Audit of the African Development Foundation’s Financial Statements, Internal Controls, and Compliance
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Audit of the African Development Foundation’s Financial Statements, Internal Controls, and Compliance for the Fiscal Year Ended September 30, 2002 Audit Report No. 0-ADF-03-003-C January 29, 2003 Washington, D.C. This page intentionally left blank. January 29, 2003 MEMORANDUM FOR: African Development Foundation President, Mr. Nathaniel Fields FROM: IG/A/FA, Alvin A. Brown /s/ SUBJECT: Audit of the African Development Foundation’s Financial Statements, Internal Controls, and Compliance for the Fiscal Year Ended September 30, 2002 (Report No. 0-ADF-03-003-C) We contracted with the independent certified public accounting firm of Leonard G. Birnbaum and Company, LLP (LGB) to audit the financial statements of the African Development Foundation as of September 30, 2002 and for the year then ended. The contract required that the audit be done in accordance with generally accepted government auditing standards; Office of Management and Budget’s (OMB) Bulletin, Audit Requirements for Federal Financial Statements; and the General Accounting Office/President’s Council on Integrity and Efficiency Financial Audit Manual. In its audit of the African Development Foundation (ADF), the LGB auditors found: • that the financial statements were fairly presented, in all material respects, in conformity with U.S. generally accepted ...
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| Publié par | Eftou |
| Nombre de lectures | 45 |
| Langue | English |
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Audit of the African Development Foundation’s Financial Statements, Internal Controls, and Compliance for the Fiscal Year Ended September 30, 2002 Audit Report No. 0-ADF-03-003-C January 29, 2003
Washington, D.C.
This page intentionall
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January 29, 2003 MEMORANDUM FOR:African Development Foundation President, Mr. Nathaniel Fields FROM: Alvin A. Brown /s/ IG/A/FA, SUBJECT: of the African Development Foundation’s Audit Financial Statements, Internal Controls, and Compliance for the Fiscal Year Ended September 30, 2002 (Report No. 0-ADF-03-003-C) We contracted with the independent certified public accounting firm of Leonard G. Birnbaum and Company, LLP (LGB) to audit the financial statements of the African Development Foundation as of September 30, 2002 and for the year then ended. The contract required that the audit be done in accordance with generally accepted government auditing standards; Office of Management and Budget’s (OMB) Bulletin, Audit Requirements for Federal Financial Statements; and the General Accounting Office/President’s Council on Integrity and Efficiency Financial Audit Manual. In its audit of the African Development Foundation (ADF), the LGB auditors found: •that the financial statements were fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles, •a material weakness in ADF’s internal controls, and •three instances of noncompliance related to the inadequacy of its financial and accounting system. The material weakness in internal controls relates to an inadequacy in the system used by the General Services Administration to process ADF’s transactions (see p. 13). Because of this weakness, the U.S. General Ledger has not been implemented at the transaction level.
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The auditors noted instances of noncompliance with the Budget and Accounting Procedures Act of 1950; OMB Circular A-127 and;Federal Financial Management System Requirementsissued by the Joint Financial Management Improvement Program. In connection with the contract, we reviewed LGB’s report and related documentation and inquired of its representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, opinions on ADF’s financial statements or internal control or on whether ADF’s financial management systems substantially complied with the Federal Financial Management Improvement Act; or conclusions on compliance with laws and regulations. LGB is responsible for the attached auditor's report dated November 8, 2002 and the conclusions expressed in the report. However, our review disclosed no instances where LGB did not comply, in all material respects, with generally accepted government auditing standards. Because of the reported material weakness and compliance findings, we are making the following recommendations to ADF management: Recommendation No. 1: We recommend that the African Development Foundation develop a plan to implement the U.S. Standard General Ledger at the transaction level. Recommendation No. 2: We recommend that the African Development Foundation develop a plan to ensure that its accounting system is capable of providing full disclosure of its results of financial operations and adequate financial information needed in the management of its budget and operations, and of providing effective control over its revenues, expenditures, funds, property, and other assets in accordance with the Budget and Accounting Procedures Act of 1950, Office of Management and Budget Circular A-127, and the Joint Financial Management Improvement Program’sFederal Financial Management System Requirements. The report also contains a management letter comment that did not require a written response. Your written comments on the draft audit report have been incorporated into this report. The OIG appreciates the cooperation and courtesies extended to our staff and to the staff of LGB during the audit. If you have questions concerning this report, please contact Andrew Katsaros at (202) 712-4902.
