as the advance, cash disbursement and general ledgers should be kept in locked cabinets with access limited to authorized personnel only.


D. CASE STUDY

The LMNOP University Project is an entity of the Government of Mozambique whose main activities are to increase the quality of agricultural products through certain specific research. Funds were made available to the implementing partner from USAID.

The main office of the project is located in the Maputo, with branches located in other areas of the country. Project employees and researchers travel occasionally to the project sites to manage and monitor the progress of the project.

Several researchers planned a trip to one of the project sites. Before the trip, the researchers submitted a travel request and received a travel advance. After the trip, they submitted a travel voucher detailing the expenses of the trip. The actions related to this travel took place as follows:

A. Before the trip, the researchers submitted travel requests directly to the Project Manager for approval. The requests included only the dates of the trip and the number of travelers. The Project Director approved the Travel Requests and submitted them to the Finance Office for processing.

B. Joao, the Accountant, calculated the estimated amount needed for an advance to cover per diem costs for the period of the trip and prepared a check for the whole amount to be paid to the travelers. The check was forwarded to the Project Manager for approval and signature.

C. After the check was signed by the Project Manager, it was forwarded with the advance voucher to the Accountant who then recorded it in the general ledger from which certified fiscal reports are prepared.

D. The check was then forwarded to the Cashier to be picked up by the travelers. The travelers received the check and the Cashier kept a copy of the check.

E. Two weeks after completion of the trip, the travelers prepared travel vouchers in which they recorded the actual number of days spent (more days than originally planned) on the trip and the actual amounts paid for accommodation, per diem, and incidental expenses. The travelers then submitted the travel voucher form to the Finance Office with no attachments for processing.

F. The Accountant reviewed the travel vouchers and recalculated the payments due to the travelers, taking into consideration the previous advances. Checks were then prepared for the Project Manager's approval.


G. After approving the checks, the Project Manager forwarded them with relevant travel vouchers to the Accountant for recording of the expenses in the general ledger.

H. The checks were then forwarded to the Cashier to be picked up by the travelers. The travelers received the checks, and the Cashier kept copies of the checks.

ASSIGNMENT:

Review the sequence of actions above. Are there any internal control weaknesses which could cause possible audit findings and questioned costs?


CHAPTER 11: ACCRUALS

A. Definition of AccrualsAccruals are the value of goods or services received but not yet paid for (and not recorded). USAID requires its Missions to include in their reporting for each fiscal quarter an estimated value of services and goods delivered but not yet paid for as of the end of each quarter to recognize expenses in the quarter they actually occurred. Thus, accrued expenditures are the total of actual disbursements plus accruals for the quarter.

B. Importance of AccrualsUSAID is required to prepare its financial statements in accordance with Generally Accepted Accounting Principles (GAAP), which requires the accrual basis for financial reporting. The following are the reason why USAID computes accruals on a quarterly basis:

Accruals are calculated to provide the true status of funds and to help USAID anticipate future funding and spending needs;

Accruals are estimated to show the value of unrecorded expenses and liabilities;

Accruals provide a reasonable basis for measuring performance since it is necessary to develop an accurate pipeline;

Accruals are recorded to recognize expenses in the quarter they actually occurred;

Accruals also serve as an effective means of verifying the validity of unliquidated balances; and

Since any overstatement or understatement in accruals results in a misstatement in the Agency financial statements, accruals are always an area of high focus by auditors and directly impacts the overall audit opinion provided on the Agency financial statements.

A. Accrual Process:

1. Schedule and ResponsibilitiesAccording to ADS Chapter 631, it is the responsibility of USAID AORs and CORs to develop estimates of accrued expenditures at the end of each fiscal quarter (December, March, June and September) and maintain the official accrual documentation. Equally, USAID recipients are responsible for providing timely information and documentation needed for preparing accruals to the AORs/CORs. Specifically, the recipient provides information on the amount of work performed by the recipient but not yet invoiced to USAID.


The whole accrual process beginning with estimations by the recipient through final posting in USAID’s accounting system takes nearly a full month. The following table summarizes the accrual process, describing the actions required, the timeline and those responsible for performing each action.

Step Action Responsibility

1 Estimate the amount of work performed but not yet invoiced to USAID USAID Recipient

2First week of the last month of each fiscal quarter (early September, December, March, & June): Send the estimation and related supporting documentation to the AOR/COR

USAID Recipient

3First week of last month of fiscal quarter: Provide Missions with the accrual schedule, including the accrual window open day and close day

USAID Washington

4 Extract the Accrual Query Report (R0660), prepare and send accrual worksheets to be completed by the AORs

USAID Financial Management Office

5 Provide guidance to the AORs on the accrual process and calculation, if needed


6 Review the Recipient estimations and develops the final quarterly accrual USAID AOR/COR

7 No later than 20th day of the last month of the quarter: Forward completed accruals worksheet to USAID FMO USAID AOR/COR

8Before last work day of the fiscal quarter: Reviews the accrual estimates and supporting documentation and records the accruals in the USAID accounting system


9 Maintains accrual files for three years USAID AOR/COR

2. General Procedures for Recipient’s EstimationThe Recipient is responsible for estimating the amount of work performed but not yet invoiced to USAID. This can be done in a number of ways depending on the particular circumstances. Usually, these estimations can be based on actual and/or projected information related to project expenditures, as described here: a) Actual Expenditures

Expenditures recorded by recipient: The recipient should include in the estimation of the quarterly accrual, all recorded expenditures that are due for


payment, including both actual vouchers billed but not yet paid by USAID and actual expenses not yet billed to USAID

Expenditures not yet recorded in the Recipient financial management system: The cost of work performed should be estimated and included in the accrual for the quarter. The recipient shall estimate based on:

o Invoices and other accounting transactions not yet recorded, o Work Plan and the knowledge of the work in progress, and o Project historical burn rate.

b) Projected Expenditures The cost of activities that are expected to occur before the end of the quarter

should also be included as accrual for the quarter. The recipient shall estimate the cost of these activities based on:

o the approved budget for these activities, o historical trend of costs for similar activities, o Amount advanced for 30 days cash needs, o pro forma invoices, ando Project historical burn rate.

3. Example Accruals Computation:A total of 20 computers were ordered for $3,000 each. Only 15 were in stock and delivered initially. Payment of $45,000 was made for the first 15 delivered. Before the end of the quarter, the vendor delivered the other 5 computers and submitted an invoice for $15,000, but this was not paid by the end of the quarter.

The accrued expenditure at the end of the quarter would be:

Disbursement $45,000Accrual (goods received not yet paid) $15,000Accrued expenditure $60,000

Additional Information on Accruals Computation: The accrual amount cannot exceed the unliquidated obligated amount; If an accrual of a previous quarter has not been recorded as a disbursement at

the end of the current quarter, it should be included in the accruals for the current quarter; and

A USAID payment made to the Recipient after the accruals window opens for the quarter should still be included as part of the accrual.


CHAPTER 12: BUDGET MANAGEMENT

The Budget is a comprehensive financial plan setting forth the details for how resources will be allocated to achieve the goals of an organization. It is a tool for planning expenses, and above all, is the financial expression of the organization’s plans.

A. Budget Benefits In general, the budgeting process compels managers to consider in advance how conditions might change in the future and what steps should be taken now to avoid unwanted results and problems before they arise. Relative to our context, some of the benefits of a budget are:

Enhances an organization’s managerial perspective of the future in terms of future economic or other prevailing conditions in the country and the world that may affect planned activities, proposed ways of doing things, and how activities will be funded

Since the organization’s budget indicates the activities and future operations of the project or program, management is forewarned of future financial and operational problems and can develop strategies to deal with or avoid problems in advance.

Provides management with an opportunity to coordinate the activities of various departments within the organization

It is an important tool for measuring project performance by looking at actual expenditures vs. the budgeted (planned) expenditures and highlighting positive and negative (good and not-so-good) performance so that corrective action can be taken.

B. Budget CycleThe budgetary cycle represents the financial activities that take place throughout a determined period of the project’s implementation. Recipient organizations must make the best estimates possible in budget planning in order to limit the possibility of unplanned expenses.


As presented in the diagram above, the budget cycle consists of the major events or stages in making decisions about budget and implementing and assessing those decisions. The budget cycle usually has four stages:

Budget Formulation, Budget Approval, Budget Execution (Implementation, Monitoring, and Control) Budget Auditing and Assessment.

1. Budget FormulationBudget Formulation refers to the preparation stage of the budget cycle, when the budget is put together by the recipient organization. The following points should be observed:

Requires active participation at all levels, from the base to the top Clearly indicate period covered Closely reflect program activities and support costs Consider all direct and indirect costs and any program income Comply with the cost principles; the budget should only include costs that are

allowable according to USG Regulation Consider economic factors such as inflation, exchange rates and other

applicable economic conditions

In general, budgets approved by USAID follow the below presented format, including each of the budget line items as applicable. Note that, depending on the purpose and characteristics of the project, additional budget line items may be included, for example, sub-grants and workshops, to name just a few.


Budget Line Item Year 1 Year 2 Year 3 Year 4 Year 5 Total

Salaries and Wages Fringe Benefits Travel and Transportation Training Equipment Materials and Supplies Communications Subcontracts/Consultants Other Direct Costs Grand Total

2. Budget ApprovalThe budget approval stage is when the budget plan developed by the recipient is analyzed by USAID, and if necessary, adjusted in order to represent the best estimate of the project implementation costs. Further, the proposed budget is approved and incorporated into the signed agreement between USAID and the recipient

3. Budget Execution The Budget Execution stage involves the implementation of project activities and corresponding expenditures according to the established budget, bearing in mind that only approved expenditures should take place according to the approved budget line items. In summary, the budget execution stage covers three main activities, as follow:

Budget Implementation: commences with the beginning of the project and represents the actual disbursement as a result of carrying out project approved activities

Budget Control: It is the Recipient’s responsibility to always be vigilant of all financial transactions, track all expenditures, and comply with the USG regulations. As such, control mechanisms should be put in place to ensure that project disbursements (i) are only made against available budget line item, (ii) are in line with the purpose for which the funds were previously committed, and (iii) are in accordance with cost principles.

Budget Monitoring: USAID/Mozambique requires recipients to perform ongoing budget monitoring and report actual spending against the original approved budget. Regular (monthly, quarterly, and annual) budget variance


analysis reports must be developed and shared with USAID in accordance with the agreement requirements.

One of the tools for efficient budget performance monitoring is Budget Variance Analysis, in which the difference between budgeted amounts and the amount actually spent is reported, deviations are analyzed and investigated, and corrective actions, if needed, are developed. Taking into consideration the fact that the budget is a planning tool based on best estimates, it is normal to have some minor variances during the life of the project. However, USAID/Mozambique highly recommends the recipients strive through very careful budget formulation and management to minimize variances in the life of the project.

4. Budget Auditing and AssessmentThe Budget Auditing and Assessment stage of the budget cycle involves examination of the budget execution to assess the effectiveness of funds spent and the level of compliance with standard provisions of the agreement and other applicable USG regulations. Attention is also given to internal controls and accounting procedures in place to ensure proper budget control and minimize the risk of misuse of project funds.

C. Budget and Program RevisionThere is an indissoluble link between programming and budgeting. Shifts in the budget can affect projected program activities, and changes in program activity plans can influence the budget. Thus, recipients are required to report deviations from budget and program plans and to request prior approval for budget and program plan revisions in accordance with 22 CFR 226.25.

