Independent Auditor's Report – USAID's Accounting for Accruals Needs Improvement
| Summary: USAID’s Accruals System in Phoenix produced erroneous information that limited the ability of Cognizant Technical Officers (CTOs) to accurately calculate estimates of accrued expenditures and accounts payable for recording in USAID’s general ledger. In our testing of accruals in Washington, DC, the OIG determined that Phoenix did not always produce obligation information with the level of detail or reliability necessary for USAID’s CTOs to make informed quarterly accrual estimates, and amounts identified as obligated in Phoenix did not always include contract modifications. We also noted that accruals maintained in the Phoenix Accruals System did not always post to the general ledger because of a programming error. Further, some USAID CTOs used incorrect or inaccurate information in estimating some quarterly accruals. As a result, USAID’s accrued expenditures and accounts payable contained inaccuracies, and the OIG recommended a $123 million adjustment to more accurately reflect USAID’s accrual activity as of September 30, 2006. |
OMB’s Core Financial System Requirements stipulate that an agency’s core financial system must be able to provide timely and useful financial information to support: management’s fiduciary role; budget formulation and execution functions; fiscal management of program delivery and program decision making; and internal and external reporting requirements. External reporting requirements include the requirements for financial statements prepared in accordance with the form and content prescribed by OMB, reporting requirements prescribed by Treasury, and legal, regulatory and other special management requirements of the agency. The core financial system must provide complete, reliable, consistent, timely and useful financial management information on operations.
According to USAID’s Automated Directives System (ADS) 631, financial documentation represents any documentation that impacts on or results in financial activity. It is not limited to documentation within the financial management operations but includes any source material resulting in a financial transaction. CTOs, Loan Officers, Grants Officers, Strategic Objective teams, and others are responsible for retaining financial documentation and ensuring its availability for audit. ADS 631 states that these individuals must gather cost data—such as supporting project documentation, activity reports, delivery reports, or fixed reoccurring expenses—for the quarterly accruals exercise and then compare the data to payment histories and advances to estimate quarterly accruals.
At USAID, accrued expenditures are accounting estimates of services or goods rendered which have not yet been paid. In conducting quarterly accrual estimates, USAID relied on the efforts of its CTOs at overseas missions and in Washington, DC. The OIG found that amounts accrued via accrual worksheets prepared by CTOs sometimes lacked sufficient documentation to support accrual estimates and that such documentation could often not be produced subsequent to the recording of the estimates.
Not all of the accruals generated by the Phoenix Accruals System were posted to the general ledger for the fiscal year 2006 4th quarter. The OIG noted that only $2.1 billion of the $2.2 billion generated by the Phoenix Accruals System were correctly batched and processed in USAID’s general ledger. The difference was caused by a programming error that USAID corrected before preparing its 4th quarter financial statements. USAID subsequently posted an appended version of its accrual system that ultimately captured the correct accrual amounts in the general ledger.
Obligation amounts recorded in the Phoenix Accruals System were not correctly captured because periodic modifications to obligation amounts were not updated timely. As a result, CTO accrual modifications and system estimates were not always based on reliable unliquidated obligation information. We identified this condition in a significant number of the items we reviewed in 2006, but did not identify this condition in previous reports. With respect to CTO estimates for other accruals, we found documentation errors, incorrect calculations, misinterpretations of grantee information, and incorrect comparisons of estimated expenditure reports. Based on the projected errors of accruals estimated by CTOs in Washington and the differences associated with inaccurate obligations, the OIG recommended a $123 million adjustment to accounts payable and accrued expenditures.
USAID has worked to improve the quality of its CTO information, allowing the OIG to more easily locate the USAID managers responsible for maintaining accrual estimates and to perform a more complete analysis of the accrual information. However, USAID only trained 78 CTOs in Washington, DC during 2006 and some CTOs that we contacted had still never been trained.
The OIG has made previous recommendations to correct deficiencies in the former Accruals Reporting System1, and to ensure that CTOs were properly trained in the process of estimating accruals2. The calculations within the Phoenix Accruals System that caused the majority of the problems in 2005 are now operating correctly. To address the deficiencies of USAID’s current system for recording and processing accruals, we are making the following recommendations:
Recommendation No. 1.1: We recommend that USAID’s Office of the Chief Financial Officer prepare a quarterly reconciliation of its Phoenix Accruals System with the Phoenix general ledger, and document and resolve all differences.
Recommendation No. 1.2: We recommend that USAID’s Office of the Chief Financial Officer update its Accruals training course to ensure that Cognizant Technical Officers can make reasonable accrual estimates when contract modifications result in changes to obligation levels.
1 Audit of USAID’s Financial Statements for Fiscal Years 2005 and 2004, p. 7, November 14, 2005, http://www.usaid.gov/oig/public/fy06rpts/0-000-06-001-c.pdf (back to text)
2 Independent Auditor’s Report on USAID’s Financial Statements for Fiscal Years 2004 and 2003, p. 12, November 15, 2004, http://www.usaid.gov/oig/public/fy05rpts/0-000-05-001-c.pdf. (back to text)
Back to Top ^ | < Previous Page | Next Page >
|