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Table of Contents
Management’s Discussion and Analysis Independent Auditor’s Report Balance Sheet Statement of Net Cost Statement of Changes in Net Position Statement of Budgetary Resources Statement of Financing Notes to the Financial Statements Report to ADF Management Management Comments and Our Evaluation Appendix I - Management Comments
4 12 18 19 20 21 22 23 29 32 33
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MANAGEMENT'S DISCUSSION AND ANALYSIS The African Development Foundation’s (ADF) mission is to make significant, innovative contributions to the development and support of solutions to poverty and community-based development in Africa. ADF accomplishes this by providing funding to empower grassroots groups to become self-reliant and to resolve problems themselves. ADF is a unique organization that promotes broad-based, sustainable development in sub-Saharan Africa and the expansion of local capacity to promote and support grassroots development. ADF was established as a federal agency and a public corporation by the African Development Foundation Act in 1980 and began operations in 1984. Since that time ADF has funded more than 1500 projects. The Foundation supports: •Development of micro and small businesses that generate increased incomes and employment; •small enterprises and agricultural producer groups;Trade and investment linkages for •Building of self-supporting, sustainable, local community development agencies; •Promoting community based interventions directed toward AIDS prevention and mitigation; and •Strengthening democratic values and institutions at the local level. ADF has a thorough, three-stage grant review process that includes intense scrutiny of: (1) initial applications and applicant project sites, (2) project concept papers, and (3) final project papers containing detailed implementation plans, and full budgetary and financial analyses Most of ADF’s grants are greater than $50,000 and the maximum grant size is $250,000. To complement this funding, ADF often helps its beneficiaries leverage grants, loans, and loan guarantees from other sources. This is accomplished through strategic partnerships with national and regional governments in Africa, national and regional development banks, other international development assistance agencies, and the private sector. Unlike other development agencies, ADF works directly with African producer groups and non-governmental organizations. The Foundation does not channel any resources through governments. All ADF-funded projects are initiated by the enterprise or community group and, rather than designing projects itself, ADF works with the local partner non-government organizations (NGOs) to define the assistance it really needs. The Foundation's participatory approach assures local ownership and strong participation, and it has been shown to enhance the impact and sustainability of the investments. The African Development Foundation is currently administering over 230 projects in thirteen countries: Benin Mali Senegal Botswana Namibia Tanzania Cape Verde Niger Uganda Ghana Nigeria Zimbabwe Guinea
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ADF’s Strategic Goals and Objectives for FY 2002 Beginning in fiscal year (FY) 2001, ADF began to restructure its headquarters and field operations to provide in country representation. ADF also developed and implemented a grant financial management system customized specifically to the Foundation’s grant programs. Taking into consideration all these challenges, the Foundation has made remarkable accomplishments in achieving itsStrategic Goals and Objectives for FY 2002(Table 1). Establishment of new strategic partnerships. During FY 2002, ADF established three new strategic partnerships with the Government of Namibia, Government of Jigawa State in Nigeria, and the World Bank in Guinea. Combined with ADF’s existing partnership with the Government of Botswana, ADF leveraged over $1.104 million in FY 2002. By FY 2004, ADF hopes to establish at least 4 new co-funding arrangements with overnments, donors, or rivate sectors. Management Reforms - Decentralization of ADF Headquarters and Realignment of its Field Structure. During FY 2002, ADF established new partnership agreements with independent, legally registered, non-government organizations through an open, competitive selection process in all of its thirteen countries. In FY 2002, ADF adopted a new strategic objective of helping develop the capacity of its partner organizations to achieve long-term financial sustainability. Within each country, the new partner organizations will assist applicants in developing, implementing, and monitoring their projects. During the first two years of the new cooperative agreement (FY 2002 and 2003), the Foundation asked its new partner organizations to concentrate on ADF work. However, in FY 2004, ADF will encourage the new partner organizations