According to the 22 CFR 226.25, for non-construction awards, recipients shall request prior approvals from the USAID Agreement Officer for one or more of the following program or budget related reasons:

1. Change in scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval)

2. Change in key personnel specified in the application or award document3. The absence for more than three months, or a 25 percent reduction in time

devoted to the project, by the approved project director or principal investigator;

4. The need for additional Federal (USAID) funding;5. The transfer of amounts budgeted for indirect costs to absorb increases in

direct costs or vice versa;6. Inclusion, unless waived in the agreement by USAID, of costs that require prior

approval in accordance with OMB Circular A-21, “Cost Principles for


Institutions of Higher Education,” OMB Circular A-122, “Cost Principles for Non-Profit Organizations,” or 45 CFR part 74, Appendix E, “Principles for Determining Costs Applicable to Research and Development under Grants and Contracts with Hospitals,” or 48 CFR part 31, “Contract Cost Principles and Procedures,” as applicable.;

7. The transfer of funds allotted for training allowances (direct payment to trainees) to other categories of expense.

8. Unless described in the application and funded in the approved budget of the award, the sub award, transfer or contracting out of any work under an award. This provision does not apply to the purchase of supplies, material, equipment, or general support services.

In addition, USAID may, at its option, restrict the transfer of funds among direct cost categories or programs, functions and activities for awards in which the Federal share of the project exceeds $100,000 and the cumulative amount of such transfers exceeds or is expected to exceed 10 percent of the total budget as last approved by the USAID Agreement Officer. For USAID/Mozambique awards, restriction on budget transfers depends on the individual awards. It is important for each recipient to be aware of restrictions in their own award, including restrictions on budget transfers.

USAID shall not permit a transfer that would cause any Federal appropriation or part thereof to be used for purposes other than those consistent with the original intent of the appropriation.

Note that, when requesting approval for budget revision, the recipient should use the same budget format that was used in the original application for award with a justification narrative, including:

• Detailed budget• Budget Notes • Any additional information to justify the revision


CHAPTER 13: PIPELINE MANAGEMENT

A. Pipeline Definition

Pipeline is defined as the difference between cumulative obligations and cumulative expenditures, including accruals (accrued expenditures). It is the total amount obligated by USAID, but not yet expended. The diagram below illustrates how the pipeline amount is estimated.

Total Estimated Cost of the AwardBudget

Value of goods and services recieved but not yet paid

Amount actual paid to recipient

Amount authorized for spending under an agreement with USAID Obligations

Disbursements

Accrual

Cumulative Obligation (-) Accrued ExpendituresPipeline

Accrued Expenditures

B. Importance of Pipeline ManagementIn line with the agreement requirements, the Recipient should develop and submit quarterly pipeline analysis and financial reports to USAID within 30 calendar days following the end of each quarter. The pipeline analysis helps both, Recipient and USAID, to: Manage the project activities through the analysis of the unliquidated balances

which generally reflect the project activities implementation level. Depending on the level of pipeline, the project managers can either realize that there are project


implementation delays or that the funds are not being used in accordance to the approved budget;

Evaluate the need for additional funding for the project activities based on the level of project pipeline versus the projected monthly burn rate. In addition, it also helps AORs and CORs to better allocate available funds with the AOR/COR’s portfolio of projects overseen; and

Adjust the work plan in line with the availability of funds for the project activities. Based on the pipeline levels and the availability of additional resources, the project managers decide on the course of project implementation, either to accelerate or slow down the project activities.

C. Pipeline Timing Since Pipeline computation requires availability of accrual information, and since accruals are captured once every quarter, actual and accurate pipeline reports can be generated only as of the end of each fiscal quarter.

Projected pipeline, however, may be developed any time, not just quarterly, based on an estimate of future expenditures, using either knowledge of future activities or a trend of historical expenditures (also known as burn rate).

D. Increased/Excess Pipeline1. Reasons for Increased/Excess PipelineIn analyzing an excess pipeline, it is important to determine the cause of the excess to be able to address it. Following are the possible main causes for an excess pipeline:

Budgeting in excess of need: An excess pipeline may be due to over-estimation of the costs or scope at the time of establishing the obligation. It could also be due to over-estimation of projected expenditures during the life of the obligation. In these cases USAID will usually amend the agreement to reduce the ceiling amount and de-obligate unneeded funds;

Change in scope: During the life of the obligation, reduction in scope may occur, resulting in residual or unneeded amounts under the obligation. Recipient management should monitor such changes and promptly consult with their relevant USAID AORs to de-obligate resulting residual amounts;

Implementation delays: A delay in implementation can cause apparent (but not actual) residual pipeline balances. Partners should monitor such delays to assess whether the planned activities may be completed and the related goals achieved within the agreed time period. If the relevant activities and related goals would not be


achievable within the set time period, the partner may consult with the USAID AOR to coordinate a No-Cost extension of the project; and

Residual balance at obligation/activity completion: Such balances may be resulting from all the above, but could also be the result of other factors, such as: Changes in estimates due to different exchange rates or unit prices, and

Held amounts for unknown potential billing, where the vendor has not yet provided final invoice.

2. Impact of Excess Pipeline At USAID Mission funding level:Having excess pipeline means that money is held unnecessarily under an obligation while is not currently needed by the partner. It prevents USAID Mozambique and USAID Agency as a whole from putting the

funds to better use; It causes both the USAID Administration and US Congress to consider cuts in future

funding to USAID Mozambique, due to the perception that the Mission and its implementing partners are unable to expend the funds or the funds are not needed;

It may leave the USAID Mission in non-compliance with laws and a regulation, particularly related to forward funding requirements, making USAID vulnerable to audit findings; and

It causes USAID Mozambique to expend valuable time focusing on monitoring and justifying apparent excess balances, instead of focusing on current or ongoing activities.

At USAID Partner level: Temptations by partners to incur unallowable or unjustified expenses resulting in

large amounts of questioned and disallowed cost; Perceived inability to manage large sums of USAID funds (in the eyes of USAID

Mozambique); and Difficulties in justifying future budget increases;

E. Low Pipeline1. Reasons for Low Pipeline

Under-budgeting: May result from under-estimation of the project costs or scope at the time of establishing the obligation or during the life of the obligation. It also can be due to obligations below the needs due to USAID shortage of funds for a given activity;


Change in scope: May result from increase in scope without matching resource allocations leading to lack of funds to implement the activity. Thus, any negotiation toward increasing the scope should go along with discussion to increase the project ceiling and consequently the obligated amount; and

Misappropriations of USAID Funding: May be a signal of misuse of the amount obligated to the project. For instance, if an obligation to cover expenditures for 18 months has been fully disbursed in 6 months, it can be a sign that the Recipient may have used the project funds for other than the approved purpose.

2. Impact of Low Pipeline At USAID Mission funding level:Due to lack of resources, the Recipient may fail to implement the agreed-upon activities resulting in USAID’s inability to reach the Mission goals set in the Country Development Cooperation Strategic, thus damaging the reputation of USAID/ Mozambique

At USAID Partner level:When pipeline is low, funds are likely to be insufficient or not available when needed for the project, leading to: Delays in implementing the project activities; Recipient’s inability to meet commitments as they fall due; and Failure to meet project’s goals.Failure to meet project goals, delays in implementation, and failure to meet commitments to third parties will not only damage the reputation of USAID, the USG, and the implementing partners, but will also harm the ultimate beneficiaries of the project.

F. Managing Pipeline1. Tools for Managing Pipeline: The following are various tools that could be used for proper pipeline management:

Budgeting process: The first step in managing pipeline is development of a realistic budget that closely reflects the real costs to implement the project activities. So that the obligated amount will be in line with real project needs leading to better control of the project pipeline;

Work Plans: Since the obligations of the project are made based on the Annual Work Plan, the Recipient should develop a realistic work plan that closely reflects the day-


to-day project activities. In addition, throughout the implementation of project activities, the Recipient may need to adjust the work plan in order to reflect the pipeline levels and future obligations;

Accruals Process: During the accrual development process, project managers review the unliquidated balances (pipeline) and the budget execution and are, consequently, able to use this information to take actions to manage the pipeline such as accelerating or slowing down the project execution or even requesting incremental funding or deobligation of unneeded funds;

Quarterly Expenditure Projections: while projecting the expenditures for current or next quarter, the project manager should review the work plan, budget, mortgage and pipeline in order to project expenditures that reflect the approved plan and the available resources; and

Periodic and on-going Pipeline Analysis: Recipients are required to perform and report on quarterly pipeline analyses that are based on project current expenditures, partner knowledge of the progress of activity implementation, and expected cost for future periods. Based on the pipeline analysis the Recipient determines if pipeline is enough to cover the project expenses or if additional funds are required.

2. Calculating PipelineThe pipeline Analysis can be made based on historical or projected burn rate resulting in the estimated months of pipeline remaining. The following are the variables involved in the pipeline analysis: Historical Monthly Burn Rate : The average monthly expenditures during the

elapsed period of the obligation calculated by dividing the Cumulative Disbursements by the number of elapsed months.

Projected Monthly Burn Rate: The projected average monthly expenditures for future periods is estimated based on the Project Manager’s knowledge of future project operations and expected expenditure trend.

Anticipated Burn Period : the projected number of months required to spend the obligation balance, based on historical or projected burn rate (Un-liquidated balance divided by monthly burn rate).

Example:Cumulative Obligations…..……………….………………$ 2,000,000Cumulative Disbursement ……………………………… (1,500,000)Accruals ……………………………………………………………. (75,000)Pipeline by end of the quarter …………………….....$ 425,000Burn rate (projected monthly expenditures)…...$ 70,000

Number of Months covered by existing pipeline: 6 Months ($425,000 end of quarter pipeline divided by $70,000 burn rate)


CHAPTER 13: FINANCIAL REPORTING STANDARD FORM – SF 425

A. Definition--Federal Financial Reports The Federal Financial Report (SF-425) is a single and comprehensive financial reporting form that gives recipients of grants and cooperative agreements a standard format for periodically reporting the financial status of their awards to USAID.

Recipients of USAID grant programs are required to submit periodic Federal Financial Reports (SF-425) to their respective AOR in accordance with the reporting frequency specified in their agreements. The report indicates how much money has been ‘drawn down’ (advance of funds or funds reimbursement), what the funds were used for, and the remaining balance left at the end of the reporting period. Each report requires the submission of a pipeline report which shows how the drawn down funds were allocated to the line items in the recipient’s agreement budget.

The SF-425 is a cumulative report that captures the financial status of an agreement at a specific point in time. Recipients use the form to report cumulative expenses (from the beginning of the award to the report date) incurred under each grant agreement. These expenses can be categorized as cash disbursed or expenses incurred but not yet paid (accrual basis). When a cost share is required under a Recipient’s agreement, incurred expenses are further divided into Federal share and recipient share (local matching contributions).

B. Frequency of ReportingUnder an award, usually a series of interim reports are required as well as a Final Report at the end of the award.

1. Interim ReportInterim SF-425s can be required to be submitted to USAID on a quarterly, semi-annual, or annual basis as indicated in the award document. USAID Mozambique typically requires quarterly reporting which will be the focus of most of the information in this guide. The following reporting period end dates are used for interim reports: March 31, June 30, September 30, and/or December 31. Quarterly and semi-annual interim reports must be submitted no later than 30 days after the end of each reporting period.

Partners who do not submit SF-425s by the due date will be unable to draw down additional funds. The SF-425 due date for each fiscal quarter is as follows:


Reporting Quarters SF-425 Due DateJanuary 1 – March 31 April 30

April 1 – June 30 July 30July 1 – September 30 October 30October 1 – December 31 January 30

2. Final Report A final SF-425 is submitted to the relevant USAID AOR at the completion of the award agreement, and the reporting period end date will be the end date of the project or grant period. Final reports will be submitted no later than 90 days after the project or grant period end date. Additionally, after the 90 day period, the Grantee is no longer eligible to draw down funds. Draw down of funds during the 90 period after the end date of the agreement would only be for eligible costs incurred prior to the end date of the grant. A Final SF-425 is indicated by checking “Final” in Block 6, Report Type. The table below shows examples of Final SF-425 due date based on the given award end date.

Award End Date Final SF-425 Due Date01/31/2014 04/30/201403/31/2014 06/30/201405/31/2014 08/31/201410/31/2014 01/31/2015

3. Early Submission of an SF-425Assuming activities have ended and no more costs will be incurred, the Recipient can submit the SF-425 prior to the reporting period end date in line with the following timelines:

Final Report: A Final Report may be submitted no sooner than one quarter prior to the reporting period end date. For example, if the reporting period end date is December 31, 2014, a Grantee could submit the Final Report as early as October 1, 2014.

