Academic journal article The Government Accountants Journal

The Challenge of Performing CFO Act Audits at USAID

Academic journal article The Government Accountants Journal

The Challenge of Performing CFO Act Audits at USAID

Article excerpt

Mention the U.S. foreign aid program at a cocktail party and you are almost certain to start a stimulating, if not argumentative, discussion. Interested observers, whether knowledgeable or not, have a viewpoint --maybe rational and maybe not!

Financial managers and auditors at the U.S. Agency for International Development (USAID) operate in an environment that is, at a minimum, interesting. Consider the landscape --operations in over 100 countries, involvement of about 400 grantees and hundreds of contractors, perhaps 2,000 projects, and a staggering number of diverse legislative and agency objectives to be achieved.(1) Now superimpose a cacophony of external cheerleaders, nay-sayers and informed/misinformed parties offering a torrent of ideas on "here's what needs to be done." Indeed, a myriad of needed changes are now evolving at USAID--"rightsizing" from presence in over 100 countries to perhaps 50, concentration on the former Soviet Union and Eastern Europe, refocusing from so many objectives to four primary "pillars,"(2) a major reorganization, an evolving new accounting system and perhaps a new personnel system on the horizon.

It is this multi-faceted and rapidly shifting environment that USAID officials and the Office of Inspector General (OIG) face as they feverishly work to implement the lofty objectives of the Chief Financial Officers (CFO) Act of 1990 and to stand ready for Congressional initiatives that expand the CFO Act requirements.(3)

THE NATURE, SIZE AND SIGNIFICANCE OF USAID ENTITIES AUDITED UNDER THE CFO ACT

At USAID, only the six "entities" shown in the table on page 45 have thus far been identified as subject to the CFO Act requirement for financial statement audits by the OIG. Each has its own distinctive characteristics and represents its own unique audit challenges. While each is important in its own right, these six entities collectively represent less than 3% of USAID's budget authority.(4) Whether or not they are a representative picture of USAID's overall operations is a matter of interpretation.(5)

The number of USAID entities to be audited for FY 1994 and in future years will increase. For instance, USAID's Property Management Fund, which is used to buy and sell real estate overseas, has a small amount of activity for the first time in FY 1994. More significantly, an initial audit of the separately enacted Israeli Loan Guaranty Program--which could eventually involve a whopping $10 billion in guaranties--is planned for FY 1994. Two or three other entities may also be established in the near future.

MAJOR CHALLENGES FOR THE USAID INSPECTOR GENERAL IN PERFORMING CFO ACT AUDITS

The statutory requirement to perform financial statement audits pursuant to the CFO Act presented the OIG staff with a considerable number of challenges. Many false fears, of course, evaporated as we "stepped up to the plate" and gained self-confidence in a new arena. Discussed below are four major challenges that we faced and are still dealing with--with varying degrees of success or progress.

WHAT IS A MEANINGFUL "ENTITY" AT USAID?

The CFO Act itself and guidance from the Office of Management and Budget (OMB) provide the general criteria for identifying the "entities" for which financial statements are to be prepared and audited. The CFO Act requires financial statement audits of revolving funds, trust funds and "to the extent practicable" offices, bureaus and activities which perform "substantial commercial functions." OMB's guidance reiterates the statutory requirement, but also states that agencies have flexibility in defining entities that "represent a meaningful unit for program management."(7) Given these general criteria, USAID managers applied judgment to decide the nature, size and characteristics of meaningful entities for users of audited financial statements.

Decisions about certain entities were clear-cut. For example, the Housing Guaranty (HG) Program and Private Sector Investment Program (PSIP) each have discrete operations and boundaries. …

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