Audit of the Millennium Challenge Corporation's Financial Statements, Internal Controls, and Compliance for the Period Ending September 30, 2012 and 2011
Perform a comprehensive review and determine whether the service provider's financial management system is substantially in compliance with the federal financial management system's requirements and meeting MCC financial management and reporting needs. As part of this review, management should determine if a separate grants management system that focuses on program administrations that interfaces with the core financial system is needed.
Investigate and correct the causes for the underlying system errors and limitations that prevent or delay the recording, processing, and summarizing of accounting transactions.
Review USSGL transaction posting models so that all routine accounting transactions are included in the normal accounting processes. Manual adjusting journal entries should be used for limited transactions like unusual one-time entries. All valid recurring entries that are currently entered manually should have standard transaction codes set-up to prevent posting errors.
Hard code key cells in the excel spreadsheets used in preparing and generating the financial statements to prevent unintentional or inadvertent changes.
Limit access and ability to make changes to the workbook to a few personnel. Assign a staff and a designate as primarily responsible and accountable for the workbook.
Create a log to document changes to the workbook, the date of change, the person making the change, and the changes made.
Investigate the use of alternative approaches such as the use of a financial statement generation software tool or other financial management system that can interface with the trial balance or the core financial system and automatically generate the financial statements.
Develop a comprehensive financial statements review process that details specific steps performed, results of such reviews, steps taken to resolve discrepancies noted, and related management resolution.
Implement an effective management review using the comprehensive review process developed in recommendation 8 to ensure that all transactions for the accounting period are accurately and completely reflected in the financial statements, current year beginning balances agreed to prior year audited balances, and reconciling items are recorded timely. Such management reviews should be performed quarterly and at year-end timely with evidence of management sign-off signifying levels of reviews performed.
Cross-train MCC financial staff on the financial statements preparation process to ensure that there is more than one person knowledgeable and can prepare the financial statements.
Perform a grant accrual look back analysis on a quarterly basis. The look back analysis and the results should provide MCC sufficient information to explain unusual variances between actual and estimates, or support updating the current grant accrual methodology. Such periodic assessment of the adequacy of the grant accrual methodology should be documented and supported by data analysis. The accrued liability amount is subject to the risks that actual subsequent disbursement amount may be significantly different from management's estimate. When this occurs, management should further analyze the drivers/factors to ensure the validity and reasonableness of the estimation methodology.
Update the Expense Accruals Policy and Procedures to reflect the change in the methodology.
Develop audit procedures for the MCA audit to compare spending authority request amount against actual expenses, and investigate and document significant variances. The results should be provided to MCC, which can use this information collected from the MCA audits as data store to validate or enhance the current methodology.
Continue to enhance the accrual methodology.
MCC management should have control over how these audits should be conducted to meet its financial and programmatic accountability, needs and requirements. MCC management should collaborate with USAID OIG to clarify and document management roles, responsibilities, and performance standards and the USAID OIG oversight role with regards to MCA audits.
MCC needs to evaluate its resources, capability, and ability to monitor and review the quality and performance of the audits and the audit firms to track and conduct follow-up of corrective action plans with the MCAs in a timely manner.
Utilize the QFRs and the monthly reconciliations as monitoring tools over the MCA's financial reporting process and the MCC's validation of its financial records. To be effective as monitoring tools, the re-designing of the QFR form and the development and documentation of the monthly reconciliation process should ensure that relevant data and information are reported by the MCAs and reported timely.
Ensure that MCA reconciliations are provided to MCC and reviewed to investigate material variances and make corrections, if any.
Require the MCA audit firms to test the design and effectiveness of the MCA's internal control over the QFRs and the monthly reconciliation, and to test for the accuracy of the balances and reconciliation.
Develop and implement reconciliation procedures to document the complete reconciliation between the MCA's final QFR and MCC's records.