Independent Auditor's Report – Appendix II: Management Comments
| November 10, 2006 |
| MEMORANDUM |
TO: |
AIG/A, Joseph Farinella
|
FROM: |
CFO, Lisa D. Fiely /s/  |
SUBJECT: |
Management Response to Draft Independent Auditor's Report on
USAID's Financial Statements for Fiscal Years 2006 and 2005
(Report No. 0-000-07-001-C) |
Fiscal year 2006 was another significant year for federal financial management at USAID. We are pleased that your draft report so fairly presents both our progress and our remaining challenges. We are extremely pleased that you are able to issue unqualified opinions on all of USAID's five principal financial statements. Thank you for the OIG’s dedication and cooperation throughout the audit process and the professional counsel and support the auditors continue to provide. The acknowledgements of the Agency’s improvements in financial systems and
processes throughout the report are greatly appreciated.
Following are our comments and management decisions regarding the findings and proposed audit recommendations:
Material Weakness: USAID’s Accounting for Accruals Needs Improvement.
Recommendation 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, document and resolve all differences.
Management Decision: We agree to implement the recommendation. We have already commenced a reconciliation effort which will be demonstrated during January 2007 and will be accomplished in each subsequent accruals cycle. Target completion date is January 31, 2007.
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.
Management Decision: We agree to implement this recommendation. Discussions between the CFO’s office and OIG have led to an understanding that this is a multifaceted issue that will require collaboration across the Agency. In addition, training of CTOs in the area of accruals was identified through our own A-123 assessment as a material weakness and we are in the process of putting together a corrective action plan to address the issue. We will move to review and enhance training and identify other means to improve recognition of the need for effective accrual practices. Target completion date is September 30, 2007.
Reportable Condition: USAID’s Process for Reconciling its Fund Balance with the U.S. Treasury Needs Improvement.
Recommendation 2.1: We recommend that USAID’s Office of the Chief Financial Officer document monthly reconciliations of its Fund Balance with Treasury as required by TFM 2-5100, and ensure that overseas missions are performing and documenting monthly Fund Balance reconciliations.
Management Decision: We agree to implement the recommendation. The CFO’s Office will review current procedures for consistency with the Treasury guidance and modify the procedures as appropriate. We will also consider alternatives to ensure mission reconciliation compliance. Target completion date is September 30, 2007.
Recommendation 2.2: We recommend that USAID’s Office of the Chief Financial Officer implement policies to ensure that all transactions recorded in the general ledger are reported to Treasury on the SF 224 and that all differences and suspense items are investigated and resolved in a timely manner.
Management Decision: We agree to implement the Recommendation. Target completion date is September 30, 2007.
Reportable Condition: USAID’s Intragovernmental Transactions Remain Unreconciled.
There are no recommendations associated with this Reportable Condition. The CFO implemented corrective actions related to two audit recommendations issued under Fiscal Years 2004 and 2005 GMRA audit reports and will continue to implement improvements in this area.
Reportable Condition: USAID’s Control Over Treasury Symbols Need Improvement.
Recommendation 3: We recommend that USAID’s Office of the Chief Financial Officer develop and implement monthly payment review procedures to identify transactions that have been posted in Phoenix to invalid appropriation Treasury symbols.
Management Decision: We concur with the recommendation. In addition to reviewing procedures related to payment transactions, it is our intent to identify processes that will ensure that all types of transactions are properly identified and posted. Where corrective actions are necessary, the CFO’s Office will resolve discrepancies as quickly as possible. Efforts to improve interfacing of transactions from the Department of Health and Human Services related to grant processing are currently underway and these actions are expected to correct this finding. Target completion date is September 30, 2007.
Reportable Condition: USAID’s Process for Accumulating Foreign Currency Information in Phoenix Needs Improvement.
Recommendation 4: We recommend that USAID’s Office of the Chief Financial Officer perform monthly reconciliations of local bank balances with the same information in Phoenix and record, in Phoenix, interest earned and gains or losses associated with foreign currency fluctuations for each of its foreign currency accounts.
Management Decision: We agree to implement the recommendation. The CFO’s Phoenix team has been charged with responsibility for reviewing foreign currency accounting in Phoenix and assuring that foreign currency accounting is improved in the upcoming year. In the meantime, we will coordinate validation of accounting information between missions and our central accounting ledgers Target completion date is September 30, 2007.
Reportable Condition: USAID’s Support and Quality of Performance Data Used in MD&A Need Improvement.
Recommendation 5: We recommend that USAID require all bureaus and missions to certify that performance data submitted for publication are accurate, adequately supported, and that the required data quality assessments have been performed.
Management Decision: We concur with this recommendation. Recognizing that accurate and verifiable performance information is critical to management of the Agency, USAID will re-establish policies and procedures to ensure that accurate performance information is documented and that required data quality assessments are performed. Also, USAID is currently going through a restructuring exercise to ensure that all functional responsibilities are properly assigned to responsible units within the Agency. Once this is completed, we can assign responsibility for this action to the appropriate unit. Target completion date is September 30, 2007.
FFMIA Noncompliance: Account De-obligation and Closing Processes Need Improvement.
Recommendation 6: We recommend that the Office of the Chief Financial Officer (a) research Phoenix problems causing manual adjustments to the account closing and deobligation processes and implement a plan to resolve these deficiencies in FY 2007 and (b) ensure that Phoenix properly records Recoveries of prior year obligations throughout the year.
Management Decision: We agree to implement the recommendation. Efforts to improve the overall management of Section 511 in the Phoenix accounting system operations are underway and are expected to improve overall operation of this authority inside the core accounting system. Target completion date is March 31, 2007.
Antideficiency Act Noncompliance: Lease Obligation Antideficiency Act Violations.
Recommendation 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.
Management Decision: We agree to implement the recommendation. The CFO will issue an immediate General Notice reminding all Agency personnel of the necessity to ensure that all legal, regulatory, and internal USAID policies are followed for compliance with funds control practices. Target completion date is December 15, 2006.
In closing, I would like to restate USAID’s commitment to continual improvement in financial management. I intend to ensure that all necessary steps are taken to institutionalize strong financial management performance throughout the Agency. We will continue the improvements made in the last few years as we work further to develop and implement long-term solutions to address the issues cited in your report. The completion of the implementation of our worldwide financial management system, Phoenix, during FY 2006 has been the critical first step in a strategy of consistent improvement of financial management resources at USAID that will continue for years to come.
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