Why We Did This Audit
USAID frequently relied on non-U.S.-based entities to deliver foreign assistance, such as lifesaving humanitarian aid in conflict zones and development programs across a range of sectors. The Agency’s non-Federal audit (NFA) program helped ensure financial stewardship over U.S. foreign assistance to safeguard taxpayer dollars. In accordance with Federal regulations, USAID required foreign audit firms to conduct NFAs of foreign organizations, governments, and subrecipients that spent more than $750,000 in USAID awards during the fiscal year (FY). When the foreign audit firm completed an NFA report, Agency staff reviewed the report and determined whether any questioned costs identified were justified. From FY 2021 through 2023, NFA reports identified nearly $75 million in questioned costs across 28 countries and 3 regions, and USAID determined that 96 percent (approximately $72 million) of these costs were allowable and recovered the remaining 4 percent (about $3 million) in disallowable costs.
We conducted this audit to assess the extent to which USAID missions (1) reviewed foreign audit firms’ NFA reports for quality standards and (2) determined that NFA questioned costs were allowable.
What We Found
Surveyed missions generally reviewed NFA reports for quality standards, but USAID did not have clear policies, guidance, and training. While most missions that responded to our survey stated that they reviewed all NFA reports they received from FY 2021 through 2023, their processes for reviewing NFAs varied due to a lack of clear policies and guidance. Ninety-one percent of respondents (30 out of 33) said that their Office of Financial Management reviewed all NFA reports issued from FY 2021 through 2023 for quality standards, while the remaining 9 percent (3 out of 33) did not review NFA reports issued during this timeframe. In addition, while mission staff generally reviewed NFA reports for quality standards, missions reported that they did not have sufficient knowledge of the quality standards or training to carry out the reviews. Without clear policies, guidance, and training for reviewing NFA reports, USAID did not have reasonable assurance that the reports met quality standards.
Selected missions allowed nearly all questioned costs, but each mission’s support varied. Selected missions used varying levels of support to justify allowed questioned costs. As a result, it was not always clear why mission officials allowed the costs. According to our analysis, mission officials allowed more than 98 percent (about $63 million) of questioned costs identified in sampled NFA reports. USAID’s NFA policy stated that missions are responsible for developing their own management decisions. However, the policy did not provide guidance on how mission officials should determine the allowability of questioned costs or document the determinations. In addition, USAID did not provide training for staff about this process. Without guidance or training, USAID did not have reasonable assurance that officials were making decisions about questioned costs that aligned with laws, regulations, and the award terms.
What We Recommend
We suggest that decision makers consider developing policy, guidance, and training for staff reviewing NFA reports for quality standards. We also suggest that decision makers consider developing guidance or training for determining allowability of questioned costs identified in NFA reports and documenting those determinations.