Non-Final Report: A non-Final Report may be submitted no sooner than 10 business days (or 14 calendar days) prior to the reporting period end date. For example, if the reporting period end date is December 31, 2014, a Grantee could submit a non-final report as early as December 17, 2014.


C. Reporting with No Incurred ExpensesOnce a project has begun, a Grantee is required to submit an SF-425 for every reporting period according to their agreement with USAID regardless of whether expenses were incurred or not. Even if expenses have not been incurred during the quarter, the Grantee must report the cumulative amount of expenses to date. If expenses have not yet been incurred during the life of the grant, the Grantee should report a zero cumulative total. Once a project has begun, a Grantee will need to submit the most recent SF-425 before accessing funds.

D. Delinquent ReportingOnce the project has begun, the Grantee is required to submit an SF-425 every reporting period, even if the Grantee is delinquent in submitting reports from one or more prior periods. If the Grantee is delinquent in reporting on multiple quarters, the Grantee will be required to submit a separate SF-425 report for each delinquent quarter.

For Example:If the current reporting period is for the quarter ending 09/30/2015, the grant is not yet expired, and the last quarterly report was submitted for the quarter ending on 12/31/2014, then the Grantee must submit quarterly reports for the reporting periods ending:

03/31/2015 06/30/2015 09/30/2015

The Grantee should report expenses in the quarter in which they were incurred and carry the cumulative totals forward to the next reporting quarter.

E. Adjustments to Previously Submitted SF-425sAdjustments to a previously submitted SF-425, such as correction of a discovered error, can only be made to the most recent report in the current quarter. The grantee should not make the adjustment to previously-submitted reports and resubmit. The Grantee is required to remark in Block 12, Remarks, denoting the revision and the reason.

For example:If the quarter has passed, the appropriate way to adjust expenditures is as follows:Reported on 12/31/2014 SF-425 and submitted to USAID on time:

Federal Share Cumulative Amount: $100,000 Recipient Share Cumulative Amount: $25,000


On 04/05/2015, the Grantee determines that actually only $90,000 Federal Share and $23,000 Local Share should have been reported on the 12/31/2014 report. Also, the Grantee determines that $4,000 Federal Share and $1,000 Recipient Share have been expended for the 01/01/2015 – 03/31/2015 reporting period.

So in the current quarterly report the grantee should report as follows:03/31/2015 SF-425

Federal Share Cumulative Amount: $94,000 ($90,000 + $4,000) Recipient share Cumulative Amount: $24,000 ($23,000 + $1,000) Block 12, Remarks: “Adjustment on 03/31/2015 SF-425 to reflect the actual

cumulative expenditures for 12/31/2014”.

F. Final Draw Down of Funds Within 90 days after the grant end date, grantees are required to draw down funds for any allowable costs that were incurred prior to the grant end and submit a Final SF-425. If remaining funds are not drawn down within 90 days after the grant period end date, the Grantee will forfeit the remaining eligible balance. The Grantee is still required to report those funds on the Final SF-425.

G. Completing the SF-425

General Instructions1. Each agreement/ unique grant number requires a separate SF-425. Do not use

one SF-425 to cover multiple agreements.2. Reports are submitted quarterly, semi-annually, or annually as specified in the

agreement. Reporting frequency is determined by the USAID Agreement Officer.

3. Reports submitted quarterly or semi-annually are due no later than 30 days past the reporting period end date. Annual reports are due no later than 90 days past the reporting period end date.

4. Final reports are due no later than 90 days past the agreement expiration date.5. All amounts are cumulative.6. All lines must be completed. Enter “0.00” or “N/A” as applicable on lines with

no data to report.7. Completed and signed report has to be submitted to the AOR and copying the

respective financial analyst.8. Supplemental Pages : If more space is needed to support the report,

supplemental pages should be attached. These additional pages must indicate the following information at the top of each page: Federal grant or other identifying number, recipient organization, Data Universal Numbering System (DUNS) number, and period covered by the report.


Step-by-Step InstructionsBlock number Instructions

Block 1 USAID office that awarded the agreement or as identified in the award document or as instructed by the Agency.

Block 2 The USAID agreement number. Do not report multiple agreements on a single SF-425.

Block 3 Recipient name and complete address including zip code.

Block 4a Recipient Data Universal Numbering System (DUNS) number

Block 4b Recipient Employer Identification Number (EIN) number

Block 5 Recipient identifying number or any other identifying number assigned by the recipient to the award (if any). This number is for the recipient’s use only and is not required by USAID. Do not enter bank account information.

Block 6 Reporting frequency as specified in the agreement. The last report for the agreement (not individual projects/tasks) should be marked Final

Block 7 Recipient accounting method, Cash or Accrual. Cash basis refers to the accounting method in which expenses are recorded when they are paid. For accrual basis, expenses are recorded when incurred.

Block 8 Date agreement was awarded and date agreement expires (not to be confused with the reporting period end date). These dates are established in the award document.

Block 9 The end date of the current reporting period. For quarterly or semi-annual reports, use the following period end dates: 3/31, 6/30, 9/30 or 12/31. For final reports, the reporting end date shall be the end date of the project or grant period.

Block 10 Transactions

FEDERAL CASH: Enter cumulative amounts from the date of award through the end date of the current reporting period

a. Cash Receipts Amount of federal funds drawn down

b. Cash Disbursements

Amount of federal funds paid out

c. Cash on Hand Difference between line 10(a), receipts, and line 10(b)

FEDERAL EXPENDITURES AND UNOBLIGATED BALANCE:


Block number Instructionsd. Total Federal funds authorized

Cumulative obligated amount of federal funds to include original obligation plus all modifications. Note that this is not the Total Estimated Amount. Funds are not authorized for expenditure until obligated.

e. Federal share of expenditures

Cumulative federal dollars spent as of the reporting period end date (usually the same as Line 10(b)

f. Federal share of unliquidated obligations

Refers to recipient outstanding amounts owed to sub-recipients, contractors, or vendors (if any) but not yet invoiced to USAID as of the reporting period end date. If there is no recipient obligations enter $0.00. Note that “obligations” refers to recipient obligations and not the amounts obligated by USAID.

g. Total Federal share Line 10(e) + line 10(f), total cumulative accrued expenditures

h. Unobligated balance of Federal funds

Line 10(d) – line 10(g) = the amount of federal funds remaining from the USAID obligated amount, or pipeline.

RECIPIENT SHARE: This section must be completed only if there is a cost share or match required by the agreement. If there is no cost share or match required Lines (i), (j) and (k) should be marked “N/A”. For all others:i. Total recipient share required

Total amount of non-federal funds required

j. Recipient share of expenditure

Non-federal funds spent as of the reporting period end date. Recipient should be expending equal amounts of federal and non-federal dollars. For example if the agreement requires a 50% match, Line 10(j) should be approximately 50% of Line 10(e).

k. Remaining recipient share to be provided

Line 10(i) – line 10(j)

PROGRAM INCOME: This section must be completed if the recipient will generate any income as a result of work performed under the agreement. If no income will be generated lines (l), (m), (n) and (o) should be marked N/A.

l. Total Federal program income earned

Amount of income earned as a result of this agreement (not to include income that is considered part of the recipient’s share, line 10(i))

m. Program income expended in accordance with the deduction alternative

Refer to agreement and contact Agreement Officer for determination


Block number Instructionsn. Program income expended in accordance with the addition alternative

Refer to agreement and contact Agreement Officer for determination

o. Unexpended program income

Line 10(l) – line 10(m) or (n) as applicable

Block 11 Indirect Expenses

This section must be completed if recipient is charging indirect costs, otherwise leave blank.a. Type Type of indirect cost rate: Provisional, Predetermined, Final or Fixed

b. Rate Rate (%) in effect during the reporting period

c. Period Beginning and ending dates for the effective rate

d. Base Amount of the base against which the rate was applied. Ex: if the agreement provides for indirect costs and the rate negotiated was computed using salaries and wages only, then the rate may only be applied to the amount paid for salaries and wages (not to travel, equipment, or other direct costs etc.)

e. Amount charged Multiply 11(b) x 11(d)

f. Federal share 11(f) = 11(e) unless charging the government less than the indirect costs incurred.

g. Totals Enter totals for columns 11(d), 11(e) and 11(f)

Block 12 Remarks: Enter or attach any explanation recipient feels should be included with the report. Include clarification for any prior report adjustments or corrections in this block.

Block 13 Certification

a. Print or type the name of the person authorized to sign this document

b. Signature of the person authorized to sign this document

c. Telephone number of the person to contact for questions

d. E-mail address of the person to contact for questions

e. Submission date


I. Pipeline Report as back-up documentation for SF425

Step-by-Step Instructions

(A) Total Life of the Project Budget - Total Estimated Cost of the Project, still requires USAID approval to spend in the project.

(B) Total Amount Obligated – Total USAID funds authorized to be spent in the project.

(C) Mortgage – Difference of Total Life of the project budget (A) and Total Amount Obligated (B).

(D) Planned Expenditures for the Quarter – Projected expenditures for the quarter based on implementation plan and obligated amount.

(E) Prior Expenditures - Total Cumulative Expenditures prior to the current quarter.

(F) This Quarter – Total expenditures for the current quarter (reporting period)

(G) Total – Total expenditure since the project started; Prior Expenditures (E) plus This quarter (F)

(H) Deviation % - perceptual deviation between planned expenditures for the quarter (D) and Expenditure for the current quarter (F).


(I) Pipeline - Remaining Balance of obligated amount available to be spent in the project; Total Obligated amount (B) minus Total Expenditures (G)

(J) Projection (next Quarter) – Projected Expenditures for the next quarter based on Pipeline (I) and approved implementation plan.


CHAPTER 15: USAID PARTNERS’ TAX REQUIREMENTS

United States law (Section 7013 of FY 2014 USG Appropriations Act) prohibits payment of taxes on US foreign assistance programs. These taxes include custom duties, surtax, and value added tax (VAT). USAID-funded partners operating in foreign areas, such as Mozambique, who purchase and pay taxes on goods and services should request reimbursement from the relevant Government of Mozambique (GoM) authority. The US Government requires USG implementing partners through their funding USG Agency to report yearly on foreign taxes paid but not reimbursed by the host government tax authority.

A. Tax Payment and Reimbursement

1. Value added taxIt is the responsibility of USAID-funded implementing partners to comply with all laws and regulations of the host government of the country in which USAID and its implementing partners operate. Therefore, USAID’s implementing partners must pay taxes and other duties as required by the laws of the Government of Mozambique.

Since USAID law prohibits the payment of foreign taxes using foreign assistance funds, USAID/Mozambique partners cannot claim reimbursement of such tax from USAID on requests for reimbursement or toward liquidation of advances.

USAID partners should on a regular basis seek reimbursement from the relevant GoM authorities for all VAT and custom duties paid related to purchases under USAID agreements.

If after consistent efforts to seek reimbursement from the GoM for taxes paid, using the Mozambican government-stipulated procedures, the USAID partner receives written notification from the appropriate Mozambican Tax Authority explicitly denying their request for reimbursement, the USAID-funded partner may request the USAID Agreement Officer to consider amending the agreement to make taxes an allowable cost under the agreement.

2. Customs duties

USAID partners should seek customs duties exemption through the National Tax Authority where they will be provided with a specific form and procedures applicable for that purpose.

B. Mandatory VAT Reporting


All USG partners receiving foreign assistance funds are required, in accordance with the terms of their agreements with USAID, to report annually the amount of taxes paid on purchases of commodities, for which they have not received reimbursement from the Government of Mozambique, for all transactions valued at $500 and above.

USAID/Mozambique requires that recipients also report at the same time on a separate form the amount of taxes charged on services with transactions of $500 and above, for which they have not received reimbursement from the GoM. A transaction is defined as the individual invoice amount. Where transactions are below the threshold of $500, or if there are no amounts to report, negative reports are still required to be sent to USAID.

