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Office of Inspector General

April 4, 2014
MEMORANDUM
FOR:

USAID/Peru Mission Director, Deborah Kennedy-Iraheta

FROM:

Regional Inspector General/San Salvador, Jon Chasson /s/

SUBJECT:

Audit Report No. 1-527-14-020-R, Audit of USAID Grant Agreement


No. 527-0423, Strengthened Environmental Management (STEM) Project and
Technical Assistance Program (PAT), Managed by the Ministerio del Ambiente
MINAM, for the Period From January 1, 2012, to December 31, 2012

This memorandum transmits the subject report prepared by the Controller General of the
Republic of Peru (CGR).
We have reviewed the audit report and found that it generally met the requirements of the U.S.
Generally Accepted Government Auditing Standards (GAGAS) and the Guidelines for Financial
Audits Contracted by Foreign Recipients dated February 2009. However, the Controller General
of the Republic of Peru disclosed that it did not fully comply with GAGAS since it did not
participate in an external quality control review program and did not comply with the
requirements for continuing professional education.
The objective of the project was to help Peruvian institutions develop and enforce environmental
management policies. The audit was contracted by the recipient and covered $686,267 in USAID
funds for the audited period.
The CGR was contracted by the recipient to: (1) express an opinion on the fund accountability
statement; (2) evaluate the recipients internal control structure related to USAID-funded
programs; (3) test compliance with applicable laws and regulations and agreements provisions;
(4) determine if cost-sharing contributions were made and accounted for by MINAM in
accordance with the agreement terms; and (5) determine whether MINAM has taken corrective
actions on recommendations in prior audit reports.
_________________________________________________
Financial information contained in this report may be privileged.
The restrictions of 18 USC 1905 should be considered before any
information is released to the public.
U.S. Agency for International Development
Embajada Americana
Urb. y Blvd Santa Elena
Antiguo Cuscatlan, Depto. La Libertad
San Salvador, El Salvador
Tel (503) 2501-2999 - Fax (503) 2228-5459
www.usaid.gov/oig

The CGR reported that the fund accountability statement presented fairly, in all material
respects, the projects revenues and costs incurred and reimbursed for the audited period.
However, they included in the fund accountability statement, $9,623 in unsupported questioned
costs and $13,935 in ineligible questioned costs. The unsupported questioned costs pertained to
(1) lodging and food overpayments totaling $6,505 due to overestimation and deficient
attendance of participants for training events; and (2) lunch and snack services for attendees of
workshops totaling $3,118 without documentation. The ineligible questioned costs pertained to
(1) printer toners purchased without justification and exceeded actual needs for the project
totaling $11,843, and (2) unauthorized rent payment for MINAM's office made with USAID
funds totaling $2,092 (this amount has been reimbursed to USAID by the recipient).
The CGR identified the following three internal control significant deficiencies: (1) inadequate
controls over transport services provided to participants attending training events in Lima
totaling $2,371; (2) USAID funded goods for the project totaling $1,140 have been assigned and
used by MINAMs administrative offices and other public offices rather than for USAIDs
projects; (3) toners purchased for the project were taken out of the warehouse and maintained at
administrative offices, increasing the risk of misuse and inadequate conservation. The first two
deficiencies should have been identified as ineligible questioned costs on the fund accountability
statement (we are including these as questioned costs in Recommendation 2).
Furthermore, the CGR identified in note 20 to the fund accountability statement, page (2526/134), $2,032 in VAT that is still pending reimbursement. This finding should have been
identified as an internal control significant deficiency; therefore, we are recommending that the
mission resolve this deficiency.
The CGR identified five instances of material non-compliance with the agreement terms,
applicable laws or regulations (four of which were related to the questioned costs included in the
fund accountability statement and one was related to the USAID logo missing on some program
goods).
In addition, during our review of the separate letter to management, we noted the following
issues that the audit firm should have identified as internal control significant deficiencies and
unsupported questioned costs totaling $81,613 on the fund accountability statement: (1)
unsupported training expenses totaling $19,463, and (2) unsupported consulting service
payments totaling $62,150 (we are including these as questioned costs in Recommendation 4).
Lastly, the audit firm submitted its report approximately 14 months after the end of the audit
period. According to ADS 591.3.2.1, Contract/Grant Officers must ensure that the responsible
RIG receives audits of prime recipients conducted in according to this section for desk review
within 9 months after the end of the fiscal in which the expenditures were incurred. We request
that the mission take the necessary steps to ensure that future audits reports are submitted within
the 9 month period stipulate by ADS.
Based on our review of the report, we are making the following recommendations for inclusion in
USAIDs Consolidated Audit and Compliance System (CACS):

Recommendation 1: We recommend that USAID/Peru: (a) make a management decision


with regard to the $9,623 in unsupported questioned costs and $11,843 in ineligible
questioned costs identified in the audit report; and (b) recover from the recipient the
amounts determined to be unallowable.
Recommendation 2: We recommend that USAID/Peru: (a) make a management decision
with regard to the ineligible questioned costs totaling $3,511 identified in the internal
control report; and (b) recover from the recipient the amounts determined to be
unallowable.

Recommendation 3: We recommend that USAID/Peru: ensure that the recipient corrects


the internal control deficiencies and material instances of noncompliance described in
the audit report.
Recommendation 4: We recommend that USAID/Peru: (a) make a management decision
with regard to the $81,613 in unsupported questioned costs identified in the separate
letter to management; and (b) recover from the recipient the amounts determined to be
unallowable.
Please have the responsible official provide the Regional Inspector General/San Salvador with
written notice within thirty days regarding actions planned or taken to implement the report
recommendations. Please provide your response as a signed PDF document and as a Microsoft
Word document with the "/s/" notation to symbolize the missions official signature. For all
procedural recommendations, please provide target dates for the completion of proposed actions.
For recommendations involving questioned or ineligible costs, please identify the exact amounts
sustained and/or recovered.
cc:

Contralora General de la Republica de Per, Mr. Fuad Khoury Zarzar


USAID/Peru Controller, Beverly Busa
USAID/Peru Financial Analyst, Rafael Sanz
USAID/Peru Financial Analyst, Bernardo Espinoza
M/CFO/APC
IG/A/PPA
IG/I

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