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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 Controls Over Treasury Symbols Need Improvement Process for Accumulating Foreign Currency Information Support/Quality of Data Used in the MD&A Need Improvement Report on Compliance with Laws and Regulations Account De-obligation and Closing Processes Need Improvement Lease Obligation Antideficiency Act Violations 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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Independent Auditor's Report – Lease Obligation Antideficiency Act Violations

USAID incurred two Antideficiency Act violations when it improperly executed a lease for office space outside of the Ronald Reagan Building during FY 2005. The lease contained indemnification clauses that subjected USAID to unlimited liability and did not contain language conditioning future lease payments as “subject to availability of funds.” The results of these violations are documented in reports to the USAID Administrator prepared by the Office of Inspector General and USAID General Counsel, as a result of work conducted separately from this audit.

USAID also created separate administrative funds control violations when it executed the Homer Building Lease without obligating funds for future lease costs. USAID/M/AS had $2.03 million available in its operating expense budget at the 2005 fiscal year-end to cover costs associated with USAID offices moving to the Homer Building. With $579,000 originally obligated and the unobligated $2.03 million, USAID would have sufficiently covered the $2.5 million originally intended for obligation. However, because USAID did not obligate the entire $2.5 million as stated in its June 29, 2005 notification to Congress, it does not appear that USAID was ready to execute a lease agreement for outside office space.

USAID also did not record an obligation in Phoenix when it executed the Homer Building Lease. As specified in Automated Directives System (ADS) 621.3.6, obligations are to be recorded when the Federal government places an order for an item or service, awards a contract, or enters into similar transactions that will require payments in the same or a future period. ADS 634.3.5.2 then states that an administrative funds control violation occurs in the following circumstances:

1. Over-obligation or over-expenditure of a budget allowance,
2. Obligations or expenditures in excess of an operational year budget,
3. Obligations incurred prior to the commitment of funds, and
4. Failure to record an obligation in the accounting system.

By signing a lease agreement prior to the recording of an obligation, USAID was in violation of USAID funds control policies, as specified in (c) and (d) above. Congress has since included bill language prohibiting USAID from using appropriated funds to lease space domestically, in response to USAID’s attempt to lease additional space in Washington, DC.

Recommendation No. 7: We recommend that USAID’s Office of the Chief Financial Officer direct each of USAID’s missions and offices in Washington to ensure that obligations are not incurred prior to the commitment of funds and valid obligations are recorded in Phoenix as required by Automated Directive System 634.3.5.2.

This report is intended solely for the information and use of the management of USAID, OMB and Congress, and is not intended to be and should not be used by anyone other than those specified parties. This report is a matter of public record, however, and its distribution is not limited.

USAID, Office of Inspector General
November 15, 2006

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