The data in the report should be for the period of October 1 to September 30 of the previous year (USAID’s fiscal year). Partners should use the prescribed template provided by USAID in their reporting. The reports must be addressed to the AOR and reach USAID by January 31 of each year. We urge all partners to submit their reports ahead of this deadline.

Common errors on partner VAT reports Not using the form/template provided by USAID Missing award number on the report No indication of currency used (USD vs MZN) Mixing commodities and services on one form, instead of providing separate

forms No subtotals Partners not submitting reports because they had nothing to report. Note that

it is a requirement that even negative reports should be submitted. Failure to meet the established deadline. Non adherence to the threshold. Taxes to be reported are those charged on

transactions valued at US $500 or more.


CHAPTER 16: ASSESSMENTS AND CAPACITY BUILDING

Prior to, and throughout, the implementation of USAID programs, a variety of assessments may be carried out, including pre-award assessments, financial reviews, payment verifications, and/or an organizational capacity assessment (OCA). While a main purpose of most of these types of assessments is to review management systems and/or financial activities to ensure efficient and effective management of USAID resources, all of them also have the important aim of developing the institutional capacities of implementing organizations with the ultimate goals of long-term sustainability.

A. Pre-award AssessmentPrior to making an award to an organization, USAID performs a pre-award assessment to determine whether, in essence, the potential recipient is capable of properly managing USAID funds to carry out the objectives of the proposed agreement. USAID’s pre-award assessment process over non-U.S.-based organizations for most types of agreements is called NUPAS (Non-U.S. Organization Pre-award Survey). When the agreement between USAID and an implementing partner will be a Fixed Obligation Grant (FOG), a FOG checklist is used rather than the NUPAS.

1) NUPAS: The NUPAS helps determine whether the organization’s financial management and internal control systems are adequate to manage, control, account for, and report on the uses of USAID funds, thus protecting the U.S. Government’s interests. It provides the Agreement Officer with the information needed to evaluate the ability of a local organization to adequately fulfill the terms of an award, and serves as a tool in the selection of non-U.S. implementing partners.

NUPAS objectives are stated as: To determine whether the organization has sufficient financial and managerial

capacity to manage USAID funds in accordance with U.S. Government and USAID requirements,

To determine the most appropriate method of financing to use under the potential USAID award, and

To determine the degree of support and oversight necessary to ensure proper accountability of funds provided to the organization.

The NUPAS is performed using a questionnaire that covers 6 major areas: Legal Structure , including a review of organizational structure, governance,

legal requirements, and the overall control environment. Financial management and internal control systems , including a review of the

accounting system, bank accounts, segregation of duties over the payment and accounting cycles, financial records management, financial reporting,


variance analyses, personnel, allowable and unallowable cost, sources of funds, and audit.

Procurement systems , including a review of adequacy of Procurement Policies, Procedures and Practices, compliance with these policies and procedures, and sub-award management procedures and capability.

Human Resources systems , including a review of Human Resources policies and procedures, employee time management and the payroll system, as well as Travel Policies and Procedures for employees.

Program performance management , including an assessment of Technical Evaluation Criteria and Project Management Capacity, usually performed by the USAID AOR.

Organizational sustainability , including and assessment of Cash Flow Management and Absorptive Capacity

The USAID team performing the NUPAS is normally composed of one or more representatives from the Development Objective/technical team and Office of Acquisition and Assistance lead by a Financial Analyst from the Financial Management Office. The NUPAS begins with performance of a desk review of documentation provided by the potential partner, including but not limited to, records of legal registration, mission statement, organizational chart and delegations of authority, chart of accounts and corresponding general ledger, policies and procedures manuals, and audit reports.

The desk survey is followed by the NUPAS field work that starts with a round table discussion between the USAID NUPAS team and key representatives of the potential partner. The discussion is guided by questions from the standard NUPAS Questionnaire. During the field work the NUPAS team also reviews the organization’s policies and procedures covering financial, administrative, human resources, procurement, and travel procedures for appropriateness and to determine if they are being consistently applied in practice. Further, the NUPAS team analyzes financial records and related supporting documentation of a representative number of transactions.

After completion of the field work the NUPAS report is prepared by the USAID NUPAS team to include significant findings from the assessment, a risk rating assigned for each area, and recommendations of corrective actions to be taken by the potential partner.

2) FOG Checklist:A Fixed Obligation Grant (FOG) is a type of grant agreement that can be used by USAID to fund Non-Governmental Organizations (NGOs), particularly non-U.S. NGOs, with limited or no previous experience with USAID-funded grant agreements. Under a FOG agreement, payment is made to the recipient upon achievement of pre-determined,


verified milestones, rather than based on actual disbursements as with other types of agreements.

Before entering into a FOG agreement, rather than performing a NUPAS, a FOG Checklist must be completed. The main purpose of the FOG Checklist is to ensure that programmatic and/or financial risks are assessed and mitigated, that the recipient is able to fulfill the grant objectives, and that USAID will be able to evaluate the results achieved. The FOG checklist covers the following sections and sub-sections. The sub-section, ‘FOG Pre-award financial review checklist’ is only done if the advance of funds payment mechanism is envisioned.

SECTION A - ENTITY ELIGIBILITY Organizational integrity Organization technical capacity to achieve proposed FOG activity Past Performance in the Sector FOG activity implementation viability FOG Pre-Award financial review checklist Minimum statutory certifications/representations/provisions

SECTION B – INSTITUTIONAL CAPACITY BUILDING Minimum organizational capabilities for determining the extent of technical

assistance the recipient may require Assess ability to maintain/manage auditable records (for cost reimbursement

grants); Assess availability of local/certified accounting services (for cost

reimbursement grants); Assess ability to procure/manage property/personnel; and Assess management skills/resources

The FOG checklist is completed by the selected FOG Team generally composed of representatives from USAID’s Development Objective/technical team, (usually the AOR- Acquisition Officer Representative) and the Office of Acquisition and Assistance. A USAID Financial Analyst is normally a part of the team when an advance of funds mechanism is envisioned. Using the checklist as a guide, the FOG Team conducts interviews with representatives from the potential partner and reviews and analyzes related documents appropriate to the FOG Checklist questions. If the advance payment mechanism will be used, the USAID Financial Analyst completes the Pre-award financial review checklist in Section A by reviewing appropriateness and applicability of the company policies covering financial, administrative, human resources, procurement, and travel procedures and performs analysis of financial records and related supporting documentation.


B. Payment Verifications

USAID/Mozambique normally does not require the submission of receipts and supporting documentation to accompany requests for reimbursements or liquidation of periodic advances; however, USAID Financial Analysts may periodically perform detailed payment verifications over payments made to recipients during the implementation of the agreement.

The main objectives of payment verification are to verify the substance of the vouchers submitted by the recipient for reimbursement or liquidation of advance funding and to ensure the recipient’s financial transactions under the award have been in accordance with the recipient’s established policies and procedures and its agreement with USAID.

Payment verifications involve review of all supporting documentation related to selected transactions under an agreement, checking for adherence to established policies, procedures, and regulations, and usually involve checks of prices and other details with independent sources. The verification will normally include a thorough review of a judgmentally-determined percentage of transactions (at least 30%); however, if errors, irregularities, or questionable practices are revealed, verification procedures will usually be extended to a larger percentage of the transactions up to 100%.

FOGs are not subject to payment verifications as payment is based not on actual expenditures, but on a fixed amount to be paid to the implementing partner upon achievement of pre-agreed milestones.

C. Financial Reviews A Financial Review is an assessment of a USAID-funded organization’s financial policies, procedures, systems, and controls, performed one or more times within the period of implementation of the agreement with USAID, with the purpose of:

Ensuring that recipients’ financial practices and internal controls are in compliance with applicable policies and regulations governing the existing agreement(s) between USAID and the recipient.

Verifying the substance of the vouchers submitted by the recipients, upon which USAID has reimbursed the recipient for costs incurred (sample of 30% to 100% of supporting).

Raising awareness of binding rules and regulations and cost principles (e.g. OMB A-122,22CFR226&228).

Assist the recipient to develop and implement proper financial systems in connection with the agreement with USAID.

The main areas targeted for review are the following:


Control Environment : The recipient’s general attitude towards financial and administrative controls and the adequacy of partner’s operational resources to carry out the agreement are assessed. The existence and adequacy of Financial and Administrative Policies and Procedures are also verified.

Personnel and Staffing : The Financial Analyst reviews the organizational structure, areas of responsibility and authority, employee files, segregation of duties, and the adequacy of the human resources available to implement the project activities.

Financial Status : The recipient’s budget management systems, internal controls over cash management and banking, and existence and adequacy of the accounting system and procedures (including audit management procedures) are reviewed.

Procurement : The adequacy of procurement procedures, observance of segregation of duties under the procurement process, and existence and adequacy of internal controls over procurement are verified.

Assets and Inventory : The Financial Analyst assesses the effectiveness of the recipient organization’s property management standards and tools including fixed asset register, use and maintenance of vehicles, physical stock count, compliance with policies and procedures and insurance coverage.

Travel : The existence and adequacy of travel policies and procedures, including those related to travel requests, per diem, and transportation, and the effectiveness of internal control procedures over travel processes are verified.

Fraud Awareness : Special attention is placed on the recipient’s policies, procedures, and control practices to reduce the risk of fraud, timely detect fraud, and handle and report fraud should it occur.

USAID Financial Analysts conduct the financial review using a checklist that includes the areas described above. The review procedures usually consist of interviews with the implementing partner’s senior management staff and other relevant staff, such as the Director, Program Coordinator, Administrative and Finance Official, Accountants, Procurement Officials, and Logistics Officer. In addition, the Financial Analyst observes performance of systems and transactions and performs testing of adherence to policies and procedures and detailed testing of some transactions. Generally the Financial Analysts select for testing a random sample of about 30% of financial transactions for the period under review; however, when deemed necessary they may test up to 100%.

IMPORTANT: Assessment Reports and RecommendationsIn the course of performance of pre-award assessments (NUPAS and FOG), financial reviews, and payment verifications; internal control vulnerabilities and other deficiencies in financial and management systems are often revealed that require corrective action. These deficiencies are highlighted by USAID Financial Analysts in assessment reports with recommendations to resolve deficiencies or strengthen


controls and systems and accompanied by a schedule with deadlines for accomplishing the corrective actions.

Recommendations from pre-award assessments will often be included as special award conditions in the agreement between the implementing partner and USAID. In cases where weaknesses are significant, USAID may require the prospective implementer to take corrective actions prior to entering into an agreement. In other cases, partners may not be eligible to receive advance of funds until certain recommendations are resolved.

USAID Financial Analysts accompanied by the AOR will perform follow up reviews on recommendations from pre-award assessments and financial reviews to verify that the corrective actions have, in fact, been taken as required.

D. Organizational Capacity Assessment (OCA)

IntroductionAs discussed in the Overview Chapter under USAID Forward, USAID under its Implementation and Procurement Reform Objective is committed to strengthening partner country systems and development of local capacity with the goal of more sustainable development. One important tool that is being used in this endeavour is the Organizational Capacity Assessment (OCA). The OCA is designed to help USG-funded recipients to measure and assess performance, prioritize organizational capacity challenges, and design and implement improvement strategies with the aim of building their capacity to become a stronger, more mature entity

While the OCA process is guided by USAID employees, it is important to remember that it is a self-assessment, so the judgments made are those of the partner organization management and other employees. In performing the self-assessment, therefore, it is important for the partner representatives to be self-reflective and honest about the status of areas being covered and weaknesses that may exist. An honest self-assessment will identify areas for corrective action resulting in a stronger, more sustainable organization in the long term.

The OCA ToolThe organizational capacity assessment is designed to measure organizations’ overall capacity and, as a subset of this, each organization’s capability to manage and implement USG funded programs. Recognizing that organizational development is a process, the use of the OCA tool results in concrete action plans, to provide organizations with a clear organizational development road map.

