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	Cover Letter Summary of Results Background Audit Objective Report on USAID's Financial Statements Report on Internal Control Accruals Reporting System Process for Reconciling Fund Balance with the U.S. Treasury Intragovernmental Transactions Process for Recognizing and Reporting Overseas Accounts Receivable Report on Compliance with Laws and Regulations Reportable FFMIA Noncompliance Evaluation of Management Comments Appendix I - Scope and Methodology Appendix II - Management Comments Appendix III - Status of Prior Year Findings and Recommendations
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Report of Independent Auditor – Cover Letter

With this memorandum, the Office of Inspector General (OIG) is transmitting its report on the Audit of USAID's Financial Statements for Fiscal Years 2005 and 2004. Under the Government Management Reform Act of 1994, USAID is required to prepare consolidated fiscal year-end financial statements. For FY 2005, USAID is required to submit audited financial statements to the Office of Management and Budget (OMB) and the U.S. Department of the Treasury (Treasury) by November 15, 2005, in accordance with OMB Circular A-136.

The OIG has issued unqualified opinions on all five of USAID's principal financial statements for fiscal years 2005 and 2004. An error in the application of a programming procedure affected the comparability of the financial statements with those of the preceding period, requiring a restatement of the prior year financial statements. The effects of this error are documented in Note 22 of the financial statements.

With respect to internal control, our report discusses one material internal control weakness and three reportable conditions identified during the audit. The material internal control weakness is related to USAID's Accruals Reporting System and its effect on accounting and reporting for accrued expenditures and accounts payable. The reportable conditions address USAID's need to: (1) perform reconciliations of its Fund Balance with the U.S. Treasury; (2) perform regular reconciliations of its intragovernmental transactions; and (3) improve recognition and reporting over its accounts receivable.

This report contains three recommendations to improve USAID's internal control over financial reporting and the preparation of its annual financial statements.

We have received and considered your response to our findings and recommendations in the draft audit report. Based on your response, we have accepted your comments as management decisions. Please forward information related to the resolution of these findings to the Audit, Performance & Compliance Division for acceptance and final action (see Appendix II for USAID's Management Comments).

We appreciate the cooperation and courtesies that your staff extended to the OIG during the audit and look forward to working with you on our audit of the fiscal year 2006 financial statements.

U.S. Agency for International Development
1300 Pennsylvania Avenue, NW
Washington, DC 20523
www.usaid.gov

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