to take on additional work from other funding agencies and clients, thereby reducing their dependency on ADF support. The next phase of ADF’s management restructuring is the decentralization of its field representation to improve compliance with U.S. government regulations, ADF’s policies, and project screening and monitoring. In FY 2002, ADF began hiring resident in-country contractors who will serve as ADF’s resident representatives. An administrative assistant and a driver will be contracted by ADF to support the resident representatives. Each field representative’s office will be staffed with African professionals who know the country, speak the local language, and understand enterprise development. The selection of all country resident representatives will be completed by December 31, 2002. At this time ADF is also realigning its headquarters staff to fit the new decentralized field structure. In order to ensure a smooth transition with the field operations and continued screening and monitoring projects, ADF/Washington staff continues to serve as interim country representatives until all field representatives are in place and trained. The additional costs incurred during the transitional start up phase contributed to the significant increase in ADF non-program costs during FY 2002. Although the realignment of headquarters staff will implement by January 31, 2003, continued non-program costs will be incurred to establish field representative’s offices. By the fourth quarter of FY 2003, ADF expects to reestablish its rate of non-program costs of 25.2%.
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Improved Accounting and Financial Management Systems ADF implemented a comprehensive grants database to improve management oversight and internal controls for financial and progress reporting of grantees and partner organizations. During the third quarter of FY 2002, the grants database became fully operational as a tool for financial and administrative management. The advantages of the database is significant given its ability to simultaneously track and report in both local currency and equivalent US dollar values. Currently, ADF’s grant and cooperative agreements are tracking eleven different currencies specific to the countries serviced. Therefore, the timeliness and accuracy of tracking multiple currencies is an essential component in ADF’s management of its grant funds. In addition to the implementation of a comprehensive grant database, on October 1, 2002, the United States General Ledger was implemented at the transaction level. This corrected the material weakness in the internal controls of ADF’s financial and accounting system as of September 30, 2002.
Increased Program Funding In FY 2002 over 85 new grant and cooperative agreements were funded in ADF’s thirteen countries. The actual amount of project agreements funded was $15 million, almost doubling the amount funded in the prior year. In FY 2002, specific to its development grants, ADF tripled it’s funding from $3 million, to $11 million. Through an aggressive proposal development and streamlined approval process, the Foundation has significantly reduced its carryover of available unobligated funds into FY 2003. Financial Accountability ADF undergoes annual, independent audits that address the financial statements, internal controls, and compliance with laws and regulations. ADF received an unqualified opinion on all five financial statements for FY 2001 and FY 2002 from its independent auditors and the USAID Office of the Inspector General. In addition, ADF corrected the material findings cited in the FY 2001 audit report and continues to prioritize its financial and accounting controls over the public funds entrusted to the Foundation.
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’ ADF S STRATEGIC GOALS AND OBJECTIVES for FY 2002 Table 1
Goal I: Advance broad-based, sustainable development and empowerment of the oor in Africa Objective 1: Promote micro- and small-enterprise development that will enerate income and em lo ment. Objective 2: Increase participation of African grassroots enterprises and roducer rou s in trade and investment relationshi s with the U.S. and within Africa. Objective 3: Promote innovative community-based interventions to remediate the economic and social im act of HIV/AIDS and reduce its s read. Goal II: Expand local capacity to promote and support grassroots, participatory development. Objective 1: Build self-supporting, sustainable, local community development agencies that rovide technical assistance and su ort to rassroots rou s. Objective 2: Promote community resource mobilization and reinvestment. Ob ective 3: Establish strate ic artnershi s with national and local overnments, other donor agencies, and the local private sector, to support sustainable, rassroots develo ment. Ob ective 4: Encoura e African overnments and other donors to increase utilization of participatory development “best practices.