The tool assesses capability in seven key capacity areas:


1. Governance2. Administration3. Human Resources Management4. Financial Management5. Organizational Management6. Program Management7. Project Performance Management

Each of these seven sections has more detailed subsections. For example, the section on governance is made up of vision/mission, organizational structure, board composition and responsibility, legal status, and succession planning. Each sub-section is broken down further into four stages of organizational capacity development ranked from one (indicating low capacity) to four (indicating strong capacity). Some sub-sections pertain more directly than others to an organization’s ability to manage USG funds. These sub-sections are marked with a star and their scores will be compiled into a USG Grants Implementation Capacity score.

In addition, each section will receive a compiled score, and an overall organizational capacity score aggregating all sections will be calculated. This approach to scoring will help the OCA team and the organization identify key strengths and priority need areas. In addition it will enable the team to document progress in key areas, with particular attention to capability in USG implementation of its funding, and monitor organizational capacity improvement over time.

PreparationPrior to conducting the OCA, the recipient organization will be provided with a letter describing the process and confirming the dates, a list of documents to have on hand to assist the process, a list of staff members who should participate, and a description of the type of facility that might be needed for the plenary meetings. A set of questions for staff and board members will also be provided to the organization so that inputs on selected issues can be collected in advance of the OCA self-assessment process.

Approach

The OCA Team: The OCA Team is typically composed of organizational development, financial, and technical specialists from the USG; representatives from the recipient organization’s management, administration, finance, and technical departments; and, as needed, local firms with particular technical skills.

Time: The initial OCA will take approximately three days to complete and results in an agreed action plan that maps priority areas and the actions the organization will take to address problems or gaps.


Steps: The OCA process will be conducted in five steps as noted below.

Step 1: Introduction. The assembled organization's representatives and the organizational assessment team will discuss the purpose of the OCA; review the tool, process, and schedule; identify sub-groups to review specific sections and sub-sections; and determine scores and proposed actions to address problems or gaps and decide on the schedule for section reviews.

Step 2: Assessment, Scoring, and Action Identification. The objective of this step is to identify the organization’s capacity level in each sub-section of the OCA and the justification for the proposed score. Step 2 will include assessment and scoring by sub-groups. For example, the finance specialist and the organization’s financial manager may form the sub-team responsible for reviewing and scoring financial management, while representatives from the organization’s management and board may sit together to review the governance section and sub-sections. Sub-groups will record scores, justifications for the scores, and potential remedial actions on the OCA scoring and rationale worksheet. Step 2 will be spread over two days.

Step 3: Plenary Score Review and Prioritization. In Step 3, the organization’s participants will reassemble internally to review the scoring and rationale worksheets. The sub-groups will share, review, and come to consensus on the findings, recommendations, and proposed scores. They will prioritize each issue as high, low, or moderate to inform the action plan to concentrate on the most urgent issues first.

Step 4: Action Planning. In Step 4, the organization’s participants and the OCA team finalize the action plan by reviewing the issues and actions proposed in the scoring and rationale worksheets and elaborating the steps, timing, and responsibility for each action item, as well as the need for any external capacity development interventions, tools, or resources. This review can be done in plenary or small groups depending on the number of participants. The detailed action steps are incorporated into an electronic version of the action plan for final review.

Step 5: Action Plan Review and Process Wrap Up. The OCA team discusses the role of the USG, technical assistance, and any other assistance needed to help the assessed organization carry out the plan resulting from the assessment and next steps.

Follow-up: While the action plan is completed at the end of day 3, a revised/finalized action plan may need to be compiled by the organization in the days following the


assessment process. The final action plan should be available no more than ten days following the OCA, as it will be used as a road map for organizational development.

Documentation: The OCA Team will compile an OCA report (which should be computerized) for each organization that will detail:

A. Scores: 1. Overall organizational capacity score 2. USG grants/contracts implementation capacity score3. Section capacity scores4. Sub-section capacity scores

B. Problem summary

C. Technical Assistance (TA) needs

D. Finalized Action Plan: the action plan will include: Sub-section and sub-section type The problem Current capacity score Any action to be taken Action monitoring strategy Person responsible for ensuring the action is realized Assistance needed to support realization of the action Estimated action completion date and status

Repeat: The OCA process is repeated on an annual basis during the life of an award to monitor organizational development, identify persistent or new problems, and establish new action plans from which to continue the organizational development process. The final OCA is ideally completed within three months of the USG award end date to ensure the comprehensive measurement while allowing time for proper award close out.


CHAPTER 17: USAID FINANCIAL AUDITS

USAID-funded recipient organizations are required to have a yearly audits of their financial operations performed in accordance with specific US Inspector General Guidelines when they meet certain thresholds, or when deemed necessary by the USAID Controller or the USAID Agreement Officer.

In addition, USAID-funded recipients should have a yearly audit performed of their organization’s General Purpose financial Statements.

A. General Audit Guidance 1. ApplicabilityWhether a USAID-recipient is subject to an audit in accordance with US Inspector General Guidelines in a given year and what entity will perform the audit depends on the type of organization (US-based vs. non-US; profit vs. non-profit) and certain established expenditure thresholds.

a) Non-US, non-profit:USAID agreements with Non-US-based, non-profit organizations and foreign governments require audits performed by Regional Inspector General (RIG) approved audit firms when the recipient expends $300,000 or more in USAID funds in the recipient’s fiscal year.

For awards to non-US, non-profit organizations below this audit threshold, the USAID Mission relies on financial reviews to assess on-going financial viability of recipient organizations, but may determine the feasibility of conducting audits on a case by case basis.

b) US-based, non-profit:US-based, non-profit organizations require audits performed by an independent, non-Federal auditor when the recipient expends $500,000 or more in USAID funds in the recipient’s fiscal year. U.S. based grantees are subject to OMB Circular A-133 audits conducted by the grantee’s Independent Public Accountant (IPA). Since a single audit should cover all USAID funds to a recipient, these audits are generally conducted at the US headquarters level to cover the headquarters operations and those of the organization’s foreign operations generally on a sample basis.

Regardless, when the USAID Controller or the USAID Agreement Officer deems necessary, the USAID Mission has the right to call for an audit/financial review


of a U.S. based recipient’s local operations, usually limiting the audit or review to local costs only.

c) US-based contractors (for profit companies): are subject to annual financial audits conducted by the Defense Contract Audit Agency (DCAA) per FAR 42.101, and

d) Non-US, for profit companies: At least annually, USAID Mission should assess risk and determine whether to conduct financial audits of foreign for-profit recipients. If done, Missions must share the results of these risk assessments with the RIG. Generally, the DCAA or an independent public accountant will perform the audit of a foreign for-profit recipient. This audit is done in accordance with the specific RIG-approved scope of work.

2. Agency-Contracted (ACA) vs. Recipient-Contracted (RCA)Agency-contracted vs. Recipient-contracted audits refers simply to whether USAID or the USAID recipient will contract with the audit firm and coordinate the audit process.

a) Recipient-Contracted Audit (RCA): Under an RCA, the recipient contracts with the audit firm who will conduct the audit and coordinates the audit following the RCA process required by the RIG. USAID actively oversees the process in consultation with the RIG. This is the preferred type of audit.

b) Agency-Contracted Audit (ACA): Under an ACA, USAID contracts with the audit firm conducting the audit and follows the RIG’s required ACA process. RIG/Pretoria is actively involved and has oversight and control over the audit.

Most audits of USAID-funded local recipients that fall within the threshold for audit will be RCAs, unless an ACA is determined to be necessary, such as when it is deemed that USAID needs to exercise greater control and RIG’s direct involvement is required. For this reason, the majority of this section of the manual will be applicable to the RCA process; however, the ACA steps are very similar to those for the RCA. One of the main differences is who (USAID or recipient) contract with the audit firm and has main oversight responsibility of the audit process.

3. Audit GuidelinesThe “Guidelines for Financial Audits Contracted by Foreign Recipients(Guidelines), February 2009 edition, and as revised from time to time, are to be used by independent auditors in performing audits over USAID local recipients. Unless otherwise noted, RCAs must be conducted in accordance with Chapters 3, 4, and 5 of U.S. Government Standards (“Yellow Book”; hereafter referred to as U.S. Government Auditing Standards) issued by the Comptroller General of the United States.

Website link: http://www.usaid.gov/sites/default/files/documents/1868/591maa.pdf


4. Roles and ResponsibilitiesFollowing are the general roles and responsibilities of USAID, the Recipient, and the RIG with respect to audits of USAID local recipients.

a) RIG/Pretoria: The RIG has the following general responsibilities with regard to audits of USAID Recipients:

Maintains the list of approved audit firms which is divided into two categories: regular and conditional status;

Approves or disapproves use of audit firms with conditional status for each separate audit;

Reviews and approves engagement contracts and Scopes of Work (SOWs) for ACAs;

Performs desk reviews of USAID-funded audit reports to evaluate and ensure that audit reports of USAID–funded projects meet the required criteria of applicable guidelines, GAGAS, and other international audit standards;

Reviews and issues audit reports; Conducts Quality Control Reviews (QCRs) of audits conducted; Tracks audit recommendations and ensures that appropriate

management decisions have been prepared and submitted to RIG within required deadlines.

b) USAID Mission Develops Annual Audit Plan for the USAID Mission with local recipients

that should be audited in the current year based on thresholds; Ensures audit firms are from list of approved audit firms. USAID has the

authority to establish a limit on the maximum number of years that a recipient can be audited by the same audit firm;

Ensures that standard engagement contract and Scopes of Work (SOW) are used for RCAs and ACAs;

Distributes audit guidance and sends audit reminders to recipient/audit and auditors;

Participates in all phase of the audit process (refer to RCA process); Provides the auditors with confirmations of disbursements made to the

recipient during the audit period; Monitors and ensures timely submission of reports and supports

RIG/Pretoria’s review of reports; Attends entrance and exit conference; Provide oversight to the recipient and cognizant AOR on audit

recommendations resolution process; Issue audit management decision to the RIG on action taken by the

recipient to address the audit recommendations.


c) Recipient/Auditee Initiates RCA audit if over $300,000 of U.S. Government funds were

expended in a fiscal year (non-US, non-profit); Select an auditor firm from RIG/Pretoria’s list of eligible audit firms and use

an approved engagement contract and SOW; For RCAs, ensure that the required RIG-established RCA steps are followed

in the order required; 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, including preparation of the Funds Accountability Statement;

Provide auditors with Management comments in response to audit recommendations in draft audit report;

Take corrective action to resolve audit recommendations in a timely manner, including previous year recommendations;

Monitors audits of sub-recipients that have expended $300,000 or more in a fiscal year and ensures that appropriate corrective action is taken on sub-recipients in cases where questioned costs and other findings were identified.

5. List of Approved Audit Firms:Audits of USAID-funded local recipients can only be done by CPA firms that have been approved by USAID’s Regional Inspector General. These firms can be considered to be under ‘regular’ or ‘conditional’ approval status.

Regular Status: These firms are eligible to conduct audits of any USAID awards once selected by the recipient in consultation with USAID without further approval by the cognizant RIG.

Conditional Status: RIG/Pretoria must approve the use of these firms prior to selection for each separate audit in a recipient’s fiscal year. Firms are put on the conditional list when: (a) they have not conducted a USAID-Funded audit and therefore have insufficient experience on application of the Guidelines and GAGAS, (b) they have not undergone a quality control review (QCR) by RIG/Pretoria to ascertain whether the standards of the working papers are acceptable and (c) they have previously failed a QCR and are expected to improve the quality and standards of their working papers. RIG/Pretoria must approve the recipient’s choice of a “conditional” firm before the contract with the audit firm is signed. If the USAID Mission and RIG/Pretoria disapproves the recipient’s choice of firm the recipient must select another firm.

The RIG-approved CPA firms in Mozambique include the following (as updated from time to time on RIG’s website): http://oig.usaid.gov/content/regional-inspector-general-pretoria)

Ernst & Young (Regular)


http://oig.usaid.gov/content/regional-inspector-general-pretoria

http://oig.usaid.gov/content/regional-inspector-general-pretoria

KPMG (Conditional) Deloitte & Touche (Conditional) Grant Thornton (Conditional)

B. The Audit ProcessThe audit process details the steps that are followed from the time an audit is initiated through the final resolution of audit recommendations resulting from the audit. The process described below is most relevant to the RCA process, as this is the preferred method; however, the majority of steps also apply to ACA’s.

1. Approved SOW: The Recipient prepares the audit Statement of Work (SOW) using the standard RIG-required form and submits it to the USAID Mission for approval. The USAID Mission OFM reviews the SOW to ensure that it contains all the requirements of the Guidelines for Financial Audits Contracted by Foreign Recipients. If the SOW received by the Mission is unacceptable, the Mission must request the recipient to make the required changes to the SOW and resubmit it to the Mission for approval. USAID Mission approves SOW and provides a copy of the approved SOW to the recipient.

A copy of the standard SOW can be found at http://oig.usaid.gov/content/regional-inspector-general-pretoria.

2. Solicitation of Audit Firm: The Recipient provides the approved SOW to a selection of audit firms from RIG/Pretoria’s list of approved “Regular” or “Conditional” status firm and solicits quotations/proposals. A reasonable number of proposals should be solicited and compared in order to get the best value. The Recipient selects an audit firm from among the proposals received and notifies the USAID Mission of the selection.

It is suggested that the Recipient use a different audit firm to conduct the USAID audit from the firm conducting their statutory audit of their financial statements. Recipients are not limited to make use of an audit firm in resident country, and therefore may select an audit firm on RIG/Pretoria’s approved list that is in another country.

The USAID Mission approves or disapproves the recipient’s choice of a “Regular” firm. RIG/Pretoria must approve the recipient’s choice of a “Conditional” firm. If the USAID Mission or RIG/Pretoria disapproves the recipient’s choice of firm, the recipient must select another firm. NOTE: Audit Fees cannot be a controlling factor in the choice of a firm.

3. Audit Contract: The Recipient uses the approved SOW as the basis for the audit contract between them and the audit firm. A copy of the audit contract (engagement


letter) should be sent to USAID OFM for review before final execution. It is suggested that the contract contains payment terms that withholds a percentage of the final payment to the auditors until the audit report is accepted by RIG/Pretoria. Once Audit Contract is accepted and signed by the selected audit firm, the Recipient should provide a copy of the signed audit contract to USAID OFM.

4. Pre-audit Survey The selected auditor will conduct a pre-audit survey to review documents, including the recipient’s agreement with USAID and any sub-grant agreements; organization charts and legal files, applicable policy and procedures manuals; Board of Director’s meeting minutes; and accounting and other records necessary to help them in developing the audit programs and develop estimates of time and effort required to conduct the audit. This survey takes approximately 2 to 3 days.

5. Audit Plan: The auditors prepare their audit plan based upon the results of the pre-audit survey. USAID must first approve the audit plan before the auditors proceed to the next step.

6. Entrance Conference: The auditors schedule an Entrance Conference in coordination with the Recipient and notify the USAID Mission of the dates, time, and venue. The Entrance Conference is usually held at the Recipient’s office. The entrance conference is attended by the audit firm, recipient (Senior Management and the Finance and Administrative Manager), and a representative from the USAID Office of Financial Management. The agenda is prepared by, and the entrance conference is chaired by, the audit firm. The audit firm also keeps minutes of the entrance conference. During the entrance conference, there is usually a discussion of the audit objectives, the RCA process, the anticipated dates of fieldwork, and information and documents needed by the auditors from the recipient.

7. Field Work: Before and during the audit field work, the Auditee/recipient is required to provide to the audit firm all documents pertaining to the period to be audited as requested. These include, but are not limited to:

o Fund Accountability Statement and the General purpose financial statement, if applicable.

o Balance Sheet, Statement of cash Flow/changes in the financial positiono List of bank balances “Bank Statements”o Trial Balanceo Physical count report

Auditees are also required to provide any assistance needed in order to respond to auditor queries, request for documentation, explanations and/or justification forincurring the costs billed to USAID.


There should be on-going discussions during the field work between the auditee management and staff and the Auditors regarding matters or issues arising and pending documentation or responses to audit inquiries.

During the fieldwork, the audit will be performed based primarily upon the auditobjectives established in the auditor Scope of Work. There are six main audit objectives in the standard SOW, which include:

a) Fund Accountability Statement (FAS): The FAS is the income and expenditure statement of a project or activity, which summarizes the financial position of the project. It identifies the sources and application of funds and resources and obligations. The auditors will conduct the audit in order to be able to express an opinion on whether the fund accountability statement for the USAID-funded project presents fairly, in all material respects, project’s revenues and costs for the period audited in conformity with the terms of the agreements and generally accepted accounting principle or other comprehensive means of accounting. (See Section C below for further elaboration on the FAS.)

b) Internal Controls: The auditor must evaluate and obtain a sufficient understanding of the internal control structure, assess control risk, and identify reportable conditions, including material internal control weaknesses. The auditors will perform tests of controls to assess the effectiveness of the design or operation of the controls, including inquiries of appropriate personnel, inspection of relevant documents, observation of the application of controls, and re-performance of the control by the auditor.

c) Compliance: The auditor performs tests to determine whether the recipient complied, in all material respects, with agreement terms and applicable laws and regulations related to USAID-funded projects.

d) Cost Share: Cost share is a contribution in cash or in-kind to the activity provided by the implementing partner for successful completion of the project, in accordance with the terms of an Agreement with USAID. The recipient should maintain reliable information to monitor the actual cost sharing contributions throughout the life of the agreement. If an agreement requires a cost share by the partner, it is reviewed as part of the audit over the recipient, and a cost share schedule is required to be prepared prior to the audit from the recipient’s books and records. The recipient is responsible for the accuracy of the cost share schedule; however, the auditors may prepare or assist the recipient in preparing the schedule. The auditors must perform the audit to ensure that the contributions have been made in accordance with the terms of the Agreement.

e) Indirect Cost Rate: If the recipient has been authorized in their agreement with USAID to charge an indirect cost rate, the auditor will review the indirect cost rate(s) as part of the audit work.


f) Prior audit recommendations: The auditor assesses whether prior audit recommendations have been resolved.

8. Audit Closing Meeting: Usually on the last day of the field work, the auditor will hold a closing meeting. During this meeting the auditors discuss all audit findings and provide a listing of weaknesses and reasons for questioned costs for consideration of the recipient senior management. Supporting documentations or other relevant information from recipient should be made available at this time for review and/or correction of noted findings prior to issuance of the draft report. In the case of an RCA, the meeting will be held at the Recipient’s office with the auditors and recipient representative present. For an RCA, USAID will also attend and the meeting will be held at USAID.

9. Management Representation Letter: The Management Representation Letter is a form letter provided by the audited organization to the external auditors, which makes a number of assertions, including that all information material to the audit has been disclosed, and attests to the accuracy of the financial statements provided to the auditors. The Management Representation letter should be addressed to the auditor, printed on the recipient’s letterhead, dated no earlier than the audit report date, and signed by the Recipient’s Chief of Party or Chief Financial Officer. See Example 4.1 in the Guidelines - Illustrative Management Representation Letter

The Recipient’s refusal to furnish the letter precludes an unqualified opinion, and ordinarily results in a disclaimer of opinion (See page 27 of the OIG Guidelines).

10. Exit Conference: Upon approval of the draft report by RIG/Pretoria, the auditor will schedule an exit conference, which will be attended by the auditor, representatives from the recipient’ senior management, and a member of USAID’s Financial Management office. According to the RCA guidelines, the exit conference is normally held on the last day of the fieldwork; however, often the less formal Closing Meeting takes place on the last day of field work, and the formal Exit Conference takes place shortly after. The purpose of the conference is to discuss the audit process from the date of the exit conference to the date of submission of final audit report and to discuss the findings from the audit. Any findings not resolved during the exit conference must be included in the audit report.

11. Draft Report and Management Comments: The auditors distribute the RIG-approved draft audit report to the recipient for comments. The recipient management is given a reasonable amount of time (usually 21 days) to provide written comments/responses to each of the findings in the audit report. If the Recipient management does not provide comments to the findings within the time frame stipulated by the auditors, the report must be finalized and issued to USAID without


management comments. The responses will be incorporated in the final report verbatim.

12. Final Audit Report:The final report will incorporate the management’s response to the audit findings, and the auditor’s comments regarding the response. Auditors finalize the report (sign and date it) and submit copies to the USAID Financial Management Office. USAID Mission submits signed electronic or hard copies of the finalized report to RIG/Pretoria for issuance.

a) Contents of Audit ReportThe audit report will normally contain the following to be considered complete:• Title page, table of contents, transmittal letter and Summary• Fund Accountability Statement & Independent Auditor’s Report• Independent Auditor’s Report on Internal Controls• Independent Auditor’s Report on Compliance with agreement terms and

applicable laws and regulations• Schedule of Computation of Indirect Cost Rate and Independent Auditor’s

Report, ONLY if applicable.• Cost Sharing Schedule and Independent Auditor’s Report• General Purpose Financial Statements• Follow-up on prior audit recommendations

b) Types of Audit Opinions• UNQUALIFIED; “CLEAN OPINION”• QUALIFIED; “WITH EXCEPTION”• ADVERSE; “DO NOT PRESENTS FAIRLY”• DISCLAIMER. “THE SCOPE OF WORK WAS NOT SUFFICIENT TO ENABLE US

TO EXPRESS AN OPINION”.

c) Rejected Audit ReportsIf the RIG finds the audit report deficient for some reason, they will issue a letter to the auditors listing the deficiencies. The Recipient should hold payment to the auditor until an acceptable report is submitted and accepted by RIG. Under an RCA, the auditee/recipient should cooperate with the auditor with respect to any additional auditing required and help in obtaining resolution of identified deficiencies. If for some reason the auditor is unable to correct the report deficiencies and submit an acceptable one within a reasonable period of time, RIG may recommend using another auditor to complete the work.

NOTE: Final reports must be received by RIG/Pretoria no later than nine months after the end of the period under audit. (per 2.3 in Guidelines).


13. Audit Recommendation Resolution Process: Upon audit report issuance RIG will submit a copy of the report to the USAID Mission along with a memorandum containing audit recommendations to be addressed by the recipient. Working closely with USAID’s cognizant AOR, with advice from USAID’s OFM, the audited recipient must provide a written response or ‘Action Plan’ for each audit recommendation regarding how they propose to resolve the audit finding and related recommendation along with relevant supporting documentation.

Based on the audited recipient’s Action Plan, USAID’s Agreement Officer must issue a Mission Management Decision to the RIG within three months of receipt of the audit recommendation memorandum. The Management Decision states the actions USAID has or will take to recover the amounts determined by the auditors to be unallowable and/or to address instances of material internal control weaknesses and instance of noncompliance noted in the auditor report. Action must be taken and all audit recommendations must be resolved and closed through USAID’s Chief Finance Audit Compliance Office in Washington within one year after RIG’s acceptance of the Mission’s management decision.

C. Fund Accountability Statement (FAS) RequirementsThe FAS is the income and expenditure statement of a project or activity, which summarizes the financial position of the project and identifies the sources and application of funds and resources and obligations. It is recommended that the Fund Accountability Statement be prepared by the Recipient’s Chief Accountant or responsible Financial Management Officer on a monthly basis within one week after the monthly financial closing process is complete for internal use by managers in analyzing project progress and decision-making. It is also required by the OIG guidelines as part of the audit requirements. Auditors may assist the recipient in preparing the FAS for the audit, but the recipient must accept full responsibility for the accuracy of the FAS.

When prepared specifically for the audit, the FAS will include a summary of questioned costs resulting from the audit. Questioned costs are expenditures of USAID funds or USAID purchased commodities, equipment, or capital property that the auditor finds are not properly supported or are prohibited by the agreement.