Selected Performance Indicators In accordance with the Government Performance and Results Act, ADF prepares an Annual Performance Report. ADF’s performance results for FY’s 1999, 2000, and 2001 are presented for comparison purposes and to demonstrate ADF’s significant growth prior to FY 2002 activities, Table 2.
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Indicator not in use $17,456,526
Indicator not in use $10,528,248
47,168
36,457
ADF s Comparative Performance Results for FY s 1999, 2000 and 2001 Table 2 Performance Indicator FY 1999 Results FY 2000 Results FY 2001 Results Micro- and Small Enterprise Development Cumulative number of MSEs 5,863 19,635 47,049 assisted Cumulative number of new micro- 49 136 Indicator discontinued credit facilities established Cumulative number of loans 18,910 42,518 54,099 disbursed to MSEs Cumulative number of new loan 19 80 Indicator discontinued products supported Cumulative number of people 23,636 39,354 66,126 receiving business management or technical training Cumulative gross revenues of Indicator not in use assisted enterprises and organizations Cumulative income distributed by Indicator not in use assisted enterprises or organizations as salaries, dividends, or profits Cumulative number of workers in 15,655 MSEs receiving loans or trade and investment assistance Natural resource management Cumulative number of 51 communities adopting at least one improved NRM practice Cumulative number of people trained in improved NRM practices Trade and Investment Number of export products 2 promoted Cumulative number of new Indicator not in use production and export trade arrangements established AIDS Prevention & Mitigation Cumulative number of people Indicator not in use receiving training in AIDS prevention Participatory Development Methods Host governments encouraging Indicator not in use donors to adopt PDM or allocating more funding to PDM
18
166
5,888
2 3
962
2
Indicator discontinued
3,598
4 18
35,483
2
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Future Activities The U.S. Government appropriations for ADF in FY 2002 were $16.54 million. Although as of the preparation of this report the appropriations for FY 2003 have not been set, it is expected to be $18.689 million. Receiving the full funding expected in FY 2003 will enable the Foundation to continue its support for micro and small enterprise (MSE) development, and help African producers respond to new trade and investment opportunities in the United States and around the world. In addition, ADF will be able to expand in the following areas: •The Foundation will be able to launch major programs in Eritrea and Mozambique where ADF’s unique approach would make an important contribution to the countries’ national rural development programs and complement other USG support in these important countries. •It will also enable the Foundation to continue incorporating HIV/AIDS prevention strategies in all ADF projects and support other additional community based AIDS programs, which will be a significant grassroots component of the USG efforts to halt the spread of this deadly virus. •From the Foundation’s project management perspective, ADF will expand its grants database to include detail information to anal ze ro ect erformance and results. •will also enable the Foundation to develop anBeyond ADF's own project portfolio, this funding estimated twelve high-impact, participatory development program models that can be replicated b others. In so doin , ADF will multi l the return on its investments and efforts. ADF Quality Assurance, Internal Controls and Legal Compliance In 1994, ADF established an Internal Audit Department (IAD) with a full-time Financial and Field Auditor who reported directly to the President. The Foundation’s Board of Directors has a designated audit committee who are responsible for all audit and review functions of the Foundation. ADF’s Internal Financial and Field Auditor is primarily responsible for the financial oversight of all partner organizations. The IAD conducts an on site internal audit of each partner organization at least once every two years and reviews the results of the partner’s yearly independent audit. In addition to the Financial and Field Auditor, IAD also has a full-time Financial Control Officer whose primary responsibility is oversight of the Foundation's grantees. The Financial Control Officer also supervises the independent external audit of ADF’s grant program. Each of ADF’s partner NGOs has a Financial Officer who assists the grantees in their compliance with the Foundation’s legal and financial reporting requirements. ADF’s field representatives monitor the financial and progress reporting by grantees and partner organizations, address any discrepancies or other issues, make regular site visits to verify project performance, and report to ADF management. The grants database has a full time Grants Database and Operations Manager, who is the primary person responsible for the continued integrity and security of all administrative and financial data reported.
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