Following receipt of the final audit report, the USAID Agreement Officer will determine, in light of the agreement, whether questioned costs will be allowed or disallowed. If these costs are disallowed by the agreement officer, USAID may deduct these amounts from future reimbursement to the organization or issue a bill for collection. The recipient organization should work to strengthen internal controls and/or implement measures to ensure compliance with agreement terms or


adherence to internal processes and procedures in order to prevent the occurrence of questioned costs in the future.

The following general requirements apply when preparing the FAS: Should be prepared in US dollars only One statement should be prepared for all USAID agreements Should be prepared based on the agreement budget line items Should show actual revenue, costs incurred, and USAID-procured

commodities/technical assistance The FAS should show a reconciliation of revenues, costs incurred, and

reconciling items with cash on hand and in banks Will have columns for budget, actual, and questioned costs for audit

purposes.

Illustrative Fund Accountability StatementXYZ Recipient, Inc.FUND ACCOUNTABILITY STATEMENTJanuary 1, 2015 to December 31, 2015

QUESTIONED COSTS REFERENCEBUDGET ACTUAL INELIGIBLE UNSUPPORTED (NOTES)

REVENUEGrant #1 $XX $XX $XX Note 1Program Income $XX Note 4Total Revenue $XX $XX $XX Note 2

======= =======COSTS INCURREDSalaries $XX $XX Note 3Entertainment $XX $XX Note 5Total Cost Incurred XX $XX $XX $XX Note 6

======= =======(Insert any reconciling items here)OUTSTANDING FUND $XX $XX $XXBALANCE ======= _________ _________

Considerations in Preparation of the FASa) The "Actual" column represents the amounts billed to and received from USAID. These amounts should be easily traceable to the project ledger. It is advisable for the


project to prepare (on an on-going basis) a detailed reconciliation (by line item) between the monthly ledger balances, the amounts billed to USAID, and the amounts reimbursed by USAID. Any discrepancies, which appear during the month, should be corrected (through a journal entry) in subsequent months. This reconciliation will also highlight any discrepancies in the outstanding cash balance and will enable the auditee to recognize the reason and to correct it on a timely basis.

b) Determine if the costs reported as incurred under the agreement are in fact allowable, allocable, reasonable (and supported) in accordance with the terms of the agreement.

(i) Allowability of CostsThe cost should be allowable according to the Development Objective Agreement (DOAG), USAID/partner agreement terms and provisions, and USAID regulations.

(ii) Allocability of CostsA cost must be chargeable to a particular project line item, agreement, or contract.

(iii) Reasonableness of CostsA cost is reasonable if it does not exceed that which would be incurred by an ordinarily prudent person in the conduct of normal business and if it supports and furthers the attainment of project objectives.

(iv) Support of CostsThe following is an illustrative (unofficial) description of the documentation that auditors will expect to find attached to a voucher in order for it to be considered "supported." This illustration is not inclusive, nor applicable to all types of costs, but it can serve as a guide to consider while reviewing a voucher:

Approved document describing the need for incurring the cost with a reference to a specific budget element

Selection procedures or the basis for waiver of selection procedures Contractual documents (e.g., contracts, assignment letters, purchase

orders, etc.) describing the expected goods and services, duration, and related costs by rate or unit price

Evidence of receipt of the goods and services, signed by the authorized cognizant person(s)

Clear calculation of the payment expected Review and approval signatures Evidence of payment

The auditee should ensure that each type of cost is clearly allowed according to Agreement provisions, an approved budget element or a specific USAID approval. In case of any confusion, the auditee should obtain the approval of the USAID project officer through a simple "approved/ disapproved" form.


The following are examples of the most common questioned costs: Employer's share of taxes and customs duties Salaries for unauthorized/unapproved positions Wages, consultant fees or salaries not supported by time sheets or attendance

records Consultant fees not supported by contractual documents or evidence of

provision of the service Honoraria to committee members not budgeted for or specifically approved by

USAID Salary supplements to Host-government employees Compensation outside normal compensation policy or profit sharing Travel costs not supported by travel expense reports or adequate

documentation Lodging not supported by hotel/lodging receipts Double billing of inclusive per diem rates and separate payments for lodging or

meals Per Diem paid in excess of the USAID-approved rates or not in compliance with

a consistent policy Per Diem paid to residents or unauthorized persons Training courses, workshops, and seminars not supported by signed attendance

sheets, or for which no budget exists Procurement of services or goods not following procurement procedures or not

supported by evidence of receipt of the services or goods Payments to vendors in excess of the terms of the contract Payments made without an invoice or evidence of payment Accidental revenues generated through the use of USAID funds and not used to

offset the costs billed to USAID (e.g., sales of bid documents and delay penalties)

Procurement of capital items not specifically included in the procurement plan Advertising, with the exception of advertising for personnel, procurement,

workshops and other advertising necessary to meet project needs Commissions and contingency fees Contributions and donations Entertainment costs Fines and penalties Interest Business cards

D. Cost Sharing Whenever a cost share by the USAID recipient is required according to the agreement, the audit must include a cost sharing schedule. The auditor must ascertain that cost


share contributions have been made in accordance with agreement terms annually or for the life of the project. In-kind contributions need to be specifically allowed in the agreement and properly supported.

Life-of-Project Cost Sharing Schedule – Agreement Not EndedABC Recipient, Inc.Cost Sharing Schedule From January 1, 2015 to December 31, 2015

QUESTIONED COSTS REFERENCE

ACTUAL INELIGIBLE UNSUPPORTED (NOTES)

CASHGrant No. 1 $ XXXGrant No. 2 $ XXX $ XXX Note 1IN-KINDGrant No. 1 $ XXX $ XXX Note 2Grant No. 2 $ XXXTOTAL $ XXX $ XXX $ XXX ==================

Close-Out Life-of-Project and Annual Cost Sharing Schedule

XYZ Recipient, Inc.Cost Sharing Schedule From January 1, 2015 To December 31, 2015

QUESTIONED COSTS

BUDGET ACTUAL SHORTFALL INELIGIBLE UNSUPPORTED (NOTES)

CASHGrant No. 1 $ XXX $XXXGrant No. 2 $ XXX $XXX $ XXX

$ XXX Note 1

IN-KINDGrant No. 1 $ XXX $XXXGrant No. 2 $ XXX $XXX $ XXX

$ XXX Note 2


TOTAL $ XXX $ XXX $ XXX$ XXX $ XXX================== ====== ======

E. Audit-related Authorities/References• Guidelines for Financial Audits• U.S. Government Auditing Standards• USAID Agreement terms• OMB Circular A-122 – Cost Principles for NGOs• FAR Part 31 – Contract Cost Principles• NGO Mandatory Standard Provisions – ADS 300• Standard Provisions Annex for Agreements with Foreign Governments – ADS

200• Local Laws and Regulations

F. Important ContactsUSAID Mission: Gilda Boca, Supervisory Financial Analyst, e-mail: [email protected] office phone: (258) 21- 35 21 21,

Alberto Nhampossa Financial Analyst, e-mail [email protected] phone (258) 21-35 21 28

Fernanda Pereira, e-mail [email protected] office phone (258) 21-35 21 29.

RIG/PretoriaLady Rammutla, Auditor, e-mail: [email protected] phone: +27 12 452 2038,

Karlien Groenewald, Auditor, email: [email protected] phone: +27 12 452 2138

Theresa Venter, Audit Management Assistant, e-mail: [email protected] office phone: +27-12-452-2137


tel:%2B27-12-452-2137


tel:%2B27%2012%20452%202138


tel:%2B27%2012%20452%202038





CHAPTER 18: AWARD EXTENSION AND CLOSE-OUTS

A. Award Extensions

From time to time, a USAID award recipient may have the need to request that USAID extend the period for completion of the award. In this case the recipient is required to justify the reason for the requested extension and obtain prior written approval from USAID Agreement Officer (AO).

There are two types of extensions; no-cost extension and costs extension. Under a no-cost extension, the recipient expresses the need for additional time to complete the activities, but does not require additional funds to do so. Under a cost extension, the recipient requests additional funds and additional time to complete the activities

For No Cost Extensions, the recipient must notify the USAID Agreement Officer through Agreement Officer Representative in writing, with the justification for the extension and revised completion date, at least 10 days before the completion date specified in the award.

When requesting a no-cost extension, the recipient is required to prepare a “pipeline analysis” to help justify the need for the extension. The pipeline analysis shows the total amount of the grant funds received, amount of funds remaining, and based on the historical rate of expenditures, the period of time that will be covered by the remaining funds. As an alternative to using the historical rate of expenditure, the recipient could show specific future expenditure requirements for the project.

In case of a Cost Extension the Recipient must submit to the USAID Agreement Officer through the AOR, a justification supporting the reason for the cost extension, budget (both summary and detailed), and related budget notes. The decision to approve a cost extension will be taken on a case by case basis according to the judgment of the Agreement Office upon review of the justification provided

A valid justification for a no-cost or cost extension, CANNOT include a change in the scope or objectives of the project, OR an extension of time for the sole purpose of using up remaining project funds.

The extension must be requested and fully executed by the USAID Agreement officer prior to the original expiration date of the agreement. If USAID agrees to the requested extension in either case, an amendment to the original agreement would be required.


B. Award Close Out

Following are the Rules, Responsibilities, and Procedures related to close out of USAID Awards:

1) Responsibilities

a) Recipient Responsibilities

Within 90 days after the award completion date, the recipient should:

(i) Submit all financial, performance, and other reports as required by the terms and conditions of the award. USAID may approve an extension of the period for submitting the required reports upon request of the recipient.

(ii) Unless USAID authorizes an extension, recipient shall liquidate all obligations incurred under the award as specified in the terms and conditions of the award or in agency implementing instructions.

(iii) The recipient shall promptly (no later than 90 days after the award completion date) refund any balances of unobligated cash that USAID has advanced or paid and that is not authorized to be retained by the recipient for use in other projects.

(iv) The recipient must account for any real or personal property acquired with USAID funds, considering that in Mozambique, in nearly all cases, title to all Property financed by USAID vests in the recipient upon acquisition unless otherwise specified in the award. Additionally the recipient must send to the Agreement Officer through the Agreement Officer Representative the inventory list and disposal plan indicating property to be retained by the recipient or how it will be disposed of (procedures on disposition detailed in Chapter on PROPERTY MANAGEMENT STANDARDS).

(v) The Recipient shall conduct a final audit and ensure that any disallowed cost is refunded to USAID. In case of final audit is not performed prior to the closeout, USAID retains the right to recover any disallowed costs discovered from a future final audit.


b) USAID Responsibilities

(i) Make prompt payment to a recipient for allowable reimbursable costs under the award.

(ii) Verify the inventory list through a desk review (iii) Approve or disapprove recipient disposal plan (iv) Ensure close-out audit is conducted not later than 90 days after the

completion of the award (v) Collect all disallowed costs as result of the audit, if any.

2. Subsequent Adjustments and Continuing Responsibility

The closeout of an award does not affect any of the following:(ii) The right of USAID to disallow costs and recover funds on the basis of a later

audit or other review.(iii) The obligation of the recipient to return any funds due as a result of later

refunds, (iv) With regard to Records Retention requirements after close out, generally,

financial records, supporting documents, statistical records and all other records pertinent to the award shall be retained for a period of three years from the date of submission of the final expenditure report.

The only exceptions to the three-year retention period are:

(i) If any litigation, claim, or audit is started before the end of the three-year period, the records must be retained until all litigation, claim, or audit findings have been resolved and final action taken.

(ii) Records for real property and equipment purchased with USAID funds should be retained for three years after final disposition.

(iii) If records are transferred to USAID, the three-year retention period no longer applies to the recipient.

(iv) The three-year retention period for records supporting the proposal, plan, or computations forming the basis for the negotiation of the indirect cost rates, begins the date the recipient submits the plan or computation.

3. Collection of Amounts Due

Any funds paid to a recipient in excess of the amount to which the recipient is finally determined to be entitled under the award conditions, constitutes a debt to the U.S.


Government. If this debt is not paid within a reasonable period of time after demand for payment, USAID may reduce the debt by:

Making an administrative offset against other funds for reimbursement. Withholding advance payments otherwise due to the recipient. Taking other legal action permitted by law.

USAID charges interest on overdue debt in accordance with 4 CFR Chapter II, "Federal Claims Collection Standards."


CHAPTER 19: OTHER IMPORTANT INFORMATION FOR RECIPIENTS

A. Cost Sharing

1. Definition of Cost Share: Cost share refers to the resources a recipient contributes to the total cost of an agreement. It is the portion of project or program costs not borne by the Federal Government.

2. Cost Sharing Determination:

Although there is no general legislative requirement that recipients must cost share, cost sharing is an important element of the USAID-recipient relationship. When used, its application should be flexible, case-specific, and used to support or contribute to the achievement of results. USAID should base cost sharing on whether it is appropriate for the recipient organization in the particular circumstances. There is no set formula for cost sharing. A determination whether cost sharing is appropriate for an activity should be based on technical and/or programmatic considerations. There is no numeric reference point. Cost sharing should be based on the needs or purpose of the activity.

Examples of when cost-sharing may be appropriate:

When there is a programmatic rationale for cost sharing, such as helping to ensure that the recipient will build its organizational capacity for resource mobilization. For example, when building fundraising capability is an objective of a capacity building activity, it would be appropriate to require the recipient to meet certain targets as a condition of USAID funding.

When it is critical that the activity continues after USAID assistance ends, cost sharing requirements can ensure that the recipient establishes adequate alternate sources of funding.

When an award supports an activity initiated by the recipient or is based on an unsolicited proposal. Because most funding is reserved for development priorities USAID has already established, only limited funding may be available for even the best of such applications. USAID may only be able to partially fund the activity.

To otherwise give the recipient a financial stake in the success of the program.


In all of these cases, the Agreement Officer should discuss the amount and terms of cost sharing with potential recipients prior to award.

3. Cost Sharing or Matching:

Cost sharing becomes a condition of an award when it is part of the approved award budget. Cost sharing must be verifiable from the recipient’s records, is subject to the requirements of 22 CFR 226.23, and can be audited. If the recipient does not meet its cost sharing requirement, it can result in questioned costs. Cost share or match is normally associated with contributions from the same prime and sub-recipients sources that also receive

USAID funds, a) All contributions, including cash and third party in-kind, shall be accepted as part of

the recipient's cost sharing or matching when such contributions meet all of the following criteria.

Are verifiable from the recipient's records. Are not included as contributions for any other federally-assisted project or

program. Are necessary and reasonable for proper and efficient accomplishment of

project or program objectives. Are allowable under the applicable cost principles. Are not paid by the Federal Government under another award, except

where authorized by Federal statute to be used for cost sharing or matching.

Are provided for in the approved budget. Conform to other provisions of this part, as applicable.

b) Unrecovered indirect costs may be included as part of cost sharing or matching.

c) Values for recipient contributions of services and property shall be established in accordance with the applicable cost principles. If USAID authorizes recipients to donate buildings or land for construction/facilities acquisition projects or long-term use, the value of the donated property for cost sharing or matching shall be the lesser of:

The certified value of the remaining life of the property recorded in the recipient's accounting records at the time of donation, or

The current fair market value. However, when there is sufficient justification, the USAID Agreement Officer may approve the use of the current fair market value of the donated property, even if it exceeds the certified value at the time of donation to the project.

d) Volunteer services furnished by professional and technical personnel, consultants, and other skilled and unskilled labor may be counted as cost sharing or matching if the service is an integral and necessary part of an approved project or program. Rates for


volunteer services shall be consistent with those paid for similar work in the recipient's organizations. In those instances in which the required skills are not found in the recipient organization, rates shall be consistent with those paid for similar work in the labor market in which the recipient competes for the kind of services involved. In either case, paid fringe benefits that are reasonable, allowable, and allocable may be included in the valuation.

e) When an employer other than the recipient furnishes the services of an employee, these services shall be valued at the employee's regular rate of pay (plus an amount of fringe benefits that are reasonable, allowable, and allocable, but exclusive of overhead costs), provided these services are in the same skill for which the employee is normally paid.

f) Donated supplies may include such items as expendable equipment, office supplies, laboratory supplies or workshop and classroom supplies. Value assessed to donated supplies included in the cost sharing or matching share shall be reasonable and shall not exceed the fair market value of the property at the time of the donation.

g) The method used for determining cost sharing or matching for donated equipment, buildings and land for which title passes to the recipient may differ according to the purpose of the award, if:

(i) If the purpose of the award is to assist the recipient in the acquisition of equipment, buildings or land, the total value of the donated property may be claimed as cost sharing or matching, or

(ii) If the purpose of the award is to support activities that require the use of equipment, buildings or land, normally only depreciation or use charges for equipment and buildings may be made. However, the full value of equipment or other capital assets and fair rental charges for land may be allowed, provided that the USAID Agreement Officer has approved the charges.

h) The value of donated property shall be determined in accordance with the usual accounting policies of the recipient, with the following:

(i) The value of donated land and buildings shall not exceed its fair market value at the time of donation to the recipient as established by an independent appraiser (e.g., certified real property appraiser or General Services Administration representative) and certified by a responsible official of the recipient.

(ii) The value of donated equipment shall not exceed the fair market value of equipment of the same age and condition at the time of donation.


(iii) The value of donated space shall not exceed the fair rental value of comparable space as established by an independent appraisal of comparable space and facilities in a privately-owned building in the same locality.

(iv) The value of loaned equipment shall not exceed its fair rental value.

i) The following requirements pertain to the recipient's supporting records for in-kind contributions from third parties

Volunteer services shall be documented and, to the extent feasible, supported by the same methods used by the recipient for its own employees,The basis for determining the valuation for personal services, material, equipment, buildings and land shall be documented.

B. Leveraging

Leveraging represents all of the non-USAID resources that are expected to be applied to a program. While Cost share is normally associated with contributions from the prime and sub-recipient sources that receive USAID funds, Leverage is normally associated with the contributions of resource partners that are not receiving USAID funds.It may include resources that third-parties bring to the program without necessarily providing them to the recipient. These parties may include the host government, private foundations, businesses, or individuals. Leverage is not cost share and it cannot be audited. It is common under a Global Development Alliance (GDA). Resource leveraging may include financial contributions; third party contributions; the value of donated services and property, including intellectual property; or may be anything of value that can be measured. For example, resource leveraging may involve one or more partners proposing financial contributions that will be spent in parallel to the USAID funded activity, but not expended by the recipient or its sub-awardees. Alternatively, resource leveraging may come in the form of the entity’s fund raising capability to provide their own form of assistance directly to the same end-users. Another instance where a contribution may be categorized as “resource leveraging” is in situations where USAID does not determine it reasonable to designate a contribution as “cost share or match” (for which the partner would be held accountable for shortfalls), because of the nature of the proposed contribution. An example of such a circumstance is where the proposed partner is dependent upon uncertain market demands or conditions to reach the proposed level of contribution. Though resource leveraging is not subject to the requirements of 22 CFR 226.23, entities must be able to demonstrate whether leveraged contributions have been obtained. USAID has the ability to revise or withdraw from the agreement when contributions are not forthcoming as originally proposed in the agreement.


C. Program IncomeProgram income means gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award

(a) Recipients shall apply the standards set forth in this section to account for program income related to projects financed in whole or in part with Federal funds.

(b) Except as provided in paragraph (h) of this section, program income earned during the project period shall be retained by the recipient and, in accordance with USAID regulations, other implementing guidance, or the terms and conditions of the award, shall be used in one or more of the following ways:

(1)Added to funds committed by USAID and the recipient to the project or program, and used to further eligible project or program objectives.

(2) Used to finance the non-Federal share of the project or program.

(3) Deducted from the total project or program allowable cost in determining the net allowable costs on which the Federal share of costs is based.

(c) When the agreement authorizes the disposition of program income as described in paragraph (b) (1) or (b) (2) of this section, program income in excess of any limits stipulated shall be used in accordance with paragraph (b)(3) of this section.

(d) If the terms and conditions of the award do not specify how program income is to be used, paragraph (b) (3) of this section shall apply automatically to all projects or programs except research. For awards that support research, paragraph (b) (1) of this section shall apply automatically unless the terms and conditions of the award provide another alternative, or the recipient is subject to special award conditions, Recipients which are commercial organizations may not apply paragraph (b)(1) of this section.

(e) Unless the terms and conditions of the award provide otherwise, recipients shall have no obligation to the Federal Government regarding program income earned after the end of the project period.

(f) Costs incident to the generation of program income may be deducted from gross income to determine program income; provided these costs have not been charged to the award and they comply with the cost principles applicable to the award funds.

(g) Proceeds from the sale of property shall be handled in accordance with requirements of the Property Standards


(h) Unless the terms and condition of the award provide otherwise, recipients shall have no obligation to the Federal Government with respect to program income earned from license fees and royalties for copyrighted material, patents, patent applications, trademarks, and inventions produced under an award. However, Patent and Trademark Amendments (35 U.S.C. 18) apply to inventions made under an experimental, developmental, or research award.

D. Honoraria

1. Purposea) The purpose of honoraria payments is to compensate trainers and resource persons for time spent performing project-related work. Such persons must make a significant contribution to the activity.

b) Examples of such activities may include: Training courses Seminars Workshops Conferences Technical Review Meetings Research studies

c) When honoraria are used to compensate for participation in meetings, such meetings must be:

Formal, With a clearly defined and approved scope and terms of reference, Conducted in an orderly fashion, Proceedings recorded in the form of minutes which are circulated and retained

for purposes of documentation, and such meetings should be for technical review of project activities.

Honoraria must not be paid for participation in informal or routine meetings.

In the case of meetings and training sessions which are conducted during normal working hours, honoraria may be paid only for preparation of lectures, presentations and research provided that preparation is performed after normal hours and is directly related to the subsequent meeting or training session.

2. Entitlement to HonorariaProject personnel hired under a grant or a contract are not entitled to receive honoraria, nor are policymaking officials.


Personnel who are entitled to receive honoraria as compensation for performance of project-related work may be host-government or non-host-government personnel, including employees of research institutions and universities.

3. Honoraria RatesIn establishing rates for honoraria, it must be noted that honoraria payments are different from salaries or consultant fees; honoraria are not meant to substitute for such payments.

a) Honoraria payments are designed to give persons making a worthwhile contribution to a project a modest payment to show appreciation for their activities.

b) Honoraria are not to be seen as salaries or fees; rather, they are occasional, nominal payments made for work above and beyond the normal range of duties.


Contact Information

Financial Management Office, USAID/MozambiqueUSAID main phone number: (+258) 21 35 20 00

Marisa Parente, Controller Ext 2020 e-mail: [email protected]

Sergio Rupansana, Chief Accountant Ext 2022 e-mail: [email protected]

Gilda Boca, S/Financial Analyst Ext 2121 e-mail: [email protected]

Alberto Nhampossa, Financial Analyst Ext 2128 e-mail: [email protected]

Fernanda Pereira, Financial Analyst Ext 2129 e-mail: [email protected]

Artur Chirindja, Financial Analyst Ext 2162 e-mail: [email protected]

Nuno Pale, Financial Analyst Ext 2104 e-mail: [email protected]

Joaquim Govanhica, Financial Analyst Ext2146 e-mail: [email protected]

Pedro Silva, Accountant Ext 2127 e-mail: [email protected]

Rafael Gungulo, Accountant Ext 2019 e-mail: [email protected]

Ana Paula Vaz, Accountant Ext 2029 e-mail: [email protected]

Arminda Laranjeira, Accountant Ext 2114 e-mail: [email protected]

Bernardett Leite, S/Voucher Section Ext 2024 e-mail: [email protected]

Salomao Cossa, Cashier/Voucher Section Ext2125 e-mail: [email protected]

Jeronimo Matsolo, Voucher Section Ext 2028 e-mail: [email protected]

Zulfa Diniz, Secretary Ext 2021 e-mail: [email protected]


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